BLACK SEA COPPER & GOLD CORP.

Transcription

1 Consolidated Financial Statements of BLACK SEA COPPER & GOLD CORP. (formerly ALTERNATIVE EARTH RESOURCES INC.) Years ended June 30, 2017 and

2 INDEPENDENT AUDITOR S REPORT To the Shareholders of Black Sea Copper & Gold Corp. (formerly Alternative Earth Resources Inc.) We have audited the accompanying consolidated financial statements of Black Sea Copper & Gold Corp. (formerly Alternative Earth Resources Inc.) which comprise the consolidated statements of financial position as at June 30, 2017, and the consolidated statements comprehensive loss, changes in equity, and cash flows for the year then ended, and the related notes comprising a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit 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 involves evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained in our audit is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of Black Sea Copper & Gold Corp. (formerly Alternative Earth Resources Inc.) as at June 30, 2017 and its financial performance and its cash flows for the year then ended, in accordance with International Financial Reporting Standards. Other Matter The consolidated financial statements of Black Sea Copper & Gold Corp. (formerly Alternative Earth Resources Inc.) for the year ended June 30, 2016 were audited by another auditor who expressed an unmodified opinion on those statements on October 24, Vancouver, Canada October 27, 2017 DALE MATHESON CARR-HILTON LABONTE LLP CHARTERED PROFESSIONAL ACCOUNTANTS 2

3 Consolidated statements of financial position Note June 30, 2017 June 30, 2016 ASSETS Current assets Cash $ 1,586,728 $ 1,719,343 Amounts receivable 9,946 32,663 Loans receivable 10 74,375 - Prepaid expenses and deposits 7,613 56,283 Total current assets 1,678,662 1,808,289 Non-current assets Restricted cash 4-32,293 Equipment - 6,496 Exploration and evaluation assets 6 1,296,470 - Total non-current assets 1,296,470 38,789 TOTAL ASSETS $ 2,975,132 $ 1,847,078 LIABILITIES AND EQUITY Current liabilities Accounts payable and accrued liabilities $ 39,989 $ 145,877 Convertible debentures 7,10 258, , ,877 Non-current liabilities Asset retirement obligations 4-267,149 Total liabilities 298, ,026 Equity Share capital 8 74,356,204 68,487,588 Equity compensation reserve 8 9,801,585 8,755,190 Debt discount reserve 7 38,050 - Accumulated other comprehensive income (loss) (3,204,171) (3,213,861) Deficit (78,315,470) (72,594,865) Total equity 2,676,198 1,434,052 TOTAL LIABILITIES AND EQUITY $ 2,975,132 $ 1,847,078 Nature of operations and going concern (Note 1) Approved and authorized for issuance on behalf of the Board of Directors on October 27, 2017: Vince Sorace Director Rod McKeen Director The accompanying notes are an integral part of these consolidated financial statements. 3

4 Consolidated statements of comprehensive loss Notes For the year ended June 30, 2017 June 30, 2016 Expenses Adjustments to asset retirement obligation 4 $ - $ 9,234 Advertising and promotion 307,495 - Audit, accounting and tax 46,000 56,110 Depreciation and amortization 3,140 19,436 Directors fees 10 13,358 68,300 Foreign exchange (5,744) (144,808) General and administrative 308, ,404 Accretion and interest expense 7, 10 51,558 - Insurance 30,164 34,132 Legal and consulting fees , ,870 Rent (recovery) (8,407) 24,507 Property investigation expenses 114,047 1,278 Salaries, wages, and employee benefits 10 21,881 96,295 Impairment of exploration and evaluation assets 6 4,309,132 - Stock-based compensation 8 306,910 - Total expenses 5,954, ,758 Loss before other income (expense) (5,954,355) (754,758) Other income (expense) Finance costs - (6,556) Interest income 7,224 11,099 Litigation settlement - (50,000) Total other income (expense) 7,224 (45,457) Loss before income taxes (5,947,131) (800,215) Income taxes 9 9,799 (10,861) Net loss from continuing operations (5,937,332) (811,076) Gain (loss) from discontinued operations 4 216,727 (47,994) Net loss (5,720,605) (859,070) Foreign currency translation adjustment 9,690 (78,335) Total comprehensive loss $ (5,710,915) $ (937,405) Earnings (loss) per share (basic and diluted) $ (0.16) $ (0.08) - Continuing operations $ (0.17) $ (0.08) - Discontinued operations $ 0.01 $ (0.00) Weighted average number of common shares issued and outstanding (basic and diluted) 35,659,019 10,193,118 The accompanying notes are an integral part of these consolidated financial statements. 4

