Royal Coal Corp. ("Royal Coal" or the "Resulting Issuer") announces
the completion of the amalgamation (the "Business Combination") of
CDR Minerals Inc. ("CDR") with Royal Coal's wholly-owned subsidiary
to continue as one company ("Amalco") under the Business
Corporations Act (Ontario) (the "OBCA"). In connection with the
completion of the Business Combination, Amalfi Capital Corporation
("Amalfi") (TSX VENTURE: ALI.P) continued under the OBCA, changed
its name to "Royal Coal Corp." and consolidated its previously
outstanding common shares on the basis of two common shares of
Amalfi ("Amalfi Shares") for one common share of Royal Coal (the
"Consolidation").
Concurrent with the closing of the Business Combination on
August 12, 2010, CDR completed its previously announced private
placement of $4,685,000 in gross proceeds, representing an
aggregate of 23,425,000 units (the "CDR Units") at a price of $0.20
per Unit (the "Private Placement"). Each CDR Unit is comprised of
one common share of CDR (the "CDR Shares") and one common share
purchase warrant ("Warrant"). Each whole Warrant will entitle the
holder to purchase one common share of CDR at a price of $0.20 for
a period of five years from the closing of the Private Placement.
Northern Securities Inc. and Salman Partners Inc. (collectively,
the "Agents") acted as agents on a best efforts basis in connection
with the brokered portion of the Private Placement. Pursuant to the
terms of the Private Placement, the Agents, along with other
placement agents, were paid an aggregate of $226,000 in cash
commissions and were issued an aggregate of 1,030,300 broker
warrants, each exercisable to purchase one CDR Unit at $0.20 for a
period of 60 months from the closing of the Private Placement.
The Amalgamation became effective on August 12, 2010, the date
the Certificate of Amalgamation was issued in respect of the
Business Combination under the OBCA. Pursuant to the Amalgamation
and after giving effect to the Consolidation: (i) each two (2)
Amalfi Shares will be exchanged for one common share of Royal Coal
("Resulting Issuer Share") upon receipt of the required
documentation from each shareholder; (ii) each CDR Share was
exchanged for one Resulting Issuer Share; and (iii) each holder of
a post-Consolidation Amalfi Share received 0.28235525 of a Royal
Coal new common share purchase warrant ("Resulting Issuer New
Warrant") for each Amalfi Share held, each whole warrant entitling
the holder to acquire one Resulting Issuer Share at a price of
$0.20 per share for two years from the closing of the Business
Combination, resulting in the issuance of 1,657,143 Resulting
Issuer New Warrants. In addition, the other outstanding convertible
securities of each of Amalfi and CDR were replaced/continued into
securities of the Royal Coal as disclosed below under the heading
"Fully Diluted Share Capital of the Resulting Issuer".
Amendments to Debt Arrangements
Third Eye Capital Corporation ("TEC") and Juno Special
Situations Corporation ("Juno") agreed to amend the note purchase
agreement dated September 30, 2009 between Juno and TEC (the "TEC
Loan") and the corresponding note purchase agreement dated
September 30, 2009 between CDR and Juno (the "Juno Loan", and
together with the TEC loan the "Indebtedness") to waive certain
covenants that were not achieved by CDR, and establish updated
financial and production, interest and repayment covenants. In
accordance with such amendments, US$1,000,000 was paid to reduce
the Indebtedness (the "Closing Repayment") from the proceeds from
the Private Placement and US$450,000, representing unpaid waiver
fees, was added to the Indebtedness. The outstanding amount of the
Indebtedness after payment of the Closing Repayment was
US$5,750,000, plus the US$2 per ton royalty capped at 3,105,000
tons referenced in the Filing Statement. The royalty payment
commitment maturity date was extended from March 31, 2011 to
January 31, 2012.
CDR also entered into an agreement with Juno, which amended the
terms of the Juno Loan. In accordance with such agreement, Juno
granted CDR an option to convert the principal amount of the Juno
Loan into Resulting Issuer Shares at a conversion price equal to
the greater of (i) $0.20 and (ii) the weighted average market price
of the Resulting Issuer's shares for the 20 trading days prior to
the date notice is received exercising the option. The option is
exercisable at any time up until 20 days prior to the maturity date
of the Juno Loan, which is March 31, 2011. CDR's option to convert
is subject to CDR using its best efforts to find alternative
financings to repay the Juno Loan in cash, CDR not being in default
under the Juno Loan, and the payment of increased royalty payments
to Juno of US$0.10 per ton of coal for each US$1,000,000 principal
amount of the Juno Loan converted. CDR remains a guarantor of
Juno's debt obligations to TEC, an arm's length lender, in respect
of which CDR has granted a general security interest over its
assets.
GC Global Capital Inc.'s convertible debenture with CDR in the
amount of $375,000 was amended such that $25,000 was paid on
closing of the Private Placement and the balance of the principal
will be repaid over the period ending December 31, 2011.
Upon closing of the Private Placement, CDR paid Cheyenne
Resources Inc. US$800,000 of the principal amount owing under its
convertible debentures with CDR (the "CDR Cheyenne Debentures").
The principal amount of the CDR Cheyenne Debentures after this
payment was US$4,200,000 and the maturity date of the CDR Cheyenne
Debentures was extended to January 31, 2012.
CDR also entered into agreements (the "CDR Debt Settlement")
with two arm's length third parties (the "Trade Creditors"),
pursuant to which CDR has agreed to issue 4,125,000 CDR Units with
an aggregate value of $825,000 to the Trade Creditors in exchange
for the cancellation of $825,000 in outstanding trade payables.
Amendment to Previous Financing
In accordance with their agreements (the "January Unit
Agreements") with CDR, investors who subscribed for an aggregate of
2,200,000 units of CDR at a price of $0.50 per unit in January 2010
received an additional 3,300,000 CDR Shares for no additional
consideration (so, following the closing of the Business
Combination, they held an aggregate of 5,500,000 Resulting Issuer
Shares). In addition, the 2,200,000 share purchase warrants
originally forming part of such units were cancelled and such
investors instead received 5,500,000 common share purchase warrants
of the Resulting Issuer (the "Resulting Issuer CDR 2010 Warrants").
Each whole Resulting Issuer CDR 2010 Warrant entitles the holder to
acquire one Resulting Issuer Share at a price of $0.20 per share
until August 12, 2015. One of the investors in the units was Juno,
which received 1,800,000 additional CDR Shares and 3,000,000
Resulting Issuer CDR 2010 Warrants pursuant to the above-noted
amendments. See Principal Securityholders of the Resulting Issuer
below.
Filing Statement Amendments and Updated Financial Statements
The following information updates and replaces, as applicable,
the disclosure about the Resulting Issuer, including disclosure
about the Resulting Issuer's expected business objectives,
milestones, pro forma consolidated capitalization, intended use of
funds and fully diluted share capital, set out in Amalfi's filing
statement dated March 29, 2010 (the "Filing Statement") which is
available on SEDAR and Amalfi's press releases issued on May 17,
May 31 and July 23, 2010.
The interim financial statements of CDR for the three months
ended March 31, 2010 are attached hereto and marked Exhibit "A" and
the pro forma financial statements of the Resulting Issuer as at
March 31, 2010 are attached hereto and marked Exhibit "B". The
interim financial statements for the three months ended March 31,
2010 of Amalfi are available on SEDAR.
Capitalized terms used in the following sections that are not
otherwise defined herein have the meanings assigned to them in the
Filing Statement.
OPERATIONS UPDATE
Mining at the Big Branch (Cheyenne) surface mine has been
continuous since the acquisition of the mine on October 1, 2009.
The Resulting Issuer has averaged coal production of 30,553 tons
per month over the past 8 months and the proceeds of the CDR
Private Placement will be used to increase production to a targeted
65,000 tons per month beginning October 2010. The Resulting Issuer
intends to make capital expenditures of US$2,400,000 at the Big
Branch (Cheyenne) surface mine as follows: US$950,000 will be
expended on the current mining fleet to repair key components; the
balance of US$1,450,000 will be used to acquire additional
equipment enabling the production forecast of 65,000 tons per month
beginning in October 2010.
BUSINESS OBJECTIVES
The Resulting Issuer will concentrate its efforts on developing
an asset base in the central Appalachian coal producing region of
the United States, and may expand internationally as opportunities
allow. The central Appalachian area includes parts of West
Virginia, Virginia, Kentucky, Ohio and Tennessee. Central
Appalachia's history of producing large volumes of thermal and
metallurgical coal, along with the under-utilized coal
infrastructure already in place make the area ideal for the
implementation of business model. Coal assets in the area can be
acquired and brought into production relatively quickly.
The Resulting Issuer's principal initial business objective is
to utilize its available working capital and available cash flow
from operations to achieve its principal milestones as described
below.
MILESTONES
The principal milestones necessary to be achieved by Royal Coal
in 2010 and 2011 in order for Royal Coal to achieve success in its
business plan are:
Project Milestone Target Cost
Date
----------------------------------------------------------------------------
Big Add scheduled equipment and add fourth September US$ 1,450,000
Branch production spread of equipment to increase 2010
production
Own permit; post bonding November US$ 1,000,000
2011
WORKING CAPITAL OF THE RESULTING ISSUER
Based on current working capital projections, the Resulting
Issuer's working capital available to fund ongoing operations,
together with its revenue from operations and the proceeds of the
Private Placement, is expected by management of the Resulting
Issuer to meet its work program and administration costs for a
minimum of 18 months without further additional capital. The
projections of the Resulting Issuer assume the following factors:
(a) coal production will be from the Big Branch (Cheyenne) mine
only; (b) coal production from the Big Branch (Cheyenne) mine of
34,000 tons per month initially and increasing to 65,000 tons per
month beginning October 2010; (c) further capital equipment
expenditures of US$2,400,000 as described above; (d) average coal
prices of US$61 for the balance of 2010 and US$69.50 in 2011 which
are based on existing contracts and contract prices currently being
negotiated by the Resulting Issuer. The price assumptions of the
Resulting Issuer for 2011 are based on prevailing market prices and
the forward price curve for the Resulting Issuer's grade of coal.
The Resulting Issuer is currently negotiating coal sales contracts
for 2011 at the projected prices; and (e) average mining costs per
ton of US$54 for the balance of 2010 and US$50 in 2011, which are
based on actual costs of the Resulting Issuer experienced to date
and projected to the end of 2010. The average mining costs
projected for 2010 are based on current costs of the Resulting
Issuer adjusted for anticipated changes in materials and labour.
Significant risks to be considered include, without limitation, the
risk that the Resulting Issuer might not receive the prices for its
coal that are used in its projections; the Resulting Issuer's
production costs coming in higher than expected; the Resulting
Issuer's production levels and availability (uptime) of the coal
production equipment being lower than expected; the Resulting
Issuer being unable to acquire necessary equipment for purchase or
lease; non-cooperation of suppliers and management with respect to
significant current and past due accounts payable and compensation
owing; the Resulting Issuer not being able to renew its lease on
the Charlene rail load-out facility it uses to ship coal; the
Resulting Issuer not meeting its outstanding financial or payment
covenants in relevant loan arrangements and related future
production targets; and the other factors discussed under "Risk
Factors" in the Filing Statement.
