Consolidated Financial Statements
(Expressed in Thousands of Canadian Dollars)
Years Ended December 31, 2009 and 2008
| Chartered Accountants | |
| PricewaterhouseCoopers Place | |
| 250 Howe Street, Suite 700 | |
| Vancouver, British Columbia | |
| Canada V6C 3S7 | |
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Independent Auditors’ Report
To the Shareholders of Exeter Resource Corporation
We have completed integrated audits of Exeter Resource Corporation’s (the “Company”)2009 and 2008 consolidated financial statements and of its internal control over financial reporting as at December 31, 2009. Our opinions, based on our audits, are presented below.
Consolidated financial statements
We have audited the accompanying consolidated balance sheets of the Company as at December 31, 2009 and December 31, 2008, and the related consolidated statements of loss and comprehensive loss, cash flows and shareholders’ equity for each of the years in the two year period ended December 31, 2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits of the Company’s financial statements in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. A financial statement audit also includes assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as at December 31, 2009 and December 31, 2008 and the results of its operations and its cash flows for each of the years then ended in accordance with Canadian generally accepted accounting principles.
Internal control over financial reporting
We have also audited the Company’s internal control over financial reporting as at December 31, 2009, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting included in Management’s Discussion and Analysis of Financial Condition and Results of Operations.Our responsibility is to express an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.
“PricewaterhouseCoopers” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership, or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate legal entity.
We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financialreporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as at December 31, 2009 based on criteria established in Internal Control – Integrated Framework issued by the COSO.
Signed PricewaterhouseCoopers LLP
Chartered Accountants
Vancouver, British Columbia
| Exeter Resource Corporation |
| Consolidated Financial Statements |
| Years Ended December 31, 2009 and 2008 | Page | |
| Auditors’ Report | 1 | |
| Consolidated Balance Sheets | 3 | |
| Consolidated Statements of Loss and Comprehensive Loss | 4 | |
| Consolidated Statements of Cash Flows | 5 | |
| Consolidated Statements of Shareholders’ Equity | 6 | |
| Notes to the Consolidated Financial Statements | 7–30 |
2
| Exeter Resource Corporation |
Consolidated Balance Sheets (Expressed in Thousands of Canadian Dollars) |
| December 31, | 2009 (Restated – Note 18) | 2008 (Restated – Note 18) | |||||||
| Assets | |||||||||
| Current | |||||||||
| Cash and cash equivalents | (Note 6) | $ | 80,624 | $ | 18,699 | ||||
| Amounts receivable and prepaid expenses | 410 | 605 | |||||||
| Due from related party | 16 | - | |||||||
| Current assets related to discontinued operations | (Note 18) | 592 | 469 | ||||||
| 81,642 | 19,773 | ||||||||
| Property and equipment | (Note 7 and 18) | 278 | 284 | ||||||
| Long term assets related to discontinued operations | (Notes8 and 18) | 3,442 | 3,440 | ||||||
| $ | 85,362 | $ | 23,497 | ||||||
| Liabilities | |||||||||
| Current | |||||||||
| Accounts payable and accrued liabilities | $ | 2,659 | $ | 1,013 | |||||
| Due to related parties | (Note 13) | 67 | 278 | ||||||
| Current liabilities related to discontinued operations | (Note 18) | 1,435 | 1,532 | ||||||
| 4,161 | 2,823 | ||||||||
| Shareholders’ Equity | |||||||||
| Share capital | (Note 9) | 174,418 | 89,356 | ||||||
| Contributed surplus | (Note 12) | 18,265 | 11,822 | ||||||
| Deficit | (111,482 | ) | (80,504 | ) | |||||
| 81,201 | 20,674 | ||||||||
| $ | 85,362 | $ | 23,497 | ||||||
Nature of Operations(Note 1)
Subsequent Events(Note 18)
Approved by the Directors:
| “Bryce Roxburgh” | |
| Director | |
| “Robert Reynolds” | |
| Director |
See accompanying notes to the consolidated financial statements.
3
| Exeter Resource Corporation |
Consolidated Statements of Loss and Comprehensive Loss (Expressed in Thousands of Canadian Dollars, Except Share Data) |
| For the years ended December 31, | 2009 (Restated – Note 18) | 2008 (Restated – Note 18) | |||||||
| Income | |||||||||
| Interest income | $ | 499 | $ | 706 | |||||
| Expenses | |||||||||
| Accounting and audit | 98 | 49 | |||||||
| Administration salaries and consulting | (Note 10) | 825 | 630 | ||||||
| Amortization | 31 | 66 | |||||||
| Directors’ fees | (Note 10) | 886 | 688 | ||||||
| Foreign exchange loss | 359 | 97 | |||||||
| General and administration | 421 | 352 | |||||||
| Legal fees | 197 | 40 | |||||||
| Management fees | (Note 10) | 1,612 | 623 | ||||||
| Mineral property exploration expenditures | (Notes8 and 10) | 11,823 | 8,281 | ||||||
| Shareholder communications | (Note 10) | 525 | 173 | ||||||
| Stock exchange listing and filing fees | 179 | 92 | |||||||
| 16,956 | 11,091 | ||||||||
| Loss from continuing operations | 16,457 | 10,385 | |||||||
| Loss from discontinued operations | (Note 18) | 14,521 | 18,258 | ||||||
| Net loss and comprehensive loss for the year | $ | (30,978 | ) | $ | (28,643 | ) | |||
| Basic & diluted loss per common share from continuing operations | $ | (0.27 | ) | $ | (0.23 | ) | |||
| Basic & diluted loss per common share from discontinued operations | (Note 18) | $ | (0.24 | ) | $ | (0.39 | ) | ||
| Total basic & diluted loss per share | $ | (0.51 | ) | $ | (0.62 | ) | |||
| Weighted average number of common shares outstanding | 61,322,833 | 46,420,487 | |||||||
See accompanying notes to the consolidated financial statements.
4
| Exeter Resource Corporation |
Consolidated Statements of Cash Flows (Expressed in Thousands of Canadian Dollars, Except Share Data) |
| For the years ended December 31, | 2009 (Restated – Note 18) | 2008 (Restated – Note 18) | |||||||
| Operating activities | |||||||||
| Loss for the yearfrom continuing operations | $ | (16,457 | ) | $ | (10,385 | ) | |||
| Non cash items: | |||||||||
| Amortization | 31 | 66 | |||||||
| Total stock based compensation | (Note 10) | 4,055 | 1,836 | ||||||
| (12,371 | ) | (8,483 | ) | ||||||
| Changes in non-cash working capital items: | |||||||||
| Amounts receivable and prepaid expenses | 179 | (242 | ) | ||||||
| Accounts payable and accrued liabilities | 1,646 | 599 | |||||||
| Due to related parties | (211 | ) | 87 | ||||||
| Cash flows from the operating activities of continuing operations | (10,757 | ) | (8,039 | ) | |||||
| Loss for the year from discontinued operations | (14,521 | ) | (18,258 | ) | |||||
| Non cash items: | |||||||||
| Amortization | 106 | 67 | |||||||
| Gain on sale of property andequipment | (11 | ) | - | ||||||
| Stock based compensation | (Note 10) | 3,039 | 2,762 | ||||||
| Changes in non-cash working capital items: | |||||||||
| Amounts receivable and prepaid expenses | (72 | ) | 30 | ||||||
| Accounts payable and accrued liabilities | (97 | ) | 173 | ||||||
| Cash flows from the operating activities of discontinued operations | (11,556 | ) | (15,226 | ) | |||||
| Cash flows from operating activities | 22,313 | 23,625 | |||||||
| Financing activities | |||||||||
| Issue of share capital for cash | (Note 9) | 78,243 | 21,444 | ||||||
| Share issue costs | (Note 9) | (5,537 | ) | (2,673 | ) | ||||
| Cash flows from financing activities of continuing operations | 72,706 | 18,771 | |||||||
| Cash flows from financing activities of discontinued operations | 11,705 | 15,175 | |||||||
| Cash flows from financing activities | 84,411 | 33,946 | |||||||
| Investing activities | |||||||||
| Acquisition of property and equipment | (24 | ) | (178 | ) | |||||
| Cash flows from investing activities of continuing operations | (24 | ) | (178 | ) | |||||
| Cash flows from investing activities of discontinued operations | (98 | ) | (113 | ) | |||||
| Cash flows from investing activities | (122 | ) | (291 | ) | |||||
| Net increase in cash and cash equivalents | (Note 18) | 61,976 | 10,390 | ||||||
| Cash and cash equivalents, beginning of year | (Note 18) | 19,113 | 8,723 | ||||||
| Cash and cash equivalents, end of year | (Note 18) | $ | 81,089 | $ | 19,113 | ||||
| Supplemental cash flow information | (Note 14) | ||||||||
| Subsequent events | (Note 18) | ||||||||
See accompanying notes to the consolidated financial statements.
