UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] |
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: July 31, 2020
[ ] |
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from_______to_______
Commission file number 000-52055
RED METAL RESOURCES LTD.
(Exact name of small business issuer as specified in its charter)
Nevada (State or other jurisdiction of incorporation or organization) |
20-2138504 (I.R.S. Employer Identification No.) |
278 Bay Street, Suite 102, Thunder Bay, ON P7B 1R8
(Address of principal executive offices) (Zip Code)
(807) 345-7384
(Issuers telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [X] Yes [ ] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.
Large accelerated filer [ ] |
|
Accelerated filer [ ] |
Non-accelerated filer [X] |
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Smaller Reporting Company [X] |
|
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Emerging Growth Company [ ] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). [ ] Yes [X] No
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date. As of September 21, 2020, the number of shares of the registrants common stock outstanding was 41,218,008.
Table of Contents
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F-1 |
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F-2 |
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F-3 |
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F-4 |
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F-5 |
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations. |
1 |
Item 3. Quantitative and Qualitative Disclosures about Market Risk. |
10 |
10 |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. |
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ii
PART I - FINANCIAL INFORMATION
RED METAL RESOURCES LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN US DOLLARS)
(UNAUDITED)
July 31, 2020
January 31, 2020
ASSETS
Current assets
Cash
$
194,092
$
9,865
Prepaids and other receivables
7,935
5,764
Total current assets
202,027
15,629
Equipment
723
798
Unproved mineral properties
690,783
653,117
Total assets
$
893,533
$
669,544
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable
$
172,820
$
239,098
Accrued liabilities
65,414
168,927
Due to related parties
11,721
7,282
Notes payable
26,910
24,451
Total current liabilities
276,865
439,758
Long-term notes payable to related parties
992,953
715,842
Withholding taxes payable
108,079
-
Total liabilities
1,377,897
1,155,600
Stockholders' deficit
Common stock, $0.001 par value, authorized 500,000,000,
41,218,008 issued and outstanding
at July 31, 2020 and January 31, 2020
41,217
41,217
Additional paid-in capital
9,132,068
9,132,068
Deficit
(9,610,032)
(9,584,892)
Accumulated other comprehensive loss
(47,617)
(74,449)
Total stockholders' deficit
(484,364)
(486,056)
Total liabilities and stockholders' deficit
$
893,533
$
669,544
The accompanying notes are an integral part of these unaudited interim consolidated financial statements
F-1
RED METAL RESOURCES LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(EXPRESSED IN US DOLLARS)
(UNAUDITED)
For the three months ended
July 31,
For the six months ended
July 31,
2020
2019
2020
2019
Operating expenses:
Amortization
$
55
$
88
$
112
$
184
General and administrative
1,668
13,897
14,759
25,171
Mineral exploration costs
2,155
4,310
3,099
6,107
Professional fees
10,912
13,242
20,964
24,840
Regulatory
3,964
1,856
10,971
4,478
Salaries, wages and benefits
5,082
17,126
12,780
32,982
(23,836)
(50,519)
(62,685)
(93,762)
Other items
Foreign exchange gain (loss)
(155)
27
69
93
Forgiveness of debt
-
-
74,336
-
Interest on notes payable
(19,221)
(15,420)
(36,860)
(28,149)
Net loss
(43,212)
(65,912)
(25,140)
(121,818)
Foreign currency translation
15,901
(28,053)
26,832
(25,376)
Comprehensive income (loss)
$
(27,311)
$
(93,965)
$
1,692
$
(147,194)
Net loss per share - basic and diluted
$
(0.00)
$
(0.00)
$
(0.00)
$
(0.00)
Weighted average number of shares
outstanding - basic and diluted
41,218,008
37,504,588
41,218,008
37,504,588
The accompanying notes are an integral part of these unaudited interim consolidated financial statements
F-2
RED METAL RESOURCES LTD.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(EXPRESSED IN US DOLLARS)
(UNAUDITED)
Common Stock
Number of
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income / (Loss)
Total
Balance at January 31, 2019
37,504,588
$
37,504
$
8,968,677
$
(9,263,300)
$
6,780
$
(250,339)
Net loss for the period
ended April 30, 2019
-
-
-
(55,906)
-
(55,906)
Foreign exchange translation
-
-
-
-
2,677
2,677
Balance at April 30, 2019
37,504,588
37,504
8,968,677
(9,319,206)
9,457
(303,568)
Net loss for the period
ended July 31, 2019
-
-
-
(65,912)
-
(65,912)
Foreign exchange translation
-
-
-
-
(28,053)
(28,053)
Balance at July 31, 2019
37,504,588
$
37,504
$
8,968,677
$
(9,385,118)
$
(18,596)
$
(397,533)
Balance at January 31, 2020
41,218,008
$
41,217
$
9,132,068
$
(9,584,892)
$
(74,449)
$
(486,056)
Net income for the period
ended April 30, 2020
-
-
-
18,072
-
18,072
Foreign exchange translation
-
-
-
-
10,931
10,931
Balance at April 30, 2020
41,218,008
41,217
9,132,068
(9,566,820)
(63,518)
(457,053)
Net loss for the period
ended July 31, 2020
-
-
-
(43,212)
-
(43,212)
Foreign exchange translation
-
-
-
-
15,901
15,901
Balance at July 31, 2020
41,218,008
$
41,217
$
9,132,068
$
(9,610,032)
$
(47,617)
$
(484,364)
The accompanying notes are an integral part of these unaudited interim consolidated financial statements
F-3
