Item 8. Financial Statements and Supplementary Data
(Stated in U.S. Dollars)
NOTES TO THE FINANCIAL STATEMENTS
AUGUST 31, 2014 AND 2013
(Stated in U.S. Dollars)
1. ORGANIZATION AND NATURE OF BUSINESS
American Paramount Gold Corp., a Nevada corporation, (the "Company") was incorporated in the State of Nevada on July 20, 2006. The Company was formed to engage in the acquisition, exploration and development of natural resource properties.
Going concern
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As of August 31, 2014 and 2013, the Company has not achieved profitable operations and has incurred net losses of $126,692 and $95,873. At August 31, 2014 the Company had an accumulated deficit of $5,401,074. Continuation as a going concern is dependent upon the ability of the Company to obtain the necessary financing to meet obligations and pay its liabilities arising from normal business operations when they come due and ultimately upon its ability to achieve profitable operations. The outcome of these matters cannot be predicted with any certainty at this time and raise substantial doubt that the Company will be able to continue as a going concern. These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) and are presented in US dollars.
Accounting estimates
The preparation of these financial statements in conformity with US GAAP 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 reporting period. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis from making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company's estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Fair Value Measurements
The book value of cash, accounts receivable, accounts payable and accrued liabilities approximate their fair values due to the short term maturity of those instruments. Based on borrowing rates currently available to the Company under similar terms, the book value of capital lease obligations approximate their fair values. The fair value hierarchy under GAAP is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:
Level 1- quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 -observable inputs other than Level I, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable; and
Level 3 -assets and liabilities whose significant value drivers are unobservable by little or no market activity and that are significant to the fair value of the assets or liabilities.
The Company’s convertible debenture is based on Level 2 inputs in the ASC 820 fair value hierarchy. The Company calculated the fair value of these instruments by discounting future cash flows using a rate that is representative of the current arms-length borrowing rate.
At August 31, 2014, the convertible debenture had a fair value of $980,413 (2013: $980,413).
Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment). There were no assets or liabilities measured at fair value on a nonrecurring basis during the periods ended August 31, 2014 and 2013.
Income taxes
Income tax expense is based on pre-tax financial accounting income. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carry forwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. 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. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Loss per share
Basic loss per share is computed by dividing the net loss attributable to the common stockholders by the weighted average number of common shares outstanding during the reporting period. Diluted net income per common share includes the potential dilution that could occur upon exercise of the options, and convertible notes to acquire common stock computed using the treasury stock method which assumes that the increase in the number of shares is reduced by the number of shares which could have been repurchased by the Company with the proceeds from the exercise of the options, and convertible notes.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09,
Revenue from Contracts with Customers
(Topic 606). ASU 2014-09 affects any entity using GAAP that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). This ASU will supersede the revenue recognition requirements in
Revenue Recognition
(Topic 605), and most industry-specific guidance. In addition, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer (e.g., assets within the scope of
Property, Plant, and Equipment
(Topic 360), and intangible assets within the scope of
Intangibles—Goodwill and Other
(Topic 350)) are amended to be consistent with the guidance on recognition and measurement (including the constraint on revenue) in this ASU. The ASU provides two transition methods: (i) retrospectively to each prior reporting period presented or (ii) retrospectively with the cumulative effect of initially applying this ASU recognized at the date of initial application. In August 2015, the FASB proposed the effective date to be the annual reporting periods beginning after December 15, 2017, and interim periods therein. In May 2016, the FASB issued ASU 2016-12,
Narrow-Scope Improvements and Practical Expedients
(Topic 606), which clarifies implementation guidance on assessing collectability, presentation of sales tax, noncash consideration and completed contracts and contract modifications at transition. While The Company is currently assessing the impact of the new standard but does not expect this new guidance to have a material impact on the financial statements.
