The company’s strategic plan is, with respect to its gold projects: (i) to define potential reserves on its exploration projects; (ii) to mine the mineralized material, where possible, to generate cash proceeds to assist funding of its exploration programs; and (iii) to acquire further interests in gold mineralized projects and oil and gas prospects that fall within the criteria of providing a geological basis for development of drilling initiatives that can enhance shareholder value by demonstrating potential to define reserves.
Xtra-Gold anticipates that its ongoing efforts, subject to adequate funding being available, will continue to be focused on the exploration and development of its properties and completing acquisitions in strategic areas.
The company’s ability to continue to expand land acquisitions and drilling opportunities during the next 12 months is dependent on adequate capital resources being available. In October 2008, the company temporarily suspended its operations at the Kwabeng Project while management considers a more economic and efficient manner in which to extract and process the gold recovered from the mineralized material at this Project. Assuming that the company will be able to continue to derive cash proceeds from the sale of the gold recovered from the mineralized material at its Kwabeng Project, the company intends to continue to advance operations at its Kwabeng Project, recover gold for sale and acquire further interests in mineral projects by way of acquisition or joint venture participation.
Xtra-Gold anticipates that, over the next 12 months, it will spend an aggregate of $2,000,000 comprised of $500,000 for mining operating, capital and administrative costs at its Kwabeng Project, $1,000,000 for exploration expenses and approximately $500,000 for general and administrative expenses. However, Xtra-Gold would not expend this amount unless it is able to derive cash proceeds from the sale of the gold recovered from the mineralized material atits Kwabeng Project or raise additional capital. However, these expenditure plans might be curtailed depending on the company’s ability to raise additional capital and the level of net proceeds from gold sales.
Xtra-Gold requires additional capital to implement its plan of operations. The company anticipates that these funds primarily will be raised through equity and debt financing or from other available sources of financing. If the company raises additional funds through the issuance of equity or convertible debt securities, it may result in the dilution in the equity ownership of investors in its common stock. There can be no assurance that additional financing will be available upon acceptable terms, if at all. If adequate funds are not available or are not available on acceptable terms, the company may be unable to take advantage of prospective new opportunities or acquisitions, which could significantly and materially restrict the company’s operations, or it may be forced to discontinue its current projects.
Xtra-Gold does not expect to purchase significant ore processing and gold recovery equipment as its Wash Plant has sufficient capacity to handle the processing requirements at its Kwabeng Project. The company rents its earthmoving and ancillary earthmoving equipment fleet in connection with its operations at the Kwabeng Project. The company plans to increase the number of key mining personnel including technical consultants, contractors and skilled laborers during the next 12 months. The company’s current business strategy is that it plans to continue engaging technical personnel under contract where possible as management believes that this strategy, at its current level of development, provides the best services available in the circumstances, leads to lower overall costs, and provides the best flexibility for the company’s business operations.
Results of Operations for the Three Months Ended March 31, 2009 Compared to the Three Months Ended March 31, 2008
Xtra-Gold’s loss for the three months ended March 31, 2009 was $195,989 as compared to a net income of $52,305 for the three months ended March 31, 2008, a decrease of $248,294. The company incurred expenses of $119,364 in the three months ended March 31, 2009 as compared to $1,438,816 in the three months ended March 31, 2008, a decrease of $1,319,452. The decrease in expenses in the three months ended March 31, 2009 can be primarily attributed to a reduction in exploration costs of $39,954 (2008 - $1,191,661) resulting from (i) the temporary suspension of extraction and production activities at the company’s Kwabeng Project since October 2008; and (ii) limited exploration activities at the Banso and Muoso Project, the Apapam Project and the Edum Banso Project. All exploration costs for the three months ended March 31, 2009 were booked as exploration expenses. General and administrative expenses (“G&A”) were $62,362 as compared to $243,373 for the three months ended March 31, 2008. A down-sizing of management consultants, a significant reduction in legal costs and labor costs at the Kwabeng Project in the three months ended March 31, 2009 attributed to the decrease in G&A.
The company’s loss for the three months ended March 31, 2009 was greater than its results for the three months ended March 31, 2008 primarily due to a significant net unrealized loss on trading securities of $94,417 (compared to a gain of $72,834 in 2008). Trading securities were comprised mostly of investments in common shares and income trust units of resource companies. The net unrealized loss can be attributed to a decrease in the market value of those securities due to poor market conditions and economic strain, in particular, the significant weakening of the Canadian dollar in which the company’s marketable securities are denominated.
