Xtra-Gold Resources Corp.: Exhibit 99.2 - Filed by newsfilecorp.com
Exhibit 99.2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of the interim
consolidated financial statements and results of operations (“MD&A”) of
Xtra-Gold Resources Corp. (“Xtra-Gold” or our “company”) for the three months
ended March 31, 2015 and 2014 should be read in conjunction with the interim
consolidated financial statements and the related notes to the company’s interim
consolidated financial statements. The following discussion contains
forward-looking statements that reflect Xtra-Gold’s plans, estimates and
beliefs. Our company’s actual results could differ materially from those
discussed in the forward-looking statements set out herein. Factors that could
cause or contribute to such differences include, but are not limited to those
discussed below and as contained elsewhere in this MD&A. Our company’s
consolidated unaudited financial statements are stated in United States Dollars
and are prepared in accordance with United States Generally Accepted Accounting
Principles (“U.S. GAAP”).
Additional information relating to our company, including our
consolidated audited financial statements and the notes thereto for the years
ended December 31, 2014, 2013 and 2012 and our annual report on Form 20-F, can
be viewed on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.
Highlights for the Three Months Ended March 31,
2015
During the three months ended March 31, 2015:
- in connection with our gold recovery operations, we sold 199 fine ounces
of gold for gross proceeds of US$228,850.
Highlights for the Year Ended December 31,
2014
During the year ended December 31, 2014:
-
in connection with our Kibi Gold Project, located on the Kibi Gold Belt,
exploration activities were limited to Zone 5 reconnaissance geology /
prospecting with 144 rock composite chip samples collected and geological -
geophysical modelling geared towards drill target selection;
-
in connection with our Kwabeng Project, located on the Kibi Gold Belt:
-
we announced prospecting and sampling results for the Bomaa prospect (May
2014);
-
we recovered 1,159 ounces of placer gold and sold 1,159 ounces for net
proceeds of $411,152. As at the date of this MD&A, during 2015, we plan to
continue placer gold recovery operations at this project; and
-
in connection with our Pameng Project, located on the Kibi Gold Belt, soil
geochemical sampling was completed on two grids with a total of approximately
80.5 line-km cross-lines established at 200 meter spacing and 2,853 soil
samples collected at 25 meter station spacing. A total of 202 rock composite
chip samples were collected as part of a prospecting program focusing on the
ground proofing of geophysical and structural geology targets. With a view to
conserving our company’s working capital, management decided to postpone the
laboratory analyses of the soil and rock samples for the fiscal year; and
-
a total of 452,500 common shares were re-purchased for $136,679 and
cancelled.
Overview
We are a gold exploration company engaged in the exploration of
gold properties in the Republic of Ghana, West Africa. Our mining portfolio
currently consists of 225.87 square km comprised of 33.65 square km for our Kibi
project, 51.67 square km for our Banso project, 55.28 square km for our Muoso
project, 44.76 square km for our Kwabeng project, and 40.51 square km for our
Pameng project, or 55,873 acres, pursuant to the leased areas set forth in our
mining leases.
Plan of Operations
Our strategic plan is, with respect to our mineral projects, to
conduct an exploration program, consisting of the following:
- 2 -
at our Kibi project:
-
an exploration program consisting of additional outcrop stripping /
trenching followed by detailed geological mapping and channel sampling to
further investigate the auriferous occurrences discovered by the latest
prospecting efforts and to further define the strike-extensions of the known
gold-bearing shear zones;
-
prospecting / reconnaissance geology of the additional prospective
IP/Resistivity targets present along the 2.2 km long Zone 5 grid is also
planned; and
-
a drill program of approximately 2,000 to 3,000 meters at an estimated
cost of $300,000 to $500,000;
at our Kwabeng project:
-
ongoing geological compilation, prospecting, soil geochemical sampling,
and scout trenching to identify and/or further advance grassroots targets; and
-
the continuation of placer gold recovery operations at this project
(commenced in March 2013);
at our Pameng project:
-
ongoing geological compilation, prospecting, soil geochemical sampling,
and scout trenching to identify and/or further advance grassroots targets; and
- to acquire further interests in gold mineralized projects that fall within
the criteria of providing a geological basis for development of drilling
initiatives that can enhance shareholder value by demonstrating the potential
to define reserves.
As part of our current business strategy, we plan to continue
engaging technical personnel under contract where possible as our management
believes that this strategy, at its current level of development, provides the
best services available in the circumstances, leads to lower overall costs and
provides the best flexibility for our business operations.
We anticipate that our ongoing efforts will continue to be
focused on the exploration and development of our projects and completing
acquisitions in strategic areas.
In connection with our placer gold recovery operations, we
contract out as many services as possible to local Ghanaians in order to
maximize cost efficiencies.
