Discovery Energy Corp. - Quarter Report: 2008 November (Form 10-Q)

 

		Nov. 30, 2008 (Unaudited)		Feb. 29, 2008
Assets
Current Assets
Cash	$	43,190	$	132,303
GST Receivable		4,990		320
Total Assets	$	48,180	$	132,623
Liabilities and Stockholders Equity
Current Liabilities
Accrued Payables	$	4,300	$	11,711
Payable to Shareholders Note 3(b)		8,085		9,852
Total Current Liabilities		12,385		21,563
Stockholders' Equity
Common Stock (Note 5) 75,000,000 shares authorized, $0.001 par value 2008 - 32,076,500 shares issued		32,077		32,077
Additional paid in capital		149,871		149,871
Deficit accumulated during the exploration stage		(146,153)		(70,888)
Total Stockholders' Equity		35,795		111,060
Total Liabilities and Stockholders' Equity	$	48,180	$	132,623

 

On Behalf of the Board:

/s/ Richard Pierce                 Director

/s/ Andrew Lee Smith            Director

 

 

The accompanying notes are an integral part of these financial statements

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Santos Resource Corp.
(an Exploration stage company)
Statements of Operations
(Expressed in US Dollars)
(Unaudited)

 

Statement of Operations		Three months Ended		Three months Ended		Nine months Ended		Nine Months Ended		Cumulative to
(Expressed in US Dollars)		November 30,		November 30,		November 30,		November 30,		November 30,
		2008		2007		2008		2007		2008
Expenses
General and admin	$	(1,260)	$	19	$	(1,183)	$	314	$	(557)
Mineral Property Costs		24,094		3,483		27,594		11,145		59,174
Professional Fees		23,206		-		48,854		4,768		87,536
Total Expenses		46,040		3,502		75,265		16,227		146,153
Net loss and comprehensive loss	$	(46,040)	$	(3,502)	$	(75,265)	$	(16,227)	$	(146,153)
Net loss per share
Basic and diluted	$	(0)	$	(0)	$	(0)	$	(0)
Weighted average number of
shares outstanding - basic and diluted		32,076,500		31,115,000		32,076,500		31,115,000

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements

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Santos Resource Corp.
(an Exploration stage company)
Statement of Stockholders' Equity
At November 30, 2008
(Expressed in US Dollars)
(Unaudited)

		Common	Stock	Additional Paid-in	Deficit Accumulated During the Exploration	Total Shareholders'
		Number	Par Value	Capital	Stage	Equity
Balance, May 24, 2006 (date of inception)		-	$         -	$         -	$         -	$         -
Net loss for the period ending   February 28, 2007		-	-	-	-	-
Balance, February 28, 2007		-	-	-	-	-
Capital Stock issued for subscriptions receivable at $0.0005 per share and services at $0.0005 per share	19-Jun-07	31,040,000	31,040	(15,520)	-	15,520
Mineral Property Option   - Starfire Minerals	25-Jun07	75,000	75	11,175	-	11,250
Private Placement at $0.15 per share	1-Feb-08	961,500	962	143,264	-	144,226
Private Placement Fees	1-Feb-08	-	-	(4,568)	-	(4,568)
Net loss for the year ending   February 29, 2008		-	-	15,520	(70,888)	(55,368)
Balance, February 29, 2008		32,076,500	32,077	149,871	(70,888)	111,060
Net loss for the period ending   November 30, 2008			-	-	(75,265)	(75,265)
Balance, November 30, 2008		32,076,500	$   32,077	$   149,871	$  (146,153)	$  35,795

 

The accompanying notes are an integral part of these financial statements

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Santos Resource Corp.
(an Exploration stage company)
Statements of Cash Flows
(Expressed in US Dollars)
(Unaudited)

