Attached files
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
for the quarterly period ended May 31, 2010
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from _________ to _________
Commission File Number: 333-155789
DEER BAY RESOURCES INC.
(Exact name of registrant as specified in its charter)
NEVADA
(State or other jurisdiction of incorporation or organization)
#401-2366 Wall Street
Vancouver, British Columbia, Canada V6H 4Z1
(Address of principal executive offices) (Zip Code)
#678-1333 W Broadway Street
Vancouver, British Columbia, Canada V6H 4C1
(Former address of principal executive offices) (Zip Code)
(604) 734-2605
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by mark whether the registrant has submitted electronically and posted
on its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes [] No [X]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of "large accelerated filer," "accelerated filer," and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date: As of July 20, 2010, there were
130,110,000 shares of common stock, par value $0.0001, outstanding.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
It is the opinion of management that the interim financial statements for the
three months and three months ended May 31, 2010 includes all adjustments
necessary in order to ensure that the interim unaudited financial statements are
not misleading. Our interim unaudited financial statements are stated in United
States dollars and are prepared in accordance with United States generally
accepted accounting principles.
2
Deer Bay Resources Inc.
(An Exploration Stage Company)
Balance Sheets
As at May 31, 2010 (Unaudited) and February 28, 2010
May 31, February 28,
2010 2010
-------- --------
$ $
Assets
Current Assets
Cash 1,074 96
-------- --------
Total Assets 1,074 96
======== ========
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities
Accounts payable 10,880 3,000
Related party loans (Note 4) 18,000 10,500
-------- --------
Total Current Liabilities 28,880 13,500
-------- --------
Stockholders' (Deficit)
Capital stock
Authorized:
200,000,000 common shares with a par value of $0.0001
Issued and outstanding:
130,110,000 common shares issued and outstanding 13,011 13,011
Additional paid-in-capital 62,789 62,789
Deficit accumulated during the exploration stage (103,605) (89,204)
-------- --------
Total stockholders' (deficit) (27,805) (13,404)
-------- --------
Total liabilities and stockholders' (deficit) 1,074 96
======== ========
Nature of operations and continuance of business (Note 1)
See Accompanying Notes
3
Deer Bay Resources Inc.
(An Exploration Stage Company)
Statements of Operations
(Unaudited)
Cumulative from
August 25, 2004
(Inception) to Three Months Ended Three Months Ended
May 31, 2010 May 31, 2010 May 31, 2009
------------ ------------ ------------
$ $ $
Revenue -- -- --
------------ ------------ ------------
Expenses
Bank charges 689 21 45
Mineral property costs 16,000 -- --
Office expenses 1,725 -- --
Professional fees 66,300 10,720 7,500
Transfer agent and filing fees 18,891 3,660 120
------------ ------------ ------------
Net Loss (103,605) (14,401) (7,665)
============ ============ ============
Loss per share - Basic and diluted -- --
============ ============
Weighted Average Number of Common
Shares Outstanding 130,110,000 130,110,000
============ ============
See Accompanying Notes
4
Deer Bay Resources Inc.
(An Exploration Stage Company)
Statements of Cash Flows
(Unaudited)
Three Months Ended Three Months Ended
May 31, 2010 May 31, 2009
------------ ------------
$ $
Cash flows from operating activities
Net loss (14,402) (7,665)
Adjustment to reconcile net loss to net cash:
Write-off of mineral properties -- --
Changes in operating assets and liabilities:
Accounts payable and accrued liabilities 7,880 7,500
------- -------
Net cash used in operating activities (6,522) (165)
------- -------
Cash flows to investing activities
Mineral property costs -- --
------- -------
Net cash used in investing activities -- --
------- -------
Cash flows from financing activities
Proceeds from officer's loan 7,500 3,000
------- -------
Net cash provided by financing activities 9,500 3,000
------- -------
Net increase in cash 978 2,835
Cash - beginning of period 96 37
------- -------
Cash - end of period 1,074 2,872
======= =======
Supplemental cash flow information:
Cash paid for:
Interest -- --
Taxes -- --
======= =======
See Accompanying Notes
5
Deer Bay Resources Inc.
