During the year ended December 31, 2006, the Company issued 554,700 warrants in connection with a private placement financing as described in Note 8. These warrants are exercisable into units at a price of $1.65 per unit until December 31, 2007. Each unit consists of one common share and one half of a share purchase warrant. Each whole share purchase warrant is exercisable into a common share at a price of $1.65 per share until December 31, 2007. As at December 31, 2006, 179,637 of these agents warrants remain unexercised.
NOTE 9 - STOCK OPTIONS AND WARRANTS (cont)
Details of warrants outstanding as at December 31, 2006 are as follows:
Number
|
Exercise
Price
|
Remaining
Contractual Life
|
|
|
|
3,319,868
|
$ 0.80
|
0.21 years
|
12,500
|
0.85
|
0.21 years
|
1,212,138
|
1.65
|
0.89 years
|
|
|
|
4,544,506
|
|
|
NOTE 10 CONTRIBUTED SURPLUS
Details of changes in the Company's contributed surplus balance are as follows:
Balance, December 31, 2004
|
|
|
|
$ 6,131
|
Stock compensation on vesting of options
|
|
308,434
|
Allocated to share capital on exercise of options
|
|
(35,480)
|
Balance, December 31, 2005
|
|
|
|
279,085
|
Stock compensation on vesting of options
|
|
1,295,127
|
Value of conversion feature on convertible debentures
|
331,706
|
Allocated to share capital on exercise of options
|
|
(257,520)
|
|
|
|
|
|
|
|
Balance, December 31, 2006
|
|
|
|
$1,648,398
|
NOTE 11 FUTURE INCOME TAXES
The actual income tax provisions differ from the expected amounts calculated by applying the Canadian combined federal and provincial corporate income tax rates to the Companys loss before income taxes. The components of these differences are as follows:
|
2006
|
2005
|
|
|
|
Income (loss) before income taxes
|
$ 24,341,652
|
$ (1,978,054)
|
Corporate tax rate
|
34.12%
|
34.90%
|
|
|
|
Expected tax expense (recovery)
|
8,305,371
|
(689,747)
|
Increase (decrease) resulting from:
|
|
|
Change in corporate tax rate
|
53,546
|
64,516
|
Disposal of uranium properties utilizing Section 85 rollover
|
(5,601,176)
|
-
|
Expiry of non-capital losses carried forward
|
-
|
98,074
|
Non-deductible stock-based compensation
|
441,638
|
107,551
|
Change in future tax asset valuation allowance
|
(3,490,610)
|
328,514
|
Share issue costs and other permanent differences
|
(214,975)
|
-
|
Renounced exploration expenditures and other adjustments
|
959,873
|
(275,043)
|
|
|
|
Future income tax provision (recovery)
|
$ 453,926
|
$ (366,135)
|
85
DEJOUR ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006
(In Canadian $)
NOTE 11 FUTURE INCOME TAXES (cont)
The Companys tax-effected future income tax assets and liabilities are made up as follows:
|
|
2006
|
2005
|
Future income tax assets
|
|
|
|
Non-capital losses available
|
$1,077,545
|
$1,370,506
|
|
Capital losses available
|
1,067,642
|
1,091,110
|
|
Resource pools in excess of net book value
|
1,540,396
|
762,534
|
|
Share issue costs and other
|
407,359
|
266,460
|
|
|
|
|
|
|
4,092,942
|
3,490,610
|
Future income tax liabilities
|
|
|
|
Long term investments
|
(5,601,176)
|
-
|
|
|
|
|
|
|
(1,508,234)
|
3,490,610
|
Valuation allowance
|
|
|
|
Valuation allowance, opening
|
(3,490,610)
|
(3,162,096)
|
|
Reversal (increase) of valuation allowance
|
3,490,610
|
(328,514)
|
|
|
|
|
|
Valuation allowance, ending
|
-
|
(3,490,610)
|
|
|
|
Net future income tax assets (liabilities)
|
$(1,508,234)
|
$ -
|
The Company has approximately $2,884,000 (2005 - $3,930,000) of non-capital losses which can be applied to reduce future taxable income, expiring as follows:
Year of Expiry
|
|
Amount
|
|
|
|
2008
|
|
$ 420,000
|
2009
|
|
243,000
|
2010
|
|
91,000
|
2014
|
|
284,000
|
2015
|
|
1,846,000
|
|
|
|
|
|
$2,884,000
|
In addition, the Company has Canadian and Foreign exploration and development expenditures totalling approximately $5,211,000, unamortized share issue costs of approximately $1,152,000 and capital loss carryforwards of approximately $6,258,000 which may be available to reduce future taxable income. Both the exploration and development expenditures and the capital losses can be carried forward indefinitely.
86
DEJOUR ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006
(In Canadian $)
NOTE 12 SUPPLEMENTARY CASH FLOW INFORMATION
|
2006
|
2005
|
2004
|
|
$
|
$
|
$
|
Supplemental information relating to non-cash financing activities
|
|
|
|
Issuance of common shares for services
|
-
|
9,200
|
-
|
Bonus shares issued for bridge loan financing fee
|
-
|
-
|
50,000
|
Shares issued for Retamco Project
|
12,088,991
|
-
|
-
|
Promissory note issued for Retamco Project
|
5,643,000
|
-
|
-
|
Convertible debenture issued for Retamco Project
|
1,577,609
|
-
|
-
|
Value of shares and warrants received as proceeds on disposition of resource properties
|
36,450,000
|
-
|
-
|
|
|
|
|
Interest paid during the year
|
107,031
|
1,589
|
2,082
|
Taxes paid during the year
|
24,236
|
-
|
-
|
NOTE 13 SUBSEQUENT EVENTS
Subsequent to the year-end, the Company granted a total of 1,950,000 options to consultants, and executive officers. These options have an average exercise price $2.47per share, and average expiry date of four years.
Subsequent to the year-end, 3,336,453 warrants and 129,117 options were exercised for total proceeds of $2,741,582.
The Company incurred approximately $3,000,000 to $3,500,000 in acquisition and exploration expenditures to acquire interests approximating an average 25% in roughly 45,000 acres of oil and gas exploration properties in the Peace River Arch area near the border of BC and Alberta.
NOTE 14 COMMITMENTS
Effective May 1, 2005, the Company entered in to a five year lease on its office premises. Under the terms of the lease the Company is required to make minimum annual payment. The Company is committed under operating lease agreement for the premises to future minimum payments as follows:
2007
$ 91,520
2008
95,334
2009
101,053
2010
34,320
$ 322,227
87
DEJOUR ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006
(In Canadian $)
NOTE 15 RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP)
These financial statements have been prepared in accordance with Canadian generally accepted accounting principles (Canadian GAAP). A description of US GAAP and practices prescribed by the US Securities and Exchange Commission (SEC) that result in material measurement differences from Canadian GAAP are as follows:
(a)
Interest in unproven mineral properties
Under US GAAP, pursuant to EITF 04-2, the Company classified its mineral rights as tangible assets and accordingly acquisition costs are capitalized provided certain criteria are met. US GAAP requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review for recoverability, the Company is to estimate the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized. However, SEC staff has indicated that their interpretation of US GAAP requires mineral exploration costs to be expensed as incurred until commercially mineable deposits are determined to exist within a particular property. Accordingly, for all periods presented, the Company has expensed all mineral exploration costs for US GAAP purposes. In addition, under Canadian GAAP, cash flows relating to resource property costs are reported as investing activities. For US GAAP, these costs would be characterized as operating activities.
(b)
Stock-based compensation
The Financial Accounting Standards Board (FASB) in the US issued Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123). The statement encourages entities to adopt a fair value methodology of accounting for employee stock-based compensation.
Under US GAAP stock options granted to non-employees for services rendered to the Company are required to be accounted for as compensation cost and charged to operations as the services are performed and the options are earned. The compensation cost is to be measured based on the fair value of the stock options granted. This method is similar to the Canadian standard adopted as of January 1, 2003. The stock-based compensation expense in respect of stock options granted to non-employees, under US GAAP, based upon the fair value of the options granted, determined using the Black Scholes option pricing model, would be $nil cumulatively from the date of adoption of SFAS 123 to December 31, 2002.
In December 2004, the FASB issued SFAS No.123R (revised 2004), "Share-Based Payment." SFAS No. 123(R) provides investors and other users of financial statements with more complete and neutral financial information by requiring that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. SFAS No. 123(R) covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. SFAS No. 123(R) replaces FASB Statement No. 123, "Accounting for Stock-Based Compensation," and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." Public entities will be required to apply SFAS No. 123(R) as of the first interim or annual reporting period that begins after June 15, 2005 or December 15, 2005 for small business issuers.
To December 31, 2006, the Company only granted stock options to consultants and did not grant any stock options to employees.
(c)
Income taxes
Under US GAAP, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Under Canadian GAAP, the effect of a change in tax rates is recognized in the period of substantive enactment. The application of this difference under US GAAP does not result in a material difference between future income taxes as recorded under Canadian GAAP.
88
DEJOUR ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006
(In Canadian $)
NOTE 15 RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP) (cont)
(d)
Flow-through shares
Under Canadian GAAP, future income tax liabilities resulting from the renunciation of qualified resource expenditures by the Company in connection with the issuance of flow-through common shares are recorded as a reduction of share capital at the time of renunciation. Under US GAAP, the cost of the renounced expenditures is recorded as a liability and reduction of share capital on issuance of the flow through shares. Under Canadian GAAP, the amount of this reduction is measured as the tax effected value of the renounced expenditures while under US GAAP, the amount of this reduction is measured by comparison of the flow-through common share price versus the fair value of the Companys ordinary common shares.
(e)
Reporting comprehensive income
Statement of Financial Accounting Standards No. 130 (SFAS 130)
Reporting Comprehensive Income,
establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income equals net income (loss) for the year as adjusted for all other non-owner changes in shareholders equity. SFAS 130 requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement. For the years ended December 31, 2006, 2005 and 2004 comprehensive loss equals the loss for the year.
