Quartz Mountain Resources Ltd 20-F for FY2020
Quartz Mountain Resources Ltd (QZMRF)
20-F
2020-11-24
For: 2020-07-31
View Original
Added on
April 08, 2026
About this 20-F
Quartz Mountain Resources Ltd filed this 20-F on November 24, 2020, covering the fiscal year ended July 31, 2020 (FY2020).
Headline figures
Fiscal year ended July 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Diluted EPS
- 0.13 CAD
- compared with -0.02 CAD a year earlier
UNITED
STATES
SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
FORM
20-F
☐ REGISTRATION STATEMENT PURSUANT TO
SECTION 12(b) or 12(g) OF THE SECURITIES EXCHANGE ACT OF
1934
OR
☒ ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
fiscal year ended July 31, 2020
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☐ SHELL COMPANY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file
number 0-15490
|
QUARTZ
MOUNTAIN RESOURCES LTD.
|
|
(Exact
name of Registrant as specified in its charter)
|
|
BRITISH
COLUMBIA, CANADA
|
|
(Jurisdiction of
incorporation or organization)
|
|
15th
Floor, 1040 West Georgia Street Vancouver, British Columbia,
Canada, V6E 4H1
|
|
(Address of
principal executive offices)
|
|
Sebastian
Tang, Chief Financial Officer (appointed in August
2020)
Facsimile
No.: 604-681-2741
15th
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:
25,477,776 common
shares as of July 31, 2020
Indicate by check
mark if the Registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act.
|
Yes
[ ]
|
No [X]
|
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
[ ]
|
No [X]
|
|
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.
|
|
Yes
[X]
|
No
[ ]
|
|
Indicate by check
mark whether the registrant has submitted electronically and posted
on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was
required to submit and post such files).
|
|
Yes
[ ]
|
No [X]
|
|
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
[ ]
|
Non-Accelerated
Filer [X]
|
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 [X]
by the International Accounting Standards Board |
Other
[ ]
|
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
[ ]
|
No [X]
|
|
|
GENERAL
|
5
|
|
|
CURRENCY AND MEASUREMENT
|
7
|
|
|
NOTE ON FORWARD LOOKING STATEMENTS
|
7
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|
|
ITEM 1
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IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|
7
|
|
ITEM 2
|
OFFER STATISTICS AND EXPECTED TIMETABLE
|
8
|
|
ITEM 3
|
KEY INFORMATION
|
8
|
|
A.
|
SELECTED FINANCIAL DATA
|
8
|
|
B.
|
CAPITALIZATION AND INDEBTEDNESS
|
9
|
|
C.
|
REASONS FOR THE OFFER AND USE OF PROCEEDS
|
9
|
|
D.
|
RISK FACTORS
|
9
|
|
ITEM 4
|
INFORMATION ON THE COMPANY
|
14
|
|
A.
|
HISTORY AND DEVELOPMENT OF THE COMPANY
|
14
|
|
B.
|
BUSINESS OVERVIEW
|
14
|
|
C.
|
MINERAL PROPERTIES AND EXPLORATION ACTIVITIES AND
PLANS
|
15
|
|
D.
|
ORGANIZATIONAL STRUCTURE
|
16
|
|
E.
|
PROPERTY, PLANT AND EQUIPMENT
|
16
|
|
F.
|
CURRENCY
|
16
|
|
ITEM 4A
|
UNRESOLVED STAFF COMMENTS
|
16
|
|
ITEM 5
|
OPERATING AND FINANCIAL REVIEW AND PROSPECTS OVERVIEW
|
16
|
|
|
16
|
|
|
A.
|
OPERATING RESULTS
|
17
|
|
B.
|
LIQUIDITY AND CAPITAL RESOURCES
|
18
|
|
C.
|
RESEARCH EXPENDITURES
|
18
|
|
D.
|
TREND INFORMATION
|
19
|
|
E.
|
OFF – BALANCE SHEET ARRANGEMENTS
|
19
|
|
F.
|
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
|
19
|
|
G.
|
SAFE HARBOR
|
19
|
|
ITEM 6
|
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|
19
|
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A.
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DIRECTORS AND SENIOR MANAGEMENT
|
19
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|
B.
|
COMPENSATION
|
20
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|
C.
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BOARD PRACTICES
|
21
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D.
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EMPLOYEES
|
24
|
|
E.
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SHARE OWNERSHIP
|
25
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ITEM 7
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MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|
25
|
|
A.
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MAJOR SHAREHOLDERS
|
25
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|
B.
|
RELATED PARTY TRANSACTIONS
|
26
|
|
C.
|
INTERESTS OF EXPERTS AND COUNSEL
|
27
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|
ITEM 8
|
FINANCIAL INFORMATION
|
28
|
|
A.
|
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL
INFORMATION
|
28
|
|
B.
|
SIGNIFICANT CHANGES
|
28
|
|
ITEM 9
|
THE OFFER AND LISTING
|
28
|
|
A.
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OFFER AND LISTING DETAILS
|
28
|
|
B.
|
PLAN OF DISTRIBUTION
|
29
|
|
C.
|
MARKETS
|
29
|
|
D.
|
SELLING SHAREHOLDERS
|
29
|
|
E.
|
DILUTION
|
29
|
|
F.
|
EXPENSES OF THE ISSUE
|
30
|
|
ITEM 10
|
ADDITIONAL INFORMATION
|
30
|
|
A.
|
SHARE CAPITAL
|
30
|
|
B.
|
MEMORANDUM AND ARTICLES OF ASSOCIATION
|
30
|
|
C.
|
MATERIAL CONTRACTS
|
32
|
|
D.
|
EXCHANGE CONTROLS
|
32
|
|
E.
|
TAXATION
|
32
|
|
F.
|
DIVIDENDS AND PAYING AGENTS
|
40
|
|
G.
|
STATEMENT BY EXPERTS
|
41
|
|
H.
|
DOCUMENTS ON DISPLAY
|
41
|
|
I.
