XTRA-GOLD RESOURCES CORP - Quarter Report: 2008 September (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT 1934 |
For the quarterly period ended September 30, 2008
OR
|
o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT 1934 |
For the transition period from ________________ to ________________
Commission File No. 333-139037
XTRA-GOLD RESOURCES CORP.
(Exact name of registrant as specified in its charter)
|
NEVADA |
|
91-1956240 |
|
(State or other jurisdiction of |
|
(I.R.S. Employer |
|
incorporation or organization) |
|
Identification No.) |
360 BAY STREET – SUITE 301
TORONTO, ONTARIO – M5H 2V6 – CANADA
(Address of principal executive offices)
(416) 366-4227
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to the filing requirements for the past 90 days. x Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
|
Large Accelerated Filer o |
Accelerated Filer o |
|
Non-accelerated filer o |
Smaller reporting company x |
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): o Yes |
x No |
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date.
|
Class |
Outstanding as at September 30, 2008 |
|
Common stock - $0.001 par value |
31,199,359 |
TABLE OF CONTENTS
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Page |
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PART I |
FINANCIAL INFORMATION |
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Item 1 |
Financial Statements |
F-1 |
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Item 2 |
Management’s Discussion and Analysis of Financial Conditions and Results of Operations |
2 |
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Item 3 |
Quantitative and Qualitative Disclosures about Market Risk |
6 |
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Item 4T |
Controls and Procedures |
6 |
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PART II |
OTHER INFORMATION |
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Item 1 |
Legal Proceedings |
7 |
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Item 1A |
Risk Factors |
7 |
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Item 2 |
Unregistered Sales of Equity Securities and Use of Proceeds |
7 |
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Item 3 |
Defaults upon Senior Securities |
7 |
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Item 4 |
Submission of Matters to a Vote of Security Holders |
7 |
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Item 5 |
Other Information |
7 |
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Item 6 |
Exhibits |
8 |
PART I – FINANCIAL INFORMATION
|
Item 1. |
FINANCIAL STATEMENTS |
XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. Dollars)
(unaudited)
|
|
|
September 30, |
|
December 31, |
| |||||
|
|
|
|
|
|
|
|
|
| ||
|
ASSETS |
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
| ||
|
Current |
|
|
|
|
|
|
|
| ||
|
Cash and cash equivalents |
|
$ |
1,107,699 |
|
$ |
334,265 |
|
| ||
|
Investment in trading securities, at fair value |
|
|
2,281,169 |
|
|
2,167,741 |
|
| ||
|
Receivables and other |
|
|
56,269 |
|
|
54,509 |
|
| ||
|
|
|
|
|
|
|
|
|
| ||
|
Total current assets |
|
|
3,445,137 |
|
|
2,556,515 |
|
| ||
|
|
|
|
|
|
|
|
|
| ||
|
Equipment |
|
|
327,914 |
|
|
260,024 |
|
| ||
|
Deferred financing costs |
|
|
4,492 |
|
|
23,101 |
|
| ||
|
Oil and gas investment |
|
|
40,000 |
|
|
— |
|
| ||
|
Mineral properties (Note 6.) |
|
|
1,625,594 |
|
|
1,625,594 |
|
| ||
|
|
|
|
|
|
|
|
|
| ||
|
TOTAL ASSETS |
|
$ |
5,443,137 |
|
$ |
4,465,234 |
|
| ||
|
|
|
|
|
|
|
|
|
| ||
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
| ||
|
Current |
|
|
|
|
|
|
|
| ||
|
Accounts payable and accrued liabilities |
|
$ |
887,526 |
|
$ |
795,231 |
|
| ||
|
|
|
|
|
|
|
|
|
| ||
|
Total current liabilities |
|
|
887,526 |
|
|
795,231 |
|
| ||
|
|
|
|
|
|
|
|
|
| ||
|
Convertible debentures |
|
|
250,000 |
|
|
900,000 |
|
| ||
|
Asset retirement obligation |
|
|
28,399 |
|
|
28,399 |
|
| ||
|
Total liabilities |
|
|
1,165,925 |
|
|
1,723,630 |
|
| ||
|
|
|
|
|
|
|
|
|
| ||
|
Stockholders’ equity |
|
|
|
|
|
|
|
| ||
|
Capital stock (Note 7.) |
|
|
|
|
|
|
|
| ||
|
Authorized |
|
|
|
|
|
|
|
| ||
|
250,000,000 common shares with a par value of $0.001 |
|
|
|
|
|
|
|
| ||
|
Issued and outstanding |
|
|
|
|
|
|
|
| ||
|
31,199,359 common shares (December 31, 2007 – 28,756,359 common shares) |
|
|
31,199 |
|
|
28,756 |
|
| ||
|
Additional paid in capital |
|
|
12,510,967 |
|
|
9,252,166 |
|
| ||
|
Deficit |
|
|
(1,427,764 |
) |
|
(1,427,764 |
) |
| ||
|
Deficit accumulated during the exploration stage |
|
|
(6,837,190 |
) |
|
(5,111,554 |
) |
| ||
|
Total stockholders’ equity |
|
|
4,277,212 |
|
|
2,741,604 |
|
| ||
|
|
|
|
|
|
|
|
|
| ||
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
$ |
5,443,137 |
|
$ |
4,465,234 |
|
| ||
|
|
|
|
|
|
|
|
|
| ||
|
History and organization of the Company (Note 1.) |
|
|
|
|
|
|
|
| ||
|
Contingency and commitments (Note 11.) |
|
|
|
|
|
|
|
| ||
|
Subsequent event (Note 12.) |
|
|
|
|
|
|
|
| ||
The accompanying notes are an integral part of these consolidated financial statements.
