United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2007
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from ______________ to ________________
Commission File Number: 333-129864
DHANOA MINERALS LTD.
--------------------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 98-0470528
------ ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
15 Oceanview Road, Lions Bay, B.C., Canada V0N 2E0
-------------------------------------------------------------------------
(Address of principal executive offices)
(604) 925-0716
-----------------------------------------------
(Issuer's telephone number)
_______________________________________________________________
(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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.
[X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. [ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 45,127,332 shares as of
August 9, 2007.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
DHANOA MINERALS LTD.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheet as of June 30, 2007.......................... 3
Condensed Statements of Operations for the three and the nine
months ended June 30, 2007........................................... 4
Condensed Statements of Stockholders' Equity for the period
from July 11, 2005 (Inception) to June 30, 2007 ..................... 5
Condensed Statements of Cash Flows for the three and the nine
months ended June 30, 2007........................................... 6
Notes to the Condensed Financial Statements.......................... 7
Item 2. Management's Discussion and Analysis or Plan of Operation............14
Item 3. Controls and Procedures .............................................16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................16
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds..........16
Item 3. Defaults upon Senior Securities......................................16
Item 4. Submission of Matters to a Vote of Security Holders..................16
Item 5. Other Information....................................................16
Item 6. Exhibits ............................................................18
Signatures....................................................................18
i
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DHANOA MINERALS LTD.
FINANCIAL STATEMENTS
AS OF JUNE 30, 2007
(EXPRESSED IN US DOLLARS)
(UNAUDITED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Company and the notes thereto included
elsewhere herein.
The statements contained in this report include forward-looking
statements about information of possible or assumed results of operations,
business strategies, financing plans, competitive position and potential growth
opportunities. Forward-looking statements include all statements that are not
historical facts and are generally accompanied by words such as "may," "will,"
"intend," "anticipate," "believe," "estimate," "expect," "should" or similar
expressions or the negative of such words or expressions. These statements also
relate to the Company's contingent payment obligations relating to acquisitions,
future capital requirements, potential acquisitions and the Company's future
development plans and are based on current expectations. Forward-looking
statements involve various risks, uncertainties and assumptions. The Company's
actual results may differ materially from those expressed in these
forward-looking statements.
Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses. On an on-going basis, we evaluate these estimates,
including those related to useful lives of real estate assets, cost
reimbursement income, bad debts, impairment, net lease intangibles,
contingencies and litigation. We base our estimates on historical experience and
on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. There can be no assurance that actual results will not differ
from those estimates.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2007 AND 2006
For the three month period ended June 30, 2007 compared to the three
month period ended June 30, 2006, Dhanoa had a net loss of $637,082 and $18,354,
respectively, a increase of approximately 3407%.
Mining exploration costs decreased 41% to $8,889 during the three
month period ended June 30, 2007 as compared to $15,000 for the comparable
period in 2006.
General and administrative expenses increased 18,828% to $634,847
during the three month period ended June 30, 2007 as compared to $ 3,354 for the
comparable period in 2006.
COMPARISON OF THE NINE MONTHS ENDED JUNE 30, 2007 AND 2006
Dhanoa anticipates incurring a loss as a result of exploration and
development expenses, and expenses associated with the operations of the
Company. Additional expenditures are necessary to determine the extent future
revenues will be generated from its properties.
For the nine month period ended June 30, 2007 compared to the nine
month period ended June 30, 2006, Dhanoa had a net loss of $1,028,600 and
$38,697, respectively, a 2558% increase in net loss.
Mining exploration costs decreased 697% to $159,341 during the nine
month period ended June 30, 2007 as compared to $20,000 for the comparable
period in 2006.
General and administrative expenses decreased 4622% to $875,922 during
the nine months ended June 30, 2007 as compared to $18,551 for the comparable
period in 2006.
14
LIQUIDITY AND CAPITAL RESOURCES
The Company is a development stage mining exploration company and had
no revenues during the nine month period ended June 30, 2007.
The Company has financial commitments related to the January 23, 2007
Share Purchase Agreement ("Agreement") to purchase an 80% interest in Promenasa,
S.A. a mining company located in Ecuador. The Agreement obligates the Company to
loan its subsidiary, Promenasa, $7,300,000 at the rate of approximately
$1,000,000 per month until the loan obligation is satisfied. As of June 30,
2007, the Company has loaned Promenasa $3,781,285. The Company is obligated to
loan Promenasa an additional $3,518,715. Additionally, pursuant to the
Agreement, the Company placed $1,300,000 in escrow to pay the remaining
installment of the purchase price once the Company is satisfied that the former
owners have verified certain employee payroll tax obligations. The Company took
title to on Promenasa August 1, 2007, however it is still negotiating the
precise amount of the final installment which may be reduced to offset certain
tax obligations it may assume.
