1-SA: Semiannual Report Pursuant to Regulation A
Published on October 2, 2020
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SPECIAL FINANCIAL REPORT ON FORM 1-SA
SEMIANNUAL REPORT PURSUANT TO REGULATION A
For the fiscal semiannual period ended:
June 30, 2020
Brazil Potash Corp.
(Exact name of issuer as specified in its charter)
Ontario, Canada
(State or other jurisdiction of incorporation or organization)
N/A
(I.R.S. Employer Identification Number)
800-65 Queen Street West, Toronto, Ontario, Canada, M5H 2M5
(Full mailing address of principal executive offices)
416-309-2963
(Issuer’s telephone number, including area code)
Item 1. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Semiannual Financial Report contains forward-looking statements. All statements other than statements of historical fact are, or may be deemed to
be, forward-looking statements. Such forward-looking statements include statements regarding, among others, (a) our growth strategies, (b) our future financing plans, and (c) our anticipated needs for working capital. Forward-looking statements,
which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “approximate,” “estimate,” “believe,” “intend,” “plan,” “budget,”
“could,” “forecast,” “might,” “predict,” “shall” or “project,” or the negative of these words or other variations on these words or comparable terminology. This information may involve known and unknown risks, uncertainties, and other factors that
may cause our actual results, performance, or achievements to be materially different from the future results, performance, or achievements expressed or implied by any forward-looking statements. These statements may be found in this Semiannual
Report.
These financial statements should be read in conjunction with the audited financial statements and related notes for the fiscal year ended December 31,
2019, contained in the Company’s Offering Circular filed with the SEC on July 17, 2020, which Offering Circular forms a part of the Offering Statement on Form 1-A qualified by the Securities and Exchange Commission on June 26, 2020.
Forward-looking statements are based on our current expectations and assumptions regarding our business, potential target businesses, the economy and
other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. Our actual results may differ
materially from those contemplated by the forward-looking statements as a result of various factors, including, without limitation, changes in local, regional, national or global political, economic, business, competitive, market (supply and
demand) and regulatory conditions.
We caution you therefore that you should not rely on any of these forward-looking statements as statements of historical fact or as guarantees or
assurances of future performance. All forward-looking statements speak only as of the date of this Semiannual Report. We undertake no obligation to update any forward-looking statements or other information contained herein.
Overview
Brazil Potash Corp. (the Company, Brazil Potash, we, our, and us) was formed on October 10, 2006 under the laws of the
Province of Ontario, and is headquartered in Toronto, Ontario. The Company was formed to engage in potash exploration and mining in Brazil.
As of June 30, 2020, our majority stockholder, CD Capital Natural Resources BPC LP, owned 32% of our common shares. Accordingly, CD Capital Natural
Resources BPC LP. exerts and will continue to exert significant influence over us and
any action requiring the approval of the holders of our common shares, including the election of directors and amendments to our organizational documents, such as increases in our authorized shares of common shares and approval of significant
corporate transactions.
2
Results of Operations for the Six Months Ended June 30, 2020 and June 30, 2019
Revenues
Our revenue was $Nil for the six months ended June 30, 2020 compared to $Nil for the six months ended June 30, 2019. The Company is in the exploration
and development stage and has not started production.
General and Administrative Expenses
Our general and administrative expenses were $2,301,392 for the six months ended June 30, 2020, compared to $2,132,657 for the three months ended June
30, 2019. General and administrative expenses consist primarily of personnel, legal fees, share-based compensation and travel and office expenses. The Company incurred higher share-based compensation costs in 2020 compared to the same period
2019. The Company incurred lower travel costs in 2020 compared to the same period in 2019.
Net Loss
Our net loss was $2,468,304 for the six months ended June 30, 2020, compared to a net loss of $2,204,155 for the six months ended June 30,
2019.
Liquidity and Capital Resources
To date, we have generated no cash from operations and negative cash flows from operating activities. All costs in connection with our formation,
development, legal services and support have been funded by our majority stockholder.
Our future expenditures and capital requirements will depend on numerous factors, including the success of this Offering and the progress of our research
and development efforts.
Our business does not presently generate any cash. We believe that if we raise $50,000,000 (the Maximum Amount) in this Offering, we will have sufficient
capital to finance our operations for at least the next 24 months, however, if we do not sell the Maximum Amount or if our operating and development costs are higher than expected, we will need to obtain additional financing prior to that time. We
do not have any track record for self-underwritten Regulation A+ offerings, and there can be no assurance we will raise the Maximum Amount or any other amount. Further, we expect that after such 24-month period, we will be required to raise
additional funds to finance our operations until such time that we can conduct profitable revenue-generating activities. However, no assurances can be made that we will be successful in obtaining additional equity or debt financing, or that
ultimately, we will achieve profitable operations and positive cash flow.
We filed a Tier 2 exempt offering (the Offering) pursuant to Regulation A under the Securities Act of 1933, as amended (Securities Act), which was
qualified by the U.S. Securities and Exchange Commission on June 26, 2020. As at the date of this Semiannual Report the Company has not yet commenced selling efforts under the Offering.
On June 15, 2020, the Company entered into a loan agreement with 2227929 Ontario Inc. (“2227929”) Pursuant to the terms of the loan agreement, 2227929
agreed to lend the Company $40,000 at an interest rate of 12% per annum. Interest and principal are due and payable three months from the date of the agreement.
Our future expenditures and capital requirements will depend on numerous factors, including the success of our Offering and the progress of our research
and development efforts.
Going Concern
Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. Our ability to continue as a going concern is contingent upon our ability to raise additional capital as required.
3
During the period from September 2016 (inception) through June 30, 2020, we have incurred cumulative net losses of $81,980,079. Currently, we intend to
finance our operations through equity and debt financings.
The Company does not generate any cash on its own. We have funded operations exclusively in the form of expenditures paid for on behalf of the Company by
our majority stockholder, in addition to advances received directly from our stockholder.
We continually evaluate our plan of operations to determine the manner in which we can most effectively utilize our limited cash resources. The timing of
completion of any aspect of our plan of operations is highly dependent upon the availability of cash to implement that aspect of the plan and other factors beyond our control. There is no assurance that we will successfully obtain the required
capital or revenues, or, if obtained, that the amounts will be sufficient to fund our ongoing operations.
