Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations.
General
We were incorporated under the laws of
British Columbia, Canada in 1984. In 2004, we changed our corporate
jurisdiction from a British Columbia company to a Canadian corporation. In December 2011, we amended our articles to
change our name from “i-minerals inc.” to “I-Minerals Inc.”. On March 9, 2023, the Company announced that
the Company’s name will change to “Highcliff Metals Corp.” and the issued and
outstanding common shares will be consolidated on a ratio of up to ten (10)
pre-consolidated shares to one (1) post-consolidated share, subject to TSX Venture
Exchange approval. The Board of
Directors and shareholders of the Company have also approved the continuance of
the Company into the Province of British Columbia under the Business
Corporations Act (British Columbia).
The Company was engaged in the exploration,
evaluation and development of the Helmer-Bovill industrial minerals property
(the “Helmer-Bovill Property”). The
Helmer-Bovill Property, in which we held a 100% interest, is comprised of 8
mineral leases totaling 3,483.15 acres located approximately 6 miles northwest
of Bovill, Latah County, Idaho. Since
inception, the Company has been in the exploration stage but moved into the
development stage in fiscal 2018. In
fiscal 2019, the Company reverted back to the evaluation stage. On March 6, 2023, we completed the
disposition of all issued and outstanding shares of I-Minerals USA Inc., an
Idaho company that owns the leases that comprise the Helmer-Bovill Property, to
BV Lending, LLC an Idaho limited liability company, pursuant to the terms of a
Stock Purchase Agreement dated September 14, 2022, as amended, among the
Company, BV Lending, LLC and i-minerals USA, Inc. See “Discontinued Operations” below.
As a result of the disposition, the
Company has no mineral properties and will need to identify and, if successful,
acquire a new business, which it will be positioned to do with a balance sheet
free of existing indebtedness to BV Lending, LLC. As such, the Company
anticipates that it will be transferred to the NEX as the Company will no
longer meet the TSX Venture Exchange continued listing standards until the
Company acquires a new business.
Our principal executive office is located
at Suite 1100, 1199 West
Hastings Street, Vancouver, British Columbia, Canada and our telephone number
is (208) 953-7372.
We are
dependent on debt and equity financing as our primary source of operating
working capital.
Discontinued Operations
On September 14, 2022, the Company entered into a Stock Purchase Agreement with BV Lending, LLC, an Idaho limited liability company ("BV Lending") and the Company's subsidiary, I-Minerals USA, Inc. ("I-Minerals USA"), an Idaho company that owns the leases that comprise the Helmer-Bovill Property, (the "Stock Purchase Agreement"), pursuant to which the Company agreed to sell all of the issued and outstanding common shares of I-Minerals USA to BV Lending (the "Transaction"). BV Lending is a non-arm's length party to the Company as it is a company controlled by a former director of the Company. The Transaction was approved by shareholders of the Company at the Annual General and Special Meeting held on March 2, 2023. On March 6, 2023, the parties completed the Transaction.
Key
Terms of the Transaction:
- |
Immediately prior to closing of the Transaction, the Company contributed an intercompany debt owed by I-Minerals USA to the Company in the amount of $26,120,368, resulting in the cancellation of the outstanding indebtedness. |
- |
At the closing of the Transaction, the Company sold all of the shares of I-Minerals USA to BV Lending for an amount equal to C$3,000,000 (the "Share Value"). |
- |
The Share Value was satisfied by BV Lending on a non-cash basis by the set off of an equal amount of debt owed by the Company to BV Lending (the "Set Off"). |
- |
Immediately following the Set Off, BV Lending transferred to the Company the balance of the debt owed by the Company to BV Lending (which debt was $36,186,056 before the Set Off). |
- |
Previously entered into loan agreements dated June 1, 2016, September 11, 2018 and October 25, 2019 among the Company, BV Lending and I-Minerals USA, including all security granted thereunder, was terminated and/or discharged. |
- |
The Company will be subject to non-competition and non-solicitation covenants in favour of BV Lending for a period of five years commencing on closing of the Transaction. |
- |
The Transaction was subject to the
approval of the Transaction by shareholders of the Company (the
"Shareholders") and the TSX Venture Exchange. Approvals were received. |
- |
As part of the Transaction, BV Lending has agreed to pay taxes that will become payable upon closing
by the Company as a result of the Transaction (approximately $450,000). In consideration for such payment by BV Lending, the Company will issue a promissory note in favor of BV Lending for the amount of the taxes so paid. The promissory note will be repaid out of any refund received by the Company from the applicable government agency. |
The
Transaction is considered to be a discontinued operation for the Company and
accordingly, loss from discontinued operations is included in the consolidated
statements of loss for all periods presented.
