Consolidated Interim Financial Statements
(An Exploration Stage Company)
For the three months ended March 31, 2008
(Unaudited and Expressed in Canadian Dollars)
Notice to Reader
The accompanying unaudited consolidated interim financial statements of Quaterra Resources Inc. have been prepared by, and are the responsibility of, the Company’s management. The Company’s independent auditor has not performed a review of these consolidated financial statements.
Quaterra Resources Inc. |
(an exploration stage company) |
Consolidated Balance Sheets |
(Unaudited and expressed in Canadian Dollars) |
Unaudited | Audited | ||||||||
March 31, 2008 | December 31, 2007 | ||||||||
Assets | |||||||||
Current | |||||||||
Cash and cash equivalents | Note 6 | (a) | $ | 4,529,978 | $ | 3,389,900 | |||
Receivables | 274,773 | 268,869 | |||||||
Prepaid and deposits | 193,672 | 62,854 | |||||||
Amount due from Joint Venture Partner | 125,523 | 581,124 | |||||||
5,123,946 | 4,302,747 | ||||||||
Prepaid and deposits | 12,332 | 20,814 | |||||||
Equipment | Note 4 | 187,936 | 180,452 | ||||||
Mineral properties | Note 5 | 22,626,047 | 19,554,706 | ||||||
Reclamation bonds | 153,352 | 139,492 | |||||||
Total Assets | $ | 28,103,613 | $ | 24,198,211 | |||||
Liabilities | |||||||||
Current | |||||||||
Accounts payable and accrued liabilities | $ | 1,291,830 | $ | 1,079,779 | |||||
Due to related parties | 93,407 | 86,391 | |||||||
Current portion of promisory note | Note 5 | (h) | 282,288 | 270,050 | |||||
1,667,525 | 1,436,220 | ||||||||
Promisory note | Note 5 | (h) | 282,288 | 270,050 | |||||
Total Liabilities | 1,949,813 | 1,706,270 | |||||||
Commitments (Note 9) | |||||||||
Shareholders¹ Equity | |||||||||
Share capital | Note 6 | 37,308,444 | 36,875,448 | ||||||
Commitment to issue shares | Note 6 | (a) | 4,110,000 | - | |||||
Contributed surplus | Note 6 | (c) | 7,649,252 | 7,409,795 | |||||
Deficit | (22,913,896 | ) | (21,793,302 | ) | |||||
Total Shareholders¹ Equity | 26,153,800 | 22,491,941 | |||||||
Total Liabilities and Shareholder¹s Equity | $ | 28,103,613 | $ | 24,198,211 |
Approved on behalf of the Board of Directors:
/s/ Thomas Patton | /s/ Robert Gayton |
Thomas Patton | Robert Gayton |
See accompanying notes to consolidated financial statements
Quaterra Resources Inc. |
(an exploration stage company) |
Consolidated Statements of Operations and Deficits |
(Unaudited and expressed in Canadian Dollars) |
Three months ended March 31, | ||||||
2008 | 2007 | |||||
Exploration Costs, net of recoveries | $ | 67,989 | $ | 72,801 | ||
General Administrative Expenses | ||||||
Administration | 48,030 | 30,000 | ||||
Amortization | 16,609 | 7,829 | ||||
Consulting | 202,666 | 71,825 | ||||
Directors and officers fees | 12,750 | 11,250 | ||||
Investor relations and communications | 53,461 | 66,139 | ||||
Office and general | 91,248 | 45,850 | ||||
Professional fees | 205,988 | 75,784 | ||||
Regulatory fees and taxes | 39,603 | 38,183 | ||||
Salaries and benefits | 93,293 | 49,637 | ||||
Stock based compensation (Note 6(b)) | 409,518 | 273,155 | ||||
Transfer agent | 4,604 | 8,984 | ||||
Travel and promotion | 53,412 | 53,970 | ||||
1,231,182 | 732,606 | |||||
Operating Expenses | 1,299,171 | 805,407 | ||||
Other Income | ||||||
Foreign exchange gain/(loss) | 164,773 | (76,971 | ) | |||
Interest | 10,648 | 90,354 | ||||
Joint venture administration fee | 3,156 | - | ||||
178,576 | 13,383 | |||||
Loss for the period | (1,120,594 | ) | (792,024 | ) | ||
Deficit, beginning of year | (21,793,302 | ) | (14,490,098 | ) | ||
Deficit, end of period | $ | (22,913,896 | ) | $ | (15,282,122 | ) |
Loss per share - basic and diluted | $ | (0.01 | ) | $ | (0.01 | ) |
Weighted average number of shares outstanding | 83,655,670 | 78,122,324 |
See accompanying notes to consolidated financial statements
Quaterra Resources Inc. |
(an exploration stage company) |
Consolidated Statements of Cash Flows |
(Unaudited and expressed in Canadian Dollars) |
Three months ended March 31, | ||||||
2008 | 2007 | |||||
Operating Activities | ||||||
Net loss for the period | $ | (1,120,594 | ) | $ | (792,024 | ) |
Items not involving cash: | ||||||
Amortization | 16,609 | 7,829 | ||||
Commitment to issue shares for services | 15,000 | - | ||||
Stock based compensation | 409,518 | 273,155 | ||||
Shares issued for services | - | |||||
Unrealized foreign exchange on promissory note | 24,476 | - | ||||
(632,491 | ) | (511,040 | ) | |||
Changes in non-cash working capital | ||||||
Accounts receivable | (5,904 | ) | (38,953 | ) | ||
Prepaid and deposits | (122,335 | ) | (38,048 | ) | ||
Accounts payable and accrued liabilities | 108,411 | (153,141 | ) | |||
Due to related parties | 7,016 | 40,355 | ||||
Cash used in operating activities | (645,303 | ) | (700,827 | ) | ||
Financing Activities | ||||||
Shares issued for cash, net of issue costs | 240,435 | 78,308 | ||||
Commitment to issue shares - private placement | 4,095,000 | 17,500 | ||||
Cash provided by financing activities | 4,335,435 | 95,808 | ||||
Investing Activities | ||||||
Expenditures on mineral properties | (2,967,699 | ) | (1,845,860 | ) | ||
