Quartz Mountain Resources Ltd 20-F for FY2021
Quartz Mountain Resources Ltd (QZMRF)
About this 20-F
Quartz Mountain Resources Ltd filed this 20-F on November 29, 2021, covering the fiscal year ended July 31, 2021 (FY2021).
Headline figures
Fiscal year ended July 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net loss
- 116.42K CAD
- compared with net income of 2.52M CAD a year earlier
- Diluted EPS
- 0.00 CAD
- compared with 0.13 CAD a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
OR
For the fiscal year ended
OR
OR
Commission file number
(Exact name of Registrant as specified in its charter) |
BRITISH COLUMBIA,
(Jurisdiction of incorporation or organization)
(Address of principal executive offices)
Sebastian Tang, Chief Financial Officer
Facsimile No.: 604-681-2741
14th Floor, 1040 West Georgia Street
Vancouver, British Columbia, Canada, V6E 4H1
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of Each Class: |
| Name of each exchange on which registered |
Not applicable |
| Not applicable |
Securities registered or to be registered pursuant to Section 12(g) of the Act Common shares, no par value
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐
If this report is an annual or transition report, indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes ☐
Indicate by check mark whether Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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).
Yes ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 126-2 of the Exchange Act.
Large Accelerated Filer ☐ | Accelerated Filer ☐ |
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☐ | International Financial Reporting Standards as issued ☒ | Other ☐ |
| by the International Accounting Standards Board |
|
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
Yes
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MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
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MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING |
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PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |
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CURRENCY AND MEASUREMENT
GENERAL
In this Annual Report on Form 20-F, all references to “we”, the “Company”, or “Quartz Mountain” refer to Quartz Mountain Resources Ltd. and its consolidated subsidiary.
The Company uses the Canadian dollar as its reporting currency. All references in this document to “dollars” or “$” are expressed in Canadian dollars, unless otherwise indicated. See also Item 3 – “Key Information” for more detailed currency and conversion information.
Except as noted, the information set forth in this Annual Report is as of November 25, 2021 and all information included in this document should only be considered correct as of such date.
CANADIAN MINERAL PROPERTY DISCLOSURE STANDARDS AND RESOURCE ESTIMATES
The discussion of mineral deposit classifications in this AIF uses the certain technical terms presented below as they are defined in accordance with the CIM Definition Standards on mineral resources and reserves (the “CIM Definition Standards”) adopted by the Canadian Institute of Mining, Metallurgy and Petroleum (the “CIM Council”), as required by NI 43-101. The following definitions are reproduced from the latest version of the CIM Standards, which were adopted by the CIM Council on May 10, 2014 (the “CIM Definitions”). Estimated mineral resources fall into two broad categories dependent on whether the economic viability of them has been established and these are namely “resources” (potential for economic viability) and “reserves” (viable economic production is feasible). Resources are sub-divided into categories depending on the confidence level of the estimate based on level of detail of sampling and geological understanding of the deposit. The categories, from lowest confidence to highest confidence, are inferred resource, indicated resource and measured resource. The Company does not claim to have any reserves at this time. The CIM definitions are as follows:
Term | Definition |
Mineral Resource | A concentration or occurrence of solid material of economic interest in or on the Earth’s crust in such form, grade or quality and quantity that there are reasonable prospects for eventual economic extraction. The location, quantity, grade or quality, continuity and other geological characteristics of a mineral resource are known, estimated or interpreted from specific geological evidence and knowledge, including sampling. |
Measured Mineral Resource | That part of a mineral resource for which quantity, grade or quality, densities, shape, and physical characteristics are estimated with confidence sufficient to allow the application of modifying factors to support detailed mine planning and final evaluation of the economic viability of the deposit. Geological evidence is derived from detailed and reliable exploration, sampling and testing and is sufficient to confirm geological and grade or quality continuity between points of observation. A measured mineral resource has a higher level of confidence than that applying to either an Indicated mineral resource or an inferred mineral resource. It may be converted to a proven mineral reserve or to a probable mineral reserve. |
Indicated Mineral Resource | That part of a mineral resource for which quantity, grade or quality, densities, shape and physical characteristics are estimated with sufficient confidence to allow the application of modifying factors in sufficient detail to support mine planning and evaluation of the economic viability of the deposit. Geological evidence is derived from adequately detailed and reliable exploration, sampling and testing and is sufficient to assume geological and grade or quality continuity between points of observation. An indicated mineral resource has a lower level of confidence than that applying to a measured mineral resource and may only be converted to a probable mineral reserve. |
Inferred Mineral Resource | That part of a mineral resource for which quantity and grade or quality are estimated on the basis of limited geological evidence and sampling. Geological evidence is sufficient to imply but not verify geological and grade or quality continuity. An inferred mineral resource has a lower level of confidence than that applying to an indicated mineral resource and may not be converted to a mineral reserve. It is reasonably expected that the majority of inferred mineral resources could be upgraded to indicated mineral resources with continued exploration. |
Mineral Reserve | The economically mineable part of a measured and/or indicated mineral resource. It includes diluting materials and allowances for losses, which may occur when the material is mined or extracted and is defined by studies at pre-feasibility or feasibility level as appropriate that include application of modifying factors. Such studies demonstrate that, at the time of reporting, extraction could reasonably be justified. The reference point at which mineral reserves are defined, usually the point where the ore is delivered to the processing plant, must be stated. It is important that, in all situations where the reference point is different, such as for a saleable product, a clarifying statement is included to ensure that the reader is fully informed as to what is being reported. The public disclosure of a mineral reserve must be demonstrated by a pre-feasibility study or feasibility study. |
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CURRENCY AND MEASUREMENT
Term | Definition |
Proven Mineral Reserve | The economically mineable part of a measured mineral resource. A proven mineral reserve implies a high degree of confidence in the modifying factors. |
Probable Mineral Reserve | The economically mineable part of an indicated, and in some circumstances, a measured mineral resource. The confidence in the modifying factors applying to a probable mineral reserve is lower than that applying to a proven mineral reserve. |
Cautionary Notes to United States Investors Concerning Canadian Mineral Property Disclosure Standards
As a Canadian issuer, Quartz Mountain is required to comply with reporting standards in Canada that require that we make disclosure regarding our mineral properties, including any estimates of mineral reserves and resources, in accordance with NI 43-101. NI 43-101 is a rule developed by the Canadian Securities Administrators that establishes standards for all public disclosure an issuer makes of scientific and technical information concerning mineral projects. In accordance with NI 43-101, the Company uses the terms mineral reserves and resources as they are defined in accordance with the CIM Definition Standards on mineral reserves and resources adopted by the Canadian Institute of Mining, Metallurgy and Petroleum.
The United States Securities and Exchange Commission (the “SEC”) has adopted amendments to its disclosure rules to modernize the mineral property disclosure requirements for issuers whose securities are registered with the SEC under the US Exchange Act (the “SEC Modernization Rules”) with compliance required for the first fiscal year on or after January 1, 2021. The SEC Modernization Rules have replaced the historical property disclosure requirements for mining registrants that were included in SEC Industry Guide 7 (“Guide 7”), which will be rescinded.
The SEC Modernization Rules include the adoption of definitions of the following terms, which are substantially similar to the corresponding terms under the CIM Definition Standards that are presented above under “Canadian Mineral Property Disclosure Standards and Resource Estimates”:
· | mineral resource; |
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· | indicated mineral resource; |
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· | inferred mineral resource; |
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· | mineral reserve; |
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· | proven mineral reserve; |
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· | probable mineral reserve. |
As a result of the adoption of the SEC Modernization Rules, the SEC will now recognize estimates of “measured mineral resources”, “indicated mineral resources” and “inferred mineral resources”. In addition, the SEC has amended its definitions of “proven mineral reserves” and “probable mineral reserves” to be substantially similar to the corresponding CIM Definitions.
Quartz Mountain is not required to provide disclosure on our mineral properties, including the Pebble Project, under the SEC Modernization Rules as we are presently a “foreign issuer” under the US Exchange Act and entitled to file continuous disclosure reports with the SEC under the Multi-Jurisdictional Disclosure System (“MJDS”) between Canada and the United States. Accordingly, we anticipate that we will be entitled to continue to provide disclosure on our mineral properties in accordance with NI 43-101 disclosure standards and CIM Definition Standards. However, if we either cease to be a “foreign issuer” or cease to be entitled to file reports under the MJDS, then we will be required to provide disclosure on our mineral properties under the SEC Modernization Rules. Accordingly, United States investors are cautioned that the disclosure that we provide on our mineral properties, including the Pebble Project under our continuous disclosure obligations under the US Exchange Act may be different from the disclosure that we would otherwise be required to provide as a US domestic issuer or a non- MJDS foreign issuer under the SEC Modernization Rules.
United States investors are cautioned that while the above terms are substantially similar to CIM Definitions, there are differences in the definitions under the SEC Modernization Rules and the CIM Definition Standards. Accordingly, there is no assurance any mineral resources that we may report as “measured mineral resources”, “indicated mineral resources” and “inferred mineral resources” under NI 43-101 would be the same had we prepared the resource estimates under the standards adopted under the SEC Modernization Rules.
Investors are cautioned not to assume that any “measured mineral resources”, “indicated mineral resources”, or “inferred mineral resources” that we report are or will be economically or legally mineable.
Further, “inferred resources” have a great amount of uncertainty as to whether they can be mined legally or economically. In accordance with Canadian securities laws, estimates of “inferred mineral resources” cannot form the basis of feasibility or other economic studies, except in limited circumstances where permitted under NI 43- 101.
For the above reasons, information contained in this Form 20-F and the documents incorporated by reference herein containing descriptions of our mineral deposits may not be comparable to similar information made public by United States companies subject to the reporting and disclosure requirements under the United States federal securities laws and the rules and regulations thereunder.
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CURRENCY AND MEASUREMENT
All currency amounts in this Annual Report are stated in Canadian dollars unless otherwise indicated. Conversion of metric units into imperial equivalents is as follows:
Metric Units | Multiply by | Imperial Units |
Hectares |
2.471 | = acres |
Meters | 3.281 | = feet |
kilometers | 0.621 | = miles (5,280 feet) |
Grams | 0.032 | = troy ounces |
Tons | 1.102 | = short tons (2,000 lbs.) |
grams per ton | 0.029 | = troy ounces per ton |
NOTE ON FORWARD LOOKING STATEMENTS
This Annual Report on Form 20-F contains statements that constitute “forward-looking statements”. Any statements that are not statements of historical facts may be deemed forward-looking statements. These statements appear in a number of different places in this Annual Report and, in some cases, can be identified by words such as “anticipates”, “estimates”, “projects”, “expects”, “intends”, “believes”, “plans”, or their negatives or other comparable words. The forward-looking statements, including the statements contained in Item 3D “Risk Factors”, Item 4B “Business Overview”, Item 5 “Operating and Financial Review and Prospects” and Item 11 “Quantitative and Qualitative Disclosures About Market Risk”, involve known and unknown risks, uncertainties and other factors which may cause the Company’s actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such statements. Forward-looking statements include statements regarding the outlook for the Company’s future operations, plans and timing for the Company’s exploration programs, statements about future market conditions, supply and demand conditions, forecasts of future costs and expenditures, the outcome of legal proceedings, and other expectations, intentions and plans that are not historical facts.
You are cautioned that forward-looking statements are not guarantees. The risks and uncertainties that could cause the Company’s actual results to differ materially from those expressed or implied by the forward-looking statements include:
· | changes in general economic and business conditions, including commodity prices, costs associated with mineral exploration and development, changes in interest rates and the availability of financing on reasonable terms; |
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· | natural phenomena, including geological and meteorological phenomena; |
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· | actions by government authorities, including changes in government regulation and permitting requirements; |
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· | uncertainties associated with legal proceedings; |
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· | future decisions by management in response to changing conditions; |
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· | the Company’s ability to execute prospective business plans; and |
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· | misjudgments in the course of preparing forward-looking statements. |
The Company advises you that these cautionary remarks expressly qualify, in their entirety, all forward-looking statements attributable to Quartz Mountain or persons acting on the Company’s behalf. The Company assumes no obligation to update the Company’s forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such statements. You should carefully review the cautionary statements and risk factors contained in this and other documents that the Company files from time to time with the Securities and Exchange Commission.
ITEM 1 IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable for an annual report.
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ITEM 2 OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable for an annual report.
ITEM 3 KEY INFORMATION
A. SELECTED FINANCIAL DATA
The following tables summarize selected financial data for the Company (stated in Canadian dollars) prepared, in respect of the years ended July 31, 2021 and July 31, 2020, in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) (“IFRS-IASB”).
As permitted by SEC Release No. 33-8879 “Acceptance from Foreign Private Issuers of Financial Statements Prepared in Accordance with International Reporting Standards without Reconciliation to U.S. GAAP”, the Company includes selected financial data prepared in compliance with IFRS-IASB without reconciliation to U.S. GAAP.
The selected financial data of the Company for the fiscal years presented was derived from the consolidated financial statements of the Company that have been audited by Davidson & Company LLP, independent Registered Public Accountants, as indicated in their audit report which is included at Exhibit 99.1 in this Annual Report.
The auditors conducted their audits in accordance with United States and Canadian generally accepted auditing standards, and the standards of the Public Company Accounting Oversight Board (United States).
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| Year ended July 31, 2021 |
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| Year ended July 31, 2020 |
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| Year ended July 31, 2019 |
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| Year ended July 31, 2018 |
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| Year ended July 31, 2017 |
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Sales revenue |
| $ | – |
|
| $ | – |
|
| $ | – |
|
| $ | – |
|
| $ | – |
|
Loss (income) from operating expenses |
| $ | 254,168 |
|
| $ | 249,442 |
|
| $ | 149,170 |
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| $ | 236,319 |
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| $ | 201,081 |
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Loss (income) and comprehensive loss (income) |
| $ | 116,419 |
|
| $ | (2,524,763 | ) |
| $ | 153,715 |
|
| $ | 234,467 |
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| $ | 199,953 |
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Basic loss (earnings) per common share |
| $ | 0.00 |
|
| $ | (0.16 | ) |
| $ | 0.02 |
|
| $ | 0.02 |
|
| $ | 0.02 |
|
Diluted loss (earnings) per common share |
| $ | 0.00 |
|
| $ | (0.13 | ) |
| $ | 0.02 |
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| $ | 0.02 |
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| $ | 0.02 |
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Dividends per share |
| $ | – |
|
| $ | – |
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| $ | – |
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| $ | – |
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| $ | – |
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Working capital |
| $ | 117,847 |
|
| $ | 138,550 |
|
| $ | (2,995,655 | ) |
| $ | (2,841,940 | ) |
| $ | (3,066,336 | ) |
Total assets |
| $ | 598,556 |
|
| $ | 218,559 |
|
| $ | 80,562 |
|
| $ | 75,034 |
|
| $ | 232,153 |
|
Shareholder’s deficiency (equity) |
| $ | (463,515 | ) |
| $ | (138,551 | ) |
| $ | 2,995,654 |
|
| $ | 2,841,939 |
|
| $ | 3,066,335 |
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Share capital |
| $ | 27,599,806 |
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| $ | 27,158,423 |
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| $ | 26,548,981 |
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| $ | 26,548,981 |
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| $ | 26,090,118 |
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Shares outstanding |
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| 31,205,049 |
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| 25,477,776 |
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| 3,347,137 |
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| 3,347,137 |
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| 2,929,989 |
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Currency and Exchange Rates
On November 25, 2021 the rate of exchange of the Canadian dollar, based on the daily noon rate in Canada as published by the Bank of Canada, was [US$1 = Canadian $1.3083].
The following tables set out the exchange rates, based on the daily noon rates in Canada as published by Bank of Canada for the conversion of Canadian dollars per U.S. dollar.
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| For the fiscal year ended July 31, (Canadian Dollars per U.S. Dollar) |
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| 2021 |
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| 2020 |
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| 2019 |
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| 2018 |
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| 2017 |
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End of Period |
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| 1.2462 |
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| 1.3404 |
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| 1.3193 |
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| 1.3008 |
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| 1.2485 |
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Average for the Period (1) |
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| 1.2741 |
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| 1.3463 |
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| 1.3235 |
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| 1.2760 |
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| 1.3237 |
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High for the Period |
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| 1.3404 |
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| 1.4496 |
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| 1.3641 |
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| 1.3137 |
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| 1.3743 |
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Low for the Period |
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| 1.2040 |
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| 1.2970 |
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| 1.2815 |
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| 1.2314 |
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| 1.2447 |
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(1) The average rate for each period is the average of the daily noon rates on the last day of each month during the period.
Monthly High and Low Exchange Rate (Canadian Dollars per U.S. Dollar) | ||||||||
Month |
| High |
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| Low |
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October 2021 |
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| 1.2654 |
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| 1.2329 |
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September 2021 |
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| 1.2828 |
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| 1.2518 |
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August 2021 |
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| 1.2856 |
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| 1.2497 |
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July 2021 |
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| 1.2759 |
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| 1.2343 |
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June 2021 |
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| 1.2419 |
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| 1.2040 |
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B. CAPITALIZATION AND INDEBTEDNESS
Not applicable.
C. REASONS FOR THE OFFER AND USE OF PROCEEDS
Not applicable.
D. RISK FACTORS
The risk factors associated with the principal business of the Company are discussed below. The Company does not currently hold any mineral properties but is looking for new opportunities. If it acquires a new mineral property(s), the Company would be subject to the highly speculative nature of the resources industry characterized by the requirement for large capital investments from an early stage and a very small probability of finding economic mineral deposits. In addition to the general risks of mining, there are country-specific risks, including currency, political, social, permitting and legal risk. An investor should carefully consider the risks described below and the other information that Quartz Mountain furnishes to, or files with, the Securities and Exchange Commission and with Canadian securities regulators before investing in Quartz Mountain’s common shares, and should not consider an investment in Quartz Mountain unless the investor is capable of sustaining an economic loss of the entire investment. The Company’s actual exploration and operating results may be very different from those expected as at the date of this MD&A.
Going Concern Assumption
The Company’s financial statements have been prepared assuming the Company will continue on a going concern basis. However, unless additional funding is obtained, this assumption will have to change. The Company has positive working capital, and incurred losses since inception. Failure to continue as a going concern would require that Quartz Mountain’s assets and liabilities be restated on a liquidation basis, which could differ significantly from the going concern basis.
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Additional Funding Requirements
Further development of the Company’s continued operations will require additional capital. The Company currently does not have sufficient funds to explore the properties it holds. It is possible that the financing required by the Company will not be available, or, if available, will not be available on acceptable terms. If the Company does issue treasury shares to finance its operations or expansion plans, shareholders will suffer dilution of their investment and control of the Company may change. If adequate funds are not available, or are not available on acceptable terms, the Company will not be able to remain in business. In addition, a positive production decision at any of the Company’s current projects or any other development projects acquired in the future will require significant resources and funding for project engineering and construction. Accordingly, any development of the Company’s properties depends upon the Company’s ability to obtain financing through debt financing, equity financing, the joint venturing, or disposition of its current projects, or other means. There is no assurance that the Company will be successful in obtaining financing for these or other purposes, including for general working capital.
Future Profits/Losses and Production Revenues/Expenses
The Company has no history of mining operations or earnings, and expects that its losses and negative cash flow will continue for the foreseeable future. The Company does not currently hold a mineral property and there can be no assurance that the Company will, if needed, be able to acquire a property(s) of sufficient technical merit to represent a compelling investment opportunity. If the Company is unable to acquire a property(s), its entire prospects will rest solely with its current net smelter royalty interest in the Angel Camp Project and accordingly, the risk of being unable to identify a mineral deposit will be higher than if the Company had additional properties to explore. There can be no assurance that the Company will ever be profitable in the future. The Company’s operating expenses and capital expenditures may increase in subsequent years as consultants, personnel and equipment associated with advancing exploration, development and commercial production of any properties that the Company may acquire are added. The amounts and timing of expenditures will depend on the progress of on-going exploration, the results of consultants’ analyses and recommendations, the rate at which operating losses are incurred, the execution of any joint venture agreements with strategic partners, and the Company’s acquisition of a property(s) and other factors, many of which are beyond the Company’s control. The Company does not expect to receive revenues from operations in the foreseeable future, and expects to incur losses unless and until such time as it acquires a property(s), commence commercial production, and generate sufficient revenues to fund its continuing operations. The development of any properties the Company may acquire will require the commitment of substantial resources to conduct the time-consuming exploration and development of properties. The Company anticipates that it would retain any cash resources and potential future earnings for the future operation and development of the Company’s business. The Company has not paid dividends since incorporation and the Company does not anticipate paying any dividends in the foreseeable future. There can be no assurance that the Company will generate any revenues or achieve profitability. There can be no assurance that the underlying assumed levels of expenses will prove to be accurate. To the extent that such expenses do not result in the creation of appropriate revenues, the Company’s business will be materially adversely affected. It is not possible to forecast how the business of the Company will develop.
Exploration, Development and Mining Risks
Resource exploration, development, and operations are highly speculative, characterized by a number of significant risks, which even a combination of careful evaluation, experience and knowledge may not reduce, including among other things, unsuccessful efforts resulting not only from the failure to discover mineral deposits but from finding mineral deposits which, though present, are insufficient in quantity and quality to return a profit from production. Few properties that are explored are ultimately developed into producing mines. Unusual or unexpected formations, formation pressures, fires, power outages, labor disruptions, flooding, explosions, cave-ins, landslides, and the inability to obtain suitable or adequate machinery, equipment, or labor are other risks involved in the operation of mines and the conduct of exploration programs. The Company will rely upon consultants and others for exploration, development, construction, and operating expertise. Substantial expenditures are required to establish mineral resources and mineral reserves through drilling, to develop metallurgical processes to extract the metal from mineral resources, and in the case of new properties, to develop the mining and processing facilities and infrastructure at any site chosen for mining.
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No assurance can be given that minerals will be discovered in sufficient quantities to justify commercial operations or that funds required for development can be obtained on a timely basis. Whether a mineral deposit will be commercially viable depends on a number of factors, some of which are: the particular attributes of the deposit, such as size, grade and proximity to infrastructure; metal prices, which are highly cyclical; and government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals, and environmental protection. The exact effect of these factors cannot accurately be predicted, but the combination of these factors may result in the Company not receiving an adequate return on investedcapital.
Permits and Licenses
If the Company acquires a new mineral property(s), its operations would require licenses and permits from various governmental authorities. There can be no assurance that the Company will be able to obtain all necessary licenses and permits which may be required to carry out exploration and development for the Company’s Projects.
Changes in Local Legislation or Regulation
Any mining and processing operations that may be acquired and any exploration activities that might be conducted would be subject to extensive laws and regulations governing the protection of the environment, exploration, development, production, exports, taxes, labor standards, occupational health, waste disposal, toxic substances, mine and worker safety, protection of endangered and other special status species and other matters. The Company’s ability to obtain permits and approvals and to successfully operate in particular communities may be adversely impacted by real or perceived detrimental events associated with the Company’s activities or those of other mining companies affecting the environment, human health and safety of the surrounding communities. Delays in obtaining or failure to obtain government permits and approvals may adversely affect the Company’s operations, including its ability to explore or develop properties, commence production or continue operations. Failure to comply with applicable environmental and health and safety laws and regulations may result in injunctions, fines, suspension, or revocation of permits and other penalties. The costs and delays associated with compliance with these laws, regulations and permits could prevent the Company from proceeding with the development of a project or the operation or further development of a mine or increase the costs of development or production and may materially adversely affect the Company’s business, results of operations or financial condition. The Company may also be held responsible for the costs of addressing contamination at the site of current or former activities or at third party sites. The Company could also be held liable for exposure to hazardous substances.
Environmental Matters
All of the operations that the Company might acquire would be subject to environmental regulations, which can make operations expensive or prohibit them altogether. The Company may be subject to potential risks and liabilities associated with pollution of the environment and the disposal of waste products that could occur because of its mineral exploration, development, and production. In addition, environmental hazards may exist on a property in which the Company directly or indirectly holds an interest, which are unknown to the Company at present and have been caused by previous or existing owners or operators of the Company’s projects. Environmental legislation provides for restrictions and prohibitions on spills, releases or emissions of various substances produced in association with certain mining industry operations that would result in environmental pollution. A breach of such legislation may result in the imposition of fines and penalties, or the requirement to remedy environmental pollution, which would reduce funds otherwise available to the Company and could have a material adverse effect on the Company. If the Company is unable to remedy an environmental problem, it could be required to suspend operations or undertake interim compliance measures pending completion of the required remedy, which could have a material adverse effect on the Company.
There is no assurance that future changes in environmental regulation, if any, will not adversely affect the Company’s operations. There is also a risk that the environmental laws and regulations may become more onerous, making the Company’s operations more expensive. Many of the environmental laws and regulations will require the Company to obtain permits for its activities. The Company will be required to update and review its permits from time to time, and may be subject to environmental impact analyses and public review processes prior to approval of the additional activities. It is possible that future changes in applicable laws, regulations, and permits or changes in their enforcement or regulatory interpretation could have a significant impact on some portion of the Company’s business, causing those activities to be economically re-evaluated at that time.
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Groups Opposed to Mining May Interfere with the Company’s Efforts to Explore and Develop its Properties
Organizations opposed to mining may be active in the regions in which the Company conducts its exploration activities. Although the Company intends to comply with all environmental laws and maintain good relations with local communities, there is still the possibility that those opposed to mining will attempt to interfere with the development of any property(s) the Company might acquire. Such interference could have an impact on the Company’s ability to explore and develop its properties in a manner that is most efficient or appropriate, or at all and any such impact could have a material adverse effect on the Company’s financial condition and the results of its operations.
Market for Securities and Volatility of Share Price
There can be no assurance that an active trading market in the Company’s securities will be established or sustained. The market price for the Company’s securities is subject to wide fluctuations. Factors such as announcements of exploration results, as well as market conditions in the industry or the economy as a whole, may have a significant adverse impact on the market price of the securities of the Company.
The stock market has from time to time experienced extreme price and volume fluctuations that have often been unrelated to the operating performance of particular companies.