5
Exeter Resource Corporation Consolidated Statements of Shareholders’ Equity (Expressed in Thousands of Canadian Dollars, Except Share Data) |
| For the years ended December 31, 2009 and 2008 |
| Issued Share Capital | Contributed | Total Shareholders' | ||||||||||||||||||
| Number of Shares | Amount | Surplus | Deficit | Equity | ||||||||||||||||
| Balance at December 31, 2007 | 41,226,487 | $ | 55,249 | $ | 7,234 | $ | (51,861 | ) | $ | 10,622 | ||||||||||
| Additions during the year: | ||||||||||||||||||||
| - Exercise of warrants | 250,000 | 750 | - | - | 750 | |||||||||||||||
| - Exercise of stock options | 802,275 | 860 | - | - | 860 | |||||||||||||||
| - Equity financingnet of share issue costs | 7,780,000 | 32,336 | - | - | 32,336 | |||||||||||||||
| - Agent’s warrants | - | (681 | ) | 681 | - | - | ||||||||||||||
| - Contributed surplus allocated on exercise of stock options | - | 339 | (339 | ) | - | - | ||||||||||||||
| - Stock based compensation | - | - | 4,598 | - | 4,598 | |||||||||||||||
| - Bonus shares | 141,661 | 503 | (352 | ) | - | 151 | ||||||||||||||
| - Net loss for the year | - | - | - | (28,643 | ) | (28,643 | ) | |||||||||||||
| Balance at December 31, 2008 | 50,200,423 | $ | 89,356 | $ | 11,822 | $ | (80,504 | ) | $ | 20,674 | ||||||||||
| Additions during the year: | ||||||||||||||||||||
| - Exercise of warrants | 304,679 | 731 | - | - | 731 | |||||||||||||||
| - Exercise of stock options | 1,485,100 | 2,717 | - | - | 2,717 | |||||||||||||||
| - Equity financing net of share issue costs | 21,907,500 | 80,963 | - | - | 80,963 | |||||||||||||||
| - Agent’s warrants | - | (1,511 | ) | 1,511 | - | - | ||||||||||||||
| - Contributed surplus allocated on exercise of Agent’s Warrants | - | 376 | (376 | ) | - | - | ||||||||||||||
| - Contributed surplus allocated on exercise of stock options | - | 1,786 | (1,786 | ) | - | - | ||||||||||||||
| - Stock based compensation | - | - | 7,094 | - | 7,094 | |||||||||||||||
| - Net loss for the year | - | - | - | (30,978 | ) | (30,978 | ) | |||||||||||||
| Balance at December 31, 2009 | 73,897,702 | $ | 174,418 | $ | 18,265 | $ | (111,482 | ) | $ | 81,201 | ||||||||||
See accompanying notes to the consolidated financial statements.
6
| Exeter Resource Corporation |
Notes to the Consolidated Financial Statements (Expressed in Thousands of Canadian Dollars, Except Share Data) December 31, 2009 |
1. Nature of Business and Continuing Operations
Exeter Resource Corporation (the “Company”) is an exploration stage company incorporated under the laws of British Columbia, Canada and, together with its subsidiaries, is engaged in the acquisition and exploration of mineral properties located in Argentina and Chile (Note 18).
The Company is in the process of exploring its mineral properties and has not yet determined whether these properties contain mineral reserves that are economically recoverable. The continued operations of the Company and the recoverability of the amount shown for mineral properties are dependent upon the existence of economically recoverable reserves, the ability of the Company to obtain necessary financing to complete the development of such properties, and the profitable production from or disposition of such properties.
| 2. | Significant Accounting Policies |
| a) | Basis of Presentation |
These consolidated financial statements include the accounts of the following significant subsidiaries:
| Incorporation | Percentage of Ownership | |||||
| Estelar Resources Limited (“Estelar”) (Note 18) | British Virgin Islands | 100 | % | |||
| Cognito Limited (“Cognito”) (Note 18) | British Virgin Islands | 100 | % | |||
| Sociedad Contractual Minera Eton Chile (“Eton”) | Chile | 100 | % | |||
| b) | Mineral property acquisition costs |
Mineral properties consist of exploration and mining concessions, options and contracts. Acquisition costs are capitalized and deferred until such time as the property is put into production or the property is disposed of, either through sale or abandonment or becomes impaired. If a property is put into production the cost of acquisition will be written off over the life of the property based on estimated economic reserves. Proceeds received from the sale of any interest in a property will be credited against the carrying value of the property. If a property is abandoned, the acquisition costs will be written off to operations.
Recorded costs of mineral properties are not intended to reflect present or future values of the properties. The recorded costs are subject to measurement uncertainty and it is reasonably possible, based on existing knowledge, that changes in future conditions could require a material change in the recognized amounts.
Although the Company has taken steps to verify title to mineral properties in which it has an interest, these procedures do not guarantee the Company’s title. Such properties may be subject to prior undetected agreements or transfers and title may be affected by such defects.
7
| Exeter Resource Corporation |
Notes to the Consolidated Financial Statements (Expressed in Thousands of Canadian Dollars, Except Share Data) December 31, 2009 |
| 2. | Significant Accounting Policies (Continued) |
| c) | Mineral property exploration expenditures |
The Companyexpenses exploration expenditures when incurred.
| d) | Impairment of mineral property acquisition costs |
The Company regularly reviews the recoverability of the carrying value of each mineral property. Where information and conditions suggest that the carrying amount of the asset or the asset group may not be recoverable, estimated future cash flows are calculated using estimated future prices, proven and probable reserves, weighted probable outcomes and operating capital and reclamation costs on an undiscounted basis. If it is determined that the future cash flows are less than the carrying value, a write-down to the estimated fair value is expensed for the period. Where estimates of future net cash flows are not available and where other conditions suggest impairment, management assesses if carrying values can be recovered. If the carrying values exceed estimated recoverable values, then the costs are written-down to fair values with the write-down expensed in the year.
| e) | Asset retirement obligations |
Asset retirement obligations are recognized for estimatedobligations related to the retirement of long-lived tangible assets that arise from the acquisition, construction, development or normal operation of such assets. Aliability for an asset retirement obligationis recognized in the period in which it is incurred and when a reasonable estimate of the fair value of the liability can be made with the corresponding asset retirement cost recognized by increasing the carrying amount of the related long-lived asset. The asset retirement cost is subsequently allocated in a rational and systematic method over the underlying asset’s useful life. The initial fair value of the liability is accreted, by charges to operations, to its estimated future value. The Company had no asset retirement obligations at December 31, 2009.
| f) | Cash and cash equivalents |
TheCompany considers cash and cash equivalents to include amounts held in banks and highly liquid investments redeemable with an initial term to maturity of 90 days or less.
| g) | Translation of foreign currencies |
The financial position and results of the Company’s integrated foreign operations have been translated into Canadian funds using the temporal method as follows:
| i) | Monetary items, at the rate of exchange prevailing at the consolidated balance sheet date; |
| ii) | Non-monetary items, at the historical rate of exchange; and |
| iii) | Exploration and administration costs, at the average rate during the period in which the transaction occurred. |
Gains and losses arising on currency translation are included in operations for the period.
8
| Exeter Resource Corporation |
Notes to the Consolidated Financial Statements (Expressed in Thousands of Canadian Dollars, Except Share Data) December 31, 2009 |
| 2. | Significant Accounting Policies (Continued) |
| h) | Loss per share |
Basic loss per share is calculated using the weighted average number of common shares outstanding during the year. Diluted loss per share has not been presented separately as the effect of common shares issuable on the exercise of stock options and share purchase warrants would be anti-dilutive. Accordingly, basic and diluted loss per share arethe same.
| i) | Property and equipment |
Property and equipment are carried at cost less accumulated amortization. Amortization is calculated at the following annual rates:
| Canada | |
| Computer equipment | Declining balance - 30% |
| Computer software | Declining balance - 50% |
| Equipment | Declining balance - 20% |
| Leasehold improvements | Straight line - 5 years |
| Office equipment | Declining balance - 20% |
| Argentina and Chile | |
| Computer equipment | Straight-line – 3-6 years |
| Computer software | Straight-line – 2 years |
| Equipment including vehicles | Straight-line – 3-7 years |
| Office equipment | Straight-line – 5-7 years |
| j) | Share issue costs |
Share issue costs incurred on the issue of the Company’s shares are charged directly to share capital.
| k) | Share capital issued for other than cash |
Share capital issued for other than cash is valued at the price at which the stock traded on the Toronto Stock Exchange (the “Exchange”) at the time of the related agreement to issue stock is made or, if such issuance is at the option of the Company, at the time the Company determines to issue such stock.
| l) | Stock-based compensation |
The Company has adopted an incentive stock option plan.All stock-based awards are measured and recognized using the fair-value method as determined by the Black-Scholes optionpricing model. Awards that the Company has the ability to settle with stock are recorded as equity, whereas awards that the Company is required to settle, or has the practice of settling, in cash are recorded as liabilities. Compensation expense is allocated to the applicable expense category and is recognized in operations over the vesting period.
| m) | Income taxes |
Income taxes are accounted for using the asset andliability method. Under this method, income taxes are recognized for the estimated income taxes payable for the current year and future income taxes are recognized for temporary differences between the tax and accounting bases of assets and liabilities and for the benefit of losses available to be carried forward for tax purposes that are more likely than not to be realized. Future income tax assets and liabilities are measured using tax rates expected to apply in the years in which the temporary differences are expected to be recovered or settled.
