Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - CALAIS RESOURCES INCFinancial_Report.xls
EX-32.1 - EXHIBIT 32.1 - CALAIS RESOURCES INCv309460_ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - CALAIS RESOURCES INCv309460_ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - CALAIS RESOURCES INCv309460_ex31-1.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

(Mark One)

 

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended February 29, 2012

 

¨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 x No ¨

 

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 x No ¨

 

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 April 23, 2012 the registrant had 165,071,422 shares of common stock outstanding.

 

 
 

 

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. 18
  Item 1A. Risk Factors. 18
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 18
  Item 3. Defaults Upon Senior Securities. 19
  Item 4. Mine Safety Disclosures. 19
  Item 5. Other Information. 19
  Item 6. Exhibits. 19
     
  Signatures 20

 

2
 

 

PART I – FINANCIAL INFORMATION.

 

CALAIS RESOURCES, INC.

(A Mining Company in the Exploration Stage)

CONSOLIDATED BALANCE SHEETS
 

   As of 
   2/29/2012   5/31/2011 
   (unaudited)     
ASSETS          
Current assets          
Cash and cash equivalents  $47,157   $913,182 
Inventories   29,843    - 
Prepaid expenses and other assets   27,119    39,961 
Total current assets   104,119    953,143 
           
Restricted cash   15,400    15,400 
Note receivable   60,000    60,000 
Fixed assets, net   27,068    15,313 
Total assets  $206,587   $1,043,856 
           
LIABILITIES          
Current Liabilities          
Accounts payable and accrued liabilities  $1,571,873   $1,631,568 
Convertible debentures, current portion   -    702,964 
Notes payable due to related parties (Note 10)   42,000    - 
Notes payable and current portion of long-term debt (Note 10)   10,253,878    10,253,878 
Total current liabilities   11,867,751    12,588,410 
           
Royalty interest   150,000    150,000 
Convertible debentures, long-term (Notes 6 and 10)   755,654    - 
Environmental remediation liabilities   50,000    50,000 
Total liabilities   12,823,405    12,788,410 
           
Shareholders' Deficit          
Common stock, no par value, unlimited shares authorized, 164,446,422 and 149,184,986 shares issued and outstanding as of February 29, 2012 and May 31, 2011, respectively   37,708,729    35,866,729 
Deficit accumulated in the exploration stage   (50,087,129)   (47,371,579)
Accumulated other comprehensive loss   (238,418)   (239,704)
Total Shareholders' Deficit   (12,616,818)   (11,744,554)
           
Total Liabilities and Shareholders' Deficit  $206,587   $1,043,856 

 

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   Nine Months Ended   December 30, 1986 
   February 29,   February 28,   February 29,   February 28,   (inception) through 
   2012   2011   2012   2011   February 29, 2012 
                     
Revenues  $7,237   $-   $83,260   $-   $83,260 
                          
Operating Costs and Expenses                         
Costs applicable to sales   159,431    -    706,634    -    706,634 
General and administrative   307,815    1,034,855    1,542,306    1,668,883    13,857,283 
Exploration and mine development   15,409    61,871    55,535    120,047    12,437,488 
Depreciation and amortization   1,802    100    4,380    199    207,082 
Total operating costs and expenses   484,457    1,096,826    2,308,855    1,789,129    27,208,487 
                          
Loss from Operations   (477,220)   (1,096,826)   (2,225,595)   (1,789,129)   (27,125,227)
                          
Other (income) and expenses                         
Loss on impairment   -    -    -    -    9,808,572 
Loss (gain) on settlement of debts   (82,452)   (2,614,853)   25,233    (2,927,784)   (3,363,509)
Interest and financing fees   206,884    203,227    617,782    626,649    15,057,127 
Foreign currency transaction loss   -    1,368,064    3,485    1,368,174    1,371,356 
Other (income) expense   -    (581)   (156,545)   (737)   88,356 
Total other (income) and expenses   124,432    (1,044,143)   489,955    (933,698)   22,961,902 
                          
