Consolidated Interim Financial Statements
(An Exploration Stage Company)
For the Six Months Ended June 30, 2008
(Unaudited and Expressed in Canadian Dollars)
Notice of No Auditor Review
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 | |||||
June 30, 2008 | December 31, 2007 | |||||
Assets | ||||||
Current | ||||||
Cash and cash equivalents | $ | 5,546,240 | $ | 3,389,900 | ||
Other receivables | 393,738 | 268,869 | ||||
Prepaid and deposits | 294,159 | 62,854 | ||||
Amount due from Joint Venture Partner | 372,652 | 581,124 | ||||
6,606,789 | 4,302,747 | |||||
Prepaid and deposits | 1,748 | 20,814 | ||||
Equipment (Note 4) | 248,973 | 180,452 | ||||
Mineral properties (Note 5) | 26,123,023 | 19,554,706 | ||||
Reclamation bonds | 159,207 | 139,492 | ||||
Total Assets | $ | 33,139,740 | $ | 24,198,211 | ||
Liabilities | ||||||
Current | ||||||
Accounts payable and accrued liabilities | $ | 1,062,449 | $ | 1,079,779 | ||
Due to related parties | 60,398 | 86,391 | ||||
Current portion of promissory note (Note 5(g)) | 280,418 | 270,050 | ||||
1,403,265 | 1,436,220 | |||||
Promissory note (Note 5(g)) | 280,418 | 270,050 | ||||
Total Liabilities | 1,683,683 | 1,706,270 | ||||
Shareholders' Equity | ||||||
Share capital (Note 6) | 48,153,147 | 36,875,448 | ||||
Commitment to issue shares (Note 9) | 37,500 | - | ||||
Contributed surplus | 9,193,175 | 7,409,795 | ||||
Deficit | (25,927,765 | ) | (21,793,302 | ) | ||
Total Shareholder's Equity | 31,456,057 | 22,491,941 | ||||
Total Liabilities and Shareholder's Equity | $ | 33,139,740 | $ | 24,198,211 |
Commitments (Note 9)
Approved on behalf of the
Board of Directors:
“Thomas Patton” | “Robert Gayton” | |
Thomas Patton | Robert Gayton |
The accompanying notes are an integral part of the consolidated financial statements
Quaterra Resources Inc. | ||||||||||||
(An Exploration Stage Company) | ||||||||||||
Consolidated Statements of Operations and Deficit | ||||||||||||
(Unaudited and Expressed in Canadian Dollars) | ||||||||||||
Three months ended June 30, | Six months ended June 30, | |||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||
Exploration Costs, net of recoveries | $ | 119,846 | $ | 57,241 | $ | 187,835 | $ | 130,042 | ||||
General Administrative Expenses | ||||||||||||
Administration | 61,230 | 30,000 | 115,800 | 60,000 | ||||||||
Amortization | 20,462 | 9,357 | 37,071 | 17,186 | ||||||||
Consulting | 194,182 | 100,495 | 390,308 | 172,320 | ||||||||
Directors and officers fees | 12,750 | 5,250 | 25,500 | 16,500 | ||||||||
Investor relations and communications | 186,561 | 134,779 | 240,022 | 200,918 | ||||||||
Office and general | 154,551 | 50,972 | 245,799 | 96,822 | ||||||||
Professional fees | 213,433 | 95,933 | 419,421 | 171,717 | ||||||||
Regulatory fees and taxes | 63,550 | 10,904 | 103,153 | 49,087 | ||||||||
Salaries and benefits | 126,271 | 66,272 | 219,564 | 115,909 | ||||||||
Stock based compensation (Note 6(c)) | 1,713,095 | 15,555 | 2,122,613 | 288,710 | ||||||||
Transfer agent | 8,576 | 4,314 | 13,180 | 13,298 | ||||||||
Travel and promotion | 22,102 | 40,947 | 75,514 | 94,917 | ||||||||
2,776,763 | 564,778 | 4,007,945 | 1,297,384 | |||||||||
Operating Expenses | 2,896,609 | 622,019 | 4,195,780 | 1,427,426 | ||||||||
Other Income | ||||||||||||
Foreign exchange gain/(loss) | (164,454 | ) | (413,887 | ) | 319 | (490,858 | ) | |||||
Interest | 24,949 | 62,770 | 35,597 | 153,124 | ||||||||
Joint venture administration fee | 22,245 | 25,401 | - | |||||||||
(117,260 | ) | (351,117 | ) | 61,317 | (337,734 | ) | ||||||
Loss for the period | (3,013,869 | ) | (973,136 | ) | (4,134,463 | ) | (1,765,160 | ) | ||||
Deficit, beginning of year | (22,913,896 | ) | (15,282,122 | ) | (21,793,302 | ) | (14,490,098 | ) | ||||
Deficit, end of period | $ | (25,927,765 | ) | $ | (16,255,258 | ) | $ | (25,927,765 | ) | $ | (16,255,258 | ) |
Loss per share - basic and diluted | $ | (0.03 | ) | $ | (0.01 | ) | $ | (0.05 | ) | $ | (0.02 | ) |
Weighted average number of shares outstanding | 86,701,457 | 78,489,259 | 85,174,343 | 78,262,284 |
The accompanying notes are an integral part of the consolidated financial statements
