UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X]

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: April 30, 2020

 

[  ]

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from_______to_______

 

Commission file number 000-52055

 

RED METAL RESOURCES LTD.

(Exact name of small business issuer as specified in its charter)

 

Nevada

(State or other jurisdiction

of incorporation or organization)

20-2138504

(I.R.S. Employer

Identification No.)

 

278 Bay Street, Suite 102, Thunder Bay, ON P7B 1R8

(Address of principal executive offices) (Zip Code)

 

(807) 345-7384

(Issuer’s telephone number)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  [X] Yes  [  ] No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  [X] Yes  [  ] No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.

 

Large accelerated filer  [  ]

 

Accelerated filer  [  ]

Non-accelerated filer  [  ]

 

Smaller Reporting Company [X]

 

 

Emerging Growth Company [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). [  ] Yes [X] No

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of June 12, 2020, the number of shares of the registrant’s common stock outstanding was  41,218,008.


 


 

Table of Contents

 

PART I - FINANCIAL INFORMATION

F-1

Item 1. Financial Statements.

F-1

Consolidated Balance Sheets

F-1

Consolidated Statements of Operations

F-2

Consolidated Statements of Stockholders' Deficit

F-3

Consolidated Statements of Cash Flows

F-4

Notes to the Consolidated Financial Statements

F-5

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

1

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

8

Item 4. Controls and Procedures.

8

PART II - OTHER INFORMATION

9

Item 1. Legal Proceedings.

9

Item 1a. Risk Factors.

9

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

9

Item 3. Defaults upon Senior Securities.

9

Item 4. Mine Safety Disclosures.

9

Item 5. Other Information.

9

Item 6. Exhibits.

9

SIGNATURES

11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


ii


PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

RED METAL RESOURCES LTD.

CONSOLIDATED BALANCE SHEETS

(EXPRESSED IN US DOLLARS)

(UNAUDITED)

 

 

April 30, 2020

 

January 31, 2020

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Current assets

 

 

 

 Cash

$

145,197

 

$

9,865

 Prepaids and other receivables

 

5,690

 

 

5,764

Total current assets

 

150,887

 

 

15,629

 

 

 

 

 

 

 Equipment

 

705

 

 

798

 Unproved mineral properties

 

622,935

 

 

653,117

Total assets

$

774,527

 

$

669,544

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 Accounts payable

$

142,558

 

$

239,098

 Accrued liabilities

 

81,115

 

 

168,927

 Due to related parties

 

6,931

 

 

7,282

 Notes payable

 

23,784

 

 

24,451

Total current liabilities

 

254,388

 

 

439,758

 

 

 

 

 

 

 Long-term notes payable to related parties

 

882,900

 

 

715,842

 Withholding taxes payable

 

94,292

 

 

-

Total liabilities

 

1,231,580

 

 

1,155,600

 

 

 

 

 

 

Stockholders' deficit

 

 

 

 

 

 Common stock, $0.001 par value, authorized 500,000,000,

   41,218,008 issued and outstanding

   at April 30, 2020 and  January 31, 2020

 

41,217

 

 

41,217

 Additional paid-in capital

 

9,132,068

 

 

9,132,068

 Deficit

 

(9,566,820)

 

 

(9,584,892)

 Accumulated other comprehensive loss

 

(63,518)

 

 

(74,449)

Total stockholders' deficit

 

(457,053)

 

 

(486,056)

Total liabilities and stockholders' deficit

$

774,527

 

$

669,544

 

 

 

 

 

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


F-1


 

RED METAL RESOURCES LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

(EXPRESSED IN US DOLLARS)

(UNAUDITED)

 

 

 

For the three months ended

April 30,

 

2020

 

2019

 

 

 

 

Operating expenses:

 

 

 

 Amortization

$

57

 

$

96

 General and administrative

 

13,091

 

 

11,274

 Mineral exploration costs

 

944

 

 

1,797

 Professional fees

 

10,052

 

 

11,598

 Regulatory

 

7,007

 

 

2,622

 Salaries, wages and benefits

 

7,698

 

 

15,856

 

 

(38,849)

 

 

(43,243)

 

 

 

 

 

 

Other items

 

 

 

 

 

 Foreign exchange gain

 

224

 

 

66

 Forgiveness of debt

 

74,336

 

 

-

 Interest on notes payable

 

(17,639)

 

 

(12,729)

Net income (loss)

 

18,072

 

 

(55,906)

 

 

 

 

 

 

Foreign currency translation

 

10,931

 

 

2,677

Comprehensive income (loss)

$

29,003

 

$

(53,229)

 

 

 

 

 

 

Net income (loss) per share - basic and diluted

$

0.00

 

$

(0.00)

 

 

 

 

 

 

Weighted average number of shares outstanding - basic and diluted

 

41,218,008

 

 

37,504,588

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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


F-2


 

RED METAL RESOURCES LTD.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

(EXPRESSED IN US DOLLARS)

(UNAUDITED)

 

 

 

Common Stock

 

 

 

 

 

Number of

Shares

Amount

Additional

Paid-in

Capital

Accumulated

Deficit

Accumulated

Other

Comprehensive

Income / (Loss)