5 Consolidated statements of changes in equity Number of shares Share capital Equity compensation reserve Accumulated other comprehensive income Debt discount reserve Deficit Total $ $ $ $ $ $ As at June 30, ,073,397 68,396,283 8,788,996 (3,135,526) - (71,735,795) 2,313,958 Shares issued for exercise of stock options (Notes 8, 10) 463,710 91,305 (33,806) ,499 Foreign currency translation (78,335) - - (78,335) Net loss (859,070) (859,070) As at June 30, ,537,107 68,487,588 8,755,190 (3,213,861) - (72,594,865) 1,434,052 As at June 30, ,537,107 68,487,588 8,755,190 (3,213,861) - (72,594,865) 1,434,052 Shares issued for acquisition (Note 8) 23,190,002 3,960, , ,694,490 Shares issued for cash (Note 8) 10,000,000 1,865, ,865,778 Finder s warrants (Note 8) - (38,833) 38, Stock options issued (Note 8) , ,910 Shares issued for exercise of stock options (Note 8) 225,000 76,994 (31,994) ,000 Shares issued for exercise of warrants (Note 8) 14,166 3,825 (992) ,833 Equity component of convertible debentures (Note 7) ,050-38,050 Foreign currency translation , ,690 Net loss (5,720,605) (5,720,605) As at June 30, ,966,275 74,356,204 9,801,585 (3,204,171) 38,050 (78,315,470) 2,676,198 The accompanying notes are an integral part of these consolidated financial statements. 5

6 Consolidated statements of cash flows For the year ended June 30, 2017 June 30, 2016 Operating activities Net loss $ (5,720,605) $ (859,070) Items not involving cash: Accretion of asset retirement obligations - 9,234 Accretion of convertible debentures 31,795 6,556 Depreciation and amortization 3,140 19,436 Write-off of mineral property interests 4,309,132 - Stock-based compensation 306,910 - Loss on disposal of assets held for sale - 47,994 Loss on sale of property and equipment (216,727) - Net changes in non-cash working capital: Receivables 22,717 (22,935) Prepaid Expenses 48,670 7,985 Trade payables and accrued liabilities (120,661) 85,698 Net cash used in operating activities continuing operations (1,118,902) (705,102) Net cash used in operating activities discontinued operations (216,727) - Investing activities Proceeds on disposal of property and equipment - 28,692 Exploration and evaluation asset expenditures (183,585) - Loan repayments (540,334) - Loan advances (74,375) - Restricted cash - 30,157 Net cash (used in) provided by investing activities continuing operations (798,294) 58,849 Financing activities Proceeds on exercise of stock options 45,000 57,499 Proceeds on exercise of finder s warrants 2,833 - Net proceeds from private placement, net of share issue cost 2,000,000 - Share issuance costs (134,222) - Cash on acquisition 78,007 - Net cash provided by financing activities continuing operations 1,991,618 57,499 Effects of exchange rate changes on cash 9,690 (70,419) Decrease in cash (132,615) (659,173) Cash, beginning 1,719,343 2,378,516 Cash, ending $ 1,586,728 $ 1,719,343 The accompanying notes are an integral part of these consolidated financial statements. 6

