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EX-31.1 - Ruby Creek Resources, Inc.v218395_ex31-1.htm
EX-32.1 - Ruby Creek Resources, Inc.v218395_ex32-1.htm
EX-31.2 - Ruby Creek Resources, Inc.v218395_ex31-2.htm
 


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q

x     QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 28, 2011

¨    TRANSITION REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 F

for the transition period from _____ to _____

Commission File Number: 000-52354
 
RUBY CREEK RESOURCES, INC.

NEVADA
 
000-52354
 
26-4329046
(State or other jurisdiction of
 
(Commission File No.)
 
(IRS Employee Identification No.)
incorporation  or organization)
       

750 3rd Avenue 11th Floor, New York, NY 10017
(Address of Principal Executive Offices)

(212) 679-5711
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes    x     No    ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer    ¨             Accelerated Filer    ¨
Non-Accelerated Filer Smaller (do not check if smaller reporting company)    ¨
Smaller Reporting Company    x

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 35,482,941 shares of common stock as of March 31, 2011.  
 


 
-1-

 
 
RUBY CREEK RESOURCES, INC.

Quarterly Report on Form 10-Q for the Quarterly Period Ended February 28, 2011

FORWARD-LOOKING STATEMENTS

This Form 10-Q for the quarterly period ended February 28, 2011 contains forward-looking statements that involve risks and uncertainties.  Forward-looking statements in this document include, among others, statements regarding our capital needs, business plans and expectations.  Such forward-looking statements involve assumptions, risks and uncertainties regarding, among others, the success of our business plan, availability of funds, government regulations, operating costs, our ability to achieve significant revenues, our business model and products and other factors.  Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements.  In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expect", "plan", "intend", "anticipate", "believe", "estimate", "predict", "potential" or "continue", the negative of such terms or other comparable terminology.  In evaluating these statements, you should consider various factors, including the assumptions, risks and uncertainties set forth in reports and other documents we have filed with or furnished to the SEC.  These factors or any of them may cause our actual results to differ materially from any forward-looking statement made in this document.  While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding future events, our actual results will likely vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein.  The forward-looking statements in this document are made as of the date of this document and we do not intend or undertake to update any of the forward-looking statements to conform these statements to actual results, except as required by applicable law, including the securities laws of the United States.
 
 
 

 
 
Ruby Creek Resources, Inc.
 
Table of Contents
 
February 28, 2011
 
 
Page
PART I. FINANCIAL INFORMATION
 
Item 1.
Financial Statements
 
 
Consolidated Balance Sheets – February 28, 2011  (Unaudited) and August 31, 2010
4
 
Consolidated Statements of Operations
5
 
Consolidated Statement of Stockholders’ Equity
6
 
Consolidated Statements of Cash Flows
7
 
Notes to Consolidated Financial Statements
8-17
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
17-21
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
21
Item 4T. 
Controls and Procedures
21
   
PART II. OTHER INFORMATION
 
Item 1.
Legal Proceedings
22
Item 2.
Unregistered Sales of Equity Securities
22
Item 3.
Defaults Upon Senior Securities
23
Item 4.
Submission of Matters to a Vote of Security Holders
23
Item 5.
Other Information
23
Item 6.
Exhibits
23
Signatures
23

 
-3-

 
 
RUBY CREEK RESOURCES, INC.
(An Exploration Stage Company)
CONSOLIDATED BALANCE SHEETS 


 
   
February 28,
   
August 31,
 
   
2011
   
2010
 
   
(Unaudited)
       
ASSETS
           
             
CURRENT ASSETS
           
Cash
  $ 1,315,329     $ 325,756  
Due from related party
    -       7,668  
Prepaid expenses and other current assets
    68,751       42,824  
Total current assets
    1,384,080       376,248  
                 
PROPERTY AND EQUIPMENT, net of accumulated depreciation of
               
$13,634 and $4,614, respectively
    172,498       35,808  
                 
MINERAL PROPERTIES
    6,907,203       6,796,170  
                 
 TOTAL ASSETS
  $ 8,463,781     $ 7,208,226  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
                 
CURRENT LIABILITIES
               
Accounts payable
  $ 108,095     $ 142,342  
Accrued interest
    -       8,350  
Installment loan payable
    -       10,833  
Convertible notes - related parties, net of discount
    -       75,890  
Due to Douglas Lake Minerals, net of discount
    936,765       911,453  
Due to related parties
    75,088       -  
Total current liabilities
    1,119,948       1,148,868  
                 
LONG-TERM LIABILITIES
               
Due to Douglas Lake Minerals, net of discount
    3,515,743       3,311,988  
      4,635,691       4,460,856  
COMMITMENTS AND CONTINGENCIES (Note 6)
               
                 
STOCKHOLDERS' EQUITY
               
Common stock, 500,000,000 shares authorized, par value $0.001;
               
32,282,942 and 22,727,912 shares issued and outstanding, respectively
    32,283       22,728  
Additional paid-in capital
    8,589,632       5,720,423  
Deferred compensation expense
    (70,833 )     -  
Comprehensive income  from foreign currency translation
    101       890  
Deficit accumulated during the exploration stage
    (4,723,093 )     (2,996,671 )
                 
Total Stockholders' Equity
    3,828,090       2,747,370  
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  $ 8,463,781     $ 7,208,226  
 
See accompanying notes to  unaudited consolidated financial statements.
 
 
-4-

 
 
RUBY CREEK RESOURCES, INC.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

                           
Cumulative
 
                           
for the Period
 
                           
from
 
   
Three Months Ended
   
Six Months Ended
   
May 3, 2006
 
   
February 28,
   
February 28,
   
(Inception) to
 
                           
February 28,
 
   
2011
   
2010
   
2011
   
2010
   
2011
 
                               
EXPENSES
                             
Mining exploration and preoperating costs
  $ 342,800     $ -     $ 574,030     $ -     $ 699,828  
Consulting services
    99,873       88,173       192,807       153,387       879,214  
Depreciation
    5,757       318       9,020       548       13,634  
Interest and financing fees
    116,356       91,259       256,113       91,259       1,341,263  
Management services
    119,148       38,125       257,802       80,405       572,091  
Office and general
    135,963       38,220       292,749       50,292       553,096  
Professional fees
    52,130       21,806       68,908       23,275       472,805  
Property impairment and disposed mineral property costs
    -       -       -       -       49,617  
Shareholder and investor relations
    23,009       (375 )     74,993       -       141,545  
                                         
Total expenses
    895,037       281,957       1,726,422       403,597       4,723,093  
                                         
NET LOSS
  $ (895,037 )   $ (281,957 )   $ (1,726,422 )   $ (403,597 )   $ (4,723,093 )
                                         
NET LOSS PER COMMON SHARE, BASIC AND DILUTED
  $ (0.03 )   $ (0.03 )   $ (0.06 )   $ (0.04 )        
                                         
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC AND DILUTED
    30,115,445       11,052,618       26,744,027       9,958,592          

See accompanying notes to unaudited consolidated financial statements.

 
 
-5-

 
 
RUBY CREEK RESOURCES, INC.
(An Exploration Stage Company)
Consolidated Statement of Stockholders' Equity 

From May 3, 2006 (Date of Inception) to February 28, 2011

    
Common Stock
   
Additional Paid-
   
Deferred
Compensation
   
Deficit
Accumulated
During
Exploration
   
Comprehensive
Income (Loss)
 from Foreign 
Exchange
   
Total
Stockholders'
 
