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EX-31.1 - DIAMOND DISCOVERIES INTERNATIONAL CORPv208381_ex31-1.htm
EX-32.1 - DIAMOND DISCOVERIES INTERNATIONAL CORPv208381_ex32-1.htm
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
x
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
For the quarterly period ended September 30, 2009.
   
o
TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
   
 
For 1934 for the transition period from                 to                .
   
Commission file number 000-31585

DIAMOND DISCOVERIES INTERNATIONAL CORP.
(Exact name of small business issuer as specified in its charter)

Delaware
06-1579927
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)

45 Rockefeller Plaza, Suite 2000
New York, NY 10111
(Address of principal executive offices)

(212) 332-8016
(Issuer’s telephone number)
 
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 past 90 days. Yes o No  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer  o                       Accelerated filer o    Non-accelerated filer  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
 Yes  o  No  x

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court  Yes  o  No  o

APPLICABLE ONLY TO CORPORATE ISSUERS

The number of shares outstanding of Registrant’s common stock, as of January __, 2011 is 401,491,830.

Transitional Small Business Disclosure Format (check one): Yes  o  No  x
 
 
 
 

 
 
PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

DIAMOND DISCOVERIES INTERNATIONAL CORP.
(An Exploration Stage Company)

CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2009 and December 31, 2008
(Unaudited)

   
Sept. 30,
   
Dec. 31,
 
   
2009
   
2008
 
ASSETS
           
Current assets
           
Cash
  $ 9,938     $ 33,848  
Other current assets
           
      9,938       33,848  
                 
Property and equipment, net
           
Other assets
    235,538       222,775  
                 
Total
  $ 245,476     $ 256,623  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
               
Liabilities:
               
Notes payable
  $ 1,437,119     $ 1,264,529  
Accounts payable
    206,996       198,659  
Other current liabilities
          175,000  
Advances from stockholders
    246,533       202,874  
      1,890,648       1,841,062  
                 
Total liabilities
    1,890,648       1,841,062  
                 
Commitments and contingencies
               
                 
Stockholders’ deficiency:
               
Preferred stock, par value $.001 per share; 20,000,000 shares authorized; none issued
           
Common stock, par value $.001 per share; 480,000,000 shares authorized; 401,491,830 and 383,991,830 shares issued and outstanding at September 30, 2009 and December 31, 2008, respectively
    401,492       383,992  
Additional paid-in capital
    17,218,641       17,061,141  
Deficit accumulated during the exploration stage
    (18,460,275 )     (18,376,483 )
Accumulated other comprehensive income (loss)
    (805,030 )     (646,584 )
Unearned compensation
          (6,505 )
                 
Total stockholders’ deficiency
    (1,645,172 )     (1,584,439 )
                 
Total
  $ 245,476     $ 256,623  

See Notes to Condensed Consolidated Financial Statements.

 
2

 

DIAMOND DISCOVERIES INTERNATIONAL CORP.
(An Exploration Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 AND PERIOD
FROM APRIL 24, 2000 (DATE OF INCEPTION) TO SEPTEMBER 30, 2009
(Unaudited)

   
Nine Months
Ended Sept. 30,
   
Three Months
Ended Sept. 30,
       
   
2009
   
2008
   
2009
   
2008
   
Cumulative
 
                               
Revenues
  $     $     $     $     $  
                                         
Operating expenses:
                                       
Exploration costs
    8,549             8,549             3,962,278  
Reimbursements of exploration costs
                            (1,549,438 )
Exploration costs, net of reimbursements
    8,549             8,549             2,412,840  
General and administrative expenses
    75,243       547,780       1,744       141,685       16,346,322  
Totals
    83,792       547,780       10,293       141,685       18,759,162  
                                         
Operating loss
    (83,792 )     (547,780 )     (10,293 )     (141,685 )     (18,759,162 )
                                         
Other income (expenses)
                                       
Gain on modification of debt
                            1,193,910  
Interest expense
                            (895,023 )
                                         
Net loss
  $ (83,792 )   $ (547,780 )   $ (10,293 )   $ (141,685 )   $ (18,460,275 )
                                         
Basic net loss per common share
  $     $     $     $          
                                         
Basic weighted average common shares Outstanding
    395,722,599       362,057,158       401,491,830       363,966,830          

See Notes to Condensed Consolidated Financial Statements.

 
3

 
 
DIAMOND DISCOVERIES INTERNATIONAL CORP.
(An Exploration Stage Company)
 
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
NINE MONTHS ENDED SEPTEMBER 30, 2009 AND PERIOD FROM APRIL 24, 2000
(DATE OF INCEPTION) TO SEPTEMBER 30, 2009
 
   
Preferred stock
   
Common stock
   
Additional
paid-in
   
Deficit
Accumulated
during the
exploration
   
Accumulated
other
comprehensive
income
   
Subscriptions
receivable
   
Unearned
       
   
Shares
   
Amount
   
Shares
   
Amount
   
capital
   
stage
   
(loss)
   
Shares
   
Amount
   
compensation
   
Total
 
Issuance of shares to founders effective as of April 24, 2000
        $       4,850,000     $ 4,850     $     $                       $     $ 4,850  
Issuance of shares as payment for legal services
                150,000       150       3,600                                          
Issuance of shares in connection with acquisition of mineral permits
                2,000,000       2,000       48,000                                     50,000  
Subscription for purchase of 10,000,000 shares
                10,000,000       10,000       240,000                   10,000,000       (250,000 )            
Proceeds from issuance of common stock
                                              (1,000,000 )     25,000             25,000  
Net loss
                                  (713,616 )                             (713,616 )
Balance, December 31, 2000
                17,000,000       17,000       291,600       (713,616 )             9,000,000       (225,000 )           (630,016 )
Proceeds from issuance of common stock
                                              (9,000000 )     225,000             225,000  
Net loss
                                  (1,021,190 )                             (1,021,190 )
Balance, December 31, 2001
                17,000,000       17,000       291,600       (1,734,806 )                               (1,426,206 )
Proceeds from private placements of units of common stock and warrants
                1,685,000       1,685       756,565                   51,758       (23,291 )           734,959  
Net loss
                                  (877,738 )                             (877,738 )
Balance, December 31, 2002
                18,685,000       18,685       1,048,165       (2,612,544 )             51,758       (23,291 )           (1,568,985 )
Issuance of shares as payment for accounts payable
                3,000,000       3,000       295,423                                     298,423  
Issuance of shares as payment for services
                6,715,000       6,715       1,368,235                                     1,374,950  
Issuance of stock options
                            1,437,000                               (1,437,000 )      
Issuance of shares as payment for advances from stockholders
                7,500,000       7,500       767,500                                     775,000  
Issuance of shares as payment for notes payable
                1,810,123       1,810       124,898                                     126,708  
Proceeds from issuance of common stock
                6,000,000       6,000       444,000                   4,000,000       (281,250 )           168,750  
Proceeds from issuance of common stock in connection with exercise of stock options
                10,050,000       10,050       292,450                                     302,500  
Amortization of unearned compensation
                                                          169,744       169,744  
Net loss
                                  (3,222,057 )                             (3,222,057 )
Foreign currency translation adjustment
                                        (360,900 )                       (360,900 )
Total comprehensive loss ($3,582,957)
                                                                 