These circumstances raise substantial doubt on our ability to continue as a going concern. Our financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty.
Capital Expenditures
We do not have any contractual obligations for ongoing capital expenditures at this time.
Contractual Obligations, Commitments and Contingencies
The Company is party to certain management contracts. These contracts require payments of approximately $7,094,000 to directors, officers and consultants
of the Company upon the occurrence of a change in control of the Company; as such term is defined by each respective consulting agreement. The Company is also committed to payments upon termination of approximately $1,197,000 pursuant to the terms
of these contracts. As a triggering event has not taken place, these amounts have not been recorded in these consolidated financial statements.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements.
Trend Information
Because we are still in the development phase and have yet to commence construction followed by operations, we are unable to identify any recent trends
in revenue or expenses. Thus, we are unable to identify any known trends, uncertainties, demands, commitments or events involving our business that are reasonably likely to have a material effect on our revenues, income from operations,
profitability, liquidity or capital resources, or that would cause the reported financial information in this Semiannual Report to not be indicative of future operating results or financial condition.
NOVEL CORONAVIRUS (“COVID-19”)
The Company’s operations could be significantly adversely affected by the effects of a widespread global outbreak of a contagious disease and other
unforeseen events, including the recent outbreak of a respiratory illness caused by COVID-19 and the related economic repercussions. The Company cannot accurately predict the impact COVID-19 will have on its operations and the ability of others to
meet their obligations with the Company, including uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, and the length of travel and quarantine restrictions imposed by
governments of affected countries. In addition, a significant outbreak of contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries,
resulting in an economic downturn that could further affect the Company’s operations and ability to finance its operations.
Brazil has been hit hard with the coronavirus with over 4 million cases and over 140,000 deaths. The northern Amazon city of Manaus, which is the largest
city near Brazil Potash’s project, has been particularly hit hard resulting in a proposed temporary lockdown of bars and river beaches to contain the fresh surge of coronavirus cases.
Our staff from the Brazil office have been working from home since March 2020 and we have had no reported cases of COVID-19 amongst our staff to date.
Item 2. Other Information
None.
4
Item 3. Financial Statements
INDEX TO FINANCIAL STATEMENTS
|
|
Page
|
|
|
|
|
|
|
|
Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31,
2019 (unaudited)
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
|
Condensed Consolidated Statements of Stockholders’ Deficit for the six
months ended June 30, 2020 and 2019 (unaudited)
|
F-4
|
|
Condensed Consolidated Statements of Cash Flows for the six months ended
June 30, 2020 and 2019 (unaudited)
|
F- 5
|
|
|
|
|
Notes to Condensed Consolidated Financial Statements (unaudited)
|
F- 6
|
F-1
|
Brazil Potash Corp.
|
||||||||
|
Condensed Consolidated Interim Statements of Financial Position
|
||||||||
|
(Expressed in U.S. dollars)
|
||||||||
|
As at:
|
June 30, 2019
|
December 31, 2019
|
||||||
|
ASSETS
|
(Unaudited)
|
|||||||
|
Current
|
||||||||
|
Cash and cash equivalents
|
$
|
82,587
|
$
|
1,360,010
|
||||
|
Restricted cash
|
-
|
16,169
|
||||||
|
Amounts receivable
|
404,574
|
340,815
|
||||||
|
Prepaid expenses
|
17,770
|
47,147
|
||||||
|
Total current assets
|
504,931
|
1,764,141
|
||||||
|
Non-current
|
||||||||
|
Property and equipment (Note 4)
|
881,858
|
1,202,988
|
||||||
|
Exploration and evaluation assets (Note 5)
|
110,063,914
|
128,996,822
|
||||||
|
Total assets
|
$
|
111,450,703
|
$
|
131,963,951
|
||||
|
LIABILITIES
|
||||||||
|
Current
|
||||||||
|
Trade payables and accrued liabilities (Note 6)
|
$
|
6,364,618
|
$
|
5,356,293
|
||||
|
Loans payable (Note 7)
|
1,091,378
|
1,000,000
|
||||||
|
Total current liabilities
|
7,455,996
|
6,356,293
|
||||||
|
Non-current
|
||||||||
|
Long term portion of land fee installment payable (Note 6)
|
79,490
|
200,537
|
||||||
|
Deferred income tax liability
|
1,493,197
|
1,945,723
|
||||||
|
Total liabilities
|
8,502,553
|
8,502,553
|
||||||
|
Equity
|
||||||||
|
Share capital
|
197,304,457
|
194,116,957
|
||||||
|
Share-based payments reserve (Note 9)
|
36,462,548
|
38,342,655
|
||||||
|
Warrants reserve
|
23,715,254
|
23,715,254
|
||||||
|
Accumulated other comprehensive loss
|
(73,080,160
|
)
|
(53,201,693
|
)
|
||||
|
Deficit
|
(81,980,079
|
)
|
(79,511,775
|
)
|
||||
|
Total equity
|
102,422,020
|
123,461,398
|
||||||
|
Total liabilities and equity
|
$
|
111,450,703
|
$
|
131,963,951
|
||||
Reporting entity and going concern (Note 1)
Subsequent event (Note 12)
“STAN BHARTI”, Director
“ANDREW PULLAR”, Director
F-2
|
Brazil Potash Corp.
