Balance Sheet Date
|
|
April 30,
2017
|
|
|
July 31,
2016
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
187,851
|
|
|
$
|
390,660
|
|
Total Assets
|
|
$
|
8,241,201
|
|
|
$
|
8,382,920
|
|
Total Liabilities
|
|
$
|
519,834
|
|
|
$
|
817,166
|
|
Stockholders’ Equity
|
|
$
|
7,721,367
|
|
|
$
|
7,565,754
|
|
Plan of Operation
On January 25, 2017, the Company entered into an amended and restated joint venture agreement (the “Amended and Restated Joint Venture Agreement”) with Mineracao Batovi and Dr. Charles Fipke in his capacity as the shareholder of Mineracao Batovi. The Amended and Restated Joint Venture Agreement supersedes the Joint Venture Agreement between the Company and Mineracao Batovi dated November 20, 2014, as previously amended by our Company's letter agreement dated February 27, 2015, which became effective upon its acceptance by Mineracao Batovi and Kel-Ex Development Ltd. (“Kel-Ex”) on March 9, 2015 (as so amended, the “Joint Venture Agreement”).
The Joint Venture Agreement originally contemplated the establishment of a new joint venture company to be formed in Brazil. As initially reported in the Company’s quarterly report on Form 10-Q for the period ended April 30, 2015 (as filed with the SEC on June 22, 2015), due to certain regulatory requirements in Brazil, the Company and Mineracao Batovi determined that it is preferable to use Mineracao Batovi as the joint venture company since it holds the mineral claims underlying the Batovi Diamond Project. The Amended and Restated Joint Venture Agreement now formally contemplates the Company acquiring an interest in Mineracao Batovi to develop, finance and operate the Batovi Diamond Project.
The Amended and Restated Joint Venture Agreement contemplates that we will acquire a 17.6% equity interest in Mineracao Batovi - which is in addition to our existing 2.4% equity interest - in consideration of a cash contribution to Mineracao Batovi of $1,000,000, but such cash consideration must now be made no later than June 30, 2017. Under the Amended and Restated Joint Venture Agreement if we only contribute a portion of the $1,000,000 by June 30, 2017 we will only acquire a pro rata portion of the 17.6% equity interest in Mineracao Batovi.
We continue to be entitled to earn an additional 29% equity interest in Mineracao Batovi by funding a further $2,000,000 of exploration expenses. We also are entitled to earn a pro rata portion of the additional 29% equity interest if we only fund a portion of the $2,000,000. The Joint Venture Agreement originally provided that our right was contingent on us funding such additional exploration expenses no later than November 20, 2017; that date has been extended to November 20, 2019 under the Amended and Restated Joint Venture Agreement.
The Amended and Restated Joint Venture Agreement now provides that, during the period from the date we acquire some portion of the initial 17.6% equity interest in Mineracao Batovia until the expiry of the period during which we can earn the additional 29% equity interest in Mineracao Batovi and from then on in circumstances where we hold at least a 40% equity interest in Mineracao Batovi, Mineracao Batovi shall be managed by a board of directors comprised of two (2) representatives from each of our Company and the existing shareholder Mineracao Batovi Shareholder. In circumstances where our interest in Mineracao Batovi at the end of the period during which we can earn the additional 29% equity interest is greater than 10% but less than 40%, the board of directors shall thereafter be comprised of three (3) representatives of the existing shareholder of Mineracao Batovi and one (1) of our Company. The board of directors shall be similarly constituted during the period which we can earn the additional 29% equity interest as long as the interest in Mineracao Batovi held by our Company is less than 10%. If at any time following the expiry of the period during which we can earn the additional 29% equity interest our interest in Mineracao Batovi is reduced to 10% or less, our Company shall thereafter not be entitled to any representation on the board of directors of Mineracao Batovi.
Certain specified matters continue to be subject to the approval of at least three of the four members of Mineracao Batovi's board of directors, including the adoption of the project's annual budget and any amendments thereto, the scope and purpose of a feasibility study for the Batovi Project (including the determination that the study is positive), and the decision to mine and commence commercial production.
