Alberta Star Development Corp.
(An Exploration Stage Company)
Financial Statements
(Expressed in Canadian Dollars)
November 30, 2002
JAMES STAFFORD
- ------------------------------------------------------------------------------
James Stafford
Chartered Accountants
Suite 300-555 West Georgia Street
Vancouver, British Columbia
Canada V6B 1Z6
Telephone+1(604)669 0711
Facsimile+1(604)669 0754
AUDITORS' REPORT
To the Shareholders' of
Alberta Star Development Corp.
We have audited the balance sheets of Alberta Star Development Corp. (an
exploration stage company) as at November 30, 2002, and 2001, and the
statements of operations and deficit, cash flows, and changes in shareholders'
equity for the years ended November 30, 2002, 2001, and 2000. 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 audit in accordance with 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 November 30, 2002, and
2001, and the statements of operations and deficit, cash flows, and changes in
shareholders' equity for the years ended November 30, 2002, 2001, and 2000 in
accordance with generally accepted accounting principles.
"James Stafford"
Vancouver, Canada Chartered Accountants
January 14, 2003
COMMENTS FOR U.S. READERS
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph, following the opinion paragraph, when there are
substantial uncertainties about the company's ability to continue as a going
concern, as referred to in Note 1 to the financial statements. Our report to
the shareholders dated January 14, 2003 is expressed in accordance with
Canadian standards which do not permit a reference to such events and
conditions in the auditors' report when these are adequately disclosed
financial statements.
"James Stafford"
Vancouver, Canada Chartered Accountants
January 14, 2003
Alberta Star Development Corp.
(An Exploration Stage Company)
Statements of Operations and Deficit
(Expressed in Canadian Dollars)
==============================================================================
2002 2001
- ------------------------------------------------------------------------------
ASSETS
Current
Cash and cash equivalents $ 161,408 $ -
Accounts receivable 5,892 18,144
----------- ------------
167,300 18,144
Plant and equipment (Note 4) 17,109 2,221
----------- ------------
$ 184,409 $ 20,365
==============================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness $ - $ 2,872
Accounts payable and accrued liabilities 39,687 27,974
Due to related parties (Note 10) 71,688 -
----------- ------------
111,375 30,846
----------- ------------
Shareholders' equity
Capital stock (Note 8)
Authorized
Unlimited number of preferred shares
Unlimited number of voting common shares
Issued and outstanding
2002 - 9,826,169 common shares
2001 - 4,256,169 common shares 2,154,927 1,462,502
Deficit, accumulated during the exploration
stage (2,081,893) (1,472,983)
---------- ----------
73,034 (10,481)
---------- ----------
$ 184,409 $ 20,365
==============================================================================
Nature and Continuance of Operations (Note 1)
Contingency (Note 12)
Commitment (Note 17)
On behalf of the Board:
"Tim Coupland" Director "Lenic Rodriguez" Director
- --------------- -----------------
The accompanying notes are an integral part of these financial statements.
Alberta Star Development Corp.
(An Exploration Stage Company)
Statements of Cash Flows
(Expressed in Canadian Dollars)
==============================================================================================
Cumulative
amounts from For the For the For the
inception to year ended year ended year ended
November 30, November 30, November 30, November 30,
2002 2002 2001 2000
- ----------------------------------------------------------------------------------------------
EXPENSES
Amortization 4,524 3,680 618 226
Automotive 15,391 3,522 11,869 -
Consulting fees (Note 10) 231,446 169,945 55,201 -
Interest and bank charges 2,889 970 1,450 418
Management fees (Note 10) 181,110 64,100 57,010 60,000
Meals and entertainment 24,578 10,792 11,778 2,008
Mineral property (Note 5) 316,392 255,171 60,221 1,000
Mineral property acquisition costs 100,000 - 100,000 -
Office and miscellaneous 53,606 6,757 8,627 4,775
Professional fees 211,351 90,987 36,314 51,347
Regulatory fees 22,297 6,153 8,780 4,704
Rent and utilities 36,645 12,459 9,120 5,159
Secretarial (Note 10) 75,950 43,050 26,950 5,950
Transfer fees and shareholder information 95,049 18,276 13,998 5,060
Travel 14,216 4,480 4,446 2,347
---------- --------- --------- ---------
Loss before other items (1,385,444) (690,342) (406,382) (142,994)
---------- --------- --------- ---------
OTHER ITEMS
Interest income 4,424 496 2,432 207
Recovery of mineral property costs 25,9362 5,936 - -
Sale of mineral property interest 55,000 55,000 - -
Write-off of mineral properties
and related costs (220,552) - - (1,000)
---------- --------- --------- ---------
(135,192) 81,432 2,432 (793)
---------- --------- --------- ---------
Net loss for the year (1,520,636) (608,910) (403,950) (143,787)
Deficit, accumulated during the
exploration stage, beginning of year - (1,472,983) (507,776) (363,989)
Adjustment for change in accounting
policy (Note 2) (561,257) - (561,257) -
--------- --------- --------- ---------
Deficit, accumulated during the
exploration stage, end of year $(2,081,893) $(2,081,893) $(1,472,983) $ (507,776)
=============================================================================================
Basic loss per share (Note 3) $ (0.10) $ (0.12) $ (0.01)
=============================================================================================
The accompanying notes are an integral part of these financial statements.
