ROYAL MINES AND MINERALS CORP.
CONDENSED STATEMENTS OF CASH
FLOWS
(UNAUDITED)
|
|
|
For
the Three Months Ended July 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
(Restated)
|
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
Net loss
|
$
|
(185,995
|
)
|
$
|
(213,653
|
)
|
|
Adjustments to
reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
17,441
|
|
|
17,441
|
|
|
Allowance for bad debt
|
|
-
|
|
|
1,037
|
|
|
Other than temporary loss on marketable securities
|
|
-
|
|
|
25,494
|
|
|
Changes in
operating assets and liabilities:
|
|
|
|
|
|
|
|
Other current assets
|
|
(5,860
|
)
|
|
-
|
|
|
Accounts payable
|
|
(1,107
|
)
|
|
(121
|
)
|
|
Accounts payable - related parties
|
|
5,651
|
|
|
15,587
|
|
|
Accrued interest
|
|
6,073
|
|
|
6,073
|
|
|
Accrued interest - related parties
|
|
24,351
|
|
|
12,077
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
(139,446
|
)
|
|
(136,065
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOW FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
Proceeds from
borrowings - related parties
|
|
145,000
|
|
|
135,000
|
|
|
|
|
|
|
|
|
|
|
Net cash
provided by financing activities
|
|
145,000
|
|
|
135,000
|
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH
|
|
5,554
|
|
|
(1,065
|
)
|
|
|
|
|
|
|
|
|
|
CASH AT BEGINNING OF PERIOD
|
|
60
|
|
|
10,860
|
|
|
|
|
|
|
|
|
|
|
CASH AT END OF PERIOD
|
$
|
5,614
|
|
$
|
9,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
$
|
-
|
|
$
|
114
|
|
|
Income taxes paid
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
NON-CASH INVESTING AND
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain
on marketable securities
|
$
|
4,248
|
|
$
|
-
|
|
See accompanying notes to these condensed unaudited financial
statements.
F-3
ROYAL MINES AND MINERALS CORP.
NOTES TO CONDENSED FINANCIAL
STATEMENTS
JULY 31, 2016
(UNAUDITED)
|
1.
|
DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF
SIGNIFICANT POLICIES
|
|
|
|
|
|
Basis of Presentation
– The accompanying financial
statements have been prepared in accordance with accounting principles
generally accepted in the United States of America. Royal Mines and
Minerals Corp’s (the “Company”) fiscal year-end is April 30.
|
|
|
|
|
|
The accompanying unaudited financial statements have been
prepared in accordance with the instructions to Form 10-Q and Rule 8-03 of
Regulation S-X, and, therefore, do not include all information and
footnotes necessary for a complete presentation of financial position,
results of operations, cash flows, and stockholders' deficit in conformity
with generally accepted accounting principles. In the opinion of
management, all adjustments considered necessary for a fair presentation
of the results of operations and financial position have been included and
all such adjustments are of a normal recurring nature. Operating results
for the three months ended July 31, 2016 are not necessarily indicative of
the results that can be expected for the year ending April 30,
2017.
|
|
|
|
|
|
Description of Business
– The Company's primary
objectives are to 1) commercially and viably extract and refine precious
metals from specific coal ash (fly and bottom), ores and other leachable
assets, 2) use its proprietary processes to convert specific ore bodies
and coal ash landfills into valuable assets, and 3) joint venture, acquire
and develop mining projects in North America. The Company has not yet
realized significant revenues from its primary objectives.
|
|
|
|
|
|
History
– The Company was incorporated on December
14, 2005 under the laws of the State of Nevada. On June 13, 2007, the
Company incorporated a wholly-owned subsidiary, Royal Mines Acquisition
Corp., in the state of Nevada.
|
|
|
|
|
|
On October 5, 2007, Centrus Ventures Inc. (Centrus)
completed the acquisition of Royal Mines Inc. (“Royal Mines”). The
acquisition of Royal Mines was completed by way of a “triangular merger”
pursuant to the provisions of the Agreement and Plan of Merger dated
September 24, 2007 (the “First Merger Agreement”) among Centrus, Royal
Mines Acquisition Corp. (“Centrus Sub”), a wholly owned subsidiary of
Centrus, Royal Mines and Kevin B. Epp, the former sole executive officer
and director of Centrus. On October 5, 2007, under the terms of the First
Merger Agreement, Royal Mines was merged with and into Centrus Sub, with
Centrus Sub continuing as the surviving corporation (the “First
Merger”).
|
|
|
|
|
|
On October 6, 2007, a second merger was completed
pursuant to an Agreement and Plan of Merger dated October 6, 2007 (the
“Second Merger Agreement”) between Centrus and its wholly owned
subsidiary, Centrus Sub, whereby Centrus Sub was merged with and into
Centrus, with Centrus continuing as the surviving corporation (the “Second
Merger”). As part of the Second Merger, Centrus changed its name from
“Centrus Ventures Inc.” to “Royal Mines And Minerals Corp.”(“the
Company”). Other than the name change, no amendments were made to the
Articles of Incorporation.