Until we earn the additional 29% equity interest in Mineracao Batovi or the right to earn such interest ends, and so long as we elect to participate in the joint venture, we will bear 100% of Mineracao Batovi's expenses provided that all such expenses are first approved in writing by our Company's representatives on Mineracao Batovi's board of directors.
Under the Amended and Restated Joint Venture Agreement, upon funding our initial $1,000,000 contribution, our Company would be engaged to act as operator of the Batovi Diamond Project on terms whereby our Company will be entitled to charge a 10% administration fee on all exploration expenditures incurred under $50,000 and 5% on all exploration expenditures incurred over $50,000. Our Company has discretion to subcontract with third parties, including Kel-Ex, to enable it to fulfill its role as operator. Kel-Ex is a privately-held British Columbia corporation that is under common control with Mineracao Batovi.
On January 27, 2017, we filed a registration statement with the Securities and Exchange Commission on Form S-1 under the Securities Act of 1933, as amended, to register the offer and sale of up to 10,000,000 common shares of our Company at a price of $0.1695 per share. The registration statement was declared effective by the SEC as of March 9, 2017. To date, no common stock has been sold pursuant to the registration statement, and there is no assurance that we will be able to sell sufficient shares pursuant the offering to enable us to fund the initial $1,000,000 contribution that we must make to Mineracao Batovi in order to acquire our additional 17.6% equity interest in Mineracao Batovi. If we fail to fund the full $1,000,000 contribution to Mineracao Batovi no later than June 30, 2017, we will lose our right to earn any additional equity interest in Mineracao Batovi unless we are able to negotiate an extension to the Amended and Restated Joint Venture Agreement to provide for an extension of time to do so.
On January 22, 2016, we entered into a loan agreement (the “Loan Agreement”) with Blendcore LLC, a Delaware corporation (“Blendcore”) and Petaquilla Gold, S.A., a Panama corporation (“Petaquilla Gold”), pursuant to which our Company has agreed to advance a loan in the principal amount of US$250,000 to Blendcore (the “Loan”).
Petaquilla Gold, as the owner of minerals sourced from the Molejon Gold Mine located in Donoso District, Colon Province of Panama (the “Mine”), has engaged Blendcore, as master contractor, to act as operator in connection with the restarting of the processing of stockpiled ore at the Mine. The Loan proceeds are to be applied by Blendcore in that capacity in accordance with a use-of-funds budget (the “Budget”) that has been annexed to the Loan Agreement. Petaquilla Gold is a party to the Loan Agreement in its capacity as the title holder of the minerals, but is not entitled to receive any advances under the Loan Agreement.
Pursuant to the terms of the Loan Agreement, the Loan is to be advanced in three tranches as follows:
|
·
|
US$50,000 was advanced upon execution of the Loan Agreement;
|
|
|
|
|
·
|
US$100,000 was required to be advanced within 2 weeks from the execution of the Loan Agreement, and was in fact advanced on January 27, 2016; and
|
|
|
|
|
·
|
US$100,000 will be advanced as required in accordance with the Budget.
|
As at April 30, 2017, we have advanced $215,000 to Blendcore LLC.
In exchange for the provision of the Loan, our Company is to receive a royalty of 12.5% on the first 1,000 ounces of gold produced per month for 12 months (the “Royalty Period”). The Royalty Period is to commence once production ramps up to 1,000 ounces per month. For monthly production between 1,001 and 2,000 ounces of gold per month, our Company is to receive a reduced royalty of 5%. In addition to the royalty stream, our Company has a right of first option to provide funding for the expansion and development of the Mine.
Under the terms of the Loan Agreement, the Loan is to be forgiven provided that there is at least 12,000 ounces of gold produced during the Royalty Period. Upon the completion of the Royalty Period, our Company has the option to extend the royalty for a further 12 month period through the provision of a second $250,000 loan on substantially the same terms as the initial Loan. This right shall survive the royalty agreement by a period of one year.
