1100 – 1199 West Hastings Street, |
Vancouver, BC, V6E 3T5 |
Tel: 604-684-9384 Fax: 604-688-4670 |
www.quaterraresources.com |
Interim Consolidated Financial Statements
For the Nine months ended September 30, 2007 and 2006
Index | Page |
Consolidated Financial Statements | |
Consolidated Balance Sheets | 1 |
Consolidated Statements of Operations and Deficit | 2 |
Consolidated Statements of Cash Flows | 3 |
Notes to the Consolidated Financial Statements | 4-25 |
Notice of No Auditor Review of Interim Statements
These interim consolidated financial statements of the Company for the nine months ended September 30, 2007, were prepared by management and have not been reviewed or audited by the Company’s auditors.
Quaterra Resources Inc. (An Exploration Stage Company) |
Consolidated Balance Sheets as at September 30, 2007 and December 31, 2006 (Canadian |
Dollars) |
Unaudited | Audited | |||||||
September 30, 2007 | December 31, 2006 | |||||||
Assets | ||||||||
Current | ||||||||
Cash and cash equivalents | $ | 6,108,486 | $ | 9,112,732 | ||||
Restricted cash | Note 3 | 99,290 | - | |||||
Receivables | 165,172 | 56,592 | ||||||
Prepaid and deposits | 86,592 | 70,486 | ||||||
Amount due from Joint Venture Partner | Note 5 (a) | 149,230 | 113,430 | |||||
6,608,770 | 9,353,240 | |||||||
Equipment | Note 4 | 142,306 | 51,574 | |||||
Mineral properties | Note 5 | 16,182,748 | 7,855,832 | |||||
Reclamation bonds | 129,291 | 79,898 | ||||||
$ | 23,063,115 | $ | 17,340,544 | |||||
Liabilities | ||||||||
Current | ||||||||
Accounts payable and accrued liabilities | $ | 344,781 | $ | 251,311 | ||||
Due to related parties | Note 6 | 13,109 | 26,216 | |||||
357,890 | 277,527 | |||||||
Shareholders' Equity | ||||||||
Share capital | Note 7 (b) | 36,170,878 | 27,861,058 | |||||
Subscriptions receivable | - | (17,500 | ) | |||||
Contributed surplus | Note 7 (b) | 9,285,911 | 3,709,557 | |||||
Deficit | (22,751,564 | ) | (14,490,098 | ) | ||||
22,705,225 | 17,063,017 | |||||||
$ | 23,063,115 | $ | 17,340,544 |
Basis of Presentation (Note 2)
Subsequent events (Note 10)
Approved on behalf of the Board of Directors:
”Signed Tom Patton” | ”Signed Robert Gayton” | |
Thomas Patton | Robert Gayton |
The interim consolidated financial statements and accompanying notes contained herein have not been reviewed by the Company’s auditors
Page 1 of 25
Quaterra Resources Inc. (An Exploration Stage Company) |
Consolidated Statement of Operations and Deficit for the nine months ended September 30, |
2007 and 2006. (Canadian Dollars) |
Three months ended | Nine months ended | ||||||||||||||
Sept 30, 2007 | Sept 30, 2006 | Sept 30, 2007 | Sept 30, 2006 | ||||||||||||
Expenses | |||||||||||||||
Administration | $ | 30,000 | $ | 15,000 | $ | 90,000 | $ | 45,000 | |||||||
Amortization | 13,843 | 4,854 | 31,029 | 5,027 | |||||||||||
Consulting | |||||||||||||||
Services | 109,372 | 38,400 | 281,692 | 83,158 | |||||||||||
Stock based compensation | Note 7 (h) | 2,783,893 | 789,277 | 3,047,297 | 872,733 | ||||||||||
Directors and officers fees | |||||||||||||||
Services | 19,808 | - | 36,308 | - | |||||||||||
Stock based compensation | Note 7 (h) | 2,386,331 | 876,524 | 2,411,637 | 944,716 | ||||||||||
Investor relations | 26,465 | 14,823 | 177,050 | 92,010 | |||||||||||
Office and general | 41,794 | 58,997 | 138,616 | 131,431 | |||||||||||
Professional fees | 23,361 | 33,239 | 195,078 | 80,685 | |||||||||||
Regulatory fees and taxes | 4,378 | 9,830 | 53,465 | 18,566 | |||||||||||
Shareholders communications | 38,418 | 4,047 | 88,751 | 12,507 | |||||||||||
Transfer agent | 5,888 | 4,484 | 19,186 | 12,726 | |||||||||||
Travel and promotion | 35,931 | 6,809 | 130,848 | 41,862 | |||||||||||
Wages and benefits | |||||||||||||||
Salaries and benefits | 56,133 | 12,360 | 172,042 | 30,683 | |||||||||||
Stock based compensation | Note 7 (h) | 664,079 | 316,572 | 664,079 | 347,181 | ||||||||||
6,239,694 | 2,185,216 | 7,537,078 | 2,718,285 | ||||||||||||
Other (income) expenses | |||||||||||||||
Interest | (54,205 | ) | (26,277 | ) | (207,329 | ) | (55,928 | ) | |||||||
Foreign exchange loss | 242,974 | 29,136 | 733,832 | 36,198 | |||||||||||
General exploration | 67,843 | 53,067 | 197,885 | 147,215 | |||||||||||
Write off of accrued liabilities | - | (6,761 | ) | - | (46,392 | ) | |||||||||
256,612 | 49,165 | 724,388 | 81,093 | ||||||||||||
Net loss for the period | 6,496,306 | 2,234,381 | 8,261,466 | 2,799,378 | |||||||||||
Deficit, beginning of the period | 16,255,258 | 11,224,561 | 14,490,098 | 10,659,564 | |||||||||||
Deficit, end of period | $ | 22,751,564 | $ | 13,458,942 | $ | 22,751,564 | $ | 13,458,942 | |||||||
Loss per share - basic and diluted | $ | 0.08 | $ | 0.03 | $ | 0.10 | $ | 0.04 | |||||||
Weighted average number of shares outstanding | 79,428,158 | 71,852,481 | 78,871,925 | 68,033,632 |
The interim consolidated financial statements and accompanying notes contained herein have not been reviewed by the Company’s auditors
Page 2 of 25
Quaterra Resources Inc. (An Exploration Stage Company) |
Consolidated Statements of Cash Flows for the nine months ended September 30, 2007 and |
2006. (Canadian Dollars) |
Three months ended | Nine months ended | |||||||||||||
Sept 30, 2007 | Sept 30, 2006 | Sept 30, 2007 | Sept 30, 2006 | |||||||||||
Operating Activities | ||||||||||||||
Net loss for the period | $ | (6,496,306 | ) | $ | (2,234,381 | ) | $ | (8,261,466 | ) | $ | (2,799,378 | ) | ||
Items not involving cash | ||||||||||||||
Amortization | 13,843 | 4,854 | 31,029 | 5,027 | ||||||||||
Stock based compensation | Note 7 (h) | 5,834,303 | 1,982,373 | 6,123,013 | 2,164,630 | |||||||||
Write off of accrued liabilities | - | (6,761 | ) | - | (46,392 | ) | ||||||||
Shares issued for services | 22,500 | - | 45,000 | - | ||||||||||
Operating Cash Flow | (625,660 | ) | (253,915 | ) | (2,062,424 | ) | (676,113 | ) | ||||||
Changes in Non-Cash Working Capital | ||||||||||||||
Accounts receivables | (67,964 | ) | (3,625 | ) | (108,580 | ) | (73,389 | ) | ||||||
Prepaid and deposits | (14,091 | ) | (3,928 | ) | (16,106 | ) | (2,390 | ) | ||||||
Accounts payable and accrued liabilities | (346,298 | ) | (36,242 | ) | (153,682 | ) | (177,173 | ) | ||||||