At June 30, 2007, the Company had $140,948 in cash on hand. The Company
does not have enough cash on hand to satisfy our minimum cash requirements for
the next twelve months. The Company anticipates incurring additional losses as a
result of its contractual obligations and mining development expenses, and
expenses associated with the operations of the Company. The Company may generate
some revenue in the near future from its mineral interests but it is unlikely
that those revenues will be adequate to meet the all of the Company's financial
obligations. The Company must rely on corporate officers, directors and outside
investors in order to meet its budget. The Company may seek capital from the
sale of its common stock or other securities, however, there is no assurance
that an offering of its securities can be completed on terms satisfactory to the
Company. If the Company is unable to obtain additional financing from any of one
of these aforementioned sources, the Company would not be able to complete its
financial obligations regarding the development of its Ecuadorian properties or
to continue as a going concern.
The following table is a summary of the Company's contractual obligations as of
June 30, 2007.
Contractual
Obligations Payments Due by Period
- ----------- ----------------------
One Three to
Less Than to Three Five
Total One Year Years Years
------------ ------------ ----------- -----------
Long-term Debt $ -- $ -- $ -- $ --
Loans to
subsidiary $ 3,518,715 $ 3,518,785 $ -- $ --
Purchase
Obligation $ 1,300,000* $ 1,300,000* $ -- $ --
Total
Contractual
Cash
Obligations $ 4,818,715 $ 4,818,715 $ -- $ --
* $1,300,000 is in escrow to the make final installment of the purchase price.
The exact total may be offset to cover some tax obligations that Dhanoa may
agree to assume in the transfer of ownership.
15
ITEM 3. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer/President and its principal
accounting officer (collectively, the "Certifying Officer") are responsible for
establishing and maintaining disclosure controls and procedures for the Company.
Such officers have concluded (based upon their evaluation of these controls and
procedures as of a date within 90 days of the filing of this report) that the
Company's disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in this report is
accumulated and communicated to the Company's management, including its
principal executive officers as appropriate, to allow timely decisions regarding
required disclosure.
The management of the Company became aware that the assistant
treasurer, committed the Company to expenditures totaling $994,995 during the
six months ended March 31, 2007 which lacked adequate supporting documentation
and/or proper approvals from the board of directors. Management conducted an
inquiry into the expenditures and further reviewed its internal controls
policies and procedures. The management discovered that while the identified
expenses lacked supporting documentation and were not fully authorized, the
former assistant treasurer was largely acting to further the legitimate business
interests of the Company. The management and the former assistant treasurer
reached an agreement whereby he reimbursed the Company for all such expenses
plus interest in exchange for a full release. The Certifying Officer states that
the Company made material changes in its internal controls and the management
took corrective actions to cure any deficiencies and material weaknesses.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On June 20, 2007, the Company sold 2,090,164 shares of its restricted
Common Stock to Lee Balak at $.61 per share in reliance upon Regulation S under
the Securities Act of 1933, as amended.
On June 20, 2007, the Company sold 2,090,164 shares of its restricted
Common Stock to Arcobel Investments, Inc. at $.61per share in reliance upon
Regulation S under the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEMS 5. OTHER INFORMATION
RESIGNATION AND APPOINTMENT OF DIRECTORS.
On May 12, 2007 Mr. Micheal Dehn resigned as a Director of the Company.
There were no disagreements between the Company and Mr. Dehn regarding the
Company's operations, policies or practices. The Board of Directors of the
Company appointed Mr. Lee A. Balak as a director to fill the vacancy created by
the resignation of Mr. Dehn.
Mr. Paul Roberts resigned from his positions of President, Secretary
and a Director of the Company at the close of business on May 23, 2007. Mr.
Roberts resigned to pursue other opportunities and for personal reasons. There
were no disagreements between the Company and Mr. Roberts regarding the
Company's operations, policies or practices.
16
Mr. Lee Andrew Balak was appointed to be a Director of the Company on
May 12, 2007 and was appointed Chief Executive Officer and President of the
Company on May 31, 2007. From June of 2005 to January of 2007, Mr. Balak has
served as the President of Britannica Resources Corp., a Canadian mining
exploration company (symbol BRR.V). He is still serving as a Director of
Britannica. From February 1996 to June of 2004, Mr. Balak served as a director
and as the Chief Executive Officer and President of Power Technology Inc.
(symbol PWTC). He remained as a consultant to Power Technology Inc. until
January of 2005. From February 2000 to December 6, 2002, Mr. Balak served as a
director and President of Fluidic/Microwave Systems, Inc., a Nevada corporation.
