U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED |
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 000-51151
(Exact name of registrant as specified in its charter)
| Minnesota | 20-0803515 | |
(State or other jurisdiction of Incorporation or organization) | (I.R.S. Employer Identification No.) |
| 520 – 141 Adelaide Street West, Toronto, Ontario | M5H 3L5 | |
| (Address of principal executive offices) | (Zip Code) |
_______________________
(416) 364-4911
(Registrant's telephone number, including area code)
_______________________
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock, $0.001 par value per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x][ x ] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] No [x][ x ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.
Large accelerated filer [ ] Accelerated Filer [ ]
Non-accelerated filer [ ] Smaller reporting company [x][ x ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X]x ]
Transitional Small Business Disclosure Format Yes ☐ [ ] No [X]
[ x ]
As of November 13, 2015,February 12, 2016, there were 344,135,668350,573,568 shares of the Registrant's common stock issued and outstanding.
Energizer Resources Inc.
PART 1
FINANCIAL INFORMATION
As used in these footnotes, "we", "us", "our", "Energizer Resources", "Energizer", "Company" or "our company" refers to Energizer Resources Inc. and all of its subsidiaries.
ITEM 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
General
The accompanying reviewed interim unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q. Therefore, they do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders' equity in conformity with generally accepted accounting principles applicable in the United States of America. Except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated financial statements included in our Company's annual report on Form 10-K for the year ended June 30, 2015. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. Operating results for the period ended September 30,December 31, 2015 are not necessarily indicative of the results that can be expected for the year ending June 30, 2016.
All references to "dollars", "$" or "US$" are to United States dollars and all references to "CAD$" are to Canadian dollars. United States dollar equivalents of Canadian dollar figures are based on the exchange rate as reported by the Bank of Canada on the applicable date.
ENERGIZER RESOURCES INC.
(An Exploration Stage Company)
Unaudited Condensed Consolidated Interim Financial Statements
For the three monthsix months period ended September 30,December 31, 2015
(Expressed in US Dollars)
| Energizer Resources Inc. | ||||||||
| Unaudited Condensed Consolidated Interim Balance Sheets | ||||||||
| (Expressed in US Dollars) | ||||||||
| September 30, 2015 | June 30, 2015 | |||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 736,961 | $ | 779,118 | ||||
| Marketable securities (note 4) | 8,790 | 7,615 | ||||||
| Accounts receivable | 38,692 | 49,484 | ||||||
| Prepaid expenses | 28,838 | 16,032 | ||||||
| Loan to related party (note 5) | - | 76,450 | ||||||
| Total current assets | 813,281 | 928,699 | ||||||
| Equipment (note 6) | 54,914 | 78,513 | ||||||
| Total assets | $ | 868,195 | $ | 1,007,212 | ||||
| Liabilities and Stockholders' Deficiency | ||||||||
| Liabilities | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable (note 5) | $ | 92,676 | $ | 95,580 | ||||
| Accrued liabilities | 328,960 | 283,952 | ||||||
| Contingency Provision (note 15) | 177,257 | 190,087 | ||||||
| Subscriptions received in advance (note 16) | 440,673 | - | ||||||
| Warrant liability (note 11) | 211,345 | 844,851 | ||||||
| Total liabilities | 1,250,911 | 1,414,470 | ||||||
| Stockholders' Deficiency | ||||||||
| Common stock | $ | 329,936 | $ | 309,385 | ||||
| 650,000,000 shares authorized, $0.001 par value, 329,935,668 issued and outstanding (June 30, 2015 ‑ 309,384,670) (note 9) | ||||||||
| Additional paid‑in capital (note 9) | 91,567,194 | 91,614,714 | ||||||
| Accumulated comprehensive loss | (3,147 | ) | (4,323 | ) | ||||
| Accumulated deficit | (92,276,699 | ) | (92,327,035 | ) | ||||
| Total stockholders' deficiency | (382,716 | ) | (407,258 | ) | ||||
| Total liabilities and stockholders' deficiency | $ | 868,195 | $ | 1,007,212 | ||||
| The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements. | ||||||||
Condensed Consolidated Interim Balance Sheets
(Expressed in US Dollars)
December 31, 2015 (Unaudited) | June 30, 2015 | |||||||
Assets | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 184,651 | $ | 779,118 | ||||
| Marketable securities (note 4) | 4,566 | 7,615 | ||||||
| Accounts receivable | 62,298 | 49,484 | ||||||
| Prepaid expenses | 3,611 | 16,032 | ||||||
| Loan to related party (note 5) | - | 76,450 | ||||||
| Total current assets | 255,126 | 928,699 | ||||||
| Equipment (note 6) | 43,913 | 78,513 | ||||||
| Total assets | $ | 299,039 | $ | 1,007,212 | ||||
Liabilities and Stockholders' Deficiency | ||||||||
Liabilities | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable (note 5) | $ | 272,822 | $ | 95,580 | ||||
| Accrued liabilities | 24,931 | 283,952 | ||||||
| Contingency provision (note 14) | 171,458 | 190,087 | ||||||
| Warrant liability (note 11) | 331,741 | 844,851 | ||||||
| Total liabilities | 800,952 | 1,414,470 | ||||||
Stockholders' Deficiency | ||||||||
| Common stock | 344,136 | 309,385 | ||||||
650,000,000 shares authorized, $0.001 par value, 344,135,668 issued and outstanding (June 30, 2015: 309,384,670) (note 9) | ||||||||
| Additional paid‑in capital (note 9) | 92,410,185 | 91,614,714 | ||||||
| Accumulated comprehensive loss | (7,372 | ) | (4,323 | ) | ||||
| Accumulated deficit | (93,248,862 | ) | (92,327,034 | ) | ||||
| Total stockholders' deficiency | (501,913 | ) | (407,258 | ) | ||||
| Total liabilities and stockholders' deficiency | $ | 299,039 | $ | 1,007,212 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
Nature of Operations and Going Concern (note 1)
Mineral Properties (note 7)
Subsequent EventsEvent (note 16)15)
| Energizer Resources Inc. | ||||||||
| Unaudited Condensed Consolidated Interim Statements of Operations and Comprehensive Income (Loss) | ||||||||
| (Expressed in US Dollars) | ||||||||
For the three months ended September 30, | ||||||||
| 2015 | 2014 | |||||||
| Revenues | $ | - | $ | - | ||||
| Expenses | ||||||||
| Mineral exploration expense (notes 5, 7 and 14) | 176,959 | 1,703,126 | ||||||
| General and administrative (note 5) | 90,858 | 247,035 | ||||||
| Professional and consulting fees (note 5) | 188,717 | 231,897 | ||||||
| Stock‑based compensation (note 10) | - | 404,160 | ||||||
| Depreciation (note 6) | 23,599 | 11,369 | ||||||
| Foreign currency translation loss | 103,318 | 49,530 | ||||||
| Total expenses | 583,451 | 2,647,117 | ||||||
| Net loss from operations | (583,451 | ) | (2,647,117 | ) | ||||
| Other Income / (Expenses) | ||||||||
| Investment income | 281 | 3,975 | ||||||
| Change in deferred premium on flow-through shares (note 8) | - | 28,421 | ||||||
| Change in fair value of warrant liability (note 11) | 633,506 | (501,395 | ) | |||||
| Net Income (Loss) | 50,336 | (3,116,116 | ) | |||||
| Unrealized gain (loss) in marketable securities | 1,176 | (13,841 | ) | |||||
| Comprehensive Income (loss) | $ | 51,512 | $ | (3,129,957 | ) | |||
| Income (Loss) per share ‑ basic | $ | 0.00 | $ | (0.01 | ) | |||
| Weighted average shares outstanding - basic | 323,085,337 | 268,702,946 | ||||||
| Income (Loss) per share - fully diluted | $ | 0.00 | $ | (0.01 | ) | |||
Weighted average shares outstanding - fully diluted (note 13) | 323,085,337 | 268,702,946 | ||||||
| The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements. | ||||||||
Energizer Resources Inc.