Due to related parties | (3,600 | ) | (16,023 | ) | (13,107 | ) | (7,519 | ) | ||||||
(431,953 | ) | (59,818 | ) | (291,475 | ) | (260,471 | ) | |||||||
Cash Used in Operating Activities | (1,057,613 | ) | (313,733 | ) | (2,353,899 | ) | (936,584 | ) | ||||||
Investing Activities | ||||||||||||||
Expenditures on mineral properties | (2,606,251 | ) | (1,015,900 | ) | (6,878,763 | ) | (2,211,487 | ) | ||||||
Due from Joint Venture partner | (79,243 | ) | (6,105 | ) | (35,800 | ) | 114,285 | |||||||
Purchase of equipment | (62,064 | ) | (29,083 | ) | (121,761 | ) | (30,609 | ) | ||||||
Purchase of relcamation bonds | (3,663 | ) | (35,000 | ) | (49,393 | ) | (35,000 | ) | ||||||
Cash used in Investment Activities | (2,751,221 | ) | (1,086,088 | ) | (7,085,717 | ) | (2,162,811 | ) | ||||||
Financing Activities | ||||||||||||||
Shares issued for cash, net | 5,698,010 | 115,200 | 6,534,660 | 2,515,608 | ||||||||||
Increase in Cash During the Period | 1,889,176 | (1,284,621 | ) | (2,904,956 | ) | (583,787 | ) | |||||||
Cash, Beginning of Period | 4,318,600 | 2,487,132 | 9,112,732 | 1,786,298 | ||||||||||
Cash, End of Period | $ | 6,207,776 | $ | 1,202,511 | $ | 6,207,776 | $ | 1,202,511 | ||||||
Cash consists of the following | ||||||||||||||
Cash and cash equivalents | 6,108,486 | 1,202,511 | 6,108,486 | 1,202,511 | ||||||||||
Restricted cash | 99,290 | - | 99,290 | - | ||||||||||
Cash, End of Period | $ | 6,207,776 | $ | 1,202,511 | $ | 6,207,776 | $ | 1,202,511 |
Supplemental cash flow information (Note 9)
The interim consolidated financial statements and accompanying notes contained herein have not been reviewed by the Company’s auditors
Page 3 of 25
Quaterra Resources Inc. (An Exploration Stage Company) |
Notes to the Consolidated Financial Statements |
Nine months ended September 30, 2007 and 2006 (Canadian Dollars) |
1. | Nature of Operations |
Quaterra Resources Inc. (the “Company”) is an exploration stage enterprise incorporated under the laws of British Columbia. The Company and its subsidiaries are engaged in the acquisition, exploration and development of precious metal properties and does not have any mineral properties in production. The Company has not determined whether these mineral properties contain ore reserves that are economically recoverable. The ability of the Company to meet its commitments as they become due, including completion of the acquisition, exploration and development of its mineral properties, is dependent on the Company’s ability to obtain the necessary financing. The Company’s shares trade on the Tier 2 Board of the TSX Venture Exchange (“TSX-V”) under the symbol QTA.
2. | Basis of Presentation and Consolidation |
The consolidated unaudited interim financial statements of the Company were prepared in accordance with Canadian generally accepted accounting principles for interim financial statements. As a result, these unaudited interim financial statements do not contain all of the information required for annual financial statements and they should be read in conjunction with the Company’s annual audited financial statements for the fiscal year ended December 31, 2006. All material adjustments, which, in the opinion of management, are necessary for a fair presentation of the results of the interim periods, have been reflected. The results for the nine months ended September 30, 2007 are stated utilizing the same accounting policies and methods of application as the most recent annual financial statements, but are not necessarily indicative of the results to be expected for the full year. The Company’s reporting currency is the Canadian dollar and all dollar amounts in these statements are in Canadian dollars, unless otherwise indicated. Certain of the prior periods’ comparative figures have been reclassified to conform to the presentation adopted in the current period.
These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, as follows:
(i) | Minera Agua Tierra S.A. de C.V., incorporated in Mexico. |
(ii) | Quaterra Alaska, Inc., incorporated in Alaska, USA. |
(iii) | Quaterra International Limited, incorporated in the British Virgin Islands. |
(iv) | QTA International Nieves Limited, incorporated in the British Virgin Islands. |
(v) | Minera Nieves S.A. de C.V., incorporated in Mexico. |
(vi) | Sigatse Peak Services, LLC’, incorporated in Nevada, USA. |
All intercompany accounts and transactions were eliminated upon consolidation.
3. | Restricted Cash |
Restricted cash of $99,290 (US $100,000) is an amount held in escrow in respect to the Company’s agreement dated June 27, 2007 to, under certain conditions, acquire the assets of Arimetco Inc., a Nevada corporation, in the Yerington Mining District, Lyon County, Nevada (see Note 5 (f) for further details of this agreement).
Page 4 of 25
Quaterra Resources Inc. (An Exploration Stage Company) |
Notes to the Consolidated Financial Statements |
Nine months ended September 30, 2007 and 2006 (Canadian Dollars) |
4. | Equipment |
Equipment is carried at cost less accumulated amortization. Details of equipment are as follows:
September 30, 2007 | Dec 31, 2006 | |||||||||||
Costs | Accumulated | Net Book | Net Book | |||||||||
Amortization | Value | Value | ||||||||||
Vehicles | $ | 108,564 | $ | (31,034 | ) | $ | 77,530 | $ | 29,078 | |||
Equipment | 44,110 | (14,076 | ) | 30,034 | 1,234 | |||||||
Computer | 23,249 | (4,650 | ) | 18,599 | 1,843 | |||||||
Software | 35,829 | (19,686 | ) | 16,143 | 19,419 | |||||||
$ | 211,752 | $ | (69,446 | ) | $ | 142,306 | $ | 51,574 |
5. | Mineral Properties |
The Company has interests in several mineral properties in Mexico, and the US including Alaska, Nevada, Arizona, Utah and Wyoming. The total deferred exploration and acquisition costs as at September 30, 2007 are as follows:
Period ended 'September 30, 2007 | Nieves | Los | Uranium | Alaskan | MacArthur | Yerington | Other | Total | ||||||||
Crestones | Properties | Properties | Properties | |||||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | |||||||||
Acquisitions | 1,308,448 | 78,097 | 2,949,254 | 147,737 | 482,657 | 770,454 | 1,136,449 | 6,873,096 | ||||||||
