Phoenix Life Sciences International Limited. - Quarter Report: 2012 November (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
X .
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
November 30, 2012
Or
.
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Commission File Number 333-167275
MOKITA VENTURES, INC.
(Exact name of registrant as specified in its charter)
Nevada | 46-0525378 |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
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7695 SW 104th St., Suite 210, Miami, FL | 33156 |
(Address of principal executive offices) | (Zip Code) |
(305) 663-7140
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
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 .
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 X . No .
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small 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 | . (Do not check if a 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 .
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes . No .
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
t7,800,000 common shares issued and outstanding as of April 12, 2013.
MOKITA VENTURES, INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Management's Discussion and Analysis of Financial Condition or Plan of Operation
Quantitative and Qualitative Disclosures About Market Risk
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
2
PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements
These unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the Securities and Exchange Commission instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended November 30, 2012 are not necessarily indicative of the results that can be expected for the full year.
3
MOKITA, INC.
(An Exploration Stage Company)
Financial Statements
For the Period Ended November 30, 2012
(unaudited)
Balance Sheets (unaudited) | 2 |
Statements of Operations (unaudited) | 3 |
Statements of Cash Flows (unaudited) | 4 |
Notes to the Financial Statements | 5 |
4
MOKITA, INC.
(An Exploration Stage Company)
Balance Sheets
(The accompanying notes are an integral part of these financial statements)
5
MOKITA, INC.
(An Exploration Stage Company)
Statements of Operations
(unaudited)
| For the three months ended November 30, 2012 $ | For the three months ended November 30, 2011 $ | For the nine months ended November 30, 2012 $ | For the nine months ended November 30, 2011 $ | Accumulated from April 21, 2009 (Date of Inception) to November 30, 2012 $ |
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Revenues | 735 | 977 | 6,021 | 1,212 | 10,338 |
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Operating expenses |
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Accretion expense | 6 | – | 18 | – | 107 |
Depreciation, depletion, and amortization | – | – | 304 | – | 1,024 |
General and administrative | 6,755 | 22,934 | 54,760 | 92,575 | 189,058 |
Impairment of oil & gas properties | – | – | 3,256 | – | 64,282 |
Lease operating expenses | 145 | – | 2,028 | – | 2,885 |
Professional fees | 8,554 | 11,250 | 37,594 | 34,864 | 113,668 |
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Total operating expenses | 15,460 | 34,184 | 97,960 | 127,439 | 371,024 |
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Loss before other expenses | (14,725) | (33,207) | (91,939) | (126,227) | (360,686) |
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Other expense |
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Interest expense | (5,360) | – | (15,243) | – | (28,100) |
Change in fair value of derivative liability | 4,736 | – | (59,319) | – | (59,319) |
Loss on debt modification | – | – | (215,347) | – | (215,347) |
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Total other expense | (624) | – | (289,909) | – | (302,766) |
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Net loss | (15,349) | (33,207) | (381,848) | (126,227) | (663,452) |
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Net loss per share – basic and diluted | – | – | (0.05) | (0.02) |
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Weighted average shares outstanding – basic and diluted | 7,800,000 | 7,800,000 | 7,800,000 | 6,261,818 |
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(The accompanying notes are an integral part of these financial statements)
6
MOKITA, INC.
