PINX:XTGR Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

Xtra-Gold Resources Corp.: Form 10-Q - Filed by newsfilecorp.com

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 June 30, 2012

OR

[_] 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    [_] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 

[X] Yes    [_] 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 [_] Accelerated Filer [_]
Non-accelerated filer [_] 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):

[_] 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 August 9, 2012
Common stock - $0.001 par value 44,648,417


TABLE OF CONTENTS

    Page
PART I FINANCIAL INFORMATION  
Item 1 Financial Statements (Unaudited)  
  Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011 1
  Consolidated Statements of Operations for the three and six months ended June 30, 2012 and 2011 2
  Consolidated Statements of Cash Flows for the three and six months ended June 30, 2012 and 2011 3
  Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2012 5
  Notes to the Consolidated Financial Statements 7
Item 2 Management’s Discussion and Analysis of Financial Conditions and Results of Operations 18
Item 3 Quantitative and Qualitative Disclosures about Market Risk 25
Item 4 Controls and Procedures 25
PART II OTHER INFORMATION  
Item 1 Legal Proceedings 26
Item 1A Risk Factors 26
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 26
Item 3 Defaults upon Senior Securities 26
Item 4 Mine Safety Disclosures 26
Item 5 Other Information 26
Item 6 Exhibits 26


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)
AS AT

  June 30, 2012     December 31, 2011  

ASSETS

           

Current

           

     Cash and cash equivalents

$  1,517,683   $  4,498,753  

     Investment in trading securities, at fair value 
          (cost of $1,312,463 (December 31, 2011 - $1,870,648)) (Note 4)

 
1,321,989
   
2,531,644
 

     Due from related party (Note 9)

  18,080     213,872  

     Receivables and other assets

  126,952     130,637  

     Total current assets

  2,984,704     7,374,906  

Restricted cash (Note 7)

  220,961     220,961  

Equipment (Note 5)

  1,241,497     1,370,027  

Mineral properties (Note 6)

  857,422     857,422  

TOTAL ASSETS

$  5,304,584   $  9,823,316  

LIABILITIES AND STOCKHOLDERS’ EQUITY

           

Current

           

     Accounts payable and accrued liabilities

$  524,768   $  745,860  

 

           

   Total current liabilities

  524,768     745,860  

 

           

Asset retirement obligation (Note 7)

  179,395     171,395  

     Total liabilities

  704,163     917,255  

Stockholders’ equity

           

     Capital stock (Note 8)

           

     Authorized

           

     250,000,000 common shares with a par value of $0.001

           

     Issued and outstanding

           

     44,674,717 common shares (December 31, 2011 – 44,569,217 common shares)

  44,674     44,569  

     Additional paid in capital

  28,968,535     28,441,909  

     Deficit

  (1,427,764 )   (1,427,764 )

     Deficit accumulated during the exploration stage

  (22,102,936 )   (17,646,122 )

     Total Xtra-Gold Resources Corp. stockholders’ equity

  5,482,509     9,412,592  

     Non-controlling interest

  (882,088 )   (506,531 )

     Total stockholders’ equity

  4,600,421     8,906,061  

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$  5,304,584   $  9,823,316  

History and organization of the Company (Note 1) APPROVED ON BEHALF OF THE BOARD
Continuance of operations (Note 2)      
Contingency and commitments (Note 12)      
  Paul Zyla   Richard W. Grayston
  Director   Director

The accompanying notes are an integral part of these consolidated financial statements.

- 1 -



XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in U.S. Dollars)
(unaudited)

 

  Cumulative                          

 

  amounts                          

 

  from                          

 

  the beginning                          

 

  of the                          

 

  exploration                          

 

  stage on                          

 

  January 1,     Three Month     Three Month     Six Month     Six Month  

 

  2003 to     Period Ended     Period Ended     Period Ended     Period Ended  

 

  June 30,     June 30,     June 30,     June 30,     June 30,  

 

  2012     2012     2011     2012     2011  

 

                             

EXPENSES

                             