Conflicts of Interest
The Company’s directors and officers may serve as directors or officers of other companies, joint venture partners, or companies providing services to the Company or they may have significant shareholdings in other companies. Situations may arise where the directors and/or officers of the Company may be in competition with the Company. Any conflicts of interest will be subject to and governed by the law applicable to directors’ and officers’ conflicts of interest. In the event that such a conflict of interest arises at a meeting of the Company’s directors, a director who has such a conflict will abstain from voting for or against the approval of such participation or such terms. In accordance with applicable laws, the directors of the Company are required to act honestly, in good faith and in the best interests of the Company.
General Economic Conditions
Global financial markets have experienced a sharp increase in volatility during the last few years. Market conditions and unexpected volatility or illiquidity in financial markets may adversely affect the prospects of the Company and the value of the Company’s shares.
Reliance on Key Personnel
The Company is dependent on the continued services of its senior management team, and its ability to retain other key personnel. The loss of such key personnel could have a material adverse effect on the Company. There can be no assurance that any of the Company’s employees will remain with the Company or that, in the future, the employees will not organize competitive businesses or accept employment with companies competitive with the Company.
There can be no assurance that the Company will be able to attract, train, or retain qualified personnel in the future, which would adversely affect its business.
Competition
The resources industry is highly competitive in all its phases, and the Company will compete with other mining companies, many of which have greater financial, technical, and other resources. Competition in the mining industry is primarily for attractive mineral rich properties capable of being developed and producing economically; the technical expertise to find, develop, and operate such properties; the labor to operate the properties; and the capital for the purpose of funding such properties. Many competitors not only explore for and mine certain minerals, but also conduct production and marketing operations on a worldwide basis. Such competition may result in the Company being unable to acquire desired properties, to recruit or retain qualified employees or to acquire the capital necessary to fund its operations and develop any property(s) the Company might acquire. The Company’s inability to compete with other mining companies for these resources could have a materially adverse effect on the Company’s results of operation and its business.
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Uninsurable Risks
In the course of exploration, development and production of mineral properties, certain risks, and in particular, unexpected or unusual geological operating conditions including rock bursts, cave ins, fires, flooding and earthquakes may occur. It is not always possible to fully insure against such risks and the Company may decide not to take out insurance against such risks because of high premiums or other reasons.
The Mineral Property Underlying the Company’s Net Smelter Return Royalty Interest Contains no Known Ore
The Company holds a 1% net smelter return (“NSR”) royalty interest on the Quartz Mountain Property (recently renamed “Angel’s Camp”), an exploration stage prospect in Oregon. The Company’s interest in the property will be limited to any future NSR that would be forthcoming only if or when any mining commences on the property. There is currently no known body of ore on the property. Extensive additional exploration work will be required to ascertain if any mineralization may be economic.
Likely PFIC status has consequences for United States investors
Potential investors who are U.S. taxpayers should be aware that the Company expects to be classified for U.S. tax purposes as a passive foreign investment company (“PFIC”) for the current fiscal year, and may also have been a PFIC in prior years and may be a PFIC in future years. If the Company is a PFIC for any year during a U.S. taxpayer’s holding period, then such U.S. taxpayer generally will be required to treat any so-called “excess distribution” on its common shares, or any gain realized upon a disposition of common shares, as ordinary income which would be taxed at the shareholder’s highest marginal rates and to pay an interest charge on a portion of such distribution or gain, unless the taxpayer has made a timely qualified electing fund (“QEF”) election or a mark-to-market election with respect to the shares of the Company. In certain circumstances, the sum of the tax and the interest charge may exceed the amount of the excess distribution received, or the amount of proceeds of disposition realized, by the taxpayer. A U.S. taxpayer who makes a QEF election generally must report on a current basis its share of the Company’s net capital gain and ordinary earnings for any year in which the Company is a PFIC, whether or not the Company distributes any amounts to its shareholders. A U.S. taxpayer who makes the mark-to-market election generally must include as ordinary income each year the excess of the fair market value of the common shares over the taxpayer’s tax basis therein. See also Item 10E – “Passive Foreign Investment Company”.
Potential investors should also note that recently enacted legislation may require U.S. shareholders to report their interest in a PFIC on an annual basis. US shareholders of the Company should consult their tax advisors as to these reporting requirements as well as the consequences of investing in the Company.
Penny stock classification
Penny stock classification could affect the marketability of the Company’s common stock and shareholders could find it difficult to sell their stock
The penny stock rules in the United States require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation.
Further, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from such rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These additional broker-dealer practice and disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the Company’s common shares in the U.S., and shareholders may find it more difficult to sell their shares.
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ITEM 4 INFORMATION ON THE COMPANY
A. HISTORY AND DEVELOPMENT OF THE COMPANY
Incorporation
The legal name of the Company is “Quartz Mountain Resources Ltd.”
Quartz Mountain Resources Ltd. was incorporated on August 3, 1982, in British Columbia, Canada, and it continues to subsist under the laws of the Province of British Columbia.
The Company was originally incorporated as Wavecrest Resources Ltd. but changed its name to Quartz Mountain Gold Corp. on June 18, 1986. On November 5, 1997, the name of the Company was changed from Quartz Mountain Gold Corp. to Quartz Mountain Resources Ltd., and the common shares were consolidated on a ten-old-for-one-new share basis.
Market for the Company’s Securities
The Company’s common shares were quoted on NASDAQ SmallCap Market in the United States from September 17, 1987 until May 12, 1994. The Company’s common shares were also listed on the Toronto Stock Exchange until November 10, 1994. The Company voluntarily surrendered its listing on the Vancouver Stock Exchange.
In 2000, the Company listed on a newly created Tier 3 of the Canadian Venture Exchange (now renamed the TSX Venture Exchange (“TSX-V”)). In December 2003, the Company was reclassified as a Tier 2 company on the TSX-V. On February 17, 2005, the Company transferred its listing to NEX, a separate board of the TSX-V established in 2003 to provide a new trading forum for listed companies that had fallen below the TSX-V’s continued listing standards, due to low levels of business activity.
The Company was relisted on the TSX-V on December 30, 2011.
Currently, the Company’s common shares trade on the TSX-V under the symbol QZM, and certain broker-dealers in the United States make market in the Company’s common shares on the OTC Grey Market under the symbol QZMRF.
Offices
The Company’s business office is located at 14th Floor, 1040 West Georgia Street, Vancouver, British Columbia V6E 4H1; telephone (604) 684-6365. The Company’s registered office is Suite 1500 – 1055 West Georgia Street, Vancouver, British Columbia V6E 4N7, telephone (604) 689-9111.
B. BUSINESS OVERVIEW
The Company’s Business Strategy and Principal Activities
Quartz Mountain has been in the business of exploring and developing mineral properties. The Company’s activities on the properties have been primarily focused on ascertaining whether the properties host commercially viable mineral deposits.
In the first three years of its existence, the Company was active in the exploration of small gold and silver prospects in Canada, but none of these prospects warranted further exploration or development. In 1986, the Company acquired the Quartz Mountain gold property, located in south central Oregon, and until January 2002, most of the Company’s efforts were expended on the exploration and maintenance of these claims. The Company’s interests in the Quartz Mountain gold property, and in its other properties, were acquired by direct purchase, lease, and option, or through joint ventures.
The Company sold the Quartz Mountain gold property during 2002, to Seabridge Resources Ltd. and Seabridge Resources Inc. (collectively “Seabridge”). Seabridge subsequently changed its name to Seabridge Gold Inc. At closing, Quartz Mountain received 300,000 Seabridge common shares, 200,000 Seabridge common share purchase warrants, US$100,000, and a 1% NSR from any future production on the Quartz Mountain gold property. The Seabridge warrants were exercised and all Seabridge common shares held by the Company have been sold. The Company’s interest in the Quartz Mountain gold property is limited to the 1% NSR royalty. The Company does not expect to generate any royalty revenue from the Quartz Mountain gold property (renamed “Angel’s Camp” by its subsequent owners) for several years, and it is not known at this time when any mining will commence, if at all, on that property.
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Following the sale of the Quartz Mountain gold property, the Company continued in its efforts to find a suitable mineral property for potential acquisition and exploration during the period of 2002 to 2011.
In December 2011, the Company acquired an option to earn a 100% interest in the Buck gold-silver property near the town of Houston in central British Columbia (the “Buck Project”). Concurrently with the Buck Project acquisition, the Company completed a $4.2 million private placement financing and began trading on the TSX-V. Exploration programs were carried out at Buck in 2011 and 2012, confirming targets. Difficult financing conditions for junior companies in 2013 necessitated that the Company limit its exploration expenditures and prioritize its property holdings. As a result, Quartz Mountain terminated its option on the Buck Project in July 2013.
In August 2012, the Company acquired 100% of the Galaxie copper-gold property in northwestern British Columbia (the “Galaxie Project”), and carried out exploration programs in 2012 at five new prospects within the property as well as at the Gnat porphyry copper deposit.
Quartz Mountain acquired the ZNT Project by utilizing British Columbia’s on-line mineral tenure system in 2012. The ZNT Project is located 15 kilometers southeast of the town of Smithers, British Columbia. Exploration in 2012 and 2013 has identified potential for the discovery of a bulk tonnage silver deposit at ZNT.
In November 2012, Quartz Mountain entered into an option and joint venture agreement with Amarc Resources Ltd. (“Amarc”) pursuant to which Amarc could earn a 40% ownership interest, with an option to acquire an additional 10% ownership interest, in the Galaxie and ZNT Projects. Amarc gained an initial 40% interest in the Galaxie and ZNT Projects by funding a drilling program at Gnat porphyry copper deposit at the Galaxie Project in late 2012. In June 2013, Quartz Mountain and Amarc entered into an amendment agreement through which Amarc had an option until October 31, 2013 to earn a 60% interest in each of the ZNT and Galaxie properties, by making certain property expenditures. Amarc earned a 60% interest in the ZNT Project but earned only a 40% interest in the Galaxie Project. In April 2014, Amarc terminated joint ventures with the Company and returned earned interests in the Galaxie and ZNT Projects in British Columbia and Quartz Mountain owned 100% of the Galaxie and ZNT Projects.
After carrying out exploration in 2012 and 2013, the ZNT Project did not warrant further work. The mineral claims comprising the property were allowed to lapse subsequent to the year ended July 31, 2016.
Work was also conducted at the Galaxie Project in 2012 and 2013 but, largely because of the prevailing difficult market conditions for mineral exploration companies, the Company has since been unable to secure a joint venture or option agreement to further advance exploration. As a result, during the year ended July 31, 2016, three mineral claims were returned to a vendor and the remaining mineral claims comprising the property were allowed to lapse subsequent to year-end.
The Company is currently investigating new opportunities.
The Company does not have any operating revenue and anticipates that it will rely on sales of its equity securities in order to finance its acquisition and exploration activities.
C. MINERAL PROPERTIES
Angel’s Camp Property
During the year ended July 31, 2002, the Company sold 100% of its title, rights and interest in the Angel’s Camp property located in Lake County, Oregon to Seabridge Resources Inc. (“Seabridge”), which later changed its name to Seabridge Gold Inc., for 300,000 common shares of Seabridge (sold in prior years), 200,000 common share purchase warrants of Seabridge (exercised and sold in prior years), cash of $100,000, and a 1% net smelter return royalty payable to the Company on any production from the Angel’s Camp property.
In 2003, Seabridge optioned a 50% interest in the property to Quincy Gold Inc., which later changed its name to Golden Predator Mines Inc., then to Golden Predator Royalty & Development Corporation, then to Golden Predator Corporation, and is now named Americas Bullion Royalty Corp(TSX:AMB).
In April 2012, Orsa Ventures Corp. (“Orsa”) (TSX-V: ORN) exercised its option to acquire all of Seabridge’s remaining undivided 50% beneficial joint venture interest in the Angel’s Camp property. In March 2013, Orsa announced it had entered into an agreement with Americas Bullion Royalty Corp. to acquire, over a number of years, the 50% of Angel’s Camp that it did not own. Additionally, in March 2013 Orsa announced that it had received regulatory approval for, and fulfilled closing requirements for the joint venture purchase agreement with Americas Bullion Royalty Corp. to acquire their 50% joint venture interest in the Angel’s Camp Property.
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In September 2013, Alamos Gold Inc. reported the completion of the acquisition of all of the issued and outstanding common shares of Orsa Ventures Corp.
The Company retained a 1% net smelter return royalty (the “NSR Royalty”) payable to the Company on any production from the Angel’s Camp property.
On February 1, 2021, the Company entered into an agreement for the sale of 100% of the NSR Royalty on the Angel’s Camp property for US$150,000 to an arms-length purchaser. This transaction was closed on February 4, 2021.
Other Properties
After carrying out exploration in 2012 and 2013, the ZNT Project did not warrant further work. The mineral claims comprising the property lapsed during the year ended July 31, 2016.
Work was conducted at the Galaxie Project in 2012 and 2013 but, largely because of the prevailing difficult market conditions for mineral exploration companies, the Company has since been unable to secure a joint venture or option agreement to further advance exploration. As a result, three mineral claims were returned to a vendor and the remaining mineral claims comprising the property were allowed to lapse.
Maestro (formerly Lone Pine) Property
On June 8, 2021, the Company entered into a mineral claims purchase agreement to purchase nine mineral claims located near Houston, British Columbia for $105,000 in cash and 1,000,000 shares in the capital of the Company, subject to TSX Venture Exchange approval.
The claims are subject to a 2.5% NSR which can be bought-down to 1% for $1.5 million, and this NSR is subject to an annual advance payment of $25,000. There are no required work commitments for these claims as this transaction is not an option on the mineral claims.
Jake Property
On November 5, 2021, the Company entered into a mineral claims purchase agreement with United Mineral Services Ltd. to acquire 100% interest in the Jake mineral property consisted of four staked claims (the “Jake Property”) and obtained an additional option to purchase 100% of five adjacent claims owned by an arm’s length third party. The Jake Property is located approximately 162 km north of Smithers, British Columbia.
The total cash consideration the Company required to pay the vendor is $200,000 and to be paid out according to the following schedule: $50,000 immediately on the date of receipt of TSX Venture Exchange conditional approval of this transaction (“TSX-V Approval Date”); $50,000 on or before the date that is six months after the TSX-V Approval Date; $50,000 on or before the date that is twelve months after the TSX-V Approval Date and $50,000 on or before the date that is eighteen months after the TSX-V Approval Date. The Company will also be required to make payments of $125,000 over two years to the third party in connection with the additional option. The Company is currently awaiting TSX Venture Exchange approval for this acquisition.
D. ORGANIZATIONAL STRUCTURE
The Company operates in a single reportable operating segment – the acquisition, exploration, and development of mineral property interests. The Company is currently focused on the acquisition and exploration of mineral property interests in Canada, and conducts most of its business affairs through its Canadian parent entity.
The Company has two inactive wholly owned subsidiaries, QZMG Resources Ltd., a Nevada corporation who owns 100% interest in Wavecrest Resources Inc., a Delaware corporation.
E. PROPERTY, PLANT AND EQUIPMENT
The Company has no material tangible fixed assets, such as mining equipment or plant facilities.
F. CURRENCY
All currency amounts in this Annual Report are stated in Canadian dollars unless otherwise indicated (see Item 3 for exchange rate information).
ITEM 4A UNRESOLVED STAFF COMMENTS
Not applicable.
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ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS
OVERVIEW
Effective May 27, 2020, the Company completed a forward share split (the “Share Split”) on the basis of two additional common shares for every common share outstanding prior to the Share Split. Outstanding warrants were adjusted by the same share split ratio. All references to shares and per share amounts have been retroactively restated to give effect to the Share Split.
During fiscal 2020, the Company completed a private placement financing, a settlement of debt owed to a related party and forward share split.
The Company’s financial statements are prepared on the basis that it will continue as a going concern. The Company has incurred losses since inception, and the ability of the Company to continue as a going concern depends upon its ability to continue to raise adequate financing and to develop profitable operations. Quartz Mountain’s financial statements do not reflect adjustments, which could be material, to the carrying values of assets and liabilities, which may be required should the Company not be able to continue as a going concern.
The following discussion should be read in conjunction with the audited annual consolidated financial statements for the years ended July 31, 2021, 2020 and 2019 and the related notes accompanying this Annual Report. The Company prepares its financial statements in accordance with IFRS. The Company includes selected financial data prepared in compliance with IFRS without reconciliation to U.S. GAAP.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The required disclosure is provided in note 2 of the accompanying audited financial statements as of and for the year ended July 31, 2021, which are presented in Exhibit 99.1 of this Annual Report on Form 20-F.
A. OPERATING RESULTS
Comprehensive income (loss) for the year ended July 31, 2021 vs. 2020
The Company recorded a loss from operations of $116,419 during the current fiscal year (2020 – income of $2,524,763). The loss incurred in fiscal 2021 as opposed to income in fiscal 2020 was due to the gain of $2,779,882 on debt settlement in fiscal 2020 which was a one-time event.
$90,907 of exploration and evaluation expenses costs were incurred during the year ended July 31, 2020 (2020 -nil). During fiscal 2021, the Company identified and focused on certain targeted projects in British Columbia, Canada which resulted in incurring the exploration and evaluation expenses in fiscal 2021.
The following table provides a breakdown of the exploration and evaluation expenses incurred:
Exploration and evaluation expenses |
| 2021 |
|
| 2020 |
| ||
Assay and analysis |
| $ | 4,769 |
|
| $ | – |
|
Geological |
|
| 37,478 |
|
|
| – |
|
Helicopter and fuel |
|
| 29,520 |
|
|
| – |
|
Property costs and assessments |
|
| 3,752 |
|
|
| – |
|
Site activities |
|
| 13,381 |
|
|
| – |
|
Travel and accommodation |
|
| 2,007 |
|
|
| – |
|
Total |
| $ | 90,907 |
|
| $ | – |
|
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The following table provides a breakdown of the administration costs incurred:
General and Administration costs |
| 2021 |
|
| 2020 |
| ||
Administrative fees |
| $ | 38,382 |
|
| $ | 77,603 |
|
Insurance |
|
| 29,989 |
|
|
| 35,730 |
|
IT Services |
|
| 12,000 |
|
|
| 12,000 |
|
Legal, accounting and audit |
|
| 44,718 |
|
|
| 29,885 |
|
Office and miscellaneous |
|
| 10,299 |
|
|
| 1,572 |
|
Property investigation |
|
| – |
|
|
| 23,275 |
|
Regulatory, trust and filing |
|
| 27,873 |
|
|
| 64,233 |
|
Shareholder communications |
|
| – |
|
|
| 5,144 |
|
Total |
| $ | 254,168 |
|
| $ | 249,442 |
|
Administrative costs in 2021 were at similar level as 2020.
Comprehensive income (loss) for the year ended July 31, 2020 vs. 2019
The Company recorded an income from operations of $2,524,763 during fiscal 2020 (2019 – loss of $153,715). The increase in income in fiscal 2020 was due to the gain of $2,779,882 on debt settlement.
$23,275 of property investigation costs were incurred during the year ended July 31, 2020 (2019 - $nil).
The following table provides a breakdown of the administration costs incurred:
General and Administration costs |
| 2020 |
|
| 2019 |
| ||
Administrative fees |
| $ | 77,603 |
|
| $ | 50,406 |
|
Insurance |
|
| 35,730 |
|
|
| 31,779 |
|
IT Services |
|
| 12,000 |
|
|
| 12,000 |
|
Legal, accounting and audit |
|
| 29,885 |
|
|
| 20,306 |
|
Office and miscellaneous |
|
| 1,572 |
|
|
| 1,245 |
|
Property investigation |
|
| 23,275 |
|
|
| – |
|
Regulatory, trust and filing |
|
| 64,233 |
|
|
| 28,682 |
|
Shareholder communications |
|
| 5,144 |
|
|
| 4,752 |
|
Total |
| $ | 249,442 |
|
| $ | 149,170 |
|
Administrative costs have increased from 2019 as the Company had several capital restructuring and financing activities during fiscal 2020 and began to search for the next mineral project.
B. LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company’s source of funding has been the issuance of equity securities for cash, primarily through private placements to sophisticated investors and institutions. The Company continues evaluating mineral prospects for potential acquisition and exploration in British Columbia. The Company’s continuing operations are dependent upon new projects, the ability of the Company to obtain the necessary financing to complete exploration of any new projects, the ability to obtain the necessary permits to explore, develop, and mine new projects, and the future profitable production of any mine. These material uncertainties raise substantial doubt on the ability of the Company to continue as a going concern.
At July 31, 2021, the Company had an accumulated deficit of $27,728,302 and has a working capital of $117,847.
In January 2016, the Company arranged with Hunter Dickinson Services Inc. (“HDSI”) to settle debt owing for services provided by HDSI whereby HDSI would forgive debt in the net amount owing at that time of $3,086,089, if the Company made a cash payment of $180,207 and issued 1,800,000 shares (pre- forward split basis of 600,000 shares) to HDSI. The TSX Venture Exchange approved the transaction with HDSI, the cash payment has been made, and issuance of the shares to HDSI was executed in December 2019. Additional debt or equity financing will be required to fund exploration or development programs. However, there can be no assurance that the Company will continue to obtain additional financial resources or that it will be able to achieve positive cash flows.
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Financial market conditions for junior exploration companies have resulted in very depressed equity prices. A further and continued deterioration in market conditions will increase the cost of obtaining capital and significantly limit the availability of funds to the Company in the future. Accordingly, management is actively monitoring the effects of the current economic and financing conditions on the Company’s business and reviewing discretionary spending, capital projects and operating expenditures, and implementing cash and cash management strategies.
Capital Resources
The Company had no material commitments for capital expenditures as at July 31, 2021.
The Company has no lines of credit or other sources of financing which have been arranged but are as of yet, unused.
At July 31, 2021, there were no externally imposed capital requirements to which the Company is subject and with which the Company has not complied.
Requirement of Financing
The Company is in the process of assessing mineral property interests held by third parties for potential acquisition. The Company’s continuing operations are entirely dependent upon the existence of economically recoverable mineral reserves, the ability of the Company to obtain the necessary financing to complete the exploration and development of these projects, obtaining the necessary permits to mine, on future profitable production of any mine and the proceeds from the disposition of the mineral property interests.
Additional debt or equity financing will be required to fund additional exploration or development programs. The Company has a reasonable expectation that additional funds will be available when necessary to meet ongoing exploration and development costs. However, there can be no assurance that the Company will continue to obtain additional financial resources and/or achieve profitability or positive cash flows, which raises substantial doubt on the ability of the Company to continue as a growing concern. If the Company is unable to obtain adequate additional financing, the Company will be required to re-evaluate its planned expenditures until additional funds can be raised through financing activities.
The Company has no “Purchase Obligations” defined as any agreement to purchase goods or services that is enforceable and legally binding on the Company that specifies all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction.
C. RESEARCH EXPENDITURES
Quartz Mountain does not carry out any research or development activities. Please refer to Item 5A and Item 5B above for a discussion of the expenditures that the Company has incurred in connection with its business activities.
D. TREND INFORMATION
The Company does not currently hold any properties.
E. OFF – BALANCE SHEET ARRANGEMENTS
Quartz Mountain has no off-balance sheet arrangements.
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F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
The following obligations existed at July 31, 2021:
|
| Payments due by period |
| |||||||||||||
|
| Total |
|
| Less than 1 year |
|
| 1-5 years |
|
| After 5 years |
| ||||
Amounts payable and other liabilities |
| $ | 24,243 |
|
| $ | 24,243 |
|
| $ | – |
|
| $ | – |
|
Due to a related party |
|
| 25,367 |
|
|
| 25,367 |
|
|
| – |
|
|
| – |
|
Lease liability |
|
| 48,799 |
|
|
| 7,466 |
|
|
| 41,333 |
|
|
| – |
|
Total |
| $ | 98,409 |
|
| $ | 57,076 |
|
| $ | 41,333 |
|
| $ | – |
|
The Company has no material capital lease or operating lease obligations. The Company has no “Purchase Obligations”, defined as any agreement to purchase goods or services that is enforceable and legally binding on the Company that specifies all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction.
G. SAFE HARBOR
The safe harbor provided in Section 27A of the Securities Act and Section 21E of the Exchange Act applies to forward-looking information provided pursuant to Item 5E and Item 5F above.
ITEM 6 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. DIRECTORS AND SENIOR MANAGEMENT
Leonie Tomlinson (1964) – Director
Leonie Tomlinson is a professional director and experienced business executive who over the course of her career has advised numerous private and public companies on investment structuring, corporate governance, financial reporting, HR matters, and exit strategy.
Ms. Tomlinson is, or was within the past five years, a director of the following public companies:
Company | Positions Held | From | To |
Quartz Mountain Resources Ltd. | Director | December 2017 | Present |
Matthew Dickinson (1997) – Director
Matthew Dickinson is a recent McGill University graduate, where he studied Management of Information Systems and Computer Science. He is currently working as a Software Developer for Genesis Advanced Technology, a development stage industrial hardware company, and is consulting for Genesis Robotics where he builds software to support the firms commercialization efforts. Additionally he has background in early-stage venture financing and product strategy.