(An Exploration Stage Company)
Statements of Cashflow
(unaudited)
| For the nine months ended November 30, 2012 $ | For the nine months ended November 30, 2011 $ | Accumulated from April 21, 2009 (Date of Inception) November 30, 2012 $ |
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Operating Activities |
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Net loss | (381,848) | (126,227) | (663,452) |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Accretion expense | 18 | – | 107 |
Depreciation, depletion, and amortization | 304 | – | 1,024 |
Impairment of oil & gas properties | 3,256 | – | 64,282 |
Imputed interest | – | – | 12,857 |
Loss on change in fair value of derivative liability | 59,319 | – | 59,319 |
Loss on debt modification | 215,347 | – | 215,347 |
Shares issued for management bonuses | – | 30,000 | 30,000 |
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Changes in operating assets and liabilities: |
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Accounts receivable | 1,837 | – | (327) |
Prepaid expense and deposits | – | 1,000 | – |
Accounts payable | 24,818 | 23,614 | 59,255 |
Due to related parties | 14,150 | – | 14,150 |
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Net Cash Used In Operating Activities | (62,799) | (71,613) | (207,438) |
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Investing Activities |
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Purchase of oil and gas property | – | (82,170) | (49,500) |
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Net Cash Used In Investing Activities | – | (82,170) | (49,500) |
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Financing Activities |
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Proceeds from issuance of common shares | – | – | 48,000 |
Proceeds from notes payable | 65,000 | – | 182,330 |
Proceeds from a related party | – | 157,500 | 49,000 |
Repayments to a related party | – | – | (20,000) |
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Net Cash Provided By Financing Activities | 65,000 | 157,500 | 259,330 |
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Increase in Cash | 2,201 | 3,717 | 2,392 |
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Cash – Beginning of Period | 191 | 1,141 | – |
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Cash – End of Period | 2,392 | 4,858 | 2,392 |
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Non-cash investing and financing activities |
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Asset retirement obligation – change in estimate | 1,036 |
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Oil and gas property acquired with note payable | – | – | 32,670 |
Related party debt forgiven | – | – | 20,500 |
Asset retirement obligation assumed on oil and gas properties | 1,170 | – | 1,170 |
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Supplemental disclosures |
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Interest paid | – | – | – |
Income tax paid | – | – | – |
(The accompanying notes are an integral part of these financial statements)
7
MOKITA, INC.
(An Exploration Stage Company)
Notes to the Financial Statements
(unaudited)
1.
Nature of Operations and Continuance of Business
Mokita, Inc. (the “Company”) was incorporated in the State of Nevada on April 21, 2009. The Company is an exploration stage company, as defined by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 915, Development Stage Entities. The Company’s principal operations were to provide credit card payment systems. In May 2011, the Company acquired working interests in oil and gas properties and changed its’ principal operations to the acquisition and development of oil and gas properties.
Going Concern
These financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. As at November 30, 2012, the Company has a working capital deficit of $568,852 and an accumulated deficit of $663,452. The continuation of the Company as a going concern is dependent upon the continued financial support from its management, and its ability to identify future investment opportunities and obtain the necessary debt or equity financing, and generating profitable operations from the Company’s future operations. 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
The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) and are expressed in U.S. dollars. The Company’s fiscal year end is February 28.
b)
Use of Estimates
The preparation of financial statements in conformity with US GAAP 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. The Company regularly evaluates estimates and assumptions related to the deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
c)
Interim Financial Statements
These interim unaudited financial statements have been prepared on the same basis as the annual financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for a full year or for any future period.
d)
Cash and cash equivalents
The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents. As at November 30, 2012 and February 29, 2012, the Company did not hold any cash equivalents.
8
MOKITA, INC.
(An Exploration Stage Company)
Notes to the Financial Statements
(unaudited)
2.
Summary of Significant Accounting Policies (continued)
e)
Basic and Diluted Net Loss per Share
The Company computes net loss per share in accordance with ASC 260, Earnings per Share. ASC 260 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 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 is 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.
f)
Financial Instruments
Pursuant to ASC 820, Fair Value Measurements and Disclosures, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company’s financial instruments consist principally of cash, accounts receivable, accounts payable and accrued liabilities, amounts due to related parties, and notes payable. Pursuant to ASC 820, the fair value of our cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. We believe that the recorded values of all of our other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
9
MOKITA, INC.
(An Exploration Stage Company)
Notes to the Financial Statements
(unaudited)
2.
Summary of Significant Accounting Policies (continued)
f)
Financial Instruments (continued)
Assets and liabilities measured at fair value on a recurring basis were presented on the Company’s balance sheet as at November 30, 2012 as follows:
| Fair Value Measurements Using |
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| Quoted prices in active markets for identical instruments (Level 1) $ | Significant other observable Inputs (Level 2) $ | Significant Unobservable inputs (Level 3) $ | Balance, November 30, 2012 $ |
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Derivative liability | – | – | (274,666) | (274,666) |
g)
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks.