7 1. NATURE OF OPERATIONS AND GOING CONCERN Black Sea Copper & Gold Corp. (formerly Alternative Earth Resources Inc.) (the Company ) was incorporated on April 13, 1995 under the laws of British Columbia. The head office of the Company is located at Suite 717, 1030 West Georgia Street, Vancouver, Canada. On September 28, 2016, the Company completed the acquisition of Black Sea Copper & Gold Corp., a private British Columbia company ("BSCG") and, concurrently, the Company s name was changed to Black Sea Copper & Gold Corp. (Note 5). The Company s common shares are traded on the TSX Venture Exchange under the trading symbol BLS and on the OTCQB under the trading symbol BLSSF. The Company had been focused on the acquisition and development of geothermal properties since June Difficult market conditions for venture companies in general, and the geothermal sector in particular, prevented access to new capital for geothermal project development. As a result, the Company disposed of its remaining geothermal properties in August 2014 and is in the business of exploring and developing mineral properties. These consolidated financial statements have been prepared on the going concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. The Company has accumulated a deficit of $78,315,470 since inception. The Company has not yet produced any revenues from its resources interests and the future operations of the Company are dependent on its ability to generate future cash flows or obtain additional financing to meet the Company s liabilities and commitments as they become due. There is a risk that additional financing will not be available on a timely basis or on terms acceptable to the Company. These factors indicate the existence of a material uncertainty that raises significant doubt about the Company s ability to continue as a going concern. These consolidated financial statements do not reflect any adjustments that may be necessary if the Company is unable to continue as a going concern. 2. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION Basis of Preparation and Statement of Compliance The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board ( IASB ) and interpretations of the International Financial Reporting Interpretations Committee ( IFRIC ). The consolidated financial statements have been prepared on an accrual basis, based on historical costs, except for certain financial instruments. The consolidated financial statements are presented in Canadian dollars, which is the Company s functional currency. Consolidation The financial statements include the accounts of the Company and the following wholly-owned subsidiaries: Blue Mountain Power Company Inc., incorporated in the province of British Columbia; Nevada Geothermal Power US Holdings Inc., incorporated in the State of Nevada; Nevada Geothermal Power Company, incorporated in the State of Nevada; BC Ltd., incorporated in the province of British Columbia; and Zelenrok EOOD, incorporated in Bulgaria. Significant estimates and assumptions The preparation of financial statements in accordance with IFRS requires the Company to make estimates and assumptions concerning the future. The Company s management reviews these estimates and underlying assumptions on an ongoing basis, based on experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to estimates are adjusted for prospectively in the period in which the estimates are revised. 7

8 2. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (CONTINUED) Significant judgments Estimates and assumptions where there is significant risk of material adjustments to assets and liabilities in future accounting periods include the recoverability of the carrying value of exploration and evaluation assets, fair value of the net assets of BSCG at acquisition, fair value measurements for financial instruments, the recoverability and measurement of deferred tax assets, provisions for restoration and environmental obligations and contingent liabilities. The preparation of financial statements in accordance with IFRS requires the Company to make judgments, apart from those involving estimates, in applying accounting policies. The most significant judgments in applying the Company s financial statements include: - the assessment of the Company s ability to continue as a going concern and whether there are events or conditions that may give rise to significant uncertainty; - the classification / allocation of expenditures as exploration and evaluation expenditures or operating expenses; - the classification of financial instruments; and - the determination of the functional currency of the parent company and its subsidiaries. Cash and cash equivalents The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance, which are readily convertible to known amounts of cash, and which are subject to insignificant risk of changes in value to be cash equivalents. Equipment Equipment is carried at cost, net of accumulated depreciation and accumulated impairment losses, if any. Depreciation on other assets is calculated using the straight-line method to write-off the cost of assets to their residual values over their estimated useful lives, as follows: Computers, computer software, office furniture and equipment 3-5 years Exploration and evaluation assets Costs incurred before the Company has obtained the legal rights to explore an area are expensed as incurred. Exploration and evaluation expenditures include the costs of acquiring licenses and costs associated with exploration and evaluation activity. Option payments are considered acquisition costs provided that the Company has the intention of exercising the underlying option. Property option agreements are exercisable entirely at the option of the optionee. Therefore, option payments (or recoveries) are recorded when payment is made (or received) and are not accrued. Exploration and evaluation expenditures are capitalized. The Company capitalizes costs to specific blocks of claims or areas of geological interest. Government tax credits received are recorded as a reduction to the cumulative costs incurred and capitalized on the related property. Exploration and evaluation assets are tested for impairment if facts or circumstances indicate that impairment exists. Examples of such facts and circumstances are as follows: - the period for which the Company has the right to explore in the specific area has expired during the period or will expire in the near future, and is not expected to be renewed; - substantive expenditure on further exploration for and evaluation of mineral resources in the specific area is neither budgeted nor planned; 8

