Notes to Financial Statements
For the Year ended December 31, 2018
1.
Nature of Operations
Joshua Gold Resources Inc. (referred to herein as Joshua, or the Company) was incorporated on July 10, 2009 in the State of Nevada.
The Company operates as a mineral exploration business headquartered at 35 Perry Street, Unit 2, and Woodstock, Ontario, Canada. Its principal business activity is the acquisition, exploration and development of mineral property interests in Canada. The Company is considered to be in the exploration stage and substantially all of the Companys efforts are devoted to financing and developing these property interests.
The Company has the rights to six mineral properties in Ontario and in the Northwest Territories, Canada. There has been no determination whether the Companys interests in unproven mineral properties contain mineral reserves, which are economically recoverable.
2.
Going Concern
The financial statements have been prepared on a going concern basis. The going concern basis of presentation assumes that the Company will continue operations for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of operation.
The Company has incurred a net loss of $266,955 for the year ended December 31, 2018, and a working capital deficit of $916,384. As an exploration stage entity, the Company has not yet commenced its mining operations and accordingly does not have any revenue. This casts substantial doubt on the Companys ability to continue as a going concern unless it can begin to generate net profit and raise adequate financing.
The Company has been seeking additional debt or equity financing to support its operations until it becomes cash flow positive. There can be no assurances that action and plan such as above will be sufficient for the Company to continue operating as a going concern.
The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts classified as liabilities that might be necessary should the Company be unable to continue in existence. These adjustments could be material.
3.
Significant Accounting Policies
These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The significant accounting policies followed in the preparation of these financial statements are as follows:
Mineral Properties and Exploration and Development Costs
The costs of acquiring mineral properties are capitalized at the date of acquisition. After acquisition, various factors can affect the recoverability of the capitalized costs. If, after review, management concludes that the carrying amount of a mineral property is impaired, it will be written down to estimated fair value. Exploration costs incurred on mineral properties are expensed as incurred. Development costs incurred on proven and probable reserves will be capitalized. Upon commencement of production, capitalized costs will be amortized using the unit-of-production method over the estimated life based on proven and probable reserves (which exclude non-recoverable reserves and anticipated processing losses). When the Company receives an option payment related to a property, the proceeds of the payment are applied to reduce the carrying value of the exploration asset.
43
Impairment of long-lived assets
Long-lived assets that are held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Intangible assets having an indefinite useful life are assessed for impairment annually.
The Company evaluates at each balance sheet date whether circumstances have occurred that indicate possible impairment. If there are indications of impairment, the Company uses future undiscounted cash flows of the related asset or asset grouping over the remaining life in measuring whether the carrying amounts are recoverable. In the event such cash flows are not expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value.
Foreign Currency Translation
The Company's accounts have been translated into U.S. dollars in accordance with the provisions of Accounting Standards Codification (ASC) No. 830
Foreign Currency Matters
. Management has determined that the functional currency of the Company is the Canadian dollar ("CAD"). Certain assets and liabilities of the Company are denominated in U.S. dollars. In accordance with the provisions of ASC No. 830, transaction gains and losses on these assets and liabilities are included in the determination of income for the relevant years. Adjustments resulting from the translation of the financial statements from their functional currencies to U.S. dollars are accumulated as a separate component of accumulated other comprehensive income and have not been included in the determination of income for the relevant years.
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 amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. Some of the Company's more significant estimates include those related to going concern, collectability of receivables, and the fair value of stock-based compensation and other equity instruments. These estimates are reviewed periodically, and, as adjustments become necessary, they are reported in earnings in the period in which they become known.
Comprehensive Income
The Company follows the guidance in ASC 220,
Comprehensive Income
. ASC 220 establishes standards for the reporting and presentation of comprehensive income and its components in a full set of financial statements. Comprehensive income is presented in the statements of changes in stockholders' deficit, and consists of foreign currency translation adjustments. ASC 220 requires only additional disclosures in the financial statements and does not affect the Company's financial position or results of operations.
Fair Value of Financial Instruments
In accordance with ASC 820,
Fair Value Measurement,
fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the exit price) in an orderly transaction between market participants at the measurement date.