The Company reviews the terms of the common stock, warrants and convertible debt it issues to determine whether there are embedded derivative instruments, including embedded conversion options, which are required to be bifurcated and accounted for separately as derivative financial instruments. In circumstances where the host instrument contains more than one embedded derivative instrument, including the conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.
Bifurcated embedded derivatives are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense. The Company uses a Black-Scholes model for valuation of the derivative. When the equity or convertible debt instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds received are first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any, are then allocated to the host instruments themselves, usually resulting in those instruments being recorded at a discount from their face value.
The discount from the face value of the convertible debt, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges to interest expense, using the effective interest method.
Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether net cash settlement of the derivative instrument could be required within the 12 months of the balance sheet date.
h)
Comprehensive Loss
ASC 220, Comprehensive Income, establishes standards for the reporting and display of comprehensive loss and its components in the financial statements. As at November 30 and February 29, 2012, the Company has no items that represent a comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the financial statements.
10
MOKITA, INC.
(An Exploration Stage Company)
Notes to the Financial Statements
(unaudited)
2.
Summary of Significant Accounting Policies (continued)
i)
Oil and Gas Properties
The Company utilizes the full-cost method of accounting for petroleum and natural gas properties. Under this method, the Company capitalizes all costs associated with acquisition, exploration and development of oil and natural gas reserves, including leasehold acquisition costs, geological and geophysical expenditures, lease rentals on undeveloped properties and costs of drilling of productive and non-productive wells into the full cost pool on a country by country basis. When the Company obtains proven oil and gas reserves, capitalized costs, including estimated future costs to develop the reserves proved and estimated abandonment costs, net of salvage, will be depleted on the units-of-production method using estimates of proved reserves. The costs of unproved properties are not amortized until it is determined whether or not proved reserves can be assigned to the properties. Until such determination is made the Company assesses annually whether impairment has occurred, and includes in the amortization base drilling exploratory dry holes associated with unproved properties.
The Company applies a ceiling test to the capitalized cost in the full cost pool. The ceiling test limits such cost to the estimated present value, using a ten percent discount rate, of the future net revenue from proved reserves, based on current economic and operating conditions. Specifically, the Company computes the ceiling test so that capitalized cost, less accumulated depletion and related deferred income tax, do not exceed an amount (the ceiling) equal to the sum of: (a) The present value of estimated future net revenue computed by applying constant prices of oil and gas reserves based on an average of prices during the year (with consideration of price changes only to the extent provided by contractual arrangements) to estimated future production of proved oil and gas reserves as of the date of the latest balance sheet presented, less estimated future expenditures (based on current cost) to be incurred in developing and producing the proved reserves computed using a discount factor of ten percent and assuming continuation of existing economic conditions; plus (b) the cost of property not being amortized; plus (c) the lower of cost or estimated fair value of unproven properties included in the costs being amortized; less (d) income tax effects related to differences between the book and tax basis of the property.
Management’s assumptions used in calculating oil and gas reserves or regarding the future net cash flows or fair value of the Company’s properties are subject to change in the future. Any change, such as changes in reserves or commodity price forecasts, could cause changes in the fair value estimates of the properties or impairment expense to be recorded, impacting net income or loss of the Company. Any change in reserves directly impacts future cash flows and fair values of the properties.
During the period ended November 30, 2012, the Company recorded depreciation, depletion, and amortization expense of $304 (2011 - $nil) and recognized an impairment of oil & gas properties of $3,256 (2011 - $nil).
j)
Asset Retirement Obligations
The Company follows the provisions of ASC 410, Asset Retirement and Environmental Obligations, which establishes standards for the initial measurement and subsequent accounting for obligations associated with the sale, abandonment or other disposal of long-lived tangible assets arising from the acquisition, construction or development and for normal operations of such assets. As at November 30, 2012, the Company recorded asset retirement obligations of $241. During the period ended November 30, 2012, the Company recorded an accretion expense of $18 (2011 - $nil) and decreased the estimated asset retirement obligation by $1,036.
11
MOKITA, INC.
