ITEM
1 IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not
applicable for an annual report.
ITEM
2 OFFER STATISTICS AND EXPECTED TIMETABLE
Not
applicable for an annual report.
ITEM
3 KEY INFORMATION
A.
SELECTED FINANCIAL DATA
The
following tables summarize selected financial data for the Company (stated in Canadian dollars) prepared, in respect of the years
ended July 31, 2018 and July 31, 2017, in accordance with International Financial Reporting Standards (“IFRS”) as
issued by the International Accounting Standards Board (“IASB”) (“IFRS-IASB”).
As
permitted by SEC Release No. 33-8879 “Acceptance from Foreign Private Issuers of Financial Statements Prepared in Accordance
with International Reporting Standards without Reconciliation to U.S. GAAP”, the Company includes selected financial data
prepared in compliance with IFRS-IASB without reconciliation to U.S. GAAP.
The
selected financial data of the Company for the fiscal years presented was derived from the consolidated financial statements of
the Company that have been audited by Davidson & Company LLP, independent Registered Public Accountants, as indicated in their
audit report which is included at Exhibit 99.1 in this Annual Report.
The
auditors conducted their audits in accordance with United States and Canadian generally accepted auditing standards, and the standards
of the Public Company Accounting Oversight Board (United States).
|
|
Year ended July 31, 2018
|
|
|
Year ended July 31, 2017
|
|
|
Year ended July 31, 2016
|
|
|
Year ended July 31, 2015
|
|
|
Year ended July 31, 2014
|
|
Sales revenue
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
Loss from operations
|
|
$
|
236,319
|
|
|
$
|
201,081
|
|
|
$
|
322,605
|
|
|
$
|
1,410,322
|
|
|
$
|
865,427
|
|
Loss (income) and comprehensive loss (income)
|
|
$
|
234,467
|
|
|
$
|
199,953
|
|
|
$
|
(92,549
|
)
|
|
$
|
1,410,322
|
|
|
$
|
865,427
|
|
Basic and diluted loss per common share
|
|
$
|
0.07
|
|
|
$
|
0.07
|
|
|
$
|
(0.03
|
)
|
|
$
|
0.52
|
|
|
$
|
0.32
|
|
Dividends per share
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
Working capital
|
|
$
|
(2,841,940
|
)
|
|
$
|
(3,066,336
|
)
|
|
$
|
(2,866,383
|
)
|
|
$
|
(2,548,933
|
)
|
|
$
|
(2,527,095
|
)
|
Total assets
|
|
$
|
75,034
|
|
|
$
|
232,153
|
|
|
$
|
313,168
|
|
|
$
|
478,407
|
|
|
$
|
1,975,310
|
|
Shareholder’s deficiency
|
|
$
|
2,841,939
|
|
|
$
|
3,066,335
|
|
|
$
|
2,866,382
|
|
|
$
|
2,998,931
|
|
|
$
|
1,588,609
|
|
Share capital
|
|
$
|
26,548,981
|
|
|
$
|
26,090,118
|
|
|
$
|
26,090,118
|
|
|
$
|
26,050,118
|
|
|
$
|
26,050,118
|
|
Shares outstanding
|
|
|
3,347,137
|
|
|
|
2,929,989
|
|
|
|
2,929,989
|
|
|
|
2,729,989
|
|
|
|
2,729,989
|
|
Currency
and Exchange Rates
On
October 10, 2018 the rate of exchange of the Canadian dollar, based on the daily noon rate in Canada as published by the Wall
Street Journal, was US$1 = Canadian $1.2947.
The
following tables set out the exchange rates, based on the daily noon rates in Canada as published by the Reuters for the conversion
of Canadian dollars per U.S. dollar.
|
|
For the fiscal year ended July 31,
(Canadian Dollars per U.S. Dollar)
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
End of Period
|
|
|
1.3008
|
|
|
|
1.2485
|
|
|
|
1.3056
|
|
|
|
1.3047
|
|
|
$
|
1.0890
|
|
Average for the Period
(1)
|
|
|
1.2760
|
|
|
|
1.3237
|
|
|
|
1.3285
|
|
|
|
1.1924
|
|
|
$
|
1.0733
|
|
High for the Period
|
|
|
1.3137
|
|
|
|
1.3743
|
|
|
|
1.4661
|
|
|
|
1.3060
|
|
|
$
|
1.1251
|
|
Low for the Period
|
|
|
1.2314
|
|
|
|
1.2447
|
|
|
|
1.2497
|
|
|
|
1.0857
|
|
|
$
|
1.0237
|
|
(1)
The average rate for each period is the average of the daily noon rates on the last day of each month during the period.
Monthly High and Low Exchange Rate (Canadian Dollars per U.S. Dollar)
|
Month
|
|
High
|
|
|
Low
|
|
September
|
|
|
1.3188
|
|
|
|
1.2905
|
|
August
|
|
|
1.3152
|
|
|
|
1.2917
|
|
July
|
|
|
1.3255
|
|
|
|
1.3017
|
|
June
|
|
|
1.3340
|
|
|
|
1.2940
|
|
B.
CAPITALIZATION AND INDEBTEDNESS
Not
applicable.
C.
REASONS FOR THE OFFER AND USE OF PROCEEDS
Not
applicable.
D.
RISK FACTORS
The
risk factors associated with the principal business of the Company are discussed below. The Company does not currently hold any
mineral properties but is looking for new opportunities. If it acquires a new mineral property(s), the Company would be subject
to the highly speculative nature of the resources industry characterized by the requirement for large capital investments from
an early stage and a very small probability of finding economic mineral deposits. In addition to the general risks of mining,
there are country-specific risks, including currency, political, social, permitting and legal risk. An investor should carefully
consider the risks described below and the other information that Quartz Mountain furnishes to, or files with, the Securities
and Exchange Commission and with Canadian securities regulators before investing in Quartz Mountain’s common shares, and
should not consider an investment in Quartz Mountain unless the investor is capable of sustaining an economic loss of the entire
investment. The Company’s actual exploration and operating results may be very different from those expected as at the date
of this MD&A.
Going
Concern Assumption
The
Company’s financial statements have been prepared assuming the Company will continue on a going concern basis. However,
unless additional funding is obtained, this assumption will have to change. The Company has a negative working capital position,
and has incurred losses since inception. Failure to continue as a going concern would require that Quartz Mountain’s assets
and liabilities be restated on a liquidation basis, which could differ significantly from the going concern basis.
Additional
Funding Requirements
Further
development of the Company’s continued operations will require additional capital. The Company currently does not have sufficient
funds to explore the properties it holds. It is possible that the financing required by the Company will not be available, or,
if available, will not be available on acceptable terms. If the Company does issue treasury shares to finance its operations or
expansion plans, shareholders will suffer dilution of their investment and control of the Company may change. If adequate funds
are not available, or are not available on acceptable terms, the Company will not be able to remain in business. In addition,
a positive production decision at any of the Company’s current projects or any other development projects acquired in the
future will require significant resources and funding for project engineering and construction. Accordingly, any development of
the Company’s properties depends upon the Company’s ability to obtain financing through debt financing, equity financing,
the joint venturing or disposition of its current projects, or other means. There is no assurance that the Company will be successful
in obtaining financing for these or other purposes, including for general working capital.
Future
Profits/Losses and Production Revenues/Expenses
The
Company has no history of mining operations or earnings, and expects that its losses and negative cash flow will continue for
the foreseeable future. The Company does not currently hold a mineral property and there can be no assurance that the Company
will, if needed, be able to acquire a property(s) of sufficient technical merit to represent a compelling investment opportunity.
If the Company is unable to acquire a property(s), its entire prospects will rest solely with its current net smelter royalty
interest in the Angel Camp Project and accordingly, the risk of being unable to identify a mineral deposit will be higher than
if the Company had additional properties to explore. There can be no assurance that the Company will ever be profitable in the
future. The Company’s operating expenses and capital expenditures may increase in subsequent years as consultants, personnel
and equipment associated with advancing exploration, development and commercial production of any properties that the Company
may acquire are added. The amounts and timing of expenditures will depend on the progress of on-going exploration, the results
of consultants’ analyses and recommendations, the rate at which operating losses are incurred, the execution of any joint
venture agreements with strategic partners, and the Company’s acquisition of a property(s) and other factors, many of which
are beyond the Company’s control. The Company does not expect to receive revenues from operations in the foreseeable future,
and expects to incur losses unless and until such time as it acquires a property(s), commence commercial production and generate
sufficient revenues to fund its continuing operations. The development of any properties the Company may acquire will require
the commitment of substantial resources to conduct the time-consuming exploration and development of properties. The Company anticipates
that it would retain any cash resources and potential future earnings for the future operation and development of the Company’s
business. The Company has not paid dividends since incorporation and the Company does not anticipate paying any dividends in the
foreseeable future. There can be no assurance that the Company will generate any revenues or achieve profitability. There can
be no assurance that the underlying assumed levels of expenses will prove to be accurate. To the extent that such expenses do
not result in the creation of appropriate revenues, the Company’s business will be materially adversely affected. It is
not possible to forecast how the business of the Company will develop.
Exploration,
Development and Mining Risks
Resource
exploration, development, and operations are highly speculative, characterized by a number of significant risks, which even a
combination of careful evaluation, experience and knowledge may not reduce, including among other things, unsuccessful efforts
resulting not only from the failure to discover mineral deposits but from finding mineral deposits which, though present, are
insufficient in quantity and quality to return a profit from production. Few properties that are explored are ultimately developed
into producing mines. Unusual or unexpected formations, formation pressures, fires, power outages, labor disruptions, flooding,
explosions, cave-ins, landslides and the inability to obtain suitable or adequate machinery, equipment or labor are other risks
involved in the operation of mines and the conduct of exploration programs. The Company will rely upon consultants and others
for exploration, development, construction and operating expertise. Substantial expenditures are required to establish mineral
resources and mineral reserves through drilling, to develop metallurgical processes to extract the metal from mineral resources,
and in the case of new properties, to develop the mining and processing facilities and infrastructure at any site chosen for mining.
No
assurance can be given that minerals will be discovered in sufficient quantities to justify commercial operations or that funds
required for development can be obtained on a timely basis. Whether a mineral deposit will be commercially viable depends on a
number of factors, some of which are: the particular attributes of the deposit, such as size, grade and proximity to infrastructure;
metal prices, which are highly cyclical; and government regulations, including regulations relating to prices, taxes, royalties,
land tenure, land use, importing and exporting of minerals, and environmental protection. The exact effect of these factors cannot
accurately be predicted, but the combination of these factors may result in the Company not receiving an adequate return on invested
capital.
Permits
and Licenses
If
the Company acquires a new mineral property(s), its operations would require licenses and permits from various governmental authorities.
There can be no assurance that the Company will be able to obtain all necessary licenses and permits which may be required to
carry out exploration and development for the Company’s Projects.
Changes
in Local Legislation or Regulation
Any
mining and processing operations that may be acquired and any exploration activities that might be conducted would be subject
to extensive laws and regulations governing the protection of the environment, exploration, development, production, exports,
taxes, labor standards, occupational health, waste disposal, toxic substances, mine and worker safety, protection of endangered
and other special status species and other matters. The Company’s ability to obtain permits and approvals and to successfully
operate in particular communities may be adversely impacted by real or perceived detrimental events associated with the Company’s
activities or those of other mining companies affecting the environment, human health and safety of the surrounding communities.
Delays in obtaining or failure to obtain government permits and approvals may adversely affect the Company’s operations,
including its ability to explore or develop properties, commence production or continue operations. Failure to comply with applicable
environmental and health and safety laws and regulations may result in injunctions, fines, suspension or revocation of permits
and other penalties. The costs and delays associated with compliance with these laws, regulations and permits could prevent the
Company from proceeding with the development of a project or the operation or further development of a mine or increase the costs
of development or production and may materially adversely affect the Company’s business, results of operations or financial
condition. The Company may also be held responsible for the costs of addressing contamination at the site of current or former
activities or at third party sites. The Company could also be held liable for exposure to hazardous substances.
Environmental
Matters
All
of the operations that the Company might acquire would be subject to environmental regulations, which can make operations expensive
or prohibit them altogether. The Company may be subject to potential risks and liabilities associated with pollution of the environment
and the disposal of waste products that could occur because of its mineral exploration, development and production. In addition,
environmental hazards may exist on a property in which the Company directly or indirectly holds an interest, which are unknown
to the Company at present and have been caused by previous or existing owners or operators of the Company’s projects. Environmental
legislation provides for restrictions and prohibitions on spills, releases or emissions of various substances produced in association
with certain mining industry operations that would result in environmental pollution. A breach of such legislation may result
in the imposition of fines and penalties, or the requirement to remedy environmental pollution, which would reduce funds otherwise
available to the Company and could have a material adverse effect on the Company. If the Company is unable to remedy an environmental
problem, it could be required to suspend operations or undertake interim compliance measures pending completion of the required
remedy, which could have a material adverse effect on the Company.
There
is no assurance that future changes in environmental regulation, if any, will not adversely affect the Company’s operations.
There is also a risk that the environmental laws and regulations may become more onerous, making the Company’s operations
more expensive. Many of the environmental laws and regulations will require the Company to obtain permits for its activities.
The Company will be required to update and review its permits from time to time, and may be subject to environmental impact analyses
and public review processes prior to approval of the additional activities. It is possible that future changes in applicable laws,
regulations and permits or changes in their enforcement or regulatory interpretation could have a significant impact on some portion
of the Company’s business, causing those activities to be economically re-evaluated at that time.
Groups
Opposed to Mining May Interfere with the Company’s Efforts to Explore and Develop its Properties
Organizations
opposed to mining may be active in the regions in which the Company conducts its exploration activities. Although the Company
intends to comply with all environmental laws and maintain good relations with local communities, there is still the possibility
that those opposed to mining will attempt to interfere with the development of any property(s) the Company might acquire. Such
interference could have an impact on the Company’s ability to explore and develop its properties in a manner that is most
efficient or appropriate, or at all, and any such impact could have a material adverse effect on the Company’s financial
condition and the results of its operations.
Market
for Securities and Volatility of Share Price
There
can be no assurance that an active trading market in the Company’s securities will be established or sustained. The market
price for the Company’s securities is subject to wide fluctuations. Factors such as announcements of exploration results,
as well as market conditions in the industry or the economy as a whole, may have a significant adverse impact on the market price
of the securities of the Company.
The
stock market has from time to time experienced extreme price and volume fluctuations that have often been unrelated to the operating
performance of particular companies.
Conflicts
of Interest
The
Company’s directors and officers may serve as directors or officers of other companies, joint venture partners, or companies
providing services to the Company or they may have significant shareholdings in other companies. Situations may arise where the
directors and/or officers of the Company may be in competition with the Company. Any conflicts of interest will be subject to
and governed by the law applicable to directors’ and officers’ conflicts of interest. In the event that such a conflict
of interest arises at a meeting of the Company’s directors, a director who has such a conflict will abstain from voting
for or against the approval of such participation or such terms. In accordance with applicable laws, the directors of the Company
are required to act honestly, in good faith and in the best interests of the Company.