Alberta Star Development Corp.
(An Exploration Stage Company)
Statements of Changes in Shareholders' Equity
(Expressed in Canadian Dollars)
========================================================================================================
Cumulative
amounts from For the For the For the
inception to year ended year ended year ended
November 30, November 30, November 30, November 30,
2002 2002 2001 2000
- --------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Loss for the year $(1,520,636) $ (608,910) $ (403,950) $ (143,787)
Adjustments to reconcile income to
net cash used in operation activities:
Amortization 4,524 3,680 618 226
Write-off of mineral properties - - - 1,000
----------- ----------- ----------- -----------
(1,516,112) (605,230) (403,332) (142,561)
Changes in other operating assets and liabilities:
(Increase) decrease in accounts receivable (5,892) 12,252 (5,919) (4,904)
Increase (decrease) in accounts payable 39,687 11,713 (68,404) 35,095
Increase (decrease) in due to related parties 71,688 71,688 - -
----------- ----------- ----------- -----------
(1,410,629) (509,577) (477,655) (112,370)
----------- ----------- ----------- -----------
Cash flows from investing activities
Purchase of plant and equipment (21,633) (18,568) (1,556) (1,509)
Mineral exploration costs - - - 900
----------- ----------- ----------- -----------
(21,633) (18,568) (1,556) (609)
----------- ----------- ----------- -----------
Cash flows from financing activities
Capital stock issued for cash 2,252,718 745,800 395,000 200,000
Change in accounting policy (561,257) - - -
Share issuance costs (97,791) (53,375) (2,306) (3,977)
----------- ----------- ----------- -----------
1,593,670 692,425 392,694 196,023
----------- ----------- ----------- -----------
Increase (decrease) in cash and
cash equivalents 161,408 164,280 (86,517) 83,044
Cash and cash equivalents, beginning of year - (2,872) 83,645 601
----------- ----------- ----------- -----------
Cash and cash equivalents, end of year $ 161,408 $ 161,408 $ (2,872) $ 83,645
========================================================================================================
Supplemental Disclosures with Respect to Cash Flows (Note 15)
The accompanying notes are an integral part of these financial statements.
Alberta Star Development Corp.
(An Exploration Stage Company)
Notes to Financial Statements
(Expressed in Canadian Dollars)
=======================================================================================================
Deficit
accumulated
Number during the
of shares exploration
issued Amount stage Total
- -------------------------------------------------------------------------------------------------------
Balance at September 6, 1996 - $ - $ - $ -
Shares issued for cash 7,800,000 490,000 - 490,000
Share issuance costs - (59,613) - (59,613)
---------- ----------- ---------- ----------
Balance at November 30, 1997 7,800,000 430,387 - 430,387
Shares issued for cash 230,000 24,614 - 24,614
Shares issued for mineral properties 4,000,000 317,000 - 317,000
Share issuance costs - (6,484) - (6,484)
Net loss for the year - - (72,773) (72,773)
---------- ----------- ---------- ----------
Balance at November 30, 1998 12,030,000 765,517 (72,773) 692,744
Shares issued for cash 415,000 41,500 - 41,500
Share issuance costs - (150) - (150)
Net loss for the year - - (291,216) (291,216)
---------- ----------- ---------- ----------
Balance at November 30, 1999 12,445,000 806,867 (363,989) 442,878
Shares issued for cash 2,000,000 200,000 - 200,000
Shares issued for settlement of debt 669,180 66,918 - 66,918
Share issuance costs - (3,977) - (3,977)
Net loss for the year - - (143,787) (143,787)
---------- ----------- ---------- ----------
Balance at November 30, 2000 15,114,180 1,069,808 (507,776) 562,032
Shares issued for cash 3,000,000 300,000 - 300,000
Share consolidation 5:1 (14,491,344) - - -
Shares issued for cash 633,333 95,000 - 95,000
Share issuance costs - (2,306) - (2,306)
Adjustment for change in
accounting policy (Note 2) - - (561,257) (561,257)
Net loss for the year--(403,950)(403,950)
---------- ----------- ---------- ----------
Balance at November 30, 2001 4,256,169 1,462,502 (1,472,983) (10,481)
Shares issued for cash 5,570,000 745,800 - 745,800
Share issuance costs - (53,375) - (53,375)
Net loss for the year - - (608,910) (608,910)
---------- ----------- ---------- ----------
Balance at November 30, 2002 9,826,169 $ 2,154,927 $(2,081,893) $ 73,034
=======================================================================================================
The accompanying notes are an integral part of these financial statements.
Alberta Star Development Corp.
(An Exploration Stage Company)
Notes to Financial Statements
(Expressed in Canadian Dollars)
November 30, 2002
==============================================================================
1. Nature and Continuance of Operations
Alberta Star Development Corp. (the "Company") was incorporated under
the laws of the province of Alberta on September 6, 1996 and is in
the exploration stage.
The Company is in the business of acquiring and exploring mineral
properties. The recoverability of the amounts shown for mineral
property and related deferred costs is dependent upon the existence
of economically recoverable reserves, the ability of the Company to
complete the development of the properties and upon future profitable
production.
The Company's financial statements at November 30, 2002 and for the
year then ended have been prepared on a going concern basis, which
contemplates the realization of assets and the settlement of
liabilities and commitments in the normal course of business. The
Company has a loss of $608,910 for the year ended November 30, 2002
(2001 - $403,950, 2000 - $143,787), and has working capital of
$55,925 at November 30, 2002 (working capital deficit of $12,702 at
November 30, 2001).
