Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - Penola Inc.Financial_Report.xls
XML - IDEA: XBRL DOCUMENT - Penola Inc.R7.htm
XML - IDEA: XBRL DOCUMENT - Penola Inc.R6.htm
XML - IDEA: XBRL DOCUMENT - Penola Inc.R2.htm
XML - IDEA: XBRL DOCUMENT - Penola Inc.R9.htm
XML - IDEA: XBRL DOCUMENT - Penola Inc.R8.htm
EX-31.1 - CERTIFICATION - Penola Inc.penola_ex311.htm
EX-32.1 - CERTIFICATION - Penola Inc.penola_ex321.htm
EX-31.2 - CERTIFICATION - Penola Inc.penola_ex312.htm
XML - IDEA: XBRL DOCUMENT - Penola Inc.R3.htm
XML - IDEA: XBRL DOCUMENT - Penola Inc.R1.htm
XML - IDEA: XBRL DOCUMENT - Penola Inc.R4.htm
XML - IDEA: XBRL DOCUMENT - Penola Inc.R5.htm
XML - IDEA: XBRL DOCUMENT - Penola Inc.R16.htm
XML - IDEA: XBRL DOCUMENT - Penola Inc.R18.htm
XML - IDEA: XBRL DOCUMENT - Penola Inc.R13.htm
XML - IDEA: XBRL DOCUMENT - Penola Inc.R15.htm
XML - IDEA: XBRL DOCUMENT - Penola Inc.R17.htm
XML - IDEA: XBRL DOCUMENT - Penola Inc.R12.htm
XML - IDEA: XBRL DOCUMENT - Penola Inc.R10.htm
XML - IDEA: XBRL DOCUMENT - Penola Inc.R20.htm
XML - IDEA: XBRL DOCUMENT - Penola Inc.R14.htm
XML - IDEA: XBRL DOCUMENT - Penola Inc.R11.htm
XML - IDEA: XBRL DOCUMENT - Penola Inc.R19.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-K
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended February 28, 2013
 
Commission File No. 000-54901

PENOLA, INC.
(Exact name of registrant as specified in its charter)

Nevada
 
None
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)

492 Gilbert Road
West Preston, Victoria 3072, Australia
(Address of principal executive offices, zip code)

+61 (3) 9605-3907
(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to section 12(g) of the Act:
Common Stock, $.001 par value
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  ¨   No  x
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   Yes  ¨   No  x
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  
Yes  x   No  ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files) Yes  ¨   No    x
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨
 
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. (Check one):

Large accelerated filer   ¨
Accelerated filer   ¨
Non-accelerated filer  ¨
Smaller reporting company   x
   
(Do not check if a smaller
 
   
reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes    ¨   No  x
 
At August 31, 2012, the last business day of the Registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting common stock held by non-affiliates of the Registrant (without admitting that any person whose shares are not included in such calculation is an affiliate) was approximately $27,840.  At August 31, 2012, there were 3,160,000 shares of the Registrant’s common stock, $0.001 par value per share, outstanding.  At February 28, 2013, the end of the Registrant’s most recently completed fiscal year, there were 3,160,000 shares of the Registrant’s common stock, par value $0.001 per share, outstanding.
 


 
 
 
 
 
PENOLA, INC.
TABLE OF CONTENTS

     
Page No.
 
         
 
PART I
     
         
Item 1.
Business
    4  
Item 1A.
Risk Factors
    11  
Item 1B.
Unresolved Staff Comments
    11  
Item 2.
Properties
    11  
Item 3.
Legal Proceedings
    11  
Item 4.
Mine Safety Disclosure
    11  
 
PART II
       
           
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    12  
Item 6.
Selected Financial Data
    12  
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
    13  
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
    15  
Item 8.
Financial Statements and Supplementary Data
    16  
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    17  
Item 9A.
Controls and Procedures
    17  
Item 9B.
Other Information
    18  
 
Part III
       
           
Item 10.
Directors, Executive Officers and Corporate Governance
    19  
Item 11.
Executive Compensation
    21  
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    22  
Item 13.
Certain Relationships and Related Transactions, and Director Independence
    22  
Item 14.
Principal Accounting Fees and Services
    22  
           
 
Part IV
       
           
Item 15.
Exhibits and Financial Statement Schedules
    23  
 
Signatures
    24  
 
 
2

 
 
FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K of Penola, Inc., a Nevada corporation, contains “forward-looking statements,” as defined in the United States Private Securities Litigation Reform Act of 1995.  In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “could”, “expects”, “plans”, “intends”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of such terms and other comparable terminology.  These forward-looking statements include, without limitation, statements about our market opportunity, our strategies, competition, expected activities and expenditures as we pursue our business plan, and the adequacy of our available cash resources.  Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.  Actual results may differ materially from the predictions discussed in these forward-looking statements.  The economic environment within which we operate could materially affect our actual results.  Additional factors that could materially affect these forward-looking statements and/or predictions include, among other things: the volatility of minerals prices, the possibility that exploration efforts will not yield economically recoverable quantities of minerals, accidents and other risks associated with mineral exploration and development operations, the risk that the Company will encounter unanticipated geological factors, the Company’s need for and ability to obtain additional financing, the possibility that the Company may not be able to secure permitting and other governmental clearances necessary to carry out the Company’s exploration and development plans, the exercise of the approximately 63.2% control the Company’s sole officer and director holds of the Company’s voting securities, other factors over which we have little or no control; and other factors discussed in the Company’s filings with the Securities and Exchange Commission (“SEC”).

Our management has included projections and estimates in this Form 10-K, which are based primarily on management’s experience in the industry, assessments of our results of operations, discussions and negotiations with third parties and a review of information filed by our competitors with the SEC or otherwise publicly available.  We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made.  We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

All references in this Form 10-K to the  “Company”, “Penola”, “we”, “us,” or “our” are to Penola, Inc.
 
 
3

 

PART I

ITEM 1. BUSINESS

ORGANIZATION WITHIN THE LAST FIVE YEARS
 
On May 7, 2010, the Company was incorporated under the laws of the State of Nevada. We are engaged in the business of acquisition, exploration and development of natural resource properties.
 
Filomena Gencarelli has served as our sole Director, President and Chief Executive Officer, Secretary and Treasurer, from May 7, 2010, through the date of filing of this Form 10-K.

We are authorized to issue 100,000,000 shares of common stock, par value $.001 per share, and 25,000,000 shares of “blank check” preferred stock, par value $.001 per share.  On September 30, 2010, we offered and sold 2,000,000 shares of common stock to our sole officer and director, at a purchase price of $0.001, for an aggregate of $2,000.  We hold our cash in bank accounts located in Australia.
 
