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Bunker Hill Mining Corp. - Quarter Report: 2018 December (Form 10-Q)


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2018

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number: 333-150028

 

BUNKER HILL MINING CORP.

(FORMERLY LIBERTY SILVER CORP.)

(Exact name of registrant as specified in its charter)

 

Nevada

 

32-0196442

(State or other jurisdiction of incorporation)

 

(IRS Employer Identification Number)

 

401 Bay Street, Suite 2702

Toronto, Ontario, Canada, M5H 2Y4

(Address of principal executive offices)

416-477-7771

 

Indicate by check mark whether the 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 the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   x   Yes  ¨  No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  x  Yes¨  No

 

Indicate by check mark whether the Registrant is  ¨  a large accelerated filer, ¨  an accelerated file, ¨  a non-accelerated filer, x  a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act) or ¨ an emerging growth company

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

¨  Yes  x   No

 

As of February 19, 2018, the Issuer had 41,513,955 shares of common stock issued and outstanding.

 


1



PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS 

 

The financial statements of Bunker Hill Mining Corp. (formerly Liberty Silver Corp.), (“Bunker Hill”, the “Company”, or the “Registrant”) a Nevada corporation, included herein were prepared, without audit, pursuant to rules and regulations of the Securities and Exchange Commission.  Because certain information and notes normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America were condensed or omitted pursuant to such rules and regulations, these financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Form 10-K for the fiscal year ended June 30, 2018, and all amendments thereto.

 

 

 

 

 

 

BUNKER HILL MINING CORP. (FORMERLY LIBERTY SILVER CORP.)

INTERIM CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

PERIOD ENDED December 31, 2018

 

 

INDEX TO THE INTERIM CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS:

Page

 

 

Interim Condensed Consolidated Balance Sheets

3

 

 

Interim Condensed Consolidated Statements of Operations and Comprehensive Loss

4

 

 

Interim Condensed Consolidated Statements of Cash Flows

5

 

 

 

Notes to Interim Condensed Consolidated Financial Statements   

 

6-12


2



Bunker Hill Mining Corp. (Formerly Liberty Silver Corp.)

Interim Condensed Consolidated Balance Sheets

(Unaudited)

As at,

December 31,

2018

$

June 30,

2018

$

 

 

(unaudited)

 

ASSETS

 

 

Current assets

 

 

 

Cash and cash equivalents

130,048

502,660

 

Accounts receivable

87,055

229,046

 

Deposit

---

90,248

 

Prepaid expenses

156,800

588,630

Total current assets

373,903

1,410,584

 

 

 

 

Property and equipment

 

 

 

Equipment

48,181

97,252

 

Long term deposit

106,352

---

 

Mining interests (note 3)

1

1

Total property and equipment

154,534

97,253

 

 

 

 

Total assets

528,437

1,507,837

 

 

 

 

LIABILITIES

 

 

Current liabilities

 

 

 

Accounts payable (note 3)

975,401

225,184

 

Accrued liabilities (note 6)

2,110,404

504,186

 

Other liability

69,967

57,417

 

Interest payable

98,630

3,288

 

Convertible loan payable (note 4)

721,287

70,820

 

Derivative liability – conversion feature (note 4)

---

180,353

Total current liabilities  

3,975,689

1,041,248

 

 

 

 

Long term liabilities

 

 

Derivative warrant liability (notes 4 and 5)

125,506

682,903

 

 

 

Total liabilities

4,101,195

1,724,151

 

 

 

 

SHAREHOLDERS' DEFICIENCY

 

 

 

Preferred shares, $0.001 par value, 10,000,000 preferred shares authorized; No preferred shares issued and outstanding (note 5)

---

---

 

Common shares, $0.001 par value, 300,000,000 common shares authorized; 41,513,955 and 33,013,715 common shares issued and outstanding, respectively (note 5)

41,028

33,013

 

Additional paid-in-capital (note 5)

23,926,573

23,364,249

 

Deficit accumulated during the exploration stage

(27,540,359)

(23,613,576)

Total shareholders’ deficiency

(3,572,758)

(216,314)

 

 

 

 

Total liabilities and shareholders’ equity  

528,437

1,507,837

 

 

 

 

Basis of presentation and going concern (note 1)

 

 

Commitments and contingencies (note 6)

 

 

Subsequent events (note 8)

 

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements


3



Bunker Hill Mining Corp. (Formerly Liberty Silver Corp.)

Interim Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

 

For the Three Months ended

December 31,

For the Six Months ended

December 31,

 

 

2018

2017

2018

2017

 

 

$

$

$

$

 

 

 

 

 

 

Revenue

---

---

---

---

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

Operation and administration

218,380

845,097

876,639

1,055,054

 

Legal and accounting

51,973

188,563

121,131

260,638

 

Lease payments and exploration

3,003,911

2,168,676

3,814,176

2,174,892

 

Consulting

118,807

265,123

192,458

385,155

Total operating expenses

3,393,071

3,467,459

5,004,404

3,875,739

 

 

 

 

 

 

Loss from operations

(3,393,071)

(3,467,459)

(5,004,404)

(3,875,739)

 

 

 

 

 

 

Other income or gain (expense or loss)

 

 

 

 

 

Change in derivative liability (notes 4 and 5)

406,276

449,149

1,526,213

449,149

 

Accretion

(235,255)

---

(343,909)

---

 

Gain (loss) on foreign exchange

(6,903)

26,401

1,589

32,394

 

Loss on sale of equipment

(10,930)

---

(10,930)

---

 

Interest expense

(50,410)

---

(95,342)

---

Total other income or gain (expense or loss)

102,778

475,550

1,077,621

481,543

 

 

 

 

 

 

Loss before income tax

(3,290,293)

(2,991,909)

(3,926,783)

(3,394,196)

Provision for income taxes

---

---

---

---

 

 

 

 

 

 

Net loss and comprehensive loss

(3,290,293)

(2,991,909)

(3,926,783)

(3,394,196)

Loss per common share – basic and fully diluted

(0.09)

(0.11)

(0.11)

(0.13)

Weighted average common shares – basic and fully diluted

37,387,828

27,176,344

35,684,988

26,026,621

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements


4



Bunker Hill Mining Corp. (formerly Liberty Silver Corp.)

