ITEM 1. BUSINESS.
Overview
We were incorporated on December 14, 2005 under the laws of the State of Nevada. We are an exploration stage company and our primary objectives are to: (i) commercially extract and refine precious metals from mined ore at our Phoenix Facility; (ii) joint venture, acquire and develop mining projects in North America; and (iii) generate ongoing revenues from the licensing of our proprietary, environmentally-friendly lixiviation.
We are focusing our business on toll processing mined ore for third party mining companies at our processing and refining plant located in Phoenix, Arizona (the “Phoenix Facility”). Our Phoenix Facility is a compact, modular, cost efficient, turn-key operation, with a capacity to process up to 10 tons per day. In processing ore at our Phoenix Facility, we utilize our environmentally friendly proprietary technology for the lixiviation of minerals using thiourea stabilization (the “Lixiviation Technology”). The use of thiourea stabilization is more environmentally friendly than cyanide or sulfuric acid, which have traditionally been used for this purpose.
We continued to earn revenues, although minimal, from the processing of ore at our Phoenix Facility during the fiscal year ended March 31, 2010. In fiscal 2010, we entered into a Toll Processing Agreement with Golden Anvil, SA de CV (“Golden Anvil”) and entered into a Letter of Intent with respect to a proposed 50/50 joint venture. We are continuing our due diligence of the Golden Anvil project in order to form a proposed 50/50 joint venture with Golden Anvil. The details of the Letter of Intent and Toll Processing Agreement are set out under the heading “Golden Anvil” below.
We also plan to engage in the exploration and development of our Piute Valley Property located in Clark County, Nevada. Our Piute Valley Property is a potential gold project that consists of a mineral lease covering 20.61 acres of patented claims (the “Smith Lease”) and an option to acquire a 7/8th interest in 20 unpatented claims (the “BLM Claims”) located near the Smith Lease. Each BLM Claim is comprised of 160 acres.
We are actively seeking to enter into agreements to license our Lixiviation Technology to third parties and we are also seeking to enter into joint ventures with third parties to explore and develop additional mining projects. There are no assurances that we will be able to license our Lixiviation Technology or enter into joint ventures for the exploration and development of additional mining projects.
Phoenix Facility and Lixiviation Technology
We acquired our interest in the Lixiviation Technology and our Phoenix Facility on April 2, 2007 under the terms of a Technology and Asset Purchase Agreement (the “Technology Agreement”) with New Verde River Mining Co., Inc. (“New Verde”) and Robert H. Gunnison. In consideration of the Lixiviation Technology and the Phoenix Facility, we paid and issued the following:
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Concurrent with the acquisition of the Lixiviation Technology and the Phoenix Facility, we entered into an Employment Agreement dated April 2, 2007 (the “Employment Agreement”) with Robert H. Gunnison whereby Mr. Gunnison agreed to act as our Production Manager commencing on April 2, 2008. In consideration of Mr. Gunnison’s services, we pay Mr. Gunnison a salary of $120,000 per annum.
On March 13, 2009, we entered into the Payment Extension and License Agreement with New Verde and Mr. Gunnison whereby New Verde and Mr. Gunnison agreed to extend the deadline for the balance owed to New Verde to June 30, 2010. In consideration of the extension, we agreed to pay interest at 6% per annum on the balance owing to New Verde. We also agreed to grant New Verde and Mr. Gunnison a non-exclusive worldwide license on the Technology (the “License”). The License will only take effect in the event of the termination of the employment agreement between Mr. Gunnison and the Company. New Verde and Mr. Gunnison will not be permitted to assign or sub-license without our prior written approval. On July 22, 2010, we entered into a payment extension with New Verde and Mr. Gunnison whereby New Verde and Mr. Gunnison agreed to extend the deadline for the balance owed to New Verde to June 30, 2011. In consideration of the extension, we agreed to extend the accrual of interest at 6% per annum on the balance owing to New Verde.
Our Phoenix Facility is an industrial building of approximately 9,809 square feet located in Phoenix, Arizona. The Phoenix Facility is designed as a compact, modular, cost efficient, turn-key operation, with a capacity of processing 10 tons of ore per day. In processing ore at our Phoenix Facility, we utilize our Lixiviation Technology, being a closed loop, zero liquid discharge, leach extraction process. Below is a basic diagram on the processing of ore at our Phoenix Facility.
We recently received approximately 400 oz of high grade gold placer concentrate from a private party that we refined into 351 oz of gold dore bars. We earned a 5% processing fee for our service and expect to receive up to an additional 2000 oz of this high grade gold placer concentrate to refine over the next 60 days.
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THE PIUTE VALLEY PROPERTY
The Piute Valley Property is a potential gold project consisting of the Smith Lease and the BLM Claims. We intend to focus our operations on the Smith Lease based on its development and status.
The Smith Lease is a leased patented mineral claim covering approximately 20.61 acres located in Clark County, Nevada. We acquired our interest in the Smith Lease upon entering into a Restatement and Amendment to Lease Agreement dated April 12, 2007 (the “Lease Agreement”) with Erline Y. Smith, Trustee, Erline Y. Smith Trust and Lawana Hooper (collectively referred to as the “Lessors”). Under the terms of the Lease Agreement, we were granted the right to explore, and if proved feasible, develop the Smith Lease. These rights were granted as a lease for a term of 20 years. As consideration for the Smith Lease, we agreed to do the following:
(a)
pay $5,000 to the Lessors upon execution of the Lease Agreement (which amount has been paid);
(b)
pay an annual rental fee of $1,000 to the Lessors per each five acre parcel of the Smith Lease (we have paid the annual rental fee through August 9, 2010); and
(c)
pay an annual royalty equal to five percent of “net smelting profit” from production. Net smelting profit is defined as the net profit derived from the sale of metals and minerals produced from the Smith Lease.
In addition to the Smith Lease, our BLM Claims consist of an option to acquire a 7/8th undivided interest in 20 mineral claims, covering approximately 3,200 acres located in Clark County, Nevada. Readers are cautioned that eight of the BLM Claims appear to be invalid due to conflicts with patented claims or more senior claims. We are investigating this further in order to determine the exact extent of the conflict with these claims
Under the terms of various option agreements entered into in January 2007 (the “Option Agreements”) with certain optionors (the “Optionors”), we are required to issue to the Optionors the following consideration in order to maintain and exercise our option on the BLM Claims:
(a)
1,050,000 shares of common stock on execution of the Option Agreements (which shares have been issued);
(b)
an additional 420,000 shares of common stock on the fifth anniversary of the Option Agreements; and
(c)
an additional 210,000 shares of common stock on the tenth anniversary of the Option Agreements.
GOLDEN ANVIL
Letter of Intent with Golden Anvil
On October 21, 2009, we entered into a letter of intent with Golden Anvil with respect to the formation and funding of a proposed joint venture for the exploration, development and production of gold and silver from mineral concessions (the "Mineral Concessions") owned by Golden Anvil located in the State of Nayarit, Mexico. The Mineral Concessions are currently being mined sporadically at a rate of 50 tons per day. A concentration plant on the Mineral Concessions is currently producing approximately 24 tons of concentrate per month. Concentrates from Golden Anvil are currently being processed at our Phoenix Facility.
Subject to each party satisfactorily completing its due diligence review, the parties intend to enter into a joint venture agreement. The proposed principal terms of the joint venture agreement are as follows:
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(a)
We will acquire a 50% undivided interest in the joint venture by providing funding of $3,000,000 (the "Funding") as follows:
(i)
$1,500,000 to purchase additional equipment and to refurbish and relocate the concentration plant currently located on the Mineral Concessions to an area with better power and access;
(ii)
$500,000 for Golden Anvil to pay its current liabilities, late taxes and mining duties; and
(iii)
$1,000,000 (the "Repurchase Loan") loaned to Golden Anvil, with no interest, to fund the costs of a repurchase of the outstanding shares of Golden Anvil (the "Share Repurchase").
(b)
Revenue from the joint venture shall be split proportionate to ownership. However, 25% of the share of revenue accruing to Golden Anvil will go towards the payment of the Repurchase Loan until paid in full, and in any event, the Repurchase Loan shall be repaid within 12 months from the date of funding.
Under the terms of the Letter of Intent, we had until December 20, 2009 to complete our due diligence to determine if we wished to proceed with the proposed joint venture. Under the terms of the Toll Processing Agreement dated for reference December 3, 2009, the Due Diligence Period was extended to February 15, 2010. On March 12, 2010, we entered into an extension agreement dated for reference February 15, 2010 with Golden Anvil whereby the Due Diligence Period was further extended to April 30, 2010. We are currently engaged in discussions with Golden Anvil to further extend the Due Diligence Period.
There is no assurance that the proposed transaction will be completed as planned or at all. If we elect to proceed after completion of due diligence, there is no assurance we will be able to obtain the necessary financing.
Toll Processing Agreement with Golden Anvil
On December 4, 2009, we entered into a Toll Processing Agreement dated for reference December 3, 2009 with Golden Anvil. Under the terms of the Toll Processing Agreement, we have agreed to process concentrates delivered by Golden Anvil to our Phoenix Facility for a per ton fee of $500 plus 8% of the value of the precious metals recovered and to loan $400,000 to Golden Anvil, (which amount has been advanced) to pay Golden Anvil’s costs to acquire additional land for relocation of its concentrating facilities, and to fund the relocation and upgrading of Golden Anvil’s ore concentrating facilities (the “Land Purchase and Facilities Relocation Loan”). Our loans will be secured by Golden Anvil’s land and ore concentrating facilities. In addition, concentrates shipped to the Phoenix Facility to date secure an advance of $70,000 previously made to Golden Anvil.
In the event that we are able to consummate our proposed joint venture under the Letter of Intent:
(a)
the Land Purchase and Facilities Relocation Loan will be considered a portion of our contribution requirement under the proposed joint venture and Golden Anvil will not be required to repay such loans; and
(b)
all concentrates produced by the joint venture will be shipped to the Phoenix Facility and processed by us on the same terms as the initial shipment and prior shipment until such time as the proposed joint venture may establish its own refining facility in Mexico.
In the event that we are not able to consummate our proposed joint venture under the Letter of Intent:
(a)
The Land Purchase and Facilities Relocation Loan shall be repaid to us out of 15% of the amounts payable to Golden Anvil in respect of concentrates shipped to the Phoenix Facility; and
(b)
Golden Anvil will continue to ship to us all concentrates produced by Golden Anvil until one year following the repayment of the Land Purchase and Facilities Relocation Loan.
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As of the date of this Annual Report, Golden Anvil has delivered 23 tons of concentrates to us. We have produced approximately 25 oz of gold and over 400 oz of silver from the original three shipments (23 tons) of concentrate generated at the Golden Anvil project in Mexico. We are focused on improving the amount of time it takes to separate and extract precious metals from the concentrate. Accordingly, we have hired experts to assist us in optimizing the total percentage of precious metals recovered from the concentrate. However, the optimization of our process has been slowed while we await additional concentrates from Golden Anvil.
We have hired a professional mining engineer to evaluate the progress of the Golden Anvil concentration plant and to review the mine site and related historic data. The concentration plant expects to begin operations within 45 days at a projected production rate of 200 tons of head ore per day, resulting in 75 tons of concentrate per month. We are working with Golden Anvil to formalize a joint venture agreement and expect to execute an agreement within 60 days.
Subsequent to our year ended April 30, 2010, we loaned Golden Anvil $80,000 in order for Golden Anvil to meet its operating costs.
