UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM 10-Q
(Mark One)
[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended November 30, 2010
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the transition period from _______ to ______
Commission file number: 0-29392
CALAIS RESOURCES INC.
(Exact name of registrant as specified in its charter)
British Columbia (State or other jurisdiction of incorporation or organization) | 98-0434111 (IRS Employer Identification No.) | |
4415 Caribou Road P.O. Box 653 Nederland, Colorado (Address of principal executive offices) | 80466-0653 (Zip Code) |
Registrant’s telephone number, including area code: (303) 258-3806
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ ] No [ X]
Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes[ ] No [ ] (not required)
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes [ ] No [X]
As of May 18, 2011 the registrant had 147,623,986 shares of common stock outstanding.
1
TABLE OF CONTENTS
Page | ||
Part I – Financial Information | ||
Item 1. Financial Statements. | 3 | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 13 | |
Item 3. Quantitative and Qualitative Disclosures About Market Risk. | 17 | |
Item 4. Controls and Procedures. | 17 | |
Part II – Other Information | ||
Item 1. Legal Proceedings. | 19 | |
Item 1A. Risk Factors. | 20 | |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 20 | |
Item 3. Defaults Upon Senior Securities. | 20 | |
Item 4. (Removed and Reserved). | 20 | |
Item 5. Other Information. | 20 | |
Item 6. Exhibits. | 21 | |
Signatures | 22 |
2
CALAIS RESOURCES INC.
(A Mining Company in the Exploration Stage)
CONSOLIDATED BALANCE SHEETS
As of | ||||||||
11/30/2010 | 5/31/2010 | |||||||
ASSETS | (unaudited) | |||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 1,196,477 | $ | 27,919 | ||||
Prepaid expenses and other assets | 53,213 | 15,063 | ||||||
Total current assets | 1,249,690 | 42,982 | ||||||
Restricted cash | 15,400 | 15,400 | ||||||
Note receivable | 60,000 | 60,000 | ||||||
Fixed assets, net | 5,364 | - | ||||||
Total assets | $ | 1,330,454 | $ | 118,382 | ||||
LIABILITIES | ||||||||
Current Liabilities | ||||||||
Accounts payable and accrued liabilities | $ | 1,665,591 | $ | 2,669,242 | ||||
Convertible debentures | 4,967,554 | 4,809,649 | ||||||
Convertible debentures - employee | - | 45,500 | ||||||
Note payable | 10,253,878 | 10,253,878 | ||||||
Total current liabilities | 16,887,023 | 17,778,269 | ||||||
Royalty interest | 150,000 | 150,000 | ||||||
Environmental remediation liabilities | 50,000 | 50,000 | ||||||
Total liabilities | 17,087,023 | 17,978,269 | ||||||
Shareholders' Deficit | ||||||||
Common stock, no par value, unlimited shares authorized, 122,170,229, and 76,278,142 shares issued and outstanding as of November 30, 2010 and May 31, 2010, respectively | 32,372,231 | 29,299,883 | ||||||
Deficit accumulated in the development stage | (46,584,216 | ) | (45,781,468 | ) | ||||
Accumulated other comprehensive loss | (1,544,584 | ) | (1,378,302 | ) | ||||
Total Shareholders' Deficit | (15,756,569 | ) | (17,859,887 | ) | ||||
Total Liabilities and Shareholders' Deficit | $ | 1,330,454 | $ | 118,382 |
See accompanying notes to the unaudited consolidated financial statements.
3
CALAIS RESOURCES INC.
(A Mining Company in the Exploration Stage)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended November 30, | Six Months Ended November 30, | December 30, 1986 (inception) through | ||||||||||||||||||
2010 | 2009 | 2010 | 2009 | November 30, 2010 | ||||||||||||||||
Expenses | ||||||||||||||||||||
General and administrative expense | $ | 449,430 | $ | 390,430 | $ | 634,027 | $ | 596,794 | $ | 10,798,033 | ||||||||||
Exploration and business development expenses | 42,238 | 21,608 | 58,176 | 36,645 | 12,276,043 | |||||||||||||||
Depreciation and amortization expense | 99 | - | 99 | - | 202,502 | |||||||||||||||
Total operating expenses | 491,767 | 412,038 | 692,302 | 633,439 | 23,276,578 | |||||||||||||||
Other income and expenses | ||||||||||||||||||||
Loss on impairment | - | - | - | - | 9,808,572 | |||||||||||||||
(Gain) loss on settlement of debts | (292,718 | ) | - | (312,931 | ) | 45,464 | (773,888 | ) | ||||||||||||
Interest and financing fees | 209,891 | 259,684 | 423,423 | 692,313 | 14,026,998 | |||||||||||||||
Foreign currency transaction loss | 110 | - | 110 | - | 110 | |||||||||||||||
Other (income) expense | (156 | ) | 356,090 | (156 | ) | 356,090 | 245,846 | |||||||||||||
Total other income and expenses | (82,873 | ) | 615,774 | 110,446 | 1,093,867 | 23,307,638 | ||||||||||||||
Loss before income taxes | (408,894 | ) | (1,027,812 | ) | (802,748 | ) | (1,727,306 | ) | (46,584,216 | ) | ||||||||||
Income tax expense (benefit) | - | - | - | - | - | |||||||||||||||
Net loss | $ | (408,894 | ) | $ | (1,027,812 | ) | $ | (802,748 | ) | $ | (1,727,306 | ) | $ | (46,584,216 | ) | |||||
Other comprehensive loss (income) - foreign currency translation adjustments | 153,850 | 131,241 | 166,282 | 128,403 | 1,544,584 | |||||||||||||||
Comprehensive loss | $ | (562,744 | ) | $ | (1,159,053 | ) | $ | (969,030 | ) | $ | (1,855,709 | ) | $ | (48,128,800 | ) | |||||
Basic and diluted weighted-average number of common shares outstanding | 100,618,432 | 63,011,688 | 92,973,040 | 59,278,881 | ||||||||||||||||
Basic and diluted loss per common share | $ | (0.00 | ) | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.03 | ) |
See accompanying notes to the unaudited consolidated financial statements.