Advances | 243 | - | 354 | - | - | - | 4,818 | 5,415 | ||||||||
Air support | - | - | 4,664 | 111,795 | - | - | 30,752 | 147,211 | ||||||||
Amortization | 20,406 | - | - | - | - | - | - | 20,406 | ||||||||
Assays and surveys | 74,336 | 67,919 | 31,793 | 27,657 | 48,778 | - | 65,200 | 315,683 | ||||||||
Camp costs | 14,829 | 31,959 | 89,653 | 48,108 | 60,964 | 22,769 | 19,002 | 287,284 | ||||||||
Drilling services | 1,429,838 | 657,812 | 1,170,162 | 814,255 | 721,149 | - | - | 4,793,216 | ||||||||
Equipment rental and maintenance | 3,885 | 12,289 | 3,253 | 53,413 | 18,938 | 601 | 2,472 | 94,851 | ||||||||
Exploration and other | 157,058 | 17,271 | 37,897 | 42,738 | 15,629 | 11,135 | 13,487 | 295,215 | ||||||||
Field supplies and wages | 143,270 | 231,229 | 23,706 | 167,537 | 43,080 | 17,851 | 48,518 | 675,191 | ||||||||
Geological services | 393,295 | 84,556 | 1,266,750 | 908,962 | 239,503 | 93,667 | 146,930 | 3,133,663 | ||||||||
Project management | 314,596 | 119,883 | 317,198 | 106,843 | 109,635 | - | 57,324 | 1,025,479 | ||||||||
Reclamation expenses | - | - | 1,485 | - | - | - | - | 1,485 | ||||||||
Travel and related costs | 51,080 | 18,954 | 64,947 | 54,643 | 27,647 | 3,810 | 19,456 | 240,537 | ||||||||
Vehicle expenses | 14,181 | 39,488 | 44,939 | 33,710 | 23,484 | 13,857 | 8,907 | 178,566 | ||||||||
Recovery from Blackberry | (1,904,550 | ) | - | - | - | - | - | - | (1,904,550 | ) | ||||||
Total | 2,020,915 | 1,359,457 | 6,006,055 | 2,517,398 | 1,791,464 | 934,144 | 1,553,315 | 16,182,748 |
Note - Alaskan properties are Big Bar and Duke Island
Page 5 of 25
Quaterra Resources Inc. (An Exploration Stage Company) |
Notes to the Consolidated Financial Statements |
Nine months ended September 30, 2007 and 2006 (Canadian Dollars) |
5. | Mineral Properties, continued |
The total capitalized deferred exploration and acquisition costs as at December 31, 2006 were as follows:
Period ended December 31, 2006 | Nieves | Los | Uranium | Alaskan | MacArthur | Other | Total | |||||||
Crestones | Properties | Properties | Properties | |||||||||||
$ | $ | $ | $ | $ | $ | $ | ||||||||
Acquisitions | 1,244,464 | 71,696 | 1,125,438 | 130,746 | 170,324 | 454,918 | 3,197,586 | |||||||
Advances | 308 | 4,103 | 66,344 | - | - | - | 70,755 | |||||||
Air support | - | - | 4,664 | 111,795 | - | - | 116,459 | |||||||
Amortization | 20,406 | - | - | - | - | - | 20,406 | |||||||
Assays and surveys | 71,146 | 17,430 | 17,611 | 17,566 | - | 8,927 | 132,680 | |||||||
Camp costs | 11,313 | 17,811 | 25,160 | 47,601 | - | 620 | 102,505 | |||||||
Drilling services | 1,429,838 | 144,665 | 277,846 | 763,712 | - | - | 2,616,061 | |||||||
Equipment rental and maintenance | 3,885 | 12,065 | 3,085 | 53,193 | 6,732 | - | 78,960 | |||||||
Exploration and other | 148,103 | 6,289 | 28,980 | 91,519 | 441 | 5,856 | 281,188 | |||||||
Field supplies and wages | 129,641 | 132,322 | 13,135 | 166,320 | 18,833 | 1,007 | 461,258 | |||||||
Geological services | 376,868 | 43,486 | 402,867 | 899,970 | 19,776 | 19,197 | 1,762,164 | |||||||
Project management | 308,347 | 55,258 | 178,824 | 99,182 | 29,093 | - | 670,704 | |||||||
Travel and related costs | 48,322 | 10,778 | 58,709 | 53,457 | 5,142 | 5,076 | 181,484 | |||||||
Vehicle expenses | 12,664 | 18,383 | 2,634 | 33,349 | 574 | 568 | 68,172 | |||||||
Recovery from Blackberry | (1,904,550 | ) | - | - | - | - | - | (1,904,550 | ) | |||||
Total | 1,900,755 | 534,286 | 2,205,297 | 2,468,410 | 250,915 | 496,169 | 7,855,832 |
Note - Alaskan properties are Big Bar and Duke Island
(a) | Nieves Concessions, Mexico |
The Company holds a 50% interest in 15 mineral concessions located in northern Zacatecas, Mexico, (the Nieves Concessions) and two inlaying fractions within the Nieves Concessions (Delores and Nazarene), collectively called Nieves.
The Company acquired an option on the property pursuant to an Assignment made March 26, 1999 of the Underlying Agreement by Western Silver Corporation (“Western”), a company with common directors and officers, to the Company.
To acquire its interest, the Company issued 1,444,460 common shares to Western valued at $288,892, issued 360,000 common shares to the concessionaires valued at $72,000 and in accordance with the terms of the Underlying Agreement made scheduled option payments to the concession holders, totalling US $70,000 over three years. In addition, to acquire the interest in the claim fractions the Company paid US $40,000 to the concessionaires. Commencing January 26, 2004, an annual advance minimum royalty payment (“AMR”) of US $75,000 is due to the concession holders until the commencement of commercial production.
Page 6 of 25
Quaterra Resources Inc. (An Exploration Stage Company) |
Notes to the Consolidated Financial Statements |
Nine months ended September 30, 2007 and 2006 (Canadian Dollars) |
5. | Mineral Properties, continued |
(a) | Nieves Concessions, Mexico, continued |
The Nieves concessions are subject to a maximum 3% net smelter return royalty (“NSR”) to the original concession holders, which the Company may purchase at any time for US $2 million. In addition, Kennecott Exploration Company, the optionor in the initial Underlying Agreement, retains NSR royalties of 2% on certain core claims and 1% on certain peripheral claims.
Funds in the amount of US $1,500,000 (C $1,904,550) were advanced to the Company pursuant to the terms of an agreement made April 10, 2003 with Blackberry Ventures I, LLC (“Blackberry”), a US-based investment partnership, whereby Blackberry could earn a 50% interest in the Nieves silver property in Mexico or the Duke Island property in Alaska by providing advance funding to the Company to fund exploration expenditures.
The agreement with Blackberry stipulated that once all monies received from the advances had been incurred on exploration expenditures, Blackberry effectively exercised its option and earned a 50% interest in the Nieves property. In August 2005, the parties formed a joint venture to proceed with exploration on the property. As at September 30, 2007, Blackberry owed the Company $149,230 (2006: $113,430) for its share of joint venture exploration expenditures that have been made on the property.