(An Exploration Stage Company)
Notes to the Financial Statements
(unaudited)
2.
Summary of Significant Accounting Policies (continued)
k)
Stock-based Compensation
The Company records stock-based compensation in accordance with ASC 718, Compensation – Stock Based Compensation and ASC 505-50 - Equity-Based Payments to Non-Employees. 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.
l)
Recent Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations
3.
Oil and Gas Properties
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| Noble County, Oklahoma $ | Stephens County, Oklahoma $ |
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Capitalized costs, February 28, 2011 |
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Acquisition costs |
| 32,670 | 49,500 |
Other costs |
| 1,170 | – |
Depreciation, depletion, and amortization |
| (720) | – |
Impairment |
| (11,526) | (49,500) |
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Capitalized costs, February 29, 2012 |
| 21,594 | – |
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Revision to asset retirement cost |
| (1,036) | – |
Depreciation, depletion, and amortization |
| (304) | – |
Impairment |
| (3,256) | – |
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Capitalized costs, November 30, 2012 |
| 16,998 | – |
(a)
On May 12, 2011, the Company entered into a participation agreement to acquire a 6% working interest in oil and gas properties located in Noble County, Oklahoma for $32,670.
(b)
On May 31, 2011, the Company entered into a participation agreement to acquire a 1% working interest in oil and gas properties located in Stephens County, Oklahoma for $49,500.
4.
Convertible Debenture
As at November 30, 2012, the Company owes $215,000 (February 29, 2012 - $150,000) to a non-related party for an outstanding note payable. Included in this amount is $32,670 which was paid by the note holder for the acquisition of oil and gas properties. The amount owing is unsecured, bears interest at 10%, and due on demand. As at November 30, 2012, the Company accrued $15,243 of interest payable.
On March 15, 2012, the Company amended the terms of the note payable to be convertible at a rate of 75% of the weighted average closing price for the ten trading days immediately preceding the conversion date. During the period ended November 30, 2012, the Company recorded a loss on the debt modification of $215,347 (2011 - $nil).
12
MOKITA, INC.
(An Exploration Stage Company)
Notes to the Financial Statements
(unaudited)
5.
Derivative Liability
The conversion option of the convertible debenture disclosed in Note 4 is required to record a derivative at its estimated fair value on each balance sheet date with changes in fair value reflected in the statement of operations.
During the period ended November 30, 2012, the Company recorded a loss on the change in fair value of the conversion option derivative liability of $59,319 and as of November 30, 2012, the fair value of the conversion option derivative liability was $274,666.
6.
Related Party Transactions
a)
As at November 30, 2012, the Company owes $nil (2012 - $4,500) to the former President and Director of the Company for the funding of general operations. The amount owing is unsecured, non-interest bearing, and due on demand.
b)
As at November 30, 2012, the Company owes $22,650 (2012 - $4,000) to a Director of the Company for the funding of general operations and management fees. The amount owing is unsecured, non-interest bearing, and due on demand.
6.
Subsequent Events
a)
On December 14, 2012, we received signed resolutions from shareholders of approximately 67% of our voting securities authorizing the removal of Douglas E. Forrest as president, treasurer, chief executive officer, chief financial officer, and director, as Mr. Forrest has been unreachable to management and shareholders.
b)
Subsequent to Mr. Forrest’s removal as director, Irma N. Colón-Alonso was appointed as president, treasurer, chief executive officer, and chief financial officer. Ms. Colón-Alonso is now our sole director and officer.
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Management's Discussion and Analysis of Financial Condition or Plan of Operation
FORWARD-LOOKING STATEMENTS
This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "should", 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 that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, 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.
Our unaudited financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles. The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this quarterly report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this quarterly report.
In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars. All references to "US$" refer to United States dollars and all references to "common stock" refer to the common shares in our capital stock.
Except as otherwise indicated by the context, references in this report to “we”, “us” “our” and “our company” are references to Mokita Ventures, Inc.
