W.S. INDUSTRIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
March 31, 2013
(Stated in US Dollars)
Note 1
Nature of Operations and Ability to Continue as a Going Concern
W.S. Industries Inc. (the "Company" or "W.S.") was incorporated in the State of Nevada, United States of America on April 5, 2004. Effective July 2, 2008, the Company is listed for trading on the Over-the-Counter Bulletin Board in the United States of America.
On April 22, 2013, the Company entered into an Agreement and Plan of Merger (the "Agreement") among the Company, a wholly owned subsidiary of the Company incorporated in the State of Nevada, Rio Plata Exploration Inc. ("Rio Plata"), a private corporation incorporated under the laws of British Columbia, Canada and the holders of the Company's convertible promissory notes (the "Debt Holders"), which was completed on May 14, 2013 (Note 10). Rio Plata is in the exploration stage and has an option to purchase 100% of the Metates property, an unproved mineral property, in the State of Sinaloa, Mexico.
The Company's financial statements are prepared on a going concern basis in accordance with US generally accepted accounting principles ("GAAP") which contemplates the realization of assets and discharge of liabilities and commitments in the normal course of business. The Company is in the exploration stage. It has generated only minimal operating revenues to date, and has accumulated losses of $21,412,685 since inception. The Company has funded its operations through the issuance of capital stock and debt. Management plans to raise additional funds through equity and/or debt financings. There is no certainty that further funding will be available as needed. These factors raise substantial doubt about the ability of the Company to continue operating as a going concern. The Company's ability to continue its operations as a going concern, realize the carrying value of its assets, and discharge its liabilities in the normal course of business is dependent upon its ability to raise new capital sufficient to fund its commitments and ongoing losses, and ultimately on generating profitable operations.
Note 2
Significant Accounting Polices
Exploration Stage
The Company is an exploration stage company as defined in the Financial Accounting Standards Board ("FASB") ASC 915-10 as it is devoting substantially all of its efforts to establish a new business and planned principal operations have not commenced. All losses accumulated since inception have been considered as part of the Company's exploration stage activities.
Foreign Currency Translation
The functional currency for the Company's operations is the US dollar. Monetary assets and liabilities denominated in Canadian dollars are translated into US dollars at the exchange rate prevailing at the end of the year. Non-monetary assets and liabilities are translated at the exchange rate prevailing at the respective transaction dates while revenues and expenses are translated at the average exchange rate during the year. Exchange gains and losses are recognized in the statement of operations.
Equipment and Depreciation
The Company records computer equipment at cost and provides for depreciation at a rate of 30% per annum for computer equipment both using the declining balance method. Additions during the year are amortized at one-half rates.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes pursuant to ASC 740 "Accounting for Income Taxes". Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company has adopted the provisions of ASC 740 which prescribes a recognition threshold and measurement attribute for tax positions taken or expected to be taken in a tax return.
Basic and Diluted Loss per Share
The Company reports basic loss per share in accordance with ASC 260-10, "Earnings per Share". Basic loss per share is computed by dividing the net loss available to common shareholders by the weighted-average number of common shares outstanding during the respective period. Diluted earnings (loss) per share gives effect to all dilutive potential common shares outstanding during the period. Common stock equivalents represent the dilutive effect of the assumed exercise of the outstanding stock options and warrants, using the treasury stock method, at either the beginning of the respective period presented or the date of issuance, whichever is later, and only if the common stock equivalents are considered dilutive based upon the Company's net loss position at the calculation date. At March 31, 2013 the Company had no outstanding common stock equivalents.
Accounting Estimates
The preparation of financial statements in conformity with US GAAP 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 year. 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 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 estimates made on initial recognition of convertible promissory notes and deferred income tax rates.
Long Lived Assets
The carrying value of long-lived assets is reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment. The Company recognizes impairment when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value.