In determining fair value, the Company uses various valuation approaches. A fair value hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund. Unobservable inputs reflect the Company assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
44
The fair value hierarchy is categorized into three levels based on the inputs as follows:
|
| |
|
Level 1 -
|
Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
Level 2 -
|
Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.
|
|
Level 3 -
|
Inputs to the valuation methodology are unobservable and significant to the fair value.
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Income Taxes
The Company accounts for income taxes pursuant to ASC 740,
Income Taxes
. Deferred tax assets and liabilities are recorded for differences between the financial statements and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is recorded for the amount of income tax payable or refundable for the period increased or decreased by the change in deferred tax assets and liabilities during the period.
Stock-based Compensation
The Company accounts for Stock-Based Compensation in accordance with ASC 718,
Compensation Stock Compensation
. ASC 718 establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entitys equity instruments or that may be settled by the issuance of those equity instruments. ASC 718 focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. ASC 718 requires that the compensation cost relating to share-based payment transactions be recognized in the financial statements measured based on the fair value of the equity or liability instruments issued, when granted in exchange for employee services.
Awards granted to non-employees fall under ASC 505-50 and are recognized based on the fair value of the goods or services received or the equity instruments, whichever is more reliable.
Net Earnings (Loss) Per Share
The Company accounts for earnings (loss) per share pursuant ASC 260,
Earnings Per Share
, which requires disclosure on the financial statements of basic and diluted earnings (loss) per share. Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the year. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding plus common stock equivalents (if dilutive) related to stock options and warrants for each year. The weighted average number of shares outstanding has been adjusted for the effects of stock dividends, stock splits, and reverse stock splits.
There were no dilutive financial instruments for the years ended December 31, 2018 and 2017.
Recent Accounting Pronouncements
The below recent accounting pronouncements were adopted during the year ended December 31, 2018:
"Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting" (ASU 2017-09) was issued in May 2017. This update provides clarity and reduces both diversity in practice and 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. This standard was effective for annual periods beginning after December 15, 2017. The adoption of ASU 2017-09 did not have an impact on the Companys financial statements.
Statement of Cash Flows (Topic 230) (ASU 2016-15) was issued during August 2016. ASU 2016-15 is intended to reduce the diversity in practice regarding how certain transactions are classified within the statement of cash flows. ASU 2016-15 is effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows, Restricted Cash (Topic 230) (ASU 2016-18), which requires the inclusion of restricted cash with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of
45
cash flows. ASU 2016-15 and ASU 2016-18 were both effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, provided that all of the amendments are adopted in the same period. The amendments were applied using a retrospective transition method to each period presented. The adoption of ASU 2016-15 did not have an impact on the Companys financial statements.
In January 2016, the FASB issued ASU No. 2016-01, Financial InstrumentsOverall: Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01). This standard affects the accounting for equity instruments, financial liabilities under the fair value option and the presentation and disclosure requirements of financial instruments. In February 2018, the FASB issued ASU 2018-03, Technical Corrections and Improvements to Financial Instruments (Subtopic 825-10) Recognition and Measurement of Financial Assets and Financial Liabilities. This update was issued to clarify certain narrow aspects of guidance concerning the recognition of financial assets and liabilities established in ASU No. 2016-01, Financial InstrumentsOverall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This includes an amendment to clarify that an entity measuring an equity security using the measurement alternative may change its measurement approach to a fair valuation method in accordance with Topic 820, Fair Value Measurement, through an irrevocable election that would apply to that security and all identical or similar investments of the same issued. The update is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years beginning after June 15, 2018. The adoption of ASU 2016-01 did not have an impact on the Companys financial statements.
In February 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-03, Technical Corrections and Improvements to Financial Instruments Overall (Subtopic-10): Recognition and Measurement of Financial Assets and Financial Liabilities to clarify codification and to correct unintended application of the guidance. The Company adopted this pronouncement concurrently with the adoption of ASU 2016-01. The adoption of this update had no impact on the Companys financial statements.
