Sunday, February 23, 2020 10:10:28 PM
BROADWAY GOLD MINING LTD. FORM 51-102F1 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Three Months Ended November 30, 2019
The following discussion and analysis of financial results should be read in conjunction with the unaudited condensed consolidated interim financial statements of Broadway Gold Mining Ltd. (“the Company” or “Broadway”) for the three months ended November 30, 2019 as well as the audited financial statements for the year ended August 31, 2019; including the notes thereto. The financial data contained in this discussion and analysis is presented in accordance with International Financial Reporting Standards (“IFRS”). The reporting currency is the Canadian dollar.
The following discussion and analysis provides information that management believes is relevant to the assessment and understanding of the Company’s results of operations and financial conditions. Certain statements herein contain forward-looking statements relating to the operations or to the environment in which we operate, which are based on our operations, forecasts, and projections. Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions, and actual results may differ materially from those anticipated in these forwardlooking statements. The risks include those outlined under the “Risk Factors” section of this MD&A and elsewhere in the Company’s public disclosure documents.
This Management Discussion and Analysis is dated January 29, 2020.
BUSINESS OVERVIEW
The Company was incorporated under the Business Corporations Act of British Columbia on July 26, 2010 as Carolina Capital Corp. On October 12, 2016, it changed its name to Broadway Gold Mining Ltd. to reflect the change of geographical location of its principal business activity to the gold and copper mining property located in Silver Star, Montana, USA (the “Madison Property”). The Company’s head and principal office is located in Vancouver, British Columbia, Canada. The Company’s common shares trade on the TSX-V under the symbol “BRD”. The Company’s shares also trade on the USA OTCQB Venture Marketplace under the symbol “BDWYF” and on the Frankfurt exchange under the symbol “BGH”.
The Company has three subsidiaries, Broadway Gold Corp., a Montana corporation under which it conducts the exploration activities on the Madison Property, Madison Metals Inc. (“Madison Metals”), a British Columbia corporation, and Broadway Delaware Subco Inc. (“Delaware Subco”), a Delaware corporation.
CORPORATE UPDATES
On October 15, the Company entered into a definitive arrangement agreement with Mind Medicine, Inc., a privately held issuer incorporated under the laws of Delaware, which will result in a reverse take-over of the Company by the current shareholders of MindMed by way of plan of arrangement under the Business Corporations Act (British Columbia). See “Proposed Transaction” section.
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PROPOSED TRANSACTION
On October 15, the Company entered into a definitive arrangement agreement ("Arrange Agreement") with Mind Medicine, Inc., a privately held issuer incorporated under the laws of Delaware ("MindMed"), which will result in a reverse take-over ("RTO") of the Company by the current shareholders of MindMed by way of plan of arrangement ("Plan of Arrangement") under the Business Corporations Act (British Columbia) ("Arrangement").
Pursuant to the terms of the Arrangement Agreement, Delaware Subco Inc., a wholly owned subsidiary of the Company incorporated for the purpose under the laws of Delaware will merge with MindMed. In accordance with the Arrangement and the articles of MindMed, all outstanding Class B common shares (“Class B Shares”), Class C common shares (“Class C Shares”) and Class D common shares (“Class D Shares”) of MindMed will be exchanged for Class A common shares (“Class A Shares”), immediately following which all Class A Shares of MindMed will be exchanged, on a one-for-one basis (the “Exchange Ratio”), for securities of Broadway on a Consolidated (as defined below) basis (Broadway following the completion of the Arrangement herein referred to as the “Resulting Issuer”). Any outstanding convertible securities of MindMed, including any convertible securities issued in connection with the MindMed Financing (as defined below), will be exchanged for convertible securities of the Resulting Issuer on the basis of the Exchange Ratio.
As part of the Arrangement and subject to the receipt of all required approvals, Broadway will consolidate its outstanding shares, warrants and options on an eight (8) old common shares for one (1) new common share basis (the “Consolidation”) and change its name to “Mind Medicine (MindMed), Inc.” (or such other name as MindMed may determine) (the “Name Change”). It will also amend its capital structure (the “Capital Structure Amendment”) by creating a new class of multiple voting shares that will each carry 100 votes per share (the “Multiple Voting Shares”), and change the name of its common shares to “subordinate voting shares” (with all other terms of the common shares remaining unchanged). The Multiple Voting Shares will be issued to certain U.S. resident holders of MindMed shares in connection with the Arrangement.
The Plan of Arrangement also includes the transfer of all of right, title and interest, and all associated liabilities, in the Madison Property (the “Spin-Out Transaction”). The Madison Property is currently held by Broadway Gold Corp. The Spin-Out Transaction will consist of the transfer of all of the shares of Broadway Gold Corp. and any related assets and liabilities in connection with the Madison Property to a wholly owned subsidiary of Broadway, Madison Metals. Madison Metals will also assume all liabilities associated with Broadway's mineral exploration and development business as conducted prior to the completion of the Arrangement. Pursuant to the Plan of Arrangement, Madison Metals will issue common shares to Broadway as consideration for the Transferred Assets, which will be distributed to the holders of record of the Company's shares immediately before completion of the RTO on a pro-rata basis. Broadway shareholders will be entitled to receive one Madison Metals share for every common share of Broadway on a pre-Consolidation basis held by such shareholder.