Asset Retirement Obligations
The Company records the fair value of an asset retirement obligation as a liability in the period in which it incurs an obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the assets. The estimated fair value of the asset retirement obligation is based on the current cost escalated at an inflation rate and discounted at a credit adjusted risk-free rate. This liability is capitalized as part of the cost of the related asset and amortized over its useful life. The liability accretes until the Company settles the obligation. To date the Company has not incurred any measurable asset retirement obligations.
Unproven Mineral Properties
Realization of the Company's investment in and expenditures on unproven mineral properties is dependent upon the establishment of legal ownership, the attainment of successful production from the properties or from the proceeds of their disposal.
Title to mineral properties involves certain inherent risks due to the difficulties of determining the validity of certain claims as well as the potential for problems arising from the frequently ambiguous conveyancing history characteristics of many mineral properties. To the best of its knowledge the Company believes all of its unproved mineral interests are in good standing and that it has title to all of these mineral interests.
The Company classifies its mineral rights as tangible assets and accordingly acquisition costs are capitalized as mineral property costs. Mineral exploration costs are expensed as incurred until commercially mineable deposits are determined to exist within a particular property.
Financial Instruments
The estimated fair values for financial instruments are determined at points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The estimated fair value of cash, accounts payable, convertible promissory notes and loans and advances approximates their carrying value due to their short-term nature.
Recently Adopted Accounting Guidance
The Company has reviewed recently issued accounting pronouncements and plans to adopt those that are applicable to it. It does not expect the adoption of these pronouncements to have a material impact on its financial position, results of operations or cash flows.
Note 3
Equipment
|
|
|
March 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Cost
|
|
|
Depreciation
|
|
|
Net
|
|
|
Computer equipment
|
|
$
|
1,940
|
|
|
$
|
1,853
|
|
|
$
|
87
|
|
|
|
|
March 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Cost
|
|
|
Depreciation
|
|
|
Net
|
|
|
Computer equipment
|
|
$
|
1,940
|
|
|
$
|
1,821
|
|
|
$
|
119
|
|
Note 4
Loans and Advances
Loans and advances totalling $175,427 (March 31, 2012 - $118,616) are unsecured, non-interest bearing and have no specific terms of repayment (Note 5).
Note 5
Related Party Transactions
During the year ended March 31, 2013, the Company incurred management fees of $31,200 (2012 - $31,200) to a director of the Company. As at March 31, 2013, accounts payable included $54,800 (2012 - $23,600) payable to the director of the company.
As at March 31, 2013, loans and advances includes an advance of $67,669 (2012 $ - $70,000) due to a director and officer of the Company (Note 4).
During the year ended March 31, 2013, the Company incurred administrative fees of $21,600 (2012- $21,600) to the spouse of a director of the Company. As at March 31, 2013, accounts payable included $41,400 (2012 -$19,800) payable to the spouse of an officer of the Company.
As at March 31, 2013, $176,300 (2012 - $176,300) of the non-interest bearing promissory notes are due to an officer of the Company and his spouse.
Note 6
Commitment
On March 1, 2008, the Company entered into an agreement whereby the Company is obligated to pay $7,500 per month in return for management services. The agreement has no fixed term; however, accrued fees incur interest at a rate of 15% per annum whereby interest is compounded quarterly. In connection with this agreement, the Company has incurred $90,000 during the year ended March 31, 2013 (2012 - $90,000) in management fees and accrued interest of $74,752 during the 2013 (2012 - $52,193).
