Form 10-K for RUBY CREEK RESOURCES, INC.
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16-Dec-2009
Annual Report
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition, changes in financial condition, plan of operations and results of operations should be read in conjunction with (i) our audited financial statements as at August 31, 2009, August 31, 2008 and for the period from inception (May 3, 2006) to August 31, 2009 and (ii) the section entitled "Business", included in this annual report. The discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including, but not limited to, those set forth under "Risk Factors" and elsewhere in this annual report.
Plan of Operations
Based on the nature of our business, we anticipate incurring operating losses in the foreseeable future. We base this expectation, in part, on the fact that very few prospecting licenses in the exploration stage ultimately develop into producing, profitable mines. Our future financial results are also uncertain due to a number of factors, some of which are outside our control.
Due to our lack of operating history and present inability to generate revenues, our auditors have stated in their report for our most recent fiscal year end that there exists substantial doubt about our ability to continue as a going concern. Even if we complete our current exploration program and it is successful in identifying a mineral deposit, we will have to spend substantial funds on further drilling and engineering studies before we will know if we have a commercially viable mineral deposit or reserve.
Financial Condition
At August 31, 2009, we had cash of $5,838 and a working capital deficit of $130,107. Accordingly, we have insufficient funds to satisfy our on-going general and administrative expenses over the next twelve months. During the twelve-month period following the date hereof, we anticipate that we will not generate any revenues. As such, we will be required to obtain additional financing in order to complete our planned operations over the next twelve months and any additional exploration of our joint venture prospecting licenses to determine whether any mineral deposit exists on these claims.
We believe that debt financing will be an alternative for funding additional phases of exploration. We also anticipate that additional funding will be in the form of equity financing from the sale of our common stock. We are in the process of raising funds through a private placement offering of our shares of common stock. However, there can be no assurance that we will complete the private placement or that the funds raised will be sufficient for us to pay our expenses beyond the next twelve months. In the absence of such financing, we will not be able to finalize the acquisition or continue exploration of our joint venture prospecting licenses and our business plan will fail. Even if we are successful in obtaining debt or equity financing to fund our acquisition and exploration program, there is no assurance that we will obtain the funding necessary to pursue any advanced exploration of any prospecting licenses we presently have or that we may acquire. If we do not continue to obtain additional financing, we will be forced to abandon our plan of operations.
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Results of Operations
The following table sets out our expenses and net losses for the periods indicated:
For the Period from For the Year Ended For the Year Ended May 3, 2006 (Inception) to
August 31, 2009 August 31, 2008 August 31, 2009
$ $ $
Expenses
Consulting
services (Note 5) 25,595 - 25,595
Depreciation 272 238 650
Management
services (Note 4) 15,335 13,945 68,634
Mineral
property exploration
costs (Note 3) 1 1,505 30,415
Office and
general (Note 4) 36,596 8,273 54,689
Professional
fees 117,969 72,250 262,160
Property
impairment (Note 3) 9,771 - 9,771
Shareholder
relations 2,344 1,500 5,060
Loss before other
item (207,883) (97,711) (456,974)
Interest income 6 737 4,930
Net loss (207,877) (96,974) (452,044)
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Results of Operations for the Years Ended August 31, 2008 and 2007
Revenues
We had no operating revenues since our inception (May 3, 2006) to August 31, 2009. We anticipate that we will not generate any revenues for so long as we are an exploration stage company.
Expenses
Our expenses in the year ended August 31, 2009 increased to $207,877 from $97,711 in the year ended August 31, 2008, primarily as a result of increase in professional fees and office and general expenses. Our largest expenses during these periods consisted of the following:
Professional Fees: In the year ended August 31, 2009, we incurred professional fees of $117,969, compared to professional fees of $72,250 during the year ended August 31, 2008.
Office and General: In the year ended August 31, 2009, we incurred office and general expenses of $36,596 compared to office and general expenses of $8,273 during the year ended August 31, 2008.
Net Loss
Our net loss for the year ended August 31, 2009 was $207,877, compared to $96,974 for the year ended August 31, 2008.
Liquidity and Capital Resources
We had cash of $5,838 and a working capital deficit of $130,107 at August 31, 2009.
On November 7, 2009, we entered into a joint venture agreement with Douglas Lake Minerals, Inc. through which the Company will acquire a portion of Douglas Lake's interest in the 380 sq km Mkuvia Alluvial Gold Project joint venture. Pursuant to the Agreement with Douglas Lake, Ruby Creek will earn a 70 percent interest in 125 square kilometers of the Mkuvia Gold Project by making payments totaling $3,000,000 over three years. Douglas Lake will retain thirty percent (30%) and the original owner shall receive a net smelter royalty of three percent (3%). The Agreement provides that Ruby Creek will make payments to Douglas Lake as follows:
? $100,000 within five business days of signing of the Agreement; (Paid.)