(f)
Exploration stage company
Pursuant to US GAAP, the Company would be considered an exploration stage company as the Company is devoting its efforts to establishing commercially viable resource properties. However, the identification of the Company as such for accounting purposes does not impact the measurement principles applied to these consolidated financial statements.
(g)
Statements of cash flows
For Canadian GAAP, all cash flows relating to mineral property costs are reported as investing activities. For US GAAP, mineral property acquisition costs would be characterized as investing activities and mineral property exploration costs as operating activities.
The Company has included a subtotal in cash flows from operating activities. Under US GAAP, no such subtotal would be disclosed.
(h)
Recent accounting pronouncements
In February 2006, the FASB issued SFAS No. 155,
Accounting for Certain Hybrid Financial Instruments-an amendment of FASB Statements No. 133 and 140
, to simplify and make more consistent the accounting for certain financial instruments. SFAS No. 155 amends SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities
, to permit fair value remeasurement for any hybrid financial instrument with an embedded derivative that otherwise would require bifurcation, provided that the whole instrument is accounted for on a fair value basis. SFAS No. 155 amends SFAS No. 140,
Accounting for the Impairment or Disposal of Long-Lived Assets
, to allow a qualifying special-purpose entity to hold a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS No. 155 applies to all financial instruments acquired or issued after the beginning of an entity's first fiscal year that begins after September 15, 2006, with earlier application allowed. This standard is not expected to have a significant effect on the Companys future reported financial position or results of operations nor will it result in a difference between the Companys reporting under Canadian GAAP versus US GAAP.
89
DEJOUR ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006
(In Canadian $)
NOTE 15 RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP) (cont)
In March 2006, the FASB issued SFAS No. 156,
"Accounting for Servicing of Financial Assets, an amendment of FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
. This statement requires all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable, and permits for subsequent measurement using either fair value measurement with changes in fair value reflected in earnings or the amortization and impairment requirements of Statement No. 140. The subsequent measurement of separately recognized servicing assets and servicing liabilities at fair value eliminates the necessity for entities that manage the risks inherent in servicing assets and servicing liabilities with derivatives to qualify for hedge accounting treatment and eliminates the characterization of declines in fair value as impairments or direct write-downs. SFAS No. 156 is effective for an entity's first fiscal year beginning after September 15, 2006. The adoption of this statement is not expected to have a material effect on the Company's future reported financial position or results of operations.
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statements No. 109
. FIN 48 clarifies the accounting for uncertainty in income taxes by prescribing a two-step method of first evaluating whether a tax position has met a more likely than not recognition threshold and second, measuring that tax position to determine the amount of benefit to be recognized in the financial statements. FIN 48 provides guidance on the presentation of such positions within a classified statement of financial position as well as on derecognition, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The adoption of this statement is not expected to have a material effect on the Company's future reported financial position or results of operations.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
. The objective of SFAS No. 157 is to increase consistency and comparability in fair value measurements and to expand disclosures about fair value measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. The provisions of SFAS No. 157 are effective for fair value measurements made in fiscal years beginning after November 15, 2007. The adoption of this statement is not expected to have a material effect on the Company's future reported financial position or results of operations.
In September 2006, the SEC issued Staff Accounting Bulletin (SAB) No. 108,
Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.
SAB No. 108 addresses how the effects of prior year uncorrected misstatements should be considered when quantifying misstatements in current year financial statements. SAB No. 108 requires companies to quantify misstatements using a balance sheet and income statement approach and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative a qualitative factor. SAB No. 108 is effective for period ending after November 15, 2006. The adoption of this statement had no material effect on the Company's reported financial position or results of operations.
In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans an amendment of FASB Statements No. 87, 88, 106, and 132(R). This statement requires employers to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit organization. This statement also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. The provisions of SFAS No. 158 are effective for employers with publicly traded equity securities as of the end of the fiscal year ending after December 15, 2006. The adoption of this statement had no material effect on the Company's reported financial position or results of operations.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. This Statement permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently assessing the impact of SFAS No. 159 on its financial position and results of operations.
90
DEJOUR ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006
(In Canadian $)
NOTE 15 RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP) (cont)
(i)
Reconciliation:
The effect of the differences between Canadian GAAP and US GAAP (including practices prescribed by the SEC) on the balance sheets, statements of operations and cash flows are summarized as follows:
(i)
|
Assets
|
|
|
|
|
December 31,
2006
|
December 31,
2005
|
|
|
|
|
|
Total assets, under Canadian GAAP
|
$ 80,677,728
|
$ 16,016,353
|
|
Exploration costs unproven resource properties
|
(628,018)
|
(1,507,413)
|
|
|
|
|
|
Total assets, under US GAAP
|
$ 80,049,710
|
$ 14,508,940
|
(ii)
|
Liabilities
|
|
|
|
|
December 31,
2006
|
December 31,
2005
|
|
|
|
|
|
Total liabilities, under Canadian GAAP
|
$ 9,235,349
|
$ 312,222
|
|
Add: flow through issue cost liability
|
-
|
115,000
|
|
|
|
|
|
Total liabilities, under US GAAP
|
$ 9,235,349
|
$ 427,222
|
|
|
|
|
(iii)
|
Share Capital
|
|
|
|
|
December 31,
2006
|
December 31,
2005
|
|
|
|
|
|
Total share capital, under Canadian GAAP
|
$ 48,671,383
|
$ 18,190,174
|
|
Add: flow through issue cost under Canadian GAAP
|
1,054,308
|
366,135
|
|
Less: flow through issue cost under US GAAP
|
-
|
(115,000)
|
|
|
|
|
|
Total share capital under US GAAP
|
$ 49,725,691
|
$ 18,441,309
|
|
|
|
|
(iv)
|
Retained Earnings (Deficit)
|
|
|
|
|
December 31,
2006
|
December 31,
2005
|
|
|
|
|
|
Retained Earnings (Deficit), under Canadian GAAP
|
$ 21,122,598
|
$ (2,765,128)
|
|
Add: gain on disposal of uranium properties
|
5,652,166
|
-
|
|
Less: exploration costs unproven resource properties
|
(6,280,184)
|
(1,507,413)
|
|
Less: flow through share future tax recovery
|
(1,054,308)
|
(366,135)
|
|
|
|
|
|
Retained Earnings (Deficit) under US GAAP
|
$ 19,440,542
|
$ (4,638,676)
|
91
DEJOUR ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006
(In Canadian $)
NOTE 15 RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP) (cont)
(i)
Reconciliation:
(v)
|
Net income (loss) for the year
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31
|
|
|
|
|
|
|
2006
|
2005
|
2004
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) for the year, under Canadian GAAP
|
$23,887,726
|
$(1,611,919)
|
$(392,099)
|
|
Add: gain on disposal of uranium properties
|
5,652,166
|
-
|
-
|
|
Less: exploration cost - unproven resource properties
|
(4,772,771)
|
(1,507,413)
|
-
|
|
Less: flow through share future tax recovery
|
(1,054,308)
|
(366,135)
|
-
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) for the year, under US GAAP
|
|
$23,712,813
|
$(3,485,467)
|
$(392,099)
|
|
|
|
|
|
|
|
|
|
(vi)
|
Cash used in operating activities
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31
|
|
|
|
|
|
|
2006
|
2005
|
2004
|
|
|
|
|
|
|
|
|
|
|
Cash used in operating activities, under Canadian GAAP
|
$(1,769,373)
|
$(1,438,826)
|
$(231,807)
|
|
Less: exploration costs - unproven resource property
|
|
|
|
|
expenditure
|
(4,772,771)
|
(1,507,413)
|
(102,017)
|
|
|
|
|
|
|
|
|
|
|
Cash used in operating activities, under US GAAP
|
$ (6,542,144)
|
$(2,946,239)
|
$(333,824)
|
|
|
|
|
|
|
|
|
|
(vii)
|
Cash used in investing activities
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31
|
|
|
|
|
|
|
2006
|
2005
|
2004
|
|
|
|
|
|
|
|
|
|
|
Cash used in investing activities, under Canadian GAAP
|
$(12,146,784)
|
$(3,551,508)
|
$(102,017)
|
|
Add:
|
|
|
|
|
4,772,771
|
1,507,413
|
102,017
|
|
|
|
|
|
|
|
|
|
|
Cash used in investing activities, under US GAAP
|
$(7,374,013)
|
$(2,044,095)
|
$ -
|
92
Financial Statements
Titan Uranium Inc.
(a development stage company)
August 31, 2006 and 2005
93
AUDITORS REPORT
To the Shareholders of
Titan Uranium Inc.
(a development stage company)
We have audited the balance sheets of
Titan Uranium Inc.
as at August 31, 2006 and 2005 and the statements of operations and deficit and cash flows for the years then ended. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material respects, the financial position of the Company as at August 31, 2006 and 2005 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.
Vancouver, Canada,
November 21, 2006.
94
Titan Uranium Inc.
(a development stage company)
BALANCE SHEETS
[See Note 1 - Nature of Business and Basis of Presentation]
As at August 31
|
2006
|
2005
|
|
$
|
$
|
|
|
|
ASSETS
|
|
|
Current
|
10,181,515
|
1,984,273
|
Restricted cash
|
60,000
|
-
|
Accounts receivable
|
230,818
|
50,323
|
Prepaid expenses
|
190,127
|
52,483
|
Total current assets
|
10,662,460
|
2,087,079
|
Property and equipment
[note 3]
|
102,031
|
37,070
|
Resource properties
[note 4]
|
5,427,737
|
1,220,048
|
Reclamation deposit
[note 6]
|
35,000
|
-
|
Total assets
|
16,227,228
|
3,344,197
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
Current
|
|
|
Accounts payable and accrued liabilities
|
731,870
|
185,767
|
Due to related parties
[note 5]
|
-
|
9,586
|
Total liabilities
|
731,870
|
195,353
|
|
|
|
Commitments
[note 6]
|
|
|
|
|
|
Shareholders equity
|
|
|
Share capital
[notes 7]
|
16,877,084
|
4,571,165
|
Share subscription receivable
[note 8]
|
(15,893)
|
(50,428)
|
Contributed surplus
[note 7]
|
2,904,619
|
298,645
|
Deficit
|
(4,270,452)
|
(1,670,538)
|
Total shareholders equity
|
15,495,358
|
3,148,844
|
Total liabilities and shareholders equity
|
16,227,228
|
3,344,197
|
See accompanying notes
On behalf of the Board:
Arni Johannson
Phil Olson
Director
Director
95
Titan Uranium Inc.
