Consolidated Financial Statements of December 31, 2008 Contents ... - Mega Uranium Ltd. ›...

Consolidated Financial Statements of

December 31, 2008 (Unaudited) Contents

Consolidated Financial Statements

Consolidated Balance Sheets 2 Consolidated Statements of Operations and Deficit 3 Consolidated Statements of Cash Flows 4

Notes to the Consolidated Financial Statements 5-25

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(Unaudited -in thousands of dollars, except for securities and per share amounts)

December 31, September 30,

2008 2008Assets

CurrentCash and cash equivalents (note 5) $ 1,870 $ 2,512 Marketable securities (note 6) 39,524 46,512 Prepaid expenses and receivables 6,639 6,481

48,033 55,505 Mineral properties and related expenditures (notes 3 and 4) 286,755 283,104 Investments in public companies (note 7) 4,638 7,038 Restricted cash (note 8) 324 318 Capital assets, net 3,238 3,552

$ 342,988 $ 349,517

Liabilities and Shareholders' Equity

CurrentAccounts payable and accrued liabilities $ 8,638 $ 9,602 Income taxes payable 518 556

9,156 10,158

Future tax liabilities 58,078 55,899

67,234 66,057

Shareholders' equityShare capital (note 10) 431,211 431,211 Warrants (note 11) 31,728 31,867 Contributed surplus (note 12) 57,296 54,497 Deficit (244,481) (234,115)

275,754 283,460

$ 342,988 $ 349,517

Consolidated Balance SheetsMEGA URANIUM LTD.

As at December 31 and September 30, 2008

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Consolidated Statements of Operations and Deficit

(Unaudited- in thousands of dollars, except for securities and per share amounts)

2008 2007

Financial income (loss)Interest income $ 408 $ 1,075 Losses on disposal of marketable securities (7) - Gains (losses) on disposal of investments in public companies (25) 117 Unrealized losses on investments in public companies (2,348) (1,397) Unrealized gains (losses) on marketable securities (230) 188 Loss on sale of fixed assets (42) - Other income 61 -

(2,183) (17) Expenses

Operating, general and administrative 3,231 2,106 Stock-based compensation (note 10(b)) 2,660 5,359 Foreign exchange loss (gain) 2,597 (760) Amortization 209 101

8,697 6,806

Loss before income taxes (10,880) (6,823)

Recovery of income taxes (514) (4,920)

Net loss and comprehensive loss for the period (10,366) (1,903)

Deficit, beginning of period (234,115) (38,583)

Deficit, end of period $ (244,481) $ (40,486)

Loss per common share Basic and diluted $ (0.06) $ (0.01)

Weighted average number of common shares outstandingBasic and diluted 186,904,809 179,318,645

MEGA URANIUM LTD.

See accompanying notes to the consolidated financial statements.

For the three months ended December 31,

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For the three months ended December 31,(In thousands of dollars, except for securities and per share amounts)

2008 2007

Cash flows from operating activitiesNet loss for the period $ (10,366) $ (1,903) Items not affecting cash:

Losses on disposal of marketable securities 7 Losses (gains) on disposal of investments in public companies 25 (117) Unrealized losses on investments in public companies 2,348 1,397 Unrealized losses (gains) on marketable securities 230 (188) Amortization 209 101 Stock-based compensation 2,660 5,359 Loss on sale of fixed assets 42 - Future tax recovery (514) (5,065) Foreign exchange loss (gain) 2,648 (760)

(2,711) (1,176) Changes in non-cash working capital balances

Prepaid expenses and sundry receivables 410 (1,367) Accounts payable and accrued liabilities (964) (3,953) Income taxes payable (38) (849)

(3,303) (7,345) Cash flows from financing activities

Proceeds pursuant to exercise of options and warrants - 326

Cash flows from investing activitiesExpenditures on mineral properties and related exploration (3,651) (16,116) Proceeds from sale of marketable securities 6,048 43,499 Amortization of premium on purchase of marketable securities 132 183 Proceeds from sale of investments in public companies 28 712 Purchase of investments in public companies - (4,458) Proceeds from disposal of capital assets 104 - Purchase of capital assets - (1,379)

2,661 22,441

Increase (decrease) in cash and cash equivalents (642) 15,422

Cash and cash equivalents, beginning of period 2,512 48,830

Cash and cash equivalents, end of period $ 1,870 $ 64,252

Supplemental Cash Flows InformationCash paid for interest $ - $ 2 Income tax paid - 1,100 Non-cash investing and financing activitiesIssue of share capital pursuant to acquisitions of properties - 152

MEGA URANIUM LTD. Consolidated statements of Cash Flows

See accompanying notes to the consolidated financial statements.

