Financial Statements of Digger Resources Inc. Six Months ended January 31,
NOTICE TO READER The accompanying unaudited interim financial statements of Digger Resources Inc. for the six months ended January 31, have been prepared by management and approved by the Board of Directors of the Corporation. These statements have not been reviewed by the external auditors of the Corporation. Dated: March 16, Signed: Norman Yeo President and Chief Executive Officer
DIGGER RESOURCES INC. CONSOLIDATED BALANCE SHEET JANUARY 31, January 31 July 31 2006 ASSETS CURRENT Cash 261 5,924 Accounts receivable 1,238 1,252 Prepaid expenses 2,216 2,112 3,715 9,288 CAPITAL ASSETS (note 4) 3,007 3,447 TECHNOLOGY DEVELOPMENT COSTS (note 5) 35,353 55,419 LIABILITIES 42,075 68,154 CURRENT Accounts payable 29,617 16,470 Advances from affiliated companies 150,000 150,000 179,617 166,470 SHAREHOLDERS EQUITY (DEFICIENCY) CAPITAL STOCK (note 7) 4,435,884 4,435,884 CONTRIBUTED SURPLUS (note 9) 1,322,435 1,058,859 DEFICIT (5,895,861) (5,593,059) (137,542) (98,316) 42,075 68,154 See accompanying notes Approved by the Board: Norman Yeo Director (signed) Graeme Wallace Director (signed)
DIGGER RESOURCES INC. CONSOLIDATED STATEMENT OF INCOME AND DEFICIT SIX MONTHS ENDED JANUARY 31, Three Months Ended Year To Date Ended January 31 January 31 REVENUE Contract sampling 78,400 31,800 78,400 EXPENSES Freight 63 153 1,556 153 Laboratory analysis 3,659 9,817 3,659 License fees 1,000 3,170 1,000 Office and administrative 7,144 7,608 11,626 9,606 Professional fees 11,503 2,963 17,068 18,286 Rent 2,138 5,506 Stock based compensation 160,310 263,576 Travel 600 1,777 Amortization 10,253 9,381 20,506 18,762 192,011 24,764 334,602 51,466 NET INCOME (LOSS) (192,011) 53,636 (302,802) 26,934 DEFICIT, BEGINNING OF PERIOD (5,703,850) (4,483,184) (5,593,059) (4,456,482) DEFICIT, END OF PERIOD (5,895,861) (4,429,548) (5,895,861) (4,429,548) 2006 2006 INCOME (LOSS) PER SHARE BASIC AND DILUTED (0.021) 0.006 (0.032) 0.003 See accompanying notes
DIGGER RESOURCES INC. CONSOLIDATED STATEMENT OF CASH FLOWS SIX MONTHS ENDED JANUARY 31, Three Months Ended Year To Date Ended January 31 January 31 2006 2006 OPERATING ACTIVITIES Net income (loss) (192,011) 53,636 (302,802) 26,934 Items not affecting cash: Stock based compensation 160,310 263,576 Amortization 10,253 9,381 20,506 18,762 (21,448) 63,017 (18,720) 45,696 Non-cash working capital items relating to operations 20,873 (70,324) 13,057 (80,238) (575) (7,307) (5,663) (34,542) DECREASE IN CASH (575) (7,307) (5,663) (34,542) CASH, BEGINNING OF PERIOD 836 15,257 5,924 42,492 CASH, END OF PERIOD 261 7,950 261 7,950 See accompanying notes
Digger Resources Inc. Notes to Consolidated Financial Statements January 31, 1. Basis of presentation The unaudited interim consolidated financial statements have been presented in accordance with Canadian generally accepted accounting principles ( GAAP ) for interim reporting. They do not include all the information and disclosure required by Canadian GAAP for annual financial statements. In the opinion of management all adjustments required for a fair presentation are included in these statements in accordance with the accounting policies of the Company. The unaudited interim consolidated financial statements should be read in conjunction with the year-end 2006 audited financial statements for the detailed note disclosure. 2. Nature of operations Digger is engaged in the business of developing a process for locating oil and gas deposits. The rights to these processes were obtained under a 30-year Technology Purchase and Consulting Agreement which was effective March 2, 1999. The company intends on exploiting this technology in pursuit of oil and gas deposits. Commercial operations commenced in 2003 with the recognition of significant revenues and therefore the Company began amortization of its technology developments costs. 3. Accounting policies These interim consolidated financial statements follow the same accounting policies as were used for the most recent annual audited financial statements for the year ended July 31, 2006. 4. Capital assets Accumulated Cost amortization Net Computer equipment 231,764 230,077 1,687 Office furniture and equipment 50,504 49,184 1,320 282,268 279,261 3,007
