Bontan Corporation Inc.
Consolidated Interim Financial Statements
For the Three Months Ended June 30, 2012
Unaudited – Prepared by Management
(Canadian Dollars)
Index | |
Notice To Reader | 2 |
Interim Consolidated Statements of Financial Position | 3 |
Interim Consolidated Statements of Operations and Comprehensive Loss | 4 |
Interim Consolidated Statement of Shareholders Equity | 5 |
Interim Consolidated Statements of Cash Flows | 6 |
Notes to Interim Consolidated Financial Statements | 7-17 |
NOTICE TO READER OF INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The interim consolidated financial statements for Bontan Corporation Inc., comprised of the interim consolidated statements of financial position as at June 30, 2012 and for the year ended March 31, 2012, and the interim consolidated statements of operations and comprehensive income (loss), statement of changes in equity and cash flows for the three month periods ending June 30, 2012 and June 30, 2011 are the responsibility of the Company’s management.
The interim consolidated financial statements have been prepared by management and include the selection of appropriate accounting principles, judgments and estimates necessary to prepare these interim consolidated financial statements in accordance with International Financial Reporting Standards.
The interim consolidated financial statements have not been reviewed by the Company’s independent external auditors, Schwartz Levitsky Feldman LLP.
“signed” “signed”
Kam Shah C.A., Director Dean Bradley, Director
August 24, 2012
2
Bontan Corporation Inc.
Interim Consolidated Statements of Financial Position
(Canadian Dollars)
(Unaudited – see Notice to Reader dated August 24, 2012)
As at, | Note | June 30, 2012 | March 31, 2012 | |||
(Audited) | ||||||
Assets | ||||||
Current | ||||||
Cash | $126,590 | $58,359 | ||||
Short term investments | 4,15(v) | 85,050 | 227,600 | |||
Other receivable | 7 | 5,319,405 | 231,039 | |||
Exploration and evaluation expenditures recoverable | 6 | 1,493,351 | 6,972,740 | |||
$7,024,396 | $7,489,738 | |||||
Long-term assets | ||||||
Office equipment and furniture | 5 | $6,307 | $6,717 | |||
Total assets | $7,030,703 | $7,496,455 | ||||
Liabilities and shareholders' equity | ||||||
Current liabilities | ||||||
Accounts payable and accrued liabilities | 15(iv) | $1,320,254 | $1,040,450 | |||
Deferred costs recovery | 8 | $ - | $1,615,177 | |||
Total current liabilities | $1,320,254 | $2,655,627 | ||||
Shareholders' Equity | ||||||
Capital stock | 9 | $36,081,260 | $36,081,260 | |||
Warrants | 11 | 7,446,261 | 7,446,261 | |||
Stock option reserve | 4,755,077 | 4,755,077 | ||||
Fair value reserve | (7,500) | 19,500 | ||||
Deficit | (42,564,649) | (43,461,270) | ||||
(42,572,149) | (43,441,770) | |||||
Total shareholders' equity | $5,710,449 | $4,840,828 | ||||
Total liabilities and shareholders' equity | $7,030,703 | $7,496,455 | ||||
Commitments and Contingent Liabilities (Note 14) | ||||||
Related Party Transactions (Note 15) |
On behalf of the Board ”Kam Shah” Director ”Dean Bradley” Director
(signed) (signed)
The accompanying notes are an integral part of these consolidated financial statements.
3
Bontan Corporation Inc.