Interim Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

 

For the six months ended December 31,

2018

2017

 

 

 

$

$

 

 

 

 

 

Cash flows from operating activities

 

 

 

Net loss and comprehensive loss

(3,926,783)

(3,394,196)

 

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

Stock based compensation (note 5)

43,893

103,815

 

 

Depreciation expense

7,212

1,104

 

 

Write-down of mining interest

---

300,000

 

 

Change in fair value of warrant liability

(1,526,213)

(449,149)

 

 

Accretion expense

343,909

---

 

 

Loss on disposal of equipment

10,930

---

 

Changes in operating assets and liabilities:

 

 

 

 

Decrease (increase) in accounts receivable

141,991

(928)

 

 

(Increase) decrease in deposit

21,312

(20,262)

 

 

(Increase) decrease in other assets

---

(521,415)

 

 

Decrease in prepaid expenses

394,414

56,585

 

 

Increase (decrease) in accounts payable

770,563

(48,489)

 

 

Increase in accrued liabilities

1,874,525

450,276

 

 

Increase in other liabilities

12,550

2,449

 

 

Increase in interest payable

95,342

-

Net cash used in operating activities

(1,736,355)

(3,520,210)

 

 

 

 

 

Cash flows from investing activities

 

 

 

Proceeds on disposal of equipment

10,000

---

Net cash used in investing activities

10,000

---

 

 

 

 

 

Cash flows from financing activities

 

 

 

Proceeds from convertible loan payable, net

474,250

---

 

Proceeds from issuance of common stock, net

879,493

7,184,041

Net cash from financing activities

1,353,743

7,184,041

 

 

 

 

 

Decrease in cash and cash equivalents

(372,612)

3,663,831

Cash and cash equivalents, beginning of period

502,660

593,515

 

 

 

 

 

Cash and cash equivalents, end of period

130,048

4,257,346

 

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements


5



Note 1 – Basis of Presentation and Going Concern

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, shareholders’ equity or cash flows. It is management's opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation. The unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K, which contains the annual audited consolidated financial statements and notes thereto, together with the Management’s Discussion and Analysis, for the year ended June 30, 2018. The interim results for the period ended December 31, 2018 are not necessarily indicative of the results for the full fiscal year. The interim unaudited condensed consolidated financial statements are presented in USD, which is the functional currency.

These unaudited interim condensed consolidated financial statements have been prepared on a going concern basis. The Company has incurred losses since inception resulting in an accumulated deficit of $27,540,359 and further losses are anticipated in the development of its business. The ability of the Company to emerge from the exploration stage is dependent upon, among other things, obtaining additional financing to continue operations, exploration and development of the mineral properties and the discovery of, development, and sale of reserves. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. In order to continue to meet its plans and fiscal obligations in the current fiscal year and beyond, the Company must seek additional financing. Its ability to continue as a going concern is dependent upon the ability of the Company to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. The accompanying unaudited interim condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Management is considering various financing alternatives including, but not limited to, raising capital through the capital markets and debt financing.  These interim condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.  

Note 2 – Nature of Operations

Bunker Hill Mining Corp. (formerly Liberty Silver Corp.) (the “Company” or “Bunker”) was incorporated under the laws of the state of Nevada, U.S.A on February 20, 2007 under the name Lincoln Mining Corp.  Pursuant to a Certificate of Amendment dated February 11, 2010, the Company changed its name to Liberty Silver Corp., and on September 29, 2017 the Company changed its name to Bunker Hill Mining Corp.  As of the date of this Form 10-Q, the Company had two subsidiaries, Bunker Hill Operating LLC, a Colorado corporation that is currently dormant, and American Zinc. Corp., an Idaho corporation created to facilitate the work being conducted at the Bunker Hill Mine in Idaho.

The Company was incorporated for the purpose of engaging in mineral exploration activities.  It acquired the Bunker Hill Mine and continues to work at developing this project with a view towards putting it into production.


6



Note 3 - Mining Interests

Bunker Hill Mine Complex

On November 27, 2016, the Company entered into a non-binding letter of intent with Placer Mining Corp. (“Placer Mining”), which letter of intent was further amended on March 29, 2017, to acquire the Bunker Hill Mine in Idaho and its associated milling facility located in Kellogg, Idaho, in the Coeur d’Alene Basin (the “Letter of Intent”).  Pursuant to the terms and conditions of the Letter of Intent, the acquisition, which was subject to due diligence, would include all mining claims, surface rights, fee parcels, mineral interests, existing infrastructure, machinery and buildings at the Kellogg Tunnel portal in Milo Gulch, or anywhere underground at the Bunker Hill Mine Complex.  The acquisition would also include all current and historic data relating to the Bunker Hill Mine Complex, such as drill logs, reports, maps, and similar information located at the mine site or any other location.

During the fiscal year ended June 30, 2017, the Company made payments totaling $300,000 as part of this Letter of Intent. These amounts were initially capitalized and subsequently written off during fiscal 2018 and are included in lease payments and exploration expenses.

On August 28, 2017, the Company announced that it signed a definitive agreement (the “Agreement”) for the lease and option to purchase the Bunker Hill Mine assets (the “Bunker Assets”).

Under the terms of the Agreement, the Company was required to make a $1 million bonus payment to Placer Mining no later than October 31, 2017, which payment was made, along with two additional $500,000 bonus payments in December 2017.  The 24-month lease (the “Lease”) commenced November 1, 2017 and continues until October 31, 2019.  The lease period can be extended by a further 12 months at the Company’s discretion.  During the term of the Lease, the Company must make $100,000 monthly mining lease payments, paid quarterly, and $100,000 monthly operating cost payments.

The Company has an option to purchase the Bunker Assets at any time before the end of the Lease and any extension for a purchase price of $25 million with purchase payments to be made over a ten-year period to Placer Mining (the “Option”). Under terms of the agreement, there is a 3% net smelter return royalty (“NSR”) on sales during the Lease and a 1.5% NSR on the sales after the purchase option is exercised, which post-acquisition NSR is capped at $60 million.

On October 2, 2018, the Company announced that it was in default of its Lease with Option to Purchase Agreement with Placer Mining. The default arose as a result of missed lease and operating cost payments payments, totaling $400,000, which were due at the end of September and on October 1, 2018. As per the Agreement, the Company had 15 days, from the date notice of default was provided (September 28, 2018), to remediate the default by making the outstanding payment. While Management worked with urgency to resolve this matter, Management was ultimately unsuccessful in remedying the default, resulting in the lease being terminated.

On November 13, 2018, the Company announced that it was successful in renewing the lease, effectively with the original Agreement intact, except that monthly payments are reduced to $60,000 per month for 12 months, with the accumulated reduction in payments of $140,000 per month (“deferred payments”) added to the purchase price of the mine should the Company choose to exercise its option. The Company is accruing for the deferred payments and includes them in accounts payable.

