Attached files
file | filename |
---|---|
EX-32.1 - CERTIFICATION OF CEO AND CFO PURSUANT TO SECTION 906 - Ruby Creek Resources, Inc. | v208405_ex32-1.htm |
EX-31.1 - CERTIFICATION OF CEO PURSUANT TO SECTION 302 - Ruby Creek Resources, Inc. | v208405_ex31-1.htm |
EX-31.2 - CERTIFICATION OF CFO PURSUANT TO SECTION 302 - Ruby Creek Resources, Inc. | v208405_ex31-2.htm |
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For the
quarterly period ended November 30, 2010
¨
TRANSITION REPORT UNDER SECTION 13 OR 15(D)
OF
THE SECURITIES EXCHANGE ACT OF 1934 F
for the
transition period from _____ to _____
Commission
File Number: 000-52354
RUBY
CREEK RESOURCES, INC.
NEVADA
|
000-52354
|
26-4329046
|
||
(State
or other jurisdiction of
|
(Commission File
No.)
|
(IRS
Employee Identification No.)
|
||
incorporation or
organization)
|
750
3rd Avenue 11th Floor, New York, NY 10017
(Address
of Principal Executive Offices)
(212)
679-5711
(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 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 check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer,"
"accelerated filer" and "smaller reporting company" in Rule 12b-2 of the
Exchange Act.
Large
Accelerated Filer ¨
Accelerated
Filer ¨
Non-Accelerated
Filer Smaller (do not check if smaller reporting company)
¨
Smaller
Reporting Company x
Indicate
by check mark whether the registrant is a shell company as defined in Rule 12b-2
of the Exchange Act. Yes ¨
No x
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date. 29,822,202 shares of common stock as
of January 14, 2011.
RUBY
CREEK RESOURCES, INC.
Quarterly
Report On Form 10-Q For The Quarterly Period Ended November 30,
2010
FORWARD-LOOKING
STATEMENTS
This Form
10-Q for the quarterly period ended November 30, 2010 contains forward-looking
statements that involve risks and uncertainties. Forward-looking
statements in this document include, among others, statements regarding our
capital needs, business plans and expectations. Such forward-looking
statements involve assumptions, risks and uncertainties regarding, among others,
the success of our business plan, availability of funds, government regulations,
operating costs, our ability to achieve significant revenues, our business model
and products and other factors. Any statements contained herein that
are not statements of historical fact may be deemed to be forward-looking
statements. In some cases, you can identify forward-looking
statements by terminology such as "may", "will", "should", "expect", "plan",
"intend", "anticipate", "believe", "estimate", "predict", "potential" or
"continue", the negative of such terms or other comparable
terminology. In evaluating these statements, you should consider
various factors, including the assumptions, risks and uncertainties set forth in
reports and other documents we have filed with or furnished to the
SEC. These factors or any of them may cause our actual results to
differ materially from any forward-looking statement made in this
document. While these forward-looking statements, and any assumptions
upon which they are based, are made in good faith and reflect our current
judgment regarding future events, our actual results will likely vary, sometimes
materially, from any estimates, predictions, projections, assumptions or other
future performance suggested herein. The forward-looking statements
in this document are made as of the date of this document and we do not intend
or undertake to update any of the forward-looking statements to conform these
statements to actual results, except as required by applicable law, including
the securities laws of the United States.
- 2
-
Page
|
||
PART
I. FINANCIAL INFORMATION
|
||
Item
1.
|
Financial
Statements
|
|
Consolidated
Balance Sheets – November 30, 2010 (Unaudited) and August 31,
2010
|
4
|
|
Consolidated
Statements of Operations
|
5
|
|
Consolidated
Statement of Stockholders’ Equity
|
6
|
|
Consolidated
Statements of Cash Flows
|
7
|
|
Noted
to Consolidated Financial Statements
|
8-17
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
18-22
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
22
|
Item
4T.
|
Controls
and Procedures
|
22
|
PART
II. OTHER INFORMATION
|
||
Item
1.
|
Legal
Proceedings
|
23
|
Item
2.
|
Unregistered
Sales of Equity Securities
|
23
|
Item
3.
|
Defaults
Upon Senior Securities
|
24
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
24
|
Item
5.
|
Other
Information
|
24
|
Item
6.
|
Exhibits
|
24
|
Signatures
|
24
|
- 3
-
RUBY
CREEK RESOURCES, INC.
|
(An
Exploration Stage Company)
|
CONSOLIDATED
BALANCE SHEETS
|
November
30,
|
August
31,
|
|||||||
2010
|
2010
|
|||||||
(Unaudited)
|
||||||||
ASSETS
|
||||||||
CURRENT
ASSETS
|
||||||||
Cash
|
$ | 652,225 | $ | 325,756 | ||||
Due
from related party
|
— | 7,668 | ||||||
Prepaid
expenses and other current assets
|
86,126 | 42,824 | ||||||
Total
current assets
|
738,351 | 376,248 | ||||||
PROPERTY
AND EQUIPMENT, net of accumulated depreciation of
|
||||||||
$7,877
and $4,614, respectively
|
58,145 | 35,808 | ||||||
MINERAL
PROPERTIES
|
6,826,170 | 6,796,170 | ||||||
TOTAL
ASSETS
|
$ | 7,622,666 | $ | 7,208,226 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
CURRENT
LIABILITIES
|
||||||||
Accounts
payable
|
$ | 130,106 | $ | 142,342 | ||||
Accrued
interest
|
— | 8,350 | ||||||
Installment
loan payable
|
4,333 | 10,833 | ||||||
Convertible
notes - related parties, net of discount
|
— | 75,890 | ||||||
Due
to Douglas Lake Minerals
|
923,920 | 911,453 | ||||||
Due
to related parties
|
56,901 | — | ||||||
Total
current liabilities
|
1,115,260 | 1,148,868 | ||||||
LONG-TERM
LIABILITIES
|
||||||||
Due
to Douglas Lake Minerals, net of discount
|
3,412,345 | 3,311,988 | ||||||
4,527,605 | 4,460,856 | |||||||
COMMITMENTS
AND CONTINGENCIES (Note 6)
|
||||||||
STOCKHOLDERS'
EQUITY
|
||||||||
Common
stock, 500,000,000 shares authorized, par value $0.001
|
||||||||
28,572,629
and 22,727,912 shares issued and outstanding, respectively
|
28,573 | 22,728 | ||||||
Additional
paid-in capital
|
6,900,072 | 5,720,423 | ||||||
Comprehensive
income (loss) from foreign currency translation
|
(5,528 | ) | 890 | |||||
Deficit
accumulated during the exploration stage
|
(3,828,056 | ) | (2,996,671 | ) | ||||
Total
Stockholders' Equity
|
3,095,061 | 2,747,370 | ||||||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 7,622,666 | $ | 7,208,226 |
See
accompanying notes to unaudited consolidated financial
statements.
- 4
-
RUBY
CREEK RESOURCES, INC.
|
(An
Exploration Stage Company)
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
(Unaudited)
|
Cumulative
|
||||||||||||
for
the Period
|
||||||||||||
from
|
||||||||||||
May
3, 2006
|
||||||||||||
Three
Months Ended
|
(Inception)
to
|
|||||||||||
November
30,
|
November
30,
|
|||||||||||
2010
|
2009
|
2010
|
||||||||||
EXPENSES
|
||||||||||||
Mining
exploration and preoperating costs
|
$ | 231,230 | $ | — | 357,027 | |||||||
Consulting
services
|
92,934 | 65,214 | 779,341 | |||||||||
Depreciation
|
3,263 | 230 | 7,877 | |||||||||
Interest
and financing fees
|
139,756 | — | 1,224,906 | |||||||||
Management
services
|
138,654 | 42,280 | 452,943 | |||||||||
Office
and general
|
156,786 | 12,072 | 417,134 | |||||||||
Professional
fees
|
16,778 | 1,469 | 420,675 | |||||||||
Property
impairment and disposed mineral property costs
|
— | — | 49,617 | |||||||||
Shareholder
and investor relations
|
51,984 | 375 | 118,536 | |||||||||
NET
LOSS
|
$ | (831,385 | ) | $ | (121,640 | ) | $ | (3,828,056 | ) | |||
NET
LOSS PER COMMON SHARE, BASIC AND DILUTED
|
$ | (0.04 | ) | $ | (0.01 | ) | ||||||
WEIGHTED
AVERAGE NUMBER OF COMMON SHARES
|
||||||||||||
OUTSTANDING,
BASIC AND DILUTED
|
23,409,658 | 8,737,000 |
See
accompanying notes to unaudited consolidated financial
statements.