Balance, December 31, 2003
                53,760,123       53,760       5,777,671       (5,834,601 )     (360,900 )     4,051,758       (304,541 )     (1,267,256 )     (1,935,867 )
Issuance of shares as payment for services
                16,842,000       16,842       1,614,858                                     1,631,700  
Proceeds from issuance of common stock
                4,000,000       4,000       384,832                   524,207       (56,754 )           332,078  
Issuance of shares as payment for accounts payable
                1,400,000       1,400       138,600                                     140,000  
Issuance of stock options
                            1,139,000                               (1,139,000 )      
Proceeds from issuance of common stock in connection with exercise of stock options
                31,125,000       31,125       395,125                                     426,250  
Forgiveness of stock subscriptions
                                              (4,575,965 )     361,295             361,295  
Amortization of unearned compensation
                                                          529,423       529,423  
Net loss
                                  (3,724,106 )                             (3,724,106 )
Foreign currency translation adjustment
                                        (131,269                       (131,269 )
Total comprehensive loss ($3,855,375)
                                                                 
Balance, December 31, 2004
                107,127,123       107,127       9,450,086       (9,558,707 )     (492,169 )                 (1,876,833 )     (2,370,496 )
Issuance of shares as payment for services
                6,000,000       6,000       204,000                                     210,000  
Proceeds from issuance of common stock
                69,883,657       69,884       2,376,044                                     2,445,928  
Issuance of shares as payment for accounts payable
                36,481,050       36,481       1,156,386                                     1,192,867  
Issuance of stock options
                            1,218,500                               (1,218,500 )      
Proceeds from issuance of common stock in connection with exercise of stock options
                28,125,000       28,125       253,125                                     281,250  
Amortization of unearned compensation
                                                          889,960       889,960  
Net loss
                                  (3,419,547 )                             (3,419,547 )
Foreign currency translation adjustment
                                        (151,691                       (151,691 )
Total comprehensive loss ($3,571,238)
                                                                 
Balance, December 31, 2005
                247,616,830       247,617       14,658,141       (12,978,254 )     (643,860 )                 (2,205,373 )     (921,729 )
Issuance of shares as payment for services
                46,000,000       46,000       1,334,000                                     1,380,000  
Proceeds from issuance of common stock
                100,000       100       3,400                                     3,500  
Issuance of stock options
                            150,000                               (150,000 )      
Proceeds from issuance of common stock in connection with exercise of stock options
                11,500,000       11,500       103,500                                     115,000  
Amortization of unearned compensation
                                                          1,142,674       1,142,674  
Net loss
                                  (3,053,173 )                             (3,053,173 )
Foreign currency translation adjustment
                                        (48,535                       (48,535 )
Total comprehensive loss ($3,101,708)
                                                                 
Balance, December 31, 2006
                305,216,830       305,217       16,249,041       (16,031,427 )     (692,395 )                 (1,212,699 )     (1,382,263 )
Issuance of shares as payment for services
                52,000,000       52,000       416,000                                     468,000  
Issuance of stock options
                            10,000                               (10,000 )      
Proceeds from issuance of common stock in connection with exercise of stock options
                1,000,000       1,000       9,000                                     10,000  
Amortization of unearned compensation
                                                          784,560       784,560  
Net loss
                                  (1,470,562 )                             (1,470,562 )
Foreign currency translation adjustment
                                        (244,177                       (244,177 )
Total comprehensive loss ($1,714,741)
                                                                 
Balance, December 31, 2007
                358,216,830       358,217       16,684,041       (17,501,989 )     (936,572                 (438,139 )     (1,834,442 )
Issuance of shares as payment for services
                10,025,000       10,025       121,600                                     131,625  
Issuance of shares in connection with acquisition of mineral permits
                10,000,000       10,000       120,000                                     130,000  
Proceeds from issuance of common stock
                5,750,000       5,750       135,500                                     141,250  
Amortization of unearned compensation
                                                          431,634       431,634  
Net loss
                                  (874,494 )                             (874,494 )
Foreign currency translation adjustment
                                        289,988                         289,988  
Total comprehensive loss ($584,506)
                                                                 
Balance, December 31, 2008
        $       383,991,830     $ 383,992     $ 17,061,141     $ (18,376,483 )     (646,584         $     $ (6,505 )   $ (1,584,439 )
Amortization of unearned compensation
                                                          6,505       6,505  
Proceeds from issuance of common stock
                17,500,000       17,500       157,500                                     175,000  
Net loss
                                  (83,792 )                             (83,792 )
Foreign currency translation adjustment
                                        (158,446                       (158,446 )
Total comprehensive loss ($242,238)
                                                                 
Balance, Sept. 30, 2009
        $       401,491,830     $ 401,492     $ 17,218,641     $ (18,460,275 )   $ (805,030         $     $     $ (1,645,172 )
 
See Notes to Condensed Consolidated Financial Statements.