       Amortization

$  713,373   $  76,204   $  49,164   $  128,530   $  79,566  

       Exploration

  25,348,745     1,651,464     1,122,471     3,845,765     2,691,449  

       General and administrative

  8,426,459     623,505     321,739     817,449     577,084  

       Option receipts in excess of property value

  (450,000 )           (135,000 )    

       Write-off of mineral property

  26,000                  

LOSS BEFORE OTHER ITEMS

  (34,064,577 )   (2,351,173 )   (1,493,374 )   (4,656,744 )   (3,348,099 )

 

                             

OTHER ITEMS

                             

       Foreign exchange gain (loss)

  457,568     (185,167 )   (271,641 )   (109,112 )   (164,394 )

       Interest expense

  (243,638 )   (1,702 )       (1,702 )    

       Realized gain (losses) on sales of trading securities

  263,085     (26,962 )       8,766      

       Net unrealized loss on trading securities

  (182,697 )   (466,565 )   (47,481 )   (229,907 )   (66,990 )

       Other income

  996,501     54,572     12,873     85,771     24,223  

       Recovery of gold

  9,457,246         260,904     70,557     1,282,679  

       Gain on disposal of property or equipment

  356,488                 260,058  

       Write-off of investment in trading securities

  (25,000 )                 

 

  11,079,553     (625,824 )   (45,345 )   (175,627 )   1,335,576  

 

                             

Net loss for the period

  (22,985,024 )   (2,976,997 )   (1,538,719 )   (4,832,371 )   (2,012,523 )

 

                             

Net loss attributable to non-controlling interest

  882,088     172,066     115,135     375,557     157,477  

Net loss attributable to Xtra-Gold Resources Corp.

$  (22,102,936 ) $  (2,804,931 ) $  (1,423,584 ) $  (4,456,814 ) $  (1,855,046 )

Basic and diluted loss attributable to common stockholders per common share

    $  (0.06 ) $  (0.03 ) $  (0.10 ) $  (0.04 )

Basic and diluted weighted average number of common shares outstanding

      44,658,703     43,668,909     44,663,002     43,322,266  

The accompanying notes are an integral part of these consolidated financial statements.

- 2 -



XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. Dollars)
(unaudited)

 

  Cumulative                          

 

  amounts from                          

 

  the beginning                          

 

  of the                          

 

  exploration                          

 

  stage on                          

 

  January 1,     Three Month     Three Month     Six Month     Six Month  

 

  2003 to     Period Ended     Period Ended     Period Ended     Period Ended  

 

  June 30,     June 30,     June 30,     June 30,     June 30,  

 

  2012     2012     2011     2012     2011  

CASH FLOWS FROM OPERATING ACTIVITIES

                   

 Loss for the period

$  (22,985,024 ) $  (2,976,997 ) $  (1,538,719 ) $  (4,832,371 ) $  (2,012,523 )

 Items not affecting cash:

                             

     Amortization

  713,373     76,204     49,164     128,530     79,566  

     Amortization of deferred financing costs

  46,202                  

     Accretion of asset retirement obligation

  48,262     4,000     4,000     8,000     8,000  

     Shares issued for services

  202,365                  

     Stock-based compensation

  2,261,419     380,838     78,111     421,491     99,422  

     Option receipts in excess of property value

  (450,000 )           (135,000 )    

     Unrealized foreign exchange (gain) loss

  (415,004 )   27,679     36,021     (13,048 )   32,460  

     Realized (gain) loss on sale of trading securities

  (263,085 )   26,962         (8,766 )    

     Purchase of trading securities

  (13,411,043 )           (83,157 )    

     Proceeds on sale of trading securities

  13,241,974     939,832         1,084,718      

     Unrealized loss on trading securities

  182,697     466,565     47,481     229,907     66,990  

     Gain on disposal of property or equipment

  (356,488 )               (260,058 )

     Write-off of mineral property

  26,000                  

     Expenses paid by stockholders

  2,700                  

     Write-off of investment in trading securities

  25,000                  

 Changes in non-cash working capital items:

                             

         (Increase) decrease in receivables and other

  (118,577 )   (2,947 )   231,195     217,557     (11,562 )

