(An Exploration Stage Company)
Condensed Consolidated Interim Financial Statements
September 30, 2012
(Unaudited - Expressed in Canadian Dollars)
| Quaterra Resources Inc. |
| Condensed Consolidated Interim Statements of Financial Position |
| (Unaudited - Expressed in Canadian Dollars) |
| | | Note | | September 30, 2012 | | | December 31, 2011 | |
| Assets | | | | | | | | |
| Current assets: | | | | | | | | |
| Cash and cash equivalents | | | $ | 727,020 | | $ | 12,147,321 | |
| Restricted cash | | | | 90,841 | | | 94,638 | |
| Amounts due from Exploration Partners | | | | 496,114 | | | 240,222 | |
| Taxes and other receivables | | | | 365,847 | | | 15,498 | |
| Mineral property receivable | | 5 (c) | | 1,737,692 | | | - | |
| Prepaid and deposits | | | | 246,432 | | | 257,488 | |
| | | | | 3,663,946 | | | 12,755,167 | |
| Non-current assets: | | | | | | | | |
| Marketable securities | | 3 | | 18,000 | | | 27,667 | |
| Taxes and other receivables | | | | 882,037 | | | 919,315 | |
| Equipment | | 4 | | 279,750 | | | 348,795 | |
| Mineral properties | | 5 | | 68,825,649 | | | 59,040,786 | |
| Reclamation bonds | | | | 168,285 | | | 519,092 | |
| | | | | 70,173,721 | | | 60,855,655 | |
| Total assets | | | $ | 73,837,667 | | $ | 73,610,822 | |
| | | | | | | | | |
| Liabilities | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable and accrued liabilities | | | $ | 1,523,451 | | $ | 1,829,704 | |
| Due to related parties | | 9 | | 5,786 | | | 47,884 | |
| | | | | 1,529,237 | | | 1,877,588 | |
| | | | | | | | | |
| Shareholders' Equity | | | | | | | | |
| Share capital | | 6 | | 114,387,403 | | | 111,923,521 | |
| Share-based payment reserve | | | | 18,983,019 | | | 17,988,540 | |
| Accumulated other comprehensive loss | | | | (60,866 | ) | | (51,199 | ) |
| Deficit | | | | (61,001,126 | ) | | (58,127,628 | ) |
| | | | | 72,308,430 | | | 71,733,234 | |
| Total liabilities and shareholders' equity | | | $ | 73,837,667 | | $ | 73,610,822 | |
Approved on behalf of the Board of Directors
| “Thomas Patton”(signed) | “Anthony Walsh” (signed) |
| Thomas Patton | Anthony Walsh |
(See the accompanying notes to condensed consolidated interim financial statements)
Page 2 of 16
| Quaterra Resources Inc. |
| Condensed Consolidated Interim Statements of Comprehensive Loss |
| (Unaudited - Expressed in Canadian Dollars) |
| | | Note | | Three months ended September 30, | | | Nine months ended September 30, | |
| | | | | 2012 | | | 2011 | | | 2012 | | | 2011 | |
| General administrative expenses | | | | | | | | | | | | | | |
| Administration and general office expense | | | $ | 178,617 | | $ | 184,766 | | $ | 520,690 | | $ | 536,539 | |
| Consulting | | | | 59,593 | | | 128,535 | | | 264,801 | | | 283,658 | |
| Depreciation | | | | 26,402 | | | 42,527 | | | 78,721 | | | 104,819 | |
| Directors' fees | | | | 32,500 | | | 23,453 | | | 94,783 | | | 87,169 | |
| Investor relations and communications | | | | 55,888 | | | 54,748 | | | 173,217 | | | 247,974 | |
| Personnel costs | | | | 293,644 | | | 307,299 | | | 887,383 | | | 810,398 | |
| Professional fees | | | | 189,364 | | | 107,534 | | | 429,296 | | | 338,698 | |
| Share-based payments | | 7 (a) | | 21,010 | | | 2,341,617 | | | 1,009,479 | | | 2,581,032 | |
| Transfer agent and regulatory fees | | | | 27,072 | | | 18,250 | | | 117,078 | | | 136,039 | |
| Travel and promotion | | | | 26,303 | | | 45,356 | | | 31,072 | | | 117,307 | |
| | | | | 910,393 | | | 3,254,085 | | | 3,606,520 | | | 5,243,633 | |
| | | | | | | | | | | | | | | |
| Gain on sale of mineral property | | 5 (c) | | (820,712 | ) | | - | | | (820,712 | ) | | - | |
| Exploration partner administration income | | | | (33,185 | ) | | (77,073 | ) | | (65,437 | ) | | (163,059 | ) |
| Foreign exchange loss | | | | 108,710 | | | (192,862 | ) | | 206,393 | | | 40,681 | |
| General exploration costs | | | | 22,474 | | | 159,568 | | | 44,831 | | | 304,818 | |
| Impairments | | | | - | | | - | | | - | | | 4,220,632 | |
| Write-off of equipment (recovery) | | | | (20,385 | ) | | - | | | (39,954 | ) | | 38,525 | |
| Interest income | | | | (12,288 | ) | | (47,012 | ) | | (58,143 | ) | | (51,605 | ) |
| | | | | (755,386 | ) | | (157,379 | ) | | (733,022 | ) | | 4,389,992 | |
| | | | | | | | | | | | | | | |
| Net loss for the period | | | | (155,007 | ) | | (3,096,706 | ) | | (2,873,498 | ) | | (9,633,625 | ) |
| Unrealized loss on marketable securities | | | | - | | | (2,667 | ) | | (9,667 | ) | | (17,334 | ) |
| Comprehensive loss for the period | | | $ | (155,007 | ) | $ | (3,099,373 | ) | $ | (2,883,165 | ) | $ | (9,650,959 | ) |
| Loss per share - basic and diluted | | | $ | (0.00 | ) | $ | (0.02 | ) | $ | (0.02 | ) | $ | (0.07 | ) |
| Weighted average number of common sharesoutstanding | | | | 156,427,773 | | | 143,535,816 | | | 154,921,668 | | | 141,775,031 | |
(See the accompanying notes to condensed consolidated interim financial statements)
Page 3 of 16
| Quaterra Resources Inc. |
