U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q |
Mark One
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended September 30, 2009 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to _______ |
Commission File No. 000-52169
Silica Resources Corporation | |
(Name of small business issuer in its charter) | |
Nevada | 71-0090401 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
789 West Pender Street, Suite 1010 Vancouver, British Columbia, Canada V6C 1H2 | |
(Address of principal executive offices) | |
(604) 630-2940 | |
(Issuer’s telephone number) | |
Securities registered pursuant to Section 12(b) of the Act: | Name of each exchange on which registered: |
None | |
Securities registered pursuant to Section 12(g) of the Act: | |
Common Stock, $0.001 | |
(Title of Class) |
Indicate by checkmark whether the issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.
Yes x No o
1
Large accelerated filer | o | Accelerated filer | o |
Non-accelerated filer | o | Smaller reporting company | x |
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
Applicable Only to Issuer Involved in Bankruptcy Proceedings During the Preceding Five Years.
N/A
Indicate by checkmark whether the issuer has filed all documents and reports required to be filed by Section 12, 13 and 15(d) of the Securities Exchange Act of 1934 after the distribution of securities under a plan confirmed by a court.
Yes o No o
Applicable Only to Corporate Registrants
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the most practicable date:
Class | Outstanding as of November 10, 2009 | |
Common Stock, $0.001 | 72,755,800 |
2
SILICA RESOURCES CORPORATION
Form 10-Q
FINANCIAL INFORMATION | F-1 | |
Financial Statements | F-1 | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 4 | |
Quantitative and Qualitative Disclosures About Market Risk | 9 | |
Controls and Procedures | 9 | |
OTHER INFORMATION | 10 | |
Legal Proceedings | 10 | |
Unregistered Sales of Equity Securities and Use of Proceeds | 10 | |
Defaults Upon Senior Securities | 10 | |
Submission of Matters to a Vote of Security Holders | 10 | |
Other Information | 10 | |
Exhibits | 10 | |
3
PART I
ITEM 1. FINANCIAL STATEMENTS
Silica Resources Corporation
(An Exploration Stage Company)
FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
(unaudited)
Index
Balance Sheets | F-2 |
Statements of Operations | F-3 |
Statements of Cash Flows | F-4 |
Statements of Stockholders Equity | F-5 |
Notes to the Financial Statements | F-6 |
F-1
Silica Resources Corporation
(An Exploration Stage Company)
Balance Sheets
Sep. 30, 2009 $ (Unaudited) | March 31, 2009 $ (Audited) | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash | 690 | 2,159 | ||||||
Receivables (Note 3) | - | 2,346 | ||||||
690 | 4,595 | |||||||
Mineral properties (Note 4) | 5,217 | 8,797 | ||||||
Equipment, net of depreciation | 693 | 768 | ||||||
Total Assets | 6,600 | 14,160 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current Liabilities | ||||||||
Accounts payable and accrued liabilities | 167,831 | 135,296 | ||||||
Promissory notes (Note 7 ) | 205,621 | 154,868 | ||||||
Due to related parties (Note 6) | 68,017 | 39,573 | ||||||
Total Liabilities | 441,469 | 329,737 | ||||||
Stockholders’ Equity (Deficit) | ||||||||
Capital stock (Note 5) | ||||||||
Authorized: 2,000,000,000 common shares, | ||||||||
$0.001 par value | ||||||||
Issued and outstanding: 72,755,800 shares | ||||||||
(March 31, 2009 – 72,755,800 shares) | 72,756 | 72,756 | ||||||
Warrants (Note 5) | 61,235 | 61,235 | ||||||
Additional paid in capital | 433,927 | 433,927 | ||||||
Deficit accumulated during the exploration stage | (1,002,787 | ) | (883,495 | ) | ||||
Total Stockholders’ Equity (Deficit) | (434,869 | ) | 315,577 | |||||
Total Liabilities and Stockholders’ Equity | 6,600 | 14,160 |
Contingency (Note 1)
The accompanying notes are an integral part of these financial statements.
F-2
Silica Resources Corporation
(An Exploration Stage Company)
Statements of Operations
(Unaudited)
For the Three Months Ended Sep. 30, | For the Three Months Ended Sep. 30, | For the Six Months Ended Sep. 30, | For the Six Months Ended Sep. 30, | Accumulated From October 7, 2005 (Date of Inception to Sep. 30, | ||||||||||||||||
2009 | 2008 | 2009 | 2008 | 2009) | ||||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||
Expenses | ||||||||||||||||||||
Depreciation | 37 | 45 | 75 | 145 | 535 | |||||||||||||||
Interest | 3,890 | 845 | 5,858 | 5,999 | 11,857 | |||||||||||||||
Consulting (Note 6) | 21,000 | 83,823 | 41,573 | 254,251 | 295,824 | |||||||||||||||
Legal | 4,609 | 12,200 | 9,348 | 140,691 | 150,039 | |||||||||||||||
Management fees | - | - | - | 15,000 | 15,000 | |||||||||||||||
Mineral property exploration | 7,290 | 52,729 | 7,290 | 300,070 | 307,360 | |||||||||||||||
Office and administration | 17,018 | 16,716 | 26,312 | 96,448 | 122,760 | |||||||||||||||
Professional services | 9,256 | 14,040 | 25,256 | 63,822 | 89,078 | |||||||||||||||
Loss from operations | (63,100 | ) | (180,398 | ) | (115,712 | ) | (876,741 | ) | (992,453 | ) | ||||||||||
Other items: | ||||||||||||||||||||
Impairment of mineral properties | - | (15,347 | ) | (3,580 | ) | (15,347 | ) | (18,927 | ) | |||||||||||
Settlement of debt | - | - | - | 8,593 | 8,593 | |||||||||||||||
Net loss for the period | (63,100 | ) | (195,745 | ) | (119,292 | ) | (883,495 | ) | (1,002,787 | ) | ||||||||||
Basic and diluted loss per share | (0.00 | ) | (0.00 | ) | (0.00 | ) | (0.00 | ) | ||||||||||||
Weighted average number of shares outstanding – basic and diluted | 72,755,800 | 72,755,800 | 72,755,800 | 83,807,070 |
The accompanying notes are an integral part of these financial statements.
