EX-4.12 4 h53413exv4w12.htm RECONCILIATION TO U.S. GAAP OF THE INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS exv4w12
 

Exhibit 4.12
Appendix — U.S. GAAP reconciliation
Reconciliation to accounting principles generally accepted in the United States
The un-audited consolidated financial statements of the Company for the nine month periods ended September 30, 2007 and 2006, and the audited consolidated financial statements for the years ended December 31, 2006 have been prepared in accordance with generally accepted accounting principles in Canada (“Canadian GAAP”) which, in most respects, conforms to generally accepted accounting principles in the United States (“U.S. GAAP”). The reconciliations and other information presented in this note are solely in relation to the consolidated financial statements. The significant differences between Canadian GAAP and U.S. GAAP as they relate to the Company are presented throughout this note. Additionally, where there is no significant conflict with Canadian GAAP requirements some of the additional U.S. GAAP disclosure requirements have been incorporated throughout the Canadian GAAP financial statements.

 


 

Reconciliation to accounting principles generally accepted in the United States (cont’d)
Consolidated Balance Sheets
                                                 
    As at
    September 30, 2007   December 31, 2006   September 30, 2006
    $ (Un-audited)   $   $ (Un-audited)
    Canadian GAAP   US GAAP   Canadian GAAP   US GAAP   Canadian GAAP   US GAAP
 
Assets
                                               
Current assets:
                                               
Cash and cash equivalents (8)
  11,928,674       10,200,333       31,681,435       31,681,435       30,597,797       30,597,797  
Cash restricted
    26,672,843       26,672,843       29,301,940       29,301,940       35,652,911       35,652,911  
Trade receivables
    54,530,040       54,530,040       67,542,902       67,542,902       33,353,429       33,353,429  
Commodity derivative contracts
                1,759,575       1,759,575       1,703,100       1,703,100  
Other assets (8)
    2,931,626       134,098       2,954,946       2,954,946       95,265       95,265  
Inventories
    125,269,818       125,269,818       67,593,558       67,593,558       103,125,128       103,125,128  
Prepaid expenses (8)
    3,964,060       3,946,099       880,640       880,640       1,509,444       1,509,444  
Deposit on business acquisition
                            30,639,000       30,639,000  
 
Total current assets
    225,297,061       220,753,231       201,714,996       201,714,996       236,676,074       236,676,074  
Cash restricted
    1,229,726       1,229,726       3,217,284       3,217,284       3,158,378       3,158,378  
Deferred financing costs (7)
          1,500,949       1,716,757       1,716,757       1,831,073       1,831,073  
Investment in LNG Project (8)
          5,429,862                          
Plant and equipment (1), (8)
    237,671,816       225,432,318       242,642,077       231,175,281       236,989,837       225,352,161  
Oil and gas properties
    71,205,570       71,205,570       54,524,347       54,524,347       44,781,951       44,781,951  
Future income tax benefit
    2,251,626       2,251,626       1,424,014       1,424,014       1,203,600       1,203,600  
 
Total assets
    537,655,799       527,803,282       505,239,475       493,772,679       524,640,913       513,003,237  
 
Liabilities and shareholders’ equity
                                               
Current liabilities:
                                               
Accounts payable and accrued liabilities (7),(8)
    132,626,075       132,408,209       76,095,369       76,095,369       75,855,550       75,855,553  
Commodity derivative contracts
    562,725       562,714                          
Working capital facility — crude feedstock
    27,948,185       27,948,185       36,873,508       36,873,508       66,425,433       66,425,433  
Deferred hedge gain (2)
                1,385             959,687        
Deferred liquefaction project liability
                6,553,080       6,553,080       5,092,097       5,092,097  
Current portion of secured loan (7)
    144,187,210       144,245,543       13,500,000       13,500,000              
 
                                               
Current portion of indirect participation interest — PNGDV
    580,775       580,775       730,534       730,534       1,961,867       1,961,867  
 