Total

 

 

 

 

 

 

 

Balance at January 31, 2019

37,504,588

$

37,504

$

8,968,677

$

(9,263,300)

$

6,780

$

(250,339)

 

 

 

 

 

 

 

 

 

 

 

 

 Net loss for the three months

   ended April 30, 2019

-

 

-

 

-

 

(55,906)

 

-

 

(55,906)

 Foreign exchange translation

-

 

-

 

-

 

-

 

2,677

 

2,677

Balance at April 30, 2019

37,504,588

 

37,504

 

8,968,677

 

(9,319,206)

 

9,457

 

(303,568)

 

 

 

 

 

 

 

 

 

 

 

 

 Stock issued for debt

3,713,420

 

3,713

 

163,391

 

-

 

-

 

167,104

 Net loss for the nine months

   ended January 31, 2020

-

 

-

 

-

 

(265,686)

 

-

 

(265,686)

 Foreign exchange translation

-

 

-

 

-

 

-

 

(83,906)

 

(83,906)

Balance at January 31, 2020

41,218,008

 

41,217

 

9,132,068

 

(9,584,892)

 

(74,449)

 

(486,056)

 

 

 

 

 

 

 

 

 

 

 

 

 Net income for the three months

  ended April 30, 2020

-

 

-

 

-

 

18,072

 

-

 

18,072

 Foreign exchange translation

-

 

-

 

-

 

-

 

10,931

 

10,931

Balance at April 30, 2020

41,218,008

$

41,217

$

9,132,068

$

(9,566,820)

$

(63,518)

$

(457,053)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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


F-3


 

RED METAL RESOURCES LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(EXPRESSED IN US DOLLARS)

(UNAUDITED)

 

 

 

For the three months ended

April 30,

 

2020

 

2019

Cash flows used in operating activities:

 

 

 

 Net income (loss)

$

18,072

 

$

(55,906)

 Adjustments to reconcile net income (loss) to net cash used in operating activities:

 

 

 

 

 

   Accrued interest on related party notes payable

 

17,172

 

 

12,196

   Accrued interest on notes payable

 

467

 

 

533

   Amortization

 

57

 

 

96

   Forgiveness of debt

 

(74,336)

 

 

-

 

 

 

 

 

 

 Changes in operating assets and liabilities:

 

 

 

 

 

   Prepaids and other receivables

 

(200)

 

 

(2,195)

   Accounts payable

 

(16,234)

 

 

12,320

   Accrued liabilities

 

11,032

 

 

6,134

   Due to related parties

 

3

 

 

-

Net cash used in operating activities

 

(43,967)

 

 

(26,822)

 

 

 

 

 

 

Cash flows provided by financing activities:

 

 

 

 

 

 Cash received on issuance of notes payable to related parties

 

188,922

 

 

35,190

Net cash provided by financing activities

 

188,922

 

 

35,190

 

 

 

 

 

 

Effects of foreign currency exchange

 

(9,623)

 

 

(1,038)

 

 

 

 

 

 

Increase in cash

 

135,332

 

 

7,330

Cash, beginning

 

9,865

 

 

8,686

Cash, ending

$

145,197

 

$

16,016

 

 

 

 

 

 

Supplemental disclosures:

 

 

 

 

 

 Cash paid for:

 

 

 

 

 

   Income tax

$

-

 

$

-

   Interest

$

-

 

$

-

 

 

 

 

 

 

 

 

 

 

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


F-4


 

RED METAL RESOURCES LTD.

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

APRIL 30, 2020

(UNAUDITED)

 

 

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION

 

Nature of Operations

Red Metal Resources Ltd. (the “Company”) holds a 99% interest in Minera Polymet SpA (“Polymet”) organized under the laws of the Republic of Chile. The Company is involved in acquiring and exploring mineral properties in Chile. The Company has not determined whether its properties contain mineral reserves that are economically recoverable.

 

Unaudited Interim Consolidated Financial Statements

The unaudited interim consolidated financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). They do not include all information and footnotes required by GAAP for complete financial statements. Except as disclosed herein, there have been no material changes in the information disclosed in the notes to the financial statements for the year ended January 31, 2020, included in the Company’s Annual Report on Form 10-K, filed with the SEC. The unaudited interim consolidated financial statements should be read in conjunction with those financial statements included in Form 10-K. In the opinion of management, all adjustments considered necessary for a fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the three months ended April 30, 2020, are not necessarily indicative of the results that may be expected for the year ending January 31, 2021.

 

NOTE 2 - RELATED-PARTY TRANSACTIONS

 

The following amounts were due to related parties as at:

 

 

April 30, 2020

January 31, 2020

 

 

 

Due to a company owned by an officer (a)

$

108

$

110

Due to a company controlled by directors (a)

 

6,823

 

7,172

Total due to related parties

$

6,931

$

7,282

(a) Amounts are unsecured, due on demand and bear no interest.