(b) | Los Crestones Property, Mexico | ||
The Company holds a 100% interest in a mineral concession located in northern Durango, Mexico. In April 2004, the Company issued 25,000 common shares valued at $15,000, to an individual as a finder’s fee for his role in the identification and acquisition of the property. | |||
(c) | Uranium Properties, Arizona, Utah and Wyoming | ||
In an agreement made effective June 22, 2005 with North Exploration LLC, a Nevada limited Corporation, the Company acquired an option to purchase mining claims situated in Arizona, Utah and Wyoming. To exercise the option, the Company is required to make staged payments totalling US $500,000 over five years and to issue 600,000 common shares over three years, as follows: TSX.V regulatory approval for this agreement was received on September 6, 2005. | |||
(i) | US $15,000 and issue 200,000 common shares on or before September 6, 2005 (Paid and issued). | ||
(ii) | US $25,000 and issue 200,000 common shares on or before September 6, 2006 (Paid and issued). | ||
(iii) | US $50,000 and issue 200,000 common shares on or before September 6, 2007 (Paid and issued). | ||
(iv) | US $75,000 on or before September 6, 2008. | ||
(v) | US $135,000 on or before September 6, 2009. | ||
(vi) | US $200,000 on or before September 6, 2010. | ||
If the Company meets the above terms and conditions and elects to exercise the option, then the property may be purchased with a further payment of US $100. The agreement is subject to a 2% NSR payable upon commencement of commercial production, which the Company may reduce to 1% by purchase for US $1 million. |
Page 7 of 25
Quaterra Resources Inc. (An Exploration Stage Company) |
Notes to the Consolidated Financial Statements |
Nine months ended September 30, 2007 and 2006 (Canadian Dollars) |
5. | Mineral Properties, continued |
(c) | Uranium Properties, Arizona, Utah and Wyoming, continued | ||
In two separate agreements made effective August 10, 2006 and March 23, 2007 with Nustar Exploration LLC, the Company acquired options to earn 100% interests in unpatented mining claims covering breccia pipe targets located on the Arizona Strip. | |||
Under the agreement dated August 10, 2006 the Company optioned four blocks of claims with commitments as follows: | |||
(i) | Initial payments of US $20,000 (Paid). | ||
(ii) | US $30,000 on or before August 10, 2007 (Paid). | ||
(iii) | US $40,000 on or before August 10, 2008. | ||
(iv) | US $100,000 on or before August 10, 2009. | ||
Each of the option blocks is subject to a 4% yellowcake royalty, 3% of which may be bought back by the Company for US $500,000 per claim block. | |||
Under the agreement dated March 23 2007, the Company purchased a block of unpatented claims for a price of US $25,500 and a US $100,000 minimum advance royalty payment. If production occurs, the claims are subject to a 4% yellowcake royalty, 3% of which may be bought back by the Company for US $1,000,000 per breccia pipe. | |||
(d) | Alaskan Properties | ||
The Company has a 100% interest in 140 mining claims known as the Duke Island property, in Alaska (129 federal claims and 11 state claims) on Duke Island, which is near Ketchikan. | |||
The Company has a 100% interest in Big Bar project, which consists of seven state mining claims on the Seward Peninsula, approximately 45 kilometers (110 miles) northeast of Nome, Alaska. | |||
(e) | MacArthur Claim | ||
Pursuant to an agreement made October 2005 with North Exploration LLC, the Company acquired the right to earn an interest in 66 unpatented mining claims covering the former MacArthur copper- oxide mine, in the Yerington district of Lyon County, Nevada. To earn a 100% interest, subject to a 2% NSR, the Company is required to make staged payments totaling US $1,785,000 by January 15, 2008 as follows: |
Option 1
(i) | US $10,000 upon execution (Paid). | |
(ii) | US $25,000 on or before January 15, 2006 (Paid). | |
(iii) | US $75,000 on or before January 15, 2007 (Paid). | |
(iv) | US $1,675,000 on or before January 15, 2008. |
Alternatively, since the Company has met its obligation of US $100,000 in stage payments by January 15, 2007, and if the Company incurs US $500,000 in exploration expenditures by January 15, 2008, then the Company may elect to acquire the property by making additional payments totaling US $2,645,000 as follows:
Page 8 of 25
Quaterra Resources Inc. (An Exploration Stage Company) |
Notes to the Consolidated Financial Statements |
Nine months ended September 30, 2007 and 2006 (Canadian Dollars) |
5. | Mineral Properties, continued |
(e) | MacArthur Claim, continued |
Option 2
(i) | US $100,000 on or before January 15, 2008. | |
(ii) | US $125,000 on or before January 15, 2009. | |
(iii) | US $2,420,000 on or before January 15, 2010. |
The property is subject to a 2% NSR, 1% of which the Company may purchase for US $1 million.
Under an amendment dated January 17, 2007 to the original agreement made October 2005 between the Company and North Exploration LLC a US $350,000 deduction will be made from the final payments, (option one originally US $1,675,000 or option two originally US $2,420,000) as the Company has paid this amount to Charles Gary Clifton in advance.
(f) | Yerington | ||
The Company has entered into an agreement to acquire all the assets of Arimetco Inc., a Nevada corporation, in the Yerington Mining District, Lyon County, Nevada. This transaction is subject to a 180 day review period (starting July 13, 2007) and the Company may terminate this process if it is dissatisfied with the condition of the property or fails to obtain requested environmental clearances for past mining-related activities. Under certain circumstances, the review period may be extended for a further 120 days (See note 3). | |||
On receiving regulatory approval and providing that properties pass the review process the Company’s commitments would be as follows: | |||
(ii) | Payment of US $500,000. | ||
(ii) | 250,000 common shares (issued from treasury but not distibuted). | ||
Under this acquisition, the property is subject to a 2% net smelter return royalty capped at US $7.5 million on production from any claims owned by Quaterra in the Yerington and MacArthur mine areas. | |||
(g) | Other Properties | ||
Other properties include various properties in USA and Mexico. | |||
Mexico | |||
Pursuant to an agreement made December 2006 with Tom Turner, the Company acquired a 100% interest in three mineral concessions located in Mexico for consideration of 200,000 shares with a deemed value of $1.53 per share for a total of $306,000 (Note 5 (d)). | |||
Canada | |||
The option agreements for the Arc and Brown Claims, in the Skeena Mining District were terminated in accordance with their terms and the 100% interest reverted back to the Company. |
Page 9 of 25
Quaterra Resources Inc. (An Exploration Stage Company) |
Notes to the Consolidated Financial Statements |
Nine months ended September 30, 2007 and 2006 (Canadian Dollars) |
5. | Mineral Properties, continued |
(g) | Other Properties, continued |
USA
Pursuant to an option agreement made March 27, 2007, the Company may acquire a 100% interest in certain prospect permits. The potential payments for this agreement are as follows:
(i) | Initial payment of US $50,000. (Paid) | |
(ii) | US $50,000 on or before March 28, 2008. | |
(iii) | US $60,000 on or before March 28, 2009. | |
(iiii) | US $70,000 on or before March 28, 2010. | |
(iv) | US $150,000 on or before March 28, 2011. | |
(iii) | US $220,000 on or before March 28, 2012. |
Pursuant to an agreement made March 2007 with North Exploration, LLC., the Company acquired the right to earn an interest in 27 unpatented mining claims know as the S.W Tintic Claims in Juab County, Utah. To earn a 100% interest the Company is required to make staged payments totaling US $1 million by February 16, 2018 as follows:
(i) | Initial payment of US $20,000. (Paid). | |
(ii) | US $20,000 on or before February 15, 2008. | |
(iii) | US $20,000 on or before February 15, 2009. | |
(iv) | US $40,000 on or before February 15, 2010. | |
(v) | US $50,000 on or before February 15, 2011. | |
(vi) | US $50,000 on or before February 15, 2012. | |
(vii) | US $100,000 on or before February 15, 2013. | |
(viii) | US $100,000 on or before February 15, 2014. | |
(ix) | US $100,000 on or before February 15, 2015. | |
(x) | US $250,000 on or before February 15, 2016. | |
(xi) | US $250,000 on or before February 15, 2017. |
The property is subject to a 2% NSR, 1% of which the Company may purchase for US $1 million.
Alternatively, Company may acquire the property at any time by paying $1 million, less an previously paid payment, at any time.
(h) | Title to Mineral Properties |
Title to mineral properties may be affected by unregistered prior agreements or transfers, as well as undetected defects. Although the Company has verified title to its mineral properties in accordance with standard industry practices applicable for the current stage of exploration, these procedures do not guarantee the Company’s interests in its mineral properties.
Page 10 of 25
Quaterra Resources Inc. (An Exploration Stage Company) |
Notes to the Consolidated Financial Statements |
Nine months ended September 30, 2007 and 2006 (Canadian Dollars) |
5. | Mineral Properties, continued |
(i) | Environmental Expenditures |
The operations of the Company may, in the future, be affected from time to time in varying degrees by changes in environmental regulations, including those for future removal and site restoration costs. Both the likelihood of new regulations and their overall effect upon the Company vary greatly and are not predictable. The Company's policy is to meet or, if possible, surpass standards set by relevant legislation, by application of technically proven and economically feasible measures.
Environmental expenditures that relate to ongoing environmental and reclamation programs are charged against earnings as incurred or capitalized and amortized depending on their future economic benefits. Estimated future removal and site restoration costs, when the ultimate liability is reasonably determinable, are charged against earnings over the estimated remaining life of the related business operation, net of expected recoveries.
