Financial Statements of
HOUSTON LAKE MINING INC.
Three months ending June 30, 2011 and 2010 (Unaudited and Prepared by Management)
(Restated - see Note 1)
NOTICE OF NO AUDITOR REVIEW OF INTERIM FINANCIAL STATEMENTS Under National Instrument 51-102, Part 4, subsection 4.3(3) (a), if an auditor has not performed a review of the interim financial statements, the financial statements must be accompanied by a notice indicating that the statements have not been reviewed by an auditor. The accompanying unaudited interim financial statements of the Company have been prepared by and are the responsibility of the Company’s management. The Company’s independent auditor has not performed a review of these financial statements in accordance with standards established by the Canadian Institute of Chartered Accountants for a review of interim financial statements by an entity’s auditor.
Houston Lake Mining Inc. Statement of Financial Position Unaudited (Restated – see Note 1) June 30, March 31, April 1, 2011 2011 2010 (Note 9) (Note 9)
Assets
Current
| Cash and cash equivalents | $ 33,818 $ 6,676 | $ 21,610 |
| Cash restricted for flow-through expenditures | 214,865 567,590 | 824,480 |
| GST/HST receivable | 50,862 | 27,613 |
18,294
| Prepaid expenses 21,336 | 23,381 | 30,714 |
| 288,313 | 648,509 | 904,417 |
| Exploration and evaluation assets(Note 4) 9,723,719 | 9,529,320 | 8,785,043 |
27,273 30,831 Property, plant and equipment (Note 5) 28,790 $10,205,102 $ 9,720,291
$ 10,040,822
Liabilities and Shareholders' Equity
Current
Accounts payable and accrued liabilities (Note 6) $ 384,306 $ 164,352
$ 386,180
| Due to related party (Note 6) 250,000 | 250,000 | 125,000 |
| 636,180 | 634,306 | 289,352 |
| Deferred tax liability 673,413 | 673,413 | 499,285 |
Shareholders' equity
Share capital (Notes 7 and 9) 12,250,543 12,250,543 11,543,495 Contributed surplus (Note 7)
2,840,954 2,645,074 2,122,942
| Deficit (Note 9) (6,360,268) | (5,998,234) | (4,734,783) |
| 8,731,229 | 8,897,383 | 8,931,654 |
| $ 10,040,822 | $ 10,205,102 | $ 9,720,291 |
Statement of Operations and Comprehensive Loss Unaudited
2011
For the three months ended June 30 2010
Revenue $ -
$ -
Expenses
| Stock option compensation, directors | 195,880 | - |
| Consulting | 54,534 | 7,025 |
| General and administrative | 39,383 | 52,226 |
| Wages and benefits | 37,794 | 11,649 |
| Vehicle and travel | 17,562 | 19,868 |
| Insurance | 5,851 | 6,545 |
| Telephone | 3,816 | 4,777 |
| Office and equipment rental | 3,750 | 3,750 |
| Amortization | 2,072 | 2,296 |
| Professional fees | 862 | 5,000 |
| Bank charges and interest | 562 | 214 |
Currency exchange and rounding 640 362,066 113,990 Less: Other income (32)
(83) 362,034 113,907
Net loss before income tax (362,034)
(113,907)
Income tax expense (recovery)
Deferred (Note 9) - 250,000 (362,034) (363,907)
Deficit, beginning of period (Note 9) (5,998,234)
(4,734,783) Deficit, end of period $ (6,360,268) $ (5,098,690)
Net loss per share (basic) $ (0.007)
$ (0.009)
Common shares outstanding 49,532,637 42,497,638
Statement of Changes in Shareholders’ Equity Unaudited (Restated – see Note 1)
For the three months ended June 30 2011
2010 (Note 9)
Share Capital
Balance at March 31 $ 12,250,543 $ 11,543,495
Transactions during the quarter - none - - Balance at June 30 12,250,543 11,543,495
Contributed Surplus
Balance at March 31 $ 2,645,074 $ 2,122,942
Transactions during the quarter Share based compensation on vested options 195,880 - Balance at June 30 2,840,954 2,122,942
Statement of Cash Flows Unaudited
For the three months ended June 30 2011 2010
Cash provided by (used in)
Operating activities $ (362,034)
Net income (loss) for the period $ (363,907) Items not involving cash
| Amortization of property, plant and equipment | 2,072 | 2,296 |
| Deferred income tax expense | - | 250,000 |
| Stock option compensation, directors | 195,880 | - |
(164,082) (111,611) Changes in non-cash working capital balances GST/HST receivable 32,568 20,146 Prepaid expenses 6,153
2,045
Accounts payable and accrued liabilities 1,874 49,146 (127,595) (36,166)
Investing activities (194,399)
Addition to exploration and evaluation assets (208,961) Cash restricted for flow-through expenditures 352,725 226,380 Purchase of property, plant and equipment (3,589) (893) 154,737 16,526
Increase (decrease) in cash during the period 27,142
(19,640) Cash and cash equivalents, beginning of period 6,676 21,610
Cash and cash equivalents, end of period $ 33,818 $ 1,970
1. Restatement of Financial Statements
The company filed interim financial statements with the securities regulator on August 29, 2011 (the “original statements”).
