UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
For the transition period from to
--------- ---------
Commission file number 000-32747
OTISH MOUNTAIN DIAMOND COMPANY
------------------------------
(Exact name of small business issuer as specified in its charter)
NEVADA 98-0218688
- ----------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
One Penn Plaza, Suite 3600, 250 West 34th Street, New York, New York 10119
--------------------------------------------------------------------------
(Address of principal executive offices)
(212) 849-6849
--------------
(Registrant's telephone number)
N/A
---
(Former name and address)
Check whether the registrant (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 [ ]
As of May 24, 2004, 35,407,811 shares of Common Stock of the issuer were
outstanding.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Pollard-Kelley Auditing Services, Inc.
Auditing Services
3250 West Market St, Suite 307, Fairlawn, OH 44333 330-864-2265
Report of Independent Certified Public Accountants
Board of Directors
Otish Mountain Diamond Company and Subsidiary
We have reviewed the accompanying consolidated balance sheets of Otish Mountain
Diamond Company and Subsidiary as of March 31, 2004 and the related consolidated
statements of operations, stockholders' equity, and cash flows for the three
months then ended, year to date, and since inception, in accordance with
standards established by the American Institute of Certified Public Accountants.
All information included in these financial statements is the representation of
the management of Otish Mountain Diamond Company and Subsidiary.
A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the object of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
The Company has not generated significant revenues or profits to date. This
factor among others may indicate the Company will be unable to continue as a
going concern. The Company's continuation as a going concern depends upon its
ability to generate sufficient cash flow to conduct its operations and its
ability to obtain additional sources of capital and financing. The accompanying
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Based on our review, we are not aware of any material modifications that should
be made to the March 31, 2004 financial statements in order for them to be in
conformity with generally accepted accounting principles accepted in the United
States of America.
Pollard-Kelley Auditing Services, Inc.
Terance L Kelley
Certified Public Accountant
May 17, 2004
Fairlawn, Ohio
OTISH MOUNTAIN DIAMOND COMPANY AND SUBSIDIARY
(An Exploration Stage Company)
BALANCE SHEETS
March 31, 2004
ASSETS
Current Assets
Cash in banks $ 34,765
------------
Total Current Assets 34,765
Fixed Assets
Vehicles 16,730
Office equipment 2,475
------------
19,205
Less accumulated depreciation (2,983)
------------
16,222
Other Assets
Website costs less accumulated
amortization of $3,651 22,368
Mineral rights 177,550
------------
199,918
------------
Total Assets $ 250,905
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 6,288
Accrued expenses 64,175
------------
Total Current Liabilities 70,463
Long Term Debt
Advances 143,534
Stockholders' Equity
Series A Preferred stock, 1,000,000 shares
authorized, 1,000,000 shares outstanding,
par value $.001 per share 1,000
Common stock, 600,000,000 shares
authorized, 35,407,800 shares outstanding,
par value $.001 per share 35,408
Additional contributed capital 5,398,103
Deficit accumulated during exploration stage (5,397,603)
------------
36,908
------------
See accompanying notes to financial statements.
OTISH MOUNTAIN DIAMOND COMPANY AND SUBSIDIARY
(An Exploration Stage Company)
STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2004 and Year to Date 2004 and for the
period beginning August 4, 2003 (Inception) through March 31, 2004
Current Year to Since
Quarter Date Inception
------------ ------------ ------------
Revenues
Sales $ - $ - $ -
Cost of sales
Exploration costs 70,942 70,942 85,229
------------ ------------ ------------
Gross Profit (70,942) (70,942) (85,229)
Expenses
Administrative 5,230,777 5,230,777 5,311,068
------------ ------------ ------------
(5,301,719) (5,301,719) (5,396,297)
Other income and expenses
Foreign exchange (loss) gain (579) (579) (139)
------------ ------------ ------------
Net Loss $(5,302,298) $(5,302,298) $(5,396,436)
============ ============ ============
Net loss per share $ (0.25) $ (0.25)
Average shares outstanding 21,350,615 21,350,615
See accompanying notes to financial statements.
OTISH MOUNTAIN DIAMOND COMPANY AND SUBSIDIARY
(An Exploration Stage Company)
STATEMENT OF STOCKHOLDERS EQUITY
For the period beginning August 4, 2003 (Inception) through March 31, 2004
Series A Additional
Preferred Stock Common Stock Contributed Retained
Shares Amount Shares Amount Capital Deficit Total
--------- ------- ---------- ------- ---------- ------------ ------------
Otish Diamond Corporation
Balance August 4, 2003 - $ - - $ - $ - $ - $ -
Shares issued for services - - 8,100,000 8,100 - - 8,100
Shares issued for cash - - 3,900,000 3,900 170,100 - 174,000
Shares issued for mineral rights - - 3,000,000 3,000 68,250 - 71,250
Merger with Otish Mountain Company 1,000,000 1,000 107,750 108 - (1,167) (59)
Net loss for the period - - - - - (94,138) (94,138)
--------- ------- ---------- ------- ---------- ------------ ------------
Balance December 31, 2003 1,000,000 1,000 15,107,750 15,108 238,350 (95,305) 159,153
Shares for services - - 20,300,050 20,300 5,159,753 - 5,180,053
Net loss for the period - - - - - (5,302,298) (5,302,298)
--------- ------- ---------- ------- ---------- ------------ ------------
1,000,000 $ 1,000 35,407,800 $35,408 $5,398,103 $(5,397,603) $ 36,908
========= ======= ========== ======= ========== ============ ============
See accompanying notes to financial statements.