Quaterra Resources Inc. | ||||||||||||
(An Exploration Stage Company) | ||||||||||||
Consolidated Statements of Cash Flows | ||||||||||||
(Unaudited and Expressed in Canadian Dollars) | ||||||||||||
Three months ended June 30, | Six months ended June 30, | |||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||
Operating Activities | ||||||||||||
Net loss for the period | $ | (3,013,869 | ) | $ | (973,136 | ) | $ | (4,134,463 | ) | $ | (1,765,160 | ) |
Items not involving cash: | ||||||||||||
Amortization | 20,462 | 9,357 | 37,071 | 17,186 | ||||||||
Commitment to issue shares for services | 22,500 | 37,500 | - | |||||||||
Stock based compensation | 1,713,095 | 15,555 | 2,122,613 | 288,710 | ||||||||
Shares issued for services | - | 22,500 | 22,500 | 22,500 | ||||||||
Unrealized foreign exchange on promissory note | (3,740 | ) | 20,736 | - | ||||||||
(1,261,552 | ) | (925,724 | ) | (1,894,043 | ) | (1,436,764 | ) | |||||
Changes in non-cash working capital | ||||||||||||
Accounts receivable | (118,965 | ) | (1,663 | ) | (124,869 | ) | (40,616 | ) | ||||
Prepaid and deposits | (89,905 | ) | 36,033 | (212,239 | ) | (2,015 | ) | |||||
Accounts payable and accrued liabilities | (43,052 | ) | 64,920 | 65,359 | 150,499 | |||||||
Due to related parties | (33,009 | ) | (49,862 | ) | (25,993 | ) | (9,507 | ) | ||||
Cash used in operating activities | (1,546,482 | ) | (876,296 | ) | (2,191,785 | ) | (1,338,403 | ) | ||||
Financing Activities | ||||||||||||
Shares issued for cash, net of issue costs | 6,580,531 | 740,842 | 10,915,965 | 836,650 | ||||||||
Cash provided by financing activities | 6,580,531 | 740,842 | 10,915,965 | 836,650 | ||||||||
Investing Activities | ||||||||||||
Expenditures on mineral properties | (3,683,304 | ) | (2,145,815 | ) | (6,651,003 | ) | (4,230,395 | ) | ||||
Due from Joint Venture partner | (247,129 | ) | 59,566 | 208,472 | 43,443 | |||||||
Purchase of equipment | (81,499 | ) | (26,926 | ) | (105,595 | ) | (59,697 | ) | ||||
Purchase of reclamation bonds | (5,855 | ) | (24,096 | ) | (19,715 | ) | (45,730 | ) | ||||
Cash used in investing activities | (4,017,787 | ) | (2,137,271 | ) | (6,567,840 | ) | (4,292,379 | ) | ||||
Increase (decrease) in cash during the period | 1,016,262 | (2,272,725 | ) | 2,156,340 | (4,794,132 | ) | ||||||
Cash and cash equivalents, beginning of period | 4,529,978 | 6,591,325 | 3,389,900 | 9,112,732 | ||||||||
Cash and cash equivalents, end of period | $ | 5,546,240 | $ | 4,318,600 | $ | 5,546,240 | $ | 4,318,600 | ||||
Supplemental Information | ||||||||||||
Interest received | $ | 24,949 | $ | 61,887 | $ | 35,597 | $ | 159,217 | ||||
Mineral property cost included in accounts payable | $ | 817,925 | $ | 42,117 | $ | 817,925 | $ | 42,117 | ||||
Share issued for services | $ | - | $ | - | $ | 22,500 | $ | - | ||||
Share issue costs | $ | 555,319 | $ | 108 | $ | 555,319 | $ | 5,560 |
The accompanying notes are an integral part of the consolidated financial statements
Quaterra Resources Inc. | |||||||||||||||||||||
(An Exploration Stage Company) | |||||||||||||||||||||
Consolidated Statements of Shareholder’s Equity | |||||||||||||||||||||
(Unaudited and Expressed in Canadian Dollars) | |||||||||||||||||||||
Common Shares | Commitment to | Share | Contributed | ||||||||||||||||||
Shares | Amount | Issue Shares | Subscription | Surplus | Deficit | Total | |||||||||||||||
Balance as 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 | ||||||||||||||||||
Allotted 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 as at December 31, 2007 | 83,167,005 | 36,875,448 | - | - | 7,409,795 | (21,793,302 | ) | 22,491,941 | |||||||||||||
Common shares issued during the period: | |||||||||||||||||||||
Shares issued for cash, net of issue cost | 3,482,500 | 10,414,556 | 10,414,556 | ||||||||||||||||||
Exercise of options | 699,200 | 501,410 | 501,410 | ||||||||||||||||||
Shares issued for services | 7,653 | 22,500 | 22,500 | ||||||||||||||||||
Fair value of options exercised | 339,233 | (339,233 | ) | - | |||||||||||||||||
Commitment to issue shares for services | 37,500 | 37,500 | |||||||||||||||||||
