I-Minerals Inc - Quarter Report: 2015 January (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: January 31, 2015

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

For the transition period from _______ to _______

Commission file number:  000-55321

I-MINERALS INC.
(Exact name of registrant as specified in its charter)

Suite 880, 580 Hornby Street, Vancouver, BC, Canada V6E 3M4
(Address of principal executive offices)(Zip Code)

(877) 303-6573
Registrant’s telephone number, including area code

Not applicable
(Former name or former address if changed since last report)

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.
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  [X]   No  [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).
Yes  [  ]   No  [X]

As of March 17, 2015, the registrant had 79,255,728 outstanding shares of common stock.

I-Minerals Inc.

INDEX

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

I-Minerals Inc.

Condensed Consolidated Financial Statements
For the nine months ended January 31, 2015
(Unaudited - Expressed in US dollars)

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The accompanying notes are an integral part of these consolidated financial statements.

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The accompanying notes are an integral part of these consolidated financial statements.

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The accompanying notes are an integral part of these consolidated financial statements.

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The accompanying notes are an integral part of these consolidated financial statements.

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Item 2. Management’s discussion and analysis of financial condition and results of operations

Forward Looking Statements

The information contained in this Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995.  These forward-looking statements involve risks and uncertainties. Any statement which does not contain a historical fact may be deemed to be a forward-looking statement. In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expect", "plan", "intend", "anticipate", "believe", "estimate", "predict", "potential" or "continue", the negative of such terms or other comparable terminology. In evaluating forward looking statements, you should consider various factors outlined in our Registration Statement on Form 10/A filed with the U.S. Securities Exchange Commission (“SEC”) on December 24, 2014 and, from time to time, in other reports we file with the SEC. These factors may cause our actual results to differ materially from any forward-looking statement. We disclaim any obligation to publicly update these statements, or disclose any difference between our actual results and those reflected in these statements.

As used in this Registration Statement, unless the context otherwise requires, “we,” “us,” “our,” the “Company” and “I-Minerals” refers to I-Minerals Inc.  All dollar amounts in this registration statement are in U.S. dollars unless otherwise stated.

General

We were incorporated under the laws of British Columbia, Canada in 1984. In 2004, we changed our corporate jurisdiction from a British Columbia company to a Canadian corporation.  In December 2011, we amended our articles to change our name from “i-minerals inc.” to “I-Minerals Inc.”

We are an exploration stage company engaged in the exploration and development of our Helmer-Bovill industrial minerals property (the “Helmer-Bovill Property”).  The Helmer-Bovill Property, which we hold a 100% interest, is comprised of 11 mineral leases totaling 5,140.64 acres located approximately 6 miles southwest of Bovill, Latah County, Idaho.

We acquired the Helmer-Bovill Property from Idaho Industrial Minerals (“IIM”) pursuant to an Assignment Agreement with Contingent Right of Reverter (the “IIM Agreement”) dated August 12, 2002, as amended August 10, 2005, August 10, 2008 and January 21, 2010, between I-Minerals USA (formerly Alchemy Kaolin Corporation), our wholly owned subsidiary, and IIM.  Under the terms of the IIM Agreement, we issued a total of 1,800,000 common shares to IIM.

To date, we have not earned significant revenues from the operation of our mineral properties.  Accordingly, we are dependent on debt and equity financing as its primary source of operating working capital.  Our capital resources are largely determined by the strength of the junior resource markets and by the status of our projects in relation to these markets, and its ability to compete for investor support of its projects.

Our Principal Projects

Our operations at the Helmer-Bovill Property are focused on developing the Bovill Kaolin Project and the WBL Tailings Project.

The Bovill Kaolin Project

Our lead project, the Bovill Kaolin Project, is a strategically located long term resource of high purity quartz, potassium feldspar (“K-spar”), halloysite and kaolin formed through weathering of a border phase of the Idaho Batholith causing all minerals to be contained within a fine white clay-sand mixture referred to as “primary clay.” The Bovill Kaolin Project is located within 5 kilometers of state highways with electricity and natural gas already at the property boundary.

Since 2010, our exploration work has focused diamond drilling on the Bovill Kaolin Project.  To date, a total of 243 diamond drill holes were drilled totaling 26,753 feet.  As a result of these drill campaigns, four deposits have been identified: Kelly Hump, Kelly South, Middle Ridge and WBL.

