Quartz
Mountain Resources Ltd.
MANAGEMENT'S
DISCUSSION AND ANALYSIS
THREE
MONTHS ENDED OCTOBER 31, 2017
QUARTZ
MOUNTAIN RESOURCES LTD.
FOR
THE THREE MONTHS ENDED OCTOBER 31, 2017
MANAGEMENT’S
DISCUSSION AND ANALYSIS
T
A B L E O F C O N T E N T S
| 1.1 |
Date |
3 |
| 1.2 |
Overview |
4 |
| 1.3 |
Selected
Annual Information |
4 |
| 1.4 |
Summary
of Quarterly Results |
5 |
| 1.5 |
Results
of Operations and Financial Condition |
5 |
| 1.6 |
Liquidity |
5 |
| 1.7 |
Capital
Resources |
6 |
| 1.8 |
Off-Balance
Sheet Arrangements |
6 |
| 1.9 |
Transactions
with Related Parties |
6 |
| 1.10 |
Fourth
Quarter |
8 |
| 1.11 |
Proposed
Transactions |
8 |
| 1.12 |
Critical
Accounting Estimates |
8 |
| 1.13 |
Changes
in Accounting Policies including Initial Adoption |
8 |
| 1.14 |
Financial
Instruments and Other Instruments |
8 |
| 1.15 |
Other
MD&A Requirements |
9 |
| 1.16 |
Risk
Factors |
11 |
QUARTZ
MOUNTAIN RESOURCES LTD.
FOR
THE THREE MONTHS ENDED OCTOBER 31, 2017
MANAGEMENT’S
DISCUSSION AND ANALYSIS
1.1
Date
This
Management's Discussion and Analysis (“MD&A”) should be read in conjunction with the unaudited condensed interim
consolidated financial statements of Quartz Mountain Resources Ltd. (“Quartz Mountain” or the “Company”)
for the three months ended October 31, 2017 and audited consolidated financial statements of Quartz Mountain Resources Ltd. for
the year ended July 31, 2017, and related MD&A as publicly filed on SEDAR at www.sedar.com. All monetary amounts herein are
expressed in Canadian dollars unless otherwise stated.
The
Company reports in accordance with International Financial Reporting Standards (“IFRS”) and the following disclosure,
and associated financial statements, are presented in accordance with IFRS. All comparative information provided is in accordance
with IFRS.
For
the purposes of the discussion below, date references refer to calendar year and not the Company's fiscal reporting period.
This
MD&A is prepared as of December 6, 2017.
Cautionary
Note to Investors Concerning Forward-looking Statements
This
discussion includes certain statements that may be deemed “forward-looking statements”. All statements in this disclosure,
other than statements of historical facts, that address permitting, exploration drilling, exploitation activities and events or
developments that the Company expects are forward-looking statements. Although the Company believes the expectations expressed
in such forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance
and actual results or developments may differ materially from those in the forward-looking statements. Assumptions used by the
Company to develop forward-looking statements include the following: the Company’s projects will obtain all required environmental
and other permits and all land use and other licenses, and no geological or technical problems will occur. Factors that could
cause actual results to differ materially from those in forward-looking statements include market prices, exploration and exploitation
successes, continuity of mineralization, potential environmental issues and liabilities associated with exploration, development
and mining activities, uncertainties related to the ability to obtain necessary permits, licenses and title and delays due to
third party opposition or litigation, exploration and development of properties located within First Nations treaty and asserted
territories may affect or be perceived to affect treaty and asserted aboriginal rights and title, which may cause permitting delays
or opposition by First Nation communities, changes in laws and government policies regarding mining and natural resource exploration
and exploitation, continued ability of the Company to raise necessary capital, and general economic, market or business conditions.
Investors are cautioned that any such statements are not guarantees of future performance and actual results or developments may
differ materially from those projected in the forward-looking statements. The Company reviews its forward-looking statements on
an on-going basis and updates this information when circumstances require it.
QUARTZ
MOUNTAIN RESOURCES LTD.
FOR
THE THREE MONTHS ENDED OCTOBER 31, 2017
MANAGEMENT’S
DISCUSSION AND ANALYSIS
1.2
Overview
The
information comprised in this MD&A relates to Quartz Mountain Resources Ltd. and its subsidiary (together referred to as the
“Company”). Quartz Mountain Resources Ltd. is the ultimate parent entity of the group.