OTISH MOUNTAIN DIAMOND COMPANY AND SUBSIDIARY
(An Exploration Stage Company)
STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2004 and Year to Date 2004 and for the
period beginning August 4, 2003 (Inception) through March 31, 2004
Current Year to Since
Quarter Date Inception
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $(5,302,298) $(5,302,298) $(5,396,436)
Adjustments to reconcile net earnings to net
cash provided (used) by operating activities:
Depreciation 1,047 1,047 2,983
Amortization 2,205 2,205 3,651
Services paid by stock 5,180,053 5,180,053 5,188,153
Changes in Current assets and liabilities:
(Decrease) Increase in Accounts payable (11,727) (11,727) 6,037
Increase in Accrued expenses 42,928 42,928 64,175
------------ ------------ ------------
NET CASH (USED) BY
OPERATING ACTIVITIES (87,792) (87,792) (131,437)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Mineral rights (28,555) (28,555) (106,300)
Purchase of Website costs - - (26,019)
Purchase of Fixed assets - - (19,205)
------------ ------------ ------------
NET CASH (USED) BY
INVESTING ACTIVITIES (28,555) (28,555) (151,524)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in advances 143,534 143,534 143,534
Sale of Common stock - - 174,000
------------ ------------ ------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 143,534 143,534 317,534
------------ ------------ ------------
NET INCREASE IN CASH 27,187 27,187 34,573
CASH FROM OTISH DIAMOND COMPANY MERGER - - 192
CASH AT BEGINNING OF PERIOD 7,578 7,578 -
------------ ------------ ------------
CASH AT END OF PERIOD $ 34,765 $ 34,765 $ 34,765
============ ============ ============
See accompanying notes to financial statements.
OTISH MOUNTAIN DIAMOND COMPANY AND SUBSIDIARY.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2004
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
HISTORY
- -------
Otish Mountain Diamond Company (formerly First Cypress, Inc.), a Nevada
corporation, was organized on September 14, 1999. From inception to September
30, 2003, the Company has not generated any revenues and is considered a
development stage enterprise, as defined in Financial Accounting Standards Board
No. 7. The Company was in the process of developing an internet computer
software program known as EngineMax. Essentially, software development was
suspended in November 2002 due to cash flow constraints. In October 2002, the
Company acquired certain items constituting the "Money Club Financial" business
concept and business plan. Due to the Company's inability to raise the necessary
equity capital to further the Money Club Financial business concept, no monies
were spent furthering the business concept from the date of acquisition to
September 30, 2003. The Company discontinued its involvement in these
operations in the third quarter of 2003.
On November 30, 2003, the Company successfully acquired 100% of Otish Mountain
Diamond Corp. ("Otish Corp."). The business activities of Otish Corp. became the
business activities of the Company. In connection with the merger the
capitalization of the Company was amended to reflect a 220:1 reverse stock split
and to increase the authorized capital to 600,000,000 shares, consisting of
500,000,000 common shares with a par value of $0.001, and 100,000,000 preferred
shares with a par value of $0.001. Also, 1,000,000 shares of a Serial A
Preferred were issued for services rendered. Finally, the then president of the
Company entered into two agreements with the Company; one, assumed all the known
liabilities of the company, and the second, agreed to convert debt owed the
president of $236,000 into 236,000 shares of Company common stock.
The Company's income statement at the date of merger was as follows:
Revenues $ -0-
Expenses:
Exploration costs 36,293
Administrative 136,284
Net Loss $172,577
OTISH MOUNTAIN DIAMOND COMPANY AND SUBSIDIARY.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2004
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
- ------------------------------------------------------------------------
Otish Mountain Diamond Corp. was incorporated in the state of Nevada on August
4, 2003. The Company is in the mining and exploration business and has mineral
rights in the Otish Mountain and Superior Craton regions of Canada. The
Company's business plan includes the expansion of its mineral rights and the
mining of diamonds.
In August and November 2003, the Company issued 3,000,000 shares of its common
stock and paid $77,745 for mineral rights in the Otish Mountain and Superior
Craton regions of Quebec, Canada.
In the first quarter of 2004 the Company issued 20,300,050 share of common stock
for services valued at $5,180,053. Valuation was based on the approximate
trading value of the Company's shares on the date issued.
FINANCIAL STATEMENT PRESENTATION
- ----------------------------------
The Company was a shell at the time of the acquisition having only $192 in
assets; the acquisition was treated as a reverse merger whereby the acquired
company is treated as the acquiring company for accounting purposes. Since
Otish Corp., the acquired company was incorporated in August 2003; no
comparative financial statements are presented.
AN EXPLORATION STAGE COMPANY
- ----------------------------
The Company is an Exploration Stage Company since it is engaged in the search
for mineral deposits, which are not in the development or productions stage. As
an exploration stage company the Company will present, Since Inception, results
on its statements of operations, stockholders' equity and cash flows.
CASH AND CASH EQUIVALENTS
- ----------------------------
For purposes of the statement of cash flows, the Company considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents. There was no cash paid during the periods for interest or
taxes.