9 2. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (CONTINUED) Exploration and evaluation expenditures (CONTINUED) - exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities of mineral resources and the entity has decided to discontinue such activities in the specific area; and - sufficient data exist to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale After technical feasibility and commercial viability of extracting a mineral resource are demonstrable, the Company stops capitalizing expenditures for the applicable block of claims or geological area of interest and tests the asset for impairment. The capitalized balance, net of any impairment recognized, is then reclassified to either tangible or intangible mine development assets according to the nature of the asset. Although the Company has taken steps that it considers adequate to verify title to exploration and evaluation assets which it has an interest, these procedures do not guarantee the Company s title. Title to exploration and evaluation assets in foreign jurisdictions is subject to uncertainty and consequently, such properties may be subject to prior undetected agreements or transfers and title may be affected by such instances. Farm outs The Company does not record any expenditure made by the farmee on its account. It also does not recognize any gain or loss on its exploration and evaluation farm out arrangements but reallocates any costs previously capitalized in relation to the whole interest as relating to the partial interest retained and any consideration received directly from the farmee is credited against costs previously capitalized. If the consideration exceeds amounts previously capitalized, any excess is recorded in the statement of comprehensive loss. Provisions Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events for which it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. A provision is recognized in respect of future costs to retire assets, including environmental costs, remediation and ongoing treatment, and monitoring of the site. The corresponding asset is capitalized as part of the asset s carrying value and amortized over the asset s useful life. Changes in the value of the provision resulting from revisions to the amount or timing of the underlying cash flows are capitalized to the related asset. The increase in the provision due to passage of time is recognized as finance costs. Share capital and warrants Share capital consists of common shares with no par value. Warrants issued are presented separately from share capital. Incremental costs directly attributable to the issue of new common shares or warrants are deducted from the proceeds. Income taxes The income tax expense for the period comprises current and deferred income tax. Tax is recognized in the statement of operations, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity, respectively. 9

10 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Income taxes (CONTINUED) The current income tax charge is the expected tax payable on taxable income for the year using the tax laws enacted or substantively enacted at the statement of financial position date in the countries where the Company and its subsidiaries operate and generate taxable income and any adjustments in respect of prior years. Deferred income tax is provided, using the liability method, on temporary differences between the tax bases of assets and liabilities and their carrying amounts, using tax rates and laws that have been enacted or substantially enacted by the statement of financial position date and are expected to apply when the asset is realized or the liability is settled. However, deferred income tax liabilities are not recognized if they arise from the initial recognition of goodwill and deferred income tax is not accounted for if it arises from 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 income. Deferred income tax assets are recognized only to the extent that it is probable that future taxable income will be available against which the temporary differences can be utilised. The following criteria are used in assessing the probability that taxable income will be available against which the unused tax losses or unused tax credits can be utilised: whether the Company has sufficient taxable temporary differences relating to the same taxation authority and the same taxable entity, which will result in taxable amounts against which the unused tax losses or unused tax credits can be utilised before they expire; whether it is probable that the Company will have taxable profits before the unused tax losses or unused tax credits expire; whether the unused tax losses result from identifiable causes which are unlikely to recur; and whether tax planning opportunities are available that will create taxable income in the period in which the unused tax losses or unused tax credits can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current income tax assets against current income tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention and ability to settle the balances on a net basis. Financial instruments The Company classifies its financial instruments in the following categories: at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale and financial liabilities. The classification depends on the purpose for which the financial instruments were acquired. Management determines the classification of its financial instruments at initial recognition. Financial assets are classified at fair value through profit or loss when they are either held for trading for the purpose of short-term profit taking, derivatives not held for hedging purposes, or when they are designated as such to avoid an accounting mismatch or to enable performance evaluation where a Company of financial assets is managed by key management personnel on a fair value basis in accordance with a documented risk management or investment strategy. Such assets are subsequently measured at fair value with changes in carrying value being included in profit or loss Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortized cost. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. Financial assets classified as loans and receivable include cash and its receivables. 10

11 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Financial instruments (CONTINUED) Held-to-maturity investments are non-derivative financial assets that have fixed maturities and fixed or determinable payments, and it is the Company s intention to hold these investments to maturity. They are subsequently measured at amortized cost. Held-to-maturity investments are included in non-current assets, except for those which are expected to mature within 12 months after the end of the reporting period. The Company has no financial assets classified as held-to-maturity. Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale or are not suitable to be classified as financial assets at fair value through profit or loss, loans and receivables or held-to-maturity investments and are subsequently measured at fair value. These are included in current assets. Unrealized gains and losses are recognized in other comprehensive income, except for impairment losses and foreign exchange gains and losses. Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortized cost. The Company s non-derivative financial liabilities consist of trade payables and the convertible notes. Regular purchases and sales of financial assets are recognized on the trade-date the date on which the Company commits to purchase the asset. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership.. At each reporting date, the Company assesses whether there is objective evidence that a financial instrument has been impaired. In the case of available-for-sale financial instruments, a significant and prolonged decline in the value of the instrument is considered to determine whether an impairment has arisen. The Company does not have any derivative financial assets and liabilities. Share-based payments Share-based payments to employees are measured at the fair value of the instruments issued and amortized over the vesting periods. Share-based payments to non-employees are measured at the fair value of goods or services received or the fair value of the equity instruments issued, if it is determined the fair value of the goods or services cannot be reliably measured, and are recorded at the date the goods or services are received. The corresponding amount is recorded to the share-based payment reserve. The fair value of options is determined using the Black Scholes Option Pricing Model. The number of shares and options expected to vest is reviewed and adjusted at the end of each reporting period such that the amount recognized for services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest. Earnings (loss) per share Basic earnings (loss) per share is computed using the weighted average number of common shares outstanding during the period. The treasury stock method is used for the calculation of diluted earnings (loss) per share, whereby all in the money stock options and share purchase warrants are assumed to have been exercised at the beginning of the period and the proceeds from their exercise are assumed to have been used to purchase common shares at the average market price during the period. When a loss is incurred during the period, basic and diluted loss per share are the same as the exercise of stock options and share purchase warrants is considered to be antidilutive. Impairment of assets The carrying amount of the Company s assets (which include equipment and exploration and evaluation assets) is reviewed at each reporting date to determine whether there is any indication of impairment. If such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. An impairment loss is recognized whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. Impairment losses are recognized in the statement of income and comprehensive income. 11

