Attached files
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EX-32.1 - CERTIFICATION - OCTAGON 88 RESOURCES, INC. | ex321.htm |
EX-31.1 - CERTIFICATION - OCTAGON 88 RESOURCES, INC. | ex311.htm |
EX-31.2 - CERTIFICATION - OCTAGON 88 RESOURCES, INC. | ex312.htm |
EX-32.2 - CERTIFICATION - OCTAGON 88 RESOURCES, INC. | ex322.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended March 31, 2013
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from __________ to __________
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000-53560
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Commission File Number
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Octagon 88 Resources, Inc.
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(Exact name of registrant as specified in its charter)
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Nevada
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26-2793743
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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Hochwachtstrasse 4 Steinhausen CH.
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6312
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(Address of principal executive offices)
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(Zip Code)
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011-41-79-2376218
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(Registrant’s telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last report)
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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 [ ]
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [ ] No [ X ]
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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
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[ ]
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Accelerated filer
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[ ]
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Non-accelerated filer
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[ ]
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Smaller reporting company
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[X]
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X ]
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes [ ] No [ ]
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APPLICABLE ONLY TO CORPORATE ISSUERS
26,545,473 common shares outstanding as of May 20, 2013
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(Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.)
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.
2
Octagon 88 Resources, Inc.
TABLE OF CONTENTS
Page
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PART I – Financial Information
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Item 1.
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4 | |
Item 2.
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5 | |
Item 3.
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6 | |
Item 4.
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7 | |
PART II – Other Information
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Item 1.
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8 | |
Item 1A.
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8 | |
Item 2.
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8 | |
Item 3.
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8 | |
Item 4.
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8 | |
Item 5.
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8 | |
Item 6.
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10 | |
11 |
3
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 210 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal recurring nature. Operating results for the nine month period ended March 31, 2013, are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2013. For further information refer to the audited financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2012 as filed with the Securities and Exchange Commission on September 28, 2012.
Page
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Unaudited Financial Statements
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F-2
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F-3
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F-4
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F-5 to F-11
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4
OCTAGON 88 RESOURCES, INC.
(An Exploration Stage Company)
INTERIM FINANCIAL STATEMENTS
(Stated in US Dollars)
(UNAUDITED)
F-1
OCTAGON 88 RESOURCES, INC.
(An Exploration Stage Enterprise)
Condensed Balance Sheets
March 31,
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June 30,
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2013
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2012
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(Unaudited)
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(Audited)
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ASSETS
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Current assets:
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Cash
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$ | 7,233 | $ | 355 | ||||
Total current assets
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7,233 | 355 | ||||||
Long-term investments accounted for under the equity method (Note 3)
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61,606,652 | - | ||||||
Total assets
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$ | 61,613,885 | $ | 355 | ||||
LIABILITIES
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Current liabilities:
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||||||||
Accounts payable and accrued liabilities
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$ | 12,265 | $ | 2,749 | ||||
Accounts payable, related parties
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- | 35,941 | ||||||
Advances from shareholders
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19,167 | - | ||||||
Total current liabilities
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31,432 | 38,690 | ||||||
STOCKHOLDERS' DEFICIT
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Common stock, $0.0001 par value, 400,000,000 authorized, 26,545,473 and 39,142,000 shares issued and outstanding as at March 31, 2013 and June 30, 2012 respectively
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2,655 | 3,914 | ||||||
Capital in excess of par value
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61,760,078 | 100,346 | ||||||
(Deficit) accumulated during the exploration stage
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(180,280 | ) | (142,595 | ) | ||||
Total stockholders' deficit
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61,582,453 | (38,355 | ) | |||||
Total liabilities and stockholders' deficit
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$ | 61,613,885 | $ | 355 |
See accompanying notes.
F-2
OCTAGON 88 RESOURCES, INC.