In August 2014, the FASB issued ASU 2014-15,
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern
(Subtopic 205-40). Under ASU 2014-15, management is to assess, at each annual and interim reporting period, whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern and provide related disclosures. ASU 2014-15 was effective for annual periods beginning after December 15, 2016. In February 2016, the FASB issued ASU 2016-02,
Leases
(Topic 842). ASU 2016-02 requires lessees to recognize a lease liability and a right-to-use asset for all leases, including operating leases, with a term greater than twelve months on its balance sheet. ASU 2016-02 is effective for annual and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted, and requires a modified retrospective transition method. The Company is currently assessing the impact of ASU 2016-02 on its consolidated financial statements. The Company expects that most of its operating lease commitments will be subject to the new standard and recognized as operating lease liabilities and right-of-use assets upon the adoption of ASU 2016-02, which will increase the total assets and total liabilities that are reported relative to such amounts prior to adoption.
In March 2016, the FASB issued ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting
(Topic 718), which simplifies the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 is effective for annual and interim periods in fiscal years beginning after December 15, 2016, with early adoption permitted.
In June 2016, the FASB issued ASU 2016-13,
Measurement of Credit Losses on Financial Instruments
(Topic 326), which replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates. ASU 2016-13 requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Entities will now use forward-looking information to better form their credit loss estimates. ASU 2016-13 is effective for annual and interim periods in fiscal years beginning after December 15, 2019, with early adoption permitted as of December 15, 2018, and requires modified retrospective transition method. The Company is currently assessing the impact of ASU 2016-13 on its financial statements.
In August 2016, the FASB issued ASU 2016-15,
Classification of Certain Cash Receipts and Cash Payments
(Topic 230), to provide guidance on specific cash inflows and outflows. ASU 2016-15 is effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted, and requires retrospective application of these amendments unless not practicable, in which case amendments would be applied prospectively as of the earliest date practicable. In October 2016, the FASB issued ASU 2016-16,
Intra-Entity Asset Transfers of Assets Other than Inventory
(Topic 740), to recognize the income tax consequences of intra-entity transfers of an asset other than inventory when the transfer occurs. ASU 2016-16 is effective for annual and interim periods in fiscal years beginning after December 15, 2017 with early adoption permitted in the first interim period of fiscal year 2017. Upon adoption, any deferred charge established upon the intra-company transfer would be recorded as a cumulative-effect adjustment to retained earnings. At December 31, 2016, the Company had a deferred charge of $1 million included in prepaid and other current assets in the accompanying consolidated balance sheets. However, due to the Company’s full valuation allowance in the U.S, no deferred charge will be recorded as a cumulative-effect adjustment to accumulated deficit. The Company plans to adopt this standard in the first quarter of fiscal year 2017.
In January 2017, the FASB issued ASU 2017-04,
Simplifying the Test for Goodwill Impairment
(Topic 350), which eliminates Step 2 from the goodwill impairment test. ASU 2017-04 is effective for annual and interim periods in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed after January 1, 2017 and should be applied prospectively. The Company plans to adopt this standard in the first quarter of the fiscal year 2017 and does not expect a material impact on its consolidated financial statements.
3. CONVERTIBLE LOAN - RELATED PARTY
On April 22, 2010, and as amended December 17, 2010, the Company entered into an agreement with Monaco Capital Inc., a majority shareholder, for a principal amount of up to $5,000,000. The loan is unsecured and bears interest at the rate of 10% per annum calculated on the principal balance. The Company may at any time during the term of the loan prepay any sum up to the full amount of the loan and accrued interest then outstanding at any time for the sum plus an additional 10% of such amount. The loan (including accrued interest) is convertible into securities of the Company at a conversion price calculated as the mean volume weighted average price for the Company’s common stock during the ten (10) trading day period ending on the latest complete trading day prior to the conversion date. At any time after the advancement date, if the Company has not paid the loan and accrued interest in full, the Lender may, by providing written notice to the Company, exercise its rights of conversion in respect of either a portion of the total outstanding amount of the loan as of that date into shares of the Company. The amounts advanced plus accrued interest are due one year following the date advanced.
During the year ended August 31, 2014, Monaco Capital Inc. has advanced to the Company $Nil (2013 - $4,761), with a total advance of $980,413 (2013 - $980,413).
