Phoenix Life Sciences International Limited. - Quarter Report: 2013 August (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 August 31, 2013
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, 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.) |
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. 78,000,000 common shares issued and outstanding as of October 19, 2013.
MOKITA, 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 August 31, 2013 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 August 31, 2013
(unaudited)
Balance Sheets (unaudited) | 2 |
Statements of Operations (unaudited) | 3 |
Statements of Cash Flows (unaudited) | 4 |
Notes to the Financial Statements (unaudited) | 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)
| Three months ended August 31, 2013 $ | Three months ended August 31, 2012 $ | Six months ended August 31, 2013 $ | Six months ended August 31, 2012 $ | Accumulated from April 21, 2009 (Date of Inception) to August 31, 2013 $ |
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Revenues | – | 1,769 | – | 5,286 | 12,027 |
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Operating expenses |
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Accretion expense | 43 | 6 | 87 | 12 | 200 |
Depreciation, depletion, and amortization | – | 145 | – | 304 | 1,059 |
General and administrative | 11,336 | 11,350 | 19,596 | 48,005 | 215,867 |
Impairment of oil & gas properties | – | – | – | 3,256 | 81,245 |
Lease operating expenses | – | 702 | – | 1,883 | 3,864 |
Professional fees | 20,450 | 14,536 | 36,483 | 29,040 | 157,696 |
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Total operating expenses | 31,829 | 26,739 | 56,166 | 82,500 | 459,931 |
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Loss before other income (expenses) | (31,829) | (24,970) | (56,166) | (77,214) | (447,904) |
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Other income (expense) |
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Change in fair value of derivative liability | 44,306 | (10,748) | 28,635 | (64,055) | 16,475 |
Gain on sale of oil and gas working interest | – | – | – | – | 40,000 |
Interest expense | (5,575) | (5,419) | (10,994) | (9,883) | (44,454) |
Loss on debt modification | – | – | – | (215,347) | (215,347) |
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Total other income (expense) | 38,731 | (16,167) | 17,641 | (289,285) | (203,326) |
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Net income (loss) | 6,902 | (41,137) | (38,525) | (366,499) | (651,230) |
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Net income (loss) per share – basic and diluted | – | – | – | – |
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Weighted average shares outstanding – basic and diluted (restated for forward stock split of 10 for 1) | 78,000,000 | 78,000,000 | 78,000,000 | 78,000,000 |
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(The accompanying notes are an integral part of these financial statements)
6
MOKITA, INC.
(An Exploration Stage Company)
Statements of Cash Flows
(unaudited)
| Six months ended August 31, 2013 $ | Six months ended August 31, 2012 $ | Accumulated from April 21, 2009 (Date of Inception) to August 31, 2013 $ |
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Operating Activities |
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Net loss | (38,525) | (366,499) | (651,230) |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Accretion expense | 87 | 12 | 200 |
Change in fair value of derivative liability | (28,635) | 64,055 | (16,475) |
Depreciation, depletion, and amortization | – | 304 | 1,059 |
Impairment of oil & gas properties | – | 3,256 | 81,245 |
Imputed interest | – | – | 12,857 |
Loss on debt modification | – | 215,347 | 215,347 |
Shares issued for management bonuses | – | – | 30,000 |
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Changes in operating assets and liabilities: |
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Accounts receivable | 214 | 1,657 | – |
Other receivable – sale of oil and gas working interest | 40,000 | – | – |
Accounts payable and accrued liabilities | 4,489 | 21,443 | 46,851 |
Due to related parties | 7,150 | 8,550 | 56,800 |
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Net Cash Used In Operating Activities | (15,220) | (51,875) | (223,346) |
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Investing Activities |
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Purchase of oil and gas property | – | – | (49,500) |
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Net Cash Used in Investing Activities | – | – | (49,500) |
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Financing Activities |
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Proceeds from issuance of common shares | – | – | 48,000 |
Proceeds from notes payable | 15,015 | 65,000 | 197,345 |
Proceeds from a related party | – | – | 49,000 |
Repayments to a related party | – | – | (20,000) |
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Net Cash Provided By Financing Activities | 15,015 | 65,000 | 274,345 |
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Change in Cash | (205) | 13,125 | 1,499 |
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Cash – Beginning of Period | 1,704 | 191 | – |
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Cash – End of Period | 1,499 | 13,316 | 1,499 |
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Non-cash investing and financing activities |
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Asset retirement obligation – change in estimate | – | 1,036 | 1,036 |
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 – Going Concern Issue
Nature of Operations
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 Issue
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 August 31, 2013, the Company has a working capital deficit of $524,524 and an accumulated deficit of $651,230. The Company currently has no income-producing assets, refer to the accompanying note 3(c). 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.
