UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 2010
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number 000-53847
PEPPER ROCK RESOURCES CORP.
(Exact name of registrant as specified in its charter)
NEVADA
(State or other jurisdiction of incorporation or organization)
8200 Wilshire Blvd, Suite 200
Beverly Hills, CA 90211
(Address of principal executive offices, including zip code)
323-556-0780
(Telephone number, including area code)
Check whether the issuer (1) 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 last 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,"
"non-accelerated filer," and "smaller reporting company" in Rule 12b-2 of the
Exchange Act.
Large Accelerated Filer [ ] Accelerated Filer [ ]
Non-accelerated Filer [ ] 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]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 315,157 as of December 18, 2010.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Pepper Rock Resources Corp.
(An Exploration Stage Company)
October 31, 2010
Index
-----
Balance Sheets (Unaudited)................................................ 3
Statements of Expenses (Unaudited)........................................ 4
Statements of Cash Flows (Unaudited)...................................... 5
Notes to Unaudited Financial Statements .................................. 6
2
Pepper Rock Resources Corp.
(An Exploration Stage Company)
Balance Sheets
(Unaudited)
October 31, July 31,
2010 2010
------------ ------------
ASSETS
Current Assets
Cash $ 16,228 $ 1,045
------------ ------------
Total Assets $ 16,228 $ 1,045
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable and accrued liabilities $ 70,386 $ 53,452
Loans payable 24,340 24,340
Due to related party 15,027 3,027
Convertible note 325,000 300,000
------------ ------------
Total Liabilities 434,753 380,819
------------ ------------
Stockholders' Deficit
Preferred Stock, 100,000,000 shares authorized, $0.00001 par value;
No shares issued and outstanding -- --
Common Stock, 2,500,000,000 shares authorized, $0.00001 par value;
315,157 shares issued and outstanding 3 3
Additional Paid-in Capital 651,666 626,666
Deficit Accumulated During the Exploration Stage (1,070,194) (1,006,443)
------------ ------------
Total Stockholders' Deficit (418,525) (379,774)
------------ ------------
Total Liabilities and Stockholders' Deficit $ 16,228 $ 1,045
============ ============
(The Accompanying Notes are an Integral Part of
These Unaudited Financial Statements)
3
Pepper Rock Resources Corp.
(An Exploration Stage Company)
Statements of Expenses
(Unaudited)
For the For the From
Three Months Three Months May 29, 2008
Ended Ended (Date of Inception) to
October 31, October 31, October 31,
2010 2009 2010
------------ ------------ ------------
Expenses
Other general and administrative $ 6,038 $ 871 $ 139,309
Management services 12,000 1,200 44,000
Professional fees 15,252 13,860 116,230
Loss on settlement of accounts payable -- -- 106,179
Impairment of mineral properties -- -- 5,000
Impairment of oil and gas properties -- -- 300,000
Exploration costs -- 140 20,935
------------ ------------ ------------
Loss from operations (33,290) (16,071) (731,653)
Interest expense (30,461) -- (338,541)
------------ ------------ ------------
Net Loss for the Period $ (63,751) $ (16,071) $ (1,070,194)
============ ============ ============
Net Loss Per Common Share - Basic and Diluted $ (0.20) $ (0.06)
============ ============
Weighted Average Common Shares Outstanding 315,000 289,000
============ ============
(The Accompanying Notes are an Integral Part of
These Unaudited Financial Statements)
4
Pepper Rock Resources Corp.
(An Exploration Stage Company)
Statements of Cash Flows
(Unaudited)
For the For the From
Three Months Three Months May 29, 2008
Ended Ended (Date of Inception) to
October 31, October 31, October 31,
2010 2009 2010
------------ ------------ ------------
Operating Activities
Net loss for the period $ (63,751) $ (16,071) $ (1,070,194)
Adjustment to reconcile net loss to net
cash used in operating activities:
Donated services -- 1,200 8,000
Accretion of convertible debt discount 25,000 -- 325,000
Shares issued for services - related party -- -- 112,891
Shares issued for services -- -- 106,178
Impairment of mineral properties -- -- 5,000
Impairment of oil and gas properties -- -- 300,000
Changes in operating assets and liabilities:
Accounts payable and accrued liabilities 16,934 14,669 88,886
Due to related parties - services 12,000 12,000
------------ ------------ ------------
Net Cash Used in Operating Activities (9,817) (202) (111,239)
------------ ------------ ------------
Investing Activities
Mineral property costs -- -- (5,000)
Oil and gas property costs -- -- (300,000)
------------ ------------ ------------
Net Cash Used in Investing Activities -- -- (305,000)
------------ ------------ ------------
Financing Activities
Due to related parties, advances -- -- 27,027
Proceeds from convertible debt 25,000 -- 325,000
Proceeds from other loans -- -- 33,340
Proceeds from issuance of common stock -- -- 57,100
Payment of advances -- -- (10,000)
------------ ------------ ------------
Net Cash Provided by Financing Activities 25,000 -- 43,467
------------ ------------ ------------
Increase (Decrease) in Cash 15,183 (202) 16,228
Cash - Beginning of Period 1,045 590 --
------------ ------------ ------------
Cash - End of Period $ 16,228 $ 388 $ 16,228
============ ============ ============
Supplemental Disclosures
Interest paid $ -- $ -- $ --
Income taxes paid $ -- $ -- $ --
============ ============ ============
Non-Cash Activities
Conversion feature of convertible note $ 25,000 $ -- $ 350,000
Settlement of related party debt with common stock $ -- $ -- $ 25,000
Settlement of debt with common stock $ -- $ -- $ 17,500
============ ============ ============
(The Accompanying Notes are an Integral Part of
These Unaudited Financial Statements)
5
Pepper Rock Resources Corp.
