(An Exploration Stage Company)
Condensed Interim Consolidated Financial Statements
September 30, 2019
(Unaudited – in U.S. Dollars)
Notice to Reader:
These condensed interim consolidated financial statements have not been reviewed by the Company’s independent auditor. These statements have been prepared by and are the responsibility of the Company’s management. This notice is being provided in accordance with National Instrument 51-102 – Continuous Disclosure Obligations.
Quaterra Resources Inc. |
Condensed Interim Consolidated Statements of Financial Position |
(Unaudited-in thousands of U.S. Dollars) |
Note | September 30, 2019 | December 31, 2018 | |
Assets | $ | $ | |
Current assets: | |||
Cash and cash equivalents | 2,529 | 47 | |
Other receivable | 3 | 2 | |
Marketable securities | 3 | 242 | 156 |
Prepaid | - | 4 | |
2,774 | 209 | ||
Non-current assets: | |||
Exploration and evaluation assets | 4 | 28,297 | 32,533 |
Reclamation bonds | 34 | 62 | |
28,331 | 32,595 | ||
Total Assets | 31,105 | 32,804 | |
Liabilities | |||
Current liabilities: | |||
Accounts payable and accrued liabilities | 155 | 365 | |
Convertible notes | 6 | 282 | - |
Loan payable | 5 | - | 305 |
Related party loan payable | 10(c) | - | 210 |
437 | 880 | ||
Non-current liability | |||
Convertible notes | 6 | - | 721 |
Derivative liabilities | 7 | 163 | 572 |
163 | 1,293 | ||
Total Liabilities | 600 | 2,173 | |
Shareholders' Equity | |||
Share capital | 8 | 101,424 | 100,729 |
Contributed surplus | 6,7 | 19,234 | 18,820 |
Deficit | (90,153) | (88,918) | |
30,505 | 30,631 | ||
Total Liabilities and Shareholders' Equity | 31,105 | 32,804 |
See the accompanying notes to the condensed interim consolidated financial statements.
Approved on behalf of the Board of Directors on November 7, 2019:
/s/ “Thomas Patton” | /s/“Terrence Eyton” | ||
Director | Director |
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Quaterra Resources Inc. |
Condensed Interim Consolidated Statements of Loss and Comprehensive Loss |
(Unaudited- In thousands of U.S. Dollars, except for shares and per share amounts) |
Three months ended September | Nine months ended September 30, | ||||
Note | 2019 | 2018 | 2019 | 2018 | |
$ | $ | $ | |||
General administrative expenses | |||||
Administration and office | 99 | 90 | 229 | 228 | |
Consulting | - | - | 16 | - | |
Investor relations and communications | 36 | 3 | 130 | 74 | |
Personnel costs | 4 | 202 | 117 | 624 | 353 |
Professional fees | 1 | (11) | 44 | 57 | |
Transfer agent and regulatory fees | 12 | 7 | 62 | 34 | |
Travel and development | 14 | 2 | 95 | 39 | |
(364) | (208) | (1,200) | (785) | ||
Fair value gain on derivative liabilities | 135 | 74 | 155 | 321 | |
Foreign exchange loss | (9) | (14) | (23) | (12) | |
Gain on convertible notes | 2 | - | 2 | - | |
Unrealized gain on marketable securities | 64 | 36 | 86 | 89 | |
Interest on convertible notes | (18) | (54) | (176) | (96) | |
Other income (expenses) | 4 | - | 38 | - | |
Share-based compensation | 9 (b) | (7) | (91) | (117) | (91) |
171 | (49) | (35) | 211 | ||
Loss and comprehensive loss for the period | (193) | (257) | (1,235) | (574) | |
Lloss per share - basic and diluted | (0.00) | (0.00) | (0.01) | (0.00) | |
Weighted average number of common shares | |||||
outstanding | 209,067,522 | 200,969,314 | 205,755,523 | 200,969,314 |
See the accompanying notes to the condensed interim consolidated financial statements.