         Increase (decrease) in accounts payable and accrued liabilities

  514,076     (547,592 )   (162,511 )   (221,091 )   (138,890 )

         Increase (decrease) in due to related party

  31,920     (18,080 )       (18,080 )    

 Net cash used in operating activities

  (20,703,233 )   (1,623,536 )   (1,255,258 )   (3,221,310 )   (2,136,595 )

CASH FLOWS FROM FINANCING ACTIVITIES

                   

 Proceeds from issuance of convertible debentures

  900,000                  

 Deferred financing costs

  (46,202 )                

 Repurchase of capital stock

  (169,760 )   (4,760 )         (4,760 )    

 Issuance of capital stock, net of financing costs

  22,719,711         1,238,564     110,000     1,276,064  

 Net cash provided by (used in) financing activities

  23,403,749     (4,760 )   1,238,564     105,240     1,276,064  

- continued -

The accompanying notes are an integral part of these consolidated financial statements.

- 3 -



XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. Dollars)
(unaudited)

 

  Cumulative                          

 

  amounts                          

 

  from                          

 

  the beginning                          

 

  of the                          

 

  exploration                          

 

  stage on                          

 

  January 1,     Three Month     Three Month     Six Month     Six Month  

 

  2003 to     Period Ended     Period Ended     Period Ended     Period Ended  

 

  June 30,     June 30,     June 30,     June 30,     June 30,  

 

  2012     2012     2011     2012     2011  

 

                             

Continued...

                             

 

                             

CASH FLOWS FROM INVESTING ACTIVITIES

     Acquisition of equipment

$  (1,835,129 ) $  —     (594,273 ) $  —   $  (849,796 )

     Deposit on equipment

  (151,506 )                

     Restricted cash

  (220,961 )               (961 )

     Oil and gas property expenditures

  (250,137 )                

     Acquisition of cash on purchase of subsidiary

  11,510                  

     Acquisition of subsidiary

  (25,000 )                

     Option payment received

  660,000         425,000     135,000     425,000  

     Proceeds on disposal of assets

  628,390                     288,000  

     Net cash provided by (used in) investing activities

  (1,182,833 )       (169,273 )   135,000     (137,757 )

 

                             

Change in cash and cash equivalents during the period

  1,517,683     (1,628,296 )   (185,967 )   (2,981,070 )   (998,288 )

 

                             

Cash and cash equivalents, beginning of the period

      3,145,979     9,283,801     4,498,753     10,096,122  

 

                             

Cash and cash equivalents, end of the period

$  1,517,683   $  1,517,683   $  9,097,834   $  1,517,683   $  9,097,834  

Supplemental disclosure with respect to cash flows (Note 10)

The accompanying notes are an integral part of these consolidated financial statements.

- 4 -



XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(Expressed in U.S. Dollars)
(unaudited)

 

  Common Stock                       Deficit        

 

                                Accumulated        

 

              Additional           Non-     During the        

 

  Number           Paid in           Controlling     Exploration        

 

  of Shares     Amount     Capital     Deficit     Interest     Stage     Total  

 

                                         

Balance, December 31, 2010

  42,961,179   $  42,961   $  26,089,803   $  (1,427,764 ) $  (36,361 ) $  (12,321,365 ) $  12,347,274  

 

                                         

Conversion of warrants at $1.50 per share

  768,874     769     1,152,542                 1,153,311  

 

                                         

Conversion of warrants at $1.00 per share

  839,164     839     838,325                 839,164  

 

                                         

Stock-based compensation

          361,239                 361,239  

 

                                         

Loss for the year

                  (470,170 )   (5,324,757 )   (5,794,927 )

 

                                         

Balance, December 31, 2011

  44,569,217   $  44,569   $  28,441,909   $  (1,427,764 ) $  (506,531 ) $  (17,646,122 ) $  8,906,061  

- continued -

The accompanying notes are an integral part of these consolidated financial statements.