Due from Joint Venture partner | 455,601 | (16,123 | ) | |||
Purchase of equipment | (24,096 | ) | (32,771 | ) | ||
Purchase of reclamation bonds | (13,860 | ) | (21,634 | ) | ||
Cash used in investing activities | (2,550,054 | ) | (1,916,388 | ) | ||
Increase (decrease) in cash during the period | 1,140,078 | (2,521,407 | ) | |||
Cash and cash equivalents, beginning of period | 3,389,900 | 9,112,732 | ||||
Cash and cash equivlaents, end of period | $ | 4,529,978 | $ | 6,591,325 | ||
Supplemental Infomration | ||||||
Interest received | $ | 10,648 | $ | 83,378 | ||
Interest paid | $ | - | $ | - | ||
Income tax paid | $ | - | $ | - | ||
Mineral property cost included in account payable | $ | 1,004,253 | $ | 238,720 | ||
Share issued for services | $ | 22,500 | $ | - | ||
Share issue costs | $ | - | $ | 5,452 |
See accompanying notes to consolidated financial statements
Quaterra Resources Inc. |
(an exploration stage company) |
Consolidated Statements of Shareholders’ Equity |
(Unaudited and expressed in Canadian Dollars) |
Common Shares | ||||||||||||||||||||
Commitment to | Share | Contributed | ||||||||||||||||||
Shares | Amount | issue shares | Subscription | Surplus | Deficit | Total | ||||||||||||||
Balance at December 31, 2005 | 65,522,200 | $ | 15,172,975 | $ | - | $ | - | $ | 1,013,998 | $ | (10,659,564 | ) | $ | 5,527,409 | ||||||
Common shares issued for cash during the year: | (17,500 | ) | (17,500 | ) | ||||||||||||||||
Exercise of options | 2,829,000 | 675,030 | 675,030 | |||||||||||||||||
Exercise of warrants | 3,814,281 | 1,907,141 | 1,907,141 | |||||||||||||||||
Private placements | 5,247,855 | 9,183,746 | 9,183,746 | |||||||||||||||||
Shares issued for mineral property acquisitions | 400,000 | 606,000 | 606,000 | |||||||||||||||||
Shares issued for finders¹ fees | 291,484 | 510,097 | 510,097 | |||||||||||||||||
Fair value of options and warrants exercised | 349,445 | (349,445 | ) | - | ||||||||||||||||
Share issue costs, net of future income taxes | (543,376 | ) | (543,376 | ) | ||||||||||||||||
Stock based compensation | 3,045,004 | 3,045,004 | ||||||||||||||||||
Net loss for the year | (3,830,534 | ) | (3,830,534 | ) | ||||||||||||||||
Balance at December 31, 2006 | 78,104,820 | 27,861,058 | - | (17,500 | ) | 3,709,557 | (14,490,098 | ) | 17,063,017 | |||||||||||
Common shares issued for cash during the year: | ||||||||||||||||||||
Exercise of warrants | 2,480,785 | 5,581,766 | 5,581,766 | |||||||||||||||||
Exercise of options | 2,108,500 | 1,288,515 | 17,500 | 1,306,015 | ||||||||||||||||
Shares issued for mineral property acquisitions | 200,000 | 586,000 | 586,000 | |||||||||||||||||
Alloted for mineral property acquisitions | 250,000 | 695,000 | 695,000 | |||||||||||||||||
Shares issued for services | 22,900 | 67,500 | 67,500 | |||||||||||||||||
Fair value of options and warrants exercised | 801,925 | (801,925 | ) | - | ||||||||||||||||
Share issue costs, net of future income taxes | (6,316 | ) | (6,316 | ) | ||||||||||||||||
Stock based compensation | 4,502,163 | 4,502,163 | ||||||||||||||||||
Net loss for the year | (7,303,204 | ) | (7,303,204 | ) | ||||||||||||||||
Balance at December 31, 2007 | 83,167,005 | 36,875,448 | - | - | 7,409,795 | (21,793,302 | ) | 22,491,941 | ||||||||||||
Common shares issued for cash during the year: | ||||||||||||||||||||
Commitment to issue shares - private placements | 4,095,000 | 4,095,000 | ||||||||||||||||||
Commitment to issue shares for services | 15,000 | 15,000 | ||||||||||||||||||
Exercise of options | 570,700 | 240,435 | 240,435 | |||||||||||||||||
Fair value of options exercised | 170,061 | (170,061 | ) | - | ||||||||||||||||
Commitment to issue shares for services | 7,653 | 22,500 | 22,500 | |||||||||||||||||
Stock based compensation | 409,518 | 409,518 | ||||||||||||||||||
Net loss for the period | (1,120,594 | ) | (1,120,594 | ) | ||||||||||||||||
Balance at March 31, 2008 | 83,745,358 | $ | 37,308,444 | $ | 4,110,000 | $ | - | $ | 7,649,252 | $ | (22,913,896 | ) | $ | 26,153,800 |
See accompanying notes to consolidated financial statements
Quaterra Resources Inc. |
(An exploration stage company) |
Notes to Interim Consolidated Financial Statements as of March 31, 2008 |
(Unaudited and expressed in Canadian Dollars) |
1. | Nature of Operations and Going Concern |
Quaterra Resources Inc. (the “Company”) is an exploration stage company incorporated under the laws of British Columbia. Its shares are listed on the TSX Venture Exchange under symbol “QTA” and the American Stock Exchange under symbol “QMM”. | |
The Company and its subsidiaries are engaged in the acquisition, exploration and development of precious metal properties and have not yet determined whether these mineral properties contain ore reserves that are economically recoverable. The Company has not generated any operating revenue to date and has experienced recurring operating losses. | |