Total current liabilities
    305,904,970       305,745,426       133,753,876       133,752,491       150,294,634       149,334,950  
Accrued financing costs
                1,087,500       1,087,500       1,450,000       1,450,000  
Secured loan (7)
    58,000,000       58,000,000       184,166,433       184,166,433       186,053,775       186,053,775  
Deferred gain on contributions to LNG project (8)
    8,910,293                                
Indirect participation interest (5)
    96,086,369       115,926,369       96,861,259       116,861,259       96,861,259       116,861,259  
Indirect participation interest — PNGDV
    1,343,719       1,343,719       1,190,633       1,190,633              
 
Total liabilities
    468,830,754       481,015,514       417,059,701       437,058,316       434,659,668       453,699,984  
 
Non-controlling interest (6)
    5,692,678       5,354,150       5,759,206       5,416,831       5,726,684       5,374,388  
Shareholders’ equity:
                                               
Share capital
    235,327,634       235,327,634       233,889,366       233,889,366       232,678,088       232,678,088  
Contributed surplus
    9,148,271       9,148,271       4,377,426       4,377,426       4,196,247       4,196,247  
Warrants
    2,119,034       2,119,034       2,137,852       2,137,852       2,137,852       2,137,852  
Induced Conversions of Convertible Debt (4)
          6,899,211             6,899,211             6,899,211  
Accumulated Other Comprehensive Income
    2,374,528       2,374,528       1,492,869       1,494,258       1,343,294       2,313,448  
Conversion options (5)
    19,840,000             20,000,000             20,000,000        
Accumulated deficit
    (205,677,100 )     (214,435,060 )     (179,476,945 )     (197,500,581 )     (176,100,920 )     (194,295,981 )
 
Total shareholders’ equity
    63,132,367       41,433,618       82,420,568       51,297,532       84,254,561       53,928,865  
 
Total liabilities and shareholders’ equity
    537,655,799       527,803,282       505,239,475       493,772,679       524,640,913       513,003,237  
 

 


 

Reconciliation to accounting principles generally accepted in the United States (cont’d)
Consolidated statements of operations
The following table presents the consolidated statements of operations under U.S. GAAP compared to Canadian GAAP:
                                                 
    Nine month period ended     Year ended     Nine month period ended  
    September 30, 2007     December 31, 2006     September 30, 2006  
    $ (Un-audited)     $     $ (Un-audited)  
    Canadian GAAP     U.S. GAAP     Canadian GAAP     U.S. GAAP     Canadian GAAP     U.S. GAAP  
 
Revenue
                                               
Sales and operating revenues (1)
    453,603,730       453,603,730       511,087,934       511,189,438       340,758,419       340,758,419  
Interest income
    1,734,361             3,223,995             2,375,543        
Other income
    2,202,510             3,747,603             2,149,562        
 
 
    457,540,601       453,603,730       518,059,532       511,189,438       345,283,524       340,758,419  
 
 
                                               
Expenses
                                               
Cost of sales and operating expenses (excluding depreciation shown below) (1)
    423,976,643       423,976,643       499,494,540       499,584,532       339,958,342       339,980,788  
Administrative and general expenses (1), (2), (8)
    23,348,650       23,339,627       20,728,618       20,762,574       16,129,026       16,129,026  
Depreciation and amortization (1)
    10,037,606       9,679,389       12,352,672       11,591,513       8,799,170       8,208,891  
Exploration costs, excluding exploration impairment
    12,071,133       12,071,133       6,176,866       6,176,866       6,226,731       6,226,731  
Exploration impairment
    525,741       525,741       1,647,185       1,647,185       1,528,495       1,528,495  
Legal and professional fees (1), (8)
3,742,659       3,307,433       3,937,517       3,937,517       2,803,935       2,803,935  
Short term borrowing costs
    8,773,023       8,773,023       8,478,540       8,478,540       6,625,549       6,625,549  
Long term borrowing costs (1)
7,621,055       7,621,055       11,856,872       11,856,872       7,247,211       7,247,211  
Loss on amendment of indirect participation interest — PNGDV
                1,851,421       1,851,421       1,851,421       1,851,421  
Gain on LNG shareholder agreement
    (6,553,080 )     (6,553,080 )                        
Loss on proportionate consolidation of LNG Project (8)
    2,432,652                                
Gain on equity accounted investment (8)
          (6,043,353 )                        
Foreign exchange loss/(gain) (2), (8)
    (2,239,613 )     (2,238,875 )     (4,744,810 )     (4,744,810 )     (4,493,566 )     (4,493,566 )
Non-controlling interest (6)
    (66,513 )     (62,679 )     (263,959 )     (265,865 )     (306,943 )     (308,307 )
Interest income (8)
          (1,726,138 )           (3,223,995 )           (2,375,543 )
Other income
          (2,202,510 )           (3,747,603 )           (2,149,562 )
 
