Item 2.
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Managements Discussion and Analysis of
Financial Conditions and Results of Operations
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The following discussion of our financial condition, changes in
financial condition and results of operations for the three months ended May 31,
2014 and 2013 should be read in conjunction with our unaudited interim
consolidated financial statements and related notes for the three months ended
May 31, 2014 and 2013. The following discussion contains forward-looking
statements that involve risks, uncertainties and assumptions. Our actual results
may differ materially from those anticipated in these forward-looking statements
as a result of many factors, including, but not limited to, those set forth
under the section entitled Risk Factors in our annual report on Form 10-K for
the fiscal year ended February 28, 2014 filed with the SEC on June 13, 2014.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted. It is suggested that these financial statements be read in conjunction
with the financial statements and notes thereto included in the Companys
February 28, 2014 audited financial statements, which were attached to our
annual report on Form 10-K for the fiscal year ended February 28, 2014 filed
with the SEC on June 13, 2014. The results of operations for the periods ended
May 31, 2014 and the same period last year are not necessarily indicative of the
operating results for the full years.
Overview of our Business
We were incorporated on August 11, 1987 under the laws of
Québec, Canada
under the name Bakertalc Inc. On January 21, 1994, we
changed our name to Palace Explorations Inc. On November 11, 1996, we changed
our name to X-Chequer Resources Inc. On September 29, 2004 we changed our name
to International X-Chequer Resources Inc. On October 18, 2007, we changed our
name to Passport Metals Inc. On November 10, 2009 we changed our name to
Passport Potash Inc. Effective April 26, 2011, we continued our governing
corporate jurisdiction from the Province of Québec to the Province of British
Columbia under the name Passport Potash Inc.
Effective September 29, 2004, we effected a share consolidation
(reverse stock split) of our issued and outstanding shares of common stock on a
basis of twelve (12) old shares for one (1) new share.
Effective October 18, 2007, we effected a forward stock split
of our issued and outstanding shares of common stock on a basis of one (1) old
share for three (3) new shares.
Effective March 13, 2014, we effected a share consolidation
(reverse stock split) of our issued and outstanding shares of common stock on a
basis of two (2) old shares for one (1) new share.
We are a reporting issuer in the Canadian Provinces of British
Columbia, Alberta, Ontario and Québec and our common shares are listed for
trading on the TSX Venture Exchange (the
TSX-V
) under the trading
symbol PPI.
Our head and principal office is located at 608 - 1199 West
Pender Street, Vancouver, British Columbia, Canada, V6E 2R1.
We are an exploration stage company engaged in the acquisition,
exploration and development of mineral resource properties. We currently have an
interest in or have the right to earn an interest in eight properties: Southwest
Exploration Property, Twin Butte Ranch, Sweetwater/American Potash, Mesa
Uranium, Ringbolt Property, Joint Exploration Agreement with the Hopi Tribe,
Fitzgerald Ranch and Joint Exploration Agreement with HNZ Potash, which are all
located in Arizona. We are currently in default under the option agreement to
acquire the Twin Buttes Ranch and the purchase agreement to acquire the
Fitzgerald Ranch, however, we are in continuing negotiations to amend these
agreements. We have not established any proven or probable reserves on our
mineral property interests and we are not in actual development or production of
any mineral deposit at this time. We are an exploration stage enterprise, as
defined in FASB ASC 915
Development Stage Entities
.
Our independent auditors report accompanying our February 28,
2014 and February 28, 2013 financial statements contains an explanatory
paragraph expressing substantial doubt about our ability to continue as a going
concern.
24
Our financial statements have been prepared assuming that we
will continue as a going concern, which contemplates that we will realize our
assets and satisfy our liabilities and commitments in the ordinary course of
business.
Subsidiaries
The chart below illustrates our corporate structure, including
our subsidiaries, which are all wholly owned, and the jurisdictions of
incorporation.
Mineral Properties/Agreements
Southwest Exploration Property
On September 30, 2008 we entered into a mineral property option
agreement (the
Southwest Option Agreement
) with Southwest Exploration
Inc. (
Southwest
) to acquire an undivided 100% interest in 13 Arizona
State Land Department exploration permits (
ASLD Exploration Permits
)
comprising 8,413.3 acres (3,404.76 ha) of mineral exploration property located
in Navajo County, in the Holbrook Basin, Arizona. Under the terms of the
Southwest Option Agreement, any after acquired permits within the area of common
interest may be made part of the property. Pursuant to this clause, 32
additional ASLD Exploration Permits were made part of the property for a total
of 45 ASLD Exploration Permits.
Under the terms of the Southwest Option Agreement, as amended,
we could acquire a 100% interest in the Southwest mining claims, subject to a 1%
NSR retained by Southwest, in exchange for the following considerations:
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(a)
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$100,000 on execution of the agreement (paid);
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(b)
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1,000,000 options (issued) upon receipt of TSX-V approval
of the agreement;
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(c)
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$125,000 from 90 days following issuance of a drilling
permit from the Arizona State Land Department. This permit was received on
June 11, 2009 and $125,000 was paid July 23, 2009;
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(d)
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250,000 shares on April 1, 2009 (issued);
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(e)
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2,681,000 shares on October 1, 2009
(issued);
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(f)
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5,000,000 shares on November 1, 2010 (issued);
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(g)
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$350,000 from six months following TSX-V approval of the
issuance of 5,000,000 shares (paid);
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(h)
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Funding of $200,000 in exploration expenditures pursuant
to the completion of a NI 43-101 technical report (completed);
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(i)
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250,000 shares upon completion of a NI 43-101 technical
report after drilling (issued); and
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(j)
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Southwest shall retain a 1% NSR (purchased by the
Company).
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Currently, we have a blanket bond with the Arizona State Land
Department in the amount of $15,000 for the ASLD Exploration Permits. In
addition, we also have a bond with the Arizona Oil and Gas Conservation
Commission in the amount of $55,000 for drilling permits.
We entered into an amendment to the Southwest Option Agreement,
dated September 18, 2009, whereby the parties agreed to settle the October 1,
2009 scheduled cash payment of $225,000 with the issuance of 2,681,000 shares of
the Company.
We entered into a second amendment to the Southwest Option
Agreement, dated April 1, 2010, whereby the parties agreed to extend the due
date for the payment of $250,000 to Southwest until October 1, 2010. As we had
not satisfied this payment obligation by October 1, 2010, we issued 5,000,000
shares of our common stock to Southwest on November 8, 2010 in full satisfaction
of the outstanding payment.