Mr. Balak was the owner and President of No. 90 Corporate Ventures, a Canadian
corporation located in Vancouver, B.C.. From 1983 to 1993, he was a corporate
finance consultant. From 1977 to 1982, he was a registered representative of
Canarim Investment Corporation. Mr. Balak attended the University of Winnipeg.
Mr. William E. McNerney was appointed as a director, Secretary and
Treasurer of the Company on May 31, 2007. From July of 2005 to May 2007, Mr.
McNerney has been a consultant to Emco S.A., and other junior mining entities,
assisting with the acquisition of undeveloped gold, silver and uranium
properties in North and South America. He has served as President and Chief
Executive Officer of Impactive Tech Inc., a Nevada corp., managing mining stock
portfolios. Mr. McNerney served Power Technology, Inc. as a Director from June
of 1997 to May 2004 and as its Executive Vice President from June of 2001 until
May 2004. From February 2000 to March 2003, Mr. McNerney has served as a
Director and Secretary of Fluidic/Microwave Systems, Inc., a Nevada corporation.
From 1993 to 1999, he was a Director and Executive Vice President Officer of
Revolutionary Technology Industries, Inc. From 1984 to 1993, Mr. McNerney was
retired. From 1974 to 1984, Mr. McNerney owned and operated an oil and gas
operating company, Golden Exploration, Inc.. From 1954 to 1976, Mr. McNerney was
a commercial airline pilot, employed by Northwest Airlines. He attended the
University of Minnesota.
On July 1, 2007, the Company appointed Mr. Thomas Daniel Kuhn as its
Vice-President of Mining Operations. Mr. Kuhn has 40 years of experience working
in the mining industry. His experience includes being a mine manager for INCO in
Ontario, Canada and he has worked as a consultant with International Minerals.
Mr. Kuhn has experience and training in Loss Control Management and security. He
is fluent in Spanish and English languages. Mr. Khun is living and working
exclusively at the Company's mine site in Ecuador.
MATERIAL ACQUISITIONS
In June 2007, the Company's subsidiary Promenasa, S.A., acquired full
ownership of the San Jorge a.k.a. "Spanish Plant' which is a centralized mineral
processing facility. The processing facility was purchased for $550,000 from an
unrelated party. Promenasa used loaned funds from the Company to purchase this
asset. The facility is strategically located on a level area near the base of
the mountain where the Company's three mines are located. The majority of
antiquated equipment that came with the purchase of the plant will be sold and
replaced with more efficient equipment and technology. The San Jorge facility is
secured by ten to twenty foot walls that enclose the entire structure.
Additionally, the plant has approximately three thousand square feet of office
space and living quarters. Construction has already begun on renovating the
living quarters so Company representatives can be onsite 24 hours a day
overseeing mineral processing.
SUBSEQUENT EVENTS
On August 1, 2007, the Company received the share certificates for 80%
ownership of Promenasa, S.A. which is the Ecuadorian company that has title to
the Company's mineral rights and other associated assets in Ecuador. The Company
has placed $1,300,000 in escrow and is negotiating the exact amount of the final
payment of the purchase price which may be offset if the Company assumes certain
tax liabilities.
17
ITEM 6. EXHIBITS
(a) Exhibits.
---------
10.1 Executive Employment Agreement between Dhanoa and Lee A. Balak
10.2 Executive Employment Agreement between Dhanoa and William E.
McNerney
10.3 Regulation S. Purchase Agreement of Lee A. Balak
10.4 Warrant of Lee A. Balak
10.5 Regulation S Purchase Agreement of Arcobel Investments Inc.
10.6 Warrant of Arcobel Investments Inc.
10.7 Release and Indemnification Agreement of June 11, 2007
31.1 Certification of Lee A. Balak
31.2 Certification of William E. McNerney
32 Sarbanes Oxley Certification of Lee A. Balak and William E.
McNerney
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dhanoa Minerals Ltd.
Date: August 21, 2007 By: /s/ Lee A. Balak
------------------------------
Lee A. Balak
Chief Executive Officer and President
By: /s/ William E. McNerney
------------------------------------------
William E. McNerney
Treasurer and principal accounting officer
18
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DHANOA MINERALS LTD.
FINANCIAL STATEMENTS
AS OF JUNE 30, 2007
(EXPRESSED IN US DOLLARS)
(UNAUDITED)
F-1
DHANOA MINERALS LTD.