In addition to the payments to Placer Mining, pursuant to an agreement with the United States Environmental Protection Agency (“EPA”) whereby for so long as Bunker leases, owns and/or occupies the Bunker Hill Mine, the Company will make payments to the EPA on behalf of the current owner in satisfaction of the EPA’s claim for cost recovery.  These payments, if all are made, will total $20 million.  The agreement calls for payments starting with $1 million 30 days after a fully ratified agreement was signed (which payment was made) followed by $2 million on November 1, 2018 and $3 million on each of the next 5 anniversaries with a final $2 million payment on November 1, 2024.  In addition to these payments, the company is to make semi-annual payments of $480,000 on June 1 and December 1 of each year, to cover the EPA’s costs of maintaining the water treatment


7



facility.  The November 1 and December 1, 2018 payments were not made, and the Company is having discussions with the EPA to amend and defer payments.

Trinity Project

On August 31, 2017, the Company and Renaissance Exploration Inc. signed a notice of termination and release of exploration Earn-In Agreement.  Upon signing this agreement, the Company has terminated the March 29, 2010 Earn-In Agreement and has been released from all past and future obligations.  

Note 4 – Convertible Loan Payable

In August 2018, the amount of the Hummingbird convertible loan payable was increased to $2 million from its original $1.5 million loan, net of $45,824 of debt issue costs, of which $25,750 was incurred in the current period.  Under the terms of the Amended and Restated Loan Agreement, Hummingbird may, at any time prior to maturity, convert any or all of the principal amount of the loan and accrued interest thereon, into common shares of Bunker as follows: (i) $1,500,000, being the original principal amount (“Principal Amount”), the Principal Amount may be converted at a price per share equal to C$0.85; (ii) 2,294,835 common shares may be acquired upon exercise of warrants at a price of CDN$0.85 per warrant for a period of two years from the date of issuance; (iii) $500,000, being the additional principal amount (“Additional Amount”), the Additional Amount may be converted at a price per share equal to C$0.45; and (iv) 1,167,143 common shares may be acquired upon exercise of warrants at a price of CDN$0.45 per warrant for a period of two years from the date issuance. In the event that Hummingbird would acquire common shares in excess of 9.999% through the conversion of the Principal Amount or Additional Amount, including interest accruing thereon, or on exercise of the warrants as disclosed herein, the Company shall pay to Hummingbird a cash amount equal to the common shares exercised in excess of 9.999%, multiplied by the conversion price.

The Company has accounted for the conversion features and warrants in accordance with ASC Topic 815. The conversion features and warrants are considered derivative financial liabilities as they are convertible into common shares at a conversion price denominated in a currency other than the Company’s function currency of the US dollar. The estimated fair value of the conversion features and warrants was determined on the date of issuance and marks to market at each financial reporting period.

At December 31, 2018, the fair value of the conversion features were estimated using the Binomial model to determine the fair value of conversion features using the following assumptions:

 

Principal Amount

June 30, 2018

December 31, 2018

Expected life

345 days

165 days

Volatility

100%

100%

Risk free interest rate

2.04%

1.99%

Dividend yield

0%

0%

Share price

$0.47

$0.05

Fair value

$180,353

$0

Change in derivative liability

 

$180,353

 

 

 

Additional Amount

August 9, 2018

December 31, 2018

Expected life

365 days

221 days

Volatility

100%

100%

Risk free interest rate

2.11%

1.99%

Dividend yield

0%

0%

Share price

$0.47

$0.05

Fair value

$6,312

$0

Change in derivative liability

 

$6,312


8



The fair value of the warrants were estimated using the Binomial model to determine the fair value of the derivative warrant liabilities using the following assumptions:

 

Principal Amount

June 30, 2018

December 31, 2018

Expected life

714 days

530 days

Volatility

100%

100%

Risk free interest rate

2.04%

1.54%

Dividend yield

0%

0%

Share price

$0.47

$0.05

Fair value

$326,909

$505

Change in derivative liability

 

$326,404

 

 

 

Additional Amount

August 9, 2018

December 31, 2018

Expected life

730 days

588 days

Volatility

100%

100%

Risk free interest rate

2.11%

1.99%

Dividend yield

0%

0%

Share price

$0.47

$0.05

Fair value

$161,381

$2,224

Change in derivative liability

 

$159,157

Accretion and interest expense for the three and six months ended December 31, 2018 were $235,255 and $343,909 and $50,410 and $95,342, respectively ($NIL for prior year comparative periods).

Note 5 – Capital Stock and Warrants

Authorized 

The total authorized capital is as follows:

-300,000,000 common shares with a par value of $0.001 per common share; and 

-10,000,000 preferred shares with a par value of $0.001 per preferred share  

Issued and outstanding

In August 2018, the Company closed a private placement, issuing 1,604,076 Units to Gemstone 102 Ltd. (“Gemstone”) at a price of C$0.45 per Unit, for gross proceeds of C$721,834 (US$549,333) and incurring financing costs of US$25,750. Each Unit entitles Gemstone to acquire one common share (“Unit Share”) and one common share purchase warrant (“Unit Warrant”), with each Unit Warrant entitling Gemstone to acquire one common share of the Company at a price of C$0.45 for a period of three years. Prior to the issuance of the Units, Gemstone held 4,000,000 common shares of the Company (12.12%) and 2,000,000 warrants (“Prior Warrants”) exercisable at a price of C$2.00 per share (16.21% on a partially diluted basis). Immediately prior to closing, the Prior Warrants were early terminated by mutual agreement of the Company and Gemstone. Upon issuance of the 1,604,076 Units to Gemstone, Gemstone beneficially owns or exercises control or direction over 5,604,076 common shares of the Company representing 13.4% of the issued and outstanding shares. Assuming exercise of the Unit Warrants, Gemstone would hold 7,208,152 of the outstanding common shares of the Company, representing 17.4% of the issued and outstanding common shares of Bunker. Gemstone’s participation in the Offering constitutes a "related party transaction" under Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions ("MI 61-101").

Given the urgent need to secure financing to meet the new lease obligations, Bunker’s Board approved an equity private placement of Units to be sold at C$0.075 per Unit with each Unit consisting of one common share and one common share purchase warrant.  On November 28, 2018, the Company closed on a total of 6,458,664 Units


9



for gross proceeds of C$484,400 (US$365,341) and incurring financing costs of US$10,062, with each purchase warrant exercisable into a Common Share at C$0.10 per Common Share for a period of thirty-six months.  

For each financing, the Company has accounted for the warrant liability in accordance with ASC Topic 815. The warrants are considered derivative instruments as they were issued in a currency other than the Company’s functional currency of the US dollar. The estimated fair value of warrants accounted for as liabilities was determined on the date of issue and marks to market at each financial reporting period. The change in fair value of the warrant is recorded in the condensed consolidated statement of operations and comprehensive loss as a gain or loss and is estimated using the Binomial model.

