BLACK DRAGON GOLD CORP.
CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
FOR THE YEARS ENDED
DECEMBER 31, 2017 AND 2016
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Black Dragon Gold Corp.
We have audited the accompanying consolidated financial statements of Black Dragon Gold Corp., which comprise the
consolidated statements of financial position as at December 31, 2017 and 2016, and the consolidated statements of operations
and comprehensive income (loss), cash flows and changes in shareholders’ equity (deficiency) for the years then ended, and a
summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance
with International Financial Reporting Standards, and for such internal control as management determines is necessary to
enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or
error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our
audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical
requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements
are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of
material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments,
the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial
statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of Black
Dragon Gold Corp. as at December 31, 2017 and 2016 and its financial performance and its cash flows for the years then ended
in accordance with International Financial Reporting Standards.
Emphasis of Matter
Without qualifying our opinion, we draw attention to Note 1 in the consolidated financial statements which describes conditions
and matters that indicate the existence of a material uncertainty that may cast significant doubt about Black Dragon Gold
Corp.’s ability to continue as a going concern.
Vancouver, Canada
April 27, 2018
“DAVIDSON & COMPANY LLP”
Chartered Professional Accountants
BLACK DRAGON GOLD CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Expressed in Canadian dollars)
AS AT
ASSETS
Current
Cash and equivalents
Receivables
Prepaid expenses
Equipment
Deposits
Total assets
Notes
December 31,
2017
December 31,
2016
3
4
$ 1,753,221 $
69,952
9,154
1,832,327
105,834
34,319
664
140,817
685
1,240
981
1,240
1,925
2,221
$ 1,834,252 $
143,038
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current
Accounts payable and accrued liabilities
Interest payable
Loan facility
Convertible debenture
Total liabilities
Shareholders' equity (deficiency)
Share capital
Warrants
Equity portion of convertible debenture
Reserves
Deficit
Total shareholders’ equity (deficiency)
6
7
7
$
801,857 $ 1,893,278
1,794,016
10,498,919
14,186,213
-
-
801,857
8
216,200
-
9
9
8
9
1,018,057
14,186,213
19,695,960
3,164,574
15,388
4,629,463
(26,689,190)
13,165,615
-
-
4,059,101
(31,267,891)
816,195
(14,043,175)
Total liabilities and shareholders’ equity (deficiency)
$ 1,834,252 $
143,038
Nature and continuance of operations (Note 1)
Subsequent events (Note 16)
These consolidated financial statements were approved for issue by the Board of Directors on 27th April, 2018 and
are signed on its behalf by:
/s/ Paul Cronin
Paul Cronin
Director
/s/ Richard Monti
Richard Monti
Director
The accompanying notes are an integral part of these consolidated financial statements.
4
BLACK DRAGON GOLD CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Expressed in Canadian dollars)
YEARS ENDED
Notes
December 31,
2017
December 31,
2016
EXPENSES
Consulting
Corporate development
Depreciation
Directors’ fees
Filing fees
Foreign exchange gain
General and administrative
General exploration
Management fees
Professional fees
Rent
Severance provision
Shareholder communication
Share-based compensation
Transfer agent
Travel and related
Website design and maintenance
Loss before other items
OTHER ITEMS
Interest and accretion expense
Gain on settlement of RMB loan
Loss on settlement of accounts payable
Other income
Income (loss) and comprehensive
income (loss) for the year
4
11
11
9, 11
7, 8
7
8
Basic earnings (loss) per common share
Diluted earnings (loss) per common
share
9
9
$
34,715 $
-
296
139,282
39,306
(275,189)
304,841
47,298
1,073,979
339,861
42,612
-
69,484
776,038
14,133
144,038
-
14,459
5,543
360
-
19,234
(312,018)
184,898
5,950
636,039
371,273
72,229
280,524
25,599
-
11,074
398,760
2,000
(2,750,694)
(1,715,924)
(575,229)
7,901,372
(118,815)
(1,130,945)
-
-
154
122,067
7,329,395
(1,130,791)
$ 4,578,701
$ (2,846,715)
$
$
0.03
$
(0.07)
0.03
$
(0.07)
The accompanying notes are an integral part of these consolidated financial statements.
5
BLACK DRAGON GOLD CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in Canadian dollars)
YEARS ENDED
CASH FLOWS FROM OPERATING ACTIVITIES
Income (loss) for the year
Items not affecting cash:
Depreciation
Interest and accretion expense
Share-based compensation
Gain on settlement of RMB loan
Loss on settlement of accounts payable
Unrealized foreign exchange gain
Change in non-cash working capital items
Decrease in receivables
Decrease (increase) in prepaid expenses
Increase (decrease) in accounts payable
and accrued liabilities
Net cash used in operating activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loan facility
Convertible debenture
Settlement of RMB loan
Shares and units issued for cash, net
Exercise of stock options
Net cash provided by financing activities
Change in cash and cash equivalents during the year
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
December 31,
2017
December 31,
2016
$ 4,578,701
$ (2,846,715)
296
575,229
776,038
(7,901,372)
118,815
(435,633)
360
1,130,945
-
-
-
(248,188)
(38,550)
(8,549)
(15,897)
2
(780,800)
998,481
(3,115,825)
(981,012)
-
251,000
(4,493,966)
8,948,428
57,750
305,020
-
671,062
-
4,763,212
976,082
1,647,387
(4,930)
105,834
110,764
$ 1,753,221
$
105,834
Supplemental disclosure with respect to cash flows (Note 10)
The accompanying notes are an integral part of these consolidated financial statements.