(AN EXPLORATION STAGE COMPANY)
CONTENTS
PAGE 3 CONDENSED BALANCE SHEET AS OF JUNE 30, 2007 (UNAUDITED)
PAGE 4 CONDENSED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE
MONTHS ENDED JUNE 30, 2007 AND 2006 AND FOR THE PERIOD FROM
JULY 11, 2005 (INCEPTION) TO JUNE 30, 2007 (UNAUDITED)
PAGE 5 CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR
THE PERIOD FROM JULY 11, 2005 (INCEPTION) TO JUNE 30, 2007
(UNAUDITED)
PAGE 6 CONDENSED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED
JUNE 30, 2007 AND 2006 AND FOR THE PERIOD FROM JULY 11,
2005 (INCEPTION) TO JUNE 30, 2007 (UNAUDITED)
PAGES 7 - 13 NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
F-2
DHANOA MINERALS LTD.
(AN EXPLORATION STAGE COMPANY)
CONDENSED BALANCE SHEET
AS OF JUNE 30, 2007
(UNAUDITED)
(EXPRESSED IN US DOLLARS)
ASSETS
CURRENT ASSETS
Cash $ 140,948
Prepaid expenses 188,426
-----------
329,374
Deposit in escrow on mineral properties 2,400,000
Loan receivable - Promenasa 3,781,285
-----------
TOTAL ASSETS $ 6,510,659
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,867
-----------
TOTAL LIABILITIES 1,867
-----------
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value, 3,000,000 shares authorized, none issued and outstanding --
Common stock, $0.001 par value, 65,000,000 shares authorized,
38,309,151 shares issued and outstanding 38,309
Additional paid in capital 7,568,688
Accumulated deficit during exploration stage (1,098,205)
-----------
Total Stockholders' Equity 6,508,792
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,510,659
===========
See accompanying notes to unaudited condensed financial statements.
F-3
DHANOA MINERALS LTD.
(AN EXPLORATION STAGE COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(EXPRESSED IN US DOLLARS)
For the Period
from July 11,
2005
For The Three Months Ended For The Nine months Ended (Inception)
June 30, June 30, to June 30,
------------------------------ ------------------------------ ------------
2007 2006 2007 2006 2007
------------ ------------ ------------ ------------ ------------
OPERATING EXPENSES
Exploration costs and expenses $ 8,898 $ 15,000 $ 159,341 $ 20,000 $ 183,341
General and administrative 634,847 3,354 875,922 18,551 924,293
------------ ------------ ------------ ------------ ------------
Total Operating Expenses 643,745 18,354 1,035,263 38,551 1,107,634
------------ ------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (643,745) (18,354) (1,035,263) (38,551) (1,107,634)
OTHER INCOME (EXPENSE)
Interest Income 6,663 -- 6,663 -- 6,663
Foreign currency transaction (loss) gain -- -- -- (146) 2,766
------------ ------------ ------------ ------------ ------------
Total Other Income (Expense) 6,663 -- 6,663 (146) 9,429
------------ ------------ ------------ ------------ ------------
LOSS BEFORE PROVISION FOR INCOME TAXES (637,082) (18,354) (1,028,600) (38,697) (1,098,205)
Provision for Income Taxes -- -- -- -- --
------------ ------------ ------------ ------------ ------------
NET LOSS $ (637,082) $ (18,354) $ (1,028,600) $ (38,697) $ (1,098,205)
============ ============ ============ ============ ============
Net (loss) earnings per share
- basic and diluted $ (0.02) $ (0.00) $ (0.02) $ (0.00) $ (0.03)
============ ============ ============ ============ ============
Weighted average number of shares
outstanding during the period
- basic and diluted 34,542,262 9,500,000 41,760,815 9,500,000 30,055,770
============ ============ ============ ============ ============
See accompanying notes to unaudited condensed financial statements.
F-4
DHANOA MINERALS LTD.
(AN EXPLORATION STAGE COMPANY)
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JULY 11, 2005 (INCEPTION) TO JUNE 30, 2007
(UNAUDITED)
(EXPRESSED IN US DOLLARS)
Accumulated
Deficit
Preferred Stock Common Stock Additional During
------------------------ ------------------------- Paid-In Subscription Exploration
Shares Amount Shares Amount Capital Receivable Stage Total
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Common stock issued to
founders for cash
($0.001 per share) -- $ -- 35,000,000 $ 35,000 $ (28,000) $ -- $ -- $ 7,000
Common stock issued for
cash ($0.02 per share) -- -- 12,500,000 12,500 37,500 -- -- 50,000
Stock subscription
receivable -- -- -- -- -- (4,813) -- (4,813)
Net loss for the period
from July 11, 2005
(inception) to
September 30, 2005 -- -- -- -- -- -- (4,210) (4,210)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance,
September 30, 2005 -- -- 47,500,000 47,500 9,500 (4,813) (4,210) 47,977
Stock subscription
receivable -- -- -- -- -- 4,813 -- 4,813
Net loss for the year
ended September 30,
2006 -- -- -- -- -- -- (65,395) (65,395)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance,
September 30, 2006 -- -- 47,500,000 47,500 9,500 -- (69,605) (12,605)
Common stock and
warrants issued for
cash ($0.50 per share) -- -- 2,400,000 2,400 1,197,600 -- -- 1,200,000
Common stock and
warrants issued for
cash ($2.75 per share) -- -- 909,090 909 2,499,088 -- -- 2,499,997
Common stock and
warrants issued for
cash ($2 per share) -- -- 650,000 650 1,299,350 -- -- 1,300,000
Common stock and
warrants issued for
cash ($0.61 per share) -- -- 4,180,328 4,180 2,545,820 -- -- 2,550,000
Cancelled shares -- -- (17,330,267) (17,330) 17,330 -- -- --
Net loss for the period
ended June 30, 2007 -- -- -- -- -- -- (1,028,600) (1,028,600)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, JUNE 30, 2007 -- $ -- 38,309,151 $ 38,309 $ 7,568,688 $ -- $(1,098,205) $ 6,508,792
=========== =========== =========== =========== =========== =========== =========== ===========
See accompanying notes to unaudited condensed financial statements.
