UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
      20-F





 ̈
            REGISTRATION STATEMENT PURSUANT
      TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF
      1934


OR


x
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For
fiscal year ended December 31, 2009





OR


 ̈
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For
the transition period from ____ to ______





OR


 ̈
            SHELL
      COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934


Date
of event requiring this shell company report:




Commission
      file number:
001-33491








DEJOUR ENTERPRISES LTD.(Exact
      name of Registrant as specified in its
charter)





Provinceof
      British Columbia,
      Canada(Jurisdiction
      of incorporation or organization)





598
      - 999 Canada Place
                Vancouver, British
      Columbia(Address
      of principal executive offices)





Mathew
Wong


598
- 999 Canada Place


Vancouver,
British Columbia


Tel:
(604) 638-5050


Facsimile: (604)
638-5051(Name,
      Telephone, E-mail and/or Facsimile number and Address of Company Contact
      Person)





Securities
      registered pursuant to Section 12(b) of the
Act:





Title of Each Class
                      Name of each exchange on which
      registeredCommon
      Shares, without par value
                      NYSE
      Amex Equities


Securities
registered pursuant to Section 12(g) of the
Act:       None





Securities
for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None





Indicate
the number of outstanding shares of each of the Registrant’s classes of capital
or common stock as of the close of the period covered by the annual
report:  95,791,038common sharesasatDecember 31, 2009





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes  ̈No x





If this
report is an annual or transition report, indicate by check mark if the
Registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934. Yes  ̈No x





Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes xNo  ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every  Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).  Yes  ̈No  ̈





Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.  See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.  (Check one)





Large
accelerated filer  ̈                    Accelerated
filer  ̈                    Non-accelerated
filer  x





Indicate
by check mark which basis of accounting the registrant has used to prepare the
financial statements included in this filing:





U.S.
      GAAP  ̈
                International
      Reporting Standards as
      issued                  ̈
                Other  xby
      the International Accounting Standards Board





If
“Other” has been checked in response to the previous question, indicate by check
mark which financial statement item the registrant has elected to
follow:





Item 17
 ̈             Item
18  x





If this
is an annual report, indicate by check mark whether the Registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).   Yes
 ̈  No
x







TABLE
OF CONTENTS





GENERAL
      INFORMATION
                1CAUTIONARY
      NOTE REGARDING FORWARD-LOOKING STATEMENTS
                1CURRENCY
      AND EXCHANGE RATES
                3ABBREVIATIONS
                4PART
      I
                5ITEM
      1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND
      ADVISORS
                5ITEM
      2.  OFFER STATISTICS AND EXPECTED TIMETABLE
                5ITEM
      3.  KEY INFORMATION
                5ITEM
      4.  INFORMATION ON THE COMPANY
                18ITEM
      4A.  UNRESOLVED STAFF COMMENTS
                42ITEM
      5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS
                42ITEM
      6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
                50ITEM
      7.  MAJOR SHAREHOLDERS AND RELATED PARTY
      TRANSACTIONS
                65ITEM
      8.  FINANCIAL INFORMATION
                69ITEM
      9.  THE OFFER AND LISTING
                70ITEM
      10.  ADDITIONAL INFORMATION
                72ITEM
      11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK
                88ITEM
      12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY
      SECURITIES
                89PART
      II
                90ITEM
      13.  DEFAULTS, DIVIDEND ARREARAGES AND
    DELINQUENCIES
                90ITEM
      14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
      AND USE OF PROCEEDS
                90ITEM
      15T.  CONTROLS AND PROCEDURES
                90ITEM
      16.  [RESERVED]
                91ITEM
      16A.  AUDIT COMMITTEE FINANCIAL EXPERT
                91ITEM
      16B.  CODE OF ETHICS
                91ITEM
      16C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES
                91ITEM
      16D.  EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT
      COMMITTEES
                92ITEM
      16E.  PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND
      AFFILIATED PERSONS
                92ITEM
      16F.  CHANGE IN REGISTRANT’S CERTIFYING
    ACCOUNTANT
                92ITEM
      16G.  CORPORATE GOVERNANCE
                92PART
      III
                94ITEM
      17.  FINANCIAL STATEMENTS
                94ITEM
      18.  FINANCIAL STATEMENTS
                94ITEM
      19.  EXHIBITS
                95SIGNATURES
                97







GENERAL
INFORMATION





All
references in this annual report on Form 20-F to the terms “we”, “our”, “us”,
“the Company” and “Dejour” refer to Dejour Enterprises Ltd.




CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS





This
annual report on Form 20-F and the documents incorporated herein by reference
contain “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
concern our anticipated results and developments in the our operations in future
periods, planned exploration and, if warranted, development of its properties,
plans related to its business and other matters that may occur in the future.
These statements relate to analyses and other information that are based on
forecasts of future results, estimates of amounts not yet determinable and
assumptions of management.





Any
statements that express or involve discussions with respect to predictions,
expectations, beliefs, plans, projections, objectives, assumptions or future
events or performance (often, but not always, using words or phrases such as
“expects” or “does not expect”, “is expected”, “anticipates” or “does not
anticipate”, “plans”, “estimates” or “intends”, or stating that certain actions,
events or results “may”, “could”, “would”, “might” or “will” be taken, occur or
be achieved) are not statements of historical fact and may be forward-looking
statements. The forward-looking statements contained in this annual report on
Form 20-F concern, among other things:





·
            drilling
      inventory, drilling plans and timing of drilling, re-completion and tie-in
      of wells;




·
            productive
      capacity of wells, anticipated or expected production rates and
      anticipated dates of commencement of
production;




·
            drilling,
      completion and facilities costs;




·
            results
      of various projects of the Company;




·
            ability
      to lower cost structure in certain projects of the
  Company;




·
            growth
      expectations within the Company;




·
            timing
      of development of undeveloped
reserves;




·
            the
      tax horizon of the Company;




·
            the
      performance and characteristics of the Company’s oil and natural gas
      properties;




·
            oil
      and natural gas production levels;




·
            the
      quantity of oil and natural gas
reserves;




·
            capital
      expenditure programs;




·
            supply
      and demand for oil and natural gas and commodity
  prices;




·
            the
      impact of federal, provincial, and state governmental regulation on the
      Company;




·
            expected
      levels of royalty rates, operating costs, general administrative costs,
      costs of services and other costs and
expenses;




·
            expectations
      regarding the Company’s ability to raise capital and to continually add to
      reserves through acquisitions, exploration and
  development;




·
            treatment
      under governmental regulatory regimes and tax laws;
  and




·
            realization
      of the anticipated benefits of acquisitions and
    dispositions.




These
statements relate to analyses and other information that are based on forecasts
of future results, estimates of amounts not yet determinable and assumptions of
our management.


1





Forward-looking
statements are subject to a variety of known and unknown risks, uncertainties
and other factors that could cause actual events or results to differ from those
expressed or implied by the forward-looking statements, including, without
limitation:





·
            risks
      related to the marketability and price of oil and natural gas being
      affected by factors outside the Company’s
  control;




·
            risks
      related to world oil and natural gas prices being quoted in U.S. dollars
      and the Company’s productions revenues being adversely affected by an
      appreciation in the Canadian
dollar;




·
            risks
      related to the Company’s ability to execute projects being dependent on
      factors outside the Company’s
control;




·
            risks
      related to oil and gas exploration having a high degree of risk and
      exploration efforts failing;




·
            risks
      related to cumulative unsuccessful exploration
  efforts;




·
            risks
      related to oil and natural gas operations involving hazards and
      operational risks;




·
            risks
      related to seasonal factors and unexpected
  weather;




·
            risks
      related to competition in the oil and gas
  industry;




·
            risks
      related to the fact that the Company does not control all of the assets
      that are used in the operation of the Company’s
  business;




·
            risks
      related to the Company’s ability to market oil and natural gas depending
      on its ability to transport the product to
  market;




·
            risks
      related to high demand for drilling
equipment;




·
            risks
      related to title to the Company’s
properties;




·
            risks
      related to the Company’s ability to continue to meet its oil and gas lease
      or license obligations;




·
            risks
      related to the Company’s anticipated substantial capital needs for future
      acquisitions;




·
            risks
      related to the Company’s cash flow from reserves not being sufficient to
      fund its ongoing operations;




·
            risks
      related to covenants in issued debt restricting the ability to conduct
      future financings;




·
            risks
      related to the Company being exposed to third party credit
      risks;




·
            risks
      related to the Company being able to find, acquire, develop and
      commercially produce oil and natural
gas;




·
            risks
      related to the Company’s properties not producing as
      projected;




·
            risks
      related to the Company’s estimated reserves being based upon
      estimates;




·
            risks
      related to future oil and gas revenues not resulting in revenue
      increases;




·
            risks
      related to the Company managing
growth;




·
            risks
      related to the Company being dependent on key
  personnel;




·
            risks
      related to the Company’s operations being subject to federal, state, local
      and other laws, controls and
regulations;




·
            risks
      related to uncertainty regarding claims of title and right of aboriginal
      people;




·
            risks
      related to environmental laws and
regulations;




·
            risks
      related to the Company’s facilities, operations and activities emitting
      greenhouse gases;




·
            risks
      related to the Company not having paid dividends to
  date;




2


·
            risks
      related to the Company’s stock price being
  volatile;




·
            risks
      related to the Company being a foreign private
  issuer.




This list
is not exhaustive of the factors that may affect any of the Company’s
forward-looking statements.  Some of the important risks and
uncertainties that could affect forward-looking statements are described further
under the section heading “Item 3. Key Information – D. Risk Factors”
below.  If one or more of these risks or uncertainties materializes,
or if underlying assumptions prove incorrect, our actual results may vary
materially from those expected, estimated or
projected.  Forward-looking statements in this document are not a
prediction of future events or circumstances, and those future events or
circumstances may not occur.  Given these uncertainties, users of the
information included herein, including investors and prospective investors are
cautioned not to place undue reliance on such forward-looking
statements.  Investors should consult our quarterly and annual filings
with Canadian and U.S. securities commissions for additional information on
risks and uncertainties relating to forward-looking statements.  We do
not assume responsibility for the accuracy and completeness of these
statements.




Forward-looking
statements are based on our beliefs, opinions and expectations at the time they
are made, and we do not assume any obligation to update our forward-looking
statements if those beliefs, opinions, or expectations, or other circumstances,
should change, except as required by applicable law.





We
qualify all the forward-looking statements contained in this annual report on
Form 20-F by the foregoing cautionary statements.




CURRENCY
AND EXCHANGE RATES





Canadian
Dollars Per U.S. Dollar





Unless
otherwise indicated, all references in this annual report are to Canadian
dollars ("$" or "Cdn$").





The
following tables set forth the number of Canadian Dollars required to buy one
U.S. Dollar based on the average, high and low nominal noon exchange rate as
reported by the Bank of Canada for each of the last five fiscal years and each
of the last six months.  The average rate means the average of the exchange
rates on the last day of each month during the period.





Canadian Dollars Per U.S. Dollars2009
                
                
                2008
                
                
                2007
                
                
                2006
                
                
                2005
                
                
                2004Average
      for the period
                
                
                1.1416
                
                
                
                1.0592
                
                
                
                1.0697
                
                
                
                1.1338
                
                
                
                1.2108
                
                
                
                1.2992





For the Month ofMay
                        2010
                      
                      
                      April
                        2010
                      
                      
                      March
                        2010
                      
                      
                      February
                        2010
                      
                      
                      January
                        2010
                      
                      
                      December
                        2009High
      for the period
                      
                      
                      1.0848
                      
                      
                      
                      1.0201
                      
                      
                      
                      1.0421
                      
                      
                      
                      1.0772
                      
                      
                      
                      1.0695
                      
                      
                      
                      1.0748Low
      for the period
                      
                      
                      1.0101
                      
                      
                      
                      0.9961
                      
                      
                      
                      1.0113
                      
                      
                      
                      1.0371
                      
                      
                      
                      1.0225
                      
                      
                      
                      1.0366





Exchange
rates are based on the Bank of Canada nominal noon exchange rates. The
nominal noon exchange rate on June 24, 2010 as reported by the Bank of Canada
for the conversion of United States dollars into Canadian dollars was US$1.00 =
Cdn$1.0432.


3


ABBREVIATIONS





Oil and Natural Gas Liquids
                Natural Gasbbl
                barrel
                Mcf
                thousand
      cubic feetbbls
                barrels
                MCFD
                thousand
      cubic feet per dayBOPD
                barrels
      per day
                MMcf
                million
      cubic feetMbbls
                thousand
      barrels
                MMcf/d
                million
      cubic feet per dayMmbtu
                million
      British thermal units
                Mcfe
                Thousand
      cubic feet of gas equivalentOtherAECO
                Intra-Alberta
      Nova Inventory Transfer Price (NIT net price of natural
    gas).BOE
                Barrels
      of oil equivalent. A barrel of oil equivalent is determined by converting
      a volume of natural gas to barrels using the ratio of 6 Mcf to one
      barrel.BOE/D
                Barrels
      of oil equivalent per day.BCFE
                Billion
      cubic feet equivalentMBOE
                Thousand
      barrels of oil equivalent.NYMEX
                New
      York Mercantile Exchange.WTI
                West
      Texas Intermediate, the reference price paid in U.S. dollars at Cushing
      Oklahoma for crude oil of standard
grade.




4


PART
I





ITEM
1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND
ADVISORS.





Not
applicable.





ITEM
2.  OFFER STATISTICS AND EXPECTED TIMETABLE.





Not
applicable.





ITEM
3.  KEY INFORMATION.





A.           Selected
Financial Data





The
selected financial data and the information in the following table of the
Company for the years ended December 31, 2005 - 2009 was derived from the
audited consolidated financial statements of the Company.  These
audited consolidated financial statements have been audited by Dale Matheson
Carr-Hilton LaBonte LLP, Chartered Accountants.





The
information in the following table should be read in conjunction with the
information appearing under the heading “Item 5. Operating and Financial Review
and Prospects” and the Company's audited consolidated financial statements under
the heading "Item 18. Financial Statements".





The
following table of selected financial data has been derived from financial
statements prepared in accordance with Canadian generally accepted accounting
principles (“Canadian GAAP").  Reference is made to Note 21 of the
audited consolidated financial statements of the Company for the years ended
December 31, 2009, 2008 and 2007  included herein for a discussion of
the material measurement differences between Canadian GAAP and United States
Generally Accepted Accounting Principles (“U.S. GAAP”), and their effect on the
Company’s financial statements.





The
Company has not declared any dividends since incorporation and does not
anticipate that it will do so in the foreseeable future.  The present
policy of the Company is to retain all available funds for use in its operations
and the expansion of its business.





Canadian
Generally Accepted Accounting Principles (Cdn$ in 000, except per share
data)





Year Ended December 31,2009
                              
                              
                              2008
                              
                              
                              2007
                              
                              
                              2006
                              
                              
                              2005Revenue
                              
                              $
                              6,471
                              
                              
                              $
                              5,766
                              
                              
                              Nil
                              
                              
                              Nil
                              
                              
                              NilNet
      Income (Loss) for the Period
                              
                              $
                              (12,807
                              )
                              
                              $
                              (20,891
                              )
                              
                              $
                              (26,810
                              )
                              
                              $
                              23,888
                              
                              
                              $
                              (1,612
                              )Basin
      Income (Loss) Per Share
                              
                              $
                              (0.16
                              )
                              
                              $
                              (0.29
                              )
                              
                              $
                              (0.40
                              )
                              
                              $
                              0.45
                              
                              
                              $
                              (0.06
                              )Dividends
      Per Share
                              
                              Nil
                              
                              
                              Nil
                              
                              
                              Nil
                              
                              
                              Nil
                              
                              
                              NilWeighted
      Avg. Shares, basic (000)
                              
                              
                              78,926
                              
                              
                              
                              72,211
                              
                              
                              
                              66,588
                              
                              
                              
                              52,564
                              
                              
                              
                              25,612Weighted
      Avg. Shares, diluted (000)
                              
                              
                              78,926
                              
                              
                              
                              72,211
                              
                              
                              
                              66,588
                              
                              
                              
                              56,558
                              
                              
                              
                              25,612Year-end
      Shares (000)
                              
                              
                              95,791
                              
                              
                              
                              73,652
                              
                              
                              
                              70,128
                              
                              
                              
                              60,900
                              
                              
                              
                              39,017Working
      Capital
                              
                              $
                              410
                              
                              
                              $
                              (12,712
                              )
                              
                              $
                              11,335
                              
                              
                              $
                              11,769
                              
                              
                              $
                              12,167Resource
      Properties
                              
                              $
                              41,758
                              
                              
                              $
                              57,684
                              
                              
                              $
                              35,411
                              
                              
                              $
                              25,880
                              
                              
                              $
                              3,425Long-term
      Investments
                              
                              
                              -
                              
                              
                              $
                              2,722
                              
                              
                              $
                              12,600
                              
                              
                              $
                              36,539
                              
                              
                              
                              -Long-term
      Debt
                              
                              $
                              2,594
                              
                              
                              $
                              3,446
                              
                              
                              Nil
                              
                              
                              $
                              2,852
                              
                              
                              NilCapital
      Stock
                              
                              $
                              72,560
                              
                              
                              $
                              64,939
                              
                              
                              $
                              61,394
                              
                              
                              $
                              48,671
                              
                              
                              $
                              18,190Retained
      Earnings (Deficit)
                              
                              $
                              (39,386
                              )
                              
                              $
                              (26,579
                              )
                              
                              $
                              (5,688
                              )
                              
                              $
                              21,123
                              
                              
                              $
                              (2,765
                              )Total
      Assets
                              
                              $
                              45,886
                              
                              
                              $
                              62,643
                              
                              
                              $
                              63,143
                              
                              
                              $
                              80,678
                              
                              
                              $
                              16,016




5





Adjusted
to United States Generally Accepted Accounting Principles





Under
U.S. GAAP the following financial information would be adjusted from Canadian
GAAP (references are made to Note 21 of the accompanying consolidated audited
financial statements):





(Cdn$ in 000, except per share data)Year Ended December 31,2009
                          
                          
                          2008
                          
                          
                          2007
                          
                          
                          2006
                          
                          
                          2005Net
      Income (Loss ) for the Period
                          
                          $
                          (10,454
                          )
                          
                          $
                          (34,181
                          )
                          
                          $
                          (29,523
                          )
                          
                          $
                          23,828
                          
                          
                          $
                          (3,485
                          )Earnings
      (Loss) Per Share
                          
                          $
                          (0.13
                          )
                          
                          $
                          (0.47
                          )
                          
                          $
                          (0.44
                          )
                          
                          $
                          0.45
                          
                          
                          $
                          (0.14
                          )Resource
      Properties
                          
                          $
                          30,660
                          
                          
                          $
                          44,232
                          
                          
                          $
                          34,783
                          
                          
                          $
                          25,252
                          
                          
                          $
                          1,917Retained
      Earnings (Deficit)
                          
                          $
                          (54,969
                          )
                          
                          $
                          (44,515
                          )
                          
                          $
                          (10,334
                          )
                          
                          $
                          19,189
                          
                          
                          $
                          (4,639
                          )Total
      Assets
                          
                          $
                          34,788
                          
                          
                          $
                          49,192
                          
                          
                          $
                          62,515
                          
                          
                          $
                          80,050
                          
                          
                          $
                          14,509





Exchange
Rate History





See the
disclosure under the heading "Currency and Exchange Rates" above.





Recently
Adopted Accounting Policies and Future Accounting Pronouncements





Canadian
Pronouncements





(i)
            Effective
      January 1, 2009, the Company adopted the new recommendations of the
      Canadian Institute of Chartered Accountants (“CICA”) under CICA Handbook
      Section 3064 Goodwill and Intangible Assets, which replaces Section 3062,
      Goodwill and Other Intangible Assets, and Section 3450, Research and
      Development Costs. This new section establishes standards for the
      recognition, measurement, presentation and disclosure of goodwill
      subsequent to its initial recognition and of intangible assets by
      profit-oriented enterprises. Standards concerning goodwill remain
      unchanged from the standards included in the previous Section
      3062.  The adoption of this new standard had no effect on the
      amounts disclosed in the financial
statements.





(ii)
            Effective
      January 1, 2009, the Company adopted the newly issued guidance of the
      Emerging Issues Committee (“EIC”) 173, Credit Risk and the Fair value of
      Financial Assets and Liabilities, which requires that an entity should
      take into account the credit risk of the entity and the counterparty in
      determining the fair value of financial assets and financial
      liabilities.  This guidance is adopted retrospectively, with
      restatement.   No retroactive revision was disclosed
      related to the prior period as there were no effects on the fair values of
      financial assets and financial
liabilities.





(iii)
            Effective
      January 1, 2009, the Company adopted the newly issued guidance of the
      EIC-174, Mining Exploration Costs, which provides guidance on the
      accounting and the impairment review of exploration costs.  The
      adoption of this EIC did not have an effect on the Company’s financial
      statements.





(iv)
            Effective
      January 1, 2009, the Company adopted the amended CICA Handbook Section
      1000, Financial Statement Concepts, which clarifies the criteria for
      recognition of an asset, reinforcing the distinction between costs that
      should be expensed and those that should be capitalized.  The
      adoption of this Section did not have an effect on the Company’s financial
      statements.





Future
Accounting Pronouncements





The
following accounting pronouncements are applicable to future reporting
periods.  The Company is currently evaluating the effects of adopting
these standards:


6





(i)
            The
      CICA issued the following new Sections: 1582 Business Combinations, 1601
      Consolidations, and 1602 Non-Controlling Interest.  These
      standards are effective January 1,
2011.





(ii)
            In
      January 2006, the CICA Accounting Standards Board (“AcSB”) adopted a
      strategic plan for the direction of accounting standards in
      Canada.  As part of that plan, accounting standards in Canada
      for public companies will converge with International Financial Reporting
      Standards (“IFRS”) by the end of 2011.  The transition date of
      January 1, 2011 will require the restatement for comparative purposes of
      amounts reported by the Company for the year ended December 31,
      2010.





The
Company is currently evaluating the impact of adopting IFRS on its consolidated
financial statements.  The Company is in the first phase of its
transition program, which includes scoping to identify the significant
accounting policy differences and their related areas of impact in terms of
systems, procedures and financial statement presentation.  The Company
also is in the assessment phase of the design and work plan to calculate the
differences between IFRS and Canadian GAAP, and the impact on its financial
statements, disclosures and operations.  The Company will address the
design, planning, solution development and implementation of the conversion in
2010.





United
States Pronouncements





During
2009, the Company adopted the Financial Accounting Standards Board ("FASB")
Accounting Standards Update, "Amendments Based on Statement of Financial
Accounting Standards No. 168 – The FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principles" (the
"Codification").  The Codification became the single source of
authoritative GAAP in the United States, other than rules and interpretive
releases issued by the United States Securities and Exchange Commission ("SEC").
The Codification reorganized GAAP into a topical format that eliminates the
previous GAAP hierarchy and instead established two levels of guidance –
authoritative and non-authoritative.  All non-grandfathered, non-SEC
accounting literature that was not included in the Codification became
non-authoritative. The adoption of the Codification did not change previous
GAAP, but rather simplified user access to all authoritative literature related
to a particular accounting topic in one place.  Accordingly, the
adoption had no impact on the Company’s consolidated financial position or
results of operations.  All prior references to previous GAAP in the
Company’s consolidated financial statements were updated for the new references
under the Codification.





In June
2009, the FASB issued general standards of accounting for, and disclosure of,
events that occur after the balance sheet date but before the financial
statements are issued or are available to be issued (codified within ASC 855).
The update sets forth: (a) the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial statements; (b)
the circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements; and (c) the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. The adoption of this standard had no
impact on the Company’s financial position, results of operations or cash
flows.





On
July 1, 2009, the Company adopted authoritative guidance issued by the FASB
on business combinations. The guidance retains the fundamental requirements that
the acquisition method of accounting (previously referred to as the purchase
method of accounting) be used for all business combinations, but requires a
number of changes, including changes in the way assets and liabilities are
recognized and measured as a result of business combinations. It also requires
the capitalization of in-process research and development at fair value and
requires the expensing of acquisition-related costs as incurred. Adoption of the
new guidance had  no impact on the Company’s financial
statements.





On
July 1, 2009, the Company adopted the authoritative guidance issued by the
FASB that changes the accounting and reporting for non-controlling interests.
Non-controlling interests are to be reported as a component of equity separate
from the parent’s equity, and purchases or sales of equity interests that do not
result in a change in control are to be accounted for as equity transactions. In
addition, net income attributable to a non-controlling interest is to be
included in net income and, upon a loss of control, the interest sold, as well
as any interest retained, is to be recorded at fair value with any gain or loss
recognized in net income. Adoption of the new guidance had no impact on the
Company’s financial statements.


7





On
July 1, 2009, the Company adopted the authoritative guidance on fair value
measurement for nonfinancial assets and liabilities, except for items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). Adoption of the new guidance had no impact on the
Company’s financial statements.




Recent
Accounting Guidance Not Yet Adopted





In June
2009, the FASB issued authoritative guidance on the consolidation of variable
interest entities, which is effective for the Company beginning July 1,
2010. The new guidance requires revised evaluations of whether entities
represent variable interest entities, ongoing assessments of control over such
entities, and additional disclosures for variable interests. The Company
believes adoption of this new guidance will have no impact on the Company’s
financial statements.





B.           Capitalization
and Indebtedness





Not
Applicable.





C.           Reasons
for the Offer and Use of Proceeds





Not
Applicable.





D.           Risk
Factors





An
investment in a company engaged in oil and gas exploration involves an unusually
high amount of risk,  unknown and known, present and potential,
including, but not limited to the risks enumerated below.





Our
failure to successfully address the risks and uncertainties described below
would have a material adverse effect on our business, financial condition and/or
results of operations, and the trading price of our common stock may decline and
investors may lose all or part of their investment.  We cannot assure you
that we will successfully address these risks or other unknown risks that may
affect our business.




Risks
related to commodity price fluctuations




The
marketability and price of oil and natural gas are affected by numerous factors
outside of the Company’s control.  Material fluctuations in oil and
natural gas prices could adversely affect the Company's net production revenue
and oil and natural gas operations.




Prices
for oil and natural gas may fluctuate widely in response to relatively minor
changes in the supply of and demand for oil and natural gas, market uncertainty
and a variety of additional factors that are beyond the Company’s control, such
as:




·
            the
      domestic and foreign supply of and demand for oil and natural
      gas;




·
            the
      price and quantity of imports of crude oil and natural
  gas;




·
            overall
      domestic and global economic
conditions;




·
            political
      and economic conditions in other oil and natural gas producing countries,
      including embargoes and continued hostilities in the Middle East and other
      sustained military campaigns, and acts of terrorism or
      sabotage;




·
            the
      ability of members of the Organization of Petroleum Exporting Countries to
      agree to and maintain oil price and production
  controls;




·
            the
      level of consumer product
demand;


8




·
            weather
      conditions;




·
            the
      impact of the U.S. dollar exchange rates on oil and natural gas prices;
      and




·
            the
      price and availability of alternative
fuels.




The
Company's ability to market its oil and natural gas depends upon its ability to
acquire space on pipelines that deliver such commodities to commercial markets.
The Company is also affected by deliverability uncertainties related to the
proximity of its reserves to pipelines and processing and storage facilities and
operational problems affecting such pipelines and facilities as well as
extensive governmental regulation relating to price, taxes, royalties, land
tenure, allowable production, the export of oil and natural gas and many other
aspects of the oil and natural gas business.




Both oil
and natural gas prices are unstable and are subject to fluctuation. Any material
decline in prices could result in a reduction of the Company's net production
revenue. The economics of producing from some wells may change as a result of
lower prices, which could result in reduced production of oil or natural gas and
a reduction in the volumes and net present value of the Company's reserves. The
Company might also elect not to produce from certain wells at lower prices. All
of these factors could result in a material decrease in the Company's net
production revenue and a reduction in its oil and natural gas acquisition,
development and exploration activities.




Because
world oil and natural gas prices are quoted in U.S. dollars, the Company’s
production revenues could be adversely affected by an appreciation of the
Canadian dollar.




World oil
and natural gas prices are quoted in U.S. dollars, and the price received by
Canadian producers, including the Company, is therefore affected by the
Canadian/U.S. dollar exchange rate, which will fluctuate over time. In recent
years, the Canadian dollar has increased materially in value against the U.S.
dollar. Such material increases in the value of the Canadian dollar may
negatively impact the Company's production revenues. Further material increases
in the value of the Canadian dollar would exacerbate this potential negative
impact and could have a material adverse effect on the Company’s financial
condition and results of operations. This increase in the exchange rate for the
Canadian dollar and future Canadian/U.S. exchange rates could also negatively
impact the future value of the Company's reserves as determined by independent
petroleum reserve engineers.




Risks
related to operating an exploration, development and production
company




The
Company’s ability to execute projects will depend on certain factors outside of
its control.  If the Company is unable to execute projects on time, on
budget or at all, it may not be able to effectively market the oil and natural
gas that it produces.




The
Company manages a variety of small and large projects in the conduct of its
business. The Company's ability to execute projects and market oil and natural
gas will depend upon numerous factors beyond the Company's control,
including:




·
            the
      availability of adequate financing;




·
            the
      availability of processing
capacity;




·
            the
      availability and proximity of pipeline
capacity;




·
            the
      availability of storage capacity;




·
            the
      supply of and demand for oil and natural
gas;




·
            the
      availability of alternative fuel
sources;




·
            the
      effects of inclement weather;




·
            the
      availability of drilling and related
equipment;


9




·
            unexpected
      cost increases;




·
            accidental
      events;




·
            currency
      fluctuations;




·
            changes
      in governmental regulations;




·
            the
      availability and productivity of skilled
labor.




Because
of these factors, the Company could be unable to execute projects on time, on
budget or at all, and may not be able to effectively market the oil and natural
gas that it produces.




Oil
and Gas Exploration Has a High Degree of Risk and the Company's Exploration
Efforts May Be Unsuccessful, Which Would Have a Negative Effect on the Company's
Operations.




There is
no certainty that the expenditures to be made by the Company in the exploration
of its current projects, or any additional project interests it may acquire, as
described herein, will result in discoveries of recoverable oil and gas in
commercial quantities.  An exploration project may not result in the
discovery of commercially recoverable reserves and the level of recovery of
hydrocarbons from a property may not be a commercially recoverable (or viable)
reserve which can be legally and economically exploited. If exploration is
unsuccessful and no commercially recoverable reserves are defined, management
would be required to evaluate and acquire additional projects which would
require additional capital, or the Company would have to cease operations
altogether.




Cumulative
Unsuccessful Exploration Efforts by the Company's Personnel Could Result in the
Company Having to Cease Operations.




The
expenditures to be made by the Company in the exploration of its properties as
described herein may not result in discoveries of oil and natural gas in
commercial quantities.  Many exploration projects do not result in the
discovery of commercially recoverable oil and gas deposits and this occurrence
could ultimately result in the Company having to cease operations.




Oil
and natural gas operations involve many hazards and operational risks, some of
which may not be fully covered by insurance.  If a significant
accident or event occurs for which the Company is not fully insured, the
Company’s business, financial condition, results of operations and prospects
could be adversely affected.




The
Company’s involvement in the oil and natural gas exploration, development and
production business subjects it to all of the risks and hazards typically
associated with such operations, including hazards such as fire, explosion,
blowouts, sour gas releases and spills, each of which could result in
substantial damage to oil and natural gas wells, production facilities, other
property and the environment or personal injury. In particular, the Company may
explore for and produce sour natural gas in certain areas. An unintentional leak
of sour natural gas could result in personal injury, loss of life or damage to
property and may necessitate an evacuation of populated areas, all of which
could result in liability to the Company. In accordance with industry practice,
the Company is not fully insured against all of these risks. Although the
Company maintains liability insurance in an amount that it considers consistent
with industry practice, the nature of these risks is such that liabilities could
exceed policy limits, in which event the Company could incur significant costs
that could have a material adverse effect upon its financial condition. In
addition, such risks are not, in all circumstances, insurable or, in certain
circumstances, the Company may elect not to obtain insurance to deal with
specific risks due to the high premiums associated with such insurance or other
reasons. For instance, the Company does not have insurance to protect against
the risk from terrorism. Oil and natural gas production operations are also
subject to all of the risks typically associated with such operations, including
encountering unexpected geologic formations or pressures, premature decline of
reservoirs and the invasion of water into producing formations. Losses resulting
from the occurrence of any of these risks could have a material adverse effect
on the Company’s business, financial condition, results of operations and
prospects.


10




Seasonal
factors and unexpected weather patterns may lead to declines in exploration and
production activity.




The level
of activity in the Canadian oil and natural gas industry is influenced by
seasonal weather patterns. Oil and natural gas development activities, including
seismic and drilling programs in northern Alberta and British Columbia, are
restricted to those months of the year when the ground is frozen. Wet weather
and spring thaw may make the ground unstable. Consequently, municipalities and
provincial transportation departments enforce road bans that restrict the
movement of rigs and other heavy equipment, thereby reducing activity levels. In
addition, certain oil and natural gas producing areas are located in areas that
are inaccessible other than during the winter months because the ground
surrounding the sites in these areas consists of swampy terrain, and additional
seasonal weather variations will also affect access to these areas. Seasonal
factors and unexpected weather patterns may lead to declines in exploration and
production activity during certain parts of the year.




The
petroleum industry is highly competitive, and increased competitive pressures
could adversely affect the Company’s business, financial condition, results of
operations and prospects.




The
petroleum industry is competitive in all of its phases. The Company competes
with numerous other organizations in the search for, and the acquisition of, oil
and natural gas properties and in the marketing of oil and natural gas. The
Company's competitors include oil and natural gas companies that have
substantially greater financial resources, staff and facilities than the
Company. The Company's ability to increase its reserves in the future will
depend not only on its ability to explore and develop its present properties,
but also on its ability to select and acquire other suitable producing
properties or prospects for exploratory drilling. Competitive factors in the
distribution and marketing of oil and natural gas include price and methods and
reliability of delivery and storage.




The
Company does not control all of the assets that are used in the operation of its
business and, therefore, cannot ensure that such assets will be operated in a
manner favorable to the Company.




Other
companies operate some of the assets in which the Company has an interest. As a
result, the Company has limited ability to exercise influence over the operation
of those assets or their associated costs, which could adversely affect the
Company's financial performance.  The Company's return on assets
operated by others will therefore depend upon a number of factors that may be
outside of the Company's control, including the timing and amount of capital
expenditures, the operator's expertise and financial resources, the approval of
other participants, the selection of technology and risk management
practices.




The
Company’s ability to market oil and natural gas depends on its ability to
transport its product to market.  If the Company is unable to expand
and develop the infrastructure in the areas surrounding certain of its assets,
it may not be able to effectively market the oil and natural gas that is
produces.




Due to
the location of certain of the Company's assets, both in Canada and the United
States, there is minimal infrastructure currently available to transport oil and
natural gas from the Company's existing and future wells to
market.  As a result, even if the Company is able to engage in
successful exploration and production activities, it may not be able to
effectively market the oil and natural gas that it produces, which could
adversely affect the Company’s business, financial condition, results of
operations and prospects.




Demand
and competition for drilling equipment could delay the Company’s exploration and
production activities, which could adversely affect its business, financial
condition, results of operations and prospects.




Oil and
natural gas exploration and development activities are dependent on the
availability of drilling and related equipment (typically leased from third
parties) in the particular areas where such activities will be conducted. Demand
for such limited equipment or access restrictions may affect the availability of
such equipment to the Company and may delay exploration and development
activities. To the extent the Company is not the operator of its oil and natural
gas properties, the Company will be dependent on such operators for the timing
of activities related to such properties and will be largely unable to direct or
control the activities of the operators.




Title
to the Company’s oil and natural gas producing properties cannot be guaranteed
and may be subject to prior recorded or unrecorded agreements, transfers, claims
or other defects.




Although
title reviews may be conducted prior to the purchase of oil and natural gas
producing properties or the commencement of drilling wells, such reviews do not
guarantee or certify that an unforeseen defect in the chain of title will not
arise to defeat the Company's claim. Unregistered agreements or transfers, or
native land claims, may affect title.  If title is disputed, the Company
will have to defend its ownership through the courts, which would likely be an
expensive and protracted process and have a negative effect on its operations
and financial condition. In the event of an adverse judgment, we would lose its
property rights.  A defect in the Company’s title to any of its
properties may have a material adverse effect on the Company’s business,
financial condition, results of operations and prospects.


11




The
Company may be unable to meet all of the obligations necessary to successfully
maintain each of the licenses and leases and working interests in licenses and
leases related to its properties, which could adversely affect the Company’s
business, financial condition, results of operations and prospects.




The
Company's properties are held in the form of licenses and leases and working
interests in licenses and leases. If the Company or the holder of the license or
lease fails to meet the specific requirement of a license or lease, the license
or lease may terminate or expire. None of the obligations required to maintain
each license or lease may be met. The termination or expiration of the Company's
licenses or leases or the working interests relating to a license or lease may
have a material adverse effect on the Company's business, financial condition,
results of operations and prospects.




Risks
related to financing continuing and future operations




The
Company anticipates making substantial capital expenditures for future
acquisition, exploration, development and production projects.  The
Company may not be able to obtain capital or financing necessary to support
these projects on satisfactory terms, or at all.




The
Company anticipates making substantial capital expenditures for the acquisition,
exploration, development and production of oil and natural gas reserves in the
future. If the Company's revenues or reserves decline, it may not have access to
the capital necessary to undertake or complete future drilling programs. Debt or
equity financing, or cash generated by operations, may not be available to the
Company or may not be sufficient to meet the Company’s requirements for capital
expenditures or other corporate purposes.  Even if debt or equity
financing is available, it may not be on terms acceptable to the Company. The
inability of the Company to access sufficient capital for its operations could
have a material adverse effect on the Company's business, financial condition,
results of operations and prospects.




The
Company's cash flow from its reserves may not be sufficient to fund its ongoing
activities at all times, thereby causing the Company to forfeit its interest in
certain properties, miss certain acquisition opportunities and reduce or
terminate its operations.




The
Company's cash flow from its reserves may not be sufficient to fund its ongoing
activities at all times and it is currently utilizing its bank line of credit to
fund its working capital deficit. From time to time, the Company may require
additional financing in order to carry out its oil and gas acquisition,
exploration and development activities. Failure to obtain such financing on a
timely basis could cause the Company to forfeit its interest in certain
properties, not be able to take advantage of certain acquisition opportunities
and reduce or terminate its level of operations. If the Company's revenues from
its reserves decrease as a result of lower oil and natural gas prices or
otherwise, the Company's ability to expend the necessary capital to replace its
reserves or to maintain its production will be impaired. If the Company's cash
flow from operations is not sufficient to satisfy its capital expenditure
requirements, there can be no assurance that additional debt or equity financing
will be available to meet these requirements or, if available, on favorable
terms.




Debt
that the Company incurs in the future may limit its ability to obtain financing
and to pursue other business opportunities, which could adversely affect the
Company’s business, financial condition, results of operations and
prospects.




From time
to time, the Company may enter into transactions to acquire assets or equity of
other organizations. These transactions may be financed in whole or in part with
debt, which may increase the Company's debt levels above industry standards for
oil and natural gas companies of a similar size. Depending on future exploration
and development plans, the Company may require additional equity and/or debt
financing that may not be available or, if available, may not be available on
favorable terms. None of the Company's organizational documents currently limit
the amount of indebtedness that the Company may incur. The level of the
Company's indebtedness from time to time could impair the Company's ability to
obtain additional financing on a timely basis to take advantage of business
opportunities that may arise.


12




The
Company may be exposed to the credit risk of third parties through certain of
its business arrangements.  Non-payment or non-performance by any of
these third parties could have an adverse effect on the Company’s financial
condition and results of operations.




The
Company may be exposed to third-party credit risk through its contractual
arrangements with its current or future joint venture partners, marketers of its
petroleum and natural gas production and other parties. In the event such
entities fail to meet their contractual obligations to the Company, such
failures could have a material adverse effect on the Company’s financial
condition and results of operations. In addition, poor credit conditions in the
industry and of joint venture partners may impact a joint venture partner's
willingness to participate in the Company's ongoing capital program, potentially
delaying the program and the results of such program until the Company finds a
suitable alternative partner.




Risks
related to maintaining reserves and acquiring new sources of oil and natural
gas




The
Company’s success depends on its ability to find, acquire, develop and
commercially produce oil and natural gas, which is dependent on certain factors
outside of the Company’s control.




Oil and
natural gas operations involve many risks that even a combination of experience,
knowledge and careful evaluation may not be able to overcome. The long-term
commercial success of the Company depends on its ability to find, acquire,
develop and commercially produce oil and natural gas.  The Company has
only recently commenced production of oil and gas.  There is no
assurance that the Company's other properties or future properties will achieve
commercial production.  Without the continual addition of new
reserves, the Company's existing reserves and the production therefrom will
decline over time as such existing reserves are exploited. A future increase in
the Company's reserves will depend not only on its ability to explore and
develop any properties it may have from time to time, but also on its ability to
select and acquire new suitable producing properties or prospects. No assurance
can be given that the Company will be able to locate satisfactory properties for
acquisition or participation. Moreover, if such acquisitions or participations
are identified, management of the Company may determine that current market
conditions, the terms of any acquisition or participation arrangement or pricing
conditions may make such acquisitions or participations uneconomical, and
further commercial quantities of oil and natural gas may not be produced,
discovered or acquired by the Company, any of which could have a material
adverse effect on the Company’s business, financial condition, results of
operations and prospects.




Properties
that the Company acquires may not produce as projected, and the Company may be
unable to determine reserve potential, identify liabilities associated with the
properties or obtain protection from sellers against such
liabilities.




The
long-term commercial success of the Company depends on its ability to find,
acquire, develop and commercially produce oil and natural gas reserves. However,
the Company’s review of acquired properties is inherently incomplete, as it
generally is not feasible to review in depth every individual property involved
in each acquisition. Even a detailed review of records and properties may not
necessarily reveal existing or potential problems, nor will it permit a buyer to
become sufficiently familiar with the properties to assess fully their
deficiencies and potential. Inspections may not always be performed on every
well, and environmental problems, such as ground water contamination, are not
necessarily observable even when an inspection is undertaken.




The
Company's estimated reserves are based on many assumptions that may prove to be
inaccurate.  Any material inaccuracies in the reserve estimates or the
underlying assumptions may adversely affect the quantities and present value of
the Company’s reserves.




There are
numerous uncertainties inherent in estimating quantities of oil, natural gas and
natural gas liquid reserves and the future cash flows attributed to such
reserves. The reserve and associated cash flow information set forth in this
annual report on Form 20-F are estimates only. In general, estimates of
economically recoverable oil and natural gas reserves and the future net cash
flows therefrom are based upon a number of variable factors and assumptions,
such as historical production from the properties, production rates, ultimate
reserve recovery, timing and amount of capital expenditures, marketability of
oil and gas, royalty rates, the assumed effects of regulation by governmental
agencies and future operating costs, all of which may vary materially from
actual results. All such estimates are to some degree speculative, and
classifications of reserves are only attempts to define the degree of
speculation involved. For those reasons, estimates of the economically
recoverable oil and natural gas reserves attributable to any particular group of
properties, classification of such reserves based on risk of recovery and
estimates of future net revenues associated with reserves prepared by different
engineers, or by the same engineers at different times, may vary. The Company's
actual production, revenues, taxes and development and operating expenditures
with respect to its reserves will vary from estimates thereof and such
variations could be material.


13




Estimates
of proved reserves that may be developed and produced in the future are often
based upon volumetric calculations and upon analogy to similar types of reserves
rather than actual production history. Recovery factors and drainage areas were
estimated by experience and analogy to similar producing pools. Estimates based
on these methods are generally less reliable than those based on actual
production history. Subsequent evaluation of the same reserves based upon
production history and production practices will result in variations in the
estimated reserves, and such variations could be material.




In
accordance with applicable securities laws, GLJ (see "Item 4.D. Property, Plant and
Equipment" herein) has used both constant and forecast prices and costs
in estimating the reserves and future net cash flows contained in its report.
Actual future net cash flows will be affected by other factors, such as actual
production levels, supply and demand for oil and natural gas, curtailments or
increases in consumption by oil and natural gas purchasers, changes in
governmental regulation or taxation and the impact of inflation on
costs.




Actual
production and cash flows derived from the Company's oil and gas reserves will
vary from the estimates contained in both the GLJ and Gustavson reports, and
such variations could be material. The report is based in part on the assumed
success of activities the Company intends to undertake in future years. The
reserves and estimated cash flows set out in the report will be reduced to the
extent that such activities do not achieve the level of success assumed in the
report.




The
Company’s future oil and natural gas production may not result in revenue
increases and may be adversely affected by operating conditions, production
delays, drilling hazards and environmental damages.




Future
oil and natural gas exploration may involve unprofitable efforts, not only from
dry wells, but also from wells that are productive but do not produce sufficient
petroleum substances to return a profit after drilling, operating and other
costs. Completion of a well does not assure a profit on the investment or
recovery of drilling, completion and operating costs. In addition, drilling
hazards or environmental damage could greatly increase the cost of operations,
and various field operating conditions may adversely affect the production from
successful wells. These conditions include delays in obtaining governmental
approvals or consents, shut-ins of connected wells resulting from extreme
weather conditions, insufficient storage or transportation capacity or other
geological and mechanical conditions. While diligent well supervision and
effective maintenance operations can contribute to maximizing production rates
over time, production delays and declines from normal field operating conditions
cannot be eliminated and can be expected to adversely affect revenue and cash
flow levels to varying degrees.




Risks
related to management of the Company




The
Company may experience difficulty managing its anticipated growth.




The
Company may be subject to growth-related risks including capacity constraints
and pressure on its internal systems and controls. The ability of the Company to
manage growth effectively will require it to continue to implement and improve
its operational and financial systems and to attract and retain qualified
management and technical personnel to meet the needs of its anticipated growth.
The inability of the Company to deal with this growth could have a material
adverse impact on its business, financial condition, results of operations and
prospects.




The
Company is Dependent on Key Personnel and the Absence of Any of These
Individuals Could Result in the Company Having to Cease Operation.




While
engaged in the business of exploring mineral properties, the nature of the
Company's business, its ability to continue its exploration of potential
exploration projects, and to develop a competitive edge in the marketplace,
depends, in large part, on its ability to attract and maintain qualified key
management personnel. Competition for such personnel is intense and the Company
may not be able to attract and retain such personnel.  The Company's growth
will depend, on the efforts of its Senior Management, particularly its CEO,
Robert Hodgkinson, its President of Dejour (USA), Harrison Blacker, its
President of DEAL, Charles Dove, and Corporate Secretary and its Chief Financial
Officer, Mathew Wong.


14




Risks
related to federal, state, local and other laws, controls and
regulations




The
Company is subject to complex federal, provincial, state, local and other laws,
controls and regulations that could adversely affect the cost, manner and
feasibility of conducting its oil and natural gas operations.




Oil and
natural gas exploration, production, marketing and transportation activities are
subject to extensive controls and regulations imposed by various levels of
government, which may be amended from time to time. Governments may regulate or
intervene with respect to price, taxes, royalties and the exportation of oil and
natural gas. Such regulations may be changed from time to time in response to
economic or political conditions. The implementation of new regulations or the
modification of existing regulations affecting the oil and natural gas industry
could reduce demand for crude oil and natural gas and increase the Company's
costs, any of which may have a material adverse effect on the Company's
business, financial condition, results of operations and prospects. In addition,
in order to conduct oil and natural gas operations, the Company requires
licenses from various governmental authorities. There can be no assurance that
the Company will be able to obtain all of the licenses and permits that may be
required to conduct operations that it may desire to undertake.




There
is uncertainty regarding claims of title and rights of the aboriginal people to
properties in certain portions of western Canada, and such a claim, if made in
respect of the property or assets of the Company, could adversely affect the
Company’s business, financial condition, results of operations and
prospects.




Aboriginal
peoples have claimed aboriginal title and rights to a substantial portion of
western Canada. The Company is not aware that any claims have been made in
respect of its property and assets; however, if a claim arose and was successful
it would have an adverse effect on the Company’s business, financial condition,
results of operations and prospects.




The
Company is subject to stringent environmental laws and regulations that may
expose it to significant costs and liabilities, which could adversely affect the
Company’s business, financial condition, results of operations and
prospects.




All
phases of the oil and natural gas business present environmental risks and
hazards and are subject to environmental regulation pursuant to a variety of
federal, provincial and local laws and regulations. Environmental legislation
provides for, among other things, restrictions and prohibitions on spills,
releases or emissions of various substances produced in association with oil and
natural gas operations. The legislation also requires that wells and facility
sites be operated, maintained, abandoned and reclaimed to the satisfaction of
applicable regulatory authorities. Compliance with such legislation can require
significant expenditures, and a breach of applicable environmental legislation
may result in the imposition of fines and penalties, some of which may be
material. Environmental legislation is evolving in a manner expected to result
in stricter standards and enforcement, larger fines and liability and
potentially increased capital expenditures and operating costs. The discharge of
oil, natural gas or other pollutants into the air, soil or water may give rise
to liabilities to governments and third parties and may require the Company to
incur costs to remedy such discharge. Environmental laws may result in a
curtailment of production or a material increase in the costs of production,
development or exploration activities or otherwise adversely affect the
Company's business, financial condition, results of operations and
prospects.




The
Company's facilities, operations and activities emit greenhouse gases, which
will likely subject the Company to possible future legislation regarding the
regulation of emissions of greenhouse gases.