(An Exploration Stage Company)
Notes to the Financial Statements
October 31, 2010
(Unaudited)
1. Significant Accounting Policies and Basis of Presentation
Pepper Rock Resources Corp. (the "Company") was incorporated in the State of
Nevada on May 29, 2008. The Company is an Exploration Stage Company, as defined
by Financial Accounting Standards Board ("FASB") Accounting Standards
Codification ("ASC") 915, DEVELOPMENT STAGE ENTITIES. The Company's principal
business is the acquisition and exploration of mineral resources. The Company
has not presently determined whether its properties contain mineral reserves
that are economically recoverable.
The accompanying unaudited interim financial statements of the Company have been
prepared in accordance with accounting principles generally accepted in the
United States of America and the rules of the Securities and Exchange Commission
("SEC"), and should be read in conjunction with the audited financial statements
and notes thereto contained in the Company's July 31, 2010 report filed with the
SEC on Form 10-K. In the opinion of management, all adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation of financial
position and the results of operations for the interim periods presented have
been reflected herein. The results of operations for interim periods are not
necessarily indicative of the results to be expected for the full year. Notes to
the financial statements which would substantially duplicate the disclosure
contained in the audited financial statements for the most recent fiscal year
end July 31, 2010 as reported on Form 10-K, have been omitted.
2. Going Concern
These financial statements have been prepared on a going concern basis, which
implies that the Company will continue to realize its assets and discharge its
liabilities in the normal course of business. The Company has not generated any
revenue since inception and has never paid any dividends and is unlikely to pay
dividends or generate earnings in the immediate or foreseeable future. The
continuation of the Company as a going concern is dependent upon the continued
financial support from its shareholders, the ability of the Company to obtain
necessary equity financing to continue operations, and the attainment of
profitable operations. At October 31, 2010, the Company has accumulated losses
since inception.
These factors raise substantial doubt regarding the Company's ability to
continue as a going concern. 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.
3. Related Party Transactions
a) For the three month period ended October 31, 2010, the Company
recognized $nil (2009 - $1,200) for donated services provided by the
President of the Company. During the three month period ended October
31, 2010, the Company incurred $12,000 of management services provided
by the President of the Company pursuant to the management agreement
described in Note 7. As of October 31, 2010, the Company is indebted
to the President of the Company in the amount of $15,027 (July 31,
2010 - $Nil), consisting of $3,027 (July 31, 2010 - $2,843) for
expenses paid on behalf of the Company and $12,000 (July 31, 2010 -
$nil) for management fees. This amount is non-interest bearing,
unsecured and due on demand.
b) As at October 31, 2010, the Company is indebted to the former
President of the Company for $184 (July 31, 2010 - $184) for expenses
paid on behalf of the Company. This amount is non-interest bearing,
unsecured and due on demand.
6
Pepper Rock Resources Corp.
(An Exploration Stage Company)
Notes to the Financial Statements
October 31, 2010
(Unaudited)
4. Loan Payable
As at October 31, 2010, the Company owed $24,340 (July, 2010 - $24,340) in loans
payable to unrelated third parties. These amounts were used for general
corporate expenses. These amounts are unsecured, bear interest of prime bank
rate plus 3% per annum and are payable on demand.
5. Convertible Debt
During the fiscal year ended July 31, 2010, the Company issued a $300,000
secured Convertible Note ("the Note"). The Note is due sixty days after demand,
bears interest of prime bank rate plus 3% per annum payable annually and is
convertible into shares of common stock at $0.01 per share. The conversion
feature of the convertible note provides for a rate of conversion that is below
market value. This feature is characterized as a beneficial conversion feature
("BCF"). A BCF is recorded by the Company as a debt discount pursuant to ASC
Topic 470-20. The BCF of $300,000 was recognized immediately as interest expense
due to the fact that the convertible note is due upon demand.