| Condensed Consolidated Interim Statements of Cash Flows |
| (Unaudited - Expressed in Canadian Dollars) |
| | | Three months ended September 30, | | | Nine months ended September 30, | |
| | | 2012 | | | 2011 | | | 2012 | | | 2011 | |
| Operating activities | | | | | | | | | | | | |
| Net loss for the period | $ | (155,007 | ) | $ | (3,096,706 | ) | $ | (2,873,498 | ) | $ | (9,633,625 | ) |
| Items not involving cash: | | | | | | | | | | | | |
| Depreciation | | 26,402 | | | 42,527 | | | 78,721 | | | 104,819 | |
| Share-based payments | | 21,010 | | | 2,341,617 | | | 1,009,479 | | | 2,581,032 | |
| Shares issued for services | | - | | | 22,500 | | | 30,000 | | | 67,500 | |
| Impairments | | - | | | - | | | - | | | 4,220,632 | |
| Unrealized loss on foreign exchange | | 61,246 | | | - | | | 61,246 | | | - | |
| Write-off of equipment | | - | | | - | | | - | | | 38,525 | |
| Gain on sale of mineral property | | (820,712 | ) | | - | | | (820,712 | ) | | - | |
| | | (867,061 | ) | | (690,062 | ) | | (2,514,764 | ) | | (2,621,117 | ) |
| Changes in non-cash working capital | | | | | | | | | | | | |
| Taxes and other receivables | | 22,994 | | | (328,785 | ) | | (19,713 | ) | | (605,524 | ) |
| Prepaid and deposits | | (24,372 | ) | | (57,271 | ) | | 11,056 | | | (18,917 | ) |
| Accounts payable and accrued liabilities | | 22,425 | | | (64,303 | ) | | (141,427 | ) | | (30,194 | ) |
| Due to related parties | | (25,837 | ) | | 11,801 | | | (42,098 | ) | | 11,620 | |
| Cash used in operating activities | | (871,851 | ) | | (1,128,620 | ) | | (2,706,946 | ) | | (3,264,132 | ) |
| | | | | | | | | | | | | |
| Financing activity | | | | | | | | | | | | |
| Shares issued for cash, net of issue costs | | - | | | 4,912,305 | | | 2,418,882 | | | 13,378,792 | |
| Cash provided by financing activity | | - | | | 4,912,305 | | | 2,418,882 | | | 13,378,792 | |
| | | | | | | | | | | | | |
| Investing activities | | | | | | | | | | | | |
| Expenditures on mineral properties | | (2,958,058 | ) | | (5,046,115 | ) | | (10,866,669 | ) | | (11,807,855 | ) |
| Due from Exploration Partners | | (112,241 | ) | | (450,779 | ) | | (255,892 | ) | | (523,433 | ) |
| Purchase of equipment | | (9,676 | ) | | (156,356 | ) | | (9,676 | ) | | (255,233 | ) |
| Reclamation bonds | | (11,447 | ) | | (107,616 | ) | | - | | | (173,043 | ) |
| Restricted cash | | (1,389 | ) | | (3,850 | ) | | - | | | (25,465 | ) |
| Cash used in investing activities | | (3,092,811 | ) | | (5,764,716 | ) | | (11,132,237 | ) | | (12,785,029 | ) |
| Decrease in cash and cash equivalents during period | | (3,964,662 | ) | | (1,981,031 | ) | | (11,420,301 | ) | | (2,670,369 | ) |
| Cash and cash equivalents, beginning of period | | 4,691,682 | | | 17,522,877 | | | 12,147,321 | | | 18,212,215 | |
| Cash and cash equivalents, end of period | $ | 727,020 | | $ | 15,541,846 | | $ | 727,020 | | $ | 15,541,846 | |
| Cash and cash equivlaents comprises | | | | | | | | | | | | |
| Cash | $ | 727,020 | | $ | 5,487,789 | | $ | 727,020 | | $ | 5,487,789 | |
| Term deposits and bankers acceptance | | - | | | 10,054,057 | | | - | | | 10,054,057 | |
| Supplemental cash flow information | $ | 727,020 | | $ | 15,541,846 | | $ | 727,020 | | $ | 15,541,846 | |
| Exploration expenditures included in accounts payable | $ | 1,250,773 | | $ | 1,453,782 | | $ | 1,250,773 | | $ | 1,453,782 | |
(See accompanying notes to condensed consolidated interim financial statements)
Page 4 of 16
| Quaterra Resources Inc. |
| Condensed Consolidated Interim Statements of Changes in Shareholders’ Equity |
| (Unaudited - Expressed in Canadian Dollars) |
| | | Common Shares | | | Share-based | | | Accumulated Other | | | | | | | |
| | | Shares | | | Amount | | | payment reserve | | | Comprehensive Loss | | | Deficit | | | Total | |
| Balance, December 31, 2010 | | 136,464,161 | | $ | 95,800,950 | | $ | 15,643,693 | | $ | (17,199 | ) | $ | (46,863,089 | ) | $ | 64,564,355 | |
| Common shares issued during the period: | | | | | | | | | | | | | | | | | | |
| Shares issued for cash, net of issue costs | | 3,293,407 | | | 5,918,882 | | | | | | | | | | | | 5,918,882 | |
| Exercise of options | | 654,500 | | | 723,405 | | | | | | | | | | | | 723,405 | |
| Exercise of warrants | | 8,982,007 | | | 6,736,505 | | | | | | | | | | | | 6,736,505 | |
| Common shares issued for services | | 56,401 | | | 67,500 | | | | | | | | | | | | 67,500 | |
| Fair value of options and warrants exercised | | | | | 501,860 | | | (501,860 | ) | | | | | | | | - | |
| Share-based payments | | | | | | | | 2,581,032 | | | | | | | | | 2,581,032 | |
| Unrealized loss on available-for-sale marketable securities | | | | | | | | | | | (17,334 | ) | | | | | (17,334 | ) |
| Net loss for the period | | | | | | | | | | | | | | (9,633,625 | ) | | (9,633,625 | ) |
| Balance, September 30, 2011 | | 149,450,476 | | $ | 109,749,102 | | $ | 17,722,865 | | $ | (34,533 | ) | $ | (56,496,714 | ) | $ | 70,940,720 | |
| | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2011 | | 152,353,283 | | $ | 111,923,521 | | $ | 17,988,540 | | $ | (51,199 | ) | $ | (58,127,628 | ) | $ | 71,733,234 | |
| Common shares issued during the period: | | | | | | | | | | | | | | | | | | |
| Shares issued for cash, net of issue costs | | 4,000,000 | | | 2,418,882 | | | | | | | | | | | | 2,418,882 | |
| Cancelled shares | | (2,501 | ) | | | | | | | | | | | | | | - | |
| Common shares issued for services | | 98,483 | | | 45,000 | | | (15,000 | ) | | | | | | | | 30,000 | |
| Fair value of options and warrants exercised | | | | | | | | | | | | | | | | | - | |
| Share-based payments | | | | | | | | 1,009,479 | | | | | | | | | 1,009,479 | |
| Unrealized gain on available-for-sale marketable securities | | | | | | | | | | | (9,667 | ) | | | | | (9,667 | ) |
| Net loss for the period | | | | | | | | | | | | | | (2,873,498 | ) | | (2,873,498 | ) |
| Balance, September 30, 2012 | | 156,449,265 | | $ | 114,387,403 | | $ | 18,983,019 | | $ | (60,866 | ) | $ | (61,001,126 | ) | $ | 72,308,430 | |
(See the accompanying notes to condensed consolidated interim financial statements)
Page 5 of 16
| Quaterra Resources Inc. |
| Notes to Condensed Consolidated Interim Financial Statements |
| For the Three and Nine Months Ended September 30, 2012 |
| (Unaudited - Expressed in Canadian Dollars) |
| |
| 1. | Nature of operations |
| | |
| Quaterra Resources Inc., (“Quaterra” or “the Company”), is engaged in the acquisition and exploration of precious and base metal mineral properties in the United States and Mexico. Quaterra is a publicly listed company incorporated in Canada under theBusiness Corporations Act(British Columbia). The Company’s shares are listed on the TSX Venture Exchange (“QTA”) and the New York Stock Exchange MKT (“QMM”). |
| | |
| The head office, principal address and records office of the Company are located at 1100 – 1199 West Hastings Street, Vancouver, British Columbia, Canada, V6E 3T5. The Company’s registered office is 1710 - 1177 West Hastings Street, Vancouver, British Columbia, Canada, V6E 2L3. |
| | |
| The Company is in the process of exploring its mineral properties and has not yet determined whether its mineral properties contain economically recoverable mineral reserves. The underlying value and the recoverability of the amounts recorded as mineral properties is entirely dependent upon the existence of economically recoverable mineral reserves, obtaining the necessary permits to allow development, the ability of the Company to obtain the necessary financing to complete its acquisition, exploration and development of its mineral properties or receive proceeds from joint venture partners’ contributions or from the sale of such properties. The carrying value of the Company’s mineral properties does not reflect current or future values. |
| | |
| The condensed consolidated interim financial statements have been prepared on a going concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. The Company is looking for alternative financings and believes that it has sufficient resources to continue operations for at least the next twelve months. |
| | |
| 2. | Basis of presentation and consolidation |
| | |
| These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard (“IAS”) 34, Interim Financial Reporting, using the same accounting policies as detailed in the Company‘s audited consolidated financial statements for the year ended December 31, 2011. These condensed consolidated interim financial statements do not include all of the information required for complete annual consolidated financial statements in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board ("IASB") effective as at September 30, 2012 and therefore they should be read in conjunction with the annual consolidated financial statements for the year ended December 31, 2011 and the notes to the consolidated financial statements. |
| | |
| These consolidated financial statements were approved by the board of directors for issue on November 13, 2012. |
| | |
| These condensed consolidated interim financial statements incorporate the financial statements of the Company and the entities controlled by the Company (its subsidiaries). The wholly-owned subsidiaries includeQuaterra Alaska Inc.– incorporated in the United States,Minera Agua Tierra S.A. de C.V.– incorporated in Mexico, andQuaterra International Limited– incorporated in the British Virgin Islands. All significant intercompany transactions and balances have been eliminated. |
Page 6 of 16
| Quaterra Resources Inc. |
| Notes to Condensed Consolidated Interim Financial Statements |
| For the Three and Nine Months Ended September 30, 2012 |
| (Unaudited - Expressed in Canadian Dollars) |
| |
| 2. | Basis of presentation and consolidation, continued |
| | |