- 5
-
RUBY
CREEK RESOURCES, INC.
|
(An
Exploration Stage Company)
|
Consolidated
Statement of Stockholders' Equity
|
From
May 3, 2006 (Date of Inception) to November 30,
2010
|
Comprehensive
|
||||||||||||||||||||||||||||
Deficit
|
income
(loss) from
|
|||||||||||||||||||||||||||
Common
Stock
|
Additional
|
Accumulated
During
|
foreign
exchange
|
Stockholders'
|
||||||||||||||||||||||||
Shares
|
Amount
|
Paid-in
capital
|
Subscriptions
|
Exploration
Stage
|
translation
|
Equity
|
||||||||||||||||||||||
Balance
- May 3, 2006 (Date of Inception)
|
— | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
August
31, 2006 - issuance of common shares for cash at $0.01 per
share
|
4,500,000 | 4,500 | 40,500 | — | — | — | 45,000 | |||||||||||||||||||||
August
31, 2006 - issuance of common shares for cash at $0.05 per
share
|
2,970,000 | 2,970 | 145,530 | — | — | — | 148,500 | |||||||||||||||||||||
August
31, 2006 - issuance of common shares for cash at $0.10 per
share
|
867,000 | 867 | 85,833 | (5,000 | ) | — | — | 81,700 | ||||||||||||||||||||
August
31, 2006 - donated rent and management services
|
— | — | 3,000 | — | — | — | 3,000 | |||||||||||||||||||||
Net
loss
|
— | — | — | — | (19,696 | ) | — | (19,696 | ) | |||||||||||||||||||
Balance
- August 31, 2006
|
8,337,000 | 8,337 | 274,863 | (5,000 | ) | (19,696 | ) | — | 258,504 | |||||||||||||||||||
September
5, 2006 - cash received for stock subscription
|
— | — | — | 5,000 | — | — | 5,000 | |||||||||||||||||||||
Net
loss
|
— | — | — | — | (127,497 | ) | — | (127,497 | ) | |||||||||||||||||||
Balance
- August 31, 2007
|
8,337,000 | 8,337 | 274,863 | — | (147,193 | ) | — | 136,007 | ||||||||||||||||||||
Net
loss
|
— | — | — | — | (96,974 | ) | — | (96,974 | ) | |||||||||||||||||||
Balance
- August 31, 2008
|
8,337,000 | 8,337 | 274,863 | — | (244,167 | ) | — | 39,033 | ||||||||||||||||||||
July
23. 2009 - issuance of common shares for cash at $0.05 per
share
|
400,000 | 400 | 14,600 | — | — | — | 15,000 | |||||||||||||||||||||
Stock
based compensation
|
— | — | 24,547 | — | — | — | 24,547 | |||||||||||||||||||||
Net
loss
|
— | — | — | — | (207,877 | ) | — | (207,877 | ) | |||||||||||||||||||
Balance
- August 31, 2009
|
8,737,000 | 8,737 | 314,010 | — | (452,044 | ) | — | (129,297 | ) | |||||||||||||||||||
November
6, 2009 - issuance of common shares for related party debt at $0.05 per
share
|
1,000,000 | 1,000 | 49,000 | — | — | — | 50,000 | |||||||||||||||||||||
December
24, 2009 to February 19, 2010 - issuance of common shares for cash at
$0.125 per share
|
1,600,000 | 1,600 | 198,400 | — | — | — | 200,000 | |||||||||||||||||||||
February
1, 2010 - issuance of common shares for services at $0.20 per
share
|
110,000 | 110 | 21,890 | — | — | — | 22,000 | |||||||||||||||||||||
December
22, 2009 to January 22, 2010 - issuance of common shares and warrants for
finance fee
|
180,000 | 180 | 61,120 | — | — | — | 61,300 | |||||||||||||||||||||
Fair
value - beneficial conversion feature, warrants and
discount - issuance of 11% convertible
notes
|
— | — | 100,000 | — | — | — | 100,000 | |||||||||||||||||||||
March
3, 2010 - issuance of common shares for finance fee @ $0.25 per
share
|
10,000 | 10 | 2,490 | — | — | — | 2,500 | |||||||||||||||||||||
March
23, 2010 - issuance of common shares for bridge loan default conversion at
$.05 per share
|
1,544,877 | 1,545 | 75,699 | — | — | — | 77,244 | |||||||||||||||||||||
March
23, 2010 - fair value of warrants on default of bridge
loan
|
— | — | 787,369 | — | — | — | 787,369 | |||||||||||||||||||||
June
4, 2010 - issuance of common stock for consulting services at $0.35 per
share
|
50,000 | 50 | 19,450 | — | — | — | 19,500 | |||||||||||||||||||||
June
30, 2010 - Issuance of common stock for IT services at $0.25 per
share
|
8,608 | 9 | 2,143 | — | — | — | 2,152 | |||||||||||||||||||||
July
26, 2010 - Issuance of common stock employment fee expense
|
30,000 | 30 | 7,470 | — | — | — | 7,500 | |||||||||||||||||||||
April
3, 2010 to August 26, 2010 - issuance of common shares for cash at $0.25
per share
|
5,356,000 | 5,356 | 1,333,644 | — | — | — | 1,339,000 | |||||||||||||||||||||
August
16, 2010 - Issuance of common stock , cashless warrant exercise and
adjustment
|
101,427 | 101 | 3,445 | — | — | — | 3,546 | |||||||||||||||||||||
August
27, 2010 - Issuance of common stock for mineral property
|
4,000,000 | 4,000 | 2,116,000 | — | — | — | 2,120,000 | |||||||||||||||||||||
Stock
based compensation
|
— | — | 628,293 | — | — | — | 628,293 | |||||||||||||||||||||
Comprehensive
income (loss) - foreign exchange translation
|
— | — | — | — | — | 890 | 890 | |||||||||||||||||||||
Net
loss
|
— | — | — | — | (2,544,627 | ) | — | (2,544,627 | ) | |||||||||||||||||||
Balance
- August 31, 2010
|
22,727,912 | 22,728 | 5,720,423 | — | (2,996,671 | ) | 890 | 2,747,370 | ||||||||||||||||||||
October
18 to November 30, 2010 - issuance of common shares for cash at $0.50 per
share
|
1,700,000 | 1,700 | 848,300 | — | — | — | 850,000 | |||||||||||||||||||||
October
21, 2010 - Exercise of warrants issued in private placement for
cash
|
120,000 | 120 | 29,880 | — | — | — | 30,000 | |||||||||||||||||||||
September
20 - November 30, 2010 - Issuance of common stock for consulting at $0.25
per share
|
21,153 | 21 | 5,267 | — | — | — | 5,288 | |||||||||||||||||||||
June
1, 2010 - Issuance of common stock for rent at $0.25 per
share
|
144,000 | 144 | 35,856 | — | — | — | 36,000 | |||||||||||||||||||||
September
27 - November 12, 2010 - Cashless exercise of warrants issued in
consulting arrangements
|
139,564 | 140 | (140 | ) | — | — | — | — | ||||||||||||||||||||
November
27, 1010 - Convertible notes and accrued interest converted at $0.05 per
share
|
2,220,000 | 2,220 | 108,780 | — | — | — | 111,000 | |||||||||||||||||||||
November
30, 2010 - Exercise of warrant issued in connection with bridge
loan
|
1,500,000 | 1,500 | 73,500 | — | — | — | 75,000 | |||||||||||||||||||||
Stock
based compensation
|
— | — | 78,206 | — | — | — | 78,206 | |||||||||||||||||||||
Comprehensive
income (loss) - foreign currency translation
|
— | — | — | — | — | (6,418 | ) | (6,418 | ) | |||||||||||||||||||
Net
loss
|
— | — | — | — | (831,385 | ) | — | (831,385 | ) | |||||||||||||||||||
Balance
- November 30, 2010, (unaudited)
|
28,572,629 | $ | 28,573 | $ | 6,900,072 | $ | — | $ | (3,828,056 | ) | $ | (5,528 | ) | $ | 3,095,061 |
See
accompanying notes to unaudited consolidated financial
statements.
- 6
-
RUBY
CREEK RESOURCES, INC.
|
(An
Exploration Stage Company)
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
(Unaudited)
|
Cumulative
|
||||||||||||
for
the Period
|
||||||||||||
from
|
||||||||||||
May
3, 2006
|
||||||||||||
Three
Months Ended
|
(Inception)
to
|
|||||||||||
November
30,
|
November
30,
|
|||||||||||
2010
|
2009
|
2010
|
||||||||||
Cash
Flows From Operating Activities
|
||||||||||||
Net
loss
|
$ | (831,385 | ) | $ | (121,640 | ) | $ | (3,828,056 | ) | |||
Adjustments
to reconcile net loss to net cash (used in) operating
|
||||||||||||
activities:
|
||||||||||||
Depreciation
and amortization
|
3,263 | 230 | 7,875 | |||||||||
Donated
rent and services
|
— | — | 3,000 | |||||||||
Interest
and financing fees, including discount accretion - non
cash
|
136,934 | — | 1,213,509 | |||||||||
Common
stock issued for services
|
23,288 | — | 52,441 | |||||||||
Property
impairment
|
— | — | 9,771 | |||||||||
Stock
based compensation
|
78,206 | 78,544 | 731,046 | |||||||||
Net
changes in noncash working capital items:
|
||||||||||||
(Increase)
- GST receivable
|
— | (22 | ) | — | ||||||||
(Increase)
decrease - Prepaid expenses
|
(25,303 | ) | 285 | (46,126 | ) | |||||||
Increase (decrease)
- Accounts payable
|
(16,003 | ) | 9,149 | 139,124 | ||||||||
Increase
(decrease) - Due to related parties
|
64,569 | 30,163 | 106,901 | |||||||||
Net
cash flows (used in) operating activities
|
(566,431 | ) | (3,291 | ) | (1,610,515 | ) | ||||||
Cash
flows from investing activities
|
||||||||||||
Purchase
of equipment
|
(25,600 | ) | (2,401 | ) | (66,022 | ) | ||||||
Acquisition
of mineral properties
|
(30,000 | ) | — | (639,771 | ) | |||||||
Net
cash flows (used in) investing activities
|
(55,600 | ) | (2,401 | ) | (705,793 | ) | ||||||
Cash
flows from financing activities
|
||||||||||||
Issuance
of common shares for cash
|
955,000 | — | 2,789,200 | |||||||||
Gross
Proceeds of loan
|
— | — | 19,500 | |||||||||
Repayment
of loan
|
(6,500 | ) | — | (15,167 | ) | |||||||
Gross
proceeds on bridge loan - related party
|
— | — | 75,000 | |||||||||
Convertible
notes - related parties
|
— | — | 100,000 | |||||||||
Net
cash flows provided by financing activities
|
948,500 | — | 2,968,533 | |||||||||
Net
increase (decrease) in cash
|
326,469 | (5,692 | ) | 652,225 | ||||||||
Cash
- beginning of period
|
325,756 | 5,838 | — | |||||||||
Cash
- end of period
|
$ | 652,225 | $ | 146 | $ | 652,225 | ||||||
Supplemental
disclosures
|
||||||||||||
Interest
paid
|
$ | 231 | $ | — | $ | 459 | ||||||
Taxes
paid
|
— | — | — | |||||||||
Conversion
of related party debt to shares and warrants
|
— | — | 127,244 | |||||||||
Conversion
or related party convertible notes and accrued interest to
shares
|
111,000 | — | — | |||||||||
Mineral
property costs acquired - For short term debt
|
— | — | 1,100,000 | |||||||||
Mineral
property costs acquired - For long term debt, net of
discount
|
— | — | 3,576,170 | |||||||||
Mineral
property costs acquired - Fair value of common shares
issued
|
— | — | 2,120,000 |
See
accompanying notes to unaudited consolidated financial
statements.