We completed the exercise of our option to purchase the 100%
interest in the Southwest claims and the purchase of the 1% net smelter royalty
in an agreement dated February 13, 2012. The Southwest permits are held by PPI
Holding Corporation, our wholly owned subsidiary.
Twin Buttes Ranch Property
On August 28, 2009, as amended, we entered into a four-year
lease with an option to purchase (the
Lease &
Option
Agreement
) with Twin Buttes Ranch, LLC respecting the Twin Buttes Ranch
located in the potash-bearing Holbrook Basin of east-central Arizona. The Twin
Buttes Ranch comprises some 28,526 acres (11,544 hectares) of private deeded
land with 76.7% or approximately 21,894 acres (8,860 hectares) overlying the
potash horizons within the Holbrook Basin.
Under the terms of the Lease & Option Agreement, we may
acquire a 100% undivided interest in the deeded land and sub-surface mineral
rights comprising the Twin Buttes Ranch property by making lease payments
totaling $1,250,000 over five and a half years and, upon exercising our option
to purchase, by paying $20,000,000 for the entire Twin Buttes Ranch including
all sub-surface mineral rights except those pertaining to oil and gas, petrified
wood and geothermal resources. There are no royalties associated with the
sub-surface mineral rights.
On December 4, 2009, we entered into an amendment to the Lease
& Option Agreement whereby we signed a mining lease with Twin Buttes Ranch,
LLC on the Twin Buttes Ranch with a term from December 4, 2009 through August
28, 2013 subject to early termination as provided in the Lease & Option
Agreement. Under the mining lease, we are entitled to explore, develop, mine,
remove, treat and produce all ores, minerals and metals on Twin Buttes Ranch
solely for the purpose of determining the existence of potash and the economic
feasibility of the purchase and development of the property. In consideration,
we shall remain current in our option payments under the Lease & Option
Agreement and keep all terms of the Lease & Option Agreement in good
standing.
On September 7, 2010, we amended the terms of the Lease &
Option Agreement to provide for an extension of a portion of the initial cash
payment until December 1, 2010.
On August 20, 2013, we further amended the Lease & Option
Agreement to extend the term of the option agreement from August 28, 2013 to
January 6, 2016 and provide for the payments of:
26
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(a)
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$250,000 on the earlier of (i) within 30 days of closing
our next round of financing which is a minimum $5 million, or (ii)
December 1, 2013 (this payment obligation survives any early termination
of the Lease & Option Agreement by us or a termination resulting from
an uncured breach by us),
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(b)
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$250,000 on August 28, 2014; and
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(c)
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$250,000 on May 1, 2015.
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Concurrently with the amendment to the Lease & Option
Agreement, we also amended the mining lease to provide that the term of the
lease will end on the expiration or earlier termination of the Lease &
Option Agreement, except in the event that we exercise our option pursuant to
the Lease & Option Agreement in which event the term shall end on the
closing date of the Lease & Option Agreement, and any subsequent amendments
thereto.
Details of the payments under the Lease & Option Agreement,
as amended, are as follows:
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(a)
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A payment of $50,000 and $10,000 legal costs on or before
November 26, 2009 (paid);
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(b)
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A payment of $25,000 on September 17, 2010
(paid);
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(c)
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A payment of $75,000 on December 1, 2010
(paid);
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(d)
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A payment of $150,000 on August 28, 2011
(paid);
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(e)
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A payment of $200,000 on August 28, 2012
(paid);
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(f)
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A payment of $250,000 on the earlier of (a) within 30
days of closing our next round of financing which is a minimum $5 million,
or (b) December 1, 2013 (not paid);
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(g)
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A payment of $250,000 on August 28, 2014; and
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(h)
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A payment of $250,000 on May 1,
2015.
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We have not made the required $250,000 payment that was due on
December 1, 2013; therefore, the agreement is in default and we are in
negotiations to further amend the Option Agreement as last amended on August 20,
2013. A default notice was issued and Twin Buttes Ranch, LLC has the right to
terminate the agreement, however, we are continuing negotiations, but the risk
remains that we may not be successful in completing the amendment.
Upon exercising our option to purchase the entire Twin Butte
Ranch, we must deliver a payment in the amount of $1,000 on or before 5pm
(Arizona time), January 6, 2016 (the option expiry date), followed by a payment
of $19,999,000 within thirty days.
Sweetwater/American Potash Property
On November 12, 2010 we entered into an option of Arizona
exploration leases (the
Sweetwater Option Agreement
) with Sweetwater
River Resources, LLC (
Sweetwater
) and American Potash, LLC
(
American Potash
) to acquire the right, title and interest in five
mineral exploration permits within the Holbrook Basin. The five permits consist
of Arizona State Land Department exploration permits that cover more than 3,200
acres.
Pursuant to the terms of the Sweetwater Option Agreement, we
could acquire a 100% interest in the exploration permits for the consideration
of: (i) issuing 500,000 shares of our common stock by December 15, 2010; (ii)
cash payment of CAD$90,000 payable in three installments of $30,000 each at 12
months, 18 months and 24 months from the date of signing the Sweetwater Option
Agreement; and (iii) meeting the exploration expenditures a required by the
Arizona State Land Department. We are responsible for payment of all exploration
expenditures on the permits. Pursuant to the Sweetwater Option Agreement, the
property was subject to a 2% net smelter royalty in favor of American Potash which we had the option to purchase at
a price of $150,000 for 1% or $300,000 for the full 2%.
27
On March 27, 2012, we completed the exercise of the option
under the Sweetwater Option Agreement and the repurchase of the 2% NSR royalty
in respect of the Sweetwater exploration permits. The permits are held by PPI
Holding Corporation, our wholly owned subsidiary.
Mesa Uranium Property
On August 31, 2010 we entered into a mineral property option
agreement (the
Mesa Option Agreement
) with Mesa Uranium Corp.
(
Mesa
) in respect of three Arizona State Land Department exploration
permits covering approximately 1,950 acres, which are wholly owned by Mesa.
Pursuant to the terms of the agreement, we had the right to acquire a 75%
interest in the Mesa permits in consideration for the issuance of 500,000 shares
of our common stock to Mesa, the payment of $20,000.00 cash to Mesa and meeting
the minimum exploration expenditures as required by the Arizona State Land
Department. Upon earning a 75% interest in the permits, we had the right to
acquire the remaining 25% interest in the Mesa permits by paying $100,000 in
cash, stock equivalent or work expenditures. Under the terms of the agreement,
we are responsible for payment of all exploration expenditures on the leases.
The property was subject to a 2% net smelter royalty which we had the option to
purchase at a price of $150,000 per 1% or $300,000 for the full 2%.
