Majestic Gold Corp.

  • Date: 2016-01-28

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Majestic Gold Corp. Consolidated Financial Statements September 30, 2015 and 2014 (Expressed in US dollars)

Majestic Gold Corp. Consolidated Statements of Financial Position (Expressed in US dollars) September 30, 2015 -$-

September 30, 2014 -$-

Note ASSETS Current assets Cash and cash equivalents Receivables Deposits and prepaid expenses Inventory Investments Restricted cash

4 5 6 7 8 12

6,981,718 1,216,523 560,116 3,735,154 196,449 3,147,723 15,837,683

8,812,166 223,382 910,025 4,030,889 34,377 14,010,839

Property, plant and equipment Exploration and evaluation assets Deferred tax assets

9 10 21

79,754,509 2 87,512 95,679,706

82,484,926 2 229,646 96,725,413

LIABILITIES Current liabilities Accounts payable and accrued liabilities Loans payable

11 12

9,612,691 20,684,412 30,297,103

8,209,777 14,101,270 22,311,047

Asset retirement obligation

13

2,570,427 32,867,530

2,466,708 24,777,755

14 14

99,893,830 10,060,581 (63,544,618) 46,409,793 16,402,383 62,812,176 95,679,706

99,893,830 12,488,665 (58,688,929) 53,693,566 18,254,092 71,947,658 96,725,413

EQUITY Share capital Reserves Deficit Equity attributable to owners of parent Equity attributable to non-controlling interests Total equity Nature of operations Commitment Subsequent events

19

1 9, 20 22

Approved by the Directors: "John Campbell" "Stephen Kenwood"

The accompanying notes are an integral part of these consolidated financial statements.

3

Majestic Gold Corp. Consolidated Statements of Comprehensive Loss (Expressed in US dollars) Years ended September 30, 2015 2014 -$-$Note Gold revenue Cost of goods sold Gross profit

17 17

22,595,313 24,420,143 (1,824,830)

23,816,403 23,647,788 168,615

17

3,335,927 (5,160,757)

5,745,441 (5,576,826)

17

1,170,862 (297,047) (20,815) (10,347) 21,575 864,228 (6,024,985) 303,849 (6,328,834)

1,528,184 (125,000) (13,927) 15,336 1,404,593 (6,981,419) 327,447 (7,308,866)

(780,398)

(677,611)

(10,347) (2,015,903) (2,806,648) (9,135,482)

10,568 (234,067) (901,110) (8,209,976)

Owners of the parent

(4,855,689)

(6,309,931)

Non-controlling interests

(1,473,145) (6,328,834)

(998,935) (7,308,866)

Owners of the parent

(7,283,773)

(7,001,619)

Non-controlling interest

(1,851,709) (9,135,482)

(1,208,357) (8,209,976)

(0.01)

(0.01)

839,765,216

839,765,216

Selling and administrative expenses General and administrative Loss before other items Other items Finance expense Finance income Foreign exchange Gain on sale of investments Loss on in investment in gold futures Write-down of receivables Net loss before income tax Income tax expense Net loss for the year Other comprehensive income (loss) Item that will not be reclassified to profit or loss: Exchange differences on translation of parent Items that may be subsequently reclassified to profit or loss: Realized gain on investments recognized in net loss Unrealized gain on investments Exchange differences on translating foreign operations Total other comprehensive loss for the year Total comprehensive loss for the year

8 8

21

8

Net loss for the year attributable to:

Comprehensive loss for the year attributable to:

Loss per share attributable to owners of the parent- basic and diluted Weighted average number of common shares outstanding - basic and diluted

The accompanying notes are an integral part of these consolidated financial statements.

4

Majestic Gold Corp. Consolidated Statements of Changes in Equity (Expressed in US dollars) Attributable to owners of the parent Foreign Share-based currency Available-forpayment translation sale-reserve Deficit reserve reserve -$-$-$-$-

Share capital

Number of shares

-$Balance, September 30, 2013 Comprehensive loss Net loss for the year Translation to reporting currency Unrealized gain on investment classified as available for sale Total comprehensive loss for the year Balance, September 30, 2014

839,765,216

99,893,830

10,691,293

2,489,060

- (52,378,998)

-

-

-

(702,256)

-

839,765,216

99,893,830

10,691,293

Balance, September 30, 2014 Comprehensive loss Net loss for the year Translation to reporting currency Realized gain on sale of investment classified as available for sale Total comprehensive loss for the year Balance, September 30, 2015

839,765,216

99,893,830

10,691,293

-

-

- (2,417,516)

839,765,216 -

99,893,830

- (2,417,516) 10,691,293 (630,712)

Total -$-

Noncontrolling interest -$-

Total equity -$-

19,462,449

80,157,634

(6,309,931) -

60,695,185 (6,309,931) (702,256)

(998,935) (209,422)

(7,308,866) (911,678)

(702,256) 1,786,804

10,568 10,568 (6,309,931) 10,568 (58,688,929)

10,568 (7,001,619) 53,693,566

(1,208,357) 18,254,092

10,568 (8,209,976) 71,947,658

1,786,804

10,568 (58,688,929)

53,693,566

18,254,092

71,947,658

(4,855,689) -

(4,855,689) (2,417,737)

(1,473,145) (378,564)

(6,328,834) (2,796,301)

(10,347) (10,568) (4,855,689) - (63,544,618)

(10,347) (7,283,773) 46,409,793

(1,851,709) 16,402,383

(10,347) (9,135,482) 62,812,176

(221)

The accompanying notes are an integral part of these consolidated financial statements.