 

The following amounts were due under the notes payable the Company issued to related parties:

 

 

April 30, 2020

January 31, 2020

 

 

 

Note payable to the Chief Executive Officer (“CEO”) (b)

$

487,702

$

502,575

Note payable to the Chief Financial Officer (“CFO”) (b)

 

9,773

 

9,583

Note payable to a company controlled by directors (b)

 

106,703

 

109,984

Note payable to a major shareholder (c)

 

278,722

 

93,700

Total notes payable to related parties

$

882,900

$

715,842

(b) Amounts are unsecured, bear interest at 8%, and are due on or after July 31, 2021.

(c) Amounts are unsecured and bear interest at 8%. The notes payable for a total of $90,000 in principal are due on or after July 31, 2021, the note payable for CAD$250,000 (USD$179,727) is payable on or after August 31, 2021.

 

During the three-month period ended April 30, 2020, the Company accrued $17,172 (April 30, 2019 - $12,196) in interest expense on the notes payable to related parties. Other than interest accrued on the notes payable and minor reimbursable expenses, the Company did not incur any expenses with its related parties.


F-5


 

NOTE 3 - UNPROVED MINERAL PROPERTIES

 

Following is the schedule of the Company’s unproved mineral properties as at April 30, 2020 and January 31, 2020:

 

Mineral Claims at April 30, 2020

Mineral Claims

January 31,

2020

Additions/

Payments

Effect of

foreign

currency

translation

April 30,

2020

Farellon Project

 

 

 

 

 

Farellon Alto 1-8

$

343,648

$

-

$

(15,880)

$

327,768

Quina

 

132,455

 

-

 

(6,121)

 

126,334

Exeter

 

134,530

 

-

 

(6,217)

 

128,313

 

 

610,663

 

-

 

(28,218)

 

582,415

 

 

 

 

 

 

 

 

 

Perth Project

 

42,484

 

-

 

(1,964)

 

40,520

 

 

 

 

 

 

 

 

 

Total Costs

$

653,117

$

-

$

(30,182)

$

622,935

 

Mineral Claims at January 31, 2020

 

January 31,

2019

Additions/

Payments

Effect of

foreign

currency

translation

January 31,

2020

Farellon Project

 

 

 

 

Farellon Alto 1-8

$

411,268

$

-

$

(67,620)

$

343,648

Quina

 

158,519

 

-

 

(26,064)

 

132,455

Exeter

 

109,584

 

50,000

 

(25,054)

 

134,530

 

 

679,371

 

50,000

 

(118,738)

 

610,633

 

 

 

 

 

 

 

 

 

Perth Project

 

51,178

 

-

 

(8,694)

 

42,484

 

 

 

 

 

 

 

 

 

Total Costs

$

730,549

$

50,000

$

(127,432)

$

653,117

 

NOTE 4- COMMON STOCK

 

Warrants

 

During the three-month period ended April 30, 2020, 2,500,000 warrants issued as part of April 20, 2018, private placement expired unexercised. The Company has no warrants outstanding as at April 30, 2020.

 

NOTE 5- FORGIVENESS OF DEBT

 

During the three-month period ended April 30, 2020, the Company recorded $74,336 as forgiveness of debt associated with reversal of an old debt which exceeded the statute of limitations as promulgated under Chilean Laws (April 30, 2019 - $Nil).

 

NOTE 6 - WITHHOLDING TAXES PAYABLE

 

During the three-month period ended April 30, 2020, the Company moved $94,292 in Chilean withholding taxes payable to long-term debt.

 

NOTE 7 - SUBSEQUENT EVENTS

 

Subsequent to April 30, 2020, the Company entered into a loan agreement with Mr. Jeffs, the Company’s major shareholder, for $36,327 (CAD$50,000). The loan is unsecured, due on or after August 31, 2021, with interest payable at a rate of 8% per annum (Note 2).


F-6


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q filed by Red Metal Resources Ltd. contains forward-looking statements. These are statements regarding financial and operating performance and results and other statements that are not historical facts. The words “expect,” “project,” “estimate,” “believe,” “anticipate,” “intend,” “plan,” “forecast,” and similar expressions are intended to identify forward-looking statements. Certain important risks could cause results to differ materially from those anticipated by some of the forward-looking statements. Some, but not all, of these risks include, among other things:

 

·general economic conditions, because they may affect our ability to raise money; 

·our ability to raise enough money to continue our operations; 

·changes in regulatory requirements that adversely affect our business; 

·changes in the prices for minerals that adversely affect our business; 

·political changes in Chile, which could affect our interests there; and/or 

·other uncertainties, all of which are difficult to predict and many of which are beyond our control. 

 

We caution you not to place undue reliance on these forward-looking statements, which reflect our management’s view only as of the date of this report. We are not obligated to update these statements or publicly release the results of any revisions to them to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events. You should refer to, and carefully review, the information in future documents we file with the Securities and Exchange Commission.

 

General

 

You should read this discussion and analysis in conjunction with our interim unaudited consolidated financial statements and related notes included in this Form 10-Q and the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2020. The inclusion of supplementary analytical and related information may require us to make estimates and assumptions to enable us to fairly present, in all material respects, our analysis of trends and expectations with respect to our results of operations and financial position taken as a whole. Actual results may vary from the estimates and assumptions we make.