The Company’s financial statements have been prepared on the basis of accounting principles applicable to a going concern which assumes the realization of assets and discharges of liabilities in the normal course of business. 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. Management’s plan in this regard is to raise equity financing as required. These consolidated financial statements do not give effect to any adjustments that would be necessary should the Company not be able to continue as a going concern. | |
2. | Summary of Significant Accounting Policy Changes |
These unaudited consolidated financial statements are prepared in accordance with Canadian generally accepted accounting principles and are consistent with the policies outlined in the Company’s audited consolidated financial statements for the year ended December 31, 2007 except as described below: |
a) | CICA Handbook Section 1535 - “Capital Disclosures” |
Effective January 1, 2008, the Company adopted the new recommendation of the CICA Handbook Section 1535, “Capital Disclosures”. Section 1535 establishes standards for disclosing information about an entity’s capital and how it is managed. The entity’s disclosure should include information about its objectives, policies and processes for managing capital and disclose whether it has complied with any capital requirements to which it is subject and the consequences of non-compliance. The adoption of this section had no impact on the Company’s financial statements for the period ended March 31, 2008.
1
Quaterra Resources Inc. |
(An exploration stage company) |
Notes to Interim Consolidated Financial Statements as of March 31, 2008 |
(Unaudited and expressed in Canadian Dollars) |
2. | Significant Accounting Policy Changes (Continued) |
b) | Financial Instrument CICA Handbook Section 3862 and 3863 |
Effective January 1, 2008, the Company also adopted the new recommendations of the CICA Handbook Section 3862, “Financial Instruments – Disclosures” and Section 3863, “Financial Instruments – Presentation”. CICA Handbook Section 3862 modifies the disclosure requirements for Section 3861, “Financial Instruments - Disclosure and Presentation”, including required disclosure for the assessment of the significance of financial instruments for an entity’s financial position and performance and of the extent of risks arising from financial instruments to which the Company is exposed and how the Company manages those risks. Section 3863 carries forward the presentation requirements of Section 3861. The adoption of these new Handbook sections had no impact on the consolidated financial statements for the period ended March 31, 2008.
c) | New Accounting Pronouncements |
In February 2008, the CICA Accounting Standards Board (“AcSB”) confirmed that the use of International Financial Reporting Standards (“IFRS”) will be required in 2011 for public companies in Canada (i.e. IFRS will replace Canadian GAAP for public companies). The official changeover date will apply for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The transition date of January 1, 2011 will require the restatement for comparative purposes of amounts reported by the Company for the year ended December 31, 2009. While the Company has begun assessing the adoption of IFRS for 2011, the financial reporting impact of the transition to IFRS cannot be reasonably estimated at this time.
3. | Financial Instruments |
a. Fair Value
The carrying values of cash and cash equivalents, receivables, amounts due from Joint Venture partner, bank indebtedness, accounts payable and accrued liabilities, and due to related parties approximate their fair values because of the short-term maturity of these financial instruments.
b. Interest Rate Risk
The Company is not exposed to significant interest rate risk due to the short-term maturity of its monetary current assets and current liabilities.
2
Quaterra Resources Inc. |
(An exploration stage company) |
Notes to Interim Consolidated Financial Statements as of March 31, 2008 |
(Unaudited and expressed in Canadian Dollars) |
3. | Financial Instruments (Continued) | |
c. | Credit Risk | |
The Company is exposed to credit risk with respect to managing its cash position. The Company requires the deposits or short-term investments be invested with Canadian chartered banks and U.S. commercial banks with a DBRS, Standard and Poor’s or/and Moody’s rating of single A or better. | ||
d. | Currency Risk | |
The Company is exposed to currency risk to the extent expenditures incurred or funds received by the Company are denominated in currencies other than the Canadian dollar (primarily US dollars and Mexican pesos). The Company does not manage the currency risks through hedging or other currency management tools. | ||
e. | Derivatives – Mineral Properties | |
The Company retains and/or has obligations related to certain carried interest rights and net smelter royalties, the value of which is derived from future events and commodity prices. These rights are derivative instruments. However, the mineral interests to which they relate are not sufficiently developed to reasonably determine value. |
4. | Equipment |
Equipment is carried at cost less accumulated amortization. Details of equipment are as follows: |
Accumulated | ||||||||||
Cost | Amortization | Net Book Value | ||||||||