|
||||||||
|
Condensed Consolidated Interim Statement of Comprehensive Loss and Other Comprehensive Loss
|
||||||||
|
(Expressed in U.S. dollars)
(Unaudited)
|
||||||||
|
Six months Ended
|
Six months Ended
|
|||||||
|
June 30,
|
June 30,
|
|||||||
|
2020
|
2019
|
|||||||
|
Expenses
|
||||||||
|
Consulting and management fees
|
$
|
1,026,248
|
$
|
1,170,088
|
||||
|
Professional fees
|
324,639
|
174,807
|
||||||
|
General office expenses
|
67,905
|
77,578
|
||||||
|
Share-based compensation (Note 9)
|
835,443
|
(36,740
|
)
|
|||||
|
Travel expenses
|
42,414
|
701,277
|
||||||
|
Communications and promotions
|
116,597
|
11,749
|
||||||
|
(Gain) on disposal of fixed assets
|
-
|
(729
|
)
|
|||||
|
Foreign exchange (gain) loss
|
(111,854
|
)
|
34,627
|
|||||
|
Operating Loss
|
2,301,392
|
2,132,657
|
||||||
|
Finance costs (Note 7)
|
101,378
|
2,974
|
||||||
|
Other income
|
-
|
(10,084
|
)
|
|||||
|
Finance income (Note 3)
|
(2,178
|
)
|
(696
|
)
|
||||
|
Loss for the period before income taxes
|
2,400,592
|
2,124,374
|
||||||
|
Income taxes
|
67,712
|
79,781
|
||||||
|
Loss for the period
|
$
|
2,468,304
|
$
|
2,204,155
|
||||
|
Other comprehensive loss:
|
||||||||
|
Items that subsequently may be reclassified into net income:
|
||||||||
|
Foreign currency translation
|
19,878,467
|
(764,735
|
)
|
|||||
|
Total comprehensive loss for the period
|
$
|
22,346,771
|
$
|
1,439,420
|
||||
|
Basic and diluted loss per share
|
$
|
0.02
|
$
|
0.02
|
||||
|
Weighted average number of common
shares outstanding - basic and diluted
|
129,489,950
|
127,162,162
|
||||||
F-3
Brazil Potash Corp.
Consolidated Statement of Changes in Equity
(Expressed in U.S. dollars)
|
|
|
|
|
|||||||||||||||||||||||||
|
Common Shares
|
Warrants
|
Share-based payments
reserve
|
Accumulated Other Comprehensive
Income (Loss)
|
Accumulated
Deficit
|
Shareholders'
Equity
|
|||||||||||||||||||||||
|
#
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
||||||
|
Balance, December 31, 2018
|
127,162,162
|
186,120,585
|
24,540,488
|
38,164,138
|
(50,137,421
|
)
|
(72,037,312
|
)
|
126,650,478
|
|||||||||||||||||||
|
Deferred share units
|
-
|
-
|
-
|
17,988
|
-
|
-
|
17,988
|
|||||||||||||||||||||
|
Option expiry
|
-
|
-
|
-
|
(1,314,323
|
)
|
-
|
1,314,323
|
-
|
||||||||||||||||||||
|
DSUs forfeited
|
-
|
-
|
-
|
(833,332
|
)
|
-
|
833,332
|
-
|
||||||||||||||||||||
|
Warrant expiry
|
-
|
-
|
(825,234
|
)
|
-
|
-
|
825,234
|
-
|
||||||||||||||||||||
|
Net (loss) and comprehensive (loss) for the period
|
-
|
-
|
-
|
-
|
764,735
|
(2,204,155
|
)
|
(1,439,420
|
)
|
|||||||||||||||||||
|
Balance, June 30, 2019
|
127,162,162
|
186,120,585
|
23,715,254
|
36,0034,481
|
(49,372,686
|
)
|
(71,268,578
|
)
|
125,,229,056
|
|||||||||||||||||||
|
Balance, December 31, 2019
|
129,294,334
|
194,116,957
|
23,715,254
|
38,342,655
|
(53,201,693
|
)
|
(79,511,775
|
)
|
123,461,398
|
|||||||||||||||||||
|
Deferred share units
|
-
|
-
|
-
|
1,307,393
|
-
|
-
|
1,307,393
|
|||||||||||||||||||||
|
Deferred shares units exercise
|
850,000
|
3,187,000
|
-
|
(3,187,000
|
)
|
-
|
-
|
-
|
||||||||||||||||||||
|
Net (loss) and comprehensive (loss) for the period
|
-
|
-
|
-
|
-
|
(19,878,467
|
)
|
(2,468,304
|
)
|
(22,346,771
|
)
|
||||||||||||||||||
|
Balance, June 30, 2020
|
130,144,334
|
197,304,457
|
23,715,254
|
36,462,548
|
(73,080,160
|
)
|
(81,980,079
|
)
|
102,422,020
|
|
||||||||||||||||||
F-4
Consolidated Statement of Cash Flows
(Expressed in U.S. dollars)
|
|
Six month Ended
|
Six month Ended
|
||||||
|
|
June 30, 2020
|
June 30, 2019
|
||||||
|
|
$ | $ | ||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
||||||||
|
Loss for the year before taxes
|
(2,400,592
|
)
|
(2,214,375
|
)
|
||||
|
Adjustment for:
|
||||||||
|
Finance Income (Note 3)
|
(2,178
|
)
|
(696
|
)
|
||||
|
Finance costs (Note 7)
|
101,378
|
2,497
|
||||||
|
Share-based compensation (Note 9)
|
835,443
|
(36,740
|
)
|
|||||
|
Fixed asset disposal
|
(1,465,949
|
)
|
(729
|
)
|
||||
|
(4,611,369
|
)
|
(2,160,042
|
)
|
|||||
| Change in amounts receivable | (64,513 |
) |
7,238 |
|||||
|
Change in prepaid expenses
|
33,080
|
19,487
|
||||||
|
Change in trade payables and accrued liabilities
|
1,133,031
|
1,780,106
|
||||||
|
Net cash used in operating activities
|
(363,823
|
)
|
(353,211
|
)
|
||||
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
||||||||
|
Loan proceeds (Note 7)
|
40,000
|
370,283
|
||||||
|
Net cash from financing activities
|
40,000
|
4,594,487
|
||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
||||||||
|
Acquisition of property and equipment (Note 4)
|
-
|
(497
|
)
|
|||||
|
Proceeds from disposal of fixed assets
|
-
|
1,950
|
||||||
|
Exploration and evaluation assets
|
(863,613
|
)
|
2,148,132
|
)
|
||||
|
Decrease in restricted cash
|
15,537
|
-
|
||||||
|
Finance income
|
2,178
|
696
|
||||||
|
Net cash used in investing activities
|
(845,898
|
)
|
(2,145,983
|
)
|
||||
|
Effect of exchange rate changes on cash and cash equivalents
|
(107,702
|
)
|
(71,308
|
)
|
||||
|
NET (DECREASE) IN CASH AND CASH EQUIVALENTS
|
(1,277,423
|
)
|
(2,200,219
|
)
|
||||
|
CASH AND CASH EQUIVALENTS, beginning of year
|
1,360,010
|
2,278,641
|
||||||
|
CASH AND CASH EQUIVALENTS, end of year
|
82,587
|
78,422
|
||||||
|
SUPPLEMENTAL INFORMATION:
|
||||||||
|
Amortization of assets capitalized to exploration and evaluation assets
|
4,137
|
10,895
|
||||||
|
Share-based compensation included in exploration and evaluation assets
|
471,950
|
54,738
|
||||||
F-5
Brazil Potash Corp.