F-1
XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in U.S. Dollars)
(unaudited)
|
|
|
Cumulative September 30, |
|
Three |
|
Three |
|
Nine |
|
Nine |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization |
|
$ |
102,282 |
|
$ |
34,786 |
|
$ |
11,130 |
|
$ |
62,092 |
|
$ |
24,851 |
|
|
Exploration |
|
|
10,409,678 |
|
|
1,925,393 |
|
|
1,205,268 |
|
|
4,596,633 |
|
|
2,704,119 |
|
|
General and administrative |
|
|
3,805,990 |
|
|
328,634 |
|
|
334,529 |
|
|
813,458 |
|
|
870,088 |
|
|
Write-off of mineral property |
|
|
26,000 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE OTHER ITEMS |
|
|
(14,343,950 |
) |
|
(2,288,813 |
) |
|
(1,550,927 |
) |
|
(5,472,183 |
) |
|
(3,599,058 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER ITEMS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange gain (loss) |
|
|
413,236 |
|
|
(1,064 |
) |
|
149,465 |
|
|
(78,608 |
) |
|
384,069 |
|
|
Interest expense |
|
|
(241,189 |
) |
|
— |
|
|
(15,648 |
) |
|
(38,227 |
) |
|
(54,180 |
) |
|
Realized gains (losses) |
|
|
230,909 |
|
|
52,337 |
|
|
(12,424 |
) |
|
37,276 |
|
|
(31,433 |
) |
|
Net unrealized gain (loss) |
|
|
(263,143 |
) |
|
(476,756 |
) |
|
299,007 |
|
|
(264,616 |
) |
|
464,461 |
|
|
Other income |
|
|
627,740 |
|
|
43,522 |
|
|
39,381 |
|
|
140,187 |
|
|
126,255 |
|
|
Recovery of gold |
|
|
6,642,777 |
|
|
1,183,094 |
|
|
1,015,538 |
|
|
3,950,535 |
|
|
1,749,859 |
|
|
Gain on disposal of property |
|
|
96,430 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,506,760 |
|
|
801,133 |
|
|
1,475,319 |
|
|
3,746,547 |
|
|
2,639,031 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the period |
|
$ |
(6,837,190 |
) |
$ |
(1,487,680 |
) |
$ |
(75,608 |
) |
$ |
(1,725,636 |
) |
$ |
(960,027 |
) |
|
Basic and diluted loss |
|
|
|
|
$ |
(0.05 |
) |
$ |
(0.01 |
) |
$ |
(0.06 |
) |
$ |
(0.03 |
) |
|
Basic and diluted weighted |
|
|
|
|
|
31,130,772 |
|
|
28,088,157 |
|
|
30,037,417 |
|
|
28,088,157 |
|
The accompanying notes are an integral part of these consolidated financial statements.
F-2
XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. Dollars)
(unaudited)
|
|
|
Cumulative |
|
Nine Months |
|
Nine Months |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
Loss for the period |
|
$ |
(6,837,190 |
) |
$ |
(1,725,636 |
) |
$ |
(960,027 |
) |
|
Items not affecting cash: |
|
|
|
|
|
|
|
|
|
|
|
Amortization |
|
|
102,282 |
|
|
48,103 |
|
|
24,851 |
|
|
Amortization of deferred financing costs |
|
|
41,710 |
|
|
18,609 |
|
|
6,931 |
|
|
Accretion of asset retirement obligation |
|
|
10,534 |
|
|
— |
|
|
3,617 |
|
|
Shares issued for services |
|
|
5,500 |
|
|
— |
|
|
— |
|
|
Stock-based compensation |
|
|
564,470 |
|
|
121,784 |
|
|
149,805 |
|
|
Unrealized foreign exchange (gain) loss |
|
|
(441,239 |
) |
|
127,342 |
|
|
(389,054 |
) |
|
Realized (gain) losses on sale of trading securities |
|
|
(230,909 |
) |
|
(37,276 |
) |
|
31,433 |
|
|
Purchase of trading securities |
|
|
(10,168,248 |
) |
|
(1,470,412 |
) |
|
(330,611 |
) |
|
Proceeds on sale of trading securities |
|
|
8,296,084 |
|
|
1,002,302 |
|
|
1,426,781 |
|
|
Unrealized (gain) loss on trading securities |
|
|
263,143 |
|
|
264,616 |
|
|
(464,461 |
) |
|
Gain on disposal of property |
|
|
(95,342 |
) |
|
— |
|
|
— |
|
|
Write-off of mineral property |
|
|
26,000 |
|
|
— |
|
|
— |
|
|
Expenses paid by stockholders |
|
|
2,700 |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in non-cash working capital items: |
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in receivables and other |
|
|
(47,894 |
) |
|
(1,760 |
) |
|
37,339 |
|
|
Increase in accounts payable and accrued liabilities |
|
|
876,834 |
|
|
92,295 |
|
|
450,346 |
|
|
Increase in due to related party |
|
|
50,000 |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(7,581,565 |
) |
|
(1,560,033 |
) |
|
(13,050 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of convertible debentures |
|
|
900,000 |
|
|
— |
|
|
— |
|
|
Deferred financing costs |
|
|
(46,202 |
) |
|
— |
|
|
— |
|
|
Repurchase of capital stock |
|
|
(7,000 |
) |
|
— |
|
|
— |
|
|
Issuance of capital stock, net of financing costs |
|
|
8,229,722 |
|
|
2,489,460 |
|
|
229,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
9,076,520 |
|
|
2,489,460 |
|
|
229,500 |
|
The accompanying notes are an integral part of these consolidated financial statements.
F-3
XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. Dollars)
(unaudited)
|
|
|
Cumulative |
|
Nine Months |
|
Nine Months |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
Continued... |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
Acquisition of equipment |
|
|
(434,019 |
) |
|
(115,993 |
) |
|
(133,548 |
) |
|
Oil and gas property expenditures |
|
|
(250,137 |
) |
|
(40,000 |
) |
|
— |
|
|
Receipt of cash on purchase of subsidiary |
|
|
11,510 |
|
|
— |
|
|
— |
|
|
Acquisition of subsidiary |
|
|
(25,000 |
) |
|
— |
|
|
— |
|
|
Proceeds on disposal of assets |
|
|
310,390 |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) investing activities |
|
|
(387,256 |
) |
|
(155,993 |
) |
|
(133,548) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents during the period |
|
|
1,107,699 |
|
|
773,434 |
|
|
82,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of the period |
|
|
— |
|
|
334,265 |
|
|
279,995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the period |
|
$ |
1,107,699 |
|
$ |
1,107,699 |
|
$ |
362,897 |
|
Supplemental disclosure with respect to cash flows (Note 9.)
