The accompanying notes are an integral part of these condensed financial statements.
The accompanying notes are an integral part of these condensed financial statements.
The accompanying notes are an integral part of these condensed financial statements.
The accompanying notes are an integral part of these condensed financial statements.
Notes to Unaudited Condensed Financial Statements
October 31, 2017
(Expressed in US Dollars)
NOTE 1 - ORGANIZATION AND BUSINESS OPERATIONS
Diamante Minerals, Inc. (the “Company”) was incorporated under the laws of the State of Nevada, U.S. on October 26, 2010. The Company is in the business of acquiring and exploring mineral properties.
The Company has not generated any revenue to date. For the period from inception on October 26, 2010 to October 31, 2017, the Company has accumulated losses of $8,898,510.
The accompanying condensed financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at October 31, 2017, and for all periods presented herein, have been made.
Certain information and footnote disclosures normally included in condensed financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's July 31, 2017 audited financial statements. The results of operations for the period ended October 31, 2017 are not necessarily indicative of the operating results for the full year.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Presentation of Interim Information:
The financial information at October 31, 2017 and for the three months ended October 31, 2017 and 2016 are unaudited but include all adjustments (consisting only of normal recurring adjustments) that the Company considers necessary for a fair presentation of the financial information set forth herein, in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and with the instructions to Form 10-Q. Accordingly, such information does not include all of the information and footnotes required by U.S. GAAP for annual financial statements. For further information refer to the Financial Statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended July 31, 2017.
Use of Estimates:
The preparation of the accompanying financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that directly affect the results of reported assets, liabilities, revenue, and expenses, including the valuation of non-cash transactions. Actual results may differ from these estimates.
NOTE 3 - RELATED PARTY TRANSACTIONS
Included in accounts payable and accrued liabilities is $2,379 (July 31, 2017 – $2,538) in amounts due to companies with common management.
The Company shares office space with other companies in order to take advantage of cost sharing opportunities and management services. Two of these companies are: Kel-Ex Developments Ltd., a significant shareholder of the Company, which shares the services of the Chief Financial Officer; and Metalex Ventures Ltd., a publicly traded company which shares the services of the CEO and the CFO. During the three month period ended October 31, 2017, the related parties invoiced the Company for the following services and amounts:
|
|
Three month period ended
|
|
|
|
October 31,
|
|
|
October 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Administrative fees (10%)
|
|
$
|
140
|
|
|
$
|
161
|
|
Shared office and administrative costs
|
|
|
3,250
|
|
|
|
2,953
|
|
|
|
$
|
3,390
|
|
|
$
|
3,114
|
|
|
|
Three month period ended
|
|
|
|
October 31,
|
|
|
October 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Kel-Ex Developments Ltd.
|
|
$
|
3,037
|
|
|
$
|
1,664
|
|
Metalex Ventures Ltd.
|
|
|
353
|
|
|
|
1,450
|
|
|
|
$
|
3,390
|
|
|
$
|
3,114
|
|
As at October 31, 2017, the following balances have been included within accounts payable:
|
|
As at
|
|
|
|
October 31,
2017
|
|
|
July 31,
2017
|
|
|
|
|
|
|
|
|
Kel-Ex Developments Ltd.
|
|
$
|
2,379
|
|
|
$
|
1,931
|
|
Metalex Ventures Ltd.
|
|
|
-
|
|
|
|
607
|
|
|
|
$
|
2,379
|
|
|
$
|
2,538
|
|
As at October 31, 2017, the cumulative $28,077 in management fees earned by the Chief Executive Officer and the $7,580 in management fees earned by the Chief Financial Officer pursuant to the Employment Agreements were included as due to related parties (see Note 4).
NOTE 4 - COMMITMENTS AND CONTINGENCIES
On October 16, 2014, the Company and Chad Ulansky entered into an employment agreement (the “CEO Employment Agreement”), pursuant to which Mr. Ulansky is employed by the Company as its Chief Executive Officer for three years. On July 12, 2015, the Company and Jennifer Irons entered into an employment agreement (the “CFO Employment Agreement”, and together with the CEO Employment Agreement, the “Employment Agreements”), pursuant to which Ms. Irons is employed by the Company as its Chief Financial Officer for three years. Under these plans, deferred stock units (“DSUs”) were issued on a quarterly basis to both Mr. Ulansky and Ms. Irons.
Pursuant to their respective Employment Agreements, the Company has structured individual Deferred Share Unit Plans for each of Mr. Ulansky and Ms. Irons effective as of, respectively, October 16, 2014 and July 12, 2015. As of August 1, 2017, Mr. Ulansky and Ms. Irons have agreed, for the advancement of the Company, to waive a portion of the DSUs that have been issued to them under their respective Deferred Share Unit Plans. By mutual agreement, no further DSUs will be issued under these plans.