Note 7
Convertible Promissory Notes
|
|
|
March 31, 2013
|
|
|
March 31, 2012
|
|
|
Convertible promissory note payable, unsecured, bearing
interest at 15% per annum compounded quarterly, due
April 1, 2012
|
|
$
|
288,670
|
|
|
$
|
288,670
|
|
|
Convertible promissory notes payable with a face value of
$252,294 and a fair value of $219,302 at issuance and
including accumulated accretion of $32,992 (March 31,
2012 - $32,992), unsecured, non-interest bearing, due
April 1, 2012
|
|
|
247,294
|
|
|
|
247,294
|
|
|
|
|
$
|
535,964
|
|
|
$
|
535,964
|
|
On April 1, 2011, the Company agreed with certain of its creditors to settle $540,964 in amounts owed in respect of accrued management and administrative fees as well as loans and advances payable to those creditors in exchange for convertible promissory notes in the same amount. The Company accounted for the transaction as an extinguishment of debt and recorded a loss on extinguishment of $19,982,676 as a result of recording the new promissory notes at their fair value of $20,523,640. The fair value of the notes was determined with reference to the quoted market price of the Company's shares multiplied by the number of common shares of the Company that would be issued upon conversion of the notes. The premium of the fair value of the notes over the principal balances totaling $20,015,668 was recorded as additional paid-in capital.
These notes matured on April 1, 2012 and bore no terms of interest except for the note in the amount of $288,670 which bears interest at the rate of 15% per annum. The non-interest bearing convertible notes with an aggregate face value of $252,294 were discounted using an estimated market discount rate of 15% and their fair value was calculated to be $219,302 at issuance. The difference of $32,992 was accreted over the life to maturity using the effective interest rate method. During the year ended March 31, 2013, the Company recorded accrued interest of $74,752 (2012 - $55,664).
The terms of the convertible promissory notes allow the note holders to elect to convert the principal and accrued interest thereon at any time during the term of the notes into common shares at $0.01 per share. The conversion features of these notes are without price re-set or cash settlement clauses and therefore have not been bifurcated and recorded as a derivative liability.
As at March 31, 2013, $176,300 (2012 - $176,300) of the non-interest bearing promissory notes are due to an officer of the Company and his spouse.
Subsequent to the year ended March 31, 2013, the Company settled all of the convertible promissory notes by issuing 5,000,000 common shares to the debt holders (Note 10).
Note 8
Capital stock
Authorized: 150,000,000 common shares
Private Placements
On May 31, 2004, the Company issued 20,007,680 common shares at $0.000049 per share, for total proceeds of $986. During June 2004, the Company issued 2,000,000 common shares at $0.01 per share, for total proceeds of $20,000. During June, July, and August 2004, the Company issued 81,000 common shares at $0.20 per share, for total proceeds of $16,200. On July 20, 2006, the Company issued 1,000,000 common shares at $0.20 per share, for total proceeds of $200,000. On July 27, 2007, the Company issued 300,000 common shares at $0.20 per share, for total proceeds of $60,000.
During the year ended August 31, 2006
,
the Company reacquired 2,000,000 common shares from a director of the Company for $2,000 pursuant to a promissory note, which was paid prior to August 31, 2006. The fair value of this transaction was recorded at $0.20 per share and consequently the Company has received a capital contribution of $398,000.
In December 2006, the Company received an order for production from the British Columbia Securities Commission to provide certain information and documents relating to, inter alia, the sale of the above noted 1,000,000 common shares at $0.20 per share to verify the availability of the registration and prospectus exemptions relied upon by the Company in offering such shares to residents of British Columbia. To resolve the matter, the Company issued a voluntary rescission offer to rescind any previous subscriptions of these shares and offered a full refund of the subscription monies. In lieu and in place of these shares, the Company offered an equivalent number of shares for sale pursuant to the updated private placement dated June 27, 2007. Of the nine original investors included in the 1,000,000 share private placement, three of these investors accepted the rescission offer at $0.20 per share and were refunded the total amount of their investment of $60,000 and 300,000 common shares were returned to treasury and cancelled. The remaining six investors rejected the rescission offer and three new investors completed and paid the remaining portion of the private placement by the payment of $60,000.