9
| Exeter Resource Corporation |
Notes to the Consolidated Financial Statements (Expressed in Thousands of Canadian Dollars, Except Share Data) December 31, 2009 |
2. Significant Accounting Policies (Continued)
| n) | Use of estimates |
The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the year. Significant areas where management’s judgment is applied are mineral property impairment assessment, assumptions used in the accounting for stock based compensation, valuation of future income tax benefits, and contingent liabilities. Actual results could differ from those estimates.
| o) | Revenue recognition |
Interest income is accrued on a time-apportioned basis by reference to the principal outstanding using the effective interest rate method.
| p) | Financial instruments |
Financial instruments are classified as one of the following: loans and receivables, held-to-maturity, held -for-trading, available-for-sale and other financial liabilities. Financial instruments will be measured on the balance sheet at amortized cost or fair value depending on the classification. Loans and receivables, held-to-maturity and other financial liabilities are accounted for at amortized cost. Held-for-trading and available-for-sale financial instruments are recorded at fair value. Changes in fair value of held-for-trading financial instruments are recognized in operations while changes in fair value of available-for-sale financial instruments are initially recorded in other comprehensive income or loss.
Transaction costs that are directly attributable to the acquisition or issue of financial instruments that are classified as other than held-for-trading, which are expensed as incurred, are included in the initial carrying value of such instruments.
| q) | Discontinued operations |
Operating results of a company’s components disposed of by sale or being classified as held-for-sale are reported as discontinued operations if the operations and cash flows of those components have been, or will be, eliminated from the Company’s current operations pursuant to the disposal and if the Company does not have significant continuing involvement in the operations of the component after the disposal transaction. A component of an enterprise includes operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the Company’s operations and cash flows (Note 18).
| 3. | Changes in Accounting Policies and New Accounting Developments |
| i) | Current changes in accounting policies |
| a) | Goodwill and Intangible Assets, Section 3064 |
The CICA issued the new Handbook Section 3064, “Goodwill and Intangible Assets”, which replaces Section 3062, “Goodwill and Other Intangible Assets”. The new standard establishes revised standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. The new standard also provides guidance for the treatment of preproduction and start-up costs and requires that these costs be expensed as incurred. The Company adopted the new standard effective January 1, 2009 and there was no significant impact on the financial statements.
10
| Exeter Resource Corporation |
Notes to the Consolidated Financial Statements (Expressed in Thousands of Canadian Dollars, Except Share Data) December 31, 2009 |
| 3. | Changes in Accounting Policies and New Accounting Developments (Continued) |
| b) | Financial Instruments - Disclosure, Section 3862 |
In June 2009, Handbook Section 3862 was further amended to include disclosures about fair value measurements of financial instruments and to enhance liquidity risk disclosure. The additional fair value measurement disclosuresinclude classification of financial instrument fair values in a fair value hierarchy comprising three levels reflecting the significance of the inputs used in making the measurements, described as follows:
Level 1: Valuations based on quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: Valuations based on directly or indirectly observable inputs in active markets for similar assets or liabilities, other than Level 1 prices such as quoted interest or currency exchange rates; and
Level 3: Valuations based on significant inputs that are not derived from observable market data, such as discounted cash flow methodologies based on internal cash flow forecasts.
These amendments are required to be adopted for the fiscal years ending after September 20, 2009. The Company has adopted these amendments for the fiscal year ended December 31, 2009and the additional required disclosures are included in Note 5.
| ii) | Future changes in accounting policies |
Business Combinations
In January 2009, the CICA issued Handbook section 1582, Business Combinations, section 1601, Consolidated Financial Statements, and section 1602, Non-Controlling Interests. These sections replace the former section 1581, Business Combinations, and section 1600, Consolidated Financial Statements, and establish a new section for accounting for a non-controlling interest in a subsidiary.
Sections 1582 and 1602 will require net assets, non-controlling interests and goodwill acquired in a business combination to be recorded at fair value and non-controlling interests will be reported as a component of equity. In addition, the definition of a business is expanded and is described as an integrated set of activities and assets that are capable of being managed to provide a return to investors or economic benefits to owners. Acquisition costs are not part of the consideration and are to be expensed when incurred. Section 1601 establishes standards for the preparation of consolidated financial statements.
These new sections apply to interim and annual consolidated financial statements relating to fiscal years beginning on or after January 1, 2011. Earlier adoption of these sections is permitted as of the beginning of a fiscal year. All three sections must be adopted concurrently. The Company is currently evaluating the impact of the adoption of these sections.
11
| Exeter Resource Corporation |
Notes to the Consolidated Financial Statements (Expressed in Thousands of Canadian Dollars, Except Share Data) December 31, 2009 |
| 4. | Management of Capital |
The Company’s objectives when managing capital are to safeguardits ability to continue as a going concern in order to pursue the development of its mineral properties and to maintain a flexible capital structure which optimizes the cost of capital at an acceptable risk.
In the management of capital, the Company includes the components of shareholders’ equity.
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 its capital structure, the Company may attempt to issue new shares, issue debt, acquire or dispose of assets.
In order to facilitate the management of its capital requirements, the Company prepares annual expenditure budgets that are updated as necessary depending on various factors, including successful capital deployment and general industry conditions. The annual and updated budgets are approved by the Board of Directors.
In order to maximize ongoing development efforts, the Company does not pay dividends.
The Company’s investment policy is to limit investments to guaranteed investment certificates, banker’s acceptance notes, investment savings accountsor money market funds with high quality financial institutions in Canada and treasury bills, selected with regards to the expected timing of expenditures from continuing operations.
| 5. | Financial Instruments |
| a) | Fair Value |
The fair value of financial instruments at December 31, 2009 and 2008 is summarized as follows:
| 2009 | 2008 | ||||||||||||||||
Carrying amount | Fair value | Carrying amount | Fair value | ||||||||||||||
| Continuing Operations | |||||||||||||||||
| Financial Assets | |||||||||||||||||
| Held for trading | |||||||||||||||||
| Cash and cash equivalents | $ | 80,624 | $ | 80,624 | (i) | $ | 18,699 | $ | 18,699 | ||||||||
| Amounts receivable – at amortized cost | $ | 300 | $ | 300 | (ii) | $ | 265 | $ | 265 | ||||||||
| Due from related party | $ | 16 | $ | 16 | $ | - | $ | - | |||||||||
| Financial Liabilities – at amortized cost | |||||||||||||||||
| Accounts payable and accrued liabilities | $ | 2,659 | $ | 2,659 | (ii) | $ | 1,013 | $ | 1,013 | ||||||||
| Due to related parties | $ | 67 | $ | 67 | (ii) | $ | 278 | $ | 278 | ||||||||
| Discontinued Operations (Note 18) | |||||||||||||||||
| Financial Assets | |||||||||||||||||
| Held for trading | |||||||||||||||||
| Cash and cash equivalents | $ | 465 | $ | 465 | (i) | $ | 414 | $ | 414 | ||||||||
| Amounts receivable – at amortized cost | $ | 127 | $ | 127 | (ii) | $ | 55 | $ | 55 | ||||||||
| Financial Liabilities – at amortized cost | |||||||||||||||||
| Accounts payable and accrued liabilities | $ | 1,435 | $ | 1,435 | (ii) | $ | 1,532 | $ | 1,532 | ||||||||
| (i) | The Company’s cash and cash equivalents are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. |
| (ii) | The carrying amount of accounts receivable, accounts payable and accrued liabilities and due to related parties approximates fair value due to their short term nature. |
12
| Exeter Resource Corporation |
Notes to the Consolidated Financial Statements (Expressed in Thousands of Canadian Dollars, Except Share Data) December 31, 2009 |
| 5. | Financial Instruments(Continued) |
| b) | Financial Risk Management |
The Company’s activities potentially expose it to a variety of financial risks, including credit risk, foreign exchange risk (currency), liquidity and interest rate risk.
Credit risk
Credit risk is the risk that one party to a financial instrument, will fail to discharge an obligation and cause the other party to incur a financial loss. Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents and accounts receivable. The Company deposits the majority of its cash and cash equivalents with high credit quality financial institutions in Canada and holds balances in banks in Argentina and Chile as required to meet current expenditures. The carrying amount of financial assets recorded in the financial statements, net of any allowances for losses, represents the Company’s maximum exposure to credit risk.
Currency risk
The Company operates in a number of countries, including Canada, Argentina (Note 18) and Chile, and it is therefore exposed to foreign exchange risk arising from transactions denominated in a foreign currency.
The Company’s cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities are held in several currencies (mainly Canadian Dollars, US Dollars, Australian Dollars, Argentine Pesos and Chilean Pesos) and are therefore subject to fluctuation against the Canadian Dollar.
