K W G R E S O U R C E S I N C .
C O N D E N S E D I N T E R I M C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S U N A U D I T E D
T H R E E -MO NTH PERI O DS ENDED MARCH 31, 2024 AND 2023
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NOTICE TO READERS OF THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS:
The accompanying unaudited condensed interim consolidated financial statements of KWG Resources Inc. have been prepared by and are the responsibility of the Company's management.
In accordance with National Instrument 51-102, Continuous Disclosure Obligations of the Canadian Securities Administrators, the Company herewith discloses that its independent auditor has not performed a review of these unaudited condensed interim consolidated financial statements.
DOUGLAS FLETT, Director
THOMAS E. MASTERS, Chief Financial Officer
Toronto, Ontario
May 30, 2024
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KWG RESOURCES INC.
Condensed Interim Consolidated Balance Sheets (Unaudited)
As at | As at | ||
March 31, | December 31, | ||
(in Canadian dollars) | Notes | 2024 | 2023 |
ASSETS | |||
Current assets | |||
Cash | 4 | 143,016 | 310,473 |
Receivables | 5 | 24,303 | 60,928 |
Prepaid expenses | 36,582 | 44,304 | |
Total current assets | 203,901 | 415,705 | |
Non-current assets | |||
Cash surrender value of life insurance | 6 | 130,132 | 116,473 |
Property and equipment | 7 | 38,072 | 19,555 |
Total non-current assets | 168,204 | 136,028 | |
Total assets | 372,105 | 551,733 | |
LIABILITIES AND EQUITY | |||
Current liabilities | |||
Trade and other payables and provisions | 10,18 | 4,732,704 | 4,512,691 |
Convertible debenture payable | 11 | 1,079,722 | 1,048,358 |
Total current liabilities | 5,812,426 | 5,561,049 | |
Long-term liabilities | |||
Convertible debentures payable | 11 | 841,484 | 790,939 |
Secured convertible promissory note payable | 12 | 26,097,612 | 25,484,144 |
Loans payable | 13 | 120,000 | 120,000 |
Total long-term liabilities | 27,059,096 | 26,395,083 | |
Total liabilities | 32,871,522 | 31,956,132 | |
Equity (Deficiency) | |||
Share capital | 14 | 52,841,915 | 52,325,833 |
Debenture equity | 11 | 6,090,487 | 6,090,487 |
Warrants | 15 | 5,473,011 | 5,522,011 |
Contributed surplus | 28,240,670 | 28,191,670 | |
Accumulated other comprehensive (loss) | (72,118) | (72,118) | |
(Deficit) | (125,073,382) | (123,462,282) | |
Total equity (deficiency) | (32,499,417) | (31,404,399) | |
Total liabilities and equity (deficiency) | 372,105 | 551,733 |
Nature of operations and going concern (Note 1)
Commitments and contingencies (Notes 8, 11, 12 and 21)
Subsequent events (Note 24)
The accompanying notes form an integral part of these condensed interim consolidated financial statements.
Approved by the Board of Directors | |
Douglas Flett | Frank Smeenk |
Director | Director |
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KWG RESOURCES INC.
Condensed Interim Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
Three-month periods | |||
ended March 31 | |||
(in Canadian dollars) | Notes | 2024 | 2023 |
General and administrative | 17 | (877,752) | (1,171,453) |
Amortization of property and equipment | 7 | (7,224) | (4,685) |
Accretion expense | 11,12,13 | (664,012) | (528,186) |
Stock compensation costs | 16 | - | (3,794,900) |
Exploration and evaluation expenditures | 8 | (58,050) | (178,203) |
Write down of intangible assets | 9 | (800) | - |
Gain (loss) on foreign exchange | 1,157 | (100) | |
Loss before the undernoted | (1,606,681) | (5,677,527) | |
Other income (expenses) | |||
Other income | 781 | 781 | |
Write down of receivables | 5 | (5,200) | (10,500) |
(4,419) | (9,719) | ||
Net loss and comprehensive loss for the period | (1,611,100) | (5,687,246) | |
Loss per Subordinate Voting Share (*) (basic and diluted) | (0.00) | (0.00) | |
Weighted average number of outstanding Subordinate | |||
Voting Shares (*) | 2,104,800,820 | 1,997,261,426 |
Note: (*) including the effect of converting all outstanding Multiple Voting Shares to Subordinate Voting Shares on the basis of 100:1
The accompanying notes form an integral part of these condensed interim consolidated financial statements.
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KWG RESOURCES INC.