4
CALAIS RESOURCES INC.
(A Mining Company in the Exploration Stage)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended November 30, | Six Months Ended November 30, | December 30, 1986 (inception) through | ||||||||||
2010 | 2009 | November 30, 2010 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net loss | $ | (802,748 | ) | $ | (1,727,306 | ) | $ | (46,584,216 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
Accretion expense | - | - | 105,655 | |||||||||
Amortization of deferred financing costs | - | - | 3,369,936 | |||||||||
Depreciation and depletion | 99 | - | 200,835 | |||||||||
Non-cash interest expense | 411,639 | 502,136 | 11,430,869 | |||||||||
Loss on impairment of mineral properties | - | - | 8,824,989 | |||||||||
Loss on impairment of investment | - | - | 983,583 | |||||||||
Common shares issued in connection with trust deed modification | - | - | 90,000 | |||||||||
Common shares issued in connection with debt settlement | - | 174,986 | 1,102,597 | |||||||||
Common shares issued for services | 50,000 | 170,000 | 821,349 | |||||||||
Warrants cancelled for services | - | - | (18,173 | ) | ||||||||
Warrants issued in connection with debt restructure | - | - | 155,007 | |||||||||
Losses (gains) recognized in connection with debt settlement | (312,932 | ) | 45,464 | (773,889 | ) | |||||||
Gain on sale of property, plant and equipment | - | - | 4,873 | |||||||||
Loss on disposal of property, plant and equipment | - | - | 8,040,143 | |||||||||
Loss on abandonment of mineral properties | - | - | 300,600 | |||||||||
Loss on default of exploration development agreement | - | 456,090 | 456,090 | |||||||||
Loss on foreign exchange | - | - | 318,770 | |||||||||
Environmental remediation liability | - | - | 50,000 | |||||||||
Changes in operating assets and liabilities: | ||||||||||||
(Increase) decrease in prepaid expenses | (38,150 | ) | (20,688 | ) | (96,500 | ) | ||||||
Increase (decrease) in accounts payable and other current liabilities | 94,122 | 449,879 | 2,905,432 | |||||||||
(Increase) decrease in other operating assets and liabilities | 11,192 | (79,811 | ) | 91,605 | ||||||||
Net cash (used in) operating activities | (586,778 | ) | (29,250 | ) | (8,220,446 | ) | ||||||
Cash flows from investing activities: | ||||||||||||
Purchase of mineral properties & equipment | - | - | (17,481,692 | ) | ||||||||
Dispositions of equipment | - | - | 161,352 | |||||||||
Net additions to equipment | (5,464 | ) | - | (173,393 | ) | |||||||
Deferred exploration expenditures | - | - | (143,071 | ) | ||||||||
Deposit on equipment | - | - | (17,880 | ) | ||||||||
Acquisition of shares of subsidiary | - | - | (715,932 | ) | ||||||||
Advance to subsidiary | - | - | (177,875 | ) | ||||||||
Payable under option agreement | - | - | 716,481 | |||||||||
Refundable deposit on purchase of shares of subsidiary | - | - | (73,847 | ) | ||||||||
Net cash provided by (used in) investing activities | (5,464 | ) | - | (17,905,857 | ) |
See accompanying notes to the unaudited consolidated financial statements.
5
CALAIS RESOURCES INC.
(A Mining Company in the Exploration Stage)
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(UNAUDITED)
Six Months Ended November 30, | Six Months Ended November 30, | December 30, 1986 (inception) through | ||||||||||
2010 | 2009 | November 30, 2010 | ||||||||||
Cash flows from financing activities: | ||||||||||||
Proceeds from sale of common shares | $ | 1,806,300 | $ | 60,000 | $ | 20,518,879 | ||||||
Proceeds from sale of private equity | - | - | 345,000 | |||||||||
Proceeds from borrowings long term-debt | - | - | 17,029,960 | |||||||||
Proceeds from borrowing on shareholder note | - | - | 282,000 | |||||||||
Repayments of long term debt | - | - | (11,902,794 | ) | ||||||||
Repayments of debt - convertible debentures | (45,500 | ) | (30,750 | ) | (266,426 | ) | ||||||
Advances to affiliated companies, shareholders and directors | - | - | (106,730 | ) | ||||||||
Restricted cash | - | - | (31,789 | ) | ||||||||
Share subscriptions received in advance | - | - | 518,415 | |||||||||
Net cash provided by financing activities | 1,760,800 | 29,250 | 26,386,515 | |||||||||
Effect of foreign exchange | - | - | 936,264 | |||||||||
Net change in cash and cash equivalents | 1,168,558 | - | 1,196,476 | |||||||||
Cash at beginning of period | 27,919 | - | - | |||||||||
Cash at end of period | $ | 1,196,477 | $ | - | $ | 1,196,476 | ||||||
Supplemental Cash Flow Information | ||||||||||||
Interest expense paid in cash | $ | - | $ | - | $ | 1,188,233 | ||||||
Interest received | $ | - | $ | - | $ | 3,999 | ||||||
Debt restructuring - warrants issued | $ | - | $ | - | $ | 412,407 | ||||||
Common shares issued in connection with debt restructuring and settlement of accrued liabilities | $ | 1,216,049 | $ | 1,308,370 | $ | 3,481,934 | ||||||
Common shares issued for acquisition of property | $ | - | $ | - | $ | 32,500 | ||||||
Shares issued for mineral property development | $ | - | $ | - | $ | 96,315 | ||||||
Shares issued for repayment of shareholder advances | $ | - | $ | - | $ | 9,240,146 |
See accompanying notes to the unaudited consolidated financial statements.
6
CALAIS RESOURCES INC.
(A Mining Company in the Exploration Stage)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2010
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
Calais Resources Inc. was incorporated under the laws of the Province of British Columbia, Canada, on December 30, 1986. Calais Resources Inc. and its subsidiaries (collectively with its subsidiaries, referred to herein as “Calais”, “we”, “us” or “our”) are currently in the process of exploring various mineral interests, primarily gold and silver. We are headquartered in Colorado, and have mining interests in Colorado and Nevada.
