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 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 12 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.
Results of Operations for our Years Ended December 31,
2008 and 2007
Results of Operations
Year Ended December 31, 2008 and 2007
Year Ended
December 31
2008 2007
Revenue $ Nil $ Nil
Operating Expenses $ 98,445 $ 55,103
Net Loss $ 98,445 $ 55,103
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Expenses
Our operating expenses for the year ended December 31, 2008 and December 31,
2007 are outlined in the table below:
Year Ended
December 31
2008 2007
Accounting and audit fees $ 39,582 $ 14,885
Bank charges $ 363 $ 149
Consulting fees $ Nil $ 5,000
Director fees $ 4.500 $ -
Filing fees and transfer agent fees $ 9,641 $ 10.986
Foreign exchange $ 485 $ Nil
Interest $ 2,562 $ 2,218
Legal fees $ 15,438 $ Nil
Office and miscellaneous $ Nil $ Nil
Management fees $ 18,000 $ 12,000
Mineral property costs $ 1,874 $ 3,865
Rent $ 6,000 $ 6,000
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Operating expenses for the year ended December 31, 2008, increased by 78.66%
as compared to the comparative period in 2007 primarily as a
result of an increase in accounting and audit fees, an increase
in legal fees and an increase in management fees.
Revenue
We did not earn any revenues during the year ended December
31, 2008. We do not anticipate earning revenues until such time
as we have entered into commercial production on the Hummingbird
property. We have not commenced the exploration stage of our
business and can provide no assurance that we will discover
economic mineralization on the property, or if such minerals are
discovered, that we will enter into commercial production.
Equity Compensation
We currently do not have any stock option or equity
compensation plans or arrangements.
Liquidity and Financial Condition
Working Capital
At
December At
31, Dec. 31, Increase/
2008 2007 Decrease
Current Assets $ 648 $ 2,907 (2,259 )
Current Liabilities $ 371,962 $ 168,276 203,686
Working Capital (deficit) $ (371,314 ) $ (165,369 ) (205,945 )
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Cash Flows
Year Ended Year Ended
December 31, December 31,
2008 2007
Net Cash Used in Operating Activities $ (72,993 ) $ (32,105 )
Net Cash Provided by Investing Activities $ (12,500 ) $ Nil
Net Cash Provided by Financing Activities $ 85,946 $ 32,300
Increase in Cash During the Period $ 453 $ 195
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On October 10 2008, we issued 600,000 units at a purchase price of $0.25 per
unit for gross proceeds of $150,000 to three subscribers. Each
unit consists of one common share and one common share purchase
warrant. Each warrant entitling the holder to purchase one share
of our common stock at a price of $0.25 per share for a period
of 24 months from the date of issuance. An aggregate of 400,000
units were issued to two U.S. persons (as that term is defined
in Regulation S of the Securities Act of 1933) relying upon Rule
506 of Regulation D of the Securities Act of 1933 and 200,000
units were issued to one non-U.S. person (as that term is
defined in Regulation S promulgated under the Securities Act of
1933) relying on the exemption from registration provided by
Regulation S and/or Section 4(2) of the Securities Act of 1933.
As at December 31, 2008, we had received $5,000 in respect of
a subscription for 20,000 units at $0.25 per unit. Each unit
consists of a common share and one common share purchase warrant
entitling the holder to purchase an additional common share at
$0.25 for a period of 24 months from the date of closing of the
offering. These shares have not yet been issued.
Subsequent to December 31, 2008, we received $31,700 in
respect of share subscriptions for 126,800 units at $0.25 per
unit. Each unit consists of one common share and one common
share purchase warrant. Each warrant entitles the holder to
purchase an additional common share $0.25 per share for a period
of 24 months from the date of the closing of offering. These
shares have not yet been issued.
Contractual Obligations
As a "smaller reporting company", we are not required to
provide tabular disclosure obligations.
Going Concern
We anticipate that additional funding will be required in the
form of equity financing from the sale of our common stock. At
this time, we cannot provide investors with any assurance that
we will be able to raise sufficient funding from the sale of our
common stock or through a loan from our directors to meet our
obligations over the next twelve months. We do not have any
arrangements in place for any future debt or equity financing.
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.
Critical Accounting Policies
The discussion and analysis of our financial condition and
results of operations are based upon our financial statements,
which have been prepared in accordance with the accounting
principles generally accepted in the United States of America.