(An Exploration Stage Company)
Notes to Financial Statements
(Unaudited)
1. Nature of Operations and Continuance of Business
Deer Bay Resources Inc. ("the Company") was incorporated under the laws of
State of Nevada, U.S. on August 25, 2004. The Company's principal business
is the acquisition and exploration of mineral resources. The Company has
not presently determined whether its property contains mineral reserves
that are economically recoverable. We have not produced any significant
revenues from the Company's principal business or commenced significant
operations and are considered an exploration stage company as defined by
SEC Guide 7 with reference to Financial Accounting Standards Board (FASB)
issued Accounting Standards Codification (ASC) topic 915.
On April 29, 2008 the Company's articles of incorporation were amended to
increase the authorized share capital to 200,000,000 common shares and
change the par value to $0.0001. This amendment was applied retroactively
to all share, and per share, amounts.
These financial statements have been prepared on a going concern basis
which assumes the Company will be able to realize its assets and discharge
its liabilities in the normal course of business for the foreseeable
future. The Company has incurred losses since inception resulting in an
accumulated deficit of $103,605 as at May 31, 2010 and a working capital
deficiency of $27,806 as at May 31, 2010. Further losses are anticipated in
the development of its business raising substantial doubt about the
Company's ability to continue as a going concern. The ability to continue
as a going concern is dependent upon the Company generating profitable
operations in the future and/or to obtain the necessary financing to meet
its obligations and repay its liabilities arising from normal business
operations when they come due.
2. Summary of Significant Accounting Policies
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. The Company
regularly evaluates estimates and assumptions related to donated services
and expenses, and deferred income tax asset valuation allowances. The
Company bases its 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 the Company may differ
materially and adversely from the Company's estimates. To the extent there
are material differences between the estimates and the actual results,
future results of operations will be affected.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturity of three
months or less at the time of issuance to be cash equivalents.
Mineral Claim Payments and Exploration Expenditures
The Company 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. We assess the carrying cost for impairment under the FASB ASC
topic 360 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 subsequently incurred to develop
such property are capitalized. Such costs will be amortized using the
units-of-production method over the established life of the proven and
probable reserves. If mineral properties are subsequently abandoned or
impaired, any capitalized costs will be charged to operations.
Long-lived Assets
The 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.
6
Deer Bay Resources Inc.
(An Exploration Stage Company)
Notes to Financial Statements
(Unaudited)
Financial Instruments
The fair values of financial instruments, which include cash, note payable
and due to related party were estimated to approximate their carrying
values due to the immediate or short-term maturity of these financial
instruments. Foreign currency transactions are primarily undertaken in
Canadian dollars. The financial risk is the risk to the Company's
operations that arise from fluctuations in foreign exchange rates and the
degree of volatility of these rates. Currently, the Company does not use
derivative instruments to reduce its exposure to foreign currency risk.
Foreign Currency Translation
The Company's functional and reporting currency is the United States
dollar. Monetary assets and liabilities denominated in foreign currencies
are translated in accordance with ASC 820, 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. The Company has not, to the date
of these financials statements, entered into derivative instruments to
offset the impact of foreign currency fluctuations.
New Accounting Standards Adopted During the Three Months Ended May 31, 2010
In June 2009, the FASB issued ASC topic 860-20 for changes to the
accounting for transfers of financial assets. These changes remove the
concept of a qualifying special-purpose entity and remove the exception
from the application of variable interest accounting to variable interest
entities that are qualifying special-purpose entities; limits the
circumstances in which a transferor derecognizes a portion or component of
a financial asset; defines a participating interest; requires a transferor
to recognize and initially measure at fair value all assets obtained and
liabilities incurred as a result of a transfer accounted for as a sale; and
requires enhanced disclosure; among others. These changes become effective
for the Company on March 1, 2010. The adoption of these changes did not
have an impact on the Company's financial statements.
