Exhibit 99.2
Oilsands Quest Inc.
Financial Statements
July 31, 2006 and 2005
(Prepared in CDN $)
Oilsands Quest Inc.
Balance Sheets
Balance Sheets
(Canadian Dollars)
July 31, | January 31, | |||||||
2006 | 2006 | |||||||
(unaudited) | (audited) | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 50,064,743 | $ | 18,058,731 | ||||
GST and interest receivable | 203,890 | 206,393 | ||||||
Prepaid expenses and deposits | 552,224 | 19,802 | ||||||
50,820,857 | 18,284,926 | |||||||
Due from parent company | 1,296 | — | ||||||
Deferred charges | — | 27,868 | ||||||
Property and equipment (note 2) | 11,573,982 | 7,080,432 | ||||||
$ | 62,396,135 | $ | 25,393,226 | |||||
Liabilities | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued liabilities | $ | 866,761 | $ | 1,393,017 | ||||
Accrued interest on convertible debentures | — | 27,560 | ||||||
Convertible debentures (note 3) | — | 947,992 | ||||||
Future income taxes (note 4) | 974,486 | 1,205,610 | ||||||
1,841,247 | 3,574,179 | |||||||
Shareholders’ Equity | ||||||||
Share capital (note 5) | 60,895,752 | 21,953,571 | ||||||
Contributed surplus (note 6 (c)) | 15,649,740 | 310,250 | ||||||
Equity component of convertible debentures (note 3) | — | 199,174 | ||||||
Deficit | (15,990,604 | ) | (643,948 | ) | ||||
60,554,888 | 21,819,047 | |||||||
$ | 62,396,135 | $ | 25,393,226 | |||||
Commitments (note 7)
Approved by the Board,
(signed) “Christopher H. Hopkins” , Director
(signed) “Thomas Milne” , Director
Oilsands Quest Inc.
Statements of Loss and Deficit
(unaudited)
Statements of Loss and Deficit
(unaudited)
(Canadian Dollars)
Three Months | Three Months | Six Months | Six Months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
July 31, | July 31, | July 31, | July 31, | |||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Interest income | $ | 250,103 | $ | 16,062 | $ | 392,950 | $ | 17,284 | ||||||||
Expenses | ||||||||||||||||
Corporate | 436,032 | 12,440 | 579,950 | 78,211 | ||||||||||||
Interest on convertible debentures | — | 41,644 | 8,313 | 67,934 | ||||||||||||
Stock-based compensation | 15,218,990 | 6,750 | 15,339,490 | 13,500 | ||||||||||||
Amortization | 10,524 | 3,995 | 18,218 | 5,846 | ||||||||||||
15,665,546 | 64,829 | 15,945,971 | 165,491 | |||||||||||||
Loss before income taxes | 15,415,443 | 48,767 | 15,553,021 | 148,207 | ||||||||||||
Future income taxes (recovery) (note 4) | (219,442 | ) | (21,691 | ) | (206,365 | ) | (60,572 | ) | ||||||||
Net loss | 15,196,001 | 27,076 | 15,346,656 | 87,635 | ||||||||||||
Deficit, beginning of period | 794,603 | 125,214 | 643,948 | 64,655 | ||||||||||||
Deficit, end of period | $ | 15,990,604 | $ | 152,290 | $ | 15,990,604 | $ | 152,290 | ||||||||
Net loss per share – basic and diluted (note 5(d)) | $ | 0.80 | $ | 0.00 | $ | 0.83 | $ | 0.01 | ||||||||
Oilsands Quest Inc.