Management cannot provide assurance that the Company will ultimately
achieve profitable operations or become cash flow positive, or raise
additional debt and/or equity capital. However, based on its prior
demonstrated ability to raise capital, management believes that the
Company's capital resources should be adequate to continue operating
and maintain its business strategy during fiscal 2003. However, if
the Company is unable to raise additional capital in the near future,
due to the Company's liquidity problems, management expects that the
Company will need to curtail operations, liquidate assets, seek
additional capital on less favorable terms and/or pursue other
remedial measures. These financial statements do not include any
adjustments related to the recoverability and classification of
assets or the amounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.
2. Changes in Accounting Policies
i. The Canadian Institute of Chartered Accountants (the "CICA") issued
new accounting recommendations for the presentation and disclosure of
basic and diluted earnings per share. Effective January 1, 2001, the
Company adopted these new recommendations on a retroactive basis. The
most significant change under the new recommendations is the use of
the "treasury stock method " instead of the " imputed earnings
approach" in computing diluted earnings per share. The retroactive
impacts of adopting the new recommendations for the years ended
November 30, 2002, 2001 and 2000 had no impacts on earnings per share.
Alberta Star Development Corp.
(An Exploration Stage Company)
Notes to Financial Statements
(Expressed in Canadian Dollars)
November 30, 2002
==============================================================================
ii. The CICA issued Accounting Guideline No. 11, which covers the
Company's exploration activities. In the past, the Company has
capitalized certain exploration costs both on the Longtom Property
and the Harrison Lake Property that were not covered by feasibility
studies, whereas under the new guideline the Company would be
required to expense these amounts in the year incurred. Effective
January 1, 2001, the Company adopted these new recommendations on a
retroactive basis, but has not restated prior year comparative
financial statements. The impact as at January 1, 2001 of the
adoption of these new recommendations is to reduce mineral properties
by $561,257 and to increase deficit, accumulated during the
exploration stage by $561,257.
3. Significant Accounting Policies
Cash and cash equivalents
Cash and cash equivalents include highly liquid investments with
original maturities of three months or less.
Plant and equipment
Plant and equipment are recorded at cost and are amortized over their
estimated useful lives at the following annual rates:
Computer equipment 30% declining balance
Website graphics 3 years straight line
Foreign exchange
Transaction amounts denominated in foreign currencies are translated
into functional currency at exchange rates prevailing at transaction
dates.
Mineral properties and deferred exploration costs
Mineral exploration costs are expensed as incurred. When it has been
determined that a mineral property can be economically developed as a
result of establishing proven and probable reserves, costs incurred
prospectively to develop the property are capitalized as incurred and
are depreciated using the unit-of-production depreciation method over
the estimated life of the ore body based on proven and probable
reserves.
Major development costs incurred after the commencement of production,
are capitalized as incurred and are depreciated using the unit-of-
production method based on proven and probable reserves.
Alberta Star Development Corp.
(An Exploration Stage Company)
Notes to Financial Statements
(Expressed in Canadian Dollars)
November 30, 2002
==============================================================================
Ongoing development expenditures to maintain production are charged
to operations as incurred.
Mineral property and deferred exploration costs are currently charged
to operations as incurred since the Company has not met the criteria
for deferral of development costs under Canadian generally accepted
accounting principles (Note 2).
Marketable securities
Marketable securities are carried at the lower of cost and market
value.
Reclamation costs
The Company's policy for recording reclamation costs is to record a
liability for the estimated costs to reclaim mined land by recording
charges to production costs for each tonne of ore mined over the life
of the mine. The amount charged is based on management's estimation
of reclamation costs to be incurred. The accrued liability is
reduced as reclamation expenditures are made. Expenditures related
to reclamation work that is performed concurrently with mining is
charged to operations at that time.
Basic loss per share
Loss per share is calculated using the weighted average number of
common shares outstanding during the year. For the years ended
November 30, 2002, 2001 and 2000, the weighted average number of
common shares outstanding was 6,074,336, 3,562,607, and 13,102,809
respectively.
In accordance with the revised recommendations of the CICA, the
Company changed from the imputed earnings approach to the treasury
stock method, to compute the dilutive effect of the options, warrants,
and similar instruments on diluted loss per share. Under this method,
the dilutive effect on earnings per share is recognized on the use of
the proceeds that could be obtained upon exercise of options and
warrants. It assumes that the proceeds would be used to purchase
common shares at the average market price during the period. The new
standard has been applied on a retroactive basis and has no material
impact on the amounts presented.
Fully diluted earnings per share consider the dilutive impact of the
conversion of outstanding stock options and warrants as if the events
had occurred at the beginning of the year. For the years ended
November 30, 2002, 2001 and 2000, this calculation proved to be anti-
dilutive.
Alberta Star Development Corp.
(An Exploration Stage Company)
Notes to Financial Statements
(Expressed in Canadian Dollars)
November 30, 2002
==============================================================================
Income taxes
The Company follows the liability method of accounting for future
income taxes, under which future income tax assets and liabilities
are determined based on the differences between the tax basis of
assets and liabilities and those reported in the financial statements.