F-5
DHANOA MINERALS LTD.
(AN EXPLORATION STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(EXPRESSED IN US DOLLARS)
For The Nine For The Nine For the Period
Months Months From July 11, 2005
Ended Ended (Inception)
June 30, June 30, to June 30,
2007 2006 2007
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,028,600) $ (38,697) $(1,098,205)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Changes in operating assets and liabilities:
Prepaid expenses (182,000) (925) (188,426)
Accounts payable (20,833) (600) 1,867
----------- ----------- -----------
Net Cash Provided by (Used In) Operating Activities (1,231,433) (40,222) (1,284,764)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Deposits made to acquire mineral properties (2,400,000) -- (2,400,000)
Loan to Promenasa (3,781,285) -- (3,781,285)
----------- ----------- -----------
Net Cash Used In Investing Activities (6,181,285) -- (6,181,285)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 7,549,997 4,813 7,606,997
----------- ----------- -----------
Net Cash Provided By Financing Activities 7,549,997 4,813 7,606,997
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 137,279 (35,409) 140,948
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,669 48,477 --
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 140,948 $ 13,068 $ 140,948
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ -- $ -- $ --
=========== =========== ===========
Cash paid for taxes $ -- $ -- $ --
=========== =========== ===========
During the nine months ended June 30, 2007, the Company cancelled 17,330,267 of the founding
shareholders common stock with no consideration given to the founding shareholders.
See accompanying notes to unaudited condensed financial statements.
F-6
DHANOA MINERALS LTD.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF JUNE 30, 2007
-------------------
(UNAUDITED)
(EXPRESSED IN US DOLLARS)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
- ------ -----------------------------------------------------------
(A) ORGANIZATION AND BASIS OF PRESENTATION
------------------------------------------
The accompanying unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United
States of America and the rules and regulations of the Securities and
Exchange Commission for interim financial information. Accordingly,
they do not include all the information necessary for a comprehensive
presentation of financial position and results of operations.
It is management's opinion however, that all material adjustments
(consisting of normal recurring adjustments) have been made which are
necessary for a fair financial statements presentation. The results for
the interim period are not necessarily indicative of the results to be
expected for the year.
Dhanoa Minerals Ltd (an exploration stage company) (the "Company") was
incorporated under the laws of the State of Nevada on July 11, 2005.
The Company is a natural resource exploration company with an objective
of acquiring, exploring and if warranted and feasible, developing
natural resource properties. Activities during the exploration stage
include developing the business plan and raising capital.
(B) USE OF ESTIMATES
--------------------
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of
the financial statements and revenues and expenses during the reported
period. Actual results could differ from those estimates.
(C) CASH AND CASH EQUIVALENTS
-----------------------------
For purposes of the cash flow statements, the Company considers all
highly liquid investments with original maturities of three months or
less at the time of purchase to be cash equivalents.
F-7
DHANOA MINERALS LTD.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF JUNE 30, 2007
-------------------
(UNAUDITED)
(EXPRESSED IN US DOLLARS)
(E) INCOME TAXES
----------------
The Company accounts for income taxes under the Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("Statement
109"). Under Statement 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under Statement 109, the effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
(F) LOSS PER SHARE
------------------
Basic and diluted net loss per common share is computed based upon the
weighted average common shares outstanding as defined by Financial
Accounting Standards No. 128, "Earnings per Share." For the three and
nine month periods ended June 30, 2007 and 2006, and for the period
from inception through June 30, 2007, the assumed exercise of 3,504,545
shares were not included in the calculation of dilutive net loss per
share as the amounts were anti-dilutive. Per share amounts have been
adjusted to reflect the 1:5 forward stock split approved on October 9,
2006.