Our fiscal 2015 budget to carry out our plan of operations is
approximately $880,000 to $1,080,000 comprised of $480,000 to $680,000 for our
2015 exploration program ($180,000) and planned drilling program on our Kibi
gold project ($300,000 to $500,000) as disclosed in our 20-F annual report under
Item 4.B – Information on Xtra-Gold – Business Overview and approximately
$400,000 for general and administrative expenses, (which excludes approximately
$200,000 in non-cash stock-based compensation expense). These expenditures are
subject to change if management decides to scale back or accelerate operations.
Our company has historically relied on equity and debt
financings to finance its ongoing operations. Existing working capital, possible
debt instruments, anticipated option exercises, further private placements and
anticipated cash flow from placer gold recovery operations are expected to be
adequate to fund our company’s operations over the next year. During the current
year and subsequent to 2015, we will require additional capital to implement our
plan of operations. We anticipate that these funds primarily will be raised
through equity and debt financing or from other available sources of financing.
If we raise additional funds through the issuance of equity or convertible debt
securities, it may result in the dilution in the equity ownership of investors
in our common stock. There can be no assurance that additional financing will be
available upon acceptable terms, if at all. If adequate funds are not available
or are not available on acceptable terms, we may be unable to take advantage of
prospective new opportunities or acquisitions, which could significantly and
materially restrict our operations, or we may be forced to discontinue our
current projects.
- 3 -
Trends
In 2014, many commodity and stock market indices continued to
experience historically high levels of volatility in the face of global economic
uncertainty. Gold prices decreased over 2014 as financial markets sold gold to
invest in other equities which were more consistent with economic growth
prospects.
During 2014, the U.S. dollar strengthened against most
currencies, as economic reports reflected a U.S. economic recovery in
progress.
During 2014, the gold price continued to be volatile, reaching
a high of $1,385 per ounce. During the first quarter of 2015, the gold price
continued to be volatile, reaching a high of $1,295.75 on January 22, 2015 and a
low of $1,147.25 on March 18, 2015. The average gold price for the first quarter
of 2015 was $1,218.45 per ounce compared to an average gold price during the
same period in 2014 of $1,293. The tone for the precious metals market in the
near future will depend on whether the U.S. dollar will be supported and if the
central banks will continue to maintain interest rates at low levels to support
economic growth. The continued global easing of monetary policy could lead to
higher inflation and U.S. dollar volatility in coming years. This dollar
volatility could have a positive impact on gold prices in the future and the
long-term upward trend in prices may continue. Conversely, subdued inflation
rates and the recovering global economy could put downward pressure on the gold
price in the future. Additionally, recent events in Europe could continue to
have a positive effect on the gold price.
Overall, a lower U.S. dollar should lead to higher costs in
U.S. dollar terms to identify and explore for gold but could be more than offset
by higher gold prices, resulting in greater interest in gold exploration
companies. Conversely, if the U.S. dollar strengthens further, interest in the
gold exploration sector could be reduced.
Summary of Quarterly Results
| |
|
|
|
|
Basic and Diluted
Income |
|
| Three Months Ended |
|
Net Income (Loss)
|
|
|
(Loss) Per Share
|
|
| |
|
$ |
|
|
$ |
|
| |
|
|
|
|
|
|
| March 31, 2015 |
$ |
(182,765 |
)
|
|
(0.00 |
)
|
| December 31, 2014 |
|
(130,615 |
) |
|
(0.00 |
) |
| September 30, 2014 |
|
(15,068 |
)
|
|
(0.00 |
)
|
| June 30, 2014 |
|
(293,144 |
) |
|
(0.01 |
) |
| March 31, 2014 |
|
(255,072 |
)
|
|
(0.01 |
)
|
| December 31, 2013 |
|
(244,225 |
) |
|
(0.01 |
) |
| September 30, 2013 |
|
70,928 |
|
|
0.00 |
|
| June 30, 2013 |
|
82,484 |
|
|
0.00 |
|
| March 31, 2013 |
|
(651,280 |
)
|
|
(0.01 |
)
|
| December 31, 2012 |
|
(2,701,993 |
) |
|
(0.06 |
) |
| September 30, 2012 |
|
(6,501 |
)
|
|
(0.00 |
)
|
| June 30, 2012 |
|
(2,804,931 |
) |
|
(0.06 |
)
|
- 4 -
Summary of the Last Three Fiscal Years ended December 31
|
|
2014 |
2013 |
2012 |
|
|
$ |
$ |
$ |
|
Operating revenues
|
Nil
|
Nil
|
Nil
|
|
Consolidated loss
and comprehensive loss for the year |
(687,057) |
(750,942) |
(7,631,636) |
|
Net loss and comprehensive loss attributable to
non-controlling interest |
6,842 |
8,849 |
466,378 |
|
Net loss and comprehensive loss attributable to Xtra-Gold
Resources Corp. |
(693,899) |
(742,093) |