On July 6, 2010 we entered into a Mineral Property Option Agreement, as amended, whereby we have the right to acquire a 100% interest in Exploration License 80/3757, located in Halls Creek Shire, in the Kimberly region of Western Australia and known as the Halls Creek Property.  The option agreement requires us to make an initial cash payment of AUD$7,000 (US$7,703), which we paid on July 6, 2010.  The option agreement has an exercise price of approximately two hundred thousand AUD$200,000 (US$208,840) cash to be paid if exercised by the Company. We retained a consulting geologist to prepare an evaluation report on the prospects. We intend to conduct exploratory activities on the claim and if feasible, develop the prospects.

IN GENERAL

We are an exploration stage company engaged in the acquisition and exploration of mineral properties. We currently hold an option to acquire for AUD$200,000 (US$208,840) a 100% undivided interest in Exploration License E 80/3757 located in Halls Creek Shire, in the Kimberly region of Western Australia and known as the Halls Creek Property. We are currently conducting mineral exploration activities on the Halls Creek Property in order to assess whether it contains any commercially exploitable mineral reserves. Currently there are no known mineral reserves on the Halls Creek Property.

Since our inception, we have not earned any revenues to date and our accumulated losses are $56,948 at February 28, 2013. Our independent auditor has issued an audit opinion which includes a statement expressing substantial doubt as to our ability to continue as a going concern. The source of information contained in this discussion is our geology report prepared by Gregory Curnow, B. SC (Geology), M AusIMM, dated October 7, 2010.
 
 
4

 

While we intend to test for commercially viable reserves of gold, tin-tungsten and other rare earths, there is the likelihood of our mineral claim containing little or no economic mineralization or reserves of gold and other minerals. We are presently in the exploration stage of our business and we can provide no assurance that any commercially viable mineral deposits exist on our mineral claims, that we will discover commercially exploitable levels of mineral resources on our property, or, if such deposits are discovered, that we will enter into further substantial exploration programs.  Further exploration is required before a final determination can be made as to whether our mineral claims possess commercially exploitable mineral deposits.  If our claim does not contain any reserves all funds that we spend on exploration will be lost.

We have no current plans, proposals or arrangements, written or otherwise, to seek a business combination with another entity in the near future.

POTENTIAL ACQUISITION OF THE HALLS CREEK PROPERTY

On July 6, 2010, we purchased an option to acquire a 100% undivided interest in a mineral claim known as  Exploration License 80/3757 located in Halls Creek Shire, in the Kimberly region of Western Australia and known as the Halls Creek Property, for a price of AUD$7,000 (US$7,703). The mineral claim underlying the option was granted by the Department of Mines and Petroleum, Western Australia, on July 16, 2010.

We engaged Gregory Curnow, B. SC (Geology). M AusIMM, to prepare a geological evaluation report on the Halls Creek Property. Mr. Curnow is a consulting professional geologist and Member of the Australasian Institute of Mining & Metallurgy. Mr. Curnow attended Monash University, Melbourne, Australia and graduated in 1986 with a Bachelor of Science degree in geology.

The work completed by Mr. Curnow in preparing the geological report consisted of a review of geological data from previous exploration within the region. The acquisition of this data involved the research and investigation of historical files to locate and retrieve data information acquired by previous exploration companies in the area of the mineral claims.

We received the geological evaluation report on the Halls Creek Property entitled "Evaluation Report, E 80/3757, Western Australia" prepared by Mr. Curnow on October 7, 2010. The geological report summarizes the results of the history of the exploration of the mineral claims, the regional and local geology of the mineral claims and the mineralization and the geological formations identified as a result of the prior exploration. The geological report also
gives conclusions regarding potential mineralization of the mineral claims and recommends a further geological exploration program on the mineral claims. The description of the Halls Creek Property provided below is based on Mr. Curnow’s report.

DESCRIPTION OF PROPERTY

The property on which the Company has an option is the Halls Creek Property which is comprised of one located mineral claim, Exploration License E 80/3757. The Halls Creek Property is in the Day Dawn district of the Murchison Mineral Fields approximately 550 kilometers north north-east of Perth. The nearest towns are the mining centers of Cue 25 kilometers to the north and Mt. Magnet 50 kilometers to the south.
 
 
5

 

PHYSIOGRAPHY, CLIMATE, VEGETATION & WATER

The nearest town is the mining and pastoral centre of Halls Creek 83 kilometers to the north-east (see Fig 1). The Kimberley region is a semi-arid region with a monsoonal climate with the wet season running from November to mid April.  Temperatures in summer average 37 degrees C (99 degrees F) and the humidity is commonly over 90%.

The Halls Creek Property is located 30 kilometers south of the Great Northern Highway, the major road of the Kimberley region, and is serviced by unsealed minor roads. The terrain is open scrubland criss-crossed by a number of perennial streams that only flow in the wet season and the main land use is cattle farming.

Fieldwork in the Kimberley is usually scheduled for the dry season between April and December.

The license was granted to George Lee on August 8, 2007 for a period of five years and covers approximately 324 hectares. Mr. Lee is the third party with whom we have entered into our Mineral Property Option Agreement.
 
 
Figure 1: Location Plan 
 
 
6

 

PROPERTY HISTORY
  
There is no prior mining exploration activity for the property to which our Mineral Property Option Agreement relates.
 
REGIONAL GEOLOGY
 
The region falls within the Halls Creek Proterozoic Mobile Zone that is folded about the edge of the Kimberly craton, which is also Proterozoic in age (see Fig 2).  The Halls Creek Zone consists of moderately to highly deformed rocks of the Halls Creek Group which is broken up into:

• Olympio Formation
• Biscay Formation
• Saunders Creek Formation
• Ding Dong Downs Volcanics

Deformation of the Hall Creek Zone has included tight sub-isoclinal to isoclinals folding with associated regional faulting.  Both the folding and faulting is parallel to the Kimberley craton edge and generally trending to the north north-east.

Only the Olympio and Biscay Formation occur in the area.

Olympio Formation

The Olympio Formation consists mainly of a sequence of turbidite and deep water sediments with a basal sequence of acid to intermediate volcanic interbedded with tuffaceous and lithic sediments.  Metamorphism is generally greenschist to amphibolite facies.