Notes to the Condensed Consolidated Interim Financial Statements
For the six months ended June 30, 2020 and 2019
(Unaudited)
| 1. |
Reporting entity and going concern
|
Brazil Potash Corp. (the “Company”) was incorporated under the laws of the Province of Ontario, Canada by Articles of Incorporation on October 10, 2006.
The Company remained inactive until June 16, 2009. On June 18, 2009, the Company’s subsidiary Potassio do Brasil Ltda. (the “Subsidiary”) was incorporated. The principal activity of Brazil Potash Corp. is the exploration and development of potash
properties in Brazil. The Company’s head office is located at 65 Queen Street West, 8th floor, Toronto, Ontario, M5H 2M5, Canada.
The condensed consolidated interim financial statements include the financial statements of the Company and its subsidiary that is listed in the
following table:
|
Percentage of equity interest
|
|||
|
% Ownership
|
|||
|
Country of incorporation
|
June 30,
2020
|
December 31,
2019
|
|
|
Potassio do Brasil Ltda.
|
Brazil
|
100%
|
100%
|
The Company received its Preliminary Social and Environmental License (LP) for the Autazes potash project in Brazil from the Amazonas Environmental
Protection Institute (IPAAM) in July 2015 based on submission of a full Environmental and Social Impact Assessment completed by the Company in January 2015. Prior to receiving the LP, the Company and its consultant Golder Associates Ltd. (“Golder”)
conducted several rounds of indigenous consultations and despite this work, the Brazil Federal Public Ministry (MPF) opened a civil investigation on the Company’s LP based on a motion from a non-governmental organization. The MPF commenced legal
proceedings questioning the validity of the Company’s LP. The result of the legal proceedings brought by the MPF is that the Company voluntarily agreed to temporarily suspend its LP and to conduct additional indigenous consultations with local
communities in accordance with International Labour Organization (ILO 169) given Brazil is a signatory to this international convention.
There are two major steps that need to be followed in these consultations. The first is indigenous people need to determine the means and who within
their tribes will be involved in consultations. This first step has been completed. The second is the actual consultation process which was scheduled to start in March 2020 but is currently on hold due to the outbreak of Covid19. Following the
first round of indigenous consultations a judge may authorize the Company’s indigenous impact study to be submitted for review and reinstate the LP.
Going Concern
The preparation of the condensed consolidated interim financial statements requires an assessment on the validity of the going concern assumption. The
validity of the going concern concept is dependent on financing being available for the continuing working capital requirements of the Company and for the development of the Company's projects.
The Company incurred a loss of $2,468,304 for the six months ended June 30, 2020 ($2,204,155 for the six months ended June 30, 2019) and as at June 30, 2020 had an accumulated deficit of $81,980,079 (December 31, 2019 - $79,511,775) and a
working capital deficiency of $6,951,065 as at June 30, 2020 (including cash of $82,587) (December 31, 2019 - $4,592,152 (including cash of $1,360,010)).
F-6
Brazil Potash Corp.
Notes to the Condensed Consolidated Interim Financial Statements
For the six months ended June 30, 2020 and 2019
(Unaudited)
| 1. |
Reporting entity and going concern (continued)
|
The Company requires equity capital and/or financing for working capital and exploration and development of its properties. As a result of continuing
operating losses, the Company's continuance as a going concern is dependent upon its ability to obtain adequate financing and to reach profitable levels of operation. It is not possible to predict whether financing efforts will be successful or if
the Company will attain profitable levels of operations. Management has previously been successful in raising the necessary funding to continue operations in the normal course of operations and was able to close private placement financings on July
2, 2019 and on November 29, 2019. Further, on October 29, 2019 and June 15, 2020, the Company entered into a loan agreements to fund operating expenses (see Note 7). The
Company is also currently in the process of offering up to 12,500,000 (the “Maximum Offering”) shares of the Company at a price of $4.00 per share to be sold in an offering. See note 12.
However, there is no assurance, that the Company will be successful in closing the offering of shares, be successful in raising sufficient financing, or
achieve profitable operations, to fund its working capital deficiency, or the future exploration and development of its properties. These circumstances raise substantial doubt as to the Company’s ability to continue to operate as a going concern.
These condensed consolidated interim financial statements do not include any adjustments to the carrying amount, or classification of assets and liabilities, if the Company was unable to continue as a going concern. These adjustments may be
material.
On the basis that additional funding as outlined above will be received when required, the directors are satisfied that it is appropriate to continue to
prepare the consolidated financial statements of the Company on the going concern basis.
| 2. |
Basis of preparation
|
|
a)
|
Statement of compliance:
|
The condensed consolidated interim financial statements are in compliance with IAS 34, Interim Financial Reporting. Accordingly, certain information and
disclosures normally included in annual financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”), have been omitted or condensed. These
condensed consolidated interim financial statements should be read in conjunction with the Company’s consolidated financial statements for the year ended December 31, 2019.
The condensed consolidated interim financial statements were authorized for issue by the Board of Directors on
August 19, 2020.
F-7
Brazil Potash Corp.
Notes to the Condensed Consolidated Interim Financial Statements
For the six months ended June 30, 2020 and 2019
(Unaudited)
| 2. |
Basis of preparation (continued)
|
|
b)
|
Significant accounting policies:
|
The unaudited condensed consolidated interim financial statements (“interim financial statements”) were prepared using the same accounting policies and
methods as those used in the Company’s consolidated financial statements for the year ended December 31, 2019, except for the adoption of the following new standards and amendments issued by the IASB that were effective as of January 1, 2020.