The accompanying notes are an integral part of these consolidated financial statements.
F-4
XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Expressed in U.S. Dollars)
(unaudited)
|
|
|
Common Stock |
|
|
Additional |
|
Deficit |
|
Deficit |
|
Total |
| |||||||
|
|
Number of |
|
Amount |
|
|
|
|
| |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, |
|
28,756,359 |
|
$ |
28,756 |
|
|
$ |
9,252,166 |
|
$ |
(1,427,764 |
) |
$ |
(5,111,554 |
) |
$ |
2,741,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February, 2008 – Private placement at $1.50 per unit |
|
1,062,000 |
|
|
1,062 |
|
|
|
1,591,938 |
|
|
— |
|
|
— |
|
|
1,593,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May, 2008 – Exercise of options at $0.75 per share |
|
100,000 |
|
|
100 |
|
|
|
74,900 |
|
|
— |
|
|
— |
|
|
75,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June, 2008 – Conversion of debentures at $1.00 per share |
|
650,000 |
|
|
650 |
|
|
|
649,350 |
|
|
— |
|
|
— |
|
|
650,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July, 2008 – Exercise of warrants at $1.50 per share |
|
631,000 |
|
|
631 |
|
|
|
945,869 |
|
|
— |
|
|
— |
|
|
946,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share issuance costs |
|
— |
|
|
— |
|
|
|
(125,040 |
) |
|
— |
|
|
— |
|
|
(125,040 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
— |
|
|
— |
|
|
|
121,784 |
|
|
— |
|
|
— |
|
|
121,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the period |
|
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
(1,725,636 |
) |
|
(1,725,636 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, |
|
31,199,359 |
|
$ |
31,199 |
|
|
$ |
12,510,967 |
|
$ |
(1,427,764 |
) |
$ |
(6,837,190 |
) |
$ |
4,277,212 |
|
The accompanying notes are an integral part of these consolidated financial statements.
F-5
XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
(unaudited)
SEPTEMBER 30, 2008
|
1. |
HISTORY AND ORGANIZATION OF THE COMPANY |
Silverwing Systems Corporation (the “Company”), a Nevada corporation, was incorporated on September 1, 1998. On June 23, 1999, the Company completed the acquisition of Advertain On-Line Canada Inc. (“Advertain Canada”), a Canadian company operating in Vancouver, British Columbia, Canada. The Company changed its name to Advertain On-Line Inc. (“Advertain”) on August 19, 1999. Advertain Canada’s business was the operation of a web site, “Advertain.com”, whose primary purpose was to distribute entertainment advertising on the Internet.
In May 2001, the Company, being unable to continue its funding of Advertain Canada’s operations, decided to abandon its interest in Advertain Canada. On June 15, 2001, the Company sold its investment in Advertain Canada back to Advertain Canada’s original shareholder. On June 18, 2001, the Company changed its name from Advertain to RetinaPharma International, Inc. (“RetinaPharma”) and became inactive.
In 2003, the Company became a resource exploration company. On October 31, 2003, the Company acquired 100% of the issued and outstanding common stock of Xtra-Gold Resources, Inc.(“XGRI”). XGRI was incorporated in Florida on October 24, 2003. On December 19, 2003, the Company changed its name from RetinaPharma to Xtra-Gold Resources Corp.
In 2004, the Company acquired 100% of the issued and outstanding capital stock of Canadiana Gold Resources Limited (“Canadiana”) and 90% of the issued and outstanding capital stock of Goldenrae Mining Company Limited (“Goldenrae”). Both companies are incorporated in Ghana and the remaining 10% of the issued and outstanding capital stock of Goldenrae is held by the Government of Ghana.
On October 20, 2005, XGRI changed its name to Xtra Energy Corp. (“Xtra Energy”).
On October 20, 2005, the Company incorporated Xtra Oil & Gas Ltd. (“XOG”) in Alberta, Canada.
On December 21, 2005, Canadiana changed its name to Xtra-Gold Exploration Limited (“XG Exploration”).
On January 13, 2006, Goldenrae changed its name to Xtra-Gold Mining Limited (“XG Mining”).
On March 2, 2006, the Company incorporated Xtra Oil & Gas (Ghana) Limited (“XOGG”) in Ghana.
|
2. |
GOING CONCERN |
The Company is in the exploration stage with respect to its resource properties and incurred a loss of $1,725,636 for the nine months ended September 30, 2008. The Company has accumulated a deficit during the exploration stage of $6,837,190. This raises substantial doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Management of the Company (“Management”) is of the opinion that sufficient financing will be obtained from external financing and further share issuances to meet the Company’s obligations. At September 30, 2008, the Company has working capital of $ 2,557,611.
F-6
XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
(unaudited)
SEPTEMBER 30, 2008
|
3. |
SIGNIFICANT ACCOUNTING POLICIES |
The accompanying unaudited financial statements have been prepared by the Company in conformity with accounting principles generally accepted in the United States of America applicable to interim financial information and with the rules and regulations of the United States Securities and Exchange Commission. Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed, or omitted, pursuant to such rules and regulations. In the opinion of management the unaudited interim financial statements include all adjustments necessary for the fair presentation of the results of the interim periods presented. All adjustments are of a normal recurring nature, except as otherwise noted below. These financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2007, included in the Company’s Form 10-K, filed with the Securities and Exchange Commission. The results of operations for the interim periods are not necessarily indicative of the results of operations for any other interim period or for a full fiscal year.
Recent accounting pronouncements
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. SFAS No. 157 establishes a framework for measuring the fair value of assets and liabilities. This framework is intended to provide increased consistency in how fair value determinations are made under various existing accounting standards which permit, or in some cases require, estimates of fair market value. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for that fiscal year, including any financial statements for an interim period within that fiscal year.
