UNITED STATES
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 May 31, 2012
¨
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
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|
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: 47,744,749 shares of common stock as July13,
2012.
RUBY CREEK RESOURCES, INC.
Quarterly Report on Form 10-Q for the Quarterly Period Ended
May 31, 2012
FORWARD-LOOKING STATEMENTS
This Form 10-Q for the quarterly period
ended May 31, 2012 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
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.
Ruby Creek Resources, Inc.
Table of Contents
May 31, 2012
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Page
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PART I. FINANCIAL INFORMATION
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|
Item 1.
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Financial Statements (Unaudited)
|
|
|
Consolidated Balance Sheets – May 31, 2012 and August 31, 2011
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4
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Consolidated Statements of Operations –Three Months and Nine Months ended May 31, 2012 and 2011 and cumulative to date
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5
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Consolidated Statement of Equity – Inception (May 3, 2006) to May 31, 2012
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6
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Consolidated Statements of Cash Flows - Nine Months ended May 31, 2012 and 2011and cumulative to date
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7
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Notes to Consolidated Financial Statements
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8-17
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Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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19-24
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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24
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Item 4.
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Controls and Procedures
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24
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|
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PART II. OTHER INFORMATION
|
|
Item 1.
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Legal Proceedings
|
25
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Item 2.
|
Unregistered Sales of Equity Securities
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26
|
Item 3.
|
Defaults Upon Senior Securities
|
27
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Item 4.
|
Submission of Matters to a Vote of Security Holders
|
27
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Item 5.
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Other Information
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27
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Item 6.
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Exhibits
|
28
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Signatures
|
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28
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RUBY CREEK RESOURCES, INC.
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(An Exploration Stage Company)
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CONSOLIDATED BALANCE SHEETS
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May 31,
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August 31,
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2012
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2011
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(Unaudited)
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ASSETS
|
|
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CURRENT ASSETS
|
|
|
|
|
|
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Cash
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|
$
|
47,175
|
|
|
$
|
1,836,877
|
|
Prepaid expenses and other current assets
|
|
|
212,890
|
|
|
|
259,768
|
|
Total current assets
|
|
|
260,065
|
|
|
|
2,096,645
|
|
|
|
|
|
|
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PROPERTY AND EQUIPMENT, net of accumulated depreciation of
|
|
|
|
|
|
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$163,035 and $42,123 , respectively
|
|
|
2,408,429
|
|
|
|
312,729
|
|
|
|
|
|
|
|
|
|
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MINERAL PROPERTIES
|
|
|
2,377,988
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|
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|
7,141,800
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|
|
|
|
|
|
|
|
|
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TOTAL ASSETS
|
|
$
|
5,046,482
|
|
|
$
|
9,551,174
|
|
|
|
|
|
|
|
|
|
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LIABILITIES AND EQUITY
|
|
|
|
|
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CURRENT LIABILITIES
|
|
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Accounts payable and accrued liabilities
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|
$
|
558,879
|
|
|
$
|
404,941
|
|
Installment loan payable
|
|
|
20,288
|
|
|
|
11,042
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|
Due to Handeni Gold, net of discount
|
|
|
-
|
|
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|
1,864,340
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|
Convertible note payable, current, net of discount
|
|
|
549,487
|
|
|
|
-
|
|
Due to related parties
|
|
|
62,037
|
|
|
|
82,612
|
|
Total current liabilities
|
|
|
1,190,691
|
|
|
|
2,362,935
|
|
|
|
|
|
|
|
|
|
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LONG-TERM LIABILITIES
|
|
|
|
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|
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Due to Handeni Gold, net of discount
|
|
|
-
|
|
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|
2,817,692
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|
Convertible note payable, net of discount
|
|
|
321,991
|
|
|
|
-
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|
Due to Mkuvia Maita, net of discount
|
|
|
325,205
|
|
|
|
-
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Deferred income taxes payable
|
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|
405,000
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|
|
-
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Total long-term liabilities
|
|
|
1,052,196
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|
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|
2,817,692
|
|
|
|
|
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COMMITMENTS AND CONTINGENCIES (Note 7)
|
|
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TOTAL LIABILITIES
|
|
|
2,242,887
|
|
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|
5,180,627
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|
|
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|
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EQUITY
|
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Common stock, 500,000,000 shares authorized, par value $0.001;
|
|
|
|
|
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47,712,949 and 39,576,978
shares issued and outstanding, respectively
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47,713
|
|
|
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39,577
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Additional paid-in capital
|
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|
18,166,002
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|
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12,397,133
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Deferred compensation
|
|
|
(78,613
|
)
|
|
|
(104,691
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)
|
Comprehensive income from foreign currency translation
|
|
|
49,087
|
|
|
|
29,524
|
|
Deficit accumulated during the exploration stage
|
|
|
(15,403,794
|
)
|
|
|
(7,990,996
|
)
|
Total stockholders' equity
|
|
|
2,780,395
|
|
|
|
4,370,547
|
|
Noncontrolling interest
|
|
|
23,200
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total Equity
|
|
|
2,803,595
|
|
|
|
4,370,547
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY
|
|
$
|
5,046,482
|
|
|
$
|
9,551,174
|
|
See accompanying notes to unaudited consolidated
financial statements.
RUBY CREEK RESOURCES, INC.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
|
(Unaudited)
|
|
|
|
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|
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|
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Cumulative
|
|
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|
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|
|
|
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for the Period
|
|
|
|
|
|
|
|
|
|
|
|
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from
|
|
|
|
|
|
|
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|
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|
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|
May 3, 2006
|
|
|
|
|
|
|
|
|
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(Inception) to
|
|
|
|
Three
Months Ended May 31,
|
|
|
Nine
Months Ended May 31,
|
|
|
May 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral exploration
and operating costs
|
|
$
|
695,841
|
|
|
$
|
386,166
|
|
|
$
|
1,498,643
|
|
|
$
|
960,196
|
|
|
$
|
3,002,583
|
|
Consulting services
|
|
|
164,957
|
|
|
|
436,007
|
|
|
|
589,758
|
|
|
|
628,814
|
|
|
|
2,212,665
|
|
Depreciation
|
|
|
72,419
|
|
|
|
13,399
|
|
|
|
120,961
|
|
|
|
22,419
|
|
|
|
163,084
|
|
Interest and financing
fees
|
|
|
66,823
|
|
|
|
124,265
|
|
|
|
930,410
|
|
|
|
380,378
|
|
|
|
2,506,179
|
|
Management services
|
|
|
193,740
|
|
|
|
576,345
|
|
|
|
867,400
|
|
|
|
834,147
|
|
|
|
2,291,206
|
|
General
and administrative
|
|
|
474,794
|
|
|
|
228,755
|
|
|
|
1,225,444
|
|
|
|
665,405
|
|
|
|
3,047,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expenses
|
|
|
1,668,574
|
|
|
|
1,764,937
|
|
|
|
5,232,616
|
|
|
|
3,491,359
|
|
|
|
13,223,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE OTHER ITEMS
|
|
|
(1,668,574
|
)
|
|
|
(1,764,937
|
)
|
|
|
(5,232,616
|
)
|
|
|
(3,491,359
|
)
|
|
|
(13,223,612
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment - Mineral
Properties
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,930,682
|
)
|
|
|
-
|
|
|
|
(1,930,682
|
)
|
Impairment
- Equiment
|
|
|
-
|
|
|
|
-
|
|
|
|
(300,000
|
)
|
|
|
-
|
|
|
|
(300,000
|
)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,230,682
|
)
|
|
|
-
|
|
|
|
(2,230,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
|
(1,668,574
|
)
|
|
|
(1,764,937
|
)
|
|
|
(7,463,298
|
)
|
|
|
(3,491,359
|
)
|
|
|
(15,454,294
|
)
|
NET LOSS ATTRIBUTABLE
TO NONCONTROLLING INTEREST
|
|
|
29,000
|
|
|
|
-
|
|
|
|
50,500
|
|
|
|
-
|
|
|
|
50,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS ATTRIBUTABLE
TO COMMON SHAREHOLDERS
|
|
|
(1,639,574
|
)
|
|
$
|
(1,764,937
|
)
|
|
$
|
(7,412,798
|
)
|
|
$
|
(3,491,359
|
)
|
|
$
|
(15,403,794
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS PER COMMON
SHARE, BASIC AND DILUTED
|
|
$
|
(0.03
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
(0.12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OUTSTANDING,
BASIC AND DILUTED
|
|
|
47,256,533
|
|
|
|
35,942,390
|
|
|
|
43,789,799
|
|
|
|
29,843,842
|
|
|
|
|
|
See accompanying notes to unaudited consolidated
financial statements.
RUBY CREEK RESOURCES, INC.