Interim Consolidated Statements of Operations and Comprehensive Loss
For the three months ended June 30,
(Canadian Dollars)
(Unaudited – see Notice to Reader dated August 24, 2012)
Note | 2012 | 2011 | |
Income | |||
Other income | $101,020 | $ - | |
Expenses | |||
Value of warrants cancelled | 8(i) | (1,231,290) | - |
Professional fees | 151,475 | 338,388 | |
Consulting fees | 13,14(b), (c),(d) &,15(iii) | 106,200 | 113,236 |
Shareholders' information | 14(a),15(i) | 31,430 | 30,739 |
Travel, meals and promotions | 15(ii) | 2,220 | 6,258 |
Office and general | 36 | 8,050 | |
Payroll | 12,132 | 9,251 | |
Rent | 6,532 | 6,335 | |
Communication | 1,508 | 3,133 | |
Transfer agents fees | 826 | 1,193 | |
Bank charges and interest | 378 | 396 | |
Amortization | 411 | 560 | |
Write down of short term investments | 115,550 | 343,750 | |
Loss on disposal of short term investments | - | 14,540 | |
Exchange loss | 6,991 | (2,284) | |
(795,601) | 873,545 | ||
Net income (loss) for period | 896,621 | (873,545) | |
Other comprehensive loss | |||
Unrealized (loss) gain for period on short term investments, net of tax | (27,000) | (77,799) | |
Other comprehensive loss for period | (27,000) | (77,799) | |
Total comprehensive income ( loss) for period | $869,621 | $(951,344) | |
Earnings (loss) per common share | 12 | ||
Basic | $0.01 | $(0.01) | |
Fully diluted | $0.01 | $(0.01) |
The accompanying notes are an integral part of these consolidated financial statements.
4
Bontan Corporation Inc.
Interim Consolidated Statement of Shareholders’ Equity
(Canadian Dollars)
For the three months ended June 30, 2012 and 2011
(Unaudited – see Notice to Reader dated August 24, 2012)
Number of Shares | Capital Stock | Warrants | Stock option reserve | Fair value reserve | Accumulated Deficit | Total Equity | |
Balance, April 1, 2011 | 79,664,076 | $36,078,140 | $8,677,551 | $4,755,077 | $168,347 | $(40,990,892) | $8,688,223 |
Unrealised loss on short term investments ,net of tax | (77,799) | (77,799) | |||||
Net loss for period | (873,545) | (873,545) | |||||
Balance, June 30, 2011 | 79,664,076 | $36,078,140 | $8,677,551 | $4,755,077 | $90,548 | $(41,864,437) | $7,736,879 |
Balance April 1, 2012 | 78,714,076 | $36,081,260 | $7,446,261 | $4,755,077 | $19,500 | $(43,461,270) | 4,840,828 |
Unrealised loss on short term investments ,net of tax | (27,000) | (27,000) | |||||
Net income for period | 896,621 | 896,621 | |||||
Balance, June 30, 2012 | $78,714,076 | $36,081,260 | $7,446,261 | $4,755,077 | $(7,500) | $(42,564,649) | $5,710,449 |
The accompanying notes are an integral part of these consolidated financial statements.
5
Bontan Corporation Inc.
Interim Consolidated Statements of Cash Flows
For the three months ended June 30,
(Canadian Dollars)
(Unaudited – see Notice to Reader dated August 24, 2012)
Note | 2012 | 2011 | |
Cash flows from operating activities | |||
Net income (loss) for period | $896,621 | $(873,545) | |
Amortization of office equipment and furniture | 411 | 560 | |
Write down of short term investments | 115,550 | 343,750 | |
Loss on disposal of short term investments | - | 14,540 | |
Value of warrants cancelled | (1,231,290) | - | |
Consulting fees settled for common shares | 13 | - | 7,171 |
Net change in working capital components | |||
Other receivables | (5,088,366) | (13,185) | |
Accounts payable and accrued liabilities | 279,803 | 27,349 | |
$(5,027,271) | $(493,360) | ||
Cash flow from (into) investing activities | |||
Exploration and evaluation (expenditure) recovery | 5,095,502 | - | |
Net proceeds from sale of short term investments | - | 245,200 | |
$5,095,502 | $245,200 | ||
Cash flow from financing activities | |||
Decrease in cash during period | 68,231 | (248,160) | |
Cash at beginning of period | 58,359 | 348,464 | |
Cash at end of period | $126,590 | $100,304 | |
Supplemental disclosures | |||
Non-cash operating activities | |||
Consulting fees prepaid in shares | - | (7,171) | |
$ - | $(7,171) |
The accompanying notes are an integral part of these consolidated financial statements.
6
Bontan Corporation Inc.
Notes to Interim Consolidated Financial Statements
(Canadian Dollars)
June 30, 2012 and 2011
(Unaudited – see Notice to Reader dated August 24, 2012)
1. NATURE OF OPERATIONS
Bontan Corporation Inc. (“the Company”) is incorporated in Ontario and its head office is located at 47 Avenue Road, Suite 200, Toronto, Ontario, Canada. The Company is a diversified natural resource company that invests in oil and gas exploration and development. The Company’s shares trade on the Over the Counter Bulletin Board of NASDAQ under a trading symbol “BNTNF”.