Stock based compensation | 2,122,613 | 2,122,613 | |||||||||||||||||||
Net loss for the period | (4,134,463 | ) | (4,134,463 | ) | |||||||||||||||||
Balance as at June 30, 2008 | 87,356,358 | $ | 48,153,147 | $ | 37,500 | $ | - | $ | 9,193,175 | $ | (25,927,765 | ) | $ | 31,456,057 |
The accompanying notes are an integral part of the consolidated financial statements
Quaterra Resources Inc. |
(An Exploration Stage Company) |
Notes to Consolidated Financial Statements for Six Months Ended June 30, 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. 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. As of June 30, 2008, the Company had a net working capital of $5,203,524. 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. Significant Accounting Policy Changes
These unaudited consolidated financial statements are prepared in accordance with Canadian generally accepted accounting principles (“GAAP”) 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 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.
As required under Section 1535, the Company’s objectives, policies and processes for managing capital are as follows:
The Company manages its common shares, options and warrants as capital. As the Company is in the exploration stage, its principal source of funds for its operations is from the issuance of common shares. The issuance of common shares requires approval of the Board of Directors. It is the Company’s objective to safeguard its ability to continue as a going concern, so that it can continue to explore its various properties for the benefits of its stakeholders. The Company primarily uses stock options to retain and provide future incentives to key employees and members of the management team. The granting of stock options is approved by the Board of Directors.
Page 1 of 12
Quaterra Resources Inc. |
(An Exploration Stage Company) |
Notes to Consolidated Financial Statements for Six Months Ended June 30, 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 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 a) the assessment of the significance of financial instruments for an entity’s financial position and performance; and b) the nature and extent of risks arising from financial instruments to which the Company is exposed and how the Company manages those risks. The Section requires the Company to account for certain financial assets and liabilities at fair value at each balance sheet date.
See Note 3 for disclosures related to financial instruments.
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: As at June 30, 2008, the recorded amounts for cash and cash equivalents, other receivables, accounts payable and accrued liabilities, and due to related party approximate their fair value due to their short-term nature. The Company has designated its cash and cash equivalents as held for trading assets. | |
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. | |
c. | Credit Risk: The Company does not currently generate any revenues from sales to customers nor does it hold derivative type of instruments that would require a counterparty to fulfill a contractual obligation. | |
Financial instruments that potentially subject the Company to credit risk consist of due from its Joint Venture partner for shared exploration costs and cash and cash equivalents or short-term investment. The Company has mitigated the risks by holding the property as collateral and placing its cash and cash equivalents or short-term investment 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. |
Page 2 of 12
Quaterra Resources Inc. |
(An Exploration Stage Company) |
Notes to Consolidated Financial Statements for Six Months Ended June 30, 2008 |
(Unaudited and Expressed in Canadian Dollars) |
3. Financial Instruments (Continued)
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 | $ | 37,482 | $ | 12,318 | $ | 25,164 | |||
Equipment | 42,327 | 17,735 | 24,592 | ||||||
Furniture | 39,387 | 6,677 | 32,710 | ||||||
Software | 52,452 | 28,980 | 23,472 | ||||||
Vehicles | 195,140 | 52,105 | 143,035 | ||||||
June 30, 2008 | $ | 366,788 | $ | 117,815 | $ | 248,973 |