The Company had the following balances in foreign currency as at December 31, 2009and 2008 as follows:
2009 (in thousands) | ||||||||||||||||
Argentine Pesos (Note 18) | Chilean Pesos | US Dollars | Australian Dollars | |||||||||||||
| Cash and cash equivalents | 1,714 | 114,894 | 37 | - | ||||||||||||
| Amounts receivable | 468 | 35,230 | - | - | ||||||||||||
| Accounts payable and accrued liabilities | (5,401 | ) | (623,585 | ) | (317 | ) | (348 | ) | ||||||||
| Net balance | (3,219 | ) | (473,461 | ) | (280 | ) | (348 | ) | ||||||||
| Equivalent in Canadian Dollars | (873 | ) | (976 | ) | (294 | ) | (327 | ) | ||||||||
| Rate to convert to $1.00 CDN | 0.2713 | 0.002062 | 1.051 | 0.9395 | ||||||||||||
2008 (in thousands) | ||||||||||||||||
Argentine Pesos (Note 18) | Chilean Pesos | US Dollars | Australian Dollars | |||||||||||||
| Cash and cash equivalents | 1,196 | 200,692 | 773 | - | ||||||||||||
| Amounts receivable | 158 | 72,575 | - | - | ||||||||||||
| Accounts payable and accrued liabilities | (3,844 | ) | (362,718 | ) | - | (289 | ) | |||||||||
| Net balance | (2,490 | ) | (234,601 | ) | 773 | (289 | ) | |||||||||
| Equivalent in Canadian Dollars | (863 | ) | (70 | ) | 939 | (247 | ) | |||||||||
| Rate to convert to $1.00 CDN | 0.3464 | 0.001918 | 1.2142 | 0.8532 | ||||||||||||
Based on the above net exposures as at December 31, 2009, and assuming that all other variables remain constant, a 10% depreciation or appreciation of the Argentine peso against the Canadian dollar would result in an increase/decrease of $87 in the Company’s net lossfrom discontinued operations(Note 18).
13
| Exeter Resource Corporation |
Notes to the Consolidated Financial Statements (Expressed in Thousands of Canadian Dollars, Except Share Data) December 31, 2009 |
| 5. | Financial Instruments(Continued) |
Based on the above net exposures as at December 31, 2009, and assuming that all other variables remain constant, a 10% depreciation or appreciation of the Chilean peso, US dollar and Australian dollar against the Canadian dollar would result in an increase/decrease of $98, $29 and $33 respectively in the Company’s net loss.
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate due to changes in market interest rates. The Company’s interest rate risk mainly arises from the interest rate impact on the cash and cash equivalents. Cash and cash equivalents earn interest based on current market interest rates, which at year end ranged between 0% and 1.15%.
Based on the amount of cash and cash equivalents invested as at December 31, 2009, and assuming that all other variables remain constant, a 0.5% change in the applicable interest rate would result in an increase/decrease of $395 in the interest earned by the Company per annum.
Liquidity risk
Liquidity risk is the risk that an entity will encounter difficulty in raising funds to meet commitments associated with financial instruments. The Company manages liquidity by maintaining adequate cash and cash equivalent balances.
| 6. | Cash and Cash Equivalents (Note 18) |
| 2009 | 2008 | |||||||
| Cash | $ | 1,622 | $ | 1,679 | ||||
| Bankers’ Acceptance Notes | - | 7,020 | ||||||
| Investment Savings Accounts | 45,000 | - | ||||||
| Guaranteed Investment Certificates | 34,002 | 10,000 | ||||||
| Total | $ | 80,624 | $ | 18,699 | ||||
14
| Exeter Resource Corporation |
Notes to the Consolidated Financial Statements (Expressed in Thousands of Canadian Dollars, Except Share Data) December 31, 2009 |
| 7. | Property and Equipment |
| 2009 | 2008 | |||||||||||||||||||||||
| Cost | Accumulated Amortization | Net Book Value | Cost | Accumulated Amortization | Net Book Value | |||||||||||||||||||
| Canada | ||||||||||||||||||||||||
| Computer equipment | $ | 103 | $ | 62 | $ | 41 | $ | 95 | $ | 46 | $ | 49 | ||||||||||||
| Computer software | 15 | 14 | 1 | 15 | 11 | 4 | ||||||||||||||||||
| Equipment | 44 | 25 | 19 | 44 | 20 | 24 | ||||||||||||||||||
| Leasehold improvements | 27 | 27 | - | 27 | 26 | 1 | ||||||||||||||||||
| Office equipment | 28 | 12 | 16 | 21 | 8 | 13 | ||||||||||||||||||
| 217 | 140 | 77 | 202 | 111 | 91 | |||||||||||||||||||
| Argentina (Note 18) | ||||||||||||||||||||||||
| Computer equipment | 30 | 28 | 2 | 30 | 25 | 5 | ||||||||||||||||||
| Computer software | 43 | 40 | 3 | 43 | 23 | 20 | ||||||||||||||||||
| Equipment including vehicles | 296 | 213 | 83 | 266 | 205 | 61 | ||||||||||||||||||
| 369 | 281 | 88 | 339 | 253 | 86 | |||||||||||||||||||
| Chile | ||||||||||||||||||||||||
| Computer equipment | 5 | 2 | 3 | 5 | 1 | 4 | ||||||||||||||||||
| Equipment including vehicles | 283 | 88 | 195 | 234 | 49 | 185 | ||||||||||||||||||
| Office equipment | 5 | 2 | 3 | 5 | 1 | 4 | ||||||||||||||||||
| 293 | 92 | 201 | 244 | 51 | 193 | |||||||||||||||||||
| $ | 879 | $ | 513 | $ | 366 | $ | 785 | $ | 415 | $ | 370 | |||||||||||||
| 8. | Mineral Properties - Deferred Acquisition and Exploration Costs |
| (a) | Acquisition Cost |
| 2009 and 2008 | ||||||||||||
Balance beginning of the year | Additions | Balance end of the year | ||||||||||
| Don Sixto and Other (Note 18) | $ | 3,226 | $ | - | $ | 3,226 | ||||||
| CVSA Properties (Note 18) | 128 | - | 128 | |||||||||
| $ | 3,354 | $ | - | $ | 3,354 | |||||||
15
| Exeter Resource Corporation |
Notes to the Consolidated Financial Statements (Expressed in Thousands of Canadian Dollars, Except Share Data) December 31, 2009 |
| 8. | Mineral Properties - Deferred Acquisition and Exploration Costs (Continued) |
Cognito Limited (Note 18)
By a Principles of Agreement dated October 27, 2002, an Option to Purchase, Acquisition and Joint Venture Agreement, dated January 18, 2003, and an agreement dated April 30, 2003, the Company acquired the right to earn a 100% interest in Cognito. Effective July 22, 2003, the Company issued 1,600,000 shares and paid $25 for the right to earn a 100% interest in Cognito. Direct costs of the acquisition totaled $2,908. The fair value of the consideration paid for that right was $348, which has been recorded as mineral property acquisition cost. Cognito holds an option to acquire a 100% interest, subject to a 3.5% net smelter royalty, in the Don Sixto Project. (Note 8(c) (iii))
Effective July, 2005 the Company exercised its option to acquire a 100% interest in Cognito and issued 2,500,000 shares, at a price of $1.00 per share, for a total consideration of $2,500 which has beenrecorded as a mineral property acquisition cost, to hold a 100% interest in Cognito.
Estelar Resources Limited (Note 18)
Effective July 22, 2003, the Company acquired a 100% interest in Estelar for consideration of 1,000,000 shares with a fair value of $238, which was recorded as a mineral property acquisition cost.
(b) Exploration Costs
The tables below which show the Company’s exploration expenditures by project for 2009 and 2008,are followed by a table outlining stock based compensation allocated to mineral property exploration costs.
| 2009 | ||||||||||||
Discontinued Operations (Note 18) | Chilean Properties | Total | ||||||||||
| Assays | $ | 490 | $ | 285 | $ | 775 | ||||||
| Consultants and contractors | 82 | 176 | 258 | |||||||||
| Drilling | 3,571 | 4,072 | 7,643 | |||||||||
| Engineering | 173 | 374 | 547 | |||||||||
| Environmental | 208 | 107 | 315 | |||||||||
| Field camp | 735 | 1,598 | 2,333 | |||||||||
| Geological * | 916 | 1,664 | 2,580 | |||||||||
| IVA tax ** | 767 | 987 | 1,754 | |||||||||
| Legal and title | 170 | 200 | 370 | |||||||||
| Metallurgical * | 72 | 486 | 558 | |||||||||
| Office operations | 551 | 211 | 762 | |||||||||
| Resource development | 460 | 9 | 469 | |||||||||
| Travel | 821 | 496 | 1,317 | |||||||||
| Wages and benefits * | 1,516 | 1,158 | 2,674 | |||||||||
| Exploration costs | $ | 10,532 | $ | 11,823 | $ | 22,355 | ||||||
| Cumulative Exploration Costs | $ | 52,737 | $ | 23,452 | $ | 76,189 | ||||||
| * | Includes stock based compensation. |
| ** | During year ended December 31, 2009 the Company recovered IVA in the amount of approximately $511. |
16
| Exeter Resource Corporation |
Notes to the Consolidated Financial Statements (Expressed in Thousands of Canadian Dollars, Except Share Data) December 31, 2009 |
| 8. | (b) Exploration Costs(Continued) |
| 2008 | ||||||||||||
Discontinued Operations (Note 18) | Chilean Properties | Total | ||||||||||
| Assays | $ | 1,127 | $ | 269 | $ | 1,396 | ||||||
| Consultants and contractors | 109 | 138 | 247 | |||||||||
| Drilling | 4,553 | 2,289 | 6,842 | |||||||||
| Engineering | 38 | - | 38 | |||||||||
| Environmental | 255 | 18 | 273 | |||||||||
| Field camp | 842 | 1,183 | 2,025 | |||||||||
| Geological * | 1,018 | 1,446 | 2,464 | |||||||||
| IVA tax | 1,632 | 700 | 2,332 | |||||||||
| Legal and title | 222 | 119 | 341 | |||||||||
| Metallurgical | 67 | 27 | 94 | |||||||||
| Office operations | 843 | 177 | 1,020 | |||||||||
| Travel | 792 | 796 | 1,588 | |||||||||
| Wages and benefits * | 2,189 | 1,119 | 3,308 | |||||||||
| Exploration costs | $ | 13,687 | $ | 8,281 | $ | 21,968 | ||||||
| Cumulative Exploration Costs | $ | 42,205 | $ | 11,629 | $ | 53,834 | ||||||
* Includes stock based compensation.