FASB Staff Position 157-2 (“FSP FAS 157-2”) delayed the effective date of FAS 157 until fiscal years beginning after November 15, 2008, and interim periods within those fiscal years, for all nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The Company adopted FAS 157 on January 1, 2008, and utilized the one year deferral for nonfinancial assets and nonfinancial liabilities that was granted by FSP FAS 157-2. The adoption of FAS 157 did not have a material impact on the Company’s consolidated financial statements.
In February, 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities”. SFAS No. 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The adoption of FAS 159 did not have a material impact on the Company’s consolidated financial statements.
In March 2008, the FASB issued FAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 changes the disclosure requirements for derivative instruments and hedging activities by requiring enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under FAS 133, and how derivative instruments and related hedged items affect an entity’s operating results, financial position, and cash flows. FAS 161 is effective for fiscal years beginning after November 15, 2008. Early adoption is permitted. The Company is currently reviewing the provisions of FAS 161 and has not yet adopted the statement. However, as the provisions of FAS 161 are only related to disclosure of derivative and hedging activities, the Company does not believe the adoption of FAS 161 will have a material impact on its consolidated operating results, financial position or cash flows.
F-7
XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
(unaudited)
SEPTEMBER 30, 2008
|
4. |
INVESTMENTS IN TRADING SECURITIES |
At September 30, 2008, the Company held investments classified as trading securities, which consisted of various equity securities. All trading securities are carried at fair value. As of September 30, 2008, the fair value of trading securities was $2,281,169 (December 31, 2007 – $2,167,741).
|
5. |
OIL AND GAS INVESTMENT |
In April 2008, XOG purchased an 18.9% participating interest in a petroleum and natural gas lease at an Alberta Crown Land sale.
|
6. |
MINERAL PROPERTIES |
|
|
|
September 30, 2008 |
|
December 31, 2007 |
| ||
|
Acquisition costs |
|
$ |
1,607,729 |
|
$ |
1,607,729 |
|
|
Asset retirement obligation |
|
|
17,865 |
|
|
17,865 |
|
|
Total |
|
$ |
1,625,594 |
|
$ |
1,625,594 |
|
Kwabeng and Pameng Projects
The Company holds two mining leases in Ghana. These mining leases grant the Company surface and mining rights to produce gold in the leased areas until July 26, 2019. All gold production will be subject to a 3% production royalty of the net smelter returns (“NSR”).
Apapam, Banso and Muoso Projects
The Company holds prospecting licenses on its Apapam, Banso and Muoso Projects in Ghana. These licenses grant the Company the right to conduct exploratory work to determine whether there are mineable reserves of gold or diamonds in the licensed areas, are for two years and are renewable. If mineable reserves of gold or diamonds are discovered the Company will have the first option to acquire a mining lease.
Option agreement on Edum Banso Project
In October, 2005, XG Exploration entered into an option agreement (the “Option Agreement”) with Adom Mining Limited (“Adom”) to acquire 100% of Adom’s right, title and interest in and to a prospecting license on the Edum Banso concession (the “Edum Banso Project”) located in Ghana. Adom further granted XG Exploration the right to explore, develop, mine and sell mineral products from this concession. The Option Agreement has a five year term.
The consideration paid was $15,000 with additional payments of $5,000 to be paid on the anniversary date of the Option Agreement in each year during the term. Upon the commencement of gold production, an additional $200,000 is to be paid, unless proven and probable reserves are less than 2,000,000 ounces, in which case the payment shall be reduced to $100,000. Upon successful transfer of title from Adom to XG Exploration, a production royalty (the “Royalty”) of 2% of the net smelter returns shall be paid to Adom; provided, however that in the event that less than 2,000,000 ounces of proven and probable reserves are discovered, then the Royalty shall be 1%. The Royalty can be purchased by XG Exploration for $2,000,000; which will be reduced to $1,000,000 if proven and probable reserves are less than 2,000,000 ounces.
F-8
XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
(unaudited)
SEPTEMBER 30, 2008
|
6. |
MINERAL PROPERTIES (cont'd...) |
Mining lease and prospecting license commitments
The Company is committed to expend, from time to time to the Minerals Commission for an extension of an expiry date of a prospecting license (currently $15,000 for each occurrence) or a mining lease and to the Environmental Protection Agency (“EPA”) (of Ghana) for processing and certificate fees with respect to EPA permits and an aggregate of less than $500 in connection with annual or ground rent and mining permits to enter upon and gain access to the areas covered by the Company’s mining leases and prospecting licenses.
|
7. |
CAPITAL STOCK |
Private placements
In February 2008, the Company issued 1,062,000 units at $1.50 per unit for gross proceeds of $1,593,000. Each unit consisted of one common share and one share purchase warrant enabling the holder to acquire an additional common share at a price of $2.25 per share expiring one year from the earlier of the posting of the Company’s shares on an over-the-counter bulletin board service and the listing of the Company’s shares on a recognized stock exchange. The Company also issued finder’s warrants enabling the holder to acquire up to 84,960 common shares at the same terms as the unit warrants.
On July 10, 2008 631,000 warrants were exercised at a strike price of $1.50 for gross proceeds of $946,500.
Stock options
The number of shares reserved for issuance under the Company’s equity compensation option plan is 3,000,000. The terms and conditions of any options granted, including the number and type of options, the exercise period, the exercise price and vesting provisions, are determined by the board of directors.