Mr. Dickinson is, or was within the past five years, a director of the following public companies:
Company | Positions Held | From | To |
Quartz Mountain Resources Ltd. | Director | February 2019 | Present |
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Trevor Thomas, LLB (1967), Chairman, Chief Executive Officer, Corporate Secretary
Trevor Thomas has practiced in the areas of corporate commercial, corporate finance, securities and mining law since 1995, both in a private practice environment as well as in in-house positions and is
currently general counsel for Hunter Dickinson Inc. (“HDI”). Prior to joining HDI, he served as in- house legal counsel with Placer Dome Inc. Mr. Thomas is, or was within the past five years, an officer or director of the following public companies:
Company | Positions Held | From | To |
Amarc Resources Ltd. | Secretary | February 2008 | Present |
Electric Royalties Ltd. | Secretary | June 2020 | November 2021 |
Heatherdale Resources Ltd. | Secretary | June 2013 | August 2020 |
Mineral Mountain Resources Ltd. | Director | September 2016 | Present |
Northcliff Resources Ltd. | Secretary | June 2011 | Present |
Northern Dynasty Minerals Ltd. | Secretary | February 2008 | Present |
Quadro Resources Ltd. | Director | July 2017 | Present |
Quartz Mountain Resources Ltd. | Secretary | June 2013 | Present |
President and CEO | February 2019 | Present | |
Rathdowney Resources Ltd. | Secretary | March 2011 | Present |
Re Royalties Ltd. | Secretary | November 2018 | Present |
Taseko Mines Limited | Secretary | July 2008 | Present |
Sebastian Tang, CPA CA (1976) – Chief Financial Officer
Sebastian Tang is Chartered Professional Accountant (CPA CA) with more than 15 years of professional experience in accountancy and financial reporting. He previously held positions with professional services firms Ernst & Young providing financial auditing services to companies in Asia and the Americas.
Company | Positions Held | From | To |
Amarc Resources Ltd. | Chief Financial Officer | July 2020 | September 2021 |
CAT Strategic Metals Corp. | Chief Financial Officer | September 2021 | Present |
Lucky Minerals Inc. | Chief Financial Officer | May 2019 | March 2020 |
Global Hemp Group | Chief Financial Officer | May 2020 | Present |
B. COMPENSATION
During the Company’s financial year ended July 31, 2021, the aggregate cash compensation paid or payable by the Company to its directors and senior officers was $18,350.
Trevor Thomas, Chairman, President, and CEO, and Sebastian Tang, CFO, are each “Named Executive Officers” of the Company for the purposes of the following disclosure.
The compensation paid to the Named Executive Officers during the Company’s most recently completed financial year is as set out below:
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During the fiscal year ended July 31, 2021, the above named NEOs did not serve the Company solely on a full-time basis, and their compensation from the Company is allocated based on the estimated amount of time spent providing services to the Company.
Name and principal position |
Fiscal year |
Salary ($) | Share- based award ($) | Option based award ($) | Pension value ($) | All other compensation ($) | Total compensation ($) |
Trevor Thomas CEO (1) | 2021 | 1,625 | Nil | Nil | Nil | Nil | 1,625 |
2020 | 4,263 | Nil | Nil | Nil | Nil | 4,263 | |
2019 | 414 | Nil | Nil | Nil | Nil | 414 | |
Robert Dickinson, CEO (1) | 2021 | Nil | Nil | Nil | Nil | Nil | Nil |
2020 | Nil | Nil | Nil | Nil | Nil | Nil | |
2019 | Nil | Nil | Nil | Nil | Nil | Nil | |
Sebastian Tang, CFO (2) | 2021 | 14,000 | Nil | Nil | Nil | Nil | 14,000 |
Michael Lee, CFO (2) | 2021 | 79 | Nil | Nil | Nil | Nil | 79 |
2020 | 15,633 | Nil | Nil | Nil | Nil | 15,633 | |
2019 | 10,561 | Nil | Nil | Nil | Nil | 10,561 |
Note (1) Mr. Thomas replaced Mr. Dickinson as Chairman, President, and CEO on February 15, 2019
Note (2) Mr. Tang replaced Mr. Lee as CFO on August 15, 2020
Director Compensation
The compensation provided to the directors, excluding a director who is already set out in disclosure for a NEO for the Company’s most recently audited financial year ended July 31, 2021, is as set out below:
Name | Fees earned (1) ($) | Share- based awards ($) | Option -based awards ($) | Non-equity incentive plan compensation ($) | Pension value ($) | All other compensation ($) |
Total ($) |
Leonie Tomlinson(2) | Nil | Nil | Nil | Nil | Nil | Nil | Nil |
Matthew Dickinson(2) | Nil | Nil | Nil | Nil | Nil | Nil | Nil |
Trevor Thomas(2) | Nil | Nil | Nil | Nil | Nil | Nil | Nil |
Notes:
(1) January 2016 and onward, fees were reduced to $nil.
(2) These directors are members of the Audit Committee and Nominating and Governance Committee.
Pension and Retirement Benefits
Neither the Company nor its subsidiary provides any pension, retirement, or similar benefits.
C. BOARD PRACTICES
On December 15, 2017, Ronald Thiessen resigned as President, CEO and Director, Robert Dickinson was appointed Quartz Mountain’s Executive Chairman and CEO, and Rene Carrier and Leonie Tomlinson were appointed Directors of the Company. On February 15, 2019, Robert Dickinson resigned as Executive Chairman and CEO and Rene Carrier resigned as director. Trevor Thomas was appointed Chairman, President, and CEO, and Matthew Dickinson was appointed director. All directors have a term of office expiring at the next annual general meeting of the Company’s shareholders. All officers have a term of office lasting until their removal or replacement by the Board of Directors.
Directors Service Contracts
There is no written employment contract between the Company and any director.
There is no service contract between any director of the Company and either the Company or its subsidiary, which provides for any benefits upon termination of employment.
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Audit Committee
Composition of Audit Committee
The members of the Audit Committee are Trevor Thomas, Matthew Dickinson, and Leonie Tomlinson (Chair).
Relevant Education and Experience
As a result of their education and experience, each member of the Audit has familiarity with, an understanding of, or experience in the accounting principles used by the Company to prepare its financial statements, and the ability to assess the general application of those principles in connection with estimates, accruals and reserves; reviewing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the Company’s financial statements; and an understanding of internal controls and procedures for financial reporting.
Ms. Tomlinson is an experienced businessperson with corporate finance experience. See disclosure under “A. Directors and Senior Management” above.
Audit Committee’s Charter
The function of the Audit Committee is to oversee the employment and compensation of the Company’s independent auditor, and other matters under the authority of the Committee. The Committee also assists the Board of Directors in carrying out its oversight responsibilities relating to the Company’s financial, accounting, and reporting processes, the Company’s system of internal accounting and financial controls, the Company’s compliance with related legal and regulatory requirements, and the fairness of transactions between the Company and related parties.
The Audit Committee has a charter that sets out its mandate and responsibilities, which is contained in Appendix 6 of the Corporate Governance Policies and Procedures Manual (available for download from the Company’s website under Corporate Governance at www.quartzmountainresources.com). The Audit Committee has the following responsibilities and authority:
Relationship with Independent Auditor
Subject to the law of British Columbia as to the role of the Shareholders in the appointment of independent auditors, the Committee shall have the sole authority to appoint or replace the independent auditor.
The Committee shall be directly responsible for the compensation and oversight of the work of the independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work.
The independent auditor shall report directly to the Committee.
The Committee shall approve in advance all audit and permitted non-audit services with the independent auditor, including the terms of the engagements and the fees payable; provided that the Committee Chairman may approve services to be performed by the independent auditor between Committee meetings if the amount of the fee does not exceed $50,000, provided that any such approval shall be reported to the Committee at the next meeting thereof. The Committee may delegate to a subcommittee the authority to grant pre-approvals of audit and permitted non-audit services, provided that the decision of any such subcommittee shall be presented to the full Committee at its next scheduled meeting.
At least annually, the Committee shall review and evaluate the experience and qualifications of the lead partner and senior members of the independent auditor team.
At least annually, the Committee shall obtain and review a report from the independent auditor regarding:
| · | the independent auditor’s internal quality-control procedures; |
| · | any material issues raised by the most recent internal quality-control review, or peer review, of the auditor, or by any inquiry or investigation by governmental or professional authorities within the preceding five years respecting one or more independent audits carried out by the firm; |
| · | any steps taken to deal with any such issues; and |
| · | all relationships between the independent auditor and the Company. |
At least annually, the Committee shall evaluate the qualifications, performance, and independence of the independent auditor, including considering whether the auditor’s quality controls are adequate and the provision of permitted non-audit services is compatible with maintaining the auditor’s independence.
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The Committee shall ensure the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit, the concurring partner responsible for reviewing the audit, and other audit partners as required by law.
The Committee shall consider whether, in order to assure continuing auditor independence, it is appropriate to adopt a policy of rotating the independent auditing firm on a regular basis.
The Committee shall recommend to the Board policies for the Company’s hiring of employees or former employees of the independent auditor who were engaged on the Company’s account or participated in any capacity in the audit of the Company.
The Committee shall oversee the implementation by management of appropriate information technology systems for the Company, including as required for proper financial reporting and compliance.
Financial Statement and Disclosure Review
The Committee shall review and discuss with management and the independent auditor the annual audited financial statements, including disclosures made in management’s discussion and analysis, and recommend to the Board whether the audited financial statements should be filed with applicable securities regulatory authorities and included in the Company’s annual reports.
The Committee shall review and discuss with management (and, to the extent the Committee deems it necessary or appropriate, the independent auditor) the Company’s quarterly financial statements, including disclosures made in management’s discussion and analysis, and recommend to the Board whether such financial statements should be filed with applicable securities regulatory authorities.
The Committee shall review and discuss with management and the independent auditor significant financial reporting issues and judgments made in connection with the preparation of the Company’s financial statements, including the independent auditor’s assessment of the quality of the Company’s accounting principles, any significant changes in the Company’s selection or application of accounting principles, any major issues as to the adequacy of the Company’s internal controls over financial reporting, and any special steps adopted in light of material control deficiencies.
At least annually and prior to the publication of annual audited financial statements, the Committee shall review and discuss with management and the independent auditor a report from the independent auditor on:
| · | all critical accounting policies and practices used by the Company; |
| · | all alternative accounting treatments of financial information that have been discussed with management since the prior report, ramifications of the use of such alternative disclosures and treatments, the treatment preferred by the independent auditor, and an explanation of why the independent auditor’s preferred method was not adopted; and, |
| · | other material written communications between the independent auditor and management since the prior report, such as any management letter or schedule of unadjusted differences, the development, selection and disclosure of critical accounting estimates, and analyses of the effect of alternative assumptions, estimates or GAAP methods on the Company’s financial statements. |
Prior to their filing or issuance, the Committee shall review the Company’s Annual Information Form, quarterly and annual earnings press releases, and other financial press releases, including the use of “pro forma” or “adjusted” non-GAAP information.
The Committee shall review and discuss with management the financial information and earnings guidance provided to analysts and rating agencies. Such discussion may be specific or it may be in general regarding the types of information to be disclosed and the types of presentations to be made.
Conduct of the Annual Audit
The Committee shall oversee the annual audit, and in the course of such oversight, the Committee shall have the following responsibilities and authority:
The Committee shall meet with the independent auditor prior to the audit to discuss the planning and conduct of the annual audit, and shall meet with the independent auditor as may be necessary or appropriate in connection with the audit.
The Committee shall ascertain that the independent auditor is registered and in good standing with the Canadian Public Accounting Board and that the independent auditor satisfies all applicable independence standards. The Committee shall obtain from the auditor a written statement delineating all relationships between the auditor and the Company as per applicable independence standards, and review relationships that may impact the objectivity and independence of the auditor.
The Committee shall discuss with the independent auditor the matters required to be discussed by Statement on Auditing Standards No. 61 relating to the conduct of the audit, including:
| · | the adoption of, or changes to, the Company’s significant auditing and accounting principles and practices as suggested by the independent auditor, internal auditors or management; |
| · | the management letter provided by the independent auditor and the Company’s response to that letter; and |
| · | any difficulties encountered in the course of the audit work, including any restrictions on the scope of activities or access to requested information, and any significant disagreements with management. |
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The Committee shall make such inquiries to the management and the independent auditor as the Committee members deem necessary or appropriate to satisfy themselves regarding the efficacy of the Company’s financial and internal controls and procedures and the auditing process.
Compliance and Oversight
The Committee shall meet periodically with management and the independent auditor in separate executive sessions. The Committee may also, to the extent it deems necessary or appropriate, meet with the Company’s investment bankers and financial analysts who follow the Company.
The Committee shall discuss with management and the independent auditor the effect of regulatory and accounting initiatives as well as off-balance sheet structures on the Company’s financial statements.
The Committee shall discuss with management the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures, including the Company’s risk assessment and risk management policies, and regularly review the top risks identified by management and the policies and practices adopted by the Company to mitigate those risks.
If required, the Committee shall annually review with management and the independent auditor the disclosure controls and procedures and confirm that the Company (with CEO and CFO participation) has evaluated the effectiveness of the design and operation of the controls within 90 days prior to the date of filing of the AIF. The Committee also shall review with management and the independent auditor any deficiencies in the design and operation of internal controls and significant deficiencies or material weaknesses therein, and any fraud involving management or other employees who have a significant role in the Company’s internal controls. As a part of that review, the Committee shall review the process followed in preparing and verifying the accuracy of the required CEO and CFO annual certifications.
If required, the Committee shall annually review management’s internal control report and the independent auditor’s assessment of the internal controls and procedures prior to the filing of the AIF.
The Committee shall establish procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.
The Committee shall discuss with management and the independent auditor any correspondence with regulators or governmental agencies and any employee complaints or reports that raise material issues regarding the Company’s financial statements or accounting policies.
At least annually, the Committee shall meet with the Company’s legal counsel and discuss any legal matters that may have a material impact on the financial statements or the Company’s compliance policies.
The Committee shall oversee the preparation of reports relating to the Audit Committee as required under applicable laws, regulations, and stock exchange requirements.
The Committee shall exercise oversight with respect to anti-fraud programs and controls.
Related Party Transactions
The Committee shall review for fairness to the Company proposed transactions, contracts and other arrangements between the Company and its subsidiaries and any related party or affiliate, and make recommendations to the Board whether any such transactions, contracts and other arrangements should be approved or continued. The foregoing shall not include any compensation payable pursuant to any plan, program, contract, or arrangement subject to the authority of the Company’s Compensation Committee.
As used herein the term “related party” means any officer or director of the Company or any subsidiary, or any shareholder holding a greater than 10% direct or indirect financial or voting interest in the Company, and the term “affiliate” means any person, whether acting alone or in concert with others, that has the power to exercise a controlling influence over the Company and its subsidiaries. “Related party” includes HDSI.
D. EMPLOYEES
At November 25, 2021, the Company had no employees and had contracted staff on an as-needed basis. The directors of the Company primarily administer the Company’s functions through the employees of HDSI, a private company with certain directors in common with the Company (see Item 7 – “Major Shareholders and Related Party Transactions”).
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E. SHARE OWNERSHIP
Security Holdings of Directors and Senior Management
As at November 25, 2021, the directors and officers of Quartz Mountain and their respective affiliates, directly and indirectly, own or control as a group an aggregate of 4,248,546 common shares or 12.83%.
As at November 25, 2021, the Company’s directors and officers beneficially own the following number of the Company’s common shares:
Name of Insider | Securities Beneficially Owned | As a % of outstanding common shares |
Matthew Dickinson | 4,228,273(Common Shares) | 12.77% |
Sebastian Tang | Nil | Nil |
Trevor Thomas | 19,500 (Common Shares) | 0.06% |
Leonie Tomlinson | Nil | Nil |
ITEM 7 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. MAJOR SHAREHOLDERS
Quartz Mountain is a publicly held corporation, with its shares held by residents of Canada, the United States of America and other countries. To the best of Quartz Mountain’s knowledge, person, corporation, or other entity beneficially owns, directly or indirectly, or controls more than 5% of the common shares of Quartz Mountain, the only class of securities with voting rights are disclosed in the table below. For these purposes, “beneficial ownership” means the sole or shared power to vote or direct the voting or to dispose or direct the disposition of any security.
As of November 25, 2021, Quartz Mountain had authorized unlimited common shares without par value, of which 33,114,141 were issued and outstanding. The following table sets forth certain information with respect to beneficial ownership of the Company’s common stock as of November 20, 2020, by each shareholder known to be the beneficial owner of more than 5% of the common stock.
Identity of Person or Group | Shares | Percentage Beneficially Owned of Class |
Robert A. Dickinson | 14,818,184 | 44.75.% |
Matthew Dickinson | 4,228,546 | 12.77% |
Hunter Dickinson Services Inc. | 1,800,000 | 5.44% |
All of the common shares have the same voting rights and no major shareholders of the Company have different voting rights.
Geographic Breakdown of Shareholders
As of November 25, 2021, Quartz Mountain’s register of shareholders indicates that Quartz Mountain’s common shares are held as follows:
Location | Number of registered shareholders of record | Number of shares | Percentage of total shares |
Canada | 151 | 32,670,852 | 98.66% |
United States | 1,461 | 431,724 | 1,62% |
Other | 13 | 11,565 | 0.04% |
Total | 1,625 | 33,114,141 | 100% |
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Shares registered in the names of intermediaries, were assumed to be held by residents of the same country in which the intermediary is located.
Transfer Agent
The Company’s common shares are recorded on the books of its transfer agent, Computershare Investor Services Inc., located at 4th Floor, 510 Burrard Street, Vancouver, B.C. V6C 3B9; telephone (604) 661-9400 in registered form. However, the majority of the Company’s common shares are registered in the name of intermediaries such as brokerage houses and clearinghouses (on behalf of their respective brokerage clients). Quartz Mountain does not have knowledge or access to the identities of the beneficial owners of such shares registered through intermediaries.
Control
To the best of its knowledge, the Company is not owned or controlled, directly or indirectly, by any other corporation, by any foreign government or by any other natural or legal person, severally or jointly, other than as noted above under Major Shareholders. There are no arrangements known to Quartz Mountain, which, at a subsequent date, may result in a change in control of the Company.
Insider Reports under the Securities Acts of British Columbia, Alberta and Ontario
Since the Company is a reporting issuer under the Securities Acts of British Columbia, Alberta and Ontario, certain “insiders” of the Company (including its directors, certain executive officers, and persons who directly or indirectly beneficially own, control or direct more than 10% of its common shares) are generally required to file insider reports of changes in their ownership of Quartz Mountain’s common shares within five days following the trade under National Instrument 55-104 – Insider Reporting Requirements and Exemptions, as adopted by the CSA, and the Securities Act (Ontario). Copies of such reports are available for public inspection at the offices of the British Columbia Securities Commission, ninth Floor, 701 West Georgia Street, Vancouver, British Columbia V7Y 1L2, (604) 899-6500 or at the British Columbia Securities Commission web site, www.bcsc.bc.ca. In British Columbia, all insider reports must be filed electronically five days following the date of the trade at www.sedi.ca. The public is able to access these reports at www.sedi.ca.
B. RELATED PARTY TRANSACTIONS
Except as disclosed herein, since the beginning of its last fiscal year ended July 31, 2021, Quartz Mountain has not:
(1) | entered into any transactions which are material to Quartz Mountain, or a related party or any transactions unusual in their nature or conditions involving goods, services or tangible or intangible assets to which Quartz Mountain or any of its former subsidiaries was aparty; |
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(2) | entered into any transactions or loans between the Company and: |
| (a) | enterprises that directly or indirectly through one or more intermediaries, control or are controlled by, or are under common control with, Quartz Mountain; |
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| (b) | associates of Quartz Mountain (unconsolidated enterprises in which Quartz Mountain has significant influence or which has significant influence over Quartz Mountain) including shareholders beneficially owning 10% or more of the outstanding shares of Quartz Mountain; |
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| (c) | individuals owning, directly or indirectly, an interest in the common shares of Quartz Mountain that gives them significant influence over Quartz Mountain, and close members of any such individual’s family; |
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| (d) | key management personnel (persons having authority in responsibility for planning, directing and controlling the activities of Quartz Mountain including directors and senior management and close members of such individuals’ families); or |
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| (e) | enterprises in which a substantial voting interest is owned, directly or indirectly, by any person described in (c) or (d) or over which such a person is able to exercise significant influence. |
HDSI
HDI and its wholly-owned subsidiary HDSI are private companies established by a group of mining professionals. HDSI provides contract services for a number of mineral exploration and development companies, and also to companies that are outside of the mining and mineral development space. The Company acquires services from a number of related and arms‐length contractors, and it is at the Company’s discretion that HDSI provides certain contract services.
The Company’s Chief Executive Officer and Chairman, and Corporate Secretary are employees of HDSI and are contracted to work for the Company under an employee secondment agreement between the Company and HDSI.
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Pursuant to an agreement dated June 1, 2008, HDSI provides certain cost effective technical, geological, corporate communications, regulatory compliance, and administrative and management services to the Company, on a non‐exclusive basis as needed and as requested by the Company. Because of this relationship, the Company has ready access to a range of diverse and specialized expertise on a regular basis, without having to engage or hire full‐time employees or experts. The Company benefits from the economies of scale created by HDSI, which itself serves several clients both within and external to the exploration and mining sector.
The Company is not obligated to acquire any minimum amount of services from HDSI. The monetary amount of the services received from HDSI in a given period of time is a function of annually set and agreed charge‐out rates for and the time spent by each HDSI employee engaged by the Company.
HDSI also incurs third‐party costs on behalf of the Company. Such third party costs include, for example, directors and officers insurance, travel, conferences, and communication services. Third‐ party costs are billed at cost, without markup.
There are no ongoing contractual or other commitments resulting from the Company’s transactions with HDSI, other than the payment for services already rendered and billed. The agreement may be terminated upon 60 days’ notice by either the Company or HDSI.
During the fiscal year ended July 31, 2021, the Company had transactions totaling $61,873 (2020 – $104,678; 2019 – $77,310) to HDSI for services and reimbursements of third party disbursements pursuant to this agreement.
In January 2016, the Company and HDSI reached a settlement agreement whereby HDSI agreed to forgive the balance due to HDSI in the net amount of $3,086,089 if the Company completes the following:
· | makes a cash payment of $180,207; and |
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· | issues 1,800,000 shares (pre-forward split basis of 600,000 shares) valued at $126,000. |
The cash payment of $180,207 was paid during the year ended July 31, 2018 and the shares were issued to HDSI during the year ended July 31, 2020, completing the settlement and resulting in a gain on settlement of debt of $2,779,882.
United Mineral Services Inc. (“UMS”)
In December 2018, the Company entered into a loan agreement with United Mineral Services Ltd. (the “Lender”), a company owned by a former director, pursuant to which the Lender advanced to the Company a principal sum of $100,000 with a six-month term, at an interest rate of 10% per annum calculated monthly and payable quarterly. The principal amount and related interest were repaid during the year ended July 31, 2020.
The Company has entered into an agreement with UMS dated November 5, 2021 in connection with the acquisition of the Jake Property. UMS is controlled by Robert Dickinson, who is a significant shareholder of the Company. See Item 4 (c) Mineral Properties above.
C. INTERESTS OF EXPERTS AND COUNSEL
Not applicable.
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ITEM 8 FINANCIAL INFORMATION
A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
Quartz Mountain’s audited consolidated annual financial statements as at and for the year ended July 31, 2021, 2020 and 2019 are attached in Exhibit 99.1 to this Annual Report.
Legal Proceedings
The Company is not, and has not been in the recent past, involved in any legal or arbitration proceedings, including governmental proceedings and those relating to bankruptcy, receivership, or similar proceedings.
Dividend Policy
The Company has not paid any dividends on its outstanding common shares since its incorporation and does not anticipate that it will do so in the foreseeable future. All funds of the Company are being retained for administration expenses and mineral property investigations.
B. SIGNIFICANT CHANGES
There have been no significant changes to the accompanying financial statements, except as disclosed in this Annual Report on Form 20-F.
ITEM 9 THE OFFER AND LISTING
A. OFFER AND LISTING DETAILS
Trading Markets
The following tables set forth for the periods indicated the price history, rounded to nearest cent, of the Company’s common shares on the TSX-V and on the OTC Grey Market:
| TSX-V | OTC | ||
Fiscal year ended July 31 | High (CDN$) | Low (CDN$) | High (US$) | Low (US$) |
2021 | 0.31 | 0.12 | 0.19 | 0.10 |
2020 | 0.45 | 0.05 | 0.23 | 0.04 |
2019 | 0.27 | 0.09 | 0.23 | 0.08 |
2018 | 0.50 | 0.22 | 0.40 | 0.00 |
2017 | 0.04 | 0.13 | 0.23 | 0.07 |
2016 | 0.13 | 0.13 | 0.13 | 0.13 |
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| TSX-V | OTC | ||
Fiscal Quarter | High (CDN$) | Low (CDN$) | High (US$) | Low (US$) |
Q4, 2021 | 0.31 | 0.16 | 0.18 | 0.13 |
Q3, 2021 | 0.28 | 0.12 | 0.19 | 0.10 |
Q2, 2021 | 0.22 | 0.14 | 0.11 | 0.11 |
Q1, 2021 | 0.20 | 0.13 | 0.15 | 0.10 |
Q4, 2020 | 0.45 | 0.07 | 0.18 | 0.04 |
Q3, 2020 | 0.07 | 0.06 | 0.13 | 0.13 |
Q2, 2020 | 0.07 | 0.05 | 0.16 | 0.13 |
Q1, 2020 | 0.09 | 0.06 | 0.23 | 0.16 |
| TSX-V | OTC | ||
Month | High (CDN$) | Low (CDN$) | High (US$) | Low (US$) |
October 2021 | 0.33 | 0.24 | 0.26 | 0.00 |
September 2021 | 0.34 | 0.20 | 0.29 | 0.17 |
August 2021 | 0.36 | 0.28 | 0.26 | 0.18 |
July 2021 | 0.31 | 0.21 | 0.18 | 0.18 |
June 2021 | 0.22 | 0.16 | 0.18 | 0.14 |
May 2021 | 0.20 | 0.16 | 0.14 | 0.13 |
B. PLAN OF DISTRIBUTION
Not applicable.
C. MARKETS
On December 30, 2011, the Company acquired a qualifying property and was relisted on the main board of the TSX Venture Exchange, trading under the symbol QZM. The Company continues to trade on the OTC Grey Market under the symbol QZMRF.
On February 17, 2005, the Company transferred its listing to NEX, a separate board of TSX-V and the Company’s common shares traded on NEX under the symbol QZM.H.
Prior to February 17, 2005, the Company’s common shares were listed and traded in Canada on Tier 2 on the TSX-V, under the symbol QZM.V. The transition to Tier 2 became effective December 23, 2003. Prior to this, the Company traded on Tier 3 on the TSX-V.