   
Shares
   
Amount
   
in Capital
   
Expense
   
Stage
   
Translation
   
Equity
 
                                           
Balance - May 3, 2006 (Date of Inception)
    -     $ -     $ -     $ -     $ -     $ -     $ -  
August 31, 2006 - issuance of common shares for cash at $0.01 per share
    4,500,000       4,500       40,500       -       -       -       45,000  
August 31, 2006 - issuance of common shares for cash at $0.05 per share
    2,970,000       2,970       145,530       -       -       -       148,500  
August 31, 2006 - issuance of common shares for cash at $0.10 per share
    867,000       867       80,833       -       -       -       81,700  
August 31, 2006 - donated rent and management services
    -       -       3,000       -       -       -       3,000  
Net loss
    -       -       -       -       (19,696 )     -       (19,696 )
Balance - August 31, 2006
    8,337,000       8,337       269,863       -       (19,696 )     -       258,504  
September 5, 2006 - cash received for stock subscription
    -       -       5,000               -       -       5,000  
Net loss
    -       -       -       -       (127,497 )     -       (127,497 )
Balance - August 31, 2007
    8,337,000       8,337       274,863       -       (147,193 )     -       136,007  
Net loss
    -       -       -       -       (96,974 )     -       (96,974 )
Balance - August 31, 2008
    8,337,000       8,337       274,863       -       (244,167 )     -       39,033  
July 23. 2009 - issuance of common shares for cash at $0.05 per share
    400,000       400       14,600       -       -       -       15,000  
Stock based compensation
    -       -       24,547       -       -       -       24,547  
Net loss
    -       -       -       -       (207,877 )     -       (207,877 )
Balance - August 31, 2009
    8,737,000       8,737       314,010       -       (452,044 )     -       (129,297 )
November 6, 2009 - issuance of common shares for related party debt at $0.05 per share
    1,000,000       1,000       49,000       -       -       -       50,000  
December 24, 2009 to February 19, 2010 - issuance of common shares for cash at $0.125 per share
    1,600,000       1,600       198,400       -       -       -       200,000  
February 1, 2010 - issuance of common shares for services at $0.20 per share
    110,000       110       21,890       -       -       -       22,000  
December 22, 2009 to January 22, 2010 - issuance of common shares and warrants for finance fee
    180,000       180       61,120       -       -       -       61,300  
Fair value - beneficial conversion feature, warrants and discount  -  issuance of 11%  convertible notes
    -       -       100,000       -       -       -       100,000  
March 3, 2010 - issuance of common shares for finance fee @ $0.25 per share
    10,000       10       2,490       -       -       -       2,500  
March 23, 2010 - issuance of common shares for bridge loan default conversion at $.05 per share
    1,544,877       1,545       75,699       -       -       -       77,244  
March 23, 2010 - fair value of warrants on default of bridge loan
    -       -       787,369       -       -       -       787,369  
June 4, 2010 - issuance of common stock for consulting services at $0.35 per share
    50,000       50       19,450       -       -       -       19,500  
June 30, 2010 - Issuance of common stock for IT services at $0.25 per share
    8,608       9       2,143       -       -       -       2,152  
July 26, 2010 - Issuance of common stock employment fee expense
    30,000       30       7,470       -       -       -       7,500  
April 3, 2010 to August 26, 2010 - issuance of common shares for cash at $0.25 per share
    5,356,000       5,356       1,333,644       -       -       -       1,339,000  
August 16, 2010 - Issuance of common stock , cashless warrant exercise and adjustment
    101,427       101       3,445       -       -       -       3,546  
August 27, 2010 - Issuance of common stock for mineral property
    4,000,000       4,000       2,116,000       -       -       -       2,120,000  
Stock based compensation
    -       -       628,293       -       -       -       628,293  
Comprehensive income (loss) - foreign exchange translation
    -       -       -       -       -       890       890  
Net loss
    -       -       -       -       (2,544,627 )     -       (2,544,627 )
Balance - August 31, 2010
    22,727,912       22,728       5,720,423       -       (2,996,671 )     890       2,747,370  
October 18, 2010 to February 23, 2011 - issuance of common shares for cash at $0.50 per share
    4,650,000       4,650       2,320,350       -       -       -       2,325,000  
Exercise of warrants issued in private placements for cash at $0.25 per share
    255,000       255       63,495       -       -       -       63,750  
Issuance of common stock for services at $0.20 - $0.25 per share
    265,470       265       61,515       -       -       -       61,780  
Issuance of common stock in connection with employment agreement at $0.50 per share
    200,000       200       99,800       (83,333 )     -       -       16,667  
Cashless exercise of warrants issued in consulting arrangements
    464,560       465       (465 )     -       -       -       -  
Convertible notes - related parties and accrued interest converted at $0.05 per share
    2,220,000       2,220       108,780       -       -       -       111,000  
Exercise of warrant issued in connection with bridge loan default at $0.05 per share
    1,500,000       1,500       73,500       -       -       -       75,000  
Amortization of deferred compensation expense
    -       -       -       12,500       -       -       12,500  
Stock based compensation
    -       -       142,234       -       -       -       142,234  
Comprehensive income (loss) - foreign exchange translation
    -       -       -       -       -       (789 )     (789 )
Net loss
    -       -       -       -       (1,726,422 )     -       (1,726,422 )
Balance - February 28, 2011, (unaudited)
    32,282,942     $ 32,283     $ 8,589,632     $ (70,833 )   $ (4,723,093 )   $ 101     $ 3,828,090  
 
See accompanying notes to unaudited consolidated financial statments.

 
-6-

 
 
RUBY CREEK RESOURCES, INC.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

               
Cumulative
 
               
for the Period
 
               
from
 
               
May 3, 2006
 
   
Six Months Ended
   
(Inception) to
 
   
February 28
   
February,
 
   
2011
   
2010
   
2011
 
                   
Cash Flows From Operating Activities
                 
Net loss
  $ (1,726,422 )   $ (403,597 )   $ (4,723,093 )
Adjustments to reconcile net loss to net cash (used in) operating activities:
                       
Depreciation and amortization
    9,020       548       13,632  
Donated services
    -       -       3,000  
Interest and financing fees, including discount accretion - non cash
    253,177       90,459       1,329,751  
Common stock issued for services
    25,781       -       54,933  
Property impairment
    -       -       9,771  
Stock based compensation
    142,234       156,050       795,074  
Net changes in noncash working capital items:
                       
Decrease - GST receivable
    -       371       -  
(Increase) decrease - Prepaid expenses
    10,072       (3,800 )     (10,751 )
Increase  (decrease) - Accounts payable
    (3,217 )     7,612       151,913  
Increase (decrease) - Due to/from related parties
    82,756       33,577       125,088  
Net cash flows  (used in) operating activities
    (1,206,599 )     (118,780 )     (2,250,682 )
                         
Cash flows from investing activities
                       
Purchase of equipment
    (145,710 )     (4,154 )     (186,132 )
Payments  -  mineral properties and deposits
    (111,035 )     (250,000 )     (720,806 )
Net cash flows (used in) investing activities
    (256,745 )     (254,154 )     (906,938 )
                         
Cash flows from financing activities
                       
Issuance of common shares for cash
    2,463,750       200,000       4,297,950  
Installment loan
    -       -       19,500  
Payments - installment loan
    (10,833 )     -       (19,500 )
Bridge loan - related party
    -       75,000       75,000  
Convertible notes - related parties
    -       100,000       100,000  
Net cash flows provided by financing activities
    2,452,917       375,000       4,472,950  
                         
Net increase in cash
    989,573       2,066       1,315,329  
                         
Cash - beginning of period
    325,756       5,838       -  
                         
Cash - end of period
  $ 1,315,329     $ 7,904     $ 1,315,329  
                         
Supplemental disclosures
                       
Interest paid
  $ 289     $ -     $ 517  
Taxes paid
    -       -       -  
Conversion of related party debt to shares and warrants
    -       -       127,244  
Conversion of related party convertible notes and accrued interest to common shares
    111,000       -       -  
Mineral property costs acquired -  short-term
    -       -       400,000  
Mineral property costs acquired - long-term, net of discount
    -       -       3,576,170  
Mineral property costs acquired - Fair value of common shares issued
    -       -       2,120,000  
 
See accompanying notes to unaudited consolidated financial statements.
 
 
-7-

 
 
Ruby Creek Resources, Inc.
Notes to Consolidated Financial Statements
(An Exploration Stage Company)
February 28, 2011

 
NOTE 1 - Organization and Summary of Significant Accounting Policies
 
Organization
 
Ruby Creek Resources, Inc. (the “Company”) was incorporated in the Province of British Columbia on May 3, 2006.  The Company is an Exploration Stage Company.  The Company’s principal business is the acquisition and exploration of mineral properties.  
 
Effective January 29, 2009, the Company changed its jurisdiction from the Province of British Columbia to the State of Nevada.  Effective the same date, the Company's authorized capital was changed from an unlimited number of common shares without par value to 500,000,000 common shares with a par value of $0.001 per share. Ruby Creek Resources (Tanzania) Limited (“RCRTz) was incorporated on May 21, 2010 in Tanzania, a joint venture which is 70% owned by the Company.
 
