Item
1: Description of Business
Summary
Blue Eagle Lithium Inc.
(the “Company,” “we,” “us,” “our” or similar terminology) is a Nevada corporation
that was incorporated on July 30, 2009. The Company was initially incorporated under the name “Wishbone Pet Products Inc.”
Effective July 20, 2018, the Company changed its name to “Blue Eagle Lithium Inc.” and affected a 20 for 1 forward
split of its common stock, par value $0.0001 per share (“Common Stock”), by a majority vote of the shareholders.
The
Company maintains its statutory resident agent’s office at 1859 Whitney Mesa Drive, Henderson, Nevada, 89014 and its business
office is located at 2831 St Rose Parkway, Suite 200, Henderson, NV, 89052. The Company’s office telephone number is (702)
889-3369.
The
Company has an authorized capital of 200,000,000 shares of Common Stock, of which 76,583,855
shares of Common Stock are currently issued and outstanding as of the date of this report.
The
Company has not been involved in any bankruptcy, receivership or similar proceedings. There have been no material reclassifications
or merger consolidations. The Company has entered into three major acquisition of assets in the previous 12 months for the purchase
of mineral claims in the Railroad Valley of the State of Nevada. For more information please see sections below titled
Overview—August
2018 Acquisition of Mineral Claims in the Railroad Valley
and
Overview—April 2019 Acquisition of Mineral Claims in
the Railroad Valle.
The Company had also experienced a change of control event in August 2018, as more fully described in
the section below titled
Overview—August 2018 Stock Purchase Agreement
.
The
Company is authorized to issue up to 200,000,000 shares of Common Stock with a par value of $0.0001 per share, of which 76,583,855
shares of Common Stock are currently issued and outstanding as at July 23, 2019.
All
dollar amounts referenced in this Report refer to US dollars unless otherwise indicated.
Overview
Prior
to our fiscal year ending April 30, 2018, the Company was engaged in the business of developing, manufacturing, marketing, and
selling dog waste removal devices. Beginning in July 2018, management changed the Company’s direction to the business of
the acquisition and exploration of lithium and rare earth metal resources. The Company’s current mandate is to identify,
evaluate and develop early-stage lithium exploration opportunities in North America, with a current focus on areas in Nevada.
The
Company has not generated any revenue since inception and is not expected to generate revenue for the foreseeable future as it
engages in exploratory activities.
August
2018 Acquisition of Mineral Claims in the Railroad Valley
On
August 16, 2018, the Company acquired 200 mineral claims covering approximately 4,000 acres in the Railroad Valley of Nevada (the
“Railroad Valley Property”), pursuant to the terms and conditions of a property assignment agreement, dated August
9, 2018 (the “Assignment Agreement”), between the Company and Oriental Rainbow Group Limited (“ORG”).
The parties agreed on a purchase price for the Railroad Valley Property, which was paid in full when the Company issued and delivered
to ORG 500,000 shares of Common Stock, as well as a further issuance to Plateau Ventures LLC (“Plateau Ventures”)
of 300,000 shares of Common Stock pursuant to the following schedule: 100,000 shares of Common Stock upon the effective
date of the Assignment Agreement, 100,000 shares of Common Stock ninety (90) days following the effective date of the Assignment
Agreement and a final 100,000 shares of Common Stock one hundred and eighty (180) days following the effective date of the Assignment
Agreement.
The
leases and concessions for the Railroad Valley Property were officially transferred into the Company’s name on October 5,
2018 by the Bureau of Land Management, a federal agency within the United States Department of the Interior (“BLM”).
Following such name transfer, the Company currently has a 100% working interest in 200 placer claims in Railroad Valley, Nevada,
an area the Company believes to be a highly prospective green-fields lithium brine target in the heart of the Basin and Range
geologic province. The staked claims cover approximately 4,000 acres (or approximately 1,619 hectares) over a large portion of
Railroad Valley’s dry lakebed (playa).
Additionally, the Assignment
Agreement provides Plateau Ventures with a 2% royalty on revenues derived from the sale of lithium concentrate and other ores
extracted from the property. The Company shall have the right to buy 50% of the royalty amount at any time for $2 million from
Plateau Ventures. Such payment will be paid in 90 day intervals upon completion of an inferred resource calculation that confirms
the presence on the property of a minimum 500,000 tons of lithium carbonate equivalent grading no lower than 40 parts per million
(or ppm) lithium grade average on the subject properties.
August
2018 Stock Purchase Agreement
On
August 14, 2018, Rami Tabet (“Tabet”), the Company’s previous controlling stockholder and Chief Executive Officer,
and Rupert Ireland (“Ireland”) entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”),
which provided for the sale by Tabet to Ireland of 40,000,000 shares (the “Shares”) of Common Stock for a purchase
price of $100,000. The transfer of the Shares to Ireland was effective on August 14, 2018. Upon his acquisition of the Shares,
Ireland became the holder of a majority of the outstanding shares of Common Stock and the Chief Executive Officer, which is sufficient
ownership to give him the power to elect all of the members of our Board of Directors (the “Board”). Tabet owned no
shares of Common Stock immediately after giving effect to the sale of the Shares to Ireland. Mr. Tabet resigned his positions
with the Company upon consummation of the Stock Purchase Agreement.
April 2019 Agreement with RangeFront
Geological
On
April 22, 2019, the Company entered into a purchase and sale agreement (the “Purchase and Sale Agreement”)
with Rangefront Consulting, LLC, DBA Rangefront Geological (“Rangefront Geological”), a geology and
exploration company based in Elko, Nevada, to purchase a 100% working interest in 50 mineral claims covering 1,000 acres
in the Railroad Valley region in the State of Nevada with an option to acquire an additional 26 mineral claims comprising of 520
acres in the Railroad Valley region in the State of Nevada. The parties agreed on a purchase price for the 50 mineral claims by
the Company issuing and delivering to Rangefront Geological 200,000 restricted shares in Common Stock. The agreed purchase price
for the additional 26 mineral claims will be a further issuance and delivery of 100,000 restricted shares in Common Stock, which
was issued and delivered on May 14, 2019.
As
part of the Purchase and Sale Agreement, the Company also agreed to pay the following:
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a)
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County
fees of approximately $2,250, within 90 days of the Agreement
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b)
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BLM
fees of approximately $10,600, within 90 days of the Agreement
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c)
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Transfer
fees of approximately $1,000, upon payment of BLM fees
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d)
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Staking
fees of $7,500, within 15 days of the Agreement (paid subsequent to April 30, 3019)
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Moreover,
the Company agreed that RangeFront Geological shall be entitled to a royalty equal to 1.0% of revenues derived from the sale of
lithium concentrate and other ores extracted from the subject properties. The Company also has the right to buy back 50% of the
royalty amount from RangeFront at any time for $1,000,000. The Company also agreed to pay RangeFront $1,000,000 upon completion
of an inferred resource calculation that confirms the presence of a minimum 700,000 tons of lithium carbonate equivalent grading
no lower than a 40 ppm grade average of lithium on the subject properties.
Subsequently,
on May 3, 2019, pursuant to the Purchase and Sale Agreement, the Company issued 200,000 restricted shares of Common Stock to RangeFront
Geological in full payment for the 50 mineral claims. Additionally, on June 11, 2019, the Company exercised its option to purchase
the additional 26 mineral claims pursuant to the Purchase and Sale Agreement and paid RangeFront Geological an additional $7,500
and on June 19, 2019, the Company also issued an additional 100,000 shares of restricted Common Stock to RangeFront Geological
for the acquisition of such mineral claims.