|
|
|
|
|
|
Under the terms and conditions of the First Merger
Agreement, each share of Royal Mines’ common stock issued and outstanding
immediately prior to the completion of the First Merger was converted into
one share of Centrus’ common stock. As a result, a total of 32,183,326
shares of Centrus common stock were issued to former stockholders of Royal
Mines. In addition, Mr. Epp surrendered 23,500,000 shares of Centrus
common stock for cancellation in consideration of payment by Centrus of
$0.001 per share for an aggregate consideration of $23,500. As a result,
upon completion of the First Merger, the former stockholders of Royal
Mines owned approximately 69.7% of the issued and outstanding common
stock.
|
|
|
|
|
|
As such, Royal Mines is deemed to be the acquiring
enterprise for financial reporting purposes. All acquired assets and
liabilities of Centrus were recorded at fair value on the date of the
acquisition, as required by the purchase method of accounting, and the
tangible net liabilities were debited against equity of the Company. There
are no continuing operations of Centrus from the date of
acquisition.
|
F-6
ROYAL MINES AND MINERALS CORP.
NOTES TO CONDENSED FINANCIAL
STATEMENTS
JULY 31, 2016
(UNAUDITED)
Going Concern
– The accompanying
financial statements were prepared on a going concern basis in accordance with
accounting principles generally accepted in the United States of America (“U.S.
GAAP”). The going concern basis of presentation assumes that the Company will
continue in operation for the next twelve months and will be able to realize its
assets and discharge its liabilities and commitments in the normal course of
business and does not include any adjustments to reflect the possible future
effects on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the Company’s inability to
continue as a going concern. The Company’s history of losses, working capital
deficit, capital deficit, minimal liquidity and other factors raise substantial
doubt about the Company’s ability to continue as a going concern. In order for
the Company to continue operations beyond the next twelve months and be able to
discharge its liabilities and commitments in the normal course of business it
must raise additional equity or debt capital and continue cost cutting measures.
There can be no assurance that the Company will be able to achieve sustainable
profitable operations or obtain additional funds when needed or that such funds,
if available, will be obtainable on terms satisfactory to management.
If the Company continues to incur
operating losses and does not raise sufficient additional capital, material
adverse events may occur including, but not limited to, 1) a reduction in the
nature and scope of the Company’s operations and 2) the Company’s inability to
fully implement its current business plan. There can be no assurance that the
Company will successfully improve its liquidity position. The accompanying
financial statements do not reflect any adjustments that might be required
resulting from the adverse outcome relating to this uncertainty.
As of July 31, 2016, the Company had
cumulative net losses of $18,740,342 from operations since inception and had
negative working capital of $2,375,334. For the three months ended July 31,
2016, the Company incurred a net loss of $185,995 and had net cash used in
operating activities of $139,446. For the three months ended July 31, 2015 the
Company incurred a net loss of $213,653 and had net cash used in operating
activities of $136,065. The Company has not fully started its minerals
processing operations, raising substantial doubt about its ability to continue
as a going concern.
To address liquidity constraints, the
Company will seek additional sources of capital through the issuance of equity
or debt financing. Additionally, the Company has reduced expenses, elected to
defer payment of certain obligations, deferred payment of our CEO’s salary and
reduced staffing levels to conserve cash. The Company is focused on continuing
to reduce costs and obtaining additional funding. There is no assurance that
such funding will be available on terms acceptable to the Company, or at all. If
the Company raises additional funds by selling additional shares of capital
stock, securities convertible into shares of capital stock, or by issuing debt
convertible into shares of capital stock, the ownership interest of the
Company’s existing common stock holders will be diluted.
Use of Estimates
- The
preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. By their nature, these estimates are
subject to measurement uncertainty and the effect on the financial statements of
changes in such estimates in future periods could be significant. Significant
areas requiring management’s estimates and assumptions include the valuation of
stock-based compensation, impairment analysis of long-lived assets, and the
realizability of deferred tax assets. Actual results could differ from those
estimates.
Cash and Cash Equivalents
- The
Company considers all investments with an original maturity of three months or
less to be a cash equivalent.
Other Current Assets
- Other
current assets are comprised of other receivables, which do not bear interest
and are recorded at cost. The Company extends credit to its consultants, which
receivables can be offset against commissions payable to the respective
consultants.
F-7
ROYAL MINES AND MINERALS CORP.
NOTES TO CONDENSED FINANCIAL
STATEMENTS
JULY 31, 2016
(UNAUDITED)
The allowance for doubtful accounts
represents the Company’s best estimate of the amount of probable credit losses
in the Company’s existing other receivables. The Company determines the
allowance based on specific customer information, historical write-off
experience and current industry and economic data. Account balances are charged
off against the allowance when the Company believes it is probable the
receivable will not be recovered. Management believes that there are no
concentrations of credit risk for which an allowance has not been established.