(7,165,258) |
|
Basic and diluted loss attributable to common shareholders
per common share |
(0.02) |
(0.02) |
(0.16)) |
|
Total current
assets |
1,124,733 |
1,717,195 |
2,692,522 |
|
Total assets |
2,713,212 |
3,616,752 |
4,836,377 |
|
Total current
liabilities |
327,193 |
311,904 |
404,507 |
|
Total liabilities
|
327,193 |
515,299 |
931,491 |
|
Working capital
|
797,540 |
1,405,291 |
1,948,426 |
|
Capital stock |
45,811 |
46,264 |
46,540 |
|
Total
shareholders’ equity |
2,386,019 |
3,101,453 |
3,904,866 |
|
Total Xtra-Gold
Resources Corp. shareholders’ equity |
3,360,935 |
4,083,211 |
4,877,795 |
|
Dividends declared
per share |
Nil
|
Nil
|
Nil
|
|
Basic and diluted weighted average number of common shares
outstanding |
45,996,481 |
46,481,748 |
44,698,113 |
Results of Operations for the Three Months Ended March
31, 2015 as Compared to the Three Months Ended March 31, 2014
Our company’s net loss for the three months ended March 31,
2015 was $182,765 as compared to a net loss of $255,072 for the three months
ended March 31, 2014, a reduction in loss of $72,307. Most of the improvement
resulted from decreased exploration spending and general and administration
spending, which were partly offset by lower recoveries of gold in the March 2015
quarter.
Our company’s basic and diluted net loss per share for the
three months ended March 31, 2015 was $0.00 compared to a net loss of $0.01 per
share for the three months ended March 31, 2014. The weighted average number of
shares outstanding was 45,745,306 at March 31, 2015 compared to 46,260,739 for
the three months ended March 31, 2014. The decrease in the weighted average
number of shares outstanding can be attributed to the repurchase of shares over
2014 and 2015.
We incurred expenses of $193,512 in the three months ended
March 31, 2015 as compared to $328,481 in the three months ended March 31, 2014,
a decrease of $134,969. Amortization for the three months ended March 31, 2015
was $36,553 as compared to $47,020 for the three months ended March 31, 2014, a
decrease of $10,467, as no equipment was purchased in 2014 or 2015. General and
administrative (“G&A”) expenses were $77,205 in the three months
ended March 31, 2015 as compared to $119,261 in the three months ended March 31,
2014, a decrease of $42,056. The decrease in G&A expenses in the three
months ended March 31, 2015 can be primarily attributed to lower stock based
compensation and regulatory costs. Other G&A expenses were in line with
those in Q1 2014. Exploration costs decreased by $82,446 to $79,754 as compared
to $162,200 for the three months ended March 31, 2014, primarily due to a
limited work program to date in 2015. All exploration costs were expensed in the
periods.
- 5 -
During the March 2015 quarter, in connection with our Kibi
project, exploration activities focused on Zone 5 outcrop stripping and detailed
geological mapping / channel sampling to further investigate the auriferous
occurrences discovered by recent prospecting efforts and to further define the
strike-extensions of the known gold-bearing shear zones. A total of 162 saw-cut
channel samples were collected from approximately 530 square meters of manually
stripped / power washed bedrock exposure; with an additional 33 rock composite
chip prospecting samples also collected. Compilation of the latest geological
and channel sample result data for the ongoing Zone 5 outcrop stripping /
prospecting program is currently in progress.
In connection with our Kwabeng project, a total of 13 rock
composite chip samples were collected as part of a prospecting program
focusing on the ground proofing of geophysical and structural geology targets.
We did not conduct any exploration activities on our Pameng project during the
current reporting period.
We reported a gain of $11,752 related to other items for the
three months ended March 31, 2015 compared to a gain of $68,393 for the three
months ended March 31, 2014 as reduced gold recoveries and unrealized holding
losses on investments in 2015 reduced the gain as compared to Q1 2014.
During the three months ended March 31, 2015, we sold 199
ounces of fine gold from our gold recovery operations compared to 265 ounces of
fine gold from our share of the placer gold operations received during the three
months ended March 31, 2014. Our gold receipts, after royalties, during the
three months ended March 31, 2015, generated a gain on gold recovery of $47,178
(March 31, 2014 – gain of $85,241). We recovered 273 raw ounces of gold during
Q1 2015. Most of this gold was sent to smelt in Q2 2015. Gold sales relating to
our share of gold is not recognized until the risks and rewards of ownership
passed to the buyer. These placer gold recovery operations were contracted to
local Ghanaian groups. We pay a 5% government royalty on our gold sales. Using
local contractors promotes the local economy while avoiding illegal workings on
our projects.