5

Majestic Gold Corp. Consolidated Statements of Cash Flows (Expressed in US dollars) Years ended September 30, 2015 2014 -$-$Cash provided from (used for): Operating activities Net loss for the year Items not involving cash: Depreciation of property, plant and equipment Amortization of deferred income Finance expense Income tax expense Gain on sale of marketable securities Loss on fair value adjustment of gold futures Write-down of receivables Changes in non-cash working capital balances: Receivables Deposits and prepaid expenses Inventory Accounts payable and accrued liabilities Interest paid Incomes taxes paid Net cash used in operating activities Investing activities: Expenditures on property, plant and equipment Proceeds on sales of marketable securities Investment in gold futures Net cash used in investing activities Financing activities Restricted cash Loan advances Loan repayments Net cash provided by (used in) financing activities Effect of foreign exchange on cash and cash equivalents Net decrease in cash and cash equivalents Cash and cash equivalents, beginning Cash and cash equivalents, ending

(6,328,834)

(7,308,866)

2,728,801 1,170,862 303,849 (10,347) 21,575 -

2,683,986 (20,554) 1,528,184 327,447 15,336

(993,141) 183,024 173,777 (763,422)

302,515 (284,259) (79,765) 1,233,389

(942,266) (4,456,122)

(844,648) (465,155) (2,912,390)

(387,331) 34,362 (217,382) (570,351)

(2,039,467) (2,039,467)

(3,147,723) 28,699,813 (21,578,393) 3,973,697

13,675,436 (15,563,949) (1,888,513)

(777,672)

(712,887)

(1,830,448) 8,812,166 6,981,718

(7,553,257) 16,365,423 8,812,166

The accompanying notes are an integral part of these consolidated financial statements.

6

Majestic Gold Corp. Notes to the Consolidated Financial Statements For the Years ended September 30, 2015 and 2014 (Expressed in US dollars) 1.

Nature of operations

Majestic Gold Corp. (the “Company”) is incorporated under the laws of the province of British Columbia, Canada. The Company’s shares trade on the TSX Venture Exchange (“TSX-V”) under the symbol MJS. The Company is a mining company focused on the exploration, development and operation of mining properties in China. The head office, principal address and the registered and records office of the Company are located at 306 – 1688 152nd Street, Surrey, British Columbia, Canada, V4A 4N2. These consolidated financial statements have been prepared on the assumption that the Company and its subsidiaries will continue as a going concern, meaning it will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the ordinary course of operations. The Company has completed its mining and production facilities and is now working towards achieving and maintaining efficient production and increased positive cash flows from operations. Should this not be achieved, the Company will continue to be dependent on raising sufficient funds to meet operational requirements. These factors indicate the existence of a material uncertainty that may cast significant doubt about the Company’s ability to continue as a going concern. These financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate. 2.

Significant accounting policies and basis of preparation

Statement of compliance These consolidated financial statements have been prepared in accordance with International Accounting Standard 1, Presentation of Financial Statements (“IAS 1”) as issued by the International Accounting Standards Board (“IASB”). The policies applied in these financial statements are based on International Financial Reporting Standards (“IFRS”) and interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”) issued and outstanding as at January 27, 2016, the date the board of directors approved these annual consolidated financial statements for issue. Basis of preparation The consolidated financial statements of the Company have been prepared on an accrual basis and are based on historical costs, modified where applicable. The consolidated financial statements are presented in US dollars unless otherwise noted. Basis of consolidation The consolidated financial statements include the accounts of the Company and its controlled entities. All intercompany balances and transactions, including unrealized income and expenses arising from intercompany transactions, are eliminated on consolidation. The net interest of the Company’s most significant subsidiaries are presented below: Country of incorporation Majestic Yantai Gold Ltd. Yantai Zhongjia Mining Inc.

BVI China

Percentage as at September 30, 2015 94% 70.5%

Percentage as at September 30, 2014 94% 70.5%

Use of estimates 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 prospectively in the period in which the estimates are revised.

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Majestic Gold Corp. Notes to the Consolidated Financial Statements For the Years ended September 30, 2015 and 2014 (Expressed in US dollars) 2. Significant accounting policies and basis of preparation (continued) Estimates and assumptions where there is significant risk of material adjustments to assets and liabilities in future accounting periods include: a) The useful lives of property, plant and equipment The useful lives of the Company’s mining property and related property, plant and equipment is based on indicated gold resource estimates based on a certain grade cut-off level. Assumptions that influenced cut-off grade include the expected future price of gold, projected operating costs and discount rates. Changes to these assumptions and further analysis of the Company’s gold resource estimates could significantly impact the expected useful lives of the Company’s mineral property and related property, plant and equipment. b) Asset retirement obligation The asset retirement obligation is based on projected future costs associated with mine reclamation and closure activities on the Company’s Songjiagou Gold Mine. This estimate is based on current Chinese environmental laws and regulations. Future changes to such laws and regulations as well as changes to the Company’s intended mining operations could significantly impact this provision. c) Impairment of the Company’s mining assets When assessing whether there are indicators of impairment of the Company’s mining property and related property, plant and equipment, the Company considers internal and external factors, including: (i) Market factors such as a decrease in the price of gold or an increase in market interest rates: (ii) The carrying value of the Company’s net assets exceeding the Company’s market capitalization; and (iii) The net cash flows generated by the assets being less than expected. The Company has concluded that, as at September 30, 2015, there are indicators of impairment of the Company’s Songjiagou Gold Mine (Note 9) which comprises the Company’s sole cash generating unit. To determine the recoverable amount of the Company’s mining assets, the Company makes estimates of discounted future cash flows expected to be derived from the Songjiagou Gold Mine. These projected cash flows make assumptions regarding future gold prices, the grade and recovery achieved from the ore mined, life of mine, future operating costs, future capital expenditures, and discount rates. The Company has determined that the recoverable amount exceeds the carrying value; however, significant revisions to these assumptions may result in the recognition of impairment. The resource estimate, grade, recovery, and life of mine that is expected to be achieved is based on the most recent technical report completed by a firm of independent consulting engineers. To date the Company has not achieved all the assumptions contained in the technical report. d) Other significant estimates Other significant estimates where there is significant risk of material adjustments to assets and liabilities in future accounting periods include: determining the fair value measurements for financial instruments, the allocation of production costs to stockpiles of ore inventory and the recoverability of deferred income tax assets. Use of judgments 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: a) The determination of functional currency In accordance with IAS 21, “The Effects of Changes in Foreign Exchange Rates” management determined that the functional currency of the Company and Majestic Yantai Gold Ltd. is the Canadian dollar and the functional currency of Yantai Zhongjia Mining Inc. and all other of the Company’s Chinese subsidiaries is the CNY; and b) 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 a significant uncertainty.