 

Overview

 

Red Metal Resources Ltd. (“Red Metal” or the “Company”) is a mineral exploration company engaged in the business of mineral exploration in Chile with the objective to explore and, if warranted, develop mineral properties. All of our mineral concessions are located in the III Region of Atacama, Chile. To date we have not determined whether the concessions that comprise our mineral properties contain mineral reserves that are economically recoverable and have not produced revenues from our principal business.

 

Consistent with our historical practices, we continue to monitor our costs in Chile by reviewing our mineral claims to determine whether they possess the geological indicators to economically justify the capital to maintain or explore them. Currently, our subsidiary, Minera Polymet SpA (“Polymet”), has two employees in Chile and engages independent consultants on as needed basis. Most of our support - such as vehicles, office, and equipment - is supplied under short-term contracts. The only long-term commitments that we have are for royalty payments on four of our mineral concessions - Farellon Alto 1-8, Quina 1 - 56, Exeter 1 - 54, and Che. These royalties are payable once exploitation begins. We are also required to pay property taxes that are due annually on all the concessions that are included in our properties.

 

The cost and timing of all planned exploration programs are subject to the availability of qualified mining personnel, such as consulting geologists, geo-technicians and drillers, and drilling equipment. Although Chile has a well-trained and qualified mining workforce from which to draw and few early-stage companies such as ours are competing for the available resources, if we are unable to find the personnel and equipment that we need when we need them and at the prices that we have estimated today, we might have to revise or postpone our plans.


1


 

Results of Operations

 

SUMMARY OF FINANCIAL CONDITION

 

Table 1 summarizes and compares our financial condition at April 30, 2020, to the year ended January 31, 2020.

 

Table 1: Comparison of financial condition

 

April 30, 2020

 

January 31, 2020

Working capital deficit

$

(103,501)

 

$

(424,129)

Current assets

$

150,887

 

$

15,629

Unproved mineral properties

$

622,935

 

$

653,117

Total current liabilities

$

254,388

 

$

439,758

Total long-term liabilities

$

977,192

 

$

715,842

Common stock and additional paid in capital

$

9,173,285

 

$

9,173,285

Accumulated other comprehensive loss

$

(63,518)

 

$

(74,449)

Deficit

$

(9,566,820)

 

$

(9,584,892)

 

Selected Financial Results

 

THREE MONTHS ENDED APRIL 30, 2020 AND 2019

 

Our operating results for the three months ended April 30, 2020 and 2019, and the changes in the operating results between those periods are summarized in Table 2:

 

Table 2: Summary of operating results

 

Three Months Ended

Percentage

 

April 30,

2020

April 30,

2019

Increase /

(Decrease)

Operating expenses

$

(38,849)

$

(43,243)

(10.2)%

Other items:

 

 

 

 

 

 Foreign exchange gain

 

224

 

66

239.4%

 Forgiveness of debt

 

74,336

 

-

n/a

 Interest on notes payable

 

(17,639)

 

(12,729)

38.6%

Net income (loss)

 

18,072

 

(55,906)

132.3%

 Unrealized foreign exchange gain

 

10,931

 

2,677

308.3%

Comprehensive income (loss)

$

29,003

$

(53,229)

(154.5)%

 

Revenue. We did not generate any revenue during the three months ended April 30, 2020 and 2019. Due to the exploration rather than the production nature of our business, we do not expect to have significant operating revenue in the foreseeable future.

 

Operating expenses. Our operating expenses for the three months ended April 30, 2020 and 2019, and the changes between those periods are summarized in Table 3.

 

Table 3: Detailed changes in operating expenses

 

Three Months Ended

Percentage

 

April 30,

2020

April 30,

2019

Increase /

(Decrease)

Operating expenses

 

 

 

 

 

 Amortization

$

57

$

96

(40.6)%

 General and administrative

 

13,091

 

11,274

16.1%

 Mineral exploration costs

 

944

 

1,797

(47.5)%

 Professional fees

 

10,052

 

11,598

(13.3)%

 Regulatory

 

7,007

 

2,622

167.2%

 Salaries, wages and benefits

 

7,698

 

15,856

(51.5)%

Total operating expenses

$

38,849

$

43,243

(10.2)%


2


Our operating expenses decreased by $4,394, or 10.2%, from $43,243 for the three-month period ended April 30, 2019, to $38,849 for the three-month period ended April 30, 2020. The decrease in operating expenses during the three-month period ended April 30, 2020, was associated mainly with decreased salaries, wages, and benefits, which amounted to $7,698 for the three-month period ended April 30, 2020, as compared to $15,856 we incurred during the three-month period ended April 30, 2019 and resulted from an extended leave without pay of one of our Chilean employees. In addition, our professional fees and mineral and exploration fees decreased by $1,546 and $853, respectively. These decreases were in part offset by increased regulatory fees, which amounted to $7,007 during the three-month period ended April 30, 2020, as compared to $2,622 for the three-month period ended April 30, 2019, and $3,775 increase in office expenses, which are included in our general and administrative fees.

