Item 8. Financial Statements and Supplementary Data
NOTES TO THE FINANCIAL STATEMENTS
AUGUST 31, 2016 AND 2015
(EXPRESSED IN US DOLLARS)
1. ORGANIZATION AND NATURE OF BUSINESS
American Paramount Gold Corp. (the "Company") was incorporated in the State of Nevada on July 20, 2006 and is listed on the OTCQB under the symbol “APGA”. The Company was formed to engage in the acquisition, exploration and development of natural resource properties.
Going concern
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. . As of August 31, 2016 and 2015, the Company has not achieved profitable operations and has incurred net losses of $165,330 and $100,824. At August 31, 2016 the Company had an accumulated deficit of $5,667,228. Continuation as a going concern is dependent upon the ability of the Company to obtain the necessary financing to meet obligations and pay its liabilities arising from normal business operations when they come due and ultimately upon its ability to achieve profitable operations. The outcome of these matters cannot be predicted with any certainty at this time and raise substantial doubt that the Company will be able to continue as a going concern. These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern. Management intends to obtain additional funding by borrowing funds from its directors and officers, issuing promissory notes and/or a private placement of common stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) and are presented in US dollars.
Accounting estimates
The preparation of these financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis from making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company's estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Fair Value Measurements
The book value of cash, accounts receivable, accounts payable and accrued liabilities approximate their fair values due to the short term maturity of those instruments. Based on borrowing rates currently available to the Company under similar terms, the book value of capital lease obligations approximate their fair values. The fair value hierarchy under GAAP is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:
Level 1- quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 -observable inputs other than Level I, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable; and
Level 3 -assets and liabilities whose significant value drivers are unobservable by little or no market activity and that are significant to the fair value of the assets or liabilities.
The Company’s convertible debenture is based on Level 2 inputs in the ASC 820 fair value hierarchy. The Company calculated the fair value of these instruments by discounting future cash flows using a rate that is representative of the current arms-length borrowing rate.
At August 31, 2016, the convertible debenture had a fair value of $980,413 (2015 - $980,413).
Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment). There were no assets or liabilities measured at fair value on a nonrecurring basis during the periods ended August 31, 2016 and 2015.
Income taxes
Income tax expense is based on pre-tax financial accounting income. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carry forwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Loss per share
Basic loss per share is computed by dividing the net loss attributable to the common stockholders by the weighted average number of common shares outstanding during the reporting period. Diluted net income per common share includes the potential dilution that could occur upon exercise of the options, and convertible notes to acquire common stock computed using the treasury stock method which assumes that the increase in the number of shares is reduced by the number of shares which could have been repurchased by the Company with the proceeds from the exercise of the options, and convertible notes.
Recent Accounting Pronouncements
Recent accounting pronouncements issued by the Financial Accounting Standards Board or other authoritative standards groups with future effective dates are either not applicable or are not expected to be significant to the financial statements of the Company.
3. CONVERTIBLE LOAN - RELATED PARTY
On April 22, 2010, and as amended December 17, 2010, the Company entered into an agreement with Monaco Capital Inc., a majority shareholder, for a principal amount of up to $5,000,000. The loan is unsecured and bears interest at the rate of 10% per annum calculated on the principal balance. The Company may at any time during the term of the loan prepay any sum up to the full amount of the loan and accrued interest then outstanding at any time for the sum plus an additional 10% of such amount. The loan (including accrued interest) is convertible into securities of the Company at a conversion price calculated as the mean volume weighted average price for the Company’s common stock during the ten (10) trading day period ending on the latest complete trading day prior to the conversion date. At any time after the advancement date, if the Company has not paid the loan and accrued interest in full, the Lender may, by providing written notice to the Company, exercise its rights of conversion in respect of either a portion of the total outstanding amount of the loan as of that date into shares of the Company. The amounts advanced plus accrued interest are due one year following the date advanced.