6. | Related Party Transactions |
As at September 30, 2007, $13,109 (December 31, 2006: $26,216) was due to directors or senior officers of the Company or to companies controlled by them, for various services rendered.
These transactions were made in the normal course of operations and measured at the exchange amount, which is the amount of consideration established and agreed to by the Company and related parties. They are considered related party due to the following relationships to the Company:
(a) | A private company controlled by directors or officers of the Company. | |
(b) | A director or officer of the Company. | |
(c) | An association of lawyers in which an officer of the Company is a member (resigned May 1, 2006). |
The following table summarizes the Company’s related party transactions for the nine months ended September 30, 2007 and 2006.
Page 11 of 25
Quaterra Resources Inc. (An Exploration Stage Company) |
Notes to the Consolidated Financial Statements |
Nine months ended September 30, 2007 and 2006 (Canadian Dollars) |
6. | Related Party Transactions, continued |
Three Months Ended | Nine Months Ended | |||||||||||
September 30 | September 30 | |||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||
Services | ||||||||||||
Administration fee | $ | 30,000 | $ | 30,000 | $ | 90,000 | $ | 45,000 | ||||
Consulting | $ | 32,672 | $ | 24,791 | $ | 91,329 | $ | 53,491 | ||||
Directors' and officers' fees | $ | 10,859 | $ | - | $ | 27,359 | $ | - | ||||
General exploration | $ | - | $ | - | $ | - | $ | 4,306 | ||||
Investor relations | $ | 3,574 | $ | 1,700 | $ | 25,212 | $ | 20,700 | ||||
Professional fees | ||||||||||||
Accounting | $ | 11,316 | $ | 7,621 | $ | 45,335 | $ | 20,419 | ||||
Legal fees | $ | 2,405 | $ | (1,446 | ) | $ | 9,918 | $ | 12,308 | |||
Wages and benefits | $ | 55,871 | $ | 10,192 | $ | 159,551 | $ | 27,734 | ||||
Cost recovery | ||||||||||||
Equipment | $ | 3,567 | $ | 1,690 | $ | 4,177 | $ | 1,690 | ||||
General exploration | $ | - | $ | 9 | $ | - | $ | 9 | ||||
Investor relations | $ | 194 | $ | 198 | $ | 1,465 | $ | 1,787 | ||||
Office and administration | $ | 14,586 | $ | 22,433 | $ | 67,128 | $ | 75,320 | ||||
Regulatory | $ | - | $ | 120 | $ | 2,615 | $ | 3,510 | ||||
Shareholders' communications | $ | 1,016 | $ | 547 | $ | 1,016 | $ | 547 | ||||
Share issue costs (1) | $ | - | $ | 4,804 | $ | 1,170 | $ | 12,010 | ||||
Travel and promotions | $ | 3,713 | $ | 759 | $ | 11,145 | $ | 8,190 | ||||
Mineral properties | ||||||||||||
Los Crestones (2) | $ | - | $ | - | $ | 1,920 | $ | - | ||||
Big Bar (2) | $ | - | $ | 3,750 | $ | 3,900 | $ | 11,250 | ||||
Uranium properites (2) | $ | 7,500 | $ | 18,750 | $ | 46,751 | $ | 51,567 | ||||
Duke Island (2) | $ | 1,875 | $ | - | $ | 3,762 | $ | - | ||||
MacArthur (2) | $ | 20,625 | $ | 9,375 | $ | 41,883 | $ | 28,032 |
(1) | This amount has been capitalized and is included in share capital on the balance sheet |
(2) | These amounts have been capitalized and are included in mineral properties on the balance sheet |
(3) | Stock based compensation is not included in these related party transactions (See Note 7(h)) |
Page 12 of 25
Quaterra Resources Inc. (An Exploration Stage Company) |
Notes to the Consolidated Financial Statements |
Nine months ended September 30, 2007 and 2006 (Canadian Dollars) |
7. | Share Capital |
(a) | Authorized | |
The Company has unlimited authorized, without par value, common shares. | ||
(b) | Issued and Outstanding |
Number | Total | Contributed | ||||||||
of shares | Surplus | |||||||||
Balance as at December 31, 2005 | 65,522,200 | $ | 15,172,975 | $ | 1,013,998 | |||||
Issued for cash: | ||||||||||
Private placements | 5,247,855 | 9,183,746 | - | |||||||
Exercised share purchase warrants | 3,814,281 | 1,907,141 | - | |||||||
Exercised stock options | 2,829,000 | 675,030 | - | |||||||
Total issued for cash | 11,891,136 | 11,765,917 | - | |||||||
Issued for mineral property acquisitions | 400,000 | 606,000 | - | |||||||
Issued for brokerage fees | 291,484 | 510,097 | - | |||||||
Fair value of stock options exercised | - | 349,445 | (349,445 | ) | ||||||
Stock based compensation | - | - | 3,045,004 | |||||||
Subtotal before share issue costs | 12,582,620 | 13,231,459 | 2,695,559 | |||||||
Share issue costs | - | (543,376 | ) | - | ||||||
Balance as at December 31, 2006 | 78,104,820 | 27,861,058 | 3,709,557 | |||||||
Issued for cash: | ||||||||||
Exercised share purchase warrants | 2,480,785 | 5,581,766 | - | |||||||
Exercised stock options | 1,080,000 | 941,710 | - | |||||||
Total issued for cash | 3,560,785 | 6,523,476 | - | |||||||
Issued for mineral property acquisitions | 450,000 | 1,201,000 | - | |||||||
Issued for services | 15,847 | 45,000 | - | |||||||
Fair value of stock options exercised | - | 546,660 | (546,660 | ) | ||||||
Stock based compensation | - | - | 6,123,013 | |||||||
Subtotal before share issue costs | 4,026,632 | 8,316,136 | 5,576,353 | |||||||
Share issue costs | - | (6,316 | ) | - | ||||||
Balance as at September 30, 2007 | 82,131,452 | $ | 36,170,878 | $ | 9,285,910 |
Page 13 of 25
Quaterra Resources Inc. (An Exploration Stage Company) |
Notes to the Consolidated Financial Statements |
Nine months ended September 30, 2007 and 2006 (Canadian Dollars) |
7. | Share Capital, continued |
(c) | Private Placements | ||
There were no private placements during the nine months ended September 30, 2007. | |||
During the year ended December 31, 2006, the Company issued 5,247,855 units at a price of $1.75 per unit for gross proceeds of $9,183,746. Each unit consisted of one common share and one-half of one share purchase warrant, each whole warrant entitling the holder to purchase an additional common share at a price of $2.25 until expiry on June 21, 2008. The Company incurred net share issuance costs of $502,596, including 291,484 shares were issued for finders’ fees valued at $510,097. | |||
(d) | Shares Issued for Mineral Property | ||
During the nine months ended September 30, 2007, the Company issued 450,000 common shares for value at $1,201,000. | |||
(i) | 200,000 common shares value at $2.93 per share, $586,000 in total, pursuant to the terms of the uranium properties agreement (Note 5 (c)). | ||
(ii) | 250,000 common shares value at $2.46 per share, $615,000 in total, pursuant to the acquisition of Yerington property agreement. These shares have been issued from treasury but have not been distributed. They will only be distributed when all terms of the Yerington property agreement have been met. (Note 5 (f)). | ||
During the year ended December 31, 2006, the Company issued 400,000 common shares for value at $606,000. | |||
(iii) | 200,000 common shares value at $1.50 per share, $300,000 in total, pursuant to the terms of the uranium properties agreement (Note 5 (c)). | ||
(iv) | 200,000 common shares value at $1.53 per share, $306,000 in total, pursuant to the acquisition of three mineral concessions in Mexico (Note 5 (g)). | ||
(e) | Shares Issued for debt settlement for services | ||
During the nine months ended September 30, 2007 15,847 shares were issued in settlement of $45,000 debt owed by the Company. | |||
(f) | Share Purchase Warrants | ||
A summary of the Company’s share purchase warrant transactions for the nine months ended September 30, 2007 are as follows: |
Exercise | Expiry | Balance | Warrants | Cancelled | Warrants | Balance | |||||||
Price | Date | Dec 31, 2006 | Issued | or Expired | Exercised | Sept 30, 2007 | |||||||
$2.25 | June 21, 2008 | 2,623,928 | - | 143,143 | 2,480,785 | - | |||||||
Weighted average exercise price | $2.25 | $0.00 | $0.00 | $2.25 | $0.00 |
Page 14 of 25
Quaterra Resources Inc. (An Exploration Stage Company) |
Notes to the Consolidated Financial Statements |
Nine months ended September 30, 2007 and 2006 (Canadian Dollars) |
7. | Share Capital, continued |
(f) | Share Purchase Warrants, continued |
On July 20, 2007 notice was given to holders of the share purchase warrants exercisable at $2.25 with an expiry date of June 21, 2008, of an acceleration of the expiry date from June 21, 2008 to August 20, 2007. These warrants have now either been exercised or have expired.