General
Economic Conditions
Global
financial markets have experienced a sharp increase in volatility during the last few years. Market conditions and unexpected
volatility or illiquidity in financial markets may adversely affect the prospects of the Company and the value of the Company’s
shares.
Reliance
on Key Personnel
The
Company is dependent on the continued services of its senior management team, and its ability to retain other key personnel. The
loss of such key personnel could have a material adverse effect on the Company. There can be no assurance that any of the Company’s
employees will remain with the Company or that, in the future, the employees will not organize competitive businesses or accept
employment with companies competitive with the Company.
There
can be no assurance that the Company will be able to attract, train or retain qualified personnel in the future, which would adversely
affect its business.
Competition
The
resources industry is highly competitive in all its phases, and the Company will compete with other mining companies, many of
which have greater financial, technical and other resources. Competition in the mining industry is primarily for: attractive mineral
rich properties capable of being developed and producing economically; the technical expertise to find, develop and operate such
properties; the labor to operate the properties; and the capital for the purpose of funding such properties. Many competitors
not only explore for and mine certain minerals, but also conduct production and marketing operations on a worldwide basis. Such
competition may result in the Company being unable to acquire desired properties, to recruit or retain qualified employees or
to acquire the capital necessary to fund its operations and develop any property(s) the Company might acquire. The Company’s
inability to compete with other mining companies for these resources could have a materially adverse effect on the Company’s
results of operation and its business.
Uninsurable
Risks
In
the course of exploration, development and production of mineral properties, certain risks, and in particular, unexpected or unusual
geological operating conditions including rock bursts, cave ins, fires, flooding and earthquakes may occur. It is not always possible
to fully insure against such risks and the Company may decide not to take out insurance against such risks because of high premiums
or other reasons.
The
Mineral Property Underlying the Company’s Net Smelter Return Royalty Interest Contains no Known Ore
The
Company holds a 1% net smelter return (“NSR”) royalty interest on the Quartz Mountain Property (recently renamed “Angel’s
Camp”), an exploration stage prospect in Oregon. The Company’s interest in the property will be limited to any future
NSR that would be forthcoming only if or when any mining commences on the property. There is currently no known body of ore on
the property. Extensive additional exploration work will be required to ascertain if any mineralization may be economic.
Likely
PFIC status has consequences for United States investors
Potential
investors who are U.S. taxpayers should be aware that the Company expects to be classified for U.S. tax purposes as a passive
foreign investment company (“PFIC”) for the current fiscal year, and may also have been a PFIC in prior years and
may be a PFIC in future years. If the Company is a PFIC for any year during a U.S. taxpayer’s holding period, then such
U.S. taxpayer generally will be required to treat any so-called “excess distribution” on its common shares, or any
gain realized upon a disposition of common shares, as ordinary income which would be taxed at the shareholder’s highest
marginal rates and to pay an interest charge on a portion of such distribution or gain, unless the taxpayer has made a timely
qualified electing fund (“QEF”) election or a mark-to-market election with respect to the shares of the Company. In
certain circumstances, the sum of the tax and the interest charge may exceed the amount of the excess distribution received, or
the amount of proceeds of disposition realized, by the taxpayer. A U.S. taxpayer who makes a QEF election generally must report
on a current basis its share of the Company’s net capital gain and ordinary earnings for any year in which the Company is
a PFIC, whether or not the Company distributes any amounts to its shareholders. A U.S. taxpayer who makes the mark-to-market election
generally must include as ordinary income each year the excess of the fair market value of the common shares over the taxpayer’s
tax basis therein. See also
Item 10E – “Passive Foreign Investment Company
”.
Potential
investors should also note that recently enacted legislation may require U.S. shareholders to report their interest in a PFIC
on an annual basis. US shareholders of the Company should consult their tax advisors as to these reporting requirements as well
as the consequences of investing in the Company.
Penny
stock classification
Penny
stock classification could affect the marketability of the Company’s common stock and shareholders could find it difficult
to sell their stock
The
penny stock rules in the United States require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the nature and
level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations
for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements
showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer
and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction
and must be given to the customer in writing before or with the customer’s confirmation.
Further,
the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from such rules; the broker-dealer
must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s
written agreement to the transaction. These additional broker-dealer practice and disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for the Company’s common shares in the U.S., and shareholders
may find it more difficult to sell their shares.
ITEM
4 INFORMATION ON THE COMPANY
A.
HISTORY AND DEVELOPMENT OF THE COMPANY
Incorporation
The
legal name of the Company is “Quartz Mountain Resources Ltd.”
Quartz
Mountain Resources Ltd. was incorporated on August 3, 1982, in British Columbia, Canada, and it continues to subsist under the
laws of the Province of British Columbia.
The
Company was originally incorporated as Wavecrest Resources Ltd., but changed its name to Quartz Mountain Gold Corp. on June 18,
1986. On November 5, 1997, the name of the Company was changed from Quartz Mountain Gold Corp. to Quartz Mountain Resources Ltd.,
and the common shares were consolidated on a ten-old-for-one-new share basis.
Market
for the Company’s Securities
The
Company’s common shares were quoted on NASDAQ SmallCap Market in the United States from September 17, 1987 until May 12,
1994. The Company’s common shares were also listed on the Toronto Stock Exchange until November 10, 1994. The Company voluntarily
surrendered its listing on the Vancouver Stock Exchange.
In
2000, the Company listed on a newly created Tier 3 of the Canadian Venture Exchange (now renamed the TSX Venture Exchange (“TSX-V”)).
In December 2003, the Company was reclassified as a Tier 2 company on the TSX-V. On February 17, 2005, the Company transferred
its listing to NEX, a separate board of the TSX-V established in 2003 to provide a new trading forum for listed companies that
had fallen below the TSX-V’s continued listing standards, due to low levels of business activity.
The
Company was relisted on the TSX-V on December 30, 2011.
Currently,
the Company’s common shares trade on the TSX-V under the symbol QZM, and certain broker-dealers in the United States make
market in the Company’s common shares on the OTC Grey Market under the symbol QZMRF.
Offices
The
Company’s business office is located at 15th Floor, 1040 West Georgia Street, Vancouver, British Columbia V6E 4H1; telephone
(604) 684-6365. The Company’s registered office is Suite 1500 – 1055 West Georgia Street, Vancouver, British Columbia
V6E 4N7; telephone (604) 689-9111.
B.
BUSINESS OVERVIEW
The
Company’s Business Strategy and Principal Activities
Quartz
Mountain has been in the business of exploring and developing mineral properties. The Company’s activities on the properties
has been primarily focused on ascertaining whether the properties host commercially viable mineral deposits.
In
the first three years of its existence, the Company was active in the exploration of small gold and silver prospects in Canada,
but none of these prospects warranted further exploration or development. In 1986, the Company acquired the Quartz Mountain gold
property, located in south central Oregon, and until January 2002 most of the Company’s efforts were expended on the exploration
and maintenance of these claims. The Company’s interests in the Quartz Mountain gold property, and in its other properties,
were acquired by direct purchase, lease and option, or through joint ventures.
The
Company sold the Quartz Mountain gold property during 2002, to Seabridge Resources Ltd. and Seabridge Resources Inc. (collectively
“Seabridge”). Seabridge subsequently changed its name to Seabridge Gold Inc. At closing, Quartz Mountain received
300,000 Seabridge common shares, 200,000 Seabridge common share purchase warrants, US$100,000 and a 1% NSR from any future production
on the Quartz Mountain gold property. The Seabridge warrants were exercised and all Seabridge common shares held by the Company
have been sold. The Company’s interest in the Quartz Mountain gold property is limited to the 1% NSR royalty. The Company
does not expect to generate any royalty revenue from the Quartz Mountain gold property (renamed “Angel’s Camp”
by its subsequent owners) for several years, and it is not known at this time when any mining will commence, if at all, on that
property.
Following
the sale of the Quartz Mountain gold property, the Company continued in its efforts to find a suitable mineral property for potential
acquisition and exploration during the period of 2002 to 2011.
In
December 2011, the Company acquired an option to earn a 100% interest in the Buck gold-silver property near the town of Houston
in central British Columbia (the “Buck Project”). Concurrently with the Buck Project acquisition, the Company completed
a $4.2 million private placement financing and began trading on the TSX-V. Exploration programs were carried out at Buck in 2011
and 2012, confirming targets. Difficult financing conditions for junior companies in 2013 necessitated that the Company limit
its exploration expenditures and prioritize its property holdings. As a result, Quartz Mountain terminated its option on the Buck
Project in July 2013.
In
August 2012, the Company acquired 100% of the Galaxie copper-gold property in northwestern British Columbia (the “Galaxie
Project”), and carried out exploration programs in 2012 at five new prospects within the property as well as at the Gnat
porphyry copper deposit.
Quartz
Mountain acquired the ZNT Project by utilizing British Columbia’s on-line mineral tenure system in 2012. The ZNT Project
is located 15 kilometers southeast of the town of Smithers, British Columbia. Exploration in 2012 and 2013 has identified potential
for the discovery of a bulk tonnage silver deposit at ZNT.
In
November 2012, Quartz Mountain entered into an option and joint venture agreement with Amarc Resources Ltd. (“Amarc”)
pursuant to which Amarc could earn a 40% ownership interest, with an option to acquire an additional 10% ownership interest, in
the Galaxie and ZNT Projects. Amarc gained an initial 40% interest in the Galaxie and ZNT Projects by funding a drilling program
at Gnat porphyry copper deposit at the Galaxie Project in late 2012. In June 2013, Quartz Mountain and Amarc entered into an amendment
agreement through which Amarc had an option until October 31, 2013 to earn a 60% interest in each of the ZNT and Galaxie properties,
by making certain property expenditures. Amarc earned a 60% interest in the ZNT Project but earned only a 40% interest in the
Galaxie Project. In April 2014, Amarc terminated joint ventures with the Company and returned earned interests in the Galaxie
and ZNT Projects in British Columbia and Quartz Mountain owned 100% of the Galaxie and ZNT Projects.
After
carrying out exploration in 2012 and 2013, the ZNT Project did not warrant further work. The mineral claims comprising the property
were allowed to lapse subsequent to the year ended July 31, 2016.
Work
was also conducted at the Galaxie Project in 2012 and 2013 but, largely because of the prevailing difficult market conditions
for mineral exploration companies, the Company has since been unable to secure a joint venture or option agreement to further
advance exploration. As a result, during the year ended July 31, 2016, three mineral claims were returned to a vendor and the
remaining mineral claims comprising the property were allowed to lapse subsequent to year end.
The
Company is currently investigating new opportunities.
The
Company does not have any operating revenue and anticipates that it will rely on sales of its equity securities in order to finance
its acquisition and exploration activities.
C.
MINERAL PROPERTIES
Angel’s
Camp Property
The
Company retains a 1% net smelter return royalty payable to the Company on any production from the Angel’s Camp property
located in Lake County, Oregon. The Angel’s Camp property is currently held by Alamos Gold Inc.
During
the year ended July 31, 2002, the Company sold 100% of its title, rights and interest in the Angel’s Camp property located
in Lake County, Oregon to Seabridge Resources Inc. (“Seabridge”), which later changed its name to Seabridge Gold Inc.,
for 300,000 common shares of Seabridge (sold in prior years), 200,000 common share purchase warrants of Seabridge (exercised and
sold in prior years), cash of $100,000, and a 1% net smelter return royalty payable to the Company on any production from the
Angel’s Camp property.
In
2003, Seabridge optioned a 50% interest in the property to Quincy Gold Inc., which later changed its name to Golden Predator Mines
Inc., then to Golden Predator Royalty & Development Corporation, then to Golden Predator Corporation, and is now named Americas
Bullion Royalty Corp (TSX:AMB).
In
April 2012, Orsa Ventures Corp. (“Orsa”) (TSX-V: ORN) exercised its option to acquire all of Seabridge’s remaining
undivided 50% beneficial joint venture interest in the Angel’s Camp property. In March 2013, Orsa announced it had entered
into an agreement with Americas Bullion Royalty Corp. to acquire, over a number of years, the 50% of Angel’s Camp that it
did not own. Additionally, in March 2013 Orsa announced that it had received regulatory approval for, and fulfilled closing requirements
for the joint venture purchase agreement with Americas Bullion Royalty Corp. to acquire their 50% joint venture interest in the
Angel’s Camp Property.
In
September 2013, Alamos Gold Inc. reported the completion of the acquisition of all of the issued and outstanding common shares
of Orsa Ventures Corp.
Other
Properties
After
carrying out exploration in 2012 and 2013, the ZNT Project did not warrant further work. The mineral claims comprising the property
lapsed during the year ended July 31, 2016.
Work
was conducted at the Galaxie Project in 2012 and 2013 but, largely because of the prevailing difficult market conditions for mineral
exploration companies, the Company has since been unable to secure a joint venture or option agreement to further advance exploration.
As a result, three mineral claims were returned to a vendor and the remaining mineral claims comprising the property were allowed
to lapse.
The
Company is currently investigating new opportunities.
D.
ORGANIZATIONAL STRUCTURE
The
Company operates in a single reportable operating segment – the acquisition, exploration and development of mineral property
interests. The Company is currently focused on the acquisition and exploration of mineral property interests in Canada, and conducts
most of its business affairs through its Canadian parent entity.
The
Company has two inactive wholly owned subsidiaries, Wavecrest Resources Inc., a Delaware corporation and QZMG Resources Ltd.
E.
PROPERTY, PLANT AND EQUIPMENT
The
Company has no material tangible fixed assets, such as mining equipment or plant facilities.
F.
CURRENCY
All
currency amounts in this Annual Report are stated in Canadian dollars unless otherwise indicated (see
Item 3
for exchange
rate information).
ITEM
4A UNRESOLVED STAFF COMMENTS
Not
applicable.
ITEM
5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS
OVERVIEW
Because
of difficult financing conditions for junior exploration companies, no material transactions were completed in 2018. Accordingly,
during the fiscal year ended July 31, 2018, the Company’s activities primarily involve investigating new opportunities.
The
Company’s financial statements are prepared on the basis that it will continue as a going concern. The Company has incurred
losses since inception, and the ability of the Company to continue as a going concern depends upon its ability to continue to
raise adequate financing and to develop profitable operations. Quartz Mountain’s financial statements do not reflect adjustments,
which could be material, to the carrying values of assets and liabilities, which may be required should the Company not be able
to continue as a going concern.
The
following discussion should be read in conjunction with the audited annual consolidated financial statements for the years ended
July 31, 2018, 2017 and 2016 and the related notes accompanying this Annual Report. The Company prepares its financial statements
in accordance with IFRS. The Company includes selected financial data prepared in compliance with IFRS without reconciliation
to U.S. GAAP.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
The
required disclosure is provided in note 2 of the accompanying audited financial statements as of and for the year ended July 31,
2018, which are presented in Exhibit 99.1 of this Annual Report on Form 20-F.
A.