Stock based compensation allocation to exploration costs
Discontinued Operations (Note 18) | Chilean Properties | 2009 | 2008 | |||||||||||||
| Geological | $ | 196 | $ | 1,009 | $ | 1,205 | $ | 617 | ||||||||
| Metallurgical | - | 135 | 135 | - | ||||||||||||
| Wages and benefits | 338 | 99 | 437 | 138 | ||||||||||||
| Total | $ | 534 | $ | 1,243 | $ | 1,777 | $ | 755 | ||||||||
(c) Agreements
| i) | Chilean Properties |
| (a) | Maricunga Property – including Caspiche |
By an agreement dated October 11, 2005 and subsequently amended, the Company acquired the right to review a number of properties in the Maricunga region of Chile. Under the terms of the agreement, the Company can earn a 100% interest in the properties by incurring aggregate expenditures of US$2.55 million over five years including conducting 15,500 meters of drilling. The vendor will retain a 3% NSR in the properties. The Company may withdraw from the agreement at any time after expending US$0.25 million including conducting 1,500 meters of drilling. The Company has met the requirements to allow it to exercise the option to acquire 100% interest in the properties at anytime up to January 2011 subject to the NSR and the vendor’s buy back right by paying the Company’s expenditures incurred on the property if the property is not put into production within 10 years of exercising the option. In addition, the Company will be required to pay a further 0.08% NSR from production pursuant to an agreement with a Chilean company.
17
| Exeter Resource Corporation |
Notes to the Consolidated Financial Statements (Expressed in Thousands of Canadian Dollars, Except Share Data) December 31, 2009 |
| 8. | (c) Agreements(Continued) |
| ii) | Cerro Moro and CVSA Properties – Argentina(Note 18) |
By an Exploration and Option Agreement dated December 30, 2003, Estelar had the right to earn a 100% interest (subject to a 2% NSR) in the Cerro Moro, Santa Cruz, Chubut and Rio Negro Projects (comprised of thirty-nine mineral concessions(the “Properties”), located in Santa Cruz, Chubut and Rio Negro Provinces, Argentina, for consideration of cash payments of US$0.1 million (paid) and incurring US$3.0 million (incurred) in exploration expenditures before December 30, 2009.
Under the agreement,once Estelar has incurred exploration expenditures of US$3.0 million(incurred) and completed 10,000 metres of drilling on any one of the projects, the vendor retains the right to buy back a 60% interest in that project, by paying Estelar an amount equal to 2.5 times its exploration expenditures on the project and funding a bankable feasibility study on the project. The vendor may earn an additional 10% interest in the project (for a total 70% interest) by financing Estelar’s share of mine development costs. Should the vendor elect not to exercise its back-in right, its interest will revert to a 2% NSR on that project.
By December 31, 2006, Estelar had incurred total aggregate expenditures of US$3.0 million, and completed 12,000 metres of drilling on the Properties, and in early 2007, notified the vendor that it was exercising the option to acquire the Properties subject to their back in right. On August 2, 2007, Estelar notified the vendor that it had completed 10,000 metres of drilling at Cerro Moro, and provided them with a report containing exploration results in early September. In October, the vendor advised the Company that it had elected not to exercise its back-in right and its interest has reverted to a 2%NSR in Cerro Moro.The vendor, however, retains its back-in right over the other projects acquired under the agreement.
| iii) | Don Sixto – Argentina(Note 18) |
By an agreement dated February 27, 2003, Cognito has the right to acquire a 100% interest (subject to a 3.5% NSR which may be purchased for US$1 million) in the Don Sixto Project (formerly the La Cabeza Project), located in Mendoza Province, Argentina, for consideration of cash payments totaling US$0.525 million payable as follows:
| - | US$5 thousand due December 15, 2002; (Paid) |
| - | US$15 thousand on or before December 15, 2003; (Paid) |
| - | US$25 thousand on or before December 15, 2004; (Paid) |
| - | US$35 thousandon or before December 15, 2005; (Paid) |
| - | US$45 thousandon or before December 15, 2006; (Paid) |
| - | US$50 thousandon or before December 15, 2007; (Not Paid)* and |
| - | US$50 thousandon or before December 15 of each year thereafter up to and including December 15, 2014. |
| * | Due to the current anti-mining legislation this and subsequentpayments have been suspended until the legislation is changed (see below for more details). |
18
| Exeter Resource Corporation |
Notes to the Consolidated Financial Statements (Expressed in Thousands of Canadian Dollars, Except Share Data) December 31, 2009 |
| 8. | (c) Agreements(Continued) |
| iii) | Don Sixto – Argentina(Note 18) |
The Company may terminate the payments described above upon making a development decision in respect to the project; provided that production must commence within two years of that decision.
Early in 2007, the Company expanded its holding around Don Sixto by signing an option agreement over certain additional exploration rights, situated to the immediate north of Don Sixto. The terms for the option agreement provide for annual payments of US$25 thousand over six years followed by a purchase price comprising three annual payments of US$0.2 million. Should the Company exercise its option to purchase the property, the annual payments will cease. There are no expenditure requirements.
During the year ended December 31, 2008, the Company entered an agreement with the property owners deferring the annual payments until such time as the legislation is amended such that mining can be conducted in MendozaProvince.
In December 2005, Cognito purchased the surface rights covering the area of the proposed mine development at Don Sixto at a cost of $78. In addition, Cognito is required to build two dwellings elsewhere on the property at an estimated cost of $75. The previous owners of the property will retain the right to re-acquire the property upon completion of mining activities.
On June 20, 2007 the Mendoza Provincial government introduced anti-mining legislation which may preclude development of mining projects in MendozaProvince. The Company has delayed all exploration and independent engineering studies in Mendoza and filed an action in the Mendoza Supreme Court to have this anti-mining legislation declared unconstitutional. Should the Company not be successful in its constitutional challenge or the anti-mining legislation not be amended, the carrying value of the Don Sixto project may not be recoverable requiring the Company to write-off its entire investment of $3,156.
| iv) | Other Properties |
(a) MRP Properties– Argentina(Note 18)
By an agreement dated October 1, 2003, Estelar obtained the right to acquire a 100% interest (subject to a 2% NSR which may be acquired for $750) in the Agua Nueva and La Ramada Projects, located in Mendoza, San Juan and La Rioja Provinces, Argentina, for consideration of cash payments totaling $440 payable as follows:
| - | $5 on signing of the Agreement;(Paid) |
| - | $7.5 on or before October 1, 2004;(Paid) |
| - | $12.5 on or before October 1, 2005;(Paid) |
| - | $20 on or before October 1, 2006;(Paid) |
| - | $25 on or before October 1, 2007; (Paid) |
| - | $30 on or before October 1, 2008; (Not Paid)* |
| - | $40 on or before October 1, 2009; and |
| - | $50 on or before October 1 of each year thereafter to 2015. |
*Payment and subsequent payments suspended until the current anti-mining legislation is changed to allow mining in MendozaProvince.
19
| Exeter Resource Corporation |
Notes to the Consolidated Financial Statements (Expressed in Thousands of Canadian Dollars, Except Share Data) December 31, 2009 |
| 8. | iv) Other Properties(Continued) |
(a) MRP Properties - Argentina(Note 18)
In the event that a decision is made to build and operate a mine on any of the projects, payment of the remaining option payments may be terminated.
| 9. | Share Capital |
The authorized share capital of the Company is 100,000,000 shares without par value (Note 18).