D. SELLING SHAREHOLDERS
Not applicable.
E. DILUTION
Not applicable.
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F. EXPENSES OF THE ISSUE
Not applicable.
ITEM 10 ADDITIONAL INFORMATION
A. SHARE CAPITAL
Not applicable.
B. MEMORANDUM AND ARTICLES OF ASSOCIATION
Articles of Association
Quartz Mountain’s original corporate constituting documents comprised of the Memorandum and Articles of Association were registered with the British Columbia Registrar of Companies under Corporation No. BC0253743. The Company’s Memorandum and Articles have subsequently been replaced by a Notice of Articles and Articles under the Business Corporations Act (British Columbia) (“BCA”), and the Articles were last amended by shareholder resolution at the Company’s Annual General Meeting, held on February 24, 2014. The Company’s articles of incorporation do not contain a description or place any restrictions on the Company’s objects and purposes. For more information, see the Articles of Amalgamation filed as Exhibit 10.1 to this Form 20-F.
Certain Powers of Directors
The Company’s articles require that a director or senior officer who holds any office or possesses any property, right or interest that could result, directly or indirectly, in the creation of a duty or interest that materially conflicts with that individual’s duty or interest as a director or senior officer, must disclose the nature and extent of the conflict as required by the BCA.
The BCA requires that every director or senior officer who is a party to, or who is a director or officer of, or has a material interest in, any person who is a party to, a material contract or transaction or a proposed material contract or transaction with the Company, must disclose in writing to the Company or request to have entered in the minutes of a meeting or a consent resolution of directors, the nature and extent of his or her interest, and must refrain from voting in respect of the contract or transaction, unless the contract or transaction is: (a) one relating primarily to his or her remuneration as a director of the corporation or an affiliate; (b) one for indemnity of or insurance for directors as contemplated under the BCA; or (c) one with an affiliate of the Company. However, a director who is prohibited by the BCA from voting on a material contract or proposed material contract may be counted in determining whether a quorum is present for the purpose of the resolution, if the director disclosed his or her interest in accordance with the BCA and the contract or transaction was reasonable and fair to the corporation at the time it was approved.
The Company’s Articles provide that the Board will from time to time determine the remuneration to be paid to the directors. The Company must reimburse each director for the reasonable expenses that he or she may incur in and about the business of the Company. The Board may also, by resolution, award special remuneration to any director for undertaking any professional or other services on the Company’s behalf, outside than the ordinary duties of a director of the Company.
The Company’s Articles provide that the directors may: (a) borrow money in the manner and amount, on the security, from the sources and on the terms and conditions that they consider appropriate; (b) issue bonds, debentures and other debt obligations either outright or as security for any liability or obligation of the Company or any other person and at such discounts or premiums and on such other terms as the directors consider appropriate; (c) guarantee the repayment of money by any other person or the performance of any obligation of any other person; and (d) mortgage, charge, whether by way of specific or floating charge, grant a security interest in, or give other security on, the whole or any part of the present and future assets and undertaking of the Company.
The directors may, by resolution, amend or repeal any articles that regulate the business or affairs of the Company. The BCA requires the directors to submit any such amendment or repeal to the Company’s shareholders at the next meeting of shareholders, and the shareholders may confirm, reject, or amend the amendment or repeal.
The Board does not have a mandatory retirement policy for directors based solely on age. The Company has a practice of conducting annual Board, Committee, and individual director evaluations, pursuant to which each director’s performance is evaluated annually. There is no minimum share ownership requirement for director’s qualification.
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Authorized Share Capital
The Company’s authorized share capital consists of an unlimited number of common shares without par value, and an unlimited number of preferred shares without par value.
All outstanding common shares of the Company are fully paid and non-assessable. The holders of the common shares are entitled to one vote per share at meetings of shareholders and to receive dividends if, as, and when declared by the directors of the Company. In the event of voluntary or involuntary liquidation, dissolution or winding-up of the Company, after payment of all outstanding debts, the remaining assets of the Company available for distribution would be distributed ratably to the holders of the common shares. Holders of the common shares of the Company have no pre- emptive, redemption, exchange, or conversion rights.
The preferred shares may be issued in series on such terms as determined by the Company’s directors in accordance with the class rights and restrictions. The special rights and restrictions attaching to the preferred shares are set forth in Part 26 of the Articles, and provide the directors with wide latitude to create a series of preferred shares which may be convertible into common shares, and have attached to them rights that rank ahead of common shares in respect of entitlement to dividends. The directors may, by resolution, create, define, and attach special rights and restrictions to the shares of each series, subject to the special rights and restrictions attached to the preferred shares.
Except as described above, the Company may not create any class or series of shares or make any modification to the provisions attaching to the Company’s shares without the affirmative vote of a majority of the votes cast by the holders of the common shares.
Majority Voting Policy
Under the Company’s Corporate Governance Manual, in an uncontested director election, if the votes “for” the election of a director nominee at a meeting of shareholders are fewer than the number voted “withhold”, the nominee is expected to submit his or her resignation promptly after the meeting for the consideration of the Nominating and Governance Committee. The Nominating and Governance Committee will make a recommendation to the Board of Directors after reviewing the matter, and the Board of Directors will then decide whether to accept or reject the resignation. The Board’s decision to accept or reject the resignation will be disclosed to shareholders. The nominee will not participate in any Nominating and Governance Committee deliberations whether to accept or reject the resignation.
Meetings of Shareholders
The BCA requires the Company to call an annual shareholders’ meeting not later than 15 months after holding the last preceding annual meeting and permits the Company to call a special shareholders’ meeting at any time. In addition, in accordance with the BCA, the holders of not less than 5% of the Company’s shares carrying the right to vote at a meeting sought to be held may requisition the directors to call a special shareholders’ meeting for the purposes stated in the requisition. The Company is required to mail a notice of meeting and management information circular to registered shareholders not less than 21 days and not more than 2 months prior to the date of any annual or special shareholders’ meeting. These materials are also filed with Canadian securities regulatory authorities and furnished to the SEC. The Company’s articles provide that a quorum of two shareholders in person or represented by proxy holding or representing by proxy at least 10% of the Company’s issued shares carrying the right to vote at the meeting is required to transact business at a shareholders’ meeting. In addition to shareholders and their duly appointed proxies and corporate representatives, the Company’s directors, president, secretary, lawyers, auditors, and invitees of the directors or chairperson, are entitled to be admitted to the Company’s annual and special shareholders’ meetings; provided that any such person is not to be counted in the quorum and is not entitled to vote at the meeting unless that person is a shareholder or proxy holder entitled to vote at the meeting.
Disclosure of Share Ownership
The Securities Act (British Columbia) currently provides that the directors and certain officers of an issuer and its subsidiaries and any person or company that beneficially owns, directly or indirectly, voting securities of an issuer or that exercises control or direction over voting securities of an issuer or a combination of both, carrying more than 10% of the voting rights attached to all the issuer’s outstanding voting securities (a “significant shareholder”), as well as the directors and officers of any significant shareholder, (each an “insider”) must, within 10 days of becoming an insider, file a report in the required form effective the date on which the person became an insider, disclosing any direct or indirect beneficial ownership of, or control or direction over, securities of the reporting issuer. The Securities Act (British Columbia) also provides for the filing of a report by an insider of a reporting issuer who acquires or transfers securities of the issuer or who enters into, materially amends or terminates an arrangement the effect of which is to alter the insider’s economic interest in a security of the issuer or the insider’s economic exposure to the issuer. These reports must be filed within five days after the reportable event. The Securities Act (British Columbia) also requires these reports to be filed by reporting insiders within five days after the applicable event, though are only required by the Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, directors, any person or company responsible for a principal business unit and significant shareholders of the Company.
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The Securities Act (British Columbia) also provides that a person or company that acquires (whether or not by way of a take-over bid, offer to acquire or subscription from treasury) beneficial ownership of voting or equity securities or securities convertible into voting or equity securities of a reporting issuer that, together with previously held securities brings the total holdings of such holder to 10% or more of the outstanding securities of that class, must (a) issue and file forthwith a news release containing certain prescribed information and (b) file a report within two business days containing the same information set out in the news release. The acquiring person or company must also issue a news release and file a report each time it acquires, in the aggregate, an additional 2% or more of the outstanding securities of the same class and every time there is a change to any material fact in the news release and report previously issued and filed.
The rules in the United States governing the ownership threshold above which shareholder ownership must be disclosed are more stringent than those discussed above. Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), imposes reporting requirements on persons who acquire beneficial ownership (as such term is defined in Rule 13d-3 under the Exchange Act) of more than 5% of a class of an equity security registered under Section 12 of the Exchange Act. In general, such persons must file, within ten days after such acquisition, a report of beneficial ownership with the SEC containing the information prescribed by the regulations under Section 13(d) of the Exchange Act and promptly file an amendment to such report to disclose any material change to the information reported, including any acquisition or disposition of 1% or more of the outstanding securities of the registered class. Certain institutional investors that acquire shares in the ordinary course of business and not with the purpose or with the effect of changing or influencing the control of the issuer are subject to lesser disclosure obligations.
C. MATERIAL CONTRACTS
Quartz Mountain’s material contracts as of November 25, 2021, are:
| · | Corporate Services Agreement with HDSI, dated for reference July 2, 2010. See Item 7B; |
D. EXCHANGE CONTROLS
Quartz Mountain is incorporated pursuant to the laws of the Province of British Columbia, Canada. There is no law or governmental decree or regulation in Canada that restricts the export or import of capital, or affects the remittance of dividends, interest, or other payments to a non-resident holder of common shares, other than withholding tax requirements. Any such remittances to United States residents are generally subject to withholding tax, however no such remittances are likely in the foreseeable future. See “Taxation”, below.
There is no limitation imposed by Canadian law or by the charter or other constituent documents of the Company on the right of a non-resident to hold or vote Common Shares of the Company, except that the Investment Canada Act may require review and approval by the Minister of Industry (Canada) of certain acquisitions of “control” of the Company by a “non-Canadian”. The threshold for acquisitions of “control” is generally defined as being one-third or more of the voting shares of the Company. “Non-Canadian” generally means an individual who is not a Canadian citizen or a permanent resident of Canada, or a corporation, partnership, trust or joint venture that is ultimately controlled by non-Canadians.
E. TAXATION
Certain Canadian Federal Income Tax Information for United States Residents
The following summarizes the principal Canadian federal income tax considerations generally applicable to the holding and disposition of common shares of the Company by a holder (a) who, for the purposes of the Income Tax Act (Canada) the (“Tax Act”), is not resident in Canada or deemed to be resident in Canada, deals at arm’s length and is not affiliated with the Company, holds the common shares as capital property and does not use or hold the common shares in the course of carrying on, or otherwise in connection with, a business in Canada, and (b) who, for the purposes of the Canada- United States Income Tax Convention (the “Treaty”), is a resident of the United States, has never been a resident of Canada, has not held or used (and does not hold or use) common shares in connection with a permanent establishment or fixed base in Canada, and who qualifies for the full benefits of the Treaty. The Canada Revenue Agency has recently introduced special forms to be used in order to substantiate eligibility for Treaty benefits, and affected holders should consult with their own advisors with respect to these forms and all relevant compliance matters.
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Holders who meet all such criteria in clauses (a) and (b) above are referred to herein as a “U.S. Holder” or “U.S. Holders”, and this summary only addresses such U.S. Holders. The summary does not deal with special situations, such as particular circumstances of traders or dealers, limited liability companies, tax-exempt entities, insurers, financial institutions (including those to which the mark- to-market provisions of the Tax Act apply), or entities considered fiscally transparent under applicable law, or otherwise.
This summary is based on the current provisions of the Tax Act and the regulations thereunder, all proposed amendments to the Tax Act and regulations publicly announced by the Minister of Finance (Canada) to the date hereof, the current provisions of the Treaty and our understanding of the current administrative practices of the Canada Revenue Agency. It has been assumed that all currently proposed amendments to the Tax Act and regulations will be enacted as proposed and that there will be no other relevant change in any governing law, the Treaty or administrative policy, although no assurance can be given in these respects. This summary does not take into account provincial, U.S., or other foreign income tax considerations, which may differ significantly from those discussed herein.
This summary is not exhaustive of all possible Canadian income tax consequences. It is not intended as legal or tax advice to any particular U.S. Holder and should not be so construed. The tax consequences to a U.S. Holder will depend on that U.S. Holder’s particular circumstances. Accordingly, all U.S. Holders or prospective U.S. Holders should consult their own tax advisors with respect to the tax consequences applicable to them having regard to their own particular circumstances. The discussion below is qualified accordingly.
Dividends
Dividends paid or deemed to be paid or credited by the Company to a U.S. Holder are subject to Canadian withholding tax. Under the Treaty, the rate of withholding tax on dividends paid to a U.S. Holder is generally limited to 15% of the gross dividend (or 5% in the case of a U.S. holder that is a corporate shareholder owning at least 10% of the Company’s voting shares), provided the U.S. Holder can establish entitlement to the benefits of the Treaty.
Disposition
A U.S. Holder is generally not subject to tax under the Tax Act in respect of a capital gain realized on the disposition of a common share in the open market, unless the share is “taxable Canadian property” to the holder thereof and the U.S. Holder is not entitled to relief under the Treaty.
Provided that the Company’s common shares are listed on a “designated stock exchange” for purposes of the Tax Act (which currently includes the TSX Venture) at the time of disposition, a common share will generally not constitute taxable Canadian property to a U.S. Holder unless, at any time during the 60 month period ending at the time of disposition, (i) the U.S. Holder or persons with whom the U.S. Holder did not deal at arm’s length (or the U.S. Holder together with such persons) owned 25% or more of the issued shares of any class or series of the Company AND (ii) more than 50% of the fair market value of the share was derived directly or indirectly from certain types of assets, including real or immoveable property situated in Canada, Canadian resource properties or timber resource properties, and options, interests or rights in respect of any of the foregoing. Common shares may also be deemed taxable Canadian property under the Tax Act in certain specific circumstances. A U.S. Holder holding Common shares as taxable Canadian property should consult with the U.S. Holder’s own tax advisors in advance of any disposition of Common shares or deemed disposition under the Tax Act in order to determine whether any relief from tax under the Tax Act may be available by virtue of the Treaty, and any related compliance procedures.
United States Federal Income Tax Consequences
The Company believes it is likely a “passive foreign investment company” which may have adverse U.S. federal income tax consequences for U.S. shareholders.
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U.S. shareholders should be aware that the Company believes it was classified as a passive foreign investment company (“PFIC”) during the tax year ended July 31, 2021, and may be a PFIC in future tax years. If the Company is a PFIC for any year during a U.S. shareholder’s holding period, then such U.S. shareholder generally will be required to treat any gain realized upon a disposition of common shares, or any so-called “excess distribution” received on its common shares, as ordinary income, and to pay an interest charge on a portion of such gain or distributions, unless the shareholder makes a timely and effective “qualified electing fund” election (“QEF Election”) or a “mark-to-market” election with respect to the common shares. A U.S. shareholder who makes a QEF Election generally must report on a current basis its share of the Company’s net capital gain and ordinary earnings for any year in which the Company is a PFIC, whether or not the Company distributes any amounts to its shareholders. However, U.S. shareholders should be aware that there can be no assurance that the Company will satisfy record keeping requirements that apply to a qualified electing fund, or that the Company will supply U.S. shareholders with information that such U.S. shareholders require to report under the QEF Election rules, in the event that the Company is a PFIC and a U.S. shareholder wishes to make a QEF Election. Thus, U.S. shareholders may not be able to make a QEF Election with respect to their common shares. A U.S. shareholder who makes the mark-to-market election generally must include as ordinary income each year the excess of the fair market value of the common shares over the taxpayer’s basis therein. This paragraph is qualified in its entirety by the discussion below under the heading “Certain United States Federal Income Tax Considerations.” Each U.S. shareholder should consult its own tax advisor regarding the PFIC rules and the U.S. federal income tax consequences of the acquisition, ownership, and disposition of common shares.
Certain United States Federal Income Tax Considerations
The following is a general summary of certain material U.S. federal income tax considerations applicable to a U.S. Holder (as defined below) arising from and relating to the acquisition, ownership, and disposition of common shares.
This summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations that may apply to a U.S. Holder arising from and relating to the acquisition, ownership, and disposition of common shares. In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may affect the U.S. federal income tax consequences to such U.S. Holder, including specific tax consequences to a U.S. Holder under an applicable tax treaty. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any U.S. Holder. This summary does not address the U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and foreign tax consequences to U.S. Holders of the acquisition, ownership, and disposition of common shares. Each prospective U.S. Holder should consult its own tax advisor regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local and foreign tax consequences relating to the acquisition, ownership, and disposition of common shares.
No legal opinion from U.S. legal counsel or ruling from the Internal Revenue Service (the “IRS”) has been requested, or will be obtained, regarding the U.S. federal income tax consequences of the acquisition, ownership, and disposition of common shares. This summary is not binding on the IRS, and the IRS is not precluded from taking a position that is different from, and contrary to, the positions taken in this summary. In addition, because the authorities on which this summary is based are subject to various interpretations, the IRS and the U.S. courts could disagree with one or more of the conclusions described in this summary.
Scope of this Summary
Authorities
This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations (whether final, temporary, or proposed), published rulings of the IRS, published administrative positions of the IRS, the Convention Between Canada and the United States of America with Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended (the “Canada-U.S. Tax Convention”), and U.S. court decisions that are applicable and, in each case, as in effect and available, as of the date of this document. Any of the authorities on which this summary is based could be changed in a material and adverse manner at any time, and any such change could be applied on a retroactive or prospective basis, which could affect the U.S. federal income tax considerations described in this summary. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation that, if enacted, could be applied on a retroactive or prospective basis.
U.S. Holders
For purposes of this summary, the term “U.S. Holder” means a beneficial owner of common shares that is for U.S. federal income tax purposes:
| · | an individual who is a citizen or resident of the U.S.; |
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| · | a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized under the laws of the U.S., any state thereof or the District of Columbia; |
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| · | an estate whose income is subject to U.S. federal income taxation regardless of its source; or |
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| · | a trust that (1) is subject to the primary supervision of a court within the U.S. and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person. |
Non-U.S. Holders
For purposes of this summary, a “non-U.S. Holder” is a beneficial owner of common shares that is not a U.S. Holder. This summary does not address the U.S. federal income tax consequences to non-U.S. Holders arising from and relating to the acquisition, ownership, and disposition of common shares. Accordingly, a non-U.S. Holder should consult its own tax advisor regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and foreign tax consequences (including the potential application of and operation of any income tax treaties) relating to the acquisition, ownership, and disposition of common shares.
U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed
This summary does not address the U.S. federal income tax considerations applicable to U.S. Holders that are subject to special provisions under the Code, including, but not limited to, the following: (a) U.S. Holders that are tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts; (b) U.S. Holders that are financial institutions, underwriters, insurance companies, real estate investment trusts, or regulated investment companies; (c) U.S. Holders that are broker-dealers, dealers, or traders in securities or currencies that elect to apply a mark-to-market accounting method; (d) U.S. Holders that have a “functional currency” other than the U.S. Dollar; (e) U.S. Holders that own common shares as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other arrangement involving more than one position; (f) U.S. Holders that acquired common shares in connection with the exercise of employee stock options or otherwise as compensation for services; (g) U.S. Holders that hold common shares other than as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment purposes); or (h) U.S. Holders that own or have owned (directly, indirectly, or by attribution) 10% or more of the total combined voting power of the outstanding shares of the Company. This summary also does not address the U.S. federal income tax considerations applicable to U.S. Holders who are: (a) U.S. expatriates or former long-term residents of the U.S.; (b) persons that have been, are, or will be a resident or deemed to be a resident in Canada for purposes of the Income Tax Act (Canada) (the “Tax Act”); (c) persons that use or hold, will use or hold, or that are or will be deemed to use or hold common shares in connection with carrying on a business in Canada; (d) persons whose common shares constitute “taxable Canadian property” under the Tax Act; or (e) persons that have a permanent establishment in Canada for the purposes of the Canada-U.S. Tax Convention. U.S. Holders that are subject to special provisions under the Code, including, but not limited to, U.S. Holders described immediately above, should consult their own tax advisor regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local and foreign tax consequences relating to the acquisition, ownership, and disposition of common shares.
If an entity or arrangement that is classified as a partnership (or other “pass-through” entity) for U.S. federal income tax purposes holds common shares, the U.S. federal income tax consequences to such entity and the partners (or other owners) of such entity generally will depend on the activities of the entity and the status of such partners (or owners). This summary does not address the tax consequences to any such owner. Partners (or other owners) of entities or arrangements that are classified as partnerships or as “pass-through” entities for U.S. federal income tax purposes should consult their own tax advisors regarding the U.S. federal income tax consequences arising from and relating to the acquisition, ownership, and disposition of common shares.
Passive Foreign Investment Company Rules
If the Company were to constitute a “passive foreign investment company” under the meaning of Section 1297 of the Code (a “PFIC”, as defined below) for any year during a U.S. Holder’s holding period, then certain potentially adverse rules will affect the U.S. federal income tax consequences to a U.S. Holder resulting from the acquisition, ownership and disposition of common shares. The Company believes that it was classified as a PFIC during the tax year ended July 31, 2020, and may be a PFIC in future tax years. The determination of whether any corporation was, or will be, a PFIC for a tax year depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations. In addition, whether any corporation will be a PFIC for any tax year depends on the assets and income of such corporation over the course of each such tax year and, as a result, cannot be predicted with certainty as of the date of this document. Accordingly, there can be no assurance that the IRS will not challenge any determination made by the Company (or any subsidiary of the Company) concerning its PFIC status. Each U.S. Holder should consult its own tax advisor regarding the PFIC status of the Company and any subsidiary of the Company.
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In addition, in any year in which the Company is classified as a PFIC, such holder would be required to file an annual report with the IRS containing such information as Treasury Regulations and/or other IRS guidance may require. U.S. Holders should consult their own tax advisors regarding the requirements of filing such information returns under these rules, including the requirement to file an IRS Form 8621.
PFIC Status of the Company
The Company generally will be a PFIC if, for a tax year, (a) 75% or more of the gross income of the Company is passive income (the “income test”) or (b) 50% or more of the value of the Company’s assets either produce passive income or are held for the production of passive income, based on the quarterly average of the fair market value of such assets (the “asset test”). “Gross income” generally includes all sales revenues less the cost of goods sold, and income from investments and from incidental or outside operations or sources, and “passive income” generally includes, for example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions.
Active business gains arising from the sale of commodities generally are excluded from passive income if substantially all (85% or more) of a foreign corporation’s commodities are stock in trade or inventory, depreciable property used in a trade or business, or supplies regularly used or consumed in a trade or business and certain other requirements are satisfied.
For purposes of the PFIC income test and asset test described above, if the Company owns, directly or indirectly, 25% or more of the total value of the outstanding shares of another corporation, the Company will be treated as if it (a) held a proportionate share of the assets of such other corporation and (b) received directly a proportionate share of the income of such other corporation. In addition, for purposes of the PFIC income test and asset test described above, and assuming certain other requirements are met, “passive income” does not include certain interest, dividends, rents, or royalties that are received or accrued by the Company from certain “related persons” (as defined in Section 954(d) (3) of the Code), to the extent such items are properly allocable to the income of such related person that is not passive income.
Under certain attribution rules, if the Company is a PFIC, U.S. Holders will generally be deemed to own their proportionate share of the Company’s direct or indirect equity interest in any company that is also a PFIC (a ‘‘Subsidiary PFIC’’), and will be subject to U.S. federal income tax on their proportionate share of (a) any “excess distributions,” as described below, on the stock of a Subsidiary PFIC and (b) a disposition or deemed disposition of the stock of a Subsidiary PFIC by the Company or another Subsidiary PFIC, both as if such U.S. Holders directly held the shares of such Subsidiary PFIC. In addition, U.S. Holders may be subject to U.S. federal income tax on any indirect gain realized on the stock of a Subsidiary PFIC on the sale or disposition of common shares. Accordingly, U.S. Holders should be aware that they could be subject to tax even if no distributions are received and no redemptions or other dispositions of common shares are made.
Default PFIC Rules under Section 1291 of the Code
If the Company is a PFIC for any tax year during which a U.S. Holder owns common shares, the U.S. federal income tax consequences to such U.S. Holder of the acquisition, ownership, and disposition of common shares will depend on whether and when such U.S. Holder makes an election to treat the Company and each Subsidiary PFIC, if any, as a “qualified electing fund” or “QEF” under Section 1295 of the Code (a “QEF Election”) or makes a mark-to-market election under Section 1296 of the Code (a “Mark-to-Market Election”). A U.S. Holder that does not make either a QEF Election or a Mark-to- Market Election will be referred to in this summary as a “Non-Electing U.S. Holder.”
A Non-Electing U.S. Holder will be subject to the rules of Section 1291 of the Code (described below) with respect to (a) any gain recognized on the sale or other taxable disposition of common shares and (b) any excess distribution received on the common shares. A distribution generally will be an “excess distribution” to the extent that such distribution (together with all other distributions received in the current tax year) exceeds 125% of the average distributions received during the three preceding tax years (or during a U.S. Holder’s holding period for the common shares, if shorter).
Under Section 1291 of the Code, any gain recognized on the sale or other taxable disposition of common shares (including an indirect disposition of the stock of any Subsidiary PFIC), and any “excess distribution” received on common shares or with respect to the stock of a Subsidiary PFIC, must be ratably allocated to each day in a Non-Electing U.S. Holder’s holding period for the respective common shares. The amount of any such gain or excess distribution allocated to the tax year of disposition or distribution of the excess distribution and to years before the entity became a PFIC, if any, would be taxed as ordinary income. The amounts allocated to any other tax year would be subject to U.S. federal income tax at the highest tax rate applicable to ordinary income in each such year, and an interest charge would be imposed on the tax liability for each such year, calculated as if such tax liability had been due in each such year. A Non-Electing U.S. Holder that is not a corporation must treat any such interest paid as “personal interest,” which is not deductible.