Comprehensive Loss
(Expressed in US Dollars)
| Energizer Resources Inc. | ||||||||
| Unaudited Condensed Consolidated Interim Statements of Cash Flows | ||||||||
| (Expressed in US Dollars) | ||||||||
For the three months ended September 30, | ||||||||
| 2015 | 2014 | |||||||
| Operating Activities | ||||||||
| Net income (loss) | $ | 50,336 | $ | (3,116,116 | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 23,599 | 11,369 | ||||||
| Change in fair value of warrant liability | (633,506 | ) | 501,395 | |||||
| Stock‑based compensation | - | 404,160 | ||||||
| Sale of flow-through tax benefits | - | (28,421 | ) | |||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable and prepaid expenses | 2,015 | (87,456 | ) | |||||
| Accounts payable and accrued liabilities | 42,105 | (1,057,013 | ) | |||||
| Contingency provision | (12,830 | ) | - | |||||
| Net cash used in operating activities | (532,311 | ) | (3,372,082 | ) | ||||
| Investing Activities | ||||||||
| Loan to related party | 76,450 | 49,424 | ||||||
| Net cash provided by investing activities | 76,450 | 49,424 | ||||||
| Financing Activities | ||||||||
| Proceeds from issuance of common stock, net of issue costs | (26,969 | ) | 4,469,174 | |||||
| Share subscriptions received in advance (note 16) | 440,673 | - | ||||||
| Exercise of warrants | - | 72,049 | ||||||
| Net cash provided by financing activities | 413,704 | 4,541,223 | ||||||
| Cash and Cash Equivalents | ||||||||
| Net increase (decrease) in cash and cash equivalents | (42,577 | ) | 1,218,565 | |||||
| Cash and cash equivalents ‑ beginning of period | 779,118 | 1,250,383 | ||||||
| Cash and cash equivalents ‑ end of period | $ | 736,961 | $ | 2,468,948 | ||||
| Supplemental Disclosures: | ||||||||
| Interest Received | $ | 281 | $ | 3,975 | ||||
| Six months ended December 31, | Three months ended December 31, | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| Revenues | $ | - | $ | - | $ | - | $ | - | ||||||||
Expenses | ||||||||||||||||
| Mineral exploration expense (notes 5, 7 and 13) | 360,656 | 3,233,878 | 183,697 | 1,607,502 | ||||||||||||
| Professional and consulting fees (note 5) | 395,680 | 472,052 | 206,963 | 240,155 | ||||||||||||
| Stock‑based compensation (notes 5) | 331,491 | 404,160 | 331,491 | - | ||||||||||||
| General and administrative (note 5) | 219,892 | 500,664 | 129,034 | 268,472 | ||||||||||||
| Depreciation (note 6) | 34,600 | 26,909 | 11,001 | 15,540 | ||||||||||||
| Foreign currency translation loss (gain) | 93,180 | 3,827 | (10,138 | ) | 33,137 | |||||||||||
| Total expenses | 1,435,499 | 4,641,490 | 852,048 | 2,164,806 | ||||||||||||
Net Loss From Operations | (1,435,499 | ) | (4,641,490 | ) | (852,048 | ) | (2,164,806 | ) | ||||||||
Other Income (Expenses) | ||||||||||||||||
Investment income | 561 | 6,472 | 280 | 2,497 | ||||||||||||
| Reduction of flow-through premium liability (note 8) | - | 37,145 | - | 8,724 | ||||||||||||
| Gain on sale of marketable securities | - | 12,278 | - | 12,278 | ||||||||||||
| Change in value of warrant liability (note 11) | 513,110 | 489,119 | (120,396 | ) | 990,514 | |||||||||||
| Net Loss | $ | (921,828 | ) | $ | (4,096,476 | ) | $ | (972,164 | ) | $ | (1,150,793 | ) | ||||
Unrealized loss from marketable securities | (3,049 | ) | (5,816 | ) | (4,225 | ) | (5,816 | ) | ||||||||
| Realized loss from marketable securities | - | (12,278 | ) | - | (12,278 | ) | ||||||||||
| Comprehensive Loss | $ | (924,877 | ) | $ | (4,114,570 | ) | $ | (976,389 | ) | $ | (1,168,887 | ) | ||||
Loss per share – basic and diluted | $ | (0.003 | ) | $ | (0.014 | ) | $ | (0.003 | ) | $ | (0.004 | ) | ||||
| Weighted average shares outstanding (note 12) | 333,137,168 | 286,991,806 | 343,189,001 | 303,538,222 | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
3
Energizer Resources Inc.
Unaudited Condensed Consolidated Interim Statements of Cash Flows
(Expressed in US Dollars)
Six months ended December 31, 2015 | Six months ended December 31, 2014 | |||||||
Operating Activities | ||||||||
| Net loss | $ | (921,828 | ) | $ | (4,096,476 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 34,600 | 26,909 | ||||||
| Change in value of warrant liability | (513,110 | ) | (489,119 | ) | ||||
| Stock‑based compensation | 331,491 | 404,160 | ||||||
| Gain on sale of marketable securities | - | (12,278 | ) | |||||
| Reduction of flow-through premium liability | - | (37,145 | ) | |||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable and prepaid expenses | (393 | ) | 191,559 | |||||
| Accounts payable and accrued liabilities | (81,779 | ) | (969,721 | ) | ||||
| Contingency provision | (18,629 | ) | - | |||||
| Net cash used in operating activities | (1,169,648 | ) | (4,982,111 | ) | ||||
Investing Activities | ||||||||
| Loan to related party | 76,450 | 6,749 | ||||||
| Proceeds from sale of marketable securities | - | 54,726 | ||||||
| Net cash provided by investing activities | 76,450 | 61,475 | ||||||
Financing Activities | ||||||||
| Proceeds from issuance of common stock, net of issue costs | 498,731 | 4,956,775 | ||||||
| Exercise of warrants | - | 72,049 | ||||||
| Net cash provided by financing activities | 498,731 | 5,028,824 | ||||||
Cash and Cash Equivalents | ||||||||
| Net (decrease) increase in cash and cash equivalents | (594,467 | ) | 108,188 | |||||
| Cash and cash equivalents ‑ beginning of period | 779,118 | 1,250,383 | ||||||
| Cash and cash equivalents ‑ end of period | $ | 184,651 | $ | 1,358,571 | ||||
| Supplemental Disclosures: | ||||||||
| Interest Received | $ | 559 | $ | 6,472 | ||||
4
Energizer Resources Inc.