Statements of Cash Flows
(unaudited)
Statements of Cash Flows
(unaudited)
(Canadian Dollars)
Three Months | Three Months | Six Months | Six Months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
July 31, | July 31, | July 31, | July 31, | |||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Operating activities | ||||||||||||||||
Net loss | $ | (15,196,001 | ) | $ | (27,076 | ) | $ | (15,346,656 | ) | $ | (87,635 | ) | ||||
Items not affecting cash | ||||||||||||||||
Amortization of discount on convertible debentures | — | 25,894 | 5,330 | 42,059 | ||||||||||||
Interest on convertible debentures | — | 15,750 | 2,983 | 25,875 | ||||||||||||
Stock-based compensation | 15,218,990 | 6,750 | 15,339,490 | 13,500 | ||||||||||||
Amortization | 10,524 | 3,995 | 18,218 | 5,846 | ||||||||||||
Future income taxes recovery | (219,442 | ) | (21,691 | ) | (206,365 | ) | (60,572 | ) | ||||||||
(185,929 | ) | 3,622 | (187,000 | ) | (60,927 | ) | ||||||||||
Changes in non-cash working capital | (171,910 | ) | (29,592 | ) | (120,731 | ) | (1,184 | ) | ||||||||
(357,839 | ) | (25,970 | ) | (307,731 | ) | (62,111 | ) | |||||||||
Financing activities | ||||||||||||||||
Proceeds from share issuances | 37,409,503 | 4,914,053 | 37,409,503 | 5,013,053 | ||||||||||||
Share issuance costs | (40,852 | ) | (368,316 | ) | (40,852 | ) | (383,541 | ) | ||||||||
Proceeds on exercise of warrants | 11,750 | — | 393,600 | |||||||||||||
Issuance of convertible debentures | — | — | — | 1,100,000 | ||||||||||||
Deferred charges | — | — | — | (38,588 | ) | |||||||||||
Changes in non-cash working capital | 10,700 | — | — | (2,303 | ) | |||||||||||
37,391,101 | 4,545,737 | 37,762,251 | 5,688,621 | |||||||||||||
Investing activities | ||||||||||||||||
Acquisition of property and equipment | (864,603 | ) | (730,075 | ) | (4,511,768 | ) | (1,729,897 | ) | ||||||||
(Advance to) repayment from parent company | (1,296 | ) | 6,001 | (1,296 | ) | 6,001 | ||||||||||
Changes in non-cash working capital | 443,078 | (78,843 | ) | (935,444 | ) | (43,393 | ) | |||||||||
(422,821 | ) | (802,917 | ) | (5,448,508 | ) | (1,767,289 | ) | |||||||||
Cash inflow | 36,610,441 | 3,716,850 | 32,006,012 | 3,859,221 | ||||||||||||
Cash and cash equivalents, beginning of period | 13,454,302 | 706,391 | 18,058,731 | 564,020 | ||||||||||||
Cash and cash equivalents, end of period | $ | 50,064,743 | $ | 4,423,241 | $ | 50,064,743 | $ | 4,423,241 | ||||||||
Cash and cash equivalents is comprised of: | ||||||||||||||||
Balance with bank | $ | 89,898 | $ | 123,241 | ||||||||||||
Term deposits | 49,974,845 | 4,300,000 | ||||||||||||||
$ | 50,064,743 | $ | 4,423,241 | |||||||||||||
Oilsands Quest Inc.
Notes to Financial Statements
July 31, 2006
(unaudited)
Notes to Financial Statements
July 31, 2006
(unaudited)
Prepared using Canadian Generally Accepted Accounting Principles
All Amounts in CDN$, Unless Otherwise Indicated.
All Amounts in CDN$, Unless Otherwise Indicated.