Loss before income taxes   (601,652)   (52,683)   (2,715,550)   (855,431)   (50,087,129)
Income tax expense (benefit)   -    -    -    -    - 
Net loss   (601,652)   (52,683)   (2,715,550)   (855,431)   (50,087,129)
                          
Other comprehensive loss (income) - foreign currency translation adjustments   (31,254)   (1,296,172)   1,286    (1,129,889)   (238,418)
                          
Comprehensive loss   (632,906)   1,243,489    (2,714,264)   274,458    (50,325,547)
                          
Basic and diluted weighted-average number of common shares outstanding   163,265,104    137,426,187    157,612,383    107,627,924      
Basic and diluted loss per common share  $(0.00)  $(0.00)  $(0.02)  $(0.01)     

 

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)

 

       December 30, 1986 
       (inception) through 
   Nine Months Ended February,   February 29, 
   2012   2011   2012 
Cash flows from operating activities:               
Net loss  $(2,715,550)  $(855,431)  $(50,087,129)
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   4,380    199    205,415 
Non-cash interest expense   415,915    613,907    12,255,815 
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   -    -    1,048,053 
Common shares issued for services   163,500    753,092    1,687,941 
Warrants cancelled for services   -    -    (18,173)
Warrants issued in connection with debt restructure   -    -    155,007 
Loss (gain) recognized in connection with debt settlement   25,233    (2,927,785)   (3,073,613)
Gain on sale of property, plant and equipment   (156,500)   -    (151,627)
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 
Loss on foreign exchange   3,485    1,296,172    1,690,126 
Environmental remediation liability   -    -    50,000 
Changes in operating assets and liabilities:               
Increase in inventories   (29,843)   -    (29,843)
(Decrease) increase in prepaid expenses   12,842    (37,565)   (68,461)
(Decrease) increase in accounts payable and other current liabilities   (393,159)   (225,542)   2,124,872 
Decrease (increase) in other operating assets and liabilities   -    17,840    (202,668)
Net cash used in operating activities   (2,669,697)   (1,365,113)   (12,243,289)
                
Cash flows from investing activities:               
Purchase of mineral properties & equipment   -    -    (17,481,692)
Dispositions of equipment   156,500    -    317,852 
Net additions to equipment   (16,135)   (5,464)   (199,677)
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 (used in) provided by investing activities   140,365    (5,464)   (17,775,641)

 

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)

 

       December 30, 1986 
       (inception) through 
   Nine Months Ended February   February 29, 
   2012   2011   2012 
             
Cash flows from financing activities:               
Proceeds from sale of common shares  $1,678,500   $2,342,500   $23,483,579 
Proceeds from sale of private equity   -    -    345,000 
Proceeds from debt   42,000    -    17,071,960 
Proceeds from borrowing on shareholder note   -    -    282,000 
Repayments of debt   -    -    (11,902,794)
Repayments of debt - convertible debentures   (57,193)   (224,227)   (529,817)
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   1,663,307    2,118,273    29,129,824 
                
Effect of foreign exchange   -    -    936,263 
                
Net change in cash and cash equivalents   (866,025)   747,696    47,157 
Cash at beginning of period   913,182    27,919    - 
Cash at end of period  $47,157   $775,615   $47,157 
                
                
Supplemental Cash Flow Information               
Interest expense paid in cash  $205,013   $-   $1,408,346 
Interest received  $46   $-   $4,045 
Non-cash financing and investing activity:               
Debt restructuring - warrants issued  $-   $-   $412,407 
Common shares issued in connection with debt restructuring and settlement of accrued liabilities  $-   $2,665,604   $4,987,140 
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

February 29, 2012

 

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 ("U.S. 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 the valuation of deferred tax assets accruals for liabilities 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.