During the three months ended March 31, 2015, our company had a
foreign exchange loss of $22,406 compared to a loss of $25,268 in the three
months ended March 31, 2014 which can be attributed to a stronger U.S. dollar
during the quarter.
Our company’s portfolio of marketable securities had an
unrealized loss of $13,007 in the three months ended March 31, 2015 compared to
an unrealized gain of $7,297 in the three months ended March 31, 2014. Our
company recognized a realized gain of $nil on the sale of securities in the
three months ended March 31, 2015 compared to a realized gain of $2,658 from the
sale of securities in the three months ended March 31, 2014. Unrealized gains
and losses reflect mark-to-market changes in the investment portfolio during a
period. A realized gain is recognized when securities are sold from the
investment portfolio, being the difference between the selling price and the
purchase price of the security sold. At the time of the sale, any mark-to-market
gain or loss which is related to the security sold, previously recognized in
unrealized gains and losses, is reversed.
Liquidity and Capital Resources
Our activities, principally the exploration and acquisition of
properties for gold and other metals, may be financed through joint ventures or
through the completion of equity transactions such as equity offerings and the
exercise of stock options and warrants. During the three months ended March 31,
2015, our company repurchased 85,000 of our shares at a cost of $9,458. These
shares were cancelled in the first quarter. During the year ended December 31,
2014, our company repurchased 452,500 of our shares at a cost of $136,679. These
shares were cancelled.
At March 31, 2015, accounts payable and accrued liabilities
decreased to $197,172 (December 31, 2014 - $230,798), due to a decrease in
general business payables. Our asset retirement obligation increased to $119,581
at March 31, 2015 from $96,395 at December 31, 2014 as land was disturbed in the
gold recovery process. Our cash and cash equivalents as at March 31, 2015 were
sufficient to pay these liabilities. We believe that our company has sufficient
working capital to achieve our 2015 operating plan.
At March 31, 2015, we had total cash and cash equivalents of
$601,952 (December 31, 2014 - $850,736). Working capital as of March 31, 2015
was $642,875 (December 31, 2014 - $797,540). The decrease in cash mostly
reflects gold recovery efforts not realized until the following quarter,
combined with exploration and administrative spending.
We are an exploration company focused on gold and associated
commodities and do not have operating revenues; and therefore, we must utilize
our current cash reserves, income from placer gold sales, income from
investments, funds obtained from the exercise of stock options and warrants and
other financing transactions to maintain our capacity to meet the planned
exploration programs, or to fund any further development activities. There is no
certainty that future financing will be available to us in the amounts or at the
times desired on terms acceptable to us, if at all.
- 6 -
Our shares of common stock, warrants and stock options
outstanding as at May 11, 2015, December 31, 2014 and December 31, 2013 were as
follows:
| |
May 11, 2015 |
December 31, 2014 |
December 31, 2013 |
| Common Shares |
45,726,417 |
45,811,417 |
46,263,917 |
| Warrants |
- |
- |
964,500 |
| Stock Options |
2,210,000 |
2,426,000 |
2,489,000 |
| Fully diluted |
47,936,417 |
48,237,417 |
49,717,417 |
As of the date of this MD&A, the exercise of all
outstanding warrants and options would raise approximately $1.0 million, however
such exercise is not anticipated until the market value of our shares of common
stock increases in value.
We remain debt free and our credit and interest rate risk is
limited to interest-bearing assets of cash and bank or government guaranteed
investment vehicles. Accounts payable and accrued liabilities are short-term and
non-interest bearing.
Our liquidity risk with financial instruments is minimal as
excess cash is invested with a Canadian financial institution in
government-backed securities or bank-backed guaranteed investment certificates.
Our fiscal 2015 budget to carry out our plan of operations is
approximately $880,000 to $1,080,000 as disclosed above under “Plan of
Operations”.
We believe that we are adequately capitalized to achieve our
operating plan for fiscal 2015. As is typical for junior exploration companies,
we will require additional funds from equity sources to maintain the current
momentum on our projects. At March 31, 2015, there were no borrowings or capital
expenditure commitments made by our company.
Related Party Transactions
During the three month periods ended March 31, 2015 and March
31, 2014, our company entered into the following transactions with related
parties:
| |
|
Three months |
|
|
Three months |
|
| |
|
March 31, 2015 |
|
|
March 31, 2014 |
|
| |
|
|
|
|
|
|
| Consulting fees paid or accrued to officers
or their companies |
$ |
99,012 |
|
$ |
102,435 |
|
| Directors’ fees |
|
3,021 |
|
|
4,375 |
|
| |
|
|
|
|
|
|
| Stock option grants to officers and directors |
|
— |
|
|
— |
|
| Stock option grant price range |
$ |
— |
|
$ |
— |
|
An amount of $22,885 in 2015 (2014 - $28,974) was payable to a
private company of which a related party is a shareholder and director and is
entitled to receive 50% of this amount. A further balance of $10,000 at March
31, 2015 and December 31, 2014 remains payable to this related party.