The future tax assets or liabilities are calculated using the tax
rates for the periods in which the differences are expected to be
settled. Future tax assets are recognized to the extent that they
are considered more likely than not to be realized.
Use of estimates
Management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during
the reported period. Actual results could differ from the estimates.
Financial instruments
Financial instruments are initially recorded at historical costs. If
subsequent circumstances indicate that a decline in fair value of a
financial instrument is other than temporary, the financial asset is
written-down to its fair value.
Values
The amounts shown for mineral properties and for deferred exploration
costs represent costs to date, and do not necessarily represent
present or future values, as they are entirely dependent upon the
economic recovery of future reserves.
4. Plant and Equipment
===============================================================================
Accumulated Net Book Value
Cost amortization 2002 2001
-------------------------------------------------------------------------------
Computer equipment $ 4,265 $ 1,498 $ 2,767 $ 2,221
Website graphics 17,210 2,868 14,342 -
-------- -------- -------- --------
$ 21,475 $ 4,366 $1 7,109 $ 2,221
===============================================================================
Alberta Star Development Corp.
(An Exploration Stage Company)
Notes to Financial Statements
(Expressed in Canadian Dollars)
November 30, 2002
==============================================================================
5. Mineral Properties
Longtom Property, Northwest Territories
The Company holds a 50% undivided interest in the Longtom Property
located about 350 kilometers northwest of Yellowknife, in the
Northwest Territories, Canada. The Longtom Property is registered
100% in the name of the Company and the Company is the operator of
the Property. The Company's 50% interest in the Longtom Property is
subject to a 2% net smelter royalty.
The Company has the right to acquire the remaining 50% interest in
the Longtom Property (the "Longtom Option") for $315,000, payable 50%
in cash and 50% in common shares of the Company. The deemed price of
the Company's shares issued on the exercise of the Longtom Option
would be the average TSX Venture Exchange closing market price of its
common shares on the five trading days immediately proceeding and the
five trading days immediately following the date that the option is
exercised. The Company is compelled to exercise the Longtom Option
within 90 days from the date it has incurred $5,000,000 in
exploration expenditures on the Longtom Property.
The Company has the right to enter into joint venture or option
agreements related to the Longtom Property with third parties prior
to the exercise of the Longtom Option.
During the year ended November 30, 2002, the Company sold a 5%
interest in three mineral claims in the Longtom Property for cash
proceeds of $55,000.
Harrison Lake Property, British Columbia
During the year ended November 30, 2001, the Company acquired three
mineral claims (the "Harrison Lake Property") located in the New
Westminster Mining Division, British Columbia, for cash proceeds of
$100,000. This amount has been expensed as incurred (Note 3).
On February 15, 2002, the Company entered into an agreement with
Candorado Operating Company Ltd. ("Candorado") to sell the Harrison
Lake Property for proceeds of 200,000 common shares of Candorado.
These common shares were received subsequent to November 30, 2002
(Note 13).
Lagarde Farmout Agreement
During the year ended November 30, 2001, the Company entered into an
agreement to participate in the Lagarde Project Drill Program (the
"Lagarde Property"). Under the agreement, the Company paid
exploration expenditures of $56,415 for drilling in return for a 5%
participating interest in the Lagarde Property. The drilling program
was completed and the Company has now abandoned its interest. These
amounts have been expensed as incurred (Note 3).
Alberta Star Development Corp.
(An Exploration Stage Company)
Notes to Financial Statements
(Expressed in Canadian Dollars)
November 30, 2002
==============================================================================
Mineral property expense consists of:
-----------------------------------------------------------------------------------------------
Cumulative
amounts from For the For the For the
inception to year ended year ended year ended
November 30, November 30, November 30, November 30,
2002 2002 2001 2000
-----------------------------------------------------------------------------------------------
Equipment rental and expense $ 43,285 $ 34,260 $ 9,025 $ -
Consulting fees 34,907 28,533 6,374 -
Geology and engineering 93,889 79,004 13,885 1,000
Field expenses 34,505 25,269 9,236 -
Travel 81,428 65,880 15,548 -
Wages 27,990 21,837 6,153 -
Drilling 388 388 - -
----------- ----------- ----------- -----------
$ 316,392 $ 255,171 $ 60,221 $ 1,000
==============================================================================================
6. Title to Mineral Properties
Title to mineral properties involves certain inherent risks due to
the difficulties of determining the validity of certain claims as
well as the potential for problems arising from the frequently
ambiguous conveyancing history characteristics of many mining
properties. The Company has investigated title to its mineral
property and, to the best of its knowledge; title to its property
is in good standing.
7. Reclamation Provision
Costs relating to ongoing site restoration are expensed when
incurred. The Company's estimate of its ultimate reclamation
ability may vary from current estimates due to possible changes in
laws, regulations and changes in costs estimated. The Company will
accrue additional liabilities for further reclamation costs as and
when evidence becomes available indicating that its reclamation
liability has changed.
8. Capital Stock
Authorized capital stock consists of an unlimited number of voting
common shares. Authorized capital stock also consists of an
unlimited number of preferred shares, to be issued in series, with
the directors being authorized to determine the designation,
rights, privileges, restrictions and conditions attached to all of
the preferred shares.
Alberta Star Development Corp.