 
4

 
 
DIAMOND DISCOVERIES INTERNATIONAL CORP.
(An Exploration Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 AND PERIOD FROM
APRIL 24, 2000 (DATE OF INCEPTION) TO SEPTEMBER 30, 2009
(Unaudited)

   
Nine Months
Ended Sept. 30,
       
   
2009
   
2008
   
Cumulative
 
                   
Operating activities:
                 
Net loss
  $ (83,792 )   $ (547,780 )   $ (18,460,275 )
Adjustments to reconcile net loss to net cash used in operating activities:
                       
Costs of services paid through issuance of common stock
                5,204,875  
Amortization of unearned compensation
    6,505       339,852       3,954,500  
Amortization of discount on note payable
                45,107  
Forgiveness of stock subscription
                361,295  
Gain on modification of debt
                (1,193,910 )
Cost of mineral permits paid through issuance of common stock
                50,000  
Loss on disposal of property and equipment
                74,680  
Depreciation
          35,687       171,953  
Changes in operating assets and liabilities –
                       
Other assets
                (34,133 )
Accounts payable
    (15,178 )     25,634       2,893,240  
Other current liabilities
                 
Net cash used in operating activities
    (92,465 )     (146,607 )     (6,932,668 )
                         
Investing activities
                       
Purchases of property and equipment
                (252,733 )
Acquisition of Caribou property
                (75,000 )
Proceeds from sale of property and equipment
                10,000  
Net cash used in investing activities
                (317,733 )
                         
Financing activities:
                       
Advances from stockholders, net
    68,555       37,501       1,716,145  
Proceeds from issuance of notes payable, net of payments
          (35,000     212,729  
Proceeds from issuance of common stock
          141,250       5,331,465  
Net cash provided by financing activities
    68,555       143,751       7,260,339  
                         
Net increase (decrease) in cash
    (23,910 )     (2,856 )     9,938  
                         
Cash, beginning of period
    33,848       4,213        
                         
Cash, end of period
  $ 9,938     $ 1,357     $ 9,938  

See Notes to Condensed Consolidated Financial Statements.

 
5

 

DIAMOND DISCOVERIES INTERNATIONAL CORP.
(An Exploration Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 – Business and basis of presentation:

The condensed consolidated financial statements include the accounts of Diamond Discoveries International Corp., which was incorporated in the State of Delaware on April 24, 2000, and its wholly owned subsidiaries Diamond Discoveries Canada, Inc. and Platinum Discoveries Corp. (the “Company”).  All intercompany accounts and transactions have been eliminated in consolidation.  The Company is engaged in activities related to the exploration for mineral resources in Canada. It conducts exploration and related activities through contracts with third parties.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position of the Company as of September 30, 2009, its results of operations for the nine and three months ended September 30, 2009 and 2008, its changes in stockholders’ deficit for the nine months ended September 30, 2009, its cash flows for the nine months ended September 30, 2009 and 2008 and the related cumulative amounts for the period from April 24, 2000 (date of inception) to September 30, 2009. Pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”), certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed in or omitted from these financial statements unless significant changes have taken place since the end of the most recent fiscal year. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the years ended December 31, 2008 and 2007 and the notes thereto (the “Audited Financial Statements”) and the other information included in the Company’s Annual Report on Form 10-K (the “Form 10-K”) for the year ended December 31, 2008 that was previously filed with the SEC.

The results of operations for the nine and three months ended September 30, 2009 are not necessarily indicative of the results to be expected for the full year ending December 31, 2009.

           As further explained in Note 3 in the Audited Financial Statements, the Company acquired mineral permits for property in the “Torngat Fields” located in the Province of Quebec, Canada. The Company intended to develop the permits from early stage exploration through completion of the exploration phase. Prior to any further exploration decisions, a mineral deposit must be appropriately assessed. Gathering this data usually takes several years. Once the appropriate data was gathered, management determined not to proceed any further with the exploration of this property.

In March 2008, the Company acquired mineral rights for property located in the Thetford Mines area (the “Caribou Property”).  The Company intends to develop the mineral rights from the early stage exploration through completion of the exploration phase. Prior to any further exploration decisions, a mineral deposit must be appropriately assessed. Gathering this data usually takes several years. Once the appropriate data has been gathered, management will determine how to proceed any further with the exploration of this property.

Other than contracting with third parties to conduct exploration and gather data on its behalf, the Company had not conducted any operations or generated any revenues as of September 30, 2009. Accordingly, it is considered an “exploration stage company” for accounting purposes.  In addition to exploration costs, the Company incurs general and administrative expenses which consist primarily of professional fees relating to corporate filings and consulting and other expenses incurred in operating our business.

The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. However, in addition to not generating any revenues, the Company had a working capital deficit of approximately $1,881,000 and a stockholders’ deficit of approximately $1,645,000 as of September 30, 2009. Management believes that the Company will not generate any revenues during the twelve month period subsequent to September 30, 2009 in which it will be gathering and evaluating data related to the permits for the Torngat Fields. Since its inception, the Company has received total consideration of $7,260,339 as a result of proceeds from shareholder advances, the issuance of notes payable and the sales of common stock.  Management believes that the Company will still need total additional financing of approximately $500,000 to continue to operate as planned during the twelve month period subsequent to September 30, 2009. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

Management plans to obtain such financing through private offerings of debt and equity securities. However, management cannot assure that the Company will be able to obtain any or all of the additional financing it will need to continue to operate through at least September 30, 2010 or that, ultimately, it will be able to generate any profitable commercial mining operations. If the Company is unable to obtain the required financing, it may have to curtail or terminate its operations and liquidate its remaining assets and liabilities.

 
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The accompanying condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue its operations as a going concern.

Note 2 Summary of significant accounting policies:

Use of estimates:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

Mining costs:

Exploration and evaluation costs are expensed as incurred. Management’s decision to develop or mine a property will be based on an assessment of the viability of the property and the availability of financing. The Company will capitalize mining exploration and other related costs attributable to reserves in the event that a definitive feasibility study establishes proven and probable reserves. Capitalized mining costs will be expensed using the unit of production method and will also be subject to an impairment assessment.

Concentrations of credit risk:

The Company maintains its cash in bank deposit accounts, the balances of which, at times, may exceed Federal insurance limits. Exposure to credit risk is reduced by placing such deposits with major financial institutions and monitoring their credit ratings.