The following are recent accounting pronouncements, which may have an impact on the Company's future financial statements:
"Leases" (ASU 2016-02) was issued during February 2016. This update will require organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The new guidance will also require additional disclosure about the amount, timing and uncertainty of cash flows arising from leases. This guidance is effective for annual and interim periods beginning after December 15, 2018. The adoption of ASU 2016-02 will not have an impact on the Companys financial statements.
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, amended in November by ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments Credit Losses, which introduces the current expected credit losses model in the estimation of credit losses on financial instruments. This update is effective retrospectively for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption being permitted for fiscal years beginning after December 15, 2018. The Company plans to adopt this ASU on January 1, 2020.
Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. (ASU 2017-09) Issued in May 2017, ASU 2017-09 amends the scope of modification accounting for share-based payment arrangements, and provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting. The new guidance will allow companies to make certain changes to awards without accounting for them as modifications. It does not change the accounting for modifications. ASU 2017-09 is effective for annual reporting periods beginning after December 15, 2017, with early adoption permitted, including adoption in any interim period for which financial statements have not yet been issued. The Company does not expect that the adoption of ASU 2017-09 will have a material impact on the Companys financial statement.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic: 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13). FASB issued the update to modify the disclosure requirements in Topic 820. ASU 2018-07 will be effective for public companies for fiscal years beginning after December 15, 2018, including interim periods.
46
The Company continues to evaluate the impact of these ASUs on its financial statements.
4.
Mineral Property Interests
| |
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Mineral Properties
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Balance at January 1, 2016
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$ 1
|
Carson Property acquisition (a)
|
15,000
|
Impairment charge Carson Property (a)
|
(15,000)
|
Balance at December 31, 2016
|
$ 1
|
Rollo Property (c)
|
25,000
|
Janes Reef Property (d)
|
16,000
|
Asquith Property (e)
|
10,000
|
C1 Mortimer Property (f)
|
941,460
|
Impairment charge (c) (d) (e) (f)
|
(992,459)
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Balance at December 31, 2017 and 2018
|
$ 1
|
a)
Carson Property
On December 23, 2010, the Company entered into a mineral property acquisition agreement with 2214098 Ontario Ltd. pursuant to which the Company acquired the mining lease to the Carson Property. Under the acquisition agreement, the Company was required to pay:
1.
Cash consideration of $99,060 (CDN$100,000) to be paid according to an installment schedule between April 30, 2011 and December 31, 2015;
2.
Equity consideration of 1,000,000 shares of common stock to be issued on or before March 30, 2011; and
3.
Royalty of 3% of all net smelter returns upon commencement of commercial production of the property.
The Carson Property is 1,812 acres in area and is located north by north-west of the City of Yellowknife, in the Northwest Territories, Canada. The Companys interest in the property consists of a 21 year mining lease, which expires on June 30, 2024 and for which the Company was responsible for making annual lease payment of $1,141, in order to keep the lease in good standing.
On December 13, 2012, the Company terminated its acquisition agreement for the Carson Property with 2214098 Ontario Ltd. Under the terms of the agreement, the Company returned the property to the vendor, and both parties are released from any further obligation under the agreement.
The Company had reflected the termination as a loss on disposal of mineral property on the statement of operations of $112,686 for the year ended December 31, 2012.
During 2016, the Company reacquired the Carson Property in exchange for 300,000 shares of common stock to be issued valued at $15,000.
In 2016, the Company recognized an impairment charge of $15,000 on the carrying value of the Carson Property based on the substantial doubt of the Companys ability to raise adequate financing.
b)
Kenty Gold Property
McClay Conveyed Property
. On October 4, 2012, the Company entered into and closed a mineral property acquisition agreement (the McClay Agreement) with Brian McClay, a British Columbia, Canada resident (McClay), pursuant to which McClay agreed to sell to the Company an undivided one hundred percent (100%) interest in and to certain mineral interests found on the Kenty Gold Property located in the Townships of Swayze and Dore, Ontario, Canada (the McClay Conveyed Property).
As consideration for the sale of the McClay Conveyed Property, the Company agreed to deliver the following to McClay in the manner set forth below:
(a)
Closing Date
. CDN$50,000 within three (3) business days following the closing date.
47
(b)
February 4, 2013
.
(i)
CDN$100,000 on or before February 4, 2013; and
(ii)
200,000 common shares of Company on or before February 4, 2013.
