ANNUAL REPORT 2013
X-TERRA RESOURCES CORPORATION
(an exploration stage company)
(the “Corporation” or “X-Terra”)
MANAGEMENT DISCUSSION AND ANALYSIS
(“MD&A”)
FOR THE YEAR ENDED DECEMBER 31, 2013
(the “Period”)
The following MD&A of X-Terra’s operating results and financial position follows regulation 51-102 respecting
Continuous Disclosure Obligations for reporting issuers. It is a complement and supplement to the Corporation’s
consolidated financial statements and related notes for the year ended December 31, 2013 and should be read in
conjunction with the audited consolidated financial statements for the year ended December 31, 2013 and the related notes
thereto. The Corporation prepares its financial statements in accordance with International Financial Reporting Standards
(“IFRS”), The audited consolidated financial statements for the year ended December 31, 2013 have been prepared in
accordance with IFRS applicable to the preparation of financial statements, including comparative figures. Unless
otherwise indicated, all amounts in this MD&A are in Canadian dollars. Management is responsible for the preparation of
the consolidated financial statements and other financial information relating to the Corporation included in this report.
The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial reporting. In
furtherance of the foregoing, the Board has appointed an Audit Committee composed of four directors, three of whom are
independent and not members of management. The Committee meets with management and the auditors in order to
discuss results of operations and the financial condition of the Corporation prior to making recommendations and
submitting the financial statements to the Board of Directors for its consideration and approval for issuance to
shareholders. On the recommendation of the Audit Committee, the Board of Directors has approved the Corporation’s
financial statements.
DATE
This MD&A is prepared as of April 28, 2014.
OVERALL PERFORMANCE
Description of Business
X-Terra, an exploration stage company, is in the business of acquiring, exploring and developing mining properties. It has
interests in graphite and rare earths properties as well as an important portfolio of shales gas licenses at the exploration
stage located in the province of Quebec in Canada. In October 2013, the Corporation entered into a letter of intent
(amended on November 29, 2013 and March 4, 2014, see press release March 5, 2014) with an arm’s-length Toronto-
based private company called Norvista Capital Corporation (“Norvista Capital”), for a reverse take-over of X-Terra and
the “spin-out” of X-Terra’s resource properties in a new public company. The letter of intent provides that X-Terra will
amalgamate or otherwise combine with the Toronto-based company and become a natural resources merchant bank. At the
same time, X-Terra will transfer all of its resource properties and all of its liabilities to a new company, and distribute the
shares of the new company to X-Terra’s shareholders. As a result, at the closing of the proposed transaction, X-Terra’s
shareholders will become shareholders of a new natural resources merchant bank and shareholders of a new company
which will carry on X-Terra’s current natural resource business (see details of the transaction in the Subsequent Event
section of this MD&A).
The Corporation capitalizes property acquisition and exploration expenses relating to mineral and oil and gas properties in
which it has an active interest. In the event that such properties become inactive or prove uneconomic, they are written-off.
Any reference in this document to “properties” means any mining resources and oil and gas properties in which the
Corporation has earned or in the future may earn an interest.
The Corporation is a reporting issuer in British Columbia, Alberta, Manitoba and Ontario and is traded on the TSX
Venture Exchange (“TSX-V”), under the symbol XT. It also trades on the Frankfurt, Munich and Berlin Exchanges in
Europe under the symbol DFUA.
1
PROPERTIES
1. Mining Properties
Lindsay Property (25 claims)
The 100% owned Lindsay rare earth elements (REE) project is located approximately 125 kilometres south of Rouyn-
Noranda, Quebec and 70 kilometres east-northeast of North Bay, Ontario, along the provincial border, halfway between
the Elliot Lake uranium camp and the Abitibi gold belt, within the Grenville front. The project consists of 25 unpatented
mining claims (1,534 hectares) in the Villedieu Township.
The property is underlaid by gneiss derived from a mature sequence of detrital and chemical metasedimentary rocks called
the Kipawa formation that has been metamorphosed to upper amphibolite facies (Rive 1973b). The Kipawa alkaline
intrusive complex is situated immediately north of the property and this plutonic mass could extend to the south of the
property. The composition and texture of the complex is heterogeneous. Three principal internal units are present: a
syenitic-monzonite facies; a banded mafic gneiss facies; and a peralkaline granite facies. The discovery of uranium and
gold mineralization at Hunter’s Point in 1957 increased uranium exploration in the Kipawa region. In addition, a till
sampling survey was conducted by Aurizon Mines in the regions considered most favourable for gold mineralization. This
survey has defined four trends of gold dispersion utilizing the analysis of heavy mineral concentrates. The northeast
dispersion trend of gold in heavy mineral concentrate is located immediately to the northwest of the property and is
evident along the length of a major geological structure in a northwest direction that covers the property at its centre. The
heavy mineral concentrates have yielded analyses of more than 0.1 g/t of gold in 27% of samples, including analyses of
1.3 g/t and 2.0 g/t of gold. In April 2012, Fieldex Exploration reports encouraging rare earth results on their Lac Sairs
project, they drilled 19.55 metres of 1.10% TREO+Y2O3 north of the Lindsay property. In 2010, a total of three diamond
drill holes totaling 358 metres have been done on the Lindsay property. More than 110 samples were sent to a lab for
assaying; however, no economic results were obtained from this drilling campaign. The Corporation has completed a
National Instrument 43-101 technical report on its Lindsay rare earth property in Kipawa. The Lindsay project is a mid-
stage exploration project with historical uranium and rare-earth-elements occurrences and economic potential for these
commodities. Area participants, like Matamec Explorations and Fieldex Exploration continue to make progress confirming
the potential for other significant discoveries in the Kipawa alcalin complex.
Sheldon Property (76 claims - Graphite)
In today’s world graphite is a critical, strategic material and X-Terra’s management believes that the Corporation should
be involved in this very interesting mineral for these specific reasons:
Importance will grow with green technologies;
•
• Up to 10 times more graphite in a li-ion battery than lithium;
• Demand will outstrip supply;
•
• There is the electronics market, nuclear energy as well as Graphene; and
• Alternative exploration to the indefinite shale gas moratorium imposed by the Quebec provincial government.
Just for one market – EV cars – demand by 2020 will require more than is produced globally today;
X-Terra acquired by designation on the Quebec Government platform GESTIM, 76 mining claims totaling 43 square
kilometres located in the Gaspesia area, west of the former “Federal Mine” (Lead-Zinc-Silver) and north of the city of
Chandler (Province of Quebec).
It is estimated that the world reserves of graphite exceed 800 million tons. China is the most significant graphite-producing
nation, providing nearly one-half of the United States’ annual graphite demand. Flake graphite is also imported to the
United States from Brazil, Canada, and Madagascar. Lump graphite is imported from Sri Lanka. Graphite resources in the
United States are very small. At one time a significant deposit at Ticonderoga, New York, was exploited, but this source
no longer produces graphite. For a number of years, the United States has not produced natural mineral graphite and is
completely dependent on the combination of imported, synthetic graphite, and recycled graphite sources.
Uses
Because graphite flakes slip over one another, giving it its greasy feel, graphite has long been used as a lubricant in
applications where “wet” lubricants, such as oil, cannot be used. Technological changes are reducing the need for this
application. Natural graphite is used mostly in what are called refractory applications. Refractory applications are those
that involve extremely high heat and therefore demand materials that will not melt or disintegrate under such extreme
2
conditions. One example of this use is in the crucibles used in the steel industry. Such refractory applications account for
the majority of the usage of graphite. It is also used to make brake linings, lubricants, and molds in foundries. A variety of
other industrial uses account for the remaining graphite consumed each year.
The data compilation phase is currently in progress and an exploration budget will be presented to the Board of Directors
in the coming months.
Other projects
The Corporation is continuously looking to add resource-based projects in its portfolio of properties.
2. Shale gas properties
In March 2011, a 3-years de facto moratorium was placed on shale gas exploration in Quebec by the former Liberal
government. This was in response to widespread public concern over the effects of shale gas development and hydraulic
fracturing on groundwater quality. In September 2012, a minority Parti Quebecois (PQ) government headed by Pauline
Marois has come into power. Part of the PQ government’s campaign platform was to uphold the shale gas moratorium
imposed by its predecessor. In early February 2013, Environment Minister Yves-François Blanchet announced legislation
to ban exploration along the St. Lawrence Valley and suspend any exploration already in progress, at least until the
completion of a Strategic Environmental Assessment (SEA) mandated by the Liberals under the initial moratorium, and
formal industry regulations are set up and implemented. On April 7th, 2014, a majority Liberal government headed by
Philippe Couillard was elected so we will expect an update on Shale gas industry by the new government. In the
meantime no new exploration operations were undertaken and this situation will continue until the end of the Moratorium
on Shale gas exploration and production.
Rimouski and Rimouski North Properties (5 licences)
Oil and gas exploration in Quebec has been ongoing for the last 140 years. Notable gas discoveries include the Quaternary
Pointe-du-Lac Gas Field, the Ordovician age St. Flavien Gas Field, and the Devonian Silurian Galt gas discovery near the
town of Gaspé. Oil discoveries include the Port-au-Port oil discovery in Newfoundland and minor oil accumulation at
Haldimand, near Gaspé. While the province is known to be petroliferous, the discoveries have been modest. Reservoirs
can be found in the Cambrian, Ordovician, Silurian, Devonian and the Quaternary. Up until the “discovery” of the Utica
Shale plays, most oil and gas accumulations in the area were conventional.
A compilation has been completed and a 50/50 farm out deal has been finalized with a well-known oil and gas networked
partner/operator named Brownstone Energy Inc. (“Brownstone”). In 2008, X-Terra entered into an agreement with
Brownstone pursuant to which Brownstone acquired a 50% interest in the exploration licenses in exchange for the issuance
to X-Terra of 2,000,000 common shares and 2,000,000 common shares purchase warrants. X-Terra still owns theses shares
but all warrants have expired.
X-Terra and its partner Brownstone have made a 5,543-kilometre airborne magnetic survey on the Rimouski, and
Rimouski North projects in the St. Laurent Lowlands, Quebec. The survey is composed of 5,543 kilometres of 300-metre-
spacing flight lines and 3,000-metre-spacing control lines and was completed by Geophysics GPR International-KalusAir
Services Inc. (KASI). Preliminary results from this last study suggest structural fabrics, which could generate targets on
the three projects. These structural fabrics have been investigated by a geological field survey in 2010, in order to renew
the licences of Rimouski and Rimouski North properties which have good potential targets. The maps are available on the
Corporation’s website at www.xterraresources.com.
Trois-Pistoles property (8 licences)
The Corporation with its partner Brownstone have acquired 157,570 hectares of additional land in the St. Laurent
Lowlands between Rimouski and Rivière-du-Loup for the potential in oil and gas. An airborne magnetic survey which was
flown over the Trois-Pistoles project by the Quebec Natural Resources department is now available.
3
SUMMARY OF ANNUAL AND QUARTERLY INFORMATION
Selected Annual Information and Operation Results
The following selected financial data are derived from the audited consolidated financial statements of the Corporation for
the fiscal years ended December 31, 2013, 2012 and 2011:
Interest income
Net loss
Basic and diluted net loss per share
Total assets
Fiscal year ended December 31,
2013
($)
34,865
(744,530)
(0.06)
4,097,300
2012
($)
55,816
(661,365)
(0.06)
4,700,189
2011
($)
63,647
(521,380)
(0.04)
5,338,652
X-Terra has not since the date of its incorporation, declared or paid any dividends on its Common Shares. For the
foreseeable future, X-Terra anticipates that it will retain future earnings and other cash resources for the operation and
development of its business.