1. | Basis of presentation | |
The interim financial statements of Oilsands Quest Inc. (“Oilsands Quest” or the “Company) are presented in accordance with Canadian generally accepted accounting principles. The interim financial statements for the three and six months ended July 31, 2006 (the “Periods”) have been prepared using the same accounting policies and methods of computation as the audited financial statements for the year ended January 31, 2006. The disclosures provided below are incremental to those included in the annual audited financial statements and should be read in conjunction with the audited financial statements and the notes thereto for the year ended January 31, 2006. | ||
2. | Property and equipment |
July 31, | January 31, | |||||||
2006 | 2006 | |||||||
Oil sands project | ||||||||
Exploration permits | $ | 2,672,108 | $ | 2,599,245 | ||||
Geological assessment and exploration costs | 7,857,893 | 3,875,308 | ||||||
Capitalized general and administrative expenses | 804,238 | 423,017 | ||||||
Capitalized regulatory costs | 32,218 | — | ||||||
Field equipment | 142,981 | 128,271 | ||||||
11,509,438 | 7,025,841 | |||||||
Corporate assets, net of accumulated amortization of $28,127 (January 31, 2006 - $ 9,909) | 64,544 | 54,591 | ||||||
$ | 11,573,982 | $ | 7,080,432 | |||||
The Exploration Permits (“Permits”) provide for the right to explore and work the Permit lands in the Province of Saskatchewan for a term of 5 years to May 31, 2009 or until a lease has been granted for their development. In accordance with the terms of Permits, the Company relinquished 40% of the total acreage covered by the Permits on May 31, 2005, and is required to relinquish another 40% of the remaining acreage in 2006. The Company has requested an extension of the 2006 relinquishment from the regulator and will undertake the relinquishment once a decision is made by the regulator. On July 31, 2006, the Permits comprised an area of approximately 846,690 acres. | ||
The Permits are subject to certain levels of expenditure annually on the applicable lands pursuant to the government regulations. The required exploration expenditures to hold the permits for the current year are four cents per acre escalating annually to ten cents per acre in the fifth year. |
Oilsands Quest Inc.
Notes to Financial Statements
July 31, 2006
(unaudited)
Notes to Financial Statements
July 31, 2006
(unaudited)
Prepared using Canadian Generally Accepted Accounting Principles
All Amounts in CDN$, Unless Otherwise Indicated.
All Amounts in CDN$, Unless Otherwise Indicated.
3. | Convertible debenture units |
(a) | During fiscal 2006, the Company issued 11 Debenture Units for gross proceeds of $1,100,000 in multiple closings. Each Unit was comprised of a $100,000 unsecured convertible debenture and 31,250 non-transferable common share purchase warrants. | ||
In the three month period ended April 30, 2006, the debenture holders exercised their right to convert the debenture principal of $1,100,000 plus accrued interest of $30,543 into 904,434 common shares at a rate of one common share for each $1.25 of principal or accrued interest. In addition, $27,868 of unamortized financing costs were transferred to share capital as share issue costs on conversion of the debentures. | |||
The debentures were to mature as to $300,000 on February 28, 2008, $100,000 on April 1, 2008 and $700,000 on April 15, 2008 and bore interest at 3% per annum payable or convertible into common shares of the Company at maturity. The holder had the option to convert the debentures into common shares of the Company at any time during the first 12 months from the date of issuance at a price of $1.25 per share and thereafter until maturity at a price of $1.60 per share. | |||
Each Warrant entitles the holder to acquire one common share at a price of $1.60 per share, at any time prior to the earlier of (i) the date the common shares of the Company are listed and posted for trading on a recognized stock exchange; and (ii) three years from date of issuance. | |||
As the debentures were convertible at the option of the holder through the issuance of common shares, the Debenture Units were segregated into debt and equity components based on their respective fair values at the date of issuance. The equity component noted below represents the value assigned to the holder’s conversion right and the common share purchase warrants and was included in shareholders’ equity. The liability component was calculated as the present value of the principal and the required interest payments discounted (for the three-year term to maturity) at an interest rate of 10% per annum, a rate approximating what would have been applicable to a non-convertible debenture at the time the debenture was issued. The equity component was determined as follows: |
Face value | $ | 1,100,000 | ||
Liability component | 900,826 | |||
Net amount classified as shareholders’ equity on issuance | $ | 199,174 | ||
On conversion of the Debenture Units the liability component above plus accumulated interest was added to shareholders’ equity and the previously reported “Equity component of convertible debentures” was reclassified to share capital. |
Oilsands Quest Inc.
Notes to Financial Statements
July 31, 2006
(unaudited)
Notes to Financial Statements
July 31, 2006
(unaudited)
Prepared using Canadian Generally Accepted Accounting Principles
All Amounts in CDN$, Unless Otherwise Indicated.
All Amounts in CDN$, Unless Otherwise Indicated.