In connection with the Arrangement, MindMed has agreed to make a bridge loan available (“Bridge Loan”) as provided in the Arrangement Agreement. The terms of the Bridge Loan provide that MindMed will lend to Broadway (i) $15,000 on execution of the Agreement; (ii) a maximum of $30,000 per month, starting on the later of the date of execution of the Arrangement Agreement and October 1, 2019 and ending on the earlier of the Closing Date (as defined in the Arrangement Agreement) or January 1, 2020, to cover the costs and expenses necessary to maintain Montana’s business, and (iii)
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no more than $170,000 to pay down the aggregate accounts payable currently owed by Broadway and the Broadway Montana, which amounts will be forgiven or assumed by MindMed upon completion of the Arrangement.
INTEREST IN MINERAL PROPERTIES
Madison Property
In July 2016, the Company entered into an agreement to purchase 100% right, title and interest in 450 acres of land with a 192-acre ranch, buildings, mine equipment and fixtures and 6 patented and 35 unpatented mineral claims situated in Madison County, Montana. The agreement called for a cash payment of CDN$250,000 and the issuance of 500,000 common shares on the First and Second Anniversary and CDN$100,000 upon attainment of commercial production. The acquisition was also subject to an annual payment equal to the greater of a 2% NSR or US$50,000. Final TSX approval for the closing of the transaction was received on September 30, 2016. 500,000 common shares were issued in October 2017 for the First Anniversary share allotment. 500,000 common shares were issued in October 2018 for the Second Anniversary share allotment.
Subsequent to the initial purchase, the company has increased the footprint and scope of the project.
Currently, the Madison Property covers 2,514 acres consisting of six federal patented lode claims and 137 unpatented mineral claims. The road accessible claims lie 1.5 kilometers west of the hamlet of Silver Star in Sections 2 and 3 of Township 2 South, Range 6 West. The Madison Property lies in the Silver Star District along the south flank of the Radar Creek pluton 38 kilometers southwest of the world-famous Butte copper mine, an area of high geological potential. The property is underlain by Mississippian calcareous sediments intruded by quartz monzonite of the Tertiary to Cretaceous Radar Creek pluton. Gold and copper skarn deposits have developed at the contact.
The Madison Project encompasses two mines, several shafts and adits and numerous pits and trenches, largely centered along the limestone intrusive contact. The largest of these is the Broadway Mine, developing a gold-bearing skarn zone to a vertical depth of 750 feet between the 1880’s and the 1950’s. A total of 450,000 tons averaging 0.32 ounces per ton gold were produced from approximately 6,000 feet of underground workings. The Company feels the depth potential of the Broadway Mine has yet to be tested.
The second mine is the Madison Mine. A series of drill programs throughout the 1980’s and into the early 1990’s located gold, copper and gold-copper mineralization in a 152 metre long by 61 metre wide zone along the limestone intrusive contact. During the 2007 to 2012 period Coronado Resources Ltd. drove a decline and bulk sampled several blocks within a 70 metre long by 30 metre wide section of the larger zone. A number of the significant drill intersections from the earlier drill programs were not followed up and these present the Company with a second area of immediate potential on the property.
Interested readers can review the updated March 7, 2019 NI 43-101 report on the Madison Project posted on the Company’s website. www.broadwaymining.com.
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Mineral Property Expenditures
The Company capitalized exploration and evaluation expenditures in the period incurred. During the three months ended November 30, 2019, the Company has incurred the following exploration expenditures on the Madison Property:
Three Months Ended November 30, 2019
Three Months Ended November 30, 2018 $ $ Assessment and taxes 1,960 1,608 Camp costs 86 9,329 Consulting engineers 2,839 45,814 Fieldwork and wages 24,705 76,001 Power utilities 1,034 1,173 Recovery (25,809) -
Net expenditures during the period
4,815
133,925
Due to the proposed Spin-Out Transaction (see “Proposed Transaction” section), the Company has transferred the carrying costs relating to the Madison Property to assets held for sale as of November 30, 2019 and August 31, 2019.
RESULTS OF OPERATIONS
Summary of Quarterly Results
The following table sets out selected financial data in respect of the most recently completed quarters of the Company. The data is derived from the financial statements of the Company prepared in accordance with IFRS.
Quarter Ended
Net Income (Loss)
Other Income/ Expenses
Impairment & Write Off of E&E Assets
Basic & Diluted (Loss) per Common Share $ $ $ $ November 30, 2019 (64,208) 21,141 - (0.00) August 31, 2019 (866,856) - (811,000) (0.02) May 31, 2019 (224,402) - - (0.00) February 28, 2019 (222,564) - (47,400) (0.01) November 30, 2018 (165,141) - - (0.00) August 31, 2018 (282,624) - - (0.01) May 31, 2018 (299,874) 829 - (0.00) February 28, 2018 (306,028) 398 - (0.01)
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Three Months Ended November 30, 2019 Compared to Three Months Ended November 30, 2018
During the three months ended November 30, 2019, the Company recorded a net loss of $64,208 compared to a net loss of $165,141 during the three months ended November 30, 2018. The $101,113 decrease in net loss is attributable to the following:
• Consulting fees decreased to $45,000 for the three months ended November 30, 2019 compared to $107,540 for the three months ended November 30, 2018 due to cost-cutting measures.