As at March 31, 2015, an amount of $138,651 (December 31, 2014
- $97,493) was due from Buccaneer Gold Corp. for services performed by our
company during the periods. Buccaneer Gold Corp. has two directors in common
with our company.
Material Commitments
Mineral Property Commitments
Our company is committed to expend, from time to time fees
payable:
- to the Minerals Commission of Ghana for:
- 7 -
-
an extension of an expiry date of a prospecting license (currently $15,000
for each occurrence);
-
a grant of a mining lease (currently $100,000);
-
an extension of a mining lease (currently $100,000);
-
annual operating permits; and
-
the conversion of a reconnaissance license to a prospecting license
(currently $20,000);
- to the Environmental Protection Agency of Ghana for:
-
processing and certificate fees with respect to EPA permits;
-
the issuance of permits before the commencement of any work at a
particular concession; or
-
the posting of a bond in connection with any mining operations undertaken
by our company; and
- for a legal obligation associated with our mineral properties for clean up
costs when work programs are completed. We are committed to expend an
aggregate of less than $500 in connection with annual ground rent and mining
permits to enter upon and gain access to the area covered by our mining leases
and future reconnaissance and prospecting licenses for our following
concessions and such other financial commitments arising out of any approved
exploration programs in connection therewith:
-
the Apapam concession (Kibi project);
-
the Kwabeng concession (Kwabeng project);
-
the Pameng concession (Pameng project);
-
the Banso concession (Banso project); and
-
the Muoso concession (Muoso project).
Upon and following the commencement of gold production at any
of our projects, a royalty of the net smelter returns is payable quarterly to
the Government of Ghana as prescribed by legislation.
Purchase of Significant Equipment
We purchase equipment as needed to conduct our exploration
activities.
Off Balance Sheet Arrangements
Our company has no off balance sheet arrangements.
Significant Accounting Applications
Application of Critical Accounting Policies
We believe the following critical accounting policies affect
our more significant judgments and estimates used in the preparation of our
financial statements.
Generally accepted accounting principles
These consolidated financial statements have been prepared in
conformity with generally accepted accounting principles of the United States of
America (“US GAAP”).
- 8 -
Principles of consolidation
These consolidated financial statements include the accounts of
our company, our wholly owned subsidiaries, Xtra Energy (from October 31, 2003),
XG Exploration (from February 16, 2004), XOG (from October 20, 2005) and XOGG
(from March 2, 2006) and our 90% owned subsidiary, XG Mining (from December 22,
2004). All intercompany accounts and transactions have been eliminated on
consolidation.
Use of estimates
The preparation of consolidated 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.
Actual results could differ from those estimates. Significant areas requiring
the use of estimates include the carrying value and recoverability of mineral
properties, inputs used in the calculation of stock-based compensation and
warrants, inputs used in the calculation of the asset retirement obligation, and
the valuation allowance applied to deferred income taxes. Actual results could
differ from those estimates, and would impact future results of operations and
cash flows.
Cash and cash equivalents
Our company considers highly liquid investments with original
maturities of three months or less to be cash equivalents. At March 31, 2015 and
December 31, 2014, cash and cash equivalents consisted of cash held at financial
institutions.
Receivables
No allowance for doubtful accounts has been provided.
Management has evaluated all receivables and believes they are all collectible.
Recovery of gold
Recovery of gold and other income is recognized when title and
the risks and rewards of ownership to delivered bullion and commodities pass to
the buyer and collection is reasonably assured.
Trading securities
Our company’s trading securities are reported at fair value,
with realized and unrealized gains and losses included in earnings.
Non-Controlling Interest
The consolidated financial statements include the accounts of
XG Mining (from December 22, 2004). All intercompany accounts and transactions
have been eliminated upon consolidation. Our company records a non-controlling
interest which reflects the 10% portion of the earnings (loss) of XG Mining
allocable to the holders of the minority interest.
Equipment
Equipment is recorded at cost and is being amortized over its
estimated useful lives using the declining balance method at the following
annual rates:
| Furniture and equipment |
20% |
| Computer equipment |
30% |
| Vehicles |
30% |
| Exploration equipment |
20% |
Mineral properties and exploration and development costs
The costs of acquiring mineral rights 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 of the ore body based on proven and probable reserves
(which exclude non-recoverable reserves and anticipated processing losses). When
our 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.