| These condensed consolidated interim financial statements have been prepared on a historical cost basis except for financial instruments classified as available-for-sale which have been stated at their fair values. These condensed consolidated interim financial statements are presented in Canadian dollars, the Company’s functional currency. |
| | |
| The significant accounting policies used in the preparation of these condensed consolidated interim financial statements are consistent with those used in the preparation of the Company’s annual consolidated financial statements ended December 31, 2011. |
| | |
| 3. | Marketable securities |
| | |
| The following table presents details of the Company’s shares of Redtail Metals Corp. (formerly Copper Ridge Exploration Inc.) (“Redtail”) and Auramex Resource Corp. (“Auramex”). |
| | | | | | September 30, 2012 | | | December 31, 2011 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Accumulated | | | | | | | | | Accumulated | | | | |
| | | Number | | | | | | unrealized | | | Carrying | | | | | | unrealized | | | Carrying | |
| | | of shares | | | Cost | | | gains (losses) | | | value | | | Cost | | | gains (losses) | | | value | |
| Redtail | | 66,667 | | $ | 38,866 | | $ | (30,866 | ) | $ | 8,000 | | $ | 38,866 | | $ | (26,199 | ) | $ | 12,667 | |
| Auramex | | 1,000,000 | | | 40,000 | | | (30,000 | ) | | 10,000 | | | 40,000 | | | (25,000 | ) | | 15,000 | |
| | | | | $ | 78,866 | | $ | (60,866 | ) | $ | 18,000 | | $ | 78,866 | | $ | (51,199 | ) | $ | 27,667 | |
The fair value of these marketable securities has been determined by reference to their closing quoted share price as at the reporting date.
Page 7 of 16
| Quaterra Resources Inc. |
| Notes to Condensed Consolidated Interim Financial Statements |
| For the Three and Nine Months Ended September 30, 2012 |
| (Unaudited - Expressed in Canadian Dollars) |
| |
| | | | Computer | | | Field | | | | | | | |
| | | | equipment | | | Equipment | | | Vehicles | | | Total | |
| | Cost | | | | | | | | | | | | |
| | Balance, December 31, 2010 | $ | 97,348 | | $ | 93,651 | | $ | 354,228 | | $ | 545,227 | |
| | Additions during the year | | 50,683 | | | 81,219 | | | 186,885 | | | 318,787 | |
| | Disposals | | - | | | - | | | (59,498 | ) | | (59,498 | ) |
| | Balance, December 31, 2011 | | 148,031 | | | 174,870 | | | 481,615 | | | 804,516 | |
| | Additions during the period | | - | | | - | | | 9,676 | | | 9,676 | |
| | Balance, September 30, 2012 | $ | 148,031 | | $ | 174,870 | | $ | 491,291 | | $ | 814,192 | |
| | Accumulated depreciation | | | | | | | | | | | | |
| | Balance December 31, 2010 | $ | 93,708 | | $ | 63,679 | | $ | 169,497 | | $ | 326,884 | |
| | Depreciation for the year | | 19,006 | | | 32,174 | | | 98,630 | | | 149,810 | |
| | Disposals | | - | | | - | | | (20,973 | ) | | (20,973 | ) |
| | Balance, December 31, 2011 | | 112,714 | | | 95,853 | | | 247,154 | | | 455,721 | |
| | Depreciation for the period | | 7,127 | | | 17,778 | | | 53,816 | | | 78,721 | |
| | Balance, September 30, 2012 | $ | 119,841 | | $ | 113,631 | | $ | 300,970 | | $ | 534,442 | |
| | Carrying value | | | | | | | | | | | | |
| | At December 31, 2011 | $ | 35,317 | | $ | 79,017 | | $ | 234,461 | | $ | 348,795 | |
| | At September 30, 2012 | $ | 28,190 | | $ | 61,239 | | $ | 190,321 | | $ | 279,750 | |
Page 8 of 16
| Quaterra Resources Inc. |
| Notes to Condensed Consolidated Interim Financial Statements |
| For the Three and Nine Months Ended September 30, 2012 |
| (Unaudited - Expressed in Canadian Dollars) |
| |
| 5. | Mineral properties |
| | |
| The total deferred acquisition and exploration costs of mineral properties for September 30, 2012 were as follows: |
| | | United States | | | Mexico | | | | |
| | | MacArthur | | | Yerington | | | Alaska | | | Uranium | | | Other | | | Nieves | | | Other | | | Total | |
| Mineral Properties | | Copper | | | Copper | | | | | | Properties | | | Properties | | | | | | Properties | | | | |
| Acquisition | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2011 | $ | 2,358,534 | | $ | 2,803,906 | | $ | 120,357 | | $ | 4,761,909 | | $ | 2,384,460 | | $ | 1,535,959 | | $ | 1,737,922 | | $ | 15,703,047 | |
| Additions during the period | | 699,318 | | | 333,104 | | | 16,135 | | | 299,712 | | | 552,196 | | | 78,343 | | | 671,859 | | | 2,650,667 | |
| Disposal of mineral property 5(c) | | - | | | - | | | - | | | - | | | (949,052 | ) | | | | | - | | | (949,052 | ) |
| Recovery - Goldcorp | | - | | | - | | | - | | | - | | | - | | | - | | | (5,950 | ) | | (5,950 | ) |
| Balance, September 30, 2012 | | 3,057,852 | | | 3,137,010 | | | 136,492 | | | 5,061,621 | | | 1,987,604 | | | 1,614,302 | | | 2,403,831 | | | 17,398,712 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Exploration | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2011 | | 17,144,368 | | | 3,623,164 | | | 554,119 | | | 7,728,123 | | | 763,148 | | | 3,920,039 | | | 9,604,778 | | | 43,337,739 | |
| Geological | | 711,115 | | | 744,198 | | | 161,843 | | | 73,797 | | | 60,188 | | | 131,143 | | | 1,067,247 | | | 2,949,531 | |