The
Company also entered into a work program with RangeFront on June 8, 2019 whereby the Company advanced $10,000 deposit to commence
Phase 1 work on the Railroad Valley 5,520 acres property. The total cost for Phase 1 is $57,800. Upon delivery of the summary
report for the Phase 1 work, the Company agreed to issue RangeFront 50,000 restricted shares of Common Stock.
As
of the date of this Report, the Company’s total land package in the Railroad Valley region in the State of Nevada is approximately
5,520 acres (approximately 2,223 hectares).
From September 2018 to
March 2019, the Company commenced its baseline soil-sampling program and engaged Tekhne Research Inc. (“Tekhne Research”)
to compile a report detailing the nature and geological background of the Railroad Valley Property. Upon receiving
the report, the Company initiated its long term plan to build its database from the services of Geologix Technologies Inc., a
company experienced in the digitization of well and seismic data and the construction of technical/corporate databases. During
2019, the Company has continued surface soil and water sampling programs and has initiated a work program developed
by Company management based on the Tekhne Research report.
Railroad
Valley Project
The
Railroad Valley properties covers an aggregate of 5,520 acres within Railroad Valley, Nevada, approximately 100 miles northeast
of Tonopah, Nye County, Nevada and can be accessed directly from US Route 6. Railroad Valley was first identified as lithium
rich by the US Geological Survey with the potential to host lithium bearing brines in its subterranean aquifers beneath the valley
floor. The property is situated in the Great Basin physiographic province of the Basin and Range tectonic province. North-south
trending mountain ranges and intramontane basins often with playas characterize the area. Elevations in the Railroad Valley playa
range from 4,725 to 4,760 feet. The highstand shoreline of the southeast side of Railroad Valley Lake at Heath Canyon is 4,860
feet. The rugged Grant and Quinn Ranges forms the eastern margin of the valley and rises to 10,945 feet above sea level at Troy
Peak, while the undulant Pancake Range west of the valley reaches 6,260 feet above sea level on Hwy 6.
The
Railroad Valley basin is a green-fields lithium target believed to be an analogue to Clayton Valley, about 124 miles to the west-southwest.
Both are typical arid, closed basins with no water outflow and a common stratigraphic history of pluvial and arid climate variations.
Railroad Valley hosts a larger playa, larger catchment area, and deeper basin fill than Clayton Valley. Similar graben fault structures
active into modern times occur in both settings which suggest the potential for tectonic isolation of potential brine aquifers
to retain brines. Surface reconnaissance soil sampling on nearby properties have returned samples of up to 275 ppm of lithium. Similar values occur in the brine at the Albemarle Silver Peak lithium mine.
The
Railroad Valley property is accessible from Ely, Nevada by traveling approximately 48 miles southwest on US Highway 6 toward Tonopah.
A well-marked turnoff to the southeast just inside the Railroad Valley leads to a well-maintained gravel road, which was constructed
for oil extraction and ranch access along the east margin of the Railroad Valley basin and provides access west of Southern Railroad
Valley, Nevada. A former oilfield access gravel road heads a few miles northwest to the eastern side of the property. The total
distance to the property form Ely is approximately 68 miles.
During the period ended
April 30, 2019, the Company conducted baseline surface soil samples, rock samples and water samples located within the property
on four separate occasions. Each of the teams have been lead by experienced field geologists to optimize operational data gathering
and to ensure safe and efficient program delivery. A total of 65 sets of soil samples, 10 rock samples and 10 water samples have
been analyzed. As a result, the Company has initiated a work program developed by Company management based on the findings
in the Tekhne Research report. The Company’s work program is comprised of two phases. The first phase is the
collation of relevant available data in both Railroad Valley and Clayton Valley to build a propriety database with associated
exclusive geographical information system (or GIS) or 3D maps and subsequent interpretation. The Company has engaged Geologix
Technologies of Houston as its strategic technology partner to provide the Company with cutting edge digitized databases and mapping.
The second phase will focus on drilling to test targets defined in phase one. The Company will be using diamond drilling for physical
properties and geology to provide better quality core details. In concert, the technical team will compile data for the GIS database,
including geophysics, oil drilling and aerial images to provide a regional structural analysis.
Geologix
Technologies will provide a secure cloud database constructed with an asset focused, GIS compliant framework which will be utilized
to more accurately determine the optimal area to initiate boreholes. The database is currently being populated with data available
in historical public records, oil and water well records, seismic date, remote sensing data, digital elevation models and lithological
and geological maps. The database will be utilized to produce proprietary surface, sub-surface and GIS maps. The Company’s
database and proprietary maps will be used to optimize a shallow borehole drilling program in phase two. In addition, the database
will help find probable properties in the Railroad Valley neighboring target areas and possibly identify suitable lithium properties.
The Company’s
work program for the Railroad Valley property consists of the following goals within each phase, with a budget of approximately
$950,000, exclusive of contingency allowances and any applicable taxes:
Phase
1
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1.
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Collect
and synthesize existing oil field data (seismic, gravity and drill logs)
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2.
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Audio-magnetotellurics
(or
AMT) surveys
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3.
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Sample
playa soils
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4.
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Sample
analysis
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5.
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Geology,
field supervision and support, reports and data analysis
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Phase
2
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1.
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Re-open
and sample five nearby wells
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2.
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Diamond
drilling
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3.
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Water
samples
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4.
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Geology,
field supervision and support, reports and data analysis
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Market
for the Company’s Product
The Company is engaged
in the business of lithium and rare earth metal resource exploration, and does not presently market or sell any lithium or other
products. According to Mordor Intelligence,
the
market for lithium is anticipated to experience a compounded annual growth rate of 10.10% during the period 2019
to 2024. Key factors driving the market growth include the accelerating demand for electric vehicles, growing usage and demand
from portable consumer electronics, increasing demand from the glass-making industry, and many others.
The
Company’s current mandate is to identify, evaluate and develop early-stage lithium exploration opportunities. The Company’s
viability and potential success lie in its ability to acquire, exploit, develop and generate revenue from future mineral interests.
There can be no assurance that such revenues will be obtained. The exploration of mineral deposits involves significant financial
risks over a long period of time which even with a combination of careful evaluations, experience and knowledge may not be eliminated.
It is impossible to ensure that proposed exploration programs will be profitable or successful.
The
inability of the Company to locate a viable mineral deposit will have a material adverse effect on its operations and could result
in a total loss of our business.
Competition
The
mineral exploration sector is extremely competitive. The Company is competing with many other exploration companies looking for
minerals such as 3PL and American Battery Metals. Being a junior mineral exploration company, the Company competes with other
similar companies for financing and joint venture partners. Additionally, the Company competes for resources such as professional
geologists, camp staff, rental equipment, and mineral exploration supplies.
Our
Strategy
Our
goal is to continue testing soil samples at the Railroad Valley Property, to make a determination as to whether sufficient mineral
deposits are present to make the development of the land viable as a source of revenue through the mining and production of lithium.
While can provide no assurance that our testing will prove successful in detecting lithium deposits, we believe we can accomplish
our goal by implementing the following 24-month business strategy:
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continued
management of the Railroad Valley Property asset
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database
and GIS construction
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advance
our geological and seismic testing of the Railroad Valley Property
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begin
the regulatory approvals process
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conduct
environmental impact tests and prepare reports in preparation for the approvals process.
