ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement Regarding Forward-Looking Statements
The information in this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties, including statements regarding our markets, capital needs, business plans and expectations. Such forward-looking statements involve risks and uncertainties regarding the ability to continue mining exploration on a timely basis, that we will attract customers, that there will be no material adverse competitive or regulatory change in conditions in our business, that our President will remain employed as such, that our forecasts accurately anticipate market demand, and that there will be no material adverse change in our operations or business or in governmental regulations affecting our business, availability of funds, common share prices, operating costs, capital costs, and other factors. Forward-looking statements are made, without limitation, in relation to marketing plans, operating plans, availability of funds, and ongoing capital and operating costs. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expect", "plan", "intend", "anticipate", "believe", "estimate", "predict", "potential" or "continue", the negative of such terms or other comparable terminology. Actual events or results may differ materially. In evaluating these statements, you should consider various factors, including the risks outlined below, and, from time to time, in other reports we file with the SEC. These factors may cause our actual results to differ materially from any forward-looking statement. We disclaim any obligation to publicly update these statements, or disclose any difference between its actual results and those reflected in these statements. The information constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
OVERVIEW
We are an exploration stage mining company that has briefly conducted other businesses, including wireless and mobile software and management consulting. We plan to interview geological firms for our mineral properties and raise funds to develop those properties. We have previously entered into two agreements with Coastal Uranium Holdings Ltd. to acquire its rights and options to acquire an undivided 50% right, title and interest in certain mineral claims in the Athabasca region. We were able to complete a financing for $250,000 for sales of our common stock in June, 2011 for which proceeds were released to us on August 15, 2012 and we are planning to work on the exploration of our Uranium Properties, although legal and regulatory hurdles and vetting of proper consultants and supporting teams, given the shortness of the exploration season, may mean that our next drilling and trenching program may not begin until November 2012, by which time we expect to have secured additional funding to explore beyond our currently intended drill program and geophysical surveys and corresponding ore body identification and 3D modelling.
CORPORATE HISTORY AND DEVELOPMENT
Overview
Vanguard Minerals Corporation, formerly Knewtrino, Inc., (the “Company”) was originally incorporated as Mongolian Explorations Ltd. on August 25, 2003, under the laws of the State of Nevada. We were originally founded to conduct mineral explorations in Mongolia. Although we did exploratory feasibility work on mineral lease development, we abandoned our mineral exploration efforts in April, 2006 due to the deteriorating political and security situation in Mongolia and specifically due to intense protests over North American mining concessions in that country which jeopardize the safety of our consultants as well as undermining our confidence that we will ever be able to see a return on our continued investments to develop the properties.
Since that time, we had appointed an interim chief executive officer, Jenifer Osterwalder, who saw us through our transition out of the mineral exploration business and now are under the leadership of a new chief executive officer, Vladimir Fedyunin, and we were in the process of developing a business around cell phone enabled wireless applications. Toward that end, we acquired the intellectual property of wireless technology start-up Instant Wirefree, Inc., a Nevada corporation. Unfortunately, we were not able to make the transition to the ultra-competitive field of cell phone wireless applications. In June, 2007, we made the decision to abandon this line of business and to no longer pursue commercialization of any product in the wireless space. Instead, we have returned to our original, core focus of mining, where the company has its roots, however, we wished to find a more politically stable and less dangerous environment to mine in than Mongolia.
In September, 2007, we changed our name to Vanguard Minerals Corporation to reflect our renewed commitment to our traditional core business of mineral exploration. In November 2007, the Company entered into an agreement with Coastal Uranium Holdings Ltd. to acquire its right and option to acquire an undivided 50% right, title and interest in certain mineral claims in the Athabasca region. The option was acquired through payment of $57,585 in cash as well as 2,000,000 common shares of the Company. On April 6, 2008, we entered into another agreement with Coastal Uranium Holdings Ltd., whereby we acquired a 50% undivided right, title and interest to the mineral claim numbered S-110476 in the Athabasca region of Canada in exchange for $250,000 CAD ($248,508 USD) and 4,000,000 common shares of Vanguard Minerals Corporation. In addition, we have agreed to take on the financial responsibility of Coastal to fund development of the mineral property that is the subject of claim S-110476.
In February, 2010, James Price was appointed President, Chief Executive Officer and Sole Director of the Company. Vladimir Fedyunin, the former President and CEO, remained as Principal Financial and Accounting Officer. Mr. Fedyunin left the company later in 2010.
On April 16, 2010, we effected a 300 for 1 reverse stock split in our common shares for shareholders of record as of that date.
On April 20, 2010, the Company initiated a new line of business doing business as Vanguard Management. The Company ceased this management consulting business in June, 2011. We did receive some stock in exchange for management consulting services. All this stock has been liquidated or returned. We did enter into a related party transaction with Genesis Venture Fund India I, LP that involved a swap of stock and management consulting services. That transaction has been rescinded.
