Purcell Basin Minerals Inc.

Preliminary Financial Information for the Financial Year Ended December 31, 2015

Prepared by Management

 

Introductory Note from Management

 

The following preliminary Income Statement, Cash Flows Statement and accompanying notes (the “Financial Information”) are for Purcell Basin Minerals Inc. (“Purcell” or the “Company”) for the financial year ended December 31, 2015. The Financial Information does not include information regarding the income, expenses, or cash flows of the subsidiaries of Purcell.  The Company’s management is in the process of compiling such information in respect of Purcell’s subsidiaries, and will provide shareholders with a consolidated income statement and cash flows statement of Purcell and its subsidiaries for the financial year ended December 31, 2015 as soon as such process is complete. 

 

The Financial Information does not include a balance sheet of Purcell or its subsidiaries.  We have been advised by Purcell’s auditors, Johnson Archer LLP (the “Auditors”) that in order to prepare a balance sheet, information will have to be obtained regarding the historical assets, liabilities, retained earnings, deficits and accounting practices of Purcell’s predecessor companies, which comprised the Stanfield Group (collectively, the “Stanfield Companies”).  The financial records of the Stanfield Companies were not well maintained, and to the best of our knowledge, the Stanfield Companies did not prepare any financial statements since 2009.  In order to prepare a current balance sheet of Purcell, financial information from 2009 to 2015 will have to be compiled.  The Auditors have estimated that it will take approximately six months to compile the information necessary to produce a balance sheet for Purcell, and it will take approximately a further 12 months to audit such information.  The anticipated cost of the foregoing audit is over $150,000.    Following the Financial Information, you will find attached a letter from Taylor Veinotte Sullivan, the Company’s legal counsel, to the Auditors, which sets out further information regarding the audit process and anticipated timing. 

 

The Company’s management thanks you for your patience as we work to provide you with further financial information, while moving forward the permitting process for the Company’s Bul River mine. 

 

 

 


 

Purcell Basin Minerals Inc.

Statement of Loss

Year Ended December 31, 2015

Prepared by Management

 

   

2015

 

2014

   

(12 months)

 

(1 month)

General and administrative expenses

     
 

Investor relations

                   26,984

 

             17,825

 

Bank charges and interest

                       229

 

                   362

 

Government permit review fee

                   60,000

 

                      -  

 

Environmental and permitting consulting fees

                  938,291

 

          536,876

 

Interest on long-term debt

               1,499,002

 

             91,666

 

Legal fees

               145,000

 

          200,000

 

Transfer agent fees

                 87,090

 

             50,326

 

Laboratory testing fees

                 25,729

 

               7,701

 

Travel

                   6,739

 

             34,285

         

 

 

           2,789,064

 

          939,041

 

 

 

   

Net loss for the year

        (2,789,064)

 

        (939,041)

 

 


 

Purcell Basin Minerals Inc.

Statement of Cash Flows

Year Ended December 31, 2015

Prepared by Management

 

   

2015

 

2014

   

(12 months)

 

(1 month)

Operating activity

     
 

Net loss for the year

        (2,789,064)

 

        (939,041)

 

Item not affecting cash:

     
 

Expenses paid by Cuveras LLC

           1,286,108

 

          812,727

 

Accrued interest on long-term debt

           1,499,002

 

             91,666

         

Cash flow used by operating activities

                 (3,954)

 

          (34,648)

         

Investing activity

     

 

Advances to subsidiary

            (543,806)

 

        (581,000)

         

Financing activities

     
 

Net advances from (repayments to) Cuveras LLC

        (1,603,230)

 

          581,000

 

Net advances from shareholders

                   3,740

 

             34,285

 

Share subscriptions

              948,148

 

       1,206,215

   

            (651,342)

 

       1,821,500

         

Decrease in cash flow

        (1,199,102)

 

       1,205,852

         

Cash - beginning of year

           1,205,854

 

                      -  

 

 

 

 

 

Cash - end of year

                   6,752

 

       1,205,852

 

 

 

 

Purcell Basin Minerals Inc.