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(An Exploration Stage Enterprise)
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Condensed Statements of Operations
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(Unaudited)
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Three Months
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Nine Months
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Cumulative From Inception
(June 9, 2008,)
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Ended
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Ended
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Through
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March 31,
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March 31,
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March 31,
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2013
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2012
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2013
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2012
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2013
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Revenues
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$ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
General and administrative expenses:
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Services contributed by officers
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- | - | - | - | 13,200 | |||||||||||||||
Professional fees
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1,456 | 4,268 | 20,100 | 26,037 | 123,722 | |||||||||||||||
Loss on undeveloped , unproven properties
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- | - | - | - | 15,000 | |||||||||||||||
Other general and administrative expenses
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449 | 65 | 1,236 | 971 | 12,010 | |||||||||||||||
Total operating expenses
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1,905 | 4,333 | 21,336 | 27,008 | 163,932 | |||||||||||||||
(Loss) from operations
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(1,905 | ) | (4,333 | ) | (21,336 | ) | (27,008 | ) | (163,932 | ) | ||||||||||
Other income (expense):
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Gain (losses) equity investments, net
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(16,348 | ) | - | (16,348 | ) | (16,348 | ) | |||||||||||||
(Loss) before taxes
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(18,253 | ) | (4,333 | ) | (37,684 | ) | (22,675 | ) | (180,280 | ) | ||||||||||
Provision (credit) for taxes on income:
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- | - | - | - | - | |||||||||||||||
Net (loss)
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$ | (18,253 | ) | $ | (4,333 | ) | $ | (37,684 | ) | $ | (27,008 | ) | $ | (180,280 | ) | |||||
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Basic and diluted earnings (loss) per common share
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$ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||||||
Weighted average number of shares outstanding
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23,595,473 | 39,142,000 | 33,243,687 | 39,142,000 |
See accompanying notes.
F-3
OCTAGON 88 RESOURCES, INC.
(An Exploration Stage Enterprise)
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended
March 31,
2013
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Nine months ended
March 31,
2012
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Cumulative, From Inception, (June 9, 2008)
Through
March 31, 2013
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Cash flows from operating activities:
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Net (loss)
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$ | (37,684 | ) | $ | (27,008 | ) | $ | (180,280 | ) | |||
Adjustments to reconcile net (loss) to cash provided (used) by exploration stage activities:
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Services contributed by officers
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- | - | 13,200 | |||||||||
Share of (loss) of equity accounted investees
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16,348 | - | 16,348 | |||||||||
Loss on undeveloped, unproven properties
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- | - | 15,000 | |||||||||
Changes in current assets and liabilities:
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Accounts payable, trade
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8,960 | 3,692 | 18,178 | |||||||||
Accounts payable, related parties
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(5,913 | ) | 23,181 | 23,560 | ||||||||
Net cash used in operating activities
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(18,289 | ) | (135 | ) | (93,994 | ) | ||||||
Cash flows from investing activities:
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Acquisition of undeveloped, unproved properties
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- | - | (15,000 | ) | ||||||||
Net cash flows from investing activities
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- | - | (15,000 | ) | ||||||||
Cash flows from financing activities:
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Advances from shareholders
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19,167 | - | 19,167 | |||||||||
Advances from third party
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6,000 | - | 6,000 | |||||||||
Proceeds from sale of common stock
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- | - | 106,060 | |||||||||
Less, Applicable offering costs
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- | - | (15,000 | ) | ||||||||
Net cash flows from financing activities
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25,167 | - | 116,227 | |||||||||
Net cash flows
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6,878 | (135 | ) | 7,233 | ||||||||
Cash and equivalent, beginning of period
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355 | 524 | - | |||||||||
Cash and equivalent, end of period
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$ | 7,233 | $ | 389 | $ | 7,233 | ||||||
Supplemental cash flow disclosures:
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Cash paid for interest
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$ | - | $ | - | $ | - | ||||||
Cash paid for income taxes
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$ | - | $ | - | $ | - | ||||||
Non Cash Transactions
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Accounts payable settled by issuance of shares (note 6)
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$ | 35,473 | - | $ | 35,473 | |||||||
Shares issued to acquire interest North Star (note 3)
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61,623,000 | - | 61,623,000 | |||||||||
Total Non-Cash Transactions
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61,658,473 | 61,658,473 |
See accompanying notes.
F-4
OCTAGON 88 RESOURCES, INC.
(An Exploration Stage Enterprise)
NOTES TO THE FINANCIAL STATEMENTS
March 31, 2013
Note 1 - Organization and summary of significant accounting policies:
Following is a summary of our organization and significant accounting policies:
Organization and nature of business – Octagon 88 Resources, Inc. (identified in these footnotes as “we” or the Company) is a Nevada corporation incorporated on June 9, 2008. We are currently based in Switzerland. We intend to operate oil and gas assets in the U.S. and Canada. We use June 30 as a fiscal year for financial reporting purposes.