Mega Uranium Ltd. Notes to the Consolidated Financial Statements December 31, 2008 (Unaudited-in thousands of dollars, except for securities and per share amounts)

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1. Basis of preparation:

Mega Uranium Ltd. (“Mega” or the “Company”) is an exploration and development stage mineral resources company with a focus on uranium properties in Australia, Argentina, Colombia, Bolivia, Mongolia, Cameroon and Canada. Mega also has precious and base metal interests in Mexico, and Canada. Mega is in the process of exploring its mineral properties and has not as yet determined whether these properties contain reserves that are economically recoverable. The recoverability of the amounts shown for mineral properties and related expenditures is dependent upon: the selling price of uranium at the time the Company intends to mine its properties; the existence of economically recoverable reserves; the ability of the Company to obtain the necessary financing to complete exploration and development; government policies and regulations; and future profitable production or proceeds from disposition of such properties. Mega’s uranium properties in Queensland, Australia, are subject to State policies which presently prohibit the mining of uranium. These consolidated financial statements include the accounts of Mega and its direct wholly-owned subsidiaries: Maple Resources Inc.; Maple Minerals Exploration and Development Inc.; Uranium Mineral Ventures Inc. (“UMVI”); Mega Georgetown Pty Ltd. and its wholly-owned subsidiary Future Metals and Energy Limited (“FME”); Mega Hindmarsh Holdings Pty Ltd. (“Hindmarsh”); Mega Redport Holdings Pty Ltd.; Mega Uranium Argentina S.A.; Twenty-Seven Capital Corp. (“TSC”); Monster Copper Corporation (“Monster”); Nu Energy Uranium Corporation (“Nu Energy”); Northern Lorena Resources Ltd. (“Lorena”); and Energentia Resources Inc. (“Energentia”). All significant inter-company accounts and transactions have been eliminated on consolidation. These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“GAAP”) and include the significant accounting policies listed below. Management has prepared the interim consolidated financial statements of Mega in Canadian dollars and in accordance with Canadian generally accepted accounting principles (“GAAP”) for interim financial reporting. Accordingly, they do not include all of the information and notes required by Canadian generally accepted accounting principles (“GAAP”) for annual financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation, have been included. All references are in Canadian dollars unless otherwise noted.

2. Significant accounting policies:

These interim consolidated financial statements should be read in conjunction with the annual consolidated financial statements of the Company and notes thereto as at September 30, 2008. Accounting policies followed in the preparation of the annual consolidated financial statements are consistent with those used in the preparation of these interim consolidated financial statements except for the following:


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2. Significant accounting policies (continued) : Effective October 1, 2008 the Company adopted the following new accounting standard issued by the Canadian Institute of Chartered Accountants (“CICA”): Section 3064 – Goodwill and Intangible Assets which replaced CICA Handbook sections 3062 and 3450, EIC 27 and part of Accounting Guideline 11. Under previous Canadian standards, more items were recognized as assets than under International Financial Reporting Standards (“IFRS”). The objectives of CICA 3064 are to reinforce the principle-based approach to the recognition of assets only in accordance with the definition of an asset and the criteria for asset recognition and to clarify the application of the concept of matching revenues and expenses such that the current practice of recognizing asset items that do not meet the definition and recognition criteria is eliminated. The portions in the new standard with respect to Goodwill remain unchanged. The provisions relating to the definition and initial recognition of intangible assets intends to reduce the differences with International Financial Reporting Standards in the accounting for intangible assets. The new standard also provides guidance for the recognition of internally developed intangible assets (including research and development activities), ensuring consistent treatment of all intangible assets The adoption of this standard had no impact on the Company’s presentation of its financial position or results of operations as at December 31, 2008.

Recent accounting pronouncements:

In 2006, the Canadian Accounting Standards Board ("AcSB") published a new strategic plan that will significantly affect financial reporting requirements for Canadian companies. The AcSB strategic plan outlines the convergence of Canadian GAAP with International Financial Reporting Standards (“IFRS”) over an expected five year transitional period. In February 2008, the AcSB announced that interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011 must be prepared in accordance with IFRS. The transition date of January 1, 2011 will require the restatement for comparative purposes of amounts reported by the Company for the year ended September 30, 2011. While the Company has begun assessing the impact of the adoption of IFRS for the year ended September 30, 2011, the financial reporting impact of the transition to IFRS cannot be reasonably estimated at this time.

3. Prior year acquisitions:

During the fiscal year ended September 30, 2008 the Company acquired several of its subsidiaries and property interests as follows: (a) In October 2007, Mega entered into an option agreement with CanAlaska Uranium

Ltd. (“CanAlaska”) (TSX:”CVV”) in respect of CanAlaska’s 100% owned Poplar property, which is located on the northern rim of the Athabasca Basin of northern Saskatchewan, Canada. Mega can earn a 50% interest in the Poplar property by spending $6,000 and by issuing 100,000 Mega shares to CanAlaska over three years. Mega has a $2,000 expenditure commitment in the first year of the option and CanAlaska will initially operate the project. Mega can earn a further 5% interest


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3. Prior year acquisitions (continued): (total 55% interest) by paying CanAlaska $2,000 and issuing an additional 100,000 Mega shares. Fifty thousand common shares have been issued pursuant to the agreement valued at $127. Subsequent to the transaction date, but during the year ended September 30, 2008, the option was terminated and the expenditure was written off.