 

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 the United States Generally Accepted Accounting Principles (“U.S. GAAP”) and our functional and reporting currency to the United States dollar (“U.S. dollar”). Accordingly, historical cumulative 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.

 

These interim unaudited financial statements have been prepared on the same basis as the annual financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly our financial position, results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for a full year or for any future period.

 

NOTE 2 – LIQUIDITY

 

As of February 29, 2012, we had a working capital deficit of $11.8 million, and for the nine months then ended cash used in operating activities amounted to $2.7 million.  To date, we have generated only nominal revenues from operations ($83,260) and have incurred losses since inception resulting in a deficit accumulated during the development stage of $50.1 million through February 29, 2012. Further losses are anticipated as we continue to be in the exploration stage, as defined in ASC Topic 915, Development Stage Entities.

 

7
 

 

Our ability to continue as a going concern 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 $24,346,944 through the issuance of equity securities and $17,353,960 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 February 29, 2012, we have acquired an additional $50,000 through issuance of equity securities, as described more fully in Note 12. On December 1, 2011, the Brigus note (see Note 5) matured and we have not made payment as of the date of these financial statements. 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

 

Inventories

 

Stockpiled ore inventories represent mineralized material that has been mined and hauled to the surface from our Cross Mine. This inventoried stockpile is ready for shipping for further processing by an outside source. Stockpiles are measured by estimating the number of tons added and removed from the stockpile, the number of contained metal ounces or pounds (based on assay data) and the estimated metallurgical recovery rates (based on the expected processing method).

 

Ore stockpile inventories are carried at the lower of average cost or net realizable value. Net realizable value represents the estimated future sales price of the product based on current and long-term metals prices, less the estimated costs to complete production and bring the product to sale. Write-downs of stockpiled ore inventories, resulting from net realizable value impairments, are reported as a component of production costs applicable to sales. The current portion of ore stockpiles is determined based on the expected amounts to be processed within the next 12 months. Ore stockpile inventories not expected to be processed within the next 12 months, if any, are classified as long-term. At February 29, 2012, all ore stockpile inventories were classified as current.

 

Accrued Vacation

 

Our full-time employees are entitled to paid vacation, depending on job classification, length of service, and other factors.  A liability has been recorded in the accompanying financial statements for accrued vacation leave.

 

Revenue Recognition

 

We have generated limited income from the sale of gold from our ores processed at an offsite third party mill facility. Revenues from the sale of minerals are recognized when the ores are processed by the third party.

 

Foreign Currency

 

We have recorded amounts payable related to a convertible debenture that is denominated in Canadian dollars. As of February 29, 2012 and May 31, 2011, adjustments resulting from liabilities denominated in a foreign currency have been reported as other comprehensive income in our financial statements.

 

Impairment of Long-Lived Assets

 

We review and evaluate long-lived assets for impairment at least once per year, or more often when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. During the nine months ended February 29, 2012 and February 28, 2011, we did not record any impairment expense.

 

Use of Estimates and Significant Estimates

 

Certain amounts in our financial statements are based upon significant estimates including environmental remediation obligations, accrued liabilities and a provision for income taxes. Actual results could materially differ from those estimates.

 

8
 

 

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 U.S. GAAP and the impact on the Company. 

 

In January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820), which requires reporting entities to make new disclosures about recurring or nonrecurring fair value measurements including significant transfers into and out of Level 1 and Level 2 fair value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair value measurements. ASU 2010-6 is effective for annual reporting periods beginning after December 15, 2009, except for Level 3 reconciliation disclosures which are effective for annual periods beginning after December 15, 2010. We do not have any assets or liabilities classified as Level 3. We have adopted the Level 1 and Level 2 amendments accordingly. As the update only pertained to disclosures, it had no impact on our financial position, results of operations, or cash flows upon adoption.