(G) LONG-LIVED ASSETS
---------------------
The Company accounts for long-lived assets under the Statements of
Financial Accounting Standards Nos. 142 and 144 "Accounting for
Goodwill and Other Intangible Assets" and "Accounting for Impairment or
Disposal of Long-Lived Assets" ("SFAS No. 142 and 144"). In accordance
with SFAS No. 142 and 144, long-lived assets, goodwill and certain
identifiable intangible assets held and used by the Company are
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
For purposes of evaluating the recoverability of long-lived assets,
goodwill and intangible assets, the recoverability test is performed
using undiscounted net cash flows related to the long-lived assets.
(H) FOREIGN CURRENCY TRANSLATION
--------------------------------
In accordance with SFAS 52 "Foreign Currency Translation", the Company
has determined that its functional currency is the United States
Dollar.
F-8
DHANOA MINERALS LTD.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF JUNE 30, 2007
-------------------
(UNAUDITED)
(EXPRESSED IN US DOLLARS)
(I) BUSINESS SEGMENTS
---------------------
The Company operates in one segment and therefore segment information
is not presented.
(J) CONCENTRATION OF CREDIT RISK
--------------------------------
At June 30, 2007, the Company had total cash of $140,948 in a Canadian
bank which is uninsured.
(K) RECENT ACCOUNTING PRONOUNCEMENTS
------------------------------------
In July 2006, the FASB issued Interpretation 48, "ACCOUNTING FOR
UNCERTAINTY IN INCOME TAXES" ("FIN 48"), an interpretation of FASB
Statement No. 109,"ACCOUNTING FOR INCOME TAXES." FIN 48 clarifies the
accounting and reporting for income taxes where interpretation of the
law is uncertain. FIN 48 prescribes a comprehensive model for the
financial statement recognition, measurement, presentation and
disclosure of income tax uncertainties with respect to positions taken
or expected to be taken in income tax returns. FIN 48 is effective for
fiscal years beginning after December 15, 2006 and has no current
applicability to the Company's financial statements
In September 2006, the FASB issued Statement No. 157, "FAIR VALUE
MEASUREMENTS" ("SFAS No. 157"). SFAS No. 157 addresses how companies
should measure fair value when they are required to use a fair value
measure for recognition or disclosure purposes under generally accepted
accounting principles. SFAS No. 157 defines fair value, establishes a
framework for measuring fair value and expands the required disclosures
about fair value measurements. SFAS No. 157 is effective for fiscal
years beginning after November 15, 2007, with earlier adoption
permitted. Management is assessing the impact of the adoption of SFAS
No. 157.
In September 2006, the FASB issued Statement No. 158, "EMPLOYERS'
ACCOUNTING FOR DEFINED BENEFIT PENSION AND OTHER POSTRETIREMENT PLANS"
("SFAS No. 158"), an amendment of FASB Statements No. 87, 88, 106 and
132(R). SFAS No. 158 requires (a) recognition of the funded status
(measured as the difference between the fair value of the plan assets
and the benefit obligation) of a benefit plan as an asset or liability
in the employer's statement of financial position, (b) measurement of
the funded status as of the employer's fiscal year-end with limited
exceptions, and (c) recognition of changes in the funded status in the
year in which the changes occur through comprehensive income. The
requirement to recognize the funded status of a benefit plan and the
disclosure requirements are effective as of the end of the fiscal year
ending after December 15, 2006. The requirement to measure the plan
assets and benefit obligations as of the date of the employer's fiscal
year-end statement of financial position is effective for fiscal years
ending after December 15, 2008. SFAS No. 158 has no current
applicability to the Company's financial statements.
F-9
DHANOA MINERALS LTD.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF JUNE 30, 2007
-------------------
(UNAUDITED)
(EXPRESSED IN US DOLLARS)
In September 2006, the Securities Exchange Commission issued Staff
Accounting Bulletin No. 108 ("SAB No. 108"). SAB No. 108 addresses how
the effects of prior year uncorrected misstatements should be
considered when quantifying misstatements in current year financial
statements. SAB No. 108 requires companies to quantify misstatements
using a balance sheet and income statement approach and to evaluate
whether either approach results in quantifying an error that is
material in light of relevant quantitative and qualitative factors.
When the effect of initial adoption is material, companies will record
the effect as a cumulative effect adjustment to beginning of year
retained earnings and disclose the nature and amount of each individual
error being corrected in the cumulative adjustment.
In February 2007, the FASB issued Statement No. 159, "THE FAIR VALUE
OPTION FOR FINANCIAL ASSETS AND FINANCIAL LIABILITIES" ("SFAS No.