- 7
-
Ruby
Creek Resources, Inc.
Notes
to Consolidated Financial Statements
(An
Exploration Stage Company)
November
30, 2010
Organization
Ruby
Creek Resources, Inc. (the “Company”) was incorporated in the Province of
British Columbia on May 3, 2006. The Company is an Exploration Stage
Company. The Company’s principal business is the acquisition and
exploration of mineral properties.
Effective
January 29, 2009, the Company changed its jurisdiction from the Province of
British Columbia to the State of Nevada. Effective the same date, the
Company's authorized capital was changed from an unlimited number of common
shares without par value to 500,000,000 common shares with a par value of $0.001
per share. Ruby Creek Resources (Tanzania) Limited (“RCRTz) was incorporated on
May 21, 2010 in Tanzania, a joint venture which is 70% owned by the
Company.
Going
Concern
These
financial statements have been prepared on a going concern basis, which implies
the Company will continue to realize its assets and discharge its liabilities in
the normal course of business. The Company is in the exploration stage and
has not generated revenues since inception. The Company has incurred
significant losses from inception through November 30, 2010 approximating
$3,828,000 and has a working capital deficit of $377,000 at November 30, 2010,
raising substantial doubt about the ability of the Company to continue as a
going concern. The continuation of the Company as a going concern is
dependent upon its ability to obtain necessary financing to settle outstanding
debts, fund ongoing operating losses and to determine the existence, discovery
and successful exploitation of economically recoverable mineral reserves on its
resource properties and ultimately on the attainment of future profitable
operations. The Company has received limited amounts of private equity
and/or convertible debt financing and is currently offering Units of its equity
securities (see Note 7e and 8) to certain current shareholders and new
investors. While the Company plans to raise funds on this private
placement, and management believes it has made significant progress on its plan
of operations, additional working capital and capital funds will be required to
finance the Company’s operations until commercial operations commence and
positive cash flow can be achieved. Management believes that additional
financing will be available on terms acceptable to the Company. However, there
can be no assurance of this, nor that commercial operations will be reached.
These financial statements do not include any adjustments to the
recoverability and classification of recorded asset amounts and classification
of liabilities that might be necessary should the Company be unable to continue
as a going concern.
Basis of
Presentation
Unaudited
Interim Financial Statements
The
accompanying unaudited interim financial statements have been prepared in
accordance with United States generally accepted accounting principles ("US
GAAP") for interim financial information and pursuant to the instructions to
Form 10-Q and Article 8 of Regulation S-X of the Securities and
Exchange Commission (“SEC”) and on the same basis as the annual audited
consolidated financial statements.
Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with US GAAP have been omitted pursuant to
such rules and regulations. However, except as disclosed herein, there has
been no material change in the information disclosed in the notes to the
financial statements for the year ended August 31, 2010 included in the
Company's annual report filed with the Securities and Exchange Commission.
The interim unaudited financial statements should be read in conjunction
with those financial statements included in the Form 10-K which was filed with
the SEC on December 13, 2010. In the opinion of Management, all
adjustments considered necessary for a fair presentation of the financial
position, operating results and cash flows for the period presented, consisting
solely of normal recurring adjustments, have been made. Operating results
for the three months ended November 30, 2010 are not necessarily indicative of
the results that may be expected for the year ending August 31,
2011.
Summary
of Significant Accounting Policies
a)
|
Use
of Estimates
|
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at
- 8
-
Ruby
Creek Resources, Inc.
Notes
to Consolidated Financial Statements
(An
Exploration Stage Company)
November
30, 2010
NOTE
1 - Organization and Summary of Significant Accounting Policies,
continued
the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
b)
|
Basic
and Diluted Net Loss Per Share
|
The
Company computes loss per share in accordance with generally accepted accounting
principles which requires presentation of both basic and diluted earnings
per share on the face of the statement of operations. Basic loss per share
is computed by dividing net loss available to common shareholders by the
weighted average number of outstanding common shares during the period.
Dilutive loss per share excludes all potential common shares if their
effect is anti-dilutive.
Shares of
common stock issuable upon conversion or exercise of potentially dilutive
securities at November 30, 2010 are as follows:
Shares
issuable upon exercise of warrants - July 2009 private
placement
|
200,000
|
|||
Shares
issuable upon conversion of November 27,
2009 warrants – issued with convertible notes
|
2,000,000
|
|||
Compensatory
warrant exercisable for shares to CEO
|
1,100,000
|
|||
Compensatory
warrants exercisable for shares to principal shareholders
|
1,500,000
|
|||
Compensatory
warrant/options exercisable for shares - others
|
1,490,000
|
|||
Bridge
Loan – principal investor – shares issuable upon conversion of
warrants
|
390,000
|
|||
Shares
issuable upon conversion of warrants issued in December 2009 private
placement
|
545,000
|
|||
Shares
issuable upon conversion of warrants issued in April 2010 private
placement
|
2,678,000
|
|||
Shares
issuable upon conversion of warrants issued in October 2010 private
placement (on-going as of November 30, 2010)
|
1,700,000
|
|||
Compensatory
stock options and shares – employment agreements
|
500,000
|
|||
Total
|
12,103,000
|
Certain
warrants and options include cashless exercise provisions.
c)
|
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 properties. The Company
classifies its mineral rights as tangible assets and accordingly acquisition
costs are initially 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 accounts 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 November
30, 2010, the Company has not incurred any potential costs related to the
retirement of mineral property interests since operation have not
commenced.
Upon
commencement of commercial operations, the Company will accrue costs associated
with environmental remediation obligations in accordance with ASC 410-20, Asset Retirement Obligations.
In accordance with ASC 410-20-25, Asset Retirement Obligations
-Recognition, the Company will record a liability for the present value
of the estimated environmental remediation costs in the period in which the
liability is incurred and becomes determinable, with an offsetting increase in
the carrying amount of the associated asset. The liability will be accreted and
the asset will be depreciated over the life of the related assets. Adjustments
for changes resulting from the passage of time and changes to either the timing
or amount of the original present value estimate underlying the obligation will
be made. As reclamation work is performed or liabilities are otherwise settled,
the recorded amount of the liability will be reduced.
- 9
-
Ruby
Creek Resources, Inc.
Notes
to Consolidated Financial Statements
(An
Exploration Stage Company)
November
30, 2010
NOTE
1 - Organization and Summary of Significant Accounting Policies,
continued
The
Company will accrue costs associated with any environmental remediation
obligation when it is probable that such costs will be incurred and they are
reasonably estimable. Estimates for reclamation and other closure costs are
prepared in accordance with ASC 450, Contingencies, or ASC
410-30-25, Asset Retirement
and Environmental Obligations - Recognition. Costs of future expenditures
for environmental remediation will not be discounted to their present value
unless subject to a contractually obligated fixed payment schedule. Such costs
will be based on management’s then current best estimate of amounts to be
incurred when the remediation work is performed, within current laws and
regulations.
Future
reclamation and environmental-related expenditures are difficult to estimate, in
many circumstances, due to the early stage nature of the exploration project,
and uncertainties associated with defining the nature and extent of
environmental disturbance and the application of laws and regulations by
regulatory authorities and changes in reclamation or remediation technology. The
Company will be required to periodically review accrued liabilities for such
reclamation and remediation costs as evidence becomes available indicating that
the liabilities have potentially changed. Changes in estimates will be reflected
in the statement of operations in the period an estimate is
revised.
e)
|
Foreign
Currency Translation
|
The
Company’s functional and reporting currency is the United States dollar. The
functional currency of the Company’s Tanzanian subsidiary is the Tanzanian
Shilling. The financial statements of the subsidiary are translated to United
States dollars in accordance with ASC 830, Foreign Currency Translation
Matters. Monetary assets and liabilities denominated in foreign
currencies are translated using the exchange rate prevailing at the balance
sheet date. Non-monetary assets and liabilities denominated in foreign
currencies are translated at rates of exchange in effect at the date of the
transaction. Average monthly rates are used to translate revenues and expenses.
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.
f)
|
Fair
Value of Financial Instruments
|
Fair
value is defined as the price that would be received upon sale of an asset or
paid upon transfer of a liability in an orderly transaction between market
participants at the measurement date and in the principal or most advantageous
market for that asset or liability. The fair value should be calculated based on
assumptions that market participants would use in pricing the asset or
liability, not on assumptions specific to the entity. In addition, the fair
value of liabilities should include consideration of non-performance risk
including the entity’s own credit risk.
A fair
value hierarchy for valuation inputs is established. The hierarchy prioritizes
the inputs into three levels based on the extent to which inputs used in
measuring fair value are observable in the market. Each fair value measurement
is reported in one of the three levels and which is determined by the lowest
level input that is significant to the fair value measurement in its
entirety.
These
levels are:
Level 1 –
inputs are based upon unadjusted quoted prices for identical instruments traded
in active markets.
Level 2 –
inputs are based upon quoted prices for similar instruments in active markets,
quoted prices for identical or similar instruments in markets that are not
active, and model-based valuation techniques for which all significant
assumptions are observable in the market or can be corroborated by observable
market data for substantially the full term of the assets or
liabilities.
Level 3 –
inputs are generally unobservable and typically reflect management’s estimates
of assumptions that market participants would use in pricing the asset or
liability. The fair values are therefore determined using model-based techniques
that include option pricing models, discounted cash flow models, and similar
techniques.
The
Company’s financial instruments consist of cash, accounts payable, accrued
interest, loan payable, convertible notes and amounts due to Douglas Lake. The
carrying value of these financial instruments approximates their fair value
based on their liquidity, their short-term nature or application of appropriate
risk based discount rates to determine fair value. These financial assets and
liabilities are valued using level 3 inputs, except for cash which is at level
1. The Company is not exposed to significant interest, exchange or credit risk
arising from these financial instruments.