(An Exploration Stage Company)
Consolidated Statement of Equity (Deficit)
|
From May 3, 2006 (Date of Inception) to May 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Deferred
|
|
|
Non-
|
|
|
Deficit
Accumulated During
|
|
|
Income (Loss) From
Foreign
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Compensation
|
|
|
Controlling
|
|
|
Exploration
|
|
|
Exchange
|
|
|
Equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
Expense
|
|
|
Interest
|
|
|
Stage
|
|
|
Translation
|
|
|
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
80,833
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
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
|
|
|
|
269,863
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(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 in connection with 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 $0.05 per share
|
|
|
1,544,877
|
|
|
|
1,545
|
|
|
|
75,699
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
77,244
|
|
December 22, 2009 to March 23, 2010 - common shares issued for interest on bridge loan @ $0.05 per share
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
March 23, 2010 - fair value of warrants on default of bridge loan
|
|
|
-
|
|
|
|
-
|
|
|
|
787,369
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
787,369
|
|
April 3, 2010 to May 31, 2010 - issuance of common shares for cash at $0.25 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
June 4, 2010 - issuance of common stock for services at $0.35 per share
|
|
|
50,000
|
|
|
|
50
|
|
|
|
19,450
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,500
|
|
June 30, 2010 - Issuance of common stock for services at $0.25 per share
|
|
|
8,608
|
|
|
|
9
|
|
|
|
2,143
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,152
|
|
July 26, 2010 - Issuance of common stock for services at $0.25 per share
|
|
|
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 on exercise of options
|
|
|
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 - 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, 2010 to August 24, 2011 - issuance of common shares for cash at $0.50 per share
|
|
|
9,231,000
|
|
|
|
9,231
|
|
|
|
4,606,269
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,615,500
|
|
Exercises of warrants issued in private placements for cash
|
|
|
595,000
|
|
|
|
595
|
|
|
|
206,905
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
207,500
|
|
Issuance of common stock for services at $0.25-$0.50 per share
|
|
|
291,755
|
|
|
|
292
|
|
|
|
143,706
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
143,998
|
|
Issuance of common stock in connection with employment agreement at $0.50 per share
|
|
|
200,000
|
|
|
|
200
|
|
|
|
99,800
|
|
|
|
(83,333
|
)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,667
|
|
Issuance of common stock in connection with consulting agreement at an average of $0.87 per share
|
|
|
200,000
|
|
|
|
200
|
|
|
|
172,800
|
|
|
|
(173,000
|
)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cashless exercise of warrants issued in consulting arrangements
|
|
|
571,311
|
|
|
|
571
|
|
|
|
(571
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Convertible notes - related parties and accrued interest converted at $0.05 per share
|
|
|
2,220,000
|
|
|
|
2,220
|
|
|
|
108,780
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
111,000
|
|
Exercise of warrant issued in connection with bridge loan default
|
|
|
1,500,000
|
|
|
|
1,500
|
|
|
|
73,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
75,000
|
|
Exercise of warrants issued in connection 11% convertible debentures
|
|
|
2,000,000
|
|
|
|
2,000
|
|
|
|
98,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100,000
|
|
Exercise of warrants issued in consulting arrangements
|
|
|
40,000
|
|
|
|
40
|
|
|
|
1,960
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,000
|
|
Amortization of deferred compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
151,642
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
151,642
|
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
1,165,561
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,165,561
|
|
Comprehensive income - foreign exchange translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
28,634
|
|
|
|
28,634
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
(4,994,325
|
)
|
|
|
-
|
|
|
|
(4,994,325
|
)
|
Balance - August 31, 2011
|
|
|
39,576,978
|
|
|
|
39,577
|
|
|
|
12,397,133
|
|
|
|
(104,691
|
)
|
|
|
-
|
|
|
|
(7,990,996
|
)
|
|
|
29,524
|
|
|
|
4,370,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 6, 2011 to November 16, 2011 - issuance of common shares for cash at $0.75 per share
|
|
|
320,001
|
|
|
|
320
|
|
|
|
239,680
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
240,000
|
|
Exercise of warrants issued in private placements for cash
|
|
|
2,325,500
|
|
|
|
2,325
|
|
|
|
1,005,426
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,007,751
|
|
Cashless exercise of warrants issued in consulting arrangements
|
|
|
1,164,603
|
|
|
|
1,165
|
|
|
|
(1,165
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Issuance of common stock for services at $0.50-$1.30 per share
|
|
|
467,867
|
|
|
|
468
|
|
|
|
385,164
|
|
|
|
(142,500
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
243,132
|
|
Shares issued on acquisition of Gold Standard
|
|
|
1,200,000
|
|
|
|
1,200
|
|
|
|
1,438,800
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,440,000
|
|
Intrinsic value of conversion feature of convertible notes
|
|
|
-
|
|
|
|
-
|
|
|
|
810,400
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
810,400
|
|
Issuance of common share on exercise of compensation warrants for cash
|
|
|
900,000
|
|
|
|
900
|
|
|
|
44,100
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
45,000
|
|
Exercise of warrants issued in connection with bridge loan default
|
|
|
390,000
|
|
|
|
390
|
|
|
|
97,110
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
97,500
|
|
Amortization of deferred compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
168,578
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
168,578
|
|
Issuance of common stock for conversion of Mining Equipment Note, net of fair value adjustment
|
|
|
1,368,000
|
|
|
|
1,368
|
|
|
|
1,024,632
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,026,000
|
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
798,422
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
798,422
|
|
Non-controlling interest
|
|
|
-
|
|
|
|
-
|
|
|
|
(73,700
|
)
|
|
|
-
|
|
|
|
73,700
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Comprehensive income - foreign exchange translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,563
|
|
|
|
19,563
|
|
Net loss attributable to non-controlling interest - nine months ended May 31, 2012
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(50,500
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(50,500
|
)
|
Net loss attributable to common shareholders - nine months ended May 31, 2012
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,412,798
|
)
|
|
|
-
|
|
|
|
(7,412,798
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - May 31, 2012 (Unaudited)
|
|
|
47,712,949
|
|
|
$
|
47,713
|
|
|
$
|
18,166,002
|
|
|
$
|
(78,613
|
)
|
|
$
|
23,200
|
|
|
$
|
(15,403,794
|
)
|
|
$
|
49,087
|
|
|
$
|
2,803,595
|
|
See accompanying notes to unaudited consolidated
financial statements.
RUBY CREEK RESOURCES, INC.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(Unaudited)
|
|
|
|
|
|
|
|
Cumulative
|
|
|
|
|
|
|
|
|
|
for the Period
|
|
|
|
|
|
|
|
|
|
from
|
|
|
|
|
|
|
|
|
|
May 3, 2006
|
|
|
|
|
|
|
|
|
|
(Inception) to
|
|
|
|
Nine
Months Ended May 31,
|
|
|
May 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common shareholders
|
|
$
|
(7,412,798
|
)
|
|
$
|
(3,491,359
|
)
|
|
$
|
(15,403,794
|
)
|
Net loss attributable to noncontrolling interest
|
|
|
(50,500
|
)
|
|
|
-
|
|
|
|
(50,500
|
)
|
Adjustments to reconcile net loss to net cash (used
in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
120,961
|
|
|
|
47,419
|
|
|
|
163,082
|
|
Impairment - Mineral Properties
|
|
|
1,930,682
|
|
|
|
-
|
|
|
|
1,940,453
|
|
Impairment - Equipment
|
|
|
300,000
|
|
|
|
-
|
|
|
|
300,000
|
|
Donated services
|
|
|
-
|
|
|
|
-
|
|
|
|
3,000
|
|
Interest and financing fees,
including discount accretion
|
|
|
891,333
|
|
|
|
372,942
|
|
|
|
2,450,607
|
|
Common stock issued for services
|
|
|
411,710
|
|
|
|
100,999
|
|
|
|
736,503
|
|
Stock based compensation
|
|
|
798,422
|
|
|
|
897,440
|
|
|
|
2,616,823
|
|
Net changes in noncash working
capital items:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) - Prepaid expenses
|
|
|
46,877
|
|
|
|
(14,831
|
)
|
|
|
(190,892
|
)
|
Increase - Accounts payable
|
|
|
173,501
|
|
|
|
63,196
|
|
|
|
639,466
|
|
(Decrease)
Increase - Due to/from related parties
|
|
|
(20,575
|
)
|
|
|
48,023
|
|
|
|
112,037
|
|
Net cash
flows (used in) operating activities
|
|
|
(2,810,387
|
)
|
|
|
(1,976,171
|
)
|
|
|
(6,683,215
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of equipment
|
|
|
(140,660
|
)
|
|
|
(171,962
|
)
|
|
|
(495,513
|
)
|
Mineral
properties and deposits
|
|
|
(238,151
|
)
|
|
|
(331,035
|
)
|
|
|
(1,193,551
|
)
|
Net cash
flows (used in) investing activities
|
|
|
(378,811
|
)
|
|
|
(502,997
|
)
|
|
|
(1,689,064
|
)
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
-
|
|
|
|
|
|
Issuance of common shares for
cash - private placements
|
|
|
240,000
|
|
|
|
4,300,000
|
|
|
|
6,689,700
|
|
Exercise of private placement
warrants for cash
|
|
|
1,007,751
|
|
|
|
309,500
|
|
|
|
1,392,251
|
|
Exercise of warrant issued
in connection with bridge loan for cash
|
|
|
97,500
|
|
|
|
-
|
|
|
|
97,500
|
|
Exercise of compensation warrants
for cash
|
|
|
45,000
|
|
|
|
-
|
|
|
|
45,000
|
|
Installment loan - proceeds
|
|
|
22,823
|
|
|
|
22,084
|
|
|
|
64,407
|
|
Installment loan - repayments
|
|
|
(13,578
|
)
|
|
|
(14,077
|
)
|
|
|
(44,404
|
)
|
Bridge loan - related party
|
|
|
-
|
|
|
|
-
|
|
|
|
75,000
|
|
Convertible
notes - related parties
|
|
|
-
|
|
|
|
-
|
|
|
|
100,000
|
|
Net cash
flows provided by financing activities
|
|
|
1,399,496
|
|
|
|
4,617,506
|
|
|
|
8,419,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
(1,789,702
|
)
|
|
|
2,138,338
|
|
|
|
47,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash - beginning of period
|
|
|
1,836,877
|
|
|
|
325,756
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash - end of period
|
|
$
|
47,175
|
|
|
$
|
2,464,094
|
|
|
$
|
47,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
-
|
|
|
$
|
289
|
|
|
$
|
517
|
|
Taxes paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Conversion of related party
debt to shares and warrants
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
127,244
|
|
Conversion of related party
convertible notes and accrued interest to common shares
|
|
$
|
-
|
|
|
$
|
111,000
|
|
|
$
|
111,000
|
|
Mineral properties acquired
- short-term payments
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,100,000
|
|
Mineral properties acquired
- long-term payments, net of discount
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,576,170
|
|
Noncontrolling interest
|
|
$
|
73,700
|
|
|
$
|
-
|
|
|
$
|
73,700
|
|
Mineral properties acquired
- fair value of common shares issued
|
|
$
|
1,440,000
|
|
|
$
|
-
|
|
|
$
|
3,560,000
|
|
Convertible notes issued for
property and equipment
|
|
$
|
2,000,000
|
|
|
$
|
-
|
|
|
$
|
2,000,000
|
|
Assets acquired for assumed
liability
|
|
$
|
325,205
|
|
|
$
|
-
|
|
|
$
|
325,205
|
|
Deferred income tax liability
|
|
$
|
405,000
|
|
|
$
|
-
|
|
|
$
|
405,000
|
|
See accompanying notes to unaudited consolidated
financial statements.
Ruby Creek Resources, Inc.
Notes to Consolidated Financial Statments
(An Exploration Stage Company)
May
31, 2012
(Unaudited)
NOTE 1 - Organization and Summary
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. Tanzania Ruby Creek Limited (TzRC) was formed in December 2011 (100% owned by the Company), Ruby
Creek Resources (Tanzania) Limited (“RCRTz) was incorporated on May 21, 2010 in Tanzania, (a joint venture 70% owned by the
Company), and Ruby Creek Gold (Tanzania) Limited (99% owned by the Company) and Ruby Creek Diamonds Limited (100% owned by
the Company) were formed on August 10, 2011. Gold Standard (Tanzania) Limited (95% owned by the Company), was acquired
on November 29, 2011 in the transaction described in Note 3c.
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 significant
revenues since inception. The Company has incurred significant losses from inception through May 31, 2012 of
approximately $15,454,000 and is currently seeking funding necessary to continue its current activities and commence
commercial operations. These factors raise substantial doubt about the ability of the Company to continue as a going
concern. Further, as discussed in Note 7A – Litigation, the Company commenced litigation againt Handeni Gold Inc
(formerly Douglas Lake Minerals, Inc) related to claims for breaches of contract and fraud related to the Mkuvia Property.