6
BLACK DRAGON GOLD CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIENCY)
(Expressed in Canadian dollars)
Share Capital
Number
Amount
Warrants
Convertible
debenture -
Equity portion
Reserves
Deficit
Total
Balance, December 31, 2015
36,780,761
$ 12,494,553
$ -
$ -
$ 4,059,101
$ (28,421,176)
$ (11,867,522)
Shares issued for cash, net
Loss for the year
14,222,592
-
671,062
-
Balance, December 31, 2016
51,003,353
$ 13,165,615
$
-
-
-
$
Shares issued for cash, net
Shares issued to finder’s
Exercise of options
Debt settlements
Convertible debenture
Warrants issued with convertible debenture
Warrants issued to finder’s
Share-based compensation
Income for the year
167,884,824
11,568,033
1,050,000
5,082,164
-
-
-
-
-
5,565,702
410,586
96,662
457,395
-
-
-
-
-
2,675,622
-
-
-
-
166,764
322,188
-
-
-
-
-
-
-
-
-
15,388
-
-
-
-
-
-
-
(2,846,715)
671,062
(2,846,715)
$ 4,059,101
$ (31,267,891)
$ (14,043,175)
-
-
(38,912)
-
-
-
-
609,274
-
-
-
-
-
-
-
-
-
4,578,701
8,241,324
410,586
57,750
457,395
15,388
166,764
322,188
609,274
4,578,701
Balance, December 31, 2017
236,588,374
$ 19,695,960
$ 3,164,574
$ 15,388 $
4,629,463
$ (26,689,190)
$ 816,195
The accompanying notes are an integral part of these consolidated financial statements
7
BLACK DRAGON GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
1.
NATURE OF OPERATIONS AND GOING CONCERN
Black Dragon Gold Corp. (the “Company”) was incorporated under the laws of the Province of British Columbia on
August 20, 2007, and is classified as a junior mining issuer with the TSX Venture Exchange (“TSX-V”). The
Company’s head office address is Suite 545 – 999 Canada Place, Vancouver, British Columbia, V6C 3E1. The
registered and records office address is 2080 – 777 Hornby Street, Vancouver, British Columbia, V6Z 1S4.
These consolidated financial statements have been prepared assuming the Company will continue on a going-concern
basis. The Company has incurred losses since inception and the ability of the Company to continue as a going-concern
depends upon its ability to develop profitable operations and to continue to raise adequate financing. Management is
actively targeting sources of additional financing through alliances with financial, exploration and mining entities, or
other business and financial transactions which would assure continuation of the Company’s operations and
exploration programs. In order for the Company to meet its liabilities as they come due and to continue its operations,
the Company is solely dependent upon its ability to generate such financing. These material uncertainties may cast
significant doubt upon the Company’s ability to continue as a going concern.
There can be no assurance that the Company will be able to continue to raise funds, in which case the Company may
be unable to meet its obligations. Should the Company be unable to realize its assets and discharge its liabilities in
the normal course of business, the net realizable value of its assets may be materially less than the amounts recorded
in these financial statements.
The consolidated financial statements for the year ended December 31, 2017 do not include any adjustments relating
to the recoverability and classification of recorded asset amounts and classification of liabilities that might be
necessary should the Company be unable to continue in existence.
2.
SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
These consolidated financial statements for the year ended December 31, 2017 are prepared in accordance with
International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board
(“IASB”) and the International Financial Reporting Interpretations Committee (“IFRIC”).
The preparation of consolidated financial statements requires the use of certain critical accounting estimates and the
exercise of management’s judgment in applying the Company’s accounting policies. Areas involving a high degree of
judgment or complexity and areas where assumptions and estimates are significant to the Company’s consolidated
financial statements are discussed below.
The Company’s consolidated financial statements for the year ended December 31, 2017 have been prepared on a
historical cost basis except for certain financial instruments measured at fair value. In addition, these consolidated
financial statements have been prepared using the accrual basis of accounting except for cash flow information.
8
BLACK DRAGON GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
2.
SIGNIFICANT ACCOUNTING POLICIES (continued)
Use of estimates
The Company makes estimates and assumptions about the future that affect the reported amounts of assets and
liabilities. Estimates and judgments are continually evaluated based on historical experience and other factors,
including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual
experience may differ from these estimates and assumptions.
The effect of a change in an accounting estimate is recognized prospectively by including it in comprehensive income
in the period of the change, if the change affects that period only, or in the period of the change and future periods, if
the change affects both.
Significant assumptions about the future and other sources of estimation uncertainty that management has made at the
statement of financial position date, that could result in a material adjustment to the carrying amounts of assets and
liabilities, in the event that actual results differ from assumptions made, relate to, but are not limited to, the following:
Exploration and evaluation expenditures
The application of the Company’s accounting policy for exploration and evaluation expenditures requires judgment
in determining whether it is likely that future economic benefits will flow to the Company, which may be based on
assumptions about future events or circumstances. Estimates and assumptions made may change if new information
becomes available. If, after expenditures are capitalized, information becomes available suggesting that the recovery
of expenditures is unlikely, the amount capitalized is written off in the profit or loss in the period the new information
becomes available.
Share-based payment transactions
The Company measures the cost of equity-settled transactions with employees by reference to the fair value of the
equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions
requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the
grant. This estimate also requires determining the most appropriate inputs to the valuation model including the
expected life of the share option, volatility and dividend yield and making assumptions about them. The company also
makes estimates as to when performance conditions for stock options will be met.
The determination of whether or not the achievement of performance milestones for stock options likely requires
management to consider factors such as the likelihood of an employee or consultant remaining with the Company
until requisite performance is achieved as well as external factors such as government regulations, financial market
developments and industry trends which influence the milestones. Additionally, factors internal to the Company, such
as the financial and strategic support for the achievement of the milestone must be considered. This determination is
subject to significant judgment and changes to any of these factors or management’s interpretation thereof, may result
in expenses being recognized or previously recognized expense being reversed. The assumptions and models used for
estimating fair value for share-based payment transactions are discussed in Note 9.
Principles of consolidation
These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries,
including Exploraciones Mineras del Cantabrico S.L. (“EMC”). EMC is a mining company in Asturias, Spain. All
inter-company transactions and accounts have been eliminated upon consolidation.
9
BLACK DRAGON GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
2.
SIGNIFICANT ACCOUNTING POLICIES (continued)
Equipment
Equipment is recorded at cost less accumulated depreciation. Depreciation is provided annually over the estimated
useful life using the following methods:
Furniture and fixtures
Office equipment
Machinery
Vehicle
Exploration and evaluation assets
20% declining balance
30% declining balance
20% declining balance
30% declining balance
Upon acquiring the legal right to explore an exploration and evaluation asset, costs related to the acquisition,
exploration and evaluation are capitalized by property. If commercially profitable ore reserves are developed,
capitalized costs of the related exploration and evaluation assets are reclassified as mining assets and amortized using
the unit of production method. If, after management review, it is determined that capitalized acquisition, exploration
and evaluation costs are not recoverable, or the exploration and evaluation assets are abandoned, or management
deems there to be an impairment in value, the exploration and evaluation assets are written down to their net realizable
value.