(b) | The issue discount between the liability component and face value of convertible debentures was amortized as additional interest expense over the period to conversion. During the three month period ended April 30, 2006, the Company recognized $5,330 as additional interest expense. At the date of conversion, a total of $52,496 has been included in interest on convertible debentures as amortization of the discount. This amount was transferred to share capital on conversion of the debentures. |
4. | Income taxes |
(a) | Future tax liability | ||
The following summarizes the temporary differences that give rise to the future income tax liability at July 31 and January 31, 2006: |
July 31, | January 31, | |||||||
2006 | 2006 | |||||||
Book value of property and equipment in excess of tax value | $ | 1,301,376 | $ | 1,475,913 | ||||
Non-capital loss carry-forwards tax benefit | (185,783 | ) | (137,168 | ) | ||||
Share issue costs tax benefit | (122,992 | ) | (131,961 | ) | ||||
Other | (18,115 | ) | (1,174 | ) | ||||
$ | 974,486 | $ | 1,205,610 | |||||
(b) | Future income taxes recovery differs from that which would be expected from applying the combined effective Canadian federal and provincial income tax rates of approximately 39.1% to loss before income taxes. The difference results from the following: |
Three Months | Three Months | Six Months | Six Months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
July 31, | July 31, | July 31, | July 31, | |||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Expected current income tax recovery | $ | (6,027,438 | ) | $ | (19,068 | ) | $ | (6,081,231 | ) | $ | (57,949 | ) | ||||
Resource allowance | 22,162 | 2,010 | 34,036 | 9,598 | ||||||||||||
Stock-based compensation | 5,950,626 | 2,640 | 5,997,742 | 5,279 | ||||||||||||
Impact of tax rate reduction | (161,297 | ) | — | (161,297 | ) | — | ||||||||||
Other | (3,495 | ) | (7,273 | ) | 4,385 | (17,500 | ) | |||||||||
$ | (219,442 | ) | $ | (21,691 | ) | $ | (206,365 | ) | $ | (60,572 | ) | |||||
Oilsands Quest Inc.
Notes to Financial Statements
July 31, 2006
(unaudited)
Notes to Financial Statements
July 31, 2006
(unaudited)
Prepared using Canadian Generally Accepted Accounting Principles
All Amounts in CDN$, Unless Otherwise Indicated.
All Amounts in CDN$, Unless Otherwise Indicated.
5. | Share capital |
(a) | Authorized | ||
Unlimited voting common shares | |||
Unlimited number of preferred shares |
(b) | Issued — common shares |
Stated | ||||||||
Number | Value | |||||||
Balance, January 31, 2006 | 17,558,838 | $ | 21,953,571 | |||||
Conversion of convertible debentures (note 3) | 904,434 | 1,183,039 | ||||||
Exercise of warrants | 234,375 | 393,600 | ||||||
Flow-through financing | 703,054 | 37,409,503 | ||||||
Share issuance costs, net of tax benefit of $24,759 | — | (43,961 | ) | |||||
Balance, July 31, 2006 | 19,400,701 | $ | 60,895,752 | |||||
In the six month period ended July 31, 2006, the Company issued 234,375 common shares for gross proceeds of $393,600 on the exercise of warrants.
On July 5, 2006 the Company completed a flow-through financing with CanWest Petroleum Corporation (“CanWest”) in which 703,054 shares were issued to CanWest for gross proceeds of $37,409,503. In accordance with the terms of the offering and pursuant to certain provisions of the Income Tax Act (Canada), the Company is required to expend $37,409,503 on qualifying expenditures for renouncement to CanWest before July 5, 2008. The future income tax impact of renouncing tax deductions to CanWest will be recorded when the tax filings renouncing amounts are made in an aggregate amount of $13,467,421 as a reduction of share capital and an increase to the future income taxes liability.
Oilsands Quest Inc.
Notes to Financial Statements
July 31, 2006
(unaudited)
Notes to Financial Statements
July 31, 2006
(unaudited)
Prepared using Canadian Generally Accepted Accounting Principles
All Amounts in CDN$, Unless Otherwise Indicated.
All Amounts in CDN$, Unless Otherwise Indicated.