On September 21, 2010, the company entered into an agreement whereby the above referenced transaction with PEI would be rescinded and the PEI shares returned to the purchasers and the 1,000,000 common shares of Vanguard common stock returned to treasury unless a buyer for the shares could be found. This rescission was to take place within 90 days. In December, 2010, the timeframe for this rescission was extended until June 21, 2011.
On June 7, 2011, the registrant completed a rescission whereby the 1,000,000 shares previously issued in exchange for the PEI shares were cancelled and the 1,000,000 shares of PEI were returned to the purchasers.
On June 13, 2011, we entered into an agreement with Sean Rice to serve as our President, Chief Executive Officer and Principal Financial and Accounting Officer in exchange for a grant of 150,000 of our common stock vesting over a period of four years. Mr. Rice will also earn a salary of $120,000 per year, but such salary will not accrue or be payable until the Company has received aggregate financing proceeds from the sale of its common stock of $2,000,000 within a 12 month period. The agreement does not provide for any severance or accrual of unpaid salary and is an at-will employment agreement.
James Price no longer has any role in our company and is no longer a shareholder.
On May 30, 2012, Sean Rice resigned as President and CEO and Christopher Anzalone was appointed as President, CEO and director. On August 14, 2012, Mr. Rice resigned as Principal Financial and Accounting Officer and a director. Mr. Anzalone was appointed as Principal Financial and Accounting Officer on August 14, 2012.
Our company is exclusively focused on the development of our Athabasca, Canada mineral properties and the development and exploration of other natural resource properties we would like to acquire.
We were able to complete a financing for $250,000 for sales of our common stock in June, 2011, although we were not released the proceeds of this financing until August 15, 2012 when we were able to meet the conditions of the release of the proceeds. We are not currently working on the exploration of our Uranium Properties because financing, legal and regulatory hurdles and vetting of proper consultants and supporting teams, given the shortness of the exploration season, may mean that our next drilling and trenching program may not begin until later in 2012, by which time we expect to have secured additional funding to explore beyond our currently intended drill program and geophysical surveys and corresponding ore body identification and 3D modelling.
Our principal executive offices are located at 6301 NW 5th Way, Suite 5000 Ft. Lauderdale, FL 33309. Our phone number is 954-892-9376.
Results of Operations
Until April 19, 2006, we have been involved primarily in organizational activities related to our original business of mining in Mongolia, including the acquisition of the option to acquire the Altan as well as the Ovorkhangai property mineral licenses, obtaining a geological report on our mineral licenses and initiating the first phase of exploration. After April 19, 2006, when we abandoned these efforts due to the political situation in Mongolia, we acquired wireless technology from Instant Wirefree, Inc., a Nevada corporation. We attempted to commercialize technology for the wireless space but abandoned that effort in June, 2007. We are currently in the process of returning to our core business of mining. Toward that end, we changed our name in September 2007 and we acquired interests in mineral claims in the Athabasca region of Canada in November 2007 and April 2008. We have incurred an accumulated net loss of $5,584,686 for the period from inception to September 30, 2012. We have had $163,500 in revenues from operations since our inception.
In April, 2010, the Company briefly entered and then exited the management consulting business. It is now entirely focused on the development of its mineral interests.
We were able to complete a financing for $250,000 for sales of our common stock in June, 2011 and the proceeds of this financing were released to us on August 15, 2012 we and are not actively working on the exploration of our Uranium Properties, because of financial, legal and regulatory hurdles and vetting of proper consultants and supporting teams, given the shortness of the exploration season, this may mean that our next drilling and trenching program may not begin until November 2012, by which time we expect to have secured additional funding to explore beyond our currently intended drill program and geophysical surveys and corresponding ore body identification and 3D modelling. As of the fiscal year ended December 31, 2011 we had $0 of cash on hand and $250,000 in proceeds from our June financing that were being held in escrow for us that have now been released. However, given our accounts payable, debts and existing commitment to our properties, our current cash situation is challenging and the proceeds will not allow us to significantly develop our properties.
Financial Condition and Liquidity
Overview
Our financial statements contained herein have been prepared on a going concern basis, which assumes that we will be able to realize our assets and discharge our obligations in the normal course of business. We incurred an accumulated net loss of $5,584,686 for the period from inception to September 30, 2012.
Our financial statements included in this report have been prepared without any adjustments that would be necessary if we become unable to continue as a going concern and are therefore required to realize upon our assets and discharge our liabilities in other than the normal course of business.