Impairment of long-lived assets:

Impairment losses on long-lived assets, such as mining claims, are recognized when events or changes in circumstances indicate that the undiscounted cash flows estimated to be generated by such assets are less than their carrying value and, accordingly, all or a portion of such carrying value may not be recoverable. Impairment losses are then measured by comparing the fair value of assets to their carrying amounts.

Income taxes:

The Company accounts for income taxes pursuant to the asset and liability method which requires deferred income tax assets and liabilities to be computed annually for temporary differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The income tax provision or credit is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.

Refundable tax credit:

The Company is eligible for a refundable tax credit given by the Province of Quebec to encourage mineral exploration in the province.  Eligible expenses include exploration expenses within Quebec.

The Company files a tax return claiming the refundable tax credit.  However, the Quebec government subjects the return to a review process which may result in a substantial adjustment to the initial claimed credit prior to issuing an assessment of the refundable tax credit.  Due to the uncertainty of the amount approved by the Quebec government, the Company’s policy is to record the refundable tax credit at such time that it has been notified by the Quebec government of an assessment.  During the nine and three months ended September 30, 2009 and 2008, the Company did not receive any refunds under the program.

Net earnings (loss) per share:

The Company presents “basic” earnings (loss) per share and, if applicable, “diluted” earnings per share pursuant to the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 260, “Earnings per Share”. Basic earnings (loss) per share is calculated by dividing net income or loss by the weighted average number of common shares outstanding during each period. The calculation of diluted earnings per share is similar to that of basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if all potentially dilutive common shares, such as those issuable upon the exercise of stock options and warrants, were issued during the period.

 
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Since the Company had a net loss for the six and three months ended Juine 30, 2008, the assumed effects of the exercise of the warrants to purchase 95,576,849 shares of common stock that were issued during 2005 and the application of the treasury stock method would have been anti-dilutive.  Therefore, there is no diluted per share amounts in the 2008 statements of operations. All of the warrants to purchase 95,576,849 shares of common stock expired in December 2008.

Foreign currency translation and transactions:

The functional currency of the Company’s operations is Canadian dollars.  The assets and liabilities arising from these operations are translated at current exchange rates and related revenues and expenses at average exchange rates in effect during the year.  Resulting translation adjustments, if material, are recorded in the statement of changes in stockholders' deficiency while foreign currency transaction gains and losses are included in operations.

The Company recorded a loss of $83,792 and $547,780 during the nine months ended September 30, 2009 and 2008, respectively.  During the nine months ended September 30, 2009 and 2008, the Company recorded a net foreign currency translation adjustment of ($158,446) and $112,782, respectively, in its interest in the Caribou Property and Torngat Mountains operations reflecting a strengthening of the Canadian dollar against the U. S. dollar which is included in accumulated other comprehensive income (loss).  Translation adjustments for prior periods have been immaterial.

Comprehensive loss

Comprehensive loss consists of net loss for the period, unrealized hedging transactions and foreign currency translation adjustments.

Recent accounting pronouncements:

In June 2009, the FASB issued ASC 105, Codification which establishes FASB Codification as the source of authoritative generally accepted accounting promouncements (“US GAAP”) recognized by the FASB to be applied by non governmental entities.  The final rule was for interim and annual periods issued after September 15, 2009.  The adoption of ASC 105 did not have a material impact on the Company’s consolidated financial statements.

In December 2007, the FASB issued ASC 805-10 (Prior authoritative literature SFAS No. 141(R), “Business Combinations,” which revises the previously issued SFAS 141. ASC 805-10 establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the acquire.  The statement also provides guidance for recognizing and measuring goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. ASC 805-10 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and will be applied prospectively. The adoption of this statement is not expected to have a material impact on the Company’s consolidated financial statements.

In December 2007, the FASB issued ASC 810-10-65 (Prior authoritative literature SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements, an amendment of ARB No. 51.” ASC 810-10-65 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the non-controlling interest, changes in a parent’s ownership interest, and the valuation of retained non-controlling equity investments when a subsidiary is deconsolidated. ASC 810-10-65 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. ASC 810-10-65 is effective for financial statements issued for fiscal years beginning after December 15, 2008. ASC 810-10-65 will be applied prospectively, with a disclosure requirement for existing minority interests to be applied retrospectively. The adoption of this statement is not expected to have a material impact on the Company’s consolidated financial statements.

Note 3 – Property and equipment:

During the year ended December 31, 2008, the Company recorded an impairment loss for the remaining balance of property and equipment. Prior to that, depreciation was calculated using the straight-line method over the estimated useful lives of such assets.  Expenditures for maintenance and repairs were charged to expense as incurred.

Depreciation expense for the nine and three months ended September 30, 2008 was $35,687 and $11,825, respectively.

 
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Note 4 – Notes payable:

In November 2005, the Company and Prospecting Geophysics Ltd. (“PGL”) entered into an agreement whereby the amount due to PGL was converted to a non-interest bearing note payable totaling $1,500,000 (Canadian).  The note is secured with the permits identified in Note 3 in the Audited Financial Statements.  In connection with the agreement, the Company recorded a gain on the modification of debt of $1,349,623.  The Company recorded the note using a 12% discount rate.  The Company was unable to make the scheduled payments ($600,000 Canadian) during 2006 under this note payable and therefore the note is effectively in default.  As such, the entire balance of the note payable is shown as being currently due in the accompanying consolidated balance sheet.

Note 5 – Advances from stockholders:

Advances from stockholders of $246,533 at September 30, 2009 were non-interest bearing and due on demand.

Note 6 – Income taxes:

As of September 30, 2009, the Company had net operating loss carryforwards of approximately $19,265,000 available to reduce future Federal taxable income which will expire through 2022. The Company had no other material temporary differences as of that date. Due to the uncertainties related to, among other things, the changes in the ownership of the Company, which could subject those loss carryforwards to substantial annual limitations, and the extent and timing of its future taxable income, the Company offset the deferred tax assets of approximately $7,706,000 attributable to the potential benefits from the utilization of those net operating loss carryforwards by an equivalent valuation allowance as of September 30, 2009.