We are a natural resource exploration stage company in the business of acquiring, exploring, and developing natural resource assets. We hold an interest in an operating oil and gas company, as well as our own oil and gas projects which we intend to operate. As of the date of this filing we hold an interest in a Company with oil and gas operations by way of a share ownership. We are reviewing various oil and gas assets for additional suitable acquisitions. We intend to acquire oil and gas assets that have both production and the opportunity for exploration and development.
We are now exploring various oil and gas acquisitions and sources of capital. In the current exploration stage, we anticipate incurring operating losses as we implement our business plan.
Basis of presentation - The accounting and reporting policies of the Company conform to U.S. generally accepted accounting principles applicable to exploration stage enterprises.
Use of estimates - 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 amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents - For purposes of the statement of cash flows, we consider all cash in banks, money market funds, and certificates of deposit with a maturity of less than three months to be cash equivalents.
Fair value of financial instruments and derivative financial instruments - The carrying amounts of cash and current liabilities approximate fair value because of the short maturity of these items. These fair value estimates are subjective in nature and involve uncertainties and matters of significant judgment, and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect these estimates. We do not hold or issue financial instruments for trading purposes, nor do we utilize derivative instruments in the management of our foreign exchange, commodity price or interest rate market risks.
The FASB Codification clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. It also requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant levels of inputs as follows:
Level 1:
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Quoted prices in active markets for identical assets or liabilities.
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Level 2:
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Quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability.
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Level 3:
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Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
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The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
F-5
OCTAGON 88 RESOURCES, INC.
(An Exploration Stage Enterprise)
NOTES TO THE FINANCIAL STATEMENTS
March 31, 2013
Note 1 - Organization and summary of significant accounting policies: (continued)
Oil and gas properties – We use the successful efforts method of accounting for oil and gas properties. Under that method:
a.
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Geological and geophysical costs and the costs of carrying and retaining undeveloped properties are charged to expense when incurred since they do not result in the acquisition of assets.
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b.
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Costs incurred to drill exploratory wells and exploratory-type stratigraphic test wells that do not find proved reserves are charged to expense when it is determined that the wells have not found proved reserves.
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c.
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Costs incurred to acquire properties and drill development-type stratigraphic test wells, successful exploratory well, and successful exploratory-type stratigraphic wells are capitalized.
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d.
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Capitalized costs of wells and related equipment are amortized, depleted, or depreciated using the unit-of-production method.
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e.
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Costs of unproved properties are assessed periodically to determine if an impairment loss should be recognized.
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Equity Investments – Our equity investments are included in other long-term assets. We account for equity investments for which we do not have control over the investee using the Equity Method (APB No. 18) when we have the ability to exercise significant influence, but not control, over the investee. Our proportionate share of the income or loss is recognized on a one-quarter lag and is recorded in gains (losses) on equity investments, net. The equity investment is initially recorded at cost.
Other long-lived assets – Property and equipment are stated at cost less accumulated depreciation computed principally using accelerated methods over the estimated useful lives of the assets. Repairs are charged to expense as incurred. Impairment of long-lived assets is recognized when the fair value of a long-lived asset is less than its carrying value. No impairments of long-lived assets occurred during the period ended March 31, 2013 and 2012.
Federal income taxes - Deferred income taxes are reported for timing differences between items of income or expense reported in the financial statements and those reported for income tax purposes in accordance with applicable FASB Codification regarding Accounting for Income Taxes, which require the use of the asset/liability method of accounting for income taxes. Deferred income taxes and tax benefits are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for tax loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company provides deferred taxes for the estimated future tax effects attributable to temporary differences and carryforwards when realization is more likely than not.
We have analyzed filing positions in all of the federal and state jurisdictions where we are required to file income tax returns, as well as all open tax years in these jurisdictions. We are not currently under examination by the Internal Revenue Service or any other jurisdiction. We believe that our income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a material adverse effect on our financial condition, results of operations, or cash flow. Therefore, no reserves for uncertain income tax positions have been recorded.
Net income per share of common stock – We have adopted applicable FASB Codification regarding Earnings per Share, which require presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. In the accompanying financial statements, basic earnings per share of common stock is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. At March 31, 2013 and 2012, there were no variances between the basic and diluted loss per share as there were no potentially dilutive securities outstanding.
F-6
OCTAGON 88 RESOURCES, INC.