Cash and Working Capital
The Company's cash balance as of September 30, 2012 was $202,390 as compared to the cash balance of $0 as of December 31, 2011. We drew down on our $250,000 in financing proceeds on August 15, 2012.
Periods Ending September 30, 2012 and 2011
Operating expenses for the nine month periods ended September 30, 2012 and 2011 totaled $18,042 and $8,045 respectively; and from inception to the period ended September 30, 2012 operating expenses totaled $4,946,539. The company experienced a net loss of $4,896 for the nine months ended September 30, 2012 and a net profit of $1,011,955 for the nine months ended September 30, 20112 due to a reversal of a loss taken in a prior year..
The net loss per share (fully diluted -- weighted average) was $0.00 for the nine-months ended September 30, 2012.
Liquidity and Capital Resources
For the nine month period ended September 30, 2012, net cash used in operating activities, was $47,610.
For the period from inception to September 30, 2012, net cash resulting from financing activities was in the amount of $2,641,160.
Our capital resources have been limited. We currently do not, and have not yet determined when we will, generate revenue for our mining and mineral exploration activities, and to date have relied on the sale of equity and related party loans for cash required for our exploration activities and the efforts of our chief executive officer for consulting agreements. The company has no external sources of liquidity in the form of credit lines from banks. No investment banking agreements are in place and there is no guarantee that the company will be able to raise capital in the future should that become necessary.
Future Financings
We anticipate that if we pursue any additional financing, the financing would be an equity financing achieved through the sale of our common stock. We do not have any arrangement in place for any debt or equity financing. If we are successful in completing an equity financing, existing shareholders will experience dilution of their interest in our company. If we do not secure additional financing in the future we may consider bringing in a joint venture partner to provide the required funding. We have not, however, undertaken any efforts to locate a joint venture partner.
Off Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
Significant Contingencies
Our financial statements have been prepared assuming we will continue as a going concern. Our independent auditors have made reference to the substantial doubt about our ability to continue as a going concern in their report of independent registered public accounting firm on our audited financial statements for the year ended December 31, 2011. Our continuation is dependent upon the ability of the Company to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and pay its liabilities arising from normal business operations when they come due. The outcome of these matters cannot be predicted with any certainty at this time and raise substantial doubt that the Company will be able to continue as a going concern.
Plan of Operation
We have developed a new plan of operation for 2012. In addition to continuing to seek financing to develop our mineral properties in the Athabasca region of Canada, we intend to acquire other mineral properties if we can.
We intend to conduct significant mineral exploration activities on our properties in 2012, as long as we are able to find suitable exploration providers before the winter season shuts down exploration work. We continue to seek geological advice and work on developing possible partnerships for the development of these properties. We intend to conduct over the next 12 months helicopter-supported property-scale boulder sampling and prospecting, close-spaced ground geophysics and drilling on our mining properties. With these two projects, consisting of 3 mineral claims, in close proximity to each other, we believe such operations can be conducted in a cost-efficient manner. We are now ready to commence ground geophysics and drilling. Management has continued negotiations started in 2008 with geophysical and drill contractors in preparation for this exploration. Management is also reviewing other opportunities to acquire additional property in the region, both unexplored properties and properties with varying amounts of previous exploration. We intend to develop our management consulting business and to expand it with additional consulting clients throughout the year.
Vanguard Minerals Corporation’s short-term prospects are challenging considering our lack of financial resources to fully develop our mineral properties and considering that we have not yet derived significant revenues from our new line of business. However, should we be able to develop revenue from our new line of business or secure financing to develop our mineral properties, our prospects might improve considerably. If we do secure additional financing to continue to exploit our mineral properties, revenue from the sale of mineral products from our properties may still remain several years away.
Cash requirements
Our current cash requirements are very low. Our chief executive officer, Christopher Anzalone, continues to serve without a salary. Mr. Anzalone currently hosts our operations in his location in Ft. Lauderdale, FL without charge. Nevertheless, without continued infusions of cash from management or securing additional financing or revenues from our new line of business, we will not have enough cash to complete exploration activity on our property, which could run into tens of millions of dollars.
Research and development
We would like to spend several hundred thousand dollars over the next 12 months on exploration and extraction related to our mineral properties. We would spend significantly more money than this developing those mineral properties at the moment that our full scale extraction operation were to commence. However, currently we do not have enough cash to make more than $150,000-$200,000 of such expenditures.
Plant and equipment
We currently have a location in Ft. Lauderdale, FL provided by our chief executive officer, Christopher Anzalone, at no cost. We anticipate expanding our office within the next 6-12 months, especially if our exploration work yields promising results.
Employees
We have one employee currently, President and Chief Executive Officer Christopher Anzalone. We have several consultants engaged in our mineral exploration activities, although none are currently active as we are negotiating new contracts and interviewing them due to our recent funding. We intend to hire additional exploration and geological consultants over the next 120-180 days.
