[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.
[ ]
Yes [
X
] No
Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or 15(d) of the Exchange Act.
[ ]
Yes [
X
] No
Indicate by check mark whether the registrant (1) filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[
X
] Yes [ ] No
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files.
[X]
Yes [ ] No
Indicate by check mark if disclosure of delinquent filers in
response to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer”,
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Indicate by checkmark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes [
] No [
X
]
The aggregate market value of the registrant’s stock held by
non-affiliates of the registrant as of the last business day of the registrant’s
most recently completed second fiscal quarter ended November 30, 2015, computed
by reference to the price at which such stock was last sold on the OTC Bulletin
Board ($0.38 per share, post reverse stock split) on that date, was
approximately $436,958.
The registrant had 2,142,778 shares of common stock outstanding
as of August 19, 2016.
This annual report on Form 10-K and the documents incorporated
herein by reference contain forward-looking statements that involve risks and
uncertainties. Such forward-looking statements concern our anticipated results
and developments in our operations in future periods, planned exploration and,
if warranted, development of our properties, plans related to our business and
other matters that may occur in the future. These statements relate to analyses
and other information that are based on forecasts of future results, estimates
of amounts not yet determinable and assumptions of management.
Any statements contained herein that are not statements of
historical fact and that express or involve discussions with respect to
predictions, expectations, beliefs, plans, projections, objectives, assumptions
or future events or performance may be deemed to be forward-looking statements.
In some cases, you can identify forward-looking statements by terminology such
as “may”, “might”, “could”, “will”, “would”, “should”, “expect”, “plan”,
“intend”, “anticipate”, “believe”, “estimate”, “predict”, “potential” or
“continue”, the negative of such terms or other comparable terminology. In
evaluating these statements, you should consider various factors, including the
assumptions, risks and uncertainties outlined in this annual report under “Risk
Factors”. These factors or any of them may cause our actual results to differ
materially from any forward-looking statement made in this annual report.
Forward-looking statements in this annual report include, among others,
statements regarding:
While these forward-looking statements, and any assumptions
upon which they are based, are made in good faith and reflect our current
judgment regarding future events, the forward-looking statements are subject to
a variety of known and unknown risks, uncertainties and other factors. Our
actual results will likely vary, sometimes materially, from any estimates,
predictions, projections, assumptions or other future performance suggested
herein. Some of the risks and assumptions include, without limitation:
This list is not exhaustive of the factors that may affect any
of our forward-looking statements. We advise the reader that these cautionary
remarks expressly qualify in their entirety all forward-looking statements
attributable to us or persons acting on our behalf. Important factors that you
should also consider, include, but are not limited to, the factors discussed
under “Risk Factors” in this annual report. If one or more of these risks or
uncertainties materializes, or if underlying assumptions prove incorrect, our
actual results may vary materially from those expected, estimated or projected.
Forward-looking statements in this document are not a
prediction of future events or circumstances, and those future events or
circumstances may not occur. Given these uncertainties, users of the information
included herein, including investors and prospective investors are cautioned not
to place undue reliance on such forward-looking statements. Investors should
consult our quarterly and annual filings with U.S. securities commissions for
additional information on risks and uncertainties relating to forward-looking
statements. We do not assume responsibility for the accuracy and completeness of
these statements.
The forward-looking statements in this annual report are made
as of the date of this annual report and based on our beliefs, opinions and
expectations at the time they are made. We do not assume any obligation to
update our forward-looking statements if those beliefs, opinions, or
expectations, or other circumstances, should change, to conform these statements
to actual results, except as required by applicable law, including the
securities laws of the United States.
Handeni Gold Inc. files annual, quarterly and current reports,
proxy statements, and other information with the Securities and Exchange
Commission (the “Commission” or “SEC”). You may read and copy documents referred
to in this Annual Report on Form 10-K that have been filed with the Commission
at the Commission’s Public Reference Room, 450 Fifth Street, N.W., Washington,
D.C. You may obtain information on the operation of the Public Reference Room by
calling the Commission at 1-800-SEC-0330. You can also obtain copies of our
Commission filings by going to the Commission’s website at http://www.sec.gov.
As used in this annual report on Form 10-K: (i) the terms “we”,
“us”, “our”, “Handeni”, “Handeni Gold”, and the “Company” mean Handeni Gold
Inc.; (ii) “SEC” refers to the Securities and Exchange Commission; (iii)
“Securities Act” refers to the United States Securities Act of 1933, as amended;
(iv) “Exchange Act” refers to the United States Securities Exchange Act of 1934,
as amended; and (v) all dollar amounts refer to United States dollars unless
otherwise indicated.
PART I
Corporate Organization
We were incorporated on January 5, 2004 under the laws of the
State of Nevada. Effective January 21, 2009, we effected a five for one stock
split of our common stock and increased our authorized capital to 500,000,000
shares of common stock having a $0.001 par value. On February 14, 2012, the
Company changed its name from Douglas Lake Minerals Inc. to Handeni Gold Inc.
On June 8, 2016, we effected a reverse stock split of our
issued and outstanding shares of common stock, on one (1) new share for
one-hundred-fifty (150) old share basis (1:150), as set for in a Certificate of
Amendment to the Company’s Articles of Incorporation effected and filed on May
24, 2016 with the Nevada Secretary of State.
Our principal office is currently located at P.O. Box 33507,
Plot 82A, ITV Road, Mikocheni Light Industrial Area, Dar es Salaam, the United
Republic of Tanzania, with the phone number of +255 222 700 084 and the fax
number of +255 222 700 052. Our Canadian office is located at Suite 200, 5700
Yonge Street, Toronto, ON, Canada, M2M 4K2, with the telephone number of
647-560-5548.
General
We are engaged in the acquisition and exploration of mineral
properties. Our principal area of focus is the Handeni Gold Project located in
the Handeni district, within the Tanga region of the Republic of Tanzania in
East Africa, in which we have interests in mineral claims through prospecting
licenses (“PLs”) and/or primary mining licenses (“PMLs”) issued by the
government of the Republic of Tanzania.
None of our mineral claims contain any substantiated mineral
deposits, resources or reserves of minerals to date. Exploration has been
carried out on these claims, in particular the eight PLs in the Handeni
District. Accordingly, additional exploration of these mineral claims is
required before any conclusion can be drawn as to whether any commercially
viable mineral deposit may exist on any of our mineral claims. Our plan of
operations is to continue exploration and drilling work when funds are available
in order to ascertain whether our mineral claims warrant further advanced
exploration to determine whether they possess commercially exploitable deposits
of minerals. We will not be able to determine whether or not any of our mineral
claims contain a commercially exploitable mineral deposit, resource or reserve,
until appropriate exploratory work has been completed and an economic evaluation
based on that work concludes economic viability.
We are considered an exploration or exploratory stage company,
because we are involved in the examination and investigation of land that we
believe may contain valuable minerals, for the purpose of discovering the
presence of ore, if any, and its extent. There is no assurance that a
commercially viable mineral deposit exists on the properties underlying our
mineral claim interests, and considerable further exploration will be required
before a final evaluation as to the economic and legal feasibility for our
future exploration is determined.
Illegal artisanal activity on the Company’s license areas is a
continuous and remaining concern to the company’s interests in the Handeni
district. During the past 2 years illegal artisanal activities on our properties
seriously interfered with the company’s exploration programs as outlined in our
quarterly reports. The Company has and is addressing this issue with responsible
local, regional and central government authorities on a continuous basis. The
Company was given assurances by the Ministry of Energy and Minerals (the “MEM”)
that illegal artisanal miners would be removed from our target areas, including
Mjembe and Target 5 following an agreed date of at first 24 November 2015, then
postponed to April 2, 2016.The Company can now gladly report that on 16 and 20
June 2016 illegal miners were removed by governmental authorities and the police
force from two of our target areas namely Ngwila and Mjembe. The Company is
establishing a base camp on the Mjembe site to continue with exploration and to
secure the site from interference by illegal artisanal miners. Although the
Company is relieved that the Tanzanian government acted to protect our legal
interests, we are of the opinion that much more needed to be done to address the
illegal artisanal problem with the aim of having a long term solution. The
Company will continue to follow all available legal structures to protect our
exploration assets whilst at the same time work with authorities and artisanal
miners to further the interest of both parties based on a secure legal
framework. Not Handeni Gold Inc.bor Tanzania as a country can afford the
sterilization of its mining assets by unbridled illegal artisanal activity as it
is currently conducted.
Our Mineral Claims
Handeni District Gold Project
Location and Access
The Handeni Gold properties lie within the historic Handeni
artisanal gold mining district, located in Tanga Province, roughly 175 km
northwest of Tanzania’s largest city, Dar Es Salaam, and 100 km southwest of the
more northerly coastal city of Tanga (Fig. 1). The road from Dar Es Salaam to
Tanga is paved; the secondary road that heads northwest from this road to the
town of Handeni, a distance of 65 km, has recently been paved. The Handeni
properties are located roughly 35 km south of the town of Handeni along a
secondary gravel road. From this point, a number of dirt roads head south across
various portions of the Handeni property and beyond. Driving time from Dar Es
Salaam to the Handeni Gold properties is approximately five hours, depending on
traffic and the weather.
3
Fig. 1: Location Map: Handeni Property in Tanzania.
Prospecting Licenses (PLs)
Currently, our primary focus is on the undivided 100% legal,
beneficial and registerable interest in and to eight PLs, located in the Handeni
District of Tanzania. The total area held by the Company in the Handeni district
is now 423.03 km
2
(Fig. 2) (Table 1).
Fig. 2. Outline of Handeni Gold PLs in the Handeni district. An
area containing 32 PMLs is represented in black
Table 1: List of Prospecting Licenses, Handeni Property (prior
to the 2013 renewal of the licenses)
|
PL No.
|
Area
(Sq
Km)
|
Issue Date
|
Original Recipient
|
Transfer Date
(To IPP Gold)
|
Transfer Date
(To
Handeni Gold)
|
Expiry
Date
|
Renewal
Date
|
|
6742/2010
|
197.98
|
05/10/10
|
Diamonds Africa Ltd.
|
18/11/10
|
12/12/10
|
04/10/13
|
05/10/13
|
|
6743/2010
|
195.48
|
13/10/10
|
Gold Africa Ltd.
|
18/11/10
|
12/12/10
|
12/10/13
|
13/10/13
|
|
6744/2010
|
198.70
|
13/09/10
|
M-Mining Ltd.
|
18/11/10
|
12/12/10
|
12/09/13
|
13/09/13
|
|
6779/2010
|
197.74
|
13/09/10
|
Tanzania Gem Center Ltd.
|
18/11/10
|
12/12/10
|
12/09/13
|
13/09/13
|
Following the 2013 renewal of the properties and acquisition of
PLs in the current period, the Company now holds interests in PLs with details
as described in Table 2, below.
4
Table 2: Handeni Gold Prospecting Licenses
|
PL Number
|
Granted Date
|
Expiry Date
|
Area Size
(km
2
)
|
|
6742/2010
6743/2010
6744/2010
6779/2010
9853/2014
10000/2014
10262/2014
10409/2014
|
5/10/2013
13/10/2013
13/9/2013
13/9/2013
2/7/2014
22/7/2014
25/9/2014
02/12/2014
|
4/10/2016
12/10/2016
12/9/2016
12/9/2016
1/7/2018
21/7/2018
24/9/2018
01/12/2018
|
70.32
95.08
97.56
96.84
12.32
33.62
6.97
10.32
|
During September and October of 2016, the company will need to
(by Tanzanian law) reduce the areas of some of our PL’s by 50% which will result
in the company holding an area of approximately 211 km
2
as
prospecting licenses. The company applied for four new prospecting licenses
namely PL11157/2016, PL11186/2016, PL11188/2016 and PL11189/2016 to conduct a
reconnaissance program of the land occupied by these licenses, bordering our
current prospecting ground (Fig.3). We are awaiting the outcome of these
applications.
To expand its operations to the Lake Victoria gold fields, the
company applied for a prospecting license (PL11157/2016) bordering an active
mining site with the ore zone potentially extending to the PL of interest.
Fig. 3: Position of the four
PL’s applied for in the Handeni district in relation to existing PL’s.
Primary Mining Licenses (PMLs)
On November 30, 2011, the Company acquired from Handeni
Resources a 100% interest in primary mining licenses covering an area of
approximately 2.67 square kilometers to the east of Magambazi Hill (Figs. 2 and
4). To comply with the laws and regulations of the Republic of Tanzania whereby
foreign companies may not own PMLs, on July 19, 2012, the Company:
|
|
(1)
|
entered into an Addendum agreement to the 2011
Acquisition Agreement whereby Handeni Resources will administer the 32
PMLs until such time as a mining license (“ML”) on the 32 PMLs (2.67
km
2
) have been allocated; and
|
|
|
|
|
|
|
(2)
|
during this period Handeni Resources will be conducting
exploration and mining activities on the PMLs as directed by the
Company.
|
5
An enlargement of the “excluded area” as delineated on Fig. 2
is presented below (Fig. 4). An area within the outline of the 32 PML’s without
a PML number (Fig. 3) has now been confirmed to be part of PL6743/2010. The
block of 32 PMLs, shown in grey below, belongs to the Company as described above
and are being explored
Fig. 4: Exclusion areas within PL6743/2010. Note area in white
within PML’s is part of PL6743/2010.
West of the western border of PL 6743/2010 are several more
PMLs that do not belong to the Company. The area colored in green (Fig. 4) is a
unitized block of four PMLs that were apparently acquired by Canaco Resources
Inc. (“CRI”) (now East Africa Metals Inc.) from their owners.
Handeni District Project
We obtained a Technical Report on the Handeni Property (the
“Handeni Report”), dated April 25, 2011, as prepared at our request by Avrom E.
Howard, MSc, FGA, PGeol (Ontario), Principal Consultant at Nebu Consulting LLC.
Mr. Howard is a Qualified Person in accordance with Canadian National Instrument
43-101 “Standards for Disclosure of Mineral Projects” and its Companion Policy
(collectively, “NI 43-101”) and is a Practicing Professional Geologist
registered with the Association of Professional Geoscientists of Ontario
(registration number 0380).
Subsequent to the publishing of the April 25, 2011 NI 43-101
report by Mr. Howard, the Company produced numerous in-house technical reports
and is in the process of compiling an updated NI 43-101 report that will include
the updated model for mineralization on our Handeni property. The drilling
conducted by the Company was done implementing and following Quality Control and
Quality Assessment procedures recommended by SRK (Stephen, Robertson and
Kirsten).
Property Description
General
Exploration, mining and related activities is regulated and
controlled under the Mining Act of 1998 (revised in 2010) (the “Mining
Act”).
Tanzania is Africa’s fourth leading gold producer, with several
major companies producing and exploring for gold, mostly in northwestern
Tanzania, south of Lake Victoria, in an area informally known as the Lake
Victoria gold belt.
The Handeni Property
The increase in gold prices at the turn of the century and
consequent increase in artisanal gold mining activity in the Handeni area led to
the discovery of deposits of placer gold, in turn leading in 2003 to a classic
gold rush. The discovery and mining of lode deposits followed, soon after, along
with the growth of a shanty mining town at the northern base of Magambazi Hill.
Between 2005 and 2010, IPP Gold carried out exploration over
its Prospecting Reconnaissance License leading to the upgrading of its holdings
from one PLR to four PL’s of 800 km
2
, in August 2010. Exploration
work included airborne magnetic and radiometric surveys, ground magnetic
surveys, reconnaissance geological mapping, soil sampling, pitting and
trenching. It is these four PLs that were acquired by the Company from IPP Gold
under the September 2010 agreement.
Geological Setting
Regional Geology
Regional geological mapping programs led to the recognition of
several major litho-structural provinces from Archean to recent age in Tanzania.
The Archean craton covers most of the western two thirds of the country, roughly
bounded to the east by the East African Rift. Archean rocks host all of the
country’s kimberlite pipes and contained lode diamond deposits, and most of its
lode gold deposits. The Archean basement terrain is bounded to the east and west
by a series of Proterozoic mobile belts; this area, particularly that to the
east, hosts most of the country’s wide variety of colored gemstone deposits.
Some recent research suggests that portions of this assumed Proterozoic terrane
may actually consist of Archean crust that has undergone a later phase of higher
grade metamorphism.
The Handeni district forms part of the Tanzanian Mozambique
belt. The belt was subjected to four tectonothermal events at 830- 800Ma, ~760Ma, 630-580Ma and 560-520Ma. All except the last
attained upper amphibolite / granulite grade metamorphic conditions.
6
Property Geology
The Handeni area is situated in the Palaeoproterozoic,
Usugaran/Ubendian Metamorphic Terrane of Tanzania, along the northern extension
of the north–trending Proterozoic Mozambique Mobile Belt.
The geology of the Handeni area comprises amphibolite to
granulite facies metamorphic rocks interpreted to originally have formed a
sequence of ultramafic to felsic volcanic flows, black shales and quartz-bearing
sedimentary rocks. It is furthermore interpreted to comprise a
metamorphosed/overprinted eastern extension/remnant of the Lake Victoria
cratonic greenstone belt. High grade metamorphism has converted these original
lithologies to a variety of metamorphic equivalents, including
biotite-hornblende-garnet-pyroxene gneiss, migmatitic augen garnet-
hornblende-pyroxene gneiss, quartzo-feldspathic hornblende-biotite-pyroxene
gneiss, pyroxene-hornblende-biotite-garnet granulite and others.
Recent research by geologists from the University of Western
Australia suggests that much of what has previously been considered to be of
Proterozic age (Usagaran System) may in fact be overprinted Archean crust. This
hypothesis has been invoked to help interpret the geology within which gold in
this area is found and as the basis for an analogy between this gold
mineralization and that found in less metamorphosed, bona fide Archean rocks in
the Lake Victoria gold district, a few hundred km to the northwest. However,
this is a hypothesis only, one that may be used for exploration modeling
purposes but one that still requires more work.
Mineralization
The Handeni property is at an early stage of exploration. There
are no known mineral resources or reserves on the Handeni property, nor are
there any known economically mineable deposits on the property. Gold is found
within garnet-amphibolite zones within biotite-feldspar gneiss at three k n o w
n locations in the Company’s property, locations where historical lode gold
occurrences have been documented. Gold occurs in quartz veins as well as within
the garnet amphibolites adjacent to the quartz veins. Proof of this association
is informally corroborated by the testimony of local, illegal artisanal miners,
who recover gold both from quartz veins and gold-bearing gneiss that is not
quartz vein bearing. Gold in the Company’s property has also been documented in
soils and placers, at a variety of locations, as well.
Our geophysical and structural geological interpretation on
which the drilling program conducted in 2012 was based, supported the
mineralization model described above in broad terms.
Whereas gold was known in the Handeni area prior to the arrival
in 2005 of the Company’s predecessor, IPP Gold, there is no history of any
formal exploration in the area aside from limited work at Magambazi Hill itself
and the work conducted in recent years by Canaco (East African Metals) in the
region.
Handeni Gold’s intensive early exploration program following
the Company’s September 2010 agreement with IPP achieved the following in terms
of mineralization on the properties:
|
•
|
It outlined a number of locations where intensive placer
and illegal artisanal gold mining took place within the Handeni property,
notably the Kwandege, Magambazi and Mjembe areas.
|
|
|
|
|
•
|
A helicopter based TEM electromagnetic and radiometric
aerial survey program clearly delineated subsurface geological features of
importance to gold and base metal mineralization in this high grade
metamorphic terrain. The data proved to be invaluable in the definition of
structurally important sites and target definition and was key in defining
areas for ground geophysical surveys including ground magnetics, -
radiometrics and I.P (Induced Polarization Surveys). Based on this
exploration, priority drill targets were selected including Magambazi East
as well as the Kwandege targets that were subsequently drilled.
|
|
|
|
|
•
|
Twenty-eight (28) diamond core holes (5,347 meters) were
drilled on the Magambazi East and related targets and delineated a gold
enriched mineralization zone extending for a distance of approximately 500
meters to the south east of the Magambazi Hill mineralization as defined
by CRI. Based on drill data and re-interpretation of this target we are
now convinced that the gold potential of this target may be proven or
disproven with drilling of 5 directional drill holes.
|
|
|
|
|
•
|
Thirty-seven (37) drill holes (4,989 meters in total)
have been drilled on the Kwandege mineralized zone, completing the first
phase drilling program on this project. Twenty-six of the 32 drill holes
on the main Kwandege target yielded gold assay values of more than 0.5 g/t
over a one-meter interval or thicker intersection, whereas four of the
remaining holes had anomalous gold values of up to 0.49 g/t. An important
feature of the Kwandege target is the fact that low level gold values (0.5
g/t to 1 g/t) were encountered in numerous intersections in the drill
holes and also confirmed by the latest assay results. Anomalous gold with
some potentially economic intersections have been encountered in an E - W
(strike) direction of 1,501 meters (based on the results of the completed
phase 1 drilling program). The open ended nature of the mineralization in
an E-W direction was confirmed. Recently acquired data confirms the
potential of the Kwandege target area as part of a much larger structure
with high gold potential. In terms of our new geological model continued
drilling on the Kwandege target is highly recommended.
|
|
|
|
|
•
|
The results of the soil sampling program on Target 5
yielded gold in soil values of up to 200 ppb. Au (gold) assay results
received for 2331 samples coincides with a magnetic and electro-magnetic
geophysical anomaly on surface over an area of approximately 1.8 km (N-S)
by 900 m (E-W). The evaluation of this target is to be continued by
pitting, trenching and ground IP. The exploration on this target was
interrupted by the on-going activity of illegal artisanal miners. The
activity of these miners and the fact that their activity might lead to
the sterilization of a potentially viable gold deposit forced the company
to avoid work on the site as our activities may provide clues as to our
interpretation of the mineralization. It is hoped that the evacuation of miners from the
Mjembe target by authorities as described above will discourage illegal
artisanal activity on Target 5.
|
7
|
•
|
Data collected from our intensive efforts to
delineate alluvial gold mineralization with economic potential yielded the
following:
|
|
|
a)
|
The fluvial environment has the largest potential for the
extraction of coarse grained gold in the Handeni area.
|
|
|
b)
|
A large proportion of gold is contained as fine grained
gold. This conclusion was based on the fact that geochemically analyzed
samples of the same locations as the bulk sampled areas yielded
significantly higher gold values.
|
|
|
c)
|
Some specific horizons in the fluvial horizon yield
higher values than others.
|
|
|
d)
|
Allowing for a mere 50% efficiency of the applied
processes, the overburden, the grade as well as consistency of gold on the
alluvial targets evaluated thus far our results indicated that secondary
gold mineralization is not economically mineable.
|
|
|
e)
|
Recent activities of illegal artisanal miners on our
Ngwila alluvial target provided a classic example of the disastrous effect
of illegal artisanal miners on a potential viable gold deposit. Within a
period of 2 months the activity of a thousand or more illegal miners led
to the almost certain sterilization of a low grade alluvial gold deposit
by unplanned pitting and excavation along a strike distance of more than 1
km. Although the illegal activity was stopped by authorities, exploration
and potential resource determination on this deposit will now require a
substantially larger exploration budget.
|
|
•
|
The exploration results on our Mjembe target defined a
significant potential gold mineralization zone with a high correlation
between geochemical, structural and geophysical data. Mjembe will be the
Company’s primary target during the 2016/2017 field season. The potential
of this area has been exploited by illegal artisanal miners. As described
above the area has now been secured and our exploration activities are
continuing.
|
Exploration conducted during the past year included::
|
•
|
A limited grab sampling program was conducted on illegal
artisanal sites within the Mjembe target. The results in these primary
source rocks are highly encouraging with visible gold present in many of
the samples. Our evaluation of the Mjembe target areas is that gold is
present in rocks formed during ductile, transitional and brittle
deformation episodes – a classical example of mobilization and
remobilization of gold over a long term period of geological deformation
and metamorphism.
|
|
|
|
|
•
|
Evaluation of gold mining pml’s in the Kilindi district
commenced with a visit to the sites and a grab sampling program, aiming to
incorporate high potential properties into the company’s license
portfolio. The company decided not to pursue with work on these
properties.
|
|
|
|
|
•
|
Mapping of the Gole structure is continuing as announced.