Operating activities and results
The Corporation is an exploration company, and, accordingly, does not generate revenue on a regular basis and must
continually issue shares in order to further explore its mineral and oil and gas properties and its operations. During the
fiscal year 2013, the Corporation registered a net loss of $744,530 in comparison with a net loss registered for the fiscal
year 2012 of $661,365. The Corporation has recorded, for 2013, interest income of $34,865 ($55,816 in 2012). The
Corporation recorded an unrealized loss on marketable securities at fair value through profit or loss of $6,990 (gain in
2012 - $9,190) and recorded no realized loss on marketable securities and investments at fair value through profit or loss
(loss in 2012 - $19,575). The Corporation recorded impairment on investments of $330,000 in 2013 against $368,151 for
2012. The Corporation’s expenses for 2013 are at $442,405 (2012 - $338,645) and include share-based compensation of
$51,450 (2012 - $9,900). Professional fees have increased from $53,485 in 2012 to $183,645 in 2013. The increase comes
from the accountant and lawyer fees regarding the reverse take-over transaction. Office and general fees have decreased
and went from $46,374 in 2012 to $37,302 in 2013. Consulting fees have decreased and went from $174,754 in 2012 to
$111,980 in 2013. This decrease is partly due to the fact that the President of the Corporation decreased his consultant fees
from $6,000 per month to $3,000. Conference and promotion fees have decreased and went from $16,544 in 2012 to
$7,849 in 2013. Allocated sums for public company expenses went from $24,497 in 2012 to $47,452 in 2013, also
because of the reverse take-over transaction. The Corporation recorded no exploration expenses in 2013 ($9,335 in 2012).
The other administrative expenses remained relatively stable, are cyclical and may fluctuate according to the events,
which are not always predictable.
4
Office and general expenses
This is the detail for office and general expenses for the previous two most recently completed fiscal years:
Office leasing
Insurances
Office operations and facilities
Financing activities
No financing has been raised in 2013.
$
2013
25,140
8,198
3,964
37,302
$
2012
30,840
8,250
7,284
46,374
Investing activities
In 2013, the Corporation had no cash outflow in acquisition of property, plant and equipment, a cash outflow of $16,572 in
acquisition of mining and oil and gas properties and $58,511 in deferred exploration expenses. In 2013, the Corporation
received $17,319 in tax credits and mining duties and should receive $24,979 during 2014.
Liquidity and working capital
As at December 31, 2013, the Corporation had a working capital of $2,277,626 (December 31, 2012 - $3,002,629), which
included cash and cash equivalents of $1,702,514 (December 31, 2012 - $2,054,073). As at December 31, 2013, the
Corporation’s working capital represents $0.19 per share.
The exercise of the 1,000,000 outstanding stock options as of the date of this report represents an added potential financing
of $253,500. These options expire between 2014 and 2023 and have an exercise price between $0.10 and $0.50.
Summary of Quarterly results
The following table sets a comparison of selected quarterly financial information for the previous eight quarters:
Period
Year
Revenues
Loss for the period
Basic and diluted loss per share
Total assets
Q4
2013
8,481
(202,655)
(0.01)
4,097,300
Q3
2013
8,773
(91,926)
(0.01)
4,218,852
Q2
2013
9,096
(129,449)*
(0.01)
4,296,829
Q1
2013
8,515
(320,500)*
(0.03)
4,437,351
Q4
2012
11,367
(416,343)
(0.04)
4,700,189
Q3
2012
14,576
(80,780)
(0.01)
4,796,293
Q2
2012
14,881
(91,723)
(0.00)
4,863,252
Q1
2012
14,992
(72,519)
(0.01)
5,201,747
* The net loss of the first and second quarters of 2013 have been restated to give effect to the recording of the additional
declines in fair value of the Corporation’s available-for-sale investments in shares of a public company directly in the
consolidated statement of loss instead of through other comprehensive loss as it had been previously reported. The details
of the restatement are disclosed on note 9 to the interim condensed consolidated financial statements for the nine-month
and three-month periods ended September 30, 2013.
Fourth Quarter
During the three-month period ended December 31, 2013, the Corporation registered a net loss of $202,655 in comparison
with a net loss of $416,343 for the same quarter in 2012. The Corporation has recorded, for the quarter ended December
31, 2013, interest income of $8,481 ($11,367 for the quarter ended December 31, 2012), no realized loss on marketable
securities (realized loss on marketable securities of $19,575 for the quarter ended December 31, 2012), unrealized loss on
marketable securities of $1,650 (unrealized loss on marketable securities of $4,685 for the quarter ended December 31,
2012) and no impairment on investments (impairment on investments of $368,151 for the quarter ended December 31,
2012). The Corporation’s expenses for the quarter ended December 31, 2013 are at $209,486 ($55,169 for the quarter
ended December 31, 2012). Professional fees have increased from $2,352 for the quarter ended December 31, 2012 to
$140,112 for the quarter ended December 31, 2013. The increase comes from the accountant and lawyer fees regarding the
reverse take-over transaction. Office and general expenses have increased and went from a negative amount of $291 for
the quarter ended December 31, 2012 to $9,475 for the quarter ended December 31, 2013. Consulting fees have decreased
and went from $39,960 for the quarter ended December 31, 2012 to $32,380 for the quarter ended December 31, 2013.
Conference and promotion fees have increased and went from $1,329 for the quarter ended December 31, 2012 to $1,966
for the quarter ended December 31, 2013. Allocated sums for public company expenses went from $1,545 for the quarter
ended December 31, 2012 to $24,871 for the quarter ended December 31, 2013, also because of the reverse take-over
transaction. The other administrative expenses remained relatively stable, are cyclical and may fluctuate according to the
events, which are not always predictable.
5
Mining and Oil and Gas Properties (All properties are located in Canada)
Deferred exploration expenses
Property
Lindsay
Rimouski
Rimouski North
Trois-Pistoles
Sheldon Qc
Property
Lindsay
Rimouski
Rimouski North
Trois-Pistoles
Deferred exploration expenses
Accommodations
Maps, printing and drafting
Assay and geochemical analyses
Geology
Fees for supervision of work
Deductions
Refundable tax credits and mining duties
Increase in deferred exploration expenses
Balance – Beginning of year
Balance – End of year
For the year ended December 31, 2013
Undivided
interest
%
Balance –
Beginning
of year
$
Increase
$
100
50
50
50
100
550,228
43,171
45,496
2,092
-
1,447
62
62
-
54,961
Refundable
tax credits
and mining
duties
$
(506)
(22)
(22)
-
(27,904)
Balance –
End of year
$
551,469
43,211
45,536
2,092
27,057
641,287
56,532
(28,454)
669,365
For the year ended December 31, 2012
Balance –
Beginning
of year
$
Increase
$
Refundable
tax credits
and mining
duties
$
Balance –
End of year
$
528,190
42,695
45,062
2,092
34,118
696
632
-
(11,780)
(220)
(198)
-
550,228
43,171
45,496
2,092
618,039
35,446
(12,198)
641,287
Undivided
interest
%
100
50
50
50
2013
$
7,332
1,965
672
46,358
205
56,532
2012
$
12,882
-
662
20,919
983
35,446
(28,454 )
(12,198)
28,078
641,287
669,365
23,248
618,039
641,287
PROJECTED OPERATIONS
The Corporation does not foresee any important acquisition or disposal of property, with the exception of the proposed
transaction described in the Subsequent Event section below.
6
OFF-BALANCE SHEET ARRANGEMENT
X-Terra has not entered into any specialized financial agreements to minimize its investments, currency or commodity
risk. There are no off-balance sheets arrangements, such as a guarantee contract, contingent interest in assets transferred to
an entity, derivative instruments obligations and/or any obligations that trigger financing, liquidity, market or credit risk to
the Corporation.
RELATED PARTY TRANSACTIONS
Related party transactions occurred in the normal course of business. Unless indicated otherwise, the following
transactions are included in the consolidated statements of loss:
Officers or a corporation held by officers
Consulting fees
Rent
2013
$
111,980
24,000
135,980
2012
$
174,160
24,000
198,160
As at December 31, 2013, the balance due to related parties amounts to $10,256 (2012 – $13,797). This amount is subject
to the same conditions as those of non-related parties.
Compensation of key management
The Corporation has a service agreement with a related party to provide management services to the Corporation,
including senior executives. Because of the service agreement, the Corporation has no employee benefits expense.
Key management includes directors and senior executives. The compensation paid or payable to key management is
presented below:
Key management services and directors’ fees
Share-based compensation expense
2013
$
85,400
51,450
136,850
2012
$
124,780
9,900
134,680
SUBSEQUENT EVENT
On April 28, 2014, the Corporation entered into an Asset Transfer Agreement with X-Terra Resources Inc. (“New X-
Terra”), a wholly-owned subsidiary of the Corporation, for a proposed “spin-out” (the “Spin-Out”) of substantially all of
the assets and all of the liabilities of the Corporation to New X-Terra and the distribution of a portion of the shares of New
X-Terra to the shareholders of the Corporation. On April 28, 2014, the Corporation also entered into a Share Exchange
Agreement with Norvista Resources Corporation and Norvista Capital Corporation for a reverse take-over of the
Corporation involving Norvista Capital Corporation (the “Reverse Take-Over”), following which the name of the
Corporation will be changed to “Norvista Capital Corporation” (“New Norvista”). After the Spin-Out and Reverse Take-
Over, current shareholders of the Corporation will become shareholders of New X-Terra, which will carry on the
Corporation’s current mining exploration business, as well as shareholders of New Norvista, which will be a natural
resources merchant bank.
Completion of the Spin-Out and Reverse Take-Over is subject to a number of conditions, including but not limited to,
regulatory approval, including that of the TSX Venture Exchange, shareholder approval and financing.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of consolidated financial statements in conformity with IFRS requires management to make estimates and
assumptions that affect amounts reported in the consolidated financial statements and accompanying notes. There is a full
disclosure and description of the Corporation’s critical accounting policies and critical accounting estimates in Note 6 of
the audited consolidated financial statements for the year ended December 31, 2013.
The significant accounting policies that have been applied in the preparation of these financial statements are summarized
below.
7
Exploration and evaluation
Exploration and evaluation (“E&E”) assets comprise mining and oil and gas properties and deferred exploration expenses.
Expenditures incurred on activities that precede exploration for and evaluations of mineral resources, being all
expenditures incurred prior to securing the legal rights to explore an area, are expensed immediately.
E&E assets include rights in mining and oil and gas properties, paid or acquired through a business combination or an
acquisition of assets, and costs related to the initial search for mineral deposits with economic potential or to obtain more
information about existing mineral deposits.
Mining and oil and gas rights are recorded at acquisition cost or at recoverable amount, being the higher of the fair value
less cost to sell and value in use, in the case of a devaluation caused by an impairment of value. Mining and oil and gas
rights and options to acquire undivided interests in mining and oil and gas rights are depreciated only as these properties
are put into commercial production.
From time to time, the Corporation may acquire or dispose of a property pursuant to the terms of an option agreement. Due
to the fact that options are exercisable entirely at the discretion of the option holder, the amounts payable or receivable are
not recorded. Option payments are recorded as property costs or recoveries when the payments are made or received.
E&E expenditures for each separate area of interest are capitalized and include costs associated with prospecting,
sampling, trenching, drilling and other work involved in searching for ore, such as topographical, geological, geochemical
and geophysical studies. They also reflect costs related to establishing the technical and commercial viability of extracting
a mineral resource identified through exploration or acquired through a business combination or asset acquisition. E&E
expenditures include the cost of:
•
•
•
•
•
establishing the volume and grade of deposits through drilling of core samples, trenching and sampling activities
in an ore body that is classified as a mineral resource;
determining the optimal methods of extraction and metallurgical and treatment processes;
studies related to surveying, transportation and infrastructure requirements;
licencing activities; and
economic evaluations to determine whether development of the mineralized material is commercially justified,
including scoping, prefeasibility and final feasibility studies.
E&E expenditures include overhead expenses directly attributable to the related activities.
Cash flows attributable to capitalized E&E costs are classified as investing activities in the consolidated statements of cash
flows under the headings expenditures on mining and oil and gas properties and expenditures on deferred exploration
expenses.
Share-based compensation
The fair value of share options granted to employees are recognized as an expense, or capitalized to deferred exploration
expenditures, over the vesting period with a corresponding increase in contributed surplus. An individual is classified as an
employee when the individual is an employee for legal or tax purposes (direct employee) or provides services similar to
those performed by a direct employee, including directors of the Corporation.
The fair value is measured at the grant date and recognized over the period in which the options vest. The fair value of the
options granted is measured using the Black-Scholes option pricing model, taking into account the terms and conditions
upon which the options were granted. At each financial position reporting date, the amount recognized as an expense is
adjusted to reflect the actual number of share options that are expected to vest.
In situations where equity instruments are issued to non-employees and some or all of the goods or services received by
the entity as consideration cannot be specifically identified, equity instruments are measured at the fair value of the share-
based compensation. Otherwise, share-based compensation is measured at the fair value of goods or services received.