Announcements
from the federal and provincial governments on regulations for greenhouse gas
and air emissions legislation have caused uncertainty and changed the
environmental regulation of natural resource development. The Company's
exploration and production facilities and other operations and activities emit
greenhouse gases. Canada is a signatory to the United Nations Framework
Convention on Climate Change and has ratified the Kyoto Protocol established
thereunder to set legally binding targets to reduce nationwide emissions of
carbon dioxide, methane, nitrous oxide and other greenhouse
gases.  While the federal government has largely abandoned its intent
to comply with its Kyoto Protocol obligations, the federal government has
provided a draft framework for the federal regulation of greenhouse
gases.  As such, there is no federal legislative scheme in Canada for
the regulation of greenhouse gases. Until that time, the impact of federal
greenhouse gas regulation on the Company’s operations is unknown. These
regulations may require the reduction of emissions produced by the Company's
operations and facilities and the direct and indirect cost of compliance with
the regulations may adversely affect the business, financial condition, results
of operations and prospects of the Company.


15




In 2007,
the Alberta government’s Climate Change Emissions Management
Act and Specified Gas
Emitters Regulationcame into effect and require that facilities emitting
more than 100,000 tonnes of greenhouse gases reduce their greenhouse gas
emission intensity by 12 percent over their average intensity levels of 2003,
2004 and 2005.  If the emissions intensity target is not met through
improvements in operations, compliance tools include: per tonne payment into the
climate change emissions management fund; purchase of Alberta-based offsets or
purchase of emission performance credits from a different Alberta
facility.  Failure to comply with these regulations may result in a
penalty of $200 per tonne of greenhouse gases over the allowable greenhouse gas
emission intensity limit.




Risks
related to investing in the Company




The
Company has not paid any dividends on our common
shares.  Consequently, an investor’s only opportunity currently to
achieve a return on its investment will be if the market price of the Company’s
common stock appreciates above the price that the investor paid for
it.




The
Company has not declared or paid any dividends on its common shares since the
Company’s incorporation.  Any decision to pay dividends on the shares
of the Company will be made by its board of directors on the basis of the
Company's earnings, financial requirements and other conditions existing at such
future time. See "Dividend
Policy." Consequently, an investor’s only opportunity to achieve a return
on its investment in the Company will be if the market price of the Company’s
common stock appreciates and the investor is able to sell its shares at a
profit.




The
Company's stock price has been volatile and your investment in the Company's
common shares could suffer a decline in value.




The
Company's common shares are traded on the Toronto Stock Exchange and the NYSE
Amex.  The market price of the Company's common shares may fluctuate
significantly in response to a number of factors, some of which are beyond our
control. These factors include price fluctuations of precious metals, government
regulations, disputes regarding mining claims, broad stock market fluctuations
and economic conditions in the United States.  See "Item 9.A. Offer and Listing
Details" for detailed trading price information on the Company's common
shares.




Dilution
Through Employee/Director/Consultant/Agents Options Could Adversely Affect the
Company's Shareholders.




Because
the Company's success is highly dependent upon its respective employees, it has
granted to some or all of its key employees, directors and consultants options
to purchase common shares as non-cash incentives.  To the extent that
significant numbers of such options may be granted and exercised, the interests
of our other stockholders may be diluted.  As of December 31, 2009,
there were 4,416,682 share purchase options outstanding, of which 1,233,807
share purchase options are vested and exercisable. If all the vested options
were exercised, it would result in an additional 1,233,807 common shares being
issued and outstanding.




Because
the Company may not pay any dividends on its common shares, investors seeking
short-term dividend income or liquidity should not purchase the Company's
shares.




The
Company does not currently anticipate declaring and paying dividends to its
shareholders in the near future. It is the Company's current intention to apply
net earnings, if any, in the foreseeable future to increasing the Company's
working capital. Prospective investors seeking or needing dividend income or
liquidity should, therefore, not purchase the Company's common shares. While the
Company's wholly owned drilling subsidiary provides revenues, it currently has
no revenues and a history of losses from its exploration activity, so there can
be no assurance that the Company will ever have sufficient earnings to declare
and pay dividends to the holders of its shares, and in any event, a decision to
declare and pay dividends is at the sole discretion of the Company's board of
directors, who currently do not intend to pay any dividends on the Company's
common shares for the foreseeable future.


16




Risks
related to the Company being a Foreign Private Issuer




As
a foreign private issuer, the Company's shareholders may have less complete and
timely data.




The
Company is a “foreign private issuer” as defined in Rule 3b-4 under the United
States Securities Exchange Act of 1934, as amended (the “U.S. Exchange Act”).
Equity securities of the Company are accordingly exempt from Sections 14(a),
14(b), 14(c), 14(f) and 16 of the U.S. Exchange Act pursuant to Rule 3a12-3 of
the U.S. Exchange Act. Therefore, the Company is not required to file a Schedule
14A proxy statement in relation to the annual meeting of shareholders. The
submission of proxy and annual meeting of shareholder information on Form 6-K
may result in shareholders having less complete and timely information in
connection with shareholder actions. The exemption from Section 16 rules
regarding reports of beneficial ownership and purchases and sales of common
shares by insiders and restrictions on insider trading in our securities may
result in shareholders having less data and there being fewer restrictions on
insiders’ activities in our securities.




It
may be difficult to enforce judgments or bring actions outside the United States
against the Company and certain of its directors and officers.




It may be
difficult to bring and enforce suits against the Company. The Company is
incorporated in British Columbia, Canada.  Many of the Company’s
directors and officers are not residents of the United States some of the
Company's assets are located outside of the United States.  As a
result, it may be difficult for U.S. holders of the Company’s common shares to
effect service of process on these persons within the United States or to
enforce judgments obtained in the U.S. based on the civil liability provisions
of the U.S. federal securities laws against the Company or its officers and
directors.  In addition, a shareholder should not assume that the
courts of Canada (i) would enforce judgments of U.S. courts obtained in actions
against the Company or their officers or directors predicated upon the civil
liability provisions of the U.S. federal securities laws or other laws of the
United States, or (ii) would enforce, in original actions, liabilities against
the Company or their officers or directors predicated upon the U.S. federal
securities laws or other laws of the United States.




Increased
costs and compliance risks as a result of being a public company.




Legal,
accounting and other expenses associated with public company reporting
requirements have increased significantly in the past few years. The Company
anticipates that general and administrative costs associated with regulatory
compliance will continue to increase with ongoing compliance requirements under
the Sarbanes-Oxley Act of
2002,as well as any new rules implemented by the SEC, Canadian
Securities Administrators, the NYSE Amex and the TSX in the future. These rules
and regulations have significantly increased the Company’s legal and financial
compliance costs and made some activities more time-consuming and costly. There
can be no assurance that the Company will continue to effectively meet all of
the requirements of these regulations, including Sarbanes-Oxley Section 404andNational Instrument
52-109 of the Canadian Securities Administrators(“NI 52-109”). Any
failure to effectively implement internal controls, or to resolve difficulties
encountered in their implementation, could harm the Company’s operating results,
cause the Company to fail to meet reporting obligations or result in management
being required to give a qualified assessment of the Company’s internal controls
over financial reporting or the Company’s independent auditors providing an
adverse opinion regarding management’s assessment. Any such result could cause
investors to lose confidence in the Company’s reported financial information,
which could have a material adverse effect on the trading price of the Common
Shares. These rules and regulations have made it more difficult and more
expensive for it to obtain director and officer liability insurance, and the
Company may be required to accept reduced policy limits and coverage or incur
substantially higher costs to obtain the same or similar coverage in the future.
As a result, it may be more difficult for the Company to attract and retain
qualifiedindividuals to serve on its board of directors or as
executive officers. If the Company fails to maintain the adequacy of its
internal control over financial reporting, the Company’s ability to provide
accurate financial statements and comply with the requirements of the Sarbanes-Oxley Act of 2002and/or NI 52-109 could be impaired, which could cause the Company’s stock
price to decrease.




17


ITEM
4.   INFORMATION ON THE COMPANY





A.           History
and Development of the Company





Introduction





The
Company’s executive office is located at:





598 – 999
Canada Place


Vancouver,
British Columbia, Canada V6C 3E1


Telephone:
(604) 638-5050


Facsimile:
(604) 638-5051


Website:
www.dejour.com


Email:
rhodgkinson@dejour.com or mwong@dejour.com





The
contact person is: Mr. Robert L. Hodgkinson, Chairman and Chief Executive
Officer or Mr. Mathew H. Wong, Chief Financial Officer and Corporate
Secretary.





The
Company's common shares trade on the Toronto Stock Exchange (“TSX”) and the New
York Stock Exchange AMEX (“NYSE-AMEX”) under the symbol “DEJ”.





The
authorized capital of Dejour consists of three classes of shares: an unlimited
number of common shares; an unlimited number of preferred shares designated as
First Preferred Shares, issuable in series; and an unlimited number of preferred
shares designated as Second Preferred Shares, issuable in series. There are no
Indentures or Agreements limiting the payment of dividends and there are no
conversion rights, special liquidation rights, pre-emptive rights or
subscription rights.





The First
Preferred Shares have priority over the Common Shares and the Second Preferred
Shares with respect to the payment of dividends and in the distribution of
assets in the event of a winding up of Dejour. The Second Preferred Shares have
priority over the Common Shares with respect to dividends and surplus assets in
the event of a winding up of Dejour.





As of
December 31, 2009 there were 95,791,038 common shares issued and outstanding. As
of December 31, 2009 there were no First Preferred Shares and no Second
Preferred Shares issued and outstanding. As of March 31, 2010, the latest fiscal
period for which financial statements are available, there were 98,698,372
common shares issued and outstanding, and no First Preferred Shares and no
Second Preferred Shares issued and outstanding.





Incorporation
and Name Changes





Dejour
Enterprises Ltd. was originally incorporated as “Dejour Mines Limited” on March
29, 1968 under the laws of the Province of Ontario. By articles of amendment
dated October 30, 2001, the issued shares were consolidated on the basis of one
(1) new for every fifteen (15) old shares and the name of the company was
changed to Dejour Enterprises Ltd.  On June 6, 2003, the shareholders
approved a resolution to complete a one-for-three-share consolidation which
became effective on October 1, 2003. In 2005, the Company was continued into
British Columbia under the Business Corporations Act (British
Columbia).





Financings





The
Company has financed its operations through funds raised in loans,
public/private placements of common shares, common shares issued for property,
common shares issued in debt settlements, and shares issued upon exercise of
stock options and share purchase warrants.


18





Fiscal Year
                                        
                                        Nature of Share Issuance
                                        
                                        Number of Shares
                                        
                                        
                                        Gross Proceeds
                                          (Cdn$)Fiscal
      2007
                                        
                                        Private
      Placement (1)
                                        
                                        
                                        3,773,980
                                        
                                        
                                        
                                        10,001,047Private
      Placement (2)
                                        
                                        
                                        1,000,000
                                        
                                        
                                        
                                        1,820,000Conversion
      of Convertible Debentures (3)
                                        
                                        
                                        273,399
                                        
                                        
                                        
                                        394,752Exercise
      of Warrants
                                        
                                        
                                        3,444,490
                                        
                                        
                                        
                                        2,859,863Exercise
      of Stock Options
                                        
                                        
                                        736,737
                                        
                                        
                                        
                                        557,800Fiscal
      2008
                                        
                                        Conversion
      of Convertible Debentures (4)
                                        
                                        
                                        884,242
                                        
                                        
                                        
                                        1,214,497Exercise
      of Warrants
                                        
                                        
                                        958,263
                                        
                                        
                                        
                                        1,447,464Exercise
      of Stock Options
                                        
                                        
                                        1,681,048
                                        
                                        
                                        
                                        887,621Fiscal
      2009
                                        
                                        Exercise
      of Stock Options
                                        
                                        
                                        631,856
                                        
                                        
                                        
                                        273,223Private
      Placement(5)
                                        
                                        
                                        2,710,332
                                        
                                        
                                        
                                        1,626,199Public
      Offering(6)
                                        
                                        
                                        10,766,665
                                        
                                        
                                        
                                        3,425,060Fiscal
      2010
                                        
                                        Private
      Placement(7)
                                        
                                        
                                        2,907,334
                                        
                                        
                                        
                                        1,017,567





(1)
            The
      Private Placement consisted of 3,773,980 common share units at $2.65 per
      unit for gross proceeds of $10,001,047. Each unit consisted of one common
      share and one-half of a common share purchase warrant. Each full warrant
      is convertible to one common share at a price of $3.35 before May 25,
      2009. Finders’ fees of $493,215 and other related costs of $30,564 were
      paid in relation to the placement. The Company also issued 217,139 agent
      compensation warrants, exercisable at $3.35 per share before December 31,
      2008.





(2)
            The
      Private Placement consisted of 1,000,000 flow-through common shares at a
      price of $1.82 per share. Gross proceeds from the placement were
      $1,820,000, which is committed to be spent on qualifying Canadian
      Exploration Expenditures. In relation to the placement, the Company paid
      $9,600 in related costs.





(3)
            During
      the year, the Company issued 273,399 shares pursuant to the conversion of
      US$349,850 in principal and US$12,493 of interest payable of convertible
      debentures.





(4)
            During
      the year, the Company issued 884,242 common shares pursuant to the
      conversion of US$1,047,995 in principal and US$145,731 of interest payable
      of convertible debentures.





(5)
            In
      October 2009, the Company completed a private placement and issued
      2,710,332 flow-through shares (“FTS”) at $0.60 per share. Gross proceeds
      raised were $1,626,199. In connection with this private placement, the
      Company paid finders’ fees of $83,980 and other related costs of
      $73,427.





(6)
            In
      December 2009, the Company completed a public offering and issued
      10,766,665 units at US$0.30 per unit. Each unit consists of 10,766,665
      common shares and 8,075,000 share purchase warrants, exercisable at
      US$0.40 per share on or before December 23, 2014. Gross proceeds raised
      were $3,425,060 (US$3,230,000). In connection with this public offering,
      the Company paid finders’ fees of $203,180 and other related costs of
      $140,790. The Company also issued 645,999 agent’s warrants, exercisable at
      US$0.46 per share on or before November 3, 2014. The grant date fair
      values of the warrants and agent’s warrants, estimated to be $888,250 and
      $71,060 respectively, have been included in share capital on a net basis
      and accordingly have not been recorded as a separate component of
      shareholders’ equity.


19





(7)
            In
      March 2010, the Company completed a private placement and issued 2,907,334
      flow-through units at $0.35 per unit.  Each unit consists of
      2,907,334 common shares and 1,453,667 share purchase warrants, exercisable
      at $0.45 per share on or before March 3, 2011. Gross proceeds raised were
      $1,017,567. In connection with this private placement, the Company paid
      finders’ fees of $54,575 and other related costs of $52,711. The Company
      also issued 37,423 agent’s warrants, exercisable at $0.45 per share on or
      before March 3, 2011.





Past
Capital Expenditures





Fiscal
      YearFiscal
      2007
                  
                  $
                  8,152,987
                  (1)Fiscal
      2008
                  
                  $
                  27,658,300
                  (2)Fiscal
      2009
                  
                  $
                  2,626,488
                  (3)





(1)
            $15,293
      of these funds was spent on the purchase of equipment; and $8,137,694 was
      spent on the Company’s resource properties. (For a breakdown on the
      resource property expenditures, see Note 6 to the Company’s audited
      consolidated financial statements for the fiscal year ended
      December 31, 2007, filed with the Company’s annual report on Form
      20-F on June 30, 2008.)





(2)
            $67,049
      of these funds was spent on the purchase of equipment; and $27,591,251 was
      spent on the Company’s resource properties. (For a breakdown on the
      resource property expenditures, see Note 7 to the Company’s audited
      consolidated financial statements for the fiscal year ended
      December 31, 2008, filed with the Company’s annual report on Form
      20-F on June 30, 2009.)





(3)
            $39,279
      of these funds was spent on the purchase of equipment; and $2,587,209 was
      spent on the Company’s resource properties. (For a breakdown on the
      resource property expenditures, see Note 6 to the Company’s audited
      consolidated financial statements for the fiscal year ended
      December 31, 2009, filed with this annual report on Form
      20-F.)





2010
Capital Expenditures





The
Company considers that it has adequate resources to maintain its contemplated
operations for the next twelve months. The Company will continue to rely on
successfully completing additional financing and/or conducting joint venture
arrangements to identify and acquire future properties.  There can be
no assurance that the Company will be successful in obtaining the required
financing or negotiating joint venture agreements.  The failure to
obtain such financing or joint venture agreements could result in the Company
being unable to identify and acquire future properties.  See “Item 4.
Information on the Company - History and Development of the Company” and “Item
3. Key Information – Risk Factors – Additional Financing; and Exploration
Risks”.





As 2010
begins, oil prices have stabilized around US$80/barrel and many in the industry
are seeing signs that the gas market is returning to a supply demand balance.
The Company now believes that this is the time to move forward on the
development of our key Piceance Basin acreage. Under moderate commodity prices
forecasts of US$80/barrel for oil and US$6/Million BTU’s for natural gas, we
believe that our major projects are sufficiently robust to attract competitive
financing, allowing us to undertake important investments in the growth of the
Company in 2010 and 2011 without significant dilution of the value of the
projects.





As we
move into 2010, we are witnessing a return to a much more favorable growth
environment, perhaps best illustrated by the increase in the Company’s Net
Proved and Probable Reserves which climbed from approximately 6 BCFE as at
December 31, 2008 to over 217 BCFE as at December 31, 2009.  A reserve
and value increase for the Company resulting directly from the actions taken to
preserve the company core assets in 2009.


20





In 2010,
we anticipate an improving business environment and improving conditions in the
financial markets for the Company and its projects.  Company growth
over the next one to two years will come from exploiting development
opportunities at Drake/Woodrush property and from the development of low risk,
high value resource plays identified in the Montney in northwestern British
Columbia and in select Piceance Basin properties.





The
Company's business objective remains the economic development of key projects
and growth opportunities, resulting in the enhancement of shareholder
value.  This will be accomplished through prudent investment in and
management of the Company’s portfolio of producing and non producing assets,
combined with a limited program of strategic acquisitions and divestitures in
our core operating areas.





Currently,
we have no capital expenditure commitments.





Anticipated
Capital Expenditures for 2010 are as follows:  $100,000 on the
purchase of equipment and $6.5 million on the Company’s resource
properties.





B.           Business
Overview





General





Since the
divestiture of the Company’s uranium exploration properties in December 2006,
the Company is principally an exploration-stage company engaged in the
acquisition, exploration and development of oil and gas
properties.  The Company is in the business of acquiring, exploring
and developing energy projects with a focus on oil and gas exploration in Canada
and the United States.





The
Company holds approximately 129,000 net acres of oil and gas leases in the
following regions:





·
            The
      Peace River Arch of northwestern British Columbia and northeastern
      Alberta, Canada





·
            The
      Piceance, Paradox and Uinta Basins in the US Rocky
    Mountains





In the
second quarter of 2008, the Company commenced production and started receiving
revenue from its Peace River Arch oil and gas properties, realizing the shift
from a pure play exploration company to an exploration and production
company.





Summary





Over the
2008 and 2009 time frame the Company has evolved its forward focus from
acquiring resource potential toward conversion of resources into reserves. This
process involved several distinct steps on the same continuum
including:





·
            Classification
      and prioritization of acreage based on economic promise, technical
      robustness, infrastructural and logistic advantage and commercial
      maturity





·
            Evaluation
      and development planning for top tier acreage
  positions





·
            Developing
      partnerships within financial and industry circles to speed the
      exploitation process, and





·
            Aggressively
      bringing production on line where
feasible.





As a
result of these moves, the Company’s asset characterization has moved toward
more tangible low risk near term development projects, moderate risk appraisal
opportunities and modest risk exploration potential with a benign lease
expiration profile.




The
Company’s business objective is to grow our oil and gas production and generate
sufficient cash flow to continue to expand company operations and enhance
shareholder value.  We intend to achieve our objectives through a
strategy of acquiring oil and gas assets in areas and projects that we believe
have high potential and through prudent investment and
management.


21





Three
Year History





2009





In 2009,
the Company’s focus was on the restructuring of current assets and operations to
reduce debt and lower operating costs while maintaining all prospective acreage
holdings and positioning for renewed drilling activities as both the business
environment and commodity prices improved.





Despite
the difficult environment faced in 2009, the Company was able to achieve all
major objectives and also make significant progress on key strategic initiatives
that resulted in the following:





1.
            Increased
      Net Proved and Probable Reserves by more than 3,500% from slightly more
      than 6 BCFE to over 217 BCFE.  The before tax discounted
      (NPV10)
      value of the Company’s proved and probable reserves, net of all future
      costs for development is now valued at  $324
      million.  This is up from $31 million as at December 31, 2008.
      The major increase in reserves results from developments in the Gibson
      Gulch field in the Piceance Basin where the Company holds a 72% working
      interest in 2200 gross acres.  This property is discussed in
      more detail later in this report.





2.
            Reduced
      debt from $18.3 million to $6.2
million.





3.
            Eliminated
      working capital deficit of $12.7 million at the end of 2008 and end 2009
      with a positive working capital of
$410,000.





4.
            Raised
      $5 million of equity under challenging market conditions that allowed the
      Company to execute its winter drilling program in Woodrush
      Field.





5.
            Strengthening
      our Board of Directors with the addition of Stephen Mut as Co-Chairman of
      the Board and Darren Devine as
Director.





6.
            In
      2009, the Company disposed of all of its holdings in Titan Uranium for
      proceeds of $2,305,491. Dejour retains a 10% carried interest and 1% Net
      Smelter Return on approximately 578,365 acres of uranium
      leases.





2008





1.
            Piceance
      and Uinta Basins, US





·
            Increased
      land holdings to 128,000 net acres





·
            The
      Company and its partner, Brownstone Ventures, signed a joint-operating
      agreement with Fidelity Exploration Production Company, a subsidiary of
      MDU Resources Group Inc., over 14,000 acres of leases held by Dejour and
      Brownstone. Under the agreement, Fidelity will be the operator of the
      acreage which will be owned 65% by Fidelity, 25% by Dejour, and 10% by
      Brownstone.





·
            The
      Company signed a joint-venture agreement with Laramie Energy II LLC
      (“Laramie”) over approximately 22,000 gross acres (15,700 net to Dejour)
      in the Rangely prospect located in the northwest edge of the Piceance
      Basin in Colorado. Under the terms of the agreement, Laramie will begin a
      continuous drilling program on the acreage in the second half of 2009 and
      will have the right to earn up to 55% of the acreage covered under the
      agreement by completing at least four commercially productive wells over
      the next three to four years.





·
            Entered
      into a Purchase and Sale agreement with Retamco
      Operating.   Dejour received an additional 64,000 net acres
      in Colorado and Utah from Retamco in exchange for Dejour’s 25% Working
      Interest in approximately 3,500 acres and two wells at North Barcus Creek
      and a cash payment of
US$4,000,000.


22





2.
            Peace
      River Arch, Canada





·
            Completed
      the drilling of 11 wells, 9 of which were operated by the Company with an
      average working interest of 95%, and 2 wells partner-operated with an
      average working interest of 35%. 5 of the wells were placed in production
      as gas wells, 1 was placed in production as an oil well, and 1 well was
      producing oil and gas.





·
            Acquired
      6,350 net acres in a new “Montney” formation natural gas prospect in
      British Columbia.





3.
            Common
      share listing upgraded to TSX from TSX Venture
  Exchange





4.
            Obtained
      a $7 million bank line of credit and $2.55 million loan from a related
      party for exploration program in
Canada





5.
            Obtained
      a US$4 million loan from a working interest partner to purchase additional
      acreage in the US





2007





1.
            Raised
      net proceeds of $14.7 million from private placements financing and the
      exercise of share purchase warrants and stock
  options





2.
            Drilled
      and discovered the Drake / Woodrush oil & gas project and participate
      in the drilling of two wells with 25% working interest - N. Barcus Creek
      #1-12 and #2-12 wells, located in the Piceance Basin in (Rio Blanco
      County) Colorado





3.
            Focused
      on the acquisition and drilling of oil and gas projects, including the
      North Barcus Creek project in Colorado and properties in the Peace River
      Arch area of Alberta / British
Columbia.





4.
            In
      Alberta / British Columbia, six prospects were successfully
      produced.





US
Activities





Gibson
Gulch





The
Company has moved forward aggressively to begin the process of bringing this low
risk development project into production. Dejour’s has a 72% working interest in
this 2,200 acre project which is ideally situated for exploitation of thick
columns of both the Williams Fork and Mancos shale bodies. The Williams
Companies, Inc. (NYSE: WMB) and Bill Barrett Corporation (NYSE: BBG) are
developing and producing on adjacent acreage to the east, west and north of the
Company’s acreage. An independent reserve evaluator, Gustavson Associates,
assigned 60 BCF in proven undeveloped reserves to Dejour’s net acreage at Gibson
Gulch as of December 31, 2009.





Dejour USA is working closely with
important constituents including local citizenry and government, the Bureau of
Land Management and the Colorado Division of Wildlife to develop a mutually
acceptable development plan for this environmentally sensitive
area.  After all permits are received, current plans call for drilling
to commence in mid 2011 with production to begin later in that year. During Q1
2010, the Company was granted approval to develop a 660 acre portion of the
Gibson Gulch leases with 10-acre spacing. Approval of this spacing on the
remainder of the lease acreage would enable Dejour and its partner to drill up
to 220 wells (158 wells net to Dejour) from a few multi-well drilling pads to
optimally exploit the gas reserves in the subsurface.





South
Rangely





Over
2009, Dejour developed a plan for evaluation and subsequent exploitation of an
oil prospect at South Rangely. During 2010, the Company plans to drill an
evaluation well on the 7,000 acre lease located just south of Rangely field.
Recent advances in horizontal drilling and fracture stimulation technology have
moved this previously marginal development into robust economic status.
Successful drilling and production by an operator on offsetting acreage makes
this project relatively low risk with the degree of economic success to be a
function of the quality of the completion design. Success at South Rangely may
allow the Company to revisit plans to evaluate and potentially exploit a 22,000
acre tract at the Company’s North Rangely. This acreage had previously been
subject to farm-out with Laramie Energy II LLC. Due to market conditions,
Laramie declined to follow through with the farm-out terms and the acreage has
reverted to Dejour control with Dejour currently holding a 72% working interest
of 22,000 acres in North Rangely.


23





Roan
Creek





South and
west of Gibson Gulch, Dejour owns 72% of the 1400+ acre Roan Creek evaluation
project. This gas prone opportunity is located very close to and sandwiched
between existing Williams Fork gas fields operated by Occidental and Chevron.
While it is likely that the pay in the Williams Fork at Roan Creek will be
somewhat thinner than is found to the east, Roan Creek has potential for pay in
the Mancos/Niobrara interval that can be tested via an exploratory tail to a
Williams Fork appraisal well. During 2009, the various geologic and commercial
studies conducted by the Company highlighted the potential at Roan Creek which
provided the driving force for a single well drilling program to be conducted in
late 2010 or early 2011. Success at Roan Creek is expected to make some 3,000+
additional acres currently held by the Company prospective.





Future
Exploration and Evaluation





Dejour
retains a substantial amount of acreage prospective for oil and gas exploitation
in other sections of the Piceance and Uinta basins. Dejour’s 109,400 net acre
position was sculpted over the 2006-2008 period.  Dejour is operator
of approximately 130,000 acres and is a non-operator in another 110,000 acres
where Retamco Operating Inc. and Fidelity Exploration and Production Company
operate.





As a
result of a reasonably comprehensive geologic and commercial study in 2009,
Dejour has high graded three future development and appraisal projects
including:





·
            Plateau
      - This 7,300 acre (gross) project located south of Roan Creek in the
      Piceance Basin has Williams Fork potential as evidenced by successful
      drilling by EnCana Corporation at acreage adjacent to the Company’s
      holdings.





·
            Greentown
      - This 15,000 acre (gross) prospect in the Uinta Basin in eastern Utah has
      oil potential as evidenced by drilling success encountered by Delta
      Petroleum in 2008. This area remains technically challenging due to issues
      associated with salt layers overlaying the target
  zone.





These
potential developments will continue to be matured over 2010 with exploration or
evaluation drilling scheduled for 2011/2012. Exploitation of these opportunities
will in all likelihood proceed only after developments at Gibson Gulch, South
Rangely and Roan Creek reach equilibrium stage.





Prospective
acreage is located throughout the remainder of Dejour’s land holdings. These
positions, which were identified during studies conducted during 2008 and 2009,
will be high graded over the years of 2010 to 2012 so that exploration and
appraisal drilling programs can be developed for the middle part of the decade.
If during further studies, certain acreage is deemed to have potential, it is
possible for that acreage to leap the queue and assume a higher priority status
than it currently enjoys.





Canadian
Activities





The
Company’s wholly-owned subsidiary, Dejour Energy (Alberta) Ltd. (“DEAL”),
currently has interests in oil and gas properties in the Peace River Arch
located principally in northeastern British Columbia.





In 2009,
production from Dejour operated wells averaged about 456 BOE/D (202 BOPD of oil
and natural gas liquids and 1,524 MCFD of gas).  At year end, gas
production was limited due to restrictions imposed by a third party providing
compression services. December production averaged 277 BOE/D (122 BOPD of oil
and 930 MCFD of gas).


24





As at
December 31, 2009, DEAL’s holdings totaled 20,247 net acres concentrated in the
Peace River Arch and the Montney shale basin.





Woodrush/Drake





After
completing a comprehensive study of the Woodrush/Drake area in 2009, Dejour
determined that the area presented room for value increase. Based on the
recommendations of that study, the Company implemented a five point program
which included:





·
            Operating
      cost reduction





·
            Production
      increase from existing wells





·
            Acquisition
      of additional prospective acreage





·
            Seismic
      data acquisition and analysis





·
            Step-out
      drilling from existing production based on seismic
  data.





During
the second half of the year, DEAL made personnel and field management changes to
reduce costs. Key to this program was the installation of a more cost effective
gas compression system. Production from wells were temporarily shut in due to
low gas prices and returned to service when commodity prices
improved.





DEAL was
the successful bidder for 1,579 net acres of Crown land located adjacent to the
northern boundary of the Woodrush lease which was offered for lease in November
2009. The price paid for this acquisition was approximately
$340,000.





Late in
2009, the Company began preparations for a 3-D seismic survey designed to
investigate the northern portion of the Woodrush lease and the southern portion
of the newly acquired acreage. The survey was shot, processed and interpreted in
late 2009/early 2010 with several drilling locations identified. Rigs were
contracted and two or three wells are anticipated to be drilled before activity
is truncated at time of “break-up” in the water prone areas which overlay the
prospective oil and gas deposits.





In late
2009 and prior to the seismic survey, DEAL drilled, sidetracked and suspended an
oil and gas well with hydrocarbon shows in several intervals. The well location
was based upon previously acquired seismic data.





During
2009, DEAL sold 25% of its interest in Woodrush/Drake for $4,500,000 in
cash.  Proceeds from the sale of the interest were used to fund
expanded Woodrush/Drake investments and to reduce the Company’s outstanding bank
line of credit. DEAL’s working interest in Woodrush/Drake was 75% as at December
31, 2009.





Subsequent
to December 31, 2009, DEAL installed gas compression facilities at Woodrush that
eliminated third party restrictions and lowered compression costs. By mid-March
2010, Dejour’s net 75% production had climbed to 465 BOE/D (120 BOPD and 2,100
MCFD).  In the second half of March, DEAL drilled, completed and
tested two additional wells at Woodrush.  The first well was
productive in the Gething formation and tested at a rate in excess of gross 900
MCFD (net 675 MCFD) of natural gas.  The second well was productive in
the Halfway formation and tested at a rate in excess of gross 500 BOPD (net 375
BOPD) of oil.  These wells are anticipated to be tied into production
early in the second quarter of 2010.





Saddle
Hills





DEAL
maintains a 25% working interest in 5,000 acres with two capped gas wells in the
Saddle Hills area. The two wells are operated by Zargon Energy Trust, one of the
Company’s joint-venture partners.


25





Carson
Creek





In June
2009, DEAL completed the sale of its 100% working interest in Carson Creek to an
unrelated third party for $2,100,000.





Buick
Creek (Montney Shale Basin)





DEAL acquired 6,352 gross and net acres
in the emerging Montney natural gas resource play in northeastern British
Columbia during 2008.  In early 2009, the Company also acquired an
existing wellbore which the Company believes can be used for re-entry and
testing of the play.





United
States vs. Foreign Sales/Assets





Commencing
the second quarter of fiscal 2008, the Company recorded its reported oil and gas
revenue.





Revenue for fiscal year ended:
                    
                    Canada
                    
                    
                    United States12/31/2008
                    
                    $
                    5,751,672
                    
                    
                    $
                    13,88312/31/2009
                    
                    $
                    6,785,995
                    
                    
                    $
                    114,200





Asset Location as of:
                    
                    Canada
                    
                    
                    United States12/31/2005
                    
                    $
                    14,788,338
                    
                    
                    $
                    1,228,01512/31/2006
                    
                    $
                    55,495,194
                    
                    
                    $
                    25,182,53412/31/2007
                    
                    $
                    35,181,268
                    
                    
                    $
                    27,962,23112/31/2008
                    
                    $
                    32,758,495
                    
                    
                    $
                    29,884,69112/31/2009
                    
                    $
                    16,874,298
                    
                    
                    $
                    29,011,578





Government
Regulations





The
Company's operations are subject to environmental regulations (including regular
environmental impact assessments and permitting) in the jurisdictions in which
it operates.  Such regulations cover a wide variety of matters,
including, without limitation, emission of greenhouse gases, prevention of
waste, pollution and protection of the environment, labour regulations and
worker safety.  Under such regulations there are preventative
obligations, clean-up costs and liabilities for toxic or hazardous substances
which may exist on or under any of its properties or which may be produced as a
result of its operations.  Environmental legislation and legislation
relating to exploration and production of oil and natural gas will require
stricter standards and enforcement, increased fines and penalties for
non-compliance, more stringent environmental assessments of proposed projects
and a heightened degree of responsibility for companies and their directors and
employees.  Such stricter standards could impact the Company's costs
and have an adverse effect on results of operations. The Company expects to
incur abandonment and site reclamation costs as existing oil and gas properties
are abandoned and reclaimed; however, the Company does not anticipate making
material expenditures beyond normal compliance with environmental regulations in
2010 and future years.





The
health and safety of employees, contractors and the public, as well as the
protection of the environment, is of utmost importance to the Company. The
Company endeavours to conduct its operations in a manner that will minimize
adverse effects of emergency situations by:





·
            complying
      with government regulations and
standards;





·
            following
      industry codes, practices and
guidelines;





·
            ensuring
      prompt, effective response and repair to emergency situations and
      environmental incidents; and


26





·
            educating
      employees and contractors of the importance of compliance with corporate
      safety and environmental rules and
procedures.





The
Company believes that all Company personnel have a vital role in achieving
excellence in environmental, health and safety performance. This is best
achieved through careful planning and the support and active participation of
everyone involved





Competition





The
Company operates in geographical areas where there is strong competition by
other companies for reserve acquisitions, exploration leases, licenses and
concessions and skilled industry personnel. The Company’s competitors include
major integrated oil and natural gas companies and numerous other independent
oil and natural gas companies and individual producers and operators, many of
whom have greater financial and personnel resources than the
Company.  The Company’s ability to acquire additional property rights,
to discover reserves, to participate in drilling opportunities and to identify
and enter into commercial arrangements with customers is dependent upon
developing and maintaining close working relationships with its current industry
partners and joint operators, and its ability to select and evaluate suitable
properties and to consummate transactions in a highly competitive
environment.





The
Company competes with many companies possessing greater financial resources and
technical facilities for the acquisition of oil and gas properties, exploration
and production equipment, as well as for the recruitment and retention of
qualified employees.





Seasonality





All of
the Company's operations in Canada are affected by seasonal operating
conditions.  DEAL holds properties in northwestern Alberta and
northeastern British Columbia which are accessible to heavy equipment in winter
only when the ground is frozen, typically between December to early April. For
this reason drilling and pipeline construction ceases over the remainder of the
year, limiting growth to winter only. Production operations continue year round
in these areas once production is established. The prices that the Company will
receive for oil and gas production in the future are weighted to world benchmark
prices and may be adversely affected by mild weather conditions. In 2007 and the
first half of 2008 higher demand increased world commodity prices. Recently
there has been a significant change in the supply demand balance and commodity
prices have fallen dramatically. The Company expects this condition to persist
for several months but the Company believes that a balance between production
and consumption and a stable price environment will be reestablished by the end
of 2010.





C.           Organizational
Structure





Dejour
Enterprises Ltd. is incorporated under the laws of British Columbia, Canada. The
Company was originally incorporated as “Dejour Mines Limited” on March 29, 1968
under the laws of the Province of Ontario. By articles of amendment dated
October 30, 2001, the issued shares were consolidated on the basis of one (1)
new for every fifteen (15) old shares and the name of the Company was changed to
Dejour Enterprises Ltd. In 2005, the Company was continued in British Columbia
under the Business
Corporations Act (British Columbia).





Intercorporate
Relationships




The
Company has four 100% owned subsidiaries:  Dejour Energy (USA) Corp.
(“Dejour USA”), a Nevada corporation, holds its United States oil and gas
interests, Dejour Energy (Alberta) Ltd. (“DEAL”) and Wild Horse Energy Ltd.
(“Wild Horse”), Alberta corporations, hold its Canadian oil and gas interests
except the Montney (Buick Creek) property, and 0855524 B.C. Ltd. (“0855524”), a
British Columbia Corporation, holds the Montney (Buick Creek)
property.




27





D.           Property,
Plant and Equipment





The
Company’s executive offices are located in rented premises of approximately
2,519 sq. ft. at  598 – 999 Canada Place, Vancouver, British Columbia,
V6C 3E1.  The Company began occupying these facilities on July 1, 2009.
 Current monthly base rent is $6,088.





Resource
Properties





The
Company’s current focus is on oil and gas properties located in the United
States and Canada. The Company formerly had direct interest in uranium
exploration properties, which it sold to Titan Uranium Inc. in 2006 for Titan
common shares. The Company sold all of its Titan common shares in 2009, but
retains a 1% NSR on all the properties sold to Titan, and a 10% working interest
in each claim, carried by Titan to a completed bankable feasibility study after
which the Company may elect to participate as to its 10% interest or convert to
an additional 1% NSR.





The
Company currently has oil and gas leases in northeastern British Columbia and
Northwestern Alberta, and in the Piceance and Uinta Basins in Colorado and Utah.
The Company’s resource property interests are described below:





United
States Oil and Gas Properties





In July
2006, the Company’s U.S. subsidiary, Dejour USA, entered into a participation
agreement (the "2006 Retamco
Agreement") with Retamco Operating, Inc. (“Retamco”), a U.S. privately
owned oil and gas corporation, and Brownstone Ventures (US) Inc. (“Brownstone”), a subsidiary of
Brownstone Ventures Inc., a Canadian company listed on the
TSX-V.  Under the agreement, Dejour USA and Brownstone agreed to
participate in the ownership of specified oil and gas leasehold interests and
related exploration and development of those leases located in the Piceance,
Uinta and Paradox Basins of western Colorado and eastern Utah.





In June
2008 Dejour USA entered into a further purchase and sale agreement with Retamco
resulting in Dejour USA acquiring an additional 64,000 net acres involving the
same properties in which it purchased an interest in the 2006 Retamco
Agreement.  Additionally, as a part of this latter agreement Dejour
USA sold its 25% working interests in two wells in the North Barcus Creek
Prospect (located in Piceance Basin, Colorado) and roughly 3,682 net acres in
the Rio Blanco Deep Prospect (located in northern Colorado).





During
Fiscal 2009, certain leases expired. As of December 31, 2009, the Company had
approximately 110,000 net acres in the Colorado/Utah Project.


28











Gibson Gulch Prospect
Area




The
Gibson Gulch Prospect Area in Garfield County, Colorado, consists of 3,625 gross
acres of sparsely drilled acreage, within the prospective conventional /
continuous gas resource trend in the Uinta-Piceance Basin.









29




The
Company has moved forward to begin the process of bringing this low risk
development project into production. Dejour’s has a 72% working interest in this
2200 acre project which is ideally situated for exploitation of thick columns of
both the Williams Fork and Mancos shale bodies. The Williams Companies, Inc. and
Bill Barrett Corporation are developing and producing on adjacent acreage to the
east, west and north of the Company’s acreage.  Dejour USA is working
closely with important constituents including local citizenry and government,
the Bureau of Land Management and the Colorado Division of Wildlife to develop a
mutually acceptable development plan for this environmentally sensitive
area.  After all permits are received, current plans call for drilling
to commence in mid 2011 with production to begin later in that year. Subsequent
to year-end, the Company was granted approval to develop a 660 acre portion of
the Gibson Gulch leases with 10-acre spacing. Approval of this spacing on the
remainder of the lease acreage would enable Dejour and its partner to drill up
to 220 wells (158 wells net to Dejour) from a few multi-well drilling pads to
optimally exploit the gas reserves in the subsurface.





Green River Prospect
Area





The Green
River Prospect Area in Grand County, Utah, consists of 15,466 gross acres of
sparsely drilled acreage in the transitional area between the Uinta-Piceance
Basin and the Paradox Basin.











Rangely Prospect
Area





The
Rangely Prospect Area is just south of  Rangely Field near the Utah
border. In the Rangely prospect area, fractured Mancos Shale is producing gas.
The Mancos also contains sandstone intervals, Mancos A and Mancos B, which can
be productive. The eastern shoulder of the Douglas Creek Arch and the flanks of
the Rangely Anticline as well as other areas of the basin are being explored for
this Cretaceous age strata. The Mancos is also considered a source rock in the
area.


30











Over
2009, Dejour developed a plan for evaluation and subsequent exploitation of an
oil prospect at South Rangely. During 2010, the Company plans to drill an
evaluation well on the 7,000 acre lease located just south of the Rangely field.
Recent advances in horizontal drilling and fracture stimulation technology have
moved this previously marginal development into robust economic status.
Successful drilling and production by an operator on offsetting acreage makes
this project relatively low risk with the degree of economic success to be a
function of the quality of the completion design. Success at South Rangely may
allow the Company to revisit plans to evaluate and potentially explore and
potentially exploit a 22,000 acre tract at the Company’s North Rangely. This
acreage had previously been subject to a farm-out with Laramie Energy II LLC.
Due to market conditions, Laramie declined to follow through with the farm-out
terms and the acreage has reverted to Dejour control with Dejour currently
holding a 72% working interest of 22,000 acres in North Rangely.




31





Roan Creek Prospect
Area





South and
west of Gibson Gulch, Dejour owns 72% of the 1400+ acre Roan Creek evaluation
project. This gas prone opportunity is located very close to and sandwiched
between existing Williams Fork gas fields operated by Occidental and Chevron.
While it is likely that the pay in the Williams Fork at Roan Creek will be
somewhat thinner than is found to the east and west, Roan Creek has potential
for pay in the Mancos/Niobrara interval that can be tested via an exploratory
tail to a Williams Fork appraisal well. During 2009, the various geologic and
commercial studies conducted by the Company highlighted the potential at Roan
Creek which provided the driving force for a single well drilling program to be
conducted in late 2010 or early 2011. Success at Roan Creek is expected to make
some 3,000+ additional acres currently held by the Company
prospective.








32





Other
Prospect Areas





As of
December 31, 2009, Dejour had approximately 84,000 net acres in the following
prospect areas, which are considered as non-core projects of the
Company:





Area
                                                                                
                                                                                Prospect
                                                                                
                                                                                Net acres to DejourBook
      Cliffs
                                                                                
                                                                                
                                                                                11,270Piceance
                                                                                
                                                                                Plateau
                                                                                
                                                                                
                                                                                4,724Gunnison
                                                                                
                                                                                
                                                                                1,204Paradox
                                                                                
                                                                                San
      Juan
                                                                                
                                                                                
                                                                                169Bitter
      Creek
                                                                                
                                                                                
                                                                                831Bonanza
                                                                                
                                                                                
                                                                                337Cisco
                                                                                
                                                                                
                                                                                5,379Uinta
                                                                                
                                                                                Displacement
                                                                                
                                                                                
                                                                                4,443Gorge
      Spg
                                                                                
                                                                                
                                                                                1,913Oil
      shale
                                                                                
                                                                                
                                                                                899Seep
      Ridge
                                                                                
                                                                                
                                                                                361Tri
      County
                                                                                
                                                                                
                                                                                1,397Meeker
                                                                                
                                                                                
                                                                                3,607Northern
                                                                                
                                                                                Pinyon
                                                                                
                                                                                
                                                                                5,117Colorado
                                                                                
                                                                                Waddle
      Creek
                                                                                
                                                                                
                                                                                212Rio
      Blanco
                                                                                
                                                                                
                                                                                194Sub-Thrust
                                                                                
                                                                                Dinosaur
                                                                                
                                                                                
                                                                                41,112Ashley
                                                                                
                                                                                
                                                                                480Sand
      Wash
                                                                                
                                                                                Sand
      Wash
                                                                                
                                                                                
                                                                                227Total
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                83,876


33


Future Exploration and
Evaluation





Dejour
retains a substantial amount of acreage prospective for oil and gas exploitation
in other sections of the Piceance and Uinta basins. Dejour’s 109,400 net acre
position was sculpted over the 2006-2008 period.  Dejour is operator
of approximately 130,000 acres and is a non-operator in another 110,000 acres
where Retamco Operating Inc. and Fidelity Exploration and Production Company
operate.





As a
result of a geologic and commercial study in 2009, Dejour has high graded three
future development and appraisal projects including:





·
            Plateau
      - This 7,300 acre (gross) project located south of Roan Creek in the
      Piceance Basin has Williams Fork potential as evidenced by successful
      drilling by EnCana at acreage adjacent to the Company’s
      holdings.





·
            Greentown
      - This 15,000 acre (gross) prospect in the Uinta Basin in eastern Utah has
      oil potential as evidenced by drilling success encountered by Delta
      Petroleum in 2008. This area remains technically challenging due to issues
      associated with salt layers overlaying the target
  zone.





These
potential developments will continue to be matured over 2010 with exploration or
evaluation drilling scheduled for 2011/2012. Exploitation of these opportunities
will in all likelihood proceed only after developments at Gibson Gulch, South
Rangely and Roan Creek reach equilibrium stage.





Prospective
acreage is located throughout the remainder of Dejour’s land holdings. These
positions, which were identified during studies conducted during 2008 and 2009,
will be high graded over the years of 2010 to 2012 so that exploration and
appraisal drilling programs can be developed for the middle part of the decade.
If during further studies, certain acreage is deemed to have potential, it is
possible for that acreage to assume a higher priority status than it currently
enjoys.





Canadian
Oil and Gas Properties





The
Company’s wholly-owned subsidiary, Dejour Energy (Alberta) Ltd., currently has
interests in oil and gas properties in the Peace River Arch located principally
in northeastern British Columbia.




The
Canadian oil and gas property interests of the Company are described
below:





Drake/Woodrush





After
completing a comprehensive study of the Woodrush/Drake area in 2009, Dejour
determined that the area presented room for value increase. Based on the
recommendations of that study, the Company implemented a five point program
which included:





·
            Operating
      cost reduction





·
            Production
      increase from existing wells





·
            Acquisition
      of additional prospective acreage





·
            Seismic
      data acquisition and analysis





·
            Step-out
      drilling from existing production based on seismic
  data.


34





During
the second half of the year, DEAL made personnel and field management changes to
reduce costs. Key to this program was the installation of a more cost effective
gas compression system. Production from wells were temporarily shut in due to
low gas prices and returned to service when commodity prices
improved.





DEAL was
the successful bidder for 1,579 net acres of Crown land located adjacent to the
northern boundary of the Woodrush lease which was offered for lease in November
2009. The price paid for this acquisition was approximately
$340,000.





Late in
2009, the Company began preparations for a 3-D seismic survey designed to
investigate the northern portion of the Woodrush lease and the southern portion
of the newly acquired acreage. The survey was shot, processed and interpreted in
late 2009/early 2010 with several drilling locations identified. Rigs were
contracted and two or three wells are anticipated to be drilled before activity
is truncated at time of “break-up” in the water prone areas which overlay the
prospective oil and gas deposits.





In late
2009 and prior to the seismic survey, DEAL drilled, sidetracked and suspended an
oil and gas well with hydrocarbon shows in several intervals. The well location
was based upon previously acquired seismic data.





During
2009, DEAL sold 25% of its interest in Woodrush/Drake for $4,500,000 in
cash.  Proceeds from the sale of the interest were used to fund
expanded Woodrush/Drake investments and to reduce the Company’s outstanding bank
line of credit. DEAL’s working interest in Woodrush/Drake was 75% as at December
31, 2009.





Subsequent
to December 31, 2009, DEAL installed gas compression facilities at Woodrush that
eliminated third party restrictions and lowered compression costs. By mid-March
2010, Dejour’s net 75% production had climbed to 465 BOE/D (120 BOPD and 2,100
MCFD).  In the second half of March, DEAL drilled, completed and
tested two additional wells at Woodrush.  The first well was
productive in the Gething formation and tested at a rate in excess of gross 900
MCFD (net 675 MCFD) of natural gas.  The second well was productive in
the Halfway formation and tested at a rate in excess of gross 500 BOPD (net 375
BOPD) of oil.  These wells have been tied into production in May
2010.





Saddle
Hills





DEAL
maintains a 25% working interest in 5,000 acres with two capped gas wells in the
Saddle Hills area. The two wells are operated by Zargon Energy Trust, one of the
Company’s joint-venture partners.




35




Carson
Creek





In June
2009, DEAL completed the sale of its 100% working interest in Carson Creek to an
unrelated third party for $2,100,000.