|
SUBSIDIARY INFORMATION
|
41
|
|
ITEM 11
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
41
|
|
A.
|
TRANSACTION RISK AND CURRENCY RISK MANAGEMENT
|
41
|
|
B.
|
EXCHANGE RATE SENSITIVITY
|
41
|
|
C.
|
INTEREST RATE RISK AND EQUITY PRICE RISK
|
41
|
|
D.
|
COMMODITY PRICE RISK
|
41
|
|
ITEM 12
|
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
|
41
|
|
ITEM 13
|
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
|
41
|
|
ITEM 14
|
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
|
42
|
|
ITEM 15
|
CONTROLS AND PROCEDURES
|
42
|
|
A.
|
DISCLOSURE CONTROLS AND PROCEDURES
|
42
|
|
B.
|
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING
|
42
|
|
CHANGES
IN INTERNAL CONTROL OVER FINANCIAL REPORTING
|
42
|
|
|
LIMITATIONS
OF CONTROLS AND PROCEDURES
|
43
|
|
|
ITEM 16
|
[RESERVED]
|
43
|
|
ITEM 16A
|
AUDIT COMMITTEE FINANCIAL EXPERT
|
43
|
|
ITEM 16B
|
CODE OF ETHICS
|
43
|
|
ITEM 16C
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
44
|
|
ITEM 16D
|
EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES
|
44
|
|
ITEM 16E
|
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS
|
44
|
|
ITEM 16F
|
CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT
|
44
|
|
ITEM 16G
|
CORPORATE GOVERNANCE
|
44
|
|
ITEM 16H
|
MINE SAFETY DISCLOSURE
|
45
|
|
ITEM 17
|
FINANCIAL STATEMENTS
|
45
|
|
ITEM 18
|
FINANCIAL STATEMENTS
|
45
|
|
ITEM 19
|
EXHIBITS
|
45
|
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 20, 2020 and all information included in this document
should only be considered correct as of such date.
Certain
terms used herein are defined as follows:
|
Mineral
Reserve
|
Securities and
Exchange Commission Industry Guide 7 “Description of Property
by Issuers Engaged or to be Engaged in Significant Mining
Operations” (under the United States Securities Exchange Act
of 1934, as amended) defines a ‘reserve’ as that part
of a mineral deposit which could be economically and legally
extracted or produced at the time of the reserve determination.
Reserves consist of:
(1) Proven
(Measured) Reserves. Reserves for which: (a) quantity is computed
from dimensions revealed in outcrops, trenches, workings or drill
holes; grade and/or quality are computed from the results of
detailed sampling; and (b) the sites for inspection, sampling and
measurement are spaced so closely and the geologic character is so
well defined that size, shape, depth and mineral content of
reserves are well-established.
(2) Probable
(Indicated) Reserves. Reserves for which quantity and grade and/or
quality are computed from information similar to that used for
proven (measured) reserves, but the sites for inspection, sampling
and measurement are farther apart or are otherwise less adequately
spaced. The degree of assurance, although lower than that for
proven (measured) reserves, is high enough to assume continuity
between points of observation.
As a reporting
issuer under the Securities Acts of British Columbia and Alberta,
the Company is subject to National Instrument 43-101
“Standards of Disclosure for Mineral Projects” of the
Canadian Securities Administrators. Securities and Exchange
Commission Industry Guide 7, as interpreted by Securities and
Exchange Commission Staff, applies standards that are different
from those prescribed by National Instrument 43-101 in order to
classify mineralization as a reserve. In particular, Mineral
Reserves under National Instrument 43-101 are defined as 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, which
are considerations used to convert Mineral Resources to Mineral
Reserves and include, but are not restricted to, mining,
processing, metallurgical, infrastructure, economic, marketing,
legal, environmental, social and governmental 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.
Under the standards
of the Securities and Exchange Commission, mineralization may not
be classified as a “reserve” unless the determination
has been made that the mineralization could be economically and
legally produced or extracted at the time the reserve determination
is made. Among other things, all necessary permits would be
required to be in hand or issued imminently in order to classify
mineralized material as reserves under Securities and Exchange
Commission Industry Guide 7. Accordingly, mineral reserve estimates
established in accordance with National Instrument 43-101 may not
qualify as “reserves” under SEC standards. The Company
does not currently have any mineral deposits that have been
classified as reserves.
|
|
|
4
|
|
5
|
Mineral
Resource
|
National Instrument
43-101 “Standards of Disclosure for Mineral Projects”
issued by the Canadian Securities Administrators defines a
“mineral Resources as 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.
Mineral Resources are sub-divided, in order of increasing
geological confidence, into Inferred, Indicated, and Measured
categories. An Inferred Mineral Resource has a lower level of
confidence that that applied to an Indicated Mineral Resource, and
an Indicated Mineral resource has a lower level of confidence than
that applied to a Measured Mineral Resource.
(1) An
Inferred Mineral Resource is 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; it has a lower level of confidence than that applying
to an Indicated Mineral Resource and must 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.
(2) An
Indicated Mineral Resource is 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; it has a lower level of confidence
than that applying to a Measured Mineral Resource and may only be
converted to a Probable Mineral Reserve.
(3) A
Measured Mineral Resource is 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. It 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.
Industry Guide 7
– "Description of Property by Issuers Engaged or to be
Engaged in Significant Mining Operations" of the Securities and
Exchange Commission does not define or recognize resources. In
addition, disclosure of resources using "contained ounces" is
permitted under Canadian regulations; however, the Securities and
Exchange Commission only permits issuers to report mineralization
that does not qualify as a reserve as in place tonnage and grade
without reference to unit measures. As used in this Form 20-F,
"resources" are as defined in National Instrument
43-101.