Biscay Formation
The Biscay Formation is a sequence of basic volcanics rocks generally basalts, dolerites and gabbroic intrusives interbedded with turbiditic sediments.  Metamorphism is generally greenschist to amphibolite facies.
 
 
7

 

 
Figure 2: Regional Geology of the Kimberley (Tyler 02)

Local Geology

Locally the area of the Mt. Dockrell goldfield is made up of a sequence of basic volcanics, felsic volcanics and sediments which are part of the Halls Creek Group.  E 80/3757 consists of both the Olympio and Biscay Formations with the contact between the two trending north north-east suggesting it is fault related.

Mineralization

Gold mineralization in the Mt. Dockrell area is generally associated with both copper and lead, and there are 5 known types of mineralization, as follows:

1. Gold-galena in quartz filled axial plane shears and fractures.
2. Gold-arsenopyrite-chalcopyrite stratabound deposits.
3. Gold-tourmaline quartz veins.
4. Chalcopyrite-galena quartz veins.
5. Copper in quartz-calcite-epidote altered zones.

Both disseminated and vein hosted tin-tungsten mineralization is known in the area and is associated with a quartzite unit in the Butchers Gully member (part of the Biscay Formation) and is exposed by a large south plunging anticline.  The quartzite unit is lithologically mixed and consists of bands of magnetite, epidote, tourmaline, and manganese rich quartzite with minor bands of amphibolite and pelite.
 
 
8

 

The scheelite appears to be formed through preferential metasomatism of psammitic horizons in the quartzite and is associated with secondary epidote and less generally with fluorite, tourmaline, apatite and zircon.
 
Figure 3: Geology Plan of the Mt. Dockrell Goldfield

EXPLORATION POTENTIAL

Though there are no known occurrences of mineralization on E 80/3757, we believe that the exploration potential of project area will contain occurrences of mineralization, based on the substantial past exploration and the known, widespread occurrence of gold and tin-tungsten mineralization in the area and the local geology.

With a major fault splay passing through the license and a large portion of the contact between the Biscay volcanics and the Olympio Formation also being included in the license and the lack of modern exploration techniques, especially geophysics, being carried out in the area the potential for discovery in the area is high.

The tin-tungsten mineralization highlights the presence of a granitoid body that does not outcrop in the area suggesting that it is located at a shallow depth increasing the potential for more tin-tungsten mineralization to be found below the surface.
 
CONDITIONS TO RETAIN TITLE TO THE CLAIM
 
State and local regulations will require a yearly maintenance fee to keep the claim to Halls Creek Property in good standing.  Yearly maintenance fees of AUD$10,000 (US$10,605) payable to the Department of Mines and Petroleum Western Australia, are payable prior to the anniversary of the claim to keep the claim in good standing for an additional year.
 
 
9

 
 
COMPETITIVE CONDITIONS
 
The mineral exploration business is an extremely competitive industry.  We are competing with many other exploration companies looking for minerals.  We are a very early stage mineral exploration company and a very small participant in the mineral exploration business.  Being a junior mineral exploration company, we compete with other companies like ours for financing and joint venture partners.  Additionally, we compete for resources such as professional geologists, camp staff, helicopters and mineral exploration supplies.
 
GOVERNMENT APPROVALS AND RECOMMENDATIONS
 
We will be required to comply with all regulations, rules and directives of governmental authorities and agencies applicable to the exploration of minerals in Australia and the state of Western Australia.
 
COSTS AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS
 
We currently have no costs to comply with environmental laws concerning our exploration program.  We will also have to sustain the cost of reclamation and environmental remediation for all work undertaken which causes  sufficient surface disturbance to necessitate reclamation work.  Both reclamation and environmental remediation refer to putting disturbed ground back as close to its original state as possible.  Other potential pollution or damage must be cleaned-up and renewed along standard guidelines outlined in the usual permits. Reclamation is the process of bringing the land back to a natural state after completion of exploration activities.  Environmental remediation refers to the physical activity of taking steps to remediate, or remedy, any environmental damage caused, i.e. refilling trenches after sampling or cleaning up fuel spills.  Our initial programs do not require any reclamation or remediation other than minor clean up and removal of supplies because of minimal disturbance to the ground.  The amount of these costs is not known at this time as we do not know the extent of the exploration program we will undertake, beyond completion of the recommended three phases described in the chart below.  Because there is presently no information on the size, tenor, or quality of any resource or reserve at this time, it is impossible to assess the impact of any capital expenditures on our earnings or competitive position in the event a potentially economic deposit is discovered.

Proposed Work
Amount
 
Cost ($AUD)
 
Phase 1
       
Data Collection
   
$
5,000.00
 
Re-Interpretation of Geophysical Data
   
$
10,000.00
 
Field Mapping
5 days @ $500
 
$
2,500.00
 
Sampling
50 samples @ $30
 
$
1,500.00
 
Travel & Accommodation
5 days @ $300
 
$
1,500.00
 
Report
1.5 days @ $1,000
 
$
1,500.00
 
Administration
15 % of costs
 
$
3,300.00
 
           
     
$
25,300.00
 
Phase 2
         
Soil Sampling
5 days @ $750
 
$
3,750.00
 
Assaying
150 samples @ $20
 
$
3,000.00
 
Ground Geophysics
   
$
65,000.00
 
Report
1.5 days @ $1,000
 
$
1,500.00
 
Administration
15 % of costs
 
$
10,987.50
 
           
     
$
84,237.50
 
Phase 2
         
Drilling
1,000 meters @ $50
 
$
50,000.00
 
Assaying
1,000 meters @ $30
 
$
30,000.00
 
Supervision
7 days @ $600
 
$
4,200.00
 
Travel & Accommodation
7 days @ $300
 
$
2,100.00
 
Report
1.5 days @ $1,000
 
$
1,500.00
 
Administration
15 % of costs
 
$
13,170.00
 
           
     
$
100,970.00
 
           
Total
   
$
210,507.50
 
 
10

 
 
EMPLOYEES
 
We currently have no employees other than our directors. We intend to retain the services of geologists, prospectors and consultants on a contract basis to conduct the exploration programs on our mineral claims and to assist with regulatory compliance and preparation of financial statements.
 
ITEM 1A. RISK FACTORS

As a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information called for by this Item.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our current business address is 492 Gilbert Road, West Preston, Victoria 3072, Australia.  Our telephone number is +61 (3) 9605-3907. 

We believe that this space is adequate for our current needs.

ITEM 3. LEGAL PROCEEDINGS

We are not currently involved in any legal proceedings and we are not aware of any pending or potential legal actions.