The minimum 18 month working capital projections of the
Resulting Issuer assume that CDR will exercise its option in March
2011 to convert the principal amount of the Juno Loan into
Resulting Issuer Shares.
As at March 31, 2010, Royal Coal will have a pro forma
consolidated working capital deficiency of US$3,943,822. The
opening pro forma consolidated working capital of Royal Coal was
calculated after giving effect to the following:
Pro forma as at March 31, 2010 after
giving effect to the Qualifying
Transaction
----------------------------------------
Expenses of CDR for the Amalgamation US$120,000
Expenses of Amalfi for the US$388,000
Amalgamation
----------------------------------------
US$508,000
In the three months ending March 31, 2010, CDR's cost of sales
of $8.53 million exceeded its revenue of $5.76 million due to CDR's
higher than expected costs of opening multiple mining areas on the
Big Branch property and repairing and maintaining its used fleet of
equipment. Royal Coal expects that its planned expenditures on
capital equipment using proceeds from the Private Placement, as
noted below, combined with improved equipment maintenance and mine
planning will increase production to profitable levels.
USE OF CASH PROCEEDS FROM PRIVATE PLACEMENT
Royal Coal intends to, or will have used, the gross cash
proceeds from the Private Placement (US$4,612,128), and the pro
forma cash balance at March 31, 2010 ($5,271,478) as follows:
Use of Cash Proceeds from
Private Placement -
US$(1)
-------------------------
Expenditures on capital equipment at Big branch $ 1,450,000
Mining Operations
Payment in respect of the Indebtedness $ 1,000,000
Payment in respect of GC Global Capital Inc.'s $ 24,272
convertible debenture
Payment in respect of the CDR Cheyenne Debentures $ 800,000
Expenses for the Business Combination $ 508,000
General and Administrative Expenses $ 829,856
Notes:
(1) Notwithstanding its pro forma consolidated working capital deficiency of
US$3,943,822 as at March 31, 2010, Royal Coal believes that it has
sufficient funds to carry out its operations, based on the assumptions
set out above under "Working Capital of the Resulting Issuer".
Royal Coal intends to spend the funds available to it on
completion of the Qualifying Transaction to further its stated
business objectives. However, there may be circumstances where, for
sound business reasons, a reallocation of funds may be necessary in
order for Royal Coal to achieve its stated business objectives.
Management of Royal Coal estimates that the aggregate monthly
general and administrative expenses to be incurred by Royal Coal
will be approximately US$167,000, for an aggregate of approximately
US$2,040,000 per annum. These expenses are expected to be paid from
available working capital and cash-flow from operations. Based on a
management prepared budget, revenues from the operations of Royal
Coal are expected to cover the estimated administration costs of
Royal Coal upon the closing of the Amalgamation.
CONSOLIDATED CAPITALIZATION OF THE RESULTING ISSUER
The expected capitalization of the Resulting Issuer, after
giving effect to the Qualifying Transaction and CDR Private
Placement, is as follows:
Outstanding in the
Resulting Issuer
After Giving Effect
to the Qualifying
Transaction and
Capital Authorized Certain Matters (1)
---------------------------------------- -------------- --------------------
(unaudited)
Long-term Debt N/A US$4,730,936 (2)
Current Portion of Long-Term Debt N/A US$369,167 (2)
Resulting Issuer Shares Unlimited US$14,261,329(3)
(94,250,007)(4)(5)
Resulting Issuer special shares Unlimited Nil
Notes:
(2) Pursuant to the Amalfi Stock Option Plan, the Resulting Issuer has
reserved 11,291,331 Resulting Issuer Shares for stock options.
(3) See the pro forma financial statements of the Resulting Issuer as at
March 31, 2010 attached as Exhibit "B" hereto. Upon completion of the
Qualifying Transaction, the Cheyenne Debentures and the CDR Global
debentures are classified as long term debt, since the undiscounted face
value of $4,550,000 is not payable within 12 months of the Qualifying
Transaction. The Juno Loan maturity date of March 31, 2011 is less than
12 months from the Qualifying Transaction date, resulting in the
$5,750,000 undiscounted face value of the Juno Loan being reclassified
as current debt.
(4) In accordance with generally accepted accounting principles for a
reverse takeover transaction, the dollar value of the share capital of
Resulting Issuer after the completion of the Amalgamation will be the
dollar value of the share capital of CDR immediately prior to completion
of the Amalgamation, together with the net value of Amalfi. In addition,
the deficit of Resulting Issuer will be the deficit of CDR immediately
prior to the completion of the Qualifying Transaction, which as at March
31, 2010 after the deduction of stock-based compensation costs,
commissions, consultant fees and related expenses is (US$15,126,025).
(5) Not including any Resulting Issuer Shares issuable pursuant to the
exercise of any convertible securities of the Resulting Issuer.
(6) See Fully-Diluted Share Capital Table below.
Fully Diluted Share Capital of the Resulting Issuer
The following table describes the expected the fully-diluted
share capital of the Resulting Issuer, after giving effect to the
Qualifying Transaction and CDR Private Placement.
Number of
Resulting
Issuer Shares Percentage
Assuming Assuming
Completion of Completion of
the the
Outstanding Resulting Issuer Shares Amalgamation Amalgamation
----------------------------------------------------------------------------
Resulting Issuer Shares issued after 5,869,000 3.68%
Completion of Amalgamation and
Consolidation to former holders of Amalfi
Shares
Resulting Issuer Shares issued after 55,678,484 34.89%
Completion of Amalgamation and
Consolidation to former holders of CDR
Shares
Additional Resulting Issuer Shares issued 3,300,000 2.07%
after Completion of Amalgamation to former
holders of January Units(6)
Additional Resulting Issuer Shares issued 1,652,523 1.04%
after Completion of Amalgamation to holders
of CDR Shares that exercised their CDR PKM
MOU Rights
Resulting Issuer Shares issued after 23,425,000 14.68%
Completion of Amalgamation and
Consolidation to Investors in the CDR
Private Placement(1)
Resulting Issuer Shares issued after 4,125,000 2.58%
Completion of Amalgamation and
Consolidation to Trade Creditors(1)(7)
Resulting Issuer Shares issued as finder's 200,000 0.13%
fee pursuant to the Qualifying Transaction
---------------
Subtotal 94,250,007
Reserved Resulting Issuer Shares(2)
---------------------------------------------
Securities reserved for issuance pursuant to 27,550,000 17.26%
Resulting Issuer CDR New Warrants(1)(7)
Securities reserved for issuance pursuant to 7,735,407 4.85%
Resulting Issuer CDR Warrants
Securities reserved for issuance pursuant to 5,500,000 3.45%
Resulting Issuer CDR 2010 Warrants(6)
Securities reserved for issuance pursuant to 518,446 0.33%
Resulting Issuer CDR Broker Warrants
Securities reserved for issuance pursuant to 2,060,600 1.29%
Resulting Issuer CDR New Broker Warrants
(including the underlying CDR Warrants) (3)
Securities reserved for issuance pursuant to 8,050,000 5.04%
Resulting Issuer CDR Options
Securities reserved for issuance pursuant to 8,400,000 5.26%
Resulting Issuer CDR Cheyenne Debentures(4)
Securities currently reserved for issuance 700,000 0.44%
pursuant to Resulting Issuer CDR Global
Debentures(5)
Securities reserved for issuance pursuant to 580,000 0.36%
Resulting Issuer Amalfi Options
Securities reserved for issuance pursuant to 1,657,143 1.04%
Resulting Issuer New Warrants
Securities reserved for issuance pursuant to 2,661,331 1.67%
Resulting Issuer New Options(8)
Securities reserved for issuance pursuant to Number to be Number to be
conversion of Juno Loan(9) determined determined
-------------------------------
Total Fully-Diluted Resulting Issuer Shares 159,662,934 100%
Notes:
(1) Upon completion of the CDR Private Placement and the CDR Debt
Settlement, the Resulting Issuer issued an additional 23,425,000 and
4,125,000 Resulting Issuer Units (27,550,000 in total), respectively,
comprised of an aggregate of 27,550,000 Resulting Issuer Shares and
27,550,000 Resulting Issuer CDR New Warrants in replacement of the
27,550,000 CDR Units issued pursuant to the CDR Private Placement and
the CDR Debt Settlement. Each Resulting Issuer CDR New Warrant entitles
the holder to acquire one Resulting Issuer Share at a price of $0.20 per
share until the date that is 60 months from the closing of the CDR
Private Placement on August 12, 2010.
(2) The Amalfi Agents Options previously disclosed in the Filing Statement
have expired, and no Resulting Issuer Amalfi Agents' Options will be
issued in connection with the Closing of the Business Combination.
(3) The Resulting Issuer issued 1,030,300 Resulting Issuer CDR New Broker
Warrants in replacement of the 1,030,300 CDR New Broker Warrants issued
pursuant to the CDR Private Placement, each entitling the holder to
acquire one Resulting Issuer Unit at a price of $0.20 per Unit until
five years from the closing of the CDR Private Placement being comprised
of 1,030,300 Resulting Issuer Shares and 1,030,300 Resulting Issuer CDR
New Warrants.
(4) The US$5,000,000 principal amount of CDR Cheyenne Debentures were issued
pursuant to the Big Branch Acquisition and matured on April 1, 2011.
They bear interest at 12% per annum and are convertible into CDR Shares
on the basis of one CDR Share for each US$0.50 principal amount of
debentures until maturity. For additional information see the notes to
the financial statements for the three months ended March 31, 2010 of
CDR attached as Exhibit "A" hereto and the notes to the pro forma
financial statements of the Resulting Issuer as at March 31, 2010
attached as Exhibit "B" hereto. On closing, CDR paid US$800,000
principal amount of the CDR Cheyenne Debentures, resulting in a
principal amount owing of US$4,200,000 under the CDR Cheyenne Debentures
and the issuance on conversion of the remaining principal amount of up
to 8,400,000 Resulting Issuer Shares.
(5) The $375,000 principal amount of CDR Global Debentures currently
outstanding matures on December 31, 2010, bear interest at 12% per
annum, and are convertible into CDR Shares on the basis of one CDR Share
for each $0.50 (subject to the adjustment provisions in the CDR Global
Debentures) principal amount of debentures until maturity. For
additional information see the notes to the financial statements for the
three months ended March 31, 2010 of CDR attached as Exhibit "A" hereto
and the notes to the pro forma financial statements of the Resulting
Issuer as at March 31, 2010 attached as Exhibit "B" hereto. On closing,
CDR paid $25,000 principal amount of the CDR Global Debentures,
resulting in principal amount owing of $350,000 under the CDR Global
Debentures, and the issuance on conversion of the remaining principal
amount of up to 700,000 Resulting Issuer Shares.