(An Exploration Stage Enterprise)
NOTES TO THE FINANCIAL STATEMENTS
March 31, 2013
Note 2 – Going concern:
As at March 31, 2013, we are a passive investor in an operating oil and gas company and we hold a Mineral Rights Agreement (see note 4) which gives us the rights to certain oil and gas exploration leases. We continue to seek other oil and gas acquisitions that we can operate. While we have acquired an interest in certain mineral properties (Note 4) we expect to incur exploration stage operating losses until revenue generating operations commence, and for a period of time thereafter. We rely on our officers and directors to perform essential functions without compensation until a business operation can be commenced. We have entered into an agreement for funding of up to $2,500,000 (CDN) by way of an equity placement and a credit facility but we have not yet drawn down the first funding of $500,000 (Note 5). There can be no assurance that funds will be available from the credit facility if and when needed.
From inception through March 31, 2013, we have incurred operating losses of approximately $180,280, of which approximately $123,994 represents actual cash losses. At March 31, 2013, our cash on hand was $7,233.
These factors raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Note 3 – Investment in CEC North Star Energy Ltd.:
On October 15, 2012, we entered into a share purchase agreement with Zentrum Energie Trust AG (“Zentrum”) (the “Share Purchase Agreement”), which closed on December 24, 2012 whereby we acquired a total of 3,100,000 common shares in the capital stock of CEC North Star Energy Ltd. (“North Star”) from Zentrum, representing approximately 22% of the issued and outstanding shares of North Star. Our President and Director, Mr. Guido Hielkes is also the President and a member of the Board of Directors of North Star and Feliciano Tighe, a member of our Board of Directors is also an administrative consultant to North Star.
Pursuant to the requirements for closing, on December 21, 2012, the Company issued a total of 14,000,000 restricted shares of the Company to Zentrum which we have valued at $3.15 per share, the market price of our stock on the date of issue, for a total investment of $44,100,000.
Further, to close the transaction, the Company was required to negotiate terms with its controlling shareholder, Kenmore International S.A. (“Kenmore”) for the return to treasury of no less than 31,942,000 shares of the common stock of the Company controlled by Kenmore. On December 21, 2012, the Company returned to the transfer agent for cancellation effective December 24, 2012, a total of 31,942,000 shares of the Company, at par value, issued in the name of 888333333 Holdings Ltd., a company of which Kenmore was the sole shareholder. Kenmore retained a total of 100,000 shares of the Company after the transaction.
On January 24, 2013, the Company entered into a further share purchase agreement with three independent shareholders whereby the Company acquired 1,410,000 common shares in the capital stock of North Star (the “Share Purchase Agreement”). Under the terms of the Share Purchase Agreement, the Company issued a total of 5,310,000 shares of the Company’s common stock at a deemed price of $3.30 per share, which was the lowest bid price of the Company’s stock on the date of issuance, for a total investment cost of $17,523,000 in exchange for the 1,410,000 common shares of North Star.
The Company currently holds 32% of the shares of North Star after this acquisition. We account for this investment applying the Equity Method (APB No. 18).
March 31, 2013
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June 30, 2012
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Investment in North Star
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$
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61,606,652
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$
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-
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F-7
OCTAGON 88 RESOURCES, INC.
(An Exploration Stage Enterprise)
NOTES TO THE FINANCIAL STATEMENTS
March 31, 2013
Note 3 – Investment in CEC North Star Energy Ltd.: (continued)
The changes in the fair value of these investments were as follows:
Balance as of June 30, 2012
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Contributions
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Issue 14,000,000 restricted shares of the Company at market value
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$ | 44,100,000 | ||
Issue 5,310,000 restricted shares of the Company at market value
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17,523,000 | |||
Total
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61,623,000 | |||
Equity (loss) income on long-term investments accounted for under the equity method
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(16,348 | ) | ||
Balance as of March 31, 2013
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$ | 61,606,652 |
Note 4 – Mineral rights agreement
On January 22, 2013, the Company entered into an acquisition of mineral rights agreement with Zentrum (the “Mineral Rights Agreement”). Under the terms of the Mineral Rights Agreement the Company has the right to acquire the Mineral Rights known as the Trout Properties. The Trout Properties are comprised of certain oil and gas leases as detailed below:
Section 9 -89 R3W5
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Alberta Crown P&NG
Expiry: August, 2016
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Sections 3,4,5 89R3W5
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Alberta Crown Oil Sands Development Lease No. 7408100382
Expiry: July, 2017
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The Mineral Rights Agreement contains the following terms, amongst others:
·
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An 8% Royalty of Gross Monthly Production to be paid to Zentrum;
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·
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On or before December 31, 2013, the Company shall have drilled a minimum of one (1) Exploration Well to Contract Depth at locations to be provided by Zentrum and agreed to by the Company on Section 9 89 R3W5 of the Trout Property.