- 10
-
Ruby
Creek Resources, Inc.
Notes
to Consolidated Financial Statements
(An
Exploration Stage Company)
November
30, 2010
NOTE
1 - Organization and Summary of Significant Accounting Policies,
continued
g)
|
Stock-Based
Compensation
|
The
Company records stock-based compensation in using the fair value method.
All transactions in which goods or services are the consideration received
for the issuance of equity instruments are accounted for based on the fair value
of the consideration received or the fair value of the equity instrument issued,
whichever is more reliably measurable. Equity instruments issued to
employees and the cost of the services received as consideration are measured
and recognized based on the fair value of the equity instruments issued. Certain warrants and
options include cashless exercise provisions.
h)
|
Income
Taxes
|
The
Company accounts for income taxes using the asset and liability method in
accordance with ASC 740, Income Taxes. The asset and
liability method provides that deferred tax assets and liabilities are
recognized for the expected future tax consequences of temporary differences
between the financial reporting and tax bases of assets and liabilities, and for
operating loss and tax credit carryforwards. Deferred tax assets and liabilities
are measured using the currently enacted tax rates and laws that will be in
effect when the differences are expected to reverse. The Company records a
valuation allowance to reduce deferred tax assets to the amount that is believed
more likely than not to be realized.
i)
|
Recent
Accounting Pronouncements
|
Accounting
Standards Codification
The
Accounting Standards Codification (ASC) has become the source of authoritative
U.S. generally accepted accounting principles (“GAAP”). The ASC only
changes the referencing of financial accounting standards and does not change or
alter existing GAAP.
In
January 2010, the FASB issued ASC No. 2010-06, “Fair Value Measurement and
Disclosures (Topic 820): Improving Disclosure and Fair Value
Measurements”, which requires that purchases, sales, issuances, and
settlements for Level 3 measurements be disclosed. ASC No. 2010-06 is
effective for its fiscal quarter beginning after 15 December 2010. The
adoption of ASC No. 2010-06 is not expected to have a material impact on the
Company’s consolidated financial statements.
In
February 2010, the FASB issued ASU No. 2010-11, “Derivatives and Hedging (Topic
815): Scope Exception Related to Embedded Credit Derivatives”. ASU No.
2010-11 clarifies the type of embedded credit derivative that is exempt from
embedded derivative bifurcation requirements. Specifically, only one form of
embedded credit derivative qualifies for the exemption – one that is related
only to the subordination of one financial instrument to another. As a result,
entities that have contracts containing an embedded credit derivative feature in
a form other than such subordination may need to separately account for the
embedded credit derivative feature. The amendments in ASU No. 2010-11 are
effective for each reporting entity at the beginning of its first fiscal quarter
beginning after 15 June 2010. Early adoption is permitted at the beginning of
each entity’s first fiscal quarter beginning after 5 March 2010. The adoption of
ASC No. 2010-11 is not expected to have a material impact on the Company’s
consolidated financial statements.
In
February 2010, the FASB issued ASC No. 2010-09, “Amendments to Certain Recognition
and Disclosure Requirements”, which eliminates the requirement for SEC
filers to disclose the date through which an entity has evaluated subsequent
events. ASC No. 2010-09 is effective for its fiscal quarter beginning
after 15 December 2010. The adoption of ASC No. 2010-06 is not expected to
have a material impact on the Company’s consolidated financial
statements
In
February 2010, the FASB issued ASU No. 2010-11, “Derivatives and Hedging (Topic
815): Scope Exception Related to Embedded Credit Derivatives”. ASU No.
2010-11 clarifies the type of embedded credit derivative that is exempt from
embedded derivative bifurcation requirements. Specifically, only one form of
embedded credit derivative qualifies for the exemption – one that is related
only to the subordination of one financial instrument to another. As a result,
entities that have contracts containing an embedded credit derivative feature in
a form other than such subordination may need to separately account for the
embedded credit derivative feature. The amendments in ASU No. 2010-11 are
effective for each reporting entity at the beginning of its first fiscal quarter
beginning after June 15, 2010. Early adoption is permitted at the beginning of
each entity’s first fiscal quarter beginning after March 5, 2010. The adoption
of ASC No. 2010-11 did not have a material impact on the Company’s
consolidated financial statements.
- 11
-
Ruby
Creek Resources, Inc.
Notes
to Consolidated Financial Statements
(An
Exploration Stage Company)
November
30, 2010
NOTE
2 - Mineral Properties
(a) On November
7, 2009, the Company entered into a Purchase Agreement (the “Agreement”) with
Douglas Lake, for the right to acquire and develop a portion of Douglas Lake’s
Mkuvia Gold Project. Pursuant to the terms of the Agreement, the Company
acquired a seventy percent (70%) interest in 125 square kilometers of the 380
square kilometers Mkuvia Gold Project for total gross consideration of
$3,000,000, payable over three years. In accordance with the terms of the
Agreement, the Company initially paid $250,000, and upon satisfactory due
diligence paid an additional $100,000. For financial reporting purposes, the
transaction contemplated by the Agreement has an effective date of March 15,
2010.
Additionally,
the Agreement provides that within 12 months of receipt of the initial mining
license, the Company has the option to increase its interest to 75 percent of
the 125 square kilometers by making an additional $1,000,000 payment to Douglas
Lake. In all cases, the original owner of the four prospecting licenses,
Mr. Mkuvia Maita, retains a 3 percent Net Smelter Royalty as per the original
agreement between Mr. Maita and Douglas Lake.
The
Mkuvia Gold Project is located in the Liwale and Nachingwea Districts,
Lindi Region of the United Republic of Tanzania.
(b) On March 7,
2010, the Company entered into an agreement for the creation of a Tanzanian
joint venture company (“RCRTz”) formed for the ownership and management of the
125 square kilometer Mkuvia Gold Project. The joint venture company is owned 70%
by the Company, 25% by Douglas Lake and 5% by Mr. Maita Mkuvia (subject to
conditions as described below), the original Prospecting License owner. The
joint venture company was officially formed in Tanzania on May 21, 2010. RCRTz
will be the operating company holding the mineral rights to the 125 square
kilometers of land relating to Mkuvia Gold Project as well as the additional 255
sq km of the Mkuvia Gold Project acquired on June 16, 2010 as described below. A
second Joint Venture Agreement (the “JVA”) was entered into by the parties with
respect to the additional 255 sq km of the Mkuvia Gold Project whereby RCRTz
assumed control of the permitting and licensing processes. The JVA provides that
Mr. Mkuvia’s 5% interest shall vest when RCRTz obtains a mining license over a
portion of the area covered by the Prospecting Licenses relating to the 380 sq
km of the Project and a retention license over the balance for the
area.
(c) Effective on
June 16, 2010, the Company acquired the exclusive mineral and mining rights to
the remaining 255 square kilometers of the Mkuvia Gold Project in Tanzania from
Douglas Lake. As consideration, the Company is required to pay Douglas Lake
$6,000,000 over a three-year period in a combination of cash and common shares.
The Company has paid $250,000 and issued 4,000,000 common shares of the Company
with a fair market value of $2,120,000 at $0.53 per share (fair market value on
date of issuance), which was due within 30 days of receipt of governmental
Certificates of Acknowledgement. For contractual purposes these 4,000,000 shares
had a value of $3,200,000, based upon a stated value of $0.80 per share. In
addition $450,000 is due on June 1, 2011; $1,000,000 is due on June 1, 2012; and
$1,000,000 is due on June 1 2013. An additional $100,000 due to Douglas Lake is
being retained to satisfy Douglas Lake’s financial obligation to deliver an
environmental study and an initial mining license. The Company has the option to
satisfy the final $1,000,000 payment due on June 1, 2013 by issuing shares of
its common stock based upon the Volume Weighted Average Price (“VWAP”) for the
20 days immediately preceding the payment date. Scheduled cash
payments can be accelerated in the event of future equity financing or obtaining
additional mining licenses. The new Purchase Agreement also provides that the
Company has the option to increase its interest from the current 70% to 75% of
the Project by making an additional $1,000,000 payment to Douglas Lake. For
financial reporting purposes, the series of future payments in the gross amount
of $2,450,000 were recorded at their fair value of $1,882,127 (of which $398,565
was current as of the transaction date) determined utilizing a
- 12
-
Ruby
Creek Resources, Inc.
Notes
to Consolidated Financial Statements
(An
Exploration Stage Company)
November
30, 2010
NOTE 2 – Mineral Properties,
continued
discount
rate of 12% per annum resulting in a discount of $567,872. Interest expense for
the three months ended November 30, 2010 includes amortization of $58,874 of
this debt discount, resulting in a remaining net balance of these future
payments as of November 30, 2010 of $2,001,861. As a result of the transactions
above the Company owns 70% of the mineral and mining rights to the entire 380 sq
km of the Mkuvia Gold Project, and has the option to increase its interest from
70% to 75% for $2,000,000.
(d) On
September 9, 2010, the Company signed an agreement with Carlos JK
Kapinga (“CJKK”) (the property rights owner) and Magembe Cheyo (“MC”) (the
introducing party), whereby the Company was granted the exclusive right for six
months to acquire the mineral and mining rights to the 340 sq km Kapinga
property for a fixed purchase price of $500,000. A non-refundable deposit of
$30,000 (including fees) has been paid and is included in the accompanying
balance sheet. Should the Company exercise its purchase option in the
contractual six month due diligence period ending March 9, 2011, the
Kapinga Gold Property will be transferred on closing into a Tanzanian joint
venture company, Ruby Creek Gold (Tanzania) Limited. The Company will own 87% of
the joint venture, CJKK 10% and MC 3%. According to the
terms of the agreement, if the Company exercises its right, a total of
$230,000 will be due at that time. The final $250,000
payment is due upon the issuance of the first mining license for the Kapinga
Gold Property. Payments can be made in cash, or at the option of
CJKK, in common shares of the Company. MC received $10,000 upon execution and is
entitled to (i) additional consideration of $20,000 and 25,000 common shares of
the Company if the Company exercises its rights to acquire the property and (ii)
$20,000 and 25,000 common shares of the Company upon issuance of a mining
license.