- 5 -



XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(Expressed in U.S. Dollars)
(unaudited)

 

  Common Stock                       Deficit        

 

                                Accumulated        

 

              Additional           Non-     During the        

 

  Number           Paid in           Controlling     Exploration        

 

  of Shares     Amount     Capital     Deficit     Interest     Stage     Total  

 

                                         

Balance, December 31, 2011

  44,569,217   $  44,569   $  28,441,909   $  (1,427,764 ) $  (506,531 ) $  (17,646,122 ) $  8,906,061  

 

                                         

January, 2012 – Exercise of options at $1.00 per share

  110,000     110     109,890                 110,000  

 

                                         

Stock-based compensation

          40,653                 40,653  

 

                                         

Loss for the period

                  (203,491 )   (1,651,883 )   (1,855,374 )

 

                                         

Balance, March 31, 2012

  44,679,217   $  44,679   $  28,592,452   $  (1,427,764 ) $  (710,022 ) $  (19,298,005 ) $  7,201,340  

 

                                         

Repurchase of shares at $1.06 per share

  (4,500 )   (5 )   (4,755 )               (4,760 )

 

                                         

Share issuance costs

                           

 

                                         

Stock-based compensation

          380,838                 380,838  

 

                                         

Loss for the period

                  (172,066 )   (2,804,931 )   (2,976,997 )

 

                                         

Balance, June 30, 2012

  44,674,717   $  44,674   $  28,968,535   $  (1,427,764 ) $  (882,088 ) $  (22,102,936 ) $  4,600,421  

The accompanying notes are an integral part of these consolidated financial statements.

- 6 -



XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Expressed in U.S. Dollars)
June 30, 2012

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 website, “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.

CONTINUANCE OF OPERATIONS

   

The Company is in the early stages of exploration and as is common with any exploration company, it raises financing for its exploration and acquisition activities. The Company has incurred a loss of $4,456,814 for the six month-period ended June 30, 2012 and has accumulated a deficit during the exploration stage of $22,102,936. 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, which is typical for junior exploration companies. 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 June 30, 2012, the Company has working capital of $2,459,936, which would not be sufficient to fund the current level of operations for a period greater than 12 months. The Company’s discretionary exploration activities do have considerable scope for flexibility in terms of the amount and timing of exploration expenditures, and expenditures may be adjusted accordingly if required.

- 7 -



XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Expressed in U.S. Dollars)
June 30, 2012

3.

SIGNIFICANT ACCOUNTING POLICIES

   

Generally accepted accounting principles

   

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, 2011, 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.

   

Cash and cash equivalents

   

The Company considers highly liquid investments with original maturities of three months or less to be cash equivalents. At June 30, 2012 and December 31, 2011, cash and cash equivalents consisted of cash held at financial institutions and highly liquid investments with original maturities of less than three months.

   

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, the Company uses the treasury stock method and the if converted method. As of June 30, 2012, there were 566,482 warrants (December 31, 2011 – 566,482) and 1,957,000 stock options (December 31, 2011 – 2,067,000) outstanding which have not been included in the weighted average number of common shares outstanding as these were anti-dilutive.

   

Fair value of financial assets and liabilities

   

The Company measures the fair value of financial assets and liabilities based on GAAP guidance which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

   

The 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 due from related party, receivables, accounts payable and accrued liabilities are carried at cost, which management believes approximates fair value due to the short term nature of these instruments. Cash and cash equivalents, investments in trading securities and restricted cash are classified as held for trading, with unrealized gains and losses being recognized in income.

- 8 -



XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Expressed in U.S. Dollars)
June 30, 2012

3.

SIGNIFICANT ACCOUNTING POLICIES (cont’d…)

   

Fair value of financial assets and liabilities (cont’d…)

   

The following table presents information about the assets that are measured at fair value on a recurring basis as of June 30, 2012, and indicates the fair value hierarchy of the valuation techniques the 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:


                  Significant        
            Quoted Prices     Other     Significant  
            in Active     Observable     Unobservable  
            Markets     Inputs     Inputs  
      June 30, 2012     (Level 1)     (Level 2)     (Level 3)  
                           
  Assets:                        
  Cash and cash equivalents $  1,517,683   $  1,517,683   $  —   $  —  
  Restricted cash   220,961     220,961          
  Trading securities   1,321,989     1,321,989          
       Total $  3,060,633   $  3,060,633   $  —   $  —  

The fair values of cash and cash equivalents, restricted cash and investments 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. The Company maintains cash in bank accounts that, at times, may exceed federally insured limits. As of June 30, 2012 and December 31, 2011, the Company has exceeded the federally insured limit. The 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.