Income tax
Income tax on profit or loss for the periods presented comprises current and deferred tax. Income tax is recognized in the
consolidated statement of loss except to the extent that it relates to items recognized directly in other comprehensive
8
income or in equity, in which case it is recognized in other comprehensive income or in equity, respectively.
Mining taxes represent Canadian provincial tax levied on mining operations and are classified as income tax since such
taxes are based on a percentage of mining profits.
Current income tax expense is the expected tax payable on taxable income for the year, using tax rates enacted or
substantively enacted at year-end, adjusted for amendments to income tax payable with regard to previous years.
Management periodically evaluates positions taken in income tax returns with respect to situations in which applicable tax
regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be
paid to the tax authorities.
Deferred income tax is provided using the balance sheet liability method, providing for temporary differences between the
tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax
is not recognized where the temporary difference arises from the initial recognition of goodwill or the initial recognition of
an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither
accounting nor taxable profit or loss. The amount of deferred income 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 financial position reporting date.
A deferred income 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.
Deferred income tax assets and liabilities are presented as non-current and are offset when there is a legally enforceable
right to offset current income tax assets against current income tax liabilities and when deferred income tax assets and
liabilities relate to income tax levied by the same taxation authority on either the same taxable entity or different taxable
entities where there is an intention to settle the balances on a net basis.
FINANCIAL INSTRUMENTS
The Corporation is exposed to various financial risks resulting from both its operations and its investment activities. The
Corporation’s management manages financial risks. The Corporation does not enter into financial instrument agreements
including derivative financial instruments, including derivative financial instruments, for speculative purposes. The main
financial risks to which the Corporation is exposed are detailed below.
Liquidity risk
Liquidity risk is the risk that the Corporation will not have sufficient cash resources to meet its financial obligations as
they come due. As further mentioned in note 1 of the audited consolidated financial statements for the year ended
December 31, 2013, the Corporation’s liquidity and operating results may be adversely affected if the Corporation’s access
to the capital market is hindered, whether as a result of a downturn in stock market conditions generally or related to
matters specific to the Corporation. The Corporation generates cash flow primarily from its financing activities. As at
December 31, 2013, the Corporation had a cash and cash equivalents amounting to $1,702,514 (December 31, 2012 -
$2,054,073) to settle current liabilities of $96,678 (December 31, 2012 - $16,487). All of the Corporation's financial
liabilities have contractual maturities of less than 30 days and are subject to normal trade terms. The Corporation regularly
evaluates its cash position to ensure preservation and security of capital as well as maintenance of liquidity.
Credit risk
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party
to incur a financial loss. The Corporation is subject to concentrations of credit risk through cash and cash equivalents,
marketable securities, investments and accounts receivable. Accounts receivable consists mainly of goods and services tax
due from the federal government and provincial sales tax due from the Quebec government, amounts receivable from a
partner (reimbursed in 2013) and interest receivable from reputable institutions. The Corporation reduces its credit risk by
maintaining part of its cash and cash equivalents in financial instruments guaranteed by and held with a Canadian
chartered bank and the remainder in financial instruments guaranteed by Canadian chartered banks held with an
independent investment dealer member of the Canadian Investor Protection Fund. The marketable securities are composed
of bonds from reputable financial and corporate institutions.
9
The carrying amount representing the maximum credit exposure of the Corporation by class of financial assets is as
follows:
Loans and receivables
Accounts receivable
2013
$
2012
$
33,098
11,415
Market risk
Market risk is the risk of loss that may arise from changes in market factors such as market price interest rates.
Price risk
The Corporation is exposed to price risk because of its investments held in a junior exploration company. When trading its
shares, unfavourable market conditions could result in the disposal of the Corporation’s listed shares at less than their
value as at December 31, 2013. A 10% variation in the closing price on the stock market would result in an estimated
variation of ±$10,000 of net loss at year-end.
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate due to changes in
market interest rates. The Corporation has cash balances, and its current policy is to invest excess cash in certificates of
deposit or money market funds of major Canadian chartered banks. The bonds comprising marketable securities bear
interest at fixed rates, and the Corporation is therefore exposed to the risk of changes in fair value resulting from interest
rate fluctuations. The sensitivity of the Corporation to a 1% fluctuation in the interest rate would not have a significant
impact. The Corporation’s other financial assets and financial liabilities are not subject to interest rate risk since they are
non-interest bearing.
Fair value
Fair value estimates are made at the statement of financial position date, based on relevant market information and other
information about financial instruments.
The Corporation’s financial instruments as at December 31, 2013 consist of cash and cash equivalents, marketable
securities, available-for-sale investments and accounts payable and accrued liabilities. The fair value of these financial
instruments (other than cash and cash equivalents held in money market funds, marketable securities and available-for-sale
investment) approximates their carrying value due to their short maturity and current market rates.
Fair value hierarchy
Financial instruments in Level 1
The fair value of financial instruments traded in active markets is based on quoted market prices on a recognized securities
exchange at the statement of financial position dates. The quoted market price used for financial assets held by the
Corporation is the last transaction price. Instruments included in Level 1 consist primarily of common shares trading on
the TSX.
Financial instruments in Level 2
The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques.
These valuation techniques maximize the use of observable market data where it is available and rely as little as possible
on the Corporation’s specific estimates. If all significant inputs required to measure the fair value of an instrument are
observable, the instrument is included in Level 2.
If one or more of the significant inputs are not based on observable market data, the instrument is included in Level 3. As
at December 31 2013 and 2012, there are no Level 3 financial instruments.
10
Financial assets measured at fair value
As at December 31, 2013
Level 1
$
Level 2
$
Level 3
$
Total
$
1,681,943
-
1,681,943
-
508,175
508,175
-
-
-
1,681,943
508,175
2,190,118
100,000
-
-
100,000
Assets measured at fair value
As at December 31, 2012
Level 1
$
Level 2
$
Level 3
$
Total
$
1,947,684
-
1,947,684
-
515,165
515,165
-
-
-
1,947,684
515,165
2,462,849
420,000
-
-
420,000
Financial assets and liabilities at
fair value through profit or
loss
Money market funds
Marketable securities
Available for sale
Investment in common shares of
public company
Financial assets and liabilities at
fair value through profit or
loss
Money market funds
Marketable securities
Available for sale
Investment in common shares of
public company
Risk and Uncertainties
The securities of the Corporation are highly speculative. In evaluating the Corporation, it is important to consider that it is
a resources exploration enterprise in the exploratory stage of its operations. To date, the Corporation has had no revenues
and there is no immediate expectation of revenues. A prospective investor or other person reviewing the Corporation
should not consider an investment in it unless the investor is capable of sustaining an economic loss of the entire
investment. All costs have been funded through equity. Certain risks are associated with the Corporation’s business
including:
Mineral Exploration and Development
The Corporation’s properties are in the exploration stage and are without a known body of commercial ore. Development
of any of its properties will only follow after obtaining satisfactory exploration results. Mineral exploration and
development involve a high degree of risk and few properties which are explored are ultimately developed into producing
mines. There is no assurance that the Corporation’s mineral exploration and development activities will result in the
discovery of a body of commercial ore on any of its properties. Several years may pass between the discovery and
development of commercial mineable mineralized deposits.
Most exploration projects do not result in the discovery of commercially mineralized deposits. The commercial viability of
exploiting any precious or base metal deposit is dependent on a number of factors including infrastructure and
governmental regulation, in particular those relating to environment, taxes, and royalties. No assurance can be given that
minerals will be discovered of sufficient quality, size and grade on any of the Corporation’s properties to justify a
commercial operation.
11
Economics of Developing Mineral Properties
Substantial expenses are required to establish ore reserves through drilling, to develop metallurgical processes to extract
metal from ore and to develop the mining and processing facilities and infrastructure at any site chosen for mining. No
assurance can be given that minerals will be discovered in sufficient quantities to justify commercial operation or that the
funds required for development can be obtained on a timely basis.
The marketability of any minerals acquired or discovered may be affected by numerous factors which are beyond the
Corporation’s control and which cannot be predicted, such as market fluctuations, the proximity and capacity of milling
facilities, mineral markets and processing equipment, and such other factors as government regulations, including
regulations relating to royalties, allowable production, importing and exporting of minerals, and environmental protection.
Depending on the price of minerals produced, the Corporation may determine that it is impractical to commence or
continue commercial production.
Environmental Regulations
The Corporation proposes to conduct exploration activities in various parts of Canada. Such activities are subject to laws,
rules and regulations governing the protection of the environment, including, in some cases, posting of reclamation bonds.
In Canada, extensive environmental legislation has been enacted by federal, provincial and territorial governments. All
phases of the Corporation’s operations are subject to environmental regulation in the jurisdictions in which it operates.
Environmental legislation is evolving in a manner which requires stricter standards and enforcement, increased fines and
penalties for non-compliance, more stringent environmental assessments of proposed properties and a heightened degree
of responsibility for companies and their officers, directors and employees. There is no assurance that future changes in
environmental regulations, if any, will not adversely affect the Corporation’s operations. The cost of compliance with
changes in governmental regulations has the potential to reduce the profitability of operations or to preclude entirely the
economic development of a property. Environmental hazards may exist on the Corporation’s properties, which hazards are
unknown to the Corporation at present, which may have been caused by previous or existing owners or operators of the
properties. The Corporation is not aware of any environmental hazards on any of the properties held by the Corporation.
The Corporation has adopted environmental practices designed to ensure that it continues to comply with or exceed all
environmental regulations currently applicable to it. All of the Corporation’s activities are in compliance in all material
respects with applicable environmental legislation. The Corporation is currently engaged in exploration with nil to
minimal environmental impact.
Uncertainty of Ownership Rights and Boundaries of Resource Properties
There is no assurance that the rights of ownership and other rights in concessions held by the Corporation are not subject
to loss or dispute particularly because such rights may be subject to prior unregistered agreements or transfers or other land
claims and may be affected by defects and adverse laws and regulations which have not been identified by the
Corporation. Notwithstanding that the exploration and operating concessions in respect of which the Corporation may
hold various interests have been surveyed, the precise boundary locations thereof may be in dispute. Although the
Corporation has exercised the usual due diligence with respect to title to properties in which it has a material interest, there
is no guarantee that title to the properties will not be challenged or impugned. The Corporation’s mineral property interest
may be subject to prior unregistered agreements or transfers or native land claims and title may be affected by undetected
defects. In addition, certain of the mining claims in which the Corporation has an interest are not recorded in its name and
cannot be recorded until certain steps are taken by other parties. Before a number of claims under option can be recorded
in the Corporation’s name, the underlying title holder has to assign title to the Corporation once the Corporation satisfies
its option agreement obligations. There are no assurances that the underlying title holder will assign title.
Potential Conflicts of Interest
The directors of the Corporation serve as directors of other public and private companies and devote a portion of their time
to manage other business interests. This may result in certain conflicts of interest. To the extent that such other companies
may participate in ventures in which the Corporation is also participating, such directors and officers of the Corporation
may have a conflict of interest in negotiating and reaching an agreement with respect to the extent of each company’s
participation. The Canada Business Corporations Act, to which the Corporation is subject, requires the directors and
officers of the Corporation to act honestly and in good faith with a view to the best interests of the Corporation. However,
in conflict of interest situations, directors of the Corporation may owe the same duty to another company and will need to
balance the competing obligations and liabilities of their actions. There is no assurance that the needs of the Corporation
will receive priority in all cases. From time to time, several companies may participate together in the acquisition,
exploration and development of natural resource properties, thereby allowing these companies to: (i) participate in larger
programs; (ii) acquire an interest in a greater number of programs; and (iii) reduce their financial exposure with respect to
any one program. A particular company may assign, at its cost, all or a portion of its interests in a particular program to
another affiliated company due to the financial position of the company making the assignment. In determining whether or
not the Corporation will participate in a particular program and the interest therein to be acquired by it, it is expected that
12
the directors of the Corporation will primarily consider the degree of risk to which the Corporation may be exposed and its
financial position at the time.
Governmental Regulation
Operations, development and exploration on the Corporation’s properties are affected to varying degrees by:
(i) government regulations relating to such matters as environmental protection, health, safety and labor; (ii) mining law
reform; (iii) restrictions on production, price controls, and tax increases; (iv) maintenance of claims; (v) tenure; and (vi)
expropriation of property. There is no assurance that future changes in such regulation, if any, will not adversely affect the
Corporation’s operations. Changes in such regulation could result in additional expenses and capital expenditures,
availability of capital, competition, reserve uncertainty, potential conflicts of interest, title risks, dilution, and restrictions
and delays in operations, the extent of which cannot be predicted.