159"), an amendment of FASB Statement No. 115. SFAS No. 159 addresses
how companies should measure many financial instruments and certain
other items at fair value. The objective is to mitigate volatility in
reported earnings caused by measuring related assets and liabilities
differently without having to apply complex hedge accounting
provisions. SFAS No. 159 is effective for fiscal years beginning after
November 15, 2007, with earlier adoption permitted. Management is
assessing the impact of the adoption of SFAS No. 159.
NOTE 2 GOING CONCERN
- ------ -------------
As reflected in the accompanying financial statements, the Company is
in the exploration stage with no revenue and a negative cash flow from
operations of $1,284,764 from inception. This raises substantial doubt
about its ability to continue as a going concern. The ability of the
Company to continue as a going concern is dependent on the Company's
ability to raise additional capital and implement its business plan.
The financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.
Management believes that actions presently being taken to obtain
additional funding (See Note 4) and implement its strategic plans (See
Note 3) provide the opportunity for the Company to continue as a going
concern.
F-10
DHANOA MINERALS LTD.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF JUNE 30, 2007
-------------------
(UNAUDITED)
(EXPRESSED IN US DOLLARS)
NOTE 3 MINERAL PROPERTIES
- ------ ------------------
MINERA PARAISO MINELPARASA S.A.
The Company has entered into a Letter of Intent to purchase an interest
in mining property in Ecuador. Under the terms of the Letter of Intent
with Overseas Mining, S.A., the Company has agreed, subject to
completion of due diligence, to acquire an 80 % interest in the share
capital of the Ecuador company, Minera Paraiso Minelparsa S.A.
("Paraiso"), which owns the operating mine and all related assets. The
purchase consideration for the 80% interest consists of 5,000,000
restricted common shares and cash payments totaling US $10,000,000. As
of June 30, 2007, the Company paid a $500,000 refundable deposit on the
signing of the Letter of Intent. Upon completion of due diligence
however, the Company has decided to abandon the acquisition of Paraiso.
The Company has agreed with Overseas Mining, S.A. to use the $400,000
refundable deposit toward the Company's loan obligation to Promenasa
and $100,000 towards the purchase price.
PROMENASA, S.A.
Effective January 23, 2007, the Company entered into a Share Sales
Agreement to acquire 80% of the ownership of Promenasa, S.A., an
Ecuador mining company ("Promenasa"), for $2,400,000 (U.S.) and
approximately 6,818,181 shares of the restricted common stock of the
Company. In addition, the Company agreed to make a $7,300,000 loan to
Propmenasa. The $7,300,000 of loans to Promenasa are to be made within
nine months after the closing for the purpose of upgrading the mine and
mill; and for additional equipment. The loans will be secured by a
mortgage and liens covering all of the assets of Promenasa and the
equipment. As of June 30, 2007, the Company has paid $3,781,285 toward
the Company's loan obligation and has made a deposit of $2,400,000
equal to the purchase price which is being held in escrow. As of June
30, 2007, this sale has not been finalized and the 6,818,181 shares of
restricted common stock were being held in escrow pending the closing
on this sale.
NOTE 4 STOCKHOLDERS' EQUITY
- ------ --------------------
During 2005, the Company issued 35,000,000 shares of common stock to
its founders for cash of $7,000 ($0.0002 per share).
During 2005, the Company issued 12,500,000 shares of common stock for
cash of $50,000 ($0.004 per share).
F-11
DHANOA MINERALS LTD.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF JUNE 30, 2007
-------------------
(UNAUDITED)
(EXPRESSED IN US DOLLARS)
On October 9, 2006 the Company affected a 1: 5 forward stock split. All
share and per share amounts have been retroactively restated.
On November 6, 2006, the Company closed a private placement of
2,400,000 units for gross proceeds of $1,200,000 ($0.50 per unit). Each
unit consists of one common share and one common share purchase
warrant. Each common share purchase warrant is exercisable into one
common share at a price of $0.60 for a period of twenty four months.
On November 16, 2006, the former President of the Company returned
4,600,000 shares of common stock owned by him. The shares were
cancelled and retired.
On December 18, 2006, the Company closed a private placement of 909,090
units for gross proceeds of $2,499,997 ($2.75 per unit). Each unit
consists of one common share and a purchase warrant to purchase
one-half of a share of common stock at a price of $2.85 for a period of
eighteen months.
On February 12, 2007, the Company closed a private placement of 650,000
units for gross proceeds of $1,300,000 ($2.00 per unit). Each unit
consists of one common share and one common share purchase warrant.
Each common share purchase warrant is exercisable into one common share
at a price of $2.50 for a period of eighteen months.