F-3
Silica Resources Corporation
(An Exploration Stage Company)
Statements of Cash Flows
(Unaudited)
For the Six months Ended Sep. 30, | For the Six months Ended Sep. 30, | Accumulated From October 7, 2005 (Date of Inception to Sep. 30, | ||||||||||
2009 | 2008 | 2009) | ||||||||||
$ | $ | $ | ||||||||||
Operating Activities | ||||||||||||
Net loss | (119,292 | ) | (323,076 | ) | (1,002,788 | )) | ||||||
Items not requiring the use of cash | ||||||||||||
Depreciation | 75 | 145 | 535 | |||||||||
Interest accrued | 5,858 | 1,141 | 11,726 | |||||||||
Mineral property costs | - | - | 300 | |||||||||
Impairment of mineral properties | 3,580 | 15,348 | 18,927 | |||||||||
Settlement of debt | - | - | (8,593 | ) | ||||||||
Changes in operating assets and liabilities | ||||||||||||
Receivables | 2,436 | (2,991 | ) | - | ||||||||
Accounts payable and accrued liabilities | 32,535 | 8,698 | 232,424 | |||||||||
Net Cash Used in Operating Activities | (74,808 | ) | (300,375 | ) | (747,468 | ) | ||||||
Investing Activities | ||||||||||||
Acquisition of mineral properties | - | - | (24,144 | ) | ||||||||
Acquisition of office equipment | - | - | (1,228 | ) | ||||||||
Net Cash Used in Investing Activities | - | - | (25,372 | ) | ||||||||
Financing Activities | ||||||||||||
Proceeds on sale of common stock | - | 100,000 | 567,618 | |||||||||
Due to related party | 28,444 | - | 12,017 | |||||||||
Promissory notes | 44,895 | 70,000 | 193,895 | |||||||||
Net Cash Provided by Financing Activities | 73,339 | 170,000 | 773,530 | |||||||||
Increase (Decrease) in Cash | (1,469 | ) | (130,735 | ) | 690 | |||||||
Cash – Beginning of Period | 2,159 | 148,254 | - | |||||||||
Cash – End of Period | 690 | 17,519 | 690 | |||||||||
Supplemental Disclosures: | ||||||||||||
Interest paid | – | – | – | |||||||||
Income taxes paid | – | – | – |
The accompanying notes are an integral part of these financial statements.
F-4
Silica Resources Corporation
(An Exploration Stage Company)
Statement of Stockholders' Equity
October 7, 2005 (Date of Inception) to September 30, 2009
(Unaudited)
Deficit Accumulated | ||||||||||||||||||||||||||||
Common Shares | during the | |||||||||||||||||||||||||||
Number | Par Value | Additional Paid-in Capital | Common Share Subscription | Warrants | Exploration Stage | Total | ||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
Balance, October 7, 2005, | - | - | - | - | - | - | - | |||||||||||||||||||||
Capital stock issued for cash: | ||||||||||||||||||||||||||||
– February 2006 at $0.00005 per share | 60,000,000 | 60,000 | (57,000 | ) | - | - | - | 3,000 | ||||||||||||||||||||
– February 2006 at $0.0025 per share | 24,000,000 | 24,000 | 36,000 | - | - | - | 60,000 | |||||||||||||||||||||
– March 2006 at $0.0025 per share | 6,400,000 | 6,400 | 9,600 | - | - | - | 16,000 | |||||||||||||||||||||
Capital stock issued for mineral property: | ||||||||||||||||||||||||||||
– March 15, 2006 at $0.0025 per share (Note 4) | 120,000 | 120 | 180 | - | - | - | 300 | |||||||||||||||||||||
Capital stock subscription | - | - | - | (2,000 | ) | - | - | (2,000 | ) | |||||||||||||||||||
Net loss | - | - | - | - | - | (12,280 | ) | (12,280 | ) | |||||||||||||||||||
Balance, March 31, 2006 | 90,520,000 | 90,520 | (11,220 | ) | (2,000 | ) | - | (12,280 | ) | 65,020 | ||||||||||||||||||
Capital stock issued for cash: | ||||||||||||||||||||||||||||
– June 2006 at $0.0025 per share | 8,000,000 | 8,000 | 12,000 | - | - | - | 20,000 | |||||||||||||||||||||
– September 2006 at $0.0025 per share | 800,000 | 800 | 1,200 | - | - | - | 2,000 | |||||||||||||||||||||
Capital stock subscription | - | - | - | 2,000 | - | - | 2,000 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (127,317 | ) | (127,317 | ) | |||||||||||||||||||
Balance, March 31, 2007 | 99,320,000 | 99,320 | 1,980 | - | - | (139,597 | ) | (38,297 | ) | |||||||||||||||||||
Capital stock issued for cash: | ||||||||||||||||||||||||||||
– November 2007 to January 2008 at $0.25 per share | 1,480,000 | 1,480 | 319,988 | - | 48,532 | - | 370,000 | |||||||||||||||||||||
Issue cost - legal | - | - | (3,382 | ) | - | - | - | (3,382 | ) | |||||||||||||||||||
Net loss | - | - | - | - | - | (212,504 | ) | (212,504 | ) | |||||||||||||||||||
Balance, March 31, 2008 | 100,800,000 | 100,800 | 318,586 | - | 48,532 | (352,101 | ) | 115,817 | ||||||||||||||||||||
Capital stock issued for cash: | ||||||||||||||||||||||||||||
– June 3, 2008 at $0.25 per share | 400,000 | 400 | 86,897 | 12,703 | - | 100,000 | ||||||||||||||||||||||
Shares cancelled | (28,444,200 | ) | (28,444 | ) | 28,444 | - | - | - | - | |||||||||||||||||||
Net loss | - | - | - | - | - | (531,394 | ) | (531,394 | ) | |||||||||||||||||||
Balance, March 31, 2009 | 72,755,800 | 72,756 | 433,927 | - | 61,235 | (883,495 | ) | (315,577 | ) | |||||||||||||||||||
Net loss | - | - | - | - | - | (119,292 | ) | (119,292 | ) | |||||||||||||||||||
Balance, September 30, 2009 | 72,755,800 | 72,756 | 433,927 | - | 61,235 | (1,002,787 | ) | (434,869 | ) |
The accompanying notes are an integral part of these financial statements
F-5
Silica Resources Corporation
(An Exploration Stage Company)
Notes to the Financial Statements
September 30, 2009
(unaudited)
Note 1 | Nature of Operations and Basis of Presentation Silica Resources Corporation (the "Company") was incorporated in the State of Nevada on October 7, 2005, and is in the exploration stage. The Company has acquired a mineral property located in the Yukon Territory, Canada, as well as certain other properties in the United States and has not yet determined whether these properties contain reserves that are economically recoverable. The recoverability of costs incurred for acquisition and exploration of each property will be dependent upon the discovery of economically recoverable reserves, confirmation of the Company's interest in the underlying property, the ability of the Company to obtain necessary financing to satisfy the expenditure requirements under property agreements, completion of the development of the property, and upon future profitable production of proceeds from the sale thereof. In the opinion of management, the accompanying balance sheets and related interim statements of income, cash flows, and stockholders’ equity include all adjustments, consisting only of normal recurring items, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Examples include: estimates of loss contingencies, product warranties, product life cycles, product returns, and stock-based compensation forfeiture rates;. Actual results and outcomes may differ from management’s estimates and assumptions. Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with information included in the Company’s Form 10-K for the year ended March 31, 2009 filed on June 29, 2009 with the U.S. Securities and Exchange Commission. Going Concern These financial statements have been prepared on a going concern basis which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has a working capital deficit of $440,778 as at September 30, 2009 ($116,908 – September 30, 2008) and has incurred losses since inception resulting in an accumulated deficit of $1,002,788 as at September 30, 2009 ($675,176 – September 30, 2008) and has overdue promissory notes of $158,836 at September 30, 2009 and further losses are anticipated in the development of its business raising substantial doubt about the Company's ability to continue as a going concern. These financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue as a going concern. The ability to continue as a going concern is dependent upon the Company to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due, and ultimately generating profitable operations in the future. Management intends to finance operating costs over the next twelve months with existing cash on hand and loans from directors and private placement of common stock. |