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·
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On or before June 30, 2014, unless otherwise mutually agreed to, the Company shall perform a 3D seismic program on Sections 4,5, 6 89 R3W5 of the Trout Property. A copy and rights to the seismic data shall be provided to the Vendor within 60 days of the completion of the project;
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·
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On or before December 31, 2014, unless otherwise mutually agreed to, the Company shall have drilled a minimum of one (1) Exploration Well at a location to be mutually determined based on the 3D seismic above;
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·
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Any default in the terms above will terminate the Mineral Rights Agreement and the Company shall return the Trout Property to Zentrum.
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The Company has received a preliminary budget for the drilling of the initial exploration well on the Trout property with costs estimated to be $1,500,000 Canadian dollars (USD $1,504,920) , plus or minus 20 percent for seasonal adjustments including weather, rig and crew availability. We anticipate making a drawdown of funds under the financing agreement as more particularly described in Note 5 below in order to finance costs associated with this initial well.
F-8
OCTAGON 88 RESOURCES, INC.
(An Exploration Stage Enterprise)
NOTES TO THE FINANCIAL STATEMENTS
March 31, 2013
Note 5 – Financing agreement:
On October 3, 2012, the Company entered in to a letter agreement for a Financing Commitment and Credit Facility (the “Financing Agreement”) for the Company with Zentrum, whereby Zentrum will provide both debt and equity funds of up to CAD$2,500,000 (USD$2,508,210) to the Company for investments in assets owned by private operating oil companies.
Under the terms of the Financing Agreement, the first draw is to be an equity placement into the Company by Zentrum of CAD$500,000 by way of the issuance of 200,000 units, each unit consisting of one share of common stock at CAD$2.50 per share, a one year warrant to purchase an additional 200,000 shares of common stock at an exercise price of CAD$3.00 per share and a three year warrant to purchase 200,000 shares of common stock at an exercise price of CAD$3.00 per share.
Further funds may be by way of debt or equity. Any funds drawn down as debt under the credit facility will have a first security charge on the investments acquired with such funds.
Fees of 8% for equity placements and 3% for debt placements will be deducted on funding. For any debt converted to equity, a further fee of 5% will be paid by the Company at conversion.
Zentrum has agreed that the Company may allocate up to 10% of the funds from debt or equity for general and administrative costs and due diligence costs and any other costs they may approve from time to time.
Zentrum shall further have a first right of refusal on all financings for a period of two years from the execution of the formal agreement. The final agreement shall provide for registration rights. Zentrum’s legal counsel is preparing the formal agreements for execution.
Note 6 – Related party transactions:
On August 27, 2012, the Company negotiated debt settlements whereby they agreed to settle cumulative debt outstanding in the amount of $35,473 with Kenmore International S.A., our then controlling shareholder, at a price of $1.00 per share for a total share issuance of 35,473 shares of common stock.
On December 21, 2012, the Company returned to the transfer agent for cancellation effective December 24, 2012, a total of 31,942,000 shares of the Company issued in the name of 888333333 Holdings Ltd., a company of which Kenmore was the sole shareholder. Kenmore retained a total of 100,000 shares of the Company. Effective upon the cancelation of the shares Kenmore ceased to be a related party to the Company.
On January 29, 2013, the Board appointed Mr. Guido Hilekes and Mr. Gordon E. Taylor as Directors of the Corporation.
On January 29, 2013, Mr. Feliciano Tighe tendered his resignation as President of the Company. Mr. Tighe remains Corporate Secretary and a director of the Company.
On January 29, 2013, the Board appointed Mr. Guido Hilekes as President of the Company. Mr. Guido Hilekes, our President and a Director is also the President and a member of the board of directors of CEC North Star Energy Ltd.
Zentrum Energie Trust AG (“Zentrum”) has provided a line of credit to the Company (Note 5) and has also provided financing to CEC North Star Energy Ltd. by way of a 1.5 million dollar convertible debenture. Zentrum is also a minority shareholder of CEC North Star Energy Ltd.
F-9
OCTAGON 88 RESOURCES, INC.
(An Exploration Stage Enterprise)
NOTES TO THE FINANCIAL STATEMENTS
March 31, 2013
Note 7 – Advances:
During the period ended March 31, 2013, the Company received $19,167 for the shareholders of the Company for ongoing working capital obligations. The advances are on demand and bear no interest.