Quartz
Mountain most recently focused on acquiring and exploring mineral prospects in British Columbia. The Company is investigating
new opportunities.
Scott
Cousens has resigned as Chairman and a director of the Company. Subsequent to October 31, 2017, David Mordant resigned as a director
of the Company
1.2.1
Agreements
In
January 2016, the Company reached agreement with Hunter Dickinson Services Inc. (“HDSI”) to settle debt owing for
services by HDSI. HDSI agreed to forgive debt in the net amount owing at that time of $3,086,089, if Quartz Mountain makes a cash
payment of $180,207 and issues 6 million shares to HDSI. Notwithstanding that the TSX Venture Exchange has also approved the transaction
with HDSI, settlement of debt by the issuance of the shares and cash payment to HDSI has been deferred and will occur at a mutually
agreed date.
1.2.2
Properties
Angel's
Camp Property
The
Company retains a 1% net smelter return royalty payable to the Company on any production from the Angel's Camp property located
in Lake County, Oregon. Alamos Gold Inc. holds the Angel’s Camp property.
1.3
Selected Annual Information
Not
applicable.
1.4
Summary of Quarterly Results
These
amounts are expressed in thousands of Canadian Dollars, except per share amounts and the weighted average number of common shares
outstanding. Minor differences are due to rounding.
| | |
Fiscal
Quarter Ended | |
| | |
Oct-31
2017 | | |
Jul-31
2017 | | |
April-30
2017 | | |
Jan-31
2017 | | |
Oct-31
2016 | | |
Jul-31
2016 | | |
Apr-30
2016 | | |
Jan-31
2016 | |
| (Income)
Loss for the period | |
$ | 99 | | |
$ | 35 | | |
$ | 57 | | |
$ | 40 | | |
$ | 68 | | |
$ | 35 | | |
$ | (356 | ) | |
$ | 102 | |
| Basic
and diluted loss per common share | |
$ | 0.00 | | |
$ | 0.00 | | |
$ | 0.00 | | |
$ | 0.00 | | |
$ | 0.00 | | |
$ | 0.00 | | |
$ | (0.01 | ) | |
$ | 0.00 | |
The
trend in quarterly net loss presented herein are in line with the discussions included in 1.3 Selected Annual Information
above.
QUARTZ
MOUNTAIN RESOURCES LTD.
FOR
THE THREE MONTHS ENDED OCTOBER 31, 2017
MANAGEMENT’S
DISCUSSION AND ANALYSIS
1.5
Results of Operations and Financial Condition
The
following financial data has been prepared in accordance with IFRS and are expressed in Canadian dollars unless otherwise stated.
1.5.1
Loss for the quarter ended October 31, 2017 vs. 2016
Net
loss for the fiscal quarter ended October 31, 2017 was $98,900 compared to a net loss of $67,680 for the fiscal quarter ended
October 31, 2016.
During
the current fiscal year, administrative salaries and benefits decreased in line with the decrease in the exploration activities
as the Company continued its focus on conserving cash resources. A breakdown of general and administrative expenses incurred during
the quarters ended October 31, 2017 and 2016 is provided in the financial statements for the quarter ended October 31, 2017.
1.6
Liquidity
Historically,
the Company's primary source of funding has been the issuance of equity securities for cash through private placements to sophisticated
investors and institutions. The Company is in the process of acquiring and exploring mineral property interests. The Company's
continuing operations entirely depends upon the ability of the Company to obtain the necessary financing to complete the exploration
and development of its projects, the existence of economically recoverable mineral reserves at its projects, the ability of the
Company to obtain the necessary permits to mine, the future profitable production of any mine and the proceeds from the disposition
of its mineral property interests.
At
October 31, 2017, the Company had cash and cash equivalents of approximately $129,000 and a working capital deficit of $2.9 million.
Substantially all of the short-term liabilities of $3.3 million at October 31, 2017 were payable to Hunter Dickinson Services
Inc. (“HDSI”); however, a debt settlement agreement has been reached between the Company and HDSI whereby the latter
has agreed to receive the Company’s common shares to extinguish substantially all of the aforesaid debt (see 1.2 Overview).