(c) | A summary of the outstanding common share purchase warrants and agents options and changes during the period are as follows: |
Six Months Ended | ||||||||
July 31, 2006 | ||||||||
Weighted | ||||||||
Average | ||||||||
Exercise | ||||||||
Number | Price | |||||||
Outstanding, beginning of period | 2,444,513 | $ | 6.03 | |||||
Exercised | (234,375 | ) | 1.68 | |||||
Outstanding, end of period | 2,210,138 | $ | 6.50 | |||||
The following summarizes the outstanding common share purchase warrants and agent options at July 31, 2006: |
Weighted | ||||||||
Average | ||||||||
Number | Remaining | |||||||
Outstanding at | Contractual | |||||||
Exercise Price | July 31, 2006 | Life | ||||||
$ 1.60 | 156,250 | 1.62 years | ||||||
2.00 | 803,888 | 0.84 | ||||||
10.00 | 1,250,000 | 0.25 | ||||||
2,210,138 | 0.56 years | |||||||
(d) | Basic and diluted loss per share has been calculated using the weighted average number of common shares outstanding during the period as set out below. The exercise of stock options and warrants would be anti-dilutive. |
Three Months | Three Months | Six Months | Six Months | |||||||||
Ended | Ended | Ended | Ended | |||||||||
July 31, | July 31, | July 31, | July 31, | |||||||||
2006 | 2005 | 2006 | 2005 | |||||||||
18,900,628 | 12,498,281 | 18,520,604 | 11,639,955 |
Oilsands Quest Inc.
Notes to Financial Statements
July 31, 2006
(unaudited)
Notes to Financial Statements
July 31, 2006
(unaudited)
Prepared using Canadian Generally Accepted Accounting Principles
All Amounts in CDN$, Unless Otherwise Indicated.
All Amounts in CDN$, Unless Otherwise Indicated.
6. Stock based compensation
(a) | A summary of the Company’s stock options is as follows: |
Six Months Ended | ||||||||
July 31, 2006 | ||||||||
Weighted | ||||||||
Average | ||||||||
Number | Exercise Price | |||||||
Outstanding, beginning of period | 700,000 | $ | 4.00 | |||||
Granted | 1,230,000 | 20.13 | ||||||
Outstanding, end of period | 1,930,000 | $ | 14.28 | |||||
Exercisable, end of period | 1,130,000 | $ | 8.64 | |||||
(b) | The following table summarizes information about stock options outstanding at July 31, 2006: |
Number | Number | Weighted Average | ||||||||||
Outstanding at | Exercisable at | Remaining | ||||||||||
Exercise Price | July 31, 2006 | July 31, 2006 | Contractual Life | |||||||||
$ 0.50 | 200,000 | 200,000 | 3.29 years | |||||||||
3.00 | 100,000 | — | 4.01 | |||||||||
6.00 | 715,000 | 715,000 | 4.54 | |||||||||
25.00 | 915,000 | 215,000 | 4.75 | |||||||||
1,930,000 | 1,130,000 | 4.48 years | ||||||||||
Oilsands Quest Inc.
Notes to Financial Statements
July 31, 2006
(unaudited)
Notes to Financial Statements
July 31, 2006
(unaudited)
Prepared using Canadian Generally Accepted Accounting Principles
All Amounts in CDN$, Unless Otherwise Indicated.
All Amounts in CDN$, Unless Otherwise Indicated.
(c) | The fair value of the options granted during the period was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: |
Expected life (years) | 5 | |||
Risk-free interest rate (%) | 4.50 | |||
Expected volatility (%) | 125 | |||
Expected dividend yield (%) | 0 | |||
Weighted average stock option fair value per option granted | $ | 26.63 |
In the six month period ended July 31, 2006, stock-based compensation costs of $15,339,490 (2005 — $13,500) has been expensed with an offsetting adjustment to contributed surplus and unrecognized compensation costs of $17,610,020 will be recorded in future periods as options vest. |
7. | Commitments | |
In support of an expanded drilling program and in anticipation of a renewed exploration effort next winter, the Company has committed to the purchase of the required portable residential facility for delivery in fall, 2006 at a cost of approximately $4.0 million. The Company has advanced $480,000 in contractual commitments to July 31, 2006. On July 1, 2006, the Company leased additional office space for a two-year term. The minimum lease payments for the next two years are $179,600 per annum. | ||
8. | Subsequent events |
(a) | Stock options | ||
On August 1, 2006, 50,000 options with an exercise price of $50.00 were granted. These options will vest 25% immediately and 25% on each of the first, second and third anniversaries of the date of grant and expire on August 1, 2011. |
Oilsands Quest Inc.