? $150,000 within fifteen business days of signing of the Agreement; (Due and owing)
? $100,000 upon satisfactory completion of the Company's due diligence;
? $400,000 upon closing and grant of the first mining license from the government of Tanzania;
? $750,000 within one year of closing;
? $750,000 within two years of closing and
? $750,000 within three years of closing (this final payment may be made, at the Company's discretion, in cash or in shares of common stock of the Company).
Based on this Agreement, we estimate that our total joint venture acquisition expenditures over the next twelve months will be approximately $1,500,000, as outlined above plus on ground property work. This estimate does not take into account estimated expenditures with respect to professional fees, consulting fees, offices and general expenses or management fees and is contingent on the results of our receipt of sufficient financing.
At the present time, we have insufficient cash to proceed with phase one of our recommended work program while paying our ongoing general expenses, and we will be required to obtain additional financing to proceed with all phases of the recommended work program, as these expenditures will exceed our current cash reserves.
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Cash Used in Operating Activities
Cash used in operating activities was $79,232 during the year ended August 31, 2009, as compared to $60,919 during the year ended August 31, 2008. Cash used in operating activities from our inception on May 3, 2006 to August 31, 2009 was $278,131.
Cash Used in Investing Activities
Cash used in investing activities (interest in mineral properties) was $6,122 during the year ended August 31, 2009 and $4,177 for the year ended August 31, 2008. Cash used in investing activities from our inception on May 3, 2006 to August 31, 2009 was 11,231.
Cash from Financing Activities
We have funded our business to date primarily from sales of our common stock. From our inception on May 3, 2006 to August 31, 2009, we raised a total of approximately $295,200 from private offerings of our securities. During the year ended August 31, 2009, we raised $20,000, for proceeds of $15,000, net of share issuance costs of $5,000, from the sale of securities as compared to no net cash from the sale of securities during year ended August 31, 2008. The cash raised during the year ended August 31, 2009 was provided from the receipt of funds with respect to subscriptions for shares of our common stock.
On November 27, 2009, the Company issued two 1 year, $50,000, 11% convertible notes for total proceeds of $100,000, each note is convertible, in part or in full, into the Company's common stock at an exercise price of $0.05 per common share, interest on these two notes are paid quarterly. In addition, each holder of the note is entitled to receive warrants to purchase 1,000,000 shares of the Company's common stock at an exercise price of $0.05 for a term of three years.
The proceeds of these notes were used to make the first $100,000 installment in the Joint Venture Agreement described previously.
There are no assurances that we will be able to achieve further sales of our common stock or any other form of additional financing. If we are unable to achieve the financing necessary to continue our plan of operations, then we will not be able to continue our exploration of the prospect lease and our venture will fail.
Going Concern
We have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive exploration activities. For these reasons our auditors stated in their report on our audited financial statements for the year ended August 31, 2009 that they have substantial doubt we will be able to continue as a going concern.
Future Financings
We anticipate continuing to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to our existing shareholders. There is no assurance that we will achieve any additional sales of our equity securities or arrange for debt or other financing to fund our planned exploration activities.
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.
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Critical Accounting Policies
Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.
Mineral Property Costs
The Company has been in the exploration stage since its formation on May 3, 2006 and has not realized any revenues from its planned operations. It is primarily engaged in the acquisition and exploration of mineral resources.
Pursuant to EITF 04-2, the Company classifies its mineral rights as tangible assets and accordingly acquisition costs are capitalized as mineral property costs. Generally accepted accounting principles require that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review for recoverability, the Company is to estimate the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the undiscounted expected future cash flows is less than the carrying amount of the asset, an impairment loss is recognized. Mineral exploration costs are expensed as incurred until commercially mineable deposits are determined to exist within a particular property. To date the Company has not established any proven or probable reserves.
The Company has adopted the provisions of SFAS No. 143 "Accounting for Asset Retirement Obligations" which establishes standards for the initial measurement and subsequent accounting for obligations associated with the sale, abandonment, or other disposal of long-term tangible assets arising from the acquisition, construction or development and for normal operations of such assets. As of August 31, 2008, any potential costs related to the retirement of the Company's mineral property interests have not yet been determined.
Foreign Currency Translation
The Company's financial statements are presented in United States dollars. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation", foreign denominated monetary assets and liabilities are translated to their United States dollar equivalents using foreign exchange rates which prevailed at the balance sheet date. Non-monetary assets and liabilities are translated at the transaction date. Revenue and expenses are translated at average rates of exchange during the year. Related translation adjustments are reported as a separate component of stockholders' equity, whereas gains or losses resulting from foreign currency transactions are included in results of operations.