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develop
plans for mining and exploration of the Railroad Valley Property
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Raw
Materials
The
raw materials for any of the Company’s exploration program will include camp equipment, hand exploration tools, sample bags,
first aid supplies, groceries and propane. All of these types of materials are readily available from a variety of suppliers.
If heavy machinery and qualified operators are required. The Company intends to contract the services of professional mining contractors,
drillers and geologist.
Dependence
on Major Customers
The
Company does not currently have any customers as it is in the exploratory and soil sampling phase of its business plan.
Intellectual
Property
The
Company has no intellectual property such as patents or trademarks.
Government
Controls and Regulations
The
Company’s business is subject to various levels of government controls and regulations, which are supplemented and revised
from time to time. However, the Company is unable to predict what additional legislation or revisions may be proposed that might
affect its business or when any such proposals, if enacted, might become effective. Such changes, however, could require increased
capital and operating expenditures and could prevent or delay certain operations by the Company.
The
various levels of government controls and regulations address, among other things, the environmental impact of mining and mineral
processing operations. With respect to the regulation of mining and processing, legislation and regulations in various jurisdictions
establish performance standards, air and water quality emission standards and other design or operational requirements for various
components of operations, including health and safety standards. Legislation and regulations also establish requirements for decommissioning,
reclamation and rehabilitation of mining properties following the cessation of operations and, may require that some former mining
properties be managed for long periods of time.
The
Company is currently in the early exploratory phase of its operations. Should the Company’s exploration and testing for
lithium deposits make mining viable, the Company will begin forming a plan for mining operations to extract such lithium
deposits for commercialization. Mining is a highly regulated industry in the United States and will required several permits and
approvals from various government regulatory bodies on local, state and federal levels. Should the Company decide that mining
operations is commercially viable, there can be no guarantee that such permits and approvals will be granted, which would have
a materially adverse effect on the Company’s operations.
Costs
and Effects of Compliance with Environmental Laws
The
Company currently has no costs to comply with environmental law, however, should the Company progress in its business plan and
decide that mining of lithium deposits is commercially liable, the Company will be subject to various environmental laws and regulations
on both a federal and state level, including those governing the discharge of pollutants into the air and water, the management
and disposal of hazardous substances and wastes and the cleanup of contaminated properties. While our business is still in its
early stages of its ongoing compliance with such laws and regulations is important consideration for us. Key aspects of our operations
are subject to these laws and regulations. In addition, we incur substantial capital and operating costs in our efforts to comply
with them.
We
may use and generate hazardous substances and wastes in our operations in the future development of the Railroad Valley Property
and may become subject to claims for personal injury and/or property damage relating to the release of such substances into the
environment. Liabilities that may be associated with the investigation and cleanup of hazardous substances, as well as personal
injury, property damages or natural resource damages arising from the release of, or exposure to, such hazardous substances, may
be imposed in many situations without regard to violations of laws or regulations or other fault, and may also be imposed jointly
and severally (so that a responsible party may be held liable for more than its share of the losses involved, or even the entire
loss). Such liabilities also may be imposed on many different entities with a relationship to the hazardous substances at issue,
including, for example, entities that formerly owned or operated the property affected by the hazardous substances and entities
that arranged for the disposal of the hazardous substances at the affected property, as well as entities that currently own or
operate such property. We are subject to such laws, including the federal Comprehensive Environmental Response, Compensation and
Liability Act, commonly known as CERCLA or Superfund, in the U.S., and similar federal and state laws. We may have liability as
a potentially responsible party (“
PRP
”) with respect to active off-site locations under CERCLA or state equivalents.
Our management will be actively involved in evaluating environmental matters and will, going forward, disclose any material environmental
liabilities incurred by the Company required to be disclosed by state and federal laws and regulations.
In
the initial stages of our exploration and evaluation of the Railroad Valley Property, we expect to conduct Environmental Impact
Studies according to our Exploration Program and tailored accordingly to such requirements from an initial scope meeting with
the BLM. Such compliance with environmental laws and regulations is expected to add up to a material amount of time and resources.
Expenditures
on Research and Development during the Last Two Fiscal Years
Since
April 30, 2017 the Company has not spent any funds on either Company-sponsored research and development activities or customer-sponsored
research activities relating to the development of new products, services or techniques or the improvement of existing products,
services, or techniques
Number
of Total Employees and Number of Full Time Employees
As
of the date herein, the Company does not have any employees other than its executive officers. Mr. Peter Roderick Murray, our
Chief Operating Officer is under contract with the Company as a consultant. The Company contracts and intends to retain the
services of independent contracted geologists, prospectors and consultants on a contract basis to conduct the exploration programs
on as required throughout the course of its mineral exploration program.
Appointment
of Peter Roderick Murray as the Company’s Chief Operating Officer and Director
Effective
August 20, 2018, Mr. Peter Roderick Murray (“Mr. Murray”) was appointed and accepted the opportunity to serve as an
additional member of the Board, Mr. Murray was also appointed by the Board, and accepted the opportunity to serve, as the Company’s
Chief Operating Officer (“COO”) on a consultancy basis. Pursuant to Mr. Murray’s appointment as COO and a director
of the Board, the Company and Mr. Murray entered into a consulting agreement effective as of August 20, 2018 (the “Consulting
Agreement”).
Pursuant
to the Consulting Agreement, Mr. Murray will provide certain consulting services with respect to the Company’s Property
and Exploration Program (as defined in the Consulting Agreement) regarding the Company’s Railroad Valley property. Initially,
Mr. Murray will serve as the COO and director of the Company as a consultant, and will not be precluded from exploring other roles
or undertaking other duties outside of the Company. Mr. Murray will oversee all services performed under the Consulting Agreement,
unless another person with at least forty five (45) days’ advance notice to the Company is so designated at the discretion
of Mr. Murray.
Pursuant
to the Consulting Agreement, Mr. Murray will be paid a fee of $3,000 per month during the term of the Consulting Agreement. In
addition, under the Consulting Agreement, Mr. Murray will be entitled to receive up to five hundred thousand (500,000) shares
of Common Stock, to be issued to Mr. Murray on the following schedule: (a) one hundred twenty five thousand (125,000) shares of
Common Stock on August 20, 2018; (b) upon the renewal of the Consulting Agreement for a first renewal term, in accordance with
the terms and conditions of the Consulting Agreement, then one hundred twenty five thousand (125,000) shares of Common Stock shall
be issued to Mr. Murray on the first year anniversary of the Effective Date (as defined in the Consulting Agreement); (c) upon
the renewal of the Consulting Agreement for a second renewal term, in accordance with the terms and conditions of the Consulting
Agreement, one hundred twenty five thousand (125,000) shares of Common Stock shall be issued to Mr. Murray on the second year
anniversary of the Effective Date (as defined in the Consulting Agreement); and (d) upon the renewal of the Consulting Agreement
for a third renewal term, in accordance with the terms and conditions of the Consulting Agreement, one hundred twenty five thousand
(125,000) shares of Common Stock shall be issued to Mr. Murray on the third year anniversary of the Effective Date (collectively,
the “Murray Shares”).
The
Consulting Agreement has an initial one (1) year term and will automatically renew for successive one (1) year periods unless
earlier terminated. The Consulting Agreement may be terminated (i) immediately by the Company for “cause” (as defined
below), (ii) upon at least thirty (30) days’ written notice by either party for any reason during the initial one-year term,
or (iii) upon at least sixty (60) days’ written notice by either party during any renewal term. If the Consulting Agreement
is terminated for any reason, Mr. Murray will not be eligible to receive any shares Murray Shares not previously issued to him
as of the date of termination. “Cause” is defined as the commission of fraud against the Company, or the misappropriation,
theft or embezzlement of the assets of the Company, or the performance of illegal or fraudulent acts, criminal conduct, or willful
misconduct materially injurious to the business of the Company.