IAS 1, Presentation of Financial Statements (“IAS 1”) and IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors (“IAS 8”) were amended
in October 2018 to refine the definition of materiality and clarify its characteristics. The revised definition focuses on the idea that information is material if omitting, misstating or obscuring it could reasonably be expected to influence
decisions that the primary users of general purpose financial statements make on the basis of those financial statements. The adoption of IAS 1 on January 1, 2020 did not have a material impact on the Company’s condensed consolidated interim
financial statements.
3. Finance income and expenses
|
Six months ended June 30,
|
2020
|
2019
|
|
Finance income:
|
||
|
Interest on bank deposits
|
$ (85)
|
$ -
|
|
Interest on short-term deposits
|
(2,093)
|
(696)
|
|
$ (2,178)
|
$ (696)
|
F-8
Brazil Potash Corp.
Notes to the Condensed Consolidated Interim Financial Statements
For the six months ended June 30, 2020 and 2019
(Unaudited)
4. Property and equipment
|
Vehicles
|
Office equipment
|
Furniture and fixtures
|
Land rights
|
Total
|
||||||||||||||||
|
Cost:
|
||||||||||||||||||||
|
At January 1, 2020
|
$
|
63,458
|
$
|
88,699
|
$
|
15,056
|
$
|
1,186,150
|
$
|
1,353,363
|
||||||||||
|
Effect of foreign exchange
|
(16,744
|
)
|
(23,404
|
)
|
(3,824
|
)
|
(312,968
|
)
|
(356,940
|
)
|
||||||||||
|
At June 30, 2020
|
$
|
46,714
|
$
|
65,295
|
$
|
11,232
|
$
|
873,182
|
$
|
996,423
|
||||||||||
|
Depreciation:
|
||||||||||||||||||||
|
At January 1, 2020
|
$
|
60,867
|
$
|
78,633
|
$
|
10,875
|
$
|
-
|
$
|
150,375
|
||||||||||
|
Effect of foreign exchange
|
(16,238
|
)
|
(20,951
|
)
|
(2,758
|
)
|
-
|
(39,947
|
)
|
|||||||||||
|
Depreciation charge for the period
|
1,778
|
2,003
|
356
|
-
|
4,137
|
|||||||||||||||
|
At June 30, 2020
|
$
|
46,407
|
$
|
59,685
|
$
|
8,473
|
$
|
-
|
$
|
114,565
|
||||||||||
|
Net book value:
|
||||||||||||||||||||
|
At June 30, 2020
|
$
|
307
|
$
|
5,610
|
$
|
2,759
|
$
|
873,182
|
$
|
881,858
|
||||||||||
|
At January 1, 2020
|
$
|
2,591
|
$
|
10,066
|
$
|
4,181
|
$
|
1,186,150
|
$
|
1,202,988
|
||||||||||
|
Cost:
|
||||||||||||||||||||
|
At January 1, 2019
|
$
|
66,418
|
$
|
100,863
|
$
|
48,083
|
$
|
1,233,874
|
$
|
1,449,238
|
||||||||||
|
Effect of foreign exchange
|
(2,561
|
)
|
(3,724
|
)
|
(1,169
|
)
|
(47,724
|
)
|
(55,178
|
)
|
||||||||||
|
Additions
|
-
|
1,112
|
-
|
-
|
1,112
|
|||||||||||||||
|
Disposals
|
(399
|
)
|
(9,552
|
)
|
(31,858
|
)
|
-
|
(41,809
|
)
|
|||||||||||
|
At December 31, 2019
|
$
|
63,458
|
$
|
88,699
|
$
|
15,056
|
$
|
1,186,150
|
$
|
1,353,363
|
||||||||||
|
Depreciation:
|
||||||||||||||||||||
|
At January 1, 2019
|
$
|
60,857
|
$
|
84,942
|
$
|
33,180
|
$
|
-
|
$
|
178,979
|
||||||||||
|
Effect of foreign exchange
|
(2,403
|
)
|
(3,221
|
)
|
(811
|
)
|
-
|
(6,435
|
)
|
|||||||||||
|
Depreciation charge for the period
|
2,772
|
5,884
|
3,637
|
-
|
12,293
|
|||||||||||||||
|
Disposals
|
(359
|
)
|
(8,972
|
)
|
(25,131
|
)
|
-
|
(34,462
|
)
|
|||||||||||
|
At December 31, 2019
|
$
|
60,867
|
$
|
78,633
|
$
|
10,875
|
$
|
-
|
$
|
150,375
|
||||||||||
|
Net book value:
|
||||||||||||||||||||
|
At December 31, 2019
|
$
|
2,591
|
$
|
10,066
|
$
|
4,181
|
$
|
1,186,150
|
$
|
1,202,988
|
||||||||||
|
At January 1, 2019
|
$
|
5,561
|
$
|
15,921
|
$
|
14,903
|
$
|
1,233,874
|
$
|
1,270,259
|
||||||||||
F-9
Notes to the Condensed Consolidated Interim Financial Statements
For the six months ended June 30, 2020 and 2019
(Unaudited)
5. Exploration and evaluation assets
|
Expenditures:
|
Six months ended June 30, 2020
|
Year ended December 31, 2019
|
|
Balance, beginning of period
|
$ 128,996,822
|
$ 128,257,742
|
|
Additions:
|
||
|
Mineral rights and land fees
|
-
|
10,957
|
|
Additions to exploration and evaluation assets
|
717,599
|
2,563,842
|
|
Share-based compensation
|
471,950
|
1,178,596
|
|
Effect of foreign exchange
|
(20,122,457)
|
(3,014,315)
|
|
Balance, end of period
|
$ 110,063,914
|
$ 128,996,822
|
| 6. |
Trade payables and accrued liabilities
|
|
June 30,
2020
|
December 31,
2019
|
|
|
Trade payables
|
$ 4,451,474
|
$ 3,542,682
|
|
Current portion of land fee installments
|
136,269
|
185,111
|
|
Accruals
|
1,776,875
|
1,628,500
|
|
Current
|
$ 6,364,618
|
$ 5,356,293
|
|
Long-term portion of land fee installments
|
$ 79,490
|
$ 200,537
|
During the year ended December 31, 2017, the Company entered into an installment program with
the National Mining Agency (“ANM”) for the payment of its mineral rights and land fees. The installment program allows for the payment of outstanding land fees on a monthly basis over a period of five years. The Company accrued interest charges and
penalties of $103,805 (R$432,286) on the date the installment program was entered into in connection with the consolidation of its outstanding fees under the program. In addition, each installment is charged interest
at the rate posted by the Special Settlement and Custody System (“SELIC”) until the month prior to payment plus 1% in the month of payment. Any monthly installments not paid by the due date will incur additional fines of 0.33% per day up to a
maximum of 20%. Failure to pay two consecutive monthly installments will result in the cancellation of the instalment plan. As at June 30, 2020, the balance owing on the installment plan was $215,759 (R$1,181,368), included in current and long-term
portion of land fee installments in the table above, which approximates the present value of the expected payments.