OTISH MOUNTAIN DIAMOND COMPANY AND SUBSIDIARY.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2004
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
- ------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
- ----------------------
Property and equipment are carried at cost. Maintenance, repairs and renewals
are expensed as incurred. Depreciation of property and equipment is provided
for over their estimated useful lives, which range from three to five years,
using the straight-lined method.
WEBSITE DEVELOPMENT COSTS
- ---------------------------
The Company has expended $26,019 in website development costs through December
31, 2003 for internal use software. These cost are being amortized over a three
year estimated life.
MINERAL RIGHTS
- ---------------
The Company uses the "full costs method" of accounting for its mineral reserves.
Under this method of accounting, properties are divided into cost centers. The
Company presently has two cost centers. All acquisition, exploration, and
development costs for properties within each cost center are capitalized when
incurred. The Company intends to deplete these costs equally over the estimated
units to be recovered from the properties.
USE OF ESTIMATES
- ----------------
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION
- ------------------------------
The Company's primary functional currency is the Canadian dollar. For financial
statement presentation the statements are translated in U.S. dollars. Monetary
assets and liabilities are translated at year-end exchange rates while
non-monetary items are translated at historical rates. Income and expense
accounts are translated at the average rates in effect during the period, except
for depreciation, which is translated at historical
OTISH MOUNTAIN DIAMOND COMPANY AND SUBSIDIARY.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2004
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
- ------------------------------------------------------------------------
rates. Therefore, translation adjustments and transaction gains or losses are
recognized in the income in the period of occurrence.
NOTE 2 - MINERAL RIGHTS
- ---------------------------
Otish Mountain Diamond Company
April 16, 2003, the Company entered into an option agreement whereby it acquired
an exclusive option to purchase a 70% undivided interest in the Eddy mineral
claims (the "Eddy Claim") in the Fort Steele Mining District of British
Columbia, Canada. The issuance of common shares and exploration expenditures
under this agreement are as staged as follows:
Shares Expenditures
On original agreement (issued) 200,000 $ -0-
Pre reverse split shares
Before April 16, 2004 150,000 75,000
Before April 16, 2005 150,000 150,000
Before April 16, 2006 150,000 250,000
Before April 16, 2007 0 300,000
650,000 $775,000
Otish Mountain Diamond Corporation
On August 19, 2003 the Company purchased the mineral rights for 60,933 acres in
the Otish Mountain and Superior Craton regions of Quebec, Canada. The claims
were purchased for $42,506 and 1,250,000 shares of common stock. The Company is
required to spend a minimum of $135 CDN per mining claim on exploration before
the expiration date of each claim. The Company is required to spend $105 CDN
per claim maintenance/renewal fee to the appropriate governmental authority
before the expiration date of the mining claim. If the Company fails to meet
its obligations under this agreement the seller has the option to make the
expenditures and to reassume title to the mining claims.
On November 4, 2003 the Company purchased the mineral rights for 775 acres in
the Otish Mountain region of Quebec, Canada. The Claims were purchased for
$1,855 and
OTISH MOUNTAIN DIAMOND COMPANY AND SUBSIDIARY.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2004
NOTE 2 - MINERAL RIGHTS - CONTINUED
- -----------------------------------------
250,000 shares of common stock. The Company is required to pay a 2% royalty of
the net smelter returns and a 2% royalty on the gross overriding royalty as
defined in the agreement. The Company shall also pay to the seller $5,000 CDN
minimum annual advance royalty beginning on November 1, 2004 and each year
thereafter. The Company is also required to keep the property in good standing
for 1 year or the seller shall be entitled to reacquire the claims.
On November 4, 2003 the Company entered into a joint venture agreement for the
mineral rights for 15,361 acres in the Otish Mountain region of Quebec, Canada.
The investment was $33,383 and 1,500,000 shares of common stock. The Company
has paid the required claim tax/renewal fees of $12,495 CDN by the due date of
November 27, 2003. The Company is required to make a minimum advanced royalty
payment of $15,000 CDN by January 20, 2004. Royalties are subject to underlying
royalties of 2% of the net smelter returns and 2% of the gross overriding
royalty as defined in the agreement. The Company total outlay for the joint
venture shall not exceed $375,000 CDN. The Company owns 45% of the joint
venture.
At present the Company has no proven properties.
NOTE 3 - ADVANCES
- --------------------
The advances are funds raised by management for the Company. It is the
Company's intention to convert these funds into shares of common stock during
the second quarter of 2004.
NOTE 4 - SERIES A PREFERRED STOCK
- ---------------------------------------
Each share of preferred outstanding at March 31, 2004 has 15 votes compared to
each share of common, which has only one vote per share.
NOTE 5 - RELATED PARTIES
- ----------------------------
The Company owes the President and shareholder of the Company $32,630 for
compensation and expense reimbursement at March 31, 2004.
The Company has entered into an executive employment agreement with this
individual. The agreement is for the term of 1 year and calls for compensation
of $5,000 CDN per
OTISH MOUNTAIN DIAMOND COMPANY AND SUBSIDIARY.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 2004
NOTE 5 - RELATED PARTIES CONTINUED
- ---------------------------------------
month, four weeks of vacation, a $3,000 CDN a month housing allowance, and an
automobile.
NOTE 6 - COMMITMENTS
- -----------------------
The Company has entered into a six-month apartment lease that ends on April 9,
2004. The lease calls for monthly payments of $2,700 CDN. The apartment is
used as a residence by the President of the Company. Future lease payments
through April 2004 are $10,800 CDN.