(c)
April 4, 2013
.
(i)
CDN$150,000 on or before April 4, 2013; and
(ii)
200,000 common shares of Company on or before April 4, 2013.
(d)
October 4, 2013
.
(i)
CDN$300,000 on or before October 4, 2013; and
(ii)
250,000 common shares of Company on or before October 4, 2013.
(e)
April 4, 2014
.
(i)
CDN$300,000 on or before April 4, 2014; and
(ii)
250,000 common shares of Company on or before April 4, 2014.
(f)
October 4, 2014
.
(i)
CDN$300,000 on or before October 4, 2014; and
(ii)
250,000 common shares of Company on or before October 4, 2014.
(g)
April 4, 2015
.
(i)
CDN$300,000 on or before April 4, 2015; and
(ii)
550,000 common shares of Company on or before April 4, 2015.
(h)
Reserve
. Upon completion of a NI 43-101 compliant mineral resource estimate and pre-feasibility study, with an indicated reserve (by which the parties meant indicated mineral resource) of 1,000,000 Troy Ounces of Gold (Aurum Metal) on the McClay Conveyed Property, Company shall pay CDN$1,000,000 to McClay.
(i)
Production
.
(i)
Upon production of 1,000,000 Troy Ounces of Gold (Aurum Metal) from the McClay Conveyed Property, Company shall pay CDN$1,000,000 to McClay.
(ii)
Upon production of 3,000,000 Troy Ounces of Gold (Aurum Metal) from the McClay Conveyed Property, Company shall pay CDN$2,000,000 to McClay.
(iii)
Upon production of 5,000,000 Troy Ounces of Gold (Aurum Metal) from the McClay Conveyed Property, Company shall pay CDN$2,000,000 to McClay.
(j)
Early Buyout Option
. Company shall have the option of early buyout within one year of execution for a cash payment of CDN$750,000 and 750,000 common shares of Company.
In addition, upon the Commencement of Commercial Production (as defined in the McClay Agreement), the Company shall pay to McClay a royalty in an amount equal to three percent (3%) of all Net Smelter Returns (as defined in the McClay Agreement) on minerals mined from the McClay Conveyed Property (the Seller NSR) on the terms and conditions as set out in the McClay Agreement. Notwithstanding the foregoing, at any point in time following the closing date and upon the
48
Companys sole election, McClay shall sell to Company fifty percent (50%) of the Seller NSR for a purchase price of CDN$1,500,000.
During 2014, the Company recognized an impairment charge of $1,975,999 on the carrying value of the Kenty Property based on the substantial doubt of the Companys ability to raise adequate financing to further develop and explore this property.
At present the Company is involved in three material litigation proceedings. These actions are ongoing in the Ontario Superior Court of Justice and all involve the ownership of the Kenty Property.
The first application is an application brought by Emerald Isle Resources on May 14, 2013 seeking a declaration that it is the legal owner of the Kenty Property. The application alleges: (i) that Brian A. McClay, the owner of the Kenty Property, had sold 100% of his interest therein to Emerald Isle in 1986, although Emerald Isle did not register its acquisition of the Kenty Property at that time; and (ii) that at the time he entered into an agreement to sell the Kenty Property to the Company, Mr. McClay had no interest in the Kenty Property to sell. The Company has responded to that application.
By separate application commenced March 13, 2014 the Company and its co- applicant, Mr. McClay commenced a separate proceeding in the Ontario Superior Court of Justice seeking a formal declaration that Mr. McClay is the sole owner of a 100% undivided interest in the Kenty Property subject only to a smelting agreement and a Mineral Property Acquisition Agreement in favor of the Company.
These matters remain to be resolved.
In separate proceedings, on May 13, 2015, the Company filed a Statement of Claim against Mr. McClay seeking damages totaling $10,750,000 in the event that the Application of the Company and Mr. McClay is unsuccessful and on or about September 28, 2015, Mr. McClay filed a counterclaim against the Company alleging that the Company has failed to deliver the consideration for the purchase of the Kenty Property and therefore has no rights thereto, and seeking damages in the amount of $2,500,000 against the Company. The matter remains in abeyance pending the resolution of the two Applications.
c)
Rollo Property
In 2017, the Company entered into a mineral property acquisition agreement pursuant to which the Company acquired the mining lease to the Rollo Property. Under the acquisition agreement, the Company is required to pay:
1.