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If the Company is a PFIC for any tax year during which a Non-Electing U.S. Holder holds common shares, the Company will continue to be treated as a PFIC with respect to such Non-Electing U.S. Holder, regardless of whether the Company ceases to be a PFIC in one or more subsequent tax years. A Non-Electing U.S. Holder may terminate this deemed PFIC status by electing to recognize gain (which will be taxed under the rules of Section 1291 of the Code discussed above), but not loss, as if such common shares were sold on the last day of the last tax year for which the Company was a PFIC.
QEF Election
A U.S. Holder that makes a timely and effective QEF Election for the first tax year in which its holding period of its common shares begins generally will not be subject to the rules of Section 1291 of the Code discussed above with respect to its common shares. A U.S. Holder that makes a timely and effective QEF Election will be subject to U.S. federal income tax on such U.S. Holder’s pro rata share of (a) the net capital gain of the Company, which will be taxed as long-term capital gain to such U.S. Holder, and (b) the ordinary earnings of the Company, which will be taxed as ordinary income to such U.S. Holder. Generally, “net capital gain” is the excess of (a) net long-term capital gain over (b) net short-term capital loss, and “ordinary earnings” are the excess of (a) “earnings and profits” over (b) net capital gain. A U.S. Holder that makes a QEF Election will be subject to U.S. federal income tax on such amounts for each tax year in which the Company is a PFIC, regardless of whether such amounts are actually distributed to such U.S. Holder by the Company. However, for any tax year in which the Company is a PFIC and has no net income or gain, U.S. Holders that have made a QEF Election would not have any income inclusions as a result of the QEF Election. If a U.S. Holder that made a QEF Election has an income inclusion, such a U.S. Holder may, subject to certain limitations, elect to defer payment of current U.S. federal income tax on such amounts, subject to an interest charge. If such U.S. Holder is not a corporation, any such interest paid will be treated as “personal interest,” which is not deductible.
A U.S. Holder that makes a timely and effective QEF Election with respect to the Company generally (a) may receive a tax-free distribution from the Company to the extent that such distribution represents “earnings and profits” of the Company that were previously included in income by the U.S. Holder because of such QEF Election and (b) will adjust such U.S. Holder’s tax basis in the common shares to reflect the amount included in income or allowed as a tax-free distribution because of such QEF Election. In addition, a U.S. Holder that makes a QEF Election generally will recognize capital gain or loss on the sale or other taxable disposition of common shares.
The procedure for making a QEF Election, and the U.S. federal income tax consequences of making a QEF Election, will depend on whether such QEF Election is timely. A QEF Election will be treated as “timely” if such QEF Election is made for the first year in the U.S. Holder’s holding period for the common shares in which the Company was a PFIC. A U.S. Holder may make a timely QEF Election by filing the appropriate QEF Election documents at the time such U.S. Holder files a U.S. federal income tax return for such year. If a U.S. Holder does not make a timely and effective QEF Election for the first year in the U.S. Holder’s holding period for the common shares, the U.S. Holder may still be able to make a timely and effective QEF Election in a subsequent year if such U.S. Holder meets certain requirements and makes a “purging” election to recognize gain (which will be taxed under the rules of Section 1291 of the Code discussed above) as if such common shares were sold for their fair market value on the day the QEF Election is effective. If a U.S. Holder owns PFIC stock indirectly through another PFIC, separate QEF Elections must be made for the PFIC in which the U.S. Holder is a direct shareholder and the Subsidiary PFIC for the QEF rules to apply to both PFICs.
A QEF Election will apply to the tax year for which such QEF Election is timely made and to subsequent tax years, unless such QEF Election is invalidated or terminated or the IRS consents to revocation of such QEF Election. If a U.S. Holder makes a QEF Election and, in a subsequent tax year, the Company ceases to be a PFIC, the QEF Election will remain in effect (although it will not be applicable) during those tax years in which the Company is not a PFIC. Accordingly, if the Company becomes a PFIC in another subsequent tax year, the QEF Election will be effective and the U.S. Holder will be subject to the QEF rules described above during any subsequent tax year in which the Company qualifies as a PFIC.
U.S. Holders should be aware that there can be no assurances that the Company will satisfy the record keeping requirements that apply to a QEF, or that the Company will supply U.S. Holders with information that such U.S. Holders are required to report under the QEF rules, in the event that the Company is a PFIC. Thus, U.S. Holders may not be able to make a QEF Election with respect to their common shares. Each U.S. Holder should consult its own tax advisor regarding the availability of, and procedure for making, a QEF Election.
A U.S. Holder makes a QEF Election by attaching a completed IRS Form 8621, including a PFIC Annual Information Statement, to a timely filed United States federal income tax return. However, if the Company cannot provide the required information with regard to the Company or any of its Subsidiary PFICs, U.S. Holders will not be able to make a QEF Election for such entity and will continue to be subject to the rules discussed above that apply to Non-Electing U.S. Holders with respect to the taxation of gains and excess distributions.
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Mark-to-Market Election
A U.S. Holder may make a Mark-to-Market Election only if the common shares are marketable stock. The common shares generally will be “marketable stock” if the common shares are regularly traded on (a) a national securities exchange that is registered with the Securities and Exchange Commission, (b) the national market system established pursuant to section 11A of the Securities and Exchange Act of 1934, or (c) a foreign securities exchange that is regulated or supervised by a governmental authority of the country in which the market is located, provided that (i) such foreign exchange has trading volume, listing, financial disclosure, and surveillance requirements, and meets other requirements and the laws of the country in which such foreign exchange is located, together with the rules of such foreign exchange, ensure that such requirements are actually enforced and (ii) the rules of such foreign exchange effectively promote active trading of listed stocks. If such stock is traded on such a qualified exchange or other market, such stock generally will be “regularly traded” for any calendar year during which such stock is traded, other than in de minimis quantities, on at least 15 days during each calendar quarter.
A U.S. Holder that makes a Mark-to-Market Election with respect to its common shares generally will not be subject to the rules of Section 1291 of the Code discussed above with respect to such common shares. However, if a U.S. Holder does not make a Mark-to-Market Election beginning in the first tax year of such U.S. Holder’s holding period for the common shares or such U.S. Holder has not made a timely QEF Election, the rules of Section 1291 of the Code discussed above will apply to certain dispositions of, and distributions on, the common shares.
A U.S. Holder that makes a Mark-to-Market Election will include in ordinary income, for each tax year in which the Company is a PFIC, an amount equal to the excess, if any, of (a) the fair market value of the common shares, as of the close of such tax year over (b) such U.S. Holder’s tax basis in such common shares. A U.S. Holder that makes a Mark-to-Market Election will be allowed a deduction in an amount equal to the excess, if any, of (a) such U.S. Holder’s adjusted tax basis in the common shares, over (b) the fair market value of such common shares (but only to the extent of the net amount of previously included income as a result of the Mark-to-Market Election for prior tax years).
A U.S. Holder that makes a Mark-to-Market Election generally also will adjust such U.S. Holder’s tax basis in the common shares to reflect the amount included in gross income or allowed as a deduction because of such Mark-to-Market Election. In addition, upon a sale or other taxable disposition of common shares, a U.S. Holder that makes a Mark-to-Market Election will recognize ordinary income or ordinary loss (not to exceed the excess, if any, of (a) the amount included in ordinary income because of such Mark-to-Market Election for prior tax years over (b) the amount allowed as a deduction because of such Mark-to-Market Election for prior tax years). Losses that exceed this limitation are subject to the rules generally applicable to losses provided in the Code and Treasury Regulations.
A Mark-to-Market Election applies to the tax year in which such Mark-to-Market Election is made and to each subsequent tax year, unless the common shares cease to be “marketable stock” or the IRS consents to revocation of such election. Each U.S. Holder should consult its own tax advisor regarding the availability of, and procedure for making, a Mark-to-Market Election.
Although a U.S. Holder may be eligible to make a Mark-to-Market Election with respect to the common shares, no such election may be made with respect to the stock of any Subsidiary PFIC that a U.S. Holder is treated as owning, because such stock is not marketable. Hence, the Mark-to-Market Election will not be effective to eliminate the application of the default rules of Section 1291 of the Code described above with respect to deemed dispositions of Subsidiary PFIC stock or excess distributions from a Subsidiary PFIC.
Other PFIC Rules
Under Section 1291(f) of the Code, the IRS has issued proposed Treasury Regulations that, subject to certain exceptions, would cause a U.S. Holder that had not made a timely QEF Election to recognize gain (but not loss) upon certain transfers of common shares that would otherwise be tax-deferred (e.g., gifts and exchanges pursuant to corporate reorganizations). However, the specific U.S. federal income tax consequences to a U.S. Holder may vary based on the manner in which common shares are transferred.
Certain additional adverse rules may apply with respect to a U.S. Holder if the Company is a PFIC, regardless of whether such U.S. Holder makes a QEF Election. For example, under Section 1298(b)(6) of the Code, a U.S. Holder that uses common shares as security for a loan will, except as may be provided in Treasury Regulations, be treated as having made a taxable disposition of such common shares.
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Special rules also apply to the amount of foreign tax credit that a U.S. Holder may claim on a distribution from a PFIC. Subject to such special rules, foreign taxes paid with respect to any distribution in respect of stock in a PFIC are generally eligible for the foreign tax credit. The rules relating to distributions by a PFIC and their eligibility for the foreign tax credit are complicated, and a U.S. Holder should consult with its own tax advisor regarding the availability of the foreign tax credit with respect to distributions by a PFIC.
The PFIC rules are complex, and each U.S. Holder should consult its own tax advisor regarding the PFIC rules and how the PFIC rules may affect the U.S. federal income tax consequences of the acquisition, ownership, and disposition of common shares.
Ownership and Disposition of Common Shares
The following discussion is subject to the rules described above under the heading “Passive Foreign Investment Company Rules.”
Distributions on Common Shares
A U.S. Holder that receives a distribution, including a constructive distribution, with respect to a common share will be required to include the amount of such distribution in gross income as a dividend (without reduction for any Canadian income tax withheld from such distribution) to the extent of the current or accumulated “earnings and profits” of the Company, as computed for U.S. federal income tax purposes. A dividend generally will be taxed to a U.S. Holder at ordinary income tax rates if the Company is a PFIC. To the extent that a distribution exceeds the current and accumulated “earnings and profits” of the Company, such distribution will be treated first as a tax- free return of capital to the extent of a U.S. Holder’s tax basis in the common shares and thereafter as gain from the sale or exchange of such common shares. (See “Sale or Other Taxable Disposition of common shares” below). However, the Company may not maintain the calculations of earnings and profits in accordance with U.S. federal income tax principles, and each U.S. Holder should therefore assume that any distribution by the Company with respect to the common shares will constitute ordinary dividend income. Dividends received on common shares generally will not be eligible for the “dividends received deduction”. In addition, the Company does not anticipate that its distributions will constitute qualified dividend income eligible for the preferential tax rates applicable to long-term capital gains. The dividend rules are complex, and each U.S. Holder should consult its own tax advisor regarding the application of such rules.
Sale or Other Taxable Disposition of Common Shares
Upon the sale or other taxable disposition of common shares, a U.S. Holder generally will recognize capital gain or loss in an amount equal to the difference between the U.S. Dollar value of cash received plus the fair market value of any property received and such U.S. Holder’s tax basis in such common shares sold or otherwise disposed of. A U.S. Holder’s tax basis in common shares generally will be such holder’s U.S. Dollar cost for such common shares. Gain or loss recognized on such sale or other disposition generally will be long-term capital gain or loss if, at the time of the sale or other disposition, the common shares have been held for more than one year.
Preferential tax rates currently apply to long-term capital gain of a U.S. Holder that is an individual, estate, or trust. There are currently no preferential tax rates for long-term capital gain of a U.S. Holder that is a corporation. Deductions for capital losses are subject to significant limitations under the Code.
Additional Tax on Passive Income
For tax years beginning after December 31, 2012, certain individuals, estates and trusts whose income exceeds certain thresholds will be required to pay a 3.8% Medicare surtax on “net investment income” including, among other things, dividends and net gain from dispositions of property (other than property held in a trade or business). U.S. Holders should consult with their own tax advisors regarding the effect, if any, of this tax on their ownership and disposition of common shares.
Receipt of Foreign Currency
The amount of any distribution paid to a U.S. Holder in foreign currency, or on the sale, exchange or other taxable disposition of common shares, generally will be equal to the U.S. Dollar value of such foreign currency based on the exchange rate applicable on the date of receipt (regardless of whether such foreign currency is converted into U.S. Dollars at that time). A U.S. Holder will have a basis in the foreign currency equal to its U.S. Dollar value on the date of receipt. Any U.S. Holder who converts or otherwise disposes of the foreign currency after the date of receipt may have a foreign currency exchange gain or loss that would be treated as ordinary income or loss, and generally will be U.S. source income or loss for foreign tax credit purposes. Each U.S. Holder should consult its own U.S. tax advisor regarding the U.S. federal income tax consequences of receiving, owning, and disposing of foreign currency.
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Foreign Tax Credit
Subject to the PFIC rules discussed above, a U.S. Holder that pays (whether directly or through withholding) Canadian income tax with respect to dividends paid on the common shares generally will be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such Canadian income tax. Generally, a credit will reduce a U.S. Holder’s U.S. federal income tax liability on a Dollar-for-Dollar basis, whereas a deduction will reduce a U.S. Holder’s income subject to U.S. federal income tax. This election is made on a year-by-year basis and applies to all foreign taxes paid (whether directly or through withholding) by a U.S. Holder during a year.
Complex limitations apply to the foreign tax credit, including the general limitation that the credit cannot exceed the proportionate share of a U.S. Holder’s U.S. federal income tax liability that such U.S. Holder’s “foreign source” taxable income bears to such U.S. Holder’s worldwide taxable income. In applying this limitation, a U.S. Holder’s various items of income and deduction must be classified, under complex rules, as either “foreign source” or “U.S. source.” Generally, dividends paid by a foreign corporation should be treated as foreign source for this purpose, and gains recognized on the sale of stock of a foreign corporation by a U.S. Holder should be treated as U.S. source for this purpose, except as otherwise provided in an applicable income tax treaty, and if an election is properly made under the Code. However, the amount of a distribution with respect to the common shares that is treated as a “dividend” may be lower for U.S. federal income tax purposes than it is for Canadian federal income tax purposes, resulting in a reduced foreign tax credit allowance to a U.S. Holder. In addition, this limitation is calculated separately with respect to specific categories of income. The foreign tax credit rules are complex, and each U.S. Holder should consult its own U.S. tax advisor regarding the foreign tax credit rules.
Backup Withholding and Information Reporting
Under U.S. federal income tax law and Treasury Regulations, certain categories of U.S. Holders must file information returns with respect to their investment in, or involvement in, a foreign corporation. For example, recently enacted legislation generally imposes new U.S. return disclosure obligations (and related penalties) on individuals who are U.S. Holders that hold certain specified foreign financial assets in excess of $50,000. The definition of specified foreign financial assets includes not only financial accounts maintained in foreign financial institutions, but also, unless held in accounts maintained by a financial institution, any stock or security issued by a non-U.S. person, any financial instrument or contract held for investment that has an issuer or counterparty other than a U.S. person and any interest in a foreign entity. U.S. Holders may be subject to these reporting requirements unless their common shares are held in an account at a domestic financial institution. Penalties for failure to file certain of these information returns are substantial. U.S. Holders should consult with their own tax advisors regarding the requirements of filing information returns, including the requirement to file an IRS Form 8938.
Payments made within the U.S. or by a U.S. payor or U.S. middleman, of dividends on, and proceeds arising from the sale or other taxable disposition of, common shares will generally be subject to information reporting and backup withholding tax, at the rate of 28% (and increasing to 31% for payments made after December 31, 2012), if a U.S. Holder (a) fails to furnish such U.S. Holder’s correct U.S. taxpayer identification number (generally on Form W-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is notified by the IRS that such U.S. Holder has previously failed to properly report items subject to backup withholding tax, or (d) fails to certify, under penalty of perjury, that such U.S. Holder has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder that it is subject to backup withholding tax. However, certain exempt persons generally are excluded from these information reporting and backup withholding rules. Backup withholding is not an additional tax. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a credit against a U.S. Holder’s U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS in a timely manner. Each U.S. Holder should consult its own tax advisor regarding the information reporting and backup withholding rules.
F. DIVIDENDS AND PAYING AGENTS
Not applicable.
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G. STATEMENT BY EXPERTS
Not applicable.
H. DOCUMENTS ON DISPLAY
Exhibits attached to this Form 20-F are also available for viewing on EDGAR at http://www.sec.gov/, or at the offices of the Company, 14th Floor - 1040 West Georgia Street, Vancouver, British Columbia V6E 4H1 or on request of the Company at 604-684-6365, attention: Investor Relations Department. Copies of the Company’s IFRS financial statements and other continuous disclosure documents required under the British Columbia Securities Act are available for viewing on the internet at www.sedar.com.
I. SUBSIDIARY INFORMATION
Not applicable.
ITEM 11 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A. TRANSACTION RISK AND CURRENCY RISK MANAGEMENT
The Company is exposed in varying degrees to a variety of financial instrument related risks. The Board approves and monitors the risk management processes, inclusive of documented treasury policies, counterparty limits, and controlling and reporting structures.
B. EXCHANGE RATE SENSITIVITY
The Company incurs substantially all of its expenditures in Canada and substantially all of its cash is denominated in Canadian dollars. Consequently, the Company is not subject to material foreign exchange risk.
C. INTEREST RATE RISK AND EQUITY PRICE RISK
The Company is subject to interest rate risk with respect to its investments in cash. The Company’s policy is to invest cash at fixed rates of interest and cash reserves are to be maintained in cash and cash equivalents in order to maintain liquidity, while achieving a satisfactory return for shareholders. Fluctuations in interest rates when the cash and cash equivalents mature impact interest income earned.
D. COMMODITY PRICE RISK
While the value of the Company’s resource properties, if any, can always be said to relate to the price of precious metals and the outlook for same, the Company does not have any resource properties or operating mines and hence does not have any hedging or other commodity based operational risks respecting to its business activities.
ITEM 12 DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
ITEM 13 DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not applicable.
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ITEM 14 MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Not applicable.
ITEM 15 CONTROLS AND PROCEDURES
A. DISCLOSURE CONTROLS AND PROCEDURES
At the end of the period covered by this annual report on Form 20-F, an evaluation was carried out with the participation of the Company’s management, including the President and Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a – 15(e) and 15d –15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, the President and CEO and the CFO have concluded that as of the end of the period covered by this annual report on Form 20-F, the Company’s disclosure controls and procedures were effective in providing reasonable assurance that: (i) information required to be disclosed by the Company in reports that it files or submits to the SEC under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in applicable rules and forms, and (ii) material information required to be disclosed in the Company’s reports filed under the Exchange Act was accumulated and communicated to the Company’s management, including the President and CEO and the CFO, as appropriate, to allow for accurate and timely decisions regarding required disclosure.
B. MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company’s management, including the President and CEO and CFO, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of financial statements for external purposes in accordance with IFRS. The Company’s internal control over financial reporting includes those policies and procedures that:
| · | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
| · | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and |
| · | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. |
With the participation of the President and CEO and CFO, management conducted an evaluation of the design and operation of the Company’s internal control over financial reporting as of July 31, 2021, based on the criteria set forth in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Based on this evaluation, management concluded in its report that the Company’s internal control over financial reporting was effective as of July 31, 2021.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules that permit the Company to provide only management’s report in this annual report.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the period covered by this Annual Report on Form 20-F, no changes occurred in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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LIMITATIONS OF CONTROLS AND PROCEDURES
The Company’s management, including its President and CEO and CFO, does not expect that its disclosure controls and procedures or internal controls and procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. 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 their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of 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 the controls. The design of any system of controls is also 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, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
ITEM 16 [RESERVED]
ITEM 16A AUDIT COMMITTEE FINANCIAL EXPERT
The members of the Audit Committee are Trevor Thomas, Matthew Dickinson, and Leonie Tomlinson. The Board of Directors has determined that Ms. Thomlinson qualifies as a “financial expert” under the rules of the Securities and Exchange Commission, based on her education and experience. Ms. Tomlinson is “independent”, as that term is defined in section 803 of the NYSE MKT Company Guide.
Each Audit Committee member is able to read and understand fundamental financial statements.
ITEM 16B CODE OF ETHICS
The Company’s board of directors has adopted a written Code of Ethics governing directors, officers, and employees. The Code of Ethics sets forth written standards that are designed to deter wrongdoing and to meet the Company’s core vision: to become a successful and innovative mining and mineral exploration corporation.
In order to achieve the Company’s vision the following values are to be included in all activities:
| · | Responsibly explore for and develop mineral resources; |
| · | Be respectful of the environment; |
| · | Be an industry leader and participate in industry organizations devoted to improving the industry; |
| · | Be a strong and honest competitor; |
| · | Be a responsible corporate citizen and contribute to the community; |
| · | Deal fairly with our customers, suppliers and joint venture participants; |
| · | Provide a safe and rewarding work environment; and |
| · | Deliver value to shareholders. |
The board of directors monitors compliance with the Code of Ethics by ensuring that all Company personnel have read and understood the Code of Ethics, and by charging management with bringing to the attention of the board of directors any issues that arise with respect to the Code of Ethics.
A copy of the Code of Ethics was filed with the Securities and Exchange Commission as an exhibit to the Company’s Annual Report filed on Form 20-F for the fiscal year ended July 31, 2012 and is available at www.sec.gov. The Company will also provide a copy of the Code of Ethics to any person without charge, upon request. Requests can be sent by mail to: 14th Floor, 1040 West Georgia Street, Vancouver, British Columbia, Canada, V6E 4H8; or submitted by telephone at 604-684-6365, attention: Investor Relations Department.
During the most recently completed fiscal year, the Company has neither: (a) amended its Code of Ethics; nor (b) granted any waiver (including any implicit waiver) form any provision of its Code of Ethics.
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ITEM 16C PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table discloses the aggregate fees billed for each of the last fiscal year for professional services rendered by the Company’s former audit firm, Davidson & Company LLP for various services and estimate audit fee for the newly appointed audit firm, DeVisser Gray LLP.
Services: | Year ended | |
| July 31, 2021 | July 31, 2020 |
Audit Fees (1) | $18,000(estimate) | $18,000 |
Audit Related Fees (2) | – | – |
Tax Fees (3) | – | – |
All Other Fees (4) | – | – |
Total | $18,000(estimate) | $18,000 |
Notes:
(1) | “Audit Fees” include fees necessary to perform the annual audit and quarterly reviews of the Company’s consolidated financial statements. Audit Fees include fees for review of tax provisions and for accounting consultations on matters reflected in the financial statements. Audit Fees also include audit or other attest services required by legislation or regulation, such as comfort letters, consents, reviews of securities filings and statutory audits. |
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|
(2) | “Audit-Related Fees” include services that are traditionally performed by the auditor. These audit-related services include employee benefit audits, due diligence assistance, accounting consultations on proposed transactions, internal control reviews and audit or attest services not required by legislation or regulation. |
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(3) | “Tax Fees” include fees billed for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning. |
|
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(4) | “All Other Fees” include fees billed for products and services provided by the principal accountant, other than the services reported in (1), (2), or (3) above. |
From time to time, management of the Company recommends to and requests approval from the Audit Committee for non-audit services to be provided by the Company’s auditors. The Audit Committee routinely considers such requests at committee meetings, and if acceptable to a majority of the Audit Committee members, pre-approves such non-audit services by a resolution authorizing management to engage the Company’s auditors for such non-audit services, with set maximum dollar amounts for each itemized service. During such deliberations, the Audit Committee assesses, among other factors, whether the services requested would be considered “prohibited services” as contemplated by the SEC, and whether the services requested and the fees related to such services could impair the independence of the auditors. No material non-audit services were provided by the Company’s auditors during the year ended July 31, 2021.
ITEM 16D EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16E PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
During the year ended July 31, 2021, the Company did not purchase any of its issued and outstanding common shares pursuant to any repurchase program or otherwise.
ITEM 16F CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
None.
ITEM 16G CORPORATE GOVERNANCE
Not applicable.
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ITEM 16H MINE SAFETY DISCLOSURE
Not applicable.
ITEM 17 FINANCIAL STATEMENTS
Not applicable. See Item 18.
ITEM 18 FINANCIAL STATEMENTS
See Exhibit 99.1.
ITEM 19 EXHIBITS
The following Exhibits have been filed with the Company’s Annual Report on Form 20-F in previous years:
Exhibit Number | Description of Exhibit | Note |
1.1 | Transition Application dated October 11, 2005 | Incorporated by reference from our Annual Report on Form 20-F for the year ended July 31, 2005, filed on January 10, 2006. |
1.2 | Notice of Articles dated October 11, 2005 | Incorporated by reference from our Annual Report on Form 20-F for the year ended July 31, 2005, filed on January 10, 2006. |
1.3 | Notice of Alteration of Articles dated October 11, 2005 | Incorporated by reference from our Annual Report on Form 20-F for the year ended July 31, 2005, filed on January 10, 2006. |
1.4 | Notice of Alteration dated February 17, 2006 | Incorporated by reference from our Annual Report on Form 20-F for the year ended July 31, 2006, filed on January 29, 2007. |
1.5 | Notice of Articles dated February 17, 2006 | Incorporated by reference from our Annual Report on Form 20-F for the year ended July 31, 2006, filed on January 29, 2007. |
1.7 | Articles, as amended the Company’s Annual General Meeting, held on February 24, 2014. | Incorporated by reference from our Annual Report on Form 20-F for the year ended July 31, 2014, filed on October 17, 2014. |
4.2 | Services Agreement between HDI and the Company dated July 2, 2010 | Incorporated by reference from our Annual Report on Form 20-F for the year ended July 31, 2010, filed on October 29, 2010. |
6.1 | Stock Option Plan approved by Shareholders on March 15, 2012 | Incorporated by reference from our Annual Report on Form 20-F for the year ended July 31, 2012, filed on November 30, 2012. |
6.2 | Audit Committee Charter | Incorporated by reference from our Annual Report on Form 20-F for the year ended July 31, 2012, filed on November 30, 2012. |
10.1 | Articles approved by Shareholders on March 15, 2012 | Incorporated by reference from our Annual Report on Form 20-F for the year ended July 31, 2012, filed on November 30, 2012. |
10.2 | Articles approved by Shareholders on February 24, 2014 | Incorporated by reference from our Annual Report on Form 20-F for the year ended July 31, 2016, filed on October 4, 2016. |
| 45 |
| Table of Contents |
Exhibit Number | Description of Exhibit | Note |
11.1 | Settlement agreement between Bearclaw and HDSI dated January 15, 2016 | Incorporated by reference from our Annual Report on Form 20-F for the year ended July 31, 2016, filed on October 4, 2016. |
16B. | Code of Ethics and Trading Restrictions | Incorporated by reference from our Annual Report on Form 20-F for the year ended July 31, 2012, filed on November 30, 2012. |
The following exhibits are filed with this Annual Report on Form 20-F:
| 46 |
| Table of Contents |
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.