At September 30, 2008, the following stock options were outstanding:
|
|
Number of Options |
Exercise Price |
Expiry Date |
|
|
108,000 |
$ 0.70 |
April 21, 2009 |
|
|
432,000 |
$ 0.70 |
May 1, 2009 |
|
|
270,000 |
$ 0.75 |
March 5, 2010 |
|
|
270,000 |
$ 0.75 |
March 12, 2010 |
Stock option transactions and the number of stock options outstanding are summarized as follows:
|
|
|
September 30, 2008 |
|
December 31, 2007 |
| ||||||
|
|
|
Number |
|
Weighted |
|
Number |
|
Weighted |
| ||
|
Outstanding, beginning of period |
|
1,480,000 |
|
$ |
0.75 |
|
1,966,000 |
|
$ |
0.72 |
|
|
Granted |
|
— |
|
|
— |
|
740,000 |
|
|
0.75 |
|
|
Exercised |
|
(100,000 |
) |
|
0.75 |
|
— |
|
|
— |
|
|
Cancelled/Expired |
|
(300,000 |
) |
|
0.80 |
|
(1,256,000 |
) |
|
0.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of period |
|
1,080,000 |
|
$ |
0.73 |
|
1,450,000 |
|
$ |
0.75 |
|
|
Exercisable, end of period |
|
693,000 |
|
$ |
0.72 |
|
572,995 |
|
$ |
0.75 |
|
F-9
XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
(unaudited)
SEPTEMBER 30, 2008
|
7. |
CAPITAL STOCK (cont’d...) |
Stock Options (cont’d...)
The aggregate intrinsic value for options vested as of September 30, 2008 is approximately $402,000 (September 30, 2007 - $300,000) and for total options outstanding is approximately $731,000 (September 30, 2007 –$ 959,000).
Stock-based compensation
The fair value of stock options granted during the nine months ended September 30, 2008 totaled $ Nil ( September 30, 2007 – $189,063). During the nine months ended September 30, 2008, $121,784 (September 30, 2007 - $149,805) was expensed and included in general and administrative expenses. The remaining $118,531 will be expensed in future periods.
The following assumptions were used for the Black-Scholes valuation of stock options granted during the nine month period ended September 30, 2008 and 2007:
|
|
September 30, 2008 |
September 30, 2007 |
|
Risk-free interest rate |
- |
4.52% |
|
Expected life |
- |
3 years |
|
Annualized volatility |
- |
55.30% |
|
Dividend rate |
- |
0% |
The weighted average fair value of options granted was $Nil (September 30, 2007 - $0.26).
Warrants
At September 30, 2008, the following warrants were outstanding:
|
Number of Warrants |
Exercise Price |
Expiry Date |
|
400,921 |
$1.75 |
January 13, 2009 |
|
1,146,960 |
$2.25 |
February 26, 2009 |
Warrant transactions and the number of warrants outstanding are summarized as follows:
|
|
|
September 30, 2008 |
|
December 31, 2007 |
|
| ||
|
Balance, beginning of period |
|
1,074,511 |
|
996,056 |
| |||
|
Issued |
|
1,146,960 |
|
367,511 |
| |||
|
Exercised |
|
(631,000) |
|
— |
| |||
|
Expired |
|
(42,590) |
|
(289,056) |
| |||
|
Balance, end of period |
|
1,547,881 |
|
1,074,511 |
| |||
F-10
XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
(unaudited)
SEPTEMBER 30, 2008
|
8. |
RELATED PARTY TRANSACTIONS |
During the nine months ended September 30, 2008 and 2007, the Company entered into the following transactions with related parties:
|
|
(a) |
Paid or accrued consulting fees of $145,594 (2007 - $135,054) to officers of the Company or companies controlled by such officers, which were included in general and administrative expenses. |
|
|
(b) |
Paid or accrued directors’ fees of $28,834 (2007 – $7,322) to directors of the Company or companies controlled by directors, which were included in general and administrative expenses. |
The amounts charged to the Company for the services provided have been determined by negotiation among the parties. These transactions 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 related parties.
|
9. |
SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS |
|
|
|
Cumulative amounts |
|
2008 |
|
2007 |
| |||
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
206,857 |
|
$ |
33,607 |
|
$ |
47,250 |
|
|
Income taxes |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
The significant non-cash transaction during the nine months ended September 30, 2008 was the issuance of 84,960 finder’s warrants in connection with a private placement (Note 7) and the conversion of $650,000 of convertible debentures into 650,000 common shares.
There were no significant non-cash transaction during the nine months ended September 30, 2007.
F-11
XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
(unaudited)
SEPTEMBER 30, 2008
|
10. |
SEGMENTED INFORMATION |
The Company has one reportable segment, being the exploration and development of resource properties.
Geographic information is as follows:
|
|
|
September 30, 2008 |
|
December 31, 2007 |
| ||||
|
Capital assets: |
|
|
|
|
|
|
| ||
|
Canada |
|
$ |
57,103 |
|
$ |
16,089 |
| ||
|
Ghana |
|
|
1,896,405 |
|
|
1,869,529 |
| ||
|
|
|
|
|
|
|
|
| ||
|
Total capital assets |
|
$ |
1,953,508 |
|
$ |
1,885,618 |
| ||
|
11. |
CONTINGENCY AND COMMITMENTS |
|
|
a) |
During the year ended December 31, 2006, a former consultant to the Company’s Ghanaian subsidiaries brought an action for damages in the High Court of Ghana, alleging wrongful termination and claiming $172,000 was owed. The Company believed the lawsuit was without merit and vigorously defended against it. No liability has been recorded in connection with the lawsuit. On February 6, 2008, the High Court of Ghana rendered its judgment and dismissed the action and awarded costs of $2,050 (2,000 Cedis) in favor the Company’s Ghanaian subsidiaries. The plaintiff did not exercise his right to appeal which expired on May 6, 2008. |
|
|
b) |
Effective May 1, 2006, the Company entered into a management consulting agreement with the Vice President, Exploration whereby the Company will pay $4,950 (Cdn$5,000) per month for three years. In the event of termination, without cause, 18 months of fees will be payable. |
|
12. |
SUBSEQUENT EVENTS |
Subsequent to September 30, 2008, the Company
|
|
• |
Extended the exercise period for an aggregate of 400,921 Warrants, including 84,960 finder’s Warrants, to January 13, 2009. |
F-12
|
Item 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysis of our consolidated financial condition and results of operations for the nine months ended September 30, 2008 and 2007 should be read in conjunction with the consolidated financial statements and the related notes to our consolidated financial statements and other information presented elsewhere in this report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our 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 Report. Our consolidated unaudited financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.