The Corporation is at the exploration stage on all of its properties. Exploration on the Corporation’s properties requires
responsible best exploration practices to comply with Corporation policy, government regulations, and maintenance of
claims and tenure. The Corporation is required to be registered to do business and have a valid prospecting license
(required to prospect or explore for minerals on crown Mineral land or to stake a claim) in any Canadian province in which
it is carrying out work. Mineral exploration primarily falls under provincial jurisdiction. However, the Corporation is also
required to follow the regulations pertaining to the mineral exploration industry that fall under federal jurisdiction, such as
the Fish and Wildlife Act.
If any of the Corporation’s projects are advanced to the development stage, those operations will also be subject to various
laws and regulations concerning development, production, taxes, labor standards, environmental protection, mine safety
and other matters. In addition, new laws or regulations governing operations and activities of mining companies could
have a material adverse impact on any project in the mine development stage that the Corporation may possess.
Also, no assurance can be made that Canada Revenue Agency and provincial agencies will agree with the Corporation's
characterization of expenses as Canadian exploration expenses or Canadian development expense or the eligibility of such
expenses as Canadian exploration expense under the Income Tax Act (Canada) or any provincial equivalent.
Precious and base metal prices
The price of precious and base metal prices can fluctuate widely and is affected by numerous factors including demand,
inflation, strength of the US dollar and other currencies, interest rates, gold sales by the central banks, forward sales by
producers, global or regional political or financial events, and production and cost levels in major producing regions. In
addition, prices are sometimes subject to rapid short-term changes because of speculative activities.
Even if the Corporation discovers commercial amounts of metals on its properties, it may not be able to place the property
into commercial production if precious and base metal prices are not at sufficient levels.
Need for Additional Financing
Currently, exploration programs are pursued by the Corporation with the objective of establishing mineralization of
commercial quantities. The Corporation may fund the proposed programs through equity financing and the possible
exercise of outstanding options. Such funding would be dilutive to current shareholders. Should sources of equity
financing not be available to the Corporation, the Corporation would seek a joint venture relationship in which the funding
source could become entitled to a shared, negotiated interest in the property or the projects. If exploration programs
carried out by the Corporation are successful in establishing ore of commercial quantities and/or grade, additional funds
will be required to develop the properties and reach commercial production. In that event, the Corporation may seek
capital through further equity funding, debt instruments, by offering an interest in the property being explored and
allowing the party or parties carrying out further exploration or development thereof to earn an interest, or through a
combination of funding arrangements. There can be no assurance of such funding sources. Furthermore, if the Corporation
is not able to obtain the capital resources necessary to meet property payments or exploration or development obligations
which now apply or which would apply in joint ventures with others, its potential as a “going concern” could be seriously
affected.
Key Employees
The Corporation is dependent on a relatively small number of key directors and officers: Martin Dallaire and Sylvain
Champagne. Loss of any one of these persons could have an adverse effect on the Corporation. The Corporation does not
maintain “key-man” insurance in respect of any of its management.
Lack of operating profit
The Corporation was incorporated on February 24, 1987 and since incorporation, has not realized net income except for
2008 nor paid dividends. The Corporation's properties are in the exploration stage and to date none of them have a proven
13
ore body. The Corporation does not have a history of earnings or the provision of return on investment, and in future there
is no assurance that it will produce revenue, operate profitably or provide a return on investment. Variations in annual and
quarterly loss and loss per shares are affected by administration costs and the write-down or write-off of mineral property
carrying costs. It is anticipated that the Corporation will continue to experience operating losses for the foreseeable future.
There can be no assurance that the Corporation will ever achieve significant revenues or profitable operations.
Competition
The mining industry is intensely competitive in all its phases. The Corporation competes with many companies possessing
greater financial resources and technical facilities than itself for the acquisition of mineral interests as well as for
recruitment and retention of qualified employees.
Uninsured Hazards
Hazards such as unusual geological conditions are involved in exploring for and developing mineral deposits. The
Corporation may become subject to liability for pollution or other hazards, which cannot be insured against or against
which the Corporation may elect not to insure because of high premium costs or other reasons. The payment of any such
liability could result in the loss of Corporation assets or the insolvency of the Corporation.
OTHER MD&A REQUIREMENTS
Share capital
As at April 28, 2014, the Corporation had the following:
Issued and outstanding- 11,783,069 shares
Stock purchase options outstanding:
Expiry date
July 2014
June 2020
July 2022
July 2023
Number of options
outstanding
265,000
160,000
50,000
525,000
1,000,000
Number of options
exercisable
265,000
160,000
50,000
525,000
1,000,000
Exercise price ($)
0.50
0.35
0.25
0.10
Stock-based compensation is a non-cash item, resulting from the application of the Black-Scholes option pricing model
using assumptions for expected dividend yield, average risk-free interest rates, expected life of the options and expected
volatility.
OTHER INFORMATION
The Corporation’s web address is www.xterraresources.com. Further information regarding the Corporation and its
operations are filed electronically on the System for Electronic Document Analysis and Retrieval (SEDAR) in Canada and
can be obtained from www.sedar.com.
FORWARD-LOOKING STATEMENTS
Certain statements in this document that are not supported by historical facts are forward-looking, which means that they
are subject to risks, uncertainties and other factors that may result in actual results differing from those anticipated or
implied by such forward-looking statements. There are many factors that may cause such a disparity, notably unstable
metals prices, the impact of fluctuations in foreign exchange markets and interest rates, poor reserves estimates,
environmental risks (more stringent regulations), unexpected geological situations, unfavorable mining conditions,
political risks arising from mining in developing countries, changing regulations and government policies (laws or
policies), failure to obtain required permits and approval from government authorities, or any other risk related to mining
and development. Even though the Corporation believes that the assumptions relating to the forward-looking statements
are plausible, it is unwise to rely unduly on such statements, which were only valid as of the date of this document.
April 28, 2014.
(S) Martin Dallaire
Martin Dallaire, President and Chief Executive Officer
(S) Sylvain Champagne
Sylvain Champagne, Chief Financial Officer
14
CORPORATE INFORMATION
Directors
Martin Dallaire
Sylvain Champagne (1)
Sheldon Inwentash
Gerry Feldman (1)
Sébastien Plouffe (1)
Xin Zhao (1)
(1) Audit Committee member
Officers
Martin Dallaire
President and Chief Executive Officer
Sylvain Champagne
Chief Financial Officer
Auditors
PricewaterhouseCoopers s.r.l. / s.e.n.c.r.l.
1250, René-Lévesque blvd west – Suite 2800
Montreal (Quebec) H3B 2G4
Transfer Agents
Computershare Canada
1500, University Street – Suite 700
Montreal (Quebec) H3A 3S8
Solicitors
Fasken Martineau DuMoulin s.e.n.c.r.l. / s.r.l
800 Place Victoria, Suite 3700
Montreal (Quebec) H4Z 1E9
Exchange Listing
TSX Venture Exchange
Ticker symbol: XT
CUSIP: 98386Y
ISIN: CA 98386Y1034
Head Office
139, Quebec Avenue – Suite 202
Rouyn-Noranda, Quebec, Canada J9X 6M8
Telephone: 819-762-0609
15
X-Terra Resources Corporation
Consolidated Financial Statements
December 31, 2013 and 2012
(expressed in Canadian dollars)
April 28, 2014
Independent Auditor’s Report
To the Shareholders of
X-Terra Resources Corporation
We have audited the accompanying consolidated financial statements of X-Terra Resources Corporation,
which comprise the consolidated statements of financial position as at December 31, 2013 and 2012 and
the consolidated statements of loss, comprehensive loss, changes in equity and cash flows for the years
then ended, and the related notes, which comprise 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.
Auditor’s 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 auditor’s 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.
PricewaterhouseCoopers LLP/s.r.l./s.e.n.c.r.l.
1250 René-Lévesque Boulevard West, Suite 2800, Montréal, Quebec, Canada H3B 2G4
T: +1 514 205 5000, F: +1 514 876 1502
“PwC” refers to PricewaterhouseCoopers LLP/s.r.l./s.e.n.c.r.l., an Ontario limited liability partnership.
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, the consolidated financial statements present fairly, in all material respects, the financial
position of X-Terra Resources Corporation as at December 31, 2013 and 2012 and its financial
performance and its cash flows for the years then ended in accordance with International Financial
Reporting Standards.
1 CPA auditor, CA, public accountancy permit No. A123642
(2)
X-Terra Resources Corporation
Consolidated Statements of Financial Position
As at December 31, 2013 and 2012
(expressed in Canadian dollars)
Assets
Current assets
Cash and cash equivalents
Marketable securities
Investment
Accounts receivable
Tax credits receivable
Prepaid insurance
Non-current assets
Property, plant and equipment
Mining and oil and gas properties
Deferred exploration expenses
Total assets
Liabilities
Current liabilities
Accounts payable and accrued liabilities
Total liabilities
Equity
Share capital
Warrants
Contributed surplus
Accumulated other comprehensive income
Deficit
Total equity
Total liabilities and equity
Subsequent event
Approved by the Board of Directors
Note
2013
$
2012
$
1,702,514
508,175
100,000
33,098
24,979
5,538
2,374,304
7,661
1,045,970
669,365
1,722,996
2,054,073
515,165
420,000
11,415
12,929
5,534
3,019,116
10,388
1,029,398
641,287
1,681,073
4,097,300
4,700,189
96,678
96,678
16,487
16,487
25,466,499
-
4,586,837
10,000
(26,062,714)
25,466,499
1,840,527
2,694,860
-
(25,318,184)
4,000,622
4,683,702
4,097,300
4,700,189
7
8
9
10, 18
10
11
12
13
14
14
20
________________________________ Director
Martin Dallaire (signed)
_______________________________ Director
Sylvain Champagne (signed)
Martin Dallaire
Sylvain Champagne
The accompanying notes are an integral part of these consolidated financial statements.
X-Terra Resources Corporation
Consolidated Statements of Loss
For the years ended December 31, 2013 and 2012
(expressed in Canadian dollars, except number of shares)
Expenses
Professional fees
Consulting fees
Public company expenses
Office and general
Conference and promotion
Depreciation
Exploration expenses
Share-based compensation
Operating loss
Finance income
Realized loss on marketable securities at fair value
through profit or loss
Unrealized loss (gain) on marketable securities at fair value
through profit or loss
Impairment on available-for-sale investment
Net loss for the year
Basic and diluted net loss per share
Note
16
16
11
15, 16
8
8
9
2013
$
183,645
111,980
47,452
37,302
7,849
2,727
-
51,450
442,405
(34,865)
-
6,990
330,000
744,530
0.06
2012
$
53,485
174,754
24,497
46,374
16,544
3,756
9,335
9,900
338,645
(55,816)
19,575
(9,190)
368,151
661,365
0.06
Weighted average number of shares outstanding
Basic and diluted
11,783,069
11,783,069
Net loss is solely attributable to X-Terra Resources Corporation shareholders.
The accompanying notes are an integral part of these consolidated financial statements.
X-Terra Resources Corporation
Consolidated Statements of Comprehensive Loss
For the years ended December 31, 2013 and 2012
(expressed in Canadian dollars)
Net loss for the year
Other comprehensive loss (income) that may be
reclassified subsequently to net loss
Changes in fair value of available-for-sale investment
Unrealized loss (gain)
Impairment on available-for-sale investment
Reclassification to the statement of loss
Other comprehensive income that may be reclassified
subsequently to net loss
Comprehensive loss for the year
Note
2013
$
2012
$
744,530
661,365
9
9
(10,000)
-
(10,000)
734,530
340,000
(368,151)
(28,151)
633,214
Comprehensive loss is solely attributable to X-Terra Resources Corporation shareholders.
The accompanying notes are an integral part of these consolidated financial statements.