   

Recently adopted accounting pronouncements

   

Fair Value Accounting

   

In May 2011, the ASC guidance was issued related to disclosures around fair value accounting. The updated guidance clarifies different components of fair value accounting including the application of the highest and best use and valuation premise concepts, measuring the fair value of an instrument classified in a reporting entity’s shareholders’ equity and disclosing quantitative information about the unobservable inputs used in fair value measurements that are categorized in Level 3 of the fair value hierarchy. The update is effective for the Company’s fiscal year beginning January 1, 2012. The Company’s January 1, 2012 adoption of the updated guidance had no impact on the Company’s consolidated financial position, results of operations or cash flows.

   
4.

INVESTMENTS

   

At June 30, 2012, the Company held investments classified as held for trading, which consisted of various equity securities and interest bearing debt instruments. All held for trading investments are carried at fair value. As of June 30, 2012, the fair value of investments was $1,321,989 (December 31, 2011 – $2,531,644).

- 9 -



XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Expressed in U.S. Dollars)
June 30, 2012

4.

INVESTMENTS (cont’d…)

   

The following table summarizes the fair value of the Company’s investments.


      Investments  
      June 30, 2012     December 31, 2011  
               
  Trading securities $  1,321,989   $  2,022,079  
  Interest bearing debt instruments       509,565  
    $  1,321,989   $  2,531,644  

5.

EQUIPMENT


      June 30, 2012     December 31, 2011  
            Accumulated     Net Book           Accumulated     Net Book  
      Cost     Amortization     Value     Cost     Amortization     Value  
                                       
  Furniture and equipment $  8,358   $  7,549   $  809   $  8,358   $  6,549   $  1,809  
  Computer equipment   20,274     19,488     786     20,274     18,666     1,608  
  Exploration equipment   1,464,478     466,826     997,652     1,464,478     379,843     1,084,635  
  Vehicles   333,989     91,739     242,250     333,989     52,014     281,975  
    $  1,827,099   $  585,602   $  1,241,497   $  1,827,099   $  457,072   $  1,370,027  

6.

MINERAL PROPERTIES


      June 30, 2012     December 31, 2011  
               
  Acquisition costs $  1,607,729   $  1,607,729  
  Asset retirement obligation (Note 7)   131,133     131,133  
  Option payment received   (881,440 )   (881,440 )
  Total $  857,422   $  857,422  

Kibi, Kwabeng and Pameng Projects

The Company holds an individual mining lease over the lease area of each of the Kibi Project, the Kwabeng Project and the Pameng Project, all of which are located in Ghana. Each of these mining leases grant the Company mining rights to produce gold in the respective lease areas until July 26, 2019 with respect to the Kwabeng and Pameng Projects, and until December 17, 2015 with respect to the Kibi Project (formerly known as the Apapam Project), the latter of which can be renewed for up to a further 30 year term on application and payment of applicable fees to the Minerals Commission of Ghana (“Mincom”). All gold production will be subject to a production royalty of the net smelter returns (“NSR”) payable to the Government of Ghana.

Banso and Muoso Project

During the year ended December 31, 2010, the Company made an application to Mincom to convert a single prospecting license (“PL”) securing its interest in the Banso and Muoso Projects located in Ghana to a mining lease covering the lease

- 10 -



XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Expressed in U.S. Dollars)
June 30, 2012

6.