- 9 -
Long-lived assets
Long-lived assets held and used by our company are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. For purposes of evaluating
the recoverability of long-lived assets, the recoverability test is performed
using undiscounted net cash flows related to the long-lived assets. If such
assets are considered to be impaired, the impairment recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of their carrying
amount or fair value less costs to sell.
Asset retirement obligations
Our company records the fair value of an asset retirement
obligation as a liability in the period in which it incurs a legal obligation
associated with the retirement of tangible long-lived assets that result from
the acquisition, construction, development, and/or normal use of the long-lived
assets. Our company also records a corresponding asset which is amortized over
the life of the asset. Subsequent to the initial measurement of the asset
retirement obligation, the obligation is adjusted at the end of each period to
reflect the passage of time (accretion expense) and changes in the estimated
future cash flows underlying the obligation (asset retirement cost).
Stock-based compensation
Our company accounts for share-based compensation under the
provisions of ASC 718, “Compensation-Stock Compensation”. Under the fair value
recognition provisions, stock-based compensation expense is measured at the
grant date for all stock-based awards to employees and directors and is
recognized as an expense over the requisite service period, which is generally
the vesting period. The Black-Scholes option valuation model is used to
calculate fair value.
Our company accounts for stock compensation arrangements with
non-employees in accordance with ASC 718 which require that such equity
instruments are recorded at their fair value on the measurement date. The
measurement of stock-based compensation is subject to periodic adjustment as the
underlying equity instruments vest. Nonemployee stock-based compensation charges
are amortized over the vesting period on a straight-line basis. For stock
options granted to non-employees, the fair value of the stock options is
estimated using a Black-Scholes valuation model.
Warrants
Our company evaluates all of its financial instruments to
determine if such instruments are derivatives or contain features that qualify
as embedded derivatives. For derivative financial instruments that are accounted
for as liabilities, the derivative instrument is initially recorded at its fair
value using the appropriate valuation methodology and is then re-valued at each
reporting date, with changes in the fair value reported in the consolidated
statements of operations. The warrants are presented as a liability because they
do not meet the criteria of Accounting Standard Codification (“ASC”) topic 480
for equity classification. Subsequent changes in the fair value of the warrants
are recorded in the consolidated statement of operations.
Income taxes
Our company accounts for income taxes under the asset and
liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets 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. Under the
asset and liability method 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. A valuation allowance is recognized if it is more likely than
not that some portion or all of the deferred tax asset will not be recognized.
- 10 -
Loss per share
Basic loss per common share is computed using the weighted
average number of common shares outstanding during the year. To calculate
diluted loss per share, our company uses the treasury stock method and the if
converted method. As of March 31, 2015 and December 31, 2014, there were nil
warrants and 2,426,000 stock options outstanding which have not been included in
the weighted average number of common shares outstanding as these were
anti-dilutive.
Foreign exchange
Our company’s functional currency is the U.S. dollar. Any
monetary assets and liabilities that are in a currency other than the U.S.
dollar are translated at the rate prevailing at year end. Revenue and expenses
in a foreign currency are translated at rates that approximate those in effect
at the time of translation. Gains and losses from translation of foreign
currency transactions into U.S. dollars are included in current results of
operations.
Financial instruments
Our company’s financial instruments consist of cash and cash
equivalents, trading securities, receivables, accounts payable and accrued
liabilities. It is management’s opinion that our company is not exposed to
significant interest, currency or credit risks arising from its financial
instruments. The fair values of these financial instruments approximate their
carrying values unless otherwise noted. Our company has its cash primarily in
commercial banks in Toronto, Ontario, Canada.
Fair value of financial assets and liabilities
Our 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.
Our 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 cash and cash equivalents,
accounts payable and accrued liabilities are carried at cost, which management
believes approximates fair value due to the short term nature of these
instruments. Investments in trading securities are classified as held for
trading, with unrealized gains and losses being recognized in income.
The following table presents information about the assets that
are measured at fair value on a recurring basis as of March 31, 2015, and
indicates the fair value hierarchy of the valuation techniques our 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:
- 11 -
|
|
|
|
|
|
|
|
|
Significant |
|
|
|
|
| |
|
|
|
|
Quoted Prices |
|
|
Other |
|
|
Significant |
|
| |
|
|
|
|
in Active |
|
|
Observable |
|
|
Unobservable |
|
| |
|
|
|
|
Markets |
|
|
Inputs |
|
|
Inputs |
|
| |
|
March 31, 2015 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| Cash and cash equivalents |
$ |
601,952 |
|
$ |
601,952 |
|
$ |
— |
|
$ |
— |
|
| Restricted cash |
|
221,322 |
|
|
221,322 |
|
|
— |
|
|
— |
|
| Marketable securities |
|
61,375 |
|
|
61,375 |
|
|
— |
|
|
— |
|
|
Total |
$ |
884,649 |
|
$ |
884,649 |
|
$ |
— |
|
$ |
— |
|
The fair values of cash and cash equivalents and marketable
securities are determined through market, observable and corroborated sources.