For the
above reasons, information in the Company's publicly-available
documents containing descriptions of the Company's mineral deposits
may not be comparable to similar information made public by U.S.
companies subject to the reporting and disclosure requirements
under the United States federal securities laws and the rules and
regulations thereunder.
|
|
Mineral
Symbols
|
As
– arsenic; Au – gold; Ag – silver; Cu –
copper; Fe – iron; Hg – mercury; Mo – molybdenum;
Na – sodium; Ni – nickel; O – oxygen; Pd -
palladium; Pt – platinum; Pb – lead; S – sulphur;
Sb – antimony; Zn – zinc.
|
|
Net
Smelter Return (NSR)
|
Monies
received for concentrate delivered to a smelter net of
metallurgical recovery losses, transportation costs, smelter
treatment-refining charges, and penalty charges.
|
6
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
|
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;
●
natural phenomena,
including geological and meteorological phenomena;
●
actions by
government authorities, including changes in government regulation
and permitting requirements;
●
uncertainties
associated with legal proceedings;
●
future decisions by
management in response to changing conditions;
●
the Company's
ability to execute prospective business plans; and
●
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.
7
|
ITEM 2
OFFER STATISTICS AND EXPECTED TIMETABLE
|
Not
applicable for an annual report.
The
following tables summarize selected financial data for the Company
(stated in Canadian dollars) prepared, in respect of the years
ended July 31, 2020 and July 31, 2019, 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).
|
|
Year ended July
31, 2020
|
Year ended July
31, 2019
|
Year ended July
31, 2018
|
Year ended July
31, 2017
|
Year ended July
31, 2016
|
|
Sales
revenue
|
$–
|
$–
|
$–
|
$–
|
$–
|
|
Loss (income) from
operating expenses
|
$249,442
|
$149,170
|
$236,319
|
$201,081
|
$322,605
|
|
Loss (income) and
comprehensive loss (income)
|
$(2,524,763)
|
$153,715
|
$234,467
|
$199,953
|
$(92,549)
|
|
Basic loss
(earnings) per common share
|
$(0.16)
|
$0.02
|
$0.02
|
$0.02
|
$(0.01)
|
|
Diluted loss
(earnings) per common share
|
$(0.13)
|
$0.02
|
$0.02
|
$0.02
|
$(0.01)
|
|
Dividends per
share
|
$–
|
$–
|
$–
|
$–
|
$–
|
|
Working
capital
|
$138,550
|
$(2,995,655)
|
$(2,841,940)
|
$(3,066,336)
|
$(2,866,383)
|
|
Total
assets
|
$218,559
|
$80,562
|
$75,034
|
$232,153
|
$313,168
|
|
Shareholder’s
deficiency
(equity)
|
$(138,551)
|
$2,995,654
|
$2,841,939
|
$3,066,335
|
$2,866,382
|
|
Share
capital
|
$27,158,423
|
$26,548,981
|
$26,548,981
|
$26,090,118
|
$26,090,118
|
|
Shares
outstanding
|
25,477,776
|
3,347,137
|
3,347,137
|
2,929,989
|
2,929,989
|
Currency
and Exchange Rates
On
November 20, 2020 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.
8
|
|
For
the fiscal year ended July 31, (Canadian Dollars per U.S.
Dollar)
|
||||
|
|
2020
|
2019
|
2018
|
2017
|
2016
|
|
End of
Period
|
1.3404
|
1.3193
|
1.3008
|
1.2485
|
1.3056
|
|
Average for the
Period (1)
|
1.3463
|
1.3235
|
1.2760
|
1.3237
|
1.3285
|
|
High for the
Period
|
1.4496
|
1.3641
|
1.3137
|
1.3743
|
1.4661
|
|
Low for the
Period
|
1.2970
|
1.2815
|
1.2314
|
1.2447
|
1.2497
|
(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
|
Low
|
|
October
2020
|
1.3349
|
1.3122
|
|
September
2020
|
1.3396
|
1.3055
|
|
August
2020
|
1.3377
|
1.3042
|
|
July
2020
|
1.3616
|
1.3360
|
|
June
2020
|
1.3682
|
1.3383
|
B.
CAPITALIZATION
AND INDEBTEDNESS
Not
applicable.
C.
REASONS
FOR THE OFFER AND USE OF PROCEEDS
Not
applicable.
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.
9
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.
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.
10
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.
11
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.
12
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.
13
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 15th 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.
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.
14
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
The
Company retains a 1% net smelter return royalty payable to the
Company on any production from the Angel's Camp property located in
Lake County, Oregon. The Angel's Camp property is currently held by
Alamos Gold Inc.
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.
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.
15
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.
The
Company is currently investigating new opportunities.
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.
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, 2020, 2019 and 2018 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.
16
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,
2020, which are presented in Exhibit 99.1 of this Annual Report on
Form 20-F.
Comprehensive
income (loss) for the year ended July 31, 2020 vs.
2019
The
Company recorded an income from operations of $2,524,763 during the
current fiscal year (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.
Comprehensive
income (loss) for the year ended July 31, 2019 vs.
2018
The
Company recorded a loss from operations of $149,170 during the
current fiscal year (2018 –
$236,319).
No
exploration costs were incurred during the year ended July 31, 2019
and 2018. The following table provides a breakdown of the
administration costs incurred:
|
General and
Administration costs
|
2019
|
2018
|
|
Administrative
fees
|
$50,406
|
$71,458
|
|
Insurance
|
31,779
|
46,282
|
|
IT
Services
|
12,000
|
12,000
|
|
Legal, accounting
and audit
|
20,306
|
20,400
|
|
Office and
miscellaneous
|
1,245
|
16,148
|
|
Property
investigation
|
–
|
24,117
|
|
Regulatory, trust
and filing
|
28,682
|
39,628
|
|
Shareholder
communications
|
4,752
|
6,286
|
|
Total
|
$149,170
|
$236,319
|
Administrative
costs have decreased from 2018 in line with reduced spending to
conserve capital.
17
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, 2020, the Company had an accumulated deficit of $27,611,883 and
has a working capital of $138,550.
In
January 2016, the Company arranged with Hunter Dickinson Services
Inc. (“HDSI”) to settle debt owing for services 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.