The Company disposed of on June 29, 2012, its indirect 4.70% working interest in two off-shore drilling licenses in the Levantine Basin, approximately forty kilometres off the West coast of Israel, through its holding of 76.79% equity interest in Israel Petroleum Company Limited (“IPC Cayman”), as explained in Note 6.
The Company does not currently own any oil and gas properties but holds 0.25% Overriding Royalty Interest in the two offshore Israeli drilling licenses.
2. BASIS OF PRESENTATION AND ADOPTION OF IFRS
(a) | Statement of compliance |
These condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard (“IAS”) IAS 34 – Interim Financial Reporting and should be read in conjunction with the annual financial statements for the year ended March 31, 2012, which have been prepared in accordance with IFRS as issued by the International Accounting Standards Board (“IASB”). This is considered generally accepted accounting principles (“GAAP”) for Canadian public companies.
These unaudited condensed interim consolidated financial statements were prepared by management and reviewed by the Audit Committee. These unaudited condensed interim consolidated financial statements were approved by the Board of Directors for issue on August 24, 2012.
The Company has no requirement to report on segments as it operates as only one segment.
(b) Basis of presentation
The condensed interim consolidated financial statements have been prepared on the historical cost basis except for certain non-current assets and financial instruments, which are measured at fair value.
(c) Consolidation
The condensed interim consolidated financial statements include the accounts of the Company and of 1843343 Ontario Inc., a wholly owned subsidiary, incorporated in Ontario on January 31, 2011, and has had no activity since its inception.
Israel Oil & Gas Corporation, a wholly owned subsidiary, was merged with the Company on May 15, 2012.
All inter-company balances and transactions have been eliminated on consolidation.
7
Bontan Corporation Inc.
Notes to Interim Consolidated Financial Statements
(Canadian Dollars)
June 30, 2012 and 2011
(Unaudited – see Notice to Reader dated August 24, 2012)
(d) Functional and presentation currency
The condensed interim consolidated financial statements are presented in Canadian dollars which is also the functional currency of the Company and its subsidiary.
(e) Use of Estimates and judgments
The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the year in which the estimates are revised and in any future years affected. Significant areas where estimation uncertainty and critical judgments are applied include valuation of financial instruments, valuation of property, plant and equipment, impairment losses, depletion and depreciation, and measurement of share- based compensation.
3. | SIGNIFICANT ACCOUNTING POLICIES |
The accounting policies are set out in Note 3 to the fiscal 2012 audited consolidated financial statements. These policies have been applied consistently to all periods presented in these condensed interim consolidated financial statements,
(a) New Accounting Policies
There have been no new accounting policies adopted by the Company.
(b) New Standards and Interpretations Not Yet Adopted
Since the issuance of the Company’s fiscal 2012 audited consolidated financial statements, the IASB and International Financial Reporting Interpretations Committee (“IFRIC”) have issued no additional new and revised standards and interpretations which are applicable to the Company. Refer to Note 3 of those statements
4. | SHORT TERM INVESTMENTS |
Marketable securities | ||
Carrying average costs | fair market value | |
June 30, 2012 | $92,550 | $85,050 |
March 31, 2012 | $208,100 | $227,600 |
Marketable securities are designated as “available-for-sale”.
Marketable securities are stated at fair value based on quoted market prices on the balance sheet as at June 30, 2012. A net unrealized loss of $7,500 for the period ended on that date was included in the fair value reserve.
8
Bontan Corporation Inc.
Notes to Interim Consolidated Financial Statements
(Canadian Dollars)
June 30, 2012 and 2011
(Unaudited – see Notice to Reader dated August 24, 2012)
4. | SHORT TERM INVESTMENTS - continued |
As at June 30, 2012, management concluded that certain marketable securities had suffered a decline in their value which was unlikely to be recovered in the near future. Since this is a loss in value that is other than temporary decline, the cumulative loss has been removed from other comprehensive income and recognised in net income even though these investments have not been de-recognised.