A summary of the Company’s share purchase warrant transactions for the year ended December 31, 2006 are as follows:
Exercise | Expiry | Balance | Warrants | Cancelled | Warrants | Balance | |||||||
Price | Date | Dec. 31, 2005 | Issued | or Expired | Exercised | Dec. 31, 2006 | |||||||
$0.66 | January 20, 2006 | 120,000 | - | 120,000 | - | - | |||||||
$0.50 | September 27, 2007 | 3,250,000 | - | 3,250,000 | - | ||||||||
$0.50 | September 27, 2007 | 564,281 | - | 564,281 | - | ||||||||
$2.25 | June 21, 2008 | - | 2,623,928 | - | - | 2,623,928 | |||||||
3,934,281 | 2,623,928 | 120,000 | 3,814,281 | 2,623,928 | |||||||||
Weighted average exercise price | $0.50 | $2.25 | $0.66 | $0.50 | $2.25 |
(g) | Stock Options |
As at September 30, 2007 and December 31, 2006, the Company had a stock option plan (the “Plan”), allowing for the reservation of common shares issuable under the Plan to a maximum 10% of the number of issued and outstanding common shares of the Company at any given time. The term of any stock option granted under the Plan may not exceed five years and the exercise price may not be less than the closing price of the Company’s shares on the last business day immediately preceding the date of grant, less any permitted discount. On an annual basis, the Plan requires approval by the Company’s shareholders and submission for regulatory review and acceptance.
The purpose of the Plan is to provide directors, officers, key employees and certain other persons who provided services to the Company and its subsidiaries with an increased incentive to contribute to the future success and prosperity of the Company.
Page 15 of 25
Quaterra Resources Inc. (An Exploration Stage Company) |
Notes to the Consolidated Financial Statements |
Nine months ended September 30, 2007 and 2006 (Canadian Dollars) |
7. | Share Capital, continued |
(g) | Stock Options, continued |
As at September 30, 2007, all outstanding options were vested and exercisable and 5,233,250 were vested and exercisable as at December 31, 2006.
Transactions for the nine months ended September 30, 2007 are as follows:
Exercise | Expiry | Balance | Options | Options | Options | Balance | |||||||
Price | Date | Dec 31, 2006 | Granted | Cancelled/Expired | Exercised | Sept 30, 2007 | |||||||
$0.12 | January 10, 2008 | 937,000 | - | - | 93,000 | 844,000 | |||||||
$0.25 | October 2, 2008 | 50,000 | - | - | 50,000 | - | |||||||
$0.34 | December 8, 2008 | 90,000 | - | - | - | 90,000 | |||||||
$0.62 | March 25, 2009 | 590,000 | - | - | 230,000 | 360,000 | |||||||
$0.35 | August 9, 2010 | 850,000 | - | - | 267,000 | 583,000 | |||||||
$0.40 | January 9, 2011 | 200,000 | - | - | - | 200,000 | |||||||
$1.04 | March 27, 2011 | 125,000 | - | - | - | 125,000 | |||||||
$1.00 | May 19, 2011 | 75,000 | - | - | - | 75,000 | |||||||
$1.12 | June 12, 2011 | 100,000 | - | - | - | 100,000 | |||||||
$1.55 | July 28, 2011 | 2,110,000 | - | - | 440,000 | 1,670,000 | |||||||
$1.55 | August 23, 2011 | 100,000 | - | - | - | 100,000 | |||||||
$1.50 | September 25, 2011 | 100,000 | - | - | - | 100,000 | |||||||
$2.05 | December 18, 2011 | 100,000 | - | - | - | 100,000 | |||||||
$2.65 | January 11, 2012 | - | 75,000 | - | - | 75,000 | |||||||
$2.70 | February 21, 2012 | - | 25,000 | 25,000 | |||||||||
$3.33 | July 10, 2012 | - | 2,031,000 | 2,031,000 | |||||||||
$3.33 | August 7, 2012 | - | 80,000 | 80,000 | |||||||||
5,427,000 | 2,211,000 | - | 1,080,000 | 6,558,000 | |||||||||
Weighted average exercise price | $0.92 | $3.30 | $0.00 | $0.87 | $1.73 |
Page 16 of 25
Quaterra Resources Inc. (An Exploration Stage Company) |
Notes to the Consolidated Financial Statements |
Nine months ended September 30, 2007 and 2006 (Canadian Dollars) |
7. | Share Capital, continued |
(g) | Stock Options, continued |
Transactions for the year ended December 31, 2006 are as follows:
Exercise | Expiry | Balance | Options | Options | Options | Balance | |||||||
Price | Date | Dec. 31, 2005 | Granted | Cancelled/Expired | Exercised | Dec. 31, 2006 | |||||||
$0.15 | February 8, 2006 | 50,000 | - | - | 50,000 | - | |||||||
$0.15 | May 7, 2006 | 55,000 | - | - | 55,000 | - | |||||||
$0.12 | June 8, 2006 | 515,000 | - | - | 515,000 | - | |||||||
$0.19 | September 27, 2006 | 490,000 | - | - | 490,000 | - | |||||||
$0.12 | January 10, 2008 | 1,591,000 | - | - | 654,000 | 937,000 | |||||||
$0.25 | October 2, 2008 | 75,000 | - | - | 25,000 | 50,000 | |||||||
$0.34 | December 8, 2008 | 195,000 | - | - | 105,000 | 90,000 | |||||||
$0.65 | March 2, 2009 | 100,000 | - | 100,000 | - | - | |||||||
$0.62 | March 25, 2009 | 800,000 | - | - | 210,000 | 590,000 | |||||||
$0.35 | August 9, 2010 | 1,575,000 | - | - | 725,000 | 850,000 | |||||||
$0.40 | January 9, 2011 | - | 200,000 | - | - | 200,000 | |||||||
$1.04 | March 27, 2011 | - | 125,000 | - | - | 125,000 | |||||||
$1.00 | May 19, 2011 | - | 75,000 | - | - | 75,000 | |||||||
$1.12 | June 12, 2011 | - | 100,000 | - | - | 100,000 | |||||||
$1.55 | July 28, 2011 | - | 2,110,000 | - | - | 2,110,000 | |||||||
$1.55 | August 23, 2011 | - | 100,000 | - | - | 100,000 | |||||||
$1.50 | September 25, 2011 | - | 100,000 | - | - | 100,000 | |||||||
$2.05 | December 18, 2011 | - | 100,000 | - | - | 100,000 | |||||||
5,446,000 | 2,910,000 | 100,000 | 2,829,000 | 5,427,000 | |||||||||
Weighted average exercise price | $0.29 | $1.44 | $0.65 | $0.24 | $0.92 |
(h) | Value Assigned to Stock Options |
The fair value of stock options granted using the Black-Scholes option pricing model was calculated with the following weighted average assumptions:
Sept 30, 2007 | December 31, 2006 | Sept 30, 2006 | |||||
Risk-free interest rate | 4.57% | 4.02% | 4.10% | ||||
Expected Share price volatility | 151.79% | 121.60% | 120.97% | ||||
Expected option life in years | 3.0 | 3.5 | 3.5 | ||||
Expected dividend yield | 0% | 0% | 0% |
Page 17 of 25
Quaterra Resources Inc. (An Exploration Stage Company) |
Notes to the Consolidated Financial Statements |
Nine months ended September 30, 2007 and 2006 (Canadian Dollars) |
7. | Share Capital, continued |
(h) | Value Assigned to Stock Options |
The total calculated fair value of options expensed during the nine months ended September 30, 2007 was $6,123,013 (2006: $2,164,630) and includes amounts calculated from options issued during the year ended December 31, 2006 but vesting during the nine months ended September 30, 2007.