MINERAL PROPERTIES (cont’d…)

   

Banso and Muoso Project (cont’d…)

   

area of each of these Projects. This application was approved by Mincom who subsequently made recommendation to the Minister of Lands, Forestry and Mines to grant an individual mining lease for each Project. Subsequent to the year ended December 31, 2010, the Government of Ghana granted two mining leases for these Projects dated January 6, 2011. These mining leases grant the Company mining rights to produce gold in the respective lease areas until January 5, 2025 with respect to the Banso Project and until January 5, 2024 with respect to the Muoso Project. These mining leases supersede the PL previously granted to the Company. Among other things, both mining leases require that the Company (i) pay the Government of Ghana a fee of $30,000 in consideration of granting of each lease (paid in the March 2011 quarter); (ii) pay annual ground rent of GH¢260.00 (USD$167) for the Banso Project and GH¢280.00 (USD$180) for the Muoso Project (paid in the March 2011 quarter); (iii) commence commercial production of gold within two years from the date of the mining leases; and (iv) pay a production royalty to the Government of Ghana.

   

The Company executed a letter of intent (“LOI”) with Buccaneer Gold Corp. (“Buccaneer”), formerly Verbina Resources Inc., a company related by two directors in common, on July 21, 2010 whereby Buccaneer could acquire an undivided 55% interest in the Company’s interest in the mineral rights of the Company’s Banso and Muoso concessions (“Concessions”). On January 21, 2011 the terms of the agreement were amended.

   

Pursuant to the 2011 LOI, Buccaneer can acquire a 55% legal and beneficial interest in the Company’s interest in the mineral rights of the Concessions pursuant to the following terms: Buccaneer shall (i) provide the Company, by February 28, 2011, with notice of its satisfactory completion of due diligence of the Concessions (provided on January 21, 2011), and receipt of regulatory acceptance by the TSX Venture Exchange of the 2011 LOI (received on February 16, 2011) (the “Effective Date”); (ii) make a cash payment to the Company of $425,000 consisting of $100,000 upon the Effective Date and $325,000 within 90 days of the Effective Date (received); (iii) issue 1,000,000 fully paid and non-assessable common shares of Buccaneer to the Company upon the Effective Date (issued in the March 2011 quarter); (iv) incur a total of $4,425,000 in exploration expenditures on the Concessions within five (5) years of the Effective Date with $500,000 to be incurred in the first year (completed) from the Effective Date and $1,000,000 in each year thereafter, except that in the final year the exploration expenditures shall be a minimum of $925,000; and (v) pay to the Company $300,000 in connection with a Versatile Time-domain Electromagnetic (“VTEM”), Magnetic and Radiometric survey to be flown over the Concessions by the Company, which payment shall be credited toward the $500,000 in exploration expenditures referred to above in subparagraph (iv).

   

A definitive binding option agreement shall be entered into between the Company and Buccaneer which agreement will require approval from the Minister of Lands, Forestry and Mines.

   

The status of each Buccaneer commitment to the Company in the 2011 LOI is as follows:


  Item Description Status
  (i) Due diligence completed Completed
    TSX accepts LOI Completed
  (ii) Pay $100,000 to the Company Received by the Company
    Pay a further $325,000 to the Company Received by the Company
  (iii) Issue 1,000,000 Buccaneer shares to the Company Received by the Company
  (iv) Spend $4,425,000 on the properties over 5 years In Progress
  (v) Pay $300,000 to the Company for a VTEM survey Received by the Company

The 1,000,000 Buccaneer shares received were valued at $411,440 at the date of issuance.

- 11 -



XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Expressed in U.S. Dollars)
June 30, 2012

6.

MINERAL PROPERTIES (cont’d…)

   

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 prospecting license has been renewed for a two year period expiring on July 21, 2013.

   

The consideration paid for the Option Agreement 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 which term has been extended to November 11, 2013. Further net smelter royalty payments, based on proven and probable reserves and gold production, was also payable to Adom.

   

During August 2011, the Company assigned its interest in the Edum Banso Project to Norman Cay Development Inc. (“NCD”) for a cash payment of $125,000, 1,000,000 NCD shares, valued at $260,000 at the date of issuance, and an option payment of $135,000 payable in six months from the date of assignment of the option interest. If NCD did not exercise its six-month option the Project reverted to the Company. Of the payments received, $20,000 reduced the carrying value of the Edum Banso Project on the balance sheet and the balance reduced exploration spending in the third quarter of 2011. A $25,000 finder’s fee was paid to introduce the Company to NCD and this fee reduced the gain recorded in the statement of operations.