• Gain on sale of equipment increased to $21,141 for the three months ended November 30, 2019 compared to $nil for the three months ended November 30, 2018.
Disclosure for Venture Issuers Without Significant Revenue
The Company has had no revenue from operations since becoming a reporting issuer.
The following is a breakdown of the general operation expenses incurred during the periods noted below:
Three Months Ended November 30, 2019
Three Months Ended November 30, 2018 $ $ Accounting and audit fees 19,043 13,437 Advertising and marketing expenses (2,000) - Consulting fees 45,000 107,540 Depreciation - 2,186 General office expense 5,364 12,061 Legal fees 3,615 8,823 Office rent 4,901 4,547 Shareholder information 1,000 3,738 Transfer agent and filing fees 8,246 12,809 Net expenditures during the year 85,169 165,141
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The following is a breakdown of the assets and liabilities held for sale during the periods noted below:
November 30, 2019
August 31, 2019 $ $ Assets Property and equipment 63,078 75,749 Exploration and evaluation assets 3,589,906 4,398,077 Reclamation deposits 180,511 180,593 3,833,495 4,654,419 Impairment of assets held for sale - (811,000)
Total assets held for sale
3,833,495
3,843,419 Liabilities Accounts payable and accrued liabilities 59,107 72,119
Total liabilities held for sale
59,107
72,119
LIQUIDITY AND CAPITAL RESOURCES
The Company’s approach to managing its liquidity is to ensure that it has sufficient resources to meet its liabilities as they come due and have sufficient working capital to fund operations for the ensuing fiscal year.
As at November 30, 2019, the Company had $3,914,989 in current assets (August 31, 2019 - $3,902,585) and current liabilities of $223,118 (August 31, 2019 - $264,375) for a working capital of $3,691,871 compared to $3,638,210 at August 31, 2019. As at the date of this report, the Company does not have adequate cash and working capital to fund its operations and planned capital expenditures for the next 12 months and is reliant upon future equity financing to fund its operations and advance the development of its exploration mining business.
As at November 30, 2019 the Company had a share capital balance of $7,501,694 (August 31, 2019 - $7,381,694) as a result of:
• 1,200,000 warrants exercised to settle $120,000 of accounts payable and accrued liabilities. Investing Activities
Total cash provided by investing activities during the three months ended November 30, 2019 was $28,901 for recovery from earn-in agreement and proceeds from sale of equipment, offset by exploration and maintenance costs on the property.
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Financing Activities
Total cash provided by financing activities during the three months ended November 30, 2019 was $15,000 for loan advanced during the period.
CONTINGENCIES
The Company has been named in a province of Ontario small claims court notice of claim by the former CEO for severance. The claim totals $25,000. The Company has recognized a provision for this amount which is expected be paid by January 2020.
OFF-BALANCE SHEET ARRANGEMENTS
To the best of Management’s knowledge, there are no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on the results of operations or financial condition of the Company.
CONTRACTUAL COMMITMENTS
See “Interest in Mineral Properties” for mineral property commitments.
TRANSACTIONS WITH RELATED PARTIES
During the three months ended November 30, 2019, the Company incurred management services of $45,000 (three months ended November 30, 2018 - $15,000) to a director and officer of the Company. As at November 30, 2019, included in accounts payable and accrued liabilities is an aggregate of $nil (August 31, 2019 - $45,000) payable to this director and officer for the services.
During the three months ended November 30, 2019, the Company paid accounting and transfer agent and filing fees of $12,067 (three months ended November 30, 2018 - $12,850) to Marrelli Support Services Inc. (“MSSI”), DSA Corporate Services Inc. (“DSA Corp”) and DSA Filing Services Limited (“DSA Filing”), together known as the “Marrelli Group”, for:
• Eric Myung, an employee of Marrelli Group, to act as the CFO of the Company; • Bookkeeping services; • Regulatory filing services; • Corporate secretarial services. As at November 30, 2019, included in accounts payable is an aggregate of $22,632 (August 31, 2019 - $18,893) payable to the Marrelli Group.
All transactions and balances are in the normal course of operations and are measured at the exchange amount which is the amount of consideration established and agreed to by the related parties.
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CAPITAL STOCK
The authorized capital of the Company consists of an unlimited number of common shares without par value.