General Overview
Our company was incorporated in the State of Nevada on April 21, 2009, under the name Mokita Exploration, Ltd. Our company originally intended to develop its business as a mineral exploration company, however, due to the low supply of potentially profitable mining properties, our company abandoned its original plan and restructured its business strategy. We then focused our efforts on developing a business as a provider of credit card payment services for Canadian customers. To reflect our company’s new focus, on February 5, 2010, we filed a Certificate of Amendment to the Articles of Incorporation changing our name to Mokita, Inc.
Our company is no longer working to develop a business as a provider of credit card payment services and we have changed our business direction towards the acquisition, exploration and development of oil and gas properties. We decided to enter the oil and gas industry because we were seeking out viable options to create value for our shareholders. After conducting independent research on the feasibility of discovering and exploiting commercially recoverable amounts of oil and gas, we determined that an investment in oil and gas properties would be an excellent long term strategy that could potentially lead to lucrative business opportunities. On July 20, 2011, we filed a Certificate of Amendment to the Articles of Incorporation changing our name to Mokita Ventures, Inc., to reflect our company’s new business plan.
Our Business
We are currently an exploration stage company focused on the acquisition, development and production of oil and gas properties. As of the date of this Report, we have entered into two Participation Agreements, as discussed below in greater detail, for a percentage working interest in two oil and gas properties. If the properties are viable and can be developed, we will receive a pro-rata share of any revenues generated from the properties, equivalent to our percentage working interests in the properties. There are leases underlying the wells in which we own working interests; however we are not the holder of these leases and therefore we are not responsible for the payment or evaluation of any obligations under such leases. The leaseholder of the properties is responsible for paying and maintaining the leases. If we are successful in generating revenues from our working interests in these oil and gas properties, we intend to acquire working interests in additional wells in the project area, subject to obtaining additional financing. Our business strategy also includes seeking opportunities for mergers or acquisitions with other companies or entities.
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Although we are currently focused on projects located in certain geographic regions, we continually evaluate attractive resource opportunities in other geographic areas. Our current focus is on acquiring working interests in oil and/or gas wells in the state of Oklahoma. The oil and gas properties in which we have working interests have minimal proven reserves of oil or gas. We have a limited operating income and as a result, we depend upon funding from various sources to continue operations and to implement our growth strategy.
As of November 30, 2012, we have earned revenues of $10,338, have cash on hand of $2,392 and have incurred a net loss of $663,452 since inception to the period ended November 30, 2012. We do not anticipate earning substantial revenues until such time as the oil and gas properties in which we have working interests enter into commercial production. These factors raise substantial doubt about our company’s ability to continue as a going concern. The continuation of our company as a going concern is dependent upon the continued financial support from our shareholders, the ability of our company to obtain necessary equity financing to achieve our operating objectives, and the attainment of profitable operations from our working interests in our oil and gas properties.
On March 15, 2012, we entered into a convertible note with Exchequer Finance Inc. Under the terms of the convertible note, Exchequer Finance Inc. has agreed to loan our company US$170,000. The loan is convertible into shares of our common stock at a conversion price set at 75% of the average closing prices for the ten trading days immediately preceding the conversion date. The loan will bear interest at 10% per annum and the principal amount of the loan is due and payable two years from the advancement date.
Also on March 15, 2012, we amended the terms of the amounts due to Exchequer Finance Inc. Under the amended terms, the amount owing of US$215,000 is now unsecured, bears interest at 10% per annum, and is due on March 15, 2014. In addition, the loan is convertible into shares of our common stock at a conversion price set at 75% of the average closing prices for the ten trading days immediately preceding the conversion date.