May
2018 Forward Stock Split and July 2018 Name Change
On
May 10, 2018, a majority of the Company’s stockholders approved a share split of the issued and outstanding shares of the
Common Stock, on a 20-for-1 basis, thereby increasing the issued and outstanding share capital from 3,750,000 to 75,000,000. On
July 12, 2018, the Company effectively changed its name from Wishbone Pet Products Inc. to Blue Eagle Lithium Inc.
Item
1A. Risk Factors
The
following discussion of risk factors contains forward-looking statements. These risk factors may be important to understanding
other statements in this Report. The following information should be read in conjunction with Part II, Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and
related notes in Part II, Item 8, “Financial Statements and Supplementary Data” of this Form 10-K.
The
business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known
or unknown, including but not limited to those described below, any one or more of which could, directly or indirectly, cause
the Company’s actual financial condition and operating results to vary materially from past, or from anticipated future,
financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the
Company’s business, financial condition, operating results and stock price.
Because
of the following factors, as well as other factors affecting the Company’s financial condition and operating results, past
financial performance should not be considered to be a reliable indicator of future performance, and investors should not use
historical trends to anticipate results or trends in future periods.
We
are a development stage entity and are thus subject to the risks associated with new businesses
.
We
only recently altered our business plan and changed our name from Wishbone Pet Products, Inc., a dog waste removal device manufacturing
company, to Blue Eagle Lithium Inc., a company with the intent on conducting mining and mineral exploration, primarily in the
business of exploration and mining of lithium. We are still in the testing and sampling stages in our plan to develop and mine
lithium from the Railroad Valley Property we recently acquired. As such, we are a development stage, “start-up” company
with no history of revenue-generating operations, and our only assets consist of the Railroad Valley Property acquired by us in
August 2018 and additional property Railroad Valley claims acquired in April 2019. Therefore, we are, and expect for the foreseeable
future to be, subject to all the risks and uncertainties inherent in a new business, in particular new businesses engaged in the
exploration and mining of lithium. We must establish many important functions necessary to operate a business, including conducting
soil sampling and borehole testing, obtaining and maintaining the necessary regulatory approvals and permits to further our exploration
and, eventually, should our exploration prove successful, begin mining of the lithium, should such deposits exist, and establishing
a managerial and administrative structure and an internal infrastructure for the Company’s compliance with various
local, state and federal environmental laws and regulations, among others.
Accordingly,
you should consider our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies
in their pre-revenue generating stages, particularly those in the exploration and mining of lithium. Potential investors should
carefully consider the risks and uncertainties that a new company with no operating history will face. In particular, potential
investors should consider that there is a significant risk that we will not be able to:
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implement
or execute our current business plan, or that our business plan is sound;
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maintain
our anticipated management team who are key to the successful implementation of our business plan;
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raise
sufficient funds in the capital markets or otherwise to effectuate our business plan;
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volatility
of global prices of raw materials and lithium
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the
nature and extent of future competition in our principal markets;
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risks
relating to the estimation of our reserves of lithium;
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changes
in governmental regulations;
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determine
that the processes and technologies that we have developed are commercially viable; and/or
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If
we cannot execute any one of the foregoing, our business may fail, in which case you would lose the entire amount of your investment
in our Company.
In
addition, we expect to encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors
for which we cannot foresee and/or plan for. Should our exploration efforts prove successful, we will need to transition from
a company with a focus on exploration to a company capable of supporting mining activities. We may not be able to reach such a
point or make such a transition, which would have a material adverse effect on our Company.
Our
limited operating history makes it difficult for you to evaluate our business to date and to assess our future viability
.
Currently,
our only operations consists of soil sampling to explore the possibility of lithium deposits in the Railroad Valley Property.
We only recently acquired the assets related to this business opportunity in August 2018. The Company’s current business
plan is relatively new and there can be no assurance that it will be successful. Further, the Company’s new line of business
if vastly different than that of our predecessor company, Wishbone Pet Products, Inc., so our previous filings under our predecessor’s
name and business plan cannot be used to predict the future viability of our Company and the assumptions utilized to prepare those
reports are no longer valid. We have had only limited opportunities to demonstrate our success in conducting testing, though our
results are limited and cannot yet be relied upon, we have no history of being able to obtain the necessary regulatory approvals,
manufacture a commercial scale product, or arrange for a third party to do so on our behalf, prepare for and conduct mining activities
or formulate sales and marketing strategies necessary for commercialization. Consequently, any predictions made about our future
viability or ability to accomplish our business goals may not be as accurate as they could be if we had a longer operating history.
There
can be no assurance that we can ever generate revenue or achieve or maintain profitability.
We
have experienced net losses since inception. As of April 30, 2019, we had an accumulated deficit of $ -787,068. W
e
expect to make significant future expenditures related to the development and expansion of our business, including conducting
testing to both obtain the necessary regulatory approvals as well as to understand the viability of our goal of mining the Railroad
Valley Property for lithium deposits, if such deposits exist. If our revenue declines or fails to grow at a rate faster than our
operating expenses, and we are unable to secure funding under terms that are favorable or acceptable to us, or at all, we will
not be able to achieve and maintain profitability in future periods. As a result, we may continue to generate losses. We cannot
ensure that we will achieve profitability in the future or that, if we do become profitable, we will be able to sustain that profitability.
We
have an immediate need to capital, and we will require additional funding to establish and progress our business. If we are unable
to raise additional capital, we could be forced to delay, reduce or eliminate our product development programs, commercialization
efforts or our plans for organic or inorganic growth, and our business could fail.
As
of April 30, 2019, we had cash on hand of $469. We thus have an immediate need for additional cash resources in order to fund
our operations and working capital. Moreover, we expect that we will be required to incur significant expenses in connection with
our ongoing activities, particularly if our testing for lithium deposits prove positive and we begin transitioning to mining activities
and attempt to obtain the necessary regulatory approvals and permits to conduct such business activities. To fund our anticipated
plan of operations for the next 12 months, we believe we will need $300,000 in cash resources.
Accordingly,
it will be necessary for us to secure additional funding in connection with our continuing operations. If we are unable to raise
capital when needed, on attractive terms, or at all we could be forced to delay, reduce or eliminate our development programs
or commercialization efforts, and our business might fail.
Our
future capital requirements will be significant and will depend on many factors, including:
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the
success of our exploration efforts and the existence of lithium or other mineral deposits on the Railroad Valley Property.
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costs
associated with testing and proving the viability of a mining operation on the Railroad Valley Property;
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Related
costs in obtaining the necessary approvals and permits required to begin mining operations;
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The
continuing costs of complying with the various rigorous regulatory regimes on the local, state and federal levels, including
environmental regimes with which we are or will be required to comply;
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Costs
associated with being a public reporting company;
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delays,
inefficiencies and/or inabilities in initiating our mining activities, manufacturing or obtaining sufficient quantity or quality
of lithium or other minerals which we can commercialize;
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our
ability to effectively market and sell, and achieve sufficient market acceptance and market share for our lithium;
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research
and development costs necessary to compete effectively with our competitors;
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while
the Company does not plan on making any acquisition at this time, an opportunity to acquire another property, a competitor
or an entity whose operations would provide positive synergies for our own operations may arise for which we would need additional
capital to secure; and
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costs
associated with unforeseen events or crises that may arise from time to time.