Buick
Creek (Montney)





DEAL
acquired 6,352 gross and net acres in the emerging Montney natural gas resource
play in northeastern British Columbia during 2008.  In early 2009, the
Company also acquired an existing wellbore which the Company believes can be
used for re-entry and testing of the play.


36


Reserve
Data





In 2009,
GLJ Petroleum Consultants (“GLJ”), independent petroleum
engineering consultants based in Calgary, Alberta were retained by the Company
to evaluate the Canadian properties of the Company. Their report, titled
“Reserves Assessment and Evaluation of Canadian Oil and Gas Properties”, is
dated March 24, 2010 and has an effective date of December 31,
2009.





Gustavson
Associates (“Gustavson”), an independent
petroleum engineering consultants based in Denver, Colorado were retained by the
Company to evaluate the US properties of the Company.  Their report,
titled “Reserve and Resources Evaluation Report, Dejour Energy (USA) Corp.,
Leasehold Uintah, Grand, and Emery Counties, Utah and Moffat, Rio Blanco,
Garfield, Mesa, Delta, and Gunnison Counties, Colorado, USA” is dated March 12,
2010 and has an effective date of January 1, 2010.





The
reserves data set forth below (the "Reserves Data"), derived from
GLJ and Gustavson’s reports, summarize the oil, liquids and natural gas reserves
of the Company.





The GLJ
and Gustavson reports are based on certain factual data supplied by the Company
and GLJ and Gustavson's opinion of reasonable practice in the industry. The
extent and character of ownership and all factual data pertaining to the
Company’s petroleum properties and contracts (except for certain information
residing in the public domain) were supplied by the Company to GLJ and Gustavson
and accepted without any further investigation. GLJ and Gustavson accepted this
data as presented and neither title searches nor field inspections were
conducted. All statements relating to the activities of the Company for the year
ended December 31, 2009 include a full year of operating data on the properties
of the Company.





The
reserve estimates of crude oil, natural gas liquids and natural gas reserves
provided herein are estimates only and there is no guarantee that the estimated
reserves will be recovered.  Actual crude oil, natural gas liquids and
natural gas reserves may be greater than or less than the estimates provided
herein.





Summary
of Oil and Gas Reserves as of Fiscal-Year End Based on Average Fiscal-Year
Prices





ReservesReserves Category
                      
                      Oil
                        (Mbbl)
                      
                      
                      Natural Gas
                        (Mmcf)
                      
                      
                      Natural Gas
                        Liquids
                        (Mbbl)PROVEDDevelopedCanada
                      
                      
                      70
                      
                      
                      
                      743
                      
                      
                      
                      4UndevelopedCanada
                      
                      
                      28
                      
                      
                      
                      10
                      
                      
                      
                      0United
      States
                      
                      
                      397
                      
                      
                      
                      60,197
                      
                      
                      
                      0TOTAL
      PROVED
                      
                      
                      495
                      
                      
                      
                      60,950
                      
                      
                      
                      4





Proved
Undeveloped Reserves





Total Proved Undeveloped ReservesOil
                            (Mbbl)
                          
                          
                          Natural Gas
                            (Mmcf)
                          
                          
                          Natural Gas
                            Liquids
                            (Mbbl)425
                          
                          
                          
                          60,207
                          
                          
                          
                          0





The
significant majority of the undeveloped reserves are scheduled to be developed
within the next five years.


37





In 2009,
we worked closely with important constituents to develop a development plan for
the Gibson Gulch area in Colorado, US. The outcome of the development plan
confirmed the existence of proved undeveloped reserves in this area. In 2009, we
did not incur any expenditure to convert proved undeveloped reserves into
developed reserves.




Reserves
Price Sensitivity




The
Company’s management uses forward-looking market-based data in developing its
drilling plans, assessing its capital expenditure needs and projecting future
cash flows.  We believe that using the forecast price yields a better
indication of the likely economics of proved reserves than the trailing average
12-month average prices required by the SEC’s reserve rules.




The table
below compares our estimated proved reserves and associated present value
(discounted at an annual rate of 10%) of the estimated future revenue before
income tax.





December 31, 2009Natural
                    Gas
                    (Mmcf)
                  
                  
                  Oil
                    (Mbbl)
                  
                  
                  Total
                    (Mmcfe)
                  
                  
                  PV-10(3)
                    (in thousands)Canada (Proved Developed and Undeveloped Reserves)2009
      12-month average prices (SEC)(1)
                  
                  
                  753
                  
                  
                  
                  98
                  
                  
                  
                  1,341
                  
                  
                  $
                  2,113Forecast
      price – GLJ Price Deck (2)
                  
                  
                  895
                  
                  
                  
                  121
                  
                  
                  
                  1,621
                  
                  
                  $
                  6,121




December 31, 2009Natural
                  Gas
                  (Mmcf)
                
                
                Oil
                  (Mbbl)
                
                
                Total
                  (Mmcfe)
                
                
                PV-10(3)
                  (in thousands)United States (Proved Undeveloped Reserves)2009
      12-month average prices (SEC) (1)
                
                
                60,197
                
                
                
                397
                
                
                
                62,579
                
                
                US$
                13,579Forecast
      price - NYMEX strip prices (2)
                
                
                60,197
                
                
                
                397
                
                
                
                62,579
                
                
                US$
                108,307





December 31, 2009Natural
                  Gas
                  (Mmcf)
                
                
                Oil
                  (Mbbl)
                
                
                Total
                  (Mmcfe)
                
                
                PV-10(4)
                  (in thousands)Total Proved Reserves2009
      12-month average prices (SEC) (1)
                
                
                60,950
                
                
                
                495
                
                
                
                63,920
                
                
                $
                16,385Forecast
      price – GLJ Price Deck and NYMEX strip prices (2)
                
                
                61,092
                
                
                
                518
                
                
                
                63,920
                
                
                $
                119,952





Notes:





(1) The
12-month average prices (SEC) are calculated based on the twelve month average
prices during 2009 adjusted for wellhead differential and current costs
prevailing at December 31, 2009 and using a 10 percent per annum discount rate
as required by the SEC.  The 12-month average prices (SEC) used for
Canadian properties were CAD$57.39 per barrel of oil and CAD$3.91 per Mcf of
natural gas. The 12-month average prices (SEC) used for US properties were
US$53.31 per barrel of oil and US$3.34 per Mcf of natural gas.


38





(2) For
Canadian properties, the forecast price is based on the December 31, 2009 price
deck by GLJ, an independent reserve evaluator.  The forecast prices
used for Canadian properties in 2010 were CAD$77.06 per barrel of oil and
CAD$6.27 per Mcf of natural gas, escalated to CAD$89.70 per barrel of oil and
CAD$7.23 per Mcf of natural gas for 2014. The forecast prices for US properties
were based on NYMEX futures strips as at December 31, 2009 for WTI (adjusted by
the average oil price differential for 2009) and Henry Hub, adjusted by the
futures strip for the CIG differential and BTU content.  The forecast
prices used for US properties in 2011 are US$79.98 per barrel of oil and US$6.74
per Mcf of natural gas, escalated to US$93.37 per barrel of oil and US$9.02 per
Mcf of natural gas for 2022 and onward. Current costs were adjusted for
inflations.





(3)
Present value of estimated future net cash flows before income taxes (PV-10) is
considered a non-GAAP financial measure as defined by the SEC.  We
believe that our PV-10 presentation is relevant and useful to our investors
because it presents the discounted future net cash flows attributable to our
proved reserves before taking into account the related future income taxes, as
such taxes may differ among various companies because of differences in the
amounts and timing of deductible basis, net operating loss carryforwards and
other factors.  We believe investors and creditors use our PV-10 as a
basis for comparison of the relative size and value of our proved reserves to
the reserve estimates of other companies.  PV-10 is not a measure of
financial or operating performance under GAAP and is not intended to represent
the current market value of our estimated oil and natural gas reserves. PV-10
should not be considered in isolation or as a substitute for the standardized
measure of discounted future net cash flows as defined under GAAP.





(4)  US
dollars are converted into Canadian dollars using the closing exchange rate on
December 31, 2009, which is US$1.00 = Cdn$1.0510.





Oil
and Gas Production, Production Prices and Production Costs





The
following is the Company’s total net oil and gas production for the fiscal years
ended December 31, 2009 and 2008. The Company had no oil or natural gas
production during the fiscal year ended December 31, 2007.  All
production came from the Company’s Canadian properties.  There was no
production from the Company’s United States Properties in the fiscal years ended
December 31, 2009, 2008 or 2007.





ProductionFiscal Year Ended
                
                Oil
                  (bbls)
                
                
                Natural Gas
                  (Mcf)
                
                
                Natural Gas Liquids
                  (bbls)December
      31, 2009
                
                
                72,254
                
                
                
                566,158
                
                
                
                2,028December
      31, 2008
                
                
                8,058
                
                
                
                509,034
                
                
                
                764





The
following table includes the average prices the Company received for its
production for the fiscal years ended December 31, 2009 and 2008.





Average Sales PricesFiscal Year Ended
                
                Oil
                  ($/bbls)
                
                
                Natural Gas
                  ($/Mcf)
                
                
                Natural Gas Liquids
                  ($/bbls)December
      31, 2009
                
                
                54.67
                
                
                
                4.35
                
                
                
                52.91December
      31, 2008
                
                
                55.21
                
                
                
                9.48
                
                
                
                110.90





The
following table includes the average production cost, not including ad valorem
and serverence taxes, per unit of production for the fiscal years ended December
31, 2009 and 2008.





Average Production CostsFiscal Year Ended
                
                Oil
                  ($/bbls)
                
                
                Natural Gas
                  ($/Mcf)
                
                
                Natural Gas Liquids
                  ($/bbls)December
      31, 2009
                
                
                23.38
                
                
                
                3.11
                
                
                
                16.12December
      31, 2008
                
                
                62.09
                
                
                
                5.09
                
                
                
                43.08


39





Drilling
and Other Exploratory and Development Activities





During
the fiscal year ended December 31, 2009, the Company drilled the following
wells:





Net Exploratory Wells
                    
                    
                    Net Development WellsCanada
                    
                    Productive
                    
                    
                    Dry
                    
                    
                    Productive
                    
                    
                    DryOil
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Natural
      Gas
                    
                    
                    0.75
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Dry
      Wells
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Service
      Wells
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Suspended
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Total
      Wells
                    
                    
                    0.75
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -





During
the fiscal year ended December 31, 2008, the Company drilled the following
wells:





Net Exploratory Wells
                    
                    
                    Net Development WellsCanada
                    
                    Productive
                    
                    
                    Dry
                    
                    
                    Productive
                    
                    
                    DryOil
                    
                    
                    2
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Natural
      Gas
                    
                    
                    1.65
                    
                    
                    
                    -
                    
                    
                    
                    2.84
                    
                    
                    
                    -Dry
      Wells
                    
                    
                    -
                    
                    
                    
                    0.7
                    
                    
                    
                    -
                    
                    
                    
                    -Service
      Wells
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Suspended
                    
                    
                    -
                    
                    
                    
                    2
                    
                    
                    
                    -
                    
                    
                    
                    -Total
      Wells
                    
                    
                    3.65
                    
                    
                    
                    2.7
                    
                    
                    
                    2.84
                    
                    
                    
                    -





During
the fiscal year ended December 31, 2007, the Company drilled the following
wells:





Net Exploratory Wells
                  
                  
                  Net Exploratory Wells
                  
                  
                  Net Development Wells
                  
                  
                  Net Development WellsCanada
                  
                  
                  US
                  
                  
                  Canada
                  
                  
                  USProductive
                  
                  
                  Dry
                  
                  
                  Productive
                  
                  
                  Dry
                  
                  
                  Productive
                  
                  
                  Dry
                  
                  
                  Productive
                  
                  
                  DryOil
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Natural
      Gas
                  
                  
                  0.3
                  
                  
                  
                  -
                  
                  
                  
                  0.5
                  
                  
                  
                  -
                  
                  
                  
                  1.2
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Dry
      Wells
                  
                  
                  -
                  
                  
                  
                  0.25
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Service
      Wells
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Suspended
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Total
      Wells
                  
                  
                  0.3
                  
                  
                  
                  0.25
                  
                  
                  
                  0.5
                  
                  
                  
                  -
                  
                  
                  
                  1.2
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -




40





Present
Activities





The
following table discloses the Company’s present drilling activities as of June
24, 2010.





Wells Being Drilled as of June 16, 2010Gross
                    
                    
                    NetCanadaOil
                    
                    
                    1
                    
                    
                    
                    0.75Natural
      Gas
                    
                    
                    1
                    
                    
                    
                    0.75United
      StatesOil
                    
                    
                    -
                    
                    
                    
                    -Natural
      Gas
                    
                    
                    -
                    
                    
                    
                    -Total
      Wells
                    
                    
                    2
                    
                    
                    
                    1.5





Delivery
Commitments





The
Company has no current delivery commitments for either oil or natural
gas.





Oil
and Gas Properties, Wells, Operations and Acreage





As of
December 31, 2009, the Company had 5 gross (3.75 net) producing oil or natural
gas wells.





Oil
                
                
                Natural GasCanada
                
                Gross
                
                
                Net
                
                
                Gross
                
                
                NetProducing
                
                
                1
                
                
                
                0.75
                
                
                
                4
                
                
                
                3Shut-In
                
                
                -
                
                
                
                -
                
                
                
                1
                
                
                
                0.75TOTAL
                
                
                1
                
                
                
                0.75
                
                
                
                5
                
                
                
                3.75





The
Company’s landholdings as of December 31, 2009 were as follows:





Undeveloped
                  (Acres)
                
                
                Developed
                  (Acres)
                
                
                Total
                  (Acres)Gross
                
                
                Net
                
                
                Gross
                
                
                Net
                
                
                Gross
                
                
                NetColorado/Utah,
      US
                
                
                132,834
                
                
                
                124,647
                
                
                
                -
                
                
                
                -
                
                
                
                132,834
                
                
                
                124,647Canada
                
                
                28,202
                
                
                
                13,516
                
                
                
                12,658
                
                
                
                6,731
                
                
                
                40,860
                
                
                
                20,247





Uranium
Properties





In 2009,
the Company disposed of all of its 16,750,000 shares in Titan Uranium inc. for
proceeds of $2,305,491.Dejour retains
its working interest and NSR in the properties originally sold to Titan.
However, the Company no longer maintains the right of first refusal on future
financings, is no longer required to provide geologists to Titan, and its
representatives have since resigned from the Titan Board of
Directors.


41





ITEM
4A.   UNRESOLVED STAFF COMMENTS





Not
Applicable.





ITEM
5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS





The
following is a discussion of the consolidated operating results and financial
position of the Company, including all its wholly-owned
subsidiaries.  It should be read in conjunction with the Company’s
audited consolidated financial statements and notes for the year ended December
31, 2009 and related notes included therein under the heading "Item 18.
Financial Statements" below.





All
financial information in this Item 5 is expressed and prepared in accordance
with the Canadian generally accepted accounting principles ("Canadian GAAP") and
all references are in Canadian dollars unless otherwise noted. Some numbers in
this Item 5 have been rounded to the nearest thousand for discussion
purposes.  Reference
is made to Note 21 of the audited consolidated financial statements of the
Company for the years ended December 31, 2009, 2008 and 2007  included
herein for a discussion of the material measurement differences between Canadian
GAAP and United States Generally Accepted Accounting Principles (“U.S. GAAP”),
and their effect on the Company’s financial statements.





Certain
forward-looking statements are discussed in this Item 5 with respect to the
Company’s activities and future financial results. These are subject to risks
and uncertainties that may cause projected results or events to differ
materially from actual results or events.  Readers should also read
the "Cautionary Note Regarding Forward-Looking Statements" above and “Item 3.
Key Information - Risk Factors.”





Critical
Accounting Policies





Recently
Adopted Accounting Policies





(i)
            Effective
      January 1, 2009, the Company adopted the new recommendations of the CICA
      under CICA Handbook Section 3064 Goodwill and Intangible Assets, which
      replaces Section 3062, Goodwill and Other Intangible Assets, and Section
      3450, Research and Development Costs. This new section establishes
      standards for the recognition, measurement, presentation and disclosure of
      goodwill subsequent to its initial recognition and of intangible assets by
      profit-oriented enterprises. Standards concerning goodwill remain
      unchanged from the standards included in the previous Section
      3062.  The adoption of this new standard had no effect on the
      amounts disclosed in the financial
statements.





(ii)
            Effective
      January 1, 2009, the Company adopted the newly issued guidance of the
      Emerging Issues Committee EIC-173, Credit Risk and the Fair value of
      Financial Assets and Liabilities, which requires that an entity should
      take into account the credit risk of the entity and the counterparty in
      determining the fair value of financial assets and financial
      liabilities.  This guidance is adopted retrospectively, with
      restatement.   No retroactive revision was disclosed
      related to the prior period as there were no effects on the fair values of
      financial assets and financial
liabilities.





(iii)
            Effective
      January 1, 2009, the Company adopted the newly issued guidance of the
      Emerging Issues Committee EIC-174, Mining Exploration Costs, which
      provides guidance on the accounting and the impairment review of
      exploration costs.  The adoption of this EIC did not have an
      effect on the Company’s financial
statements.





(iv)
            Effective
      January 1, 2009, the Company adopted the amended CICA Handbook Section
      1000, Financial Statement Concepts, which clarifies the criteria for
      recognition of an asset, reinforcing the distinction between costs that
      should be expensed and those that should be capitalized.  The
      adoption of this Section did not have an effect on the Company’s financial
      statements.


42





Future
Accounting Pronouncements





The CICA
issued the following new Sections: 1582 Business Combinations, 1601
Consolidations, and 1602 Non-Controlling Interest.  These standards
are effective January 1, 2011.  The impact of the adoption of these
standards on the Company’s financial statements has not yet been
determined.  The Company is currently evaluating the effects of
adopting these standards.





International
Financial Reporting Standards (“IFRS”)





In
January 2006, the CICA Accounting Standards Board (“AcSB”) adopted a strategic
plan for the direction of accounting standards in Canada.  As part of
that plan, accounting standards in Canada for public companies are expected to
converge with International Financial Reporting Standards (“IFRS”) by the end of
2011.  The transition date of January 1, 2011 will require the
restatement for comparative purposes of amounts reported by the Company for the
year ended December 31, 2010.





The
Company is currently evaluating the impact of adopting IFRS on its consolidated
financial statements.  The Company is in the first phase of its
transition program, which includes scoping to identify the significant
accounting policy differences and their related areas of impact in terms of
systems, procedures and financial statement presentation.  The Company
also is in the assessment phase of the design and work plan to calculate the
differences between IFRS and Canadian GAAP, and the impact on its financial
statements, disclosures and operations.  The Company will address the
design, planning, solution development and implementation of the conversion in
2010.





Expected
Accounting Policy Impacts





The
Company’s significant areas of impact continue to include property, plant and
equipment (“PP&E”), impairment testing. These areas of impact have the
greatest potential impact to the Company’s financial statements. The following
discussion provides an overview of these areas, as well as the exemptions
available under IFRS 1, First-time Adoption of International
Financial Reporting Standards. In general, IFRS 1
requires first time adopters to retrospectively apply IFRS, although it does
provide optional and mandatory exemptions to these requirements.





Property,
Plant and Equipment





Under
Canadian GAAP, the Company follows the CICA’s guideline on full cost accounting
in which all costs directly associated with the acquisition of, the exploration
for, and the development of natural gas and crude oil reserves are capitalized
on a country-by-country cost centre basis. Costs accumulated within each country
cost centre are depleted using the unit-of-production method based on proved
reserves determined using estimated future prices and costs.  Upon
transition to IFRS, the Company will be required to adopt new accounting
policies for upstream activities, including pre-exploration costs, exploration
and evaluation costs and development costs.





Pre-exploration
costs are those expenditures incurred prior to obtaining the legal right to
explore and must be expensed under IFRS. Currently, the Company capitalizes and
depletes pre-exploration costs within the country cost centre. In 2008 and 2009,
these costs were not material to the Company.





Exploration
and evaluation costs are those expenditures for an area or project for which
technical feasibility and commercial viability have not yet been determined.
Under IFRS, the Company will initially capitalize these costs as Exploration and
Evaluation assets on the balance sheet. When the area or project is determined
to be technically feasible and commercially viable, the costs will be
transferred to PP&E. Unrecoverable exploration and evaluation costs
associated with an area or project will be expensed.





Development
costs include those expenditures for areas or projects where technical
feasibility and commercial viability have been determined. Under IFRS, the
Company will continue to capitalize these costs within PP&E on the balance
sheet.  However, the costs will be depleted on a unit-of-production
basis over an area level (unit of account) instead of the country cost centre
level currently utilized under Canadian GAAP.  The Company has not
finalized the areas or the inputs to be utilized in the unit-of-production
depletion calculation.





Under
IFRS, upstream divestures will generally result in a gain or loss recognized in
net earnings. Under Canadian GAAP, proceeds of divestitures are normally
deducted from the full cost pool without recognition of a gain or loss unless
the deduction would result in a change to the depletion rate of 20 percent or
greater, in which case a gain or loss is recorded.


43





The
Company expects to adopt the IFRS 1 exemption, which allows the Company to deem
its January 1, 2010 IFRS upstream asset costs to be equal to its Canadian GAAP
historical upstream net book value. On January 1, 2010, the IFRS exploration and
evaluation costs are expected to be equal to the Canadian GAAP unproved
properties balance and the IFRS development costs are expected to be equal to
the full cost pool balance.  The Company will allocate this upstream
full cost pool over reserves to establish the area level depletion
units.





Impairment





Under
Canadian GAAP, the Company is required to recognize an upstream impairment loss
if the carrying amount exceeds the undiscounted cash flows from proved reserves
for the country cost centre. If an impairment loss is to be recognized, it is
then measured at the amount the carrying value exceeds the sum of the fair value
of the proved and probable reserves and the costs of unproved
properties.





Under
IFRS, the Company is required to recognize and measure an upstream impairment
loss if the carrying value exceeds the recoverable amount for a cash-generating
unit. Under IFRS, the recoverable amount is the higher of fair value less cost
to sell and value in use. Impairment losses, other than goodwill, are reversed
under IFRS when there is an increase in the recoverable amount. The Company will
group its upstream assets into cash-generating units based on the independence
of cash inflows from other assets or other groups of assets.





A.           Operating
Results





Fiscal
Year Ended December 31, 2009 Compared to Fiscal Year Ended December 31,
2008





Revenues


December 31,
                        
                        
                        December 31,2009
                        
                        
                        2008RevenueNatural
      gas
                        
                        $
                        2,413,026
                        
                        
                        $
                        4,962,614Oil
                        
                        
                        3,964,512
                        
                        
                        
                        703,167Natural
      gas liquids
                        
                        
                        93,187
                        
                        
                        
                        99,774Total
      oil and gas revenue
                        
                        
                        6,470,725
                        
                        
                        
                        5,765,555Realized
      financial instrument gain
                        
                        
                        315,270
                        
                        
                        
                        -Total
      revenue
                        
                        $
                        6,785,995
                        
                        
                        $
                        5,765,555





For the
year ended December 31, 2009 (“fiscal 2009”), the Company recorded $4,058,000 in
crude oil and natural gas liquids sales and $2,413,000 in natural gas sales as
compared to $803,000 in crude oil and natural gas liquids sales and $4,963,000
in natural gas sales for the year ended December 31, 2008 (“fiscal
2008”).  In 2008, the Company only had nine months of production, as
the Company commenced production in April 2008.





Operating
and Transportation Expenses





Operating
and transportation expenses include all costs associated with the production of
oil and natural gas and the transportation of oil and natural gas to the
processing plants.  The major components of operating expenses include
labor, equipment maintenance, workovers, fuel and power.  Operating
and transportation expenses for fiscal 2009 were $2,915,000 as compared to
$1,973,000 for fiscal 2008.  The increase in total expenses was
primarily due to higher production volume.





General
and Administrative Expenses





General
and administrative expenses decreased to $4,038,000 for fiscal 2009 from
$4,215,000 for fiscal 2008.  The decrease was primarily due to the
reduction of $570,000 and $186,000 in investor relation expenses and travel
expenses respectively.  During the year, the Company restructured the
Calgary office and reduced overhead.  Offsetting the costs reduction
in 2009 was an increase in legal fees to settle a termination claim litigation
cost from a former officer and director and some restructuring
charges.


44





Interest
and Finance Fees





For
fiscal 2009, the Company recorded interest and finance fees of $818,000,
compared to $481,000 for fiscal 2008.  The increase is due to higher
loan fee and interest paid to bank on its revolving operating loan facility
obtained in August 2008 and loan interest paid to Brownstone Ventures
Inc.  The loan was obtained from Brownstone in June 2008 to acquire
additional acreage in the US property.





Amortization,
Depletion and Accretion





For
fiscal 2009, amortization and depletion of property and equipment and accretion
of asset retirement obligations was $6,437,000 compared to $3,691,000 for fiscal
2008. The increase was due to the commencement of oil and gas production in
April 2008.





Stock
Based Compensation





For
fiscal 2009, the Company recorded non-cash stock based compensation expense of
$697,000 compared to $2,720,000 for fiscal 2008.  The decrease in
stock based compensation expense was because many of the stock options
previously granted had been fully vested.





Income
Taxes, Foreign Exchange Gain (Loss) and Other Items





Future
income tax recovery for fiscal 2009 was $1,133,000, as compared to future income
tax expenses of $596,000 for fiscal 2008.  As at December 31, 2009,
the Company had unrecognized future income tax assets relating to loss carry
forwards and the excess of the value of the tax pools for the oil and gas
properties over the accounting net book value, as compared to having a future
income tax liability balance as at December 31, 2008, which resulted in future
income tax recovery for the current fiscal year.





At the
end of 2008, the Company had a US$3,800,000 loan from a related
party.  Due to the decline in the value of US$, foreign exchange gain
in 2009 was $257,000 compared to a foreign exchange loss of $676,000 in
2008.





Impairment
of Oil & Gas Properties





The
impairment loss of oil and gas properties for fiscal 2009 totaled $5,360,000,
compared to $2,030,000 in 2008.  During 2009 and 2008, the Company
wrote off certain non-core acreages in the US that expired and recorded an
impairment loss of $1,404,000 and $2,030,000 respectively.





In
addition, the Company recorded an impairment loss of $3,956,000 related to the
excess of the carrying value of Canadian oil and gas properties over its fair
value as at December 31, 2009 based on an independent reserve evaluation
report.  Most of the impairment of carrying relates to non-core assets
that were abandoned or sold.





Subsequent
to the 2009 year-end, the Company drilled two successful wells, which were not
included in the December 31, 2009 reserve evaluation report for determining the
fair value of Canadian oil & gas properties.





Net
Loss





The
Company’s net loss for fiscal 2009 was $12,807,000 or $0.16 per share, compared
to a net loss of $20,891,000, or $0.29 per share for fiscal 2008.  In
2008, the Company had a non-cash impairment loss of $12,990,000 on investment in
Titan, offset by an equity income from Titan of $3,637,000.  In 2009,
the Company disposed of all its investment in Titan and equity loss was only
$142,000.  The equity loss from Titan relates to the Company’s
proportionate share of Titan’s loss in the year.


45





Fiscal
Year Ended December 31, 2008 Compared to Fiscal Year Ended December 31,
2007





Revenues


December 31,
                        
                        
                        December 31,2008
                        
                        
                        2007RevenueNatural
      gas
                        
                        $
                        4,962,614
                        
                        
                        $
                        -Oil
                        
                        
                        703,167
                        
                        
                        
                        -Natural
      gas liquids
                        
                        
                        99,774
                        
                        
                        
                        -Total
      oil and gas revenue
                        
                        $
                        5,765,555
                        
                        
                        $
                        -





For the
year ended December 31, 2008, the Company recorded $803,000 in crude oil and
natural gas liquids sales and $4,963,000 in natural gas sales as compared to
$nil in crude oil and natural gas liquids and $nil in natural gas sales for the
year ended December 31, 2007. The increase in revenues for the year ended
December 31, 2008 over  the year ended December 31, 2007 was due to
the commencement of oil and gas production in April 2008.





Operating
and Transportation Expenses





Operating
and transportation expenses include all costs associated with the production of
oil and natural gas and the transportation of oil and natural gas to the
processing plants. The major components of operating expenses include labour,
equipment maintenance, work-overs, fuel and power. Operating and transportation
expenses for the year ended December 31, 2008 were $3,122,000 as compared to
$nil for the year ended December 31, 2007. The increase was due to the
commencement of oil and gas production in April 2008.





General
and Administrative Expenses





For the
year ended December 31, 2008, the Company’s general and administrative expenses
decreased by $125,000, compared to the year ended December 31, 2007. Major
components of the decrease were decreases of $381,000 in fees for management and
consultants, $243,000 in investor relations, $53,000 in travel and
accommodation, and $251,000 in office and general expenses, offset by increases
of $123,000 in rent, $126,000 in professional, regulatory and filing fees, and
$554,000 in salaries and benefits.





The
decrease in fees for management and consultants was mainly due to the change in
status of several consultants from independent contractors to employees and the
termination of a consulting agreement with a senior executive of the Company.
Investor relations expenses decreased in the year ended December 31, 2008
compared to the year ended December 31, 2007, as the Company had a large
mail-out of newsletters in 2007. The decrease in travel and accommodation and
office and general expenses was a result of the Company’s efforts in cutting
down its costs during the economic downturn.





The
increase in professional, regulatory and filing fees was mainly due to the
significantly increased business activities in the Company’s Vancouver, Calgary
and Denver offices with respect to development and production preparation in oil
and gas projects. The Company had been actively looking for oil and gas
properties and developing aggressive drilling programs that would add to
shareholder values. The increases in rent and salaries and benefits were mainly
as a result of the setup of the Denver office and the expansion of the Calgary
office.




46


Interest
and Finance Fees





During
the year ended December 31, 2008, the Company recorded interest and finance fees
of $481,000, compared to $294,000 for the year ended December 31, 2007. The
increase is primarily a result of the revolving operating loan facility obtained
in August 2008.





Amortization,
Depletion and Accretion





For the
year ended December 31, 2008, amortization and depletion of property and
equipment and the accretion of the asset retirement obligations was $3,691,000
compared to $34,000 for the year ended December 31, 2007. The increase was due
to the commencement of oil and gas production in April 2008. Total costs subject
to depletion and amortization include $1,199,000 relating to future development
costs estimated to complete oil and gas wells for which proved reserves have
been assigned. $979,000 of unproven properties was excluded from the costs
subject to depletion and amortization.





Stock
Based Compensation





During
the year ended December 31, 2008, the Company recorded non-cash stock based
compensation expense of $2,720,000 compared to $2,461,000 for the year ended
December 31, 2007. The increase was mainly due to the vesting of stock options
previously granted. The Company determined the fair value of stock options using
the Black-Scholes option pricing model. The compensation cost was measured at
the date of grant and was expensed over the vesting period for employees and
over the service life for consultants.





Income
Taxes





Future
income tax expense in the current year was $596,000, as compared to recovery of
$4,221,000 in the year ended December 31, 2007. The Company renounced $1,820,000
of Canadian Exploration Expenditures (“CEEs”) to investors in February 2008, as
compared to $7,950,000 renunciation in February 2007. Under Canadian generally
accepted accounting principles, the renunciation of CEEs results in future
income tax liabilities and share issuance costs. The future income tax expense
for the year ended December 31, 2008 was a result of the future income tax
liability, which arose because the accounting net book value assigned to the oil
and gas properties was in excess of the value of the tax pools.





The
Company has met its commitment to incur $1,820,000 in qualifying CEEs related to
the December 2007 flow- through share financing.





Net
Loss and Other Items





The
Company’s net loss for the year ended December 31, 2008 was $20,891,000 or $0.29
per share, compared to a net loss of $26,811,000, or $0.40 per share for the
year ended December 31, 2007. Included in the net loss for year ended December
31, 2008 was a non-cash equity income from Titan of $3,637,000, in which
$222,000 relates to Titan’s non-cash stock based compensation expense. Included
in the net loss for year ended December 31, 2007 was an equity loss from Titan
of $2,352,000, in which $1,844,000 relates to non-cash stock based compensation
expense. The equity income from Titan relates to the Company’s proportionate
share of Titan’s income in the current year.





Interest
and other income decreased by $569,000 from $806,000 in the year ended December
31, 2007 to $237,000 in the year ended December 31, 2008, because the Company
had significantly higher average cash balances derived from equity financings
completed in 2007 as at December 31, 2007. Foreign exchange loss increased by
$534,000 from $142,000 in 2007 to $676,000 in 2008 as a result of the higher
US-Canadian exchange rate and the negative impact it had on the loan from
joint-venture partner denominated in US dollars. The current year impairment
loss of oil and gas properties was $2,030,000 compared to an impairment loss of
$678,000 recorded on its Tinsley and Lavaca oil and gas project in the year
ended December 31, 2007. The current year impairment of investment in Titan was
$12,990,000 compared to $21,581,000 in the year ended December 31, 2007. The
2008 and 2007 impairment was the result of the book value of the investment in
Titan written down to the fair market value as at December 31, 2008 and
2007.




47




Foreign
Currency Fluctuations




Foreign
currency exchange rate risk is the risk that the fair value of financial
instruments or future cash flows will fluctuate as a result of changes in
foreign exchange rates.  Although substantially all of the Company’s
oil and natural gas sales are denominated in Canadian dollars, the underlying
market prices in Canada for oil and natural gas are impacted by changes in the
exchange rate between the Canadian and United States dollars.  Given
that changes in exchange rate have an indirect influence, the impact of changing
exchange rates cannot be accurately quantified.  The Company had no
forward exchange rate contracts in place as at or during the year ended December
31, 2009.





The
Company was exposed to the following foreign currency risk at December 31,
2009:





Expressed
      in foreign currencies - 2009
                
                USDCash
      and cash equivalents
                
                $
                1,526,455Accounts
      receivable
                
                
                69,221Accounts
      payable and accrued liabilities
                
                
                (263,048
                )Balance
      sheet exposure
                
                $
                1,332,628





The
following foreign exchange rates applied for the year ended and as at December
31, 2009:





YTD
      average USD to CAD
                
                
                1.142December
      31, reporting date rate
                
                
                1.051





The
Company has performed a sensitivity analysis on its foreign currency denominated
financial instruments. Based on the Company’s foreign currency exposure noted
above and assuming that all other variables remain constant, a 10% appreciation
of the following currencies against the Canadian dollar would result in the
decrease of net loss of $140,059 at December 31, 2009. For a 10% depreciation of
the above foreign currencies against the Canadian dollar, assuming all other
variables remain constant, there would be an equal and opposite impact on net
loss.





B.           Liquidity
and Capital Resources





Cash
Balance and Cash Flow





The
Company had cash and cash equivalents of $2,733,000 as at December 31,
2009.  In addition to the cash balance, the Company also had accounts
receivable of $725,000, most of which related to December 2009 oil and gas sales
and had been received subsequent to December 31, 2009.





During
2009, through equity financing, asset sale and debt restructuring, the Company
eliminated the working capital deficit of $12,700,000 as at December 31, 2008
and ended 2009 with a positive working capital of $410,000.





During
2009, the Company successfully completed a turnaround on its oil & gas
operation to reduce operating costs and improve operating
netback.  Together with the netback from two successful wells drilled
in the first quarter of 2010, we expect the Company will generate positive
operating cash flow beginning the second quarter of 2010, based on the current
oil price of US$80 per barrel and gas price of US$4 per Mcf on
NYMEX.





Bank
Loan and Bridge Loan Financing





In August
2008, DEAL secured a revolving operating loan facility with a Canadian Bank for
up to $7,000,000.  In accordance with the terms of the facility, DEAL
is required to maintain an adjusted working capital ratio of not less than
1.10:1.  The adjusted working capital ratio is defined as the ratio of
(i) current assets plus any undrawn availability under the facility, to (ii)
current liabilities less any amount drawn under the facility.





As at
December 31, 2009, DEAL was in compliance with the working capital ratio
requirement.  As at March 22, 2010, the bank line of credit was
completely paid off.


48





Subsequent
to December 31, 2009, DEAL acquired a credit facility for a bridge loan of up to
$5,000,000. The first 2,000,000 of the facility was used to refinance the DEAL’s
existing bank facility and fund its working capital. The remainder of the line
is accessible subject to additional lender review. The facility carries interest
rate at 12% per annum, subject to a 1% fee on any amount drawn and a 2% fee on
repayment.  DEAL also paid a $50,000 commitment fee. As at March 22,
2010, $1,500,000 was drawn under this facility.  The proceeds of this
bridge loan require lender’s approval before it can be transferred to
Dejour.





This
bridge loan financing provides Dejour with an important, non-dilutive credit
facility that allows for the seamless transition of its future requirements to a
senior conventional lender, once the 2010 production enhancements at Woodrush
have been successfully concluded.





Capital
Resources





Subsequent
to 2009, the Company raised $1 million from the issuance of flow-through shares
for the drilling program in the first quarter of 2010.  The Company
does not have any drilling commitment in the remainder of 2010.





The
Company plans to drill at least two wells in Canada during the remainder of
2010.  The Company also plans to drill an exploratory well in an oil
prospect at South Rangely in the US.





The
Company plans to fund the drilling program through a combination of debt, equity
or joint ventures.





Financial
Instruments





The
Company’s financial instruments consist of cash and cash equivalents, accounts
receivable, bank indebtedness and line of credit, accounts payable, and loans
from related parties.  Management has determined that the fair value
of these financial instruments approximates their carrying values due to their
immediate or short-term maturity.Net smelter royalties
and related rights to earn or relinquish interests in mineral properties
constitute derivative instruments.  No value or discounts have been
assigned to such instruments as there is no reliable basis to determine fair
value until properties are in development or production and reserves have been
determined.





From time
to time, the Company enters into derivative contracts such as forwards, futures
and swaps in an effort to mitigate the effects of volatile commodity prices and
protect cash flows to enable funding of its exploration and development
programs.  Commodity prices can fluctuate due to political events,
meteorological conditions, disruptions in supply and changes in
demand.





As at
December 31, 2009, the Company had outstanding a natural gas derivatives
contract for 600 gigajoules (“GJ”) per day for the period from November 1, 2009
to April 30, 2010. This contract consisted of a $4.47 per GJ forward sale
agreement.  As at December 31, 2009, the Company also had outstanding
a crude oil derivatives contract for 100 barrels (“bbl”) per day for the period
from September 1, 2009 to April 30, 2010. This contract consisted of a $81.60
per bbl forward sale agreement. As at December 31, 2009, an unrealized losses of
$99,894 relating to these two contracts was recorded in accumulated other
comprehensive income.





C.           Research
and Development, Patents and Licenses, Etc.





None.





D.           Trend
Information




During
2009, commodity prices stabilized from the historic volatility experienced
during 2008. With oil currently near $80 per barrel, drilling activity in
certain areas, including near our operating areas, has increased over the low
activity we experienced in early 2009. Currently, qualified employees are
available; however the Company still must compete for employees within our
industry. Some or all of these situations are likely to have a material effect
upon our net sales or revenues, income from continuing operations,
profitability, liquidity or capital resources, or cause reported financial
information not necessarily to be indicative of future operating results or
financial condition.


49




E.           Off-Balance
Sheet Arrangements





The
Company does not have any material off balance sheet arrangements that have or
are reasonably likely to have a current or future effect on the Company’s
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital
resources.





F.           Tabular
Disclosure of Contractual Obligations





As of
December 31, 2009, and in the normal course of business the Company has
obligations to make future payments, representing contracts and other
commitments that are known and committed.





Contractual
      Obligations(in thousands of dollars)
                          
                          2010
                          
                          
                          2011
                          
                          
                          2012
                          
                          
                          2013
                          
                          
                          2014
                          
                          Thereafter
                          
                          Total$
                          
                          
                          $
                          
                          
                          $
                          
                          
                          $
                          
                          
                          $
                          
                          $
                          
                          $Operating
      Lease Obligations
                          
                          
                          187
                          
                          
                          
                          73
                          
                          
                          
                          73
                          
                          
                          
                          73
                          
                          
                          
                          49
                          
                          Nil
                          
                          
                          455Bridge
      Loan
                          
                          
                          1,500
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          Nil
                          
                          
                          1,500Other
      long-term Obligations
                          
                          
                          -
                          
                          
                          
                          2,458
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          Nil
                          
                          
                          2,458Total
                          
                          
                          1,687
                          
                          
                          
                          2,531
                          
                          
                          
                          73
                          
                          
                          
                          73
                          
                          
                          
                          49
                          
                          Nil
                          
                          
                          4,413





G.           Safe
Harbor





The
Company seeks safe harbor for our forward-looking statements contained in Items
5.E and F.  See the heading “Cautionary Note Regarding Forward-Looking
Statements” above.





ITEM
6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES





A.           Directors
and Senior Management





The
following table sets forth all current directors and executive officers of
Dejour as of the date of this annual report on Form 20-F, with each position and
office held by them in the Company and the period of service as
such.





Name, Jurisdiction
                                  of Residence and
                                  Position(1)
                                
                                Principal occupation or
                                  employment during the past
                                  5 years
                                
                                Number of Dejour
                                  Common Shares
                                  beneficially owned,
                                  directly or
                                  indirectly, or
                                  controlled or
                                  directed(2)
                                
                                
                                Percentage of
                                  Dejour Common
                                  Shares
                                  beneficially
                                  owned, directly or
                                  indirectly, or
                                  controlled or
                                  directed(2)
                                
                                Director
                                  SinceRobert
      L.Hodgkinson
                                  British
      Columbia,Canada
                                  Director,
      Chairmanand
      Chief ExecutiveOfficer
                                
                                President
      of a private company, Hodgkinson Equities Corporation, which provides
      consulting services to emerging businesses in the petroleum resource
      industry. Currently a Director of Royce Resources (TSX-V:ROY-H), and a
      former director of Titan Uranium (TSX-V:TUE).
                                
                                
                                6,687,840
                                
                                
                                
                                6.78
                                %
                                May
      18/04





50





Name, Jurisdiction
                                        of Residence and
                                        Position(1)
                                      
                                      Principal occupation or
                                        employment during the past
                                        5 years
                                      
                                      Number of Dejour
                                        Common Shares
                                        beneficially owned,
                                        directly or
                                        indirectly, or
                                        controlled or
                                        directed(2)
                                      
                                      
                                      Percentage of
                                        Dejour Common
                                        Shares
                                        beneficially
                                        owned, directly or
                                        indirectly, or
                                        controlled or
                                        directed(2)
                                      
                                      Director
                                        SinceStephen
      Mut
                                        Colorado,
      USA
                                        Director
      and Co-Chairman
                                      
                                      Mr.
      Mut has served as CEO of Nycon Energy Consulting since his retirement from
      Shell in mid 2009. At Shell, Mr. Mut is served as chief executive officer
      of a unit of Shell Exploration and Production Company from 2000 until his
      retirement in 2009. Prior to that, Mr. Mut served in various executive
      roles at ARCO (Atlantic Richfield Company).
                                      
                                      
                                      1,111,001
                                      
                                      
                                      
                                      1.13
                                      %
                                      Dec
      17/09Harrison
      Blacker(4)
                                        Colorado,
      U.S.A.
                                        Director,
      President and Chief Operating Officer of Dejour Energy (USA)
      Inc.
                                      
                                      President
      of Dejour Energy (USA) Inc. since April 2008. Over 30 years of
      expertise managing oil and gas operations. Heldthe positions of Chief
      Executive Officer withChina Oman Energy Company and Portfolio Manager,
      Latin American Business Unit and General Manager/ President of Venezuela
      Energy with Atlantic Richfield Corporation (ARCO) prior to joining
      Dejour USA.
                                      
                                      
                                      525,678
                                      
                                      
                                      
                                      0.53
                                      %
                                      Apr
      2/08Richard
      Patricio(4)
                                        Ontario,
      Canada
                                        Director
                                      
                                      Director
      of Brownstone Ventures Inc. (a company owns more than 10% of Dejour’s
      outstanding common shares). Vice President of Corporate & Legal
      Affairs and Secretary of Pinetree Capital Ltd. (investment and merchant
      banking firm). Prior to joining Pinetree Capital, practiced law at a top
      tier law firm in Toronto and worked as in-house General Counsel for a
      senior TSX listed company. Mr. Patricio is a lawyer qualified to practice
      in the Province of Ontario.
                                      
                                      
                                      12,509,771
                                      
                                      
                                      
                                      12.67
                                      %
                                      Oct
      17/08




51





Name, Jurisdiction
                                                                of Residence and
                                                                Position(1)
                                                              
                                                              Principal occupation or
                                                                employment during the past
                                                                5 years
                                                              
                                                              Number of Dejour
                                                                Common Shares
                                                                beneficially owned,
                                                                directly or
                                                                indirectly, or
                                                                controlled or
                                                                directed(2)
                                                              
                                                              
                                                              Percentage of
                                                                Dejour Common
                                                                Shares
                                                                beneficially
                                                                owned, directly or
                                                                indirectly, or
                                                                controlled or
                                                                directed(2)
                                                              
                                                              Director
                                                                SinceRobertHolmes(3) ,
      (4)
                                                                California,
      U.S.A
                                                                Director
                                                              
                                                              Began
      career as an Investment Executive with Merrill, Lynch, Pierce, Fenner
      & Smith, and held various senior executive positions with the firm
      Blyth, Eastman, Dillon & Company.  In 1980, co-founded
      Gilford Securities, Inc., a member of the NYSE, and in 1992 founded a
      hedge fund, Gilford Partners.  Has served on several boards
      including the North Central College Trustees in Naperville, IL; Board of
      Trustees Sacred Heart Schools Chicago; Crested Butte Academy in Crested
      Butte, CO; and Mary Wood Country Day School in Rancho Mirage,
      CA.
                                                              
                                                              
                                                              1,663,000
                                                              
                                                              
                                                              
                                                              1.68
                                                              %
                                                              Oct
      17/08Craig Sturrock (3)
                                                                British
      Columbia, Canada
                                                                Director
                                                              
                                                              Tax
      lawyer since 1971.  Currently, he is a partner at Thorsteinssons
      LLP, and his practice focuses primarily on civil and criminal tax
      litigation.
                                                              
                                                              
                                                              650,000
                                                              
                                                              
                                                              
                                                              0.66
                                                              %
                                                              Aug
      22/05Darren Devine(3)
                                                                British
      Columbia, Canada
                                                                Director
                                                              
                                                              Since
      2003, Mr. Devine has been the principal of Chelmer Consulting Corp., a
      corporate finance consultancy. Prior to founding Chelmer Consulting, Mr.
      Devine practiced law with the firm of Du Moulin Black LLP, in Vancouver,
      British Columbia. Mr. Devine is a qualified Barrister and Solicitor in
      British Columbia, and a qualified solicitor in England and
      Wales.
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              Dec
      17/09
  52
 Name, Jurisdiction
                                                                                                                  of Residence and
                                                                                                                  Position(1)
                                                                                                                
                                                                                                                Principal occupation or
                                                                                                                  employment during the past
                                                                                                                  5 years
                                                                                                                
                                                                                                                Number of Dejour
                                                                                                                  Common Shares
                                                                                                                  beneficially owned,
                                                                                                                  directly or
                                                                                                                  indirectly, or
                                                                                                                  controlled or
                                                                                                                  directed(2)
                                                                                                                
                                                                                                                
                                                                                                                Percentage of
                                                                                                                  Dejour Common
                                                                                                                  Shares
                                                                                                                  beneficially
                                                                                                                  owned, directly or
                                                                                                                  indirectly, or
                                                                                                                  controlled or
                                                                                                                  directed(2)
                                                                                                                
                                                                                                                Director
                                                                                                                  SinceMathew
      Wong
                                                                                                                  British
      Columbia, Canada
                                                                                                                  Chief
      Financial Officer
                                                                                                                
                                                                                                                Chartered
      Accountant worked at Ernst & Young LLP from 1995 to
      2000.  Since then, he worked as the Corporate Accounting Manager
      for Mitsubishi Canada Limited and CFO for Dejour Enterprise
      Ltd.  Mr. Wong is a Chartered Accountant (CA) in British
      Columbia of Canada, a Certified Public Accountant (CPA) of Washington
      State, USA and a Chartered Financial Analyst (CFA).
                                                                                                                
                                                                                                                
                                                                                                                325,322
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                0.33
                                                                                                                %
                                                                                                                N/ANeyeska
      Mut
                                                                                                                  EVP
      Operations,
                                                                                                                  Dejour
      Energy (USA) Corp.
                                                                                                                
                                                                                                                Engineer.
      Since 2000, she has been President of Nycon Energy Consulting working as
      an advisor to two major oil companies. Prior to forming Nycon Energy
      Consulting Mrs. Mut pursued international opportunities with Atlantic
      Richfield, ARCO. Has been with Dejour since 2008.
                                                                                                                
                                                                                                                
                                                                                                                50,001
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                0.05
                                                                                                                %
                                                                                                                N/A


(1)
            Each
      director will serve until the next annual general meeting of the Company
      or until a successor is duly elected or appointed in accordance with the
      Notice of Articles and Articles of the Company and the Business Corporations Act(British Columbia).


(2)
            The
      number of common shares beneficially owned, directly or indirectly, or
      over which control or direction is exercised is based upon information
      furnished to the Company by individual directors and executive
      officers.


(3)
            Member
      of audit committee.


(4)
            Member
      of reserve committee.





Board
of Directors





Brief
biographies for each member of Dejour's board of directors are set forth
below:





Robert L. Hodgkinson:Mr. Hodgkinson
was the founder and Chairman of Optima Petroleum, which drilled wells in Alberta
and the Gulf of Mexico before merging to form Petroquest Energy, a NASDAQ traded
company. Subsequently, he founded and was CEO of Australian Oil Fields, which
would later merge to become Resolute Energy/Cardero Energy Inc.  Mr.
Hodgkinson was also a Vice-President and partner of Canaccord Capital
Corporation, and an early stage investor and original lease financier in Synenco
Energy's Northern Lights Project in the Alberta oil sands.