Results of Operations
Results of Operations for the Nine Months Ended November 30, 2012 and November 30, 2011 and the Period from April 21, 2009 (inception) to November 30, 2012
| Nine Months Ended November 30, 2012 $ | Nine Months Ended November 30, 2011 $ | Accumulated from April 21, 2009 (Date of Inception) to November 30, 2012 $ |
Revenues | 6,021 | 1,212 | 10,338 |
|
|
|
|
Accretion expense | 18 | Nil | 107 |
Depreciation, depletion, and amortization | 304 | Nil | 1,024 |
General and administrative | 54,760 | 92,575 | 189,058 |
Impairment of oil & gas properties | 3,256 | Nil | 64,282 |
Lease operating expenses | 2,028 | Nil | 2,885 |
Professional Fees | 37,594 | 34,864 | 113,668 |
Other Expenses | 289,909 | Nil | 302,766 |
Net loss | (381,848) | (126,227) | (663,452) |
Working Capital
| November 30, 2012 $ | February 29, 2012 $ |
Current Assets | 2,719 | 2,355 |
Current Liabilities | 571,571 | 192,937 |
Working Capital (Deficit) | (568,852) | (190,582) |
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Cash Flows
| For the nine months ended November 30, 2012 $ | For the nine months ended November 30, 2011 $ |
Cash Flows from (used in) Operating Activities | (62,799) | (71,613) |
Cash Flows from (used in) Investing Activities | – | (82,170) |
Cash Flows from (used in) Financing Activities | 65,000 | 157,500 |
Net Increase (decrease) in Cash During Period | 2,201 | 3,717 |
Operating Revenues
During the nine months ended November 30, 2012, the Company recorded oil and gas production revenue of $6,021 compared with $1,212 for the nine months ended November 30, 2011. The increase is due to the fact that the Company had interests in two oil and gas properties during the year, which began producing and generating revenue.
Operating Expenses and Net Loss
Operating expenses for the nine months ended November 30, 2012 was $97,690 compared with $127,439 for the nine months ended November 30, 2011. The decrease of $29,749 is attributed to a significant decrease in general and administrative expenses offset with an impairment loss of $3,256 for oil and gas properties.
Overall, net loss for the nine months ended November 30, 2012 was $381,848 or $0.05 loss per share compared with a net loss of $126,227 and a loss per share of $0.02 for the nine months ended November 30, 2011. The increase in net loss is attributed to a loss on debt modification of $215,347 and loss resulting from a change in fair value of the derivative liability of $59,319.
Liquidity and Capital Resources
As at November 30, 2012, the Company had a cash balance of $2,392 compared with $191 at February 29, 2012. The increase in cash was attributed to net proceeds received during the period as the Company raised financing which was offset by production costs and general operating costs incurred. The total asset balance as at November 30, 2012 was $19,717 compared to $23,949 at February 29, 2012. The decrease in total assets was attributed to the depletion of the oil and gas properties.
As at November 30, 2012, the Company had total liabilities of $571,812 compared with $194,196 at February 29, 2012. The increase in total liabilities was attributed to an increase of $14,150 in amounts owing to related parties, $24,818 increase in accounts payable and accrued liabilities, $65,000 increase for convertible debt taken on to obtain financing and $274,666 for the fair value of the derivative liability related to the conversion option of the convertible debt.
Cashflow from Operating Activities
During the nine months ended November 30, 2012, the Company used $62,799 of cash in operating activities compared to the use of $71,613 of cash for operating activities during the nine months ended November 30, 2011. The decrease in cash used in operating activities was attributed to the decrease in general and administrative costs incurred during the current period.
Cashflow from Investing Activities
During the nine months ended November 30, 2012, the Company incurred $nil of cash for investing activities related to the acquisition costs of the oil and gas properties. During the nine months ended November 30, 2011, the Company incurred $82,170 for investing activities related to the acquisition costs of the oil and gas properties.
Cashflow from Financing Activities
During the nine months ended November 30, 2012, the Company received a net amount of $65,000 of cash from financing activities related to issuing a convertible debenture to a non-related party. During the nine months ended November 30, 2011, the Company received proceeds of $157,500 from a related party.
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Going Concern
We have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive acquisitions and activities. For these reasons, our auditors stated in their report on our audited financial statements that they have substantial doubt that we will be able to continue as a going concern without further financing.
Future Financings
We will continue to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund planned acquisitions and exploration activities.
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 are 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. A complete summary of these policies is included in the notes to 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.
Basis of Presentation
The financial statements of our company have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) and are expressed in U.S. dollars. Our company’s fiscal year end is February 28.