5. | OFFICE EQUIPMENT AND FURNITURE |
Cost | Accumulated amortization | Net book value | Net book value | |
June 30, 2012 | March 31, 2012 | |||
Office furniture | 4,725 | 3,070 | 1,655 | 1,742 |
Computer | 6,020 | 3,963 | 2,057 | 2,244 |
Software | 5,793 | 3,198 | 2,595 | 2,731 |
$16,538 | $10,231 | $6,307 | $6,717 |
6. EXPLORATION AND EVALUATION EXPENDITURES RECOVERABLE
The Company held an indirect 4.70% interest in two offshore drilling licenses in Israel – petroleum license 347 (‘Myra”) and 348 (“Sara”) covering approximately 198,000 acres, 40 kilometres off the West coast of Israel (“Israeli project”) through its 76.79% equity of IPC Cayman, as more fully explained in Note 6 to the fiscal 2012 audited financial statements.
The Company signed a settlement agreement on December 15, 2011 to dispose of its interest in the Israeli project held through its ownership of 79.76% equity in IPC Cayman. The agreement being extended, from time to time, and amended, was finally closed on June 29, 2012. |
As per the terms of the revised settlement agreement the Company received US$5 million and surrendered all its shares in IPC Cayman for cancellation. The Company and IPC Parties exchanged mutual releases and dismissed all lawsuits against each other and against IPC Oil and Gas Holdings Ltd. (formerly, Shaldieli Ltd.) and certain of its promoters.
The Company also received non-refundable deposits totalling to US$375,000, which was adjusted against exploration and evaluation expenditure recoverable, an extension fee of US$100,000, which was included in other income and an overriding royalty interest of 0.25% in the Israeli project.
As additional consideration, on or before December 31, 2012, based on a revaluation of the surrendered shares to be performed by the IPC Parties, Bontan will either receive (i) at the option of the IPC Parties, either a payment of US$9.625 million or a payment of US$6.625 million plus delivery of a US$3.0 million promissory note due on November 8, 2013, carrying 5% p.a. interest and secured by an IPC guarantee, a 0.15% Overriding Royalty Interest (ORI) and a pledge of 23% of the IPC Shares, or (ii) the right to exercise an option to purchase 49.27% of the issued and outstanding share capital of IPC Cayman on a fully diluted basis for an exercise price of US$4,927 (IPC Cayman currently holds 144,821,469 shares of Shaldieli).
9
Bontan Corporation Inc.
Notes to Interim Consolidated Financial Statements
(Canadian Dollars)
June 30, 2012 and 2011
(Unaudited – see Notice to Reader dated August 24, 2012)
6. EXPLORATION AND EVALUATION EXPENDITURES RECOVERABLE - continued
The revised Settlement Agreement includes an obligation to pay Bontan an additional amount based on the increase in value of a specified number of Shaldieli shares, with the obligation guaranteed by IPC and also secured by the 0.15% ORI. This amount is only payable if the value of the specified number of Shaldieli shares is worth more than US$3 million. Moreover, the payment may not exceed an additional $US3.0 million. In order for any amounts to be paid under this provision, there would have to be a significant increase in the market price over the current price.
The movements in exploration and evaluation expenditure recoverable during the period were as follows:
Three months to June 30, 2012 | Year ended March 31, 2012 | |
Balance, at beginning of period | $6,972,740 | $6,972,740 |
Cash deposits transferred from deferred cost recovery on settlement(Note 8(ii)) | (383,887) | |
Cash received on settlement | (5,095,502) | |
Balance, end of period | $1,493,351 | $6,972,740 |
The Company has not assigned any value to its 0.25% ORI since the underlying reserves have not yet been proven.
The management carried out an impairment test of the balance recoverable and, in light of the settlement closed on June 29, 2012 as explained above, concluded that there was no permanent impairment.