Consolidated Statement of Stockholder's Equity
(Expressed in US Dollars)
Shares # | Common Stock $ | Additional Paid-In Capital $ | Accumulated Comprehensive Income (Loss) $ | Accumulated Deficit $ | Total $ | ||||||
Balance ‑ June 30, 2014 | 268,627,603 | 268,627 | 84,265,060 | 8,771 | (86,254,224) | (1,711,766) | |||||
Private placement of common shares subscribed Cost of issue of private placement of common shares subscribed Private placement of special warrants subscribed Cost of issue of private placement of special warrants subscribed Issuance of common stock for mineral property Stock‑based compensation Issuance of shares to exercise warrants Realized loss on marketable securities Accumulated comprehensive loss Net loss for the period | 39,185,714 - - - 1,000,000 - 571,353 - - - | 39,186 - - - 1,000 - 572 - - - | 5,348,814 (440,923) 2,019,947 (375,927) 99,000 627,264 71,479 - - - | - - - - - - - (12,278) (816) - | - - - - - - - - - (6,072,810) | 5,388,000 (440,923) 2,019,947 (375,927) 100,000 627,264 72,051 (12,278) (816) (6,072,810) | |||||
Balance ‑ June 30, 2015 | 309,384,670 | 309,385 | 91,614,714 | (4,323) | (92,327,034) | (407,258) | |||||
Private placement of common shares Private placement cost of issue Conversion of Special Warrants into common shares Stock‑based compensation Issuance of shares to exercise warrants Unrealized loss on marketable securities Net loss for the period | 14,200,000 - 20,550,998 - - - - | 14,200 - 20,551 - - - | 516,473 (31,942) (20,551) 331,491 - - - | - - - - - (3,049) - | - - - - - - (921,828) | 530,673 (31,942) - 331,491 - (3,049) (921,828) | |||||
Balance ‑ December 31, 2015 | 344,135,668 | 344,136 | 92,410,185 | (7,372) | (93,248,862) | (501,913) |
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
5
Energizer Resources Inc.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
For the threesix month periodperiods ended September 30,December 31, 2015 and 2014
(Expressed in US Dollars)
1. Nature of Operations and Going Concern
Energizer Resources Inc. (the "Company") is aincorporated in the State of Minnesota, United States of America incorporated entity. The Company'sUSA and has a fiscal year end isof June 30. The Company's principal business is the acquisition, exploration and explorationdevelopment of mineral resources. The Company has yet to generate revenue from mining operations or pay dividends and is unlikely to do so in the immediate or foreseeable future.
During fiscal 2008, the Company incorporated Energizer Resources (Mauritius) Ltd. ("ERMAU"), a Mauritius subsidiary, and Energizer Resources Madagascar Sarl,Sarl. ("MAD"), a Madagascar subsidiary.subsidiary of ERMAU. During fiscal 2009, the Company incorporated THB VentureVentures Ltd. ("THB"), a Mauritius subsidiary to hold the interest inof ERMAU, and Energizer Resources Minerals Sarl,Sarl. ("MIN"), a Madagascar subsidiary of THB, which holds the 100% ownership interest of the Green Giant Property in Madagascar (see note 7). During fiscal 2012, the Company incorporated Madagascar‑ERG Joint Venture (Mauritius) Ltd. ("ERJVM"), a Mauritius subsidiary of ERMAU, and ERG (Madagascar) Sarl,Sarl. ("MAU"), a Madagascar subsidiary. ERG (Madagascar) Sarl is 100% owned by Madagascar‑ERG Joint Venture (Mauritius) Ltd.subsidiary of ERJVM, which is now 100% owned by Energizer Resources (Mauritius) Ltd. ERG (Madagascar) Sarl holds the Malagasy Joint Venture Ground (see note 7). During fiscal 2014, the Company incorporated 2391938 Ontario Inc., an Ontario, Canada subsidiary.
As of December 31, 2015, the Company had accumulated losses of $93,248,862 (June 30, 2015: $92,327,034) and as such, there is substantial doubt regarding the Company's ability to continue as a going concern. These unaudited condensed consolidated interim financial statements have been prepared on a going concern basis, which assumes that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has yet to generate revenue from mining operations or pay dividends and is unlikely to do so in the immediate or foreseeable future. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity or debt financing to continue operations, the Company's ability to attract joint venture partners and off‑take contracts and the attainment of profitable operations.
2. Significant Accounting Policies
Unaudited Condensed Consolidated Interim Financial Statements
These unaudited condensed consolidated interim financial statements have been prepared on the same basis as the annual consolidated financial statements and should be read in conjunction with those annual financial statements filed on Form 10‑K for the year ended June 30, 2015. In the opinion of management, these unaudited condensed consolidated interim financial statements reflect adjustments, necessary to present fairly the Company's financial position, results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for a full year or for any future period.
Principals of Consolidation and Basis of Presentation
These unaudited condensed consolidated interim financial statements are presented in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). These unaudited condensed consolidated interim financial statements include the accounts of Energizer Resources Inc. and its wholly‑owned subsidiaries, Energizer Resources (Mauritius) Ltd., THB Ventures Ltd., Energizer Resources Madagascar Sarl, Energizer Resources Minerals Sarl, Madagascar‑ERG Joint Venture (Mauritius) Ltd., ERG (Madagascar) Sarl and 2391938 Ontario Inc. All inter‑company balances and transactions have been eliminated on consolidation.
Use of Estimates
The preparation of these unaudited condensed consolidated interim financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of these unaudited condensed consolidated interim financial statements and the reported amounts of revenues and expenses during the period. On an ongoing basis, management evaluates its judgments and estimates in relation to assets, liabilities, revenue and expenses. Management uses past experience and other factors as the basis for its judgments and estimates. Actual results may differ from those estimates. The impacts of estimates are pervasive throughout these unaudited condensed consolidated interim financial statements and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and the revision affects current and future periods. Areas where significant estimates and assumptions are used include: the Binomialbinomial valuation of the warrant liability, the Black‑Scholes valuation of warrants and stock options, issued, the valuation recorded for future income taxes and the assumption that the Company will receive title to the properties after the Madagascar political situation stabilizes.
Energizer Resources Inc.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
For the threesix month periodperiods ended September 30,December 31, 2015 and 2014
(Expressed in US Dollars)
3. Recent Accounting Pronouncements Potentially Affecting The Company
The following are recent FASB accounting pronouncements, which may have an impact on the Company's future consolidated financial statements.
| · | "Presentation of Financial Statements Going Concern (ASC Topic 205‑40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern ("ASU 2014‑15") was issued during August 2014. FASB issued guidance on how to account for and disclose going concern risks. This guidance is effective for annual periods beginning after December 15, 2016. |
The Company is currently evaluating the impact of ASU 2014‑15 on its consolidated financial statements.
4. Marketable Securities
Marketable securities consist of available‑for‑sale securities over which the Company does not have significant influence or control. As at September 30,of December 31, 2015, $8,790$4,566 was invested in public companies (June 30, 2015: $7,615) was invested in public companies.
.
5. Related Party Transactions and Balances
The Company has had related party transactions.transactions during the period. Parties are related if one party has the direct or indirect ability to control or exercise significant influence over the other party in making operating and financial decisions. Parties are also related if they are subject to common control or common significant influence. Related parties include individuals, corporate entities, members of the Board of Directors and certain key management as well as companies controlled by these individuals.. individuals.
A transaction is considered to be a related party transaction when there is a transfer of economic resources or financial obligations between related parties. Related party transactions that are in the normal course of business and have commercial substance are measured at the exchange amount, which is fair value.
The following are the related party transactions foroccurred during the period ended September 30,December 31, 2015:
| a) | The Company incurred |
| b) | The Company incurred . |
| c) | The Company incurred $nil |
| d) | The Company |
| e) | The Company received a principal repayment of $76,450 |
| f) |
| Cost | Accumulated Depreciation | September 30, 2015 Net Book Value | June 30, 2015 Net Book Value | |||||||||||||
| Exploration equipment | $ | 195,561 | $ | 140,647 | $ | 54,914 | $ | 78,513 | ||||||||
7
Energizer Resources Inc.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
For the threesix month periodperiods ended September 30,December 31, 2015 and 2014
(Expressed in US Dollars)
6.Equipment
Cost | Accumulated Depreciation | Net Book Value December 31, 2015 | Net Book Value June 30, 2015 | |||||||||||||
| Exploration equipment | $ | 195,561 | $ | 151,648 | $ | 43,913 | $ | 78,513 | ||||||||
For the six month period ended December 31, 2015, the depreciation expense totaled $34,600 (December 31, 2014: $26,909).