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 |
Page 3 of 12
Quaterra Resources Inc. |
(An Exploration Stage Company) |
Notes to Consolidated Financial Statements for Six Months Ended June 30, 2008 |
(Unaudited and Expressed in Canadian Dollars) |
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:
Mineral Properties | Mexico | United States | Total | ||||||||||||||||||||||||
Nieves | Crestones | Mirasol | MacArthur | Yerinton | Uranium | Alaska | Other | ||||||||||||||||||||
Silver | Gold-Silver | Gold-Silver | Copper | Copper | Properties | Cu-Ni-Gold | Properties | ||||||||||||||||||||
Balance, Dec 31, 2007 | $ | 2,405,889 | $ | 1,446,523 | $ | 540,469 | $ | 2,932,728 | $ | 1,256,078 | $ | 6,475,720 | $ | 2,783,875 | $ | 1,713,424 | $ | 19,554,706 | |||||||||
Additions: | |||||||||||||||||||||||||||
Acquisition | 52,095 | 3,066 | 5,064 | 240,366 | 148,644 | 49,505 | 150 | 187,518 | 686,408 | ||||||||||||||||||
Assays and surveys | 23,403 | - | 52,784 | 206,046 | 127,130 | 27,680 | 186,399 | 48,219 | 671,662 | ||||||||||||||||||
Camp costs | 9,621 | 2,361 | 2,790 | 122,968 | 5,808 | 40,595 | 4,022 | 21,263 | 209,427 | ||||||||||||||||||
Drilling services | 118,930 | - | 360,026 | 1,493,386 | - | 817,036 | - | - | 2,789,379 | ||||||||||||||||||
Equipment rental | - | - | - | 108,963 | - | 3,800 | 839 | 90 | 113,693 | ||||||||||||||||||
Exploration support | 4,961 | 932 | 7,234 | 131,260 | 135 | 36,220 | 15,130 | 23,523 | 219,394 | ||||||||||||||||||
Field supplies | 14,371 | 1,520 | 606 | 56,948 | - | 7,430 | 56 | 5,900 | 86,830 | ||||||||||||||||||
Geological services | 10,959 | 3,321 | 337 | 588,985 | 197,728 | 460,643 | 60,339 | 41,204 | 1,363,518 | ||||||||||||||||||
Project management | 27,449 | 9,089 | 11,971 | 35,711 | - | 42,097 | 3,913 | 68,626 | 198,857 | ||||||||||||||||||
Travel | 1,478 | 55 | 563 | 24,016 | 1,596 | 20,721 | 7,445 | 16,391 | 72,264 | ||||||||||||||||||
Vehicle expneses | 4,302 | 5,580 | 1,939 | 82,372 | 11,433 | 40,646 | 115 | 10,497 | 156,885 | ||||||||||||||||||
267,569 | 25,924 | 443,314 | 3,091,021 | 492,474 | 1,546,374 | 278,409 | 423,232 | 6,568,317 | |||||||||||||||||||
Balance, Jun 30, 2008 | $ | 2,673,458 | $ | 1,472,447 | $ | 983,783 | $ | 6,023,749 | $ | 1,748,552 | $ | 8,022,094 | $ | 3,062,284 | $ | 2,136,656 | $ | 26,123,023 |
(a) | Nieves Concessions, Mexico | |
The Company owns a 50% interest in the Nieves silver property located in northern Zacatecas, Mexico. The project occurs within a northwest trending mineral belt which hosts many of the world’s premier silver deposits. Additional core drilling started during the second quarter of 2008, and any new prospects identified by geologic mapping will be tested. All work plans are made in consultation with the US-based Joint Venture partner Blackberry Ventures 1, LLC (“Blackberry”), which will continue to contribute its share of ongoing exploration costs. | ||
During the six months ended June 30, 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. |
Page 4 of 12
Quaterra Resources Inc. |
(An Exploration Stage Company) |
Notes to Consolidated Financial Statements for Six Months Ended June 30, 2008 |
(Unaudited and Expressed in Canadian Dollars) |
5. Mineral Properties (Continued)
(b) | 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 totalling 25,194 hectares (97 square miles) that were staked in 2006-2007. | ||
A reconnaissance drilling program started in May 2008. The Company’s exploration plans are dependent on results of recently completed drilling. | ||
(c) | MacArthur Claim, United States | |
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 June 30, 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 of US$125,000 and US$2,420,000 on January 15, 2009 and 2010 respectively. | ||
The Company has completed approximately 43,000 feet of drilling in 74 reverse circulation holes and 43 core holes at MacArthur since drilling began in 2006. During 2008, the Company will complete detailed geologic mapping and complete a NI43-101 compliant resource estimate during the second half of 2008. | ||
(d) | Yerington, United States | |
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 240 day period to October 17, 2008. | ||