 

Other items. To continue our operations, we were required to incur additional debt with our debt holders. Our notes payable carry 8% annual interest, which resulted in $17,639 in interest we accrued during the three-month period ended April 30, 2020, representing a $4,910 increase as compared to $12,729 in interest we accrued during the three-month period ended April 30, 2019. During the three-month period ended April 30, 2020, we recorded $74,336 as forgiveness of debt  associated with reversal of an old debt which exceeded the statute of limitations as promulgated under Chilean Laws (April 30, 2019 - $Nil). In addition, we recorded $224 gain on foreign exchange fluctuations (April 30, 2019- $66).

 

Comprehensive income/(loss). Our comprehensive income for the three-month period ended April 30, 2020, was $29,003 as compared to $53,229 comprehensive loss we recorded for the three-month period ended April 30, 2019. During the three-month period ended April 30, 2020, the comprehensive income included $10,931 gain associated with the foreign exchange translation of the carried balances denominated in other than our functional currencies. During the comparative three-month period ended April 30, 2019, the comprehensive loss included $2,677 gain associated with the foreign exchange translation of the carried balances denominated in other than our functional currencies.

 

Liquidity and Capital Resources

 

Table 4: Working capital

 

April 30, 2020

January 31, 2020

 

Percentage

Increase /

(Decrease)

Current assets

$

150,887

$

15,629

 

865.4%

Current liabilities

 

254,388

 

439,758

 

(42.2)%

Working capital deficit

$

(103,501)

$

(424,129)

 

(75.6)%

 

As of April 30, 2020, we had a cash balance of $145,197, our working capital was represented by a deficit of $103,501 and cash used in operations totaled $43,967 for the period then ended.

 

We did not generate sufficient cash flows from our operating activities to satisfy our cash requirements for the three-month period ended April 30, 2020. The amount of cash that we have generated from our operations to date is significantly less than our current debt obligations, including our debt obligations under our notes and advances payable. There is no assurance that we will be able to generate sufficient cash from our operations to repay the amounts owing under these notes and advances payable, or to service our other debt obligations. If we are unable to generate sufficient cash flow from our operations to repay the amounts owing when due, we may be required to raise additional financing from other sources.

 

Cash Flow

 

Table 5 summarizes our sources and uses of cash for the nine months ended April 30, 2020 and 2019.

 

Table 5: Summary of sources and uses of cash

 

April 30,

 

2020

 

2019

Net cash used in operating activities

$

(43,967)

 

$

(26,822)

Net cash provided by financing activities

 

188,922

 

 

35,190

Effects of foreign currency exchange

 

(9,623)

 

 

(1,038)

Net increase in cash

$

135,332

 

$

7,330


3


 

Net cash used in operating activities

 

During the three months ended April 30, 2020, we used net cash of $43,967 in operating activities. We used $38,568 to cover our cash operating costs, $16,234 to reduce our outstanding vendor payables, and $200 to prepay our future expenses. These uses of cash were offset by $11,032 and $3 increases to our accrued liabilities and related party payables, respectively.

 

During the three months ended April 30, 2019, we used net cash of $26,822 in operating activities. We used $43,081 to cover our cash operating costs and $2,195 to prepay our future expenses. These uses of cash were offset by $12,320 and $6,134 increases to our accounts payable and accrued liabilities, respectively.

 

Certain non-cash changes included in the net income/(loss) for the period

 

During the three-month period ended April 30, 2020, our outstanding notes payable to related parties resulted in the accrual of $17,172 in interest, and our notes payable to non-related party accumulated $467 in interest. In addition, we recorded $57 in amortization of our work truck used for Chilean operations. During the three-month period ended April 30, 2020, we recorded $74,336 forgiveness of debt on reversal of old debt which exceeded the statute of limitation promulgated under Chilean Law.

 

During the three-month period ended April 30, 2019, our outstanding notes payable to related parties resulted in the accrual of $12,196 in interest, and our notes payable to non-related party accumulated $533 in interest. In addition, we recorded $96 in amortization of our work truck used for Chilean operations.

 

Net cash provided by financing activities

 

During the three months ended April 30, 2020, we borrowed $188,922 (CAD$250,000) from our major shareholder. The loan is unsecured, bears interest at 8% per annum, compounded monthly, and is payable on or after August 31, 2021.

 

During the three months ended April 30, 2019, we borrowed $35,190 (CAD$46,895) from our CEO. The loans are unsecured, bear interest at 8% per annum, compounded monthly, and are payable on or after July 31, 2021.

 

Going Concern

 

The consolidated financial statements included in this Quarterly Report have been prepared on a going concern basis, which implies that we will continue to realize our assets and discharge our liabilities in the normal course of business. We have not generated any significant revenues from mineral sales since inception, have never paid any dividends and are unlikely to pay dividends or generate significant earnings in the immediate or foreseeable future. Our continuation as a going concern depends upon the continued financial support of our shareholders, our ability to obtain necessary debt or equity financing to continue operations, and the attainment of profitable operations. Our ability to achieve and maintain profitability and positive cash flow depends upon our ability to locate profitable mineral claims, generate revenue from mineral production and control our production costs. Based upon our current plans, we expect to incur operating losses in future periods, which we plan to mitigate by controlling our operating costs and by sharing mineral exploration expenses through joint venture agreements, if possible.  At April 30, 2020, we had a working capital deficit of $103,501 and accumulated losses of $9,566,820. These factors raise substantial doubt about our ability to continue as a going concern. We cannot assure you that we will be able to generate significant revenues in the future. Our consolidated interim financial statements do not give effect to any adjustments that would be necessary should we be unable to continue as a going concern and therefore be required to realize our assets and discharge our liabilities in other than the normal course of business and at amounts different from those reflected in our financial statements.