The Company had also offset the potential benefits from net operating loss carryforwards by an equivalent valuation allowance as of December 31, 2008. As a result of the increases in the valuation allowance of approximately $105,000 and $49,000 in the nine and three months ended September 30, 2009, respectively, $188,000 and $30,000 in the nine and three months ended September 30, 2008, respectively, and $7,706,000 in the period from April 24, 2000 to September 30, 2009, the Company did not recognize any credits for income taxes in the accompanying condensed statements of operations to offset its pre-tax losses in any of those periods.

Note 7 – Stockholders’ deficiency:

Preferred stock

As of March 31, 2009, the Company was authorized to issue up to 20,000,000 shares of preferred stock with a par value of $.001 per share. The preferred stock may be issued in one or more series with dividend rates, conversion rights, voting rights and other terms and preferences to be determined by the Company’s Board of Directors, subject to certain limitations set forth in the Company’s Articles of Incorporation. No shares of preferred stock had been issued by the Company as of March 31, 2009.

Common stock

During the period from April 24, 2000 to December 31, 2000, the Company issued 150,000 shares of common stock as payment for legal services. Accordingly, general and administrative expenses in the accompanying statement of operations, and common stock and additional paid-in capital in the accompanying statements of stockholders’ deficiency, for the period from April 24, 2000 to December 31, 2004 was increased to reflect the estimated fair value of the shares of $3,750.

On May 20, 2000, the Company completed the sale of 10,000,000 shares of common stock for $250,000, or $.025 per share, through a private placement intended to be exempt from registration under the Securities Act of 1933 (the “Act”). Initially, the buyer paid $25,000 in cash and $225,000 through the issuance of a 10% promissory note. The exchange of shares for a note receivable was a noncash transaction that is not reflected in the accompanying statement of cash flows for the period from April 24, 2000 to December 31, 2004. The 10% promissory note was paid on various dates through May 20, 2001.

During the year ended December 31, 2002, the Company received total cash consideration of $734,959 as a result of the sale of 1,633,242 units of common stock and warrants to purchase common stock at $.45 per unit through private placements intended to be exempt from registration under the Act. Each unit consisted of one share of common stock and one warrant to purchase one share of common stock exercisable at $.75 per share for a two year period from the date of purchase. The Company had also received subscriptions through the private placements for the purchase of 51,758 units at $.45 per unit or a total of $23,291 as of December 31, 2002. The notes receivable from the subscribers are noninterest bearing and were due six months from the respective dates of sale, but remained outstanding at December 31, 2004. All the warrants remained outstanding as of December 31, 2004.
 
 
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In 2003, the Company issued 6,715,000 shares of its common stock in exchange for services performed by various consultants and recorded a charge to general and administrative expenses of $1,374,950, or $0.20 per share, for the fair value of the shares.

In May 2003, the Company issued 1,500,000 shares of its common stock in payment of accounts payable to Prospecting Geophysics, Ltd. of $148,423, or $0.10 per share, which approximated the fair value of the shares.

From July 2003 to September 2003, the Company issued 1,810,123 shares of its common stock in payment of 8% demand notes payable of $126,708, or $0.07 per share, which approximated the fair value of the shares.

In August 2003, in connection with a private placement of its common stock, the Company issued 2,000,000 shares of its common stock for $150,000, or $0.08 per share.  In addition, the Company issued 6,500,000 shares of its common stock for $65,000, or $0.01 per share, in connection with the exercise of stock options.

In September 2003, the Company issued 5,000,000 shares of its common stock in payment of advances from stockholders of $525,000, or $0.11 per share, which approximated the fair value of the shares.

In October 2003, the Company issued 2,500,000 shares of its common stock in payment of advances from stockholders of $250,000, or $0.10 per share, which approximated the fair value of the shares.  In addition, in connection with a private placement of its common stock, the Company issued 4,000,000 shares of its common stock for $300,000, or $0.08 per share, $281,250 of which represents a subscription receivable at December 31, 2004.  Also, the Company issued 540,000 shares of its common stock in payment for accounts payable of $54,000, or $0.10 per share, which approximated the fair value of the shares. Further, the Company issued 2,350,000 shares of its common stock for $225,500, or $0.10 per share, in connection with the exercise of stock options.

In November 2003, the Company issued 1,200,000 shares of its common stock for $12,000, or $0.01 per share, in connection with the exercise of stock options.

In December 2003, the Company issued 960,000 shares of its common stock in payment for accounts payable of $96,000, or $0.10 per share, which approximated the fair value of the shares.

In 2004, the Company issued 15,467,000 shares of its common stock in exchange for services performed by various consultants and recorded a charge to general and administrative expenses of $1,546,700 for the fair value of the shares.

In March 2004, in connection with a private placement of its common stock, the Company issued 2,500,000 shares of its common stock for $238,832.

In March 2004, the Company issued 450,000 shares of its common stock in payment of $45,000 of accounts payable, which approximated the fair value of the shares.

In May 2004, in connection with a private placement of its common stock, the Company issued 125,000 shares of its common stock valued at $12,500 as payment for the commission associated with the private placement.

In May 2004, the Company issued 950,000 shares of its common stock in payment of $95,000 of accounts payable, which approximated the fair value of the shares.

In July 2004, in connection with a private placement of its common stock, the Company issued 1,500,000 shares of its common stock for $150,000.  In addition, the Company issued 1,250,000 shares of its common stock in exchange for services performed by various consultants and recorded a charge to general and administrative expenses of $99,750 for the fair value of the shares.  Further, the Company issued 1,250,000 shares of its common stock in connection with the exercise of stock options.

In December 2004, the Company issued 29,875,000 shares of its common stock in connection with the exercise of stock options.

In January 2005, the Company issued 2,600,000 shares of its common stock in connection with the exercise of stock options.

In July 2005, in connection with a private placement of its common stock, the Company issued 27,750,000 shares of its common stock for $971,250.  In addition, the Company issued 8,587,858 shares of its common stock in payment of $302,500 of accounts payable, which approximated the fair value of the shares.

In August 2005, the Company issued 1,100,000 shares of its common stock in connection with the exercise of stock options.

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In September 2005, in connection with a private placement of its common stock, the Company issued 2,300,000 shares of its common stock for $80,500.