The Company has issued shares of its stock as follows:
| 2009 | 2008 | |||||||||||||||
Number of Shares | Amount | Number of Shares | Amount | |||||||||||||
| Balance, beginning of year | 50,200,423 | $ | 89,356 | 41,226,487 | $ | 55,249 | ||||||||||
| Issued during the year for: | ||||||||||||||||
| Cash – equity financing | 21,907,500 | 86,500 | 7,780,000 | 35,010 | ||||||||||||
| – options | 1,485,100 | 2,717 | 802,275 | 860 | ||||||||||||
| – warrants | 304,679 | 731 | 250,000 | 750 | ||||||||||||
| Bonus Shares | - | - | 141,661 | 503 | ||||||||||||
| Contributed surplus allocated | - | 2,162 | - | 339 | ||||||||||||
| Share issue costs | - | (7,048 | ) | - | (3,355 | ) | ||||||||||
| Balance, end of year | 73,897,702 | $ | 174,418 | 50,200,423 | $ | 89,356 | ||||||||||
Transactions for the Issue of Share Capital
During the Year Ended December 31, 2009:
| a) | In February 2009 the Company completed an equity financing and issued 12,075,000 common shares at a price of $2.40 per share for gross proceeds of $29.0 million. |
The Company paid a commission of 6.5% ($1,884) and incurred issue costs of $426 for net proceeds of $26.69 million before accounting for the fair value of warrants issued to brokers (the “Agent’s Warrants”).
The Agent’s Warrants consist of 784,875 warrants and are convertible to common shares at a price of $2.40 each on or before February, 26, 2010. The fair value of the Agent’s Warrants, calculated using the Black-Scholes Model, of $971 has been allocated to contributed surplus (Note 12) and added to share issue costs.
| b) | In November 2009 the Company completed an equity financing and issued 9,832,500 common shares at a price of $5.85 per share for gross proceeds of $57.5 million. |
The Company paid a commission of 5.0% ($2,876) and incurred issue costs of $351 for net proceeds of $54.29 million before accounting for the fair value of warrants issued to brokers (the “Agent’s Warrants”).
The Agent’s Warrants consist of 294,975 warrants and are convertible to common shares at a price of $6.00 each on or before November, 26, 2010. The fair value of the Agent’s Warrants, calculated using the Black-Scholes Model, of $540 has been allocated to contributed surplus (Note 12) and added to share issue costs.
20
| Exeter Resource Corporation |
Notes to the Consolidated Financial Statements (Expressed in Thousands of Canadian Dollars, Except Share Data) December 31, 2009 |
| 9. | Share Capital(Continued) |
| c) | The Company issued 304,679 shares at a price of $2.40 per share for proceeds of $731 upon the exercise of warrants. The fair value of these warrants, of $377 wasallocated to share capital. |
| d) | The Company issued 1,485,100 shares for proceeds of $2,717 upon the exercise of stock options. |
In addition, an amount totaling $1,786 representing stock-based compensation recognized on vesting of the above stock options was allocated to share capital upon the exercise of the options.
Transactions for the Issue of Share Capital
During the Year Ended December 31, 2008:
| a) | In March 2008 the Company completed an equity financing and issued 7.78 million common shares at a price of $4.50 per share for proceeds of $35.0 million. |
The Company paid a commission of 6.5% ($2,276) and incurred issue costs of $398 for net proceeds of $32.4 million before accounting for the fair value of the Agent’s Warrants.
The Agent’s Warrants consistedof 505,700 warrants and were convertible to common shares at a price of $4.50 each on or before March 26, 2009. The fair value of the Agent’s Warrants, calculated using the Black-Scholes Model, of $681 has been allocated to contributed surplus and added to share issue costs.
| b) | The Company issued 250,000 shares at a price of $3.00 per share for proceeds of $750 upon the exercise of 250,000 warrants. |
| c) | The Company issued 802,275 shares for proceeds of $860 upon the exercise of stock options. |
In addition, an amount totaling $339 representing stock-based compensation recognized on vesting of the above stock options was allocated to share capital upon the exercise of the options.
| d) | The Company issued 141,661 shares at a deemed price of $3.64 per share to the Company’sformer Chief Operating Officer as part of his remuneration package. |
21
| Exeter Resource Corporation |
Notes to the Consolidated Financial Statements (Expressed in Thousands of Canadian Dollars, Except Share Data) December 31, 2009 |
| 10. | Stock Option Plan |
The Company has adopted an incentive stock option plan (the “Plan”), the essential elements of which are as follows: The aggregate number of shares of the Company’s capital stock issuable pursuant to options granted under the Plan, which was amended and approved by shareholders on May 26, 2009, may not exceed 12,488,685. Options granted under the Plan may have a maximum term of five years. Unless subsequently amended, the exercise price of options granted under the Plan will not be less than the last closing market price of the Company’s shares immediately preceding the grant date. Options granted under the Plan are generally exercisable immediately following the grant, however certain options may be subject to vesting at times as determined by the directors of the Company and the Toronto Stock Exchange (Note 18).
A summary of the status of options granted by the Company, as of December 31, 2009and2008and changes during the years then ended is as follows:
| 2009 | 2008 | |||||||||||||||
| Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | |||||||||||||
| Options outstanding, beginning of year | 8,885,000 | $ | 2.50 | 7,223,275 | $ | 2.40 | ||||||||||
| Cancelled or forfeited | (3,716,000 | ) | 3.31 | (220,000 | ) | 3.93 | ||||||||||
| Granted | 5,325,000 | 2.95 | 2,684,000 | 2.41 | ||||||||||||
| Exercised | (1,485,100 | ) | 1.83 | (802,275 | ) | 1.07 | ||||||||||
| Options outstanding, end of year | 9,008,900 | $ | 2.50 | 8,885,000 | $ | 2.50 | ||||||||||
The following table summarizes information about the stock options outstanding at December 31, 2009:
| Range of Prices ($) | Options outstanding | Options exercisable | Weighted Average Remaining Life (Years) | Weighted Average Exercise Price | ||||||||||||
| 1.01 - 2.00 | 3,253,900 | 3,053,900 | 2.58 | $ | 1.51 | |||||||||||
| 2.01 - 3.00 | 3,490,000 | 3,475,000 | 3.09 | 2.75 | ||||||||||||
| 3.01 - 4.00 | 1,885,000 | 1,071,250 | 3.94 | 3.26 | ||||||||||||
| 5.01 – 6.00 | 380,000 | - | 4.75 | 5.05 | ||||||||||||
| 9,008,900 | 7,600,150 | 3.15 | $ | 2.50 | ||||||||||||
| During 2009 the TSX Venture Exchange (“TSX-V”) accepted amendments to the exercise price of an aggregate of 750,000 incentive stock options held by employees and consultants. As a result an aggregate of 750,000 stock options ranging in price from $3.64 to $4.31 were re-priced to $1.51. The Company also obtained disinterested shareholder and TSX-V approval to amend the exercise price of an aggregate of 1,350,000 stock options held by directors and officers ranging in price from $3.64 to $4.37, to $2.85. $974 of stock based compensation resulted from these amendments. |
22
| Exeter Resource Corporation |
Notes to the Consolidated Financial Statements (Expressed in Thousands of Canadian Dollars, Except Share Data) December 31, 2009 |
| 10. | Stock Option Plan (Continued) |
Stock-based Compensation
The fair values of options and Agent’sWarrantsgranted during the years ended December 31, 2009 and 2008 were estimated, at the grant date, using the Black-Scholes option pricing model with the following weighted average assumptions:
| 2009 | 2008 | |||||||
| Expected annual volatility | 84.92 | % | 72.62 | % | ||||
| Risk-free interest rate | 1.54 | % | 3.00 | % | ||||
| Expected life | 3-3.5 years | 3.49 years | ||||||
| Expected dividend yield | 0.00 | % | 0.00 | % | ||||
Stock based compensationexpense of $7,094 (2008: $4,598) incurred on options granted or vested was recorded in operations for the year.
Stock based compensation has been allocated as follows:
| 2009 | 2008 | |||||||
| Administration salaries and consulting | $ | 446 | $ | 212 | ||||
| Director’s fees | 878 | 678 | ||||||
| Management fees | 1,365 | 554 | ||||||
| Mineral property exploration expenditures | 1,243 | 389 | ||||||
| Shareholder communications | 123 | 3 | ||||||
| Total continuing operations | $ | 4,055 | $ | 1,836 | ||||
| Total discontinuedoperations | $ | 3,039 | $ | 2,762 | ||||
| $ | 7,094 | $ | 4,598 | |||||
Option pricing models require the input of highly subjective assumptions including the expected price volatility of the Company’s shares. 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.
| 11. | Warrants |
At December 31, 2009 the Company had outstanding share purchase warrants exercisable to acquire775,171 shares as follows:
| 2009 | |||||||
| Number | Exercise Price | Expiry Date | |||||
| 480,196 | $ | 2.40 | February26, 2010 | ||||
| 294,975 | $ | 6.00 | November 26, 2010 | ||||
| 775,171 | |||||||
During the year 304,679 warrants exercisable at a price of $2.40 were exercised for proceeds of $731.
At December 31, 2008 the Company had outstanding share purchase warrants exercisable to acquire505,700 shares as follows:
| 2008 | |||||||
| Number | Exercise Price | Expiry Date | |||||
| 505,700 | $ | 4.50 | March26, 2009* | ||||
*Expired unexercised.