Stephen Mut: Mr. Mut most
recently served as chief executive officer of a unit of Shell Exploration and
Production Company. Prior to joining Shell in 2000, Mr. Mut dedicated much of
his career to operational and new business venture activities in the oil and
gas, refining and marketing, and chemical and mining sectors at ARCO (Atlantic
Richfield Company), where he served in various internationally based executive
roles in both upstream and downstream businesses. His global expertise has
contributed to industry successes in Europe, South America, the Asia Pacific and
the United States.


53


HarrisonBlacker:Mr.
Blacker is an accomplished senior executive with over 30 years of expertise
managing oil and gas operations with major corporations in the United States,
South America, China and the Middle East. Prior to joining Dejour, Mr. Blacker
was CEO of China Oman Energy Company, a joint venture between Oman Oil Company,
IPIC and China Gas Holdings, importing and distributing LNG and LPG from the
Middle East into China. Mr. Blacker held positions as VP of Business Development
and Senior Investor Advisor with Oman Oil Company and Portfolio Manager, Latin
American Business Unit and General Manager/ President of Venezuela Energy with
Atlantic Richfield Corporation. Mr. Blacker began his career with Amoco
Production Company working in offshore construction and field operations in the
Gulf of Mexico.





RichardPatricio:Mr.
Patricio is Vice President Corporate & Legal Affairs and Secretary of
Pinetree Capital Ltd. and Brownstone Ventures Inc. (one of Dejour's major
shareholders). Mr. Patricio previously practiced law at a top tier law firm in
Toronto and worked as in-house General Counsel for a senior TSX listed company.
Mr. Patricio is a lawyer qualified to practice in the Province of
Ontario.





RobertHolmes:Mr. Holmes
began his career as an Investment Executive with Merrill, Lynch, Pierce, Fenner
& Smith, and subsequently held various senior executive positions with the
firm Blyth, Eastman, Dillon & Company (purchased by Paine Webber & Co.).
In 1980, Mr. Holmes co-founded Gilford Securities, Inc., a member of the NYSE,
and in 1992 founded a hedge fund, Gilford Partners. He has served on several
boards including the North Central College Trustees in Naperville, IL; Board of
Trustees Sacred Heart Schools Chicago; Crested Butte Academy in Crested Butte,
CO; and Mary Wood Country Day School in Rancho Mirage, CA. He graduated with a
BA from North Central College in 1965.





Craig Sturrock:Mr. Sturrock has
served as a director and founding member of various public and private
companies. Admitted to the British Columbia Bar in 1969, he joined
Thorsteinssons LLP, tax lawyers in 1971. He served for 15 years as a tax lawyer
and partner at Birnie, Sturrock & Company returning to Thorsteinssons as a
partner in 1989.  He is an author and speaker for the Canadian and
British Columbia Bar Associations, the Continuing Legal Education Society of
British Columbia and the Canadian Tax Foundation. He is also a former member of
the Board of Governors of the Canadian Tax Foundation.





Darren Devine: Mr. Devine is
the principal of Chelmer Consulting Corp., which provides corporate finance
advisory services to private and public companies. Mr. Devine is a qualified
Barrister and Solicitor in British Columbia, and a qualified solicitor in
England and Wales.  Prior to forming Chelmer Consulting, Mr. Devine
practiced exclusively in the areas of corporate finance and securities law with
a focus on cross-border finance, stock exchange listings and mergers and
acquisitions with the firm DuMoulin Black LLP in Vancouver, British
Columbia.





Family
Relationships





Steve
Mut, one of the Company’s directors, and Neyeska Mut, EVP Operations of Dejour
Energy (USA) Corp., are husband and wife.





Arrangements





There are
no known arrangements or understandings with any major shareholders, customers,
suppliers or others, pursuant to which any of the Company’s officers or
directors was selected as an officer or director of the Company, other than
indicated immediately above and at “Item 7.  Major Shareholders and
Related Party Transactions - Related Party Transactions.”


54


Cease
Trade Orders, Bankruptcies, Penalties or Sanctions





To the
knowledge of the Company, no director or executive officer of the Company is, or
has been in the last ten years, a director, chief executive officer or chief
financial officer of an issuer that, while that person was acting in that
capacity, (a) was the subject of a cease trade order or similar order or an
order that denied the issuer access to any exemptions under Canadian securities
legislation, for a period of more than 30 consecutive days, or (b) was subject
to an event that resulted, after that person ceased to be a director, chief
executive officer or chief financial officer, in the issuer being the subject of
a cease trade or similar order or an order that denied the issuer access to any
exemption under Canadian securities legislation, for a period of more than 30
consecutive days.  To the knowledge of the Company, no director or
executive officer of the Company, or a shareholder holding a sufficient number
of securities in the Company to affect materially the control of the Company, is
or has been in the last ten years, a director or executive officer of an issuer
that, while or acting in that capacity within a year of that person ceasing to
act in that capacity, became bankrupt, made a proposal under any legislation
relating to bankruptcy or insolvency or was subject to or instituted any
proceedings, arrangement or compromise with creditors or had a receiver,
receiver manager or trustee appointed to hold its assets. To the knowledge of
the Company, in the past ten years, no such person has become bankrupt, made a
proposal under any legislation related to bankruptcy or insolvency, or was
subject to or instituted any proceedings, arrangement or compromise with
creditors, or had a receiver, receiver manager or trustee appointed to hold
their assets.





Conflicts
of Interest





Certain
of the Company's directors and officers serve or may agree to serve as directors
or officers of other reporting companies or have significant shareholdings in
other reporting companies and, to the extent that such other companies may
participate in ventures in which the Company may participate, the directors of
the Company may have a conflict of interest in negotiating and concluding terms
respecting the extent of such participation. In the event that such a conflict
of interest arises at a meeting of the Company's directors, a director who has
such a conflict will abstain from voting for or against the approval of such
participation or such terms and such director will not participate in
negotiating and concluding terms of any proposed transaction. From time to time,
several companies may participate in the acquisition, exploration and
development of natural resource properties thereby allowing for their
participation in larger programs, permitting involvement in a greater number of
programs and reducing financial exposure in respect of any one program. It may
also occur that a particular company will assign all or a portion of its
interest in a particular program to another of these companies due to the
financial position of the company making the assignment. Under the laws of the
Province of British Columbia, the directors of the Company are required to act
honestly, in good faith and in the best interests of the Company. In determining
whether or not the Company will participate in a particular program and the
interest therein to be acquired by it, the directors will primarily consider the
degree of risk to which the Company may be exposed and its financial position at
that time. See also "Description of the Business – Risk Factors".





B.           Compensation





Basis
of Compensation for Executive Officers





The
Company compensates its executive officers through a combination of base
compensation, bonuses and Common Stock options. The base compensation
provides an immediate cash incentive for the executive officers. Bonuses
encourage and reward exceptional performance over the financial year.
Common Stock options ensure that the executive officers are motivated to achieve
long term growth of the Company and continuing increases in shareholder value.
In terms of relative emphasis, the Company places more importance on Common
Stock options as long term incentives. Bonuses are related to performance and
may form a greater or lesser part of the entire compensation
package in any given year. Each of these means of compensation is briefly
reviewed in the following sections.





Base
Compensation





Base
compensation, including that of the Chief Executive Officer, are set by the
Compensation Committee and approved by the Board of Directors on the basis
of the applicable executive officer’s responsibilities, experience and past
performance. The compensation program is intended to provide a base
compensation competitive among companies of a comparable size and character in
the oil and gas industry. In making such an assessment, the Board considers
the objectives set forth in the Company’s business plan and the performance of
executive officers and employees in executing the plan in combination with
the overall result of the activities undertaken.





55




Bonuses





An annual
bonus may be paid for each fiscal year based on the Board’s assessment of the
Company's general performance and the relative contribution of each of the
executive officers, including the Chief Executive Officer and the President, to
that performance. No cash bonuses were awarded to the executive officers for
2009.





Common
Stock Options





The
Company provides long term incentive compensation to its executive officers
through the Common Stock Option Plan, which is considered an integral part
of the Company’s compensation program. Upon the recommendation of
management and approval by the Board of Directors, stock options are granted
under the Company’s Option Plan to new directors, officers and key
employees, usually upon their commencement of employment with the Company. The
Board approves the granting of additional stock options from time to time
based on its assessment of the appropriateness of doing so in light of
the long term strategic objectives of the Company, its current stage of
development, the need to retain or attract key technical and
managerial personnel in a competitive industry environment, the number of
stock options already outstanding, overall market conditions, and
the individual’s level of responsibility and performance within the
Company.





The Board
views the granting of stock options as a means of promoting the success of the
Company and creating and enhancing returns to its shareholders. As such,
the Board does not grant stock options in excessively dilutive numbers. Total
options outstanding are presently limited to 10% of the total number of
shares outstanding under the rules of the TSX. Grant sizes are, therefore,
determined by various factors including the number of eligible individuals
currently under the Option Plan and future hiring plans of the
Company.





The Board
granted a total of 1,030,000 stock options to the executive officers in
2009.





Annual Compensation
                                                                                      
                                                                                      
                                                                                      Long Term CompensationAwards
                                                                                      
                                                                                      PayoutsName and
                                                                                        Principal Position
                                                                                      
                                                                                      Year
                                                                                      
                                                                                      Annual
                                                                                        Salary
                                                                                      
                                                                                      
                                                                                      Consulting
                                                                                        Fees
                                                                                        ($)
                                                                                      
                                                                                      
                                                                                      Bonus
                                                                                        ($)
                                                                                      
                                                                                      
                                                                                      Securities
                                                                                        Under
                                                                                        Option/
                                                                                        SAR's
                                                                                        Granted
                                                                                        (#)
                                                                                      
                                                                                      Shares/
                                                                                        Units
                                                                                        Subject to
                                                                                        Resale
                                                                                        Restrictions
                                                                                        ($)
                                                                                      
                                                                                      LTIP
                                                                                        Pay-
                                                                                        outs ($)
                                                                                      
                                                                                      All Other
                                                                                        Compensation
                                                                                        ($)Robert
      L. Hodgkinson,
                                                                                      
                                                                                      2009
                                                                                      
                                                                                      $
                                                                                      78,000
                                                                                      
                                                                                      
                                                                                      $
                                                                                      177,000
                                                                                      
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      
                                                                                      
                                                                                      275,000
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      NilChief
      Executive Officer
                                                                                      
                                                                                      2008
                                                                                      
                                                                                      $
                                                                                      46,725
                                                                                      
                                                                                      
                                                                                      $
                                                                                      209,500
                                                                                      
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      
                                                                                      
                                                                                      475,000
                                                                                      (1)
                                                                                      Nil
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      Nil2007
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      
                                                                                      $
                                                                                      187,500
                                                                                      
                                                                                      
                                                                                      $
                                                                                      63,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      510,000
                                                                                      (2)
                                                                                      Nil
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      NilMathew
      Wong,
                                                                                      
                                                                                      2009
                                                                                      
                                                                                      $
                                                                                      78,000
                                                                                      
                                                                                      
                                                                                      $
                                                                                      140,000
                                                                                      
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      
                                                                                      
                                                                                      125,000
                                                                                      (3)
                                                                                      Nil
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      NilChief
      Financial Officer
                                                                                      
                                                                                      2008
                                                                                      
                                                                                      $
                                                                                      46,725
                                                                                      
                                                                                      
                                                                                      $
                                                                                      173,200
                                                                                      
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      
                                                                                      
                                                                                      275,000
                                                                                      (4)
                                                                                      Nil
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      Nil2007
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      
                                                                                      $
                                                                                      146,965
                                                                                      
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      
                                                                                      
                                                                                      150,000
                                                                                      (3)
                                                                                      Nil
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      NilHarrison
      Blacker,
                                                                                      
                                                                                      2009
                                                                                      
                                                                                      US$
                                                                                      203,646
                                                                                      
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      
                                                                                      US$
                                                                                      98,553
                                                                                      
                                                                                      
                                                                                      
                                                                                      300,000
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      NilDirector
      and President
                                                                                      
                                                                                      2008
                                                                                      
                                                                                      US$
                                                                                      187,500
                                                                                      
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      
                                                                                      
                                                                                      800,000
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      Nilof
      Dejour Energy (USA)Craig
      Sturrock,
                                                                                      
                                                                                      2009
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      
                                                                                      
                                                                                      50,000
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      $
                                                                                      10,000
                                                                                      (5)Director
                                                                                      
                                                                                      2008
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      
                                                                                      
                                                                                      200,000
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      $
                                                                                      11,500
                                                                                      (5)2007
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      $
                                                                                      14,500Robert
      Holmes,
                                                                                      
                                                                                      2009
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      
                                                                                      
                                                                                      50,000
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      $
                                                                                      10,000
                                                                                      (5)Director
                                                                                      
                                                                                      2008
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      
                                                                                      
                                                                                      100,000
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      NilRichard
      Patricio,
                                                                                      
                                                                                      2009
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      
                                                                                      
                                                                                      50,000
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      $
                                                                                      10,000
                                                                                      (5)Director
                                                                                      
                                                                                      2008
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      
                                                                                      
                                                                                      100,000
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      NilStephen
      Mut,
                                                                                      
                                                                                      2009
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      
                                                                                      US$
                                                                                      14,286
                                                                                      
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      
                                                                                      
                                                                                      100,000
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      NilDirector
      & Co-ChairmanDarren
      Devine,
                                                                                      
                                                                                      2009
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      NilDirectorNeyeska
      Mut,
                                                                                      
                                                                                      2009
                                                                                      
                                                                                      US$
                                                                                      163,300
                                                                                      
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      
                                                                                      US$
                                                                                      30,763
                                                                                      
                                                                                      
                                                                                      
                                                                                      80,000
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      NilEVP
      Operations of
                                                                                      
                                                                                      2008
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      
                                                                                      US$
                                                                                      109,000
                                                                                      
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      
                                                                                      
                                                                                      120,000
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      Nil
                                                                                      
                                                                                      NilDejour
      Energy (USA)
  56


(1)
            100,000
      of these options were issued to Hodgkinson Equities Corp., a private
      company owned by Robert Hodgkinson.


(2)
            These
      options were issued to Hodgkinson Equities Corp., a private company owned
      by Robert Hodgkinson.


(3)
            These
      options were issued to 390855 B.C. Ltd., a private company owned by Mathew
      Wong.


(4)
            100,000
      of these options were issued to 390855 B.C. Ltd., a private company owned
      by Mathew Wong.


(5)
            The
      “Other Compensation” is for Directors’
Fees.





Stock
Option Grants





Name
                          
                          Number of
                            Options Granted
                          
                          
                          Exercise Price
                            per Share
                          
                          Grant Date
                          
                          Expiration DateRobert
      Hodgkinson
                          
                          
                          275,000
                          
                          
                          $
                          0.45
                          
                          May
      5, 2009
                          
                          May
      4, 2014Mathew
      Wong
                          
                          
                          125,000
                          (1)
                          
                          $
                          0.45
                          
                          May
      5, 2009
                          
                          May
      4, 2014Harrison
      Blacker
                          
                          
                          300,000
                          
                          
                          $
                          0.45
                          
                          May
      5, 2009
                          
                          May
      4, 2014Craig
      Sturrock
                          
                          
                          50,000
                          
                          
                          $
                          0.45
                          
                          May
      5, 2009
                          
                          May
      4, 2014Robert
      Holmes
                          
                          
                          50,000
                          
                          
                          $
                          0.45
                          
                          February
      12, 2009
                          
                          February
      12, 2014Richard
      Patricio
                          
                          
                          50,000
                          
                          
                          $
                          0.45
                          
                          February
      12, 2009
                          
                          February
      12, 2014Stephen
      Mut
                          
                          
                          100,000
                          
                          
                          $
                          0.45
                          
                          June
      29, 2009
                          
                          June
      29, 2014Neyeska
      Mut
                          
                          
                          80,000
                          
                          
                          $
                          0.45
                          
                          February
      12, 2009
                          
                          February
      12, 2014Employees
      and Consultants
                          
                          
                          100,000
                          
                          
                          $
                          0.55
                          
                          January
      12, 2009
                          
                          December
      31, 201048,000
                          
                          
                          $
                          0.55
                          
                          January
      12, 2009
                          
                          July
      15, 200950,000
                          
                          
                          $
                          0.45
                          
                          February
      12, 2009
                          
                          August
      12, 2009565,000
                          
                          
                          $
                          0.45
                          
                          February
      12, 2009
                          
                          February
      12, 2014180,000
                          
                          
                          $
                          0.45
                          
                          February
      12, 2009
                          
                          February
      12, 2011100,000
                          
                          
                          $
                          0.45
                          
                          March
      10, 2009
                          
                          March
      10, 2014120,000
                          
                          
                          $
                          0.45
                          
                          May
      5, 2009
                          
                          September
      30, 200924,000
                          
                          
                          $
                          0.55
                          
                          May
      5, 2009
                          
                          October
      15, 2009250,000
                          
                          
                          $
                          0.45
                          
                          May
      5, 2009
                          
                          May
      4, 2014200,000
                          
                          
                          $
                          0.45
                          
                          May
      5, 2009
                          
                          December
      31, 2010125,000
                          
                          
                          $
                          0.45
                          
                          September
      1, 2009
                          
                          September
      30, 2011120,000
                          
                          
                          $
                          0.50
                          
                          October
      1, 2009
                          
                          December
      31, 2010400,000
                          
                          
                          $
                          0.45
                          
                          November 12, 2009
                          
                          November 12, 2014





(1)
            These
      options were issued to 390855 B.C. Ltd., a private company owned by Mathew
      Wong.





Director
Compensation





The
Company has compensation agreements for its Directors who are not executive
officers. Under the agreements, Directors receive $2,500 per meeting for the
first 4 meetings each year, and $1,500 for each meeting thereafter. The Board of
Directors may award special remuneration to any Director undertaking any special
services on behalf of the Company other than services ordinarily required of a
Director. Per an amendment to the agreements approved by the Board of Directors,
effective January 1, 2010, the Directors receive $1,000 per quarter plus $500
1for each meeting.


57




Long
Term Incentive Plan Awards





Long term
incentive plan awards ("LTIP") means any plan
providing compensation intended to serve as an incentive for performance
to occur over a period longer than one financial year, whether the
performance is measured by reference to financial performance of the Company or
an affiliate of the Company, the price of the Company's shares, or any other
measure, but does not include option or stock appreciation rights plans or
plans for compensation through restricted shares or units. The Company did not
award any LTIPs to any executive officer during the most recently completed
financial year ended December 31, 2009. There are no pension plan
benefits in place for the executive officer.





Stock
Appreciation Rights





Stock
appreciation rights ("SARs") means a right, granted
by the Company or any of its subsidiaries as compensation for services
rendered or in connection with office or employment, to receive a payment
of cash or an issue or transfer of securities based wholly or in part
on changes in the trading price of the Company's shares. No SARs were
granted to, or exercised by, any executive officer of the Company during the
most recently completed financial year ended December 31, 2009.





Change
of Control Remuneration





The
Company has management contracts with the following executive officers or the
companies controlled by the executive officers:





Named Executive
                              Officer
                            
                            Annual Base
                              Salary and / or
                              Consulting
                              Fees
                            
                            Compensation Package on
                              Termination of Contract,
                              other than for termination
                              with cause
                            
                            Compensation Package
                              on Termination of Contract, in
                              the event of a change in controlRobert
      Hodgkinson
                            
                            $
                            255,000
                            
                            2
      times annual base salary and consulting fee
                            
                            2
      times annual base salary and consulting feeMathew
      Wong
                            
                            $
                            218,000
                            
                            1
      times annual base salary and consulting fee
                            
                            2
      times annual base salary and consulting feeHarrison
      Blacker
                            
                            US$
                            250,000
                            
                            1
      times annual base salary
                            
                            1
      times annual base
salary





Bonus/Profit
Sharing/Non-Cash Compensation





Per the
consulting agreements, the CEO and CFO are entitled for an annual value-added
bonus based on the excess shareholder return of the Company’s shares over the
index return of the TSX Energy index ETF (“XEG”). The bonus payout is
subject to the approval and discretion of the Board of Directors. Per the
employment agreement, the President is entitled for a minimum annual bonus of
US$60,000 for the years of 2009 and 2010.





Pension/Retirement
Benefits





No funds
were set aside or accrued by the Company during Fiscal 2009 to provide pension,
retirement or similar benefits for Directors or Senior
Management.


58





C.           Board
Practices





Compensation
Committee





The
Company has a Compensation Committee composed of three Directors, Robert Holmes,
Craig Sturrock and Richard Patricio.





Role
of the Compensation Committee





The
Compensation Committee exercises general responsibility regarding overall
executive compensation. The Board of Directors sets the annual
compensation, bonus and other benefits of the Chief Executive Officer and
approves compensation for all other executive officers of the Company after
considering the recommendations of the Compensation Committee.





Audit
Committee





The
Corporation has formed an Audit Committee in accordance with Section 3(a)(58)(A)
of the U.S. Securities and Exchange Commission of 1934, as amended, consisting
of three independent directors pursuant to the Rule 803 of the NYSE Amex Company
Guide and Rule 10A-3 of the United States Securities Exchange Act of 1934, as
amended: Craig Sturrock, Robert Holmes and Darren Devine.   Each
Audit Committee member is financially literate.





Terms
of Reference for the Audit Committee





Audit
Committee Mandate





The
primary function of the audit committee is to assist the Board in fulfilling its
financial oversight responsibilities by reviewing the financial reports and
other financial information provided by the Company to regulatory authorities
and Shareholders, the Company’s systems of internal controls regarding finance
and accounting and the Company’s auditing, accounting and financial reporting
processes.  Consistent with this function, the audit committee will
encourage continuous improvement of, and should foster adherence to, the
Company’s policies, procedures and practices at all levels.  The audit
committee’s primary duties and responsibilities are to:


Serve as
an independent and objective party to monitor the Company’s financial reporting
and internal control system and review the Company’s financial
statements.





Review
and appraise the performance of the Company’s external auditors.





Provide
an open avenue of communication among the Company’s auditors, financial and
senior management and the Board.





Composition





The audit
committee shall be comprised of three Directors as determined by the Board, the
majority of whom shall be free from any relationship that, in the opinion of the
Board, would interfere with the exercise of his or her independent judgment as a
member of the audit committee.





At least
one member of the audit committee shall have accounting or related financial
management expertise.  All members of the audit committee that are not
financially literate will work towards becoming financially literate to obtain a
working familiarity with basic finance and accounting practices.  For
the purposes of the Company's Charter, the definition of “financially literate”
is the ability to read and understand a set of financial statements that present
a breadth and level of complexity of accounting issues that are generally
comparable to the breadth and complexity of the issues that can presumably be
expected to be raised by the Company's financial statements.





The
members of the audit committee shall be elected by the Board at its first
meeting following the annual Shareholders’ meeting.  Unless a Chair is
elected by the full Board, the members of the audit committee may designate a
Chair by a majority vote of the full audit committee
membership.


59





Meetings





The audit
committee shall meet a least twice annually, or more frequently as circumstances
dictate.  As part of its job to foster open communication, the audit
committee will meet at least annually with the Chief Financial Officer and the
external auditors in separate sessions.





Responsibilities
and Duties





To
fulfill its responsibilities and duties, the audit committee shall:





Documents/Reports
Review





(a)
            Review
      and update this Charter annually.


(b)
            Review
      the Company's financial statements, MD&A and any annual and interim
      earnings, press releases before the Company publicly discloses this
      information and any reports or other financial information (including
      quarterly financial statements), which are submitted to any governmental
      body, or to the public, including any certification, report, opinion, or
      review rendered by the external
auditors.





External
Auditors





(a)
            Review
      annually, the performance of the external auditors who shall be ultimately
      accountable to the Board and the audit committee as representatives of the
      Shareholders of the Company.


(b)
            Obtain
      annually, a formal written statement of external auditors setting forth
      all relationships between the external auditors and the Company,
      consistent with Independence Standards Board Standard
  1.


(c)
            Review
      and discuss with the external auditors any disclosed relationships or
      services that may impact the objectivity and independence of the external
      auditors.


(d)
            Take,
      or recommend that the full Board take, appropriate action to oversee the
      independence of the external
auditors.


(e)
            Recommend
      to the Board the selection and, where applicable, the replacement of the
      external auditors nominated annually for Shareholder
    approval.


(f)
            At
      each meeting, consult with the external auditors, without the presence of
      management, about the quality of the Company’s accounting principles,
      internal controls and the completeness and accuracy of the Company's
      financial statements.


(g)
            Review
      and approve the Company's hiring policies regarding partners, employees
      and former partners and employees of the present and former external
      auditors of the Company.


(h)
            Review
      with management and the external auditors the audit plan for the year-end
      financial statements and intended template for such
      statements.


(i)
            Review
      and pre-approve all audit and audit-related services and the fees and
      other compensation related thereto, and any non-audit services, provided
      by the Company’s external auditors.  The pre-approval
      requirement is waived with respect to the provision of non-audit services
      if:


i.
            the
      aggregate amount of all such non-audit services provided to the Company
      constitutes not more than five percent of the total amount of revenues
      paid by the Company to its external auditors during the fiscal year in
      which the non-audit services are
provided;


ii.
            such
      services were not recognized by the Company at the time of the engagement
      to be non-audit services; and


iii.
            such
      services are promptly brought to the attention of the audit committee by
      the Company and approved prior to the completion of the audit by the audit
      committee or by one or more members of the audit committee who are members
      of the Board to whom authority to grant such approvals has been delegated
      by the audit committee.





Provided
the pre-approval of the non-audit services is presented to the audit committee's
first scheduled meeting following such approval such authority may be delegated
by the audit committee to one or more independent members of the audit
committee.





60


Financial
Reporting Processes





(a)
            In
      consultation with the external auditors, review with management the
      integrity of the Company's financial reporting process, both internal and
      external.


(b)
            Consider
      the external auditors’ judgments about the quality and appropriateness of
      the Company’s accounting principles as applied in its financial
      reporting.


(c)
            Consider
      and approve, if appropriate, changes to the Company’s auditing and
      accounting principles and practices as suggested by the external auditors
      and management.


(d)
            Review
      significant judgments made by management in the preparation of the
      financial statements and the view of the external auditors as to
      appropriateness of such judgments.


(e)
            Following
      completion of the annual audit, review separately with management and the
      external auditors any significant difficulties encountered during the
      course of the audit, including any restrictions on the scope of work or
      access to required information.


(f)
            Review
      any significant disagreement among management and the external auditors in
      connection with the preparation of the financial
    statements.


(g)
            Review
      with the external auditors and management the extent to which changes and
      improvements in financial or accounting practices have been
      implemented.


(h)
            Review
      any complaints or concerns about any questionable accounting, internal
      accounting controls or auditing
matters.


(i)
            Review
      certification process.


(j)
            Establish
      a procedure for the confidential, anonymous submission by employees of the
      Company of concerns regarding questionable accounting or auditing
      matters.





Other





Review
any related-party transactions





Audit
Committee Oversight





At no
time since the commencement of the Company’s most recently completed financial
year was a recommendation of the audit committee to nominate or compensate an
external auditor not adopted by the Board of Directors.





D.           Employees





The
Company had an average of 16 full-time equivalent of employees and consultants
during 2009.





E.           Share
Ownership





Directors
and Officer Beneficial Ownership





The
following table discloses as of June 24, 2010, Directors and Senior
Management who beneficially own the Company's voting securities and the amount
of the Company's voting securities owned by the Directors and Senior Management
as a group.




61




Name of Beneficial
                                                                                                Owner
                                                                                              
                                                                                              Voting Securities Beneficially
                                                                                                Owned or Controlled as of June 24,
                                                                                                2010
                                                                                              
                                                                                              
                                                                                              Exercise
                                                                                                Price per
                                                                                                share
                                                                                                $
                                                                                              
                                                                                              
                                                                                              Expiry Date
                                                                                              
                                                                                              
                                                                                              Percent of
                                                                                                Common
                                                                                                Shares
                                                                                                Outstanding (1)Robert
      L. Hodgkinson
                                                                                              
                                                                                              6,687,840
      common shares
                                                                                              
                                                                                              
                                                                                              
                                                                                              n/a
                                                                                              
                                                                                              
                                                                                              
                                                                                              n/a
                                                                                              
                                                                                              
                                                                                              
                                                                                              6.78
                                                                                              %375,000
      stock options
                                                                                              
                                                                                              
                                                                                              
                                                                                              0.45
                                                                                              
                                                                                              
                                                                                              Oct
      28, 2013275,000
      stock options
                                                                                              
                                                                                              
                                                                                              
                                                                                              0.45
                                                                                              
                                                                                              
                                                                                              May
      4, 2014350,000
      stock options
                                                                                              
                                                                                              
                                                                                              
                                                                                              0.35
                                                                                              
                                                                                              
                                                                                              Feb
      3, 201519,000
      stock options
                                                                                              
                                                                                              
                                                                                              
                                                                                              0.35
                                                                                              
                                                                                              
                                                                                              Feb
      15, 2015681,818
      share purchase warrants
                                                                                              
                                                                                              
                                                                                              
                                                                                              0.55
                                                                                              
                                                                                              
                                                                                              Jun
      22, 2014Harrison
      Blacker
                                                                                              
                                                                                              525,678
      common shares
                                                                                              
                                                                                              
                                                                                              
                                                                                              n/a
                                                                                              
                                                                                              
                                                                                              
                                                                                              n/a
                                                                                              
                                                                                              
                                                                                              
                                                                                              0.53
                                                                                              %300,000
      stock options
                                                                                              
                                                                                              
                                                                                              
                                                                                              0.45
                                                                                              
                                                                                              
                                                                                              Oct
      28, 2013300,000
      stock options
                                                                                              
                                                                                              
                                                                                              
                                                                                              0.45
                                                                                              
                                                                                              
                                                                                              May
      4, 2014400,000
      stock options
                                                                                              
                                                                                              
                                                                                              
                                                                                              0.35
                                                                                              
                                                                                              
                                                                                              Feb
      3, 201533,000
      stock options
                                                                                              
                                                                                              
                                                                                              
                                                                                              0.35
                                                                                              
                                                                                              
                                                                                              Feb
      15, 2015150,000
      share purchase warrants
                                                                                              
                                                                                              
                                                                                              US$
                                                                                              0.4
                                                                                              
                                                                                              
                                                                                              Dec
      23, 2014Mathew
      H. Wong
                                                                                              
                                                                                              325,322
      common shares
                                                                                              
                                                                                              
                                                                                              
                                                                                              n/a
                                                                                              
                                                                                              
                                                                                              
                                                                                              n/a
                                                                                              
                                                                                              
                                                                                              
                                                                                              0.33
                                                                                              %175,000
      stock options
                                                                                              
                                                                                              
                                                                                              
                                                                                              0.45
                                                                                              
                                                                                              
                                                                                              Oct
      28, 2013125,000
      stock options (2)
                                                                                              
                                                                                              
                                                                                              
                                                                                              0.45
                                                                                              
                                                                                              
                                                                                              May
      4, 2014200,000
      stock options
                                                                                              
                                                                                              
                                                                                              
                                                                                              0.35
                                                                                              
                                                                                              
                                                                                              Feb
      3, 201517,000
      stock options
                                                                                              
                                                                                              
                                                                                              
                                                                                              0.35
                                                                                              
                                                                                              
                                                                                              Feb
      15, 201556,250
      share purchase warrants
                                                                                              
                                                                                              
                                                                                              
                                                                                              0.45
                                                                                              
                                                                                              
                                                                                              Mar
      3, 2011Craig
      Sturrock
                                                                                              
                                                                                              650,000
      common shares
                                                                                              
                                                                                              
                                                                                              
                                                                                              n/a
                                                                                              
                                                                                              
                                                                                              
                                                                                              n/a
                                                                                              
                                                                                              
                                                                                              
                                                                                              0.66
                                                                                              %100,000
      stock options
                                                                                              
                                                                                              
                                                                                              
                                                                                              0.45
                                                                                              
                                                                                              
                                                                                              Oct
      28, 201350,000
      stock options
                                                                                              
                                                                                              
                                                                                              
                                                                                              0.45
                                                                                              
                                                                                              
                                                                                              May
      4, 2014150,000
      stock options
                                                                                              
                                                                                              
                                                                                              
                                                                                              0.35
                                                                                              
                                                                                              
                                                                                              Feb
      3, 2015150,000
      share purchase warrants
                                                                                              
                                                                                              
                                                                                              
                                                                                              0.45
                                                                                              
                                                                                              
                                                                                              Mar
      3, 2011Robert
      Holmes
                                                                                              
                                                                                              1,663,000
      common shares
                                                                                              
                                                                                              
                                                                                              
                                                                                              n/a
                                                                                              
                                                                                              
                                                                                              
                                                                                              n/a
                                                                                              
                                                                                              
                                                                                              
                                                                                              1.68
                                                                                              %100,000
      stock options
                                                                                              
                                                                                              
                                                                                              
                                                                                              0.45
                                                                                              
                                                                                              
                                                                                              Oct
      28, 201350,000
      stock options
                                                                                              
                                                                                              
                                                                                              
                                                                                              0.45
                                                                                              
                                                                                              
                                                                                              Feb
      12, 2014150,000
      stock options
                                                                                              
                                                                                              
                                                                                              
                                                                                              0.35
                                                                                              
                                                                                              
                                                                                              Feb
      3, 2015750,000
      share purchase warrants
                                                                                              
                                                                                              
                                                                                              US$
                                                                                              0.4
                                                                                              
                                                                                              
                                                                                              Dec
      23, 2014Richard
      Patricio
                                                                                              
                                                                                              12,509,771
                                                                                              
                                                                                              
                                                                                              
                                                                                              n/a
                                                                                              
                                                                                              
                                                                                              
                                                                                              n/a
                                                                                              
                                                                                              
                                                                                              
                                                                                              12.67
                                                                                              %100,000
      stock options
                                                                                              
                                                                                              
                                                                                              
                                                                                              0.45
                                                                                              
                                                                                              
                                                                                              Oct
      28, 201350,000
      stock options
                                                                                              
                                                                                              
                                                                                              
                                                                                              0.45
                                                                                              
                                                                                              
                                                                                              Feb
      12, 2014150,000
      stock options
                                                                                              
                                                                                              
                                                                                              
                                                                                              0.35
                                                                                              
                                                                                              
                                                                                              Feb
      3, 2015Stephen
      Mut
                                                                                              
                                                                                              1,111,001
      common shares
                                                                                              
                                                                                              
                                                                                              
                                                                                              n/a
                                                                                              
                                                                                              
                                                                                              
                                                                                              n/a
                                                                                              
                                                                                              
                                                                                              
                                                                                              1.13
                                                                                              %100,000
      stock options
                                                                                              
                                                                                              
                                                                                              
                                                                                              0.45
                                                                                              
                                                                                              
                                                                                              Jun
      29, 2014250,000
      stock options
                                                                                              
                                                                                              
                                                                                              
                                                                                              0.35
                                                                                              
                                                                                              
                                                                                              Feb
      3, 2015375,000
      share purchase warrants
                                                                                              
                                                                                              
                                                                                              US$
                                                                                              0.4
                                                                                              
                                                                                              
                                                                                              Dec
      23, 2014Darren
      Devine
                                                                                              
                                                                                              200,000
      stock options (3)
                                                                                              
                                                                                              
                                                                                              
                                                                                              0.35
                                                                                              
                                                                                              
                                                                                              Feb
      3, 2015Neyeska
      Mut
                                                                                              
                                                                                              50,001
      common shares
                                                                                              
                                                                                              
                                                                                              
                                                                                              n/a
                                                                                              
                                                                                              
                                                                                              
                                                                                              n/a
                                                                                              
                                                                                              
                                                                                              
                                                                                              0.05
                                                                                              %120,000
      stock options
                                                                                              
                                                                                              
                                                                                              
                                                                                              0.45
                                                                                              
                                                                                              
                                                                                              Oct
      28, 201380,000
      stock options
                                                                                              
                                                                                              
                                                                                              
                                                                                              0.45
                                                                                              
                                                                                              
                                                                                              Feb
      12, 2014175,000
      stock options
                                                                                              
                                                                                              
                                                                                              
                                                                                              0.35
                                                                                              
                                                                                              
                                                                                              Feb
      3, 201519,000
      stock options
                                                                                              
                                                                                              
                                                                                              
                                                                                              0.35
                                                                                              
                                                                                              
                                                                                              Feb
      15, 2015





(1)
            Percentages
      are based on 98,698,372 common shares outstanding as of June 24,
      2010.


(2)
            These
      options were issued to 390855 B.C. Ltd., a private company owned by Mathew
      Wong.


(3)
            These
      options were issued to Chelmer Investments Corp., a private company owned
      by Darren Devine.





Stock
Options





The terms
of incentive options grantable by the Company are prepared in accordance with
the rules and policies of the TSX Exchange and the British Columbia Securities
Commission, including the number of common shares under option, the exercise
price and expiry date of such options, and any amendments thereto.  The
Company adopted a formal written stock option plan (the "Plan") on June 2, 2006.
At the Company’s Annual General Meeting held on October 17, 2008, shareholders
approved a resolution modifying the Plan as described below.


62




The
principal purposes of the Company’s stock option program are to (a) assist the
company in attracting, retaining, and motivating directors, officers and
employees of the Company and, (b) to closely align the personal interests of
such directors, officers and employees with the interests of the Company and its
shareholders.





The Plan
provides that stock options may be granted to service providers for the Company.
 The term “service providers” means (a) any full or part-time employee or
Officer, or insider of the Company or any of its subsidiaries; (b) any other
person employed by a company or individual providing management services to the
Company; (c) any other person or company engaged to provide ongoing consulting
services for the Company or any entity controlled by the Company or (d) any
individual engaged to provide services that promote the purchase or sale of the
issued securities (any person in (a), (b), (c) or (d) hereinafter referred to as
an “Eligible Person”); and (e) any registered retirement savings plan
established by such Eligible Person, or any corporation controlled by such
Eligible Person, the issued and outstanding voting shares of which are, and will
continue to be, beneficially owned, directly or indirectly, by such Eligible
Person and/or spouse, children and/or grandchildren of such Eligible Person.
 For stock options to Employees, Consultants or Management Company
Employees, the Company must represent that the optionee is a bona fide Employee,
Consultant or Management Company Employee as the case may be.  The terms
“insider” “Controlled” and “subsidiary” shall have the meanings ascribed thereto
in the Securities Act (Ontario) from time to time.  Subject to the
foregoing, the board of directors or Committee, as applicable, shall have full
and final authority to determine the persons who are to be granted options under
the Plan and the number of shares subject to each option.





The Plan
shall be administered by the board of directors of the Company or a committee
established by the board of directors for that purpose.  Subject to
approval of the granting of options by the board of directors or Committee, as
applicable, the Company shall grant options under the Plan.





The Plan
provides that the aggregate number of shares of the Company, which may be issued
and sold under the Plan, will not exceed 10% of the issued shares of the
Company.  The Company shall not, upon the exercise of any option, be
required to issue or deliver any shares prior to (a) the admission of such
shares to listing on any stock exchange on which the Company’s shares may them
be listed, and (b) the completion of such registration or other qualification of
such shares under any law, rules or regulation as the Company shall determine to
be necessary or advisable.  If any shares cannot be issued to any optionee
for whatever reason, the obligation of the Company to issue such shares shall
terminate and any option exercise price paid to the Company shall be returned to
the optionee.





If a
stock option expires or otherwise terminates for any reason without having been
exercised in full, the number of common shares reserved for issuance under that
expired or terminated stock option shall again be available for the purposes of
the Plan.  Any stock option outstanding when the Plan is terminated will
remain in effect until it is exercised or it expires.  The Plan provides
that it is solely within the discretion of the Board to determine who should
receive stock options and in what amounts, subject to the following
conditions:





(a)
              options
      will be non-assignable and non-transferable except that they will be
      exercisable by the personal representative of the option holder in the
      event of the option holder’s
death;


(b)
              options
      may be exercisable for a maximum of five years from grant
      date;


(c)
              options
      to acquire no more than 5% of the issued shares of the Company may be
      granted to any one individual in any 12-month
  period;


(d)
              options
      to acquire no more than 2% of the issued shares of the Company may be
      granted to any one consultant in any 12-month
  period;


(e)
              options
      to acquire no more than an aggregate of 2% of the issued shares of the
      Company may be granted to an employee conducting investor relations
      activities (as defined in TSX Venture Exchange Policy 1.1), in any 12
      month period;


(f)
              options
      to acquire no more than 10% of the issued shares of the Company may be
      granted to any insiders in any 12-month
period;


63





(g)
              options
      held by an option holder who is a director, employee, consultant or
      management company employee must expire within 90 days after the option
      holder ceases to be a director, employee, consultant or management company
      employee;


(h)
              options
      held by an option holder who is engaged in investor relations activities
      must expire within 30 days after the option holder ceases to be employed
      by the Company to provide investor relations activities;
    and


(i)
              in
      the event of an option holder’s death, the option holder’s personal
      representative may exercise any portion of the option holder’s vested
      outstanding options for a period of one year following the option holder’s
      death.





The Plan
provides that other terms and conditions may be attached to a particular stock
option, such terms and conditions to be referred to in a schedule attached to
the option certificate.  Stock options granted to directors, senior
officers, employees or consultants will vest when granted unless otherwise
determined by the Board on a case by case basis, other than stock options
granted to consultants performing investor relations activities, which will vest
in stages over 12 months with no more than one-fourth of the options vesting in
any three month period.





The price
at which an option holder may purchase a common share upon the exercise of a
stock option will be as set forth in the option certificate issued in respect of
such option and in any event will not be less than the discounted market price
of the Company’s common shares as of the date of the grant of the stock option
(the “Award Date”).  The market price of the Company’s common shares for a
particular Award Date will typically be the closing trading price of the
Company’s common shares on the day immediately preceding the Award Date, or
otherwise in accordance with the terms of the Plan.  Where there is no such
closing price or trade on the prior trading day “market price” shall mean the
average of the most recent bid and ask of the shares of the Company on any stock
exchange on which the shares are listed or dealing network on which the shares
of the Company trade.





In no
case will a stock option be exercisable at a price less than the minimum
prescribed by each of the organized trading facilities or the applicable
regulatory authorities that would apply to the award of the stock option in
question.





Common
shares will not be issued pursuant to stock options granted under the Plan until
they have been fully paid for by the option holder.  The Company will not
provide financial assistance to option holders to assist them in exercising
their stock options.





At the
Company’s Annual General Meeting of Shareholders held on October 17, 2008,
shareholders approved a resolution which ratified a revised Plan. Under the
resolution, options will be exercisable over periods of up to five years as
determined by the Board and are required to have an exercise price no less than
the closing market price of the Company’s shares prevailing on the day the
option is granted, less a discount of up to 25%, the amount of the discount
varying with market price in accordance with the policies of the Exchange. The
Plan contains no vesting requirements, but permits the Board to specify a
vesting schedule in its discretion. The Plan provides that if a change in
control occurs, all shares subject to option shall immediately become vested and
may thereupon be exercised in whole or in part by the option
holder.





Stock
Options Outstanding





The names
and titles of the Directors/Executive Officers of the Company to whom
outstanding stock options have been granted and the number of common shares
subject to such options is set forth in the following table as of June 24,
2010.


64





Stock
Options Outstanding as of June 24, 2010





Name
                                                            
                                                            Number of
                                                              Options Held
                                                            
                                                            
                                                            Number of
                                                              Options
                                                              Vested
                                                            
                                                            
                                                            Exercise Price per
                                                              Share
                                                            
                                                            Grant Date
                                                            
                                                            Expiration DateRobert
      Hodgkinson
                                                            
                                                            
                                                            375,000
                                                            
                                                            
                                                            
                                                            131,250
                                                            
                                                            
                                                            $
                                                            0.45
                                                            
                                                            10/28/2008
                                                            
                                                            10/28/2013275,000
                                                            
                                                            
                                                            
                                                            68,750
                                                            
                                                            
                                                            $
                                                            0.45
                                                            
                                                            5/5/2009
                                                            
                                                            5/4/2014350,000
                                                            
                                                            
                                                            
                                                            87,500
                                                            
                                                            
                                                            $
                                                            0.35
                                                            
                                                            2/4/2010
                                                            
                                                            2/3/201519,000
                                                            
                                                            
                                                            
                                                            4,750
                                                            
                                                            
                                                            $
                                                            0.35
                                                            
                                                            2/16/2010
                                                            
                                                            2/15/2015Harrison
      Blacker
                                                            
                                                            
                                                            300,000
                                                            
                                                            
                                                            
                                                            105,000
                                                            
                                                            
                                                            $
                                                            0.45
                                                            
                                                            10/28/2008
                                                            
                                                            10/28/2013300,000
                                                            
                                                            
                                                            
                                                            75,000
                                                            
                                                            
                                                            $
                                                            0.45
                                                            
                                                            5/5/2009
                                                            
                                                            5/4/2014400,000
                                                            
                                                            
                                                            
                                                            100,000
                                                            
                                                            
                                                            $
                                                            0.35
                                                            
                                                            2/4/2010
                                                            
                                                            2/3/201533,000
                                                            
                                                            
                                                            
                                                            8,250
                                                            
                                                            
                                                            $
                                                            0.35
                                                            
                                                            2/16/2010
                                                            
                                                            2/15/2015Mathew
      Wong (1)
                                                            
                                                            
                                                            175,000
                                                            
                                                            
                                                            
                                                            61,250
                                                            
                                                            
                                                            $
                                                            0.45
                                                            
                                                            10/28/2008
                                                            
                                                            10/28/2013125,000
                                                            
                                                            
                                                            
                                                            31,250
                                                            
                                                            
                                                            $
                                                            0.45
                                                            
                                                            5/5/2009
                                                            
                                                            5/4/2014200,000
                                                            
                                                            
                                                            
                                                            50,000
                                                            
                                                            
                                                            $
                                                            0.35
                                                            
                                                            2/4/2010
                                                            
                                                            2/3/201517,000
                                                            
                                                            
                                                            
                                                            4,250
                                                            
                                                            
                                                            $
                                                            0.35
                                                            
                                                            2/16/2010
                                                            
                                                            2/15/2015Craig
      Sturrock
                                                            
                                                            
                                                            100,000
                                                            
                                                            
                                                            
                                                            35,000
                                                            
                                                            
                                                            $
                                                            0.45
                                                            
                                                            10/28/2008
                                                            
                                                            10/28/201350,000
                                                            
                                                            
                                                            
                                                            12,500
                                                            
                                                            
                                                            $
                                                            0.45
                                                            
                                                            5/5/2009
                                                            
                                                            5/4/2014150,000
                                                            
                                                            
                                                            
                                                            37,500
                                                            
                                                            
                                                            $
                                                            0.35
                                                            
                                                            2/4/2010
                                                            
                                                            2/3/2015Robert
      Holmes
                                                            
                                                            
                                                            100,000
                                                            
                                                            
                                                            
                                                            35,000
                                                            
                                                            
                                                            $
                                                            0.45
                                                            
                                                            10/28/2008
                                                            
                                                            10/28/201350,000
                                                            
                                                            
                                                            
                                                            15,000
                                                            
                                                            
                                                            $
                                                            0.45
                                                            
                                                            02/12/2009
                                                            
                                                            02/12/2014150,000
                                                            
                                                            
                                                            
                                                            37,500
                                                            
                                                            
                                                            $
                                                            0.35
                                                            
                                                            2/4/2010
                                                            
                                                            2/3/2015Richard
      Patricio
                                                            
                                                            
                                                            100,000
                                                            
                                                            
                                                            
                                                            35,000
                                                            
                                                            
                                                            $
                                                            0.45
                                                            
                                                            10/28/2008
                                                            
                                                            10/28/201350,000
                                                            
                                                            
                                                            
                                                            15,000
                                                            
                                                            
                                                            $
                                                            0.45
                                                            
                                                            02/12/2009
                                                            
                                                            02/12/2014150,000
                                                            
                                                            
                                                            
                                                            37,500
                                                            
                                                            
                                                            $
                                                            0.35
                                                            
                                                            2/4/2010
                                                            
                                                            2/3/2015Stephen
      Mut
                                                            
                                                            
                                                            100,000
                                                            
                                                            
                                                            
                                                            100,000
                                                            
                                                            
                                                            $
                                                            0.45
                                                            
                                                            6/29/2009
                                                            
                                                            6/29/2014250,000
                                                            
                                                            
                                                            
                                                            62,500
                                                            
                                                            
                                                            $
                                                            0.35
                                                            
                                                            2/4/2010
                                                            
                                                            2/3/2015Darren
      Devine (2)
                                                            
                                                            
                                                            200,000
                                                            
                                                            
                                                            
                                                            50,000
                                                            
                                                            
                                                            $
                                                            0.35
                                                            
                                                            2/4/2010
                                                            
                                                            2/3/2015Neyeska
      Mut
                                                            
                                                            
                                                            120,000
                                                            
                                                            
                                                            
                                                            42,000
                                                            
                                                            
                                                            $
                                                            0.45
                                                            
                                                            10/28/2008
                                                            
                                                            10/28/201380,000
                                                            
                                                            
                                                            
                                                            24,000
                                                            
                                                            
                                                            $
                                                            0.45
                                                            
                                                            2/12/2009
                                                            
                                                            2/12/2014175,000
                                                            
                                                            
                                                            
                                                            43,750
                                                            
                                                            
                                                            $
                                                            0.35
                                                            
                                                            2/4/2010
                                                            
                                                            2/3/201519,000
                                                            
                                                            
                                                            
                                                            4,750
                                                            
                                                            
                                                            $
                                                            0.35
                                                            
                                                            2/16/2010
                                                            
                                                            2/15/2015Total
      Officers/Directors
                                                            
                                                            
                                                            3,394,000
                                                            
                                                            
                                                            
                                                            1,314,250





(1)
            125,000
      options granted on May 5, 2009 were issued to 390855 B.C. Ltd., a private
      company owned by Mathew Wong.