| Geophysical | | 50,017 | | | 31,251 | | | 4,468 | | | - | | | 88,588 | | | 126,323 | | | 12,761 | | | 313,408 | |
| Geochemical | | 77,890 | | | 320,195 | | | 27,142 | | | - | | | 7,867 | | | 42,305 | | | 480,885 | | | 956,284 | |
| Drilling | | 6,390 | | | 624,681 | | | 503,469 | | | - | | | - | | | 106,948 | | | 877,730 | | | 2,119,218 | |
| Technical Studies | | 455,526 | | | 566,632 | | | 1,055 | | | 9,314 | | | - | | | 111,134 | | | 138,407 | | | 1,282,068 | |
| Other | | 163,957 | | | 230,229 | | | 155,910 | | | 14,302 | | | - | | | 9,498 | | | 141,028 | | | 714,924 | |
| Additions during the period | | 1,464,895 | | | 2,517,186 | | | 853,887 | | | 97,413 | | | 156,643 | | | 527,351 | | | 2,718,058 | | | 8,335,433 | |
| Disposal of mineral property 5(c) | | - | | | - | | | - | | | - | | | (210,617 | ) | | - | | | - | | | (210,617 | ) |
| Recovery - Goldcorp | | - | | | - | | | - | | | - | | | - | | | - | | | (35,618 | ) | | (35,618 | ) |
| Balance, September 30, 2012 | $ | 18,609,263 | | $ | 6,140,350 | | $ | 1,408,006 | | $ | 7,825,536 | | $ | 709,174 | | $ | 4,447,390 | | $ | 12,287,218 | | $ | 51,426,937 | |
| Total acquisition and exploration Balance,September 30, 2012 | $ | 21,667,115 | | $ | 9,277,360 | | $ | 1,544,498 | | $ | 12,887,157 | | $ | 2,696,778 | | $ | 6,061,692 | | $ | 14,691,049 | | $ | 68,825,649 | |
| Total acquisition and exploration Balance, December 31, 2011 | $ | 19,502,902 | | $ | 6,427,070 | | $ | 674,476 | | $ | 12,490,032 | | $ | 3,147,608 | | $ | 5,455,998 | | $ | 11,342,700 | | $ | 59,040,786 | |
Page 9 of 16
| Quaterra Resources Inc. |
| Notes to Condensed Consolidated Interim Financial Statements |
| For the Three and Nine Months Ended September 30, 2012 |
| (Unaudited - Expressed in Canadian Dollars) |
| |
| 5. | Mineral properties, continued |
| | | |
| The Company is in the business of acquiring, exploring, and developing mineral properties in North America. Exploration programs are carried out through the Company’s management expertise and the use of consultants and contractors. Continuation of these programs is dependent on the Company’s ability to raise additional funds from the market and continuing participation of its exploration partners. Detailed property information can be found in Note 6 of the audited consolidated financial statements for the year ended December 31, 2011. |
| | | |
| During the nine months ended September 30, 2012, the Company had the following significant transactions related to its mineral properties: |
| | | |
| a) | MacArthur Copper Project, Nevada |
| | | |
| | Pursuant to an agreement dated September 13, 2005, and as subsequently amended, with North Exploration LLC (“North Exploration”), the Company renegotiated the final option payment to be made in two installments of US$524,000 each, one on January 15, 2012 (paid), and one on January 15, 2013. The amended agreement called for a 6% interest per annum for the installments. |
| | | |
| b) | Yerington Copper, Nevada |
| | | |
| | The Company filed a Canadian National Instrument 43-101 compliant technical report on the Yerington mine portion of the Yerington copper project on February 29, 2012. The acquisition of this property was completed on April 27, 2011 after a four-year environmental and legal due diligence review. |
| | | |
| c) | Butte Valley Porphyry Copper, Nevada |
| | | |
| | On August 2, 2012, the Company entered into a purchase and sale agreement with Freeport-McMoRan Mineral Properties Inc. (FMMP) for Butte Valley project at gross proceeds of US$2 million. $820,712 gain from the sale was recorded in the three months ended September 30, 2012. |
| | | |
| | On October 2, 2012, the Company received net proceeds of $1,737,692 from FMMP, after mineral claim payments and settlement fees. The Company retains the right, if and when FMMP completes a positive feasibility study, to elect to have either a 30% working interest in the project or a 2% NSR. |
| | | |
| d) | Poker Brown Project, Nevada |
| | | |
| | On August 24, 2012, the Company entered into an option agreement with Nevada Alaska Mining Co., Inc. to acquire a 100% interest in certain mining claims in Pershing County, Nevada for US$1 million over ten years of which US$20,000 has been paid. |
| | | |
| | A 2.5% Net Smelter Return (NSR) is required upon commercial production of which 0.5% can be purchased at US$500,000. |
Page 10 of 16
| Quaterra Resources Inc. |
| Notes to Condensed Consolidated Interim Financial Statements |
| For the Three and Nine Months Ended September 30, 2012 |
| (Unaudited - Expressed in Canadian Dollars) |
| |
| 5. | Mineral properties, continued |
| | | |
| e) | Uranium Properties, Arizona, Utah and Wyoming |
| | | |
| | On January 9, 2012, the Interior Department announced a Public Land Order to withdraw approximately one million acres of federal land in northern Arizona from mineral exploration on new claims for a twenty-year period. Approximately 85% of the Company’s claims lie within these federal jurisdiction lands and 15% lie within Arizona State lands, which are unaffected by the withdrawal. |