QUARTZ MOUNTAIN RESOURCES LTD. | |
| /s/ Trevor Thomas | |
Trevor Thomas | |
| President and Chief Executive Officer | |
|
|
| Dated: November 25, 2021 |
| 47 |
EXHIBIT 12.1
SARBANES-OXLEY CEO CERTIFICATION
I, Trevor Thomas, Chief Executive Officer of Quartz Mountain Resources Ltd., certify that:
| 1. | I have reviewed this Annual Report on Form 20-F of Quartz Mountain 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 issuer as of, and for, the periods presented in this report; |
|
|
|
| 4. | The issuer’s other certifying officer 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 controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer 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 issuer, 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 issuer’s 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 |
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|
|
|
| (d) | Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting; and |
| 5. | The issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of the internal control over financial reporting, to the issuer’s auditors and the audit committee of issuer’s 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 issuer’s 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 issuer’s internal control over financial reporting. |
| Date: November 25, 2021 | ||
| /s/ Trevor Thomas | ||
| By: | Trevor Thomas | |
| Title: | Chief Executive Officer | |
EXHIBIT 12.2
SARBANES-OXLEY CEO CERTIFICATION
I, Sebastian Tang, Chief Financial Officer of Quartz Mountain Resources Ltd., certify that:
| 1. | I have reviewed this Annual Report on Form 20-F of Quartz Mountain 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 issuer as of, and for, the periods presented in this report; |
|
|
|
| 4. | The issuer’s other certifying officer 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 controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer 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 issuer, 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 issuer’s 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 issuer’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting; and |
| 5. | The issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of the internal control over financial reporting, to the issuer’s auditors and the audit committee of issuer’s 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 issuer’s 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 issuer’s internal control over financial reporting. |
| Date: November 25, 2021 | ||
| /s/ Sebastian Tang | ||
| By: | Sebastian Tang | |
| Title: | Chief Financial Officer | |
EXHIBIT 13.1
CERTIFICATION OF
CHIEF EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Trevor Thomas, Chief Executive Officer of Quartz Mountain Resources Ltd. (the “Company”), hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
|
| (i) | the Annual Report on Form 20-F of the Company for the fiscal year ended July 31, 2021 (the “Annual Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
|
|
|
|
| (ii) | the information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: November 25, 2021 | ||
| /s/ Trevor Thomas | ||
| By: | Trevor Thomas | |
| Title: | Chief Executive Officer | |
This written statement is being furnished to the Securities and Exchange Commission as an exhibit to the Company’s Annual Report on Form 20-F. A signed original of this statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
This certification accompanies this Annual Report on Form 20-F pursuant to Section 906 of the Sarbanes- Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.
EXHIBIT 13.2
CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350, AS
ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Sebastian Tang, Chief Financial Officer of Quartz Mountain Resources Ltd. (the “Company”), hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
|
| (i) | the Annual Report on Form 20-F of the Company for the fiscal year ended July 31, 2021 (the “Annual Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
|
|
|
|
| (ii) | the information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: November 25, 2021 | ||
| /s/ Sebastian Tang | ||
| By: | Sebastian Tang | |
| Title: | Chief Financial Officer | |
EXHIBIT 99.1
QUARTZ MOUNTAIN RESOURCES LTD.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2021, 2020 AND 2019
(Expressed in Canadian Dollars, unless otherwise stated)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Directors of Quartz Mountain Resources Ltd. Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated financial statements of Quartz Mountain Resources Ltd. (“the Company”), which comprise the consolidated statements of financial position as at July 31, 2021 and the consolidated statements of loss and comprehensive loss, changes in shareholders’ equity (deficiency) and cash flows for the year ended, and a summary of significant accounting policies and other explanatory information (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as at July 31, 2021 and its financial performance and its cash flows for the year then ended, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
The consolidated financial statements of the Company as at July 31, 2020 were audited by other auditors whose report dated November 20, 2020 expressed an unqualified opinion on those statements.
Critical Audit Matters
Critical audit matters are matters arising from the current year audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
Going Concern
Without modifying our opinion, we draw attention to Note 1 in the consolidated financial statements which indicates that there are material uncertainties that cast significant doubt about the going concern assumption. The Company has no current source of revenue, has incurred losses from inception and is dependent upon its ability to secure new sources of financing. These conditions, along with other matters as set forth in Note 1, indicate the existence of a material uncertainty that casts significant doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free of material misstatement, whether due to fraud or error. The Company is not required to have, nor were we engaged to perform, an audit of internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting 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.
Basis for Opinion (continued)
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
We have served as the Company’s auditor since 2021.
CHARTERED PROFESSIONAL ACCOUNTANTS
Vancouver, Canada
November 25, 2021
QUARTZ MOUNTAIN RESOURCES LTD. |
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION |
(Expressed in Canadian Dollars) |
|
| Note |
|
| July 31, 2021 |
|
| July 31, 2020 |
| |||
Assets |
|
|
|
|
|
|
|
|
| |||
Current assets |
|
|
|
|
|
|
|
|
| |||
Cash |
|
|
|
| $ |
|
| $ |
| |||
Amounts receivable and other assets |
|
| 3 |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
| ||
Non-current assets |
|
|
|
|
|
|
|
|
|
|
|
|
Mineral property interests |
|
| 4 |
|
|
|
|
|
|
| ||
Right-of-use asset |
|
| 12 |
|
|
|
|
|
|
| ||
Total assets |
|
|
|
|
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Amounts payable and other liabilities |
|
| 6 |
|
| $ |
|
| $ |
| ||
Income taxes payable |
|
|
|
|
|
|
|
|
|
| ||
Due to related parties |
|
| 7(a)&(b) |
|
|
|
|
|
| |||
Lease liability |
|
| 12 |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
| ||
Non-current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Lease liability |
|
| 12 |
|
|
|
|
|
|
| ||
Total liabilities |
|
|
|
|
|
|
|
|
|
| ||
Shareholders' equity |
|
|
|
|
|
|
|
|
|
|
|
|
Share capital |
|
| 5(a) |
|
|
|
|
|
| |||
Reserves |
|
|
|
|
|
|
|
|
|
| ||
Accumulated deficit |
|
|
|
|
|
| ( | ) |
|
| ( | ) |
Total shareholders' equity |
|
|
|
|
|
|
|
|
|
| ||
Total liabilities and shareholders' equity |
|
|
|
|
| $ |
|
| $ |
| ||
Nature and continuance of operations (note 1) Event after the reporting period (note 13)
The accompanying notes are an integral part of these consolidated financial statements.
/s/ Trevor Thomas |
| /s/ Leonie Tomlinson |
|
|
|
Trevor Thomas |
| Leonie Tomlinson |
Director |
| Director |
QUARTZ MOUNTAIN RESOURCES LTD. CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS (Expressed in Canadian Dollars, except for weighted average number of common shares) |
|
|
|
|
|
|
|
| Years ended July 31, |
| |||||||
|
| Note |
|
| 2021 |
|
| 2020 |
|
| 2019 |
| ||||
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Exploration and evaluation |
|
|
|
| $ |
|
| $ |
|
| $ |
| ||||
Assays and analysis |
|
|
|
|
|
|
|
|
|
|
| - |
| |||
Geological |
|
|
|
|
|
|
|
|
|
|
| - |
| |||
Helicopter and fuel |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Property costs and assessments |
|
|
|
|
|
|
|
| - |
|
|
|
| |||
Site activities |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Travel and accommodation |
|
|
|
|
|
|
|
|
|
|
| - |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Administrative fees |
|
| 7(a) |
|
|
|
|
|
|
|
|
| ||||
Insurance |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
IT Services |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Legal, accounting and audit |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Office and miscellaneous |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Property investigation |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Regulatory, trust and filing |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Shareholder communications |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
| (254,168 | ) |
|
| (249,442 | ) |
|
| (149,170 | ) |
Other items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion expense - office lease |
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ||
Amortization of Right-of-use asset |
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ||
Gain on sale of royalty interest |
|
| 4(b) |
|
|
|
|
|
|
|
|
| ||||
Selling costs for royalty interest |
|
| 4(b) |
|
| ( | ) |
|
|
|
|
|
| |||
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Interest expense |
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |
Foreign exchange gain (loss) |
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |
Gain on settlement of debt |
|
| 7(b) |
|
|
|
|
|
|
|
|
| ||||
Income (loss) and comprehensive income (loss) before taxes for the year |
|
|
|
|
| $ | ( | ) |
| $ |
|
| $ | ( | ) | |
Current income tax expenses |
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ||
Income (loss) and comprehensive income (loss) for the year |
|
|
|
|
| $ | ( | ) |
| $ |
|
| $ | ( | ) | |
Basic earning (loss) per common share |
|
|
|
|
| $ | ( | ) |
| $ |
|
| $ | ( | ) | |
Diluted earning (loss) per common share |
|
|
|
|
| $ | ( | ) |
| $ |
|
| $ | ( | ) | |
Weighted average number of common shares outstanding (note 5(c)) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
QUARTZ MOUNTAIN RESOURCES LTD. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOLDERS' EQUITY (DEFICIENCY) (Expressed in Canadian Dollars, except for share information) |
|
|
|
| Share Capital |
|
| Reserves |
|
|
|
|
| Total |
| ||||||||||
|
| Note |
|
| Number of shares |
|
| Amount |
|
| Equity-settled share-based payments |
|
| Accumulated deficit |
|
| shareholders' equity (deficiency) |
| ||||||
Balance at August 1, 2018 |
|
|
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) | ||||
Loss for the year |
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| ( | ) |
|
| ( | ) | |
Balance at July 31, 2019 |
|
|
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) | ||||
Balance at August 1, 2019 |
|
|
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) | ||||
Shares issued for settlement of debt |
|
| 7(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Shares issued for private placement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Shares issuance costs |
|
|
|
|
|
| - |
|
|
| ( | ) |
|
|
|
|
|
|
|
| ( | ) | ||
Loss for the year |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance at July 31, 2020 |
|
|
|
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||
Balance at July 31, 2020 |
|
|
|
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||
Flow-through shares issued through exercise of warrants |
|
| 5(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Non-flow through shares issued through exercise of warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Shares issued for the acquisition of mineral property interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Share issuance costs |
|
|
|
|
|
| - |
|
|
| ( | ) |
|
|
|
|
|
|
|
| ( | ) | ||
Loss for the year |
|
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Balance at July 31, 2021 |
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| $ |
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| $ |
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| $ |
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The accompanying notes are an integral part of these consolidated financial statements.
QUARTZ MOUNTAIN RESOURCES LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS (Expressed in Canadian Dollars) |
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Operating activities |
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Income (loss) for the year |
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| $ |
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Adjusted for: |
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Accretion expense - office lease |
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Amortization of Right-of-use asset |
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Income taxes expenses |
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Interest income |
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Interest expense |
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Gain on sale of royalty interests net of costs |
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Gain on settlement of debt |
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Changes in working capital items: |
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Amounts receivable and other assets |
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Amounts payable and other liabilities |
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Due to related parties |
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| 7(a)&7(b) |
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Net cash used in operating activities |
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Investing activities |
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Mineral property acquisition |
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Sale of royalty interest net of costs |
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Interest received |
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Net cash provided by investing activities |
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Financing activities |
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Office lease payment (base rent portion capitalized under IFRS 16) |
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Proceeds from exercise of warrants |
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| 5(a) |
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Proceeds from loan payable |
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Proceeds from private placement |
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Share issuance costs |
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Repayment of loan payable |
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Interest paid on related party loan |
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Net cash provided by financing activities |
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Increase (decrease) in cash |
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Cash, beginning of the year |
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Cash, end of the year |
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| $ |
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| $ |
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| $ |
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The accompanying notes are an integral part of these consolidated financial statements.
QUARTZ MOUNTAIN RESOURCES LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JULY 31, 2021, 2020 AND 2019 (Expressed in Canadian Dollars, unless otherwise stated) |
1. | NATURE AND CONTINUANCE OF OPERATIONS |
Quartz Mountain Resources Ltd. is a Canadian public company incorporated in British Columbia on August 3, 1982. The Company's common shares trade on the TSX Venture Exchange (“TSX-V”) under the symbol QZM, and certain broker-dealers in the United States make market in the Company's common shares on the OTC Grey Market under the symbol QZMRF. The Company's corporate office is located at 1040 West Georgia Street, 14th Floor, Vancouver, British Columbia, Canada. The Company most recently focused on evaluating mineral prospects for potential acquisition and exploration in British Columbia. The Company continues to investigate potential opportunities.
These consolidated financial statements (the “Financial Statements”) of the Company as at and for the year ended July 31, 2021, include Quartz Mountain Resources Ltd. and its subsidiaries (together referred to as the “Company”). Quartz Mountain Resources Ltd. is the ultimate parent entity of the group.
These Financial Statements have been prepared on a going concern basis, which contemplates the realization of assets and discharge of liabilities in the normal course of business for the foreseeable future. As at July 31, 2021, the Company had an accumulated deficit of $
Additional debt or equity financing will be required to fund acquisition of mineral property interests. There can be no assurance that the Company will be able to obtain additional financial resources or achieve positive cash flows. If the Company is unable to obtain adequate additional financing, it will need to curtail its expenditures further, until additional funds can be raised through financing activities.
These Financial Statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that may be necessary should the Company be unable to continue as a going concern.
Effective May 27, 2020, the Company completed a forward share split (the “Share Split”) on the basis of two additional common shares for every common share outstanding prior to the ShareSplit. Outstanding warrants were adjusted by the same share split ratio. All references to sharesand per share amounts have been retroactively restated to give effect to the Share Split.
COVID-19
Given the ongoing and dynamic nature of the circumstances surrounding the COVID-19 pandemic, it is difficult to predict how significant the impact of COVID-19, including any responses to it, will be on the global economy and the business of the Company or for how long any disruptions are likely to continue. The extent of such impact will depend on future developments, which are highly uncertain, rapidly evolving and difficult to predict, including new information which may emerge about COVID- 19 and additional actions which may be taken to contain it.
QUARTZ MOUNTAIN RESOURCES LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JULY 31, 2021, 2020 AND 2019 (Expressed in Canadian Dollars, unless otherwise stated) |
Such developments could have a material adverse effect on the Company’s business, financial condition, results of operations and cash flow, and exposure to credit risk.
The Company is constantly evaluating the situation and monitoring any impacts or potential impacts to its business.
2. | SIGNIFICANT ACCOUNTING POLICIES |
The principal accounting policies applied in the preparation of these Financial Statements are described below. These policies have been consistently applied for all years presented, unless otherwise stated.
(a) | Statement of compliance |
These Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and the International Financial Reporting Interpretations Committee (“IFRIC”), effective for the Company's fiscal year ended July 31, 2021.
The Company’s Board of Directors authorized issuance of these Financial Statements on November 24, 2021.
(b) | Basis of presentation and consolidation |
These Financial Statements have been prepared on a historical cost basis, except for financial instruments measured at fair value. In addition, these Financial Statements have been prepared using the accrual basis of accounting, except for cash flow information.
These Financial Statements include the accounts of the Company and the subsidiaries that it controls. Control is achieved when the Company is exposed to, or has rights to, variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Intercompany balances and transactions including any unrealized income and expenses arising from intercompany transactions are eliminated upon consolidation.
At July 31, 2021 and July 31, 2020, the Company held a
(c) | Significant accounting estimates and judgments |
The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates, and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. The impact of such estimates is pervasive throughout the financial statements, and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and future periods if the revision affects both current and future periods. These estimates are based on historical experience, current and future economic condition and other factors, including expectations of future events that management believes are reasonable under the circumstances. Changes in the subjective inputs and assumptions can materially affect fair value estimates.
QUARTZ MOUNTAIN RESOURCES LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JULY 31, 2021, 2020 AND 2019 (Expressed in Canadian Dollars, unless otherwise stated) |
Specific areas where significant estimates or judgments exist are:
| · | Management has applied judgment on settlement of debt with related parties as to whether they were acting in the capacity as creditor or shareholder. |
| · | Assessment of the Company's ability to continue as a going concern. |
(d) | Foreign currency |
The functional and presentational currency of the Company and its subsidiaries is the Canadian Dollar (“CAD”).
Transactions in currencies other than the functional currency of the Company are recorded at the rates of exchange prevailing on the dates of transactions. At each financial position reporting date, monetary assets and liabilities that are denominated in foreign currencies are translated at the rates of exchange prevailing at the reporting date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not re-translated. Gains and losses arising on translation are included in profit or loss for the year.
(e) | Financial instruments |
Financial assets and liabilities are recognized when the Company becomes party to the contracts that give rise to them. The Company determines the classification of its financial assets and liabilities at initial recognition, and, where allowed and appropriate, re-evaluates such classification at each financial year-end. The Company does not have any derivative financial instruments.
A financial asset (unless it is a trade receivable without a significant financing component that is initially measured at the transaction price) is initially measured at fair value plus, for an item not measured at fair value through profit or loss (“FVTPL”), transaction costs that are directly attributable to its acquisition. The directly attributable transaction costs of a financial asset classified at FVTPL are expensed in the period in which they are incurred.
Measurement
Financial assets and liabilities measured at amortized cost
A financial asset is measured at amortized cost if it meets both the following conditions and is not designated as FVTPL:
| · | it is held within a business model whose objective is to hold assets to collect contractual cash flows; and, |
| · | its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. |
QUARTZ MOUNTAIN RESOURCES LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JULY 31, 2021, 2020 AND 2019 (Expressed in Canadian Dollars, unless otherwise stated) |
Financial assets and liabilities are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses.
Interest income, foreign exchange gains and losses, and impairment losses are recognized in profit or loss. Any gain or loss on the derecognition of the financial asset is recognized in profit or loss.
Financial assets measured at fair value through other comprehensive income (“FVTOCI”)
A receivable investment is measured at FVTOCI if it meets both the following conditions and is not designated as FVTPL:
| · | it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and, |
| · | its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. |
On the initial recognition of an equity instrument that is not held for trading, the Company may irrevocably elect to present subsequent changes in the investment’s fair value in other comprehensive income (“OCI”). This election is made on an investment-by-investment basis.
Receivable investments measured at FVTOCI are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses, and impairment are recognized in profit or loss. Other net gains and losses are measured in OCI. On de- recognition, gains and losses accumulated in OCI are reclassified to profit or loss.
Equity investments measured at FVTOCI are subsequently measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to profit or loss.
Financial assets and liabilities measured at fair value through profit or loss
All financial assets not classified as measured at amortized cost or measured at FVTOCI, as described above, are measured at FVTPL; this includes all derivative financial assets. On initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortized cost or measured at FVTOCI as FVTPL if doing so eliminates, or significantly reduces, an accounting mismatch that would otherwise arise.
Financial assets and liabilities are subsequently measured at fair value and transaction costs are expensed in profit or loss. Net gains and losses, including any interest or dividend income, are recognized in profit or loss.
Impairment of financial assets at amortized cost
An ‘expected credit loss’ impairment model applies which requires a loss allowance to be recognized based on expected credit losses. The estimated present value of future cash flows associated with the asset is determined and an impairment loss is recognized for the difference between this amount and the carrying amount as follows: the carrying amount of the asset is reduced to estimated present value of the future cash flows associated with the asset, discounted at the financial asset’s original effective interest rate, either directly or through the use of an allowance account and the resulting loss is recognized in profit or loss for the period.
QUARTZ MOUNTAIN RESOURCES LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JULY 31, 2021, 2020 AND 2019 (Expressed in Canadian Dollars, unless otherwise stated) |
In a subsequent period, if the amount of the impairment loss related to financial assets measured at amortized cost decreases, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.
Derecognition
Financial assets
The Company derecognizes financial assets only when the contractual rights to cash flows from the financial assets expire, or when it transfers the financial assets and substantially all of the associated risks and rewards of ownership to another entity. Gains and losses on derecognition are generally recognized in profit or loss.
(f) | Exploration and evaluation expenditures |
Exploration and evaluation expenditures are expenditures incurred by the Company in connection with the exploration for and evaluation of mineral resources before the technical feasibility and commercial viability of extracting a mineral resource are demonstrable.
Exploration and evaluation expenditures are expensed as incurred, except for initial expenditures associated with the acquisition of exploration and evaluation assets through a business combination or an asset acquisition.
Exploration and evaluation expenditures include the cash consideration and the estimated fair market value of common shares on the date of issue or as otherwise provided under the relevant agreements for exploration costs.
Administrative expenditures related to exploration activities are expensed in the period incurred.
Mineral property interests
Expenditures incurred by the Company in connection with a mineral property after the technical feasibility and commercial viability of extracting a mineral resource are demonstrable are capitalized. Such amounts are then amortized over the estimated life of the property following the commencement of commercial production, or are written off if the property is sold, allowed to lapse, or abandoned, or when impairment has been determined to have occurred.
Mineral property interests, if any, are assessed for impairment if (i) sufficient data exists to determine technical feasibility and commercial viability, and (ii) facts and circumstances suggest that the carrying amount exceeds the recoverable amount.
Mineral property interests attributable to an area of interest are tested for impairment and then reclassified to mineral property and development assets within property, plant, and equipment once the technical feasibility and commercial viability of the extraction of mineral resources in an area of interest are demonstrable.
Recoverability of the carrying amount of mineral property interests is dependent on successful development and commercial exploitation, or alternatively, a sale of the respective areas of interest.
QUARTZ MOUNTAIN RESOURCES LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JULY 31, 2021, 2020 AND 2019 (Expressed in Canadian Dollars, unless otherwise stated) |
(g) | Impairment of non-financial assets |
At the end of each reporting period, the carrying amounts of the Company's assets are reviewed to determine whether there is any indication that those assets are impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment, if any. The recoverable amount is the greater of (i) fair value less costs to sell, and (ii) value in use. Fair value is estimated as the amount that would be obtained from the sale of the asset in an arm's length transaction between knowledgeable and willing parties. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current assessments of the Company's cost of capital and the risks specific to the asset. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount and an impairment loss is recognized in profit or loss for the period. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash- generating unit) is increased to the revised estimate of its recoverable amount, but to an amount that does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in profit or loss.
(h) | Share capital |
Common shares of the Company are classified as equity. Transaction costs directly attributable to the issuance of common shares and share purchase options are recognized as a deduction from equity, net of any tax effects.
When the Company issues common shares for consideration other than cash, the transaction is measured at fair value based on the quoted market price of the Company’s common shares on the date of issuance.
The Company will from time-to-time issue flow-through common shares, pursuant to which it transfers the tax deductibility of the related resource expenditures to shareholders. On issuance, the Company bifurcates the proceeds received into i) a flow-through share premium, equal to the estimated premium, if any, investors pay for the flow-through feature, which is recognized as a liability, and ii) share capital. Upon expenses being incurred, the Company derecognizes this liability and recognizes this premium as other income, offsetting any expense associated with the Company’s expenditure of the flow-through proceeds.
(i) | Loss per share |
Loss per share is computed by dividing the losses attributable to common shareholders by the weighted average number of common shares outstanding during the reporting period. Diluted loss per share is determined by adjusting the losses attributable to common shareholders and the weighted average number of common shares outstanding for the effects of all dilutive potential common shares, such as options granted to employees. The dilutive effect of options assumes that the proceeds to be received on the exercise of share purchase options are applied to repurchase common shares at the average market price for the reporting period.
QUARTZ MOUNTAIN RESOURCES LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JULY 31, 2021, 2020 AND 2019 (Expressed in Canadian Dollars, unless otherwise stated) |
Share purchase options are included in the calculation of dilutive earnings per share only to the extent that the market price of the common shares exceeds the exercise price of the share purchase options. For fiscal 2019, there were no dilutive instruments. For fiscal 2020, the dilutive effect of outstanding warrants are reflected in the diluted earnings per share.
(j) | Share-based payments |
Share-based payments to employees and others providing similar services are measured at the fair value of the instruments at the grant date. The fair value determined at the grant date is charged to operations over the vesting period, based on the Company's estimate of equity instruments that will eventually vest. The Company revises the estimate on each reporting date and the effect of the change is recognized in profit or loss.
Share-based payment transactions with other parties are measured at the fair value of the goods or services received, except where the fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders the service.
(k) | Rehabilitation provision |
An obligation to incur rehabilitation and site restoration costs arises when environmental disturbance is caused by the exploration, development, or ongoing production of a mineral property interest. Such costs arising from the decommissioning of plant and other site preparation work, discounted to their net present value, are provided for, and capitalized, at the start of each project, as soon as the obligation to incur such costs arises. These costs are charged against earnings over the life of the operation.
The Company has no known rehabilitation and site restoration costs.
(l) | Income taxes |
Income tax on the profit or loss for the years presented comprises of current and deferred tax. Income tax is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity.
Current tax expense is the expected tax payable on taxable income for the year, using tax rates enacted or substantively enacted at year-end, adjusted for amendments to tax payable with regards to previous years.