Notes and Assumptions

Year Ended December 31, 2015

Prepared by Management

 

 

1.

The income statement is prepared on a cash basis and no adjustment has been made to accrue for expenses not invoiced or paid before December 31, 2015. No adjustment has been made for amounts that should have been accrued as at December 31, 2014.

         

2.

The income statement and statement of cash flows do not include income or expenses or cash flows of the subsidiaries of Purcell Basin Minerals Inc.

         

3.

The Company is party to two notes payable with total original principal of $14,347,795 payable to CuVeras LLC and Highlands Pacific Partners LLP. The notes are accruing interest at 10% per annum, compounding quarterly.  The note payable to Highlands Pacific Partners LLP matures and is payable on December 9, 2016 and the note payable to CuVeras LLC matures and is payable on December 9, 2029.

 

 


 

Purcell Basin Minerals Inc.

Notes on Related Party Transactions

Year Ended December 31, 2015

Prepared by Management

 

Mr. Brendan MacMillan (“MacMillan”) has served as the Company’s President and sole director and officer since the Company was amalgamated on December 9, 2014 pursuant to the CCAA proceeding. The Company has entered into contracts with Mr. MacMillan to remunerate him for his services and with his affiliate Highlands Pacific LLC (“Highlands”) to obtain the necessary working capital to fund the Company’s operations.  Some of the relevant transactions below occurred subsequent to the Company’s 2015 year end but are disclosed here for the sake of completeness.  As noted below, Mr. MacMillan has not received any cash payments from the Company in connection the services he has provided in his capacity as President of the Company, and, as noted under the Subsequent Events section, he has agreed to renegotiate the terms of some of the arrangements described below, including his compensation arrangements.

 

Compensation of Management

 

Mr. MacMillan’s compensation for serving as President (the “Compensation”) was set by the board of Directors of the Company (the “Board”), pursuant to a directors resolutions dated as of December 9, 2014 (the “December 9, 2014 Resolutions”).  The Compensation consists of a base fee of US$40,000 and an additional US$8,000 per week for each week after December 9, 2014 that Mr. MacMillan served as President.  Any compensation that is not paid to Mr. MacMillan is to accrue interest at 18% per annum or the highest amount allowable by law.  The minimum amount payable to Mr. MacMillan regardless of the length of his service is US$800,000.  The December 9, 2014 Resolutions also provided that any unpaid Compensation shall become a secured obligation of the Company, ahead of all other payables, and would be immediately payable upon the appointment of any other officers or directors, or on the discontinuance of Mr. MacMillan’s tenure with the Company.

 

Mr. MacMillan has not received any cash compensation for his services as President of the Company to date, pursuant to the terms of the December 9, 2014 Resolutions or otherwise.

 

By a director’s resolutions dated April 25, 2016 (the “April 25, 2016 Resolutions”), the Board approved the issuance to Mr. MacMillan of three million common shares of the Company at an issue price of CAD$0.10 per share as a partial payment for the accrued and unpaid Compensation payments that were due to Mr. MacMillan under the December 9, 2014 Resolutions.  The Board additionally approved the execution by the Company of a promissory note (the “Compensatory Note”) evidencing the Company’s indebtedness to Mr. MacMillan in the amount of US$1,453,802 in consideration for the remaining past Compensatory payments that were due to Mr. Macmillan.  The amount payable by the Company to Mr. MacMillan under the Compensatory Note was later increased to US$1,517,802 to reflect additional Compensatory payments that accrued in favour of Mr. MacMillan.

 

The amounts payable by the Company to Mr. MacMillan under the Compensatory Note do not accurately reflect the terms of the December 9, 2014 Resolutions. Accordingly, on October 13, 2016, through his counsel, Mr. MacMillan advised the Company’s counsel in writing that he does not intend to rely on or seek to enforce the terms of the Compensatory Note. The amount currently payable by the Company to Mr. MacMillan pursuant to the terms of the December 9, 2014 Resolutions is approximately CAD$871,982.40, plus accrued interest. 