The following common shares and convertible securities were outstanding as at November 30, 2019:
Expiry Date
Exercise Price
Options Outstanding
Common Shares on Exercise
Common shares
49,860,204
Stock options
February 21, 2021
$0.05
200,000
200,000 October 18, 2021 $0.25 350,000 350,000 October 18, 2021 $0.19 250,000 250,000 October 19, 2021 $0.25 500,000 500,000 April 3, 2022 $0.20 400,000 400,000 July 13, 2022 $0.20 400,000 400,000 January 10, 2023 $0.43 100,000 100,000 August 31, 2023 $0.20 525,000 525,000 March 19, 2024 $0.10 675,000 675,000 Total Stock Options 3,400,000 Share purchase warrants February 28, 2020 $0.15 3,100,500
Stock Options
The Company has an incentive stock option plan (the “Option Plan”) allowing for the reservation of common shares issuable under the Plan to a maximum 10% of the number of issued and outstanding common shares of the Company at any given time. The term of any stock option granted under the Plan may not exceed five years and the exercise price may not be less than the discounted market price on the grant date. All options granted under the plan shall vest and become exercisable in full upon grant, except options granted to consultants performing investor relations activities, whose options must vest in stages over twelve months with no more than one quarter of the options vesting in any three-month period.
The purpose of the Plan is to provide directors, officers and key employees and certain other persons who provided services to the Company and its subsidiary with an increased incentive to contribute to the future success and prosperity of the Company.
Pursuant to the Option Plan, the Company had entered into agreements with its directors to grant an aggregate of 950,000 incentive stock options with a grant date of February 15, 2016, vesting immediately. Each option allows the holder to purchase one common share of the Company at an exercise price of $0.05 per common share (equal to market price at the date of grant) for a period of five years from the date of grant. In October 2016, 425,000 of the options were exercised.
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On March 19, 2019, the Company granted a total of 675,000 stock options to the Board members, consultants and employees with exercise price of $0.10 per share, expiring in five years. The options vest immediately.
SUBSEQUENT EVENTS
On January 8, 2020, Broadway entered into an exclusivity agreement ("Agreement") with American Pacific Mining Corp. ("APM") wherein APM is granted an exclusive right to negotiate the acquisition of the Madison Property during the period from the date of Agreement until the earlier of (i) the date of execution of a mutually acceptable definitive purchase agreement; (ii) five business days after the closing of the Arrangement; (iii) the termination of the Arrangement Agreement; and (iv) the date, if any, upon which Broadway and APM mutually agree in writing to terminate discussions.
On January 23, 2020, Broadway and MindMed have executed an amendment (the "Amendment") to the Arrangement Agreement to extend the closing date of the Arrangement from no later than January 31, 2020 to no later than March 31, 2020. All other terms of the Arrangement Agreement remain in full force and effect and unamended.
SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES
All significant accounting policies and critical accounting estimates are fully disclosed in Note 2 of the financial statements for the year ended August 31, 2019.
RISKS RELATED TO BUSINESS
Please refer to the “Risks Related to Business” section in the Company’s MD&A for the fiscal year ended August 31, 2019, available on SEDAR at www.sedar.com.
CAPITAL MANAGEMENT
The Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in order to support the acquisition and exploration of mineral properties. 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 future development of the business. The Company defines capital that it manages as share capital and cash equivalents.
The properties in which the Company currently has an interest are in the exploration stage; as such, the Company has historically relied on equity financing to fund its activities. 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 approach to capital management during the period ended November 30, 2019.
EVALUATION OF DISCLOSURE CONTROLS AND POLICIES
Disclosure controls and procedures are designed to provide reasonable assurance that information
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required to be disclosed by the Company in reports filed with or submitted to the various securities regulators is recorded, processed, summarized and reported within the time periods specified. This information is gathered and reported to the Company’s management, which includes the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), so that timely decisions can be made regarding disclosure. The Company’s management, under the supervision of, and with the participation of, the CEO and CFO has designed the Company’s disclosure controls and procedures. As at November 30, 2019, the CEO and CFO evaluated the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as at November 30, 2019.
EVALUATION OF INTERNAL CONTROLS OVER FINANCIAL REPORTING
Designing, establishing and maintaining adequate internal control over financial reporting is the responsibility of the Company’s management. Internal control over financial reporting is a process designed by, or under the supervision of management, and affected by the Board of Directors, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements in accordance with IFRS.
These controls include policies and procedures that: pertain to the maintenance of records that, in reasonable detail, accurately reflect transactions pertaining to its assets, provide reasonable assurance that all transactions are recorded to permit the preparation of its financial statements in accordance with IFRS, and that expenditures are being made only in accordance with authorizations of management of the Company, and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on its financial statements.
Management is responsible for establishing and maintaining internal control over financial reporting and has designed and implemented such controls to ensure that the required objectives of these internal controls have been met. The management of the Company applied its judgment in evaluating the costbenefit relationship to controls and procedures. The result of which was, because of the inherent limitations in all control systems, that no evaluation of the controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
As at November 30, 2019, the officers of the Company evaluated the design and implementation of the Company’s internal control over financial reporting (“ICFR”). Based on this evaluation of the design and operating effectiveness of the Company’s ICFR, the CEO and CFO concluded that the Company’s ICFR was effective as at November 30, 2019.
