NOTE

15:

INCOME TAXES

July 31, 2019,

we had U.S. and Canadian net operating loss carry-forwards of approximately

$166.6

million and

$5.2

million in Canadian dollars, respectively, that

may

be available to reduce future years’ taxable income. These carry-forwards will begin to expire, if

not

utilized, commencing in

2023.

In addition, we had U.S. net operating loss totalling

$24.0

million (Fiscal

2019:

$6.3

million; Fiscal

2018:

$17.7

million) and interest expenses of

$1.8

million subject to IRC section

163

(j) limitation, which will be carried forward indefinitely as a result of the

Tax Cut and Jobs Act

enacted on

December 22, 2017.

Future tax benefits which

may

arise as a result of these losses have

not

been recognized in these consolidated financial statements, as their realization has been determined

not

likely to occur and, accordingly, we have recorded a full valuation allowance for the deferred tax asset relating to these tax loss carry-forwards.

We review the valuation allowance requirements on an annual basis based on projected future operations. When circumstances change resulting in a change in management’s judgement about the recoverability of deferred tax assets, the impact of the change on the valuation allowance will generally be reflected in current income.

A reconciliation of income tax computed at the federal and state statutory tax rates including the Company’s effective tax rate is as follows:

	Year Ended July 31,
	2019			2018			2017
Federal income tax provision rate		21.00	%		26.87	%		35.00	%
State income tax provision rate, net of federal income tax effect		0.52	%		0.59	%		0.43	%
Total income tax provision rate		21.52	%		27.46	%		35.43	%

The actual income tax provisions differ from the expected amounts calculated by applying the combined federal and state corporate income tax rates to our loss before income taxes. The components of these differences are as follows:

	Year Ended July 31,
	2019			2018			2017
Loss before income taxes	$	(17,167,161	)	$	(18,534,145	)	$	(18,005,411	)
Corporate tax rate		21.52	%		27.46	%		35.43	%
Expected tax recovery		(3,694,373	)		(5,089,476	)		(6,379,317	)
Increase (decrease) resulting from
Foreign tax rate differences		90,391			167,162			185,700
Permanent differences		2,427,665			434,863			446,377
Prior year true-up		(160,019	)		(141,814	)		(1,028,592	)
Property acquisition		-			-			(491,798	)
Foreign exchange rate differences		39,667			(41,014	)		(3,248	)
Other		(94,291	)		35,706			81,660
Recognition of deferred tax assets		-			430,121			-
Change in valuation allowance		1,373,462			4,156,768			7,149,654
Tax adjustment from operations		(17,498	)		(47,684	)		(39,564	)

Re-measurement of deferred tax liability at 21%		-			(232,843	)		-
Recognition of deferred tax assets to offset deferred tax liability		-			(430,121	)		-
Unrealized loss, other comprehensive loss		3,126			3,137			5,209
Deferred tax benefits	$	(14,372	)	$	(707,511	)	$	(34,355	)

We have incurred taxable losses for all years since inception and, accordingly,

provision for current income tax has been recorded for the current or any prior fiscal years. During Fiscal

2019

and Fiscal

2017,

we recorded a deferred tax benefit of

$14,372

and

$34,355,

respectively. During Fiscal

2018,

we recognized a deferred tax benefit of

$707,511,

of which

$232,843

resulted from the re-measurement of deferred tax liabilities to the enacted tax rate of

21%

December 22, 2017,

and

$430,121

which resulted from the recognition of deferred tax assets relating to the taxable losses incurred in Fiscal

2018

to offset the remaining deferred tax liabilities relating to the Reno Creek Acquisition.

July 31, 2019,

we re-evaluated the realizability of our tax loss carry-forwards and our conclusion that the realization of these tax loss carry-forwards is

not

likely to occur remains unchanged. As a result, we will continue to record a full valuation allowance for the deferred tax assets relating to the remaining tax loss carry-forwards.

The components of income (loss) from operations before income taxes, by tax jurisdiction, are as follows:

	Year Ended July 31,
	2019			2018			2017
United States	$	(16,560,132	)	$	(17,709,866	)	$	(17,303,682	)
Canada		120,362			145,267			45,316
Paraguay		(727,391	)		(969,546	)		(747,045	)
	$	(17,167,161	)	$	(18,534,145	)	$	(18,005,411	)

The Company’s deferred tax assets (liabilities) are as follows:

	July 31, 2019			July 31, 2018
Deferred tax assets (liabilities)
Mineral properties	$	1,256,327		$	1,587,220
Exploration costs		6,551,403			6,556,355
Stock option expense		4,570,905			4,266,067
Depreciable property		(937,614	)		(255,544	)
Inventories		(3,343,361	)		(3,894,552	)
Asset retirement obligations		20,561			(28,925	)
Other		35,983			57,060
Section 163(j) interest expense carry forwards		384,109			-
Loss carry forward		43,198,434			42,075,593
		51,736,747			50,363,274
Valuation allowance		(51,739,873	)		(50,366,411	)
Deferred tax assets		(3,126	)		(3,137	)
Deferred tax assets, other comprehensive loss		3,126			3,137

Deferred tax liabilities
Mineral properties		(550,551	)		(564,923	)
Net deferred tax liabilities	$	(550,551	)	$	(564,923	)

As the criteria for recognizing deferred income tax assets have

not

been met due to the uncertainty of realization, a valuation allowance of

100%

has been recorded for the current and prior years.

The Company’s U.S. net operating loss carry-forwards expire as follows:

July 31, 2023	$	180,892
July 31, 2024		228,757
July 31, 2025		507,833
July 31, 2026		5,895,221
July 31, 2027		3,892,722
July 31, 2028		9,913,533
July 31, 2029		8,469,032
July 31, 2030		7,319,644
July 31, 2031		14,954,064
July 31, 2032		15,547,890
July 31, 2033		16,865,884
July 31, 2034		22,139,423
July 31, 2035		19,891,560
July 31, 2036		19,024,525
July 31, 2037		20,396,629
July 31, 2038		690,637
July 31, 2039		690,637
	$	166,608,883

For U.S. federal income tax purposes, a change in ownership under IRC Section

382

has occurred as a result of the Reno Creek Acquisition on

August 9, 2018

and also in prior years. When an ownership change has occurred, the utilization of these losses against future income would be subject to an annual limitation, which would be equal to the value of the acquired company immediately prior to the change in ownership multiplied by the IRC Section

382

rate in effect during the month of the change.

The Company’s Canadian net operating loss carry-forwards in Canadian dollars expire as follows:

July 31, 2027	$	183,105
July 31, 2028		629,788
July 31, 2029		769,072
July 31, 2030		764,230
July 31, 2031		1,914,943
July 31, 2032		761,843
July 31, 2033		69,854
July 31, 2034		61,769
July 31, 2035		41,173
July 31, 2036		9,917
July 31, 2037		-
July 31, 2038		6,511
July 31, 2039		29,176
	$	5,241,381