Note 8 – Issuance of shares:
On August 27, 2012, the Company negotiated debt settlements whereby they agreed to settle debt in the amount of $35,473 with Kenmore International S.A. at a price of $1.00 per share for a total share issuance of 35,473 shares of common stock. These shares were issued on September 24, 2012.
On December 21, 2012, the Company returned to the transfer agent for cancellation effective December 24, 2012, a total of 31,942,000 shares of the Company issued in the name of 888333333 Holdings Ltd., a company of which Kenmore was the sole shareholder.
On December 21, 2012, the Company issued a total of 14,000,000 restricted shares of the Company to Zentrum valued at $3.15 per share, which was the market value of the shares on the date of the transaction, for a total acquisition cost of $44,100,000.
On January 24, 2013, the Company issued a total of 5,310,000 restricted shares of the Company to three independent shareholders of North Star valued at $3.30 per share, which was the market value of the shares based on the bid price of the shares on the date of the transaction, for a total acquisition cost of $17,523,000.
As of March 31, 2013, there were a total of 26,545,473 shares issued and outstanding.
Note 9 – Income Taxes:
Deferred income taxes are determined using the liability method for the temporary differences between the financial reporting basis and income tax basis of the Company’s assets and liabilities. Deferred income taxes are measured based on the tax rates expected to be in effect when the temporary differences are included in the Company’s tax return. Deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases.
The composition of the Company’s deferred tax assets, applying the statutory income tax rate of 34%, as at March 31, 2013 and June 30, 2012 is as follows:
Nine months ended March 31, 2013
|
June 30, 2012
|
|||||||
Net operating loss carry forward
|
$
|
37,684
|
$
|
32,501
|
||||
Less: Valuation allowance
|
(37,684
|
)
|
(32,501
|
)
|
||||
Total deferred tax asset
|
$
|
-
|
$
|
-
|
||||
At March 31, 2013, the Company had a cumulative net operating loss carryforward from inception to March 31, 2013 in the approximate amount of $166,907, available to offset future taxable income through 2033.
F-10
OCTAGON 88 RESOURCES, INC.
(An Exploration Stage Enterprise)
NOTES TO THE FINANCIAL STATEMENTS
March 31, 2013
Note 10 - New accounting pronouncements:
The Financial Accounting Standards Board (“FASB”) periodically issues new accounting standards in a continuing effort to improve standards of financial accounting and reporting. The Company has reviewed the recently issued pronouncements and concluded that there are no new accounting standards are applicable to the Company.
Note 11 – Subsequent events:
The Company has evaluated subsequent events from the balance sheet date through the date that the financial statements were issued and determined that there were no events to disclose.
F-11
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
This quarterly report contains forward-looking statements relating to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "intends", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential", or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors which may cause our or our industry's actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements.
Such factors include, among others, the following: international, national and local general economic and market conditions; demographic changes; the ability of the Company to sustain, manage or forecast its growth; the ability of the Company to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other factors referenced in this and previous filings.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or performance. Except as required by applicable law and including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Given these uncertainties, readers of this Form 10-Q and investors are cautioned not to place undue reliance on such forward-looking statements. We disclaim any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future events or developments.
All dollar amounts stated herein are in US dollars unless otherwise indicated.
The management’s discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with generally accepted accounting principles ("GAAP") in the United States of America. The following discussion of our financial condition and results of operations should be read in conjunction with our audited financial statements for the fiscal year ended June 30, 2012, along with the accompanying notes. As used in this quarterly report, the terms "we", "us", "our", and the "Company" means Octagon 88 Resources, Inc.
Liquidity
As of March 31, 2013, our cash balance was $7,233 and our liabilities totaled $31,432 as compared to cash of $355 and liabilities of $38,690 as at our fiscal year end, June 30, 2012. Our ability to meet our financial liabilities and commitments is primarily dependent upon the continued issuance of equity to new stockholders, the ability to borrow funds, and our ability to achieve and maintain profitable operations. Initially, we will not have any cash flow from operating activities. On October 3, 2012, we entered into a financing agreement whereby we can draw down up to CAD$2,500,000 (US$2,507,800) by way of equity or debt, with the first draw down of CAD$500,000 being an equity draw down. We have not yet drawn down funds against this credit facility. There are no assurances funds will be available when needed. As we are commencing operations with our recent acquisitions, we will require funds for operations. However, we cannot at this time advise how much funding will be required as we are just evaluating the funding requirements under our recent acquisitions. We expect that the CAD$2,500,000 promised under the credit facility will fund some operations but will not be sufficient to meet drilling requirements on the recent property acquisitions. We expect to have a more definitive funding budget for the next twelve months in third quarter reporting. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we will not be able to meet our obligations as they become due and we will be forced to scale down or perhaps even cease the operation of our business.