NOTE 7 - GOING CONCERN
- --------------------------
The Company has not generated significant revenues or profits to date. This
factor among others may indicate the Company will be unable to continue as a
going concern. The Company's continuation as a going concern depends upon its
ability to generate sufficient cash flow to conduct its operations and its
ability to obtain additional sources of capital and financing. The accompanying
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THIS REPORT CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THE COMPANY'S ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE SET FORTH ON THE FORWARD LOOKING STATEMENTS AS A
RESULT OF THE RISKS SET FORTH IN THE COMPANY'S FILINGS WITH THE SECURITIES AND
EXCHANGE COMMISSION, GENERAL ECONOMIC CONDITIONS, AND CHANGES IN THE ASSUMPTIONS
USED IN MAKING SUCH FORWARD LOOKING STATEMENTS.
OVERVIEW
Otish Mountain Diamond Company was originally incorporated in Nevada under
the name First Cypress Technologies, Inc. ("First Cypress") on September 14,
1999. The Company has not generated any revenues since inception. The Company
was in the process of developing an internet computer software program known as
EngineMax. The Company suspended software development in November 2002 due to
cash flow restraints. In October 2002, the Company acquired certain items
constituting the "Money Club Financial" business concept, but due to the
Company's inability to raise additional capital to further the business concept,
the Company discontinued these operations in the third quarter of 2003. The
Company is currently engaged in diamond exploration activities in the Otish
Mountain area of Northern Quebec, Canada through its wholly-owned subsidiary,
Otish Mountain Diamond Corp., a Nevada corporation (hereinafter "Otish Corp.").
The Company's business plan includes the expansion of its mineral rights and the
mining of diamonds. The Company is in its exploration stage as it is engaged in
the search for mineral deposits.
In October 2003, the Company changed its name to Otish Mountain Diamond
Company in anticipation of the acquisition of Otish Corp., discussed below.
Otish Corp. was incorporated in the State of Nevada on August 4, 2003.
In October 2003, the Company issued 1,000,000 shares of Series A Preferred
Stock, that are entitled to fifteen (15) votes per shares (or an aggregate of
15,000,000 votes) to Philipp Buschmann. Control of the Company shifted to Mr.
Buschmann at that time. The Series A Preferred Stock is redeemable at $.05 per
share (or $50,000). The Company plans to enter into negotiations with Mr.
Buschmann concerning the redemption of the Series A Preferred Stock.
In November 2003, the Company, Otish Corp. and the former Otish Corp.
shareholders entered into an Exchange Agreement (the "Exchange" or
"Acquisition") whereby the Company acquired 100% of the issued and outstanding
shares of Otish Corp. in exchange for 15,000,000 shares of the Company's common
stock. The Company also paid $77,745 for mineral rights in the Otish Mountain
and Superior Craton regions of Quebec, Canada.
During the first quarter of 2004, the Company issued 20,300,050 shares of
its common stock for an aggregate of $5,180,053 for consulting services in
connection with mergers and acquisitions. 20,000,000 of these shares were issued
pursuant to the Company's 2004 Non-Qualified Stock Option Plan. The value of the
issuances was based on the approximate trading value of the Company's common
stock on the date issued.
Otish Mountain Diamond Company, a Nevada corporation, herein being referred
to as the "Company" owns one hundred percent (100%) of Otish Corp. A reference
herein to the Company includes a reference to Otish Corp. and vice-versa unless
otherwise provided.
In October 2002, the Company completed a 5:1 forward stock split of its
issued and outstanding common stock. In October, 2003, the Company completed a
1:200 reverse stock split of its issued and outstanding common stock. The
effects of both stock splits have been retroactively reflected in this report on
Form 10-QSB unless otherwise stated.
The Company's functional currency is the Canadian Dollar. For financial
statement presentation purposes the statements have been translated into U.S.
Dollars. All of the monetary values reflected herein are in U.S. Dollars unless
otherwise stated.
Subsequent Events
-----------------
The Company owned an option to purchase a 70% undivided interest in the
Eddy Mineral Claims in the Fort Steele Mining District of British Columbia,
Canada. Note 2, Notes to Financial Statements, provides further detail regarding
the Company's obligations with respect to the Eddy Mineral Claims. Exploration
expenditures of $75,000 and the issuance of 150,000 shares of the Company's
common stock became due on the Eddy Mineral Claims on April 16, 2004. The
Company abandoned the Eddy Mineral Claims and did not incur the exploration
expenditures or issue the shares. The Company's option on the Eddy Mineral
Claims has expired.
PLAN OF OPERATION
Otish Mountain Diamond Company is engaged in diamond exploration activities
in the Otish Mountain area of Northern Quebec, Canada. The Company is in its
exploration stage as it is engaged in the search for mineral deposits. From
inception to March 31, 2004, the Company has not generated any revenues.
On August 19, 2003, the Company purchased the mineral rights for 60,933
acres in the Otish Mountain and Superior Craton regions of Quebec, Canada. The
claims were purchased for $42,506 and 1,250,000 shares of common stock. The
Company is required to spend a minimum of $135 CDN per mining claim on
exploration before the expiration date of each claim. The Company is required to
spend a minimum of $135 CDN per mining claim on exploration before the
expiration date of each claim. The Company is required to spend $105 CDN per
claim maintenance/renewal fee to the appropriate governmental authority before
the expiration date of the mining claim. If the Company fails to meet its
obligations under this agreement the seller has the option to make the
expenditures and to reassume title to the mining claims.