When the loan was received, an initial beneficial conversion feature was recorded of $16,833. As at August 31, 2014, $Nil (2013 - $Nil) was unamortized, and included in the convertible loan balance on the balance sheet. Accrued interest as at August 31, 2014 is $336,216 (2013 - $237,906) and is included in accounts payable and accrued liabilities.
The loan is in default and due on demand.
4. STOCKHOLDERS’ DEFICIT
Stock Options
The Company has adopted a stock option plan (the “2010 Plan”) which permits the Company to issue up to 6,500,000 shares of common stock to directors, officers, employees and consultants of the Company upon the exercise of stock options granted under the 2010 Plan. At the time of the grant of the option, the plan administrator shall designate the expiration date of the option, which date shall not be later than five (5) years from the date of grant. The vesting schedule for each option shall be specified by the plan administrator at the time of grant of the option. Effective September 29, 2010 the 2010 Plan provides for an exercise price to be established based on the fair market value of a common share of the Company being the average of the high and low sales prices (or bid and ask prices, if sales prices are not reported) for the common stock for the last trading day immediately preceding the date with respect to which fair market value is being determined, as reported for the principal trading market for the common stock.
A summary of the status of the Company’s stock option plan as of August 31, 2014 and 2013 and changes during the years is presented below:
|
|
Number of options
outstanding and
exercisable
|
|
|
Weighted Average
Exercise price
|
|
|
|
|
|
|
|
|
Balance, August 31, 2013 and 2014
|
|
|
5,000,000
|
|
|
$
|
0.12
|
|
As at August 31, 2014, the Company had 5,000,000 stock options outstanding which were not exercised and expired on March 2, 2016.
5. INCOME TAXES
The reported income taxes differ from the amounts obtained by applying statutory rates to the loss before income taxes as follows:
|
|
August 31, 2014
|
|
|
August 31, 2013
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(126,692
|
)
|
|
$
|
(95,875
|
)
|
Statutory tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Expected income tax recovery
|
|
|
(44,000
|
)
|
|
|
(34,000
|
)
|
Other
|
|
|
-
|
|
|
|
(58,000
|
)
|
Change in valuation allowance
|
|
|
44,000
|
|
|
|
92,000
|
|
Income tax recovery
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company’s tax-effected future tax assets and liabilities are estimated as follows:
|
|
August 31, 2014
|
|
|
August 31, 2013
|
|
Deferred tax assets
|
|
|
|
|
|
|
Net operating loss carry forwards
|
|
$
|
636,000
|
|
|
$
|
592,000
|
|
Total deferred tax assets
|
|
|
636,000
|
|
|
|
592,000
|
|
Less: Valuation allowance
|
|
|
(636,000
|
)
|
|
|
(592,000
|
)
|
Net deferred income tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
At August 31, 2014, the Company has a deferred tax asset. A full valuation allowance has been established; as management believes it is more likely that not that the deferred tax asset will not be realized.
As at August 31, 2014, the Company has net operating loss carry forwards of approximately $1,817,000 to reduce future federal and state taxable income. These losses expire between 2020 and 2034.
Tax attributes are subject to review, and potential adjustment by tax authorities.
6. RELATED PARTIES TRANSACTIONS
During the year ended August 31, 2014, the Company incurred management fees of $25,000 (2013 - $Nil) to the former President of the Company.
As at August 31, 2014, the Company owed $27,985 (2013 - $Nil) to a former director of the Company.
At August 31, 2014, Monaco Capital Inc., a majority shareholder has advanced $980,413 (2013 - $980,413) with terms as discussed in Note 3.
7. SUBSEQUENT EVENTS
The Company entered into an agreement with a company owned by a former officer and director of the Company beginning on October 1, 2015 whereby the Company will pay a monthly service fee of $2,500 and issue on a monthly basis 50,000 shares of the Company’s common stock for the services. This agreement was terminated on April 6, 2016 with no fees accruing to the Company.
The Company issued 6,000,000 restricted shares to a company owned by a former officer and director of the Company to a former director and officer in return for the performance of services..
On April 6, 2016, Mr. Ron Loudoun replaced Mr. Dennis Petke as sole Director and as President, CEO, Secretary and Treasurer of the Company.