The accompanying notes are an integral part of these audited financial statements.
The accompanying notes are an integral part of these audited financial statements.
The accompanying notes are an integral part of these audited financial statements.
The accompanying notes are an integral part of these audited financial statements.
Notes to Audited Financial Statements
July 31, 2017 and 2016
(Expressed in US Dollars)
NOTE 1 - ORGANIZATION AND BUSINESS OPERATIONS
Diamante Minerals, Inc. (“the Company”) was incorporated under the laws of the State of Nevada, U.S. on October 26, 2010. The Company is in the business of acquiring and exploring mineral properties.
The Company has not generated any revenue to date. For the period from inception on October 26, 2010 to July 31, 2017, the Company has accumulated losses of $9,515,316.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Financial Statements and related disclosures have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). The Financial Statements have been prepared using the accrual basis of accounting in accordance with Generally Accepted Accounting Principles ("GAAP") of the United States.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company's periodic filings with the SEC include, where applicable, disclosures of estimates, assumptions, uncertainties and markets that could affect the financial statements and future operations of the Company.
Fiscal Period
The Company's fiscal year end is July 31.
Fair value of financial instruments
The Company measures the fair value of financial assets and liabilities based on US GAAP guidance which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.
The Company classifies financial assets and liabilities as held-for-trading, available-for-sale, held-to-maturity, loans and receivables or other financial liabilities depending on their nature. Financial assets and financial liabilities are recognized at fair value on their initial recognition, except for those arising from certain related party transactions which are accounted for at the transferor’s carrying amount or exchange amount.
Financial assets and liabilities classified as held-for-trading are measured at fair value, with gains and losses recognized in net income. Financial assets classified as held-to-maturity, loans and receivables, and financial liabilities other than those classified as held-for-trading are measured at amortized cost, using the effective interest method of amortization. Financial assets classified as available-for-sale are measured at fair value, with unrealized gains and losses being recognized as other comprehensive income until realized, or if an unrealized loss is considered other than temporary, the unrealized loss is recorded in income.
Financial instruments, including accounts payable and accrued liabilities are carried at amortized cost, which management believes approximates fair value due to the short term nature of these instruments.
The following table presents information about the assets that are measured at fair value on a recurring basis as at July 31, 2017, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and included situations where there is little, if any, market activity for the asset:
|
|
|
|
|
Quoted Prices in
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
July 31, 2017
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
197,190
|
|
|
$
|
197,190
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Derivative asset
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
197,190
|
|
|
$
|
197,190
|
|
|
$
|
-
|
|
|
$
|
-
|
|
While it currently has $nil value, the Company’s derivative asset (note 8) represents a Level 3 asset.
Share-based expenses
ASC 718 “Compensation – Stock Compensation” prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period). If options expire unexercised, any amounts vested and previously recorded are reclassified to deficit.
The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50, “Equity – Based Payments to Non-Employees.” Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.
Income Taxes
The Company provides for income taxes under ASC 740, Accounting for Income Taxes. ASC 740 requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse.
ASC 740 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
Concentrations of Credit Risk
The Company's financial instruments that are exposed to concentrations of credit risk primarily consist of its cash and related party payables it will likely incur in the near future. The Company places its cash with financial institutions of high credit worthiness. At times, its cash balance with a particular financial institution may exceed any applicable government insurance limits. The Company's management plans to assess the financial strength and credit worthiness of any parties to which it extends funds, and as such, it believes that any associated credit risk exposures are limited.
Net Loss Per Share of Capital Stock
In the accompanying financial statements, basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of capital stock outstanding during the period.
Recent Accounting Pronouncements
In November 2015, FASB issued Accounting Standards Update (ASU) No, 201517 Income Taxes – Balance Sheet Classification of Deferred Taxes. To simplify the presentation of deferred income taxes, the amendments in this update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments in the update. This update is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2016. Early application is permitted. Management has reviewed the ASU and believes there will be no significant impact on the Company's financial statements.