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Because
of these and similar factors, adequate additional financing may not be available to us when needed, on acceptable terms, or at
all.
In
addition, we may have difficulty in raising capital and may consume resources faster than expected. Our revenue from sales may
not increase as we expect, which could require us to raise additional capital. We may have difficulty raising necessary capital
in the near or longer term as a result of, among other factors, the nature of our business being dependent on the market price
of lithium, which can be volatile. Also, we may consume available resources more rapidly than currently anticipated, resulting
in the need for additional funding sooner than anticipated. Our inability to raise funds could lead to decreases in the price
of our Common Stock and the failure of our business.
Raising
additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our assets
or product candidates.
If
we raise additional capital by issuing equity securities, the percentage and/or economic ownership of our existing stockholders
may be reduced, and accordingly these stockholders may experience substantial dilution.
Debt
financing, if obtained, may involve agreements that include liens on our assets, covenants limiting or restricting our ability
to take specific actions, such as incurring additional debt, increases in our expenses and requirements that our assets be provided
as a security for such debt. Debt financing would also be required to be repaid regardless of our operating results.
Additionally,
if we raise additional funds through collaborations, we may be required to relinquish some rights to our assets, or to grant licenses
on terms that are not favourable to us.
Funding
from any source may be unavailable to us on acceptable terms, or at all. If we do not have sufficient capital to fund our operations
and expenses, our business could fail.
There
is significant doubt regarding our ability to continue as a going concern. If we do not continue as a going concern, investors
could lose their entire investment.
We
can make no assurances as to our ability to continue as a going concern, and as a result, our independent registered public accounting
firm included an explanatory paragraph in its report on our financial statements as of and for the fiscal year ended April 30,
2019 with respect to this uncertainty. Accordingly, our ability to continue as a going concern will require us to seek alternative
financing to fund our operations. This going concern opinion could materially limit our ability to raise additional funds through
the issuance of new debt or equity securities or otherwise. Future reports on our financial statements may include an explanatory
paragraph with respect to our ability to continue as a going concern.
All
of our properties are in the exploration stage. There is no assurance that we can establish the existence of any mineral resource
on any of our properties in commercially exploitable quantities. Until we can do so, we cannot generate any revenues from operations
and if we do not do so we will lose all of the funds that we expend on exploration. If we do not discover any mineral resource
in a commercially exploitable quantity, our business could fail.
The South Railroad
Valley Lithium Property is a green-fields project. There has been no significant exploration pertaining to lithium, either as
brine or bedrock deposit. While many similarities exist between the productive Clayton Valley analogue and Railroad Valley, there
is a risk that future exploration may not locate a viable lithium deposit. Traditional geological risks include: identifying the
presence of lithium rich brine aquifers, their continuity and connections to establish a deposit of sufficient size and lithium
grade, and finding the best technical processing methods to produce a marketable product. Other risks can include: access to water
rights for processing; area for evaporation ponds if required, adequate power, and other infrastructure requirements for development
and processing.
Despite
exploration work on our mineral properties, we have not established that any of them contain any mineral reserve, nor can there
be any assurance that we will be able to do so. If we do not, our business could fail.
A
mineral reserve is defined by the Securities and Exchange Commission (the “SEC”) in its Industry Guide 7 (which
can be viewed over the Internet at http://www.sec.gov/about/forms/industryguides.pdf) as that part of a mineral deposit which
could be economically and legally extracted or produced at the time of the reserve determination. The probability of an individual
prospect ever having a “reserve” that meets the requirements of the SEC’s Industry Guide 7 is extremely
remote; in all probability our mineral resource property does not contain any “reserve” and any funds that we spend
on exploration will probably be lost.
Even
if we do eventually discover a mineral reserve on one or more of our properties, there can be no assurance that we will be able
to develop our properties into producing mines and extract those resources. Both mineral exploration and development involve a
high degree of risk and few properties which are explored are ultimately developed into producing mines.
The
commercial viability of an established mineral deposit will depend on a number of factors including, by way of example, the size,
grade and other attributes of the mineral deposit, the proximity of the resource to infrastructure such as a smelter, roads and
a point for shipping, government regulation and market prices. Most of these factors will be beyond our control, and any of them
could increase costs and make extraction of any identified mineral resource unprofitable.
Mineral
exploration and development is subject to extraordinary operating risks. In the event of a cave-in or similar occurrence, our
liability may exceed our resources, which would have an adverse impact on our Company.
Mineral
exploration, development and production involves many risks which even a combination of experience, knowledge and careful evaluation
may not be able to overcome. Our operations will be subject to all the hazards and risks inherent in the exploration for mineral
resources and, if we discover a mineral resource in commercially exploitable quantity, our operations could be subject to all
of the hazards and risks inherent in the development and production of resources, including liability for pollution, cave-ins
or similar hazards against which we cannot insure or against which we may elect not to insure. Any such event could result in
work stoppages and damage to property, including damage to the environment. The payment of any liabilities that arise from any
such occurrence would have a material adverse impact on our Company.
Mineral
prices are subject to dramatic and unpredictable fluctuations.
We
expect to derive revenues, if any, either from the sale of our mineral resource properties or from the extraction and sale of
lithium and/or associated byproducts. The price of those commodities has fluctuated widely in recent years, and is affected by
numerous factors beyond our control, including international, economic and political trends, expectations of inflation, currency
exchange fluctuations, interest rates, global or regional consumptive patterns, speculative activities and increased production
due to new extraction developments and improved extraction and production methods. The effect of these factors on the price of
base and precious metals, and therefore the economic viability of any of our exploration properties and projects, cannot accurately
be predicted.
Supplies
needed for exploration may not always be available. If we are unable to secure exploration supplies we may have to delay our anticipated
business operations.
Competition
and unforeseen limited sources of supplies needed for our proposed exploration work could result in occasional spot shortages
of supplies of certain products, equipment or materials. There is no guarantee we will be able to obtain certain products, equipment
and/or materials as and when needed, without interruption, or on favorable terms. Such delays could affect our anticipated business
operations and increase our expenses.
New
production of lithium carbonate from current or new competitors in the markets in which we operate could adversely affect prices
In
recent years, new and existing competitors have increased the supply of lithium carbonate, which has affected prices. Further
production increases could negatively impact prices. There is limited information on the status of new lithium carbonate production
capacity expansion projects being developed by current and potential competitors and, as such, we cannot make accurate projections
regarding the capacities of possible new entrants into the market and the dates on which they could become operational. If these
potential projects are completed in the short term, they could adversely affect market prices and our market share, which, in
turn, could have a material adverse effect on our business, financial condition and results of operations.
We
are currently reliant on the prospect of lithium deposits existing and the viability of extracting those deposits through mining,
and if our tests prove unsuccessful or not as we expect them to be, our business plan will not succeed.
Our
current business prospects depend completely on the outcomes of our soil sampling and other testing being positive for the existence
of sufficient lithium or other mineral deposits for mining. While we intend to search for alternative properties to diversify
our portfolio, we currently have no other potential property acquisition targets and do not expect to have one in the near future.
This makes our reliance solely on the success of our exploration efforts in the Railroad Valley Property a more pronounced risk,
and should our exploration efforts prove unsuccessful, our lack of product diversity could lead to the failure of our business.
Labor
shortages could increase our labor costs significantly or restrict our growth plans.