Both the
Kapinga Gold Project and the Company’s Mkuvia Gold Project are located in the
Liwale and Nachingwea Districts, Lindi Region of the United Republic of
Tanzania.
NOTE
3 - Bridge Loan
On
December 22, 2009, the Company received $75,000 in proceeds of a bridge loan
transaction (the “Bridge”) from a significant shareholder and special advisor
(currently a director) (“Holder”). The loan bears interest at the rate of
12% per annum. The loan agreement grants the holder the right to convert
any portion of the balance plus accrued interest into common shares of the
Company at a price of $0.125 per share. The original due date of the
bridge of January 22, 2010 was extended several times by mutual consent,
ultimately to March 23, 2010. In consideration of the loan and these
extensions, the Company agreed to additional consideration in the form of units
of securities and additional warrants. This additional consideration
resulted in the issuance of an aggregate of 180,000 common shares and two year
warrants to purchase an additional 390,000 common shares at $0.25 per share.
The fair value of this consideration of $61,300 was included in interest
expense for the year ended August 31, 2010. This amount consisted of fair
value of the common shares ($31,500), and the fair value of the warrants
($29,800) based upon the Black-Scholes option pricing model. On
March 23, 2010, the Company defaulted on the payment of interest and principal
on the bridge. Upon occurrence of the default, the Holder converted the
outstanding balance of the note ($75,000) and accrued interest ($2,244) into
1,544,877 shares of common stock of the Company at the contractual conversion
price of $0.05 per share. In addition, as a result of this default, the
Company was obligated to issue to the Holder, a two year warrant to
purchase 1,500,000 common shares at an exercise price of $0.05 per share.
This default resulted in a financing charge of $787,369, comprised of $386,219
fair value of common shares issuable in excess of book value of liabilities and
$401,150 fair value of the warrant, which recorded effective on the default
date. The Company estimated the fair value of the warrants using the
Black-Scholes option pricing model with the following assumptions: an expected
life of two years, a risk-free interest rate of 1.02%, a dividend rate of 0% and
an expected volatility of 136%.
In
November 2010, the Holder exercised his conversion rights to the 1,500,000
default warrant and the Company received $75,000 and issued 1,500,000 restricted
common shares.
On
November 27, 2009, the Company issued two $50,000, 11% convertible notes for
total proceeds of $100,000 to a significant shareholder and special advisor
(currently a director) and to another significant shareholder. These notes
were due and payable on November 27, 2010. In addition, each holder of
the note received 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 Company
calculated an associated beneficial conversion feature and discount of $100,000
which amount was reflected as a discount of the face amount of these debentures
on the date of the transaction. The amount was determined using the
relative fair value method. The Company estimated the
fair
- 13
-
Ruby
Creek Resources, Inc.
Notes
to Consolidated Financial Statements
(An
Exploration Stage Company)
November
30, 2010
NOTE
4 - Convertible Notes – Related Parties, continued
value of
the warrant using the Black-Scholes option pricing model with the following
assumptions: an expected life of three years, a risk-free interest rate of
2.57%, a dividend rate of 0% and an expected volatility of 116%. This discount
was amortized to interest expense over the term of the debentures, and was
reflected as a non-cash charge in the accompanying financial statements of which
$75,890 was amortized to interest expense in the year ended August 31, 2010 and
$24,110 for the three months ended November 30, 2010.
On
November 27, 2010, the holders of the convertible notes elected to convert these
notes, plus an aggregate of $11,000 in interest earned, into 2,220,000 shares
of common stock at the conversion price of $0.05 per common
share.
NOTE
5 - Other Related Party Transactions
At
November 30, 2010, the Company was indebted to its CEO in the amount of $12,901,
including amounts due for accrued compensation. At August 31, 2010,
the Chief Executive Officer (“CEO”) was indebted to the Company in the amount of
$39,668. This represents net amounts advanced for travel and mining related
expenses to be incurred while in Tanzania. During the year ended August
31, 2010, the CEO purchased 1,000,000 shares of common stock of the Company at
$0.05 per share by applying $50,000 of his balance due from the Company on
that date. On September 1, 2009, the Company granted 1,100,000
compensation warrants to the CEO at an exercise price of $0.05 per share for a
term of 5 years. These options vested 25% every three months over a period
of one year. The Company estimated the fair value of these warrants to be
$72,500 at the date of grant, using the Black-Scholes option pricing model with
the following assumptions: expected life of three years, a risk-free interest
rate of 2.57%, a dividend yield of 0% and an expected volatility of 100%.
Stock-based compensation of $18,125 was recorded during the three months ended
November 30, 2009 as management services (2010 - Nil).
At
November 30, 2010 and August 31, 2010, respectively, $44,000 and $32,000 was
owing to a significant shareholder and special advisor (currently a director)
for consulting services.
All
related party transactions are in the normal course of business and are measured
at the exchange amount, which is the amount of consideration established and
agreed to by the related parties.
NOTE
6 – Commitments and Contingencies
a)
|
On
March 8, 2010, the Company was served with a Writ of Summons from its
former general counsel, Lang Michener LLP of Vancouver, Canada, for the
collection of its alleged uncollected fees in the amount of approximately
$105,000. On November 23, 2010, the parties settled this litigation
and the Company paid approximately $75,000 in full satisfaction of the
debt resulting in a gain of approximately $30,000. Mutual releases were
exchanged.
|
b)
|
In
April 2010, the Company entered into an arrangement with a company
affiliated with a principal shareholder for the use of its office space
and facilities in New York City for a one year period in the amount of
$36,000. This obligation was satisfied by the issuance of 144,000
restricted common shares of the Company valued at $0.25 per
share. This amount is being recognized as rent expense in
results of operations at the rate of $3,000 per month commencing in June
2010.
|
c)
|
On
April 24, 2010, the Company entered into an Advisory
Agreement. The initial term of the agreement is for one year
and is renewable for successive one-year periods on mutually acceptable
terms. The Advisor may terminate this Agreement at any time by giving the
other party ten business day’s prior written notice of
termination. The terms of the agreement provide that the Advisor will be
available to provide advice on developing conditions in Tanzania as they
pertain to establishing commercially viable mining operation on the Mkuvia
Gold Project property or other properties of interest to the Company.
Compensation is comprised of $6,000 and warrants to purchase 50,000 shares
of the common stock of the Company at $0.35 per share vested
upon execution; and $6,000 and warrants to purchase 50,000 shares of the
common stock of the Company at $0.35 per share payable and vested on
October 24, 2010. The warrants have a five year life and contain a
cashless exercise provision. The Company estimated the fair value of the
warrants granted upon execution to be $13,609 at the date of grant, using
the Black-Scholes option pricing model with the following
assumptions: an expected life of two years, a risk-free interest
rate of 1.68%, a dividend rate of 0% and an expected volatility of
139%. Stock-based compensation of $13,609 was included in consulting
services during the year ended August 31,
2010.
|
- 14
-
Ruby
Creek Resources, Inc.
Notes
to Consolidated Financial Statements
(An
Exploration Stage Company)
November
30, 2010
NOTE
6 – Commitments and Contingencies, continued
On
May 15, 2010, the Company entered into a financial advisory and media
services agreement for a six month period. The agreement is cancellable on
60 days written notice by either party and may be extended for an
additional six months if mutually agreed by the parties. Compensation is
comprised of £2,000 per month plus reimbursement of expenses and warrants
to purchase 200,000 shares of the Company’s common stock at $0.35 per
share, vesting 20% upon execution and 20% for each of the subsequent four
quarters. These warrants have a two-year life and include a cashless
exercise provision. The Company estimated the fair value of these warrants
to be $64,684 at the date of grant (which is subject to re-measurement on
each vesting date), using the Black-Scholes option pricing model with the
following assumptions: an expected life of two years, a
risk-free interest rate of 1.28%, a dividend rate and forfeiture rate of
0%, and an expected volatility of 139%. Stock-based
compensation of $11,949 was recorded as consulting services for the three
months ended November 30, 2010 (2009: nil).
|
|
e)
|
Effective
June 4, 2010, the Company entered into an Advisory Agreement with Mr.
Mkuvia Maita (“Advisor”), the original owner of the prospecting licenses
of the Mkuvia Gold Project. The initial term of the agreement is for a
three year period. The Advisor or the Company may terminate this Agreement
at any time by giving the other party ninety (90) days prior written
notice of termination. This Agreement may be renewed for
successive one-year periods on mutually acceptable terms. Compensation is
comprised of $1,000 for each Director’s meeting the Advisor attends and
300,000 shares of common shares of stock of the Company as follows: 50,000
shares vested upon signing, 75,000 shares issuable on June 4, 2011; 75,000
shares issuable on June 4, 2012 and 100,000 shares on June 4, 2013. In the
year ended August 31, 2010, the Company recognized $2,000 in fees paid and
$19,500 in stock based compensation relating to the 50,000 shares issued
(Nil in the three months ended November 30, 2010).
|
f)
|
On
December 4, 2010, effective July 28, 2010, the Company entered into an
employment agreement with a Director of Corporate Communications,
Strategic and Technical Advisor. The term of the agreement is two years,
automatically renewable for successive one year terms unless terminated by
either party on 60 days advance notice. The contractual annual salary is
$93,600 plus bonuses at the discretion of the Board of Directors. The
employee is entitled to 200,000 common shares of the Company, 100,000
vesting on commencement, and 100,000 vesting six months thereafter. In
addition, the employee was granted non-qualified stock options to purchase
300,000 shares of common stock, which shall vest at the rate of 37,500
options per quarter from the effective date. The options granted are
exercisable at $0.60 per share and have a five year life. Notwithstanding
the vesting provision, all options shall become fully vested in the event
of a change in control, as defined in the agreement. The
Company estimated the fair value of the stock options to be $132,522 at
the date of grant, using the Black-Scholes option pricing model with the
following assumptions: expected life of five years, risk-free interest
rate of 0.61%, a dividend and forfeiture rate of 0% and a volatility of
143.7%. The amount is being amortized ratably over the initial
expected two years term of service. Stock based compensation in the amount
of $22,087 with respect to the stock options and $16,667 with respect to
the amortization of the fair value of the shares granted are included in
results of operations for the three months ended November 30,
2010.