(An Exploration Stage Company)
Notes to Financial Statements
(Expressed in Canadian Dollars)
November 30, 2002
==============================================================================
Escrowed shares
Included in capital stock are 137,978 common shares held in
escrow on a performance basis relating to the acquisition of
the option to acquire an interest in the Longtom Property
(Note 5). These escrowed shares may be released on a basis of one
common share for each $1.00 of exploration costs incurred, subject
to a maximum release of one-third in each year. These escrowed
shares expire on March 23,2003 if not released by that date.
9. Stock Options and Warrants
The following incentive stock options and share purchase warrants
were outstanding at November 30, 2002:
============================================================================
Number Exercise
of shares price Expiry date
----------------------------------------------------------------------------
Options 700,000 $ 0.15 October 3, 2004
73,282 0.14 January 5, 2006
132,334 0.14 October 6, 2006
417,000 0.15 July 3, 2007
Warrants 233,000 0.19 February 5, 2003
122,000 0.19 March 2, 2003
3,500,000 0.15 April 3, 2003
1,500,000 0.14 April 12, 2003
633,000 0.20 October 23, 2003
250,000 0.10 February 12, 2004
=============================================================================
10. Related Party Transactions
During the year ended November 30, 2002, the Company entered into
the following transactions with related parties:
i. Paid or accrued office secretarial fees of $43,050 (2001 -
$26,950, 2000 - $5,950) to an individual related to a
director of the Company.
ii. Paid or accrued consulting fees of $32,500 (2001 - $NIL,2000 -
$NIL) to a company controlled by a director of the Company.
iii.Paid or accrued management fees of $64,100 (2001 - $57,010,
2000 - $60,000) to a company controlled by a director of
the Company.
Alberta Star Development Corp.
(An Exploration Stage Company)
Notes to Financial Statements
(Expressed in Canadian Dollars)
November 30, 2002
=============================================================================
At November 30, 2002, the amount due to related parties includes
$6,600 (2001 - $NIL) payable to a director of the Company, $56,488
(2001 - $NIL) payable to company controlled by a director of the
Company, and $8,600 (2001 - $NIL) payable to an individual related
to a director of the Company.
The amounts charged to the Company for the services provided have
been determined by negotiation among the parties, and in certain
cases, are covered by signed agreements. These transactions were
in the normal course of operations and were measured at the
exchange value which represented the amount of consideration
established and agreed to by the related parties.
11. Income Taxes
Income tax expense varies from the amount that would be computed by
applying the combined federal and provincial tax rate of 45%(2001 -
45.6%, 2000 - 45.6%) to income before taxes as follows:
=================================================================================================
2002 2001 2000
- -------------------------------------------------------------------------------------------------
Loss before income taxes $ (608,910) $ (403,950) $ (143,787)
============= ============= =============
Expected income taxes (recovery) (274,010) (184,201) (65,567)
Tax loss benefit not
recognized for book purposes 274,010 184,201 65,567
-------------- ------------- -------------
Actual income taxes $ - $ - $ -
=================================================================================================
The significant components of the Company's future tax assets are as follows:
=================================================================================================
2002 2001 2000
- -------------------------------------------------------------------------------------------------
Net operating loss carryforwards $ 1,187,166 $ 529,892 $ 295,110
Cumulative exploration and
development expenses 1,225,648 1,024,577 864,356
----------- ------------ ------------
2,412,814 1,554,489 1,159,466
Less: valuation allowance (2,412,814) (1,554,489) (1,159,466)
----------- ------------ ------------
Net future tax assets $ - $ - $ -
=================================================================================================
Alberta Star Development Corp.
(An Exploration Stage Company)
Notes to Financial Statements
(Expressed in Canadian Dollars)
November 30, 2002
==============================================================================
The Company has non-capital losses of approximately $1,187,166 which
may be carried forward and applied against taxable income in future
years. These losses expire between 2004 and 2009.
The Company also has income tax pools related to mineral property
and deferred exploration expenditures approximating $1,225,648
available to reduce taxable income of future years.
The potential benefits of the above have not been recognized in the
financial statements.
12. Contingency
The Company has been named a defendant in a lawsuit filed by a former
supplier for payment of a purported invoice in the amount of $24,000.
In the opinion of management, this claim is without merit and the
Company will be successful in its defence of this claim. This
amount has been accrued in accounts payable in the financial
statements for the year ended November 30, 2002.
13. Subsequent Event
On December 19, 2002, the Company received the 200,000 common shares
of Candorado valued at $0.09 per share (Note 5).
14. United States Generally Accepted Accounting Principles
These financial statements have been prepared in accordance with
generally accepted accounting principles in Canada ("Canadian GAAP").
Except as set out below, these financial statements also comply, in
all material aspects, with accounting principles generally accepted
in the United States of America ("United States GAAP")
i. Stock based compensation
For United States reporting purposes, the Company has adopted
Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock Based Compensation." This statement requires
the Company to establish a fair market value based method of
accounting for stock based compensation plans. At its inception, the
Company adopted SFAS No. 123 in accounting for its stock option plan.
Canadian GAAP does not require the reporting of any stock based
compensation expense in the Company's financial statements.
Alberta Star Development Corp.