Any option payments received by the Company from third parties or tax credits refunded to the Company are credited
to the capitalized cost of the exploration and evaluation assets. If payments received exceed the capitalized cost, the
excess is recognized as income in the year received. The amounts shown for exploration and evaluation assets do not
necessarily represent present or future values. Their recoverability is dependent upon the discovery of economically
recoverable reserves, the ability of the Company to obtain the necessary financing to complete the exploration and
evaluation, and future production or proceeds from the disposition thereof.
The Company considers its exploration and evaluation asset as a “qualifying asset” as defined by IAS 23, Borrowing
Costs. Borrowing costs include interest expense under the effective interest rate method, but exclude standby and
commitment fees, and are capitalized in proportion to the extent that the borrowed funds and subsequent related
expenditures are capitalized to the exploration and evaluation asset.
Impairment of tangible and intangible assets
Management evaluates non-current assets at least annually for indicators that carrying value is impaired and may not
be recoverable. When indicators of impairment are present the recoverable amount of an asset is evaluated at the level
of a cash generating unit (CGU), the smallest identifiable group of assets that generates cash inflows that are largely
independent of the cash inflows from other assets or groups of assets, where the recoverable amount of a CGU is the
greater of the CGU’s fair value less costs to sell and its value in use. An impairment loss is recognized in profit or loss
to the extent that the carrying amount exceeds the recoverable amount.
Reversal of impairment
An impairment loss is reversed if there is an indication that there has been a change in the estimates used to determine
the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not
exceed the carrying amount that would have been determined, net of depreciation, if no impairment loss had been
recognized. An impairment loss with respect to goodwill is never reversed.
10
BLACK DRAGON GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
2.
SIGNIFICANT ACCOUNTING POLICIES (continued)
Compound financial instruments
A compound financial instrument is a non-derivative financial instrument that contains both a liability and an equity
component. The Company accounted for its convertible debentures (Note 8) as compound financial instruments. The
conversion feature is treated as an equity component and accounted for in compliance with IAS 32 and IAS 39 relating
to initial recognition of compound financial instruments.
IAS 39 deals with the measurement of financial assets and liabilities. Equity instruments are instruments that evidence
a residual interest in the assets of an entity after deducting all of its liabilities. Therefore, when the initial carrying
amount of a compound financial instrument is allocated to its equity and liability components, the equity component
is assigned the residual amount after deducting from the fair value of the instrument as a whole the amount separately
determined for the liability component. The value of any derivative features embedded in the compound financial
instrument other than the equity component is included in the liability component.
The sum of the carrying amounts assigned to the liability and equity components on initial recognition is always equal
to the fair value that would be ascribed to the instrument as a whole. No gain or loss arises from initially recognizing
the components of the instrument separately.
The convertible debentures met the criteria to be accounted for as a compound instrument in accordance with IAS 32.
As such, the Company has first determined the carrying amount of the liability component by measuring the fair value
of a similar liability that does not have an associated equity component. The carrying amount of the equity instrument
represented by the conversion feature has then been determined by deducting the fair value of the financial liability
from the fair value of the compound financial instrument as a whole.
Decommissioning provisions
The Company recognizes the fair value of a liability for a decommissioning provision in the year in which it is incurred
when a reasonable estimate of fair value can be made. The carrying amount of the related long-lived asset is increased
by the same amount as the liability. The Company does not have any decommissioning provisions as at
December 31, 2017 and 2016.
11
BLACK DRAGON GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
2.
SIGNIFICANT ACCOUNTING POLICIES (continued)
Income taxes
Income tax is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in
which case it is recognized in equity. Current tax expense is the expected tax payable on the taxable income for the
year, using tax rates enacted or substantively enacted at period end, adjusted for amendments to tax payable with
regards to previous years.
Deferred tax is recorded by providing for temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are
not provided for: goodwill not deductible for tax purposes; the initial recognition of assets or liabilities that affect
neither accounting or taxable loss; and differences relating to investments in subsidiaries to the extent that they will
probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner
of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively
enacted at the statement of financial position date.
A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available
against which the asset can be utilized.
Additional income taxes that arise from the distribution of dividends are recognized at the same time as the liability
to pay the related dividend. Deferred tax assets and liabilities are offset when there is a legally enforceable right to
set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation
authority and the Company intends to settle its current tax assets and liabilities on a net basis.
Loss per share
Basic earnings (loss) per share is computed by dividing net earnings (loss) available to common shareholders by the
weighted average number of shares outstanding during the reporting year. Diluted earnings (loss) per share is
computed similar to basic earnings (loss) per share except that the weighted average shares outstanding are increased
to include additional shares for the assumed exercise of stock options and warrants, if dilutive. The number of
additional shares is calculated by assuming that outstanding stock options and warrants were exercised and that the
proceeds from such exercises were used to acquire common stock at the average market price during the reporting
years.
Share capital
Common shares are classified as equity. Transaction costs directly attributable to the issue of common shares and
share options are recognized as a deduction from equity. Common shares issued for consideration other than cash, are
valued based on their trading value at the date the shares are issued.
The Company has adopted a residual value method with respect to the measurement of shares and warrants issued as
private placement units. The residual value method first allocates value to the more easily measurable component
based on fair value and then the residual value, if any, to the less easily measurable component. The Company
considers the fair value of common shares issued in a unit private placement to be the more easily measurable
component. The balance, if any, is allocated to the attached warrants, except where there is a related flow-through
share premium, as detailed in the next paragraph. Any fair value attributed to the warrants is recorded as reserves.
12
BLACK DRAGON GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
2.
SIGNIFICANT ACCOUNTING POLICIES (continued)
Share-based compensation
Stock options and direct awards of stock granted to employees and other providing similar services are measured at
fair value on the date of grant and is recognized as an expense with a corresponding increase in reserves as the options
vest. Fair value is determined using the Black Scholes option pricing model taking into the terms and conditions upon
which the options were granted. The amount recognized as an expense is adjusted to reflect the actual number of share
options expected to vest. Each tranche in an award with graded vesting is considered a separate grant with a different
vesting date and fair value.
Options granted to non-employees are measured at their fair value of goods or series received, unless that fair value
cannot be estimated reliably, in which case the fair value of the equity instruments issued is used. The value of the
goods or services is recorded at the earlier of the vesting date, or the date the goods or services are received.