On November 4, 2003 the Company purchased the mineral rights for 775 acres
in the Otish Mountain region of Quebec, Canada. The claims were purchased for
$1,855 and 250,000 shares of common stock. The Company is required to pay a 2%
royalty of the net smelter returns and a 2% royalty on the gross overriding
royalty as defined in the agreement. The Company shall also pay to the seller
$5,000 CDN minimum annual advance royalty beginning on November 1, 2004 and each
year thereafter. The Company is also required to keep the property in good
standing for 1 year or the seller shall be entitled to reacquire the claims.
On November 4, 2003 the Company entered into a joint venture agreement with
Miranda Gold Corp. whereby the Company acquired a 45% interest in the Lac Leran
exploration project which comprises approximately 15,361 acres, also in the
Otish Mountain region of Quebec, Canada. The investment was $33,383 and
1,500,000 shares of the Company's common stock. The Company paid the required
claim tax/renewal fees of $12,495 CDN by their due date of November 27, 2003.
The Company paid a minimum advanced royalty payment of $15,000 CDN with respect
to Lac Leran. Royalties are subject to underlying royalties of 2% of the net
smelter returns and 2% of the gross overriding royalty as defined in the
agreement. Under the terms of the agreement, the Company's total outlay for the
joint venture will not exceed $375,000 CDN.
Hereinafter the mineral rights acquired in the Otish Mountain or Superior
Craton regions of Quebec, Canada, including the joint venture in Lac Leran, are
collectively referred to as the "Otish Mountain Claims."
The Company believes that it can satisfy its cash requirements until
September 30, 2004. It is imperative that the Company raise additional capital
for the ongoing exploration work on the Otish Mountain Claims. The Company will
require an aggregate of $350,000 of additional financing within the next twelve
months for its exploration program and for administrative expenses. At this
time, no other additional financing has been secured or identified. The Company
does not have any commitments for additional financing. The Company has no
commitments from officers, directors or affiliates to provide funding. There can
be no assurance that any new capital will be available to the Company or that
adequate funds will be sufficient for Company operations, whether from the
Company's financial markets or private sources, or that other arrangements will
be available when needed or on terms satisfactory to the Company. If adequate
funds are not available to the Company on acceptable terms, the Company will
have to delay, curtail or scale back some or all of its operations.
The Company is conducting a two-year diamond exploration program in the
Otish Mountain area of Northern Quebec with respect to the Otish Mountain
Claims. The Company estimates that the cost of the exploration program,
including the costs to purchase additional mining claims, will be $350,000. The
exploration program is past the first stage. After conducting extensive aerial
surveys on 75,000 acres of mining claims, several geophysical anomalies have
been identified. Ground samples will be collected during the months of June and
July, when snow melts in the Northern part of the Province of Quebec. In the
meantime, there has been a renewed interest for diamond exploration in the area.
Ashton Mining of Canada and SOQUEM Inc. are investing in a feasibility study for
a potential diamond mine on their Foxtrot property which is located 25 miles
west of our Lac Leran joint venture project.
During the next twelve months there are no expected purchases or sales of
plant and significant equipment. The Company does not expect any significant
changes in the number of employees during the next twelve months.
OPERATING RESULTS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2004
The Company was a shell at the time of the Acquisition having only $192 in
assets; the acquisition was treated as a reverse merger whereby the acquired
company is treated as the acquiring company for accounting purposes. Since Otish
Corp., the acquired company was incorporated in August 2003; and no comparative
financial statements are presented.
The Company's functional currency is the Canadian Dollar. For financial
statement presentation purposes the statements have been translated into U.S.
Dollars. All of the monetary values reflected herein are in U.S. Dollars unless
otherwise stated.
The Company is in its exploration stage as it is engaged in the search for
mineral deposits. The Company has not generated any revenues since inception.
The Company incurred exploration costs of $70,942 for the three months
ended March 31, 2004. The Company incurred administrative expenses of $5,230,777
for the three months ended March 31, 2004. The administrative expenses were
principally attributable to the issuance of 20,300,050 shares of the Company's
common stock for an aggregate $5,180,053 of various services including financial
and consulting services, introductions for land acquisitions, and business
development. 20,000,000 of these shares were issued pursuant to the Company's
2004 Non-Qualified Stock Option Plan. The value of the issuances was based on
the approximate trading value of the Company's common stock on the date issued.
The Company incurred a net loss of $5,302,298 for the three months ended
March 31, 2004. The net loss was due to $70,942 of exploration costs and
$5,230,777 of administrative expenses principally attributable to the issuance
of 20,300,050 shares of the Company's common stock, discussed above. The
expenses were offset by $579 of foreign exchange gain.
As of March 31, 2004, the Company had an accumulated deficit of $5,397,603
which was principally attributable to the non-cash payment of 20,300,050 shares
of the Company's common stock in exchange for consulting services, discussed
above.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2004, the Company had cash of $34,765, which was its only
current asset. The Company had total current liabilities of $70,463 which
consisted of accounts payable of $6,288 and accrued expenses of $64,175. The
Company had negative working capital of $35,698. The ratio of current assets to
current liabilities was 49%.