Petaquilla Gold and Blendcore have entered into a Collateral Assignment Agreement dated January 11, 2016 (the “Collateral Assignment Agreement”; a copy of which is annexed to the Loan Agreement), pursuant to which Petaquilla Gold has collaterally assigned to Blendcore such number of ounces of gold from that which is mined at the Mine as shall be necessary to enable Blendcore to satisfy its obligations to our Company under the Loan Agreement. By letter of authorization dated January 18, 2016, Petaquilla Gold has consented to the transfer by Blendcore to our Company of Blendcore’s rights under the Collateral Assignment Agreement.
Subsequent to our advancing the monies to Blendcore progress has been slow in advancing the restart. We are in the position that the loan is in default and have demanded payment from Blendcore and Petaquilla Gold S.A., but have not received satisfactory responses to our demand. Separate and apart from the issues arising with respect to the loan to Blendcore, we have engaged a law firm in Panama to pursue the acquisition of the Molejon Gold Mine. Representatives of this firm are in discussions with a committee formed by the Panamanian government to oversee the transfer of interests of the Molejon Gold Mine.
Limited Operating History; Need for Additional Capital
As described above, in order to obtain our initial 17.6% interest in the Batovi Diamond Project, we will need to raise a significant amount of funds. We have no assurance that financing will be available to us on acceptable terms. If financing is not available on satisfactory terms, we may be unable to continue, develop or expand our operations. Equity financing would result in additional dilution to existing shareholders.
There is no historical financial information about us upon which to base an evaluation of our performance. We are a start-up company and have not generated any revenues. We cannot guarantee success of our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources and possible cost overruns due to price and cost increases in services and products.
We anticipate that we will need $2,400,000 to fund the next 12 months of our operations, including our commitments under the Loan Agreement with Blendcore and Petaquilla Gold. If we are unable to meet our needs for cash from either the money that we raise from future financings, or possible alternative sources, then we may be unable to continue, develop, or expand our operations. We currently do not have sufficient funds to operate our business for the next 12 months.
Liquidity and Capital Resources
Working Capital
|
|
April 30,
2017
|
|
|
July 31,
2016
|
|
|
|
|
|
|
|
|
Current Assets
|
|
$
|
219,201
|
|
|
$
|
390,920
|
|
Current Liabilities
|
|
|
519,834
|
|
|
|
817,166
|
|
Working Capital Deficiency
|
|
$
|
300,633
|
|
|
$
|
426,246
|
|
Cash Flows
|
|
Nine Months
Ended
April 30,
2017
|
|
|
Nine Months
Ended
April 30,
2016
|
|
|
|
|
|
|
|
|
Cash Flows used in Operating Activities
|
|
$
|
(172,809
|
)
|
|
$
|
(104,381
|
)
|
Cash Flows used in Investing Activities
|
|
|
(30,000
|
)
|
|
|
(215,000
|
)
|
Cash Flows provided by Financing Activities
|
|
|
-
|
|
|
|
-
|
|
Net change in Cash During the Period
|
|
$
|
(202,809
|
)
|
|
$
|
(319,381
|
)
|
As at April 30, 2017, our Company’s cash balance was $187,851 compared to $390,660 as at July 31, 2016. The decrease in cash was primarily due to cash used in operating activities, mainly legal costs associated with the Loan to Blendcore, and with accounting and legal costs associated with the preparation and filing with the Securities and Exchange Commission of a registration statement on Form S-1 under the Securities Act of 1933, as amended.
As at April 30, 2017, our Company had total liabilities of $519,834 compared with total liabilities of $817,166 as at July 31, 2016. The decrease in total liabilities was primarily attributed to a recovery of management fees pursuant to the employment agreements with our Chief Executive Officer and our Chief Financial Officer.
As at April 30, 2017, our Company had working capital deficit of $300,633 compared with working capital deficit of $426,246 as at July 31, 2016. The decrease in working capital deficit was primarily attributed to management fees adjusted during the period.