Going Concern
 
These financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business.  The Company is in the exploration stage and has not generated revenues since inception.  The Company has incurred significant losses from inception through February 28, 2011 of approximately $4,723,000 raising substantial doubt about the ability of the Company to continue as a going concern.  The continuation of the Company as a going concern is dependent upon its ability to obtain necessary financing to settle outstanding debts, fund ongoing operating losses and to determine the existence, discovery and successful exploitation of economically recoverable mineral reserves on its resource properties and ultimately on the attainment of future profitable operations.  The Company has received limited amounts of private equity and/or convertible debt financing and is currently offering Units of its equity securities (see Notes 7 and 8). While the Company plans to raise funds on this private placement, and management believes it has made significant progress on its plan of operations, additional working capital and capital funds will be required to finance the Company’s operations until commercial operations commence and positive cash flow can be achieved.  Management believes that additional financing will be available on terms acceptable to the Company. However, there can be no assurance of this, nor that commercial operations will be reached.  These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
 
Basis of Presentation
 
Unaudited Interim Financial Statements
 
The accompanying unaudited interim financial statements have been prepared in accordance with United States generally accepted accounting principles ("US GAAP") for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (“SEC”) and on the same basis as the annual audited consolidated financial statements.   
 
Certain information and footnote disclosures normally included in financial statements prepared in accordance with US GAAP have been   omitted pursuant to such rules and regulations.  However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the financial statements for the year ended August 31, 2010 included in the Company's annual report filed with the Securities and Exchange Commission.  The interim unaudited financial statements should be read in conjunction with those financial statements included in the Form 10-K which was filed with the SEC on December 13, 2010.  In the opinion of Management, all adjustments considered necessary for a fair presentation of the financial position, operating results and cash flows for the period presented, consisting solely of normal recurring adjustments, have been made.  Operating results for the six months ended February 28, 2011 are not necessarily indicative of the results that may be expected for the year ending August 31, 2011.
 
Summary of Significant Accounting Policies
 
a)  Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.
 
 
-8-

 
 
Ruby Creek Resources, Inc.
Notes to Consolidated Financial Statements
(An Exploration Stage Company)
February 28, 2011

 
NOTE 1 - Organization and Summary of Significant Accounting Policies, continued
 
b)  Basic and Diluted Net Loss per Share
 
The Company computes loss per share in accordance with generally accepted accounting principles which requires presentation of both basic and diluted earnings per share on the face of the statement of operations.  Basic loss per share is computed by dividing net loss available to common shareholders by the weighted average number of outstanding common shares during the period.  Dilutive loss per share excludes all potential common shares if their effect is anti-dilutive.  
   
Shares of common stock issuable upon conversion or exercise of potentially dilutive securities at February 28, 2011 are as follows:
 
Shares issuable upon exercise of warrants  - July 2009 private placement
   
200,000
 
Shares issuable upon conversion of  November 27, 2009  warrants – issued with convertible notes
   
2,000,000
 
Compensatory warrant exercisable for shares to CEO
   
1,100,000
 
Compensatory warrants exercisable for shares to principal shareholders
   
1,500,000
 
Compensatory warrant/options exercisable for shares – others
   
927,500
 
Bridge Loan – principal investor – shares issuable upon conversion of warrants
   
390,000
 
Shares issuable upon conversion of 1,090,000 warrants issued in December 2009 private placement
   
545,000
 
Shares issuable upon conversion of 5,356,000 warrants issued in April 2010 private placement  
   
2,678,000
 
Shares issuable upon conversion of 4,650,000 warrants issued in October 2010 private placement (on-going as of February 28, 2011)
   
4,650,000
 
Compensatory stock options  – employment agreement
   
      300,000
 
Total
   
14,290,500
 
 
Certain warrants and options include cashless exercise provisions.
 
c)  Mineral Property Costs
 
The Company has been in the exploration stage since its formation on May 3, 2006 and has not realized any revenues from its planned operations. It is primarily engaged in the acquisition and exploration of mineral properties. The Company classifies its mineral rights as tangible assets and accordingly acquisition costs are initially capitalized as mineral property costs. Generally accepted accounting principles require that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review for recoverability, the Company is to estimate the future cash flows expected to result from the use of the asset and its eventual disposition.  If the sum of the undiscounted expected future cash flows is less than the carrying amount of the asset, an impairment loss is recognized. Mineral exploration costs are expensed as incurred until commercially mineable deposits are determined to exist within a particular property.  To date the Company has not established any proven or probable reserves.
 
The Company accounts for the initial measurement and subsequent accounting for obligations associated with the sale, abandonment, or other disposal of long-term tangible assets arising from the acquisition, construction or development and for normal operations of such assets.  As of February 28, 2011, the Company has not incurred any potential costs related to the retirement of mineral property interests since commercial mining operations have not commenced.
 
d)    Reclamation and Remediation Costs (Asset Retirement Obligation)
 
Upon commencement of commercial operations, the Company will accrue costs associated with environmental remediation obligations in accordance with ASC 410-20, Asset Retirement Obligations. In accordance with ASC 410-20-25, Asset Retirement Obligations -Recognition, the Company will record a liability for the present value of the estimated environmental remediation costs in the period in which the liability is incurred and becomes determinable, with an offsetting increase in the carrying amount of the associated asset. The liability will be accreted and the asset will be depreciated over the life of the related assets. Adjustments for changes resulting from the passage of time and changes to either the timing or amount of the original present value estimate underlying the obligation will be made. As reclamation work is performed or liabilities are otherwise settled, the recorded amount of the liability will be reduced.   
 
 
-9-

 
 
Ruby Creek Resources, Inc.
Notes to Consolidated Financial Statements
(An Exploration Stage Company)
February 28, 2011


 
NOTE 1 - Organization and Summary of Significant Accounting Policies, continued
 
The Company will accrue costs associated with any environmental remediation obligation when it is probable that such costs will be incurred and they are reasonably estimable. Estimates for reclamation and other closure costs are prepared in accordance with ASC 450, Contingencies, or ASC 410-30-25, Asset Retirement and Environmental Obligations - Recognition. Costs of future expenditures for environmental remediation will not be discounted to their present value unless subject to a contractually obligated fixed payment schedule. Such costs will be based on management’s then current best estimate of amounts to be incurred when the remediation work is performed, within current laws and regulations.
 
Future reclamation and environmental-related expenditures are difficult to estimate, in many circumstances, due to the early stage nature of the exploration project, and uncertainties associated with defining the nature and extent of environmental disturbance and the application of laws and regulations by regulatory authorities and changes in reclamation or remediation technology. The Company will be required to periodically review accrued liabilities for such reclamation and remediation costs as evidence becomes available indicating that the liabilities have potentially changed. Changes in estimates will be reflected in the statement of operations in the period an estimate is revised.
 
e)  Foreign Currency Translation
 
The Company’s functional and reporting currency is the United States dollar. The functional currency of the Company’s Tanzanian subsidiary is the Tanzanian Shilling. The financial statements of the subsidiary are translated to United States dollars in accordance with ASC 830, Foreign Currency Translation Matters. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Non-monetary assets and liabilities denominated in foreign currencies are translated at rates of exchange in effect at the date of the transaction. Average monthly rates are used to translate revenues and expenses. Related translation adjustments are reported as a separate component of stockholders' equity, whereas gains or losses resulting from foreign currency transactions are included in results of operations.
 
f)   Fair Value of Financial Instruments
 
Fair value is defined as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk including the entity’s own credit risk.
 
A fair value hierarchy for valuation inputs is established. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels and which is determined by the lowest level input that is significant to the fair value measurement in its entirety.
 
These levels are:
 
Level 1 – inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.
 
Level 2 – inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
 
Level 3 – inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.
 
 
-10-

 
 
Ruby Creek Resources, Inc.
Notes to Consolidated Financial Statements
(An Exploration Stage Company)
February 28, 2011

 
NOTE 1 - Organization and Summary of Significant Accounting Policies, continued

The Company’s financial instruments consist of cash, accounts payable, accrued interest, loan payable, convertible notes and amounts due to Douglas Lake. The carrying value of these financial instruments approximates their fair value based on their liquidity, their short-term nature or application of appropriate risk based discount rates to determine fair value. These financial assets and liabilities are valued using level 3 inputs, except for cash which is at level 1. The Company is not exposed to significant interest, exchange or credit risk arising from these financial instruments.

g)  Stock-Based Compensation 
 
The Company records stock-based compensation in using the fair value method.  All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.  Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.   Certain warrants and options include cashless exercise provisions.
 
h)  Income Taxes
 
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, Income Taxes. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.

i)
Recent Accounting Pronouncements

There are no recent pronouncements issued which are expected to have a material effect on the Company’s consolidated financial statements.

 NOTE 2 - Mineral Properties

 
(a)      On November 7, 2009, the Company entered into a Purchase Agreement (the “Agreement”) with Douglas Lake, for the right to acquire and develop a portion of Douglas Lake’s Mkuvia Gold Project. Pursuant to the terms of the Agreement, the Company acquired a seventy percent (70%) interest in 125 square kilometers of the 380 square kilometers Mkuvia Gold Project for total gross consideration of $3,000,000, payable over three years. In accordance with the terms of the Agreement, the Company initially paid $250,000, and upon satisfactory due diligence paid an additional $100,000. For financial reporting purposes, the transaction contemplated by the Agreement has an effective date of March 15, 2010.
 