7. | OTHER RECEIVABLE |
June 30, 2012 | March 31, 2012 | |
Prepaid expenses and deposits | $10,525 | $16,600 |
Taxes receivable | 8,744 | 89,439 |
Court fee receivable (i) | 77,248 | |
Funds held in escrow (ii) | 5,222,888 | 125,000 |
$5,319,405 | $231,039 |
i. | Court fee receivable consists of refund of deposit of US$ 75,800 receivable from the Israeli court on dismissal of all lawsuits on settlement as explained in Note 6. |
ii. | Funds held in escrow represent US$ 5,125,000 received from IPC Parties as part of the settlement as explained in Note 6 to a tax escrow account held by the Company’s Israeli tax escrow agent. The funds will be released to the Company once the Company’s application for an exemption from Israeli income tax is approved. If the application is not approved, then the tax escrow agent will withhold 30% Israeli tax. However, the Company believes that the withheld tax will be fully refunded upon assessment of its tax return by the Israeli Tax Authority. |
10
Bontan Corporation Inc.
Notes to Interim Consolidated Financial Statements
(Canadian Dollars)
June 30, 2012 and 2011
(Unaudited – see Notice to Reader dated August 24, 2012)
8. | DEFERRED COSTS RECOVERY |
This represents exploration and evaluation expenditures recovered as of March 31, 2012 pursuant to the settlement agreement on June 29, 2012 (Note 6).
June 30, 2012 | March 31, 2012 | |
Cancellation of warrants returned under the settlement agreement (Note 6) (i) | $ - | $1,231,290 |
Cash deposits received under the settlement agreement ( Note 6) (ii) | - | 383,887 |
$ - | $1,615,177 |
(i) | The value of cancelled warrants was taken to income on closing of the settlement agreement on June 29, 2012 |
(ii) | Cash deposit was adjusted against exploration and evaluation expenditure on closing of the settlement agreement on June 29, 2012 |
9. CAPITAL STOCK
(a) Authorized: Unlimited number of common shares
(b) | Issued |
Common | ||
Shares | Amount | |
Balance at April 1, 2011 | 78,664,076 | $36,078,140 |
Issued under 2009 Consultant Stock Compensation Plan | 50,000 | $3,120 |
Balance at June 30, 2012 and March 31, 2012 | 78,714,076 | $36,081,260 |
(c) | As at June 30, 2012 and March 31, 2012, the Company had the following active Consultant Stock Compensation Plans: |
Date of registration* | Registered shares under Plan | Issued to March 31, 2011 | As at April 1, 2011 | Issued | Balance at March 31, 2012 & June 30, 2012 | |
2009 Plan | 11-May-09 | 3,000,000 | (843,333) | 2,156,667 | (50,000) | 2,106,667 |
2011 Plan | 11-Apr-11 | 6,000,000 | - | 6,000,000 | - | 6,000,000 |
* | Registered with the Securities and Exchange Commission of the United States of America (SEC) as required under the Securities Act of 1933. |
11
Bontan Corporation Inc.
Notes to Interim Consolidated Financial Statements
(Canadian Dollars)
June 30, 2012 and 2011
(Unaudited – see Notice to Reader dated August 24, 2012)
10. STOCK OPTION PLANS
(a) The following is a summary of all Stock Option Plans as at June 30 and March 31, 2012:
Plan | Date of | # of Options | |||||
registration* | Registered | Issued | Expired | Cancelled | Exercised | Outstanding | |
1999 Stock option Plan | Apr 30, 2003 | 3,000,000 | 3,000,000 | (70,000) | (1,200,000) | 1,730,000 | |
2003 Stock Option Plan | July 22, 2004 | 2,500,000 | 2,500,000 | (155,000) | (400,000) | 1,945,000 | |
The Robinson Plan | Dec. 5, 2005 | 1,100,000 | 1,100,000 | - | - | 1,100,000 | |
2005 Stock Option Plan | Dec. 5, 2005 | 1,000,000 | 1,000,000 | - | (390,000) | - | 610,000 |
7,600,000 | 7,600,000 | (225,000) | (390,000) | (1,600,000) | 5,385,000 |
* Registered with the Securities and Exchange Commission of the United States of America (SEC) as required under the Securities Act of 1933. |
All outstanding options were fully vested on the dates of their grant. |
(b) | The weighted average exercise price of the outstanding stock options was US$0.17 as at June 30, 2012 (March 31, 2012: US$0.17) |
(c) Details of weighted average remaining life of the options granted and outstanding are as follows:
June 30, 2012 | |
Number of options outstanding and exercisable | 5,385,000 |
Exercise price in US$ | 0.17 |
Weighted average remaining contractual life (years) | 2.19 |
The options can be exercised at any time after vesting within the exercise period in accordance with the applicable option agreement. The exercise price was more than the market price on the date of the grants for 560,000 options and less than the market price for the balance of 4,825,000 options.