 

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220) – Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 requires entities to present net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive, statements of net income and other comprehensive income. ASU 2011-05 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 (November 30, 2012 for the Company). We do not expect the adoption of ASU 2011-05 to have a material impact on our results of operations, financial condition, or cash flows.

 

In December 2011, the FASB issued ASU No. 2011-12, Comprehensive Income (Topic 220) – Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 (“ASU 2011-12”). ASU 2011-12 defers changes in Update 2011-05 that relate to the presentation of reclassification adjustments. ASU 2011-12 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 (November 30, 2012 for the Company). We do not expect the adoption of ASU 2011-12 to have a material impact on our results of operations, financial condition, or cash flows.

 

NOTE 4 – MINERAL INTERESTS

 

There were no material changes to our mineral properties from those disclosed in the audited annual consolidated financial statements for the year ended May 31, 2011.

 

During the nine months ended February 29, 2012, we began test mining operations at our Cross mine. We have begun test processing at an out of state facility. We have incurred $706,634 in costs associated with these operations, and have generated revenues of $83,260 for the nine months ended February 29, 2012.

 

On August 11, 2011, we renewed a convertible debenture payable to Aardvark Agencies Inc. “AAI” which contained repurchase rights for interests in our 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 (Note 6).

 

NOTE 5 – DEBT

 

As of February 29, 2012 and May 31, 2011, we had one outstanding note payable (the “Brigus Note”) 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 to June 30, 2011.

 

9
 

 

On June 8, 2011, we and the note holder extended the maturity of the note through October 31, 2011. In connection with this forbearance we paid the note holder $1,000,000 which was applied against interest due on the promissory notes. On October 24, 2011, we and the note holder further extended the maturity of the note through December 1, 2011. In connection with this forbearance we paid the note holder $200,000 which was applied against interest due on the notes. The note bears interest at 8% and is secured by a lien on our Caribou property.

 

We continue to explore financing opportunities related to the December 1, 2011 maturity date of the Brigus Note. As of February 29, 2012 and May 31, 2011, we have accrued interest in the amount of $505,796 and $1,090,001, respectively.

 

On March 23, 2012, Calais received a default notice from the note holder demanding payment of all principal and interest by March 29, 2012.  We are in discussion with the note holder and the note holder has not begun any legal proceedings as of the date of these financial statements. 

 

NOTE 6 – DEBENTURES

 

A summary of convertible debentures outstanding is as follows:

 

   February 29,
2102
   May 31,
2011
 
Debenture  $755,654   $702,964 
Less: Current portion   -    (702,964)
Long-term portion  $755,654   $- 

 

This debenture is unsecured, non-interest bearing, and initially matured in May 2011. This debenture is 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. The debenture is convertible into common stock at $1.23 in Canadian Dollars at the holder’s discretion and contains no restrictive covenants.

 

This debenture matured in May 2011. On August 11, 2011 the convertible debenture was renewed for a period of ten years maturing on August 31, 2021. All terms contained in the debenture agreement remain consistent with the original note.

 

NOTE 7 – 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 February 29, 2012 and May 31, 2011 were 164,446,422 and 149,184,986, respectively.

 

Transactions involving our common stock during the nine months ended February 29, 2012 were as follows:

 

·We raised $1,678,500 in cash from accredited investors for the sale of units comprising 13,626,668 shares of restricted common stock and warrants to purchase 6,813,335 common shares. The common stock prices ranged from $0.08 to $0.20 per share and the warrants have an exercise price from $0.20 to $0.30 per share with expiration dates of June 2012 through February 2015.

·In connection with the issuance of some of the shares mentioned above, as compensation for consulting services we issued 1,635,000 shares of restricted common stock at $0.10 and warrants to purchase 250,000 common shares at an exercise price of $0.30 with expiration dates of October 2012 through December 2012.