Note 2 | Summary of Significant Accounting Policies Basis of Presentation The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America and are presented in US dollars. Exploration Stage Company The Company complies with Financial Accounting Standards Board Statement No. 7 and its characterization of the Company as a development stage enterprise. Cash and Cash Equivalents The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents. |
F-6
Silica Resources Corporation
(An Exploration Stage Company)
Notes to the Financial Statements
September 30, 2009
(unaudited)
Note 2 | Summary of Significant Accounting Policies – continued Mineral Properties The Company has adopted recommendations from the Emerging Issues Task Force (“EITF”) – EITF Abstract 04-2: “Whether Mineral Rights Are Tangible or Intangible Assets”. In accordance with the EITF, acquisition costs for mineral rights are accounted for as tangible assets and shown as a separate component of property, plant, and equipment. Costs relating to exploration and development are expensed as incurred until such time as economic reserves are quantified. To date, the Company has not established any proven reserves on any of its mineral properties. Estimated future removal and site restoration costs, when determinable are provided over the life of proven reserves on a units-of-production basis. Costs, which include production equipment removal and environmental remediation, are estimated each period by management based on current regulations, actual expenses incurred, and technology and industry standards. Any charge is included in exploration expense or the provision for depletion and depreciation during the period and the actual restoration expenditures are charged to the accumulated provision amounts as incurred. 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. Foreign Currency Translation In accordance with SFAS No. 52, "Foreign Currency Translation", foreign denominated monetary assets and liabilities are translated into their United States dollar equivalents using foreign exchange rates which prevailed at the balance sheet date. Non monetary assets and liabilities are recorded at the exchange rates prevailing at the transaction date. Revenue and expenses are translated at average rates of exchange during the year. Exchange gains or losses resulting from foreign currency transactions are included in results of operations. Financial Instruments In accordance with the requirements of SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," the Company has determined the estimated fair value of financial instruments using available market information and appropriate valuation methodologies. The carrying values of cash, receivables, accounts payable and promissory notes approximate their fair values due to the short-term maturity of these instruments. The fair value of the amounts due to related parties is not determinable as they have no specific repayment terms. Environmental Costs Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when environmental assessments and/or remedial efforts are probable, and the cost can be reasonably estimated. Generally, the timing of these accruals coincides with the earlier of completion of a feasibility study or the Company's commitments to plan of action based on the then known facts. Various federal and state mining laws and regulations require the Company to reclaim the surface areas and restore underground water quality for its mine projects to the pre-existing mine area average quality after the completion of mining. In August 2001, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 143, “Accounting for Asset Retirement Obligations,” which established a uniform methodology for accounting for estimated reclamation and abandonment costs. |
F-7
Silica Resources Corporation
(An Exploration Stage Company)
Notes to the Financial Statements
September 30, 2009
(unaudited)
Note 2 | Summary of Significant Accounting Policies - continued Environmental Costs - continued In March 2005, the FASB issued Interpretation 47 (“FIN 47”), “Accounting for Conditional Asset Retirement Obligations”—an interpretation of FASB No. 143. FIN 47 clarifies that the term “conditional asset retirement obligation” as used in SFAS No. 143 refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and/or method of settlement. FIN 47 requires a liability to be recognized for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. Loss per Share The Company computes loss per share in accordance with SFAS No. 128, "Earnings per Share" which requires presentation of both basic and diluted earnings per share on the face of the statement of operations. Basic loss per share is computed by dividing net loss available to common shareholders by the weighted average number of outstanding common shares during the period. Diluted loss per share gives effect to all potentially dilutive common shares outstanding during the period including stock options and warrants, using the treasury method, and preferred stock, using the if-converted method. Dilutive loss per share excludes all potential common shares if their effect is anti-dilutive. As the effects of conversion of dilutive securities is anti-dilutive, basic loss per share is equal to diluted loss per share. Stock-based Compensation The Company has adopted the requirements of SFAS No. 123R for the period ending on March 31, 2006. SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on the grant date fair value of the award. Under SFAS No. 123R, the Company must determine the appropriate fair value model to be used for valuing share-based payments and the amortization method for compensation cost. As at March 31, 2009, the Company has not granted any stock options and, therefore has not recognized any stock based compensation expense. Recently Adopted Accounting Guidance In July 2009, we adopted the Financial Accounting Standards Board (“FASB”) issued FAS No. 165 “Subsequent Events” (“FAS 165”). FAS 165 requires companies to recognize in the financial statements the effects of subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. An entity shall disclose the date through which subsequent events have been evaluated, as well as whether that date is the date the financial statements were issued. Companies are not permitted to recognize subsequent events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after the balance sheet date and before financial statements are issued. Some nonrecognized subsequent events must be disclosed to keep the financial statements from being misleading. For such events a company must disclose the nature of the event, an estimate of its financial effect, or a statement that such an estimate cannot be made. This Statement applies prospectively for interim or annual financial periods ending after June 15, 2009. The adoption of FAS 165 has no material impact on the Company’s results of operations and financial position. In July 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162 (“SFAS 168”). Upon its adoption, the FASB Accounting Standards Codification (the “Codification”) will become the source of authoritative GAAP recognized by the FASB to be applied to nongovernmental entities. On the effective date of SFAS 168, the Codification will supersede all then-existing non-SEC accounting and reporting standards. Following SFAS 168, the FASB will not issue new accounting standards in the form of FASB Statements, FASB Staff Positions, or Emerging Issues Task Force abstracts. SFAS 168 will also modify the existing hierarchy of GAAP to include only two levels — authoritative and non-authoritative. SFAS 168 will be effective for financial statements issued for interim and annual periods ending after September 15, 2009, and early adoption is not permitted. Adoption of the new guidance did not have a material impact on our financial statements. In July, 2009, we adopted FASB on business combinations. The guidance retains the fundamental requirements that the acquisition method of accounting (previously referred to as the purchase method of accounting) be used for all business combinations, but requires a number of changes, including changes in the way assets and liabilities are recognized and measured as a result of business combinations. It also requires the capitalization of in-process research and development at fair value and requires the expensing of acquisition-related costs as incurred. The Company has no business combination after the adoption of the new guidance. |