Although management believes that the allowance is adequate, it is possible that
the estimated amount of cash collections with respect to accounts receivable
could change. As of July 31, 2016 and April 30, 2016, the Company has recorded
an allowance for doubtful account of $15,798.
Fair Value
-
ASC 825,
Financial Instruments requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value.
ASC 825 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 825 prioritizes the inputs into three levels that may be used
to measure fair value:
Level 1
Level 1 applies to assets or
liabilities for which there are quoted prices in active markets for identical
assets or liabilities.
Level 2
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 of the fair value of the assets or liabilities.
Level 3
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 825, the fair value of
cash is determined based on “Level 1” inputs, which consist of quoted prices in
active markets for identical assets. The Company's financial instruments consist
of cash, prepaid expenses, other assets, accounts payable, accrued liabilities,
and loans payable. The carrying amount of these financial instruments
approximates fair value due to either length of maturity or interest rates that
approximate prevailing market rates unless otherwise disclosed in these
financial statements.
Assets measured at fair value on a
recurring basis were presented on the Company’s balance sheet as of July 31,
2016 and April 30, 2016 as follows:
Fair Value Measurements at July 31,
2016 Using:
|
|
Assets:
|
|
Total Carrying
|
|
|
Quoted Marked
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
Value as of
|
|
|
Prices in Active
|
|
|
Observable Inputs
|
|
|
Unobservable
|
|
|
|
|
|
7/31/2016
|
|
|
Markets (Level 1)
|
|
|
(Level 2)
|
|
|
Inputs (Level 3)
|
|
|
|
Investments in marketable
securities
|
$
|
220,896
|
|
$
|
-
|
|
$
|
220,896
|
|
$
|
-
|
|
|
|
Total
|
$
|
220,896
|
|
$
|
-
|
|
$
|
220,896
|
|
$
|
-
|
|
F-8
ROYAL MINES AND MINERALS CORP.
NOTES TO CONDENSED FINANCIAL
STATEMENTS
JULY 31, 2016
(UNAUDITED)
Fair Value Measurements at April 30,
2016 Using:
|
|
Assets:
|
|
Total Carrying
|
|
|
Quoted Marked
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
Value as of
|
|
|
Prices in Active
|
|
|
Observable Inputs
|
|
|
Unobservable
|
|
|
|
|
|
4/30/2016
|
|
|
Markets (Level 1)
|
|
|
(Level 2)
|
|
|
Inputs (Level 3)
|
|
|
|
Investments in
marketable securities
|
$
|
216,648
|
|
$
|
-
|
|
$
|
216,648
|
|
$
|
-
|
|
|
|
Total
|
$
|
216,648
|
|
$
|
-
|
|
$
|
216,648
|
|
$
|
-
|
|
Property and Equipment
-
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided principally on the straight-line method over the
estimated useful lives of the assets, which are generally 3 to 10 years. The
cost of repairs and maintenance is charged to expense as incurred. Expenditures
for property betterments and renewals are capitalized. Upon sale or other
disposition of a depreciable asset, cost and accumulated depreciation are
removed from the accounts and any gain or loss is reflected in operating
expenses.
Mineral Exploration and Development
Costs
– Exploration expenditures incurred prior to entering the development
stage are expensed and included in mineral exploration and evaluation expense.
Impairment of Long-Lived Assets
– The Company reviews and evaluates long-lived assets for impairment when events
or changes in circumstances indicate the related carrying amounts may not be
recoverable. The assets are subject to impairment consideration under ASC
360-10-35-17,
Measurement of an Impairment Loss
, if events or
circumstances indicate that their carrying amount might not be recoverable.
Various factors could impact our
ability to achieve forecasted production schedules. Additionally, commodity
prices, capital expenditure requirements and reclamation costs could differ from
the assumptions the Company may use in cash flow models used to assess
impairment. The ability to achieve the estimated quantities of recoverable
minerals from mineral interests involves further risks in addition to those
factors applicable to mineral interests where proven and probable reserves have
been identified, due to the lower level of confidence that the identified
mineralized material can ultimately be mined economically.
The Company's policy is to record an
impairment loss in the period when it is determined that the carrying amount of
the asset may not be recoverable either by impairment or by abandonment of the
property. The impairment loss is calculated as the amount by which the carrying
amount of the assets exceeds its fair value. No impairment expense was
recognized for the three months ended July 31, 2016 and 2015.
Research and Development
- All
research and development expenditures are expensed as incurred.