The Company had negative cash flows from operations of $87,792 during the
three months ended March 31, 2004. This was primarily due to a net loss of
$5,302,298 which was offset by positive adjustments of $1,047 for depreciation
and $2,205 for amortization, $5,180,053 for services paid for by stock, and a
$42,928 increase in accrued expenses. Accounts payable decreased by $11,727
during the three month period ended March 31, 2004, which constituted an
additional use of cash.
During the three months ended March 31, 2004, the Company used $28,555 of
cash to purchase mineral rights for investment purposes.
The Company had $143,534 of cash provided by financing activities. This
cash came from increases in advances from two unrelated entities. The Company is
obligated to issue 1,435,340 restricted shares in exchange for these advances.
As of the date of this report, the Company has not issued any of the restricted
shares.
In November 2003, Robert Rosner, the Company's former President, entered
into an agreement with the Company, whereby Mr. Rosner agreed to convert debt of
approximately $232,120 into 232,120 shares of Company common stock. As of March
31, 2004, the Company had not issued Mr. Rosner the shares of common stock.
During the next two (2) years, the Company needs to obtain an aggregate of
$350,000 to conduct its mining exploration activities on the Otish Mountain
Claims and to purchase additional mining claims. If, as a result of the
exploration, the Company discovers an economic deposit of rough diamonds, the
Company will execute a feasibility plan for the development of a mining
operation, at which time the Company will need $5,000,000 of additional funding
to execute the plan and develop the mining operation. In the event that, after
completion of the exploration program, the Company has not discovered an
economic deposit of rough diamonds, the Company will consider other high
potential exploration projects. At such time, the Company will need $200,000 of
additional financing for such exploration projects.
The Company raised $300,000 from three entities and an individual in
October 2003 for exploration on the Otish Mountain Diamond Claims. During 2004,
the Company raised an additional $143,534 from two unrelated entities, discussed
above.
The Company is in continued discussions with several parties to raise
additional capital. The Company does not have any commitments for additional
financing. The Company has no commitments from officers, directors or affiliates
to provide funding. There can be no assurance that any new capital will be
available to the Company or that adequate funds will be sufficient for Company
operations, whether from the Company's financial markets, or other arrangements
will be available when needed or on terms satisfactory to the Company. If
adequate funds are not available to us on acceptable terms, we will have to
implement our exploration program and feasibility plan on a smaller scale or, in
the event that we do not discover an economic deposit of rough diamonds on the
Otish Mountain Claims, forgo engaging in high potential exploration projects.
Even if we are able to fully implement our exploration program and feasibility
plan, the failure to obtain adequate financing may require the Company to delay,
curtail or scale back some or all of its operations. In the event that we do not
discover an economic deposit of rough diamonds on the Otish Mountain Claims and
do not obtain adequate financing to engage in high potential exploration
projects, we will cease operations.
The Company currently has a 1-year lease for 300 square feet of office
space located at One Penn Plaza, Suite 3600, 250 West 34th Street, New York, NY,
10119. The current lease commitment is US$500 per month. The Company also has a
1-year lease for 300 square feet of office space located at 1000 de la
Gauchetiere West, Suite 2400, Montreal, H3B 4W5 Canada. The current lease
commitment, which varies depending on use of the office space, is an average of
CDN$400 per month.
RISK FACTORS
Inherent Risk. The mineral exploration program is inherently risky. The
Company designed the exploration program to continue for two years in search of
an economic deposit of rough diamonds on the Otish Mountain Claims. The Company
estimates that its exploration program, including the purchase of additional
mining claims, will cost approximately $350,000 in capital resources. In October
2003, the Company raised $300,000 from three entities and an individual,
collectively, for 3,000,000 shares of its common stock. During 2004, the Company
raised an additional $143,534 from two unrelated entities, to which the Company
is obligated to issue, but has not yet issued, 1,435,340 restricted shares. The
Company will need to raise approximately $200,000 to complete its program. There
is no assurance that financing will be available on favorable terms, if at all,
and the issuance of any new securities is likely to have a dilutive effect on
current shareholders. If, at the completion of the exploration program, we have
not discovered an economic deposit of rough diamonds on the Otish Mountain
Claims, it would have a materially adverse effect upon our ability to conduct
future exploration on the property or any other property and our ability to
continue as a going concern.
Risk That We Do Not Meet Our Obligations Under Various Agreements. We
have purchased the mineral rights for acreage in the Otish Mountain region of
Quebec, Canada, which requires us to make minimum payments pursuant to various
agreements. In the event the Company does not satisfy its obligations pursuant
to such agreements, the sellers are entitled to reacquire the claims.
Dependence on External Financing. In the event that the Company discovers
an economic deposit of rough diamonds on Otish Mountain Claims, the Company will
need approximately $2 million of additional financing, if not more, to execute a
feasibility plan for the development of a mining operation on the property. If
we are unable to raise this capital, it would have a materially adverse effect
upon our ability to continue as a going concern.
Reliance on Key Management. Our success is highly dependent on the
competency and dedication of our key management team that consists of the
following three people: 1) Massimiliano Pozzoni, President and Chief Executive
Office; 2) Ben Carter, member of the board; and 3) Jim Chapman, member of the
board. Effective September 1, 2003, the Company entered into an Employment
Agreement with Mr. Pozzoni for his services as Chief Executive Officer and
President. If either Mr. Pozzoni, Mr. Carter or Mr. Chapman were to leave us,
it could have a materially adverse effect upon our business and operations.