12 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Impairment of assets (CONTINUED) The recoverable amount of assets is the greater of an asset s fair value less cost to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs. An impairment loss is only reversed if there is an indication that the impairment loss may no longer exist and there has been a change in the estimates used to determine the recoverable amount, however, not to an amount higher than the carrying amount that would have been determined had no impairment loss been recognized in previous years. Assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment. Accounting standards issued but not yet effective New standard IFRS 9, Financial Instruments This new standard is a partial replacement of International Accounting Standard ( IAS ) 39 Financial Instruments: Recognition and Measurement. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. The new standard also requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39. The proposed effective date of IFRS 9 is for annual periods beginning on or after January 1, The Company has not early adopted this revised standard and is currently assessing the impact that these standards will have on the consolidated financial statements. Other accounting standards or amendments to existing accounting standards that have been issued but have future effective dates are either not applicable or are not expected to have a significant impact on the Company s consolidated financial statements. 3. CAPITAL MANAGEMENT The Company s objectives when managing capital are to: ensure there are adequate capital resources to manage the Company s ability to continue as a going concern; maintain adequate levels of funding to sustain the required exploration and development of its resource properties; maintain investor, creditor and market confidence to sustain future development of the business; and provide returns to shareholders and benefits for other stakeholders. The capital structure of the Company currently consists of cash and shareholders equity. The Company attempts to manage its capital in a manner that provides sufficient funding for exploration and development activities. Annual budgets and rolling forecasts are used to determine the necessary capital requirements. The budgets are prepared by management, approved by the Board of Directors and are updated for changes in the underlying assumptions, economic conditions and risk characteristics of the underlying assets, as necessary. The Company is not subject to externally imposed capital requirements. 12

13 4. DISCONTINUED OPERATIONS By way of an agreement dated September 19, 2016, the Company disposed of all of its interest in NGP Truckhaven LLC (Truckhaven ), the owner of the New Truckhaven geothermal property, to a non-related party. The Company included all revenues and expenses related to Truckhaven in discontinued operations. The assets and liabilities were disposed of on September 23, 2016, and the calculation of the gain on disposal is as follows: Consideration received $ - Restricted cash $ 32,293 Legal fees relating to sale 18,129 Asset retirement obligations (267,149) Net liabilities sold including legal costs (216,727) Gain on disposal $ 216, ACQUSITION OF BSCG On September 28, 2016, the Company completed the acquisition of all of the issued shares of BSCG (the Acquisition ), a private company with mineral property interests in Eastern Europe, in accordance with a share exchange agreement entered into with the former BSCG shareholders in August A total of 23,190,002 common shares of the Company were issued to former BSCG shareholders based on an exchange ratio of 1:1, with a fair value of $0.17 per share. In addition, the Company issued 2,050,000 replacement stock options, 2,010,000 replacement warrants and $237,500 principal amount of replacement convertible debentures previously issued by BSCG. The replacement options have exercise prices of $0.20 to $0.25 and expire on dates from November 2016 to August The replacement warrants have an exercise price of $0.20 and expire in October and November The replacement convertible debentures are due August 29, 2017 and are convertible into units of the Company at $0.20 per unit, with each unit comprised of one common share and one-half of one warrant, with each warrant exercisable until August 29, 2019 at an exercise price of $0.20. The Acquisition has been treated as an asset acquisition in respect of the mineral property interests in BSCG, resulting in the capitalization of the consideration and other related costs. The purchase price consideration was allocated as follows: Fair value of common shares, options and warrants issued and conversion feature (Note 8) $ 4,694,490 Exploration and evaluation assets (Note 6) 5,422,017 Net current liabilities acquired (682,196) Transaction costs (45,331) $ 4,694,490 The estimated fair value attributable to exploration and evaluation assets were allocated to the acquired properties as follows: 76% to the Alankoy property, 12% to the Kalabak property and 12% to the Zlatusha property. The allocation was done based on management assessment of the value of each of the three properties based on the stage of exploration of each of the properties. 13