Computer | $ | 40,270 | $ | 9,681 | $ | 30,589 | ||||
Equipment | 34,780 | 15,982 | 18,798 | |||||||
Furniture | 32,054 | 4,432 | 27,622 | |||||||
Software | 37,895 | 24,840 | 13,055 | |||||||
Vehicles | 140,292 | 42,419 | 97,873 | |||||||
March 31, 2008 | 285,291 | 97,354 | 187,937 |
3
Quaterra Resources Inc. |
(An exploration stage company) |
Notes to Interim Consolidated Financial Statements as of March 31, 2008 |
(Unaudited and expressed in Canadian Dollars) |
4. | Equipment (continued) |
Accumulated | ||||||||||
Cost | Amortization | Net Book Value | ||||||||
Computer | 23,249 | 6,916 | 16,333 | |||||||
Equipment | 34,780 | 14,511 | 20,269 | |||||||
Furniture | 27,045 | 2,463 | 24,582 | |||||||
Software | 35,829 | 22,066 | 13,763 | |||||||
Vehicles | 140,293 | 34,788 | 105,505 | |||||||
December 31, 2007 | $ | 261,196 | $ | 80,744 | $ | 180,452 |
5. | Mineral Properties |
The Company follows the policy of capitalizing all acquisition, exploration and development costs relating to the mineral properties. The amounts shown for mineral properties represent costs incurred to date, less recoveries; and do not necessarily reflect present or future values. These costs will be amortized against revenue from future production or written off if the property is abandoned or sold. | |
The Company has interests in several mineral resources properties in Mexico and the United States. The total capitalized deferred exploration and acquisition costs of mineral properties follow: |
4
Quaterra Resources Inc. |
(An exploration stage company) |
Notes to Interim Consolidated Financial Statements as of March 31, 2008 |
(Unaudited and expressed in Canadian Dollars) |
5. | Mineral Properties (Continued) |
Nieves | Los | Alaskan | Uranium | MacArthur | Yerington | Mirasol | Other | Total | ||||||||||||||||||
Crestones | Properties | Property | Properties | |||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Balance, December 31, 2007 | 2,405,889 | 1,446,523 | 2,602,059 | 6,475,720 | 2,932,728 | 1,256,078 | 540,469 | 1,895,240 | 19,554,706 | |||||||||||||||||
Additions during the period: | ||||||||||||||||||||||||||
Acquisition | 6,707 | 2,907 | - | 45,206 | 151,527 | 38,978 | 4,904 | 142,281 | 392,510 | |||||||||||||||||
Air support | - | - | - | - | - | - | - | 558 | 558 | |||||||||||||||||
Assays and surveys | 15,520 | - | 161,207 | 4,069 | 95,079 | 127,130 | - | 3,469 | 406,474 | |||||||||||||||||
Camp costs | 2,091 | 2,012 | 489 | 14,128 | 41,416 | 5,755 | 2,541 | 9,107 | 77,539 | |||||||||||||||||
Drilling services | - | - | - | 423,063 | 513,646 | - | 360,026 | - | 1,296,735 | |||||||||||||||||
Equipment rental | - | - | - | - | 51,882 | - | - | - | 51,882 | |||||||||||||||||
Exploration support | 1,677 | 932 | 1,820 | 15,133 | 61,967 | 42 | 6,421 | 9,930 | 97,922 | |||||||||||||||||
Field supplies and wages | 157 | 337 | - | 250 | 31,023 | - | 590 | 5,845 | 38,201 | |||||||||||||||||
Geological services | 1,503 | 3,321 | 19,022 | 130,957 | 235,289 | 97,201 | - | 27,194 | 514,487 | |||||||||||||||||
Project management | 6,319 | 7,756 | 2,026 | 17,784 | 19,321 | - | 8,061 | 37,228 | 98,496 | |||||||||||||||||
Travel and related costs | 226 | 55 | 974 | 7,512 | 12,461 | 1,596 | 563 | 2,069 | 25,457 | |||||||||||||||||
Vehicle expenses | 2,692 | 1,150 | 59 | 16,291 | 33,403 | 11,300 | 1,533 | 4,653 | 71,080 | |||||||||||||||||
36,893 | 18,471 | 185,598 | 674,390 | 1,234,025 | 276,466 | 384,639 | 242,334 | 3,071,341 | ||||||||||||||||||
Balance, March 31, 2008 | 2,442,782 | 1,464,994 | 2,787,657 | 7,150,110 | 4,166,753 | 1,532,544 | 925,108 | 2,137,574 | 22,626,047 |
5
Quaterra Resources Inc. |
(An exploration stage company) |
Notes to Interim Consolidated Financial Statements as of March 31, 2008 |
(Unaudited and expressed in Canadian Dollars) |
5. | Mineral Properties (Continued) | |
(a) | Nieves Concessions, Mexico | |
The Company holds a 50% interest in certain mineral concessions located in northern Zacatecas, Mexico, (the Nieves Concessions) and two inlaying fractions within the Nieves Concessions (Delores and Nazarene), collectively called Nieves. A geologic mapping survey and additional core drilling is planned in 2008 and all work plans are made in consultation with the US-based Joint Venture partner Blackberry Vetures1, LLC (“Blackberry”). | ||
During the three months ended March 31, 2008, the Company has received US$509,300 from Blackberry in respect to its share of ongoing exploration costs that were incurred on the property in 2007. | ||
(b) | Los Crestones Property, Mexico | |
The Company holds a 100% interest in a certain mineral concession located in northern Durango, Mexico. | ||
(c) | Alaskan Properties, United States | |
The Company has a 100% interest in certain mining claims on Duke Island and a 100% interest in the Big Bar project, which consists of several state mining claims on the Seward Peninsula, northeast of Nome, Alaska. | ||
(d) | Uranium Properties, United States | |
Pursuant to an August 2006 agreement with Nustar Exploration LLC, the Company leased 18 claims in the Arizona strip district. The Company has paid US$50,000 acquisition costs up to date and is required to make US$40,000 and US$100,000 in August 10, 2008 and 2009 respectively. | ||