11. | WARRANTS |
There were no movements during the three months ended June 30, 2012. Details of weighted average remaining life of the warrants granted and outstanding are as follows:
June 30, 2012 | ||
Warrants outstanding & exercisable | ||
Exercise price in US$ | Number | Weighted average remaining contractual life (years) |
0.10 | 10,400,000 | 1.75 |
0.25 | 12,846,420 | 1.75 |
0.35 | 44,825,000 | 2.68 |
0.29 | 68,071,420 | 2.35 |
12
Bontan Corporation Inc.
Notes to Interim Consolidated Financial Statements
(Canadian Dollars)
June 30, 2012 and 2011
(Unaudited – see Notice to Reader dated August 24, 2012)
12. EARNINGS PER SHARE
Earnings per share is calculated on the weighted average number of common shares outstanding during the three months ended June 30, 2012, which was 78,714,076 (Three months ended June 30,2011 - 78,664,076).
The Company had approximately 68 million (June 30, 2011: 73 million) warrants and 5.4 million options (June 30, 2011: 5.8 million), which were not exercised as at June 30, 2012.
13. | CONSULTING FEES |
For the three months ended June 30, | 2012 | 2011 |
Fees settled in stocks and options | $ - | $7,171 |
Fees settled for cash | 106,200 | 106,065 |
$106,200 | $113,236 |
14. COMMITMENTS AND CONTINGENT LIABILITIES
(a) | The Company entered into media and investor relations contracts, with Current Capital Corp., a shareholder corporation, effective July 1, 2004, initially for a period of one year and renewed automatically unless cancelled in writing by a 30-day notice, for a total monthly fee of US$10,000. |
(b) | The Company entered into a consulting contract with Mr Kam Shah, the Chief Executive Officer and Chief Financial Officer on April 1, 2005 for a five-year term. This term was extended by another five years to March 31, 2015 by the audit committee on April 1, 2010. Mr Shah’s monthly fee is $15,000 plus taxes. Further, the contract provides for a lump sum compensation of US$250,000 for early termination of the contract without cause. The contract also provides for entitlement to stock compensation and stock options under appropriate plans as may be decided by the board of directors from time to time. |
(c) | The Company entered into a consulting contract with Mr Terence Robinson, a key consultant and a former Chief Executive Officer, on April 1, 2003 for a six-year term up to March 31, 2009. On August 4, 2009, this contract was renewed for another five years effective April 1, 2009. The renewed contract provides for a fixed monthly fee of $10,000 plus taxes. The Consultant will also be entitled to stock compensation and stock options under appropriate plans as may be decided by the board of directors from time to time. |
(d) | The Company has a consulting contract with Mr John Robinson. Mr John Robinson is the sole owner of Current Capital Corp., a firm with which the Company has an on-going contract for media and investor relations, and is a brother of Mr Terence Robinson who is a key consultant to the Company and a former Chief Executive Officer of the Company. Mr Robinson provides services that include assisting the management in evaluating new projects and monitoring short term investment opportunities that the Company may participate in from time to time. A new Consulting Contract was signed with Mr John Robinson on July 1, 2009 for period covering up to March 31, 2014. The Contract provides for a fixed monthly fee of $8,500 plus taxes. The Consultant will also be entitled to stock compensation and stock options under appropriate plans as may be decided by the board of directors from time to time. |
(e) | The Company has agreed to the payment of a finder’s fee to Current Capital Corp., a related party, at the rate of 10% of the proceeds from the exercise of any of the outstanding warrants. The likely fee if all the remaining warrants are exercised will be approximately $1.8 million. |
13
Bontan Corporation Inc.