 

Loan from Highlands

 

In the April 25, 2016 Resolutions, the Board approved a loan to the Company by Highlands in an amount up to CAD$15,000,000, to be advanced at Highlands’s discretion, to fund the Company’s operations (the “Highlands Loan”).  The Board also approved the execution by the Company of a promissory note (the “Senior Promissory Note”) payable to Highlands to reflect the Company’s repayment obligation with respect to the Highlands Loan. 

 

The Senior Promissory Note provides that it shall rank senior to all other indebtedness (with the exception of the Compensatory Note) of the Company.  The interest on the Highlands Loan is 10% per annum, compounded quarterly.  The Highlands Loan matures and is repayable on December 8, 2016. The maturity date may be extended at the discretion of Highlands.

 

As of October 21, 2016, the Company owes, at current exchange rates, CAD$332,809 plus accrued interest to Highlands under the terms of the Highlands Loan.

 

The Priority Agreement

 

The April 25, 2016 Resolutions provides that the Company shall grant a first priority security interest in the Company’s assets to secure the obligations reflected in the Senior Promissory Note and the Compensatory Note.  To this end, the April 25, 2016 Resolutions further provide for the amendment of the Company’s other 10% senior promissory notes, which are due in 2016, and for the Company to seek any required approvals from Highlands Pacific Partners LLC (“HPP”) and CuVeras LLC (“CuVeras”) to effect the priority of the Senior Promissory Note. Further, the Company entered into a priority agreement with CuVeras, Highlands and HPP (including the Company, the “Parties”) dated as of April 25, 2016, pursuant to which the Parties agreed to grant certain priority rights to MacMillan and Highlands for the obligations reflected in the Compensatory and Senior Promissory Notes.

 

Subsequent Events

 

As noted above, on October 13, 2016, Mr. MacMillan advised the Company in writing that he would not be relying on the Compensatory Note.  He also advised that it was his intention to seek to renegotiate the terms of the Compensation payments with the Company at arm’s length.

 

By a director’s resolution dated October 21, 2016 and pursuant to the authority contained in the Company’s articles, the Board appointed Michael Moretti of San Antonio, Texas to act as an attorney (the “Attorney”) for the Company to exercise the authority to re-negotiate and approve the terms of Mr. MacMillan’s compensation for serving as President of the Company and the Highlands Loan. Mr. Moretti is a significant shareholder of the Company, and an arm’s length party to Mr. MacMillan.  The Company has entered into an indemnity agreement with Mr. Moretti with respect to his role as the Attorney of the Company.  Mr. MacMillan has proposed a compensation package to the Company that provides for a reduced level of compensation from that approved in the December 9, 2014 Resolutions.  Any revision of the compensation payable to Mr. MacMillan will be subject to the final approval of the Company, as directed by Mr. Moretti in his capacity as Attorney for the Company, and Mr. MacMillan. 

 

Set out below is the schedule of loans which Highlands, directly and through an affiliate, has made to Purcell pursuant to the Highlands Loan:

 

 

2016

   
 

Schedule of Investments into Purcell 

HPP LP

20-May

US$

 20,000

 

10-Jun

US$

 20,000

 

30-Jun

US$

 20,000

 

6-Sep

US$

 30,000

       

Crdt Cards

Various

US$

 45,874

       

Total US$

   

 135,874

Total CAD$ Conversion

 176,635.64

       

HP LLC

25-Jul

CAN$

 30,000

 

1-Aug

CAN$

 10,000

 

3-Aug

CAN$

 10,000

 

8-Aug

CAN$

 10,000

 

15-Aug

CAN$

 10,000

 

24-Aug

CAN$

 10,000

 

26-Aug

CAN$

 10,000

 

29-Aug

CAN$

 25,000

 

5-Oct

CAN$

 2,000

 

6-Oct

CAN$

 2,000

 

11-Oct

CAN$

 2,000

 

11-Oct

CAN$

 3,000

Total CAD$ Direct

 

 124,000

       

Total Combined CAD$ Investments

 300,635.64


* Conversion at the rate of $CAD1.31/$USD1

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