Note 9
Income taxes
The significant components of the Company's deferred tax assets are as follows:
|
|
|
March 31, 2013
|
|
|
March 31, 2012
|
|
|
Deferred tax assets
|
|
$
|
|
|
|
$
|
|
|
|
Net operating losses carry forward
|
|
|
446,890
|
|
|
|
345,238
|
|
|
Less: valuation allowance
|
|
|
(446,890
|
)
|
|
|
(345,238
|
)
|
|
Deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory rate applied to loss before income taxes
|
|
$
|
101,652
|
|
|
$
|
6,898,304
|
|
|
Loss on extinguishment of debt
|
|
|
-
|
|
|
|
(6,805,327
|
)
|
|
Permanent differences
|
|
|
-
|
|
|
|
(28,000
|
)
|
|
Change in valuation allowance
|
|
|
(101,652
|
)
|
|
|
(64,977
|
)
|
|
Income tax expense
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company evaluates its valuation allowance requirements based on projected future operations. When circumstances change and this causes a change in management's judgment about the recoverability of deferred tax assets, the impact of the change on the valuation allowance is reflected in current income. As management of the Company does not currently believe that it is more likely-than-not that the Company will receive the benefit of this asset, a valuation allowance equal to the deferred tax asset has been established.
At March 31, 2013, the Company has incurred accumulated net operating losses totaling approximately $1,314,000 (2012 - $1,015,000) which are available to reduce taxable income in future taxation years.
Note 10
Subsequent events
|
a)
|
Pursuant to the Agreement, the Company agreed to acquire all of the issued and outstanding shares of common stock of Rio Plata by issuing 28,000,000 shares of its common stock and, as a result, the former shareholders of Rio Plata will control approximately 85% of the issued and outstanding common shares of the Company. The acquisition is a reverse takeover and therefore has been accounted for using the acquisition method with Rio Plata as the accounting acquirer (legal subsidiary) and continuing entity for accounting and financial reporting purposes, and the Company as the legal parent (accounting subsidiary). Effective with the Acquisition, the Debt Holders of the Company have consented to the conversion of $535,964 of convertible notes into 5,000,000 shares of the Company. The fair value of assets acquired and liabilities assumed by Rio Plata are as follows:
|
|
|
|
|
|
|
Cash
|
|
$
|
22,158
|
|
|
Property and equipment
|
|
|
87
|
|
|
Accounts payable and accrued liabilities
|
|
|
(467,170
|
)
|
|
Loans and advances payable
|
|
|
(175,427
|
)
|
|
|
|
$
|
(620,352
|
)
|
|
b)
|
Upon completion of the reverse takeover, the Company took on Rio Plata's loans payable.
|
Details of the loan balance outstanding as of May 14, 2013 (completion of Merger):
|
|
Maturity Date
|
|
May 14, 2013
|
|
|
|
|
|
|
|
|
Short term loans payable - face value
|
06/30/10 (i),(ii),(iii)
|
|
$
|
10,328
|
|
|
|
12/31/10 (i),(ii),(iii)
|
|
|
14,754
|
|
|
|
03/31/11 (i),(ii),(iii)
|
|
|
54,000
|
|
|
|
08/31/11 (i),(ii),(iii)
|
|
|
113,114
|
|
|
|
12/31/12 (i),(ii),(iii)
|
|
|
260,654
|
|
|
Balance
|
|
|
$
|
452,850
|
|
|
(i)
|
At May 14, 2013 these loans had matured, are in default and are due on demand.
|
|
(ii)
|
Accrued interest at 15% per annum, calculated semi-annually and are unsecured.
|
|
(iii)
|
As additional consideration, bonus common shares are to be issued to the lenders. Management estimated the fair value of the shares based on inputs such as the most recent share subscriptions.
|
Subsequent to year end and prior to the RTO, the Company issued 1,720,004 bonus shares owing under its loan agreements to various debt holders. The fair value of the bonus shares issued was estimated to be $165,874.