On February 13, 2012, we exercised our option to acquire a 75%
interest in the Mesa permits. On March 9, 2012, we announced that we had
exercised our option to acquire the remaining 25% interest in the Mesa
properties under the Mesa Option Agreement and to acquire the 2% NSR on those
properties thereby acquiring a royalty-free, 100% interest in the Mesa
properties. The permits are held by PPI Holding Corporation, our wholly owned
subsidiary.
Ringbolt Property
On March 28, 2011 we entered into an option agreement (the
Ringbolt Option Agreement
) with Ringbolt Ventures Ltd., Potash Green,
LLC, Wendy Walker Tibbetts and Joseph J. Hansen (collectively, the
Optionor
) pursuant to which we acquired the right to acquire a 100%
interest in the Ringbolt potash property located in the Holbrook Basin of
southeast Arizona. The Ringbolt property is comprised of 15,994.32 acres of
mineral exploration permits on land managed by the Arizona State Land
Department.
Pursuant to the terms of the Ringbolt Option Agreement, we may
acquire a 90% interest in the property by: (i) making cash payments totaling
$1.0 million ($50,000 upon execution of the agreement, $250,000 upon TSX Venture
Exchange approval, $350,000 on or before the 1st anniversary of TSX Venture
Exchange approval, and $350,000 on or before the 2
nd
anniversary of
TSX Venture Exchange approval), (ii) incurring a total of $2.25 million in
exploration expenditures on the property over three years ($500,000 within 1
year of TSX Venture Exchange approval, $750,000 within 1 year of the
1
st
anniversary of TSX Venture Exchange approval, and $1,000,000
within 1 year of the 2
nd
anniversary of TSX Venture Exchange
approval), and (iii) issuing four million common shares over a three-year period
(1,000,000 shares upon TSX Venture Exchange approval, 1,400,000 shares on or
before the 1
st
anniversary of TSX Venture Exchange approval, and
1,600,000 shares on or before the 2
nd
anniversary of TSX Venture
Exchange approval). Upon satisfaction of these terms, we will have the right to
purchase the remaining 10% interest for a cash payment of $5 million, which
shall remain exercisable until the Ringbolt property goes into commercial
production (defined as the sale of any mineral products from the property). In
addition, pursuant to the Ringbolt Option Agreement, the Ringbolt property will
be subject to a 1% gross overriding royalty on production from the property.
On October 30, 2012, as part of a settlement agreement between
us and the Optionor, we entered into an amendment agreement to the Ringbolt
Option Agreement pursuant to which we will pay to the Optionor a total of
$3,850,000, $150,000 of which was paid upon execution of the amendment
agreement, $2,450,000 will be paid upon TSX Ventures Exchange approval of the
amendment agreement, and the remaining $1,250,000 on or before October 31, 2014.
In addition, upon TSX Venture Exchange approval of the amendment agreement, we
will issue 750,000 shares of common stock to the Optionor and the Optionor will
assign to us all of its right, title and interest in and to the property and
will take all necessary action with the ASLD to effect such assignment. The cash
payment of $2,450,000 and 750,000 shares of our common stock will be placed into
escrow and will be released to the Optionor upon receipt of confirmation of the assignment of the property
to us from the ASLD. There will be no royalty attached to the transferred
mineral exploration permits.
28
Should we sell or in any way transfer our interest in the
property, the Optionor will receive 20% of the gross consideration in excess of
$30 million to a maximum of $2,000,000 if the aggregate consideration received
for the transfer of the interest in the property is greater than $30 million and
less than $40 million; or $2,000,000 plus 10% of the gross consideration in
excess of $40 million to a maximum of $1,000,000 if the aggregate consideration
is greater than $40 million and less than $50 million; or $3,000,000 plus 20% of
the gross consideration in excess of $50 million if the aggregate consideration
is greater than $50 million.
If we sell or transfer less than a 100% interest in the
property, then the aforementioned bonus payments shall be ratably reduced by
multiplying the bonus payment by the percentage of interest subject to the
transfer transaction. The sale or transfer of the remainder of the interest in
the property held by us will continue to be subject to the aforementioned bonus
payment provisions.
On December 8, 2012, we entered into a second amendment
agreement with the Optionor to amend the amendment agreement to extend the
deadline to make the cash payment of $2,450,000 following TSX Venture Exchange
approval for a period of 30 days from the date of final approval with a payment
of $100,000 to Potash Green, LLC, which payment will be deducted from the
aggregate payment owed.
The amendment agreement and the second amendment agreement to
the Ringbolt Option Agreement were approved by the TSX Venture Exchange on
February 27, 2013, and all payments except the $1,250,000 due on October 31,
2014, have been paid. The permits are held by PPI East Block Holding Corp., our
wholly owned subsidiary.
Cooperative Agreement and Joint Exploration Agreement
with The Hopi Tribe
Portions of our Holbrook Basin potash project in Arizona are
located adjacent to land privately owned by the Hopi Tribe. On March 8, 2011 we
finalized a cooperative agreement with the Hopi Tribe which establishes a
cooperative arrangement between us and the Hopi Tribe and gives us access across
the privately owned Hopi lands to conduct exploration activities while allowing
the Tribe to share in our study results. We are in continuing discussions with
the Hopi Tribe on the project.
On November 8, 2012, but having an effective date of November
1, 2012, we and The Hopi Tribe, a federally recognized Indian Tribe, entered
into a Joint Exploration Agreement (the
JEA
) pursuant to which the
parties agree to explore the Hopi land sections (the
Hopi Property
)
which are checker-boarded with our southern landholdings in accordance with an
exploration program, which shall consist of a two-phase drilling campaign as set
out in Exhibit 2 to the JEA. The first phase of the exploration program will
include 8 drill sites and will cover a 25,000 acre swath of the contiguous land
sections in the DoBell ranch area of the Holbrook Basin. The second phase of
drilling, which will be designed by ERCOSPLAN guided from the results from phase
one, will include up to 10 additional drill sites. We will be responsible for
all costs, charges and expenses incurred in connection with the exploration
program.
In addition, under the JEA, we shall indemnify, defend,
release, and hold harmless The Hopi Tribe and its elected officials, advisors
and contractors, employees, agents, lessees, insurers, successors and assigns
(the
Indemnities
) for, against and from any claim, damage, lien, loss,
cost, charge, expense (including attorneys fees and expenses) or liability
resulting from, or caused by, or incurred in connection with, or alleged to have
resulted from, or been caused by, or been incurred in connection with, in whole
or in part, directly or indirectly, the exploration program. Our payment and
indemnity obligations shall survive the termination of the JEA.