Notes to Financial Statements
July 31, 2006
(unaudited)
Notes to Financial Statements
July 31, 2006
(unaudited)
Prepared using Canadian Generally Accepted Accounting Principles
All Amounts in CDN$, Unless Otherwise Indicated.
All Amounts in CDN$, Unless Otherwise Indicated.
(b) | Corporate reorganization | ||
On June 9, 2006, the Company entered into an agreement with CanWest that provided for the combination of the two companies. The reorganization was completed on August 14, 2006. Under the terms of the agreement, each of the common shares of Oilsands Quest Inc. not already owned by CanWest was exchanged for 8.23 non-voting exchangeable shares of Oilsands Quest Inc. The rights, privileges and restrictions governing the exchangeable shares provide that each exchangeable share may be exchanged for one CanWest common share. Through a voting trust arrangement, the holders of each exchangeable share are entitled to vote at all meetings of holders of common stock of CanWest. The exchangeable shares are entitled to a preference over the common shares in the event of a liquidation, dissolution or wind-up of Oilsands Quest Inc. whether voluntary or involuntary, or any other distribution of the assets of the Company, among its shareholders for the purpose of winding up its affairs. The articles of the Company have been amended as required to effect this reorganization. | |||
The Company paid its financial advisors $400,000 and issued 35,000 common shares (288,050 exchangeable shares) of the Company on the successful completion of this reorganization. |
9. | United States accounting principles and reporting | |
The Company’s financial statements have been prepared in Canadian dollars and in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”), which in most respects conform to accounting principles generally accepted in the United States (“U.S. GAAP”). Significant differences between Canadian and U.S. GAAP are described in this note: |
(a) | Property and equipment | ||
In accordance with U.S. GAAP and Securities and Exchange Commission guidelines, all exploration costs incurred to the date of establishing that a property is economically recoverable are charged to operations. Under Canadian GAAP, exploration and related general and administrative expenses are capitalized. | |||
(b) | Convertible debentures | ||
Under Canadian GAAP, the debt and equity components of convertible debentures are accounted for separately. Under U.S. GAAP, compound instruments are not divided into debt and equity components except for convertible features that are in-the-money at the time of issuance and convertible instruments that have detachable warrants. The common share purchase warrants attached to the convertible debentures issued during the year ended January 31, 2006 were determined to have no value therefore, the entire debenture is classified as a long-term liability under U.S. GAAP. |
Oilsands Quest Inc.
Notes to Financial Statements
July 31, 2006
(unaudited)
Notes to Financial Statements
July 31, 2006
(unaudited)
Prepared using Canadian Generally Accepted Accounting Principles
All Amounts in CDN$, Unless Otherwise Indicated.
All Amounts in CDN$, Unless Otherwise Indicated.
Under U.S. GAAP, the convertible debenture must be accounted for at its par value and the interest expense must be calculated using the contract interest rate. | |||
(c) | Flow-through shares | ||
U.S. GAAP requires the stated capital on flow-through share issuances to be equal to the estimated fair market value of the shares on the date of issue. The difference between the gross proceeds received on the issuance of the shares and the estimated fair market value of the shares is recorded as a liability (“the Premium). Under Canadian GAAP, the gross proceeds received on flow-through share issuances are initially recorded as share capital. The remaining Premium recorded as a current liability under U.S. GAAP at July 31, 2006 is $7,481,901. | |||
When the tax deductions are renounced to subscribers, Canadian GAAP requires that the stated capital be reduced by and a future tax liability be recorded for the estimated future income taxes payable as a result of the renouncement. Under U.S. GAAP, when expenditures are incurred the future tax liability is recorded through a charge to income tax expense less the reversal of the Premium previously reported. | |||
(d) | Income taxes | ||
Under U.S. GAAP, enacted tax rates are used to calculate future taxes, whereas under Canadian GAAP, substantively enacted tax rates are used. There are no differences for the periods ended July 31, 2006 and 2005. | |||
(e) | Share-based payment | ||
Under Canadian GAAP, compensation costs have been recognized in the financial statements based on the fair value of stock options granted to employees, officers and directors which follows similar recommendations under U.S. Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (FAS) 123(R). Under FAS 123(R) entities are required to use the grant-date fair value of the award in measuring the cost of employee services received in exchange for an equity award of equity instruments. Compensation cost is required to be recognized over the requisite service period. Forfeitures must be estimated. | |||
For liability awards, entities are required to re-measure the fair value of the award at each reporting date up until the settlement date. Changes in fair value of liability awards during the requisite service period are required to be recognized as compensation cost over the vesting period. Compensation cost is not recognized for equity instruments for which employees do not render the requisite service. |
Oilsands Quest Inc.