In June 2009, the FASB issued changes to the accounting for variable
interest entities. These changes require an enterprise to perform an
analysis to determine whether the enterprise's variable interest or
interests give it a controlling financial interest in a variable interest
entity; to require ongoing reassessments of whether an enterprise is the
primary beneficiary of a variable interest entity; to eliminate the
quantitative approach previously required for determining the primary
beneficiary of a variable interest entity; to add an additional
reconsideration event for determining whether an entity is a variable
interest entity when any changes in facts and circumstances occur such that
holders of the equity investment at risk, as a group, lose the power from
voting rights or similar rights of those investments to direct the
activities of the entity that most significantly impact the entity's
economic performance; and to require enhanced disclosures that will provide
users of financial statements with more transparent information about an
enterprise's involvement in a variable interest entity. This Statement
became effective for the Company on March 1, 2010. Earlier application was
prohibited. The adoption of these changes did not have an impact on the
Company's financial statements.
New accounting standards to be adopted are as follows:
In October 2009, the FASB issued ASU 2009-13 for changes to
mULTIPLE-DELIVERABLE REVENUE ARRANGEMENTS A CONSENSUS OF THE FASB EMERGING
ISSUES TASK FORCE, which amends ASC topic 605, Revenue Recognition, to
require companies to allocate revenue in multiple-element arrangements
based on an element's estimated selling price if vendor-specific or other
third-party evidence of value is not available. ASU 2009-13 is effective
for us on November 1, 2010. Earlier application is permitted. We do not
anticipate the adoption of these changes will have an impact on the
Company's financial statements.
3. Mineral Interests
On March 18, 2008, the Company entered into a mineral property purchase
agreement to acquire a 100% interest in the Emmy Claim located in the New
Westminster Mining Division, BC for total consideration of $8,000. This
mining interest was held in trust for the Company by the vendor of the
property. On January 25, 2010 this mineral claim had lapsed and was
re-staked by a third party. On February 4, 2010 the Company entered into a
Letter and Trust Agreement with this third party to acquire the Emmy Claim.
The Company paid $500 as consideration. The Emmy Claim expires February 4,
2011. The third party holds the Emmy Claim in trust for the Company and
upon request; title will be recorded in the name of the Company.
4. Related Party Loans
The President of the Company loaned $2,250 during the three months ended
May 31, 2010 and is owed $4,750 as at May 31, 2010 ($2,500 as at February
28, 2010). A shareholder of the Company loaned $5,250 during the three
months ended May 31, 2010 and is owed $13,250 as at May 31, 2010 ($8,000 as
at February 28, 2010). These loans are unsecured, non-interest bearing and
due on demand.
7
Deer Bay Resources Inc.
(An Exploration Stage Company)
Notes to Financial Statements
(Unaudited)
5. Common Stock
During the year ended February 28, 2005 the Company issued 7,610,000 shares
of common stock for total cash proceeds of $29,800.
On April 29, 2008 the Company's articles of incorporation were amended to
increase the authorized share capital to 200,000,000 common shares and
reduce par value to $0.0001. This amendment has been applied retroactively
to all share and per share amounts.
On June 24, 2008 the Company issued 32,500,000 common shares at $.001 per
share to six individuals pursuant to a private placement under Regulation S
of the Securities and Exchange Commission for total cash proceeds of
$32,500.
On June 24, 2008, the Company issued 85,000,000 common shares at $.0001 to
the Company's President for total cash proceeds of $8,500.
On October 24, 2008 the Company received $5,000 pursuant to a subscription
for 5,000,000 common shares at $0.001 per share.
At May 31, 2010, there were no outstanding stock options or warrants.
8
ITEM 2. 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 our unaudited interim financial statements from our inception
(August 25, 2004) to May 31, 2010 and the three months ended May 31, 2010 and
2009, together with the notes thereto included in this Form 10-Q. 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
prospectus.
