Clear as mud Can anyone decipher this? Sounds like some of these lenders get to earn a damn royalty on all future plants. Just what the hell is the current royalty rate on plant 1 and plant 2? Impossible to model any earnings if this is unknown.
NOTE 15 – REVENUE SHARING AGREEMENT
On July 17, 2017, the Company entered into a Revenue Sharing Agreement (the “Transaction”) with an investor. The Transaction grants the investor a 15% gross revenue royalty on the Company’s first processing plant until the investor has received royalties totaling US$1,000,000. After which, the investor will hold a 10% gross royalty on the first processing plant for the life of the project. The investor would also be granted a 5% gross revenue royalty on all processing plants, current and future, developed by the Company and its subsidiaries, which are not subject to an active gross revenue royalty. The investor was offered a right of first refusal to fund the Company’s future projects. As consideration, the investor agreed to pay the Company a total of US$950,000. As security for the Company’s obligations under the Transaction, the Company granted the investor a fixed assignment, transfer, mortgage, charge and security interest over the Company’s assets.
On December 24, 2018, the Company and the investor agreed to an amendment in exchange for US$45,000 where the royalty is increased to 18% until the investor has received royalties totaling US$1,025,000. After which, the investor will hold a 10.5% (0.5% increase) gross royalty on the first processing plant for the life of the project. As a result of the amendment, the Company reduced the net book value of the processing facilities by $61,340 being the approximate net book value of these assets at the time of the amendment. As at December 31, 2023, the investor has received US$1,042,998 in royalties since initiation.
On April 17, 2019, the Company, closed its “Series Two” Revenue Participation, three investors have purchased a 3% Gross Revenue Royalty on the Company’s first processing plant until the investors have received payments totalling the amount invested (the “Gross Revenue Royalty”), after which, the investors will hold a 2% gross revenue royalty on the first processing plant for the life of the project (the “Enduring Royalty”). The Company has also granted the investors a priority right to fund the Company’s future projects through a similar mechanism, to be adjusted in relation to the financing needs. In the event the investor elects not to fund one or more of the Company’s future projects, the Company will be free to pursue funding from other parties for those projects and investors will hold a 1% base royalty the project. As at March 31, 2023, the investors have received US$217,780 in royalties since initiation.
In relation to the revenue sharing agreements, the Company recognized $nil in deferred revenue (March 31, 2023 – $78,967) and other income of $16,371 (2022 - $nil). The revenue is being recognized over the expected life of the project.