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Income Taxes
Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted SFAS No. 109 "Accounting for Income Taxes," as of its inception. Pursuant to SFAS No. 109 the Company is required to compute tax asset benefits for net operating losses carried forward. Potential benefit of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.
In June 2006, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109" ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes by prescribing a two-step method of first evaluating whether a tax position has met a more likely than not recognition threshold and, second, measuring that tax position to determine the amount of benefit to be recognized in the financial statements. FIN 48 provides guidance on the presentation of such positions within a classified balance sheet as well as on de-recognition, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 was adopted by the Company on September 1, 2007.
Recent Accounting Pronouncements
In April 2009, the FASB issued FSP SFAS 157-4 which provides additional guidance for estimating fair value in accordance with SFAS 157, "Fair Value Measurements", when the volume and level of activity for the asset or liability have significantly decreased. FSP SFAS 157-4 also includes guidance on identifying circumstances that indicate a transaction is not orderly. FSP SFAS 157-4 requires the disclosure of the inputs and valuation technique(s) used to measure fair value and a discussion of changes in valuation techniques and related inputs, if any, during the period. The adoption of this statement did not have a material impact on the Company's results of operations and financial position.
In June 2009, the FASB issued Statement of Financial Accounting Standards No. 165, "Subsequent Events," ("SFAS No. 165"). SFAS 165 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. SFAS 165 applies to both interim financial statements and annual financial statements. SFAS 165 is effective for interim or annual financial periods ending after June 15, 2009. SFAS 165 does not have a material impact on our financial statements.
In June 2009, the FASB issued Statement of Financial Accounting Standards No. 166, "Accounting for Transfers of Financial Assets, an amendment to SFAS No. 140," ("SFAS 166"). SFAS 166 eliminates the concept of a "qualifying special-purpose entity," changes the requirements for derecognizing financial assets, and requires additional disclosures in order to enhance information reported to users of financial statements by providing greater transparency about transfers of financial assets, including securitization transactions, and an entity's continuing involvement in and exposure to the risks related to transferred financial assets. SFAS 166 is effective for fiscal years beginning after November 15, 2009. The Company will adopt SFAS 166 in fiscal 2010. The Company does not expect that the adoption of SFAS 166 will have a material impact on the financial statements.
In June 2009, the FASB issued Statement of Financial Accounting Standards No. 167, "Amendments to FASB Interpretation No. 46(R)," ("SFAS 167"). The amendments include: (1) the elimination of the exemption for qualifying special purpose entities, (2) a new approach for determining who should consolidate a variable-interest entity, and (3) changes to when it is necessary to reassess who should consolidate a variable-interest entity. SFAS 167 is effective for the first annual reporting period beginning after November 15, 2009 and for interim periods within that first annual reporting period. The Company will adopt SFAS 167 in fiscal 2010. The Company does not expect that the adoption of SFAS 167 will have a material impact on the financial statements.
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles-a replacement of FASB Statement No. 162, which is codified in FASB ASC 105, Generally Accepted Accounting Principles ("ASC 105"). ASC 105 establishes the Codification as the source of authoritative GAAP in the United States (the "GAAP hierarchy") recognized by the FASB to be applied by nongovernmental entities.
Rules and interpretive releases of the Securities and Exchange Commission ("SEC") under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. Once the Codification is in effect, all of its content will carry the same level of authority and the GAAP hierarchy will be modified to include only two levels of GAAP, authoritative and non-authoritative. ASC 105 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company has not yet adopted the requirements of ASC 105 but expect the impact of ASC 105 to have no material effect on the Company's financial condition or results of operation.
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On August 28, 2009, ASU 2009-05 was issued by the FASB. ASU 2009-05 will amend ASC 820-10, "Fair Value Measurements and Disclosures-Overall," by providing additional guidance clarifying the measurement of liabilities at fair value.
When a quoted price in an active market for the identical liability is not available, the amendments in ASU 2009-05 will require that the fair value of a liability be measured using one or more of the listed valuation techniques that should maximize the use of relevant observable inputs and minimize the use of unobservable inputs. In addition, the amendments in ASU 2009-05 clarify that when estimating the fair value of a liability, an entity is not required to include a separate input or adjustment to other inputs to the existence of a restriction that prevents the transfer of the liability. The Company adopted the provisions of ASU 2009-05 on October 1, 2009. Its adoption did not have a material impact on the Company's financial condition, results of operations, or cash flows.