8

Majestic Gold Corp. Notes to the Consolidated Financial Statements For the Years ended September 30, 2015 and 2014 (Expressed in US dollars) 2. Significant accounting policies and basis of preparation (continued) Foreign currency translation Transactions in foreign currencies are initially recorded in the functional currency by applying exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the reporting date exchange rate. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are re-translated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on re-translation are recognized in profit or loss. For the purposes of presenting the consolidated financial statements in the presentation currency of US dollars, the group companies with functional currencies other than US dollars, the assets and liabilities are translated into US dollars using the period-end exchange rate and the operations and cash flows are translated using the average rates of exchange over the period. Exchange differences arising when the opening net assets and the profit or loss are translated into US dollars are recognized in other comprehensive income and recorded in the Company’s foreign currency translation reserve in equity. These differences are recognized in profit or loss in the period in which the operation is disposed. Property, plant and equipment Property, plant and equipment are stated at historical cost less accumulated depreciation and accumulated impairment losses. Subsequent costs to repair or enhance are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the expenditure will flow to the Company and the cost of the item can be measured reliably. The carrying amount of any replaced part is derecognized. All other repairs and maintenance are charged to the statement of comprehensive loss during the financial period in which they are incurred. Depreciation of machinery and mobile equipment, vehicles and office furniture and equipment is calculated on a straight‐line basis over a three to ten year life as appropriate. Certain items of property, plant and equipment including the Company’s Mill and its related assets are amortized over the estimated life of the mine using the units-ofproduction (“UOP”) method based on the recoverable ounces from the indicated resources. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized in the statement of comprehensive loss. Mining properties Mining properties include acquisition costs, costs previously capitalized during the exploration and evaluation stage, and mine development costs. Mining properties are stated at cost less accumulated depreciation and are accounted for on an individual project basis. When production commences, these costs are amortized using the UOP method, based on recoverable ounces from the indicated resources. Non-recoverable costs for projects determined not to be commercially feasible are expensed in the period in which the determination is made or when the carrying value of the project is determined to be impaired. Exploration and evaluation expenditures The Company defers the cost of acquiring, maintaining its interest, exploring and developing mineral properties as exploration and evaluation expenditures until the technical feasibility and commercial viability are established, or the property is abandoned, sold or considered to be impaired in value. When the technical feasibility and commercial viability of a property is established, exploration and evaluation expenditures are reclassified to mining properties. If no minable ore body is discovered, such costs are expensed in the period in which it is determined the property has no future economic value. Exploration costs that do not relate to any specific property are expensed as incurred.

9

Majestic Gold Corp. Notes to the Consolidated Financial Statements For the Years ended September 30, 2015 and 2014 (Expressed in US dollars) 2. Significant accounting policies and basis of preparation (continued) Stripping costs Stripping activity consist of removing mine waste materials to gain access to the mineral ore deposits. To the extent that it is probable that the stripping activity will improve the access to an identifiable ore body, costs incurred that relate to the stripping activity are capitalized to the mining asset, provided that the costs can be measured reliably. Costs that are incurred when performing stripping activity that provides benefit in the form of inventory produced is included in the cost of inventory. To date, all stripping costs have been included in the cost of inventory. Borrowing costs Borrowing costs attributable to the acquisition or construction of qualifying assets that take a substantial period of time to make ready for their intended use are added to the cost of the assets, until such time as the assets are substantially complete and ready for their intended use. All other borrowing costs are expensed in the period in which they are incurred. Inventory Inventory consists of gold concentrate and ore stockpile. Gold concentrate and ore stockpiles are physically measured or estimated and valued at the lower of average production cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and costs of selling final product. Asset retirement obligations The Company recognizes liabilities for statutory, contractual, constructive or legal obligations associated with the retirement of long-term assets, when those obligations result from the acquisition, construction, development or normal operation of the assets. The net present value of the asset retirement obligation estimates arising from the decommissioning of plant and other site preparation work is capitalized to the related asset along with a corresponding increase in the asset retirement obligation provision in the period incurred. Discount rates using a pre-tax rate that reflect the time value of money are used to calculate the net present value. Accretion expense, representing the increase in the provision due to the passage of time, is recorded in finance costs in the statement of comprehensive loss. The Company’s estimates of asset retirement obligations could change as a result of changes in regulatory requirements, discount rates and assumptions regarding the amount and timing of the future expenditures. These changes are recorded directly to the related asset with a corresponding entry to the provision. The Company’s estimates are reviewed annually for changes in regulatory requirements, discount rates, effects of inflation and changes in estimates. The costs of restoration projects that were included in the provision are recorded against the provision as incurred. The costs to prevent and control environmental impacts at specific properties are capitalized in accordance with the Company’s accounting policy for mineral property interests. Income taxes Current income tax: Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date, in the countries where the Company operates and is expected to generate taxable income. Current income tax relating to items recognized directly in other comprehensive income or equity is recognized in other comprehensive income or equity and not in profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

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Majestic Gold Corp. Notes to the Consolidated Financial Statements For the Years ended September 30, 2015 and 2014 (Expressed in US dollars) 2. Significant accounting policies and basis of preparation (continued) Income taxes (continued) Deferred income tax: Deferred income tax is recognized, using the asset and liability method, on temporary differences at the reporting date arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. The carrying amount of deferred income tax assets is reviewed at the end of each reporting period and recognized only to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) of the applicable jurisdiction that have been enacted or substantively enacted by the end of the reporting period. Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority. Impairment of assets The carrying amount of the Company’s non-financial assets, other than deferred tax 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 comprehensive loss. The recoverable amount of assets is the greater of an asset’s fair value less cost to sell and its value in use. In assessing fair value or value in use, the estimated future cash flows are discounted to their present value using a pretax 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. Any reversal of impairment cannot increase the carrying value of the asset 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. Share-based payments Share-based payments to employees are measured at the fair value of the instruments issued and recorded 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 a Black– Scholes 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.