Deferred tax is calculated by providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
The following temporary differences are not provided for:
| · | goodwill not deductible for tax purposes; |
| · | the initial recognition of assets or liabilities that affect neither accounting nor taxable profit; and, |
| · | differences relating to investments in subsidiaries, associates, and joint ventures to the extent that they will probably not reverse in the foreseeable future. |
QUARTZ MOUNTAIN RESOURCES LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JULY 31, 2021, 2020 AND 2019 (Expressed in Canadian Dollars, unless otherwise stated) |
The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the financial position reporting date applicable to the period of expected realization or settlement.
A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized.
Additional income taxes that arise from the distribution of dividends are recognized at the same time as the liability to pay the related dividend.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities, when they relate to income taxes levied by the same taxation authority, and the Company intends to settle its current tax assets and liabilities on a net basis.
(m) | Changes in accounting policies and new accounting pronouncements |
The Company has adopted the following revised or new IFRS accounting standards that were issued and effective August 1, 2019:
| · | IFRS 16, Leases |
| · | IFRIC 23, Uncertainty over Income Tax Treatments |
These new standards do not have material impact on the Company’s Financial Statements.
3. | AMOUNTS RECEIVABLE AND OTHER ASSETS |
|
| July 31, 2021 |
|
| July 31, 2020 |
| ||
Sales tax receivable |
| $ |
|
| $ |
| ||
Prepaid insurance |
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|
|
|
|
| ||
Total |
| $ |
|
| $ |
| ||
4. | MINERAL PROPERTY INTERESTS |
|
| Maestro Property |
|
| Angel's Camp Royalty |
| ||
Balance, July 31, 2020 |
| $ |
|
| $ |
| ||
Acquisition - cash payments |
|
|
|
|
|
| ||
Acquisition - share issuance |
|
|
|
|
|
| ||
Acquisition - net smelter return's royalty payments |
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|
|
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|
| ||
Disposal |
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|
|
|
| ( | ) | |
|
| $ |
|
| $ |
| ||
(a) | Maestro (formerly Lone Pine) Property, British Columbia |
Under a mineral claims purchase agreement (the “Agreement”) dated June 8, 2021 between the Company and Impala Capital Corp. (the “Vendor”), the Company acquired a
QUARTZ MOUNTAIN RESOURCES LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JULY 31, 2021, 2020 AND 2019 (Expressed in Canadian Dollars, unless otherwise stated) |
The Property is subject to a pre-existing
(b) | Angel’s Camp Property |
The Company retained a
Selling costs associated with the transaction include $
5. | CAPITAL AND RESERVES |
(a) | Authorized share capital |
At July 31, 2021 and July 31, 2020, the authorized share capital of the Company comprised an unlimited number of common shares without par value and an unlimited number of preferred shares without par value.
No preferred shares have been issued to date. All issued common shares are fully paid.
Shares issued during the year ended July 31, 2020
On December 6, 2019, the Company issued
On March 26, 2020, the Company completed the private placement in one tranche of
On May 27, 2020, the Company completed the Share Split on the basis of two additional common shares for every common share outstanding prior to the Share Split.
QUARTZ MOUNTAIN RESOURCES LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JULY 31, 2021, 2020 AND 2019 (Expressed in Canadian Dollars, unless otherwise stated) |
Shares issued during the year ended July 31, 2021
On August 25, 2020, the Company issued
On June 30, 2021, the Company issued
On July 7, 2021, the Company issued
On July 16, 2021, the Company issued
As at July 31, 2021, the amount of flow-through proceeds remaining to be expended is approximately $40,308, which must be incurred on or before December 31, 2022.
(b) | Warrants |
On March 26, 2020, the Company, as part of the private placement, issued
The continuity of the warrants during the year ended July 31, 2021 is as follows:
|
| Number of warrants |
|
| Weighted average exercise price ($) |
| ||
Balance July 31, 2019 |
|
|
|
| $ |
| ||
Granted |
|
|
|
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|
| ||
Balance July 31, 2020 |
|
|
|
| $ |
| ||
Exercised |
|
| ( | ) |
|
|
| |
Balance July 31, 2021 |
|
|
|
| $ |
| ||
The outstanding warrants at July 31, 2021 are as follows:
Expiry Date |
| Price per share |
|
| Warrants Outstanding |
| ||
March 26, 2025 |
| $ |
|
|
|
| ||
(c) | Basic and Diluted Earnings (Loss) |
|
| July 31, 2021 |
|
| July 31, 2020 |
| ||
Weighted average common shares outstanding |
|
|
|
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|
| ||
Plus net incremental shares from assumed conversions: |
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Warrants |
|
|
|
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| ||
Diluted weighted average common shares outstanding |
|
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| ||
For the periods where the Company records earnings, the Company calculates diluted earnings per share using the basic weighted average number of shares. If the diluted weighted average number of shares was used, the result would be a reduction in the earnings, which would be anti-dilutive.
QUARTZ MOUNTAIN RESOURCES LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JULY 31, 2021, 2020 AND 2019 (Expressed in Canadian Dollars, unless otherwise stated) |
6. | AMOUNTS PAYABLE AND OTHER LIABILITIES |
|
| July 31, 2021 |
|
| July 31, 2020 |
| ||
Amounts payable |
| $ |
|
| $ |
| ||
7. | RELATED PARTY BALANCES AND TRANSACTIONS |
(a) | Transactions with Key Management Personnel |
Key management personnel are those persons that have the authority and responsibility for planning, directing and controlling the activities of the Company, directly and indirectly, and by definition include the directors of the Company.
The Company compensated key management personnel as follows:
|
| Year ended July 31, |
| |||||||||
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
Administrative fees |
| $ |
|
| $ |
|
| $ |
| |||
Fees to the entity controlled by the Chief Financial Officer |
| $ |
|
| $ |
|
| $ |
| |||
Administrative fees include salaries, director’s fees, and amounts paid to Hunter Dickinson Services Inc. (“HDSI”) (note 7(b)) for services provided to the Company by certain HDSI personnel who serve as directors or officers of the Company.
(b) | Entities with Significant Influence over the Company |
Hunter Dickinson Inc. (“HDI”)
Hunter Dickinson Inc. (“HDI”) and its wholly-owned subsidiary HDSI are private companies established by a group of mining professionals. HDSI provides services under contracts for a number of mineral exploration and development companies, and also to companies that are outsideof the mining and mineral development space. The Company acquires services from a number of related and arms-length contractors, and it is at the Company’s discretion that HDSI provides certain contract services.
The Company’s Chief Executive Officer, President, Chairman, Chief Financial Officer, and Corporate Secretary are employees of HDSI and work for the Company under an employee secondment arrangement between the Company and HDSI.
Pursuant to an agreement dated June 1, 2008, HDSI provides certain technical, geological, corporate communications, regulatory compliance, and administrative and management services to the Company, on a non-exclusive basis as needed and as requested by the Company. As a result of this relationship, the Company has ready access to a range of diverse and specialized expertise on a regular basis, without having to engage or hire full-time employees or experts.
The Company is not obligated to acquire any minimum amount of services from HDSI. The monetary amount of the services received from HDSI in a given period of time is a function of annually set and agreed charge-out rates for and the time spent by each HDSI employee engaged by the Company.
QUARTZ MOUNTAIN RESOURCES LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JULY 31, 2021, 2020 AND 2019 (Expressed in Canadian Dollars, unless otherwise stated) |
HDSI also incurs third-party costs on behalf of the Company. Such third party costs include, for example, directors and officers insurance. Third- party costs are billed at cost, without markup.
There are no ongoing contractual or other commitments resulting from the Company's transactions with HDSI, other than the payment for services already rendered and billed. The agreement may be terminated upon 60 days' notice by either the Company or HDSI.
The following is a summary of transactions with HDSI that occurred during the reporting period:
|
| Year ended July 31, |
| |||||||||
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
HDSI: Services received based on management services agreement |
| $ |
|
| $ |
|
| $ |
| |||
HDSI: Office lease related expenses (accretion expenses, amortization of right-of-use assets under IFRS 16 and operating |
|
|
|
|
|
|
|
|
| |||
costs not capitalized as right-of-use assets under IFRS 16)(note 12) |
|
|
|
|
|
|
|
|
|
|
|
|
HDSI: Reimbursement of third party expenses paid |
|
|
|
|
|
|
|
|
| |||
Total |
| $ |
|
| $ |
|
| $ |
| |||
United Mineral Services
United Mineral Services Ltd. (“UMS”) is a private company wholly-owned by a key shareholder of the Company. UMS is engaged in the acquisition and exploration of mineral property interests.
|
| July 31, 2021 |
|
| July 31, 2020 |
| ||
Balance payable to HDSI |
| $ |
|
| $ |
| ||
Balance payable to United Mineral Services |
|
|
|
|
|
| ||
Balance payable to a shareholder |
|
|
|
|
|
| ||
Due to related parties |
| $ |
|
| $ |
| ||
8. | OPERATING SEGMENTS |
The Company operates in a single reportable operating segment – the acquisition, exploration, and evaluation of mineral property interests. The Company is currently focused on the acquisition and exploration of mineral property interests in Canada. The Company’s only long-term asset is located in Canada.
9. | TAXATION |
(a) | Provision for current tax |
The Company has current income taxes of $
(b) | Provision for deferred tax |
As future taxable profits of the Company are uncertain, no deferred tax asset has been recognized. As at July 31, 2021, the Company had unused non-capital loss carry forwards of approximately $
QUARTZ MOUNTAIN RESOURCES LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JULY 31, 2021, 2020 AND 2019 (Expressed in Canadian Dollars, unless otherwise stated) |
The Company had approximately $
Reconciliation of effective tax rate:
Reconciliation of effective tax rate |
| July 31 2021 |
|
| July 31 2020 |
|
| July 31 2019 |
| |||
Income (Loss) for the period |
| $ | ( | ) |
| $ |
|
| $ | ( | ) | |
Income tax expense |
|
|
|
|
|
|
|
|
| |||
Income (Loss) excluding income tax |
|
| (79,967 | ) |
|
|
|
|
| ( | ) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (recovery) using the Company's domestic tax rate |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Effect of tax rates in foreign jurisdictions |
|
|
|
|
|
|
|
|
| |||
Non-deductible expenses and other |
|
|
|
|
|
|
|
|
| |||
Difference in statutory tax rates and deferred tax rate |
|
|
|
|
| ( | ) |
|
|
| ||
Change in unrecognized temporary differences |
|
|
|
|
| ( | ) |
|
|
| ||
Current tax expenses |
| $ |
|
| $ |
|
| $ |
| |||
The Company's domestic tax rate during the year ended July 31, 2021 was
As at July 31, 2021, the Company had the following balances in respect of which no deferred tax assets had been recognized:
Expiry: |
| Tax losses |
|
| Resource pools |
|
| Equipment and other |
| |||
Within one year |
| $ |
|
| $ |
|
| $ |
| |||
One to five years |
|
|
|
|
|
|
|
|
| |||
After five years |
|
|
|
|
|
|
|
|
| |||
No expiry date |
|
|
|
|
|
|
|
|
| |||
Total |
| $ |
|
| $ |
|
| $ |
| |||
10. | FINANCIAL INSTRUMENTS |
Financial assets and liabilities are classified in the fair value hierarchy according to the lowest level of input that is significant to the fair value measurement. Assessment of the significance of aparticular input to the fair value measurement requires judgement and may affect placement withinthe fair value hierarchy levels. The hierarchy is as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices).
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
QUARTZ MOUNTAIN RESOURCES LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JULY 31, 2021, 2020 AND 2019 (Expressed in Canadian Dollars, unless otherwise stated) |
The carrying value of cash, amounts receivable, amounts payable and other liabilities, due to a related party, and loan payable approximates fair value due to the short-term nature of the financial instruments. Cash is classified as fair value through profit or loss and measured at fair value using level 1 inputs.
11. | FINANCIAL RISK MANAGEMENT |
The Company is exposed in varying degrees to a variety of financial instrument related risks. The Board approves and monitors the risk management processes, inclusive of documented investment policies, counterparty limits, and controlling and reporting structures. The type of risk exposure and the way in which such exposure is managed is provided as follows:
(a) | Credit risk |
Credit risk is the risk of potential loss to the Company if the counterparty to a financial instrument fails to meet its contractual obligations. The Company's credit risk is primarily attributable to its liquid financial assets including cash and amounts receivable. The Company limits its exposure to credit risk on liquid financial assets by only investing its cash with high-credit quality financial institutions in business and savings accounts. Receivables are due primarily from a government agency.
The carrying value of the Company's cash and amounts receivable represent the maximum exposure to credit risk.
(b) | Liquidity risk |
Liquidity risk is the risk that the Company will not be able to meet its financial obligations when they become due. The Company does not have sufficient capital in order to meet short-term business requirements, and accordingly is exposed to liquidity risk.
The following obligations existed at July 31, 2021:
|
| Total |
|
| Less than 1 year |
|
| 1-5 years |
| |||
Amounts payable and other liabilities |
| $ |
|
| $ |
|
| $ |
| |||
Due to a related party |
|
|
|
|
|
|
|
|
| |||
Lease liability |
|
|
|
|
|
|
|
|
| |||
Total |
| $ |
|
| $ |
|
| $ |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
The following obligations existed at July 31, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
|
| Less than 1 year |
|
| 1-5 years |
| |||
Amounts payable and other liabilities |
| $ |
|
| $ |
|
| $ |
| |||
Due to a related party |
|
|
|
|
|
|
|
|
| |||
Total |
| $ |
|
| $ |
|
| $ | - |
| ||
QUARTZ MOUNTAIN RESOURCES LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JULY 31, 2021, 2020 AND 2019 (Expressed in Canadian Dollars, unless otherwise stated) |
(c) | Interest rate risk |
The Company’s exposure to interest rate risk arises from the interest rate impact on cash. The Company’s practice has been to invest cash at floating rates of interest, in order to maintain liquidity, while achieving a satisfactory return for shareholders. There is minimal risk that the Company would recognize any loss because of a decrease in the fair value of any demand bank investment certificates included in cash as they are generally held with large financial institutions. The Company from time to time has debt instruments and is exposed to risk in the event of interest rate fluctuations. The Company has not entered into any interest rate swaps or other financial arrangements that mitigate the exposure to interest rate fluctuations.
(d) | Market risk |
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company's income or the value of its holdings of financial instruments. The Company is not subject to significant market risk.
(e) | Capital management objectives |
The Company's primary objectives when managing capital are to safeguard the Company's ability to continue as a going concern, so that it can continue to potentially provide returns for shareholders, and to have sufficient liquidity available to fund ongoing expenditures and suitable business opportunities as they arise.
The Company considers the components of shareholders' equity (deficiency) as capital. The Company manages its capital structure and adjusts it in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may issue equity, sell assets, or return capital to shareholders as well as issue or repay debt.
The Company's investment policy is to invest its cash in highly liquid short–term interest–bearing investments having maturity dates of three months or less from the date of acquisition and that are readily convertible to known amounts of cash.
There were no changes to the Company's approach to capital management during the year ended July 31, 2021.
The Company is not subject to any externally imposed equity requirements.
12. | OFFICE LEASE – RIGHT OF USE ASSET AND LEASE LIABILITY |
The Company subleases corporate offices in Vancouver, BC from HDSI under a lease agreement dated May 1,2021 and the lease expires on
QUARTZ MOUNTAIN RESOURCES LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JULY 31, 2021, 2020 AND 2019 (Expressed in Canadian Dollars, unless otherwise stated) |
Right-of-use-asset |
|
|
|
|
Balance at July 31, 2020 |
| $ |
| |
Addition |
|
|
| |
Amortization |
|
| ( | ) |
Balance at July 31, 2021 |
| $ |
|
Lease liability: On May 1, 2021, the Company entered into lease agreement which resulted in the lease liability of $
Lease liability |
|
|
| |
Balance at July 31, 2020 |
| $ |
| |
Addition |
|
|
| |
Lease payment - base rent portion |
|
| ( | ) |
Lease liability - accretion expense |
|
|
| |
Balance at July 31, 2021 |
|
|
| |
Current portion |
|
|
| |
Long-term portion |
| $ |
| |
The following is a schedule of the Company’s future lease payments (base rent portion) under lease obligations:
Future lease payments (base rent portion only) |
|
|
| |
Fiscal 2022 (August 1, 2021 to July 31, 2022) |
| $ |
| |
Fiscal 2023 (August 1, 2022 to July 31, 2023) |
|
|
| |
Fiscal 2024 (August 1, 2023 to July 31, 2024) |
|
|
| |
Fiscal 2025 (August 1, 2024 to July 31, 2025) |
|
|
| |
Fiscal 2026 (August 1, 2025 to April 29, 2026) |
|
|
| |
Total undiscounted lease payments |
| $ |
| |
Less: imputed interest |
|
| ( | ) |
Lease liability as at July 30, 2021 |
| $ |
| |
QUARTZ MOUNTAIN RESOURCES LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JULY 31, 2021, 2020 AND 2019 (Expressed in Canadian Dollars, unless otherwise stated) |
13. | EVENTS AFTER THE REPORTING PERIOD |
| a) | On November 5, 2021, the Company entered into a mineral claims purchase agreement with United Mineral Services Ltd. to acquire |
The total cash consideration the Company required to pay the vendor is $
| b) | On November 2, 2021 the Company entered into a binding agreement with Torr Resources Corp. whereby Torr is purchasing historical project data from the Company for $ |
|
|
|
| c) | On October 18, 2021, the Company issued |
QUARTZ MOUNTAIN RESOURCES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
YEAR ENDED JULY 31, 2021
QUARTZ MOUNTAIN RESOURCES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR YEAR ENDED JULY 31, 2021
T A B L E O F C O N T E N T S
3 | ||
3 | ||
5 | ||
6 | ||
6 | ||
7 | ||
8 | ||
8 | ||
8 | ||
9 | ||
9 | ||
9 | ||
9 | ||
10 | ||
10 | ||
12 |
| - 2 - |
| Table of Contents |
QUARTZ MOUNTAIN RESOURCES LTD.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR YEAR ENDED JULY 31, 2021
1.1 | DATE |
This Management's Discussion and Analysis (“MD&A”) should be read in conjunction with the audited consolidated financial statements of Quartz Mountain Resources Ltd. (“Quartz Mountain” or the “Company”) for the year ended July 31, 2021, as publicly filed on SEDAR at www.sedar.com. All dollar amounts herein are expressed in Canadian dollars unless stated otherwise.
The Company reports in accordance with International Financial Reporting Standards (“IFRS”) and the following disclosure, and associated financial statements, are presented in accordance with IFRS. All comparative information provided is in accordance with IFRS.
For the purposes of the discussion below, date references refer to calendar year and not the Company's fiscal reporting period.
This MD&A is prepared as of November 25, 2021.
Cautionary Note to Investors Concerning Forward-looking Statements
This discussion includes certain statements that may be deemed "forward-looking statements.” All statements in this disclosure, other than statements of historical facts, that address permitting, exploration drilling, exploitation activities and events or developments that the Company expects are forward-looking statements. Although the Company believes the expectations expressed in such forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in the forward-looking statements. Assumptions used by the Company to develop forward- looking statements include the following: the Company’s projects will obtain all required environmental and other permits and all land use and other licenses, and no geological or technical problems will occur. Factors that could cause actual results to differ materially from those in forward-looking statements include market prices, exploration and exploitation successes, continuity of mineralization, potential environmental issues and liabilities associated with exploration, development and mining activities, uncertainties related to the ability to obtain necessary permits, licenses and title and delays due to third party opposition or litigation, exploration and development of properties located within First Nations treaty and asserted territories may affect or be perceived to affect treaty and asserted aboriginal rights and title, which may cause permitting delays or opposition by First Nation communities, changes in laws and government policies regarding mining and natural resource exploration and exploitation, continued ability of the Company to raise necessary capital, and general economic, market or business conditions. Investors are cautioned that any such statements are not guarantees of future performance and actual results or developments may differ materially from those projected in the forward-looking statements. The Company reviews its forward-looking statements on an on-going basis and updates this information when circumstances require it.
1.2 | OVERVIEW |
The information comprised in this MD&A relates to Quartz Mountain Resources Ltd. and its subsidiaries. Quartz Mountain Resources Ltd. is the ultimate parent entity of the group.
Quartz Mountain most recently focused on assessing mineral prospects for potential acquisition and exploration in British Columbia. The Company is currently investigating new potential opportunities.
| - 3 - |
| Table of Contents |
QUARTZ MOUNTAIN RESOURCES LTD.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR YEAR ENDED JULY 31, 2021
On February 15, 2019, Robert Dickinson resigned as Executive Chairman and CEO and Rene Carrier resigned as director. Trevor Thomas was appointed Chairman, CEO and director and Matthew Dickinson was appointed director.
Other Corporate Information
The board of directors consists of Trevor Thomas, Leonie Tomlinson and Matthew Dickinson. Trevor Thomas is the Chairman, Chief Executive Officer and Corporate Secretary, Sebastian Tang is the Chief Financial Officer.
The Company is a reporting issuer in the provinces of British Columbia, Alberta and Ontario.
The Company’s head office is located at 1040 West Georgia Street, 15th Floor, Vancouver, British Columbia, Canada V6E 4H1.
The Company’s common shares were approved for listing on the TSX Venture Exchange under the symbol QZM and certain broker-dealers in the United States make market on the OTC Grey Market under the symbol QZMRF.
Effective May 27, 2020, the Company completed a forward share split (the “Share Split”) on the basis of two additional common shares for every common share outstanding prior to the Share Split. Outstanding warrants were adjusted by the same share split ratio. All references to shares and per share amounts have been retroactively restated to give effect to the Share Split.
1.2.1 | Agreements |
In January 2016, the Company reached an agreement with Hunter Dickinson Services Inc. (“HDSI”) to settle debt owing for services by HDSI. HDSI agrees to forgive debt in the net amount owing at that time of $3,086,089, if Quartz Mountain makes a cash payment of $180,207 and issues 1,800,000 shares (pre-forward split basis of 600,000 shares) valued at $126,000 to HDSI. The TSX Venture Exchange approved the transaction with HDSI.
The cash payment of $180,207 was paid during the year ended July 31, 2018 and the shares were issued to HDSI during the year ended July 31, 2020, completing the settlement and resulting in a gain on settlement of debt of $2,779,882.
1.2.2 | Properties |
Angel's Camp Property
The Company retained a 1% net smelter return royalty (the “Royalty”) payable to the Company on any production from the Angel's Camp property located in Lake County, Oregon. On February 1, 2021, the Company entered into an agreement for the sale of 100% of the Royalty on the Angel’s Camp Property, for US$150,000 to an arms-length purchaser. This transaction was closed on February 4, 2021.
| - 4 - |
| Table of Contents |
QUARTZ MOUNTAIN RESOURCES LTD.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR YEAR ENDED JULY 31, 2021
British Columbia Property
Maestro (formerly Lone Pine) Property
On June 8, 2021, the Company entered into a mineral claims purchase agreement to purchase nine mineral claims located near Houston, British Columbia for $105,000 in cash and 1,000,000 shares in the capital of the Company.
The claims are subject to a 2.5% NSR which can be bought-down to 1% for $1.5 million. There are no required work commitments for these claims as this transaction is not an option on the mineral claims.
Jake Property
On November 5, 2021, the Company entered into a mineral claims purchase agreement with United Mineral Services Ltd. to acquire 100% interest in the Jake mineral property consisted of four staked claims (the “Jake Property”) and an option to purchase 100% of five adjacent claims owned by an arm’s length third party. The Jake Property is located approximately 162 km north of Smithers, British Columbia.
The total cash consideration the Company required to pay the vendor is $200,000 and to be paid out according to the following schedule: $50,000 immediately on the date of receipt of TSX Venture Exchange conditional approval of this transaction (“TSX-V Approval Date); $50,000 on or before the date that is six months after the TSX-V Approval Date; $50,000 on or before the date that is twelve months after the TSX-V Approval Date and $50,000 on or before the date that is eighteen months after the TSX-V Approval Date.
Other property
On November 2, 2021 the Company entered into a binding Agreement with Torr Resources Corp. whereby Torr is purchasing historical project data from the Company for $150,000. The transaction is to close on December 15, 2021.
1.2.3 | Financing |
The Company completed the private placement in one tranche of 13,636,365 common shares (pre- forward split basis of 4,545,455 common shares) on March 26, 2020, at a price of $0.04 (pre- forward split basis of $0.11) per unit for gross proceeds of $500,000. Each unit consisted of one common share and one warrant (the “Warrant”). Each Warrant entitles the holder to purchase one additional share at a price of $0.05 (pre-forward split basis of $0.15) for five years. In addition, at the request of the holder, and subject to certain conditions being met at the time of exercise of the Warrant, the shares to be issued may be designated as ‘flow through shares’. After issuance costs of $1,302, the Company raised net proceeds of $498,698.
1.3 | SELECTED ANNUAL INFORMATION |
The following selected annual information is from the Company's annual financial statements, which have been prepared in accordance with IFRS as issued by the International Accounting Standards Board (“IASB”) and interpretations of the IFRS Interpretations Committee (“IFRIC”) effective for the respective reporting years of the Company and are expressed in Canadian Dollars. The Company's audited financial statements are publicly available on SEDAR at www.sedar.com.
| - 5 - |
| Table of Contents |
QUARTZ MOUNTAIN RESOURCES LTD.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR YEAR ENDED JULY 31, 2021
Amounts are expressed in thousands of Canadian dollars (except per share amounts).
|
| Fiscal year |
|
| Fiscal year |
|
| Fiscal year |
| |||
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
Total income (loss) for the year |
| $ | (116 | ) |
| $ | 2,525 |
|
| $ | (154 | ) |
Basic earnings (loss) per share |
|
| (0.00 | ) |
|
| 0.16 |
|
|
| (0.02 | ) |
Diluted earnings (loss) per share |
|
| (0.00 | ) |
|
| 0.13 |
|
|
| (0.02 | ) |
Total assets at the end of the fiscal year |
|
| 599 |
|
|
| 219 |
|
|
| 81 |
|
Total non-current liabilities at the end of the fiscal year |
|
| (41 | ) |
|
| – |
|
|
| – |
|
The Company does not currently generate revenue from its operations and the variation in its total loss was due in large part to the changes in its exploration and evaluation activities. The increase in loss during the fiscal year 2021 was mainly due to exploration costs incurred offset by the gain on sale of royalty interest as compared to a one-time event in fiscal 2020 related to the gain on debt settlement of $2.5 million. The Company’s cash level in the current fiscal year is similar to previous year, due to the cash spent in exploration activities were covered by the proceeds of share issuance through exercise of warrants by key shareholder.