A significant item that requires management's estimates and assumptions is the estimate of proved oil reserves which are used in the calculation of depletion, impairment of its properties and asset retirement obligations. Other items subject to estimates and assumptions include the carrying amount of property, plant and equipment, valuation allowances for income taxes, valuation of derivatives instruments and accrued liabilities, among others. Although management believes these estimates are reasonable, actual results could differ from these estimates.
8
MOKITA, INC.
(An Exploration Stage Company)
Notes to the Financial Statements
(unaudited)
2.
Summary of Significant Accounting Policies
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 August 31 and February 28, 2013, the Company did not hold any cash equivalents.
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. As at August 31, 2013, the Company had 57,333 (February 28, 2013 – 191,111) potentially dilutive shares outstanding.
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.
9
MOKITA, INC.
(An Exploration Stage Company)
Notes to the Financial Statements
(unaudited)
2.
Summary of Significant Accounting Policies (continued)
f)
Financial Instruments (continued)
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, other receivable, accounts payable and accrued liabilities, amounts due to a related party, convertible debenture, and loan 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.
Assets and liabilities measured at fair value on a recurring basis were presented on the Company’s balance sheet as at August 31, 2013 and February 28, 2013, respectively, 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, August 31, 2013 $ | Total Gains and (Losses) $ |
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Derivative liability | – | – | (198,872) | (198,872) | 28,635 |
Assets and liabilities measured at fair value on a recurring basis were presented on the Company’s balance sheet as at February 28, 2013 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, February 28, 2013 $ | Total Gains and (Losses) $ |
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Derivative liability | – | – | (227,507) | (227,507) | (227,507) |
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.
10
MOKITA, INC.
(An Exploration Stage Company)
Notes to the Financial Statements
(unaudited)
2.
Summary of Significant Accounting Policies (continued)
g)
Derivative Financial Instruments (continued)
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 twelve 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 August 31 and February 28, 2013, the Company has no items that represent a comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the financial statements.
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.
11
MOKITA, INC.
(An Exploration Stage Company)
Notes to the Financial Statements
(unaudited)
2.
Summary of Significant Accounting Policies (continued)
i)
Oil and Gas Properties (continued)
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.
Estimated reserve quantities and future net cash flows have the most significant impact on the Company. These estimates are also used in the quarterly calculations of depletion, depreciation and impairment of the Company’s proved properties. Estimating accumulations of gas and oil is complex and is not exact because of the numerous uncertainties inherent in the process. Refer to Note 3 – Oil and Gas Properties for estimates recorded relating to the oil and gas properties.
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 August 31, 2013, the Company recorded asset retirement obligations of $334. During the period ended August 31, 2013, the Company recorded an accretion expense of $87 (2012 - $12).
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)
Revenue Recognition
Revenues associated with the sale of oil is accounted for using the sales method, whereby revenue is recognized by the operator of the mineral properties for oil is sold to purchasers with the Company recognizing the portion of its share of the revenues.
m)
Recent Accounting Pronouncements
The recent accounting 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
12
MOKITA, INC.
(An Exploration Stage Company)
Notes to the Financial Statements
(unaudited)
3.