23
| Exeter Resource Corporation |
Notes to the Consolidated Financial Statements (Expressed in Thousands of Canadian Dollars, Except Share Data) December 31, 2009 |
| 12. | Contributed Surplus |
| 2009 | 2008 | |||||||
| Balance, beginning of the year | $ | 11,822 | $ | 7,234 | ||||
| Stock-based compensation expense | 7,094 | 4,598 | ||||||
| Agent’s Warrants | 1,511 | 681 | ||||||
| Bonus Shares | - | (352 | ) | |||||
| Contributed surplus allocated on exercise of Agent’s Warrants | (376 | ) | - | |||||
| Contributed surplus allocated on exercise of stock options | (1,786 | ) | (339 | ) | ||||
| Balance, end of the year | $ | 18,265 | $ | 11,822 | ||||
| 13. | Related Party Transactions (Note 18) |
Amounts due to related parties of $67 at December 31, 2009 (2008: $278) is for management, consulting and explorationfees and for expenses incurred while conducting the Company’s business.
A total of $723(2008: $1,317) related to continuing operations was paid to or accrued for related party transactions as described below.
| a) | Exploration and consulting fees totaling $243 (2008: $232) were paid or accrued to a corporation of which the President and CEO of the Company is a principal. |
| b) | Exploration and development fees of $141(2008: $116) were paid or accrued to a corporation controlled by the Vice-President, Exploration and Development. |
| c) | Management fees of $164(2008: $62) were paid to a corporation controlled by the Chairman of the Company. |
| d) | Management fees of $175(2008: $96) were paid or accrued to a corporation controlled by the Chief Financial Officer of the Company. |
These transactions were in the normal course of business and are measured at the exchange amount, which is the amount agreed to by the parties.
| 14. | Supplemental Cash Flow Information |
The Company incurred non-cash financing activities during the years ended December 31, 2009 and 2008as follows:
| 2009 | 2008 | |||||||
| Non-cash financing activities: | ||||||||
| Issue of warrants for agent’s commission | $ | 1,511 | $ | 681 | ||||
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| Exeter Resource Corporation |
Notes to the Consolidated Financial Statements (Expressed in Thousands of Canadian Dollars, Except Share Data) December 31, 2009 |
| 15. | Segmented Information |
The Company operates in one business segment, being the acquisition and exploration of mineral properties. The Company’s corporate office provides financial and technical support to its operationsin Canada, Argentina and Chile.
The Company’s net assets and net losses by geographical segment are as follows:
| December 31, 2009 | Canada | Argentina (Note18) | Chile | �� | Total | |||||||||||
| Cash and cash equivalents | $ | 80,387 | $ | 465 | $ | 237 | $ | 81,089 | ||||||||
| Other current assets | 353 | 127 | 73 | 553 | ||||||||||||
| Property and equipment | 77 | 88 | 201 | 366 | ||||||||||||
| Mineral properties | - | 3,354 | - | 3,354 | ||||||||||||
| 80,817 | 4,034 | 511 | 85,362 | |||||||||||||
| Current Liabilities | (1,441 | ) | (1,434 | ) | (1,286 | ) | (4,161 | ) | ||||||||
| $ | 79,376 | $ | 2,600 | $ | (775 | ) | $ | 81,201 | ||||||||
| Net Loss | $ | 8,391 | $ | 10,887 | $ | 11,700 | $ | 30,978 | ||||||||
| December 31, 2008 | Canada | Argentina (Note 18) | Chile | Total | ||||||||||||
| Cash and cash equivalents | $ | 18,313 | $ | 414 | $ | 386 | $ | 19,113 | ||||||||
| Other current assets | 225 | 55 | 380 | 660 | ||||||||||||
| Property and equipment | 91 | 86 | 193 | 370 | ||||||||||||
| Mineral properties | - | 3,354 | - | 3,354 | ||||||||||||
| 18,629 | 3,909 | 959 | 23,497 | |||||||||||||
| Current Liabilities | (823 | ) | (1,532 | ) | (468 | ) | (2,823 | ) | ||||||||
| $ | 17,806 | $ | 2,377 | $ | 491 | $ | 20,674 | |||||||||
| Net Loss | $ | 6,569 | $ | 14,213 | $ | 7,861 | $ | 28,643 | ||||||||
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| Exeter Resource Corporation |
Notes to the Consolidated Financial Statements (Expressed in Thousands of Canadian Dollars, Except Share Data) December 31, 2009 |
| 16. | Income Taxes |
A reconciliation of consolidated income taxes at statutory rates with the reported taxes is as follows:
| 2009 | 2008 | |||||||
| Net loss for the year before income tax | $ | 30,978 | $ | 28,643 | ||||
| Combined federal and provincial tax rate | 30.0 | % | 31.0 | % | ||||
| Income tax recovery at statutory rates | $ | (9,294 | ) | $ | (8,879 | ) | ||
| Losses and other deductions for which no benefit has been recognized | 5,525 | 8,287 | ||||||
| Stock-based compensation | 2,128 | 1,424 | ||||||
| Non-deductiblemineral property exploration costs | 1,566 | 921 | ||||||
| Foreign exchange rate and tax rate differences | 84 | �� | (1,387 | ) | ||||
| Expiry of losses | 89 | 42 | ||||||
| Impact of tax rate reductions | (98 | ) | (408 | ) | ||||
| Income tax provision | $ | Nil | $ | Nil | ||||
The significant components of the Company’s consolidated future tax assets are as follows:
| 2009 | 2008 | |||||||
| Non-capital loss carry forwards – Canada | $ | 3,130 | $ | 2,502 | ||||
| Non-capital loss carry forwards – Argentina (Note 18) | 2,127 | 182 | ||||||
| Non-capital loss carry forwards – Chile | 100 | 86 | ||||||
| Exploration and development deductions | 17,334 | 13,228 | ||||||
| Property and equipment – Canada | 20 | 36 | ||||||
| Share issue costs | 1,520 | 739 | ||||||
| 24,231 | 16,773 | |||||||
| Valuation allowance | (24,231 | ) | (16,773 | ) | ||||
| $ | Nil | $ | Nil | |||||
The Company has available non-capital losses for Canadian income tax purposes which may be carried forward to reduce taxable income in future years. If not utilized, the non-capital losses in the amount of $12,436 expire as follows:
| 2010 | $ | 200 | ||
| 2014 | 882 | |||
| 2015 | 1,578 | |||
| 2026 | 2,242 | |||
| 2027 | 2,001 | |||
| 2028 | 2,424 | |||
| 2029 | 3,109 | |||
| $ | 12,436 |
At December 31, 2009, the Company also has tax loss carry forwards in Argentina (Note 18) and Chile totaling $5,994 and $280respectively, thatexpire over the period from 2010to 2014, available to offset future taxable income.
Tax benefits have not been recorded as it is not considered more likely than not that they will be utilized.
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| Exeter Resource Corporation |
Notes to the Consolidated Financial Statements (Expressed in Thousands of Canadian Dollars, Except Share Data) December 31, 2009 |
| 17. | Contractual Obligations |
The Company leases offices in Vancouver, Argentina (Note 18) and Chile and has expenditure and option payment obligations related to its properties. Option payments and property expenditure obligations are contingent on exploration results and can be cancelled at any time should exploration results so warrant (Note 8(c)). Other financial commitments are summarized in the table below:
| Payments Due by Year | ||||||||||||
| Total | 2010 | 2011 – 2012 | ||||||||||
| Office leases | $ | 204 | $ | 161 | $ | 43 | ||||||
| Property access agreements | 138 | 85 | 53 | |||||||||
| Total | $ | 342 | $ | 246 | $ | 96 | ||||||
In addition, the Company has agreed to build two houses for the original owners of the Don Sixto property at an estimated cost of approximately $75.
| 18. | Subsequent Events |
The Company has restated these financial statements in accordance with the requirements of CICA 7110, whereby events which occur subsequent to the date of the original filing of these financial statements must be considered when the Company is filing a prospectus. Accordingly, as a result of the Plan of Arrangement, as discussed below, the Company spun out a significant segment of its operations and these statements have accordingly been restated to treat the operations subject to the Plan of Arrangement as discontinued operations.
On March 24, 2010 the Company completed a Plan of Arrangement (the “Arrangement”) under the British Columbia Business Corporation Act pursuant to which it transferred its Argentine assets to Extorre Gold Mines Limited (“Extorre”). Under the Arrangement, each shareholder of the Company received one share of Extorre for each share of the Company held. The Company transferred its wholly owned subsidiaries, Estelar Resources Limited (“Estelar”) and Cognito Limited (“Cognito”), (together “Argentine Business”), both companies incorporated in the British Virgin Islands, to Extorre. Estelar and Cognito hold the Argentine assets which included cash and working capital balances, and the interests in a number of precious and base metal projects, being the Cerro Vanguardia Sociedad Anonima (“CVSA”) properties (includes Cerro Moro), the Don Sixto property and the MRP properties.