Subsequent to year end, and prior to the RTO, various debt holders converted loans in the principal amount of $1,591,192 plus interest to 6,338,423 common shares. The fair value of the shares issued was estimated to be $602,974. Accordingly, a gain on the conversion of the debt of $1,176,328 has been recorded. $46,704 of the loans converted were due to a director of the Company. The gain on the settlement of the related party debt of $30,534 has been recorded in additional paid in capital.
The loans may be converted to common shares of the Company at the option of the holder at the Company's next financing at the same terms of the financing.
|
c)
|
On June 9, 2008, Rio Plata entered into an Option Agreement (the "Option Agreement") providing the right to acquire up to a 100% interest in mineral claims located in Mazatlan, Sinaloa, Mexico. The Option Agreement was renegotiated and amended on August 27, 2010 following the transfer of the underlying title to the claims to a third party, and amended again on April 24, 2013. Under the terms of the amended Option Agreement, covering the Metates Project claim group and any new claims within an agreed upon area of interest, Rio Plata has an option to purchase 100% interest in mining concessions by making payments under the amended Option Agreement as follows (plus applicable Value Added Taxes):
|
|
$
|
750,000
|
|
(paid).
|
|
$
|
450,000
|
|
Due July 15, 2013 (not paid).
|
|
$
|
2,000,000
|
|
Due July 15, 2014.
|
Since the Company did not make the payments by July 15, 2013 and July 15, 2014 above, the payment terms revert to the following:
|
$
|
450,000
|
|
Due July 15, 2013 (not paid).
|
|
$
|
600,000
|
|
Due January 15, 2014 (not paid).
|
|
$
|
650,000
|
|
Due July 15, 2014
|
|
$
|
750,000
|
|
Due January 15, 2015
|
|
$
|
2,000,000
|
|
Due January 15, 2016
|
Under the Option Agreement, the Company shall pay a royalty of 0.5% calculated on the Net Smelter Returns ("NSR") as long as the option is exercised by January 15, 2014. If the option is not exercised by that date, the royalty shall be 0.33% calculated on the NSR on the minerals extracted on the concessions.
In addition, the Company is entitled to a net production royalty of 20% from the tailings and ore refined by the optionor from the effective date of the agreement. The Company has a pledge of the optionor's production assets as a performance guarantee.
The Option Agreement will terminate: (i) at any time during the term of the Option Agreement by the Company giving 15 days notice to the Optionor; or (ii) upon election of a party if the other party is in breach of any of its obligations under the Option Agreement and the default has not been cured by the defaulting party within 30 days of notice of default.
The $450,000 due July 15, 2013 has not been made and the Option Agreement is in default; however, the Company has not yet been served with a notice of default by the optionor.
|
d)
|
On September 5, 2013, the Company entered into 3 consulting agreements for a term of 1 year. Under the agreements, the Company is to issue 400,000 shares to each of the consultants as a sign on bonus to be issued to them at the time of their choosing during the term of the agreement. Subsequent to March 31, 2013, the Company issued 1,200,000 shares with a fair value of $120,000 under the September 5, 2013 agreements. The shares under the November 1, 2013 agreement have not been issued to one of the consultants. Accordingly, the fair value of the compensation expense of $60,000 has been recorded as an obligation to issue shares in these financial statements.
|
|
e)
|
On November 5, 2013, the Company entered into an Option Agreement (the "Option Agreement") providing the right to acquire initially 55% undivided interest and ultimately an 80% undivided interest in the Solomon Pillars Gold Property located in Townships of Walters and Leduc in Beardmore, Ontario. Under the terms of Option Agreement, covering the Solomon Pillars Gold Property the Company has an option to earn 80% interest in mining concessions by making payments under the Option Agreement as follows:
|
|
$
CAD25,000
|
Upon signing the Option Agreement (paid);
|
|
$
CAD30,000
|
Due November 5, 2014 (In cash or shares at the Company's option); and
|
|
$
CAD40,000
|
Due November 5, 2015 (In cash or shares at the Company's option).