(b) In November 2007, Mega issued 16,667 common shares valued at $61 to optionors pursuant to an option agreement entered into by TSC, Cash Minerals Ltd. and the optionors in respect of an option granted to TSC and Cash Minerals Ltd. to acquire a 100% interest in certain mineral claims located in Yukon, Canada. In connection with Mega’s acquisition of TSC, the optionors agreed to accept common shares of Mega in lieu of TSC common shares issuable under the option agreement.

(c) In January 2008, Mega issued 20,000 common shares in connection with a

Saskatchewan property acquisition valued at $61.

(d) In February 2008, Mega issued 25,000 common shares pursuant to an option agreement valued at $62.

(e) On March 6, 2008, Mega entered into an agreement to acquire Energentia

Resources Inc. (“Energentia”), a publicly-listed uranium exploration company with uranium properties in Colombia. Effective May 6, 2008, Mega acquired Energentia for an aggregate of 7,208,300 common shares of the Company valued at $14,849 and Energentia became a wholly-owned subsidiary of Mega. Additionally, an aggregate of up to 2,688,500 common shares of Mega are issuable pursuant to the exercise of outstanding stock options and common share purchase warrants of Energentia, which were assumed by Mega upon completion of the acquisition. The acquisition was accounted for using the purchase method. The results of operations of Energentia are included in the accounts from the effective date of acquisition.The allocation of the purchase price related to the Energentia transaction is preliminary and will be refined as information relating to the valuation of the fair value of net assets and the determination of certain tax values of those assets are finalized. The allocation of the purchase price related to the Energentia transaction is preliminary and will be refined as information relating to the valuation of the fair value of net assets and the determination of certain tax values of those assets are finalized. The preliminary fair values of the assets and liabilities and the preliminary allocation of the purchase consideration are as follows:


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3. Prior years acquisitions (continued):

As at May 6, 2008 Purchase price Issuance of 7,208,300 Mega shares $ 14,849 Assumed Energentia warrants (i) 213 Assumed Energentia options (i) 448 Transaction costs 100 $ 15,610Preliminary fair value of Energentia’s net assets acquired Current assets $ 9,573 Mineral properties and related expenditures 7,408 Capital assets, net 168 17,149 Less: current liabilities (370) Less: future tax liabilities (1,169)Fair value of net assets assumed $ 15,610

(i) An aggregate of 2,128,000 Mega common share purchase warrants and

560,500 Mega common shares are issuable to former shareholders of Energentia pursuant to the exercise of the Energentia Options and Energentia Warrants which have been assumed by Mega in connection with the acquisition and are included in the purchase price.

(f) In May 2008, Mega issued 25,000 common shares pursuant to an option agreement

for Maurice Point properties valued at $54. (g) In July 2008, Mega issued 25,000 common shares pursuant to an option agreement

for Geomode properties valued at $50.

(h) In September 2008, Mega issued 25,000 common shares pursuant to an option agreement for Maurice Point properties valued at $31.


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4. Mineral properties and related expenditures: The Company enters into exploration agreements with other companies pursuant to which it may earn interests in mineral properties by issuing common shares and/or making option payments and/or incurring expenditures in varying amounts by varying dates. Failure by Mega to meet such requirements can result in a reduction or loss of the Company’s ownership interests or entitlements under the agreements.

The following is a detailed list of the Company’s mineral properties:

September 30,2008

Net Book Value

Net Expenditures/ (Recoveries) Write off

Net Book Value

AUSTRALIA - QueenslandBen Lomond PropertyAcquisition 5,722$ -$ -$ 5,722 Exploration expenditures 3,497 534 - 4,031

9,219 534 - 9,753

Future Metals and Energy PropertiesAcquisition 10,230 - - 10,230 Exploration expenditures 1,773 48 - 1,821

12,003 48 - 12,051

Georgetown PropertiesAcquisition 6,413 0 - 6,413 Exploration expenditures 3,758 7 - 3,765

10,171 7 - 10,178

Glengarry PropertiesAcquisition 674 - - 674 Exploration expenditures 706 40 - 746

1,380 40 - 1,420

Total Queensland properties 32,773 629 - 33,402

December 31, 2008


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4. Mineral properties and related expenditures (continued): September 30,

2008

Net Book Value


Net Book Value

AUSTRALIA - South Australia & Northern TerritoryHindmarsh PropertyWestern South AustraliaAcquisition 3,670$ -$ 3,670$ Exploration expenditures 701 21 - 722

4,371 21 - 4,392 Central South AustraliaAcquisition 1,746 - - 1,746 Exploration expenditures 1,782 67 - 1,849