The Company did not realize any gain or loss on the transfer of the Argentine Business, as the transfer was completed on a tax deferred basis, which was comprised of a working capital contribution of $25 million, and the other Argentine assets and liabilities as at the effective date of the Arrangement.
The Arrangement was approved by the board of directors of Exeter and, among other things, the favourable vote of Exeter's common shareholders at a special shareholders’ meeting held on March 11, 2010.The Company has, in accordance with CICA 3475, accounted for the financial results associated with the Argentine Business up to the date of the Arrangement as discontinued operations in these financial statements and has reclassified the related amounts for the current and prior year.
Assets and liabilities directly attributable to Estelar and Cognito have been allocated to the discontinued operations. Revenues and expenses have generally been allocated based on the actual results of Estelar and Cognito and an allocation of Exeter head office general and administrative expenses based upon the ratio of costs incurred on the Argentine properties as compared to the costs incurred on all mineral properties of Exeter. Amounts were allocated using management’s best estimates.
As a result of the basis of presentation described above, the refiled amounts for continuing operations may not necessarily be indicative of the results that would have been obtained if the discontinued operations had occurredwithina separate stand-alone entity, nor are they necessarily indicative of the result for any future periods.
27
| Exeter Resource Corporation |
Notes to the Consolidated Financial Statements (Expressed in Thousands of Canadian Dollars, Except Share Data) December 31, 2009 |
| 18. | Subsequent Events(Continued) |
The carrying values of the continuing and discontinued operations at December 31, 2009 were as follows
| Consolidated Balance Sheet | As at December 31, 2009 | Discontinued operations | Continuing operations | |||||||||
| Cash and cash equivalents | $ | 81,089 | $ | 465 | $ | 80,624 | ||||||
| Amounts receivable and prepaid expenses | 537 | 127 | 410 | |||||||||
| Due from related party | 16 | - | 16 | |||||||||
| Property and equipment | 366 | 88 | 278 | |||||||||
| Mineral properties | 3,354 | 3,354 | - | |||||||||
| $ | 85,362 | $ | 4,034 | $ | 81,328 | |||||||
| Accounts payable and accrued liabilities | $ | 4,094 | $ | 1,435 | $ | 2,659 | ||||||
| Due to related parties | 67 | - | 67 | |||||||||
| Shareholders’ equity | 81,201 | 2,599 | 78,602 | |||||||||
| $ | 85,362 | $ | 4,034 | $ | 81,328 | |||||||
The results of the continuing and discontinued operations are as follows:
Consolidated Statement of Loss and Comprehensive Loss | For the year ended December 31, 2009 | Discontinued operations | Continuing operations | |||||||||
| Interest income | $ | 499 | $ | - | $ | 499 | ||||||
| Accounting and audit | 336 | 238 | 98 | |||||||||
| Administration salaries and consulting | 1,560 | 735 | 825 | |||||||||
| Amortization | 95 | 64 | 31 | |||||||||
| Directors’ fees | 1,675 | 789 | 886 | |||||||||
| Foreign exchange (gain)/loss | (59 | ) | (418 | ) | 359 | |||||||
| General and administration | 762 | 341 | 421 | |||||||||
| Legal fees | 372 | 175 | 197 | |||||||||
| Management fees | 3,048 | 1,436 | 1,612 | |||||||||
| Mineral property exploration expenditures | 22,355 | 10,532 | 11,823 | |||||||||
| Shareholder communications | 993 | 468 | 525 | |||||||||
| Stock exchange listing and filing fees | 340 | 161 | 179 | |||||||||
| 31,477 | 14,521 | 16,956 | ||||||||||
| Net loss and comprehensive loss for the year | $ | (30,978 | ) | $ | (14,521 | ) | $ | (16,457 | ) | |||
| Basic and diluted loss per share | $ | (0.51 | ) | $ | (0.24 | ) | $ | (0.27 | ) | |||
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| Exeter Resource Corporation |
Notes to the Consolidated Financial Statements (Expressed in Thousands of Canadian Dollars, Except Share Data) December 31, 2009 |
| 18. | Subsequent Events(Continued) |
The carrying values of the continuing and discontinued operations at December 31, 2008 were as follows
| Consolidated Balance Sheet | As at December 31, 2008 | Discontinued operations | Continuing operations | |||||||||
| Cash and cash equivalents | $ | 19,113 | $ | 414 | $ | 18,699 | ||||||
| Amounts receivable and prepaid expenses | 660 | 55 | 605 | |||||||||
| Property and equipment | 370 | 86 | 284 | |||||||||
| Mineral properties | 3,354 | 3,354 | - | |||||||||
| $ | 23,497 | $ | 3,909 | $ | 19,588 | |||||||
| Accounts payable and accrued liabilities | $ | 2,545 | $ | 1,532 | $ | 1,013 | ||||||
| Due to related parties | 278 | - | 278 | |||||||||
| Shareholders’ equity | 20,674 | 2,377 | 18,297 | |||||||||
| $ | 23,497 | $ | 3,909 | $ | 19,588 | |||||||
The results of the continuing and discontinued operations are as follows:
Consolidated Statement of Loss and Comprehensive Loss | For the year ended December 31, 2008 | Discontinued operations | Continuing operations | |||||||||
| Interest income | $ | 706 | $ | - | $ | 706 | ||||||
| Accounting and audit | 225 | 176 | 49 | |||||||||
| Administration salaries and consulting | 1,671 | 1,041 | 630 | |||||||||
| Amortization | 85 | 19 | 66 | |||||||||
| Directors’ fees | 1,828 | 1,140 | 688 | |||||||||
| Foreign exchange loss | 101 | 4 | 97 | |||||||||
| General and administration | 1,008 | 656 | 352 | |||||||||
| Legal fees | 107 | 67 | 40 | |||||||||
| Management fees | 1,653 | 1,030 | 623 | |||||||||
| Mineral property exploration expenditures | 21,968 | 13,687 | 8,281 | |||||||||
| Shareholder communications | 458 | 285 | 173 | |||||||||
| Stock exchange listing and filing fees | 245 | 153 | 92 | |||||||||
| 29,349 | 18,258 | 11,091 | ||||||||||
| Net loss and comprehensive loss for the year | $ | (28,643 | ) | $ | (18,258 | ) | $ | (10,385 | ) | |||
| Basic and diluted loss per share | $ | (0.62 | ) | $ | (0.39 | ) | $ | (0.23 | ) | |||
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| Exeter Resource Corporation |
Notes to the Consolidated Financial Statements (Expressed in Thousands of Canadian Dollars, Except Share Data) December 31, 2009 |
| 18. | Subsequent Events(Continued) |
The following amounts paid by Exeter to related parties during the year ended December 31, 2009 have been allocated to discontinued operations.
A total of $644 (2008: $528) was paid to or accrued for related party transactions as described below:
| (a) | Exploration and consulting fees totaling $217 (2008 - $128) were paid or accrued to a corporation of which the President and CEO of Exeter is a principal. |
| (b) | Exploration and development fees of $126 (2008 - $137) were paid or accrued to a corporation controlled by the Vice-President, Exploration and Development of Exeter. |
| (c) | Management fees of $146 (2008 - $103) were paid to a corporation controlled by the Chairman of Exeter. |
| (d) | Management fees of $155 (2008 - $160) were paid or accrued to a corporation controlled by the Chief Financial Officer of Exeter. |
Related party transactions are in the normal course of business and occur on terms similar to transactions with non-related parties, and therefore are measured at the exchange amount.
In connection with the Arrangement, on March 11, 2010 Company’s shareholders approved the following:
| a) | a change to the authorized share capital from 100,000,000 shares without par value, to an unlimited number of shares without par value; and |
| b) | amendment of its incentive stock option plan from a “fixed ceiling” plan to a “rolling” 15% plan. |
| 19. | Differences between Canadian and US Generally Accepted Accounting Principles |
The Company’s consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in Canada. There are no material measurement differences between these Canadian GAAP consolidated financial statements and those prepared using US GAAP.
Recent accounting pronouncements
In June 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) 105, “Generally Accepted Accounting Principles”. ASC 105 establishes the FASB Codification as the source of authoritative accounting principles recognized by the FASB to be applied by non-governmental entities in the preparation of financial statements in conformity with US GAAP for Securities and Exchange Commission (“SEC”) registrants. All guidance contained in the Codification carries an equal level of authority. The Codification supersedes all existing non-SEC accounting and reporting standards.
In 2008, the Company adopted ASC 820 for financial assets and liabilities that are measured at fair value on a recurring basis. ASC 820 defines fair value, establishes a framework for measuring fair value under US GAAP, and requires expanded disclosures about fair value measurements. Beginning in 2009, the Companyapplied ASC 820 to non-financial assets and liabilities,which include: goodwill, tangible and intangible assets measured and recognized at fair value as a result of an impairment assessment; and non financial assets and non financial liabilities recognized as a result of a business combination, that areperiodicallymeasuredat fair value under US GAAP. The application of ASC 820 to non-financial assets and liabilities didnot have a significant impact on the Company’smethodology for measuring their fair values, but results in expanded disclosures."
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