		Three Months Ended November 30, 2008		Three Months Ended November 30, 2007		Nine Months Ended November 30, 2008		Nine Month Ended November 30, 2007		Cumulative to November 30, 2008
Cash flows used in Operating Activities
Net loss for the period	$	(46,040)	$	(3,502)	$	(75,265)	$	(16,227)	$	(146,153)
Adjustments to net loss for non-cash activities
Shares issued for property acquisition		-		-		-		-		11,250
Subscriptions receivable		-		-		-		15,520		15,520
Decrease (Increase) in GST Receivable		(205)		-		(4,670)		(320)		(4,989)
Increase (Decrease) in accrued payable		(5,750)		-		(7,411)		4,888		4,300
Net cash used in operating activities		(51,995)		(3,502)		(87,346)		3,861		(120,072)
Cash flows from financing activities
Capital Stock issued		-		-		-		-		159,745
Private Placement Fees		-		-		-		-		(4,568)
Advances from shareholders		(1,767)		-		(1,767)		-		8,085
Net cash flows from financing activities		(1,767)		-		(1,767)		-		163,262
Cash increase (decrease) during the period		(53,762)		(3,502)		(89,113)		3,861		43,190
Cash beginning of the period		96,952		7,363		132,303		0		0
Cash end of the period	$	43,190	$	3,861	$	43,190	$	3,861	$	43,190
Interest Paid in the period		-		-		-		-		-
Income Taxes Paid in the period	$	-	$	-	$	-	$	-	$	-

 

 

 

The accompanying notes are an integral part of these financial statements

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Santos Resource Corp.
(an exploration stage company)
Notes to the Financial Statements
For the period ending November 30, 2008
(Expressed in U.S. dollars)

1)         Nature of Operations and Continuance of Business

Santos Resource Corp. (the "Company") was incorporated in the state of Nevada on May 24, 2006.  The Company is an Exploration Stage Company.  The Company's principal business is the acquisition and exploration of mineral properties.  The Company has not presently determined whether its properties contain mineral reserves that are economically recoverable. 

The accompanying 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 has never generated revenues since inception and has never paid any dividends and is unlikely to pay dividends or generate earnings in the immediate or foreseeable future. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity financing to continue operations, confirmation of the Company's interests in the underlying properties, and the attainment of profitable operations. As at November 30, 2008, the Company has never generated any revenues and has an accumulated loss of $146,153, since inception. These factors raise substantial doubt regarding the Company's ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

2.         Summary of Significant Accounting Policies

a)         Basis of Presentation

These interim financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Item 310(b) of Regulation S-B.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  Operating results for the periods ended November 30, 2008 and 2007 are not necessarily indicative of the results that may be expected for any interim period or the entire year. These interim financial statements should be read in conjunction with the audited financial statements for the year ended February 29, 2008. 

b)         Use of Estimates

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 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.

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Santos Resource Corp.
(an exploration stage company)
Notes to the Financial Statements
For the period ending November 30, 2008
(Expressed in U.S. dollars)

2.         Summary of Significant Accounting Policies (continued)

c)         Basic and Diluted Net Income (Loss) Per Share

The Company computes net income (loss) per share in accordance with SFAS No. 128, "Earnings per Share". SFAS No. 128 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period would be used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti dilutive. There were no dilutive instruments outstanding at November 30, 2008.

d)         Comprehensive Loss

SFAS No. 130, "Reporting Comprehensive Income," establishes standards for the reporting and display of comprehensive loss and its components in the financial statements. As at November 30, 2008, the Company has no items that represent a comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the financial statements.

e)        Cash and Cash Equivalents

The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.

f)         Mineral Property Costs

The Company has been in the exploration stage since its inception on May 24, 2006 and has not yet realized any revenues from its planned operations. It is primarily engaged in the acquisition and exploration of mining properties. Mineral property exploration costs are expensed as incurred. Mineral property acquisition costs are initially capitalized when incurred using the guidance in EITF 04-02, "Whether Mineral Rights Are Tangible or Intangible Assets". The Company assesses the carrying costs for impairment under SFAS No. 144, "Accounting for Impairment or Disposal of Long Lived Assets" at each fiscal quarter end. When it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves, the costs then incurred to develop such property, are capitalized. Such costs will be amortized using the units-of-production method over the estimated life of the probable reserve. If mineral properties are subsequently abandoned or impaired, any capitalized costs will be charged to operations.

g)        Long-lived Assets

In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the carrying value of long-lived assets is reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment. The Company recognizes impairment when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value.