| | | |
| | In April 2012, the Company, together with various co-Plaintiffs has filed a lawsuit in the United States District Court for the State of Arizona naming as Defendants the United States Department of the Interior and the Bureau of Land Management. The results of this legal action are unknown at this time and, if unsuccessful, could lead to an impairment write-down of approximately $10 million. |
| | | |
| f) | Nieves Silver Concessions, Mexico |
| | | |
| | During the nine months ended September 30, 2012, the Company incurred total $1,215,175 exploration expenditures of which 50% are shared by its exploration partner Blackberry Ventures 1, LLC (“Blackberry”). US$75,000 advanced minimum royalty was paid in January 2012. As of September 30, 2012, $435,046 (December 31, 2011 - $406,837) was due from Blackberry, of which $106,469 was received on October 15, 2012. |
| | | |
| g) | Goldcorp Inc. (“Goldcorp”) – Investment Framework Agreement (“IFA”), Mexico |
| | | |
| | During the nine months ended September 30, 2012, the Company entered into an Amended and Restated IFA with Goldcorp extending the term of the original IFA until January 29, 2013. |
| | | |
| | As of September 30, 2012, $61,068 was owed from Goldcorp for the exploration expenditures of the advanced property incurred in the period from April 1 to September 30, 2012. |
| | | |
| 6. | Share capital |
| | | |
| The Company has authorized an unlimited number of common shares without par value. |
| | | |
| Under the terms of the Amended and Restated IFA, Goldcorp agreed to fund additional exploration on certain properties through a private placement of 4 million common shares of the Company at a price of $0.62 per share for gross proceeds of $2.48 million. The private placement closed on April 12, 2012. |
| | | |
| The original IFA was entered on January 29, 2010 that provided Goldcorp with an option to acquire a certain interest in the Company’s central Mexico projects for US$10 million over two years. The Company issued 3,001,418 shares for US$4 million and 3,293,407 shares for US$6 million in 2010 and 2011 respectively. |
| | | |
| Pursuant to a financial and advisory service agreement dated April 15, 2011, the Company issued 98,483 common shares at a weighted average price of $0.46 per share for a total consideration of $45,000. The agreement expired on April 15, 2012. |
Page 11 of 16
| Quaterra Resources Inc. |
| Notes to Condensed Consolidated Interim Financial Statements |
| For the Three and Nine Months Ended September 30, 2012 |
| (Unaudited - Expressed in Canadian Dollars) |
| |
| 7. | Share-based payments |
| | | |
| a) | Stock options |
| | | |
| | The Company has a stock option plan (the “Plan”), which is approved by the shareholders annually. The Plan is designed to attract and retain individuals and to reward them for current and expected future performance. Options generally are granted for a maximum term of five years and expire 90 days following the termination of the optionee’s agreement, unless termination is for cause. The exercise price for the options is set at the closing market price of the common shares on the grant date. The vesting periods of options vary with terms determined by the board of directors. Under the Plan, the Company is authorized to grant stock options of up to 10% of the number of common shares issued and outstanding of the Company at any given time. |
| | | |
| | The following table presents changes in stock options for the nine months ended September 30, 2012 and 2011: |
| | | | September 30, 2012 | | | September 30, 2011 | |
| | | | Number of | | | Weighted Average | | | Number of | | | Weighted Average | |
| | | | Options | | | Exercise Price | | | Options | | | Exercise Price | |
| | Outstanding, beginning of period | | 11,460,000 | | $ | 1.53 | | | 10,624,000 | | $ | 1.60 | |
| | Granted | | 3,695,000 | | $ | 0.47 | | | 3,390,000 | | $ | 1.29 | |
| | Expired | | (1,060,000 | ) | $ | 2.91 | | | (1,924,500 | ) | $ | 1.56 | |
| | Exercised | | - | | $ | - | | | (654,500 | ) | $ | 1.11 | |
| | Outstanding, end of period | | 14,095,000 | | $ | 1.15 | | | 11,435,000 | | $ | 1.54 | |
| | Exercisable, end of period | | 13,511,667 | | $ | 1.17 | | | 11,250,000 | | $ | 1.54 | |
The Company uses the following weighted average assumptions to fair value the options granted using the Black-Scholes option pricing model:
| | | | September 30, 2012 | | | September 30, 2011 | |
| | Weighted average share price | $ | 0.49 | | $ | 1.41 | |
| | Risk-free interest rate | | 1.64% | | | 1.53% | |
| | Expected share price volatility | | 89% | | | 93% | |
| | Expected option life in years | | 4.0 | | | 3.0 | |
| | Forfeiture rate | | 0% | | | 0% | |
| | Expected dividend yield | | 0% | | | 0% | |
Volatility was determined based on the Company’s historical volatility over the estimated lives of the options.