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In June 2014, we completed an updated pre-feasibility study on the Bovill Kaolin Project (the “2014 PFS”), which included the following highlights:

Updated Measured and Indicated Resource Estimate

• Measured Resources of 3.3 million tons containing 76.1% quartz/K-spar sand, 12.7% Kaolinite and 4.5% Halloysite.
• Indicated Resources of 7.9 million tons containing 74.4% quartz/K-spar sand, 15.6% Kaolinite and 2.7% Halloysite.
• 358,000 tons of contained halloysite, 1,657,600 tons of contained kaolinite and 8,407,000 tons of contained quartz/K-spar.

Mineral Reserve Estimate

Economic Analysis

• US$330 million Pre-Tax NPV; US$212 million After Tax NPV using a 6% discount rate.
• 38.2% Pre-Tax IRR; 30.5% After Tax IRR.
• Initial Capital Cost of $72.7 million and Total Life of Mine capital costs $90.8 million.
• Life of Mine in excess of 25 years with a stripping ratio of 0.69:1 (waste:ore).
• 3 year estimated after tax payback.

With the 2014 PFS finalized, our focus will be to complete a feasibility study on the Bovill Kaolin Project.  We anticipate that a feasibility study will be finalized within the next 12 to 18 months.

The WBL Tailings Project

We also plan to commence mining operations at the WBL Tailings Project.  The WBL Tailings Project is feldspathic sands deposited as tailings from clay mining operations during the period from 1961 to 1974.  In September 2012, we received approval of our Mine Plan of Operations (“MPO”) from the Idaho Department of Lands.  The MPO allows us to mine up to 50,000 tons per annum from feldspathic sands from June to October for a period of 10 years.

Plan of Operation

During the next twelve to eighteen months, our plan of operation is to complete a feasibility study on our Bovill Kaolin Project and to continue production at our WBL Tailings Project.

Feasibility Study of the Bovill Kaolin Project

As recommended in the 2014 PFS, we have commenced the feasibility study of the Bovill Kaolin Project.  In order to bring the Bovill Kaolin Project to feasibility, we will be required to undertake additional exploration and drilling, complete mining, tailings and environmental studies and complete additional material testing.  We anticipate that a feasibility study will be completed within 12 to 18 months at an estimated cost of US$3,056,000. 

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Outlook

The focus of the Company continues to be the detailed assessment of all of its mineral assets and advancing the Bovill Kaolin project towards production.  With the updated PFS completed in June 2014, the next step is additional permitting activities and ultimately the completion of a full feasibility study.  I-Minerals has completed sufficient drilling at sufficiently close drill hole spacing to allow for the calculation of measured and indicated resources at Kelly’s Hump and Middle Ridge.  A limited amount of infill drilling may be required to upgrade portions of the probable reserves to proven reserves as a condition of CAPEX financing.

Permitting is on schedule to be largely completed within six to nine months save an air discharge permit.  Bulk sample processing is ongoing at Ginn Mineral Research with the quartz and K-spar fraction being delivered to Minerals Research Laboratory at North Carolina State University for separation of the quartz and K-spar.  The purpose of the current round of pilot scale separations is to confirm grades and separation characteristics of all areas of the deposits and provide samples for melt tests and customer tests.  The processing at Ginn Mineral Research to create halloysite and metakaolin products should be completed shortly.  The processing to create k-spar and quartz products at MRL should be completed by mid to late Q2 of calendar 2015.

Based upon opportunities identified in the Charles Rivers report, internal marketing efforts and customer leads generated through the website, strong interest has been generated in all of the Company’s mineral products with ever increasing interest in the K-spar.  Samples continue to be sent to customers for testing and the response is generally very favourable.