|
The Company must also incur exploration expenditures as follows:
|
·
|
$50,000 in exploration expenditures by November 5, 2014;
|
|
·
|
An additional $100,000 in exploration expenditures by November 5, 2015; and
|
|
·
|
An additional $150,000 in exploration expenditures by November 5, 2016.
|
The Company has the exclusive right to a one-time option to increase the undivided interest from 55% to 80% by making a payment of $250,000 within 90 days of completing the initial earn-in and exercising of the option. Once the initial interest is earned by the Company in the Solomon Pillars Gold Property, the Company and the optionor will fund continuing exploration and development costs on a pro-rata basis according to their equity in the Solomon Pillars Property. The Company will be the project operator.
The Solomon Pillars Gold Property is divided into two sets of claims each with a different royalty structure. The "Solomon Pillars" on the eastern section of the Solomon Pillars Property has a NSR of 1%. The "King Solomon Pillars" on the western section of the Solomon Pillars Property has a 3% NSR on precious metals with a 1% buyback provision for $1,500,000 and is subject to a $25,000 annual advance royalty payment preceding the commencement of commercial production.
The Agreement may be terminated in the event any of the payments set forth above are not paid, or upon written notice by the Company.
|
f)
|
On September 5, 2013, the Company issued 100,000 shares with a fair value of $10,000 to a director of the Company as compensation for management fees
|
|
g)
|
On July 23, 2013, the Company had forgiven related party advances of $509,723.
|
|
h)
|
On March 26, 2014, the Company completed the sale of 5,967,500 units of the Company' at a price of $0.10 per unit, with each unit being comprised of one share of common stock and one-half of a share purchase warrant with each full warrant exercisable to acquire one share at a price of $0.25 per share for a period of 24 months. Total gross proceeds was $596,750
|
|
i)
|
On March 31, 2014, the Company entered into a consulting agreement. Under the terms of the agreement, the consultant will receive options to acquire 100,000 shares of common stock at an exercise price of $0.25 per share, a monthly consulting fee of $2,000 per month, and 400,000 restricted shares of common stock to be issued to the consultant on February 1, 2015, provided the consultant is furnishing services to the Company on said date. The agreement continues on a month-to-month basis until terminated by either party.
|
|
j)
|
On March 31, 2014, the Company entered into a consulting agreement for a term of one year. Under the terms of the agreement, the consultant will receive 400,000 restricted shares of common stock, a monthly consulting fee of $5,000 per month, and the participation in the Company's stock option plan on an annual basis with an initial 100,000 options to be issued to the consultant with an exercise price of $0.25 per share.
|
|
k)
|
On March 31, 2014, the Company entered into a consulting agreement with a term ending on January 31, 2015. Under the terms of the agreement, the consultant will receive (i) options to acquire up to 2,000,000 shares of common stock at an exercise price of $0.10 per share exercisable for a period of 5 years; (ii) an allotment of shares for each property acquisition identified by the consultant and completed by the Company, or sale of a property where the purchaser is identified by the consultant; (iii) a monthly consulting fee of $15,000 per month; and, (iv) participation in the stock option plan on an annual basis with an initial 200,000 options issued to the consultant with an exercise price of $0.25 per share.
|
On April 22, 2014, this consulting agreement was revised. The consultant will receive (i) options to acquire up to 2,000,000 shares of common stock at an exercise price of $0.10 per share exercisable for a period of 5 years; (ii) an option to acquire shares of common stock for $0.01 per share for a period of 5 years for each mining property acquisition where the purchaser is identified in whole or in part by the consultant; (iii) a monthly consulting fee of $15,000 per month; and, (iv) participation in the stock option plan on an annual basis with an initial 200,000 options to issue to the consultant with an exercise price of $0.25 per share. The agreement has a term ending on January 31, 2015.