The fair value of the warrant liabilities related to the various tranches of warrants issued were estimated using the Binomial model to determine the fair value using the following assumptions on the day of issuance and as at December 31, 2018:

 

 

August 9, 2018

December 31, 2018

Expected life

1,095 days

951 days

Volatility

100%

100%

Risk free interest rate

2.09%

1.26%

Dividend yield

0%

0%

Share price

$0.47

$0.05

Fair value

$355,751

$9,172

Change in derivative liability

 

$346,579

 

 

 

 

November 28, 2018

December 31, 2018

Expected life

1,095 days

1,062 days

Volatility

100%

100%

Risk free interest rate

1.22%

1.26%

Dividend yield

0%

0%

Share price

$0.09

$0.05

Fair value

$265,105

$113,152

Change in derivative liability

 

$151,953

 

The existing warrant liability as a result of the December 2017 private placement was revalued as at December 31, 2018 and June 30, 2018 using the Binomial model and the following assumptions:

 

 

June 30, 2018

December 31, 2018

Expected life

1,095 days

708 days

Volatility

100%

100%

Risk free interest rate

1.97%

1.54%

Dividend yield

0%

0%

Share price

$0.47

$0.05

Fair value

$355,994

$453

Change in derivative liability

 

$355,541

 

At December 31, 2018, there were 41,513,955 common shares issued and outstanding.


10



Warrants

As of December 31, 2018, the Company had 13,865,038 warrants outstanding, with exercise prices from C$0.10 to C$2.00, expiring from June 13, 2020 to November 28, 2021.

Stock Options

In September 2018, 437,500 fully-vested stock options were issued to a consultant to whom C$350,000 was due and payable and reflected in accrued liabilities at September 30, 2018.  These options had a 5-year life and were exercisable at CDN$0.80 per share.  On October 3, 2018, these options were exercised in full, with consideration received being the liability already on the Company’s books, extinguishing the liability in full.

The fair value of these stock options was determined on the date of grant using the Black-Scholes valuation model, and using the following underlying assumptions:

 

Year

Risk free interest rate

Dividend yield

Volatility

Weighted average life

2018

2.32%

0%

100%

5 years

 

Note 6 – Commitments and Contingencies

Effective June 1, 2017, the Company has a lease agreement for office space at 401 Bay Street, Suite 2702, Toronto, Ontario, Canada, M5H 2Y4.  The 5-year lease provides for a monthly gross rent of CDN$29,005 for the first two years, increasing to CDN$29,545 per month for years three through five.  The Company has signed sub-leases with other companies that cover approximately 70% of the monthly lease amount.

In November 2018, the Company and Placer Mining agreed to amend the terms of the Agreement such that commencing November 2018, Bunker will make monthly payments of $60,000, where previously monthly payments of $200,000 were being made.  The $140,000 difference will accumulate to $1,680,000 over 12 months and will become due if Bunker exercises its option to purchase the mine.

In addition to the payments to Placer Mining, pursuant to an agreement with the United States Environmental Protection Agency (“EPA”) whereby for so long as Bunker leases, owns and/or occupies the Bunker Hill Mine, the Company will make payments to the EPA on behalf of the current owner in satisfaction of the EPA’s claim for cost recovery.  Payments to the EPA started with $1 million 30 days after a fully ratified agreement is signed (which payment was made) followed by $2 million on November 1, 2018 and $3 million on each of the next 5 anniversaries with a final $2 million payment on November 1, 2024.  In addition to these payments, the Company agreed to reimburse the EPA for water treatment costs totaling $80,000 per month and paid every six months on December 1 and June 1. The $2 million required for November 1, 2018 and December 1, 2018 payments were not made, and the Company is having discussions with the EPA to amend and defer payments.  The $2 million and $480,000 semi-annual payment are being accrued as payable pending completion of discussions with the EPA, where Management hopes to have more clarity on payments.

 

Additionally, third parties paid $85,000 directly to Placer Mining in order to facilitate reinstatement of the lease. The Company, as part of the lease reinstatement, agreed to indemnify Placer Mining if these third parties request the funds to be returned.


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Note 7 – Related Party Transactions

During the six months ended December 31, 2018, Julio DiGirolamo (CFO) earned $50,000 ($15,000 in the three months ended December 31, 2018), Howard Crosby (Former director and Former Executive Vice President) earned $20,000 ($5,000 in the three months ended December 31, 2018) and John Ryan (Director and Interim CEO) earned $30,000 ($15,000 in the three months ended December 31, 2018) for services to the Company.  Mr. Crosby resigned his positions in November 2018.  During the six months ended December 31, 2017, each of Messrs. Bruce Reid (CEO), Julio DiGirolamo (CFO), Howard Crosby (Executive Vice President) and John Ryan (Director) received $5,000 per month for services to the Company.  Commencing December 1, 2017, commensurate with the increased activities in the Company, Messrs. Reid and DiGirolamo’s pay increased to $20,000 and $15,000 per month, respectively.  Commencing September 2018, Mr. DiGirolamo agreed to a smaller fee for services.  In early December 2017, the Board approved and ratified compensation to Mr. Reid for unaccrued and unpaid salary and bonus, including for risk-capital sums advanced by Mr. Reid to the Company in order that the Company could complete many of its obligations and initiatives during 2017.  The payment, totaling $500,000 was accrued at December 31, 2017 and was paid in January 2018.

At December 31, 2018 $16,649 is owed to Mr. DiGirolamo, $23,000 to Mr. Crosby and $28,590 to Mr. Ryan, all amounts included in accounts payable.  Mr. Bruce Reid (Former CEO) earned $29,177 for consulting services rendered and expenses ($4,260 of the total), which amount is included in accounts payable at December 31, 2018. At December 31, 2017, a balance of CDN$5,000 was included in accounts payable as owing to the Company’s CFO.

 

Note 8 – Subsequent Events

In January 2019, the company secured a C$100,000 advance from and unrelated third party with no defined terms specified at this time.

The Company is still in discussions with the Environmental Protection Agency to amend the payment terms.