3,528 67 - 3,595 Eastern South AustraliaAcquisition 1 - - 1 Exploration expenditures 1,085 22 - 1,107

1,086 22 - 1,108 Northern TerritoryAcquisition 1,493 - - 1,493 Exploration expenditures 435 (16) - 419

1,928 (16) - 1,912

Total South Australia &Northern Territory properties 10,913 94 - 11,007

AUSTRALIA - Western AustraliaRedport Properties Lake MaitlandAcquisition 105,256 - - 105,256 Exploration expenditures 4,586 738 - 5,324

109,842 738 - 110,580 Kintyre RocksAcquisition 26,314 - - 26,314 Exploration expenditures 2,980 83 - 3,063

29,294 83 - 29,377 Aura Energy joint ventureAcquisition - - - - Exploration expenditures 1,382 154 - 1,536

1,382 154 - 1,536 Total Western Australian properties 140,518 975 - 141,493

Total Australian properties 184,204 1,698 - 185,902

December 31, 2008


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4. Mineral properties and related expenditures (continued):

September 30,2008

Net Book Value

Net Expenditures/ (Recoveries) Write off Net Book Value

ARGENTINAChubut/Patagonia PropertyAcquisition 147$ -$ -$ 147$ Exploration expenditures 2,920 326 - 3,246

3,067 326 - 3,393 Sierra Pintada District Uranium PropertyAcquisition 75 - - 75 Exploration expenditures 35 1 - 36

110 1 - 111

Total Argentina properties 3,177 327 - 3,504

BOLIVIAUranium Project (Intrepid Minerals joint venture)Acquisition 58 - - 58 Exploration expenditures 509 89 - 598

567 89 - 656

COLOMBIAAcquisition 131 - - 131 Exploration expenditures 811 (36) - 775

942 (36) - 906

COLOMBIAEnergentia PropertiesAcquisition 7,408 - - 7,408 Exploration expenditures 919 291 - 1,210

8,327 291 - 8,618

MEXICOTwenty-Seven PropertiesAcquisition 546 - - 546 Exploration expenditures - - - -

546 - - 546

December 31, 2008


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September 30,2008

Net Book Value


Net Book Value

MONGOLIAUranium Project (Red Hill Energy joint venture)Acquisition 98$ -$ -$ 98$ Exploration expenditures 1,885 13 - 1,898

1,983 13 - 1,996

CAMEROON (AFRICA)Kitongo/Lolodorf PropertyAcquisition 34,572 - - 34,572 Exploration expenditures 782 826 - 1,608

35,354 826 - 36,180

CANADAOntario Properties (East West Resources joint venture)Acquisition 64 25 - 89 Exploration expenditures 1,500 1 - 1,501

1,564 26 - 1,590

Central Mineral Belt Properties (Santoy)Acquisition 2,447 - - 2,447 Exploration expenditures 983 15 - 998

3,430 15 - 3,445

Thelon Basin (Titan Uranium)Acquisition - - - - Exploration expenditures 5,000 0 - 5,000

5,000 0 - 5,000

December 31, 2008


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September 30,2008

Net Book Value

Net Expenditures/ (Recoveries) Write-off Net Book Value

CANADA (continued)

Geomode Properties - Keefe LakeAcquisition 643$ -$ -$ 643$ Exploration expenditures 2,212 3 - 2,215

2,855 3 - 2,858

South Fork Properties (Uranium Power)Acquisition 7 - - 7 Exploration expenditures 1,231 365 - 1,596

1,238 365 - 1,603

Maurice Point Properties (Forum Uranium)Acquisition 86 - - 86 Exploration expenditures 3,829 89 - 3,918

3,915 89 - 4,004

Twenty-Seven Yukon PropertiesAcquisition 20,118 - - 20,118 Exploration expenditures 208 (119) - 89

20,326 (119) - 20,207

Monster Labrador PropertiesAcquisition 5,049 - - 5,049 Exploration expenditures 4,627 64 - 4,691

9,676 64 - 9,740

Total Canadian properties 48,004 443 - 48,447

Total mineral properties and 283,104$ 3,651$ -$ 286,755$ related expenditures

December 31, 2008


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5. Cash and cash equivalents:

Cash and cash equivalents consist of the following:

December 31, 2008 September 30, 2008

Cash $ 1,870 $ 2,226Cash equivalents (a) - 286

$ 1,870 $ 2,512

(a) As at September 30, 2008 cash equivalents consisted of money market funds, which were sold during the period ended December 31, 2008.

6. Marketable securities:

Marketable securities are classified as held-for-trading, are stated at their fair values and consist of the following as at:


Corporate bonds (a) $ 39,346 $ 46,101Other equity securities (b) 178 411

$ 39,524 $ 46,512 (a) As at December 31, 2008, corporate bonds consists of two separate highly liquid “A+”

bonds. One bond yields 3.71% and matures on May 12, 2014. The other bond yields 3.77% and matures on June 1, 2014.