(6) In accordance with the January Unit Agreements, investors who subscribed
for an aggregate of 2,200,000 units of CDR at a price of $0.50 per unit
in January 2010 received an additional 3,300,000 CDR Shares for no
additional consideration (so, following the closing of the Business
Combination, they held an aggregate of 5,500,000 Resulting Issuer
Shares). In addition, the 2,200,000 share purchase warrants originally
forming part of such units were cancelled and such investors instead
received 5,500,000 Resulting Issuer CDR 2010 Warrants. Each whole
Resulting Issuer CDR 2010 Warrant entitles the holder to acquire one
Resulting Issuer Share at a price of $0.20 per share until August 12,
2015.
(7) CDR entered into a debt settlement agreement with two Trade Creditors,
pursuant to which CDR agreed to issue 4,125,000 CDR Units with an
aggregate value of $825,000 to the Trade Creditors in exchange for the
cancellation of $825,000 in outstanding trade payables.
(8) Assuming the maximum 2,661,331Resulting Issuer New Options are granted.
(9) CDR entered into an agreement with Juno, which amended the terms of the
Juno Loan. In accordance with such agreement, Juno granted CDR an option
to convert the principal amount of the Juno Loan into Resulting Issuer
Shares at a conversion price equal to the greater of (i) $0.20 and (ii)
the weighted average market price of the Resulting Issuer Shares for the
20 trading days prior to the date notice is received exercising the
option. The option is exercisable at any time up until 20 days prior to
the maturity date of the Juno Loan, which is March 31, 2011.
OPTIONS AND OTHER RIGHTS TO PURCHASE SECURITIES OF THE RESULTING
ISSUER
The following table describes the options and other rights to
purchase Resulting Issuer Shares outstanding, after giving effect
to the Qualifying Transaction and CDR Private Placement.
Nature of Number of Exercise
Security Holder Securities Price Expiry Date
----------------------------------------------------------------------------
Resulting Issuer Directors, Up to 2,661,331 $0.20 Ten years from
New Options Officers and the date of
Consultants of grant
the Resulting
Issuer
Resulting Issuer Directors and 580,000 $0.20 August 12, 2011
Amalfi Officers of and November
Options(1) Amalfi 30, 2012
Resulting Issuer Directors and 2,500,000 $0.25 September 30,
CDR Options Officers of CDR 2010 and
October 25,
2012
5,550,000 $0.50 August 14,
2013, November
6, 2014,
November 16,
2014 and
December 10,
2014
Resulting Issuer Agents of CDR 133,635 $1.25 November 28,
CDR Broker 2009 Private 2010
Warrants Placement and
other
financings
304,811 US$0.50 October 13,
2011 and
November 2,
2011
80,000 $0.50 January 8, 2012
Resulting Issuer Securityholders 1,744,600 $0.25 October 25,
CDR Warrants of CDR 2010
1,000,000 $0.50 October 21,
2011
4,354,445 US$0.50 June 25, 2011,
July 7, 2011,
July 10, 2011,
July 15, 2011
and October 15,
2011
636,362 $1.25 November 28,
2010
Resulting Issuer Securityholders 5,500,000 $0.20 Five years from
CDR 2010 of CDR the Closing
Warrants Date
Resulting Issuer Shareholders of 1,657,143 $0.20 Two years from
New Warrants Amalfi the Closing
Date
Resulting Issuer Securityholders 27,550,000 $0.20 Five years from
CDR New of CDR the Closing
Warrants(2) Date
Resulting Issuer Agents of CDR 1,030,000 $0.20 Five years from
CDR New Broker Private the Closing
Warrants(3) Placement Date
Notes:
(1) After giving effect to the Consolidation, there were 580,000 Amalfi
Options outstanding (instead of 331,429 Amalfi Options as disclosed in
the Filing Statement). Each Amalfi Option was exchanged/continued into
one Resulting Issuer Amalfi Option, exercisable at a price of $0.20 per
share (instead of $0.35 per share as disclosed in the Filing Statement)
until (i) August 12, 2011, in the case of 446,500 Resulting Issuer
Amalfi Options, and (ii) November 30, 2012 in the case of 133,500
Resulting Issuer Amalfi Options.
(2) Includes the 23,425,000 Resulting Issuer CDR New Warrants issued
pursuant to the CDR Private Placement and the 4,125,000 Resulting Issuer
CDR New Warrants issued pursuant to the CDR Debt Settlement.
(3) The Resulting Issuer issued 1,030,300 Resulting Issuer CDR New Broker
Warrants in replacement of the 1,030,300 CDR New Broker Warrants issued
pursuant to the CDR Private Placement, each entitling the holder to
acquire one Resulting Issuer Unit at a price of $0.20 per Unit until two
years from the closing of the CDR Private Placement being comprised of
1,030,300 Resulting Issuer Shares and 1,030,300 Resulting Issuer CDR New
Warrants. If the 1,030,300 CDR New Warrants underlying the Resulting
Issuer CDR New Broker Warrants are exercised, an additional 1,030,000
Resulting Issuer Shares will be issuable.
There is no assurance that the options, warrants or other rights
described above will be exercised in whole or in part.
ESCROWED SECURITIES OF THE RESULTING ISSUER
The following table sets out the number of securities of the
Resulting Issuer which will be held subject to escrow:
Number of
Securities in Percentage of
Escrow after Class after
Completion of Completion of
Qualifying Qualifying
Designation of Class Transaction Transaction(1)
---------------------------------- --------------- ----------------
Resulting Issuer Shares 25,877,414(2) 27.45%
Resulting Issuer CDR 2010 Warrants 3,000,000 54.54%
Resulting Issuer CDR New Warrants 1,500,000 5.44
Resulting Issuer CDR Warrants 1,000,000 12.92
Notes:
(1) Prior to the issuance of the Resulting Issuer Shares issuable upon
exercise of any convertible securities of the Resulting Issuer, and not
including any securities which may be issued pursuant to the CDR Private
Placement.
(2) This number includes (i) 1,300,000 Resulting Issuer Shares issued in
exchange for the escrowed securities of Amalfi, (ii) 22,910,749 New
Escrowed Shares (defined below) after giving effect to the Amalgamation
and the Consolidation, and (iii) 1,666,665 Resulting Issuer Shares held
by arm's length parties of CDR.
In addition to the 1,300,000 Resulting Issuer Shares held in
escrow pursuant to the Amalfi Escrow Agreement, certain
shareholders listed below have entered into a Form 5D escrow
agreement with CIBC Mellon and the Resulting Issuer (the "TSX
Venture Escrow Agreement"), as required by the TSX Venture pursuant
to which they have deposited 22,910,749 Resulting Issuer Shares
described below (the "New Escrowed Shares") into escrow with CIBC
Mellon. The TSX Venture Escrow Agreement is a value escrow
agreement which will provide for a release of 10% of the New
Escrowed Shares at the time of the final exchange notice accepting
completion of the Amalgamation (the "Exchange Notice") and 15%
every six (6) months thereafter. Pursuant to the TSX Venture Escrow
Agreement, the New Escrowed Shares can only be transferred in
accordance with the TSX Venture policies.
The following is disclosure regarding the escrowed securities of
the Resulting Issuer:
Name and Municipality of Prior to After the
Residence Class Amalgamation Amalgamation
------------------------- --------------- --------------- -----------------
Number of Number and
Resulting Percentage of
Issuer Resulting
Securities Issuer
Securities(3)
---------------------------------
Juno Special Solutions Common 14,200,000 16,000,000(4)
Corporation (16.98%)
Toronto, Ontario
Resulting 3,000,000 3,000,000
Issuer CDR 2010 (54.54%)
Warrants
Michael L. Rousseau Common 600,000(1) 300,000(2)
Calgary, Alberta (0.32%)
S. Raymond Ludwig Common 600,000(1) 300,000(2)
Calgary, Alberta (0.32%)
Charles (Chip) D. Burgess Common 600,000(1) 300,000(2)
Calgary, Alberta (0.32%)
Murray R. Hinz Common 600,000(1) 300,000(2)
Calgary, Alberta (0.32%)
Douglas M. Stuve Common 200,000(1) 100,000(2)
Calgary, Alberta (0.11%)
Michael J. Campbell Common 233,333 233,333
Mississauga, Ontario (0.25%)
Resulting 400,000 (5.17%)
Issuer CDR
Warrants
James Hannah Common Nil Nil
Toronto, Ontario
James A. Flores Common Nil Nil
Noblesville, Indiana
A. Thomas Griffis Common 1,955,557 1,955,557
Toronto, Ontario (3.04%)
Elia Crespo Common 283,336 283,336
Mississauga, Ontario (0.48%)
Resulting 600,000 (7.75%)
Issuer CDR
Warrants
Peter K. Moran Common 1,788,523 1,788,523(5)
Mashpee, Massachusetts (1.90%)
Robert Heuler Common Nil Nil
Pittsburg, Pennsylvania
James O'Neill Common Nil Nil
Ajax, Ontario
Scott Hand Common 1,000,000 2,500,000(6)
Toronto, Ontario (2.65%)
Resulting 1,500,000 1,500,000
Issuer CDR New (5.44%)
Warrants
John Ellis Common 100,000 100,000
Spring Creek, Nevada (0.11%)
James Ladner Common 50,000 50,000
Kilchberg, Switzerland (0.05%)
Dino Titaro Common Nil Nil
Oakville, Ontario
Notes:
(1) Number of shares prior to the completion of the Consolidation.
(2) After completion of the Consolidation and the CDR Private Placement.
(3) Prior to the issuance of any Resulting Issuer Shares issuable upon
exercise of any convertible securities of the Resulting Issuer.
(4) Includes the 1,800,000 Resulting Issuer Shares issued to Juno in
connection with the January Unit Agreements, as described in the "Fully
Diluted Share Capital of the Resulting Issuer" table above.
(5) Peter K. Moran, the Chief Operating Officer of the Resulting Issuer,
holds 1,788,523 Resulting Issuer Shares indirectly through PKM Holdings
LLC, which is a company controlled by Mr. Moran.
(6) Includes the 1,500,000 Resulting Issuer Shares issued to Scott Hand
pursuant to the CDR Private Placement.
An additional 1,666,665 Resulting Issuer Shares issued in
exchange for 1,666,665 CDR Shares held by arm's length parties of
CDR are subject to escrow requirements under the TSX Venture seed
share sale restrictions in accordance with the policies of the TSX
Venture and are releasable under the same terms of the TSX Venture
Escrow Agreement.
In accordance with the policies of the TSX Venture, 3,000,000
Resulting Issuer CDR 2010 Warrants, 1,500,000 Resulting Issuer CDR
New Warrants and 1,000,000 Resulting Issuer CDR Warrants were also
deposited into escrow with CIBC Mellon.
PRINCIPAL SECURITYHOLDERS OF THE RESULTING ISSUER
The following are the only Persons who will, directly or
indirectly, own or direct control or direction over more than 10%
of the Resulting Issuer Shares after the completion of the
Amalgamation, the CDR Private Placement and after giving effect to
the Consolidation.