An environmental assessment has been completed 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. | ||
As at June 30, 2008, the Company has paid a US$150,000 non-refundable deposit and issued 250,000 common shares for the purchase option. |
Page 5 of 12
Quaterra Resources Inc. |
(An Exploration Stage Company) |
Notes to Consolidated Financial Statements for Six Months Ended June 30, 2008 |
(Unaudited and Expressed in Canadian Dollars) |
5. Mineral Properties (Continued)
(e) | 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$90,000 acquisition costs up to date and is required to make US$100,000 on August 10, 2009. | ||
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 June 30, 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. | ||
In June 2008, a new breccia pipe with high-grade uranium mineralization was discovered using a VTEM geophysical system. Additional drilling is planned later this year. | ||
(f) | Alaskan Properties, United States | |
The Company’s 100%-owned Duke Island Cu-Ni-PGE prospect is located in southeast Alaska. The project consists of 129 unpatented Federal lode mining claims and 11 state of Alaska mining claims that cover an area of six square miles of multiple-use lands open to mineral development. In early 2008, a survey was conducted to identify new drilling targets. The Company is currently reviewing the survey data to determine if any of the identified anomalies have potential for massive copper-nickel mineralization. | ||
In October 2007, the Company acquired the Herbert Glacier gold property in the historic Juneau Gold Belt of southeast Alaska. The Herbert Glacier property consists of 91 unpatented Federal lode mining claims that host four main composite vein-fault structures with ribbon structure quartz-sulfide veins. A core drilling program is planned in late summer this year to explore the property. | ||
(g) | Other Properties, Mexico and United States | |
Other properties of the Company include the SW Tintic, Gray Hills, Peg Leg, Carbon County, Cave Peak (Texas claims), Copper Canyon and Wassuk Copper 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. |
Page 6 of 12
Quaterra Resources Inc. |
(An Exploration Stage Company) |
Notes to Consolidated Financial Statements for Six Months Ended June 30, 2008 |
(Unaudited and Expressed in Canadian Dollars) |
6. Share Capital
a. | Common stock: authorized unlimited common shares without par value. | |
On April 16, 2008 the Company completed a non-brokered private placement of 3,482,500 units at a price of US$3.20 per unit for total proceeds of US$11,144,000. Each unit consists of one common share and one-half of one common 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. In the event the Company’s shares trade at a closing price of greater than US$5.50 per share for a period of 15 consecutive days at any time after six months from April 16, 2008, the Company may accelerate the expiry date of the warrants by providing notice to the shareholders thereof and in such case the warrants will expire on the 30thday after the date on which such notice is given. | ||
b. | Warrants |
30-Jun-2008 | 31-Dec-2007 | |||||||||||
Weighted | ||||||||||||
Average | Weighted | |||||||||||
Number of | Exercise Price | Number of | Average | |||||||||
Warrants | (US$) | Warrants | Exercise Price | |||||||||
Outstanding, beginning of period | - | $ | - | 2,623,928 | $ | 2.25 | ||||||
Issued | 1,741,250 | 4.20 | - | - | ||||||||
Exercised | - | - | (2,480,785 | ) | 2.25 | |||||||
Expired | - | - | (143,143 | ) | 2.25 | |||||||
Outstanding, end of period | 1,741,250 | $ | 4.20 | - | $ | - |
c. | 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 is presented below: |
30-Jun-2008 | 31-Dec-2007 | |||||||||||
Weighted | Weighted | |||||||||||
Number of | Average | Number of | Average | |||||||||
Options | Exercise Price | Options | Exercise Price | |||||||||
Outstanding, beginning of period | 5,559,500 | $ | 1.99 | 5,427,000 | $ | 0.92 | ||||||
Granted | 2,390,000 | 3.31 | 2,261,000 | 3.29 | ||||||||
Exercised | (699,200 | ) | 0.72 | (2,108,500 | ) | 0.84 | ||||||