Pursuant to the JEA, the Hopi Tribe grants us and our
contractors, which includes any employee or contractor involved in the
exploration program (as defined in the JEA), a limited license on the terms and
conditions, and during the term of the JEA to (a) enter and cross existing ranch
roads on Hopi Property for ingress and egress purposes related to the
exploration program, (b) blade new roads to drill sites on the Hopi Property
designated by ERCOSPLAN, (c) drill exploratory holes on the Hopi Property at
drill sites designated by ERCOSPLAN, (d) lay cables across the Hopi Property for
purposes of seismic studies that are part of the exploration program, (e) drive
a vibrator truck along seismic lines, and (f) blade existing
ranch roads on the Hopi Property. We and our contractors shall not use the Hopi
Property for any other purpose without the prior written approval of The Hopi
Tribe; provided, that with respect to use of the Hopi Property identified by
ERCOSPLAN in writing as necessary or desirable for purposes of the exploration
program, The Hopi Tribes approval shall not be unreasonably withheld,
conditioned or delayed.
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Except as otherwise expressly set forth in the JEA, us and The
Hopi Tribe shall each separately have the right to possess and use all
exploration program results for any purpose. In addition, The Hopi Tribe and us,
and the parties respective successors and assigns, may use and freely disclose
exploration program results received under this JEA without prior approval of
the other for the parties or such successors or assigns internal use, and for
review and use by geologists and other outside advisors engaged by it (including
ERCOSPLAN) or its successors or assigns, lenders and prospective lenders,
venture partners and prospective venture partners, and others who are subject to
confidentiality agreements consistent with the disclosing partys obligations
under the JEA; provided, no exploration program results shall be shared with
venture partners or prospective venture partners by The Hopi Tribe other than us
or persons approved in writing by us in our discretion prior to the earlier of
(1) expiration or termination of one or more of our mineral exploration permits
from the Arizona State Land Department pertaining to our property, or (2)
October 15, 2014 (such earlier date, the
Automatic Termination Date
).
Furthermore, the JEA contains an exclusivity provision whereby
from the effective date and ending on the date the JEA terminates unless
extended in accordance with the terms of the JEA until October 15, 2015, The
Hopi Tribe will negotiate exclusively with us with respect to the joint
exploration of the Hopi Property and our property, which are contiguous as set
out in a letter of intent (the
Letter of Intent
) entered into between
the parties on September 26, 2012, and it will not directly or indirectly, take
any of the following actions with any party other than us:
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(a)
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solicit or encourage inquiries or proposals with respect
to, furnish any information relating to, participate in any negotiations
or discussions concerning, or cooperate in any manner relating to the
subject matter of the Letter of Intent (a
Transaction
);
or
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(b)
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enter into any agreement or understanding with any person
or entity providing for a Transaction.
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Unless the JEA is earlier terminated in accordance with the JEA
or superseded by another agreement between the parties, the JEA shall terminate
automatically at 5:00 PM Arizona time on the Automatic Termination Date.
Fitzgerald Ranch Property
On May 7, 2012, we entered into a purchase agreement with
co-trustees of the Fitzgerald Living Trust (
Fitzgerald Living Trust
) to
acquire real estate covering a total of 41,000 contiguous acres of royalty-free
private land (the
Fitzgerald Ranch
) located near Holbrook and adjacent
to our Twin Buttes Ranch holdings in the Holbrook Basin in exchange for a total
purchase price of $15,000,000 on the following material terms: (i) $250,000 to
be irrevocably released to Fitzgerald Living Trust upon execution of the
agreement; (ii) an additional $250,000 to be placed into escrow and irrevocably
released to Fitzgerald Living Trust on July 1, 2012; (iii) during the term of
the agreement, we have the right to perform exploration activities on the
property; (iv) a payment of $14,500,000 at closing to take place on December 18,
2012; and (v) the final purchase is subject to TSX Venture Exchange approval.
A provision of the agreement grants us the right to perform
exploration activities on the property. We have added 8 additional drill holes
to our 2012 drill program which will be drilled on the Fitzgerald Ranch. We have
drilled 5 holes on the Fitzgerald Ranch as part of the drill program.
On November 8, 2012, we entered into an amendment agreement to
the original property purchase agreement. In accordance with the amendment
agreement, in addition to our payment of an aggregate of $500,000 made by July
1, 2012, payments of $500,000 and $4,000,000 were to be made to Fitzgerald
Living Trust upon execution of the amendment agreement and on December 18, 2012,
respectively, which December 18, 2012 payment has not yet been made.
Additionally, a payment of $5,000,000 will be irrevocably paid to Fitzgerald
Living Trust on June 30, 2013 and the balance of $5,000,000 will be paid at the time of
closing of the sale which will take place on December 18, 2013.
30
We also agreed to reimburse Fitzgerald Living Trust for any
increase in taxes to it which are attributable to closing this sale in 2013
rather than 2012 and to make this reimbursement within 120 days from the date
Fitzgerald Living Trust provides documentation to us of the increased tax
amount.
On May 29, 2013, we entered into an agreement to amend and
restate the agreement to the original property purchase agreement (the
Amended and Restated Agreement
) with Fitzgerald Living Trust for the
purchase of the Fitzgerald Ranch, which also supersedes the amendment agreement
dated November 8, 2012, as follows:
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(a)
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the purchase price has been increased to $17,000,000, of
which $1,000,000 was paid and the balance is to be paid as
follows:
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(i)
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a payment of $500,000 on the earlier of October 31, 2013,
or within 30 days of closing our next financing (not paid);
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(ii)
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a payment of $500,000 to be paid on December 31, 2013
(not paid);
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(iii)
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a payment of $1,000,000 to be paid on December 31, 2014;
and
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(iv)
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the balance of $14,000,000 to be paid on the closing of
the sale which is on or before June 15, 2015;
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(b)
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we have provided Fitzgerald Living Trust with the option
to enter into a grazing lease on the property at the rate currently being
charged by the Petrified Forest National Park, with the period of the
lease being 5 years, with the option to renew for an additional 5 year
term. The parties agreed that any ranching use of the property is
secondary, and subject to mineral exploration and development;
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(c)
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during the term of the Amended and Restated Agreement,
Fitzgerald Living Trust grants to us the right to enter into and on the
property as set forth in the agreement to explore for, develop, core drill
and sample ores, minerals and metals which are or may be found therein or
thereon; provided however, that such ores, minerals and metals may only be
removed, treated and produced in de minimus amounts from the core borings,
solely for the purpose of determining the saturation and existence of such
ores, minerals and metals and in no event shall we be permitted to sell
any such ores, minerals or metals; and
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(d)
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the construction of roads shall be subject to the prior
written approval of Fitzgerald Living Trust, which approval shall not
unreasonably be withheld and shall be given in a timely
manner.