(b) As at December 31, 2008 equity securities were held by the Company’s Australian

subsidiaries.


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7. Investments in public companies:

Investments consisted of the following as at December 31, 2008:

Investments Security Description Cost Fair Value Northern Uranium Limited 2,260,520 common shares

1,250,000 options expiring December 12, 2009 $ 406 $ 280

Scimitar Resources Limited 3,750,000 common shares 2,284 737Alberta Star Development Corp. 5,896,800 common shares 2,917 619Bayswater Uranium Corporation 8,678,500 common shares 4,408 651Colossus Minerals Inc. 93,750 common shares 94 80Ditem Explorations 3,955,100 common shares 1,820 297Khan Resources Inc. 752,000 common shares 963 312Mawson Resources Limited 1,537,500 common shares 1,408 538Greenland Minerals & Energy Ltd. 4,000,000 common shares 4,458 804Silver Spruce Resources Inc. 142,500 common shares 240 16Santoy Resources Limited 200,000 common shares 196 18Titan Uranium Inc. 500,000 common shares 322 103Ucore Uranium Inc. 4,000,000 common shares 1,520 140Alderon Resource Corp 500,000 common shares 50 15Action Mineral Inc. 5,000,000 common shares 100 25Longharbour Capital 40,000 common shares 14 3

Total investments in public companies $ 21,200 $ 4,638 Investments consisted of the following as at September 30, 2008:

Investments Security Description Cost Fair Value Northern Uranium Limited 2,260,520 common shares 1,250,000 options expiring December 12, 2009 $ 406 $ 409Scimitar Resources Limited 3,750,000 common shares 2,284 628Alberta Star Development Corp. 5,896,800 common shares 2,917 1,002 Bayswater Uranium Corporation. 8,678,500 common shares 4,408 1,215 Colossus Mineral Inc. 93,750 common shares 94 159Ditem Explorations 3,955,100 common shares 1,820 930Khan Resources Inc. 752,000 common shares 963 346Mawson Resources Limited 1,594,500 common shares 1,460 550Greenland Minerals & Energy Ltd 4,000,000 common shares 4,458 905Silver Spruce Resources Inc. 142,500 common shares 240 14Santoy Resources Limited 200,000 common shares 196 26Titan Uranium Inc 500,000 common shares 322 95Ucore Uranium Inc 4,000,000 common shares 1,520 580Alderon Resource Corp 500,000 common shares 50 115Action Mineral Inc 5,000,000 common shares 100 50Longharbour Capital 40,000 common shares 14 14

Total investments in public companies $ 21,252 $ 7,038


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8. Restricted cash:

As at December 31, 2008, the Company had pledged approximately $299 (2008 - $293) of cash held in a Guaranteed Investment Certificate (“GIC”) as collateral for a letter of guarantee issued to the State of Queensland, Australia, related to the mining leases for the Ben Lomond uranium project. The letter of guarantee is automatically renewable annually for an indefinite period of time and, accordingly, the pledged GIC is expected to continue to be renewed annually. In connection with the acquisition of TSC, the Company has $25 (2008- $25) of cash held in a GIC as collateral for a reclamation bond issued to the Province of British Columbia, Canada, related to the mining properties for the Muskwa uranium project. The letter of guarantee is automatically renewable annually for an indefinite period of time and, accordingly, the pledged GIC is expected to continue to be renewed annually.

9. Related party transactions:

All transactions with related parties have occurred in the normal course of operations and are recorded at the exchange amount, which is the amount of consideration established and agreed to by the related parties.

Related party transactions were as follows during the three months ended December 31:

Type of service Nature of relationship 2008 2007

Cost sharing arrangement Affiliated company (a) $ 110 $ 110 (a) The Company has a cost sharing arrangement with Pinetree Capital Ltd. (“Pinetree”)

(TSX:”PNP”), which is also a shareholder of the Company with a common director and officers, covering specific operating, general and administrative expenses, including office rent and salaries.


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10. Share capital:

(a) Share capital: Authorized: unlimited number of common shares. Common shares issued and outstanding:

# of Shares Amount Balance, September 30, 2007 179,117,602 417,070Issued pursuant to exercise of share purchase and broker warrants 28,384 175Issued for acquisition of subsidiary 7,308,360 15,285Issued for acquisitions of properties 186,667 447Issued pursuant to the exercise of Monster warrants 180,463 1,268Issued pursuant to the exercise of Nu Energy options 83,333 390Renunciation of flow-through expenditures — (3,424)Balance, September 30, 2008 186,904,809 $ 431,211 Balance, December 31, 2008 186,904,809 $ 431,211 (b) Stock option plans:

The Company grants options to directors, officers, employees and consultants under its 2007 Stock Option Plan to enable them to purchase common shares of the Company. The plan is administered by the Board of Directors. Under the plan, the Company is authorized to issue up to that number of common shares of Mega equal to 10% of the number of common shares outstanding from time to time. The term of an option granted under the plan may not exceed 10 years. Stock option grants have a variety of vesting periods, almost all of which vest in three-month intervals over an 18-month period from the date of grant. There were no options granted during the three month ended December 31, 2008 which have a vesting period other than aforementioned. A summary of the status of the Company’s stock options outstanding as at December 31, 2008 and September 30, 2008 and changes during the periods then ended is presented below:


# of Options

Weighted average exercise price

# of Options

Weighted average exercise price

Outstanding, at beginning of period 16,994,469 $ 4.64 15,367,840 $ 4.73Granted - - 1,730,000 3.01 Exercised - - - - Cancelled (211,129) $ 4.97 (663,871) (4.84)

Assumed Energentia stock options _ _ 560,500 7.50 Outstanding, at end of period 16,783,340 4.63 16,994,469 4.64

Exercisable, at end of period 15,684,330 $ 4.74 14,909,089 $ 4.73


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10. Share capital (continued):

The following table summarizes information about stock options outstanding and exercisable as at December 31, 2008:

Number of options outstanding

Number of options exercisable

Exercise price Expiry date

74,400 74,400 $ 0.38 March 28, 20091,700 1,700 0.25 September 22, 2009

10,000 10,000 0.25 September 26, 2009 20,000 20,000 0.25 December 20, 2009 60,000 60,000 0.41 February 14, 2010

100,000 100,000 0.41 February 17, 201010,040 10,040 0.75 February 28, 201050,000 50,000 0.70 March 16, 201016,800 16,800 0.85 September 12, 2010

115,200 115,200 1.38 October 2, 2010600,000 600,000 1.35 October 10, 201050,200 50,200 1.71 November 17, 2010

208,400 208,400 2.50 January 2, 20112,000,000 2,000,000 2.95 February 19, 2011

160,000 160,000 3.43 March 15, 2011270,000 270,000 4.90 April 12, 2011

3,170,000 3,170,000 4.45 April 23, 2011200,000 200,000 4.00 May 10, 2011195,100 195,100 3.78 September 18, 2011 50,000 50,000 3.78 September 25, 2011

770,000 770,000 5.97 December 27, 2011 2,125,000 2,125,000 6.46 January 15, 2012

50,000 50,000 6.48 February 4, 20122,295,000 2,295,000 6.87 May 21, 2012

250,000 250,000 6.10 June 6, 2012250,000 208,000 6.05 July 12, 2012

1,586,000 1,321,660 3.90 September 20, 2012 515,000 342,240 4.30 November 15, 2012 100,000 66,400 2.90 December 17, 2012 350,000 174,360 2.34 February 17, 2013390,000 129,400 2.38 April 7, 2013545,500 545,500 7.50 March 6, 201215,000 15,000 7.50 May 24, 2012 5,000 830 2.31 July 1, 2013

175,000 29,100 1.63 September 1, 2013

16,783,340 15,684,330


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10. Share capital (continued):

These stock options were issued to employees, directors, and consultants and in accordance with CICA 3870, were accounted for using the fair value method and expensed over the option’s vesting periods in the consolidated statements of operations and deficit and credited to contributed surplus.

In accordance with CICA 3870, the fair value of stock options granted to employees and directors during the period was estimated at the date of the grant using the Black-Scholes Option Pricing Model. The expected life of an option of the Company is 3.5 years with an expected dividend yield of 0% since the Company has never distributed dividends. Volatility is calculated using three and a half years of share data prior to the date the option was granted. The Company uses the Bank of Canada bank rate as the risk-free interest rate.

For the three month ended December 31, 2008, included in the consolidated statement of operations and deficit was stock-based compensation expense of $2,660 (2007 – $5,359) relating to the fair value of options granted during prior periods.

11. Warrants:

A summary of the status of the Company’s warrants as at December 31, 2008 and September 30, 2008 and changes during the periods then ended is presented below:

# of Warrants Weighted

average exercise price

Amount

Balance, September 30, 2007 14,487,613 6.38 41,768Exercised (28,384) (4.25) (54)Monster warrants exercised (180,463) (2.82) (759)Expired warrants (4,308,640) (5.99) (6,155)Assumed Energentia warrants 2,128,000 0.10 213Expired Monster warrants (858,247) (3.67) (3,146)Balance, September 30, 2008 11,239,879 $ 6.92 $ 31,867Expired warrants (85,000) 4.55 (139) Balance, December 31, 2008 11,154,879 $ 6.94 $ 31,728


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11. Warrants (continued): The following table summarizes the warrants outstanding as at December 31, 2008:

(i) If the closing price of Mega’s shares exceeds $12.30 for 20 consecutive days, the

warrants will expire 30 days following written notice to the holders of the warrants.

(ii) In connection with the acquisition of TSC, these warrants have been fair valued

using the closing quoted bid price of the publicly-traded warrants.