|
NOTE
7 - Common Stock
a) Effective
January 29, 2009, the Company re-domiciled from the Province of British Columbia
to the State of Nevada. Effective the same date, the Company's authorized
capital was changed from an unlimited number of common shares without par value
to 500,000,000 common shares with a par value of $0.001 per share.
b) During the
period from December 24, 2009 to February 10, 2010, the Company conducted an
offering of equity securities pursuant to Rule 506 of Regulation D and
Regulation S. The Company sold 1,600,000 Units at a price of $0.125 per
Unit for a total of $200,000 to 20 investors. Each Unit consisted of one
restricted common share and one warrant. Two warrants are required to buy
one restricted common share at a price of $0.25 per share for a period of up to
two years. The Company estimated the fair value of these warrants to be
approximately $90,000 at the date of grant, using the Black-Scholes option
pricing model with the following assumptions: expected life of two years,
risk-free interest rate ranging from 0.77%-1.00%, a dividend rate of 0% and an
expected average volatility of approximately 117%, which is reflected as a
component of additional paid-in capital.
c) On January
29, 2010, the Company entered into an agreement with a consultant to assist
management on a part time basis in the role of interim chief financial officer
(“Consultant”) for a six-month period which commenced on February 1, 2010.
Compensation for these services
- 15
-
Ruby
Creek Resources, Inc.
Notes
to Consolidated Financial Statements
(An
Exploration Stage Company)
November
30, 2010
NOTE 7 - Common Stock,
continued
is at the
rate of $6,500 per month for half-time services (plus additional compensation
for additional services), 60,000 shares of common stock, plus a signing bonus of
50,000 shares of common stock, (which shares had a combined fair market value of
$22,000 at the date of grant). The fair
value of these issuances was expensed ratably over the period of
service.
The
arrangement has been continued on a month-to month basis and approximately
$46,500 is included in management services for the three months ended November
30, 2010.
d) During the
period from April 3, 2010 through August 26, 2010, the Company conducted an
offering of equity securities pursuant to Rule 506 of Regulation D and
Regulation S. The Company sold 5,356,000 Units at a price of $0.25 per Unit for
a total of $1,339,000. Each Unit consisted of one common share and one warrant.
Two warrants are required to buy one common share at a price of $0.50 per share
for a period of up to two years. The Company estimated the fair value of these
warrants to be approximately $1,126,000 at the date of grant, using the
Black-Scholes option pricing model with the following assumptions: expected life
of two years, risk-free interest rate ranging from 0.50%1.18%, a dividend
rate and forfeiture rate of 0% and an expected range of volatility from 139.7%
to 144.6%. This amount is reflected as a component of additional paid-in
capital.
e) On October
18, 2010, the Company commenced an offering of its equity securities pursuant to
Rule 506 of Regulation D and Regulation S. Through November 30, 2010,
the Company received $850,000 in proceeds for the sale of 1,700,000 Units at a
price of $0.50 per Unit. Each Unit consists of one common share and
one common stock purchase warrant. One warrant is required to buy one common
share, or an aggregate of 1,700,000 common shares, at a price of $1.00 per share
exercisable for a period of up to two years. The Company estimated the fair
value of these warrants to be approximately $725,000 at the date of grant, using
the Black-Scholes option pricing model with the following assumptions: expected
life of two years, risk-free interest rate ranging from 0.34% to 0.52%, a
dividend rate and forfeiture rate of 0% and an expected range of volatility from
144.3% to 144.9%. This amount is reflected as a component of additional paid-in
capital.
f) As more fully
described in Note 6f, on December 4, 2010, an employee was granted 200,000
shares of restricted common stock pursuant to an employment agreement effective
July 28, 2010.
Stock
Options and Warrants
On
October 15, 2009, the Company granted 150,000 stock options to a consultant at
an exercise price of $0.05 per share for a term of 5 years. These options
vest 25% every three months over a period of one year. The Company
estimated the fair value of these options that vested to be
$18,369 using the Black-Scholes option pricing model with the
following assumptions: an initial expected life of three years, a risk-free
interest rate of 0..46% to 2.57%, a dividend rate of 0% and an expected
volatility of 104% to 121%. The remainder of stock-based compensation for
these options of $18,369 was recorded as consulting fees during the three months
ended November 30, 2010.
On
November 1, 2009, the Company granted 150,000 stock options to a consultant at
an exercise price of $0.05 per share for a term of 5 years. These options
vest 25% every three months over a period of one year. The Company
estimated the fair value of these options that vested to be $18,369 using the
Black-Scholes option pricing model with the following assumptions: an expected
initial life of three years, a risk-free interest rate of .46% to 2.57%, a
dividend rate of 0% and an expected volatility of 103% to 121%. The
remainder of stock-based compensation for these options of $18,369 was recorded
as consulting fees during the three months ended November 30, 2010.
On
January 20, 2010, the Company granted 40,000 stock options to a consultant at an
exercise price of $0.05 per share for a term of 5 years. These options
vest 25% every three months over a period of one year. The Company
estimated the fair value of these options that vested to be $7,431 using the
Black-Scholes option pricing model with the following assumptions: an expected
initial life of three years, a risk-free interest
rate of
.095% to 2.57%, a dividend rate of 0% and an expected volatility of 117% to
121%. Stock-based compensation of $7,431 was recorded as consulting fees
during the three months ended November 30, 2010 and the remainder will be
recorded over the term of vesting.
On May
15, 2010, the Company granted 200,000 stock options to a consultant at an
exercise price of $0.35 per share for a term of two years. These options vest
20% on grant and 20% every three months over a period of one year. The Company
estimated the fair value of the options that vested to be $11,949 using the
Black-Scholes option pricing model with the following assumptions: an expected
life of two years, a risk-free interest rate of 1.28%, a dividend rate of 0% and
an expected volatility of 139%. Stock-based compensation of $11,949 was recorded
as consulting fees during the three months ended November 30, 2010 and the
remainder will be recorded over the term of vesting.
- 16
-
Ruby
Creek Resources, Inc.
Notes
to Consolidated Financial Statements
(An
Exploration Stage Company)
November
30, 2010
NOTE
7 - Common Stock, continued
As more
fully described in Note 6f, effective on July 28, 2010, an employee was granted
non-qualified stock options to purchase 300,000 shares of common
stock.
In August
2010, the holder of 112,500 vested compensatory stock options, issued at $0.05
per share, exercised a cashless exercise provision included
in the agreement and received 101,427 common shares. The total intrinsic value
of these options exercised at August 31, 2010 was $54,000.
On
October 21, 2010 240,000 warrants issued in a private placements were
exercised to acquire 120,000 shares for net proceeds of $30,000.
NOTE
8 - Subsequent Events
a)
|
Subsequent
to November 30, 2010 and through January 11, 2011, the Company
received proceeds of $462,000 for 924,000 Units in the private
placement which began on October 18, 2010 (see Note 7e) for an aggregate
of 924,000 common shares and warrants to purchase 924,000 shares
at $1.00 per share.
|
b)
|
Effective
January 12, 2011, the Company
entered into two transactions with Gold Standard Ltd, a private limited
liability Cayman Islands Company and Gold Standard Tanzania Ltd, a private
limited liability Tanzanian Company. The first is for the
purchase of a 95% controlling interest of Gold Standard Tanzania Ltd.
whose assets include a 25-year, 10 square kilometer mining license issued
in September 2010, two Prospecting License Joint Ventures of 50 (inclusive
of the mining license) and 89 square kilometers, respectively, a Regional
Environmental Report on the combined 139 square kilometer property and an
established mining camp. The aggregate purchase price of $2,085,000 is
comprised of $50,000 due contract (paid), $450,000 on closing, the
issuance of a $1 million 8% convertible debenture due in 18 months plus
the assumption of $585,000 in liabilities. The property is immediately
adjacent to and on the west-northwest border of the Company’s Gold Plateau
Project, Mkuvia 1 Property, acquired in November 2009. The second is for
the purchase of mining equipment located both on-site and in Dar es
Salaam. This equipment includes excavators, dump trucks,
loaders, bulldozers, supply and support vehicles, and other mining
equipment. The aggregate purchase price of $1.5 million is comprised of
$50,000 due contract (paid), $450,000 on closing and the issuance of a $1
million 8% convertible debenture due in 18 months.
The
convertible debentures are payable in three equal payments which are due
six, twelve an eighteen months after closing, plus accrued interest on the
declining balance. The holders may elect to receive in payment of any
portion of interest and/or principal in restricted common shares of the
Company with a stated value of $0.50 per share.
The
transaction is subject to satisfactory completion of due diligence
procedures and is scheduled to close no later than 90 days after the
contract dates.
|
c)
|
Subsequent
to November 30, 2010, three holders of an aggregate of 270,000 warrants
issued in the private placement described in Note 7 above exercised their
rights to purchase 135,000 shares of common stock for which the Company
received $33,750.
|
The
Company evaluated subsequent events through the financial statement filing
date.
- 17
-
Ruby
Creek Resources, Inc.
(An Exploration Stage
Company)
November
30, 2010
As used
in this quarterly report: (i) the terms "we", "us", "our" and the "Company" mean
Ruby Creek Resources, Inc.; (ii) "SEC" refers to the Securities and Exchange
Commission; (iii) "Exchange Act" refers to the Securities Exchange Act of 1934,
as amended; and (iv) all dollar amounts refer to United States dollars unless
otherwise indicated.
The
following discussion of our plan of operations, results of operations and
financial condition for the comparative three-month period ended November 30,
2010 should be read in conjunction with our unaudited interim financial
statements and related notes for the comparative three month periods ended
November 30, 2010 included in this quarterly report. This 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, some of which are outside our control.