Digger Resources Inc. Notes to Consolidated Financial Statements January 31, 5. Technology development costs Technology development cost consists of the following: Balance Beginning of period 55,419 Less: Amortization during period 20,066 Balance End of period 35,353 6. Related party transactions Advances from affiliated companies The advances from affiliated companies in the amount of 150,000 (July 31, 2006-150,000) are non-interest bearing and are owing to companies owned by two directors, who have indicated that these amounts will not be paid in the next twelve months unless additional funding is raised from project contracts, borrowings or by way of share issue. Revenue Revenue includes sales of NIL (2006 17,700) to a company related to a director of the company. These sales are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. Rent Rent expense incurred in the normal course of operation comprises of 5,506 (2006 - NIL) paid to an individual related to a director of the company. Professional fees Professional fees incurred in the normal course of operation includes 6,660 (2006-2,451) for services paid to companies related to officers of the company. Accounts payable Accounts payable and accrued liabilities includes 4,300 (July 31, 2006-2,333) of amounts payable to a company controlled by an officer of the company.
Digger Resources Inc. Notes to Consolidated Financial Statements January 31, 7. Capital stock a) Authorized 100,000,000 common shares with no par value b) Issued Number of Shares Amount 8. Share Option Plan Balance Beginning of period 9,349,035 4,435,884 Issued during the period Balance End of period 9,349,035 4,435,884 Digger has established a stock option plan whereby options may be granted to the Corporation s directors, officers, employees and consultants. The number of common shares issuable under the Corporation s share option plan cannot exceed 20% of the issued and outstanding common shares of the Corporation. The number of common shares issuable to any one person under the plan cannot exceed 5% of the total number of common shares outstanding from time to time. The exercise price of each option equals the market price of the Digger s stock on the date of the grant and option s maximum life of five years. The vesting period is determined by the Board of Directors. Options issued to date vest equally every three months from date of grant. A summary of the outstanding stock options as of January 31, and 2006 and changes during the period then ended are as follows: Shares Weighted average Exercise Price Shares 2006 Weighted average Exercise Price Outstanding Beginning of period Cancelled during the period Outstanding End of the period Exercisable End of the period 1,475,000 1.55 (200,000) 1.55 1,275,000 1.55 637,500
Digger Resources Inc. Notes to Consolidated Financial Statements January 31, 8. Share Option plan (cont d) Total compensation expense is amortized over the vesting period of the options. Compensation expense of 263,576 has been recognized during the period based on the estimated fair value options of the grant in accordance with the fair value method of accounting for stock - based compensation. The company does not anticipate paying any dividends during the expected five year life of these options. The fair value of options granted during 2006 was 1.15. The risk free interest rate was 4.1% for 2006. The volatility percentage was 95%. 9. Contributed surplus The following summarizes the continuing of contributed surplus: 2006 Balance Beginning of period 1,058,859 Stock based compensation 263,576 Balance End of period 1,322,435 10. Commitments The company entered into a licensing agreement effective July 5, 1999. The agreement gives the company the exclusive license to further development of a proprietory leachant. The company will pay a license fee of 10 Australian dollars (9.30 at year-end exchange rates) per sample during the term of this agreement, which is 30 years, with a minimum of 1,000 samples per year (subject to inflationary changes after 10 years), resulting in the following minimum annual payments: 8,670 2008 8,670 2009 8,670 2010 8,670 2011 8,670 2012-2030 156,060
Digger Resources Inc. Notes to Consolidated Financial Statements January 31, 11. Financial instruments The company s financial instruments recognized in the balance sheet consist of cash, accounts receivable, accounts payable and accrued liabilities and advances from affiliated companies. The fair values of these recognized financial instruments approximate their carrying amounts. Virtually all of the company s accounts receivable are with customers in the oil and gas industry and are subject to normal industry credit risks. 12. Contingent liability The company is contingently liable for approximately 31,924 for legal services. Management is of the opinion that this claim does not reflect the value of services rendered and is in the process of reviewing the accounts with its solicitors. On February 16, this claim was settled by a payment of 14,000 by the company.