7. Mineral Properties
Molo Graphite Property, Southern Madagascar Region, Madagascar
On April 16, 2014, the Company signed a Sale and Purchase Agreement and a Mineral Rights Agreement (together "the Agreements") with Malagasy to acquire the remaining 25% interest. ThePursuant to the Agreements, the Company made the following payments at that time:paid $364,480 (CAD$400,000);, issued 2,500,000 common shares subject to a 12 month voluntary vesting period andthat were valued at $325,000;$325,000 and issued 3,500,000 common share purchase warrants, which were valued at $320,950 using the Black‑Scholes, pricing model with an exercise price of $0.14 and an expiry date of April 15, 2019. On May 20, 2015 the Company paid $546,000 (CAD$700,000), and issued 1,000,000 common shares valued at $100,000 due to theupon completion of a bankable feasibility study ("BFS") for the Molo Graphite Property.Property, the Company paid $546,000 (CAD$700,000) and issued 1,000,000 common shares, which were valued at $100,000.
Malagasy retains a 1.5% net smelter return royalty ("NSR") on the property. A further cash payment of $801,584approximately $720,900 (CAD$1,000,000) will be due within five days of the commencement of commercial production. Malagasy retains a 1.5% net smelter return royalty ("NSR") on the property.
The Company also acquired a 100% interest toin the industrial mineral rights on approximately 1‑1/2 additional claim blocks comprisingcovering 10,811 hectares toadjoining the east and adjoiningside of the Molo Graphite Property.
Green Giant Property, Southern Madagascar Region, Madagascar
On July 9, 2009, the Company acquired the remaining 25% interest forby paying $100,000. MMR retains a 2% NSR. The NSRfirst 1% can be purchased,acquired at the Company's option forby paying $500,000 in cash or common shares forand the firstsecond 1% andcan be acquired at the Company's option by paying $1,000,000 in cash or common shares for the second 1%.shares.
On April 16, 2014, the Company signed a Joint Venture Agreement with Malagasy, whereby Malagasy acquired a 75% interest in non‑industrial minerals on the Company's 100% owned Green Giant Property. On May 21, 2015, Malagasy terminated the Joint Venture Agreement, which as a result, the Company reverted to its original 100% interest in all minerals on the property.
Energizer Resources Inc.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
For the six month periods ended December 31, 2015 and 2014
(Expressed in US Dollars)
7.Mineral Properties (continued)
Sagar Property, Labrador Trough Region, Quebec, Canada
In 2006, the Company purchased from Virginia Mines Inc. ("Virginia") a 100% interest in 382 claims located in northern Quebec, Canada. Virginia retains a 2% NSRnet smelter return royalty ("NSR") on certain claims within the property. Other unrelated parties also retain a 1% NSR and a 0.5% NSR on certain claims within the property, of which half of the 1% NSR can be purchasedacquired by the company forCompany by paying $200,000 and half of the 0.5% NSR can be purchasedacquired by the Company forby paying $100,000.
On February 28, 2014, the Company signed an agreement to sell a 35% interest in the Sagar property to HoneybadgerHoney Badger Exploration Inc. ("Honeybadger"Honey Badger"), a public company that is a related party bythrough common management. The terms of the agreement were subsequently amended on July 31, 2014 and again on May 8, 2015. In orderTo earn the 35% interest, Honey Badger was required to earn its interest, Honeybadger must complete a payment of $37,500$36,045 (CAD$50,000) by December 31, 2015, and must incur exploratoinexploration expenditures $375,000of $360,450 (CAD$500,000) by December 31, 2016. Honeybadger can earn an additional interest of up to 75% until December 31, 2019 by completing an additional payment of $450,000 (CAD$600,000), incurring an additional $3,000,000 (CAD$4,000,000) of exploration expenditures2016 and issuingissue 20,000,000 common shares to the Company by December 31, 2015. Honey Badger did not complete the lesser of (i) 15% of its issued and outstanding shares or (ii) 35,000,000 common shares. After having earned its 75% interest, Honeybadger can acquire the remaining 25% interestearn-in requirements by completing a payment of $1,500,000 (CAD$2,000,000) and issuing the lesser of (i) 19.5% of its issued and outstanding common shares or (ii) 60,000,000 common shares (including all previously issued common shares).December 31, 2015.
8. Deferred Premium on Flow‑ThroughFlow-Through Shares
The premium paidreceived by the Company for flow‑throughissuing flow-through shares, which are priced in excess of the market value of theits common shares, without a flow‑through feature is initially recognized as a financial liability. The flow-through premium liability is subsequently reduced and recorded in the consolidated statements of operations and comprehensive loss on a pro‑rata basis as the corresponding eligible flow‑through expendituresCEEs are incurred.
9. Common Stock and Additional Paid‑in Capital
The authorized share capital of the Company is 650,000,000 common shares with a $0.001 par value.value, of which 640,000,000 will be deemed as common shares. As of September 30,December 31, 2015, the Company had 329,935,670344,135,668 common shares issued and outstanding common shares (June 30, 2015 ‑2015: 309,384,670).
The Company issued the following common shares during the period ended September 30,December 31, 2015:
| (a) | On July 31, 2015, a total of 20,550,998 special common share purchase warrants with no exercise price were converted into one common share and one half one common share purchase warrants with an exercise price of $0.14 and an expiry date of May 4, 2018 (see also note 11). As a result, a total of 20,550,998 common shares and 10,275,499 common share purchase warrants were issued. |
| (b) | On October 7, 2015, the Company closed a private placement offering (the "Offering") of 14,200,000 units (the "Units") at a price of $0.04 (CAD$0.05) per unit, representing aggregate gross proceeds of $530,673 (CAD$710,000). Each Unit consisted of one common share of the Company and one half of one common share purchase warrant (each whole common share purchase warrant, a "Warrant"). Each Warrant entitles the holder to purchase one common share at a price of $0.07 per common share until October 6, 2017. |
| Date Granted | Expiry Date | Exercise Price ($USD) | Number of Stock Options | ||||||
| July 1, 2011 | July 1, 2016 | $ | 0.30 | 3,700,000 | |||||
| July 13, 2012 | July 13, 2016 | $ | 0.29 | 1,650,000 | |||||
| October 24, 2011 | October 24, 2016 | $ | 0.20 | 1,640,000 | |||||
| December 1, 2011 | December 1, 2016 | $ | 0.21 | 1,910,000 | |||||
| March 7, 2012 | March 4, 2017 | $ | 0.28 | 5,300,000 | |||||
| May 23, 2012 | May 23, 2017 | $ | 0.23 | 180,000 | |||||
| February 27, 2013 | February 27, 2018 | $ | 0.21 | 5,050,000 | |||||
| July 9, 2013 | July 9, 2018 | $ | 0.11 | 1,080,000 | |||||
| September 19, 2013 | July 19, 2018 | $ | 0.15 | 675,000 | |||||
| October 9, 2013 | October 9, 2018 | $ | 0.13 | 250,000 | |||||
| January 10, 2014 | January 10, 2019 | $ | 0.18 | 4,525,000 | |||||
| July 3, 2014 | July 3, 2019 | $ | 0.15 | 4,525,000 | |||||
| February 26, 2015 | February 26, 2020 | $ | 0.20 | 4,430,000 | |||||
| 34,915,000 |
Energizer Resources Inc.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
For the threesix month periodperiods ended September 30,December 31, 2015 and 2014
(Expressed in US Dollars)
10.Stock Options
The Company's stock option plan is restricted to a maximum of 43,000,000 stock options. As of December 31, 2015 there were 41,965,000 stock options outstanding with a weighted average expiration of 2.78 years. All the stock outstanding options vested on their grant date.