Concentration of credit risk
The financial instrument which potentially subjects our company
to concentration of credit risk is cash. Our company maintains cash in bank
accounts that, at times, may exceed federally insured limits. As of March 31,
2015 and December 31, 2014, our company has exceeded the federally insured
limit. Our company has not experienced any losses in such accounts and believes
it is not exposed to any significant risks on its cash in bank accounts. Our
company sells all gold recovered to one licensed export agent in Ghana. There is
no contract in place and the company is able to switch suppliers at its
discretion.
Recently Adopted Accounting Pronouncements
Our company does not expect the adoption of recently issued
accounting pronouncements to have a significant impact on our company’s
consolidated financial position, results of operations or cash flows.
Recent accounting pronouncements
In June 2014, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update(ASU) No. 2014-10, “Development Stage Entities
(Topic 915): Elimination of Certain Financial Reporting Requirements, Including
an Amendment to Variable Interest Entities Guidance in Topic 810,Consolidation”.
This ASU does the following, among other things: a) eliminates the requirement
to present inception-to-date information on the statements of income, cash
flows, and shareholders' equity, b) eliminates the need to label the financial
statements as those of a development stage entity, c) eliminates the need to
disclose a description of the development stage activities in which the entity
is engaged, and d) amends FASB ASC 275, “Risks and Uncertainties”, to clarify
that information on risks and uncertainties for entities that have not commenced
planned principal operations is required. The amendments in ASU No. 2014-10
related to the elimination of Topic 915 disclosures and the additional
disclosure for Topic 275 are effective for public companies for annual and
interim reporting periods beginning after December 15, 2014. Early adoption is
permitted. The Company has evaluated this ASU and adopted beginning with the
period ended December 31, 2014.
Caution Regarding Forward-Looking Statements
This MD&A contains certain forward-looking information and
forward-looking statements, as defined in applicable securities laws
(collectively referred to herein as “forward-looking statements”). These
statements relate to future events or our company’s future performance. All
statements other than statements of historical fact are forward-looking
statements. Often, but not always, forward-looking statements can be identified
by the use of words such as “plans”, “expects”, “is expected”, “budget”,
“scheduled”, “estimates”, “continues”, “forecasts”, “projects”, “predicts”,
“intends”, “anticipates” or “believes”, or variations of, or the negatives of,
such words and phrases or state that certain actions, events or results “may”,
“could”, “would”, “should”, “might” or “will” be taken, occur or be achieved.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors, which may cause actual results to differ materially from those
anticipated in such forward-looking statements. The forward-looking statements
in this MD&A speak only as of the date of this MD&A or as of the date
specified in such statement.
- 12 -
The following table outlines certain significant
forward-looking statements contained in this MD&A and provides the material
assumptions used to develop such statements and material risk factors that could
cause actual results to differ materially from the forward-looking statements.
| Forward-Looking
Statements |
Assumptions |
Risk Factors |
| Potential of Xtra-Gold’s properties to contain economic
gold deposits and other mineral deposits and/or to become near-term and/or
low-cost producers |
Availability of financing for our projects.
Actual results of our exploration, resource goals, metallurgical
testing, economic studies and development activities will be favourable.
Operating, exploration and development costs will be consistent with
our expectations.
Ability to retain and attract skilled staff.
All requisite regulatory
and governmental approvals will be received on a timely basis on terms
acceptable to Xtra-Gold, including development of any deposit in
compliance with Ghanaian mining law.
Social engagement and local acceptance of our projects.
Economic, political and industry market conditions will be favourable.
|
Changes in the capital markets impacting availability of future
financings.
Uncertainties involved in interpreting geological data and confirming
title to acquired properties.
Possibility of future exploration results, metallurgical test work,
economic studies and development activities will not be consistent with
our expectations.
Variations from the technical reports.
Increases in costs, environmental compliance and changes in
environmental, local legislation and regulation, community support and the
political and economic climate.
Price volatility of gold and other associated commodities impacting the
economics of our projects. |
| Potential to expand the NI 43-101 resources on Xtra-Gold’s
existing projects and achieve its growth targets |
Availability of financing.
Actual results of our exploration, resource goals, metallurgical
testing, economic studies and development activities will be favourable.
NI 43-101 technical reports are correct and comprehensive.
Operating, exploration and development costs will be consistent with
our expectations.
Ability to retain and attract skilled staff.