 
    483,669,956       470,467,409       561,515,462       553,904,747       386,369,370       381,275,069  
 
Loss before income taxes
    (26,129,355 )     (16,863,679 )     (43,455,930 )     (42,715,309 )     (41,085,846 )     (40,516,650 )
 
Income tax expense (3)
    (70,800 )     (70,800 )     (2,342,873 )     (2,342,873 )     (1,336,932 )     (1,336,932 )
 
Net loss
    (26,200,155 )     (16,934,479 )     (45,798,803 )     (45,058,182 )     (42,422,778 )     (41,853,582 )
 


 

Reconciliation to accounting principles generally accepted in the United States (cont’d)
Reconciliation of Canadian GAAP net income/(loss) to U.S. GAAP net income/(loss)
                         
    Nine Month       Nine Month
    period ended   Year ended   period ended
    September 30,   December 31,   September 30,
    2007   2006   2006
    $ (Un-audited)   $   $ (Un-audited)
 
Net loss as shown in the Canadian GAAP financial statements
    (26,200,155 )     (45,798,803 )     (42,422,778 )
Description of items having the effect of increasing reported income
                       
Decrease in depreciation and amortization due to difference in date of commencement of operations of refinery (1)
    358,217       761,159       590,279  
Decrease in non-controlling interest expense (6)
    (3,833 )     1,907       1,365  
Increase in reporting income due to reversal of proportionate consolidation of LNG Project and equity accounting the investment (8)
    8,911,292              
Increase in sales from ineffective portion of hedges (2)
          101,504        
Description of items having the effect of decreasing reported income
                       
Increase in cost of sales from ineffective portion of hedges (2)
          (89,992 )     (22,448 )
 
                       
Increase in administrative and general expenses from ineffective portion of hedges (2)
          (33,956 )      
 
 
                       
Net loss according to US GAAP
    (16,934,479 )     (45,058,182 )     (41,853,582 )
 
Statement of comprehensive income/(loss), net of tax
                         
    Nine months       Nine months
    period ended   Year ended   period ended
    September 30,   December 31,   December 31,
    2007   2006   2005
    $ (Un-audited)   $   $ (Un-audited)
 
Net loss in accordance with U.S. GAAP, net of tax
    (16,934,479 )     (45,058,182 )     (41,853,582 )
Foreign currency translation reserve, net of tax
    880,270       1,015,426       865,851  
Deferred hedge gain, net of tax
    (1,389 )     (993,153 )     (24,388 )
 
Total other comprehensive income, net of tax
    878,881       22,273       841,463  
 
Comprehensive loss, net of tax
    (16,055,598 )     (45,035,909 )     (41,012,119 )
 


 

Reconciliation to accounting principles generally accepted in the United States (cont’d)
Consolidated Statements of Shareholders’ Equity
                                                 
    Nine month Period ended   Year ended   Nine month Period ended
    September 30, 2007   December 31, 2006   September 30, 2006
    $ (Un-audited)   $   $ (Un-audited)
    Canadian GAAP   US GAAP   Canadian GAAP   US GAAP   Canadian GAAP   US GAAP
 
Share capital
                                               
 
                                               