(a development stage company)
STATEMENTS OF OPERATIONS AND DEFICIT
Year ended August 31
|
2006
|
2005
|
|
$
|
$
|
|
|
|
EXPENSES
|
|
|
Accounting and audit
|
29,871
|
23,210
|
Amortization
|
30,522
|
11,278
|
Consulting fees [note 5]
|
339,358
|
175,620
|
Investor relations and marketing
|
541,369
|
114,162
|
Legal
|
30,940
|
83,636
|
Listing, filing and transfer agent fees
|
49,831
|
28,479
|
Office and miscellaneous
|
122,309
|
24,613
|
Rent and administration
|
34,051
|
15,330
|
Salary
|
167,993
|
-
|
Stock-based compensation [note 9]
|
1,168,766
|
157,105
|
Travel and entertainment
|
207,811
|
65,852
|
Interest income
|
(122,907)
|
(9,236)
|
Loss for the year
|
(2,599,914)
|
(690,049)
|
|
|
|
Deficit, beginning of year
|
(1,670,538)
|
(980,489)
|
Deficit, end of year
|
(4,270,452)
|
(1,670,538)
|
|
|
|
Loss per share basic and diluted
|
(0.13)
|
(0.19)
|
|
|
|
Weighted average number of common shares
outstanding basic and diluted
|
20,059,778
|
3,690,665
|
See accompanying notes
96
Titan Uranium Inc.
(a development stage company)
STATEMENTS OF CASH FLOWS
Year ended August 31
|
2006
|
2005
|
|
$
|
$
|
|
|
|
OPERATING ACTIVITIES
|
|
|
Loss for the year
|
(2,599,914)
|
(690,049)
|
Adjustment for item not involving cash:
|
|
|
Amortization
|
30,522
|
11,278
|
Stock-based compensation
|
1,168,766
|
157,105
|
|
(1,400,626)
|
(521,666)
|
Change in non-cash working capital items:
|
|
|
Restricted cash
|
(60,000)
|
-
|
Increase in accounts receivable
|
(180,495)
|
(50,323)
|
Increase in prepaid expenses
|
(137,644)
|
(52,483)
|
(Decrease) increase in accounts payable
and accrued liabilities
|
546,103
|
(77,726)
|
Reduction in advances to related parties
|
(9,586)
|
(6,857)
|
Cash used in operating activities
|
(1,242,248)
|
(695,341)
|
|
|
|
FINANCING ACTIVITIES
|
|
|
Issuance of common shares, net of issuance costs
|
13,777,662
|
3,431,510
|
Repayment of loans payable
|
-
|
(37,500)
|
Cash provided by financing activities
|
13,777,662
|
3,394,010
|
|
|
|
INVESTING ACTIVITIES
|
|
|
Investment in resource properties
|
(4,207,689)
|
(666,048)
|
Purchase of equipment
|
(95,483)
|
(48,348)
|
Reclamation deposit advanced
|
(35,000)
|
-
|
Cash used in investing activities
|
(4,338,172)
|
(714,396)
|
|
|
|
Increase in cash position
|
8,197,242
|
1,984,273
|
Cash and cash equivalents, beginning of year
|
1,984,273
|
-
|
Cash and cash equivalents, end of year
|
10,181,515
|
1,984,273
|
|
|
|
Supplemental cash flow information
|
|
|
Interest paid in cash
|
-
|
-
|
Income taxes paid in cash
|
-
|
-
|
See accompanying notes
97
Titan Uranium Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
August 31, 2006 and 2005
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
Nature of business
The Company was incorporated under the Business Corporation Acts of Yukon on January 28, 1999. It was a Capital Pool Company as defined in the TSX Venture Exchange (TSX-V) Policy 2.4 until completing a Qualifying Transaction on May 31, 2005. Immediately prior to closing the Qualifying Transaction, the Company consolidated its issued share capital on a two for one new share basis pursuant to shareholder approval obtained at the Companys annual general meeting. The financial statements have been restated to reflect the share consolidation.
On May 30, 2005 the Company changed its name from Ceduna Capital Corp. to Titan Uranium Exploration Inc. On June 24, 2005 the Company changed its name from Titan Uranium Exploration Inc. to Titan Uranium Inc.
The Company completed its Qualifying Transaction by purchasing an option to acquire a 100% interest in eight mining leases located in Nunavut Territory known as the Thelon Uranium Project. Subsequent to this Qualifying Transaction the Company acquired mineral claims in the Athabasca region of Saskatchewan.
The Company is in process of exploring its resource properties and has not yet determined whether these properties contain reserves that are economically recoverable. The recoverability of amounts shown for resource properties and related deferred exploration costs is dependent upon the discovery of economically recoverable reserves, the ability of the Company to obtain necessary financing and permitting to complete the development, and future profitable productions or proceeds from the disposition thereof.
These financial statements have been prepared in accordance with Canadian generally accepted accounting principles 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 for the foreseeable future. The Company has not generated any operating revenues to date and has experienced recurring operating losses and accumulated a deficit of $4,270,452 as at August 31, 2006. If the Company is unable to continue to raise additional financings through debt or equity this could impact the Companys ability to continue as a going concern. The operations of the Company have been funded by the issuance of share capital. The Companys continued operations, as intended, are dependent upon its ability to raise additional funding to meet its obligations and to attain profitable operations. Managements plan in this regard is to raise equity financing as required. There are no assurances that the Company will be successful in achieving these goals. These financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.
98
Titan Uranium Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
August 31, 2006 and 2005
2. SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the Company have been prepared based on the following significant accounting policies:
Use of estimates
The preparation of financial statements in accordance with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of commitments and contingencies at the date of the financial statements and the amount of revenues and expenses reported during the period. Actual results could differ materially from those estimates. A significant area requiring the use of management estimates involved the determination of stock based compensation.
Cash and cash equivalents
Cash and cash equivalents consist of highly liquid investments which are readily convertible into cash with maturity dates of three months or less when purchased. As at August 31, 2006 cash equivalents totalled $5,588,333 [2005 - $1,809,236].
Restricted cash
Cash subject to restrictions is classified as restricted cash on the balance sheet. The Company currently holds $60,000 in a guaranteed interest certificate which is restricted for use as security against its credit card debt and has been presented as restricted cash.
Leases
Rental payments under operating leases are expensed as incurred.
Stock-based compensation
The Company follows the fair value method of accounting for stock options awards granted to employees and directors, as recommended by the Canadian Institute of Chartered Accountants Handbook section on stock-based compensation and other stock-based payments.
The fair value of stock options is determined by the Black-Scholes Option Pricing Model with assumptions for risk-free interest rates, dividend yields, volatility factors of the expected market price of the Companys common shares and an expected life of the options. The fair value of direct awards of stock is determined by the quoted market price of the Companys stock.
99
Titan Uranium Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
August 31, 2006 and 2005
2. SIGNIFICANT ACCOUNTING POLICIES (contd.)
Stock-based compensation (contd.)
The prospective application of the fair value method did not have a cumulative impact on the Companys financial statements as the Company had not granted stock option awards prior to fiscal 2005.
Resource properties
The Company is in the exploration stage and accounts for its resource interests whereby all costs related to acquisition, exploration and development are capitalized. These costs will be amortized against revenue from future production or written off if the interest is abandoned or sold.
The carrying values of resource properties will be reviewed at least annually by management on a property-by-property basis to determine if they have become impaired. If impairment is deemed to exist, the resource property will be written down to its net recoverable value. The ultimate recoverability of the amounts capitalized for the resource properties is dependent upon the delineation of economically recoverable reserves, the Companys ability to obtain the necessary financing to complete their development and realize profitable production or proceeds from the disposition thereof. Managements estimates of recoverability of the Companys investment in various projects have been based on current conditions. However, it is possible that changes could occur in the near term which could adversely affect managements estimates and may result in future writedowns of capitalised property carrying values.
Asset retirement obligations
The Company recognizes the fair value of liabilities for asset retirement obligations in the period in which they incur and/or in which a reasonable estimate of such costs can be made. The asset retirement obligation is recorded as a liability with a corresponding increase to the carrying amount of the related long-lived asset. Subsequently, the asset retirement cost is allocated to expenses using a systematic and rational method and is also adjusted to reflect period-to-period changes in the liability resulting from passage of time and revisions to either timing or the amount of the original estimate of the undiscounted cash flow. As at August 31, 2006 the Company does not have an asset retirement obligations.
100
Titan Uranium Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
August 31, 2006 and 2005
2. SIGNIFICANT ACCOUNTING POLICIES (contd.)
Earnings (loss) per share
Basic earnings (loss) per share are computed using the weighted average number of common shares outstanding during the year. Diluted earnings (loss) per share amounts are calculated giving effect to the potential dilution that would occur if securities or other contracts to issue common shares were exercised or converted to common shares using the treasury stock method. The treasury stock method assumes that proceeds received from the exercise of stock options and warrants are used to repurchase common shares at the prevailing market rate.
As the Company incurred net losses in fiscal 2006 and 2005, the stock options and share purchase warrants, as disclosed in note 9, were not included in the computation of loss per share as their inclusion would be anti-dilutive.
Property and equipment
Property and equipment are carried at cost less accumulated amortization. The Company provides for amortization on the following basis:
Computer equipment
- 3 years straight line
Exploration equipment
- 3 years straight line
Leasehold improvements
- straight line over the term of the lease
Office furniture
- 5 years straight line
Income taxes
The Company follows the liability method of accounting for income taxes pursuant to Section 3465, Income Taxes, of The Handbook of the Canadian Institute of Chartered Accountants. Under this method, future income tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, measured using substantially enacted tax rates and laws that will be in effect when the differences are expected to reverse. The effect on future income tax assets and liabilities of a change in income tax rates is included in the period that includes the enactment date. In addition, Section 3465 requires recognition of future tax benefits to the extent that realization of such benefits is more likely than not.
