ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
The
following discussion should be read in conjunction with our financial
statements and the related notes 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 those discussed below and elsewhere in
this annual report on Form 10-K.
Our
audited financial statements are stated in United States Dollars and are
prepared in accordance with United States Generally Accepted Accounting
Principles.
Our assets
consist of cash and cash equivalents, prepaid expenses and nominal equipment.
There can be no assurance that we will generate revenues in the future or
that we will be able to operate profitably in the future, if at all. We have
incurred net losses in each fiscal year since inception of our operations.
Our company has never declared bankruptcy, it has never been in receivership,
and it has never been involved in any legal action or proceedings.
Due to the
down-turn of the world economy, financing availability and our inability to
raise adequate financing, we have put all exploration projects on hold. We
have ceased our previous operations and are currently seeking new business
opportunities with established business entities for the merger with or acquisition
of a target business. In certain instances, a target business may wish to
become our subsidiary or may wish to contribute assets to us rather than
merge. We have not yet begun negotiations or entered into any definitive
agreements for potential new business opportunities and there can be no
assurance that we will be able to enter into any definitive agreements.
RESULTS OF
OPERATIONS
The
following summary of our results of operations should be read in conjunction
with our audited financial statements for the year ended July 31, 2010.
REVENUES
We have
not earned any revenues to date and do not anticipate earning revenues, if
ever, until such time as we enter into a new business opportunity with an
established business.
EXPENSES
Our expenses for the year ended
July 31, 2010 and 2009 were as follows:
Year Ended July 31,
2010
2009
----------
----------
Consulting fees
$ 11,793
$ 98,266
General and administrative
50,896
126,209
Impairment of mineral
interests
--
1,324,417
Investor relations and
communications
756
1,129
Management fees
193,343
790,062
Mineral property interests
(11,105)
308,601
Professional fees
100,700
212,417
----------
----------
TOTAL EXPENSES
$ 346,383 $2,861,101
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CONSULTING
FEES AND MANAGEMENT FEES
Consulting
and management fees represent fees paid for services provided by company
officers and directors as well as consultants and the fair values of stock
option expenses. The decrease in consulting fees the fiscal year ended July
31, 2010 was due to the fact that we no longer needed the financial
consultant that was hired in August 2008. A decrease in management fee during
the year was primarily due to the departure of directors during the year,
therefore the stock options related to these individuals were forfeited and
cancelled and the related expense was not recorded since their departure
date.
GENERAL
AND ADMINISTRATIVE EXPENSE
General
and administrative expense which includes office rent and supplies, office
services and travel, decreased by 60% in the fiscal year ended July 31, 2010
when compared to prior year due to us occupying office space that is provided
free by the director.
IMPAIRMENT
OF MINERAL INTERESTS EXPENSES
We
currently do not have sufficient cash on hand to continue with exploration
programs and to meet the cash payments requirement on the properties. We do
not believe that we would be able to raise the money that we require on
acceptable terms. In the fiscal year ended July 31, 2009, we recognized an
impairment of $1,324,417 in respect of one of our mineral properties. We did
not recognize any impairment in the fiscal year ended July 31, 2010.
MINERAL
PROPERTY INTERESTS
During the
fiscal year ended July 31, 2010, our expenses associated with mineral
property interests decreased compared to prior year because of the suspension
of exploration activities.
PROFESSIONAL
FEES
Professional
fees include legal, accounting and audit expenses associated with keeping our
company in good standing with regulatory authorities. In the fiscal year
ended July 31, 2010, we incurred 52% less expense for the fiscal year ended
July 31, 2009. The decrease in the periods is primarily due to the fact that
we did not have any acquisition activity during the year and therefore
reduced legal costs.
LIQUIDITY
AND CAPITAL RESOURCES
Our
financial condition for the12 months ended July 31, 2010 and 2009 and the
changes between those periods for the respective items are summarized as
follows:
WORKING CAPITAL
July 31, 2010
July 31, 2009
-------------
-------------
Current Assets
$ 5,307
$ 48,020
Current Liabilities
272,250
306,587
--------- ---------
Working Capital
(deficiency)
$(266,943)
$(258,567)
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The
decrease in our working capital deficiency was primarily the result of
meeting our obligations to pay for our operating expenses during the year
ended July 31, 2010.