Based on recent work on some of our other targets Gole will receive a
lower ranking status due to the company’s limited availability of funds.
|
|
|
|
|
•
|
XRF analyses and evaluation of drill core on the
Magambazi East and Kwandege sites continued. This program is still
continuing.
|
|
|
|
|
•
|
An updated NI43-101 is being compiled. Based on the
strategic and confidential nature of the results contained in this report
and the Company’s experiences gained over the past three years related to
the securing of our exploration targets, it is deemed in the company’s
interest not to publish this report at this stage.
|
|
|
|
|
•
|
Our planned exploration on the Mjembe and Target 5 areas
were postponed due to serious interference by illegal artisanal mining
activities. This situation escalated to the extent that work on the
targets is counterproductive as sites are simply being occupied by illegal
artisanal activity. As outlined above, the company has engaged all
relevant authorities in an effort to resolve the situation, which has to
date resulted in clearing of the Mjembe and Ngwila targets. Exploration is
now continuing on the Mjembe target.
|
|
|
|
|
•
|
The Company now has 5 high potential drill targets of the
17 areas investigated in detail on its approximately 423 km
2
license areas in the Handeni district. Significant anomalous results have
been achieved on 3 additional targets.
|
|
|
|
|
•
|
In addition to the geological and geophysical maps
produced using remote sensing techniques, a total of 143 km
2
(35%) of the license area has been mapped in detail (1:2500 and
1:5000 scale). To date, a total of 37,153 drill and soil samples were
taken of which 16,212 were assayed for gold and 19,992 by XRF.
|
|
|
|
|
•
|
Target 5 is now a fully-fledged drill target based on the
geochemistry and geophysics results obtained. Grab samples on this target
yielded a maximum of 3.12 g/t of gold. As outlined below (under “Risk
Factors – Risks Related to Our Company”), Target 5 is still under threat
of being taken over by illegal artisanal mining operations.
|
|
|
|
|
•
|
Nine hundred and thirty five (935) soil samples collected
on Target 6 have been analysed by XRF. The results are discouraging and
this target did not receive priority status.
|
|
|
|
|
•
|
Exploration on Target 7 (Mjembe) was highly successful
and 3 potential drill sites have been delineated within the larger Mjembe
target area. The Company is experiencing serious interference and illegal
mining activities on all of its Mjembe targets which posed a serious
restriction on our exploration activities and the future of our
exploration on this target. Exploration on this target is now continuing
as reported above.
|
|
|
|
|
•
|
Target 8 has been mapped in detail covering an area of
approximately 36 km
2
. The Company is currently evaluating this
target for selection of a soil sampling and potential detail geophysics
program. The soil sample data to date is discouraging although potential
gold carrying rocks and structures have been mapped. The company is
re-evaluating its soil sample technique with the hope of adapting it to the local
conditions experienced on this target. Target 10 has been mapped in detail
and 674 soil samples taken of which 149 were selected based on our XRF
screening technique. Although some elevated gold values were obtained the
Company will follow this area up utilizing a newly developed assay
technique developed and successfully applied to target 16 as reported
below. Due to a lack of funding we cannot immediately embark on this
planned work. The status of this target is still the same. The company
applied for a PL due south of Target 10 in an effort to understand the
structural aspects of this area in more detail.
|
8
|
•
|
Mapping and XRF analyses on 793 samples from Target 15
(Dolly) have been completed. Mineralization and structural features on
this anomaly show many similarities with that of Magambazi hill. The work
conducted elsewhere and on this target ensures that it will remain in the
target portfolio of the company.
|
|
|
|
|
•
|
Geological mapping on target 16 has been completed and a
preliminary 1,923 soil samples taken. Of these 20 high priority samples
were selected for evaluation of a specialized technique designed to detect
gold anomalies in geological terrains with a complex gold in soil
distribution profile. The results were highly encouraging and values of up
to 8 g/t in soils were obtained. The Company will undoubtedly apply this
technique to some selected other targets as funding becomes available.
Targets 16 remains on the company’s list of high priority areas.
|
|
|
|
|
•
|
Detail geological mapping on the Gole sheath fold, a
structural feature of 11 km by 4.5 km (Targets 12, 13, 14 and 17), have
commenced and is continuing. Potential gold bearing amphibolite zones have
been identified, which will be the focus of further investigation. Due to
a lack of funding the Gole target will most likely not be explored during
the 2016/2017 field season.
|
|
|
|
|
•
|
Further detailed mapping was conducted on Target 16. This
was followed by gold assays using specialized geochemical techniques to
test the potential of increasing the effectivity of the Company’s soil
sampling program. The results were highly successful and the Company will
implement this technique on Target 10 when funds become available.
|
Glossary of Terms
The definitions of geological and technical terms used in this
Annual Report on Form 10-K are provided below:
|
Archaean
|
The 3,800 million to 2,500 million years period in the
earth’s history.
|
|
|
|
|
Feldspars
|
A group of minerals most abundant on earth and consisting
mainly of K, Na, Ca and Al as well as O (oxygen).
|
|
|
|
|
Ferromagnesian minerals
|
Minerals with Fe or Mg as a major chemical component in
their composition.
|
|
|
|
|
Granulites
|
Granulites are medium to coarse–grained metamorphic rocks
that have experienced high temperature metamorphism, composed mainly of
feldspars sometimes associated with quartz and anhydrous ferromagnesian
minerals.
|
|
|
|
|
Metamorphic rocks
|
Rocks that have been subjected to pressure, temperature
or chemical conditions different from which they were formed under.
|
|
|
|
|
Mobile belt
|
A long, relatively narrow crustal region of tectonic
activity.
|
|
|
|
|
PL
|
Prospecting license.
|
|
|
|
|
PLR
|
Reconnaissance prospecting license.
|
|
|
|
|
PML
|
Primary mining license.
|
|
|
|
|
Proterozoic
|
The time period from 2,500 million years to 500 million
years in the history of the earth.
|
|
|
|
|
Quartz
|
A mineral Group consisting mainly of Si and O (oxygen).
|
|
|
|
|
Ubendian
|
A phase of mountain building whose precise dates are
uncertain but which probably occurred about 1800–1700 Ma ago, producing
what is now a NW—SE belt in southern Tanzania, northern Zambia, and the
eastern Congo.
|
|
|
|
|
Usagaran
|
A metamorphic belt in Tanzania in which deformation took
place at about 2,000 million years ago.
|
Compliance with Government Regulation
We are subject to local laws and regulation governing the
exploration, development, mining, production, importing and exporting of
minerals; taxes; labor standards; occupational health; waste disposal;
protection of the environment; mine safety; toxic substances; and other matters.
We require licenses and permits to conduct exploration and mining operations.
Amendments to current laws and regulations governing operations and activities
of mining companies or more stringent implementation thereof could have a
material adverse impact on our Company. Applicable laws and regulations will
require us to make certain capital and operating expenditures to initiate new operations. Under
certain circumstances, we may be required to close an operation once it is
started until a particular problem is remedied or to undertake other remedial
actions. This would have a material adverse effect on our results and financial
condition.
9
Four of our mineral interests in Tanzania are currently held
under PLs granted pursuant to the Mining Act for an initial period of three
years and are renewable in two successive periods of two years only. The
remaining four PL’s are being held under the 2010 Mining Act and are valid for
an initial period of 4 years (the initial period expiring in 2018 (Table 2)).
Following this the first renewal is for 3 years and the second renewal for 2
years, each renewal accompanied by a mandatory relinquishment of at least 50% of
the license area. The application fees are $300 on initial application and $300
for each renewal. There is a preparation fee of $500 applicable on each license.
The annual rent for the licenses are $100/km
2
(initial period),
$150/km
2
(1
st
renewal) and $200/km
2
(2
nd
renewal).
All PLs in Tanzania require the holder to employ and train
local residents, typically amounting to $5,000 per year, and make exploration
expenditures, as set out in the Mining Act. At each renewal, at least 50% of our
licensed area must be relinquished. If we wish to keep the relinquished one-half
portion, we must file a new application for the relinquished portion.
The geographical area covered by a PL may contain one or more
previously granted PML’s. A PML is a mining license granted only to a Tanzanian
citizen consisting of an area of not to exceed 10 hectares. Once a PL is
granted, no additional PMLs can be granted within the geographical area covered
by the PL. The PL is subject to the rights of previously granted and existing
PMLs. The holder of a PL will have to work around the geographical area of the
PML unless the PL holder acquires the PML and any rights to the land covered by
the PML.
We must hold a mining license to carry out mining activities,
which are granted only to the holder of a PL covering a particular area. A
mining license is granted for a period of 25 years or the life of the mine. It
is renewable after 10 years for a period not exceeding 15 years. Other than the
PMLs being held under Handeni Resources, we do not hold any mining licenses,
only PLs. An application for the 32 PMLs being held under agreement by Handeni
Resources to be changed into a mining license (ML) is underway. Prospecting and
mining license holders must submit regular reports in accordance with mining
regulations. Upon commercial production, the government of Tanzania imposes a
royalty on the gross value of all production at the rate of 3% of all gold
produced. The applicable regulatory body in Tanzania is the Ministry of Energy
and Minerals.
In July 1999, environmental management and protection
regulations under the Mining Act came into force. An environmental impact
statement and an environmental management plan must accompany special mining
license, mining license and gemstone mining license applications for mineral
rights. In addition to the establishment of environmental regulations, the
Tanzanian government has improved management procedures for effective monitoring
and enforcement of these regulations by strengthening the institutional
capacity, especially in the field offices. The government has provided rules for
the creation of reclamation funds to reinstate land to alternative uses after
mining and it has developed guidelines for mining in restricted areas, such as
forest reserves, national parks, near sources of water and other designated
areas. These regulations have not had any material effect on our operations to
date.
Competition
We operate in a highly competitive industry, competing with
other mining and exploration companies, and institutional and individual
investors, which are actively seeking minerals exploration properties throughout
the world together with the equipment, labour and materials required to exploit
such properties. Many of our competitors have financial resources, staff and
facilities substantially greater than ours. The principal area of competition is
encountered in the financial ability to cost effectively acquire prime minerals
exploration prospects and then exploit such prospects. Competition for the
acquisition of minerals exploration properties is intense, with many properties
available in a competitive bidding process in which we may lack technological
information or expertise available to other bidders. Therefore, we may not be
successful in acquiring, exploring and developing profitable properties in the
face of this competition. No assurance can be given that a sufficient number of
suitable minerals exploration properties will be available for acquisition,
exploration and development.
Employees
Other than our directors and executive officers, we had
approximate four full-time equivalent employees and consultants as of May 31,
2016 located in Tanzania. We also utilize independent geologists and consultants
on a contract basis to conduct the work programs on our mineral properties in
order to carry out our plan of operations.
Research and Development Expenditures
We have not incurred any research or development expenditures
since our incorporation.
Subsidiaries
The Company has two subsidiaries, both of which are Tanzanian
companies: (i) HG Limited (formerly DLM Tanzania Limited); and (ii) Douglas Lake
Tanzania Limited, which is inactive.
Patents and Trademarks
We do not own, either legally or beneficially, any patent or
trademark.
10
An investment in a company engaged in mineral exploration
involves an unusually high amount of risk, both unknown and known, present and
potential, including, but not limited to the risks enumerated below. An
investment in our common stock involves a number of very significant risks. You
should carefully consider the following risks and uncertainties in addition to
other information in this annual report in evaluating our Company and its
business before purchasing shares of our common stock. Our business, operating
results and financial condition could be seriously harmed or cause actual
results to differ materially from those projected in any forward-looking
statements due to any of the following risks. The risks described below may not
be all of the risks facing our Company. Additional risks not presently known to
us or that we currently consider immaterial may also impair our business
operations
and we cannot assure you that we will successfully
address these risks or other unknown risks that may affect our business. You
could lose all or part of your investment due to any of these risks.
Risks Related to Our Company
We have incurred net losses since our inception and
expect losses to continue.
We have not been profitable since our inception. For the fiscal
year ended May 31, 2016, we had a net loss of $872,797. Since our inception on
January 5, 2004 to May 31, 2016, we had an accumulated net loss of $117,981,046.
We have not generated revenues from operations and do not expect to generate
revenues from operations unless and until we are able to bring a mineral
property into production. The expenditures to be made by us in the exploration
of our properties may not result in discoveries of commercially recoverable
mineral reserves. There is a risk that we may never bring a mineral property
into production that our operations will not be profitable in the future and you
could lose your entire investment.
We may not be able to continue as a going concern if we
do not obtain additional financing or attain profitable operations.
Our
independent accountants’ audit report states that there is substantial doubt
about our ability to continue as a going concern. The Company's ability to
continue as a going concern is dependent upon attaining profitable operations
and obtaining sufficient financing to meet obligations and continue exploration
and development activities. We have incurred only losses since our inception.
Whether and when the Company can attain profitability is uncertain. These
uncertainties cast significant doubt upon the Company’s ability to continue as
going concern, because we will be required to obtain additional funds in the
future to continue our operations and there is no assurance that we will be able
to obtain such funds, through equity or debt financing, or any combination
thereof, or we are able to raise additional funds, that such funds will be in
the amounts required or on terms favourable to us.
Our exploration activities are highly speculative and
involve substantial risks.
The mineral properties that we held interests in during our
year ended May 31, 2016 are in the exploration stage and no proven mineral
reserves have been established. Our exploration work may not result in the
discovery of mineable deposits of ore in a commercially economical manner. There
may be limited availability of water, which is essential to mining operations,
and interruptions may be caused by adverse weather conditions. Our operations
are subject to a variety of existing laws and regulations relating to
exploration and development, permitting procedures, safety precautions, property
reclamation, employee health and safety, air quality standards, pollution and
other environmental protection controls. Our exploration activities are subject
to substantial hazards, some of which are not insurable or may not be insured
for economic reasons. Any of these factors could have a material adverse effect
on our results and financial condition.
We cannot accurately predict whether commercial
quantities of ores will be established.
Whether an ore body will be commercially viable depends on a
number of factors beyond our control, including the particular attributes of the
deposit such as size, grade and proximity to infrastructure, as well as mineral
prices and government regulations, including regulations relating to prices,
taxes, royalties, land tenure, land use, importing and exporting of minerals and
environmental protection. We cannot predict the exact effect of these factors,
but the combination of these factors may result in a mineral deposit being
unprofitable which would have a material adverse effect on our business. We have
no mineral producing properties at this time. We have not defined or delineated
any proven or probable reserves or resources on any of our properties to date.
We may not be able to establish the presence of minerals
on a commercially viable basis.
Substantial expenditures will be required to develop the
exploration infrastructure at any site chosen for exploration, to establish ore
reserves through drilling, to carry out environmental and social impact
assessments, and to develop metallurgical processes to extract the metal from
the ore. We may not be able to discover minerals in sufficient quantities to
justify commercial operation, and we may not be able to obtain funds required
for exploration on a timely basis. Accordingly, you could lose your entire
investment.
We will need to incur substantial expenditures in an attempt to
establish the economic feasibility of mining operations by identifying mineral
deposits and establishing ore reserves through drilling and other techniques,
developing metallurgical processes to extract metals from ore, designing
facilities and planning mining operations. The economic feasibility of a project
depends on numerous factors beyond our control, including the cost of mining and
production facilities required to extract the desired minerals, the total
mineral deposits that can be mined using a given facility, the proximity of the
mineral deposits to a user of the minerals, and the market price of the minerals
at the time of sale. Our existing or future exploration programs or acquisitions
may not result in the identification of deposits that can be mined profitably
and you could lose your entire investment.
11
Our competition is intense in all phase of our business.
We operate in a highly competitive industry, competing with
other mining and exploration companies, and institutional and individual
investors, which are actively seeking minerals exploration properties throughout
the world together with the equipment, labour and materials required to exploit
such properties. Many of our competitors have financial resources, staff and
facilities substantially greater than ours. The principal area of competition is
encountered in the financial ability to cost effectively acquire prime minerals
exploration prospects and then exploit such prospects. Competition for the
acquisition of minerals exploration properties is intense, with many properties
available in a competitive bidding process in which we may lack technological
information or expertise available to other bidders. Therefore, we may not be
successful in acquiring, exploring and developing profitable properties in the
face of this competition. No assurance can be given that a sufficient number of
suitable minerals exploration properties will be available for acquisition,
exploration and development.
Our exploration activities are subject to various local
laws and regulations
We are subject to local laws and regulation governing the
exploration, development, mining, production, importing and exporting of
minerals; taxes; labor standards; occupational health; waste disposal;
protection of the environment; mine safety; toxic substances; and other matters.
We require licenses and permits to conduct exploration and mining operations.
Amendments to current laws and regulations governing operations and activities
of mining companies or more stringent implementation thereof could have a
material adverse impact on our Company. Applicable laws and regulations will
require us to make certain capital and operating expenditures to initiate new
operations. Under certain circumstances, we may be required to close an
operation once it is started until a particular problem is remedied or to
undertake other remedial actions. This would have a material adverse effect on
our results and financial condition.
We have uninsurable risks.
We may be subject to unforeseen hazards such as unusual or
unexpected formations and other conditions. We may become subject to liability
for pollution, cave-ins or hazards against which we cannot insure or against
which we may elect not to insure. The payment of such liabilities may have a
material adverse effect on our financial position.
Exploration activities, including test mining and
operating activities are inherently hazardous.
Mineral exploration activities, including test mining
activities, involve many risks that even a combination of experience, knowledge
and careful evaluation may not be able to overcome.
Operations that we undertake will be subject to all the hazards
and risks normally incidental to exploration, test mining and recovery of gold
and other metals, any of which could result in work stoppages, damage to
property and possible environmental damage. The nature of these risks are such
that liabilities might result in us being forced to incur significant costs that
could have a material adverse effect on our financial condition and business
prospects.
We depend on key management personnel.
The success of our operations and activities is dependent to a
significant extent on the efforts and abilities to attract and maintain
qualified key management and technical personnel. Competition for such personnel
is intense and we may not be able to attract and retain such personnel. We do
not maintain key-man life insurance on any of our officers. A loss of any of
them could adversely affect our business.
Our officers and directors may have potential conflicts
of interest due to their responsibilities with other entities.
The officers and directors of the Company serve as officers
and/or directors of other companies in the mining industry, which may create
situations where the interests of the director or officer may become conflicted.
The companies to which some of our officers and directors provide services may
be potential competitors with the Company at some point in the future. The
directors and officers owe the Company fiduciary duties with respect to any
current or future conflicts of interest.
We may experience difficulty managing our anticipated
growth.
We may be subject to growth-related risks including capacity
constraints and pressure on our internal systems and controls. Our ability to
manage growth effectively will require us to continue to implement and improve
our operational and financial systems and to attract and retain qualified
management and technical personnel to meet the needs of our anticipated growth.
Our inability to deal with this growth could have a material adverse effect on
our business, financial condition, results of operations and prospects.
We are subject to the volatility of metal and mineral
prices.
The economics of developing metal and mineral properties are
affected by many factors beyond our control including, without limitation, the
cost of operations, variations in the grade ore or resource mined, and the price
of such resources. The market prices of the metals for which we are exploring
are highly speculative and volatile. Depending on the price of gold or other
resources, we may determine that it is impractical to commence or continue
commercial production. The price of gold has fluctuated widely in recent years.
The price of gold and other metals and minerals may not remain stable, and such
prices may not be at levels that will make it feasible to continue our
exploration activities, or commence or continue commercial production.
We may not have clear title to our properties.
Acquisition of title to mineral properties is a very detailed
and time-consuming process, and title to our properties may be affected by prior
unregistered agreements or transfer, or undetected defects. Our prospecting
licenses are subject to renewal by the Ministry of Energy and Minerals of
Tanzania. There is a risk that we may not have clear title to all our mineral
property interests, or they may be subject to challenge or impugned in
the future, which would have a material adverse effect on our business.
12
As explained above we have been experiencing severe
restrictions on our exploration programs by the activity of illegal artisanal
miners to the extent that some of our target areas may have been sterilized for
future exploitation by these activities. Tanzanian authorities assisted in that
the police force eventually removed illegal artisanal miners from our Mjembe and
Ngwila targets on June 16 and June 20, 2016 respectively. The company was thus
enabled to establish and exploration camp on the Mjembe target. The company is
under no illusion that the problems with illegal artisanal miners have been
solved, We see illegal artisanal activity as an on-going fact of exploration and
mining on our properties until such time as Tanzanian authorities have
illustrated the political will to act effectively and decisively in the interest
of both the formal companies (such as Handeni Gold Inc.), the illegal artisanal
miners and the country’s mineral assets.
Our mineral property interests may be subject to other
mining licenses.
Local residents in Tanzania may have registered the right to
mine in small areas located within a prospecting license; such rights are
evidenced by a mining license. There can be no guarantee that we will be
successful in negotiating with mining license owners to acquire their rights if
we determine that we need their permission to drill or mine on the land covered
by such mining licenses.