101
Titan Uranium Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
August 31, 2006 and 2005
3. PROPERTY AND EQUIPMENT
|
Cost
$
|
Accumulated
Amortization
$
|
Net Book
Value
$
|
|
|
|
|
2006
|
|
|
|
Computer equipment
|
22,176
|
6,730
|
15,446
|
Exploration equipment
|
83,127
|
19,054
|
64,073
|
Leasehold improvements
|
22,274
|
10,748
|
11,526
|
Office furniture
|
16,252
|
5,266
|
10,986
|
|
143,829
|
41,798
|
102,031
|
|
|
|
|
2005
|
|
|
|
Computer equipment
|
23,506
|
4,316
|
19,190
|
Leasehold improvements
|
13,231
|
4,481
|
8,750
|
Office furniture
|
11,611
|
2,481
|
9,130
|
|
48,348
|
11,278
|
37,070
|
4. RESOURCE PROPERTIES
|
Acquisition
Costs
$
|
Deferred
Exploration
Costs
$
|
Total
$
|
|
|
|
|
2006
|
|
|
|
Thelon, Nunavut
|
10,000
|
1,535,105
|
1,545,105
|
Athabasca, Saskatchewan
|
894,000
|
2,988,632
|
3,882,632
|
|
904,000
|
4,523,737
|
5,427,737
|
|
|
|
|
2005
|
|
|
|
Thelon, Nunavut
|
10,000
|
297,435
|
307,435
|
Athabasca, Saskatchewan
|
894,000
|
18,613
|
912,613
|
|
904,000
|
316,048
|
1,220,048
|
102
Titan Uranium Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
August 31, 2006 and 2005
4. RESOURCE PROPERTIES (contd.)
[a]
Thelon, Nunavut Properties
On May 31, 2005, the Company purchased an option to acquire a 100% interest in eight mining leases located in Nunavut Territory and known as the Thelon Uranium Project (the Project).
Consideration to acquire the 100% interest in the Project consists of the Company:
[i]
issuing 100,000 common shares of the Company at a price of $0.10 per share (issued) being the fair value of the shares at the time of the agreement date;
[ii]
expending $1,000,000 on recommended exploration work on the Project to include at least 2,500 meters of diamond drilling on or before June 1, 2007;
[iii]
paying advanced royalties totalling $50,000 over a three year period ($30,000 paid, and a further $20,000 on or before June 1, 2007); and
[iv]
paying annual lease payments totalling on or after May 15 of each year ($20,000 paid).
Conditional upon acquiring a 100% interest in the Project, the Company will grant the optionor a 2% Net Smelter Royalty (NSR). This NSR may be reduced to 1% on the payment of $1,000,000 and be reduced to 0.5% on the payment of an additional $1,000,000. The Company will pay advance royalties of $20,000 per year while it owns this Project.
[b]
Athabasca, Saskatchewan Properties
On July 5, 2005 the Company entered into an agreement to acquire a 100% interest in thirty mineral dispositions (Claims) located in the Athabasca Basin, Saskatchewan.
Consideration to acquire the 100% interest in the Claims consist of the Company:
[i]
paying $350,000 and issuing to the vendor 800,000 common share in the capital of the Company for value of $544,000, being the fair value of the shares at the time of the closing of the agreement (paid and issued);
[ii]
issuing to the Vendor 400,000 transferable common share purchase warrants, entitling the holder to acquire up to 400,000 common shares in the capital of the Company at an exercise price of $0.75 per common share for a period of 24 months (issued);
[iii]
granting to the Vendor a 2% Net Smelter Return (NSR), with the option in favour of the Company to buy back 1% of the NSR by paying to the Vendor $1,000,000 at any time prior to commercial production from the Claims;
103
Titan Uranium Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
August 31, 2006 and 2005
4. RESOURCE PROPERTIES (contd.)
[b]
Athabasca, Saskatchewan Properties (contd.)
[iv]
granting to the Vendor a 10% carried interest in the Claims with such carried interest remaining in effect until the commencement of commercial production by the Company on one or more Claims with all costs payable attributable to the Vendor to be paid by the Company and repaid by the Vendor from its working interest and/or initial NSR.
|
Deferred Exploration Costs
|
|
Thelon, NT
$
|
Athabasca, SK
$
|
Total
$
|
|
|
|
|
2006
|
|
|
|
Exploration costs:
|
|
|
|
Additions
|
|
|
|
Camp
|
463,846
|
661,162
|
1,125,008
|
Consulting
|
183,662
|
154,745
|
338,407
|
Drilling
|
101,279
|
1,064,720
|
1,165,999
|
Mobilization/demobilization
|
457,343
|
139,716
|
597,059
|
Supplies and maintenance
|
31,540
|
-
|
31,540
|
Surveys
|
-
|
949,676
|
949,676
|
|
1,237,670
|
2,970,019
|
4,207,689
|
Balance, beginning of year
|
297,435
|
18,613
|
316,048
|
Balance
|
1,535,105
|
2,988,632
|
4,523,737
|
|
|
|
|
2005
|
|
|
|
Additions
|
|
|
|
Accommodation and food
|
6,053
|
-
|
6,053
|
Consulting
|
109,232
|
16,485
|
125,717
|
Mobilization/demobilization
|
79,408
|
2,026
|
81,434
|
Shipping/transportation
|
68,692
|
-
|
68,692
|
Supplies and maintenance
|
34,050
|
102
|
34,152
|
Additions for the year, being balance,
end of year
|
297,435
|
18,613
|
316,048
|
104
Titan Uranium Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
August 31, 2006 and 2005
5. RELATED PARTIES
The Company has entered into the following transactions with parties not at arms length to the Company:
The Company paid or accrued consulting fees totalling $300,400 [2005 - $155,640] to directors and officers of the Company for the fiscal year 2006.
As at August 31, 2006 there was $nil due to directors for expenses [2005 - $9,586]. The amount is non-interest bearing, unsecured and due on demand.
The above transactions have been recorded at the exchange amounts which is the amount agreed to by the transacting parties. The exchange amount is equivalent to the fair value of the service provided.
6. COMMITMENTS
[i]
On May 1, 2005 the Company entered into a 3 year lease agreement for premises in North Vancouver. Minimum basic rent and occupancy is $2,478 per month. On August 1, 2006 the Company entered into a 3 year lease agreement for premises in Saskatoon. Minimum basic rent and occupancy is $2,514 per month. The minimum commitment over the next 3 years is as follows:
|
$
|
|
|
2007
|
60,612
|
2008
|
49,992
|
2009
|
27,654
|
|
138,258
|
[ii]
The Company has provided a $35,000 deposit at a financial institution that is serving as collateral for letters of credit that have been pledged in favour of the Kivalliq Inuit Association. The deposit is bearing interest at market rates. The deposit will be returned to the Company when the Company has satisfied its legal obligations with respect to site reclamation at the Companys Thelon mineral property located in Nunavut [see note 4].
105
Titan Uranium Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
August 31, 2006 and 2005
7. SHARE CAPITAL
[a]
Authorized
: Unlimited number of common shares without par value
[b]
Issued and fully paid- common shares
:
|
Shares
#
|
Amount
$
|
Contributed
Surplus
$
|
|
|
|
|
Balance, August 31, 2004
|
1,644,375
|
676,767
|
-
|
Share consolidation 2 : 1
|
(822,187)
|
-
|
-
|
|
822,188
|
676,767
|
-
|
Private placement
|
6,000,000
|
3,000,000
|
-
|
Conversion of promissory notes
|
4,642,857
|
750,000
|
-
|
Shares issued for corporate finance fee
|
100,000
|
50,000
|
-
|
Shares issued for advisory fee
|
50,000
|
25,000
|
-
|
Shares issued for finders fee
|
37,909
|
13,268
|
-
|
Shares issued for property acquisitions
|
900,000
|
554,000
|
-
|
Exercise of warrants
|
177,678
|
72,141
|
-
|
Share issue costs
|
-
|
(570,011)
|
-
|
Agents warrants for prospectus
|
-
|
-
|
141,540
|
Stock-based compensation
[note 9]
|
-
|
-
|
157,105
|
Balance, August 31, 2005
|
12,730,632
|
4,571,165
|
298,645
|
Private placement
|
4,825,000
|
5,900,000
|
-
|
Private placement
|
2,631,594
|
5,000,029
|
-
|
Shares issued for corporate finance and
advisory fees
|
313,610
|
360,716
|
-
|
Exercise of warrants
|
5,965,119
|
3,247,481
|
-
|
Contributed surplus transfer on exercise
of warrants
|
-
|
519,078
|
(519,078)
|
Exercise of options
|
731,750
|
447,700
|
-
|
Contributed surplus transfer on exercise
of options
|
-
|
354,080
|
(354,080)
|
Share issue costs
|
-
|
(1,802,473)
|
-
|
Warrants granted
|
-
|
(1,720,692)
|
2,310,366
|
Stock based compensation
[note 9]
|
-
|
-
|
1,168,766
|
Balance, August 31, 2006
|
27,197,705
|
16,877,084
|
2,904,619
|
106
Titan Uranium Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
August 31, 2006 and 2005
7. SHARE CAPITAL (contd.)
Private Placements
On August 15, 2006 the Company completed its private placement of $5,000,029 by the issuance of 2,631,594 flow-through units. Each unit, priced at $1.90 per unit, consisted of one flow-through common share and one-half of one non-flow through common share purchase warrant. Each whole warrant entitles the holder to purchase an additional common share for a period of up to 24 months at a price of $2.50 per common share. The agents received a cash commission of 8% of the gross proceeds raised and 263,159 warrants entitling the holder to purchase one common share of the Company at a price of $2.00 per common share until August 15, 2008.
The estimated fair value of the agent warrants is recorded as $216,948. The estimated fair value of the common share purchase warrant is recorded as $776,320.