 

10
 

 

NOTE 8 – COMMON STOCK WARRANTS

 

The following table summarizes information about outstanding stock purchase warrants as of February 29, 2012:

 

 

      Number of Warrants
Outstanding
    Exercise
Price
Outstanding as of May 31, 2011       31,498,196     $0.12-$0.25
Issued       7,063,335     $0.20-$0.30
Expirations       -      
Balance at February 29, 2012       38,561,531     $0.12-$0.30

 

Exercise
Price
   Number of Shares   Remaining
Contractual Life in
Years
   Exercise Price
Times Number of
Shares
   Weighted Average
Exercise Price
 
$0.12    20,923,296   1.2   $2,510,795     
$0.12    7,000,000   2.4    840,000     
$0.12    1,249,900   9.7    149,988     
$0.20    6,655,000   1.0    1,331,000     
$0.25    233,335   1.5    58,334     
$0.25    875,000   7.8    218,750     
$0.30    1,625,000   0.5    487,500      
      38,561,531       $5,596,367   $0.15 

 

NOTE 9 – 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 February 29, 2012 and February 28, 2011 were excluded from diluted weighted average shares outstanding for each of the respective years because their effects were considered anti-dilutive.

 

NOTE 10 – RELATED PARTY TRANSACTIONS

 

We have frequent transactions with related parties, employees and shareholders holding more than 10% of our outstanding common stock. Transactions involving related parties during the nine months ended February 29, 2012 were as follows:

 

·Notes payable due to related parties consist of $20,000 principal due to the Chief Financial Officer, Brent E. Timmons, and $22,000 principal due to the former Chief Executive Officer, R. David Russell. Both of these notes bear interest at 12.0% and are secured by future gold production.
·Our notes payable balance as of February 29, 2012 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 former 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 February 29, 2012, included in accounts payable are amounts due to the officers as reimbursement. These amounts are not considered to be material.
·The Canadian-dollar denominated convertible debenture (Note 6) is owned by a company related to a shareholder and former director.

 

11
 

 

NOTE 11 – COMMITMENTS AND CONTINGENCIES

 

There have been no material changes to our obligations as described in our annual report on Form 10-K issued in connection with the fiscal year ended May 31, 2011. We may from time to time become subject to various claims and litigation. The Company vigorously defends its legal position when these matters arise. The Company is neither a party to, nor the subject of, any material pending legal proceeding nor to the knowledge of the Company are there any such legal proceedings threatened against the Company.

 

The Company filed its brief in support of the petition by the September 16, 2011 due date. The SEC filed its brief in opposition by the October 17, 2011 due date and the Company filed its reply brief by the October 31, 2011 due date. Because the Petition for Review has been filed, the Initial Decision shall not become final until the Commission rules on the Petition.

 

The British Columbia Securities Commission (“BCSC”) has issued comment letters on the Application and the Company has responded to those comments. The latest comment letter is dated October 28, 2011 and the Company has filed a response to that letter.

 

NOTE 12 – 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.

 

Common Stock

 

Since February 29, 2012, we issued 625,000 shares of our restricted common stock and 312,500 warrants to purchase our common shares for net proceeds of $50,000.

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 and 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 significant 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 and 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;
  fluctuation in the prices of gold and silver; and
  the limited liquidity in our common stock due to a cease trade order issued by the British Columbia Securities Commission in February 2005 and an administrative action initiated by the Securities and Exchange Commission to revoke our registration as a reporting company under the Securities Exchange Act of 1934.

 

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 Accounting Standards Codification (“ASC”) 915-10 and SEC Industry Guide 7 and, to date, our activities have not included development or significant 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

 

Mining and Milling Operations

 

During the nine months ended February 29, 2012, we began test mining operations at our Cross mine. We have begun test processing at an out of state facility. We have incurred $706,634 in costs associated with these operations, and have generated revenues of $83,260 for the nine months ended February 29, 2012. We need to accumulate approximately 500 tons of ore before the offsite mill will process another batch of the Cross mine ore. We had 205 tons of ore stockpiled as of February 29, 2012.