OPERATING RESULTS
Comprehensive
loss for the year ended July 31, 2018 vs. 2017
The
Company recorded a loss from operations of $234,000 during the current fiscal year (2017 – $200,000)
The
following table provides a breakdown of exploration costs incurred during the year ended July 31, 2018 and 2017:
Exploration and evaluation costs
|
|
Total 2018
|
|
|
Total 2017
|
|
Assaying
|
|
$
|
–
|
|
|
$
|
180
|
|
Geological
|
|
|
–
|
|
|
|
520
|
|
Total
|
|
$
|
–
|
|
|
$
|
700
|
|
The
following table provides a breakdown of the administration costs incurred:
General and Administration costs
|
|
2018
|
|
|
2017
|
|
Insurance
|
|
$
|
46,282
|
|
|
$
|
39,534
|
|
IT Services
|
|
|
12,000
|
|
|
|
12,000
|
|
Legal, accounting and audit
|
|
|
20,400
|
|
|
|
24,778
|
|
Office and miscellaneous
|
|
|
16,148
|
|
|
|
1,191
|
|
Property investigation
|
|
|
24,117
|
|
|
|
–
|
|
Regulatory, trust and filing
|
|
|
39,628
|
|
|
|
29,410
|
|
Salaries and benefits
|
|
|
71,458
|
|
|
|
89,762
|
|
Shareholder communications
|
|
|
6,286
|
|
|
|
3,706
|
|
Total
|
|
$
|
236,319
|
|
|
$
|
200,381
|
|
Administrative
costs have increased from 2017 due to new property investigation costs and regulatory, trust and filing costs related to this
year’s stock consolidation.
Comprehensive
loss for the year ended July 31, 2017 vs. 2016
The
Company recorded a loss from operations of $200,000 in the 2017 fiscal year compared to an income from operations of $93,000 in
the 2016 fiscal year. The loss during the fiscal year 2017 was due to curtailed exploration and evaluation activities to conserve
cash resources as compared to a gain recorded from the settlement of the Bearclaw debenture in 2016.
The
following tables provide a breakdown of exploration costs incurred during the year ended July 31, 2017 and 2016:
|
|
Total 2017
|
|
|
Total 2016
|
|
Assaying
|
|
$
|
180
|
|
|
$
|
170
|
|
Geological
|
|
|
520
|
|
|
|
|
|
Sustainability
|
|
|
–
|
|
|
|
300
|
|
Total
|
|
$
|
700
|
|
|
$
|
470
|
|
The
following table provides a breakdown of the administration costs incurred:
Administration costs
|
|
2017
|
|
|
2016
|
|
Insurance
|
|
$
|
39,534
|
|
|
|
44,075
|
|
IT Services
|
|
|
12,000
|
|
|
|
22,000
|
|
Legal, accounting and audit
|
|
|
24,778
|
|
|
|
28,421
|
|
Office and miscellaneous
|
|
|
1,191
|
|
|
|
619
|
|
Property investigation
|
|
|
–
|
|
|
|
–
|
|
Regulatory, trust and filing
|
|
|
29,410
|
|
|
|
34,038
|
|
Salaries and benefits
|
|
|
89,762
|
|
|
|
189,021
|
|
Shareholder communication
|
|
|
3,706
|
|
|
|
3,961
|
|
Total
|
|
$
|
200,381
|
|
|
$
|
322,135
|
|
Administrative
costs have tended to follow the trend in the Company’s exploration and business development activities of the Company. They
have been reduced to minimum levels necessary to meet continued disclosure and corporate governance requirements of a public company.
B.
LIQUIDITY AND CAPITAL RESOURCES
Historically,
the Company’s source of funding has been the issuance of equity securities for cash, primarily through private placements
to sophisticated investors and institutions. The Company is in the process of acquiring and exploring mineral property interests.
The Company’s continuing operations are entirely dependent upon the ability of the Company to obtain the necessary financing
to complete the exploration and development of its projects, the existence of economically recoverable mineral reserves at its
projects, the ability of the Company to obtain the necessary permits to mine, on future profitable production of any mine and
the proceeds from the disposition of its mineral property interests.
At
July 31, 2018, the Company had cash of $67,000 and a working capital deficit of $2.8 million. Substantially all of the total short-term
liabilities of $2.9 million at July 31, 2018 were payable to Hunter Dickinson Services Inc. (“HDSI”).
In
January 2016, the Company arranged with HDSI to settle debt owing for services by HDSI whereby HDSI would forgive debt in the
net amount owing at that time of $3,086,089, if the Company makes a cash payment of $180,207 and issues 6 million shares to HDSI.
Notwithstanding that, the TSX Venture Exchange has approved the transaction with HDSI, the settlement of debt through the issuance
of the shares and cash payment to HDSI has been deferred and will occur at a mutually agreed date.
Additional
debt or equity financing will be required to fund exploration or development programs. However, there can be no assurance that
the Company will continue to obtain additional financial resources or that it will be able to achieve positive cash flows.
Financial
market conditions for junior exploration companies have resulted in very depressed equity prices. A further and continued deterioration
in market conditions will increase the cost of obtaining capital and significantly limit the availability of funds to the Company
in the future. Accordingly, management is actively monitoring the effects of the current economic and financing conditions on
the Company’s business and reviewing discretionary spending, capital projects and operating expenditures, and implementing
cash and cash management strategies.
Capital
Resources
The
Company had no material commitments for capital expenditures as at July 31, 2018.
The
Company has no lines of credit or other sources of financing which have been arranged but are as of yet, unused.
At
July 31, 2018, there were no externally imposed capital requirements to which the Company is subject and with which the Company
has not complied.
As
the Company continues to incur losses in support of the advancement of exploration activities on its projects, shareholders’
equity has come to be in a deficit position.
Requirement
of Financing
The
Company is in the process of assessing mineral property interests held by third parties for potential acquisition. The Company’s
continuing operations are entirely dependent upon the existence of economically recoverable mineral reserves, the ability of the
Company to obtain the necessary financing to complete the exploration and development of these projects, obtaining the necessary
permits to mine, on future profitable production of any mine and the proceeds from the disposition of the mineral property interests.
Additional
debt or equity financing will be required to fund additional exploration or development programs. The Company has a reasonable
expectation that additional funds will be available when necessary to meet ongoing exploration and development costs. However,
there can be no assurance that the Company will continue to obtain additional financial resources and/or achieve profitability
or positive cash flows, which raises substantial doubt on the ability of the Company to continue as a growing concern. If the
Company is unable to obtain adequate additional financing, the Company will be required to re-evaluate its planned expenditures
until additional funds can be raised through financing activities.
Except
for the Debenture, the Company has no long-term debt, capital lease obligations, operating leases or any other long-term obligations.
The
Company has no “Purchase Obligations” defined as any agreement to purchase goods or services that is enforceable and
legally binding on the Company that specifies all significant terms, including fixed or minimum quantities to be purchased; fixed,
minimum or variable price provisions; and the approximate timing of the transaction.
C.
RESEARCH EXPENDITURES
Quartz
Mountain does not carry out any research or development activities. Please refer to
Item 5A
and
Item 5B
above for
a discussion of the expenditures that the Company has incurred in connection with its business activities.
D.
TREND INFORMATION
The
Company does not currently hold any properties.
E.
OFF – BALANCE SHEET ARRANGEMENTS
Quartz
Mountain has no off-balance sheet arrangements.
F.
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
The
following obligations existed at July 31, 2018:
|
|
Payments due by period
|
|
|
|
Total
|
|
|
Less than 1 year
|
|
|
1-5 years
|
|
|
After 5 years
|
|
Due to a related party
|
|
|
2,916,973
|
|
|
|
2,916,973
|
|
|
|
–
|
|
|
|
–
|
|
Total
|
|
$
|
2,916,973
|
|
|
$
|
2,916,973
|
|
|
$
|
–
|
|
|
$
|
–
|
|
The
Company has no material capital lease or operating lease obligations. The Company has no “Purchase Obligations”, defined
as any agreement to purchase goods or services that is enforceable and legally binding on the Company that specifies all significant
terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate
timing of the transaction.
G.
SAFE HARBOR
The
safe harbor provided in Section 27A of the Securities Act and Section 21E of the Exchange Act applies to forward-looking information
provided pursuant to
Item 5E
and
Item 5F
above.
ITEM
6 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.
DIRECTORS AND SENIOR MANAGEMENT
Robert
A. Dickinson (1948), Chairman and President
Robert
Dickinson is an economic geologist who serves as a member of management of several mineral exploration companies, primarily those
for whom Hunter Dickinson Services Inc. provides services. He holds a Bachelor of Science degree (Hons. Geology) and a Master
of Science degree (Business Administration - Finance) from the University of British Columbia. Mr. Dickinson has been active in
mineral exploration for over 40 years and was inducted into the Canadian Mining Hall of Fame in 2012. He is a director of Hunter
Dickinson Services Inc. He is also President and Director of United Mineral Services Ltd., a private resource company. He also
serves as a Director of the Britannia Mine Museum Society and a Trustee of the BC Mineral Resources Education Program.
Mr.
Dickinson is, or was within the past five years, an officer and/or director of the following public companies:
Company
|
|
Positions
Held
|
|
From
|
|
To
|
Amarc
Resources Ltd.
|
|
Director
|
|
Apr-93
|
|
Present
|
|
|
Chairman
|
|
Apr-04
|
|
Present
|
Heatherdale
Resources Ltd.
|
|
Director
|
|
Nov-09
|
|
Present
|
Northcliff
Resources Ltd.
|
|
Director
|
|
Jun-11
|
|
Present
|
Northcliff
Resources Ltd.
|
|
Chairman
|
|
Jun-11
|
|
Jan-13
|
Northern
Dynasty Minerals Ltd.
|
|
Director
|
|
Jun-94
|
|
Present
|
|
|
Chairman
|
|
Apr-04
|
|
Present
|
Quartz
Mountain Resources Ltd.
|
|
Director
|
|
Dec-11
|
|
Present
|
|
|
Executive
Chairman
|
|
Dec-11
|
|
Present
|
Taseko
Mines Limited
|
|
Director
|
|
Jan-91
|
|
Present
|
Leonie
Tomlinson – Director
Leonie
Tomlinson is a professional director and experienced business executive who over the course of her career has advised numerous
private and public companies on investment structuring, corporate governance, financial reporting, HR matters and exit strategy.
Company
|
|
Positions
Held
|
|
From
|
|
To
|
Quartz
Mountain Resources Ltd.
|
|
Director
|
|
December
2017
|
|
Present
|
Rene
Carrier – Director
Mr.
Carrier has been the President of Euro-American Capital Corporation, a private investment company, since May 1991. He served as
Vice-President of Pacific International Securities Inc. where he worked for ten years until 1991. He served as Lead Director of
International Royalty Corp. (“IRC”) from 2003 to 2010. IRC was a global mineral royalty company engaged in the acquisition
and creation of natural resource royalties, which was acquired by Royal Gold Inc. in 2010. He also served as an independent director
of Chartwell Technology Inc. from July 1991 to April 2007.
Mr.
Carrier has been and is an officer and/or director of various public companies involved in the mining sector.
Company
|
|
Positions
Held
|
|
From
|
|
To
|
Amarc
Resources Ltd.
|
|
Director
|
|
May
2008
|
|
Present
|
Cayden
Resources Inc.
|
|
Director
|
|
October
2013
|
|
November
2014
|
Curis
Resources Ltd.
|
|
Director
|
|
November
2010
|
|
November
2014
|
Heatherdale
Resources Ltd.
|
|
Director
|
|
November
2009
|
|
Present
|
Nanotech
Security Corp.
|
|
Director
|
|
April
2014
|
|
March
2015
|
Quartz
Mountain Resources Ltd.
|
|
Director
|
|
December
2017
|
|
Present
|
Quartz
Mountain Resources Ltd.
|
|
Director
|
|
January
2000
|
|
December
2011
|
Rathdowney
Resources Ltd.
|
|
Director
|
|
March
2011
|
|
Present
|
Michael
Lee, CPA CA, CIA, CISA, CFE, PMP (1974), Chief Financial Officer
Michael
Lee is a Chartered Professional Accountant and has 20 years of experience in the areas of governance, risk management and financial
reporting, working primarily with Canadian and US public corporations.
Mr.
Lee is, or was within the past five years, a director or officer of the following public companies:
Company
|
|
Positions
Held
|
|
From
|
|
To
|
Quartz
Mountain Resources Ltd.
|
|
Chief
Financial Officer
|
|
February
2013
|
|
Present
|
Trevor
Thomas, LLB (1967), Corporate Secretary
Trevor
Thomas has practiced in the areas of corporate commercial, corporate finance, securities and mining law since 1995, both in a
private practice environment as well as in in-house positions and is currently general counsel for Hunter Dickinson Inc. Prior
to joining Hunter Dickinson Inc. he served as in-house legal counsel with Placer Dome Inc.
Mr.
Thomas is, or was within the past five years, an officer of the following public companies:
Company
|
|
Positions
Held
|
|
From
|
|
To
|
Amarc
Resources Ltd.
|
|
Secretary
|
|
February
2008
|
|
Present
|
Curis
Resources Ltd.
|
|
Secretary
|
|
June
2013
|
|
November
2014
|
Mineral
Mountain Resources Ltd.
|
|
Director
|
|
September
2016
|
|
Present
|
Heatherdale
Resources Ltd.
|
|
Secretary
|
|
June
2013
|
|
Present
|
Northcliff
Resources Ltd.
|
|
Secretary
|
|
June
2011
|
|
Present
|
Northern
Dynasty Minerals Ltd.
|
|
Secretary
|
|
February
2008
|
|
Present
|
Quartz
Mountain Resources Ltd.
|
|
Secretary
|
|
June
2013
|
|
Present
|
Rathdowney
Resources Ltd.
|
|
Secretary
|
|
March
2011
|
|
Present
|
Taseko
Mines Limited
|
|
Secretary
|
|
July
2008
|
|
Present
|
B.
COMPENSATION
During
the Company’s financial year ended July 31, 2018, the aggregate cash compensation paid or payable by the Company to its
directors and senior officers was $10,578.
Robert
Dickinson, Executive Chairman and CEO, and Michael Lee, Chief Financial Officer are each “Named Executive Officers”
of the Company for the purposes of the following disclosure.
The
compensation paid to the Named Executive Officers during the Company’s most recently completed financial year is as set
out below:
During
the fiscal year ended July 31, 2018, the above named NEOs did not serve the Company solely on a full-time basis, and their compensation
from the Company is allocated based on the estimated amount of time spent providing services to the Company.