At beginning of period
    233,889,366       233,889,366       223,934,500       223,934,500       223,934,500       223,934,500  
Issue of capital stock
    1,438,268       1,438,268       9,954,866       9,954,866       8,743,588       8,743,588  
 
At end of period
    235,327,634       235,327,634       233,889,366       233,889,366       232,678,088       232,678,088  
 
Contributed surplus
                                               
 
                                               
At beginning of period
    4,377,426       4,377,426       2,933,586       2,933,586       2,933,586       2,933,586  
Stock compensation
    4,770,845       4,770,845       1,443,840       1,443,840       1,262,661       1,262,661  
 
At end of period
    9,148,271       9,148,271       4,377,426       4,377,426       4,196,247       4,196,247  
 
Warrants
                                               
 
                                               
At beginning of period
    2,137,852       2,137,852       2,137,852       2,137,852       2,137,852       2,137,852  
Movement for period
    (18,818 )     (18,818 )                        
 
At end of period
    2,119,034       2,119,034       2,137,852       2,137,852       2,137,852       2,137,852  
 
Accumulated Other Comprehensive Income
                                               
 
                                               
At beginning of period
    1,492,869       1,494,258       477,443       1,471,985       477,443       1,471,985  
Deferred hedge gain recognised on transition
    1,385                                
Deferred hedge (loss)/gain movement for period, net of tax
    (1,385 )     (1,389 )           (993,153 )           (24,388 )
Foreign currency translation adjustment movement for period, net of tax
    881,659       881,659       1,015,426       1,015,426       865,851       865,851  
 
At end of period
    2,374,528       2,374,528       1,492,869       1,494,258       1,343,294       2,313,448  
 
Induced Conversions of Convertible Debt
                                               
 
                                               
At beginning of period (4)
          6,899,211             6,899,211             6,899,211  
Movement for the period
                                   
 
 
          6,899,211             6,899,211             6,899,211  
 
Conversion options
                                               
 
                                               
At beginning of period
    20,000,000             20,000,000             20,000,000       .  
Movement for period
    (160,000 )                              
 
At end of period
    19,840,000             20,000,000             20,000,000        
 
Accumulated deficit
                                               
 
                                               
At beginning of period
    (179,476,945 )     (197,500,581 )     (133,678,142 )     (152,442,399 )     (133,678,142 )     (152,442,399 )
Net loss for period
    (26,200,155 )     (16,934,479 )     (45,798,803 )     (45,058,182 )     (42,422,778 )     (41,853,582 )
Deduct:
                                               
Preference Share Dividends
                                               
 
At end of period
    (205,677,100 )     (214,435,060 )     (179,476,945 )     (197,500,581 )     (176,100,920 )     (194,295,981 )
 
Shareholders’ equity at end of period
    63,132,367       41,433,618       82,420,568       51,297,532       84,254,561       53,928,865  
 

 


 

Reconciliation to accounting principles generally accepted in the United States (cont’d)
Consolidated Statement of Cash Flows
                         
    Nine month period       Nine month period
    ended    Year ended   ended
    September 30, 2007   December 31, 2006   September 30, 2006
    $ (Un-audited)   $   $ (Un-audited)
 
Cash flows provided by (used in):
                       
 
                       
Operating activities — Canadian GAAP (as per consolidated cash flows)
    (19,781,769 )     2,187,462       (15,926,643 )
 
                       
Reconciling items:
                       
 
                       
Exploration costs expensed including exploration impairment
    (12,596,874 )     (7,824,051 )     (7,755,226 )
 
                       
Being LNG project equity accounted under US GAAP as opposed to proportionate consolidation under Canadian GAAP
    6,912,669              
 
Operating activities — U.S. GAAP
    (25,465,974 )     (5,636,589 )     (23,681,869 )
 
                       
Investing activities — Canadian GAAP (as per consolidated cash flows)
    1,172,609       (97,071,319 )     (97,193,271 )
 
                       
Reconciling items:
                       
 
                       