Pursuant to a June 2005 agreement with North Exploration LLC, the Company acquired an option to purchase mining claims situated in Arizona, Utah and Wyoming. Up to March 31, 2008, the Company has paid US$90,000 and issued 600,000 common shares. The Company is required to pay US$75,000, US$135,000 and US$200,000 on September 6, 2008, 2009 and 2010 respectively. If the Company meets the terms and conditions specified in the agreement and elects to exercise the option, then the property may be purchased with a further payment of US$100. |
6
Quaterra Resources Inc. |
(An exploration stage company) |
Notes to Interim Consolidated Financial Statements as of March 31, 2008 |
(Unaudited and expressed in Canadian Dollars) |
5. | Mineral Properties (Continued) | ||
(e) | MacArthur Claim | ||
Pursuant to an agreement entered into in October 2005 with North Exploration LLC, the Company acquired the right to earn an interest in certain unpatented mining claims covering the former MacArthur copper-oxide mine, in the Yerington district of Lyon County, Nevada. Up to March 31, 2008, the Company has paid US $110,000 and incurred US $500,000 in exploration expenditures by January 15, 2008, and may elect to acquire the property by making further payments totaling US $2,545,000 up to January 15, 2010 as follows: | |||
(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 $100,000 on or before January 15, 2008 (paid). | ||
(v) | US $125,000 on or before January 15, 2009. | ||
(vi) | US $2,420,000 on or before January 15, 2010. | ||
(f) | Yerington | ||
On May 1, 2007, the Company received approval from the appropriate U.S. court to the acquisition of all Arimetco assets in the Yerington Mining District by a subsidiary of the Company. The purchase price comprises US$500,000 cash, 250,000 shares of the Company common stock and a 2% net smelter return royalty capped at US$7.5 million dollars on production from any claims owned by the Company in the Yerington and MacArthur mine areas. The original 180-day review period which began on July 13, 2007 was extended for an additional 120 day period to May 8, 2008 and has been extended 14 days during which time the Company has requested a further 120- day extension as allowed in the original agreement. | |||
The Company may terminate the transaction at any time during a 300-day review period (starting July 13, 2007) if it is dissatisfied with the condition of the property or fails to obtain requested environmental clearances for past mining-related activities. The Chambers Group Inc. and Golder Associates Inc. are currently completing a Preliminary Site Condition Review as part of the Company’s due diligence. Subject to successful completion of due diligence, the Company plans to execute the option to acquire the property and explore the property as part of its ongoing exploration drilling program at MacArthur. | |||
Up to March 31, 2008, the Company has paid a US$125,000 non-refundable deposit and issued 250,000 common shares. |
7
Quaterra Resources Inc. |
(An exploration stage company) |
Notes to Interim Consolidated Financial Statements as of March 31, 2008 |
(Unaudited and expressed in Canadian Dollars) |
5. | Mineral Properties (Continued) | |
(g) | Mirasol, Mexico | |
The Mirasol Project is located in southeastern Durango, Mexico in the Municipality of Simon Bolivar. The Company’s Mexico subsidiary, Minera Agua Tierrra, SA de CV, is the 100% owner of all eight concessions totaling 25,194 hectares (97 square miles) that were staked in 2006-2007. | ||
The Company’s 2008 exploration plans are dependent on results of recently completed drilling. | ||
(h) | Other Properties | |
Other properties of the Company include the SW Tintic, Gray Hills, Peg Leg, Carbon County, Herbert Glacier, Texas claims, Copper Canyon and Majuba Hill properties in the United States, and Las Americas, Jaboncillos, Cerro Blanco, Inde and La Reforma properties in Mexico. All these properties all are in the initial stages of exploration. Data from prior activities is limited or in the process of being acquired and studied. Total expenditures by the Company to date are minimal. | ||
The Company has a promissory note of US$550,000 for its S.W. Tintic Claims in Juab County, Utah. The US $550,000 note has a term of two years starting August 29, 2007, with no interest. The Company has guaranteed full payment of this note. | ||
6. | Share Capital | |
(a) | Common Stock: unlimited common shares without par value authorized: |
Number of | |||||||
Shares | Amounts ($) | ||||||
Balance, December 31, 2007 | 83,167,005 | $ | 36,875,448 | ||||
Shares issued for service | 7,653 | 22,500 | |||||
Shares issued for options exercised | 570,700 | 240,435 | |||||
Fair value of options exercised | - | 170,062 | |||||
Balance, March 31, 2008 | 83,745,358 | $ | 37,308,445 |
Issued during the three months ended March 31, 2008:
i. | 170,000 options were exercised at $0.12 per common share for proceeds of $20,400. | |
ii. | 55,000 options were exercised at $0.34 per common share for proceeds of $18,700. | |