During the period ended October 31, 2010, the Company received $25,000 pursuant
to a secured Convertible Note ("the Note"). Subsequent to October 31, 2010, the
Company received an additional $25,000. Both of these loans are evidenced by a
single convertible note agreement totalling $50,000. The Note is due sixty days
after demand, bears interest of prime bank rate plus 1% per annum payable
annually and is convertible into shares of common stock at $0.01 per share. The
conversion feature of the convertible note provides for a rate of conversion
that is below market value. A BCF is recorded by the Company as a debt discount
pursuant to ASC Topic 470-20. During the period ended October 31, 2010, the
Company recognized a BCF related to the $25,000 received during the period. The
full amount was recorded as a discount at the inception of the note and was
immediately expensed as interest expense due to the fact that the convertible
note is due upon demand.
6. Subsequent Event
On November 17, 2010, the Company effected a 200:1 reverse stock split of the
authorized, issued and outstanding common stock. As a result, the authorized
share capital decreased from 500,000,000 shares of common stock to 2,500,000
shares of common stock with no change in par value and the outstanding share
capital decreased from 63,031,388 shares of common stock to 315,157 shares of
common stock. All share amounts have been retroactively adjusted for all periods
presented.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
This section of the report includes a number of forward-looking statements that
reflect our current views with respect to future events and financial
performance. Forward-looking statements are often identified by words like:
believe, expect, estimate, anticipate, intend, project and similar expressions,
or words which, by their nature, refer to future events. You should not place
undue certainty on these forward-looking statements, which apply only as of the
date of this report. These forward-looking statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from historical results or our predictions.
RESULTS OF OPERATIONS / PLAN OF OPERATION
We are a start-up, exploration stage corporation and have not yet generated or
realized any revenues from our business activities.
We have not generated any revenue and have incurred losses since inception. In
addition, we have a working capital deficit at October 31, 2010. These factors
raise substantial doubt regarding the Company's ability to continue as a going
concern for the next twelve months unless we obtain additional capital to pay
our bills. This is because we have not generated any revenues and no revenues
are anticipated at present.
Accordingly, we must raise cash from sources other than the sale of minerals and
oil and gas found on the properties. Our only other sources for cash at this
time are loans from related parties and additional sales of common stock. Our
success or failure will be determined by what additional financing we obtain and
what we find under the ground.
Funds raised from our recent Promissory Note issued were used to pay
administrative and other expenses. We have to raise additional money to explore
natural resource properties in the future. If we find oil and gas, or other
minerals, and it is economically feasible to remove the mineralized material or
the drilling of oil and gas, we will attempt to raise even more money through a
subsequent private placement, public offering or through loans.
Our sole officer and director is unwilling to make any commitment at this time
to loan us money. At the present time, we have not made any arrangements to
raise additional cash. If we need additional cash and cannot raise it, we will
either have to suspend activities until we do raise the cash, seek additional
opportunities, or cease activities entirely. Other than as described in this
paragraph, we have no other financing plans.
On February 10, 2010 we entered into a joint venture agreement with Oxalis
Energy Group, Inc. for an exclusive right to participate in Oxalis' natural gas
project at the Adams - Baggett Ranch near Ozona, Texas. Under the terms of the
agreement we committed to investing an aggregate of $5,300,000 into the
development of the property.
An initial payment of $300,000 was made and consequent payments of $500,000
every month were required in order to fulfill our obligations under this
agreement. The initial payment of $300,000 was used for the re-activation of two
natural gas wells on the property and the acquisition of a 50% working interest
in these wells.
However, the Company did not make the monthly payments of $500,000 and is in
default of its agreement with Oxalis. As such, the Company has no right, title
or interest in the Adams-Baggett Ranch joint venture with Oxalis Energy Group.
The Company also recorded a $300,000 impairment of oil and gas properties for
the initial payment.
As of the date hereof, we do not own any property interests. We are currently
seeking suitable natural resource property opportunities. Although our company
was unsuccessful in raising the funds to complete the Oxalis natural gas
project, we may identify alternate natural resource properties which are
suitable for exploration and development. Although we are searching for such
8
opportunities, we have not entered into any definitive agreements to date and
there can be no assurance that we will be able to enter into any definitive
agreements. We anticipate that any new opportunities will require additional
financing. There can be no assurance, however, that we will be able to acquire
the financing necessary to enable us to pursue our plan of operation and enter
into such an agreement. If our company requires additional financing and we are
unable to acquire such funds, our business may fail.