CASH FLOWS
12 months ended 12
months ended
July 31, 2010
July 31, 2009
-------------
-------------
Cash flow used in operating
activities
$(166,825)
$(794,002)
Cash provided by investing
activities
162
174,305
---------
---------
Cash provided by financing
activities
140,214
--
---------
---------
Net decrease in cash $
(26,449)
$(619,697)
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CASH USED
IN OPERATING ACTIVITIES
During the
year ended July 31, 2010 we used net cash in operating activities in the amount
of $166,825 compared to $794,002 for the year ended July 31, 2009. The cash
used in the year ended July 31, 2010 is primarily represented by mineral
property expenditures, general administrative expenses such fees paid to
consultants, as well as professional fees paid in legal and audit. The
decrease is primarily the result of us not incurring any mineral property
expenditures and decreasing our stock-based compensation in the fiscal year
ended July 31, 2010.
CASH USED
IN INVESTING ACTIVITIES
During the
year ended July 31, 2010 the net cash provided in investing activities was
$162 compared to $174,305 net cash provided for the same period in 2009. The
decrease was due to suspension of exploration activities.
CASH
PROVIDED BY FINANCING ACTIVITIES
During the
years ended July 31, 2010 and 2009, the net cash provided by financing
activities was $140,214 and $Nil, respectively. The increase was primarily
due to us receiving a demand loan of $125,000 in the fiscal year ended July
31, 2010.
CASH REQUIREMENTS
We estimate our operating
expenses and working capital requirements for the year
ended July 31, 2011 to be as
follows:
Expense
Amount
-------
------
General and administrative
7,500
Investor relations and communications
1,000
Professional fees
35,000
-------
TOTAL EXPENSES
$43,500
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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, if
and when it is needed, we will be forced to scale down or perhaps even cease
the operation of our business.
CURRENT
STATUS OF EXPLORATION PROJECTS
Due to the
current market price of uranium, the down-turn of the world economy,
financing availability and our inability to raise adequate financing, we have
put all of our exploration projects on hold. We will continue to monitor the
uranium market financing possibilities and other commercially feasible mining
opportunities.
TERMINATION
OF INTERESTS
We held
four lode mining claims comprising approximately 60 acres in Colorado.
However; due to the lack of funding we have allowed the claims to lapse
because of regulatory non-compliance.
TERMINATION
OF LETTER OF INTENT FOR OPTION AGREEMENT - TRINITY SILVER PROJECT
On
September 1, 2009 we announced the signing of a letter of intent to enter
into an Exploration Earn-in Agreement with AuEx Ventures, Inc. for the
Trinity Silver property, located in Pershing County, Nevada. The property
consists of 59 unpatented mining claims and 5,040 acres of fee land, about
5,800 acres in total. It is located about 25 miles northwest of the Rochester
Silver Mine, one of the largest silver mines in the US and about 10 miles
southeast of the Seven Troughs gold district.
The
Earn-in Agreement was scheduled to be executed by November 1, 2009, but we
were unable to provide the cash payment we were required to make because of
our inability to raise financing. Due to our inability to provide the
funding, the letter of intent with AuEx Ventures Inc. was formally terminated
on December 31, 2009.
OFF-BALANCE
SHEET ARRANGEMENTS
There are
no 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 investors.
GOING
CONCERN
Our
audited financial statements have been prepared on a going concern basis,
which implies that we will continue to realize our assets and discharge our
liabilities and commitments in the normal course of business. We have not
generated revenues since inception, have never paid any dividends and are
unlikely to pay dividends or generate earnings in the immediate or
foreseeable future. We have historically incurred losses and have incurred an
accumulated deficit of $20,346,453 as of July 31, 2010. Because of these
historical losses, we will require additional working capital to develop our
business operations. We intend to raise additional working capital through
private placements, public offerings, bank financing and/or advances from
related parties or shareholder loans.
The
continuation of our company as a going concern is dependent upon the
continued financial support from its shareholders, the ability of our company
to obtain necessary equity financing to achieve our operating objectives,
confirmation of our company's interests in the underlying properties, and the
attainment of profitable operations. The issuance of additional equity
securities by us could result in a significant dilution in the equity
interests of our current or future 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 either (i) achieve a level of revenues
adequate to generate sufficient cash flow from operations; or (ii) obtain
additional financing through either private placements, public offerings
and/or bank financing necessary to support our working capital requirements.
To the extent that funds generated from operations and any private
placements, public offerings and/or bank financing are insufficient, we will
have to raise additional working capital. No assurance can be given that
additional financing will be available, or if available, will be on terms
acceptable to us. If adequate working capital is not available we may not
increase our operations.
Due to the
uncertainty of our ability to meet our current operating expenses and the
capital expenses noted above, in their report on the annual financial
statements for the year ended July 31, 2010, our independent auditors
included an explanatory paragraph regarding concerns about our ability to
continue as a going concern. Our financial statements contain additional note
disclosures describing the circumstances that lead to this disclosure by our
independent auditors.