FORWARD-LOOKING STATEMENTS
This quarterly report contains forward-looking statements as that term is
defined in Section 27A of the United States Securities Act of 1933 and Section
21E of the United States Securities Exchange Act of 1934. These statements
relate to future events or our future financial performance. In some cases, you
can identify forward-looking statements by terminology such as "may", "should",
"expect", "plan", "anticipate", "believe", "estimate", "predict", "potential" or
"continue" or the negative of these terms or other comparable terminology. These
statements are only predictions and involve known and unknown risks,
uncertainties and other factors, including the risks in the section entitled
"Risk Factors" in Part II, ITEM 1A of this quarterly report below, that may
cause our or our industry's actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by these
forward-looking statements. Although we believe that the expectations reflected
in the forward-looking statements are reasonable, we cannot guarantee future
results, levels of activity, performance or achievements. Except as required by
applicable law, including the securities laws of the United States, we do not
intend to update any of the forward-looking statements to conform these
statements to actual results.
Our interim unaudited financial statements are stated in United States dollars
and are prepared in accordance with United States generally accepted accounting
principles. The following discussion should be read in conjunction with our
interim unaudited financial statements and the related notes that appear
elsewhere in this quarterly report.
In this quarterly report, unless otherwise specified, all dollar amounts are
expressed in United States dollars. All references to "common shares" refer to
the common shares in our capital stock. As used in this quarterly report, the
terms "we", "us" and "our" refer to Deer Bay Resources Inc.
OVERVIEW
We are a natural resource exploration and production company currently engaged
in the exploration, acquisition and development of mineral properties in Canada.
We have no revenues, have incurred losses since our incorporation on August 25,
2004, and have relied upon the sale of our securities in unregistered private
placement transactions and loans from related parties to fund our operations.
For the foreseeable future, we will continue to be dependent on additional
financing in order to maintain our operations and to pursue our exploration
activities.
We were incorporated under the laws of Nevada effective August 25, 2004. Our
principal offices are located at 2366 Wall Street, Suite 407, Vancouver, BC,
Canada V6H 4Z1. Our telephone number is (604) 734-2605.
OUR BUSINESS
MINERAL CLAIMS
Since inception, we were an exploration stage company engaged in the acquisition
and exploration of mineral properties in Canada. On April 26, 2005, we entered
into a mineral property purchase agreement to acquire a 100% interest in a
mineral claim located in the Scadding Township, Sudbury Mining Division,
Ontario, Canada for total consideration of $7,500. This claim expired. On March
18, 2008, we entered into a mineral property purchase agreement with Laurence
Stephenson (the "Stephenson Agreement") to acquire a 100% interest in a mineral
claim known as the Emmy Claim located in the Emory Creek area of the New
Westminster Mining Division, British Columbia, Canada (the "British Columbia
Claim"). This claim expired on January 25, 2010 and was re-staked on February 4,
2010 by Teuton Resources Corp. ("Teuton"). The Company entered into a Letter and
Trust Agreement with Teuton dated February 4, 2010 and paid Teuton Cnd$500 to
hold the re-staked Emmy Claim in trust for the Company. As of the date of this
Prospectus the Emmy Claim is in good standing until February 4, 2011. In 2008 we
paid $5,000 to a geologist for analysis of the property underlying our Emmy
Claim and paid a further $ to update this analysis to a current date.
We have obtained an updated geological report on the property underlying our
Emmy Claim. The geology report was originally prepared and dated June 5, 2008
and was updated on February 10, 2010. The updated geology report recommends that
a Phase I program of geological mapping, sampling and prospecting be undertaken
to further define areas of potential interest. The first priority is a
comprehensive review of reports and maps pertaining to all past exploration
work, including surface surveys, drilling, trenching and underground exploration
followed by a field examination of the subject area. The review should include
preparation of compilations of all available maps and sections pertaining to the
property adjusted to common scales to permit accurate comparisons of data from
different projects. The geophysical data, in particular the chargeability
surveys previously carried our, should be professionally re-evaluated and an
effort should be made to re-locate the survey grids. Their positions along with
those of all known mineral occurrences, trenches, drill holes, adits and
geographical features should be established with the aid of GPS instruments.
Completion of this phase is expected to identify gaps in data and areas where
additional effort is needed and to permit design of an appropriate program of
additional work.