(iii) In connection with the acquisition of Monster, these warrants have been fair valued using an average of quoted bid prices of the publicly-traded warrants.

(iv) In connection with the acquisition of Energentia, the Energentia Warrants were

valued using the Black-Scholes option pricing model with the following assumptions: expected volatility of 93.0%; dividend yield of 0%; risk-free interest rate of 3.25%; and an expected life of 10 months. The value assigned to the Energentia Warrants was $213.

12. Contributed surplus:

Contributed surplus transactions for the respective periods are as follows:

AmountBalance, September 30, 2007 26,550Stock-based compensation 18,544 Exercise of Nu Energy stock options (265)Expired warrants 6,155 Adjustment to assumed Nu Energy options (81)Assumed Energentia stock options (a) 448 Expired Monster warrants 3,146 Balance, September 30, 2008 $ 54,497Stock based compensation 2,660Expired warrants 139Balance, December 31, 2008 $ 57,296

Number of warrants Exercise price ($) Expiry date

Warrant value using Black-Scholes valuation ($)

3,392,188 6.00 February 12, 2012 (ii) 14,145 50,000 6.00 February 12, 2012 (ii) 208

1,900,000 7.90 February 22, 2012 (i) 7,695 3,684,691 7.00 June 6, 2012 (iii) 9,467 2,128,000 7.50 February 14, 2009 (iv) 213

11,154,879 $ 31,728


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12. Contributed surplus (continued):

(a) In connection with the acquisition of Energentia, these Energentia options were valued using the Black-Scholes option pricing model with the following assumptions: expected volatility ranging from 91.9% to 93.9%; dividend yield of 0%; risk-free interest rate of 3.25%; and an expected life varying from 46 to 49 months. The value assigned to the Energentia options was $448.

13. Segmented information:

The Company’s significant segments include four distinct geographic areas. The Canadian operations, which are mainly in Ontario, Yukon Territory, Saskatchewan and Newfoundland and Labrador are managed from the Company’s head office in Toronto. The Australian operations are managed from offices in Brisbane, Adelaide and Perth. The South American operations are located in Colombia, Argentina and Bolivia and are managed from the Mendoza (Argentina) office, under the overall supervision of the Brisbane office. In Asia, Mega’s joint venture interests in Mongolia are locally managed by its joint venture partner, Red Hill Energy, under the overall supervision of the Brisbane office. In Cameroon, exploration activities are locally managed from an office in Yaounde under the overall supervision of the Brisbane office. The following is segmented information as at and for the three months ended December 31, 2008:

Three months ended December 31, 2008

As at December 31, 2008

Country/Region Financial income (loss)

Net loss Future tax

liabilities Capital assets

Mineral properties and

related expenditures

Canada $ 1,916) $ (5,189) $ 6,973 $ 95 $ 48,447

Australia (229) (1,665) 35,267 1,286 185,902Central and South America 4 (506) 1,104 184 14,230Asia and Africa (42) (3,006) 14,734 1,673 38,176Total $ (2,183) $ (10,366) $ 58,078 $ 3,238 $ 286,755


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13. Segmented information(continued): The following is segmented information for the periods:

The Company has no inter-segment revenues.

14. Management of capital: The Company includes the following in its capital:

As at December 31,

2008 As at September 30,

2008 Shareholders’ equity comprised of

Share capital $ 431,211 $ 431,211Warrants 31,728 31,867 Contributed surplus 57,296 54,497Deficit (244,481) (234,115)

$ 275,754 $ 283,460

The Company’s objectives when managing capital are:

(a) To maintain the necessary financing to undertake exploration and development of its properties in accordance with its plans;

(b) To realize proceeds from sale of one or more of its properties;

(c) Maximizing the income it receives from cash & cash equivalents without significantly

exposing the principalk by placing investments with high credit quality issuers; and

(d) To maintain a flexible capital structure which optimizes the cost of capital at acceptable levels of risk.

Three months ended December 31, 2007

As at September 30, 2008

Country/Region Financial income (loss)

Net income (loss)

Future tax liabilities

Capital assets

Mineral properties and related

expenditures Canada $ (250) $ (1,301) $ 7,189 $ 101 $ 48,004 Australia 205 326 34,711 1,328 184,204 Central and South America — (77) 1,025 194 13,559 Asia and Africa 28 (851) 12,974 1,929 37,337 Total $ (17) $ (1,903) $ 55,899 $ 3,552 $ 283,104


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14. Management of capital(continued): The Company manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of its underlying assets. The Company maintains or adjusts its capital level to enable it to meet its objectives by:

• realizing proceeds from the disposition of its investments;

• raising capital through equity financings;

• reviewing and, when necessary or desirable, reallocating or reducing capital spending

on mineral properties. The Company is not subject to any capital requirements imposed by a regulator. To date, the Company has not declared any cash dividends to its shareholders. The Company’s management is responsible for the management of capital and reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable. The Company expects that its current capital resources will be sufficient to discharge its liabilities as at December 31, 2008.