Upon issuance and receipt of the first mining license, the Company will be required to make (i) an additional payment of $400,000 to Douglas Lake (this amount has been classified as a current liability in the accompanying balance sheet);  and (ii) three additional payments of $750,000 within 12, 24 months and 36 months of that date. The Company has the option to satisfy the final $750,000 payment by issuing restricted shares of its common stock based upon the Volume Weighted Average Price (“VWAP”) for the 10 days immediately preceding the payment date.  For financial reporting purposes, the series of payments due after one year as of the transaction date in the gross amount of $2,250,000 were recorded at their fair value of $1,694,042 determined utilizing a discount rate of 12% per annum.  Interest expense for the three months and six months ended February 28, 2011 includes amortization of $55,584 and $109,534, respectively, of this debt discount. This results in a remaining balance at February 28, 2011 of $1,889,989.
 
Additionally, the Agreement provides that within 12 months of receipt of the initial mining license, the Company has the option to increase its interest to 75 percent of the 125 square kilometers by making an additional $1,000,000 payment to Douglas Lake.  In all cases, the original owner of the four prospecting licenses, Mr. Mkuvia Maita, retains a 3 percent Net Smelter Royalty as per the original agreement between Mr. Mkuvia Maita and Douglas Lake.
 
 
-11-

 
Ruby Creek Resources, Inc.
Notes to Consolidated Financial Statements
(An Exploration Stage Company)
February 28, 2011

 
 NOTE 2 - Mineral Properties, continued

(b)      On March 7, 2010, the Company entered into an agreement for the creation of a Tanzanian joint venture company (“RCRTz”) formed for the ownership and management of the 125 square kilometer Mkuvia Gold Project. The joint venture company is owned 70% by the Company, 25% by Douglas Lake and 5% by Mr. Mkuvia Maita (subject to conditions as described below), the original Prospecting License owner. The joint venture company was officially formed in Tanzania on May 21, 2010. RCRTz will be the operating company holding the mineral rights to the 125 square kilometers of land relating to Mkuvia Gold Project as well as the additional 255 sq km of the Mkuvia Gold Project acquired on June 16, 2010 as described below. A second Joint Venture Agreement (the “JVA”) was entered into by the parties with respect to the additional 255 sq km of the Mkuvia Gold Project whereby RCRTz assumed control of the permitting and licensing processes. The JVA provides that Mr. Mkuvia Maita’s 5% interest shall vest when RCRTz obtains a mining license over a portion of the area covered by the Prospecting Licenses relating to the 380 sq km of the Project and a retention license over the balance for the area.
 
(c)      Effective on June 16, 2010, the Company acquired the exclusive mineral and mining rights to the remaining 255 square kilometers of the Mkuvia Gold Project in Tanzania from Douglas Lake. As consideration, the Company is required to pay Douglas Lake $6,000,000 over a three-year period in a combination of cash and common shares. The Company has paid $250,000 and issued 4,000,000 common shares of the Company with a fair market value of $2,120,000 at $0.53 per share (fair market value on date of issuance), which was due within 30 days of receipt of governmental Certificates of Acknowledgement. For contractual purposes these 4,000,000 shares had a value of $3,200,000, based upon an agreed upon value of $0.80 per share. In addition $450,000 is due on June 1, 2011; $1,000,000 is due on June 1, 2012; and $1,000,000 is due on June 1 2013. An additional $100,000 due to Douglas Lake is being retained to satisfy Douglas Lake’s financial obligation to deliver an environmental study and an initial mining license. The Company has the option to satisfy the final $1,000,000 payment due on June 1, 2013 by issuing shares of its common stock based upon the Volume Weighted Average Price (“VWAP”) for the 20 days immediately preceding the payment date.  Scheduled cash payments can be accelerated in the event of future equity financing or obtaining additional mining licenses. The new Purchase Agreement also provides that the Company has the option to increase its interest from the current 70% to 75% of the Project by making an additional $1,000,000 payment to Douglas Lake. For financial reporting purposes, the series of future payments in the gross amount of $2,450,000 were recorded at their fair value of $1,882,127 (of which $398,565 was current as of the transaction date) determined utilizing a discount rate of 12% per annum which resulted in a discount of $567,872. Interest expense for the three and six months ended February 28, 2011 includes amortization of $60,658 and $119,533, respectively, of this debt discount. This results in a remaining net balance of these future payments as of February 28, 2011 of $2,062,519. Of this amount $536,766 is included in current liabilities at February 28, 2011.  As a result of the transactions above the Company owns 70% of the mineral and mining rights to the entire 380 sq km of the Mkuvia Gold Project, and has the option to increase its interest from 70% to 75% for $2,000,000.
 
(d)      On September  9, 2010, the Company signed an agreement with Carlos JK Kapinga (“CJKK”) (the property rights owner) and Magembe Cheyo (“MC”) (the introducing party), whereby the Company was granted the exclusive right for six months to acquire the mineral and mining rights to the 340 sq km Kapinga property for a fixed purchase price of $500,000. A non-refundable deposit of $30,000 (including fees) has been paid. Should the Company exercise its purchase option in the initial contractual  six month due diligence period ending March 9, 2011, the Kapinga Gold Property will be transferred on closing into a Tanzanian joint venture company, Ruby Creek Gold (Tanzania) Limited. The Company will own 87% of the joint venture, CJKK 10% and MC 3%.  According to the terms of the agreement, if the Company exercises its right, a total of $230,000 will be due at that time.  The final $250,000 payment is due upon the issuance of the first mining license for the Kapinga Gold Property.  Payments can be made in cash, or at the option of CJKK, in common shares of the Company.  MC received $10,000 upon execution and is entitled to (i) additional consideration of $20,000 and 25,000 common shares of the Company if the Company exercises its rights to acquire the property and (ii) $20,000 and 25,000 common shares of the Company upon issuance of a mining license.

On April 4, 2011, the parties entered into an agreement which (was effective on February 14, 2011)  to extend  the option term of the agreement to July 14, 2011  In consideration of the extension, the Company made an additional $20,000 non-refundable deposit in April 2011.
 
Both the Kapinga Gold Project and the Company’s Mkuvia Gold Project are located in the Liwale and Nachingwea Districts, Lindi Region of the United Republic of Tanzania.

 
-12-

 
 
Ruby Creek Resources, Inc.
Notes to Consolidated Financial Statements
(An Exploration Stage Company)
February 28, 2011

 
NOTE 2 - Mineral Properties, continued

(e)    Effective January 12, 2011,   the Company entered into transactions with Gold Standard Ltd, a private limited liability Cayman Islands Company (“GSL”) and Gold Standard Tanzania Ltd, (“GSTL”) a private limited liability Tanzanian Company.  The GSL transaction is for the purchase of a 95% controlling interest of GSTL whose assets include a 25-year, 10 square kilometer mining license issued in September 2010, two Prospecting License Joint Ventures of 50 (inclusive of the mining license) and 89 square kilometers, a Regional Environmental Report on the combined 139 square kilometer property and an established mining camp. The aggregate purchase price of $2,085,000 is comprised of $50,000 due on execution of the contract (paid), $450,000 on closing, the issuance of a $1 million 8% convertible debenture due in 18 months plus the assumption of $585,000 in liabilities. The property is immediately adjacent to and on the west-northwest border of the Company’s Gold Plateau Project (Mkuvia 1 Property), acquired in November 2009. The GSTL transaction is for the purchase of mining equipment located both on-site and in Dar es Salaam.  This equipment includes excavators, dump trucks, loaders, bulldozers, supply and support vehicles, and other mining equipment. The aggregate purchase price of $1.5 million is comprised of $50,000 due contract (paid), $450,000 on closing and the issuance of a $1 million 8% convertible debenture due in 18 months.

The convertible debentures would be payable in three equal payments due six, twelve an eighteen months after closing, plus accrued interest on the declining balance. The holders may elect to receive payment of any portion of interest and/or principal in restricted common shares of the Company with a stated value of $0.50 per share.

The transaction is subject to satisfactory completion of due diligence procedures and was originally scheduled to close no later than 90 days after the contract dates. The parties are currently in negotiations to extend the due diligence period.
 