ITEM 4. MINE SAFETY DISCLOSURE

None.
 
 
11

 
 
PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION

Our shares of our common stock have never been quoted on any exchange or the over-the-counter market.

TRANSFER AGENT

The Company's transfer agent is Globex Transfer, LLC, whose address is 780 Deltona Blvd., #202, Deltona, Florida 32725.
 
HOLDERS

As of May 28, 2013, the Company had 3,160,000 shares of our common stock issued and outstanding held by 11 holders of record.

DIVIDENDS

Historically, we have not paid any dividends to the holders of our common stock and we do not expect to pay any such dividends in the foreseeable future as we expect to retain our future earnings for use in the operation and expansion of our business.

RECENT SALES OF UNREGISTERED SECURITIES

None.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

We have not established any compensation plans under which equity securities are authorized for issuance.

PURCHASES OF EQUITY SECURITIES BY THE REGISTRANT AND AFFILIATED PURCHASERS

We did not purchase any of our shares of common stock or other securities during the year ended February 28, 2013.

ITEM 6. SELECTED FINANCIAL DATA

As a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information called for by this Item.
 
 
12

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS
 
We have generated no revenues since inception and have incurred $56,948 in operating expenses from inception through February 28, 2013.  These expenses were comprised of $32,621 in professional fees, $7,703 of mining costs, and $15,007 in office and general costs.  We incurred net losses of $19,274 and $27,892 for the years ended February 28, 2013 and 2012, respectively.  Our net loss since inception (May 7, 2010) through February 28, 2013 was $56,948.  The following table provides selected financial data about our company for the years ended February 28, 2013 and 2012.

Balance Sheet Data
 
February 28,
2013
   
February 29,
2012
 
Cash and Cash Equivalents
 
$
10,740
   
$
684
 
Total Assets
 
$
10.740
   
$
684
 
Total Liabilities
 
$
35,071
   
$
7,169
 
Shareholders’ Equity (deficit)
 
$
(24,331)
)
 
$
(6,485)
 
 
GOING CONCERN
 
Penola, Inc. is an exploration stage company and currently has minimal operations.  Our independent auditor has issued an audit opinion for Penola, Inc. which includes a statement raising substantial doubt as to our ability to continue as a going concern.
 
LIQUIDITY AND CAPITAL RESOURCES
 
Our cash balance at February 28, 2013 was $10,740 with $35,071 in outstanding liabilities. Total expenditures over the next 12 months are expected to be approximately $230,508.  If we experience a shortage of funds prior to generating revenues from operations we may utilize funds from our directors, who have informally agreed to advance funds to allow us to pay for operating costs, however they have no formal commitment, arrangement or legal obligation to advance or loan funds to us.  Management believes our current cash balance will not be sufficient to fund our operations for the next six months.
 
PLAN OF OPERATION
 
Our plan of operation for the twelve months following the date of this Form 10-K is to complete the first and second of the three phases of the exploration program on our prospects. In addition to the $210,508 we anticipate spending for the first two phases of the exploration program as outlined below, we anticipate spending an additional $20,000 on general and administration expenses including fees payable in connection with complying with our reporting obligations, and general administrative costs. Total expenditures over the next 12 months are therefore expected to be approximately $230,508. We will experience a shortage of funds prior to funding and we may utilize funds from our president, however they have no formal commitment, arrangement or legal obligation to advance or loan funds to the company.
 
 
13

 
 
Proposed Work
Amount
 
Cost ($AUD)
 
Phase 1
       
Data Collection
   
$
5,000.00
 
Re-Interpretation of Geophysical Data
   
$
10,000.00
 
Field Mapping
5 days @ $500
 
$
2,500.00
 
Sampling
50 samples @ $30
 
$
1,500.00
 
Travel & Accommodation
5 days @ $300
 
$
1,500.00
 
Report
1.5 days @ $1,000
 
$
1,500.00
 
Administration
15 % of costs
 
$
3,300.00
 
           
     
$
25,300.00
 
Phase 2
         
Soil Sampling
5 days @ $750
 
$
3,750.00
 
Assaying
150 samples @ $20
 
$
3,000.00
 
Ground Geophysics
   
$
65,000.00
 
Report
1.5 days @ $1,000
 
$
1,500.00
 
Administration
15 % of costs
 
$
10,987.50
 
           
     
$
84,237.50
 
Phase 2
         
Drilling
1,000 meters @ $50
 
$
50,000.00
 
Assaying
1,000 meters @ $30
 
$
30,000.00
 
Supervision
7 days @ $600
 
$
4,200.00
 
Travel & Accommodation
7 days @ $300
 
$
2,100.00
 
Report
1.5 days @ $1,000
 
$
1,500.00
 
Administration
15 % of costs
 
$
13,170.00
 
           
     
$
100,970.00
 
           
Total
   
$
210,507.50
 
 
 
14

 
 
We plan to commence Phase 1 of the exploration program on the claim in summer 2013. We expect this phase to take two weeks to complete and an additional one to two months for the geologist to prepare his report.

The above program costs are management’s estimates based upon the recommendations of the professional geologist’s report and the actual project costs may exceed our estimates. To date, we have not commenced exploration.
 
Following phase one of the exploration program, if it proves successful in identifying mineral deposits, we intend to proceed with phase two of our exploration program.  Subject to the results of phase 1, we anticipate commencing with phase 2 in fall 2013.  We will require additional funding to proceed with phase 3 work on the claim; we have no current plans on how to raise the additional funding.  We cannot provide any assurance that we will be able to raise sufficient funds to proceed with any work after the first two phases of the exploration program.
 
OFF-BALANCE SHEET ARRANGEMENTS
 
We have no off-balance sheet arrangements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information called for by this Item.
 
 
15

 

ITEM 8. FINANCIAL STATEMENTS

PENOLA INC.
 (An Exploration Stage Company)

FINANCIAL STATEMENTS


February 28, 2013
 
 
16

 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors
Penola Inc. (An Exploration Stage Company)

We have audited the accompanying balance sheets of Penola Inc. (An Exploration Stage Company) as of February 28, 2013 and February 29, 2012, and the related statements of operations, changes in stockholders’ equity (deficit), and cash flows for the years then ended, and for the period from May 7, 2010 (inception) through February 28, 2013.  These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Penola Inc. (An Exploration Stage Company) as of February 28, 2013 and February 29, 2012, and the results of its operations and cash flows for the periods described above in conformity with accounting principles generally accepted in the United States of America.
 