Cash Flow from Operating Activities
During the nine months ended April 30, 2017, our Company used $172,809 in cash from operating activities compared to cash used by operating activities of $104,381 during the nine months ended April 30, 2016.
Cash Flow from Investing Activities
During the nine months ended April 30, 2017, $30,000 was used for investing activity, to purchase a 2.4% equity interest in Mineracao Batovi. During the nine months ended April 30, 2016, the Company used $215,000 in investing activity, which was the advancement of funds to Blendcore.
Cash Flow from Financing Activities
During the nine months ended April 30, 2017 and 2016, our Company used $Nil cash for financing activities.
For the nine months ended April 30, 2017 and 2016
Revenues
Our Company did not generate any revenues during the nine months ended April 30, 2017 and 2016.
Total operating expenses
For the nine months ended April 30, 2017, total operating expenses were a net recovery of $155,613, which included general and administrative expenses of $18,551, management fee recovery adjustment of $254,543, professional fees of $110,379 and a recovery of tax filing penalties of $30,000.
For the nine months ended April 30, 2016, total operating expenses were $258,951, which included general and administrative expenses of $24,969, management fees of $151,849, and professional fees of $82,133.
Loss
For the nine months ended April 30, 2017, our Company had income of $155,613, as compared to a loss for the nine months ended April 30, 2016 of $258,951. General and administrative costs during these periods have decreased in the current year, due to lower staffing costs. In the current period, our Company recorded a recovery of management fees due to a decline in the fair market value of the stock price; as total accrued management fees are based on this price, there was a decrease in the total amount owing to the CEO and the CFO under their respective employment agreements. In the prior period, management fees were comprised of the amounts issued, with no resulting decrease. Professional fees during these periods have increased due to additional legal costs related to the Blendcore loan, as well as additional legal and accounting costs for the filing of our registration statement on Form S-1 under the Securities Act of 1933, as amended.
The Company had been assessed late-filing penalties by the IRS for the years ended July 31, 2012, 2013 and 2014; total fees of $30,000 were included in the operating expenses of the year ended July 31, 2016. In May 2017, management of the Company successfully put forward their case with the IRS and the penalties were waived in the course of a conference call with the IRS. A recovery of these penalties has been included in operating income of the Company.
Going Concern Consideration
Our Company intends to fund operations through equity financing arrangements, which may be insufficient to fund our capital expenditures, working capital and other cash requirements for the year ending July 31, 2017. Our auditors have issued a going concern opinion on our audited financial statements for the year ended July 31, 2016. This means that there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay for our expenses. We may in the future attempt to obtain financing through private offerings of debt or equity. Equity financing would result in additional dilution to existing stockholders. We currently have no agreements or arrangements to obtain funds through bank loans, lines of credit or any other sources. There is no assurance we will ever be successful doing so.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Properties
Our executive offices are located at 203 – 1634 Harvey Ave, Kelowna, BC, Canada, V1Y 6G2. We believe that this office space will be adequate for the foreseeable future.