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Santos Resource Corp.
(an exploration stage company)
Notes to the Financial Statements
For the period ending November 30, 2008
(Expressed in U.S. dollars)

2.         Summary of Significant Accounting Policies (continued)

h)         Financial Instruments

The fair values of financial instruments, which include cash and accrued liabilities and shareholder loans, were estimated to approximate their carrying values due to the immediate or short-term maturity of these financial instruments. The Company's mineral property is in Quebec and its administrative operation is in Canada, which results in exposure to market risks from changes in foreign currency rates. The financial risk is the risk to the Company's operations that arise from fluctuations in foreign exchange rates and the degree of volatility of these rates.

i)          Income Taxes

Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted SFAS No. 109 "Accounting for Income Taxes" and Interpretation No. 48 "Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No,. 109" ("FIN No. 48") as of its inception. Pursuant to this guidance the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.  FIN 48 prescribes a recognition and measurement model for uncertain tax positions taken or expected to be taken in the Company's tax returns. FIN 48 provides guidance on recognition, classification, presentation, and disclosure of unrecognized tax benefits.

j)          Foreign Currency Translation

The Company's functional and reporting currency is the United States dollar. Monetary assets and liabilities denominated in foreign currencies are translated in accordance with SFAS No. 52 "Foreign Currency Translation", using the exchange rate prevailing at the balance sheet date. Non-monetary assets are translated at historical exchange rates, and revenue and expense items at the average rate of exchange prevailing during the period. Gains and losses arising on settlement of foreign currency denominated transactions or balances are included in the determination of income. Foreign currency transactions are primarily undertaken in Canadian dollars. The Company has not, to the date of these financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.

k)         Recent Accounting Pronouncements

The Financial Accounting Standards Board has issued SFAS No. 155 "Accounting for Certain Hybrid Financial Instruments - an amendment of FASB Statements No. 133 and 140" and No. 156 "Accounting for Servicing of Financial Assets - an amendment of FASB Statement No. 140", but they are not expected to have a material effect in the Company's results of operations or financial position.

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Santos Resource Corp.
(an exploration stage company)
Notes to the Financial Statements
For the period ending November 30, 2008
(Expressed in U.S. dollars)

2.         Summary of Significant Accounting Policies (continued)

l)          Newly Adopted Accounting Standards

In February, 2007, the FASB issued Statement of Financial Accounting Standards No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115" (hereinafter "SFAS No. 159"). This statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This statement is expand the use of fair value measurement, which is consistent with the Board's long-term measurement objectives for accounting for financial instruments. This statement has adopted the Fair Value option of measuring financial assets and liabilities. 

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" ("SFAS No. 157").  SFAS 157 establishes framework for measuring fair value and expands disclosures about fair value measurements.  The changes to current practice resulting from the application of this statement relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements.  The statement is effective for fiscal years beginning after November 15, 2007 and periods within those fiscal years.  The Company adopted SFAS 157 effective February 1, 2008.

The adoption of these new pronouncements does not have a material impact on the Company's financial position or results of operations.

3.         Related Party Transactions

a)         On June 25, 2007, the Company issued 75,000 shares of common stock at $0.15 per share to Starfire Minerals as part of its contract to Option to Purchase Property in Quebec.  Richard Pierce, President of Santos Resource Corp. is a director on the board of each company.

b)         A shareholder loaned the company US$8,085 (CAD$10,000) in April 2007. The loan is non interest bearing and unsecured and is payable upon request from the shareholder.

4.         Mineral Properties

On June 25, 2007 the Company signed an option agreement to acquire a 75%  interest in 18 mineral property claims in Northern Quebec known as the Lordeau Property, with Starfire Minerals Inc. ("Starfire"). Santos was granted an option to acquire 75% of the right, title and undivided interest in the property (subject to the NSR Royalty reserved to Starfire). Terms and conditions are as follows:

a)         $10,000 cash payment by Santos:

(i)       $10,000 on execution of this agreement (paid);

b)         75,000 common shares of Santos to be allotted and issued and certificates therefore delivered to Starfire as follows:

(i)       75,000 common shares (issued June 25, 2007)

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Santos Resource Corp.
(an exploration stage company)
Notes to the Financial Statements
For the period ending November 30, 2008
(Expressed in U.S. dollars)

4.         Mineral Properties (continued)

c)         Exploration expenditures paid

(i)       $24,092 on September 19, 2008;

d)         Exploration expenditures to be incurred:

(i)       $25,000 on or before July 25, 2009

In the event that the Company fails to incur the full amount of Expenditures in a given period, the Company may, within 45 days of the end of such period pay Starfire an amount equal to the outstanding balance to be incurred by way of 50% cash and 50% shares (valued at the weighted average trading price for during the 10 trading days preceding the period end date).