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, 2020.
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, 2020, 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.
18
D.
TREND
INFORMATION
The
Company does not currently hold any properties.
Quartz
Mountain has no off-balance sheet arrangements.
The
following obligations existed at July 31, 2020:
|
|
Payments due by
period
|
|||
|
|
Total
|
Less than 1
year
|
1-5
years
|
After 5
years
|
|
Amounts payable and
other liabilities
|
$4,176
|
$4,176
|
$–
|
$–
|
|
Due to a related
party
|
75,832
|
75,832
|
–
|
|
|
Total
|
$80,008
|
$80,008
|
$–
|
$–
|
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
|
19
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
|
|
Curis
Resources Ltd.
|
Secretary
|
June
2013
|
November
2014
|
|
Heatherdale
Resources Ltd.
|
Secretary
|
June
2013
|
Present
|
|
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
|
|
Rathdowney
Resources Ltd.
|
Secretary
|
March
2011
|
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
|
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, 2020, the aggregate
cash compensation paid or payable by the Company to its directors
and senior officers was $19,896.
Trevor
Thomas, Chairman, President, and CEO, and Michael Lee, CFO, are
each "Named Executive Officers" of the Company for the purposes of
the following disclosure.
The
compensation paid to the Named Executive Officers during the
Company's most recently completed financial year is as set out
below:
During
the fiscal year ended July 31, 2020, the above named NEOs did not
serve the Company solely on a full-time basis, and their
compensation from the Company is allocated based on the estimated
amount of time spent providing services to the
Company.
|
Name and
principal position
|
Fiscal
year
|
Salary
($)
|
Share- based
awards
($)
|
Option
-based
awards
($)
|
Pension
value
($)
|
All other
compensation
($)
|
Total
compensation
($) |
|
Trevor
Thomas,
|
2020
|
4,263
|
Nil
|
Nil
|
Nil
|
Nil
|
4,263
|
|
CEO
(1)
|
2019
|
414
|
Nil
|
Nil
|
Nil
|
Nil
|
414
|
|
|
|
|
|
|
|
|
|
|
Robert
Dickinson,
|
2020
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
|
CEO
(1)
|
2019
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
|
|
|
|
|
|
|
|
|
|
Michael
Lee,
|
2020
|
15,633
|
Nil
|
Nil
|
Nil
|
Nil
|
15,633
|
|
CFO
[2]
|
2019
|
10,561
|
Nil
|
Nil
|
Nil
|
Nil
|
10,561
|
|
|
2018
|
10,578
|
Nil
|
Nil
|
Nil
|
Nil
|
12,578
|
Note
(1) Mr. Thomas replaced Mr. Dickinson as Chairman, President, and
CEO on February 15, 2019 Note (2) Mr. Tang replaced Mr. Lee as CFO
on August 15, 2020
20
Director
Compensation
The
compensation provided to the directors, excluding a director who is
already set out in disclosure for a NEO for the Company's most
recently completed financial year ended July 31, 2020 is as set out
below:
|
Name
|
Fees
earned
(1)
($)
|
Share-
based awards
($)
|
Option
-based
awards
($)
|
Non-equity incentive plan compensation ($)
|
Pensio
n value
($)
|
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, which is expected to
be held in early 2020. 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.
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.
21
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.
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.
22
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.
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.
23
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 20, 2020, 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").
24
E.
SHARE
OWNERSHIP
Security
Holdings of Directors and Senior Management
As at
November 20, 2020, the directors and officers of Quartz Mountain
and their respective affiliates, directly and indirectly, own or
control as a group an aggregate of 2,727,273 common shares or
10.22% and 1,527,273 share purchase warrants or 5.72%.
As at
November 20, 2020, 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
|
2,727,273(Common
Shares)
|
10.22%
|
|
Matthew
Dickinson
|
1,527,273
(Share purchase
warrants)
|
5.72%
|
|
Sebastian
Tang
|
Nil
|
Nil
|
|
Trevor
Thomas
|
500
(Common Shares)
|
0.00%
|
|
Leonie
Tomlinson
|
Nil
|
Nil
|
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 20, 2020, Quartz Mountain had authorized unlimited common
shares without par value, of which 26,677,776 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
|
10,909,092
|
40.89.%
|
|
Matthew
Dickinson
|
2,727,273
|
10.22%
|
|
Hunter Dickinson
Services Inc.
|
1,800,000
|
6.75%
|
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 20, 2020, 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
|
157
|
26,234,487
|
98.34%
|
|
United
States
|
1,461
|
431,724
|
1,62%
|
|
Other
|
13
|
11,565
|
0.04%
|
|
Total
|
1,631
|
26,677,776
|
100%
|
Shares
registered in the names of intermediaries, were assumed to be held
by residents of the same country in which the intermediary is
located.
25
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.
Except
as disclosed herein, Quartz Mountain has not, since the beginning
of its last fiscal year ended July 31, 2020:
(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 a
party;
(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;
(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;
(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;
(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
(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.
26
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, Chief
Financial Officer, 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.
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, 2020, the Company had transactions
totaling $104,678 (2019 –$77,310; 2018
– $114,890) 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
●
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 $100,000 with a six-month term, at an interest rate of 10%
per annum calculated monthly and payable quarterly. The
principal amount and related interest were repaid during the year
ended July 31, 2020.
C.
INTERESTS
OF EXPERTS AND COUNSEL
Not
applicable.
27
ITEM 8
FINANCIAL INFORMATION
A.
CONSOLIDATED
STATEMENTS AND OTHER FINANCIAL INFORMATION
Quartz
Mountain's audited consolidated annual financial statements as at
and for the year ended July 31, 2020, 2019 and 2018 are attached in
Exhibit 99.1 to this Annual Report.
Legal
Proceedings
The
Company is not, and has not been in the recent past, involved in
any legal or arbitration proceedings, including governmental
proceedings and those relating to bankruptcy, receivership, or
similar proceedings.