Condensed Interim Consolidated Statements of Changes in Equity (Deficiency) (Unaudited)
Accumu- | ||||||||
lated | ||||||||
other | ||||||||
Share | Debent- | Contributed | compreh- | |||||
(in Canadian dollars) | Notes | capital | ure equity | Warrants | surplus | (Deficit) | ensive | Total |
(loss) | ||||||||
Balance, December 31, 2022 | 50,128,181 | 5,865,293 | 5,487,401 | 21,512,283 | (109,138,896) | (72,118) | (26,217,856) | |
Net loss for the period | - | - | - | - | (5,687,246) | - | (5,687,246) | |
Exercise of stock options | 14 | 70,000 | - | - | (50,000) | - | - | 20,000 |
Stock-based compensation | 16 | - | - | - | 3,794,900 | - | - | 3,794,900 |
Issue of shares for interest on | ||||||||
secured convertible | ||||||||
promissory note | 12,14 | 510,411 | - | - | - | - | - | 510,411 |
Balance, March 31, 2023 | 50,708,592 | 5,865,293 | 5,487,401 | 25,257,183 | (114,826,142) | (72,118) | (27,579,791) | |
Net loss for the period | - | - | - | - | (8,636,140) | - | (8,636,140) | |
Exercise of stock options | 14 | 10,628 | - | - | 13,372 | - | - | 24,000 |
Stock-based compensation | 16 | - | - | - | 2,921,115 | - | - | 2,921,115 |
Issue of shares for interest | ||||||||
on secured convertible | ||||||||
promissory note | 12,14 | 1,559,588 | - | - | - | - | - | 1,559,588 |
Issuance of convertible | ||||||||
debentures | 11 | - | 250,071 | - | - | - | - | 250,071 |
Issue of shares and warrants | ||||||||
for finder's fees | 11 | 47,025 | (24,877) | 34,610 | - | - | - | 56,758 |
Balance, December 31, 2023 | 52,325,833 | 6,090,487 | 5,522,011 | 28,191,670 | (123,462,282) | (72,118) | (31,404,399) | |
Net loss for the period | - | - | - | - | (1,611,100) | - | (1,611,100) | |
Issue of shares for interest | ||||||||
on secured convertible | ||||||||
promissory note | 12,14 | 516,082 | - | - | - | - | - | 516,082 |
Expired warrants | 15 | - | - | (49,000) | 49,000 | - | - | - |
Balance, March 31, 2024 | 52,841,915 | 6,090,487 | 5,473,011 | 28,240,670 | (125,073,382) | (72,118) | (32,499,417) |
The accompanying notes form an integral part of these condensed interim consolidated financial statements.
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KWG RESOURCES INC.
Condensed Interim Consolidated Statements of Cash Flows (Unaudited)
Three-month periods | |||
ended March 31 | |||
(in Canadian dollars) | Notes | 2024 | 2023 |
$ | $ | ||
Cash flows from operating activities | |||
Net (loss) for the period | (1,611,100) | (5,687,246) | |
Adjustments for | |||
Amortization of property and equipment | 7 | 7,224 | 4,685 |
Accretion expense | 11,12,13 | 664,012 | 528,186 |
Stock compensation costs | 16 | - | 3,794,900 |
Interest accrued on debenture | 11 | 31,365 | 27,561 |
Interest paid by the issuance of shares | 12,14 | 516,082 | 510,411 |
Write down of (recovery of written down) of receivables | 5 | 5,200 | 10,500 |
Net change in non-cash working capital balances | 259,160 | 297,406 | |
Net cash used by operating activities | (128,057) | (513,597) | |
Cash flows from financing activities | |||
Proceeds from exercise of stock options | 14 | - | 20,000 |
Net cash provided by financing activities | - | 20,000 | |
Cash flows from investing activities | |||
Increase in cash surrender value of life insurance | 6 | (13,659) | (15,288) |
Purchase of property and equipment | (25,741) | - | |
Net cash used by investing activities | (39,400) | (15,288) | |
Net change in cash and cash equivalents during the period | (167,457) | (508,885) | |
Cash and cash equivalents - beginning of the period | 310,473 | 921,680 | |
Cash and cash equivalents - end of the period | 4 | 143,016 | 412,795 |
Change in non-cash working capital balances comprises: | |||
Receivables | 54,101 | (94,317) | |
Prepaid expenses | 7,722 | (3,818) | |
Trade and other payables | 197,337 | 395,541 | |
Net change in non-cash working capital balances | 259,160 | 297,406 | |
Additional information - non-cash transactions | |||
Expired warrants included in contributed surplus | 15 | 48,999 | - |
The accompanying notes form an integral part of these condensed interim consolidated financial statements.
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KWG RESOURCES INC.