Equity consideration of 250,000 shares of common stock to be issued at $0.10 per share.
In 2017, the Company issued 250,000 shares of common stock in satisfaction of the purchase price for a total of $25,000.
In 2017, the Company recognized an impairment charge of $25,000 on the carrying value of the Rollo Property based on the substantial doubt of the Companys ability to raise adequate financing to further develop and explore this property.
d)
Janes Reef Property
In 2017, the Company entered into a mineral property acquisition agreement, pursuant to which the Company acquired the mining lease to the Janes Reef Property. Under the acquisition agreement, the Company is required to pay:
1.
Equity consideration of 160,000 shares of common stock to be issued at $0.10 per share.
In 2017, the Company issued 160,000 shares of common stock in satisfaction of the purchase price for a total of $16,000.
In 2017, the Company recognized an impairment charge of $16,000 on the carrying value on the Janes Reef Property based on the substantial doubt of the Companys ability to raise adequate financing to further develop and explore this property.
e)
Asquith Property
In 2017, the Company entered into a mineral property acquisition agreement pursuant to which the Company acquired the mining lease to the Asquith Property. Under the acquisition agreement, the Company is required to pay:
1.
Equity consideration of 100,000 shares of common stock to be issued at $0.10 per share.
49
In 2017, the Company issued 100,000 shares of common stock in satisfaction of the purchase price for a total of $10,000.
In 2017, the Company recognized an impairment charge of $10,000 on the carrying value on the Asquith Property based on the substantial doubt of the Companys ability to raise adequate financing to further develop and explore this property.
f)
C1 Mortimer Property
In January 2017, the Company entered into a Joint Venture Agreement whereby it has an Option to acquire a fifty per cent (50%) interest in a claim known as the C1- Mortimer property. In order to earn the fifty per cent interest the Company must:
1.
Pay $10,000 CDN upon signing;
2.
Pay 10 million shares of common stock of the Company to the prospectors pro rata upon signing, which was reduced to 9,850,000 shares of common stock, of which 8,840,000 were issued and the remaining are included in stock to be issued.
3.
Spend five hundred thousand ($500,000) on mineral exploration on the property within 30 months of the signing anniversary.
4.
Grant Larry Silo first right of refusal on all exploration work.
5.
Pay the prospector owners, pro rata, CDN$750,000, within 30 months of the signing anniversary.
The current owner prospectors will retain a three per cent (3%) Net Smelter Royalty on the property.
On June 2, 2017, the payment of CDN$10,000 was changed to a payment of CDN$5,000 on June 5, 2017, plus CDN$5,000 paid on July 7, 2017. Total consideration of shares and these payments translated into USD amounted to $941,460. The Company recognized an impairment charge of $941,460 on the carrying value based on the substantial doubt of the Companys ability to raise adequate financing to further develop and explore this property.
50
5.
Advances From Stockholders
|
| |
|
December 31,
|
December 31,
|
|
2018
|
2017
|
|
|
|
Due to Ben Ward
former CEO
|
$74,861
|
$74,861
|
During the year ended December 31, 2016, Ben Ward, the former CEO of the Company transferred personal shareholdings to a vendor of the Company and assumed the debt previously owed to the vendor. The amount is non-interest bearing, unsecured and has no specified terms of repayment.
|
|
|
Due to David Mason
former Director and Consultant
|
61,888
|
54,500
|
On February 18, 2013, the Company entered into a short term loan agreement with David Mason, at the time a director of the Company, in the amount of CDN$25,000, with $7,500 common shares. The loan was formerly interest bearing at 1% compounded monthly, with an original maturity of April 18, 2013 and if unpaid thereafter bearing interest at 22.5%. The loan is secured by a 10% interest in the Mortimer property, which the Company no longer owns, or 150,000 common stock. As the maturity has passed, the amount plus accrued interest is now due on demand. Interest expense on the loan was CDN$14,990 ($10,989) in 2018 and CDN$12,287 ($9,154) in 2017, which is included in the amount of the loan.
|
|
|
Due to Friggi N. A. Inc.