(2)
            200,000
      options granted on February 4, 2010 were issued to Chelmer Investments
      Corp., a private company owned by Darren
Devine.





ITEM
7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.





A.           Major
Shareholders





Shareholders





The
Company is aware of two persons/companies who each beneficially own 5% or more
of the Registrant's voting securities. The following table lists as of June 24,
2010, persons and/or companies holding 5% or more beneficial interest in the
Company’s outstanding common stock.


65


5%
or Greater Shareholders as of June 24, 2010





Title of Class
                    
                    Name of Owner
                    
                    Amount and Nature of Beneficial
                      Ownership
                    
                    
                    Percent of ClassCommon
                    
                    Brownstone
      Ventures Inc.
                    
                    
                    17,843,104
                    
                    
                    
                    18.08
                    %Common
                    
                    Robert
      L. Hodgkinson (1)
                    
                    
                    8,388,658
                    
                    
                    
                    8.50
                    %





(1)
            Of
      these shares, 2,187,341 are represented by common shares, 1,019,000 are
      represented by stock options and 681,818 are represented by share purchase
      warrants. 1,500,000 of these shares are owned by 7804 Yukon Inc., a
      private company owned by Robert Hodgkinson; 964,204 are common shares
      owned by 858642 Alberta Ltd., a private company owned by Robert
      Hodgkinson; 2,036,295 are common shares owned by Hodgkinson Equities
      Corp., a private company owned by Robert
  Hodgkinson.





All
percentages based on 98,698,372 shares outstanding as of June 24,
2010.





Changes
in ownership by major shareholders





To the
best of the Company’s knowledge there have been no changes in the ownership of
the Company’s shares other than disclosed herein.





Voting
Rights





The
Company’s major shareholders do not have different voting rights.





Shares
Held in the United States





As of
June 16, 2010, there were approximately 4,846 registered holders of the
Company’s shares in the United States, with combined holdings of 44,618,455
common shares.





Change
of Control





As of
June 24, 2010, there were no arrangements known to the Company which may, at a
subsequent date, result in a change of control of the Company.





Control
by Others





To the
best of the Company’s knowledge, the Company is not directly or indirectly owned
or controlled by another corporation, any foreign government, or any other
natural or legal person, severally or jointly.





B.           Related
Party Transactions





Other
than as disclosed below, from January 1, 2007 through December 31, 2009, the
Company did not enter into any transactions or loans between the Company and any
(a) enterprises that directly or indirectly through one or more intermediaries,
control or are controlled by, or are under common control with the Company; (b)
associates; (c) individuals owning, directly or indirectly, an interest in the
voting power of the Company that gives them significant influence over the
Company, and close members of any such individual’s family; (d) key management
personnel and close members of such individuals' families; or (e) enterprises in
which a substantial interest in the voting power is owned, directly or
indirectly by any person described in (c) or (d) or over which such a person is
able to exercise significant influence.


66


(a)
            Loan
      from Hodgkinson Equity Corporation
(“HEC”)





HEC loan to
DEAL





On
      May 15, 2008, DEAL issued a promissory note for up to $2,000,000 to HEC, a
      private company controlled by the CEO of the Company. The promissory note
      is secured by the assets, equipment, fixtures, inventory and accounts
      receivable of DEAL, bears interest at the Royal Bank of Canada Prime Rate
      per annum, and has a loan fee of 1% of the outstanding amount per month.
      The principal, interest and loan fee were payable on demand after August
      15, 2008.  Upon securing the bank line of credit in August 2008,
      HEC signed a subordination and postponement agreement which restricted the
      principal repayment of the promissory note subject to the bank’s prior
      approval and DEAL meeting certain loan covenants. As at December 31, 2008,
      $1,950,000 had been advanced on the promissory note. Repayments of $90,642
      and $59,358 were made on March 5, 2009 and on April 3, 2009 respectively.
      As at June 22, 2009, the Company assumed from DEAL the remaining
      outstanding balance of $1,800,000.





HEC loan to the
Company





On August
11, 2008, the Company borrowed $600,000 from HEC.  The loan was
secured by all assets of the Company, repayable on demand, bore interest at the
Canadian prime rate per annum, and had a loan fee of 1% of the outstanding
amount per month.  At December 31, 2008 $600,000 had been advanced to
the Company.  On March 19, 2009, a repayment of $600,000 was made and
as at December 31, 2009, no balance remained outstanding.





On
September 12, 2008, as consideration for HEC agreeing to postpone the $2,000,000
promissory note and providing the additional loan of $600,000, HEC was granted
an option to become a working interest partner with DEAL.  Upon
electing to become a working interest partner, HEC must pay DEAL an amount equal
to 10% of the actual price paid for the acquisition of the Montney (Buick Creek)
property in northeastern British Columbia.  HEC is also required to
pay its pro-rata share of the operating costs. On February 26, 2009, HEC
exercised its option and elected to become a 10% working interest partner in
DEAL’s Montney (Buick Creek) property.  The option price was
$90,642.





On June
22, 2009, as amended on September 30, 2009 and December 31, 2009, the Company
entered into an agreement with HEC in regard to the outstanding debt of
$1,800,000 assumed from DEAL by the Company.  Pursuant to the
agreements, $450,000 of the debt was converted into 1,363,636 units consisting
of 1,363,636 common shares and 681,818 common share purchase warrants
exercisable at a price of $0.55 for a period of 5 years.  The fair
value of the units was estimated to be $450,000. The remaining $1,350,000 was
converted into a 12% note due on January 1, 2011 and the Company was required to
pay 3% fee on the outstanding balance of the loan as at December 31,
2009.  As a result of the sale of 5% working interest in the
Drake/Woodrush area to HEC in December 2009 (effective June 1, 2009), both
parties agreed to reduce the loan balance by the purchase price of $911,722
including taxes and adjustments. In addition, the loan balance was further
reduced by a payment of $50,351.  As at December 31, 2009, a balance
of $387,927 remained outstanding.





(b)
            Loan
      from Brownstone Ventures Inc.
(“Brownstone”)





On June
18, 2008, a promissory note with a face value of $4,078,800 (US $4,000,000) was
issued to Brownstone. Brownstone owns more than 10% of outstanding common shares
of the Company and one of Brownstone’s directors also serves on the board of
directors of the Company. The promissory note was secured by a general security
agreement issued by the Company in favour of Brownstone, and bore interest at 5%
per annum.   The principal and interest were repayable by the
earlier of the completion of an equity and/or debt financing, and July 1,
2009.  During the year ended December 31, 2008, a repayment of
$222,948 (US$220,000) was made and at December 31, 2008 a balance of $4,604,040
(US$3,780,000) owed.





On June
22, 2009, as amended on September 30, 2009 and December 31, 2009, the Company
entered into an agreement with Brownstone in regard to the outstanding debt of
$4,604,040 (US$3,780,000). Pursuant to the agreement, $2,200,000 (US$2,000,000)
of the debt was converted into 6,666,667 units consisting of 6,666,667 common
shares and 3,333,333 common share purchase warrants exercisable at a price of
$0.55 for a period of 5 years.  The fair value of the units was
estimated to be US$2,000,000.  The remaining $2,070,140 (US$1,780,000)
of the debt was converted into a Canadian dollar denominated 12% note due on
January 1, 2011.


67


On June
22, 2009, the Company also issued Brownstone 2,000,000 common share purchase
warrants exercisable at $0.50 for a period of 2 years, with an option to force
the exercise of the warrants if the Company’s common shares trade at a price of
$0.80 or greater for 30 consecutive calendar days.





(c)
              During
      2008, the Company accrued $19,562 (2007 - US$34,195; 2006 - US$17,282) of
      interest at 8% per annum related to US$400,000 of convertible debentures
      as discussed in Note 9 to the financial statements, and paid $Nil (2007 -
      $63,000; 2006 - $63,000) bonus to HEC.  In June 2008, US $400,000 of
      convertible debentures was converted to 296,296 units. Each unit consists
      of one common share and one warrant, exercisable at US $1.50 per share,
      expiring on July 15, 2008. The Company also issued 50,806 Units to settle
      US $68,587 of accrued interest.  In October 2006, the Company
      assigned 25% of its interest in the Noel Area, to HEC, which agreed to
      assume 25% of the related obligations.  In November 2006, the Company
      had received $234,251 from HEC, being the estimated 25% share of the
      exploration expenditures for the Noel
Area.





(d)
              During
      2008, the Company accrued $4,904 (2007 - US$21,320; 2006 - US$14,830) of
      interest at 8% per annum related to US$400,000 of convertible debentures
      as discussed in Note 9 to the financial statements, and paid $Nil (2007 -
      $63,000; 2006 - $63,000) bonus payments to the President of a private
      company controlled by the former President of the Company, Douglas
      Cannaday. In June 2008, US$200,000 of convertible debentures was converted
      to 148,148 Units. Each Unit consists of one common share and one warrant,
      exercisable at US $1.50 per share, expiring on July 15, 2008. The Company
      also issued 12,700 Units to settle US $17,145 of accrued interest.
       In April 2007, US$200,000 of convertible debentures was converted to
      148,148 Units. Each Unit consists of one common share and one warrant,
      exercisable at US $1.50 per share, expiring on July 15, 2008. The Company
      also issued 9,254 Units to settle US $12,493 of accrued
      interest.





(e)
            During
      2008, the Company accrued $12,948 (2007 - US$32,222; 2006 - US$14,830) of
      interest at 8% per annum related to US$400,000 of convertible debentures,
      as discussed in Note 9 in the financial statements, to an individual
      related to the CFO. In June 2008, US$250,150 of convertible debentures was
      converted to 185,296 Units. Each Unit consists of one common share and one
      warrant, exercisable at US $1.50 per share, expiring on July 15, 2008. The
      Company also issued 44,444 Units to settle US $59,999 of accrued interest.
       In November 2007, US $149,850 of convertible debentures was
      converted to 111,000 units. Each unit consists of one common share and one
      warrant, exercisable at US $1.50 per share, expiring on July 15,
      2008.





(f)
            During
      2009, the Company incurred a total of $682,618 (2008 - $737,112) in
      consulting and professional fees and a total of $90,714 (2008 - $111,291)
      in rent expenses to the companies controlled by officers of the Company.
      Included in the total consulting and professional fees incurred was a
      payment of $107,000 made to a former officer of the Company to terminate
      the consulting agreement with this officer. In addition, the Company
      received total rental income of $30,000 (2008 - $28,700) from the
      companies controlled by officers of the
Company.





(g)
            During
      2009, the Company incurred a total of $382,748 (2008 - $300,434) in
      interest expense and finance fee to the related
  parties.





(h)
            During
      2009, the Company received total consulting fee income of $114,200 (2008:
      Nil) from a related party.





(l)
              During
      2007, the Company purchased Wild Horse Energy Ltd., a private company
      owned by Charles Dove, Director, for $354,880. Wild Horse owns the
      remaining 10% of DEAL the Company did not already
  own.


68





C.
Interests of Experts and Counsel





Not
Applicable.





ITEM
8.  FINANCIAL INFORMATION.





A.           Consolidated
Statements and Other Financial Information





Financial
Statements





Description
                
                PageConsolidated
      Financial Statements for the Years Ended December 31, 2009, 2008 and
      2007.
                
                F-1
      -  F-38





Legal
Proceedings





The
Directors and the management of the Company do not know of any material, active
or pending, legal proceedings against them; nor is the Company involved as a
plaintiff in any material proceeding or pending litigation.





The
Directors and the management of the Company know of no active or pending
proceedings against anyone that might materially adversely affect an interest of
the Company.





Dividend
Policy





The Company has not paid
any dividends on its common shares.  The Company may pay dividends on
its common shares in the future if it generates profits.  Any decision
to pay dividends on common shares in the future will be made by the board of
directors on the basis of the earnings, financial requirements and other
conditions existing at such time.





B.           Significant
Changes





Stock
Options





Subsequent
to December 31, 2009, the Company granted a total of 3,323,000 incentive stock
options with a weighted average exercise price at $0.35 per share to independent
directors, management, officers, employees and consultants of the Company. The
options can be exercised for periods ending up to May 31, 2015.





Bank
Line of Credit and Bridge Loan Financing





Subsequent
to December 31, 2009, the Company’s bank line of credit was paid off in
full.





In March
2010, the Company acquired a credit facility for a bridge loan of up to
$5,000,000. The first 2,000,000 of the facility was used to refinance the DEAL’s
existing bank facility and fund its working capital. The remainder of the line
is accessible subject to additional lender review of engineering reports on oil
and gas reserves being developed or acquired. The facility carries interest rate
at 12% per annum, subject to a 1% fee on any amount drawn and a 2% fee on
repayment.  The Company also paid a $50,000 commitment fee. As at
March 31, 2010, $1,500,000 was drawn under this facility.  The
proceeds of this bridge loan require lender’s approval before it can be
transferred to Dejour. The bridge loan is due on September 22, 2010. Subject to
the agreement of the lender, the loan can be extended for a period of maximum 3
months. In addition, the extension will be subject to a 1% extension fee per
month on the outstanding loan balance at the beginning of each
month.


69





Private
Placement





In March
2010, the Company completed a private placement and issued 2,907,334
flow-through units at $0.35 per unit. Each unit consists of 2,907,334 common
shares and 1,453,667 share purchase warrants, exercisable at $0.45 per share on
or before March 3, 2011. Gross proceeds raised were $1,018,000.  In
connection with this private placement, the Company paid finders’ fees of
$55,000 and other related costs of $52,000. The Company also issued 37,423
agent’s warrants, exercisable at $0.45 per share on or before March 3,
2011.





ITEM
9.   THE OFFER AND LISTING





A.           Offering
and Listing Details





The
Company’s common shares are traded on the Toronto Stock Exchange and on the NYSE
Amex, in both cases under the symbol “DEJ.”  The following tables set forth
for the periods indicated, the high and low closing prices in Canadian dollars
of our common shares traded on the Toronto Stock Exchange and the TSX
Venture Exchange and in United States dollars on the NYSE
Amex.  The Company traded on the Toronto Stock Exchange Venture
Exchange in Vancouver, British Columbia, Canada, until November 20, 2008 when it
began trading on the TSX. The Company changed its symbol to “DEJ” after
a one for three share consolidation effective October 1, 2003. The
Company changed its Toronto Stock Exchange trading symbol on May 23, 2007 to
“DEJ” to coincide with its listing on the American Stock Exchange (now NYSE
Amex) on the same day under the symbol “DEJ”.





The
following table contains the annual high and low market prices for the five most
recent fiscal years:




Toronto
Stock Exchange (Cdn$)


High
                      
                      
                      Low2009
                      
                      $
                      0.76
                      
                      
                      $
                      0.232008(1)
                      
                      $
                      2.17
                      
                      
                      $
                      0.232007
                      
                      $
                      3.28
                      
                      
                      $
                      1.022006
                      
                      $
                      2.97
                      
                      
                      $
                      0.992005
                      
                      $
                      1.07
                      
                      
                      $
                      0.41


(1)
Common shares listed on Toronto Stock Exchange on November 20,
2008.




NYSE
Amex (US$)


High
                    
                    
                    Low2009
                    
                    $
                    0.67
                    
                    
                    $
                    0.122008
                    
                    $
                    2.17
                    
                    
                    $
                    0.252007(1)
                    
                    $
                    2.95
                    
                    
                    $
                    1.29


(1)
Shares listed for trading on NYSE Amex on May 7, 2007





The
following table contains the high and low market prices for our common shares on
the Toronto Stock Exchange and the NYSE Amex for each fiscal quarter for the two
most recent fiscal years and any subsequent period:




Toronto Stock Exchange (Cdn$)


High
                    
                    
                    Low2010Q2
      through June 23, 2010
                    
                    $
                    0.45
                    
                    
                    $
                    0.29Q1
                    
                    $
                    0.48
                    
                    
                    $
                    0.292009Q4
                    
                    $
                    0.65
                    
                    
                    $
                    0.30Q3
                    
                    $
                    0.57
                    
                    
                    $
                    0.24Q2
                    
                    $
                    0.50
                    
                    
                    $
                    0.23Q1
                    
                    $
                    0.76
                    
                    
                    $
                    0.232008Q4(1)
                    
                    $
                    0.84
                    
                    
                    $
                    0.33Q3
                    
                    $
                    1.97
                    
                    
                    $
                    0.61Q2
                    
                    $
                    2.17
                    
                    
                    $
                    1.37Q1
                    
                    $
                    1.81
                    
                    
                    $
                    1.20


(1)
Common shares listed on Toronto Stock Exchange on November 20,
2008.




70




NYSE Amex (US$)


High
                    
                    
                    Low2010Q2
      through June 23, 2010
                    
                    $
                    0.50
                    
                    
                    $
                    0.28Q1
                    
                    $
                    0.47
                    
                    
                    $
                    0.262009Q4
                    
                    $
                    0.64
                    
                    
                    $
                    0.2761Q3
                    
                    $
                    0.525
                    
                    
                    $
                    0.21Q2
                    
                    $
                    0.45
                    
                    
                    $
                    0.184Q1
                    
                    $
                    0.67
                    
                    
                    $
                    0.122008Q4
                    
                    $
                    0.80
                    
                    
                    $
                    0.25Q3
                    
                    $
                    2.00
                    
                    
                    $
                    0.60Q2
                    
                    $
                    2.17
                    
                    
                    $
                    1.33Q1
                    
                    $
                    1.95
                    
                    
                    $
                    0.93


(1)
Shares listed for trading on NYSE Amex on May 7, 2007





The
following table contains the high and low market prices for our common shares on
the Toronto Stock Exchange and the NYSE Amex for each of the most recent six
months:




Toronto Stock Exchange (Cdn$)


High
                          
                          
                          LowDecember,
      2009
                          
                          $
                          0.45
                          
                          
                          $
                          0.30January,
      2010
                          
                          $
                          0.46
                          
                          
                          $
                          0.30February,
      2010
                          
                          $
                          0.37
                          
                          
                          $
                          0.29March,
      2010
                          
                          $
                          0.48
                          
                          
                          $
                          0.29April,
      2010
                          
                          $
                          0.45
                          
                          
                          $
                          0.34May,
      2010
                          
                          $
                          0.40
                          
                          
                          $
                          0.29


NYSE
Amex (US$)


High
                      
                      
                      LowDecember,
      2009
                      
                      $
                      0.4213
                      
                      
                      $
                      0.392January,
      2010
                      
                      $
                      0.435
                      
                      
                      $
                      0.29February,
      2010
                      
                      $
                      0.34
                      
                      
                      $
                      0.26March,
      2010
                      
                      $
                      0.47
                      
                      
                      $
                      0.28April,
      2010
                      
                      $
                      0.497
                      
                      
                      $
                      0.33May,
      2010
                      
                      $
                      0.40
                      
                      
                      $
                      0.28




On June
23, 2010, the closing price of our common shares on the TSX was Cdn$0.34 per
common share and on the NYSE Amex was US$0.33 per common share.





B.           Plan
of Distribution





Not
Applicable.





C.           Markets





Our
common shares, no par value, are traded on the TSX under the symbol “DEJ” and
are traded on the NYSE Amex under the symbol "DEJ".


71




D.           Selling
Shareholders





Not
Applicable.





E.           Dilution





Not
Applicable.





F.           Expenses
of the Issue





Not
Applicable.





ITEM
10.  ADDITIONAL INFORMATION





A.           Share
Capital





Not
Applicable.





B.           Memorandum
and Articles of Association





Dejour
Enterprises Ltd. (“Dejour” or the “Company””) was incorporated as “Dejour Mines
Limited” on March 29, 1968 under the laws of the Province of Ontario. By
articles of amendment dated October 30, 2001, the Company changed its name to
“Dejour Enterprises Ltd.”. At the Company’s Annual General held on June 3, 2005,
shareholders approved the continuance of the Company from the Province of
Ontario to the Province of British Columbia and adopted new Articles under the
Business Corporations Act
(British Columbia) (the “New Act”).





There are
no restrictions on what business the Company may carry on in the Articles of
Incorporation.





Under
Article 17 of the Company’s Articles and Division 3 of the New Act, a director
must declare its interest in any existing or proposed contract or transaction
with the Company and is not allowed to vote on any transaction or contract with
the Company in which has a disclosable interest, unless all directors have a
disclosable interest in that contract or transaction, in which case any or all
of those directors may vote on such resolution. A director may hold any office
or place of profit with the Company in conjunction with the office of director,
and no director shall be disqualified by his office from contracting with the
Company. A director or his firm may act in a professional capacity for the
Company and he or his firm shall be entitled to remuneration for professional
services. A director may become a director or other officer or employee of, or
otherwise interested in, any corporation or firm in whom the Company may be
interested as a shareholder or otherwise. The director shall not be accountable
to the Company for any remuneration or other benefits received by him from such
other corporation or firm subject to the provisions of the New Act.





Article
16 of the Company’s articles addresses the duties of the directors. Directors
must manage or supervise the management of the business and affairs of the
Company and have the authority to exercise all such powers which are not
required to be exercised by the shareholders as governed by the New Act. Article
19 addresses Committees of the Board of Directors. Directors may, by resolution,
create and appoint an executive committee consisting of the director or
directors that they deem appropriate. This executive committee has, during the
intervals between meetings of the Board, all of the directors’ powers, except
the power to fill vacancies in the Board, the power to remove a Director, the
power to change the membership of, or fill vacancies in, any committee of the
Board and any such other powers as may be set out in the resolution or any
subsequent directors’ resolution. Directors may also by resolution appoint one
or more committees other than the executive committee.


72


These
committees may be delegated any of the directors’ powers except the power to
fill vacancies on the board of directors, the power to remove a director, the
power to change the membership or fill vacancies on any committee of the
directors, and the power to appoint or remove officers appointed by the
directors. Article 18 details the proceedings of directors. A director may, and
the Secretary or Assistant Secretary, if any, on the request of a director must
call a meeting of the directors at any time. The quorum necessary for the
transaction of the business of the directors may be fixed by the directors and
if not so fixed shall be deemed to a majority of the directors. If the number of
directors is set at one, it quorum is deemed to be one director.





Article 8
details the borrowing powers of the Directors. They may, on behalf of the
Company:





·
            Borrow
      money in a manner and amount, on any security, from any source and upon
      any terms and conditions as they deem
  appropriate;





·
            Issue
      bonds, debentures, and other debt obligations either outright or as
      security for any liability or obligation of the Company or any other
      person at such discounts or premiums and on such other terms as they
      consider appropriate;





·
            Guarantee
      the repayment of money by any other person or the performance of any
      obligation of any other person; and





·
            Mortgage,
      charge, or grant a security in or give other security on, the whole or any
      part of the present or future assets and undertaking of the
      Company.





A
director need not be a shareholder of the Company, and there are no age limit
requirements pertaining to the retirement or non-retirement of directors. The
directors are entitled to the remuneration for acting as directors, if any, as
the directors may from time to time determine. If the directors so decide, the
remuneration of directors, if any, will be determined by the shareholders. The
remuneration may be in addition to any salary or other remuneration paid to any
officer or employee of the Company as such who is also a director. The Company
must reimburse each director for the reasonable expenses that he or she may
incur in and about the business of the Company. If any director performs any
professional or other services for the Company that in the opinion of the
directors are outside the ordinary duties of a director, or if any director is
otherwise specially occupied in or about the Company’s business, he or she may
be paid remuneration fixed by the directors, or, at the option of that director,
fixed by ordinary resolution and such remuneration may be either in addition to,
or in substitution for, any other remuneration that he or she may be entitled to
receive. Unless other determined by ordinary resolution, the directors on behalf
of the Company may pay a gratuity or pension or allowance on retirement to any
director who has held any salaried office or place of profit with the Company or
to his or her spouse or dependents and may make contributions to any fund and
pay premiums for the purchase or provision of any such gratuity, pension or
allowance.





Article
21 provides for the mandatory indemnification of directors, former directors,
and alternate directors, as well as his or hers heirs and legal personal
representatives, or any other person, to the greatest extent permitted by the
New Act. The indemnification includes the mandatory payment of expenses actually
and reasonably incurred by such person in respect of that proceeding. The
failure of a director, alternate director, or officer of the Company to comply
with the Business Corporations
Act or the Company’s Articles does not invalidate any indemnity to which
he or she is entitled. The directors may cause the Company to purchase and
maintain insurance for the benefit of eligible parties who:





(a)
            is
      or was a director, alternate director, officer, employee or agent of the
      Company;





(b)
            is
      or was a director, alternate director, officer employee or agent of a
      corporation at a time when the corporation is or was an affiliate of the
      Company;





(c)
            at
      the request of the Company, is or was a director, alternate director,
      officer, employee or agent of a corporation or of a partnership, trust,
      joint venture or other unincorporated
entity;


73





(d)
            at
      the request of the Company, holds or held a position equivalent to that of
      a director, alternate director or officer of a partnership, trust, joint
      venture or other unincorporated
entity;





against
any liability incurred by him or her as such director, alternate director,
officer, employee or agent or person who holds or held such equivalent
position





The
rights, preferences and restrictions attaching to each class of the Company’s
shares are as follows:


Common
Shares





The
authorized share structure consists of an unlimited number of common shares
without par value. All the shares of common stock of the Company are of the same
class and, once issued, rank equally as to dividends, voting powers, and
participation in assets.  Holders of common stock are entitled to one vote
for each share held of record on all matters to be acted upon by the
shareholders.  Holders of common stock are entitled to receive such
dividends as may be declared from time to time by the Board of Directors, in its
discretion, out of funds legally available therefore.





Upon
liquidation, dissolution or winding up of the Company, holders of common stock
are entitled to receive pro rata the assets of Company, if any, remaining after
payments of all debts and liabilities.  No shares have been issued subject
to call or assessment.  There are no pre-emptive or conversion rights and
no provisions for redemption or purchase for cancellation, surrender, or sinking
or purchase funds.





Under
Article 9 and subject to the New Act, the Company may alter its authorized share
structure by directors’ resolution or ordinary resolution, in each case
determined by the directors, to:





(a)
            create
      one or more classes or series of shares or, if none of the shares of a
      series of a class or series of shares are allotted or issued, eliminate
      that class or series of shares;





(b)
            increase,
      reduce or eliminate the maximum number of shares that the Company is
      authorized to issue out of any class or series of shares or establish a
      maximum number of shares that the company is authorized to issue out of
      any class or series of shares for which no maximum is
      established;





(c)
            subdivide
      or consolidate all or any of its unissued, or fully paid issued,
      shares;





(d)
            if
      the Company is authorized to issue shares of a class or shares with par
      value;





(i)
            decrease
      the par value of those shares; or





(ii)
            if
      none of the shares of that class of shares are allotted or issued,
      increase the par value of those
shares;





(e)
            change
      all or any of its unissued, or fully paid issued, shares with par value
      into shares without par value or any of its unissued shares without par
      value into shares with par value;





(f)
            alter
      the identifying name of any of its shares;
or





by
ordinary resolution otherwise alter its share or authorized share
structure.





Subject
to Article 9.2 and the New Act, the Company may:





(1)
            by
      directors’ resolution or ordinary resolution, in each case determined by
      the directors, create special rights or restrictions for, and attach those
      special rights or restrictions to, the shares of any class or series of
      shares, if none of those shares have been issued, or vary or delete any
      special rights or restrictions attached to the shares of any class or
      series of shares, if none of those shares have been issued;
      and


74





(2)
            by
      special resolution of the shareholders of the class or series affected, do
      any of the acts in 91) above if any of the shares of the class or series
      of shares has been issued.





The
Company may by resolution of its directors or by ordinary resolution, in each
case as determined by the directors, authorize an alteration of its Notice of
Articles in order to change its name.





The
directors may, whenever they think fit, call a meeting of shareholders. An
annual general meeting shall be held once every calendar year at such time (not
being more than 15 months after holding the last preceding annual meeting) and
place as may be determined by the Directors.





There are
no limitations upon the rights to own securities.





There are
no provisions that would have the effect of delaying, deferring, or preventing a
change in control of the Company.





There is
no special ownership threshold above which an ownership position must be
disclosed. However, any ownership level above 10% must be disclosed to the TSX
Venture Exchange and the British Columbia Securities Commission.





Description
of Share Capital





The
Company authorized to issue an unlimited number of common shares of which, as of
June 16, 2010, 98,698,372 are issued and outstanding. The Company’s common
shares are entitled to one vote per share on all matters submitted to a vote of
the shareholders, including the election of directors. Except as otherwise
required by law the holders of the Company’s common shares will possess all
voting power. Generally, all matters to be voted on by shareholders must be
approved by a majority (or, in the case of election of directors, by a
plurality) of the votes entitled to be cast by all common shares that are
present in person or represented by proxy. One holder of common shares issued,
outstanding and entitled to vote, represented in person or by proxy, is
necessary to constitute a quorum at any meeting of our
shareholders.





The
holders of the Company’s common shares will be entitled to such cash dividends
as may be declared from time to time by our board of directors from funds
available therefor.





Upon
liquidation, dissolution or winding up of the Company, holders of common shares
are entitled to receive pro rata our assets, if any, remaining after payments of
all debts and liabilities.  No common shares have been issued subject to
call or assessment.  There are no pre-emptive or conversion rights and no
provisions for redemption or purchase for cancellation, surrender, or sinking or
purchase funds attaching to our common shares.





In the
event of any merger or consolidation with or into another company in connection
with which the Company’s common shares are converted into or exchangeable for
shares, other securities or property (including cash), all holders of the
Company’s common shares will be entitled to receive the same kind and amount of
shares and other securities and property (including cash).





There are
no indentures or agreements limiting the payment of dividends on the Company’s
common shares and there are no special liquidation rights or subscription rights
attaching to the Company’s common shares.





Dividend
Record





The
Company has not paid any dividends on its common shares and has no policy with
respect to the payment of dividends.


75





Ownership
of Securities and Change of Control





There are
no limitations on the rights to own securities, including the rights of
non-resident or foreign shareholders to hold or exercise voting rights on the
securities imposed by foreign law or by the constituent documents of the
Company.





Any
person who beneficially owns or controls, directly or indirectly, more than 10%
of the Company’s voting shares is considered an insider, and must file an
insider report with the Canadian regulatory commissions within ten days of
becoming an insider, disclosing any direct or indirect beneficial ownership of,
or control over direction over securities of the Company.  In
addition, if the Company itself holds any of its own securities, the Company
must disclose such ownership.





There are
no provisions in the Company’s Memorandum and Articles of Association or Bylaws
that would have an effect of delaying, deferring or preventing a change in
control of the Company operating only with respect to a merger, acquisition or
corporate restructuring involving the Company or its subsidiaries.





Differences
from Requirements in the United States





Except
for the Company’s quorum requirements, certain requirements related to related
party transactions and the requirement for notice of shareholder meetings,
discussed above, there are no significant differences in the law applicable to
the Company, in the areas outlined above, in Canada versus the United
States.  In most states in the United States, a quorum must consist of
a majority of the shares entitled to vote.  Some states allow for a
reduction of the quorum requirements to less than a majority of the shares
entitled to vote.  Having a lower quorum threshold may allow a
minority of the shareholders to make decisions about the Company, its management
and operations.  In addition, most states in the United States require
that a notice of meeting be mailed to shareholders prior to the meeting
date.  Additionally, in the United States, a director may not be able
to vote on the approval of any transaction in which the director has an
interest.





C.           Material
Contracts





The
following are material contracts to which the Company is a party:





HEC
loan to DEAL





On May
15, 2008, DEAL issued a promissory note for up to $2,000,000 to HEC, a private
company controlled by the CEO of the Company. The promissory note is secured by
the assets, equipment, fixtures, inventory and accounts receivable of DEAL,
bears interest at the Royal Bank of Canada Prime Rate per annum, and has a loan
fee of 1% of the outstanding amount per month. The principal, interest and loan
fee were payable on demand after August 15, 2008. Upon securing the bank
line of credit in August 2008, HEC signed a subordination and postponement
agreement which restricted the principal repayment of the promissory note
subject to the bank’s prior approval and DEAL meeting certain loan covenants. As
at December 31, 2008, $1,950,000 had been advanced on the promissory note.
Repayments of $90,642 and $59,358 were made on March 5, 2009 and on April 3,
2009 respectively. As at June 22, 2009, the Company assumed from DEAL the
remaining outstanding balance of $1,800,000.





HEC
loan to the Company





On August
11, 2008, the Company borrowed $600,000 from HEC.  The loan was
secured by all assets of the Company, repayable on demand, bore interest at the
Canadian prime rate per annum, and had a loan fee of 1% of the outstanding
amount per month.  At December 31, 2008 $600,000 had been advanced to
the Company.  On March 19, 2009, a repayment of $600,000 was made and
as at December 31, 2009, no balance remained outstanding.





On
September 12, 2008, as consideration for HEC agreeing to postpone the $2,000,000
promissory note and providing the additional loan of $600,000, HEC was granted
an option to become a working interest partner with DEAL.  Upon
electing to become a working interest partner, HEC must pay DEAL an amount equal
to 10% of the actual price paid for the acquisition of the Montney (Buick Creek)
property in northeastern British Columbia.  HEC is also required to
pay its pro-rata share of the operating costs. On February 26, 2009, HEC
exercised its option and elected to become a 10% working interest partner in
DEAL’s Montney (Buick Creek) property.  The option price was
$90,642.


76




On June
22, 2009, as amended on September 30, 2009 and December 31, 2009, the Company
entered into an agreement with HEC in regard to the outstanding debt of
$1,800,000 assumed from DEAL by the Company.  Pursuant to the
agreements, $450,000 of the debt was converted into 1,363,636 units consisting
of 1,363,636 common shares and 681,818 common share purchase warrants
exercisable at a price of $0.55 for a period of 5 years.  The fair
value of the units was estimated to be $450,000. The remaining $1,350,000 was
converted into a 12% note due on January 1, 2011 and the Company was required to
pay 3% fee on the outstanding balance of the loan as at December 31,
2009.  As a result of the sale of 5% working interest in the
Drake/Woodrush area to HEC in December 2009 (effective June 1, 2009), both
parties agreed to reduce the loan balance by the purchase price of $911,722
including taxes and adjustments. In addition, the loan balance was further
reduced by a payment of $50,351.  As at December 31, 2009, a balance
of $387,927 remained outstanding.





Brownstone
loan to the Company





On June
18, 2008, a promissory note with a face value of $4,078,800 (US $4,000,000) was
issued to Brownstone. Brownstone owns more than 10% of outstanding common shares
of the Company and one of Brownstone’s directors also serves on the board of
directors of the Company. The promissory note was secured by a general security
agreement issued by the Company in favour of Brownstone, and bore interest at 5%
per annum.   The principal and interest were repayable by the
earlier of the completion of an equity and/or debt financing, and July 1,
2009.  During the year ended December 31, 2008, a repayment of
$222,948 (US$220,000) was made and at December 31, 2008 a balance of $4,604,040
(US$3,780,000) owed.





On June
22, 2009, as amended on September 30, 2009 and December 31, 2009, the Company
entered into an agreement with Brownstone in regard to the outstanding debt of
$4,604,040 (US$3,780,000). Pursuant to the agreement, $2,200,000 (US$2,000,000)
of the debt was converted into 6,666,667 units consisting of 6,666,667 common
shares and 3,333,333 common share purchase warrants exercisable at a price of
$0.55 for a period of 5 years.  The fair value of the units was
estimated to be US$2,000,000.  The remaining $2,070,140 (US$1,780,000)
of the debt was converted into a Canadian dollar denominated 12% note due on
January 1, 2011.





On June
22, 2009, the Company also issued Brownstone 2,000,000 common share purchase
warrants exercisable at $0.50 for a period of 2 years, with an option to force
the exercise of the warrants if the Company’s common shares trade at a price of
$0.80 or greater for 30 consecutive calendar days.


Purchase
and Sale Agreement between the Registrant and Pengrowth Corporation dated April
17, 2009





In April
2009, the Company’s Canadian subsidiary, DEAL, entered into a purchase and sale
agreement with Pengrowth Corporation. Under the agreement, DEAL agreed to sell
100% of its working interest in the Carson Creek area to Pengrowth for gross
proceeds of $2,100,000.





In
2009, the Company’s Canadian subsidiary, DEAL, entered into the following
purchase and sale Agreements in regard to the disposition of a total 25% working
interest in the Drake/Woodrush area for total gross proceeds of
$4,500,000:





Date
      of agreement
                        
                        Transferee
                        
                        Working
      interest %
                        
                        
                        Gross
      ProceedsJune
      10, 2009
                        
                        John
      James Robinson
                        
                        
                        3
                        %
                        
                        $
                        540,000June
      15, 2009
                        
                        C.U.
      YourOilRig Corp.
                        
                        
                        10
                        %
                        
                        $
                        1,800,000July
      8, 2009
                        
                        Woodrush
      Energy Partners LLC
                        
                        
                        6
                        %
                        
                        $
                        1,080,000July
      31, 2009
                        
                        RockBridge
      Energy Inc.
                        
                        
                        1
                        %
                        
                        $
                        180,000December
      31, 2009
                        
                        HEC
                        
                        
                        5
                        %
                        
                        $
                        900,000





Property
Purchase Agreement between the Registrant and Titan Uranium Inc. dated December
13, 2006





In
December 2006, the Company sold a 90% interest in its uranium properties,
consisting of 68 claims and 4 permits totaling 966,969 acres located in the
Athabasca Basin, Saskatchewan, Canada, and all related exploration data to Titan
Uranium Inc. (“Titan”), a public company traded on the TSX-V, under the
following terms:


77




(a)
            Titan
      issued the Company 17,500,000 fully paid and assessable common shares in
      the capital of Titan (representing a 36.47% of Titan’s issued and
      outstanding shares at closing).  Titan issued the Company
      3,000,000 transferable common share purchase warrants, entitling the
      holder to acquire up to 3,000,000 common shares in the capital of Titan at
      an exercise price of $2.00 per common share for a period of 24 months.
      These warrants expired unexercised on December 15,
  2008;





(b)
            The
      Company retained a 1% Net Smelter Return on all properties and a 10%
      working interest in each claim, carried by Titan to completed bankable
      feasibility study after which the Company may elect to participate as to
      its 10% interest or convert to an additional 1% Net Smelter
      Return.





The
Company accounted for its investment in Titan using the equity method until
February 28, 2009, at which point the Company disposed of the majority of its
shares in Titan and therefore is no longer qualified for the use of the equity
method of accounting.  The Company’s share of losses in Titan under
the equity method for the year ended December 31, 2009 was $142,196 (2008 share
of income: $3,636,710).   During the year ended December 31,
2009, the Company sold all of its investment in Titan, resulting in a loss of
$274,187 (2008: $8,846).





During
the year ended December 31, 2008, the Company recognized an impairment loss of
$12,990,343 and wrote down its investment in Titan to $2,721,875, the fair value
as at December 31, 2008.





Participation
Agreement between the Registrant, Retamco Operating, Inc. and Brownstone
Ventures (US) dated July 14, 2006





In July
2006, the Company’s U.S. subsidiary, Dejour USA, entered into a participation
agreement (the "2006 Retamco Agreement") with Retamco Operating, Inc.
(“Retamco”), a U.S. privately owned oil and gas corporation, and Brownstone
Ventures (US) Inc. (“Brownstone”), a subsidiary of Brownstone Ventures Inc., a
Canadian company listed on the TSX-V.  Under the agreement, Dejour USA
and Brownstone agreed to participate in the ownership of specified oil and gas
leasehold interests and related exploration and development of those leases
located in the Piceance, Uinta and Paradox Basins of western Colorado and
eastern Utah.





Farmout
Agreement between the Registrant, Laramie Energy II, LLC, and Brownstone
Ventures (US) Inc. dated November 14, 2008





On
November 14, 2008, a joint venture agreement was signed with Laramie Energy II
LLC (“Laramie”), a privately funded exploration and production company with
corporate offices in Denver, Colorado. The joint venture involves approximately
22,000 gross acres (15,700 net to Dejour USA) in an area at the northwest edge
of the Piceance Basin. Under the terms of the agreement, Laramie will begin a
continuous drilling program on the Dejour USA leases in the second half of 2009
and will have the right to earn up to 55% of the acreage covered under the
agreement by completing at least four commercially productive wells over the
next three to four years.





Purchase
and Sale Agreement between the Registrant, Retamco Operating, Inc., and
Brownstone Ventures (US) Inc.





In June
2008, Dejour USA entered into a further purchase and sale agreement with Retamco
resulting in Dejour USA acquiring an additional 64,000 net acres involving the
same properties in which it purchased an interest in the 2006 Retamco
Agreement.  Additionally, as a part of this latter agreement Dejour
USA sold its 25% working interests in two wells in the North Barcus Creek
Prospect (located in Piceance Basin, Colorado) and roughly 3,682 net acres in
the Rio Blanco Deep Prospect (located in northern Colorado).





D.           Exchange
Controls





There are
no governmental laws, decrees, or regulations in Canada relating to restrictions
on the export or import of capital, or affecting the remittance of interest,
dividends, or other payments to non-resident holders of the Company’s Common
Stock.  Any remittances of dividends to United States residents are,
however, subject to a 15% withholding tax (10% if the shareholder is a
corporation owning at least 10% of the outstanding Common Stock of the Company)
pursuant to Article X of the reciprocal tax treaty between Canada and the United
States.


78




Except as
provided in the Investment Canada Act (the “Act”), there are no limitations
specific to the rights of non-Canadians to hold or vote the Common Stock of the
Company under the laws of Canada or the Province of British Columbia or in the
charter documents of the Company.





Management
of the Company considers that the following general summary is materially
complete and fairly describes those provisions of the Act pertinent to an
investment by an American investor in the Company.





The Act
requires a non-Canadian making an investment which would result in the
acquisition of control of a Canadian business, the gross value of the assets of
which exceed certain threshold levels or the business activity of which is
related to Canada’s cultural heritage or national identity, to either notify, or
file an application for review with, Investment Canada, the federal agency
created by the Investment Canada Act.





The
notification procedure involves a brief statement of information about the
investment of a prescribed form which is required to be filed with Investment
Canada by the investor at any time up to 30 days following implementation of the
investment.  It is intended that investments requiring only
notification will proceed without government intervention unless the investment
is in a specific type of business activity related to Canada’s cultural heritage
and national identity.





If an
investment is reviewable under the Act, an application for review in the form
prescribed is normally required to be filed with Investment Canada prior to the
investment taking place and the investment may not be implemented until the
review has been completed and the Minister responsible for Investment Canada is
satisfied that the investment is likely to be of net benefit to
Canada.  If the Minister is not satisfied that the investment is
likely to be of net benefit to Canada, the non-Canadian must not implement the
investment or, if the investment has been implemented, may be required to divest
himself of control of the business that is the subject of the
investment.





The
following investments by non-Canadians are subject to notification under the
Act:





(a)
            an
      investment to establish a new Canadian business;
  and





(b)
            an
      investment to acquire control of a Canadian business that is not
      reviewable pursuant to the Act.





An
investment is reviewable under the Act if there is an acquisition by a
non-Canadian of a Canadian business and the asset value of the Canadian business
being acquired equals or exceeds the following thresholds:





(a)
            for
      non-WTO Investors, the threshold is $5,000,000 for a direct acquisition
      and over $50,000,000 for an indirect acquisition.  The
      $5,000,000 threshold will apply however for an indirect acquisition of the
      asset value of the Canadian business being acquired exceeds 50% of the
      asset value of the global
transaction;





(b)
            except
      as specified in paragraph (c) below, a threshold is calculated for
      reviewable direct acquisitions by or from WTO Investors.  The
      threshold for 2005 is $250,000,000.  Pursuant to Canada’s
      international commitments, indirect acquisitions by or from WTO Investors
      are not reviewable; and





I
            the
      limits set out in paragraph (a) apply to all investors for acquisitions of
      a Canadian business that:





(i)
            engages
      in the production of uranium and owns an interest in a producing uranium
      property in Canada;


(ii)
            provides
      any financial services;


(iii)
            provides
      any transportation service; or


(iv)
            is
      a cultural business.





WTO
Investor as defined in the Act means:





(a)
            an
      individual, other than a Canadian, who is a national of a WTO Member or
      who has the right of permanent residence in relation to that WTO
      Member;




(b)
              a
      government of a WTO Member, whether federal, state or local, or an agency
      thereof;




79




an
      entity that is not a Canadian-controlled entity, and that is a WTO
      investor-controlled entity, as determined in accordance with the
      Act;





(d)
            a
      corporation or limited partnership:





(i)
            that
      is not a Canadian-controlled entity, as determined pursuant to the
      Act;


(ii)
            that
      is not a WTO investor within the meaning of the
  Act;


(iii)
            of
      which less than a majority of its voting interests are owned by WTO
      investors;


(iv)
            that
      is not controlled in fact through the ownership of its voting interests;
      and


(v)
            of
      which two thirds of the members of its board of directors, or of which two
      thirds of its general partners, as the case may be, are any combination of
      Canadians and WTO investors;





(e)
            a
      trust:





(i)
            that
      is not a Canadian-controlled entity, as determined pursuant to the
      Act;


(ii)
            that
      is not a WTO investor within the meaning of the
  Act;


(iii)
            that
      is not controlled in fact through the ownership of its voting interests,
      and


(iv)
            of
      which two thirds of its trustees are any combination of Canadians and WTO
      investors, or





(f)
            any
      other form of business organization specified by the regulations that is
      controlled by a WTO investor.





WTO
Member as defined in the Act means a member of the World Trade
Organization.





Generally
speaking, an acquisition is direct if it involves the acquisition of control of
the Canadian business or of its Canadian parent or grandparent and an
acquisition is indirect if it involves the acquisition of control of a
non-Canadian parent or grandparent of an entity carrying on the Canadian
business.  Control may be acquired through the acquisition of actual
or de jure voting control of a Canadian corporation or through the acquisition
of substantially all of the assets of the Canadian business.  No
change of voting control will be deemed to have occurred if less than one-third
of the voting control of a Canadian corporation is acquired by an
investor.





The Act
specifically exempts certain transactions from either notification or
review.  Included among the category of transactions is the
acquisition of voting shares or other voting interests by any person in the
ordinary course of that person’s business as a trader or dealer in
securities.





E.           Taxation





Canadian
Federal Income Tax Considerations





The
following is a brief summary of some of the principal Canadian federal income
tax consequences to a holder of common shares of the Company (a “U.S. Holder”)
who deals at arm’s length with the Company, holds the shares as capital property
and who, for the purposes of the Income Tax Act (Canada) (the “Act”) and the
Canada – United States Income Tax Convention (the “Treaty”), is at all relevant
times resident in the United States, is not and is not deemed to be resident in
Canada and does not use or hold and is not deemed to use or hold the shares in
carrying on a business in Canada.  Special rules, which are not discussed
below, may apply to a U.S. Holder that is an insurer that carries on business in
Canada and elsewhere.





Under the
Act and the Treaty, a U.S. Holder of common shares will generally be subject to
a 15% withholding tax on dividends paid or credited or deemed by the Act to have
been paid or credited on such shares.  The withholding tax rate is 5% where
the U.S. Holder is a corporation that beneficially owns at least 10% of the
voting shares of the Company and the dividends may be exempt from such
withholding in the case of some U.S. Holders such as qualifying pension funds
and charities.


80




In
general, a U.S. Holder will not be subject to Canadian income tax on capital
gains arising on the disposition of shares of the Company unless (i) at any time
in the five-year period immediately preceding the disposition, 25% or more of
the shares of any class or series of the capital stock of the Company was owned
by (or was under option of or subject to an interest of) the U.S. holder or
persons with whom the U.S. holder did not deal at arm’s length, and (ii) the
value of the common shares of the Company at the time of the disposition derives
principally from real property (as defined in the Treaty) situated in Canada.
For this purpose, the Treaty defines real property situated in Canada to include
rights to explore for or exploit mineral deposits and other natural resources
situated in Canada, rights to amounts computed by reference to the amount or
value of production from such resources, certain other rights in respect of
natural resources situated in Canada and shares of a corporation the value of
whose shares is derived principally from real property situated in
Canada.





The US
Internal Revenue Code provides special anti-deferral rules regarding certain
distributions received by US persons with respect to, and sales and other
dispositions (including pledges) of stock of, a passive foreign investment
company. A foreign corporation, such as the Company, will be treated as a
passive foreign investment company if 75% or more of its gross income is passive
income for a taxable year or if the average percentage of its assets (by value)
that produce, or are held for the production of, passive income is at least 50%
for a taxable year. The Company believes that it was not a passive foreign
investment company for the taxable year ended 12/31/2003 and, furthermore,
expects to conduct its affairs in such a manner so that it will not meet the
criteria to be considered passive foreign investment company in the foreseeable
future.





Dividends





A Holder
will be subject to Canadian withholding tax (“Part XIII Tax”) equal to 25%, or
such lower rate as may be available under an applicable tax treaty, of the gross
amount of any dividend paid or deemed to be paid on common shares.  Under
the Canada-U.S. Income Tax Convention (1980) as amended by the Protocols signed
on 6/14/1983, 3/28/1984, 3/17/1995, and 7/29/1997 (the “Treaty”), the rate of
Part XIII Tax applicable to a dividend on common shares paid to a Holder who is
a resident of the United States and who is the beneficial owner of the dividend,
is 5%.  If the Holder is a company that owns at least 10% of the voting
stock of the Company paying the dividend, and, in all other cases, the tax rate
is 15% of the gross amount of the dividend.  The Company will be required
to withhold the applicable amount of Part XIII Tax from each dividend so paid
and remit the withheld amount directly to the Receiver General for Canada for
the account of the Holder.