4


 

Uncertainty due to Global Outbreak of COVID-19

 

In March of 2020, the World Health Organization declared an outbreak of COVID-19 Global pandemic. The COVID-19 has impacted vast array of businesses through the restrictions put in place by most governments internationally, including the USA, Canadian and Chilean governments, as well as provincial and municipal governments, regarding travel, business operations and isolation/quarantine orders. At this time, it is unknown to what extent the impact of the COVID-19 outbreak may have on the Company as this will depend on future developments that are highly uncertain and that cannot be predicted with confidence. These uncertainties arise from the inability to predict the ultimate geographic spread of the disease, and the duration of the outbreak, including the duration of travel restrictions, business closures or disruptions, and quarantine/isolation measures that are currently, or may be put, in place world-wide to fight the virus. While the extent of the impact is unknown, the COVID-19 outbreak may hinder the Company’s ability to raise financing for exploration or operating costs due to uncertain capital markets, supply chain disruptions, increased government regulations and other unanticipated factors, all of which may also negatively impact the Company’s business and financial condition.

 

Unproved Mineral Properties

 

Table 6: Active properties

 

 

Hectares

Property

Percentage, type of claim

Gross area

Net area(a)

Carrizal Property

 

 

 

Farellón Project

 

 

 

 Farellón Alto 1 - 8

100%, mensura

66

 

 Quina 1 - 56

100%, mensura

251

 

 Exeter 1 - 54

100%, mensura

235

 

 Cecil 1 - 49

100%, mensura

228

 

 Teresita

100%, mensura

1

 

 Azucar 6 - 25

100%, mensura

88

 

 Stamford 61 - 101

100%, mensura

165

 

 Kahuna 1 - 40

100%, mensura

200

 

 

 

1,234

 

Perth Project

 

 

 

 Perth 1 al 36

100%, mensura

109

 

 Lancelot I 1 al 27

100%, mensura in process

300

 

 Lancelot II

100%, pedimento

200

 

 Merlin I

100%, pedimento

300

 

 Rey Arturo 1 al 29

100%, mensura in process

300

 

 Galahad I

100%, pedimento

300

 

 Percival 4

100%, pedimento

300

 

 Tristan II

100%, pedimento

300

 

 Camelot

100%, pedimento

300

 

 

 

2,409

 

 Overlapped claims(a)

 

(109)

3,534

 

 

 

 

Mateo Property

 

 

 

 Margarita

100%, mensura

56

 

 Che 1 & Che 2

100%, mensura

76

 

 Irene & Irene II

100%, mensura

60

 

 

 

192

 

 Overlapped claims(a)

 

(10)

182

 

 

 

3,716

 

(a)Certain mensura in process claims overlap other claims. The net area is the total of the hectares we have in each property (i.e. net of overlapped claims). 


5


 

Capital Resources

 

Our ability to acquire and explore our Chilean claims is subject to our ability to obtain the necessary funding. We expect to raise funds through any combination of debt financing and/or sale of our securities. We have no committed sources of capital. If we are unable to raise funds as and when we need them, we may be required to curtail, or even to cease, our operations.

 

Contingencies and Commitments

 

We had no contingencies at April 30, 2020.

 

As of the date of the filing this Quarterly Report, we have the following long-term contractual obligations and commitments:

 

·Farellon royalty. We are committed to paying the vendor a royalty equal to 1.5% on the net sales of minerals extracted from the Farellon Alto 1 - 8 claim up to a total of $600,000. The royalty payments are due monthly once exploitation begins and are subject to minimum payments of $1,000 per month. 

 

·Quina royalty. We are committed to paying a royalty equal to 1.5% on the net sales of minerals extracted from the Quina claim. The royalty payments are due semi-annually once commercial production begins, and are not subject to minimum payments. 

 

·Exeter royalty. We are committed to paying a royalty equal to 1.5% on the net sales of minerals extracted from the Exeter claim. The royalty payments are due semi-annually once commercial production begins, and are not subject to minimum payments. 

 

·Che royalty. We are committed to paying a royalty equal to 1% of the net sales of minerals extracted from the claims to a maximum of $100,000 to the former owner. The royalty payments are due monthly once exploitation begins, and are not subject to minimum payments. 

 

·Mineral property taxes. To keep our mineral claims in good standing, we are required to pay mineral property taxes of approximately $35,000 per annum. 

 

Equity Financing

 

During the period covered by this Quarterly Report on Form 10-Q, we did not engage in the financing of our operations through the issuance of our equity securities and relied solely on the debt financing.

 

Based on our operating plan, we anticipate incurring operating losses in the foreseeable future and may require additional equity capital to support our operations and develop our business plan.  If we succeed in completing future equity financings, the issuance of additional shares will result in dilution to our existing shareholders.