These interim financial statements replace those original statements.
The following are the changes made to the original statements:
- these financial statements disclose on the cover page that the statements were not reviewed by an auditor as required by National Instrument 51-102;
- these financial statements include an interim statement of changes in shareholders’ equity for the three month periods ended June 30, 2011 and June 30, 2010;
- the original financial statements included in Note 8 a reconciliation of equity as at June 30, 2011. These revised statements include the reconciliation of equity as at June 30, 2010; and
- Note 9 which outlines adjustments to financial statements resulting from the first-time adoption of IFRS also includes a reconciliation of comprehensive income from Canadian GAAP to IFRS for the year ending March 31, 2011.
2. Nature of Operations and Going Concern
Houston Lake Mining Inc. (the "Company") was incorporated as 646215 Alberta Inc. by Certificate of Incorporation issued pursuant to the Business Corporations Act (Alberta) on March 13, 1995. The name of the Company was changed to its present name, Houston Lake Mining Inc., by Certificate of Amendment dated April 21, 1995.
These unaudited interim financial statements, including comparatives, have been prepared using International Financial Reporting Standards (“IFRS”) applicable to a going concern, which assumes continuity of operations and realization of assets and settlement of liabilities in the normal course of business for the foreseeable future, which is at least, but not limited to, one year from June 30, 2011. The Company is subject to risks and challenges similar to companies in a comparable stage of exploration. As a result of these risks, there is significant doubt as to the appropriateness of the going concern assumption. There is no assurance that the Company’s funding initiatives will continue to be successful and these financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and statement of financial position classifications that would be necessary if the going concern assumption was inappropriate. These adjustments could be material. The Company will have to raise additional funds to advance its exploration and development efforts and, while it has been successful in doing so in the past, there can be no assurance that it will be able to do so in the future.
Notes to Financial Statements
3. Significant Accounting Policies
Basis of Presentation
These are the Company’s first interim financial statements prepared in accordance with IFRS applicable to the preparation of interim financial statements, including International Accounting Standards 34: Interim Financial Reporting (“IAS 34”) and IFRS 1: First-time Adoption of International Financial Reporting Standards (“IFRS 1”), as adopted by the International Accounting Standards Board (“IASB”)
The Company’s IFRS accounting policies are presented in this note below. They have been applied in preparing the interim financial statements for the period ended June 30, 2011, the comparative information and the opening statement of financial position as at April 1, 2010 transition date (“Transition Date”).
The Company applied IFRS 1 in preparing these first IFRS interim financial statements. Reconciliations, descriptions and explanations of how the transition to IFRS has affected the reported financial position, financial performance and cash flows of the Company are outlined in Note 9.
The accounting policies applied in these interim financial statements are based on IFRSs issued and outstanding as of August 29, 2011, the date the Board of Directors approved these interim financial statements. Any subsequent changes to IFRS that are given effect in the Company’s annual financial statements for the year ending March 31, 2012 could result in the restatement of these interim financial statements, including the transition adjustments recognized on the change-over to IFRS.
The interim financial statements should be read in conjunction with the Company’s Canadian generally accepted accounting principles (“Canadian GAAP”) annual financial statements for the year ended March 31, 2011. Note 9 discloses the IFRS adjustment made to these previously published Canadian GAAP financial statements for the year ended March 31, 2011.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated amortization. Cost is net of related investment tax credits and government grants. Amortization based on the estimated useful life of the asset is calculated as follows:
Computer equipment - 55/45/30% diminishing balance basis Computer software - 33 % diminishing balance basis Furniture and fixtures - 20 % diminishing balance basis Vehicles - 30 % diminishing balance basis Field equipment - 30% diminishing balance basis
Property, plant and equipment that is acquired during the year is amortized at one-half of the stated rate.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, bank balances and investments in money market instruments with maturities of three months or less.