Name and principal
|
|
|
|
|
Salary
|
|
|
Share-based awards
|
|
Option-based awards
|
|
Pension value
|
|
|
All other compensation
|
|
Total compensation
|
|
position
|
|
Fiscal year
|
|
|
($)
|
|
|
($)
|
|
($)
|
|
($)
|
|
|
($)
|
|
($)
|
|
Robert Dickinson
|
|
|
2018
|
|
|
|
Nil
|
|
|
Nil
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
Michael Lee
|
|
|
2018
|
|
|
|
10,578
|
|
|
Nil
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
10,578
|
|
CFO
|
|
|
2017
|
|
|
|
12,547
|
|
|
Nil
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
12,547
|
|
|
|
|
2016
|
|
|
|
23,973
|
|
|
Nil
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
|
23,973
|
|
Director
Compensation
The
compensation provided to the directors, excluding a director who is already set out in disclosure for a NEO for the Company’s
most recently completed financial year ended July 31, 2018 is as set out below:
Name
|
|
Fees
earned
(1)
($)
|
|
Share-
based
awards
($)
|
|
Option-
based
awards
($)
|
|
Non-equity
incentive
plan
compensation
($)
|
|
Pension
value
($)
|
|
All
other
compensation
($)
|
|
Total
($)
|
|
Robert
A. Dickinson
(2)(3)
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Ronald
Thiessen
(2)(4)
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
David
Mordant
(2)(4)
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Rene
Carrier
(3)(5)
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Leonie
Tomlinson
(3)(5)
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Notes:
(1)
|
January
2016 and onward, fees were reduced to $nil.
|
|
|
(2)
|
Pursuant
to the Corporate Services Agreement with HDSI, compensation for Messrs. Thiessen and
Dickinson is allocated to the Company on the basis of time spent in respect of the Company’s
business.
|
|
|
(3)
|
These
directors are members of the Audit Committee and Nominating and Governance Committee.
|
|
|
(4)
|
These
directors resigned December 2017
|
|
|
(5)
|
These
directors were appointed December 2017
|
Pension
and Retirement Benefits
Neither
the Company nor its subsidiary provides any pension, retirement or similar benefits.
C.
BOARD PRACTICES
On
December 15, 2017, Ronald Thiessen resigned as President, CEO and Director, Robert Dickinson was appointed Quartz Mountain’s
Executive Chairman and CEO, and Rene Carrier and Leonie Tomlinson were appointed Directors of the Company. All directors have
a term of office expiring at the next annual general meeting of the Company’s shareholders, which is expected to be held
in early 2019. All officers have a term of office lasting until their removal or replacement by the Board of Directors.
Directors
Service Contracts
There
is no written employment contract between the Company and any director.
There
is no service contract between any director of the Company and either the Company or its subsidiary, which provides for any benefits
upon termination of employment.
Audit
Committee
Composition
of Audit Committee
The
members of the Audit Committee are Rene Carrier (Chairman), Robert Dickinson and Leonie Tomlinson.
Relevant
Education and Experience
As
a result of their education and experience, each member of the Audit has familiarity with, an understanding of, or experience
in the accounting principles used by the Company to prepare its financial statements, and the ability to assess the general application
of those principles in connection with estimates, accruals and reserves; reviewing or evaluating financial statements that present
a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that
can reasonably be expected to be raised by the Company’s financial statements; and an understanding of internal controls
and procedures for financial reporting.
Mr.
Carrier is an experienced businessperson with corporate finance experience. See disclosure under “A. Directors and Senior
Management” above.
Audit
Committee’s Charter
The
function of the Audit Committee is to oversee the employment and compensation of the Company’s independent auditor, and
other matters under the authority of the Committee. The Committee also assists the Board of Directors in carrying out its oversight
responsibilities relating to the Company’s financial, accounting and reporting processes, the Company’s system of
internal accounting and financial controls, the Company’s compliance with related legal and regulatory requirements, and
the fairness of transactions between the Company and related parties.
The
Audit Committee has a charter that sets out its mandate and responsibilities, which is contained in Appendix 6 of the Corporate
Governance Policies and Procedures Manual (available for download from the Company’s website under Corporate Governance
at
www.quartzmountainresources.com
). The Audit Committee has the following responsibilities and authority:
Relationship
with Independent Auditor
Subject
to the law of British Columbia as to the role of the Shareholders in the appointment of independent auditors, the Committee shall
have the sole authority to appoint or replace the independent auditor.
The
Committee shall be directly responsible for the compensation and oversight of the work of the independent auditor (including resolution
of disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing or
issuing an audit report or related work.
The
independent auditor shall report directly to the Committee.
The
Committee shall approve in advance all audit and permitted non-audit services with the independent auditor, including the terms
of the engagements and the fees payable; provided that the Committee Chairman may approve services to be performed by the independent
auditor between Committee meetings if the amount of the fee does not exceed $50,000, provided that any such approval shall be
reported to the Committee at the next meeting thereof. The Committee may delegate to a subcommittee the authority to grant pre-approvals
of audit and permitted non-audit services, provided that the decision of any such subcommittee shall be presented to the full
Committee at its next scheduled meeting.
At
least annually, the Committee shall review and evaluate the experience and qualifications of the lead partner and senior members
of the independent auditor team.
At
least annually, the Committee shall obtain and review a report from the independent auditor regarding:
|
●
|
the
independent auditor’s internal quality-control procedures;
|
|
●
|
any
material issues raised by the most recent internal quality-control review, or peer review,
of the auditor, or by any inquiry or investigation by governmental or professional authorities
within the preceding five years respecting one or more independent audits carried out
by the firm;
|
|
●
|
any
steps taken to deal with any such issues; and
|
|
●
|
all
relationships between the independent auditor and the Company.
|
At
least annually, the Committee shall evaluate the qualifications, performance and independence of the independent auditor, including
considering whether the auditor’s quality controls are adequate and the provision of permitted non-audit services is compatible
with maintaining the auditor’s independence.
The
Committee shall ensure the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit, the
concurring partner responsible for reviewing the audit, and other audit partners as required by law.
The
Committee shall consider whether, in order to assure continuing auditor independence, it is appropriate to adopt a policy of rotating
the independent auditing firm on a regular basis.
The
Committee shall recommend to the Board policies for the Company’s hiring of employees or former employees of the independent
auditor who were engaged on the Company’s account or participated in any capacity in the audit of the Company.
The
Committee shall oversee the implementation by management of appropriate information technology systems for the Company, including
as required for proper financial reporting and compliance.
Financial
Statement and Disclosure Review
The
Committee shall review and discuss with management and the independent auditor the annual audited financial statements, including
disclosures made in management’s discussion and analysis, and recommend to the Board whether the audited financial statements
should be filed with applicable securities regulatory authorities and included in the Company’s annual reports.
The
Committee shall review and discuss with management (and, to the extent the Committee deems it necessary or appropriate, the independent
auditor) the Company’s quarterly financial statements, including disclosures made in management’s discussion and analysis,
and recommend to the Board whether such financial statements should be filed with applicable securities regulatory authorities.
The
Committee shall review and discuss with management and the independent auditor significant financial reporting issues and judgments
made in connection with the preparation of the Company’s financial statements, including the independent auditor’s
assessment of the quality of the Company’s accounting principles, any significant changes in the Company’s selection
or application of accounting principles, any major issues as to the adequacy of the Company’s internal controls over financial
reporting, and any special steps adopted in light of material control deficiencies.
At
least annually and prior to the publication of annual audited financial statements, the Committee shall review and discuss with
management and the independent auditor a report from the independent auditor on:
|
●
|
all
critical accounting policies and practices used by the Company;
|
|
●
|
all
alternative accounting treatments of financial information that have been discussed with
management since the prior report, ramifications of the use of such alternative disclosures
and treatments, the treatment preferred by the independent auditor, and an explanation
of why the independent auditor’s preferred method was not adopted; and,
|
|
●
|
other
material written communications between the independent auditor and management since
the prior report, such as any management letter or schedule of unadjusted differences,
the development, selection and disclosure of critical accounting estimates, and analyses
of the effect of alternative assumptions, estimates or GAAP methods on the Company’s
financial statements.
|
Prior
to their filing or issuance, the Committee shall review the Company’s Annual Information Form, quarterly and annual earnings
press releases, and other financial press releases, including the use of “pro forma” or “adjusted” non-GAAP
information.
The
Committee shall review and discuss with management the financial information and earnings guidance provided to analysts and rating
agencies. Such discussion may be specific or it may be in general regarding the types of information to be disclosed and the types
of presentations to be made.
Conduct
of the Annual Audit
The
Committee shall oversee the annual audit, and in the course of such oversight the Committee shall have the following responsibilities
and authority:
The
Committee shall meet with the independent auditor prior to the audit to discuss the planning and conduct of the annual audit,
and shall meet with the independent auditor as may be necessary or appropriate in connection with the audit.
The
Committee shall ascertain that the independent auditor is registered and in good standing with the Canadian Public Accounting
Board and that the independent auditor satisfies all applicable independence standards. The Committee shall obtain from the auditor
a written statement delineating all relationships between the auditor and the Company as per applicable independence standards,
and review relationships that may impact the objectivity and independence of the auditor.
The
Committee shall discuss with the independent auditor the matters required to be discussed by Statement on Auditing Standards No.
61 relating to the conduct of the audit, including:
|
●
|
the
adoption of, or changes to, the Company’s significant auditing and accounting principles
and practices as suggested by the independent auditor, internal auditors or management;
|
|
●
|
the
management letter provided by the independent auditor and the Company’s response
to that letter; and
|
|
●
|
any
difficulties encountered in the course of the audit work, including any restrictions
on the scope of activities or access to requested information, and any significant disagreements
with management.
|
The
Committee shall make such inquiries to the management and the independent auditor as the Committee members deem necessary or appropriate
to satisfy themselves regarding the efficacy of the Company’s financial and internal controls and procedures and the auditing
process.
Compliance
and Oversight
The
Committee shall meet periodically with management and the independent auditor in separate executive sessions. The Committee may
also, to the extent it deems necessary or appropriate, meet with the Company’s investment bankers and financial analysts
who follow the Company.
The
Committee shall discuss with management and the independent auditor the effect of regulatory and accounting initiatives as well
as off-balance sheet structures on the Company’s financial statements.
The
Committee shall discuss with management the Company’s major financial risk exposures and the steps management has taken
to monitor and control such exposures, including the Company’s risk assessment and risk management policies, and regularly
review the top risks identified by management and the policies and practices adopted by the Company to mitigate those risks.
If
required, the Committee shall annually review with management and the independent auditor the disclosure controls and procedures
and confirm that the Company (with CEO and CFO participation) has evaluated the effectiveness of the design and operation of the
controls within 90 days prior to the date of filing of the AIF. The Committee also shall review with management and the independent
auditor any deficiencies in the design and operation of internal controls and significant deficiencies or material weaknesses
therein, and any fraud involving management or other employees who have a significant role in the Company’s internal controls.
As a part of that review, the Committee shall review the process followed in preparing and verifying the accuracy of the required
CEO and CFO annual certifications.
If
required, the Committee shall annually, prior to the filing of the AIF, review management’s internal control report and
the independent auditor’s assessment of the internal controls and procedures.
The
Committee shall establish procedures for the receipt, retention and treatment of complaints received by the Company regarding
accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of concerns
regarding questionable accounting or auditing matters.
The
Committee shall discuss with management and the independent auditor any correspondence with regulators or governmental agencies
and any employee complaints or reports which raise material issues regarding the Company’s financial statements or accounting
policies.
At
least annually, the Committee shall meet with the Company’s legal counsel and discuss any legal matters that may have a
material impact on the financial statements or the Company’s compliance policies.
The
Committee shall oversee the preparation of reports relating to the Audit Committee as required under applicable laws, regulations
and stock exchange requirements.
The
Committee shall exercise oversight with respect to anti-fraud programs and controls.
Related
Party Transactions
The
Committee shall review for fairness to the Company proposed transactions, contracts and other arrangements between the Company
and its subsidiaries and any related party or affiliate, and make recommendations to the Board whether any such transactions,
contracts and other arrangements should be approved or continued. The foregoing shall not include any compensation payable pursuant
to any plan, program, contract or arrangement subject to the authority of the Company’s Compensation Committee.
As
used herein the term “related party” means any officer or director of the Company or any subsidiary, or any shareholder
holding a greater than 10% direct or indirect financial or voting interest in the Company, and the term “affiliate”
means any person, whether acting alone or in concert with others, that has the power to exercise a controlling influence over
the Company and its subsidiaries. “Related party” includes Hunter Dickinson Services Inc.
Compensation
Committee
The
Board’s Compensation Committee currently consists of Robert Dickinson, Rene Carrier and Leonie Tomlinson.
The
function of the Compensation Committee is to assist the Board in carrying out its responsibilities relating to executive and director
compensation. The Compensation Committee has a charter that sets out its mandate and responsibilities, which is contained in Appendix
7 of the Corporate Governance Policies and Procedures Manual (available for download from the Company’s website under Corporate
Governance at
www.quartzmountainresources.com
). In furtherance of its purpose, the Compensation Committee has the following
responsibilities and authority:
(a)
|
The
Compensation Committee shall recommend to the Board the form and amount of compensation
to be paid by the Company to directors for service on the Board and on Board committees.
The Compensation Committee shall review director compensation at least annually.
|
|
|
(b)
|
The
Compensation Committee shall annually review the Company’s base compensation structure
and the Company’s incentive compensation, stock option and other equity based compensation
programs and recommend changes in or additions in such structure and plans to Board as
needed.
|
|
|
(c)
|
The
Compensation Committee shall recommend to the Board the annual base compensation of the
Company’s executive officers and senior managers (collectively the “Officers”).
|
|
|
(d)
|
The
Compensation Committee shall recommend to the Board the range of increase or decrease
in the annual base compensation for non-Officer personnel providing services to the Company.
|
|
|
(e)
|
The
Compensation Committee shall recommend to the Board annual corporate goals and objectives
under any incentive compensation plan adopted by the Company for Officers and non-Officer
personnel providing services to the Company, and recommend incentive compensation participation
levels for Officers and non-Officer personnel providing services to the Company under
any such incentive compensation plan. In determining the incentive component of compensation,
the Committee will consider the Company’s performance and relative shareholder
return, the values of similar incentives at comparable companies and the awards given
in past years.
|
|
|
(f)
|
The
Compensation Committee shall evaluate the performance of Officers generally and in light
of annual corporate goals and objectives under any incentive compensation plan.
|
|
|
(g)
|
The
Compensation Committee shall periodically review with the Chairman and CEO their assessments
of corporate officers and senior managers and succession plans, and make recommendations
to the Board regarding appointment of officers and senior managers.
|
|
|
(h)
|
The
Compensation Committee shall provide oversight of the performance evaluation and incentive
compensation of non-Officer personnel providing services to the Company.
|
|
|
(i)
|
The
Compensation Committee shall administer the Company’s stock option and other equity
based compensation plans and determines the annual grants of stock options and other
equity based compensation.
|
|
|
(j)
|
The
Compensation Committee shall recommend to the Nominating and Governance Committee the
qualifications and criteria for membership on the Compensation Committee.
|
Other
Board Committees
The
Company has a Nominating and Governance Committee which is responsible for identifying new candidates for the Board of Directors
as necessary, after considering what competencies and skills the directors as a group should possess and assessing the competencies
and skills the directors as a group should possess and assessing the competencies and skills of the existing and any proposed
directors, and considering the appropriate size of the Board. The Committee is also responsible for developing and recommending
to the Board a set of corporate governance principles applicable to the Company, and overseeing the evaluation of the Board and
Senior Management. The current members of the Nominating and Governance Committee are Robert Dickinson, Rene Carrier and Leonie
Tomlinson.
D.
EMPLOYEES
At
October 10, 2018, the Company had no employees and had contracted staff on an as-needed basis. The directors of the Company primarily
administer the Company’s functions through the employees of HDSI, a private company with certain directors in common with
the Company (see
Item 7 – “Major Shareholders and Related Party Transactions
”).
E.