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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

 

SPECIAL NOTE OF CAUTION REGARDING FORWARD-LOOKING STATEMENTS

 

CERTAIN STATEMENTS IN THIS REPORT, INCLUDING STATEMENTS IN THE FOLLOWING DISCUSSION, ARE WHAT ARE KNOWN AS "FORWARD LOOKING STATEMENTS", WHICH ARE BASICALLY STATEMENTS ABOUT THE FUTURE. FOR THAT REASON, THESE STATEMENTS INVOLVE RISK AND UNCERTAINTY SINCE NO ONE CAN ACCURATELY PREDICT THE FUTURE. WORDS SUCH AS "PLANS," "INTENDS," "WILL," "HOPES," "SEEKS," "ANTICIPATES," "EXPECTS "AND THE LIKE OFTEN IDENTIFY SUCH FORWARD LOOKING STATEMENTS, BUT ARE NOT THE ONLY INDICATION THAT A STATEMENT IS A FORWARD LOOKING STATEMENT. SUCH FORWARD LOOKING STATEMENTS INCLUDE STATEMENTS CONCERNING OUR PLANS AND OBJECTIVES WITH RESPECT TO THE PRESENT AND FUTURE OPERATIONS OF THE COMPANY, AND STATEMENTS WHICH EXPRESS OR IMPLY THAT SUCH PRESENT AND FUTURE OPERATIONS WILL OR MAY PRODUCE REVENUES, INCOME OR PROFITS. NUMEROUS FACTORS AND FUTURE EVENTS COULD CAUSE THE COMPANY TO CHANGE SUCH PLANS AND OBJECTIVES OR FAIL TO SUCCESSFULLY IMPLEMENT SUCH PLANS OR ACHIEVE SUCH OBJECTIVES, OR CAUSE SUCH PRESENT AND FUTURE OPERATIONS TO FAIL TO PRODUCE REVENUES, INCOME OR PROFITS. THEREFORE, THE READER IS ADVISED THAT THE FOLLOWING DISCUSSION SHOULD BE CONSIDERED IN LIGHT OF THE DISCUSSION OF RISKS AND OTHER FACTORS CONTAINED IN THIS REPORT ON FORM 10-Q AND IN THE COMPANY'S OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. NO STATEMENTS CONTAINED IN THE FOLLOWING DISCUSSION SHOULD BE CONSTRUED AS A GUARANTEE OR ASSURANCE OF FUTURE PERFORMANCE OR FUTURE RESULTS.

 

DESCRIPTION OF BUSINESS

 

The Corporation

Bunker Hill Mining Corp. (Formerly Liberty Silver Corp.) (the “Company” or the “Corporation”) was incorporated under the laws of the state of Nevada, U.S.A on February 20, 2007 under the name Lincoln Mining Corp.  Pursuant to a Certificate of Amendment dated February 11, 2010, the Company changed its name to Liberty Silver Corp.  On September 29, 2017, the Company changed its name to Bunker Hill Mining Corp. The Company’s registered office is located at 1802 N. Carson Street, Suite 212, Carson City Nevada 89701, and its head office is located at 401 Bay Street, Suite 2702, Toronto, Ontario, Canada, M5H 2Y4, and its telephone number is 416-477-7771.

Current Operations

Overview

The Company was incorporated for the purpose of engaging in mineral exploration and development activities.  On August 28, 2017, the Company announced that it signed a definitive agreement (the “Agreement”) for the lease and option to purchase of the Bunker Hill Mine (the “Mine”) in Idaho. The “Bunker Hill Lease with Option to Purchase” is between the Company and Placer Mining Corporation (“Placer Mining”), the current owner of the Mine.

The 24-month lease continues until October 31, 2019.   The lease period can be extended by a further 12 months at the Company’s discretion.  Under the revised terms of its agreement, during the term of the lease, the Company must make $60,000 monthly mining lease payments.  A monthly amount of $140,000 is deferred and becomes payable if the Company exercises it’s purchase option, making the deferred amount payable.  The Company is accruing for these payments and includes them in accounts payable.


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The Company has an option to purchase the Bunker Assets at any time before the end of the lease and any extension for a purchase price of $25 million with purchase payments to be made over a ten-year period. Under terms of the agreement, there is a 3% net smelter return royalty (“NSR”) on sales during the Lease and a 1.5% NSR on the sales after the purchase option is exercised, which post-acquisition NSR is capped at $60 million.

In addition to the payments to Placer Mining, pursuant to an agreement with the United States Environmental Protection Agency (“EPA”) whereby for so long as Bunker leases, owns and/or occupies the Bunker Hill Mine, the Company will make payments to the EPA on behalf of the current owner in satisfaction of the EPA’s claim for cost recovery.  These payments, if all are made, will total $20 million.  The agreement calls for payments starting with $1 million 30 days after a fully ratified agreement was signed (which payment was made) followed by $2 million on November 1, 2018 and $3 million on each of the next 5 anniversaries with a final $2 million payment on November 1, 2024.  In addition to these payments, the company is to make semi-annual payments of $480,000 on June 1 and December 1 of each year, to cover the EPA’s costs of maintaining the water treatment facility.  The November 1 and December 1, 2018 payments were not made, and the Company is having discussions with the EPA to amend and defer payments.

Management believes this amended lease and option will provide the Company time to complete exploratory drilling, produce a mine plan and raise the money needed to move forward.  Management continues to push forward and advance the time line to realizing shareholder value.

The Bunker Hill Mine was the largest producing mine in the Coeur d'Alene zinc, lead and silver mining district in northern Idaho.  Historically, the mine produced over 35M tonnes of ore grading on average 8.76% lead, 3.67% zinc, and 155 g/t silver (Bunker Hill Mines Annual Report 1980). 

The Company believes that there are numerous targets of opportunity left in the mine from top to bottom, and particularly on strike to the west where more recent past drilling has resulted in major discoveries such as the Quill body of mineralized material.

The Bunker Hill Mine is the Company’s only focus, with a view to raising capital to rehabilitate the mine and put it back into production.

Products

The Bunker Hill Mine is a Zinc-Silver-Lead Mine.  When back in production, the Company will mill mineralized material on-site or at a local third-party mill and plans to produce concentrates to be shipped to third party smelters for processing.

The Company will continue to explore the property with a view to proving resources.

Infrastructure

The acquisition of the Bunker Hill mine includes all mining rights and claims, surface rights, fee parcels, mineral interests, easements, existing infrastructure at Milo Gulch, and the majority of machinery and buildings at the Kellogg Tunnel portal level, as well as all equipment and infrastructure anywhere underground at the Bunker Hill Mine Complex.  The acquisition also includes all current and historic data relating to the Bunker Hill Mine Complex, such as drill logs, reports, maps, and similar information located at the mine site or any other location. 

Government Regulation and Approval

The current exploration activities and any future mining operations are subject to extensive laws and regulations governing the protection of the environment, waste disposal, worker safety, mine construction, and protection of endangered and protected species. The Company has made, and expects to make in the future, significant expenditures to comply with such laws and regulations.  Future changes in applicable laws, regulations and permits or changes in their enforcement or regulatory interpretation could have an adverse impact on the Company’s financial condition or results of operations.