Forfeited | - | - | (20,000 | ) | 3.33 | |||||||
Outstanding, end of period | 7,250,300 | $ | 2.55 | 5,559,500 | $ | 1.99 |
Page 7 of 12
Quaterra Resources Inc. |
(An Exploration Stage Company) |
Notes to Consolidated Financial Statements for Six Months Ended June 30, 2008 |
(Unaudited and Expressed in Canadian Dollars) |
6.Share Capital (Continued)
c. Stock Options (Continued)
As at June 30, 2008, the Company had outstanding stock options for the purchase of an aggregate 7,250,300 common shares as follows:
Options Outstanding | Options Exercisable | |||||||||||||||||||
Weighted | Weighted | |||||||||||||||||||
Weighted | Average | Weighted | Average | |||||||||||||||||
Average | Remaining | Average | Remaining | |||||||||||||||||
Number | Exercise Price | Contractual Life | Expiry Date | Number | Exercise Price | Contractual Life | ||||||||||||||
15,000 | $ | 0.34 | 0.44 | December 8, 2008 | 15,000 | $ | 0.34 | 0.44 | ||||||||||||
95,000 | 0.62 | 0.73 | March 25, 2009 | 95,000 | 0.62 | 0.73 | ||||||||||||||
287,500 | 0.35 | 2.11 | August 9, 2010 | 287,500 | 0.35 | 2.11 | ||||||||||||||
200,000 | 0.40 | 2.53 | January 9, 2011 | 200,000 | 0.40 | 2.53 | ||||||||||||||
125,000 | 1.04 | 2.74 | March 27, 2011 | 125,000 | 1.04 | 2.74 | ||||||||||||||
75,000 | 1.00 | 2.88 | May 19, 2011 | 75,000 | 1.00 | 2.88 | ||||||||||||||
100,000 | 1.12 | 2.95 | June 12, 2011 | 100,000 | 1.12 | 2.95 | ||||||||||||||
1,471,800 | 1.55 | 3.07 | July 28, 2011 | 1,471,800 | 1.55 | 3.07 | ||||||||||||||
100,000 | 1.55 | 3.14 | August 23, 2011 | 100,000 | 1.55 | 3.14 | ||||||||||||||
100,000 | 1.50 | 3.23 | September 25, 2011 | 100,000 | 1.50 | 3.23 | ||||||||||||||
100,000 | 2.05 | 3.46 | December 18, 2011 | 100,000 | 2.05 | 3.46 | ||||||||||||||
75,000 | 2.65 | 3.53 | January 11, 2012 | 75,000 | 2.65 | 3.53 | ||||||||||||||
25,000 | 2.70 | 3.64 | February 21, 2012 | 25,000 | 2.70 | 3.64 | ||||||||||||||
2,011,000 | 3.33 | 4.05 | July 20, 2012 | 2,011,000 | 3.33 | 4.05 | ||||||||||||||
80,000 | 3.33 | 4.10 | August 7, 2012 | 80,000 | 3.33 | 4.10 | ||||||||||||||
200,000 | 3.45 | 4.75 | March 31, 2013 | 200,000 | 3.45 | 4.75 | ||||||||||||||
2,190,000 | 3.30 | 4.97 | June 19, 2013 | 887,500 | 3.30 | 4.97 | ||||||||||||||
7,250,300 | $ | 2.55 | 3.89 | 5,947,800 | $ | 2.39 | 3.67 |
The total fair value of $2,122,613 for options expensed during the period ended June 30, 2008 is listed below using the Black-Scholes option pricing model with the following assumptions:
30-Jun-2008 | 30-Jun-2007 | |||||||||||
Number | Number | |||||||||||
of Options | Stock-based | of Options | Stock-based | |||||||||
Issued | Compensation | Issued | Compensation | |||||||||
Consulting | 975,000 | $ | 627,405 | 100,000 | $ | 263,404 | ||||||
Directors and officers | 1,095,000 | 1,151,515 | - | 25,306 | ||||||||
Employees | 320,000 | 343,693 | - | - | ||||||||
Total | 2,390,000 | $ | 2,122,613 | 100,000 | $ | 288,710 |
Page 8 of 12
Quaterra Resources Inc. |
(An Exploration Stage Company) |
Notes to Consolidated Financial Statements for Six Months Ended June 30, 2008 |
(Unaudited and Expressed in Canadian Dollars) |
6. Share Capital (Continued)
c. Stock Options (Continued)
30-Jun-08 | Dec-31-2007 | 30-Jun-07 | |||||||
Risk-free interest rate | 3.84% | 4.57% | 4.03% | ||||||
Expected share price volatility | 85.79% | 89.42% | 166.47% | ||||||
Expected option life in years | 3.0 | 3.0 | 3.0 | ||||||
Expected dividend yield | 0% | 0% | 0% |
7. Related Party Transactions
The Company had the following related party transactions during the six months ended June 30, 2008:
a. | $296,546 service charges (2007 - $157,396) paid to a private firm of which a director is the principal for administration, accounting, office space, and corporate development services; | |
b. | $19,500 consulting fees (2007 - $19,500) paid to a company of which an officer is the principal; | |
c. | $11,070 legal fees (2007 - $13,187) to a law firm of which a director is the principal; and | |
d. | $30,000 investor relations (2007 - $9,000) paid to a consulting firm of which a former 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.