(An Exploration Stage Company)
Notes to Financial Statements
(Expressed in Canadian Dollars)
November 30, 2002
==============================================================================
The Company uses Black Scholes Option Pricing Model to determine
the fair value of employee stock options at the issuance date. In
determining the fair value of these employee stock options, the
following assumptions were used:
- ---------------------------------------------------------------------------------------------------
2002 2001 2000
- ---------------------------------------------------------------------------------------------------
Risk free interest rate 2.97% 6.61% 6.61%
Expected life 3 years 5 years 3 years
Expected volatility 71% 126% 126%
Expected dividends - - -
- ---------------------------------------------------------------------------------------------------
The application of SFAS No. 123 resulted in the reporting of
compensation expenses in the amount of $97,235, $116,482, and
$18,150 for the years ended November 30, 2002, 2001, and 2000
respectively.
The following is a summary of the status of stock options
outstanding at November 30, 2002:
- ---------------------------------------------------------------------------------------------------
Outstanding options Exercisable options
- ---------------------------------------------------------------------------------------------------
Remaining
Exercise Number contractual Exercise Number Exercise
price of shares life (years) price of shares price
- ---------------------------------------------------------------------------------------------------
$ 0.14 73,282 3.25 $ 0.14 73,282 $ 0.14
0.14 132,334 3.75 0.14 132,334 0.14
0.15 417,000 4.50 0.15 417,000 0.15
0.15 700,000 1.75 0.15 700,000 0.15
- ---------------------------------------------------------------------------------------------------
Alberta Star Development Corp.
(An Exploration Stage Company)
Notes to Financial Statements
(Expressed in Canadian Dollars)
November 30, 2002
==============================================================================
The following is a summary of the stock based compensation plan
during the years ended November 30, 2002, 2001, and 2000:
======================================================================================================================
Weighted
average
Number exercise
of shares price
- ----------------------------------------------------------------------------------------------------------------------
Outstanding and exercisable at December 1, 1999 705,000 $ 0.10
Granted 1,125,000 0.10
Exercised - -
Forfeited (630,000) 0.10
--------
Outstanding and exercisable at November 30, 2000 1,200,000 $ 0.10
======== ================
Weighted average fair value of options granted during the year $ 0.033
================
Outstanding and exercisable at December 1, 2000 1,200,000 $ 0.10
Granted 1,566,418 0.14
Exercised (550,000) 0.10
Forfeited (650,000) 0.10
Share consolidation 5:1 (1,253,136) -
Granted 132,334 0.14
Forfeited (20,000) 0.14
---------
Outstanding and exercisable at November 30, 2001 425,616 $ 0.14
========= ===============
Weighted average fair value of options granted during the year $ 0.101
===============
Outstanding and exercisable at December 1, 2001 425,616 $ 0.14
Granted 1,117,000 0.15
Exercised (220,000) 0.14
Forfeited - -
---------- ---------------
Outstanding and exercisable at November 30, 2002 1,322,616 $ 0.15
========== ===============
Weighted average fair value of options granted during the year $ 0.15
======================================================================================================================
Alberta Star Development Corp.
(An Exploration Stage Company)
Notes to Financial Statements
(Expressed in Canadian Dollars)
November 30, 2002
==============================================================================
ii. Earnings (loss) per share
Under both Canadian and United States GAAP, basic earnings (loss) per
share is computed by dividing the earnings (loss) to common
shareholders by the weighted average number of shares outstanding
during the year. For Canadian reporting purposes, fully diluted
earnings per share is calculated under the assumption that any
convertible notes are converted at the date issued and stock options
and warrants exercised at the date of grant.
For United States reporting purposes, in February 1997, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 128, "Earnings
per share." Under SFAS No. 128, diluted earnings per share, takes
into consideration the weighted average number of shares outstanding
during the year and potentially dilutive common shares. For the
years ended November 30, 2002, 2001, and 2000 this calculation proved
to be anti-dilutive.
Under United States GAAP, the weighted average number of common
shares outstanding excludes any shares that remain in escrow, but may
be earned out based on the Company incurring a certain amount of
exploration and development expenditures.
The weighted average number of common shares outstanding for
calculating basic earnings (loss) per share under United States GAAP
for the years ended November 30, 2002, 2001, and 2000 were 5,936,358,
3,396,738, and 11,750,416, respectively. The calculation of diluted
earnings per share for the years ended November 30, 2002, 2001, and
2000 proved to be anti-dilutive.
A reconciliation of the differences between the weighted average
number of shares used under Canadian and United States GAAP are as
follows:
===================================================================================================
2002 2001 2000
- ---------------------------------------------------------------------------------------------------
Weighted average number of shares under
Canadian generally accepted
accounting principles 6,074,336 3,562,607 13,102,809
Less:
Capital stock held in escrow
that may be earned out based
on exploration expenditures (137,978) (165,869) (1,352,393)
Weighted average number of shares
under United States generally
accepted accounting principles 5,936,358 3,396,738 11,750,416
===================================================================================================
Alberta Star Development Corp.
(An Exploration Stage Company)
Notes to Financial Statements
(Expressed in Canadian Dollars)
November 30, 2002
==============================================================================
Basic loss per share is computed as follows:
==============================================================================
2002 2001 2000
- ------------------------------------------------------------------------------
Numerator:
Numerator for net loss per share $ (746,145) $ (520,432) $ (160,037)
Denominator:
Weighted average shares outstanding 5,936,358 3,396,738 11,750,416
- ------------------------------------------------------------------------------
Net loss per share - basis $ (0.126) $ (0.153) $ (0.014)
=============================================================================
iii. Comprehensive income
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for the reporting and
display of comprehensive income and its components (revenues,
expenses, gains, and losses). The purpose of reporting comprehensive
income is to present a measure of all changes in shareholders' equity
that result from recognized transactions and other economic events of
the year, other than transactions with owners in their capacity as
owners.
iv. Mineral property and deferred exploration costs
Under United States GAAP, exploration and prospecting costs are
charged to expense as incurred, as are development costs for projects
not yet determined by management to be commercially feasible.