Notes to Financial Statements
July 31, 2006
(unaudited)
Notes to Financial Statements
July 31, 2006
(unaudited)
Prepared using Canadian Generally Accepted Accounting Principles
All Amounts in CDN$, Unless Otherwise Indicated.
All Amounts in CDN$, Unless Otherwise Indicated.
The Company elected to apply the modified prospective application in adopting FAS 123(R) on February 1, 2006. Under modified prospective application, FAS 123(R) applies to new awards and to awards modified, repurchased or cancelled after February 1, 2006. The adoption of FAS 123(R) did not result in restatement of prior periods. | |||
(f) | Consolidated statement of cash flows | ||
Under U.S. GAAP, separate subtotals within cash flows from operating activities are not presented. | |||
(g) | Recent accounting pronouncements | ||
Accounting changes and error corrections | |||
As of January 1, 2006, the Company is required to adopt, for U.S. GAAP purposes, SFAS 154 “Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and SFAS 3”. SFAS 154 requires retrospective application of changes in accounting principles to prior period financial statements, unless it is impracticable to do so. Previously, Opinion 20 required that voluntary changes in accounting principles be recognized by including the cumulative effect of the new accounting principle in net income of the period of the change. The Company does not expect this standard to have a material impact on the financial statements. | |||
(h) | Summary of Significant Differences between U.S. GAAP and Canadian GAAP |
(i) | Reconciliation of Net Loss under Canadian GAAP to U.S. GAAP |
Three | Three | Six | Six | |||||||||||||||||
Months | Months | Months | Months | |||||||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||||||
July 31, | July 31, | July 31, | July 31, | |||||||||||||||||
Notes | 2006 | 2005 | 2006 | 2005 | ||||||||||||||||
Net loss under Canadian GAAP | $ | 15,196,001 | $ | 27,076 | $ | 15,346,656 | $ | 87,635 | ||||||||||||
Exploration expense | (a) | 578,732 | 45,307 | 3,982,585 | 88,478 | |||||||||||||||
Corporate expense | (a) | 246,033 | 95,772 | 413,439 | 186,802 | |||||||||||||||
Interest on convertible debentures | (b) | — | (25,894 | ) | (5,330 | ) | (42,059 | ) | ||||||||||||
Future tax expense, net of valuation allowance | (c) | 233,332 | 8,654 | 231,124 | 9,478 | |||||||||||||||
Net loss under U.S. GAAP | $ | 16,254,098 | $ | 150,915 | $ | 19,968,474 | $ | 330,334 | ||||||||||||
Net loss per share – basic and diluted | $ | 0.86 | $ | 0.01 | $ | 1.08 | $ | 0.03 | ||||||||||||
Oilsands Quest Inc.
Notes to Financial Statements
July 31, 2006
(unaudited)
Notes to Financial Statements
July 31, 2006
(unaudited)
Prepared using Canadian Generally Accepted Accounting Principles
All Amounts in CDN$, Unless Otherwise Indicated.
All Amounts in CDN$, Unless Otherwise Indicated.