This stock based compensation is included in the statement of operations as follows:
September 30, 2007 | September 30, 2006 | ||||||||||||
Number of | Number of | ||||||||||||
Options | Stock-based | Options | Stock-based | ||||||||||
issued | Compensation | issued | Compensation | ||||||||||
Consulting | 1,115,000 | $ | 3,047,297 | 1,065,000 | $ | 872,733 | |||||||
Directors' and officers' fees | 855,000 | 2,411,637 | 1,325,000 | 944,716 | |||||||||
Wages and benefits | 241,000 | 664,079 | 420,000 | 347,181 | |||||||||
Total | 2,211,000 | $ | 6,123,013 | 2,810,000 | $ | 2,164,630 |
8. | Segmented Information |
The Company‘s non-current assets are distributed by geographic location as follows:
September 30, 2007 | December 31, 2006 | |||||||||||||||||||||||
Equipment | Mineral | Reclamation | Total | Equipment | Mineral | Reclamation | Total | |||||||||||||||||
Properties | Bond | Properties | Bond | |||||||||||||||||||||
Canada | $ | 25,051 | $ | - | $ | - | $ | 25,051 | $ | 24,997 | $ | - | $ | - | $ | 24,997 | ||||||||
Mexico | 61,598 | 4,054,509 | - | 4,116,107 | 25,488 | 2,785,632 | - | 2,811,120 | ||||||||||||||||
U.S.A. | 55,657 | 12,128,239 | 129,291 | 12,313,187 | 1,089 | 5,070,200 | 79,898 | 5,151,187 | ||||||||||||||||
$ | 142,306 | $ | 16,182,748 | $ | 129,291 | $ | 16,454,345 | $ | 51,574 | $ | 7,855,832 | $ | 79,898 | $ | 7,987,304 |
Page 18 of 25
Quaterra Resources Inc. (An Exploration Stage Company) |
Notes to the Consolidated Financial Statements |
Nine months ended September 30, 2007 and 2006 (Canadian Dollars) |
9. | Supplemental Cash Flow Information. |
Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||
Cash Items | ||||||||||||
Interest received | $ | 53,101 | $ | 26,149 | $ | 212,318 | $ | 55,800 | ||||
Share issue costs | $ | 756 | $ | - | $ | 6,316 | $ | 45,443 | ||||
Subscriptions receivable | $ | - | $ | 17,500 | $ | 17,500 | $ | 17,500 | ||||
Non-Cash Items | ||||||||||||
Accrued interest | $ | 1,104 | $ | - | $ | (4,989 | ) | $ | - | |||
Investing Activity | ||||||||||||
Mineral property costs included in Accounts payable | $ | 247,153 | $ | - | $ | 247,153 | $ | - | ||||
Financing Activities | ||||||||||||
Shares issued for services | $ | 22,500 | $ | - | $ | 45,000 | $ | - | ||||
Shares issued for mineral properties | $ | 1,201,000 | $ | 300,000 | $ | 1,201,000 | $ | 300,000 | ||||
Non-cash share issue costs | $ | - | $ | - | $ | - | $ | 3,072 |
10. | Subsequent Events |
The following events occurred subsequent to period ended September 30, 2007:
(a) | On October 9, 2007, 50,000 stock options were granted to consultants with an exercise price of $2.93 and an expiry date of October 9, 2012. | |
(b) | On October 14, 2007, 5,000 stock options were cancelled. These had an exercise price of $3.33 and an expiry date of July 20, 2012. | |
(c) | 258,000 stock options were exercised at an average price of $0.46 per share for total funds of $118,780. |
Page 19 of 25
Quaterra Resources Inc. (An Exploration Stage Company) |
Notes to the Consolidated Financial Statements |
Nine months ended September 30, 2007 and 2006 (Canadian Dollars) |
11. | Differences between Canadian and United States generally accepted accounting principles (GAAP) |
(a) | Differences in accounting principles | ||
(i) | Exploration expenditures | ||
Under Canadian GAAP, acquisition costs of mineral interests and exploration expenditures are capitalized (Note 5). | |||
Under US GAAP, exploration costs incurred in locating areas of potential mineralization are expensed as incurred. Commercial feasibility is established in compliance with SEC Industry Guide 7, which consists of identifying that part of a mineral deposit that could be economically and legally extracted or produced at the time of the reserve determination. After an area of interest has been assessed as commercially feasible, expenditures specific to the area of interest for further development are capitalized. In deciding when an area of interest is likely to be commercially feasible, management may consider, among other factors, the results of pre-feasibility studies, detailed analysis of drilling results, the supply and cost of required labour and equipment, and whether necessary mining and environmental permits can be obtained. To date no exploration expenses have been capitalized under US GAAP. | |||
The Company has adopted EIFT 04-02 and separately reports the aggregate carrying amount of mineral rights. Mineral rights include an option for the Company to acquire the rights to extract and retain at least a portion of the benefits from the mineral deposits. Acquisition costs include cash and the fair market value of common shares for the mineral rights. These capitalized costs will be amortized over the estimated life of the property following commencement of commercial production or written off if the property is sold, allowed to lapse or abandoned, or when an impairment of value has occurred. |
Page 20 of 25
Quaterra Resources Inc. (An Exploration Stage Company) |
Notes to the Consolidated Financial Statements |
Nine months ended September 30, 2007 and 2006 (Canadian Dollars) |
11. | Differences between Canadian and United States generally accepted accounting principles (GAAP), continued |
(a) | Differences in accounting principles, continued | ||
(ii) | Reconciliation of total assets, liabilities and stockholders’ equity: |
September 30, 2007 | December 30, 2006 | ||||||
Total assets per Canadian GAAP | $ | 23,063,115 | $ | 17,340,544 | |||
Exploration expenditures on resource properties | (10,630,103 | ) | (5,196,365 | ) | |||
expensed under US GAAP | |||||||
Total assets per US GAAP | $ | 12,433,012 | $ | 12,144,179 | |||
Total liabilities per Canadian GAAP | $ | 357,890 | $ | 277,527 | |||
Adjustments to US GAAP | - | - | |||||
Total liabilities per US GAAP | 357,890 | 277,527 | |||||
Total equity per Canadian GAAP | 22,705,225 | 17,063,017 | |||||
Exploration expenditures on resource properties | (10,630,103 | ) | (5,196,365 | ) | |||
expensed under US GAAP | |||||||
Total equity per US GAAP | 12,075,122 | 11,866,652 | |||||
Total Liabilities and equity per US GAAP | $ | 12,433,012 | $ | 12,144,179 |
Page 21 of 25
Quaterra Resources Inc. (An Exploration Stage Company) |
Notes to the Consolidated Financial Statements |
Nine months ended September 30, 2007 and 2006 (Canadian Dollars) |
11. | Differences between Canadian and United States generally accepted accounting principles (GAAP), continued |
(a) | Differences in accounting principles, continued | ||
(iii) | Reconciliation of net loss reported in Canadian GAAP and US GAAP: |
Three months ended Sept 30, | Nine months ended Sept 30, | ||||||||||||
2007 | 2006 | 2007 | 2006 | ||||||||||
Reconciliation of net loss from Canadian | |||||||||||||
GAAP to US GAAP | |||||||||||||
Loss for year per Canadian GAAP | $ | 6,496,306 | $ | 2,234,381 | $ | 8,261,466 | $ | 2,799,378 | |||||
Exploration expenditures on mineral | |||||||||||||
properties | 2,397,415 | 835,195 | 5,433,738 | 1,795,869 | |||||||||
Net loss for year per US GAAP | 8,893,721 | 3,069,576 | 13,695,204 | 4,595,247 | |||||||||
Deficit, Beginning of year per US GAAP | 24,487,946 | 14,735,249 | 19,686,463 | 13,209,578 | |||||||||
Deficit, End of year as per US GAAP | $ | 33,381,667 | $ | 17,804,825 | $ | 33,381,667 | $ | 17,804,825 | |||||