The Company has the right to pay the balance or any other amounts payable to Mr. Ulansky and Ms. Irons in shares of deferred stock units of the Company based on the 90-day volume weighted average price (“VWAP”) of the shares of the common stock of the Company at the end of each quarter. As at October 31, 2017, 701,942 shares (July 31, 2017 – 4,679,613) are issuable if Mr. Ulansky were to leave the Company, which equates to $28,077 (July 31, 2017 – $538,156); 189,492 shares (July 31, 2017 – 1,263,222) are issuable to Ms. Irons if she were to leave the Company, which equates to $7,580 (July 31, 2017 – $145,271). These amounts have been included in due to related parties.
During the three month period ended October 31, 2017, the Company recorded a net recovery of $647,770 in management fees and due to related party as a result of the waiver and the decrease in market price of the Company.
NOTE 5 - COMMON STOCK
Authorized Stock
The Company has authorized 300,000,000 shares of common stock with a par value of $0.001 per share. Each share of common stock entitles the holder to one vote, in person or proxy, on any matter on which action of the stockholders of the corporation is sought.
Issued and Outstanding Stock
There were 52,042,286 shares of common stock issued and outstanding as at October 31, 2017 and July 31, 2017.
On January 27, 2017, the Company filed a registration statement with the Securities and Exchange Commission (“SEC”) on Form S-1 under the Securities Act of 1933, as amended, to register the offer and sale of up to 10,000,000 common shares of the Company at a price of $0.1695 per share. The Company planned to use the proceeds from this offering to fund the acquisition of a 17.6% equity interest in Mineracao Batovi, provide working capital and expand the business. The registration statement was declared effective by the SEC as of March 9, 2017; no common stock had been sold pursuant to the registration statement. In connection with the termination of the Amended and Restated Joint Venture Agreement (Note 7), the Company elected not to proceed with the offering of common stock. The Company’s request for the SEC’s consent to withdraw the registration statement was verbally received on August 21, 2017.
NOTE 6 – EARNINGS PER SHARE
Basic Earnings Per Share
Basic earnings per share is calculated by dividing the net profit for the year by the weighted average number of common shares outstanding during the financial year of the Company.
|
|
Three month period ended
|
|
|
|
October 31,
2017
|
|
|
October 31,
2016
|
|
Net Income for the period
|
|
$
|
616,806
|
|
|
$
|
324,757
|
|
|
|
|
|
|
|
|
|
|
Number of common shares outstanding
|
|
|
52,042,286
|
|
|
|
52,042,286
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings per Share
|
|
$
|
0.01
|
|
|
$
|
0.01
|
|
Diluted Earnings Per Share
For the purpose of calculating diluted earnings per share, the profit attributable to equity holders of the Company and the weighted average number of shares outstanding during the fiscal period have been adjusted for the dilutive effects of all potential common shares, share options and deferred share units (“DSUs”) granted to management. The dilutive earnings per share is calculated by dividing the adjusted net income (loss) for the period by the weighted average number of shares that would have been in issue upon full exercise of the outstanding DSUs.
|
|
Three month period ended
|
|
|
|
October 31,
2017
|
|
|
October 31,
2016
|
|
Net Income for the period
|
|
$
|
616,806
|
|
|
$
|
324,757
|
|
Gains associated with DSUs
|
|
|
(647,769
|
)
|
|
|
(360,969
|
)
|
Adjusted Net Income (Loss) for the period
|
|
$
|
(30,963
|
)
|
|
$
|
(36,212
|
)
|
|
|
|
|
|
|
|
|
|
Number of common shares outstanding
|
|
|
52,042,286
|
|
|
|
52,042,286
|
|
DSUs at beginning of period
|
|
|
5,942,841
|
|
|
|
1,645,653
|
|
DSUs issued during the period*
|
|
|
-
|
|
|
|
-
|
|
DSUs waived during the period**
|
|
|
(5,051,407
|
)
|
|
|
-
|
|
Adjusted number of common shares outstanding
|
|
|
52,933,720
|
|
|
|
53,687,939
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings (Loss) per Share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
__________
* Shares were issued on the final day of the three month period; accordingly, for the three month period, any weighted average issued and outstanding would be nil. As of August 1, 2017, no further DSUs are being issued by the Company.
** Shares were waived as of August 1, 2017. As such, there were 891,434 DSUs outstanding throughout the entire three month period ended October 31, 2017.