In January 2016, FASB issued Accounting Standards Update (ASU) No. 201601 Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this Update make targeted improvements to generally accepted accounting principles (GAAP) as follows:
|
·
|
Require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
|
|
·
|
Simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value.
|
|
·
|
Eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities.
|
|
·
|
Eliminate the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet.
|
|
·
|
Require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes.
|
|
·
|
Require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.
|
|
·
|
Require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements.
|
|
·
|
Clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets.
|
This update is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2017. Early application is permitted. Management has reviewed the ASU and believes there will be no significant impact on the Company's financial statements.
In February 2016, FASB issued Accounting Standards Update (ASU) No. 201602 Leases. The main difference of the update is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. Under this update, lessees will now be required to recognize the assets and liabilities arising from leases on the balance sheet. The economics of leases can vary for a lessee and those economics should be reflected in the financial statements; as such a distinction between finance leases and operating leases has been retained. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous leases guidance. This update is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2018. Early application is permitted. Management has reviewed the ASU and believes there will be no significant impact on the Company's financial statements.
In March 2016, FASB issued Accounting Standards Update (ASU) No. 201609 Stock Based Compensation – Improvements to Employee Share-Based Payment Accounting. Under this standard, all excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) should be recognized as income tax expense or benefit in the income statements. The tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity should also recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. This update is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2016. Early application is permitted. Management has reviewed the ASU and believes there will be no significant impact on the Company's financial statements.
In August 2016, FASB issued Accounting Standards Updated (ASU) No. 201615 Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments. This updated addresses eight specific cash flows issues with the objective of reducing the existing diversity in practice.
|
·
|
Debt prepayment or debt extinguishment costs
|
|
·
|
Settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing
|
|
·
|
Contingent consideration payments made after a business combination
|
|
·
|
Proceeds from the settlement of insurance claims
|
|
·
|
Proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies
|
|
·
|
Distributions received from equity method investees
|
|
·
|
Beneficial interests in securitization transactions
|
|
·
|
Separate identifiable cash flows and application of the predominance principle
|
This update is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2017. Early application is permitted.
In May 2017, FASB issued Accounting Standards Update (ASU) No. 201709 Compensation – Stock compensation. The Board is issuing this Update to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation, to a change to the terms or conditions of a share-based payment award. The amendments in this Update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The amendment is effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods. Early adoption is permitted. The Company has not yet adopted this ASU. Management has reviewed the ASU and believes there will be no significant impact on the Company's financial statements.
NOTE 3 - BATOVI DIAMOND PROJECT
On November 20, 2014, the Company entered into a formal joint venture agreement (“the Joint Venture”) with Mineracao Batovi Ltda. (“Mineracao Batovi”), a private Brazilian mineral exploration company which at that time held 21 federal exploration licenses comprising the Batovi Diamond Project located north of Paranatinga in the State of Mato Grosso, Brazil. This was superseded by an amended and restated joint venture agreement (the “Amended and Restated Joint Venture Agreement”) with Mineracao Batovi and Dr. Charles Fipke, the shareholder of Mineracao Batovi, dated January 25, 2017 which provided the Company with the right to acquire up to a 49% interest in Mineracao Batovi. As per the Amended and Restated Joint Venture Agreement, the Company was required to contribute $1,000,000 in cash to Mineracao Batovi on or before June 30, 2017, in order to earn a 17.6% interest in Mineracao Batovi, this being in addition to the Company’s existing 2.4% equity interest which was acquired during the year ended July 31, 2017 from a former shareholder for $30,000.
On November 20, 2014, the Company issued 2,700,000 fully paid and non-assessable common shares valued at $7,992,000 to Kel-Ex Developments Ltd. (“Kel-Ex”) with a fair market value of $2.96 per share in connection with Kel-Ex’s involvement with the Batovi Diamond Project.
As at the July 31, 2017 year end, the agreement has expired, without the Company making any cash contributions to Mineracao Batovi. As such, the previously capitalized acquisition costs for the Brazil project of $7,992,000 have been written off.
The Company continues to own a 2.4% minority interest in Mineracao Batovi, which was purchased for $30,000. At present, it is not yet determinable as to whether or not Mineracao Batovi retains the claims of the Batovi project. Due to this uncertainly, and to the fact that Mineracao Batovi’s only asset of value is these claims, an impairment equal to the original investment purchase of $30,000 has been recorded in the year ended July 31, 2017.