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant areas requiring the use of management estimates and assumptions relate to mineral reserves, impairment of fixed assets, valuation allowances for deferred tax assets and the fair value of financial instruments. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may differ significantly from these estimates under different assumptions or conditions.
We filed Form 10-K for our fiscal year ended May 31, 2010 with the Securities and Exchange Commission (“SEC”) on May 9, 2011; however we have not filed other financial statements with the SEC since our Form 10-QSB for the quarter ended August 31, 2004. We intend to complete and file with the SEC our financial statements for all periods including November 30, 2004 through February 28, 2011.
Our activities to date have primarily consisted of raising capital and acquiring and exploring our mining interests. We have had no significant revenue in our history. Accordingly, we are considered to be in the exploration stage.
Our fiscal year end is May 31st. Through May 31, 2004, we reported our financial information using Canadian Generally Accepted Accounting Principles (“Canadian GAAP”) using the Canadian dollar as our functional and reporting currency. During the fiscal year ended May 31, 2005, we changed our reporting basis to US GAAP and our functional and reporting currency to the United States dollar (“U.S. Dollar”). ��This change was made for several reasons, including the following: (1) substantially all of our assets and employees are now located in the United States; (2) substantially all of our labor, materials and other costs are now denominated in the U.S. Dollar; and (3) our recent financing transactions, including both lending activities and cash infusions in exchange for equity, have been denominated in the U.S. Dollar and have involved parties and investors located in the United States. Accordingly, historical financial information included in this Quarterly Report on Form 10-Q has been restated using U.S. GAAP with a functional and reporting currency of the U.S. Dollar, unless otherwise noted. All references herein to “$” and “US$” refer to U.S. Dollars. Unless otherwise specified, all dollar amounts are expressed in United States dollars. All references to Common Shares refer to shares of our common stock (without par value) unless otherwise indicated.
The financial information with respect to the three and six months ended November 30, 2010 and 2009 is unaudited. In the opinion of management such information contains all adjustments, consisting of only normal recurring accruals, necessary for a fair presentation of the results for such periods. The results of operations for interim periods are not necessarily indicative of the results of operations for the full fiscal years.
7
NOTE 2 – LIQUIDITY
As of November 30, 2010 we had a working capital deficit of $15,637,333 and for the six months then ended cash used in operating activities amounted to $586,778. To date, we have not generated any revenues from operations and have incurred losses since inception resulting in a deficit accumulated during the development stage of $46,584,216 as of November 30, 2010. Further losses are anticipated as we continue to be in the exploration stage, as defined in ASC Topic 915, Development Stage Entities. Our ability to continue operations depends upon our ability to generate profitable operations in the future and/or to raise additional funds through equity or debt financing. Since inception, we have raised $21,382,294 through the issuance of equity securities and $17,311,960 through the issuance of debt instruments, which has been used primarily to provide operating funds, repay long term debt, and acquire mineral interests. Subsequent to November 30, 2010, we have acquired an additional $1,128,500 through financing, as described more fully in Note 10. There is no assurance that we will be able to obtain additional funding when needed, or that such funding, if available, can be obtained on terms acceptable to us or at all. If we cannot obtain needed funds for implementing our mine plan after completion of the feasibility study, we may be forced to curtail or cease our activities. Equity financing, if available, may result in substantial dilution to existing stockholders. All of these factors cause substantial doubt about our ability to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event we cannot continue as a going concern.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reclassifications
Certain accounts and financial statement captions in the prior periods have been reclassified to conform to the presentation in the current period financial statements.
Recent Accounting Pronouncements
The Company evaluates the pronouncements of various authoritative accounting organizations, primarily the Financial Accounting Standards Board (“FASB”), the SEC, and the Emerging Issues Task Force (“EITF”), to determine the impact of new pronouncements on US GAAP and the impact on the Company.
In June 2009, FASB established the Accounting Standards Codification (“ASC”) as the single source of authoritative US GAAP to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative US GAAP for SEC registrants. The ASC is a new structure which took existing accounting pronouncements and organized them by accounting topic. The ASC did not change current US GAAP, but was intended to simplify user access to all authoritative US GAAP by providing all the relevant literature related to a particular topic in one place. All previously existing accounting standards were superseded and all other accounting literature not included in the ASC is considered non-authoritative. New accounting standards issued subsequent to June 30, 2009 will be communicated by the FASB through Accounting Standards Updates (“ASUs”). The ASC was effective during the period ended August 31, 2009. Adoption of the ASC did not have an impact on the Company’s consolidated financial position, results of operations or cash flows.
The Company has recently adopted the following new accounting standards: |
Subsequent Events - In May 2009, the ASC guidance for subsequent events was updated to establish accounting and reporting standards for events that occur after the balance sheet date but before financial statements are issued. The guidance was amended in February 2010 via ASU No. 2010-09. The standard sets forth: (i) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (ii) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet in its financial statements, and (iii) the disclosures that an entity should make about events or transactions occurring after the balance sheet date in its
8
financial statements. The amended ASU was effective immediately and its adoption had no impact on the Company’s consolidated financial position, results of operations or cash flows
Fair Value Measurements – In January 2010, ASU No. 2010-06 amended existing disclosure requirements about fair value measurements by adding required disclosures about items transferring into and out of levels 1 and 2 in the fair value hierarchy; adding separate disclosures about purchase, sales, issuances, and settlements relative to level 3 measurements; and clarifying, among other things, the existing fair value disclosures about the level of disaggregation. The ASU was adopted during the period ended February 28, 2010, and its adoption had no impact on the Company’s consolidated financial position, results of operations or cash flows.
Recently IssuedAccountingStandards Updates. The following accounting standards updates were recently issued and have not yet been adopted by the Company. These standards are currently under review to determine their impact on the Company’s consolidated financial position, results of operations, or cash flows.
ASU No. 2010-13 was issued in April 2010, and will clarify the classification of an Employee share based payment award with an exercise price denominated in the currency of a market in which underlying security trades. This ASU will be effective for the first fiscal quarter beginning after December 15, 2010, with early adoption permitted.