NOTE 3 - Bridge Loan
 
On December 22, 2009, the Company received $75,000 in proceeds of a bridge loan transaction (the “Bridge”) from a significant shareholder and special advisor (currently a director) (“Holder”).  The loan bears interest at the rate of 12% per annum.  The loan agreement grants the holder the right to convert any portion of the balance plus accrued interest into common shares of the Company at a price of $0.125 per share.  The original due date of the bridge of January 22, 2010 was extended several times by mutual consent, ultimately to March 23, 2010.  In consideration of the loan and these extensions, the Company agreed to additional consideration in the form of units of securities and additional warrants.  This additional consideration resulted in the issuance of an aggregate of 180,000 common shares and two year warrants to purchase an additional 390,000 common shares at $0.25 per share On March 23, 2010, the Company defaulted on the payment of interest and principal on the bridge.  Upon occurrence of the default, the Holder converted the outstanding balance of the note ($75,000) and accrued interest ($2,244) into 1,544,877 shares of common stock of the Company at the contractual conversion price of $0.05 per share. In addition, as a result of this default, the Company was obligated to issue to the Holder, a two year warrant to purchase 1,500,000 common shares at an exercise price of $0.05 per share. 
 
In November 2010, the Holder exercised his conversion rights to the 1,500,000 default warrant and the Company received $75,000 and issued 1,500,000 restricted common shares. 
 
NOTE 4 -   Convertible Notes – Related Parties
 
On November 27, 2009, the Company issued two $50,000, 11% convertible notes for total proceeds of $100,000 to a significant shareholder and special advisor (now a director) and to another significant shareholder.  These notes were due and payable on November 27, 2010.   In addition, each noteholder received a warrant to purchase 1,000,000 shares of the Company’s common stock at an exercise price of $0.05 for a term of three years.  The Company calculated an associated beneficial conversion feature and discount of $100,000 which amount was reflected as a discount of the face amount of these debentures on the date of the transaction.  The amount was determined using the relative fair value method.   The Company estimated the fair value of the warrant using the Black-Scholes option pricing model with the following assumptions: an expected life of three years, a risk-free interest rate of 2.57%, and a dividend rate of 0% and an expected volatility of 116%. This discount was accreted to interest expense over the term of the debentures, and was reflected as a non-cash charge in the accompanying financial statements of which $75,890 was included in interest expense in the year ended August 31, 2010 and $24,110 for the six months ended February 28, 2011. 
 
On November 27, 2010, the holders of the convertible notes elected to convert these notes, plus an aggregate of $11,000 in interest earned, into 2,220,000 shares of common stock at the conversion price of $0.05 per common share. 
 
 
-13-

 
 
Ruby Creek Resources, Inc.
Notes to Consolidated Financial Statements
(An Exploration Stage Company)
February 28, 2011

NOTE 5 - Other Related Party Transactions   
 
At February 28, 2011, the Company was indebted to its CEO in the amount of $19,080, including amounts due for accrued compensation.  At August 31, 2010, the Chief Executive Officer (“CEO”) was indebted to the Company in the amount of $39,668. This represents net amounts advanced for travel and mining related expenses to be incurred while in Tanzania. 

At February 28, 2011 and August 31, 2010, $56,000 and $32,000, respectively, was owing to a significant shareholder, director and special advisor for consulting services. On March 23, 2011 $50,000 of this amount was offset by the director for the exercise of warrants to purchase 1,000,000 shares of common stock.
 
All related party transactions are in the normal course of business and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.

NOTE 6 – Commitments and Contingencies

a)
On March 8, 2010, the Company was served with a Writ of Summons from its former general counsel, Lang Michener LLP of Vancouver, Canada, for the collection of its alleged uncollected fees in the amount of approximately $105,000.  On November 23, 2010, the parties settled this litigation and the Company paid approximately $75,000 in full satisfaction of the debt resulting in a gain of approximately $30,000. Mutual releases were exchanged.

b)
Effective June 4, 2010, the Company entered into an Advisory Agreement with Mr. Mkuvia Maita (“Advisor”), the original owner of the prospecting licenses of the Mkuvia Gold Project. The initial term of the agreement is for a three year period. The Advisor or the Company may terminate this Agreement at any time by giving the other party ninety (90) days prior written notice of termination.  This Agreement may be renewed for successive one-year periods on mutually acceptable terms. Compensation is comprised of $1,000 for each Director’s meeting the Advisor attends and 300,000 shares of common shares of stock of the Company as follows: 50,000 shares vested upon signing, 75,000 shares issuable on June 4, 2011; 75,000 shares issuable on June 4, 2012 and 100,000 shares on June 4, 2013. In the year ended August 31, 2010, the Company recognized $2,000 in fees paid and $19,500 in stock based compensation, which was the fair market value of the 50,000 shares issued. In the three and six month periods ended February 28, 2011 the Company incurred $1,000 in fees under this arrangement.

c)
On December 4, 2010, effective July 28, 2010, the Company entered into an employment agreement with a Director of Corporate Communications, Strategic and Technical Advisor. The term of the agreement is two years, automatically renewable for successive one year terms unless terminated by either party on 60 days advance notice. The contractual annual salary is $93,600 plus bonuses at the discretion of the Board of Directors. The employee is entitled to 200,000 common shares of the Company, 100,000 vesting on commencement, and 100,000 vesting six months thereafter. In addition, the employee was granted non-qualified stock options to purchase 300,000 shares of common stock, which shall vest at the rate of 37,500 options per quarter from the effective date. The options granted are exercisable at $0.60 per share and have a five year life. Notwithstanding the vesting provision, all options shall become fully vested in the event of a change in control, as defined in the agreement.  The Company estimated the fair value of the stock options to be $132,522 at the date of grant, using the Black-Scholes option pricing model with the following assumptions: expected life of five years, risk-free interest rate of 0.61%, a dividend and forfeiture rate of 0% and a volatility of 143.7%.  The amount is being amortized ratably over the initial expected two years term of service. Results of operation include stock based compensation in the amount of $38,652 for the six month periods ended February 28, 2011, with respect to the stock options and $29,167 for the six month periods ended February 28, 2011, with respect to the amortization of the fair value of the shares granted. (Nil for the corresponding period of the preceding year.)

NOTE 7 -  Common Stock
 
a)     During the period from December 24, 2009 to February 10, 2010, the Company conducted an offering of equity securities pursuant to Rule 506 of Regulation D and Regulation S.  The Company sold 1,600,000 Units at a price of $0.125 per Unit for a total of $200,000 to 20 investors.  Each Unit consisted of one restricted common share and one warrant.  Two warrants are required to buy one restricted common share at a price of $0.25 per share for a period of up to two years.  The Company estimated the fair value of these warrants to be approximately $90,000 at the date of grant, using the Black-Scholes option pricing model with the following assumptions: expected life of two years, risk-free interest rate ranging from 0.77%-1.00%, a dividend rate of 0% and an expected average volatility of approximately 117%, which is reflected as a component of additional paid-in capital. 
 
b)     On January 29, 2010, the Company entered into an agreement with a consultant to assist management on a part time basis in the role of interim chief financial officer (“Consultant”) for a six-month period which commenced on February 1, 2010.  Compensation for these services was agreed at the rate of $6,500 per month for half-time services (plus additional compensation for additional services), 60,000 shares of common stock, plus a signing bonus of 50,000 shares of common stock, (which shares had a combined fair market value of $22,000 at the date of grant).  The fair value of these issuances was expensed ratably over the period of service.  The arrangement has been continued on a month-to month basis since expiration.  Approximately $60,505 in cash based compensation and $18,345 in stock based compensation (resulting in the issuance of 91,725 common shares) is included in management services for the six months ended February 28, 2011.
 
c)      During the period from April 3, 2010 through August 26, 2010, the Company conducted an offering of equity securities pursuant to Rule 506 of Regulation D and Regulation S. The Company sold 5,356,000 Units at a price of $0.25 per Unit for a total of $1,339,000. Each Unit consisted of one common share and one warrant. Two warrants are required to buy one common share at a price of $0.50 per share for a period of up to two years. The Company estimated the fair value of these warrants to be approximately $1,126,000 at the date of grant, using the Black-Scholes option pricing model with the following assumptions: expected life of two years, risk-free interest rate ranging from 0.50%­1.18%, a dividend rate and forfeiture rate of 0% and an expected range of volatility from 139.7% to 144.6%. This amount is reflected as a component of additional paid-in capital.