Dependence on Favorable Weather Conditions. The timely completion of our
exploration program within the estimated budget is dependent upon our forecast
of unfavorable weather conditions in the Otish Mountain area of Quebec, Canada.
Rain storms, snow storms, cloudy skies and adverse magnetic storms could hinder
part of the preliminary exploration program. We forecast that the weather could
be unfavorable during 30% of the calendar year. If the aggregate duration of
unfavorable weather conditions within the two-year period of time intended for
the exploration program is not within our forecast, it would have a materially
adverse effect upon our ability to complete the exploration program on a timely
basis within the estimated budget.
Our Auditors Have Expressed Substantial Doubt About Our Ability to Continue
As a Going Concern. Pollard-Kelley Auditing Services, Inc., in their independent
auditors' report, have expressed "substantial doubt" as to our ability to
continue as a going concern based on operating losses we have incurred since
inception. Our financial statements do not include any adjustments that might
result from the outcome of that uncertainty. The going concern qualification is
also described below under the heading "Critical Accounting Policies."
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of
operations is based upon our financial statements, which have been prepared in
accordance with accounting principals generally accepted in the United States.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of any contingent assets and liabilities. On an
on-going basis, we evaluate our estimates, including those related to
uncollectible receivable, investment values, income taxes, the recapitalization
and contingencies. We base our estimates on various assumptions that we believe
to be reasonable under the circumstances, the results of which form the basis
for making judgments about carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
We believe the following critical accounting policy affects our more
significant judgments and estimates used in the preparation of our financial
statements:
Going Concern. The Company is in its exploration stage as it is in search
of mineral deposits and has not found any proven or probable reserves. The
Company has not generated any revenues or profits to date. These factors among
others indicate that the Company may be unable to continue as a going concern,
particularly in the event that it cannot obtain additional financing to continue
its exploration for proven or probable reserves, as discussed in "Item 2.
Management's Discussion and Analysis or Plan of Operation" under the headings
"Liquidity and Capital Resources" and "Risk Factors." The Company's continuation
as a going concern depends upon its ability to generate sufficient cash flow to
conduct its operations and its ability to obtain additional sources of capital
and financing. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Mineral Rights. The Company uses the "full costs method" of accounting for
its mineral reserves. Under this method of accounting, properties are divided
into cost centers. The Company presently has two cost centers. All acquisition,
exploration, and development costs for properties within each cost center are
capitalized when incurred. The Company intends to deplete these costs equally
over the estimated units to be recovered from the properties. The Company has
capitalized $177,550 of mineral rights. The Company has not taken a valuation
allowance regarding the possibility that it may not be able to recover any of
these costs considering the facts that it has not found any proven or probable
reserves and is in need of additional financing. If the Company does not find
such reserves and/or does not receive additional financing, it would have a
material adverse effect on the Company's ability to recover the costs of the
mineral rights.
Foreign Currency Translation. The Company's primary functional currency is
the Canadian Dollar. For financial statement presentation the statements are
translated in U.S. dollars. Monetary assets and liabilities are translated at
year-end exchange rates while non-monetary items are translated at historical
rates. Income and expense accounts are translated at the average rates in effect
during the period, except for depreciation, which is translated at historical
rates. Therefore, translation adjustments and transaction gains or losses are
recognized in the income in the period of occurrence. The Company recognized a
foreign exchange gain during the period ended March 31, 2004, however, due to
fluctuations in the price of the Canadian Dollar relative to the U.S. Dollar,
the Company could recognize a foreign exchange loss in the future.
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Our chief executive
officer and chief financial officer, after evaluating the effectiveness of the
Company's "disclosure controls and procedures" (as defined in the Securities
Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period
covered by this quarterly report (the "Evaluation Date"), has concluded that as
of the Evaluation Date, our disclosure controls and procedures were adequate and
designed to ensure that material information required to be disclosed by the
Company in the reports that it files or submits under the Exchange Act of 1934
is 1) recorded, processed, summarized and reported, within the time periods
specified in the Commission's rules and forms; and 2) accumulated and
communicated to him as appropriate to allow timely decisions regarding required
disclosure..
(b) Changes in internal control over financial reporting. There were no
significant changes in our internal control over financial reporting during our
most recent fiscal quarter that materially affected, or were reasonably likely
to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
(c) On March 18, 2004, the Company issued 50 shares of its common stock,
$.001 par value per share which were not registered under the Securities Act of
1933, as amended (the "Act") to Locke B. Goldsmith pursuant to an Option
Agreement that the Company entered into with Mr. Goldsmith to acquire a 100%
interest in the Cahill Mineral Claims, which option agreement the Company has
since allowed to expire unexercised. The Company claims an exemption from
registration pursuant to Section 4(2) of the Act since the foregoing issuance
did not involve a public offering, the recipient had access to information that
would be included in a registration statement, took the shares for investment
and not resale and the Company took appropriate measures to restrict transfer.
During the period covered by this report, two unrelated entities advanced
the Company $143,534. The Company is obligated to issue, but has not yet issued,
an aggregate of 1,435,340 restricted shares of the Company's common stock to
these two entities. The Company will claim an exemption from registration
pursuant to Section 4(2) of the Act since the foregoing issuances will not
involve a public offering, the recipients will have access to information that
would be included in a registration statement, will take the shares for
investment and not resale and the Company will take appropriate measures to
restrict transfer.