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Majestic Gold Corp. Notes to the Consolidated Financial Statements For the Years ended September 30, 2015 and 2014 (Expressed in US dollars) 2. Significant accounting policies and basis of preparation (continued) Loss per share Basic loss per share is calculated by dividing the net loss attributable to common shareholders by the weighted average number of common shares outstanding in the period. For all periods presented, the loss attributable to common shareholders equals the reported loss attributable to owners of the Company. Diluted loss per share is calculated by the treasury stock method. Under the treasury stock method, the weighted average number of common shares outstanding for the calculation of diluted loss per share assumes that the proceeds to be received on the exercise of dilutive share options and warrants are used to repurchase common shares at the average market price during the period. 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 or issued. 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 group 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. Financial assets classified as fair value through profit or loss includes derivatives classified under investments. 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 receivables include cash and cash equivalents, restricted cash and receivables. 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 held-to-maturity investments. 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-tomaturity investments and are subsequently measured at fair value. These are included in current assets to the extent they are expected to be realized within 12 months after the end of the reporting period. Unrealized gains and losses are recognized in other comprehensive income, except for impairment losses and foreign exchange gains and losses on monetary financial assets. Financial assets classified as available-for-sale includes marketable securities classified under investments. Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortized cost. Regular purchases and sales of financial assets are recognized on the trade-date, being the date the Company commits to purchase the asset. The Company’s non-derivative financial liabilities include accounts payable and loans payable. Financial assets are derecognized when the right to receive cash flows from the investment has expired or has 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

12

Majestic Gold Corp. Notes to the Consolidated Financial Statements For the Years ended September 30, 2015 and 2014 (Expressed in US dollars) 2. Significant accounting policies and basis of preparation (continued) Financial instruments (continued) value of the instrument is considered to determine whether an impairment has arisen. The fair value of the Company’s financial assets and liabilities approximates the carrying amount. Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are: (i) Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities; (ii) Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and (iii) Level 3 – Inputs that are not based on observable market data. The Company’s cash and marketable securities are classified as level 1. The derivative is classified as level 2. Provisions A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as finance cost. Cash and cash equivalents Cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Restricted Cash Restricted cash consists of a deposits held as security for a series of banker’s acceptance notes and is held with the financial institution issuing the notes. Revenue Recognition Revenue from gold sales is recognized as revenue only when there is evidence of a sale arrangement, amounts are determinable, collection is reasonably assured and the Company no longer retains control over the goods sold. Share Capital Common shares are classified as equity. Incremental costs directly attributable to the issuance of common shares are recognized as a deduction from equity. Comparative figures Certain comparative figures have been reclassified to conform to the current year’s presentation. New standards adopted during the year The Company adopted the following new accounting standards: Amendments to IAS 32 “Financial Instruments: Presentation” The amendment to IAS 32, Financial Instruments: Presentation requires that financial asset and financial liability should only be offset and the net amount reported when an entity has a legal enforceable right to set off the amounts and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously. The adoption of this amendment has no effect on the Company’s financial statements.

13

Majestic Gold Corp. Notes to the Consolidated Financial Statements For the Years ended September 30, 2015 and 2014 (Expressed in US dollars) 3.

New standards, interpretations and amendments issued but not yet effective

A number of new standards, amendments to standards and interpretations are not yet effective as of September 30, 2015, and have not been applied in preparing these consolidated financial statements. None of these are expected to have a material effect on the financial statements of the Company. 4.

Cash and cash equivalents

Cash Term deposits Total

Year ended September 30, 2015 -$3,507,341 3,474,377

Year ended September 30, 2014 -$3,389,006 5,423,160

6,981,718

8,812,166

Cash of $3,414,027 is held in China and is subject to local exchange control regulations. Chinese exchange control regulations provide for restrictions on exporting capital from China, other than through normal dividends. 5.

Receivables

Sales taxes receivable Amount due from Dahedong (Note 9 and 15) Other receivables Total

6.

Year ended September 30, 2015 -$260,429 952,982 3,112 1,216,523

Year ended September 30, 2014 -$216,588 6,794 223,382

Year ended September 30, 2015 -$428,421 18,870 112,825 560,116

Year ended September 30, 2014 -$640,426 21,754 247,845 910,025

Deposits and prepaid expenses

Prepayment for mining supplies and services Rent deposit Other advances and prepayments Total

14

Majestic Gold Corp. Notes to the Consolidated Financial Statements For the Years ended September 30, 2015 and 2014 (Expressed in US dollars) 7.

Inventory

Gold concentrate Ore stockpile Total

8.

Year ended September 30, 2015 -$2,011,931 1,723,223 3,735,154

Year ended September 30, 2014 -$2,224,497 1,806,392 4,030,889

Investments Marketable Securities -$-

Balance, September 30, 2014 Sale of marketable securities (a)

Derivative -$-

Total -$-

34,377

-

34,377

(34,362)

-

(34,362)

Deposit on derivative asset (b)

-

217,382

217,382

Increase (decrease) in fair value

167

(21,575)

(21,408)

(182) -

642 196,449

460 196,449

Foreign exchange adjustment Balance, September 30, 2015

a) Marketable Securities During the year ended September 30, 2015, the Company sold its 500,000 shares of Bullabulling Gold Limited at an average sale price of $0.069, on the London Stock Exchange, for net proceeds of $34,362 (CAD$38,688). The cost of this investment was $38,844 (CAD$40,000). At September 30, 2014, the fair value of the 500,000 shares of Bullabulling Gold Limited was $34,377, determined by reference to the closing price of the shares of $0.069 per share on the London Stock Exchange. b) Derivative During the year ended September 30, 2015, the Company entered into a gold futures contract giving it the right to acquire 1,608 ounces of gold at an average price of $1,176 for a period of one year. The derivative asset of $196,449 at September 30, 2015, reflects a deposit of $217,382 to hold the gold futures, net of an unrealized loss of $21,575 and foreign exchange adjustment of $642. The contract was closed out subsequent to September 30, 2015, at an average gold price of $1,199 for a net gain of $35,046 (Note 22).

15

Majestic Gold Corp. Notes to the Consolidated Financial Statements For the Years ended September 30, 2015 and 2014 (Expressed in US dollars) 9.