Per Share Amounts
- Basic
earnings (loss) per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding. In computing diluted
earnings per share, the weighted average number of shares outstanding is
adjusted to reflect the effect of potentially dilutive securities. Potentially
dilutive shares, such as stock options and warrants, are excluded from the
calculation when their inclusion would be anti-dilutive, such as when the
exercise price of the instrument exceeds the fair market value of the Company’s
common stock and when a net loss is reported. The dilutive effect of convertible
debt securities is reflected in the diluted earnings (loss) per share
calculation using the if-converted method. Conversion of the debt securities is
not assumed for purposes of calculating diluted earnings (loss) per share if the
effect is anti-dilutive. As of July 31, 2016 and 2015, stock options and
warrants outstanding were 162,285,129 and 159,785,129 respectively, but were not
considered in the computation of diluted earnings per share as their inclusion
would be anti-dilutive.
Income Taxes
- The Company
accounts for its income taxes in accordance with ASC 740,
Income Taxes
,
which requires recognition of deferred tax assets and liabilities for future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and tax credit carry-forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment
date.
F-9
ROYAL MINES AND MINERALS CORP.
NOTES TO CONDENSED FINANCIAL
STATEMENTS
JULY 31, 2016
(UNAUDITED)
For acquired properties that do not
constitute a business a deferred income tax liability is recorded on GAAP basis
over income tax basis using statutory federal and state rates. The resulting
estimated future federal and state income tax liability associated with the
temporary difference between the acquisition consideration and the tax basis is
computed in accordance with ASC 740-10-25-51,
Acquired Temporary Differences
in Certain Purchase Transactions that are Not Accounted for as Business
Combinations
, and is reflected as an increase to the total purchase price
which is then applied to the underlying acquired assets in the absence of there
being a goodwill component associated with the acquisition transactions.
Stock-Based Compensation
– The
Company accounts for share based payments in accordance with ASC 718,
Compensation - Stock Compensation
, which requires all share-based
payments to employees, including grants of employee stock options, to be
recognized in the financial statements based on the grant date fair value of the
award. In accordance with ASC 718-10-30-9,
Measurement Objective – Fair Value
at Grant Date
, the Company estimates the fair value of the award using a
valuation technique. For this purpose, the Company uses the Black-Scholes option
pricing model. The Company believes this model provides the best estimate of
fair value due to its ability to incorporate inputs that change over time, such
as volatility and interest rates. Compensation cost is recognized over the
requisite service period which is generally equal to the vesting period. Upon
exercise, shares issued will be newly issued shares from authorized common
stock.
ASC 505, "Compensation-Stock
Compensation", establishes standards for the accounting for transactions in
which an entity exchanges its equity instruments to non-employees for goods or
services. Under this transition method, stock compensation expense includes
compensation expense for all stock-based compensation awards granted on or after
January 1, 2006, based on the grant-date fair value estimated in accordance with
the provisions of ASC 505.
Recent Accounting Standards
–
From time to time, new accounting pronouncements are issued by the Financial
Accounting Standards Board (FASB) that are adopted by the Company as of the
specified effective date. Unless otherwise discussed, management believes that
the impact of recently issued standards did not or will not have a material
impact on the Company’s financial position, results of operations, or cash flows
upon adoption.
In February 2016, the FASB issued
Accounting Standard (“ASU”) 2016-02, Leases. The standard requires that a lessee
recognize on the balance sheet assets and liabilities for leases with lease
terms of more than 12 months. The recognition, measurement, and presentation of
expenses and cash flows arising from a lease have not significantly changed from
the previous GAAP. The standard is effective for fiscal years beginning after
December 15, 2018, including interim periods within such fiscal year, with early
adoption permitted. The ASU requires a modified retrospective transition method
with the option to elect a package of practical expedients. Adoption of the new
guidance is not expected to have an impact on the financial position, results of
operations or cash flows.
In November 2015, the FASB issued ASU
2015-17 which simplifies income tax accounting. The update requires that all
deferred tax assets and liabilities be classified as noncurrent on the balance
sheet instead of separating deferred taxes into current and noncurrent amounts.
This update is effective for fiscal years beginning after December 15, 2016, and
interim periods within those fiscal years, and early adoption is permitted.
Adoption of the new guidance is not expected to have an impact on the financial
position, results of operations or cash flows.
In April 2015, the FASB issued
Accounting Standard Update (“ASU”) 2015-03, Interest – Imputation of Interest
(Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. This
update simplifies the presentation of debt issuance costs by requiring debt
issuance costs to be presented as a deduction from the corresponding debt
liability. The update is effective in fiscal years, including interim
periods, beginning after December 15, 2015, and early adoption is
permitted. The Company is currently assessing the impact, if any, of
implementing this guidance on its financial position, results of
operations and liquidity.
F-10
ROYAL MINES AND MINERALS CORP.