ADDITIONAL INFORMATION
Additional information relating to the Company can also be found on SEDAR at www.sedar.com.
For the Three Months Ended November 30, 2019
The following discussion and analysis of financial results should be read in conjunction with the unaudited condensed consolidated interim financial statements of Broadway Gold Mining Ltd. (“the Company” or “Broadway”) for the three months ended November 30, 2019 as well as the audited financial statements for the year ended August 31, 2019; including the notes thereto. The financial data contained in this discussion and analysis is presented in accordance with International Financial Reporting Standards (“IFRS”). The reporting currency is the Canadian dollar.
The following discussion and analysis provides information that management believes is relevant to the assessment and understanding of the Company’s results of operations and financial conditions. Certain statements herein contain forward-looking statements relating to the operations or to the environment in which we operate, which are based on our operations, forecasts, and projections. Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions, and actual results may differ materially from those anticipated in these forwardlooking statements. The risks include those outlined under the “Risk Factors” section of this MD&A and elsewhere in the Company’s public disclosure documents.
This Management Discussion and Analysis is dated January 29, 2020.
BUSINESS OVERVIEW
The Company was incorporated under the Business Corporations Act of British Columbia on July 26, 2010 as Carolina Capital Corp. On October 12, 2016, it changed its name to Broadway Gold Mining Ltd. to reflect the change of geographical location of its principal business activity to the gold and copper mining property located in Silver Star, Montana, USA (the “Madison Property”). The Company’s head and principal office is located in Vancouver, British Columbia, Canada. The Company’s common shares trade on the TSX-V under the symbol “BRD”. The Company’s shares also trade on the USA OTCQB Venture Marketplace under the symbol “BDWYF” and on the Frankfurt exchange under the symbol “BGH”.
The Company has three subsidiaries, Broadway Gold Corp., a Montana corporation under which it conducts the exploration activities on the Madison Property, Madison Metals Inc. (“Madison Metals”), a British Columbia corporation, and Broadway Delaware Subco Inc. (“Delaware Subco”), a Delaware corporation.
CORPORATE UPDATES
On October 15, the Company entered into a definitive arrangement agreement with Mind Medicine, Inc., a privately held issuer incorporated under the laws of Delaware, which will result in a reverse take-over of the Company by the current shareholders of MindMed by way of plan of arrangement under the Business Corporations Act (British Columbia). See “Proposed Transaction” section.
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PROPOSED TRANSACTION
On October 15, the Company entered into a definitive arrangement agreement ("Arrange Agreement") with Mind Medicine, Inc., a privately held issuer incorporated under the laws of Delaware ("MindMed"), which will result in a reverse take-over ("RTO") of the Company by the current shareholders of MindMed by way of plan of arrangement ("Plan of Arrangement") under the Business Corporations Act (British Columbia) ("Arrangement").
Pursuant to the terms of the Arrangement Agreement, Delaware Subco Inc., a wholly owned subsidiary of the Company incorporated for the purpose under the laws of Delaware will merge with MindMed. In accordance with the Arrangement and the articles of MindMed, all outstanding Class B common shares (“Class B Shares”), Class C common shares (“Class C Shares”) and Class D common shares (“Class D Shares”) of MindMed will be exchanged for Class A common shares (“Class A Shares”), immediately following which all Class A Shares of MindMed will be exchanged, on a one-for-one basis (the “Exchange Ratio”), for securities of Broadway on a Consolidated (as defined below) basis (Broadway following the completion of the Arrangement herein referred to as the “Resulting Issuer”). Any outstanding convertible securities of MindMed, including any convertible securities issued in connection with the MindMed Financing (as defined below), will be exchanged for convertible securities of the Resulting Issuer on the basis of the Exchange Ratio.
As part of the Arrangement and subject to the receipt of all required approvals, Broadway will consolidate its outstanding shares, warrants and options on an eight (8) old common shares for one (1) new common share basis (the “Consolidation”) and change its name to “Mind Medicine (MindMed), Inc.” (or such other name as MindMed may determine) (the “Name Change”). It will also amend its capital structure (the “Capital Structure Amendment”) by creating a new class of multiple voting shares that will each carry 100 votes per share (the “Multiple Voting Shares”), and change the name of its common shares to “subordinate voting shares” (with all other terms of the common shares remaining unchanged). The Multiple Voting Shares will be issued to certain U.S. resident holders of MindMed shares in connection with the Arrangement.
The Plan of Arrangement also includes the transfer of all of right, title and interest, and all associated liabilities, in the Madison Property (the “Spin-Out Transaction”). The Madison Property is currently held by Broadway Gold Corp. The Spin-Out Transaction will consist of the transfer of all of the shares of Broadway Gold Corp. and any related assets and liabilities in connection with the Madison Property to a wholly owned subsidiary of Broadway, Madison Metals. Madison Metals will also assume all liabilities associated with Broadway's mineral exploration and development business as conducted prior to the completion of the Arrangement. Pursuant to the Plan of Arrangement, Madison Metals will issue common shares to Broadway as consideration for the Transferred Assets, which will be distributed to the holders of record of the Company's shares immediately before completion of the RTO on a pro-rata basis. Broadway shareholders will be entitled to receive one Madison Metals share for every common share of Broadway on a pre-Consolidation basis held by such shareholder.