Our
business is highly dependent on qualified management and operating personnel. Qualified individuals have recently been in short
supply due to a highly competitive labor market and an inability to attract and retain them would limit the success of our operations
as well as our development of new business opportunities. We can make no assurances that we will be able to attract and retain
qualified individuals in the future which may have a more significant effect on our operation than those of our competitors. Additionally,
the overall labor market in the U.S. is currently very competitive, as a result the cost of attracting and retaining qualified
individuals may be higher than we anticipate, and as a result, our profitability could decline.
Our
business operations and future development could be significantly disrupted if we lose key members of our management team.
The
success of our business relies heavily on certain key individuals, particularly Rupert Ireland. Our operations could be adversely
effected in the event we lose such key personnel and management. Such costs and loss of individuals will have a material adverse
effect on our results operations and may result in our ability to hire and retain employees in the future.
We
may be unable to manage such growth efficiently.
As
of April 30, 2019, we had one full time employee and a consultant acting as an officer of our Company. We expect a need
to hire and train new personnel as we continue to grow and expand our operations. Primarily we intend to increase our mining operations
should our exploration efforts prove successful in order to extract lithium and other available minerals. Additionally, we may
be presented with an opportunity to grow inorganically with an acquisition of another property, a competitor or an entity which
would provide us with positive synergies. In either scenario, our growth could be hindered by mismanagement or other unforeseen
difficulties that may inadvertently lead to material adverse effects.
We
are subject to corporate governance and internal control reporting requirements, and our costs related to compliance with, or
our failure to comply with existing and future requirements, could adversely affect our business.
We
must comply with corporate governance requirements under the Sarbanes-Oxley Act of 2002 and the Dodd–Frank Wall Street Reform
and Consumer Protection Act of 2010, as well as additional rules and regulations currently in place and that may be subsequently
adopted by the SEC and the Public Company Accounting Oversight Board. These laws, rules, and regulations continue to evolve
and may become increasingly stringent in the future. We are required to include management’s report on internal controls
as part of our annual report pursuant to Section 404 of the Sarbanes-Oxley Act. The financial cost of compliance with these laws,
rules and regulations is expected to remain substantial, and we may be unable to fully comply with such laws, rules and regulations,
which in turn could harm our reputation, the trading in our Common Stock, our ability to operate and our results of operation.
There
are limitations on the effectiveness of our internal controls, and a failure of our control systems to prevent error or fraud
may materially harm our Company.
Proper
systems of internal controls over financial accounting and disclosure are critical to the operation of a public company. Given
the size of our Company and the limited number of fulltime employees that we have employed, there are presently and may
in the future continue to be limitations on the effectiveness of our internal controls. Moreover, we do not expect that disclosure
controls or internal control over financial reporting will prevent all errors and all fraud, if any. A control system, no matter
how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives
will be met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits
of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Failure
of our control systems to prevent error or fraud could materially and adversely impact us.
Risks
Related to our Company’s Capital Stock and Control of the Company
The
trading in our Common Stock was recently suspended by the SEC due to questions regarding our publicly available information
and unusual activity in the trading of our Common Stock. There is a risk that we may continue to be subject to the scrutiny of
securities regulators.
On
July 1, 2019, the SEC temporarily suspended trading in our Common Stock because of questions regarding (i) the accuracy
and adequacy of publicly available information in the marketplace, since at least May 22, 2019, about the Company, including statements
in online promotional materials regarding analyst findings and the extent of the Company’s mining claims; and (ii) unusual
unexplained market activity in Common Stock. While trading in our Common Stock resumed on July 17, 2019, there is a risk that
we may continue to be subject to the scrutiny of securities regulators, which could damage our reputation, impair trading in our
Common Stock and the trading value of our Common Stock, lead to additional suspensions of trading on our Common Stock, impair
our ability to raise necessary capital or otherwise damage our business.
An
investment in our Company is highly speculative, and an active trading market for our Common Stock may not develop or be
sustained.
An
investment in our Company is highly speculative will likely require a long-term commitment, with no certainty of return.
Although our Common Stock is listed for quotation, trading has been sporadic and volatile, and we cannot predict whether
an active market for our Common Stock will ever develop in the future. In the absence of an active trading market:
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Investors
may have difficulty buying and selling or obtaining market quotations;
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market
visibility for shares of our Common Stock may be limited; and
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a
lack of visibility for shares of our Common Stock may have a depressive effect on the market price for shares of our Common
Stock.
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The
market where our Common Stock is quoted is a relatively unorganized, inter-dealer, over-the-counter market that provides significantly
less liquidity than NASDAQ or the NYSE American (formerly known as the American Stock Exchange). This illiquid trading market
for our Common Stock may make it difficult for you to dispose of your Common Stock at desirable prices or at all. Moreover, there
is a risk that our Common Stock could be delisted, in which case you would have no means of gaining liquidity for your investment
in the Company in the public markets.
The
lack of an active market impairs your ability to sell your shares at the time you wish to sell them or at a price that you consider
reasonable. The lack of an active market may also reduce the fair market value of your shares. An inactive market may also impair
our ability to raise capital to continue to fund operations by selling shares.
Rupert
Ireland owns the majority of our outstanding voting stock and has, and may in the future, exert significant influence over our
business and affairs.
As
of the date of this Report, Rupert Ireland (our principal executive officer and member of our Board) beneficially owns approximately
53% of our outstanding voting securities. Mr. Rupert’s significant ownership of our voting securities will for the foreseeable
future enable him to exert significant influence over our Company and matters requiring stockholder approval, including
the election of directors, financing activities or a merger or sale of our assets. Mr. Ireland may elect in its discretion to
exercise these or similar rights at any time. Additionally, these rights may limit the ability of our Board and our management
team to make necessary personnel decisions, including adding independent directors to our Board, which may adversely affect the
management of our Company.
The
financial and operational projections that we may make from time to time are subject to inherent risks.
While
management has used their reasonable judgment to make reasonable projections represented in this Report, the projections provided
herein or which may be made by our management from time to time (including, but not limited to, those relating to our expansion
and other financial or operational matters) reflect numerous assumptions made by management, including assumptions with respect
to our specific as well as general business, regulatory, economic, market and financial conditions and other matters, all of which
are difficult to predict and many of which are beyond our control. Accordingly, there is a risk that the assumptions made in preparing
the projections, or the projections themselves, will prove inaccurate. There may be differences between actual and projected results,
and actual results may be materially different from than those contained in the projections. The inclusion of the projections
in this Report should not be regarded as an indication that we, our management, the underwriters or their respective representatives
considered or consider the projections to be a guaranteed prediction of future events, and the projections should also not be
relied upon as such.
Our stock is
a “penny stock.” Trading of our stock may be restricted by the SEC penny stock regulations and FINRA’s
sales practice requirements, which may limit a stockholder’s ability to buy and sell our stock.
Our
stock is a “penny stock.” The
SEC
has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price (as
defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities
are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons
other than established customers and “accredited investors”. The term “accredited investor” refers generally
to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding
$200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC
which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer
also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer
and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the
customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be
given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before
or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock
not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny
stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe
that the penny stock rules discourage investor interest in, and limit the marketability of, our Common Stock.
In
addition to the “penny stock” rules promulgated by the
SEC
,
The Financial Industry Regulatory Authority, Inc. (“FINRA”) has adopted rules that require that in recommending an
investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that
customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make
reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other
information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced
securities will not be suitable for at least some customers. FINRA’s requirements make it more difficult for broker-dealers
to recommend that their customers buy our Common Stock, which may limit your ability to buy and sell our stock.