Number of
Resulting
Name and Municipality of Type of Issuer Percentage of
Residence Ownership Securities Class(2)
--------------------------- --------------- --------------- ----------------
Juno Special Situations Direct 16,000,000(1) 16.98%
Corporation(3) Common Shares
Toronto, Ontario
Direct 3,000,000(1) 54.54%
(4)
Resulting
Issuer CDR 2010
Warrants
Notes:
(1) These Resulting Issuer Shares and 3,000,000 Resulting Issuer CDR 2010
Warrants are held in escrow pursuant to the TSX Venture Escrow
Agreement. This amount does not include any Resulting Issuer Shares
issuable to Juno in connection with the conversion of the Juno Loan.
(2) Prior to the issuance of Resulting Issuer Shares issuable upon exercise
of any convertible securities of the Resulting Issuer.
(3) No single shareholder of Juno or any shareholders acting jointly or in
concert with one another owns more than 10% of the outstanding shares of
Juno.
(4) Each whole Resulting Issuer CDR 2010 Warrant entitles the holder to
acquire one Resulting Issuer Share at a price of $0.20 per share until
August 12, 2015.
Trading of Resulting Issuer Shares
The completion of the Business Combination has received
conditional approval of TSX Venture and is subject to its final
approval, which Royal Coal expects to receive after completion of
the required filings.
The Resulting Issuer Shares are expected to commence trading
under the symbol "RDA" after TSX Venture issues its final bulletin,
with trading expected to be reinstated on or about August 24,
2010.
About Royal Coal
The board of directors of Royal Coal is comprised of A. Thomas
Griffis, Elia Crespo, Michael Rousseau, Scott Hand, Dino Titaro,
James Ladner and John Ellis.
Royal Coal is a coal exploration and production company,
headquartered in Toronto, Ontario, Canada with a regional office in
Hazard, Kentucky, U.S.A. whose primary business focus is developing
producing surface coal mining operations in the Central Appalachian
coal producing region of the United States, which includes parts of
West Virginia, Virginia, Kentucky, Ohio, and Tennessee.
The completion of the Business Combination is subject to a
number of conditions, including but not limited to, TSX Venture
acceptance. There can be no assurance that the Business Combination
will be completed as proposed or at all.
Investors are cautioned that any information released or
received with respect to the Business Combination may not be
accurate or complete and should not be relied upon. Trading in the
securities of Royal Coal should be considered highly
speculative.
Except for historical information contained herein, this news
release contains forward-looking statements that involve risks and
uncertainties. Actual results may differ materially from those
currently anticipated due to a number of factors and risks. The
forward-looking statements contained in this press release are made
as of the date hereof and Royal Coal undertakes no obligation to
update publicly or revise any forward-looking statements or
information, whether as a result of new information, future events
or otherwise, unless so required by applicable securities laws.
EXHIBIT "A"
CDR Minerals Inc.
Consolidated Financial Statements
For the three months ended March 31, 2010
(expressed in US dollars)
(unaudited)
Notice of no Auditor Review - Financial Statements
Under National Instrument 51-102, Part 4, Subsection 4.3 (3)(a),
if an auditor has not performed a review of the interim financial
statements, they must be accompanied by a notice indicating that
the financial statements have not been reviewed by an auditor.
The accompanying unaudited interim financial statements of the
Corporation have been prepared by and are the responsibility of the
Corporation's management. The Corporation's independent auditor has
not performed a review of these financial statements in accordance
with standards established by the Canadian Institute of Chartered
Accountants for a review of interim financial statements.
CDR MINERALS INC.
CONSOLIDATED BALANCE SHEETS
(expressed in US dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
As at March 31 December 31
2010 2009
----------------------------------------------------------------------------
(unaudited) (audited)
ASSETS
Current
Cash $ 440,844 $ 800,099
Accounts receivable 1,116,402 243,093
Prepaid expenses and other current assets 534,325 471,047
Inventory 110,090 342,098
Quebec tax credit and mining duties refundable 128,043 130,979
Investment (note 3) 98,445 95,150
----------------------------------------------------------------------------
2,428,149 2,083,276
Capital assets, net (note 4) 1,359,283 915,562
Mineral properties (note 5) 13,373,015 13,525,484
----------------------------------------------------------------------------
$ 17,160,447 $ 16,524,322
----------------------------------------------------------------------------
LIABILITIES
Current
Accounts payable and accrued liabilities (note
14) $ 6,285,272 $ 3,189,764
Bank loan (note 6) 506,125 -
Notes payable, current portion (note 7) 4,759,067 2,000,000
Convertible debentures, current portion (note
8) 369,167 356,813
----------------------------------------------------------------------------
11,919,631 5,546,576
----------------------------------------------------------------------------
Asset retirement obligation (note 10) 274,574 262,579
Notes payable (note 7) - 860,792
Convertible debentures (note 8) 4,730,936 4,669,884
----------------------------------------------------------------------------
16,925,141 11,339,831
----------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Capital stock (note 9) 11,323,709 10,693,870
Shares to be issued (note 9) 771,702 771,702
Warrants (note 9) 1,250,540 864,016
Contributed surplus (note 9) 2,149,150 1,602,603
Equity portion of convertible debentures (note
8) 408,333 408,333
Accumulated other comprehensive loss (542,103) (542,103)
Deficit (15,126,025) (8,613,929)
----------------------------------------------------------------------------
235,306 5,184,491
----------------------------------------------------------------------------
$ 17,160,447 $ 16,524,322
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Nature of operations and going concern (note 1)
Commitments and subsequent events (notes 6, 7, 15 and 16)
See accompanying notes to consolidated
financial statements
Approved by the board of directors "Tom Griffis" "Elia Crespo"
------------------------------
Director Director
CDR MINERALS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS, DEFICIT, OTHER COMPREHENSIVE LOSS AND
ACCUMULATED OTHER COMPREHENSIVE LOSS
(expressed in US dollars - unaudited)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the three months ended March 31 2010 2009
----------------------------------------------------------------------------
Revenues $ 5,756,212 $ -
Cost of sales 8,531,558 -
----------------------------------------------------------------------------
(2,775,344) -
----------------------------------------------------------------------------
Expenses
Accretion on notes payable (note 7) and
convertible debentures (note 8) 1,413,880 2,714
Amortization 1,829 1,229
General and administration 580,901 53,525
Interest on notes payable (note 7) and
convertible debentures (note 8) 400,678 17,820
Management and consulting (note 12) 528,610 398,199
Professional fees 116,631 11,787
Stock-based compensation (note 9) 546,547 35,046
Travel 26,186 40,794
Write-off of mineral exploration properties
(note 5) - 32,052
----------------------------------------------------------------------------
3,615,262 593,167
----------------------------------------------------------------------------
Loss before undernoted (6,390,606) (593,167)
Interest income 26,052 312
Foreign exchange gain (loss) (147,541) 33,400
----------------------------------------------------------------------------
Net loss and comprehensive loss for the period $ (6,512,094) $ (598,902)
----------------------------------------------------------------------------
Basic and diluted net loss per share $ (0.12) $ (0.02)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted average shares outstanding 55,382,373 43,752,727
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Deficit
Balance, beginning of period $ (8,613,930) $ (1,469,747)
Net loss for the period (6,512,094) (559,455)
----------------------------------------------------------------------------
Balance, end of period $ (15,126,024) $ (2,029,202)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accumulated other comprehensive loss
Balance, beginning of period $ (542,103) $ (1,198,858)
Change in foreign exchange translation - (39,447)
----------------------------------------------------------------------------
Balance, end of period $ (542,103) $ (1,238,305)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
CDR MINERALS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(expressed in US dollars - unaudited)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the three months ended March 31 2010 2009
----------------------------------------------------------------------------
Cash provided by (used in)
Operations
Net loss $ (6,512,094) $ (559,455)
Items not involving cash
Accretion on notes payable and convertible
debentures 1,413,880 2,714
Accretion of provision for asset retirement
obligation 11,995 -
Amortization and depletion 293,433 1,229
Unrealized foreign exchange gain (loss) on
investments 3,295 -
Unrealized foreign exchange gain (loss) 159,013 -
Write-off of mineral exploration properties - 32,052
Stock-based compensation 546,547 35,046
----------------------------------------------------------------------------
(4,083,931) (534,222)
Net change in non-cash working capital
Accounts receivable (873,309) -
Quebec tax credit and mining duties
refundable 2,111 (28,649)
Prepaid expenses and other current assets (63,278) (16,300)
Inventory 232,818 -
Accounts payable and accrued liabilities 2,795,508 234,905
Due to related parties - 22,487
----------------------------------------------------------------------------
(1,990,082) (321,780)
----------------------------------------------------------------------------
Investing
Purchase of capital assets (583,860) (13,182)
Mineral exploration properties - (481,866)
Deposit on capital assets - 130,781
----------------------------------------------------------------------------
(583,860) (364,267)
----------------------------------------------------------------------------
Financing
Proceeds from share issuance, net 1,016,363 -
Proceeds of notes payable, net 692,199 -
Proceeds from bank loan 506,125 -
Deferred financing charges - (16,292)
----------------------------------------------------------------------------
2,214,687 (16,292)
----------------------------------------------------------------------------
Net change in cash (359,255) (702,339)
Cash, beginning of period 800,099 1,859,733
----------------------------------------------------------------------------
Cash, end of period $ 440,844 $ 1,157,394
----------------------------------------------------------------------------
Supplemental cash flow information (note 11)
Interest paid $ 388,349 $ 2,192
----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
1. Nature of operations and going concern
CDR Minerals Inc. (the "Company") was incorporated under the
laws of Ontario. The Company's principal business is the
acquisition and development of high quality coal mining operations
in the Central Appalachian Basin of the United States and base
metal exploration in Quebec.
The Company was in the exploration stage until September 30,
2009 when it acquired and commenced coal mining operations at its
Big Branch property near Hazard, Kentucky.
The Company has not yet determined whether it's Quebec mineral
property interest contains reserves that are economically
recoverable. The recoverability of amounts shown for mineral
property interests is dependent upon the ability of the Company to
obtain financing to complete the exploration and development of its
mineral property interests, the existence of economically
recoverable reserves and future profitable production, or
alternatively, upon the Company's ability to recover its costs
through a disposition of its mineral property interests. The
amounts shown for mineral resource properties do not necessarily
represent present or future value. Changes in future conditions
could require a material change in the amount recorded for mineral
property interests.
The Company is exposed to commodity price risk with respect to
coal and base metal prices. A significant decline in coal and base
metal prices may affect the Company's ability to obtain capital for
the exploration and development of its mineral property
interests.
The Company has not yet demonstrated profitable production at
its Big Branch property and additional funding is required to
finance its operations and the exploration of mineral resource
properties. There is substantial doubt as to the Company's ability
to continue as a going concern. The Company is actively seeking to
raise the necessary capital to meet its funding requirements.
Although the Company has been successful in raising funds to date,
there can be no assurance that additional funding will be available
in the future. As such, these consolidated financial statements
have been prepared on a going concern basis, which assumes that the
Company will be able to continue in operation for the foreseeable
future and will be able to realize its assets and discharge its
liabilities and commitments in the normal course of business. These
consolidated financial statements do not reflect the adjustments to
the carrying values of assets and liabilities and the reported
expenses and balance sheet classifications that would be necessary
were the going concern assumption inappropriate, and these
adjustments could be material.