On January 25, 2006 the Company completed the non-brokered portion of an aggregate $2,600,000 private placement. The non-brokered portion consisted of 375,000 units at a price of $1.60 per unit for gross proceeds received of $600,000. Each unit consists of one common share and one-half one share purchase warrant, with each whole warrant entitling the holder to purchase one additional common share at a price of $2.00 until January 25, 2007. A finders fee of 8% of the gross proceeds was paid. In addition 52,500 warrants entitling the holder to purchase one common share of the Company at a price of $1.75 per common share until January 25, 2007 were issued.
On January 31, 2006 the Company completed the brokered portion of the private placement consisting of 1,250,000 units of a price of $1.60 per unit for gross proceeds of $2,000,000. The brokered private placement contained the same terms as the non-brokered private placement. The agents received a cash commission of 8% of the gross proceeds raised and 125,000 agent warrants entitling the agents to purchase one common share of the Company at a price of $1.75 per common share until January 31, 2007.
The estimated fair value of the agent warrants is recorded as $148,728. The estimated fair value of the common share purchase warrant is recorded as $359,372.
On December 21, 2005 the Company issued 200,000 flow-through common shares at a price of $1.50 per share for gross proceeds of $300,000 through a non-brokered private placement. A finders fee equal to 5% of the gross proceeds was paid.
On October 21, 2005 the Company issued 3,000,000 units at a price of $1.00 per unit for gross proceeds of $3,000,000 through a brokered private placement. Each unit consists of one common share and one-half share purchase warrant. The holder of each whole warrant is entitled to acquire an additional common share at a price of $1.35 per share until October 21, 2007.
The estimated fair value of these warrants is recorded as $585,000.
107
Titan Uranium Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
August 31, 2006 and 2005
7. SHARE CAPITAL (contd.)
Pursuant to the private placement, the Company issued 215,100 units and $24,900 to settle $240,000 agent fees. Each unit consists of one common share and one-half non-transferable share purchase warrant. The holder of each whole warrant is entitled to acquire an additional common share at a price of $1.35 per share until September 21, 2007. The Company also issued 30,000 units to settle a corporate finance fee. Each unit consists of one common share and one-half non-transferable share purchase warrant. The holder of each whole warrant is entitled to acquire an additional common share at a price of $1.10 per share until September 21, 2007. Additionally, 300,000 non-transferable broker warrants were issued. Each warrant entitles the holder to acquire a common share at a price of $1.10 per share until September 21, 2007.
The estimated fair value of these warrants is recorded as $223,997.
Prospectus Financing
On May 31, 2005, the Company issued 6,000,000 units at $0.50 per unit for gross proceeds of $3,000,000 pursuant to a prospectus offering. Each unit consists of one common share and one-half share purchase warrant. The holder of each whole warrant is entitled to acquire an additional common share at a price of $0.65 per share until November 30, 2006. The Company applied the residual approach and allocated total net proceeds to the common shares and $nil to the attached warrants.
Pursuant to the prospectus financing agreement, the Company issued 100,000 units to the agent to settle corporate finance fee of $50,000. These units have the same terms as the offered units including the fact that the 50,000 warrants are listed for trading. The Company also issued 600,000 non-transferable warrants to the agent which can be exercised at $0.50 per warrant until November 30, 2006 The estimated fair value of these warrants is recorded as $141,540. This amount has been recorded as share issue costs with a corresponding amount in contributed surplus on the balance sheet.
The Company issued 50,000 units to settle an advisory fee in the amount of $25,000 related to the prospectus financing. These units have the same terms as the offered units including the fact that the 25,000 warrants are listed for trading.
Conversion of Promissory Notes
On May 31, 2005, the Company issued 2,500,000 units and 1,000,000 common shares at a price of $0.10 per unit/share respectively for the conversion of $350,000 in non-interest bearing convertible promissory notes. Each unit consists of one common share and one non-transferable share purchase warrant with each warrant entitling the holder to purchase an additional common share of the Company at a price of $0.20 until May 31, 2006.
108
Titan Uranium Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
August 31, 2006 and 2005
7. SHARE CAPITAL (contd.)
Also on May 31, 2005, the Company issued 1,142,857 units at a price of $0.35 per unit for the conversion of the $400,000 non-interest bearing convertible promissory notes. Each unit consists of one common share and one-half non-transferable share purchase warrant. The holder of each whole warrant is entitled to acquire an additional common share at a price of $0.65 per share until November 30, 2006. The Company issued an additional 37,909 units to settle finders fees of $13,268.
Exercised Warrants
During the fiscal year 2006, 5,965,119 warrants were exercised for gross proceeds of $3,247,481 of which $15,893 was received subsequent to the year end.
Shares Held in Escrow
In connection with the Nunavut, Thelon property acquisition 130,000 common shares and common share warrants were placed in escrow. As of August 31, 2006 58,500 escrow shares have been released. Terms of the release from escrow are as follows:
10% on the Venture Exchange approval bulletin date (May 31, 2005)
15% 6 months from the bulletin date
15% 12 months from the bulletin date
15% 18 months from the bulletin date
15% 24 months from the bulletin date
15% 30 months from the bulletin date
15% 36 months from the bulletin date
8. SHARE SUBSCRIPTION RECEIVABLE
Prior to August 31, 2006, 7,143 warrants [2005 - 91,428] and 11,250 options were exercised at prices of $0.65 and $1.00 [2005 - $0.65 and $0.20], respectively for total proceeds of $15,893 [2005 - $50,428] which were received subsequent to quarter end.
109
Titan Uranium Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
August 31, 2006 and 2005
9. STOCK OPTIONS AND WARRANTS
Stock options
The Companys Board of Directors approved the adoption of a stock incentive plan in accordance with the policies of the TSX Venture Exchange. The Board of Directors is authorized to grant options to directors, officers, consultants or employees. The exercise price of options granted under the Stock Option Plan shall be as determined by the Board of Directors when such options are granted, subject to any limitations imposed by any relevant stock exchange or regulatory authority. The maximum number of options that may be granted must not exceed 20% of the common shares outstanding at the time of the grant.
On August 15, 2006 the Company granted 44,210 options with an exercise price of $2.00 and an expiry or August 15, 2011 to a consultant of the Company.
On August 23, 2006 the Company granted 100,000 options with an exercise price of $1.80 and an expiry or August 23, 2011 to a director of the Company.
On February 3, 2006 the Company granted a total of 400,000 stock options with an exercise price of $2.02 and an expiry of February 3, 2011. The options were granted to consultants of the Company. During the fiscal year 2006, 150,000 of these options were cancelled.
On November 15, 2005 the Company granted a total of 1,415,000 stock options with an exercise price of $1.00 and an expiry of November 15, 2010. Directors and officers of the Company were granted a total of 1,055,000 options and 360,000 were granted to consultants.
110
Titan Uranium Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
August 31, 2006 and 2005
9. STOCK OPTIONS AND WARRANTS (contd.)
During the fiscal year 2005, the Company granted a total of 1,762,000 stock options under the Plan of which, 1,557,000 were granted to directors of the Company and 225,000 were granted to consultants. Prior to the share consolidation 160,000 options were granted to two directors. These options had an exercise price of $0.05 per share, being vested immediately and expiring September 20, 2009. As a result of the 2:1 share consolidation, the number of exercisable options decreased by 80,000 and the exercise price increased to $0.10 per option. On May 31, 2005 1,577,000 stock options were granted to directors and officers of the Company with an exercise price of $0.50 per share and an expiry of May 31, 2010. On June 6, 2005 105,000 stock options were granted to a Investor Relations firm with an exercise price of $0.53 per share with an expiry of June 6, 2010. Consistent with the Companys stock option plans these options vest as follows:
10% on grant date
15% 3 months from grant date
15% 6 months from grant date
15% 9 months from grant date
15% 12 months from grant date
15% 15 months from grant date
15% 18 months from grant date
The estimated fair value for the options granted during the fiscal year 2006 was $2,021,632. Prorating the total amount based on the vesting schedule $781,853 has been expensed as stock-based compensation in the statement of operations with a corresponding amount recorded as contributed surplus in shareholders deficiency. In addition and based on the vesting schedule a further $386,913 from options granted in fiscal year ended August 31, 2005 has been expensed.
The weighted average fair value of the options, being $0.72 per share, recognized in the statements of operations, has been estimated at the grant dates using the Black-Scholes option pricing model. Option pricing models require the input of highly subjective assumptions including the expected volatility. Changes in the assumptions can materially affect the fair value estimate, and, therefore, the existing models do not necessarily provide a reliable measure of the fair value of the Companys stock options. Weighted average assumptions used in the pricing model for the year are as follows:
Risk-free interest rate
3.7%
Expected life of options
4.0 years
Annualized volatility
108%
Dividend rate
Nil
111
Titan Uranium Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
August 31, 2006 and 2005
9. STOCK OPTIONS AND WARRANTS (contd.)
Stock option transactions and the number of stock options outstanding are summarised as follows for the fiscal year 2006 and 2005:
|
Number
of
Options
|
Weighted
Average
Exercise Price
|
|
|
|
As at August 31, 2004
|
-
|
-
|
Granted
|
1,762,000
|
$0.48
|
As at August 31, 2005
|
1,762,000
|
$0.48
|
Exercised
|
(731,750)
|
$(0.61)
|
Cancelled
|
(150,000)