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Quaterra Resources Inc. |
Condensed Interim Consolidated Statements of Cash Flows |
(Unaudited- In thousands of U.S. Dollars) |
For the nine months ended September 30, | ||||||
2019 | 2018 | |||||
$ | $ | |||||
Operating activities | ||||||
Net loss for the period | (1,235 | ) | (574 | ) | ||
Items not involving cash: | ||||||
Fair value gain on derivative liabilities | (155 | ) | (321 | ) | ||
Foreign exchange loss | 23 | 12 | ||||
Gain on settlement of convertible notes | (2 | ) | - | |||
Interest expense | 172 | 67 | ||||
Share-based compensation | 117 | 91 | ||||
Unrealized ga in on marketable securities | (86 | ) | (89 | ) | ||
(1,166 | ) | (814 | ) | |||
Changes in non-cash working capital | ||||||
Other receivable | (1 | ) | - | |||
Prepaid | 4 | - | ||||
Accounts payable and accrued liabilities | (238 | ) | (3 | ) | ||
Cash used in operating activities | (1,401 | ) | (817 | ) | ||
Financing activities | ||||||
Shares issued for cash | 132 | - | ||||
Convertible notes proceeds, net of issuance costs | - | 961 | ||||
Related party loan | (218 | ) | 207 | |||
Loan payable | (311 | ) | (295 | ) | ||
Cash (used) proivded by in financing activities | (397 | ) | 873 | |||
Investing activities | ||||||
Expenditures on mineral properties | (1,421 | ) | (1,599 | ) | ||
Net proceeds from sale of water rights | 5,685 | - | ||||
Reclamation bonds | 28 | - | ||||
Cash provided by (used) in investing activities | 4,292 | (1,599 | ) | |||
Effect of foreign exchange on cash and cash equivalents | (12 | ) | 19 | |||
Increase (decrease) in cash and cash equivalents | 2,482 | (1,524 | ) | |||
Cash and cash equivalents, beginning of period | 47 | 1,575 | ||||
Cash and cash equivalents, end of period | 2,529 | 51 | ||||
Supplemental cash flow information | ||||||
Exploration expenditures included in accounts payable | $ | 124 | $ | 73 | ||
Interest paid in cash | $ | 44 | $ | - | ||
Shares issued for interest | $ | 45 | $ | - |
See the accompanying notes to the condensed interim consolidated financial statements.
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Quaterra Resources Inc. |
Condensed Consolidated Interim Statements of Changes in Equity |
(Unaudited - In thousands of U.S. Dollars, except for shares) |
Common Shares | |||||
Number of | Amounts | Contributed Surplus | Deficit | Total | |
Shares | ($) | ($) | ($) | ($) | |
Balance, December 31, 2017 | 200,969,314 | 100,729 | 18,729 | (87,499) | 31,959 |
Share-based compensation | - | - | 91 | - | 91 |
Net loss for the period | - | - | - | (574) | (574) |
Balance, September 30, 2018 | 200,969,314 | 100,729 | 18,820 | (88,073) | 31,476 |
Balance, December 31, 2018 | 200,969,314 | 100,729 | 18,820 | (88,918) | 30,631 |
Shares issued for cash | 3,000,000 | 113 | - | - | 113 |
Shares issued for convertible notes | 12,846,296 | 547 | 313 | - | 860 |
Shares issued for stock options exercised | 400,000 | 35 | (16) | - | 19 |
Share-based compensation | - | - | 117 | - | 117 |
Net loss for the period | - | - | - | (1,235) | (1,235) |
Balance, September 30, 2019 | 217,215,610 | 101,424 | 19,234 | (90,153) | 30,505 |
See the accompanying notes to the condensed interim consolidated financial statements.