We have requirements for and there is an uncertainty of
access to additional capital.
At May 31, 2016, we had cash of $52,373 and a working capital
deficiency of $2,080,424. We will continue to incur exploration costs to fund
our plan of operations and intend to fund our plan of operations from working
capital, equity subscriptions and debt financing. Ultimately, our ability to
continue our exploration activities depends in part on our ability to commence
operations and generate revenues or to obtain financing through joint ventures,
debt financing, equity financing, production sharing agreements or some
combination of these or other means. There can be no assurance that we will be
able to obtain any such financing.
We have no cash flow from operations and depend on equity
financing for our operations.
Our current operations do not generate any cash flow. Any work
on our properties may require additional equity financing. If we seek funding
from existing or new joint venture partners, our project interests will be
diluted. If we seek additional equity financing, the issuance of additional
shares will dilute the current interests of our shareholders. We may not be able
to obtain additional funding to allow us to fulfill our obligations on our
existing exploration property or any future exploration properties. Our failure
to obtain such additional financing could result in delay or indefinite
postponement of further exploration and the possible partial or total loss of
our potential interest in certain properties or dilution of our interest in
certain properties which would have a material adverse effect on our business.
Our directors and officers are indemnified for any monies
they pay in settlement of actions performed while a director or officer.
Sections 78.7502 and 78.751 of the Nevada Revised Statutes
provide for indemnification of our officers and directors in certain situations
where they might otherwise personally incur liability, judgments, penalties,
fines and expenses in connection with a proceeding or lawsuit to which they
might become parties because of their position with our Company. We have
authorized the indemnification of our officers and directors to the full extent
available under the Nevada Revised Statutes.
Risks related to government controls and regulations
We are subject to complex federal, provincial, state,
local and other laws, controls and regulations that could adversely affect the
cost, manner and feasibility of conducting our operations
.
Mineral exploration, production, marketing and transportation
activities are subject to extensive controls and regulations imposed by various
levels of government, which may be amended from time to time. Governments may
regulate or intervene with respect to price, taxes, and the exportation.
Regulations may be changed from time to time in response to economic or
political conditions. The implementation of new regulations or the modification
of existing regulations affecting the mining industry could increase our costs,
any of which may have a material adverse effect on our business, financial
condition, results of operations and prospects. In addition, in order to conduct
operations, we require licenses from various governmental authorities. We cannot
assure you that we will be able to obtain all of the licenses and permits that
may be required to conduct operations that we may desire to undertake.
Our business activities are conducted in
Tanzania.
Our mineral exploration activities in Tanzania may be affected
in varying degrees by political stability and government regulations relating to
the mining industry and foreign investment in that country. The government of
Tanzania may institute regulatory policies that adversely affect the exploration
and development (if any) of our properties. Any changes in regulations or shifts
in political conditions in this country are beyond our control and may
materially adversely affect our business. While the Company’s management will
propose a measure to mitigate the effects, our operations may be affected in
varying degrees by government regulations with respect to restrictions on
production, price controls, export controls, foreign exchange controls, income
taxes, expropriation of property, environmental legislation and mine safety.
As a public company, our compliance costs and risks have
increased.
Legal, accounting and other expenses associated with public
company reporting requirements have increased significantly in the past few
years. We anticipate that general and administrative costs associated with
regulatory compliance will continue to increase with on-going compliance
requirements under the Sarbanes-Oxley Act of 2002, as well as any new rules
implemented by the SEC in the future. These rules and regulations have
significantly increased our legal and financial compliance costs and made some activities more time consuming and costly. We cannot
assure you that we will effectively meet all of the requirements of these
regulations, including Section 404 of the Sarbanes-Oxley Act. Any failure to
effectively implement internal controls, or to resolve difficulties encountered
in their implementation, could harm our operating results, cause us to fail to
meet reporting obligations, or result in our principal executive officer and
principal financial officer being required to give a qualified assessment of our
internal control over financial reporting. Any such result could cause investors
to lose confidence in our reported financial information, which could have a
material adverse effect on the trading price of our common stock and our ability
to raise capital. These rules and regulations have made it more difficult and
more expensive for us to obtain director and officer liability insurance in the
future. As a result, it may be more difficult for us to attract and retain
qualified individuals to serve on our board of directors or as executive
officers.
13
Risks Related to Our Common Stock
The trading price of our common stock may be volatile.
The price of our common shares may increase or decrease in
response to a number of events and factors, including: trends in the mineral
sector in which we operate; changes in the market price of gold; current events
affecting the global economic situation; changes in financial estimates; our
acquisitions and financings; quarterly variations in our operating results; the
operating and share price performance of other companies that investors may deem
comparable; and purchase or sale of blocks of our common shares. These factors,
or any of them, may materially adversely affect the prices of our common shares
regardless of our operating performance.
A decline in the price of our common stock could affect
our ability to raise further working capital and adversely impact our
operations.
A decline in the price of our common stock could result in a
reduction in the liquidity of our common stock and a reduction in our ability to
raise additional capital for our operations. Because our operations to date have
been principally financed through the sale of equity securities, a decline in
the price of our common stock could have an adverse effect upon our liquidity
and our continued operations. A reduction in our ability to raise equity capital
in the future would have a material adverse effect upon our business plan and
operations, including our ability to continue our current operations. If our
stock price declines, we may not be able to raise additional capital or generate
funds from operations sufficient to meet our obligations.
We could be required to rescind an offering of our
shares.
On January 23, 2006, the Pennsylvania Securities Commission
(“PSC”) issued an inquiry letter to our Company. The inquiry alleged that we
offered and sold securities to investors without being in compliance with
Regulation D and without registration. The PSC notified us that an acceptable
course of action was for us to offer the Pennsylvania state residents an
opportunity to rescind their investment with us. While the Pennsylvania state
residents have rejected our offer to repurchase their shares, we do not plan to
make the same offer to our other US investors, residents of California, or our
British Columbia resident investors. If the investors invoke their rescission
right or if any securities commission requires us to offer a right of rescission
to the investors, we may have to refund the related funds.
Our stock is a penny stock. Trading of our stock may be
restricted by the SEC’s penny stock regulations and FINRA’s sales practice
requirements, which may limit a stockholder’s ability to buy and sell our stock.
Our common stock will be subject to the “Penny Stock” Rules of
the SEC, which will make transactions in our common stock cumbersome and may
reduce the value of an investment in our common stock.
Our common stock is quoted on the OTC Pink, which is generally
considered to be a less efficient market than markets such as NASDAQ or the
national exchanges, and which may cause difficulty in conducting trades and
difficulty in obtaining future financing. Further, our securities will be
subject to the “penny stock rules” adopted pursuant to Section 15(g) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”). The penny
stock rules apply generally to companies whose common stock trades at less than
$5.00 per share, subject to certain limited exemptions. Such rules require,
among other things, that brokers who trade “penny stock” to persons other than
“established customers” complete certain documentation, make suitability
inquiries of investors and provide investors with certain information concerning
trading in the security, including a risk disclosure document and quote
information under certain circumstances. Many brokers have decided not to trade
“penny stock” because of the requirements of the “penny stock rules” and, as a
result, the number of broker-dealers willing to act as market makers in such
securities is limited. In the event that we remain subject to the “penny stock
rules” for any significant period, there may develop an adverse impact on the
market, if any, for our securities. Because our securities are subject to the
“penny stock rules”, investors will find it more difficult to dispose of our
securities. Further, it is more difficult: (i) to obtain accurate quotations,
(ii) to obtain coverage for significant news events because major wire services,
such as the Dow Jones News Service, generally do not publish press releases
about such companies, and (iii) to obtain needed capital.
In addition to the “penny stock” rules promulgated by the SEC,
the Financial Industry Regulatory Authority (“FINRA”) has adopted rules that
require a broker-dealer to have reasonable grounds for believing that an
investment is suitable for a customer when recommending the investment to that
customer. Prior to recommending speculative low-priced securities to their
non-institutional customers, broker-dealers must make reasonable efforts to
obtain information about the customer’s financial status, tax status, investment
objectives and other information. Under interpretations of these rules, FINRA
believes that there is a high probability that speculative low priced securities
will not be suitable for at least some customers. FINRA requirements make it
more difficult for broker-dealers to recommend that their customers buy our
common stock, which may limit your ability to buy and sell our stock and have an
adverse effect on the market for our shares.
14
|
ITEM 1B.
|
UNRESOLVED STAFF COMMENTS
|
None.
Our principal office is currently located at P.O. Box 33507,
Plot 82A, ITV Road, Mikocheni Light Industrial Area, Dar es Salaam, the United
Republic of Tanzania and our Canada office is located at Suite 200, 5700 Yonge
Street, Toronto, Ontario, M2M 4K2, Canada.
Our mineral claim interests and the properties underlying such
interests are described above under Item 1, “Business”.
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
Except as disclosed below, management is not aware of any legal
proceedings contemplated by any governmental authority or any other party
involving us or our properties. As of the date of this report, no director,
officer or affiliate is (i) a party adverse to us in any legal proceeding or
(ii) has an adverse interest to us in any legal proceedings. Management is not
aware of any other legal proceedings pending or that have been threatened
against us or our properties.
|
a)
|
On February 8, 2012, Ruby Creek Resources Inc. (“RCR”)
filed a lawsuit against the Company in the Supreme Court, State of New
York, in which RCR alleges that the Company participated in a fraudulent
transfer of certain mineral property interests in Tanzania that RCR had
the right to purchase pursuant to a series of agreements with the Company.
The Company is of the view that such allegations were without merit and
vigorously contested the action.
|
|
|
|
|
|
On February 23, 2012, the Company filed a lawsuit against
RCR in the Supreme Court of British Columbia (the “British Columbia
Action”), seeking relief for RCR’s breach of its payment obligations under
the above-referenced agreements and seeking an order that RCR remove the
U.S. restrictive legend from 4,000,000 RCR shares issued to the Company
under the agreements.
|
|
|
|
|
|
In addition to the British Columbia Action, on May 21,
2012 in answering RCR’s claim in New York, the Company counterclaimed
against RCR on the basis of the alleged breaches set out in the British
Columbia Action (the “New York Counter Claim”). On November 19, 2012, the
British Columbia Action was dismissed on the grounds that the Court in
British Columbia did not have jurisdiction and further that the dismissal
was without prejudice to either of the Company’s and RCR’s respective
actions in New York against one another. This Order was granted by consent
of both the Company and RCR.
|
|
|
|
|
|
On January 13, 2015, the Company and RCR reached a
binding settlement regarding the above-referenced litigation. The
settlement does not require any monetary payment by the Company to RCR.
Under the terms of the settlement, the Company will turn over its interest
in Ruby Creek Resources (Tanzania) Limited and has agreed to return to RCR
the 4,000,000 shares of restricted RCR common stock previously issued to
the Company. Both parties have agreed to dismiss their respective claims,
with prejudice, and the litigation is now concluded. Although the Company
has not yet received formal settlement documents from RCR as agreed, the
settlement is binding and the litigation is concluded.
|
|
|
|
|
b)
|
On October 25, 2012, Craig Alford filed a lawsuit against
the Company in the Supreme Court of British Columbia for breach of an
alleged employment agreement. Mr. Alford claims the agreement was for a
term of three years, commencing on March 1, 2011, with a monthly salary of
$12,500. Mr. Alford claims that the Company wrongfully terminated the
agreement in October 2011 and is seeking judgment in the amount of
$362,500. The Company is of the view that the allegation is without merit
and intends to vigorously contest the action. On February 4, 2013 the
Company filed its response to Mr. Alford’s claim with the Supreme Court of
British Columbia.
|
|
ITEM 4.
|
MINE SAFETY
DISCLOSURES
|
Not applicable.
PART II
|
ITEM 5.
|
MARKET FOR REGISTRANT’S COMMON EQUITY,
RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY
SECURITIES
|
Market Information
Our shares of common stock were quoted for trading on the OTC
Bulletin Board under the symbol “DLKM.OB” on March 23, 2005. On February 14,
2012, the Company changed its name to Handeni Gold Inc., and its trading symbol
was changed to “HNDI”. On June 8, 2016, we effected a reverse stock split of our
issued and outstanding shares of common stock, on one (1) new share for
one-hundred-fifty (150) old share basis (1:150), as set for in a Certificate of
Amendment to the Company’s Articles of Incorporation effected and filed on May
24, 2016 with the Nevada Secretary of State. As a result of such reverse stock
split, the number of common shares issued and outstanding as well as trading
prices were adjusted by 1:150 retroactively for all periods.
Our common stock is currently trading on OTC Pink market tier.
The market for our common stock is limited, volatile and sporadic. The following
table sets forth the high and low prices relating to our common stock for the
periods indicated, as provided by the OTC Bulletin Board. These quotations reflect
inter-dealer prices without retail mark-up, mark-down, or commissions, and may
not reflect actual transactions.
15
|
QUARTER ENDED
|
HIGH (POST 1-FOR-150
REVERSE STOCK SPLIT)
|
LOW (POST 1-FOR-150
REVERSE STOCK SPLIT)
|
|
May 31, 2016
|
$0.36
|
$0.17
|
|
February 28, 2016
|
$0.41
|
$0.15
|
|
November 30, 2015
|
$0.53
|
$0.21
|
|
August 31, 2015
|
$1.20
|
$0.24
|
|
May 31, 2015
|
$0.97
|
$0.33
|
|
February 28, 2015
|
$2.59
|
$0.25
|
|
November 30, 2014
|
$0.53
|
$0.25
|
|
August 31, 2014
|
$1.05
|
$0.31
|
|
May 31, 2014
|
$3.75
|
$0.48
|
Holders
As at August 19, 2016, we had 2,142,778 shares of our common
stock issued and outstanding, which were held by approximately 151 registered
holders.
Our transfer agent is Transhare Corporation, whose current
address is 2200 E. 104th Avenue, Suite 201, Thornton, CO 80233, U.S.A.,
telephone phone number is 303-662-1112 and fax number is 303-662-1113.
Dividend Policy
No dividends have been declared or paid on our common stock. We
have incurred recurring losses and do not currently intend to pay any cash
dividends in the foreseeable future.
Securities Authorized For Issuance Under Compensation
Plans
We adopted a Stock Option Plan, dated April 27, 2007 (the “2007
Stock Option Plan”), under which we were authorized to grant stock options to
acquire up to a total of 66,667 (10,000,000 pre-consolidation) shares of common
stock. No more options may be granted or exercised under the 2007 Stock Option
Plan.
We adopted an additional Stock Option Plan, dated October 20,
2008 (the “2008 Stock Option Plan”), under which we were authorized to grant
stock options to acquire up to a total of 66,667 (10,000,000 pre-consolidation)
shares of common stock. No more options may be granted or exercised under the
2008 Stock Option Plan.
We adopted an additional Stock Option Plan, dated August 11,
2010 (the “August 2010 Stock Option Plan”), under which we were authorized to
grant stock options to acquire up to a total of 66,667 (10,000,000
pre-consolidation) shares of common shares. No more options may be granted or
exercised under the August 2010 Stock Option.
We adopted an additional Stock Incentive Plan, dated November
29, 2010 (the “November 2010 Stock Incentive Plan”), under which we are
authorized to grant stock and/or stock options to acquire up to a total of
266,667 (40,000,000 pre-consolidation) shares of common shares. The following
summary of the November 2010 Stock Incentive Plan is not complete and is
qualified in its entirety by reference to the November 2010 Stock Incentive
Plan, a copy of which is incorporated by reference to our Annual Report on Form
10-K for the year ended May 31, 2011.
The November 2010 Stock Incentive Plan provides for the
granting of stock options, stock appreciation rights, stock and other equity
awards as set out in the November 2010 Stock Incentive Plan to our directors,
officers, employees or consultants. No insider of the Company is eligible to
receive an award under the Plan where (i) the insider is not a director or
senior officer of the Company, (ii) any award, together with all of the
Company’s previously established or proposed awards under the Plan could result
at any time in (a) the number of shares reserved for issuance pursuant to
options granted to the insider exceeding 50% of the outstanding issue of common
stock or (b) the issuance to the insider pursuant to the exercise of options
within a one-year period of the number of shares exceeding 50% of the
outstanding issue of our common stock. Unless the administrator under the Plan
determines that an award to a grantee is not designed to qualify as
performance-based compensation, the maximum number of shares with respect to
options and/or stock appreciation rights that may be granted during any one
calendar year under the November 2010 Stock Option Plan to any one grantee is
133,333 (20,000,000 pre-consolidation), all of which may be granted as incentive
stock options, and the maximum aggregate grant of restricted stock, unrestricted
shares, restricted stock units and deferred stock units in any one calendar year
to any one grantee is 133,333 (20,000,000 pre-consolidation). The November 2010
Stock Incentive Plan is administered by a committee consisting of two or more
members of our Board of Directors, who have the authority to, among other
things, interpret the November 2010 Stock Option Plan, select eligible
participants, determine whether and to what extent awards are granted under the
November 2010 Stock Option Plan, approve award agreements under the November
2010 Stock Incentive Plan and amend the terms of any outstanding award granted
under the November 2010 Stock Incentive Plan.
As of May 31, 2016 and the date of this report, there remained
71,333 (10,700,000 pre-consolidation) shares of common stock available to be
granted under the November 2010 Stock Incentive Plan.
The table set forth below presenting information relating to
our equity compensation plans as of the date of May 31, 2016:
16
|
Plan Category
|
Number of Securities
to
be Issued Upon Exercise
of Outstanding
Options,
Warrants and Rights
(a)
|
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
(b)
|
Number of
Securities
Remaining Available for
Future Issuance
Under Equity
Compensation Plans (excluding
column
(a))
|
Equity Compensation Plans to be
Approved by Security
Holders
|
N/A
|
N/A
|
N/A
|
Equity Compensation Plans Not
Approved by Security
Holders (2007,
2008, August 2010 and November
2010 Stock Incentive
Plans), post 1-
for-150 reverse stock split
|
188,667
|
$35.10
|
71,333
|
Recent Sales of Unregistered Securities
None.
No Repurchases
Neither we nor any affiliated purchaser has made any purchases
of our equity securities during the fourth quarter of our fiscal year ended May
31, 2016.
|
ITEM 6.
|
SELECTED FINANCIAL
DATA
|
We are a smaller reporting company as defined by Rule 12b-2 of
the Exchange Act and are not required to provide the information required under
this item.
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The following discussion of our financial condition, changes in
financial position, plan of operations and results of operations should be read
in conjunction with (i) our audited consolidated financial statements as at May
31, 2016 and 2015 and (ii) the section entitled “Business” included in this
annual report. All financial information in this Management’s Discussion and
Analysis (“MD&A” or the “discussion”) is expressed and prepared in
conformity with U.S. generally accepted accounting principles. All dollar
references are to the U.S. dollar, the Company’s reporting currency, unless
otherwise noted. Some numbers in this MD&A have been rounded to the nearest
thousand for discussion purposes.
FORWARD-LOOKING STATEMENTS
This MD&A contains forward-looking statements that
involve risks, uncertainties and assumptions with respect to the Company’s
activities and future financial results, which are made based upon management’s
current expectations and beliefs. These forward-looking statements involve risks
and uncertainties, including statements regarding the Company’s capital needs,
business plans and expectations. 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 “Risk Factors” and
elsewhere in this annual report. Any statements contained herein that are not
statements of historical facts may be deemed to be forward-looking statements.
Management disclaims any obligation to publicly update these statements, or
disclose any difference between its actual results and those reflected in these
statements. Given these uncertainties, readers are cautioned not to place undue
reliance on such forward-looking statements.
Overview
The Company is engaged in the acquisition and exploration of
mineral properties in the United Republic of Tanzania, Africa, through its
wholly-owned subsidiaries, HG Limited and Douglas Lake Tanzania Limited which is
inactive. Over these years, the Company has built strong relationships with the
Ministry of Mines, the Geological Survey of Tanzania, and other government
agencies in Tanzania.
During the past six years, the Company has focused exclusively
on its Handeni Gold Project located in Tanzania. The Company’s exploration
activities conducted in the past two fiscal years were outlined under Item 1.
Business – Our Mineral Claims, above.
Our exploration program and achievements during the past year
are highlighted as follows:
|
|
•
|
Our evaluation of the Mjembe target area as a whole is
that gold is present in rocks formed during ductile, transitional and
brittle deformation episodes which make the whole Mjembe structure highly
prospective. It will remain one of our priority target areas.
|
17
|
|
•
|
The further work conducted on fluvial alluvial areas,
such as Ngwila, renders a high volume low grade scenario for an alluvial
deposit in our prospecting areas a high possibility.
|
|
|
|
|
|
|
•
|
The company identified several highly prospective gold
targets on our license areas, some of which are actively exploited for
gold by illegal artisanal miners. We are well – positioned to conduct
drilling projects with a high likelihood of success based on our
experience gained of the geology of the area.
|
|
|
|
|
|
|
•
|
Preliminary work on the Gole structure revealed highly
potential structural regimes for gold mineralization as per our
understanding of gold mineralization in the Handeni district. Several
areas with alluvial potential have also been outlined.
|
Plan of Operations
Our plan of operations through our fiscal year ending May 31,
2017 is to continue to focus on the exploration of our Handeni mineral property
in Tanzania, and the budget for this plan requires approximately $0.6 million
for our plan of the exploration work, $100,000 for mineral licenses fees and a
minimum of $0.5 million for our general and administration expenses,
professional and consulting fees and other operating expenses.