NOTES TO CONDENSED FINANCIAL
STATEMENTS
JULY 31, 2016
(UNAUDITED)
|
|
In August 2014, the FASB issued ASU 2014-15, Presentation
of Financial Statements – Going Concern. The new standard requires
management of public and private companies to evaluate whether there is
substantial doubt about the entity’s ability to continue as a going
concern and, if so, disclose that fact. Management will also be required
to evaluate and disclose whether its plans alleviate that doubt. The new
standard is effective for annual periods ending after December 15, 2016,
and interim periods within annual periods beginning after December 15,
2016. Adoption of the new guidance is not expected to have an impact on
the financial position, results of operations or cash flows.
|
|
|
|
|
|
In June 2014, the FASB issued ASU 2014-12, Compensation -
Stock Compensation - Accounting for Share- Based Payments When the Terms
of an Award Provide That a Performance Target Could Be Achieved after the
Requisite Service Period, which is effective for financial statements
issued for interim and annual periods beginning on or after December 15,
2015. The guidance requires that a performance target that affects vesting
and that could be achieved after the requisite service period be treated
as a performance condition and should not be reflected in the estimate of
the grant-date fair value of the award. Adoption of the new guidance is
not expected to have an impact on the financial position, results of
operations or cash flows.
|
|
|
|
|
2.
|
SCOTTSDALE FACILITY AGREEMENT
|
|
|
|
|
|
On April 16, 2014, the Company entered into an agreement
with GJS Capital Corp. (the "Creditor"). Under the terms of the Agreement,
the Creditor has agreed to loan the Company $150,000 (the “Principal”),
which has already been advanced. The loan bears interest at a rate of 6%
per annum, compounded annually and has a maturity date of December 31,
2015 (the “Maturity Date").
|
|
|
|
|
|
At any time prior to the Maturity Date, the Creditor may
elect to receive units (each a “Unit") in exchange for any portion of the
Principal outstanding on the basis of one Unit for each $0.05 of
indebtedness converted (the “Unit Conversion Option"). Each Unit consists
of one share of our common stock and one warrant to purchase an additional
share of our common stock at a price of $0.10 per share for a period of
two years from the date of issuance. If the Creditor exercises the Unit
Conversion Option, any interest that accrued on the portion of the
Principal that was converted shall be forgiven.
|
|
|
|
|
|
If the Creditor exercises the Unit Conversion Option, the
Creditor will receive a net profits interest (the “Net Profits Interest”)
an any future profits received by Company that are derived from our
process for the recovery of precious metals from coal ash and other
materials (the “Technology”) at a basis of 1% of our net profits for every
$10,000 of converted Principal. The Net Profits Interest will terminate
when the Creditor receives eight times the amount of converted
Principal.
|
|
|
|
|
|
In addition, if the Creditor exercises the Unit
Conversion Option, the Company will use best efforts to ensure that a
director nominated by the Creditor is appointed to the Company’s Board of
Directors. If the Creditor does nominate such director, the Company will
be allowed to nominate and appoint an additional director to the Company’s
Board of Directors.
|
|
|
|
|
|
The Creditor has agreed to form a joint venture with the
Company for the purpose of constructing and operating a processing plant
at the Scottsdale facility, an existing facility, utilizing the Company’s
licensed Technology. Under the agreement, the Creditor and the Company
shall form a limited liability company (“Newco”) to operate the Joint
Venture, and ownership of Newco would be split equally between the
Creditor and the Company. In addition, the Creditor would advance $250,000
plus up to 15% for contingencies, a total of $287,500, to Newco to fund
the initial construction and operation costs of the Newco. These advances
are not expected to be paid back to the Creditor.
|
F-11
ROYAL MINES AND MINERALS CORP.
NOTES TO CONDENSED FINANCIAL
STATEMENTS
JULY 31, 2016
(UNAUDITED)
|
|
The Company has been operating in the Scottsdale facility
in prior years using the same technology licensed by the Company. As of
July 31, 2015 and through the filing date of the Form 10-Q, the Company
and the Creditor have not established a limited liability corporation in
accordance with the agreement. The equipment used in the Scottsdale
facility, lease agreements for the Scottsdale facility, and other supplies
purchased and costs incurred by the Scottsdale facility were incurred by
the Company and are the legal obligation of the Company. As of July 31,
2016, no bank account has been established for the joint venture and as a
result the Company has paid all expenses related to the Scottsdale
facility directly via the Company’s bank accounts. Funding under the joint
venture has been deposited by the Company into bank accounts owned by the
Company. As of July 31, 2016, the Creditor funded a total of $329,000. As
of July 31, 2016 and through the date of the filing date of the Form 10-Q,
the Company has not agreed to contribute any of the assets related to the
Scottsdale facility to the joint venture. Based upon the aforementioned,
the Company has accounted for the funds received totaling $329,000 as
contributed capital since in substance, the Creditor has secured future
revenue of the Scottsdale facility operations with such funds. For the
three months ended July 31, 2016 and July 31, 2015, the Company received
zero contributions.
|
|
|
|
|
3.
|
INVESTMENT IN MARKETABLE SECURITIES
|
|
|
|
|
|
On September 27, 2013, the Company entered into a
settlement and security release agreement with Golden Anvil. Under the
terms of the Release Agreement, the Company agreed to release Golden Anvil
from loan agreements pursuant to which, Golden Anvil owed the Company
$983,055 in secured indebtedness. In exchange for the release, Golden
Anvil had 2,000,000 common shares of Gainey issued to the Company as part
of an asset purchase agreement between Golden Anvil and Gainey.
|
|
|
|
|
|
The Asset Purchase was completed on September 30, 2013.