|
$2.02
|
Granted
|
1,959,210
|
$1.26
|
As at August 31, 2006
|
2,839,460
|
$0.92
|
Number of
Shares
Outstanding
|
Number of
Shares
Exercisable
|
Weighted
Average
Exercise Price
Outstanding
Options
|
Weighted
Average
Exercise Price
Exercisable
Options
|
Expiry Date
|
Weighted
Average
Life in Years
|
|
|
|
|
|
|
40,000
|
40,000
|
|
|
September 20, 2009
|
3.0
|
1,142,000
|
905,450
|
|
|
May 31, 2010
|
3.7
|
40,000
|
8,500
|
|
|
June 6, 2010
|
3.8
|
1,223,250
|
586,500
|
|
|
November 15, 2010
|
4.2
|
250,000
|
100,000
|
|
|
February 3, 2011
|
4.4
|
44,210
|
4,421
|
|
|
August 15, 2011
|
5.0
|
100,000
|
10,000
|
|
|
August 23, 2011
|
5.0
|
2,839,460
|
1,654,871
|
$0.77
|
$.92
|
|
4.0
|
112
Titan Uranium Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
August 31, 2006 and 2005
9. STOCK OPTIONS AND WARRANTS (contd.)
Warrants
The fair value of the warrants granted during the period was estimated using the Black-Scholes Pricing Model with the following weighted average assumptions:
Risk-free interest rate
3.7%
Expected life of options
1.7 years
Annualized volatility
111%
Dividend rate
Nil
At August 31, 2006, the Company had the following non-publicly traded share purchase warrants outstanding:
Number
of Shares
Exercise Price
Expiry Date
15,200
$0.50
November 30, 2006
71,500
$0.65
November 30, 2006*
49,296
$1.10
October 21, 2007
107,550
$1.35
October 21, 2007
177,500
$1.75
January 25, 2007
263,159
$2.00
August 15, 2008
754,255
$2.00
January 25, 2007
1,315,797
$2.50
August 15, 2008
2,754,257
* 49,750 warrants expired
At August 31, 2006, the Company had the following publicly traded share purchase warrants outstanding:
Number
of Shares
Exercise Price
Expiry Date
1,686,350
$0.65
November 30, 2006
1,077,740
$1.35
October 21, 2007
2,764,090
113
Titan Uranium Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
August 31, 2006 and 2005
10. NON-CASH TRANSACTIONS
The Company had the following non-cash transactions during the year ended August 31, 2006:
|
$
|
|
|
[a]
215,100 units issued to settle corporate finance fees pursuant to the September private placement
[see note 7]
|
215,100
|
[b]
30,000 units issued for agency fees pursuant to the September private placement
[see note 7]
|
30,000
|
[c]
300,000 non-transferable agent warrants issued pursuant to the September private placement
[see note 7]
|
223,997
|
[d]
48,510 units issued to settle corporate finance fees pursuant to the January private placement
[see note 7]
|
77,616
|
[e]
177,500 non-transferable agent warrants issued pursuant to the January private placement
[see note 7]
|
148,728
|
[f]
20,000 units issued to settle corporate finance fees pursuant to the August private placement
[see note 7]
|
38,000
|
[g]
263,159 non-transferable agent warrants issued pursuant to the August private placement
[see note 7]
|
216,948
|
[h]
Fair valuation of attached warrants pursuant to August placement
[see note 7]
|
776,320
|
[i]
Fair valuation of attached warrants pursuant to January placement
[see note 7]
|
359,372
|
[j]
Fair valuation of attached warrants pursuant to October placement
[see note 7]
|
585,000
|
11. FINANCIAL INSTRUMENTS AND RISK
Fair value estimates of financial instruments are made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgement, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair values.
The Companys financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, and amounts due to related parties. The fair values of these financial instruments approximate their carrying values, unless otherwise noted. It is not practical to determine the fair values of amounts due to related parties due to their related party nature and the absence of a secondary market for such instruments.
114
Titan Uranium Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
August 31, 2006 and 2005
11. FINANCIAL INSTRUMENTS AND RISK (contd.)
It is managements opinion that the Company is not exposed to significant interest rate, currency or credit risks arising from these financial instruments.
12. INCOME TAXES
A reconciliation of the statutory rate to the effective tax rate for the Company is as follows:
|
2006
$
|
2005
$
|
|
|
|
Loss for the year before income taxes
|
2,600,000
|
690,000
|
|
|
|
Income tax rate
|
36.13%
|
35.37%
|
Anticipated income tax recovery
|
939,000
|
244,000
|
Permanent differences
|
(493,000)
|
(91,000)
|
Effect of rate change
|
(181,000)
|
(27,000)
|
Change in valuation allowance
|
(265,000)
|
(126,000)
|
Income tax recovery
|
-
|
-
|
Details of future income tax assets are as follows:
|
2006
$
|
2005
$
|
|
|
|
Future income tax assets
|
|
|
Loss carry forwards
|
835,000
|
498,000
|
Fixed assets
|
14,000
|
4,000
|
Other
|
413,000
|
162,000
|
|
1,262,000
|
664,000
|
Future income tax liability
|
(22,000)
|
-
|
|
1,240,000
|
664,000
|
Valuation allowance
|
(1,240,000)
|
(664,000)
|
Future income tax assets
|
-
|
-
|
115
Titan Uranium Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
August 31, 2006 and 2005
12. INCOME TAXES (contd.)
Future tax benefits, which may arise as a result of these losses and resource expenditures have been offset by a valuation allowance and have not been recognised in these financial statements.
As at August 31, 2006, the Company has capital losses of $75,000 [2005 - $75,000], undepreciated capital costs of $146,000 [2005 - $48,000], and unused cumulative Canadian exploration and development expenditures of $5,357,000 [2005 - $1,220,000], to carry forward for income tax purposes and are available to reduce taxable income in future years. These amounts can be carried forward indefinitely.
As at August 31, 2006, the Company has non-capital losses of approximately $2,656,000 [2005 - $1,422,000] to carry forward for income tax purposes and are available to reduce taxable income in future years. If unutilised, the non-capital losses will expire as follows:
Non-capital
losses
$
2007
270,000
2008
183,000
2009
201,000
2010
88,000
2014
68,000
2015
516,000
2016
1,330,000
2,656,000
As at August 31, 2006, the Company has investment tax credits from pre-production mining expenditures of approximately $443,200 [2005 - $29,600] to carry forward for income tax purposes and are available to reduce taxable income in future years. If unutilised, the investment tax credits will expire as follows:
ITCs
$
2015
29,600
2016
413,600
443,200
13. COMPARATIVE FIGURES
Certain comparative amounts have been reclassified to conform with the financial statement presentation adopted for the current year.
116
Titan Uranium Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
August 31, 2006 and 2005
14. SUBSEQUENT EVENTS
Subsequent to August 31, 2006, the following events occurred:
[a]
On October 26, 206 a letter of intent between the Company and Dejour Enterprises Ltd. (Dejour). Under the terms of a binding letter of intent, Dejour and Titan have agreed, subject to due diligence, that Titan will acquire a 100% interest in Dejours claims. Consideration payable to acquire the claims follows:
1.
Titan to pay Dejour 17,500,000 fully paid and assessable common shares in the capital of Titan;
2.
Titan to pay Dejour 3,000,000 transferable common share purchase warrants, entitling the holder to acquire up to 3,000,000 common shares in the capital of the Company at an exercise price of C$2.00 per common share for a period of 24 months, subject to a forced exercise provision whereby Titan can call the automatic exercise of the warrants should Titans common shares trade on the Exchange at a price of $4.00 or more for 20 consecutive trading days;
3.
Dejour to retain a 1% Net Smelter Return on all contributed properties;
4.
Dejour to retain a 10% working interest in each Claim, carried by Titan to completed bankable feasibility study after which Dejour may elect to participate as to its 10% interest or convert to an additional 1% Net Smelter Return;
5.
Titan to provide Dejour with a first right of refusal on all future financing, as long as Dejours ownership in the stock of Titan is greater than 10% of the outstanding shares;
6.
Dejour to provide two full-time and one part-time geologists on terms to be agreed; and
7.
Titan to appoint two Dejour representatives to the Titan board of directors.
The acquisition is conditional upon the completion of additional due diligence and the receipt of both shareholder and regulatory approval to be acquired on or before the end of January 2007.
[b]
Up to November 29, 2006 a further 1,199,642 warrants have been exercised for proceeds of $1,160,695.
[c]
Up to November 29, 2006 a further 885,250 options have been exercised for proceeds of $610,270.
117
Titan Uranium Inc.
(a development stage company)
Interim Financial Statements
(Unadutied Prepared by Management)
For the Three Months Ended November 30, 2006
118
UNAUDITED INTERIM FINANCIAL STATEMENTS
In accordance with National Instrument 51-102 released by the Canadian Securities Administrators, the Company discloses that its auditors have not reviewed the unaudited financial statements for the period ended November 30, 2006.
119
Titan Uranium Inc.
(a development stage company)
BALANCE SHEETS
[Unaudited Prepared by Management]
[See Note 1 - Nature of Business and Basis of Presentation]
November 30
August 31
2006
2006
(Unaudited)
(Audited)
$
$
ASSETS
Current
Cash and cash equivalents
9,930,063
10,181,515
Restricted cash
61,320
60,000
Accounts receivable
334,612
230,818
Prepaid expenses
44,428
190,127
Total current assets
10,370,423
10,662,460
Property and equipment
[note 3]
141,689
102,031
Resource properties
[note 4]
6,498,952
5,427,737
Reclamation deposit
[note 6]
35,000
35,000
Total assets
17,046,064
16,227,228
LIABILITIES AND SHAREHOLDERS EQUITY
Current
Accounts payable and accrued liabilities
172,100
731,870
Total liabilities
172,100
731,870
Commitments
[note 6]
Shareholders equity
Share capital
[notes 7]
19,983,896
16,877,084
Share subscription receivable
[note 8]
(568,558)
(15,893)
Contributed surplus
[note 7]
2,594,236
2,904,619
Deficit
(5,135,610)
(4,270,452)
Total shareholders equity
16,873,964
15,495,358
Total liabilities and shareholders equity
17,046,064
16,227,228
See accompanying notes
On behalf of the Board:
Arni Johannson
Philip E. Olson
Director
Director
120
Titan Uranium Inc.
(a development stage company)
STATEMENTS OF OPERATIONS AND DEFICIT
For the Periods Ended November 30, 2006 and 2005
|
Three Months
Ended
November 30
2006
|
Three Months
Ended
November 30
2005
|
|
$
|
$
|
|
|
|
EXPENSES
|
|
|
Accounting and audit
|
4,150
|
5,275
|
Amortization
|
13,829
|
3,859
|
Consulting fees
[note 5]
|
84,480
|
78,852
|
Investor relations and marketing
|
137,140
|
148,089
|
Legal
|
67,050
|
19,482
|
Listing, filing and transfer agent fees
|
24,494
|
9,890
|
Office and miscellaneous
|
71,908
|
12,628
|
Rent and administration
|
27,437
|
8,158
|
Salary
|
83,971
|
-
|
Stock-based compensation
[note 9]
|
399,287
|
209,336
|
Travel and entertainment
|
41,935
|
68,867
|
Interest income
|
(90,523)
|
(1,169)
|
Loss for the period
|
(865,158)
|
(563,267)
|
|
|
|
Deficit, beginning of period
|
(4,270,452)
|
(1,670,538)
|
Deficit, end of period
|
(5,135,610)
|
(2,233,805)
|
|
|
|
Loss per share basic and diluted
|
(0.03)
|
(0.04)
|
|
|
|
Weighted average number of common shares
outstanding basic and diluted
|
28,065,970
|
14,754,536
|
See accompanying notes
121
Titan Uranium Inc.