NOTE 4 - RELATED PARTY TRANSACTIONS
During the year ended July 31, 2017, the Company’s director invoiced $3,716 (year ended July 31, 2016 – $2,177) to the Company to cover the Company’s operating expenses. The balance was repaid in full in fiscal 2017.
The Company shares office space with other companies in order to take advantage of cost sharing opportunities and management services. Two of these companies are: Kel-Ex, a privately-held British Columbia corporation that is under common control with Mineracao Batovi and is also significant shareholder of the Company; and Metalex Ventures Ltd. (“Metalex”), a publicly traded company. Kel-Ex shares the services of the Company’s Chief Financial Officer and Metalex shares the services of the Company’s Chief Executive Officer and the Company’s Chief Financial Officer. During the year ended July 31, 2017, the related parties invoiced the Company for the following services and amounts:
|
|
Year ended
|
|
|
|
July 31,
2017
|
|
|
July 31,
2016
|
|
|
|
|
|
|
|
|
Administrative fees (10%)
|
|
$
|
1,237
|
|
|
$
|
1,444
|
|
Geological consulting fees
|
|
|
310
|
|
|
|
1,261
|
|
Shared office and administrative costs
|
|
|
9,192
|
|
|
|
9,237
|
|
Shared project expenditures
|
|
|
3,716
|
|
|
|
3,316
|
|
Total related party expenditures included in General and administrative expenses
|
|
$
|
14,455
|
|
|
$
|
15,258
|
|
|
|
Year ended
|
|
|
|
July 31,
2017
|
|
|
July 31,
2016
|
|
|
|
|
|
|
|
|
Element 29 Ventures Ltd.
|
|
$
|
3,716
|
|
|
$
|
2,177
|
|
Kel-Ex Developments Ltd.
|
|
|
6,103
|
|
|
|
8,664
|
|
Metalex Ventures Ltd.
|
|
|
4,636
|
|
|
|
4,417
|
|
|
|
$
|
14,455
|
|
|
$
|
15,258
|
|
As at July 31, 2017, the following balances have been included within accounts payable:
|
|
As at
|
|
|
|
July 31,
2017
|
|
|
July 31,
2016
|
|
Kel-Ex Developments Ltd.
|
|
$
|
1,931
|
|
|
$
|
5,341
|
|
Metalex Ventures Ltd.
|
|
|
607
|
|
|
|
1,359
|
|
|
|
$
|
2,538
|
|
|
$
|
6,700
|
|
As at July 31, 2017, $538,156 in management fees earned by the Chief Executive Officer pursuant to the CEO Employment Agreement was included as due to a related party (2016 – $609,392); $145,271 in management fees earned by the Chief Financial Officer pursuant to the CFO agreement was included as due to a related party (2016 – $147,605).
NOTE 5 - CAPITAL STOCK
Authorized Stock
The Company has authorized 300,000,000 shares of common shares with a par value of $0.001 per share. Each common share entitles the holder to one vote, in person or proxy, on any matter on which action of the stockholders of the corporation is sought.
Share Issuance
There were 52,042,286 shares of common stock issued and outstanding as at July 31, 2016 and July 31, 2017.
On January 27, 2017, the Company filed a registration statement with the Securities and Exchange Commission (“SEC”) on Form S-1 under the Securities Act of 1933, as amended, to register the offer and sale of up to 10,000,000 common shares of the Company at a price of $0.1695 per share. The Company planned to use the proceeds from this offering to fund the acquisition of the 17.6% equity interest in Mineracao Batovi, provide working capital and expand the business. The registration statement was declared effective by the SEC as of March 9, 2017; no common stock had been sold pursuant to the registration statement as of July 31, 2017.
In connection with the termination of the Amended and Restated Joint Venture Agreement (Note 3), the Company has elected not to proceed with the offering of common stock. The Company’s request for the SEC’s consent to withdraw the registration statement was verbally received on August 21, 2017.