5
Capital Resources
As of March 31, 2013, we had total assets of $61,613,885, comprised of cash on hand of $7,233 and the value of our investment in a private oil and gas exploration company, CEC North Star Energy Ltd., valued at $61,606,652 (ref: Note 3 to the financial statments contained herein), as compared to total assets of $355 comprising solely cash, on June 30, 2012. As of March 31, 2013, our total liabilities decreased to $31,432 from $38,690 as of June 30, 2012. The most significant factor in this decrease was the settlement of amounts due to related parties at June 30, 2012 totaling $35,941 by the issuances of shares of our common stock during the current period. This decrease was offset by additional advances for operations from third party lenders of $19,167 in the current nine month period and an increase to accounts payable from June 30, 2012 of $2,749 to $12,265 at March 31, 2013. The increase to accounts payable is related to amounts incurred for accounting and professional fees for maintenance of the Company’s reporting status. While we have substantially increased our net assets with the recent acquisition of shares in a private oil and gas company, we are not able presently to monetize these assets. We have not generated revenue since the date of Inception (June 9, 2008).
Results of Operations
The following summary of our results of operations should be read in conjunction with our audited financial statements for the fiscal year ended June 30, 2012.
During the three and nine month periods ended March 31, 2013 and 2012, we earned no revenues from operations.
Comparison of three month periods ended March 31, 2013 and 2012
For the three month periods ended March 31, 2013 and 2012, we incurred a net loss from operations of $1,905 and $4,333, respectively. Amounts paid for professional fees declined substantially during the comparative three month periods from $4,268 (2012) to $1,456 (2013), while general and administrative expenses increased minimally from $65 (2012) to $449 (2013).
During the three month period ended March 31, 2013, we incurred other loss from equity investments of $16,348 as a result of the investments in the CEC North Energy Ltd.
Comparison of nine month periods ended March 31, 2013 and 2012
For the nine month periods ended March 31, 2013 and 2012, we incurred a net loss from operations of $21,336 and $27,008, respectively. There were no substantive changes to any expense categories for the comparative nine month periods to report.
During the three month period ended March 31, 2013, we incurred other loss from equity investments of $16,348 as a result of the investments in the CEC North Energy Ltd.
Period from Inception (June 9, 2008) to March 31, 2013
We have had no revenues since inception. Since inception, we have an accumulated deficit during the exploration stage of $180,280. While we have recently acquired interests in certain oil and gas prospects, we expect to continue to incur losses while we maintain our reporting status with the SEC and continue to work to develop profitable operations for the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a "smaller reporting company" as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.
6
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Evaluation of Disclosure Controls and Procedures Disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in rules and forms adopted by the Securities and Exchange Commission ("SEC"), and that such information is accumulated and communicated to management, including the Principal Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosures. Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")). Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.
Changes in Internal Controls
There were no changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls over financial reporting that occurred during the quarter ended March 31, 2013, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
7
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No legal proceedings are currently pending or threatened to the best of our knowledge.
ITEM 1A. RISK FACTORS
As a "smaller reporting company" as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On December 21, 2012, the Company issued a total of 14,000,000 restricted shares of the Company to Zentrum valued at $3.15 per share for a total acquisition cost of $44,100,000.
There were no further unregistered securities to report which were sold or issued by the Company without the registration of these securities under the Securities Act of 1933 in reliance on exemptions from such registration requirements, within the period covered by this report, which have not been previously included in a Quarterly Report on Form 10-Q or a Current Report on Form 8-K.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
ITEM 5. OTHER INFORMATION
On January 22, 2013 and January 24, 2013 respectively, Octagon 88 Resources, Inc. (the “Company”) entered into two agreements whereby they will acquire additional assets for the Company.