Plan of Operations
Xtra-Gold Resources Corp. (hereinafter in this Report referred to as “Xtra-Gold”, the “Company”, “Our” or the “Registrant”) a gold exploration company engaged in the exploration of gold properties in the Republic of Ghana, West Africa. Our mining portfolio currently consists of 246.84 square kilometers (also referred to herein as “sq km”) comprised of 51.67 sq km for our Banso Project, 55.65 sq km for our Muoso Project, 33.65 sq km for our Apapam Project, 44.76 sq km for our Kwabeng Project, 40.51 sq km for our Pameng Project and 20.60 sq km for our Edum Banso Project, or 60,969 acres, pursuant to the leased and licensed areas set forth in our respective mining leases, prospecting licenses and/or option agreement.
Our strategic plan is, with respect to our gold projects: (i) to define potential reserves on our exploration projects; (ii) to mine the mineralized material, where possible, to generate cash proceeds to assist funding of our exploration programs; and (iii) to acquire further interests in gold mineralized projects and oil and gas prospects that fall within the criteria of providing a geological basis for development of drilling initiatives that can enhance shareholder value by demonstrating potential to define reserves.
The Company anticipates that our ongoing efforts, subject to adequate funding being available, will continue to be focused on the exploration and development of our properties and completing acquisitions in strategic areas.
Results of Operations for the Nine Months Ended September 30, 2008 Compared to the Nine Months Ended September 30, 2007
Our loss for the nine months ended September 30, 2008 was $1,725,636 as compared to a loss of $960,027 for the nine months ended September 30, 2007, an increase of $765,609. The Company incurred expenses of $5,472,183 in the nine months ended September 30, 2008 as compared to $3,599,058 in the nine months ended September 30, 2007, an increase of $1,873,125 The significant increase in expenses in the nine months ending September 30, 2008 can be primarily attributed to exploration costs of $4,596,633 (2007- $2,704,119), incurred mostly in connection with (i) operational costs and costs associated with the recovery of gold from the mineralized material at our Kwabeng Project; and (ii) exploration expenditures relating to the exploration programs at our Banso and Muoso Project, our Apapam Project and our Edum Banso Project.
Other items totaled a gain of $3,746,547 for the nine months ended September 30, 2008 compared to a gain of $2,639,031 for the nine months ended September 30, 2007. During the nine months ended September 30, 2008, The Company recovered and sold 4,546 fine ounces of gold from the mineralized material at our Kwabeng Project and booked $3,950,535 as Recovery of Gold as compared to Recovery of Gold for the nine months ended September 30, 2007 of 2,708 ounces for cash proceeds of $1,749,859. The Company had a foreign exchange loss of $78,608 for the nine months ended September 30, 2008 as compared to a gain of $384,069 for the nine months ended September 30, 2007 which can be attributed to the strength of the US dollar.
Our portfolio of marketable securities had an unrealized loss of $264,616 for the nine months ended September 30, 2008 as compared to an unrealized gain of $464,461 in 2007. Additionally, our securities portfolio realized a gain of $37,276 on the sale of trading securities during the nine months ended September 30, 2008 compared to a loss in 2007 of $31,433. Other income derived primarily from dividends increased (2008 - $140,187; 2007 - $126,255). Interest expense in the 3rd quarter was $ nil however the company took a charge against earnings of $13,989 regarding the amortization of deferred finance costs associated with the original underwriting.
During June 2008, $650,000 (principal) of convertible debentures was converted to equity at $1.00 per share. The remaining $250,000 (principal) is the subject of a legal dispute. The Company is no longer paying interest on this $250,000 which will remain a liability until the dispute is resolved.
Our basic and diluted loss per share for the nine months ended September 30, 2008 was $0.06 compared to a loss of $0.03 loss per share for the nine months ended September 30, 2007. The weighted average number of shares outstanding was 30,037,417 at September 30, 2008 compared to 28,088,157 for the nine months ended September 30, 2007. The increase in the weighted average number of shares outstanding can be attributed to the issuance of (i) 1,062,000 shares in connection with a Regulation S private placement completed in February 2008; (ii) 100,000 shares in connection with the exercise of options in May 2008; (iii) the issuance of 650,000 shares in connection with the automatic conversion of convertible debentures in June 2008; (iiii) and the exercise of 631,000 warrants in July 2008.
Liquidity and Capital Resources
Historically, our principal source of funds is our available reserves of cash and cash equivalents and investments, as well as debt and equity financings. During the nine months ended September 30, 2008, The Company received net cash proceeds of $3,950,535 derived from the sale of gold recovered from the mineralized material at our Kwabeng Project. Additionally, financing activities totaling $2,489,460 were completed during the nine months ending September 30, 2008 (2007- $229,500). Specifically the following transactions were completed: private placement of 1,062,000 units in February 2008, for net proceeds of $1,467,960, exercise of options in May 2008, for $75,000, and exercise of warrants in July 2008, for $946,500.
Unrealized Gain (Loss) on Trading Securities Held for Sale
Unrealized gain (Loss) on trading securities held for sale represents the change in securities as of the end of the financial reporting period. For the nine months ended September 30, 2008, The Company recognized an unrealized loss of $264,616 on trading securities held for sale, as compared to an unrealized gain of $464,461 for the nine months ended September 30, 2007. Trading securities were comprised mostly of investments in common shares and income trust units of resource companies.
Liquidity Discussion
Net cash during the nine months ended September 30, 2008 was provided by (i) financing activities of $1,467,960 (2007 - $ 229,500); (ii) exercise of options of $75,000 (2007 - $nil); and (iii) warrant exercise proceeds of $946,500. (2007 - $nil). As of September 30, 2008, The Company had working capital of $2,557,611, comprised of current assets of $3,445,137 less current liabilities of $887,526. Our current assets were comprised mostly of $1,107,699 in cash and cash equivalents and $2,281,169 in trading securities, which is based on our analysis of the ready saleable nature of the securities including an existing market for the securities, the lack of any restrictions for resale of the securities and sufficient active volume of trading in the securities. Our trading securities are held in our investment portfolio with an established brokerage in Canada in which The Company primarily invests in the common shares and income trust fund units of publicly traded resource companies. As The Company has received limited cash proceeds from the recovery of gold from our mineralized material since inception, The Company has historically relied on equity and debt financings to finance our ongoing operations.