Compliance with Government Regulation
Our activities are subject to extensive federal, state, and local regulations in the United States. These statutes regulate the mining of and exploration for mineral properties, and also the possible effects of such activities upon the environment. Future legislation and regulations could cause additional expense, capital expenditures, restrictions and delays in the development of the Piute Valley Property, the extent of which cannot be predicted. Our Piute Valley Property is comprised of patented and unpatented mining claims located on federal land managed by the U.S. Bureau of Land Management. Mining activities on the Piute Valley Property must be carried out in accordance with a permit issued by the Bureau of Land Management.
Other regulatory requirements monitor the following:
(a)
Explosives and explosives handling.
(b)
Use and occupancy of site structures associated with mining.
(c)
Hazardous materials and waste disposal.
(d)
State Historic site preservation.
(e)
Archaeological and paleontological finds associated with mining.
(f)
Wildlife preservation.
The State of Nevada adopted the Mined Land Reclamation Act (the “Nevada Act”) in 1989 that established design, operation, monitoring and closure requirements for all mining facilities. The Nevada Act has increased the cost of designing, operating, monitoring and closing new mining facilities and could affect the cost of operating, monitoring and closing existing mining facilities. The State of Nevada has also adopted reclamation regulations. The Nevada Act also requires reclamation plans and permits for exploration projects that will result in more than five acres of surface disturbance.
In the context of environmental permitting, we must comply with known standards, existing laws and regulations that may entail greater or lesser costs and delays, depending on the nature of the activity to be permitted and how stringently the regulations are implemented by the permitting authority. We are not presently aware of any specific material environmental constraints affecting our property that would preclude the economic development or operation of any specific property.
If our property merits additional exploration or extraction work, it is reasonable to expect that compliance with environmental regulations will increase our costs. Such compliance may include feasibility studies on the surface impact of our proposed operations, costs associated with minimizing surface impact, water treatment and protection, reclamation activities, including rehabilitation of various sites, on-going efforts at alleviating the mining impact on wildlife and permits or bonds as may be required to ensure our compliance with applicable regulations. It is possible that the costs and delays associated with such compliance could become so prohibitive that we may decide to not proceed with exploration, development, or mining operations on our mineral property.
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Competition
We are an exploration stage company. We compete with other mineral resource exploration and development companies for financing and for the acquisition of new mineral properties. Many of the mineral resource exploration and development companies with whom we compete have greater financial and technical resources than we do. Accordingly, these competitors may be able to spend greater amounts on acquisitions of mineral properties of merit, on exploration of their mineral properties and on development of their mineral properties. In addition, they may be able to afford greater geological expertise in the targeting and exploration of mineral properties. This competition could result in competitors having mineral properties of greater quality and interest to prospective investors who may finance additional exploration and development. This competition could adversely impact our ability to finance further exploration and to achieve the financing necessary for us to develop our mineral properties.
We will also compete with other junior mineral exploration companies for financing from a limited number of investors that are prepared to make investments in junior mineral exploration companies. The presence of competing junior mineral exploration companies may impact our ability to raise additional capital in order to fund our exploration programs if investors are of the view that investments in competitors are more attractive based on the merit of the mineral properties under investigation and the price of the investment offered to investors. We will also compete with other junior and senior mineral companies for available resources, including, but not limited to, professional geologists, camp staff, helicopter or float planes, mineral exploration supplies and drill rigs.
Patents and Trademarks
We do not own, either legally or beneficially, any patent or trademark. We intend to seek patents with respect to the Lixiviation Technology.
Research and Development Expenditures
During our fiscal year ended April 30, 2010, we spent approximately $846,732 on research and development costs. In fiscal 2009, we spent approximately $616,559 on research and development costs.
Employees
Other than our executive officers and directors, we do not have any employees at the time of this Annual Report.
ITEM 1A.
ITEM 1A. RISK FACTORS.
The following are some of the important factors that could affect our financial performance or could cause actual results to differ materially from estimates contained in our forward-looking statements. We may encounter risks in addition to those described below. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, may also impair or adversely affect our business, financial condition or results of operation.
If we do not obtain additional financing, we may not be able to continue our operations at our Phoenix Facility or complete our exploration and development programs on the Piute Valley Property.
As at April 30, 2010, we had cash on hand of $37,559 and accumulated net loss of $9,594,840 since inception. Our plan of operation calls for significant expenses in connection with the operation of our Phoenix Facility and the exploration and development of our Piute Valley Property. If we are unable to raise sufficient financing, there is a substantial risk that we will be unable to meet payments of principal and interest to our creditors and pay our employees. In addition, we will require substantial financing in order to implement our plan of operation over the next twelve months.
Our Board of Directors have approved a U.S. private placement of 6,000,000 Units for proceeds of $300,000 (the “U.S. Private Placement”), a foreign private placement of 4,000,000 Units for proceeds of $200,000 (the “Foreign Private Placement”) and a Section 4(2) private placement offering of 20,000,000 Units for proceeds of $1,500,000 (the “Section 4(2) Private Placement). To date, we have raised cash proceeds and settled indebtedness of $80,000 under the U.S. Private Placement, $192,775 under the Foreign Private Placement and $1,200,000 under the Section 4(2) Private Placement. However, there is no assurance that we will be able to complete the sale of any additional securities under these private placement offerings. Even if we complete the sale of all of the securities offered under these private placement offerings, there is no assurance that this will satisfy all of our working capital requirements for the next twelve months or that these funds will be sufficient to complete our planned exploration and development programs.
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Because we are an exploration stage company, we face a high risk of business failure.
We have commenced earning revenues, although minimal, from the processing of ore at our Phoenix Facility. Our primary business activities have involved the acquisition of the Piute Valley Property, the exploration and development on the Piute Valley Property and the commencement of operations at our Phoenix Facility. Potential investors should be aware of the difficulties normally encountered by exploration stage companies and the high rate of failure of such enterprises. The likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays encountered in connection with the exploration of the mineral properties that we plan to undertake. These potential problems include, but are not limited to, unanticipated problems relating to exploration, and additional costs and expenses that may exceed current estimates.
Because we anticipate our operating expenses will increase prior to our earning significant revenues, we may never achieve profitability.
Prior to completion of our exploration stage, we anticipate that we will incur increased operating expenses prior to realizing any significant revenues. We therefore expect to incur significant losses into the foreseeable future. We recognize that if we are unable to generate significant revenues from the operation of our Phoenix Facility or the exploration and development of our mineral property and the production of minerals thereon, if any, we will not be able to earn profits or continue operations. There is no history upon which to base any assumption as to the likelihood that we will prove successful, and we may not be able to ever generate any operating revenues or achieve profitable operations. If we are unsuccessful in addressing these risks, our business will most likely fail.
Because of the speculative nature of exploration of mining properties, there is substantial risk that no commercially exploitable minerals will be found and our business will fail.
The search for valuable minerals as a business is extremely risky. We may not find commercially exploitable reserves of precious metals on our mineral claims. Exploration for minerals is a speculative venture, necessarily involving substantial risk. The expenditures to be made by us in the upcoming exploration of the mineral claims may not result in the discovery of commercial quantities of ore. Problems such as unusual or unexpected formations and other conditions are involved in mineral exploration and often result in unsuccessful exploration efforts. In such a case, we would be unable to complete our business plan.
Because of the inherent dangers involved in mineral exploration, there is a risk that we may incur liability or damages if and when we conduct mineral exploration activities.
The search for valuable minerals involves numerous hazards. As a result, if and when we conduct exploration activities we may become subject to liability for such hazards, including pollution, cave-ins and other 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.
There is no assurance that our due diligence requirements will be satisfied or that we will be able to reach a joint venture agreement with Golden Anvil under the terms of the Letter of Intent.
There is no assurance that the proposed transaction with Golden Anvil will be completed as planned or at all. We may decide to neither conduct due diligence of Golden Anvil nor proceed with the joint venture agreement with Golden Anvil. Even if we decide to proceed with the joint venture, there is no assurance that we will be able to reach an agreement or that we will have sufficient financing to proceed in a joint venture agreement.
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Even if we discover commercial reserves of precious metals on our Piute Valley Property, we may not be able to successfully obtain commercial production.
Our Piute Valley Property does not contain any known bodies of ore. If our exploration programs are successful in discovering ore of commercial tonnage and grade, we will require additional funds in order to place those mineral claims into commercial production. At this time, there is a risk that we will not be able to obtain such financing as and when needed.
In order to maintain our rights to the Piute Valley Property, we will be required to make annual filings with federal and state regulatory agencies and/or be required to complete assessment work on those properties.
In order to maintain our rights to the Piute Valley Property, we will be required to make annual filings with federal and state regulatory authorities. Currently the amount of these fees is minimal; however, these maintenance fees are subject to adjustment. In addition, we may be required by federal and/or state legislation or regulations to complete minimum annual amounts of mineral exploration work on the Piute Valley Property. A failure by us to meet the annual maintenance requirements under federal and state laws could result in the loss of our rights to the Piute Valley Property.
As we undertake exploration of our Piute Valley Property, we will be subject to compliance with government regulation that may increase the anticipated cost of our exploration program.
There are several government regulations that materially restrict the exploration of minerals. We may be required to obtain work permits, post bonds and perform remediation work for any physical disturbance to the land in order to comply with these laws. While our planned exploration program budgets for regulatory compliance, there is a risk that new regulations could increase our costs of doing business and prevent us from carrying out our exploration program.
Certain work to be performed on our mineral projects may require us to apply for permits from federal, state or local regulatory bodies.
If our applications for permits from the relevant regulatory bodies are denied, we may not be able to proceed with our exploration and development programs as disclosed above, which could have a negative effect on our business.
If we receive positive results from our exploration program and we decide to pursue commercial production, we may be subject to an environmental review process that may delay or prohibit commercial production.
If the results of our geological exploration program indicate commercially exploitable reserves, and we decide to pursue commercial production of our mineral property, we may be subject to an environmental review process under environmental assessment legislation. Compliance with an environmental review process may be costly and may delay commercial production. Furthermore, there is the possibility that we would not be able to proceed with commercial production upon completion of the environmental review process if government authorities did not approve our mine or if the costs of compliance with government regulation adversely affected the commercial viability of the proposed mine.
If we are unable to hire and retain key personnel, we may not be able to implement our business plan and our business will fail.
Our success will largely depend on our ability to hire highly qualified personnel with experience in geological exploration. These individuals may be in high demand and we may not be able to attract the staff we need. In addition, we may not be able to afford the high salaries and fees demanded by qualified personnel, or may lose such employees after they are hired. Our failure to hire key personnel when needed could have a significant negative effect on our business.
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If we complete additional financings through the sale of shares of our common stock, our existing stockholders will experience dilution.
The most likely source of future financing presently available to us is through the issuance of our common stock. The only other anticipated alternative for the financing of further exploration would be the offering by us of an interest in our properties to be earned by another party or parties carrying out further exploration thereof, which is not presently contemplated. Issuing shares of our common stock, for financing purposes or otherwise, will dilute the interests of our existing stockholders.
Because our stock is a penny stock, stockholders will be more limited in their ability to sell their stock.
Our common stock is considered to be a “penny stock” since it does not qualify for one of the exemptions from the definition of “penny stock” under Section 3a51-1 of the Securities Exchange Act of 1934 (the “Exchange Act”). Our common stock is a “penny stock” because it meets one or more of the following conditions (i) the stock trades at a price less than $5.00 per share; (ii) it is not traded on a “recognized” national exchange; (iii) it is not quoted on the Nasdaq Stock Market, or even if so, has a price less than $5.00 per share; or (iv) is issued by a company that has been in business less than three years with net tangible assets less than $5 million.