 
-14-

 
 
Ruby Creek Resources, Inc.
Notes to Consolidated Financial Statements
(An Exploration Stage Company)
February 28, 2011
NOTE 7 -  Common Stock, continued
 
d)     On October 18, 2010, the Company commenced an offering of its equity securities pursuant to Rule 506 of Regulation D and Regulation S.  Through February 28, 2011, the Company received $2,325,000 in proceeds for the sale of 4,650,000 Units at a price of $0.50 per Unit.  Each Unit consists of one common share and one common stock purchase warrant. One warrant is required to buy one common share, or an aggregate of 4,650,000 common shares, at a price of $1.00 per share exercisable for a period of up to two years. The Company estimated the fair value of these warrants to be approximately $1,822,000 at the date of grant, using the Black-Scholes option pricing model with the following assumptions: expected life of two years, risk-free interest rate ranging from 0.34% to 0.85%, a dividend rate and forfeiture rate of 0% and an expected range of volatility from 144.3% to 117.7%. This amount is reflected as a component of additional paid-in capital.
 
e)     As more fully described in Note 6c, on December 4, 2010, an employee was granted 200,000 shares of restricted common stock pursuant to an employment agreement effective July 28, 2010.

Stock Options and Warrants
 
On October 15, 2009, the Company granted 150,000 stock options to a consultant at an exercise price of $0.05 per share for a term of 5 years.  These options vest 25% every three months over a period of one year.  The Company estimated the fair value of these options that vested to be $18,369  using the Black-Scholes option pricing model with the following assumptions: an initial expected life of three years, a risk-free interest rate of 0..46% to 2.57%, a dividend rate of 0% and an expected volatility of 104% to 121%.  The remainder of stock-based compensation for these options of $18,369 was recorded as consulting fees during the six months ended February 28, 2011.
 
On November 1, 2009, the Company granted 150,000 stock options to a consultant at an exercise price of $0.05 per share for a term of 5 years.  These options vest 25% every three months over a period of one year.  The Company estimated the fair value of these options that vested to be $18,369 using the Black-Scholes option pricing model with the following assumptions: an expected initial life of three years, a risk-free interest rate of .46% to 2.57%, a dividend rate of 0% and an expected volatility of 103% to 121%. The remainder of stock-based compensation for these options of $18,369 was recorded as consulting fees during the six months ended February 28, 2011.
 
On January 20, 2010, the Company granted 40,000 stock options to a consultant at an exercise price of $0.05 per share for a term of 5 years.  These options vest 25% every three months over a period of one year.  The Company estimated the fair value of these options that vested to be $12,309 using the Black-Scholes option pricing model with the following assumptions: an expected initial life of three years, a risk-free interest rate of .52% to 2.57%, a dividend rate of 0% and an expected volatility of 117% to 121%.  Stock-based compensation of $12,309 for the six month periods ended February 28, 2011 was recorded as consulting fees.
 
On May 15, 2010, the Company granted 200,000 stock options to a consultant at an exercise price of $0.35 per share for a term of two years. These options vest 20% on grant and 20% every three months over a period of one year. The Company estimated the fair value of the options that vested to be $26,534 using the Black-Scholes option pricing model with the following assumptions: an expected life of two years, a risk- free interest rate of 0.52% to 1.28%, a dividend rate of 0% and an expected range of volatility of from 117% - 139%. Stock-based compensation of $26,534 for the six month periods ended February 28, 2011 was recorded as consulting fees.
 
 In accordance with the terms of an advisory agreement entered into on April 24, 2010, the Company granted additional warrants to purchase 50,000 shares of the common stock of the Company at $0.35 per share payable on October 24, 2010. The warrants have a five year life and contain a cashless exercise provision. Stock-based compensation of $28,000 for the six months ended February 20, 2011 was recorded related to these warrants. The Company estimated their fair value using the Black-Scholes option pricing model with the following assumptions: an expected life of three years, a risk-free interest rate of 0.52%, a dividend rate of 0% and an expected volatility of 117%.

 
-15-

 
 
Ruby Creek Resources, Inc.
Notes to Consolidated Financial Statements
(An Exploration Stage Company)
February 28, 2011

NOTE 7 -  Common Stock, continued

During the six month period ended February 28, 2011:

 
a) 
Holders of 500,000 compensatory stock options, exercisable at $0.05 per share, exercised their cashless exercise rights and received 464,563 common shares. The total intrinsic value of these options exercised in the period ended February 28, 2011 was $299,000;
 
b) 
510,000 warrants issued in the private placements described in 7b above were exercised to acquire 255,000 shares for net proceeds of $63,750.
 
NOTE 8 - Subsequent Events

 
a) 
Subsequent to February 28, 2011, the Company received proceeds of $1,157,500 for 2,315,000 Units in the private placement which began on October 18, 2010 (see Note 7) for an aggregate of 2,315,000 common shares and warrants to purchase 2,315,000 shares at $1.00 per share.
 
b) 
Subsequent to February 28, 2011, 50,000 warrants were exercised to acquire 25,000 shares for net proceeds of $6,250.
 
c) 
On March 23, 2011, a director exercised warrants issued in connection with a convertible debenture financing to purchase 1,000,000 shares of common stock. (See Note 4).
 
d) 
On April 6, 2011 the Company and Mr. Mkuvia Maita, the original owner of the mining licenses and other rights to be acquired in the GSL transaction (See Note 2e), entered into a settlement agreement pursuant to which the Company satisfied certain GSL obligations to Mr. Mkuvia Maita. GSL had been delinquent in certain of those payments. The Company paid $200,000 on execution of the settlement agreement, of which $190,000 will be applied towards the $585,000 in obligations being assumed in the Gold Standard transaction described in Note 2e. In consideration of this payment, pursuant to the settlement, the Company assumed certain of Mr. Mkuvia Maita’s security interests in the GSL assets, Mr. Mkuvia Maita withdrew a joint venture termination notice that had been issued to GSL, delivered the mining license to counsel to be held in escrow and to be delivered to the Company upon closing the GSL transaction and agreed to cooperate in the physical transfer of certain GSL and GSTL assets physically in his possession.

 The Company evaluated subsequent events through the financial statement filing date.
 
 
-16-

 
 
Ruby Creek Resources, Inc.
(An Exploration Stage Company)
February 28, 2011
 
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations
 
As used in this quarterly report: (i) the terms "we", "us", "our" and the "Company" mean Ruby Creek Resources, Inc.; (ii) "SEC" refers to the Securities and Exchange Commission; (iii) "Exchange Act" refers to the Securities Exchange Act of 1934, as amended; and (iv) all dollar amounts refer to United States dollars unless otherwise indicated.
 
The following discussion of our plan of operations, results of operations and financial condition for the comparative three and six month periods ended February 28, 2011 should be read in conjunction with our unaudited interim financial statements and related notes for the comparative three month periods ended February 28, 2011 included in this quarterly report.   This discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including, but not limited to, some of which are outside our control.
 
Plan of Operations
 
Based on the nature of our business, we anticipate incurring operating losses in the foreseeable future. We base this expectation, in part, on the fact that very few prospecting licenses in the exploration stage ultimately develop into producing, profitable mines. As noted above, our future financial results are also uncertain due to a number of factors, some of which are outside our control.
 
Due to our lack of operating history and lack of operating revenues, uncertainty on the availability of adequate financial resources to support operations and to fund future payment obligations associated with the acquisitions of the Mkuvia Gold Project, the Kapinga Gold Property and, the Gold Standard Property, there exists substantial doubt about our ability to continue as a going concern. Even if we (i) complete our current exploration and test mining program related to the Mkuvia Gold Project, (ii) consummate the Kapinga and Gold Standard transactions and secure our first mining license and (iii) we are successful in identifying mineral deposits, we will have to spend substantial funds on further drilling and engineering studies, mining equipment and/or contractors before we will know if we have a commercially viable mineral deposit or reserve. Our plan of operations for the next twelve months is to obtain the funding necessary for the continued exploration, development of the Mkuvia Gold Project and commencement of exploration and mining operations on the Gold Standard property, assuming a closing. Further, there are other potential exploration properties currently under review.
 