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We have not made the required $500,000 payments that were due
on October 31, 2013 and December 31, 2013; therefore, the Amended and Restated
Agreement is in default and $975,000 capitalized to long-term deposits has been
written-off as at the year ended February 28, 2014. We are in negotiations to
amend the Amended and Restated Agreement. No default notice has been issued
under the Amended and Restated Agreement but the risk remains that we may not be
successful in completing the amendment.
The Amended and Restated Agreement is subject to TSX Venture
Exchange approval.
Joint Exploration Agreement with HNZ Potash, LLC
On July 27, 2012, we entered into a Joint Exploration Agreement
(the
Agreement
) with HNZ Potash, LLC (
HNZ
) to jointly explore
and potentially develop twenty-one permitted parcels in which we hold ASLD
exploration permits and which are located on the southernmost area of our
landholdings (the
Permit Property
). The Permit Property is within HNZs
private landholdings and has not been previously explored by us. Under the terms of the Agreement, HNZ has agreed to pay us 50% of certain
costs previously incurred by us with respect to the Permit Property, which
payment was received by us during the fiscal year ended February 28, 2013 and we
have assigned a 50% interest in the Permit Property to HNZ. Each of the parties
will be liable for 50% of the future costs relating to the permits. Our interest
in the permits are held by PPI Holding Corporation, our wholly owned subsidiary.
31
The purposes of the Agreement are to: (i) conduct exploration
and to evaluate the potential for development and mining of the Permit Property;
(ii) to acquire interests within the lands owned by the Hopi Tribe commonly
referred to as the Dobell Ranch lands as more particularly described in the
Agreement; (iii) if justified by the exploration activities, the parties upon
mutual agreement will form an entity to seek a mining lease to jointly engage in
development and mining of the Permit Property; (iv) to complete and satisfy all
environmental compliance obligations and continuing obligations affecting the
Permit Property; and (v) to perform any other activity necessary, appropriate,
or incidental to any of the foregoing. During the term of the Agreement, the
parties will equally share the costs for maintaining the Permit Property in good
standing with the ASLD. The parties may, either alone or jointly, conduct
exploration of any or all of the Permit Property pursuant to one or more plans
of exploration.
The term of the Agreement shall begin on the effective date of
the Agreement and extend to the expiration of the fifth year term of the last
permit covered by the Agreement, or any permit obtained as a replacement
therefor (the
Term
); provided, however, that, if during the Term the
participants (or any entity formed by the participants) jointly apply for a
mineral lease or mineral leases on any portion of the Permit Property, the Term
shall be automatically extended to the date a final determination is issued by
the ASLD regarding the last mineral lease application.
Other provisions in the Agreement include the following:
-
The parties will provide to each other existing exploration data from
their Holbrook Basin potash exploration activities. The data provided by each
Party may be used by the other party to update their existing or future
resource reports or any other future reports.
-
The parties will provide each other vehicular access across existing paved
and unpaved roads on property controlled by the other party.
-
The parties have established an area of mutual interest and have agreed to
jointly pursue opportunities within this area.
Additional Exploration Permits
On May 30, 2013, we announced that we had received nine new
exploration permits from the ASLD, adding 4,703.66 acres of Arizona State trust
land to our land package. These additional permits are on Arizona State trust
land sections that had been closed to development related to the proposed
expansion of the Petrified Forest National Park. Seven of the sections lie
within our private landholdings, while the other two border the Hopi Property
development area and abut the south border of the Petrified Forest National
Park. Almost all of these permits are held by PPI West Block Holding Corp., our
wholly owned subsidiary, with a few permits being held by PPI Holding
Corporation, our wholly owned subsidiary.
Employees
As at May 31, 2014, we have one employee, however, we have 10
individuals working on a consulting basis. Our operations are managed by our
officers with input from our directors. We engage geological and engineering
consultants from time to time as required to assist in evaluating our property
interests and recommending and conducting work programs.
32
Results of Operations
The following table sets forth our results of operations from
inception of exploration stage on May 22, 2007 to May 31, 2014 as well as for
the three month periods ended May 31, 2014 and May 31, 2013.
|
|
|
|
|
Three months
periods ended
|
|
|
For the period May
|
|
|
|
|
|
|
|
|
|
|
|
|
22, 2007
(Inception
|
|
|
|
|
|
|
|
|
|
|
|
|
of Exploration
|
|
|
|
|
|
|
May 31,
|
|
|
May 31,
|
|
|
Stage) to May 31,
|
|
|
|
Note
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Administration
|
|
6
|
|
$
|
14,207
|
|
$
|
20,624
|
|
|
1,031,163
|
|
Advertising
|
|
|
|
|
5,729
|
|
|
51,493
|
|
|
1,842,914
|
|
Business development
|
|
|
|
|
14,144
|
|
|
135,808
|
|
|
1,341,618
|
|
Consulting fees
|
|
6
|
|
|
112,500
|
|
|
130,693
|
|
|
8,928,922
|
|
Depreciation
|
|
2
|
|
|
33
|
|
|
41
|
|
|
2,414
|
|
Foreign exchange
loss
|
|
|
|
|
31,141
|
|
|
8,166
|
|
|
173,778
|
|
Investor relations
|
|
|
|
|
37,672
|
|
|
60,888
|
|
|
1,552,484
|
|
Management fees
|
|
6
|
|
|
160,807
|
|
|
164,214
|
|
|
4,179,102
|
|
Mineral property impairment
|
|
3
|
|
|
-
|
|
|
-
|
|
|
1,627,784
|
|
Mineral property
option payments and exploration costs
|
|
3,6
|
|
|
206,600
|
|
|
645,285
|
|
|
22,800,479
|
|
Office and
miscellaneous
|
|
|
|
|
10,525
|
|
|
20,007
|
|
|
357,586
|
|
Professional fees
|
|
|
|
|
8,605
|
|
|
36,781
|
|
|
1,736,134
|
|
Property
investigation costs
|
|
|
|
|
-
|
|
|
-
|
|
|
24,483
|
|
Transfer agent and filing fees
|
|
|
|
|
18,998
|
|
|
27,643
|
|
|
462,155
|
|
|
|
|
|
|
(620,961
|
)
|
|
(1,301,643
|
)
|
|
(46,061,016
|
)
|
Other items
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion
expense
|
|
4
|
|
|
(106,393
|
)
|
|
(1,027,387
|
)
|
|
(4,249,572
|
)
|
Change in fair value of
derivative liability
|
|
8
|
|
|
26,612
|
|
|
694,645
|
|
|
6,382,417
|
|
Interest income
|
|
|
|
|
-
|
|
|
-
|
|
|
90,216
|
|
Interest expense on convertible
debentures
|
|
4
|
|
|
(233,588
|
)
|
|
(214,414
|
)
|
|
(1,111,454
|
)
|
Gain(Loss) on
debt settlement
|
|
|
|
|
-
|
|
|
-
|
|
|
(9,852
|
)
|
Other income
|
|
|
|
|
-
|
|
|
-
|
|
|
153,125
|
|
|
|
|
|
|
(313,369
|
)
|
|
(547,156
|
)
|
|
1,254,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
$
|
(934,330
|
)
|
$
|
(1,848,799
|
)
|
$
|
(44,806,136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share basic and diluted
|
|
|
|
$
|
(0.01
|
)
|
$
|
(0.02
|
)
|
|
|
|
Weighted average number of shares
outstanding basic
and diluted
|
|
|
|
|
108,312,467
|
|
|
91,792,461
|
|
|
|
|
Revenues
During three month period
ended May 31, 2014 and May 31, 2013, respectively, we did not generate any
revenue.