X-Terra Resources Corporation
Consolidated Statements of Changes in Equity
(expressed in Canadian dollars)
Number of
common
shares
Share
capital
$
Warrants
$
Contributed
surplus
$
Accumulated
other
comprehensive
income (loss)
$
Deficit
$
Total
equity
$
11,783,069
25,466,499
1,840,527
2,684,960
(28,151)
(24,656,819)
5,307,016
Balance –
January 1, 2012
Net loss for the year
Other comprehensive income
Comprehensive loss
for the year
Share-based compensation
-
-
-
9,900
Balance –
December 31, 2012
11,783,069
25,466,499
1,840,527
2,694,860
11,783,069
25,466,499
1,840,527
2,694,860
Balance –
January 1, 2013
Net loss for the year
Other comprehensive income
Comprehensive loss
for the year
-
28,151
(661,365)
-
(661,365)
28,151
28,151
(661,365)
(633,214)
-
-
-
-
9,900
(25,318,184)
4,683,702
(25,318,184)
4,683,702
-
10,000
(744,530)
-
(744,530)
10,000
10,000
(744,530)
(734,530)
Share-based compensation
Warrants expired
-
-
-
-
-
(1,840,527)
51,450
1,840,527
-
-
-
-
51,450
-
Balance –
December 31, 2013
11,783,069
25,466,499
-
4,586,837
10,000
(26,062,714)
4,000,622
Accumulated other comprehensive income (loss) relates solely to available-for-sale investments.
The accompanying notes are an integral part of these consolidated financial statements.
X-Terra Resources Corporation
Consolidated Statements of Cash Flows
For the years ended December 31, 2013 and 2012
(expressed in Canadian dollars)
Cash flows provided by (used in)
Operating activities
Net loss for the year
Adjustments for:
Note
2013
$
2012
$
(744,530)
(661,365)
Depreciation
Unrealized loss (gain) on marketable securities arising from
changes in fair value
Realized loss on marketable securities arising from
changes in fair value
Share-based compensation
Impairment on available-for-sale investment
8
8
15
9
2,727
6,990
-
51,450
330,000
3,756
(9,190)
19,575
9,900
368,151
Changes in items of working capital
Accounts receivable
Prepaid insurance
Accounts payable and accrued liabilities
(353,363)
(269,173)
(21,683)
(4)
81,255
59,568
3,494
69
(13,829)
(10,266)
Net cash used in operating activities
(293,795)
(279,439)
Investing activities
Proceeds on disposal of marketable securities
Tax credits received
Expenditures on mining and oil and gas properties
Expenditures on deferred exploration expenses
Net cash provided by (used in) investing activities
Net change in cash and cash equivalents during the year
-
17,319
(16,572)
(58,511)
(57,764)
(351,559)
500,000
26,075
(14,633)
(36,766)
474,676
195,237
Cash and cash equivalents – Beginning of year
2,054,073
1,858,836
Cash and cash equivalents – End of year
7
1,702,514
2,054,073
Supplemental information
Deferred exploration expenses included in accounts payable and
accrued liabilities
Interest received
500
16,956
1,564
42,056
The accompanying notes are an integral part of these consolidated financial statements.
X-Terra Resources Corporation
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
(expressed in Canadian dollars, except as otherwise stated)
1 Nature of operations and liquidity
X-Terra Resources Corporation (the “Corporation”) was incorporated on February 24, 1987 under the
Corporations Act of the Province of British Columbia in Canada and is listed on the TSX Venture Exchange
(TSX). In 2008, shareholders approved a special resolution authorizing the continuance of the Corporation
under the Canada Business Corporations Act. On September 4, 2008, the Corporation obtained a Certificate
and Articles of Continuance under the Act, rendering the continuance effective. The address of the
Corporation’s headquarters and registered office is 202-139 Québec Avenue, Rouyn-Noranda, Quebec, Canada.
The Corporation, an exploration stage company, is in the business of acquiring, exploring and developing
mining and oil and gas properties. It has interests in properties at the exploration stage located in Quebec,
Canada, and has not yet determined whether they contain mineral deposits that are economically recoverable.
Until it is determined that properties contain mineral reserves or resources that can be economically mined,
they are classified as exploration properties. The recoverability of mining and oil and gas properties and
deferred exploration expenses is dependent on the discovery of economically recoverable reserves and
resources; securing and maintaining title and beneficial interest in the properties; the ability to obtain
necessary financing to continue the exploration, evaluation and development of its properties; and obtaining
certain government approvals and future profitable production or proceeds from the disposal of properties.
Changes in future conditions could require material impairment of the carrying value of the mining and oil and
gas properties and deferred exploration expenses. Although the Corporation has taken steps to verify title to its
mining and oil and gas properties on which it is currently conducting exploration and in which it is acquiring an
interest, in accordance with industry standards for the current stage of exploration of such property, these
procedures do not guarantee the Corporation’s title. Property title may be subject to unregistered prior
agreements and non compliance with regulatory requirements.
As at December 31, 2013, the Corporation had working capital of $2,277,626 (2012 – $3,002,629) including
cash and cash equivalents of $1,702,514 (2012 – $2,054,073) and accumulated deficit of $26,062,714 (2012 –
$25,318,184), and had incurred a net loss of $744,530 for the year then ended (2012 – $661,365).
Management of the Corporation believes that it has sufficient funds to pay its ongoing general and
administrative expenses, to pursue its 2014 budgeted exploration expenditures and to meet its liabilities,
obligations and existing commitments for the ensuing 12 months as they fall due. In assessing whether the
going concern assumption is appropriate, management takes into account all available information about the
future, which is at least, but not limited to, 12 months from the end of the reporting period. The Corporation’s
ability to continue future operations beyond December 31, 2014 and fund its exploration expenditures is
dependent on management’s ability to secure additional financing in the future, which may be completed in a
number of ways, including, but not limited to, the issuance of debt or equity instruments. Management will
pursue such additional sources of financing when required, and while management has been successful in
securing financing in the past, there can be no assurance it will be able to do so in the future or that these
sources of funding or initiatives will be available for the Corporation or that they will be available on terms
which are acceptable to the Corporation.
The Corporation’s financial year ends on December 31. The consolidated financial statements were authorized
by the Board of Directors for publication on April 28, 2014.
(1)
X-Terra Resources Corporation
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
(expressed in Canadian dollars, except as otherwise stated)
2 Basis of preparation
The consolidated financial statements of the Corporation have been prepared in accordance with International
Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The
consolidated financial statements have been prepared under the historical cost convention, as modified by the
revaluation of financial assets and financial liabilities at fair value through profit or loss.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting
estimates. It also requires management to exercise its judgment in the process of applying the Corporation’s
accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions
and estimates are significant to the consolidated financial statements, are disclosed in note 6.
3
Summary of significant accounting policies
The significant accounting policies used in the preparation of these consolidated financial statements are as
follows.
Basis of measurement
The consolidated financial statements have been prepared under the historical cost convention, except for
certain financial instruments which are measured at fair value. In addition, the consolidated financial
statements have been prepared using the accrual basis of accounting, except for cash flow information.
Consolidation
The financial statements consolidate the accounts of the Corporation and its subsidiaries. All intercompany
transactions, balances, income and expenses, and profits and losses are eliminated on consolidation.
Subsidiaries are all entities over which the Corporation has control. The Corporation controls an entity when
the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability
to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on
which control is transferred to the Corporation and are de-consolidated from the date the control ceases.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, bank balances, and highly liquid short-term investments
with original maturities of three months or less from the date of purchase and which are readily convertible to
known amounts of cash.
(2)
X-Terra Resources Corporation
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
(expressed in Canadian dollars, except as otherwise stated)
Financial instruments
Financial assets and financial liabilities are recognized when the Corporation becomes a party to the contractual
provisions of the instrument. Financial assets are derecognized when the rights to receive cash flows from the
assets have expired or have been transferred and the Corporation has transferred substantially all risks and
rewards of ownership.
Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement
of financial position when there is a legally enforceable right to offset the recognized amounts and there is an
intention to settle on a net basis or realize the asset and settle the liability simultaneously.
All financial instruments are required to be measured at fair value on initial recognition. The fair value is based
on quoted market prices, unless the financial instruments are not traded in an active market. In this case, the
fair value is determined by using valuation techniques like the Black-Scholes option pricing model or other
valuation techniques.
Measurement in subsequent periods depends on the classification of the financial instrument. At initial
recognition, the Corporation classifies its financial instruments in the following categories depending on the
purpose for which the instruments were acquired:
Financial assets and financial liabilities at fair value through profit or loss: A financial asset or
financial liability is classified in this category if acquired principally for the purpose of selling or
repurchasing in the short term. Derivatives are also included in this category unless they are
designated as hedges. Financial instruments in this category are recognized initially and subsequently
at fair value. Transaction costs are expensed in the consolidated statement of loss. Gains and losses
arising from changes in fair value are presented in the consolidated statement of loss in the period in
which they arise. Non-derivative financial assets and financial liabilities at fair value through profit or
loss are classified as current, except for the portion expected to be realized or paid beyond 12 months
of the statement of financial position date, which is classified as non-current.
Available-for-sale investments: Available-for-sale investments are non-derivatives that are either
designated in this category or not classified in any of the other categories. Available-for-sale
investments are recognized initially at fair value plus transaction costs and are subsequently carried at
fair value. Gains or losses arising from changes in fair value are recognized in other comprehensive
income. When an available-for-sale investment is sold or impaired, the accumulated gains or losses are
moved from accumulated other comprehensive income to the consolidated statement of loss.
Available-for-sale investments are classified as non-current, unless an investment matures within
12 months, or management expects to dispose of it within 12 months.
(3)
X-Terra Resources Corporation
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
(expressed in Canadian dollars, except as otherwise stated)
Loans and receivables: Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. Loans and receivables are initially
recognized at the amount expected to be received, less, when material, a discount to reduce the loans
and receivables to fair value. Subsequently, loans and receivables are measured at amortized cost using
the effective interest method less a provision for impairment. Loans and receivables are included in
current assets, except for instruments with maturities greater than 12 months after the end of the
reporting period, which are classified as non-current assets.
Financial liabilities at amortized cost: Financial liabilities at amortized cost consist of accounts
payable and accrued liabilities. Accounts payable and accrued liabilities are initially recognized at the
amount required to be paid, less, when material, a discount to reduce to fair value. Subsequently,
accounts payable and accrued liabilities are measured at amortized cost using the effective interest
method. Financial liabilities are classified as current liabilities if payment is due within 12 months.
Otherwise, they are presented as non-current liabilities.
The Corporation’s financial instruments are classified as follows:
Financial instrument
Money market funds
Marketable securities
Category
Financial assets and financial liabilities
at fair value through profit or loss
Investment in shares of a public company
Available-for-sale investments
Cash on hand and bank balances
Accounts receivable
Loans and receivables
Accounts payable and accrued liabilities
Financial liabilities at amortized cost
Impairment of financial assets
At each reporting date, the Corporation assesses whether there is objective evidence that a financial asset (other
than a financial asset classified at fair value through profit or loss) is impaired. For equity securities, a
significant or prolonged decline in the fair value of the security below its cost is also evidence that the assets are
impaired. If such evidence exists, the Corporation recognizes an impairment loss, as follows:
Financial assets carried at amortized cost: The impairment loss is the difference between the
amortized cost of the loan or receivable and the present value of the estimated future cash flows,
discounted using the instrument’s original effective interest rate. The carrying amount of the asset is
reduced by this amount either directly or indirectly through the use of an allowance account.
Available-for-sale investments: The impairment loss is the difference between the original cost of the
asset and its fair value at the measurement date, less any impairment losses previously recognized in
the consolidated statement of loss. This amount represents loss in accumulated other comprehensive
income that is reclassified to net loss.
(4)
X-Terra Resources Corporation
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
(expressed in Canadian dollars, except as otherwise stated)
Impairment losses on financial assets carried at amortized cost are reversed in subsequent periods if the
amount of the loss decreases and the decrease can be related objectively to an event occurring after the
impairment was recognized. Impairment losses on available-for-sale equity investments are not reversed.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment
losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. Subsequent costs
are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item will flow to the Corporation and the cost can be
measured reliably. The carrying amount of a replaced asset is derecognized when replaced. Repairs and
maintenance costs are charged to the consolidated statement of loss in the period in which they are incurred.
Depreciation is recognized based on the cost of an item of property, plant and equipment less its estimated
residual value, over its estimated useful life as follows:
Computer equipment
Office furniture
Exploration equipment
Method
Declining balance
Declining balance
Declining balance
Rate
30%
20%
30%
The Corporation allocates the amount initially recognized in respect of an item of property, plant and
equipment to its significant parts and depreciates separately each such part. Residual values, method of
depreciation and useful lives of the assets are reviewed annually and adjusted if appropriate.