Dividend
Policy
The
Company has not paid any dividends on its outstanding common shares
since its incorporation and does not anticipate that it will do so
in the foreseeable future. All funds of the Company are being
retained for administration expenses and mineral property
investigations.
B.
SIGNIFICANT
CHANGES
There
have been no significant changes to the accompanying financial
statements, except as disclosed in this Annual Report on Form
20-F.
ITEM 9
THE OFFER AND LISTING
A.
OFFER
AND LISTING DETAILS Trading Markets
The
following tables set forth for the periods indicated the price
history, rounded to nearest cent, of the Company's common shares on
the TSX-V and on the OTC Grey Market:
|
|
TSX-V
|
OTC
|
||
|
Fiscal year
ended July 31
|
High
(CDN$)
|
Low
(CDN$)
|
High
(US$)
|
Low
(US$)
|
|
2020
|
0.45
|
0.05
|
0.23
|
0.04
|
|
2019
|
0.27
|
0.09
|
0.23
|
0.08
|
|
2018
|
0.50
|
0.22
|
0.40
|
0.00
|
|
2017
|
0.04
|
0.13
|
0.23
|
0.07
|
|
2016
|
0.13
|
0.13
|
0.13
|
0.13
|
|
2015
|
0.20
|
0.03
|
0.23
|
0.07
|
28
|
|
TSX-V
|
OTC
|
||
|
Fiscal Quarter
|
High
(CDN$)
|
Low
(CDN$)
|
High
(US$)
|
Low
(US$)
|
|
Q4, 2020
|
0.45
|
0.07
|
0.18
|
0.04
|
|
Q3, 2020
|
0.07
|
0.06
|
0.13
|
0.13
|
|
Q2, 2020
|
0.07
|
0.05
|
0.16
|
0.13
|
|
Q1, 2020
|
0.09
|
0.06
|
0.23
|
0.16
|
|
Q4, 2019
|
0.12
|
0.09
|
0.08
|
0.08
|
|
Q3, 2019
|
0.11
|
0.10
|
0.10
|
0.07
|
|
Q2, 2019
|
0.17
|
0.09
|
0.23
|
0.10
|
|
Q1, 2019
|
0.27
|
0.15
|
0.23
|
0.23
|
|
|
TSX-V
|
OTC
|
||
|
Month
|
High
(CDN$)
|
Low
(CDN$)
|
High
(US$)
|
Low
(US$)
|
|
October
2020
|
0.14
|
0.14
|
0.11
|
0.10
|
|
September
2020
|
0.18
|
0.13
|
0.12
|
0.10
|
|
August
2020
|
0.20
|
0.16
|
0.15
|
0.12
|
|
July
2020
|
0.23
|
0.16
|
0.17
|
0.10
|
|
June
2020
|
0.24
|
0.15
|
0.18
|
0.10
|
|
May
2020
|
0.45
|
0.07
|
0.18
|
0.04
|
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.
29
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.
30
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.
31
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 20, 2020,
are:
●
Corporate Services
Agreement with HDSI, dated for reference July 2, 2010. See Item
7B;
●
HDSI debt
settlement agreement. See ITEM 19 EXHIBIT
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
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.
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.
32
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.
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, 2020, 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.
33
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.;
●
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;
●
an estate whose
income is subject to U.S. federal income taxation regardless of its
source; or
●
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.
34
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.
35
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.
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.
36
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.
37
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.
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.
38
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.
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.
39
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.
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, 15th 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.
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.
40
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.
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,
2020, 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, 2020.
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.
41
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: 15th 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.
42
ITEM 16C
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The
following table discloses the aggregate fees billed for each of the
last two fiscal years for professional services rendered by the
Company's audit firm, Davidson & Company LLP for various
services.
|
Services:
|
Year
ended
|
|
|
|
July 31,
2020
|
July 31,
2019
|
|
Audit Fees
(1)
|
$18,000
|
$15,000
|
|
Audit Related Fees
(2)
|
–
|
–
|
|
Tax Fees
(3)
|
–
|
–
|
|
All Other Fees
(4)
|
–
|
–
|
|
Total
|
$18,000
|
$15,000
|
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.
(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.
(3)
"Tax Fees" include
fees billed for professional services rendered by the principal
accountant for tax compliance, tax advice, and tax
planning.
(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,
2020.
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, 2020, 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.
43
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
|
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
|
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
|
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
|
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
|
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
|
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
|
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
|
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
|
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
|
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
|
Incorporated by
reference from our Annual Report on Form 20-F for the year ended
July 31, 2016, filed on October 4, 2016.
|
|
11.1
|
Incorporated by
reference from our Annual Report on Form 20-F for the year ended
July 31, 2016, filed on October 4, 2016.
|
|
|
16B.
|
Incorporated by
reference from our Annual Report on Form 20-F for the year ended
July 31, 2012, filed on November 30, 2012.
|
44
The
following exhibits are filed with this Annual Report on Form
20-F:
|
Exhibit
Number
|
Description of
Exhibit
|
|
12.1
|
|
|
12.2
|
|
|
13.1
|
|
|
13.2
|
|
|
99.1
|
45
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 20, 2020
46
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
(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 20,
2020
/s/ Trevor Thomas
By:
Trevor Thomas
Title:
Chief Executive Officer
Exhibit
12.2
SARBANES-OXLEY CEO
CERTIFICATION
I,
Michael Lee, 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 20,
2020
/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, 2020
(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 20,
2020
|
/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
CERTIFICATION
OF
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,
Michael Lee, 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, 2020
(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 20,
2020
|
/s/ Sebastian
Tang
|
|
By:
Sebastian
Tang
|
|
Title:
Chief
Financial 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
99.1
QUARTZ MOUNTAIN RESOURCES LTD.
CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JULY 31, 2020, 2019 AND 2018
(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 statements of financial
position of Quartz Mountain Resources Ltd. (the
“Company”), as of July 31, 2020 and 2019, and the
related consolidated statements of income (loss) and comprehensive
income (loss), changes in shareholders’ equity (deficiency),
and cash flows for the years ended July 31, 2020, 2019 and 2018,
and the related notes and schedules (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 of July 31, 2020
and 2019, and the results of its operations and its cash flows for
the years ended July 31, 2020, 2019, and 2018 in conformity with
International Financial Reporting Standards as issued by the
International Accounting Standards Board.
Going Concern
The
accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The
Company had an accumulated deficit of $27,611,883 and has a working
capital of $138,550, all of which raise substantial doubt about its
ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. 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 audits. 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 the U.S. federal
securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. As part of our audits 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.
Our
audits included performing procedures to assess the risks of
material misstatements of the 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 audits 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 audits
provide a reasonable basis for our opinion.
We have
served as the Company’s auditor since 1999.
“DAVIDSON
& COMPANY LLP”
|
Vancouver,
Canada
|
Chartered
Professional Accountants
|
November 20,
2020
|
QUARTZ MOUNTAIN RESOURCES LTD.
|
|
||
|
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
|
|
||
|
(Expressed in
Canadian Dollars)
|
|
||
|
|
|
July
31,
|
July
31,
|
|
|
Note
|
2020
|
2019
|
|
Assets
|
|
|
|
|
Current
assets
|
|
|
|
|
Cash
|
|
$206,529
|
$72,373
|
|
Amounts receivable
and other assets
|
3
|
12,029
|
8,188
|
|
|
|
218,558
|
80,561
|
|
Non-current
assets
|
|
|
|
|
Mineral property
interests
|
4
|
1
|
1
|
|
Total
assets
|
|
$218,559
|
$80,562
|
|
Liabilities
and Shareholders' Equity (Deficiency)
|
|
|
|
|
Current
liabilities
|
|
|
|
|
Amounts payable and
other liabilities
|
6
|
$4,176
|
$2,062
|
|
Loan
payable
|
7(c)
|
–
|
101,209
|
|
Due to a related
party
|
7(b)
|
75,832
|
2,972,945
|
|
Total
liabilities
|
|
80,008
|
3,076,216
|
|
Shareholders'
equity (deficiency)
|
|
|
|
|
Share
capital
|
5(a)
|
27,158,423
|
26,548,981
|
|
Reserves
|
|
592,011
|
592,011
|
|
Accumulated
deficit
|
|
(27,611,883)
|
(30,136,646)
|
|
Total shareholders'
equity (deficiency)
|
|
138,551
|
(2,995,654)
|
|
Total liabilities
and shareholders' equity (deficiency)
|
|
$218,559
|
$80,562
|
Nature and
continuance of operations (note 1)
Event after the
reporting date (note 12)
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 INCOME (LOSS) AND COMPREHENSIVE INCOME
(LOSS)
(Expressed in
Canadian Dollars)
|
|
|
For the year ended July
31,
|
||
|
|
Note
|
2020
|
2019
|
2018
|
|
Expenses
Administrative
fees
|
7(a)
|
$77,603
|
$50,406
|
$71,458
|
|
Insurance
|
|
35,730
|
31,779
|
46,282
|
|
IT
Services
|
|
12,000
|
12,000
|
12,000
|
|
Legal, accounting
and audit
|
|
29,885
|
20,306
|
20,400
|
|
Office and
miscellaneous
|
|
1,572
|
1,245
|
16,148
|
|
Property
investigation
|
|
23,275
|
–
|
24,117
|
|
Regulatory, trust
and filing
|
|
64,233
|
28,682
|
39,628
|
|
Shareholder
communications
|
|
5,144
|
4,752
|
6,286
|
|
Operating
expenses
|
|
(249,442)
|
(149,170)
|
(236,319)
|
|
Interest
income
|
|
1,091
|
1,846
|
2,338
|
|
Interest
expense
|
|
(6,291)
|
(6,236)
|
–
|
|
Foreign exchange
loss
|
|
(477)
|
(155)
|
(486)
|
|
Gain on settlement
of debt
|
7(b)
|
2,779,882
|
–
|
–
|
|
Income (loss) and comprehensive income (loss)
for the year
|
|
$2,524,763
|
$(153,715)
|
$(234,467)
|
|
Basic income (loss) per common
share
|
|
$0.16
|
$(0.02)
|
$(0.02)
|
|
Diluted income (loss) per common
share
|
|
$0.13
|
$(0.02)
|
$(0.02)
|
|
Weighted
average number of common shares outstanding (note
5(e))
|
|
|
|
|
|
Basic
|
|
15,959,818
|
10,041,411
|
9,530,548
|
|
Diluted
|
|
19,165,047
|
10,041,411
|
9,530,548
|
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
|
|
|
|
|
|
Note
|
Number of
shares
|
Amount
|
Equity-settled share-based
payments
|
Accumulated
deficit
|
Total shareholders' equity
(deficiency)
|
|
Balance at August
1, 2017
|
|
8,789,967
|
$26,090,118
|
$592,011
|
$(29,748,464)
|
$(3,066,335)
|
|
Shares issued
pursuant to private placement
|
5(a)
|
1,251,444
|
458,863
|
–
|
–
|
458,863
|
|
Loss for the
year
|
|
–
|
–
|
–
|
(234,467)
|
(234,467)
|
|
Balance at July 31,
2018
|
|
10,041,411
|
$26,548,981
|
$592,011
|
$(29,982,931)
|
$(2,841,939)
|
|
Balance at August
1, 2018
|
|
10,041,411
|
$26,548,981
|
$592,011
|
$(29,982,931)
|
$(2,841,939)
|
|
Loss for the
year
|
|
–
|
–
|
–
|
(153,715)
|
(153,715)
|
|
Balance at July 31,
2019
|
|
10,041,411
|
$26,548,981
|
$592,011
|
$(30,136,646)
|
$(2,995,654)
|
|
Balance at August
1, 2019
|
|
10,041,411
|
$26,548,981
|
$592,011
|
$(30,136,646)
|
$(2,995,654)
|
|
Shares issued for
debt settlement
|
7(b)
|
1,800,000
|
126,000
|
–
|
–
|
126,000
|
|
Shares issued
pursuant to private placement
|
5(b)
|
13,636,365
|
500,000
|
–
|
–
|
500,000
|
|
Share issuance
costs
|
5(b)
& 7(b)
|
–
|
(16,558)
|
–
|
–
|
(16,558)
|
|
Income for the
year
|
|
–
|
–
|
–
|
2,524,763