Results of Operation

Nine months ended January 31, 2015

We recorded a loss of $78,852 ($0.00 per share) for the nine months ended January 31, 2015 as compared to a loss of $4,480,898 ($0.06 per share) for the nine months ended January 31, 2014.  The decrease in the loss recorded in the nine months ended January 31, 2015 as compared to the nine months ended January 31, 2014 is the net result of changes to a number of expenses.  Of note are the following items:

• Management and consulting fees of $366,149 (2014 - $215,514) are comprised of fees to manage the Company and stock-based compensation.  The stock-based compensation recognized in fiscal 2015 was $294,186 (fiscal 2014 - $155,847).  Approximately half of the fees to manage the Company are charged to management and consulting fees and the other half is charged to mineral property expenditures.
• Mineral property expenditures of $1,118,699 (2014 - $1,444,825) are costs incurred on the Company’s Helmer-Bovill Property.  The main expenses incurred during fiscal 2015 included engineering and consulting ($434,451), mineral analysis and processing ($360,093), environmental ($81,057) and permitting, licenses and fees ($78,860).  The Company was working on updating the NI 43-101 Pre-feasibility Study.  The decrease in expenditures during the period was due to the Company incurring drilling expenditures in the prior period ($662,559) as part of updating the NI 43-101 Pre-feasibility study.
• General and miscellaneous expenses of $271,463 (2014 - $184,663) is comprised of office and telephone expenses, payroll taxes, medical benefits, insurance premiums, travel expenses, promotional expenses, shareholder communication fees, transfer agent fees and filing fees.  The increase during fiscal 2015 was due primarily to an increase in marketing activities of our property.
• Professional fees of $484,208 (2014 - $132,509) include legal fees, audit fees and financial consulting fees.  The increase in fees in fiscal 2015 was due to increase legal fees relating to the IIM litigation, the registration with the SEC and legal fees relating to the Unimin Temporary Restraining Order.
• Loss on extinguishment of debt of $nil (2014 – loss of $335,297) represents the change in fair value of common shares between the date the Company agreed to settled debts for common shares and the date that the common shares were ultimately issued.  The Company used common shares to settle the principal balance of certain loans as well as interest payable pursuant to certain loans.  The gain of $57,594 for the nine months ended January 31, 2015 has been recognized as an increase in additional paid-in capital.
• Accretion expense of $84,548 (2014 - $8,698) is the amortization of the fair value of bonus shares and bonus warrants issued to the lender of the promissory notes and the second promissory notes.  The bonus shares and bonus warrants are amortized over the life of the promissory notes.  Bonus shares and bonus warrants were not implemented until Q2 of fiscal 2014.
• Interest expense of $485,163 (2014 - $252,668) is from promissory notes and second promissory notes that bear interest at a rate of 12% per year.  Interest in 2014 also included $11,991 from convertible loans.  Interest increased as additional funds were advanced.

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• The Company recorded a gain on change in fair value of derivative liabilities of $2,730,303 (2014 – loss of $1,907,092).  The change in fair value of derivative liabilities is based on the change in remaining term of derivative instruments and the stock price of the Company.  The derivatives include warrants as well as stock options granted to non-employees.  The derivative liabilities do not represent cash liabilities.

Three months ended January 31, 2015

We recorded a loss of $427,687 ($0.01 per share) for the three months ended January 31, 2015 as compared to a loss of $924,454 ($0.01 per share) for the three months ended January 31, 2014.  The decrease in the loss recorded in the three months ended January 31, 2015 as compared to the three months ended January 31, 2014 is the net result of changes to a number of expenses as outlined in the analysis for the nine months ended January 31, 2015. 

Liquidity and Capital Resources

Our aggregate operating, investing and financing activities during the nine months ended January 31, 2015 resulted in a net cash outflow of $549,284 (2014 – inflow of $492,027).  As at January 31, 2015, we had a working capital deficiency of $343,423, including cash of $55,652.

During the nine months ended January 31, 2015, the Company used $2,426,183 on cash flows from operations before changes in non-cash operating working capital items (2014 - $2,072,101).  The increase in these cash flows was due primarily to an increase in professional fees relating to the IIM litigation which was partially offset by a reduction in mineral property expenditures.  During the nine months ended January 31, 2015, the Company spent $7,008 on investing activities (2014 - $41,724 cash from investing activities) and the Company received $1,459,185 from financing activities (2014 - $2,328,414).

The Company is being financing by advances pursuant to Promissory Notes and Second Promissory Notes.  The lender agreed to advance up to $5,787,280 pursuant to the Promissory Notes.  The final advance pursuant to the Promissory Notes was received in January 2015 and the balance due at January 31, 2015 was $5,787,280.  On February 18, 2015, the Company entered into the Second Promissory Notes with the lender pursuant to which the lender agreed to advance up to an additional $4,463,000.  During January 2015, the Company received $217,000 in advances pursuant to the Second Promissory Notes and the balance due at January 31, 2015 was $217,000.