F-8
Silica Resources Corporation
(An Exploration Stage Company)
Notes to the Financial Statements
September 30, 2009
(unaudited)
Note 2 | Summary of Significant Accounting Policies - continued Recently Adopted Accounting Guidance - continued In July, 2009, we adopted the authoritative guidance issued by the FASB that changes the accounting and reporting for non-controlling interests. Non-controlling interests are to be reported as a component of equity separate from the parent’s equity, and purchases or sales of equity interests that do not result in a change in control are to be accounted for as equity transactions. In addition, net income attributable to a non-controlling interest is to be included in net income and, upon a loss of control, the interest sold, as well as any interest retained, is to be recorded at fair value with any gain or loss recognized in net income. Adoption of the new guidance did not have a material impact on our financial statements. In July, 2009, we adopted the authoritative guidance on fair value measurement for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Adoption of the new guidance did not have a material impact on our financial statements. Recent Accounting Guidance Not Yet Adopted In October 2009, the FASB issued authoritative guidance on revenue recognition that will become effective for us beginning July 1, 2010, with earlier adoption permitted. Under the new guidance on arrangements that include software elements, tangible products that have software components that are essential to the functionality of the tangible product will no longer be within the scope of the software revenue recognition guidance, and software-enabled products will now be subject to other relevant revenue recognition guidance. Additionally, the FASB issued authoritative guidance on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under the new guidance, when vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method. The new guidance includes new disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognition. We believe adoption of this new guidance will not have a material impact on our financial statements. In June 2009, the FASB issued authoritative guidance on the consolidation of variable interest entities, which is effective for us beginning July 1, 2010. The new guidance requires revised evaluations of whether entities represent variable interest entities, ongoing assessments of control over such entities, and additional disclosures for variable interests. We believe adoption of this new guidance will not have a material impact on our financial statements. |
Note 3 | Receivables The Company had Goods and Services Tax receivable of $nil at September 30, 2009 (March 31, 2009 $2,346) from the Government of Canada. |
Note 4 | Mineral Properties Canada Sydney Creek – By a placer lease acquisition agreement (“Agreement”) dated March 15, 2006, the Company acquired from an unrelated party (the “Vendor”) a 100% undivided right, title and interest in and to a lease of the mineral property, known as "Sydney Creek Property", located in the Whitehorse Mining District of the Yukon Territory, Canada. The purchase price was paid by the issuance of 120,000 post-forward split common shares of the Company’s capital stock for a total cost of $300. |
United States Elkhorn property On January 31, 2008, the Company entered a Mineral Property Acquisition Agreement (“Agreement”) with Major Ventures LLC, Elk Creek Corporation and Balbach Colorado Inc. (collectively, the “Vendors”). The Vendors granted to the Company the sole and exclusive option to acquire a 100% undivided legal, beneficial and registerable interest in and to the following unencumbered mineral property interests (collectively, the “Property”): (i) the Elkhorn property located in Beaverhead County, Montana, and comprising approximately 1,777 acres; (ii) the Ramey Creek property located in Custer County, Idaho, and comprising approximately 393 acres; and (iii) the Roaring River property located in Elmore County, Idaho, and comprising approximately 2,707 acres; In order to exercise its Option, the Company was obligated to provide the following consideration to the Vendors in the following manner: |
F-9
Silica Resources Corporation
(An Exploration Stage Company)
Notes to the Financial Statements
September 30, 2009
(unaudited)
Note 4 | Mineral Properties - continued Affiliate Share Transfer: the Company caused a founding shareholder of the Company to sell an aggregate of 2,000,000 formerly issued and outstanding post-forward split common shares to the Vendors at a purchase price of U.S. $0.001 per share; and Maintenance Payments: the Company will pay to the Vendors behalf, all underlying option, regulatory and governmental payments and assessment work required to keep the mineral property interests in good standing. |
During the year ended March 31, 2008, the Company paid $85,000 to Major Ventures LLC, of which $4,900 for geologists’ fees spent on the acquired properties were recorded as acquisition of mineral properties, and the remaining was administration expenditures which were expensed as exploration costs. During the year ended March 31, 2008, $19,244 for legal fees related to the acquisition of the properties were capitalized as acquisition costs of mineral properties. On March 27, 2008 the Company completed the acquisition requirements under the Agreement and exercised the Option thereby acquiring an undivided 100% legal, beneficial and registerable interest in and to the mineral property interests comprising the Property. As of August 31, 2008, the Company decided to allow the leases on the Roaring River and Ramey Creek properties to lapse without renewal. The Company has impaired lapsed mineral properties by $15,347 during the year ended March 31, 2009 on the basis of net acres abandoned. Effective on June 30, 2009, the Company decided to allow the 36 of the 86 total claims comprising the Elkhorn property to lapse without renewal. The Company has impaired lapsed mineral properties by $3,580 during the three months ended June 30, 2009 on the basis of net acres abandoned. |
Note 5 | Capital Stock On August 8, 2007, the Company affected a 20:1 forward stock split of the authorized, issued and outstanding common stock. As a result, the authorized share capital increased from 100,000,000 shares of common stock with a par value of $0.001 to 2,000,000,000 shares of common stock with a par value of $0.001. All share amounts have been retroactively adjusted for all periods presented. At September 30, 2009, there were no outstanding stock options. |
Stock Purchase Warrants Warrant transactions and the number of warrants outstanding at March 31, 2009 and September 30, 2009 are summarized as follows: |
Year ended March 31, 2009 | Six Months ended September 30, 2009 | |||||||||||||||||||||||
Number of Shares | Weighted Average Exercise Price per Share | Weighted Average Life in Years | Number of Shares | Weighted Average Exercise Price per Share | Weighted Average Life in Years | |||||||||||||||||||
Balance, Beginning | 1,480,000 | $ | 0.35 | 1.83 | 1,880,000 | $ | 0.35 | 0.79 | ||||||||||||||||
Granted in the period | 400,000 | 0.35 | 2.00 | - | - | - | ||||||||||||||||||
Balance, End | 1,880,000 | $ | 0.35 | 0.79 | 1,880,000 | $ | 0.35 | 0.28 |
F-10
Silica Resources Corporation
(An Exploration Stage Company)
Notes to the Financial Statements
September 30, 2009
(unaudited)