It is anticipated that it may be necessary to obtain the following environmental permits or approved plans prior to commencement of mine operations:


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Reclamation and Closure Plan 

Water Discharge Permit   

Air Quality Operating Permit 

Industrial Artificial (tailings) pond permit 

Obtaining Water Rights for Operations 

Property Description

The Company’s agreement with Placer Mining Corporation includes mineral rights to 434 patented mining claims covering 5769.467 acres of those 35 include surface ownership over approximately 259.1 acres.  The transaction also includes certain parcels of fee property which includes mineral and surface rights but are not patented mining claims. Mining claims and fee properties are located in Townships 47, 48 North, Range 2 East, Townships 47, 48 North, Range 3 East, Boise Meridian, Shoshone County, Idaho. The agreement specifically excludes the following: the Machine Shop Building and Parcel, including all fixed equipment located inside the building and personal property located upon the parcel; unmilled ore on deck and residual lead/zinc ore mined and broken, but not removed from the Bunker Hill Mine; the historic Caledonia Mine; the Crystal Vug; and the Silver Ridge exploration property.

Surface rights were originally owned by various previous owners of the claims until the acquisition of the properties by Bunker Limited Partners (“BLP”).  BLP sold off surface rights to various parties over the years while maintaining access to conduct mining operations and exploration activities as well as easements to a cross over and access other of its properties containing mineral rights. Said rights were reserved to its assigns and successors in continuous perpetuity. Idaho Law also allows mineral right holders access to mine and explore for minerals on properties to which they hold minerals rights.

Title to all patented mining claims included in the transaction was transferred from Bunker Hill Mining Co. (U.S.) Inc. by Warranty Deed in 1992. The sale of the property was properly approved of by the U.S. Trustee and U.S. Bankruptcy Court.  

Over 90% of surface ownership of patented mining claims not owned by Placer Mining Corp. is owned by different landowners. These include: Stimpson Lumber Co.; Riley Creek Lumber Co.; Powder LLC.; Golf LLC.; C & E Tree Farms; and Northern Lands LLC.

Patented mining claims in the State of Idaho do not require permits for underground mining activities to commence on private lands.  Other permits associated with underground mining may be required, such as water discharge and site disturbance permits.  The water discharge is being handled by the EPA at the existing water treatment plant.  The Company expects to take on the water treatment responsibility in the future and obtain an appropriate discharge permit.  

Competition

The Company competes with other mining and exploration companies in connection with the acquisition of mining claims and leases on zinc and other base and precious metals prospects as well as in connection with the recruitment and retention of qualified employees.  Many of these companies are much larger than the Company, have greater financial resources and have been in the mining business for much longer than it has.  As such, these competitors may be in a better position through size, finances and experience to acquire suitable exploration and development properties.  The Company may not be able to compete against these companies in acquiring new properties and/or qualified people to work on its current project, or any other properties that may be acquired in the future.

Given the size of the world market for base precious metals such as silver, lead and zinc, relative to the number of individual producers and consumers, it is believed that no single company has sufficient market influence to significantly affect the price or supply of these metals in the world market.


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Employees

The Company is currently managed by John Ryan, President and CEO and Julio DiGirolamo, Chief Financial Officer.

Completed Work and Future Plan of Operations

The Company has undertaken a due diligence program to assure itself of the viability of a restart of the Bunker Hill Mine. This necessitated an extensive review of the records that were present primarily at the Bunker Hill Mine offices. At those offices there are tens of thousands of pages of reports and records which detail the operations of the mine from its earliest days to the time of the shutdown in 1991 by BLP.

In addition to reports, there are several thousand historical maps of all scales and sizes as well as historical mineral diagrams which detail the mineral bodies that remained in the mine at the time of closure in January, 1991. These reports are not compliant with Canada National Instrument 43-101 and cannot be used for the purposes of establishing reserves pursuant to that standard.

The Company has satisfied itself that there is a large amount of remaining zinc/lead/silver mineralization in numerous zones within the Bunker Hill Mine. The Company is now developing a plan to bring a number of these zones into N.I. 43-101 compliance through new sampling and drilling programs. The Company has identified several zones as having highest priority. The Company has prioritized zones capable of providing production in the near term, these being the UTZ Zone, the Newgard Zone and the Quill Zone. These three mineral zones will be the first to be N.I. 43-101 verified and will provide the majority of the early feed upon mine start-up.

The Bunker Hill Mine main level is termed the nine level and is the largest level in the mine and is connected to the surface by the approximately 12,000 foot-long Kellogg Tunnel. Three major inclined shafts with associated hoists and hoistrooms are located on the nine level. These are the No. 1 shaft, which is used for primary muck hoisting in the main part of the mine; the No. 2 shaft, which is a primary shaft for men and materials in the main part of the mine; and the No. 3 Shaft, which is used for men, materials and muck hoisting for development in the northwest part of the mine.

The top stations of these shafts and the associated hoistrooms and equipment have all been examined by Company personnel and are in moderately good condition. The Company believes that all three shafts remain in a condition that they are repairable and can be bought back into good working order over the next few years.

The water level in the mine is held at approximately the ten level of the mine, roughly 200 feet below the nine level. The mine was historically developed to the 27 level, although the 25 level was the last major level that underwent significant development and past mining. Each level is approximately 200 feet vertically apart.

The southeastern part of the mine was historically serviced by the Cherry Raise, which consisted of a two-compartment shaft with double drum hoisting capability that ran at an incline up from the nine level to the four level. The central part of the mine was serviced upward by the Last Chance Shaft from the nine level to the historic three or four level. Neither the Cherry Raise or the Last Chance shaft are serviceable at this time. However, the upper part of the mine from eight level up to the four level has been developed by past operators by a thorough-going rubber tire ramp system, which is judged to be about 65% complete.

The Company has already repaired the first several thousand feet of the Russell Tunnel, which is a large rubber tire capable tunnel with an entry point at the head of Milo Gulch. This tunnel will provide early access to the UTZ Zone. The Company has inspected a great deal of the ramp system between the eight level and the four level, and the ramps are in good shape with only minor repair and rehabilitation needed. The Company has made development plans to provide interconnectivity of the ramp system from the Russell Tunnel at the four level down to the eight level, with further plans to extend the ramp down to the nine level. Thus rubber-tired equipment will be used for mining and haulage throughout the upper mine mineral zones, which have already been identified, and for newly found zones.


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The Kellogg Tunnel will be used as a tracked rail haulage tunnel for supply of men and materials into the mine and for haulage of mined material out of the mine. Historically the Kellogg Tunnel (or “KT” for short) was used in this manner when the mine was producing upwards of 3000 tons per day of mined material. The Company has inspected the KT for its entire length and has determined that significant timbered sections of the tunnel will need extensive repairs. These are areas that intersect various faults passing through the KT at normal to oblique angles and create unstable ground.