F-10
Brazil Potash Corp.
Notes to the Condensed Consolidated Interim Financial Statements
For the six months ended June 30, 2020 and 2019
(Unaudited)
| 7. |
Loans payable
|
|
Sentient
|
2227929
Ontario Inc.
|
Total
|
|
|
Balance, December 31, 2019
|
$ 1,000,000
|
$ -
|
$ 1,000,000
|
|
Draw downs
|
-
|
40,000
|
40,000
|
|
Interest and financing fees
|
50,959
|
419
|
51,378
|
|
Balance, June 30, 2020
|
$ 1,050,959
|
$ 40,419
|
$ 1,091,378
|
On October 29, 2019, Brazil Potash entered into a loan agreement with Sentient Global Resource Fund IV LP, (“Sentient”). Pursuant to the terms of the
loan agreement (the “Loan”), Sentient agreed to lend the Company $1,000,000 at an interest rate of 30% per annum and a repayment date of July 31, 2020. The Company also accrued a setup fee of $200,000, included in accounts payable and accrued
liabilities, in connection with the loan. On April 29, 2020, the Company accrued an additional extension fee of $50,000 to extend the due date on the loan, included in accounts payable and accrued liabilities, and began accruing interest on the
loan. Andrew Pullar (a director of the Company) is a principal at Sentient.
On June 15, 2020, the Company entered into a loan agreement with 2227929 Ontario Inc. (“2227929”) Pursuant to the terms of the loan agreement, 2227929
agreed to lend the Company $40,000 at an interest rate of 12% per annum. Interest and principal are due and payable three months from the date of the agreement.
8. Share capital
(a) Authorized
Unlimited number of common shares without par value.
(b) Issued
|
|
|
|||||||||||||||
|
Six months ended
June 30, 2020
|
Year ended
December 31, 2019
|
|||||||||||||||
|
Number of shares
|
Value
$
|
Number of shares
|
Value
$
|
|||||||||||||
|
Common shares
|
||||||||||||||||
|
Balance, beginning of period
|
129,294,334
|
194,116,957
|
127,162,162
|
186,120,585
|
||||||||||||
|
Private placement
|
-
|
-
|
600,000
|
2,250,000
|
||||||||||||
|
Option exercise
|
-
|
-
|
1,532,172
|
5,746,372
|
||||||||||||
|
DSU exercise
|
850,000
|
3,187,500
|
-
|
-
|
||||||||||||
|
Balance, end of period
|
130,144,334
|
197,304,457
|
129,294,334
|
194,116,957
|
||||||||||||
F-11
Brazil Potash Corp.
Notes to the Condensed Consolidated Interim Financial Statements
For the six months ended June 30, 2020 and 2019
(Unaudited)
8. Share capital (continued)
(b) Issued (continued)
During the period from July 2, 2019 to November 29, 2019, the Company completed equity financings through private placements for
600,000 shares at a price $3.75 for gross proceeds of $2,250,000.
During the year ended December 31, 2019, 1,532,172 options were exercised with a weighted average exercise price of $1.00 per share.
On April 7, 2020, 850,000 DSUs were exercised with a weighted average grant date fair value of $3.75 and a total fair value of $3,187,500. See Note 9.
9. Share-based payments
The continuity of share-based payments reserve activity during the period was as follows:
|
Six months ended June 30, 2020
|
Year ended December 31, 2019
|
|||||||
|
Balance, beginning of the period
|
$
|
38,342,655
|
$
|
38,164,138
|
||||
|
Stock options granted and/or vested during the period
|
-
|
5,227,600
|
||||||
|
Option extension
|
-
|
134,500
|
||||||
|
Options exercised
|
-
|
(4,214,200
|
)
|
|||||
|
Forfeited options
|
-
|
(3,179,501
|
)
|
|||||
|
Vesting of DSUs
|
1,307,393
|
3,043,450
|
||||||
|
DSUs exercised
|
(3,187,500
|
)
|
-
|
|||||
|
Forfeited DSUs
|
-
|
(833,332
|
)
|
|||||
|
Balance, end of the period
|
$
|
36,462,548
|
$
|
38,342,655
|
||||
F-12
Brazil Potash Corp.
Notes to the Condensed Consolidated Interim Financial Statements
For the six months ended June 30, 2020 and 2019
(Unaudited)
9. Share-based payments (continued)
The Company has an incentive share option plan (“the Plan”) whereby the Company may grant to directors, officers, employees and
consultants options to purchase shares of the Company. The Plan provides for the issuance of share options to acquire up to 10% of the Company's issued and outstanding capital at the date of grant. The Plan is a rolling plan, as the number of
shares reserved for issuance pursuant to the grant of stock options will increase as the Company's issued and outstanding share capital increases. Options granted under the Plan will be for a term not to exceed five years.