Consideration paid for the shares on the exercise of stock options is credited to share capital.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months or less
from the acquisition date that are subject to an insignificant risk of changes in their fair value.
Foreign currency translation
The functional currency is the currency of the primary economic environment in which the entity operates and has
been determined for each entity within the Company. The functional currency for the Company and its subsidiaries
is the Canadian dollar. The functional currency determinations were conducted through an analysis of the
consideration factors identified in IAS 21, The Effects of Changes in Foreign Exchange Rates.
Transactions in currencies other than the Canadian dollar are recorded at exchange rates prevailing on the dates of the
transactions. At the end of each reporting period, the monetary assets and liabilities of the Company that are
denominated in foreign currencies are translated at the rate of exchange at the financial position reporting date.
Revenues and expenses are translated at the exchange rates approximating those in effect on the date of the
transactions. Exchange gains and losses arising on translation are reflected in profit or loss for the period.
13
BLACK DRAGON GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
2.
SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial instruments
Financial assets
The Company classifies its financial assets into one of the following categories, depending on the purpose for which
the asset was acquired. The Company's accounting policy for each category is as follows:
Fair value through profit or loss - This category comprises derivatives, or assets acquired or incurred principally for
the purpose of selling or repurchasing it in the near term. They are carried in the statement of financial position at fair
value with changes in fair value recognized through profit or loss.
Loans and receivables - These assets are non-derivative financial assets with fixed or determinable payments that are
not quoted in an active market. They are carried at amortized cost less any provision for impairment. Individually
significant receivables are considered for impairment when they are past due or when other objective evidence is
received that a specific counterparty will default.
Held-to-maturity investments - These assets are non-derivative financial assets with fixed or determinable payments
and fixed maturities that the Company's management has the positive intention and ability to hold to maturity. These
assets are measured at amortized cost using the effective interest method. If there is objective evidence that the
investment is impaired, determined by reference to external credit ratings and other relevant indicators, the financial
asset is measured at the present value of estimated future cash flows. Any changes to the carrying amount of the
investment, including impairment losses, are recognized through profit or loss.
Available-for-sale - Non-derivative financial assets not included in the above categories are classified as available-
for- sale. They are carried at fair value with changes in fair value recognized directly in equity. Where a decline in the
fair value of an available-for-sale financial asset constitutes objective evidence of impairment, the amount of the loss
is removed from equity and recognized through other comprehensive income (loss).
All financial assets except for those at fair value through profit or loss are subject to review for impairment at least at
each reporting date. Financial assets are impaired when there is any objective evidence that a financial asset or a group
of financial assets is impaired. Different criteria to determine impairment are applied for each category of financial
assets, which are described above.
The Company has classified its cash and equivalents at fair value through profit and loss. The Company’s receivables
and deposits are classified as loans and receivables.
14
BLACK DRAGON GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
2.
SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial instruments (continued)
Financial liabilities
The Company classifies its financial liabilities into one of two categories, depending on the purpose for which the
asset was acquired. The Company's accounting policy for each category is as follows:
Fair value through profit or loss - This category comprises derivatives, or liabilities acquired or incurred principally
for the purpose of selling or repurchasing it in the near term. They are carried in the statement of financial position at
fair value with changes in fair value recognized through profit or loss.
Other financial liabilities: This category consists of liabilities carried at amortized cost using the effective interest
method.
The Company’s accounts payable and accrued liabilities, interest payable, convertible debenture and loan facility are
classified as other financial liabilities.
Accounting standards and interpretations issued but not yet applied
As at the date of these financial statements, the following standards have not been applied in these financial statements:
(i) IFRS 9 – New standard that replaced IAS 39 for classification and measurement, effective for annual
periods beginning on or after January 1, 2018.
(ii) IFRS 15 - New standard to establish principles for reporting the nature, amount, timing, and uncertainty
of revenue and cash flows arising from an entity’s contracts with customers, effective for annual periods
beginning on or after January 1, 2018.
(iii) IFRS 16 – New standard to establish principles for recognition, measurement, presentation and disclosure
of leases with an impact on lessee accounting, effective for annual periods beginning on or after
January 1, 2019.
Management has assessed the impact of these new standards on the Company’s accounting policies and financial
statement presentation and applied the standards effective on or after January 1, 2018. Management does not expect
these standards will have a significant impact on the measurement or presentation of balances or transactions as
reported in these financial statements.
15
BLACK DRAGON GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
3.
RECEIVABLES
Value-added tax receivable
GST receivable
Other
Total
4.
EQUIPMENT
Cost
December 31,
2017
December
31,
2016
$
$
38,719
29,183
2,050
15,529
18,790
-
$
69,952
$
34,319
Office
equipment
Total
Balance, December 31, 2015
$ 1,359
$ 1,359
Additions
-
-
Balance, December 31, 2016
$ 1,359
$ 1,359
Additions
-
-
Balance, December 31, 2017
$ 1,359
$ 1,359
Accumulated depreciation
Balance, December 31, 2015
Depreciation for the year
$ 18
360
$ 18
360
Balance, December 31, 2016
$ 378
$ 378
Depreciation for the year
296
296
Balance, December 31, 2017
$ 674
$ 674
Carrying amounts
As at December 31, 2016
As at December 31, 2017
$ 981
$ 685
$ 981
$ 685
16
BLACK DRAGON GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
5.
EXPLORATION AND EVALUATION ASSETS
Acquisition costs
Exploration and evaluation costs
Impairment
Total exploration and evaluation assets
Salave Gold Property
December 31,
2017
December 31,
2016
$
$
-
-
-
-
$
5,536,947
8,872,546
(14,409,493)
$
-
In April 2010, the Company completed the acquisition of a 100% interest in the Salave property located in the province
of Asturias, Spain. The Salave property is comprised of several mineral concessions and an investigation permit. There
is contingent consideration of €20,000,000 due to the vendor for the acquisition of the Salave property if certain
permits are received to operate an open pit mine.
The Salave property is also subject to a pre-existing lease termination agreement which calls for five cash payments
of US$5,000,000 each with the first payment due when certain permits to construct and operate an open pit mine are
received, the second on commencement of commercial production and the remaining three payments based on certain
production levels with the final payment due after 800,000 ounces have been produced. Pursuant to the lease
termination amending agreement, at the option of the Company and subject to regulatory approval, any of these
payments can be satisfied in whole by the issuance of common shares of the Company.