(ii) | Condensed Balance Sheets |
Notes | July 31, 2006 | January 31, 2006 | ||||||||||||||||||
Canadian | U.S. | Canadian | U.S. | |||||||||||||||||
GAAP | GAAP | GAAP | GAAP | |||||||||||||||||
Current assets | $ | 50,820,857 | $ | 50,820,857 | $ | 18,284,926 | $ | 18,284,926 | ||||||||||||
Property and equipment | (a) | 11,573,982 | 2,879,633 | 7,080,432 | 2,782,107 | |||||||||||||||
Other non-current assets | 1,296 | 1,296 | 27,868 | 27,868 | ||||||||||||||||
$ | 62,396,135 | $ | 53,701,786 | $ | 25,393,226 | $ | 21,094,901 | |||||||||||||
Current liabilities | (c) | $ | 866,761 | $ | 8,348,662 | $ | 1,393,017 | $ | 1,393,017 | |||||||||||
Accrued interest on convertible debentures | — | — | 27,560 | 27,560 | ||||||||||||||||
Convertible debentures | (b) | — | — | 947,992 | 1,100,000 | |||||||||||||||
Future income taxes | (c) | 974,486 | — | 1,205,610 | — | |||||||||||||||
1,841,247 | 8,348,662 | 3,574,179 | 2,520,577 | |||||||||||||||||
Share capital | (b),(c) | 60,895,752 | 54,026,061 | 21,953,571 | 22,618,277 | |||||||||||||||
Contributed surplus | 15,649,740 | 15,649,740 | 310,250 | 310,250 | ||||||||||||||||
Equity component of convertible debentures | (b) | — | — | 199,174 | — | |||||||||||||||
Deficit | (a),(b),(c) | (15,990,604 | ) | (24,322,677 | ) | (643,948 | ) | (4,354,203 | ) | |||||||||||
60,554,888 | 43,353,124 | 21,819,047 | 18,574,324 | |||||||||||||||||
$ | 62,396,135 | $ | 53,701,786 | $ | 25,393,226 | $ | 21,094,901 | |||||||||||||
Oilsands Quest Inc.
Notes to Financial Statements
July 31, 2006
(unaudited)
Notes to Financial Statements
July 31, 2006
(unaudited)
Prepared using Canadian Generally Accepted Accounting Principles
All Amounts in CDN$, Unless Otherwise Indicated.
All Amounts in CDN$, Unless Otherwise Indicated.
(iii) | Statements of Cash Flows under U.S. GAAP |
Three | Three | Six | Six | |||||||||||||
Months | Months | Months | Months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
July 31, | July 31, | July 31, | July 31, | |||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Operating activities | ||||||||||||||||
Net loss | $ | (16,254,098 | ) | $ | (150,915 | ) | $ | (19,968,474 | ) | $ | (330,334 | ) | ||||
Items not affecting cash | ||||||||||||||||
Interest on convertible debentures | — | 15,750 | 2,983 | 25,875 | ||||||||||||
Stock-based compensation | 15,218,990 | 6,750 | 15,339,490 | 13,500 | ||||||||||||
Amortization | 10,524 | 3,995 | 18,218 | 5,846 | ||||||||||||
Future income tax expense (recovery) | 13,890 | (13,037 | ) | 24,759 | (51,094 | ) | ||||||||||
Changes in non-cash working capital | 281,868 | (108,435 | ) | (1,056,175 | ) | (46,880 | ) | |||||||||
(728,826 | ) | (245,892 | ) | (5,639,199 | ) | (383,087 | ) | |||||||||
Financing activities | ||||||||||||||||
Cash provided by financing activities | 37,380,401 | 4,545,737 | 37,762,251 | 5,690,924 | ||||||||||||
Investing activities | ||||||||||||||||
Cash used in investing activities | (41,134 | ) | (582,995 | ) | (117,040 | ) | (1,448,616 | ) | ||||||||
Net increase in cash and cash equivalents | 36,610,441 | 3,716,850 | 32,006,012 | 3,859,221 | ||||||||||||
Cash and cash equivalents, beginning of period | 13,454,302 | 706,391 | 18,058,731 | 564,020 | ||||||||||||
Cash and cash equivalents, end of period | $ | 50,064,743 | $ | 4,423,241 | $ | 50,064,743 | $ | 4,423,241 | ||||||||