The
Company believes that its liquid assets at July 31, 2017 are sufficient to meet its known obligations. The Company is actively
managing its cash reserves, and curtailing activities as necessary in order to ensure its ability to meet payments as they come
due.
Additional
debt or equity financing will be required to fund additional exploration or development programs. However, there can be no assurance
that the Company will continue to obtain additional financial resources or that it will be able to achieve positive cash flows.
Financial
market conditions for junior exploration companies have resulted in very depressed equity prices. A further and continued deterioration
in market conditions will increase the cost of obtaining capital and significantly limit the availability of funds to the Company
in the future. Accordingly, management is actively monitoring the effects of the current economic and financing conditions on
the Company’s business and reviewing discretionary spending, capital projects and operating expenditures, and implementing
cash and cash management strategies.
QUARTZ
MOUNTAIN RESOURCES LTD.
FOR
THE THREE MONTHS ENDED OCTOBER 31, 2017
MANAGEMENT’S
DISCUSSION AND ANALYSIS
1.7
Capital Resources
The
Company had no material commitments for capital expenditures as at October 31, 2017.
The
Company has no lines of credit or other sources of financing which have been arranged but are as of yet, unused.
At
October 31, 2017, there were no externally imposed capital requirements to which the Company is subject and with which the Company
has not complied.
As
the Company continues to incur losses in support of exploration activities on its projects, Shareholders’ equity has come
to be in a deficit position.
1.8
Off-Balance Sheet Arrangements
None.
1.9
Transactions with Related Parties
Key
management personnel
The
required disclosure for the remuneration of the Company’s key management personnel is provided in note 7(a) of the accompanying
unaudited condensed interim consolidated financial statements for the quarters ended October 31, 2017 and 2016. These are also
available at www.sedar.com.
Hunter
Dickinson Inc.
Description
of the relationship
Hunter
Dickinson Inc. (“HDI”) and its wholly owned subsidiary Hunter Dickinson Services Inc. (“HDSI”) are private
companies established by a group of mining professionals engaged in advancing mineral properties for a number of publicly-listed
exploration companies, one of which is the Company.
The
following directors or officers of the Company also have a role within HDSI.
| Individual |
|
Role
within the Company |
|
Role
within HDSI |
| Ronald
Thiessen |
|
President,
Chief Executive Officer and Director |
|
Director |
| Robert
Dickinson |
|
Director |
|
Director
|
| Michael
Lee |
|
Chief
Financial Officer |
|
Employee |
| Trevor
Thomas |
|
General
Counsel and Corporate Secretary |
|
Employee |
QUARTZ
MOUNTAIN RESOURCES LTD.
FOR
THE THREE MONTHS ENDED OCTOBER 31, 2017
MANAGEMENT’S
DISCUSSION AND ANALYSIS
The
business purpose of the related party transactions
HDSI
provides technical, geological, corporate communications, regulatory compliance, and administrative and management services to
the Company, on an as-needed and as-requested basis from the Company.
HDSI
also incurs third party costs on behalf of the Company. Such third party costs include, for example, directors and officers insurance,
travel, conferences, and technology services.
As
a result of this relationship, the Company has access to a range of diverse and specialized expertise on a regular basis, without
having to engage or hire full-time experts. The Company benefits from the economies of scale created by HDSI which itself serves
several clients. The Company is also able to eliminate many of its fixed costs, including rent, technology, and other infrastructure
which would otherwise be incurred for maintaining its corporate offices.
The
measurement basis used
The
Company procures services from HDSI pursuant to an agreement dated July 2, 2010. Services from HDSI are provided on a non-exclusive
basis as required and as requested by the Company. The Company is not obligated to acquire any minimum amount of services from
HDSI. The fees for services from HDSI are determined based on a charge-out rate for each employee performing the service and for
the time spent by the employee. Such charge-out rates are agreed and set annually in advance.
Third
party costs are billed at cost, without markup.
Ongoing
contractual or other commitments resulting from the related party relationship
There
are no ongoing contractual or other commitments resulting from the Company's transactions with HDSI, other than the payment for
services already rendered and billed. The agreement may be terminated upon 60 days' notice by either the Company or HDSI.