RECENT
ACCOUNTING PRONOUNCEMENTS
In March
2010, the FASB issued Accounting Standards Update ("ASU") No.
2010-11, which is included in the Codification under ASC 815. This update
clarifies the type of embedded credit derivative that is exempt from embedded
derivative bifurcation requirements. Only an embedded credit derivative that
is related to the subordination of one financial instrument to another
qualifies for the exemption. This guidance became effective for our interim
and annual reporting periods beginning January 1, 2010. The adoption of this
guidance did not have a material impact on our financial statements.
In
February 2010, the FASB issued ASU No. 2010-09, which is included in the
Codification under ASC 855, Subsequent Events ("ASC 855"). This
update removes the requirement for an SEC filer to disclose the date through
which subsequent events have been evaluated and became effective for interim
and annual reporting periods beginning January 1, 2010. The adoption of this
guidance did not have a material impact on our financial statements.
In January 2010, the FASB issued ASU No. 2010-06, which is
included in the Codification under ASC 820, Fair Value Measurements and
Disclosures ("ASC 820"). This update requires the disclosure of
transfers between the observable input categories and activity in the
unobservable input category for fair value measurements. The guidance also
requires disclosures about the inputs and valuation techniques used to
measure fair value and became effective for interim and annual reporting
periods beginning January 1, 2010. The adoption of this guidance did not have
a material impact on our financial statements.
FASB Accounting Standards Codification -- Effective for
interim and annual periods ending after September 15, 2009, the FASB has
defined a new hierarchy for U.S. GAAP and established the FASB Accounting
Standards Codification (ASC) as the sole source for authoritative guidance to
be applied by nongovernmental
entities. The adoption of the ASC changes the manner in
which U.S. GAAP guidance is referenced, but it does not have any impact on
our financial position or results of operations.
FASB Accounting Standards Codification -- Effective for
interim and annual periods ending after September 15, 2009, the FASB has
defined a new hierarchy for U.S. GAAP and established the FASB Accounting
Standards Codification (ASC) as the sole source for authoritative guidance to
be applied by nongovernmental entities. The adoption of the ASC changes the
manner in which U.S. GAAP guidance is referenced, but it does not have any
impact on our financial position or results of operations
In August 2009, the FASB issued ASU No. 2009-05,
"Measuring Liabilities at Fair Value," or ASU 2009-05, which amends
ASC 820 to provide clarification of a circumstances in which a quoted price
in an active market for an identical liability is not available. A reporting
entity is required to measure fair value using one or more of the following
methods: 1) a valuation technique that uses
a) the quoted price of the identical liability when traded as an asset or b)
quoted prices for similar liabilities (or similar liabilities when traded as
assets) and/or 2) a valuation technique that is consistent with the
principles of ASC 820. ASU 2009-05 also clarifies that when estimating the
fair value of a liability, a reporting entity is not required to adjust to
include inputs relating to the existence of transfer restrictions on that
liability. The adoption of this ASU did not have an impact on our
consolidated financial statements.
In May 2009, the FASB issued ASC No. 855 "Subsequent
Events". ASC No. 855 establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. ASC No. 855
sets forth (1) The period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that
may occur for potential recognition or disclosure in the financial
statements, (2) The circumstances under which an entity should recognize
events or transactions occurring after the balance sheet date in its
financial statements and (3) The disclosures that an entity should make about
events or transactions that occurred after the balance sheet date. ASC No.
855 was effective for interim or annual financial periods ending after June
15, 2009. We have evaluated subsequent events through December 21, 2009 which
represents the date on which the interim financial statements were issued.
In April 2009, the FASB issued additional disclosure
requirements related to fair values, which are included in ASC 820,
"Interim Disclosures about Fair Value of Financial Instruments."
The provisions require disclosures about fair value of financial instruments
for interim reporting periods of publicly traded companies as well as in the
annual financial statements. The required disclosures were effective for
interim reporting periods ending after June 15, 2009. The adoption of the
provision did not have a material impact on our statements of financial
position, results of operations and cash flows.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
BASIS OF PRESENTATION
These financial statements are presented in accordance
with accounting principles generally accepted in the United States, and are
expressed in US dollars.
USE OF ESTIMATES
The preparation of financial statements in accordance with
United States generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of revenue and expenses in the reporting period. We regularly evaluate
estimates and assumptions related to deferred income tax asset valuations,
asset impairment, stock based compensation and loss contingencies. We base our
estimates and assumptions on current facts, historical experience and various
other factors that it believes to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying
values of assets and liabilities and the accrual of costs and expenses that
are not readily apparent from other sources. The actual results experienced
by us may differ materially and adversely from our estimates. To the extent
there are material differences between the estimates and the actual results,
future results of operations will be affected.