Handeni Gold Inc. has filed a counterclaim against the Company seeking certain payments and removal of certain asset
restrictions. 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 discover and successfully exploit economically recoverable
mineral reserves on its resource properties and ultimately on the attainment of future profitable operations; and to the
satisfactory outcome of the referenced litigation. The Company has funded its operations with private equity, advances from
related parties and/or convertible debt financing and is in the process of identifying additional sources of capital from
debt or equity sources. 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. However, there can be no assurance of this, nor is there any
assurance that commercial operations will be achieved. 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, 2011 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 14, 2011. In the opinion of management, all adjustments
considered necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented,
consisting solely of normal recurring adjustments, have been made. Operating results for the three and nine month periods
ended May 31, 2012 are not necessarily indicative of the results that may be expected for the year ending August 31, 2012.
Ruby Creek Resources, Inc.
Notes to Consolidated Financial Statments
(An Exploration Stage Company)
May
31, 2012
(Unaudited)
NOTE 1 - Organization and Summary, continued
Recent Accounting Pronouncements
In June 2011, the Financial Accounting
Standards Board (“FASB”) issued ASU No. 2011-05, “Comprehensive Income (ASC Topic 220): Presentation of Comprehensive
Income” (“ASU No. 2011-05”), which amends current comprehensive income guidance. This accounting update eliminates
the option to present the components of other comprehensive income as part of the statement of stockholders’ equity. Instead,
the Company must report comprehensive income in either a single continuous statement of comprehensive income, which contains two
sections, net income and other comprehensive income, or in two separate but consecutive statements. ASU 2011-05 will be effective
for public companies for fiscal years beginning after December 15, 2011, with early adoption permitted. In December 2011, the FASB
issued an update to ASU No. 2011-05. The update, ASU No. 2011 -12, “Deferral of the Effective Date for Amendments to the
Presentation of Reclassification of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05”
(“ASU No. 2011-12”), defers the effective date of certain presentation requirements within ASU No. 2011-05. The Company
does not expect that the adoption of ASU 2011-05 will have an impact on its consolidated results of operations, financial condition
or cash flows, as it only requires a change in the format of the Company’s current presentation.
In September 2011, the FASB issued Accounting
Standards Update (“ASU”) No. 2011-08, “Intangibles – Goodwill and Other (ASC Topic 350): Testing Goodwill
for Impairment” (“ASU No. 2011-08”), which amends guidance for goodwill impairment testing. The amendment allows
entities to first assess qualitative factors in determining whether the fair value of a reporting unit exceeds its carrying value.
If an entity concludes from this qualitative assessment that it is more likely than not that the fair value of a reporting unit
exceeds its carrying value, then performing a two-step impairment test is unnecessary. ASU No. 2011-08 will be effective for public
companies for fiscal years beginning after December 15, 2011. The Company does not expect that the adoption of ASU 2011-08 will
have an impact on its consolidated results of operations, financial condition or cash flows.
There are no other recent pronouncements issued which are expected
to have a material effect on the Company’s consolidated financial statements.
NOTE 2 – Property and Equipment
Property and equipment consists of the
following at May 31, 2012 and August 31, 2011:
|
|
May 31, 2012
|
|
|
|
Cost
|
|
|
Accumulated
Depreciation
|
|
|
Net Book Value
|
|
Vehicles
|
|
$
|
523,935
|
|
|
$
|
46,334
|
|
|
$
|
477,601
|
|
Computer equipment
|
|
|
14,152
|
|
|
|
7,342
|
|
|
|
6,810
|
|
Exploration and mining equipment
|
|
|
2,187,624
|
|
|
|
45,294
|
|
|
|
2,142,331
|
|
Furniture and fixtures
|
|
|
30,937
|
|
|
|
16,241
|
|
|
|
14,696
|
|
Camp facilities
|
|
|
114,816
|
|
|
|
47,824
|
|
|
|
66,992
|
|
|
|
|
2,871,464
|
|
|
|
163,035
|
|
|
|
2,708,429
|
|
Less: Impairment provision
|
|
|
300,000
|
|
|
|
-
|
|
|
|
300,000
|
|
|
|
$
|
2,571,464
|
|
|
$
|
163,035
|
|
|
$
|
2,408,429
|
|
|
|
August 31, 2011
|
|
|
|
Cost
|
|
|
Accumulated
Depreciation
|
|
|
Net Book Value
|
|
Vehicles
|
|
$
|
112,282
|
|
|
$
|
6,915
|
|
|
$
|
105,367
|
|
Computer equipment
|
|
|
9,432
|
|
|
|
4,509
|
|
|
|
4,923
|
|
Exploration and mining equipment
|
|
|
116,165
|
|
|
|
342
|
|
|
|
115,823
|
|
Furniture and fixtures
|
|
|
28,458
|
|
|
|
8,878
|
|
|
|
19,580
|
|
Camp facilities
|
|
|
88,515
|
|
|
|
21,479
|
|
|
|
67,036
|
|
|
|
$
|
354,852
|
|
|
$
|
42,123
|
|
|
$
|
312,729
|
|
Ruby Creek Resources, Inc.
Notes to Consolidated Financial Statments
(An Exploration Stage Company)
May
31, 2012
(Unaudited)
NOTE 2 – Property and Equipment,
continued
The Company has recorded an impairment
for equipment acquired in the Gold Standard transaction discussed in Note 3c ($200,000) and, as a result of the Handeni litigation
discussed in Note 7A – Litigation, for the Mkuvia Project related camp facilities ($100,000).
NOTE 3 - Mineral Properties
Mineral property acquisition costs, advance
payments and deposits consist of the following as of May 31, 2012 and August 31, 2011:
|
|
May 31,
2012
|
|
|
August 31,
2011
|
|
|
|
|
|
|
|
|
|
|
Mkuvia Gold Project – mineral and mining rights
|
|
$
|
6,796,170
|
|
|
$
|
6,796,170
|
|
Mkuvia Gold Project – mineral and mining rights – provision for impairment
|
|
|
(6,796,169
|
)
|
|
|
-
|
|
Kapinga Property - advance payment and deposit
|
|
|
102,128
|
|
|
|
60,000
|
|
Gold Standard –mineral and mining rights
|
|
|
2,044,205
|
|
|
|
250,000
|
|
Other properties - advance payments and deposits
|
|
|
231,654
|
|
|
|
35,630
|
|
|
|
$
|
2,377,988
|
|
|
$
|
7,141,800
|
|
(a)
|
The Company entered
into the following transactions with respect to the Mkuvia Project:
|
|
(i)
|
On November 7, 2009, a Purchase Agreement (the “Agreement”) with Handeni Gold Inc. (“Handeni”),(formerly Douglas Lake Minerals, Inc.), for the right to acquire and develop a 70% interest in 125 square kilometeres of the Handeni’s Mkuvia property;
|
|
(ii)
|
On March 7, 2010, a Tanzanian joint venture company ("RCRTz") was formed for the ownership and management of the 125 square kilometer aforementioned property. A second Joint Venture Agreement (the "JVA") was entered into by the parties with respect to an additional 255 square kilometers. The JVA provides that a 5% interest in the entire project shall vest in the seller when RCRTz obtains a mining license over a portion of the area covered by the prospecting licenses.
|
|
(iii)
|
On May 24, 2010 (effective on June 16, 2010), the Company acquired the exclusive mineral and mining rights to the additional 255 square kilometers of the Mkuvia property from Handeni.
|
The original aggegate purchase price of
$9,000,000 was recorded in the amount of $6,796,170 as the sum of cash paid, the present value of future payments and the fair
value of restricted shares of Company common stock issued. The series of future payments in the gross amount of $4,700,000 was
recorded at their aggregate fair value of $3,576,170 determined utilizing a discount rate of 12% per annum that resulted in
a discount to the purchase price of $1,123,830. Four million restricted shares of Company common stock issued with an agreed upon
contractual value of $3,200,000 had a fair value of $2,120,000 which resulted in a further discount of the purchase price of $1,080,000.
With respect to the future payments, the Company recorded accretion reflected as interest expense in its results of operations.
Interest expense for the three and six month periods ended February 29, 2012 (the date of determination in the following paragraph)
include amortization of $90,359 and $183,455, respectively, of this debt discount. No related interest expense was recorded in
the three months ended May 31, 2012.
Reference is made to Note 7A
– Litigation, regarding the litigation commenced by the Company against Handeni related to the Company’s various claims
for breaches of contract and fraud. As discussed more fully in Note 7A, the Company has impaired the net carrying value of the
Mkuvia Project to $1, resulting in a net loss of $1,930,862, which represents the recorded asset value reduced by the accreted
value of the amount owing as of February 29, 2012. The contractual obligations relating to the acquisition of the Mkuvia project
have also been written off consistent with the position of impairing the asset, since the obligation to make any payments is tied
to receiving title to the assets purchased. While management believes that it will ultimately be successful in its lawsuit it believes
that recording the impairment is necessary given the damages believed to be suffered by the Company as a result of the allegations
of Handeni’s breaches and fraud.
(b) On
September 9, 2010, as amended effective on February 14, 2011 and September 9, 2011, the Company signed an agreement with Carlos
JK Kapinga (“CJKK”, the property rights owner), whereby the Company was granted the exclusive right to acquire the
mineral and mining rights to the 350 sq km Kapinga property. On August 23, 2011 the transfer of 100% ownership of one of the prospecting
licenss from CJKK to Ruby Creek Gold (Tanzania) Limited was recorded with the Commissioner for Minerals of the Ministry of Energy
and Minerals as part of the foregoing transaction.
Ruby Creek Resources, Inc.
Notes to Consolidated Financial Statments
(An Exploration Stage Company)
May
31, 2012
(Unaudited)
NOTE 3 - Mineral Properties, continued
The aforementioned arrangement includes
the following terms and conditions:
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●
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The purchase price is $155,000 plus 75,000 shares of the Company’s common stock, against which payments approximating $100,000 made through May 31, 2012 plus any subsequent payments will be applied. Any unpaid balance and the share issuance will be completed upon satisfactory transfer of the remaining prospecting licenses (three prospecting licenses in total) deemed necessary to transfer 100% ownership of all property rights to the Company;
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|
●
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The Kapinga mineral and mining rights cover the 350 square kilometer Kapinga property; and
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|
●
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Within 30 days of the issuance of the first mining license on the Kapinga properties, an additional payment of $100,000 and 75,000 shares of common stock of the Company plus within six months of that date a final payment of $100,000 in cash or common stock of the Company valued at $100,000, at the Company’s option.
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All of the Company’s properties are
located in the Liwale and Nachingwea Districts, Lindi Region of the United Republic of Tanzania.