There were various other updates recently issued, most of which represented technical corrections to the to the accounting literature or application to specific industries and are not expected to have material impact on the Company's consolidated financial position, results of operations or cash flows.
NOTE 4 – DEBT
As of November 30, 2010 and May 31, 2010, we had one outstanding note payable in the amount of $10,253,878. The original maturity date for the note was February 1, 2011. On January 15, 2011, we received forbearance under the terms of an agreement effectively extending the maturity date of the debt through June 30, 2011. The note bears interest at 8% during the extension period and is secured by a lien on our Caribou property.
As of November 30, 2010 and May 31, 2010, we have accrued interest in the amounts of $680,970 and $269,691, respectively.
NOTE 5 – DEBENTURES
A summary of convertible debentures outstanding is as follows:
As of | ||||||||
November 30, 2010 | May 31, 2010 | |||||||
Debentures (a) | $ | 4,967,554 | $ | 4,809,649 | ||||
Debentures (b) | - | 45,500 | ||||||
Total debentures payable | 4,967,554 | 4,855,149 | ||||||
Less: Current portion | (4,967,554 | ) | (4,855,149 | ) | ||||
Long-term portion | $ | - | $ | - |
(a) These debentures are unsecured, non-interest bearing, and initially matured in May 2011. These debentures are owned by Marlowe Harvey who was the President and a director of ours until he resigned as President in 2000 and as a director in November 2003; Argus Resources, Inc., the president of which is Mr. Harvey; Judy Harvey who is Mr. Harvey’s spouse; and Lynne Martin. Ms. Martin is the spouse of Melvin Martin, who was a director of ours until he resigned on July 28, 2005. The debentures are convertible into common stock at $1.23 in Canadian Dollars at the holders’ discretion and contain no restrictive covenants.
9
In December 2010, $4,306,347 of the debentures were converted into 9,550,368 shares of common stock and in exchange for $259,149 in cash (Note 10). The remaining debenture will mature on May 31, 2011.
(b) This debenture is owed to Thomas S. Hendricks, an officer, director and shareholder of the Company. The debenture is non interest-bearing, convertible into common stock at $0.85 per share in $50,000 annual increments, contains no restrictive covenants and matured on July 8, 2008. We repaid $25,000 of this debenture in 2007, $119,500 in 2009, and $60,000 in 2010. At May 31, 2010, the balance of the unpaid debenture was $45,500. During the quarter ended August 31, 2010 we repaid $5,000 related to this debenture to Mr. Hendricks. In September and October 2010, we repaid the remaining $40,500 balance of this debenture in full.
NOTE 6 – SHAREHOLDERS’ DEFICIT
Common Stock - We have authorized an unlimited number of common shares of our no par value common stock. Common shares outstanding as of November 30, 2010 and May 31, 2010 were 122,170,229 and 76,278,142, respectively.
Transactions involving our common stock during the six months ended November 30, 2010 were as follows:
· | In June 2010, we issued 9,500,000 shares of our common stock valued at $0.08 per share or $760,000 to our Directors as compensation for their services. These amounts had been previously accrued in our balance sheet as accrued salaries and wages. |
· | In August 2010, we sold 650,000 shares of our common stock at $0.08 per share to the wife of our current Chief Executive Officer (“CEO”) for net proceeds of $52,000 as part of a private placement. |
· | In June 2010, we issued 1,000,000 shares of our common stock at $0.05 per share for accounting services provided in May 2010 totaling $50,000. |
· | In June and August 2010, we issued a total of 1,500,000 shares of our common stock at $0.05 per share in connection with the payment of $76,539 in accounts payable. |
· | In September 2010, we issued 4,500,000 shares of our common stock at $0.06 per share to accredited investors for net cash proceeds of $270,000. In October 2010 we issued 5,753,334 shares of our common stock at $0.06 per share to accredited investors for net cash proceeds of $345,200. |
· | In October 2010, we issued 2,270,420 shares of our common stock at $0.10 per share to our Company President in connection with settlement of accrued liabilities owed to him. We have recorded a gain in the amount of $227,042 in connection with this issuance. In addition we issued 2,000,000 shares of our common stock at $.0762 per share to our former CFO in connection with the settlement of accrued liabilities owed to him. We have not recorded any gain or loss in connection with this settlement. |
· | In November 2010, we issued 1,066,666 shares of our common stock at $0.075 to accredited investors for net cash proceeds of $80,000. In addition we issued 17,651,667 shares of our common stock at $0.06 per share for net cash proceeds of $1,059,100. |
NOTE 7 – COMMON STOCK WARRANTS
The following table summarizes information about our common stock purchase warrants for the six months ended November 2010:
Number of Warrants Outstanding | Weighted Average Exercise Price | Number Exercisable | |
Outstanding as of May 31, 2010 | 28,498,196 | $0.16 | 28,498,196 |
Issued | - | ||
Expirations | (2,000,000) | $0.25 | |
Outstanding as of November 30, 2010 | 26,498,196 | $0.13 | 26,498,196 |
10
NOTE 8 – LOSS PER SHARE
Basic loss per share is computed by dividing income available to common stockholders by the weighted-average number of shares outstanding during the period. Diluted earnings per share reflect the potential of securities that could share in our earnings. All of the common shares underlying warrants outstanding as of November 30, 2010 and 2009 were excluded from diluted weighted average shares outstanding for each of the respective years because their effects were considered anti-dilutive.
NOTE 9 – RELATED PARTY TRANSACTIONS
We have frequent transactions with related parties, employees and shareholders holding more than 10% of our outstanding common stock. Readers are encouraged to refer to our Annual Report on Form 10-K for a more complete description of these transactions.