Handeni Gold Inc. has clearly identifiable goals for its
exploration program in Tanzania, which has been adapted to reflect recent
changes in the situation on the ground and our exploration activities:
|
a)
|
The company will now focus on its outlined drill targets
for the next financial year, including Mjembe, Targets 5 and Target
16.
|
|
b)
|
Intensive exploration on the larger Mjembe target area
will be conducted, including ground geophysics with the aim of outlining
additional drill targets on the structure.
|
|
c)
|
Reduce the Company’s license holding in the Handeni
district by at least 50% reduction of our currently held license
areas.
|
|
d)
|
Acquire additional licenses bordering our target areas
for reconnaissance work for a one year period. Relinquish those with low
potential after one year.
|
|
e)
|
Continue efforts to secure funding for drilling on drill
targets.
|
Other low cost exploration activities being conducted on a
continuous basis on the Company’s Handeni licenses include:
|
a)
|
Identification of potential alluvial mining areas other
than those currently known and being evaluated by utilizing remote sensing
activities.
|
|
b)
|
A detailed interpretation of already collected
geophysical data.
|
|
c)
|
A petrological, geochemical and mineralogical
investigation of the Kwandege drill core to understand the style of gold
mineralization at this locality.
|
|
d)
|
The planning and siting of drill holes as a follow up
Reverse Circulation program to evaluate the near – surface potential of
the Kwandege target.
|
The estimated budget for the completion of these exploration
programs is provided below:
|
EXPLORATION WORK
|
BUDGET (US$)
|
|
Ground Geophysics
|
10,000
|
|
Mapping, trenching, sampling, etc.
|
20,000
|
|
Drilling
|
350,000
|
|
Geologists, field personnel and general exploration
|
150,000
|
|
Sundry & contingencies
|
50,000
|
|
TOTAL
|
$580,000
|
Our exploration efforts are severely restricted by a cash-flow
problem as well as by the efforts to curb the activity of illegal artisanal
mining activities. To this extent the company has only spent limited funding on
exploration of our planned 2016 operations. Solving the illegal artisanal mining
situation on the Mjembe target has now enabled the company to focus our efforts
on this target which is well defined and the target that will most likely yield
further positive results with a relatively low input of cash.
For the year ended May 31, 2016, the Company used $419,000 cash
in operating activities. At May 31, 2016, we had cash of $52,000 and a working
capital deficit of $2,080,000. In addition, we had a total of $270,000 funds
available to be withdrawn pursuant to a facility agreement with a related party
as at May 31, 2016. We assume $1,625,000 of current portion of related parties’
loans and $451,000 of payables due to related parties would not be demanded to
pay in the next fiscal year. As such, we estimated that we will still need a
minimum of $1.2 million additional funds in order to cover our planned
operations over the next fiscal year ending May 31, 2017. Our actual
expenditures may exceed our estimations.
We anticipate that we will not generate any revenues for so
long as we are an exploration stage company. Accordingly, we will be required to
obtain additional financing in order to pursue our plan of operations.
18
We believe that external debt financing will not be an
alternative for funding our next fiscal year exploration, as we do not have
significant tangible assets to secure any debt financing. Therefore, we
anticipate that additional funding will be in the form of further related
parties debt financing and/or equity financing from the sale of our common
stock. We cannot provide investors with any assurance that we will be able to
obtain sufficient financing to fund our acquisition and exploration program
going forward. In the absence of sufficient funding, we will not be able to
continue acquisition and exploration of mineral claims and we will be forced to
abandon our mineral claims and our plan of operations. Even if we are successful
in obtaining financing to fund our acquisition and exploration program, there is
no assurance that we will obtain the funding necessary to pursue any advanced
exploration of any mineral claims.
Results of Operations
During the year ended May 31, 2016, we spent approximately
$140,000 (2015 - $214,000) cash on exploration, annual property rental and
licenses renewal fees. We were not able to make further expenditures with
respect to our 2016 plan of operations due to our funding limitation. During the
year ended May 31, 2016, we also spent approximately $279,000 (2015 - $547,000)
cash on other operating expenses.
We have had no operating revenues since our inception (January
5, 2004) to May 31, 2016. The following table sets out our losses for the
periods indicated:
|
|
|
For the Years Ended,
|
|
|
|
|
May 31, 2016
|
|
|
May 31, 2015
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
-
|
|
$
|
-
|
|
|
Expenses
|
|
|
|
|
|
|
|
Consulting fees
|
|
5,400
|
|
|
17,070
|
|
|
Depreciation
|
|
1,116
|
|
|
53,822
|
|
|
Exploration expenses
|
|
139,638
|
|
|
213,953
|
|
|
General and
administrative
|
|
179,158
|
|
|
442,966
|
|
|
Interest
expense
|
|
187,915
|
|
|
92,487
|
|
|
Professional
|
|
65,454
|
|
|
124,552
|
|
|
Rent
|
|
38,162
|
|
|
59,924
|
|
|
Travel and investor
relations
|
|
3,701
|
|
|
36,435
|
|
|
Total Expenses
|
|
620,544
|
|
|
1,041,209
|
|
|
Loss From Operations
|
|
(620,544
|
)
|
|
(1,041,209
|
)
|
|
Other Income (Expenses)
|
|
|
|
|
|
|
|
Gain on disposal of
equipment
|
|
10,653
|
|
|
35,058
|
|
|
Impairment of marketable securities
|
|
-
|
|
|
(140,000
|
)
|
|
Impairment of mineral
licences
|
|
(235,000
|
)
|
|
-
|
|
|
Loss on
marketable securities
|
|
-
|
|
|
(20,000
|
)
|
|
Interest income
|
|
96
|
|
|
189
|
|
|
Loss on
write-down of amounts receivable
|
|
(28,002
|
)
|
|
-
|
|
|
Total Other expenses
|
|
(252,253
|
)
|
|
(124,753
|
)
|
|
Net Loss and Comprehensive
Loss
|
$
|
(872,797
|
)
|
$
|
(1,165,962
|
)
|
Year Ended May 31, 2016 Compared to Year Ended May 31,
2015
Our net loss for the fiscal year ended May 31, 2016 was
$873,000, compared to $1,166,000 for the same period ended May 31, 2015.
Included in the net loss, there was $235,000 impairment of mineral licenses in
Q4 2016 as a result of the abandonment of 4 PMLs. Our operating expenses for the
fiscal year ended May 31, 2016 decreased by $420,000 to $621,000 from $1,041,000
for the fiscal year ended May 31, 2015, as follows:
|
•
|
our consulting, general and administrative fees decreased
by $275,000 to $185,000 during the fiscal year ended May 31, 2016 (2015 -
$460,000), primarily due to fund limitation and continuing cost
management; effective June 1, 2015, the Company has stopped incurring
directors’ fees and the CEO service fees; At May 31, 2016, $451,000 (May
31, 2015 - $455,000) of general and administrative fees remained as
payables due to related parties;
|
|
•
|
depreciation decreased by $53,000 to $1,000 during the
fiscal year ended May 31, 2015 (2015 - $54,000) mainly because the
majority of our equipment was fully depreciated;
|
|
•
|
our exploration expenses decreased by $74,000 to $140,000
during the fiscal year ended May 31, 2016 (2015 - $214,000) due to further
reduced exploration activities caused by our funding limitation during the
fiscal year ended May 31, 2016;
|
|
•
|
our professional fees decreased by $59,000 to $65,000
during the fiscal year ended May 31, 2016 (2015 - $124,000) primarily due
to decreased legal fees.
|
|
•
|
our rent expenses decreased by $22,000 to $38,000 during
the fiscal year ended May 31, 2016 (2015 - $60,000) mainly because our
Tanzania and Canadian offices have been spent minimum office rental.
$36,000 of rent expenses included in the fiscal years ended May 31, 2016
and 2015 representing 60% of the rental expense associated with renting
our Chief Executive Officer’s family house in Tanzania;
|
|
•
|
our travel and investor relations expenses decreased by
$33,000 to $4,000 during the fiscal year ended May 31, 2016 (2015 -
$36,000) primarily due to travel expenses in fiscal year 2015 incurred for
an in-person Board of Directors meeting held in Dar es Salaam, Tanzania; There were almost none of
investor relations expenses during the fiscal years ended 2016 and 2015
mainly due to our funding limitations.
|
19
|
•
|
interest expenses increased by $95,000 to $188,000 during
the fiscal year ended May 31, 2016 (nine months ended February 28, 2015 -
$93,000), which represented deemed interest on increased interest free
unsecured loans from related parties. Such deemed interest was recorded as
donated capital.
|
Year Ended May 31, 2015 Compared to Year Ended May 31,
2014
Our net loss for the fiscal year ended May 31, 2015 was
$1,166,000, compared to $2,294,000 for the same period ended May 31, 2014,
mainly due to $160,000 (2014 - $1,000,000) loss and permanent impairment of
marketable securities and the changes in operating expenses set forth below.
Our operating expenses for the fiscal year ended May 31, 2015
decreased by $256,000 to $1,041,000 from $1,297,000 for the fiscal year ended
May 31, 2014, as follows:
|
•
|
our consulting, general and administrative fees decreased
by $87,000 to $460,000 during the fiscal year ended May 31, 2015 (2014 -
$547,000), primarily due to decreased independent directors’ fees, fewer
employees and consultants, and continuing cost management; At May 31,
2015, approximately $455,000 (2014 - $278,000) of general and
administrative fees remained as payables due to related parties;
|
|
•
|
depreciation decreased by $135,000 to $54,000 during the
fiscal year ended May 31, 2015 (2014 - $189,000) mainly due to less net
book value on equipment;
|
|
•
|
our exploration expenses decreased by $8,000 to $214,000
during the fiscal year ended May 31, 2015 (2014 - $222,000) due to further
decreased exploration and drilling activities caused by our funding
limitation during the fiscal year ended May 31, 2015;
|
|
•
|
our professional fees decreased by $17,000 to $124,000
during the fiscal year ended May 31, 2015 (2014 - $141,000) primarily due
to continuing decreased legal and accounting services as a result of more
work performed in-house by management to reduce costs.
|
|
•
|
our rent expenses decreased by $24,000 to $60,000 during
the fiscal year ended May 31, 2015 (2014 - $84,000) due to a significant
decrease on office rent as a result of our Tanzania office moving to a
small office in March 2014 and the Vancouver office lease expiry in
September 2014. Included in the fiscal year ended May 31, 2015, there was
an increased rent of $36,000 (2014 - $25,200) representing 60% of the
rental expense associated with renting our Chief Executive Officer’s
family house in Tanzania;
|
|
•
|
our travel and investor relations expenses increased by
$12,000 to $36,000 during the fiscal year ended May 31, 2015 (2014 -
$24,000) primarily due to travel expenses incurred for an in-person Board
of Directors meeting held in Dar es Salaam, Tanzania.
|
Liquidity and Capital Resources
The Company has been reviewing its budgets for its current
business needs and its further exploration. We estimate that our total
expenditures for our fiscal year ending May 31, 2017 will be approximately $1.2
million, as outlined above under the heading “Plan of Operations”. At May 31,
2016, we had cash of $52,000 but a working capital deficit of $2,080,000. We
believe that we have insufficient capital to fund our plan of operations in the
next 12 months. We assume $1,625,000 of current portion of related parties’
loans and $451,000 of payables due to related parties would not be demanded to
pay in the next fiscal year. As such, we estimate we will be required to obtain
a minimum of $1.2 million additional funds in order to pursue our planned
operations over the fiscal year ending May 31, 2017.
On January 16, 2016, the Company entered into a credit facility
agreement with a private company controlled by our Chairman of the Board of
Directors. The funding is in the form of an interest-free unsecured loan to the
Company of up to $360,000 due December 31, 2018. A maximum amount of $30,000 may
be drawn by the Company per calendar month. As of the date of this report, we
received a total of $200,000, with $160,000 available to be withdrawn pursuant
to this facility agreement.
We have not generated revenues since the date of inception on
January 5, 2004, and our cash has been generated primarily from the sale of our
securities. During the 12-month period following the date of this annual report,
we anticipate that we will not generate any revenue. We anticipate that
additional funding will be in the form of equity financing from the sale of our
common stock, debt financing, joint ventures or some combination of these or
other means. We believe that external debt financing will not be an alternative
at this stage for funding additional phases of our exploration as we do not have
significant tangible assets to secure any debt financing.
We cannot provide investors with any assurance that we will be
able to raise sufficient funding to continue our acquisition and exploration
program going forward. If we are not able to obtain financing in the amounts
required or on terms that are acceptable to us, we may be forced to scale back,
or abandon, our plan of operations. Even if we are successful in obtaining
equity and/or debt financing to fund our acquisition and exploration program,
there is no assurance that we will obtain the funding necessary to pursue any
advanced exploration of any mineral claims. If we do not continue to obtain
additional funding, we will be forced to abandon our mineral claims and our plan
of operations.
Net Cash Used in Operating Activities
Net cash used in operating activities decreased by $343,000 to
$419,000 during the fiscal year ended May 31, 2016 from $762,000 during the
fiscal year ended May 31, 2015.
20
During the fiscal quarter ended May 31, 2016, net cash used in
operating activities was $84,000, while net cash used in operating activities
was $147,000 during the same period in 2015. Net cash used in operating
activities from our inception on January 5, 2004 to May 31, 2016 was $20.5
million.
Net Cash Used in Investing Activities
Net cash provided in investing activities was $11,000 during
the fiscal year ended May 31, 2016 (2015: $35,000) due to proceeds from disposal
of automobile vehicles. In addition, during the fiscal year ended May 31, 2015,
the Company received $10,000 from redemption of restricted cash equivalent.
During the fiscal quarter ended May 31, 2016, we received $Nil
(2015 - $15,000) from disposal of vehicle. Net cash used in investing activities
from our inception on January 5, 2004 to May 31, 2016 was $845,000 mainly used
in purchase of property and equipment.
Net Cash from Financing Activities
During the fiscal year ended May 31, 2016, we received $375,000
(2015 - $269,000) cash from a related party as interest-free loans. During the
fiscal quarter ended May 31, 2016, net cash from financing activities was
$60,000 (2015 - $135,000) received from a related party as interest-free loans.
We have funded our business to date primarily from sales of our common stock.
From our inception on January 5, 2004 to May 31, 2016, net cash provided by
sales of our common stock was $20 million and interest-free loans from a related
party were $1.7 million.
There are no assurances that we will be able to achieve further
sales of our common stock or any other form of additional financing. If we are
unable to achieve the financing necessary to continue our plan of operations,
then we will not be able to continue our exploration of the property underlying
our mineral claim interest and our venture will fail.
Going Concern
We have not attained profitable operations and are dependent
upon obtaining financing to pursue any extensive exploration activities. The
Company has not generated any revenues and has accumulated losses of $118
million since inception to May 31, 2016. In addition, we had working capital
deficit of $2,080,000 as of May 31, 2016. For these reasons our auditors stated
in their report on our audited consolidated financial statements for the year
ended May 31, 2016 that they have substantial doubt we will be able to continue
as a going concern.
Future Financings
We anticipate continuing to rely on equity sales of our common
shares, debt financing from our related parties, and/or other financing in order
to continue to fund our business operations over next fiscal year ending May 31,
2017. Issuances of additional shares will result in dilution to our existing
shareholders. There is no assurance that we will achieve any additional sales of
our equity securities or arrange for debt or other financing to fund our planned
exploration activities.
Off-Balance Sheet Arrangements
We have no significant 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 stockholders.
Related Party Transactions
The details of related party transactions are disclosed in
footnote 8 of our Company’s audited consolidated financial statements for the
fiscal year ended May 31, 2016 (Item 8 – FINANCIAL STATEMENTS, below).
Segment Disclosures
The Company operates in one reportable segment, located in
Tanzania Africa, being the acquisition and exploration of mineral properties.
The details of segment disclosures are disclosed in footnote 12 of our Company’s
audited consolidated financial statements for the fiscal year ended May 31, 2016
(Item 8 – FINANCIAL STATEMENTS, below).
Inflation
We do not believe that inflation has had a significant impact
on our consolidated results of operations or financial condition.
Contractual Obligations
|
a)
|
On December 7, 2012, and as amended on September 4, 2013,
June 18, 2014 and March 20, 2015, the Company entered into a facility
agreement with IPP Ltd., a private company controlled by the Chairman of
the Company. The funding is in the form of an interest free unsecured loan
to the Company of up to $720,000 due May 31, 2017. As of the date of this
report, IPP Ltd. has fully advanced $720,000 to the Company pursuant to
this facility agreement.
|
|
|
|
|
b)
|
On October 9, 2013, and as amended on June 18, 2014 and
March 20, 2015, the Company entered into a facility agreement with
Consultancy & Finance Company Associates Ltd. (“C&F”), a private
company controlled by the Chairman of the Company. The funding is in the
form of an interest free unsecured loan to the Company of up to $405,000
due May 31, 2017. As of the date of this report, C&F has fully
advanced $405,000 to the Company pursuant to this facility
agreement.
|
21
|
c)
|
On November 20, 2014, the Company entered into a facility
agreement with C&F. The funding is in the form of an interest- free
unsecured loan to the Company of up to $500,000 due May 31, 2017. As of
the date of this report, C&F has fully advanced $500,000 to the
Company pursuant to this facility agreement.
|
|
|
|
|
d)
|
On January 16, 2016, the Company entered into an
additional facility agreement with C&F. The funding is in the form of
an interest-free unsecured loan to the Company of up to $360,000 due
December 31, 2018. A maximum amount of $30,000 may be drawn by the Company
per calendar month. As of the date of this report, C&F has advanced
$200,000 to the Company pursuant to this facility agreement.
|
|
|
|
|
e)
|
On June 23, 2014, the Company’s Tanzania subsidiary, HG
Limited, entered into a lease agreement associated with renting our Chief
Executive Officer’s (the “CEO”) family house in Tanzania. The lease is for
a period of 24 months commencing on August 1, 2014 and expiring July 31,
2016 extendable for one year till July 31, 2017 by mutual agreement. The
annual rent is $60,000, of which 40% ($24,000) should be reimbursed by
another Company which is related to the Chairman of the Company and the
CEO has been also working for. As of the year ended May 31, 2016, the
Company paid $60,000 rent and received $24,000 reimbursement for the
second year of lease period, pursuant to this lease agreement. The lease
agreement may be terminated by first giving notice not less than three
months. To the date of this report, the annual rent was negotiated down to
$44,000 and Company paid $26,400 representing 60% of the
rent.
|
Critical Accounting Policies
Our consolidated 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
consolidated 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 consolidated 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 consolidated financial statements. In general,
management’s 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 our critical accounting policies require us to make
significant judgments and estimates in the preparation of our consolidated
financial statements.
The details of our critical accounting policies are disclosed
in footnote 2 of our Company’s audited consolidated financial statements for the
fiscal year ended May 31, 2016 (Item 8 – FINANCIAL STATEMENTS, below).
|
ITEM 7A.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
|
We are a smaller reporting company as defined by Rule 12b-2 of
the Exchange Act and are not required to provide the information required under
this item.
|
ITEM 8.
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
|
22
Report of Independent Registered Public Accounting Firm
To the Stockholders of
Handeni Gold Inc.
We have audited the accompanying consolidated balance sheets of
Handeni Gold Inc. as of May 31, 2016 and 2015 and the related consolidated
statements of operations and comprehensive loss, cash flows and stockholders'
deficiency for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable assurance about
whether the consolidation financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. An audit includes consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
Handeni Gold Inc. as of May 31, 2016 and 2015, and the results of its operations
and its cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States.
The accompanying consolidated financial statements have been
prepared assuming the Company will continue as a going concern. As discussed in
Note 1 to the consolidated financial statements, the Company has not generated
any revenues and has incurred operating losses since inception. These factors
raise substantial doubt about the Company’s ability to continue as a going
concern. Management’s plans in regard to these matters are also discussed in
Note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ “Manning Elliott LLP”
CHARTERED PROFESSIONAL ACCOUNTANTS
Vancouver, Canada
August 15, 2016
F - 1
Handeni Gold Inc.
Consolidated Balance Sheets
(Expressed in U.S. dollars)
|
|
|
May 31, 2016
|
|
|
May 31, 2015
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
Cash
|
$
|
52,373
|
|
$
|
85,985
|
|
|
Amounts receivable (Note
3)
|
|
14,142
|
|
|
38,751
|
|
|
Prepaid
expenses and deposits (Note 4)
|
|
1,941
|
|
|
306
|
|
|
Total Current Assets
|
|
68,456
|
|
|
125,042
|
|
|
Restricted cash equivalent
(Note 5)
|
|
13,158
|
|
|
13,858
|
|
|
Mineral licenses (Note 6)
|
|
1,415,000
|
|
|
1,650,000
|
|
|
Equipment, net (Note 7)
|
|
358
|
|
|
1,474
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
$
|
1,496,972
|
|
$
|
1,790,374
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' DEFICIENCY
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
$
|
72,880
|
|
$
|
52,785
|
|
|
Accounts payable and
accrued liabilities - related parties (Note 8(b) and (d))
|
|
451,000
|
|
|
454,615
|
|
|
Loans
from Related parties – current portion (Note 8 (a)(i)(ii)(iii))
|
|
1,625,000
|
|
|
-
|
|
|
Total Current Liabilities
|
|
2,148,880
|
|
|
507,400
|
|
|
Loans from related parties –
Long-term portion (Note 8 (a)(iv))
|
|
90,000
|
|
|
1,340,000
|
|
|
Total Liabilities
|
|
2,238,880
|
|
|
1,847,400
|
|
|
Nature of Operations and
Going Concern (Note 1)
|
|
|
|
|
|
|
|
Stockholders' Deficiency
|
|
|
|
|
|
|
|
Common stock (Note 9)
|
|
|
|
|
|
|
Authorized:
500,000,000 shares, $0.001 par
value
Issued and outstanding:
2,142,778 shares (May 31, 2015 – 2,142,778 shares)
|
|
2,143
|
|
|
2,143
|
|
|
Additional paid-in capital
(Note 9)
|
|
116,734,098
|
|
|
116,734,098
|
|
|
Donated capital (Note 8 (a))
|
|
502,897
|
|
|
314,982
|
|
|
Deficit accumulated during
the exploration stage
|
|
(117,981,046
|
)
|
|
(117,108,249
|
)
|
|
|
|
|
|
|
|
|
|
Total Stockholders'
Deficiency
|
|
(741,908
|
)
|
|
( 57,026
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIENCY
|
$
|
1,496,972
|
|
$
|
1,790,374
|
|
(The accompanying notes are an integral part of these
consolidated financial statements)
F - 2
Handeni Gold Inc.