| The following is a continuity schedule of the Company's stock options from prior periods: | ||||||||
| Number of | Weighted‑Average | |||||||
| Stock Options | Exercise Price ($) | |||||||
| Outstanding as of June 30, 2014 | 28,470,000 | 0.23 | ||||||
| Issued | 9,280,000 | 0.17 | ||||||
| Cancelled | (2,385,000 | ) | 0.21 | |||||
| Outstanding as of June 30, 2015 | 35,365,000 | 0.22 | ||||||
| Issued | - | - | ||||||
| Cancelled | (450,000 | ) | 0.21 | |||||
| Outstanding as of September 30, 2015 | 34,915,000 | 0.22 | ||||||
Grant Date | Expiration Date | Exercise Price | Number of Stock Options | ||||||
July 1, 2011 | July 1, 2016 | $ | 0.30 | 3,300,000 | |||||
| July 13, 2012 | July 13, 2016 | $ | 0.29 | 1,650,000 | |||||
| October 24, 2011 | October 24, 2016 | $ | 0.20 | 1,640,000 | |||||
| December 1, 2011 | December 1, 2016 | $ | 0.21 | 1,785,000 | |||||
| March 7, 2012 | March 4, 2017 | $ | 0.28 | 4,900,000 | |||||
| May 23, 2012 | May 23, 2017 | $ | 0.23 | 180,000 | |||||
| February 27, 2013 | February 27, 2018 | $ | 0.21 | 4,900,000 | |||||
| July 9, 2013 | July 9, 2018 | $ | 0.11 | 1,080,000 | |||||
| September 19, 2013 | July 19, 2018 | $ | 0.15 | 675,000 | |||||
| October 9, 2013 | October 9, 2018 | $ | 0.13 | 250,000 | |||||
| January 10, 2014 | January 10, 2019 | $ | 0.18 | 4,400,000 | |||||
| July 3, 2014 | July 3, 2019 | $ | 0.15 | 4,275,000 | |||||
| February 26, 2015 | February 26, 2020 | $ | 0.20 | 4,430,000 | |||||
| December 22, 2015 | December 22, 2020 | $ | 0.06 | 8,500,000 | |||||
| Total Outstanding | 41,965,000 | ||||||||
The following is a continuity schedule of the Company's outstanding stock options from prior periods:
Weighted-Average Exercise Price ($) | Number of Stock Options | |||||||
| Outstanding as of June 30, 2014 | 0.23 | 28,470,000 | ||||||
| Issued | 0.17 | 9,280,000 | ||||||
| Cancelled | 0.21 | (2,385,000 | ) | |||||
| Outstanding as of June 30, 2015 | 0.22 | 35,365,000 | ||||||
| Issued | 0.06 | 8,500,000 | ||||||
| Cancelled | 0.23 | (1,900,000 | ) | |||||
| Outstanding as of December 31, 2015 | 0.18 | 41,965,000 | ||||||
10
Energizer Resources Inc.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
For the six month periods ended December 31, 2015 and 2014
(Expressed in US Dollars)
11. Warrants
| Expiry Date | Notes | Exercise Price | Number of Warrants | |||||||
| September 26, 2016 | $ | 0.14 | 1,928,571 | |||||||
| November 15, 2016 | (a) | $ | 0.18 | 2,903,571 | ||||||
| January 14, 2017 | (c) | $ | 0.13 | 29,152,033 | ||||||
| January 31, 2017 | (c) | $ | 0.13 | 590,000 | ||||||
| May 4, 2018 | (b) | $ | 0.14 | 10,275,499 | ||||||
| December 30, 2016 | $ | 0.12 | 147,000 | |||||||
| April 15, 2019 | $ | 0.14 | 3,500,000 | |||||||
| 48,496,674 | ||||||||||
Weighted-Average Exercise Price ($) | Number of Warrants | |||||||
| Outstanding as of June 30, 2014 | 0.16 | * | 42,555,729 | |||||
| Issued | 0.01 | 22,626,569 | ||||||
| Exercised | 0.11 | * | (571,353 | ) | ||||
| Expired | 0.19 | * | (992,028 | ) | ||||
| Outstanding as of June 30, 2015 | 0.10 | * | 63,618,917 | |||||
| Issued | 0.11 | 17,375,499 | ||||||
| Exercised | - | (20,550,998 | ) | |||||
| Expired | 0.11 | * | (4,846,744 | ) | ||||
| Outstanding as of December 31, 2015 | 0.13 | * | 55,596,674 | |||||
* Amount represents the converted USD exercise price
As of December 31, 2015, there were 55,596,674 common share purchase warrants outstanding with a weighted average expiration of 1.50 years.
Expiration Date | Notes | Exercise Price | Number of Warrants | ||||||
September 26, 2016 | $ | 0.14 | 1,928,571 | ||||||
| November 15, 2016 | (a) | $ | 0.18 | 2,903,571 | |||||
| December 30, 2016 | $ | 0.12 | 147,000 | ||||||
| January 14, 2017 | (b) | $ | 0.13 | 29,152,033 | |||||
| January 31, 2017 | (b) | $ | 0.13 | 590,000 | |||||
| October 6, 2017 | $ | 0.07 | 7,100,000 | ||||||
| May 4, 2018 | $ | 0.14 | 10,275,499 | ||||||
| April 15, 2019 | $ | 0.14 | 3,500,000 | ||||||
| Total Outstanding | 55,596,674 | ||||||||
| (a) | On December 24, 2013, the Company re‑priced and extended the term of the common share purchase warrants from an original expiry date of November 15, 2015 with an exercise price of $0.23 to November 15, 2016 with an exercise price of $0.18. |
| (b) |
These warrants were issued at |
11
Energizer Resources Inc.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
For the threesix month periodperiods ended September 30,December 31, 2015 and 2014
(Expressed in US Dollars)
11.Warrants
The Company has accounted for the warrant liability in accordance with ASC Topic 815. The 29,742,033 warrants expiring in January 2017 are considered derivative instruments as they were issued in a currency other than the Company's functional currency ofand therefore, in accordance with ASC 815 Derivatives and Hedging, are considered a derivative instrument and recorded on the US dollar.balance sheet as a warrant liability. The estimated fair value of warrants accounted for as liabilitiesthe warrant liability was determinedestimated on the date of issue and are marked to marketis re-measured at each financial reporting period.period using a binomial model until expiration or exercise of the underlying warrants. The change in fair value of the warrant liability is recorded in profit or loss as a gain or loss andwas estimated using the Binomialfollowing model with the following weighted average inputs:
| Period Ending | Year Ending | |||||||||
September 30, 2015 | June 30, 2015 | |||||||||
| Exercise price | $ | 0.14 | $ | 0.14 | ||||||
| Risk free rate | 1.53 | % | 1.53 | % | ||||||
| Expected volatility | 112.3 | % | 93.7 | % | ||||||
| Expected dividend yield | Nil | Nil | ||||||||
| Expected life (in years) | 1.29 | 1.48 | ||||||||
| Beginning balance, derivative warrant liability | $ | 844,851 | $ | 1,830,151 | ||||||
| Gain on change in fair value of derivative warrant liability | (633,506 | ) | (985,300 | ) | ||||||
| Ending balance, derivative warrants liability | $ | 211,345 | $ | 844,851 | ||||||
| The following is the continuity schedule of the Company's common share purchase warrants from prior periods: | ||||||||||
| Number | WeightededeAverage | |||||||||
| of Warrants | Exercise Price ($) | |||||||||
| Outstanding and exercisable, June 30, 2014 | 42,555,729 | 0.16 | * | |||||||
| Issued | 22,626,569 | 0.01 | ||||||||
| Exercised | (571,353 | ) | 0.11 | * | ||||||
| Expired | (992,028 | ) | 0.19 | * | ||||||
| Outstanding and exercisable, June 30, 2015 | 63,618,917 | 0.10 | * | |||||||
| Issued | 10,275,499 | 0.14 | ||||||||
| Exercised | (20,550,998 | ) | - | |||||||
| Expired | (4,846,744 | ) | 0.11 | * | ||||||
| Outstanding and exercisable, September 30, 2015 | 48,496,674 | 0.14 | * | |||||||
| * Amount represents the converted USD exercise price | ||||||||||
Period Ended December 31, 2015 | Year Ended June 30, 2015 | |||||||
Exercise price | $ | 0.13 | $ | 0.14 | ||||
Risk free rate | 0.48 | % | 1.53 | % | ||||
Expected volatility | 100.4 | % | 93.7 | % | ||||
Expected dividend yield | Nil | Nil | ||||||
Expected life (in years) | 1.04 | 1.48 | ||||||
Beginning balance, derivative warrant liability | $ | 844,851 | $ | 1,830,151 | ||||
Gain on change in fair value of derivative warrant liability | (513,110 | ) | (985,300 | ) | ||||
Ending balance, derivative warrant liability | $ | 331,741 | $ | 844,851 | ||||
Basic and diluted loss per share is computed using the weighted average number of common stock outstanding.shares outstanding during the reporting period. Diluted loss per share and the weighted average number of shares of common stock excludeexcludes all potentially dilutive shares since their effect is anti‑dilutive.