2. Significant accounting policies
These unaudited interim financial statements of the Company have
been prepared using accounting policies that are consistent with
the policies used in preparing the Company's annual financial
statements. Generally accepted accounting principles for interim
financial statements do not conform in all respects to the
disclosures required for annual financial statements, and
accordingly, these unaudited interim financial statements should be
read in conjunction with the annual financial statements.
Inventory
Coal inventory, valued at the lower of cost and net realizable
value, is measured at the average production cost for extraction
and is relieved on a first-in, first-out basis. Production costs
include direct labour, benefits, direct materials and other direct
production costs, including depletion and amortization. Given the
significant costs in the first year of operations, the inventory
costs exceeded the net realizable value and as such, the inventory
has been written down to its net realizable value at December 31,
2009 and March 31, 2010.
Future accounting changes
On January 1, 2011, the Company will adopt CICA Handbook Section
1582, "Business Combinations", which will replace Section 1581,
"Business Combinations". The new standard establishes standards for
the recognition and measurement of identifiable assets acquired,
liabilities assumed, non-controlling interest in the acquiree and
goodwill acquired in a business combination.
On January 1, 2011, the Company will adopt CICA Handbook
Sections 1601, "Consolidated Financial Statements" and Section
1602, "Non-controlling Interests", which together will replace
section 1600, "Consolidated Financial Statements". Section 1601
establishes standards for the preparation of consolidated financial
statements and Section 1602 establishes standards for accounting
for a non- controlling interest in a subsidiary in consolidated
financial statements subsequent to a business combination.
The Company is in the process of evaluating the requirements of
the new standards.
International Financial Reporting Standards ("IFRS"):
In February 2008, the CICA Accounting Standards Board confirmed
that the changeover to IFRS from Canadian generally accepted
accounting principles will be required for publicly accountable
enterprises, effective for the interim and annual financial
statements relating to fiscal years beginning on or after January
1, 2011. Accordingly, the Company will report interim and annual
financial statements in accordance with IFRS commencing with the
interim financial statements for the 3 months ended March 31, 2011.
The transition date of January 1, 2011, will require the
restatement for comparative purposes of amounts reported by the
Company for the year ended December 31, 2010. While the Company has
begun assessing the adoption of IFRS for 2011, the financial
reporting impact of the transition to IFRS cannot be reasonably
estimated at this time.
3. Investment
The Company owns 50,000 common shares of Royal Nickel
Corporation, a Canadian private company, related by virtue of
common directors, which is mainly engaged in the business of Nickel
mining. The Canadian dollar investment cost of C$100,000 is
translated to US dollars at the closing rate on the date of the
balance sheet.
4. Capital assets
March 31, December 31,
2010 2009
$ $
Mining equipment 1,477,460 877,966
Accumulated amortization 162,595 27,404
----------------------------------------------------------------------------
1,284,865 850,562
----------------------------------------------------------------------------
Automobiles 43,500 43,500
Accumulated amortization 3,892 1,717
----------------------------------------------------------------------------
39,608 41,783
----------------------------------------------------------------------------
Office furniture & equipment 41,622 27,256
Accumulated amortization 6,812 4,039
----------------------------------------------------------------------------
34,810 23,217
----------------------------------------------------------------------------
1,359,283 915,562
----------------------------------------------------------------------------
5. Mineral properties
Acquisitions &
31-Dec-09 ARO(i) Exploration
$ $ $
---------------------------------------------
Quebec nickel properties
Grenville 1,509,961 783 -
Haut Plateau 1,045,321 42 -
Lac Pegma 3,974 - -
---------------------------------------------
2,559,256 825 -
---------------------------------------------
US coal properties
SID 2,700,843 - -
Laurel Fork (Coty) 279,743 - -
Big Branch 7,985,642 - -
---------------------------------------------
10,966,228 - -
---------------------------------------------
13,525,484 825 -
---------------------------------------------
Write-off & Foreign
Depletion(iii) Exchange 31-Mar-10
$ $ $
---------------------------------------------
Quebec nickel properties
Grenville - - 1,510,744
Haut Plateau - - 1,045,363
Lac Pegma - - 3,974
---------------------------------------------
- - 2,560,081
---------------------------------------------
US coal properties
SID - - 2,700,843
Laurel Fork (Coty) - - 279,743
Big Branch (153,294) - 7,832,348
---------------------------------------------
(153,294) - 10,812,934
---------------------------------------------
(153,294) - 13,373,015
---------------------------------------------
Acquisitions &
31-Dec-08 ARO(i) Exploration
$ $ $
---------------------------------------------
Quebec nickel properties
Grenville 1,004,771 - 360,778
Haut Plateau 520,858 - 449,602
Lac Pegma 3,474 - -
---------------------------------------------
1,529,103 - 810,380
---------------------------------------------
US coal properties
SID 2,080,498 304,708 -
Laurel Fork (Coty) 166,815 92,716 -
Candle Ridge - 23,017 13,693
Big Branch(i) - 8,046,162 22,500
---------------------------------------------
2,247,313 8,466,603 36,193
---------------------------------------------
3,776,416 8,466,603 846,573
---------------------------------------------
Write-off & Foreign
Depletion(iii) Exchange(ii) 31-Dec-09
$ $ $
---------------------------------------------
Quebec nickel properties
Grenville - 144,412 1,509,961
Haut Plateau - 74,861 1,045,321
Lac Pegma - 499 3,974
---------------------------------------------
- 219,772 2,559,256
---------------------------------------------
US coal properties
SID - 315,638 2,700,843
Laurel Fork (Coty) - 20,213 279,743
Candle Ridge (36,710) - -
Big Branch(i) (83,020) - 7,985,642
---------------------------------------------
(119,730) 335,851 10,966,228
---------------------------------------------
(119,730) 555,623 13,525,484
---------------------------------------------
(i) Included in the 2009 acquisition value of Big Branch is the
estimated asset retirement obligation (note 9)
(ii) The foreign exchange adjustments recognize the impact of
the October 1, 2009 change in functional currency from Canadian
dollars (CAD) to United States dollars (USD).
(iii) Depletion is included in cost of sales
6. Bank loan
The Company received loan proceeds of $516,609 to finance mining
equipment acquired and leased. The loan is repayable at $23,005 per
month for 24 months and bears interest at 6.5% per annum. The loan
is unsecured.
7. Notes payable
The Company received loan proceeds of $5,300,000 in 2009 and
additional loan proceeds of $1,000,000 in March, 2010 from a
company related by virtue of a common officer and director.
March 31 December 31
2010 2009
$ $
Loan proceeds 6,300,000 5,300,000
Transaction costs
Cash 637,468 637,468
5,171,312 common shares 2,419,013 2,419,013
----------------------------------------------------------------------------
3,243,519 2,243,519
Add accretion to date 1,515,548 617,273
Less current portion (4,759,067) (2,000,000)
----------------------------------------------------------------------------
- 860,792
----------------------------------------------------------------------------
The value of the debt will be accreted to $12,600,000,
representing the loan proceeds of $6,300,000 and the Royalty of
$6,300,000 outlined below, using an effective annual interest rate
of 163.72%. The Company agreed to additional Notice and Amendment
agreements, and Waiver agreements dated February 4, 2010, March 15,
2010, May 7, and June 2, 2010 which modified certain terms of the
notes payable. The resulting terms are summarized as follows:
Maturity date March 31, 2011
Interest 18% per annum payable monthly in arrears.
Additional 5,000,000 common shares of the Company valued at
compensation $2,339,013; a royalty of $2.00 per short ton of coal mined,
subject to a minimum of $150,000 per month commencing
January 1, 2010, up to an aggregate maximum of $6,300,000
and the Company agrees to make any required payment to
ensure that the aggregate royalties paid by March 31, 2011
shall be $6,300,000 ("Royalty"); and a royalty of $0.50 per
short ton of coal mined for the life of the mines. An
additional 171,312 common shares of the Company valued at
$80,000 were issued to an agent; a waiver fee of $150,000
was incurred in February and satisfied by the issuance on
March 31, 2010 of equivalent notes payable; and a waiver
fee of $300,000 to be satisfied in cash on the earlier date
of June 30, 2010 and the closing of an equity financing.
Security A general security agreement over all of the assets of the
Company.
Repayment Payments of $2,150,000 on the earlier of completion of an
equity financing transaction or June 30, 2010, and $500,000
on each of September 30 and December 31, 2010 and the
remaining outstanding balance of $3,150,000 on March 31,
2011.
Redemption In the event the Company disposes of equipment, vehicles,
requirement contracts (including forward sales of production contracts)
for cash proceeds of up to $1,000,000 per year, at least
25% of such cash proceeds are used to repay the notes.
Redemption The Company has the option to redeem all or part of the
option note at any time, without penalty or bonus.
Option to The Company at its sole discretion has the option to extend
extend the maturity date of the note until March 31, 2012.
Until the notes are repaid, the Company will comply with the
following financial covenants:
a. commencing on September 1, 2010, to maintain the ratio of Note
Indebtedness to the Company's trailing 12-month Free Cash Flow to exceed
(i) 1.3 in September 2010 and (ii) 1.0 for each month thereafter.
b. commencing with the quarter ending June 30, 2010, to maintain its Fixed
Charge Coverage of (i) 0.3 for the quarter ended June 30, 2010 and (ii)
1.1 for each quarter thereafter.
c. maintain a gross 30-day production rate greater than 35,000 tons in
November 2009, (ii) 50,000 tons in December 2009, (iii) 60,000 tons in
January 2010 (waived), (iv) 65,000 tons in February 2010 (waived), (v)
37,000 tons in March 2010, (vi) 27,900 tons in April 2010, (vii) 27,500
tons in May 2010, (viii) 40,000 tons in June 2010, (ix) 60,000 tons in
July, August and September, 2010, (x) 80,000 tons in October and
November 2010, (xi) 90,000 tons in December 2010 and (xii) 100,000 tons
from January 2011 and each month thereafter.
8. Convertible debentures
March 31, 2010 December 31, 2009
Equity portion Equity portion
Convertible of convertible Convertible of convertible
debentures debentures debentures debentures
$ $ $ $
Global Capital
("GC") 369,167 21,493 356,813 21,493
Cheyenne (note
5) 4,730,936 386,840 4,669,884 386,840
----------------------------------------------------------------------------
5,100,103 408,333 5,026,697 408,333
Less current
portion 369,167 - 356,813 -
----------------------------------------------------------------------------
4,730,936 408,333 4,669,884 408,333
----------------------------------------------------------------------------
Accretion expense in the three months ending March 31, 2010 due
to the convertible debentures is $61,180 (2009 - $2,714).
GC
On March 13, 2010, the terms of the Debenture were amended to
extend the maturity date from April 1, 2010 to July 15, 2010.