Exploration and Evaluation Assets
The Company follows the practice of capitalizing all costs related to acquisition, exploration and development of mineral properties until such time as mineral properties are put into commercial production, sold or abandoned. If commercial production commences, these capitalized costs will be amortized prospectively on a unit-of-production basis based on estimated reserves. If the mineral properties are abandoned, the related capitalized costs are expensed.
The carrying value is reduced by the option proceeds received until such time as the property cost and deferred expenditures are reduced to nominal amounts.
The amounts shown for exploration and evaluation assets represent costs incurred to date less write-downs, and are not intended to reflect present or future values.
General
Administrative, prospecting and general expenses are expensed in the year in which they are incurred.
Income Taxes
The Company follows the asset/liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are recognized for timing differences between the tax and accounting basis of assets and liabilities, and for the recognition of accumulated capital and noncapital losses, which in the opinion of management, are more likely than not to be realized before expiry.
Deferred tax assets and liabilities are measured at the tax rates that are expected to be in effect in the period when the asset is expected to be realized or the liability is expected to be settled, based on tax rates that have been enacted or substantively enacted at the end of the reporting period.
The effect on deferred income tax assets and liabilities resulting from a change in enacted tax rates is included in income in the year in which the change is enacted or substantively enacted. Deferred income taxes related to flow-through share tax renunciation is recognized in the year in which the company has finished incurring all eligible expenditures under the flow-through share agreement.
Flow-Through Shares
The Company will, from time to time, issue flow-through shares to finance a portion of its exploration programs. Pursuant to the terms of flow-through share agreements, the Company agrees to incur qualifying expenditures and renounce the tax deductions associated with these qualifying expenditures to the flow-through subscribers at an agreed upon time.
Flow-through shares are reported at issue price. If the flow-through shares are issued at a premium to the market price of non-flow through or hard dollar shares at the date of announcement, such premium or excess proceeds is reported as a liability on the Statement of Financial Position. The subsequent renunciation of such qualifying expenditures incurred by the Company in favor of the flow-through subscribers is reported as a reduction in the liability on the Statement of Financial Position and as other income or a reduction of the deferred tax expenses on the Statement of Operations and Comprehensive Loss.
Critical Accounting Estimates and Judgments
The preparation of interim financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, and contingent liabilities at the date of the interim financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are continuously evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. However, actual outcomes can differ from these estimates.
Significant areas requiring the use of management estimates include, but are not limited to, the determination of carrying value of exploration and evaluation assets, the valuation of share-based compensation transactions, the valuation of purchase warrants issued on financings, deferred income tax assets and liabilities, and accrued liabilities.
Revenue Recognition
Revenue from the sale of mineral products are recorded on a gross basis when title passes to an external party. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collection of the related receivable is reasonably assured. Title and risk of loss generally pass to the customer at the time of delivery of the product.
3. Significant Accounting Policies (continued)
Financial Instruments
The carrying amounts for cash and cash equivalents, cash restricted for flow-through expenditures, GST/HST receivable, accounts payable and accrued liabilities, and due to related party on the balance sheet approximate fair value due to their short-term maturity or capacity for prompt liquidation.
Fair value estimates are made at the balance sheet date, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties in significant matters of judgment and therefore, cannot be determined with precision. Changes in assumptions could significantly affect these estimates.
Financial Assets
Held for Trading
Financial assets that are held with the intention of generating profits in the near term and derivative contracts that are financial assets, except for a derivative that is a designated and effective hedging instrument, are classified as held for trading. In addition, any other financial assets can be designated by the Company upon initial recognition as held for trading. These instruments are subsequently remeasured at fair value with the change in the fair value recognized in net income or expense during the period.
Held to Maturity
Financial assets that have a fixed maturity date and which the Company has a positive intention and the ability to hold to maturity are classified as held to maturity, and are subsequently re-measured at amortized cost using the effective interest rate method.