Oil and Gas Properties
a)
Capitalized Costs
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| Noble County, Oklahoma $ |
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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 |
| (339) |
Impairment |
| (20,219) |
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Capitalized costs, February 28 and August 31, 2013 |
| – |
b)
Sale of Working Interest
On February 1, 2013, the Company entered into a Letter of Intent for the sale of its 1% working interest in the oil and gas properties located in Stephens County, Oklahoma for proceeds of $40,000. The sale of Company’s working interest on February 28, 2013 resulted in a gain of $40,000.
c)
Non-Consent Penalty Charges and Impairment Charge – Noble County, Oklahoma
On September 14, 2012, the Company was deemed a non-consenting investor, pursuant to the Operators Agreement, in a proposal to stimulate the Noble County property to increase production. As a result, and per the operating agreement with the property operator, the Company will lose its revenue for the Noble County property for a period of time sufficient to recover 500% of the Company’s invoiced proportionate share of the total expenses for the stimulation project. Revenues earned from this property were approximately $1,000 for the year ended February 28, 2013. The proportionate expenses for the stimulation project that were charged to the Company by the Operator were approximately $6,000 for the year ended February 28, 2013. Therefore, approximately $30,000 of future revenue from this project will be paid to the other investors in this project who have consented to the stimulation project and who paid their allocable share of the approximate $6,000 of expenses that was charged to the Company, but which the Company elected not to pay, before the Company can earn future revenue from its interest in this property. This elective non-consent by the Company and 500% penalty charged pursuant to the Operators Agreement results in a full impairment of this property which was recorded at February 28, 2013.
4.
Accounts Payable and Accrued Liabilities
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| August 31, 2013 $ |
| February 28, 2013 $ |
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Trade accounts payable |
| 14,360 |
| 4,009 |
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Accrued liabilities |
| 894 |
| 17,750 |
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Accrued interest payable |
| 31,597 |
| 20,603 |
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| 46,851 |
| 42,362 |
13
MOKITA, INC.
(An Exploration Stage Company)
Notes to the Financial Statements
(unaudited)
5.
Convertible Debenture
As at August 31, 2013, the Company owes $215,000 (February 28, 2013 - $215,000) 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. The note is convertible into the Company’s common stock at a rate of 75% of the weighted average closing price for the ten days prior to the conversion date. As at August 31, 2013, the Company accrued $31,441 (February 28, 2013 - $20,603) of interest payable.
On March 15, 2012, the Company amended the terms of the note payable to be convertible into the Company’s common stock at a rate of 75% of the weighted average closing price for the ten trading days immediately preceding the conversion date.
6.
Derivative Liability
The conversion option of the convertible debenture disclosed in Note 5 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 three months ended August 31, 2013, the Company recorded a gain on the change in fair value of the conversion option derivative liability of $28,635 (August 31, 2012 - loss of $64,055). As of August 31, 2013, the fair value of the conversion option derivative liability was $198,872 (February 28, 2013 - $227,507).
The fair value of the derivative financial liability was determined using the Black-Scholes option pricing model, using the following assumptions:
| Expected Volatility | Risk-free Interest Rate | Expected Dividend Yield | Expected Life (in years) |
As at issuance date: | 268% | 0.13% | 0% | 2.00 |
As at August 31, 2013 | 253% | 0.06% | 0% | 0.53 |
7.
Loan payable
As at August 31, 2013, the Company owed $15,015 (2013 - $nil) to a non-related company. The amount owing is unsecured, bears interest at 10% per annum, and is due on September 18, 2015. As at August 31, 2013, accrued interest of $156 (2013 - $nil) has been recorded in accounts payable and accrued liabilities. Refer to Note 9.
8.
Related Party Transactions
As at August 31, 2013, the Company owes $65,300 (February 28, 2013 - $58,150) to the President and CEO of the Company for the funding of general operations and management fees. The amount owing is unsecured, non-interest bearing, and due on demand.
9.
Share Capital
On August 7, 2013, our company’s board of directors approved a resolution to effect a ten (10) new for one (1) old forward split of our authorized, issued and outstanding shares of common stock. Upon effect of the forward split, our authorized capital will increase from 100,000,000 shares of common stock to 1,000,000,000 shares of common stock and correspondingly, our issued and outstanding shares of common stock will increase from 7,800,000 to 78,000,000 shares of common stock, all with a par value of $0.001.
Effective August 23, 2013, our company filed a Certificate of Change with the Nevada Secretary of State to give effect to a forward split of our authorized, issued and outstanding shares of common stock on a 10 new for one (1) old basis and, consequently, an increase to our authorized share capital from 100,000,000 to 1,000,000,000 common shares and our issued and outstanding common stock shall increase from 6,300,000 to 63,000,000 shares, all with a par value of $0.001.