|
2,524,763
|
|
Balance at July 31,
2020
|
|
25,477,776
|
$27,158,423
|
$592,011
|
$(27,611,883)
|
$138,551
|
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)
|
|
|
For
the year ended July 31,
|
||
|
|
Note
|
2020
|
2019
|
2018
|
|
Operating
activities
Income (loss) for
the year
|
|
$2,524,763
|
$(153,715)
|
$(234,467)
|
|
Adjusted
for:
Interest
income
|
|
(1,091)
|
(1,846)
|
(2,338)
|
|
Interest
expense
|
|
6,291
|
6,236
|
–
|
|
Gain on settlement
of debt
|
|
(2,779,882)
|
–
|
–
|
|
Changes in working
capital items:
|
|
(3,841)
|
(360)
|
(1,586)
|
|
Amounts receivable
and other assets
Amounts payable and
other liabilities
|
|
2,114
|
2,062
|
(1,323)
|
|
Due to a related
party
|
7(b)
|
8,769
|
55,972
|
(380,192)
|
|
Net cash used in
operating activities
|
|
(242,877)
|
(91,651)
|
(619,906)
|
|
Investing
activities
Interest
received
|
|
1,091
|
1,846
|
2,338
|
|
Net cash provided
by investing activities
|
|
1,091
|
1,846
|
2,338
|
|
Financing
activities
Proceeds from
private placement
|
5(b)
|
500,000
|
–
|
458,863
|
|
Share issuance
costs
|
|
(16,558)
|
–
|
–
|
|
Proceeds from loan
payable
|
|
–
|
100,000
|
–
|
|
Repayment of loan
payable
|
|
(100,000)
|
–
|
–
|
|
Interest paid on
related party loan
|
7(c)
|
(7,500)
|
(5,027)
|
–
|
|
Net cash provided
by financing activities
|
|
375,942
|
94,973
|
458,863
|
|
Increase
(decrease) in cash
|
|
134,156
|
5,168
|
(158,705)
|
|
Cash, beginning of
the year
|
|
72,373
|
67,205
|
225,910
|
|
Cash,
end of the year
|
|
$206,529
|
$72,373
|
$67,205
|
|
Supplementary
cash flow information:
Issuance of shares
for settlement of related party debt
|
|
$126,000
|
$–
|
$–
|
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, 2020, 2019 AND 2018
(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, 15th 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, 2020, 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, 2020, the Company had an accumulated deficit
of $27,611,883, and has a working capital of $138,550. 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.
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 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.
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, 2020, 2019 AND 2018
(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, 2020.
The
Company’s Board of Directors authorized issuance of these
Financial Statements on November 20, 2020.
(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, 2020 and July 31, 2019, the Company held a 100% interest in
QZMG Resources Ltd., a company that holds a 100% interest in
Wavecrest Resources Inc.
(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, 2020, 2019 AND 2018
(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.
Financial assets
and liabilities are subsequently measured at amortized cost using
the effective interest method. The amortized cost is reduced by
impairment losses.
|
QUARTZ MOUNTAIN RESOURCES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JULY 31, 2020, 2019 AND 2018
(Expressed in
Canadian Dollars, unless otherwise stated)
|
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, 2020, 2019 AND 2018
(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 carryingamount 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, 2020, 2019 AND 2018
(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.
(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.
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.
|
QUARTZ MOUNTAIN RESOURCES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JULY 31, 2020, 2019 AND 2018
(Expressed in
Canadian Dollars, unless otherwise stated)
|
(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.
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.
|
QUARTZ MOUNTAIN RESOURCES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JULY 31, 2020, 2019 AND 2018
(Expressed in
Canadian Dollars, unless otherwise stated)
|
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, 2020
|
July 31, 2019
|
|
Sales tax
receivable
|
$4,820
|
$1,098
|
|
Prepaid
insurance
|
7,209
|
7,090
|
|
Total
|
$12,029
|
$8,188
|
|
4.
|
MINERAL PROPERTY INTERESTS
|
|
|
|
|
July 31, 2020
|
July 31, 2019
|
|
Angel's Camp
royalty
|
$1
|
$1
|
Angel's Camp Property
The
Company retains a 1% net smelter return royalty payable to the
Company on any production from the Angel's Camp property located in
Lake County, Oregon. The royalty is recorded at a nominal amount of
$1.
5.
CAPITAL AND RESERVES
(a)
Authorized share capital
At July
31, 2020 and July 31, 2019, 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.
|
QUARTZ MOUNTAIN RESOURCES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JULY 31, 2020, 2019 AND 2018
(Expressed in
Canadian Dollars, unless otherwise stated)
|
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.
(b)
Private placement
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.
The
private placement results in Robert Dickinson holding a control
position of approximately 43% (60%, if warrants exercised) of the
Company and has been approved by the TSX-V.
(c)
Shares for debt settlement
On
December 6, 2019, the Company issued 1,800,000 shares (pre-forward
split basis of 600,000 shares) valued at $126,000 to settle
$2,905,882 of debt. The debt settlements resulted in a gain on
settlement of debt of $2,779,882 (note 7(b)).
(d)
Warrants
On
March 26, 2020, the Company, as part of the private placement,
issued 13,636,365 warrants (pre- forward split basis of 4,545,455
warrants) valued at $nil.