Note 6 | Related Party Transactions As at September 30, 2009 the Company owed $12,017 (March 31, 2009 - $12,017) for expense reimbursements to a company with a director in common. As at September 30, 2009, the Company owed $56,000 (March 31, 2009 - $26,000) in fees for mineral property exploration services rendered and $Nil (March 31, 2009 - $1,556) in related expenses to a director and officer of the Company. The Company paid this director and officer an aggregate of $1,556 for reimbursed expenses during the six months ended September 30, 2009. No further mineral property exploration service fees or related expenses were incurred in the six months ended September 30, 2009 from this director and officer. The above transactions have been recorded at exchange amount which is the amount of consideration established and agreed to by the related parties. |
Note 7 | Promissory Notes On May 27, 2008, the Company signed a promissory note, with a company that is a significant shareholder, due on August 26, 2008 in the amount of $50,000, unsecured with annual interest of 7%. Interest of $2,886 was accrued during the period ended March 31, 2009 and a further $1,872 during the six months ended September 30, 2009. The note was not repaid on its due date. The note is due on demand and continues to accrue interest at its originally stated terms. On September 12, 2008, the Company issued a promissory note in the amount of $20,000, unsecured, due and payable with accumulated interest within 190 days and bears interest of 8% per annum. Interest of $881 was accrued during the period ended March 31, 2009 and a further $845 during the six months ended September 30, 2009. The note was not repaid on its due date. The note is due on demand and continues to accrue interest at its originally stated terms. On November 20, 2008, the Company issued a promissory note in the amount of $4,000, unsecured, due and payable with accumulated interest within 6 months and bears interest of 10% per annum. Interest of $145 was accrued during the year ended March 31, 2009 and a further $136 during the six months ended September 30, 2009. The note was not repaid on its due date. The note is due on demand and continues to accrue interest at its originally stated terms. On June 3, 2009, the Company issued a promissory note in the amount of $1,000 with this same shareholder; the Company has incurred $25 in accrued interest during the six months ended September 30, 2009. The note is due on June 3, 2010, is unsecured, and bears interest at 10% per annum. On September 18, 2009, the Company issued another unsecured promissory note with this same shareholder in the amount of $4,100, due and payable with accumulated interest in one year and bears interest of 10% per annum. On December 3, 2008, the Company issued a promissory note, to a company that is a significant shareholder, due June 4, 2009 in the amount of $75,000, unsecured with annual interest of 8% (“First Note”). The First Note was not repaid on its due date. The First Note is due on demand and continues to accrue interest at its originally stated terms. On June 16, 2009, the Company issued a promissory note in the amount of $40,000 with this same shareholder (“Second Note”). The Second Note is due on December 16, 2009, is unsecured, and bears interest at 8% per annum. Interest of $1,956 was accrued during the period ended March 31, 2009 on the First Note and a further $2,750 accrued during the six months ended September 30, 2009 on both notes. |
F-11
FORWARD LOOKING STATEMENTS
Statements made in this Form 10-Q that are not historical or current facts are "forward-looking statements" made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 (the "Act") and Section 21E of the Securities Exchange Act of 1934. These statements often can be identified by the use of terms such as "may," "will," "expect," "believe," "anticipate," "estimate," "approximate" or "continue," or the negative thereof. We intend that such forward-looking statements be subject to the safe harbors for such statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management's best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION
GENERAL
Silica Resources Corporation was incorporated under the laws of the State of Nevada in October 7, 2005. We are engaged in the business of acquisition, exploration and development of mineral properties in the United States and Canada. We plan to locate and acquire other precious or industrial mineral properties. As of the date of this Quarterly Report, and subject to the receipt of adequate funding, our main focus is the identification, acquisition, exploration and development of mineral properties, which has resulted in the acquisition of our interest in the properties discussed below.
Our shares of common stock trade on the Over-the-Counter Bulletin Board under the symbol “SRCN:BB”.
Please note that throughout this Quarterly Report, and unless otherwise noted, the words "we", "our", "us”, "the Company", “the Corporation”, “Silica”, or "Silica Resources" refers to Silica Resources Corporation.
BUSINESS OPERATIONS
We are a resource exploration company currently engaged in the exploration and development of properties that we believe may contain valuable minerals for the purpose of discovering commercially viable mineral deposits. Our foundational group of assets consists of the properties located in Montana as more fully described below. We entered into an agreement with Major Ventures LLC, Elk Creek Corporation and Balbach Colorado Inc. (collectively, the "Vendors") to earn a 100% interest in the properties. Since we are an exploration stage company, there is no assurance that a commercially viable mineral deposit exists on the property covered by the prospect lease, and a great deal of further exploration will be required before a final evaluation as to the economic and legal feasibility for our future exploration is determined. We have no known reserves of any type of mineral. To date, we have not discovered an economically viable mineral deposit on the property, and there is no assurance that we will discover one.
MINERAL PROPERTIES
The location of our mineral properties is summarized as follows:
Location | Approximate Acreage |
Elkhorn Property, Beaverhead County, Montana | 920 acres |
Sydney Creek Property, Yukon Territory, Canada | 247 acres |
Mineral Property Acquisition Agreement/Elkhorn Property
On January 31, 2008, we entered into a mineral property acquisition agreement (the "Agreement"), with Major Ventures LLC, Elk Creek Corporation and Balbach Colorado Inc. (collectively, the "Vendors"). Effective March 27, 2008, we completed the terms and conditions of the Agreement.
In accordance with the terms and conditions of the Agreement, the Vendors granted to us the sole and exclusive option (the "Option") to acquire a 100% undivided legal, beneficial and registerable interest in and to the following unencumbered mineral property interests (collectively, the "Property"): (i) the Elkhorn property located in Beaverhead County, Montana, and comprising approximately 1,777 acres; (ii) the Ramey Creek property located in Custer County, Idaho, and comprising approximately 393 acres; and (iii) the Roaring River property located in Elmore County, Idaho, and comprising approximately 2,707 acres.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION - continued
MINERAL PROPERTIES - continued
In order to exercise the Option, we were obligated to provide the following consideration to the Vendors in the following manner: (i) we caused one of our certain existing founding shareholders to sell an aggregate of 2,000,000 of our post-forward stock split restricted and controlled and issued and outstanding common shares from the holdings of such shareholder (each an "Affiliate Share") to the order and direction of the Vendors at a purchase price of U.S. $0.0001 per Affiliate Share, as follows: (a) 1,000,000 Affiliates Shares to Balbach Colorado Inc, (b) 600,000 Affiliate Shares to Elk Creek Corporation, and (c) 400,000 Affiliate Shares to Major Ventures LLC; and (ii) we have paid to or on the Vendors’ behalf, all underlying option, regulatory and governmental payments and assessment work required to keep the mineral property interests comprising the Property and any underlying option agreements respecting any of the mineral property interests comprising the Property in good standing.