As described under the heading “Plan of Operation” above, our Company has entered into a definitive Amended and Restated Joint Venture Agreement with Mineracao Batovi pursuant to which we may acquire up to a 49% interest in the Batovi Diamond Project through the acquisition of an equity interest in Mineracao Batovi. This project covers 21 claims held by Mineraco Batovi as federal exploration licenses, covering a total area of approximately 109,688 hectares, as more particularly described in the following table and map:
Township/Area
|
|
Claim Number
|
|
Recording Date
|
|
Expiration Date (mm/dd/yy)
|
|
Area (hectares)
|
|
Mato Grosso
|
|
866.467/2011
|
|
05/30/2011
|
|
2/9/2019
|
|
|
3,051.04
|
|
Mato Grosso
|
|
866.468/2011
|
|
05/30/2011
|
|
2/3/2018
|
|
|
348.13
|
|
Mato Grosso
|
|
866.469/2011
|
|
05/30/2011
|
|
5/5/2018
|
|
|
8,414.68
|
|
Mato Grosso
|
|
866.544/2011
|
|
06/22/2011
|
|
3/9/2018
|
|
|
1,446.25
|
|
Mato Grosso
|
|
866.545/2011
|
|
06/22/2011
|
|
3/9/2018
|
|
|
9,934.17
|
|
Mato Grosso
|
|
866.560/2011
|
|
06/28/2011
|
|
3/9/2018
|
|
|
5,026.23
|
|
Mato Grosso
|
|
866.561/2011
|
|
06/28/2011
|
|
3/9/2018
|
|
|
9,439.19
|
|
Mato Grosso
|
|
866.562/2011
|
|
06/28/2011
|
|
3/9/2018
|
|
|
4,113.14
|
|
Mato Grosso
|
|
866.563/2011
|
|
06/28/2011
|
|
3/9/2018
|
|
|
7,112.30
|
|
Mato Grosso
|
|
866.564/2011
|
|
06/28/2011
|
|
3/9/2018
|
|
|
3,511.58
|
|
Mato Grosso
|
|
866.565/2011
|
|
06/28/2011
|
|
3/9/2018
|
|
|
1,371.85
|
|
Mato Grosso
|
|
866.566/2011
|
|
06/28/2011
|
|
3/9/2018
|
|
|
6,861.69
|
|
Mato Grosso
|
|
866.567/2011
|
|
06/28/2011
|
|
3/9/2018
|
|
|
3,569.48
|
|
Mato Grosso
|
|
866.568/2011
|
|
06/28/2011
|
|
3/9/2018
|
|
|
4,424.19
|
|
Mato Grosso
|
|
866.569/2011
|
|
06/28/2011
|
|
3/9/2018
|
|
|
1,311.55
|
|
Mato Grosso
|
|
866.570/2011
|
|
06/28/2011
|
|
3/9/2018
|
|
|
5,357.18
|
|
Mato Grosso
|
|
866.571/2011
|
|
06/28/2011
|
|
5/5/2018
|
|
|
9,534.95
|
|
Mato Grosso
|
|
866.572/2011
|
|
06/28/2011
|
|
2/9/2019
|
|
|
3,322.88
|
|
Mato Grosso
|
|
866.573/2011
|
|
06/29/2011
|
|
3/9/2018
|
|
|
7,199.99
|
|
Mato Grosso
|
|
866.574/2011
|
|
06/30/2011
|
|
3/9/2018
|
|
|
5,776.71
|
|
Mato Grosso
|
|
867.453/2010
|
|
05/06/2010
|
|
2/3/2018
|
|
|
8,560.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109,687.58
|
|
We currently hold a 2.4% indirect interest in the Batovi Diamond Project, as the Company acquired 2.4% of Mineracao Batovi during the current period end. Pursuant to the Amended and Restated Joint Venture Agreement, we are required to contribute $1,000,000 in cash to Mineracao Batovi prior to June 30, 2017 in order to acquire the remaining 17.6% of our initial 20% equity interest in that company. As Mineracao Batovi hold the rights to the Batovi Diamond Project, our interest in the Batovi Diamond Project would be limited to our shareholdings in Mineracao Batovi.
The Batovi Diamond Project
The Batovi Diamond Project is located in the State of Mato Grosso, in west-central Brazil, approximately 360 kilometers northeast of Cuiaba, the state capital.
The Batovi Diamond Project is accessible from Cuiaba by main and secondary roads. One would travel east from Cuiaba on paved road BR-070 220 kilometers to Primavera do Leste before heading 140 kilometers north on partially paved road MT-130 to Paranatinga. An all-weather gravel road connects Paranatinga to the project area, which lies 120 kilometers to the north.
In addition, Paranatinga has an airport that is suitable for charter aircraft.
Currently there is no plant or equipment on the project site.