Disposition
of Common Shares





A Holder
who disposes of a common share, including by deemed disposition on death, will
not normally be subject to Canadian tax on any capital gain (or capital loss)
thereby realized unless the common share constituted “taxable Canadian property”
as defined by the Tax
Act.  Generally, a common share of a public corporation will not
constitute taxable Canadian property of a Holder if the share is listed on a
prescribed stock exchange unless the Holder or persons with whom the Holder did
not deal at arm’s length alone or together held or held options to acquire, at
any time within the five years preceding the disposition, 25% or more of the
shares of any class of the capital stock of the Company.  The Canadian
Venture Exchange is a prescribed stock exchange under the Tax Act.  A Holder who
is a resident of the United States and realizes a capital gain on a disposition
of a common share that was taxable Canadian property will nevertheless, by
virtue of the Treaty, generally be exempt from Canadian tax thereon unless (a)
more than 50% of the value of the common shares is derived from, or from an
interest in, Canadian real estate, including Canadian mineral resource
properties, (b) the common share formed part of the business property of a
permanent establishment that the Holder has or had in Canada within the 12 month
period preceding the disposition, or (c) the Holder is an individual who (i) was
a resident of Canada at any time during the 10 years immediately preceding the
disposition, and for a total of 120 months during any period of 20 consecutive
years, preceding the disposition, and (ii) owned the common share when he ceased
to be resident in Canada.





A Holder
who is subject to Canadian tax in respect of a capital gain realized on a
disposition of a common share must include three quarters of the capital gain
(taxable capital gain) in computing the Holder’s taxable income earned in
Canada.  The Holder may, subject to certain limitations, deduct
three-quarters of any capital loss (allowable capital loss) arising on a
disposition of taxable Canadian property from taxable capital gains realized in
the year of disposition in respect to taxable Canadian property and, to the
extent not so deductible, from such taxable capital gains realized in any of the
three preceding years or any subsequent year.


81




CERTAIN
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS





The
following is a general summary of certain material U.S. federal income tax
considerations applicable to a U.S. Holder (as defined below) arising from and
relating to the acquisition, ownership, and disposition of common shares of the
Company.





This
summary is for general information purposes only and does not purport to be a
complete analysis or listing of all potential U.S. federal income tax
considerations that may apply to a U.S. Holder arising from and relating to the
acquisition, ownership, and disposition of common shares.  In
addition, this summary does not take into account the individual facts and
circumstances of any particular U.S. Holder that may affect the U.S. federal
income tax consequences to such U.S. Holder, including specific tax consequences
to a U.S. Holder under an applicable tax treaty.  Accordingly, this
summary is not intended to be, and should not be construed as, legal or U.S.
federal income tax advice with respect to any U.S. Holder.  Each U.S.
Holder should consult its own tax advisor regarding the U.S. federal, U.S.
federal alternative minimum, U.S. federal estate and gift, U.S. state and local,
and foreign tax consequences relating to the acquisition, ownership and
disposition of common shares.





No legal
opinion from U.S. legal counsel or ruling from the Internal Revenue Service (the
“IRS”) has been requested, or will be obtained, regarding the U.S. federal
income tax consequences of the acquisition, ownership, and disposition of common
shares.  This summary is not binding on the IRS, and the IRS is not
precluded from taking a position that is different from, and contrary to, the
positions taken in this summary.  In addition, because the authorities
on which this summary is based are subject to various interpretations, the IRS
and the U.S. courts could disagree with one or more of the positions taken in
this summary.





Scope
of this Summary





Authorities





This
summary is based on the Internal Revenue Code of 1986, as amended (the “Code”),
Treasury Regulations (whether final, temporary, or proposed), published rulings
of the IRS, published administrative positions of the IRS, U.S. court decisions,
the Convention Between Canada and the United States of America with Respect to
Taxes on Income and on Capital, signed September 26, 1980, as amended (the
“Treaty”), and U.S. court decisions that are applicable and, in each case, as in
effect and available, as of the date of this document.  Any of the
authorities on which this summary is based could be changed in a material and
adverse manner at any time, and any such change could be applied on a
retroactive or prospective basis which could affect the U.S. federal income tax
considerations described in this summary.  This summary does not
discuss the potential effects, whether adverse or beneficial, of any proposed
legislation that, if enacted, could be applied on a retroactive or prospective
basis.





U.S.
Holders





For
purposes of this summary, the term "U.S. Holder" means a beneficial owner of
common shares that is for U.S. federal income tax purposes:





·
            an
      individual who is a citizen or resident of the
  U.S.;




·
            a
      corporation (or other entity taxable as a corporation for U.S. federal
      income tax purposes) organized under the laws of the U.S., any state
      thereof or the District of
Columbia;




·
            an
      estate whose income is subject to U.S. federal income taxation regardless
      of its source; or




·
            a
      trust that (a) is subject to the primary supervision of a court within the
      U.S. and the control of one or more U.S. persons for all substantial
      decisions or (b) has a valid election in effect under applicable Treasury
      regulations to be treated as a U.S.
person.


82




Non-U.S.
Holders





For
purposes of this summary, a “non-U.S. Holder” is a beneficial owner of common
shares that is not a U.S. Holder.  This summary does not address the
U.S. federal income tax consequences to non-U.S. Holders arising from and
relating to the acquisition, ownership, and disposition of common
shares.  Accordingly, a non-U.S. Holder should consult its own tax
advisor regarding the U.S. federal, U.S. federal alternative minimum, U.S.
federal estate and gift, U.S. state and local, and foreign tax consequences
(including the potential application of and operation of any income tax
treaties) relating to the acquisition, ownership, and disposition of common
shares.





U.S. Holders Subject to
Special U.S. Federal Income Tax Rules Not Addressed





This
summary does not address the U.S. federal income tax considerations applicable
to U.S. Holders that are subject to special provisions under the Code, including
the following U.S. Holders:  (a) U.S. Holders that are tax-exempt
organizations, qualified retirement plans, individual retirement accounts, or
other tax-deferred accounts; (b) U.S. Holders that are financial institutions,
underwriters, insurance companies, real estate investment trusts, or regulated
investment companies; (c) U.S. Holders that are dealers in securities or
currencies or U.S. Holders that are traders in securities that elect to apply a
mark-to-market accounting method; (d) U.S. Holders that have a “functional
currency” other than the U.S. dollar; (e) U.S. Holders that own common shares as
part of a straddle, hedging transaction, conversion transaction, constructive
sale, or other arrangement involving more than one position; (f) U.S. Holders
that acquired common shares in connection with the exercise of employee stock
options or otherwise as compensation for services; (g) U.S. Holders that hold
common shares other than as a capital asset within the meaning of Section 1221
of the Code (generally, property held for investment purposes); (h) partnerships
and other pass-through entities (and investors in such partnerships and
entities); or (i) U.S. Holders that own or have owned  (directly,
indirectly, or by attribution) 10% or more of the total combined voting power of
the outstanding shares of the Company.  This summary also does not
address the U.S. federal income tax considerations applicable to U.S. Holders
who are: (a) U.S. expatriates or former long-term residents of the U.S. subject
to Section 877 of the Code; (b) persons that have been, are, or will be a
resident or deemed to be a resident in Canada for purposes of the Act; (c)
persons that use or hold, will use or hold, or that are or will be deemed to use
or hold common shares in connection with carrying on a business in Canada; (d)
persons whose common shares constitute “taxable Canadian property” under the
Act; or (e) persons that have a permanent establishment in Canada for the
purposes of the Treaty.  U.S. Holders that are subject to special
provisions under the Code, including U.S. Holders described immediately above,
should consult their own tax advisor regarding the U.S. federal, U.S. federal
alternative minimum, U.S. federal estate and gift, U.S. state and local, and
foreign tax consequences relating to the acquisition, ownership and disposition
of common shares.





If an
entity that is classified as a partnership (or pass-through entity) for U.S.
federal income tax purposes holds common shares, the U.S. federal income tax
consequences to such partnership and the partners of such partnership generally
will depend on the activities of the partnership and the status of such
partners.  Partners of entities that are classified as partnerships
for U.S. federal income tax purposes should consult their own tax advisor
regarding the U.S. federal income tax consequences arising from and relating to
the acquisition, ownership, and disposition of common shares.





Tax Consequences Not
Addressed





This
summary does not address the U.S. federal, U.S. federal alternative minimum,
U.S. federal estate and gift, U.S. state and local, and foreign tax consequences
to U.S. Holders of the acquisition, ownership, and disposition of common
shares.  Each U.S. Holder should consult its own tax advisor regarding
the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and
gift, U.S. state and local, and foreign tax consequences of the acquisition,
ownership, and disposition of common shares.





U.S.
Federal Income Tax Consequences of the Acquisition, Ownership, and Disposition
of Common Shares




If the
Company is not considered a “passive foreign investment company” (a “PFIC”, as
defined below) at any time during a U.S. Holder’s holding period, the following
sections will generally describe the U.S. federal income tax consequences to
U.S. Holders of the acquisition, ownership, and disposition of the Company’s
common shares.


83




Distributions on Common
Shares




A U.S.
Holder that receives a distribution, including a constructive distribution, with
respect to a common share will be required to include the amount of such
distribution in gross income as a dividend (without reduction for any Canadian
income tax withheld from such distribution) to the extent of the current or
accumulated “earnings and profits” of the Company, as computed for U.S. federal
income tax purposes.  A dividend generally will be taxed to a U.S.
Holder at ordinary income tax rates.  To the extent that a
distribution exceeds the current and accumulated “earnings and profits” of the
Company, such distribution will be treated first as a tax-free return of capital
to the extent of a U.S. Holder’s tax basis in the common shares and thereafter
as gain from the sale or exchange of such common shares (see “Sale or Other
Taxable Disposition of Common Shares” below).  However, the Company
does not intend to maintain the calculations of earnings and profits in
accordance with U.S. federal income tax principles, and each U.S. Holder should
therefore assume that any distribution by the Company with respect to the common
shares will constitute ordinary dividend income.  Dividends received
on common shares generally will not be eligible for the “dividends received
deduction.”




For
taxable years beginning before January 1, 2011, a dividend paid by the Company
generally will be taxed at the preferential tax rates applicable to long-term
capital gains if (a) the Company is a “qualified foreign corporation” (as
defined below), (b) the U.S. Holder receiving such dividend is an
individual, estate, or trust, and (c) certain holding period requirements
are met.  The Company generally will be a “qualified foreign
corporation” under Section 1(h)(11) of the Code (a “QFC”) if (a) the
Company is eligible for the benefits of the Treaty, or (b) common shares of
the Company are readily tradable on an established securities market in the
U.S.  However, even if the Company satisfies one or more of such
requirements, the Company will not be treated as a QFC if the Company is a PFIC
for the taxable year during which the Company pays a dividend or for the
preceding taxable year.  (See the section below under the heading
"Passive Foreign Investment Company Rules").




If the
Company is a QFC, but a U.S. Holder otherwise fails to qualify for the
preferential tax rate applicable to dividends discussed above, a dividend paid
by the Company to a U.S. Holder, including a U.S. Holder that is an individual,
estate, or trust, generally will be taxed at ordinary income tax rates (and not
at the preferential tax rates applicable to long-term capital
gains).  The dividend rules are complex, and each U.S. Holder should
consult its own tax advisor regarding the dividend rules.




Sale or Other Taxable
Disposition of Common Shares




A U.S.
Holder will recognize gain or loss on the sale or other taxable disposition of
common shares in an amount equal to the difference, if any, between (a) the
amount of cash plus the fair market value of any property received and
(b) such U.S. Holder’s tax basis in such common shares sold or otherwise
disposed of.  Subject to the PFIC rules discussed below, any such gain
or loss generally will be capital gain or loss, which will be long-term capital
gain or loss if, at the time of the sale or other disposition, such common
shares are held for more than one year.




Gain or
loss recognized by a U.S. Holder on the sale or other taxable disposition of
common shares generally will be treated as “U.S. source” for purposes of
applying the U.S. foreign tax credit rules unless the gain is subject to tax in
Canada and is sourced as “foreign source” under the Treaty and such U.S. Holder
elects to treat such gain or loss as “foreign source.”




Preferential
tax rates apply to long-term capital gains of a U.S. Holder that is an
individual, estate, or trust.  There are currently no preferential tax
rates for long-term capital gains of a U.S. Holder that is a
corporation.  Deductions for capital losses are subject to significant
limitations under the Code.




Recent Legislative
Developments





Newly
enacted legislation requires certain U.S. Holders who are individuals, estates
or trusts to pay up to an additional 3.8% tax on, among other things, dividends
and capital gains for taxable years beginning after December 31,
2012.  In addition, for taxable years beginning after March 18, 2010,
new legislation requires certain U.S. Holders who are individuals that hold
certain foreign financial assets (which may include the common shares) to report
information relating to such assets, subject to certain
exceptions.  U.S. Holders should consult their tax advisors regarding
the effect, if any, of this legislation on their ownership and disposition of
common shares.


84




Receipt of Foreign
Currency




The
amount of any distribution paid in foreign currency to a U.S. Holder in
connection with the ownership of common shares, or on the sale, exchange or
other taxable disposition of common shares, generally will be equal to the U.S.
dollar value of such foreign currency based on the exchange rate applicable on
the date of receipt (regardless of whether such foreign currency is converted
into U.S. dollars at that time).  A U.S. Holder that receives foreign
currency and converts such foreign currency into U.S. dollars at a conversion
rate other than the rate in effect on the date of receipt may have a foreign
currency exchange gain or loss, which generally would be treated as U.S. source
ordinary income or loss.  If the foreign currency received is not
converted into U.S. dollars on the date of receipt, a U.S. Holder will have a
basis in the foreign currency equal to its U.S. dollar value on the date of
receipt.  Any U.S. Holder who receives payment in foreign currency and
engages in a subsequent conversion or other disposition of the foreign currency
may have a foreign currency exchange gain or loss that would be treated as
ordinary income or loss, and generally will be U.S. source income or loss for
foreign tax credit purposes.  Each U.S. Holder should consult its own
U.S. tax advisor regarding the U.S. federal income tax consequences of
receiving, owning, and disposing of foreign currency.




Foreign Tax
Credit




A U.S.
Holder who pays (whether directly or through withholding) Canadian income tax
with respect to dividends paid on common shares generally will be entitled, at
the election of such U.S. Holder, to receive either a deduction or a credit for
such Canadian income tax paid.  Generally, a credit will reduce a U.S.
Holder’s U.S. federal income tax liability on a dollar-for-dollar basis, whereas
a deduction will reduce a U.S. Holder’s income subject to U.S. federal income
tax.  This election is made on a year-by-year basis and applies to all
foreign taxes paid (whether directly or through withholding) by a U.S. Holder
during a year.




Complex
limitations apply to the foreign tax credit, including the general limitation
that the credit cannot exceed the proportionate share of a U.S. Holder’s U.S.
federal income tax liability that such U.S. Holder’s “foreign source” taxable
income bears to such U.S. Holder’s worldwide taxable income.  In
applying this limitation, a U.S. Holder’s various items of income and deduction
must be classified, under complex rules, as either “foreign source” or “U.S.
source.”  Generally, dividends paid by a foreign corporation should be
treated as foreign source for this purpose, and gains recognized on the sale of
stock of a foreign corporation by a U.S. Holder should be treated as U.S. source
for this purpose, except as otherwise provided in an applicable income tax
treaty, and if an election is properly made under the Code.  However,
the amount of a distribution with respect to the common shares that is treated
as a “dividend” may be lower for U.S. federal income tax purposes than it is for
Canadian federal income tax purposes, resulting in a reduced foreign tax credit
allowance to a U.S. Holder.  In addition, this limitation is
calculated separately with respect to specific categories of
income.  Dividends paid by the Company generally will constitute
“foreign source” income and generally will be categorized as “passive
income.”




The
foreign tax credit rules are complex, and each U.S. Holder should consult its
own tax advisor regarding the foreign tax credit rules.




Information Reporting;
Backup Withholding Tax For Certain Payments




Under
U.S. federal income tax law and regulations, certain categories of U.S. Holders
must file information returns with respect to their investment in, or
involvement in, a foreign corporation.  For example, recently enacted
legislation generally imposes new U.S. return disclosure obligations (and
related penalties) on U.S. Holders that hold certain specified foreign financial
assets in excess of $50,000.  The definition of specified foreign
financial assets includes not only financial accounts maintained in foreign
financial institutions, but also, unless held in accounts maintained by a
financial institution, any stock or security issued by a non-U.S. person, any
financial instrument or contract held for investment that has an issuer or
counterparty other than a U.S. person and any interest in a foreign
entity.  U. S. Holders may be subject to these reporting requirements
unless their common shares are held in an account at a domestic financial
institution.  Penalties for failure to file certain of these
information returns are substantial.  U.S. Holders of common shares
should consult with their own tax advisors regarding the requirements of filing
information returns, and if applicable, any “mark-to-market election” or “QEF
election” (each as defined below).


85




Payments
made within the U.S., or by a U.S. payor or U.S. middleman, of dividends on, and
proceeds arising from the sale or other taxable disposition of, common shares
generally will be subject to information reporting and backup withholding tax,
at the rate of 28% (and increasing to 31% for payments made after December 31,
2010), if a U.S. Holder (a) fails to furnish such U.S. Holder’s correct
U.S. taxpayer identification number (generally on Form W-9), (b) furnishes
an incorrect U.S. taxpayer identification number, (c) is notified by the
IRS that such U.S. Holder has previously failed to properly report items subject
to backup withholding tax, or (d) fails to certify, under penalty of
perjury, that such U.S. Holder has furnished its correct U.S. taxpayer
identification number and that the IRS has not notified such U.S. Holder that it
is subject to backup withholding tax.  However, certain exempt
persons, such as corporations, generally are excluded from these information
reporting and backup withholding tax rules.  Any amounts withheld
under the U.S. backup withholding tax rules will be allowed as a credit against
a U.S. Holder’s U.S. federal income tax liability, if any, or will be refunded,
if such U.S. Holder furnishes required information to the IRS in a timely
manner.  Each U.S. Holder should consult its own tax advisor regarding
the information reporting and backup withholding rules.




Passive
Foreign Investment Company Rules




If the
Company were to constitute a PFIC (as defined below) for any year during a U.S.
Holder’s holding period, then certain different and potentially adverse tax
consequences would apply to such U.S. Holder’s acquisition, ownership and
disposition of common shares.





The
Company generally will be a PFIC under Section 1297 of the Code if, for a tax
year, (a) 75% or more of the gross income of the Company for such tax year is
passive income (the “income test”) or (b) 50% or more of the value of its
average quarterly assets held by the Company either produce passive income or
are held for the production of passive income, based on the fair market value of
such assets (the “asset test”).  “Gross income” generally means all
revenues less the cost of goods sold, and “passive income” includes, for
example, dividends, interest, certain rents and royalties, certain gains from
the sale of stock and securities, and certain gains from commodities
transactions.  Active business gains arising from the sale of
commodities generally are excluded from passive income if substantially all of a
foreign corporation’s commodities are (a) stock in trade of such foreign
corporation or other property of a kind which would properly be included in
inventory of such foreign corporation, or property held by such foreign
corporation primarily for sale to customers in the ordinary course of business,
(b) property used in the trade or business of such foreign corporation that
would be subject to the allowance for depreciation under Section 167 of the
Code, or (c) supplies of a type regularly used or consumed by such foreign
corporation in the ordinary course of its trade or business.





In
addition, for purposes of the PFIC income test and asset test described above,
if the Company owns, directly or indirectly, 25% or more of the total value of
the outstanding shares of another foreign corporation, the Company will be
treated as if it (a) held a proportionate share of the assets of such other
foreign corporation and (b) received directly a proportionate share of the
income of such other foreign corporation.  In addition, for purposes
of the PFIC income test and asset test described above, “passive income” does
not include any interest, dividends, rents, or royalties that are received or
accrued by the Company from a “related person” (as defined in Section 954(d)(3)
of the Code), to the extent such items are properly allocable to the income of
such related person that is not passive income.





Under
certain attribution rules, if the Company is a PFIC, U.S. Holders will be deemed
to own their proportionate share of any subsidiary of the Company which is also
a PFIC (a ‘‘Subsidiary PFIC’’), and will be subject to U.S. federal income tax
on (i) a distribution on the shares of a Subsidiary PFIC or (ii) a disposition
of shares of a Subsidiary PFIC, both as if the holder directly held the shares
of such Subsidiary PFIC.





The
Company does not believe that it was a PFIC during the tax year ending December
31, 2009, and based on current business plans and financial expectations, the
Company does not believe that it will be a PFIC for the current tax
year.  However, PFIC classification is fundamentally factual in
nature, generally cannot be determined until the close of the tax year in
question, and is determined annually.  Additionally, the analysis
depends, in part, on the application of complex U.S. federal income tax rules,
which are subject to differing interpretations.  Consequently, there
can be no assurance that the Company has never been and will not become a PFIC
for any tax year during which U.S. Holders hold common shares.


86




If the
Company were a PFIC in any tax year and a U.S. Holder held common shares, such
holder generally would be subject to special rules with respect to “excess
distributions” made by the Company on the common shares and with respect to gain
from the disposition of common shares. An “excess distribution” generally is
defined as the excess of distributions with respect to the common shares
received by a U.S Holder in any tax year over 125% of the average annual
distributions such U.S. Holder has received from the Company during the shorter
of the three preceding tax years, or such U.S. Holder’s holding period for the
common shares. Generally, a U.S. Holder would be required to allocate any excess
distribution or gain from the disposition of the common shares ratably over its
holding period for the common shares. Such amounts allocated to the year of the
disposition or excess distribution would be taxed as ordinary income, and
amounts allocated to prior tax years would be taxed as ordinary income at the
highest tax rate in effect for each such year and an interest charge at a rate
applicable to underpayments of tax would apply.




While
there are U.S. federal income tax elections that sometimes can be made to
mitigate these adverse tax consequences (including, without limitation, the “QEF
Election” and the “Mark-to-Market Election”), such elections are available in
limited circumstances and must be made in a timely manner.  U.S.
Holders should be aware that, for each tax year, if any, that the Company is a
PFIC, the Company can provide no assurances that it will satisfy the record
keeping requirements of a PFIC, or that it will make available to U.S. Holders
the information such U.S. Holders require to make a QEF Election under Section
1295 of the Code with respect of the Company or any Subsidiary
PFIC.  U.S. Holders are urged to consult their own tax advisers
regarding the potential application of the PFIC rules to the ownership and
disposition of common shares, and the availability of certain U.S. tax elections
under the PFIC rules.





F.           Dividends
and Paying Agents





Not
Applicable.





G.          Statements
by Experts





Not
Applicable.





H.          Documents
on Display





We are
subject to the informational requirements of the Exchange Act and file reports
and other information with the SEC. You may read and copy any of our reports and
other information at, and obtain copies upon payment of prescribed fees from,
the Public Reference Room maintained by the SEC at 100 F Street, N.E.,
Washington, D.C. 20549. In addition, the SEC maintains a Website that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC at
http://www.sec.gov. The public may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330.





We are
required to file reports and other information with the securities commissions
in Canada. You are invited to read and copy any reports, statements or other
information, other than confidential filings, that we file with the provincial
securities commissions. These filings are also electronically available from the
Canadian System for Electronic Document Analysis and Retrieval (“SEDAR”)
(http://www.sedar.com), the Canadian equivalent of the SEC’s electronic document
gathering and retrieval system.





We
“incorporate by reference” information that we file with the SEC, which means
that we can disclose important information to you by referring you to those
documents. The information incorporated by reference is an important part of
this Form 20-F and more recent information automatically updates and
supersedes more dated information contained or incorporated by reference in this
Form 20-F.





As a
foreign private issuer, we are exempt from the rules under the Exchange Act
prescribing the furnishing and content of proxy statements to
shareholders.





We will
provide without charge to each person, including any beneficial owner, to whom a
copy of this annual report has been delivered, on the written or oral request of
such person, a copy of any or all documents referred to above which have been or
may be incorporated by reference in this annual report (not including
exhibits to such incorporated information that are not specifically incorporated
by reference into such information). Requests for such copies should be directed
to us at the following address: 598 – 999 Canada Place, Vancouver, British
Columbia, Canada V6C 3E1, Telephone: (604) 638-5050, Facsimile: (604)
638-5051.


87




I.           Subsidiary
Information





Not
applicable.





ITEM
11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





The
Company is engaged primarily in mineral and oil and gas exploration and
production and manages related industry risk issues directly.  The
Company may be at risk for environmental issues and fluctuations in commodity
pricing.  Management is not aware of and does not anticipate any
significant environmental remediation costs or liabilities in respect of its
current operations.





The
Company’s functional currency is the Canadian dollar. The Company operates in
foreign jurisdictions, giving rise to significant exposure to market risks from
changes in foreign currency rates.  The financial risk is the risk to
the Company’s operations that arises from fluctuations in foreign exchange rates
and the degree of volatility of these rates.  Currently, the Company
does not use derivative instruments to reduce its exposure to foreign currency
risk.





The
Company also has exposure to a number of risks from its use of financial
instruments including: credit risk, liquidity risk, and market
risk.  This note presents information about the Company’s exposure to
each of these risks and the Company’s objectives, policies and processes for
measuring and managing risk, and the Company’s management of
capital.





The Board
of Directors has overall responsibility for the establishment and oversight of
the Company’s risk management framework.  The Board has implemented
and monitors compliance with risk management policies.  The Company’s
risk management policies are established to identify and analyze the risks faced
by the Company, to set appropriate risk limits and controls, and to monitor
risks and adherence to market conditions and the Company’s
activities.





Market
Risk





Market
risk is the risk that changes in market prices, such as foreign exchange rates,
commodity prices, and interest rates will affect the Company’s net earnings or
the value of financial instruments.  The objective of market risk
management is to manage and control market risk exposures within acceptable
limits, while maximizing returns.  The Company utilizes financial
derivatives to manage certain market risks.  All such transactions are
conducted in accordance with the risk management policy that has been approved
by the Board of Directors.





Foreign
Currency Exchange Risk





See “Item
5. Operating and Financial Review and Prospects – A. Operating Results – Foreign
Currenct Risks” for disclosure on the Company’s foreign currency exchange
risk.





Interest
Rate Risk





Interest
rate risk is the risk that future cash flows will fluctuate as a result of
changes in market interest rates.  The Company is exposed to interest
rate fluctuations on its credit facility which bears a floating rate of
interest.  The Company had no interest rate swaps or financial
contracts in place at or during the year ended December 31, 2009.




88




Commodity
Price Risk


Commodity
price risk is the risk that the fair value of financial instruments or future
cash flows will fluctuate as a result of changes in commodity
prices.  Commodity prices for oil and natural gas are impacted by
world economic events that dictate the levels of supply and
demand.  The Company has attempted to mitigate commodity price risk
through the use of financial derivative sales contracts.  As at
December 31, 2009, the Company had outstanding a natural gas derivatives
contract for 600 gigajoules (“GJ”) per day for the period from November 1, 2009
to April 30, 2010. This contract consisted of a CAD$4.47 per GJ forward sale
agreement.  As at December 31, 2009, the Company also had outstanding
a crude oil derivatives contract for 100 barrels (“bbl”) per day for the period
from September 1, 2009 to April 30, 2010. This contract consisted of a CAD$81.60
per bbl forward sale agreement. As at December 31, 2009, unrealized losses of
$99,894 relating to these two contracts was recorded in accumulated other
comprehensive income.





ITEM
12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY
SECURITIES





A.-C.





Not
applicable.





D.   American
Depositary Receipts





The
Company does not have securities registered as American Depositary
Receipts.


89


PART
II





ITEM
13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES





Not
applicable.





ITEM
14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE
OF PROCEEDS





A.
– D.





None.





E.           Use
of Proceeds





NotApplicable.





ITEM
15.   CONTROLS AND PROCEDURES





Disclosure
Controls and Procedures





An
evaluation was performed under the supervision and with the participation of the
Company’s management, including the Company’s Chief Executive Officer and the
Company’s Chief Financial Officer, of the effectiveness of the design and
operation of the Company’s disclosure controls and procedures pursuant to Rules
13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934 (the “Exchange
Act”) as of December 31, 2009.  Based on their evaluation, the
Company’s CEO and CFO have concluded that the disclosure controls and procedures
were effective to give reasonable assurance that the information required to be
disclosed by the Company in reports that it files or submits under the Exchange
Act is (i) recorded, processed, summarized and reported, within the time periods
specified in the SEC’s rules and forms, and (ii) accumulated and communicated to
management, including its principal executive and principal financial officers,
or persons performing similar functions, as appropriate to allow timely
decisions regarding required disclosure.





Management’s
Report on Internal Control over Financial Reporting





The
Company’s management, including the Company’s Chief Executive Officer and the
Company’s Chief Financial Officer, is responsible for establishing and
maintaining adequate internal control over the Company’s internal control over
financial reporting, as such term is defined in Rule 13a-15(f) under the
Exchange Act. The Company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation and fair presentation of financial
statements for external purposes in accordance with generally accepted
accounting principles. Because of its inherent limitations, internal control
over financial reporting may not prevent or detect
misstatements.  Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.





The
Company’s management, (with the participation of the Company’s Chief Executive
Officer and the Company’s Chief Financial Officer), conducted an evaluation of
the effectiveness of the Company’s internal control over financial reporting as
of December 31, 2009.  This evaluation was based on the criteria set
forth in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.  Based on its
assessment, management has concluded that, as of December 31, 2009, the
Company’s internal control over financial reporting was effective and
management’s assessment did not identify any material weaknesses.





The
Company has provided an auditor's attestation report on internal control over
financial reporting for the fiscal year ended December 31, 2009.  In this
report, the Company's independent registered auditor, Dale Matheson Carr-Hilton
Labonte LLP, states its opinion as to the effectiveness of the Company's
internal control over financial reporting for the fiscal year ended December 31,
2009.  Dale Matheson Carr-Hilton Labonte LLP has audited the Company's
financial statements included in this annual report on Form 20-F and has
issued an attestation report on the Company's internal control over financial
reporting.
 
 Attestation
report of the register public accounting firms
 
 The
Auditor Attestation Report is included in the Dale Matheson Carr-Hilton Labonte
LLP Independent Auditor's Report, included in the Company's financial
statements, beginning on page F-1 of this annual report on Form
20-F.


90





Changes
in Internal Control over Financial Reporting





During
the fiscal year ended December 31, 2009, there were no changes in the Company’s
internal control over financial reporting that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.





ITEM
16.  [RESERVED]





ITEM
16A.  AUDIT COMMITTEE FINANCIAL EXPERT





The Board
of Directors has determined that the Company has at least one audit committee
financial expert, Mr. Craig Sturrock, who is an independent director under Rule
803 of the NYSE Amex and Rule 10A-3 of the United States Exchange Act of 1934,
as amended, and serves on the Company’s audit committee.





ITEM
16B.  CODE OF ETHICS





The Board
of Directors of the Company has adopted a Code of Conduct and Ethics that
outlines the Company’s values and its commitment to ethical business practices
in every business transaction. This code applies to all directors, officers, and
employees of the Company and its subsidiaries and affiliates.  A copy
of the Company’s Code of Business Conduct and Ethics is available on the
Company’s website at www.dejour.com.





Reporting
Unethical and Illegal Conduct/Ethics Questions





The
Company is committed to taking prompt action against violations of the Code of
Conduct and Ethics and it is the responsibility of all directors, officers and
employees to comply with the Code and to report violations or suspected
violations to the Company’s Compliance Officer.  Employees may also
discuss their concerns with their supervisor who will then report suspected
violations to the Compliance Officer.





The
Compliance Officer is appointed by the Board of Directors and is responsible for
investigating and resolving all reported complaints and allegations and shall
advise the President and CEO, the CFO and/or the Audit Committee.





During
the fiscal year ended December 31, 2009, the Company did not substantially
amend, waive, or implicitly waive any provision of the Code with respect to any
of the directors, executive officers or employees subject to it.





ITEM
16C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES




The
following summarizes the amounts charged by the Company’s independent auditors,
Dale Matheson Carr-Hilton Labonte LLP, for the years ended December 31, 2009 and
December 31, 2008.




Year ended
                        December 31, 2009
                      
                      
                      Year ended
                        December 31, 2008Audit
      Services
                        Audit
      of the Corporation’s annual consolidated financial statements and the
      Corporation’s internal control over financial reporting for the respective
      year
                      
                      $
                      97,000
                      
                      
                      $
                      77,000Audit
      Related Services
                        Review
      of the Company’s quarterly financial statements and audit/review of the
      Company’s subsidiary annual financial statements
                      
                      $
                      20,000
                      
                      
                      $
                      28,000Tax
      Services
                      
                      Nil
                      
                      
                      NilAll
      Other Services
                      
                      $
                      7,000
                      
                      
                      $
                      13,000


91




Pre-Approval
Policies and Procedures




Generally,
in the past, prior to engaging the Company’s auditors to perform a particular
service, the Company’s audit committee has, when possible, obtained an estimate
for the services to be performed.  The audit committee in accordance
with procedures for the Company approved all of the services described
above.





In
relation to the pre-approval of all audit and audit-related services and fees
the Company’s audit committee charter provides that the audit committee
shall:





Review
and pre-approve all audit and audit-related services and the fees and other
compensation related thereto, and any non-audit services, provided by the
Company’s external auditors.  The pre-approval requirement is waived
with respect to the provision of non-audit services if:





i.
            the
      aggregate amount of all such non-audit services provided to the Company
      constitutes not more than five percent of the total amount of revenues
      paid by the Company to its external auditors during the fiscal year in
      which the non-audit services are
provided;


ii.
            such
      services were not recognized by the Company at the time of the engagement
      to be non-audit services; and


iii.
            such
      services are promptly brought to the attention of the Committee by the
      Company and approved prior to the completion of the audit by the Committee
      or by one or more members of the Committee who are members of the Board to
      whom authority to grant such approvals has been delegated by the
      Committee.





Provided
the pre-approval of the non-audit services is presented to the Committee’s first
scheduled meeting following such approval such authority may be delegated by the
Committee to one or more independent members of the Committee.





ITEM
16D.   EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT
COMMITTEES





None.





ITEM
16E.   PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND
AFFILIATED PERSONS





The
Company did not repurchase any common shares in the fiscal year ended December
31, 2009.





ITEM
16F.   CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT





There has
been no change in the Company’s certifying accountant for the last two fiscal
years.





ITEM
16G.   CORPORATE GOVERNANCE




The
Company’s common shares are listed on the NYSE Amex. Section 110 of the NYSE
Amex Company Guide permits the NYSE Amex to consider the laws, customs and
practices of foreign issuers in relaxing certain NYSE Amex listing criteria, and
to grant exemptions from NYSE Amex listing criteria based on these
considerations. A company seeking relief under these provisions is required to
provide written certification from independent local counsel that the
non-complying practice is not prohibited by home country law. A description of
the significant ways in which the Company’s governance practices differ from
those followed by domestic companies pursuant to NYSE Amex standards is as
follows:




Shareholder Meeting Quorum
Requirement: The NYSE Amex minimum quorum requirement for a shareholder
meeting is one-third of the outstanding shares of common stock. In addition, a
company listed on NYSE Amex is required to state its quorum requirement in its
bylaws. The Company’s quorum requirement is set forth in its Articles and
bylaws. A quorum for a meeting of members of the Company is one holder of common
shares issued, outstanding and entitled to vote, represented in person or by
proxy.


92




Proxy Delivery Requirement:
NYSE Amex requires the solicitation of proxies and delivery of proxy statements
for all shareholder meetings, and requires that these proxies shall be solicited
pursuant to a proxy statement that conforms to SEC proxy rules. The Company is a
“foreign private issuer” as defined in Rule 3b-4 under the Exchange Act, and the
equity securities of the Company are accordingly exempt from the proxy rules set
forth in Sections 14(a), 14(b), 14(c) and 14(f) of the Exchange Act. The Company
solicits proxies in accordance with applicable rules and regulations in
Canada.




Shareholder Approval Requirement:The Company will follow Toronto Stock Exchange rules for shareholder
approval of new issuances of its common shares. Following Toronto Stock Exchange
rules, shareholder approval is required for certain issuances of shares that:
(i) materially affect control of the Company; or (ii) provide consideration to
insiders in aggregate of 10% or greater of the market capitalization of the
listed issuer and have not been negotiated at arm’s length. Shareholder approval
is also required, pursuant to TSX rules, in the case of private placements: (x)
for an aggregate number of listed securities issuable greater than 25% of the
number of securities of the listed issuer which are outstanding, on a
non-diluted basis, prior to the date of closing of the transaction if the price
per security is less than the market price; or (y) that during any six month
period are to insiders for listed securities or options, rights or other
entitlements to listed securities greater than 10% of the number of securities
of the listed issuer which are outstanding, on a non-diluted basis, prior to the
date of the closing of the first private placement to an insider during the six
month period.




The
foregoing is consistent with the laws, customs and practices in
Canada.




In
addition, the Company may from time-to-time seek relief from NYSE Amex corporate
governance requirements on specific transactions under Section 110 of the NYSE
Amex Company Guide by providing written certification from independent local
counsel that the non-complying practice is not prohibited by our home country
law, in which case, the Company shall make the disclosure of such transactions
available on the Company’s website at www.dejour.com. Information contained on
its website is not part of this annual report.


93


PART
III





ITEM
17.  FINANCIAL STATEMENTS





The
Company has elected to provide financial statements pursuant to Item
18.





ITEM
18.  FINANCIAL STATEMENTS





The
Company’s financial statements are stated in Canadian Dollars and are prepared
in accordance with Canadian Generally Accepted Accounting Principles (GAAP), the
application of which, in our case, conforms in all material respects for the
periods presented with United States GAAP, except as discussed in Note 21 of the
consolidated financial statements for the year ended December 31,
2009:




Independent
      Auditors’ Report dated March 26, 2010
                  F-2Consolidated
      Balance Sheets at December 31, 2009 and 2008
                  F-4Consolidated
      Statements of Operations and Deficit for the years ended December 31,
      2009, 2008 and 2007
                  F-5Consolidated
      Statements of Cash Flows for the years ended December 31, 2009, 2008 and
      2007
                  F-7Notes
      to the Consolidated Financial Statements for the years ended December 31,
      2009, 2008 and 2007
                  F-8


94


ITEM
19.  EXHIBITS





Financial
Statements





Description
              
              PageConsolidated
      Financial Statements for the Years Ended
                December
      31, 2009, 2008 and 2007.
              
              F-1
      -  F-38





EXHIBIT
                NUMBER
              
              DESCRIPTION1.1
              
              Certificate
      of Incorporation (1)1.2
              
              Certificate
      of Name Change (1)1.3
              
              Articles
      of Incorporation (1)1.4
              
              Revised
      Articles of Incorporation(2)1.5
              
              Articles
      of Amalgamation(1)1.6
              
              Bylaws
      Number A (1)4.1
              
              Property
      Purchase Agreement between the Registrant and Titan Uranium Inc. dated
      December 13, 2006(3)4.2
              
              Participation
      Agreement between the Registrant, Retamco Operating, Inc. and Brownstone
      Ventures (US) dated July 14, 2006(3)4.3
              
              Purchase
      and Sale Agreement between the Registrant, Retamco Operating, Inc., and
      Brownstone Ventures (US) Inc. dated June 17, 2008 (4)4.4
              
              Loan
      Agreement between DEAL and HEC dated May 15, 20084.5
              
              Loan
      Agreement between the Company and HEC dated August 11,
  20084.6
              
              Loan
      Agreement between the Company and HEC dated June 22,
  20094.7
              
              1st
      Amendment Agreement to Loan Agreement between the Company and HEC dated
      September 30, 20094.8
              
              2nd
      Amendment Agreement to Loan Agreement between the Company and HEC dated
      December 31, 20094.9
              
              Loan
      Agreement between the Company and Brownstone Ventures (US) Inc. dated June
      22, 20094.10
              
              1st
      Amendment Agreement to Loan Agreement between the Company and Brownstone
      Ventures (US) Inc. dated September 30, 20094.11
              
              2nd
      Amendment Agreement to Loan Agreement between the Company and Brownstone
      Ventures (US) Inc. dated December 31, 20094.12
              
              Purchase
      and Sale Agreement between the Registrant and Pengrowth Corporation dated
      April 17, 20094.13
              
              Purchase
      and Sale Agreement between the Registrant and John James Robinson dated
      June 10, 20094.14
              
              Purchase
      and Sale Agreement between the Registrant and C.U. YourOilRig Corp. dated
      June 15, 20094.15
              
              Purchase
      and Sale Agreement between the Registrant and Woodrush Energy Partners LLC
      dated July 8, 20094.16
              
              Purchase
      and Sale Agreement between the Registrant and RockBridge Energy Inc. dated
      July 31, 2009


95




EXHIBIT
                NUMBER
              
              DESCRIPTION4.17
              
              Purchase
      and Sale Agreement between the Registrant and HEC dated December 31,
      20098.1
              
              List
      of Subsidiaries12.1
              
              Certification
      of Robert Hodgkinson Pursuant to Rule 13a-14(a)12.2
              
              Certification
      of Mathew Wong to Rule 13a-14(a)13.1
              
              Certification
      of Robert Hodgkinson Pursuant to 18 U.S.C. Section 135013.2
              
              Certification
      of Mathew Wong Pursuant to 18 U.S.C. Section 135015.1
              
              Reserve
      Assessment and Evaluation of Canadian Oil and Gas Properties, prepared by
      GLJ Petroleum Consultants, dated March 24, 2010, effective December 31,
      200915.2
              
              Letter
      from Gustavson Associates regarding Reserve Estimate and Financial
      Forecast as to Dejour’s Interests in the Gibson Gulch Area, Garfield
      County, Colorado, dated March 12, 2010, effective January 1,
      201099.1
              
              Consent
      of Dale Matheson Carr-Hilton Labonte LLP99.2
              
              Consent
      of GLJ Petroleum Consultants Ltd.99.3
              
              Consent
      of Gustavson Associates, LLC99.4
              
              Supplemental
      Oil and Gas Disclosure





(1)
            Incorporated
      by reference to the Registrant’s registration statement on Form 20-F,
      filed with the commission on May 24,
2005.


(2)
            Incorporated
      by reference to the Registrant’s annual report on Form 20-F, filed
      July 14, 2006.


(3)
            Incorporated
      by reference to the Registrant’s annual report on Form 20-F/A
      amendment no. 2, filed December 7,
2007.


(4)
            Incorporated
      by reference to the Registrant’s annual report on Form 20-F, filed on June
      30, 2009.


96




SIGNATURES





The
registrant hereby certifies that it meets all of the requirements for filing on
Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.




DEJOUR
      ENTERPRISES LTD.Dated:
              June 30,  2010
              
              /s/ Robert L. HodgkinsonRobert
      L. HodgkinsonChairman  &
      CEO


97











CONSOLIDATED
FINANCIAL STATEMENTS





December
31, 2009





INDEPENDENT
      AUDITORS’ REPORT
                F-2CONSOLIDATED
      BALANCE SHEETS
                F-4CONSOLIDATED
      STATEMENTS OF OPERATIONS AND DEFICIT
                F-5CONSOLIDATED
      STATEMENTS OF COMPREHENSIVE LOSS AND ACCUMULATED OTHER COMPREHENSIVE
      INCOME (LOSS)
                F-6CONSOLIDATED
      STATEMENTS OF CASH FLOWS
                F-7NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS
                F-8




F-1




INDEPENDENT
AUDITORS’ REPORT
 
 To the
Shareholders of Dejour Enterprises Ltd.
 
 We have
completed integrated audits of the 2009 and 2008 consolidated financial
statements of Dejour Enterprises Ltd. and of its internal control over financial
reporting as at December 31, 2009 and 2008, Our opinions, based on our audits,
are presented below.
 
 Consolidated
financial statements
 We have
audited the accompanying consolidated balance sheets of Dejour Enterprises Ltd.
as at December 31, 2009 and 2008, and the related consolidated statements of
operations and deficit, comprehensive loss and accumulated other comprehensive
income (loss) and cash flows for the years then ended. These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
 We
conducted our audits of the Company’s financial statements in accordance with
Canadian generally accepted auditing standards and the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform an audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit of financial
statements includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. A financial statement audit also
includes assessing the accounting principles used and significant estimates made
by management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Company as at December
31, 2009 and 2008 and the results of its operations and its cash flows for the
years then ended in accordance with Canadian generally accepted accounting
principles.
 
 Internal
control over financial reporting
 We have
also audited Dejour Enterprises Ltd.’s internal control over financial reporting
as at December 31, 2009, based on criteria established in internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company’s management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting,
which is set out in Management’s Report on Internal Control Over Financial
Reporting included in Management’s Discussion and Analysis. Our responsibility
is to express an opinion on the effectiveness of the Company’s internal control
over financial reporting based on our audit.
 
 We
conducted our audit of internal control over financial reporting in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. An audit of internal control
over financial reporting includes obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists,
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk, and performing such other procedures as we
consider necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinion.
 
 ...cont’d
 
 
  F-2
  
 
 A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial
statements.
 
 Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
 
 In our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as at December 31, 2009 based on criteria
established in Internal Control — Integrated Framework issued by the
COSO.
  DALE
MATHESON CARR-HILTON LABONTE LLP
 CHARTERED
ACCOUNTANTS
  Vancouver,
Canada
 March 26,
2010


F-3




DEJOUR
ENTERPRISES LTD.


CONSOLIDATED
BALANCE SHEETS


(Expressed
in Canadian Dollars)


December 31,
                            
                            
                            December 31,2009
                            
                            
                            2008ASSETSCurrentCash
      and cash equivalents
                            
                            $
                            2,732,696
                            
                            
                            $
                            744,225Accounts
      receivable
                            
                            
                            724,773
                            
                            
                            
                            840,695Prepaids
      and deposits
                            
                            
                            555,672
                            
                            
                            
                            428,321Unrealized
      financial instrument gain
                            
                            
                            -
                            
                            
                            
                            107,7684,013,141
                            
                            
                            
                            2,121,009Property
      and equipment(Note
      4)
                            
                            
                            114,747
                            
                            
                            
                            116,584Investment
      in Titan(Note
      5)
                            
                            
                            -
                            
                            
                            
                            2,721,875Uranium
      properties(Note 6
      (a))
                            
                            
                            533,085
                            
                            
                            
                            696,991Oil
      and gas properties(Note 6
      (b))
                            
                            
                            41,224,903
                            
                            
                            
                            56,986,727$
                            45,885,876
                            
                            
                            $
                            62,643,186LIABILITIESCurrentBank
      indebtedness and line of credit (Note 7)
                            
                            $
                            850,000
                            
                            
                            $
                            5,887,450Accounts
      payable and accrued liabilities
                            
                            
                            2,653,483
                            
                            
                            
                            3,741,770Unrealized
      financial instrument loss
                            
                            
                            99,894
                            
                            
                            
                            -Loans
      from related parties (Note 8)
                            
                            
                            -
                            
                            
                            
                            5,204,0403,603,377
                            
                            
                            
                            14,833,260Loans
      from related parties(Note
      8)
                            
                            
                            2,345,401
                            
                            
                            
                            1,950,000Deferred
      leasehold inducement
                            
                            
                            39,913
                            
                            
                            
                            -Asset
      retirement obligations(Note
      9)
                            
                            
                            208,516
                            
                            
                            
                            363,109Future
      income tax liabilities(Note
      15)
                            
                            
                            -
                            
                            
                            
                            1,133,1406,197,207
                            
                            
                            
                            18,279,509SHAREHOLDERS'
      EQUITYShare
      capital (Note 10)
                            
                            
                            72,559,504
                            
                            
                            
                            64,939,177Contributed
      surplus (Note 12)
                            
                            
                            6,614,805
                            
                            
                            
                            5,895,560Deficit
                            
                            
                            (39,385,746
                            )
                            
                            
                            (26,578,828
                            )Accumulated
      other comprehensive income (loss)
                            
                            
                            (99,894
                            )
                            
                            
                            107,76839,688,669
                            
                            
                            
                            44,363,677$
                            45,885,876
                            
                            
                            $
                            62,643,186Commitments(Notes 7, 8, 9 and
      16)Contingency(Note 18)Subsequent
      Events(Note
      20)
 
 Approved
on behalf of the Board:
 
 “Robert Hodgkinson”
                
                “Craig Sturrock”Robert
      Hodgkinson – Director
                
                Craig
      Sturrock – Director





The
accompanying notes are an integral part of these consolidated financial
statements




F-4





DEJOUR
ENTERPRISES LTD.