Other items totaled a loss of $76,625 for the three months ended March 31, 2009 compared to a gain of $1,491,121 for the three months ended March 31, 2008. During the three months ended March 31, 2009, the company sold 13.93 fine ounces of gold recovered from the mineralized material at its Kwabeng Project for cash proceeds of $11,603 which was booked as Recovery of Gold as compared to $1,478,362 for the three months ended March 31, 2008. The company had a foreign exchange loss of $25,597 for the three months ended March 31, 2009 (2008 – loss of $98,065) which can be attributed to the weakening of the Canadian dollar. The company’s portfolio of marketable securities is largely Canadian currency denominated. The sharp depreciation of the Canadian dollar resulted in the bulk of the foreign exchange loss. Additionally, the continuing strength of the US dollar increased the company’s expenses that are denominated in other foreign currencies. Consequently, transactions denominated in US dollars would be more expensive.
The company’s portfolio of marketable securities had an unrealized loss of $94,417 (compared to an unrealized gain of $72,834 in 2008) due to declining market conditions and economic strain which commenced in the summer of 2008 and continued through this reporting period.The company’s securities portfolio realized a loss of $17,377 on the sale of trading securities during the three months ended March 31, 2009 compared to a realized gain in 2008 of $20,022. Other income, primarily derived from dividends and interest earned, increased (2009 - $49,805; 2008 - $36,028). The decrease in the company’s interest expense (2009 - $642; 2008 - $18,060) is largely attributable to the cessation of interest payments on its convertible debentures having an aggregate face value of $900,000 (“Debentures”) from June 30, 2008 due to the automatic conversion of the Debentures into shares (see “Material Commitments – Repayment of Convertible Debentures and Accrued Interest”).
The company’s basic and diluted loss per share for the three months ended March 31, 2009 was $0.01 compared to net income of $0.00 per share for the three months ended March 31, 2008. The weighted average number of shares outstanding was 31,330,602 at March 31, 2009 compared to 29,464,359 for the three months ended March 31, 2008. The increase in the weighted average number of shares outstanding can be attributed to the issuance of (i) 100,000 shares in connection with an exercise of stock options; (ii) 650,000 shares in connection with an automatic conversion of debentures; (iii) 631,000 shares in connection with an exercise of warrants; and (iv) 131,243 shares in connection with a settlement of outstanding accounts for services rendered to the company’s subsidiary, XG Mining subsequent to March 31, 2008.
- 3 -
Liquidity and Capital Resources
Historically, Xtra-Gold’s principal source of funds is its available resources of cash and cash equivalents and investments, as well as debt and equity financings. During the three months ended March 31, 2009, the company received cash proceeds of $11,603 derived from the sale of gold recovered from the mineralized material at its Kwabeng Project.
Unrealized Gain on Trading Securities
Unrealized gain on trading securities represents the change in value of securities as of the end of the financial reporting period. For the three months ended March 31, 2009, the company recognized an unrealized loss of $94,417 on trading securities, as compared to an unrealized gain of $72,834 for the three months ended March 31, 2008. The change reflects a significant decline in the value of the company’s resource company investments. Trading securities were comprised mostly of investments in common shares and income trust units of resource companies.
Liquidity Discussion
Net cash provided by financing activities for the three months ended March 31, 2009 was $Nil (2008 - $1,467,960).
As of March 31, 2009, Xtra-Gold had working capital equity of $1,156,868, comprised of current assets of $1,531,212 less current liabilities of $374,344. The company’s current assets were comprised mostly of $323,040 in cash and cash equivalents and $1,173,653 in trading securities, which is based on the company’s analysis of the ready saleable nature of the securities including an existing market for the securities, the lack of any restrictions for resale of the securities and sufficient active volume of trading in the securities. The company’s trading securities are held in its investment portfolio with an established brokerage in Canada in which the company primarily invests in the common shares and income trust fund units of publicly traded resource companies.
The company has historically relied on equity and debt financings to finance its ongoing operations. Existing working capital, possible debt instruments, anticipated warrant exercises, further private placements and anticipated cash flow are expected to be adequate to fund the company’s operations over the next year. The company has no lines of credit or other bank financing arrangements. Generally, the company has financed operations to date through the proceeds of the private equity financings and a convertible debt financing. In connection with the company’s business plan, management anticipates operating expenses and capital expenditures as follows: (i) $1,000,000 for exploration; (ii) $500,000 for mine operating, capital and administration costs at the Kwabeng Project; and (iii) $500,000 for general and administrative costs.
Until Xtra-Gold achieves profitability, it will need to raise additional capital for its exploration programs. The company intends to finance these expenses with its cash proceeds and to the extent that its cash proceeds are not sufficient, then from further sales of its equity securities or debt securities, or from investment income. Thereafter, the company may need to raise additional capital to meet long-term operating requirements. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, the company may not be able to take advantage of prospective new business endeavors or opportunities or existing agreements and projects which could significantly and materially restrict the company’s business operations.