Operating Expenses
Operating expenses
incurred during the three month period ended May 31, 2014 were $620,961 as
compared to $1,301,643 during the three month period ended May 31, 2013.
Significant changes and expenditures are outlined as follows:
-
Administration expenses were $14,207
and $20,624 for the three month periods ended May 31, 2014 and May 31,
2013, respectively. The decrease of $6,417 was mainly due to decrease in
payment for administration expenses as decrease in invoicing during
the three month period ended May 31, 2014, compared to the three month
period ended May 31, 2013.
33
-
Advertising expenses were $5,729 and $51,493 for the
three month periods ended May 31, 2014 and May 31, 2013, respectively. The
decrease was due to less promotion purposes related to our market
awareness during the three month period ended May 31, 2014, compared to
the three month period ended May 31, 2013.
-
Business Development expenses were $14,144 and $135,808
for the three month periods ended May 31, 2014 and May 31, 2013,
respectively. The decrease of $121,664 was due to less travel expenses and
attending conventions during the three month period ended May 31, 2014.
-
Consulting fees were $112,500 and $130,693 for the three
month periods ended May 31, 2014 and May 31, 2013, respectively. The
decrease of $18,193 was mainly due to less payment for consulting fees
during the three month period ended May 31, 2014, compared to the three
month period ended May 31, 2013.
-
Depreciation expense was $33 and $41 for the three month
periods ended May 31, 2014 and May 31, 2013, respectively.
-
Foreign exchange loss was $31,141 and $8,166 for the
three month periods ended May 31, 2014 and May 31, 2013, respectively. The
increase in foreign exchange loss of $22,975 was due to fluctuations in
the USD and CAD exchange rate and the translation of non-monetary assets.
-
Investor relations expenses were $37,672 and $60,888 for
the three month periods ended May 31, 2014 and May 31, 2013, respectively.
The decrease was mainly due to cost saving efforts during the three month
period ended May 31, 2014.
-
Management fees were $160,807 and $164,214 for the three
month periods ended May 31, 2014 and May 31, 2013, respectively. The
decrease in management fees was mainly due to less management fees paid
during the three month period ended May 31, 2014, compared to the three
month period ended May 31, 2013.
-
Mineral property impairment costs were $Nil and $Nil for
the three month periods ended May 31, 2014 and May 31, 2013, respectively.
There were no mineral property impairment during the three month period
ended May 31, 2014 and May 31, 2013.
-
Mineral property option payments and exploration costs
were $206,600 and $645,285 for the three month periods ended May 31, 2014
and May 31, 2013, respectively. The decrease was due to the Company
incurring less exploration costs during the three month period ended May
31, 2014.
-
Office and miscellaneous expenses were $10,525 and
$20,007 for the three month periods ended May 31, 2014 and May 31, 2013,
respectively. The decrease was due to the decrease in operating activities
during the three month period ended May 31, 2014.
-
Professional fees were $8,605 and $36,781 for the three
month periods ended May 31, 2014 and May 31, 2013, respectively. The
decrease was mainly due to a decrease in operating activities, regulatory
filings and legal proceedings with respect to our operating activities
during the three month period ended May 31, 2014.
-
Property investigation costs were $Nil and $Nil for the
three month periods ended May 31, 2014 and May 31, 2013, respectively.
There were no activities in new property acquisition during the three
month period ended May 31, 2014 and May 31, 2013.
-
Transfer agent and filing fees were $18,998 and $27,643
for the three month periods ended May 31, 2014 and May 31, 2013,
respectively. The decrease was due to a decrease in the services being
provided by the transfer agent during the three month period ended May 31,
2014, compared to the three month period ended May 31, 2013.
Other Items
During the three month period
ended May 31, 2014, our other items accounted for $313,369 in expenses as
compared to $547,156 in expenses for the three month period ended May 31, 2013.
The significant changes in other items income (expenses) are outlined as
follows:
-
Accretion expense was $106,393 and $1,027,387
for the three month periods ended May 31, 2014 and May 31, 2013,
respectively. The decrease in accretion expense was mainly due to the
lower values of discount on debenture and beneficial conversion feature
upon conversion of debentures and the longer term, for accretion of the
beneficial conversion feature and accretion of the discount in connection
with the convertible debentures, which resulted in a decrease in
the accretion during the three month period ended May 31, 2014, compared
to the three month period ended May 31, 2013.
34
-
Change in derivative liability was $26,612 and $694,645
for the three month periods ended May 31, 2014 and May 31, 2013,
respectively. The change in derivative liability was due to a decrease in
the number and the outstanding term of the warrants denominated in
Canadian dollars which resulted in a decrease in the derivative liability
in the three month period ended May 31, 2014, compared to the three month
period ended May 31, 2013.
-
Interest income was $Nil and $Nil for the three month
periods ended May 31, 2014 and May 31, 2013, respectively. There were no
funds invested in interest bearing instruments during the three month
period ended May 31, 2014 and May 31, 2013.
-
Interest expense on convertible debentures was $233,588
and $214,414 for the three month periods ended May 31, 2014 and May 31,
2013, respectively. The increase in interest expense was mainly due to the
larger amount being outstanding for a longer term during the three month
period, for charging interest in connection with the convertible
debentures, which resulted in an increase in the interest expense on
convertible debentures in the three month period ended May 31, 2014,
compared to the three month period ended May 31, 2013.