14 6. EXPLORATION AND EVALUATION ASSETS The following is a description of the Company s mineral property interests: Kalabak, Bulgaria The Company holds a mineral permit covering 191 km2 within a porphyry copper-gold belt in the southeastern sector of the Bulgarian Rhodope Mountains. Subsequent to the year end on August 7, 2017, the Company signed a 3 year Exploration Agreement with the Ministry of Energy for the Kalabak project. The exploration agreement grants the right to perform prospecting and exploration activities of underground natural resources for a period of three years (provided that this term may be renewed twice by up to 2 years or 4 years in total), subject to the filing of various work programs and payment of various fees as detailed in the agreement. The Company allocated $648,235 to this property on the acquisition of BSCG (Note 5). Zlatusha, Bulgaria The Company holds a permit covering approximately 195 km2 within a porphyry copper-gold/epithermal belt located in the Western Srednogorie segment of the Banat-Timok-Srednogorie magmatic arc. The Company allocated $648,235 to this property on the acquisition of BSCG (Note 5). Alankoy, Turkey Pursuant to an agreement with Eurasian Minerals ( EMX ), the Company had the option to acquire 100% of the Alankoy Property situated in northwestern Turkey by spending $3,000,000 on exploration activities over 6 years. On February 1, 2017, the Company terminated the option agreement with EMX. The Company allocated $4,309,132 to this property on the acquisition of BSCG (Note 5). Accordingly, during the year ended June 30, 2017, accumulated expenses and acquisition cost of $4,309,132 were written off. 7. CONVERTIBLE DEBENTURES The Company issued two replacement convertible debentures totalling $237,500 of principal plus accrued interest of $27,700 upon its acquisition of BSCG (Note 10). The debentures are unsecured, were due on August 29, 2017 and carry an interest rate of 10% per annum. The principal amounts of the debentures are convertible into units of the Company at $0.20 per unit, with each unit comprising one common share and one-half of one warrant, with each warrant exercisable until August 29, 2019, at an exercise price of $0.20 cents. The debentures were discounted at a market rate of 15% and recorded at a fair value of $227,150. During the year ended June 30, 2017 the Company recorded an accretion expense of $31,795. The equity portion of the convertible debentures of $38,050 was recorded in debt discount reserve. The Company incurred $19,763 in accrued interest on the convertible debentures in the year ended June 30, Subsequent to the end of the year, the maturity date of the debentures was extended to August 29, SHARE CAPITAL Authorized Unlimited voting common shares no par value. 25,000,000 first preferred shares no par value (none issued). 25,000,000 second preferred shares no par value (none issued). Issued 43,966,275 common shares were issued and outstanding at June 30, 2017 (June 30, 2016: 10,537,107). Effective July 26, 2016, the Company completed a share consolidation on the basis of 2 existing common shares for 1 post-consolidation common share. Immediately prior to the closing of the acquisition of BSCG, the Company completed an additional share consolidation on the basis of 1.24 existing common shares for 1 post-consolidation common share. All common share and per common share amounts in these consolidated financial statement have been retroactively restated to reflect these share consolidations. 14