(c) Effective January
12, 2011,
the Company entered into transactions with Gold Standard Ltd. (“GSL”) and Gold Standard Tanzania
Ltd, (“GSTL”). The GSL transaction was for the purchase of a 95% share (the “Shares”) of GSTL
whose assets include a 10 year, 10 square kilometer mining license issued in September 2010, two Prospecting License Joint Ventures
of 39 and 89 square kilometers, a Regional Environmental Report on the combined 128 square kilometer property and an established
mining camp. The property is immediately adjacent to and on the west-northwest border of the Gold Plateau Project, specifically
the Mkuvia 1 property acquired in November 2009. The GSTL transaction was for the purchase of mining equipment (the “Equipment”).
On July 18, 2011, as amended and closed on November 29, 2011,
the Company, GSTL, GSL and Robert Moriarty (with respect to representations and warranties and cooperation only) entered into a
Purchase Agreement (the “APA”) which replaced in their entirety the agreements dated January 12, 2011 referred to in
the preceding paragraph. Pursuant to the APA, the Company acquired the identical assets and assumed the identical liabilities for
an aggregate purchase price of $3,540,000 plus assumed liabilities. The APA consideration consisted of:
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●
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$100,000;
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|
●
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1,200,000 shares of the restricted common stock of the Company with a fair value of $1.20 per share;
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|
●
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Issuance of a $1,026,000 Convertible Mining Equipment Note; and (the “Mining Equipment Note”); and
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|
●
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Issuance of a $974,000 Convertible Shares Note (the “Share Note”).
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The principal balances of the Share Note
and Mining Equipment Notes are payable in three equal tranches each aggregating $666,667 six, twelve and eighteen months after
closing, plus accrued interest. Each note bears interest at 8% per annum on the declining balance. The Company may elect to pay
the interest in cash or in common shares of the Company. For this purpose common shares will be valued at the volume
average weighted price per share as defined in the APA on the payment due date. Until paid in full, the holder may elect to receive
payment of any portion of interest and/or principal in restricted common shares of the Company with a conversion price of $0.75
per share with respect to the Mining Equipment Note and accrued interest and $1.00 per share with respect to the Share Note and
accrued interest. The unpaid balance of the Mining Equipment Note and accrued interest is convertible at the holder’s option
at any time. Also at the holder’s option, $324,667 plus accrued interest of the Share Note is convertible on inception to
the day prior to the due date of the first payment (May 26, 2012), $324,667 plus accrued interest is convertible between May 26,
2012 and the day prior to the due date of the second payment (November 26, 2012) and any remaining principal plus accrued interest
is convertible between November 26, 2012 and maturity. In each case the conversion amount may be reduced by amounts that can be
offset by the Company against the Share Note per the indemnification and hold harmless obligations of GSL and Robert Moriarty per
terms of the APA. The Company has not made the payment due on May 26, 2012 and is currently in discussions for the satisfaction
of this payment with the seller.
On the closing date:
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i.
|
The intrinsic value of the conversion feature of the Equipment Note of $615,600 was reflected as a discount of the Equipment Note and as an addition to Additional paid-in capital, resulting in an effective interest rate of 31.8% on the convertible note;
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ii.
|
The intrinsic value of the conversion feature of the Share Note of $194,800 was reflected as a discount of the Share Note and as an addition to Additional paid-in capital resulting in an effective interest rate of 31.8% on the convertible note;
|
|
iii.
|
The net liability assumed
in the transaction of $395,000, which is payable in scheduled non-interest bearing future payments,
was recorded at its present value
using a discount rate of 8% per annum. The resulting discount of $69,795 was recorded as a reduction of the assets acquired.
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|
iv.
|
The carrying value of mineral property was grossed up by an estimated Tanzanian deferred tax liability in the amount of $405,000, resulting from the excess of book value over tax value of mineral and mining rights of GST.
|
Ruby Creek Resources, Inc.
Notes to Consolidated Financial Statments
(An Exploration Stage Company)
May
31, 2012
(Unaudited)
NOTE 3 - Mineral Properties,
continued
The Company recorded the allocation of the purchase price
of the assets acquired as follows:
Mineral properties
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|
$
|
2,044,205
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|
Mining and exploration equipment
|
|
|
2,426,000
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|
Deferred income taxes
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|
|
(405,000
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)
|
|
|
$
|
4,065,205
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|
The Company is in the process of evaluating
its estimates of the allocation of the aggregate purchase price among Mineral properties and Mining and exploration equipment.
The Company recorded the allocation of
the debt assumed as follows:
Mineral properties
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|
$
|
325,205
|
|
Effective on November 29, 2011, GSL elected to convert the Equipment
Note to shares of the Company. The Company issued 1,368,000 of its common shares and recorded $615,600 as non-cash accretion interest
expense in its results of operations for the nine months ended May 31, 2012.
On April 6, 2011, the Company and Maita,
the original owner of the mining license and other rights to be acquired in the GSL transaction, entered into a settlement agreement
pursuant to which the Company satisfied certain GSL obligations to Maita. The Company paid $200,000 on execution of the settlement
agreement, which was applied to an original $595,000 obligation assumed in the aforementioned GSTL transaction. In consideration
of this payment, the Company assumed certain of Maita’s security interests in the GSL assets that existed at that time, Maita
withdrew a joint venture termination notice that he had caused to be issued to GSL, delivered the mining license to counsel to
be held in escrow and to be delivered to the Company upon closing the GSL transaction and agreed to cooperate in the physical transfer
of certain GSL and GSTL assets physically in his possession. As a result of the consummation of the GSL transaction on November
29, 2011, the mining license was released to the Company.
(d) The
Company entered into transactions to acquire six additional properties with corresponding prospecting licenses or prospecting license
applications pending. The purchase price of these properties aggregated $270,000, of which approximately $215,600 was paid as of
May 31, 2012. The balance of the purchase price of each transaction becomes due and payable upon the transfer of each prospecting
license to the Company. These payments were for the acquisition of the Keigi property and corresponding prospecting license; the
Tundura North property and the Tundura South Property and corresponding prospecting licenses. The balance remaining
due on these properties of $54,400 will be paid as the related prospecting licenses are issued in the Company’s name.
NOTE 4 - 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
advisor (currently a director) (“Holder”). The loan bears interest at the rate of 12% per annum. The
loan agreement granted 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 January 22, 2010 due date of the Bridge 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 common shares 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. 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.
On November 30, 2010, the Holder exercised his conversion rights to the 1,500,000 common share default warrant. The
Company received $75,000 and issued 1,500,000 restricted common shares.
Ruby Creek Resources, Inc.
Notes to Consolidated Financial Statments
(An Exploration Stage Company)
May
31, 2012
(Unaudited)
NOTE 5 - Convertible Notes – Related Parties
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 (and now
a director) and to another significant shareholder. These notes were due and payable on November 27, 2010. In addition,
each noteholder received a warrant 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 in excess of the
face value of $100,000, which amount was reflected as reduction to $0 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
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%, and a dividend rate of 0% and an expected volatility of 116%. This discount was accreted to
interest expense over the term of the debentures, and was reflected as a non-cash charge over the term of these notes.
On November 27, 2010, the holders of the
convertible notes elected to convert these notes, plus an aggregate of $11,000 in accrued interest,into 2,220,000 shares of common
stock at the conversion price of $0.05 per common share.
In the year ended August 31, 2011, the
2,000,000 warrants were exercised and the Company received proceeds of $100,000.
NOTE 6 - Other Related Party Transactions
The Company was indebted to the former
Chief Executive Officer (“CEO”) (see Note 7B-f. ) and a director in the amount of $6,070 at May 31, 2012 and was due
$1,150 at August 31, 2011. At May 31, 2012 and August 31, 2011, $30,000 and $49,580, respectively, was owing to a significant
shareholder, director and special advisor for consulting services. At May 31, 2012 and August 31, 2011, the Company was indebted
to a member of its board of directors elected on July 15, 2011, for director and legal fees (and a nominal amount of unreimbursed
buisness expenses) incurred in the amount of $22,568 and $25,759, respectively. At May 31, 2012, $3,400 was owing to the CFO.
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 7 – Commitments and Contingencies
In
connection with the agreements described in Note 3a related to the Mkuvia Gold Project, it has come to the Company’s attention
that Handeni and Maita have been permitting a third party to continuously conduct prospecting activities and allegedly conveyed certain
of the prospecting licenses and joint venture rights acquired as part of the Mkuvia transactions to third parties, at
a date subsequent to the effective dates of the initial transaction, in violation of the Company’s ownership of exclusive
mineral and mining rights. Regarding this matter, Handeni has previously disclosed in its Form 10-Q for the quarter
ended November 30, 2011 filed with the SEC on January 17, 2012, that it “is currently investigating through local counsel
the registration particulars of prospecting licenses numbered 5664/2009 and 5669/2009, which form a part of the current Joint
Venture Company project [which refers to the joint venture with Ruby Creek]. This investigation relates to the reported registration
of prospecting licenses numbered 5664/2009 and 5669/2009 to a third party without the Company’s (Handeni’s) approval,
in unclear circumstances.” On February 8, 2012, the Company filed a Summons with Notice in the Supreme Court
of the State of New York against Handeni (Douglas Lake Minerals, Inc. as the named defendant) for breach of contract, fraud and
breach of fiduciary duty in connection with the violation of joint venture agreements. The relief sought was for compensatory
and consequential damages in the amount of $10,000,000. On April 2, 2012, the Company filed a Complaint in the Supreme Court of
the State of New York against Handeni (Douglas Lake Minerals, Inc. as the named defendant). In that complaint the Company is seeking
damages caused by Handeni for their violation of the parties’ agreements and for fraud. On May 21, 2012, Handeni filed an
Answer and Counter claim in New York, as well as a request for the production of documents and a notice of depostion. On June
11, 2012 the Company filed its repsonse and objections and replies to counterclaims and on June 19, 2012 a first set of interrogatories
to Handeni; and has produced documents in response
to Handeni’s request. The Company is now seeking $17,000,000 in damages, exclusive of interest, costs and legal fees.
As a consequence of the foregoing, the Company has not obtained an initial mining license on the Mkuvia property nor received the
required environmental study that would have triggered a series of payments to Handeni. Further, as a result of Handeni’s
breaches, the Company has not made a $450,000 payment originally due on June 1, 2011 pursuant to the May 24, 2010 agreement, among
other things. In the opinion of the Company’s Tanzanian counsel, the Company has good interest in the prospecting
licenses (“PL”) free and clear of any liens and encumbrances and under Tanzanian law any dealings relating to the PL’s
and the joint venture rights made subsequent to the dates when the Commissioner of the Ministry of Energy and Mining
issued the Certificates of Acknowledgment of the joint venture agreements would not be recognized and they would not affect the
rights of the Company in the PL’s. Further, counsel advises that there are no provisions under Tanzanian law in relation
to mineral rights which would permit the PL’s to be forfeited or otherwise withdrawn in the event of a change of ownership.
Ruby Creek Resources, Inc.