In November 2003, the Company and Robert Rosner entered an agreement for
Mr. Rosner to exchange $232,120 of indebtedness that the Company owed to Mr.
Rosner for restricted 232,120 shares of the Company's common stock, $.001 par
value per share, which the Company has not issued, in consideration and full
satisfaction of such debt. The Company is obligated to issue 232,120 shares of
its common stock which will not be registered under the Act to Mr. Rosner
pursuant to the agreement. The Company will claim an exemption from registration
pursuant to Section 4(2) of the Act since the foregoing issuance will not
involve a public offering, the recipient will have access to information that
would be included in a registration statement, will take the shares for
investment and not resale and the Company will take appropriate measures to
restrict transfer.
ITEM 5. OTHER INFORMATION
Subsequent Event
----------------
Exploration expenditures of $75,000 and the issuance of $150,000 became due
on the Eddy Mineral Claim on April 16, 2004. The Company abandoned the Eddy
Mineral Claim and did not incur the exploration expenditures or issue the
shares. The Company's option on the Eddy Mineral Claims expired unexercised.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit No. Description
4.1 Consulting Services Agreement with
Maris Lee McCance Price (1)
4.2 2004 Non-Qualified Stock Option Plan (2)
5.1 Opinion and consent of David M. Loev,
Attorney at Law re: the legality of
the shares being registered dated
January 21, 2004 (1)
5.2 Opinion and consent of David M. Loev,
Attorney at Law re: the legality of
the shares being registered dated
February 18, 2004 (2)
23.1 Consent of David M. Loev, Attorney
at Law (included in Exhibit 5.1) (1)
23.2 Consent of BDO Dunwoody LLP,
Chartered Accountants dated January 20, 2004 (1)
23.3 Consent of Pollard-Kelley Auditing
Services, Inc. dated January 21, 2004 (1)
23.4 Consent of David M. Loev, Attorney
at Law (included in Exhibit 5.2) (2)
23.5 Consent of BDO Dunwoody LLP,
Chartered Accountants dated
February 18, 2004 (2)
23.6 Consent of Pollard-Kelley Auditing
Services, Inc. dated February 17, 2004 (2)
31 Certificate of the Chief Executive
Officer and Chief Financial Officer
pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002 *
32 Certificate of the Chief Executive
Officer and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002 *
(1) Filed as Exhibits 5.1, 23.1, 23.2 and 23.3 to the Form S-8 Registration
Statement filed with the Securities and Exchange Commission on January 21, 2004,
and incorporated herein by reference.
(2) Filed as Exhibits 5.1, 23.1, 23.2 and 23.3 to the Form S-8 Registration
Statement filed with the Securities and Exchange Commission on February 18,
2004, and incorporated herein by reference.
* Filed Herein.
b) REPORTS ON FORM 8-K
The Company filed the following report on Form 8-K during the quarter for
which this report filed: Form 8-K/A filed on January 2, 2004, to amend the Form
8-K filed on December 3, 2003, to report audited financial information of Otish
Mountain Diamond Corp. The Company provided an audited Balance Sheet of Otish
Mountain Diamond Corp. as of November 30, 2003, and the related Statement of
Operations, Statement of Stockholders' Equity, and Statement of Cash Flows for
the period then ended. The Company also provided an unaudited Pro-Forma
Consolidated Balance Sheet as of September 30, 2003.
SIGNATURES
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.
OTISH MOUNTAIN DIAMOND COMPANY
DATED: May 24, 2004 By: /s/ Massimiliano Pozzoni
------------------------
Massimiliano Pozzoni
Chief Executive Officer and
Chief Financial Officer
EXHIBIT 31
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Massimiliano Pozzoni, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Otish Mountain
Diamond Company.
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the small business
issuer as of, and for, the periods presented in this report;
4. As the small business issuer's certifying officer, I am responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and
have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under my supervision, to
ensure that material information relating to the small business issuer,
including its consolidated subsidiaries, is made known to me by others within
those entities, particularly during the period in which this report is being
prepared;
b) Paragraph omitted in accordance with SEC transition instructions
contained in SEC Release No. 33-8238;
c) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this report my conclusions
about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the small
business issuer's most recent fiscal quarter (the small business issuer's fourth
fiscal quarter in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the small business issuer's internal
control over financial reporting; and
5. I have disclosed, based on my most recent evaluation of internal control
over financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the small business issuer's ability to record,
process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the small business issuer's
internal control over financial reporting.
Date: May 24, 2004
By: /s/ Massimiliano Pozzoni
-------------------------------
Massimiliano Pozzoni,
Chief Executive Officer and
Chief Financial Officer
EXHIBIT 32
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
I, Massimiliano Pozzoni, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly
Report of Otish Mountain Diamond Company on Form 10-QSB for the quarterly period
ended March 31, 2004 fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934 and that information contained in
such Form 10-QSB fairly presents in all material respects the financial
condition and results of operations of Otish Mountain Diamond Company.
Date: May 24, 2004
By: /s/ Massimiliano Pozzoni
-------------------------------
Massimiliano Pozzoni,
Chief Executive Officer and
Chief Financial Officer