Consolidated Statements of
Operations and Comprehensive Loss
(Expressed in U.S. dollars)
|
|
|
For the Years Ended,
|
|
|
|
|
May 31, 2016
|
|
|
May 31, 2015
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
Consulting fees
|
|
5,400
|
|
|
17,070
|
|
|
Depreciation
|
|
1,116
|
|
|
53,822
|
|
|
Exploration expenses
(Note 8 (b))
|
|
139,638
|
|
|
213,953
|
|
|
General
and administrative (Note 8 (c))
|
|
179,158
|
|
|
442,966
|
|
|
Interest expense (Note 8
(a))
|
|
187,915
|
|
|
92,487
|
|
|
Professional
|
|
65,454
|
|
|
124,552
|
|
|
Rent (Note 8 (b))
|
|
38,162
|
|
|
59,924
|
|
|
Travel
and investor relations
|
|
3,701
|
|
|
36,435
|
|
|
|
|
|
|
|
|
|
|
Total Expenses
|
|
620,544
|
|
|
1,041,209
|
|
|
Loss From Operations
|
|
(620,544
|
)
|
|
(1,041,209
|
)
|
|
Other Income (Expenses)
|
|
|
|
|
|
|
|
Gain on disposal of
equipment (Note 7)
|
|
10,653
|
|
|
35,058
|
|
|
Impairment of marketable securities
|
|
-
|
|
|
(140,000
|
)
|
|
Impairment of mineral
licenses (Note 6)
|
|
(235,000
|
)
|
|
-
|
|
|
Loss on
marketable securities
|
|
-
|
|
|
(20,000
|
)
|
|
Interest income
|
|
96
|
|
|
189
|
|
|
Loss on
write-down of amounts receivable (Note 3)
|
|
(28,002
|
)
|
|
-
|
|
|
Total Other Expenses
|
|
(252,253
|
)
|
|
(124,753
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss and Comprehensive Loss
|
$
|
(872,797
|
)
|
$
|
(1,165,962
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss per Share - Basic and Diluted
|
$
|
(0.41
|
)
|
$
|
(0.54
|
)
|
|
Basic and Diluted Weighted
Average Number of Common Shares Outstanding (Note 9)
|
|
2,142,778
|
|
|
2,142,778
|
|
(The accompanying notes are an integral part of these
consolidated financial statements)
F - 3
Handeni Gold Inc.
Consolidated Statements of
Stockholders’ Deficiency
(Expressed in U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
During the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in
|
|
|
Donated
|
|
|
Comprehensive
|
|
|
Exploration
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Capital
|
|
|
Income (Loss)
|
|
|
Stage
|
|
|
Total
|
|
|
|
|
#
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – May 31, 2014
|
|
2,142,778
|
|
|
2,143
|
|
|
116,734,098
|
|
|
222,495
|
|
|
(86,400
|
)
|
|
(115,942,287
|
)
|
|
930,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deemed interest on
interest-free loan from a
related party
|
|
–
|
|
|
–
|
|
|
–
|
|
|
92,487
|
|
|
–
|
|
|
–
|
|
|
92,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of restricted
marketable securities
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
66,400
|
|
|
–
|
|
|
66,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized loss on restricted
marketable securities
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
20,000
|
|
|
–
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(1,165,962
|
)
|
|
(1,165,962
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – May 31, 2015
|
|
2,142,778
|
|
|
2,143
|
|
|
116,734,098
|
|
|
314,982
|
|
|
–
|
|
|
(117,108,249
|
)
|
|
(57,026
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deemed interest on
interest-free loan from a
related party
|
|
–
|
|
|
–
|
|
|
–
|
|
|
187,915
|
|
|
–
|
|
|
–
|
|
|
187,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(872,797
|
)
|
|
(872,797
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – May 31, 2016
|
|
2,142,778
|
|
|
2,143
|
|
|
116,734,098
|
|
|
502,897
|
|
|
–
|
|
|
(117,981,046
|
)
|
|
(741,908
|
)
|
(The accompanying notes are an integral part of these
consolidated financial statements)
F - 4
Handeni Gold Inc.
Consolidated Statements of Cash
Flows
(Expressed in U.S. dollars)
|
|
|
For the Years Ended,
|
|
|
|
|
May 31, 2016
|
|
|
May 31, 2015
|
|
|
CASH PROVIDED BY (USED
IN):
|
|
|
|
|
|
|
|
Operating Activities:
|
|
|
|
|
|
|
|
Net loss
|
$
|
(872,797
|
)
|
$
|
(1,165,962
|
)
|
|
Adjustments for non-cash
items in net loss:
|
|
|
|
|
|
|
|
Depreciation
|
|
1,116
|
|
|
53,822
|
|
|
Donated capital, services, interest and rent
|
|
187,915
|
|
|
92,487
|
|
|
Impairment of marketable securities
|
|
-
|
|
|
140,000
|
|
|
Impairment of mineral licenses
|
|
235,000
|
|
|
-
|
|
|
Loss on marketable securities
|
|
-
|
|
|
20,000
|
|
|
Loss
on unrealized foreign exchange
|
|
700
|
|
|
2,280
|
|
|
Loss on write-down of amounts receivable
|
|
28,002
|
|
|
-
|
|
|
Gain
on disposal of equipment
|
|
(10,653
|
)
|
|
(35,058
|
)
|
|
Changes
in non-cash operating working capital:
|
|
|
|
|
|
|
|
Amounts receivable
|
|
(3,393
|
)
|
|
(4,425
|
)
|
|
Prepaid expenses and deposits
|
|
(1,635
|
)
|
|
14,770
|
|
|
Accounts payable and accrued liabilities
|
|
20,095
|
|
|
(56,647
|
)
|
|
Due to related parties
|
|
(3,615
|
)
|
|
177,115
|
|
|
Cash Used in Operating Activities
|
|
(419,265
|
)
|
|
(761,618
|
)
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
Proceeds
from disposal of equipment
|
|
10,653
|
|
|
35,208
|
|
|
Redemption of restricted
cash equivalent
|
|
-
|
|
|
10,384
|
|
|
Cash Provided by Investing
Activities
|
|
10,653
|
|
|
45,592
|
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
Loan from a related party
|
|
375,000
|
|
|
269,317
|
|
|
Cash Provided by Financing
Activities
|
|
375,000
|
|
|
269,317
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash
|
|
(33,612
|
)
|
|
(446,709
|
)
|
|
|
|
|
|
|
|
|
|
Cash, at beginning of the
year
|
|
85,985
|
|
|
532,694
|
|
|
|
|
|
|
|
|
|
|
Cash, at end of the year
|
$
|
52,373
|
|
$
|
85,985
|
|
(The accompanying notes are an integral part of these
consolidated financial statements)
F - 5
Handeni Gold Inc.
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements as of May 31, 2016 and 2015
(Expressed in U.S. dollars)
|
1.
|
Nature of Operations and Going Concern
|
|
|
|
|
|
The Company was incorporated in the State of Nevada on
January 5, 2004. On February 14, 2012, the Company changed its name from
Douglas Lake Minerals Inc. to Handeni Gold Inc. (the “Company”). The
Company’s principal business is the acquisition and exploration of mineral
resources located in Tanzania, Africa. The Company has not presently
determined whether its properties contain mineral reserves that are
economically recoverable.
|
|
|
|
|
|
These consolidated financial statements have been
prepared on a going concern basis, which implies the Company will continue
to realize its assets and discharge its liabilities in the normal course
of business. The Company has never generated revenues since inception and
has never paid any dividends and is unlikely to pay dividends or generate
earnings in the immediate or foreseeable future. The continuation of the
Company as a going concern is dependent upon the continued financial
support from its stockholders, the ability of the Company to obtain
necessary equity financing to continue operations and to determine the
existence, discovery and successful exploitation of economically
recoverable reserves in its resource properties, confirmation of the
Company’s interests in the underlying properties, and the attainment of
profitable operations.
|
|
|
|
|
|
As at May 31, 2016, the Company has not generated any
revenues, has a working capital deficiency of $2,080,424, and has
accumulated losses of $117,981,046 since inception. These factors raise
substantial doubt regarding the Company’s ability to continue as a going
concern. The Company plans to raise equity and/or debt financing to fund
its operations which may result in substantial dilution to the Company’s
stockholders or may not be available, if at all, in amounts or on terms
acceptable to the Company. If additional capital is not obtained, the
Company may be forced to cease operations. These consolidated financial
statements do not include any adjustments to the recoverability and
classification of recorded asset amounts and classification of liabilities
that might be necessary should the Company be unable to continue as a
going concern. Such adjustments could be material.
|
|
|
|
|
2.
|
Summary of Significant Accounting
Policies
|
|
|
a)
|
Basis of Presentation
|
|
|
|
|
|
|
|
These consolidated financial statements and related notes
are presented in accordance with accounting principles generally accepted
in the United States, and are expressed in United States dollars. These
consolidated financial statements include the accounts of the Company and
its subsidiaries described as follows. In June 2011, the Company
incorporated in Tanzania a wholly- owned subsidiary, HG Limited, which
undertakes mineral property exploration activities in Tanzania. The
Company also has a wholly-owned non-operating Tanzanian subsidiary
(Douglas Lake Tanzania Limited).
|
|
|
|
|
|
|
|
All significant intercompany transactions and balances
have been eliminated. The Company’s fiscal year-end is May 31.
|
|
|
|
|
|
|
b)
|
Use of Estimates
|
|
|
|
|
|
|
|
The preparation of consolidated financial statements in
accordance with United States generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses in
the reporting period. The Company regularly evaluates estimates and
assumptions related to the estimated deemed interest rates on
interest-free related party loans, impairment of mineral prospecting
licenses, and deferred income tax asset valuation allowances. The Company
bases its estimates and assumptions on current facts, historical
experience and various other factors that it believes to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities and the
accrual of costs and expenses that are not readily apparent from other
sources. The actual results experienced by the Company may differ
materially and adversely from the Company’s estimates. To the extent there
are material differences between the estimates and the actual results,
future results of operations will be affected.
|
|
|
|
|
|
|
c)
|
Basic and Diluted Net Income (Loss) Per Share
|
|
|
|
|
|
|
|
The Company computes net income (loss) per share in
accordance with ASC 260,
Earnings per Share
which requires
presentation of both basic and diluted earnings per share (EPS) on the
face of the consolidated statement of operations and comprehensive loss.
Basic EPS is computed by dividing net income (loss) available to common
stockholders (numerator) by the weighted average number of shares
outstanding (denominator) during the period. Diluted EPS gives effect to
all dilutive potential common shares outstanding during the period using
the treasury stock method and convertible preferred stock using the
if-converted method. In computing diluted EPS, the average stock price for
the period is used in determining the number of shares assumed to be
purchased from the exercise of stock options or warrants. Diluted EPS
excludes all dilutive potential shares if their effect is
anti-dilutive.
|
|
|
|
|
|
|
|
The Company retroactively adjusted the number of common
shares outstanding in accordance with ASC 260-10-55-12,
Earnings per
Share – Implementation Guidance and Illustrations.
ASC 260-10-55-12
requires the computations of basic and diluted EPS shall be adjusted
retroactively for all periods presented to reflect that change in capital
structure, if the number of common shares outstanding increases as a
result of a stock dividend or stock split or decreases as a result of a
reverse stock split. If changes in common stock resulting from stock
dividends, stock splits, or reverse stock splits occur after the close of
the period but before the consolidated financial statements are issued or
are available to be issued, the per-share computations for those and any
prior-period consolidated financial statements presented shall be based on
the new number of shares. If per-share computations reflect such changes
in the number of shares, that fact shall be
disclosed.
|
F - 6
Handeni Gold Inc.
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements as of May 31, 2016 and 2015
(Expressed in U.S. dollars)
|
2.
|
Summary of Significant Accounting Policies
(continued)
|
|
|
d)
|
Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
ASC 220,
Comprehensive Income
establishes
standards for the reporting and display of comprehensive income (loss) and
its components in the consolidated financial statements. For the years
ended May 31, 2016 and 2015, the Company has no component of other
comprehensive loss and accumulated other comprehensive loss.
|
|
|
|
|
|
|
e)
|
Cash and Cash Equivalents
|
|
|
|
|
|
|
|
Cash and cash equivalents are carried at fair value and
they comprise cash on hand, deposits held with banks and other highly
liquid investments. Highly liquid investments are readily convertible to
cash and generally have maturities of three months or less from the time
acquired. The Company places its cash and cash equivalents with high
quality financial institutions which the Company believes limits credit
risk.
|
|
|
|
|
|
|
f)
|
Equipment
|
|
|
|
|
|
|
|
Equipment consists of office equipment, automobiles and
computer software recorded at cost and depreciated on a straight-line
basis as follows:
|
|
Automobiles
|
3 years
|
|
Camp and equipment
|
3 years
|
|
Office furniture and equipment
|
3 years
|
|
Software
|
1 year
|
|
|
g)
|
Mineral Property Costs
|
|
|
|
|
|
|
|
The Company has been in the exploration stage since its
inception on January 5, 2004 and has not yet realized any revenues from
its planned operations. It is primarily engaged in the acquisition and
exploration of mining properties. Mineral property exploration costs are
expensed as incurred. Mineral prospecting licenses and mineral property
acquisition costs are initially capitalized in accordance with ASC
805-20-55-37,
Whether Mineral Rights are Tangible or Intangible
Assets
. The Company assesses the carrying costs for impairment under
ASC 360-10-35-21,
Accounting for Impairment or Disposal of Long-Lived
Assets,
whenever events or changes in circumstances indicate that the
carrying costs may not be recoverable.
|
|
|
|
|
|
|
|
When it has been determined that a mineral property can
be economically developed as a result of establishing proven and probable
reserves, the costs then incurred to develop such property, are
capitalized. Such costs will be amortized using the units-of- production
method over the estimated life of the probable reserve. If mineral
properties are subsequently abandoned or impaired, any capitalized costs
will be charged to operations.
|
|
|
|
|
|
|
h)
|
Long-Lived Assets
|
|
|
|
|
|
|
|
In accordance with ASC 360
, Property, Plant and
Equipment
the Company tests long-lived assets or asset groups for
recoverability when events or changes in circumstances indicate that their
carrying amount may not be recoverable. Circumstances which could trigger
a review include, but are not limited to: significant decreases in the
market price of the asset; significant adverse changes in the business
climate or legal factors; accumulation of costs significantly in excess of
the amount originally expected for the acquisition or construction of the
asset; current period cash flow or operating losses combined with a
history of losses or a forecast of continuing losses associated with the
use of the asset; and current expectation that the asset will more likely
than not be sold or disposed significantly before the end of its estimated
useful life.
|
|
|
|
|
|
|
|
Recoverability is assessed based on the carrying amount
of the asset and its fair value, which is generally determined based on
the sum of the undiscounted cash flows expected to result from the use and
the eventual disposal of the asset, specific third-party appraisal in
certain instances, and evaluation of the project characteristics and level
of advancement. If the Company is unable to estimate the sum of the
undiscounted future net cash flows, it will adopt a market approach to
estimate fair value by using a combination of observed market value
metrics based on comparable transactions. An impairment loss is recognized
when the carrying amount is not recoverable and exceeds fair
value.
|
|
|
|
|
|
|
i)
|
Asset Retirement Obligations
|
|
|
|
|
|
|
|
The Company accounts for asset retirement obligations in
accordance with the provisions of ASC 440
Asset Retirement and
Environmental Obligations
which requires the Company to record the
fair value of an asset retirement obligation as a liability in the period
in which it incurs a legal 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 Company did not have any
asset retirement obligations as of May 31, 2016 and
2015.
|
F - 7
Handeni Gold Inc.
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements as of May 31, 2016 and 2015
(Expressed in U.S. dollars)
|
2.
|
Summary of Significant Accounting Policies
(continued)
|
|
|
j)
|
Financial Instruments
|
|
|
|
|
|
|
|
ASC 825,
Financial Instruments
requires an entity
to maximize the use of observable inputs, and the fair value of financial
instruments, which include cash, restricted cash equivalent, restricted
marketable securities, and accounts payable were estimated to approximate
their carrying values due to the immediate or short-term maturities of
these financial instruments.
|
|
|
|
|
|
|
|
The Company’s operations are in Canada and Africa, which
results in exposure to market risks from changes in foreign currency
rates. The financial risk is the risk to the Company’s operations that
arise from fluctuations in foreign exchange rates and the degree of
volatility of these rates. Currently, the Company does not use derivative
instruments to reduce its exposure to foreign currency risk.
|
|
|
|
|
|
|
k)
|
Income Taxes
|
|
|
|
|
|
|
|
The Company accounts for income taxes using the asset and
liability method in accordance with ASC 740,
Income Taxes.
The
asset and liability method provides that deferred tax assets and
liabilities are recognized for the expected future tax consequences of
temporary differences between the financial reporting and tax bases of
assets and liabilities, and for operating loss and tax credit
carry-forwards. Deferred tax assets and liabilities are measured using the
currently enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The Company records a valuation
allowance to reduce deferred tax assets to the amount that is believed
more likely than not to be realized.
|
|
|
|
|
|
|
l)
|
Foreign Currency Translation
|
|
|
|
|
|
|
|
The functional and reporting currency of the Company is
the United States dollar. The functional currency of the Company’s
subsidiaries is Tanzania shillings. Monetary assets and liabilities
denominated in foreign currencies are translated to United States dollars
in accordance with ASC 830
Foreign Currency Translation Matters
,
using the exchange rate prevailing at the consolidated balance sheet date.
Non-monetary assets and liabilities denominated in foreign currencies are
translated at rates of exchange in effect at the date of the transaction.
Average rates are used to translate revenues and expenses.
|
|
|
|
|
|
|
|
Gains and losses arising on translation or settlement of
foreign currency denominated transactions or balances are included in the
determination of income. The Company has not, to the date of these
consolidated financial statements, entered into derivative instruments to
offset the impact of foreign currency fluctuations.
|
|
|
|
|
|
|
|
To the extent that the Company incurs transactions that
are not denominated in its functional currency, they are undertaken in
Canadian dollars (“Cdn$”) and Tanzanian shillings. The Company has not, to
the date of these consolidated financial statements, entered into
derivative instruments to offset the impact of foreign currency
fluctuations.
|
|
|
|
|
|
|
m)
|
Stock-based Compensation
|
|
|
|
|
|
|
|
The Company records stock-based compensation in
accordance with ASC 718,
Compensation – Stock Based Compensation
and ASC 505,
Equity Based Payments to Non-Employees
, which
requires the measurement and recognition of compensation expense based on
estimated fair values for all share-based awards made to employees and
directors, including stock options.
|
|
|
|
|
|
|
|
ASC 718 requires companies to estimate the fair value of
share-based awards on the date of grant using an option-pricing model. The
Company uses the Black-Scholes option-pricing model as its method of
determining fair value. This model is affected by the Company’s stock
price as well as assumptions regarding a number of subjective variables.
These subjective variables include, but are not limited to the Company’s
expected stock price volatility over the term of the awards, and actual
and projected employee stock option exercise behaviours. The value of the
portion of the award that is ultimately expected to vest is recognized as
an expense in the consolidated statement of operations and comprehensive
loss over the requisite service period.
|
|
|
|
|
|
|
|
All transactions in which goods or services are the
consideration received for the issuance of equity instruments are
accounted for based on the fair value of the consideration received or the
fair value of the equity instrument issued, whichever is more reliably
measurable.
|
|
|
|
|
|
|
n)
|
Subsequent Events Recognition and Disclosure
|
|
|
|
|
|
|
|
In accordance with ASC 855,
Subsequent Events
, the
Company gives retroactive effect in the consolidated balance sheets for
changes in capital structure change such as a stock dividend, stock split
or reverse split that occur after the date of the latest reported
consolidated balance sheet but before the release of the consolidated
financial statements.
|
|
|
|
|
|
|
o)
|
Reclassification
|
|
|
|
|
|
|
|
Certain reclassifications have been made to the prior
year’s consolidated financial statements to conform to the current year’s
presentation.
|
F - 8
Handeni Gold Inc.
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements as of May 31, 2016 and 2015
(Expressed in U.S. dollars)
|
2.
|
Summary of Significant Accounting Policies
(continued)
|
|
|
p)
|
Recently Issued Accounting Pronouncements
|
|
|
|
|
|
|
|
The Company has adopted all new accounting pronouncements
that are mandatorily effective and none have a material impact on its
consolidated financial statements.
|
|
|
|
|
|
|
|
New accounting pronouncements effective June 1,
2016
|
|
|
|
|
|
|
|
The Company does not believe that there are any new
accounting pronouncements that have been issued that are expected to have
a material impact on its financial position or results of
operations.
|
The components of amounts receivable
are as follows:
|
|
|
|
May 31, 2016
|
|
|
May 31, 2015
|
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoverable value added tax
|
|
-
|
|
|
28,797
|
|
|
|
Recoverable harmonized sales tax
|
|
14,058
|
|
|
9,830
|
|
|
|
Other receivable
|
|
84
|
|
|
124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,142
|
|
|
38,751
|
|
The Company had recoverable value added
tax (“VAT”) of $28,002 (TZS 61,107,912) as at May 31, 2016 and $28,797 (TZS
57,511,042) as at May 31, 2015. In January 2015, the Company submitted VAT
refund certificates to the Tanzania Revenue Authority (“TRA”) requesting TZS
49,061,634 recoverable VAT refund. In June 2016, the Company received a letter
from TRA dated May 2, 2016 to reject the refund application of TZS 49,061,634
based on changed interpretation on the provisions of subsection (2) of section
17 of the VAT Act cap 148 (repealed) whereby to consider a person to be eligible
for VAT refund, such person must have the VAT charged on the supplies made for
the period of the refund. The Company has filed a Notice of Objection to appeal
TRA’s decision. Expecting difficulties to challenge TRA’s decision, the Company
wrote off $28,002 of recorded recoverable VAT as at May 31, 2016.
|
4.
|
Prepaid Expenses and
Deposits
|
The components of prepaid expenses and
deposits are as follows:
|
|
|
|
May 31, 2016
|
|
|
May 31, 2015
|
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
1,888
|
|
|
-
|
|
|
|
Rent
|
|
53
|
|
|
306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,941
|
|
|
306
|
|
|
5.
|
Restricted Cash Equivalent
|
As of May 31, 2016, the Company has
pledged a GIC of $13,158 ($17,250 CAD) (May 31, 2015: $13,858) ($17,250 CAD)) as
security held on a corporate credit card. The $700 difference compared to May
31, 2015 is attributed to loss on unrealized Canadian dollar foreign exchange.
|
6.
|
Mineral Properties and
Licenses
|
Handeni Properties, Tanzania, Africa
|
|
a)
|
Prospecting Licenses (“PLs”)
|
|
|
|
|
|
|
|
On September 21, 2010, the Company completed a Mineral
Property Acquisition Agreement with IPP Gold Limited (“IPP Gold”), and the
Company acquired four PLs totaling approximately 800 square kilometers,
located in the Handeni District of Tanzania (the “Handeni Properties”).
IPP Gold retained a 2.5% net smelter royalty (“NSR”) on the Handeni
Properties and the Company has the option to reduce the NSR to 1.25% by
paying $5,000,000. If the NSR is reduced to 1.25% the maximum NSR for any
year is capped at $1,000,000. In any year the NSR payment is less than
$1,000,000 the difference between the actual NSR payment and $1,000,000
will be carried forward to subsequent years. In addition if the London
spot price for gold is equal to or greater than $1,500 then the NSR will
increase from 2.5% to 3%. The Company issued 888,889 (133,333,333
pre-consolidation) restricted shares of common stock to IPP Gold to
acquire the Handeni Properties and no further payments to IPP Gold in
shares or cash are required.
|
F - 9
Handeni Gold Inc.