RED METAL RESOURCES LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(EXPRESSED IN US DOLLARS)
(UNAUDITED)
For the six months ended
July 31,
2020
2019
Cash flows used in operating activities:
Net loss
$
(25,140)
$
(121,818)
Adjustments to reconcile net loss to net cash used in operating activities:
Accrued interest on notes payable
36,860
28,149
Forgiveness of debt
(74,336)
-
Amortization
112
184
Changes in operating assets and liabilities:
Prepaids and other receivables
(2,032)
(4,881)
Accounts payable
(788)
32,448
Accrued liabilities
(1,663)
(2,006)
Due to related parties
5,033
5,398
Net cash used in operating activities
(61,954)
(62,526)
Cash flows used in investing activities:
Acquisition of unproved mineral properties
-
(61,799)
Net cash used in investing activities
-
(61,799)
Cash flows provided by financing activities:
Cash received on issuance of notes payable to related parties
249,182
149,569
Net cash provided by financing activities
249,182
149,569
Effects of foreign currency exchange
(3,001)
(1,756)
Increase in cash
184,227
23,488
Cash, beginning
9,865
8,686
Cash, ending
$
194,092
$
32,174
Supplemental disclosures:
Cash paid for:
Income tax
$
-
$
-
Interest
$
-
$
-
The accompanying notes are an integral part of these unaudited interim consolidated financial statements
F-4
RED METAL RESOURCES LTD.
NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
JULY 31, 2020
(UNAUDITED)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
Nature of Operations
Red Metal Resources Ltd. (the Company) is involved in acquiring and exploring mineral properties in Chile through its wholly-owned subsidiary, Minera Polymet SpA (Polymet) organized under the laws of the Republic of Chile. The Company has not determined whether its properties contain mineral reserves that are economically recoverable.
Unaudited Interim Consolidated Financial Statements
The unaudited condensed consolidated financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles (GAAP) for interim financial information and the rules and regulations of the Securities and Exchange Commission (SEC). They do not include all information and footnotes required by GAAP for complete financial statements. Except as disclosed herein, there have been no material changes in the information disclosed in the notes to the financial statements for the year ended January 31, 2020, included in the Companys Annual Report on Form 10-K, filed with the SEC. The unaudited condensed consolidated financial statements should be read in conjunction with those financial statements included in Form 10-K. In the opinion of management, all adjustments considered necessary for a fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the three and six months ended July 31, 2020, are not necessarily indicative of the results that may be expected for the year ending January 31, 2021.
NOTE 2 - RELATED-PARTY TRANSACTIONS
The following amounts were due to related parties as at:
July 31, 2020
January 31, 2020
Due to a company owned by an officer (a)
$
171
$
110
Due to a company controlled by directors (a)
7,080
7,172
Due to the Chief Executive Officer (CEO) (a), (b)
970
-
Due to the Chief Financial Officer (CEO) (a), (b)
1,000
-
Due to a major shareholder (a), (b)
2,500
-
Total due to related parties
$
11,721
$
7,282
(a)Amounts are unsecured, due on demand and bear no interest.
(b)On July 29, 2020, Polymet entered into mining royalty agreements (the NSR Agreements) with the Companys CEO, CFO, and the major shareholder to sell net smelter returns (the NSR) on its mineral concessions. NSR range from 0.3% to 1.25% depending on particular concession and the purchaser. The Companys CEO agreed to acquire NSR for $1,500, CFO agreed to acquire the NSR for $1,000, and the major shareholder agreed to acquire his NSR for $2,500.
The NSR will be paid quarterly once commercial exploitation begins and will be paid on gold, silver, copper and cobalt sales. If, within two years, the Company does not commence commercial exploitation of the mineral properties, an annual payment of $10,000 per purchaser will be paid.
Pursuant to Chilean law, the NSR agreements will come in force only when registered against the land title in Chile. Due to temporary safety restriction associated with COVID-19 pandemic, the registration of the NSR Agreements has been deferred, therefore the payments made by the CEO, CFO, and the major shareholder, have been recorded as advances on the books of the Company and will be applied towards the agreements, once they are fully legalized.
F-5
The following amounts were due under the notes payable the Company issued to related parties:
July 31, 2020
January 31, 2020
Note payable to CEO (c)
$
517,752
$
502,575
Note payable to CFO (c)
9,971
9,583
Note payable to a company controlled by directors (c)
112,979
109,984
Note payable to a major shareholder (c)
352,251
93,700
Total notes payable to related parties
$
992,953
$
715,842
(c)Amounts are unsecured, bear interest at 8%. At July 31, 2020, the holders of the notes payable agreed to extend due dates for the repayment to August 31, 2022.
During the three-month period ended July 31, 2020, the Company accrued $18,707 (July 31, 2019 - $14,880) in interest expense on the notes payable to related parties. During the six-month period ended July 31, 2020, the Company accrued $35,889 (July 31, 2019 - $27,076) in interest expense on the notes payable to related parties. Other than interest accrued on the notes payable and minor reimbursable expenses, the Company did not incur any expenses with its related parties.