Notes to Consolidated Financial Statments
(An Exploration Stage Company)
May
31, 2012
(Unaudited)
NOTE 7 – Commitments and Contingencies, continued
On
February 23, 2012, Handeni filed a Notice of Claim against the Company in the Supreme Court of British Columbia claiming breaches
of the agreements between the parties and seeking (i) payments as stipulated in the preceding paragraph of $450,000, (ii) 20%
of certain private placement proceeds received by the Company ($917,100), (iii) consent of the Company to remove the restrictive
resale legend affixed to the 4,000,000 restricted common shares of the Company issued as partial consideration for the properties.and
(iv) the right to market and sell the property to third parties. These amounts are included in the liabilities discussed in the
next paragraph which have been offset in the determination of the impairment. The Company has filed a Notice of Application with
the Supreme Court of British Columbia to dismiss this matter in this court over jusidictional issues. A hearing has been scheduled
on this matter for November 13, 2012.
Management believes that the
Company has suffered significant damages and while it is confident of the merits of its position and that the Company will ultimately
be successful in its lawsuit, management has provided an impairment of the Mkuvia assets acquired offset by the recorded amount
of the corresponding liabilities, to a nominal value of $1 as of February 29, 2012. A charge of $1,930,682 is reflected in the
accompanyng statement of operations for the nine month period ended May 31, 2012. Offsetting the liabilities to Handeni is appropriate
and consistent with the position of impairing the assets, since the obligation to make any payments is tied to securing proper
title to the assets purchased.
B. Commitments
|
a.
|
Effective June 4, 2010, the Company entered into an
Advisory Agreement with Maita (“Advisor”), the original owner of the prospecting licenses of the Mkuvia property 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 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, which was the fair market value of the 50,000
shares issued. In the year ended August 31, 2011 the Company incurred $1,000 in fees under this arrangement. As result of matters
described in Note 7A, the Company did not make the June 4, 2011 and 2012 share issuances.
|
|
b.
|
The Company entered into an arrangement with a company
affiliated with a significant shareholder and current director for the use of a portion of its office space and facilities in
New York City for a one year period commencing June 1, 2011 for a gross fee of $36,000. This amount was satisfied by the issuance
of 48,000 common shares of the Company valued at $0.75 per share, the fair value at the date of the arrangement. This
fee was recognized as rent expense ratably over the terms of each arrangement.
|
|
c.
|
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 with
a term of 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. These shares
had a fair market value of $100,000 on the date of grant. In addition, the employee was granted non-qualified stock options to
purchase 300,000 shares of common stock, which 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. 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 year term of service. Results of operation include stock based
compensation in the amount of $29,065 and $87,195 for the three months and nine months ended May 31, 2012, respectively for these
arrangements.
|
Ruby Creek Resources, Inc.
Notes to Consolidated Financial Statments
(An Exploration Stage Company)
May
31, 2012
(Unaudited)
NOTE 7 – Commitments and Contingencies, continued
|
d.
|
On December 16, 2010, effective on September 21, 2010,
the Company entered into an Advisory Agreement with a Consultant to advise and provide assistance to Company management on matters
relating to mining projects and properties in Tanzania and in surrounding regions. The initial term is for two years and may be
renewed for successive one-year periods thirty days prior to any expiration. Compensation under the agreement is comprised of
(i) $1,000 for any Director's meeting the Advisor attends at management's request and (ii) 100,000 shares of common stock of
the Company issued on the effective date, 100,000 shares on June 1, 2011, 100,000 shares on January 1, 2012 and 100,000 shares
on October 1, 2012. The initial 100,000 shares were valued at the closing market price on the OTC BB on their grant date of $0.70
per share. The June 1, 2011 100,000 shares were valued at the closing market price on the OTC BB on that date of $1.03 per share.
The 100,000 common shares issued effective January 1, 2012 were valued at the closing market price on the OTC BB on that date
of $1.30 per share. For the three and nine month periods ended May 31, 2012, $43,332 and $131,078 was expensed and a balance of
$57,780 was included in deferred compensation at May 31, 2012.
|
|
e.
|
On April 29, 2011, effective May 1, 2011, the Company
entered into an executive agreement with a significant shareholder and current member of its Board of Directors (“Director”)
for advisory services with respect to strategic, financial and regulatory issues. The term of the agreement is two years, subject
to termination for cause. The contractual base compensation is $6,000 per month, increasing to $9,000 per month immediately after
the Company reports two consecutive quarters of positive cash flow from operations and further increasing to $12,000 per month
immediately after the Company reports two consecutive quarters of positive net income. Bonuses are payable at the discretion
of the Board of Directors. In addition, 200,000 shares of common stock are issuable upon the attainment of certain gold production
levels as defined in the agreement and upon the attainment of the aforementioned operating results, up to an aggregate of 1,000,000
shares. Under the agreement, the director was granted non-qualified stock options to purchase 1,375,000 shares of common stock
– 375,000 vesting on execution, and 250,000 vesting at the end of each successive six month period commencing on the effective
date. The options include a cashless exercise provision. The options granted have an exercise price of $0.50 per share and a five
year life. The Company estimated the fair value of the stock options to be $1,118,334 at the date of grant, using the
Black-Scholes option pricing model with the following assumptions: expected life of three and one half years, risk-free interest
rate of 1.01%, a dividend and forfeiture rate of 0% and a volatility of 116.5%. The $305,276 value of the options vesting
on grant was expensed on grant and the remainder is being amortized ratably over the two year vesting term. Results of operation
include stock based compensation in the amount of $101,632 and $304,897 for the three and nine month periods ended May 31, 2012.
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|
f.
|
On April 29, 2011, effective May 1, 2011, the Company
entered into an executive agreement with the now former CEO. The term of the agreement was for two years. The contractual base
compensation was $14,000 per month, with future increases based upon financial results. Under the agreement, the director was
granted non-qualified stock options to purchase 1,375,000 shares of common stock - 375,000 vesting and exercisable on execution,
and 250,000 becoming exercisable at the end of each successive six month period commencing on the effective date. The options
include a cashless exercise provision. The options granted were exercisable at $0.50 per share and had a five year life. The Company
estimated the fair value of the stock options to be $1,118,334 at the date of grant, using the Black-Scholes option pricing model
with the following assumptions: expected life of three and one half years, risk-free interest rate of 1.01%, a dividend and forfeiture
rate of 0% and a volatility of 116.5%. The $305,276 value of the options vesting on grant was expensed, and the remainder was
being amortized ratably over the two year vesting term. Results of operation include stock based compensation in the amount of
$101,632 and $169,387 for the three month and nine month periods ended May 31, 2012. On Janaury 31, 2012, the Company and the
former CEO entered into a consulting agreement expiring May 31, 2012, which terminated and superceded the executive agreement
in its entirety. Under the consulting agreement the former CEO will receive $14,000 per month; retained 625,000 of his original
options which became fully vested and are exercisable through May 1, 2014; and was granted additional options to purchase 250,000
common shares exercisable for three years at $0.75 per share. The Company estimated the fair value of the 250,000 stock options
to be $120,773 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 of 1.01%, a dividend and forfeiture rate of 0% and a volatility of 81.7%. These options
include a cashless exercise provision and vest in the event that the agreement is not terminated for Cause, as defined in the
agreement, prior to the end of the term of the consulting ageement. Duties include assistance with respect to overall strategy
and strategic advice to the Board of Directors and officers in its relations in Tanzania and transaction assistance to the new
CEO, only as directed in writing by the Board. Further, the former CEO is required to complete other corporate actions as stipulated
in the agreement. No stock based compensation expense was required with respect to modification of the original options since
the fair value of the modified options was less than the original options. On May 18, 2012, the Company terminated the former
CEO for cause pursuant to his consulting agreement resulting in the cancellation of the 250,000, $0.75 stock options.
|
Ruby Creek Resources, Inc.
Notes to Consolidated Financial Statments
(An Exploration Stage Company)
May
31, 2012
(Unaudited)
NOTE
7 – Commitments and Contingencies, continued
|
g.
|
On June 27, 2011, effective on February 1, 2011, the
Company entered into an agreement with a consultant to continue to assist management on a part time basis in the role of interim
chief financial officer (“Consultant”) through May 31, 2012. Compensation for these services is at the rate of $4,800
per month based upon 40 hours per month plus additional compensation at the rate of $120 per hour in excess of 40 hours. The Consultant
shall have the right to receive compensation in shares valued at $0.75 per share, at his option. This hourly rate shall increase
to $200 per hour immediately after the Company reports two consecutive quarters of positive cash flow from operations. Under
the agreement, the Consultant was granted non-qualified stock options to purchase 150,000 shares of common stock – 60,000
vesting on execution, and 7,500 vesting each month commencing on June 1, 2011 for the remaining term of the agreement. The options
granted are exercisable at $0.75 per share and have a five year life. The options include a cashless exercise provision. The Company
estimated the fair value of the stock options to be $114,889 at the date of grant, using the Black-Scholes option pricing model
with the following assumptions: expected life of three and one half years, risk-free interest rate of 1.04%, a dividend and forfeiture
rate of 0% and a volatility of 116.5%. The $46,002 value of the options vesting on grant was expensed, and the remainder
is being amortized ratably over the one year term. Results of operation include stock based compensation in the amount of $17,222
and $63,665 related to these options for the three months and nine months ended May 31, 2012. For the three months and nine months
ended May 31, 2012, in accordance with the terms of his agreement the Consultant elected to receive payment for services
rendered in shares of common stock of the Company in the amount of $44,781 and $58,997, respectively, which includes $9,999 and
$18,685 representing the excess of the fair value of the shares issued over the issuance price, respectively.
|
|
h.
|
Effective on June 6, 2011 the Company entered into
a two year employment agreement with a Controller. Base compensation is payable at the rate of $100,000 per annum, and $125,000
per annum after the initial 90 day period for the remainder of the agreement. The Controller was granted non-qualified common
stock purchase options to purchase 200,000 shares of the Company’s common stock at $0.75 per share. These options have a
five-year life and include a cashless exercise feature. The options vest with respect to 25,000 shares on September 6, 2011 and
25,000 at the end of each three months thereafter commencing on December 6, 2011 until fully vested. The Company estimated the
fair value of the stock options to be $159,048 at the date of grant, using the Black-Scholes option pricing model with the following
assumptions: expected life of three and one half years, risk-free interest rate of 0.74%, a dividend and forfeiture rate of 0%
and a volatility of 112.4%. Further, on September 6, 2011, after the expiration of the initial 90 day period, the Company
was obligated to grant the Controller 25,000 shares of restricted common stock of the Company, of which 10,000 vested on the grant
date and 15,000 on December 6, 2011. The Board of Directors subsequently modified this arrangement and issued to him 86,207 restricted
shares with a fair value of $25,000 in May 2012. The Controller is also entitled (i) to participate in all Company sponsored benefit
plans (ii) to an annual bonus at the discretion of the Board of Directors; and (iii) a salary increase once the Company attains
positive operating cash flow. Results of operation include stock based compensation in the amount of $23,006 and $81,018 for the
three and nine months ended May 31, 2012. Effective on January 31, 2012, the Board of Directors elected the Controller as CEO.