Page 12 of 16
| Quaterra Resources Inc. |
| Notes to Condensed Consolidated Interim Financial Statements |
| For the Three and Nine Months Ended September 30, 2012 |
| (Unaudited - Expressed in Canadian Dollars) |
| |
| 7. | Share-based payments, continued |
| | | |
| a) | Stock options, continued |
| | | |
| | The following table summarizes information about the stock options outstanding as at September 30, 2012 and December 31, 2011: |
| | | | Options Outstanding |
| Exercise price | Fair Value | Expire Date | September 30, 2012 | December 31, 2011 |
| $ 3.33 | $ 1.98 | July 20, 2012 | - | 775,000 |
| $ 3.45 | $ 2.05 | March 31, 2013 | 150,000 | 150,000 |
| $ 3.30 | $ 1.87 | June 19, 2013 | 905,000 | 905,000 |
| $ 0.98 | $ 0.52 | November 9, 2014 | 1,750,000 | 1,750,000 |
| $ 1.02 | $ 0.51 | November 9, 2014 | 2,095,000 | 2,100,000 |
| $ 2.00 | $ 1.22 | January 14, 2015 | 40,000 | 40,000 |
| $ 1.80 | $ 0.85 | April 1, 2015 | 100,000 | 100,000 |
| $ 1.76 | $ 0.97 | April 22, 2015 | 200,000 | 200,000 |
| $ 1.29 | $ 0.75 | August 9, 2015 | 1,605,000 | 1,685,000 |
| $ 1.55 | $ 0.90 | October 6, 2015 | 65,000 | 65,000 |
| $ 1.51 | $ 0.90 | November 3, 2015 | 100,000 | 100,000 |
| $ 1.60 | $ 0.96 | March 24, 2016 | 305,000 | 355,000 |
| $ 1.25 | $ 0.74 | August 9, 2016 | 2,810,000 | 2,935,000 |
| $ 0.90 | $ 0.51 | October 24, 2016 | 300,000 | 300,000 |
| $ 0.50 | $ 0.32 | March 27, 2017 | 100,000 | - |
| $ 0.45 | $ 0.28 | June 28, 2017 | 3,170,000 | - |
| $ 0.60 | $ 0.12 | August 20, 2015 | 400,000 | |
| Total stock options outstanding | | 14,095,000 | 11,460,000 |
| Total stock option exercisable | | 13,511,667 | 11,158,333 |
The weighted average remaining contract life for options outstanding and exercisable on September 30, 2012 was 3.17 (December 31, 2011 – 3.25) years and 3.16 (December 31, 2011 – 3.22) years, respectively.
Subsequent to the quarter end, 60,000 options expired unexercised with a weighted average exercise price of $0.49 and 108,333 options vested.
Page 13 of 16
| Quaterra Resources Inc. |
| Notes to Condensed Consolidated Interim Financial Statements |
| For the Three and Nine Months Ended September 30, 2012 |
| (Unaudited - Expressed in Canadian Dollars) |
| |
| 7. | Share-based payments, continued |
| | | |
| a) | Stock options, continued |
| | | |
| | The share-based payments expense is incurred as follows: |
| | | | Three months ended September 30, | | | Nine months ended September 30, | |
| | | | 2012 | | | 2011 | | | 2012 | | | 2011 | |
| | Consultants | $ | - | | $ | 976,791 | | $ | 338,800 | | $ | 1,031,887 | |
| | Directors and officers | | 21,010 | | | 856,432 | | | 453,452 | | | 856,432 | |
| | Employees | | - | | | 508,394 | | | 217,227 | | | 692,713 | |
| | | $ | 21,010 | | $ | 2,341,617 | | $ | 1,009,479 | | $ | 2,581,032 | |
| | b) | Share purchase warrants |
| | | |
| | | The following table presents changes in warrants for the nine months ended September 30, 2012 and 2011: |
| | | | September 30, 2012 | | | September 30, 2011 | |
| | | | Number of | | | Weighted Average | | | Number of | | | Weighted Average | |
| | | | Warrants | | | Exercise Price | | | Warrants | | | Exercise Price | |
| | Outstanding, beginning of period | | 9,009,512 | | $ | 1.94 | | | 20,186,023 | | $ | 1.16 | |
| | Issued | | - | | $ | - | | | 1,646,703 | | $ | 2.27 | |
| | Expired | | (1,500,709 | ) | $ | 1.76 | | | (630,000 | ) | $ | 0.75 | |
| | Exercised | | - | | $ | - | | | (8,982,007 | ) | $ | 0.75 | |
| | Outstanding, end of period | | 7,508,803 | | $ | 1.98 | | | 12,220,719 | | $ | 1.63 | |
The following table presents the warrants outstanding as at September 30, 2012 and December 31, 2011:
| Expiry date | | Exercise price | | | September 30, 2012 | | | December 31, 2011 | |
| February 4, 2012 | $ | 1.76 | | | - | | | 1,500,709 | |
| October 27, 2012 | $ | 1.90 | | | 5,862,100 | | | 5,862,100 | |
| February 7, 2013 | $ | 2.27 | | | 1,646,703 | | | 1,646,703 | |
| | | | | | 7,508,803 | | | 9,009,512 | |
5,862,100 warrants were expired and unexercised on October 27, 2012.