NOTE 3 - UNPROVED MINERAL PROPERTIES
Following is the schedule of the Companys unproved mineral properties as at July 31, 2020 and January 31, 2020:
Mineral Claims at July 31, 2020
Mineral Claims
January 31,
2020
Additions/
Payments
Effect of
foreign
currency
translation
July 31,
2020
Farellon Project
Farellon Alto 1-8
$
343,648
$
-
$
19,819
$
363,467
Quina
132,455
-
7,639
140,094
Exeter
134,530
-
7,758
142,288
610,633
-
35,216
645,849
Perth Project
42,484
-
2,450
44,934
Total Costs
$
653,117
$
-
$
37,666
$
690,783
Mineral Claims at January 31, 2020
January 31,
2019
Additions/
Payments
Effect of
foreign
currency
translation
January 31,
2020
Farellon Project
Farellon Alto 1-8
$
411,268
$
-
$
(67,620)
$
343,648
Quina
158,519
-
(26,064)
132,455
Exeter
109,584
50,000
(25,054)
134,530
679,371
50,000
(118,738)
610,633
Perth Project
51,178
-
(8,694)
42,484
Total Costs
$
730,549
$
50,000
$
(127,432)
$
653,117
F-6
NOTE 4- COMMON STOCK
Warrants
During the six-month period ended July 31, 2020, 2,500,000 warrants issued as part of the April 20, 2018, private placement expired unexercised. The Company has no warrants outstanding as at July 31, 2020 (January 31, 2020 - 2,500,000).
NOTE 5- FORGIVENESS OF DEBT
NOTE 6 - WITHHOLDING TAXES PAYABLE
During the six-month period ended July 31, 2020, the Company reclassified $108,079 in Chilean withholding taxes payable from current to long-term.
F-7
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
This Quarterly Report on Form 10-Q filed by Red Metal Resources Ltd. contains forward-looking statements. These are statements regarding financial and operating performance and results and other statements that are not historical facts. The words expect, project, estimate, believe, anticipate, intend, plan, forecast, and similar expressions are intended to identify forward-looking statements. Certain important risks could cause results to differ materially from those anticipated by some of the forward-looking statements. Some, but not all, of these risks include, among other things:
·general economic conditions, because they may affect our ability to raise money;
·our ability to raise enough money to continue our operations;
·changes in regulatory requirements that adversely affect our business;
·changes in the prices for minerals that adversely affect our business;
·political changes in Chile, which could affect our interests there; and/or
·other uncertainties, all of which are difficult to predict and many of which are beyond our control.
We caution you not to place undue reliance on these forward-looking statements, which reflect our managements view only as of the date of this report. We are not obligated to update these statements or publicly release the results of any revisions to them to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events. You should refer to, and carefully review, the information in future documents we file with the Securities and Exchange Commission.
General
You should read this discussion and analysis in conjunction with our unaudited condensed consolidated financial statements and related notes included in this Form 10-Q and the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2020. The inclusion of supplementary analytical and related information may require us to make estimates and assumptions to enable us to fairly present, in all material respects, our analysis of trends and expectations with respect to our results of operations and financial position taken as a whole. Actual results may vary from the estimates and assumptions we make.
Overview
Red Metal Resources Ltd. (Red Metal or the Company) is a mineral exploration company engaged in the business of mineral exploration in Chile with the objective to explore and, if warranted, develop mineral properties. All of our mineral concessions are located in the III Region of Atacama, Chile. To date we have not determined whether the concessions that comprise our mineral properties contain mineral reserves that are economically recoverable and have not produced revenues from our principal business.
Consistent with our historical practices, we continue to monitor our costs in Chile by reviewing our mineral claims to determine whether they possess the geological indicators to economically justify the capital to maintain or explore them. Currently, our subsidiary, Minera Polymet SpA (Polymet), has two employees in Chile and engages independent consultants on as needed basis. Most of our support - such as vehicles, office, and equipment - is supplied under short-term contracts. The only long-term commitments that we have are for royalty payments on four of our mineral concessions - Farellon Alto 1-8, Quina 1 - 56, Exeter 1 - 54, and Che. These royalties are payable once exploitation begins. We are also required to pay property taxes that are due annually on all the concessions that are included in our properties.
The cost and timing of all planned exploration programs are subject to the availability of qualified mining personnel, such as consulting geologists, geo-technicians and drillers, and drilling equipment. Although Chile has a well-trained and qualified mining workforce from which to draw and few early-stage companies such as ours are competing for the available resources, if we are unable to find the personnel and equipment that we need when we need them and at the prices that we have estimated today, we might have to revise or postpone our plans.
1
Results of Operations
SUMMARY OF FINANCIAL CONDITION
Table 1 summarizes and compares our financial condition at July 31, 2020, to the year ended January 31, 2020.