Notes to the Condensed Interim Consolidated Financial Statements (in Canadian dollars)
1 NATURE OF OPERATIONS AND GOING CONCERN
KWG Resources Inc. ("KWG" or the "Company") is an incorporated entity domiciled in Canada. The Company's registered office is located at 141 Adelaide St. West, Suite 240, Toronto, Ontario, M5H 3L5. KWG is involved in the acquisition, consolidation, exploration and evaluation of large-scale deposits of chromite and other base metals and minerals and in the development of such large-scale deposits including, where applicable, of transportation links to access the remote areas where these are located. It has interests in properties located in Canada. It also has interests in certain technology relating to the production of chromium iron alloys. It was incorporated under the laws of Quebec on August 21, 1937, and continued under the Canada Business Corporations Act effective June 15, 2016. Effective June 26, 2023, the Company commenced operating under the business name "The Canadian Chrome Company".
The Company's shares are listed for trading on the Canadian Securities Exchange ("CSE") under the symbols "CACR" (formerly "KWG") for the Subordinate Voting Shares and "CACR.A" (formerly "KWG.A") for the Multiple Voting Shares.
The Company is in the process of exploring its exploration and evaluation projects and has not yet determined whether its exploration and evaluation projects contain mineral deposits that are economically recoverable. The Company is also in the process of pursuing patents on its chromium alloy technology in several countries and preparing for the commercialization of that technology. The Company will periodically have to raise additional funds to continue its exploration and other activities and, while it has been successful in doing so in the past, there can be no assurance it will be able to do so in the future. Unless the holders of convertible debentures and a convertible promissory note issued by the Company exercise their conversion rights to convert such liabilities into equity, the Company will also have to raise additional funds to repay its debenture and promissory note obligations when they come due and, while convertible debentures have been converted into equity in the past, there can be no assurance that the holders of those compound financial instruments will convert into equity or that the Company will be able to raise sufficient additional funds in a timely way at the applicable times.
Until it is determined that properties contain mineral reserves or resources that can be economically mined, they are classified as exploration and evaluation properties. The recoverability of the amounts expended on the Company's exploration and evaluation projects is dependent upon: 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 complete exploration, development and construction of mining and processing facilities; fulfilling consultation obligations with Indigenous communities; obtaining certain government approvals; and attaining profitable production.
Although the Company has taken steps to verify title to the properties on which it is conducting exploration and in which it has an interest, in accordance with industry standards for the current stage of exploration of such properties, these procedures do not guarantee the
Company's title. The holding of mineral rights does not provide full rights to the surface of the lands over those mineral rights - such surface rights may be held or acquired by third parties. Property title may be subject to government licensing requirements or regulations, social licensing requirements, unregistered prior agreements, unregistered claims, aboriginal claims, failure to complete assessment work and file reports in respect thereof and non-compliance with regulatory and environmental requirements. Furthermore, there is no assurance that the interest of the Company in any of its properties may not be challenged or impugned.
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KWG RESOURCES INC.
Notes to the Condensed Interim Consolidated Financial Statements (in Canadian dollars)
While the Company has been successful in moving its patent applications forward in some countries, that process is not yet complete; moreover, the Company has not yet achieved any commercial success with its technology. There is no assurance that such efforts will be successful or, if successful, will not subsequently be challenged and impugned.
The Company has a need for equity capital and financing for working capital and exploration and evaluation of its properties and pursuit of its technology's patent applications. Because of continuing operating losses, a working capital deficit and certain liabilities being past due, the Company's continuance as a going concern is dependent upon its ability to obtain adequate financing and to reach profitable levels of operation. These conditions indicate the existence of material uncertainties that cast significant doubt about the Company's ability to continue as a going concern. It is not possible to predict whether financing efforts will be successful or if the Company will attain profitable levels of operations.
These consolidated financial statements have been prepared on the basis of accounting principles applicable to a going concern. Accordingly, they do not give effect to adjustments that would be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and liquidate its liabilities and commitments in other than the normal course of business and at amounts different from those in the accompanying consolidated financial statements. Such adjustments could be material.
2 BASIS OF PREPARATION
- Statement of Compliance
These condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard ("IAS") IAS 34 - Interim Financial Reporting and should be read in conjunction with the annual financial statements for the year ended December 31, 2023 which have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). This is considered generally accepted accounting principles for Canadian public companies.
The management of KWG prepare these unaudited condensed interim consolidated financial statements which are then reviewed by the Audit Committee and the Board of Directors. These unaudited condensed interim consolidated financial statements were approved by the Board of Directors for issue on May 30, 2024.
(b) Basis of Measurement
The condensed interim consolidated financial statements have been prepared under the historic cost convention, except for investments in equity securities and derivatives, including warrants, which are measured at fair value.