(a development stage company)
STATEMENTS OF CASH FLOWS
For the periods ended November 30, 2006 and 2005
|
Three Months
Ended
November 30
2006
|
Three Months
Ended
November 30
2005
|
|
$
|
$
|
|
|
|
OPERATING ACTIVITIES
|
|
|
Loss for the year
|
(865,158)
|
(563,267)
|
Adjustment for item not involving cash:
|
|
|
Amortization
|
13,829
|
3,859
|
Stock-based compensation
|
399,287
|
209,336
|
|
(452,042)
|
(350,072)
|
Change in non-cash working capital items:
|
|
|
Increase in restricted cash
|
(1,320)
|
-
|
Increase in accounts receivable
|
(103,794)
|
(8,684)
|
Decrease in prepaid expenses
|
145,699
|
33,766
|
(Decrease) in accounts payable
and accrued liabilities
|
(559,670)
|
(110,592)
|
Reduction in advances to related parties
|
-
|
7,708
|
Cash used in operating activities
|
(971,227)
|
(427,874)
|
|
|
|
FINANCING ACTIVITIES
|
|
|
Issuance of common shares, net of issuance costs
|
1,844,478
|
3,324,738
|
Cash provided by financing activities
|
1,844,478
|
3,324,738
|
|
|
|
INVESTING ACTIVITIES
|
|
|
Investment in resource properties
|
(1,071,215)
|
(234,193)
|
Purchase of equipment
|
(53,488)
|
(9,363)
|
Cash used in investing activities
|
(1,124,703)
|
(243,556)
|
|
|
|
Increase (decrease) in cash position
|
(251,452)
|
2,653,308
|
Cash and cash equivalents, beginning of year
|
10,181515
|
1,984,273
|
Cash and cash equivalents, end of year
|
9,930,063
|
4,637,581
|
|
|
|
Supplemental cash flow information
|
|
|
Interest paid in cash
|
-
|
-
|
Income taxes paid in cash
|
-
|
-
|
See accompanying notes
122
Titan Uranium Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
November 30, 2006
(Unaudited)
1. BASIS OF PRESENTATION
These interim financial statements have been prepared in accordance with Canadian generally accepted accounting principles 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 for the foreseeable future. The Company has not generated any operating revenues to date and has experienced recurring operating losses and accumulated a deficit of $5,135,610 as at November 30, 2006. If the Company is unable to continue to raise additional financings through debt or equity this could impact the Companys ability to continue as a going concern. The operations of the Company have been funded by the issuance of share capital. The Companys continued operations, as intended, are dependent upon its ability to raise additional funding to meet its obligations and to attain profitable operations. Managements plan in this regard is to raise equity financing as required. There are no assurances that the Company will be successful in achieving these goals. These financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.
123
#
Titan Uranium Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
November 30, 2006
(Unaudited)
2. SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the Company have been prepared based on the following significant accounting policies:
Use of estimates
The preparation of financial statements in accordance with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of commitments and contingencies at the date of the financial statements and the amount of revenues and expenses reported during the period. Actual results could differ materially from those estimates. A significant area requiring the use of management estimates involved the determination of stock based compensation.
Cash and cash equivalents
Cash and cash equivalents consist of highly liquid investments which are readily convertible into cash with maturity dates of three months or less when purchased. As at November 30, 2006 cash equivalents totalled $9,930,063 [August 31, 2006 - $10,181,515].
Restricted cash
Cash subject to restrictions is classified as restricted cash on the balance sheet. The Company currently holds $61,320 [August 31, 2006 - $60,000] in a guaranteed interest certificate which is restricted for use as security against its credit card debt and has been presented as restricted cash.
Leases
Rental payments under operating leases are expensed as incurred.
Stock-based compensation
The Company follows the fair value method of accounting for stock options awards granted to employees and directors, as recommended by the Canadian Institute of Chartered Accountants Handbook section on stock-based compensation and other stock-based payments.
The fair value of stock options is determined by the Black-Scholes Option Pricing Model with assumptions for risk-free interest rates, dividend yields, volatility factors of the expected market price of the Companys common shares and an expected life of the options. The fair value of direct awards of stock is determined by the quoted market price of the Companys stock.
124
Titan Uranium Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
November 30, 2006
(Unaudited)
2. SIGNIFICANT ACCOUNTING POLICIES (contd.)
Stock-based compensation (contd.)
The prospective application of the fair value method did not have a cumulative impact on the Companys financial statements as the Company had not granted stock option awards prior to fiscal 2005.
Resource properties
The Company is in the exploration stage and accounts for its resource interests whereby all costs related to acquisition, exploration and development are capitalized. These costs will be amortized against revenue from future production or written off if the interest is abandoned or sold.
The carrying values of resource properties will be reviewed at least annually by management on a property-by-property basis to determine if they have become impaired. If impairment is deemed to exist, the resource property will be written down to its net recoverable value. The ultimate recoverability of the amounts capitalized for the resource properties is dependent upon the delineation of economically recoverable reserves, the Companys ability to obtain the necessary financing to complete their development and realize profitable production or proceeds from the disposition thereof. Managements estimates of recoverability of the Companys investment in various projects have been based on current conditions. However, it is possible that changes could occur in the near term which could adversely affect managements estimates and may result in future writedowns of capitalised property carrying values.
Asset retirement obligations
The Company recognizes the fair value of liabilities for asset retirement obligations in the period in which they incur and/or in which a reasonable estimate of such costs can be made. The asset retirement obligation is recorded as a liability with a corresponding increase to the carrying amount of the related long-lived asset. Subsequently, the asset retirement cost is allocated to expenses using a systematic and rational method and is also adjusted to reflect period-to-period changes in the liability resulting from passage of time and revisions to either timing or the amount of the original estimate of the undiscounted cash flow. As at November 30, 2006 the Company does not have any asset retirement obligations.
125
Titan Uranium Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
November 30, 2006
(Unaudited)
2. SIGNIFICANT ACCOUNTING POLICIES (contd.)
Earnings (loss) per share
Basic earnings (loss) per share are computed using the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share amounts are calculated giving effect to the potential dilution that would occur if securities or other contracts to issue common shares were exercised or converted to common shares using the treasury stock method. The treasury stock method assumes that proceeds received from the exercise of stock options and warrants are used to repurchase common shares at the prevailing market rate.
As the Company incurred net losses in the period ended November 30, 2006 and 2005, the stock options and share purchase warrants, as disclosed in note 9, were not included in the computation of loss per share as their inclusion would be anti-dilutive.
Property and equipment
Property and equipment are carried at cost less accumulated amortization. The Company provides for amortization on the following basis:
Computer equipment
- 3 years straight line
Exploration equipment
- 3 years straight line
Leasehold improvements
- straight line over the term of the lease
Office furniture
- 5 years straight line
Income taxes
The Company follows the liability method of accounting for income taxes pursuant to Section 3465, Income Taxes, of The Handbook of the Canadian Institute of Chartered Accountants. Under this method, future income tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, measured using substantially enacted tax rates and laws that will be in effect when the differences are expected to reverse. The effect on future income tax assets and liabilities of a change in income tax rates is included in the period that includes the enactment date. In addition, Section 3465 requires recognition of future tax benefits to the extent that realization of such benefits is more likely than not.
126
Titan Uranium Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
November 30, 2006
(Unaudited)
3. PROPERTY AND EQUIPMENT
|
Cost
$
|
November 30
2006
Accumulated
Amortization
$
|
Net Book
Value
$
|
August 31
Net Book
Value
$
|
|
|
|
|
|
2006
|
|
|
|
|
Computer equipment
|
22,176
|
8,578
|
13,598
|
15,446
|
Exploration equipment
|
136,615
|
28,210
|
108,405
|
64,073
|
Leasehold improvements
|
22,274
|
12,761
|
9,513
|
11,526
|
Office furniture
|
16,252
|
6,079
|
10,173
|
10,986
|
|
197,317
|
55,628
|
141,689
|
102,031
|
4. RESOURCE PROPERTIES
The continuity of expenditures on resource properties is as follows:
|
Balance,
August 31
2006
$
|
Deferred
Exploration Costs
during
the three month
period
$
|
Balance,
November 30,
2006
$
|
|
|
|
|
Thelon, Nunavut
|
1,545,105
|
516,454
|
2,061,559
|
Athabasca, Saskatchewan
|
3,882,632
|
554,761
|
4,437,393
|
|
5,427,737
|
1,071,215
|
6,498,952
|
127
#
Titan Uranium Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
November 30, 2006
(Unaudited)
4. RESOURCE PROPERTIES (contd.)
[a]
Thelon, Nunavut Properties
On May 31, 2005, the Company purchased an option to acquire a 100% interest in eight mining leases located in Nunavut Territory and known as the Thelon Uranium Project (the Project).
Consideration to acquire the 100% interest in the Project consists of the Company:
[i]
issuing 100,000 common shares of the Company at a price of $0.10 per share (issued) being the fair value of the shares at the time of the agreement date;
[ii]
expending $1,000,000 on recommended exploration work on the Project to include at least 2,500 meters of diamond drilling on or before June 1, 2007;
[iii]
paying advanced royalties totalling $50,000 over a three year period ($30,000 paid, and a further $20,000 on or before June 1, 2007); and
[iv]
paying annual lease payments totalling on or after May 15 of each year ($20,000 paid).