Table 1: Comparison of financial condition
July 31, 2020
January 31, 2020
Working capital deficit
$
(74,838)
$
(424,129)
Current assets
$
202,027
$
15,629
Unproved mineral properties
$
690,783
$
653,117
Total current liabilities
$
276,865
$
439,758
Total long-term liabilities
$
1,101,032
$
715,842
Common stock and additional paid in capital
$
9,173,285
$
9,173,285
Accumulated other comprehensive loss
$
(47,617)
$
(74,449)
Deficit
$
(9,610,032)
$
(9,584,892)
Selected Financial Results
THREE AND SIX MONTHS ENDED JULY 31, 2020 AND 2019
Our operating results for the three and six months ended July 31, 2020 and 2019, and the changes in the operating results between those periods are summarized in Table 2:
Table 2: Summary of operating results
Three Months Ended
Six Months Ended
July 31,
2020
July 31,
2019
Percentage
Increase /
(Decrease)
July 31,
2020
July 31,
2019
Percentage
Increase /
(Decrease)
Operating expenses
$
(23,836)
$
(50,519)
(52.8)%
$
(62,685)
$
(93,762)
(33.1)%
Other items:
Foreign exchange gain
(155)
27
(674.1)%
69
93
(25.8)%
Forgiveness of debt
-
-
n/a
74,336
-
n/a
Interest on notes payable
(19,221)
(15,420)
24.6%
(36,860)
(28,149)
30.9%
Net loss
(43,212)
(65,912)
34.4%
(25,140)
(121,818)
79.4%
Unrealized foreign
exchange gain (loss)
15,901
(28,053)
(156.7)%
26,832
(25,376)
(205.7)%
Comprehensive loss
$
(27,311)
$
(93,965)
70.9%
$
1,692
$
(147,194)
101.1%
Revenue. We did not generate any revenue during the three and six months ended July 31, 2020 and 2019. Due to the exploration rather than the production nature of our business, we do not expect to have significant operating revenue in the foreseeable future.
Operating expenses. Our operating expenses for the three and six months ended July 31, 2020 and 2019, and the changes between those periods are summarized in Table 3.
Table 3: Detailed changes in operating expenses
Three Months Ended
Six Months Ended
July 31,
2020
July 31,
2019
Percentage
Increase /
(Decrease)
July 31,
2020
July 31,
2019
Percentage
Increase /
(Decrease)
Operating expenses
Amortization
$
55
$
88
(37.5)%
$
112
$
184
(39.1)%
General and administrative
1,668
13,897
(88.0)%
14,759
25,171
(41.4)%
Mineral exploration costs
2,155
4,310
(50.0)%
3,099
6,107
(49.3)%
Professional fees
10,912
13,242
(17.6)%
20,964
24,840
(15.6)%
Regulatory
3,964
1,856
113.6%
10,971
4,478
145.0%
Salaries, wages and benefits
5,082
17,126
(70.3)%
12,780
32,982
(61.3)%
Total operating expenses
$
23,836
$
50,519
(52.8)%
$
62,685
$
93,762
(33.1)%
2
Our operating expenses decreased by $26,683, or 52.8%, from $50,519 for the three-month period ended July 31, 2019, to $23,836 for the three-month period ended July 31, 2020. The decrease in operating expenses during the three-month period ended July 31, 2020, was associated mainly with decreased salaries, wages, and benefits, which amounted to $5,082 for the three-month period ended July 31, 2020, as compared to $17,126 we incurred during the three-month period ended July 31, 2019, and resulted from an extended leave without pay of one of our Chilean employees; and from lower general and administrative fees, which decreased by $12,229, or 88%, from 13,897 we incurred during the three-month period ended July 31, 2019, to $1,668 we incurred during the three-month period ended July 31, 2020. In addition, our professional fees and mineral and exploration fees decreased by $2,330 and $2,155 to $10,912 and $2,155, respectively. These decreases were in part offset by increased regulatory fees, which amounted to $3,964 during the three-month period ended July 31, 2020, as compared to $1,856 for the three-month period ended July 31, 2019.
The most significant year-to-date changes in our operating expenses were as follows;
·Our salaries paid to the staff employed through our Chilean subsidiary decreased by $20,202, or 61.3% to $12,780 from $32,982 we incurred during the six-month period ended July 31, 2019. The decrease resulted from an extended leave without pay of one of our Chilean employees.
·Our general and administrative expenses decreased by 41.4%, or $10,412 to $14,759 during the six-month period ended July 31, 2020, as compared to $25,171 we incurred in general and administrative expenses during the comparative period ended July 31, 2019. The decrease was associated mostly with decreased administrative expenses, which amounted to $9,403 (2020 - $15,025), travel and entertainment fees of $86 (2020 - $2,232), and absence of advertising and promotion activities (2020 - $2,845).
·Our mineral and exploration expenses decreased by $3,008, or 49.3%; from $6,107 we incurred during the six-month period ended July 31, 2019, to $3,099 we incurred during the six-month period ended July 31, 2020. The higher mineral exploration expenses during the comparative six-month period ended July 31, 2019, were associated with the payment of 2019/20 property taxes. During the six-month period ended July 31, 2020, the Company paid property taxes on Farellon 1-8 claim; the property taxes payable for all other concessions remained unpaid at July 31, 2020.
·Our professional fees decreased by $3,876, or 15.6%, from $24,840 we incurred during the six-month period ended July 31, 2019, to $20,964 we incurred during the six-month period ended July 31, 2020.
Other items. To continue our operations, we were required to incur additional debt with our debt holders. Our notes payable carry 8% annual interest, which resulted in $19,221 in interest we accrued during the three-month period ended July 31, 2020, representing a $3,801 increase as compared to $15,420 in interest we accrued during the three-month period ended July 31, 2019. On a year-to-date basis our interest on current debt was $36,860 representing an $8,711 increase as compared to $28,149 in interest we accrued during the six-month period ended July 31, 2019.