In connection with the Arrangement, MindMed has agreed to make a bridge loan available (“Bridge Loan”) as provided in the Arrangement Agreement. The terms of the Bridge Loan provide that MindMed will lend to Broadway (i) $15,000 on execution of the Agreement; (ii) a maximum of $30,000 per month, starting on the later of the date of execution of the Arrangement Agreement and October 1, 2019 and ending on the earlier of the Closing Date (as defined in the Arrangement Agreement) or January 1, 2020, to cover the costs and expenses necessary to maintain Montana’s business, and (iii)
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no more than $170,000 to pay down the aggregate accounts payable currently owed by Broadway and the Broadway Montana, which amounts will be forgiven or assumed by MindMed upon completion of the Arrangement.
INTEREST IN MINERAL PROPERTIES
Madison Property
In July 2016, the Company entered into an agreement to purchase 100% right, title and interest in 450 acres of land with a 192-acre ranch, buildings, mine equipment and fixtures and 6 patented and 35 unpatented mineral claims situated in Madison County, Montana. The agreement called for a cash payment of CDN$250,000 and the issuance of 500,000 common shares on the First and Second Anniversary and CDN$100,000 upon attainment of commercial production. The acquisition was also subject to an annual payment equal to the greater of a 2% NSR or US$50,000. Final TSX approval for the closing of the transaction was received on September 30, 2016. 500,000 common shares were issued in October 2017 for the First Anniversary share allotment. 500,000 common shares were issued in October 2018 for the Second Anniversary share allotment.
Subsequent to the initial purchase, the company has increased the footprint and scope of the project.
Currently, the Madison Property covers 2,514 acres consisting of six federal patented lode claims and 137 unpatented mineral claims. The road accessible claims lie 1.5 kilometers west of the hamlet of Silver Star in Sections 2 and 3 of Township 2 South, Range 6 West. The Madison Property lies in the Silver Star District along the south flank of the Radar Creek pluton 38 kilometers southwest of the world-famous Butte copper mine, an area of high geological potential. The property is underlain by Mississippian calcareous sediments intruded by quartz monzonite of the Tertiary to Cretaceous Radar Creek pluton. Gold and copper skarn deposits have developed at the contact.
The Madison Project encompasses two mines, several shafts and adits and numerous pits and trenches, largely centered along the limestone intrusive contact. The largest of these is the Broadway Mine, developing a gold-bearing skarn zone to a vertical depth of 750 feet between the 1880’s and the 1950’s. A total of 450,000 tons averaging 0.32 ounces per ton gold were produced from approximately 6,000 feet of underground workings. The Company feels the depth potential of the Broadway Mine has yet to be tested.
The second mine is the Madison Mine. A series of drill programs throughout the 1980’s and into the early 1990’s located gold, copper and gold-copper mineralization in a 152 metre long by 61 metre wide zone along the limestone intrusive contact. During the 2007 to 2012 period Coronado Resources Ltd. drove a decline and bulk sampled several blocks within a 70 metre long by 30 metre wide section of the larger zone. A number of the significant drill intersections from the earlier drill programs were not followed up and these present the Company with a second area of immediate potential on the property.
Interested readers can review the updated March 7, 2019 NI 43-101 report on the Madison Project posted on the Company’s website. www.broadwaymining.com.
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Mineral Property Expenditures
The Company capitalized exploration and evaluation expenditures in the period incurred. During the three months ended November 30, 2019, the Company has incurred the following exploration expenditures on the Madison Property:
Three Months Ended November 30, 2019
Three Months Ended November 30, 2018 $ $ Assessment and taxes 1,960 1,608 Camp costs 86 9,329 Consulting engineers 2,839 45,814 Fieldwork and wages 24,705 76,001 Power utilities 1,034 1,173 Recovery (25,809) -
Net expenditures during the period
4,815
133,925
Due to the proposed Spin-Out Transaction (see “Proposed Transaction” section), the Company has transferred the carrying costs relating to the Madison Property to assets held for sale as of November 30, 2019 and August 31, 2019.
RESULTS OF OPERATIONS
Summary of Quarterly Results
The following table sets out selected financial data in respect of the most recently completed quarters of the Company. The data is derived from the financial statements of the Company prepared in accordance with IFRS.
Quarter Ended
Net Income (Loss)
Other Income/ Expenses
Impairment & Write Off of E&E Assets
Basic & Diluted (Loss) per Common Share $ $ $ $ November 30, 2019 (64,208) 21,141 - (0.00) August 31, 2019 (866,856) - (811,000) (0.02) May 31, 2019 (224,402) - - (0.00) February 28, 2019 (222,564) - (47,400) (0.01) November 30, 2018 (165,141) - - (0.00) August 31, 2018 (282,624) - - (0.01) May 31, 2018 (299,874) 829 - (0.00) February 28, 2018 (306,028) 398 - (0.01)
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Three Months Ended November 30, 2019 Compared to Three Months Ended November 30, 2018
During the three months ended November 30, 2019, the Company recorded a net loss of $64,208 compared to a net loss of $165,141 during the three months ended November 30, 2018. The $101,113 decrease in net loss is attributable to the following:
• Consulting fees decreased to $45,000 for the three months ended November 30, 2019 compared to $107,540 for the three months ended November 30, 2018 due to cost-cutting measures.