Use of Estimates
The preparation of financial statements in conformity with US GAAP 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. Our company regularly evaluates estimates and assumptions related to the deferred income tax asset valuation allowances. Our company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by our company may differ materially and adversely from our company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Interim Financial Statements
These interim unaudited financial statements have been prepared on the same basis as the annual financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly our company’s financial position, results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for a full year or for any future period.
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Cash and cash equivalents
Our company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents. As at November 30, 2012, our company did not hold any cash equivalents.
Basic and Diluted Net Loss per Share
Our company computes net loss per share in accordance with ASC 260, Earnings per Share. ASC 260 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 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 is 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.
Financial Instruments
Pursuant to ASC 820, Fair Value Measurements and Disclosures, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1 - Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 - Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3 - Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
Our company’s financial instruments consist principally of cash, accounts receivable, accounts payable and accrued liabilities, amounts due to related parties, convertible debentures, and derivative liabilities. We believe that the recorded values of all of our other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
Assets and liabilities measured at fair value on a recurring basis were presented on our company’s balance sheet as at November 30, 2012 as follows:
| Fair Value Measurements Using |
| ||
| Quoted prices in active markets for identical instruments (Level 1) $ | Significant other observable Inputs (Level 2) $ | Significant Unobservable inputs (Level 3) $ | Balance, November 30, 2012 $ |
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Derivative Liability | – | – | (274,666) | (274,666) |
Oil and gas properties are considered to be Level 3 financial instruments occurring on a non-recurring basis with a fair value measurement of $16,998 as at November 30, 2012.
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Derivative Financial Instruments
Our company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks.
Our company reviews the terms of the common stock, warrants and convertible debt it issues to determine whether there are embedded derivative instruments, including embedded conversion options, which are required to be bifurcated and accounted for separately as derivative financial instruments. In circumstances where the host instrument contains more than one embedded derivative instrument, including the conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.
Bifurcated embedded derivatives are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense. Our company uses a Black-Scholes model for valuation of the derivative. When the equity or convertible debt instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds received are first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any, are then allocated to the host instruments themselves, usually resulting in those instruments being recorded at a discount from their face value.
The discount from the face value of the convertible debt, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges to interest expense, using the effective interest method.
Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether net cash settlement of the derivative instrument could be required within the 12 months of the balance sheet date.
Comprehensive Loss
ASC 220, Comprehensive Income, establishes standards for the reporting and display of comprehensive loss and its components in the financial statements. As at November 30 and February 29, 2012, our company has no items that represent a comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the financial statements.
Oil and Gas Properties
Our company utilizes the full-cost method of accounting for petroleum and natural gas properties. Under this method, our company capitalizes all costs associated with acquisition, exploration and development of oil and natural gas reserves, including leasehold acquisition costs, geological and geophysical expenditures, lease rentals on undeveloped properties and costs of drilling of productive and non-productive wells into the full cost pool on a country by country basis. When our company obtains proven oil and gas reserves, capitalized costs, including estimated future costs to develop the reserves proved and estimated abandonment costs, net of salvage, will be depleted on the units-of-production method using estimates of proved reserves. The costs of unproved properties are not amortized until it is determined whether or not proved reserves can be assigned to the properties. Until such determination is made our company assesses annually whether impairment has occurred, and includes in the amortization base drilling exploratory dry holes associated with unproved properties.
Our company applies a ceiling test to the capitalized cost in the full cost pool. The ceiling test limits such cost to the estimated present value, using a ten percent discount rate, of the future net revenue from proved reserves, based on current economic and operating conditions. Specifically, our company computes the ceiling test so that capitalized cost, less accumulated depletion and related deferred income tax, do not exceed an amount (the ceiling) equal to the sum of: (a) The present value of estimated future net revenue computed by applying constant prices of oil and gas reserves based on an average of prices during the year (with consideration of price changes only to the extent provided by contractual arrangements) to estimated future production of proved oil and gas reserves as of the date of the latest balance sheet presented, less estimated future expenditures (based on current cost) to be incurred in developing and producing the proved reserves computed using a discount factor of ten percent and assuming continuation of existing economic conditions; plus (b) the cost of property not being amortized; plus (c) the lower of cost or estimated fair value of unproven properties included in the costs being amortized; less (d) income tax effects related to differences between the book and tax basis of the property.