An agreement is currently being negotiated.
|
|
i.
|
On July 15, 2011, the Company entered into an independent
Director Agreement with a new director for an initial term expiring July 15, 2013. The Company is obligated to pay a $20,000 annual
retainer and grant 200,000 non-qualified stock options to purchase 200,000 shares of common stock exercisable at $0.50 per share
and with a five year life. The options include a cashless exercise provision. These options vest at the rate of 25,000 options
per quarter beginning on July 15, 2011. The Company estimated the fair value of the stock options to be $179,024 at the date of
grant, using the Black-Scholes option pricing model with the following assumptions: expected life of three and one half years,
risk-free interest rate of 1.01%, a dividend and forfeiture rate of 0% and a volatility of 113%. The fair value of
the options is being amortized ratably over the two year vesting term. Results of operation include stock based compensation in
the amount of $22,378 and $89,134 for the three and nine months ended May 31, 2012.
|
Ruby Creek Resources, Inc.
Notes to Consolidated Financial Statments
(An Exploration Stage Company)
May
31, 2012
(Unaudited)
NOTE 8 - Common Stock and Common Stock
Purchase Options
In the nine month period ended May
31, 2012 the Company concluded the following transactions:
|
a.
|
In October 2011 the Company commenced an offering
of units, which offering concluded in December 2011. Each unit consists of one common share and one share purchase
warrant. Two warrants are required to purchase one common share at a price of $1.50 per share for a period of up to two years.
The Company sold 320,000 units and received proceeds of $240,000.
|
|
b.
|
1,164,603 warrants exercisable at $0.05 per share
were converted to 1,225,000 restricted common shares on a cashless basis.
|
|
c.
|
1,835,000 private placement warrants were exercised
to acquire 967,500 common shares for net proceeds of $328,750.
|
|
d.
|
On February 15, 2012, the Company offered the holders
of its $1.00 common stock purchase warrants issued in connection with a private placement the right to purchase two common shares
for each $1.00 warrant for a limited time. In February, 2012, the holder of 10,000 such warrants exercised, paid $10,000 and received
20,000 common shares. In the period from March 1, 2012 to March 30, 2012, the holders of 611,500 such warrants exercised, paid
$611,500 in proceeds and received 1,223,000 common shares. The aggregate 1,243,000 shares issued to these warrant holders who
accepted this offer had a weighted average fair value of $0.72 per share on the dates of offer as compared to the original per
share exercise price of $0.50, or $0.22 per share. This transaction has been treated as a capital transaction and the fair value
of $278,000 has been recorded in additional paid in capital. The balance of these unexercised warrants to purchase 8,609,500 common
shares at $1.00 per share remain outstanding under their original terms.
|
|
e.
|
In connection with the Gold Standard transaction described
in Note 3c, on January 7, 2012 the Board of Directors of the Company (i) issued 50,000 common shares to a consultant for assisting
in the transaction (the fair value of these shares of $60,000 on their date of issuance was included in general and administrative
expenses) and (ii) issued stock options to purchase 65,000 common shares to various individuals at $0.75 per share which vested
on grant with a five-year life. These options include a cashless exercise provision. The fair value of these options determined
using the Black-Scholes option pricing model using a risk-free interest rate of .52% per annum and a volatility of 105% was $58,000
and is included in stock based compensation. Two officers each received 12,500 and an independent director received 25,000 of
these options.
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NOTE 9 - Subsequent Events
Subsequent to May 31, 2012:
|
a.
|
A principal shareholder and director paid $20,000 to a third party on behalf of the Company
to assist in raising capital for the Company. He received a. bridge note bearing interest at 12% per annum and due September
2012 provided that in the event of gross proceeds in excess of $1,000,000 in debt or equity, or securities convertible into
or exchangeable or exercisable for debt or equity, the principal amount and all accrued interest thereon shall be
immediately due and payable. Prior to
maturity, the bridge note is convertible into common shares at the holders option, at a conversion
price equal to the price per share at which and investor has purchased common stock or common stock equivalents from the
Company at the date closest to the date of this bridge note. In the event of a default as defined in the note, and upon the
dispostion of all assets and distribution of net proceeds, if any, to creditors and shareholders, the holder has the right
to convert the outstanding principal amount
and all accrued interest thereon into a number of duly authorized, fully paid
and non-assessable shares of common stock of the resulting shell company such that the holder will own 51% of outstanding
shares of common stock of the Company.
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|
|
|
|
b.
|
The Company entered into a Loan Agreement with several
parties and received $90,000 through July 12, 2012. These parties received a convertible note due 90 days from issuance, plus
interest at 12% per annum. The note plus accrued interest is convertible at the holders’ option before maturity at 70% of
the lowest price at which the Company sells equity securities or the lowest conversion price in the first offering of securities
by the Company subsequent to the issuance of the convertible notes. Under the Loan Agreement, each holder also received a warrant
to purchase that number of shares into which the holder’s note is convertible for a period of five years, at an exercise
price specified in the agreements. Under certain circumstances these warrants issued could have a cashless exercise provision.
A principal shareholder and director purchased $20,000 and the CFO $5,000 of these notes.
|
The
Company evaluated subsequent events through the financial statement filing date.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
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 three and nine month periods ended May 31, 2012 should
be read in conjunction with our unaudited interim financial statements and related notes for the three month and nine month periods
ended May 31, 2012 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, the Company’s ability to raise additional capital
which it requires both to continue its present and limited operations and to continue with the plan of operations below.
Plan of Operations
In the event that the Company is able to
raise additional capital, of which there can be no assurance, our plan of operations for the next year is to commence gold mining
production and to continue exploration activities on our properties acquired and to be acquired. Our Gold Plateau project will
approximate 1500 sq km (579 sq miles) including properties currently owned and assuming closing of all properties currently
in contract. The major properties currently owned include the Mkuvia property, Gold Standard, Kapinga and Keigi. On November 29,
2011, we own our first mining license, which allows us to begin commercial gold mining operations. Reference is made to Note 7A
– Litigation, regarding litigation commenced by the Company related to the Mkuvia properties.
Due to a lack of available capital, we
scaled back our operations and employees during the three months ended May 31, 2012 and are currently preserving the mining assets,
equipment and rights we possess until such time the Company is able to raise additional capital, of which there can be no assurance.
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 current and future payments, there exists substantial doubt about our ability to continue as
a going concern.
In March 2012, we commenced test mining
on the Gold Standard mining license. Even if we complete our current exploration and test mining programs and commence mining operations
on our Gold Standard mining license and 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 and are able to achieve positive cash flow from operations. Our plan of operations for the next
twelve months is to obtain the funding necessary for continued exploration, and commencement of exploration and mining operations
on the Gold Standard property. Further, there are other potential exploration properties currently under review.
In the event we are able to raise additional
capital, our geological team will perform geological studies to identify areas where mining licenses and mining activities would
be most productive. As these sites are identified, we would file for additional mining licenses and our production team can assess
what equipment and support structures are necessary to maximize production.
Liquidity and Financial Condition
At May 31, 2012, we had cash balances of
$47,000 and a working capital deficit of $931,000, including a $549,000 convertible note payable to Gold Standard (see Note 3c).
In addition to working capital requirements, our need for liquidity includes payment obligations remaining under our Kapinga, Gold
Standard and other property purchases. Reference is made to Notes 3a and 7A to the Unaudited Consolidated Financial Statements
included elsewhere herein for a discussion of the litigation the Company commenced in February 2012 against Handeni Gold Inc. with
respect to the Mkuvia Properties. As a consequence of that litigation, the financial statements reflect an impairment provision
of $1,931,000 which is the recorded amount of Mkuvai mineral rights reduced by the associated liabilities. As a result of this
litigation, certain payments to Handeni have ceased. Substantial amounts of the remaining obligations, principally related to the
Gold Standard transaction, may be converted to or satisfied in shares of our common stock. Effective on September 9, 2011,
we acquired the mineral and mining rights to three properties which will be covered by prospecting licenses on a total of 350 sq
km property known as the Kapinga Properties, under the following terms and conditions, as modified from an earlier arrangement:
|
•
|
A purchase price of $155,000 plus 75,000 shares of Company common stock, against which payments of $60,000 were made through August 31, 2011. Any unpaid balance and the share issuance will be completed upon satisfactory transfer of the remaining prospecting licenses deemed necessary to transfer 100% ownership of all property rights to the Company;
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|
|
|
|
|
|
•
|
The Company will acquire a 100% interest in KAP 1,2,3
|
|
|
•
|
Within 30 days of the issuance of the first mining license on the Kapinga properties, an additional payment of $100,000 and 75,000 shares of common stock of the Company plus within six months of that date a final payment of $100,000 in cash or common stock of the Company valued at $100,000, at the Company’s option.
|
•
|
On November 29, 2011, we concluded the
acquisition of a 95% interest in Gold Standard Tanzania Ltd, (“GSTL”). GSTL’s assets include a 10 year, 10 square
kilometer mining license issued in September 2010, and other assets including two Prospecting License Joint Ventures of 39 and
89 square kilometers, a Regional Environmental Report on the combined 139 square kilometer property, mining equipment and an established
mining camp. The purchase price was $3,000,000 in cash, convertible promissory notes and stock, as well as the assumption of $585,000
in GSTL liabilities. (See Note 3c to the Unaudited Consolidated Financial Statements included herein). The property is immediately
adjacent to and on the west-northwest border of the Company’s Gold Plateau Project. As disclosed in Note 3c, we have not
made the payment due on May 26, 2012 related to the Gold Standard acquisition and are currently in discussions for the satisfaction
of this payment with the seller.
All of the properties comprising the Gold
Plateau Project are located in the Liwale and Nachingwea Districts, Lindi Region of the United Republic of Tanzania.