, a company under the control of Benedetto Fuschino, President and CEO of the Company. The amount of the advances in 2018 totaled US $77,500, these amounts were non-interest bearing, unsecured and had no terms of repayment. (see note 11- Subsequent Events)
|
145,389
|
69,674
|
Due to 1873942 Ontario Inc.
, a company under the control of Dino Micacchi, Secretary-Treasurer and CFO of the Company. The amount of the advances in 2018 totaled $1,066, these amounts were non-interest bearing, unsecured and had no terms of repayment.
|
4,850
|
3,784
|
Due to Northern Rock Works Inc.,
a company controlled by Scott Keevil, stockholder and consultant to the Company. These amounts are non-interest bearing, unsecured and had no terms of repayment.
|
7,445
|
7,966
|
Long-Term Debt
|
$294,433
|
$210,784
|
6.
Due On Mineral Rights Acquisitions
|
| |
|
December 31,
2018
|
December 31, 2017
|
|
|
|
Due to Hadrian Ventures re: Kenty Property
|
$37,225
|
$37,238
|
The Hadrian Ventures Loan is unsecured and has no set terms of repayment. Hadrian Ventures is controlled by Scott Keevil, stockholder and consultant to the Company.
51
7.
Income Taxes
As at December 31, 2018 and 2017, the Company had no accrued interest and penalties related to uncertain tax positions. Reconciliation of the statutory tax rate of 21% (2017 - 34%) and income tax benefits at those rates to the effective income tax rates and income tax benefits reported in the statement of operations and comprehensive loss is as follows:
|
|
| |
|
For the Years Ended December 31,
|
|
2018
|
|
2017
|
|
|
|
|
Loss before income tax
|
$ (258,861)
|
|
$ (1,237,085)
|
|
|
|
|
Expected income tax recovery
|
(54,361)
|
|
(420,608)
|
Unrealized foreign exchange
|
(1,482)
|
|
(97,154)
|
other permanent difference
|
35,309
|
|
50,677
|
Change in valuation allowance
|
20,534
|
|
467,085
|
Income tax expense
|
$ -
|
|
$ -
|
|
|
|
|
|
|
|
|
The following table summarizes the significant components of deferred tax:
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2018
|
|
2017
|
Deferred tax asset:
|
|
|
|
Net operating loss carry forward
|
$ 1,201,400
|
|
$ 1,980,039
|
Exploration and development costs
|
212,334
|
|
340,494
|
Valuation allowance
|
(1,413,734)
|
|
(2,320,533)
|
Total
|
$ -
|
|
$ -
|
The Company has net operating loss carryovers of approximately $4,464,000 for federal and state income tax purposes, which begin to expire in 2029. The ultimate realization of the net operating loss is dependent upon future taxable income, if any, of the Company. Based on losses from inception, the Company determined that as of December 31, 2018 it is more likely than not that the Company will not realize benefits from the deferred tax assets. The Company will not record income tax benefits in the financial statements until it is determined that it is more likely than not that the Company will generate sufficient taxable income to realize the deferred income tax assets. As a result of the analysis, the Company determined that a valuation allowance against the deferred tax assets was required.
The tax years that remain subject to examination by major taxing jurisdictions are those for the years ended December 31, 2017, 2016, 2015, 2014, 2013, 2012, 2011 and 2010.
8.
Capital Stock
a)
Common Stock
During the year December 31, 2018, the Company issued no shares of common stock.
During the year ended December 31, 2016, two of the Companys stockholders, Penny Currah and Dino Fuschino, entered into separate transactions to sell stock to another investor. The transactions were intended to be an exchange of stock between these parties; however, the Company ended up issuing new stock certificates to the new investors. On realizing the oversight the Company agreed with Penny Currah and Dino Fuschino that they would return the share certificates that they otherwise had intended to sell to the new investors to the Company for cancellation. During the year ended December 31, 2018, those share certificates had been returned. Accordingly, the Company cancelled the shares on their return.