Share-based Expenses
During the year ended July 31, 2016, certain stock options expired without being exercised. As such, as at July 31, 2016 and 2017, the Company had no options outstanding. A total of $5,191,122 was reclassified to deficit upon expiration during the year ended July 31, 2016.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
On October 16, 2014, the Company and Chad Ulansky entered into an Employment Agreement (the “CEO Employment Agreement”), pursuant to which Mr. Ulansky is employed by the Company as its Chief Executive Officer for three years. As compensation for his services, Mr. Ulansky shall receive an annual base salary of $400,000 for the first year of the Employment Agreement, $450,000 for the second year and $500,000 for the third year. The Company shall have the right to pay the salary or any other amounts payable to Mr. Ulansky in deferred shares units of the Company based on the 90-day volume weighted average price (“VWAP”) of the common shares of the Company at the end of each quarter. As at July 31, 2017, $538,156 (July 31, 2016 – $609,392) has been accrued in accounts payable, which equates to 4,679,613 shares (July 31, 2016 – 1,324,767) if Mr. Ulansky were to leave the Company.
On July 12, 2015, the Company and Jennifer Irons entered into an Employment Agreement (the “CFO Employment Agreement”, together with the CEO Employment Agreement, known as “the Employment Agreements”), pursuant to which Ms. Irons is employed by the Company as its Chief Financial Officer for three years. As compensation for her services, Ms. Irons shall receive an annual base salary of $125,000 for the first year of the Employment Agreement, $137,500 for the second year and $150,000 for the third year. The Company shall have the right to pay the salary or any other amounts payable to Ms. Irons in deferred share units of the Company based on the 90-day VWAP of the common shares of the Company at the end of each quarter. As at July 31, 2017, $145,271 (July 31, 2016 – $147,605) has been accrued in accounts payable, which equates to 1,263,222 shares (July 31, 2016 – 320,880) if Ms. Irons were to leave the Company.
The Employment Agreements shall automatically renew on each anniversary of the Agreement for one additional year term unless one party provides the other with notice prior to such anniversary date that such party does not desire to renew the Employment Agreement. The Company may immediately terminate Mr. Ulansky and Ms. Irons's employment for cause. If (i) Mr. Ulansky or Ms. Irons's employment is terminated by the Company without cause, (ii) Mr. Ulansky or Ms. Irons terminate his or her employment as a result of the Company assigning duties inconsistent with his position or the Company fails to pay the compensation or (iii) there is a change in control in the Company, then in either case the Company shall pay Mr. Ulansky and Ms. Irons an amount equal to (a) the product of the number of years and fractional years for the remainder of the term multiplied by (b) 50% of the then current base salary in effect as of the date of termination.
During the year ended July 31, 2017, the Company issued 4,297,188 deferred share units under the employment agreements; while the value of these deferred share units has been accrued as a liability each quarter, due to the changes in market price of the shares, the Company recorded a recovery of management fees of $73,570 during the year ended July 31, 2017.
Pursuant to their respective Employment Agreements, the Company has structured individual Deferred Share Unit Plans for each of Mr. Ulansky and Ms. Irons effective as of, respectively, October 16, 2014 and July 12, 2015. Subsequent to the July 31, 2017 year end, Mr. Ulansky and Ms. Irons have agreed, for the advancement of the Company, to waive a portion of the DSUs that have been issued to them under their respective Deferred Share Unit Plans. By mutual agreement, no further DSUs will be issued under these plans.
NOTE 7 - INCOME TAXES
The provision for income taxes differs from the amounts which would be provided by applying the statutory federal income tax rate of 34 percent to net the loss before provision for income taxes for the following reasons:
|
|
July 31,
2017
|
|
|
July 31,
2016
|
|
|
|
|
|
|
|
|
Loss for the year
|
|
$
|
(8,074,759
|
)
|
|
$
|
(993,653
|
)
|
|
|
|
|
|
|
|
|
|
Income tax recovery at statutory rate
|
|
$
|
(2,745,418
|
)
|
|
$
|
(337,842
|
)
|
Permanent difference and other
|
|
$
|
2,416,418
|
|
|
$
|
-
|
|
Change in valuation allowance
|
|
|
329,000
|
|
|
|
337,842
|
|
Income tax expense per books
|
|
$
|
-
|
|
|
$
|
-
|
|
Net deferred tax assets consist of the following components as of:
|
|
July 31,
2017
|
|
|
July 31,
2016
|
|
|
|
|
|
|
|
|
Non-operating loss carryforward
|
|
$
|
452,000
|
|
|
$
|
123,000
|
|
Valuation allowance
|
|
|
(452,000
|
)
|
|
|
(123,000
|
)
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards of $86,001 for federal income tax reporting purposes are subject to annual limitations. When a change in ownership occurs, net operating loss carry forwards may be limited as to use in future years.