In addition, any shares delivered, cash payments made, or Expenditures incurred toward the option price that is over and above that required to be made during a particular time shall be carried forward and applied against the required payment in subsequent periods.

Santos will pay Starfire a 3% net smelter return royalty ("NSR Royalty").  Santos may purchase in the aggregate up to two-thirds (i.e., 2% NSR Royalty) of the NSR Royalty on the basis of one hundred thousand dollars for each one-tenth percent of the NSR Royalty (i.e., $100,000 per 0.1% NSR Royalty) acquired on the first one-half of the NSR Royalty (i.e., the first 1% NSR Royalty), and one hundred fifty ($150,000) dollars for each one-tenth percent of the NSR Royalty (i.e., $150,000 per 0.1% NSR Royalty) thereafter for the remaining NSR Royalty (i.e., the remaining 1% NSR Royalty).  To exercise its option to purchase the NSR Royalty or any portion thereof, Santos must provide the Owner with at least 30 days advance written notice of its intention to do so, and must close upon each purchase within 60 days of each notice.

5.         Common Stock

On June 19, 2007, the Company issued 31,040,000 shares of common stock at $0.0005 per share for cash proceeds of $15,520 and contributed services of $15,520, to Directors, officers and a relative of a Director.

On June 25, 2007 the Company issued 75,000 shares of common stock to Starfire Minerals at $0.15 per share for proceeds of $11,250, as part of its contract to Option to purchase Property in Quebec.

On February 1, 2008, the Company issued 961,500 shares of common stock at $0.15 per share for proceeds of $144,225, all collected in fiscal 2008.

 

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Santos Resource Corp.
(an exploration stage company)
Notes to the Financial Statements
For the period ending November 30, 2008
(Expressed in U.S. dollars)

6.          Commitments

On July 16, 2007, we entered into a services retainer agreement with Fraser and Company LLP, to provide legal services to Santos.  Pursuant to the agreement, Fraser and Company LLP will provide legal services in connection with the organization and set up of Santos and the preparation and filing of a registration statement with the SEC for a fee of approximately $50,000 (CAD$50,000).  An initial payment of $30,000 (CAD$30,000) has been paid for filing of the initial registration statement, and the balance of $20,000 (CAD$20,000) was paid upon the registration statement being declared effective by the SEC on December 8, 2008.

7.          Financial Instruments

The Company's financial instruments consist of cash, shareholder loans and accrued liabilities unless otherwise noted, it is management's opinion that the Company is not exposed to significant interest, currency, or credit risks arising from these financial instruments. The fair values of these financial instruments approximate their carrying value, unless otherwise noted.

Currency risk is the risk to the Company's earnings that arises from fluctuations of foreign exchange rates and the degree of volatility of these rates. The Company does not use derivative instruments to reduce its exposure to foreign currency risk.

At November 30, 2008 the Company had the following financial assets and liabilities in Canadian dollars:

			USD equivalent		CDN Dollars
	Cash on deposit  Due to Shareholder	$ $	43,188 8,085	$ $	53,419 10,000
	Accounts payable and accrued liabilities	$	4,300	$	5,319

At November 30, 2008 US dollar amounts were converted at a rate of $0.80848 Canadian dollars to $1.00 US dollar.

 

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Santos Resource Corp.
(an exploration stage company)
Notes to the Financial Statements
For the period ending November 30, 2008
(Expressed in U.S. dollars)

8.        Income Taxes

Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has a net operating loss of $70,888, which expires in 2028. Pursuant to SFAS No. 109, the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.

The components of the net deferred tax asset at February and the statutory tax rate, the effective tax rate and the elected amount of the valuation allowance are scheduled below:

	Nine months ended November 30, 2008 $		February 28, 2007 $
Net Loss	75,265		70,888
Statutory Tax Rate	35%		35%
Deferred Tax Asset	26,343		24,811
Valuation Allowance	(26,343)		(24,811)
Net Deferred Tax Asset	-		-