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Quaterra Resources Inc. |
Notes to Condensed Interim Consolidated Financial Statements |
For the nine months ended September 30, 2019 |
(Unaudited - In U.S. Dollars; tabular amounts in thousands except for shares) |
1. | NATURE OF OPERATIONS | |
Quaterra Resources Inc. (together with its subsidiaries, “Quaterra” or the “Company”) is a copper exploration company working on its mineral properties located in Nevada and Alaska, United States. The Company is incorporated in British Columbia, Canada. Its head office is located at 1100 - 1199 West Hastings Street, Vancouver, British Columbia, Canada, V6E 3T5. | ||
The Company acquires mineral properties by way of option or lease agreements and defers all acquisition, exploration and evaluation costs related to the properties. The underlying value of the amounts recorded as mineral properties does not reflect current or future values. The Company’s continued existence is dependent upon the existence of economically recoverable mineral reserves and the ability of the Company to acquire new properties and obtain funding to complete the exploration activities. | ||
2. | BASIS OF PRESENTATION AND ACCOUNTING POLICY CHANGE | |
a. | Statement of compliance | |
These condensed interim consolidated financial statements have been prepared under International Accounting Standard 34,Interim Financial Reporting, using accounting policies consistent with International Financial Reporting Standards (“IFRS”)as issued by the International Accounting Standards Board. The Company’s significant accounting policies and critical accounting estimates applied in these financial statements are consistent with those described in Note 2 of the Company’s audited consolidated financial statements for the year ended December 31, 2018, except in relation to leases as described in 2(c) below. | ||
b. | Accounting estimates and judgments | |
The preparation of the financial statements in conformity with IFRS requires management to make judgments, estimates, and assumptions that affect the application of policies, reported amounts and disclosures. Actual results could differ from those estimates. Differences may be material. | ||
Judgment is required in assessing whether certain factors would be considered an indicator of impairment. Both internal and external information is considered to determine whether there is an indicator of impairment present and, accordingly, whether impairment testing is required. | ||
c. | Accounting policy change – Adoption of IFRS 16Leases | |
The Company adopted the provisions of IFRS 16 Leases effective January 1, 2019. | ||
IFRS 16,Leases,provides a single lessee accounting model, requiring lessees to recognize assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. The Company does not have any leases, accordingly, the adoption of IFRS 16 does not have a significant impact on its financial statements. | ||
3. | MARKETABLE SECURITIES | |
The Company holds 1,942,795 common shares of Grande Portage Resources Ltd. with a market value of $242,061 (December 31, 2018 - $156,654). During the nine months ended September 30, 2019, an$85,407 gain was recognized in the statement of loss and comprehensive loss. |
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Quaterra Resources Inc. |
Notes to Condensed Interim Consolidated Financial Statements |
For the nine months ended September 30, 2019 |
(Unaudited - In U.S. Dollars; tabular amounts in thousands except for shares) |
4. | MINERAL PROPERTIES |
The Company owns a 100% interest in the MacArthur and Yerington properties, has an option to earn a 100% interest in the Bear and Wassuk properties, and a 90% interest in Groundhog property, respectively. | |
On September 13, 2018, the Company entered into a purchase and sale agreement, subsequently amended, with Desert Pearl Farms LLC (“Desert Pearl”), to sell certain primary groundwater rights associated with its copper property in Yerington for adjusted gross proceeds of $6.02 million. | |
Desert Pearl deposited an initial $625,920 into escrow, half of which was released to the Company in October 2018 and January 2019, respectively, for its corporate use. On March 3, 2019, the Company announced the closing of the water rights sale and received the remaining net proceeds of $5.37 million. The net proceeds have been recorded as a reduction of the mineral property carrying value according to the Company’s accounting policy. | |