Gains and losses on disposals of property, plant and equipment are determined by comparing the proceeds with
the carrying amount of the asset and are included in the consolidated statement of loss.
Exploration and evaluation
Exploration and evaluation (E&E) assets comprise mining and oil and gas properties and deferred exploration
expenses. Expenditures incurred on activities that precede exploration for and evaluations of mineral resources,
being all expenditures incurred prior to securing the legal rights to explore an area, are expensed immediately.
E&E assets include rights in mining and oil and gas properties, paid or acquired through a business
combination or an acquisition of assets, and costs related to the initial search for mineral deposits with
economic potential or to obtain more information about existing mineral deposits.
Mining and oil and gas rights are recorded at acquisition cost or at recoverable amount, being the higher of the
fair value less cost to sell and value in use, in the case of a devaluation caused by an impairment of value.
Mining and oil and gas rights and options to acquire undivided interests in mining and oil and gas rights are
depreciated only as these properties are put into commercial production.
(5)
X-Terra Resources Corporation
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
(expressed in Canadian dollars, except as otherwise stated)
From time to time, the Corporation may acquire or dispose of a property pursuant to the terms of an option
agreement. Due to the fact that options are exercisable entirely at the discretion of the option holder, the
amounts payable or receivable are not recorded. Option payments are recorded as property costs or recoveries
when the payments are made or received.
E&E expenditures for each separate area of interest are capitalized and include costs associated with
prospecting, sampling, trenching, drilling and other work involved in searching for ore, such as topographical,
geological, geochemical and geophysical studies. They also reflect costs related to establishing the technical and
commercial viability of extracting a mineral resource identified through exploration or acquired through a
business combination or asset acquisition. E&E expenditures include the cost of:
establishing the volume and grade of deposits through drilling of core samples, trenching and
sampling activities in an ore body that is classified as a mineral resource;
determining the optimal methods of extraction and metallurgical and treatment processes;
studies related to surveying, transportation and infrastructure requirements;
licencing activities; and
economic evaluations to determine whether development of the mineralized material is commercially
justified, including scoping, prefeasibility and final feasibility studies.
E&E expenditures include overhead expenses directly attributable to the related activities.
Cash flows attributable to capitalized E&E costs are classified as investing activities in the consolidated
statement of cash flows under the headings expenditures on mining and oil and gas properties and
expenditures on deferred exploration expenses.
Impairment of non-financial assets
Non-financial assets are reviewed for impairment if there is any indication that the carrying amount may not be
recoverable. If any such indication is present, the recoverable amount of the asset is estimated in order to
determine whether impairment exists. Where the asset does not generate cash flows that are independent from
other assets, the Corporation estimates the recoverable amount of the cash-generating unit (CGU) to which the
asset belongs. An asset’s recoverable amount is the higher of fair value less costs of disposal and value in use.
If the recoverable amount of an asset or CGU is estimated to be less than its carrying amount, the carrying
amount is reduced to the recoverable amount. Impairment is recognized immediately as additional depreciation
or amortization. Where an impairment subsequently reverses, the carrying amount is increased to the revised
estimate of recoverable amount but only to the extent that this does not exceed the carrying value that would
have been determined if no impairment had previously been recognized. A reversal is recognized as a reduction
in the depreciation or amortization charge for the period.
(6)
X-Terra Resources Corporation
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
(expressed in Canadian dollars, except as otherwise stated)
Government assistance
The Corporation is entitled to refundable tax credits on qualified mining exploration expenses incurred in the
province of Quebec and to Quebec refundable credits on mining duties, which are recorded against the deferred
exploration expenditures reported on the consolidated statement of financial position.
Share-based compensation
The fair value of share options granted to employees are recognized as an expense, or capitalized to deferred
exploration expenses, over the vesting period with a corresponding increase in contributed surplus. An
individual is classified as an employee when the individual is an employee for legal or tax purposes (direct
employee) or provides services similar to those performed by a direct employee, including directors of the
Corporation.
The fair value is measured at the grant date and recognized over the period in which the options vest. The fair
value of the options granted is measured using the Black-Scholes option pricing model, taking into account the
terms and conditions on which the options were granted. At each financial position reporting date, the amount
recognized as an expense is adjusted to reflect the actual number of share options that are expected to vest.
In situations where equity instruments are issued to non-employees and some or all of the goods or services
received by the entity as consideration cannot be specifically identified, equity instruments are measured at the
fair value of the share-based compensation. Otherwise, share-based compensation is measured at the fair value
of goods or services received.
Share capital and warrants
Common shares and warrants are classified as equity. Incremental costs directly attributable to the issuance of
shares or warrants are recognized as a deduction from the proceeds in equity in the period the transaction
occurs. Proceeds from unit placements are allocated between shares and warrants issued, proportionate to the
fair value of the shares and warrants within the unit, using the Black-Scholes options pricing model to
determine the fair value of warrants issued.
Flow-through shares
The Corporation finances some exploration expenditures through the issuance of flow-through shares. The
resource expenditure deductions for income tax purposes are renounced to investors in accordance with the
appropriate income tax legislation. The Corporation recognizes a deferred income tax liability for flow-through
shares and a deferred income tax expense when the eligible expenditures are incurred. The difference between
the quoted price of the common shares and the amount the investors pay for the shares (the premium) is
recognized as other liability, which is reversed as a deferred income tax recovery when eligible expenditures
have been made.
(7)
X-Terra Resources Corporation
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
(expressed in Canadian dollars, except as otherwise stated)
Income tax
Income tax on profit or loss for the periods presented comprises current and deferred tax. Income tax is
recognized in the consolidated statement of loss except to the extent that it relates to items recognized directly
in other comprehensive income or in equity, in which case it is recognized in other comprehensive income or in
equity, respectively.
Mining taxes represent Canadian provincial tax levied on mining operations and are classified as income tax
since such taxes are based on a percentage of mining profits.
Current income tax expense is the expected tax payable on taxable income for the year, using tax rates enacted
or substantively enacted at year-end, adjusted for amendments to income tax payable with regard to previous
years. Management periodically evaluates positions taken in income tax returns with respect to situations in
which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the
basis of amounts expected to be paid to the tax authorities.
Deferred income tax is provided using the balance sheet liability method, providing for temporary differences
between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial
statements. Deferred income tax is not recognized where the temporary difference arises from the initial
recognition of goodwill or the initial recognition of an asset or liability in a transaction other than a business
combination that at the time of the transaction affects neither accounting nor taxable profit or loss. The amount
of deferred income 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 financial position
reporting date.
A deferred income 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.
Deferred income tax assets and liabilities are presented as non-current and are offset when there is a legally
enforceable right to offset current income tax assets against current income tax liabilities and when deferred
income tax assets and liabilities relate to income tax levied by the same taxation authority on either the same
taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
Loss per share
The Corporation presents basic and diluted loss per share data for its common shares, calculated by dividing
the loss attributable to common shareholders of the Corporation by the weighted average number of common
shares outstanding during the year. Diluted loss per share is determined by adjusting the loss attributable to
common shareholders and the weighted average number of common shares outstanding for the effects of all
warrants, brokers’ options and stock options outstanding that may add to the total number of common shares.
When the Corporation reports a loss, the diluted net loss per common share is equal to the basic net loss per
common share due to the anti-dilutive effect of the outstanding warrants, brokers’ options and stock options.
(8)
X-Terra Resources Corporation
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
(expressed in Canadian dollars, except as otherwise stated)
Segment disclosures
The Corporation currently operates in a single segment: the acquisition, exploration and development of
mining and oil and gas properties. All of the Corporation’s activities are conducted in Quebec, Canada.
Functional currency
Items included on the consolidated financial statements are measured using the currency of the primary
economic environment in which the Corporation operates (the functional currency). The functional currency of
each consolidated entity is the Canadian dollar.
4 Changes in accounting policies
The Corporation has adopted the following new and revised standards, along with any consequential
amendments, effective January 1, 2013. These changes were made in accordance with the applicable
transitional provisions.
IAS 1, Presentation of Financial Statements
The Corporation has adopted the amendments to IAS 1 effective January 1, 2013. These amendments required
the Corporation to group other comprehensive income items based on whether or not they may be reclassified
to net earnings or loss in the future. The Corporation has reclassified comprehensive loss items of the
comparative period. These changes did not result in any adjustments to other comprehensive income or
comprehensive loss, as other comprehensive income is composed solely of items that may be reclassified
subsequently to net earnings or loss.
IFRS 10, Consolidated Financial Statements
IFRS 10 replaces the guidance on control and consolidation in IAS 27, Consolidated and Separate Financial
Statements, and SIC 12, Consolidation – Special Purpose Entities. IFRS 10 requires consolidation of an investee
only if the investor possesses power over the investee, has exposure to variable returns from its involvement
with the investee and has the ability to use its power over the investee to affect its returns. Detailed guidance is
provided on applying the definition of control. The accounting requirements for consolidation have remained
largely consistent with IAS 27. The Corporation assessed its consolidation conclusions on January 1, 2013 and
determined that the adoption of IFRS 10 did not result in any change in the consolidation status of its
subsidiaries and investees.
(9)
X-Terra Resources Corporation
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
(expressed in Canadian dollars, except as otherwise stated)
IFRS 11, Joint Arrangements
IFRS 11 supersedes IAS 31, Interests in Joint Ventures, and requires joint arrangements to be classified as
either joint operations or joint ventures, depending on the contractual rights and obligations of each investor
that jointly controls the arrangement. For joint operations, a company recognizes its share of assets, liabilities,
revenues and expenses of the joint operation. An investment in a joint venture is accounted for using the equity
method as set out in IAS 28, Investments in Associates and Joint Ventures (amended in 2011). The adoption of
IFRS 11 did not affect the Corporation.
IFRS 12, Disclosure of Interests in Other Entities
IFRS 12 establishes disclosure requirements for interests in other entities, such as subsidiaries, joint
arrangements, associates and unconsolidated structured entities. The standard carries forward existing
disclosures and also introduces significant additional disclosure that address the nature of, and risks associated
with, an entity’s interests in other entities. The standard includes disclosure requirements for entities covered
under IFRS 10 and IFRS 11. The adoption of IFRS 12 did not result in significant incremental disclosures in the
consolidated financial statements.
IFRS 13, Fair Value Measurement
IFRS 13 provides a single framework for measuring fair value. The measurement of the fair value of an asset or
liability is based on assumptions that market participants would use when pricing the asset or liability under
current market conditions, including assumptions about risk. The Corporation adopted IFRS 13 on January 1,
2013 on a prospective basis. The adoption of IFRS 13 did not require any adjustments to the valuation
techniques used by the Corporation to measure fair value and did not result in any measurement adjustments
as at January 1, 2013.
The Corporation’s finance department is responsible for performing the valuation of financial instruments at
each reporting date, including Level 3 fair values. The Corporation’s policy is to recognize transfers into and out
of fair value hierarchy levels as of the date of the event or change in circumstances that caused the transfer. The
Corporation added additional disclosures on fair value in its consolidated financial statements.
5 New accounting standards not yet adopted
The Corporation has not yet adopted certain standards, interpretations to existing standards and amendments
which have been issued but have an effective date of later than January 1, 2013. Many of these updates are not
relevant to the Corporation and are therefore not discussed herein.
(10)
X-Terra Resources Corporation
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
(expressed in Canadian dollars, except as otherwise stated)
IFRS 9, Financial Instruments
In November 2009 and October 2010, the International Accounting Standards Board (IASB) issued the first
phase of IFRS 9. In November 2013, the IASB issued a new general hedge accounting standard which forms
part of IFRS 9. The new standard removes the January 1, 2015 effective date of IFRS 9. The new mandatory
effective date will be determined once the classification and measurement and impairment phases of IFRS 9 are
finalized.
This standard is part of a wider project to replace IAS 39, Financial Instruments: Recognition and
Measurement. IFRS 9 replaces the current multiple classification and measurement models for financial assets
and financial liabilities with a single model that has only two classification categories: amortized cost and fair
value. The basis of classification depends on the entity’s business model and the contractual cash flow
characteristics of the financial asset or financial liability. It also introduces additional changes relating to
financial liabilities and aligns hedge accounting more closely with risk management. The mandatory effective
date is not yet determined; however, early adoption of the new standard is still permitted. The Corporation does
not intend to early adopt IFRS 9 in its financial statements for the annual period beginning January 1, 2014.