CONSOLIDATED
STATEMENTS OF OPERATIONS AND DEFICIT


(Expressed
in Canadian Dollars)


Year Ended
                            
                            
                            Year Ended
                            
                            
                            Year EndedDecember 31,
                            
                            
                            December 31,
                            
                            
                            December 31,2009
                            
                            
                            2008
                            
                            
                            2007REVENUESOil
      and natural gas revenue
                            
                            $
                            6,470,725
                            
                            
                            $
                            5,765,555
                            
                            
                            $
                            -Realized
      financial instrument gain
                            
                            
                            315,270
                            
                            
                            
                            -
                            
                            
                            
                            -6,785,995
                            
                            
                            
                            5,765,555
                            
                            
                            
                            -EXPENSESAmortization,
      depletion and accretion
                            
                            
                            6,436,553
                            
                            
                            
                            3,690,939
                            
                            
                            
                            33,959Operating
      and transportation
                            
                            
                            2,915,002
                            
                            
                            
                            1,973,300
                            
                            
                            
                            261,221Royalties
                            
                            
                            569,476
                            
                            
                            
                            1,148,655
                            
                            
                            
                            -General
      and administrative (Note 14)
                            
                            
                            4,038,332
                            
                            
                            
                            4,214,783
                            
                            
                            
                            4,078,800Interest
      expense and finance fee
                            
                            
                            818,494
                            
                            
                            
                            481,252
                            
                            
                            
                            293,536Stock
      based compensation (Note 11)
                            
                            
                            697,467
                            
                            
                            
                            2,719,957
                            
                            
                            
                            2,461,40015,475,324
                            
                            
                            
                            14,228,886
                            
                            
                            
                            7,128,916LOSS
      BEFORE THE FOLLOWING ANDINCOME
      TAXES
                            
                            
                            (8,689,329
                            )
                            
                            
                            (8,463,331
                            )
                            
                            
                            (7,128,916
                            )Interest
      and other income
                            
                            
                            417,024
                            
                            
                            
                            236,838
                            
                            
                            
                            806,147Gain
      (loss) on disposition of investment (Note 5)
                            
                            
                            (274,187
                            )
                            
                            
                            (8,846
                            )
                            
                            
                            44,023Equity
      income (loss) from Titan (Note 5)
                            
                            
                            (142,196
                            )
                            
                            
                            3,636,710
                            
                            
                            
                            (2,351,810
                            )Foreign
      exchange gain (loss)
                            
                            
                            257,319
                            
                            
                            
                            (675,599
                            )
                            
                            
                            (141,670
                            )Impairment
      of investment in Titan (Note 5)
                            
                            
                            -
                            
                            
                            
                            (12,990,343
                            )
                            
                            
                            (21,581,177
                            )Impairment
      of uranium properties (Note 6(a))
                            
                            
                            (148,906
                            )
                            
                            
                            -
                            
                            
                            
                            -Impairment
      of oil and gas properties (Note 6(b))
                            
                            
                            (5,359,783
                            )
                            
                            
                            (2,029,942
                            )
                            
                            
                            (678,044
                            )LOSS
      BEFORE INCOME TAXES
                            
                            
                            (13,940,058
                            )
                            
                            
                            (20,294,513
                            )
                            
                            
                            (31,031,447
                            )FUTURE INCOME TAXES (EXPENSE)
      RECOVERY(Note 15)
                            
                            
                            1,133,140
                            
                            
                            
                            (596,240
                            )
                            
                            
                            4,220,774NET
      LOSS FOR THE YEAR
                            
                            
                            (12,806,918
                            )
                            
                            
                            (20,890,753
                            )
                            
                            
                            (26,810,673
                            )RETAINED
      EARNINGS (DEFICIT), BEGINNING OF THE YEAR
                            
                            
                            (26,578,828
                            )
                            
                            
                            (5,688,075
                            )
                            
                            
                            21,122,598DEFICIT,
      END OF THE YEAR
                            
                            $
                            (39,385,746
                            )
                            
                            $
                            (26,578,828
                            )
                            
                            $
                            (5,688,075
                            )NET
      LOSS PER SHARE - BASIC AND DILUTED
                            
                            $
                            (0.16
                            )
                            
                            $
                            (0.29
                            )
                            
                            $
                            (0.40
                            )WEIGHTED
      AVERAGE NUMBER OFCOMMON
      SHARES OUTSTANDING -BASIC
      AND DILUTED
                            
                            
                            78,926,223
                            
                            
                            
                            72,210,852
                            
                            
                            
                            66,588,825





The
accompanying notes are an integral part of these consolidated financial
statements





F-5





DEJOUR
ENTERPRISES LTD.


CONSOLIDATED
STATEMENTS OF COMPREHENSIVE LOSS AND ACCUMULATED OTHER


COMPREHENSIVE
INCOME (LOSS)


(Expressed
in Canadian Dollars)


Year Ended
                          
                          
                          Year Ended
                          
                          
                          Year EndedDecember 31,
                          
                          
                          December 31,
                          
                          
                          December 31,2009
                          
                          
                          2008
                          
                          
                          2007NET
      LOSS FOR THE YEAR
                          
                          $
                          (12,806,918
                          )
                          
                          $
                          (20,890,753
                          )
                          
                          $
                          (26,810,673
                          )Unrealized
      financial instrument gain (loss)
                          
                          
                          (99,894
                          )
                          
                          
                          107,768
                          
                          
                          
                          (5,400
                          )COMPREHENSIVE
      LOSS FOR THE YEAR
                          
                          $
                          (12,906,812
                          )
                          
                          $
                          (20,782,985
                          )
                          
                          $
                          (26,816,073
                          )ACCUMULATED
      OTHER COMPREHENSIVE INCOME (LOSS),BEGINNING
      OF THE YEAR
                          
                          $
                          107,768
                          
                          
                          $
                          (5,400
                          )
                          
                          $
                          -Unrealized
      gain (loss) arising during the year
                          
                          
                          (99,894
                          )
                          
                          
                          107,768
                          
                          
                          
                          (5,400
                          )Realized
      loss (gain) during the year
                          
                          
                          (107,768
                          )
                          
                          
                          5,400
                          
                          
                          
                          -ACCUMULATED
      OTHER COMPREHENSIVE INCOME (LOSS), END OF THE YEAR
                          
                          $
                          (99,894
                          )
                          
                          $
                          107,768
                          
                          
                          $
                          (5,400
                          )





The
accompanying notes are an integral part of these consolidated financial
statements




F-6





DEJOUR
ENTERPRISES LTD.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Expressed
in Canadian Dollars)


December 31,
                          
                          
                          December 31,
                          
                          
                          December 31,2009
                          
                          
                          2008
                          
                          
                          2007CASH
      FLOWS USED IN OPERATING ACTIVITIESNet
      loss for the year
                          
                          $
                          (12,806,918
                          )
                          
                          $
                          (20,890,753
                          )
                          
                          $
                          (26,810,673
                          )Adjustment
      for items not affecting cash:Amortization,
      depletion and accretion
                          
                          
                          6,436,553
                          
                          
                          
                          3,690,939
                          
                          
                          
                          33,959Equity
      (income) loss from Titan
                          
                          
                          142,196
                          
                          
                          
                          (3,636,710
                          )
                          
                          
                          2,351,810Non-cash
      stock based compensation
                          
                          
                          697,467
                          
                          
                          
                          2,719,957
                          
                          
                          
                          2,461,400Non-cash
      finance fees, consulting fees and other expenses
                          
                          
                          56,334
                          
                          
                          
                          -
                          
                          
                          
                          54,889Capitalized
      interests on convertible debentures
                          
                          
                          -
                          
                          
                          
                          143,758
                          
                          
                          
                          -Unrealized
      foreign exchange loss
                          
                          
                          -
                          
                          
                          
                          749,575
                          
                          
                          
                          -Realized
      foreign exchange gain
                          
                          
                          (333,900
                          )
                          
                          
                          -
                          
                          
                          
                          -Impairment
      of investment in Titan
                          
                          
                          -
                          
                          
                          
                          12,990,343
                          
                          
                          
                          21,581,177Impairment
      of uranium properties
                          
                          
                          148,906
                          
                          
                          
                          -
                          
                          
                          
                          -Impairment
      of oil and gas properties
                          
                          
                          5,359,783
                          
                          
                          
                          2,029,942
                          
                          
                          
                          678,044Future
      income taxes expense (recovery)
                          
                          
                          (1,133,140
                          )
                          
                          
                          596,240
                          
                          
                          
                          (4,220,774
                          )(Gain)
      loss on disposal of investment
                          
                          
                          274,187
                          
                          
                          
                          8,846
                          
                          
                          
                          (44,023
                          )Deferred
      leasehold inducement
                          
                          
                          43,332
                          
                          
                          
                          -
                          
                          
                          
                          -Amortization
      of deferred leasehold inducement
                          
                          
                          (3,419
                          )
                          
                          
                          -
                          
                          
                          
                          -Changes
      in non-cash working capital balances (Note 13)
                          
                          
                          (1,099,716
                          )
                          
                          
                          1,304,436
                          
                          
                          
                          (1,274,271
                          )(2,218,334
                          )
                          
                          
                          (293,427
                          )
                          
                          
                          (5,188,462
                          )CASH
      FLOWS FROM (USED IN) INVESTING ACTIVITIESPurchase
      of equipment
                          
                          
                          (39,279
                          )
                          
                          
                          (67,049
                          )
                          
                          
                          (15,293
                          )Proceeds
      from sales of marketable securities
                          
                          
                          -
                          
                          
                          
                          27,403
                          
                          
                          
                          308,644Proceeds
      on disposal of investment (Note 5)
                          
                          
                          2,305,491
                          
                          
                          
                          529,894
                          
                          
                          
                          5,966Proceeds
      from sales of oil and gas properties
                          
                          
                          5,542,497
                          
                          
                          
                          -
                          
                          
                          
                          -Resource
      properties expenditures
                          
                          
                          (2,587,209
                          )
                          
                          
                          (27,591,251
                          )
                          
                          
                          (8,137,694
                          )5,221,500
                          
                          
                          
                          (27,101,003
                          )
                          
                          
                          (7,838,377
                          )CASH
      FLOWS FROM (USED IN) FINANCING ACTIVITIESBank
      indebtedness and line of credit
                          
                          
                          (5,037,450
                          )
                          
                          
                          5,887,450
                          
                          
                          
                          -Loans
      from related parties
                          
                          
                          (800,350
                          )
                          
                          
                          6,404,465
                          
                          
                          
                          (5,827,000
                          )Shares
      issued for cash
                          
                          
                          4,823,105
                          
                          
                          
                          2,335,085
                          
                          
                          
                          14,705,331(1,014,695
                          )
                          
                          
                          14,627,000
                          
                          
                          
                          8,878,331INCREASE
      (DECREASE) IN CASH AND CASH EQUIVALENTS
                          
                          
                          1,988,471
                          
                          
                          
                          (12,767,430
                          )
                          
                          
                          (4,148,508
                          )CASH
      AND CASH EQUIVALENTS, BEGINNING OF THE YEAR
                          
                          
                          744,225
                          
                          
                          
                          13,511,655
                          
                          
                          
                          17,660,163CASH
      AND CASH EQUIVALENTS, END OF THE YEAR
                          
                          $
                          2,732,696
                          
                          
                          $
                          744,225
                          
                          
                          $
                          13,511,655




Supplemental
Cash Flow Information – Note 13




The accompanying notes are
an integral part of these consolidated financial statements




F-7





DEJOUR
ENTERPRISES LTD.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For the
Year Ended December 31, 2009







NOTE
1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION





Dejour
Enterprises Ltd. (the “Company”) is a public company trading on the New York
Stock Exchange AMEX (“NYSE-AMEX”) and the Toronto Stock Exchange (“TSX”), under
the symbol “DEJ.”  The Company is in the business of exploring and
developing energy projects with a focus on oil and gas in North
America.





These
consolidated financial statements are prepared in accordance with generally
accepted accounting principles (“GAAP”) in Canada. All dollar amounts are stated
in Canadian dollars, the Company’s reporting currency, unless otherwise
indicated.Certain of
the comparative figures have been reclassified to conform to the current year’s
presentation, if necessary.





The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries, Dejour Energy (USA) Corp. (“Dejour USA”),
incorporated in Nevada, Dejour Energy (Alberta) Ltd. (“DEAL”), Wild Horse Energy
Ltd. (“Wild Horse”), incorporated in Alberta, and 0855524 B.C. Ltd.,
incorporated in B.C.  All intercompany transactions are eliminated
upon consolidation.





These
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada for financial
statements.  Except as indicated in Note 21, they also comply, in all
material respects, with accounting principles generally accepted in the United
States.





NOTE
2 – RECENTLY ADOPTED ACCOUNTING POLICIES AND FUTURE ACCOUNTING
PRONOUNCEMENTS





(a)
            Recently
      Adopted Accounting Policies





(i)
            Effective
      January 1, 2009, the Company adopted the new recommendations of the
      Canadian Institute of Chartered Accountants (“CICA”) under CICA Handbook
      Section 3064 Goodwill and Intangible Assets, which replaces Section 3062,
      Goodwill and Other Intangible Assets, and Section 3450, Research and
      Development Costs. This new section establishes standards for the
      recognition, measurement, presentation and disclosure of goodwill
      subsequent to its initial recognition and of intangible assets by
      profit-oriented enterprises. Standards concerning goodwill remain
      unchanged from the standards included in the previous Section
      3062.  The adoption of this new standard had no effect on the
      amounts disclosed in the financial
statements.





(ii)
            Effective
      January 1, 2009, the Company adopted the newly issued guidance of the
      Emerging Issues Committee (“EIC”) 173, Credit Risk and the Fair value of
      Financial Assets and Liabilities, which requires that an entity should
      take into account the credit risk of the entity and the counterparty in
      determining the fair value of financial assets and financial
      liabilities.  This guidance is adopted retrospectively, with
      restatement.   No retroactive revision was disclosed
      related to the prior period as there were no effects on the fair values of
      financial assets and financial
liabilities.





(iii)
            Effective
      January 1, 2009, the Company adopted the newly issued guidance of the
      EIC-174, Mining Exploration Costs, which provides guidance on the
      accounting and the impairment review of exploration costs.  The
      adoption of this EIC did not have an effect on the Company’s financial
      statements.





(iv)
            Effective
      January 1, 2009, the Company adopted the amended CICA Handbook Section
      1000, Financial Statement Concepts, which clarifies the criteria for
      recognition of an asset, reinforcing the distinction between costs that
      should be expensed and those that should be capitalized.  The
      adoption of this Section did not have an effect on the Company’s financial
      statements.





F-8





DEJOUR
ENTERPRISES LTD.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For the
Year Ended December 31, 2009







NOTE
2 – RECENTLY ADOPTED ACCOUNTING POLICIES AND FUTURE ACCOUNTING PRONOUNCEMENTS
(continued)





(b)
            Future
      Accounting Pronouncements





The
following accounting pronouncements are applicable to future reporting
periods.  The Company is currently evaluating the effects of adopting
these standards:





(i)
            The
      CICA issued the following new Sections: 1582 Business Combinations, 1601
      Consolidations, and 1602 Non-Controlling Interest.  These
      standards are effective January 1,
2011.





(ii)
            In
      January 2006, the CICA Accounting Standards Board (“AcSB”) adopted a
      strategic plan for the direction of accounting standards in
      Canada.  As part of that plan, accounting standards in Canada
      for public companies will converge with International Financial Reporting
      Standards (“IFRS”) by the end of 2011.  The transition date
      of January 1, 2011 will require the restatement for comparative purposes
      of amounts reported by the Company for the year ended December 31,
      2010.





The
Company is currently evaluating the impact of adopting IFRS on its consolidated
financial statements.  The Company is in the first phase of its
transition program, which includes scoping to identify the significant
accounting policy differences and their related areas of impact in terms of
systems, procedures and financial statement presentation.  The Company
also is in the assessment phase of the design and work plan to calculate the
differences between IFRS and Canadian GAAP, and the impact on its financial
statements, disclosures and operations.  The Company will address the
design, planning, solution development and implementation of the conversion in
2010.





NOTE
3 – SUMMARY OF OTHER SIGNIFICANT ACCOUNTING POLICIES





(a)
            Cash
      and Cash Equivalents





Cash and
cash equivalents consist of cash and highly liquid investments having maturity
dates of three months or less from the date of acquisition that are readily
convertible to cash.





(b)
            Marketable
      Securities





Marketable
securities are designated as available-for-sale and are measured and carried at
fair market value.  Market value is based on the closing price at the
balance sheet date or the closing price on the last day the security traded if
there were no trades at the balance sheet date.  Changes in fair
market value are recognized in comprehensive income.





(c)
            Resource
      Properties





Mineral
properties





The
Company records its interests in mineral properties at the lower of cost or
estimated recoverable value.  Where specific exploration programs are
planned and budgeted by management, the cost of mineral properties and related
exploration expenditures are capitalized until the properties are placed into
commercial production, sold, abandoned or determined by management to be
impaired in value.  These costs will be amortized over the estimated
useful lives of the properties following the commencement of production or
written off if the properties are sold or abandoned.





F-9





DEJOUR
ENTERPRISES LTD.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For the
Year Ended December 31, 2009







NOTE
3 – SUMMARY OF OTHER SIGNIFICANT ACCOUNTING POLICIES (continued)





The costs
include the cash or other consideration and the assigned value of shares issued,
if any, on the acquisition of mineral properties.  Costs related to
properties acquired under option agreements or joint ventures, whereby payments
are made at the sole discretion of the Company, are recorded in the accounts at
such time as the payments are made.  For properties held jointly with
other parties the Company only records its proportionate share of acquisition
and exploration costs.  The proceeds from options granted are deducted
from the cost of the related property and any excess is deducted from other
remaining capitalized property costs.  The Company does not accrue
estimated future costs of maintaining its mineral properties in good standing.
To date the Company has not recorded any asset retirement obligations for its
mineral properties as no amounts are presently determinable.





Capitalized
costs as reported on the balance sheet represent costs incurred to date and may
not reflect recoverable value.  Recovery of carrying value is
dependent upon future commercial success or proceeds from disposition of the
mineral interests.





Management
evaluates each mineral interest on a reporting period basis or as events and
changes in circumstances warrant, and makes a determination based on exploration
activity and results, estimated future cash flows and availability of funding as
to whether costs are capitalized or charged to operations. Mineral property
interests, where future cash flows are not reasonably determinable, are
evaluated for impairment based on management’s intentions and determination of
the extent to which future exploration programs are warranted and likely to be
funded.





General
exploration costs not related to specific properties and general administrative
expenses are charged to operations in the year in which they are
incurred.





The
Company does not have any producing mineral properties and all of its efforts to
date have been exploratory in nature.





Oil and gas
properties





The
Company follows the full cost method of accounting for its oil and gas
operations whereby all costs related to the acquisition of, exploration for and
development of petroleum and natural gas interests are
capitalized.  Such costs include land and lease acquisition costs,
annual carrying charges of non-producing properties, geological and geophysical
costs, interest costs, costs of drilling and equipping productive and
non-productive wells, and direct exploration consulting fees. Proceeds from the
disposal of oil and gas interests are recorded as a reduction of the related
expenditures without recognition of a gain or loss unless the disposal would
result in a change of 20 percent or more in the depletion rate.





Depletion
and depreciation of the capitalized costs are computed using the
unit-of-production method based on the estimated proven reserves of oil and gas
determined by independent consultants.  Costs of significant unproved
properties, net of impairment, and estimated salvage values are excluded from
the depletion and depreciation calculation.





Estimated
future removal and site restoration costs are provided over the life of proven
reserves on a unit-of-production basis. Costs, which include the cost of
production, equipment removal and environmental clean-up, are estimated each
period by management based on current regulations, costs, technologies and
industry standards.   The charge is included in the provision for
depletion and depreciation and the actual restoration expenditures are charged
to the accumulated provision accounts as incurred.





The
Company evaluates its oil and gas assets on an annual basis using a ceiling test
to determine that the costs are recoverable and do not exceed the fair value of
the properties.  The costs are assessed to be recoverable if the sum
of the undiscounted cash flows expected from the production of proved reserves
less unproved properties exceed the carrying value of the oil and gas
assets.  If the carrying value of the oil and gas assets is not
assessed to be recoverable, an impairment loss is recognized to the extent that
the carrying value exceeds the sum of the discounted cash flows expected form
the production of proved and probable reserves less unproved
properties.  The cash flows are estimated using the future product
prices and costs and are discounted using a risk-free rate.





F-10





DEJOUR
ENTERPRISES LTD.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For the
Year Ended December 31, 2009







NOTE
3 – SUMMARY OF OTHER SIGNIFICANT ACCOUNTING POLICIES (continued)





(d)
            Equipment





Equipment
is recorded at cost with amortization being provided using the declining balance
basis at the following rates:





Office
      furniture and equipment
              20%Computer
      equipment
              45%Software
              100%Leasehold
      improvements
              term
      of lease





The
carrying values of all categories of equipment are reviewed for impairment
whenever events or changes in circumstances indicate the recoverable value may
be less than the carrying amount. Recoverable value is based on estimates of
undiscounted and discounted future net cash flows expected to be recovered from
specific assets or groups through use or future disposition. One-half of the
annual rates are used in the year of the acquisition.





(e)
            Investments





The
Company accounts for its investments in other companies over which it has
significant influence using the equity basis of accounting whereby the
investments are initially recorded at cost and subsequently adjusted to
recognize the Company’s share of earnings or losses of the investee company and
reduced by dividends received. Carrying values of equity investments are reduced
to estimated market values if there is other than a temporary decline in the
value of the investment.





(f)
            Earnings
      (Loss) per Share





The
Company uses the treasury stock method for the computation and disclosure of
earnings (loss) per share.  The treasury stock method is used to
determine the dilutive effect of stock options and other dilutive instruments
which assume that proceeds received from in-the-money warrants and stock options
are used to repurchase common shares at the prevailing market rate.





Basic
earnings (loss) per share figures have been calculated using the weighted
monthly average number of shares outstanding during the respective
periods.  Diluted loss per share figure is equal to that of basic loss
per share since the effects of options and warrants have been excluded as they
are anti-dilutive.





(g)
            Joint
      Operations





Exploration,
development, and production activities may be conducted jointly with others and
accordingly, the Company only reflects its proportionate interest in such
activities.





(h)
            Foreign
      Currency Translation





The
financial statements are presented in Canadian dollars.  Foreign
denominated monetary assets and liabilities are translated into their Canadian
dollar equivalents using foreign exchange rates which prevailed at the balance
sheet date.  Non-monetary items are translated at historical exchange
rates, except for items carried at market value, which are translated at the
rate of exchange in effect at the balance sheet date.  Revenue and
expenses are translated at average rates of exchange during the
year.  Exchange gains or losses arising on foreign currency
translation are included in the determination of operating results for the
year.





The
Company's US subsidiary is an integrated foreign operation and is translated
into Canadian dollars using the temporal method.  Monetary items are
translated at the exchange rate in effect at the balance sheet date;
non-monetary items are translated at historical exchange
rates.  Income and expense items are translated at the average
exchange rate for the period.  Translation gains and losses are
reflected in income (loss) for the year.





F-11





DEJOUR
ENTERPRISES LTD.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For the
Year Ended December 31, 2009







NOTE
3 – SUMMARY OF OTHER SIGNIFICANT ACCOUNTING POLICIES (continued)





(i)
            Use
      of Estimates





The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the
period.  Actual results could differ from those
estimates.  The significant areas requiring management’s estimates
relate to the recoverability of the carrying value of the Company’s resource
properties, the amounts recorded for depletion and depreciation of oil and
natural gas property, properties and equipment, the provision for asset
retirement obligations, future income tax effects and the determination of fair
value of stock-based compensation.  The cost recovery ceiling test is
based on estimates of proved reserves, production rates, oil and natural gas
prices, futures cost, and other relevant assumptions.  By their
nature, these estimates are subject to measurement uncertainty and the effect on
the financial statements of changes in such estimates in future periods could be
significant.





(j)
            Financial
      Instruments





A
financial instrument is any contract that gives rise to a financial asset of one
entity and a financial liability or equity instrument to another
entity.  Upon initial recognition all financial instruments, including
derivatives, are recognized on the balance sheet at fair
value.  Subsequent measurement is then based on the financial
instruments being classified into one of five categories: held for trading, held
to maturity, loans and receivables, available for sale and other
liabilities.





The
Company’s financial instruments consist of cash and cash equivalents,
derivatives, accounts receivable, bank line of credit, accounts payable, loan
from joint-venture partner, and loan from related party.  Management
has determined that the fair value of these financial instruments approximates
their carrying values.





On
adopting these standards, the Company designated its cash and cash equivalents
and bank line of credit as held-for-trading, which are measured at fair
value.  Marketable securities are designated as available for sale
which are measured at fair value.  Receivables are classified under
loans and receivables, which are measured at amortized cost. Accounts payable,
loan from joint-venture partner, and loan from related party are classified as
other financial liabilities, which are measured at amortized cost.





The
Company enters into derivative financial instruments to manage its exposure to
volatility in commodity prices.  These instruments are not used for
trading or other speculative purposes.  For derivative instruments
that do qualify as effective accounting hedges, policies and procedures are in
place to ensure that documentary and approvals requirements are met. The
documentation specifically ties the derivative financial instruments to their
use, and in the case of commodities, to the mitigation of market price risk
associated with cash flows expected to be generated.  The Company also
identifies all relationships between hedging instruments and hedged items, as
well as its risk management objective and the strategy for undertaking hedge
transactions. This would include linking the particular derivative to specific
assets and liabilities or to specific firm commitments or forecasted
transactions. Where specific hedges are executed, the Company assesses, both at
the inception of the hedge and on an ongoing basis, whether the derivative used
in the particular hedging transaction is effective in offsetting changes in fair
value or cash flows of the hedged item.





Cash flow
hedges:  The effective portion of changes in the fair value of
financial instruments designated as a cash flow hedge is recognized in other
comprehensive income, net of tax, with any ineffective portion being recognized
in net income.  Gains and losses are recovered from other
comprehensive income and recognized in net income in the same period as the
hedged item.





Fair
value hedges:  Both the financial instrument designated as the hedging
item, and the underlying hedged asset or liability are measured at fair
value.  Changes in the fair value of both the hedging and hedged item
are reflected in net income.





F-12





DEJOUR
ENTERPRISES LTD.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For the
Year Ended December 31, 2009







NOTE
3 – SUMMARY OF OTHER SIGNIFICANT ACCOUNTING POLICIES (continued)





Hedge
accounting is discontinued prospectively when the derivative no longer qualifies
as an effective hedge, or the derivative is terminated or sold, or upon the sale
or early termination of the hedged item.  Derivative instruments that
qualify as hedges, or have been designated as hedges, are recorded at fair value
on inception.  At the end of each reporting period, the change in the
fair value of the hedging derivative is recognized in other comprehensive
income.  When hedge accounting is discontinued or when the hedged item
is sold or early terminated, the amounts previously recognized in accumulated
other comprehensive income are reclassified to net income.





Net
smelter royalties and related rights to earn or relinquish interests in mineral
properties constitute derivative instruments.  No value or discounts
have been assigned to such instruments as there is no reliable basis to
determine fair value until properties are in development or production and
reserves have been determined.





(i)
            Future
      Income Taxes





Future
income taxes are recognized for the future income tax consequences attributable
to differences between financial statement carrying values and their
corresponding tax values (temporary differences).  Future income tax
assets and liabilities are measured using enacted income tax rates expected to
apply to taxable income in years in which temporary differences are expected to
be recovered or settled.  The effect on futures income tax assets and
liabilities of a change in tax rates is included in income in the period in
which the change occurs.  The amount of future income tax assets
recognized is limited to the amount that, in the opinion of management, is more
likely than not to be realized.





(j)
            Revenue
      Recognition





Revenues
from the sale of oil and natural gas are recorded when title passes to an
external party and collectability is reasonably assured.





(k)
            Stock-Based
      Compensation





The
Company follows the recommendations of the CICA Handbook in accounting for
stock-based compensation. The Company adopted the fair value method for all
stock-based compensation. Under the fair value based method, compensation cost
is measured at fair value at the date of grant and is expensed over the award's
vesting period for officers, directors and employees and over the service life
for consultants.  The fair value of options and other stock based
awards issued or altered in the period, are determined using the Black-Scholes
option pricing model.





(l)
            Asset
      Retirement Obligations





The
Company reviews and recognizes legal obligations associated with the retirement
of tangible long-lived assets, including rights to explore or exploit natural
resources.  When such obligations are identified and measurable, the
estimated fair values of the obligations are recognized on a systematic basis
over the remaining period until the obligations are expected to be
settled.  On recognition of the liability, there is a corresponding
increase in the carrying amount of the related assets known as the asset
retirement cost, which is depleted on a unit-of-production basis over the life
of the assets.  The liability is adjusted each reporting period to
reflect the passage of time, with the accretion charged to earnings, and for
revisions to the estimated future cash flows.  Actual costs incurred
upon settlement of the obligations are charged against the
liability.





F-13





DEJOUR
ENTERPRISES LTD.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For the
Year Ended December 31, 2009







NOTE
3 – SUMMARY OF OTHER SIGNIFICANT ACCOUNTING POLICIES (continued)





(m)
            Flow-Through
      Shares





The
Company provides certain share subscribers with a flow-through component for tax
incentives available on qualifying Canadian exploration
expenditures.  The Company renounces the qualifying expenditures and
accordingly is not entitled to the related taxable income deductions from such
expenditures.





The
Company has adopted the recommendation by the EIC of the CICA relating to the
recording of flow-through shares.  EIC 146 stipulates that future
income tax liabilities resulting from the renunciation of qualified resource
expenditures by the Company from the issuance of flow-through shares are
recorded as a reduction of share capital.  Any corresponding
realization of future income tax benefits resulting in the utilization of prior
year losses available to the Company not previously recorded, whereby the
Company did not previously meet the criteria for recognition, are reflected as
part of the Company’s operating results in the period the expenses are renounced
to the share subscribers and applicable tax filing have been made with the
Canada Revenue Agency.





(n)
            Impairment
      of Long-lived Assets





CICA
Handbook, Section 3063, Impairment of Long-lived Assets provides guidance on
recognizing, measuring and disclosing the impairment of long-lived assets. The
determination of when to recognize an impairment loss for a long-lived asset to
be held and used is made when its carrying value exceeds the total undiscounted
cash flows expected from its use and eventual disposition. When impairment is
indicated other than a temporary decline, the amount of the impairment loss is
determined as the excess of the carrying value of the amount over its fair value
based on estimated discounted cash flows from use or disposition.





(o)
            Comprehensive
      Income





The
Company follows CICA Handbook, Section 1530, Comprehensive
Income.  Comprehensive income is defined as the change in equity from
transactions and other events from non-owner sources.  Section 1530
establishes standards for reporting and presenting certain gains and losses not
normally included in net income or loss, such as unrealized gains and losses
related to available for sale securities, and gains and losses resulting from
the translation of self-sustaining foreign operations, in a statement of
comprehensive income.




NOTE
4 – PROPERTY AND EQUIPMENT





December 31, 2009
                
                
                December 31, 2008Accumulated
                
                
                
                
                
                
                
                
                AccumulatedCost
                
                
                Amortization
                
                
                Net
                
                
                Cost
                
                
                Amortization
                
                
                NetFurniture,
      fixtures and equipment
                
                $
                135,804
                
                
                $
                71,350
                
                
                $
                64,454
                
                
                $
                134,373
                
                
                $
                55,711
                
                
                $
                78,662Computer
      equipment
                
                
                85,020
                
                
                
                66,033
                
                
                
                18,987
                
                
                
                83,837
                
                
                
                51,642
                
                
                
                32,195Software
                
                
                19,802
                
                
                
                17,686
                
                
                
                2,116
                
                
                
                15,570
                
                
                
                9,843
                
                
                
                5,727Leasehold
      improvements
                
                
                32,433
                
                
                
                3,243
                
                
                
                29,190
                
                
                
                -
                
                
                
                -
                
                
                
                -$
                273,059
                
                
                $
                158,312
                
                
                $
                114,747
                
                
                $
                233,780
                
                
                $
                117,196
                
                
                $
                116,584





F-14





DEJOUR
ENTERPRISES LTD.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For the
Year Ended December 31, 2009







NOTE
5 – INVESTMENT IN TITAN URANIUM INC.





In
December 2006, the Company sold a 90% interest in its uranium properties,
consisting of 68 claims and 4 permits totaling 966,969 acres located in the
Athabasca Basin, Saskatchewan, Canada, and all related exploration data to Titan
Uranium Inc. (“Titan”), a public company traded on the TSX-V, under the
following terms:





(a)
            Titan
      issued the Company 17,500,000 fully paid and assessable common shares in
      the capital of Titan (representing a 36.47% of Titan’s issued and
      outstanding shares at closing).  Titan issued the Company
      3,000,000 transferable common share purchase warrants, entitling the
      holder to acquire up to 3,000,000 common shares in the capital of Titan at
      an exercise price of $2.00 per common share for a period of 24 months.
      These warrants expired unexercised on December 15,
  2008;





(b)
            The
      Company retained a 1% Net Smelter Return on all properties and a 10%
      working interest in each claim, carried by Titan to completed bankable
      feasibility study after which the Company may elect to participate as to
      its 10% interest or convert to an additional 1% Net Smelter
      Return.





The
Company accounted for its investment in Titan using the equity method until
February 28, 2009, at which point the Company disposed of the majority of its
shares in Titan and therefore is no longer qualified for the use of the equity
method of accounting.  The Company’s share of losses in Titan under
the equity method for the year ended December 31, 2009 was $142,196 (2008 share
of income: $3,636,710).   During the year ended December 31,
2009, the Company sold all of its investment in Titan, resulting in a loss of
$274,187 (2008: $8,846).





During
the year ended December 31, 2008, the Company recognized an impairment loss of
$12,990,343 and wrote down its investment in Titan to $2,721,875, the fair value
as at December 31, 2008.





NOTE
6 – RESOURCE PROPERTIES





(a)
            Uranium
      Properties





In 2005
and 2006, the Company acquired interests in and staked uranium exploration
properties in the Athabasca Basin region of Saskatchewan, Canada and commenced
exploration on certain properties. In December 2006, the Company sold a 90%
interest in these properties to Titan as disclosed in Note 5 and realized a gain
on disposition of $30,177,082. During the year ended December 31, 2009, a number
of leases expired.  As a result, the Company recorded an impairment of
uranium properties of $148,906 (2008: $Nil). The carrying value of the
remaining 10% carried interest and 1% net smelter return was $533,085 as at
December 31, 2009 and $696,991 as at December 31, 2008.





(b)
            Oil
      and Gas Properties





United States (US) Oil and
Gas Projects





Colorado / Utah Oil &
Gas Projects





In July
2006, the Company concluded the purchase of interests in 267 oil and gas leases
covering 254,068 net acres in the Piceance and Uinta Basins in the States of
Colorado and Utah from Retamco Operating Co. (“Retamco”), a private Texas
corporation. The cost to the Company was $25,182,532.





F-15





DEJOUR
ENTERPRISES LTD.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For the
Year Ended December 31, 2009







NOTE
6 – RESOURCE PROPERTIES (continued)





In June
2008, the Company entered into a Purchase and Sale Agreement with Retamco,
resulting in the acquisition of an additional 64,000 net acres.  The
additional acreage was acquired in exchange for the Company's 25% working
interest in approximately 3,500 acres and two wells at North Barcus Creek, and a
cash payment of $4,078,800 (US$4,000,000). As part of the transaction,
Brownstone Ventures Inc. (“Brownstone”), a working interest partner in the
Colorado/Utah Projects,  provided the Company with a $4,078,800 (US
$4,000,000) secured loan, which was used to purchase the additional acreage
interests (refer to Note 8(b)).





During
the year ended December 31, 2009, a number of leases expired.  As a
result, the Company recorded an impairment of oil and gas properties of
$1,403,929 (2008: $2,029,942).





Canadian Oil and Gas
Projects





During
the year ended December 31, 2009, the Company sold 100% of the Company’s working
interest in the Carson Creek area to an unrelated third party for gross proceeds
of $2,100,000.  In addition, the Company sold in total a 25% working
interest in the Drake/Woodrush properties for gross proceeds of $4,500,000, 5%
of which was purchased by a private company controlled by the Chief Executive
Officer (“CEO”) of the Company in settlement of debt.





A
continuity summary of capitalized acquisition costs and exploration expenditures
in the Company’s oil and gas properties for the years ended December 31, 2009
and 2008 are as follows:





Oil and Gas PropertiesAcquisition
                      Costs
                    
                    
                    Exploration &
                      Development
                    
                    
                    Impairment
                    
                    
                    Capitalized
                      Interests,Balance
                      Dec. 31, 2007
                    
                    
                    (Dispositions),
                      Net
                    
                    
                    (Dispositions),
                      Net
                    
                    
                    and write-
                      down
                    
                    
                    Depletion &
                      Other
                    
                    
                    Balance
                      Dec. 31, 2008US
      Oil and Gas Properties:Colorado
      / Utah Projects
                    
                    $
                    27,408,361
                    
                    
                    $
                    3,947,305
                    
                    
                    $
                    -
                    
                    
                    $
                    (2,029,942
                    )
                    
                    $
                    -
                    
                    
                    $
                    29,325,724Others
                    
                    
                    37,406
                    
                    
                    
                    130,268
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    167,67427,445,767
                    
                    
                    
                    4,077,573
                    
                    
                    
                    -
                    
                    
                    
                    (2,029,942
                    )
                    
                    
                    -
                    
                    
                    
                    29,493,398Canadian
      Oil and Gas Properties:Carson
      Creek
                    
                    
                    535,504
                    
                    
                    
                    265
                    
                    
                    
                    1,252,109
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,787,878Drake/Woodrush
                    
                    
                    2,461,447
                    
                    
                    
                    10,369
                    
                    
                    
                    16,543,565
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    19,015,381Montney
      (Buick Creek)
                    
                    
                    -
                    
                    
                    
                    907,733
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    69,317
                    
                    
                    
                    977,050Saddle
      Hills
                    
                    
                    534,970
                    
                    
                    
                    269
                    
                    
                    
                    451,898
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    987,137Others
                    
                    
                    3,736,811
                    
                    
                    
                    14,269
                    
                    
                    
                    4,206,269
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    7,957,349Asset
      retirement obligations
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    404,311
                    
                    
                    
                    404,311Property
      depletion
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (3,635,777
                    )
                    
                    
                    (3,635,777
                    )7,268,732
                    
                    
                    
                    932,905
                    
                    
                    
                    22,453,841
                    
                    
                    
                    -
                    
                    
                    
                    (3,162,149
                    )
                    
                    
                    27,493,329$
                    34,714,499
                    
                    
                    $
                    5,010,478
                    
                    
                    $
                    22,453,841
                    
                    
                    $
                    (2,029,942
                    )
                    
                    $
                    (3,162,149
                    )
                    
                    $
                    56,986,727




F-16





DEJOUR
ENTERPRISES LTD.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For the
Year Ended December 31, 2009







NOTE
6 – RESOURCE PROPERTIES (continued)





Oil and Gas PropertiesAcquisition
                    Costs
                  
                  
                  Exploration &
                  
                  
                  ImpairmentBalance
                    Dec. 31, 2008
                  
                  
                  (Dispositions),
                    Net
                  
                  
                  Development
                      (Dispositions), Net
                  
                  
                  and
                    write-down
                  
                  
                  Depletion and
                    Other
                  
                  
                  Balance
                    Dec. 31, 2009US
      Oil and Gas Properties:Colorado
      / Utah Projects
                  
                  
                  29,325,724
                  
                  
                  $
                  193,892
                  
                  
                  $
                  332,763
                  
                  
                  $
                  (1,403,929
                  )
                  
                  $
                  -
                  
                  
                  $
                  28,448,450Others
                  
                  
                  167,674
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  167,67429,493,398
                  
                  
                  
                  193,892
                  
                  
                  
                  332,763
                  
                  
                  
                  (1,403,929
                  )
                  
                  
                  -
                  
                  
                  
                  28,616,124Canadian
      Oil and Gas Properties:Carson
      Creek
                  
                  
                  1,787,878
                  
                  
                  
                  (265
                  )
                  
                  
                  (1,787,613
                  )
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  -Drake/Woodrush
                  
                  
                  19,015,381
                  
                  
                  
                  (269,491
                  )
                  
                  
                  (2,239,573
                  )
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  16,506,317Montney
      (Buick Creek)
                  
                  
                  977,050
                  
                  
                  
                  (80,660
                  )
                  
                  
                  19,392
                  
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  915,782Saddle
      Hills
                  
                  
                  987,137
                  
                  
                  
                  1,077
                  
                  
                  
                  39,778
                  
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  1,027,992Others
                  
                  
                  7,957,349
                  
                  
                  
                  762,790
                  
                  
                  
                  (837,397
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  7,882,742Asset
      retirement obligations
                  
                  
                  404,311
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (154,160
                  )
                  
                  
                  250,151Property
      depletion
                  
                  
                  (3,635,777
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (6,382,574
                  )
                  
                  
                  (10,018,351
                  )Impairment
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (3,955,854
                  )
                  
                  
                  -
                  
                  
                  
                  (3,955,854
                  )27,493,329
                  
                  
                  
                  413,451
                  
                  
                  
                  (4,805,413
                  )
                  
                  
                  (3,955,854
                  )
                  
                  
                  (6,536,734
                  )
                  
                  
                  12,608,779$
                  56,986,727
                  
                  
                  $
                  607,343
                  
                  
                  $
                  (4,472,650
                  )
                  
                  $
                  (5,359,783
                  )
                  
                  $
                  (6,536,734
                  )
                  
                  $
                  41,224,903





In
determining the Company’s depletion of $6,382,574, unproven properties totaling
$915,782 (2008: $979,048) were excluded from the depletion
calculation.  The Company performed a ceiling test calculation at
December 31, 2009 to assess the recoverable value of the
properties.  The oil and gas future prices are based on the January 1,
2010 commodity price forecast of independent reserve
evaluators.  Based on these assumptions, the undiscounted value of
future net revenues from the Company’s proved and probable reserves were less
than the carrying value of oil and gas properties at December 31, 2009. As a
result, the Company recorded an impairment of oil and gas properties of
$3,955,854 (2008: $Nil).





Depletion
and depreciation is computed using the unit-of-production method based on the
estimated net proven and probable reserves of oil and gas determined by
independent consultants.  Costs of significant unproved properties,
net of impairment, and estimated salvage values are excluded from the depletion
and depreciation calculation. The benchmark reference pricing as at December 31,
2009 used for the ceiling test calculation respecting Canadian properties was
provided by a qualified reserves evaluator independent of the
Company.





NOTE
7 – BANK LINE OF CREDIT





In August
2008, DEAL
secured a revolving operating loan facility with a Canadian Bank for up to
$7,000,000, subject to certain production targets.  This facility,
secured by DEAL’s oil and gas assets in Canada, was at an interest rate of
Canadian prime plus 1%.  In accordance with the terms of the facility,
DEAL is required to maintain an adjusted working capital ratio of not less than
1.10:1.  The adjusted working capital ratio is defined as the ratio of
(i) current assets plus any undrawn availability under the facility, to (ii)
current liabilities less any amount drawn under the facility.





F-17





DEJOUR
ENTERPRISES LTD.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For the
Year Ended December 31, 2009







NOTE
7 – BANK LINE OF CREDIT (continued)





During the year ended
December 31, 2009, the terms of the bank line of credit were amended. The
facility was reduced from $7,000,000 to $1,780,000 and the interest rate was
adjusted to Canadian prime plus 2%.As at December 31, 2009, DEAL was in
compliance with the working capital ratio requirement.Subsequent to
December 31, 2009, the terms of the bank line of credit were further amended.
The facility was reduced from $1,780,000 to $1,000,000 effective January 7,
2010. On March 22, 2010, the bank line of credit was paid off in
full.  At December 31, 2009 $850,000 (2008 - $5,550,000) of this
facility was utilized.





Subsequent
to December 31, 2009, the Company negotiated a credit facility for up to
$5,000,000. This facility is secured by DEAL’s oil and gas assets in Canada. The
first $2,000,000 of the facility was used to refinance the Company’s existing
bank facility and fund working capital. The remainder of the facility is
accessible subject to additional lender review. The facility carries interest
rate at 12% per annum, subject to a 1% fee on any amount drawn and a 2% fee on
repayment. The Company paid a $50,000 commitment fee.





NOTE
8 – LOANS FROM RELATED PARTIES





(a)
            Loan
      from Hodgkinson Equity Corporation
(“HEC”)





HEC loan to
DEAL





On May
15, 2008, DEAL issued a promissory note for up to $2,000,000 to HEC, a private
company controlled by the CEO of the Company. The promissory note is secured by
the assets, equipment, fixtures, inventory and accounts receivable of DEAL,
bears interest at the Royal Bank of Canada Prime Rate per annum, and has a loan
fee of 1% of the outstanding amount per month. The principal, interest and loan
fee were payable on demand after August 15, 2008. Upon securing the bank
line of credit in August 2008 (refer to note 7), HEC signed a subordination and
postponement agreement which restricted the principal repayment of the
promissory note subject to the bank’s prior approval and DEAL meeting certain
loan covenants. As at December 31, 2008, $1,950,000 had been advanced on the
promissory note. Repayments of $90,642 and $59,358 were made on March 5, 2009
and on April 3, 2009 respectively. As at June 22, 2009, the Company assumed from
DEAL the remaining outstanding balance of $1,800,000.





HEC loan to the
Company





On August
11, 2008, the Company borrowed $600,000 from HEC.  The loan was
secured by all assets of the Company, repayable on demand, bore interest at the
Canadian prime rate per annum, and had a loan fee of 1% of the outstanding
amount per month.  At December 31, 2008 $600,000 had been advanced to
the Company.  On March 19, 2009, a repayment of $600,000 was made and
as at December 31, 2009, no balance remained outstanding.





On
September 12, 2008, as consideration for HEC agreeing to postpone the $2,000,000
promissory note and providing the additional loan of $600,000, HEC was granted
an option to become a working interest partner with DEAL.  Upon
electing to become a working interest partner, HEC must pay DEAL an amount equal
to 10% of the actual price paid for the acquisition of the Montney (Buick Creek)
property in northeastern British Columbia.  HEC is also required to
pay its pro-rata share of the operating costs. On February 26, 2009, HEC
exercised its option and elected to become a 10% working interest partner in
DEAL’s Montney (Buick Creek) property.  The option price was
$90,642.





On June
22, 2009, as amended on September 30, 2009 and December 31, 2009, the Company
entered into an agreement with HEC in regard to the outstanding debt of
$1,800,000 assumed from DEAL by the Company.  Pursuant to the
agreements, $450,000 of the debt was converted into 1,363,636 units consisting
of 1,363,636 common shares and 681,818 common share purchase warrants
exercisable at a price of $0.55 for a period of 5 years.  The fair
value of the units was estimated to be $450,000. The remaining $1,350,000 was
converted into a 12% note due on January 1, 2011 and the Company was required to
pay 3% fee on the outstanding balance of the loan as at December 31,
2009.  As a result of the sale of 5% working interest in the
Drake/Woodrush area to HEC in December 2009 (effective June 1, 2009), both
parties agreed to reduce the loan balance by the purchase price of $911,722
including taxes and adjustments. In addition, the loan balance was further
reduced by a payment of $50,351.  As at December 31, 2009, a balance
of $387,927 remained outstanding.





F-18





DEJOUR
ENTERPRISES LTD.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For the
Year Ended December 31, 2009







NOTE
8 – LOANS FROM RELATED PARTIES (continued)





(b)
            Loan
      from Brownstone Ventures Inc.
(“Brownstone”)





On June
18, 2008, a promissory note with a face value of $4,078,800 (US $4,000,000) was
issued to Brownstone. Brownstone owns more than 10% of outstanding common shares
of the Company and one of Brownstone’s directors also serves on the board of
directors of the Company (refer to Note 6(b)). The promissory note was secured
by a general
security agreement issued by the Company in favour of Brownstone,and
bore interest at 5% per annum.   The principal and interest were
repayable by the earlier of the completion of an equity and/or debt financing,
and July 1, 2009.  During the year ended December 31, 2008, a
repayment of $222,948 (US$220,000) was made and at December 31, 2008 a balance
of $4,604,040 (US$3,780,000) owed.





On June
22, 2009, as amended on September 30, 2009 and December 31, 2009, the Company
entered into an agreement with Brownstone in regard to the outstanding debt of
$4,604,040 (US$3,780,000). Pursuant to the agreement, $2,200,000 (US$2,000,000)
of the debt was converted into 6,666,667 units consisting of 6,666,667 common
shares and 3,333,333 common share purchase warrants exercisable at a price of
$0.55 for a period of 5 years.  The fair value of the units
was estimated to be US$2,000,000.The remaining $2,070,140
(US$1,780,000) of the debt was converted into a Canadian dollar denominated 12%
note due on January 1, 2011.





On June
22, 2009, the Company also issued Brownstone 2,000,000 common share purchase
warrants exercisable at $0.50 for a period of 2 years, with an option to force
the exercise of the warrants if the Company’s common shares trade at a price of
$0.80 or greater for 30 consecutive calendar days.  The grant date
fair value of the warrants of $169,000 has been recorded in contributed surplus
and will be amortized as a finance fee over the life of the note.





12%
      note
                  
                  $
                  2,070,140Finance
      fee
                  
                  
                  (169,000
                  )Accumulated
      amortization of finance fees
                  
                  
                  56,334Balance
      as at December 31, 2009
                  
                  $
                  1,957,474





NOTE
9 – ASSET RETIREMENT OBLIGATIONS





The total
future asset retirement obligations were estimated based on the Company’s net
ownership interest in all wells and facilities, the estimated cost to abandon
and reclaim the wells and facilities and the estimated timing of the cost to be
incurred in future periods.  The Company estimated the total
undiscounted amount of the cash flows required to settle the retirement
obligations related to its oil and gas properties in Canada as at December 31,
2009 to be $482,884.  These obligations are expected to be settled by
year 2029.  A credit adjusted risk-free rate of 5% and an inflation
rate of 0.3% was used to calculate the present value of the asset retirement
obligations.