52
For the year December 31, 2017, the Company issued 25,353,446 shares of common stock. Of these 1,318,804 were issued for services at the fair value ranging from $0.05 to of $0.10 per share, of which $8,440 was released from stock to be issued and $60,000 of which related to expenses for services during the year ended December 31, 2017.
A further 9,350,000 shares were issued at a transaction price of $0.10 in the acquisition of mineral rights for a total of $935,000 and another $50,000 stock to be issued.
Additionally, the Company issued 699,917 Flow-Through Common shares at $0.15 per share for total proceeds of $104,988, and 133,333 stock to be issued valued at $20,000.
The Company recognized a deferred premium on flow through shares in the amount of $83,325, which resulted in a net amount of additional paid in capital of $34,936 and $6,667 to shares to be issued. The issuance of flow-through shares requires the renunciation of Canadian Exploration Expenditures (CEE) in the same tax year and in an amount of equal value to the shares issued for the benefit of those shareholders that purchased those flow-through shares. In accordance with the Income Tax Act (Canada), the Company must incur CEE in the year of renunciation or in the subsequent year. Part XII.6 tax is calculated monthly on any unspent balance in the subsequent year beginning January 1, 2013. Under the terms of the Companys flow-through shares agreements, the Company is required to spend and renounce expenditures for exploration that are qualifying CEE, as defined by the Income Tax Act (Canada). The Company renounced effective December 31, 2017 and has made the related expenditures, accordingly, the amount of the deferred premium on flow through shares has been recognized as a recovery in the statement of operations.
During the year ended December 31, 2017, the Company issued 7,772,443 shares of common stock in settlement of debt to third parties for a total of $194,519 and settlement of loans from shareholders for a total of $194,049.
During the year ended December 31, 2017, the Company issued 6,000,000 to officers and directors as compensation for service in prior years. This compensation was recorded in prior years at a transaction price ranging from $0.05 to $0.10 per share. Additionally, 212,282 shares of common stock were issued to a company controlled by the CFO amounting to $10,593, of which $7,203 was previously recorded in shares to be issued.
b)
Stock To Be Issued
For the year ended December 31, 2018, 3,000,000 shares became issuable to directors and officers of the Company for services rendered. These transactions have been recorded as stock-based compensation having a total value of $150,000 within shares to be issued. A further 75,590 Flow-Through shares are to be issued valued at $11,338 related to S-1 offering.
Including the above noted items as at December 31, 2018, a further 10,314,316 shares have yet to be issued for prior transactions, including services, compensation and mineral property acquisitions, at the transaction prices ranging from $0.05 to $0.15 per share for a total of $1,793,531.
For the year ended December 31, 2017, 2,000,000 shares became issuable to directors and officers of the Company for services rendered. These transactions have been recorded as stock-based compensation having a total value of $100,000 within shares to be issued. The Company recorded stock to be issued in respect of 500,000 shares for a value of $50,000 to be issued as a result of the acquisition of mineral rights during the year ended December 31, 2017. A further 133,333 stock are to be issued valued at $20,000 related to private placements.
Including the above noted items as at December 31, 2017, a further 7,238,726 have yet to be issued for prior transactions, including services, compensation and mineral property acquisitions, at the transaction prices ranging from $0.05 to $0.15 per share for a total of $1,645,525.
c)
Preferred Stock
The Company has authorized Class A preferred stock available to be issued for $1.00 per share, are non-participating and non-voting and accrue cumulative dividends at the rate of 10% per annum. The Company may retract the stock at any time upon the payment of $1.00 per share plus any unpaid dividends. In the event of any wind-up of the Company, the Class A preferred stock has a priority distribution of $1.00 per share plus any unpaid dividends before any distribution to the common stockholders.
As of December 31, 2018, the Company has dividends payable of $305,329 (2017 - $255,754). As at December 31, 2018 and 2017, the Company was in arrears in the dividends on preferred shares.
Preferred dividends for the years ended December 31, 2018 and 2017 had an effect of $0.00 and $0.00, respectively on loss per share available to common stockholders.