During the first quarter of our fiscal 2021 year we reversed an old debt which exceeded the statute of limitations as promulgated under Chilean Laws; the amount reversed was $74,336 and was recorded as forgiveness of debt for the six-month period ended July 31, 2020 (July 31, 2019 - $Nil).
In addition, during the three-month period ended July 31, 2020, we recorded $155 loss on foreign exchange fluctuations (July 31, 2019- $27 gain). For the six-month period ended July 31, 2020, foreign exchange fluctuations resulted in $69 gain (July 31, 2019- $93).
Comprehensive income/(loss). Our comprehensive loss for the three-month period ended July 31, 2020, was $27,311 as compared to $93,965 we recorded for the three-month period ended July 31, 2019. During the three-month period ended July 31, 2020, the comprehensive loss included $15,901 gain associated with the foreign exchange translation of the carried balances denominated in other than our functional currencies. During the comparative three-month period ended July 31, 2019, the comprehensive loss included $28,053 loss associated with the foreign exchange translation of the carried balances denominated in other than our functional currencies.
3
On a year-to-date basis our comprehensive income was $1,692 as compared to $147,194 loss we recorded for the six-month period ended July 31, 2019. During the six-month period ended July 31, 2020, the comprehensive income included $26,832 gain associated with the foreign exchange translation of the carried balances denominated in other than our functional currencies. During the comparative six-month period ended July 31, 2019, the comprehensive loss included $25,376 loss associated with the foreign exchange translation of the carried balances denominated in other than our functional currencies.
Liquidity and Capital Resources
Table 4: Working capital
July 31, 2020
January 31, 2020
Percentage
Increase /
(Decrease)
Current assets
$
202,027
$
15,629
1,192.6%
Current liabilities
276,865
439,758
(37.0)%
Working capital deficit
$
(74,838)
$
(424,129)
(82.4)%
As of July 31, 2020, we had a cash balance of $194,092, our working capital was represented by a deficit of $74,838 and cash used in operations totaled $61,954 for the period then ended.
We did not generate cash flows from our operating activities to satisfy our cash requirements for the three- and six-month periods ended July 31, 2020. The amount of cash that we have generated from our operations to date is significantly less than our current debt obligations, including our debt obligations under our notes and advances payable. There is no assurance that we will be able to generate sufficient cash from our operations to repay the amounts owing under these notes and advances payable, or to service our other debt obligations. If we are unable to generate sufficient cash flow from our operations to repay the amounts owing when due, we may be required to raise additional financing from other sources.
Cash Flow
Table 5 summarizes our sources and uses of cash for the six months ended July 31, 2020 and 2019.
Table 5: Summary of sources and uses of cash
July 31,
2020
2019
Net cash used in operating activities
$
(61,954)
$
(62,526)
Net cash used in investing activities
-
(61,799)
Net cash provided by financing activities
249,182
149,569
Effects of foreign currency exchange
(3,001)
(1,756)
Net increase in cash
$
184,227
$
23,488
Net cash used in operating activities
During the six months ended July 31, 2019, we used net cash of $62,526 in operating activities. We used $93,485 to cover our cash operating costs, $4,881 to prepay our future expenses and increase our GST receivable, and $2,006 to reduce our accrued liabilities. These uses of cash were offset by $32,448 and $5,398 increases to our accounts payable and amounts due to related parties, respectively.
4
Certain non-cash changes included in the net loss for the period
During the six-month period ended July 31, 2020, our outstanding notes payable to related parties resulted in the accrual of $35,889 in interest, and our notes payable to non-related party accumulated $971 in interest. In addition, we recorded $112 in amortization of our work truck used for Chilean operations. During the six-month period ended July 31, 2020, we recorded $74,336 forgiveness of debt on reversal of old debt which exceeded the statute of limitation promulgated under Chilean Law.
During the six-month period ended July 31, 2019, our outstanding notes payable to related parties resulted in the accrual of $27,076 in interest, and our notes payable to non-related party accumulated $1,073 in interest. In addition, we recorded $184 in amortization of our work truck used for Chilean operations.
Net cash used in investing activities
During the six months ended July 31, 2019, we spent $11,799 paying 2019/20 mineral property taxes on exploration claims comprising our Perth and Farellon Properties. In addition, we used $50,000 to make the fifth and final option payment pursuant to our option agreement to acquire the Exeter claim. We did not engage in any investing activities during the six months ended July 31, 2020.
Net cash provided by financing activities
During the six months ended July 31, 2020, we borrowed $224,728 (CAD$300,000) and $23,000 from Mr. Richard Jeffs, our major shareholder. In addition, our CEO advanced us $1,454 as part of vendor payments she made on our behalf. The loans are unsecured, bear interest at 8% per annum, compounded monthly, and are payable on or after August 31, 2022 (as renegotiated with the note holders).
During the six months ended July 31, 2019, we borrowed $46,734 (CAD$62,095) and $52,835 from our CEO. During the same period, we borrowed $50,000 from Mr. Jeffs. The loans are unsecured, bear interest at 8% per annum, compounded monthly, and are payable on or after August 31, 2022 (as renegotiated with the note holders during our fiscal 2021 year).