The extent of the impact of adoption of IFRS 9 has not yet been determined.
IFRIC 21, Levies
In May 2013, the IASB issued IFRIC 21, which is effective for annual periods beginning on or after January 1,
2014 and is to be applied retrospectively. IFRIC 21 provides guidance on accounting for levies in accordance
with IAS 37, Provisions, Contingent Liabilities and Contingent Assets. The interpretation defines a levy as an
outflow from an entity imposed by a government in accordance with legislation and confirms that an entity
recognizes a liability for a levy only when the triggering event specified in the legislation occurs. The
Corporation will adopt IFRIC 21 in its consolidated financial statements for the annual period beginning
January 1, 2014. The extent of the impact of adoption of IFRIC 21 has not yet been determined.
6 Critical accounting estimates, judgments and assumptions
The preparation of consolidated financial statements requires management to use judgment in applying its
accounting policies and estimates and assumptions about the future. Estimates and other judgments are
continually evaluated and are based on management’s experience and other factors, including expectations
about future events that are believed to be reasonable under the circumstances. Actual results may differ from
the amounts included in the consolidated financial statements. The following discusses the most significant
accounting judgments and estimates that the Corporation has made in the preparation of the consolidated
financial statements.
(11)
X-Terra Resources Corporation
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
(expressed in Canadian dollars, except as otherwise stated)
Critical judgments in applying accounting estimates:
a)
Impairment of non-financial assets
The Corporation’s evaluation of the measurement of the recoverable amount with respect to the carrying
amount of non-financial assets is based on numerous assumptions and may differ significantly from actual
recoverable amounts. The recoverable amounts are based, in part, on certain factors that may be partially
or totally outside of the Corporation’s control. This evaluation involves a comparison of the estimated
recoverable amounts of non-financial assets to their carrying values. The Corporation’s estimates of the
recoverable amounts are based on numerous assumptions. Those estimates may differ from actual
recoverable amounts, and the differences may be significant and could have a material impact on the
Corporation’s financial position and results of operations. Assets are reviewed for an indication of
impairment at each statement of financial position date and when an event or circumstance that could
trigger impairment occurs. This determination requires significant judgment. Factors which could trigger
an impairment review include, but are not limited to, an expiry of the right to explore in the specific area
during the year or will expire in the near future, and is not expected to be renewed; substantive E&E
expenditures in a specific area is neither budgeted nor planned; exploration for and evaluation of mineral
or oil and gas resources in a specific area have not led to the discovery of commercially viable quantities of
mineral or oil and gas resources, and the entity has decided to discontinue such activities in the specific
area; or sufficient data exists to indicate that, although development in a specific area is likely to proceed,
the carrying amount of the assets is unlikely to be recovered in full from successful development or by sale,
significant negative industry or economic trends and significant drop in commodity prices.
No properties or deferred exploration expenses were impaired in 2013 or in 2012.
b)
Impairment of financial assets
The Corporation follows the guidance of IAS 39 to determine when an available-for-sale equity instrument
is impaired. This determination requires significant judgment. In making this judgment, the Corporation
evaluates, among other factors, the duration and extent to which the fair value of an investment is less than
its cost and the financial health of and short-term business outlook for the investee, including factors such
as industry and sector performance and operational and financing cash flows.
Critical judgments in applying accounting policies:
a)
Cash and cash equivalents
The Corporation holds investments in highly liquid money market investment funds (i.e. high-interest
savings funds). The determination of whether a money market fund qualifies as a cash equivalent requires
significant judgment. In determining whether such investments qualify as cash equivalents, the
Corporation considers the following criteria: whether all investments held by the fund qualify individually
as cash equivalents, the fund’s management and investment policies, and any position papers issued by the
associated financial institution or others.
(12)
X-Terra Resources Corporation
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
(expressed in Canadian dollars, except as otherwise stated)
b) Recognition of deferred income tax assets and measurement of income tax expense
Periodically, the Corporation evaluates the likelihood of whether some portion of the deferred tax assets
will not be realized. Once the evaluation is completed, if the Corporation believes that it is probable that
some portion of the deferred tax assets will fail to be realized, it records only the remaining portion for
which it is probable that there will be available future taxable profit against which the temporary
differences can be utilized. Assessing the recoverability of deferred income tax assets requires management
to make significant judgment. To the extent that future cash flows and taxable income differ significantly
from estimates, the ability of the Corporation to realize the net deferred tax assets recorded at the
consolidated statement of financial position date could be impacted. Significant judgment is required in
determining the income tax expense (recovery) as there are transactions and calculations for which the
ultimate tax determination is uncertain.
c) Going concern
The assessment of the Corporation’s ability to execute its strategy by funding future working capital
requirements and E&E activities involves judgment. Estimates and assumptions are continually evaluated
and are based on historical experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances.
7 Cash and cash equivalents
Cash on hand and bank balances
Money market funds
8 Marketable securities
Corporate bonds
a)
Interest rate
2013
$
20,571
1,681,943
1,702,514
2012
$
106,389
1,947,684
2,054,073
Maturity
2013
Amount
$
Maturity
2012
Amount
$
1 year
508,175
2 years
515,165
As at December 31, 2013, the bonds bear interest at a fixed rate of 3.27% (2012 – at fixed rate of 3.27%).
(13)
X-Terra Resources Corporation
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
(expressed in Canadian dollars, except as otherwise stated)
b)
Fair value
For the year ended December 31, 2013, the Corporation recognized in net loss for the year an unrealized
loss of $6,990 (2012 – unrealized gain of $9,190) and no realized loss (2012 – $19,575) on marketable
securities.
9
Investment
Investment comprises:
Common shares of an oil and gas exploration public company
100,000
420,000
The unrealized gain (loss) on investment during the year comprises the following:
2013
$
2012
$
2013
$
2012
$
Available-for-sale investment classified to other comprehensive
income
10,000
(340,000)
The fair value of the investment in common shares is based on the quoted market price of those shares on a
recognized stock exchange at the end of each reporting period.
The unrealized loss on available-for-sale investments is recognized in other comprehensive income. In 2012, an
impairment of $368,151 on the available-for-sale investment was reclassified from other comprehensive income
to the consolidated statement of loss.
Following the impairment loss on the available-for-sale investment recorded in 2012, a subsequent unrealized
loss on this investment of $330,000 was noted in 2013. The impairment loss on the available-for-sale
investment was recorded directly in the consolidated statement of loss in 2013.
(14)
X-Terra Resources Corporation
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
(expressed in Canadian dollars, except as otherwise stated)
10 Accounts receivable and tax credits receivable
Accounts receivable
Sales taxes
Receivable from a partner
Interest income receivable
Tax credits receivable
Refundable tax credits and mining duties
Tax credits receivable are classified as current assets.
11 Property, plant and equipment
2013
$
30,813
-
2,285
33,098
2012
$
9,068
63
2,284
11,415
24,979
12,929
Year ended December 31, 2012
Opening net book amount
Depreciation for the year
Closing net book amount
As at December 31, 2012
Cost
Accumulated depreciation
Net book amount
Year ended December 31, 2013
Opening net book amount
Depreciation for the year
Closing net book amount
As at December 31, 2013
Cost
Accumulated depreciation
Net book amount
Computer
equipment
$
Office
furniture
$
Exploration
equipment
$
4,629
(1,389)
3,240
13,875
(10,635)
3,240
3,240
(972)
2,268
13,875
(11,607)
2,268
4,874
(975)
3,899
7,608
(3,709)
3,899
3,899
(780)
3,119
7,608
(4,489)
3,119
4,641
(1,392)
3,249
7,800
(4,551)
3,249
3,249
(975)
2,274
7,800
(5,526)
2,274
Total
$
14,144
(3,756)
10,388
29,283
(18,895)
10,388
10,388
(2,727)
7,661
29,283
(21,622)
7,661
(15)
X-Terra Resources Corporation
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
(expressed in Canadian dollars, except as otherwise stated)
12 Mining and oil and gas properties
All mining and oil and gas properties are located in Canada.
Property
Lindsay
Rimouski
Rimouski North
Trois-Pistoles
Sheldon
Property
Lindsay
Rimouski
Rimouski North
Trois-Pistoles
Number of
claims/
licences
Undivided
interest
%
Balance
as at
December 31,
2012
$
Net
acquisitions
$
25
2
3
8
76
100
50
50
50
100
982,617
9,989
13,157
23,635
-
-
1,995
2,628
7,879
4,070
2013
Balance
as at
December 31,
2013
$
982,617
11,984
15,785
31,514
4,070
1,029,398
16,572
1,045,970
Number of
claims/
licences
Undivided
interest
%
Balance
as at
December 31,
2011
$
Net
acquisitions
$
2012
Balance
as at
December 31,
2012
$
25
2
3
8
100
50
50
50
980,485
7,994
10,529
15,757
2,132
1,995
2,628
7,878
982,617
9,989
13,157
23,635
1,014,765
14,633
1,029,398
Note
12(a)
12(a)
Note
12(a)
12(a)
a) On October 28, 2008, the Corporation entered into an agreement with Brownstone Energy Inc.
(Brownstone) whereby Brownstone acquired a 50% interest in the exploration licences of the Rimouski,
Rimouski North and Shawinigan properties in exchange for the issuance to the Corporation of 2,000,000
common shares valued at $740,000 and 2,000,000 common share purchase warrants valued at $103,806.
Brownstone is the operator of an exploration program for the territories covered by the licences, of which
the Shawinigan property has since been written off.
(16)
X-Terra Resources Corporation
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
(expressed in Canadian dollars, except as otherwise stated)
13 Deferred exploration expenses
Property
Note
Undivided
interest
%
Balance
as at
December 31,
2012
$
Refundable
tax credits
and mining
duties
$
Balance
as at
December 31,
2013
$
Increase
$
2013
Lindsay
Rimouski
Rimouski North
Trois-Pistoles
Sheldon
12(a)
12(a)
100
50
50
50
100
Property
Lindsay
Rimouski
Rimouski North
Trois-Pistoles
Note
12(a)
12(a)
Undivided
interest
%
100
50
50
50
550,528
43,171
45,496
2,092
-
1,447
62
62
-
54,961
(506)
(22)
(22)
-
(27,904)
551,469
43,211
45,536
2,092
27,057
641,287
56,532
(28,454)
669,365
Balance
as at
December 31,
2011
$
528,190
42,695
45,062
2,092
Increase
$
34,118
696
632
-
2012
Refundable
tax credits
and mining
duties
$
Balance
as at
December 31,
2012
$
(11,780)
(220)
(198)
-
550,528
43,171
45,496
2,092
618,039
35,446
(12,198)
641,287
(17)
X-Terra Resources Corporation
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
(expressed in Canadian dollars, except as otherwise stated)
14 Share capital and warrants
Share capital
Authorized
Unlimited common shares without par value
Warrants
As at December 31, 2013 and 2012, the outstanding warrants that may be exercised to acquire common shares
are detailed as follows:
2013
Weighted
average
exercise
price
$
Number of
warrants
Number of
warrants
Warrants – Beginning of year
Expired*
5,000,000
(5,000,000)
1.50
1.50
5,000,000
-
Warrants – End of year
-
-
5,000,000
* In 2013, 5,000,000 warrants expired unexercised (2012 – no warrants).
2012
Weighted
average
exercise
price
$
1.50
-
1.50
No warrants were exercised in 2013 and 2012.
15 Share purchase options
In 1997, the Corporation adopted a stock option plan (the Option Plan), as amended, authorizing the granting
of stock options to qualified employees, directors and consultants to purchase a total maximum of 10% of the
number of outstanding issued common shares of the Corporation at any time. This is referred to as a “rolling
plan.” Under the Option Plan amended in 2010, the term of stock options granted may not exceed ten years
following the date of grant, while the term was five years before the amendment.
In 2013, the Corporation granted a total of 525,000 stock options to a director of the Corporation, which are
exercisable at $0.10 per share. Options vested at the grant date. These options will expire on the tenth
anniversary of their day of issuance. The fair value of options awarded is $0.098 per share for a total share-
based compensation expense of $51,450. The market price of the Corporation’s share was equal to the exercise
price at the grant date determined on the previous day’s closing price.