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d)
Stock-Based Compensation
The Company incurred stock-based compensation expense in connection with its compensation agreements for its directors, management, and employees. Under these agreements, common stock may be issued as a signing bonus or at certain benchmark dates within an individuals period of service. Stock-based compensation is calculated as the fair value of the stock issued or to be issued to an individual and is recorded at the time the stock becomes owing to the individual. Stock issued to a director, manager, or employee is deferred in the event that their contract requires the individual to remain employed with the Company for a specified time period after issuance.
For the year ended December 31, 2018, the Company issued no common stock related to stock-based compensation and granted 3,000,000 (2,000,000 2017) shares in connection with stock-based compensation arrangements with the CEO and CFO of the Company. At the time of grant, the fair value of the related shares was $0.05 per share and resulted in compensation expense and stock to be issued in the amount of $150,000 in the year ended December 31, 2018 and $100,000 in the year ended December 31, 2017. These fees were recorded as a component of consulting fees on the statements of operations and comprehensive loss.
9. Related Party Transactions and Balances
The following transactions with related parties were in the normal course of operations and were measured at the exchange value which represented the amount of consideration established and agreed to by the parties.
Refer to Notes 8(b) and 8(d) for the disclosure of stock-based compensation to the CEO and CFO of the Company.
Refer to Note 8(a) related to the shares to be returned for cancellation by Penny Currah and Dino Fuschino, both existing stockholders of the Company with familiar relationships to management and consultants of the Company.
Receivable from Related Parties:
|
| |
|
December 31,
2018
|
December 31, 2017
|
Receivable from Benedetto Fuschino (i)
|
$ 10,698
|
$ 10,698
|
Receivable from Sabine Frisch for stock to be issued, Sabine Frisch is the wife of Scott Keevil a stockholder and consultant to the Company.
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19,000
|
19,000
|
Receivable from related parties
|
$ 29,698
|
$ 29,698
|
|
|
|
(i)
Refer to Note 5 which shows $145,389 owed to Benedetto Fuschino and a company controlled by him; there is no intention to net settle.
10. Financial Instruments
Fair Values
The Companys financial instruments consist of cash, accounts receivable, notes receivable, accounts payable and accrued liabilities, dividends payable, and amounts due on mineral rights acquisition. The fair values of these financial instruments approximate their carrying values due to the short-term maturity of these instruments. There were no transfers of financial instruments between Levels 1, 2, and 3 during the years ended December 31, 2018 and 2017.
Foreign Currency Risk
Foreign currency risk is the risk that changes in the rates of exchange on foreign currencies will impact the financial position or cash flows of the Company. The Companys functional currency is the Canadian dollar, thus the Company is exposed to foreign currency risks in relation to certain payables that are to be settled in US funds. Management monitors its foreign currency exposure regularly to minimize the risk of an adverse impact on its cash flows.
Concentration of Credit Risk
Concentration of credit risk is the risk of loss in the event that certain counterparties are unable to fulfill its obligations to the Company. The Company limits its exposure to credit loss on its cash by placing its cash with high credit quality financial institutions. The Company does not have any cash in excess of federally insured limits. Sales taxes receivable are due from the Canadian government and notes receivable are due from stockholders with whom the Company also has advances payable.
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Liquidity Risk
Liquidity risk is the risk that the Companys cash flows from operations will not be sufficient for the Company to continue operating and discharge is liabilities. The Company is exposed to liquidity risk as its continued operation is dependent upon its ability to obtain financing, either in the form of debt or equity, or achieving profitable operations in order to satisfy its liabilities as they come due.
Market Risk
Market risk is the risk that fluctuations in the market prices of minerals will impact the Companys future cash flows. The Company is exposed to market risk on the price of gold, which will determine its ability to build and achieve profitable operations, the amount of exploration and development work that the Company will be able to perform, and the number of financing opportunities that will be available. Management believes that it would be premature at this point to enter into any hedging or forward contracts to mitigate its exposure to specific market price risks.
11. Segmented reporting
The Company only has one reportable segment, its acquisition, exploration and development of mineral property interests in Canada. All of the mineral properties are located in Canada.
12. Subsequent events
Subsequent to the year end the Company President and CEO, Benedetto Fuschino, advanced the Company $45,000 at 0% interest secured by promissory note with no set terms of repayment.
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