 

Debt Financing

 

During the three-month period ended April 30, 2020, and up to the date of the filing of this Quarterly Report on Form 10-Q, we borrowed a total of $225,249 (CAD$300,000) from our major shareholder.  The loans are unsecured, due on or after August 31, 2021, with interest payable at a rate of 8% per annum, compounded monthly.

 

Challenges and Risks

 

We do not anticipate generating any revenue over the next twelve months, therefore, we plan to fund our operations through any combination of equity or debt financing from the sale of our securities, private loans, joint ventures or through the sale of part interest in our mineral properties. Although we have succeeded in raising funds as we needed them, we cannot assure you that this will continue in the future.  Many things, including, but not limited to, a downturn in the state of the economy or a significant decrease in the price of minerals, could affect the willingness of potential investors to invest in risky ventures such as ours. We may consider entering into additional joint venture partnerships with other resource companies to complete mineral exploration programs on our properties in Chile. If we enter into a joint venture arrangement, we would likely have to assign a percentage of our interest in our mineral claims to our joint venture partner in exchange for the funding.


6


 

As at April 30, 2020, we owed $882,900 to related parties under long-term notes payable, which will become payable on or after July 31, 2021 and $94,292 in withholding taxes that will become payable to Chilean tax authorities on Polymet’s payment of the administrative fees it owes to Red Metal Resources, its parent company. In addition to the long-term debt, we had $254,388 in current liabilities, which are payable on demand. We do not have the funds to pay all our current liabilities, and as such, we may decide to offer some vendors to convert the amounts we owe them into shares of our common stock. Because of the low price of our common stock, the issuance of the shares to pay the debt will likely result in dilution to the percentage of outstanding shares of our common stock held by our existing shareholders.

 

Investments in and Expenditures on Mineral Interests

 

Realization of our investments in mineral properties depends upon our maintaining legal ownership, producing from the properties or gainfully disposing of them.

 

Title to mineral claims involves risks inherent in the difficulties of determining the validity of claims as well as the potential for problems arising from the ambiguous conveyancing history characteristic of many mineral claims. Our contracts and deeds have been notarized, recorded in the registry of mines and published in the mining bulletin. We review the mining bulletin regularly to discover whether other parties have staked claims over our ground. We have discovered no such claims. To the best of our knowledge, we have taken the steps necessary to ensure that we have good title to our mineral claims.

 

Foreign Exchange

 

We are subject to foreign exchange risk associated with transactions denominated in foreign currencies. Foreign currency risk arises from the fluctuation of foreign exchange rates and the degree of volatility of these rates relative to the United States dollar.  We do not believe that we have any material risk due to foreign currency exchange.

 

Trends, Events or Uncertainties that May Impact Results of Operations or Liquidity

 

Since we rely on sales of our securities and loans to continue our operations, any uncertainty in the equity markets can have a detrimental impact on our operations. Current trends in the industry and uncertainty that exists in equity markets have resulted in less capital available to us and less appetite for risk by investors. Furthermore, we have found that locating other mineral exploration companies with available funds who are willing to engage in risky ventures such as the exploration of our properties has become very difficult. If we are unable to raise additional capital, we may not be able to develop our properties or continue our operations.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements and no non-consolidated, special-purpose entities.

 

Related-Party Transactions

 

During the three-month period ended April 30, 2020, and up to the date of the filing of this Quarterly Report on Form 10-Q we have entered into the following transactions with the directors, executive officers, or holders of more than 5% of our common stock, or members of their immediate families:

 

Loans from Caitlin L. Jeffs

 

During the three-month period ended April 30, 2020, we accrued $9,562 in interest on notes payable we issued to Ms. Jeffs for a total owed under the USD$ notes payable of $2,482 and $485,221 (CAD$674,942) owed on account of CAD$ notes payable, which were outstanding as at April 30, 2020. The notes payable accumulate interest at 8% per annum compounded monthly, are unsecured and repayable on or after July 31, 2021.

 

Loan from John da Costa

 

During the three-month period ended April 30, 2020, we accrued $190 on $8,500 note payable we issued to Mr. da Costa, which was outstanding as at April 30, 2020. The note payable accumulates interest at 8% per annum compounded monthly, is unsecured and repayable on or after July 31, 2021.


7


 

Transactions with Fladgate Exploration Consulting Corporation

 

During the three-month period ended April 30, 2020, we accrued $2,092 on a total of $92,806 (CAD$129,093) in notes payable we issued to Fladgate. The notes payable accumulate interest at 8% per annum compounded monthly, are unsecured and repayable on or after July 31, 2021.

 

Loans from Richard N. Jeffs

 

During the three-month period ended April 30, 2020, Mr. Jeffs advanced us USD$188,922 (CAD$250,000) at 8% annual interest compounded monthly and repayable on or after August 31, 2021. During the three-month period ended April 30, 2020 we accrued $1,855 in interest due on a total of $90,000 in notes payable we issued to Mr. Jeffs, and $3,473 interest on the CAD$250,000 note payable. All notes payable issued to Mr. Jeffs accumulate interest at 8% per annum compounded monthly and are unsecured. US$ notes payable totaling $95,556 are repayable on or after July 31, 2021, and CAD$ note payable totaling $183,166 (CAD$252,311) is repayable on or after August 31, 2021. Subsequent to April 30, 2020, we borrowed an additional $36,327 (CAD$50,000) in exchange for an 8% note payable due on or after August 31, 2020.