On January 22, 2013, the Company entered into an acquisition of mineral rights agreement with Zentrum Energie Trust AG (“Zentrum”) ( the “Mineral Rights Agreement”). Under the terms of the Mineral Rights Agreement the Company will acquire the Mineral Rights known as the Trout Properties. The Trout Properties are comprised of certain oil and gas leases as detailed below:
8
Section 9 -89 R3W5
|
Alberta Crown P&NG
Expiry: August, 2016
|
Sections 3,4,5 89R3W5
|
Alberta Crown Oil Sands Development Lease No. 7408100382
Expiry: July, 2017
|
The Mineral Rights Agreement contains the following terms, amongst others:
·
|
An 8% Royalty of Gross Monthly Production to be paid to Zentrum;
|
|
·
|
On or before December 31, 2013, the Company shall have drilled a minimum of one (1) Exploration Well to Contract Depth at locations to be provided by Zentrum and agreed to by the Company on Section 9 89 R3W5 of the Trout Property.
|
·
|
On or before June 30, 2014, unless otherwise mutually agreed to, the Company shall perform a 3D seismic program on Sections 4,5, 6 89 R3W5 of the Trout Property. A copy and rights to the seismic data shall be provided to the Vendor within 60 days of the completion of the project;
|
|
·
|
On or before December 31, 2014, unless otherwise mutually agreed to, the Company shall have drilled a minimum of one (1) Exploration Well at a location to be mutually determined based on the 3D seismic above;
|
·
|
Any default in the terms above will terminate the Mineral Rights Agreement and the Company shall return the Trout Property to Zentrum.
|
On January 24, 2013, the Company entered into a share purchase agreement with three independent shareholders whereby the Company will acquire 1,410,000 common shares in the capital stock of CEC North Star Energy Ltd. (“North Star”) (the “Agreement”). Under the terms of the Agreement, the Company is required to issue a total of 5,310,000 shares of the Company’s common stock at a deemed price of $5.65 per share in exchange for the 1,410,000 common shares of North Star. The Company currently holds 22% of the shares of North Star prior to this acquisition which will take the Company’s interest in North Star to approximately 32%.
On January 29, 2013, the Board appointed Mr. Guido Hilekes and Mr. Gordon E. Taylor as Directors of the Corporation.
On January 29, 2013, Mr. Feliciano Tighe tendered his resignation as President of the Company. Mr. Tighe remains Corporate Secretary and a director of the Company.
On January 29, 2013, the Board appointed Mr. Guido Hilekes as President of the Company.
9
ITEM 6. EXHIBITS
Number
|
Description
|
|
3.1
|
Articles of Incorporation
|
Incorporated by reference to the Exhibits filed with the Form S-1 filed with the SEC on September 18, 2008
|
3.2
|
Bylaws
|
Incorporated by reference to the Exhibits filed with the Form S-1 filed with the SEC on September 18, 2008
|
10.1
|
Financing commitment between the Company and Zentrum Energie Trust AG.
|
Incorporated by reference to the Exhibits attached to the Company Form 8K/A filed with the SEC on February 19, 2013
|
10.2
|
Acquisition Agreement between the Company and Zentrum Energie Trust AG dated October 15, 2012
|
Incorporated by reference to the Exhibits attached to the Company’s Form 8K/A filed with the SEC on February 19, 2013.-
|
10.3
|
Mineral Rights Agreement between the Company and Zentrum Energie Trust AG
|
Incorporated by reference to the Exhibits attached to the Company’s Form 8K filed with the SEC on January 29, 2013.
|
10.4
|
Share Purchase Agreement between the Company and Various Vendors
|
Incorporated by reference to the Exhibits attached to the Company’s Form 8K filed with the SEC on January 29, 2013.
|
31.1
|
Section 302 Certification - Principal Executive Officer
|
Filed herewith
|
31.2
|
Section 302 Certification - Principal Financial Officer
|
Filed herewith
|
32.1
|
Certification Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Principal Executive Officer
|
Filed herewith
|
32.2
|
Certification Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Principal Financial Officer
|
Filed herewith
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase
|
*
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase
|
*
|
101.INS
|
XBRL Instance Document
|
*
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase
|
*
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase
|
*
|
101.SCH
|
XBRL Taxonomy Extension Schema
|
*
|
*To be filed by Amendment.
10
Pursuant to the requirements 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.
OCTAGON 88 RESOURCES, INC.
|
|||
Date:
|
May 20, 2013
|
By:
|
/s/ Guido Hilekes
|
Name:
|
Guido Hilekes
|
||
Title:
|
President, Chief Executive Officer (Principal Executive Officer) Principal Accounting Officer and Director
|
||
Date:
|
May 20, 2013
|
By:
|
/s/ Bryan Cook
|
Name:
|
Bryan Cook
|
||
Title:
|
Chief Financial Officer (Principal Accounting Officer)
|
11