iii. | 240,000 options were exercised at $0.35 per common share for proceeds of $84,000. |
8
Quaterra Resources Inc. |
(An exploration stage company) |
Notes to Interim Consolidated Financial Statements as of March 31, 2008 |
(Unaudited and expressed in Canadian Dollars) |
6. | Share Capital(continued) | |
iv. | 50,000 options were exercised at $0.62 per common share for proceeds of $31,000. | |
v. | 55,700 options were exercised at $1.55 per common share for proceeds of $86,335. | |
vi. | 7,653 common shares were issued at a price of $2.94 for services. |
Subject to regulatory approval, the Company is in the process of raising funds through a non- brokered private placement of up to 4,000,000 units at a price of US$3.20 per unit for potential gross proceeds of US$12,800,000. Each unit will consist of one common share and one-half of one share purchase warrant which will entitle the holder to purchase an additional common share at a price of US$4.20. As of March 31, 2008, US$4,160,000 was received for 1,300,000 units, which amount was restricted until regulatory approval for the issuance was received. | ||
(b) | Stock Options | |
The Company has an incentive stock option plan in place under which it is authorized to grant options to directors, executive officers, employees and consultants. Stock options are exercisable once they have vested under the terms of the grant. A summary of the Company’s options at March 31, 2008 is presented below: |
Number of | ||||||
options | Weighted Average Exercise Price | |||||
Outstanding, December 31, 2007 | 5,559,500 | $ | 1.99 | |||
Granted | 200,000 | $ | 3.45 | |||
Exercised | (570,700 | ) | $ | 0.42 | ||
Outstanding, March 31, 2008 | 5,188,800 | $ | 2.22 |
Mar-31-2008 | Dec-31-2007 | Mar-31-2007 | |
Risk-free interest rate | 3.90% | 4.57% | 4.04% |
Expected share price volatility | 90.83% | 89.42% | 167.40% |
Expected option life in years | 3.0 | 3.0 | 3.0 |
Expected dividend yield | 0% | 0% | 0% |
The total fair value of $409,518 for options expensed during the period ended March 31, 2008 is listed below. The Company uses the Black-Scholes option pricing model to determine the fair value of the options, applying the assumptions appearing above:
9
Quaterra Resources Inc. |
(An exploration stage company) |
Notes to Interim Consolidated Financial Statements as of March 31, 2008 |
(Unaudited and expressed in Canadian Dollars) |
6. | Share Capital(continued) |
(b) | Stock Options (continued) |
March 31, 2008 | March 31, 2007 | ||||||||||||||
Number | Number | ||||||||||||||
of Options | Stock-based | of Options | Stock-based | ||||||||||||
Issued | Compensation | Issued | Compensation | ||||||||||||
Consulting | - | $ | - | 100,000 | $ | 247,849 | |||||||||
Directors and officers | 150,000 | 307,138 | - | 25,306 | |||||||||||
Empoloyees | 50,000 | 102,380 | - | - | |||||||||||
Total | 200,000 | $ | 409,518 | 100,000 | $ | 273,155 |
As at March 31, 2008, the Company had outstanding stock options for the purchase of an aggregate 5,188,800 common shares as follows:
Number of Options | Weighted Average | ||
Exercise | Outstanding & | Remaining | |
Price | Exercisable | Contractual Life | Expiry Date |
$0.34 | 15,000 | 0.69 | December 8, 2008 |
$0.62 | 95,000 | 0.98 | March 25, 2009 |
$0.35 | 293,500 | 2.36 | August 9, 2010 |
$0.40 | 200,000 | 2.78 | January 9, 2011 |
$1.04 | 125,000 | 2.99 | March 27, 2011 |
$1.00 | 75,000 | 3.13 | May 19, 2011 |
$1.12 | 100,000 | 3.20 | June 12, 2011 |
$1.55 | 1,544,300 | 3.32 | July 28, 2011 |
$1.55 | 100,000 | 3.39 | August 23, 2011 |
$1.50 | 100,000 | 3.49 | September 25, 2011 |
$2.05 | 100,000 | 3.72 | December 18, 2011 |
$2.65 | 75,000 | 3.78 | January 11, 2012 |
$2.70 | 25,000 | 3.89 | February 21, 2012 |
$3.33 | 2,011,000 | 4.30 | July 20, 2012 |
$3.33 | 80,000 | 4.35 | August 7, 2012 |
$2.93 | 50,000 | 4.53 | October 9, 2012 |
$3.45 | 200,000 | 5.00 | March 31, 2013 |
$2.22 | 5,188,800 | 3.68 |
10
Quaterra Resources Inc. |
(An exploration stage company) |
Notes to Interim Consolidated Financial Statements as of March 31, 2008 |
(Unaudited and expressed in Canadian Dollars) |
6. | Share Capital(continued) |
(c) | Contributed Surplus | |
Summary of contributed surplus is as follows: |
Balance at December 31, 2007 | $ | 7,409,795 | ||
Transfer to share capital on exercise of stock options | (170,061 | ) | ||
Stock-based compensation | 409,518 | |||
Balance at March 31, 2008 | $ | 7,649,252 |
7. | Related Party Transactions |
The Company had the following related party transactions during the three months ended March 31, 2008: |
a. $148,551 (2007 - $75,493) paid to a private firm of which a director is the principal for administration, accounting, office space, and corporate development services;
b. $9,750 (2007 - $9,750) consulting fee paid to a company of which an officer is the principal;
c. $2,081 legal fees (2007 - $nil) to a law firm of which a director is the principal.
The above transactions are conducted in the normal course of business and were measured at the amount of consideration established and agreed by the parties.