During the year ended July 31, 2016, it came to the attention of management that no tax filings had been submitted for the Company since its inception. While the Company had no taxable income and incurred no corporate taxes payable, there were certain reporting requirements that were not submitted by the appropriate deadlines. Upon filing, the Company incurred a $10,000 penalty for each of the 2012, 2013 and 2014 year ends, for a total of $30,000. The Company then filed a request to waive the penalties and, during the year ended July 31, 2017, received notice of assessments for these tax years. The Company filed an objection to these assessments and succeeded in having the penalties waived. As such, a recovery of tax filing penalties has been recorded in the statement of operations.
NOTE 8 - DERIVATIVE ASSET
On January 22, 2016, the Company entered into a loan agreement with Blendcore LLC, a Delaware corporation (“Blendcore”), and Petaquilla Gold, S.A., a Panama corporation (“Petaquilla Gold”), which is a subsidiary of Petaquilla Minerals Ltd., a Canadian public company, pursuant to which the Company has agreed to advance a loan in the principal amount of US$250,000 to Blendcore (the “Loan”). Petaquilla Gold, as the owner of the minerals sourced at the Molejon Gold Mine located in Donoso District, Colon Province, Republic of Panama (the “Mine”), has engaged Blendcore, as master contractor, to act as operator in connection with the restarting of the processing of stockpiled ore at the Mine. In exchange for the provision of the Loan, the Company is entitled to a royalty of 12.5% on the first 1,000 ounces of gold produced per month for 12 months (the “Royalty period”). The Royalty Period is to commence once production ramps up to 1,000 ounces per month. For monthly production between 1,001 and 2,000 ounces of gold per month, the Company is to receive a reduced royalty of 5%. In addition to the royalty stream, the Company has the right of first option to provide funding for the expansion and development of the Mine. The Loan is to be forgiven provided that there are at least 12,000 ounces of gold produced during the Royalty Period. Upon the completion of the Royalty Period, the Company has the option to extend the royalty for a further 12 month period through the provision of a second $250,000 loan on substantially the same terms as the initial loan. This right shall survive the royalty agreement by a period of one year. As at July 31, 2017, the Company has advanced $215,000 to Blendcore LLC.
Valuation of Derivative
As the loan agreement with Blendcore contains a royalty component, there is an embedded derivative in its value. Currently, the Company has elected to account for the entire instrument as a derivative at fair value, with changes in fair value presented in earnings. The fair value of the derivative is determined by using a discounted cash flow analysis related to various expected future cash flows to be received based on weighted probabilities due to the uncertainty of the potential royalty streams. This asset is classified as a Level 3 asset within the fair value hierarchy as our valuation estimates utilize significant unobservable inputs, including estimates as to the probability and timing of future gold production. Transaction related fees and costs are expensed as incurred.
The changes in the estimated fair value from the derivative along with cash receipts each reporting period are presented together on the Statement of Operations under the caption, “Derivative – change in fair value”.
At present, the gold mine has not been restarted. The Company has engaged the services of a legal firm in Panama to determine appropriate title to the claim and our course of action to receive the funds advanced. As such, while the Company continues to work to recover the funds, it currently considers there to be negligible chance of recovery and has accordingly valued the derivate as at July 31, 2017 at $Nil (July 31, 2016 - $Nil).
NOTE 9 - GOING CONCERN AND LIQUIDITY CONSIDERATIONS
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. During the year ended July 31, 2017, the Company incurred a net loss of $8,074,759. As at July 31, 2017, the Company had an accumulated deficit of $9,515,316 and has earned no revenues since inception. The Company intends to fund operations through equity financing arrangements, which may be insufficient to fund its capital expenditures, working capital and other cash requirements for the year ending July 31, 2018.
The ability of the Company to emerge from the exploration stage is dependent upon, among other things, obtaining additional financing to continue operations, and development of its business plan. In response to these problems, management intends to raise additional funds through public or private placement offerings.
These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.