On June 21, 2007, the Company closed a private placement of 4,180,328
units for gross proceeds of $2,550,000 ($0.61 per unit). Each unit
consists of one common share and one common share purchase warrant.
Each common share purchase warrant is exercisable into one common share
at a price of $0.61 for a period of eighteen months.
Effective March 6, 2007, two founding shareholders cancelled a total of
12,730,267 shares of common stock for no consideration.
SHARE PURCHASE WARRANTS
Weighted
Average
Number Exercise
of Warrants Price
---------------------------
BALANCE, SEPTEMBER 30, 2006 -- $ --
Granted
November 6, 2006 2,400,000 0.60
December 18, 2006 454,545 2.85
February 12, 2007 650,000 2.50
June 21, 2007 4,180,328 0.61
---------------------------
BALANCE, JUNE 30, 2007 7,684,873 $ 0.90
===========================
F-12
DHANOA MINERALS LTD.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF JUNE 30, 2007
-------------------
(UNAUDITED)
(EXPRESSED IN US DOLLARS)
As at June 30, 2007, the Company had the following warrants
outstanding:
-------------------------------------------------------
Shares Exercise Price Expiration Date
-------------------------------------------------------
2,400,000 $ 0.60 November 6, 2008
454,545 $ 2.85 May 18, 2008
650,000 $ 2.50 August 12, 2008
4,180,328 $ 0.61 December 21, 2008
-------------------------------------------------------
7,684,873
=======================================================
NOTE 5 RELATED PARTY
- ------ -------------
On October 10, 2006, the Company entered into an employment agreement
with the President which calls for an annual salary of $125,000,
250,000 restricted shares, and a yearly expense allowance up to a
maximum of $25,000. On May 31, 2007, this President resigned. As of
June 30, 2007, $77,917 of management fees was paid to the president of
the Company.
During the nine month period ended June 30, 2007, the Company paid
$7,000 for consulting services provided by the former Chief Financial
Officer of the Company.
During the nine month period ended June 30, 2007, the Company paid
$20,000 for consulting services provided by the former Treasurer of the
Company.
Mr. Lee Andrew Balak was appointed to be a Director of the Company on
May 12, 2007 and was appointed Chief Executive Officer and President of
the Company on May 31, 2007. The company entered into an employment
agreement with Mr. Balak on August 1, 2007, which calls for a monthly
salary of $20,000 and 500,000 shares of restricted common stock to be
issued on August 1, 2007 and to be deemed fully earned on December 31,
2007.
Mr. William E. McNerney was appointed as a director, Secretary and
Treasurer of the Company on May 31, 2007. The company entered into an
employment agreement with the Mr. McNerney on August 1, 2007, which
calls for a monthly salary of $3,000 and 300,000 shares of restricted
common stock to be issued on August 1, 2007 and to be deemed fully
earned on December 31, 2007.
During the nine month period ended June 30, 2007, the Company paid
$55,000 of management fees to the new President for the services
provided.
NOTE 6 INADEQUATELY SUPPORTED EXPENDITURES IN PRIOR QUARTER
- ------ ----------------------------------------------------
In May of 2007, management of the Company became aware that the
assistant treasurer committed the Company to expenditures totaling
$994,995 during the six months ended March 31, 2007, which lacked
adequate supporting documentation and/or proper approvals from the
board of directors. Management conducted an inquiry into the
expenditures and further reviewed its internal control policies and
procedures. Management discovered that while the identified expenses
lacked supporting documentation and were not fully authorized, the
former assistant treasurer was largely acting to further the legitimate
business interests of the Company. Management and the former assistant
treasurer reached an agreement whereby he reimbursed the Company for
all such expenses plus interest in exchange for a full release of
liability.
During June 2007, the former treasurer reimbursed the company for
$994,995 of the expenditures described above and paid $5,005 in
interest for a total payment to the company of $1,000,000.
The March 31, 2007 10QSB will be amended to show the reclassification
of the unsupported expenditures in the amount of $775,040 to a
receivable from the former treasurer.
During the quarter ended June 30, 2007, with board of directors
approval, the Company agreed to pay additional consulting fees of
$226,743 to the former treasurer for services performed.
NOTE 7 COMMITMENTS
- ------ -----------
On May 3, 2007, the Company entered into a consulting agreement with
Princeton Research, Inc., to provide public and investor relation
services for the Company. Under the terms of the agreement, the Company
paid $12,500 for initiating a publicity campaign and will pay a monthly
fee in the amount of $2,500 for the twelve-month term.
NOTE 8 SUBSEQUENT EVENTS
- ------ -----------------
On August 1, 2007, the Company completed the acquisition of 80% of the
ownership of Promenansa by issuing 6,818,181 shares of the Company's
common stock.
F-13