The principal result or effect of being designated a “penny stock” is that securities broker-dealers participating in sales of our common stock will be subject to the “penny stock” regulations set forth in Rules 15-2 through 15g-9 promulgated under the Exchange Act. For example, Rule 15g-2 requires broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document at least two business days before effecting any transaction in a penny stock for the investor's account. Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker-dealer to (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor's financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult and time consuming for holders of our common stock to resell their shares to third parties or to otherwise dispose of them in the market or otherwise.
ITEM 2.
ITEM 2. PROPERTIES.
Our principal office is at 2580 Anthem Village Dr., Henderson, NV 89052, consisting of approximately 150 square feet, which we rent at a cost of $600 per month. We entered into a lease agreement commencing expiring on April 30, 2011.
We also rent premises located at 8005 La Cienega, Las Vegas, NV 89123, consisting of approximately 3,600 square feet, for use as office space, corporate housing, laboratory space and storage space, at a cost of $3,000 per month. We entered into a lease with respect to these premises which commenced in April 2006 and expired on May 30, 2008. We will continue to rent these premises on a month-to-month basis.
We also lease our Phoenix Facility located at 2344 North 33rd Avenue, Maricopa, Arizona. The Phoenix Facility is leased pursuant to a Lease Agreement dated June 6, 2007 among ourselves, McKendry Enterprises Inc. and Profit Sharing Plan and Retirement Trust. The Phoenix Pilot Production Facility consists of an industrial building of approximately 9,809 square feet located on approximately 24,559 square feet of land. This lease agreement expires on June 30, 2010. On November 20, 2009 we extended the term of our lease to August 31, 2013.
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THE PIUTE VALLEY PROPERTY
Location, Climate, Infrastructure and Access
The Piute Valley Property consists of approximately 3,200 acres of lakebed exploration project, with underlying hard rock potential, located about 50 miles south of Las Vegas, Nevada.
Access is by vehicle from Las Vegas on Highway 95 to Searchlight, Nevada then by secondary roads southward. The area is typically desert climate with relatively high temperatures and low precipitation. Vegetation consists mainly of desert shrubs and cactus. Sources of water would be available from valley wells.
Geology
The Piute Valley Property contains extensive sedimentary deposits, a part of an extensive basin filled with unconsolidated detritus and bounded by outcropping Miocene volcanic and intrusive rocks. Previous geologic work conducted from interpretation of satellite infrared imagery indicates the claims are overlaying a major east-west Fracture Zone as wide as 5-8 miles. Historically, gold mined from the area was produced principally from quartz-sulphide-hematite veins trending in the same east-west direction.
Metallurgy and Mineralogy
The Piute Valley Property has a complex mineralogy that requires a technical extension of conventional fire assay methods to identify the precious metals of gold, silver and platinum group metals, and unique and proprietary leaching and separation methods to extract the precious metals. The gold particles occur as micron clusters in a highly refractory aluminum silicate matrix that arrested the growth of the gold clusters and prevents their rapid solutioning, whether in high temperature molten flux used in fire assay (aluminum silicates melt at temperatures higher than conventional fire assay temperatures) or in chemical digestion (cyanidation does not attack the aluminum silicate coating). We have developed the necessary technology to “assay” the existence of the gold clusters and a process to extract, separate and purify any precious metals.
History of Exploration
In 2007, we initiated a sampling program on the Piute Valley Property to analyze the efficacy of conventional fire assay methodology for determining the grade of precious metals in samples from the property.
January 2007 - 20 surface samples randomly collected from Section 2 Range 63E Township 29S were analyzed for Au at our Phoenix Facility. The samples were collected from excavating 3-5 feet from the surface, screened to -1/4”, further milled to 200 mesh, fire assayed, and separated into 1000 g (~2 lb) bench leaching. We completed this Phase I study on the precious metals recoverable composition and found high statistical variance in the results from the fire assay of 15 g (1/2 assay ton) and 30 g (full assay ton) samples. The 1000 g bench leaching, however, demonstrated consistent extraction results using our Lixivation Technology.
February to July 2007 - We initiated a 6 month large-scale sampling program, Phase II study, designed to explore the precious metal values throughout the 1,280 acre position of the Piute Valley Property. Three 5 ton sampling efforts were conducted, each consisting of excavating 5-10 feet from the surface, screened to - 1/4”, further milled to 350 mesh, fire assayed, and separated into 1000 g (~2 lb) bench leaching, 100 kg batch leaching, and 2000 kg pilot-scale leaching. We completed this Phase II study and our results demonstrated consistent, scalable extraction economics from the 1000 g bench leaching, 100 kg batch leaching, and 2000 kg pilot-scale leaching. The results from the program indicated anomalous values of gold.
Exploration Activities Conducted on the Piute Valley Property
Our current state of exploration involves a four phase exploration program to be undertaken on the Piute Valley Property to assess its potential to host gold and silver mineralization. The four phase program consists of the following:
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Our exploration program is intended to generate and prioritize target areas for implementation of our Lixiviation Technology. It has come to our attention that eight of our original mineral claims have been segregated by the Bureau of Land Management. A substantial portion of our previous exploration work on the Piute Valley Property was conducted on these invalid claims. However, we believe that the mineralization is homogenous throughout the Piute Valley and accordingly the results should be valid for the remaining claims.
Phase I Exploration Program
Work on Phase I of our exploration program was completed in October, 2007 and consisted of chain of custody surface exploration and a shallow drilling program to provide us with additional information on the mineralization, concentration efficacy, extraction efficiency, and processing economics of the former 2,560 acres portion of the Piute Valley Property.
Phase II Exploration Program
Work on Phase II of our exploration program was completed in January, 2008. Phase II of our exploration program consisted of drilling at a depth of up to 100 meters and was conducted in an area a half-mile wide that extended two miles south of the area immediately south of the Quartette Mine. All drilling was conducted on the Smith Lease.
During Phase II of our exploration program, we obtained nine one-pound samples and nine 200 pound samples from an area of 100 acres located immediately south of the Quartette Mine. The surface sample results were analyzed at our mineral processing laboratory in Arizona. We also drilled five rotary percussion holes at depths between 30 meters and 100 meters. Each 15 meters of drilling generated 200 pounds of cuttings for mineral processing.
The following results were received by us in connection with Phase II of our exploration program.
Sample Type
Average Au
(g/t) Average Ag (g/t)
9 x 1 lb. surface samples, leached 2.54 g/t 0.63 g/t
9 x 200 lb. surface samples screened to minus ¼” 1.9 g/t 1.5 g/t
5 drill holes - full depth 2.95 g/t 0.93 g/t
5 drill holes - top 30 meters 3.18 g/t 1.5 g/t
Within the fiscal year ending April 30, 2008, we completed a pilot-scale processing study of the alluvial ore obtained from the Phase II portion of the exploration program. This processing study involved the gravity and floatation concentration of the head ore performed by Met-Solve Laboratories Inc. in Burnaby, British Columbia.
Phase III Exploration Program
We completed our pilot production test on the Smith Lease. During the pilot production test, we built and operated a gravity concentration circuit in an effort to create a high value concentrate material. The results from our test were very promising, although inconclusive as far as the commercial viability of the gravity concentration process. Consistent with prior tests, we confirmed the existence of gold in the concentrates. However, the concentrates were irregular in nature and could not be used as a method to scale up production. We are currently in the process of having a third party concentration technology evaluate the material to see if they can get consistent, higher concentrate results.
Page 13 of 35
Throughout our testing we found anomalous values of gold, that if efficiently concentrated should prove to be commercially viable. Once we prove out a viable method for concentration, we will scale up the process and begin immediate refinement in our Phoenix Facility.
Additional testing on the property revealed significant quartz structures, over 50 feet wide in some cases, between the 36’ and 44’ depth levels. These structures appear to be typical of the historic gold bearing material processed by local mining concerns in the past. The initial test results indicate anomalous values of gold. These findings have caused us to reevaluate our drilling plans and reapply for permits to drill out and map the property. Additional funding is required to properly drilling the claims.
Phase IV Exploration Program
Phase IV of our exploration program will involve the test diamond drilling of prime targets on the Smith Lease. The implementation of Phase IV of our exploration may require the filing of a Notice with the Federal Bureau of Land Management. We anticipate that this phase will cost approximately $500,000. The completion of the Phase IV portion of our current exploration program will depend on obtaining sufficient funds for the drilling and mineral analysis.
Our planned exploration program is exploratory in nature and no commercially extractable mineral reserves may ever be found.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
We are not a party to any other legal proceedings and, to our knowledge, no other legal proceedings are pending, threatened or contemplated.
Page 14 of 35
PART II
ITEM 5.
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
MARKET INFORMATION
Our common shares are currently quoted on the OTC Bulletin Board under the symbol “RYMM." The following table indicates the high and low bid prices of the common shares obtained during the periods indicated:
REGISTERED HOLDERS OF OUR COMMON STOCK
As of July 26, 2010, there were 122 registered holders of record of our common stock. We believe that a number of stockholders hold stock on deposit with their brokers or investment bankers registered in the name of stock depositories.
DIVIDENDS
We have neither declared nor paid any cash dividends on our capital stock since our inception and do not contemplate paying cash dividends in the foreseeable future. It is anticipated that earnings, if any, will be retained for the operation of our business. Our board of directors will determine future dividend declarations and payments, if any, in light of the then-current conditions they deem relevant and in accordance with the Nevada Revised Statutes.
There are no restrictions in our articles of incorporation or in our bylaws which prevent us from declaring dividends. The Nevada Revised Statutes, however, do prohibit us from declaring dividends where, after giving effect to the distribution of a dividend:
(a)
We would not be able to pay our debts as they become due in the usual course of business; or
(b)
Our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving distributions.
RECENT SALES OF UNREGISTERED SECURITIES
On February 26, 2010, we issued 105,000 shares of common stock for warrants exercised at $0.10 per share and 100,000 shares of common stock for options exercised at $0.05 per share in order to settle indebtedness of $15,500.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
PLAN OF OPERATION
Our plan of operation over the next twelve months is to focus our financial resources on the continued development of our ore processing business at our Phoenix Facility. We will continue to seek out to enter into ore processing agreements with third party mining companies to process ore at our Phoenix Facility. However, there are no assurances that we will be able to enter into any additional ore processing agreements with third party mining companies on terms acceptable to us or at all.
Page 15 of 35
We anticipate that over the next twelve months our plan of operation for our Phoenix Facility and the Piute Valley Property will consist of:
1)
Upgrading our Phoenix Facility by installing another vibratory drum mill and filter press to increase the process rate at the Phoenix Facility to 2,000 lbs per hour. We anticipate that we will require $400,000 in order to implement these upgrades at our Phoenix Facility.
2)
Implementing our drilling program of prime targets on the Smith Lease. The implementation of this drilling program may require the filing of a Notice with the Federal Bureau of Land Management. We anticipate that this drilling program will cost approximately $500,000. The completion of this drilling program will depend on obtaining sufficient funds for the drilling and mineral analysis.
3)
Proceeding with the purchase of a larger concentrator to be installed on the Smith Lease, subject to raising substantial financing and having a third party concentration technology evaluate the material from our pilot product test. If we are able to raise financing and purchase a concentrator, of which there is no assurance, we plan to commence the processing of mined material on the property.
4)
Exploring strategic partnerships for the exploration of the additional Piute Valley Property.