-
Gain on debt settlement and other income was $Nil and
$Nil for the three month periods ended May 31, 2014 and May 31, 2013,
respectively. There were no activities in debt settlement or other income
during the three month period ended May 31, 2014 and May 31, 2013.
Net Income (Loss)
The net income
(loss) was ($934,330) and ($1,848,799) for the three month periods ended May 31,
2014 and May 31, 2013, respectively. The decrease in net loss of $914,469
resulted from the decrease in operating expenses of $680,682 and the decrease in
expenses in other items of $233,787 in the three month period ended May 31,
2014, compared to the three month period ended May 31, 2013.
Liquidity and Capital Resources
Our financial statements have been prepared assuming that we
will continue as a going concern and, accordingly, do not include adjustments
relating to the recoverability and realization of assets and classification of
liabilities that might be necessary should we be unable to continue in
operation.
The following table sets out our cash and working capital as of
May 31, 2014 and February 28, 2014:
|
|
As of May 31,
2014
|
|
|
As of February 28,
2014
|
|
|
|
(un-audited)
|
|
|
(audited)
|
|
Cash reserves
|
$
|
69,149
|
|
$
|
49,062
|
|
Working capital (deficit)
|
|
($1,591,946
|
)
|
|
($2,046,398
|
)
|
As at May 31, 2014, our current assets were $181,347 and our
current liabilities was $1,773,293 resulting in a working capital deficit of
$1,591,946. Our current assets as at May 31, 2014 consisted of cash and cash
equivalents of $69,149, receivables of $10,728, prepaid expenses of $94,938 and
deferred issuance costs of $6,532. Our current liabilities as at May 31, 2014
consisted of trade payables and accrued liabilities of $1,316,418, convertible
debentures subscriptions received of $95,000, derivative liability of $15,395
and loans of $346,480.
As at February 28, 2014, our current assets were $171,067 and
our current liabilities were $2,217,465 resulting in a working capital deficit
of $2,046,398. Our current assets as at February 28, 2014 consisted of cash and
cash equivalents of $49,062, receivables of $4,853, prepaid expenses of $113,554
and deferred issuance costs of $3,598. Our current liabilities as at February
28, 2014 consisted of trade payables and accrued liabilities of $980,983,
convertible debentures of $553,233 convertible debentures subscriptions
received of $95,000, derivative liability of $42,007 and loans of $546,242.
35
As at May 31, 2014 we also had non-current liabilities of
$5,700,877 compared to February 28, 2014 of $5,000,889. Our non-current
liabilities at May 31, 2014 and February 28, 2014 consisted of Convertible
debentures.
During the three month period ended May 31, 2014, we received
cash of $296,677 (2013: $132,505) for Debentures issued net of issue costs and
received $Nil for stock issuances net of issuance costs (2013: $8,157). At May
31, 2014, we had an aggregate of 15,037,363 (2013:25,484,073) share purchase
warrants exercisable, 561,013 for CAD$0.50 per share and 14,476,350 for USD$0.12
(2013: 10,956,782 between CAD$0.40 and CAD$0.50) per share and (2013: 14,527,291
for USD$0.38 per share), which have the potential upon exercise to convert to
approximately CAD$280,506 (2013:CAD$4,438,814) plus USD$1,737,162
(2013:USD$5,520,370) in cash over the next two years. Further, as at May 31,
2014, a total of 9,166,812 (2013:8,889,946) stock options exercisable between
$0.20 and $1.18 (CAD$0.20 and CAD$1.18) per share which have the potential upon
exercise to generate a total of approximately CAD$5,227,542 (2013:CAD$5,536,609)
in cash over the next four years. There is no assurance that these securities
will be exercised.
Deficit accumulated since inception of exploration stage
increased from ($43,871,806) as at February 28, 2014 to ($44,806,156) as at May
31, 2014.
Our plan of operations over the next twelve months is to focus
on the following:
-
Renegotiate the terms of the Fitzgerald Living
Trust Agreement which will require approximately $1,000,000.
-
Renegotiate the terms of the Twin Buttes Ranch
property, which will require a payment of approximately $1,000,000.
-
Completion of Phase 1 of our planned
exploration program which requires approximately $7,500,000.
Therefore, based on the above, we anticipate that we will
require a total of approximately $9,500,000 for our plan of operations over the
next twelve months. At May 31, 2014, we had cash of $69,149 and a working
capital deficit of $1,592,898. During the next twelve months, we anticipate that
we will not generate any revenue. Accordingly, we will be required to obtain
additional equity financing in order to pursue our plan of operations for and
beyond the next twelve months. We cannot provide investors with any assurance
that we will be able to raise sufficient funding from the sale of our common
stock to fund our exploration programs, property acquisitions and repayment of
debt going forward. In the absence of such financing, we will not be able to
continue our planned property acquisitions and possibly our anticipated
exploration programs and our business plan may fail. Even if we are successful
in obtaining financing to fund our exploration program, there is no assurance
that we will obtain the funding necessary to complete our planned property
acquisitions.
Statement of Cash Flows
During the three month period ended May 31, 2014, our net cash
increased by $20,087, which included net cash used in operating activities of
($276,590), net cash used in investing activities of $NIL and net cash provided
by financing activities of $296,677.
Cash Flow used in Operating Activities
Operating activities in the three month period ended May 31,
2014 used cash of ($276,590) compared to ($1,267,279) in the three month period
ended May 31, 2013. Significant changes in cash used in operating activities are
outlined as follows:
-
Loss was ($934,330) compared to a loss of
($1,848,799) in the three month periods ended May 31, 2014 and May 31,
2013, respectively. The decrease in loss was due to a decrease in the
operating expenses and a decrease in losses of other items.
The following non-cash items further adjusted the profit (loss)
for the three month periods ended May 31, 2014 and May 31, 2013:
36
-
Accretion was $106,393 and $1,027,387 in the three month
periods ended May 31, 2014 and May 31, 2013, respectively.
-
Amortization of deferred issuance costs was $389 and
$10,455 in the three month periods ended May 31, 2014 and May 31, 2013,
respectively.
-
Depreciation was $33 and $41 in the three month periods
ended May 31, 2014 and May 31, 2013, respectively.
-
Interest expense on convertible debentures was $233,588
and $214,414 in the three month periods ended May 31, 2014 and May 31,
2013.
