2007 Q3 interim financial statements

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<ul><li> 1. PROPHECY RESOURCE CORP. FINANCIAL STATEMENTS JUNE 30, 2007 (Unaudited prepared by management) NOTICE OF NO AUDITOR REVIEW OF INTERIM FINANCIAL STATEMENTSUnder National Instrument 51-102, Part 4, subsection 4.3(3)(a), if an auditor has not performed a reviewof the interim consolidated financial statements, they must be accompanied by a notice indicating thatthe financial statements have not been reviewed by an auditor.The accompanying unaudited interim consolidated financial statements of the Company have beenprepared by and are the responsibility of the Companys management. The Companys independentauditor has not performed a review of these financial statements in accordance with the standardsestablished by the Canadian Institute of Chartered Accountants for a review of interim financialstatements by an entitys auditor. </li> <li> 2. PROPHECY RESOURCE CORP.INTERIM BALANCE SHEETAS AT JUNE 30, 2007(Unaudited prepared by management) June 30, 2007 September 30, 2006 (audited) ASSETS Current Cash $ 461,966 $ 157,944 Other receivables 9,466 4,430 Prepaid expenses 109,950 - 581,382 162,374 Mineral properties (Note 3) 54,000 22,000 Deferred exploration costs (Note 4) 279,716 102,232 Deferred finance fees (Note 5) - 17,000 Reclamation bond 6,500 6,500 $ 921,598 $ 310,106 LIABILITIES Current Accounts payable and accrued liabilities $ 37,660 $ 13,000 Due to related parties (Note 6) 35,249 10,292 72,909 23,292 SHAREHOLDERS EQUITY Share capital (Note 7) 961,458 308,650 Contributed surplus (Note 9) 132,154 76,850 Deficit (244,923) (98,686) 848,689 286,814 $ 921,598 $ 310,106Nature and continuance of operations (Note 1)Commitments (Note 3 and 7)Approved on behalf of the Board: Stuart Rogers Director Donald Sharp DirectorStuart Rogers Donald Sharp The accompanying notes are an integral part of these financial statements. </li> <li> 3. PROPHECY RESOURCE CORP.INTERIM STATEMENT OF OPERATIONS AND DEFICIT(Unaudited prepared by management) For the For the three months nine months ended ended June 30, 2007 June 30, 2007 EXPENSES Consulting $ - $ 480 Transfer agent, filing fees 6,868 36,830 Office, rent and miscellaneous 4,867 15,247 Management fees 4,500 7,500 Management fees stock based compensation (Note 8) - 55,304 Professional fees 8,076 16,756 Shareholder communications 6,784 15,301 Travel 1,655 2,263 LOSS FROM OPERATIONS (32,750) (149,681) OTHER ITEM Interest income 2,006 3,444 NET LOSS (30,744) (146,237) DEFICIT, BEGINNING (214,179) (98,686) DEFICIT, ENDING $ (244,923) $ (244,923) BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.01) $ (0.02) WEIGHTED AVERAGE NUMBER OF COMMON SHARES 7,912,362 6,820,696 OUTSTANDING The accompanying notes are an integral part of these financial statements. </li> <li> 4. PROPHECY RESOURCE CORP.INTERIM STATEMENT OF CASH FLOWS(Unaudited prepared by management) For the For the three months nine months ended ended June 30, 2007 June 30, 2007 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (30,744) $ (146,237) Non-cash operating items: Stock based compensation - 55,304 Changes in non-cash working capital items: Decrease (increase) in prepaid expenses (105,000) (109,950) Decrease (increase) in other receivables ( 4,199) (5,037) Increase (decrease) in accounts payable and accrued liabilities 36,131 21,868 Net cash used in operating activities (103,812) (184,052) CASH FLOWS FROM INVESTING ACTIVITIES Acquisition costs (10,000) (32,000) Deferred exploration costs (170,845) (177,483) Net cash used in investing activities (180,845) (209,483) CASH FLOWS FROM FINANCING ACTIVITIES Deferred finance fees - 17,000 Amounts due to related parties 33,324 27,749 Issuance of shares for debt 10,000 10,000 Issuance of shares for cash 225,000 642,808 Net cash used in financing activities 268,324 697,557 Increase in cash during the period (16,333) 304,022 Cash, beginning 478,299 157,944 Cash, ending $ 461,966 $ 461,966 Supplemental disclosures with respect to cash flows: Cash paid during the period for interest $ - Cash paid during the period for income taxes $ - The accompanying notes are an integral part of these financial statements. </li> <li> 5. PROPHECY RESOURCE CORP.NOTES TO THE FINANCIAL STATEMENTSJune 30, 20071. NATURE AND CONTINUANCE OF OPERATIONS The Company was incorporated under the Business Corporations Act (British Columbia) on February 9, 2006 and is primarily in the exploration stage with respect to its mineral properties. Based on the information available to date, the Company has not yet determined whether its mineral properties contain economically recoverable reserves. The recoverability of the amounts shown for mineral properties and deferred exploration costs is dependent upon the confirmation of economically recoverable reserves, the ability of the Company to obtain necessary financing to successfully complete their development and upon future profitable production. The Companys Initial Public Offering prospectus was filed with the British Columbia Securities Commission and became effective December 29, 2006. Pursuant to this prospectus, the Company raised $550,000 by issuing 2,200,000 shares at a price of $0.25 per share on February 9, 2007 and commenced trading on the TSX Venture Exchange under the symbol PCY on February 14, 2007. These financial statements have been prepared on a going concern basis which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The continuing operations of the Company are dependent upon its ability to raise adequate financing to develop its mineral properties, and to commence profitable operations in the future. To date the Company has not generated any significant revenues and is considered to be in the exploration stage.2. SIGNIFICANT ACCOUNTING POLICIES Basis of presentation These financial statements have been prepared in accordance with Canadian generally accepted accounting principles (GAAP) and are presented in Canadian dollars. Use of estimates The preparation of financial statements in conformity with Canadian GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the period. Actual results could differ from these estimates. Significant areas requiring the use of management estimates relate to the determination of impairment of mineral property interests and future tax rates used to determine future income taxes. Where estimates have been used financial results as determined by actual events could differ from those estimates. Mineral properties The Company records its interests in mineral properties and areas of geological interest at cost. All direct and indirect costs relating to the acquisition of these interests are capitalized on the basis of specific claim blocks or areas of geological interest until the properties to which they relate are placed into production, sold or management has determined there to be an impairment. These costs will be amortized on the basis of units produced in relation to the proven reserves available on the related property following commencement of production. Mineral properties which are sold before that property reaches the production stage will have all revenues from the sale of the property credited against the cost of the property. Properties which have reached the production stage will have a gain or loss calculated based on the portion of that property sold. The recorded cost of mineral exploration interests is based on cash paid, the value of share considerations and exploration and development costs incurred. The recorded amount may not reflect recoverable value as this will be dependent on the development program, the nature of the mineral deposit, commodity prices, adequate funding and the ability of the Company to bring its projects into production. Management evaluates each mineral interest on a reporting period basis or as changes in events and circumstances warrant, and makes a determination based on exploration activity and results, estimated future cash flows and availability of funding as to whether costs are capitalized or charged to operations. Mineral property interests, where future cash flows are not reasonably determinable, are evaluated for impairment based on managements intentions and determination of the extent to which future exploration programs are warranted and likely to be funded. </li> <li> 6. PROPHECY RESOURCE CORP.NOTES TO THE FINANCIAL STATEMENTSJune 3...</li></ul>