11
Quaterra Resources Inc. |
(An exploration stage company) |
Notes to Interim Consolidated Financial Statements as of March 31, 2008 |
(Unaudited and expressed in Canadian Dollars) |
8. | Segmented Information |
The Company has only one industry segment, the exploration of mineral properties. The Company’s major non-current assets are distributed by geographic locations as follows: |
March 31, 2008 | December 31, 2007 | |||||||||||||||||||||||
Mineral | Reclamation | Mineral | Reclamation | |||||||||||||||||||||
Equipment | Property | Bond | Total | Equipment | Property | Bond | Total | |||||||||||||||||
($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | |||||||||||||||||
Canada | 19,142 | - | - | 19,142 | 22,335 | - | - | 22,335 | ||||||||||||||||
Mexico | 51,646 | 5,205,235 | - | 5,256,881 | 56,276 | 4,693,257 | - | 4,749,533 | ||||||||||||||||
U.S.A | 117,149 | 17,420,812 | 153,352 | 17,691,313 | 101,841 | 14,861,449 | 139,492 | 15,102,782 | ||||||||||||||||
Total | 187,936 | 22,626,047 | 153,352 | 22,967,335 | 180,452 | 19,554,706 | 139,492 | 19,874,650 |
9. | Commitments |
The Company has following commitments in respect to mineral option payments, office space leases and service agreements: |
Mineral | Office Lease (2) | Service | |||||||||||
Properties (1) | Agreements (3) | ||||||||||||
Total | |||||||||||||
Year ending December 31, 2008 | $ | 576,893 | $ | 34,200 | $ | 261,000 | $ | 872,093 | |||||
Year ending December 31, 2009 | 956,698 | - | 168,000 | 1,124,698 | |||||||||
Year ending December 31, 2010 | 2,901,916 | - | 168,000 | 3,069,916 | |||||||||
Year ending December 31, 2011 | 874,578 | - | 168,000 | 1,042,578 | |||||||||
Year ending December 31, 2012 | 810,935 | - | 84,000 | 894,935 | |||||||||
Year ending December 31, 2013 | 636,430 | - | 636,430 | ||||||||||
Year ending December 31, 2014 | 636,430 | - | 636,430 | ||||||||||
Year ending December 31, 2015 | 841,730 | - | 841,730 | ||||||||||
Year ending December 31, 2016 | 277,155 | - | 277,155 | ||||||||||
Year ending December 31, 2017 | 277,155 | - | 277,155 | ||||||||||
Year ending December 31, 2018 | 30,795 | - | 30,795 | ||||||||||
$ | 8,820,715 | $ | 34,200 | $ | 849,000 | $ | 9,703,915 |
1) | The Company is required to make option payments and other expenditure commitments to maintain the properties and earn its interest. Details about the mineral properties |
12
Quaterra Resources Inc. |
(An exploration stage company) |
Notes to Interim Consolidated Financial Statements as of March 31, 2008 |
(Unaudited and expressed in Canadian Dollars) |
9. | Commitments (Continued) |
obligations are described in Note 5 of our audited financial statements December 31, 2007. | ||
2) | The Company has committed to operating leases for office space in Yerington, Nevada, and Kanab, Utah, in the United States; both are on a year to year basis. The combined monthly lease is US$3,800. | |
3) | During 2007, the Company entered into a service agreement with Manex Resource Group (“Manex”) for its Vancouver office space, administration, and corporate development at a monthly rate of $14,000. The agreement can be cancelled at anytime upon one year notice. The current expiry date is June 30, 2012. | |
In January 2007, the Company also engaged Roman Friedrich & Company Ltd. (“Roman”) to provide financial and advisory services to the Company. The retainer fee is $15,000 per month of which $7,500 is to be paid in cash and the remaining $7,500 is payable in common shares of the Company subject to regulatory approval. As of March 31, 2008, $15,000 is to be paid in shares for the service received February and March 2008. The agreement was renewed for another year in 2008 and will expire January 2009. |
10. | Subsequent Events | |
The following occurred subsequent to March 31, 2008: | ||
(a) | On April 18, 2008, the Company announced the completion of the non-brokered private placement of 3,482,500 units at a price of US$3.20 for total gross proceeds of US$11,144,000. Each unit consists of one common share and one half share purchase warrant. Each whole warrant entitles the holder to purchase one common share at a price of US$4.20 per warrant share, until October 17, 2009. | |
(b) | 16,000 stock options with an average exercise price of $1.10 were exercised for gross proceeds of $17,600 | |
11. | Comparative Figures | |
Certain 2007 comparative figures have been reclassified to conform to the financial statement presentation adopted for 2008. |
13
Quaterra Resources Inc. |
(An exploration stage company) |
Notes to Interim Consolidated Financial Statements as of March 31, 2008 |
(Unaudited and expressed in Canadian Dollars) |
12. | Reconciliation of Canadian and United States Generally Accepted Accounting Principles |
(a) | Differences in Accounting Principles |
(i) | Exploration expenditures | |
Under Canadian GAAP, acquisition costs of mineral properties 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 EITF 04-02,Whether Mineral Rights Are Tangible or Intangible Assets, and separately reports the aggregate carrying amount of the cost to acquire mineral rights. The cost to acquire mineral rights includes the cost of options which allow 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. |
14
Quaterra Resources Inc. |
(An exploration stage company) |
Notes to Interim Consolidated Financial Statements as of March 31, 2008 |
(Unaudited and expressed in Canadian Dollars) |
12. | Reconciliation of Canadian and United States Generally Accepted Accounting Principles(Continued) |
(a) | Differences in Accounting Principles (continued) |
(ii) | Reconciliation of total assets, liabilities and stockholders’ equity: |
31-Mar-08 | 31-Dec-07 | |||||
Total assets per Canadian GAAP | $ | 28,103,613 | $ | 24,198,211 | ||
Expenditures on resource properties | ||||||
expensed under US GAAP | (15,819,654 | ) | (13,110,749 | ) | ||
Total assets per US GAAP | $ | 12,283,959 | $ | 11,087,462 | ||
Total liabilities per Canadian GAAP | $ | 1,949,813 | $ | 1,706,270 | ||
Total liabilities per US GAAP | 1,949,813 | 1,706,270 | ||||