14
MOKITA, INC.
(An Exploration Stage Company)
Notes to the Financial Statements
(unaudited)
10.
Subsequent Events
We have evaluated subsequent events through the date of issuance of the financial statements, and did not have any material recognizable subsequent events, except for the following:
On September 18, 2013, the Company entered into a convertible loan agreement for $35,015, of which $15,015 was received on July 24, 2013 and $20,000 was received on September 18, 2013. Under the terms of the loan, the amount is unsecured, bears interest at 10% per annum, and is due on September 18, 2015. In addition, the loan holder has the right to convert the loan into the Company’s common stock at a rate of 75% of the weighted average closing price for the ten trading days immediately preceding the conversion date.
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Management's Discussion and Analysis of Financial Condition or Plan of Operation
FORWARD-LOOKING STATEMENTS
This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "should", expects", "plans", "anticipates", "believes", "estimates", "predicts", potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Our unaudited financial statements are stated in United States Dollars (US$) 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, 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 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. The name change to Mokita Ventures, Inc. was subsequently rejected by FINRA and accordingly, on May 30, 2013, we filed a Certificate of Amendment to the Articles of Incorporation to restore our name to Mokita, Inc.
Effective August 23, 2013, our company filed a Certificate of Change with the Nevada Secretary of State to give effect to a forward split of our authorized, issued and outstanding shares of common stock on a 10 new for 1 old basis and, consequently, an increase to our authorized share capital from 100,000,000 to 1,000,000,000 common shares and our issued and outstanding common stock increased from 7,800,000 to 78,000,000 shares, all with a par value of $0.001.
The forward split becomes effective with the Over-the-Counter Bulletin Board at the opening of trading on September 23, 2013. Our CUSIP number is 608456 208.
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Our Business
We are currently an exploration stage company focused on the acquisition, development and production of oil and gas properties. We have entered into a participation agreement for a percentage working interest in an oil and gas property. If the property is viable and can be developed, we will receive a pro-rata share of any revenues generated from the property proportionate to our percentage working interest in the property. There are leases underlying the wells in which we own a working interest; 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 property is responsible for paying and maintaining the leases. If we are successful in generating revenues from our working interest in the oil and gas property, 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.
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 property in which we have a working interest does have proven reserves of oil or gas, although any proven reserves are limited in nature and the ultimate capacity of the properties remains unknown. 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.
To date, we have earned revenues of $12,027, have cash on hand of $1,499 and have incurred a net loss of $651,230 since our inception through August 31, 2013. We do not anticipate earning substantial revenues until such time as the oil and gas property in which we have a working interest enters 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 interest in our oil and gas property.
On May 12, 2011, our company entered into a participation agreement with Buckeye Exploration Company. Pursuant to the terms and conditions of the Buckeye participation agreement, our company purchased a 6% working interest in that certain well, known as the Helen Morrison #1 Well, which is located in the Southwest Otoe Prospect in Noble County, Oklahoma. In exchange for the working interest, our company paid a purchase price of $32,670 to Buckeye.
On May 31, 2011, our company, entered into a participation agreement with Premier Operating Company. Pursuant to the terms and conditions of the Premier participation agreement, our company purchased a 1% working interest in that certain West Marlow Hoxbar Unit located in Stephens County, Oklahoma. In exchange for the working interest, our company paid a purchase price of $49,500 to Premier.
On March 15, 2012, we amended the terms of a convertible note payable to Exchequer Finance Inc. Under the amended terms of the note, the amount payable of $215,000 is now unsecured, bears interest at 10% per annum, and is payable on demand. 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. As at August 31, 2013 we had accrued $31,441 of interest payable in respect of the note.