On March 27, 2008, we completed the acquisition requirements under the Agreement and exercised the Option and thereby acquired an undivided 100% legal, beneficial and registerable interest in and to the mineral property interests comprising the Property. During fiscal year ended March 31, 2008, we paid an aggregate of $85,000 to the Vendors, of which $4,900 for geologists’ fees spent were recorded as acquisition of mineral property, and the remaining was administration expenditures which were expenses as exploration and development in mineral property costs.
As of August 31, 2008, and further to evaluative processes, we have decided to allow the leases on the Roaring River and Ramey Creek properties to lapse without renewal.
The lease on the Elkhorn property remains in good standing and is paid through August 2009. As of the date of this Quarterly Report, the Company elected to renew fifty (50) of the eighty-six (86) total claims based on exploratory and geological work to further identify core claims. Management has analyzed the market conditions and rising price for molybdenum and believes that such factors increase the potential value of these claims as an exploration target. The Company decided to allow the other thirty-six (36) of the eighty-six (86) claims comprising the property to lapse without renewal. We have thus impaired lapsed mineral properties recorded of $3,580 during six-month period ended September 30, 2009 on the basis of net acres abandoned.
As of the date of this Quarterly Report, we have commissioned a 43-101 report to be conducted on the Elkhorn claims by John Himer of Portland, Oregon. National Instrument 43-101 (NI 43-101) is a rule developed by the Canadian Securities Administrators (CSA) and administered by the provincial securities commissions in Canada that governs how companies disclose scientific and technical information about their mineral projects to the public. It covers oral statements as well as written documents and websites. It requires that all disclosure be based on advice by a "qualified person" and in some circumstances that the person be independent of the issuer and the property. A qualified person as defined in NI 43-101 as an individual who: (i) is an engineer or geoscientist with at least five years of experience in mineral exploration, mine development or operation or mineral project assessment, or any combination of these; (ii) has experience relevant to the subject matter of the mineral project and the technical report; and (iii) is a member in good standing of a professional association
Placer Lease Acquisition Agreement/Sydney Creek
On March 15, 2006, we entered into a Placer Lease Acquisition Agreement with Karl Gruber (the “Prospect Lease”) whereby we purchased a 100% interest in an unpatented lease to prospect a five mile portion of Sidney Creek located approximately one mile downstream of Iron Creek, in the Whitehorse Mining Division of the Yukon Territory, Canada. The purchase price was paid by the issuance of 120,000 post-Forward Stock Split shares of our common stock for a total cost of $300. The term of the lease was one-year renewable for two additional one-year periods if we incur the qualifying property expenditures required under the Prospect Lease. Further, the claims expired and certain of the claims of interest have been re-staked.
PROPOSED FUTURE BUSINESS OPERATIONS
Our current strategy is to complete further acquisition of additional mineral opportunities which fall within the criteria of providing a geological basis for development of mining initiatives that can provide revenue potential and production cash flows and create reserves. Our emphasis during the past fiscal year was on exploration objectives targeting molybdenum. We are also considering further options for acquisitions and development mandates that may or may not be molybdenum related. We anticipate that our ongoing efforts, subject to adequate funding being available, will continue to be focused on successfully concluding negotiations for additional interests in mineral properties. We plan to build a strategic base of exploration properties with mineral production capability.
Our ability to continue to complete planned exploration activities and expand acquisitions and explore mining opportunities is dependent on adequate capital resources being available and further sources of debt and equity being obtained. See “ – Plan of Operation”.
RESULTS OF OPERATION
We are an exploration stage company and have not generated any revenue to date. We have incurred recurring losses to date. Our financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation. We expect we will require additional capital to meet our long term operating requirements. We expect to raise additional capital through, among other things, the sale of equity or debt securities.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION - continued
RESULTS OF OPERATION - continued
The summarized financial data set forth in the table below is derived from and should be read in conjunction with our unaudited financial statements for the six month period ended September 30, 2009 and September 30, 2008, including the notes to those financial statements which are included in this Quarterly Report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Our unaudited financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.
The following table sets forth selected financial information for the periods indicated.
Six Month Period Ended September 30, | For the Period from October 7, 2005 (inception) to September 30, 2009 | |||||||||||
2009 | 2008 | |||||||||||
Expenses | ||||||||||||
Depreciation | $ | 75 | $ | 145 | $ | 535 | ||||||
Interest | 5,858 | 5,999 | 11,857 | |||||||||
Consulting | 41,573 | 254,251 | 295,824 | |||||||||
Legal | 9,348 | 140,691 | 150,039 | |||||||||
Management fees | -0- | 15,000 | 15,000 | |||||||||
Mineral property exploration | 7,290 | 300,070 | 307,360 | |||||||||
Office and administration | 26,312 | 96,448 | 122,760 | |||||||||
Professional services | 25,256 | 63,822 | 89,078 | |||||||||
Loss from operation | $ | (115,712 | ) | $ | (876,741 | ) | $ | (992,453 | ) | |||
Impairment of mineral properties | (3,580) | (15,347) | (18,927) | |||||||||
Settlement of debt | -0- | 8,593 | 8,593 | |||||||||
Net Loss | $ | (119,292 | ) | $ | (883,495 | ) | $ | (1,002,787 | ) |
We have incurred recurring losses to date. Our financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation.
We expect we will require additional capital to meet our long term operating requirements. We expect to raise additional capital through, among other things, the sale of equity or debt securities.
Six Month Period Ended September 30, 2009 Compared to Six Month Period Ended September 30, 2008.
Our net loss for the six month period ended September 30, 2009 was ($119,292) compared to a net loss of ($883,495) during the six month period ended September 30, 2008 (a decrease of $764,203). During the six month periods ended September 30, 2009 and September 30, 2008, we did not generate any revenue.
During the six month period ended September 30, 2009, we incurred expenses of $115,712 compared to $876,741 incurred during the six month period ended September 30, 2008 (a decrease of $761,029). This resulted in a loss from operations during the six month period ended September 30, 2009 of ($115,712) as compared with the loss from operations during the six month period ended September 30, 2008 of ($876,741). These expenses incurred during the six month period ended September 30, 2009 consisted of: (i) depreciation of $75 (2008: $145); (ii) interest of $5,858 (2008: $5,999); (iii) consulting of $41,573 (2008: $254,251); (iv) legal of $9,348 (2008: $140,691); (v) mineral property exploration of $7,290 (2008: $300,070); (vi) office and administration of $26,312 (2008: $96,448); and (viii) professional services of $25,256 (2008:$63,822).