NOTE 7 – BATOVI DIAMOND PROJECT
On November 20, 2014, the Company entered into a formal joint venture agreement (“the Joint Venture”) with Mineracao Batovi Ltda. (“Mineracao Batovi”), a private Brazilian mineral exploration company which at that time held 21 federal exploration licenses comprising the Batovi Diamond Project located north of Paranatinga in the State of Mato Grosso, Brazil. This was superseded by an amended and restated joint venture agreement (the “Amended and Restated Joint Venture Agreement”) with Mineracao Batovi and Dr. Charles Fipke, the shareholder of Mineracao Batovi, dated January 25, 2017 which provided the Company with the right to acquire up to a 49% interest in Mineracao Batovi. As per the Amended and Restated Joint Venture Agreement, the Company was required to contribute $1,000,000 in cash to Mineracao Batovi on or before June 30, 2017, in order to earn a 17.6% interest in Mineracao Batovi, this being in addition to the Company’s existing 2.4% equity interest which was acquired during the year ended July 31, 2017 from a former shareholder for $30,000.
On November 20, 2014, the Company issued 2,700,000 fully paid and non-assessable common shares valued at $7,992,000 to Kel-Ex Developments Ltd. (“Kel-Ex”) with a fair market value of $2.96 per share in connection with Kel-Ex’s involvement with the Batovi Diamond Project.
As at the July 31, 2017 year end, the agreement has expired, without the Company making any cash contributions to Mineracao Batovi. As such, the previously capitalized acquisition costs for the Brazil project of $7,992,000 have been written off.
The Company continues to own a 2.4% minority interest in Mineracao Batovi, which was purchased for $30,000. At present, it is not yet determinable as to whether or not Mineracao Batovi retains the claims of the Batovi project. Due to this uncertainly, and to the fact that Mineracao Batovi’s only asset of value is these claims, an impairment equal to the original investment purchase of $30,000 has been recorded in the year ended July 31, 2017.
NOTE 8 – DERIVATIVE ASSET
On January 22, 2016, the Company entered into a loan agreement with Blendcore LLC, a Delaware corporation (“Blendcore”), and Petaquilla Gold, S.A., a Panama corporation (“Petaquilla Gold”), which is a subsidiary of Petaquilla Minerals Ltd., a Canadian public company, pursuant to which the Company has agreed to advance a loan in the principal amount of US$250,000 to Blendcore (the “Loan”). Petaquilla Gold, as the owner of the minerals sourced at the Molejon Gold Mine located in Donoso District, Colon Province, Republic of Panama (the “Mine”), has engaged Blendcore, as master contractor, to act as operator in connection with the restarting of the processing of stockpiled ore at the Mine. In exchange for the provision of the Loan, the Company is entitled to a royalty of 12.5% on the first 1,000 ounces of gold produced per month for 12 months (the “Royalty period”). The Royalty Period is to commence once production ramps up to 1,000 ounces per month. For monthly production between 1,001 and 2,000 ounces of gold per month, the Company is to receive a reduced royalty of 5%. In addition to the royalty stream, the Company has the right of first option to provide funding for the expansion and development of the Mine. The Loan is to be forgiven provided that there are at least 12,000 ounces of gold produced during the Royalty Period. Upon the completion of the Royalty Period, the Company has the option to extend the royalty for a further 12 month period through the provision of a second $250,000 loan on substantially the same terms as the initial loan. This right shall survive the royalty agreement by a period of one year. As at October 31, 2017, the Company has advanced $215,000 to Blendcore LLC.
Valuation of Derivative
As the loan agreement with Blendcore contains a royalty component, there is an embedded derivative in its value. Currently, the Company has elected to account for the entire instrument as a derivative at fair value, with changes in fair value presented in earnings. The fair value of the derivative is determined by using a discounted cash flow analysis related to various expected future cash flows to be received based on weighted probabilities due to the uncertainty of the potential royalty streams. This asset is classified as a Level 3 asset within the fair value hierarchy as our valuation estimates utilize significant unobservable inputs, including estimates as to the probability and timing of future gold production. Transaction related fees and costs are expensed as incurred.
The changes in the estimated fair value from the derivative along with cash receipts for each reporting period are presented together on the Statement of Operations under the caption, “Derivative – change in fair value”.
At present, the gold mine has not been restarted. The Company has engaged the services of a legal firm in Panama to determine appropriate title to the claim and our course of action to recover the funds advanced. As such, while the Company continues to work to recover the funds, it currently considers there to be negligible chance of recovery and has accordingly valued the derivative as at October 31, 2017 at $Nil (July 31, 2017 – $Nil).
NOTE 9 - GOING CONCERN AND LIQUIDITY CONSIDERATIONS
The accompanying condensed financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. During the period ended October 31, 2017, the Company had net income of $616,806, which is the result of a recovery of management fees. As at October 31, 2017, the Company had an accumulated deficit of $8,898,510 and has earned no revenues since inception. The Company intends to fund operations through equity financing arrangements, which may be insufficient to fund its capital expenditures, working capital and other cash requirements for the year ending July 31, 2018.
The ability of the Company to emerge from the exploration stage is dependent upon, among other things, obtaining additional financing to continue operations, and development of its business plan. In response to these problems, management intends to raise additional funds through public or private placement offerings.
These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.