On September 14, 2012, our company was deemed a non-consenting investor, pursuant to the operators agreement, in a proposal to stimulate the Noble County property to increase production. As a result, and per the operating agreement with the property operator, our company will lose its revenue for the Noble County property for a period of time sufficient to recover 500% of our company’s invoiced proportionate share of the total expenses for the stimulation project. Revenues earned from this property were approximately $1,000 for the year ended February 28, 2013. The proportionate expenses for the stimulation project that were charged to our company by the operator were approximately $6,000 for the year ended February 28, 2013. Therefore, approximately $30,000 of future revenue from this project will be paid to the other investors in this project who have consented to the stimulation project and who paid their allocable share of the approximate $6,000 of expenses that was charged to our company, but which our company elected not to pay, before our company can earn future revenue from its interest in this property. This elective non-consent by our company and 500% penalty charged pursuant to the operators agreement results in a full impairment of this property to be recorded at February 28, 2013.
On February 1, 2013, our company entered into a letter of intent with a third party for the sale of our 1% working interest in the oil and gas properties located in Stephens County, Oklahoma for proceeds of $40,000. Our company and the purchaser relied on the letter of intent as the final purchase agreement and the sale was consummated pursuant to the letter of intent on March 1, 2013 upon payment of the first installment of $20,000. The sale of our company’s working interest resulted in a gain of $40,000.
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On September 18, 2013 we issued a convertible note to Exchequer Finance Inc. in consideration of a loan of $35,015. The note is unsecured and bears interest at the rate of 10% per annum. The principal amount of the loan together with accrued interest is payable in full by September 18, 2015. The any portion of the amount payable pursuant to the note is convertible into shares of our common stock at a conversion price equal to 75% of the average closing price of our common stock during the 10 trading days immediately preceding the conversion date.
Results of Operations
Results of Operations for the Three and Six Months Ended August 31, 2013 and August 31, 2012 and the Period from April 21, 2009 (inception) to August 31, 2013
| Three Months Ended August 31, 2013 $ | Three Months Ended August 31, 2012 $ | Six Months Ended August 31, 2013 $ | Six Months Ended August 31, 2012 $ | Accumulated from April 21, 2009 (Date of Inception) to August 31, 2013 $ |
Revenues | Nil | 1,769 | Nil | 5,286 | 12,027 |
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Accretion expense | 43 | 6 | 87 | 12 | 200 |
Depreciation, depletion, and amortization | Nil | 145 | Nil | 304 | 1,059 |
General and administrative | 11,336 | 11,350 | 19,596 | 48,005 | 215,867 |
Impairment of oil and gas properties | Nil | Nil | Nil | 3,256 | 81,245 |
Lease operating expenses | Nil | 702 | Nil | 1,883 | 3,864 |
Professional Fees | 20,450 | 14,536 | 36,483 | 29,040 | 157,696 |
Other Expenses: |
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Gain on sale of oil and gas working interest | Nil | Nil | Nil | Nil | (40,000) |
Interest expense | 5,575 | 5,419 | 10,994 | 9,883 | 44,454 |
Change in fair value of derivative liability | (44,306) | 10,748 | (28,635) | 64,055 | (16,475) |
Loss on debt modification | Nil | Nil | Nil | 215,347 | 215,347 |
Net income (loss) | 6,902 | (41,137) | (38,525) | (366,499) | (651,230) |
Operating Revenues
During the three months ended August 31, 2013, we recorded oil and gas production revenue of $nil compared with $1,769 for the three months ended August 31, 2012. The decrease is due to our company forfeiting the revenue from the Noble County property until 500% of our company’s proportionate share of the total expenses for the stimulation project have been recovered.
During the six months ended August 31, 2013, we recorded oil and gas production revenue of $nil compared with $5,286 for the three months ended August 31, 2012. The decrease is due to our company forfeiting the revenue from the Noble County property until 500% of our company’s proportionate share of the total expenses for the stimulation project have been recovered.
Operating Expenses and Net Loss
Operating expenses for the three months ended August 31, 2013 were $31,829 compared with $26,739 for the three months ended August 31, 2012. The increase of $5,090 is attributed an increase in professional fees.
Operating expenses for the six months ended August 31, 2013 were $56,166 compared with $82,500 for the six months ended August 31, 2012. The decrease of $26,334 is attributed to no impairment or lease operating expenses incurred on oil and gas interests, as our company’s oil and gas interests have either been sold or fully impaired, and a decrease in general and administrative expenses.
The net income for the three months ended August 31, 2013 was $6,902 or $nil gain per share compared with a net loss of $41,137 or $nil loss per share for the three months ended August 31, 2012. The increase in net income is attributed to the change in fair value of the derivative liability.