As at September 30,of December 31, 2015, there werewas a total of 83,411,67497,561,674 potentially dilutive warrants and options outstanding (June 30, 2015: 98,983,917) potentially dilutive stock options and common share purchase warrants outstanding.
.The Company operates one operating segment, which is the acquisition, exploration and development of mineral properties.resources. The Company's President and Chief Executive Officer and Chief Financial Officer are the operating decision‑makers and direct the allocation of resources to its geographic segments. No revenue has been generated by theseany of its mineral resource properties. All of the remaining assets are held in Canada.
The following is the segmented information by geographic region:
| The following is segmented information by geographic region: | |||||||||
| For the period ended September 30, 2015 | Madagascar | Canada | Total | ||||||
| Mineral exploration expense | $ | 137,229 | $ | 39,730 | $ | 176,959 | |||
| For the period ended September 30, 2014 | Madagascar | Canada | Total | ||||||
| Mineral exploration expense | $ | 581,104 | $ | 1,122,022 | $ | 1,703,126 | |||
| As of September 30, 2015 | Madagascar | Canada | Total | ||||||
| Cash & equivalents | $ | 21,459 | $ | 715,502 | $ | 736,961 | |||
| As of June 30, 2015 | Madagascar | Canada | Total | ||||||
| Cash & equivalents | $ | 65,299 | $ | 713,819 | $ | 779,118 | |||
| Period ended December 31, 2015 | Madagascar | Canada | Total | |||||||||
| Mineral exploration expense | $ | 311,754 | $ | 48,902 | $ | 360,656 | ||||||
Cash and equivalents | $ | 61,512 | $ | 123,139 | 184,651 | |||||||
| Period ended December 31, 2014 | Madagascar | Canada | Total | |||||||||
| Mineral exploration expense | $ | 1,666,360 | $ | 1,567,518 | $ | 3,233,878 | ||||||
| Period ended June 30, 2015 | Madagascar | Canada | Total | |||||||||
Cash and equivalents | $ | 65,299 | $ | 713,819 | $ | 779,118 | ||||||
12
Energizer Resources Inc.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
For the six month periods ended December 31, 2015 and 2014
(Expressed in US Dollars)
During fiscal 2014, the Company issued 17,889,215 flow-through shares requiringto eligible Canadian taxpayer subscribers with contractual commitments for the Company to spendincur $3,812,642 on qualifiedin eligible Canadian Exploration Expenditures ("CEE"CEEs") on or beforeby December 31, 2014 and renounced an equal amount of CEE expenditures in favor of the flow-through share subscribers as per the provisionsprovision of the Income Tax Act (Canada) for flow-through shares. This included an indemnificationof Canada. The CEEs were renounced as a tax credit to the flow-through share subscribers in the event of a shortfall in contractual expenditures.
on December 31, 2013. As at December 31, 2014, the Company had unfulfilled CEE obligations of $393,904. As the Company did not fulfill the expenditure obligation,contractual CEE obligations, the Company recorded a contingent provision of $38,121 during the year ended June 30, 2015 for the company recorded a contingent provision of $39,391 related to Part XII.6 tax, and related penalties and interest on the unfulfilled commitments and a contingent provision of $137,866$133,337 for the shareholder indemnification to subscribers for taxes and penalties related to the unspent portionrenunciation shortfall.
The Company was named, jointly and severally with other Corporations that are related parties due to common management, in a Statement of Claim filed December 15, 2015 by the commitment.former Chief Financial Officer for damages for wrongful dismissal. The Company believes the claim is without merit and intends to defend itself vigorously. The timing and outcome of this litigation is uncertain and cannot be estimated at this time.
On October 7, 2015February 4, 2016, the Company closed a private placement offering (the "Offering") of 14,200,0006,437,900 units (the "Units") at a price of CAD$0.05$0.05 (CAD$0.07) per unit, representing aggregate gross proceeds of approximately $544,925$328,977 (CAD$710,000)450,653). Each Unit consisted of one common share of the Company and one half of one common share purchase warrant (each whole common share purchase warrant, a(a "Warrant"). Each Warrant entitles the holder to purchase one common share at a price of US$0.07$0.11 per common share until October 6, 2017. IncludedFebruary 4, 2018.
Each of the issuances above were effected in subscriptions receivedreliance upon the exemption provided by Regulation S under the Securities Act of 1933, as amended, for a transaction not involving a public offering. We completed the offering of the shares pursuant to Rule 903 of Regulation S of the Securities Act on the basis that the sale of the securities was completed in advance is $440,673 from subscriptions received prioran "offshore transaction", as defined in Rule 902(h) of Regulation S. Each investor represented to September 30, 2015.us that the investor was not a U.S. person, as defined in Regulation S, and was not acquiring the shares for the account or benefit of a U.S. person. The securities contain a legend restricting the sale of such securities in accordance with the Securities Act.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As used in this quarterly report, "we", "us", "our", "Energizer Resources", "Energizer", "Company" or "our company" refers to Energizer Resources Inc. and all of its subsidiaries. The term NSR stands for Net Smelter Royalty.
Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with our financial statements included herein. Further, this quarterly report on Form 10-Q should be read in conjunction with our Financial Statements and Notes to Financial Statements included in our fiscal 2015 Annual Report on Form 10-K for the year ended June 30, 2015, filed with the Securities and Exchange Commission on September 30, 2015. Our actual results could differ materially from those anticipated by the forward-looking statements due to important factors and risks including, but not limited to, those set forth under "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K. In addition, the foregoing factors may affect generally our business, results of operations and financial position. Forward-looking statements speak only as of the date the statement was made. We do not undertake and specifically decline any obligation to update any forward-looking statements.