The plan provides that it is solely within the discretion of the Board to determine who would receive share options and in what
amounts. In no case (calculated at the time of grant) shall the plan result in:
|
|
- |
the number of options granted in a twelve-month period to any one consultant exceeding 2% of the issued shares of the Company;
|
|
|
- |
the aggregate number of options granted in a twelve-month period to any one optionee exceeding 5% of the outstanding shares of the Company; and
|
|
|
- |
the number of options granted in a twelve-month period to employees and management company employees undertaking investor relations activities exceeding in aggregate
2% of the issued shares of the Company.
|
Share option transactions continuity during the period were as follows (in number of options):
|
Six months ended
June 30, 2020
|
Year ended
December 31, 2019
|
|||||||||||||||
|
Number of options
|
Weighted average exercise price
|
Number of options
|
Weighted average exercise price
|
|||||||||||||
|
Balance, beginning of period
|
8,690,500
|
$
|
2.05
|
9,890,500
|
$
|
1.99
|
||||||||||
|
Granted
|
-
|
-
|
1,982,172
|
1.62
|
||||||||||||
|
Exercised
|
-
|
-
|
(1,532,172
|
)
|
1.00
|
|||||||||||
|
Forfeited
|
-
|
-
|
(1,650,000
|
)
|
2.12
|
|||||||||||
|
Balance, end of period
|
8,690,500
|
$
|
2.05
|
8,690,500
|
$
|
2.05
|
||||||||||
F-13
Brazil Potash Corp.
Notes to the Condensed Consolidated Interim Financial Statements
For the six months ended June 30, 2020 and 2019
(Unaudited)
9. Share-based payments (continued)
(b) Option plan (continued):
There were no options granted during the six months ended June 30, 2020 or the six months ended June 30, 2019.
At June 30, 2020, outstanding options to acquire common shares of the Company were as follows:
|
Date of
expiry
|
Options
outstanding
|
Options
exercisable
|
Exercise
price
|
Grant date
fair value vested
|
||||||||||||
|
July 22, 2020
|
1,348,000
|
1,348,000
|
$
|
2.50
|
2,272,197
|
|||||||||||
|
September 23, 2020
|
2,975,000
|
2,975,000
|
$
|
1.00
|
4,316,322
|
|||||||||||
|
September 23, 2020
|
3,717,500
|
3,717,500
|
$
|
2.50
|
8,769,710
|
|||||||||||
|
November 19, 2021
|
200,000
|
200,000
|
$
|
3.75
|
349,400
|
|||||||||||
|
November 25, 2021
|
200,000
|
200,000
|
$
|
2.50
|
537,800
|
|||||||||||
|
June 1, 2024
|
250,000
|
250,000
|
$
|
3.75
|
664,000
|
|||||||||||
|
8,690,500
|
8,690,500
|
$
|
16,909,429
|
|||||||||||||
See Note 12.
(b) Deferred share units plan (“DSU”):
The Company has a DSU plan that provides for the grant of DSUs to employees, officers or directors of the Company. The Plan allows the Company the
ability to issue one common share from treasury for each DSU held on the date upon which the participant ceases to be a director, officer or employee of the corporation. The maximum number of Common Shares available for issuance under the DSU plan
may not exceed 5% of the fully diluted issued share capital of the Company at any time.
DSU transactions continuity during the periods were as follows (in number of DSUs):
|
|
Six months ended June 30, 2020
|
Year ended December 31, 2019
|
|
Balance, beginning of period
|
8,550,000
|
7,700,000
|
|
Granted
|
-
|
1,350,000
|
|
Forfeited
|
-
|
(500,000)
|
|
Exercised
|
(850,000)
|
-
|
|
Balance, end of period
|
7,700,000
|
8,550,000
|
F-14
Brazil Potash Corp.
Notes to the Condensed Consolidated Interim Financial Statements
For the six months ended June 30, 2020 and 2019
(Unaudited)
9. Share-based payments (continued)
(b) Deferred share units plan (“DSU”) (continued):
The 6,700,000 DSUs granted during the year ended December 31, 2015 had the following vesting conditions:
|
(i)
|
As to one-third of the DSUs, vesting shall occur immediately;
|
|
(ii)
|
As to the second one-third, upon the later of (a) completion by the Company of a pre-feasibility study or feasibility study; and (b) receipt by
the Company of the preliminary license for the project; and
|
|
(iii)
|
As to the final one third of the DSUs, upon the Company completing arrangements for project construction financing, as detailed in the
pre-feasibility study or feasibility study for the project.
|
Of the 6,700,000 DSUs granted, 4,133,334 DSUs have vested, 500,000 were forfeited in the total amount of $833,332 and 2,066,666, which have the vesting
condition (iii) above, were revised such that the vesting condition previously estimated to be December 2019 were revised such that the DSUs are expected to vest in Q4 2021, with an estimated 100% probability of vesting. The estimated fair value of
the DSUs at the date of grant is amortized over the vesting period. During the six months ended June 30, 2020, the Company recognized an expense of $404,097 related to this amortization (six months ended June 30, 2019 - $17,998) of which, an
expense of $65,177 (June 30, 2019 - $54,738) was capitalized to exploration and evaluation assets, with the remaining expense of $338,920 (six months ended June 30, 2019 – recovery of $36,740) charged to the statement of loss and comprehensive
loss. The fair value of the DSUs at grant date were valued using an estimated market price of $2.50.
On July 25, 2017, the Company granted an additional 1,000,000 DSUs. The DSUs vested immediately. The fair value of the DSUs at the date of grant was
valued using an estimated market price of $3.75.
On June 1, 2019, the Company granted 400,000 DSUs. 100,000 DSUs vested on July 1, 2019, 100,000 vested on October 1, 2019, 100,000 vested on January 1,
2020 and 100,000 DSUs vested on April 1, 2020. The estimated fair value of the DSUs on the date of grant was amortized over the vesting periods. During the six months ended June 30, 2020, the Company recognized an expense of $114,867 related to
this amortization charged to the statement of loss. The fair value of the DSUs at the date of grant was valued using an estimated market price of $3.75. On April 7, 2020, the DSUs were exercised for 400,000 common shares of the Company.
On August 9, 2019, the Company granted 500,000 DSU’s. 200,000 DSU’s vested immediately, while 150,000 DSU’s vested when the Company obtained its
installation license for the Autazes project and the final 150,000 DSU’s will vest upon the Company initiating project construction estimated to be in December 2021. During the six months ended June 30, 2020, the Company recognized an expense of
$406,773 related to this amortization capitalized to exploration and evaluation assets. The fair value of the DSUs at the date of grant was valued using an estimated market price of $3.75.