Transactions
and balances
The
required disclosure for the transactions and balances with HDSI is provided in note 7(b) of the unaudited condensed interim consolidated
financial statements for the period ended October 31, 2017 and 2016. These are also available at www.sedar.com.
1.10
Fourth Quarter
Not
applicable.
1.11
Proposed Transactions
There
are no proposed material assets or business acquisitions or dispositions before the Board of Directors for consideration.
QUARTZ
MOUNTAIN RESOURCES LTD.
FOR
THE THREE MONTHS ENDED OCTOBER 31, 2017
MANAGEMENT’S
DISCUSSION AND ANALYSIS
1.12
Critical Accounting Estimates
Not
required. The Company is a Venture Issuer.
1.13
Changes in Accounting Policies including Initial Adoption
The
required disclosure is provided in note 2 of the accompanying unaudited condensed interim consolidated financial statements as
at and for the quarter ended October 31, 2017, which is publicly available on SEDAR at www.sedar.com.
1.14
Financial Instruments and Risk Management
The
carrying amounts of cash and cash equivalents, amounts receivable, accounts payable and accrued liabilities, and balances due
to related parties, approximate their fair values due to their short-term nature.
1.15
Other MD&A Requirements
1.15.1
Additional Disclosure for Venture Issuers without Significant Revenue
| (a) |
exploration
and evaluation assets or expenditures |
|
The
required disclosure is presented in Section 1.5 of this MD&A. |
| |
|
|
|
| (b) |
expensed
research and development costs |
|
Not
applicable |
| |
|
|
|
| (c) |
intangible
assets arising from development |
|
Not
applicable |
| |
|
|
|
| (d) |
general
and administration expenses |
|
The
required disclosure is presented in Section 1.5 of this MD&A. |
| |
|
|
|
| (e) |
any
material costs, whether expensed or recognized as assets, not referred to in paragraphs (a) through (d) |
|
None |
1.15.2
Disclosure of Outstanding Share Data
The
following details the share capital structure as at the date of this MD&A:
| | |
Number | |
| Common
shares | |
| 29,299,513 | |
See
1.2 Overview for an agreement between the Company and HDSI for issuance of common share as a debt settlement arrangement.
QUARTZ
MOUNTAIN RESOURCES LTD.
FOR
THE THREE MONTHS ENDED OCTOBER 31, 2017
MANAGEMENT’S
DISCUSSION AND ANALYSIS
1.15.3
Internal Controls over Financial Reporting Procedures
The
Company's management, including the Chief Executive Officer and the Chief Financial Officer, is responsible for establishing and
maintaining adequate internal control over financial reporting. Under the supervision of the Chief Executive Officer and Chief
Financial Officer, the Company's internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with IFRS. The Company's internal control over financial reporting includes those policies and procedures that:
| |
● |
pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the Company; |
| |
|
|
| |
● |
provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with IFRS, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management
and directors 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 the financial statements. |
There
has been no change in the design of the Company's internal control over financial reporting that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over financial reporting as of October 31, 2017.
1.15.4
Disclosure Controls and Procedures
The
Company has disclosure controls and procedures in place to provide reasonable assurance that any information required to be disclosed
by the Company under securities legislation is recorded, processed, summarized and reported within the appropriate time periods;
and required information is accumulated and communicated to the Company's management, including the Chief Executive Officer and
Chief Financial Officer, as appropriate, so that decisions can be made about the timely disclosure of that information.
1.15.5
Limitations of Controls and Procedures
The
Company's management, including its Chief Executive Officer and Chief Financial Officer, believe that any system of disclosure
controls and procedures or internal control over financial reporting, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system are met. Furthermore, the design of a control system
must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs.
Because of the inherent limitations in all control systems, they cannot provide absolute assurance that all control issues and
instances of fraud, if any, within the Company have been prevented or detected. These inherent limitations include the realities
that judgments in decision-making can be faulty and breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two or more people, or by unauthorized override of
controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Accordingly, because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur
and not be detected.
1.16
Risk Factors
Please
refer to “Risk Factors” discussed in the Company’s MD&A for the year ended July 31, 2017 filed under the
Company’s profile on SEDAR at www.sedar.com.