Conditional upon acquiring a 100% interest in the Project, the Company will grant the optionor a 2% Net Smelter Royalty (NSR). This NSR may be reduced to 1% on the payment of $1,000,000 and be reduced to 0.5% on the payment of an additional $1,000,000. The Company will pay advance royalties of $20,000 per year while it owns this Project.
[b]
Athabasca, Saskatchewan Properties
On July 5, 2005 the Company entered into an agreement to acquire a 100% interest in thirty mineral dispositions (Claims) located in the Athabasca Basin, Saskatchewan.
Consideration to acquire the 100% interest in the Claims consist of the Company:
[i]
paying $350,000 and issuing to the vendor 800,000 common share in the capital of the Company for value of $544,000, being the fair value of the shares at the time of the closing of the agreement (paid and issued);
[ii]
issuing to the Vendor 400,000 transferable common share purchase warrants, entitling the holder to acquire up to 400,000 common shares in the capital of the Company at an exercise price of $0.75 per common share for a period of 24 months (issued);
[iii]
granting to the Vendor a 2% Net Smelter Return (NSR), with the option in favour of the Company to buy back 1% of the NSR by paying to the Vendor $1,000,000 at any time prior to commercial production from the Claims;
128
#
Titan Uranium Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
November 30, 2006
(Unaudited)
4. RESOURCE PROPERTIES (contd.)
[b]
Athabasca, Saskatchewan Properties (contd.)
[iv]
granting to the Vendor a 10% carried interest in the Claims with such carried interest remaining in effect until the commencement of commercial production by the Company on one or more Claims with all costs payable attributable to the Vendor to be paid by the Company and repaid by the Vendor from its working interest and/or initial NSR.
5. RELATED PARTIES
The Company has entered into the following transactions with parties not at arms length to the Company:
The Company paid or accrued consulting fees totalling $84,480 [August 31, 2006 - $300,400] to directors and officers of the Company for the fiscal year 2006.
The above transactions have been recorded at the exchange amounts which is the amount agreed to by the transacting parties. The exchange amount is equivalent to the fair value of the service provided.
6. COMMITMENTS
[i]
On August 1, 2006 the Company entered into a 3 year lease agreement for premises in Saskatoon. Minimum basic rent and occupancy is $2,514 per month. The minimum commitment over the next 3 years is as follows:
$
2007
22,626
2008
30,168
2009
27,654
80,448
[ii]
The Company has provided a $35,000 deposit at a financial institution that is serving as collateral for letters of credit that have been pledged in favour of the Kivalliq Inuit Association. The deposit is bearing interest at market rates. The deposit will be returned to the Company when the Company has satisfied its legal obligations with respect to site reclamation at the Companys Thelon mineral property located in Nunavut [see note 4].
129
Titan Uranium Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
November 30, 2006
(Unaudited)
7. SHARE CAPITAL
[a]
Authorized
: Unlimited number of common shares without par value
[b]
Issued and fully paid- common shares
:
|
Shares
#
|
Amount
$
|
Contributed
Surplus
$
|
|
|
|
|
Balance, August 31, 2006
|
27,197,705
|
16,877,084
|
2,904,619
|
|
|
|
|
Exercise of options
|
885,250
|
610,270
|
-
|
Exercise of warrants
|
2,162,992
|
1,786,872
|
-
|
Contributed surplus transfer on exercise
of options
|
-
|
488,869
|
(488,869)
|
Contributed surplus transfer on exercise
of warrants
|
-
|
220,801
|
(220,801)
|
Stock based compensation
|
-
|
-
|
399,287
|
Balance, November 30, 2006
|
30,245,947
|
19,983,896
|
2,594,236
|
Shares Held in Escrow
In connection with the Nunavut, Thelon property acquisition 130,000 common shares and common share warrants were placed in escrow. As of November 30, 2006 71,500 escrow shares have been released. Terms of the release from escrow are as follows:
10% on the Venture Exchange approval bulletin date (May 31, 2005)
15% 6 months from the bulletin date
15% 12 months from the bulletin date
15% 18 months from the bulletin date
15% 24 months from the bulletin date
15% 30 months from the bulletin date
15% 36 months from the bulletin date
8. SHARE SUBSCRIPTION RECEIVABLE
Prior to November 30, 2006, 963,350 warrants were exercised at a price of $0.65 for total proceeds of $626,178 which was received subsequent to quarter end. In addition, $57,620 in subscriptions were received but shares not issued prior to quarter end for the exercise of 95,000 options. At November 30, 2006, net proceeds of $568,558 was receivable for warrant and option exercises which was received subsequent to quarter end.
130
#
Titan Uranium Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
November 30, 2006
(Unaudited)
9. STOCK OPTIONS AND WARRANTS
Stock option transactions and the number of stock options outstanding are summarised as follows for the fiscal year 2006 and 2005:
|
Number
of
Options
|
Weighted
Average
Exercise Price
|
|
|
|
As at August 31, 2006
|
2,839,460
|
$0.92
|
Exercised
|
(885,250)
|
($0.68)
|
As at November 30, 2006
|
1,954,210
|
$1.01
|
Number of
Shares
Outstanding
|
Number of
Shares
Exercisable
|
Weighted
Average
Exercise Price
Outstanding
Options
|
Weighted
Average
Exercise Price
Exercisable
Options
|
Expiry Date
|
Weighted
Average
Life in Years
|
|
|
|
|
|
|
647,000
|
647,000
|
|
|
May 31, 2010
|
3.4
|
31,000
|
15,250
|
|
|
June 6, 2010
|
3.5
|
894,500
|
470,000
|
|
|
November 15, 2010
|
4.0
|
237,500
|
57,500
|
|
|
February 3, 2011
|
4.2
|
44,210
|
25,000
|
|
|
August 15, 2011
|
4.7
|
100,000
|
11,053
|
|
|
August 23, 2011
|
4.7
|
1,954,210
|
1,225,803
|
$1.01
|
$.68
|
|
3.8
|
The weighted average fair value of the options, being $0.72 per share, recognized in the statements of operations, has been estimated at the grant dates using the Black-Scholes option pricing model. Option pricing models require the input of highly subjective assumptions including the expected volatility. Changes in the assumptions can materially affect the fair value estimate, and, therefore, the existing models do not necessarily provide a reliable measure of the fair value of the Companys stock options. Weighted average assumptions used in the pricing model for the year are as follows:
Risk-free interest rate
3.7%
Expected life of options
4.0 years
Annualized volatility
108%
Dividend rate
Nil
131
#
Titan Uranium Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
November 30, 2006
(Unaudited)
9. STOCK OPTIONS AND WARRANTS (contd.)
Warrants
The fair value of the warrants granted during the period was estimated using the Black-Scholes Pricing Model with the following weighted average assumptions:
Risk-free interest rate
3.7%
Expected life of options
1.7 years
Annualized volatility
111%
Dividend rate
Nil
At November 30, 2006, the Company had the following non-publicly traded share purchase warrants outstanding:
Number
of Shares
Exercise Price
Expiry Date
9,600
$1.10
October 21, 2007
107,550
$1.35
October 21, 2007
136,045
$1.75
January 25, 2007
187,909
$2.00
August 15, 2008
677,404
$2.00
January 25, 2007
1,315,797
$2.50
August 15, 2008
2,434,305
At November 30, 2006, the Company had the following publicly traded share purchase warrants outstanding:
Number
of Shares
|
Exercise Price
|
Expiry Date
|
|
|
|
914,300
|
$1.35
|
October 21, 2007
|
132
#
Titan Uranium Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
November 30, 2006
(Unaudited)
10. FINANCIAL INSTRUMENTS AND RISK
Fair value estimates of financial instruments are made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgement, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair values.
The Companys financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, and amounts due to related parties. The fair values of these financial instruments approximate their carrying values, unless otherwise noted. It is not practical to determine the fair values of amounts due to related parties due to their related party nature and the absence of a secondary market for such instruments.
It is managements opinion that the Company is not exposed to significant interest rate, currency or credit risks arising from these financial instruments.
133
#
Titan Uranium Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
November 30, 2006
(Unaudited)
11. SUBSEQUENT EVENTS
Subsequent to November 30, 2006, the following events occurred:
[a]
On December 15, 2006 the Company and Dejour Enterprises Ltd. (Dejour) closed the acquisition of Dejours uranium properties in the Athabasca Basin of Saskatchewan, Canada. In consideration for the uranium assets, Titan issued to Dejour the following:
1.
Titan to pay Dejour 17,500,000 fully paid and assessable common shares in the capital of Titan;
2.
Titan to pay Dejour 3,000,000 transferable common share purchase warrants, entitling the holder to acquire up to 3,000,000 common shares in the capital of the Company at an exercise price of C$2.00 per common share for a period of 24 months, subject to a forced exercise provision whereby Titan can call the automatic exercise of the warrants should Titans common shares trade on the Exchange at a price of $4.00 or more for 20 consecutive trading days;
3.
Dejour to retain a 1% Net Smelter Return on all contributed properties;
4.
Dejour to retain a 10% working interest in each Claim, carried by Titan to completed bankable feasibility study after which Dejour may elect to participate as to its 10% interest or convert to an additional 1% Net Smelter Return;
5.
Titan to provide Dejour with a first right of refusal to participate in all equity financings of Titan to the extent necessary to enable Dejour to maintain its equity interest in Titan, as long as Dejours ownership in the stock of Titan is greater than 10% of the outstanding shares;
6.
Dejour to provide two full-time and one part-time geologists on terms to be agreed; and
7.
Titan to appoint two Dejour representatives to the Titan board of directors.
The acquisition was approved by the shareholders of both Titan and Dejour at meetings held on January 22, 2007 and is still awaiting final regulatory approval.
[b]
Up to January 23, 2007 a further 398,449 warrants have been exercised for proceeds of $748,511.
[c]
Up to January 23, 2007 a further 206,250 options have been exercised for proceeds of $143,305.
134
Signature Page
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Registrant certifies that it meets all of the requirements for filing on Form 20-F and has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dejour Enterprises Ltd.
Registrant
Dated: December 6, 2007
|
Signed:
/s/ Robert L. Hodgkinson
|
|
|
|
Robert L. Hodgkinson,
Chairman & CEO
|
135
#
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