(c) Basis of Consolidation
These condensed interim consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries: Canada Chrome Corporation, SMD Mining Corporation, Canada Chrome Mining Corporation, Ring of Fire Transportation & Utilities Inc., Muketi Metallurgical General Partner Inc. and Muketi Metallurgical KWG-Limited Partner Inc. All of the Company's subsidiaries are incorporated in Canada.
Subsidiaries consist of entities over which the Company is exposed to, or has rights to, variable returns as well as the ability to affect those returns through the power to direct the relevant activities of the entity. Subsidiaries are fully consolidated from the date control is
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KWG RESOURCES INC.
Notes to the Condensed Interim Consolidated Financial Statements (in Canadian dollars)
transferred to the Company and are de-consolidated from the date control ceases. The financial statements include all the assets, liabilities, revenues, expenses and cash flows of the Company and its subsidiaries after eliminating inter-entity balances and transactions.
(d) Foreign Currency
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Functional and presentation currency
Items included in the financial statements of each consolidated entity in the KWG group are measured using the currency of the primary economic environment in which the entity operates (the "functional currency"). The functional currency of KWG and all of its subsidiaries is the Canadian dollar.
- Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the translation at exchange rates of monetary assets and liabilities denominated in currencies other than an entity's functional currency are recognized in the consolidated statements of operations in "gain(loss) on foreign exchange".
- Critical Accounting Estimates and Judgments
The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
It is reasonably possible that, on the basis of existing knowledge, outcomes in the next financial year that are different from the assumptions used could require a material adjustment to the carrying amount of the asset or liability affected.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
Management has made a number of significant estimates and valuation assumptions based on present conditions and management's planned course of action as well as assumptions about future business and economic conditions which include, but are not limited to, the following:
Income taxes and recoverability of potential deferred tax assets
In assessing the probability of realizing income tax assets recognized, management makes estimates related to expectations of future taxable income, applicable tax planning opportunities, expected timing of reversals of existing temporary differences and the likelihood that tax positions taken will be sustained upon examination by applicable tax authorities. In making its assessments, management gives additional weight to positive and negative evidence that can be objectively verified. Estimates of future taxable income are based on forecasted cash flows from operations and the application of existing tax laws in each jurisdiction. The Company considers whether relevant tax planning opportunities are within the Company's control, are feasible, and are within management's ability to implement. Examination by applicable tax authorities is supported based on individual facts and circumstances of the relevant tax position examined in light of all available evidence. Where applicable tax laws and regulations are either unclear or subject to ongoing varying interpretations, it is reasonably possible that changes in these estimates can occur that
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KWG RESOURCES INC.
Notes to the Condensed Interim Consolidated Financial Statements (in Canadian dollars)
materially affect the amounts of income tax assets recognized. Also, future changes in tax laws could limit the Company from realizing the tax benefits from the deferred tax assets. The Company reassesses unrecognized income tax assets at each reporting period.
Share-based payments
Management determines costs for share-based payments using market-based valuation techniques. The fair value of the market-based and performance-based share awards are determined at the date of grant using generally accepted valuation techniques. Assumptions are made and judgment used in applying valuation techniques. These assumptions and judgments include estimating the future volatility of the stock price, expected dividend yield, future employee turnover rates and future employee stock option exercise behaviours and corporate performance. Such judgments and assumptions are inherently uncertain. Changes in these assumptions affect the fair value estimates.
Income, value added, withholding and other taxes
The Company is subject to income, value added, withholding and other taxes. Significant judgment is required in determining the Company's provisions for taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Company recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. The determination of the Company's income, value added, withholding and other tax liabilities requires interpretation of complex laws and regulations. The Company's interpretation of taxation law as applied to transactions and activities may not coincide with the interpretation of the tax authorities. All tax related filings are subject to government audit and potential reassessment subsequent to the financial statement reporting period. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the tax related accruals and deferred income tax provisions in the period in which such determination is made.
Convertible debentures and promissory note
The classification of the Company's convertible debentures and promissory note required management to analyze the terms and conditions of the debentures and the promissory note and use judgment to assess whether these debentures and promissory note are liability, equity, or a combination of the two. IAS 32 provides the criteria for management to assess these complicated financial instruments to determine their appropriate classification(s). Factors considered are, but not limited to, whether the Company has a future obligation to settle the instrument in cash or exchange other assets or liabilities, and if the settlement is already known to be equity, the amount will not vary based on the Company's future share price.
Joint arrangements
Judgment is required to determine the type of joint arrangement that exists. This judgment involves considering its rights and obligations arising from the arrangement. An entity assesses its rights and obligations by considering the structure and legal form of the arrangement, the terms agreed by the parties in the contractual arrangement and, when relevant, other facts and circumstances.
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KWG Resources Inc. published this content on 30 May 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 30 May 2024 17:17:09 UTC.