SHARE OWNERSHIP
Security
Holdings of Directors and Senior Management
As
at October 10, 2018, the directors and officers of Quartz Mountain and their respective affiliates, directly and indirectly, own
or control as a group an aggregate of 165,586 common shares or 5%.
As
at October 10, 2018, the Company’s directors and officers beneficially own the following number of the Company’s common
shares:
Name of Insider
|
|
Securities Beneficially Owned
(1)
|
|
|
As a % of outstanding common shares
|
|
Robert A. Dickinson
|
|
|
150,586
|
(2)
|
|
|
4
|
%
|
Leonie Tomlinson
|
|
|
nil
|
|
|
|
nil
|
|
Michael Lee
|
|
|
nil
|
|
|
|
nil
|
|
Trevor Thomas
|
|
|
nil
|
|
|
|
nil
|
|
Rene Carrier
|
|
|
15,000
|
|
|
|
0.5
|
%
|
Notes:
(1)
|
This information has been
provided by the individual directors as provided by them on www.sedi.ca
|
(2)
|
Certain of these shares
are beneficially owned through a private company controlled by Mr. Dickinson.
|
ITEM
7 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A.
MAJOR SHAREHOLDERS
Quartz
Mountain is a publicly-held corporation, with its shares held by residents of Canada, the United States of America and other countries.
To the best of Quartz Mountain’s knowledge, other, no person, corporation or other entity beneficially owns, directly or
indirectly, or controls more than 5% of the common shares of Quartz Mountain, the only class of securities with voting rights.
For these purposes, “beneficial ownership” means the sole or shared power to vote or direct the voting or to dispose
or direct the disposition of any security.
As
of October 10, 2018, Quartz Mountain had authorized unlimited common shares without par value, of which 3,347,137 were issued
and outstanding. The following table sets forth certain information with respect to beneficial ownership of the Company’s
common stock as of October 10, 2018 by each shareholder known to be the beneficial owner of more than 5% of the common stock.
Identity of Person or Group
|
|
Shares
|
|
|
Percentage Beneficially Owned of
Class
|
|
Robert A. Dickinson
|
|
|
150,586
|
|
|
|
4
|
%
|
Ronald Thiessen
|
|
|
305,051
|
|
|
|
9
|
%
|
Bearclaw Capital Corp.
|
|
|
290,000
|
|
|
|
9
|
%
|
Hunter Dickinson Services Inc.
|
|
|
235,330
|
|
|
|
7
|
%
|
All
of the common shares have the same voting rights and no major shareholders of the Company have different voting rights.
Geographic
Breakdown of Shareholders
As
of October 10, 2018, Quartz Mountain’s register of shareholders indicates that Quartz Mountain’s common shares are
held as follows:
Location
|
|
Number of registered shareholders
of record
|
|
|
Number of shares
|
|
|
Percentage of total shares
|
|
Canada
|
|
|
12
|
|
|
|
3,210,258
|
|
|
|
96
|
|
United States
|
|
|
169
|
|
|
|
136,859
|
|
|
|
4
|
|
Other
|
|
|
1
|
|
|
|
20
|
|
|
|
0
|
|
Total
|
|
|
182
|
|
|
|
3,347,137
|
|
|
|
100
|
|
Shares
registered in the names of intermediaries, were assumed to be held by residents of the same country in which the intermediary
is located.
Transfer
Agent
The
Company’s common shares are recorded on the books of its transfer agent, Computershare Investor Services Inc., located at
4th Floor, 510 Burrard Street, Vancouver, B.C. V6C 3B9; telephone (604) 661-9400 in registered form. However, the majority of
the Company’s common shares are registered in the name of intermediaries such as brokerage houses and clearing houses (on
behalf of their respective brokerage clients). Quartz Mountain does not have knowledge or access to the identities of the beneficial
owners of such shares registered through intermediaries.
Control
To
the best of its knowledge, the Company is not owned or controlled, directly or indirectly, by any other corporation, by any foreign
government or by any other natural or legal person, severally or jointly, other than as noted above under Major Shareholders.
There are no arrangements known to Quartz Mountain which, at a subsequent date, may result in a change in control of the Company.
Insider
Reports under the Securities Acts of British Columbia, Alberta and Ontario
Since
the Company is a reporting issuer under the Securities Acts of British Columbia, Alberta and Ontario, certain “insiders”
of the Company (including its directors, certain executive officers, and persons who directly or indirectly beneficially own,
control or direct more than 10% of its common shares) are generally required to file insider reports of changes in their ownership
of Quartz Mountain’s common shares within five days following the trade under National Instrument 55-104 – Insider
Reporting Requirements and Exemptions, as adopted by the CSA, and the Securities Act (Ontario). Copies of such reports are available
for public inspection at the offices of the British Columbia Securities Commission, 9th Floor, 701 West Georgia Street, Vancouver,
British Columbia V7Y 1L2, (604) 899-6500 or at the British Columbia Securities Commission web site,
www.bcsc.bc.ca
. In
British Columbia, all insider reports must be filed electronically five days following the date of the trade at
www.sedi.ca
.
The public is able to access these reports at
www.sedi.ca
.
B.
RELATED PARTY TRANSACTIONS
Except
as disclosed herein, Quartz Mountain has not, since the beginning of its last fiscal year ended July 31, 2018:
(1)
|
entered
into any transactions which are material to Quartz Mountain, or a related party or any
transactions unusual in their nature or conditions involving goods, services or tangible
or intangible assets to which Quartz Mountain or any of its former subsidiaries was a
party;
|
(2)
|
entered
into any transactions or loans between the Company and:
|
|
(a)
|
enterprises
that directly or indirectly through one or more intermediaries, control or are controlled
by, or are under common control with, Quartz Mountain;
|
|
|
|
|
(b)
|
associates
of Quartz Mountain (unconsolidated enterprises in which Quartz Mountain has significant
influence or which has significant influence over Quartz Mountain) including shareholders
beneficially owning 10% or more of the outstanding shares of Quartz Mountain;
|
|
|
|
|
(c)
|
individuals
owning, directly or indirectly, an interest in the common shares of Quartz Mountain that
gives them significant influence over Quartz Mountain, and close members of any such
individual’s family;
|
|
|
|
|
(d)
|
key
management personnel (persons having authority in responsibility for planning, directing
and controlling the activities of Quartz Mountain including directors and senior management
and close members of such individuals’ families); or
|
|
|
|
|
(e)
|
enterprises
in which a substantial voting interest is owned, directly or indirectly, by any person
described in (c) or (d) or over which such a person is able to exercise significant influence.
|
Hunter
Dickinson Services Inc. (“HDSI”)
As
an umbrella organization, HDSI provides, both cost and expertise advantages to the companies through access to a shared multidisciplinary
team of mining and financial professionals. This includes: management capability, geological, engineering and environmental expertise,
financial acumen, and administrative and support services. In addition, HDSI organizes and shares leased premises and office and
technical equipment for staff to perform their duties.
Quartz
Mountain’s business relationship with HDSI consists of utilizing the services described above. HDSI provides these services
to Quartz Mountain which includes the services of Quartz Mountain’s President, pursuant to a standard (within the group)
Geological Management and Administration Services Agreement with HDSI, dated June 1, 2008 (the “Geological Management and
Administration Services Agreement”) and amended July 2, 2010. Because of cross membership of many of the boards of directors
within the group, certain members of management and the Board of Directors of Quartz Mountain are also members of the board of
directors or employees of HDSI.
HDSI’s
arrangements are also flexible enough that it is able to defer collection of monthly service invoices and on occasion, where surplus
funds are available to HDSI, make short term advances to members of the group. The Geological Management and Administration Services
Agreement can be terminated by either party on 30 days’ notice.
In
January 2016, the Company reached agreement with Hunter Dickinson Services Inc. (“HDSI”) to settle debt owing for
services by HDSI. HDSI agreed to forgive debt in the net amount owing at that time of $3,086,089, if Quartz Mountain makes a cash
payment of $180,207 and issues 6 million shares to HDSI. Notwithstanding that the TSX Venture Exchange has also approved the transaction
with HDSI, settlement of debt by the issuance of the shares and cash payment to HDSI has been deferred and will occur at a mutually
agreed date.
During
the fiscal year ended July 31, 2018, the Company had transactions totaling $114,890 (2017 – $123,253; 2016 – $205,167)
to HDSI for services and reimbursements of third party disbursements pursuant to this agreement.
C.
INTERESTS OF EXPERTS AND COUNSEL
Not
applicable.
ITEM
8 FINANCIAL INFORMATION
A.
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
Quartz
Mountain’s audited consolidated annual financial statements as at and for the year ended July 31, 2018, 2017 and 2016 are
attached in Exhibit 99.1 to this Annual Report.
Legal
Proceedings
The
Company is not, and has not been in the recent past, involved in any legal or arbitration proceedings, including governmental
proceedings and those relating to bankruptcy, receivership, or similar proceedings.
Dividend
Policy
The
Company has not paid any dividends on its outstanding common shares since its incorporation and does not anticipate that it will
do so in the foreseeable future. All funds of the Company are being retained for administration expenses and mineral property
investigations.
B.
SIGNIFICANT CHANGES
There
have been no significant changes to the accompanying financial statements, except as disclosed in this Annual Report on Form 20-F.
ITEM
9 THE OFFER AND LISTING
A.
OFFER AND LISTING DETAILS
Trading
Markets
The
following tables set forth for the periods indicated the price history, rounded to nearest cent, of the Company’s common
shares on the TSX-V and on the OTC Grey Market:
|
|
TSX-V
|
|
|
OTC
|
|
Fiscal year ended July 31
|
|
High
(CDN$)
|
|
|
Low
(CDN$)
|
|
|
High
(US$)
|
|
|
Low
(US$)
|
|
2018
|
|
|
1.50
|
|
|
|
0.65
|
|
|
|
1.20
|
|
|
|
0.00
|
|
2017
|
|
|
1.20
|
|
|
|
0.40
|
|
|
|
0.70
|
|
|
|
0.20
|
|
2016
|
|
|
0.40
|
|
|
|
0.40
|
|
|
|
0.40
|
|
|
|
0.40
|
|
2015
|
|
|
0.60
|
|
|
|
0.10
|
|
|
|
0.70
|
|
|
|
0.20
|
|
2014
|
|
|
1.20
|
|
|
|
0.40
|
|
|
|
0.90
|
|
|
|
0.60
|
|
2013
|
|
|
3.50
|
|
|
|
0.70
|
|
|
|
2.80
|
|
|
|
0.70
|
|
2012
|
|
|
5.00
|
|
|
|
2.00
|
|
|
|
5.00
|
|
|
|
2.00
|
|
|
|
TSX-V
|
|
|
OTC
|
|
Fiscal Quarter
|
|
High
(CDN$)
|
|
|
Low
(CDN$)
|
|
|
High
(US$)
|
|
|
Low
(US$)
|
|
Q4, 2018
|
|
|
0.90
|
|
|
|
0.80
|
|
|
|
0.70
|
|
|
|
0.00
|
|
Q3, 2018
|
|
|
0.90
|
|
|
|
0.90
|
|
|
|
0.00
|
|
|
|
0.00
|
|
Q2, 2018
|
|
|
1.50
|
|
|
|
0.70
|
|
|
|
1.20
|
|
|
|
0.00
|
|
Q1, 2018
|
|
|
1.20
|
|
|
|
0.60
|
|
|
|
0.60
|
|
|
|
0.40
|
|
Q4, 2017
|
|
|
0.75
|
|
|
|
0.55
|
|
|
|
0.53
|
|
|
|
0.37
|
|
Q3, 2017
|
|
|
1.20
|
|
|
|
0.80
|
|
|
|
0.66
|
|
|
|
0.36
|
|
Q2, 2017
|
|
|
0.85
|
|
|
|
0.40
|
|
|
|
0.44
|
|
|
|
0.34
|
|
Q1, 2017
|
|
|
0.65
|
|
|
|
0.35
|
|
|
|
0.40
|
|
|
|
0.20
|
|
|
|
TSX-V
|
|
|
OTC
|
|
Month
|
|
High
(CDN$)
|
|
|
Low
(CDN$)
|
|
|
High
(US$)
|
|
|
Low
(US$)
|
|
September 2018
|
|
|
0.80
|
|
|
|
0.78
|
|
|
|
0.70
|
|
|
|
0.69
|
|
August 2018
|
|
|
0.80
|
|
|
|
0.80
|
|
|
|
0.70
|
|
|
|
0.70
|
|
July 2018
|
|
|
0.80
|
|
|
|
0.80
|
|
|
|
0.70
|
|
|
|
0.70
|
|
June 2018
|
|
|
0.80
|
|
|
|
0.80
|
|
|
|
0.70
|
|
|
|
0.62
|
|
May 2018
|
|
|
0.90
|
|
|
|
0.80
|
|
|
|
0.62
|
|
|
|
0.62
|
|
April 2018
|
|
|
0.90
|
|
|
|
0.90
|
|
|
|
0.00
|
|
|
|
0.00
|
|
B.
PLAN OF DISTRIBUTION
Not
applicable.
C.
MARKETS
On
December 30, 2011, the Company acquired a qualifying property and was relisted on the main board of the TSX Venture Exchange,
trading under the symbol QZM. The Company continues to trade on the OTC Grey Market under the symbol QZMRF.
On
February 17, 2005, the Company transferred its listing to NEX, a separate board of TSX-V and the Company’s common shares
traded on NEX under the symbol QZM.H.
Prior
to February 17, 2005, the Company’s common shares were listed and traded in Canada on Tier 2 on the TSX-V, under the symbol
QZM.V. The transition to Tier 2 became effective December 23, 2003. Prior to this, the Company traded on Tier 3 on the TSX-V.
D.
SELLING SHAREHOLDERS
Not
applicable.
E.
DILUTION
Not
applicable.
F.
EXPENSES OF THE ISSUE
Not
applicable.
ITEM
10 ADDITIONAL INFORMATION
A.
SHARE CAPITAL
Not
applicable.
B.
MEMORANDUM AND ARTICLES OF ASSOCIATION
Articles
of Association
Quartz
Mountain’s original corporate constituting documents comprised of the Memorandum and Articles of Association were registered
with the British Columbia Registrar of Companies under Corporation No. BC0253743. The Company’s Memorandum and Articles
have subsequently been replaced by a Notice of Articles and Articles under the Business Corporations Act (British Columbia) (“BCA”),
and the Articles were last amended by shareholder resolution at the Company’s Annual General Meeting, held on February 24,
2014. The Company’s articles of incorporation do not contain a description or place any restrictions on the Company’s
objects and purposes. For more information, see the Articles of Amalgamation filed as Exhibit 10.1 to this Form 20-F.
Certain
Powers of Directors
The
Company’s articles require that a director or senior officer who holds any office or possesses any property, right or interest
that could result, directly or indirectly, in the creation of a duty or interest that materially conflicts with that individual’s
duty or interest as a director or senior officer, must disclose the nature and extent of the conflict as required by the BCA.
The
BCA requires that every director or senior officer who is a party to, or who is a director or officer of, or has a material interest
in, any person who is a party to, a material contract or transaction or a proposed material contract or transaction with the Company,
must disclose in writing to the Company or request to have entered in the minutes of a meeting or a consent resolution of directors,
the nature and extent of his or her interest, and must refrain from voting in respect of the contract or transaction, unless the
contract or transaction is: (a) one relating primarily to his or her remuneration as a director of the corporation or an affiliate;
(b) one for indemnity of or insurance for directors as contemplated under the BCA; or (c) one with an affiliate of the Company.