After 800,000 ounces of gold have been produced, the Salave property is also subject to a 5% net smelter return royalty
(“NSR”), half of which can be purchased by the Company for a cash payment of US $5,000,000.
During 2005, the regional government of Asturias, Spain halted open-pit project development of the Salave property
due to the introduction of certain zoning legislation and the rejection of a specific authorization for mining of the
property. Immediately thereafter, a legal proceeding was commenced by EMC and the former owners of EMC against
the government seeking the reversal of the decision to halt open-pit project development. This legal proceeding was
not successful and, accordingly, the Company`s development plans for the Salave property changed from an open pit
to an underground operation. The consequence of this development plan is that the contingent consideration will not
be payable.
During the fourth quarter of fiscal 2014, the Company received a negative decision on the Amended Environmental
Impact Assessment from the Commission for Environmental Affairs of the Principality of Asturias for the Company's
current development proposal of the Salave property. As a result of this decision, the Company impaired all of its
acquisition costs and exploration and evaluation costs for the year ended December 31, 2014.
During April 2015, the Company filed a lawsuit before the Asturias Court of Justice challenging the decision to reject
approval of a proposed underground mine operation for the Salave project. The initial legal action sought to challenge
this ruling. In conjunction with this legal action, the Company filed a statement of claim (the “Claim”) against the
Ministry of Economy and Employment of the Principality of Asturias (the “Ministry”) in November 2015. The Claim
sought to recover Euro 8.59 million of expenditures incurred on the Salave property since 2010 when the Company
acquired the property.
During fiscal 2016, the Company’s claim was rejected by the Asturias Court of Justice. While the Company initially
filed an appeal, current management rescinded this appeal and intends to work closely with the Spanish government
to develop a feasibility study that meets the requirements of the Spanish government.
17
BLACK DRAGON GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
6.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payables
Accrued liabilities
Due to related parties (Note 11)
Total
7.
LOAN FACILITY
Loan facility borrowings, beginning of year
Loan facility borrowings made during the year
Foreign exchange
Settlement
Loan facility borrowings, end of year
Loan transaction costs, beginning of year
Loan transaction costs accreted during the year
Loan transaction costs, end of year
Loan facility balance, end of year
2017
2016
$
$
411,144
275,943
114,770
526,464
396,725
970,089
$
801,857
$ 1,893,278
2017
2016
$ 10,498,919
-
(358,868)
(10,140,051)
-
$
$ 10,472,288
305,020
(278,389)
-
$ 10,498,919
$
$
$
-
-
-
-
$
(377,975)
377,975
$
-
$ 10,498,919
In June 2013, the Company, through their subsidiary, EMC, closed an agreement for a $10,000,000 loan facility
(“Facility”) to be provided by RMB Australia Holdings Limited (“RMB”), the lender. On August 8, 2013, the Facility
was amended to convert all amounts owing and future borrowings from Canadian dollars to US dollars. Previously
drawn Canadian dollar amounts were converted to their US dollar equivalents. The total value of the loan facility
available to the Company was converted to US$10,000,000. During the year ended December 31, 2017, the Company
recorded $540,011 (2016 - $740,686) in interest expense. The facility accrues interest at LIBOR plus 6% per annum.
As of July 6, 2017, $10,140,051 (December 31, 2016 - $10,498,919) had been drawn and $2,255,287
(December 31, 2016 - $1,794,016) of interest was payable.
The repayment of principal and interest, originally due June 2016, was extended to July 6, 2017.
On July 6, 2017, the Company settled the RMB loan facility, including accrued interest, for cash consideration of
$4,493,966 and the granting by the Company to RMB of a 2% net smelter return royalty on the first 800,000 ounces
of gold production from the Salave property.
As a result, during the year ended December 31, 2017, the Company recorded a gain on settlement of debt totalling
$7,901,372.
18
BLACK DRAGON GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
8.
CONVERTIBLE DEBENTURE
During April 2017, the Company issued unsecured convertible debentures with a total principal amount of $251,000,
bearing interest at the rate of 15% per annum. The debentures will mature and be repayable on or before
April 18, 2019. The debentures are convertible into common shares of the Company at a conversion price $0.055 per
share until April 18, 2018, and $0.10 per share thereafter until April 18, 2019. For each $1,000 in principal amount of
debentures, 18,181 common share purchase warrants were issued. Each warrant entitles the holder to acquire one
additional common share of the company at a price of $0.11 per common share for a period of 24 months. If, during
this 24-month period, the volume-weighted average price of the Company’s common shares is at least $0.22 for a
period of seven consecutive trading days, the Company may, at its option, accelerate the expiry date of the warrants
by issuing a news release or giving written notice thereof to all holders of the warrants, and, in such case, the warrants
will expire on the earlier of: (i) the 30th day after the date on which the news release or written notice is provided by
the Company; and (ii) the original expiry date. In connection with the issuance of the debentures, the holders thereof
will be granted a right to nominate a member for election to the Company's board of directors at any meeting of
shareholders where directors are to be elected, provided such nominee is acceptable to regulatory authorities, for so
long as the debentures are outstanding.
Pursuant to a service agreement dated July 11, 2016, and previously approved by the TSX-V, Lionsbridge Capital Pty.
Ltd., a company owned and controlled by Brian S. Wesson, former chief executive officer, B. Clyde Wesson, former
chief operating officer, and Amelia Wesson, former vice-president, received a finder's fee of 570,454 common shares,
valued at $25,671, in connection with the closing of the debentures. The fair value of the warrants issued is $166,764
determined using the Black Scholes option pricing model and recorded the amounts as share-based compensation
during the year ended December 31, 2017.
Upon initial recognition, the Company allocated the proceeds, net of transaction costs (which totaled $25,671),
between the debt and equity components and recorded accretion on the liability component of $6,259 (2016 - $Nil)
during the year ended December 31, 2017.
Liability component
Fair value
Carrying value
Balance, December 31, 2016 and 2015
Issuance of convertible debentures, net
Accretion
$ -
251,000
-
$ -
- 209,941
6,259
Equity component
Fair value
$ -
- 15,388
-
Balance, December 31, 2017
$ 251,000
$ 216,200
$ 15,388
The fair value of the liability component was calculated by discounting the future principal and interest payments
using a discount rate of 18%, with the residual value allocated to the equity component. The discount rate was based
on comparable instruments without a conversion feature. Transaction costs were allocated on a pro-rata basis based
on the values assigned to the components.