Expenditures for mine development are capitalized when the property
is determined to have economically recoverable proven reserves but is
not yet producing at a commercial level. Prior to commencing
commercial production, revenues relating to development ore, net of
mining costs associated with its production, is offset against mine
development costs. Mine development costs incurred to access
reserves on producing mines are also capitalized. Capitalization of
all exploration, development, and acquisition costs commences once
the Company identifies proven and probable reserves that relate to
specific properties.
The mining property is reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the
assets may not be recoverable. If estimated future cash flows
expected to result from the use of the mining project and its
eventual disposition are less than the carrying amount of the mining
property, an impairment is recognized based upon the estimated fair
value of the mining property. Fair value generally is based on the
present value of estimated future net cash flows for the mining
property, calculated using estimates of proven and probable mining
reserves, future prices, operating costs, capital requirements and
reclamation costs.
Alberta Star Development Corp.
(An Exploration Stage Company)
Notes to Financial Statements
(Expressed in Canadian Dollars)
November 30, 2002
==============================================================================
The Company has no determinable proven or probable mineral property
reserves at this time.
v. Accounting for impairment of long-lived assets and for long-lived
assets to be disposed of
For United States reporting purposes, the Company has adopted SFAS No
121, "Accounting for the Impairment of Long-Lived Assets and for Long
-Lived Assets to be Disposed of." In the event that facts and
circumstances indicate that the carrying amount of an asset may not
be recoverable and an estimate of future and undiscounted cash flows
is less than the carrying amount of the asset, an impairment loss
will be recognized.
vi. Marketable securities
In May 1993, FASB issued SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," which became effective
for years beginning afterDecember 31, 1993. The statement requires
that certain investments be classified into available-for-sale or
trading securities stated at fair market values. Any unrealised
holding gains or losses are to be reported as a separate component of
shareholders' equity until realized for available-for-sale securities
and included in earnings for trading securities. Any marketable
securities held by the Company are classified as trading securities.
vii. Accounting for derivative instruments and hedging activities
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" which establishes accounting and
reporting standards for derivative instruments and for hedging
activities. SFAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. In June 1999, the FASB
issued SFAS No. 137 to defer the effective date of SFAS No. 133 to
fiscal quarters of fiscal years beginning after June 15, 1999. In
June 2000, the FASB issued SFAS No. 138, which is a significant
amendment to SFAS No. 133. The Company does not anticipate that the
adoption of the statement will have a significant impact on its
financial statements.
viii. Concentration of credit risk
The Company is exposed to credit losses in the event of non-
performance by the counter-parties to the financial instruments but
does not expect any counter-parties to fail to meet their obligations.
The Company generally does not obtain collateral or other security to
support financial instruments subject to credit risk but monitors the
credit standing of counter-parties.
Alberta Star Development Corp.
(An Exploration Stage Company)
Notes to Financial Statements
(Expressed in Canadian Dollars)
November 30, 2002
==============================================================================
ix. Income taxes
Income taxes are calculated in accordance with the provision set
forth in SFAS No. 109, "Accounting for Income Taxes." Under SFAS No.
109 deferred income taxes are determined using an asset and
liabilities approach. This method gives consideration to the future
tax consequences associated with differences between the financial
accounting and tax basis of assets and liabilities and gives
immediate effect to changes in income tax laws.
Temporary differences giving rise to the deferred tax asset consist
primarily of the excess of amortization for accounting purposes over
the amount for tax purposes.
The Company has fully reserved the tax benefits of these amounts
because the likelihood of realization of the tax benefits cannot be
determined.
x. Canadian flow through shares
Flow through shares are typically issued by small Canadian
Exploration Stage Companies. The flow through shares permit the
investor to claim deductions for tax purposes related to expenditures
incurred by the issuer. The issuer explicitly renounces the right to
claim these deductions. The investor's tax basis is reduced by the
amount of deductions taken.
Under the Canadian GAAP, when the flow through shares are issued they
are recorded at their face value. When the entity acquires assets the
carrying value may exceed the tax basis as a result of the enterprise
renouncing the deductions to the investors. The tax effect of the
temporary difference is recorded as a cost of issuing the shares.
This standard is consistent with the accounting previously adopted
for United States GAAP purposes by issuers o f flow through shares.
However, current practice under SFAS No. 109 directs that when flow
through shares are issued the proceeds should be allocated between
the offering of shares and the sale of tax benefits. The allocation
is made based on the difference between the quoted price of the
existing shares and the amount the investor pays for the flow through
shares. A liability is recognized for this difference. The liability
is reversed when tax benefits are renounced and a deferred tax
liability is recognized at that time. Income tax expense is the
difference between the amount of the deferred tax liability and the
liability recognized on issuance.
On May 28, 2001, the Company issued 350,000 common shares on a flow
through basis for $0.10 per share on a total proceeds of $35,000. All
of this amount was renounced to the respective investors during the
year ended November 30, 2002.