However, a director who is prohibited by the BCA from voting on a material contract or proposed material contract may be counted
in determining whether a quorum is present for the purpose of the resolution, if the director disclosed his or her interest in
accordance with the BCA and the contract or transaction was reasonable and fair to the corporation at the time it was approved.
The
Company’s Articles provide that the Board will from time to time determine the remuneration to be paid to the directors.
The Company must reimburse each director for the reasonable expenses that he or she may incur in and about the business of the
Company. The Board may also, by resolution, award special remuneration to any director for undertaking any professional or other
services on the Company’s behalf, outside than the ordinary duties of a director of the Company.
The
Company’s Articles provide that the directors may: (a) borrow money in the manner and amount, on the security, from the
sources and on the terms and conditions that they consider appropriate; (b) issue bonds, debentures and other debt obligations
either outright or as security for any liability or obligation of the Company or any other person and at such discounts or premiums
and on such other terms as the directors consider appropriate; (c) guarantee the repayment of money by any other person or the
performance of any obligation of any other person; and (d) mortgage, charge, whether by way of specific or floating charge, grant
a security interest in, or give other security on, the whole or any part of the present and future assets and undertaking of the
Company.
The
directors may, by resolution, amend or repeal any articles that regulate the business or affairs of the Company. The BCA requires
the directors to submit any such amendment or repeal to the Company’s shareholders at the next meeting of shareholders,
and the shareholders may confirm, reject or amend the amendment or repeal.
The
Board does not have a mandatory retirement policy for directors based solely on age. The Company has a practice of conducting
annual Board, Committee and individual director evaluations, pursuant to which each director’s performance is evaluated
annually. There is no minimum share ownership requirement for director’s qualification.
Authorized
Share Capital
The
Company’s authorized share capital consists of an unlimited number of common shares without par value, and an unlimited
number of preferred shares without par value.
All
outstanding common shares of the Company are fully paid and non-assessable. The holders of the common shares are entitled to one
vote per share at meetings of shareholders and to receive dividends if, as and when declared by the directors of the Company.
In the event of voluntary or involuntary liquidation, dissolution or winding-up of the Company, after payment of all outstanding
debts, the remaining assets of the Company available for distribution would be distributed ratably to the holders of the common
shares. Holders of the common shares of the Company have no pre-emptive, redemption, exchange or conversion rights.
The
preferred shares may be issued in series on such terms as determined by the Company’s directors in accordance with the class
rights and restrictions. The special rights and restrictions attaching to the preferred shares are set forth in Part 26 of the
Articles, and provide the directors with wide latitude to create a series of preferred shares which may be convertible into common
shares, and have attached to them rights that rank ahead of common shares in respect of entitlement to dividends. The directors
may, by resolution, create, define and attach special rights and restrictions to the shares of each series, subject to the special
rights and restrictions attached to the preferred shares.
Except
as described above, the Company may not create any class or series of shares or make any modification to the provisions attaching
to the Company’s shares without the affirmative vote of a majority of the votes cast by the holders of the common shares.
Majority
Voting Policy
Under
the Company’s Corporate Governance Manual, in an uncontested director election, if the votes “for” the election
of a director nominee at a meeting of shareholders are fewer than the number voted “withhold”, the nominee is expected
to submit his or her resignation promptly after the meeting for the consideration of the Nominating and Governance Committee.
The Nominating and Governance Committee will make a recommendation to the Board of Directors after reviewing the matter, and the
Board of Directors will then decide whether to accept or reject the resignation. The Board’s decision to accept or reject
the resignation will be disclosed to shareholders. The nominee will not participate in any Nominating and Governance Committee
deliberations whether to accept or reject the resignation.
Meetings
of Shareholders
The
BCA requires the Company to call an annual shareholders’ meeting not later than 15 months after holding the last preceding
annual meeting and permits the Company to call a special shareholders’ meeting at any time. In addition, in accordance with
the BCA, the holders of not less than 5% of the Company’s shares carrying the right to vote at a meeting sought to be held
may requisition the directors to call a special shareholders’ meeting for the purposes stated in the requisition. The Company
is required to mail a notice of meeting and management information circular to registered shareholders not less than 21 days and
not more than 2 months prior to the date of any annual or special shareholders’ meeting. These materials are also filed
with Canadian securities regulatory authorities and furnished to the SEC. The Company’s articles provide that a quorum of
two shareholders in person or represented by proxy holding or representing by proxy at least 10% of the Company’s issued
shares carrying the right to vote at the meeting is required to transact business at a shareholders’ meeting. In addition
to shareholders and their duly appointed proxies and corporate representatives, the Company’s directors, president, secretary,
lawyers, auditors, and invitees of the directors or chairperson, are entitled to be admitted to the Company’s annual and
special shareholders’ meetings; provided that any such person is not to be counted in the quorum and is not entitled to
vote at the meeting unless that person is a shareholder or proxy holder entitled to vote at the meeting.
Disclosure
of Share Ownership
The
Securities Act (British Columbia) currently provides that the directors and certain officers of an issuer and its subsidiaries
and any person or company that beneficially owns, directly or indirectly, voting securities of an issuer or that exercises control
or direction over voting securities of an issuer or a combination of both, carrying more than 10% of the voting rights attached
to all the issuer’s outstanding voting securities (a “significant shareholder”), as well as the directors and
officers of any significant shareholder, (each an “insider”) must, within 10 days of becoming an insider, file a report
in the required form effective the date on which the person became an insider, disclosing any direct or indirect beneficial ownership
of, or control or direction over, securities of the reporting issuer. The Securities Act (British Columbia) also provides for
the filing of a report by an insider of a reporting issuer who acquires or transfers securities of the issuer or who enters into,
materially amends or terminates an arrangement the effect of which is to alter the insider’s economic interest in a security
of the issuer or the insider’s economic exposure to the issuer. These reports must be filed within five days after the reportable
event. The Securities Act (British Columbia) also requires these reports to be filed by reporting insiders within five days after
the applicable event, though are only required by the Chief Executive Officer, Chief Financial Officer, Chief Operating Officer,
directors, any person or company responsible for a principal business unit and significant shareholders of the Company.
The
Securities Act (British Columbia) also provides that a person or company that acquires (whether or not by way of a take-over bid,
offer to acquire or subscription from treasury) beneficial ownership of voting or equity securities or securities convertible
into voting or equity securities of a reporting issuer that, together with previously held securities brings the total holdings
of such holder to 10% or more of the outstanding securities of that class, must (a) issue and file forthwith a news release containing
certain prescribed information and (b) file a report within two business days containing the same information set out in the news
release. The acquiring person or company must also issue a news release and file a report each time it acquires, in the aggregate,
an additional 2% or more of the outstanding securities of the same class and every time there is a change to any material fact
in the news release and report previously issued and filed.
The
rules in the United States governing the ownership threshold above which shareholder ownership must be disclosed are more stringent
than those discussed above. Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
imposes reporting requirements on persons who acquire beneficial ownership (as such term is defined in Rule 13d-3 under the Exchange
Act) of more than 5% of a class of an equity security registered under Section 12 of the Exchange Act. In general, such persons
must file, within ten days after such acquisition, a report of beneficial ownership with the SEC containing the information prescribed
by the regulations under Section 13(d) of the Exchange Act and promptly file an amendment to such report to disclose any material
change to the information reported, including any acquisition or disposition of 1% or more of the outstanding securities of the
registered class. Certain institutional investors that acquire shares in the ordinary course of business and not with the purpose
or with the effect of changing or influencing the control of the issuer, are subject to lesser disclosure obligations.
C.
MATERIAL CONTRACTS
Quartz
Mountain’s material contracts as of October 10, 2018, are:
|
●
|
Corporate
Services Agreement with HDSI, dated for reference July 2, 2010.
See
Item 7B
;
|
|
|
|
|
●
|
HDSI
debt settlement agreement. See ITEM 19 EXHIBIT
|
D.
EXCHANGE CONTROLS
Quartz
Mountain is incorporated pursuant to the laws of the Province of British Columbia, Canada. There is no law or governmental decree
or regulation in Canada that restricts the export or import of capital, or affects the remittance of dividends, interest or other
payments to a non-resident holder of common shares, other than withholding tax requirements. Any such remittances to United States
residents are generally subject to withholding tax, however no such remittances are likely in the foreseeable future. See “
Taxation
”,
below.
There
is no limitation imposed by Canadian law or by the charter or other constituent documents of the Company on the right of a non-resident
to hold or vote Common Shares of the Company, except that the Investment Canada Act may require review and approval by the Minister
of Industry (Canada) of certain acquisitions of “control” of the Company by a “non-Canadian”. The threshold
for acquisitions of “control” is generally defined as being one-third or more of the voting shares of the Company.
“Non-Canadian” generally means an individual who is not a Canadian citizen or a permanent resident of Canada, or a
corporation, partnership, trust or joint venture that is ultimately controlled by non-Canadians.
E.
TAXATION
Certain
Canadian Federal Income Tax Information for United States Residents
The
following summarizes the principal Canadian federal income tax considerations generally applicable to the holding and disposition
of common shares of the Company by a holder (a) who, for the purposes of the Income Tax Act (Canada) the (“Tax Act”),
is not resident in Canada or deemed to be resident in Canada, deals at arm’s length and is not affiliated with the Company,
holds the common shares as capital property and does not use or hold the common shares in the course of carrying on, or otherwise
in connection with, a business in Canada, and (b) who, for the purposes of the Canada-United States Income Tax Convention (the
“Treaty”), is a resident of the United States, has never been a resident of Canada, has not held or used (and does
not hold or use) common shares in connection with a permanent establishment or fixed base in Canada, and who qualifies for the
full benefits of the Treaty. The Canada Revenue Agency has recently introduced special forms to be used in order to substantiate
eligibility for Treaty benefits, and affected holders should consult with their own advisors with respect to these forms and all
relevant compliance matters.
Holders
who meet all such criteria in clauses (a) and (b) above are referred to herein as a “U.S. Holder” or “U.S. Holders”,
and this summary only addresses such U.S. Holders. The summary does not deal with special situations, such as particular circumstances
of traders or dealers, limited liability companies, tax-exempt entities, insurers, financial institutions (including those to
which the mark-to-market provisions of the Tax Act apply), or entities considered fiscally transparent under applicable law, or
otherwise.
This
summary is based on the current provisions of the Tax Act and the regulations thereunder, all proposed amendments to the Tax Act
and regulations publicly announced by the Minister of Finance (Canada) to the date hereof, the current provisions of the Treaty
and our understanding of the current administrative practices of the Canada Revenue Agency. It has been assumed that all currently
proposed amendments to the Tax Act and regulations will be enacted as proposed and that there will be no other relevant change
in any governing law, the Treaty or administrative policy, although no assurance can be given in these respects. This summary
does not take into account provincial, U.S. or other foreign income tax considerations, which may differ significantly from those
discussed herein.
This
summary is not exhaustive of all possible Canadian income tax consequences. It is not intended as legal or tax advice to any particular
U.S. Holder and should not be so construed. The tax consequences to a U.S. Holder will depend on that U.S. Holder’s particular
circumstances. Accordingly, all U.S. Holders or prospective U.S. Holders should consult their own tax advisors with respect to
the tax consequences applicable to them having regard to their own particular circumstances. The discussion below is qualified
accordingly.
Dividends
Dividends
paid or deemed to be paid or credited by the Company to a U.S. Holder are subject to Canadian withholding tax. Under the Treaty,
the rate of withholding tax on dividends paid to a U.S. Holder is generally limited to 15% of the gross dividend (or 5% in the
case of a U.S. holder that is a corporate shareholder owning at least 10% of the Company’s voting shares), provided the
U.S. Holder can establish entitlement to the benefits of the Treaty.
Disposition
A
U.S. Holder is generally not subject to tax under the Tax Act in respect of a capital gain realized on the disposition of a common
share in the open market, unless the share is “taxable Canadian property” to the holder thereof and the U.S. Holder
is not entitled to relief under the Treaty.
Provided
that the Company’s common shares are listed on a “designated stock exchange” for purposes of the Tax Act (which
currently includes the TSX Venture) at the time of disposition, a common share will generally not constitute taxable Canadian
property to a U.S. Holder unless, at any time during the 60 month period ending at the time of disposition, (i) the U.S. Holder
or persons with whom the U.S. Holder did not deal at arm’s length (or the U.S. Holder together with such persons) owned
25% or more of the issued shares of any class or series of the Company AND (ii) more than 50% of the fair market value of the
share was derived directly or indirectly from certain types of assets, including real or immoveable property situated in Canada,
Canadian resource properties or timber resource properties, and options, interests or rights in respect of any of the foregoing.
Common shares may also be deemed to be taxable Canadian property under the Tax Act in certain specific circumstances. A U.S. Holder
holding Common shares as taxable Canadian property should consult with the U.S. Holder’s own tax advisors in advance of
any disposition of Common shares or deemed disposition under the Tax Act in order to determine whether any relief from tax under
the Tax Act may be available by virtue of the Treaty, and any related compliance procedures.
United
States Federal Income Tax Consequences
The
Company believes it is likely a “passive foreign investment company” which may have adverse U.S. federal income tax
consequences for U.S. shareholders
U.S.
shareholders should be aware that the Company believes it was classified as a passive foreign investment company (“PFIC”)
during the tax year ended July 31, 2018, and may be a PFIC in future tax years. If the Company is a PFIC for any year during a
U.S. shareholder’s holding period, then such U.S. shareholder generally will be required to treat any gain realized upon
a disposition of common shares, or any so-called “excess distribution” received on its common shares, as ordinary
income, and to pay an interest charge on a portion of such gain or distributions, unless the shareholder makes a timely and effective
“qualified electing fund” election (“QEF Election”) or a “mark-to-market” election with respect
to the common shares. A U.S. shareholder who makes a QEF Election generally must report on a current basis its share of the Company’s
net capital gain and ordinary earnings for any year in which the Company is a PFIC, whether or not the Company distributes any
amounts to its shareholders. However, U.S. shareholders should be aware that there can be no assurance that the Company will satisfy
record keeping requirements that apply to a qualified electing fund, or that the Company will supply U.S. shareholders with information
that such U.S. shareholders require to report under the QEF Election rules, in the event that the Company is a PFIC and a U.S.
shareholder wishes to make a QEF Election. Thus, U.S. shareholders may not be able to make a QEF Election with respect to their
common shares. A U.S. shareholder who makes the mark-to-market election generally must include as ordinary income each year the
excess of the fair market value of the common shares over the taxpayer’s basis therein. This paragraph is qualified in its
entirety by the discussion below under the heading “Certain United States Federal Income Tax Considerations.” Each
U.S. shareholder should consult its own tax advisor regarding the PFIC rules and the U.S. federal income tax consequences of the
acquisition, ownership, and disposition of common shares.
Certain
United States Federal Income Tax Considerations
The
following is a general summary of certain material U.S. federal income tax considerations applicable to a U.S. Holder (as defined
below) arising from and relating to the acquisition, ownership, and disposition of common shares.
