13-Sep-2013
Annual Report
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with our audited financial statements and the related notes for the years ended May 31, 2013 and 2012 that appear elsewhere in this annual report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to those discussed below and elsewhere in this annual report, particularly in the section entitled "Risk Factors" beginning on page 11 of this annual report.
Our audited financial statements are stated in United States Dollars and are prepared in accordance with United States generally accepted accounting principles.
Cash Requirements
There is limited historical financial information about us upon which to base an evaluation of our performance. We are an exploration stage company and have not generated any revenues from activities. We cannot guarantee we will be successful in our business activities. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources, possible delays in the exploration of our properties, and possible cost overruns due to price and cost increases in services.
Over the next twelve months we intend to use any funds that we may have available to fund our operations and conduct exploration on our Labrador and Eureka Project Claims. We expect to review other potential exploration projects from time to time as they are presented to us.
Not accounting for our working capital deficit of $270,002 as of May 31, 2013, we require additional funds of approximately $10,000,000 at a minimum to proceed with our plan of operation over the next twelve months. As we do not have the funds necessary to cover our projected operating expenses for the next twelve month period, we will be required to raise additional funds through the issuance of equity securities, through loans or through debt financing. There can be no assurance that we will be successful in raising the required capital or that actual cash requirements will not exceed our estimates. We intend to fulfill any additional cash requirement through the sale of our equity securities.
Our auditors have issued a going concern opinion for our year ended May 31, 2013. This means that there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay our bills. This is because we have not generated any revenues and no revenues are anticipated until we begin removing and selling minerals. As we had cash in the amount of $63 and a working capital deficit in the amount of $270,002 as of May 31, 2013, we do not have sufficient working capital to enable us to carry out our stated plan of operation for the next twelve months. We plan to complete debt financings and/or private placement sales of our common stock in order to raise the funds necessary to pursue our plan of operation and to fund our working capital deficit in order to enable us to pay our accounts payable and accrued liabilities. We currently do not have any arrangements in place for the completion of any debt financings or private placement financings and there is no assurance that we will be successful in completing any debt financing or private placement financing. Our success or failure will be determined by what we find under the ground.
Plan of Operation
The Plan of Operation for the next 12 months is to raise $10,000,000 to acquire a 25% interest in ENIGMAMobil Inc..
As at May 31, 2013, we had a cash balance of $63. We will need to raise additional financing to fund our exploration program over the next 12 months.
The continuation of our business is dependent upon obtaining further financing, a successful program of exploration and/or development, and, finally, achieving a profitable level of operations. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.
There are no assurances that we will be able to obtain further funds required for our continued operations. As noted herein, we are pursuing various financing alternatives to meet our immediate and long-term financial requirements. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we will be unable to conduct our operations as planned, and we will not be able to meet our other obligations as they become due. In such event, we will be forced to scale down or perhaps even cease our operations.
Purchase of Significant Equipment
We do intend to purchase any significant equipment over the twelve months ending May 31, 2014.
Results of Operations for the Years Ended May 31, 2013 and 2012
The following summary of our results of operations should be read in conjunction
with our audited financial statements for the years ended May 31, 2013 and 2012.
Our operating results for the years ended May 31, 2013 and 2012 are summarized
as follows:
Year Ended
May 31
2013 2012
Revenue $ - $ -
Operating Expenses $ (307,287 ) $ (452,460 )
Other Income 16,480 41,270
Net Loss $ (290,807 ) $ (411,190 )
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Revenues
We have not earned any revenues since our inception and we do not anticipate earning revenues in the near future.
Operating Expenses
Our operating expenses for the years ended May 31, 2013 and 2012 are outlined in
the table below:
Year Ended
May 31
2013 2012
Depreciation $ 1,909 $ 1,908
Foreign exchange gain $ (3,602 ) $ (3,289 )
General and administrative $ 267,832 $ 331,417
Mineral exploration costs $ 41,148 $ 122,424
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The decrease in operating expenses for the year ended May 31, 2013, compared to the same period in fiscal 2012, was mainly due to a decrease in financing activities and mineral exploration costs.
Liquidity and Financial Condition
Working Capital
At At
May 31, May 31,
2013 2012
Current assets $ 3,024 $ 5,835
Current liabilities 273,026 333,959
Working capital (deficit) $ (270,002 ) $ (328,124 )
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Cash Flows
Year Ended
May 31
2013 2012
Net Cash Used in Operating Activities $ (78,537 ) $ (293,396 )
Net Cash Used in investing activities - -
Net Cash Provided by Financing Activities 78,000 291,062
Net increase (decrease) in cash during period $ (537 ) $ (2,334 )
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Operating Activities
Net cash used in operating activities during the year ended May 31, 2013 was $78,537 compared to $293,396 for the year ended May 31, 2012.
Investing Activities
Net cash used in investing activities during the year ended May 31, 2013 was $Nil compared to $Nil for the year ended May 31, 2012.
Financing Activities
During the year ended May 31, 2013, we received proceeds of $78,000 from share subscriptions. During the year ended May 31, 2012, we received proceeds of $260,000 from share subscriptions and $31,062 from related parties.
Contractual Obligations
As a "smaller reporting company", we are not required to provide tabular disclosure obligations.
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 are material to stockholders.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
Our audited financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles used in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management's application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our financial statements is critical to an understanding of our financial statements.
Mineral Property Costs
Our company has been in the exploration stage since its inception on February 23, 2006 and has not yet realized any revenues from its planned operations. It is primarily engaged in the acquisition and exploration of mining properties. Mineral property exploration costs are expensed as incurred. Mineral property acquisition costs are initially capitalized when incurred. Our company assesses the carrying costs for impairment under ASC 360, "Property, Plant, and Equipment", at each fiscal quarter end. When it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves, the costs then incurred to develop such property, are capitalized. Such costs will be amortized using the units-of-production method over the estimated life of the probable reserve. If mineral properties are subsequently abandoned or impaired, any capitalized costs will be charged to operations.
Long-lived Assets
In accordance with ASC 360, "Property, Plant, and Equipment", our company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to:
significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.
Stock-based Compensation
Our company records stock-based compensation in accordance with ASC 718, "Compensation-Stock Compensation" and ASC 505, "Equity Based Payments to Non-Employees", using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
NEW ACCOUNTING PRONOUNCEMENTS
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