9. Capital stock, stock options, warrants and contributed
surplus
Authorized
Unlimited common shares
Unlimited number of special shares, issuable in series
Issued
Share capital consists of the following issued and outstanding common
shares:
Number of
shares $
----------------------------------------------------------------------------
Balance, December 31, 2008 43,752,727 7,295,850
Shares issued by private placement 4,354,445 1,962,658
Issuance for financing transaction costs 5,246,312 2,461,827
Share issue costs - (183,620)
Fair value of warrants issued - (648,136)
Fair value of broker warrants issued - (45,098)
Renunciation on flow-through shares - (149,611)
----------------------------------------------------------------------------
Balance, December 31, 2009 53,353,484 10,693,870
Shares issued by private placement 2,200,000 1,054,716
Share issue costs - (38,353)
Fair value of warrants issued - (372,970)
Fair value of broker warrants issued - (13,554)
----------------------------------------------------------------------------
Balance, March 31, 2010 55,553,484 11,323,709
----------------------------------------------------------------------------
On January 8, 2010 the Company completed a private placement
completes a private placement of 2,200,000 units at a price of
C$0.50 per unit for gross proceeds of C$1,100,000. Each unit
consists of one common share and one common share purchase warrant
entitling the holder to purchase one common share at a price of
C$0.50 per common share until January 6, 2012 or January 8, 2012. A
value of $372,970 was ascribed to these warrants based on their
fair value as determined using the Black-Scholes option-pricing
model with the following assumptions:
Risk-free interest rate 1.31-1.38%
Expected volatility 63.16%
Expected life of warrants 2 years
Expected dividend yield Nil
The Company paid cash commissions of $38,353 to brokers, along
with 80,000 broker warrants with an exercise price of C$0.50 per
broker warrant and each such broker warrant exercisable for one
common share with an exercise price of C$0.50 per common share
until January 8, 2012. A value of $13,554 was ascribed to these
broker warrants based on their fair value as determined using the
Black-Scholes option-pricing model with the following
assumptions:
Risk-free interest rate 1.31%
Expected volatility 63.16%
Expected life of warrants 2 years
Expected dividend yield Nil
Shares to be issued
Number of
shares $
Finder's fee on SID and Big Branch
acquisitions 1,652,523 771,702
----------------------------------------------------------------------------
Stock options
Under the Company's stock option plan, the board of Directors
may from time to time at their discretion grant to the Directors,
employees and consultants options to subscribe for common shares.
The exercise price of each option shall be determined on the basis
of market price at the date of grant. Options shall not be granted
for a term exceeding five years.
Stock option transactions and the number of stock options
outstanding are as follows:
Weighted-
average
Number of exercise
options price - C$
----------------------------------------------------------------------------
Balance, December
31, 2008 5,719,600 0.33
Granted 4,075,000 0.50
----------------------------------------------------------------------------
Balance, December 31, 2009 and March 31, 2010 9,794,600 0.40
----------------------------------------------------------------------------
Exercisable number
of options 7,077,934 0.36
----------------------------------------------------------------------------
A summary of the Company's outstanding stock options as at March
31, 2010 is presented below:
Options Options
Exercise price Expiry date outstanding exercisable
C$0.25 September 30, 2010 100,000 100,000
$0.25 October 25, 2010 519,600 519,600
$0.25 October 25, 2012(ii) 1,225,000 1,225,000
C$0.25 October 25, 2012 2,400,000 2,400,000
C$0.50 August 14, 2013 1,475,000 1,475,000
C$0.50 November 6, 2014 2,000,000 666,667
C$0.50 November 16, 2014 1,250,000 416,667
C$0.50 December 10, 2014 825,000 275,000
----------------------------------------------------------------------------
9,794,600 7,077,934
----------------------------------------------------------------------------
(ii) On January 26, 2010 the Board extended the expiry date from
October 25, 2010 to October 25, 2012
Warrants
A summary of the Company's warrants is presented below:
Weighted-
average
Number exercise
Amount of price
$ warrants $
Balance, December 31, 2008 27,313 725,452 1.10
Issued 836,703 5,659,256 0.50
----------------------------------------------------------------------------
Balance, December 31, 2009 864,016 6,384,708 0.56
Issued 386,524 2,280,000 0.50
----------------------------------------------------------------------------
Balance, March 31, 2010 1,250,540 8,664,708 0.55
----------------------------------------------------------------------------
A summary of the Company's warrants outstanding listed by expiry
date is presented below:
Expiry date Warrants outstanding
C$0.50 November 28, 2010 89,090
C$1.00-C$1.25 November 28, 2010 636,362
$0.50 June 25, 2011 833,334
$0.50 July 7, 2011 50,000
$0.50 July 10, 2011 30,000
$0.50 July 15, 2011 2,241,111
$0.50 October 13, 2011 284,511
$0.50 October 15, 2011 1,200,000
C$0.50 October 21, 2011 1,000,000
$0.50 November 2, 2011 20,300
$0.50 January 6, 2012 810,000
$0.50 January 8, 2012 1,470,000
----------------------------------------------------------------------------
8,664,708
----------------------------------------------------------------------------
Contributed surplus
$
Balance, December 31, 2008 889,407
Stock-based compensation 713,196
----------------------------------------------------------------------------
Balance, December 31, 2009 1,602,603
Stock-based compensation 546,547
----------------------------------------------------------------------------
Balance, March 31, 2010 2,149,150
----------------------------------------------------------------------------
10. Asset retirement obligations
The Company's asset retirement obligations result from its land
rehabilitation commitments on the coal mining activities on its Big
Branch property. At December 31, 2009 the total discounted
obligation estimated to settle the asset retirement obligation
using a credit adjusted risk free interest rate of 18% over the
estimated five year life of the mine is $2,086,000. The sum of the
undiscounted total cash flows anticipated to be incurred over 5
years ending December 31, 2014 is $3,228,876. The change in the
balance for the three months ended March 31, 2010 represents the
accretion ($11,995) on the obligation (YE December 31 2009 -
additions $251,109 and accretion $11,470).
The estimate of the obligation is subject to significant
estimates by management. The ultimate costs could be materially
different from the amounts estimated, dependant on changes to
applicable laws and regulations, discount rates and life of the
mine operation. Future changes to the obligation will be treated as
a change in accounting estimate in the period in which the change
is known.
11. Segmented information
The Company operates in one reportable segment, mineral
exploration, in Canada and the U.S. Financing and administrative
functions are provided by the head office located in Canada.
Segmented information on a geographic basis is as follows:
March 31, December 31,
2010 2009
$ $
Mineral exploration properties by geographic
area
Quebec, Canada 2,560,081 2,559,288
Kentucky, USA 10,812,934 10,966,196
----------------------------------------------------------------------------
13,373,015 13,525,484
----------------------------------------------------------------------------
All revenues are earned in the U.S. and all the capital assets
are in the U.S.
12. Related party transactions and related balances
For the three month period ended March 31, 2010, the
Company:
a. Paid management fees of $60,523 (2009 - $50,589) of which $0 (December
31, 2009 - $14,271) remains unpaid to a company related by virtue a
common officer and director of the Company. These amounts are included
in management and consulting expense.
b. Paid consulting fees of $0 (2009 - $16,540) to a company related by
virtue of common directors. These amounts are included in management and
consulting expense.
c. Committed to issue 1,652,523 common shares (December 31, 2009 -
Committed to issue 1,652,523 common shares) for services rendered to a
company controlled by an officer of the Company. This amount is included
in mineral property interests and shares to be issued.
d. The Company received loan proceeds of $1,000,000 in March 2010 from a
company related by virtue of a common officer and director. The details
of the transaction are disclosed in note 6.
e. Recorded royalty expenses of $504,563 (2009 - $Nil) due to a company
related by virtue of a common officer and director and included $377,187
of this amount in accounts payable and accrued liabilities at March 31,
2010 (December 31, 2009 - $113,120).
These transactions were in the normal course of operations and
were measured at the exchange amount, which is the amount of
consideration established and agreed to by the related parties.
13. Capital disclosures
Capital of the Company consists of the components of
shareholders' equity. The Company's objective when managing capital
is to safeguard the Company's ability to continue as a going
concern so that it can continue to explore and develop its mineral
property interests for the benefit of its shareholders. The Company
manages its capital structure and makes adjustments based on the
funds available to the Company in light of changes in economic
conditions. The Board of Directors does not establish quantitative
return on capital criteria for management, but rather relies on the
expertise of the Company's management to sustain the future
development of the Company. Management reviews its capital
management approach on an ongoing basis and believes that this
approach, given the relative size of the Company, is
reasonable.
There were no changes in the Company's management of its capital
during the three month period ended March 31, 2010.
The Company is subject to externally imposed capital
requirements pursuant to notes payable and convertible debenture
agreements.
14. Financial instruments and risk management
Fair value
Fair value represents the amount at which a financial instrument
could be exchanged between willing parties, based on current
markets for instruments with the same risk, principal and remaining
maturity. Fair values estimates are based on quoted market values
and other valuation methods.
Fair value represents the amount that would be exchanged in an
arm's length transaction between willing parties and is best
evidenced by a quoted market price, if one exists. The carrying and
fair values of financial assets and liabilities as at March 31,
2010 and December 31, 2009 are summarized as follows:
March 31, 2010 December 31, 2009
Carrying Carrying
Fair Value Value Fair Value Value
$ $ $ $
Cash 440,844 440,844 800,099 800,099
Accounts receivable 1,116,402 1,116,402 243,093 243,093
Accounts payable and accrued
liabilities 6,285,272 6,285,272 3,189,764 3,189,764
Bank loan 506,125 506,125 - -
Notes payable 11,448,953 4,759,067 9,653,993 2,860,792
Convertible debentures 5,100,103 5,100,103 5,026,697 5,026,697
The investment in a private company is classified as
available-for-sale and is carried at its acquisition cost. The
carrying value of the held-for-trading and loans and receivables
financial instruments approximates fair value.
Risk disclosures
The main risks the Company's financial instruments are exposed
to are credit, liquidity, and market risk (including currency and
interest rate risk) each of which is discussed below.
Credit risk
Credit risk is the risk of an unexpected loss if a third party
to a financial instrument fails to meet its contractual obligations
The Company's exposure to credit risk includes cash and accounts
receivable. The Company reduces its credit risk by maintaining its
primary bank accounts at large international financial
institutions. The Company assesses their credit risk based on
general market knowledge and specific information obtained through
its business relationships with each of customer. The maximum
exposure to credit risk is equal to the carrying value of cash and
accounts receivables. The Company made sales to its two major
customers, as well as to five other customers in the period.
Liquidity risk
Liquidity risk is the risk that the company will not be able to
meet its financial obligations as they fall due. The Company
manages liquidity risk through the management of its capital
structure as outlined in note 14 to the consolidated financial
statements.