The Promissory Notes are due as to $1,000,000 on December 31, 2015, $2,000,000 on June 30, 2016 and the balance due on December 31, 2016.  Certain conditions may result in early repayment.  The maturity dates are the later of these maturity dates and one year after resolution of the IIM litigation. 

The Second Promissory Notes mature as to $1,000,000 one year after resolution of the IIM litigation, $2,000,000 one and a half years after resolution of the IIM litigation and the balance due two years after resolution of the IIM litigation.  Certain conditions may result in early repayment. 

We have not as yet put into commercial production any mineral properties and as such have no operating revenues.  Accordingly, we are dependent on debt and equity financing as its primary source of operating working capital.  Our capital resources are largely determined by the strength of the junior resource markets and by the status of our projects in relation to these markets, and its ability to compete for investor support of its projects.

We remain dependent on additional financing to fund development requirements on the Helmer-Bovill property and for general corporate costs.  With respect to funds required for capital cost items once a feasibility study is completed, State-sponsored debt financing instruments may be available on attractive terms, and we intend to pursue such financial instruments to cover portions of the capital costs associated with placing the Bovill Kaolin deposits into production.

Off-Balance Sheet Arrangements

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to shareholders.  

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Critical Accounting Policies

Measurement Uncertainty

The preparation of consolidated financial statements in conformity with US GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. We regularly evaluate estimates and assumptions. We base our estimates and assumptions on current facts, historical experience and various other factors we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by us may differ materially and adversely from our estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. The most significant estimates with regard to our consolidated financial statements relate to the carrying value of our mineral properties and determination of fair values of derivative liabilities and stock-based transactions.

Stock-based Compensation

The Company accounts for all stock-based payments and awards under the fair value based method.  Stock-based payments to non-employees are measured at the fair value of the consideration received, or the fair value of the equity instruments issued, or liabilities incurred, whichever is more reliably measurable.

The fair value of stock-based payments to non-employees is periodically re-measured until the counterparty performance is complete, and any change therein is recognized over the vesting period of the award and in the same manner as if the Company had paid cash instead of paying with or using equity based instruments.  The cost of the stock-based payments to non-employees that are fully vested and non-forfeitable as at the grant date is measured and recognized at that date, unless there is a contractual term for services in which case such compensation would be amortized over the contractual term.

The Company accounts for the granting of stock options to employees using the fair value method whereby all awards to employees will be recorded at fair value on the date of the grant.  The fair value of all stock options is expensed over their vesting period with a corresponding increase to additional paid-in capital.

Compensation costs for stock-based payments that do not include performance conditions are recognized on a straight-line basis. Compensation cost associated with a share based award having a performance condition is recognized on the probable outcome of that performance condition during the requisite service period. Share based awards with a performance condition are accrued on an award by award basis.

The Company uses the Black-Scholes option valuation model to calculate the fair value of stock options at the date of the grant. Option pricing models require the input of highly subjective assumptions, including the expected price volatility. Changes in these assumptions can materially affect the fair value estimates.

Derivative Liabilities

The Company evaluates its financial instruments and other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 815. The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market at each balance sheet date and recorded as a liability and the change in fair value is recorded in the consolidated statement of loss.  Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity.

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.  Derivative instruments that become subject to reclassification are reclassified at the fair value of the instrument on the reclassification date.  Derivative instrument liabilities will be classified in the balance sheet as current or non-current based on whether or not settlement of the derivative instrument is expected within 12 months of the balance sheet date.

The Company uses the Black-Scholes option valuation model to value derivative liabilities.  This model uses Level 3 inputs in the fair value hierarchy established by ASC 820 Fair Value Measurement.

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Item 3. Quantitative and qualitative disclosures about market risk

Not applicable.

Item 4. Controls and procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of January 31, 2015. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of January 31, 2015.  There were no material changes in the Company’s internal control over financial reporting during the third quarter of 2015.