The Company’s executive offices are currently located in Ft. Lauderdale, FL. The company’s telephone number is (954)892-9376.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act). As a result of this evaluation, we identified material weaknesses in our internal control over financial reporting as of September 30, 2012. Accordingly, we concluded that our disclosure controls and procedures were not effective as of September 30, 2012.
As required by SEC Rule 15d-15(b), our Chief Executive Officer carried out an evaluation under the supervision and with the participation of our management, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 15d-14 as of the end of the period covered by this report. Based on the foregoing evaluation, our Chief Executive Officer has concluded that our disclosure controls and procedures are not effective in timely alerting them to material information required to be included in our periodic SEC filings and to ensure that information required to be disclosed in our periodic SEC filings is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure as a result of the deficiency in our internal control over financial reporting discussed below.
The material weakness identified in our amended annual report on Form 10-K for the year ended December 31, 2011 was related to a lack of an accounting staff resulting in a lack of segregation of duties and accounting technical expertise necessary for an effective system of internal control. This weakness still exists at September 30, 2012.
(b) Changes in internal control over financial reporting.
There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We settled a shareholder claim of $25,000 in August 2012.
A smaller reporting company is not required to provide the information required by this Item.
ITEM 2. UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS
On April 23, 2010, the Company completed a sale transaction whereby it sold 1,000,000 of its common shares at a price per share of $1.50. The per share purchase price was paid in the form of shares of PEI Worldwide Holdings, Inc., a Nevada corporation ("PEI"). The per share purchase price was derived from the closing price of shares of PEI on April 20, 2010 as listed on the Pink Sheets, which was $1.50 per share. Therefore, the total purchase price for the 1,000,000 common shares was $1,500,000. 860,000 of the shares were purchased by James Price and the other 140,000 of the shares were purchased by various purchasers. 1,000,000 shares of PEI represents approximately 2.5% of the issued and outstanding stock of PEI.
This was a related-party transaction. Mr. Price is our sole director and he approved this transaction. There was no disinterested director who approved this transaction. There can be no assurance that the price reported for PEI shares on the Pink Sheets is an accurate reflection of the true value of PEI shares.
This transaction had the effect of causing a change of control in the registrant. Prior to this transaction, the registrant had 268,499 shares of common stock issued and outstanding out of 1,666,666 authorized. After this transaction and giving effect to the transaction described in the paragraph below regarding the issuance of 187,000 common shares, Mr. Price owns approximately 59.1% of our issued and outstanding stock and remains our sole director.
On April 23, 2010, the registrant completed an issuance of 187,000 shares of common stock. This stock had been subscribed for in April, 2008 for payment of $224,400 in cash received by the corporation. The corporation issued 187,000 of its common shares to various subscribers of the stock at a per share purchase price of $1.20 per share.
On June 16, 2010, the Vanguard Minerals Corporation, the registrant, entered into a Strategic Business Development Agreement ("Agreement") with Genesis Venture Fund India I, LP, a Delaware limited partnership ("Genesis"). The Agreement provides that Vanguard will furnish business development services and strategic management consulting services to Genesis over a period of 24 months. The Agreement provides payment of up to $250,000 in cash by Genesis to Vanguard for the consulting services based on the milestones contained in the Agreement. In addition, under the Agreement, Vanguard will issue 125,000 shares of its common stock to Genesis in exchange for 15% of the limited partnership interests of Genesis.
Vanguard former President, CEO and Sole Director, James Price, who was the controlling shareholder of Vanguard was also the Managing Director of Genesis and owned 20% of the limited partnership interests in Genesis. Mr. Price exercised control of both entities and there can be no assurance that the terms of the transaction are fair to the shareholders of Vanguard or the limited partnership interest holders of Genesis or that the terms are reflective of the terms of a similar transaction between unrelated parties. There are significant contingencies required for Vanguard to meet the milestone requirements under the Agreement and receive up to the $250,000 cash milestone payments and there can be no assurance that such payments will ever occur. Please see the Agreement, which is attached hereto as an exhibit which were filed on the Registrant's Form 8K on June 17, 2010 for the complete terms and conditions.
The transaction with Genesis was rescinded on September 21, 2010.
The transaction with PEI was rescinded in June, 2011. In June, 2011, we sold 1,000,000 of our common shares at $0.25 per share for an aggregate purchase price of $250,000 to various shareholders in a private placement. Proceeds of this sale were made available to us on August 15, 2012.
In June, 2011, we issued 150,000 common shares to our former President and CEO, Sean Rice, as part of his employment with the Company.
In June, 2011, we issued 1,000,000 shares for $250,000 in a private placement. Proceeds of this sale were made available to us on August 15, 2012.