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.
Exploration Stage Company
The Company complies with Financial Accounting Standards
Board Statement No. 7 and Securities and Exchange Commission Act
Guide 7 for its characterization of the Company as exploration
stage. All losses accumulated since inception has been
considered as part of the Company's exploration stage
activities.
Mineral Property Costs
Mineral property exploration costs are expensed as incurred.
Mineral property acquisition costs are initially capitalized
when incurred using the guidance in EITF 04-02, "Whether Mineral
Rights Are Tangible or Intangible Assets". The Company assesses
the carrying costs for impairment under SFAS 144, "Accounting
for Impairment or Disposal of Long Lived Assets" 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.
Environmental Costs
Environmental expenditures that relate to current operations
are expensed or capitalized as appropriate. Expenditures that
relate to an existing condition caused by past operations, and
which do not contribute to current or future revenue generation,
are expensed. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable, and the cost
can be reasonably estimated. Generally, the timing of these
accruals coincides with the earlier of completion of a
feasibility study or the Company's commitments to plan of action
based on the then known facts.
Asset Retirement Obligation
The Company accounts for asset retirement obligations in
accordance with the provisions of SFAS No. 143 "Accounting for
Asset Retirement Obligations". SFAS No. 143 requires the Company
to record the fair value of an asset retirement obligation as a
liability in the period in which it incurs a legal obligation
associated with the retirement of tangible long-lived assets
that result from the acquisition, construction, development
and/or normal use of the assets. At December 31, 2008, the
Company had not undertaken any drilling activity on its
properties and had not incurred significant reclamation
obligations. As such, no asset retirement obligation accrual was
made in the December 31, 2008 and 2007 financial statements.
Impairment of Long-Lived Assets
The Company reviews the recoverability of its long-lived
assets as required by SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, whenever events or
changes in circumstances indicate that the carrying amount of
such assets may not be recoverable. The estimated future cash
flows are based upon, among other things, assumptions about
future operating performance, and may differ from actual cash
flows. Long-lived assets evaluated for impairment are grouped
with other assets to the lowest level for which identifiable
cash flows are largely independent of the cash flows of other
groups of assets and liabilities. If the sum of the projected
undiscounted cash flows (excluding interest) is less than the
carrying value of the assets, the assets will be written down to
the estimated fair value in the period in which the
determination is made.
Recent Accounting Pronouncements
Recently adopted accounting pronouncements
On September 15, 2006, FASB issued Statement No. 157, "Fair
Value Measurements" ("SFAS No. 157"). SFAS No. 157 provides
guidance for using fair value to measure assets and liabilities.
SFAS No. 157 references fair value as the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants in the market in
which the reporting entity transacts. SFAS No. 157 applies
whenever other standards require (or permit) assets or
liabilities to be measured at fair value. SFAS No. 157 does not
expand the use of fair value in any new circumstances.
Originally, SFAS No. 157 was effective for financial statements
issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. Accordingly, we
adopted SFAS No. 157 in the first quarter of fiscal year 2008.
In February 2008, the FASB issued FASB Staff Position No. 157-2,
"Effective Date of FASB Statement No. 157", which provides a one
year deferral of the effective date of SFAS No. 157 for
non-financial assets and non-financial liabilities, except those
that are recognized or disclosed in the financial statements at
fair value at least annually. Therefore, the Company has adopted
the provisions of SFAS No. 157 with respect to its financial
assets and liabilities only.
On January 1, 2008, the Company adopted Statement of Financial Accounting
Standard ("SFAS") No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities-Including an amendment of FASB
Statement No. 115. SFAS No. 159 gives us the irrevocable option
to elect fair value for the initial and subsequent measurement
for certain financial assets and liabilities on a
contract-by-contract basis with the difference between the
carrying value before election of the fair value option and the
fair value recorded upon election as an adjustment to beginning
retained earnings. As of December 31, 2008, the Company had not
elected the fair value option for any eligible financial asset
or liability.