PART II – OTHER INFORMATION

Item 1. Legal proceedings

Derivative Complaint

We are currently named as a defendant in a lawsuit in Latah County, State of Idaho, Case No. CV 2014-1306 (the “Latah County Lawsuit”).  The plaintiffs who filed the Latah County Lawsuit, Hoodoo Resources, LLC (“Hoodoo”) and Brent Thomson as trustee for the Brent Thomson Family Trust (the “Thomson Family Trust”) (Hoodoo and the Thomson Family Trust are sometimes collectively referred to as the “Plaintiffs”), have alleged both direct claims and derivative claims on behalf of Idaho Industrial Minerals, LLC (“IIM”).  The Plaintiffs’ claims were initially brought on June 6, 2014, as third-party claims in response to a complaint filed against Hoodoo and the Thomson Family Trust by another IIM member, BV Natural Resources, LLC (“BVNR”), which owns a 25% interest in IIM.  BVNR’s lawsuit against Hoodoo and the Thomson Family Trust was filed in Ada County, State of Idaho, Case No. CV OC 1401549 (the “Ada County Lawsuit”). 

In the Ada County Lawsuit, BVNR asserts that Hoodoo and the Thomson Family Trust, both owners of a 12.5% interest in IIM, attempted to take action on behalf of IIM without authority and breached fiduciary duties owed to the other members of IIM; and BVNR seeks the judicial dissolution of IIM.  In response to BVNR’s initial complaint, Hoodoo and the Thomson Family Trust filed a counterclaim against BVNR and a third-party complaint against us, as well as Barry Girling and Allen Ball, members of our Board of Directors, and an entity Allen Ball owns, Ball Ventures, LLC, and Roger Kauffman, our former President and Director.  Since filing the third-party claims, the Plaintiffs have dismissed Mr. Kauffman from the lawsuit with prejudice, and the Plaintiffs have indicated that they intend to dismiss Mr. Girling from the lawsuit with prejudice in the next few days.

The derivative claims alleged by Hoodoo and the Thomson Family Trust against us seek damages for breach of the terms of the IIM Agreement and the return of the Idaho state mineral leases of the Helmer-Bovill Property (the “Leases”) to IIM.  Specifically, Hoodoo and the Thomson Family Trust claim that we breached the IIM Agreement by (1) encumbering the Helmer-Bovill Property, (2) failing to provide IIM copies of letters between us and the State of Idaho in relation to a transfer of the leases to an entity that we control, and (3) failing to complete the deliverables as required by the IIM Agreement, namely completion of a feasibility study; completion of the permitting process for the Helmer-Bovill Property; completion of a processing plant; and production of commercial products from minerals on the Helmer-Bovill Property.  Upon motion made by us, the Court has dismissed Hoodoo and the Thomson Family Trust’s claim that we wrongfully encumbered the Helmer-Bovill Property.  The Court has denied our motions to dismiss and for summary judgment on certain other grounds.

In addition to the derivative breach of contract claims, Hoodoo and the Thomson Family Trust also alleged derivative and direct claims that IIM was fraudulently induced to execute the Third and Fourth Amendments to the IIM Agreement.  In conjunction with the stipulation to dismiss Mr. Girling with prejudice, the Plaintiffs appear to be withdrawing their fraud claims under the Third Amendment to the IIM Agreement.

We categorically deny the claims against us.  Under the original terms of the IIM Agreement, which was executed in August 2002 and was to expire 3 years thereafter, we were required to deliver a total of 1.75 million common shares to IIM as follows:

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In August 2005, pursuant to the Second Amendment to the IIM Agreement, the term of the IIM Agreement was extended for three additional years to August 10, 2008 and IIM agreed that, with the issuance of a total of 1.75 million shares plus an additional Fifty Thousand (50,000) common shares as consideration for the Second Amendment, IIM releases any and all interest in the Leases and the Helmer-Bovill Property.  In August 2008, pursuant to the Third Amendment to the IIM Agreement, the term was further extended for 3 additional years to August 10, 2011.  In January 2010, pursuant to the Fourth Amendment to the IIM Agreement, the term was further extended to August 10, 2013.  In addition, the Fourth Amendment re-allocated the number of common shares issuable to IIM by delineating the production plant/commercial product delivery milestone and re-allocating the related 400,000 shares by increasing the number of shares issuable upon completion of a feasibility study from 400,000 to 600,000 common shares, and the number of shares issuable upon completion of the permitting process from 500,000 to 700,000 common shares.