 

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. On June 8, 2011, we and Brigus Gold Corp. (“Brigus”) extended the maturity under the forbearance to October 31, 2011, under the provision that we pay Brigus at least $1,000,000 on or before June 30, 2011, which would be applied against interest due on the promissory note covered by the Forbearance Agreement. We paid Brigus $1,000,000 on June 8, 2011 thereby extending the maturity date to October 31, 2011. On October 24, 2011, we and Brigus further extended the maturity to December 1, 2011. In connection with this additional forbearance we paid Brigus $200,000 which was applied against interest due on the promissory notes. As of the date of this report, we had not repaid the Brigus note nor otherwise reached an agreement to extend the note or otherwise settle it. On March 23, 2012, we received a default notice from Brigus demanding payment of all principal and interest by March 29, 2012. We are in discussion with Brigus and Brigus has not begun any legal proceedings as of the date of this report. We are in discussions with Brigus and others to negotiate the repayment of the Brigus note, however, we cannot guarantee that a satisfactory agreement will be reached between Calais and Brigus or any other parties.

 

Common Stock

 

During the quarter ended February 29, 2012, we have issued 2,250,000 shares of our restricted common stock as follows:

 

·2,000,000 for cash proceeds of $180,000
·250,000 for consulting services valued at $25,000

 

Departure of Chief Executive Officer

 

On February 10, 2012, R. David Russell resigned as Chief Executive Officer and Chairman of the Board for personal reasons. David K. Young, our President and COO, is serving as the interim CEO.

 

Interim Financial Statements

 

The financial information with respect to the three and nine months ended February 29, 2012 and February 28, 2012, 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.

 

14
 

 

Results of Operations

 

During the three months and nine months ended February 29, 2012, we generated net losses of $601,652 and $2,715,550, respectively, compared to net losses of $52,683 and $855,431 during the three and nine month prior periods ended February 28, 2011. The increases in net losses of $548,969 (1042%) and $1,860,119 (217%) result from the start of test mining operations at our Cross mine, as well as higher wages and benefits expense and higher consulting and professional fees in 2011 as compared to 2010, as discussed further below.

 

Revenues

 

During the three and nine months ended February 29, 2012, we recorded revenues of $7,237 and $83,260, respectively, our first mineral sales in our history. Revenues were from the sale of 52.6 ounces of payable gold at an offsite mill at an average price of $1,589 per ounce of gold. The 52.6 ounces were processed from 134 dry tons of ore at a grade of 0.428 ounces per ton at a 96% recovery rate. The revenues from the three months ended February 29, 2012 were from stockpiles already delivered to an offsite mill and we need to accumulate approximately 500 tons of ore before the offsite mill will process another batch of our ores. We had 205 tons of ore stockpiled as of February 29, 2012.

 

Costs applicable to Sales

 

During the prior quarter ended November 30, 2011, we resumed test mining operations at our Cross mine. Consequently, for the three and nine months ended February 29, 2012, we incurred costs applicable to sales of $159,431 and $706,634, respectively, as compared to $nil in the corresponding 2011 periods. The increase in costs applicable to sales increased during the 2012 period as we began ore extraction on our Cross mine property. Included in these costs are waste ore removal and mine development costs that must be expensed immediately under generally accepted accounting principles in the U.S. since we report no proven or probable reserves.

 

General and Administrative Expense

 

For the three and nine months ended February 29, 2012, general and administrative expense was $307,815 and $1,542,306, respectively, as compared to $1,034,855 and $1,668,883 in the corresponding 2011 fiscal periods. The decreases of $727,040 (70%) and $126,577 (8%) were the result of higher costs in the prior year for fund raising activities and for accounting costs as we began the process of attempting to regain compliance with SEC reporting requirements as discussed further below.