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. As noted above, 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 lack of operating revenues, uncertainty on the
availability of adequate financial resources to support operations and to fund
future payment obligations associated with the acquisitions of the Mkuvia Gold
Project and the Kapinga Gold Property and, there exists substantial doubt about
our ability to continue as a going concern. Even if we (i) complete our current
exploration and test mining program related to the Mkuvia Gold Project, (ii)
consummate the Kapinga transaction and secure our first mining license and (iii)
we are successful in identifying mineral deposits, we will have to spend
substantial funds on further drilling and engineering studies, mining equipment
and/or contractors before we will know if we have a commercially viable mineral
deposit or reserve. Our plan of operations for the next twelve months is to
obtain the funding necessary for the continued exploration and development of
the Mkuvia Gold Project and other potential exploration properties.
Liquidity
and Financial Condition
At
November 30, 2010, we had cash of approximately $652,000 and a working capital
deficit of approximately $377,000, including a current
liability approximating $924,000 to Douglas Lake Minerals (see
Note 2). In addition to working capital requirements, our need
for liquidity includes payment obligations remaining under our Mkuvia Gold
Property and other property purchases. With respect to the 125 Sq Km Mkuvia
Property rights acquisition, the Company will be required to make (i) a payment
of $400,000 to Douglas Lake Minerals upon the issuance of the initial mining
license which is anticipated to occur in the first half of fiscal 2011; and (ii)
three additional payments of $750,000 within 12, 24 months and 36 months of that
date. The Company has the option to satisfy the final $750,000
payment (which would be due on September, 2013, should the mining license be
issued in September 2010) by issuing shares of its common stock based upon the
Volume Weighted Average Price (“VWAP”) for the 10 days immediately preceding the
payment date. In connection with the acquisition of the rights to the
225 sq km of the Mkuvia Gold Project on June 16, 2010 we have remaining
obligations to pay $450,000 on June 1, 2011; $1,000,000 on June 1, 2012; and
$1,000,000 on June 1 2013. The Company has the option to satisfy the final
$1,000,000 payment due on June 1, 2013, by issuing shares of its common stock
based upon the Volume Weighted Average Price (“VWAP”) for the 20 days
immediately preceding the payment date. Complete details of these agreements are
included elsewhere in this document. The Purchase Agreements also provide us
with the option to increase our interest from the current 70% to 75% of the
Project by making an aggregate payment of an additional $2,000,000 to Douglas
Lake. Therefore, in total with respect to the entire 380 sq km of the Project,
we have the option to increase our interest from 70% to 75% for $2,000,000. The
convertible debentures are payable in three equal payments due six, twelve an
eighteen months after closing, plus accrued interest on the declining
balance. The holders may elect to receive in payment of any portion of interest
and/or principal restricted common shares of the Company valued at $0.50 per
share.
The
transaction is subject to satisfactory completion of due diligence procedures
and is scheduled to close no later than 90 days after the contract
dates.
Upon
consummation of the Kapinga Gold Property transaction, we will require an
additional $225,000 on closing which is scheduled to occur no later than March
2011. An additional $250,000 payment is due on obtaining the first mining
license for this property. The seller has the option to elect payment in common
shares of the Company or cash.
- 18
-
Ruby
Creek Resources, Inc.
(An Exploration Stage
Company)
November
30, 2010
On
January 12, 2011, we entered into agreements to acquire from Gold Standard Ltd,
a private limited liability Cayman Islands Company and Gold Standard Tanzania
Ltd, (“GSTZ”) a private limited liability Tanzanian Company, a 95% controlling
interest of Gold Standard Tanzania Ltd. and mining equipment located
both on-site and in Dar es Salaam. GSTZ’s assets include a 25-year,
10 square kilometer mining license issued in September 2010, two Prospecting
License Joint Ventures of 50 (inclusive of the mining license) and 89 square
kilometers, respectively, a Regional Environmental Report on the combined 139
square kilometer property and an established mining camp. The closing of the
transaction is subject to satisfactory completion of due diligence procedures
and is scheduled to close no later than April 2011. The aggregate purchase price
of $3,585,000 is comprised of $100,000 due contract (paid), $900,000 on closing,
the issuance of a $2 million in the form of 8% convertible debentures due in 18
months, plus the assumption of $585,000 in liabilities. The holders may elect to
receive in payment of any portion of interest and/or principal restricted common
shares of the Company valued at $0.50 per share.
In fiscal
2010 and through January 14, 2011, we received additional funding as
follows:
From
December 29, 2009 to February 19, 2010 we raised $200,000 and filed a Form D
pursuant to Rule 506 of the SEC, Notice of Exempt Offering of
Securities. Under this offering we issued 1,600,000 shares of our
common stock at $0.125 per share and warrants to purchase an additional 800,000
common shares for 2 years at $0.25 per share.
For the
period from April 3, 2010 to August 26, 2010, we conducted an offering of our
securities under Regulations D and S offering pursuant to Rule 506 of the SEC
for $350,000. We ultimately sold 5,356,000 Units at a price of $0.25 per Unit
and received total proceeds of $1,339,000 on this offering. Each Unit consisted
of one common share and one warrant. Two warrants are required to buy
one common share at a price of $0.50 per share for a period of up to two
years.
On
October 18, 2010, we commenced another offering of our equity securities
pursuant to Rule 506 of Regulation D and Regulation S for up to $3,000,000
consisting of 6,000,000 million units. Through January 14, 2011, the
Company has received $1,312,000 in proceeds for the sale of 2,624,000 Units at a
price of $0.50 per Unit. Each Unit consists of one common share and one common
stock purchase warrant. One warrant is required to buy one common
share at a price of $1.00 per share exercisable for a period of up to two years.
This offering is continuing and we anticipate, but cannot guarantee, that we
will be receiving additional funds.
On
November 27, 2010, the holders of our 11% convertible debentures and accrued
interest in the aggregate amount of $111,000 elected to convert these securities
into 2,220,000 common shares, extinguishing this obligation.
In the
period from September 1, 2010 through December 31, 2010, three holders of an
aggregate of 450,000 warrants, issued in the private placement described in Note
7b to the Notes to the Unaudited Consolidated Financial Statements, exercised
their right to purchase 225,000 shares of common stock for which we received
$56,250.
In
November, 2010, the holder of a 1,500,000 common share default warrant issued in
connection with a $75,000 bridge loan (which itself was converted in March 2010)
exercised this warrant, for which we received proceeds of $75,000.
Future
Financings
We
anticipate that any future additional funding will be in the form of equity
financing from the sale of our common stock or other securities convertible into
our common stock. In addition to equity and equity related financing sources, we
believe that debt financing may be a viable alternative for funding additional
phases of exploration. However, while management believes that it
will be successful, there can be no assurance that any potential subsequent
financings will be, or that any funds raised will be sufficient for us to
conduct and sustain our operations, fund our obligations under property
acquisition agreements and pay our expenses for the next twelve months. In the
absence of such financing, we will not be able to continue exploration of our
joint venture prospecting licenses for the Mkuvia Gold Mining Project, the
Kapinga Gold Project or the Gold Standard prospects and our business plan could
fail. Even if we are successful in obtaining debt or equity financing
to fund our various acquisition and exploration programs, 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 or that the
any project will yield commercially viable levels of minerals. If we
do not continue to obtain additional financing, we will be forced to abandon our
plan of operations.
- 19
-
Ruby
Creek Resources, Inc.
(An Exploration Stage
Company)
November
30, 2010
Results
of Operations for the year three months ended November 30, 2010.
Mining
exploration and preoperating costs
In the
three months ended November 30, 2010, we incurred approximately $278,000 in
mining exploration and
preoperating costs as compared to $0 in the
comparable period of the preceding year. These costs include the establishment
of base camp operations on the Mkuvia, housing facilities, salaries of full time
and part time personnel, security personnel, operating personnel and equipment
related costs of test mining activities; and administrative office and personnel
costs of Dar es Salaam office. It is expected that these costs will increase in
future quarters as operations expand.
Consulting
Services
In the
three months ended November 30, 2010, we incurred approximately $93,000 in
consulting costs as compared to $65,000 in comparable period of the preceding
year. We are incurring fees for board level advisory and members to assist us in
operations in Tanzania and in support of board of directors and financing
activities and strategies, and other legal and administrative support. Of the
total amount incurred, approximately $34,000 was in payments requiring cash, and
$59,000 was in stock based compensation.
Interest
and Financing Fees
In the
three months ended November 30, 2010, we incurred approximately $140,000 of
interest and financing fees as compared to $0 in the comparable period of the
preceding year. Approximately $137,000 were non-cash financing costs related to
the fair value of derivative instruments issued in connection with the 11%
convertible debentures ($24,000) and the amortization of debt discount related
to the amounts due Douglas Lake minerals ($113,000).
Management
Services
In the
three months ended November 30, 2010, we incurred approximately $139,000 for the
cost of management services as compared to $42,000 in the comparable period of
the preceding year. The increase reflects the full time services of our CEO in
the current period as compared to the preceding year’s comparable period, the
retention of a CFO on February 1, 2010 and of a director of corporate
communications in July 2010. For the three month period ended November 30, 2010,
$39,000 represents stock based compensation comprised of the fair value of
compensation warrants and common share issuances earned in
2010. Approximately $21,000 in non-cash compensation was incurred in
the preceding year.
Office
and General, Professional Fees, and Shareholder Relations
In the
three months ended November 30, 2010, we incurred approximately $162,000
(excluding costs related to mining operations) of these costs as compared to
$14,000 in the comparable period of the preceding year. These expenses increased
in a manner consistent with the increased complexity and scope or operations of
the company, including the retention of investor relations firms to enhance our
profile in the public markets, travel and related costs arising from attendance
at various industry and investor conferences, directors and officers insurance
and additional support staff and facilities costs.
Net
Loss
We had a
net loss of approximately $831,000 for the three month period ended November 30,
2010 as compared to a net loss of approximately $122,000 for the comparable
period of the preceding year. Our net loss from inception of the
Company on May 3, 2006 until November 30, 2010 was approximately 3,828,000. Our
net loss for the three months ended November 30, 2010 is attributable to the
execution of our business plan to become a producing company. For the
three months ended November 30, 2010, stock based compensation approximated
$78,000, the value of shares issued for services approximated $5,000 and
non-cash financing costs approximated $137,000 for an aggregate of $220,000 in
non-cash cost included in results of operations.