This
summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S.
federal income tax considerations that may apply to a U.S. Holder arising from and relating to the acquisition, ownership, and
disposition of common shares. In addition, this summary does not take into account the individual facts and circumstances of any
particular U.S. Holder that may affect the U.S. federal income tax consequences to such U.S. Holder, including specific tax consequences
to a U.S. Holder under an applicable tax treaty. Accordingly, this summary is not intended to be, and should not be construed
as, legal or U.S. federal income tax advice with respect to any U.S. Holder. This summary does not address the U.S. federal alternative
minimum, U.S. federal estate and gift, U.S. state and local, and foreign tax consequences to U.S. Holders of the acquisition,
ownership, and disposition of common shares. Each prospective U.S. Holder should consult its own tax advisor regarding the U.S.
federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and foreign tax consequences relating
to the acquisition, ownership and disposition of common shares.
No
legal opinion from U.S. legal counsel or ruling from the Internal Revenue Service (the “IRS”) has been requested,
or will be obtained, regarding the U.S. federal income tax consequences of the acquisition, ownership, and disposition of common
shares. This summary is not binding on the IRS, and the IRS is not precluded from taking a position that is different from, and
contrary to, the positions taken in this summary. In addition, because the authorities on which this summary is based are subject
to various interpretations, the IRS and the U.S. courts could disagree with one or more of the conclusions described in this summary.
Scope
of this Summary
Authorities
This
summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations (whether final,
temporary, or proposed), published rulings of the IRS, published administrative positions of the IRS, the Convention Between Canada
and the United States of America with Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended (the “Canada-U.S.
Tax Convention”), and U.S. court decisions that are applicable and, in each case, as in effect and available, as of the
date of this document. Any of the authorities on which this summary is based could be changed in a material and adverse manner
at any time, and any such change could be applied on a retroactive or prospective basis which could affect the U.S. federal income
tax considerations described in this summary. This summary does not discuss the potential effects, whether adverse or beneficial,
of any proposed legislation that, if enacted, could be applied on a retroactive or prospective basis.
U.S.
Holders
For
purposes of this summary, the term “U.S. Holder” means a beneficial owner of common shares that is for U.S. federal
income tax purposes:
●
|
an
individual who is a citizen or resident of the U.S.;
|
|
|
●
|
a
corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized under the laws of the
U.S., any state thereof or the District of Columbia;
|
|
|
●
|
an
estate whose income is subject to U.S. federal income taxation regardless of its source; or
|
|
|
●
|
a
trust that (1) is subject to the primary supervision of a court within the U.S. and the control of one or more U.S. persons
for all substantial decisions or (2) has a valid election in effect under applicable Treasury Regulations to be treated as
a U.S. person.
|
Non-U.S.
Holders
For
purposes of this summary, a “non-U.S. Holder” is a beneficial owner of common shares that is not a U.S. Holder. This
summary does not address the U.S. federal income tax consequences to non-U.S. Holders arising from and relating to the acquisition,
ownership, and disposition of common shares. Accordingly, a non-U.S. Holder should consult its own tax advisor regarding the U.S.
federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and foreign tax consequences (including
the potential application of and operation of any income tax treaties) relating to the acquisition, ownership, and disposition
of common shares.
U.S.
Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed
This
summary does not address the U.S. federal income tax considerations applicable to U.S. Holders that are subject to special provisions
under the Code, including, but not limited to, the following: (a) U.S. Holders that are tax-exempt organizations, qualified retirement
plans, individual retirement accounts, or other tax-deferred accounts; (b) U.S. Holders that are financial institutions, underwriters,
insurance companies, real estate investment trusts, or regulated investment companies; (c) U.S. Holders that are broker-dealers,
dealers, or traders in securities or currencies that elect to apply a mark-to-market accounting method; (d) U.S. Holders that
have a “functional currency” other than the U.S. Dollar; (e) U.S. Holders that own common shares as part of a straddle,
hedging transaction, conversion transaction, constructive sale, or other arrangement involving more than one position; (f) U.S.
Holders that acquired common shares in connection with the exercise of employee stock options or otherwise as compensation for
services; (g) U.S. Holders that hold common shares other than as a capital asset within the meaning of Section 1221 of the Code
(generally, property held for investment purposes); or (h) U.S. Holders that own or have owned (directly, indirectly, or by attribution)
10% or more of the total combined voting power of the outstanding shares of the Company. This summary also does not address the
U.S. federal income tax considerations applicable to U.S. Holders who are: (a) U.S. expatriates or former long-term residents
of the U.S.; (b) persons that have been, are, or will be a resident or deemed to be a resident in Canada for purposes of the Income
Tax Act (Canada) (the “Tax Act”); (c) persons that use or hold, will use or hold, or that are or will be deemed to
use or hold common shares in connection with carrying on a business in Canada; (d) persons whose common shares constitute “taxable
Canadian property” under the Tax Act; or (e) persons that have a permanent establishment in Canada for the purposes of the
Canada-U.S. Tax Convention. U.S. Holders that are subject to special provisions under the Code, including, but not limited to,
U.S. Holders described immediately above, should consult their own tax advisor regarding the U.S. federal, U.S. federal alternative
minimum, U.S. federal estate and gift, U.S. state and local, and foreign tax consequences relating to the acquisition, ownership
and disposition of common shares.
If
an entity or arrangement that is classified as a partnership (or other “pass-through” entity) for U.S. federal income
tax purposes holds common shares, the U.S. federal income tax consequences to such entity and the partners (or other owners) of
such entity generally will depend on the activities of the entity and the status of such partners (or owners). This summary does
not address the tax consequences to any such owner. Partners (or other owners) of entities or arrangements that are classified
as partnerships or as “pass-through” entities for U.S. federal income tax purposes should consult their own tax advisors
regarding the U.S. federal income tax consequences arising from and relating to the acquisition, ownership, and disposition of
common shares.
Passive
Foreign Investment Company Rules
If
the Company were to constitute a “passive foreign investment company” under the meaning of Section 1297 of the Code
(a “PFIC”, as defined below) for any year during a U.S. Holder’s holding period, then certain potentially adverse
rules will affect the U.S. federal income tax consequences to a U.S. Holder resulting from the acquisition, ownership and disposition
of common shares. The Company believes that it was classified as a PFIC during the tax year ended July 31, 2018, and may be a
PFIC in future tax years. The determination of whether any corporation was, or will be, a PFIC for a tax year depends, in part,
on the application of complex U.S. federal income tax rules, which are subject to differing interpretations. In addition, whether
any corporation will be a PFIC for any tax year depends on the assets and income of such corporation over the course of each such
tax year and, as a result, cannot be predicted with certainty as of the date of this document. Accordingly, there can be no assurance
that the IRS will not challenge any determination made by the Company (or any subsidiary of the Company) concerning its PFIC status.
Each U.S. Holder should consult its own tax advisor regarding the PFIC status of the Company and any subsidiary of the Company.
In
addition, in any year in which the Company is classified as a PFIC, such holder would be required to file an annual report with
the IRS containing such information as Treasury Regulations and/or other IRS guidance may require. U.S. Holders should consult
their own tax advisors regarding the requirements of filing such information returns under these rules, including the requirement
to file a IRS Form 8621.
PFIC
Status of the Company
The
Company generally will be a PFIC if, for a tax year, (a) 75% or more of the gross income of the Company is passive income (the
“income test”) or (b) 50% or more of the value of the Company’s assets either produce passive income or are
held for the production of passive income, based on the quarterly average of the fair market value of such assets (the “asset
test”). “Gross income” generally includes all sales revenues less the cost of goods sold, plus income from investments
and from incidental or outside operations or sources, and “passive income” generally includes, for example, dividends,
interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities
transactions.
Active
business gains arising from the sale of commodities generally are excluded from passive income if substantially all (85% or more)
of a foreign corporation’s commodities are stock in trade or inventory, depreciable property used in a trade or business,
or supplies regularly used or consumed in a trade or business and certain other requirements are satisfied.
For
purposes of the PFIC income test and asset test described above, if the Company owns, directly or indirectly, 25% or more of the
total value of the outstanding shares of another corporation, the Company will be treated as if it (a) held a proportionate share
of the assets of such other corporation and (b) received directly a proportionate share of the income of such other corporation.
In addition, for purposes of the PFIC income test and asset test described above, and assuming certain other requirements are
met, “passive income” does not include certain interest, dividends, rents, or royalties that are received or accrued
by the Company from certain “related persons” (as defined in Section 954(d)(3) of the Code), to the extent such items
are properly allocable to the income of such related person that is not passive income.
Under
certain attribution rules, if the Company is a PFIC, U.S. Holders will generally be deemed to own their proportionate share of
the Company’s direct or indirect equity interest in any company that is also a PFIC (a ‘‘Subsidiary PFIC’’),
and will be subject to U.S. federal income tax on their proportionate share of (a) any “excess distributions,” as
described below, on the stock of a Subsidiary PFIC and (b) a disposition or deemed disposition of the stock of a Subsidiary PFIC
by the Company or another Subsidiary PFIC, both as if such U.S. Holders directly held the shares of such Subsidiary PFIC. In addition,
U.S. Holders may be subject to U.S. federal income tax on any indirect gain realized on the stock of a Subsidiary PFIC on the
sale or disposition of common shares. Accordingly, U.S. Holders should be aware that they could be subject to tax even if no distributions
are received and no redemptions or other dispositions of common shares are made.
Default
PFIC Rules Under Section 1291 of the Code
If
the Company is a PFIC for any tax year during which a U.S. Holder owns common shares, the U.S. federal income tax consequences
to such U.S. Holder of the acquisition, ownership, and disposition of common shares will depend on whether and when such U.S.
Holder makes an election to treat the Company and each Subsidiary PFIC, if any, as a “qualified electing fund” or
“QEF” under Section 1295 of the Code (a “QEF Election”) or makes a mark-to-market election under Section
1296 of the Code (a “Mark-to-Market Election”). A U.S. Holder that does not make either a QEF Election or a Mark-to-Market
Election will be referred to in this summary as a “Non-Electing U.S. Holder.”
A
Non-Electing U.S. Holder will be subject to the rules of Section 1291 of the Code (described below) with respect to (a) any gain
recognized on the sale or other taxable disposition of common shares and (b) any excess distribution received on the common shares.
A distribution generally will be an “excess distribution” to the extent that such distribution (together with all
other distributions received in the current tax year) exceeds 125% of the average distributions received during the three preceding
tax years (or during a U.S. Holder’s holding period for the common shares, if shorter).
Under
Section 1291 of the Code, any gain recognized on the sale or other taxable disposition of common shares (including an indirect
disposition of the stock of any Subsidiary PFIC), and any “excess distribution” received on common shares or with
respect to the stock of a Subsidiary PFIC, must be ratably allocated to each day in a Non-Electing U.S. Holder’s holding
period for the respective common shares. The amount of any such gain or excess distribution allocated to the tax year of disposition
or distribution of the excess distribution and to years before the entity became a PFIC, if any, would be taxed as ordinary income.
The amounts allocated to any other tax year would be subject to U.S. federal income tax at the highest tax rate applicable to
ordinary income in each such year, and an interest charge would be imposed on the tax liability for each such year, calculated
as if such tax liability had been due in each such year. A Non-Electing U.S. Holder that is not a corporation must treat any such
interest paid as “personal interest,” which is not deductible.
If
the Company is a PFIC for any tax year during which a Non-Electing U.S. Holder holds common shares, the Company will continue
to be treated as a PFIC with respect to such Non-Electing U.S. Holder, regardless of whether the Company ceases to be a PFIC in
one or more subsequent tax years. A Non-Electing U.S. Holder may terminate this deemed PFIC status by electing to recognize gain
(which will be taxed under the rules of Section 1291 of the Code discussed above), but not loss, as if such common shares were
sold on the last day of the last tax year for which the Company was a PFIC.
QEF
Election
A
U.S. Holder that makes a timely and effective QEF Election for the first tax year in which its holding period of its common shares
begins generally will not be subject to the rules of Section 1291 of the Code discussed above with respect to its common shares.
A U.S. Holder that makes a timely and effective QEF Election will be subject to U.S. federal income tax on such U.S. Holder’s
pro rata share of (a) the net capital gain of the Company, which will be taxed as long-term capital gain to such U.S. Holder,
and (b) the ordinary earnings of the Company, which will be taxed as ordinary income to such U.S. Holder. Generally, “net
capital gain” is the excess of (a) net long-term capital gain over (b) net short-term capital loss, and “ordinary
earnings” are the excess of (a) “earnings and profits” over (b) net capital gain. A U.S. Holder that makes a
QEF Election will be subject to U.S. federal income tax on such amounts for each tax year in which the Company is a PFIC, regardless
of whether such amounts are actually distributed to such U.S. Holder by the Company. However, for any tax year in which the Company
is a PFIC and has no net income or gain, U.S. Holders that have made a QEF Election would not have any income inclusions as a
result of the QEF Election. If a U.S. Holder that made a QEF Election has an income inclusion, such a U.S. Holder may, subject
to certain limitations, elect to defer payment of current U.S. federal income tax on such amounts, subject to an interest charge.
If such U.S. Holder is not a corporation, any such interest paid will be treated as “personal interest,” which is
not deductible.
A
U.S. Holder that makes a timely and effective QEF Election with respect to the Company generally (a) may receive a tax-free distribution
from the Company to the extent that such distribution represents “earnings and profits” of the Company that were previously
included in income by the U.S. Holder because of such QEF Election and (b) will adjust such U.S. Holder’s tax basis in the
common shares to reflect the amount included in income or allowed as a tax-free distribution because of such QEF Election. In
addition, a U.S. Holder that makes a QEF Election generally will recognize capital gain or loss on the sale or other taxable disposition
of common shares.
The
procedure for making a QEF Election, and the U.S. federal income tax consequences of making a QEF Election, will depend on whether
such QEF Election is timely. A QEF Election will be treated as “timely” if such QEF Election is made for the first
year in the U.S. Holder’s holding period for the common shares in which the Company was a PFIC. A U.S. Holder may make a
timely QEF Election by filing the appropriate QEF Election documents at the time such U.S. Holder files a U.S. federal income
tax return for such year. If a U.S. Holder does not make a timely and effective QEF Election for the first year in the U.S. Holder’s
holding period for the common shares, the U.S. Holder may still be able to make a timely and effective QEF Election in a subsequent
year if such U.S. Holder meets certain requirements and makes a “purging” election to recognize gain (which will be
taxed under the rules of Section 1291 of the Code discussed above) as if such common shares were sold for their fair market value
on the day the QEF Election is effective. If a U.S. Holder owns PFIC stock indirectly through another PFIC, separate QEF Elections
must be made for the PFIC in which the U.S. Holder is a direct shareholder and the Subsidiary PFIC for the QEF rules to apply
to both PFICs.