Even if we are able to enter into a business opportunity and obtain the
necessary funding, there is no assurance that any revenues would be generated by
us or that revenues generated would be sufficient to provide a return to
investors.
As of the date hereof, management has not entered into any formal written
agreements for new resource property opportunities. When any such agreement is
reached, we intend to disclose such an agreement by filing a current report on
Form 8-K with the Securities and Exchange Commission.
We anticipate that the selection of a business opportunity in which to
participate will be complex and without certainty of success. The investigation
and analysis of natural resource opportunities that may be available may be
extremely difficult and complex. We can provide no assurance that we will be
able to locate compatible business opportunities.
If we can't or don't raise more money, we will either cease activities or look
for other opportunities. If we cease activities, we don't know what we will do
and we don't have any plans to do anything.
We do not intend to hire additional employees at this time. All of the work on
the properties will be conducted by unaffiliated independent contractors that we
will hire. The independent contractors will be responsible for surveying,
geology, engineering, exploration, drilling and excavation. The geologists will
evaluate the information derived from the exploration and excavation and the
engineers will advise us on the economic feasibility of removing the mineralized
material and/or the oil and gas.
We have nominal cash at the present time and cannot operate until we raise
additional capital.
LIMITED OPERATING HISTORY; NEED FOR ADDITIONAL CAPITAL
There is no historical financial information about us upon which to base an
evaluation of our performance. We are an exploration stage corporation and have
not generated any revenues from activities. We cannot guarantee we will be
successful in our business activities. Our business is subject to risks inherent
in the establishment of a new business enterprise, including limited capital
resources, possible delays in the exploration and drilling of our properties,
and possible cost overruns due to price and cost increases in services.
We have no assurance that future financing will be available to us on acceptable
terms. If financing is not available on satisfactory terms, we may be unable to
continue, develop or expand our operations. Equity financing could result in
additional dilution to existing shareholders.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have issued 315,157 shares of our common stock and received
$444,467.
As of the date of this report, we have conducted limited operations and
therefore have not generated any revenues.
In May 29, 2008, we issued 162,500 shares of common stock to our former officer
and director, Curtis C. Daye. The purchase price of the shares was $6,500. This
was accounted for as an acquisition of shares. Curtis C. Daye covered some of
our initial expenses by paying $184 for incorporation documents, administrative
costs, and courier costs. The amount owed to Mr. Daye is non-interest bearing,
unsecured and due on demand. Further, the agreement with Mr. Daye is oral and
there is no written document evidencing the agreement.
9
On July 8, 2008, we issued 126,500 shares of common stock to 46 individuals in
consideration of $50,600.
On July 1, 2010, the Company issued to the President of the Company 13,789
shares of common stock at a fair value of $0.55 per share for $25,000 owed in
management fees paid on behalf of the Company by the President.
On July 8, 2010, the Company issued 12,368 shares of common stock to settle
$17,500 of accounts payable, which was related to certain consulting services
provided by Resource Management Services, an unrelated party.
As of October 31, 2010, our total assets were $16,228 and our total liabilities
were $434,753.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities
Exchange Act of 1934 and are not required to provide the information under this
item.
ITEM 4. CONTROLS AND PROCEDURES.
Under the supervision and with the participation of our management, including
the Principal Executive Officer and Principal Financial Officer, we have
evaluated the effectiveness of our disclosure controls and procedures as
required by Exchange Act Rule 13a-15(b) as of the end of the period covered by
this report. Based on that evaluation, the Principal Executive Officer and
Principal Financial Officer have concluded that these disclosure controls and
procedures are not effective due to adjustments found by independent auditor
during the interim periods.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
There have been no changes in our internal controls over financial reporting
that occurred during the three months ended July 31, 2010 that have materially
affected, or are reasonably likely to materially affect, our internal controls
over financial reporting.
10
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS.
The following documents are included herein:
Exhibit No. Document Description
- ----------- --------------------
31.1 Certification of Principal Executive Officer and Principal Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following person on behalf of the Registrant and in
the capacities on this 21st day of June, 2010.
PEPPER ROCK RESOURCES CORP.
December 14, 2010 BY: /s/ Phil Kueber
------------------------------------------------
Phil Kueber
President, Chief Executive Officer, Secretary,
Treasurer, Principal Financial Officer,
Principal Accounting Officer, and sole member
of the Board of Directors.
12
EXHIBIT INDEX
Exhibit No. Document Description
- ----------- --------------------
31.1 Certification of Principal Executive Officer and Principal Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to section 906 of the Sarbanes-Oxley Act of 2002.