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Annual
Report
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Cautionary Statement about Forward-Looking Statements
This Annual Report on Form 10-K includes certain
statements that may be deemed to be "forward-looking statements".
All statements, other than statements of historical fact, included in this
form 10KSB that address activities, events or developments that our
management expects, believes or anticipates will or may occur in the future
are forward-looking statements. Such forward-looking statements include
discussion of such matters as:
� The amount
and nature of future capital, development and exploration expenditures;
� The timing
of exploration activities; and
� Business
strategies and development of our business plan.
Forward-looking statements also typically include words
such as "anticipate", "estimate", "expect",
"potential", "could" or similar words suggesting future
outcomes. These statements are based on certain assumptions and analyses made
by us in light of our experience and our perception of historical trends,
current conditions, expected future developments and other factors we believe
are appropriate in the circumstances. Such statements are subject to a number
of assumptions, risks and uncertainties, including such factors as the
volatility and level of gemstone prices, currency exchange rate fluctuations,
uncertainties in cash flow, expected acquisition benefits, exploration mining
and operating risks, competition, litigation, environmental matters, the
potential impact of government regulations, and other matters discussed under
the caption "Risk Factors", many of which are beyond our control.
You are cautioned that forward-looking statements are not guarantees of
future performance and that actual results or developments may differ
materially from those expressed or implied in the forward-looking statements.
The Company is under no duty to update any of these
forward-looking statements after the date of this report. You should not
place undue reliance on these forward-looking statements.
Going-Concern - Presentation of Financial Statements
The accompanying consolidated financial statements have
been prepared assuming that the Company will continue as a going concern.
Since its inception in August 2002, the Company has generated little revenue
and has incurred a net loss of $7,965,768 from inception through to March 31,
2008. Accordingly, the Company has not generated cash flow from operations
and has primarily relied upon private placement of its common stock to fund
its operations. As of March 31, 2008, the Company has working capital deficit
of $600,877. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not
include any adjustment to reflect the possible future effects on the
recoverability and classification of assets, or the amounts or classification
of liabilities that may result from the possible inability of the Company to
continue as a going concern. Management's plans with regard to these
conditions are described below.
Plan of Operations
The Company is an exploration stage company, formed under
the laws of the state of Nevada on August 14, 2002, to engage in the business
of mining. The Company currently owns 2 prospective mining projects in
Zambia. The Company's objective is to define sufficient mineral reserves on
the properties to justify a full-scale mining operation. The Company conducts
its operations in Zambia through its wholly owned subsidiary, Mayfair Mining
& Minerals (UK) Ltd.
To date, Mayfair Mining, through its wholly owned
subsidiary, Mayfair Mining and Minerals (UK) Limited has incorporated a
Zambian joint venture company, Mayfair Mining & Minerals (Zambia)
Limited, whose principal activity is to explore for and mine gold, platinum,
uranium, copper and gemstones, particularly amethyst.
Results of Operations
For the fiscal year ended March 31, 2008, the Company
experienced a consolidated net loss of $1,678,842 or $0.08 per share,
compared to a consolidated net loss of $4,476,930 or $0.29 per share during
the comparable period last year. The $2,798,088 decrease in consolidated net
loss is primarily due to a reduction in impairment amounting to $1,000,133
and a decrease of $1,956,289 in compensation. Although there were sales
during the fiscal year, there was not enough progress made subsequently and production
was halted in late 2008.
Stock Based Compensation
Stock based compensation decreased $2,052,217 to $0. No
further stock options have been granted to date. In accordance with ASC
718-10, the Company recognizes stock based compensation over the vesting
period based upon the fair value of the options at date of grant. During
2006, the Company granted options to purchase 400,000 shares vesting
immediately on grant at a price of $0.15 to employees and advisory board
members. The Company recorded $376,000 of stock based compensation in 2006
relating to these options. During 2007, the Company granted options to
purchase 200,000 shares vesting immediately on grant at a price of $0.15 and
2,000,000 shares vesting immediately on grant at a price of $0.50 to
employees, advisory board members and consultants. The Company recorded stock
based compensation of $2,052,217 during 2007 relating to these options.