Property, plant and equipment Heavy machinery and equipment -$-

Office furniture and equipment -$-

Mill

Mining property

Construction in progress (CIP)

Total

-$-

-$-

-$-

-$-

Cost At September 30, 2013

544,756

422,663

48,527,774

37,958,388

Additions Change in asset retirement cost Transfer from CIP Foreign exchange adjustment At September 30, 2014

243,002 (1,941) 785,817

80,015 (22,027) 480,651

1,978,784 (137,605) 50,368,953

70,551 (175,422) (128,983) 37,724,534

Additions Change in asset retirement cost Transfer from CIP Disposal Foreign exchange adjustment At September 30, 2015

500,195 (39,685) 1,246,327

59,892 (5,802) (34,752) 499,989

15 (1,588,647) 48,780,321

1,995,540 82,447 (1,287,969) 38,514,552

-

2,555,642 82,447 (5,802) (2,951,053) 89,041,189

Accumulated depreciation At September 30, 2013 Depreciation Foreign exchange adjustment At September 30, 2014 Depreciation Disposal Foreign exchange adjustment At September 30, 2015

(124,590) (75,989) 480 (200,099) (167,649) 11,306 (356,442)

(141,693) (123,763) 9,252 (256,204) (84,547) 3,827 25,782 (311,142)

(1,964,901) (1,425,596) 7,977 (3,382,520) (1,385,201) 147,955 (4,619,766)

(1,984,945) (1,058,638) 7,377 (3,036,206) (1,091,404) 128,280 (3,999,330)

-

(4,216,129) (2,683,986) 25,086 (6,875,029) (2,728,801) 3,827 313,323 (9,286,680)

585,718 889,885

224,447 188,847

46,986,433 44,160,555

34,688,328 34,515,222

-

82,484,926 79,754,509

Net book value At September 30, 2014 At September 30, 2015

333,212 (332,885) (327) -

87,786,793 2,372,352 (175,422) (332,885) (290,883) 89,359,955

The Company’s Mining Property consists of the Songjiagou gold Mine located in the Shandong Province of China. The Company commenced commercial gold production at the Songjiagou Gold Mine in May 2011. The Company’s mining permit for the Songjiagou Gold Mine is valid until May 17, 2020. The Songjiagou Gold Mine is owned by the Company’s 75% held subsidiary, Yantai Zhongjia Mining Inc. (“Zhongjia”). The remaining 25% of Zhongjia is held by Yantai Dahedong Processing Co. Ltd. (“Dahedong”). On May 1, 2014, the Company began operating under a new mining agreement (“New Mining Agreement”) with Dahedong, whereby mining operations will be carried out by Dahedong. Dahedong will be responsible for carrying on mining operations including developing the mine; mining, transporting, and processing ore; and removing waste material for a term of 27 years. Zhongjia will exercise full and final authority for the direction and supervision of the mining operations.

16

Majestic Gold Corp. Notes to the Consolidated Financial Statements For the Years ended September 30, 2015 and 2014 (Expressed in US dollars) 9. Property, plant and equipment (continued) Significant terms of the New Mining Agreement are as follows: (i) When the grade of ore is less than or equals to 0.5g/t, Dahedong will receive: a) CNY27 per tonne for ore mined and extracted and delivered to the mill for processing; b) CNY38 per tonne for ore processed into concentrate; and c) CNY7 per tonne for waste material mined, extracted and removed and disposed of. (ii) When the grade of ore is more than to 0.5g/t, Dahedong will receive: a) CNY37 per tonne for ore mined and extracted and delivered to the mill for processing; b) CNY38 per tonne for ore processed into concentrate; and c) CNY7 for waste material mined, extracted and removed and disposed of. At September 30, 2015, the Company had a balance owing from Dahedong of $952,982 (Note 5). At September 30, 2014, the Company had a balance due to Dahedong of $2,281,322 (Note 11). The amounts bear no interest, are unsecured, and due on demand. During the year ended September 30, 2015, the Company incurred $18,838,342 (2014 - $18,010,269) in mining and processing fees to Dahedong (Note 17). Prior to the New Mining Agreement on May 1, 2014, Zhongjia was charged interest of $418,780 during the year ended September 30, 2014 by Dahedong. 10. Exploration and evaluation assets The Company has interests in certain exploration and evaluation assets in China. No exploration or evaluation work is currently being pursued on these assets and the carrying value was previously impaired to $2. 11.

Accounts payable and accrued liabilities

Trade and other payables Amount due to Dahedong (Note 9 and 15) Amounts due to related parties (Note 15) Total

12.

Year ended September 30, 2015 -$9,607,572 5,119

Year ended September 30, 2014 -$5,928,455 2,281,322 -

9,612,691

8,209,777

Year ended September 30, 2015 -$14,101,270 1,064,556 6,488,766 22,211,047 (22,520,659) (660,568)

Year ended September 30, 2014 -$15,879,791 995,405 13,675,436 (16,408,597) (40,765)

Loans payable

Balance, beginning Interest and fees Banker's acceptance notes Loan advances Loan and interest repayments Foreign exchange adjustment Balance, ending

20,684,412

14,101,270

17

Majestic Gold Corp. Notes to the Consolidated Financial Statements For the Years ended September 30, 2015 and 2014 (Expressed in US dollars) 12.

Loans payable (continued) At September 30, 2015, the loans outstanding consist of: (i)

a $3,147,723 (CNY 20,000,000) (2014 - $3,250,236) one year loan bearing an interest at 6.6% per annum. The loan was repayable on November 12, 2015. The loan is guaranteed by the company that provides gold concentrate refining services to the Company. The loan was renewed with an interest rate of 5.655% per annum and a new maturity date is November 12, 2016 (Note 22);

(ii)

a $1,573,861 (CNY 10,000,000) (2014 - $Nil) one year loan bearing an interest at 0.625% per month. The loan was repayable on November 11, 2015. The loan is guaranteed by certain third parties, including Dahedong. On November 16, 2015, the loan was renewed, with an interest rate of 0.453125% per month and a new maturity date is November 15, 2016 (Note 22);

(iii)

a $1,573,861 (CNY 10,000,000) (2014 - $1,625,118) one year loan bearing an interest at 7.0% per annum. The loan was repayable on January 8, 2016. The loan is guaranteed by Dahedong, the owner of Dahedong and by certain third parties. On January 8, 2016, the loan was renewed, with an interest rate of 8.5% per annum and a new maturity date is January 7, 2017 (Note 22);

(iv)

a $1,888,634 (CNY 12,000,000) (2014 - $Nil) series of banker’s acceptance notes. The notes are secured by the restricted cash. The remaining balance of the notes, if any, will bear interest at a daily rate of 0.05% should the restricted cash be insufficient to cover the notes presented for payment. These notes are due February 28, 2016;

(v)

a $1,259,089 (CNY 8,000,000) (2014 - $Nil) series of banker’s acceptance notes. The notes are secured by the restricted cash. The remaining balance of the notes, if any, will bear interest at a daily rate of 0.05% should the restricted cash be insufficient to cover the notes presented for payment. These notes are due February 29, 2016; a $3,147,723 (CNY 20,000,000) (2014 - $3,250,236) one year loan bearing an interest at 5.91% per annum. The loan is repayable on May 17, 2016. The loan is guaranteed by the owner of Dahedong and the company that provides gold concentrate refining services to the Company;