The Company has also determined that all of the track, as well as spikes, plates and ties holding the track will need to be replaced. Additionally, the water ditch that runs parallel to the track will need to be thoroughly cleaned out and new timber supports and boards that keep the water contained in its path will need to be installed. All new water lines, compressed air lines and electric power feeds will also need to be installed. The total cost estimate for this KT work is still in process at the time of the date of this report, but the time estimate for these repairs is approximately eighteen months.

It is anticipated that earliest production will come from the upper levels of the mine where company personnel have observed mining faces of mineralized material that are readily mineable, as they were left behind by past operators in a more or less fully developed state.

The Company anticipates constructing its own milling facility near the mouth of the Kellogg Tunnel. Initially the mill capacity will be 1500 tons per day, and the mill will be designed for ready expansion when needed.

The Company has identified multiple tailings disposal sites to the west-northwest of where the mill will be located.

As noted above, the EPA for several decades has provided mine water treatment services for the Bunker Hill Mine. When the Company begins its lease of the mine, it is planned that the EPA will be providing water treatment services under contract with the Company and such services will continue for at least five years or more. Although no firm agreement has yet been reached, recent discussions with the EPA also indicate that overflows from the mill or decant from the tailings facilities could also be treated at the water treatment plant under the same treatment contract.

If all of the mine water, mill outflows, and tailings discharges can be treated by the EPA treatment plant as currently contemplated, the Company will be initially relieved of the need to obtain a water discharge permit. Upon initiating mine production from the UTZ, Newgard, and Quill zones at rates of approximately 1500 tons per day, the Company would anticipate mining approximately 540,000 tons per year of material. The three aforementioned zones are believed to have sufficient mineral to supply the Company mining needs for approximately 8 years.

Once the repairs are completed to the Kellogg Tunnel, mineralized material haulage will be able to immediately occur out of this tunnel, which will enhance the production capabilities of the mine by several magnitudes. Some mineralized material will continue to be transported by rubber-tired equipment directly out the Russel Tunnel, but the majority of mineralized material will be dropped down existing internal passes and be hauled out of the KT on rail. By this time in the restart program the Company would expect to be in production at around 1500 tons per day, which is approximately the planned mill capacity. If all items proceed as planned, the Company believes a steady state production of 1500 tons per day is achievable in approximately 36 months from the time of takeover of operations.

Additionally, once the KT repairs are completed, work on the repairs of the shafts and hoists can proceed with greater speed and the lower levels of the mine can be dewatered. The shaft work and pumping should commence at about year two of mine operations.

Numerous other past-producing mineral bodies will begin to be revealed as the water levels are lowered and the mine is drained to the fullest. Some of these mineral bodies are lead-silver rich zones such as the Emery, Shea, Veral and the “J”, while others will add more material containing zinc such as the Tallon, Rosco, or Tony, while still others are best described as polymetallic such as the New Landers or the Francis.


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The Company geologists and engineering personnel have studied the past records thoroughly and conclude that very good exploration and discovery potential exists at depth on downward rakes of known structures. Strata-bound zones such as the Newgard, Quill and Tallon await drilling to the west, while both the southeast and northwest limits of the main original Bunker Hill structure, in the heart of the Cate/Dull fault system, still remain viable as targets for future discovery of new mineral bodies or extensions of past mined structures.

Technical Report

On September 6, 2018, the Company filed on SEDAR a National Instrument 43-101 (“NI 43-101”) technical report on its Bunker Hill property.

The technical report included:

1.A 10-12 million ton Exploration Target comprised of the Quill/Newgard zones.  For comparison purposes, the historical resource estimate for the whole Bunker Hill property is 9.1 million tons grading 5.08% Zn, 2.35% Pb and 40 g/t Ag (or 1.29 ounces per ton); 

2.Results of Independent Sampling showing grades for the Quill/Newgard zones (Levels 9 & 10) averaging 20% Zn, 14% Pb and 247 g/t Ag (or 7.90 ounces per ton), which exceed average historic grades; and 

3.a Plan for a US$7.7 million Exploration Program to upgrade the historic resources to a NI 43-101 Indicated Resource. 

Additionally, as noted, the Company currently has in its possession, and has had access to, numerous historical technical reports that were completed in the past by highly qualified parties.

Subsequent Events

In January 2019, the company secured a C$100,000 advance from an unrelated third party with no defined terms specified at this time.

RESULTS OF OPERATIONS

The following discussion and analysis provides information that we believe is relevant to an assessment and understanding of our results of operation and financial condition for the three and six months ended December 31, 2018 as compared to the three and six months ended December 31, 2017. Unless otherwise stated, all figures herein are expressed in U.S. dollars, which is the functional currency of the Company.

Results of Operations for the three months ended December 31, 2018 compared to the three months ended December 31, 2017.

Revenue

During the three-month periods ended December 31, 2018 and 2017, the Company generated no revenue.

Operating expenses

During the three-month period ended December 31, 2018, the Company reported total operating expenses of $3,393,071 compared to $3,467,459 during the three-month period ended December 31, 2017, a decrease of $74,388 (six months ended December 31, 2018 - $5,004,404 compared to $3,875,739 during the six-month period ended December 31, 2017, an increase of $1,128,665).  The six-month increase results primarily from a $1,639,284 increase in lease payments and exploration costs during this period compared to the same period in 2017.  This was offset by a reduction of $510,619 in consulting, legal, accounting and general administration costs.  The 2018 lease payments include $2,080,000 in accrued EPA costs expensed in the statement of operations and comprehensive loss.


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For financial accounting purposes, the Company expenses all property lease payments and exploration expenditures in the statement of operations. During the interim period ended December 31, 2018, some activities were carried out on the Bunker Hill mine and payments made on account of the lease.

Net loss and comprehensive loss  

The Company had a net loss and comprehensive loss of $3,290,293 and $3,926,783 for the three and six months ended December 31, 2018, compared to a net loss and comprehensive loss of $2,991,909 and $3,394,196 for the three and six months ended December 31, 2017, an increase of $298,384 and $532,587 for the three- and six-month periods, respectively.  The increase in net loss and comprehensive loss was primarily due to increased lease and EPA payments as described above.