 

Critical Accounting Estimates

 

Preparing financial statements in conformity with the U.S. Generally Accepted Accounting Principles requires management to make estimates and assumptions that affect certain of the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience and various other factors it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. The most significant estimates with regard to these financial statements relate to carrying values of unproved mineral properties.

 

Financial Instruments

 

Our financial instruments include cash, prepaids and other receivables, accounts payable, accrued liabilities, amounts due to related parties and notes payable. The fair value of these financial instruments approximates their carrying values due to their short maturities.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

 

As a smaller reporting company, we are not required to provide this disclosure.

 

Item 4. Controls and Procedures.

 

(a) Disclosure Controls and Procedures

 

Caitlin Jeffs, our Chief Executive Officer and President, and John da Costa, our Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures (as the term is defined in Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934) as of the end of the quarter covered by this report (the “Evaluation Date”). Based on their assessment, as of the Evaluation Date, our disclosure controls and procedures are not effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms due to lack of segregation of duties.

 

(b) Changes in Internal Control over Financial Reporting

 

During the quarter covered by this report, there were no changes to our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


8


PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

We are not a party to any pending legal proceedings and, to the best of our knowledge; none of our properties or assets is the subject of any pending legal proceedings.

 

Item 1a. Risk Factors.

 

We incorporate by reference the Risk Factors included as Item 1A of our Annual Report on Form 10-K we filed with the Securities and Exchange Commission on April 30, 2020.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None

 

Item 3. Defaults upon Senior Securities.

 

None

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

None

 

Item 6. Exhibits.

 

The following table sets forth the exhibits either filed herewith or incorporated by reference.

 

Exhibit

Description

3.1.1

Articles of Incorporation(1)

3.1.2

Certificate of Amendment to Articles of Incorporation(2)

3.2

By-laws(1)

10.1

Red Metal Resources Ltd. 2011 Equity Incentive Plan(7)

10.2

Memorandum of Understanding between Minera Polymet Limitada and David Marcus Mitchel (3)

10.3

Irrevocable Purchase Option Contract for Mining Property Quina 1-56 in Spanish (4)

10.4

Irrevocable Purchase Option Contract for Mining Property Quina 1-56, English translation (4)

10.5

Irrevocable Purchase Option Contract for Mining Property Exeter 1-54 in Spanish (5)

10.6

Irrevocable Purchase Option Contract for Mining Property Exeter 1-54, English translation (5)

10.7

Amendment to the Contract of Purchase and Sale of Mine Holdings dated for reference May 9, 2008, between Minera Polymet Limitada and Compañía Minera Romelio Alday Limitada, dated December 9, 2013; English translation.(6)

10.8

Amendment to the Contract of Purchase and Sale of Mine Holdings dated for reference May 9, 2008, between Minera Polymet Limitada and Compañía Minera Romelio Alday Limitada dated December 9, 2013 in Spanish.(6)

10.9

Debt Settlement Agreement between Caitlin Jeffs and Red Metal Resources Ltd. dated January 30, 2020.(8)

31.1

Certification pursuant to Rule 13a-14(a) and 15d-14(a)

31.2

Certification pursuant to Rule 13a-14(a) and 15d-14(a)

32

Certification pursuant to Section 1350 of Title 18 of the United States Code

101

The following financial statements from the registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2020, formatted in XBRL:

(i)    Consolidated Balance Sheets;

(ii)   Consolidated Statements of Operations;

(iii)  Consolidated Statements of Stockholders’ Deficit;

(iv)  Consolidated Statements of Cash Flows; and

(v)   Notes to the Interim Consolidated Financial Statements.


9


 

(1)Incorporated by reference from the registrant’s registration statement on Form SB-2 filed with the Securities and Exchange Commission on May 22, 2006 as file number 333-134363. 

(2)Incorporated by reference from the registrant’s Quarterly report on Form 10-Q for the period ended October 31, 2010 and filed with the Securities and Exchange Commission on December 13, 2010. 

(3)Incorporated by reference from the registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on June 4, 2014. 

(4)Incorporated by reference from the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 19, 2014. 

(5)Incorporated by reference from the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 18, 2015. 

(6)Incorporated by reference from the registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on May 2, 2016. 

(7)Incorporated by reference from the registrant’s registration statement on Form S-8 filed with the Securities and Exchange Commission on September 23, 2011. 

(8)Incorporated by reference from the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 31, 2020. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


10


 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Dated: June 12, 2020

 

 

 

RED METAL RESOURCES LTD.

 

 

 

 

 

 

 

 

By:

/s/ Caitlin Jeffs

 

 

 

 

Caitlin Jeffs

Chief Executive Officer

(Principal Executive Officer) and President

 

 

 

 

 

 

 

 

 

 

 

 

 

By:

/s/ Joao (John) da Costa

 

 

 

 

Joao (John) da Costa

Chief Financial Officer

(Principal Accounting Officer)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


11

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