In the nine months ended May 31, 2012 and
for the subsequent period through April 16, 2012, we received additional funding as follows:
●
|
On October 2011, we commenced an offering of equity securities pursuant to Rule 506 of Regulation D and Regulation S at a price of $0.75 per unit. Through December 5, 2011, the Company sold 320,000 units of this offering and received proceeds of $240,000 and issued associated $1.50 two year warrants to purchase an additional 160,000 shares. If all of these warrants were exercised it would result in proceeds of an additional $240,000. We incurred and paid $15,000 in commissions related to these funds received.
|
●
|
Private placement warrants were exercised to acquire 1,082,500 common shares for net proceeds of $386,250.
|
●
|
A Director exercised certain Bridge Loan default warrants resulting in the issuance of 390,000 common shares for $97,500 in proceeds and exercised certain compensation warrants to purchase 900,000 common shares for $45,000 in proceeds.
|
●
|
On February 15, 2012, the Company offered the holders of its $1.00 common stock purchase warrants issued in connection with a private placement the right to purchase two common shares for each $1.00 warrant for a limited time. Through March 31, 2012, the holders of 621,500 such warrants exercised, paid $621,500 in proceeds and received 1,243,000 common shares. The unexercised remaining quantity of this class of warrant to purchase 8,609,500 common shares at $1.00 per share remain outstanding for the balance of their original two year terms.
|
In the period from June 1, 2012
through July 16, 2012:
|
a.
|
A principal shareholder and director paid $20,000 to a third party on behalf of the Company
to assist in raising capital for the Company. He received abridge note bearing interest at 12% per annum and due September
2012 provided that in the event of gross proceeds in excess of $1,000,000 in debt or equity, or securities convertible into
or exchangeable or exercisable for debt or equity, the principal amount and all accrued interest thereon shall be
immediately due and payable. Prior to
maturity, the bridge note is convertible into common shares at the holders option, at a conversion
price equal to the price per share at which and investor has purchased common stock or common stock equivalents from the
Company at the date closest to the date of this bridge note. In the event of a default as defined in the note, and upon the
dispostion of all assets and distribution of net proceeds, if any, to creditors and shareholders, the holder has the right
to convert the outstanding principal amount
and all accrued interest thereon into a number of duly authorized, fully paid
and non-assessable shares of common stock of the resulting shell company such that the holder will own 51% of the
outstanding shares of common stock of the
Company, and
|
|
b.
|
The Company entered into a Loan Agreement with several parties and received
$90,000 through July 12, 2012. These parties received a convertible note due 90 days from issuance, plus interest at 12% per annum.
The note plus accrued interest is convertible at the holders’ option before maturity at 70% of the lowest price at which
the Company sells equity securities or the lowest conversion price in the first offering of securities by the Company subsequent
to the issuance of the convertible notes. Under the Loan Agreement, each holder also received a warrant to purchase that number
of shares into which the holder’s note is convertible for a period of five years, at an exercise price specified in the agreements.
Under certain circumstances, these warrants issued could have a cashless exercise provision. A principal shareholder and director
purchased $20,000 and the CFO $5,000 of these notes.
|
The following common stock purchase options
and warrants were outstanding as of May 31, 2012 with various expiration dates over the next five-year period:
|
|
Number of
shares
Issuable
|
|
|
|
Proceeds if
Exercised
|
|
Compensatory warrant exercisable for shares to former CEO
|
|
|
625,000
|
(a)
|
|
|
$
|
312,500
|
|
Compensatory warrants exercisable for shares to directors and related parties
|
|
|
1,975,000
|
(a)
|
|
|
|
717,500
|
|
Compensatory warrant/options exercisable for shares – others
|
|
|
400,000
|
(a)
|
|
|
|
35,000
|
|
Compensatory stock options – employment agreements
|
|
|
915,000
|
(a)
(b)
|
|
|
|
591,250
|
|
Shares issuable upon exercise of warrants - July 2009 private placement at $0.05 per share
|
|
|
100,000
|
|
|
|
|
5,000
|
|
Shares issuable upon conversion of 3,801,000 warrants issued in April 2010 private placement at $0.50 per share
|
|
|
1,900,500
|
|
|
|
|
950,250
|
|
Shares issuable upon conversion of 8,609,500 warrants issued in October 2010 private placement at $1.00 per share
|
|
|
8,609,500
|
|
|
|
|
8,609,500
|
|
Shares issuable upon conversion of 320,000 warrants issued in October 2011 private placement at $1.50 per share
|
|
|
160,000
|
|
|
|
|
240,000
|
|
8% Convertible Share Note – Gold Standard transaction
|
|
|
974,000
|
|
|
|
|
974,000
|
|
Total
|
|
|
15,659,000
|
|
|
|
$
|
12,435,000
|
|
|
(a)
(b)
|
These securities include cashless exercise provisions.
(b) Compensatory options include certain vesting provisions.
Compensatory options include certain vesting provisions.
|
If all of the warrants and options were
exercised, we could receive an additional $10,472,500 in proceeds, excluding proceeds of $1,962,500 of securities with cashless
exercise provisions. We cannot however predict if market conditions would be favorable, or that the various holders would exercise
their rights even if the various exercise prices were lower than the market price of our shares at the time.`.
Need for Future Financings
As set forth above, the Company’s
current and future operations are dependent on raising additional capital. There can be no assurance that the Company will be
able to raise additional capital, or, that it will be available on terms acceptable to the Company. In the absence of additional
financing, the Company will not be able to continue and even our current limited operations will cease. We conducted test mining
operations in three month period ended May 31, 2012 under the initial mining license acquired in the Gold Standard acquisition.
A portion of the funds we are currently seeking would be for working capital and to purchase additional mining equipment that
is required to commence commercial operations. In the three months ended May 31, 2012 and continuing through the date of this
filing, we curtailed operating expenses and all mining activities while we pursue these fund raising activities.
While there is no assurance of this, we believe that the nature of the deposit at the Gold Plateau will
lends itself to production of gold with economical concentrations, with an additional level of of investment approximating $1,000,000.
Results of Operations for the three months and nine months
ended May 31, 2012.
Mining Exploration and Operating Costs
During the three months and nine months
ended May 31, 2012, mining, exploration and operating costs were $698,841 and $1,498,643 respectively, as compared to $386,166
and $960,196 in the comparable periods of the preceding year. This is reflective of our activities following the acquisition of
the mining rights to the Gold Standard property as well as activities to advance our progress towards commencing production, including
test mining activities. Although we have been able to reduce security costs by $127,576 and subcontracting costs by $46,073 in
the nine months ended May 31, 2012 as compared to the comparable period of the preceding year, the current nine month period includes
$394,573 in repairs and maintenance costs for our equipment to bring it to operational levels.
In the three months ended May 31, 2012,
our test mining produced approximately 14 ounces of gold and for which we received $19,000 in proceeds. These proceeds have been
accounted for as a reduction of Mining exploration and operating costs.
Exploration activities were directed at
identifying what we believe will be the most productive mining sites based on our samples of gold concentrations. We continued
to explore other potential prospecting sites, which activities will increase as our properties increase, and especially now that
we have obtained our first mining license with the Gold Standard acquisition. We also greatly enhanced our in country management
by adding a highly qualified operations specialist.
In order to more efficiently perform our
exploration and mining activities we moved most of our living quarters, cooking and lavatory facilities and other support functions
to the Gold Standard mining site.
Consulting Services
During the three months and nine months
ended May 31, 2012, we incurred $164,957 and $589,758 respectively, in consulting costs as compared to $436,007 and $628,814 in
the comparable periods of the preceding year. We incurred consulting costs for a wide range of advisory and support services to
assist us with our operations in Tanzania, to enhance our financing strategies and for other legal and administrative improvements.
Of the total amount we incurred, $144,964 and $501,232 was satisfied through stock based compensation during the three months and
nine months ended May 31, 2012, respectively. During three months and six months ended May 31, 2012 of the total amount we incurred,
$390,564 and $498,919 was satisfied through stock based compensation, respectively.
Interest and Financing Fees
During the three months and nine months
ended May 31, 2012 , we incurred approximately $66,823 and $930,409, respectively, in interest and financing fees as compared to
$124,265 and $380,378 in the comparable periods of the preceding year. During the nine months ended May 31, 2012, we incurred
a non-cash interest charge of $615,600 arising from the conversion by the holders of the $1,026,000 Equipment Note issued in the
acquisition of Gold Standard, Ltd. into 1,368,000 common shares. This charge represented the intrinsic value of the
conversion feature. The remaining amounts incurred in 2012 of $275,753 were non-cash charges for the accretion of debt discount
related to the amounts due Handeni and Gold Standard and accrued interest of $39,056 on the Gold Standard Share Note.
Management Services
During three months and nine months ended
May 31, 2012, we incurred $193,740 and $867,400 respectively, in management services compared to $576,345 and $834,147 in the comparable
periods of the preceding year. Of those amounts approximately $78,000 and $477,000, respectively, was paid in the form of stock
based compensation for the three and nine month periods end May 31, 2012. Of the total amount incurred during the three months
and nine month period ended May 31, 2011, approximately $458,000 and $542,000 was paid in the form stock based compensation. In
these periods stock based compensation represented the fair value of compensatory stock options and warrants and common shares
earned.
General and Administrative, Professional Fees, and Shareholder
Relations
During the three months and nine months ended May 31, 2012,
we incurred approximately $474,794 and $1,225,444, respectively, in General and Administrative, Professional Fees, and Shareholder
Relations compared to $228,755 and $665,405 in the comparable periods of the preceding year. These expenses increased in a manner
consistent with the increased complexity and scope of operations of the Company, travel and related costs, directors and officers
insurance, additional support staff and facilities costs as well legal and other professional fees. In addition, the three months
ended May 31, 2012 included the writeoff of $125,000 financing costs and other deposits.
Impairment – Mineral Properties and Equipment
In connection with the Handeni litigation
described in Note 7A – Litigation of Notes to Consolidated Financial Statements and Part II, Item 1. Legal Proceedings included
elsewhere herein, in the three months ended February 29, 2012, the Company provided an impairment provision of $1,931,000, which
was equal to the carrying value as of that date of the Mkuvia Properties ($6,796,000) acquired from Handeni, reduced by recorded
liabilites to Handeni ($4,865,000). While we are confident that we will be successful in this litigation, we have recorded this
non-cash impairment because of uncertainties associated with litigation and to reflect the potential impairment that could occur
in the unlikely event we are not successful in this matter. The nine months ended May 31, 2012 also includes a $300,000 provision
for the impairment of equipment.
Net Loss
The net loss approximated $1,669,000 and $7,463,000 for the
three month and nine month periods ended May 31, 2012 (before net loss attributable to noncontrolling interest) as compared to
$1,765,000 and $3,941,000 in the comparable periods of the preceding year. Our net loss from inception of the Company on
May 3, 2006 until May 31, 2012 approximated $15,454,000 (before net loss attributable to noncontrolling interest) . Our net loss
for the nine months ended May 31, 2012 is attributable to the execution of our business plan to become a gold producing mining
company. For the nine months ended May 31, 2012, stock based compensation for management services approximated $798,000,
non-cash financing costs approximated $864,000, depreciation and amortization approximated $121,000, common stock issued for consulting
services approximated $412,000, the non-cash impairment of the Mkuvia Project of $1,931,000 and impairment for equipment of $300,000
for an aggregate of $4,383,000 in non-cash costs included in results of operations. Of the Net loss for the nine months ended May
31, 2012, $50,500 is attributable to the 5% noncontrolling interest in the Gold Standard operations, which was acquired effective
on November 29, 2011. This results in a net loss for the period attributable to common shareholders of $7,366,000.