As of April 30, 2010, we had cash in the amount of $37,559. Accordingly, we do not have sufficient resources to meet the ongoing costs of our Phoenix Facility, the anticipated costs of completing our plan of operation for our Phoenix Facility, the Smith Lease or meeting the administrative costs of operating our business for the next twelve months. In order to complete our plan of operation, we will be required to obtain substantial financing from the sale of our common stock, of which there is no assurance.
RESULTS OF OPERATIONS
Summary of Year End Results
Revenues
During the year ended April 30, 2010, we earned revenues of $66,799. We are currently in the exploration stage of our business. We have begun to process ore at our Phoenix Facility; however, our initial income from the use of our Phoenix Facility has been minimal. We can provide no assurances that we will earn significant revenue from the processing of ore at our Phoenix Facility or that we will discover commercially exploitable levels of mineral resources on our Piute Valley Property, or if such resources are discovered, that we will be able to enter into commercial production of our Piute Valley Property.
Page 16 of 35
Expenses
The major components of our expenses for the year ended April 30, 2010 and 2009 are outlined in the table below:
Our operating expenses for the year ended April 30, 2010 increased as compared to the year ended April 30, 2009. The increase in our operating expenses primarily relates to an increase in mineral exploration and evaluation expenses and depreciation and amortization expenses. Those amounts were partially offset by a slight decrease in general and administrative expenses.
Mineral exploration and evaluation expenses primarily consisted of rent, processing extraction costs, consulting fees and labor expenses in connection with our Phoenix Facility, as well as subcontractor costs with our exploration program on the Smith Lease. The additional mineral exploration and evaluation expenses in fiscal 2010 was due to additional consulting and labor expenses incurred at our phoenix facility.
In fiscal 2010, our general and administrative and general and administrative related party expenses primarily consisted of: (i) stock based expenses of $391,478 recognized for stock options issued in December 2009; (ii) monthly consulting fees paid to our Chief Executive Officer, Mr. Matheson, to our Chief Financial Officer, Mr. Mitchell and to a member of our Board of Directors, Mr. Boyko; and (iii) legal and accounting fees in connection with meeting our reporting requirements under the Exchange Act.
We anticipate that our operating expenses will increase significantly as we implement our plan of operation for our Phoenix Facility and our Piute Valley Property.
LIQUIDITY AND CAPITAL RESOURCES
Page 17 of 35
As at April 30, 2010, we had a working capital deficit of $122,778 as compared to a working capital deficit of $754,299 as at our year ended April 30, 2009. The decrease in our a working capital is primarily due to: (i) the recording of loans receivable of $400,000 in connection with amounts advanced to Golden Anvil under the Toll Processing Agreement; and (ii) a decrease in loans payable and accounts payable through a debt settlement offering.
During the year ended April 30, 2010, we completed the following equity financings:
1.
We issued an aggregate of 2,500,000 Units to settle outstanding indebtedness of $125,000. Each Unit is comprised of one share of our common stock and one share purchase warrant, with each warrant entitling the holder to purchase an additional share of common stock at an exercise price of $0.10 US per share until July 15, 2011. Of the 2,500,000 Units issued, we issued 500,000 Units to a director in reliance of Section 4(2) of the Securities Act to settle outstanding indebtedness in the amount of $25,000 owed by us to the director, and we issued 2,000,000 Units to an existing shareholder in reliance of Regulation S of the Securities act to settle outstanding indebtedness in the amount of $100,000 owed by us to the existing shareholder.
2.
We issued 295,000 shares of common stock for warrants exercised at $0.10 per share in satisfaction of debt for legal services. We also issued 750,000 shares of common stock for options exercised at $0.05 per share in satisfaction of debt for legal services.
3.
We issued 3,500,000 units to settle outstanding indebtedness of $350,000. Each Unit is comprised of one share of our common stock and one share purchase warrant, with each warrant entitling the holder to purchase an additional share of common stock at an exercise price of $0.20 US per share until August 17, 2011. The units were issued pursuant to Section 4(2) of the Securities Act. The investor is a limited liability company and Mr. Matheson, our Chief Executive Officer, and Mr. Mitchell, our Chief Financial Officer, are each 1/8th managing members of the investor.
4.
On December 15, 2009, we issued 900,000 shares of common stock for options exercised at $0.05 per share in satisfaction of debt for legal services.
5.
On January 31, 2010, we issued a total of 29,455,550 units for cash proceeds of $514,000 and to settle outstanding indebtedness of $958,775 as follows:
(a)
1,600,000 Units for cash proceeds of $50,000 and to settle outstanding indebtedness of $30,000 under the U.S. Private Placement;
(b)
3,855,500 Units for cash proceeds of $114,000 and to settle outstanding indebtedness of $78,775 of which $70,000 was a loan payable and $8,775 were accounts payable, under the Foreign Private Placement; and
(c)
24,000,000 Units for cash proceeds of $350,000 and to settle outstanding indebtedness of $850,000, of which $845,000 were loans payable and $5,000 were accounts payable, under the Section 4(2) Private Placement.
Each unit is comprised of one share of our common stock and one share purchase warrant, with each warrant entitling the holder to purchase an additional share of our common stock at the exercise price of $0.10 per share until January 30, 2012.
6.
On February 26, 2010, we issued 105,000 shares of common stock for warrants exercised at $0.10 per share and 100,000 shares of common stock for options exercised at $0.05 per share in satisfaction of debt for legal services.
Financing Requirements
Currently, we do not have sufficient financial resources to complete our plan of operation for the next twelve months. As such, our ability to complete our plan of operation is dependent upon our ability to obtain additional financing in the near term.
Page 18 of 35
We anticipate continuing to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to our existing shareholders. Our Board of Directors have approved the following private placement offerings:
(a)
U.S. Private Placement: Our Board of Directors approved Our Board of Directors approved a U.S. private placement of 6,000,000 Units at a price of $0.05 per Unit to persons who are accredited investors as defined in Regulation D of the Securities Act (the “U.S. Private Placement”). Each Unit consists of one share of our common stock and one share purchase warrant, with each warrant entitling the subscriber to purchase an additional share of our common stock for a period of one year following the date of the issuance at a price of $0.10 per share. To date, we have received cash proceeds and settled indebtedness of $80,000 under the U.S. Private Placement.
(b)
Foreign Private Placement: Our Board of Directors also approved a foreign private placement offering of 4,000,000 Units at a price of $0.05 per Unit to persons who are not “U.S. Persons” as defined in Regulation S of the Securities Act (the “Foreign Private Placement”). The Units issued in the Foreign Private Placement will be on the same terms as the U.S. Private placement. To date, we have received cash proceeds and settled indebtedness of $192,775 under the Foreign Private Placement.
(c)
Section 4(2) Private Placement: Our Board of Directors also approved a Section 4(2) private placement of 20,000,000 Units at a price of $0.05 per Unit in a transaction not involved in a public offering (the “Section 4(2) Private Placement”). The Units issued in the Section 4(2) Private Placement will be on the same terms as the U.S. Private placement. To date, we have received cash proceeds and settled indebtedness $1,200,000 under the Section 4(2) Private Placement.
There is no assurance that we will be able to complete the sale of any additional securities under these offerings. Even if we complete the sale of all the securities offered under these private placement offerings, there is no assurance that we will satisfy all of our working capital requirements for the next twelve months or that theses funds will be sufficient to complete our planned exploration or development programs.
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.
CRITICAL ACCOUNTING POLICIES
We have identified a certain accounting policy, described below, that is most important to the portrayal of our current financial condition and results of operations. Our significant accounting policies are disclosed in Note 1 to our audited financial statements included in this Annual Report.
Mineral Rights - We capitalize acquisition and option costs of mineral property rights. The amount capitalized represents the fair value at the time the mineral rights were acquired. The accumulated costs of acquisition for properties that are developed to the stage of commercial production will be amortized using the unit-of-production method.
Exploration Costs - Mineral exploration costs are expensed as incurred.
Page 19 of 35
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
1. Report of Independent Registered Public Accounting Firm;
2. Audited Financial Statements for the Years Ended April 30, 2010 and 2009, including:
a.
Balance Sheets at April 30, 2010 and April 30, 2009;
b.
Statements of Operations for the year ended April 30, 2010, for the year ended April 30, 2009 and for the period from July 13, 2005 (date of Inception) to April 30, 2010;
c.
Statement of Stockholders’ Equity (Deficit) for the period from July 13, 2005 (date of inception) to April 30, 2010;
d.
Statements of Cash Flows for the year ended April 30, 2010 and for the year ended April 30, 2009 and for the period from July 13, 2005 (date of Inception) to April 30, 2010; and
e.
Notes to Financial Statements.
Page 20 of 35
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Royal Mines and Minerals Corp.
Henderson, Nevada
We have audited the accompanying balance sheet of Royal Mines and Minerals Corp., an exploration stage company, as of April 30, 2010 and April 30, 2009, and the related statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended, and for the period July 13, 2005 (date of inception) to April 30, 2010. These financial statements are the responsibility of Royal Mines and Minerals Corp.’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included 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 the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Royal Mines and Minerals Corp., an exploration stage company, as of April 30, 2010 and April 30, 2009, and the results of its operations and cash flows for the years then ended, and for the period July 13, 2005 (date of inception) to April 30, 2010, in conformity with accounting principles generally accepted in The United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations, which raise substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters are described in Note 1. Absent the successful completion of one of these alternatives, the Company’s operating results will increasingly become uncertain. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Sarna & Company
Sarna & Company,
Certified Public Accountants
Westlake Village, California
July 27, 2010
ROYAL MINES AND MINERALS CORP.
(An Exploration Stage Company)
BALANCE SHEET
See Accompanying Notes to Financial Statements
ROYAL MINES AND MINERALS CORP.
(An Exploration Stage Company)
STATEMENTS OF OPERATIONS
See Accompanying Notes to Financial Statements
ROYAL MINES AND MINERALS CORP.
(An Exploration Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
See Accompanying Notes to Financial Statements
ROYAL MINES AND MINERALS CORP.
(An Exploration Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
See Accompanying Notes to Financial Statements
ROYAL MINES AND MINERALS CORP.
(An Exploration Stage Company)
STATEMENTS OF CASH FLOWS
See Accompanying Notes to Financial Statements
ROYAL MINES AND MINERALS CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2010
1. DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES
Basis of Presentation - These financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States. The Company’s fiscal year-end is April 30.
Description of Business - The Company is considered an exploration stage company. The Company's primary objectives are to 1) commercially extract and refine precious and base metals from its own and others mining assets, 2) joint venture, acquire and develop projects in North America, and 3) generate ongoing revenues from the licensing of its proprietary, environmentally-friendly lixiviation process. 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.
Going Concern - As of April 30, 2010, the Company has incurred cumulative net losses of approximately $9,594,840 from operations and has negative working capital of $122,778. The Company is still in the exploration stage and has not fully commenced its mining and minerals processing operations, raising substantial doubt about its ability to continue as a going concern.
The ability of the Company to continue as a going concern is dependent on the Company raising additional sources of capital and the successful execution of the Company’s objectives. The Company will seek additional sources of capital through the issuance of debt or equity financing, but there can be no assurance the Company will be successful in accomplishing its objectives. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
ROYAL MINES AND MINERALS CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2010
1. DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES (continued)
Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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. 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.
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 other income (expense).
The Company periodically evaluates whether events and circumstances have occurred that may warrant revision of the estimated useful life of fixed assets or whether the remaining balance of fixed assets should be evaluated for possible impairment. The Company uses an estimate of the related undiscounted cash flows over the remaining life of the fixed assets in measuring their recoverability.