-
Fair value adjustment on warrants were ($26,612) and
($694,645) in the three month periods ended May 31, 2014 and May 31, 2013,
respectively. The decrease in fair value adjustment on warrants was a
result of the decrease in the number and the term of the outstanding
warrants denominated in Canadian dollars which resulted in a decrease in
the derivative liability in the three month period ended May 31, 2014 as
compared to the three month period ended May 31, 2013.
The following changes in working capital items further adjusted
the cash flow usage for the three month periods ended May 31, 2014 and May 31,
2013, respectively:
-
Receivables were ($5,875) and ($22,570) in the three
month periods ended May 31, 2014 and May 31, 2013, respectively. The
smaller cash decrease in receivables resulted in a smaller cash outflow in
receivables compared period over period.
-
Injunction bond inflow were $Nil and $350,000 in the
three month periods ended May 31, 2014 and May 31, 2013, respectively.
-
Prepaid expenses were $18,616 and $43,207 in the three
month periods ended May 31, 2014 and May 31, 2013, respectively, due to an
decrease by the Company in prepaid expenses.
-
Trade payables and accrued liabilities were $331,208 and
($346,769) in the three month periods ended May 31, 2014 and May 31, 2013,
respectively. The increase in trade payables was due to the effect of a
delay in payment of accounts payable and accrued liabilities compared to a
reduction in trade payables and accrued liabilities in the prior period .
Cash Flow used in Investing Activities
During the three month periods ended May 31, 2014 and May 31,
2013 there were no investing activities. In the period from inception (May 22,
2007) to May 31, 2014, investing activities utilized net cash of $2,590,000,
primarily for mineral property acquisition costs.
Cash Flow provided by Financing Activities
During the three month period ended May 31, 2014, cash provided
by financing activities consisted of (i) proceeds from debentures net of issue
costs of $296,677 and $132,505 in the three month periods ended May 31, 2014 and
May 31, 2013, (ii) Proceeds from issuance of common shares net of issuance
costs of $Nil and $8,157 in the three month periods ended May 31, 2014 and May
31, 2013. In the period from inception (May 22, 2007) to May 31, 2014, financing
activities provided net cash of $31,732,347, primarily from the sale of our
equity securities.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that is material to
investors.
Subsequent Events
The Company is in the process of raising up to US$5,000,000 in
a private placement by issuing 9.5%, 30 month convertible debentures which are
to be convertible into shares at $0.12 per share with warrants attached to
purchase up to 40,000,000 common shares at a price of US$0.12 for a 42
month period. As at the date of the approval of the financial statements for the
period ended May 31, 2014, $95,000 has been received.
37
The convertible debentures, shares and warrants issuable upon
conversion of the convertible debentures, and the shares underlying the
warrants, have not been and will not be registered under the United States
Securities Act of 1933
, as amended (the
U.S. Securities Act
),
and may not be offered or sold in the United States absent registration or
applicable exemption from the registration requirements.
Outstanding share data
At May 31, 2014, we had on a post-consolidation basis
109,490,859 issued and outstanding common shares, 9,166,812 outstanding stock
options at a weighted average exercise price of CAD$0.57 per share, and
15,037,363 outstanding warrants at an exercise price of $0.12 and CAD$0.50 per
share.
Critical Accounting Policies
Our financial statements and accompanying notes have been
prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis. The preparation of financial
statements in conformity with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods.
We regularly evaluate the accounting policies and estimates
that we use to prepare our financial statements. In general, managements
estimates are based on historical experience, on information from third party
professionals, and on various other assumptions that are believed to be
reasonable under the facts and circumstances. Actual results could differ from
those estimates made by management.
We believe the following critical accounting policies require
us to make significant judgments and estimates in the preparation of our
consolidated financial statements.
Mineral Property Expenditures
We are primarily engaged in the acquisition, exploration and
development of mineral properties.
Mineral property acquisition costs are capitalized in
accordance with FASB ASC 930-805, Extractive Activities-Mining, when
management has determined that probable future benefits consisting of a
contribution to future cash inflows have been identified and adequate financial
resources are available or are expected to be available as required to meet the
terms of property acquisition and budgeted exploration and development
expenditures. Mineral property acquisition costs are expensed as incurred if the
criteria for capitalization are not met. In the event that mineral property
acquisition costs are paid with Company shares, those shares are recorded at the
estimated fair value at the time the shares are due in accordance with the terms
of the property agreements.
Mineral property exploration costs are expensed as incurred.
When it has been determined that a mineral property can be
economically developed as a result of establishing proven and probable reserves
and pre-feasibility, the costs incurred to develop such property are
capitalized.
Estimated future removal and site restoration costs, when
determinable are provided over the life of proven reserves on a
units-of-production basis. Costs, which include production equipment removal and
environmental remediation, are estimated each period by management based on
current regulations, actual expenses incurred, and technology and industry
standards. Any charge is included in exploration expense or the provision for
depletion and depreciation during the period and the actual restoration
expenditures are charged to the accumulated provision amounts as incurred.
38
As of the date of these financial statements, we have incurred
property acquisition costs that have been capitalized and property option
payments and exploration costs which have been expensed.
To date we have not established any proven or probable reserves
on our mineral properties.
Stock-based Compensation
We account for Stock-Based Compensation under ASC 718
Compensation Stock Compensation, which addresses the accounting for
transactions in which an entity exchanges its equity instruments for goods or
services, with a primary focus on transactions in which an entity obtains
employee services in share-based payment transactions. ASC 718-10 requires
measurement of the cost of employee services received in exchange for an award
of equity instruments based on the grant-date fair value of the award (with
limited exceptions). Incremental compensation costs arising from subsequent
modifications of awards after the grant date must be recognized.
We account for stock-based compensation awards to non-employees
in accordance with ASC 505-50, Equity-Based Payments to Non-Employees. Under ASC
505-50, we determine the fair value of the warrants or stock-based compensation
awards granted as either the fair value of the consideration received or the
fair value of the equity instruments issued, whichever is more reliably
measurable. Any stock options or warrants issued to non-employees are recorded
in expense and additional paid-in capital in shareholders equity/(deficit) over
the applicable service periods using variable accounting through the vesting
dates based on the fair value of the options or warrants at the end of each
period.
The value of the common stock is measured at the earlier of (i)
the date at which a firm commitment for performance by the counterparty to earn
the equity instruments is reached or (ii) the date at which the counterpartys
performance is complete. We recognized consulting expense and a corresponding
increase to additional paid-in-capital related to stock issued for services.
Recent Accounting Pronouncements
We have reviewed recently issued accounting pronouncements and
we plan to adopt those that are applicable to us. We do not expect the adoption
of these pronouncements to have a material impact on our financial position,
results of operations or cash flows.