At March 31, 2010, the Company had current assets of $2,428,149,
including cash of $440,844, (December 31, 2009 - $2,083,276 and
$800,099, respectively) available to pay current liabilities of
$11,919,631 (December 31, 2009 - $5,546,576). The following are the
maturities, including interest payments and excluding the option to
extend repayment of a portion of notes payable to March 31, 2012,
and a possible early redemption of convertible debentures subject
to terms disclosed in note 5, reflecting undiscounted future cash
disbursements of the Company's financial liabilities based on years
ending December 31:
Payments Required/Settlement
expected
2010 2011
$ $
------------------------------
Accounts payable and accrued liabilities 6,285,272 -
Bank loan 207,045 276,060
Notes payable 5,152,500 8,098,500
Convertible debentures 975,000 5,150,000
------------------------------
12,619,817 13,524,560
------------------------------
Market risk
Market risk is the risk of less that may arise from changes in
market factors, such as foreign exchange rates and interest
rates.
(a) Foreign currency risk
The Company operates in Canada and the US giving rise to market
risks from changes in foreign exchange rates. The Company
periodically monitors foreign exchange rates, though it has not
entered into any financial arrangements to hedge or protect the
Company from unfavourable changes in foreign exchange rates. A ten
percent (10%) fluctuation in the foreign exchange rate, based on
the Company's foreign denominated financial instruments as of March
31, 2010, would result in a foreign exchange gain in the case of a
decrease in the exchange rates or a loss in the case of an increase
in the rates of approximately $140,000 (December 31, 2009 -
$66,000).
(b) Interest rate risk
Interest rate risk refers to the risk that the fair value or
future cash flows of a financial instrument will fluctuate because
of changes in market interest rates. Cash is invested in high
grade, highly liquid instruments and as such the Company manages
its exposure to potential interest rate fluctuations to short term.
A 1% fluctuation in the floating interest rate would affect the
profitability of the Company by an immaterial amount.
15. Commitments
The Company, in connection with the acquisition of the Big
Branch property, entered into an agreement to lease mining
equipment for $232,677 per month for the two years ended September
29, 2011. At March 31, 2010 the Company's equipment and premises
lease commitments totaled $3,205,627 for 2010 and $2,620,689 for
2011. None of these commitments extend beyond 2011.
Reverse takeover transaction
On January 5, 2010, Amalfi, CDR Coal Limited, a wholly-owned
subsidiary of Amalfi ("CDR Coal") and the Company entered into an
Amalgamation Agreement to complete a three-cornered amalgamation
whereby the Company will amalgamate with CDR Coal and Amalfi will
issue one common share for each common share of the Company
outstanding ("Qualifying Transaction"). The completion of the
Qualifying Transaction is subject to certain conditions, including
obtaining all necessary regulatory approvals.
Pursuant to the Amalgamation Agreement:
a. Amalfi will consolidate its shares on the basis of one common share for
each 3 common shares presently outstanding, resulting in 3,886,666 post-
consolidation common shares.
b. Amalfi will replace its outstanding stock options by issuing 331,429
stock options entitling the holder to acquire one common share for $0.35
until November 30, 2012. Amalfi replaces its outstanding warrants by
issuing 257,143 warrants entitling the holder to acquire one common
share for $0.35 until May 6, 2010.
c. Amalfi will issue 1,657,143 common share purchase warrants to its
shareholders, on the basis of one- half common share purchase warrant
for each post-consolidation common share held. Each whole common share
purchase warrant shall entitle the holder to purchase one common share
at a price of US$0.50 for 2 years from the closing of the amalgamation.
d. Amalfi will issue 55,753,483 common shares to acquire a 100% interest in
the Company on the basis of one common share for each common share of
the Company outstanding.
e. Amalfi will issue 9,794,600 stock options and 6,384,708 common share
purchase warrants on the same terms to replace each of stock options and
common share purchase warrants of the Company outstanding.
f. Amalfi will issue US$5,000,000 principal amount convertible notes and
$375,000 principal amount convertible notes, which shall be convertible
on the same terms and conditions as the Company's convertible notes.
The Company will issue 200,000 common shares valued at $100,000
as a finder's fee.
16. Subsequent events
Notice of amendment agreements and waiver agreements
On May 12, 2010 and June 2, 2010 the Company agreed to notice of
amendment agreements and waiver agreements ("the Agreements") to
modify certain financial and production covenants of the notes
payable (note 6). The Agreements are with a company related by
virtue of a common officer and director. The terms of the
Agreements are consistent with terms of corresponding agreements
amongst the related company and its unrelated note holders and
agent. The Agreements result in the following changes:
Additional The Agreements resulted in additional fees and royalty
compensation commitments including:
a) a $150,000 fee payable, in the form of additional notes
payable, on the earlier of June 30, 2010 and the
completion of an equity financing transaction and an
increase of $150,000 to the aggregate royalty
commitment due by March 31, 2011;
b) a $300,000 fee payable on the earlier of June 30, 2010
or the closing of an equity financing transaction;
c) a financing and waiver fee of $1,000,000 payable to the
agent by installments of $300,000 on September 30,
2010, $350,000 on December 31, 2010 and $350,000 on
March 31, 2011;
Additional notes Additional notes payable were issued in consideration a
payable cash advance received on April 5 of $150,000 as a result
of the March 15, 2010 notice of amendment detailed in Note
5.
Repayment The notes redemption schedule was modified to the
following:
a) $1,150,000 originally due on May 31, 2010 is due on the
earlier of an equity financing closing and June 30,
2010;
b) Quarterly redemptions of $500,000 originally due on
March 31 and June 30, 2010 are due on the earlier of an
equity financing closing and June 30, 2010;
Covenant changes Until the notes are repaid, the Company will comply with
the following financial covenants, which were modified
pursuant to the agreements:
a) maintain a gross 30-day production rate greater than
35,000 tons in November 2009, (ii) 50,000 tons in
December 2009, (iii) 60,000 tons in January 2010
(waived), (iv) 65,000 tons in February 2010 (waived),
(v) 37,000 tons in March 2010, (vi) 27,900 tons in
April 2010, (vii) 27,500 tons in May 2010, (viii)
40,000 tons in June 2010, (ix) 60,000 tons for each of
July, August and September 2010; (x) 80,000 tons for
each of October and November 2010; (xi) 90,000 tons for
December 2010; and (xii) 100,000 tons for January 2011
and each month thereafter.
Private placement agent agreement
On May 10, 2010, the Company retained an agent in connection
with a private placement (the "Offering") of up to C$15,000,000 in
Units comprised of a bought deal commitment of C$7,000,000 in units
provided by the agent and up to C$8,000,000 in units on a best
efforts basis, pursuant to the general agreement and closing on May
28, 2010 or other date mutually agreed (the "Closing"). Each Unit
will consist of one common share priced at C$0.40 each and a
warrant exercisable into one common share for a period of 60 months
from the Closing at C$0.50 per common share. The Offering
commission of 8% of the aggregate gross proceeds of the Offering is
payable at Closing. In addition, the Company will issue the agent,
at Closing, a number of Broker Warrants equal to 10% of the number
of Units sold pursuant to the offering. Each Broker Warrant will be
exercisable into one Unit at a price of $0.40 at any time prior to
5 years from Closing. The Company will pay an engagement fee of
$20,000 plus issue 125,000 common shares to the agent.
On June 21, 2010, the Offering was amended to: Each Unit will
consist of one common share priced at C$0.35 each and two warrants,
each exercisable into one common share for a period of 60 months
from the Closing at C$0.40 per common share. The Closing will be
completed on or about June 30, 2010.
EXHIBIT "B"
Amalfi Capital Corporation
Pro Forma Consolidated Balance Sheet at March 31, 2010
Amalfi Capital Corporation
Pro Forma Consolidated Balance Sheet
As at March 31, 2010
(expressed in US$ - unaudited)
Amalfi Amalfi
Capital Capital CDR Minerals
Corporation Corporation Inc.
Can$ US$ US$
$1.0158
---------------------------------------------
Assets
Current
Cash 738,219 726,737 440,844
Accounts receivable 1,116,402
Prepaid expenses and other
current assets 3,360 3,308 534,325
Inventory 110,090
Quebec tax credit and mining
duties refundable 128,043
Deferred costs 130,622 128,590 -
Investment in securities, at
cost 98,445
----------------------------------------------------------------------------
872,201 858,635 2,428,149
Capital assets 1,359,283
Mineral property interests 13,373,015
----------------------------------------------------------------------------
872,201 858,635 17,160,447
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Pro forma
adjustments
Note Pro forma
Reference US$ US$
$1.0158
---------------------------------------------
Assets
Current
Cash 2(c) 4,612,128 5,271,478
2(d) (508,231)
Accounts receivable - - 1,116,402
Prepaid expenses and other
current assets - - 537,633
Inventory - - 110,090
Quebec tax credit and mining
duties refundable - - 128,043
Deferred costs 2(j) (128,590) -
Investment in securities, at
cost - - 98,445
----------------------------------------------------------------------------
- 3,975,307 7,262,091
Capital assets - - 1,359,283
Mineral property interests - - 13,373,015
----------------------------------------------------------------------------
- 3,975,307 21,994,389
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to unaudited pro forma consolidated balance sheet
Amalfi Capital Corporation
Pro Forma Consolidated Balance Sheet
As at March 31, 2010
(expressed in US$ - unaudited)
Amalfi Amalfi CDR
Capital Capital Minerals
Corporation Corporation Inc.
Can$ US$ US$
$ 1.0158
---------------------------------------------
Liabilities
Current
Accounts payable and accrued
liabilities 100,006 98,450 6,285,272
Bank loan 506,125
Note payable 4,759,067
Current portion of convertible
notes 369,167
----------------------------------------------------------------------------
100,006 98,450 11,919,631
Asset retirement obligation 274,574
Convertible notes 4,730,936
----------------------------------------------------------------------------
100,006 98,450 16,925,141
----------------------------------------------------------------------------
Pro
forma Pro
Note adjustments forma
Reference US$ US$
$ 1.0158
---------------------------------------------
Liabilities
Current
Accounts payable and accrued
liabilities 2(c) (812,168) 5,571,554
Bank loan 506,125
Note payable - 4,759,067
Current portion of convertible
notes - 369,167
----------------------------------------------------------------------------
(812,168) 11,205,913
Asset retirement obligation - 274,574
Convertible notes - 4,730,936
----------------------------------------------------------------------------
(812,168) 16,211,423
----------------------------------------------------------------------------
See accompanying notes to unaudited pro forma consolidated balance sheet
Amalfi Capital Corporation
Pro Forma Consolidated Balance Sheet
As at March 31, 2010
(expressed in US$ - unaudited)
Amalfi Amalfi CDR
Capital Capital Minerals
Corporation Corporation Inc.
