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10-Q - QUARTERLY REPORT - Cannabics Pharmaceuticals Inc.amcm_10q31may12.htm
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EX-32.1 - CERTIFICATION - Cannabics Pharmaceuticals Inc.amcm_10q31may12x321.htm
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NOTE 6: COMMITMENTS AND CONTINGENT LIABILITIES
3 Months Ended
May 31, 2012
Notes to Financial Statements  
NOTE 6: COMMITMENTS AND CONTINGENT LIABILITIES

On May 31, 2011, the Company acquired certain assets from NAMC under the Acquisition, which included the right under a Letter of Intent (the “LOI”) to participate in a joint venture with Win-Eldrich Gold Inc. (“Win-Eldrich”) for the improvement and operation of an ore milling and refining facility located near Denio Junction, Nevada (the “Ashdown Mill”).

 

Under the terms of the LOI, the Company’s participation in the joint venture was subject to the Company contributing $2 million in cash to the joint venture, along with a 100 ton-per-day gold milling circuit, and undertaking to pay 50% of the installation and mill operating costs.

Under the LOI, Win-Eldrich and the Company were to proceed in mutual good faith to jointly prepare and execute a definitive agreement by June 23, 2011 or such other date as might be agreed upon by the parties in writing (the “Due Date”). If the definitive agreement was not executed by the Due Date, then it was to terminate automatically. 

The Company did not meet the conditions for participation in the joint-venture. On November 21, 2011, Win-Eldrich gave written notice to the Company that the LOI was terminated with effect on September 15, 2011, and that Win-Eldrich considers the LOI to be of further force or effect. 

Win-Eldrich Gold Inc. 

By letter dated July 15, 2011 (the “Proposal”), the Company proposed to Win-Eldrich that the LOI be amended to extend the Due Date to September 15, 2011, with the parties agreeing to proceed in mutual good faith to jointly prepare and execute the definitive agreement by such date. The Company further proposed that Win-Eldrich accept 2,000,000 shares of the Company’s common stock and $1 million cash on execution of the definitive agreement as payment in full of the Final Payment. In consideration of Win-Eldrich’s agreement, the Company proposed to pay it $50,000. 

It is the position of the Company that the Proposal was a non-binding invitation to negotiate binding terms of agreement, and that no binding obligation on the Company or Win-Eldrich was created. If the Proposal is determined to be a binding obligation on the Company, then the Company could be liable to pay Win-Eldrich $50,000. Win-Eldrich has not made any claim against the Company in respect of the Proposal. The Company takes the position that Win-Eldrich is unlikely to make such a claim, and that if such a claim were made, it would likely be unsuccessful. 

Juniper Resources LLC

On June 14, 2011, the Company executed a letter agreement with Juniper Resources LLC (“Juniper”) and Versatech Capital for Mining LLC under which Juniper agreed to advance the sum of $400,000 to the Company, to be paid out from a public offering by the Company, to be negotiated and “closed out” by October 15, 2011 (the “Loan”). Interest on the Loan accrues at the rate of 1.65% per month. The Loan is due by December 15, 2011, and is secured by a registered security interest in certain ore milling equipment having an estimated book value of $600,000 (the “Collateral”). The Company was to issue Juniper 75,000 shares at $0.25 upon successful closing of the financing as a loan origination fee (the “Fee”).

Effective August 31, 2011, as a result of the acquisition of assets from NAMC being rescinded by mutual agreement, all right, title and interest of the Company in and to the Collateral was transferred to NAMC. NAMC has agreed to assume any payment obligation to Juniper arising from the Loan and to indemnify the Company from any loss arising from the Loan. It is the position of the Company that the Loan is limited in recourse to the Collateral. If NAMC fails to repay the Loan and if the Collateral is insufficient to cover the Loan principal and accrued interest, and if the Loan is determined not to be limited in recourse to the Collateral, then the Company may face liability for the repayment of the Loan, subject to such rights as the Company may have against third parties in connection with the Loan. It is the position of the Company that it is improbable that Juniper will make any claim or demand against the Company in respect of the Loan or the Fee, but in accordance with accounting conservatism has recorded the cash value of the Fee ($18,750) as an accrued liability.