15 8. SHARE CAPITAL (CONTINUED) On September 28, 2016, the Company issued 23,190,002 common shares with a fair value of $3,960,852 in the acquisition of BSCG (Note 5). Concurrently with the acquisition of BSCG, the Company closed a private placement for gross proceeds of $2,000,000 upon issuance of 10,000,000 units at $0.20 per unit. Each unit was comprised of one common share and one common share purchase warrant. Each share purchase warrant entitles the holder to acquire one common share at an exercise price of $0.35 for a period of two years, subject to acceleration in the event that the Company s common shares have a closing price of $0.60 for 10 consecutive trading days, in which case the Company may elect to accelerate the expiry date of the warrants by giving the holders 30 days notice. In addition, the Company issued an aggregate of 383,250 finder s warrants to certain finders in connection with the financing and paid a 7% cash fee, or $96,040, on certain subscriptions. Each finder s warrant entitles the holder to acquire one common share at an exercise price of $0.35 for a period of one year, subject to acceleration on the same basis as the unit share purchase warrants. The Company incurred other share issuance costs of $38,182 in relation to the private placement. On October 12, 2016, the Company issued 14,166 common shares as a result of the exercise of warrants exercisable at $0.20 per share for gross proceeds of $2,833. On December 20, 2016, the Company issued 75,000 common shares as a result of the exercise of stock options exercisable at $0.20 per share for gross proceeds of $15,000. On January 20, 2017, the Company issued 150,000 common shares as a result of the exercise of stock options exercisable at $0.20 per share for gross proceeds of $30,000. During the year ended June 30, 2016, the Company issued 463,710 common shares for proceeds of $57,499 pursuant to the exercise of stock options. The fair value of stock options of $33,806 was transferred to share capital from equity compensation reserve upon being exercised. Stock Options The Company has a stock option plan that provides for the issuance of options to its directors, officers and employees. The maximum number of outstanding options is 10% of the issued and outstanding common shares at any point in time. The exercise price of each option is equal to the market price of the Company s shares on the date of the grant. The maximum term of the options is five years. The fair value of each option granted is estimated on the date of grant using the Black-Scholes Option Pricing Model. The following table summarizes the continuity of the Company s stock options: Number of stock options Weighted average exercise price Outstanding, June 30, ,355 $ 1.10 Exercised (463,710) 0.12 Expired (55,645) 9.30 Outstanding, June 30, Granted 3,500, Exercised (225,000) 0.20 Expired (650,000) 0.20 Outstanding, June 30, ,625,000 $ 0.21 The options expire between November 12, 2018 and February 27, 2022, with a weighted average remaining life of 3.24 years. 15

16 8. SHARE CAPITAL (CONTINUED) Stock Options (CONTINUED) The Company issued 2,050,000 replacement stock options in accordance with the terms of the acquisition of BSCG (Note 5). The replacement options have exercise prices of between $0.20 and $0.25 and expire between November 2016 and August The fair value of the replacement stock options of $283,500 was determined using the Black-Scholes Option Pricing Model with the following assumptions: risk free interest rate of 0.51% to 0.54%; expected life of 1 to 3 years; expected volatility of 165% to 178% and dividend yield of nil. The fair value was capitalized as part of the consideration for the BSCG acquisition. On September 28, 2016, the Company granted 1,150,000 stock options to directors, officers and consultants of the Company at an exercise price of $0.20 per common share for a period of five years ending September 28, The share based compensation expense of $224,119 was recognized, with the fair value determined using the Black-Scholes Option Pricing Model with the following assumptions: risk free interest rate of 0.54%; expected life of 3 years; expected volatility of 175% and dividend yield of nil. The options vested immediately. On December 5, 2016, the Company granted 200,000 stock options to a consultant of the Company at an exercise price of $0.30 per common share for a period of five years ending December 5, The share based compensation expense of $59,487 was recognized with the following assumptions: risk free interest rate of 0.72%; expected life of 5 years; expected volatility of 233% and dividend yield of nil. On February 27, 2017, the Company granted 100,000 stock options to a consultant of the Company at an exercise price of $0.25 per common share for a period of five years ending February 27, The share based compensation expense of $23,304 was recognized with the following assumptions: risk free interest rate of 1.20%; expected life of 5 years; expected volatility of 194% and expected dividend yield of nil. Share purchase warrants The following table summarizes the continuity of share purchase warrants: Number of warrants Weighted average exercise price Outstanding, June 30, ,903 $ Expired (362,903) Outstanding, June 30, Issued 12,393, Exercised (14,166) 0.20 Outstanding, June 30, ,379,084 $ 0.33 Additional information regarding share purchase warrants outstanding as at June 30, 2017, is as follows: Exercise price Weighted average remaining contractual life (years) Number of warrants $ ,995,834 $ ,383, ,379,084 16