Expenses incurred during the six month period ended September 30, 2009 compared to the six month period ended September 30, 2008 decreased primarily due to the decrease in mineral property exploration costs, consulting fees, legal and office and administration relating to the decreased scale and scope of business operations of our interests. General and administrative expenses generally include corporate overhead, financial and administrative contracted services, marketing, and consulting costs.
This resulted in a loss from operations of ($115,712) incurred during the six month period ended September 30, 2009 compared to a loss from operations of ($876,741) incurred during the six month period ended September 30, 2008.
Other items recorded during the six month period ended September 30, 2009 were impairment of mineral properties in the amount of ($3,580) compared to ($15,347) incurred as impairment of mineral properties during the six month period ended September 30, 2008. Settlement of debt was recorded in the amount of $-0- during the six month period ended September 30, 2009 compared to $8,593 during the six month period ended September 30, 2008.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION - continued
RESULTS OF OPERATION - continued
The weighted average number of shares outstanding was 72,755,800 for the six month period ended September 30, 2009 compared to 83,807,070 for the six month period ended September 30, 2008.
LIQUIDITY AND CAPITAL RESOURCES
Six Month Period Ended September 30, 2009
As at the six month period ended September 30, 2009, our current assets were $690 and our current liabilities were $441,469, which resulted in a working capital deficit of $440,779. As at the six month period ended September 30, 2009, current assets were comprised of $690 in cash. As at the six month period ended September 30, 2009, current liabilities were comprised of: (i) $167,831 in accounts payable and accrued liabilities; (ii) $205,621 in promissory notes; and (iii) $68,017 due to related parties.
As at the six month period ended September 30, 2009, our total assets were $6,600 comprised of: (i) current assets of $690; (ii) valuation of mining properties of $5,217; and (iii) equipment, net of depreciation, of $693. The decrease in total assets during the six month period ended September 30, 2009 from fiscal year ended March 31, 2009 was primarily due to the decrease in cash and receivables and in valuation of mineral property.
As at the six month period ended September 30, 2009, our total liabilities were $441,469 comprised entirely of current liabilities. The increase in liabilities during the six month period ended September 30, 2009 from fiscal year ended March 31, 2009 was primarily due to the increase in accounts payable and accrued liabilities and promissory notes. See “Material Commitments.”
Stockholders’ deficit increased from $315,577 for fiscal year ended March 31, 2009 to ($434,869) for the six month period ended September 30, 2009.
Cash Flows from Operating Activities
We have not generated positive cash flows from operating activities. For the six month period ended September 30, 2009, net cash flows used in operating activities was ($74,808) consisting primarily of a net loss of ($119,292). For the six month period ended September 30, 2008, net cash flows used in operating activities was ($300,375) consisting primarily of a net loss of ($323,076). During the six month period ended September 30, 2009, net cash flows used in operating activities was adjusted by items not requiring the use of cash for depreciation in the amount of $75 (2008: $145), interest accrued in the amount of $5,858 (2008: $1,141), and impairment of mineral properties in the amount of $3,580 (2008: $15,348). Net cash flows used in operating activities was further changed by $2,436 (2008: ($2,991)) for receivables and $32,535 (2008: $8,698) for accounts payable and accrued liabilities.
Cash Flows from Investing Activities
For the six month periods ended September 30, 2009 and September 30, 2008, net cash flows used in investing activities was $-0-.
Cash Flows from Financing Activities
We have financed our operations primarily from either debt related advances and other debt instruments or the issuance of equity. For the six month period ended September 30, 2009, net cash flows provided from financing activities was $73,339 compared to $170,000 for the six month period ended September 30, 2008. Cash flows from financing activities for the six month period ended September 30, 2009 consisted of: (i) $-0- (2008: $100,000) in proceeds from sale of common stock; (ii) $28,444 (2008: $-0-) in related party amounts; and (iii) $44,895 in promissory notes (2008: $70,000).
We expect that working capital requirements will continue to be funded through a combination of our existing funds and further issuances of securities and debt instruments. Our working capital requirements are expected to increase in line with the growth of our business.
PLAN OF OPERATION AND FUNDING
Existing working capital, further advances and debt instruments, and anticipated cash flow are expected to be adequate to fund our operations over the next six months. We have no lines of credit or other bank financing arrangements. Generally, we have financed operations to date through the proceeds of the private placement of equity and debt instruments. In connection with our business plan, management anticipates additional increases in operating expenses and capital expenditures relating to: (i) mineral property exploration; (ii) possible exploratory drilling initiatives on current and future properties; and (iii) future property acquisitions. We intend to finance these expenses with further issuances of securities, and debt issuances. Thereafter, we expect we will need to raise additional capital and generate revenues to meet long term operating requirements. Additional issuances of equity or convertible debt securities will result in dilution to our current shareholders. Further, such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of prospective new business endeavors or opportunities, which could significantly and materially restrict or negate our business operations.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION - continued
PLAN OF OPERATION AND FUNDING - continued
Plan of Operations
We will have to raise additional funding in order to conduct any work programs and budgeted expenditures relating to the Elkhorn property as well as ongoing general and administrative expenses and those required costs related to the Property relating to the Agreement.
Advances and further private placements are expected to be adequate to fund our operations over the next six months. However, we will require financing to enable us to complete our exploration programs, and to pay for our general and administrative expenses for the next 12 months.
During the twelve month period following the date of this Quarterly Report, we anticipate that we will not generate any revenue. Accordingly, we anticipate that we will be required to obtain financing in order to complete our plan of operations during the next twelve months. We believe that debt financing will not be an alternative for us as we do not have tangible assets to secure any debt financing. We anticipate that additional funding will be in the form of equity financing from the sale of our common stock. However, we do not have any financing arranged and we cannot provide investors with any assurance that we will be able to raise sufficient funding from the sale of our common stock to fund our plan of operations. In the absence of such financing, we will not be able to continue exploration of our exploration prospects and our business plan will fail. Even if we are successful in obtaining equity financing to fund our exploration programs, there is no assurance that we will obtain the funding necessary to pursue any advanced exploration of our prospects. If we do not continue to obtain financing, we will be forced to abandon our exploration prospects and our plan of operations will fail.