Exploration costs expensed including exploration impairment
    12,596,874       7,824,051       7,755,226  
Being cash investment in LNG Project
    (1,976,975 )            
Being reversal of PNG LNG cash call proportionately consolidated in cash flow statement
    (6,664,035 )            
 
Investing activities — U.S. GAAP
    5,128,473       (89,247,268 )     (89,438,045 )
 
                       
Financing activities — Canadian and U.S. GAAP
    (1,143,601 )     66,963,485       84,115,904  
 
                       
(Decrease)/increase in cash and cash equivalents
    (21,481,102 )     (27,920,372 )     (29,004,010 )
Cash and cash equivalents, beginning of period
    31,681,435       59,601,807       59,601,807  
 
Cash and cash equivalents, end of period (U.S. GAAP)
    10,200,333       31,681,435       30,597,797  
 
Under Canadian GAAP, InterOil share in the LNG Joint venture project is proportionately consolidated and InterOil’s share of the JV cash flows will be taken up in InterOil consolidated cash flow statement. The cash flows would be classified between operating, investing and financing as per the nature of the transaction. Under U.S. GAAP, When an investment in an entity is accounted for by use of the equity method, an investor restricts its reporting in the cash flow statement to the cash flows between itself and the investee, for example, to dividends and advances. The above cash and cash equivalents is different to the Canadian cash and cash equivalents balance due to the proportionate take up of the cash balance under Canadian GAAP, but equity accounting of the LNG investment in U.S. GAAP (refer (8) below).
Per share amounts
Basic per share amounts are computed by dividing net income available to shareholders by the weighted average number of shares outstanding for the reporting period. Diluted per share amounts reflects the potential dilution that could occur if options or contracts to issue shares were exercised or converted into shares.
For the calculation of diluted per share amounts, the basic weighted average number of shares is increased by the dilutive effect of stock options determined using the treasury method. No potential shares in options or warrants on issue were dilutive for the nine month period ended September 30, 2007, year ended December 31, 2006 and nine month period ended September 30, 2006.
Reconciliation to accounting principles generally accepted in the United States (cont’d)

 


 

                         
    Nine month           Nine month
    period ended   Year ended   period ended
Weighted average number of shares on which earnings per   September 30,   December 31,   September 30,
share calculations are based in accordance with U.S. GAAP   2007   2006   2006
 
Basic
    29,908,847       29,602,360       29,523,026  
Effect of dilutive options
                 
 
Diluted
    29,908,847       29,602,360       29,523,026  
 
Net income/(loss) per share in accordance with U.S. GAAP
  (Restated)   (Restated)   (Restated)
Basic
    (0.57 )     (1.52 )     (1.42 )
 
Diluted
    (0.57 )     (1.52 )     (1.42 )
 
(1)   Operations
 
    The Company determined that refinery operations commenced under U.S. GAAP at December 1, 2004, which is the date management assessed that construction of the refinery was substantially complete and ready for its intended use. The Company ceased capitalization of certain costs to the refinery project at this date and recognized one month’s results from sales, related costs of sales and operating expenses and administrative and general expenses in the statement of operations for the year ended December 31, 2004.
 
    As disclosed in note 3(q) in the consolidated financial statements, operations commenced on January 1, 2005 under Canadian GAAP. Therefore, the Company continued to capitalize December 2004’s results to the refinery project. Due to the difference in the cost basis of the refinery, the depreciation expense recorded under U.S. GAAP differs from that recorded under Canadian GAAP.
 
    The useful life for the refinery under U.S. GAAP is the same as that disclosed under Canadian GAAP.
 
(2)   Derivative instruments and hedging
 
    The Company accounts for derivatives and hedging activities in accordance with FASB Statement No. 133, “Accounting for Derivative Instruments and Certain Hedging Activities”, as amended (“SFAS No. 133”), which requires that all derivative instruments be recorded on the balance sheet at their respective fair values.
 