The Gainey shares are held in escrow and will be released pursuant to the
terms of a surplus escrow agreement as follows. The company cannot enter
into any sales transaction of the Gainey shares prior to their
release.
|
|
% of Shares to be Released
|
Date of Release
|
|
5%
|
October 2, 2013
|
|
5%
|
April 2, 2014
|
|
10%
|
October 2, 2014
|
|
10%
|
April 2, 2015
|
|
15%
|
October 2, 2015
|
|
15%
|
April 2, 2016
|
|
40%
|
October 2, 2016
|
On March 30, 2015, the Company sold
400,000 Gainey shares to the Creditor (see Note 2) for $49,747 cash, net of
currency exchange and other banking fees. The cost of the 400,000 Gainey shares
was $200,000. The Company recorded a loss on sale of marketable securities of
$150,253.
As of July 31, 2016 and April 30, 2016,
investment in marketable securities consisted of $220,896 and $216,648,
respectively. The Company held 1,600,000 Gainey Capital Corp. (“Gainey”) common
shares, and the market value was $0.138 and $0.135 per share, on July 31, 2016
and April 30, 2016, respectively. As of July 31, 2016, 60% of the shares have
been released, of which 20% were sold on March 30, 2015. Gainey shares are
traded on the Vancouver exchange under the stock symbol GNC.V and on the OTC
Pink marketplace under the stock symbol GNYPF. Marketable securities are held
for an indefinite period of time and thus are classified as available-for-sale
securities. Realized investment gains and losses are included in the statement
of operations, as are provisions for other than temporary declines in the market
value of available-for-sale securities. Unrealized gains and unrealized losses
deemed to be temporary are excluded from earnings (losses), net of applicable
taxes, as a component of other comprehensive income. Factors considered in
judging whether an impairment is other than temporary include the financial
condition, business prospects and creditworthiness of the issuer, the length
of time that fair value has been less
than cost, the relative amount of decline, and the Company’s ability and intent
to hold the investment until the fair value recovers.
F-12
ROYAL MINES AND MINERALS CORP.
NOTES TO CONDENSED FINANCIAL
STATEMENTS
JULY 31, 2016
(UNAUDITED)
Based on management’s evaluation of the
circumstances, management believes that the overall decline in fair value below
the cost of certain of the Company’s marketable securities is
other-than-temporary.
The following is a summary of
available-for-sale marketable securities as of July 31, 2016:
|
|
|
|
Cost
|
|
|
Unrealized Gain
|
|
|
Realized (Losses)
|
|
|
Market or Fair Value
|
|
|
|
Equity securities
|
$
|
800,000
|
|
$
|
4,248
|
|
$
|
(583,352
|
)
|
$
|
220,896
|
|
|
|
Total
|
$
|
800,000
|
|
$
|
4,248
|
|
$
|
(583,352
|
)
|
$
|
220,896
|
|
The following is a summary of
available-for-sale marketable securities as of April 30, 2016:
|
|
|
|
Cost
|
|
|
Unrealized Gain
|
|
|
Realized (Losses)
|
|
|
Market or Fair Value
|
|
|
|
Equity securities
|
$
|
800,000
|
|
$
|
--
|
|
$
|
(583,352
|
)
|
$
|
216,648
|
|
|
|
Total
|
$
|
800,000
|
|
$
|
--
|
|
$
|
(583,352
|
)
|
$
|
216,648
|
|
|
4.
|
PROPERTY AND EQUIPMENT
|
|
|
|
|
|
Property and equipment consists of the
following:
|
|
|
|
As of
|
|
|
As of
|
|
|
|
|
July
31, 2016
|
|
|
April 30, 2016
|
|
|
Process, lab and office
equipment
|
$
|
406,316
|
|
$
|
406,316
|
|
|
Less: accumulated depreciation
|
|
(326,699
|
)
|
|
(309,257
|
)
|
|
|
$
|
79,617
|
|
$
|
97,059
|
|
|
|
Depreciation expense was $17,441 for the three months
ended July 31, 2016 and 2015.
|
|
|
|
|
5.
|
INTELLECTUAL PROPERTY
|
|
|
|
|
|
On August 20, 2014, the Company entered an Amended and
Restated License Agreement with Alvin C. Johnson, Jr. (“Licensor”),
whereby the Licensor has been granted 7,980,493 shares of common stock as
consideration for the cancellation by the Licensor of a 3.75% gross
royalty on the proceeds from any commercial use of our license on the
process for the recovery of precious metals from coal ash and other
materials. The intellectual property was valued at $159,610 or $0.02 per
share of common stock, the Company’s market price on August 20, 2014 and
has been capitalized as intellectual property. Based on the unpredictable
timing of estimated future cash flows expected to be generated from the
intellectual property, the Company recognized an impairment expense of
$159,610 as of April 30, 2015.