Existing working capital, and possible debt instruments, anticipated warrant exercises, further private placements and anticipated cash flow are expected to be adequate to fund our operations over the next year. The Company has no lines of credit or other bank financing arrangements. Generally, The Company has financed operations to date through the proceeds of the private equity financings and a convertible debt financing. The Company estimates that it will be able to continue operations for approximately 12 months.
Until The Company achieves profitability, it will need to raise additional capital for our exploration programs. The Company intends to finance these expenses with our cash proceeds and, to the extent that our cash proceeds are not sufficient, then from further sales of our equity securities or debt securities, or from investment income. Thereafter, The Company may need to raise additional capital to meet long-term operating requirements. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, The Company may not be able to take advantage of prospective new business endeavors or opportunities or existing agreements and projects which could significantly and materially restrict our business operations.
The independent auditors’ report accompanying our December 31, 2007 and December 31, 2006 consolidated financial statements contain an explanatory paragraph expressing doubt about our ability to continue as a going concern. The consolidated financial statements have been prepared “assuming that The Company will continue as a going concern”, which contemplates that The Company will realize its assets and satisfy our liabilities and commitments in the ordinary course of business.
Recent Capital Raising Transactions
During the nine months ended September 30, 2008, net cash flows from financing activities were $2,489,460 (2007 - $229,500).These funds were raised through the sale of common stock, net of financing costs. In February 2008, The Company received gross proceeds of $1,593,000 in connection with a private equity financing whereby we sold units comprised of 1,062,000 shares of our common stock and 1,062,000 warrants at an exercise price of $2.25 per share expiring one year from the earlier of the posting of our shares on an over-the-counter bulletin board service and the listing of our shares on a recognized stock exchange. The securities were sold to 13 non U.S. persons, and the transaction was exempt from registration under the Securities Act pursuant to section 4(2) and Rule 506 thereunder and Regulation S. The Company paid a finder’s fee of $125,040 for introduction to the purchasers and issued 84,960 finder’s warrants enabling the holder to acquire up to 84,960 shares of our common stock on the same terms as the unit warrants.
In May 2008, The Company received gross proceeds of $75,000 in connection with an exercise of 100,000 options at $0.75 per share. In July 2008, The Company received gross proceeds of $946,500 in connection with the exercise of 631,000 warrants at $1.50 per share.
Material Commitments
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(a) |
Mineral Property Commitments |
Save and except for fees payable from time to time to (i) the Minerals Commission for an extension of an expiry date of a prospecting license (current consideration fee payable is $15,000) or mining lease or annual operating permits; (ii) the Environmental Protection Agency (“EPA”) in Ghana for the issuance of permits prior to 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 (iii) a legal obligation associated with our mineral properties for cleanup costs when work programs are completed, The Company is committed to expend an aggregate of less than $500 in connection with annual or ground rent and mining permits to enter upon and gain access to the following concessions and such other financial commitments arising out of any approved exploration programs in connection therewith:
(i) the Kwabeng concession (Kwabeng Project);
(ii) the Pameng concession (Pameng Project);
(iii) the Banso and Muoso concessions (Banso and Muoso Project);
(iv) the Apapam concession (Apapam Project); and
(v) the Edum Banso concession (Edum Banso Project.)
With respect to the Kwabeng, Pameng and Apapam Projects, upon and following the commencement of gold production, a royalty of 3% of the net smelter returns is payable quarterly to the Government of Ghana.
With respect to the Edum Banso Project:
(a) $5,000 is payable to Adom Mining Limited (“Adom”) on the anniversary date of the Option Agreement in each year that The Company holds an interest in the agreement;
(b) $200,000 is payable to Adom when the production of gold is commenced (or $100,000 in the event that less than 2 million ounces of proven and probable reserves are discovered on our project at this concession; and
(c) an aggregate production royalty of 2% of the net smelter returns (“NSR”) from all ores, minerals and other products mined and removed from the project, except if less than 2 million ounces of proven and probable reserved are discovered in or at the Project, then the royalty shall be 1% of the NSR.
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(b) |
Further Material Commitments |
Further material commitments are subject to new funding arrangements to be obtained or agreements not yet formalized.
Purchase of Significant Equipment
The Company does not expect to purchase significant ore processing and gold recovery equipment as our Wash Plant has sufficient capacity to handle our processing requirements at our Kwabeng Project. The Company rent our earthmoving and ancillary earthmoving equipment fleet in connection with our ongoing operations at our Kwabeng Project.
Off Balance Sheet Arrangements
The Company has no off balance sheet arrangements.
Significant Accounting Applications
The accompanying unaudited consolidated financial statements have been prepared by Xtra-Gold in conformity with accounting principles generally accepted in the United States of America applicable to interim financial information and with the rules and regulations of the United States Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed, or omitted, pursuant to such rules and regulations. In the opinion of management, the unaudited interim financial statements include all adjustments necessary for the fair presentation of the results of the interim periods presented. All adjustments are of a normal recurring nature, except as otherwise noted below. These financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2007, included in the Company’s Form 10-K filed with the Securities and Exchange Commission. The results of operations for the interim periods are not necessarily indicative of the results of operations for any other interim period or for a full fiscal year.
Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. SFAS No. 157 establishes a framework for measuring the fair value of assets and liabilities. This framework is intended to provide increased consistency in how fair value determinations are made under various existing accounting standards which permit, or in some cases require, estimates of fair market value. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for that fiscal year, including any financial statements for an interim period within that fiscal year.