Recent Accounting Pronouncements Not Yet Adopted
In December 2007, the FASB issued SFAS No. 141 (Revised)
"Business Combinations". SFAS 141 (Revised) establishes
principles and requirements for how the acquirer of a business
recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any
non-controlling interest in the acquiree. The statement also
provides guidance for recognizing and measuring the goodwill
acquired in the business combination and determines what
information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the
business combination. The guidance will become effective for the
first fiscal year beginning after December 15, 2008. The
Company's management is in the process of evaluating the impact
SFAS 141 (Revised) will have on the Company's financial
statements upon adoption.
In December 2007, the FASB issued SFAS No. 160
"Non-controlling Interests in Consolidated Financial
Statements-an amendment of ARB No. 51". SFAS 160 establishes
accounting and reporting standards for the non-controlling
interest in a subsidiary and for the deconsolidation of a
subsidiary. The guidance will become effective for the first
fiscal year beginning after December 15, 2008.
The Company's management is in the process of evaluating the
impact SFAS 160 will have on the Company's financial statements
upon adoption.
In January 2008, Staff Accounting Bulletin ("SAB") 110,
"Share-Based Payment" was issued. Registrants may continue,
under certain circumstances, to use the simplified method in
developing estimates of the expected term of share options as
initially allowed by SAB 107, "Share-Based Payment". The
adoption of SAB 110 should have no effect on the financial
position and results of operations of the Company.
In March 2008, the FASB issued Statement of Financial
Accounting Standards ("SFAS") No. 161, "Disclosures about
Derivative Instruments and Hedging Activities", an amendment of
FASB Statement No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133") , which requires additional
disclosures about the objectives of the derivative instruments
and hedging activities, the method of accounting for such
instruments under SFAS No. 133 and its related interpretations,
and a tabular disclosure of the effects of such instruments and
related hedged items on financial position, financial
performance and cash flows. SFAS No. 161 is effective for fiscal
years and interim periods beginning after November 15, 2008. The
adoption of SFAS 161 should have no effect on the financial
position and results of operations of the Company.
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of
Generally Accepted Accounting Principles ("SFAS No. 162"). SFAS
No. 162 is intended to improve financial reporting by
identifying a consistent framework, or hierarchy, for selecting
accounting principles to be used in preparing financial
statements that are presented in conformity with U.S. generally
accepted accounting principles for nongovernmental entities.
SFAS No. 162 is effective 60 days following the SEC's approval
of the Public Company Accounting Oversight Board Auditing
amendments to AU Section 411, The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles. The
Company does not expect there to be any significant impact of
adopting SFAS 162 on its financial position, cash flows and
results of operations.
In May 2008, the FASB issued FSP No. APB 14-1, "Accounting
for Convertible Debt Instruments That May Be Settled in Cash
upon Conversion (Including Partial Cash Settlement)" ("FSP APB
14-1"). FSP APB 14-1 applies to convertible debt instruments
that, by their stated terms, may be settled in cash (or other
assets) upon conversion, including partial cash settlement,
unless the embedded conversion option is required to be
separately accounted for as a derivative under SFAS 133.
Convertible debt instruments within the scope of FSP APB 14-1
are not addressed by the existing APB 14. FSP APB 14-1 requires
that the liability and equity components of convertible debt
instruments within the scope of FSP APB 14-1 be separately
accounted for in a manner that reflects the entity's
nonconvertible debt borrowing rate. This requires an allocation
of the convertible debt proceeds between the liability component
and the embedded conversion option (i.e., the equity component).
The difference between the principal amount of the debt and the
amount of the proceeds allocated to the liability component will
be reported as a debt discount and subsequently amortized to
earnings over the instrument's expected life using the effective
interest method. FSP APB 14-1 is effective for the Company's
fiscal year beginning January 1, 2009 and will be applied
retrospectively to all periods presented. The Company is
currently evaluating the effects of adopting FSP APB 14-1.
In June 2008, the FASB ratified the consensus reached on EITF
Issue No. 07-05, "Determining Whether an Instrument (or Embedded
Feature) Is Indexed to an Entity's Own Stock." EITF Issue No.
07-05 clarifies the determination of whether an instrument (or
an embedded feature) is indexed to an entity's own stock, which
would qualify as a scope exception under SFAS No. 133. EITF
Issue No. 07-05 is effective for financial statements issued for
fiscal years beginning after December 15, 2008. Early adoption
for existing instruments is not permitted. The Company does not
believe that the pending adoption of EITF Issue No. 07-05 will
have a material effect on the Company's financial statements
Item 7A.