|
|
|
|
|
6.
|
ACCOUNTS PAYABLE - RELATED PARTIES
|
|
|
|
|
|
As of July 31, 2016 and April 30, 2016, accounts payable
– related parties of $381,116 and $375,465, respectively, mainly consisted
of consulting fees due to one director and officer of the
Company.
|
|
|
|
|
7.
|
LOANS PAYABLE
|
|
|
|
|
|
As of July 31, 2016 and April 30, 2016, loans payable of
$248,030, consists of borrowings payable to unrelated third parties. The
loans bear 6% to 12% interest, are unsecured and are due on
demand.
|
F-13
ROYAL MINES AND MINERALS CORP.
NOTES TO CONDENSED FINANCIAL
STATEMENTS
JULY 31, 2016
(UNAUDITED)
|
|
As of July 31, 2016 and April 30, 2016, accrued interest
was $98,277 and $92,204, respectively.
|
|
|
|
|
8.
|
LOANS PAYABLE AND ACCRUED INTEREST – RELATED
PARTIES
|
|
|
|
|
|
As of July 31, 2016 and April 30, 2016, loans payable –
related parties of $1,023,000 and $878,000, respectively, mainly consists
of borrowings, directly and indirectly, from one director of the Company.
The balances bear 10% interest, are unsecured and are due on
demand.
|
|
|
|
|
|
As of July 31, 2016 and April 30, 2016, accrued interest
– related party was $230,932 and $206,581, respectively. Related parties –
interest expense was $25,083 and $12,326 for the three months ended July
31, 2016 and 2015, respectively.
|
|
|
|
|
9.
|
NOTES PAYABLE
|
|
|
|
|
|
As of July 31, 2016 and April 30, 2016, notes payable
consists of an unsecured $50,000 payable to New Verde River Mining and
Robert H. Gunnison. The note payable bears 6% interest annually, is
unsecured and is due on demand.
|
|
|
|
|
10.
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
Lease obligations
– The Company has operating
leases for its corporate office, corporate housing and plant facilities.
Future minimum lease payments under the operating leases as of July 31,
2016 are as follows:
|
|
Fiscal year ending April 30, 2017
|
$
|
6,961
|
|
|
Fiscal year ending April 30, 2018
|
$
|
-
|
|
|
Fiscal year ending April 30, 2019
|
$
|
-
|
|
|
Fiscal year ending April 30, 2020
|
$
|
-
|
|
|
Fiscal year ending April 30, 2021
|
$
|
-
|
|
Lease expense was $20,883 and $21,933
for the three months ended July 31, 2016 and 2015, respectively.
Legal proceedings
– The Company
received a verified complaint (the “Complaint”), dated September 12, 2013, that
was filed in Arizona Superior Court, Maricopa County, by McKendry Enterprises,
Inc. Profit Sharing Plan and Retirement Trust (the “Landlord”), alleging breach
of contract and breach of covenant of good faith and fair dealing in relation to
the lease agreement dated June 6, 2007, between the Landlord and the Company, as
amended (the “Lease Agreement”). The Complaint sought to recover damages of at
least $108,581, including, but not limited to: 1) $56,358 rent; 2) $52,223 for
maintenance, clean-up costs and construction; and 3) undetermined damages for
additional repair, clean up and legal fees.
On October 22, 2014, the Company
reached a settlement with the Landlord to pay $70,000 as follows: $5,000 on or
before November 24, 2014 (amount has been paid); $5,000 payable 90 days
thereafter (amount has been paid); six payments of $7,000 due every 90 days
thereafter (five payments of $7,000 have been paid as of July 31, 2016); and two
$9,000 payments due every 90 days thereafter. Each payment has a 3 day
cure/grace period. Any later payment will trigger a default and immediate
recordation/enforcement of a judgment. Payment is secured by a judgment for
$78,969 plus attorney fees incurred by Landlord to date, plus any further
attorney fees incurred in relation to the judgment. The judgment will not be
executed unless the Company defaults on its payment obligations noted above. As
of July 31, 2016, the Company has a liability in the amount of $25,000 recorded
in accounts payable related to this matter.
On May 1, 2015, the Company received an
amended notice of civil claim (the “Claim”), dated April 1, 2015 (original filed
on December 31, 2014), that was filed in the Supreme Court of British Columbia,
by 1254859 Ontario Inc. (the “Plaintiff”), alleging breach of specific
performance and breach of contract in relation to the Golden Anvil Asset
Purchase by Gainey (see Note 3). The Plaintiff seeks to recover damages of
including, but not limited to: 1) 1,000,000 shares of Gainey stock; 2)
damages in lieu of specific performance; and 3) damages for breach of
contract.
F-14
ROYAL MINES AND MINERALS CORP.