The Company defers acquisition, exploration and evaluation costs related to the properties on which it is conducting exploration. During the nine months ended September 30, 2019, 42% of the personnel costs were related to the Company’s U.S. technical employees which were recorded in mineral properties in the same period 2018 and reclassified to the statement of loss in the year-end 2018. | |
As of September 30, 2019, total mineral property maintenance and exploration costs are listed in the table below: |
MacArthur | Yerington | Bear | Other | Groundhog | Total | |
(In thousands of U.S. dollars) | $ | $ | $ | $ | $ | $ |
Balance, December 31, 2018 | 18,218 | 10,578 | 1,012 | 1,105 | 1,620 | 32,533 |
Property maintenance | 159 | 88 | 138 | 199 | 4 | 588 |
Geological & mapping | 2 | - | 17 | - | 56 | 75 |
Geophysical & survey | - | - | - | - | 367 | 367 |
Assay & labs | 15 | - | - | - | - | 15 |
Environmental | - | 162 | - | - | - | 162 |
Field support & overhead | - | 12 | - | - | 175 | 187 |
Technical study | 55 | - | - | - | - | 55 |
Net proceeds from | 231 | 262 | 155 | 199 | 602 | 1,449 |
water right sale | - | (5,685) | - | - | - | (5,685) |
Balance, September 30, 2019 | 18,449 | 5,155 | 1,167 | 1,304 | 2,222 | 28,297 |
a) | MacArthur and Yerington, Nevada | |
The MacArthur property is subject to a 2% net smelter return royalty (“NSR”), which may be reduced to a 1% NSR royalty for a consideration of $1.0 million. | ||
The Yerington property has a 2% NSR royalty capped at $7.5 million on commencement of commercial production. | ||
b) | Bear Deposit, Nevada | |
The Bear Deposit consists of five option agreements covering private land in Yerington, Nevada. Under the terms of these option agreements, as amended, the Company is required to make approximately $5.0 million |
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Quaterra Resources Inc. |
Notes to Condensed Interim Consolidated Financial Statements |
For the nine months ended September 30, 2019 |
(Unaudited - In U.S. Dollars; tabular amounts in thousands except for shares) |
in cash payments over 11 years ($4.54 million paid) in order to maintain the exclusive right to purchase the land, mineral rights, and certain water rights and to conduct mineral exploration on these properties. | |
Outstanding payments due under the five option agreements by year are as follows: |
• | $238,000 due in 2019 ($138,000 paid); | |
• | $188,000 due in 2020; | |
• | $63,000 each due in 2021 and 2022 respectively, and | |
• | $101,000 due in 2023. |
c) | Wassuk, Nevada | |
The Company has an option to earn an interest in certain unpatented mining claims in Yerington, amended, over ten years and is required to make $1.51 million in cash payments ($0.955 million paid) and incur a work commitment of $300,000 ($92,112 incurred) by August 1, 2021. The remaining option balance is due by August 1, 2020 and 2021 in the amounts of $60,000 and $500,000, respectively. | ||
The property is subject to a 3% NSR royalty upon commencing commercial production, which can be reduced to a 2% NSR royalty in consideration for $1.5 million. | ||
d) | Groundhog, Alaska | |
On April 25, 2017, the Company signed a five-year lease agreement, subsequently amended to six years, with Chuchuna Minerals Company (“Chuchuna”) to earn a 90% interest in the Groundhog property located in Alaska. To earn its 90% interest, the Company is required to provide Chuchuna with a total of $5 million in exploration funding (a minimum of $0.5 million per year after year one) plus a lump sum of $3 million in the final year. | ||
The Company has no obligation to exercise its option and can terminate the agreement at its discretion annually. Since April 2017, the Company has met its annual commitments and funded total $2.22 million in exploration. During the nine months ended September 30, 2019, the Company spent $0.6 million in exploration half of which was associated with a geophysical survey. | ||
e) | Butte Valley, Nevada | |
On August 22, 2019, the Company entered into an option agreement with North Exploration, LLC, to earn a 100% interest in mining claims in White Pine County, Nevada, over six years for $0.6 million. | ||