In Brazil, exploration licenses are issued by the Director General of the Departamento Nacional de Produção Mineral (translated as the National Department of Mineral Production and referred to in this quarterly report as the “DNPM”). An exploration license is granted for an initial term of up to three years and can be renewed once if the license holder submits an interim report on the exploration work completed to date which justifies further exploration.
An annual exploration fee must be paid to the DNPM to keep an exploration license in good standing. The exploration fee is assessed at the rate of R$2.02 per hectare for each year during the initial term of the license, and at the rate of R$3.95 per hectare for each year during the renewal term. Mineracao Batovi has provided documentation to us evidencing that its exploration licenses comprising the Batovi Diamond Project are in good standing.
The Batovi Diamond Project represents an opportunity for the potential discovery of primary diamond bearing kimberlite intrusives. Due diligence documents provided by Mineraco Batovi confirm that the general area is host to over 40 known kimberlite intrusives which were discovered by DeBeers and Rio Tinto who explored the area between 1967 to about 1997. Historically, a number of the kimberlites were evaluated as possible sources of large, high quality alluvial diamonds found in the area in small, artisanal alluvial mining operations. Although limited testing of the discovered kimberlites returned a few small stones from some of the kimberlites, they were generally not found to be significantly diamondiferous. This suggests that diamond bearing kimberlites which are the source of the large alluvial diamonds found in the project area have yet to be discovered.
Mineracao Batovi has followed up this historic work with limited exploration activities at a cost of approximately CDN$4.7 million, and has identified possible individual diamond indicator mineral trains on the property.
Since we have not funded the $1,000,000 payment required to be made to Mineracao Batovi in order to acquire our initial 20% equity interest in the Batovi Diamond Project, we are not in a position to assume our duties as the operator as contemplated by the Joint Venture Agreement. However, if we are able to fund such $1,000,000, or an adequate portion of this, we anticipate that a majority of the proceeds will be applied to fund exploration work aimed at defining the potential source kimberlites of the indicator mineral trains.
Typically, geophysical surveys are used to locate potential kimberlites. Geophysical surveys measure the physical properties of the rocks below them. It is hoped that the kimberlites would have contrasting physical properties to the surrounding rocks. The proposed geophysical survey would detect both the conductivity and magnetic signature of the underlying rocks. It is expected that the kimberlites would differ from the surrounding host rocks in terms of these physical properties.
If we earn our initial 20% equity interest in Mineracao Batovi and assume our role as the operator of the project, we anticipate that our first step will be to commission an airborne electromagnetic geophysical survey over certain areas preliminarily identified by Mineracao Batovi as having the potential to host diamond bearing kimberlites. Mobilizing an airborne survey system to the project area could take a couple of months after execution of the survey contract. The airborne survey itself should take less than a month. Thereafter, the survey data will have to be extensively manipulated to allow its use. We anticipate that such analytical manipulation would require one to two months to complete. We estimate that the airborne survey will cost approximately $500,000.
Any priority targets identified by the airborne survey will need to be tested, likely by drilling. The length and scope of any such drill program – and the appropriate drill and associated equipment required - will depend on the nature and number of targets, but we anticipate that it would likely take several months to complete. Until the results of the geophysical survey are complete, it is difficult to ascertain what the cost of this target testing phase will be, but we estimate that the initial round of drilling will likely cost between $300,000 to $500,000.
Any future work would be contingent upon the initial round of testing generating positive results. Should a kimberlite be discovered with potentially economic diamond content, we expect that the next phases of work would be delineation drilling followed by bulk sampling and, if warranted, a feasibility study.
The Batovi Diamond Project is centered on the perennial Batovi River; it is conceivable that this would provide a water source for any future operations. We have not investigated what steps would be required or what arrangements will have to be made to secure water rights.
There is currently no power grid at the project area. If future exploration activities justify development at the project site which will give rise to substantial power requirements, diesel generators will have to be installed, or arrangements will have to be made to fund the extension of the power grid from Paranatinga which is located 120 kilometers to the south of the project area.