Mineral Property Rights - Costs of acquiring mining properties are capitalized upon acquisition. Mine development costs incurred either to develop new ore deposits, to expand the capacity of mines, or to develop mine areas substantially in advance of current production are also capitalized once proven and probable reserves exist and the property is a commercially mineable property. Costs incurred to maintain current production or to maintain assets on a standby basis are charged to operations. Costs of abandoned projects are charged to operations upon abandonment. The Company evaluates the carrying value of capitalized mining costs and related property and equipment costs, to determine if these costs are in excess of their recoverable amount whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Evaluation of the carrying value of capitalized costs and any related property and equipment costs would be based upon expected future cash flows and/or estimated salvage value in accordance with Accounting Standards Codification (ASC) 360-10-35-15, Impairment or Disposal of Long-Lived Assets.
Exploration Costs - Mineral exploration costs are expensed as incurred.
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. As of April 30, 2010 exploration progress is on target with the Company’s exploration and evaluation plan and no events or circumstances have happened to indicate the related carrying values of the properties may not be recoverable. When the Company determines that an impairment analysis should be done, the analysis will be performed using the rules of ASC 930-360-35, Asset Impairment, and 360-10-15-3 through 15-5, Impairment or Disposal of Long-Lived Assets.
ROYAL MINES AND MINERALS CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2010
1. DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES (continued)
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 exploration stage 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.
Material changes to any of these factors or assumptions discussed above could result in future impairment charges to operations.
Asset Retirement Obligation - The Company follows ASC 410, Asset Retirement and Environmental Obligations, which requires that an asset retirement obligation (“ARO”) associated with the retirement of a tangible long-lived asset be recognized as a liability in the period in which it is incurred and becomes determinable, with an offsetting increase in the carrying amount of the associated asset. The cost of the tangible asset, including the initially recognized ARO, is depleted, such that the cost of the ARO is recognized over the useful life of the asset. The ARO is recorded at fair value, and accretion expense is recognized over time as the discounted liability is accreted to its expected settlement value. The fair value of the ARO is measured using expected future cash flow, discounted at the Company’s credit-adjusted risk-free interest rate. To date, no significant asset retirement obligation exists due to the early stage of exploration. Accordingly, no liability has been recorded.
Fair Value of Financial Instruments - Fair value accounting establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3 Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
The Company’s financial instruments consist of mineral property purchase obligations. These obligations are classified within Level 2 of the fair value hierarchy as their fair value is determined using interest rates which approximate market rates. The Company is not exposed to significant interest or credit risk arising from these financial instruments.
Revenue Recognition -Revenues are recognized during the period in which the revenues are earned. Revenue from licensing our technology is recognized over the term of the license agreement. Costs and expenses are recognized during the period in which they are incurred.
Research and Development - All research and development expenditures are expensed as incurred.
Earnings (Loss) Per Share - The Company follows ASC 260, Earnings Per Share, and ASC 480, Distinguishing Liabilities from Equity, which establish standards for the computation, presentation and disclosure requirements for basic and diluted earnings per share for entities with publicly held common shares and potential common stock issuances. Basic earnings (loss) per share are computed by dividing net income 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, such as stock options and warrants. Common stock equivalent shares are excluded from the computation if their effect is antidilutive. Common stock equivalents, which include stock options and warrants to purchase common stock, on April 30, 2010, 2009 and 2008 that were not included in the computation of diluted EPS because the effect would be antidilutive were 68,688,100, 32,216,840 and 4,340,000 respectively.
ROYAL MINES AND MINERALS CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2010
1. DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES (continued)
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.
For acquired properties that do not constitute a business as defined in ASC 805-10-55-4, Definition of a Business, 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.
Expenses of Offering - The Company accounts for specific incremental costs directly to a proposed or actual offering of securities as a direct charge against the gross proceeds of the offering.
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, and to allow for actual exercise behavior of option holders. The 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.
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 statements upon adoption.
Effective July 1, 2009, the FASB Accounting Standards Codification (ASC) (Topic 105, “Generally Accepted Accounting Principles”), became the single source for authoritative nongovernmental U.S. generally accepted accounting principles. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. The ASC does not change US GAAP but is intended to simplify user access to all authoritative U.S. GAAP by providing all the authoritative literature related to a particular topic in one place. Effective September 15, 2009, all public filings of the Company will reference the ASC as the sole source of authoritative literature.
ROYAL MINES AND MINERALS CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2010
1. DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES (continued)
In January 2010, the FASB issued ASU 2010-06, Improving Disclosures About Fair Value Measurements , which requires reporting entities to make new disclosures about recurring or nonrecurring fair value measurements including significant transfers into and out of Level 1 and Level 2 fair value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair value measurements. ASU 2010-6 is effective for annual reporting periods beginning after December 15, 2009, except for Level 3 reconciliation disclosures which are effective for annual periods beginning after December 15, 2010. The Company does not have any assets or liabilities classified as Level 3. The Company has adopted the Level 1 and Level 2 amendments accordingly. As the update only pertained to disclosures, it had no impact on the Company’s financial position, results of operations, or cash flows upon adoption.
In February 2010, the FASB issued ASU 2010-09, Subsequent Events (Topic 855), Amendment to Certain Recognition and Disclosure Requirements, to remove the requirement for SEC filers to disclose the date through which an entity has evaluated subsequent events. This change removes potential conflicts with current SEC guidance and clarifies the intended scope of the reissuance disclosure provisions. The update was effective upon its date of issuance, February 24, 2010, and the Company has adopted the amendments accordingly. As the update only pertained to disclosures, it had no impact on the Company’s financial position, results of operations, or cash flows upon adoption.
2. LOAN RECEIVABLE
Between October 8, 2009 and April 30, 2010, the Company advanced $470,000 to Golden Anvil, in accordance with the toll processing agreement dated December 3, 2009, bearing no interest and secured by Golden Anvil’s interest in shipments of concentrate, their land and their facilities. The Company received concentrates from Golden Anvil valued at $70,000 and reduced the loan receivable accordingly.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
4. INTELLECTUAL PROPERTY
On April 2, 2007 the Company entered into a Technology and Asset Purchase Agreement (“NVRM Agreement”) with Robert H. Gunnison and New Verde River Mining Co. Inc. (“NVRM”), whereby the Company acquired equipment and the technology for lixiviation of metals from ore utilizing thiourea stabilization (“Intellectual Property”). The equipment and intellectual property were acquired with the issuance of 2,000,000 shares of the Company’s $0.10 per share common stock and a future cash payment of $300,000, for a purchase price of $500,000. The purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values at the date of acquisition. The intellectual property was valued at $200,000 and will be amortized quarterly on a straight-line basis over a 5 year period starting with the recognition of revenue from the licensing of the Company’s technology. The Company recorded $50,000 and $10,000 of amortization expense for the year ended April 30, 2010 and 2009, respectively.
ROYAL MINES AND MINERALS CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2010
5. MINERAL PROPERTIES
As of April 30, 2010 and 2009, mineral properties totaling $35,800 and $29,000, respectively, consist of twenty-one (21) mining claims located south of Searchlight, Nevada in the Piute Valley. On January 28, 2007, the Company entered into mineral option agreements to acquire an 87.5% interest in twenty-four (24) mining claims with the issuance of 1,050,000 shares of the Company’s common stock on the date of signing of the option agreement, with the provision that the Company issue an additional 420,000 and 210,000 shares on the fifth anniversary and tenth anniversary, respectively, of the signing of the option agreement if the Company wishes to acquire legal interest to the mining claims. The transaction was valued at an agreed upon price of $10,500. Annual renewal fees are capitalized. Each mining claim is comprised of 160 acres. In August 2008 the Company did not pay the renewal fee on four (4) of the mining claims after confirming title to the claims were void due to not being properly located and being subject to prior segregation.
On March 16, 2007 the Company entered into a lease agreement of property with one (1) mining claim, for a term of twenty years, for exploration and potential mining production on 20 acres in Searchlight, Nevada. The Company paid a one-time signing bonus of $5,000 upon execution of the agreement and pays a $4,000 rental fee each August. The Company will also pay an annual royalty equal to five (5) percent of the net profit from any mining production on the property.
Mining claims are capitalized as tangible assets in accordance with Emerging Issues Task Force abstract 04-02. Upon completion of a bankable feasibility study, the claims will be amortized using the unit-of-production method over the life of the claim. If the Company does not continue with exploration after the completion of the feasibility study, the claims will be expensed at that time.
6. ACCOUNTS PAYABLE - RELATED PARTY
As of April 30, 2010 and 2009, accounts payable - related party consisted of $87,000 and $24,418, respectively, due to directors and officers of the Company for consulting fees and reimbursable expenses.
7. NVRM PAYABLE
As of April 30, 2010 and 2009, NVRM payable consists of $90,000 and $102,683, respectively, payable to New Verde River Mining and Robert H. Gunnison pursuant to the NVRM Agreement noted above (see Note 3). Mr. Gunnison signed an extension agreement extending the payment deadline to June 30, 2011. The payable bears 6% interest annually.
8. LOANS PAYABLE AND ACCRUED INTEREST - RELATED PARTY
As of April 30, 2010 and 2009, loans payable - related party of $245,277 and $382,569, respectively, consists of borrowings, directly and indirectly, from one director and one affiliate (5% or greater beneficial owner) of the Company. The balances bear 10% interest, are unsecured and are due on demand. As of April 30, 2010 and 2009, accrued interest - related party was $121,123 and $64,626, respectively.
9. COMMITMENTS AND CONTINGENCIES
Lease obligations - The Company has operating leases for its corporate office and plant facility. Future minimum lease payments under the operating leases as of April 30, 2010 are as follows:
ROYAL MINES AND MINERALS CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2010
9. COMMITMENTS AND CONTINGENCIES (continued)
Legal proceedings - The Company is not a party to any legal proceeding and, to our knowledge, no other legal proceedings are pending, threatened or contemplated.
10. STOCKHOLDERS’ EQUITY
Common and Preferred Stock:
As of April 30, 2010 and 2009, there were 111,785,352 and 72,679,852 shares of common stock outstanding and zero and zero shares of preferred stock outstanding, respectively. Outstanding shares of common stock consist of the following:
a) On March 16, 2006, the Company issued 1,000 shares of common stock to one individual for cash at $0.001 per share.
b) On November 30, 2006, the Company issued 12,500,000 shares of common stock to three individuals for cash at $0.001 per share.
c) On December 29, 2006, the Company issued 7,800,000 shares of common stock for cash at $0.01 per share.
d) On January 10, 2007, the Company issued 1,050,000 shares of common stock for the purchase of 7/8ths interest in 24 minerals claims at $0.01 per share.
e) On February 28, 2007, the Company issued 1,250,000 shares of common stock to three individuals for cash at $0.10 per share.
f) On March 31, 2007, the Company issued 1,800,000 shares of common stock to four individuals for cash at $0.10 per share.
g) On April 2, 2007, the Company issued 2,000,000 shares of common stock to one individual, in connection with the NVRM Agreement, for the purchase of intellectual property and equipment.
h) On May 31, 2007, the Company closed a private placement offering for proceeds of $620,582, of which $505,114 was received and recorded as share subscriptions received as of April 30, 2007. The Company issued 2,482,326 shares of common stock, at $0.25 per share, to non-U.S. investors pursuant to Regulation S of the Securities Act of 1933.
i) On June 4, 2007, the Company closed a private placement offering for proceeds of $825,000 and issued 3,300,000 shares of common stock, at $0.25 per share, to accredited U.S. investors pursuant to Regulation D of the Securities Act of 1933.
j) On October 5, 2007, the Company issued 13,968,926 shares of common stock in the reverse acquisition of Centrus Ventures Inc.
k) On September 3, 2008, the Company completed a private placement of 200,000 units at a price of $0.50 per unit for total proceeds of $100,000. Each unit is comprised of one share of common stock and one-half of one share purchase warrant. Each whole share purchase warrant will entitle the holder to purchase one additional share of common stock at a price of $0.75 per share for a period ending September 2, 2010.