17 8. SHARE CAPITAL (CONTINUED) Share purchase warrants (CONTINUED) The Company issued 2,010,000 replacement warrants with a fair value of $349,200 in accordance with the terms of the acquisition of BSCG (Note 5). The replacement warrants have an exercise price of $0.20 and expire in October and November The fair value of the replacement warrants was determined using the Black-Scholes Option Pricing Model with the following assumptions: risk free interest rate of 0.54%; expected life of 3 years; expected volatility of 175% and dividend yield of nil. The fair value was capitalized as part of the consideration for the BSCG acquisition. Concurrently with the acquisition of BSCG, the Company closed a private placement of 10,000,000 units at $0.20 per unit. Each unit was comprised of one common share and one common share purchase warrant. In addition, the Company issued an aggregate of 383,250 finder s warrants with a fair value of $38,833 to certain finders in connection with the financing. The finder s warrants have an exercise price of $0.35 and expire in September The fair value of the finder s warrants was determined using the Black-Scholes Option Pricing Model with the following assumptions: risk free interest rate of 0.51%; expected life of 1 year; expected volatility of 133% and dividend yield of nil. Reserves Equity compensation reserve records items recognized as share-based payment until such time that the stock options and warrants are exercised, at which time the corresponding amount will be transferred to share capital. The debt discount reserve records the discount where debt is discounted at market rates. 9. INCOME TAXES A reconciliation of income taxes at statutory rates for the years ended June 30, 2017 and 2016 with the reported income taxes is as follows: Year ended June 30, 2017 Year ended June 30, 2016 Net loss before tax $ (5,947,131) $ (800,215) Statutory tax rate 26.00% 26.00% Expected tax recovery (1,546,254) (208,056) Permanent differences and other (4,027,162) (138,048) Foreign tax rate difference (167) 1,421 Change in valuation allowance 5,563, ,544 Provision for (recovery of) income taxes $ (9,799) $ 10,861 The tax effects of temporary differences that give rise to deferred income tax assets and liabilities are as follows: As at June 30, 2017 As at June 30, 2016 Non-capital loss carryforwards $ 33,857,467 $ 28,116,976 Capital loss carryforwards 618, ,032 Property, plant and equipment 111, ,323 Resource related deductions 75, ,964 Share issuance costs 15,964 - Intercompany loans 1,884,788 1,876,074 Asset retirement obligations - 90,831 36,562,985 30,999,200 Valuation allowance (36,562,985) (30,999,200) Deferred tax assets $ - $ - 17

18 9. INCOME TAXES (CONTINUED) The Company and its subsidiaries have non-capital losses carried forward of approximately $17.8 million and $56.4 million, that may be available for tax purposes. Non-capital losses will expire if they remain unused between 2018 and The Company also has capital loss carry forwards of approximately $4.7 million. The capital losses have no expiry and can be used to offset future capital gains. 10. RELATED PARTY TRANSACTIONS (a) During the year ended June 30, 2017, the Company incurred $18,000 (2016 $72,000) in salaries and benefits to the former Chief Executive Officer of the Company. (b) During the year ended June 30, 2017, the Company incurred $17,810 ( $60,125) in consulting fees to a company controlled by the former Chief Financial Officer of the Company. (c) During the year ended June 30, 2017, the Company incurred $34,480 ( $68,300) in fees paid to the directors of the Company. (d) During the year ended June 30, 2017, the Company incurred $Nil ( $17,958) in legal fees paid to a company where a director of the Company has significant influence. (e) During the year ended June 30, 2017, the Company incurred $205,500 ( $Nil) in management fees to officers of the Company. (f) During the year ended June 30, 2017, the Company granted a total of 750,000 stock options with a fair value of $127,500 to the directors of the Company. (g) Pursuant to loan agreements dated May 29, 2017 with two officers of the Company, the Company advanced $37,188 to each of the officers for the purposes of acquiring common shares of the Company previously held by a former officer of the Company. The loans are payable in three instalments between September 29, 2017 and September 29, 2018 and bear interest at the prime rate quoted by the Royal Bank of Canada. The loans are each secured by 371,785 common shares of the Company held by each officer. The total of capital and accrued interest owing on the loans amounted to $74,551 at June 30, (h) During the year ended June 30, 2016, the Company issued 463,710 common shares to officers and directors of the Company for proceeds of $57,499 pursuant to the exercise of stock options. No options were exercised in the year ended June 30, (i) The Company issued a replacement convertible debenture of $100,000 to a director and officer during the year. Interest on the debenture totalling $7,452 was accrued to June 30, 2017 (Note 7). 11. FINANCIAL RISK AND CAPITAL MANAGEMENT The Company is exposed in varying degrees to a variety of financial instrument related risks. The Board of Directors approves and monitors the risk management processes, inclusive of documented investment policies, counterparty limits, and controlling and reporting structures. The type of risk exposure and the way in which such exposure is managed is provided as follows: 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 Company s primary exposure to credit risk is on its cash held in bank accounts. This risk is managed by using major banks that are high credit quality financial institutions as determined by rating agencies. The Company s secondary exposure to risk is on its receivables. This risk is minimal. 18