Liquidity and Financial Condition
 
At February 28, 2011, we had cash of approximately $1,315,000 and working capital of approximately $264,000, including a current liability approximating $937,000 to Douglas Lake Minerals (see Note 2).  In addition to working capital requirements, our need for liquidity includes payment obligations remaining under our Mkuvia Gold Property and other property purchases. With respect to the 125 Sq Km Mkuvia Property rights acquisition, the Company will be required to make (i) a payment of $400,000 to Douglas Lake Minerals upon the issuance of the initial mining license which is anticipated to occur in the first half of fiscal 2011; and (ii) three additional payments of $750,000 within 12, 24 months and 36 months of that date.  The Company has the option to satisfy the final $750,000 payment (which would be due on September, 2013, should the mining license be issued in September 2010) by issuing shares of its common stock based upon the Volume Weighted Average Price (“VWAP”) for the 10 days immediately preceding the payment date.  In connection with the acquisition of the rights to the 225 sq km of the Mkuvia Gold Project on June 16, 2010 we have remaining obligations to pay $450,000 on June 1, 2011; $1,000,000 on June 1, 2012; and $1,000,000 on June 1 2013. The Company has the option to satisfy the final $1,000,000 payment due on June 1, 2013, by issuing shares of its common stock based upon the Volume Weighted Average Price (“VWAP”) for the 20 days immediately preceding the payment date. Complete details of these agreements are included elsewhere in this document. The Purchase Agreements also provide us with the option to increase our interest from the current 70% to 75% of the Project by making an aggregate payment of an additional $2,000,000 to Douglas Lake. Therefore, in total with respect to the entire 380 sq km of the Project, we have the option to increase our interest from 70% to 75% for $2,000,000. The convertible debentures are payable in three equal payments due six, twelve an eighteen months after closing,  plus accrued interest on the declining balance. The holders may elect to receive in payment of any portion of interest and/or principal restricted common shares of the Company valued at $0.50 per share.
 
The transaction is subject to satisfactory completion of due diligence procedures and is scheduled to close no later than July 9, 2011.

 
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Ruby Creek Resources, Inc.
(An Exploration Stage Company)
February 28, 2011
 
In fiscal 2010 and through January 14, 2011, we received additional funding as follows:

From December 29, 2009 to February 19, 2010 we raised $200,000 and filed a Form D pursuant to Rule 506 of the SEC, Notice of Exempt Offering of Securities.  Under this offering we issued 1,600,000 shares of our common stock at $0.125 per share and warrants to purchase an additional 800,000 common shares for 2 years at $0.25 per share.
 
In the period from April 3, 2010 to August 26, 2010, we conducted an offering of our securities under Regulations D and S offering pursuant to Rule 506 of the SEC. We sold 5,356,000 Units at a price of $0.25 per Unit and received total proceeds of $1,339,000 on this offering. Each Unit consisted of one common share and one warrant.  Two warrants are required to buy one common share at a price of $0.50 per share for a period of up to two years.
 
On October 18, 2010, we commenced another offering of our equity securities pursuant to Rule 506 of Regulation D and Regulation S for up to $3,000,000 consisting of 6,000,000 million units.  Through April 5, 2011, the Company has received $3,482,500 in proceeds for the sale of 6,965,000 Units at a price of $0.50 per Unit. Each Unit consists of one common share and one common stock purchase warrant.  One warrant is required to buy one common share at a price of $1.00 per share exercisable for a period of up to two years. This offering is continuing and we anticipate, but cannot guarantee, that we will be receiving additional funds.
 
On November 27, 2010, the holders of our 11% convertible debentures and accrued interest in the aggregate amount of $111,000 elected to convert these securities into 2,220,000 common shares, extinguishing this obligation.
 
In the period from September 1, 2010 through December 31, 2010, holders of an aggregate of 560,000 warrants, issued in the private placement described in Note 7b to the Notes to the Unaudited Consolidated Financial Statements, exercised their right to purchase 280,000 shares of common stock for which we received $70,000 in proceeds.
 
In November, 2010, the holder of a default warrant issued in connection with a $75,000 bridge loan (which itself was converted in March 2010) exercised this warrant, for which we issued 1.5 million common shares and received proceeds of $75,000.
 
On March 23, 2011 a significant shareholder, adviser and director of the Company exercised a warrant acquired in the convertible debenture financing to purchase 1,000,000 shares of common stock. The $50,000 in proceeds was realized by the reduction of consulting advisory fees otherwise payable to this director.
 
Future Financings
 
We anticipate that any future additional funding will be in the form of equity financing from the sale of our common stock or other securities convertible into our common stock. In addition to equity and equity related financing sources, we believe that debt financing may be a viable alternative for funding additional phases of exploration.  However, while management believes that it will be successful, there can be no assurance that any potential subsequent financings will be, or that any funds raised will be sufficient for us to conduct and sustain our operations, fund our obligations under property acquisition agreements and pay our expenses for the next twelve months. In the absence of such financing, we will not be able to continue exploration of our joint venture prospecting licenses for the Mkuvia Gold Mining Project, the Kapinga Gold Project or the Gold Standard prospects and our business plan could fail.  Even if we are successful in obtaining debt or equity financing to fund our various acquisition and exploration programs, there is no assurance that we will obtain the funding necessary to pursue any advanced exploration of any prospecting licenses we presently have or that we may acquire or that the any project will yield commercially viable levels of minerals.  If we do not continue to obtain additional financing, we will be forced to abandon our plan of operations.
 
 
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Ruby Creek Resources, Inc.
(An Exploration Stage Company)
February 28, 2011
   
Results of Operations for the year three and six months ended February 28, 2011.
 
Mining exploration and preoperating costs
 
In the three months and six months ended February 28, 2011, we incurred approximately $343,000 and $574,000, respectively in mining, exploration and preoperating costs   as compared to $0 in the comparable periods of the preceding year. These costs include the establishment of base camp operations on the Mkuvia, housing facilities, salaries of full time and part time personnel, security personnel, operating personnel and equipment related costs of test mining activities; and administrative office and personnel costs of Dar es Salaam office. It is expected that these costs will increase in future quarters as operations expand.
 
Consulting Services
 
In the three months and six months ended February 28, 2011, we incurred approximately $100,000 and $193,000, respectively in consulting costs as compared to $88,000 and $153,000 in the comparable periods of the preceding year. We are incurring fees for board level advisory and members to assist us in operations in Tanzania and in support of board of directors and financing activities and strategies, and other legal and administrative support. Of the total amount incurred in 2011, approximately $85,000 was required to be satisfied in cash, and $108,000 was in stock based compensation.
 
Interest and Financing Fees
 
In the three months and six months ended February 28, 2011, we incurred approximately $116,000 and $256,000, respectively, in interest and financing fees as compared to $91,000 and 91,000 in the comparable periods of the preceding year. Of the amount incurred in 2011, approximately $3,000 was required to be satisfied in cash, approximately $253,000 were non-cash financing costs related to the fair value of derivative instruments issued in connection with the 11% convertible debentures ($24,000) and the accretion of debt discount related to the amounts due Douglas Lake minerals ($229,000).
 
Management Services
 
In the three months and six months ended February 28, 2011, we incurred approximately $119,000 and $257,000, respectively, in management services as compared to $38,000 and $80,000 in the comparable periods of the preceding year. The increase reflects the full time services of our CEO in the current period as compared to the preceding year’s comparable period, the retention of a CFO on February 1, 2010 and of a director of corporate communications in July 2010.  Of the total amount incurred in 2011, approximately $172,000 was required to be satisfied in cash, and $86,000 was in stock based compensation representing the fair value of compensatory stock options and warrants and common shares earned.
.   
Office and General, Professional Fees, and Shareholder Relations
 
In the three months ended February 28, 2011, we incurred approximately $211,000 and $430,000, respectively, (excluding costs related to mining operations) of these costs as compared to $50,000 and $73,000 in the comparable periods of the preceding year. These expenses increased in a manner consistent with the increased complexity and scope or operations of the company, including the retention of investor relations firms to enhance our profile in the public markets, travel and related costs arising from attendance at various industry and investor conferences, directors and officers insurance and additional support staff and facilities costs.
 
Net Loss
 
We had a net loss of approximately $895,000 and $1,726,000 for the three and six month periods ended February 28, 2011 as compared to a net loss of approximately $282,000 and $404,000 for the comparable periods of the preceding year.  Our net loss from inception of the Company on May 3, 2006 until February 28, 2011 approximated $4,723,000. Our net loss for the six months ended February 28, 2011 is attributable to the execution of our business plan to become a gold producing mining company.  For the six months ended February 28, 2011, stock based compensation approximated $142,000, and non-cash financing costs approximated $253,000 for an aggregate of $395,000 in non-cash costs included in results of operations.
 
 
-19-

 
 
Ruby Creek Resources, Inc.
(An Exploration Stage Company)
February 28, 2011
 
Going Concern
 
We are in the exploration stage and have not generated revenues since inception.  We have incurred significant losses to date and further losses are anticipated raising substantial doubt about the ability of our Company to continue operating as a going concern.  The continuation of our Company as a going concern is dependent upon our ability to obtain necessary equity financing to continue operations, meet the Douglas Lake and other obligations and to determine the existence, discovery and successful exploitation of economically recoverable reserves on our resource properties and ultimately on the attainment of future profitable operations. Since inception to February 28, 2011, we had accumulated losses of $4,723,000.  These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.
 