ROYAL MINES AND MINERALS CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2010
10. STOCKHOLDERS’ EQUITY (continued)
l) On November 15, 2008, under the terms of a settlement agreement, the Company issued 450,760 units at a price of $0.30 per unit, with each unit consisting of one common share and one share purchase warrant of the Company. Each warrant is exercisable to purchase an additional common share at a price of $0.50 per share for a period of two (2) years from the date of issuance. The units were issued pursuant to the provisions of Regulation S promulgated under the Securities Act of 1933.
m) On February 24, 2009, the Company issued 9,140,000 units for $457,000 in cash, 12,400,000 units for $620,000 ($400,000 from one director) in loans made to the Company and 1,336,840 units to retire $65,505 in corporate indebtedness under three separate private placement offerings. Each unit was comprised of one share of the Company’s common stock and one share purchase warrant, with each warrant entitling the holder to purchase an additional share of common stock for a period of two years at an exercise price of $0.10 per share. The Company also entered into a management consulting agreement with an officer of the Company, and pursuant to the terms of the agreement issued an aggregate of 3,000,000 restricted shares of its common stock.
n) On July 16, 2009, the Company issued 2,000,000 units for $100,000 in loans made to the Company and 500,000 units to retire $25,000 in corporate indebtedness for consulting services under two separate private placement offerings. Each unit was comprised of one share of the Company’s common stock and one share purchase warrant, with each warrant entitling the holder to purchase an additional share of common stock for a period of two years at an exercise price of $0.10 per share.
o) On August 4, 2009, the Company issued 295,000 shares of common stock for warrants exercised at $0.10 per share and 750,000 shares of common stock for options exercised at $0.05 per share in satisfaction of debt for legal services.
p) On August 14, 2009, the Company issued 1,500,000 shares of common stock to an investor relations services firm pursuant to the terms of the consulting agreement.
q) On August 18, 2009, the Company issued 3,500,000 units, for $350,000 in loans made to the Company by one director, at a price of $0.10 per unit, with each unit consisting of one share of common stock and one share purchase warrant, with each warrant entitling the holder to purchase one additional share of common stock at a price of $0.20 per share for a period of two years from the date of issue.
r) On December 15, 2009, the Company issued 900,000 shares of common stock for options exercised at $0.05 per share in satisfaction of debt for legal services.
s) On January 31, 2010, the Company issued 19,400,000 units for $970,000 ($900,000 from one director) in loans made to the Company, 8,280,000 units for $414,000 in cash and 1,775,500 units to retire $88,775 in corporate indebtedness, at a price of $0.05 per unit, with each unit consisting of one share of common stock and one share purchase warrant, with each warrant entitling the holder to purchase one additional share of common stock at a price of $0.10 per share for a period of two years from the date of issue.
t) On February 26, 2010, the Company issued 105,000 shares of common stock for warrants exercised at $0.10 per share and 100,000 shares of common stock for options exercised at $0.05 per share in satisfaction of debt for legal services.
ROYAL MINES AND MINERALS CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2010
11. STOCK INCENTIVE PLANS
2010 Stock Incentive Plan - Effective December 7, 2009, the Company adopted the 2010 Stock Incentive Plan (the “2010 Plan"). The 2010 Plan allows the Company to grant certain options to its directors, officers, employees and eligible consultants. A total of 10,000,000 shares of the Company’s common stock are available for issuance under the 2010 Plan. However, the Company may increase the maximum aggregate number of shares of the Company’s common stock that may be optioned and sold under the 2010 Plan provided the maximum aggregate number of shares of common stock that may be optioned and sold under the 2010 Plan shall at no time be greater than 12.5% of the total number of shares of common stock outstanding.
On December 8, 2009, the Company granted non-qualified stock options under the 2010 Plan for the purchase of 7,000,000 shares of common stock at $0.05 per share. The nonqualified stock options were granted to various officers, directors and consultants, are fully vested and expire December 7, 2011. As of April 30, 2010, 1,000,000 options under the 2010 Plan have been exercised.
From the date of inception through April 30, 2010, compensation expense related to the granting of stock options under the 2010 Plan was $391,478 and is included in general and administrative expense. The Company calculated the value of the options using the Black-Scholes option pricing model using the following assumptions: a risk-free rate of 1.00%, volatility of 252%, estimated life of 2 years and closing stock price of $0.06 per share on the date of grant.
2009 Stock Incentive Plan - Effective January 12, 2009, the Company adopted the 2009 Stock Incentive Plan (the “2009 Plan"). The 2009 Plan allows the Company to grant certain options to its directors, officers, employees and eligible consultants. A total of 5,000,000 shares of the Company’s common stock are available for issuance under the 2009 Plan.
On January 16, 2009, the Company granted non-qualified stock options under the 2009 Plan for the purchase of 5,000,000 shares of common stock at $0.05 per share. The nonqualified stock options were granted to various officers, directors and consultants, are fully vested and expire January 15, 2011. As of April 30, 2010, 750,000 options under the 2009 Plan have been exercised.
From the date of inception through April 30, 2010, compensation expense related to the granting of stock options under the 2009 Plan was $342,550 and is included in general and administrative expense. The Company calculated the value of the options using the Black-Scholes option pricing model using the following assumptions: a risk-free rate of 1.00%, volatility of 316%, estimated life of 2 years and closing stock price of $0.07 per share on the date of grant.
Effective December 7, 2009, the Company suspended the 2009 Plan. No new options may be granted under the 2009 Plan and the 2009 Plan will be terminated once all outstanding options granted under the 2009 Plan have been exercised, expired or otherwise terminated.
2008 Stock Incentive Plan - Effective February 1, 2008, the Company adopted the 2008 Stock Incentive Plan (the “2008 Plan"). The 2008 Plan allowed the Company to grant certain options to its directors, officers, employees and eligible consultants. A total of 4,600,000 shares of the Company’s common stock were available for issuance under the 2008 Plan.
On February 1, 2008, the Company granted non-qualified stock options under the 2008 Plan for the purchase of 4,340,000 shares of common stock at $0.74 per share. The nonqualified stock options were granted to various officers, directors and consultants, were fully vested and expired January 31, 2010. As of April 30, 2010 all 4,340,000 stock options expired without exercise.
ROYAL MINES AND MINERALS CORP.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2010
11. STOCK INCENTIVE PLANS (continued)
From the date of inception through April 30, 2010, compensation expense related to the granting of stock options under the 2008 Plan was $3,583,702 and is included in general and administrative expense. The Company calculated the value of the options using the Black-Scholes option pricing model using the following assumptions: a risk-free rate of 4.50%, volatility of 107%, estimated life of 2 years and closing stock price of $1.22 per share on the date of grant.
12. RELATED PARTY TRANSACTIONS
For the year ended April 30, 2010 the Company incurred $357,000 in consulting fees expense from companies with a common director or officer, and $167,776 in stock based expense from stock options granted to directors and officers.
For the year ended April 30, 2009 the Company incurred $229,000 in consulting fees expense from companies with a common director or officer, and $284,424 in stock based expense from stock options granted to directors and officers.
ITEM 9.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None,
ITEM 9A(T).
ITEM 9A(T). CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
We carried out an assessment of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of April 30, 2010 (the “Evaluation Date”). This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the Evaluation Date.
Disclosure controls and procedures are those controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for us, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control system was designed to provide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of published financial statements.
Internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of its management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, management conducted an evaluation of the effectiveness of our internal control over financial reporting, as of the Evaluation Date, based on the framework set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on its assessment, management concluded that its internal control over financial reporting was effective as of the Evaluation Date.
This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended April 30, 2010 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
Page 21 of 35
Limitations on the Effectiveness of Internal Controls
Our management does not expect that its disclosure controls and procedures, nor its internal control over financial reporting, will necessarily prevent all fraud and material error. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving its objectives and our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective at a reasonable, but not absolute, assurance level. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to the costs.
Because of the inherent limitations in all control systems, no assessment of controls can provide absolute assurance that all control issues and instances of fraud, if any, will be detected. Inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time the degree of compliance with the policies or procedures may deteriorate or the controls may become inadequate due to changes in conditions.
ITEM 9B.
ITEM 9B. OTHER INFORMATION.
None.
Page 22 of 35
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The following table sets forth the names and positions of our officers and directors:
Set forth below is a brief description of the background and business experience of our executive officers and directors:
K. Ian Matheson was appointed a member of our Board of Directors on June 25, 2008 and our Chief Executive Officer and President on November 19, 2008. Mr. Matheson earned a Bachelor of Commerce degree from the University of British Columbia in 1963. In 1964 and 1965 he attended McGill University in Montreal, Quebec where he earned a degree as a Chartered Accountant at the Quebec Institute of Chartered Accountants. He was admitted into the British Columbia Institute of Chartered Accountants in 1965. From 1965 to 1967 he worked as a Chartered Accountant with Coopers and Lybrand in Vancouver, BC. He is presently a member of the British Columbia Institute of Chartered Accountants and the Canadian Institute of Chartered Accountants. Mr. Matheson was a member of the board of directors of Searchlight Minerals Corp. (OTCBB) from February 10, 2005 to February 16, 2007. Mr. Matheson has also been a director and officer of numerous private companies that have been involved in the research and development of precious metals in the southern Nevada area.
Jason S. Mitchell was appointed our Chief Financial Officer and Treasurer on February 1, 2008, our Secretary on November 19, 2008, and a member of our Board of Directors on May 28, 2008. Mr. Mitchell is a Certified Public Accountant, who has, since April, 2005, been a self-employed financial consultant, providing consulting services and preparing financial statements for numerous companies. From October 1998 to October 2004, Mr. Mitchell was a corporate controller, principal accounting officer, vice president and manager of merger and acquisitions for USI Holdings Corporation, a Nasdaq listed insurance brokerage firm where Mr. Mitchell oversaw financial reporting responsibilities, prepared SEC annual and quarterly filings, generated financial models and assisted in its October 2002 $90 million initial public offering.
Michael C. Boyko was appointed Director of Operations on April 2, 2009. Mr. Boyko obtained his Bachelor of Science in Finance from Arizona State University and is a member of the AMIGOS - Arizona Mining Association and the Arizona Society for Mining Engineers. Since 2003, Mr. Boyko has been the president and owner of Advanced Integrated Resource, LLC, a private company that markets process equipment to the mining and power industry. From 2001 to 2003, Mr. Boyko was employed at T.A. Caid Industries, a private company, where he developed a new business segment focused on equipment representation and sales to mines and power plants. From 1998 to 2001, Mr. Boyko was the managing partner and vice president of business development of BME Engineering, a private company that focused on industrial process equipment for mines and power plants, where he managed sales, marketing and manufacturing. Mr. Boyko is also Mine Safety and Health Administration (MSHA) certified.
COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors does not maintain a separately-designated standing audit committee. As a result, all of our directors act as our audit committee. K. Ian Matheson, our Chief Executive Officer and President, and Jason S. Mitchell, our Chief Financial Officer, each meet the definition of an “audit committee financial expert.” Mr. Matheson and Mr. Mitchell are not independent as they act as executive officers.