Future
sales by our stockholders may adversely affect our stock price and our ability to raise funds in new stock offerings.
Sales
of our Common Stock in the public market could lower the market price of our Common Stock. Sales may also make it more difficult
for us to sell equity securities or equity-related securities in the future at a time and price that our management deems acceptable
or at all.
We may issue preferred stock that could
have rights that are preferential to the rights of our Common Stock that could discourage potentially beneficially transactions
to our common shareholders.
An issuance of additional
shares of preferred stock could result in a class of outstanding securities that would have preferences with respect to voting
rights and dividends and in liquidation over our Common Stock and could, upon conversion or otherwise, have all of the
rights of our Common Stock. The authority of our Board to issue preferred stock could discourage potential takeover attempts
or could delay or prevent a change in control through merger, tender offer, proxy contest or otherwise by making these attempts
more difficult or costly to achieve. The issuance of preferred stock could impair the voting, dividend and liquidation rights
of common stockholders without their approval.
If securities or industry analysts do
not publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations
regarding our Common Stock adversely, the price of our Common Stock and trading volume could decline.
The trading market for
our Common Stock may be influenced by the research and reports that securities or industry analysts may publish about us,
our business, our market or our competitors. If any of the analysts who may cover us or our industry adversely change their recommendation
regarding our Common Stock, or provide more favorable relative recommendations about our competitors, the price or liquidity
of our Common Stock would likely decline. If any analyst who may cover us was to cease coverage of our Company or
fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the price
of our Common Stock or trading volume to decline.
Anti-takeover provisions in our charter
documents and Nevada law could discourage, delay or prevent a change in control of our Company and may affect the trading
price of our Common Stock.
We
are subject to the laws, rules and regulations promulgated under Nevada law and the Nevada Business Corporation Act and the Nevada
Revised Statutes. The anti-takeover provisions under Nevada Law may discourage, delay or prevent a change in control by prohibiting
us from engaging in a business combination with an interested stockholder for a period of two years after the person becomes an
interested stockholder, even if a change in control would be beneficial to our existing stockholders if the Company has
not opted out of such coverage or the board did not approve of either the combination or the transaction which resulted in the
stockholder becoming an interested stockholder. [The Company has opted out of all provisions of the Nevada Private Corporations
Act and any amendments thereto, that pertain to the acquisition of a controlling interest. In addition, our certificate of incorporation
and bylaws may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable.
Further, as the beneficial
owner of a majority of our Common Stock, Mr. Ireland could independently prevent us or from entering into, or cause us
to enter into a merger or acquisition transaction which investors may disagree with and which may inadvertently lead to material
adverse consequences.
We
do not expect to pay dividends for the foreseeable future.
We
do not expect to pay dividends on our Common Stock offered in this transaction for the foreseeable future. Accordingly,
any potential investor who anticipates the need for current dividends should not purchase our securities.
Risks
Related to Government Regulations Affecting our Business and Operations
Our
business is subject to hazards common to resource extraction businesses, any of which could injure our employees or other persons,
damage our facilities or other properties, interrupt our production and adversely affect our reputation and results of operations.
Our
business is subject to hazards common to mineral exploration, storage, handling and transportation, including explosions, fires,
inclement weather, natural disasters, mechanical failure, unscheduled downtime, transportation interruptions, remediation, chemical
spills, discharges or releases of toxic or hazardous substances or gases and other risks. These hazards can cause personal injury
and loss of life to our employees and other persons, severe damage to, or destruction of, property and equipment and environmental
contamination. In addition, the occurrence of disruptions or material operating problems at our facilities due to any of these
hazards may diminish our ability to meet our output goals. Accordingly, these hazards and their consequences could adversely affect
our reputation and have a material adverse effect on our operations as a whole, including our results of operations and cash flows,
both during and after the period of operational difficulties.
The
Company does not currently maintain any insurance that would otherwise reimburse the Company for losses related to various workplace
hazards or events that may occur. Any compensation or other costs for injuries or other events resulting from a hazard identified
above would be the responsibility of the Company in full. To the extent that such compensation or costs of such an event is high
or exceeds the Company’s current capital resources, such an event could adversely affect the Company’s financial condition
and results of operations.
Our
business could be adversely affected by environmental, health and safety laws and regulations.
The
nature of our business exposes us to risks of liability under environmental laws and regulations due to the production, storage,
use, transportation and sale of materials that can cause contamination or personal injury if released into the environment. In
the jurisdictions in which we operate, we are subject, or will be subject to numerous federal, state and local environmental,
health and safety laws and regulations, including those governing the discharge of pollutants into the air and water, the management
and disposal of hazardous substances and wastes and the cleanup of contaminated properties. We may use hazardous substances at
many of our facilities, and we may be subject to claims relating to exposure to hazardous materials. We also may generate hazardous
wastes. Liabilities associated with the investigation and cleanup of hazardous substances, as well as personal injury, property
damages or natural resource damages arising from the release of, or exposure to, such hazardous substances, may be imposed in
many situations without regard to violations of laws or regulations or other fault, and may also be imposed jointly and severally
(so that a responsible party may be held liable for more than its share of the losses involved, or even the entire loss). Such
liabilities may also be imposed on many different entities, including, for example, current and prior property owners or operators,
as well as entities that arranged for the disposal of the hazardous substances. Such liabilities may be material and can be difficult
to identify or quantify.
Further,
some of the raw materials we handle are subject to government regulation. These regulations affect the manufacturing processes,
handling, uses and applications of our products. In addition, our production facilities and a number of our distribution centers
require numerous operating permits. Due to the nature of these requirements and changes in our operations, our operations may
exceed limits under permits or we may not have the proper permits to conduct our operations. Ongoing compliance with such laws,
regulations and permits is an important consideration for us and we incur substantial capital and operating costs in our compliance
efforts.
Compliance
with environmental laws generally increases the costs of manufacturing, registration/approval requirements, transportation and
storage of raw materials and finished products, and storage and disposal of wastes, and could have a material adverse effect on
our results of operations. We may incur substantial costs, including fines, damages, criminal or civil sanctions and remediation
costs, or experience interruptions in our operations, for violations arising under these laws or permit requirements. Additional
information may arise in the future concerning the nature or extent of our liability with respect to identified sites, and additional
sites may be identified for which we are alleged to be liable, that could cause us to materially increase our environmental accrual
or the upper range of the costs we believe we could reasonably incur for such matters. Furthermore, environmental laws are subject
to change and have become increasingly stringent in recent years. We expect this trend to continue and to require materially increased
capital expenditures and operating and compliance costs.
Further,
we do not currently maintain hazardous materials insurance coverage. Any costs associated with an environmental incident could
have an adverse effect on the Company’s financial condition and results of operations.
We
may be exposed to certain regulatory and financial risks related to climate change.
Growing
concerns about climate change may result in the imposition of additional regulations or restrictions to which we may become subject.
Climate changes include changes in rainfall and in storm patterns and intensities, water shortages, significantly changing sea
levels and increasing atmospheric and water temperatures, among others. A number of governments or governmental bodies have introduced
or are contemplating regulatory changes in response to climate change, including regulating greenhouse gas emissions. Potentially,
additional U.S. federal regulation will be forthcoming with respect to greenhouse gas emissions (including carbon dioxide) and/or
“cap and trade” legislation that could impact our operations.