(18)
X-Terra Resources Corporation
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
(expressed in Canadian dollars, except as otherwise stated)
In 2012, the Corporation granted a total of 50,000 stock options to a director of the Corporation, which are
exercisable at $0.25 per share. Options vested at the grant date. These options will expire on the tenth
anniversary of their day of issuance. The fair value options awarded is $0.198 per share for a total share-based
compensation expense of $9,900. The market price of the Corporation’s share was equal to the exercise price at
the grant date determined on the previous day closing price.
2013
Weighted
average
exercise
price
$
1.06
0.10
1.62
-
0.25
0.25
2012
Weighted
average
exercise
price
$
1.07
0.25
1.10
0.82
1.06
1.06
Number of
options
1,175,000
50,000
(60,000)
(145,000)
1,020,000
1,020,000
Number of
options
1,020,000
525,000
(545,000)
-
1,000,000
1,000,000
Outstanding options – Beginning of year
Options granted
Options expired
Options forfeited
Outstanding options – End of year
Exercisable options
No stock options were exercised in 2013 and 2012.
Information relating to options outstanding and exercisable granted to directors and officers as at
December 31, 2013 is as follows:
Number
of options
outstanding
and
exercisable
265,000
160,000
50,000
525,000
1,000,000
Weighted
average
remaining
contractual
life
0.5 years
6.5 years
8.54 years
9.51 years
Exercise
price
$
0.50
0.35
0.25
0.10
(19)
X-Terra Resources Corporation
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
(expressed in Canadian dollars, except as otherwise stated)
The fair value of options at the time of grant in 2013 was estimated at $51,450 ($9,900 at the time of grant in
2012) based on the Black-Scholes option pricing model, using the following weighted average assumptions:
Expected life
Share price
Risk-free interest rate
Expected volatility
Expected dividend yield
Expected forfeiture rate
2013
$
10 years
$0.10
2.41%
143%
Nil
0%
2012
$
10 years
$0.21
1.64%
121%
Nil
0%
16 Related party transactions and compensation of key management
Related party transactions
Related party transactions occurred in the normal course of business. Unless indicated otherwise, the following
transactions are included in the consolidated statements of loss:
Officers or a company held by officers
Consulting fees
Rent
2013
$
111,980
24,000
2012
$
174,160
24,000
As at December 31, 2013, the balance due to related parties amounts to $10,256 (2012 – $13,797). This amount
is subject to the same conditions as those of non-related parties.
Compensation of key management
The Corporation has a service agreement with a related party to provide management services to the
Corporation, including senior executives. Because of the service agreement, the Corporation has no employee
benefits expense.
Key management includes directors and senior executives. The compensation paid or payable to key
management is presented below:
Key management services and directors’ fees
Share-based compensation expense
2013
$
85,400
51,450
136,850
2012
$
124,780
9,900
134,680
(20)
X-Terra Resources Corporation
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
(expressed in Canadian dollars, except as otherwise stated)
17 Income tax
The major components of income tax expense are as follows:
Income tax expense applicable to:
Deferred income tax expense
Relating to writedown of a deferred income tax asset
Total deferred income tax expense
2013
$
-
-
2012
$
-
-
A reconciliation between income tax expense and the product of accounting loss multiplied by the Corporation’s
domestic tax rate is as follows:
Statutory tax rate
Tax benefit of statutory rate
Tax effect of unrecognized deferred income tax asset
Impact of change in federal deferred income tax rate
Permanent differences
Other
Total deferred income tax expense
2013
$
26.9%
(200,279)
140,312
-
59,491
476
-
2012
$
26.9%
(177,907)
121,532
-
54,102
2,273
-
The tax benefits of the following temporary differences have not been recognized in the consolidated financial
statements:
Deferred income tax assets
Non-capital loss carryforward
Capital loss
Investments
Resource assets
As at
December 31,
2013
$
As at
December 31,
2012
$
861,025
1,476,852
93,222
201,600
769,075
1,476,708
48,714
199,234
Net deferred income tax assets
2,632,699
2,493,731
As at December 31, 2013, the tax base of the E&E assets totalled approximately $2,440,870 (2012 –
$2,381,484). The difference between the tax base and the amount capitalized is due mainly to the fact that
certain E&E assets were written down.
(21)
X-Terra Resources Corporation
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
(expressed in Canadian dollars, except as otherwise stated)
As at December 31, 2013, the Corporation had accumulated non-capital losses for tax purposes of
approximately $3,200,835 (2012 – $2,858,017) which can be used to reduce taxable income in future years as
follows:
Expiration date
of tax loss
carryforwards
2014
2015
2026
2027
2028
2029
2030
2031
2032
2033
Year
incurred
Federal and
provincial
$
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
65,400
84,901
91,495
348,096
348,762
452,504
490,934
543,503
423,086
352,154
3,200,835
The Corporation’s balance of capital losses amounts to approximately $980,314 and can be carried forward
indefinitely to be used against future capital gains.
The Corporation is subject to federal and provincial income taxes and provincial mining taxes. Tax laws are
complex and can be subject to different interpretations. The Corporation has prepared its tax provision based
on the interpretations of tax laws which it believes represent the probable outcome. The Corporation may be
required to change its provision for income tax if the tax authorities ultimately are not in agreement with the
Corporation’s interpretation.
18 Financial risk management objectives and policies, and financial risks
Financial risk management objectives and policies
The Corporation is exposed to various financial risks resulting from both its operations and its investment
activities. The Corporation’s management manages financial risks. The Corporation does not enter into
financial instrument agreements, including derivative financial instruments, for speculative purposes.
The main financial risks to which the Corporation is exposed are detailed below.
(22)
X-Terra Resources Corporation
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
(expressed in Canadian dollars, except as otherwise stated)
Liquidity risk
Liquidity risk is the risk that the Corporation will not have sufficient cash resources to meet its financial
obligations as they come due. As further mentioned in note 1, the Corporation’s liquidity and operating results
may be adversely affected if the Corporation’s access to the capital market is hindered, whether as a result of a
downturn in stock market conditions generally or related to matters specific to the Corporation. The
Corporation has historically generated cash flows primarily from its financing activities. As at December 31,
2013, the Corporation had cash and cash equivalents amounting to $1,702,514 (2012 – $2,054,073) to settle
current liabilities of $96,678 (2012 – $16,487). All of the Corporation’s financial liabilities have contractual
maturities of less than 30 days and are subject to normal trade terms. The Corporation regularly evaluates its
cash position to ensure preservation and security of capital as well as maintenance of liquidity.
Credit risk
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the
other party to incur a financial loss. The Corporation is subject to concentrations of credit risk through cash and
cash equivalents, marketable securities, investment and accounts receivable. Accounts receivable consist mainly
of goods and services tax due from the federal government and provincial sales tax due from the Quebec
government, as well as amounts receivable from a partner (reimbursed in 2013) and interest income receivable
from reputable institutions. Based on the credit risk analysis performed by the Corporation, the risk is
considered limited. The Corporation reduces its credit risk by maintaining part of its cash and cash equivalents
in financial instruments issued by and held with a Canadian chartered bank and the remainder in financial
instruments guaranteed by Canadian chartered banks held with an independent investment dealer member of
the Canadian Investor Protection Fund. The marketable securities are composed of bonds from a reputable
financial institution.
The carrying amount representing the maximum credit exposure of the Corporation by class of financial assets
is as follows:
Loans and receivables
Accounts receivable
Market risk
2013
$
2012
$
33,098
11,415
Market risk is the risk of loss that may arise from changes in market factors such as market price and interest
rates.
(23)
X-Terra Resources Corporation
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
(expressed in Canadian dollars, except as otherwise stated)
Price risk
The Corporation is exposed to price risk on equity securities because of its investments held in a junior
exploration company. When trading its shares, unfavourable market conditions could result in the disposal of
the Corporation’s listed shares at less than their value as at December 31, 2013. A 10% variation in the closing
price on the stock market would result in an estimated ±$10,000 in other comprehensive loss at year-end.
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate due to
changes in market interest rates. The Corporation has cash balances, and its current policy is to invest excess
cash in certificates of deposit or money market funds of major Canadian chartered banks. The bonds
comprising marketable securities bear interest at fixed rates, and the Corporation is therefore exposed to the
risk of changes in fair value resulting from interest rate fluctuations. The sensitivity of the Corporation to a 1%
fluctuation in the interest rate would not have a significant impact. The Corporation’s other financial assets and
financial liabilities are not subject to interest rate risk since they are non-interest bearing.
Fair value
Fair value estimates are made at the statement of financial position dates, based on relevant market
information and other information about financial instruments.
The Corporation’s financial instruments as at December 31, 2013 consist of cash and cash equivalents,
marketable securities, available-for-sale investment and accounts payable and accrued liabilities. The fair value
of these financial instruments (other than cash and cash equivalents held in money market funds, marketable
securities and available-for-sale investment, which are all recorded at fair value) approximates their carrying
value due to their short maturity and current market rates.
Fair value hierarchy
Financial instruments in Level 1
The fair value of financial instruments traded in active markets is based on quoted market prices on a
recognized securities exchange at the statement of financial position dates. The quoted market price used for
financial assets held by the Corporation is the last transaction price. Instruments included in Level 1 consist
primarily of common shares trading on the TSX.
Financial instruments in Level 2
The fair value of financial instruments that are not traded in an active market is determined by using valuation
techniques.
These valuation techniques maximize the use of observable market data where it is available and rely as little as
possible on the Corporation’s specific estimates. If all significant inputs required to measure the fair value of an
instrument are observable, the instrument is included in Level 2.
(24)
X-Terra Resources Corporation
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
(expressed in Canadian dollars, except as otherwise stated)
If one or more of the significant inputs are not based on observable market data, the instrument is included in
Level 3. As at December 31 2013 and 2012, there are no Level 3 financial instruments.
Financial assets at fair value
through profit or loss
Money market funds
Marketable securities
Available for sale
Investment in common shares
of public company
Financial assets at fair value
through profit or loss
Money market funds
Marketable securities
Available for sale
Investment in common shares
of public company
Financial assets measured at fair value
2013
Level 1
$
Level 2
$
Level 3
$
Total
$
1,681,943
-
1,681,943
-
508,175
508,175
100,000
-
-
-
-
-
1,681,943
508,175
2,190,118
100,000
Financial assets measured at fair value
2012
Level 1
$
Level 2
$
Level 3
$
Total
$
1,947,684
-
1,947,684
-
515,165
515,165
420,000
-
-
-
-
-
1,947,684
515,165
2,462,849
420,000
19 Capital management policies and procedures
The Corporation’s capital management objectives are to ensure that the Corporation is able to pursue its
operations, including the acquisition and exploration and evaluation of mining properties.
The Corporation considers equity, which totals $4,000,622 as at December 31, 2013 (December 31, 2012 –
$4,683,702), as its capital.
The Corporation manages its capital structure and makes adjustments to ensure that sufficient liquidity is
available to pursue its mining and oil and gas property E&E activities. Accordingly, as necessary, it will attempt
to obtain additional capital through equity markets.
(25)
X-Terra Resources Corporation
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
(expressed in Canadian dollars, except as otherwise stated)
There were no significant changes in the Corporation’s approach to capital management during the year ended
December 31, 2013. The Corporation does not have any externally imposed capital requirements or regulatory
or contractual requirements to which it is subject, unless the Corporation closes a flow-through private
placement, in which case the funds are restricted in use for E&E expenses. Changes in capital are presented in
the consolidated statement of changes in equity.
20 Subsequent event
On April 28, 2014, the Corporation entered into an Asset Transfer Agreement with X-Terra Resources Inc.
(New X-Terra), a wholly-owned subsidiary of the Corporation, for a proposed spin-out (the Spin-Out) of
substantially all of the assets and all of the liabilities of the Corporation to New X-Terra and the distribution of a
portion of the shares of New X-Terra to the shareholders of the Corporation. On April 28, 2014, the Corporation
also entered into a Share Exchange Agreement with Norvista Resources Corporation and Norvista Capital
Corporation for a reverse take-over of the Corporation involving Norvista Capital Corporation (the Reverse
Take-Over), following which the name of the Corporation will be changed to Norvista Capital Corporation (New
Norvista). After the Spin-Out and Reverse Take-Over, current shareholders of the Corporation will become
shareholders of New X-Terra, which will carry on the Corporation’s current mining exploration business, as
well as shareholders of New Norvista, which will be a natural resources merchant bank.
Completion of the Spin-Out and Reverse Take-Over is subject to a number of conditions, including but not
limited to regulatory approval, including that of the TSX Venture Exchange, shareholder approval and
financing.
(26)