Off-Balance Sheet Arrangements
 
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
 
Critical Accounting Policies
 
Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis.  The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
 
We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements.  In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances.  Actual results could differ from those estimates made by management.
 
Use of Estimates and Assumptions
 
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.
 
Mineral Property Costs
 
The Company has been in the exploration stage since its formation on May 3, 2006 and has not realized any revenues from its planned operations.  It is primarily engaged in the acquisition and exploration of mineral resources.
 
The Company classifies its mineral rights as tangible assets and accordingly acquisition costs are capitalized as mineral property costs. Generally accepted accounting principles require that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  In performing the review for recoverability, the Company is to estimate the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the undiscounted expected future cash flows is less than the carrying amount of the asset, an impairment loss is recognized.  Mineral exploration costs are expensed as incurred until commercially mineable deposits are determined to exist within a particular property.  To date the Company has not established any proven or probable reserves.
 
The Company accounts for asset retirement obligations by recording the initial measurement and subsequent accounting for obligations associated with the sale, abandonment, or other disposal of long-term tangible assets arising from the acquisition, construction or development and for normal operations of such assets.  As of August 31, 2010, any potential costs related to the retirement of the Company's mineral property interests have not yet been determined.
 
 
-20-

 
 
Ruby Creek Resources, Inc.
(An Exploration Stage Company)
February 28, 2011
 
Foreign Currency Translation
 
The Company’s functional and reporting currency is the United States dollar. The functional currency of the Company’s Tanzanian subsidiary is the Tanzanian Shilling. The financial statements of the subsidiary are translated to United States dollars in accordance with ASC 830, Foreign Currency Translation Matters. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Non-monetary assets and liabilities denominated in foreign currencies are translated at rates of exchange in effect at the date of the transaction. Average monthly rates are used to translate revenues and expenses. Related translation adjustments are reported as a separate component of stockholders' equity, whereas gains or losses resulting from foreign currency transactions are included in results of operations.
 
Recent Accounting Pronouncements
 
Recent pronouncements issued are not expected to have a material effect on the Company’s consolidated financial statements.
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
We are currently not subject to any material market risks.
 
Item 4T. Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
 
Our principal executive officer and principal financial officer has concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective as of the end of the period covered by this report, based on their evaluation of these controls and procedures required by paragraph (b) of Rules 13a-15 and 15d-15, due to certain material weaknesses in our internal control over interim financial reporting as of February 28, 2011, as described in our management’s report on internal control over financial reporting included in our annual report on Form 10-K for our fiscal year ended August 31, 2010, which deficiencies have not been remedied as of February 28, 2011.
 
Changes in Internal Control over Financial Reporting
 
Effective February 1, 2010, the Company has retained an interim CFO and it is believed his participation has strengthened internal controls, and certain new controls have been installed or are in the process of being implemented.  We believe that this did and will continue to improve and strengthen our internal controls over financial reporting.

 
-21-

 
 
Ruby Creek Resources, Inc.
(An Exploration Stage Company)
February 28, 2011
   
PART II - OTHER INFORMATION
 
Item 1. Legal Proceedings
 
On March 8, 2010, the Company was served with a Writ of Summons from its former general counsel, Lang Michener LLP of Vancouver, Canada, for the collection of its alleged uncollected fees in the amount of approximately US$115,000, including claimed interest.  On November 23, 2010, the parties settled this litigation and the Company paid approximately $75,000 in full satisfaction. Mutual releases were exchanged.
 
Item 2. Unregistered Sales of Equity Securities
 
On July 20, 2009, the Company issued 400,000 restricted shares of common stock at a price of $0.05 per share for proceeds of $20,000.  As part of this private placement, the Company issued 200,000 share purchase warrants to purchase. Each warrant is exercisable to purchase one share of common stock at $0.05 for a period five years.  The fair value of these share purchase warrants using a risk-free rate of 2.57% and a volatility of 99% was $17,492 or $0.09 per warrant.  The shares were issued to David Bukzin and Double Trouble Productions, LLC.
 
The shares issued to David Bukzin and Double Trouble Productions were not registered under the Securities Act of 1933, as amended (the “Securities Act”), or the securities laws of any state, and were offered and sold in reliance on the exemption from registration afforded by Section 4(2) and Regulation D (Rule 506) under the Securities Act, and corresponding provisions of state securities laws, which exempt transactions involving offers or sales by an issuer solely to one or more accredited investors.  Double Trouble Productions, LLC and Mr. Bukzin are “accredited investors” as such term is defined in Regulation D under the Securities Act.
 
On November 27, 2009, the Company entered into two convertible note agreements to issue two 1 year, $50,000, 11% convertible notes for total proceeds of $100,000.  Each note is convertible, in part or in full, into the Company’s common stock at an exercise price of $0.05 per common share, and interest is to be paid quarterly.  In addition, each holder of the note received warrants to purchase 1,000,000 shares of the Company’s common stock at an exercise price of $0.05 for a term of three years.  The proceeds of these notes were received December 3, 2009 and used to make the first $100,000 installment in the Mkuvia Gold Project Joint Venture Agreement described above. On November 27, 2010, the holders of the convertible notes elected to convert these notes, plus an aggregate of $11,000 in interest earned, into 2,220,000 shares of common shares at the conversion price of $0.05 per common share. 
 
On March 10, 2010, the Company filed a final Form D with the Securities and Exchange Commission disclosing the sale of 1,600,000 units to 20 investors at a price of $0.125 per unit resulting in gross proceeds of $200,000.  Each unit consisted of one share and one warrant.  The warrants are exercisable at a price of $0.25 for a period of two years.  Two warrants are required to purchase one share.  The shares issued pursuant to the units were issued to 19 accredited investors and one non-accredited investor.   The shares issued to the above investors were not registered under the Securities Act of 1933, as amended (the “Securities Act”), or the securities laws of any state, and were offered and sold in reliance on the exemption from registration afforded by Regulation D, Rule 506.
 
In addition to the shares issued in reliance on the exemption from registration afforded by Regulation D, Rule 506, shares issued to two investors were not registered under the Securities Act of 1933, as amended (the “Securities Act”), or the securities laws of any state, and were offered and sold in reliance on the exemption from registration afforded by Regulation S.  Both investors are residents of Quebec, Canada.
 
Pursuant to a Form D filed with the Securities and Exchange Commission for the sale of units consisting of one share and one warrant, between April 3, 2010 and August 26, 2010 the Company sold a total of 5,356,000 units to 58 investors and received proceeds of $1,339,000. Each unit consists of one share of restricted common stock at a price of $0.25 per share and one warrant. Two warrants are required to purchase one share of stock for $.50 per share, and each warrant has a two year life.  The shares issued to these investors were not registered under the Securities update.
 
On January 12, 2011 the Company filed an Amended Form D with the Securities and Exchange Commission for the sale of units consisting of one share and one warrant. Each unit consists of one share of restricted common stock at a price of $0.50 per share and one warrant. One warrant is required to purchase one share of stock at a price of $1.00 per share.  Each warrant is exercisable for a period of two years.  Shares acquired by these investors are not registered under the Securities Act. The Amended Form D filed January 12, 2011 updated  a previous formed D filed October 26, 2010 and an Amended Form D filed November 26, 2010. Through April 5, 2011, the Company has sold a total of 6,965,000 Units to 106 investors and has received proceeds of $3,482,500.

 
-22-

 
 
Ruby Creek Resources, Inc.
(An Exploration Stage Company)
February 28, 2011
 
Item 3. Defaults Upon Senior Securities
 
None.
 
Item 4. Submission of Matters to a Vote of Securities Holders
 
None.
 
Item 5. Other Information
 
None.
 
Item 6. Exhibits
 
The following exhibits are filed with this Quarterly Report on Form 10-Q
 
Exhibit
Number
 
Description of Exhibit
31.1
 
Certification of Chief Executive (Filed herewith)
31.2
 
Certification of Chief Financial Officer (Filed herewith)
32.1
 
Certification of Chief Executive Officer and Chief Financial Officer (Filed herewith)
  
SIGNATURES

Pursuant to the requirements of Section 13 and 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

RUBY CREEK RESOURCES, INC.
 
/s/ Robert Slavik
Robert Slavik
President, Chief Executive Officer, Director.
 
Dated: April 13, 2011
 
/s/ Myron Landin
Myron Landin, CPA
Chief Financial Officer
 
 Dated: April 13, 2011
 
 
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