100,000 common shares were issued to IIM in fiscal 2003 upon execution of the original IIM Agreement, and an additional 350,000 common shares were issued to IIM in fiscal 2005 upon the State of Idaho issuing leases in respect of the Helmer-Bovill Property.  An additional 50,000 shares were issued in fiscal 2006 as consideration for the extension to the term granted under the Second Amendment to the IIM Agreement.  In January 2013, we delivered to IIM 1.3 million common shares based upon (i) completion of the feasibility study titled “NI 43-101 Technical WBL Tailings Mineral Production Project, Latah County, Idaho” by B. Stryhas, C.P.G., H. Gatley, P.Eng., V.Obie, RM SME, and C.Hoag, C.P.G. and dated effective November 30, 2012 (the “Feasibility Study”); and (ii) receipt of a letter from the Idaho Department of Lands dated November 7, 2012 confirming that our permitting application had been accepted, along with other supporting documents (collectively, the “Permit”).  In addition, we had commenced production and sale of a commercial product prior to delivery of the shares to IIM.  The final share issuance was approved by the TSX Venture Exchange.

We believe that we fully performed our obligations under the IIM Agreement and that, upon delivery of the remaining 1.3 million shares required by the IIM Agreement, the contractual release of all IIM interest in the Leases and the Helmer-Bovill Property took effect.  Further, we categorically deny any deceit or fraud in connection with entering into the Third Amendment and Fourth Amendment to the IIM Agreement with IIM.  We intend to vigorously defend the action brought by Hoodoo and the Thomson Family Trust and to seek costs and damages from Hoodoo and the Thomson Family Trust.

Temporary Restraining Order

In July, 2014, we announced the engagement of Dr. Thomas Gallo, a former employee of Unimin Corporation (“Unimin”), as a consultant to oversee our ceramic test work and market development.  On August 13, 2014, Unimin obtained a Temporary Restraining Order which restrains and enjoins Dr. Gallo from disclosing to us specifications of Unimin’s process in producing high purity quartz.  On September 17, 2014, the North Carolina Court of Justice denied Unimin’s Motion for a Preliminary Injunction (the “P.I. Motion”) pursuant to Rule 65 of the North Carolina Rules of Civil Procedure and determined “Unimin has failed to present sufficient evidence to show that it is will succeed on the merits of its claims.”

Item 1A. Risk factors

There have been no material changes from the risk factors as previously disclosure in our Registration Statement on Form 10/A which was filed with the SEC on December 24, 2014.

Item 2. Unregistered sales of equity securities and use of proceeds

During the nine months January 31, 2015, we completed the following sales of unregistered securities:

On January 13, 2015, we issued 360,567 of our common shares at a fair value of $72,000 and 360,567 non-transferable warrants, exercisable at a price of CDN$0.217 to CDN$0.250, all of which have an expiry date of December 1, 2016. The securities were issued in accordance with the terms of a loan agreement. The securities were issued pursuant to the provisions of Rule 506 of Regulation D of the Securities Act as the creditor represented that it was an accredited investor as defined in Rule 501 of Regulation D.

On December 17, 2014, we issued 1,622,029 of our common shares in order to settle $311,929 of interest payable on certain promissory notes for the period from June 1, 2014 to November 30, 2014.  The securities were issued pursuant to the provisions of Rule 506 of Regulation D of the Securities Act as the creditor represented that it was an accredited investor as defined in Rule 501 of Regulation D.

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On August 12, 2014, we issued 741,233 of our common shares in order to settle $211,937 of interest payable on certain promissory notes for the period from January 1, 2014 to May 31, 2014.  The securities were issued pursuant to the provisions of Rule 506 of Regulation D of the Securities Act as the creditor represented that it was an accredited investor as defined in Rule 501 of Regulation D.

On July 31, 2014, we issued 412,193 of our common shares at a fair value of $96,000 and 412,193 non-transferable warrants, exercisable at a price of CDN$0.276 to CDN$0.305, all of which have an expiry date of December 1, 2016. The securities were issued in accordance with the terms of a loan agreement. The securities were issued pursuant to the provisions of Rule 506 of Regulation D of the Securities Act as the creditor represented that it was an accredited investor as defined in Rule 501 of Regulation D.

Item 3. Defaults upon senior securities

None

Item 4. Mine safety disclosures

None

Item 5. Other information

None

Item 6. Exhibits

Notes:

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SIGNATURES

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