Notes to Interim Consolidated Financial Statements
(Canadian Dollars)
June 30, 2012 and 2011
(Unaudited – see Notice to Reader dated August 24, 2012)
15. RELATED PARTY TRANSACTIONS
Transactions with related parties are incurred in the normal course of business and are measured at the exchange amount, which is the amount of consideration established and agreed to between the related parties. Related party transactions and balances have been listed below, unless they have been disclosed elsewhere in the consolidated financial statements. Amounts are for three months ended June 30, 2012 and balances as at June 30, 2012. Comparative amounts are for the three months ended June 30, 2011and balances as at June 30, 2011.
(i) | Included in shareholders’ information expense is $29,600 (2011 – $28,835) to Current Capital Corp, (CCC) for media relations services. CCC is a shareholder corporation and a director of the Company provides accounting services as a consultant. |
(ii) | Business expenses of $3,890 (2011: $6,293) were reimbursed to directors of the corporation and $2,782 (2011 - $5,936) to a key consultant and a former chief executive officer of the Company. |
(iii) | Consulting fees include cash fee paid to directors for services of $47,500 (2011: $47,500), $30,000 (2011: $30,000) paid to a key consultant and a former chief executive officer of the Company, $25,500 paid to a consultant who controls CCC (2011: $25,500). These fees are included in consulting expenses. |
(iv) | Accounts payable includes $77,484 (2011: $49,839) due to CCC, $100,667 (2011: $11,964) due to directors, $178,094 (2011: $97,194) due to a key consultant and a former chief executive officer of the Company, and due to a consultant who controls CCC $145,605 (2011; $ 76,840). |
(v) Included in short term investments is an investment of $nil carrying cost and $nil fair value (2011: $434,168 carrying cost and $240,000 fair value) in a public corporation controlled by a key shareholder of the Company. This investment in 2011 represented common shares acquired in the open market or through private placements and represents less than 1% of the said Corporation. |
16. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company’s financial instruments recognized in the balance sheet consist of the following:
June 30, 2012 | March 31, 2012 | |||
Carrying value | Fair value | Carrying value | Fair value | |
Financial assets | ||||
Cash | 126,590 | 126,590 | 58,359 | 58,359 |
Other receivable | 5,319,405 | 5,319,405 | 231,039 | 231,039 |
Short term investments | 92,550 | 85,050 | 208,100 | 227,600 |
Financial liabilities | ||||
Accounts payable and accrued liabilities | 1,320,254 | 1,320,254 | 1,040,450 | 1,040,450 |
Fair value estimates are made at a specific point in time, based on relevant market information and information about financial instruments. These estimates are subject to and involve uncertainties and matters of significant judgment, therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
14
Bontan Corporation Inc.
Notes to Interim Consolidated Financial Statements
(Canadian Dollars)
June 30, 2012 and 2011
(Unaudited – see Notice to Reader dated August 24, 2012)
16. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT - continued
A summary of the Company’s risk exposures as it relates to financial instruments are reflected below:
a) | Fair value of financial instruments |
The Company’s financial assets and liabilities are comprised of cash, amounts receivable, prepaid expenses, short term investments, accounts payable and accrued liabilities.
.
The Company classifies the fair value of these transactions according to the following fair value hierarchy based on the amount of observable inputs used to value the instrument:
• Level 1 – Values are based on unadjusted quoted prices available in active markets for identical assets or liabilities as of the reporting date.
• Level 2 – Values are based on inputs, including quoted forward prices for commodities, time value and volatility factors, which can be substantially observed or corroborated in the marketplace. Prices in Level 2 are either directly or indirectly observable as of the reporting date.
• Level 3 – Values are based on prices or valuation techniques that are not based on observable market data. Accordingly, short term investments are classified as Level 1.
Assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement within the fair value hierarchy.
The Company’s financial instruments are exposed to certain financial risks: credit risk, liquidity risk, other price risk and market risk.
b) | Credit risk |
Credit risk is the risk of loss associated with a counter-party’s inability to fulfill its payment obligations. The credit risk is attributable to various financial instruments, as noted below. The credit risk is limited to the carrying value amount carried on the statement of financial position.
a. | Cash– Cash is held with major financial institutions in Canada and therefore the risk of loss is minimal. |
b. �� | Other receivables – The Company is not exposed to major credit risk attributable to customers. A significant portion of this amount is due from an Israeli escrow agent which is one of its major law firms. The balance is due from the Israeli and Canadian government |
c. | Short term Investments –These investments are in junior Canadian public companies and are valued at their quoted market prices on reporting dates. |
c) | Liquidity risk |
Liquidity risk is the risk that the Company will encounter difficulty in satisfying financial obligations as they become due.