(vi)

(vii)

a $613,806 (CNY 3,900,000) (2014 - $Nil) one year loan with Dahedong bearing an of 1.0% per month plus 5% if the loan is not repaid at maturity. The loan is repayable on June 6, 2016;

(viii)

a $4,721,584 (CNY 30,000,000) (2014 - $4,875,352) one year loan bearing an interest at 5.52% per annum. The loan is repayable on August 26, 2016. The loan is guaranteed by the company that provides gold concentrate refining services to the Company;

(ix)

a $1,573,861 (CNY 10,000,000) (2014 - $Nil) one year loan with Dahedong bearing an of 1.0% per month plus 5% if the loan is not repaid at maturity. The loan is repayable on August 27, 2016;

(x)

Accrued interest of $1,184,270 (CNY 7,524,618) (2014 - $1,100,328) relating to the above loans.

13. Asset retirement obligation The following table shows the movement for the asset retirement obligation: Year ended September 30, 2015 -$Balance, beginning Additions and changes in estimates of net present value Accretion (Note 17) Foreign exchange adjustment Balance, ending

2,466,708 82,447 104,646 (83,374) 2,570,427

Year ended September 30, 2014 -$2,535,792 (175,422) 113,999 (7,661) 2,466,708

18

Majestic Gold Corp. Notes to the Consolidated Financial Statements For the Years ended September 30, 2015 and 2014 (Expressed in US dollars) 13. Asset retirement obligation (continued) The Company’s asset retirement obligation consists of costs associated with mine reclamation and closure activities on the Songjiagou Gold Mine (Note 9). These activities, which are site specific, include costs for earthworks, re-contouring, re-vegetation, water treatment and demolition. In calculating the fair value of the Company’s asset retirement obligations, the Company used a risk-free rate of 3.3% (2014 – 4.25%) and an inflation rate of 3.0% (2014 – 3.0%). The majority of the expenditures are expected to occur in or after 2023. 14. Share capital and Reserves a) Authorized: Unlimited number of common shares without par value. b) Issued share capital: The Company had 839,765,216 common shares issued and outstanding as at September 30, 2 015 and September 30, 2014. c) Stock Options The Company has a shareholder approved “rolling” stock option plan (the “Plan”) in compliance with the TSX-V’s policies. Under the Plan, the maximum number of shares reserved for issuance may not exceed 10% of the total number of issued and outstanding common shares at the time of granting. The exercise price of each stock option shall not be less than the discounted market price of the Company’s stock at the date of grant. Such options will be exercisable for a period of up to 10 years from the date of grant. In connection with the foregoing, the number of common shares reserved for issuance to any one optionee will not, within a twelve month period, exceed five percent (5%) of the issued and outstanding common shares and the number of common shares reserved for issuance to all technical consultants will not exceed, within a twelve month period, two percent (2%) of the issued and outstanding common shares. Options may be exercised no later than 90 days following cessation of the optionee’s position with the Company or 30 days following cessation of an optionee conducting investor relations activities’ position. The continuity for stock options for the years ended September 30, 2015 and 2014 are as follows: Expiry date

Exercise price

November 14, 2014 June 22, 2015 September 14, 2016

CAD$0.12 CAD$0.12 CAD$0.20

Weighted average exercise price Exercise price

November 14, 2014* June 22, 2015 September 14, 2016

CAD$0.12 CAD$0.12 CAD$0.20

Issued

3,025,000 10,300,000 20,500,000 33,825,000 CAD$0.17

Expiry date

Weighted average exercise price

Balance September 30, 2014

$

Balance September 30, 2013 3,025,000 13,600,000 24,700,000 41,325,000 CAD$0.17

-

Issued

$

-

$

Balance September 30, 2015

-

(3,025,000) (10,300,000) (13,325,000)

20,500,000 20,500,000

-

CAD$0.12

CAD$0.20

-

(3,300,000) (4,200,000) (7,500,000)

Balance September 30, 2014 3,025,000 10,300,000 20,500,000 33,825,000

-

CAD$0.16

CAD$0.17

Expired/ Cancelled

Exercised -

$

Expired/ Cancelled

Exercised

*During the year end September 30, 2014, the expiry date of 3,025,000 of the stock options set to expire on June 22, 2015 was revised to November 14, 2014.

19

Majestic Gold Corp. Notes to the Consolidated Financial Statements For the Years ended September 30, 2015 and 2014 (Expressed in US dollars) 14. Share capital and reserves (continued) Details of stock options outstanding as at September 30, 2015, are as follows:

Exercise Price CAD$0.20

d)

Expiry Date September 14, 2016

Options outstanding

Weighted average remaining contractual life in years CAD$0.20 0.96

Weighted average exercise price

20,500,000

Reserves

Share-based payment reserve The share-based payment reserve records items recognized as stock-based compensation expense and other sharebased payments. This reserve also includes the value attributed to warrants on unit private placements. At the time that the stock options or warrants are exercised, the corresponding amount will be transferred to share capital. Foreign currency translation reserve The foreign currency translation reserve records unrealized exchange differences arising on translation of group companies that have a functional currency other than the Company’s reporting currency. Available-for-sale reserve The available-for-sale reserve records unrealized gains and losses arising on available-for-sale financial assets, except for impairment losses and foreign exchange gains and losses on monetary items. 15.

Related party transactions and balances Related party transactions The Company incurred the following related party transactions during the year: Year ended September 30, 2015 -$Consulting fees charged by companies controlled by directors and officers of the Company - includes key management personnel compensation Mining and milling services charged by Dahedong (Note 9 and 17) Interest charged by Dahedong

Year ended September 30, 2014 -$-

655,807 18,838,342 203,380 19,697,529

1,831,259 18,010,269 418,780 20,260,308

Year ended September 30, 2015 -$254,592 169,687 424,279

Year ended September 30, 2014 -$369,840 922,100 163,139 1,455,079

Key management personnel compensation

Short-term employee benefits–management fees Termination benefits-management fees Director fees

Key management included the Company’s directors, executive officers and senior management.

20

Majestic Gold Corp. Notes to the Consolidated Financial Statements For the Years ended September 30, 2015 and 2014 (Expressed in US dollars) 15.