15. Financial instruments: Part of Mega’s business includes the acquisition of marketable securities and equity investments in public companies. These assets represent a small portion of the Company’s overall business; however, the use of financial instruments can expose the Company to several risks, including interest rate, foreign exchange and market risks. A discussion of the Company’s use of financial instruments and their associated risks is provided below. (a) Liquidity risk: Liquidity risk is the risk that the Company will have sufficient cash

resources to meet its financial obligations as they come due. The Company’s liquidity and operating results may be adversely affected if the Company’s access to the capital market is hindered, whether as a result of downturn in stock market conditions generally or related to matters specific to the Company, or if the value of the Company’s investment declines, resulting in lesser proceeds of disposition and losses upon disposition. The Company generates cash flow primarily from its financing activities and proceeds from disposition of its investment and marketable securities, in addition to interest income earned on its investment. The Company has cash and cash equivalents and marketable securities of approximately $41,394. The marketable securities are invested in highly liquid “A+” bonds (see note 6). The funds are available as needed to fund the Company’s ongoing expenditures. The Company regularly evaluates these holdings to ensure preservation and security of capital as well as maintenance of liquidity.


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15. Financial instruments (continued):

(b) Market risk: Market risk is the risk that the fair value of, or future cash flows from, the Company’s financial instruments will significantly fluctuate due to changes in market prices. The value of the financial instruments can be affected by changes in interest rates, foreign exchange rates, and equity and commodity prices. In the normal course of business, the Company is exposed to market risks as a result of its investments in publicly-traded companies. During periods of significant broader market volatility or volatility experienced by the resource/commodity markets, the value of the Company’s investment portfolio can be vulnerable to market fluctuations.

The following table shows the estimated sensitivity of the Company’s after-tax net income (loss) for the period ended December 31, 2008 from a change in the closing bid price of the Company’s investments in public companies with all other variables held constant as at December 31, 2008:

Percentage of Change in Closing Bid Prices

Change in Net After-tax Income (Loss) From % Increase in Closing Bid Price

Change in Net After-tax Income (Loss) From % Decrease in Closing Bid Price

2% $ 77 $ (77) 4% 154 (154) 6% 231 (231)8% 308 (308)10% 384 (384)

(c) Interest rate risk: Interest rate risk is the impact that changes in interest rates could have on the Company’s earnings and liabilities. In the normal course of business, the Company is exposed to interest rate fluctuations as a result of the significant portion of marketable securities being invested in interest-bearing instruments.

The following table shows the estimated sensitivity of the Company’s net after-tax income (loss) for the year ended December 31, 2008 from a change in the interest rate on the average interest risk assets with all other variables held constant as at December 31, 2008:

Change in Interest Rate

Change in Net After-tax Income (Loss) From an Increase in Interest Rate

Change in Net After-tax Income (Loss) From a Decrease in Interest Rate

0.25% $ 14 $ (14)0.50% 28 (28)0.75% 42 (42)1.00% 55 (55)


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15. Financial instruments (continued):

(d) Currency risk: Currency risk is the risk that the fair value of, or future cash flows from, the Company’s financial instruments will fluctuate because of changes in foreign exchange rates. The Company is exposed to currency fluctuations as it presently holds funds in Canadian dollars and a significant amount of its costs and liabilities are denominated in Australian and other currencies. The Company believes it is not significantly exposed to foreign exchange risk and has not entered into any foreign currency contracts to hedge this exposure.

The following table shows the estimated sensitivity of the Company’s net after-tax income (loss) for the period ended December 31, 2008 from a change in all foreign currencies (Australian dollars, South Africa rand, Cameroon franc and U.S. dollars) with all other variables held constant as at December 31, 2008:

Percentage of Change in Foreign Currencies

Change in Net After-tax Income (Loss) From % Increase in

Foreign Currencies

Change in Net After -Tax Income (Loss) From %Decrease in Foreign Currencies

2% $ 783 $ (783)4% 1,567 (1,567) 6% 2,350 (2,350)8% 3,133 (3,133)10% 3,917 (3,917)

(e) Credit risk: Credit risk is the risk of loss associated with a counter-party’s inability to

fulfill its payment obligations. The Company has its cash and cash equivalents deposited with highly rated financial institutions. Other credit risk relates to trade receivables in the ordinary course of business. The balance of trade receivables owed to the company in the ordinary course of business is not significant. The Company holds corporate bonds issued by two of Canada’s Schedule A banks. They are highly liquid “A+” bonds and the Company believes that the credit risk associated with these bonds is minimal.

(f) Fair value:

The Company has determined the fair value of its financial instruments as follows:

(i) The carrying values of cash and cash equivalents, prepaids and other

receivables, accounts payable and accrued liabilities, approximate their fair values due to the short-term nature of these instruments.

(ii) Investments and capital assets are carried at amounts in accordance with the

Company’s accounting policies.

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