Can$ US$ US$
$ 1.0158
---------------------------------------------
Shareholders' equity
Capital stock 836,302 823,294 11,323,709
Shares and warrants to be
issued 771,702
Warrants 1,250,540
Contributed surplus 129,860 127,840 2,149,150
Equity portion of convertible
notes 408,333
Accumulated other comprehensive
loss (542,103)
Deficit (193,967) (190,950) (15,126,025)
----------------------------------------------------------------------------
772,195 760,184 235,306
----------------------------------------------------------------------------
872,201 858,635 17,160,447
----------------------------------------------------------------------------
Pro forma
Note adjustments Pro forma
Reference US$ US$
$ 1.0158
---------------------------------------------
Shareholders' equity
Capital stock 2(a) 771,702 14,527,058
2(b) 24,611
2(b) (24,611)
2(c) 4,612,128
2(c) (2,592,066)
2(c) 812,168
2(c) (456,447)
2(c) (75,315)
2(d) (508,231)
2(d) 292,436
2(e) 372,970
2(e) (618,212)
2(f) 39,378
2(f) (39,378)
2(i) (39,378)
2(j) (128,590)
3(b) 127,840
3(b) (190,950)
Shares and warrants to be
issued 2(a) (771,702)
Warrants 2(c) 2,592,066 4,366,552
2(c) 456,447
2(c) 75,315
2(d) (292,436)
2(e) (372,970)
2(e) 618,212
2(i) 39,378
Contributed surplus 3(b) (127,840) 2,149,150
Equity portion of convertible
notes - 408,333
Accumulated other comprehensive
loss - (542,103)
Deficit 3(b) 190,950
(15,126,025)
----------------------------------------------------------------------------
4,916,065 5,782,965
----------------------------------------------------------------------------
4,103,897 21,994,389
----------------------------------------------------------------------------
1. Basis of presentation
Amalfi Capital Corporation ("Amalfi") is a capital pool
corporation which has not commenced commercial operations.
On January 5, 2010, Amalfi, CDR Coal Limited, a wholly-owned
subsidiary of Amalfi ("CDR Coal") and CDR Minerals Inc. ("CDR")
entered into an Amalgamation Agreement to complete a three-cornered
amalgamation whereby CDR will amalgamate with CDR Coal and Amalfi
will issue one common share for each common share of CDR
outstanding ("Qualifying Transaction"). The completion of the
Qualifying Transaction is subject to certain conditions, including
obtaining all necessary regulatory approvals.
The accompanying unaudited pro forma balance sheet has been
prepared by management for inclusion in the Press release of Amalfi
dated August 12, 2010 ("Press Release"). This pro forma balance
sheet has been prepared from information derived from the unaudited
balance sheet of Amalfi as at March 31, 2010, the unaudited
consolidated balance sheet of CDR as at March 31, 2010 and the
audited balance sheet of CDR as at December 31, 2009, together with
other information available to the companies.
Management believes the pro forma balance sheet includes all
adjustments necessary for fair presentation of the proposed
transactions as described above.
The pro forma balance sheet may not be indicative either of the
results that actually would have occurred if the events reflected
herein had taken place on the dates indicated or of the results
that may be obtained in the future. The pro forma balance sheet
should be read in conjunction with the financial statements of
Amalfi and CDR referred to above and the Filing Statement.
2. Pro forma assumptions and adjustments prior to the completion
of the Qualifying Transaction
The pro forma balance sheet is prepared as if the transactions
described above occurred on March 31, 2010. The pro forma
assumptions and adjustments prior to the completion of the
Qualifying Transaction are as follows:
a) CDR issues 1,652,523 common shares with a gross value of $771,702, which
were committed to be issued prior to March 31, 2010.
b) CDR issues 125,000 common shares with a net value of $24,611 in
consideration for broker services related to the August 12, 2010 private
placement.
c) CDR completes a private placement of 27,550,000 units at a price of
C$0.20 (US$0.1969 at March 31 2010 exchange rate of C$1.0158 = US$1.00)
per unit for gross proceeds of C$5,510,000 or US$5,424,296. Each unit
consists of one common share and one common share purchase warrant
entitling the holder to purchase one common share at a price of C$0.20
per common share until August 12, 2015. In respect of the private
placement, gross proceeds included $812,168 of accounts payable
converted into 4,125,000 common shares valued at $355,721 and 4,125,000
warrants valued at $456,447. The fair value of the common shares and
warrants, excluding those issued upon conversion of accounts payable,
was $2,020,062 and $2,592,062, respectively. Company will issue
1,030,300 broker warrants, with a fair value of $75,315, entitling the
holder to purchase one common share at a price of C$0.20 per common
share until August 12, 2012.The fair value of the warrants and broker
warrants was calculated using the Black-Scholes option pricing model
with the following assumptions:
------------------------------
Broker Warrants
------------------------------
Warrants
---------------
Risk-free interest rate 1.60% 2.44%
Expected volatility 65.17% 65.17%
Expected life of warrants 2 years 5 years
Expected dividend yield Nil Nil
d) Transaction costs of the August 12, 2010 private placement and
amalgamation are $508,231, and $292,436 of the costs was allocated to
the warrants.
e) CDR, pursuant to the January 2010 share purchase unit agreement, reduces
the share purchase unit price from C$0.50 to C$0.20 per unit for units
issued in January 2010 and issues 3,300,000 additional common shares;
cancels 2,200,000 share purchase warrants; and issues 5,500,000
replacement share purchase warrants. The fair value of the original
warrants was $372,970. The fair value of the replacement warrants of
$618,212 was calculated using the Black-Scholes option pricing model
with the following assumptions:
Risk-free interest rate 2.44%
Expected volatility 65.17%
Expected life of warrants 5 years
Expected dividend yield Nil
f) CDR issues 200,000 common shares valued at $39,378 as a finder's fee.
g) Amalfi consolidates its shares on the basis of one common share for each
2 common shares presently outstanding, resulting in 5,869,000 post-
consolidation common shares.
h) Amalfi replaces its outstanding stock options by issuing 580,000 stock
options entitling the holder to acquire one common share for C$0.20
until November 30, 2012.
i) Amalfi issues 1,657,143 common share purchase warrants to its
shareholders, on the basis of 0.28635525 common share purchase warrant
for each post-consolidation common share held. Each whole common share
purchase warrant shall entitle the holder to purchase one common share
at a price of C$0.20 for 2 years from the closing of the amalgamation.
The fair value of the warrants of $39,378 was calculated using the
Black-Scholes option pricing model with the following assumptions:
Risk-free interest rate 1.60%
Expected volatility 65.17%
Expected life of warrants 2 years
Expected dividend yield Nil
j) Deferred costs associated with the Qualifying Transaction are charged to
equity.
3. Pro forma assumptions and adjustments following the
completion of the Qualifying
Transaction
Following the completion of the Qualifying Transaction, all of
the property and assets of each of CDR and CDR Coal will become the
property and assets of a wholly-owned subsidiary of Amalfi, which
subsidiary will be liable for all of the liabilities and
obligations of each of CDR and CDR Coal. The name of the parent
company will be Royal Coal Corp. or other name acceptable to CDR
and applicable regulatory authorities. The outstanding stock
options and warrants of Amalfi will be exchanged for stock options
and warrants of CDR Coal with the same terms.
The Qualifying Transaction will be accounted for as a
transaction that is not a business combination, in accordance with
Abstract 10 of the Emerging Issues Committee:
a) the assets and liabilities of CDR and Amalfi are included in the pro
forma balance sheet at their historical carrying values;
b) warrants, contributed surplus and deficit of Amalfi are eliminated by a
charge to capital stock.
4. Pro forma share capital
Purchase warrants
issued 2(i) - (39,378) 39,378 -
----------------------------------------------------------------------------
5,869,000 783,916 39,378 127,840
CDR
Balance, March 31,
2010 55,553,484 11,323,709 1,250,540 2,149,150
Common shares
committed to be
issued prior to
March 31, 2010 2(a) 1,652,523 771,702
Common shares
issued for Broker
services 2(b) 125,000 24,611
Transaction costs
re common shares
issued for Broker
services 2(b) (24,611)
Tranasaction costs
private placement
and amalgamation
August 12 2(d) (508,231)
Tranasaction costs
allocated to
warrants issued
August 12 2(d) - 292,436 (292,436)
Additional shares
issued to holders
of January units 2(e) 3,300,000
Cancellation of
initial warrants
issued to holders
of January units 2(e) 372,970 (372,970)
Fair value of
replacement
warrants issued
to holders of
January units 2(e) (618,212) 618,212
Private placement
August 12 2(c) 23,425,000 4,612,128
Fair value of
warrants issued
with private
placement August
12 2(c) (2,592,066) 2,592,066
Private placement
conversion of
accounts payable 2(c) 4,125,000 812,168
Fair value of
warrants issued
on conversion of
accounts payable 2(c) (456,447) 456,447
Fair value of
broker warrants 2(c) (75,315) 75,315
Common shares
issued for
finder's fee 2(f) 200,000 39,378
Finder's fee 2(f) (39,378)
Deferred costs of
qualifying
transaction 2(j) (128,590)
----------------------------------------------------------------------------
94,250,007 14,590,168 4,366,552 2,276,990
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Effect of
reorganization
including
elimination of
warrants,
contributed
surplus and
deficit of Amalfi 3(b) - (63,110) - (127,840)
----------------------------------------------------------------------------
Pro-forma balance,
March 31, 2010 94,250,007 14,527,058 4,366,552 2,149,150
----------------------------------------------------------------------------
Stock options
On a pro forma basis, the following stock options will be
outstanding:
Exercise price Number of options Expiry date
C$0.25 100,000 September 30, 2010
US$0.25 519,600 October 25, 2010
US$0.25 1,225,000 October 25, 2010
C$0.25 2,400,000 October 25, 2012
C$0.50 (note 2(h)) 580,000 November 30, 2012
C$0.50 1,475,000 August 14, 2013
C$0.50 750,000 November 6, 2014
C$0.20 500,000 November 6, 2014
C$0.50 2,000,000 November 16, 2014
C$0.50 825,000 December 10, 2014
----------------------------------------------------------------------------
10,374,600
----------------------------------------------------------------------------
Included in stock options outstanding are 1,744,600 warrants
issued. These warrants were not issued under the stock option plan
and are correctly characterized as warrants. For financial
statement presentation purposes only, these warrants are included
with stock options.
Warrants
On a pro forma basis, the following warrants will be
outstanding:
Exercise price Number of warrants Expiry date
$0.50 89,090 November-28-10
$1.00 until November 28, 2009 and
$1.25 until November 28, 2010 636,362 November-28-10
US$0.50 833,334 June-25-11
US$0.50 50,000 July-07-11
US$0.50 30,000 July-10-11
US$0.50 2,241,111 July-15-11
US$0.50 284,511 October 13, 2011
US$0.50 1,200,000 October-15-11
$0.50 1,000,000 October-21-11
US$0.50 20,300 November-02-11
$0.20 (note 2(e)) 2,025,000 January-06-15
$0.20 (note 2(e)) 3,475,000 January-08-15
$0.50 (note 2(e)) 80,000 January-08-12
C$0.20 (note 2(i)) 1,657,143 August-12-12
C$0.20 (note 2(c)) 2,060,600 August-12-12
C$0.20 (note 2(c)) 27,550,000 August-12-15
----------------------------------------------------------------------------
43,232,451
----------------------------------------------------------------------------
Neither TSX Venture nor its Regulation Services Provider (as
that term is defined in the policies of the TSX Venture) accepts
responsibility for the adequacy or accuracy of this release.
Contacts: Royal Coal Tom Griffis Chairman (416) 861-8775
Amalfi Capital Corp. (TSXV:ALI.P)
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