9
The nature and extent of any follow-up work will be contingent on the results of
the review but it is recommended that provision be made for a preliminary
program of geological mapping, fill-in soil sampling and possibly trenching
particularly in the areas of the chargeability anomalies. Consideration should
be given to the application of mobile metal ion geochemistry as an approach to
overcoming apparent difficulties with heavy overburden in parts of the property.
An estimate of the cost of the proposed initial review and field examination is
$10,000 along with an additional $25,000 of further geological investigation in
order to complete Phase II. Provision of an additional budget of $50,000 is
recommended for the contingent exploration work that would be required to
complete the follow-up surveys.
EXPLORATION STAGE COMPANY
We are considered an exploration or exploratory stage company because we are
involved in the examination and investigation of land that we believe may
contain minerals for the purpose of discovering the presence of such minerals,
if any, and its extent. There is no assurance that commercially viable minerals
exist on the property underlying our British Columbia Claim, and a great deal of
further exploration will be required before a final evaluation as to the
economic and legal feasibility for our future exploration is determined. To
date, we have not discovered an economically viable reserve on the property
underlying our interests, and there is no assurance that we will discover one.
PROPERTY DESCRIPTION
The property consists of one mineral claim representing 320 units listed in the
table below:
Claim Number and Name Area (in hectares) Expiry Date
--------------------- ------------------ -----------
#705501 Emmy 418 February 4, 2011
The Pacific Nickel Mine located in Southwestern BC near Hope was a very
significant producer of copper and nickel from an ultramafic intrusive geologic
environment. As one of the largest Canadian sources of these metals outside of
Sudbury, Ontario and Thompson, Manitoba, the lack of exploration in this area
makes it a unique underdeveloped mineral belt that requires a concerted
exploration program that should include geological mapping; silt, soil and rock
sampling, thin section analysis, and airborne geophysics followed by diamond
drilling.
The Emory Creek Claim is located 5 kilometers north of the mine area and
approximately 11 kilometers north of Hope B.C. on Map Sheet M092H053.
There is tremendous similarity and coincident features in the rock types and
geophysical imprint between the geology of the Pacific Nickel Mine area and the
ultramafic belt extending to the northwest and southwest from it. It is evident
from the public and private record that this belt has not been subjected to
detailed recent exploration until now with numerous exploration companies
initiating large scale programs. Research into the mine area has provided some
excellent exploration features that should be looked for on the unexplored area.
EXPLORATION PROGRAM
We will engage a geologist to provide a further analysis of the property and
potential for minerals. Our initial program will be to prospect the property
locating all signs of unreported previous work and record the results by global
positioning system (GPS) coordinates. After all previous work areas have been
accurately located; a geologist can rapidly produce a detailed geological map of
the property delineating the favorable areas. Samples will be collected from all
exposure of the formation and analyses performed.
The requirement to raise further funding for exploration beyond that obtained
for the next six month period continues to depend on the outcome of geological
and engineering testing occurring over this interval. If results provide the
basis to continue development and geological studies indicate high probabilities
of sufficient production quantities, we will attempt to raise capital to further
our mining program, build production infrastructure, and raise additional
capital for further land acquisitions. This includes the following activity:
* Review all available information and studies.
* Digitize all available factual information.
* Complete an NI 43-101 Compliant Report with a qualified geologist
familiar with mineralization.
* Determine feasibility and amenability of extracting the minerals via
an ISL operation.
* Create investor communications materials, corporate identity.
* Raise funding for mineral development.
* Target further claims for exploration potential and obtain further
funding to acquire new exploration targets.
10
COMPETITION
We operate in a highly competitive industry, competing with other mining and
exploration companies, and institutional and individual investors, which are
actively seeking mineral based exploration properties throughout the world
together with the equipment, labor and materials required to exploit such
properties. Many of our competitors have financial resources, staff and
facilities substantially greater than ours. The principal area of competition is
encountered in the financial ability to cost effectively acquire prime mineral
exploration prospects and then exploit such prospects. Competition for the
acquisition of mineral exploration properties is intense, with many properties
available in a competitive bidding process in which we may lack technological
information or expertise available to other bidders. Therefore, we may not be
successful in acquiring and developing profitable properties in the face of this
competition. No assurance can be given that a sufficient number of suitable
mineral exploration properties will be available for acquisition and
development.