Net loss per share for the year in | |||||||||||||
accordance with Canadian GAAP | $ | 0.08 | $ | 0.03 | $ | 0.10 | $ | 0.01 | |||||
Total differences | $ | 0.03 | $ | 0.01 | $ | 0.07 | $ | 0.06 | |||||
Net loss per share for the year in | |||||||||||||
accordance with US GAAP | $ | 0.11 | $ | 0.04 | $ | 0.17 | $ | 0.07 | |||||
Weighted average number of common | |||||||||||||
shares outstanding | 79,428,158 | 71,852,481 | 78,871,925 | 68,033,632 |
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Quaterra Resources Inc. (An Exploration Stage Company) |
Notes to the Consolidated Financial Statements |
Nine months ended September 30, 2007 and 2006 (Canadian Dollars) |
11. | Differences between Canadian and United States generally accepted accounting principles (GAAP), continued |
(a) | Differences in accounting principles, continued | ||
(iv) | Reconciliation of cash flows reported in Canadian GAAP and US GAAP: |
Nine months ended | |||||||
Sept 30, 2007 | Sept 30, 2006 | ||||||
Cash used in operating activities | |||||||
in accordance with Canadian GAAP | $ | (2,353,899 | ) | $ | (936,584 | ) | |
Adjustments to net loss involving use of cash | |||||||
Write-off of expenditures on mineral interest | (5,433,738 | ) | (1,795,869 | ) | |||
Cash used in operating activities | |||||||
in accordance with US GAAP | (7,787,637 | ) | (2,732,453 | ) | |||
Cash used in investing activities | |||||||
in accordance with Canadian GAAP | (7,085,717 | ) | (2,162,811 | ) | |||
Reclassification of expenditures on mineral property interest | 5,433,738 | 1,795,869 | |||||
Cash used in investing activities | |||||||
in accordance with US GAAP | (1,651,979 | ) | (366,942 | ) | |||
Cash used in Financing Activities | |||||||
in accordance with Candian and US GAAP | 6,534,660 | 2,515,608 | |||||
Increase in cash during the period | |||||||
in accordance with Candian and US GAAP | (2,904,956 | ) | (583,787 | ) | |||
Cash, beginning of period | |||||||
in accordance with Candian and US GAAP | 9,112,732 | 1,786,298 | |||||
Cash, end of period | |||||||
in accordance with Candian and US GAAP | $ | 6,207,776 | $ | 1,202,511 | |||
Cash consists of the following | |||||||
Cash and cash equivalents | 6,108,486 | 1,202,511 | |||||
Restricted cash | 99,290 | - | |||||
Cash, end of period | |||||||
in accordance with Candian and US GAAP | $ | 6,207,776 | $ | 1,202,511 |
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Quaterra Resources Inc. (An Exploration Stage Company) |
Notes to the Consolidated Financial Statements |
Nine months ended September 30, 2007 and 2006 (Canadian Dollars) |
11. | Differences between Canadian and United States generally accepted accounting principles (GAAP), continued |
(b) | Recent accounting pronouncements | ||
(i) | In December 2004, FASB issued Statement No. 123 (revised 2004), Share-Based Payment (“SFAS 123(R)”), which requires the measurement and recognition of compensation expense for all stock-based compensation payments and supersedes the Company’s current accounting under APB 25. SFAS 123(R) is effective for all annual periods beginning after June 15, 2005. In March 2005, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to the adoption of SFAS 123(R). This standard will not have an impact on the Company’s financial statements as it already applies the fair value method of accounting for its stock options. | ||
(ii) | FAS 153, Exchanges of Non-Monetary Assets. The provisions of this statement are effective for non-monetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Earlier application is permitted for non-monetary asset exchanges occurring in fiscal periods beginning after December 16, 2004. The provisions of this statement should be applied prospectively. There is no impact on the Company’s financial statements. | ||
(iii) | FIN 46(R), Consolidation of Variable Interest Entities, applies at different dates to different types of enterprises and entities, and special provisions apply to enterprises that have fully or partially applied Interpretation 46, or Interpretation 46 (R) is required in financial statements of public entities that have interests in variable interest entities or potential variable interest entities commonly referred to as special- purpose entities for periods ending after December 15, 2003. Application by public entities is required in financial statements for periods other than special-purpose entities and by non-public entities to all types of entities is required at various dates in 2004 and 2005. In some instances, enterprises have the option of applying or continuing to apply Interpretation 46 for a short period of time before applying Interpretation 46(R). There is no impact on the Company’s financial statements. | ||
(iv) | SFAS 154, Accounting Changes and Error Corrections. This new standard replaces APB Opinion No. 20, Accounting Changes, and FASB 3, Reporting Accounting Changes in Interim Financial Statements. Statement 154 requires that a voluntary change in accounting principle be applied retrospectively with all prior period financial statements presented on the new accounting principle, unless it is impracticable to do so. Statement 154 also provides that (1) a change in method of depreciating or amortizing a long-lived non-financial asset be accounted for as a change in estimate (prospectively) that was effected by a change in accounting principle, and (2) correction of errors in previously issued financial statements should be termed a "restatement." The new standard is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. Early adoption of this standard is permitted for accounting changes and correction of errors made in fiscal years beginning after June 1, 2005. There is no impact on the Company’s financial statements. |
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Quaterra Resources Inc. (An Exploration Stage Company) |
Notes to the Consolidated Financial Statements |
Nine months ended September 30, 2007 and 2006 (Canadian Dollars) |
11. | Differences between Canadian and United States generally accepted accounting principles (GAAP), continued |
(b) | Recent accounting pronouncements, continued | ||
(vii) | SFAS 157, Fair Value Measurements. The provisions of this standard are to provide guidance for using fair value to measure assets and liabilities. The standard clarifies methods for measuring items not actively traded and the principles that fair value should be based upon when pricing an asset or liability. The provisions of Statement 157 are effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for that fiscal year. There is no impact on the Company’s financial statements. | ||
(viii) | On July 13, 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109. Interpretation 48 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with Statement 109 and prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Additionally, Interpretation 48 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Interpretation 48 is effective for fiscal years beginning after December 15, 2006, with early adoption permitted. The Company is currently evaluating whether the adoption of Interpretation 48 will have a material effect on its consolidated financial position, results of operations or cash flows. |
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