Loans and Receivables
Loans and receivables are non-derivative financial assets resulting from the delivery of cash or other assets in return for a promise to repay on a specified date, or on demand usually with interest. Loans and receivables are subsequently re-measured at amortized cost using the effective interest rate method.
Available for Sale
Available for sale assets are non-derivative financial assets that are either designated in this category or not classified in any of the other categories. Financial assets classified as available for sale are subsequently re-measured if they have quoted market value in an active market. Otherwise, these investments are carried at cost and are written down when impairment is considered that is other than temporary.
Notes to Financial Statements For Three Months Ended June 30, 2011 and 2010 (Unaudited)
3. Significant Accounting Policies (continued)
Financial Liabilities
Held for Trading
Financial liabilities that are held with the intention of generating profits in the near term and derivative contracts that are financial liabilities, except for a derivative that is a designated and effective hedging instrument, are classified as held for trading. In addition, any other financial liabilities can be designated by the Company upon initial recognition as held for trading. These instruments are subsequently re-measured at fair value with the change in the fair value recognized in net income during the period.
Other Financial Liabilities
Non-derivative financial liabilities that have not been designated as held for trading are classified as other liabilities, which are subsequently re-measured at amortized cost using the effective interest rate method.
The company has made the following classifications
- Cash and cash equivalents is classified as a financial asset “held for trading” and is measured at fair value. Gains and losses resulting from period revaluation are recorded in net loss;
- Cash restricted for flow-through expenditures is classified as a financial asset "held for trading" and is measured at fair value. Gains and losses resulting from period revaluation are recorded in net loss;
- GST/HST receivable is classified as “loans and receivables” and is recorded at amortized cost, which upon their initial measurement is equal to their fair value. Subsequent measurements are recorded at amortized cost using the effective interest method; and
- Accounts payable, accrued liabilities and due to related party are classified as “other financial liabilities” and are initially measured at their fair value. Subsequent measurements are recorded at amortized cost using the effective interest rate method.
Transaction costs are expensed as incurred for all financial instruments.
Loss Per Share
Basic loss per share is calculated by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted loss per share assumes the conversion, exercise or contingent issuance of securities only when such conversion, exercise or issuance would have a dilutive effect on earnings per share.
Notes to Financial Statements
3. Significant Accounting Policies (continued)
Share-based compensation transactions
Stock Options
The fair value of stock options granted to directors, officers, employees and consultants is measured at grant date using the Black-Scholes valuation model using assumptions for risk-free interest rates, dividend yields, volatility factors of the expected market price of the Company’s common shares, expected forfeitures and expected life of the options. The fair value of this sharebased payment is recognized as a charge to the Statements of Operations and Comprehensive Loss with a corresponding credit to contributed surplus on the Statement of Financial Position.
The fair value of stock options, subject to a vesting schedule, is recognized using the accelerated method. The fair value of each vested tranche is measured using Black Scholes using assumptions at the time of vesting.
Management is required to estimate forfeitures, and revise it’s estimates of the number of stock options expected to vest each period. The impact of any revisions to management’s estimate on forfeitures, if any, is recognized during the period.
Comprehensive Income
Comprehensive income is the change in equity of the Company during a reporting period from transactions and other events and circumstances from non-owner sources. It includes all changes to equity during a period except those resulting from investments by owners and distributions to owners. Comprehensive income is comprised of net income for the period and other comprehensive income, and this standard requires certain gains and losses that would otherwise be recorded as part of net earnings to be presented in “other comprehensive income” until it is considered appropriate to recognize into net earnings.
The Company had no comprehensive income or loss transactions, other than its net loss. The Company’s Loss from Operations and its Comprehensive Loss are equal.
Asset retirement obligations
Asset retirement obligations are legal and/or constructive obligations. These obligations include, but are not limited to, the retirement of exploration and evaluation assets such as restoration, reclamation and re‐vegetation of affected areas.
The Company records the estimated fair value of a liability, and corresponding increase in the related property, for an asset retirement obligation in the year in which it is incurred and when a reasonable estimate of fair value can be made. The fair value of a liability for an asset retirement obligation is the amount at which that liability could be settled in a current transaction between willing parties, that is, other than in a forced or liquidation transaction and, in the absence of observable market transactions, is determined as the present value of expected cash flows. The Company subsequently allocates the cost of the asset retirement to expense using a systematic and rational method over its useful life, and records the accretion of the liability as a charge to the Consolidated Statements of Operations and Comprehensive Loss.