All requisite regulatory and governmental approvals will be received on
a timely basis on terms acceptable to Xtra-Gold.
Social engagement and local acceptance of our projects.
Economic, political and industry market conditions will be favourable.
Continuance of gold recovery operations. |
Changes in the capital markets impacting availability of future
financings.
Uncertainties involved in interpreting geological data and confirming
title to acquired properties.
Possibility of future exploration results, metallurgical test work,
economic studies and development activities will not be consistent with
our expectations.
Variations from the technical reports.
Increases in costs, environmental compliance and changes in
environmental, local legislation and regulation, community support and the
political and economic climate.
Price volatility of gold and other associated commodities impacting the
economics of our projects.
Continued cooperation of government bodies to conduct placer
operations. |
- 13 -
| Forward-Looking
Statements |
Assumptions |
Risk Factors |
| Ability to meet working capital needs for fiscal 2015 |
Operating and exploration activities and associated costs will be
consistent with our current expectations.
Capital markets and financing opportunities are favourable to Xtra-
Gold.
Sale of any investments, if warranted, on acceptable terms.
Xtra-Gold continues as a going concern. |
Changes in the capital markets impacting availability and timing of
future financings on acceptable terms.
Increases in costs, environmental compliance and changes in
environmental, other local legislation and regulation.
Adjustments to currently proposed operating and exploration activities.
Price volatility of gold and other commodities impacting sentiment for
investment in the resource markets. |
| Plans, costs, timing and capital for future
exploration and development of Xtra-Gold’s properties including the
potential impact of complying with existing and proposed laws and
regulations |
Availability of financing for our exploration and development
activities.
Actual results of our exploration, resource goals, metallurgical
testing, economic studies and development activities will be favourable.
Operating, exploration and development costs will be consistent with
our expectations.
Ability to retain and attract skilled staff.
All requisite regulatory and governmental approvals will be received on
a timely basis on terms acceptable to Xtra-Gold.
Economic, political and industry market conditions will be favourable.
|
Changes in the capital markets impacting availability of future
financings.
Uncertainties involved in interpreting geological data and confirming
title to acquired properties.
Possibility of future exploration results, metallurgical test work and
economic studies will not be consistent with our expectations.
Increases in costs, environmental compliance and changes in
environmental, local legislation and regulation and political and economic
climate.
Price volatility of gold and other commodities impacting the economics
of our projects. |
| Management’s outlook regarding future trends |
Availability of financing.
Actual results of our exploration, resource goals, metallurgical
testing, economic studies and development activities will be favourable.
Prices for gold and other commodities will be favourable to Xtra-Gold.
Government regulation in Ghana will support development of any deposit.
|
Price volatility of gold and other commodities impacting the economics
of our projects and appetite for investing in junior gold exploration
equities.
Possibility of future exploration results, metallurgical test work,
economic studies and development activities will not be consistent with
our expectations.
Increases in costs, environmental compliance and changes in economic,
political and industry market climate. |
Inherent in forward-looking statements are risks, uncertainties
and other factors beyond Xtra-Gold’s ability to predict or control. Please also
make reference to those risk factors listed in the “Risk Factors” section above.
Readers are cautioned that the above chart not exhaustive of the factors that
may affect the forward-looking statements, and that the underlying assumptions
may prove to be incorrect. Actual results and developments are likely to differ,
and may differ materially, from those expressed or implied by the
forward-looking statements contained in this MD&A.
- 14 -
Forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause Xtra-Gold’s actual results,
performance or achievements to be materially different from any of its future
results, performance or achievements expressed or implied by forward-looking
statements. All forward-looking statements herein are qualified by this
cautionary statement. Accordingly, readers should not place undue reliance on
forward-looking statements. Our company undertakes no obligation to update
publicly or otherwise revise any forward-looking statements whether as a result
of new information or future events or otherwise, except as may be required by
law. If our company does update one or more forward-looking statements, no
inference should be drawn that it will make additional updates with respect to
those or other forward-looking statements, unless required by law.
Annual and Special Meeting of Shareholders
Our annual and special meeting of shareholders is being held on
Monday, June 22, 2015 (the “2015 ASM”) at 10:00 a.m. at the Ontario Bar
Association, Conference Rooms C and D, 20 Toronto Street, 2nd Floor,
Toronto, Ontario, M5C 2B8.
Current directors, Paul Zyla, Richard W. Grayston and Dr. Guy
Della Valle will not be standing for re-election as directors at the 2015 ASM.
The proposed nominee directors will be set forth in the management information
circular which will be mailed to shareholders of record as at April 30, 2015 and
will also be filed on SEDAR at www.sedar.com and posted to our website at
www.xtragold.com.
Dated: May 12, 2015