Going Concern
The consolidated financial statements included in this Quarterly Report have been prepared on a going concern basis, which implies that we will continue to realize our assets and discharge our liabilities in the normal course of business. We have not generated any significant revenues from mineral sales since inception, have never paid any dividends and are unlikely to pay dividends or generate significant earnings in the immediate or foreseeable future. Our continuation as a going concern depends upon the continued financial support of our shareholders, our ability to obtain necessary debt or equity financing to continue operations, and the attainment of profitable operations. Our ability to achieve and maintain profitability and positive cash flow depends upon our ability to locate profitable mineral claims, generate revenue from mineral production and control our production costs. Based upon our current plans, we expect to incur operating losses in future periods, which we plan to mitigate by controlling our operating costs and by sharing mineral exploration expenses through joint venture agreements, if possible. At July 31, 2020, we had a working capital deficit of $74,838 and accumulated losses of $9,610,032. These factors raise substantial doubt about our ability to continue as a going concern. We cannot assure you that we will be able to generate significant revenues in the future. Our consolidated interim financial statements do not give effect to any adjustments that would be necessary should we be unable to continue as a going concern and therefore be required to realize our assets and discharge our liabilities in other than the normal course of business and at amounts different from those reflected in our financial statements.
5
Uncertainty due to Global Outbreak of COVID-19
Unproved Mineral Properties
Table 6: Active properties
Hectares
Property
Percentage, type of claim
Gross area
Net area(a)
Carrizal Property
Farellón Project
Farellón Alto 1 - 8
100%, mensura
66
Quina 1 - 56
100%, mensura
251
Exeter 1 - 54
100%, mensura
235
Cecil 1 - 49
100%, mensura
228
Teresita
100%, mensura
1
Azucar 6 - 25
100%, mensura
88
Stamford 61 - 101
100%, mensura
165
Kahuna 1 - 40
100%, mensura
200
1,234
Perth Project
Perth 1-36
100%, mensura
109
Rey Arturo 1-29
100%, mensura
276
Lancelot II 1-23
100%, mensura
115
Lancelot 1 1-27
100%, mensura
260
Merlin IB 1 al 10
100%, mensura
38
Merlin I A 1 al 48
100%, mensura
220
Tristan II B 1 al 4
100%, mensura
7
Galahad IA 1 al 44
100%, mensura
217
Camelot 1 al 53
100%, mensura
227
Galahad I C
100%, mensura
4
Tristan II A 1 al 55
100%, mensura
261
Galahad I B 1 al 3
100%, mensura
10
Percival 4 1 al 60
100%, mensura
300
2,044
Mateo Property
Margarita
100%, mensura
56
Che 1 & Che 2
100%, mensura
76
Irene & Irene II
100%, mensura
60
192
Overlapped claims(a)
(10)
182
3,460
(a)Certain claims overlap other claims. The net area is the total of the hectares we have in each property (i.e. net of overlapped claims).
6
Capital Resources
Our ability to acquire and explore our Chilean claims is subject to our ability to obtain the necessary funding. We expect to raise funds through any combination of debt financing and/or sale of our securities. We have no committed sources of capital. If we are unable to raise funds as and when we need them, we may be required to curtail, or even to cease, our operations.
Contingencies and Commitments
We had no contingencies at July 31, 2020.
As of the date of the filing this Quarterly Report, we have the following long-term contractual obligations and commitments:
·Farellon royalty. We are committed to paying the vendor a royalty equal to 1.5% on the net sales of minerals extracted from the Farellon Alto 1 - 8 claim up to a total of $600,000. The royalty payments are due monthly once exploitation begins and are subject to minimum payments of $1,000 per month.
·Quina royalty. We are committed to paying a royalty equal to 1.5% on the net sales of minerals extracted from the Quina claim. The royalty payments are due semi-annually once commercial production begins and are not subject to minimum payments.
·Exeter royalty. We are committed to paying a royalty equal to 1.5% on the net sales of minerals extracted from the Exeter claim. The royalty payments are due semi-annually once commercial production begins and are not subject to minimum payments.
·Che royalty. We are committed to paying a royalty equal to 1% of the net sales of minerals extracted from the claims to a maximum of $100,000 to the former owner. The royalty payments are due monthly once exploitation begins and are not subject to minimum payments.
·Mineral property taxes. To keep our mineral claims in good standing, we are required to pay mineral property taxes of approximately $35,000 per annum.
Equity Financing
During the period covered by this Quarterly Report on Form 10-Q, we did not engage in the financing of our operations through the issuance of our equity securities and relied solely on the debt financing.
Based on our operating plan, we anticipate incurring operating losses in the foreseeable future and may require additional equity capital to support our operations and develop our business plan. If we succeed in completing future equity financings, the issuance of additional shares will result in dilution to our existing shareholders.
Debt Financing
During the six-month period ended July 31, 2020, and up to the date of the filing of this Quarterly Report on Form 10-Q, we borrowed a total of $224,728 (CAD$300,000) and $23,000 from Mr. Jeffs and $1,454 from our CEO. The loans are unsecured, due on or after August 31, 2022 (as renegotiated with the note holders), with interest payable at a rate of 8% per annum, compounded monthly.