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:
30-Jun-2008 | 31-Dec-2007 | |||||||||||||||||||||||
Mineral | Reclamation | Mineral | Reclamation | |||||||||||||||||||||
Equipment | Property | Bond | Total | Equipment | Property | Bond | Total | |||||||||||||||||
Canada | $ | 15,949 | $ | - | $ | - | $ | 15,949 | $ | 22,335 | $ | - | $ | - | $ | 22,335 | ||||||||
Mexico | 71,004 | 5,621,341 | - | 5,692,345 | 56,276 | 4,693,257 | - | 4,749,533 | ||||||||||||||||
U.S.A | 162,020 | 20,501,682 | 159,207 | 20,822,909 | 101,841 | 14,861,449 | 139,492 | 15,102,782 | ||||||||||||||||
Total | $ | 248,973 | $ | 26,123,023 | $ | 159,207 | $ | 26,531,203 | $ | 180,452 | $ | 19,554,706 | $ | 139,492 | $ | 19,874,650 |
Page 9 of 12
Quaterra Resources Inc. |
(An Exploration Stage Company) |
Notes to Consolidated Financial Statements for Six Months Ended June 30, 2008 |
(Unaudited and Expressed in Canadian Dollars) |
9. Commitments
The Company has following commitments in respect to mineral option payments, office space leases and service agreements:
Mineral | Service | |||||||||||
Properties(1) | Agreements(3) & (4) | |||||||||||
Office Lease(2) | Total | |||||||||||
Year ending December 31, 2008 | $ | 662,295 | $ | 22,800 | $ | 174,000 | $ | 859,095 | ||||
Year ending December 31, 2009 | 950,360 | - | 168,000 | 1,118,360 | ||||||||
Year ending December 31, 2010 | 2,882,692 | - | 168,000 | 3,050,692 | ||||||||
Year ending December 31, 2011 | 868,784 | - | 168,000 | 1,036,784 | ||||||||
Year ending December 31, 2012 | 805,563 | - | 84,000 | 889,563 | ||||||||
Year ending December 31, 2013 | 632,214 | - | 632,214 | |||||||||
Year ending December 31, 2014 | 632,214 | - | 632,214 | |||||||||
Year ending December 31, 2015 | 836,154 | - | 836,154 | |||||||||
Year ending December 31, 2016 | 275,319 | - | 275,319 | |||||||||
Year ending December 31, 2017 | 275,319 | - | 275,319 | |||||||||
Year ending December 31, 2018 | 30,591 | - | 30,591 | |||||||||
$ | 8,851,506 | $ | 22,800 | $ | 762,000 | $ | 9,636,306 |
a. | 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 obligations are described in Note 5 of our audited financial statements December 31, 2007. | |
b. | 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. | |
c. | 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. | |
d. | 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 June 30, 2008, $37,500 is to be paid in shares for the service received February to June 2008. The agreement was renewed for another year in 2008 and will expire January 2009. |
10. Subsequent Events
The following occurred subsequent to June 30, 2008:
a. | The Company extended area of primary copper mineralization in the Gallagher area west of MacArthur pit. | |
b. | The Company acquired Cave Peak Molybdenum prospect in Texas, United States covering three breccia pipes one of which contains a significant historical resource. | |
c. | New breccia pipe with uranium mineralization was discovered on Arizona Strip Project. | |
d. | 7,120 shares were issued at a price of $3.16 for services. | |
e. | 32,500 stock options with an average exercise price of $1.36 were exercised for gross proceeds of $44,325. |
Page 10 of 12
Quaterra Resources Inc. |
(An Exploration Stage Company) |
Notes to Consolidated Financial Statements for Six Months Ended June 30, 2008 |
(Unaudited and Expressed in Canadian Dollars) |
11. Comparative Figures
Certain 2007 comparative figures have been reclassified to conform to the financial statement presentation adopted for 2008.
12. Reconciliation of Canadian and United States Generally Accepted Accounting Principles
Under US GAAP, exploration costs incurred in locating areas of potential mineralization are expensed as incurred. Detailed reconciliation of Canadian GAAP and US GAAP is discussed in Note 12 in the year end audited financial statements December 31, 2007.