The
outcome of new legislation or regulation in the U.S. and other jurisdictions in which we operate may result in new or additional
requirements, additional charges to fund energy efficiency activities, and fees or restrictions on certain activities. While certain
climate change initiatives may result in new business opportunities for us in the area of alternative fuel technologies and emissions
control, compliance with these initiatives may also result in additional costs to us, including, among other things, increased
production costs, additional taxes, reduced emission allowances or additional restrictions on production or operations. Any adopted
future climate change regulations could also negatively impact our ability to compete with companies situated in areas not subject
to such limitations. Even without such regulation, increased public awareness and adverse publicity about potential impacts on
climate change emanating from us or our industry could harm us. We may not be able to recover the cost of compliance with new
or more stringent laws and regulations, which could adversely affect our business and negatively impact our growth. Furthermore,
the potential impact of climate change and related regulation on our customers is highly uncertain and there can be no assurance
that it will not have an adverse effect on our financial condition and results of operations.
Other
Risks Related to Our Company
If
we are unable to retain key personnel or attract new skilled personnel, it could have an adverse effect on our business.
Our
success depends on our ability to attract and retain key personnel, including our current management team consisting of Rupert
Ireland and Peter R. Murray. In light of the specialized and technical nature of our business, our performance is dependent on
the continued service of, and on our ability to attract and retain, qualified management, technical and support personnel. Competition
for such personnel is intense, and we may be unable to continue to attract or retain such personnel. In addition, because of our
reliance on our senior management team, the unanticipated departure of any key member of our management team could have an adverse
effect on our business. Our future success depends, in part, on our ability to identify and develop or recruit talent to succeed
our senior management and other key positions throughout the organization. If we fail to identify and develop or recruit successors,
we are at risk of being harmed by the departures of these key employees. Effective succession planning is also important to our
long-term success. Failure to ensure effective transfer of knowledge and smooth transitions involving key employees could hinder
our strategic planning and execution.
Additionally, we do
not currently maintain any key-man life insurance. A loss of key personnel could have an adverse effect on our operations.
Natural
disasters, geopolitical unrest, war, terrorism, public health issues or other catastrophic events could disrupt the supply, delivery
or demand of products, which could negatively affect our operations and performance.
We
are subject to the risk of disruption by earthquakes, floods and other natural disasters, fire, power shortages, geopolitical
unrest, war, terrorist attacks and other hostile acts, public health issues, epidemics or pandemics and other events beyond our
control and the control of the third parties on which we depend. Any of these catastrophic events, whether in the United States
or abroad, may have a strong negative impact on the global economy, us, our suppliers or customers, and could decrease demand
for our products, create delays and inefficiencies in our supply chain and make it difficult or impossible for us to deliver products
to our customers. Any catastrophic event that may occur near the Railroad Valley Property could impose significant damage to our
ability to conduct our business and could require substantial recovery time, which could have an adverse effect on our business,
operating results and financial condition.
We
must comply with extensive regulatory requirements, and the cost of such compliance, and any failure to comply, may adversely
affect our business, financial condition and results of operations.
In
our current business and as we expand our operations to include mining activities, we must comply with a wide variety of laws,
regulations, standards and other requirements governing, among other things, hazardous materials usage and environmental matters.
Compliance with these laws, regulations, standards and other requirements may be onerous and expensive, and they may be inconsistent
from jurisdiction to jurisdiction, further increasing the cost of compliance and doing business. Our products may require regulatory
approvals or satisfaction of other regulatory concerns in the various jurisdictions in which they are manufactured, sold or both.
These requirements create procurement and design challenges that require us to incur additional costs identifying suppliers and
manufacturers who can obtain and produce compliant materials, parts and products. Failure to comply with such requirements can
subject us to liability, additional costs and reputational harm and, in extreme cases, force us to recall products or prevent
us from selling our products in certain jurisdictions. If there is a new regulation, or change to an existing regulation, that
significantly increases our costs of manufacturing or causes us to significantly alter the way that we manufacture our products,
this would have a material adverse effect on our business, financial condition and results of operations. Additionally, while
we have implemented policies and procedures designed to ensure compliance with applicable laws and regulations, there can be no
assurance that our employees, contractors and agents will not violate such laws and regulations or our policies and procedures.
Our
corporate tax rate may increase, we may incur additional income tax liabilities and we may incur costs in complying with changing
tax laws in the United States, which could adversely impact our cash flow, financial condition and results of operations.
We
are a U.S.-based company subject to taxes in multiple U.S. jurisdictions. Our profits, cash flow and effective tax rate could
be adversely affected by changes in the tax rules and regulations in the jurisdictions in which we do business, unanticipated
changes in statutory tax rates and changes to our global mix of earnings. As we expand our operations, any changes in the U.S.
taxation of such operations may increase our effective tax rate. On December 22, 2017, President Trump signed into law the Tax
Cuts and Jobs Act, or the Tax Act, implementing a wide variety of changes to the U.S. tax system. Among other changes at the corporate
level, the Tax Act includes (i) a reduction in the U.S. federal corporate income tax rate from 35% to 21%, (ii) further limitations
on the deductibility of interest expense and certain executive compensation, (iii) the repeal of the corporate alternative minimum
tax, (iv) the imposition of a territorial tax system with a one-time repatriation tax on deemed repatriated earnings of foreign
subsidiaries and (v) a subjecting of certain foreign earnings to U.S. taxation through a base erosion anti-abuse tax, or a BEAT,
and a new tax related to global intangible low taxed income, or GILTI. Additionally, certain foreign derived intangible income,
or FDII, may prospectively be subject to a reduced rate of income tax from the statutorily enacted rate of 21%. Several of the
new provisions of the Tax Act require clarification and guidance from the Internal Revenue Service, or the IRS, and the Treasury
Department. These or other changes in U.S. tax law could impact our profits, cash flow and effective tax rate.
We
are also subject to examination by the IRS and other tax authorities, including state revenue agencies. If any tax authority disagrees
with any position we have taken, our tax liabilities and operating results may be adversely affected. While we regularly assess
the likelihood of favorable or unfavorable outcomes resulting from examinations by the IRS and other tax authorities to determine
the adequacy of our provision for income taxes, there can be no assurance that the actual outcome resulting from these examinations
will not materially adversely affect our financial condition and results of operations. In addition, the distribution of our products
subjects us to numerous complex and often-changing customs regulations. Failure to comply with these systems and regulations could
result in the assessment of additional taxes, duties, interest and penalties. While we believe we are in compliance with local
laws, there is no assurance that tax and customs authorities agree with our reporting positions and upon audit may assess us additional
taxes, duties, interest and penalties. If this occurs and we cannot successfully defend our position, our profitability will be
reduced.
Our
business and operations could suffer in the event of cybersecurity breaches, information technology system failures, or network
disruptions.
Attempts
to gain unauthorized access to our information technology systems become more sophisticated over time. These attempts, which might
be related to industrial or other espionage, include covertly introducing malware to our computers and networks and impersonating
authorized users, among others. We seek to detect and investigate all security incidents and to prevent their recurrence, but
in some cases we might be unaware of an incident or its magnitude and effects. The theft, unauthorized use or publication of our
intellectual property and/or confidential business information could harm our competitive position, reduce the value of our investment
in research and development and other strategic initiatives or otherwise adversely affect our business. To the extent that any
cybersecurity breach results in inappropriate disclosure of confidential information, we may incur liability or damage as a result.
The devotion of additional resources to the security of our information technology systems in the future could significantly increase
the cost of doing business or otherwise adversely impact our financial results.