Alberta Star Development Corp.
(An Exploration Stage Company)
Notes to Financial Statements
(Expressed in Canadian Dollars)
November 30, 2002
==============================================================================
On October 30, 2001, the Company issued 566,666 common shares on a
flow through basis for $0.15 per share on a total proceeds of $85,000.
All of this amount was renounced to the respective investors during
the year ended November 30, 2002.
The impact of the SFAS No. 109 on the attached financial statements at
November 30, 2002 is to increase deferred tax liability by $54,000
and to reduce equity by $54,000.
The impact of the SFAS No. 109 on the attached financial statements
at November 30, 2001 is to increase current liabilities by $14,000
and to reduce equity by $14,000.
The impact of the above differences between Canadian and United
States GAAP on the balance sheet items as reported, is as follows:
====================================================================================================================
2002 2001
- --------------------------------------------------------------------------------------------------------------------
Balance as per Balance as per
United States United States
Balance as reporting Balance as reporting
Reported Adjustments requirements reported Adjustments requirements
- --------------------------------------------------------------------------------------------------------------------
Current assets $ 167,300 $ - $ 167,300 $ 18,144 $ - $ 18,144
Property and
equipment 17,109 - 17,109 2,221 - 2,221
Allowance for
write-down of
mineral property - - - - - -
---------- -------- ---------- --------- -------- ----------
$ 184,409 $ - $ 184,409 $ 20,365 $ - $ 20,365
==================================================================================================
Current
liabilities $ 111,375 $ - $ 111,375 $ 30,846 $ 14,000 $ 44,846
Long-term
liabilities - 54,000 54,000 - - -
Shareholders'
equity 73,034 (54,000) 19,034 (10,481) (14,000) (24,481)
--------- -------- -------- ---------- --------- ----------
$ 184,409 $ - $ 184,409 $ 20,365 $ - $ 20,365
====================================================================================================================
Alberta Star Development Corp.
(An Exploration Stage Company)
Notes to Financial Statements
(Expressed in Canadian Dollars)
November 30, 2002
==============================================================================
The impact of the above differences between Canadian and United States
GAAP on the loss for the year are as follows:
===================================================================================================================
Cumulative amounts
from inception to
November30, 2002 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------
Loss for the year,
as reported $ (1,520,636) $ (608,910) $ (403,950) (143,787)
Less:
Compensation expense on
granting of stock options (240,417) (97,235) (116,482) (18,150)
Deferred income tax
expense related to flow
through shares (40,000) (40,000) - -
Amounts written-down for
mineral property
acquisitions (561,257) - - 1,900
---------------- -------------- ------------- -------------
Loss for the year in
accordance with United
States generally
accepted accounting
principles $ (2,362,310) $ (746,145) $ (520,432) $ (160,037)
=====================================================================================================================
Basic loss per share
in accordance with
United States generally
accepted accounting
principles $ (0.126) $ (0.153) $ (0.014)
=====================================================================================================================
Alberta Star Development Corp.
(An Exploration Stage Company)
Notes to Financial Statements
(Expressed in Canadian Dollars)
November 30, 2002
==============================================================================
The impact of the above differences between Canadian and United
States GAAP on t he statements of cash flows are as follows:
====================================================================================================================
Operations Investing Financing
- --------------------------------------------------------------------------------------------------------------------
For the year ended November 30, 2002
Cash flows per Canadian generally
accepted accounting principles $ (509,577) $ (18,568) $ 692,425
Effect of mineral property expenditures - - -
------------- ------------ -----------
Cash flows per United States generally
accepted accounting principles $ (509,577) $ (18,568) $ 692,425
============= ============ ============
For the year ended November 30, 2001
Cash flows per Canadian generally
accepted accounting principle $ (477,655) $ (1,556) $ 392,694
Effect of mineral property expenditures - - -
------------- ------------ -----------
Cash flows per United States generally
accepted accounting principles $ (477,655) $ (1,556) $ 392,694
============= ============ ===========
For the year ended November 30, 2000
Cash flows per Canadian generally
accepted accounting principles $ (112,370) $ (609) $ 196,023
Effect of mineral property expenditures 900 (900) -
-------------- ------------ -----------
Cash flows per United States generally
accepted accounting principles $ (111,470) $ (1,509) $ 196,023
====================================================================================================================
15. Supplemental Disclosures with Respect to Cash Flows
- --------------------------------------------------------------------------------------------------------------------
Cumulative amounts
from inception to
November 30, 2002 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------
Cash paid during
the year for interest $ NIL $ NIL $ NIL $ NIL
====================================================================================================================
Cash paid during the
year for income taxes $ NIL $ NIL $ NIL $ NIL
====================================================================================================================
16. Segmented Information
The Company operates solely in Canada in one reporting segment,
mineral production and related activities.
Alberta Star Development Corp.
(An Exploration Stage Company)
Notes to Financial Statements
(Expressed in Canadian Dollars)
November 30, 2002
==============================================================================
17. Commitment
The Company has agreed to i ssue 100,000 common shares of the
Company to an agent as payment for services related to an
offering of the Company's common shares. The Company has also
agreed to pay commission to the agent equal to 10% of the gross
proceeds raised through the offering.
18. Comparative Figures
Certain comparative figures have been adjusted to conform to
the current year's presentation.