Transactions involving related parties during the six months ended November 30, 2010 were as follows:
· | On August 24, 2010, we sold 650,000 shares of our common stock at $0.08 per share to the wife of our current CEO for $52,000. |
· | Our notes payable balance as of November 30, 2010 consisted of one note payable to Brigus Gold Corp. (“Brigus”). When this note was consummated in February 2010, the counterparty to this note was Apollo Gold Corp., a predecessor of Brigus. Our now-current CEO, R. David Russell, was the CEO of Apollo Gold Corp. at that time. |
· | From time to time our President and Vice President of Corporate Development incur expenses on behalf of the Company and are reimbursed by us. As of November 30, 2010 included in accounts payable are amounts due to the officers as reimbursement. These amounts are not considered to be material. |
· | In October 2010, we issued 2,270,420 shares of our common stock at $0.10 per share to our Company President in connection with settlement of accrued liabilities owed to him. We have recorded a gain in the amount of $227,042 in connection with this issuance. In addition we issued 2,000,000 shares of our common stock at $0.0762 per share to our former CFO in connection with the settlement of accrued liabilities owed to him. We have not recorded any gain or loss in connection with this settlement. |
NOTE 10 – SUBSEQUENT EVENTS
We have evaluated all of our activity and have concluded that no subsequent events have occurred that would require recognition in the consolidated financial statements or disclosure in the notes to the unaudited consolidated financial statements, except as disclosed below.
Debenture Settlements
On December 15, 2010, we entered into two agreements which relate to the settlement of a total of four convertible debentures in the aggregate principal amount of $4,306,347 in exchange for a total of $259,149 in cash and the issuance of a total of 9,550,368 restricted shares of our common stock. The two settlements, each of which involved parties who are considered to be “related parties”, are described below.
Lynne Martin Settlement
We entered into a Settlement Agreement with Lynne Martin regarding a debenture payable to her in the principal amount of $1,097,367. Ms. Martin is the spouse of Melvin Martin, who was a director of ours until he resigned on July 28, 2005. We and Ms. Martin agreed that Ms. Martin would accept as full payment for the debenture the amount of $109,781 in cash which is to be paid by us in four quarterly payments of $27,445, with the first payment due on December 15, 2010 and the three remaining payments due on March 15, 2011, June 15, 2011, and September 15, 2011. We made the first payment on December 15, 2010 and we made the second payment of $27,445 on March 18, 2011. In connection with the settlement of these debentures we have recorded gains of $2,614,643 in December 2010.
11
The Harvey Settlement
We entered into a Settlement Agreement with Marlowe and Judy Harvey and Argus Resources, Inc. regarding the following three debentures:
1. Judy Harvey $ 2,038,840
2. Judy Harvey $ 949,417
3. Argus Resources, Inc. $ 220,723
Marlowe Harvey was the President and a director of ours until he resigned as President in 2000 and as a director in November 2003. Mr. Harvey is the President of Argus Resources, Inc. Judy Harvey is Mr. Harvey’s spouse. After the closing of this transaction, Mr. Harvey beneficially holds more than 5% percent of our outstanding shares.
We and Judy Harvey agreed that Ms. Harvey would accept as full payment for her two debentures the total amount of $149,368 in cash and a total of 8,890,638 restricted shares of our common stock. The cash was paid on December 15, 2010 and the shares were issued on December 20, 2010 to an escrow agent to hold the shares until the Cease Trade Order in British Columbia has been revoked.
We and Argus Resources agreed that Argus Resources would accept as full payment for its debenture 659,730 restricted shares of our common stock. The shares were issued on December 20, 2010
On January 15, 2011, we received an extension on the repayment of our 8% $10,253,878 note payable. This note was originally due on February 1, 2011 and is secured by a lien on our Caribou property. The terms of the extension extend the maturity date of the note through June 30, 2011.
Common Stock
Since November 30, 2010, we have issued 25,453,757 shares of common stock as follows:
· | 11,473,703 shares for cash proceeds of $1,128,500 |
· | 4,135,834 shares for consulting services provided in connection with financing activities in December 2010 and January 2011 |
· | 9,844,220 shares in connection with the settlement of accrued liabilities and debt |
On May 9, 2011, we entered into a subscription agreement with an accredited investor wherein we intend to issue 7,000,000 common stock units priced at $0.10. Each unit consisting of one share of our common stock and one warrant to purchase our common stock at $0.12 per share for a period of three years. We have received $539,900 in connection with this subscription.
12
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement Regarding Forward-Looking Statements
The following discussion and analysis should be read in conjunction with the accompanying financial statements and related notes included elsewhere in this report. It contains forward looking statements that reflect our future plans, estimates, beliefs and expected performance. The forward looking statements are dependent upon events, risks and uncertainties that may be outside our control. Our actual results could differ materially from those discussed in these forward looking statements.
In our effort to make the information in this report more meaningful, this Quarterly Report on Form 10-Q and documents incorporated by reference herein (or otherwise made by us or on our behalf) contain both historical and forward-looking statements. Such forward-looking statements are not based on historical facts, but rather reflect the current expectations of our management concerning future results and events. Forward-looking statements are generally accompanied by words such as “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “plan,” “goal” or other similar words or variations that convey the uncertainty of future events or outcomes. These statements are based on the beliefs an assumptions of our management based on information currently available to us. These statements by their nature are subject to certain risks, uncertainties and assumptions and will be influenced by various factors, some of which are beyond our control. Actual results could vary materially from future results expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from the forward-looking statements include, without limitation, the following risk factors:
· our ability to execute against our plans; |
· our ability to continue as a going concern; |
· the possible loss of our interest in our Caribou properties if we do not meet our debt obligations; |
· the potential that we will not obtain good title to our Manhattan project; |
· the volatility and low trading volume of our common stock; |
· our ability to secure additional capital; |
· the possibility we may never achieve any mineral production; |
· the future dilution to our shareholders from future capital-raising activities and payments to employees, directors and consultants; |
· the possibility our Board of Directors may issue authorized and unissued shares of common stock and preferred stock; |
· the effects the penny stock rules may have on the trading of our stock; |
· our dependence on a few key employees; |
· the influence of a few large shareholders on our business; |
· risks associated with our incorporation in Canada; |
· our lack of experience in mining and selling minerals; |
· operational end environmental risks associated with the mining industry; |
· the effect of government regulations on our business; |
· lack of clear title to our mineral prospects; |
· the fact our mineral interests are not yet proven; and |
· fluctuation in the prices of gold and silver. |
All forward-looking statements speak only as of the date made. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements. Except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances.