   

During the three month period ended March 31, 2012, NCD paid a final option payment of $135,000 to the Company.

   

Mining lease and prospecting license commitments

   

The Company is committed to expend, from time to time fees payable (a) to the Minerals Commission for: (i) an extension of an expiry date of a prospecting license (currently $15,000 for each occurrence); (ii) a grant of a mining lease (currently $35,000); (iii) an extension of a mining lease (currently $100,000); (iv) annual operating permits; and (v) the conversion of a reconnaissance license to a prospecting license (currently $20,000); (b) to the Environmental Protection Agency (“EPA”) (of Ghana) for: (i) processing and certificate fees with respect to EPA permits; (ii) the issuance of permits before the commencement of any work at a particular concession; or (iii) the posting of a bond in connection with any mining operations undertaken by the Company; (c) for a legal obligation associated with our mineral properties for clean up costs when work programs are completed; and (d) an aggregate of less than $500 in connection with annual ground rent and mining permits to enter upon and gain access to the areas covered by the Company’s mining leases and future reconnaissance and prospecting licenses and such other financial commitments arising out of any approved exploration programs in connection therewith.

   
7.

ASSET RETIREMENT OBLIGATION


      June 30, 2012     December 31, 2011  
               
  Balance, beginning of period $  171,395   $  155,395  
  Accretion expense   8,000     16,000  
  Balance, end of period $  179,395   $  171,395  

The Company has a legal obligation associated with its mineral properties for clean up costs when work programs are completed.

- 12 -



XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Expressed in U.S. Dollars)
June 30, 2012

7.

ASSET RETIREMENT OBLIGATION (cont’d…)

   

The undiscounted amount of cash flows, required over the estimated reserve life of the underlying assets, to settle the obligation, adjusted for inflation, is estimated at $220,000 (2011 - $220,000). The obligation was calculated using a credit- adjusted risk free discount rate of 10% and an inflation rate of 2%. It is expected that this obligation will be funded from general Company resources at the time the costs are incurred. The Company has been required by the Ghanaian government to post a bond of $220,961 which has been recorded in restricted cash with accrued interest ($220,961 at June 30, 2012).

   
8.

CAPITAL STOCK

   

Cancellation of shares

   

In May 2005, 47,000,000 common shares owned by two former directors were returned to treasury and cancelled.

   

In June 2006, 10,000 common shares were returned to the Company in settlement of a dispute and cancelled.

   

In May 2009, 200,000 common shares were repurchased for $50,000 and cancelled.

   

In May 2005, 47,000,000 common shares owned by two former directors were returned to treasury and cancelled.

   

In June 2006, 10,000 common shares were returned to the Company in settlement of a dispute and cancelled.

   

In May 2009, 200,000 common shares were repurchased for $50,000 and cancelled.

   

In March 2010, 80,891 common shares were repurchased for $108,000 and cancelled.

   

Issuance of shares for services

   

In December 2008, an aggregate of 131,243 common shares were issued to three vendors of the Company’s subsidiary, XG Mining to settle outstanding accounts for services at a value of $1.50 per share. In March 2010, 80,891 of these common shares were repurchased for $108,000 and cancelled.

   

Private placements

   

In June 2010, the Company issued 250,000 units at $1.00 per unit for gross proceeds of $250,000. Each unit consisted of one common share and one half of one share purchase warrant. One whole warrant enables the holder to acquire an additional common share at a price of $1.50 expiring 18 months from the date of issue. The Company also issued finder’s warrants enabling the holders to acquire up to 25,000 common shares at the same terms as the unit warrants. The fair value of the finder’s warrants was $15,091 calculated using the Black-Scholes valuation method. The assumptions used were 1.5 years of expected life, risk free interest rate of 1.82%, volatility of 99.78% and a dividend rate of 0%.