In October 2005, the Company issued 6,000,000 shares of its common stock in exchange for services performed by various consultants and recorded a charge to general and administrative expenses of $210,000 for the fair value of the shares.

In December 2005, in connection with a private placement of its common stock, the Company issued 39,833,657 shares of its common stock for $1,394,178.  In addition, the Company issued 27,893,192 shares of its common stock in payment of $890,367 of accounts payable, which approximated the fair value of the shares.  Further, the Company issued 24,425,000 shares of its common stock in connection with the exercise of stock options.

In January 2006, the Company issued 11,500,000 shares of its common stock in connection with the exercise of stock options.  In addition, in connection with a private placement of its common stock, the Company issued 100,000 shares of its common stock for $3,500.  Finally, the Company issued 46,000,000 shares of its common stock in exchange for services performed by various consultants and recorded a charge to general and administrative expenses of $1,380,000 which approximated the fair value of the shares.

In September 2007, the Company issued 52,000,000 shares of its common stock in exchange for services performed by various consultants and recorded a charge to general and administrative expenses of $468,000 which approximated the fair value of the shares.  In October 2007, the Company issued 1,000,000 shares of its common stock in connection with the exercise of stock options.

In May 2008, in connection with a private placement of its common stock, the Company issued 5,750,000 shares of its common stock for $141,250. In June 2008, the Company issued 10,000,000 shares of its common stock in connection with the acquisition of the Caribou property which is recorded in other assets in the accompanying balance sheet of $130,000 which approximated the fair value of the shares.  In October 2008, the Company issued 10,025,000 shares of its common stock in exchange for services performed by various consultants and recorded a charge to general and administrative expenses of $131,625 which approximated the fair value of the shares.

The issuances of common stock for services and in payment of accounts payable, 8% demand notes payable, advances to stockholders and acquisitions were non-cash transactions and, accordingly, they are not reflected in the accompanying statements of cash flows for the years ended December 31, 2008 and 2007 and the period from April 24, 2000 (Date of Inception) to December 31, 2008.

In April 2009, in connection with a private placement of its common stock, the Company issued 17,500,000 shares of its common stock for $175,000.

Stock Option Plans

2005 Plan

On November 14, 2005, the Company adopted the Diamond Discoveries International Corp. 2005 Stock Incentive Plan (the “2005 Plan”).  Under the 2005 Plan, 35,000,000 shares of common stock are reserved for issuance.  The purpose of the 2005 Plan is to provide incentives for officers, directors, consultants and key employees to promote the success of the Company, and to enhance the Company’s ability to attract and retain the services of such persons.  Options granted under the 2005 Plan may be either: (i) options intended to qualify as “incentive stock options” under Section 422 of the Internal Revenue Code of 1986; or (ii) non-qualified stock options.  Stock options may be granted under the 2005 Plan for all employees and consultants of the Company, or employees of any present or future subsidiary or parent of the Company.  The 2005 Plan is administered by the Board of Directors.  The Compensation Committee is empowered to interpret the 2005 Plan and to prescribe, amend and rescind the rules and regulations pertaining to the 2005 Plan.  Options granted under the 2005 Plan generally vest over three years.  No option is transferable by the optionee other than by will or the laws of descent and distribution and each option is exercisable, during the lifetime of the optionee, only by the optionee.  The Compensation Committee may not receive options.

Any incentive stock option that is granted under the 2005 Plan may not be granted at a price less than the fair market value of the Company’s Common Stock on the date of grant (or less than 110% of the fair market value in the case of holders of 10% or more of the total combined voting power through all classes of stock of the Company or a subsidiary or parent of the Company.)  Non-qualified stock options may be granted at the exercise price established by the Compensation Committee, which may be less than the fair market value of the Company’s Common Stock on the date of grant.

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Each option granted under the 2005 Plan is exercisable for a period not to exceed ten years from the date of grant (or five years in the case of a holder of more than 10% of the total combined voting power of all classes of stock of the Company or a subsidiary or parent of the Company) and shall lapse upon expiration of such period, or earlier upon termination of the recipient’s employment with the Company, or as determined by the Compensation Committee.

2004 Plan

On September 30, 2004, the Company adopted the Diamond Discoveries International Corp. 2004 Stock Incentive Plan (the “2004 Plan”).  Under the 2004 Plan, 35,000,000 shares of common stock are reserved for issuance.  The purpose of the 2004 Plan is to provide incentives for officers, directors, consultants and key employees to promote the success of the Company, and to enhance the Company’s ability to attract and retain the services of such persons.  Options granted under the 2004 Plan may be either: (i) options intended to qualify as “incentive stock options” under Section 422 of the Internal Revenue Code of 1986; or (ii) non-qualified stock options.  Stock options may be granted under the 2004 Plan for all employees and consultants of the Company, or employees of any present or future subsidiary or parent of the Company.  The 2004 Plan is administered by the Board of Directors.  The Compensation Committee is empowered to interpret the 2004 Plan and to prescribe, amend and rescind the rules and regulations pertaining to the 2004 Plan.  Options granted under the 2004 Plan generally vest over three years.  No option is transferable by the optionee other than by will or the laws of descent and distribution and each option is exercisable, during the lifetime of the optionee, only by the optionee.

Any incentive stock option that is granted under the 2004 Plan may not be granted at a price less than the fair market value of the Company’s Common Stock on the date of grant (or less than 110% of the fair market value in the case of holders of 10% or more of the total combined voting power through all classes of stock of the Company or a subsidiary or parent of the Company.)  Non-qualified stock options may be granted at the exercise price established by the Compensation Committee, which may be less than the fair market value of the Company’s Common Stock on the date of grant.

Each option granted under the 2004 Plan is exercisable for a period not to exceed ten years from the date of grant (or five years in the case of a grant of an incentive stock option to a holder of more than 10% of the total combined voting power of all classes of stock of the Company or a subsidiary or parent of the Company) and shall lapse upon expiration of such period, or earlier upon termination of the recipient’s employment with the Company, or as determined by the Compensation Committee.