Subsequent to the initial recognition, the convertible loan is carried at amortized cost and is amortized to its principal
amount. As at December 31, 2017, $28,057 (December 31, 2016 - $Nil) in accrued interest was included in accounts
payable and accrued liabilities.
19
BLACK DRAGON GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
9.
SHARE CAPITAL AND RESERVES
Authorized:
Unlimited number of common shares without par value.
Issued
On October 25, 2017, the Company issued 11,000,000 units at $0.09 per unit for proceeds totaling $990,000, in
conjunction with the closing of a non-brokered private placement. Each unit is comprised of one common share of
the Company and one share purchase warrant. Each warrant enables the holder to acquire one common share at the
price of $0.20 per share until December 31, 2019. The Company paid cash issuance costs of $5,700.
On October 11, 2017, the Company issued 4,508,365 common shares and 573,799 units in conjunction with the
settlement of $323,988 of debt. The fair value of the 4,508,365 common shares and 573,799 units issued was $457,395,
or $0.09 both per common share and per unit, resulting in a loss on settlement of $133,407. Each unit is comprised of
one common share and one share purchase warrant. Each warrant enables the holder to acquire one common share at
an exercise price of $0.20 per share, until October 11, 2019. There was no residual value allocated to the warrants of
the units issued.
On October 10, 2017, the Company received proceeds of $57,750 in conjunction with the exercise of 1,050,000 stock
options. In addition $38,912 representing the fair value of the options on initial vesting was re-allocated from reserves
to share capital.
On June 30, 2017, the Company issued 155,549,824 units at $0.055 per unit for gross proceeds of $8,555,240 in
conjunction with the closing of a non-brokered private placement. Each unit is comprised of one common share and
one share purchase warrant. Each warrant enables the holder to acquire one common share at an exercise price of
$0.11 per share, until June 30, 2019. A residual value of $2,333,247 was allocated to the warrants and $6,221,993 to
the common shares.
Finders’ fees paid in conjunction with this private placement were comprised of cash payments totalling $662,485,
the issuance of 10,997,579 shares valued at $384,915 and the issuance of 9,664,589 share purchase warrants valued
at $322,188, of which 1,664,589 warrants are exercisable for two years and of which 8,000,000 warrants are
exercisable for four years, all with the same terms as those attached to the unit warrants.
On May 1, 2017, the Company issued 570,000 units at $0.055 per unit for gross proceeds of $31,350 in conjunction
with the closing of a tranche of a non-brokered private placement. Each unit is comprised of one common share and
one share purchase warrant. Each warrant enables the holder to acquire one common share at an exercise price of
$0.11 per share, until May 1, 2019. If, during the warrant term, the closing price of the Company’s common shares is
at least $0.22 for a period of twenty consecutive trading days, the Company may, at its option, accelerate the expiry
date of the warrants by issuing a news release or giving written notice thereof all holders of warrants, and in such case,
the warrants will expire on the earlier of the 30th day after the date on which the news release or written notice is
disseminated by the Company, and the original expiry date. The Company paid cash issuance costs of $915.
During March, 2017, the Company issued 765,000 units at $0.055 per unit for gross proceeds of $42,075 in
conjunction with the closing of two tranches of a non-brokered private placement. Each unit is comprised of one
common share and one share purchase warrant. Each warrant enables the holder to acquire one common share at an
exercise price of $0.11 per share, expiring between March 28 and March 29, 2019. If, during the warrant term, the
closing price of the Company’s common shares is at least $0.22 for a period of twenty consecutive trading days, the
Company may, at its option, accelerate the expiry date of the warrants by issuing a news release or giving written
notice thereof all holders of warrants, and in such case, the warrants will expire on the earlier of the 30th day after the
date on which the news release or written notice is disseminated by the Company, and the original expiry date. The
Company paid cash issuance costs of $1,137.
20
BLACK DRAGON GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
9.
SHARE CAPITAL AND RESERVES (continued)
Issued (continued)
During December 2016, the Company issued 3,940,000 units for gross proceeds of $216,700 in conjunction with the
closing of two tranches of a non-brokered private placement. Each unit is comprised of one common share and one
share purchase warrant. Each warrant enables the holder to acquire one common share with an exercise price of $0.11
per share, expiring between December 6 and December 22, 2018. If, during the warrant term, the closing price of the
Company’s common shares is at least $0.22 for a period of twenty consecutive trading days, the Company may, at its
option, accelerate the expiry date of the warrants by issuing a news release or giving written notice thereof all holders
of warrants, and in such case, the warrants will expire on the earlier of the 30th day after the date on which the news
release or written notice is disseminated by the Company, and the original expiry date. The Company paid a finder’s
fee of $660.
During August 2016, the Company issued 10,282,592 units for gross proceeds of $514,130 in conjunction with a non-
brokered private placement. Each unit is comprised of one common share and one share purchase warrant. Each
warrant enables the holder to acquire one common share with an exercise price of $0.07 per share, expiring
August 12, 2018. If, during the warrant term, the closing price of the Company’s common shares is at least $0.20 for
a period of twenty consecutive trading days, the Company may, at its option, accelerate the expiry date of the warrants
by issuing a news release or giving written notice thereof all holders of warrants, and in such case, the warrants will
expire on the earlier of the 30th day after the date on which the news release or written notice is disseminated by the
Company, and the original expiry date. A cash finder’s fee of $37,500 was paid to Lionsbridge Pty Ltd., a company
controlled by the Company’s former CEO. In addition, the Company paid cash issuance costs of $21,608.
Warrants
Outstanding, December 31, 2015
Issued
Expired
Outstanding, December 31, 2016
Issued
Outstanding, December 31, 2017
Number
of Warrants
Weighted
Average
Exercise
Price
5,000,000
14,222,592
(5,000,000)
$ 0.62
0.08
0.62
14,522,592
0.08
182,686,643
0.12
196,909,235
$ 0.11
21
BLACK DRAGON GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
9.