13
Executive Summary
We are a mineral exploration company engaged directly and indirectly through subsidiaries, in the acquisition and exploration of minerals and metals, primarily gold and silver. Our business is currently in the exploratory or exploration stage as defined by ASC 915-10 and SEC Industry Guide 7 and, to date, our activities have not included development or mining operations. Our primary property is the Caribou project (advanced exploration stage) located in Nederland, Colorado; we also have properties in Nye County, Nevada.
Recent Events
We filed Form 10-K for our fiscal year ended May 31, 2010 with the SEC on May 9, 2011; however we have not filed other financial statements with the SEC since our Form 10-QSB for the quarter ended August 31, 2004.
Settlements
During the quarter ended August 31, 2010, we have executed against a plan to settle our trade payables with certain of our vendors as well as wages and other payables owed to current and former employees of ours, either by paying outstanding balances in full or by entering into agreements for mutually agreed-upon settlement amounts. During the quarter ended August 31, 2010 we recorded gains of $20,214 related to cash settlement reached with certain trade creditors.
During the quarter ended November 30, 2010 we continued to execute a plan to settle our trade payables with certain vendors as well as wages payable and other payables owed to current and former employees. In connection with these settlements we have recognized net gains of $292,718 and have issued 4,370,420 shares of restricted stock.
Debenture Settlements
On December 15, 2010, we entered into two agreements which relate to the settlement of a total of four convertible debentures in the aggregate principal amount of $4,306,347 in exchange for a total of $259,149 in cash and the issuance of a total of 9,550,368 restricted shares of our common stock.
Note Payable
On January 15, 2011, we received forbearance under the terms of an agreement effectively extending the maturity date of our 8% $10,253,878 note payable through June 30, 2011. This note was originally due on February 1, 2011 and is secured by a lien on our Caribou property.
Common Stock
During the quarter ended August 31, 2010 we have issued 12,650,000 shares of our restricted common stock as follows:
· | 650,000 shares for cash proceeds of $52,000 |
· | 1,000,000 shares for consulting services |
· | 9,500,000 shares to directors for services |
· | 1,500,000 shares related to the payment of trade accounts payable |
During the quarter ended November 30, 2010, we have issued 33,242,087 shares of our restricted stock as follows:
· | 28,971,667 shares for cash proceeds of $1,754,300. |
· | 4,270,420 shares in connection with the settlement of accounts payable and accrued wages payable to our Company President and former CFO |
14
New Chief Executive Officer
On January 18, 2011, we announced that R. David Russell has been appointed to the positions of Director, Chairman and Chief Executive Officer. Mr. Russell has over 33 years of experience in the mining industry, having served in a variety of operating, executive and board of director positions.
On the same date, we announced that David K. Young resigned his position as our CEO, but remains on the Board and will continue to serve as our President. Mr. Young was also simultaneously appointed as our Chief Operating Officer.
Interim Financial Statements
The financial information with respect to the three and six months ended November 30, 2010 and 2009, discussed below, is unaudited. In the opinion of management, such information contains all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the results for such periods. The results of operations for interim periods are not necessarily indicative of the results of operations for the full fiscal years.
Results of Operations
During the three and six months ended November 30, 2010, we generated a net losses of $408,894 and $802,748, respectively, as compared to a net losses of $1,027,812 and $1,727,306 during the three and six month prior periods. The decreases of $618,918 or 60% and $924,558 or 54% result primarily from higher interest and financing fees and wages and benefits expense in the 2009 periods as compared to 2010, as discussed further below. In addition, we recognized losses on debt settlements and stock subscriptions in the 2009 periods compared to net gains on debt settlements in the 2010 periods. These expense decreases were partially offset by increases in consulting and professional fees during the three and six months ended November 30, 2010 as compared to the three and six months ended November 30, 2009.
General and Administrative Expense
For the three and six months ended November 30, 2010, general and administrative expense was $449,430 and $634,027 as compared to $390,430 and $596,794 in the corresponding 2009 periods. The increase for the three months ended November 30, 2010 of $59,000 (15%) was due to increased consulting and professional fees that were offset in part by decreased wages and benefits expense as discussed further below. The increase for the six months ended November 30, 2010 of $37,233 (6%) was due to decreased wages and benefits expense that were offset by increased consulting and professional fees as discussed further below.
Consulting and professional fees. Consulting and professional fees were $309,698 and $394,183 for the three and six months ended November 30, 2010 as compared to $179,856 and $182,354 in the corresponding 2009 periods. These increases of $129,842 and $211,829 or 72% and 116%, respectively, relate to increased fees for accounting fundraising and other professional services incurred as we began the process of attempting to regain compliance with our SEC reporting requirements.
Wages and benefits expense. Wages and benefits expense were $81,111 and $162,229 for the three and six months ended November 30, 2010 as compared to $190,755 and $379,186 in the corresponding 2009 periods. These decreases of $109,644 and $216,957 or 57% and 57%, respectively, relate to the issuance of restricted shares of common stock granted to our Board of Directors as payment for services in 2009. This expense did not recur in the 2010 periods.
Other Income and Expenses
(Gain) loss on settlements of debts. During the three and six months ended November 30, 2010, management began to execute against a plan to settle its trade debts. As a result, gains of $292,718 and $312,931 were recognized as compared to $nil and a loss of $45,464 in the corresponding 2009 periods. The gains during the 2010 period relate more specifically to the settlement of accrued wages with our Company President and the settlement of trade
15
payables for fractional amounts. Losses incurred in the 2009 period relate to a settlement with a former employee of the Company.
Interest and financing fees. During the three and six months ended November 30, 2010 we recorded interest and financing fees of $209,891 and $423,423 as compared to $259,684 and $692,313 in the corresponding 2009 periods. These decreases of $49,793 and $268,890 or 19% and 39% result from our February 2010 debt restructure, wherein we consolidated our outstanding notes payable at a lower interest rate.