    The Canadian Institute of Chartered Accountants issued Accounting Guideline 13 “Hedging Relationships” (“AcG-13”), which became effective January 1, 2004. This guideline was issued to align certain accounting principles under Canadian GAAP with SFAS No. 133, including hedge documentation and assessing hedge effectiveness. The Company adopted the hedge accounting provisions in AcG-13 and SFAS No. 133 in respect of the commodity forward contracts it transacted beginning in July 2004. Under Canadian GAAP, the Company included hedges which are unsettled at period end in current liabilities based on a marked to market calculation. Under SFAS No. 133 the marked to market amount for the unsettled hedges is included in other comprehensive income to the extent that they are effective. The ineffective portion is expensed.
 
    Effective January 1, 2007, CICA 3865 – Hedges came into effect as explained under Note 3(c). This revision brings Canadian accounting treatment of hedges in line with the U.S. GAAP treatment and the Company has followed the transition provisions as per guidance under the new standard to reclassify the marked to market amount for the unsettled hedges from current liabilities to other comprehensive income. Details of hedge accounting are disclosed in note 8 of the unaudited consolidated financial statements of the Company for the nine month period ended September 30, 2007.
 
(3)   Income tax effect of adjustments
 
    The income tax effect of U.S. GAAP adjustments was a reduction to the future tax asset of $277,175 (years ended December 31, 2006 — $259,957) for the nine month period ended September 30, 2007. A corresponding decrease in the valuation allowance was recorded. No income tax expense was recorded in the periods disclosed due to the tax holiday period in Papua New Guinea through five years after the refinery commences operations.
Reconciliation to accounting principles generally accepted in the United States (cont’d)

 


 

(4)   Debt conversion expense
 
    100% of the outstanding convertible debentures were converted before December 31, 2004. The Company issued an additional 180,000 shares to induce conversion before the end of the year. Under Canadian GAAP, the fair value of these shares was recorded as an increase in share capital of $6,976,800 with offsetting adjustments to retained earnings of $6,899,211 and a conversion expense of $77,589.
 
    FASB Statement No. 84, “Induced Conversions of Convertible Debt” requires an expense to be recorded when convertible debt is converted under an inducement. The Company recognized the entire fair value of the inducement shares of $6,976,800 as a conversion expense under U.S. GAAP.
 
(5)   Indirect participation interest
 
    As disclosed in note 2 in the unaudited consolidated financial statements, the Company entered into an indirect participation interest agreement in exchange for proceeds of $125,000,000. Under Canadian GAAP, this amount was apportioned between non financial liabilities and equity. Under U.S. GAAP, Company has not bifurcated the amount as the Company has opted to utilize the scope exception under SFAS 133 Para 10(f) for ‘derivatives that serve as impediments to sales accounting’.
 
(6)   Non controlling interest
 
    The non-controlling interest movements are the result of the U.S. GAAP adjustments relating to the midstream operations described in points 1 to 3 above.
 
(7)   Deferred Financing costs
 
    Deferred financial costs are offset against the respective liabilities under Canadian GAAP; however, the same is disclosed as a separate item on the face of the balance sheet under US GAAP in accordance with guidance under APB 21.
 
(8)   Investment in LNG Project/Deferred gain on contributions to LNG Project:
 
    As disclosed in Note 13 of the unaudited consolidated financial statements for the nine month period ended September 30, 2007, a Shareholders Agreement was signed on July 30, 2007 which converted PNG LNG Inc. and its subsidiaries into a joint venture project from being a subsidiary of InterOil. Under Canadian GAAP, joint ventures are proportionately consolidated into the Company’s consolidated financials based on the shareholding in the joint venture.
 
    Applying the guidance under APB 18, a Corporate joint venture has to be equity accounted under U.S. GAAP. InterOil has also followed the guidance under SAB Topic 5H wherein a gain on contributions to the joint venture is recognised as a result of a change in economic interest of the entity. For Canadian GAAP this gain is deferred and recognised over the life of the contributed assets..
 
    InterOil will account for the joint venture using equity accounted method. In addition to the gain or loss recognised as part of the operations, InterOil will also recognise any difference between the Investment carried in its balance sheet and the underlying equity in net assets of the joint venture in the statement of operations to account for this difference and the investment balance will increase/decrease in line with this difference.
 