Page 14 of 16
| Quaterra Resources Inc. |
| Notes to Condensed Consolidated Interim Financial Statements |
| For the Three and Nine Months Ended September 30, 2012 |
| (Unaudited - Expressed in Canadian Dollars) |
| |
| 7. | Share-based payments, continued |
| | | |
| c) | Agent compensation options |
| | | |
| | The Company issued 703,452 agent compensation options at an exercise price of $1.45 expiring October 27, 2012 in relation to the brokered private placement on October 27, 2010. Each option entitles the agent to acquire one common share of the Company and one-half share purchase warrant exercisable at $1.90 by October 27, 2012. The 703,452 agent options subsequently expired unexercised. |
| | | |
| 8. | Compensation of key management |
| | | |
| Key management comprises directors and executive officers. Certain executive officers are entitled to termination benefits equal up to two years’ gross salary amounting to $1,650,000 in the event of a change of control. The Company has no post-employment benefits and other long-term employee benefits. Compensation awarded to key management was as follows: |
| | | | Three months ended September 30, | | | Nine months ended September 30, | |
| | | | 2012 | | | 2011 | | | 2012 | | | 2011 | |
| | Personnel costs | $ | 231,250 | | $ | 168,750 | | $ | 718,750 | | $ | 518,750 | |
| | Directors' fees | | 32,500 | | | 23,453 | | | 94,783 | | | 87,169 | |
| | Share-based payments | | 21,010 | | | 856,432 | | | 453,451 | | | 856,432 | |
| | | $ | 284,760 | | $ | 1,048,635 | | $ | 1,266,984 | | $ | 1,462,351 | |
| 9. | Related party transactions |
| | |
| The Company’s related parties consist of companies owned by executive officers. The following fees and expenses were incurred in the normal course of operations: |
| | | | Three months ended September 30, | | | Nine months ended September 30, | |
| | | | 2012 | | | 2011 | | | 2012 | | | 2011 | |
| | Manex Resources Group(a) | $ | 132,962 | | $ | 133,043 | | $ | 393,563 | | $ | 392,367 | |
| | Lawrence Page Q.C. Law Corp(b) | | 2,160 | | | 300 | | | 2,705 | | | 3,330 | |
| | Atherton Enterprises Ltd.(c) | | 29,167 | | | 43,750 | | | 131,250 | | | 131,250 | |
| | | $ | 164,289 | | $ | 177,093 | | $ | 527,518 | | $ | 526,947 | |
| | a) | Manex Resource Group (“Manex”) is a private company owned by an officer and director that provides general office and administrative services. As of September 30, 2012, $3,367 (December 31, 2011 - $47,884) was still owing in due to related parties. |
| | | |
| | b) | Lawrence Page, Q.C. Law Corp. is a company owned by an officer and director that provides legal services. As of September 30, 2012, $2,419 (December 31, 2011 - $nil) was owing in due to related parties. |
| | | |
| | c) | Atherton Enterprises Ltd. is a private company owned by an officer that provides CFO services. |
Page 15 of 16
| Quaterra Resources Inc. |
| Notes to Condensed Consolidated Interim Financial Statements |
| For the Three and Nine Months Ended September 30, 2012 |
| (Unaudited - Expressed in Canadian Dollars) |
| |
| 10. | Commitments |
| | | |
| a) | On February 9, 2012, the Company renewed its service agreement with Manex for its Vancouver head office administration and corporate services at a monthly rate of $19,250 for a five-year term expiring August 31, 2017. The Company may terminate the agreement by paying Manex the lesser of $462,000 or a total fee owing for the remainder of the term. |
| | | |
| b) | On March 1, 2011, the Company’s US subsidiary entered into a lease agreement for its premises located in the City of Yerington, Nevada. The initial term of the lease is three years with an option to extend for additional three years. |
| | | |
| c) | As of September 30, 2012, the Company had the following commitments related to its office premises: |
| Period ending September 30, 2013 | $ | 278,194 | |
| Period ending September 30, 2014 | | 282,913 | |
| Period ending September 30, 2015 | | 231,000 | |
| Period ending September 30, 2016 | | 231,000 | |
| Period ending September 30, 2017 | | 211,750 | |
| | $ | 1,234,857 | |
| 11. | Segmented information |
| | |
| The Company has one business segment, the exploration of mineral properties. The Company’s significant non-current assets are distributed by geographic locations as follows: |
| | | September 30, 2012 | | | December 31, 2011 | |
| | | Taxes and | | | | | | | | | | | | Taxes and | | | | | | | | | | |
| | | other | | | Property | | | Mineral | | | Reclamation | | | other | | | Property | | | Mineral | | | Reclamation | |
| | | receivables | | | equipment | | | property | | | bond | | | receivables | | | equipment | | | property | | | bond | |
| Canada | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | |
| Mexico | | 882,037 | | | 160,009 | | | 20,752,740 | | | - | | | 919,315 | | | 194,290 | | | 16,798,700 | | | - | |
| U.S.A | | - | | | 119,741 | | | 48,072,909 | | | 168,285 | | | - | | | 154,505 | | | 42,242,086 | | | 519,092 | |
| Total | $ | 882,037 | | $ | 279,750 | | $ | 68,825,649 | | $ | 168,285 | | $ | 919,315 | | $ | 348,795 | | $ | 59,040,786 | | $ | 519,092 | |
Page 16 of 16