Related party transactions and balances (continued) Related party balances Year ended September 30, 2015 -$Amounts due to companies controlled by Directors and Officers of the Company (Note 11) Amounts (owing from) due to Dahedong (Note 5 and 11) Loan and interest amounts due to Dahedong (Note 12)

Year ended September 30, 2014 -$-

5,119 (952,982) 2,391,047 1,443,184

2,281,322 2,281,322

Dahedong is a related party on the basis that it is controlled by a significant shareholder of the Company. 16. Segmented information The Company operates in one industry segment, being the exploration, development and operation of mining properties in China. All of the Company’s capital assets are located in China, except office furniture and equipment with a net book value of $17,113 located in the Company’s head-office in Canada. All of the Company’s revenues are earned in China. 17. Revenue and Expenses Revenue

Sales of gold bullion Other revenue Total

Year ended September 30, 2015 -$22,395,034 200,279 22,595,313

Year ended September 30, 2014 -$23,453,959 362,444 23,816,403

In February 1, 2015, the Company is party to an agreement which allows a third party use of the tailings pond for a fee of CNY 5.5 per tonne of ore processed to a maximum of 1,500 tonnes per day. The company recorded revenue of $200,279 under this agreement in the year ended September 30, 2015. The Company leased the mining of the underground mine to a third party for a two year period which terminated March 2014. The lease was for $1,139,624 (CNY 7,000,000) per annum, subject to adjustment if the price of gold falls below CNY 330 per gram. The Company recorded lease revenue of $362,444 in the year ended September 30, 2014. Cost of goods sold

Contractor costs paid to Dahedong (Note 9 and 15) Depreciation (Note 9) Smelting costs Resource taxes Other direct costs Changes in ending inventory Total

Year ended September 30, 2015 -$18,838,342 2,476,605 533,466 1,417,552 1,007,400 146,778 24,420,143

Year ended September 30, 2014 -$18,010,269 2,484,234 502,708 1,431,395 1,200,315 18,867 23,647,788

21

Majestic Gold Corp. Notes to the Consolidated Financial Statements For the Years ended September 30, 2015 and 2014 (Expressed in US dollars) 17. Revenue and Expenses (continued) General and administrative

Consulting and management fees Depreciation (Note 9) Financial advisory services Office and general Professional fees Salaries Shareholder communications, transfer agent and filing fees Travel Total

Year ended September 30, 2015 -$705,174 252,196 889,706 109,755 925,938 34,134 419,024 3,335,927

Year ended September 30, 2014 -$2,245,547 199,752 60,480 875,882 582,947 945,455 150,551 684,827 5,745,441

Year ended September 30, 2015 -$1,066,216 104,646 1,170,862

Year ended September 30, 2014 -$995,405 418,780 113,999 1,528,184

Finance expense

Interest expenses Interest on amount due to Dahedong (Note 9) Accretion of asset retirement obligation (Note 13) Total

18. Risks 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. The majority of cash is deposited in bank accounts held with major banks in Canada and China. The credit risk associated with cash held in Canada is reduced by management ensuring that the Company uses a major Canadian financial institution with strong investment grade ratings by a primary ratings agency. The credit risk associated with cash held in China is reduced, but not fully mitigated, by management using a financial institution that is operated by the Government of China. Liquidity Risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company plans to ensure that there is sufficient capital in order to meet short-term business requirements, after taking into account the Company’s holdings of cash. The Company’s cash is invested in interest bearing accounts which are available on demand. Management believes the Company has sufficient cash on hand to finance operations for the next twelve months.

22

Majestic Gold Corp. Notes to the Consolidated Financial Statements For the Years ended September 30, 2015 and 2014 (Expressed in US dollars) 18. Risks and capital management (continued) Industry Risk The Company is a mining company with a property and mining operation in China. Its mining activities involve numerous inherent risks. The Company is subject to various financial, equities markets, operational and political risks that could significantly affect its operations and cash flows. These risks include changes in local laws affecting the mining industry, a decline in the price of commodities, uncertainties inherent in estimating mineral resources and fluctuations in the foreign currencies against the US dollar. The Company does not use derivatives or hedging to mitigate the risk of changes in the price of gold or currency fluctuations. The Company’s business is highly dependent on the price of gold and venture capital markets, which are impacted by volatility factors the Company cannot control. A decrease in the price of gold could adversely affect the Company’s financial condition, results of operations and cash flows. Lower gold prices may result in asset impairment, write-downs of mineral property carrying values and limitations in access to capital. The Company operates in China and is exposed to the laws governing the mining industry in China. The Chinese government is currently supportive of the mining industry but there is uncertainty in future changes to government policies and regulations including taxation, repatriation of profits, restrictions on production, export controls, environmental compliance and expropriation. These factors could adversely affect the Company’s exploration efforts and production plans. The Company’s property is located in an area that can experience severe winter weather conditions which could adversely affect mining operations. In addition, the Company is subject to changes in environmental laws and regulations that may result in unexpected costs. Market Risk The significant market risks to which the Company is exposed are interest rate risk, currency risk and other commodity price risk. These are discussed further below: Interest Rate Risk Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The Company’s cash consists of cash held in bank accounts that earn interest at variable interest rates. The Company’s loans payable accrues interest at fixed rates. Due to the short-term nature of these financial instruments, fluctuations in market rates do not have a significant impact on the estimated fair value as of September 30, 2015. Currency Risk Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company is exposed to currency risk to the extent expenditures incurred or funds received and balances maintained by the Company are denominated in currencies other than the functional currency of the entity completing the transaction or holding the funds. The Company does not manage currency risks through hedging or other currency based derivatives. The Company and its subsidiaries do not have significant transactions or hold significant cash denominated in currencies other than their functional currencies. Therefore, this risk is considered minimal. Other Price Risk Other price risk is the risk that the fair or future cash flows of a financial instrument will fluctuate because of changes in market prices, other than those arising from interest rate risk, price risk or foreign exchange risk. The Company is exposed to changes in market prices as this can impact the value of its investments. The Company is exposed to changes in the price of gold which affects its earnings and cash flows. Changes in the price of gold will impact the profits and resulting cash flows of the company and could potentially impact the classification and amounts of certain liabilities, most notably the asset retirement obligation. As at September 30, 2015, the Company holds gold futures contract (Note 8). However, the Company does not use derivative instruments to hedge or reduce its price risk to gold.