• Gain on sale of equipment increased to $21,141 for the three months ended November 30, 2019 compared to $nil for the three months ended November 30, 2018.
Disclosure for Venture Issuers Without Significant Revenue
The Company has had no revenue from operations since becoming a reporting issuer.
The following is a breakdown of the general operation expenses incurred during the periods noted below:
Three Months Ended November 30, 2019
Three Months Ended November 30, 2018 $ $ Accounting and audit fees 19,043 13,437 Advertising and marketing expenses (2,000) - Consulting fees 45,000 107,540 Depreciation - 2,186 General office expense 5,364 12,061 Legal fees 3,615 8,823 Office rent 4,901 4,547 Shareholder information 1,000 3,738 Transfer agent and filing fees 8,246 12,809 Net expenditures during the year 85,169 165,141
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The following is a breakdown of the assets and liabilities held for sale during the periods noted below:
November 30, 2019
August 31, 2019 $ $ Assets Property and equipment 63,078 75,749 Exploration and evaluation assets 3,589,906 4,398,077 Reclamation deposits 180,511 180,593 3,833,495 4,654,419 Impairment of assets held for sale - (811,000)
Total assets held for sale
3,833,495
3,843,419 Liabilities Accounts payable and accrued liabilities 59,107 72,119
Total liabilities held for sale
59,107
72,119
LIQUIDITY AND CAPITAL RESOURCES
The Company’s approach to managing its liquidity is to ensure that it has sufficient resources to meet its liabilities as they come due and have sufficient working capital to fund operations for the ensuing fiscal year.
As at November 30, 2019, the Company had $3,914,989 in current assets (August 31, 2019 - $3,902,585) and current liabilities of $223,118 (August 31, 2019 - $264,375) for a working capital of $3,691,871 compared to $3,638,210 at August 31, 2019. As at the date of this report, the Company does not have adequate cash and working capital to fund its operations and planned capital expenditures for the next 12 months and is reliant upon future equity financing to fund its operations and advance the development of its exploration mining business.
As at November 30, 2019 the Company had a share capital balance of $7,501,694 (August 31, 2019 - $7,381,694) as a result of:
• 1,200,000 warrants exercised to settle $120,000 of accounts payable and accrued liabilities. Investing Activities
Total cash provided by investing activities during the three months ended November 30, 2019 was $28,901 for recovery from earn-in agreement and proceeds from sale of equipment, offset by exploration and maintenance costs on the property.
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Financing Activities
Total cash provided by financing activities during the three months ended November 30, 2019 was $15,000 for loan advanced during the period.
CONTINGENCIES
The Company has been named in a province of Ontario small claims court notice of claim by the former CEO for severance. The claim totals $25,000. The Company has recognized a provision for this amount which is expected be paid by January 2020.
OFF-BALANCE SHEET ARRANGEMENTS
To the best of Management’s knowledge, there are no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on the results of operations or financial condition of the Company.
CONTRACTUAL COMMITMENTS
See “Interest in Mineral Properties” for mineral property commitments.
TRANSACTIONS WITH RELATED PARTIES
During the three months ended November 30, 2019, the Company incurred management services of $45,000 (three months ended November 30, 2018 - $15,000) to a director and officer of the Company. As at November 30, 2019, included in accounts payable and accrued liabilities is an aggregate of $nil (August 31, 2019 - $45,000) payable to this director and officer for the services.
During the three months ended November 30, 2019, the Company paid accounting and transfer agent and filing fees of $12,067 (three months ended November 30, 2018 - $12,850) to Marrelli Support Services Inc. (“MSSI”), DSA Corporate Services Inc. (“DSA Corp”) and DSA Filing Services Limited (“DSA Filing”), together known as the “Marrelli Group”, for:
• Eric Myung, an employee of Marrelli Group, to act as the CFO of the Company; • Bookkeeping services; • Regulatory filing services; • Corporate secretarial services. As at November 30, 2019, included in accounts payable is an aggregate of $22,632 (August 31, 2019 - $18,893) payable to the Marrelli Group.
All transactions and balances are in the normal course of operations and are measured at the exchange amount which is the amount of consideration established and agreed to by the related parties.
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CAPITAL STOCK
The authorized capital of the Company consists of an unlimited number of common shares without par value.