1.4 | SUMMARY OF QUARTERLY RESULTS |
These amounts are expressed in thousands of Canadian Dollars, except per share amounts and the weighted average number of common shares outstanding. Minor differences are due to rounding.
|
| Fiscal Quarter Ended |
| |||||||||||||||||||||||||||||
|
| Jul 31 2021 |
|
| Apr 30 2021 |
|
| Jan 31 2021 |
|
| Oct 31 2020 |
|
| Jul 31 2020 |
|
| Apr 30 2020 |
|
| Jan 31 2020 |
|
| Oct 31 2019 |
| ||||||||
Income (loss) for the period |
| $ | (122 | ) |
| $ | 143 |
|
| $ | (43 | ) |
| $ | (95 | ) |
| $ | (75 | ) |
| $ | (66 | ) |
| $ | 2,713 |
|
| $ | (47 | ) |
Basic earnings (loss) per common share |
| $ | (0.00 | ) |
| $ | 0.01 |
|
| $ | (0.00 | ) |
| $ | (0.00 | ) |
| $ | (0.00 | ) |
| $ | (0.00 | ) |
| $ | 0.23 |
|
| $ | (0.00 | ) |
Diluted earnings (loss) per common share |
| $ | (0.00 | ) |
| $ | 0.00 |
|
| $ | (0.00 | ) |
| $ | (0.00 | ) |
| $ | (0.00 | ) |
| $ | (0.00 | ) |
| $ | 0.23 |
|
| $ | (0.00 | ) |
The trend in quarterly net loss presented herein is in line with the discussions included in 1.3 Selected Annual Information above.
1.5 | RESULTS OF OPERATIONS AND FINANCIAL CONDITION |
The following financial data has been prepared in accordance with IFRS and are expressed in Canadian dollars unless otherwise stated.
1.5.1 | Income (loss) for the year ended July 31, 2021 vs. 2020 |
The increase in loss during the fiscal year 2021 was mainly due to exploration and evaluation expenditures incurred in the current year of 2021 offset by the gain on sale of royalty interest of $192,000 as compared to a one-time event in fiscal 2020 related to the gain on debt settlement of
$2.78 million.
In fiscal 2021 exploration and evaluation expenditures incurred during were $90,907 (2020 – nil).
| - 6 - |
| Table of Contents |
QUARTZ MOUNTAIN RESOURCES LTD.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR YEAR ENDED JULY 31, 2021
During fiscal 2021, administrative expenses decreased ($163,261 in fiscal 2021 versus $249,442 in fiscal 2020). The decrease was due to the management’s continuous effort in streamlining of office overhead expenses, the decrease in regulatory, trust and filing as a result of the absence of one-time event in fiscal 2020 (e.g. stock split in May 2020) and the decrease in property investigation expenses as a result of management’s identification of exploration projects to focus on.
The following table provides a breakdown of general and administrative expenses incurred during the year ended July 31, 2021 and 2020:
|
| Year ended July |
|
| Year ended July |
| ||
|
|
| 31,2021 |
|
|
| 31,2020 |
|
Administrative fees |
| $ | 38,382 |
|
| $ | 77,603 |
|
Insurance |
|
| 29,989 |
|
|
| 35,730 |
|
IT Services |
|
| 12,000 |
|
|
| 12,000 |
|
Legal, accounting and audit |
|
| 44,718 |
|
|
| 29,885 |
|
Office and miscellaneous |
|
| 10,299 |
|
|
| 1,572 |
|
Property investigations |
|
| - |
|
|
| 23,275 |
|
Regulatory, trust and filing |
|
| 27,873 |
|
|
| 64,233 |
|
Shareholder communications |
|
| - |
|
|
| 5,144 |
|
Total |
| $ | 163,261 |
|
| $ | 249,442 |
|
1.6 | LIQUIDITY |
Historically, the Company's primary source of funding has been the issuance of equity securities for cash through private placements to sophisticated investors and institutions. The Company is assessing mineral properties with a goal to acquire and explore mineral property interests. The Company's continuing operations entirely depends upon the ability of the Company to obtain the necessary financing to complete any exploration and development of its projects, the existence of economically recoverable mineral reserves at its projects, the ability of the Company to obtain the necessary permits to explore or mine, the future profitable production of any mine and the proceeds from the disposition of its mineral property interests.
At July 31, 2021, the Company had an accumulated deficit of $27,728,302 and has a working capital of $117,847.
The Company believes that its liquid assets at July 31, 2021, are sufficient to meet its known obligations. The Company is actively managing its cash reserves, and curtailing activities as necessary in order to ensure its ability to meet payments as they come due.
Additional debt or equity financing will be required to fund exploration or development programs. However, there can be no assurance that the Company will continue to obtain additional financial resources or that it will be able to achieve positive cash flows.
Financial market conditions for junior exploration companies have resulted in very depressed equity prices. A further and continued deterioration in market conditions will increase the cost of obtaining capital and significantly limit the availability of funds to the Company in the future. Accordingly, management is actively monitoring the effects of the current economic and financing conditions on the Company’s business and reviewing discretionary spending, capital projects and operating expenditures, while implementing cash management strategies.
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QUARTZ MOUNTAIN RESOURCES LTD.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR YEAR ENDED JULY 31, 2021
Table of Obligations and Commitments
The following obligations existed at July 31, 2021:
|
|
| Total |
|
|
| Less than 1 year |
|
|
| 1-5 years |
|
Amounts payable and other liabilities |
| $ | 24,243 |
|
| $ | 24,243 |
|
| $ | – |
|
Due to a related party |
|
| 25,367 |
|
|
| 25,367 |
|
|
| – |
|
Lease liability |
|
| 48,799 |
|
|
| 7,466 |
|
|
| 41,333 |
|
Total |
| $ | 98,409 |
|
| $ | 57,076 |
|
| $ | 41,333 |
|
The Company has no “Purchase Obligations” defined as any agreement to purchase goods or services that is enforceable and legally binding on the Company that specifies all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction.
1.7 | CAPITAL RESOURCES |
The Company had no material commitments for capital expenditures as at July 31, 2021.
The Company has no lines of credit or other sources of financing which have been arranged but are as of yet, unused.
At July 31, 2021, there were no externally imposed capital requirements to which the Company is subject and with which the Company has not complied.
1.8 | OFF-BALANCE SHEET ARRANGEMENTS |
None.
1.9 | TRANSACTIONS WITH RELATED PARTIES |
Key management personnel
The required disclosure for the remuneration of the Company’s key management personnel is provided in note 7(a) of the accompanying audited consolidated financial statements for the years ended July 31, 2021 and 2020. These are also available at www.sedar.com.
Hunter Dickinson Inc.
Hunter Dickinson Inc. (“HDI”) and its wholly-owned subsidiary HDSI are private companies established by a group of mining professionals. HDSI provides services under contract for a number of mineral exploration and development companies, and also to companies that are outside of the mining and mineral development space. The Company acquires services from a number of related and arms-length contractors, and it is at the Company’s discretion that HDSI provides certain contract services.
The Company’s Chief Executive Officer and Chairman, and Corporate Secretary are employees of HDSI and are contracted to work for the Company under an employee secondment agreement between the Company and HDSI.
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QUARTZ MOUNTAIN RESOURCES LTD.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR YEAR ENDED JULY 31, 2021
Pursuant to an agreement dated June 1, 2008, HDSI provides certain cost effective technical, geological, corporate communications, regulatory compliance, and administrative and management services to the Company, on a non-exclusive basis as needed and as requested by the Company. As a result of this relationship, the Company has ready access to a range of diverse and specialized expertise on a regular basis, without having to engage or hire full-time employees or experts. The Company benefits from the economies of scale created by HDSI which itself serves several clients both mining and non-mining clients.
The Company is not obligated to acquire any minimum amount of services from HDSI. The monetary amount of the services received from HDSI in a given period of time is a function of annually set and agreed charge-out rates for and the time spent by each HDSI employee engaged by the Company.
HDSI also incurs third-party costs on behalf of the Company. Such third party costs include, for example, directors and officers insurance. Third party costs are billed at cost, without markup.
There are no ongoing contractual or other commitments resulting from the Company's transactions with HDSI, other than the payment for services already rendered and billed. The agreement may be terminated upon 60 days' notice by either the Company or HDSI.
The details of transactions with HDSI and the balance due to HDSI as a result of such transactions are provided in the Financial Statements.
1.10 | FOURTH QUARTER |
In the fourth quarter of 2021, the Company incurred $24,241 exploration and evaluation expenditures (2020 -$nil). This is due to the acquisition of Lone Pine Property in the last quarter of fiscal 2021.
In the fourth quarter of 2021, the Company incurred $nil of property investigation costs (2020 - $8,200), $10,412 of administrative expenses (2020 - $22,485). The decrease in administrative expenses in the fourth quarter of 2021 versus 2020 was due to the one-time event related to the TSX fees on the stock split in May 2020. In the fourth quarter of 2021, the Company recorded current income tax expenses of $36,452 (The fourth quarter of 2020 - $nil) was due to the one-time event related to the sale of royalty interest held by the US subsidiary of the Company in fiscal 2021.
The Company recorded a net loss of $122,000 for the quarter ended July 31, 2021, compared to a net loss of $75,000 during the same quarter of fiscal 2020.
1.11 | PROPOSED TRANSACTIONS |
There are no proposed material assets or business acquisitions or dispositions before the Board of Directors for consideration.
1.12 | CRITICAL ACCOUNTING ESTIMATES |
Not required. The Company is a Venture Issuer.
1.13 | CHANGES IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION |
The required disclosure is provided in note 2 of the accompanying audited consolidated financial statements as at and for the year ended July 31, 2021, publicly available on SEDAR at www.sedar.com.
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QUARTZ MOUNTAIN RESOURCES LTD.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR YEAR ENDED JULY 31, 2021
1.14 | FINANCIAL INSTRUMENTS AND RISK MANAGEMENT |
The carrying amounts of cash, amounts receivable, accounts payable and other liabilities, and balances due to a related party, approximate their fair values due to their short-term nature.
1.15 | OTHER MD&A REQUIREMENTS |
1.15.1 | Additional Disclosure for Venture Issuers without Significant Revenue |
(a) | exploration and evaluation assets or expenditures |
| The required disclosure is presented in Section 1.5 of this MD&A. |
|
|
| |
(b) | expensed research and development costs |
| Not applicable |
|
|
|
|
(c) | intangible assets arising from development |
| Not applicable |
|
|
|
|
(d) | general and administration expenses |
| The required disclosure is presented in Section 1.5 of this MD&A. |
|
|
|
|
(e) | any material costs, whether expensed or recognized as assets, not referred to in paragraphs (a) through (d) |
| None |
1.15.2 | Disclosure of Outstanding Share Data |
The following details the share capital structure as at the date of this MD&A:
|
| Number |
| |
Common shares |
|
| 33,114,141 |
|
Warrants |
|
| 7,000,000 |
|
See 1.2 Overview for an agreement between the Company and HDSI for issuance of common shares as a debt settlement arrangement.
On October 18, 2021, the Company issued 1,909,092 flow-through common shares on the exercise of the warrants at an exercise price of $0.05 for gross proceeds of $95,455.
1.15.3 | Internal Controls over Financial Reporting Procedures |
The Company's management, including the Chief Executive Officer and the Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision of the Chief Executive Officer and Chief Financial Officer, the Company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. The Company's internal control over financial reporting includes those policies and procedures that:
| · | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
| · | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the company; and |
| · | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements. |
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QUARTZ MOUNTAIN RESOURCES LTD.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR YEAR ENDED JULY 31, 2021
There has been no change in the design of the Company's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting during the period covered by this Management's Discussion and Analysis.
The Company's management assessed the effectiveness of the Company's internal control over financial reporting as of July 31, 2020. In making the assessment, it used the criteria set forth in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on their assessment, management has concluded that, as July 31, 2021, the Company's internal control over financial reporting was effective based on those criteria.
1.15.4 | Disclosure Controls and Procedures |
The Company's management, with the participation of its Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Company's disclosure controls and procedures. Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by the Company in reports it files is recorded, processed, summarized and reported within the appropriate time periods and is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
1.15.5 | Limitations of Controls and Procedures |
The Company's management, including its Chief Executive Officer and Chief Financial Officer, believe that any system of disclosure controls and procedures or internal control over financial reporting, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Furthermore, 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 their costs. Because of the inherent limitations in all control systems, they cannot provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been prevented or detected. These inherent limitations include the realities that judgments in decision- making can be faulty and breakdowns can occur because of 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 unauthorized override of controls. The design of any system of controls is also 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. Accordingly, because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected.
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QUARTZ MOUNTAIN RESOURCES LTD.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR YEAR ENDED JULY 31, 2021
1.16 | RISK FACTORS |
The risk factors associated with the principal business of the Company are discussed below. The Company currently holds several mineral claims at early stage. The Company is subject to the highly speculative nature of the resources industry characterized by the requirement for large capital investments from an early stage and a very small probability of finding economic mineral deposits. In addition to the general risks of mining, there are country-specific risks, including currency, political, social, permitting and legal risk. An investor should carefully consider the risks described below and the other information that Quartz Mountain furnishes to, or files with, the Securities and Exchange Commission and with Canadian securities regulators before investing in Quartz Mountain's common shares, and should not consider an investment in Quartz Mountain unless the investor is capable of sustaining an economic loss of the entire investment. The Company's actual exploration and operating results may be very different from those expected as at the date of this MD&A.
Going Concern Assumption
The Company's financial statements have been prepared assuming the Company will continue on a going concern basis. However, unless additional funding is obtained, this assumption will have to change. The Company has a negative working capital position, and has incurred losses since inception. Failure to continue as a going concern would require that Quartz Mountain's assets and liabilities be restated on a liquidation basis, which could differ significantly from the going concern basis.
Additional Funding Requirements
Further development of the Company's continued operations will require additional capital. The Company currently does not have sufficient funds to explore the properties it holds. It is possible that the financing required by the Company will not be available, or, if available, will not be available on acceptable terms. If the Company does issue treasury shares to finance its operations or expansion plans, shareholders will suffer dilution of their investment and control of the Company may change. If adequate funds are not available, or are not available on acceptable terms, the Company will not be able to remain in business. In addition, a positive production decision at any of the Company's current projects or any other development projects acquired in the future will require significant resources and funding for project engineering and construction. Accordingly, any development of the Company's properties depends upon the Company's ability to obtain financing through debt financing, equity financing, the joint venturing, or disposition of its current projects, or other means. There is no assurance that the Company will be successful in obtaining financing for these or other purposes, including for general working capital.
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QUARTZ MOUNTAIN RESOURCES LTD.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR YEAR ENDED JULY 31, 2021
Future Profits/Losses and Production Revenues/Expenses
The Company has no history of mining operations or earnings, and expects that its losses and negative cash flow will continue for the foreseeable future. The Company does not currently hold a mineral property and there can be no assurance that the Company will, if needed, be able to acquire a property(s) of sufficient technical merit to represent a compelling investment opportunity. If the Company is unable to acquire a property(s), its entire prospects will rest solely with its current net smelter royalty interest in the Angel’s Camp Project and accordingly, the risk of being unable to identify a mineral deposit will be higher than if the Company had additional properties to explore. There can be no assurance that the Company will ever be profitable in the future. The Company's operating expenses and capital expenditures may increase in subsequent years as consultants, personnel and equipment associated with advancing exploration, development and commercial production of any properties that the Company may acquire are added. The amounts and timing of expenditures will depend on the progress of on-going exploration, the results of consultants' analyses and recommendations, the rate at which operating losses are incurred, the execution of any joint venture agreements with strategic partners, and the Company's acquisition of a property(s) and other factors, many of which are beyond the Company's control. The Company does not expect to receive revenues from operations in the foreseeable future, and expects to incur losses unless and until such time as it acquires a property(s), commence commercial production and generate sufficient revenues to fund its continuing operations. The development of any properties the Company may acquire will require the commitment of substantial resources to conduct the time- consuming exploration and development of properties. The Company anticipates that it would retain any cash resources and potential future earnings for the future operation and development of the Company's business. The Company has not paid dividends since incorporation and the Company does not anticipate paying any dividends in the foreseeable future. There can be no assurance that the Company will generate any revenues or achieve profitability. There can be no assurance that the underlying assumed levels of expenses will prove to be accurate. To the extent that such expenses do not result in the creation of appropriate revenues, the Company's business will be materially adversely affected. It is not possible to forecast how the business of the Company will develop.
Exploration, Development and Mining Risks
Resource exploration, development, and operations are highly speculative, characterized by a number of significant risks, which even a combination of careful evaluation, experience and knowledge may not reduce, including among other things, unsuccessful efforts resulting not only from the failure to discover mineral deposits but from finding mineral deposits which, though present, are insufficient in quantity and quality to return a profit from production. Few properties that are explored are ultimately developed into producing mines. Unusual or unexpected formations, formation pressures, fires, power outages, labour disruptions, flooding, explosions, cave-ins, landslides, and the inability to obtain suitable or adequate machinery, equipment or labour are other risks involved in the operation of mines and the conduct of exploration programs. The Company will rely upon consultants and others for exploration, development, construction, and operating expertise. Substantial expenditures are required to establish mineral resources and mineral reserves through drilling, to develop metallurgical processes to extract the metal from mineral resources, and in the case of new properties, to develop the mining and processing facilities and infrastructure at any site chosen for mining.
No assurance can be given that minerals will be discovered in sufficient quantities to justify commercial operations or that funds required for development can be obtained on a timely basis. Whether a mineral deposit will be commercially viable depends on a number of factors, some of which are: the particular attributes of the deposit, such as size, grade and proximity to infrastructure; metal prices, which are highly cyclical; and government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals, and environmental protection. The exact effect of these factors cannot accurately be predicted, but the combination of these factors may result in the Company not receiving an adequate return on invested capital.
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QUARTZ MOUNTAIN RESOURCES LTD.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR YEAR ENDED JULY 31, 2021
Permits and Licenses
If the Company acquires a new mineral property(ies), its operations would require licenses and permits from various governmental authorities. There can be no assurance that the Company will be
able to obtain all necessary licenses and permits which may be required to carry out exploration and development for the Company’s Projects.
Changes in Local Legislation or Regulation
Any mining and processing operations that may be acquired and any exploration activities that might be conducted would be subject to extensive laws and regulations governing the protection of the environment, exploration, development, production, exports, taxes, labour standards, occupational health, waste disposal, toxic substances, mine and worker safety, protection of endangered and other special status species and other matters. The Company's ability to obtain permits and approvals and to successfully operate in particular communities may be adversely impacted by real or perceived detrimental events associated with the Company's activities or those of other mining companies affecting the environment, human health and safety of the surrounding communities. Delays in obtaining or failure to obtain government permits and approvals may adversely affect the Company's operations, including its ability to explore or develop properties, commence production or continue operations. Failure to comply with applicable environmental and health and safety laws and regulations may result in injunctions, fines, suspension, or revocation of permits and other penalties. The costs and delays associated with compliance with these laws, regulations and permits could prevent the Company from proceeding with the development of a project or the operation or further development of a mine or increase the costs of development or production and may materially adversely affect the Company's business, results of operations or financial condition. The Company may also be held responsible for the costs of addressing contamination at the site of current or former activities or at third party sites. The Company could also be held liable for exposure to hazardous substances.
Environmental Matters
All of the operations that the Company might acquire would be subject to environmental regulations, which can make operations expensive or prohibit them altogether. The Company may be subject to potential risks and liabilities associated with pollution of the environment and the disposal of waste products that could occur as a result of its mineral exploration, development, and production. In addition, environmental hazards may exist on a property in which the Company directly or indirectly holds an interest, which are unknown to the Company at present and have been caused by previous or existing owners or operators of the Company's projects. Environmental legislation provides for restrictions and prohibitions on spills, releases or emissions of various substances produced in association with certain mining industry operations, which would result in environmental pollution. A breach of such legislation may result in the imposition of fines and penalties, or the requirement to remedy environmental pollution, which would reduce funds otherwise available to the Company and could have a material adverse effect on the Company. If the Company is unable to fully remedy an environmental problem, it could be required to suspend operations or undertake interim compliance measures pending completion of the required remedy, which could have a material adverse effect on the Company.
There is no assurance that future changes in environmental regulation, if any, will not adversely affect the Company's operations. There is also a risk that the environmental laws and regulations may become more onerous, making the Company's operations more expensive. Many of the environmental laws and regulations will require the Company to obtain permits for its activities. The Company will be required to update and review its permits from time to time, and may be subject to environmental impact analyses and public review processes prior to approval of the additional activities. It is possible that future changes in applicable laws, regulations, and permits or changes in their enforcement or regulatory interpretation could have a significant impact on some portion of the Company's business, causing those activities to be economically re-evaluated at that time.
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QUARTZ MOUNTAIN RESOURCES LTD.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR YEAR ENDED JULY 31, 2021
Groups Opposed to Mining May Interfere with the Company's Efforts to Explore and Develop its Properties
Organizations opposed to mining may be active in the regions in which the Company conducts its exploration activities. Although the Company intends to comply with all environmental laws and maintain good relations with local communities, there is still the possibility that those opposed to mining will attempt to interfere with the development of any property(ies) the Company might acquire. Such interference could have an impact on the Company's ability to explore and develop its properties in a manner that is most efficient or appropriate, or at all, and any such impact could have a material adverse effect on the Company's financial condition and the results of its operations.
Market for Securities and Volatility of Share Price
There can be no assurance that an active trading market in the Company's securities will be established or sustained. The market price for the Company's securities is subject to wide fluctuations. Factors such as announcements of exploration results, as well as market conditions in the industry or the economy as a whole, may have a significant adverse impact on the market price of the securities of the Company.
The stock market has from time to time experienced extreme price and volume fluctuations that have often been unrelated to the operating performance of particular companies.
Conflicts of Interest
The Company's directors and officers may serve as directors or officers of other companies, joint venture partners, or companies providing services to the Company or they may have significant shareholdings in other companies. Situations may arise where the directors and/or officers of the Company may be in competition with the Company. Any conflicts of interest will be subject to and governed by the law applicable to directors’ and officers' conflicts of interest. In the event that such a conflict of interest arises at a meeting of the Company's directors, a director who has such a conflict will abstain from voting for or against the approval of such participation or such terms. In accordance with applicable laws, the directors of the Company are required to act honestly, in good faith and in the best interests of the Company.
General Economic Conditions
Global financial markets have experienced a sharp increase in volatility during the last few years. Market conditions and unexpected volatility or illiquidity in financial markets may adversely affect the prospects of the Company and the value of the Company's shares.
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QUARTZ MOUNTAIN RESOURCES LTD.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR YEAR ENDED JULY 31, 2021
Risk Related to COVID-19
The current outbreak of COVID-19, and any future emergence and spread of similar pathogens, could have a material adverse effect on global and local economic and business conditions, which may adversely impact our business and results of operations and the operations of contractors and service providers. The outbreak has now spread to Canada where we conduct our principal business operations. Our plans to advance the exploration and development of our projects are dependent upon the Company’s ability to secure project specific financing, as well as our ability to continue the work required once financing has been secured through our employees and our contractors. The progress of work on our projects has been delayed and may further be delayed due to the effects of COVID-19. In addition, our personnel may be delayed in completing the required work that we are pursuing in connection with this process due to quarantine, self-isolation, social distancing, restrictions on travel, restrictions on meetings and work from home requirements. The extent to which the coronavirus impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that may emerge concerning the severity of the coronavirus and the actions taken to contain the coronavirus or treat its impact, among others. Moreover, the spread of the coronavirus globally is expected to have a material adverse effect on global and regional economies and to continue to negatively impact stock markets, including the trading price of our shares as well as mineral commodity prices. These adverse effects on the economy, the stock market and our share price could continue to adversely impact our ability to raise capital, with the result that our ability to pursue exploration and development of our projects could be adversely impacted, both through delays and through increased costs. Any of these developments, and others, could have a material adverse effect on our business and results of operations and could delay our exploration and development plans for our projects.
Reliance on Key Personnel
The Company is dependent on the continued services of its senior management team, and its ability to retain other key personnel. The loss of such key personnel could have a material adverse effect on the Company. There can be no assurance that any of the Company's employees will remain with the Company or that, in the future, the employees will not organize competitive businesses or accept employment with companies competitive with the Company.
There can be no assurance that the Company will be able to attract, train, or retain qualified personnel in the future, which would adversely affect its business.
Competition
The resources industry is highly competitive in all its phases, and the Company will compete with other mining companies, many of which have greater financial, technical, and other resources. Competition in the mining industry is primarily for attractive mineral rich properties capable of being developed and producing economically; the technical expertise to find, develop, and operate such properties; the labour to operate the properties; and the capital for the purpose of funding such properties. Many competitors not only explore for and mine certain minerals, but also conduct production and marketing operations on a worldwide basis. Such competition may result in the Company being unable to acquire desired properties, to recruit or retain qualified employees or to acquire the capital necessary to fund its operations and develop any property(ies) the Company might acquire. The Company's inability to compete with other mining companies for these resources could have a materially adverse effect on the Company's results of operation and its business.
Uninsurable Risks
In the course of exploration, development and production of mineral properties, certain risks, and in particular, unexpected or unusual geological operating conditions including rock bursts, cave ins, fires, flooding and earthquakes may occur. It is not always possible to fully insure against such risks and the Company may decide not to take out insurance against such risks as a result of high premiums or other reasons.
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