    The adjustments to reflect the reversal of proportionately consolidated balances and take-up of equity accounted balances have been summarised below. Given below is the Midstream – liquefaction consolidated balance sheet and statement of operations under Canadian GAAP and U.S. GAAP. The statement of operations incorporates results for the nine month period ended September 30, 2007. PNG LNG Inc. was a subsidiary of InterOil till the date of the Shareholder’s Agreement and has been proportionately consolidated subsequent to that date.
Reconciliation to accounting principles generally accepted in the United States (cont’d)

 


 

                         
Midstream - liquefaction           GAAP    
Consolidated Balance Sheet   Canadian GAAP   Adjustments   US GAAP
Cash and cash equivalents
    1,728,341       (1,728,341 )      
Cash restricted
                 
Other assets
    2,797,528       (2,797,528 )      
Prepaid expenses
    17,961       (17,961 )      
 
Current assets
    4,543,830       (4,543,830 )      
 
Investment in PNG LNG Inc.
          5,429,862       5,429,862  
Plant and equipment
    1,130,919       (1,130,919 )      
 
Total assets
    5,674,749       (244,887 )     5,429,862  
 
 
                       
Accounts payable and accrued liabilities
    268,949       (245,886 )     23,063  
Intercompany payables
    2,060,598             2,060,598  
 
Current liabilities
    2,329,547       (245,886 )     2,083,661  
 
Deferred gain on contributions to LNG project
  8,910,293     (8,910,293 )      
 
Total liabilities
    8,910,293       (8,910,293 )      
 
 
                       
Share capital
    1             1  
Accumulated deficit
    (5,565,092 )     8,911,293       3,346,201  
 
Shareholders’ Equity
    (5,565,091 )     8,911,293       3,346,202  
 
Total liabilities and Shareholders’ equity
    5,674,749       (244,886 )     5,429,863  
 
                         
Midstream - liquefaction           GAAP    
Consolidated Statement of Operation   Canadian GAAP   Adjustments   US GAAP
Interest income
    15,336       (8,223 )     7,113  
 
Total revenues
    15,336       (8,223 )     7,113  
 
                       
Office and Administrative expenses
    1,502,726       (9,023 )     1,493,703  
Professional fees
    952,950       (435,226 )     517,724  
Exchange (Gain) loss
    (2,097 )     738       (1,359 )
Loss on proportionate consolidation of PNG LNG Inc
    2,432,652       (2,432,652 )      
Gain on equity accounted investment
          (6,043,353 )     (6,043,353 )
 
Total expenses
    4,886,231       (8,919,516 )     (4,033,285 )
 
                       
 
Net gain/(loss)
    (4,870,895 )     8,911,293       4,040,398  
 
Recent Accounting Pronouncements
Fair value measurements
In September 2006, the FASB issued FAS 157 which defines fair value, establishes a framework for measuring fair value in U.S. GAAP, and expands disclosures about fair value measurements. The standard is effective for fiscal years beginning after November 15, 2007 and all interim periods within those fiscal years. The Company does not expect that the application of FAS 157 will have a material impact on the financial statements.

 


 

Reconciliation to accounting principles generally accepted in the United States (cont’d)
Fair Value Option for Financial Assets and Financial Liabilities
In February 2007, the FASB issued FAS 159 which permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value measurement, which is consistent with the Board’s long-term measurement objectives for accounting for financial instruments. This Statement is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007. The Company does not expect that the application of FAS 159 will have a material impact on the financial statements.
Business combinations
In December 2007, the FASB issued FAS 141 (revised 2007) to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. This Statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.
Non-controlling interests in consolidated financial statements
The objective of this Statement is to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. This Statement changes the way the consolidated income statement is presented. It requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated statement of income, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. Previously, net income attributable to the noncontrolling interest generally was reported as an expense or other deduction in arriving at consolidated net income. This Statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.