Reconciliation of total assets, liabilities and stockholders’ equity:
30-Jun-08 | 31-Dec-07 | |||||
Total assets - Canadian GAAP | $ | 33,139,740 | $ | 24,198,211 | ||
Expensed expenditures on resource properties | (18,992,658 | ) | (13,110,749 | ) | ||
Total assets - US GAAP | $ | 14,147,082 | $ | 11,087,462 | ||
Total liabilities - Canadian & US GAAP | $ | 1,683,683 | $ | 1,706,270 | ||
Total equity - Canadian GAAP | 31,456,057 | 22,491,941 | ||||
Expenditures on resource properties | (18,992,658 | ) | (13,110,749 | ) | ||
Total equity - US GAAP | 12,463,399 | 9,381,192 | ||||
Total Liability and Shareholders' Equity per US GAAP | $ | 14,147,082 | $ | 11,087,462 |
Reconciliation of net loss reported in Canadian GAAP and US GAAP:
Three months ended June 30, | Six months ended June 30, | |||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||
Loss for period - Canadian GAAP | $ | (3,013,869 | ) | $ | (973,136 | ) | $ | (4,134,463 | ) | $ | (1,765,160 | ) |
Expenditures on mineral properties | (3,173,004 | ) | (1,556,918 | ) | (5,881,909 | ) | (3,036,323 | ) | ||||
Net loss for period - US GAAP | (6,186,873 | ) | (2,530,054 | ) | (10,016,372 | ) | (4,801,483 | ) | ||||
Deficit, Beginning of period per US GAAP | (38,733,550 | ) | (21,957,892 | ) | (34,904,051 | ) | (19,686,463 | ) | ||||
Deficit, end of period - US GAAP | $ | (44,920,423 | ) | $ | (24,487,946 | ) | $ | (44,920,423 | ) | $ | (24,487,946 | ) |
Net loss per share - Canadain GAAP | $ | (0.03 | ) | $ | (0.01 | ) | $ | (0.05 | ) | $ | (0.02 | ) |
Total difference | $ | (0.04 | ) | $ | (0.02 | ) | $ | (0.07 | ) | $ | (0.04 | ) |
Net loss per share - US GAAP | $ | (0.07 | ) | $ | (0.03 | ) | $ | (0.12 | ) | $ | (0.06 | ) |
Weighted average number of share outstanding | 86,701,457 | 78,489,259 | 85,174,343 | 78,122,324 |
Page 11 of 12
Quaterra Resources Inc. |
(An Exploration Stage Company) |
Notes to Consolidated Financial Statements for Six Months Ended June 30, 2008 |
(Unaudited and Expressed in Canadian Dollars) |
12. Reconciliation of Canadian and United States Generally Accepted Accounting Principles (Continued)
Reconciliation of cash flows reported in Canadian GAAP and US GAAP:
Three months ended June 30, | Six months ended June 30, | |||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||
Operating activities - Canadian GAAP | $ | (1,546,482 | ) | $ | (876,296 | ) | $ | (2,191,785 | ) | $ | (1,338,403 | ) |
Adjustments for mineral expenditures | 3,173,004 | 1,556,918 | 5,881,909 | (3,036,323 | ) | |||||||
Cash used in operating actitivies - US GAAP | 1,626,522 | 680,622 | 3,690,124 | (4,374,726 | ) | |||||||
Investing activities - Canadian GAAP | (4,017,787 | ) | (2,137,271 | ) | (6,567,840 | ) | (4,292,379 | ) | ||||
Reclassification of expenditures on mineral property | (3,173,004 | ) | (1,556,918 | ) | (5,881,909 | ) | 3,036,323 | |||||
Cash used in investing actitivies - US GAAP | (7,190,791 | ) | (3,694,189 | ) | (12,449,749 | ) | (1,256,056 | ) | ||||
Cash provided by financing activities - Canadian & US GAAP | 6,580,531 | 740,842 | 10,915,965 | 836,650 | ||||||||
Increase (decrease) in cash during the period | 1,016,262 | (2,272,725 | ) | 2,156,340 | (4,794,132 | ) | ||||||
Cash, beginning of period | 4,529,978 | 6,591,325 | 3,389,900 | 9,112,732 | ||||||||
Cash, end of period - US GAAP | $ | 5,546,240 | $ | 4,318,600 | $ | 5,546,240 | $ | 4,318,600 |
Page 12 of 12