15
Bontan Corporation Inc.
Notes to Interim Consolidated Financial Statements
(Canadian Dollars)
June 30, 2012 and 2011
(Unaudited – see Notice to Reader dated August 24, 2012)
16. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT – c) Liquidity risk - continued
The Company’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions without incurring unacceptable losses or risking harm to the Company’s reputation. The Company expects to satisfy obligations under accounts payable, amounts due to related parties, and short‐term debt in less than one year through cash flows from the proceeds of the sale of its interest as explained in Note 6.
The Company monitors its liquidity position regularly to assess whether it has the funds necessary to take care of its operating needs and needs for investing in new projects. However, as an exploration company at an early stage of development and without significant internally generated cash flows, there are inherent liquidity risks, including the possibility that additional financing may not be available to the Company, or that actual exploration expenditures may exceed those planned. The current uncertainty in global markets and pending litigations could have an impact on the Company’s future ability to access capital on terms that are acceptable to the Company. There can be no assurance that required financing will be available to the Company.
d) | Market risk |
Market risk consists of interest rate risk and foreign currency risk. The Company is exposed to foreign currency risk.
The Company operates primarily in Canada and substantially all of its activities including cash and short term investments are denominated in Canadian dollars. However, costs incurred on exploration and evaluation relating to its interest in the Israeli project and expected potential returns on its disposal, would be denominated in US dollars. The Company is therefore exposed to fluctuations in the exchange rate between the US and Canadian dollar.
The fluctuation of the US dollar in relation to the Canadian dollar will consequently impact the operating results of the Company and may also affect the value of the Company’s assets and the amount of shareholders’ equity.
Comparative foreign exchange rates are as follows:
June 30, 2012 | March 31, 2012 | June 30, 2011 | |
One US Dollar to CDN Dollar | 1.0191 | 1.000 | 0.9643 |
The Company has not entered into any agreements or purchased any foreign currency hedging arrangements to hedge possible currency risks at this time.
The balances in US Dollar as at June 30, 2012 were as follows: (all figures in CDN$’000 equivalent)
Cash, receivable & short term investments | $ 5,344 |
Accounts payable and accrued liabilities | (669) |
Net assets | $ 4,675 |
Based on the above net exposure, a 5% depreciation of the Canadian dollar against US dollar will increase the net assets by $234,000 while a 5% appreciation of the Canadian dollar against US dollar will decrease the net assets by $ 234,000.
16
Bontan Corporation Inc.
Notes to Interim Consolidated Financial Statements
(Canadian Dollars)
June 30, 2012 and 2011
(Unaudited – see Notice to Reader dated August 24, 2012)
17. CAPITAL DISCLOSURES
The Company considers the items included in Shareholders’ Equity as capital. The Company had payables of approximately $ 1.3 million as at June 30, 2012 and current assets, mostly in cash and short term investments, excluding the reclassified exploration and evaluation expenditure, of approximately $5.4 million. The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to pursue new business opportunities and to maintain a flexible capital structure which optimizes the costs of capital at an acceptable risk.
The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Company may attempt to issue new shares, issue new debt, acquire or dispose of assets or adjust the amount of cash and short term investments.
As at June 30, 2012, the shareholders’ equity was approximately $ 5.7 million (March 31, 2012: $ 4.8 million). Approximately 95% or $5.4 million was held in cash, receivable and short term investments (March 31, 2012: $0.3 million or 6%).
The Company is not subject to any externally imposed capital requirements and does not presently utilize any quantitative measures to monitor its capital. There have been no changes to the Company’s approach to capital management during the three months ended June 30, 2012.
The Company believes that the settlement agreement signed in December 2011 and closed on June 29, 2012, as explained in Note 6 will generate significant cash flow which will enable the Company to not only meet its existing obligations but to invest in new projects while continuing its interest in the current project in the form of an overriding royalty interest.
18. | APPROVAL OF FINANCIAL STATEMENTS |
The condensed interim consolidated financial statements were approved by the board of directors and authorized for issue on August 24, 2012. |
17