BASIC AND DILUTED LOSS PER SHARE
We compute our net loss per share in accordance with FASB
ASC 260-10-45 ("ASC 260-10-45", formerly referred to as SFAS No.
128), "Earnings per Share". ASC 260-10-45 requires presentation of
both basic and diluted earnings per share (EPS) on the face of the income
statement. Basic EPS is computed by dividing net income (loss) available to
common stockholders (numerator) by the weighted average number of shares
outstanding (denominator) during the period. Diluted EPS gives effect to all
dilutive potential common shares outstanding during the period using the
treasury stock method. In computing Diluted EPS, the average stock price for
the period is used in determining the number of shares assumed to be
purchased from the exercise of stock options or warrants. For the year ended
July 31, 2010, potentially dilutive common shares relating to options and
warrants outstanding totalling 100,000 (2009 - 1,600,000) were not included
in the computation of loss per share because the effect was anti-dilutive.
MINERAL RIGHTS AND MINERAL PROPERTY INTERESTS
Mineral rights includes the cost of advance minimum
royalty payments, the cost of capitalized property leases, and the cost of
property acquired either by cash payment, the issuance of term debt or common
shares. Expenditures for exploration on specific properties with no proven
reserves are written off as incurred. Mineral rights will be amortized
against future revenues or charged to operations at the time the related
property is determined to have impairment in value.
We also consider the provisions of EITF 04-02
"Whether Mineral Rights are Tangible or Intangible Assets" which
concluded that mineral rights are tangible assets.
ASSET RETIREMENT OBLIGATIONS
We record the fair value of the liability for closure and
removal costs associated with the legal obligations upon retirement or
removal of any tangible long-lived assets in accordance with FASB ASC 410
("ASC 410", formerly referred to as SFAS No. 143), "Accounting
for Asset Retirement Obligations". The initial recognition of any
liability will be capitalized as part of the asset cost and depreciated over
its estimated useful life. At July 31, 2010 and 2009, we have not accrued any
asset retirement obligations.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets are continually reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to future
net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of
the assets. During the year ended July 31, 2010, we recognized an impairment
of nil in respect of one of our mineral properties (2009 - $1,324,417).
FOREIGN CURRENCY TRANSLATION
Our functional and reporting currency is the United States
dollar. Monetary assets and liabilities denominated in foreign currencies are
translated in accordance with FASB ASC 830 ("ASC 830", formerly
referred to as SFAS No. 52), "Foreign Currency Translation", using
the exchange rate prevailing at the balance sheet date. Gains and losses
arising on settlement of foreign currency denominated transactions or
balances are included in the determination of income. Foreign currency
transactions are primarily undertaken in Canadian dollars. We have not, to
the date of our financials statements, entered into derivative instruments to
offset the impact of foreign currency fluctuations.
INCOME TAXES
We follow
the asset and liability method of accounting for income taxes whereby
deferred tax assets and liabilities are recognized for the future tax
consequences of differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. If it is
determined that the realization of the future tax benefit is not more likely
than not, we established a valuation allowance. On August 1, 2007, we adopted
FASB ASC
740 ("ASC 740", formerly referred to as FIN 48), regarding
accounting for uncertainty in tax positions. We remain subject to examination
of income tax filings in the United States and various state jurisdictions
for periods since its inception in 2006. We have also determined that we are
subject to examination in Canada for all prior periods due to our continued
loss position in such jurisdictions. Material tax positions were examined
under the more-likely-than-not guidance provided by ASC 740. If interest and
penalties were to be assessed, we would charge interest to interest expense,
and penalties to general and administrative expense.
As a
result of the ASC 740 assessment, we concluded that it has not taken any
uncertain tax positions on any of its open tax returns that would materially
distort our financial statements. There was no material cumulative effect of
adopting ASC 740 on our financial statements as of August 1, 2007.
STOCK-BASED
COMPENSATION
We records
stock-based compensation in accordance with FASB ASC 718 ("ASC
718", formerly referred to as SFAS No. 123R), "Accounting for
Stock-based Compensation", and applied the recommendations of this
standard using the modified prospective method. Under this application, we
are required to record compensation expense, based on the fair value of the
awards, for all awards granted after the date of the adoption and for the
unvested portion of previously granted awards that remain outstanding as at
the date of adoption. Prior to the adoption of ASC 718, we did not issue any
compensation awards.
PURCHASE
OF SIGNIFICANT EQUIPMENT
We do not
anticipate the purchase or sale of any plant or significant equipment during
the next 12 months.
PERSONNEL
PLAN
We do not
anticipate any significant changes in the number of employees during the next
12 months.
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