Our financial statements have been prepared in accordance with United States generally accepted accounting principles.principles (US GAAP). We urge you to read this report in conjunction with the risk factors described herein.
Management's Discussion and Analysis may contain various "forward looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, regarding future events or the future financial performance of the Company that involve risks and uncertainties. Certain statements included in this Form 10-Q, including, without limitation, statements related to anticipated cash flow sources and uses, and words including but not limited to "anticipates", "believes", "plans", "expects", "future" and similar statements or expressions, identify forward looking statements. Any forward-looking statements herein are subject to certain risks and uncertainties in the Company's business and any changes in current accounting rules, all of which may be beyond the control of the Company. The Company has adopted the most conservative recognition of revenue based on the most astringent guidelines of the SEC. Management will elect additional changes to revenue recognition to comply with the most conservative SEC recognition on a forward going accrual basis as the model is replicated with other similar markets (i.e. SBDC). The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth therein. Undue reliance should not be placed on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to update these forward-looking statements.
Cautionary Note
Based on the nature of our business, we anticipate incurring operating losses for the foreseeable future. We base this expectation, in part, on the fact that very few mineral properties in the exploration stage are ultimately developed into producing and profitable mines. Our future financial results are uncertain due to a number of factors, some of which are outside the Company's control. These factors include, but are not limited to: (1) our ability to raise additional funding; (2) the market price for graphite, vanadium, gold and/or uranium; (3) the results of the exploration programs and metallurgical analysis of our mineral properties; (4) the political instability and/or environmental regulations that may adversely impact costs and ability to operate in Madagascar; and (5) our ability to find joint venture and/or off-take partners in order to advance the development of our mineral properties.
Any future equity financing will cause existing shareholders to experience dilution of their ownership interest in the Company. In the event the Company is not successful in raising additional financing, we anticipate the Company will not be able to proceed with its business plan. In such a case, the Company may decide to discontinue or modify its current business plan and seek other business opportunities in the resource sector.
During this period, the Company will need to maintain periodic filings with the appropriate regulatory authorities and will incur legal, accounting, administrative and listing costs. In the event no other such opportunities are available and the Company cannot raise additional capital to sustain operations, the Company may be forced to discontinue the business. The Company does not have any specific alternative business opportunities under consideration and have not planned for any such contingency.
Due to the lack of operating history and present inability to generate revenues, the Company auditors have stated their opinion in the notes to our audited financial statements in the annual report on Form 10-K and the Company has included in Note 1 of this quarterly report that there currently exists doubt as to the Company's ability to continue as a going concern.
14
BACKGROUND – COMPANY OVERVIEW
During fiscal 2008, wethe Company incorporated Energizer Resources (Mauritius) Ltd. ("ERMAU"), a Mauritius subsidiary, and Energizer Resources Madagascar Sarl,Sarl. ("MAD"), a Madagascar subsidiary.subsidiary of ERMAU. During fiscal 2009, wethe Company incorporated THB VentureVentures Ltd. ("THB"), a Mauritius subsidiary to hold the interest inof ERMAU, and Energizer Resources Minerals Sarl,Sarl. ("MIN"), a Madagascar subsidiary.subsidiary of THB, which holds the 100% ownership interest of the Green Giant Property in Madagascar (see note 7). During fiscal 2012, wethe Company incorporated Madagascar‑ERG Joint Venture (Mauritius) Ltd. ("ERJVM"), a Mauritius subsidiary of ERMAU, and ERG (Madagascar) Sarl,Sarl. ("MAU"), a Madagascar subsidiary. ERG (Madagascar) Sarl is 100% owned by Madagascar‑ERGsubsidiary of ERJVM, which holds the Malagasy Joint Venture (Mauritius) Ltd. which is now 100% owned by Energizer Resources (Mauritius) Ltd. ERG (Madagascar) Sarl holds the Molo Graphite Property.Ground (see note 7). During fiscal 2014, wethe Company incorporated 2391938 Ontario Inc., an Ontario, Canada subsidiary.
On December 16, 2014, our authorized capital was increased from an aggregate of four hundred fifty million (450,000,000) shares to six hundred fifty million (650,000,000) shares, par value of $0.001 per share, of which 640,000,000 will be deemed common shares and the remaining 10,000,000 will be deemed eligible to be divisible into classes, series and types as designated by our Board of Directors.
The Company has not had any bankruptcy, receivership or similar proceeding since incorporation. Except as described below, there have been no material reclassifications, mergers, consolidations or purchases or sales of any significant amount of assets not in the ordinary course of business since the date of incorporation.
Summary of Our Business
Further details regarding each of ourthe Company's Madagascar properties, although not incorporated by reference, including the comprehensive geological report prepared in accordance Canada's National Instrument 43-101 - Standards of Disclosure for Mineral Properties ("NI 43-101") on ourfor the Molo Graphite Property and separately ourthe technical report on ourthe Green Giant Property in Madagascar can be found on ourthe Company's website:website at www.energizerresources.com (which website is expressly not incorporated by reference into this filing) or in ourthe Company's Canadian regulatory filings onat www.sedar.com (which website and content is expressly not incorporated by reference into this filing).
Summary of Quarterly Milestones and Future Plans
In the coming months, our companythe Company plans to pursue negotiations in respect of potential off-take agreements with graphite end users and continue to seekintermediaries with the intention of securing project financing alternatives, (debtwhich may include debt, equity and equity).derivative instruments. Discussions in respect of these matters have been ongoing for the past 18 months and are plannedexpected to continue during the coming months althoughwith no assurances can be provided regardingas to the conclusion and results of these discussions.discussions. The Company is continuingcontinues to reviewassess optimization strategies in hopeswith the intention of reducing both the capital and operating costs relating to the Molo Graphite Property.Property with no assurances as to the conclusion and results of these assessments.
15
RESULTS OF OPERATIONS
The following are explanations of the material changes for the material fluctuations/disparities during thesix month period ended September 30,December 31, 2015 when compared to the six month period ended September 30,December 31, 2014:
| Six Months Ended December 31, | Increase | |||||||||||
| 2015 | 2014 | (Decrease) | ||||||||||
| Revenues | $ | - | $ | - | $ | - | ||||||
Expenses | ||||||||||||
| Mineral exploration expense | 360,656 | 3,233,878 | (2,873,222 | ) | ||||||||
| Professional and consulting fees | 395,680 | 472,052 | (76,372 | ) | ||||||||
| Stock‑based compensation | 331,491 | 404,160 | (72,669 | ) | ||||||||
| General and administrative | 219,892 | 500,664 | (280,772 | ) | ||||||||
| Depreciation | 34,600 | 26,909 | 7,691 | |||||||||
| Foreign currency translation loss | 93,180 | 3,827 | 89,353 | |||||||||
| Total expenses | 1,435,499 | 4,641,490 | (3,205,991 | ) | ||||||||
Net Loss From Operations | (1,435,499 | ) | (4,641,490 | ) | 3,205,991 | |||||||
Other Income (Expenses) | ||||||||||||
Investment income | 561 | 6,472 | (5,911 | ) | ||||||||
| Reduction of flow-through premium liability | 37,145 | (37,145 | ) | |||||||||
| Gain on sale of marketable securities | 12,278 | (12,278 | ) | |||||||||
| Change in value of warrant liability | 513,110 | 489,119 | 23,991 | |||||||||
| Net Loss | (921,828 | ) | (4,096,476 | ) | 3,174,648 | |||||||
Unrealized loss from marketable securities | (3,049 | ) | (5,816 | ) | 2,767 | |||||||
| Realized gain from marketable securities | (12,278 | ) | 12,278 | |||||||||
| Comprehensive Loss | (924,879 | ) | (4,114,570 | ) | 3,189,693 | |||||||
| · | Mineral exploration costs |
| · | Professional fees, |
| · | Foreign currency translation |
| · |
Liquidity, Capital Resources and Foreign Currencies
| December 31, | June 30, | Increase | ||||||||||
| 2015 | 2015 | (Decrease) | ||||||||||
| Cash & Equivalents | 184,651 | 779,118 | (594,467 | ) | ||||||||
| Total Current Assets | 255,126 | 928,699 | (673,573 | ) | ||||||||
| Total Current Liabilities | (800,952 | ) | (1,414,470 | ) | 613,518 | |||||||
| Working Capital Position | (545,826 | ) | (485,771 | ) | (60,055 | ) | ||||||
In managing liquidity, the Company's primary objective is to ensure the entity can continue as a going concern while raising additional funding to meet its obligations as they come due. The Company's operations to date have been funded by issuing equity. The Company expects to improve the working capital position by securing additional financing.