The independent auditors’ report accompanying Xtra-Gold’s December 31, 2008 and December 31, 2007 consolidated financial statements contains an explanatory paragraph expressing doubt about the company’s ability to continue as a going concern. The consolidated financial statements have been prepared “assuming that we will continue as a going concern”, which contemplates that the company will realize its assets and satisfy its liabilities and commitments in the ordinary course of business.
Recent Capital Raising Transactions
During the three months ended March 31, 2009, net cash flows from financing activities were $Nil (2008 - $1,467,960).
- 4 -
Material Commitments
(a) | Mineral Property Commitments |
Save and except for fees payable from time to time to (i) the Minerals Commission for an extension of an expiry date of a prospecting license (current consideration fee payable is $15,000) or mining lease or annual operating permits; (ii) the Environmental Protection Agency (“EPA”) in Ghana for the issuance of permits prior to the commencement of any work at a particular concession or the posting of a bond in connection with any mining operations undertaken by the company; and (iii) a legal obligation associated with the company’s mineral properties for clean up costs when work programs are completed, the company is committed to expend an aggregate of less than $500 in connection with annual or ground rent and mining permits to enter upon and gain access to the following concessions and such other financial commitments arising out of any approved exploration programs in connection therewith:
| (i) | the Kwabeng concession (Kwabeng Project); |
| (ii) | the Pameng concession (Pameng Project); |
| (iii) | the Banso and Muoso concessions (Banso and Muoso Project); |
| (iv) | the Apapam concession (Apapam Project); and |
| (v) | the Edum Banso concession (Edum Banso Project). |
With respect to the Kwabeng, Pameng and Apapam Projects, upon and following the commencement of gold production, a royalty of 3% of the net smelter returns is payable quarterly to the Government of Ghana.
With respect to the Edum Banso Project:
| (a) | $5,000 is payable to Adom Mining Limited (“Adom”) on the anniversary date of the Option Agreement in each year that we hold an interest in the agreement; |
| (b) | $200,000 is payable to Adom when the production of gold is commenced (or $100,000 in the event that less than 2 million ounces of proven and probable reserves are discovered on the company’s project at this concession; and |
| (c) | an aggregate production royalty of 2% of the net smelter returns (“NSR”) from all ores, minerals and other products mined and removed from the project, except if less than 2 million ounces of proven and probable reserved are discovered in or at the Project, then the royalty shall be 1% of the NSR. |
(b) | Repayment of Convertible Debentures and Accrued Interest |
As a result of Xtra-Gold’s common stock having traded for 20 consecutive trading days (a) with a closing bid price of at least $1.50 per share and (b) a cumulative trading volume during such twenty (20) trading day period of at least 1,000,000 shares, in June 2008, the company provided notice of automatic conversion of the Debentures. Consequently, interest payments ceased as at June 30, 2008. As at the three months ended March 31, 2009, the company has converted $650,000 of the aggregate principal of the Convertible Debentures by way of the issuance of 650,000 Common Shares.
(c) | Further Material Commitments |
Further material commitments are subject to new funding arrangements to be obtained or agreements not yet formalized.
Purchase of Significant Equipment
The company does not expect to purchase significant ore processing and gold recovery equipment as its Wash Plant has sufficient capacity to handle the processing requirements at the company’s Kwabeng Project. The company rents its earthmoving and ancillary earthmoving equipment fleet in connection with the ongoing operations at its Kwabeng Project.
- 5 -
Off Balance Sheet Arrangements
The company has no off balance sheet arrangements.
Significant Accounting Applications
The accompanying unaudited financial statements have been prepared by Xtra-Gold in conformity with accounting principles generally accepted in the United States of America applicable to interim financial information and with the rules and regulations of the United States Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed, or omitted, pursuant to such rules and regulations. In the opinion of management, the unaudited interim financial statements include all adjustments necessary for the fair presentation of the results of the interim periods presented. All adjustments are of a normal recurring nature, except as otherwise noted below. These financial statements should be read in conjunction with Xtra-Gold’s audited consolidated financial statements and notes thereto for the year ended December 31, 2008, included in the company’s 10-K Annual Report, filed March 27, 2009, with the Securities and Exchange Commission. The results of operations for the interim periods are not necessarily indicative of the results of operations for any other interim period or for a full fiscal year.
Recent Accounting Pronouncements
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities”. SFAS No. 161 changes the disclosure requirements for derivative instruments and hedging activities by requiring enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and how derivative instruments and related hedged items affect an entity’s operating results, financial position, and cash flows.
SFAS No. 161 is effective for fiscal years beginning after November 15, 2008. Early adoption is permitted. Xtra-Gold is currently reviewing the provisions of SFAS No. 161 and has not yet adopted the statement. However, as the provisions of SFAS No. 161 are only related to disclosure of derivative and hedging activities, the company does not believe the adoption of SFAS No. 161 will have a material impact on the consolidated operating results, financial position, or cash flows.