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 significant revenues since inception. The Company has incurred significant losses from inception
through May 31, 2012 of approximately $15,454,000 and is currently seeking funding necessary to continue operations. These factors,
raise substantial doubt about the ability of the Company to continue as a going concern. Further, as discussed in Note 7A
– Litigation, the Company commenced litigation againt Handeni Gold Inc (formerly Douglas Lake Minerals, Inc) related to claims
for breaches of contract and fraud related to the Mkuvia Property. Handeni Gold Inc. has filed a counterclaim against the Company
seeking certain payments and removal of certain asset restrictions. 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 discover and successfully
exploit economically recoverable mineral reserves on its resource properties and ultimately on the attainment of future profitable
operations; and to the satisfactory outcome of the referenced litigation. The Company has funded its operations with private
equity, advances from related parties and/or convertible debt financing and is in the process of identifying additional sources
of capital from debt or equity sources. 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. However, there can be no assurance of this,
nor is there any assurance that profitable commercial operations will be achieved. 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.
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. The Company has not incurred any potential costs related to the retirement of mineral property interests
since commercial mining operations have not commenced.
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.
Recent Accounting Pronouncements
In June 2011, the FASB issued ASU No. 2011-05,
“Comprehensive Income (ASC Topic 220): Presentation of Comprehensive Income” (“ASU No. 2011-05”), which
amends current comprehensive income guidance. This accounting update eliminates the option to present the components of other comprehensive
income as part of the statement of stockholders’ equity. Instead, the Company must report comprehensive income in either
a single continuous statement of comprehensive income which contains two sections, net income and other comprehensive income, or
in two separate but consecutive statements. ASU 2011-05 will be effective for public companies for fiscal years beginning after
December 15, 2011, with early adoption permitted. In December 2011, the FASB issued an update to ASU No. 2011-05. The update, ASU
No. 2011 -12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassification of Items Out of Accumulated
Other Comprehensive Income in Accounting Standards Update No. 2011-05” (“ASU No. 2011-12”), defers the effective
date of certain presentation requirements within ASU No. 2011-05. The Company does not expect that the adoption of ASU 2011-05
will have an impact on its consolidated results of operations, financial condition or cash flows as it only requires a change in
the format of the Company’s current presentation.
In September 2011, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-08, “Intangibles –
Goodwill and Other (ASC Topic 350): Testing Goodwill for Impairment” (“ASU No. 2011-08”), which amends guidance
for goodwill impairment testing. The amendment allows for entities to first assess qualitative factors in determining whether or
not the fair value of a reporting unit exceeds its carrying value. If an entity concludes from this qualitative assessment that
it is more likely than not that the fair value of a reporting unit exceeds its carrying value, then performing a two-step impairment
test is unnecessary. ASU No. 2011-08 will be effective for public companies for fiscal years beginning after December 15, 2011.
The Company does not expect that the adoption of ASU 2011-08 will have an impact on its consolidated results of operations, financial
condition or cash flows.
There are no other recent pronouncements issued are not expected
to have a material effect on the Company’s consolidated financial statements.
Item 3. Quantitative and Qualitative
Disclosures About Market Risk
We are currently not subject to any material market risks.
Item 4. 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 May 31, 2012, 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, 2011, which deficiencies have not been
remedied as of May 31, 2012.
Changes in Internal Control over Financial Reporting
Effective February 1, 2010, we retained
an interim CFO. Effective on June 6, 2011 we retained a Controller who has since assumed the role of CEO. He is however, continuing
to participate in estalishing controls over financial reporting processes and procedures. Further, we have retained additional
accounting personnel in our Tanzanzian operation. We believe their participation has and will strengthen internal controls, and
certain new controls have been installed or are in the process of being designed and implemented. We believe that this did
and will continue to improve and strengthen our internal controls over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are not a party to any material legal
proceedings nor are we aware of any legal proceedings pending or threatened against us or our properties other than as follows:
In connection with the agreements described
in Notes 3a-3c to the Unauduited Consolidated Financial Statements included elsewhere herein related to the Mkuvia Gold Project,
it has come to the Company’s attention that Handeni and Maita have been permitting a third party to continuously conduct
prospecting activities and allegedly conveyed certain of the prospecting licenses and joint venture rights acquired as
part of the Mkuvia transactions to third parties, at a date subsequent to the effective dates of the initial transaction,
in violation of the Company’s ownership of exclusive mineral and mining rights. Regarding this matter, Handeni
has previously disclosed in its Form 10-Q for the quarter ended November 30, 2011 filed with the SEC on January 17, 2012, that
it “is currently investigating through local counsel the registration particulars of prospecting licenses numbered 5664/2009
and 5669/2009, which form a part of the current Joint Venture Company project [which refers to the joint venture with Ruby Creek].
This investigation relates to the reported registration of prospecting licenses numbered 5664/2009 and 5669/2009 to a third party
without the Company’s (Handeni’s) approval, in unclear circumstances.” On February 8, 2012 the Company
filed a Summons with Notice in the Supreme Court of the State of New York against Handeni (Douglas Lake Minerals, Inc. as the named
defendant) for breach of contract, fraud and breach of fiduciary duty in connection with the violation of joint venture agreements.
The relief sought was for compensatory and consequential damages in the amount of $10,000,000. On April 2, 2012, the Company filed
a Complaint in the Supreme Court of the State of New York against Handeni (Douglas Lake Minerals, Inc. as the named defendant).
In that complaint the Company is seeking damages caused by Handeni for their violation of the parties’ agreements and for
fraud. On May 21, 2012, Handeni filed an Answer and Counter claim in New York, as well as a request for the production of documents
and a notice of depostion. On June 11, 2012 the Company filed its repsonse and objections and replies to counterclaims and on June
19 a first set of interrogatories to Handeni; and has produced documents in response the Handeni’s request. The Company is
now seeking $17,000,000 in damages, exclusive of interest, costs and legal fees. As a consequence of the foregoing, the Company
has not obtained an initial mining license on the Mkuvia property nor received the required environmental study which would have
triggered a series of payments to Handeni. Further, as a result of Handeni’s breaches, the Comapany has not made a $450,000
payment originally due on June 1, 2011 pursuant to the May 24, 2010 agreement, among other things. In the opinion of
the Company’s Tanzanian counsel, the Company has good interest in the prospecting licenses (“PL”) free and clear
of any liens and encumbrances and under Tanzanian law any dealings relating to the PL’s and the joint venture rights made
subsequent to the dates when the Commissioner of the Ministry of Energy and Mining issued the Certificates of Acknowledgment of
the joint venture agreements would not be recognized and they would not affect the rights of the Company in the PL’s. Further,
counsel advises that there are no provisions under Tanzanian law in relation to mineral rights which would permit the PL’s
to be forfeited or otherwise withdrawn in the event of a change of ownership.
On February 23, 2012, Handeni filed a Notice
of Claim against the Company in the Supreme Court of British Columbia claiming breaches of the agreements between the parties and
seeking (i) payments as stipulated in the preceding paragraph of $450,000, (ii) 20% of certain private placement proceeds received
by the Company ($917,100), (iii) consent of the Company to remove the restrictive resale legend affixed to the 4,000,000 restricted
common shares of the Company issued as partial consideration for the properties.and (iv) the right to market and sell the property
to third parties. These amounts are included in the liabilities discussed in the next paragraph which have been offset in the determination
of the impairment. The Company has filed a Notice of Application with the Supreme Court of British Columbia to dismiss this matter
in this court over jusidictional issues. A hearing has been scheduled on this matter for November 13, 2012.
Management believes that the Company has
suffered significant damages and while it is confident of the merits of its position and that the Company will ultimately be successful
in its lawsuit, management has provided an impairment of the Mkuvia assets acquired offset by the recorded amount of the corresponding
liabilities, to a nominal value of $1 as of February 29, 2012. A charge of $1,930,682 is reflected in the accompanyng statement
of operations for the 9 month period ended May 31, 2012. Offsetting the liabilities to Handeni is appropriate and consistent with
the position of impairing the assets, since the obligation to make any payments is tied to proper title to the assets purchased.
Item 2. Unregistered Sales of Equity Securities
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.
In the period from April 3, 2010 and August
26, 2010, pursuant to Rule 506 of Regulation D and Regulation S of the Securities Act of 1933 the Company sold a total of 5,356,000
units to 56 individuals and received proceeds of $1,339,000. Each unit consisted of one share of 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 is exercisable
for a period of two years. The shares issued to these 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 were issued to certain investors that 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.
In the period from October 18, 2010 and
concluded on August 23, 2011, the Company conducted an offering of its equity securities pursuant to Rule 506 of Regulation D and
Regulation S and received proceeds of $4,615,500 for the sale of 9,231,000 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 9,231,000 common shares in total, at a price of $1.00 per share. These warrants are exercisable for a period of up to two years
from the closing date of each subscription. The shares issued to these 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 were issued to certain investors that 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.
On October 6, 2011 the Company commenced
an offering of its equity securities pursuant to Rule 506 of Regulation D and Regulation S at a price of $0.75 per unit. Each
unit consists of one common share and one share purchase warrant. Two warrants are required to purchase one common share at a price
of $1.50 per share and are exercisable for a period of up to two years from the closing date of each subscription. Through December
5, 2011, the Company sold 320,000 units and received proceeds of $240,000. The shares issued to these 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 were issued to certain investors that
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.
On February 15, 2012, the Company offered
the holders of its $1.00 common stock purchase warrants issued in connection with a previous private placement the right to purchase
two common shares for each $1.00 warrant for a limited time. Through March 31, 2012, the holders of 621,500 such warrants
exercised, paid $621,500 in proceeds and received 1,243,000 common shares. The unexercised remaining quantity of this class of
warrant to purchase 8,609,500 common shares at $1.00 per share remain outstanding for the balance of their original two year terms.
In addition to the shares issued in reliance on the exemption from registration afforded by Regulation D, Rule 506, shares were
issued to certain investors that 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.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Item 6. Exhibits
The following exhibits are filed with this Quarterly Report
on Form 10-Q
Exhibit
Number
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Description of Exhibit
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31.1
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Certification of Chief Executive (Filed herewith)
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31.2
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Certification of Chief Financial Officer (Filed herewith)
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32.1
|
|
Certification of Chief Executive Officer and Chief Financial Officer (Filed herewith)
|
101
|
|
XBRL Instant Document (
IN
ACCORDANCE WITH THE TEMPORARY HARDSHIP EXEMPTION PROVIDED BY RULE 201 OF REGULATION S-T, THE DATE BY WHICH THE INTERACTIVE DATA
FILE IS REQUIRED TO BE SUBMITTED HAS BEEN EXTENDED BY SIX BUSINESS DAYS)
.
|
SIGNATURES
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.
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/s/ Daniel Bartley
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Daniel Bartley
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Chief Executive Officer
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Dated: July 23, 2012
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/s/ Myron Landin
|
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Myron Landin, CPA
|
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Chief Financial Officer
|
|
|
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Dated: July 23, 2012
|
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