A
QEF Election will apply to the tax year for which such QEF Election is timely made and to all subsequent tax years, unless such
QEF Election is invalidated or terminated or the IRS consents to revocation of such QEF Election. If a U.S. Holder makes a QEF
Election and, in a subsequent tax year, the Company ceases to be a PFIC, the QEF Election will remain in effect (although it will
not be applicable) during those tax years in which the Company is not a PFIC. Accordingly, if the Company becomes a PFIC in another
subsequent tax year, the QEF Election will be effective and the U.S. Holder will be subject to the QEF rules described above during
any subsequent tax year in which the Company qualifies as a PFIC.
U.S.
Holders should be aware that there can be no assurances that the Company will satisfy the record keeping requirements that apply
to a QEF, or that the Company will supply U.S. Holders with information that such U.S. Holders are required to report under the
QEF rules, in the event that the Company is a PFIC. Thus, U.S. Holders may not be able to make a QEF Election with respect to
their common shares. Each U.S. Holder should consult its own tax advisor regarding the availability of, and procedure for making,
a QEF Election.
A
U.S. Holder makes a QEF Election by attaching a completed IRS Form 8621, including a PFIC Annual Information Statement, to a timely
filed United States federal income tax return. However, if the Company cannot provide the required information with regard to
the Company or any of its Subsidiary PFICs, U.S. Holders will not be able to make a QEF Election for such entity and will continue
to be subject to the rules discussed above that apply to Non-Electing U.S. Holders with respect to the taxation of gains and excess
distributions.
Mark-to-Market
Election
A
U.S. Holder may make a Mark-to-Market Election only if the common shares are marketable stock. The common shares generally will
be “marketable stock” if the common shares are regularly traded on (a) a national securities exchange that is registered
with the Securities and Exchange Commission, (b) the national market system established pursuant to section 11A of the Securities
and Exchange Act of 1934, or (c) a foreign securities exchange that is regulated or supervised by a governmental authority of
the country in which the market is located, provided that (i) such foreign exchange has trading volume, listing, financial disclosure,
and surveillance requirements, and meets other requirements and the laws of the country in which such foreign exchange is located,
together with the rules of such foreign exchange, ensure that such requirements are actually enforced and (ii) the rules of such
foreign exchange effectively promote active trading of listed stocks. If such stock is traded on such a qualified exchange or
other market, such stock generally will be “regularly traded” for any calendar year during which such stock is traded,
other than in de minimis quantities, on at least 15 days during each calendar quarter.
A
U.S. Holder that makes a Mark-to-Market Election with respect to its common shares generally will not be subject to the rules
of Section 1291 of the Code discussed above with respect to such common shares. However, if a U.S. Holder does not make a Mark-to-Market
Election beginning in the first tax year of such U.S. Holder’s holding period for the common shares or such U.S. Holder
has not made a timely QEF Election, the rules of Section 1291 of the Code discussed above will apply to certain dispositions of,
and distributions on, the common shares.
A
U.S. Holder that makes a Mark-to-Market Election will include in ordinary income, for each tax year in which the Company is a
PFIC, an amount equal to the excess, if any, of (a) the fair market value of the common shares, as of the close of such tax year
over (b) such U.S. Holder’s tax basis in such common shares. A U.S. Holder that makes a Mark-to-Market Election will be
allowed a deduction in an amount equal to the excess, if any, of (a) such U.S. Holder’s adjusted tax basis in the common
shares, over (b) the fair market value of such common shares (but only to the extent of the net amount of previously included
income as a result of the Mark-to-Market Election for prior tax years).
A
U.S. Holder that makes a Mark-to-Market Election generally also will adjust such U.S. Holder’s tax basis in the common shares
to reflect the amount included in gross income or allowed as a deduction because of such Mark-to-Market Election. In addition,
upon a sale or other taxable disposition of common shares, a U.S. Holder that makes a Mark-to-Market Election will recognize ordinary
income or ordinary loss (not to exceed the excess, if any, of (a) the amount included in ordinary income because of such Mark-to-Market
Election for prior tax years over (b) the amount allowed as a deduction because of such Mark-to-Market Election for prior tax
years). Losses that exceed this limitation are subject to the rules generally applicable to losses provided in the Code and Treasury
Regulations.
A
Mark-to-Market Election applies to the tax year in which such Mark-to-Market Election is made and to each subsequent tax year,
unless the common shares cease to be “marketable stock” or the IRS consents to revocation of such election. Each U.S.
Holder should consult its own tax advisor regarding the availability of, and procedure for making, a Mark-to-Market Election.
Although
a U.S. Holder may be eligible to make a Mark-to-Market Election with respect to the common shares, no such election may be made
with respect to the stock of any Subsidiary PFIC that a U.S. Holder is treated as owning, because such stock is not marketable.
Hence, the Mark-to-Market Election will not be effective to eliminate the application of the default rules of Section 1291 of
the Code described above with respect to deemed dispositions of Subsidiary PFIC stock or excess distributions from a Subsidiary
PFIC.
Other
PFIC Rules
Under
Section 1291(f) of the Code, the IRS has issued proposed Treasury Regulations that, subject to certain exceptions, would cause
a U.S. Holder that had not made a timely QEF Election to recognize gain (but not loss) upon certain transfers of common shares
that would otherwise be tax-deferred (e.g., gifts and exchanges pursuant to corporate reorganizations). However, the specific
U.S. federal income tax consequences to a U.S. Holder may vary based on the manner in which common shares are transferred.
Certain
additional adverse rules may apply with respect to a U.S. Holder if the Company is a PFIC, regardless of whether such U.S. Holder
makes a QEF Election. For example, under Section 1298(b)(6) of the Code, a U.S. Holder that uses common shares as security for
a loan will, except as may be provided in Treasury Regulations, be treated as having made a taxable disposition of such common
shares.
Special
rules also apply to the amount of foreign tax credit that a U.S. Holder may claim on a distribution from a PFIC. Subject to such
special rules, foreign taxes paid with respect to any distribution in respect of stock in a PFIC are generally eligible for the
foreign tax credit. The rules relating to distributions by a PFIC and their eligibility for the foreign tax credit are complicated,
and a U.S. Holder should consult with its own tax advisor regarding the availability of the foreign tax credit with respect to
distributions by a PFIC.
The
PFIC rules are complex, and each U.S. Holder should consult its own tax advisor regarding the PFIC rules and how the PFIC rules
may affect the U.S. federal income tax consequences of the acquisition, ownership, and disposition of common shares.
Ownership
and Disposition of Common Shares
The
following discussion is subject to the rules described above under the heading “Passive Foreign Investment Company Rules.”
Distributions
on Common Shares
A
U.S. Holder that receives a distribution, including a constructive distribution, with respect to a common share will be required
to include the amount of such distribution in gross income as a dividend (without reduction for any Canadian income tax withheld
from such distribution) to the extent of the current or accumulated “earnings and profits” of the Company, as computed
for U.S. federal income tax purposes. A dividend generally will be taxed to a U.S. Holder at ordinary income tax rates if the
Company is a PFIC. To the extent that a distribution exceeds the current and accumulated “earnings and profits” of
the Company, such distribution will be treated first as a tax-free return of capital to the extent of a U.S. Holder’s tax
basis in the common shares and thereafter as gain from the sale or exchange of such common shares. (See “Sale or Other Taxable
Disposition of common shares” below). However, the Company may not maintain the calculations of earnings and profits in
accordance with U.S. federal income tax principles, and each U.S. Holder should therefore assume that any distribution by the
Company with respect to the common shares will constitute ordinary dividend income. Dividends received on common shares generally
will not be eligible for the “dividends received deduction”. In addition, the Company does not anticipate that its
distributions will constitute qualified dividend income eligible for the preferential tax rates applicable to long-term capital
gains. The dividend rules are complex, and each U.S. Holder should consult its own tax advisor regarding the application of such
rules.
Sale
or Other Taxable Disposition of Common Shares
Upon
the sale or other taxable disposition of common shares, a U.S. Holder generally will recognize capital gain or loss in an amount
equal to the difference between the U.S. Dollar value of cash received plus the fair market value of any property received and
such U.S. Holder’s tax basis in such common shares sold or otherwise disposed of. A U.S. Holder’s tax basis in common
shares generally will be such holder’s U.S. Dollar cost for such common shares. Gain or loss recognized on such sale or
other disposition generally will be long-term capital gain or loss if, at the time of the sale or other disposition, the common
shares have been held for more than one year.
Preferential
tax rates currently apply to long-term capital gain of a U.S. Holder that is an individual, estate, or trust. There are currently
no preferential tax rates for long-term capital gain of a U.S. Holder that is a corporation. Deductions for capital losses are
subject to significant limitations under the Code.
Additional
Tax on Passive Income
For
tax years beginning after December 31, 2012, certain individuals, estates and trusts whose income exceeds certain thresholds will
be required to pay a 3.8% Medicare surtax on “net investment income” including, among other things, dividends and
net gain from dispositions of property (other than property held in a trade or business). U.S. Holders should consult with their
own tax advisors regarding the effect, if any, of this tax on their ownership and disposition of common shares.
Receipt
of Foreign Currency
The
amount of any distribution paid to a U.S. Holder in foreign currency, or on the sale, exchange or other taxable disposition of
common shares, generally will be equal to the U.S. Dollar value of such foreign currency based on the exchange rate applicable
on the date of receipt (regardless of whether such foreign currency is converted into U.S. Dollars at that time). A U.S. Holder
will have a basis in the foreign currency equal to its U.S. Dollar value on the date of receipt. Any U.S. Holder who converts
or otherwise disposes of the foreign currency after the date of receipt may have a foreign currency exchange gain or loss that
would be treated as ordinary income or loss, and generally will be U.S. source income or loss for foreign tax credit purposes.
Each U.S. Holder should consult its own U.S. tax advisor regarding the U.S. federal income tax consequences of receiving, owning,
and disposing of foreign currency.
Foreign
Tax Credit
Subject
to the PFIC rules discussed above, a U.S. Holder that pays (whether directly or through withholding) Canadian income tax with
respect to dividends paid on the common shares generally will be entitled, at the election of such U.S. Holder, to receive either
a deduction or a credit for such Canadian income tax. Generally, a credit will reduce a U.S. Holder’s U.S. federal income
tax liability on a Dollar-for-Dollar basis, whereas a deduction will reduce a U.S. Holder’s income subject to U.S. federal
income tax. This election is made on a year-by-year basis and applies to all foreign taxes paid (whether directly or through withholding)
by a U.S. Holder during a year.
Complex
limitations apply to the foreign tax credit, including the general limitation that the credit cannot exceed the proportionate
share of a U.S. Holder’s U.S. federal income tax liability that such U.S. Holder’s “foreign source” taxable
income bears to such U.S. Holder’s worldwide taxable income. In applying this limitation, a U.S. Holder’s various
items of income and deduction must be classified, under complex rules, as either “foreign source” or “U.S. source.”
Generally, dividends paid by a foreign corporation should be treated as foreign source for this purpose, and gains recognized
on the sale of stock of a foreign corporation by a U.S. Holder should be treated as U.S. source for this purpose, except as otherwise
provided in an applicable income tax treaty, and if an election is properly made under the Code. However, the amount of a distribution
with respect to the common shares that is treated as a “dividend” may be lower for U.S. federal income tax purposes
than it is for Canadian federal income tax purposes, resulting in a reduced foreign tax credit allowance to a U.S. Holder. In
addition, this limitation is calculated separately with respect to specific categories of income. The foreign tax credit rules
are complex, and each U.S. Holder should consult its own U.S. tax advisor regarding the foreign tax credit rules.
Backup
Withholding and Information Reporting
Under
U.S. federal income tax law and Treasury Regulations, certain categories of U.S. Holders must file information returns with respect
to their investment in, or involvement in, a foreign corporation. For example, recently enacted legislation generally imposes
new U.S. return disclosure obligations (and related penalties) on individuals who are U.S. Holders that hold certain specified
foreign financial assets in excess of $50,000. The definition of specified foreign financial assets includes not only financial
accounts maintained in foreign financial institutions, but also, unless held in accounts maintained by a financial institution,
any stock or security issued by a non-U.S. person, any financial instrument or contract held for investment that has an issuer
or counterparty other than a U.S. person and any interest in a foreign entity. U.S. Holders may be subject to these reporting
requirements unless their common shares are held in an account at a domestic financial institution. Penalties for failure to file
certain of these information returns are substantial. U.S. Holders should consult with their own tax advisors regarding the requirements
of filing information returns, including the requirement to file an IRS Form 8938.
Payments
made within the U.S. or by a U.S. payor or U.S. middleman, of dividends on, and proceeds arising from the sale or other taxable
disposition of, common shares will generally be subject to information reporting and backup withholding tax, at the rate of 28%
(and increasing to 31% for payments made after December 31, 2012), if a U.S. Holder (a) fails to furnish such U.S. Holder’s
correct U.S. taxpayer identification number (generally on Form W-9), (b) furnishes an incorrect U.S. taxpayer identification number,
(c) is notified by the IRS that such U.S. Holder has previously failed to properly report items subject to backup withholding
tax, or (d) fails to certify, under penalty of perjury, that such U.S. Holder has furnished its correct U.S. taxpayer identification
number and that the IRS has not notified such U.S. Holder that it is subject to backup withholding tax. However, certain exempt
persons generally are excluded from these information reporting and backup withholding rules. Backup withholding is not an additional
tax. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a credit against a U.S. Holder’s
U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS
in a timely manner. Each U.S. Holder should consult its own tax advisor regarding the information reporting and backup withholding
rules.
F.
DIVIDENDS AND PAYING AGENTS
Not
applicable.
G.
STATEMENT BY EXPERTS
Not
applicable.
H.
DOCUMENTS ON DISPLAY
Exhibits
attached to this Form 20-F are also available for viewing on EDGAR at
http://www.sec.gov/
, or at the offices of the Company,
15th Floor - 1040 West Georgia Street, Vancouver, British Columbia V6E 4H1 or on request of the Company at 604-684-6365, attention:
Investor Relations Department. Copies of the Company’s IFRS financial statements and other continuous disclosure documents
required under the British Columbia Securities Act are available for viewing on the internet at
www.sedar.com
.
I.
SUBSIDIARY INFORMATION
Not
applicable.
ITEM
11 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A.
TRANSACTION RISK AND CURRENCY RISK MANAGEMENT
The
Company is exposed in varying degrees to a variety of financial instrument related risks. The Board approves and monitors the
risk management processes, inclusive of documented treasury policies, counterparty limits, and controlling and reporting structures.
B.
EXCHANGE RATE SENSITIVITY
The
Company incurs substantially all of its expenditures in Canada and substantially all of its cash is denominated in Canadian dollars.
Consequently the Company is not subject to material foreign exchange risk.
C.
INTEREST RATE RISK AND EQUITY PRICE RISK
The
Company is subject to interest rate risk with respect to its investments in cash. The Company’s policy is to invest cash
at fixed rates of interest and cash reserves are to be maintained in cash and cash equivalents in order to maintain liquidity,
while achieving a satisfactory return for shareholders. Fluctuations in interest rates when the cash and cash equivalents mature
impact interest income earned.
D.
COMMODITY PRICE RISK
While
the value of the Company’s resource properties, if any, can always be said to relate to the price of precious metals and
the outlook for same, the Company does not have any resource properties or operating mines and hence does not have any hedging
or other commodity based operational risks respecting to its business activities.
ITEM
12 DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not
applicable.