Management’s assumptions used in calculating oil and gas reserves or regarding the future net cash flows or fair value of our company’s properties are subject to change in the future. Any change, such as changes in reserves or commodity price forecasts, could cause changes in the fair value estimates of the properties or impairment expense to be recorded, impacting net income or loss of our company. Any change in reserves directly impacts future cash flows and fair values of the properties.
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During the period ended November 30, 2012, our company recorded depreciation, depletion, and amortization expense of $304 (2011 - $nil) and recognized an impairment of oil & gas properties of $3,256 (2011 - $nil).
Asset Retirement Obligations
Our company follows the provisions of ASC 410, Asset Retirement and Environmental Obligations, which establishes standards for the initial measurement and subsequent accounting for obligations associated with the sale, abandonment or other disposal of long-lived tangible assets arising from the acquisition, construction or development and for normal operations of such assets. As at November 30, 2012, our company recorded asset retirement obligations of $241. During the period ended November 30, 2012, our company recorded an accretion expense of $18 (2011 - $nil) and decreased the estimated asset retirement obligation by $1,018.
Stock-based Compensation
Our company records stock-based compensation in accordance with ASC 718, Compensation – Stock Based Compensation and ASC 505-50 - Equity-Based Payments to Non-Employees. 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.
Recently Issued Accounting Pronouncements
Our company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and our company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
As a "smaller reporting company", we are not required to provide the information required by this Item.
Item 4.
Controls and Procedures
Management's Report on Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our president and chief financial officer (our principal executive officer, principal financial officer and principal accounting officer), of the effectiveness of our disclosure controls and procedures. Based upon that evaluation, our president and chief financial officer (our principal executive officer, principal financial officer and principal accounting officer) concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were not effective at ensuring that information required to be disclosed in reports filed under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our president and chief financial officer (our principal executive officer, principal financial officer and principal accounting officer), as appropriate to allow timely decisions regarding required disclosure. This determination was a result of our external auditor needing to post adjustments to our financial statements.
Our management, including our president and chief financial officer (our principal executive officer, principal financial officer and principal accounting officer), does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. We performed additional analysis and other post-closing procedures in an effort to ensure our consolidated financial statements included in this quarterly report have been prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarterly period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1.
Legal Proceedings
We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which our director, officer or any affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
Item 1A.
Risk Factors
As a "smaller reporting company", we are not required to provide the information required by this Item.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3.
Defaults Upon Senior Securities
None.
Item 4.
Mine Safety Disclosures
Not applicable.
Item 5.
Other Information
Effective March 8, 2012, Irma N. Colón-Alonso resigned as president, treasurer, chief executive officer and chief financial officer of our company. Ms. Colón-Alonso will remain as our secretary and as a member to our board of director. Ms. Colón-Alonso’s resignation was not the result of any disagreements with our company regarding our operations, policies, practices or otherwise.
Concurrently with Ms. Colón-Alonso’s resignation, we appointed Douglas E. Forrest as president, treasurer, chief executive officer and chief financial officer, effective March 8, 2012. We also increased the number of directors on our board of directors to two (2) and appointed Mr. Forrest to fill the ensuing vacancy.
On December 14, 2012, we received signed resolutions from shareholders of approximately 67% of our voting securities authorizing the removal of Douglas E. Forrest as president, treasurer, chief executive officer, chief financial officer, and director, as Mr. Forrest has been unreachable to management and shareholders.
Subsequent to Mr. Forrest’s removal as director, Irma N. Colón-Alonso was appointed as president, treasurer, chief executive officer, and chief financial officer. Ms. Colón-Alonso is now our sole director and officer.
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Item 6.
Exhibits
*
Filed herewith.
**
Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of any registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise are not subject to liability under those sections.
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SIGNATURES
In accordance with the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| MOKITA VENTURES, INC. |
| (Registrant) |
|
|
Date: April 19, 2013 | /s/ Irma N. Colón-Alonso |
| Irma N. Colón-Alonso |
| President, Chief Executive Officer, Chief Financial Officer, Treasurer and Director |
| (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) |
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