The project is subject to a 2.5% NSR upon commencing commercial production, which can be purchased to a 1.5% NSR in consideration for $1.0 million. | ||
5. | LOAN PAYABLE | |
The Company borrowed $500,000 by a secured note from Freeport-McMoRan Nevada LLC (“Freeport Nevada”) on May 8, 2015,to facilitate a real property interest acquisition within the Bear Deposit area. The loan was extended and partially repaid in 2018,and as of September 6, 2018, the remaining amount of $295,467 was agreed to mature on March 6, 2019,with an annual interest rate of 10%, compound daily. | ||
The Company recorded $5,559 in interest expense during the nine months ended September 30, 2019, and fully repaid $310,700 of principal and interest to Freeport Nevadaon March 6, 2019. |
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Quaterra Resources Inc. |
Notes to Condensed Interim Consolidated Financial Statements |
For the nine months ended September 30, 2019 |
(Unaudited - In U.S. Dollars; tabular amounts in thousands except for shares) |
6. | CONVERTIBLE NOTES | |
On August 28 and September 20, 2018, the Company completed non-brokered private placements in tranches by way of secured convertible notes for gross proceeds of $550,000 and Canadian dollars (“CAD”) $550,000 each. The convertible notes bear simple interest at a rate of 10% per annum, payable in arrears, until February 28, 2020, and March 20, 2020 (CAD 50,000). Interest may be paid in cash or shares at the option of the noteholders, subject to regulatory approvals in the case of share payments. | ||
In August 2019, $550,000 and CAD 50,000 were converted into units at $0.05 or CAD 0.065 per unit. Each unit consists of a common share and a share purchase warrant which entitles the holder to acquire an additional common share at $0.05 or CAD 0.065 for a period of four years from the issuance date of the convertible notes. | ||
Of the interest due, $44,507 was paid by issuing 1,077,066 shares and $13,012 interest was paid in cash. A total 12,846,296 common shares were issued for the principal converted and portion of the related interest. | ||
As a result, a $2,092 gain on the conversion was recorded in the statement of loss and comprehensive loss. The remaining CAD 500,000 convertible notes maybe converted at CAD 0.10 per unit until the expiry date of February 28, 2020. | ||
7. | DERIVATIVE LIABILITIES | |
The conversion of the remaining convertible notes into units could result in a variable number of shares to be issued; the Company also has certain warrants exercisable in a different currency from the Company’s functional currency. The conversion feature and the warrants are classified as derivative liabilities carried at fair value and revalued at each reporting date. | ||
As of September 30, 2019, the derivative liabilities were related to the remaining CAD 500,000 convertible notes and 769,230 warrants with CAD exercise prices and were revalued using the weighted average assumptions: volatility of 106%,the expected term of 3 years, discount rate of 1.40% and dividend yield of 0%. | ||
8. | SHARE CAPITAL | |
The Company is authorized to issue an unlimited number of common shares without par value. | ||
In August 2019, the Company issued 12,846,296 common shares for the converted notes including principal and a portion of the interest accrued. | ||
In January 2019, the Company issued closed a non-brokered private placement by issuing 3,000,000 common shares for a gross proceed of CAD 150,000. The Company also received CAD$25,000 on exercise of 400,000 stock options. | ||
9. | WARRANTS AND STOCK OPTIONS | |
a) | Share purchase warrants | |
As of September 30, 2019, the Company had the following warrants outstanding: |
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Quaterra Resources Inc. |
Notes to Condensed Interim Consolidated Financial Statements |
For the nine months ended September 30, 2019 |
(Unaudited - In U.S. Dollars; tabular amounts in thousands except for shares) |
Expiry date | Exercise price | September 30, 2019 | December 31, 2018 | |
October 3, 2019 | $ | 0.16 | 19,000,000 | 19,000,000 |
August 28, 2022 | $ | 0.05 | 11,000,000 | - |
September 20, 2022 | CAD | 0.065 | 769,230 | - |
30,769,230 | 19,000,000 |
On October 3, 2019, 19,000,000 warrants expired unexercised.
