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Consolidated Financial Statements
of CANARC RESOURCE CORP. (expressed in thousands of Six Months Ended June 2002 and 2001 G. Ross McDonald* Chartered Accountant
*Denotes incorporated
professional Suite 1402, Tel: (604) 685-8646 Fax: (604)
684-6334 NOTICE TO READER I have compiled the consolidated
balance sheet of Canarc Resources Corp. as at �G.
Ross McDonald� (signed) G.
Ross McDonald
1.
Going concern
The Company is in the mineral exploration business and has
not yet determined whether its resource properties contain reserves
that are economically recoverable. The recoverability of amounts
capitalized for resource properties is dependent upon the existence
of economically recoverable reserves in its resource properties, the
ability of the Company to arrange appropriate financing to complete
the development of its properties, confirmation of the Company�s
interest in the underlying properties (Note 4(f)), the receipt
of necessary permitting and upon future profitable production or
proceeds from the disposition thereof.
The Company has incurred significant operating losses and has
an accumulated deficit of $33,131,000 at 2.
Significant accounting
policies
(a)
Basis of presentation
These consolidated financial statements include the accounts
of the Company and its subsidiaries, all of which are wholly-owned
except for Sara Kreek Resource Corporation N.V., in which the
Company holds an 80% interest, and Minera Aztec Silver Corporation,
in which the Company holds a 63% interest at
These consolidated financial statements are prepared in
accordance with Canadian generally accepted accounting
principles.
The accompanying unaudited interim consolidated financial
statements are prepared in accordance with generally accepted
accounting principles (�GAAP�) in 2.
Significant accounting policies
(continued)
(b)
Change in accounting policy
On The Company has elected to follow the intrinsic value method of accounting for stock options granted to directors and employees whereby no compensation expense is recognized when stock options are granted if the exercise price of the stock options are granted at market value. Any consideration paid by directors and employees on exercise of stock options or purchase of shares is credited to share capital. However, additional disclosure of the effects of accounting for stock-based compensation to directors and employees as compensation expense, using the fair value method estimated using the Black-Scholes Option Pricing Model, is disclosed as pro-forma information. 3.
Marketable securities
The quoted market value of marketable securities is
approximately $428,900 at 4.
Resource properties
(a)
(i)
New Polaris:
The New Polaris property, which is located in the Atlin
Mining Division, British Columbia, is 100% owned by the Company
subject to a 15% net profit interest which may be reduced to a 10%
net profit interest within one year of commercial production by
issuing 150,000 common shares to Rembrandt Gold Mines Ltd.
During fiscal 2002, the Company wrote-down the property by
$5,467,841 to reflect management�s estimate of the property�s
recoverable value.
(ii)
Eskay Creek:
The Company owns a one-third carried interest in the Eskay
Creek property, Skeena Mining Division,
(b)
The Company owns an 18.3% carried interest in this property,
which is located near 4.
Resource properties (continued)
(c)
(i)
Sara Kreek:
The Company holds 80% of the shares of Sara Kreek Resource
Corporation N.V., the company that holds the Sara Kreek
concession. The Company may be required to
issue an additional 200,000 shares to the vendor upon completing a
feasibility study and commencing commercial production of the
underground deposits.
(ii)
Benzdorp:
In April 1996, the Company entered into an option agreement
to earn up to an 80% interest in the Benzdorp property by making
cumulative cash payments of $750,000 and property expenditures
totalling $5 million over a four year period. The agreement provides
for escalated advance royalty payments commencing in October 2000 in
connection with the timing of completion of a feasibility
study.
The Company has earned a 40% interest in the Benzdorp
property, but has exercised its right not to expend any further
monies or to make any further payments until the property owner
transfers the exploration rights on the property to the corporate
entity contemplated in the agreement, as provided under the terms of
the agreement.
(d)
(i)
Clara:
In March 2001, pursuant to a Letter of Intent
with Teck Cominco Limited, the Company�s 63% owned subsidiary,
Minera Aztec Silver Corporation (�Aztec�) was granted an option to
acquire a 100% interest in two mineral claims located in Mexico in
consideration of incurring exploration expenditures on the property
in the aggregate of $500,000 and issuing an aggregate of 500,000
shares of Aztec over a four year period. If
Aztec is not listed on a stock exchange within two years, then Aztec
will have the option to pay a series of cash payments totalling
$185,000 over a four year period. The optionor will retain a 2% net
smelter return royalty of which 50% may be purchased by the Company
for $1,000,000. Completion of this Letter of
Intent is subject to a due diligence review and the signing of a
formal agreement.