The
continuity of the warrants during the year ended July 31, 2020 is
as follows:
|
|
Number of
warrants
|
Weighted average
exercise price ($)
|
|
Balance
July 31, 2018
|
–
|
$–
|
|
Granted
|
–
|
–
|
|
Balance
July 31, 2019
|
–
|
$–
|
|
Granted
|
13,636,365
|
0.05
|
|
Balance
July 31, 2020
|
13,636,365
|
$0.05
|
The outstanding
warrants at July 31, 2020 are as
follows:
|
Expiry
Date
|
Price per
share
|
Warrants
Outstanding
|
|
March 26,
2025
|
$0.05
|
13,636,365
|
|
QUARTZ MOUNTAIN RESOURCES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JULY 31, 2020, 2019 AND 2018
(Expressed in
Canadian Dollars, unless otherwise stated)
|
|
(e)
|
Basic and Diluted Earnings (Loss)
|
|
|
|
|
July 31,
2020
|
July 31,
2019
|
|
Weighted average
common shares outstanding
|
15,959,818
|
10,041,411
|
|
Plus net
incremental shares from assumed conversions:
Warrants
|
3,205,229
|
–
|
|
Diluted weighted
average common shares outstanding
|
19,165,047
|
10,041,411
|
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.
6.
AMOUNTS PAYABLE AND
OTHER LIABILITIES
|
|
July 31,
2020
|
July 31,
2019
|
|
Amounts
payable
|
$4,176
|
$2,062
|
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,
|
||
|
|
2020
|
2019
|
2018
|
|
Administrative
fees
|
$42,600
|
$23,238
|
$32,000
|
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”) 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 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, 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.
|
QUARTZ MOUNTAIN RESOURCES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JULY 31, 2020, 2019 AND 2018
(Expressed in
Canadian Dollars, unless otherwise stated)
|
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.
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,
|
||
|
|
2020
|
2019
|
2018
|
|
HDSI: Services
received based on management services agreement
|
$77,603
|
$50,406
|
$72,000
|
|
HDSI: Reimbursement
of third party expenses paid
|
27,075
|
26,904
|
43,000
|
|
Total
|
$104,678
|
$77,310
|
$115,000
|
Outstanding
balances were as follows:
|
|
July 31, 2020
|
July 31, 2019
|
|
Balance payable to
HDSI
|
$75,832 $
|
2,972,945
|
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
●
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.
(c)
Related Party Loan
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.
|
QUARTZ MOUNTAIN RESOURCES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JULY 31, 2020, 2019 AND 2018
(Expressed in
Canadian Dollars, unless otherwise stated)
|
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 the USA.
9.
TAXATION
(a)
Provision for current tax
No
provision has been made for current income taxes, as the Company
has no taxable income.
(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, 2020, the Company had
unused non-capital loss carry forwards of
approximately
$3,301,000 (2019
– $5,826,000) in Canada and $9,000 (2019 – $48,000) in
the United States.
The
Company had approximately $4,347,000 (2019 – $4,347,000) of
resource tax pools available, which may be used to shelter certain
resource income.
Reconciliation of
effective tax rate:
|
Year ended July
31,
|
2020
|
2019
|
2018
|
|
Income (loss) for
the year
|
$2,524,763
|
$(153,715)
|
$(234,467)
|
|
Income tax expense
(recovery using the Company's $ 682,000 domestic tax
rate
|
$682,000
|
$(42,000)
|
$(62,000)
|
|
Non-deductible
(deductible) expenses and other
|
10,000
|
–
|
(2,000)
|
|
Change in deferred
tax rates
|
-
|
–
|
(92,000)
|
|
Differences in
statutory tax rates and deferred tax rate
|
(2,000)
|
–
|
(1,000)
|
|
Changes in
unrecognized temporary differences
|
(690,000)
|
42,000
|
157,000
|
|
Total
|
$–
|
$–
|
$–
|
The
Company's domestic tax rate during the year ended July 31, 2020 was
27% (2019 – 27%; 2018– 26.58%) and
the effective tax rate was nil (2019 – nil; 2018 –
nil).
|
QUARTZ MOUNTAIN RESOURCES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JULY 31, 2020, 2019 AND 2018
(Expressed in
Canadian Dollars, unless otherwise stated)
|
As at
July 31, 2020, 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
|
9,000
|
-
|
-
|
|
After five years
|
3,301,000
|
-
|
82,000
|
|
No expiry date
|
-
|
4,347,000
|
114,000
|
|
Total
|
$3,310,000
|
$347,000
|
$196,000
|
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 a
particular input to the fair value measurement requires judgement
and may affect placement within the 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).
The
carrying value of cash, amounts receivable, amounts payable and
other liabilities, due to arelated 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.
|
QUARTZ MOUNTAIN RESOURCES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JULY 31, 2020, 2019 AND 2018
(Expressed in
Canadian Dollars, unless otherwise stated)
|
(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, 2020:
|
|
Total
|
Less than 1 year
|
1-5 years
|
|
Amounts payable and
other liabilities
|
$4,176
|
$4,176
|
$–
|
|
Due to a related
party
|
75,832
|
75,832
|
–
|
|
Total
|
$80,008
|
$80,008
|
$-
|
The
following obligations existed at July 31, 2019:
|
|
Total
|
Less than 1 year
|
1-5 years
|
|
Amounts payable and
other liabilities
|
$2,062
|
$2,062
|
$–
|
|
Due to a related
party
|
2,972,945
|
2,972,945
|
-
|
|
Loan
payable
|
101,209
|
101,209
|
-
|
|
Total
|
$3,076,216
|
$3,076,216
|
$–
|
(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.
|
QUARTZ MOUNTAIN RESOURCES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JULY 31, 2020, 2019 AND 2018
(Expressed in
Canadian Dollars, unless otherwise stated)
|
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, 2020.
The
Company is not subject to any externally imposed equity
requirements.
12.
EVENT AFTER THE REPORTING DATE
On
August 25, 2020, the Company issued 1,200,000 flow-through common
shares on the exercise of the Warrants at an exercise price of
$0.05 for gross proceeds of $60,000.