Challenges and Risks
We do not anticipate generating any revenue over the next twelve months, therefore, we plan to fund our operations through any combination of equity or debt financing from the sale of our securities, private loans, joint ventures or through the sale of part interest in our mineral properties. Although we have succeeded in raising funds as we needed them, we cannot assure you that this will continue in the future. Many things, including, but not limited to, a downturn in the state of the economy or a significant decrease in the price of minerals, could affect the willingness of potential investors to invest in risky ventures such as ours. We may consider entering into additional joint venture partnerships with other resource companies to complete mineral exploration programs on our properties in Chile. If
7
we enter into a joint venture arrangement, we would likely have to assign a percentage of our interest in our mineral claims to our joint venture partner in exchange for the funding.
As at July 31, 2020, we owed $992,953 to related parties under long-term notes payable, which will become payable on or after August 31, 2022 and $108,079 in withholding taxes that will become payable to Chilean tax authorities on Polymets payment of the administrative fees it owes us. In addition to the long-term debt, we had $276,865 in current liabilities, which are payable on demand. We do not have the funds to pay all our current liabilities, and as such, we may decide to offer some vendors to convert the amounts we owe them into shares of our common stock. Because of the low price of our common stock, the issuance of the shares to pay the debt will likely result in dilution to the percentage of outstanding shares of our common stock held by our existing shareholders.
Investments in and Expenditures on Mineral Interests
Realization of our investments in mineral properties depends upon our maintaining legal ownership, producing from the properties or gainfully disposing of them.
Title to mineral claims involves risks inherent in the difficulties of determining the validity of claims as well as the potential for problems arising from the ambiguous conveyancing history characteristic of many mineral claims. Our contracts and deeds have been notarized, recorded in the registry of mines and published in the mining bulletin. We review the mining bulletin regularly to discover whether other parties have staked claims over our ground. We have discovered no such claims. To the best of our knowledge, we have taken the steps necessary to ensure that we have good title to our mineral claims.
Foreign Exchange
We are subject to foreign exchange risk associated with transactions denominated in foreign currencies. Foreign currency risk arises from the fluctuation of foreign exchange rates and the degree of volatility of these rates relative to the United States dollar. We do not believe that we have any material risk due to foreign currency exchange.
Trends, Events or Uncertainties that May Impact Results of Operations or Liquidity
Since we rely on sales of our securities and loans to continue our operations, any uncertainty in the equity markets can have a detrimental impact on our operations. Current trends in the industry and uncertainty that exists in equity markets have resulted in less capital available to us and less appetite for risk by investors. Furthermore, we have found that locating other mineral exploration companies with available funds who are willing to engage in risky ventures such as the exploration of our properties has become very difficult. If we are unable to raise additional capital, we may not be able to develop our properties or continue our operations.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements and no non-consolidated, special-purpose entities.
Related-Party Transactions
During the six-month period ended July 31, 2020, and up to the date of the filing of this Quarterly Report on Form 10-Q we have entered into the following transactions with the directors, executive officers, or holders of more than 5% of our common stock, or members of their immediate families:
Loans from Caitlin L. Jeffs
During the six-month period ended July 31, 2020, we borrowed $1,454 from Ms. Jeffs, our CEO, and accrued $19,647 in interest on notes payable we issued to Ms. Jeffs for a total owed under the USD$ notes payable of $4,020 and $513,732 (CAD$688,606) owed on account of CAD$ notes payable, which were outstanding as at July 31, 2020. The notes payable accumulate interest at 8% per annum compounded monthly, are unsecured and repayable on or after August 31, 2022, as renegotiated with Ms. Jeffs.
8
Loan from John da Costa
During the six-month period ended July 31, 2020, we accrued $388 on $8,500 note payable we issued to Mr. da Costa, which was outstanding as at July 31, 2020. At July 31, 2020, the total owed under the note payable we issued to Mr. da Costa was $9,971. The note payable accumulates interest at 8% per annum compounded monthly, is unsecured and repayable on or after August 31, 2022, as renegotiated with Mr. da Costa.
Transactions with Fladgate Exploration Consulting Corporation
During the six-month period ended July 31, 2020, we accrued $4,297 on a total of $96,310 (CAD$129,093) in notes payable we issued to Fladgate for a total of $112,979 (CAD$151,437). The notes payable accumulate interest at 8% per annum compounded monthly, are unsecured and repayable on or after August 31, 2022, as renegotiated with Fladgate.
Loans from Richard N. Jeffs
During the six-month period ended July 31, 2020, Mr. Jeffs advanced us $224,728 (CAD$300,000) and $23,000 at 8% annual interest compounded monthly and repayable on or after August 31, 2022. During the six-month period ended July 31, 2020, we accrued $3,795 in interest due on a total of $113,000 in notes payable we issued to Mr. Jeffs, and $7,762 interest on the CAD$300,000 notes payable. All notes payable issued to Mr. Jeffs accumulate interest at 8% per annum compounded monthly, are unsecured, and repayable on or after August 31, 2022, as renegotiated with Mr. Jeffs.