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements as of May 31, 2016 and 2015
(Expressed in U.S. dollars)
|
6.
|
Mineral Properties and Licenses
(continued)
|
Handeni Properties, Tanzania, Africa
(continued)
|
|
a)
|
Prospecting Licenses (“PLs”) (continued)
|
|
|
|
|
|
|
|
On September 1, 2010, the Company entered into a
Transaction Fee Agreement with a consultant for services related to
soliciting offers from and in assisting in the negotiation with potential
Company financiers, purchasers, acquisition targets and/or joint venture
development partners (each such party being a “Potential Investor”). The
initial term of the agreement was a period of 60 days and automatically
renews monthly unless otherwise specifically renewed in writing by each
party or terminated by the Company. Pursuant to the agreement, the Company
agreed to pay the consultant a transaction fee for each completed property
acquisition transaction in Tanzania (a “Completed Transaction”). The
transaction fee is 12.5% of the shares issuable under each Completed
Transaction, payable in restricted common shares at the lowest priced
security issuable under each Completed Transaction. On September 30, 2010,
the Company issued 111,111 (16,666,667 pre-consolidation) restricted
shares of common stock pursuant to the Transaction Fee Agreement in
relation to the acquisition of the Handeni Properties.
|
|
|
|
|
|
|
|
The fair value of the 888,889 (133,333,333
pre-consolidation) shares of the Company’s common stock issued to IPP Gold
pursuant to the Acquisition Agreement and the 111,111 (16,666,667
pre-consolidation) shares of the Company’s common stock issued pursuant to
the Transaction Fee Agreement totaled $60,000,000. On November 30, 2010,
the capitalized acquisition costs of the Handeni Properties were tested
for impairment by the Company’s management as required by ASC 360.
Management determined that no positive cash flows from the Handeni
Properties could be identified or supported and a full impairment loss was
recognized in expenses for the $60,000,000 acquisition cost.
|
|
|
|
|
|
|
|
Under Tanzanian law, 50% of the area of PLs need to be
relinquished following a period of three years after allocation of the PLs
to the Company (1998 Mining Act applicable to the Companies’ PLs). The
Company has received four renewal PLs of the renewal areas under
PL6742/2010, PL6744/2010, PL6743/2010 and PL6779/2010 effective on October
5, 2013, September 13, 2013, October 13, 2013 and September 13, 2013,
respectively. These four PLs are valid until October 4, 2016, September
12, 2016, October 12, 2016 and September 12, 2016, respectively. The total
area occupied by the renewal licenses is approximately 359.80 km
2
or 45% of the original area.
|
|
|
|
|
|
|
|
In addition to the renewal areas, the Company had also
applied for the remainder of the license areas and has received four
additional PLs under PL9853/2014, PL10000/2014, PL10262/2014 and
PL10409/2014 effective on July 2, 2014, July 22, 2014, September 25, 2014
and December 2, 2014, respectively. These four PLs are valid for four
years and cover areas of 63.23 km
2
. The Company now holds a
total license area of approximately 423.03 km
2
(53% of its
original 800 km
2
license area).
|
|
|
|
|
|
|
b)
|
Primary Mining Licenses (“PMLs”)
|
|
|
|
|
|
|
|
On August 5, 2011, the Company entered a Mineral Property
Acquisition Agreement (the “2011 Acquisition Agreement”) with Handeni
Resources Limited (“Handeni Resources”), a limited liability company
registered under the laws of Tanzania. The Chairman of the Board of
Directors of the Company has an existing ownership and/or beneficial
interest(s) in Handeni Resources. Pursuant to the 2011 Acquisition
Agreement, the Company had an exclusive option to acquire from Handeni
Resources a 100% interest in mineral licenses covering an area of
approximately 2.67 square kilometers to the east of Magambazi Hill, which
is adjacent to the area covered by the Company’s four existing PLs in the
Handeni District.
|
|
|
|
|
|
|
|
On November 30, 2011, the Company completed the 2011
Acquisition Agreement and issued 100,000 (15,000,000 pre- consolidation)
restricted common shares to Handeni Resources as payment. As at November
30, 2011, the fair market price of the Company’s common stock was $0.11
per share; accordingly, the Company recorded a total fair market value of
$1,650,000 as the mineral licenses acquisition cost.
|
|
|
|
|
|
|
|
To comply with the laws and regulations of the Republic
of Tanzania whereby foreign companies may not own PMLs, on July 19, 2012,
the Company entered into an Addendum agreement to the 2011 Acquisition
Agreement whereby Handeni Resources, on behalf of the Company, administers
the 32 PMLs until such time as a mining license on the 32 PMLs (2.67
km
2
) have been allocated. During this period Handeni Resources
is conducting exploration and mining activities on the PMLs as directed by
the Company.
|
|
|
|
|
|
|
|
As at May 31, 2016, the Company has recognized an
impairment loss of $235,000 with respect to the carrying value of its
mineral licenses as a result of management’s intention to let four of the
32 PMLs pertaining to the Handeni Properties lapse. This impairment loss
represents the write-off of the original acquisition cost relating to
these four PMLs. As the intention to let these four PMLs lapse is
considered an indicator of impairment, management performed a
recoverability test for the remaining 28 PMLs and noted that their
carrying value did not exceed their estimated fair value, thereby
resulting in no additional impairment loss.
|
|
|
|
|
|
|
|
During the year ended May 31, 2016, the Company paid
$70,494 (the year ended May 31, 2015: $62,584) in annual rental and
licenses renewal fees for PLs and PMLs. Such license related fees have
been recorded as exploration expenses on the consolidated statement of
operations and comprehensive loss.
|
F - 10
Handeni Gold Inc.
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements as of May 31, 2016 and 2015
(Expressed in U.S. dollars)
|
|
|
|
|
|
|
May 31, 2016
|
|
|
|
|
|
May 31, 2015
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Net Book
|
|
|
Net Book
|
|
|
|
|
|
Cost
|
|
|
Depreciation
|
|
|
Value
|
|
|
Value
|
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobiles
|
|
230,337
|
|
|
230,337
|
|
|
-
|
|
|
-
|
|
|
|
Camp and equipment
|
|
197,011
|
|
|
197,011
|
|
|
-
|
|
|
-
|
|
|
|
Office furniture and
equipment
|
|
100,222
|
|
|
98,970
|
|
|
358
|
|
|
1,252
|
|
|
|
Software
|
|
7,930
|
|
|
7,930
|
|
|
-
|
|
|
222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
535,500
|
|
|
535,142
|
|
|
358
|
|
|
1,474
|
|
During the year ended May 31, 2016, the
Company sold certain of its fully amortized equipment and recognized a gain on
disposal of $10,653 in the consolidated statement of operations and
comprehensive loss.
|
8.
|
Related Party
Transactions
|
|
|
a)
|
The Company has entered into the following facility
agreements with related parties:
|
|
|
i)
|
On December 7, 2012, and as amended on September 4, 2013,
June 18, 2014 and March 20, 2015, the Company entered into a facility
agreement with IPP Ltd., a private company controlled by the Chairman of
the Company. The funding is in the form of an interest free unsecured loan
to the Company of up to $720,000 due May 31, 2017. As of May 31, 2016 and
2015, IPP Ltd. has fully advanced $720,000 to the Company pursuant to this
facility agreement.
|
|
|
|
|
|
|
ii)
|
On October 9, 2013, and as amended on June 18, 2014 and
March 20, 2015, the Company entered into a facility agreement with
Consultancy & Finance Company Associates Ltd. (“C&F”), a private
company controlled by the Chairman of the Company. The funding is in the
form of an interest free unsecured loan to the Company of up to $405,000
due May 31, 2017. As of May 31, 2016 and 2015, C&F has fully advanced
$405,000 to the Company pursuant to this facility agreement.
|
|
|
|
|
|
|
iii)
|
On November 20, 2014, the Company entered into a facility
agreement with C&F. The funding is in the form of an interest-free
unsecured loan to the Company of up to $500,000 due May 31, 2017. As of
May 31, 2016, C&F has fully advanced $500,000 (May 31, 2015: $215,000)
to the Company pursuant to this facility agreement.
|
|
|
|
|
|
|
iv)
|
On January 16, 2016, the Company entered into an
additional facility agreement with C&F. The funding is in the form of
an interest-free unsecured loan to the Company of up to $360,000 due
December 31, 2018. A maximum amount of $30,000 may be drawn by the Company
per calendar month. As of May 31, 2016, C&F has advanced $90,000 to
the Company pursuant to this facility agreement.
|
For the year ended May 31, 2016,
$187,915 of deemed interest was calculated at an annual interest rate of 12%
(2015: $92,487 calculated at an annual interest rate of 8%). Such deemed
interest approximates the fair market value of the borrowings, and was recorded
as interest expense and donated capital.
|
|
b)
|
The Company’s President and Chief Executive Officer (the
“CEO”) has voluntarily waived the CEO services fees for one year effective
as of June 1, 2015. As a result, the Company incurred $Nil of
administration and professional services fees to the CEO during the year
ended May 31, 2016 (the year ended May 31, 2015: $144,000). As at May 31,
2016 and 2015, accounts payable included $306,000 of unpaid CEO
fees.
|
|
|
|
|
|
|
|
During the years ended May 31, 2016 and 2015, the Company
paid $36,000 representing 60% of annual rental expenses associated with
renting the CEO’s family house in Tanzania, pursuant to the underlying
Executive Services Agreement.
|
|
|
|
|
|
|
|
In addition, during the year ended May 31, 2016, the
Company paid geological service fees of $35,000 (the year ended May 31,
2015: $36,000) to a private company controlled by a person who is related
to the CEO. This amount is included in exploration expenses.
|
|
|
|
|
|
|
c)
|
During the year ended May 31, 2016, the Company incurred
administration and consulting services fees of $68,076 (the year ended May
31, 2015: $77,644) to a private company controlled by the Company’s Chief
Financial Officer (the “CFO”). The Company also incurred salary of $40,845
(the year ended May 31, 2015: $47,553) to the Company’s CFO. These amounts
are included in general and administrative expense.
|
|
|
|
|
|
|
d)
|
During the year ended May 31, 2016, the Company’s Board
of Directors reached a directors’ resolution, effective June 1, 2015,
which ratified the waiver of the Company’s monetary directors’ fees. As
such, during the year ended May 31, 2016, the Company incurred $Nil of
directors’ fees (the year ended May 31, 2015: $72,500). As at May 31, 2016
and 2015, accounts payable included $145,000 of unpaid independent
directors’ fees.
|
F - 11
Handeni Gold Inc.
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements as of May 31, 2016 and 2015
(Expressed in U.S. dollars)
|
9.
|
Common Stock and Additional Paid-in
Capital
|
|
|
|
|
|
The authorized common stock of the Company consists of
500,000,000 shares, with $0.001 par value.
|
|
|
|
|
|
On June 8, 2016, the Company effected a reverse stock
split (the “Reverse Split”) of its issued and outstanding shares of common
stock, in which one (1) new share was exchanged for one-hundred-fifty
(150) old shares (1:150), as set for in a Certificate of Amendment to the
Company’s Articles of Incorporation effected and filed on May 24, 2016
with the Nevada Secretary of State.
|
|
|
|
|
|
As a result of the Reverse Split, the Company’s issued
and outstanding shares of common stock have decreased from 321,416,653
shares of common stock to 2,142,848 shares of common stock. The Company
gave retroactive effect in these consolidated financial statements for the
Reverse Split at May 31, 2016 and 2015.
|
|
|
|
|
10.
|
Stock Options
|
|
|
|
|
|
The Company adopted a Stock Option Plan, dated November
29, 2010 (the “November 2010 Stock Incentive Plan”), under which the
Company is authorized to grant stock options to acquire up to a total of
266,667 (40,000,000 pre-consolidation) shares of common shares. During the
years ended May 31, 2016 and 2015, there were no stock options granted or
exercised. As at May 31, 2016 and 2015, all stock options were fully
vested with no intrinsic values. At May 31, 2016 and 2015, the Company had
71,333 (10,700,000 pre- consolidation) shares of common stock available to
be issued under the November 2010 Stock Incentive
Plan.
|
The following table summarizes the
continuity of the Company’s stock options:
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted Average
|
|
|
Aggregate
|
|
|
|
|
|
Number of
|
|
|
Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Contractual Term
|
|
|
Value
|
|
|
|
|
|
#
|
|
|
$
|
|
|
(years)
|
|
|
$
|
|
|
|
Outstanding, May 31, 2014
|
|
188,667
|
|
|
35.10
|
|
|
6.56
|
|
|
-
|
|
|
|
Outstanding, May 31, 2015
|
|
188,667
|
|
|
35.10
|
|
|
5.56
|
|
|
-
|
|
|
|
Outstanding and exercisable, May 31, 2016
|
|
188,667
|
|
|
35.10
|
|
|
4.56
|
|
|
-
|
|
The stock options outstanding are
exercisable for cash or on a cashless exercise basis using a prorated formula
whereby the number of shares issuable is equal to (a) the average closing price
for the five days prior to exercise date (“ACP”) in excess of the exercise
price, divided by (b) the exercise price multiplied by (c) the number of options
exercised. During the year ended May 31, 2016 and 2015, no cashless stock
options were exercised.
|
11.
|
Fair Value Measurements
|
ASC 820,
Fair Value Measurements and
Disclosures
, requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value. ASC 820
establishes a fair value hierarchy based on the level of independent, objective
evidence surrounding the inputs used to measure fair value. A financial
instrument’s categorization within the fair value hierarchy is based upon the
lowest level of input that is significant to the fair value measurement. ASC 820
prioritizes the inputs into three levels that may be used to measure fair value:
Level 1
applies to assets or
liabilities for which there are quoted prices in active markets for identical
assets or liabilities.
Level 2
applies to assets or
liabilities for which there are inputs other than quoted prices that are
observable for the asset or liability such as quoted prices for similar assets
or liabilities in active markets; quoted prices for identical assets or
liabilities in markets with insufficient volume or infrequent transactions (less
active markets); or model-derived valuations in which significant inputs are
observable or can be derived principally from, or corroborated by, observable
market data.
Level 3
applies to assets or
liabilities for which there are unobservable inputs to the valuation methodology
that are significant to the measurement of the fair value of the assets or
liabilities.
Pursuant to ASC 820, the fair value of
cash and restricted cash equivalent are determined based on Level 1 inputs,
which consist of quoted prices in active markets for identical assets. As at May
31, 2016 and 2015, there were no Level 2 and Level 3 inputs and no liabilities
measured at fair value on a recurring basis presented on the Company’s
consolidated balance sheets.
Management believes that the recorded
values of all of the Company’s other financial instruments approximate their
current fair values because of their nature and respective maturity dates or
durations. Assets measured at fair value on a recurring basis were presented on
the Company’s consolidated balance sheets as of May 31, 2016 and 2015, as
follows:
F - 12
Handeni Gold Inc.
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements as of May 31, 2016 and 2015
(Expressed in U.S. dollars)
|
11.
|
Fair Value Measurements
(continued)
|
|
|
|
|
Fair Value
Measurements Using
|
|
|
|
|
|
Quoted Prices in Active
|
|
|
Balance as of
|
|
|
Quoted Prices in Active
|
|
|
Balance as of
|
|
|
|
|
|
Markets For Identical
|
|
|
May 31,
|
|
|
Markets For Identical
|
|
|
May 31,
|
|
|
|
|
|
Instruments (Level 1
|
)
|
|
2016
|
|
|
Instruments (Level 1
|
)
|
|
2015
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$
|
52,373
|
|
$
|
52,373
|
|
$
|
85,985
|
|
$
|
85,985
|
|
|
|
Restricted cash equivalent
|
|
13,158
|
|
|
13,158
|
|
|
13,858
|
|
|
13,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
|
$
|
65,531
|
|
$
|
65,531
|
|
$
|
99,843
|
|
$
|
99,843
|
|
The Company operates in one reportable
segment, being the acquisition and exploration of mineral properties. Segmented
information has been compiled based on the geographic regions that the Company
and its subsidiary registered and performed exploration and administration
activities. Assets by geographical segment are as follows:
|
|
|
|
Canada
|
|
|
Tanzania, Africa
|
|
|
Total
|
|
|
|
Current assets
|
$
|
42,193
|
|
$
|
26,263
|
|
$
|
68,456
|
|
|
|
Restricted cash
equivalent
|
|
13,158
|
|
|
-
|
|
|
13,158
|
|
|
|
Mineral
licenses
|
|
-
|
|
|
1,415,000
|
|
|
1,415,000
|
|
|
|
Equipment, net
|
|
-
|
|
|
358
|
|
|
358
|
|
|
|
Total assets, at May 31, 2016
|
$
|
55,351
|
|
$
|
1,441,621
|
|
$
|
1,496,972
|
|
|
|
|
|
Canada
|
|
|
Tanzania, Africa
|
|
|
Total
|
|
|
|
Current assets
|
$
|
61,447
|
|
$
|
63,595
|
|
$
|
125,042
|
|
|
|
Restricted cash
equivalent
|
|
13,858
|
|
|
-
|
|
|
13,858
|
|
|
|
Mineral
licenses
|
|
-
|
|
|
1,650,000
|
|
|
1,650,000
|
|
|
|
Equipment, net
|
|
332
|
|
|
1,142
|
|
|
1,474
|
|
|
|
Total assets, at May 31, 2015
|
$
|
75,637
|
|
$
|
1,714,737
|
|
$
|
1,790,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended May 31,
2016
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
$
|
641,696
|
|
$
|
231,101
|
|
$
|
872,797
|
|
|
|
For the Year Ended May 31,
2015
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
$
|
692,604
|
|
$
|
473,358
|
|
$
|
1,165,962
|
|
The Company accounts for income taxes
under ASC 740,
Income Taxes
. Deferred income tax assets and liabilities
are determined based upon differences between financial reporting and tax bases
of assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. The
measurement of deferred income tax assets is reduced, if necessary, by a
valuation allowance for any tax benefits, which are, on a more likely than not
basis, not expected to be realized. The effect on deferred income tax assets and
liabilities of a change in tax rates is recognized in the period that such tax
rate changes are enacted.
The Company is subject to U.S. federal
and state income tax and has concluded substantially all U.S. federal and state
income tax matters for tax years through May 31, 2013. The tax filings for years
from 2014 to 2016 are subject to audit by U.S. jurisdictions. The Company’s
Canadian office has filed its Canadian corporate income tax returns under the
“Voluntary Disclosure Program”, and the tax filings for years from 2014 to 2016
are subject to audit by Canadian jurisdictions. The Company’s Tanzania
subsidiaries are subject to Tanzania income tax, the tax filings for the years
from 2014 to 2016 are subjected to audit by Tanzania jurisdictions.
Income tax expense differs from the
amount that would result from applying the U.S. federal income tax rates to
earnings before income taxes. The Company has net operating losses carried
forward of approximately $32 million available to offset taxable income in
future years which begin expiring in fiscal 2024. Pursuant to ASC 740, the
potential benefits of the net operating losses carried forward has not been
recognized in the consolidated financial statements since the Company cannot be
assured that it is more likely than not that such benefit will be utilized in
future years.
F - 13
Handeni Gold Inc.
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements as of May 31, 2016 and 2015
(Expressed in U.S. dollars)
|
13.
|
Income Taxes (continued)
|
The income tax benefit differs from the
amount computed by applying the federal income tax rate of 35% to net loss
before income taxes for the years ended May 31, 2016 and 2015 as a result of the
following:
|
|
|
|
May 31, 2016
|
|
|
May 31, 2015
|
|
|
|
|
|
$
|
|
|
$
|
|
|
|
Loss before taxes
|
|
(872,797
|
)
|
|
(1,165,962
|
)
|
|
|
Statutory rate
|
|
35%
|
|
|
35%
|
|
|
|
Computed expected tax recovery
|
|
(305,479
|
)
|
|
(408,087
|
)
|
|
|
Permanent differences
|
|
84,932
|
|
|
397,865
|
|
|
|
Foreign tax rate differences
|
|
6,611
|
|
|
(27,168
|
)
|
|
|
Valuation allowance change
|
|
213,936
|
|
|
37,390
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
–
|
|
|
–
|
|
The significant components of deferred
income tax assets and liabilities at May 31, 2016 and 2015, after applying
enacted federal income tax rates, are as follows:
|
|
|
|
May 31,2016
|
|
|
May 31,2015
|
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating losses carried
forward
|
|
11,428,611
|
|
|
10,734,304
|
|
|
|
Capital losses available
|
|
19,975
|
|
|
19,975
|
|
|
|
Mineral properties tax basis
in excess of book value
|
|
1,737,784
|
|
|
2,218,155
|
|
|
|
Valuation allowance
|
|
(13,186,370
|
)
|
|
(12,972,434
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax assets
|
|
–
|
|
|
–
|
|
The Company has recognized a valuation
allowance for the deferred income tax asset since the Company cannot be assured
that it is more likely than not that such benefit will be utilized in future
years. When circumstances change and which cause a change in management’s
judgment about the realizability of deferred income tax assets, the impact of
the change on the valuation allowance is generally reflected in current income.
F - 14
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS
WITH
ACCOUNTANTS
ON
ACCOUNTING
AND
FINANCIAL DISCLOSURE
|
We have had no disagreements with our principal independent
accountants.
|
ITEM 9A.
|
CONTROLS AND PROCEDURES
|
Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the
participation of the Company’s management, including the Company’s Chief
Executive Officer (“CEO”), Reyno Scheepers, and the Company’s Chief Financial
Officer (“CFO”), Melinda Hsu, of the effectiveness of the design and operation
of the Company’s disclosure controls and procedures pursuant to Rules 13a-15b)
and 15d-15b) under the Exchange Act as of the end of the period covered by this
annual report. Based upon the evaluation, the Company’s CEO and CFO have
concluded that our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act) were not effective as of the end
of the period covered by this annual report, due to the deficiencies in our
internal control over financial reporting as described below under Management’s
Annual Report on Internal Control over Financial Reporting.
Management’s Annual Report on Internal Control over
Financial Reporting
The Company’s management is responsible for establishing and
maintaining adequate internal control over financial reporting, as defined in
Rules 13a-15(f) under the Exchange Act.