(ii)
Lobo:
The Company held a 100% interest in the Lobo Properties,
(e)
Expenditure options:
To maintain the Company's interest and to fully exercise the
options under various property agreements covering the properties
located in British Columbia, Suriname and Mexico, the Company must
incur exploration expenditures on the properties and make payments
in the form of cash and/or shares to the optionors as follows: 4.
Resource properties
(continued)
(i)
The timing of these option/advance royalty payments is
dependent upon the owner transferring the exploration rights to the
Benzdorp property to the corporate entity contemplated under the
agreement. Should this transfer not occur in
2002, these payments and the expenditure commitment, will each be
extended by one year.
(ii)
Shares of the Company�s subsidiary, Minera Aztec Silver
Corporation, to be issued.
These amounts may be reduced in the future as the Company
determines which properties to continue to explore and which to
abandon. These amounts do not include future cash payments payable
to the Company and related exploration expenditures on properties
optioned to third parties.
(f)
Resource properties contingencies
The Company has diligently investigated rights of ownership
of all of the resource properties/concessions to a level which is
acceptable by prevailing industry standards with respect to the
current stage of development of each property/concession in which it
has an interest and, to the best of its knowledge, all agreements
relating to such ownership rights are in good standing.
However, all properties/concessions may be subject to prior
claims, agreements or transfers, and rights of ownership may be
affected by undetected defects. 5.
Capital assets
6.
Share capital
(a)
Issued
(b)
Stock option plan
The Company has a stock option plan that allows it to grant
options to its employees, officers and directors to acquire up to
7,956,450 common shares. The exercise price of each option
equals the high/low average price for the common shares on the
Toronto Stock Exchange based on the last five trading days before
the date of the grant. At the discretion of the
Board, certain option grants provide the holder the right to receive
the number of common shares, valued at the quoted market price at
the time of exercise of the stock options, that represent the share
appreciation since granting the options. Options
have a maximum term of ten years and terminate 30 days following the
termination of the optionee�s employment, except in the case of
death, in which case they terminate one year after the event. Vesting
of options is made at the discretion of the Board at the time the
options are granted.
The continuity of stock options for the period ended
* cancelled pursuant to the exercise of share
appreciation rights
At Pursuant to the new CICA policy of accounting for stock-based compensation, compensation expense on stock options granted to directors and employees using the fair value method is disclosed as pro-forma information.
The fair value of stock options used to calculate
compensation expense is estimated using the Black-Scholes Option
Pricing Model with the following assumptions:
The pro forma effect on net loss and loss per share for the
period ended June 30, 2002 of the actual results had the Company
accounted for the stock options granted to directors and employees
using the fair value method is as follows:
Option pricing models require the input of highly subjective
assumptions including the expected price volatility. Changes
in the subjective input assumptions can materially affect the fair
value estimate, and therefore the existing models do not necessarily
provide a reliable single measure of the fair value of the Company�s
stock options.
(c)
Warrants:
Each warrant entitles the holder to purchase one common share
of the Company. 6.
Share capital (continued)
(d)
Shares reserved for issuance
(e)
Shareholder rights plan
On October 25, 1995, the shareholders of the Company approved
a shareholders rights plan (the �Plan�). The
Plan became effective on November 14, 1995.
The Plan is intended to ensure that any entity seeking to
acquire control of the Company makes an offer that represents fair
value to all shareholders and provides the board of directors with
sufficient time to assess and evaluate the offer, to permit
competing bids to emerge, and, as appropriate, to explore and
develop alternatives to maximise value for shareholders. Under
the Plan, each shareholder at the time of the Plan�s adoption was
issued one Right for each common share of the Company held. Each
Right entitles the registered holder thereof to purchase from
treasury one common share at Cdn$25, subject to certain adjustments
intended to prevent dilution. The Rights are exercisable after
the occurrence of specified events set out in the Plan generally
related to when a person, together with affiliated or associated
persons, acquires, or makes a take-over bid to acquire, beneficial
ownership of 20% or more of the outstanding common shares of the
Company.
The Rights expire in November 2003. 7.
Related party transactions
At June 30, 2002, amounts due from related parties comprise
balances owing from companies with certain common directors. The
amounts were for reimbursement of costs in the normal course of
business.
General and administrative and property investigation costs
include Cdn $60,000 of consulting fees charged by a company
controlled by a director of the Company. 8 .
Segment disclosures
The Company has one operating segment, being mineral
exploration, and substantially all assets of the Company are located
in Canada except for certain resource properties as disclosed in
Note 4 and $58,000 of mining equipment and vehicles which are
located in Suriname. 9.
Supplemental disclosure with respect to cash
flows
Supplemental cash flow information:
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