We presently do not have a compensation committee, nominating committee, an executive committee of our board of directors, stock plan committee or any other committees.
Page 23 of 35
TERMS OF OFFICE
Our directors are elected to hold office until the next annual meeting of the shareholders and until their respective successors have been elected and qualified. Our executive officers are appointed by our board of directors and hold office until removed by our board of directors or until their successors are appointed.
CODE OF ETHICS
We adopted a Code of Ethics applicable to our executive officers and directors, which is a “code of ethics” as defined by applicable rules of the SEC. Our Code of Ethics was attached as an exhibit to our Annual Report on Form 10-KSB for the fiscal year ended April 30, 2007, filed on July 30, 2007. 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 to our Chief Executive Officer, Chief Financial Officer or certain other finance executives, we will disclose the nature of the amendment or waiver, its effective date and to whom it applies in a Current Report on Form 8-K filed with the SEC.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who own more than 10% of a registered class of our securities (“Reporting Persons”), to file reports of ownership and changes in ownership with the SEC. Reporting Persons are required by SEC regulations to furnish us with copies of all forms they file pursuant to Section 16(a). Based solely on our review of such reports received by the Company, the Company has determined that the following persons have failed to file, on a timely basis, the identified reports required by Section 16(a) of the Exchange Act:
Name and Principal Position
Number of Late
Insider Reports
Transactions Not
Timely Reported
Known Failures to
File a Required Form
K. Ian Matheson
Chief Executive Officer, President and Director Two Two None
Jason S. Mitchell
Chief Financial Officer, Treasurer, Secretary and Director Two Two None
Michael C. Boyko
Director One One None
Page 24 of 35
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table sets forth total compensation paid to or earned by our named executive officers, as that term is defined in Item 402(m)(2) of Regulation S-K, during the fiscal years ended April 30, 2010 and 2009.
Notes:
(1)
Under the terms of a verbal agreement, we agreed to pay Pass Minerals Inc., a company controlled by Mr. Matheson, $5,000 per month for consulting services provided by Mr. Matheson.
(2)
The amounts paid to Mr. Mitchell during our fiscal year ended April 30, 2008 were pursuant to a verbal agreement to pay Mr. Mitchell $12,000 per month for management consulting services. Effective February 24, 2009, we entered into a management consulting agreement with Mr. Mitchell whereby Mr. Mitchell receives a consulting fee of $12,000 per month and we agreed to issue to Mr. Mitchell an aggregate of 3,000,000 restricted shares of our common stock to be distributed to Mr. Mitchell on the following basis (i) 750,000 Shares on February 24, 2009; (ii) 750,000 Shares on March 1, 2009; (iii) 750,000 Shares on March 1, 2010; and (iv) 750,000 Shares on March 1, 2011. The amounts paid to Mr. Mitchell during the fiscal year ended April 30, 2009 were paid to Cedar Financial Inc., a company controlled by Mr. Mitchell
(3)
Under the terms of a verbal agreement, we agreed to pay Mr. Boyko $10,000 a month for management consulting services.
(4)
Dr. Tao was a member of our Board of Directors from October 5, 2007 to November 15, 2008. Dr. Tao was our Chief Financial Officer and Treasurer from October 5, 2007 to February 1, 2008 and our Chief Executive Officer, President and Secretary from October 5, 2007 to November 15, 2008. The amounts paid to Dr. Tao during the fiscal year ended April 30, 2009 were paid to WCT & Associates, a company controlled by Dr. Tao.
Page 25 of 35
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table provides information concerning unexercised options for each our named executive officers, as that term is defined in Item 402(m)(2) of Regulation S-K, as of our fiscal year ended April 30, 2010:
Name and Principal
Position
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable Equity
Incentive Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
Option
Exercise
Price
Option
Expiration
Date
Number of
Shares or
Units of
Stock that
have not
Vested
Market
Value of
Shares or
Units of
Stock that
have not
Vested
K. Ian Matheson
CEO, President & Director 900,000
--
--
$0.05
01/15/11
--
--
Jason S. Mitchell
CFO, Treasurer, Secretary & Director
1,200,000
1,500,000
--
--
--
--
$0.05
$0.05
01/15/11
12/07/11
750,000(1)
$81,750
Michael C. Boyko
Director of Operations
300,000
1,500,000
--
--
$0.05
$0.05
$0.05 01/15/11
12/07/11
--
--
Note:
(1)
750,000 shares of common stock will vest on March 1, 2011.
DIRECTOR COMPENSATION TABLE
During the year ended April 30, 2010, we did not pay or accrue any compensation to our Board of Directors.
ITEM 12.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
EQUITY COMPENSATION PLANS
The following table sets forth certain information concerning all equity compensation plans previously approved by stockholders and all previous equity compensation plans not previously approved by stockholders, as of the most recently completed fiscal year.
Equity Compensation Plan Information
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 Securities
Reflected in column (a))
(c)
Equity Compensation Plans Approved By Security Holders Not Applicable Not Applicable Not Applicable
Equity Compensation Plans Not Approved By Security Holders
10,025,000 $0.05 3,000,000
Page 26 of 35
2009 Stock Incentive Plan
Effective January 12, 2009, our Board of Directors adopted our 2009 Stock Incentive Plan (the "2009 Plan"). The purpose of the 2009 Plan is to enhance our long-term stockholder value by offering opportunities to our directors, officers, employees and eligible consultants to acquire and maintain stock ownership in us in order to give these persons the opportunity to participate in our growth and success, and to encourage them to remain in our service.
The 2009 Plan allows us to grant options to our officers, directors and employees. In addition, we may grant options to individuals who act as our consultants, so long as those consultants do not provide services connected to the offer or sale of our securities in capital raising transactions and do not directly or indirectly promote or maintain a market for our securities.
A total of 5,000,000 shares of our common stock are available for issuance under the 2009 Plan. However, the maximum aggregate number of shares of our common stock that may be optioned and sold under the 2009 Plan will increase effective on the first day of each of our fiscal quarters, after February 1, 2009, by an amount equal to the lesser of:
(a)
10% of the total increase in the number of shares of common stock outstanding during the previous fiscal quarter; or
(b)
such lesser number of shares of common stock as may be determined by our Board of Directors.
The 2009 Plan provides for the grant of incentive stock options and non-qualified stock options. Incentive stock options granted under the 2009 Plan are those intended to qualify as “incentive stock options” as defined under Section 422 of the Internal Revenue Code. However, in order to qualify as “incentive stock options” under Section 422 of the Internal Revenue Code, the 2009 Plan must be approved by our stockholders within 12 months of its adoption. The 2009 Plan has not been approved by our stockholders. Non-qualified stock options granted under the 2009 Plan are option grants that do not qualify as incentive stock options under Section 422 of the Internal Revenue Code.
Options granted under the 2009 Plan are non-transferable, other than by will or the laws of descent and distribution.
The 2009 Plan terminates on January 11, 2019, unless sooner terminated by action of our Board of Directors. No option is exercisable by any person after such expiration. If an award expires, terminates or is canceled, the shares of our common stock not purchased thereunder shall again be available for issuance under the 2009 Plan.
On April 6, 2009, we filed a Registration Statement on Form S-8 (Registration Number 333-158443) under the Securities Act of 1933, as amended, to register 5,000,000 shares of our common stock available for issuance under the 2009 Plan.
On December 7, 2009, our Board of Directors determined that: (a) no new options may be granted under the 2009 Plan; and (b) the 2009 Plan is to be terminated once all outstanding options granted under the 2009 Plan have been exercised, expired or otherwise terminated.
2010 Stock Incentive Plan
Effective December 7, 2009, our Board of Directors adopted our 2010 Stock Incentive Plan (the "2010 Plan"). The purpose of the 2010 Plan is to enhance our long-term stockholder value by offering opportunities to our directors, officers, employees and eligible consultants to acquire and maintain stock ownership in us in order to give these persons the opportunity to participate in our growth and success, and to encourage them to remain in our service.
The 2010 Plan allows us to grant options to our officers, directors and employees. In addition, we may grant options to individuals who act as our consultants, so long as those consultants do not provide services connected to the offer or sale of our securities in capital raising transactions and do not directly or indirectly promote or maintain a market for our securities.
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A total of 10,000,000 shares of our common stock are available for issuance under the 2010 Plan. However, at any time after January 31, 2010, and from time to time thereafter, the Board may increase the maximum aggregate number of shares of common stock that may be optioned and sold under the 2010 Plan, provided that the maximum aggregate number of shares of common stock that may be optioned and sold under the 2010 Plan shall at no time be greater than 12.5% of the total number of shares of common stock outstanding.
The 2010 Plan provides for the grant of incentive stock options and non-qualified stock options. Incentive stock options granted under the 2010 Plan are those intended to qualify as “incentive stock options” as defined under Section 422 of the Internal Revenue Code. However, in order to qualify as “incentive stock options” under Section 422 of the Internal Revenue Code, the 2010 Plan must be approved by our stockholders within 12 months of its adoption. The 2010 Plan has not been approved by our stockholders. Non-qualified stock options granted under the 2010 Plan are option grants that do not qualify as incentive stock options under Section 422 of the Internal Revenue Code.
Options granted under the 2010 Plan are non-transferable, other than by will or the laws of descent and distribution.
The 2010 Plan terminates on December 7, 2020, unless sooner terminated by action of our Board of Directors. No option is exercisable by any person after such expiration. If an award expires, terminates or is canceled, the shares of our common stock not purchased thereunder shall again be available for issuance under the 2010 Plan.
On December 10, 2009, we filed a Registration Statement on Form S-8 (Registration Number 333-163643) under the Securities Act of 1933, as amended, to register 10,000,000 shares of our common stock available for issuance under the 2010 Plan.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the number of shares of our common stock owned beneficially as of July 26, 2010 by: (i) each person (including any group) known to us to own more than five percent (5%) of any class of our voting securities, (ii) each of our directors and each of our named executive officers (as defined under Item 402(m)(2) of Regulation S-K), and (iii) officers and directors as a group. Unless otherwise indicated, the shareholders listed possess sole voting and investment power with respect to the shares shown.
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Title of Class Name and Address
of Beneficial Owner Number of Shares
of Common Stock(1) Percentage of
Common Stock(1)
Common Stock
K. Ian Matheson
CEO, President & Director
2215 Lucerne Circle
Henderson, NV 89014
77,931,000 Shares
(direct & indirect)(2)
52.7%
Common Stock
E-Ore Holdings LLC
Anthem Village Dr., Suite 112
Henderson, NV 89052 47,000,000 Shares
(direct)(5)
34.7%
Notes:
* Less than 1%.
(1)
Under Rule 13d-3, 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. As a result, the percentage of outstanding shares of any person as shown in this table does not necessarily reflect the person’s actual ownership or voting power with respect to the number of common shares actually outstanding on July 26, 2010. As of July 26, 2010, there were 111,785,352 common shares issued and outstanding.