2003 Plan

On May 30, 2003, the Company adopted the Diamond Discoveries International Corp. 2003 Stock Incentive Plan (the “2003 Plan”).  Under the 2003 Plan, 15,000,000 shares of common stock are reserved for issuance.  The purpose of the 2003 Plan is to provide incentives for officers, directors, consultants and key employees to promote the success of the Company, and to enhance the Company’s ability to attract and retain the services of such persons.  Options granted under the 2003 Plan may be either: (i) options intended to qualify as “incentive stock options” under Section 422 of the Internal Revenue Code of 1986; or (ii) non-qualified stock options.  Stock options may be granted under the 2003 Plan for all employees and consultants of the Company, or employees of any present or future subsidiary or parent of the Company.  The 2003 Plan is administered by the Board of Directors.  The Compensation Committee is empowered to interpret the 2003 Plan and to prescribe, amend and rescind the rules and regulations pertaining to the 2003 Plan.  Options granted under the 2003 Plan generally vest over three years.  No option is transferable by the optionee other than by will or the laws of descent and distribution and each option is exercisable, during the lifetime of the optionee, only by the optionee.

Any incentive stock option that is granted under the 2003 Plan may not be granted at a price less than the fair market value of the Company’s Common Stock on the date of grant (or less than 110% of the fair market value in the case of holders of 10% or more of the total combined voting power through all classes of stock of the Company or a subsidiary or parent of the Company.)  Non-qualified stock options may be granted at the exercise price established by the Compensation Committee, which may be less than the fair market value of the Company’s Common Stock on the date of grant.

Each option granted under the 2003 Plan is exercisable for a period not to exceed ten years from the date of grant (or five years in the case of a grant of an incentive stock option to a holder of more than 10% of the total combined voting power of all classes of stock of the Company or a subsidiary or parent of the Company) and shall lapse upon expiration of such period, or earlier upon termination of the recipient’s employment with the Company, or as determined by the Compensation Committee.

In February 2004, the Company issued options to acquire 1,000,000 shares of its common stock at an exercise price of $.10 per share to consultants and other non-employees.  The options had an aggregate fair market value of $90,000 at the date of issuance as determined based on the Black-Scholes options-pricing model. Accordingly, the Company initially increased unearned compensation and additional paid-in capital by $90,000 to record the fair value of the options.

In December 2004, the Company issued options to acquire 33,975,000 shares of its common stock at an exercise price of $.01 per share to consultants and other non-employees.  The options had an aggregate fair market value of $1,049,000 at the date of issuance as determined based on the Black-Scholes options-pricing model. Accordingly, the Company initially increased unearned compensation and additional paid-in capital by $1,049,000 to record the fair value of the options.

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In July 2005, the Company issued options to acquire 1,150,000 shares of its common stock at an exercise price of $.01 per share to consultants and other non-employees.  The options had an aggregate fair market value of $34,500 at the date of issuance as determined based on the Black-Scholes options-pricing model. Accordingly, the Company initially increased unearned compensation and additional paid-in capital by $34,500 to record the fair value of the options.

In December 2005, the Company issued options to acquire 30,000,000 shares of its common stock at an exercise price of $.01 per share to consultants and other non-employees.  The options had an aggregate fair market value of $1,184,000 at the date of issuance as determined based on the Black-Scholes options-pricing model. Accordingly, the Company initially increased unearned compensation and additional paid-in capital by $1,184,000 to record the fair value of the options.

In January 2006, the Company issued options to acquire 5,000,000 shares of its common stock at an exercise price of $.01 per share to consultants and other non-employees.  The options had an aggregate fair market value of $150,000 at the date of issuance as determined based on the Black-Scholes options-pricing model. Accordingly, the Company initially increased unearned compensation and additional paid-in capital by $150,000 to record the fair value of the options.


There were no options granted during the nine months ended September 30, 2009.

The Company recorded a charge of $— and $6,505 to compensation expense to amortize unearned compensation for the nine and three months ended September 30, 2009, respectively, and $339,852 and $113,238 to compensation expense to amortize unearned compensation for the nine and three months ended September 30, 2008, respectively.

The following table summarizes information with respect to options granted under the 2005 Plan, 2004 Plan and the 2003 Plan as of and for the nine months ended September 30, 2009 and 2008.

   
2009
   
2008
 
   
Shares
   
Weighed
Average
Exercise
Price
   
Shares
   
Weighted
Average
Exercise
Price
 
                         
Options outstanding beginning of period
        $           $  
Options canceled
                       
Options exercised
                       
Options granted
                       
                                 
Options outstanding end of period
        $           $  
                                 
Options exercisable end of period
        $           $  
                                 
Options price range, end of period
  $ 0.01             $ 0.01          
Options price range for exercised shares
  $ 0.01             $ 0.01          
Options available for grant at end of period
    3,700,000               3,700,000          
Weighted average fair value of options granted during the period
  $             $          
Weighted average exercise price of options granted during the period
  $             $          

Warrants

In 2005, in connection with its private placement of common stock, the Company issued warrants to acquire 95,576,849 shares of its common stock at an exercise price of $.035 per share.  The warrants expired in December 2008.

Note 8 – Guarantee:

On March 14, 2003, the Company became a guarantor of a promissory note issued by one of its stockholders with an outstanding balance of approximately $101,200 that was originally scheduled to mature on July 31, 2003. The maturity dates of the promissory note and the guaranty have been extended to April 30, 2010.

* * *

 
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Item 2. Management’s Discussion and Analysis or Plan of Operation

The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. The following discussion regarding us and our business and operations contains forward-looking statements. Such statements consist of any statement other than a recitation of historical fact, and can be identified by the use of such forward-looking terminology such as “may,” “expect,” “anticipate,” “estimate” or “continue” or the negative thereof or other variations thereon, or comparable terminology. The reader is cautioned that all forward-looking statements are necessarily speculative, and there are certain risks and uncertainties that could cause actual events or results to differ materially from those referred to in such forward-looking statements.

Operations to Date

We were incorporated in the State of Delaware in April of 2000.  We have not engaged in commercial operations since inception, and therefore have not realized any revenues from operations since inception.  We do not expect to commence operations in the foreseeable future and do not expect to generate revenue in calendar year 2009.