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The net loss for the six months ended August 31, 2013 was $38,525 or $nil loss per share compared with a net loss of $366,499 or $nil loss per share for the six months ended August 31, 2012. The decrease in net loss is attributed to the loss on debt modification recognized in the prior period which was not recognized in the current period.
Working Capital
| August 31, 2013 $ | February 28, 2013 $ |
Current Assets | 1,499 | 41,918 |
Current Liabilities | 526,023 | 543,019 |
Working Capital (Deficit) | (524,524) | (501,101) |
Cash Flows
Liquidity and Capital Resources
As at August 31, 2013, our company had a cash balance of $1,499 compared with $1,704 at February 28, 2013. The decrease in cash was attributed to expenditures on general operating expenses. The total asset balance as at August 31, 2013 was $1,499 compared to $41,918 at February 28, 2013. The decrease in total assets was attributed to receiving the amount receivable for the sale of the oil and gas interest which was included in total assets as at February 28, 2013.
As at August 31, 2013, our company had total liabilities of $541,372 compared with $543,266 at February 28, 2013. The decrease in total liabilities was attributed to a decrease in the fair value of the derivative liability.
Cashflow from Operating Activities
During the six months ended August 31, 2013, our company used $15,220 of cash in operating activities compared to the use of $51,875 of cash for operating activities during the six months ended August 31, 2012. The decrease in cash used in operating activities was attributed to receiving the proceeds from the sale of the oil and gas working interest.
Cashflow from Investing Activities
During the six months ended August 31, 2013, our company incurred $nil of cash for investing activities. During the six months ended August 31, 2012, our company incurred $nil for investing activities.
Cashflow from Financing Activities
During the six months ended August 31, 2013, our company received an amount of $15,015 cash from financing activities compared to $65,000 for the six months ended August 31, 2012. The amounts received from financing activities for both periods related to proceeds from notes payable.
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.
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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.
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 August 31, 2013, our company did not hold any cash equivalents.
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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. As at August 31, 2013, our company had 57,333 (February 28, 2013 – 191,111) potentially dilutive shares outstanding.
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 the Company’s balance sheet as at August 31, 2013 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, August 31, 2013 $ | Total Gains and (Losses) $ |
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Derivative liability | – | – | (198,872) | (198,872) | 28,635 |
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Assets and liabilities measured at fair value on a recurring basis were presented on the Company’s balance sheet as at February 28, 2013 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, February 28, 2013 $ | Total Gains and (Losses) $ |
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Derivative liability | – | – | (227,507) | (227,507) | (227,507) |
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 August 31 and February 28, 2013, 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.
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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.
Estimated reserve quantities and future net cash flows have the most significant impact on our company. These estimates are also used in the quarterly calculations of depletion, depreciation and impairment of our company’s proved properties. Estimating accumulations of gas and oil is complex and is not exact because of the numerous uncertainties inherent in the process. Refer to Note 3 – Oil and Gas Properties for estimates recorded relating to the oil and gas properties.
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 August 31, 2013, our company recorded asset retirement obligations of $334. During the period ended August 31, 2013, our company recorded an accretion expense of $87 (2012 - $12).
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.
Revenue Recognition
Revenues associated with the sale of oil is accounted for using the sales method, whereby revenue is recognized by the operator of the mineral properties for oil is sold to purchasers with our company recognizing the portion of its share of the revenues.
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.
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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 maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our president and chief financial officer (our principal executive officer, principal financial officer and principle accounting officer) to allow for timely decisions regarding required disclosure.
As of the end of our quarter covered by this report, we carried out an evaluation, under the supervision and with the participation of our president and chief financial officer (our principal executive officer, principal financial officer and principle accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our president and chief financial officer (our principal executive officer, principal financial officer and principle accounting officer) concluded that our disclosure controls and procedures were not effective in providing reasonable assurance in the reliability of our reports as of the end of the period covered by this quarterly report.
Changes in Internal Control over Financial Reporting
During the period covered by this report there were no changes in our internal control over financial reporting that 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
None.
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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, INC. |
| (Registrant) |
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Date: October 21, 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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