The management of the Company assessed the effectiveness of the
Company’s internal control over financial reporting based on the criteria for
effective internal control over financial reporting established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (“COSO”) and SEC guidance on conducting such
assessments. Based on this assessment, management concluded that, as of the end
of our fiscal year ended May 31, 2016, our internal control over financial
reporting was not effective due to material weaknesses, as more fully described
below.
Management identified the following material weaknesses in
internal control over financial reporting:
|
|
1.
|
Certain entity level controls establishing a “tone at the
top” were considered material weaknesses.
|
|
|
|
|
|
|
2.
|
The Company’s board of directors and executive officers
are located in multiple countries, which have caused limited segregation
of duties and are not consistent with good internal control
procedures.
|
|
|
|
|
|
|
3.
|
The Company has a limited management team with limited
employees to establish sufficient segregation of duties, which was
considered a material weakness.
|
Management believes that the material weaknesses set forth
above did not have a material impact on the Company’s financial results and
information required to be disclosed by the Company in its reports that it files
or submits to the SEC under the Exchange Act within the time period specified in
applicable rules and forms. However, management believes that these material
weaknesses resulting in ineffective oversight in the establishment and
monitoring of required internal control over financial reporting can impact the
Company’s financial statements for future years. As a result material errors
could occur.
The Company and its management are endeavoring to correct the
above noted weaknesses in internal control over financial reporting. We have
established an audit committee, corporate governance and compensation committee
with sufficient independent members, and we have identified an “expert” for the
audit committee to advise other members as to correct accounting and reporting
procedures. In addition, we are establishing written policies outlining the
duties of each of the directors and officers of the Company to facilitate better
internal control procedures.
Management will continue to monitor and evaluate the
effectiveness of the Company’s internal controls and procedures and its internal
controls over financial reporting on an ongoing basis and is committed to taking
further action and implementing additional enhancements or improvements, as
necessary and as funds allow.
Changes in Internal Control Over Financial Reporting
There were no changes to our internal control over financial
reporting that occurred during the last quarter of our fiscal quarter ended May
31, 2016, that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
|
ITEM 9B.
|
OTHER INFORMATION
|
None.
23
|
ITEM 10.
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
|
Our executive officers and directors and their respective ages
as of the date of this annual report are as follows:
|
Name
|
Age
|
Position Held
|
Board Committee
Memberships
|
|
|
|
|
|
|
Reginald Mengi
|
73
|
Chairman and Director
|
N/A
|
|
|
|
|
|
|
Reyno Scheepers
|
59
|
President, Chief Executive
Officer and a director
|
Corporate Governance and
Compensation Committee, Technical
Committee.
|
|
|
|
|
|
|
William Lamarque
|
61
|
Vice Chairman and Director
|
Audit Committee (Chair)
|
|
|
|
|
|
|
Emmanuel Ole Naiko
|
64
|
Director
|
Corporate Governance and
Compensation Committee (Chair);
Audit Committee
|
|
|
|
|
|
|
Douglas Boateng
|
51
|
Director
|
Corporate Governance and
Compensation Committee
|
|
|
|
|
|
|
Gizman Abbas
|
43
|
Director
|
Audit Committee
|
|
|
|
|
|
|
Melinda Hsu
|
52
|
Chief Financial Officer,
Secretary and Treasurer
|
N/A
|
|
|
|
|
|
The following describes the business experience of each of our
directors and executive officers, including other directorships held in
reporting companies:
Reginald Mengi
has served as our Chairman of our
Board of Directors since September 21, 2010. Mr. Reginald Mengi is the Chairman
and owner of IPP Gold Limited. He also chairs IPP Ltd., one of the largest
private sector holding companies in Tanzania. Mr. Mengi commenced IPP Ltd.’s
business in the mid 1980’s manufacturing ball point pens. Today the IPP group of
companies is engaged in various areas including bottling of Coca Cola products,
drinking water, manufacturing and bottling of drinks and spirits, mining of
minerals and gemstones, gemstone cutting, lapidary and media.
Until 1985, Mr. Mengi also worked as a Chartered Accountant for
Coopers & Lybrand Tanzania where he served in the role as Chairman and
Managing Partner and led auditing and consultancy teams and participated in the
establishment of companies and institutions.
Reyno Scheepers
has served as a director since
September 21, 2010 and as our President and Chief Executive Officer since
November 21, 2011. Dr. Reyno Scheepers’ involvement with the mining industry
stretches for a period of more than 30 years. He started off as a researcher at
the Fuel Research Institute (CSIR) of South Africa where he gained experience in
the composition and characteristics of various South African coal fields. This
was followed by a two year period as a geologist at a South African gold mine
where he gained experience in underground geology, underground and surface
exploration and gold exploration project planning. He then joined the University
of Stellenbosch where he became associated professor in petrology/mineralogy in
1999.
Since 1998 Dr. Scheepers directed his efforts towards the
investigation of gemstone deposits covering alluvial and kimberlitic diamond
deposits in South Africa, the Democratic Republic of the Congo and in Tanzania.
One of his major achievements in Tanzania was the investigation of the geology
and technical aspects of the Merelani tanzanite deposit which eventually led to
the successful listing of the first colored gemstone company on the Johannesburg
Stock Exchange and eventually the AIM (London).
Dr. Scheepers is also closely
involved in the application and development of geochemical analytical techniques
and was in charge of the running of an XRF laboratory, an ICP-AES laboratory and
a micro thermometric laboratory. He participated in the development of
international geochemical reference standards and completed numerous challenging
analytical problems for the industry over the years.
Dr. Scheepers’ interest in providing small scale miners with
the necessary skills to conduct safe and effective mining led to the
establishment of the Gemstone Research Centre at Stellenbosch University. Dr.
Scheepers received his B.Sc. (Hons), Cum Laude in 1979, his M.Sc, Cum Laude in
1982 and his PhD in 1990 from the University of Stellenbosch. He is currently
affiliated professor at the University of the Free State.
William Lamarque
has served as a director since
March 15, 2012, our Vice Chairman of the Board of Directors and the Chairman of
the Audit Committee since April 10, 2012. Mr. Lamarque currently serves as the
Chief Executive Officer of Ecometals Ltd. He is also a Partner and co-founder of
Balor Capital Management, LLC. Mr. Lamarque is, prior to his Handeni Gold
appointment, on the board of three privately held and one publicly traded mining
company, and President of Hanson Capital Asia Ltd.
24
On graduating from Cambridge University where he won an Open
Exhibition in Classics, Mr Lamarque joined Jardine Matheson and Co, a Hong Kong
based group with interests in trading, shipping, civil aviation, engineering,
construction, property and financial services, focused on East Asia. He had
postings in London, Hong Kong and Shanghai and studied Chinese at the Mandarin
Daily News Institute in Taipei, before becoming the General Manager responsible
for the Group's overall activities in the Peoples’ Republic of China (“PRC”).
Mr. Lamarque joined NM Rothschild and Sons, the London based
investment bank, in 1986, as PRC country manager, on the boards of the bank's
affiliates in Hong Kong and Singapore. Returning to London in 1989, Mr Lamarque
became a main board director of the bank and held various positions within the
Treasury Division, with an emphasis on precious and LME metals trading and mine
finance, and the bank's activities in emerging markets, in particular with the
official sector. He moved to New York in 2000, to head the Group's Treasury
activities in the Americas. Mr Lamarque left Rothschilds in 2002 to join Hanson
Capital, a London based boutique investment bank and was a founding partner of
Balor Capital, a private trading and derivative advisory business based on Wall
Street in 2006. Mr Lamarque sits on various mining company boards including
those of Ecometals (for which he is also CEO) and Ivanplats, a large privately
held exploration company with interests in the DRC and South Africa. He is also
a non-executive director of a UK-based warehousing and trucking company, Hanson
Logistics. At various times Mr Lamarque has served on the World Gold Council's
Central Bank Committee and the China Committee of British Invisibles and has
chaired the Public Affairs Committee of the London Bullion Market Association.
He was also for several years a Member of the Comex.
Emmanuel Ole Naiko
has served as a
director since April 16, 2012. Mr. Naiko currently serves as the managing
director of Stesta Consulting, a firm focusing on among other things, mining
advisory services. Mr. Naiko is a qualified mining and metallurgical engineer
and a professional member of the American Society of Mining Engineers and
Metallurgists. In 2011, Mr. Naiko retired after five years as Chief Executive
Officer of the Tanzanian Investment Centre. Mr. Naiko’s extensive experience
during the course of his career includes serving in the following positions:
Vice President, World Association of Investment Promotion Agencies (WAIPA);
board member, Tanzania State Mining Corporation; board member, Tanzania
Petroleum Development Corporation; board member, Bank of Africa; board member,
Tanzania Private Sector Foundation; board member, Maganga-Mtatitu Iron Project;
and board member, University of Dar-es-Salaam Investment Committee.
Mr. Naiko graduated from the Haileybury School of Mines
(Canada) and Colorado School of Mines (USA). He also holds investment
educational certificates from the Centre for Applied Studies on International
Negotiations (Switzerland), Nanning Technological University (Singapore) and the
Hans Seidel Foundation (Germany).
Douglas Boateng
has served as a director since
September 21, 2010 and as our President and Chief Executive Officer from August
18, 2011 to November 20, 2011. Dr. Douglas Boateng has over 18 years of
extensive multi-sector international experience. His career includes positions
as a CEO, director and senior level consulting in Technology (ICT),
Chemicals/Pharma-chemical, Pharmaceutical and Biotechnology, Aviation,
Engineering, Business management, Mergers and Acquisitions, Strategic alliance
and partnerships, Logistics and Supply Chain Management, Media, Consulting,
Corporate and Strategic Business Development, Corporate Governance and Advisory
services to selected Government ministries. Dr. Boateng has also successfully
worked and consulted for some of the world’s leading corporation’s in Europe,
the United States and Africa.
Prior to joining the Company, Dr. Boateng founded PanAvest
International, an organization with a vision to assist companies profitably
extend their market reach through the application of innovative Business
Development Logistics and Supply Chain Management solutions. He has acted as an
independent advisor and consultant to one of Scandinavia’s largest generic
pharmaceutical companies on logistics, supply chain and business development and
strategies and one of Africa’s leading healthcare distributors. Dr. Boateng is
also a post graduate visiting professor on logistics and supply chain management
and a Masters and Doctoral project supervisor at one of Africa’s largest and
most respected business schools. He current sits on the editorial board of Smart
Procurement, the largest supply chain related portal in Africa and the Middle
East.
Dr. Boateng holds a Graduate Diploma in Company Direction from
the Institute of Directors, a Doctorate in Engineering Business Management from
the University of Warwick-UK, an MSc in Industrial Logistics from the University
of Central England-UK and a post graduate diploma in transport and logistics
from Cranfield Institute of Technology, UK.
Gizman Abbas
has served as a director
since February 1, 2012. Mr. Gizman Abbas is Managing Partner, DI Development
LLC, a development company focusing on the New York City real estate market,
which he founded in 2011 to take advantage of the opportunities resulting from
the 2008 financial downturn. Before DI Development, Mr. Abbas was a Partner at
Apollo Commodities Partners, L.P., where he helped build Apollo Global
Management’s newly established commodities business. He joined Apollo from
Goldman Sachs where he was a Vice President in the Commodities Asset Investment
business. While at Goldman, he worked on transactions involving resources,
power, biofuels, emissions and agriculture. Prior to joining Goldman, he was a
banker at Morgan Stanley where he spent time in the power and energy banking
group.
Mr. Abbas began his career at Southern Company working at a
coal-fired power plant, followed by a period as an oil and gas engineer at Exxon
Mobil. Mr. Abbas graduated with a B.S. in Electrical Engineering from Auburn
University and received his MBA from the Kellogg School of Management at
Northwestern University.
Melinda Hsu
has served as our Secretary,
Treasurer and Chief Financial Officer since March 1, 2012 and as our controller
since November 2011. Ms. Hsu has been the president and principal of AMICA
Resource Inc. (“AMICA”), a private company, since September 2007. Ms. Hsu had
worked for various public and private companies, including Dejour Energy Inc. as
a senior consultant from February 2011to April 2013 and as a controller
from September 2007 to April 2008, Silverado Gold Mines Ltd. as a controller
from April 2008 to October 2010 and Manex Resource Group from December 2005 to
September 2007.
25
Ms. Hsu has been directly involved in mining and oil and gas
industries for more than ten years, with strengths in Canadian and U.S. public
financial reporting and regulatory compliance, Canadian and U.S. tax, internal
control policies, budgeting and strategic planning. In addition, Ms. Hsu has
over 25 years of diversified business experience in areas of accounting,
finance, budget, corporate development, marketing and administration experience
in Canada and China. She received her Certified General Accountant designation
(now CPA, CGA) from the CGA Association of British Columbia, Canada, in 2004 and
graduated from Renmin University of China in 1988 with a Master’s degree in
Business Administration.
Term of Office
Our directors are appointed for a one-year term to hold office
until the next annual general meeting of our stockholders or until removed from
office in accordance with our bylaws. Our officers are appointed by our Board of
Directors and hold office until removed by the Board.
Board of Directors Meetings
During the fiscal year ended May 31, 2016, our board of
directors had three Board of Directors meetings, three Audit Committee meetings,
and one Corporate Governance and Compensation Committee meetings.
Significant Employees
Other than the officers and directors described above, as at
May 31, 2016, we had approximate four full-time equivalent employees and
consultants located in Tanzania. We also retain independent geologists and
consultants on a contract basis to conduct the work programs on our mineral
properties in order to carry out our plan of operations.
Family Relationships
There are no family relationships among our directors or
officers.
Involvement in Certain Legal Proceedings
To the best of our knowledge and belief, none of our directors
or executive officers has been involved in any of the following events during
the past ten years that is material to an evaluation of the ability of such
person to serve as an executive officer or director of our Company:
|
|
1.
|
a petition under the Federal bankruptcy laws or any state
insolvency law was filed by or against, or a receiver, fiscal agent or
similar officer was appointed by a court for the business or property of
such person, or any partnership in which he was a general partner at or
within two years before the time of such filing, or any corporation or
business association of which he was an executive officer at or within two
years before the time of such filing;
|
|
|
|
|
|
|
2.
|
such person was convicted in a criminal proceeding or is
a named subject of a pending criminal proceeding (excluding traffic
violations and other minor offenses);
|
|
|
|
|
|
|
3.
|
such person was the subject of any order, judgment, or
decree, not subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining him from, or
otherwise limiting, the following activities:
|
|
|
|
(i)
|
acting as a futures commission merchant, introducing
broker, commodity trading advisor, commodity pool operator, floor broker,
leverage transaction merchant, any other person regulated by the Commodity
Futures Trading Commission, or an associated person of any of the
foregoing, or as an investment adviser, underwriter, broker or dealer in
securities, or as an affiliated person, director or employee of any
investment company, bank, savings and loan association or insurance
company, or engaging in or continuing any conduct or practice in
connection with such activity;
|
|
|
|
(ii)
|
engaging in any type of business practice; or
|
|
|
|
(iii)
|
engaging in any activity in connection with the purchase
or sale of any security or commodity or in connection with any violation
of Federal or State securities laws or Federal commodities
laws;
|
|
|
4.
|
such person was the subject of any order, judgment or
decree, not subsequently reversed, suspended or vacated, of any Federal or
State authority barring, suspending or otherwise limiting for more than 60
days the right of such person to engage in any activity described in
paragraph 3(i) above, or to be associated with persons engaged in any such
activity;
|
|
|
|
|
|
|
5.
|
such person was found by a court of competent
jurisdiction in a civil action or by the Commission to have violated any
Federal or State securities law, and the judgment in such civil action or
finding by the Commission has not been subsequently reversed, suspended,
or vacated;
|
|
|
|
|
|
|
6.
|
such person was found by a court of competent
jurisdiction in a civil action or by the Commodity Futures Trading
Commission to have violated any Federal commodities law, and the judgment
in such civil action or finding by the Commodity Futures Trading
Commission has not been subsequently reversed, suspended or
vacated;
|
26
|
|
7.
|
such person was the subject of, or a party to, any
Federal or State judicial or administrative order, judgment, decree, or
finding, not subsequently reversed, suspended or vacated, relating to an
alleged violation of:
|
|
|
(i)
|
any Federal or State securities or commodities law or
regulation;
|
|
|
(ii)
|
any law or regulation respecting financial institutions
or insurance companies including, but not limited to, a temporary or
permanent injunction, order of disgorgement or restitution, civil money
penalty or temporary or permanent cease-and-desist order, or removal or
prohibition order; or
|
|
|
(iii)
|
any law or regulation prohibiting mail or wire fraud or
fraud in connection with any business entity;
or
|
|
|
8.
|
such person was the subject of, or a party to, any
sanction or order, not subsequently reversed, suspended or vacated, of any
self-regulatory organization (as defined in Section 3(a)(26) of the
Exchange Act), any registered entity (as defined in Section 1(a)(29) of
the United States Commodity Exchange Act), or any equivalent exchange,
association, entity or organization that has disciplinary authority over
its members or persons associated with a member.
|
We are not aware of any material legal proceedings in which any
of the following persons is a party adverse to our Company or has a material
interest adverse to our Company: (a) any current director, officer, or affiliate
of the Company, or any owner of record or beneficial owner of more than five
percent of any class of voting securities of the Company; (b) any person
proposed for appointment or election as a director or officer of our Company; or
(c) any associate of any such person.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires our directors and
officers, and the persons who beneficially own more than ten percent of our
common stock, to file reports of ownership and changes in ownership with the
SEC. Copies of all filed reports are required to be furnished to us pursuant to
Rule 16a-3 promulgated under the Exchange Act. Based solely on the reports
received by us and on the representations of the reporting persons with respect
to our most recent fiscal year, we believe that these persons have complied with
all applicable filing requirements during the fiscal year ended May 31, 2016.
Code of Ethics
We have adopted a code of ethics applicable to our directors,
principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions. A copy of our
code of ethics is incorporated by reference as an exhibit to this Report and can
be reviewed on our corporate website located at
www.handenigold.com
. If
we make any amendments to our Code of Ethics other than technical,
administrative, or other non-substantive amendments, or grant any waivers,
including implicit waivers, from a provision of our Code of Ethics, we will
disclose the nature of the amendment or waiver, its effective date and to whom
it applies on our website or in a report on Form 8-K filed with the SEC.
Committees
Audit Committee
The Company’s Board of Directors has a separately-designated
standing Audit Committee established for the purpose of overseeing the
accounting and financial reporting processes of the Company and audits of the
Company’s annual financial statements in accordance with Section 3(a)(58)(A) of
the Exchange Act. As of the date of this annual report on Form 10-K, the
Company’s Audit Committee is comprised of William Lamarque (who acts as
Chairman), Gizman Abbas and Emmanuel Ole Naiko.
In the opinion of the Company’s Board of Directors, all the
members of the Audit Committee are independent (as defined under Rule 5605(c)(2)
of the NASDAQ listing rules and as determined under Rule 10A-3 of the Exchange
Act). Mr. William Lamarque services as the Chairman of the Audit Committee and
is qualified as an audit committee financial expert pursuant to the definition
adopted by SEC and Sections 407 of the Sarbanes-Oxley Act. All three members of
the Audit Committee are financially literate, meaning they are able to read and
understand the Company’s financial statements and to understand the breadth and
level of complexity of the issues that can reasonably be expected to be raised
by the Company’s financial statements.
The members of the Audit Committee do not have fixed terms and
are appointed and replaced from time to time by resolution of the Board of
Directors.
The Audit Committee is to assist the Board of Directors in
fulfilling its oversight responsibilities and its primary duties and
responsibilities are to:
|
|
•
|
review management’s identification of principal
financial risks and monitor the process to manage such risks;
|
|
|
•
|
oversee and monitor the Company’s compliance
with legal and regulatory requirements;
|
|
|
•
|
receive and review the reports of the Audit
Committee of any subsidiary with public securities;
|
|
|
•
|
oversee and monitor the integrity of the
Company’s accounting and financial reporting processes, financial
statements and system of internal controls regarding accounting and
financial reporting and accounting compliance;
|
|
|
•
|
oversee the audit of the Company’s financial
statements;
|
|
|
•
|
oversee and monitor the qualifications,
independence and performance of the Company’s external auditors and
internal auditing department;
|
|
|
•
|
provide an avenue of communication among the
external auditors, management, the internal auditing department and the
Board of Directors; and
|
|
|
•
|
report to the Board of Directors regularly.
|
27
The Audit Committee has the authority to conduct any review or
investigation appropriate to fulfilling its responsibilities. It shall have
unrestricted access to personnel and information, and any resources necessary to
carry out its responsibility. In this regard, the Audit Committee may direct
internal audit personnel to particular areas of examination.
Corporate Governance and Compensation
Committee
The Company has combined the Corporate Governance Committee and
the Compensation Committee into a Corporate Governance and Compensation
Committee since January 22, 2013. As of the date of this annual report on Form
10-K, the Company’s Corporate Governance and Compensation Committee is comprised
of three directors, Emmanuel Ole Naiko (who acts as Chairman), Reyno Scheepers
and Douglas Boateng. Mr. Reyno Scheepers and Mr. Douglas Boateng are not
independent as defined under Rule 5605(c)(2) of the NASDAQ listing rules and as
determined under Rule 10A-3 of the Exchange Act.
The Corporate Governance and Compensation Committee is to (i)
identify and recommend to the Board individuals qualified to be nominated for
election to the Board, (ii) recommend to the Board the members and Chair for
each Board committee and (iii) periodically review and assess the Corporation’s
corporate governance principles and make recommendations for changes thereto to
the Board, (iv) assist the Board in fulfilling its oversight responsibilities
relating to officer and director compensation, succession planning for senior
managements, development and retention of senior management, and such other
duties as directed by the Board.
Steering Committee
Since January 2013, the Steering Committee has been
specifically established for the purpose of overseeing, directing and monitoring
administrative and financial affairs, corporate priorities and future direction,
key business issues and major operation activities through conference meetings
when needed.
Currently the Company’s Steering Committee consists of the
following members:
|
|
•
|
William Lamarque (who acts as Chairman),
Vice Chairman and Director
|
|
|
•
|
Reyno Scheepers, President, Chief
Executive Officer and Director
|
|
|
•
|
Gizman Abbas, Director
|
|
|
•
|
Melinda Hsu, Chief Financial
Officer
|
Technical Advisory Committee
The Technical Advisory Committee has been specifically
constituted to enable the Company to effectively operate in the geological
environments associated with mineralized systems in Archaean and Proterozoic
terranes. Additional expertise comprising other disciplines may be co-opted to
the committee from time to time, as the situation may require.