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred losses since inception and has an accumulated deficit, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
 
/s/ M&K CPAS, PLLC
www.mkacpas.com
Houston, Texas
May 29, 2013
 
 
F-1

 
 
PENOLA INC.
(An Exploration Stage Company)
 
BALANCE SHEETS
 
   
February 28,
2013
- $ -
   
February 29,
2012
- $ -
 
             
ASSETS
           
Current
           
Cash
    10,740       684  
Total assets
    10,740       684  
                 
LIABILITIES
               
Current
               
Accounts payable
    625       -  
Due to related party
    34,446       7,169  
Total liabilities
    35,071       7,169  
                 
STOCKHOLDERS’ DEFICIT
               
Authorized:
               
75,000,000 common shares
               
With a par value of $0.001
               
Issued and Outstanding:
               
3,160,000 common shares
    3,160       3,160  
(February 29, 2012 - 3,160,000)
               
Additional paid in capital
    29,457       28,029  
Deficit accumulated during the exploration stage
    (56,948 )     (37,674 )
Total stockholders' deficit
    (24,331 )     (6,485 )
Total liabilities and stockholders' deficit
    10,740       684  

– See Accompanying Notes –
 
 
F-2

 


PENOLA INC.
(An Exploration Stage Company)
 
STATEMENTS OF OPERATIONS
 
   
 
Year ended February 28, 2013
- $ -
   
 
Year ended February 29, 2012
- $ -
   
May 7, 2010 (Inception) to
February 28, 2013
- $ -
 
                   
Expenses:
                 
Office and general
    12,446       2,169       15,007  
Professional fees
    5,400       25,534       32,621  
Mining costs
    -       -       7,703  
      17,846       27,703       (55,331 )
Other income (expense)
 
Interest
    (1,428 )     (189 )     (1,617 )
Net loss
    (19,274 )     (27,892 )     (56,948 )
                         
Basic and diluted loss per share
    (0.01 )     (0.01 )        
                         
Weighted average number of common shares outstanding
      3,160,000         3,160,000          

– See Accompanying Notes –
 
 
F-3

 

PENOLA INC.
(An Exploration Stage Company)
 
STATEMENTS OF CASH FLOWS
 
   
Year ended
February 28,
2013
- $ -
   
 
Year ended
February 29, 2012
- $ -
   
May 7, 2010
(Inception) to
February 28, 2013
- $ -
 
Cash Flows From Operating Activities
                 
Net loss
    (19,274 )     (27,892 )     (56,948 )
Adjustments to reconcile net loss to net cash used in operating activities:
                       
Imputed interest
    1,428       189       1,617  
Impairment of mining costs
    -       -       7,703  
Net change in non-cash working capital balances:
                       
Accounts payable
    625       -       625  
                         
Net cash used in operating activities
    10,056       (21,053 )     (12,557 )
                         
Cash Flows from Investing Activities
                       
Mineral property option
    -       -       (7,703 )
Net cash used in investing activities
    -       -       (7,703 )
                         
Cash Flows From Financing Activities
                       
Due to related party     27,277       6,650       34,446  
Capital stock issued
    -       -       31,000  
Net cash provided by (used in) financing activities
    -       -       31,000  
                         
Increase (Decrease) In Cash
    10,056       (21,053 )     10,740  
                         
Cash, beginning
    684       21,737       -  
Cash, ending
    10,740       684       10,740  
                         
Supplementary Cash Flow Information
                       
Cash paid for:
                       
Interest
    -       -       -  
Income taxes
    -       -       -  

- See Accompanying Notes –
 
 
F-4

 
 
PENOLA INC.
(An Exploration Stage Company)
 
STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE PERIOD FROM MAY 7, 2010 (INCEPTION) TO FEBRUARY 28, 2013
 
   
Shares
Subscribed
   
Common
Stock
   
Additional Paid
in Capital
   
Accumulated
Deficit
   
Total
Equity (Deficit)
 
                                         
Balance, May 7, 2010
    -     $ -     $ -     $ -     $ -  
Common stock issued for cash at $0.001 per share
    2,000,000       2,000       -       -       2,000  
Common stock issued for cash at $0.025 per share – July 16, 2009 to February 28, 2011
      1,160,000         1,160         27,840         -         29,000  
Net loss
    -       -       -       (9,782 )     (9,782 )
Balance, February 28, 2011
    3,160,000       3,160       27,840       (9,782 )     21,218  
Imputed interest
    -       -       189       -       189  
Net loss
    -       -       -       (27,892 )     (27,892 )
Balance, February 29, 2012
    3,160,000       3,160       28,029       (37,674 )     (6,485 )
Imputed interest
    -       -       1,428       -       1,428  
Net loss
    -       -       -       (19,274 )     (19,274 )
Balance, February 28, 2013
    3,160,000     $ 3,160     $ 29,457     $ (56,948 )   $ (24,331 )

- See Accompanying Notes -
 
 
F-5

 

PENOLA INC.
(An Exploration Stage Company)

NOTES TO THE FINANCIAL STATEMENTS

FEBRUARY 28, 2013
 
NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Penola Inc. (the “Company”) was incorporated in the State of Nevada on May 7, 2010, and its year-end is February 28. The Company is an exploration stage company and is currently seeking for new business opportunities.

Going concern
These financial statements have been prepared on a going concern basis. The Company has incurred losses since inception resulting in an accumulated deficit of $56,948 at February 28, 2013 and further losses are anticipated in the development of its business raising substantial doubt about the Company’s ability to continue as a going concern. Its ability to continue as a going concern is dependent upon the ability of the Company to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management has plans to seek additional capital through a private placement of its common stock or further director loans as needed. These financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation
These financial statements are presented in United States dollars and have been prepared in accordance with United States generally accepted accounting principles.

Cash and cash equivalents
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company had no cash equivalents at February 28, 2013 or February 29, 2012, respectively.

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 reporting period. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are readily apparent from other sources. The actual results experienced by the Company may differ materially from the Company’s estimates. To the extent there are material differences, future results may be affected. Estimates used in preparing these financial statements include the carrying value of the equipment, deferred income tax amounts, rates and timing of the reversal of income tax differences.

Mineral property costs
The Company has been in the exploration stage since its formation on May 7, 2010 and has not yet realized any revenues from its planned operations. It is primarily engaged in the acquisition and exploration of mining properties. Mineral property acquisition and exploration costs are charged to operations as incurred. When it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves, the costs incurred to develop such property, are capitalized. Such costs will be amortized using the units-of-production method over the estimated life of the probable reserve.
 