b) | Stock options | |
The Company has a stock option plan under which it 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 table below presents changes in stock options during the nine months ended September 30, 2019: |
Number of | Weighted Average | |
Options | Exercise Price (CAD$) | |
Outstanding, beginning of period | 14,860,000 | 0.09 |
Granted | 3,450,000 | 0.065 |
Expired | (2,815,000) | 0.10 |
Exercised | (400,000) | 0.0625 |
Outstanding, end of period | 15,095,000 | 0.08 |
Exercisable, end of period | 15,095,000 | 0.08 |
The following table summarizes information about stock options outstanding by expiry dates with an exercise price in Canadian dollars:
Exercise Price | Number of Options Outstanding | ||
Expiry Date | (CAD$) | September 30, 2019 | December 31, 2018 |
June 25, 2019 | 0.10 | - | 2,815,000 |
December 31, 2019 | 0.05 | 1,000,000 | 1,000,000 |
March 26, 2020 | 0.05 | 200,000 | 200,000 |
July 16, 2020 | 0.13 | 2,380,000 | 2,380,000 |
April 14, 2021 | 0.065 | 2,795,000 | 2,995,000 |
June 23, 2022 | 0.095 | 2,900,000 | 2,900,000 |
September 20, 2023 | 0.06 | 2,370,000 | 2,570,000 |
June 21, 2024 | 0.065 | 2,950,000 | - |
August 8, 2024 | 0.060 | 500,000 | - |
15,095,000 | 14,860,000 |
The Company used the following assumptions in the Black-Scholes option pricing model: volatility 103%, risk-free interest rate 1.4%, expected life five years, forfeiture rate and expected dividend yield 0%.
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Quaterra Resources Inc. |
Notes to Condensed Interim Consolidated Financial Statements |
For the nine months ended September 30, 2019 |
(Unaudited - In U.S. Dollars; tabular amounts in thousands except for shares) |
Share-based payment expenses were allocated as follows:
Three months ended September 30, | Nine months ended September 30, | |||
(In thousands of U.S. Dollars) | 2019 | 2018 | 2019 | 2018 |
$ | $ | $ | $ | |
Consultants | 7 | 22 | 38 | 22 |
Directors and officers | - | 53 | 60 | 53 |
Employees | - | 16 | 19 | 16 |
7 | 91 | 117 | 91 |
10. | RELATED PARTY TRANSACTIONS | |
a) | Key management comprises directors and executive officers. In the event of a change of control, certain executive officers are entitled to termination benefits equal to the amount that would have been paid during the unexpired term of their employment agreement, and others to the equivalent of either one or two years’ salary. 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, | |||
(In thousands of U.S. Dollars) | 2019 | 2018 | 2019 | 2018 |
$ | $ | $ | $ | |
Salaries | 98 | 108 | 310 | 326 |
Directors' fees | 9 | 9 | 27 | 27 |
Share-based compensation | - | 53 | 60 | 53 |
107 | 170 | 397 | 406 |
b) | Manex Resource Group (“Manex”) is a private company owned by the Company’s Corporate Secretary Mr. Lawrence Page. During the nine months ended September 30, 2019, the Company paid $47,294(CAD63,180) to Manex for its Vancouver office space and general office services. During the period the Company renegotiated its service agreement with Manex to a monthly rate of CAD 7,500effective April 1, 2019. Either party can terminate the agreement at any time with 60 days written notice. | |
c) | During the 2018 year-end, Mr. Thomas Patton, Chairman of the Company, advanced a total of CAD 400,000 as a loan to the Company in order for it to meet its operating expense requirements. The loan was unsecured, bearing an interest of 10% per annum. $100,000 (CAD130,000)was repaid in August 2018, the remaining principal and accrued interest totaling$218,369 (CAD 292,134) were repaid on March 12, 2019. | |
11. | CAPITAL MANAGEMENT AND FINANCIAL INSTRUMENT RISKS | |
There has been no change in the Company’s approach to capital management, the financial instrument risks or management’s approach to those risks during the period ended September 30, 2019. |
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