NOTES TO CONDENSED FINANCIAL
STATEMENTS
JULY 31, 2016
(UNAUDITED)
|
|
On June 1, 2015, the Company filed a response to the
Claim, denying: 1) entering into any oral agreement; 2) that the Plaintiff
presented a potential transaction with Gainey; 3) that there was any fee
payable to Plaintiff upon completion of a transaction with Gainey; 4) any
existence of an agreement with Plaintiff and as such, the Gainey
transaction was not related to any agreement with Plaintiff; and 5) any
obligation to pay a fee to Plaintiff, contractually or otherwise. While
the Company intends to vigorously defend the lawsuit, there is no
assurance that the Company will be able to successfully defend the
lawsuit.
|
|
|
|
|
|
On January 29, 2016, the Plaintiff filed a Notice of
Application (the “Application”) in the Supreme Court of British Columbia,
seeking an injunction to prohibit the distribution of shares of Gainey
Capital Corp. held by the Company. A hearing took place on March 17, 2016.
On June 16, 2016, the Application was dismissed against the
Company.
|
|
|
|
|
|
No other legal proceedings are pending, threatened or
contemplated.
|
|
|
|
|
11.
|
STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
Common and Preferred Stock:
|
|
|
|
|
|
As of July 31, 2016 and April 30, 2016, there were
228,793,634 shares of common stock outstanding and zero shares of
preferred stock outstanding.
|
|
|
|
|
12.
|
STOCK OPTIONS AND WARRANTS
|
|
|
|
|
|
Extension of Warrants
|
|
|
|
|
|
On July 7, 2016, the Company extended the expiration
dates of 23,020,000 warrants previously issued on July 13, 2011, from an
expiration date of July 12, 2016 to July 12, 2018. Each warrant entitles
the holder to purchase an additional share of the Company’s common stock
at a price of $0.10 per share.
|
|
|
|
|
|
As of July 31, 2016 and April 30, 2016, there were
28,600,000 and 32,100,000 stock options, respectively, and 133,685,129
stock warrants outstanding and exercisable.
|
|
|
|
|
13.
|
RELATED PARTY TRANSACTIONS
|
|
|
|
|
|
For the three months ended July 31, 2016, the Company
incurred $49,000, in consulting fees expense from companies with a common
director or officer.
|
|
|
|
|
|
For the three months ended July 31, 2015, the Company
incurred $50,000, in consulting fees expense from companies with a common
director or officer.
|
|
|
|
|
14.
|
SUBSEQUENT EVENTS
|
|
|
|
|
|
None.
|
|
|
|
|
15.
|
RESTATEMENT
|
|
|
|
|
|
The Company determined that the balance sheet as of April
30, 2015, contained in the Company’s annual report on Form 10-K for the
year ended April 30, 2015, should be restated due to default of payment on
equipment leased in its Scottsdale Facility.
|
F-15
ROYAL MINES AND MINERALS CORP.
NOTES TO CONDENSED FINANCIAL
STATEMENTS
JULY 31, 2016
(UNAUDITED)
This restatement had the following
impact on the Company’s condensed statement of operations and comprehensive
loss, and condensed statement of cash flows for the three months ended July 31,
2015:
|
|
•
|
Decrease in mineral exploration
and evaluation expenses of $12,551;
|
|
|
•
|
Reduction of accounts payable by
$16,500; and
|
|
|
•
|
Increase of deferred rent by
$3,949.
|
The decrease in mineral exploration and
evaluation expenses and accounts payable, and the elimination of the deferred
rent, as previously reported, is due to the full recognition of the expense of
the leased equipment at April 30, 2015.
A summary of the effect of the
restatement is as follows:
|
|
|
|
|
As Previously
|
|
|
Restatement
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As
Restated
|
|
|
|
Statement of
Operations and Comprehensive Loss – For the Three Months Ended July 31,
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral exploration and evaluation expenses
|
|
$
|
79,031
|
|
$
|
(12,551
|
)
|
$
|
66,480
|
|
|
|
Total operating expenses
|
|
$
|
207,802
|
|
$
|
(12,551
|
)
|
$
|
195,251
|
|
|
|
Loss from operations
|
|
$
|
207,802
|
|
$
|
(12,551
|
)
|
$
|
195,251
|
|
|
|
Net loss
|
|
$
|
226,204
|
|
$
|
(12,551
|
)
|
$
|
213,653
|
|
|
|
Comprehensive loss
|
|
$
|
226,204
|
|
$
|
(12,551
|
)
|
$
|
213,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Cash Flows – For the Three Months Ended July
31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
226,204
|
|
$
|
(12,551
|
)
|
$
|
213,653
|
|
|
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
16,379
|
|
$
|
(16,500
|
)
|
$
|
(121
|
)
|
|
|
Deferred rent
|
|
$
|
(3,949
|
)
|
$
|
3,949
|
|
$
|
-
|
|
F-16