Liquidity
Because we have not yet commenced our intended primary operations and are not yet generating revenue from any source, our liquidity is completely reliant on our ability to generate cash through capital-raising activities. During the six months ended November 30, 2010, we issued 29,621,667 shares of our common stock for cash proceeds of $1,806,300, 1,000,000 shares valued at $50,000 for consulting services, 9,500,000 shares to directors for previously accrued services valued at $760,000 and 1,500,000 shares related to payment of our trade payables valued at $76,539. In addition we issued 4,270,420 shares of our common stock in connection with the settlement of accounts payable and accrued salaries and wages.
Net cash flows from operating, investing and financing activities for the six months ended November 30, 2010 and 2009 were as follows:
2010 | 2009 | |||||||
Net cash used in operating activities | $ | (586,778 | ) | $ | (29,250 | ) | ||
Net cash used in investing activities | (5,464 | ) | - | |||||
Net cash provided by financing activities | $ | 1,760,800 | $ | 29,250 |
Net cash used in operating activities. Net cash used in operating activities of $586,778 and $29,250 for the six month periods ended November 30, 2010 and 2009, respectively, are attributable to our net income adjusted for non-cash charges as presented in the consolidated statements of cash flows and changes in working capital as discussed above.
Net cash used in investing activities. We used $(5,464) and $nil of cash in investing activities for the six month periods ended November 30, 2010 and 2009, respectively. Cash used in fiscal 2010 relates to additions to fixed assets.
Net cash provided by financing activities. Net cash provided by financing activities of $1,760,800 and $29,250 for the six month periods ended November 30, 2010 and 2009, respectively, was primarily related to proceeds received from the sale of common stock, partially offset by repayments on convertible debentures.
Going Concern
The report of our independent registered public accounting firm on the financial statements as of and for the year ended May 31, 2010, includes an explanatory paragraph relating to the significant doubts about our ability to continue as a going concern. As of November 30, 2010, we had an accumulated deficit of $46,584,216 and have a working capital deficit of $15,637,333. We require significant additional funding to commence our plan of operation. Our ability to establish ourselves as a going concern is dependent upon our ability to obtain additional funding in order to finance our planned operations.
Plan of Operation
For the remainder of our 2011 fiscal year and into 2012, our primary goals are to regain compliance with the SEC and British Columbia Securities Commission (“BCSC”) so that we can apply for a revocation of a 2004 Cease Trade Order from the BCSC. We intend to continue to raise capital so that we may further explore and begin extraction from our properties, thereby bringing us out of the exploration stage.
16
Off-Balance Sheet Arrangements
We do not have off-balance sheet arrangements.
Critical Accounting Policies and Estimates
For a discussion of accounting policies that we consider critical to our business operations and understanding of our results of operations, and that affect the more significant judgments and estimates used in the preparation of our unaudited condensed consolidated financial statements, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” contained in our annual report on Form 10-K for the year ended May 31, 2010 and incorporated by reference herein.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not required by Form 10-Q for Smaller Reporting Companies.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), are our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Rule 13a-15 under the Exchange Act, requires us to carry out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of November 30, 2010. This evaluation was conducted under the supervision and with the participation of David K. Young (our functioning principal executive officer and principal financial officer). Based on this evaluation, Mr. Young concluded that the design and operation of our disclosure controls and procedures were not effective because of the identification of the material weaknesses in internal control over financial reporting described below that existed at May 31, 2010 and November 30, 2010. In light of the material weaknesses described above, we performed additional analysis and other post-closing procedures to ensure our financial statements were prepared in accordance with generally accepted accounting principles (“GAAP”). Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a set of processes designed by, or under the supervision of, a company’s principal executive and principal financial officers, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:
· | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of our assets; |
· | Provide reasonable assurance our transactions are recorded as necessary to permit preparation of our financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and |
17
· | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. It should be noted that any system of internal control, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including David K. Young (our functioning principal executive officer and principal financial officer), we conducted an assessment of the effectiveness of our internal control over financial reporting based on criteria established in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), as of May 31, 2010, the end of our most recently completed fiscal year.
As a result of our material weaknesses described below, management concluded that, as of May 31, 2010, our internal control over financial reporting was not effective based on the criteria in “Internal Control-Integrated Framework” issued by COSO.
Material Weakness in Internal Control over Financial Reporting
A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected. In connection with the assessment, management identified the following control deficiencies that represent material weaknesses at May 31, 2010:
· | We have not consistently recorded transactions in our accounting records. |
· | The non-cash components of certain debt and equity transactions were not properly accounted for. |
· | We rely on external consultants for the preparation of our financial statements and reports. As a result, our management may not be able to identify errors and irregularities in the financial statements and reports. |
· | We relied on one of our officers for oversight of the financial reporting process and therefore there was an inherent lack of segregation of duties with certain aspects of the financial reporting process, and a limited independent governing board. |
· | We relied on an external consultant for the administration functions, some of which did not have standard procedures in place for formal review by the one officer who was providing financial oversight for us. |
The internal control weaknesses identified above with regard to the failure to consistently record transactions and inadequate segregation of duties with certain aspects of the financial reporting process will only be completely corrected if the Company expands and has the capacity to perform necessary accounting functions and adequately segregate the duties to mitigate the risk in financial reporting. This expansion will depend mostly on the ability of management to fully execute its business operating strategy as outlined in this report and generate enough income to warrant growth in personnel. With regard to the internal control deficiency identified above related to preventative measures to properly and accurately account for the recording of the non-cash aspects of certain debt and equity issuances, management has already taken steps to mitigate such risk going forward by utilizing external financial consulting services prior to the review by our principal independent accounting firm to ensure that all information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported accurately and within the time periods specified in the Commission’s rule and forms.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended November 30, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
18
ITEM 1. LEGAL PROCEEDINGS.
Other than discussed below, as of May 16, 2011, we are not involved as a plaintiff or defendant in any active, pending or (to our knowledge) threatened, legal proceedings which would be material to our operations. Also, except as described below, we are not aware of any material legal proceedings to which any director, officer or affiliate of the Company, any owner of record or beneficially of more than five percent of our common stock, or any associate of any such director, officer, affiliate of the Company or security holder is a party adverse to the Company or any of our subsidiaries or has a material interest adverse to the Company or our subsidiaries.