   

In April 2010, the Company issued 838,000 units at $1.00 per unit for gross proceeds of $838,000. Each unit consisted of one common share and one half of one share purchase warrant. One whole warrant enables the holder to acquire an additional common share at a price of $1.50 expiring 18 months from the date of issue. The Company also issued finder’s warrants enabling the holders to acquire up to 73,800 common shares at the same terms as the unit warrants. The fair value of finder’s warrants was $40,516 calculated using the Black-Scholes valuation method. The assumptions used were 1.5 years of expected life, risk free interest rate of 2.05%, volatility of 116.59% and a dividend rate of 0%.

   

In December 2009, the Company issued 706,000 units at $1.00 per unit for gross proceeds of $706,000. Each unit consisted of one common share and one half of one share purchase warrant. One whole warrant enables the holder to acquire an additional common share at a price of $1.50 expiring eighteen months from the date of issue. The Company also issued finder’s warrants enabling the holders to acquire up to 50,600 common shares at the same terms as the unit warrants. The fair

- 13 -



XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Expressed in U.S. Dollars)
June 30, 2012

8.

CAPITAL STOCK (cont’d…)

   

Private placements (cont’d…)

   

value of finder’s warrants was $20,098 calculated using the Black-Scholes valuation method. The assumptions used were 1.5 years of expected life, risk free interest rate of 2.05%, volatility of 109% and a dividend rate of 0%.

   

In August 2009, the Company issued 376,875 units at $0.80 per unit for gross proceeds of $301,500. Each unit consisted of one common share and one half of one share purchase warrant. One whole warrant enables the holder to acquire an additional common share at a price of $1.00 expiring two years from the date of issue.

   

In April and May 2009, the Company issued 1,018,000 units at $0.70 per unit for gross proceeds of $712,600. 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 $1.00 expiring two years from the date of issue.

   

Initial Public Offering

   

In November 2010, the Company completed an initial public offering in Canada (the “IPO”) and issued 8,092,593 common shares at CAD$1.35 (USD$1.33) for gross proceeds of CAD$10,925,001 (USD$10,753,149). The Company also issued 566,482 broker warrants with a strike price of CAD$1.35 (US$1.33) per warrant and a two-year term to maturity. The Company valued the warrants at $364,248 using the Black-Scholes model with a 90% volatility, 0% dividend and 1.5% interest rate.

   

Escrow Shares

   

A total of 267,500 shares (the “Escrow Shares”) were deposited into escrow at the time of listing of the Company’s shares on the Toronto Stock Exchange on November 23, 2010 (the “Listing Date”), following completion of the IPO. The Escrow Shares are released from escrow as to (a) 1/4 of the Escrow Shares on the Listing Date; (b) 1/3 of the remaining Escrow Shares, six months after the Listing Date; (c) 1/2 of the remaining Escrow Shares, 12 months after the Listing Date; and (d) the remaining Escrow Shares, 18 months after the Listing Date. As of June 30, 2012, there were no Escrow Shares held in escrow (December 31, 2011 – 66,875).

   

Acquisition of subsidiary

   

Effective December 22, 2004, the Company acquired 90% of the outstanding shares of XG Mining in exchange for 2,698,350 shares of common stock. In connection with this acquisition, 47,000,000 shares owned by two former officers and directors of the Company were returned to treasury and cancelled.

   

Stock options

   

On June 30, 2011, the Company adopted a new 10% rolling stock option plan (the “2011 Plan”) and cancelled the 2005 equity compensation plan. Pursuant to the 2011 Plan, the Company is entitled to grant options and reserve for issuance up to 10% of the shares issued and outstanding at the time of grant. 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 Compensation Committee who makes recommendation to the board of directors for their approval. The maximum term of options granted cannot exceed 10 years.

   

At June 30, 2012, the following stock options were outstanding:

- 14 -



XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

PINX:XTGR Quarterly Report 10-Q Filling

PINX:XTGR Stock - Get Quarterly Report SEC Filing of PINX:XTGR stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

PINX:XTGR Quarterly Report 10-Q Filing - 6/30/2012
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