|
l)
|
On April 17, 2014, the Company entered into seven agreements to convert $230,375 of debt owed to 2,303,750 units. Each unit is comprised of one share of common stock and one-half redeemable warrant. Each full warrant is exercisable into one restricted common share at the price of $0.25 for two years. The warrants are redeemable by the Company if the stock trades above $0.40 for five consecutive trading days.
|
|
m)
|
On May 9, 2014, the Company entered into a definitive agreement with Redstone Resources Corporation, a Nevada corporation, ("Redstone") to acquire 100% of the total outstanding shares of common stock of Redstone. Redstone currently owns the Zonia Copper Project located in Yavapai County, Arizona.
|
Under the terms of the agreement, the Company will be making a $500,000 First Tranche investment into Redstone over six monthly installments of $83,333 and acquiring 2,500,000 shares of Redstone's common stock at a price of $0.20 per share for a 4.94% equity position.
Upon completion of the First Tranche investment, the Company will make a $1,500,000 Second Tranche investment to acquire an additional 7,500,000 shares of Redstone's common stock at a price of $0.20 for a 19.76% total equity position in Redstone.
Upon completion of the Second Tranche investment, the Company will have twelve months to complete a Third Tranche investment of $4,500,000 to acquire an additional 22,500,000 shares of Redstone's common stock at a price of $0.20 per share for a 44.45% total equity position in Redstone.
Convertible warrants will also be received from Redstone which will allow the Company to acquire additional shares of common stock that will result, if exercised, in the Company's ownership interest in Redstone to increase to 62.3%.
The Company will have the ability to increase the total percentage ownership in Redstone to 75% for consideration of $3,373,851. The Company can increase its ownership of Redstone to 100% by purchasing the remaining outstanding shares of common stock of Redstone for consideration of $6,426,149 or 7% of the net present value as determined by the Feasibility Study on the Zonia property.
In the event that the Company does not convert the warrants into common stock, Redstone will have the right and option to purchase in one or more transactions up to 100% of the securities acquired by the Company in the Second and Third Tranche purchase transactions at a cost equal to the Company's total investment in the shares that Redstone elects to repurchase.
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On May 16, 2014, the Company entered into an agreement with Placer Mining Corporation, a Nevada corporation ("Placer"), which owns that certain mining property known as the Bunker Hill Mine, near Kellogg, Idaho ("Bunker" or the "Property") in which the Company will have the exclusive right to evaluate and perform due diligence on the Property until August 15, 2014 (the "Review Period"). Upon completion of the Review Period, the parties expect to negotiate and enter into option and exclusivity agreements (the "Option Agreements") whereby the Company can acquire the interests of Placer shareholders upon satisfaction of certain terms and conditions to be negotiated.
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During the Review Period, Placer agrees it will not, directly or indirectly, solicit, initiate, assist, facilitate, promote or encourage proposals or offers from, entertain or enter into discussions or negotiations with, or provide information relating to the Property, including, but not limited to any and all due diligence materials, to any persons, entity or group in connection with the sale of the Property or any interest therein, or any amalgamation, merger, consolidation, arrangement, or sale of all or substantially all of the assets of Placer.
In consideration for the Review Period, Silver Stream will pay Placer the sum of $60,000 USD (Sixty Thousand Dollars) per month, on a payment schedule of $15,000 USD (Fifteen Thousand Dollars) per week on Friday, commencing Friday, May 16, 2014, with payments concluding Friday, August 1, 2014. However, the Review Period will extend until Friday, August 15, 2014. Silver Stream will have a seven (7) day grace period in the event a payment to Placer is delayed for any reason. If a payment is delayed beyond the seven (7) day grace period, the Agreement will automatically terminate and neither Placer nor Silver Stream will have any obligation to one another from that date forward.
In the event Placer terminates this Agreement in order to accept another offer, or for any reason whatsoever, then Placer will pay Silver Stream a breakup fee in the amount of $5,000,000 USD (Five Million Dollars USD) within fifteen (15) days of notifying Silver Stream in writing of such termination.