On October 21, 2019, the Company granted an additional 450,000 DSU’s. 100,000 DSU’s vested on December 1, 2019, 100,000 vested on January 1, 2020,
100,000 vested on February 1, 2020 and 150,000 vested on March 1, 2020. During the six months ended June 30, 2019, the Company recognized an expense of $381,656 related to this amortization charged to the statement of loss. The fair value of the
DSUs at the date of grant was valued using an estimated market price of $3.75. On April 7, 2020, the DSUs were exercised for 450,000 common shares of the Company.
F-15
Brazil Potash Corp.
Notes to the Condensed Consolidated Interim Financial Statements
For the six months ended June 30, 2020 and 2019
(Unaudited)
9. Share-based payments (continued)
(b) Deferred share units plan (continued):
During the six months ended June 30, 2020, the total amount related to the vesting of DSUs was $1,307,393 (June 30, 2019 – $17,998) of which $835,443
(June 30, 2019 – $54,738) is included in the consolidated statement of loss and comprehensive loss and $471,950 (June 30, 2019 – recovery of $36,740) was capitalized to exploration and evaluation assets.
10. Related Party Disclosures
|
(a)
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Key management personnel compensation
|
In addition to their contracted fees, directors and executive officers also participate in the Company’s Share option program and DSU plan. Certain
executive officers are subject to a mutual termination notice ranging from one to twelve months. Key management personnel compensation comprised:
|
Six months ended
June 30, 2020
|
Six months ended
June 30, 2019
|
||
|
Directors & officers compensation
|
$ 748,744
|
$ 860,269
|
|
|
Share-based payments
|
391,061
|
7,050
|
|
|
$ 1,139,805
|
$ 867,319
|
||
Included in the above amounts, is $289,998 (June 30, 2019 - $289,998) paid or accrued according to a contract for business and operational consulting
services with Forbes & Manhattan, Inc., a company for which Mr. Stan Bharti (a director of Brazil Potash Corp.) is the Executive Chairman and Mr. Matt Simpson (CEO of Brazil Potash Corp.) is the Chief Executive Officer.
During the six months ended June 30, 2020, the Company recorded an expense $391,061 (June 30, 2019 – $7,050) in share-based compensation related to the
amortization of the estimated fair value of DSUs granted to directors and officers of the Company in 2015. As at June 30, 2020, 6,500,000 DSUs were granted to officers and directors of the Company of which 4,000,001 have vested, 500,000 were
cancelled and 1,999,999 have not yet vested (See Note 9).
|
(a)
|
Transactions with other related parties
|
As at June 30, 2020, trade payables and accrued liabilities included an amount of $3,590,926 (December 31, 2019 - $2,809,249) owing to directors and
officers of the Company for consulting fees.
See Note 7 for the terms of a related party loan.
These transactions, occurring in the normal course of operations, are measured at the exchange amount, which is the amount of consideration established
and agreed to by the related parties.
F-16
Brazil Potash Corp.
Notes to the Condensed Consolidated Interim Financial Statements
For the six months ended June 30, 2020 and 2019
(Unaudited)
11. Commitments and contingencies
The Company is party to certain management contracts. These contracts require payments of approximately $7,094,000 to directors, officers and consultants
of the Company upon the occurrence of a change in control of the Company; as such term is defined by each respective consulting agreement. The Company is also committed to payments upon termination of approximately $1,197,000 pursuant to the terms
of these contracts. As a triggering event has not taken place, these amounts have not been recorded in these condensed consolidated interim financial statements.
12. Subsequent events
On July 20, 2020, the Company extended the expiry dates of certain options such that 2,905,000 options with exercise prices of $1.00 per share and
expiring on September 23, 2020, 1,168,000 options expiring on July 22, 2020 and 3,392,500 options with exercise prices of $2.50 per share and expiring September 23, 2020 would expire on July 22, 2025. The weighted average incremental fair value of
the options of $1.21 was estimated using the Black-Scholes option pricing model, calculated immediately before and after the extension, with the following weighted average assumptions: a market price of common shares of $3.75, expected dividend
yield of 0%, expected volatility of 100% based on the historic volatility of comparable companies, risk-free interest rate of 0.34% and an expected life of five years. The total value of the option extension was $9,001,800.
On July 22, 2020, 180,000 with exercise prices of $2.50 expired, unexercised.
Offering
Brazil Potash is offering up to 12,500,000 (the “Maximum Offering”) shares of the Company to be sold in the offering. The shares are being offered at a
purchase price of $4.00 per share. Brazil Potash is selling the shares through a Tier 2 offering pursuant to Regulation A (Regulation A+) under the Securities Act of 1933. There is no assurance the Maximum Offering will be completed.
F-17
Item 4. Exhibits
|
Exhibit No.
|
Description
|
|
EX1A-10.1#
|
Power of attorney
|
|
†
|
Filed herewith.
|
||
|
#
|
Previously filed and incorporated by reference to the exhibits filed as part III of the Form 1-A Offering Statement filed with the SEC on May 5,
2020 and June 11, 2020
|
||
5
SIGNATURES
Pursuant to the requirements of Regulation A, the issuer had duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
|
BRAZIL POTASH CORP.
|
|
|
|
|
|
|
|
By:
|
/s/ “Matt Simpson”
|
|
|
|
Name: Matt Simpson
|
|
|
|
Title: Chief Executive Officer
|
| Date: | October 2, 2020 |
|
Pursuant to the requirements of Regulation A, this report has been signed below by the following persons on behalf of the issuer and in the capacities
and on the dates indicated.
|
/s/ “Matt Simpson”
|
|
Date:
|
October 2, 2020
|
|
Name: Matt Simpson
Title: Chief Executive Officer
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
|
/s/ “Ryan Ptolemy
|
|
Date: | October 2, 2020 |
|
Name: Ryan Ptolemy
Title: Chief Financial Officer, Secretary, Treasurer
(Principal Financial Officer and Principal Accounting Officer) |
|
|
|
6