SHARE CAPITAL AND RESERVES (continued)
A summary of the number of common shares reserved pursuant to the Company’s warrants outstanding as at
December 31, 2017 is as follows:
Expiry date
August 12, 2018
December 6, 2018
December 7, 2018
December 22, 2018
March 28, 2019
March 29, 2019
April 18, 2019
May 1, 2019
June 30, 2019
October 11, 2019
December 31, 2019
June 30, 2021
Total
Number
10,282,592
1,410,000
900,000
1,630,000
400,000
365,000
4,563,431
570,000
157,214,413
573,799
11,000,000
8,000,000
196,909,235
Exercise Price
0.07
0.11
0.11
0.11
0.11
0.11
0.11
0.11
0.11
0.11
0.20
0.11
The fair value for share purchase warrants issued have been estimated using the Black-Scholes option pricing model
using the following weighted average assumptions:
Risk-free interest rate
Expected life (in years)
Expected volatility
Expected dividend rate
Fair value
2017
2016
0.96%
2.00
219.89%
0.00%
$0.03
-
-
-
-
-
22
BLACK DRAGON GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
9.
SHARE CAPITAL AND RESERVES (continued)
Stock options
The Company has a stock option plan under which it is authorized to grant options to directors, employees and
consultants, to acquire up to 10% of the issued and outstanding common stock. The exercise price of each option is
based on the market price of the Company’s stock at the date of grant. The options can be granted for a maximum
term of 10 years and vest as determined by the board of directors.
A summary of the status of the Company’s stock options as at December 31, 2017 and 2016 is as follows:
Outstanding, December 31, 2015
Expired / forfeited
Outstanding, December 31, 2016
Granted
Exercised
Expired
Cancelled
Outstanding, December 31, 2017
Weighted
Average
Exercise
Price
Number
of Options
3,335,000
(1,470,000)
$ 0.54
0.72
1,865,000
0.40
21,630,000
(1,050,000)
(1,665,000)
(800,000)
0.08
0.06
0.39
0.06
19,980,000
$ 0.08
Stock options exercisable, December 31, 2017
780,000
$ 0.14
A summary of the number of common shares reserved pursuant to the Company’s options outstanding as at
December 31, 2017 is as follows:
Expiry date
March 19, 20181
February 22, 2019
September 24, 2027
September 24, 2027
September 24, 2027
September 24, 2027
October 22, 2027
October 22, 2027
Total
1These options expired unexercised subsequent to year end.
Number
of Options
200,000
580,000
7,180,000
3,590,000
3,590,000
3,590,000
500,000
750,000
19,980,000
Number Exercisable Exercise Price
200,000
580,000
-
-
-
-
-
-
780,000
0.40
0.055
0.08
0.11
0.11
0.15
0.08
0.08
During the year ended December 31, 2017, the Company recognized $776,038 (2016 - $Nil) of share-based
compensation expense.
23
BLACK DRAGON GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
9.
SHARE CAPITAL AND RESERVES (continued)
Stock options (continued)
On February 23, 2017, the Company granted 2,430,000 stock options to directors, officers, and consultants of the
Company. The options are exercisable for a period of two years at a price of $0.055 per share. The options vested
immediately upon grant.
On September 25, 2017, the Company granted 17,950,000 stock options to directors of the Company. These options
vest upon achievement of certain performance conditions and expire at the earlier of: i) three years from the date each
milestone is obtained, or ii) ten years from the date of grant being September 24, 2027. 40% will vest upon receipt of
a drilling permit for the Salave Gold project; or if a previous permit is deemed to be still active, upon commencement
of a drilling program, exercisable at a price of $0.08 per share. 20% will vest upon completion of an equity financing
of minimum $1,000,000 in North America, exercisable at a price of $0.11 per share. 20% will vest upon
commencement of trading of the Company’s shares on the Australia Stock Exchange, exercisable at a price of $0.11
per share. 20% will vest upon completion of a Preliminary Economic Assessment Study or a Scoping Study on the
Salave Gold Project, exercisable at a price of $0.15 per share. As at December 31, 2017, none of the milestones have
been achieved.
On October 23, 2017, the Company granted 1,250,000 stock options to an employee of the Company exercisable at a
price of $0.08 per share. These options vest upon achievement of certain performance conditions and expire at the
earlier of: i) five years from the date each milestone is obtained, or ii) ten years from the date of grant being
October 22, 2027. 40% will vest upon completion of 1,000m of drilling at the Salave Gold Project and 60% will vest
upon completion of a Joint Ore Reserves Committee Report on exploration results, mineral resources and ore reserves
or National Instrument 43-101 Preliminary Economic Assessment or Scoping Study on the Salave Gold Project. As at
December 31, 2017, none of the milestones have been achieved.
The Company did not grant any stock options during the year ended December 31, 2016.
EPS and diluted EPS
Basic EPS is calculated by dividing the net income (loss) for the year by the weighted average number of common
shares outstanding during the year.
Diluted EPS is determined by dividing the profit or loss attributable to common shareholders by the weighted average
number of common shares outstanding, adjusted for the effects of all potential dilutive common shares related to
stock options, warrants, and convertible debentures issued by the Company.
2017
2016
Net income (loss) attributable to common shareholders
Weighted average number of common shares - basic
Weighted average number of common shares - diluted
Basic earnings (loss) per common share - basic
Basic earnings (loss) per common share - diluted
$ 4,578,701
139,707,185
144,361,872
0.03
0.03
$
$
$ (2,846,715)
41,113,521
41,113,521
$ (0.07)
$ (0.07)
The Company’s stock options and convertible debentures had a dilutive effect during the year ended
December 31, 2017.
24
BLACK DRAGON GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
10.
SUPPLEMENTAL DISCLOSURES WITH RESPECT TO CASH FLOWS
During the years ended December 31, 2017 and 2016, the Company incurred the following non-cash transactions that
are not reflected in the statements of cash flows:
Residual value of unit warrants
Fair value of finder’s warrants
Fair value of warrants issued with convertible debentures
2017
2016
$ 2,675,622
$ 322,188
166,764
$
$ -
$ -
$ -
11.
RELATED PARTY TRANSACTIONS
The Company considers personnel with the authority and responsibility for planning, directing and controlling the
activities of the Company to be key management personnel.
Transactions with key management personnel
The following amounts were incurred with respect to the President and Chief Executive Officer, a Director, the
Chief Operating Officer and the Chief Financial Officer of the Company:
Management fees – current Chief Executive Officer
Management fees – former management
Severance – former management
Directors’ fees – current directors
Directors’ fees – former directors
Professional fees – former Chief Financial Officer
Severance – former Chief Financial Officer
Share-based compensation
2017
158,951
615,028
300,000
94,282
45,000
144,000
36,000
585,114
1,978,375
$
$
2016
-
636,039
195,900
-
-
43,500
-
875,439
$
$
There is $114,770 (2016 - $970,089) in accounts payable and accrued liabilities at December 31, 2017 that is due to
former directors, officers and companies controlled by directors or officers or a former director or officer of the
Company.