Liquidity and Capital Resources
Cash Flows
During the fiscal year ended March 31, 2008, the Company
utilized cash on hand and proceeds from share subscriptions received to fund
its operations. As a result, cash and cash equivalents increased from $0 at
March 31, 2007 to $59,977 at March 31, 2008.
Capital Resources
As of March 31, 2008, the Company had cash and cash
equivalents of $59,977. Since inception, the company has relied primarily
upon proceeds from private placement of its shares as its primary source of
financing to fund its operations. We anticipate continuing to rely on sales
of our common stock in order to continue to fund our business operations.
Issuance of additional shares will result in dilution to our existing
shareholders. There is no assurance that we will be able to complete any
additional sales of our equity securities or that we will be able to arrange
for other financing to fund our planned business activities.
Capital Requirements and Liquidity; Need for Subsequent
Funding
As a result of the Company's limited capital resources,
the Company has limited its exploration activities and administrative costs
in Zambia to conserve capital while it tries to secure additional sources of
capital to fund its operations and continue exploration in Zambia.
In addition, the Company's officers have agreed to defer a
significant proportion of their cash compensation until sufficient capital
has been raised to continue its operations. Effective October 1, 2008, the
executive officers entered into salary deferral agreements for 40% of their
compensation. Management plans to continue its efforts towards reducing
administrative costs. However, without any additional funding, the Company
may not be able to fund its operations through the end of its 2010 fiscal
year.
Management is exploring various sources of additional
capital including additional equity funding and joint venture participations.
The weak US global economy combined with instability in global financial and
capital markets has currently limited the availability of this funding. If
the disruption in the global financial and capital markets continues, equity
financing may not be available to us on acceptable terms, if at all. Equity
financing, if available, may result in substantial dilution to existing
stockholders. If we are unable to fund future operations by way of financing,
including public or private offerings of equity, our business, financial
condition and results of operations will be adversely impacted.
Recent Accounting Pronouncements
The Company does not expect the adoption of any recent
accounting pronouncements to have a significant impact on its financial
position or results of operations.
Critical Accounting Policies and Estimates
Our
management routinely makes judgments and estimates about the effect of
matters that are inherently uncertain. As the number of variables and
assumptions affecting the future resolution of the uncertainties increase,
these judgments become even more subjective and complex. Although we believe
that our estimates and assumptions are reasonable, actual results may differ
significantly from these estimates. Changes in estimates and assumptions
based upon actual results may have a material impact on our results of
operations and/or financial condition. We
have identified certain accounting policies that we believe are most
important to the portrayal of our current financial condition and results of
operations.
Foreign Currency Translation
While the Company's functional currency is the US dollar,
the local currency is the functional currency of the Company's subsidiary.
The assets and liabilities are exposed to exchange rate fluctuations. The
Company has adopted ASC 830 "Foreign Currency Translation". Assets
and liabilities of the Company's foreign operations are translated into US
dollars at the year-end exchange rates, and revenue and expenses are
translated at the average exchange rates during the period. Exchange
differences arising on translation are disclosed as a separate component of
shareholders equity. Realized gains and losses from foreign currency
transactions are reflected in the results of operations.
Accounting for Stock Options Granted to Employees and
Non-Employees
For the fiscal year ended March 31, 2005, the company
adopted FASB ASC 718, "Share-Based Payment" which requires the fair
value of share-based payments, including grants of employee stock options to
be recognized in the statement of operations based on their fair values.
The Company uses the Black-Scholes pricing model as a
method for determining the estimated fair value for employee stock awards
under ASC 718. The expected term of the options is based upon evaluation of
historic and expected future exercise behavior. The risk-free interest rate
is based upon US Treasury rates at the date of grant with maturity dates
approximately equal to the expected life of the grant. Volatility is based
upon historical volatility of the Company's stock. The Company has not
historically issued any dividends and it does not expect to in the future.
Impairment of Long-Lived Assets
Since inception, the Company recorded impairment of
$1,524,395. See Note 4 to the consolidated financial statements.
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