When the loan was received, an initial beneficial conversion feature was recorded of $16,833 which was fully amortized.
As at August 31, 2016, the Company owed $980,413 (2015 - $980,413) under this loan. Accrued interest as at August 31, 2016 is $532,362 (2015 - $433,989) and is included in accounts payable and accrued liabilities.
The loan is in default and due on demand.
4. STOCKHOLDERS’ DEFICIT
Shares Issuances
On September 16, 2015, the Company issued 3,000,000 restricted common shares with a fair value of $126,000 to a former director and officer in return for performance of consulting services.
On December 4, 2015, the Company issued 3,000,000 restricted common shares with a fair value of $141,000 to a company owned by a former officer and director of the Company in return for performance of consulting services.
Stock Options
The Company has adopted a stock option plan (the “2010 Plan”) which permits the Company to issue up to 6,500,000 shares of common stock to directors, officers, employees and consultants of the Company upon the exercise of stock options granted under the 2010 Plan. At the time of the grant of the option, the plan administrator shall designate the expiration date of the option, which date shall not be later than five (5) years from the date of grant. The vesting schedule for each option shall be specified by the plan administrator at the time of grant of the option. Effective September 29, 2010 the 2010 Plan provides for an exercise price to be established based on the fair market value of a common share of the Company being the average of the high and low sales prices (or bid and ask prices, if sales prices are not reported) for the common stock for the last trading day immediately preceding the date with respect to which fair market value is being determined, as reported for the principal trading market for the common stock.
As at August 31, 2016, the Company no stock options outstanding.
5. INCOME TAXES
The reported income taxes differ from the amounts obtained by applying statutory rates to the loss before income taxes as follows:
|
|
August 31, 2016
|
|
|
August 31, 2015
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(165,330
|
)
|
|
$
|
(100,824
|
)
|
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Expected income tax recovery
|
|
|
(58,000
|
)
|
|
|
(35,000
|
)
|
Adjustment to prior year provision versus statutory tax return
|
|
|
46,000
|
|
|
|
|
|
Change in valuation allowance
|
|
|
12,000
|
|
|
|
35,000
|
|
Income tax recovery
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company’s tax-effected future tax assets and liabilities are estimated as follows:
|
|
August 31, 2016
|
|
|
August 31, 2015
|
|
Deferred tax assets
|
|
|
|
|
|
|
Net operating loss carry forwards
|
|
$
|
683,000
|
|
|
$
|
671,000
|
|
Less: Valuation allowance
|
|
|
(683,000
|
)
|
|
|
(671,000
|
)
|
Net deferred income tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
At August 31, 2016, the Company has a deferred tax asset. A full valuation allowance has been established as management believes it is more likely that not that the deferred tax asset will not be realized.
As at August 31, 2016, the Company has non-capital losses of approximately $1,953,000 that may be carried forward and applied against federal and state taxable income of future years. The non-capital losses may be carried forward and expire between 2026 and 2036.
Tax attributes are subject to review, and potential adjustment by tax authorities.
6. RELATED PARTIES TRANSACTIONS
As at August 31, 2016, the Company owed $55,266 (2015 - $32,987) to a former President of the Company for services provided to the Company.
The Company entered into an agreement with a company owned by a former officer and director of the Company beginning on October 1, 2015 whereby the Company will pay a monthly service fee of $2,500 and issue on a monthly basis 50,000 shares of the Company’s common stock for the services. This agreement was terminated on April 8, 2016, and the Company was released from all liabilities owing to the company owned by a former officer and director of the Company.
At August 31, 2016, Monaco Capital Inc., a significant shareholder has advanced $980,413 (August 31, 2015 - $980,413) with terms as discussed in Note 3.
7. REVERSAL OF DEBT
During the year ended August 31, 2016, certain payables became no longer enforceable as the status of limitation period has expired. The Company reversed the payables of $236,657 which has been recognized as a gain.