25
BLACK DRAGON GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
12.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Fair value
The inputs used in making fair value measurements are classified within a hierarchy that prioritizes their significance.
The three levels of the fair value hierarchy are:
Level 1 – Unadjusted quoted prices in active markets for identical assets and liabilities;
Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or
indirectly; and
Level 3 – Inputs that are not based on observable market data.
The carrying value of receivables and accounts payable and accrued liabilities and loan facility approximated their
fair value because of the short-term nature of these instruments. Cash is measured at fair value using Level 1 inputs.
The carrying value of deposits also approximates its fair value.
Financial instruments measured at fair value on the consolidated statements of financial position are summarized in
levels of fair value hierarchy as follows:
Assets
Level 1
Level 2
Level 3
Total
Cash and equivalents
$ 1,753,221 $
- $
- $
1,753,221
The Company has exposure to the following risks from its use of financial instruments:
Credit risk
Credit risk is the risk of loss associated with a counterparty’s inability to fulfill its payment obligations. The
Company’s cash is held at large financial institutions and it believes it has no significant credit risk.
Liquidity risk
Liquidity risk is the risk that the Company will not meet its financial obligations as they fall due. The Company
manages its liquidity risk by forecasting cash flows from operations, and anticipating investing and financing
activities. As at December 31, 2017, the Company had current assets of $1,832,327 to settle current liabilities of
$801,857 which either have contractual maturities of less than 30 days and are subject to normal trade terms or are
due on demand.
Market risk
Market risk is the risk of loss that may arise from changes in market factors, such as interest rates and foreign exchange
rates.
a) Interest rate risk
Interest rate risk is the risk due to variability of interest rates. The Company is exposed to interest rate risk on its bank
account. The income earned on the bank account is subject to the movements in interest rates. The Company has cash
balances and no-interest bearing debt, therefore, interest rate risk is nominal.
26
BLACK DRAGON GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
12.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)
b) Foreign currency risk
The Company’s functional currency is the Canadian dollar and major purchases are transacted in Canadian dollars.
The Company funds certain operations, exploration and administrative expenses in Spain by using Euros converted
from its Canadian bank accounts. Management believes the foreign exchange risk derived from currency conversions
is negligible and therefore does not hedge its foreign exchange risk. Based on the Company’s Euro denominated
financial instruments at December 31, 2017, a 10% change in exchange rates between the Canadian dollar and the
Euro would result in a $35,302 change in foreign exchange gain or loss.
13.
CAPITAL MANAGEMENT
The Company’s capital structure consists of shareholders’ equity and a loan facility agreement (see Note 7). The
Company’s objective when managing capital is to maintain adequate levels of funding to support the development of
its business and maintain the necessary corporate and administrative functions to facilitate these activities. This is
done primarily through equity financing, selling assets, and incurring debt. Future financings are dependent on market
conditions and there can be no assurance the Company will be able to raise funds in the future. The Company invests
all capital that is surplus to its immediate operational needs in short-term, high liquid, high-grade financial instruments.
There were no changes to the Company’s approach to capital management during the year. The Company will need
to raise additional capital by obtaining equity financing, selling assets and incurring debt to develop its business.
14.
SEGMENTED INFORMATION
The Company primarily operates in one reportable operating segment, being the acquisition, exploration of exploration
and evaluation assets located in Spain. Geographic information is as follows:
December 31, 2017
Canada
Spain
December 31, 2016
Canada
Spain
Deposits
Equipment
Total
$
$
$
$
1,240 $
-
685 $
-
1,925
-
1,240 $
685 $
1,925
1,240 $
-
981 $
-
2,221
-
1,240 $
981 $
2,221
27
BLACK DRAGON GOLD CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
15.
INCOME TAXES
A reconciliation of income taxes at statutory rates with the reported taxes is as follows:
Gain (Loss) for the year
Expected income tax recovery (26%)
Change in statutory, foreign tax, foreign exchange rates and other
Share issuance costs
Permanent differences
Adjustment to prior year tax provision versus statutory tax returns
Change in unrecognized deductible temporary differences
Total income tax expense (recovery)
2017
2016
$
$
4,578,701 $
(2,846,715)
1,190,000 $
(853,000)
(174,000)
145,000
(572,000)
264,000
(741,000)
637,000
(16,000)
(42,000)
154,000
8,000
$
- $
-
In September 2017, the British Columbia (BC) Government proposed changes to the general corporate income tax
rate to increase the rate from 11% to 12% effective January 1, 2018 and onwards. This change in tax rate was
substantively enacted on October 26, 2017. The relevant deferred tax balances have been remeasured to reflect the
increase in the Company's combined Federal and Provincial (BC) general corporate income tax rate from 26% to 27%.
The significant components of the Company's temporary differences and tax losses that have not been recognized on
the consolidated statements of financial position are as follows:
Temporary Differences
Exploration and evaluation assets
Share issue costs and other
Non-capital losses available
for future period
2017
Expiry Date
Range
2016
Expiry Date
Range
$ 19,017,000 No expiry date $ 17,923,000 No expiry date
325,000 2037 to 2040
705,000 2038 to 2041
11,769,000
2023 to no
expiry
14,105,000
2027 to 2036
Tax attributes are subject to review and potential adjustment by tax authorities.
16.
SUBSEQUENT EVENTS
Subsequent to year end, the Company granted 1,000,000 incentive stock options to an officer. These options vest upon
achievement of certain performance conditions and expire at the earlier of: i) three years from the date the milestone
is obtained, or ii) ten years from the date of grant being February 7, 2028. 100% of the options will vest upon
commencement of trading of the Company’s shares on the Australia Stock Exchange, exercisable at a price of $0.11
per share.
Subsequent to December 31, 2107 the Company received a demand letter claiming total debt of approximately
US$50,000 was due by the Company to the claimant in connection with transactions occurring prior to
December 31, 2017. The Company intends to defend the allegations set out in the demand letter vigorously and
believes the claim to be without merit. However, any adverse decision in resolving these proceedings could have an
adverse effect on the Company.
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