The Company has accounted for the warrant liabilities and conversion features in accordance with ASC Topic 815. These are considered derivative instruments as they were issued in a currency other than the Company’s functional currency of the US dollar. The estimated fair value, using the binomial model, of warrants and conversion features accounted for as liabilities was determined on the date of issue and marks to market at each financial reporting period. The change in fair value of the warrants and the conversion features ($406,276 and $1,526,213 for the three and six-month periods ended December 31, 2018, respectively; $449,149 for both the three and six-month periods ended December 31, 2017) and accretion expense ($235,255 and $343,909 for the three and six-month periods ended December 31, 2018, respectively; $Nil for comparative periods) are recorded in the condensed consolidated statement of operations and comprehensive loss as a gain or loss and is estimated using the Binomial model. The proceeds from the Offering are being used primarily for lease payments, acquisition payments, exploration and development at the Bunker Hill Mine and for general corporate and working capital purposes.

ANALYSIS OF FINANCIAL CONDITION

Liquidity and Capital Resources

The Company does not currently have sufficient working capital needed to meet its planned expenditures and obligations. In order to execute on its plans, continue to meet its fiscal obligations in the current fiscal year and beyond the next twelve months, the Company must seek additional financing.  Management will be pursuing a financing by way of issuing new common shares or various other financing alternatives.

The Company is working to secure adequate capital to continue making lease payments, payments to the EPA, conduct exploration activities on site and cover general and administrative expenses associated with managing a public company.

Current Assets and Total Assets

As of December 31, 2018, the unaudited balance sheet reflects that the Company had: i) total current assets of $373,903, compared to total current assets of $1,410,584 at June 30, 2018, a decrease of $1,036,681, or approximately 73%; and ii) total assets of $528,437, compared to total assets of $1,507,837 at June 30, 2018, a decrease of $979,400, or approximately 65%.  The decreases generally resulted from the collection of HST receivables that had been accumulating and the inability to secure additional needed financings to continue operations.

Total Current Liabilities and Total Liabilities

As of December 31, 2018, the unaudited balance sheet reflects that the Company had total current liabilities and total liabilities of $3,975,689 and $4,101,195, respectively, compared to total current liabilities and total liabilities of $1,041,248 and $1,724,151, respectively, at June 30, 2018.

In August 2018 and December 2018, the Company recorded a long-term Derivative Liability representing the value of the warrants issued and included in the units associated with the financing completed and described above.  In August 2018 the Company also recorded a current derivative conversion feature liability in conjunction with the additional advance received on the convertible loan payable. The Company has accounted for the warrant and conversion feature liabilities in accordance with ASC Topic 815. These are considered


19



derivative instruments as they were issued in a currency other than the Company’s functional currency of the US dollar. The estimated fair value of warrants accounted for as liabilities was determined on the date of issue and marks to market at each financial reporting period. The change in fair value of the warrant is recorded in the condensed consolidated statement of operations and comprehensive loss as a gain or loss and is estimated using the Binomial model.

Cash Flow – for the interim periods ended December 31, 2018 and 2017

During the six months ended December 31, 2018 cash was primarily used to fund working capital and operations as well as property payments.  The Company reported a net decrease in cash of $372,612 during the six months ended December 31, 2018 compared to a net increase in cash of $3,663,831 during the six months ended December 31, 2017.  The following provides additional discussion and analysis of cash flow.

 

For the six months ended December 31,

2018

$

 

2017

$

 

 

 

 

Net cash used in operating activities

(1,736,355)

 

(3,520,210)

Net cash used in investing activities

10,000

 

---

Net cash provided by financing activities

1,353,743

 

7,184,041

 

 

 

 

Net Change in Cash

(372,612)

 

3,663,831

 

Going Concern

These unaudited interim condensed consolidated financial statement filings have been prepared on the going concern basis, which assumes that adequate sources of financing will be obtained as required and that the Company’s assets will be realized, and liabilities settled in due course of business. Accordingly, the interim condensed consolidated unaudited financial statements do not include any adjustments related to the recoverability of assets and classification of assets and liabilities that might be necessary should the Company not be able to continue as a going concern.  The going concern assumption is discussed in the financial statements Note 1 – Basis of Presentation and Going Concern.

 

OFF BALANCE SHEET ARRANGEMENTS

The Company does not have any off-balance sheet arrangements.


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ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.  

Not Applicable.

ITEM 4.CONTROLS AND PROCEDURES. 

Disclosure Controls and Procedures

The Securities and Exchange Commission defines the term “disclosure controls and procedures” to mean a company's controls and other procedures of an issuer that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.  The Company maintains such a system of controls and procedures in an effort to ensure that all information which it is required to disclose in the reports it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified under the SEC's rules and forms and that information required to be disclosed is accumulated and communicated to principal executive and principal financial officers to allow timely decisions regarding disclosure.

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures.  Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are designed to provide reasonable assurance of achieving the objectives of timely alerting them to material information required to be included in the Company’s periodic SEC reports and of ensuring that such information is recorded, processed, summarized and reported within the time periods specified.  The Company’s Chief Executive Officer and Chief Financial Officer also concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report to provide reasonable assurance of the achievement of these objectives.

Changes in Internal Control over Financial Reporting

There was no change in the Company's internal control over financial reporting during the period ended December 31, 2018, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.


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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.  

Neither the Company nor its property is the subject of any current or pending legal proceedings, and no other such proceeding is known to be contemplated by any governmental authority.  The Company is not aware of any other legal proceedings in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of the Company’s voting securities, or any associate of any such director, officer, affiliate or security holder of the Company, is a party adverse to the Company or any of its subsidiaries or has a material interest adverse to the Company or any of its subsidiaries.

 

ITEM 1A. RISK FACTORS. 

Not Applicable.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.  

Not Applicable.

 

ITEM 3.DEFAULTS UPON SENIOR SECURITIES. 

None.

 

ITEM 4.MINE SAFETY DISCLOSURES. 

The enacted Dodd-Frank Wall Street Reform and Consumer Protection Act (“the Act”) requires the operators of mines to include in each periodic report filed with the Securities and Exchange Commission certain specified disclosures regarding the Company’s history of mine safety.  The Company currently does not operate any mines and, as such, is not subject to disclosure requirements regarding mine safety that were imposed by the Act.

 

ITEM 5.OTHER INFORMATION. 

Not Applicable.


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ITEM 6.EXHIBITS. 

(a)The following exhibits are filed herewith: 

 

31.1

Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.

SCH XBRL Schema Document.

101

INS XBRL Instance Document.

101.

CAL XBRL Taxonomy Extension Calculation Linkbase Document.

101.

LAB XBRL Taxonomy Extension Label Linkbase Document.

101.

PRE XBRL Taxonomy Extension Presentation Linkbase Document.

101.

DEF XBRL Taxonomy Extension Definition Linkbase Document.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 

 

By: /s/    John Ryan

John Ryan, President and Chief Executive Officer

 

Date:  February 19, 2019

 

By: /s/    Julio DiGirolamo

Julio DiGirolamo, Chief Financial Officer

 

Date:  February 19, 2019


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