 
F-6

 

Basic and diluted net income (loss) per common share
The Company computes net income (loss) per share in accordance with Financial Accounting Standards Codification (“ASC”) 260 “Earnings Per Share” which requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing income (loss) available to common stockholders (numerator) by the weighted average number of common shares outstanding (denominator) for the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock options, using the treasury stock method, and convertible preferred stock, using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive. Because the Company does not have any potentially dilutive securities, diluted loss per share is equal to the basic loss per share.

Comprehensive loss
For all periods presented, the Company has no items that represent a comprehensive loss and, therefore, has not included a statement of comprehensive loss in these financial statements.

Financial instruments
The fair value of the Company’s financial instruments consisting of cash, accounts payable, and amounts due to related party approximate their carrying values due to the immediate or short-term maturity of these financial instruments. The Company operates in Australia and therefore is exposed to foreign exchange risk. It is management's opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments.

Fair value of financial instruments
The Company adopted ASC 820 “Fair Value Measurements”. ASC 820 defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:

Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly for substantially the full term of the financial instrument.

Level 3 inputs to the valuation methodology are unobservable and significant to the fair measurement.

The carrying amounts reported in the balance sheets for cash and cash equivalents, and current liabilities each qualify as financial instruments and are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest.

The following table presents the Company’s assets and liabilities within the fair value hierarchy utilized to measure fair value on a recurring basis as of February 28, 2013 and February 29, 2012:

   
Level 1
   
Level 2
   
Level 3
 
February 28, 2013
  $ -     $ -     $ -  
February 29, 2012
  $ -     $ -     $ -  
 
Income taxes
Deferred income taxes are provided for tax effects of temporary differences between the tax basis of asset and liabilities and their reported amounts in the financial statements. The Company uses the liability method to account for income taxes, which requires deferred taxes to be recorded at the statutory rate expected to being in effect when the taxes are paid. Valuation allowances are provided for a deferred tax asset when it is more likely than not that such asset will not be realized.
 
 
F-7

 

Management evaluates tax positions taken or expected to be taken in a tax return. The evaluation of a tax position includes a determination of whether a tax position should be recognized in the financial statements, and such a position should only be recognized if the Company determines that it is more likely than not that the tax position will be sustained upon examination by the tax authorities, based upon the technical merits of the position. For those tax positions that should be recognized, the measurement of a tax position is determined as being the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement.

Stock-based compensation
The Company has not adopted a stock option plan and therefore has not granted any stock options. Accordingly, no stock-based compensation has been recorded to date.

Foreign currency translation
Foreign denominated monetary assets and liabilities are translated to their United States dollar equivalents using foreign exchange rates which prevailed at the balance sheet date. Expenses are translated at average rates of exchange during the period. 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.

Exploration stage company
The Company complies with ASC 915 and Securities and Exchange Commission Act Guide 7 for its characterization of the Company as an Exploration stage enterprise.

Recent accounting pronouncements
In October 2012, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2012-04, “Technical Corrections and Improvements” in Accounting Standards Update No. 2012-04. The amendments in this update cover a wide range of Topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this update will be effective for fiscal periods beginning after December 15, 2012. The adoption of ASU 2012-04 is not expected to have a material impact on our financial position or results of operations.

In August 2012, the FASB issued ASU 2012-03, “Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22 (SEC Update)” in Accounting Standards Update No. 2012-03. This update amends various SEC paragraphs pursuant to the issuance of SAB No. 114. The adoption of ASU 2012-03 is not expected to have a material impact on our financial position or results of operations.

In July 2012, the FASB issued ASU 2012-02, “Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment” in Accounting Standards Update No. 2012-02. This update amends ASU 2011-08, Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment and permits an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles - Goodwill and Other - General Intangibles Other than Goodwill. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption of ASU 2012-02 is not expected to have a material impact on our financial position or results of operations.

In December 2011, the FASB issued ASU 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income” in Accounting Standards Update No. 2011-05. This update defers the requirement to present items that are reclassified from accumulated other comprehensive income to net income in both the statement of income where net income is presented and the statement where other comprehensive income is presented. The adoption of ASU 2011-12 is not expected to have a material impact on our financial position or results of operations.
 
 
F-8

 

In December 2011, the FASB issued ASU No. 2011-11 “Balance Sheet: Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”). This Update requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS. The amended guidance is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The Company is currently evaluating the impact, if any, that the adoption of this pronouncement may have on its results of operations or financial position.

Other pronouncements issued by the FASB or other authoritative accounting standards groups with future effective dates are either not applicable or are not expected to be significant to the financial statements of the Company.
 
NOTE 3 – MINERAL PROPERTY

On July 6, 2010 the Company entered into an Option Agreement to acquire a 100% undivided legal, beneficial and register-able interest in an Exploration License E 80/3757 located in Halls Creek Shire in Western Australia. The option period is for two years from the effective date of the Agreement. Initial cash consideration is AUD$7,000 (paid) upon signing the agreement. The exercise price of the option is AUD$200,000 cash at the time the notice of exercise of option is sent to the Owner.

At February 28, 2013, the accumulated costs totalled $7,703. These costs have been expensed in a prior period.

NOTE 4 – RELATED PARTY TRANSACTIONS

In the prior year, the Company issued 2,000,000 common shares at $0.001 per share to the Company's President for cash proceeds of $2,000. The Company owed $34,446 and $7,169 to the president and the director of the Company for funds advanced as of February 28, 2013 and February 29, 2012 respectively. Interest of $1,428 was imputed for the twelve months ended February 2013 and $189 was imputed for the year ended February, 29, 2012. This amount is unsecured, bears no interest and is payable on demand.

Related party transactions are measured at the exchange amount which is the amount agreed upon by the related parties.

NOTE 5 – INCOME TAXES

At February 28, 2013, the Company has estimated tax loss carry forwards for tax purpose of approximately $55,526, which expire by 2030. These amounts may be applied against future taxable income. Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements, as their realization has not been determined to be more likely than not to occur.