The Company holds a significant portion of its cash reserves in Canadian dollars to satisfy our non-exploration expenditures such as professional and consulting fees and general and administrative costs, which are mainly incurred in Canadian dollars. Due to foreign exchange rate fluctuations, the remeasurement of the value of these Canadian dollar reserves can resultinto US dollars results in foreign currency translation gains or losses in US dollar terms.losses. If there was to be a significant decline in the Canadian dollar against the US dollar, the US dollar value of that Canadian dollar cash positionreserves, as presented on ourthe balance sheet, would alsocould significantly decline. If the US dollar significantly declines relative to the Canadian dollar, our quoted US dollar cash position would also significantly decline. Suchdecline causing significant foreign exchange declines could cause us to experiencecurrency translation losses. In addition, to paying expenses in Canadian dollars, we also pay certain expensesof the Corporations ongoing expenditures are in South African Rand, Madagascar Ariary and Euros. Therefore, we are subjectEuros requiring the Company to risks relating to movements in those currencies.
Capital Financings
Net proceeds during the past two years:
| · | For the year ended June 30, 2014, we raised net proceeds of $9,559,926 through the issuance of 90,523,283 common shares and 39,312,130 common share purchase warrants. |
| · | For the year ended June 30, 2015, we raised net proceeds of $6,663,148 through the issuance of 40,757,067 common shares and 22,626,569 common share purchase warrants. |
| · | On October 7, 2015, we closed a non-brokered private placement offering of 14,200,000 units (the "Units") at a price of $0.04 (CAD$0.05) per Unit, representing gross proceeds of $530,673 (CAD$710,000). Insiders subscribed for a total of $50,000CAD as part of this Offering. Each Unit is comprised of one (1) common share and one-half (0.5) of one (1) common share purchase warrant (a "Warrant"), each Warrant entitling the holder thereof to acquire one (1) additional common share at a price of $0.07 per share until October 6, 2017. |
| · | On February 4, 2016, the Company closed a private placement offering (the "Offering") of 6,437,900 units (the "Units") at a price of $0.05 (CAD$0.07) per unit, representing aggregate gross proceeds of $328,977 (CAD$450,653). Each Unit consisted of one common share of the Company and one common share purchase warrant (a "Warrant"). Each Warrant entitles the holder to purchase one common share at a price of $0.11 per common share until February 4, 2018. |
Off-balance sheet arrangements
ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
17
ITEM 4. - CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Our management team, under the supervision and with the participation of our principalchief executive officer and our principalchief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), as of the last day of the fiscal period covered by this report, September 30,December 31, 2015. The term disclosure controls and procedures means our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principalchief executive and principalchief financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Based on this evaluation, our principalchief executive officer and our principalchief financial officer concluded that, our disclosure controls and procedures were effective as of September 30,December 31, 2015.
Changes In Internal Control Over Financial Reporting
On October 23, 2015 the Company appointed Marc Johnson as Chief Financial Officer, replacing the former Chief Financial Officer.
There were no changes in the Company's internal controls over financial reporting during the most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS
The Company was named, jointly and severally with other Corporations that are related parties due to common management, in a Statement of Claim filed December 15, 2015 by the former Chief Financial Officer for damages for wrongful dismissal. The Company believes the claim is without merit and intends to defend itself vigorously. The timing and outcome of this litigation is uncertain and cannot be estimated at this time.
We are not currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries' officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
ITEM 1A. – RISK FACTORS
Not required under Regulation S-K for "smaller reporting companies" we. We hereby disclose the following:
Our business is subject to a variety of risks and uncertainties, including, but not limited to, the risks and uncertainties described below and elsewhere within this document. If any of the risks described below, or elsewhere in this report on Form 10-K, or our Company's other filings with the Securities and Exchange Commission (the "SEC"), were to occur, our financial condition and results of operations could suffer and the trading price of our common stock could decline. Additionally, if other risks not presently known to us, or that we do not currently believe to be significant, occur or become significant, our financial condition and results of operations could suffer and the trading price of our common stock could decline. You should carefully review the risk factors noted below together with all of the additional risk factors and other information contained in our Annual Report on Form 10-K for the year ended June 30, 2015, and in prior reports pursuant to the Securities Exchange Act of 1934, as amended and the Securities Act of 1933, as amended.
SHOULD ANY OF THE FOREGOING RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD THE UNDERLYING ASSUMPTIONS OF OUR BUSINESS PROVE INCORRECT, ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THOSE ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED, INTENDED OR PLANNED.
18
Our primary exploration efforts are in the African country of Madagascar, where a new government has been in place since early 2014.
Any adverse developments to the political situation in Madagascar could have a material effect on the Company's business, results of operations and financial condition. Democratic elections in Madagascar occurred toward the end of 2013 as planned by the elections calendar jointly established between the UN and the Elections Commission. To date, the Company has not experienced any disruptions or been placed under any constraints in our exploration efforts due to the political situation in Madagascar. Depending on future actions taken by the newly elected government, or any future government, the Company's business operations could be impacted.
The newly elected President was inaugurated on January 25, 2014 and the lower house of Parliament took office in February 2014. A government reshuffle occurred in early 2015, with the naming of a new Prime Minister on January 14, 2015. Ministers composing the new government were named on January 25, 2015. On May 26, 2015, the Parliament voted to impeach the President on the grounds that he had violated the Constitution. The High Constitutional Court invalidated the claim, declaring the accusation unfounded. The President, the Government and the Parliament continue to operate as before.
The Company is actively monitoring the political climate in Madagascar and continues to hold meetings with representatives of the government and the Ministry attached to the Presidency in charge of Mining. The transformation or amendment of exploration and research mining permits within the country continues to be suspended, including the transfer and status of the Molo Graphite Project permit. Additionally, this permit expired in 2011 and has not been renewed despite our efforts to do so. The Company has continued to pay taxes and administrative fees in Madagascar with respect to our mining permits including the permit relating to the Molo Graphite Project (although such permit is not in the Company's name). These payments have been acknowledged and accepted by the Madagascar government. Further, in order to advance the Molo Graphite Project, the current permit will need to be converted into an exploration permit in the name of the Company or one of its subsidiaries. The Company cannot provide any assurance as to the timing of the receipt of the required permits.