We may consider entering into a joint venture arrangement to provide the required funding to develop our current or future properties under consideration by management. We have undertaken preliminary efforts to locate a joint venture participant for our Elkhorn property. Even if we determined to pursue a joint venture participant, there is no assurance that any third party would enter into a joint venture agreement with us in order to fund exploration of our prospect claims. If we entered into a joint venture arrangement, we would likely have to assign a percentage of our interest in our prospect lease to the joint venture participant.
MATERIAL COMMITMENTS
As of the date of this Quarterly Report, and other than our obligations to be incurred under the Agreement and the Assignment Agreement, we do not have any material commitments other than as described below.
Promissory Notes
On May 27, 2008, we issued a promissory note in the principal amount of $50,000 due on August 26, 2008. The note is unsecured and bears interest at the rate of 7%. The promissory note was not paid on August 26, 2008. Therefore, the note continues to accrue interest at the rate of 7% per annum. As at September 30, 2009, an aggregate of $4,758 in interest was accrued.
On September 12, 2008, we issued a promissory note in the principal amount of $20,000 due within 190 days from the date of issuance. The promissory note is unsecured and bears interest at the rate of 8% per annum. The promissory note was not paid on March 21, 2009. Therefore, the note continues to accrue interest at the rate of 8% per annum. As at September 30, 2009, an aggregate of $1,726 in interest was accrued.
On November 20, 2008, we issued a promissory note in the principal amount of $4,000 due within six months from the date of issuance. The promissory note is unsecured and bears interest at the rate of 8% per annum. On June 3, 2009, we issued an additional promissory note in the amount of $1,000 with the same shareholder. The note is due on June 3, 2010, is unsecured and bears interest at 10% per annum. On September 18, 2009, we issued another unsecured promissory note with this same shareholder in the amount of $4,100 due and payable with accumulated interest in one year and bearing interest at the rate of 10% per annum. Interest of $281 was accrued on the $4,000 note during the period ended September 30, 2009. Interest of $25 was accrued on the $1,000 note during the period ended September 30, 2009.
On December 3, 2008, we issued a promissory note to one of our significant shareholders in the principal amount of $75,000 due on June 4, 2009 (“First Note”). The First Note is unsecured with interest at the annual rate of 8%. The First Note was not repaid on its due date. The First Note is due on demand and continues to accrue interest at its originally stated terms. On June 16, 2009 we issued an additional promissory note in the amount of $40,000 with the same shareholder (“Second Note”). The Second Note is due on December 16, 2009, is unsecured and bears interest at 8% per annum. Interest of $1,956 was accrued on the $75,000 note during the period ended September 30, 2009 and a further $2,750 was accrued during the six month period ended September 30, 2009 on both the First Note and the Second Note.
PURCHASE OF SIGNIFICANT EQUIPMENT
We do not intend to purchase any significant equipment during the next twelve months.
OFF-BALANCE SHEET ARRANGEMENTS
As of the date of this Quarterly Report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION - continued
GOING CONCERN
The independent auditors' report accompanying our March 31, 2009 and March 31, 2008 financial statements contains an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The financial statements have been prepared "assuming that we will continue as a going concern," which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market risk represents the risk of loss that may impact our financial position, results of operations or cash flows due to adverse change in foreign currency and interest rates.
Exchange Rate
Our reporting currency is United States Dollars (“USD”). In the event we acquire any properties outside of the United States, the fluctuation of exchange rates may have positive or negative impacts on our results of operations. However, since all of our properties are currently located within the United States, any potential revenue and expenses will be denominated in U.S. Dollar, and the net income effect of appreciation and devaluation of the currency against the US Dollar would be limited to our costs of acquisition of property.
Interest Rate
Interest rates in the United States are generally controlled. Any potential future loans will relate mainly to acquisition of properties and will be mainly short-term. However our debt may be likely to rise in connection with expansion and if interest rates were to rise at the same time, this could have a significant impact on our operating and financing activities. We have not entered into derivative contracts to hedge existing risks for speculative purposes.
ITEM 4 . CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 , as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our president (also our principal executive officer) and our secretary, treasurer and chief financial officer (also our principal financial and accounting officer) to allow for timely decisions regarding required disclosure.
As of September 30, 2009, we carried out an evaluation, under the supervision and with the participation of our president (also our principal executive officer and our principal financial and accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our president (also our principal executive officer and chief financial officer also our principal financial and accounting officer) concluded that our disclosure controls and procedures were effective in providing reasonable assurance in the reliability of our financial reports as of the end of the period covered by this quarterly report. Effectiveness of disclosure controls was primarily a function of our current scale and scope of operations which are relatively non-complex with a limited volume of transactions and capital resources.
Changes in Internal Control over Financial Reporting
There have been no significant changes in our internal controls over financial reporting that occurred during the six month period ended September 30, 2009 that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.
Inherent limitations on effectiveness of controls
Internal control over financial reporting has inherent limitations which include but is not limited to the use of independent professionals for advice and guidance, interpretation of existing and/or changing rules and principles, segregation of management duties, scale of organization, and personnel factors. Internal control over financial reporting is a process which involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis, however these inherent limitations are known features of the financial reporting process and it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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ITEM 4 . CONTROLS AND PROCEDURES - continued
AUDIT COMMITTEE
Our Board of Directors has not established an audit committee. The respective role of an audit committee has been conducted by our Board of Directors. We are contemplating establishment of an audit committee during fiscal year 2010. When established, the audit committee's primary function will be to provide advice with respect our financial matters and to assist our Board of Directors in fulfilling its oversight responsibilities regarding finance, accounting, and legal compliance. The audit committee's primary duties and responsibilities will be to: (i) serve as an independent and objective party to monitor our financial reporting process and internal control system; (ii) review and appraise the audit efforts of our independent accountants; (iii) evaluate our quarterly financial performance as well as its compliance with laws and regulations; (iv) oversee management's establishment and enforcement of financial policies and business practices; and (v) provide an open avenue of communication among the independent accountants, management and our Board of Directors.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Management is not aware of any legal proceedings contemplated by any governmental authority or any other party involving us or our properties. As of the date of this Quarterly Report, no director, officer or affiliate is (i) a party adverse to us in any legal proceeding, or (ii) has an adverse interest to us in any legal proceedings. Management is not aware of any other legal proceedings pending or that have been threatened against us or our properties.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
No report required.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
No report required.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No report required.
ITEM 5. OTHER INFORMATION
No report required.
ITEM 6. EXHIBITS
Exhibits:
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SILICA RESOURCES CORPORATION | |||
Dated: November 13, 2009 | By: | /s/ Gerry Jardine | |
Gerry Jardine, President and | |||
Chief Executive Officer |
Dated: November 13, 2009 | By: | /s/ Gerry Jardine | |
Gerry Jardine, Chief Financial Officer |
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