Currently the Company’s Technical Committee consists of the
following members:
Dr. P.G. Gresse (Structural- and Exploration
Geology)
is a renowned structural geologist with a lifetime experience
in Africa. He has extensive experience in field geological mapping, structural
geology and basin analysis. Dr. Gresse has been involved in various
international research and mapping programs specialising in Late Proterozoic
geology. Dr. Gresse has published widely in local and international journals
(33) and has attended and presented papers at numerous international conferences
and symposia (25).
Mr. C. Lötter (Geophysics and Exploration
Geology)
has 30 years’ experience in mining and exploration geophysics
and has run his own consulting and contracting business for 20 years. He has
extensive experience in the Greenstone terrains of southern, eastern and western
Africa as well as the Zambian and Botswana Copper belts. Mr. Lotter is involved
in survey planning and design and QC/QA and interpretation, including 2D/3D
forward and inversion modelling, on a daily basis.
Mr. E. D. Ole Naiko (Mining Engineering and Mineral
Economics)
conducted his post graduate studies in Mineral Economics and
Metallurgical Engineering at the Colorado School of Mines. He has been an
executive director of the Tanzania Investment Centre and the manager of various
state mining companies, including gold mining companies, as well as an executive
director of the TIC (Tanzania Investment Centre) in Tanzania. Mr. Naiko plays a
major role in promoting the minerals industry of the country and attracting
investment to the sector.
Mr. B. McDonald (Exploration- and Economic
Geology)
is an exploration geologist with vast experience in Africa,
South America, Mexico, and Cuba. He has been exploration manager on numerous
successful projects for various prestigious companies including Billiton
S.A.(aka BHP Billiton) and GENCOR S.A. as well as managing exploration projects
for smaller companies including Trans Hex, the O’Okiep Copper Company, and along
with numerous others. The commodities within his experience portfolio span from
base metals, gold, precious metals, asbestos, uranium, diamonds, and coloured
gemstones. His gold experience covers the spectrum from sedimentary to high
grade metamorphic related gold. Complementing his geological achievements are
his people skills, often successfully managing a work force of more than 100
people, including several teams of professionals concurrently under difficult
operational conditions.
Dr. R. Scheepers (Petrology, Geochemistry, Exploration
Geology
) has been
involved with geology and the mining
industry over a period of 28 years. He is the Company’s CEO and a director. Dr.
Scheepers is a registered Professional Natural Scientist in Geological Science
and a member of:
|
|
•
|
Geological Society of South Africa (since
1984);
|
28
|
|
•
|
SACNASP Registered (since 1984);
|
|
|
•
|
The Mineralogical Society of South Africa (1996
to 2001);
|
|
|
•
|
Geological Society Western Province Branch
(1985 to 2002);
|
|
|
•
|
Society of Geology Applied to Mineral Deposits
(1989 to 1997);
|
|
|
•
|
Council member: Geological Society of South
Africa (1996 to 1999);
|
|
|
•
|
Council member: The Mineralogical Society of
South Africa (2002);
|
|
|
•
|
Committee member: Geological Society Western
Province Branch (1985 to 1989); and
|
|
|
•
|
Committee member: The S.A. Code for
Stratigraphy Committee, since 1993.
|
|
ITEM 11.
|
EXECUTIVE COMPENSATION
|
Compensation Discussion and Analysis
The table below summarizes all compensation awarded to, earned
by or paid to our executive officers by any person for all services rendered in
all capacities to us during our fiscal years ended May 31, 2016 and 2015.
Summary Compensation Table
Name and Principal
Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-
Equity
Incentive
Plan
Comp-
ensation
($)
|
Non-
qualified
Deferred
Comp-
ensation
Earnings
($)
|
All Other
Compensation
($)
|
Total
($)
|
Reyno Scheepers
(1)
President & Chief
Executive Officer
|
2016
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
36,000
(1a)
|
36,000
|
|
2015
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
180,000
(1b)
|
180,000
|
Melinda Hsu
(2)
Chief Financial Officer,
Secretary and Treasurer
|
2016
|
40,846
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
68,076
(2a)
|
108,922
|
|
2015
|
47,553
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
77,644
(2b)
|
125,197
|
Douglas Boateng
(3)
Former President &
Chief Executive Officer
|
2016
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
(3a)
|
Nil
|
|
2015
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
7,500
(3b)
|
7,500
|
|
(1)
|
Mr. Scheepers was appointed as our President and Chief
Executive Officer effective on November 21, 2011 and as our Chief
Operating Officer effective on October 6, 2011. Mr. Scheepers has been a
director since September 21, 2010. The “Other Compensation” to Mr.
Scheepers consists of:
|
|
|
a)
|
$36,000 represents the payment of 60% of rental expenses
associated with renting Mr. Scheepers’ family house in Dar Es Salaam,
Tanzania pursuant to his Executive Services Agreement with the Company; As
at May 31, 2016, a total of $306,000 executive fees remained as
payable.
|
|
|
b)
|
$144,000 in executive and administration service fees
incurred during the fiscal year ended May 31, 2015 and $36,000 which
represents the payment of 60% of rental expenses associated with renting
Mr. Scheepers’ family house in Dar Es Salaam, Tanzania pursuant to his
Executive Services Agreement with the Company; As at May 31, 2015, a total
of $306,000 remained as payable.
|
|
(2)
|
Ms. Hsu was appointed as our Chief Financial Officer,
Secretary and Treasurer effective on March 1, 2012. The “Other
Compensation” to Ms. Hsu consists of:
|
|
|
a)
|
$68,076 in executive and consulting service fees during
the fiscal year ended May 31, 2016 earned by a private company controlled
by Ms. Hsu.
|
|
|
b)
|
$77,644 in executive and consulting service fees during
the fiscal year ended May 31, 2015 earned by a private company controlled
by Ms. Hsu. As at May 31, 2015, a total of $3,615 remained as a
payable.
|
|
(3)
|
Mr. Boateng was appointed as our President and Chief
Executive Officer effective on August 18, 2011 and resigned effective on
November 21, 2011. Mr. Boateng has been a director since September 21,
2010. The “Other Compensation” to Mr. Boateng consists
of:
|
|
|
a)
|
$Nil of director’s fees incurred during the fiscal year
ended May 31, 2016; a total of $21,250 fees remained as payable as at May
31, 2016.
|
|
|
b)
|
$7,500 of director’s fees incurred during the fiscal year
ended May 31, 2015; a total of $21,250 fees remained as payable as at May
31, 2015.
|
Compensation of Directors
During the fiscal year ended May 31, 2016, the Company’s Board
of Directors reached a directors’ resolution, effective June 1, 2015, which
ratified the waiver of the Company’s monetary directors’ fees. As such, during
the fiscal year ended May 31, 2016, the Company incurred $Nil of directors’
fees.
The table below summarizes all compensation awarded to, earned
by or paid to our current or former directors during our fiscal year ended May
31, 2016. Certain of our current or former directors served or have served as
officers of the Company and any compensation they received due to their services
are disclosed in the table above and are not included in the table below.
29
Director Compensation
Name and
Principal
Position
|
Fees earned
or paid in
cash
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive
Plan
Compen-
sation
($)
|
Nonqualified
Deferred
Compen-
sation
Earnings
($)
|
All
Other
Compen-
sation
($)
|
Total
($)
|
|
Reginald Mengi
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
|
Reyno Scheepers
(1)
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
|
Douglas Boateng
(1)
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
|
William Lamarque
(2)
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
|
Emmanuel Naiko
(3)
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
|
Gizman Abbas
(4)
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
|
(1)
|
See summary compensation table above.
|
|
(2)
|
A total of 26,500 director’s fees remained as payable as
of May 31, 2016.
|
|
(3)
|
A total of 55,500 director’s fees remained as payable as
of May 31, 2016.
|
|
(4)
|
A total of 41,750 director’s fees remained as payable as
of May 31, 2016.
|
Outstanding Equity Awards
The following table sets forth information at our fiscal year
ended May 31, 2016 relating to outstanding equity awards that have been granted
to the directors and named executive officers listed in the tables above:
|
OUTSTANDING EQUITY AWARDS AT FISCAL
YEAR-END
|
|
OPTION AWARDS
|
|
STOCK AWARDS
|
|
|
|
|
|
|
|
|
|
|
Equity
|
Equity
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
Incentive
|
|
|
|
|
|
|
|
|
|
|
Plan
|
Plan
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
Awards:
|
|
|
|
|
Equity
|
|
|
|
|
|
Number
|
Market or
|
|
|
|
|
Incentive
|
|
|
|
|
|
of
|
Payout
|
|
|
|
|
Plan
|
|
|
|
|
Market
|
Unearned
|
Value of
|
|
|
|
|
Awards:
|
|
|
|
|
Value of
|
Shares,
|
Unearned
|
|
|
Number of
|
Number of
|
Number of
|
|
|
|
Number of
|
Shares or
|
Units or
|
Shares,
|
|
|
Securities
|
Securities
|
Securities
|
|
|
|
Shares or
|
Units of
|
Other
|
Units or
|
|
|
Underlying
|
Underlying
|
Underlying
|
|
|
|
Units of
|
Stock
|
Rights
|
Other
|
|
|
Unexercised
|
Unexercised
|
Unexercised
|
Option
|
|
|
Stock That
|
That
|
That
|
Rights
|
|
|
Options
|
Options
|
Unearned
|
Exercise
|
Option
|
|
Have Not
|
Have Not
|
Have Not
|
That Have
|
|
Name
|
Exercisable
|
Unexercisable
|
Options
|
Price
|
Expiration
|
|
Vested
|
Vested
|
Vested
|
Not Vested
|
|
|
(#)
|
(#)
|
(#)
|
($)
|
Date
|
|
(#)
|
($)
|
(#)
|
(#)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reginald Mengi
|
66,667
|
N/A
|
N/A
|
$30.0
|
11/29/2020
|
|
N/A
|
N/A
|
N/A
|
N/A
|
|
Reyno Scheepers
|
26,667
|
N/A
|
N/A
|
$30.0
|
11/29/2020
|
|
N/A
|
N/A
|
N/A
|
N/A
|
|
|
10,000
|
N/A
|
N/A
|
$67.5
|
11/30/2021
|
|
N/A
|
N/A
|
N/A
|
N/A
|
|
Melinda Hsu
|
6,667
|
N/A
|
N/A
|
$16.5
|
03/01/2017
|
|
N/A
|
N/A
|
N/A
|
N/A
|
|
Douglas Boateng
|
30,000
|
N/A
|
N/A
|
$30.0
|
11/29/2020
|
|
N/A
|
N/A
|
N/A
|
N/A
|
|
|
20,000
|
N/A
|
N/A
|
$67.5
|
11/30/2021
|
|
N/A
|
N/A
|
N/A
|
N/A
|
|
William Lamarque
|
1,333
|
N/A
|
N/A
|
$12.0
|
07/04/2022
|
|
N/A
|
N/A
|
N/A
|
N/A
|
|
Emmanuel Naiko
|
1,333
|
N/A
|
N/A
|
$12.0
|
07/04/2022
|
|
N/A
|
N/A
|
N/A
|
N/A
|
|
Gizman Abbas
|
1,333
|
N/A
|
N/A
|
$12.0
|
07/04/2022
|
|
N/A
|
N/A
|
N/A
|
N/A
|
|
ITEM 12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
The following table sets forth certain information concerning
the number of shares of our common stock owned beneficially (post 1-for-150
reverse stock split) as of the date of this annual report by: (i) each person
(including any group) known to us to own more than 5% of any class of our voting
securities, (ii) each of our directors, (iii) each of our officers and (iv) our
officers and directors as a group. Each stockholder listed possesses sole voting
and investment power with respect to the shares shown.
30
Officers and Directors
|
Title of class
|
Name and
address of beneficial owner
(1)
|
Amount and
nature of
beneficial owner
(2)
|
Percentage of class
(3)
|
|
Common Stock
|
Reginald Mengi
(1)
|
1,055,556
(4)
|
49.26%
|
|
Common Stock
|
Reyno Scheepers
(1)
|
36,667
(5)
|
1.71%
|
|
Common Stock
|
Douglas Boateng
(1)
|
50,000
(6)
|
2.33%
|
|
Common Stock
|
William Lamarque
(1)
|
2,666
(7)
|
0.12%
|
|
Common Stock
|
Emmanuel Naiko
(1)
|
2,666
(7)
|
0.12%
|
|
Common Stock
|
Gizman Abbas
(1)
|
2,666
(7)
|
0.12%
|
|
Common Stock
|
Melinda Hsu
(1)
|
6,667
(8)
|
0.31%
|
|
Common Stock
|
All executive officers and directors as a
group
|
1,156,888
|
53.99%
|
5% or Greater Shareholders:
|
Title of class
|
Name and address of
beneficial owner
|
Amount and nature of
beneficial owner
(2)
|
Percentage of
class
(3)
|
|
Common Stock
|
Reginald Mengi
(1)
|
1,055,556
(4)
|
49.26%
|
|
Common Stock
|
Zoeb Hassuji
(9)
|
111,111
|
5.19%
|
|
|
1.
|
The address of our officers and directors is our
Company’s address, which is P.O. Box 33507, Plot 82A, ITV Road, Mikocheni
Light Industrial Area, Dar es Salaam, Republic of Tanzania.
|
|
|
2.
|
Under Rule 13d-3 of the Exchange Act a beneficial owner
of a security includes any person who, directly or indirectly, through any
contract, arrangement, understanding, relationship or otherwise has or
shares: (i) voting power, which includes the power to vote or to direct
the voting of shares; and (ii) investment power, which includes the power
to dispose or direct the disposition of shares. Certain shares may be
deemed to be beneficially owned by more than one person (if, for example,
persons share the power to vote or the power to dispose of the shares). In
addition, shares are deemed to be beneficially owned by a person if the
person has the right to acquire the shares (for example, upon exercise of
an option) within 60 days of the date as of which the information is
provided. In computing the percentage ownership of any person, the amount
of shares outstanding is deemed to include the amount of shares
beneficially owned by such person (and only such person) by reason of
these acquisition rights.
|
|
|
3.
|
Based on 2,142,778 shares of our common stock (post
1-for-150 reverse stock split) issued and outstanding as of August 15,
2016.
|
|
|
4.
|
Includes 888,889 shares held by IPP Gold Limited, 100,000
shares held by Handeni Resources Limited, and 66,667 fully vested stock
options held by Mr. Mengi with an exercise price at $30 per share
exercisable by November 29, 2020.
|
|
|
5.
|
Represents 26,667 fully vested stock options with an
exercise price at $30 per share exercisable by November 29, 2020 and
10,000 fully vested stock options with an exercise price at $67.5 per
share exercisable by November 30, 2021.
|
|
|
6.
|
Represents 30,000 fully vested stock options with an
exercise price at $30 per share exercisable by November 29, 2020 and
20,000 fully vested stock options with an exercise price at $67.5 per
share exercisable by November 30, 2021.
|
|
|
7.
|
Represents 1,333 shares of our common stock and 1,333
fully vested stock options with an exercise price at $12 per share
exercisable by July 4, 2022.
|
|
|
8.
|
Represents fully vested stock options with an exercise
price at $16.5 per share exercisable by March 1, 2017.
|
|
|
9.
|
The registered address of this shareholder is Bonite
Bottlers, Moshi, Kilimanjaro, Tanzania.
|
Changes in Control
We are unaware of any contract, or other arrangement or
provision of our Articles, the operation of which may at any subsequent date
result in a change in control of the Company.
Securities Authorized for Issuance Under Equity Compensation
Plans
Refer to Item 5. above.
|
ITEM 13.
|
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS AND DIRECTOR
INDEPENDENCE
|
Except as described below, none of the following parties has,
in the last two fiscal years, had any material interest, direct or indirect, in
any transaction with us or in any presently proposed transaction that has or
will materially affect us:
|
|
1.
|
any of our directors or officers;
|
|
|
|
|
|
|
2.
|
any person proposed as a nominee for election as a
director;
|
|
|
|
|
|
|
3.
|
any person who beneficially owns, directly or indirectly,
shares carrying more than 10% of the voting rights attached to our
outstanding shares of common stock; or
|
31
|
|
4.
|
any member of the immediate family (including spouse,
parents, children, siblings and in-laws) of any of the above
persons.
|
Related Party Transactions
|
|
a)
|
The Company has entered into the following facility
agreements with related parties:
|
|
|
i)
|
On December 7, 2012, and as amended on September 4, 2013,
June 18, 2014 and March 20, 2015, the Company entered into a facility
agreement with IPP Ltd., a private company controlled by the Chairman of
the Company. The funding is in the form of an interest free unsecured loan
to the Company of up to $720,000 due May 31, 2017. As of May 31, 2016 and
2015, IPP Ltd. has fully advanced $720,000 to the Company pursuant to this
facility agreement.
|
|
|
|
|
|
|
ii)
|
On October 9, 2013, and as amended on June 18, 2014 and
March 20, 2015, the Company entered into a facility agreement with
Consultancy & Finance Company Associates Ltd. (“C&F”), a private
company controlled by the Chairman of the Company. The funding is in the
form of an interest free unsecured loan to the Company of up to $405,000
due May 31, 2017. As of May 31, 2016 and 2015, C&F has fully advanced
$405,000 to the Company pursuant to this facility agreement.
|
|
|
|
|
|
|
iii)
|
On November 20, 2014, the Company entered into a facility
agreement with C&F. The funding is in the form of an interest-free
unsecured loan to the Company of up to $500,000 due May 31, 2017. As of
May 31, 2016, C&F has fully advanced $500,000 (May 31, 2015: $215,000)
to the Company pursuant to this facility agreement.
|
|
|
|
|
|
|
iv)
|
On January 16, 2016, the Company entered into an
additional facility agreement with C&F. The funding is in the form of
an interest-free unsecured loan to the Company of up to $360,000 due
December 31, 2018. A maximum amount of $30,000 may be drawn by the Company
per calendar month. As of May 31, 2016, C&F has advanced $90,000 to
the Company pursuant to this facility agreement.
|
For the year ended May 31, 2016,
$187,915 of deemed interest was calculated at an annual interest rate of 12%
(2015: $92,487 calculated at an annual interest rate of 8%). Such deemed
interest approximates the fair market value of the borrowings, and was recorded
as interest expense and donated capital.
|
|
b)
|
The Company’s President and Chief Executive Officer (the
“CEO”) has voluntarily waived the CEO services fees for one year effective
as of June 1, 2015. As a result, the Company incurred $Nil of
administration and professional services fees to the CEO during the year
ended May 31, 2016 (the year ended May 31, 2015: $144,000). As at May 31,
2016 and 2015, accounts payable included $306,000 of unpaid CEO
fees.
|
During the years ended May 31, 2016
and 2015, the Company paid $36,000 representing 60% of annual rental expenses
associated with renting the CEO’s family house in Tanzania, pursuant to the
underlying Executive Services Agreement.
In addition, during the year ended May
31, 2016, the Company paid geological service fees of $35,000 (the year ended
May 31, 2015: $36,000) to a private company controlled by a person who is
related to the CEO. This amount is included in exploration expenses.
|
|
c)
|
During the year ended May 31, 2016, the Company incurred
administration and consulting services fees of $68,076 (the year ended
May 31, 2015: $77,644) to a private company controlled by the Company’s
Chief Financial Officer (the “CFO”). The Company also incurred salary of
$40,845 (the year ended May 31, 2015: $47,553) to the Company’s CFO. These
amounts are included in general and administrative expense.
|
|
|
|
|
|
|
d)
|
During the year ended May 31, 2016, the Company’s Board
of Directors reached a directors’ resolution, effective June 1, 2015,
which ratified the waiver of the Company’s monetary directors’ fees. As
such, during the year ended May 31, 2016, the Company incurred $Nil of
directors’ fees (the year ended May 31, 2015: $72,500). As at May 31, 2016
and 2015, accounts payable included $145,000 of unpaid independent
directors’ fees.
|
Director Independence
The Board has analyzed the independence of each director and
has determined that the members of the Board listed below are independent as
that term is defined under Rule 5605(a)(2) of the NASDAQ listing rules. Each
director is free of relationships that would interfere with the individual
exercise of independent judgment. Based on these standards, the Board determined
that each of the following directors is independent and has no relationship with
the Company, except as a director and shareholder:
|
|
•
|
William Lamarque;
|
|
|
•
|
Emmanuel Ole Naiko; and
|
|
|
•
|
Gizman Abbas.
|
32
|
ITEM 14.
|
PRINCIPAL ACCOUNTING FEES AND SERVICES
|
Manning Elliott LLP served as our independent registered public
accounting firm and audited our consolidated financial statements for the fiscal
years ended May 31, 2016 and 2015. Aggregate fees billed during fiscal years
ended May 31, 2016 and 2015 to the Company by Manning Elliott LLP for rendered
professional services are set forth below:
|
|
Year
Ended
May 31, 2016
|
Year
Ended
May 31, 2015
|
|
Audit Fees
|
$18,414
|
$28,833
|
|
Audit-Related Fees
|
--
|
--
|
|
Tax Fees
|
$3,033
|
$3,058
|
|
All Other Fees
|
--
|
--
|
|
Total
|
$21,447
|
$31,892
|
Audit Fees
Audit fees are the aggregate fees billed for professional
services rendered by our independent auditors for the audit of our annual
consolidated financial statements, the review of the interim consolidated
financial statements included in each of our quarterly reports and services
provided in connection with statutory and regulatory filings or engagements.
Audit Related Fees
Audit related fees are the aggregate fees billed by our
independent auditors for assurance and related services that are reasonably
related to the performance of the audit or review of our consolidated financial
statements and are not described in the preceding category.
Tax Fees
Tax fees are billed by our independent auditors for tax
compliance, tax advice and tax planning.
All Other Fees
All other fees include fees billed by our independent auditors
for products or services other than as described in the immediately preceding
three categories.
Policy on Pre-Approval of Services Performed by Independent
Auditors
It is our Board of Directors’ policy to pre-approve all audit
and permissible non-audit services performed by the independent auditors. The
Board of Directors approved all services that our independent accountants
provided to us in the past two fiscal years.
The Audit Committee is responsible for appointing, setting
compensation for and overseeing the work of the independent registered public
accounting firm. The Audit Committee requires its pre-approval of all audit and
permissible non-audit services provided by the independent registered public
accounting firm. The Audit Committee considers whether such services are
consistent with the rules of the SEC on auditor independence.
33