 

Consulting and professional fees. For the three and nine months ended February 29, 2012, consulting and professional fees were $68,286 and $533,023, respectively, compared to $837,161 and $1,231,345 in the corresponding 2011 fiscal periods. The respective decreases in fiscal 2012 of $837,161 (92%) and $1,231,345 (57%) is related primarily to fundraising activities that took place in the prior year through outside consultants and accounting and legal services as we began the process of attempting to regain compliance with our SEC and Canadian reporting requirements and we hired a CFO and additional accounting staff to manage some of those accounting functions in house.

 

Wages and benefits expense. For the three and nine months ended February 29, 2012, wages and benefits expense amounted to $298,192 and $823,537, respectively, compared to $104,566 and $266,783 in the corresponding 2011 fiscal periods. The increases are a result of the addition of our CEO and Chairman of the Board in January 2011 and renegotiating certain officer’s contracts in September 2011, which included the recognition of a full calendar year of accrued vacation as of February 29, 2012 for those officers. Additionally, we added our CFO and other accounting staff while we discontinued using outside services for accounting and financial statement preparation.

 

Other Income and Expenses

 

Gain on sale of assets. During the nine months ended February 29, 2012, the Company sold fully depreciated and idle assets for $156,500 in cash proceeds. The Company recognized the full amount as a gain on sale of assets in its first quarter financial statements, due to the write-down and full depreciation of all assets to zero in prior periods.

 

15
 

 

Interest and financing fees. For the three and nine months ended February 29, 2012 and February 28, 2011, interest and financing fees were $206,884 and $617,782, respectively, compared to $203,227 and $626,649 in the corresponding 2011 periods. The interest is related to the Brigus notes.

 

Liquidity

 

Because we have not yet commenced our intended primary operations and are not yet generating significant revenues from any source, our liquidity is completely reliant on our ability to generate cash through capital-raising activities. During the nine months ended February 29, 2012, we issued 13,626,668 shares of our common stock for cash proceeds of $1,678,500.

 

Net cash flows from operating, investing and financing activities for the nine months ended February 29, 2012 and February 28, 2011 were as follows:

 

   2012   2011 
Net cash used in operating activities  $(2,669,697)  $(1,365,113)
Net cash provided by (used in) investing activities  $140,365   $(5,464)
Net cash provided by financing activities  $1,663,307   $2,118,273 

 

As of February 29, 2012, we had a working capital deficit of $11.8 million and cash of $47,157 while at May 31, 2011 we had a working capital deficit of $11.6 million and cash of $913,182. The working capital deficits are primarily attributable to the fact that we have no significant revenues from operations and continue to incur expenses. We do not expect our working capital deficit to decrease significantly or cash balance to increase significantly in the near future.

 

Net cash used in operating activities. Net cash used in operating activities of $2,669,697 and $1,365,113 for the nine months ended February 29, 2012 and February 28, 2011, 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 provided by investing activities. Net cash provided by (used in) investing activities of $140,365 and ($5,464) for the nine months ended February 29, 2012 and February 28, 2011, respectively, resulted primarily from the 2011 sale of fully depreciated and idle equipment.

 

Net cash provided by financing activities. Net cash provided by financing activities of $1,663,307 and $2,118,273 for the nine months ended February 29, 2012 and February 28, 2011, 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, 2011, includes an explanatory paragraph relating to the significant doubts about our ability to continue as a going concern. As of February 29, 2012, we had an accumulated deficit of $50.2 million and have a working capital deficit of approximately $11.8 million. 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. If we are unable to raise funds to repay or to otherwise settle the Brigus note, we will need to curtail current test mining activities at the Cross mine.