(2)
The number of shares listed as beneficially owned by Mr. Matheson consist of: (i) 13,251,000 common shares held directly by Mr. Matheson; (ii) 180,000 common shares held by Mr. Matheson in trust; (iii) 800,000 common shares held by Royal City Minerals Inc., a company controlled by Mr. Matheson; (iv) 23,500,000 common shares held by E- Ore holdings LLC, a company controlled by Mr. Matheson; (v) 4,000,000 common shares held by Gold Crown Holdings, LLC, a company controlled by Mr. Matheson; (vi) warrants to acquire 8,000,000 common shares at an exercise price of $0.10 per share until February 23, 2011; (vii) warrants to acquire 3,500,000 common shares held by E-Ore Holdings LLC at $0.20 pert share until August 17, 2011; (viii) warrants to acquire 2,000,000 common shares held by E-Ore Holdings LLC at an exercise price of $0.10 per share until January 30, 2012; (ix) warrants to acquire 18,000,000 common shares held by E-Ore Holdings LLC at an exercise price of $0.10 per share until July 15, 2011; (x) warrants to acquire 400,000 common shares held by Royal City Minerals Inc. at an exercise price of $0.10 per share until February 23, 2011; (xi) warrants to acquire 400,000 common shares held by Royal City Minerals Inc. at an exercise price of $0.10 per share until January 30, 2011; (xii) warrants to acquire 3,000,000 common shares held by Gold Crown Holdings LLC at an exercise price of $0.10 per share until January 30, 2011; and (xiii) an option to acquire 900,000 common shares at an exercise price of $0.05 per share until January 15, 2011.
(3)
The number of shares listed as beneficially owned by Mr. Mitchell consist of: (i) 4,400,000 common shares held directly by Mr. Mitchell; (ii) 2,000,000 common shares held by Pilot Plant Inc., a company that Mr. Mitchell is a shareholder, secretary, treasurer and a director; (iii) 23,500,000 common shares held by E-Ore Holdings LLC, a company controlled by Mr. Mitchell; (iv) 4,000,000 common shares held by Gold Crown Holdings, LLC, a company controlled by Mr. Mitchell; (v) 2,000,000 common shares held by PPI Holdings, LLC, a company controlled by Mr. Mitchell; (vi) warrants to acquire 1,000,000 common shares at an exercise price of $0.10 per share until February 23, 2011; (vii) warrants to acquire 2,000,000 common shares held by Pilot Plant Inc. at an exercise price of $0.10 per share until February 23, 2011; (viii) warrants to acquire 3,500,000 common shares held by E-Ore Holdings LLC at $0.20 per share until August 17, 2011; (ix) warrants to acquire 2,000,000 common shares held by E-Ore Holdings LLC at an exercise price of $0.10 per share until January 30, 2012; (x) warrants to acquire 18,000,000 common shares held by E-Ore Holdings LLC at an exercise price of $0.10 per share until July 15, 2011; (xi) warrants to acquire 3,500,000 common shares held E-Ore Holdings LLC at an exercise price of $0.20 per share until August 17, 2011; (xii) warrants to acquire 3,000,000 common shares held by Gold Crown Holdings LLC at an exercise price of $0.10 per share until January 30, 2011; (xiii) warrants to acquire 2,000,000 common shares held by PPI Holdings LLC, a company controlled by Mr. Mitchell, at an exercise price of $0.10 per share until January 30, 2011; (xiv) an option to acquire 1,200,000 common shares at an exercise price of $0.05 per share until January 15, 2011; and (xv) an option to acquire 1,500,000 common shares at an exercise price of $0.05 per share until December 7, 2011.
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(4)
The number of shares listed as beneficially owned directly by Mr. Boyko consists of: (i) 1,100,000 common shares held by Mr. Boyko; (ii) warrants to acquire 500,000 common shares at an exercise price of $0.10 per share until July 15, 2011; (iii) warrants to acquire 600,000 common shares at an exercise price of $0.10 per share until January 30, 2012; (iv) an option to acquire 300,000 common shares at an exercise price of $0.05 per share until January 15, 2011; and (v) an option to acquire 1,500,000 common shares at an exercise price of $0.05 per share until December 7, 2011.
(5)
The number of shares listed as beneficially owned directly by E-Ore Holdings LLC consists of (i) 23,500,000 common shares held by E-Ore Holdings LLC, (ii) warrants to acquire 2,000,000 common shares at an exercise price of $0.10 per share until January 30, 2012; (iii) warrants to acquire 18,000,000 common shares at an exercise price of $0.10 per share until July 15, 2011; and (iv) warrants to acquire 3,500,000 common shares at an exercise price of $0.20 per share until August 17, 2011.
CHANGES IN CONTROL
We are not aware of any arrangement that might result in a change in control in the future.
ITEM 13.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
RELATED TRANSACTIONS
Except as described below, none of the following parties has, during 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, other than noted in this section:
(i)
Any of our directors or officers;
(ii)
Any person proposed as a nominee for election as a director;
(iii)
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;
(iv)
Any of our promoters; and
(v)
Any relative or spouse of any of the foregoing persons who has the same house as such person.
Indebtedness
We have received a number of short-term loans from our directors, officers and companies controlled by our directors and officers. The funds received from these loans have been used by us as general working capital as we pursue our plan of operation. A summary of the amounts owed to related parties is provided below:
(a)
As at April 30, 2010 and 2009, we were indebted to Mr. Matheson for principal amounts totaling $227,665 and $164,064, respectively. The amounts bear interest at a rate of 10% per annum, are unsecured and due on demand. Interest accrued during the years ended April 30, 2010 and 2009 in the amount of $85,530 and $38,205, respectively.
(b)
As at April 30, 2010 and 2009, we were indebted to Royal City Minerals Inc., a company controlled by Mr. Matheson, in the principal amount of $984 and $39,504, respectively. This amount is non-interest bearing, unsecured and due on demand.
(c)
As at April 30, 2009, we were indebted to Mr. Mitchell in the principal amount of $10,000. This amount is non-interest bearing, unsecured and due on demand.
(d)
As at April 30, 2009, we were indebted to Pilot Plant Inc., a company controlled by Mr. Mitchell, in the principal amount of $20,000. This amount is non-interest bearing, unsecured and due on demand.
(e)
As at April 30, 2010 and 2009, we were indebted to Pass Minerals Inc., a company controlled by Mr. Matheson and Mr. Mitchell, in the principal amount of $438 and $31,000, respectively. This amount is non-interest bearing, unsecured and due on demand.
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(f)
As at April 30, 2009, we were indebted to Gold Crown Minerals, a company controlled by Mr. Matheson and Mr. Mitchell, in the principal amount of $15,000. This amount is non-interest bearing, unsecured and due on demand.
Private Placements with Related Parties
During the years ended April 30, 2010 and 2009, we completed the following private placements to our directors, officers and companies controlled by our directors and officers.
(a)
On February 24, 2009, we issued 8,000,000 Units to Mr. Matheson to settle outstanding indebtedness of $400,000. Each Unit is comprised of one share of our common stock and one share purchase warrant, with each warrant entitling the holder to purchase an additional share of common stock for a period of two years at an exercise price of $0.10 US per share.
(b)
On February 24, 2009, we issued 400,000 Units to Royal City Minerals Inc., a company controlled by Mr. Matheson, to settle outstanding indebtedness of $20,000. On January 31, 2010, we issued an additional 400,000 Units to Royal City Minerals Inc. to settle outstanding indebtedness of $20,000
(c)
On February 24, 2009, we issued 1,000,000 Units to Mr. Mitchell to settle outstanding indebtedness of $50,000.
(d)
On February 24, 2009, we issued 2,000,000 Units to Pilot Plant Inc., a company controlled by Mr. Mitchell, for cash proceeds of $50,000 and to settle outstanding indebtedness of $50,000.
(e)
On August 18, 2009, we issued 3,500,000 Units to E-Ore Holdings, LLC, a company controlled by Mr. Matheson and Mr. Mitchell, to settle outstanding indebtedness of $350,000. On January 31, 2010, we issued 18,000,000 Units to E-Ore Holdings, LLC for cash proceeds of $100,000 and to settle indebtedness of $800,000.
(f)
On January 31, 2010, we issued 3,000,000 Units to Gold Crown Holdings LLC, a company controlled by Mr. Matheson and Mr. Mitchell, for cash proceeds of $150,000.
(g)
On January 31, 2010, we issued 2,000,000 Units to PPI Holdings LLC, a company which Mr. Mitchell is a 16.7% managing member, for cash proceeds of $100,000.
DIRECTOR INDEPENDENCE
Our common stock is quoted on the OTC Bulletin Board inter-dealer quotation system, which does not have director independence requirements. Under NASDAQ Rule 5605(a)(2), a director is not considered to be independent if he or she is also an executive officer or employee of the corporation. All of our directors are considered executive officers under Rule 3b-7 of the Exchange Act. Therefore, none of our directors are independent.
As a result of our limited operating history and minimal resources, our management believes that it will have difficulty in attracting independent directors. In addition, we would likely be required to obtain directors and officers insurance coverage in order to attract and retain independent directors. Our management believes that the costs associated with maintaining such insurance is prohibitive at this time.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The aggregate fees billed for the fiscal years ended April 30, 2010 and 2009 for professional services rendered by the principal accountant for the audit of our annual financial statements and review of the financial statements included in our Quarterly Reports on Form 10-Q and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows:
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PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
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Notes:
(1)
Filed with the SEC as an exhibit to our Registration Statement on Form SB-2 originally filed on August 17, 2006, as amended.
(2)
Filed with the SEC as an exhibit to our Current Report on Form 8-K filed June 12, 2007.
(3)
Filed with the SEC as an exhibit to our Annual Report on Form 10-KSB filed July 30, 2007.
(4)
Filed with the SEC as an exhibit to our Current Report on Form 8-K filed on September 28, 2007
(5)
Filed with the SEC as an exhibit to our Current Report on Form 8-K filed October 12, 2007.
(6)
Filed with the SEC as an exhibit to our Current Report on Form 8-K filed February 5, 2008.
(7)
Filed with the SEC as an exhibit to our Quarterly Report on Form 10-Q filed September 15, 2008.
(8)
Filed with the SEC as an exhibit to our Current Report on Form 8-K filed November 18, 2008.
(9)
Filed with the SEC as an exhibit to our Quarterly Report on Form 10-Q filed December 15, 2008.
(10)
Filed with the SEC as an exhibit to our Current Report on Form 8-K filed January 16, 2009.
(11)
Filed with the SEC as an exhibit to our Current Report on Form 8-K filed February 26, 2009.
(12)
Filed with the SEC as an exhibit to our Quarterly Report on Form 10-Q filed March 17, 2009.
(13)
Filed with the SEC as an exhibit to our Current Report on Form 8-K filed March 26, 2009.
(14)
Filed with the SEC as an exhibit to our Current Report on Form 8-K filed August 17, 2009.
(15)
Filed with the SEC as an exhibit to our Quarterly Report on Form 10-Q filed September 14, 2009.
(16)
Filed with the SEC as an exhibit to our Current Report on Form 8-K filed November 3, 2009.
(17)
Filed with the SEC as an exhibit to our Current Report on Form 8-K filed December 10, 2009.
(18)
Filed with the SEC as an exhibit to our Quarterly Report on Form 10-Q filed March 16, 2010.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ROYAL MINES AND MINERALS CORP.
Date: July 29, 2010
By: /s/ K. Ian Matheson
K. IAN MATHESON
Chief Executive Officer, President and Secretary
(Principal Executive Officer)
Date: July 29, 2010
By: /s/ Jason S. Mitchell
JASON S. MITCHELL
Chief Financial Officer and Treasurer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: July 29, 2010
By: /s/ K. Ian Matheson
K. IAN MATHESON
Director
Date: July 29, 2010
By: /s/ Jason S. Mitchell
JASON S. MITCHELL
Director
Date: July 29, 2010
By: /s/ Michael C. Boyko
MICHAEL C. BOYKO
Director