MINERAL EXPLORATION REGULATION
Our mineral exploration activities are, or will be, subject to extensive foreign
laws and regulations governing prospecting, development, production, exports,
taxes, labor standards, occupational health, waste disposal, protection and
remediation of the environment, protection of endangered and protected species,
mine safety, toxic substances and other matters. Mineral exploration is also
subject to risks and liabilities associated with pollution of the environment
and disposal of waste products occurring as a result of mineral exploration and
production. Compliance with these laws and regulations may impose substantial
costs on us and will subject us to significant potential liabilities. Changes in
these regulations could require us to expend significant resources to comply
with new laws or regulations or changes to current requirements and could have a
material adverse effect on our business operations.
Exploration and production activities are subject to certain environmental
regulations which may prevent or delay the commencement or continuance of our
operations. Our activities may be subject to certain federal, state and local
laws and regulations, relating to environmental quality and pollution control.
Such laws and regulations increase the costs of these activities and may prevent
or delay the commencement or continuance of a given operation. Compliance with
these laws and regulations does not appear to have a future material effect on
our operations or financial condition to date. Specifically, we may be subject
to legislation regarding emissions into the environment, water discharges and
storage and disposition of hazardous wastes. However, such laws and regulations,
whether national or local, are frequently changed and we are unable to predict
the ultimate cost of compliance. Generally, environmental requirements do not
appear to affect us any differently or to any greater or lesser extent than
other companies in the industry and our current operations have not expanded to
a point where either compliance or cost of compliance with environmental
regulation is a significant issue for us. Costs have not been incurred to date
with respect to compliance with environmental laws but such costs may be
expected to increase with an increase in scale and scope of exploration.
Mineral exploration operations are subject to comprehensive regulation which may
cause substantial delays or require capital outlays in excess of those
anticipated causing an adverse effect on our business operations. Mineral
exploration operations are subject to foreign, federal, state, and local laws
relating to the protection of the environment, including laws regulating removal
of natural resources from the ground and the discharge of materials into the
environment. Mineral exploration operations are also subject to federal, state,
and local laws and regulations which seek to maintain health and safety
standards by regulating the design and use of mining methods and equipment.
Various permits from government bodies are required for mining operations to be
conducted; no assurance can be given that such permits will be received.
Environmental standards imposed by federal, state, or local authorities may be
changed and any such changes may have material adverse effects on our
activities. Moreover, compliance with such laws may cause substantial delays or
require capital outlays in excess of those anticipated, thus causing an adverse
effect on us. Additionally, we may be subject to liability for pollution or
other environmental damages which we may elect not to insure against due to
prohibitive premium costs and other reasons. As of the date of this Prospectus,
we have not been required to spend any material amount on compliance with
environmental regulations. However, we may be required to do so in future and
this may affect our ability to expand or maintain our operations.
EMPLOYEES
As of the date of this Prospectus we have no significant employees other than
Garry E. Wong, our sole officer and director. We intend to retain independent
geologists and consultants on a contract basis to conduct the work programs on
the property underlying our interests in order to carry out our plan of
operations.
RESEARCH AND DEVELOPMENT EXPENDITURES
We have not incurred any research or development expenditures since our
incorporation.
SUBSIDIARIES
We do not have any subsidiaries.
PATENTS AND TRADEMARKS
We do not own, either legally or beneficially, any patent or trademark.
11
RESULTS OF OPERATIONS
REVENUES
We have had no operating revenues since our incorporation on August 25, 2004 to
May 31, 2010.
EXPENSES AND NET LOSS FOR THE THREE MONTHS ENDED MAY 31, 2010
Our operating expenses for the three months ended May 31, 2010 were $14,401 as
compared to $7,665 for the comparative period. The primary expense of $10,720
was attributable to legal and accounting fees associated with our annual audit
and filing the Company's 10-K for the year ended February 28, 2010 and interim
reviews as compared to $7,500 for the comparative period. In addition, during
the three month periods ending May 31, 2010 and 2009, we incurred $3,660 and
$120, respectively in fees associated with the administration of our common
stock.