FASB Staff Position 157-2 (“FSP FAS 157-2”) delayed the effective date of FAS 157 until fiscal years beginning after November 15, 2008, and interim periods within those fiscal years, for all nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). We adopted FAS 157 on January 1, 2008, and utilized the one year deferral for nonfinancial assets and nonfinancial liabilities that was granted by FSP FAS 157-2. The adoption of FAS 157 did not have a material impact on our consolidated financial statements.
In February, 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities”. SFAS No. 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The adoption of FAS 159 did not have a material impact on our consolidated financial statements.
In March 2008, the FASB issued FAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 changes the disclosure requirements for derivative instruments and hedging activities by requiring enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under FAS 133, and how derivative instruments and related hedged items affect an entity’s operating results, financial position, and cash flows. FAS 161 is effective for fiscal years beginning after November 15, 2008. Early adoption is permitted. Our company is currently reviewing the provisions of FAS 161 and has not yet adopted the statement. However, as the provisions of FAS 161 are only related to disclosure of derivative and hedging activities, The Company does not believe the adoption of FAS 161 will have a material impact on our consolidated operating results, financial position or cash flows.
Forward Looking Statements
The information in this quarterly report contains forward-looking statements. These forward-looking statements involve risks and uncertainties, including statements regarding our financial condition, results of operations, business prospects, plans, objectives, goals, strategies, expectations, future events, capital expenditure and exploration efforts. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as “anticipates”, “expects”, “intends”, “plans”, “forecasts”, “projects”, “budgets”, “believes”, “seeks”, “estimates”, “could”, “might”, “should” “may”, “will”, “predict”, “potential” or “continue”, the negative of such terms or other comparable terminology. Actual events or results may differ materially. In evaluating these statements, you should consider various factors, including the risks outlined from time to time, in other reports that Xtra-Gold files with the Securities and Exchange Commission. These factors may cause our actual results to differ materially from any forward-looking statement. The Company disclaims any obligation to publicly update these statements, or disclose any difference between its actual results and those reflected in these statements. The information constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Our Company is a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act and, as such, is not required to provide the information required under this item.
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Item 4T. |
CONTROLS AND PROCEDURES |
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(a) |
Disclosure Controls and Procedures |
Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms and is accumulated and communicated to Management of the company including James Longshore, Principal Executive Officer and Principal Financial Officer and Peter Minuk, Vice-President Finance, as appropriate, in order to allow timely decisions in connection with required disclosure.
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(b) |
Evaluation of Disclosure Controls and Procedures |
Messrs. Longshore and Minuk have evaluated the effectiveness of the design and operation of our Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this quarterly report. Based on such evaluation, they have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that the company files and submits under the Exchange Act is recorded, processed, summarized and reported, as and when required.
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(c) |
Changes in Internal Controls |
During the quarter of the fiscal year covered by this Report, there were no changes in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
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Item 1. |
LEGAL PROCEEDINGS |
We are currently not a party to any legal proceeding and The Company was not a party to any legal proceeding during the quarter ended September 30, 2008. The Company is currently not aware of any legal proceedings proposed to be initiated against our company, however, from time to time, The Company may become subject to claims and litigation that are generally associated with any business venture.
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Item 1A. |
RISK FACTORS |
Our company is a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act and, as such, The Company are not required to provide the information required by this item.
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Item 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
In February 2008, The Company completed a private equity financing whereby The Company received gross proceeds of $1,593,000 whereby The Company sold units comprised of 1,062,000 shares of our common stock and 1,062,000 warrants at an exercise price of $2.25 per share expiring one year from the earlier of the posting of our shares on an over-the-counter bulletin board service and the listing of our shares on a recognized stock exchange. The units were sold to 13 non U.S. persons, and the transaction was exempt from registration under the Securities Act pursuant to section 4(2) and Rule 506 thereunder and Regulation S. The Company paid a finder’s fee of $125,040 for introduction to the purchasers and issued 84,960 finder’s warrants enabling the holder to acquire up to 84,960 shares of our common stock on the same terms as the unit warrants.
In May 2008, we received gross proceeds of $75,000 in connection with an exercise of 100,000 options at $0.75 per share.
In July 2008, The Company received gross proceeds of $ 946,500 in connection with an exercise of 631,000 common stock purchase warrants. The proceeds from this transaction is being utilized to fund our diamond drilling program at the Kibi Gold Trend, at the south of the Kibi Gold Belt, on the gold anomaly identified at our Apapam Project, as well as for general corporate purposes.
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Item 3. |
DEFAULTS UPON SENIOR SECURITIES |
There has been no material default, during the period covered by this Report, in the payment of principal, interest, a sinking or purchase fund installment, or any other material default not cured within 30 days with respect to any indebtedness of our company or any of our significant subsidiaries exceeding 5% of our total assets and our consolidated subsidiaries.
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Item 4. |
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
There has been no matter submitted to a vote of security holders during the period covered by this Report, through the solicitation of proxies or otherwise.
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Item 5. |
OTHER INFORMATION |
On January 31, 2008, The Company entered into a termination agreement with our former project manager, John Douglas Mills and his management company, JD Mining Limited, whereby all parties agreed to terminate the consulting services of Mr. Mills and JD Mining Limited effective March 1, 2008. As part of the termination, the Board agreed to extend the exercise period for 300,000 stock options previously granted to Mr. Mills to June 1, 2008 which, if not exercised by this date, will then be cancelled. Mr. Mills exercised 100,000 stock options for gross proceeds of $75,000. The remaining 200,000 stock options were cancelled.
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Item 6. |
EXHIBITS AND REPORTS ON FORM 8-K |
Exhibits
The following documents are included as exhibits to this Report. Exhibits incorporated by reference are so indicated.
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Exhibit No. |
Description of Document |
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Rule 13a-14(a)/15d-14(a) Certifications of Principal Executive Officer and Principal Financial Officer | |
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Section 1350 Certifications of Principal Executive Officer and Principal Financial Officer |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: November 6, 2008 |
XTRA-GOLD RESOURCES CORP. |
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By |
/s/ James Werth Longshore | |
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James Werth Longshore | ||