Included on the consolidated balance sheets at January 31, 2023 and
April 30, 2022 are assets and liabilities held-for-sale. The assets and liabilities of the
discontinued operation classified as held-for-sale are as follows:
|
January 31, 2023 $ |
April 30, 2022 $ |
|
|
|
Cash and cash equivalents |
5,424 |
6,427 |
Prepaids |
7,617 |
5,725 |
Equipment and right-of-use asset |
64,865 |
18,242 |
Mineral property interest and deferred development costs |
1,892,410 |
1,892,410 |
Deposits |
29,208 |
29,208 |
|
|
|
Assets held-for-sale |
1,999,524 |
1,952,012 |
|
|
|
Account payable and accrued liabilities |
169,217 |
139,389 |
Lease liability |
47,797 |
13,475 |
|
|
|
Liabilities held-for sale |
217,014 |
152,864 |
Plan of Operation and Outlook
As a result of completion of the Transaction with BV Lending, the Company has disposed of substantially all of its assets, being the shares held in I-Minerals USA, which holds the Helmer-Bovill Property. Until such time that the Company is able to acquire a new mineral property or alternative business, the TSX Venture Exchange will place the Company on notice to move to the NEX Tier of the TSX Venture Exchange. The NEX Tier of the TSX Venture Exchange is for companies that fail to meet continued listing standards. The Company must continue to comply with reporting requirements under both the United States and Canadian securities laws. However, these requirements should be reduced because we anticipate that we will meet the definition of a “foreign private issuer”. The Company plans to file a Form 15 to terminate and suspend its duty to file reports under the Securities Exchange Act of 1934 after closing the Transaction.
Results of Operations
Three months ended January 31, 2023 and 2022
We recorded a net loss
of $479,648 ($0.00 per share) for the three months ended January 31, 2023 as
compared to a net loss of $299,726 ($0.00 per share) for the three months ended
January 31, 2022. The increase in the net loss recorded for the three months ended January
31, 2023 as compared to the net loss for the three
months ended January 31, 2022 is the net
result of changes to a number of expenses.
Of note are the following items:
• |
Management and consulting fees of $23,975 (2022 - $25,913) are comprised of fees to manage our Company. Approximately 75% of the fees to manage our Company are charged to management and consulting fees and the other 25% is charged to mineral property expenditures. |
• |
General and miscellaneous expenses of $22,191 (2022 - $27,565) are comprised of office and telephone expenses, payroll taxes, medical benefits, insurance premiums, travel expenses, promotional expenses, shareholder communication fees, transfer agent fees and filing fees. The decrease during the current period was due primarily to a decrease in office rent, insurance and transfer agent fees. |
• |
Professional fees of $111,267 (2022 - $36,764) include legal fees, audit fees and financial consulting fees. The increase during the period was due to higher audit and legal fees relating to the Transaction. |
• |
Interest and penalty expense of $20,177 (2022 - $nil) is interest on unpaid withholding tax. Interest from promissory notes is included in loss from discontinued operations. |
• |
Loss from discontinued operations of $290,221 (2022 - $210,303) is the loss included in I-Minerals USA which is treated as a discontinued operation due to the Transaction. Included in the loss from discontinued operations are management and consulting fees of $24,750 (2022 - $24,750), mineral property expenditures of $193,331 (2022 - $150,828) general and miscellaneous expenses of $16,301 (2022 - $14,340), and interest on promissory notes of $12,503 (2022 - $14,717) amongst other items. |
Nine months ended January 31, 2023 and 2022
We recorded a net loss
of $1,292,850 ($0.01 per share) for the nine months ended January 31, 2023 as
compared to a net loss of $1,024,963 ($0.01 per share) for the nine months
ended January 31, 2022. The increase in the net loss recorded for the nine months ended January
31, 2023 as compared to the net loss for the nine
months ended January 31, 2022 is the net
result of changes to a number of expenses.