The actual income tax provisions differ from the expected amounts calculated by applying the statutory income tax rate to the Company’s loss before income taxes. The components of these differences are as follows:

   
2013
   
2012
 
Net loss carry forward
  $ 55,526     $ 29,782  
Statutory tax rate
    34 %     34 %
Expected recovery of income taxes at standard rates
    18,879       10,126  
Change in valuation allowance
    (18,879 )     (10,126 )
Income tax provision
  $ -       -  

Components of deferred tax asset:
           
Non-capital tax loss carry forwards
  $ 18,879     $ 10,126  
Less: valuation allowance
    (18,879 )     (10,126 )
Net deferred tax asset
  $ -     $ -  

 
F-9

 
 
The Company has not filed income tax returns since inception in the United States. Both taxing authorities prescribe penalties for failing to file certain tax returns and supplemental disclosure. Upon filing there could be penalties and interest assessed. Such penalties vary by jurisdiction and by assessing practices and authorities. As the Company has incurred losses since inception there would be no known or anticipated exposure to penalties for income tax liability. However, certain jurisdictions may assess penalties for failing to file returns and other disclosures and for failing to file other supplemental information associated with foreign ownership, debt and equity position. Inherent uncertainties arise over tax positions taken with respect to transfer pricing, related party transactions, tax credits, tax based incentives and stock based transactions. Management has considered the likelihood and significance of possible penalties associated with its current and intended filing positions and has determined, based on their assessment, that such penalties, if any, would not be expected to be material.

NOTE 6- SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the date of issuance for potential recognition and disclosure in the financial statements and has determined there are none to be disclosed.
 
 
F-10

 
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including our principal executive officer and the principal financial officer, we are responsible for conducting an evaluation of the effectiveness of the design and operation of our internal controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of the end of the fiscal year covered by this report.  Disclosure controls and procedures means that the material information required to be included in our Securities and Exchange Commission (“SEC”) reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms relating to our company, including any consolidating subsidiaries, and was made known to us by others within those entities, particularly during the period when this report was being prepared.  Based on this evaluation, our principal executive officer and principal financial officer concluded as of the evaluation date that our disclosure controls and procedures were effective as of February 28, 2013.

MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

As of February 28, 2013, management assessed the effectiveness of our internal control over financial reporting. The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.  Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, the Company’s Chief Executive Officer and Chief Financial Officer and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP in the United States of America and includes those policies and procedures that:

·  Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of our assets;

·  Provide reasonable assurance our transactions are recorded as necessary to permit preparation of our financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

·  Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statement.
 
 
17

 

In evaluating the effectiveness of our internal control over financial reporting, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control – Integrated Framework. Based on that evaluation, completed only by Filomena Gencarelli, our President, Chief Executive Officer, Treasurer and Director, who also serves as our principal financial officer and principal accounting officer, Ms. Gencarelli concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as more fully described below.

This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.

The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (i) lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (ii) inadequate segregation of duties consistent with control objectives; and (iii) ineffective controls over period end financial disclosure and reporting processes.  The aforementioned material weaknesses were identified by our President, Chief Executive Officer, Secretary, Treasurer and Director, who also serves as our principal financial officer and principal accounting officer, in connection with the review of our financial statements as of February 28, 2013.

Management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING.

There were no changes in the Company’s internal control over financial reporting that occurred during the fourth quarter of the year ended February 28, 2013 that have materially affected, or that are reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B. OTHER INFORMATION.

None.
 
 
18

 

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Our executive officer’s and director’s and their respective age’s as of February 28, 2013 are as follows:

Name
 
Age
 
Positions and Offices
         
Ms. Filomena Gencarelli
 
63
 
President, Chief Executive Officer, Treasurer and Director
 
The directors named above will serve until the next annual meeting of the stockholders or until their respective resignation or removal from office.  Thereafter, directors are anticipated to be elected for one-year terms at the annual stockholders’ meeting. Officers will hold their positions at the pleasure of the Board of Directors, absent any employment agreement, of which none currently exists or is contemplated.
 
Set forth below is a brief description of the background and business experience of our executive officers and directors for the past five years.

FILOMENA GENCARELLI
 
Ms. Gencarelli has served as our President, Chief Executive Officer, Secretary and sole Director since our formation on May 7, 2010. Since 2001, Ms. Gencarelli has owned and operated Illura Corporate Services Limited, a company which provides corporate administrative and commercial services to various companies. As Principal of Illura, Ms. Gencarelli has been instrumental in working with local government and staff to restructure and multi-skill a number of private companies as well as providing advisory services for the structuring of mining resource companies. Ms. Gencarelli has had over 30 years experience in implementing motivational inductions and training programs, administration management and community development projects for companies. Ms. Gencarelli is a graduate of St Josephs Convent, Bunbury, Western Australia, where she earned a Leaving Certificate (tertiary entrance exam) 1965. In 1966, Ms. Gencarelli graduated from Bunbury Technical College, Western Australia, where she earned a Diploma in Administration and Business Practices in 1966.
 
Ms. Gencarelli’s background providing advisory services for the structuring of mining resource companies and what we believe to be her an excellent understanding of commercial imperatives have led to our conclusion that she should be serving as a member of our Board of Directors in light of our business and structure.
 
 
19

 

TERM OF OFFICE

All directors hold office until the next annual meeting of the stockholders of the Company and until their successors have been duly elected and qualified.  The Company’s Bylaws provide that the Board of Directors will consist of no less than three members.  Officers are elected by and serve at the discretion of the Board of Directors.
 
DIRECTOR INDEPENDENCE
 
Our board of directors is currently composed of one member, whom does not qualify as an independent director in accordance with the published listing requirements of the NASDAQ Global Market (the Company has no plans to list on the NASDAQ Global Market).  The NASDAQ independence definition includes a series of objective tests, such as that the director is not, and has not been for at least three years, one of our employees and that neither the director, nor any of his family members has engaged in various types of business dealings with us. In addition, our board of directors has not made a subjective determination as to our director that no relationships exist which, in the opinion of our board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director, though such subjective determination is required by the NASDAQ rules. Had our board of directors made these determinations, our board of directors would have reviewed and discussed information provided by our director and us with regard to our director’s business and personal activities and relationships as they may relate to us and our management.

CERTAIN LEGAL PROCEEDINGS
 
No director, nominee for director, or executive officer of the Company has appeared as a party in any legal proceeding material to an evaluation of his ability or integrity during the past five years.

SIGNIFICANT EMPLOYEES AND CONSULTANTS
 
Other than our officers and directors, we currently have no other significant employees.

AUDIT COMMITTEE AND CONFLICTS OF INTEREST
 
Since we do not have an audit or compensation committee comprised of independent directors, the functions that would have been performed by such committees are performed by our directors.  The Board of Directors has not established an audit committee and does not have an audit committee financial expert, nor has the Board of Directors established a nominating committee.  The Board is of the opinion that such committees are not necessary since the Company is an early exploration stage company and has only two directors, and to date, such directors have been performing the functions of such committees.  Thus, there is a potential conflict of interest in that our directors and officers have the authority to determine issues concerning management compensation, nominations, and audit issues that may affect management decisions.
 