For the nine and three months ended September 30, 2009 and 2008 and the period from April 24, 2000 (date of inception) to September 30, 2009, we incurred $8,549, $8,549, $0, $0 and $2,412,840 in exploration costs, net of reimbursements, and $75,243, $1,744, $547,780, $141,685 and $16,346,322 in general and administrative expenses, respectively. General and administrative expenses consisted primarily of professional fees related to our corporate filings and consulting and other expenses incurred in operating our business. We incurred a net loss of approximately $84,000 or $0 per share based on 395,722,599 weighted average shares outstanding for the nine months ended September 30, 2009 and a net loss of approximately $10,000 or $0 per share based on 401,491,830 weighted average shares outstanding for the three months ended September 30, 2009 compared to a net loss of approximately $548,000 or $0 per share based on 362,057,158 weighted average shares outstanding for the nine months ended September 30, 2008 and a net loss of approximately $142,000 or $0 per share based on 363,966,830 weighted average shares outstanding for the three months ended September 30, 2008.

Going Concern

In connection with their report on our financial statements as of December 31, 2008, Rodefer Moss & Co, PLLC, our independent registered public accounting firm, expressed substantial doubt about our ability to continue as a going concern because such continuance is dependent upon our ability to raise capital.
 
We have explored, and continue to explore, all avenues possible to raise the funds required. We have no revenue-producing activity. We cannot continue our exploration efforts until we have raised sufficient capital.

Ultimately, we must achieve profitable operations if we are to be a viable entity. Although we believe that there is a reasonable basis to believe that we will successfully raise the needed funds to continue exploration, we cannot assure you that we will be able to raise sufficient capital to continue exploration, or that if such funds are raised, that exploration will result in a finding of commercially exploitable reserves, or that if exploitable reserves exist on our properties, that extraction activities can be conducted at a profit.

Cash Flow and Capital Resources

Through September 30, 2009, we have relied on the total consideration of $7,260,339 as a result of proceeds from shareholder advances, the issuance of notes payable and the sales of common stock to support our limited operations. As of September 30, 2009, we had a cash balance of $9,938.

We plan to seek additional equity or debt financing of up to $500,000 which we plan to use for the next phase of our exploration program to be conducted through December 31, 2009, as well as working capital purposes. We currently have limited sources of capital, including the public and private placement of equity securities and the possibility of issuance of debt securities to our stockholders. With virtually no assets, the availability of funds from traditional sources of debt will be limited, and will almost certainly involve pledges of assets or guarantees by officers, directors and stockholders.  Stockholders have advanced funds to us in the past, but we cannot assure you that they will be a source of funds in the future. If we do not get sufficient financing, we may not be able to continue as a going concern and we may have to curtail or terminate our operations and liquidate our business (see Note 1 to financial statements).
 
 
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Plan of Operation

Our business plan for the next year will consist of further exploration on the properties over which we hold the mineral exploration permits as well as preliminary marketing efforts.

We estimate that it will require approximately $500,000 to conduct an exploration program on the Caribou property through 2009. This amount will be used to pay for continued drilling of identified targets, prospecting and geological mapping, helicopter and airplane support, lodging and food for workers, pick-up truck rentals, assays, property taxes to the Quebec Department of Natural Resources and supervision.  If we continue with the exploration of the Caribou property, we plan to raise a minimum of $500,000 through one or more private offerings pursuant to Rule 506 or Regulation D or through an offshore offering pursuant to Regulation S; however, nothing in this annual report shall constitute an offer of any securities for sale. Such shares when sold will not have been registered under the Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. If we are unable to raise this amount, we will most likely cease all activity related to our exploration program, or at the very least, proceed on a reduced scale. We have to date relied on a small number of investors to provide us with financing for the commencement of our exploration program, including TVP Capital Corp., a principal stockholder. Amounts owed to these individuals are payable upon demand.

We employ one individual on a part time basis, who is an executive officer. We do not expect any significant changes in the number of employees within the next twelve months.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4(T). Controls and Procedures

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2009. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer, Mr. Antonio Sciacca and Chief Financial Officer, Mr. Edward Williams. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2009, our disclosure controls and procedures were not effective. In making this evaluation, the Chief Executive Officer and Chief Financial Officer considered, among other things, the material weakness in our internal control over financial reporting described below.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Management of the Company is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements in accordance with United States’ generally accepted accounting principles (US GAAP), including those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with US GAAP and that receipts and expenditures are being made only in accordance with authorizations of management and directors of the Company, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of our internal control over financial reporting. Based on this evaluation, management concluded that, as of September 30, 2009, the Company did not maintain effective internal controls over financial reporting due to our limited number of employees which resulted in our inability to effectively segregate all conflicting duties.

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Currently we employ one individual who is in charge of our accounting and financial duties on a day-to-day basis and we also use one consultant to assist in the preparation of the financial statements and accompanying footnotes.
 
To remedy this material weakness, we will, to the extent possible, implement procedures to assure the initiation of transactions, the custody of assets and the recording of transactions will be performed by separate individuals. Further, concurrent with having sufficient resources we will engage additional individuals to assist us in remedying this material weakness.

There was no change in our internal controls over financial reporting during the quarter ended September 30, 2009 that has materially affected, or that is reasonably likely to materially affect our internal control over financial reporting.

Limitations on the Effectiveness of Internal Controls

Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving our objectives and our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at that reasonable assurance level. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

PART II – OTHER INFORMATION
 
Item 1.   Legal Proceedings.

None

Item 1A.  Risk Factors.

There have been no material changes with respect to the risk factors previously disclosed in our 2008 10-K.
 
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds.

None

Item 3.  Defaults Upon Senior Securities.

None

Item 4.  Submission of Matters to a Vote of Security Holders.

None

Item 5.  Other Information.

None

 
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Item 6.  Exhibits and Reports on Form 8-K.

Exhibits.

Exhibit
Number
 
Description of Document
31.1
 
Certification by the Chief Executive Officer pursuant to Rule 15d-14(a) of the Securities Exchange Act of 1934.
32.1
 
Certification by the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
 
 
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SIGNATURES

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 
By:
/s/ Antonio Sciacca
 
   
Antonio Sciacca,
Chief Executive Officer and Director
 
       
       
 
Dated: January 18, 2011
 
 
 
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