The following common shares and convertible securities were outstanding as at November 30, 2019:
Expiry Date
Exercise Price
Options Outstanding
Common Shares on Exercise
Common shares
49,860,204
Stock options
February 21, 2021
$0.05
200,000
200,000 October 18, 2021 $0.25 350,000 350,000 October 18, 2021 $0.19 250,000 250,000 October 19, 2021 $0.25 500,000 500,000 April 3, 2022 $0.20 400,000 400,000 July 13, 2022 $0.20 400,000 400,000 January 10, 2023 $0.43 100,000 100,000 August 31, 2023 $0.20 525,000 525,000 March 19, 2024 $0.10 675,000 675,000 Total Stock Options 3,400,000 Share purchase warrants February 28, 2020 $0.15 3,100,500
Stock Options
The Company has an incentive stock option plan (the “Option Plan”) allowing for the reservation of common shares issuable under the Plan to a maximum 10% of the number of issued and outstanding common shares of the Company at any given time. The term of any stock option granted under the Plan may not exceed five years and the exercise price may not be less than the discounted market price on the grant date. All options granted under the plan shall vest and become exercisable in full upon grant, except options granted to consultants performing investor relations activities, whose options must vest in stages over twelve months with no more than one quarter of the options vesting in any three-month period.
The purpose of the Plan is to provide directors, officers and key employees and certain other persons who provided services to the Company and its subsidiary with an increased incentive to contribute to the future success and prosperity of the Company.
Pursuant to the Option Plan, the Company had entered into agreements with its directors to grant an aggregate of 950,000 incentive stock options with a grant date of February 15, 2016, vesting immediately. Each option allows the holder to purchase one common share of the Company at an exercise price of $0.05 per common share (equal to market price at the date of grant) for a period of five years from the date of grant. In October 2016, 425,000 of the options were exercised.
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On March 19, 2019, the Company granted a total of 675,000 stock options to the Board members, consultants and employees with exercise price of $0.10 per share, expiring in five years. The options vest immediately.
SUBSEQUENT EVENTS
On January 8, 2020, Broadway entered into an exclusivity agreement ("Agreement") with American Pacific Mining Corp. ("APM") wherein APM is granted an exclusive right to negotiate the acquisition of the Madison Property during the period from the date of Agreement until the earlier of (i) the date of execution of a mutually acceptable definitive purchase agreement; (ii) five business days after the closing of the Arrangement; (iii) the termination of the Arrangement Agreement; and (iv) the date, if any, upon which Broadway and APM mutually agree in writing to terminate discussions.
On January 23, 2020, Broadway and MindMed have executed an amendment (the "Amendment") to the Arrangement Agreement to extend the closing date of the Arrangement from no later than January 31, 2020 to no later than March 31, 2020. All other terms of the Arrangement Agreement remain in full force and effect and unamended.
SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES
All significant accounting policies and critical accounting estimates are fully disclosed in Note 2 of the financial statements for the year ended August 31, 2019.
RISKS RELATED TO BUSINESS
Please refer to the “Risks Related to Business” section in the Company’s MD&A for the fiscal year ended August 31, 2019, available on SEDAR at www.sedar.com.
CAPITAL MANAGEMENT
The Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in order to support the acquisition and exploration of mineral properties. 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 future development of the business. The Company defines capital that it manages as share capital and cash equivalents.
The properties in which the Company currently has an interest are in the exploration stage; as such, the Company has historically relied on equity financing to fund its activities. 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 approach to capital management during the period ended November 30, 2019.
EVALUATION OF DISCLOSURE CONTROLS AND POLICIES
Disclosure controls and procedures are designed to provide reasonable assurance that information
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required to be disclosed by the Company in reports filed with or submitted to the various securities regulators is recorded, processed, summarized and reported within the time periods specified. This information is gathered and reported to the Company’s management, which includes the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), so that timely decisions can be made regarding disclosure. The Company’s management, under the supervision of, and with the participation of, the CEO and CFO has designed the Company’s disclosure controls and procedures. As at November 30, 2019, the CEO and CFO evaluated the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as at November 30, 2019.
EVALUATION OF INTERNAL CONTROLS OVER FINANCIAL REPORTING
Designing, establishing and maintaining adequate internal control over financial reporting is the responsibility of the Company’s management. Internal control over financial reporting is a process designed by, or under the supervision of management, and affected by the Board of Directors, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements in accordance with IFRS.
These controls include policies and procedures that: pertain to the maintenance of records that, in reasonable detail, accurately reflect transactions pertaining to its assets, provide reasonable assurance that all transactions are recorded to permit the preparation of its financial statements in accordance with IFRS, and that expenditures are being made only in accordance with authorizations of management of the Company, and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on its financial statements.
Management is responsible for establishing and maintaining internal control over financial reporting and has designed and implemented such controls to ensure that the required objectives of these internal controls have been met. The management of the Company applied its judgment in evaluating the costbenefit relationship to controls and procedures. The result of which was, because of the inherent limitations in all control systems, that no evaluation of the controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
As at November 30, 2019, the officers of the Company evaluated the design and implementation of the Company’s internal control over financial reporting (“ICFR”). Based on this evaluation of the design and operating effectiveness of the Company’s ICFR, the CEO and CFO concluded that the Company’s ICFR was effective as at November 30, 2019.
ADDITIONAL INFORMATION
Additional information relating to the Company can also be found on SEDAR at www.sedar.com.
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