 

16
 

 

Plan of Operation

 

For the remainder of our 2012 fiscal year and into 2013, 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 extraction from our properties which began in August 2011, thereby bringing us out of the exploration stage. We cannot anticipate our exact cash requirements for the remainder of the fiscal year. We currently have delinquent debt obligations of approximately $10.5 principal and interest that was due December 1, 2011 to Brigus and we require a significant amount of capital to continue test mining at our Cross mine. We are in discussions with Brigus and others to negotiate the repayment of the Brigus note, however, we cannot guarantee that a satisfactory agreement will be reached between Calais and Brigus or any other parties. In addition, we have ongoing lease payments on our mining properties and general and administrative expenses coupled with compliance related expenses. We will continue to need to raise capital to fund our operations and to continue to exist.

 

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, 2011 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, as amended (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.

 

During the fiscal period covered by this report, our management, with the participation of the Principal Executive Officer and Principal Financial Officer of the Company, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that, as of February 29, 2012, our disclosure controls and procedures are effective to ensure that information require to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the required time periods and are designed to ensure that information required to be disclosed is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during the quarter ended February 29, 2012 that has materially affected, or is reasonably likely to affect, our increased our internal control over financial reporting.

 

17
 

 

PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

There have been no changes to the disclosure contained in our annual report on Form 10-K for the fiscal year ended May 31, 2011, except as follows:

 

Securities and Exchange Commission Proceedings

 

The United States Securities and Exchange Commission (“SEC”) issued an order suspending trading in the common stock of Calais Resources Inc. (the “Company”) for the period from February 24, 2011 through March 9, 2011 because it had been delinquent in the filing of periodic reports since 2004.  Also on February 24, 2011, the SEC issued an order instituting public administrative proceedings against the Company pursuant to Section 12(j) of the Securities Exchange Act of 1934 (the “Exchange Act”) to suspend for a period not exceeding twelve months or revoke the registration of the Company’s common stock under Section 12 of the Exchange Act.

 

On July 25, 2011, the Administrative Law Judge issued an Initial Decision ordering revocation of the registration of the Company’s common stock under the Exchange Act.

 

On August 12, 2011, the Company filed a Petition for Review of the Initial Decision with the SEC. On August 17, 2011, the SEC granted the Company’s petition for review and the Company filed its brief in support of the petition by the September 16, 2011 due date. The SEC filed its brief in opposition by the October 17, 2011 due date and the Company filed its reply brief by the October 31, 2011 due date. Because the Petition for Review has been filed, the Initial Decision shall not become final until the Commission rules on the Petition.

 

British Columbia Securities Commission Proceedings

 

The Company filed a Revocation Application under National Policy 12-202 with the British Columbia Securities Commission (“BCSC”), seeking to revoke the cease trade order that has been in place since February 2005. The BCSC has issued comment letters on the Application and the Company has responded to those comments. The latest comment letter is dated October 28, 2011 and the Company has filed a response to that letter.

 

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, 2011. 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, 2011 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
   Number of
Warrants
   Exercise 
Prices
   Expiration
Date
  Consideration
($)
 12/11  1 consultant  Common Stock   250,000    125,000   $0.30   12/12   25,000(a)
 12/11  1 accredited investors  Common Stock   1,000,000    500,000   $0.20   12/12   100,000(b)
 02/12  3 accredited investors  Common Stock   1,000,000    500,000   $0.20   02/15   80,000(b)

(a) Issued as compensation for consulting services.

(b) Issued for cash consideration.

 

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.

 

18
 

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

We are the operator of the Cross mine, which includes an underground mine located in Nederland, Colorado. We are currently performing test mining and evaluating the development of the mine for production. We have had no mine safety violations or other regulatory matters to report.

 

ITEM 5. OTHER INFORMATION.

 

None.

 

ITEM 6. EXHIBITS.

 

Exhibit Number   Description
     
31.1   Certification of Principal Executive 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.
31.2   Certification of 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.

19
 

 

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.
   
April 23, 2012 By: /s/ David K. Young
  David K. Young
  President, Chief Operating Officer
   
April 23, 2012 By: /s/ Brent E. Timmons
  Brent E. Timmons
  Vice President of Finance and Chief Financial Officer

 

20