NSR Agreements with Ms. Jeffs, Mr. da Costa, and Mr. Jeffs
On July 29, 2020, Polymet entered into mining royalty agreements (the NSR Agreements) with Ms. Jeffs, Mr. da Costa, and Mr. Jeffs to sell net smelter returns (the NSR) on its mineral concessions. NSR range from 0.3% to 1.25% depending on particular concession and the purchaser. Ms. Jeffs agreed to acquire the NSR for $1,500, Mr. da Costa agreed to acquire the NSR for $1,000, and Mr. Jeffs agreed to acquire his NSR for $2,500.
The NSR will be paid quarterly once commercial exploitation begins and will be paid on gold, silver, copper and cobalt sales. If, within two years of legalizing the NSR Agreements, the Company does not commence commercial exploitation of the mineral concessions, an annual payment of $10,000 per purchaser will be paid.
Pursuant to Chilean law, the NSR Agreements will come in force only when registered against the land title in Chile. Due to temporary safety restriction associated with COVID-19 pandemic, the registration of the NSR Agreements has been deferred.
Critical Accounting Estimates
Preparing financial statements in conformity with the U.S. Generally Accepted Accounting Principles requires management to make estimates and assumptions that affect certain of the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience and various other factors it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Companys estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. The most significant estimates with regard to these financial statements relate to carrying values of unproved mineral properties.
Financial Instruments
Our financial instruments include cash, prepaids and other receivables, accounts payable, accrued liabilities, amounts due to related parties and notes payable. The fair value of these financial instruments approximates their carrying values due to their short maturities.
9
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
As a smaller reporting company, we are not required to provide this disclosure.
Item 4. Controls and Procedures.
(a) Disclosure Controls and Procedures
Caitlin Jeffs, our Chief Executive Officer and President, and John da Costa, our Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures (as the term is defined in Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934) as of the end of the quarter covered by this report (the Evaluation Date). Based on their assessment, as of the Evaluation Date, our disclosure controls and procedures are not effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms due to lack of segregation of duties.
(b) Changes in Internal Control over Financial Reporting
During the quarter covered by this report, there were no changes to our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We are not a party to any pending legal proceedings and, to the best of our knowledge; none of our properties or assets is the subject of any pending legal proceedings.
We incorporate by reference the Risk Factors included as Item 1A of our Annual Report on Form 10-K we filed with the Securities and Exchange Commission on April 30, 2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None
Item 3. Defaults upon Senior Securities.
None
Item 4. Mine Safety Disclosures.
Not applicable.
10
Item 6. Exhibits.
The following table sets forth the exhibits either filed herewith or incorporated by reference.
(1)Incorporated by reference from the registrants registration statement on Form SB-2 filed with the Securities and Exchange Commission on May 22, 2006 as file number 333-134363.
(2)Incorporated by reference from the registrants Quarterly report on Form 10-Q for the period ended October 31, 2010 and filed with the Securities and Exchange Commission on December 13, 2010.
(3)Incorporated by reference from the registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on June 4, 2014.
(4)Incorporated by reference from the registrants Current Report on Form 8-K filed with the Securities and Exchange Commission on December 19, 2014.
(5)Incorporated by reference from the registrants Current Report on Form 8-K filed with the Securities and Exchange Commission on June 18, 2015.
(6)Incorporated by reference from the registrants Annual Report on Form 10-K filed with the Securities and Exchange Commission on May 2, 2016.
(7)Incorporated by reference from the registrants registration statement on Form S-8 filed with the Securities and Exchange Commission on September 23, 2011.
(8)Incorporated by reference from the registrants Current Report on Form 8-K filed with the Securities and Exchange Commission on January 31, 2020.
(9)Incorporated by reference from the registrants Current Report on Form 8-K filed with the Securities and Exchange Commission on August 5, 2020.
(10)Personal information included in the Agreement has been redacted.
11
Pursuant to the requirements 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.
Dated: September 21, 2020
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RED METAL RESOURCES LTD. |
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/s/ Caitlin Jeffs |
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Caitlin Jeffs Chief Executive Officer (Principal Executive Officer) and President |
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/s/ Joao (John) da Costa |
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Joao (John) da Costa Chief Financial Officer (Principal Accounting Officer) |
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12
Certification by Chief Executive Officer/President pursuant to
Rule 13a-14(a) of the Securities Exchange Act of 1934
I, Caitlin Jeffs, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Red Metal Resources Ltd.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5.
The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
September 21, 2020
/s/ Caitlin Jeffs
Caitlin Jeffs, Chief Executive Officer and President
(Principal Executive Officer)
Certification by Chief Financial Officer pursuant to
Rule 13a-14(a) of the Securities Exchange Act of 1934
I, Joao (John) da Costa, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Red Metal Resources Ltd.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals;
c.
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5.
The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
September 21, 2020
/s/ Joao (John) da Costa
Joao (John) da Costa, Chief Financial Officer
(Principal Accounting Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. 1350
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsection (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) each of the undersigned officers of Red Metal Resources Ltd. (the Company) does hereby certify, to such officers knowledge, that:
(a) The Quarterly Report on Form 10-Q for the period ended July 31, 2020, (the Report) of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(b) Information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: September 21, 2020
/s/ Caitlin Jeffs
Caitlin Jeffs, Chief Executive Officer and President
(Principal Executive Officer)
/s/ Joao (John) da Costa
Joao (John) da Costa, Chief Financial Officer
(Principal Financial and Accounting Officer)