In April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of Intangible Assets or FSP FAS 142-3. FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. The intent of the position is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the intangible asset. FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008. The company is assessing the potential impact that the adoption of FSP FAS 142-3 may have on the company’s consolidated financial position, results of operations or cash flows.
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles or SFAS No. 162. SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP. This statement shall be effective 60 days following the Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The company does not believe that implementation of this standard will have a material impact on the consolidated financial position, results of operations or cash flows.
In June 2008, the FASB issued FSP No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities,” (FSP EITF 03-6-1). FSP EITF 03-6-1 states that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008. Management has determined that the adoption of FSP EITF 03-6-1 will not have an impact on the Financial Statements.
- 6 -
Xtra-Gold does not anticipate that the adoption of the foregoing pronouncements will have a material effect on the company’s consolidated financial position or results of operations.
Forward Looking Statements
The information in this quarterly report contains forward-looking statements. These forward-looking statements involve risks and uncertainties, including statements regarding Xtra-Gold’s financial condition, results of operations, business prospects, plans, objectives, goals, strategies, expectations, future events, capital expenditure and exploration efforts. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as “anticipates”, “expects”, “intends”, “plans”, “forecasts”, “projects”, “budgets”, “believes”, “seeks”, “estimates”, “could”, “might”, “should” “may”, “will”, “predict”, “potential” or “continue”, the negative of such terms or other comparable terminology. Actual events or results may differ materially. In evaluating these statements, you should consider various factors, including the risks outlined from time to time, in other reports that Xtra-Gold files with the Securities and Exchange Commission. These factors may cause the company’s actual results to differ materially from any forward-looking statement. The company disclaims any obligation to publicly update these statements, or disclose any difference between its actual results and those reflected in these statements. The information constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Xtra-Gold is a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act and, as such, is not required to provide the information required under this item.
Item 4T. | CONTROLS AND PROCEDURES |
(a) | Disclosure Controls and Procedures |
Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms and is accumulated and communicated to Xtra-Gold’s management, including its Principal Executive Officer, who also serves as the company’s Principal Financial Officer in order to allow timely decisions in connection with required disclosure. The company’s Principal Executive Officer is not a financial or accounting professional, and the company lacks any accounting staff who are sufficiently trained in the application of U.S. generally accepted accounting principles. Until such time as the company hires a chief financial officer or similarly titled person with the requisite experience in the application of U.S. GAAP, there is a likelihood that the company may experience material weaknesses in its disclosure controls that may result in errors in the company’s financial statements in future periods.
(b) | Evaluation of Disclosure Controls and Procedures |
Xtra-Gold’s management does not expect that the company’s disclosure controls and procedures or its internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected.
Management has evaluated the effectiveness of the design and operation of the company’s disclosure controls and procedures (as such term is defined in Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this quarterly report. Based on such evaluation, management has concluded that the company’s disclosure controls and procedures are not effective to ensure that information required to be disclosed in the reports that the company files and submits under the Exchange Act is recorded, processed, summarized and reported, as and when required.
- 7 -
(c) | Changes in Internal Controls |
During the quarter of the fiscal year covered by this Report, there were no changes in the company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting.
PART II – OTHER INFORMATION
Xtra-Gold currently not a party to any legal proceeding and the company was not a party to any legal proceeding during the quarter ended March 31, 2009. The company is currently not aware of any legal proceedings proposed to be initiated against the company, however, from time to time, the company may become subject to claims and litigation that are generally associated with any business venture.
Xtra-Gold is a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act and, as such, the company is not required to provide the information required by this item.
Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
There were no unregistered sales of equity securities during the quarter ended March 31, 2009.
Item 3. | DEFAULTS UPON SENIOR SECURITIES |
There has been no material default, during the period covered by this Report, in the payment of principal, interest, a sinking or purchase fund installment, or any other material default not cured within 30 days with respect to any indebtedness of the company or any of its significant subsidiaries exceeding 5% of its total assets and its consolidated subsidiaries.
Item 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
There has been no matter submitted to a vote of security holders during the period covered by this Report, through the solicitation of proxies or otherwise.
None.
Item 6. | EXHIBITS AND REPORTS ON FORM 8-K |
Exhibits
The following documents are included as exhibits to this Report. Exhibits incorporated by reference are so indicated.
Exhibit No. | Description of Document |
| |
31.1 | Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer |
| |
31.2 | Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer |
| |
32.1 | Section 1350 Certification of Principal Executive Officer |
| |
32.2 | Section 1350 Certification of Principal Financial Officer |
- 8 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May 14, 2009 | XTRA-GOLD RESOURCES CORP.
(Registrant) |
| By | /s/ James Werth Longshore |
| James Werth Longshore
Principal Executive Officer and
Principal Financial Officer |
| | | |
- 9 -