Of note are the following items:
• |
Management and consulting fees of $75,071 (2022 - $78,079) are comprised of fees to manage our Company. Approximately 75% of the fees to manage our Company are charged to management and consulting fees and the other 25% is charged to mineral property expenditures. |
• |
General and miscellaneous expenses of $52,297 (2022 - $109,314) are comprised of office and telephone expenses, payroll taxes, medical benefits, insurance premiums, travel expenses, promotional expenses, shareholder communication fees, transfer agent fees and filing fees. The decrease during the current period was due primarily to a decrease in office rent, insurance and transfer agent fees. |
• |
Professional fees of $273,155 (2022 - $180,445) include legal fees, audit fees and financial consulting fees. The increase during the period was due to higher audit and legal relating to the Transaction. |
• |
Interest and penalty expense of $224,188 (2022 - $60,000) is interest and penalties on unpaid withholding tax. Interest from promissory notes is included in loss from discontinued operations. |
• |
Loss from discontinued operations of $659,845 (2022 - $598,540) is the loss included in I-Minerals USA which is treated as a discontinued operation due to the proposed Transaction. Included in the loss from discontinued operations are management and consulting fees of $74,250 (2022 - $74,250), mineral property expenditures of $484,733 (2022 - $435,478) general and miscellaneous expenses of $19,097 (2022 - $44,225), and interest on promissory notes of $35,550 (2022 - $33,107) amongst other items. |
Liquidity and Capital Resources
Our aggregate operating, investing and financing activities during the nine months ended January 31, 2023 resulted in a net cash inflow of $145 (2022 – outflow of $64,270). As at January 31, 2023, we had a working capital deficiency of $35,464,135.
During the nine months ended January 31,
2023, $922,065 was used in operations (2022 - $914,270)
and we received $935,000 from financing activities (2022 - $850,000).
We have been financed by advances pursuant
to promissory notes advanced by BV Lending LLC, an entity controlled by Allen
L. Ball, a former member of our Board of Directors and our largest shareholder
(the “Lender”). During nine months ended
January 31, 2023, the Company was receiving advances pursuant to the Sixth
Promissory Notes. As at January 31, 2023,
the balance of the promissory notes was $35,757,356. Subsequent to January 31,
2023, the Company received $242,000 pursuant to the Sixth Promissory Notes. On closing of the Transaction on March 6,
2023, the balance of the debt owed by the Company to BV Lending of $36,186,056 was
eliminated.
We are dependent on debt
and equity financing as our primary source of operating working capital. Until such time that the Company is able to
acquire a new mineral property or alternative business, the TSX Venture
Exchange will place the Company on notice to move to the NEX Tier of the TSX
Venture Exchange. The NEX Tier of the TSX Venture Exchange is for companies
that fail to meet continued listing standards.
Our capital resources
are largely determined by the strength of the junior resource markets and our
ability to compete for investor support.
We
do not have the ability to internally generate sufficient cash flows to support
our operations for the next twelve months.
We have no formal plan in place to address this going concern issue but
consider that we will be able to obtain additional funds by equity financing
and/or debt financing; however, there is no assurance of additional funding
being available. As a result, there is
substantial doubt about the Company’s ability to continue as a going concern.
After
completion of the Transaction with BV Lending, the Company will be required to
undertake an equity financing to fund review of asset opportunities.
Beginning
in 2020, there was an outbreak of COVID-19 that has impacted the economic
environment and the capital markets.
COVID-19 could have a material impact on the Company's financial
position, results of operation and cash flows. The Company's liquidity and its
ability to continue as a going concern may also be impacted.
Critical Accounting Policies
Measurement Uncertainty
The preparation
of these consolidated financial statements in conformity with US GAAP requires
us 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 consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period.
We regularly evaluate estimates and assumptions related to the useful
life and recoverability of long lived assets, stock-based compensation,
valuation of convertible debentures and derivative liabilities, and deferred
income tax asset valuation allowances.
We base our 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 us may
differ materially and adversely from our estimates. To the extent there are material differences
between the estimates and the actual results, future results of operations will
be affected. The most significant
estimates with regard to our condensed consolidated financial statements relate
to the determination of fair values of derivative liabilities and stock-based
transactions.