- 20
-
Ruby
Creek Resources, Inc.
(An Exploration Stage
Company)
November
30, 2010
Going
Concern
We are in
the exploration stage and have not generated revenues since
inception. We have incurred significant losses to date and further
losses are anticipated raising substantial doubt about the ability of our
Company to continue operating as a going concern. The continuation of
our Company as a going concern is dependent upon our ability to obtain necessary
equity financing to continue operations, meet the Douglas Lake and other
obligations and to determine the existence, discovery and successful
exploitation of economically recoverable reserves on our resource properties and
ultimately on the attainment of future profitable operations. Since inception to
November 30, 2010, we had accumulated losses of $3,828,000. These
financial statements do not include any adjustments to the recoverability and
classification of recorded asset amounts and classification of liabilities that
might be necessary should we be unable to continue as a going
concern.
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.
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.
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 accounts for asset retirement obligations by recording 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, 2010, 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 functional and reporting currency is the United States dollar. The
functional currency of the Company’s Tanzanian subsidiary is the Tanzanian
Shilling. The financial statements of the subsidiary are translated to United
States dollars in accordance with ASC 830, Foreign Currency Translation Matters.
Monetary assets and liabilities denominated in foreign currencies are translated
using the exchange rate prevailing at the balance sheet date. Non-monetary
assets and liabilities denominated in foreign currencies are translated at rates
of exchange in effect at the date of the transaction. Average monthly rates are
used to translate revenues and expenses. 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.
- 21
-
Ruby
Creek Resources, Inc.
(An Exploration Stage
Company)
November
30, 2010
Recent
Accounting Pronouncements
Effective
September 1, 2009, the Company adopted ASC 855, Subsequent Events. ASC 855
requires companies to recognize in the financial statements the effects of
subsequent events that provide additional evidence about conditions that existed
at the date of the balance sheet, including the estimates inherent in the
process of preparing financial statements. An entity shall disclose the date
through which subsequent events have been evaluated, as well as whether that
date is the date the financial statements were issued. Companies are not
permitted to recognize subsequent events that provide evidence about conditions
that did not exist at the date of the balance sheet but arose after the balance
sheet date and before financial statements are issued. Some non recognized
subsequent events must be disclosed to keep the financial statements from being
misleading. For such events a company must disclose the nature of the event, an
estimate of its financial effect, or a statement that such an estimate cannot be
made. This Statement applies prospectively for interim or annual financial
periods ending after June 15, 2009. The adoption of ASC 855 did not have an
impact on the Company’s results of operations and financial
position.
In
January 2010, the FASB issued ASC No. 2010-06, “Fair Value Measurement and
Disclosures (Topic 820): Improving Disclosure and Fair Value Measurements”,
which requires that purchases, sales, issuances, and settlements for Level 3
measurements be disclosed. ASC No. 2010-06 is effective for its
fiscal quarter beginning after December 15, 2010. The adoption of ASC No.
2010-06 is not expected to have a material impact on the Company’s consolidated
financial statements.
In
February 2010, the FASB issued ASU No. 2010-11, “Derivatives and Hedging (Topic
815): Scope Exception Related to Embedded Credit Derivatives”. ASU No. 2010-11
clarifies the type of embedded credit derivative that is exempt from embedded
derivative bifurcation requirements. Specifically, only one form of embedded
credit derivative qualifies for the exemption – one that is related only to the
subordination of one financial instrument to another. As a result, entities that
have contracts containing an embedded credit derivative feature in a form other
than such subordination may need to separately account for the embedded credit
derivative feature. The amendments in ASU No. 2010-11 are effective for each
reporting entity at the beginning of its first fiscal quarter beginning after
June 15, 2010. Early adoption is permitted at the beginning of each entity’s
first fiscal quarter beginning after March 5, 2010. The adoption of ASC No.
2010-11 is not expected to have a material impact on the Company’s consolidated
financial statements.
Other
recent pronouncements issued are not expected to have a material effect on the
Company’s condensed consolidated financial statements.
We are
currently not subject to any material market risks.
Item
4T. Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
Our
principal executive officer and principal financial officer has concluded that
our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act) were not effective as of the end of the period
covered by this report, based on their evaluation of these controls and
procedures required by paragraph (b) of Rules 13a-15 and 15d-15, due to certain
material weaknesses in our internal control over interim financial reporting as
of November 30, 2010, as described in our management’s report on internal
control over financial reporting included in our annual report on Form 10-K for
our fiscal year ended August 31, 2010, which deficiencies have not been remedied
as of November 30, 2010.
Changes
in Internal Control over Financial Reporting
Effective
February 1, 2010, the Company has retained an interim CFO and it is believed his
participation has strengthened internal controls, and certain new controls have
been installed or are in the process of being implemented. We believe
that this did and will continue to improve and strengthen our internal controls
over financial reporting.
- 22
-
Ruby
Creek Resources, Inc.
(An Exploration Stage
Company)
November
30, 2010
On March
8, 2010, the Company was served with a Writ of Summons from its former general
counsel, Lang Michener LLP of Vancouver, Canada, for the collection of its
alleged uncollected fees in the amount of approximately US$115,000, including
claimed interest. On November 23, 2010, the parties settled this
litigation and the Company paid approximately $75,000 in full satisfaction.
Mutual releases were exchanged.
On July
20, 2009, the Company issued 400,000 restricted shares of common stock at a
price of $0.05 per share for proceeds of $20,000. As part of this
private placement, the Company issued 200,000 share purchase warrants to
purchase. Each warrant is exercisable to purchase one share of common stock at
$0.05 for a period five years. The fair value of these share purchase
warrants using a risk-free rate of 2.57% and a volatility of 99% was $17,492 or
$0.09 per warrant. The shares were issued to David Bukzin and Double
Trouble Productions, LLC.
The
shares issued to David Bukzin and Double Trouble Productions were not registered
under the Securities Act of 1933, as amended (the “Securities Act”), or the
securities laws of any state, and were offered and sold in reliance on the
exemption from registration afforded by Section 4(2) and Regulation D
(Rule 506) under the Securities Act, and corresponding provisions of state
securities laws, which exempt transactions involving offers or sales by an
issuer solely to one or more accredited investors. Double Trouble
Productions, LLC and Mr. Bukzin are “accredited investors” as such term is
defined in Regulation D under the Securities Act.
On
November 27, 2009, the Company entered into two convertible note agreements to
issue 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, and
interest is to be paid quarterly. In addition, each holder of the
note received 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 received December 3, 2009 and used to make the
first $100,000 installment in the Mkuvia Gold Project Joint Venture Agreement
described above. On November 27, 2010, the holders of the convertible notes
elected to convert these notes, plus an aggregate of $11,000 in interest earned,
into 2,220,000 shares of common shares at the conversion price of $0.05 per
common share.
On March
10, 2010, the Company filed a final Form D with the Securities and Exchange
Commission disclosing the sale of 1,600,000 units to 20 investors at a price of
$0.125 per unit resulting in gross proceeds of $200,000. Each unit
consisted of one share and one warrant. The warrants are exercisable
at a price of $0.25 for a period of two years. Two warrants are
required to purchase one share. The shares issued pursuant to the
units were issued to 19 accredited investors and one non-accredited
investor. The shares
issued to the above investors were not registered under the Securities Act of
1933, as amended (the “Securities Act”), or the securities laws of any state,
and were offered and sold in reliance on the exemption from registration
afforded by Regulation D, Rule 506.
In
addition to the shares issued in reliance on the exemption from registration
afforded by Regulation D, Rule 506, shares issued to two investors were not
registered under the Securities Act of 1933, as amended (the “Securities Act”),
or the securities laws of any state, and were offered and sold in reliance on
the exemption from registration afforded by Regulation S. Both
investors are residents of Quebec, Canada.
Pursuant
to a Form D filed with the Securities and Exchange Commission for the sale of
units consisting of one share and one warrant, between April 3, 2010 and August
26, 2010 the Company sold a total of 5,356,000 units to 58 investors and
received proceeds of $1,339,000. Each unit consists of one share of restricted
common stock at a price of $0.25 per share and one warrant. Two warrants are
required to purchase one share of stock for $.50 per share, and each warrant has
a two year life. The shares issued to these investors were not
registered under the Securities update.
On
January 12, 2011 the Company filed an Amended Form D with the Securities and
Exchange Commission for the sale of units consisting of one share and one
warrant. Each unit consists of one share of restricted common stock at a price
of $0.50 per share and one warrant. One warrant is required to purchase one
share of stock at a price of $1.00 per share. Each warrant is
exercisable for a period of two years. Shares acquired by these
investors are not registered under the Securities Act. The Amended Form D filed
January 12, 2011 updated a previous formed D filed October 26, 2010
and an Amended Form D filed November 26, 2010. Through January 14, 2010, the
Company has sold a total of 2,624,000 units to 64 individuals and has received
proceeds of $1,312,000.
- 23
-
Ruby
Creek Resources, Inc.
(An Exploration Stage
Company)
None.
None.
None.
The
following exhibits are filed with this Quarterly Report on Form
10-Q
Exhibit
Number
|
Description
of Exhibit
|
|
31.1
|
Certification
of Chief Executive (Filed herewith)
|
|
31.2
|
Certification
of Chief Financial Officer (Filed herewith)
|
|
32.1
|
Certification
of Chief Executive Officer and Chief Financial Officer (Filed
herewith)
|
Pursuant
to the requirements of Section 13 and 15 (d) 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.
RUBY
CREEK RESOURCES, INC.
|
/s/
Robert Slavik
|
Robert
Slavik
|
President,
Chief Executive Officer, Director.
|
Dated:
January 18, 2011
|
/s/
Myron Landin
|
Myron
Landin, CPA
|
Chief
Financial Officer
|
Dated:
January 18, 2011
|
- 24 -