Total equity per Canadian GAAP | 26,153,800 | 22,491,941 | ||||
Expenditures on resource properties | (15,819,654 | ) | (13,110,749 | ) | ||
Total equity per US GAAP | 10,334,145 | 9,381,192 | ||||
Total assets per US GAAP | $ | 12,283,958 | $ | 11,087,462 |
(iii) | Reconciliation of net loss reported in Canadian GAAP and US GAAP: |
Three Months Ended March 31, | |||||||
2008 | 2007 | ||||||
Reconciliation of net loss from Canadian | |||||||
GAAP to US GAAP | |||||||
Loss for period per Canadian GAAP | $ | 1,120,594 | $ | 792,024 | |||
Expenditures on mineral properties | 2,708,905 | 1,479,405 | |||||
Net loss for period per US GAAP | 3,829,499 | 2,271,429 | |||||
Deficit, Beginning of period per US GAAP | 34,904,051 | 19,686,463 | |||||
Deficit, End of period per US GAAP | $ | 38,733,550 | $ | 21,957,892 | |||
Net loss per share for the period in accordance with Canadain GAAP | $ | 0.01 | $ | 0.01 | |||
Total difference | $ | 0.03 | $ | 0.02 | |||
Net loss per share for the period in accordance with US GAAP | $ | 0.05 | $ | 0.03 | |||
Weighted average number of common share outstanding | 83,655,670 | 78,122,324 |
15
Quaterra Resources Inc. |
(An exploration stage company) |
Notes to Interim Consolidated Financial Statements as of March 31, 2008 |
(Unaudited and expressed in Canadian Dollars) |
12. | Reconciliation of Canadian and United States Generally Accepted Accounting Principles (Continued) |
(a) | Differences in Accounting Principles (continued) |
(iii) | Reconciliation of cash flows reported in Canadian GAAP and US GAAP: |
Three Months Ended March 31, | |||||||
2008 | 2007 | ||||||
Cash used in operating activities in accordance with Canadian GAAP | $ | (645,303 | ) | $ | (657,205 | ) | |
Adjustments to net loss involving use of cash | (2,708,905 | ) | (1,479,405 | ) | |||
Cash used in operating actitivies in accordance with US GAAP | (3,354,208 | ) | (2,136,610 | ) | |||
Cash used in investing activities in accordance with Canadian GAAP | (2,550,054 | ) | (1,960,010 | ) | |||
Reclassification of expenditures on mineral property interest | 2,708,905 | 1,479,405 | |||||
Cash used in investing actitivies in accordance with US GAAP | 158,852 | (480,605 | ) | ||||
Cash provided by Financing Activities | |||||||
in accordance with Candian and US GAAP | 4,335,435 | 95,808 | |||||
Increase (decrease) in cash during the period | |||||||
in accordance with Candian and US GAAP | 1,140,078 | (2,521,407 | ) | ||||
Cash, beginning of period | |||||||
in accordance with Candian and US GAAP | 3,389,900 | 9,112,732 | |||||
Cash, end of period | |||||||
in accordance with Candian and US GAAP | $ | 4,529,978 | $ | 6,591,325 |
(b) | Recent Accounting Pronouncements |
(i) | 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 consolidated financial statements. |
16
Quaterra Resources Inc. |
(An exploration stage company) |
Notes to Interim Consolidated Financial Statements as of March 31, 2008 |
(Unaudited and expressed in Canadian Dollars) |
12. | Reconciliation of Canadian and United States Generally Accepted Accounting Principles (Continued) |
(b) | Recent Accounting Pronouncements (Continued) |
(ii) | 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 consolidated financial statements. | |
(iii) | 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. There is no impact on the Company’s consolidated financial statements. | |
(iv) | In February 2007, FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities – an Amendment of FASB Statement No. 115, which permits entities to choose to measure many financial instruments and certain other items at fair value. The fair value option established by SFAS 159 permits all entities to choose to measure eligible items at fair value at specified election dates. A business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. Adoption is required for fiscal years beginning after November 15, 2007. Early adoption is permitted as of the beginning of the fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of SFAS 157. There is no impact on the Company’s consolidated financial statements. |
17
Quaterra Resources Inc. |
(An exploration stage company) |
Notes to Interim Consolidated Financial Statements as of March 31, 2008 |
(Unaudited and expressed in Canadian Dollars) |
12. | Reconciliation of Canadian and United States Generally Accepted Accounting Principles (Continued) |
(b) | Recent accounting pronouncements (continued) | ||
(v) | In September 2006, the U.S. Securities and Exchange Commission issued Staff Accounting Bulletin 108 (“SAB 108”). The interpretations in this bulletin express the staff’s views regarding the process of quantifying financial statement misstatements and are being issued to address diversity in practice in quantifying financial statement misstatements and the potential under current practice for the build up of improper amounts on the balance sheet. There is no impact on the Company’s consolidated financial statements. | ||
(vi) | In December 2007, the FASB issued SFAS No. 141(R),Business Combinations (SFAS 141(R)),which replaces SFAS 141. SFAF 141(R) requires assets and liabilities acquired in a business combination, contingent consideration, and certain acquired contingencies to be measured at their fair values as of the date of acquisition. SFAS 141(R) also requires that acquisition-related costs and restructuring costs be recognized separately from the business combination. SFAS 141(R) is effective for fiscal years beginning after December 15, 2008 and will be effective for business combinations entered into after January 1, 2009. There is no impact on the Company’s consolidated financial statements. | ||
(vii) | In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51 (SFAS 160). SFAS 160 clarifies the accounting for non-controlling interests and establishes accounting and reporting standards for the non-controlling interest in a subsidiary, including classification as a component of equity. SFAS 160 is effective for fiscal years beginning after December 15, 2008. The Company does not currently have any minority interests. |
18