There are no family relationships among our directors or officers. Other than as described above, we are not aware of any other conflicts of interest with any of our executive officers or directors.
 
 
20

 

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors, and persons who own more than ten percent of a registered class of our equity securities, file reports of ownership and changes in ownership with the SEC.  Executive officers, directors and greater-than-ten percent stockholders are required by SEC regulations to furnish us with all Section 16(a) forms they file.  Based on our review of filings made on the SEC website, and the fact of us not receiving certain forms or written representations from certain reporting persons that they have complied with the relevant filing requirements, we believe that, during the year ended February 28, 2013, our executive officers, directors and greater-than-ten percent stockholders complied have with all Section 16(a) filing requirements.

CODE OF ETHICS

The Company has not adopted a code of ethics that applies to its principal executive officers, principal financial officer, principal accounting officer or controller, or persons performing similar functions.  The Company has not adopted a code of ethics because it has only commenced operations.

ITEM 11. EXECUTIVE COMPENSATION

The following tables set forth certain information about compensation paid, earned or accrued for services by our Chief Executive Officer and all other executive officers (collectively, the “Named Executive Officers”) in the fiscal years ended February 28, 2013 and February 28, 2012:

SUMMARY COMPENSATION TABLE
 
The table below summarizes all compensation awarded to, earned by, or paid to our officers for all services rendered in all capacities to us as of the year ended February 28, 2013 and February 28, 2012.
 
Name and
Principal
Position
Year
 
Salary($)
   
Bonus($)
   
Stock
Awards($)
   
Option
Awards($)
   
Non-Equity
Incentive
Plan
Compensation($)
   
Nonqualified
Deferred
Compensation($)
   
All Other
Compensation($)
   
Total($)
 
                                                                   
Filomena Gencarelli (1)
2013
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
 
2012
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
 
(1) President and Chief Executive Officer, Secretary, Treasurer and Director.

None of our directors have received monetary compensation since our inception to the date of this Annual Report on Form 10-K. We currently do not pay any compensation to our directors serving on our board of directors.
 
 
21

 

STOCK OPTION GRANTS
 
We have not granted any stock options to the executive officers since our inception. Upon the further development of our business, we will likely grant options to directors and officers consistent with industry standards for junior mineral exploration companies.
 
EMPLOYMENT AGREEMENTS
 
The Company is not a party to any employment agreement and has no compensation agreement with its sole officer and director, Filomena Gencarelli.
  
DIRECTOR COMPENSATION
 
The following table sets forth director compensation as of February 28, 2013:

   
Fees
               
Non-Equity
   
Nonqualified
             
   
Earned
               
Incentive
   
Deferred
             
   
Paid in
   
Stock
   
Option
   
Plan
   
Compensation
   
All Other
       
Name
 
Cash($)
   
Awards($)
   
Awards($)
   
Compensation($)
   
Earnings($)
   
Compensation($)
   
Total($)
 
Filomena Gencarelli
   
0
     
0
     
0
     
0
     
0
     
0
     
0
 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table lists, as of February 28, 2013, the number of shares of common stock of our Company that are beneficially owned by (i) each person or entity known to our Company to be the beneficial owner of more than 5% of the outstanding common stock; (ii) each officer and director of our Company; and (iii) all officers and directors as a group. Information relating to beneficial ownership of common stock by our principal shareholders and management is based upon information furnished by each person using “beneficial ownership” concepts under the rules of the Securities and Exchange Commission. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to vote or direct the voting of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under the Securities and Exchange Commission rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary beneficial interest. Except as noted below, each person has sole voting and investment power.

The percentages below are calculated based on 3,160,000 shares of our common stock issued and outstanding as of February 28, 2013.  We do not have any outstanding warrant, options or other securities exercisable for or convertible into shares of our common stock.

Title of Class
Name and Address
of Beneficial Owner (1)
 
Number of Shares
Owned Beneficially
   
Percent of Class
Owned
 
               
Common Stock:
Ms. Filomena Gencarelli, President, President, Chief  Executive Officer, Treasurer and Director
   
2,000,000
     
63.2
%
All executive officers and directors as a group (1 person)
     
2,000,000
     
63.2
%
 
(1) Unless otherwise noted, the address of each person or entity listed is, c/o Penola, Inc., 492 Gilbert Road, West Preston, Victoria 3072, Australia.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

For the year ended February 28, 2013 the total fees charged to the company for audit services, including quarterly reviews were $5,400, for audit-related services were $0 and for tax services and other services were $0 and $0, respectively. For the year ended February 29, 2012 the total fees charged to the company for audit services, including quarterly reviews were $6,600, for audit-related services were $0 and for tax services and other services were $0 and $0, respectively.
 
22

 

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE

(a)  The following Exhibits, as required by Item 601 of Regulation SK, are attached or incorporated by reference, as stated below.

Number
 
Description
     
3.1
 
Articles of Incorporation*
     
3.2
 
Bylaws*
     
31.1
 
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2
 
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1
 
Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
101.INS **
 
XBRL Instance Document
     
101.SCH **
 
XBRL Taxonomy Extension Schema Document
     
101.CAL **
 
XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF **
 
XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB **
 
XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE **
 
XBRL Taxonomy Extension Presentation Linkbase Document

_________________
* Incorporated by reference to the Registrant’s Form S-1 (File No. 333-175529), filed with the Commission on July 13, 2011.
 
** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
 
 
23

 

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 

 
PENOLA, INC.
 
 
(Name of Registrant)
 
       
Date:  May 31, 2013
By:
/s/ Filomena Gencarelli
 
    Name: Filomena Gencarelli  
    Title: President,  Chief Executive Officer (principal executive officer, principal financial officer and principal accounting officer)  

 
24

 
 
EXHIBIT INDEX

Number
 
Description
     
3.1
 
Articles of Incorporation*
     
3.2
 
Bylaws*
     
31.1
 
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2
 
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1
 
Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
101.INS **
 
XBRL Instance Document
     
101.SCH **
 
XBRL Taxonomy Extension Schema Document
     
101.CAL **
 
XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF **
 
XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB **
 
XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE **
 
XBRL Taxonomy Extension Presentation Linkbase Document

_________________
* Incorporated by reference to the Registrant’s Form S-1 (file no. 333-175529), filed with the Commission on July 13, 2011.
 
** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 
25