Balance
      at December 31, 2007
                  
                  $
                  -Liabilities
      incurred during the year
                  
                  
                  404,311Accretion
      expense
                  
                  
                  16,412Actual
      costs incurred
                  
                  
                  (57,614
                  )Balance
      at December 31, 2008
                  
                  
                  363,109Liabilities
      incurred during the year
                  
                  
                  -Change
      in estimate
                  
                  
                  (154,160
                  )Accretion
      expense
                  
                  
                  12,863Actual
      costs incurred
                  
                  
                  (13,296
                  )Balance
      at December 31, 2009
                  
                  $
                  208,516





F-19





DEJOUR
ENTERPRISES LTD.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For the
Year Ended December 31, 2009







NOTE
10 – SHARE CAPITAL





Authorized:
                Unlimited
      common shares, no par valueUnlimited
      first preferred shares, issuable in seriesUnlimited
      second preferred shares, issuable in
series





CommonShares
                        
                        
                        ValueBalance
      at December 31, 2007
                        
                        
                        70,128,329
                        
                        
                        $
                        61,393,964-
      For conversion of convertible debenture
                        
                        
                        884,242
                        
                        
                        
                        1,214,497-
      For cash on exercise of stock options
                        
                        
                        1,681,048
                        
                        
                        
                        887,621-
      For cash on exercise of warrants
                        
                        
                        958,263
                        
                        
                        
                        1,447,464-
      Contributed surplus reallocated on exercise of stock
    options
                        
                        
                        -
                        
                        
                        
                        532,531-
      Renounced flow through share expenditures
                        
                        
                        -
                        
                        
                        
                        (536,900
                        )Balance
      at December 31, 2008
                        
                        
                        73,651,882
                        
                        
                        
                        64,939,177-
      For cash on exercise of stock options
                        
                        
                        631,856
                        
                        
                        
                        273,223-
      For settlement of debt (Note 8)
                        
                        
                        8,030,303
                        
                        
                        
                        2,650,000-
      For cash by private placements, net of share issuance
costs
                        
                        
                        13,476,997
                        
                        
                        
                        4,549,882-
      Contributed surplus reallocated on exercise of stock
    options
                        
                        
                        -
                        
                        
                        
                        147,222Balance
      at December 31, 2009
                        
                        
                        95,791,038
                        
                        
                        $
                        72,559,504





During
the year ended December 31, 2009, the Company completed the
following:





In
October 2009, the Company completed a private placement and issued 2,710,332
flow-through shares (“FTS”) at $0.60 per share. Gross proceeds raised were
$1,626,199.  In connection with this private placement, the Company
paid finders’ fees of $83,980 and other related costs of $73,427.





In
December 2009, the Company completed a private placement and issued 10,766,665
units at US$0.30 per unit. Each unit consists of 10,766,665 common shares and
8,075,000 share purchase warrants, exercisable at US$0.40 per share on or before
December 23, 2014. Gross proceeds raised were $3,425,060 (US$3,230,000). In
connection with this private placement, the Company paid finders’ fees of
$203,180 and other related costs of $140,788. The Company also issued 645,999
agent’s warrants, exercisable at US$0.46 per share on or before November 3,
2014. The grant date fair values of the warrants and agent’s warrants, estimated
to be $888,250 and $71,060 respectively, have been included in share capital on
a net basis and accordingly have not been recorded as a separate component of
shareholders’ equity.





During
the year ended December 31, 2008:





In
January 2008, the Company renounced $1,820,000 flow-through funds to investors,
using the look-back rule. Of this $1,820,000, $263,222 of renounced Canadian
Exploration Expenditures (“CEEs”) had been spent by December 31, 2007 and the
remaining flow-through funds had been fully spent by February 29, 2008. As a
result of the renunciation, future income tax recovery of $536,900 was
recognized against share capital.





In
February 2008, the Company filed a Part XII.6 tax return with the Canada Revenue
Agency related to CEEs with an effective date of renunciation of December 31,
2006 and paid $236,348 of Part XII.6 tax.




F-20




DEJOUR
ENTERPRISES LTD.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For the
Year Ended December 31, 2009







NOTE
11 – STOCK OPTIONS AND SHARE PURCHASE WARRANTS





During
the year ended December 31, 2009, the Company granted 3,312,000 (2008 –
4,945,000) options to its officers, directors, consultants, employees and
advisors. In addition, 5,461,842 (2008 – 1,693,053) options were cancelled or
expired with a weighted average exercise price at $1.46 (2008 -
$1.83).





As at
December 31, 2009, there were 4,416,682 options outstanding with a weighted
average exercise price at $0.45, of which 1,233,807 were vested. The vested
options can be exercised for periods ending up to November 12, 2014 to purchase
common shares of the Company at prices ranging from $0.45 to $0.55 per
share.





The
Company expenses the fair value of all stock options granted over their
respective vesting periods for directors and employees and over the service life
for consultants. The fair value of the options granted during the year ended
December 31, 2009 was determined to be $930,250 (2008 - $2,406,250). The Company
determined the fair value of stock options granted using the Black-Scholes
option pricing model using the following weighted average assumptions: Expected
option life of 3.94 years (2008 – 4.05 years), risk-free interest rate of 1.66%
(2008 – 2.95%) and expected volatility of 100.52% (2008 – 81.10%).





During
the year ended December 31, 2009, the Company recognized a total of $697,467
(2008 - $2,719,957) of stock based compensation relating to the vesting of
options.





As at
December 31, 2009, there were 3,182,875 unvested options included in the balance
of the outstanding options. As of December 31, 2009, there was $862,706 of total
unrecognized compensation cost related to non-vested stock options. That cost is
expected to be recognized over a weighted average period of 3.83
years.  The following table summarizes information about stock option
transactions:





Outstanding
                              Options
                            
                            
                            Weighted Average
                              Exercise Price
                            
                            Weighted
                              Average
                              Remaining
                              Contractual
                              LifeBalance,
      December 31, 2007
                            
                            
                            5,627,481
                            
                            
                            $
                            1.49
                            
                            1.96
      yearsOptions
      granted
                            
                            
                            4,945,000
                            
                            
                            
                            0.88Options
      exercised
                            
                            
                            (1,681,048
                            )
                            
                            
                            0.53Options
      cancelled and expired
                            
                            
                            (1,693,053
                            )
                            
                            
                            1.83Balance,
      December 31, 2008
                            
                            
                            7,198,380
                            
                            
                            
                            1.22
                            
                            2.94
      yearsOptions
      granted
                            
                            
                            3,312,000
                            
                            
                            
                            0.46Options
      exercised
                            
                            
                            (631,856
                            )
                            
                            
                            0.43Options
      cancelled and expired
                            
                            
                            (5,461,842
                            )
                            
                            
                            1.46Balance,
      December 31, 2009
                            
                            
                            4,416,682
                            
                            
                            $
                            0.45
                            
                            3.54
      years


F-21





DEJOUR
ENTERPRISES LTD.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For the
Year Ended December 31, 2009







NOTE
11 – STOCK OPTIONS AND SHARE PURCHASE WARRANTS (continued)





Details
of stock options vested and exercisable as at December 31, 2009 are as
follows:





Number of Options
                          Outstanding and
                          vested
                        
                        Exercise Price
                        
                        
                        Weighted Average
                          Remaining
                          Contractual Life
                          (Years)1,095,625
                        
                        $
                        0.45
                        
                        
                        
                        3.0060,000
                        
                        $
                        0.50
                        
                        
                        
                        1.0078,182
                        
                        $
                        0.55
                        
                        
                        
                        1.001,233,807
                        
                        $
                        0.46
                        
                        
                        
                        2.78




The
following table summarizes information about warrant transactions:





Outstanding Warrants
                              
                              
                              Weighted Average
                                Excercise Price
                              
                              Weighted Average
                                RemainingContractual
                                LifeBalance,
      December 31, 2007
                              
                              
                              2,372,531
                              
                              
                              $
                              3.15
                              
                              1.31
      yearsWarrants
      issued
                              
                              
                              884,242
                              
                              
                              
                              1.53Warrants
      exercised
                              
                              
                              (958,263
                              )
                              
                              
                              1.53Warrants
      expired
                              
                              
                              (194,381
                              )
                              
                              
                              1.53Balance,
      December 31, 2008
                              
                              
                              2,104,129
                              
                              
                              
                              3.35
                              
                              0.40
      yearsWarrants
      issued
                              
                              
                              14,736,150
                              
                              
                              
                              0.47Warrants
      exercised
                              
                              
                              -
                              
                              
                              
                              -Warrants
      expired
                              
                              
                              (2,104,129
                              )
                              
                              
                              3.35Balance,
      December 31, 2009
                              
                              
                              14,736,150
                              
                              
                              $
                              0.47
                              
                              4.36
      years





Details
of warrants outstanding as at December 31, 2009 are as follows:





Number of
                    Warrants
                    Outstanding
                  
                  Exercise Price
                  
                  
                  Weighted Average
                    Remaining
                    Contractual Life
                    (Years)2,000,000
                  
                  $
                  0.50
                  
                  
                  
                  1.474,015,151
                  
                  $
                  0.55
                  
                  
                  
                  4.488,075,000
                  
                  US$
                  0.40
                  
                  
                  
                  4.98645,999
                  
                  US$
                  0.46
                  
                  
                  
                  4.8414,736,150


F-22


DEJOUR
ENTERPRISES LTD.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For the
Year Ended December 31, 2009







NOTE
12 – CONTRIBUTED SURPLUS





Details
of changes in the Company's contributed surplus balance are as
follows:





Details
      of changes in the Company's contributed surplus balance are as
      follows:Balance
      at December 31, 2007
                  
                  $
                  3,735,270Stock
      compensation on vesting of options
                  
                  
                  2,719,957Value
      of conversion feature on convertible debenture
                  
                  
                  (27,136
                  )Allocated
      to share capital on exercise of options
                  
                  
                  (532,531
                  )Balance
      at December 31, 2008
                  
                  
                  5,895,560Stock
      compensation on vesting of options
                  
                  
                  697,467Allocated
      to share capital on exercise of options
                  
                  
                  (147,222
                  )Value
      of warrants issued for settlement of debt
                  
                  
                  169,000Balance
      at December 31, 2009
                  
                  $
                  6,614,805




NOTE
13 – SUPPLEMENTAL CASH FLOW INFORMATION





December 31,
                          
                          
                          December 31,2009
                          
                          
                          2008Changes
      in non-cash working capital balances:Accounts
      receivable
                          
                          $
                          115,922
                          
                          
                          $
                          (782,856
                          )Prepaids
      and other receivables
                          
                          
                          (127,351
                          )
                          
                          
                          219,170Advances
      for oil and gas projects
                          
                          
                          -
                          
                          
                          
                          790,487Accounts
      payable and accrued liabilities
                          
                          
                          (1,088,287
                          )
                          
                          
                          1,077,635$
                          (1,099,716
                          )
                          
                          $
                          1,304,436Changes
      in non-cash financing and investing activities:Common
      shares issued for convertible debentures
                          
                          $
                          -
                          
                          
                          $
                          1,214,497Conversion
      feature on convertible debenture
                          
                          
                          -
                          
                          
                          
                          (27,136
                          )Other
      cash flow information:Interest
      paid
                          
                          $
                          569,192
                          
                          
                          $
                          374,679Income
      taxes paid
                          
                          
                          -
                          
                          
                          
                          -$
                          569,192
                          
                          
                          $
                          374,679Components
      of cash and cash equivalentsCash
                          
                          $
                          2,582,696
                          
                          
                          $
                          774,225Guaranteed
      investment certificates
                          
                          
                          150,000
                          
                          
                          
                          -$
                          2,732,696
                          
                          
                          $
                          774,225


F-23


DEJOUR
ENTERPRISES LTD.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For the
Year Ended December 31, 2009







NOTE
14 – RELATED PARTY TRANSACTIONS





During
the years ended December 31, 2009 and 2008, the Company entered into the
following transactions with related parties:





(a)
            The
      Company incurred a total of $682,618 (2008 - $737,112) in consulting and
      professional fees and a total of $90,714 (2008 - $111,291) in rent
      expenses to the companies controlled by officers of the Company. Included
      in the total consulting and professional fees incurred during fiscal 2009
      was a payment of $107,000 made to a former officer of the Company to
      terminate the consulting agreement with this
  officer.





(b)
            The
      Company incurred a total of $382,748 (2008 - $300,434) in interest expense
      and finance fee to the related
parties.





(c)
            The
      Company received total rental income of $30,000 (2008 - $28,700) from the
      companies controlled by officers of the
Company.





(d)
            The
      Company received total consulting fee income of $114,200 (2008:Nil) from a
      related party.





(e)
            In
      May 2008, DEAL issued a promissory note for up to $2,000,000 to HEC. As at
      December 31, 2008, $1,950,000 had been advanced on the promissory note.
      During the year ended December 31, 2009, $150,000 was repaid and the
      remaining $1,800,000 was assumed by the Company. Pursuant to an agreement
      with HEC, $450,000 of the debt was converted into common shares and common
      share purchase warrants of the Company, and $900,000 was settled by the
      sale of 5% working interest in Drake/Woodrush to HEC. Refer to Note
      8(a).





(f)
            In
      August 2008, the Company borrowed $600,000 from HEC. This was fully paid
      off during the year ended December 31, 2009. Refer to Note
      8(a).





(g)
            In
      February 2009, HEC exercised its option and elected to become a 10%
      working interest partner in DEAL’s Montney (Buick Creek)
      property.  The option price was $90,642.  Refer to
      Note 8(a).





These
transactions are in the normal course of operations and are measured at the
exchange amount established and agreed to by the related
parties.


F-24


DEJOUR
ENTERPRISES LTD.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For the
Year Ended December 31, 2009







NOTE
15 – 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 Company’s loss before income taxes.  The components of these
differences are as follows:





2009
                          
                          
                          2008Loss
      before income taxes
                          
                          $
                          (13,940,058
                          )
                          
                          $
                          (20,294,513
                          )Corporate
      tax rate
                          
                          
                          30.00
                          %
                          
                          
                          31.00
                          %Expected
      tax recovery
                          
                          
                          (4,182,017
                          )
                          
                          
                          (6,291,299
                          )Increase
      (decrease) resulting from:Differences
      in foreign tax rates and change in effective tax rates
                          
                          
                          695,723
                          
                          
                          
                          (84,595
                          )Impact
      of foreign exchange rate changes
                          
                          
                          (101,005
                          )
                          
                          
                          (350,194
                          )Titan
      shares and warrants investment
                          
                          
                          -
                          
                          
                          
                          886,123Change
      in future tax asset valuation allowance
                          
                          
                          3,028,499
                          
                          
                          
                          5,407,647Stock
      based compensation, share issue costs and other permanent
      differences
                          
                          
                          (231,005
                          )
                          
                          
                          1,122,460Other
      adjustments
                          
                          
                          (343,335
                          )
                          
                          
                          (93,902
                          )Future
      income taxes expense (recovery)
                          
                          $
                          (1,133,140
                          )
                          
                          $
                          596,240




The
Company’s tax-effected future income tax assets and liabilities are made up as
follows:





2009
                    
                    
                    2008Future
      income tax assetsNon-capital
      losses available
                    
                    $
                    6,829,131
                    
                    
                    $
                    5,253,487Capital
      losses available
                    
                    
                    1,365,955
                    
                    
                    
                    1,594,217Resource
      tax pools in excess of net book value
                    
                    
                    1,204,440
                    
                    
                    
                    -Share
      issue costs and other
                    
                    
                    227,102
                    
                    
                    
                    322,8429,626,628
                    
                    
                    
                    7,170,546Future
      income tax liabilitiesLong
      term investments
                    
                    
                    -
                    
                    
                    
                    (392,403
                    )Net
      book value in excess of resource tax pools
                    
                    
                    -
                    
                    
                    
                    (1,312,812
                    )-
                    
                    
                    
                    (1,705,215
                    )Net
      future income tax assets
                    
                    
                    9,626,628
                    
                    
                    
                    5,465,331Valuation
      allowance
                    
                    
                    (9,626,628
                    )
                    
                    
                    (6,598,471
                    )Net
      future income tax liabilities
                    
                    $
                    -
                    
                    
                    $
                    (1,133,140
                    )


F-25





DEJOUR
ENTERPRISES LTD.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For the
Year Ended December 31, 2009







NOTE
15 – FUTURE INCOME TAXES (continued)





The
Company has approximately $22,165,000 (2008 – $16,446,000) of non-capital losses
which can be applied to reduce future taxable income, expiring as
follows:





Year of Expiry
                  
                  Amount2015
                  
                  $
                  1,729,0002026
                  
                  
                  2,121,0002027
                  
                  
                  6,978,0002028
                  
                  
                  4,886,0002029
                  
                  
                  6,451,000$
                  22,165,000





In
addition, the Company has Canadian exploration and development expenditures
totaling approximately $18,477,000, unamortized share issue costs of
approximately $772,000 and capital loss carry forwards of approximately
$5,274,000 which may be available to reduce future taxable
income.  Both the exploration and development expenditures and the
capital losses can be carried forward indefinitely.





NOTE
16 – COMMITMENT





The
Company has entered into lease agreements on office premises for its various
locations.  Under the terms of the leases, the Company is required to
make minimum annual payments.  Future minimum annual lease payments
under the leases are as follows:





2010
                  
                  $
                  187,3282011
                  
                  
                  73,0512012
                  
                  
                  73,0512013
                  
                  
                  73,0512014
                  
                  
                  48,700$
                  455,181


F-26


DEJOUR
ENTERPRISES LTD.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For the
Year Ended December 31, 2009







NOTE
17 – SEGMENTED DISCLOSURE





As at
December 31, 2009 and 2008, the Company’s significant assets, losses and revenue
by geographic location were as follows:





December 31
                      
                      
                      December 31,2009
                      
                      
                      2008CanadaRevenue
                      
                      $
                      6,785,995
                      
                      
                      $
                      5,751,672Interest
      and other income
                      
                      
                      302,824
                      
                      
                      
                      124,208Future
      income tax recovery (expense)
                      
                      
                      1,133,140
                      
                      
                      
                      (596,240
                      )Segmented
      loss
                      
                      
                      (10,969,741
                      )
                      
                      
                      (17,301,636
                      )Assets:Current
      Assets
                      
                      
                      3,646,770
                      
                      
                      
                      1,765,599Equipment,
      net
                      
                      
                      85,664
                      
                      
                      
                      80,701Investment
      in Titan
                      
                      
                      -
                      
                      
                      
                      2,721,875Uranium
      properties
                      
                      
                      533,085
                      
                      
                      
                      696,991Oil
      and gas properties, net
                      
                      
                      12,608,779
                      
                      
                      
                      27,493,32916,874,298
                      
                      
                      
                      32,758,495U.S.A.Revenue
                      
                      
                      -
                      
                      
                      
                      13,883Interest
      and other income
                      
                      
                      114,200
                      
                      
                      
                      112,630Segmented
      loss
                      
                      
                      (1,837,177
                      )
                      
                      
                      (3,589,117
                      )Assets:Current
      Assets
                      
                      
                      366,372
                      
                      
                      
                      355,410Equipment,
      net
                      
                      
                      29,083
                      
                      
                      
                      35,883Oil
      and gas properties, net
                      
                      
                      28,616,124
                      
                      
                      
                      29,493,39829,011,578
                      
                      
                      
                      29,884,691Total
      assets
                      
                      $
                      45,885,876
                      
                      
                      $
                      62,643,186





NOTE
18 – CONTINGENCY





The
Company was involved in a termination claim and litigation from a former officer
and director arising in the normal course of business.  Subsequent to
December 31, 2009, both parties agreed to settle the claim and the Company made
a settlement payment of $100,000 to the former director and officer.This
amount was included in accounts payable and accrued liabilities as at December
31, 2009.


F-27


DEJOUR
ENTERPRISES LTD.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For the
Year Ended December 31, 2009







NOTE
19 – FINANCIAL INSTRUMENTS, RISK MANAGEMENT AND CAPITAL MANAGEMENT
STRATEGY





The
Company is engaged primarily in mineral and oil and gas exploration and
production and manages related industry risk issues directly.  The
Company may be at risk for environmental issues and fluctuations in commodity
pricing.  Management is not aware of and does not anticipate any
significant environmental remediation costs or liabilities in respect of its
current operations.





The
Company’s functional currency is the Canadian dollar. The Company operates in
foreign jurisdictions, giving rise to significant exposure to market risks from
changes in foreign currency rates.  The financial risk is the risk to
the Company's operations that arises from fluctuations in foreign exchange rates
and the degree of volatility of these rates.  Currently, the Company
does not use derivative instruments to reduce its exposure to foreign currency
risk.





The
Company also has exposure to a number of risks from its use of financial
instruments including: credit risk, liquidity risk, and market
risk.  This note presents information about the Company’s exposure to
each of these risks and the Company’s objectives, policies and processes for
measuring and managing risk, and the Company’s management of
capital.





The Board
of Directors has overall responsibility for the establishment and oversight of
the Company’s risk management framework.  The Board has implemented
and monitors compliance with risk management policies.  The Company’s
risk management policies are established to identify and analyze the risks faced
by the Company, to set appropriate risk limits and controls, and to monitor
risks and adherence to market conditions and the Company’s
activities.





(a)
            Liquidity
      Risk





Liquidity
risk is the risk that the Company will not be able to meet its financial
obligations as they become due.  The Company’s approach to managing
liquidity is to ensure, as far as possible, that it will have sufficient
liquidity to meet its liabilities when due, under both normal and stressed
conditions without incurring unacceptable losses or risking harm to the
Company’s reputation.





As the
industry in which the Company operates is very capital intensive, the majority
of the Company’s spending is related to its capital programs.  The
Company prepares annual capital expenditure budgets, which are regularly
monitored and updated as considered necessary.  Further, the Company
utilizes authorizations for expenditures on both operated and non-operated
projects to further manage capital expenditures.  To facilitate the
capital expenditure program, the Company has a revolving reserve based credit
facility (refer to Note 7).  The Company also attempts to match its
payment cycle with collection of oil and natural gas revenues on the 25th of each
month.





Accounts
payable are considered due to suppliers in one year or less while the bank line
of credit, which is subject to renewal after a 364-day revolving period, could
be potentially due within the next year if the facility is not renewed for a
further 364-day period.





(b)
            Market
      Risk





Market
risk is the risk that changes in market prices, such as foreign exchange rates,
commodity prices, and interest rates will affect the Company’s net earnings or
the value of financial instruments.  The objective of market risk
management is to manage and control market risk exposures within acceptable
limits, while maximizing returns.  The Company utilizes financial
derivatives to manage certain market risks.  All such transactions are
conducted in accordance with the risk management policy that has been approved
by the Board of Directors.


F-28


DEJOUR
ENTERPRISES LTD.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For the
Year Ended December 31, 2009







NOTE
19 – FINANCIAL INSTRUMENTS, RISK MANAGEMENT AND CAPITAL MANAGEMENT STRATEGY
(continued)





(c)
            Foreign
      Currency Exchange Risk





Foreign
currency exchange rate risk is the risk that the fair value of financial
instruments or future cash flows will fluctuate as a result of changes in
foreign exchange rates.  Although substantially all of the Company’s
oil and natural gas sales are denominated in Canadian dollars, the underlying
market prices in Canada for oil and natural gas are impacted by changes in the
exchange rate between the Canadian and United States dollars.  Given
that changes in exchange rate have an indirect influence, the impact of changing
exchange rates cannot be accurately quantified.  The Company had no
forward exchange rate contracts in place as at or during the year ended December
31, 2009.





The
Company was exposed to the following foreign currency risk at December 31,
2009:





Expressed
      in foreign currencies - 2009
                
                USDCash
      and cash equivalents
                
                $
                1,526,455Accounts
      receivable
                
                
                69,221Accounts
      payable and accrued liabilities
                
                
                (263,048
                )Balance
      sheet exposure
                
                $
                1,332,628





The
following foreign exchange rates applied for the year ended and as at December
31, 2009:





YTD
      average USD to CAD
                
                
                1.142December
      31, reporting date rate
                
                
                1.051





The
Company has performed a sensitivity analysis on its foreign currency denominated
financial instruments. Based on the Company’s foreign currency exposure noted
above and assuming that all other variables remain constant, a 10% appreciation
of the following currencies against the Canadian dollar would result in the
decrease of net loss of $140,059 at December 31, 2009. For a 10% depreciation of
the above foreign currencies against the Canadian dollar, assuming all other
variables remain constant, there would be an equal and opposite impact on net
loss.





(d)
            Interest
      Rate Risk





Interest
rate risk is the risk that future cash flows will fluctuate as a result of
changes in market interest rates.  The Company is exposed to interest
rate fluctuations on its credit facility which bears a floating rate of
interest.  The Company had no interest rate swaps or financial
contracts in place at or during the year ended December 31, 2009.





(e)
            Commodity
      Price Risk





Commodity
price risk is the risk that the fair value of financial instruments or future
cash flows will fluctuate as a result of changes in commodity
prices.  Commodity prices for oil and natural gas are impacted by
world economic events that dictate the levels of supply and
demand.  The Company has attempted to mitigate commodity price risk
through the use of financial derivative sales contracts.  As at
December 31, 2009, the Company had outstanding a natural gas derivatives
contract for 600 gigajoules (“GJ”) per day for the period from November 1, 2009
to April 30, 2010. This contract consisted of a CAD$4.47 per GJ forward sale
agreement.  As at December 31, 2009, the Company also had outstanding
a crude oil derivatives contract for 100 barrels (“bbl”) per day for the period
from September 1, 2009 to April 30, 2010. This contract consisted of a CAD$81.60
per bbl forward sale agreement. As at December 31, 2009, unrealized losses of
$99,894 relating to these two contracts was recorded in accumulated other
comprehensive income.


F-29


DEJOUR
ENTERPRISES LTD.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For the
Year Ended December 31, 2009







NOTE
19 – FINANCIAL INSTRUMENTS, RISK MANAGEMENT AND CAPITAL MANAGEMENT STRATEGY
(continued)





(f)
            Capital
      Management Strategy





The
Company’s policy on capital management is to maintain a prudent capital
structure so as to maintain financial flexibility, preserve access to capital
markets, maintain investor, creditor and market confidence, and to allow the
Company to fund future development.  The Company considers its capital
structure to include share capital, cash and cash equivalents and line of
credit, loan from joint-venture partner, loan from related party, and working
capital.  In order to maintain or adjust capital structure, the
Company may from time to time issue shares or enter into debt agreements and
adjust its capital spending to manage current and projected operating cash flows
and debt levels.





The Company’s share
capital is not subject to any external restrictions.The Company has not
paid or declared any dividends, nor are any contemplated in the foreseeable
future.  There have been no changes to the Company’s capital
management strategy during the year ended December 31, 2009.





NOTE
20 – SUBSEQUENT EVENTS





(a)
            Stock
      Options





Subsequent
to December 31, 2009, the Company granted a total of 3,053,000 incentive stock
options with a weighted average exercise price at $0.35 per share to independent
directors, management, officers, employees and consultants of the Company. The
options can be exercised for periods ending up to February 15,
2015.





(b)
            Bank
      Line of Credit and Bridge Loan
Financing





Subsequent
to December 31, 2009, the bank line of credit was paid off in full.





In
February 2010, the Company negotiated a credit facility for up to $5,000,000.
This facility is secured by DEAL’s oil and gas assets in Canada. The first
$2,000,000 of the facility was used to refinance the Company’s existing bank
facility and fund its working capital.  The remainder of the line is
accessible subject to additional lender review. The facility bears interest at a
rate of 12% per annum, subject to a 1% fee on any amount drawn and a 2% fee on
repayment. The Company paid a $50,000 commitment fee. Refer to Note
7.





(c)
            Private
      Placement





In March
2010, the Company sold 2,907,334 flow-through units at $0.35 per share. Each
unit consists of one common share and one-half of one common share purchase
warrant. Each whole warrant entitles the holder to acquire one additional common
share of the Company. The Company issued 1,453,667 share purchase warrants,
exercisable at $0.45 per warrant on or before March 3, 2011. Gross proceeds
raised were $1,018,000. In connection with this private placement, the Company
paid finders’ fees of up to 6.25% of the proceeds in cash. The Company also
issued 37,423 agents’ warrants, exercisable at $0.45 per warrant on or before
March 3, 2011.





NOTE
21 – RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (“US GAAP”)





These
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in Canada (“Canadian GAAP”) which
differ in certain respects with accounting principles generally accepted in the
United States and from practices prescribed by the Securities and Exchange
Commission (collectively “US GAAP”).  Material differences to these
financial statements are as follows:


F-30


DEJOUR
ENTERPRISES LTD.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For the
Year Ended December 31, 2009







NOTE
21 – RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (“US GAAP”) (continued)





(a)
            Interest
      in unproven mineral properties





Under US
GAAP, the Company classified its mineral rights as tangible assets and
accordingly acquisition costs are capitalized as mineral property
costs.  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 undiscounted expected future cash
flows is less than the carrying amount of the asset, an impairment loss is
recognized.  Mineral exploration costs are expensed as incurred until
commercially mineable deposits are determined to exist within a particular
property.  Accordingly, for all periods presented, the Company has
capitalized all mineral exploration costs for US GAAP purposes unless the costs
relate to unproven mineral properties.  In addition, under Canadian
GAAP, cash flows relating to unproven mineral property costs are reported as
investing activities. For US GAAP, these costs are classified as operating
activities.





(b)
            Stock-based
      compensation





The
Company has granted stock options to certain directors, employees and
consultants.  Under Canadian GAAP, prior to 2003, no compensation
expense was recorded in connection with the granting of stock
options.  Under previous US GAAP, the Company accounted for
stock-based compensation in respect of stock options granted to directors and
employees using the intrinsic value based method.  Stock options
granted to non-employees were accounted for by applying the fair value method
using the Black-Scholes option pricing model.  Commencing January 1,
2003, under Canadian GAAP the Company expenses the fair value of all stock
options granted and under US GAAP prospectively changed its accounting policy to
account for all stock options granted in accordance with Accounting Standards
Codification (“ASC”) 718.  As a result, effective January 1, 2003,
there is no material difference between the Company’s accounting for stock
options under US GAAP versus Canadian GAAP.





(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.





NOTE
21 – RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (“US GAAP”) (continued)





(d)
            Flow-through
      share premiums





Under US
GAAP, the proceeds from the issuance of flow-through shares are allocated
between the offering of shares and the sale of tax benefits.  The
allocation is based on the difference between the issue price of flow-through
shares and the fair value of the shares at the date of issuance.  A
liability is recorded for this difference and is reversed when tax benefits are
renounced. To the extent that the Company has available tax pools for which a
full valuation allowance has been provided, the premium is recognized in
earnings as a reduction in the valuation allowance at the time of renunciation
of the tax pools.





Under
Canadian GAAP, share capital is reduced and future income tax liabilities are
increased by the estimated income tax benefits renounced by the Company to the
subscribers, except to the extent that the Company has unrecorded loss
carryforwards and tax pools in excess of book value available for deduction
against which a valuation allowance has been provided.


F-31


DEJOUR
ENTERPRISES LTD.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For the
Year Ended December 31, 2009







NOTE
21 – RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (“US GAAP”) (continued)





(e)
            Reporting
      comprehensive income





ASC 220
“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 for the year as adjusted for all other non-owner changes in
shareholders’ equity. ASC 220 requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement. Effective January 1, 2007, the Company
adopted new Canadian GAAP accounting standards issued by the CICA relating to
comprehensive income. The new standard has been adopted on a prospective basis
with no restatement to prior period financial statements. The new standard
substantially harmonizes Canadian GAAP with US GAAP with respect to reporting
comprehensive income and loss. During the year, other comprehensive loss
recognized is $99,894 (2008 income – $107,768).





(f)
            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.





(g)
            Recent
      accounting pronouncements





During
2009, the Company adopted the Financial Accounting Standards Board ("FASB")
Accounting Standards Update, "Amendments Based on Statement of Financial
Accounting Standards No. 168 – The FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principles" (the
"Codification").  The Codification became the single source of
authoritative GAAP in the United States, other than rules and interpretive
releases issued by the United States Securities and Exchange Commission ("SEC").
The Codification reorganized GAAP into a topical format that eliminates the
previous GAAP hierarchy and instead established two levels of guidance –
authoritative and nonauthoritative.  All non-grandfathered, non-SEC
accounting literature that was not included in the Codification became
nonauthoritative. The adoption of the Codification did not change previous GAAP,
but rather simplified user access to all authoritative literature related to a
particular accounting topic in one place.  Accordingly, the adoption
had no impact on the Company’s consolidated financial position or results of
operations.  All prior references to previous GAAP in the Company’s
consolidated financial statements were updated for the new references under the
Codification.





In June
2009, the FASB issued general standards of accounting for, and disclosure of,
events that occur after the balance sheet date but before the financial
statements are issued or are available to be issued (codified within ASC 855).
The update sets forth: (a) the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial statements; (b)
the circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements; and (c) the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. The adoption of this standard had no
impact on the Company’s financial position, results of operations or cash
flows.





On
July 1, 2009, the Company adopted authoritative guidance issued by the FASB
on business combinations. The guidance retains the fundamental requirements that
the acquisition method of accounting (previously referred to as the purchase
method of accounting) be used for all business combinations, but requires a
number of changes, including changes in the way assets and liabilities are
recognized and measured as a result of business combinations. It also requires
the capitalization of in-process research and development at fair value and
requires the expensing of acquisition-related costs as incurred. Adoption of the
new guidance had  no impact on the Company’s financial
statements.





On
July 1, 2009, the Company adopted the authoritative guidance issued by the
FASB that changes the accounting and reporting for non-controlling interests.
Non-controlling interests are to be reported as a component of equity separate
from the parent’s equity, and purchases or sales of equity interests that do not
result in a change in control are to be accounted for as equity transactions. In
addition, net income attributable to a non-controlling interest is to be
included in net income and, upon a loss of control, the interest sold, as well
as any interest retained, is to be recorded at fair value with any gain or loss
recognized in net income. Adoption of the new guidance had no impact on the
Company’s financial statements.


F-32


DEJOUR
ENTERPRISES LTD.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For the
Year Ended December 31, 2009







NOTE
21 – RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (“US GAAP”) (continued)





On
July 1, 2009, the Company adopted the authoritative guidance on fair value
measurement for nonfinancial assets and liabilities, except for items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). Adoption of the new guidance had  no impact
on the Company’s financial statements.




Recent
Accounting Guidance Not Yet Adopted


In June
2009, the FASB issued authoritative guidance on the consolidation of variable
interest entities, which is effective for the Company beginning July 1,
2010. The new guidance requires revised evaluations of whether entities
represent variable interest entities, ongoing assessments of control over such
entities, and additional disclosures for variable interests. The Company
believes adoption of this new guidance will have no impact on the Company’s
financial statements.





(h)
            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:


F-33


DEJOUR
ENTERPRISES LTD.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For the
Year Ended December 31, 2009







NOTE
21 – RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (“US GAAP”) (continued)





(i)
            Assets





December 31,
                    
                    
                    December 31,2009
                    
                    
                    2008Total
      assets, under Canadian GAAP
                    
                    $
                    45,885,876
                    
                    
                    $
                    62,643,186Exploration
      costs - unproven resource properties
                    
                    
                    (481,714
                    )
                    
                    
                    (628,018
                    )Add:
      Resource properties accumulated depletion under Canadian
    GAAP
                    
                    
                    10,018,351
                    
                    
                    
                    3,635,777Add:
      Resource properties impairment under Canadian GAAP
                    
                    
                    3,955,854
                    
                    
                    
                    -Less:
      Resource properties accumulated depletion under US GAAP
                    
                    
                    (8,782,402
                    )
                    
                    
                    (4,063,107
                    )Less:
      Resource properties impairment under US GAAP
                    
                    
                    (15,807,960
                    )
                    
                    
                    (12,395,905
                    )Total
      assets, under US GAAP
                    
                    $
                    34,788,005
                    
                    
                    $
                    49,191,933





(ii)
            Liabilities





December 31,
                    
                    
                    December 31,2009
                    
                    
                    2008Total
      liabilities, under Canadian GAAP
                    
                    $
                    6,197,207
                    
                    
                    $
                    18,279,509Add:
      flow through issue cost liability under US GAAP
                    
                    
                    271,033
                    
                    
                    
                    -Total
      liabilities, under US GAAP
                    
                    $
                    6,468,240
                    
                    
                    $
                    18,279,509





(iii)
            Share
      Capital





December 31,
                      
                      
                      December 31,2009
                      
                      
                      2008Total
      share capital, under Canadian GAAP
                      
                      $
                      72,559,504
                      
                      
                      $
                      64,939,177Add:
      flow through issue cost under Canadian GAAP
                      
                      
                      4,669,883
                      
                      
                      
                      4,669,883Less:
      flow through issue cost under US GAAP
                      
                      
                      (456,033
                      )
                      
                      
                      (185,000
                      )Total
      share capital, under US GAAP
                      
                      $
                      76,773,354
                      
                      
                      $
                      69,424,060




F-34


DEJOUR
ENTERPRISES LTD.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For the
Year Ended December 31, 2009







NOTE
21 – RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (“US GAAP”) (continued)





(h)
            Reconciliation
      (continued)





(iv)   Deficit





December 31,
                    
                    
                    December 31,2009
                    
                    
                    2008Deficit,
      under Canadian GAAP
                    
                    $
                    (39,385,746
                    )
                    
                    $
                    (26,578,828
                    )Add:
      gain on disposal of uranium properties
                    
                    
                    5,652,166
                    
                    
                    
                    5,652,166Less:
      exploration costs - unproven resource property
expenditures
                    
                    
                    (6,265,184
                    )
                    
                    
                    (6,280,184
                    )Add:
      Uranium properties impairment under Canadian GAAP
                    
                    
                    148,906
                    
                    
                    
                    -Less:
      Uranium properties impairment under US GAAP
                    
                    
                    (17,602
                    )
                    
                    
                    -Less:
      flow through share future tax recovery under Canadian GAAP
                    
                    
                    (4,669,883
                    )
                    
                    
                    (4,669,883
                    )Add:
      flow through share future tax recovery under US GAAP
                    
                    
                    185,000
                    
                    
                    
                    185,000Add:
      Resource properties depletion under Canadian GAAP
                    
                    
                    10,018,351
                    
                    
                    
                    3,635,777Add:
      Resource properties impairment under Canadian GAAP
                    
                    
                    3,955,854
                    
                    
                    
                    -Less:
      Resource properties depletion under US GAAP
                    
                    
                    (8,782,402
                    )
                    
                    
                    (4,063,107
                    )Less:
      Resource properties impairment under US GAAP
                    
                    
                    (15,807,960
                    )
                    
                    
                    (12,395,905
                    )Deficit,
      under US GAAP
                    
                    $
                    (54,968,500
                    )
                    
                    $
                    (44,514,964
                    )





(v)  
 Net loss for the year





For
      the year ended December 31,2009
                  
                  
                  2008
                  
                  
                  2007Net
      loss for the year, under Canadian GAAP
                  
                  $
                  (12,806,918
                  )
                  
                  $
                  (20,890,753
                  )
                  
                  $
                  (26,810,673
                  )Add:
      exploration costs - unproven resource property
expenditures
                  
                  
                  15,000
                  
                  
                  
                  -
                  
                  
                  
                  -Add:
      Uranium properties impairment under Canadian GAAP
                  
                  
                  148,906
                  
                  
                  
                  -
                  
                  
                  
                  -Less:
      Uranium properties impairment under US GAAP
                  
                  
                  (17,602
                  )
                  
                  
                  -
                  
                  
                  
                  -Less:
      flow through share future tax recovery under Canadian GAAP
                  
                  
                  -
                  
                  
                  
                  (536,900
                  )
                  
                  
                  (2,712,540
                  )Add:
      flow through share future tax recovery under US GAAP
                  
                  
                  -
                  
                  
                  
                  70,000
                  
                  
                  
                  -Add:
      Resource properties depletion under Canadian GAAP
                  
                  
                  6,382,574
                  
                  
                  
                  3,635,777
                  
                  
                  
                  -Add:
      Resource properties impairment under Canadian GAAP
                  
                  
                  3,955,854
                  
                  
                  
                  -
                  
                  
                  
                  -Less:
      Resource properties depletion under US GAAP
                  
                  
                  (4,719,295
                  )
                  
                  
                  (4,063,107
                  )
                  
                  
                  -Less:
      Resource properties impairment under US GAAP
                  
                  
                  (3,412,055
                  )
                  
                  
                  (12,395,905
                  )
                  
                  
                  -Net
      loss for the year, under US GAAP
                  
                  $
                  (10,453,536
                  )
                  
                  $
                  (34,180,888
                  )
                  
                  $
                  (29,523,213
                  )


F-35


DEJOUR
ENTERPRISES LTD.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For the
Year Ended December 31, 2009










NOTE
21 – RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (“US GAAP”) (continued)





(h)
            Reconciliation
      (continued)





The
application of US GAAP would have the following effects on reported net
income:





(vi)   Reported
Net Loss





For
      the years ended December 31,2009
                  
                  
                  2008
                  
                  
                  2007Net
      loss for the year, under Canadian GAAP
                  
                  $
                  (12,806,918
                  )
                  
                  $
                  (20,890,753
                  )
                  
                  $
                  (26,810,673
                  )Adjustments:Add:
      exploration costs - unproven resource property
expenditures
                  
                  
                  15,000
                  
                  
                  
                  -
                  
                  
                  
                  -Add:
      Uranium properties impairment under Canadian GAAP
                  
                  
                  148,906
                  
                  
                  
                  -
                  
                  
                  
                  -Less:
      Uranium properties impairment under US GAAP
                  
                  
                  (17,602
                  )
                  
                  
                  -
                  
                  
                  
                  -Less:
      flow through share future tax recovery under Canadian GAAP (note
      21(d))
                  
                  
                  -
                  
                  
                  
                  (536,900
                  )
                  
                  
                  (2,712,540
                  )Add:
      flow through share future tax recovery under US GAAP (note
      21(d))
                  
                  
                  -
                  
                  
                  
                  70,000
                  
                  
                  
                  -Add:
      Resource properties depletion under Canadian GAAP
                  
                  
                  6,382,574
                  
                  
                  
                  3,635,777
                  
                  
                  
                  -Add:
      Resource properties impairment under Canadian GAAP
                  
                  
                  3,955,854Less:
      Resource properties depletion under US GAAP (note 21(a))
                  
                  
                  (4,719,295
                  )
                  
                  
                  (4,063,107
                  )
                  
                  
                  -Less:
      Resource properties impairment under US GAAP (note 21(a))
                  
                  
                  (3,412,055
                  )
                  
                  
                  (12,395,905
                  )
                  
                  
                  -Net
      loss for the year, under US GAAP
                  
                  $
                  (10,453,536
                  )
                  
                  $
                  (34,180,888
                  )
                  
                  $
                  (29,523,213
                  )Net
      loss per share - Basic
                  
                  $
                  (0.13
                  )
                  
                  $
                  (0.47
                  )
                  
                  $
                  (0.44
                  )Net
      loss per share - Diluted
                  
                  $
                  (0.13
                  )
                  
                  $
                  (0.47
                  )
                  
                  $
                  (0.44
                  )Weighted
      Average Number of Common Shares Outstanding - Basic
                  
                  
                  78,926,223
                  
                  
                  
                  72,210,852
                  
                  
                  
                  66,588,825Weighted
      Average Number of Common Shares Outstanding - Diluted
                  
                  
                  78,926,223
                  
                  
                  
                  72,210,852
                  
                  
                  
                  66,588,825Deficit,
      beginning of the year, under US GAAP
                  
                  $
                  (44,514,964
                  )
                  
                  $
                  (10,334,076
                  )
                  
                  $
                  19,189,137Net
      loss, under US GAAP
                  
                  
                  (10,453,536
                  )
                  
                  
                  (34,180,888
                  )
                  
                  
                  (29,523,213
                  )Deficit,
      end of the year, under US GAAP
                  
                  $
                  (54,968,500
                  )
                  
                  $
                  (44,514,964
                  )
                  
                  $
                  (10,334,076
                  )


F-36


DEJOUR
ENTERPRISES LTD.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For the
Year Ended December 31, 2009







NOTE
21 – RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (“US GAAP”) (continued)





(h)
            Reconciliation
      (continued)





(vii)
            Balance
      Sheets





Depletion
      andCanadian
                              
                              
                              Unproved
                              
                              
                              Depreciation
                              
                              
                              Flow-through
                              
                              
                              USDecember
      31, 2009
                              
                              GAAP
                              
                              
                              Properties
                              
                              
                              and
      Impairment
                              
                              
                              Shares
                              
                              
                              GAAPASSETSCurrentCash
      and cash equivalents
                              
                              $
                              2,732,696
                              
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              2,732,696Accounts
      receivable
                              
                              
                              724,773
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              724,773Prepaids
      and deposits
                              
                              
                              555,672
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              555,6724,013,141
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              4,013,141Property
      and equipment
                              
                              
                              114,747
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              114,747Uranium
      properties
                              
                              
                              533,085
                              
                              
                              
                              (481,714
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              51,371Oil
      and gas properties
                              
                              
                              41,224,903
                              
                              
                              
                              -
                              
                              
                              
                              (10,616,157
                              )
                              
                              
                              -
                              
                              
                              
                              30,608,746$
                              45,885,876
                              
                              
                              $
                              (481,714
                              )
                              
                              $
                              (10,616,157
                              )
                              
                              $
                              -
                              
                              
                              $
                              34,788,005LIABILITIESCurrentBank
      indebtedness and line of credit
                              
                              $
                              850,000
                              
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              850,000Accounts
      payable and accrued liabilities
                              
                              
                              2,653,483
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              271,033
                              
                              
                              
                              2,924,516Unrealized
      financial instrument loss
                              
                              
                              99,894
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              99,8943,603,377
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              271,033
                              
                              
                              
                              3,874,410Loans
      from related parties
                              
                              
                              2,345,401
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              2,345,401Deferred
      leasehold inducement
                              
                              
                              39,913
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              39,913Asset
      retirement obligations
                              
                              
                              208,516
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              208,5166,197,207
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              271,033
                              
                              
                              
                              6,468,240SHAREHOLDERS'
      EQUITYShare
      capital
                              
                              
                              72,559,504
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              4,213,850
                              
                              
                              
                              76,773,354Contributed
      surplus
                              
                              
                              6,614,805
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              6,614,805Deficit
                              
                              
                              (39,385,746
                              )
                              
                              
                              (481,714
                              )
                              
                              
                              (10,616,157
                              )
                              
                              
                              (4,484,883
                              )
                              
                              
                              (54,968,500
                              )Accumulated
      other comprehensive income
                              
                              
                              (99,894
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (99,894
                              )39,688,669
                              
                              
                              
                              (481,714
                              )
                              
                              
                              (10,616,157
                              )
                              
                              
                              (271,033
                              )
                              
                              
                              28,319,765$
                              45,885,876
                              
                              
                              $
                              (481,714
                              )
                              
                              $
                              (10,616,157
                              )
                              
                              $
                              (0
                              )
                              
                              $
                              34,788,005




F-37


DEJOUR
ENTERPRISES LTD.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For the
Year Ended December 31, 2009










Depletion
      andCanadian
                                
                                
                                Unproved
                                
                                
                                Depreciation
                                
                                
                                Flow-through
                                
                                
                                USDecember
      31, 2008
                                
                                GAAP
                                
                                
                                Properties
                                
                                
                                and
      Impairment
                                
                                
                                Shares
                                
                                
                                GAAPASSETSCurrentCash
      and cash equivalents
                                
                                $
                                744,225
                                
                                
                                $
                                -
                                
                                
                                $
                                -
                                
                                
                                $
                                -
                                
                                
                                $
                                744,225Accounts
      receivable
                                
                                
                                840,695
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                840,695Prepaids
      and other receivables
                                
                                
                                428,321
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                428,321Unrealized
      financial instrument gain
                                
                                
                                107,768
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                107,7682,121,009
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                2,121,009Property
      and equipment
                                
                                
                                116,584
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                116,584Investment
      in Titan
                                
                                
                                2,721,875
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                2,721,875Uranium
      properties
                                
                                
                                696,991
                                
                                
                                
                                (628,018
                                )
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                68,973Oil
      and gas properties
                                
                                
                                56,986,727
                                
                                
                                
                                -
                                
                                
                                
                                (12,823,235
                                )
                                
                                
                                -
                                
                                
                                
                                44,163,492$
                                62,643,186
                                
                                
                                $
                                (628,018
                                )
                                
                                $
                                (12,823,235
                                )
                                
                                $
                                -
                                
                                
                                $
                                49,191,933LIABILITIESCurrentBank
      line of credit
                                
                                $
                                5,887,450
                                
                                
                                $
                                -
                                
                                
                                $
                                -
                                
                                
                                $
                                -
                                
                                
                                $
                                5,887,450Accounts
      payable and accrued liabilities
                                
                                
                                3,741,770
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                3,741,770Loans
      from related parties
                                
                                
                                5,204,040
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                5,204,04014,833,260
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                14,833,260Loans
      from related parties
                                
                                
                                1,950,000
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                1,950,000Asset
      retirement obligations
                                
                                
                                363,109
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                363,109Future
      income tax liabilities
                                
                                
                                1,133,140
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                1,133,14018,279,509
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                18,279,509SHAREHOLDERS'
      EQUITYShare
      capital
                                
                                
                                64,939,177
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                4,484,883
                                
                                
                                
                                69,424,060Contributed
      surplus
                                
                                
                                5,895,560
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                5,895,560Deficit
                                
                                
                                (26,578,828
                                )
                                
                                
                                (628,018
                                )
                                
                                
                                (12,823,235
                                )
                                
                                
                                (4,484,883
                                )
                                
                                
                                (44,514,964
                                )Accumulated
      other comprehensive income
                                
                                
                                107,768
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                107,76844,363,677
                                
                                
                                
                                (628,018
                                )
                                
                                
                                (12,823,235
                                )
                                
                                
                                -
                                
                                
                                
                                30,912,424$
                                62,643,186
                                
                                
                                $
                                (628,018
                                )
                                
                                $
                                (12,823,235
                                )
                                
                                $
                                -
                                
                                
                                $
                                49,191,933




F-38