LIQUIDITY AND CAPITAL RESOURCES
We had cash of $1,074 and a working capital deficit of $27,806 as of May 31,
2010.
CASH USED IN OPERATING ACTIVITIES
Net cash used in operating activities for the three months ended May 31, 2010
was $6,522 as compared to $165 for the comparative period. These balances are
mainly made up of our net loss of $14,402 (2009 - $7,665) as disclosed above
adjusted for an increase in accrued liabilities of $7,880 (2009 - $7,500) in the
current period.
CASH USED IN INVESTING ACTIVITIES
Net cash used in investing activities was $Nil for the three months ended May
31, 2010 and 2009.
CASH FROM FINANCING ACTIVITIES
We have funded our business to date primarily from sales of our common stock and
loans from related parties. During the three months ended May 31, 2010 we
received $7,500 (2009 - $3,000) in loans from related parties.
CONTINUANCE OF BUSINESS
We have not attained profitable operations and are dependent upon obtaining
financing to pursue our proposed business plan. For these reasons our auditors
stated in their report dated May 18, 2010 for the years ended February 28, 2010
and February 29, 2009 that they have substantial doubt we will be able to
continue as a going concern.
FUTURE FINANCING
We anticipate continuing to rely on loans from related parties and 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
business plan.
OFF BALANCE-SHEET ARRANGEMENTS
As of May 31, 2010, we had no off-balance sheet arrangements.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
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. The Company regularly evaluates estimates and
assumptions related to donated services and expenses, and deferred income tax
asset valuation allowances. The Company bases its 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 the Company may differ materially and
adversely from the Company's estimates. To the extent there are material
differences between the estimates and the actual results, future results of
operations will be affected.
MINERAL CLAIM PAYMENTS AND EXPLORATION EXPENDITURES
The Company 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. We assess
the carrying cost for impairment under the FASB ASC topic 360 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 subsequently incurred to develop such property are capitalized. Such
costs will be amortized using the units-of-production method over the
established life of the proven and probable reserves. If mineral properties are
subsequently abandoned or impaired, any capitalized costs will be charged to
operations.
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LONG-LIVED ASSETS
The 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable because we are a smaller reporting company.
ITEM 4. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
As required by Rule 13a-15 under the Securities Exchange Act of 1934, we have
carried out an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures as of the end of the period covered by
this quarterly report, being May 31, 2010. This evaluation was carried out under
the supervision and with the participation of our management, including our
president (our principal executive officer, principal financial officer, and
principal accounting officer). Based upon that evaluation, our president
concluded that our disclosure controls and procedures are effective as at the
end of the period covered by this quarterly report.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in our internal controls over financial reporting
that occurred during the period covered by this quarterly report that have
materially affected, or are reasonably likely to materially affect our internal
controls over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We know of no material, active or pending legal proceedings against our company,
nor are we involved as a plaintiff in any material proceeding or pending
litigation. There are no proceedings in which our director and officer or
affiliates, or any registered or beneficial shareholder is an adverse party or
has a material interest adverse to our interest.
ITEM 1A. RISK FACTORS
Not applicable because we are a smaller reporting company.
ITEM 2. UNREGISTGERED SALES OF EQUITY SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
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ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
The following exhibits are included with this Quarterly Report on Form 10-Q:
Exhibit Number Description of Exhibit
-------------- ----------------------
31.1 Rule 13a-14(a)/15(d)-14(a) Certification of Principal Executive
Officer and Principal Financial Officer
32.1 18 U.S.C. Section 1350 Certification of Principal Executive
Officer and Principal Financial Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DEER BAY RESOURCES INC.
By: /s/ Garry Wong
---------------------------------------------------------
Garry Wong
President, Secretary, Treasurer and Director
(Principal Executive Officer, Principal Financial Officer
and Principal Accounting Officer)
Date: July 20, 2010
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