On March 8, 2004, we entered into an agreement with Marlowe Harvey, his wife Judy Harvey, and several related entities by which Calais and Mr. and Mrs. Harvey resolved a number of issues that had arisen between them. Under the agreement,
• | Mr. Harvey and Calais agreed on a more precise definition of Calais’ right (which expires August 31, 2011) to repurchase the interest of AAI in the Caribou properties, including the price payable for the reacquisition (a total of Cdn$747,728) and AAI’s right to convert that debenture before it is paid; | ||
• | Further defining Calais’ right to borrow against, enter in and upon those properties, construct buildings and mines on those properties, and remove and sell minerals from those properties for Calais’ own account; |
• | Mr. Harvey and his related entities agreed to assign their interests in the Manhattan prospect to Calais and completed this assignment in July 2004. In addition, Mr. Harvey and his related entities also agreed to convey to Calais (not later than December 31, 2005) the entire right, title and interest in the Manhattan prospect from all parties (“marketable title”). To our knowledge, Mr. Harvey and his related entities have not commenced the work necessary to obtain marketable title. Upon receipt of marketable title, Calais agreed to pay one of Mr. Harvey’s related entities 250,000 shares of Calais restricted stock. Calais agreed to undertake certain drilling obligations after receiving good title, and to issue 2,500,000 shares of common stock to Argus Resources, Inc., one of Mr. Harvey’s related entities, if Calais identifies gold or gold equivalent mineral resources (as determined in accordance with Canadian standards) exceeding 2,000,000 ounces. | ||
• | Mr. Harvey and his related entities agreed to comply with their shareholder filing obligations in the United States and Canada (if any) not later than April 30, 2004. |
Mr. Harvey also agreed to return a stock option agreement to Calais which evidenced the option to acquire 82,500 shares of Calais common stock granted to him in November 2002. That option expired on November 15, 2004, and had an exercise price of US$0.80 per share. Mr. Harvey did not comply with this obligation. | |||
• | Calais agreed to propose to its shareholders at its next shareholder meeting that the conversion price of the debentures be repriced from Cdn$1.23 to US$.55. This proposal was defeated by the shareholder vote held at the shareholder meeting on November 10, 2004. |
• | Calais agreed to retain Mr. Harvey as a consultant for one year at US$3,000 per month. Mr. Harvey resigned as a consultant as of June 1, 2004. |
To facilitate the settlement, Thomas S. Hendricks agreed to transfer to Mr. Harvey a debenture for Cdn $984,000 that Mrs. Harvey had assigned to him in 2000. Mr. Hendricks executed the assignment of this debenture and delivered both the original debenture and the assignment to Calais to hold pending Mrs. Harvey’s acceptance of that debenture in a manner that complies with applicable securities laws. To date, Mrs. Harvey has refused to return to Calais documents that Calais believes is necessary to show compliance with securities laws, and Mrs. Harvey has not proposed any alternative procedure. Consequently, the debenture is still registered in Mr. Hendricks’ name and will remain so registered until Mrs. Harvey provides Calais with sufficient evidence of compliance with applicable securities laws.
In addition, Calais, Mr. Harvey, and his related entities entered into mutual releases. Calais has previously announced that it does not intend to expend any significant exploration dollars on the Manhattan prospect until such time as it has received further assurances as to title.
At the present time, we have no evidence that Mr. Harvey or his related entities have complied with their obligations under the settlement agreement (other than tendering certain assignments to Calais of certain portions of the Manhattan project), or that they have commenced doing the work necessary to deliver marketable title to the Manhattan project, both as required by the settlement agreement.
19
Subsequent to August 31, 2010, on December 15, 2010, the Company entered into a Settlement Agreements with AAI and Mrs. Harvey for said debentures wherein the parties agreed that Ms. Harvey would accept as full payment for her two debentures totaling $2,988,257, for cash of $149,368 in cash and a total of 8,890,638 shares of our restricted common stock. The cash was paid on December 15, 2010 and the shares were issued on December 20, 2010 to an escrow agent to hold the shares until the Cease Trade Order in British Columbia has been revoked.
Further, under the December 15, 2010 settlement, Argus accepted as full payment for its debenture (originally totaling $220,723) 659,730 shares of our restricted common shares. These shares were issued on December 20, 2010.
ITEM 1A. RISK FACTORS.
An investment in our common stock involves a number of significant risks. There have been no material changes to the risk factors contained in our Annual Report on Form 10-K for the year ended May 31, 2010. We caution the reader to carefully consider such risk factors, which are more thoroughly described in the section entitled “Risk Factors” under Item 1A of our Annual Report on Form 10-K for the year ended May 31, 2010 as well as any other Risk Factors described in subsequent filings with the Securities and Exchange Commission.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Warrants | |||||||
Date of Sale | Name of Purchaser | Title of Securities | Shares of Stock | No. of Warrants | Exercise Price ($) | Expiration Date | Consideration ($) |
09/10 | 8 accredited investors | Common Stock | 4,500,000 | 270,000 (a) | |||
10/10 | 8 accredited investors | Common Stock | 5,753,334 | 345,200 (a) | |||
10/10 | 2 accredited investors | Common Stock | 4,270,420 | 379,510 (b) | |||
11/10 | 28 accredited investors | Common Stock | 18,718,333 | 1,139,100 (a) |
(a) Issued for cash consideration.
(b) Issued in connection with the settlement of liabilities.
We relied upon the exemption from registration contained in Section 4(2) of the Securities Act, as these persons were deemed to be sophisticated with respect to the investment in the securities due to their financial condition and involvement in our business and had access to the kind of information which registration would disclose.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. (REMOVED AND RESERVED)
ITEM 5. OTHER INFORMATION.
None.
20
ITEM 6. EXHIBITS.
Exhibit Number | Description | |
31 | Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act. | |
32 | Certification of the Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act. |
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CALAIS RESOURCES INC. | |||
May 19, 2011 | By: | /s/ David K. Young | |
David K. Young | |||
President, Chief Operating Officer | |||
and Acting Chief Financial Officer |
22