23

Majestic Gold Corp. Notes to the Consolidated Financial Statements For the Years ended September 30, 2015 and 2014 (Expressed in US dollars) 19. Non-controlling interest The non-controlling interest represents the 25% equity interest in Zhongjia held by Dahedong (Note 9) and 6% equity interest in Majestic Yantai held by another minority shareholder. The following is the summarized consolidated statement of financial position of Majestic Yantai: Year ended September 30, 2015 -$-

Year ended September 30, 2014 -$-

Current: Assets Liabilities Total current net liabilities

11,894,033 (30,078,917) (18,184,884)

7,913,589 (21,936,877) (14,023,288)

79,733,339 (5,545,025) 74,188,314 56,003,430

82,455,858 (5,538,181) 76,917,677 62,894,389

Non-current Assets Liabilities Total non-current net assets Balance, ending

The following is the summarized consolidated statement of comprehensive income (loss) of Majestic Yantai: Year ended September 30, 2015 -$22,595,313 (4,683,601) 303,849 (4,987,450) 3,956,717 (1,030,733)

Revenue Net loss before income tax Income tax expense Net loss Other comprehensive income Comprehensive loss

Year ended September 30, 2014 -$23,816,403 (3,063,480) 327,447 (3,390,927) 2,395,249 (995,678)

20. Commitments Operating lease commitments Refer to Note 9 for details of commitments resulting from the agreement with Dahedong. The Company has obligations under operating leases for its corporate offices until February 2018 as follows: 2016 $ Operating lease commitments: Office premises

43,286

2017

20,366

2018

Total $ 8,486

72,138

24

Majestic Gold Corp. Notes to the Consolidated Financial Statements For the Years ended September 30, 2015 and 2014 (Expressed in US dollars) 21.

Income tax The components of the Company’s income tax expense are as follows:

Current income tax expense Deferred income tax expense

Year ended September 30, 2015 -$164,816 139,033 303,849

Year ended September 30, 2014 -$187,610 139,837 327,447

A reconciliation of the expected income tax recovery to the actual income tax recovery is as follows:

Net loss for the year Expected income tax recovery at local statutory tax rates Non-deductible items and other permanent differences Effect of tax rate changes Temporary differences not recognized Total

Year ended September 30, 2015 -$(6,024,985) (1,566,496) 1,941,332 (777) (70,210) 303,849

Year ended September 30, 2014 -$(6,981,419) (1,784,912) 1,107,366 (334,683) 1,339,676 327,447

Deferred tax assets and liabilities consist of the following and all relate to the Company’s Chinese operations:

Property, plant and equipment Finance expense Asset retirement obligation Inventory Other temporary differences

Year ended September 30, 2015 -$(578,089) 799,925 116,095 (502,983) 252,564 87,512

Year ended September 30, 2014 -$(416,240) 825,977 93,668 (556,124) 282,365 229,646

The Company has the following deductible temporary differences that relate to the Canadian parent and for which no deferred asset has been recognized:

Non-capital losses Share issue costs Property, plant and equipment Capital loss

Year ended September 30, 2015 -$29,029,779 837,911 108,830 11,227 29,987,747

Year ended September 30, 2014 -$33,704,634 2,188,928 120,042 19,919 36,033,523

25

Majestic Gold Corp. Notes to the Consolidated Financial Statements For the Years ended September 30, 2015 and 2014 (Expressed in US dollars) 21. Income tax (continued) These temporary differences can be used to offset taxable income in the future. The non-capital losses expire in the years 2016 through 2035. The share issue costs are amortized into taxable income (loss) over a five year period. Chinese tax law requires that a withholding tax of 10% is applied to dividends paid by Chinese subsidiaries to foreign parent companies. At September 30, 2015, there was no distributable profit (2014 – $1,167,840). 22. Subsequent events Subsequent to September 30, 2015: (i) the Company entered into a banker’s acceptance agreement for CNY 5,000,000($786,500), on October 21, 2015, for series of banker’s acceptance notes. The notes are secured by the restricted cash. The remaining balance of the notes, if any, will bear interest at a daily rate of 0.05% should the restricted cash be insufficient to cover the notes presented for payment. These notes are due April 21, 2016; (ii) the Company renewed its bank loan for CNY 20,000,000 ($3,136,000) on November 12, 2015, with an interest rate 5.655% per annum and a new maturity date is November 12, 2016 (iii) the Company renewed its bank loan for CNY 10,000,000 ($1,570,000) on November 16, 2015, with an interest rate of 0.433125% per month and a new maturity date of November 15, 2016; (iv) the Company entered into a banker’s acceptance agreement for CNY 2,000,000 ($312,200) on November 30, 2015, for series of banker’s acceptance notes. The notes are secured by the restricted cash. The remaining balance of the notes, if any, will bear interest at a daily rate of 0.05% should the restricted cash be insufficient to cover the notes presented for payment. These notes are due May 30, 2016; (v) the Company entered into a banker’s acceptance agreement for CNY 340,000 ($53,074), on December 3, 2015, for series of banker’s acceptance notes. The notes are secured by the restricted cash. The remaining balance of the notes, if any, will bear interest at a daily rate of 0.05% should the restricted cash be insufficient to cover the notes presented for payment. These notes are due June 3, 2016; (vi) the Company entered into a banker’s acceptance agreement for CNY 3,000,000($463,200) on December 23, 2015, for series of banker’s acceptance notes. The notes are secured by the restricted cash. The remaining balance of the notes, if any, will bear interest at a daily rate of 0.05% should the restricted cash be insufficient to cover the notes presented for payment. These notes are due June 23, 2016; (vii) the Company renewed its bank loan for CNY 10,000,000 ($1,517,000) on January 8, 2016, with an interest rate 8.5% per annum and a new maturity date is January 7, 2017. (viii) the Company entered into a banker’s acceptance agreement for CNY 7,000,000($1,064,700), on January 12, 2016, for series of banker’s acceptance notes. The notes are secured by the restricted cash. The remaining balance of the notes, if any, will bear interest at a daily rate of 0.05% should the restricted cash be insufficient to cover the notes presented for payment. These notes are due July 12, 2016; (ix) the Company closed its gold futures contract at an average gold price of $1,199 for a net realized gain of $35,046 (Note 8).

26