form10q.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended September 30, 2012
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from __________ to __________
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000-53560
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Commission File Number
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Octagon 88 Resources, Inc.
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(Exact name of registrant as specified in its charter)
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Nevada
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26-2793743
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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Zeglistrasse 30, Englberg, Switzerland
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6390
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(Address of principal executive offices)
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(Zip Code)
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011-41-799-184471
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(Registrant’s telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last report)
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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[X]
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
APPLICABLE ONLY TO CORPORATE ISSUERS
39,177,473 common shares outstanding as of October 19, 2012
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(Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.)
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Octagon 88 Resources, Inc.
TABLE OF CONTENTS
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Page
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PART I – Financial Information
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Item 1.
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Financial Statements
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3 |
Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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14 |
Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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15 |
Item 4.
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Controls and Procedures
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15 |
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PART II – Other Information
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Item 1.
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Legal Proceedings
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17 |
Item 1A.
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Risk Factors
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17 |
Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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17 |
Item 3.
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Defaults Upon Senior Securities
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17 |
Item 4.
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Mine Safety Disclosures
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17 |
Item 5.
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Other Information
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17 |
Item 6.
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Exhibits
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18 |
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Signatures
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19 |
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 210 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal recurring nature. Operating results for the three month period ended September 30, 2012, are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2013. For further information refer to the audited financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2012.
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Page
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Unaudited Financial Statements
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Balance Sheets
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6 |
Statements of Operations
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7 |
Statements of Cash Flows
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8 |
Notes to Unaudited Financial Statements
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9 to 13 |
OCTAGON 88 RESOURCES, INC.
(An Exploration Stage Company)
INTERIM FINANCIAL STATEMENTS
(Stated in US Dollars)
(UNAUDITED)
OCTAGON 88 RESOURCES, INC.
(An Exploration stage Enterprise)
BALANCE SHEETS
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September 30,
2012
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June 30,
2012
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ASSETS |
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Current
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Cash
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$ |
5,783 |
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$ |
355 |
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Total assets
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$ |
5,783 |
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$ |
355 |
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LIABILITIES
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Current
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Accounts payable and accrued liabilities
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$ |
8,289 |
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$ |
2,749 |
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Accounts payable, related parties
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5,384 |
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35,941 |
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Advances payable
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5,914 |
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- |
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Total current liabilities:
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19,587 |
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38,690 |
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STOCKHOLDERS’ EQUITY
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Common stock, $0.0001 par value, 400,000,000 authorized, 39,177,473 and 39,142,000 shares issued and outstanding as at September 30, 2012 and June 30, 2012, respectively
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3,918 |
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3,914 |
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Additional Paid-in Capital
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135,815 |
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100,346 |
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(Deficit) accumulated during the development stage
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(153,537 |
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(142,595 |
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Total stockholders’ equity
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(13,804 |
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(38,335 |
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Total liabilities and stockholders’ equity
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$ |
5,783 |
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$ |
355 |
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The accompanying notes are an integral part of these financial statements
OCTAGON 88 RESOURCES, INC.
(An Exploration Stage Enterprise)
STATEMENTS OF OPERATIONS
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Three Months Ended
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Three Months Ended
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Cumulative from Inception -June 9, 2008
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September 30,
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September 30,
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Through
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2012
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2011
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September 30, 2012
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Revenues
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$ |
- |
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$ |
- |
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$ |
- |
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General and administrative expenses:
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Services contributed by officers
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- |
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- |
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13,200 |
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Professional fees
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10,784 |
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3,667 |
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114,406 |
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Loss on undeveloped, unproven properties
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- |
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- |
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15,000 |
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Other general and administrative expenses
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158 |
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621 |
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10,931 |
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Total operating expenses
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10,942 |
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4,288 |
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153,537 |
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(Loss) from operations
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(10,942 |
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(4,288 |
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(153,537 |
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Other income (expense);
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(Loss) before taxes
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(10,942 |
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(4,288 |
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(153,537 |
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Provision (credit) for taxes on income:
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- |
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- |
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- |
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Net (loss)
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$ |
(10,942 |
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(4,288 |
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(153,537 |
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Basic earnings (loss) per common share
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$ |
(0.00 |
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(0.00 |
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Weighted average number of shares outstanding
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39,155,110 |
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39,142,000 |
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The accompanying notes are an integral part of these financial statements
OCTAGON 88 RESOURCES, INC.
(An Exploration Stage Enterprise)
STATEMENTS OF CASH FLOWS
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Cumulative,
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Three
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Three
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Inception,
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Months Ended
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Months Ended
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June 9, 2008
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September 30,
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September 30,
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Through
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2012
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2011
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September 30, 2012
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Cash flows from operating activities:
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Net (loss)
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$ |
(10,942 |
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$ |
(4,288 |
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$ |
(153,537 |
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Adjustments to reconcile net (loss) to cash provided (used) by development stage activities:
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Services contributed by officers
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- |
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- |
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13,200 |
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Loss on undeveloped, unproven properties
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- |
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- |
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15,000 |
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Changes in current assets and liabilities:
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Prepaid expense
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- |
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(6,131 |
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- |
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Accounts payable, trade
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5,540 |
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378 |
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8,289 |
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Accounts payable, related parties
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4,916 |
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10,000 |
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40,857 |
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Net cash used in operating activities
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(486 |
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(41 |
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(76,191 |
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Cash flows from investing activities:
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Acquisition of undeveloped, unproved properties
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- |
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- |
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(15,000 |
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Net cash flows from investing activities
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- |
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- |
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(15,000 |
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Cash flows from financing activities:
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Proceeds from sale of common stock
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- |
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- |
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106,060 |
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Less, Applicable offering costs
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- |
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- |
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(15,000 |
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Advances payable
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5,914 |
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- |
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5,914 |
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Net cash flows from financing activities
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5,914 |
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- |
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96,974 |
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Net cash flows
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5,428 |
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(41 |
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5,783 |
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Cash and equivalent, beginning of period
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355 |
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524 |
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- |
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Cash and equivalent, end of period
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$ |
5,783 |
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$ |
483 |
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$ |
5,783 |
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Supplemental cash flow disclosures:
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Cash paid for Interest
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$ |
- |
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$ |
- |
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$ |
- |
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Cash paid for income taxes
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$ |
- |
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$ |
- |
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$ |
- |
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Stock paid to settle debt
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$ |
35,473 |
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$ |
- |
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$ |
35,473 |
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The accompanying notes are an integral part of these financial statements
OCTAGON 88 RESOURCES, INC.
(An Exploration Stage Enterprise)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2012
Note 1 - Organization and summary of significant accounting policies:
Following is a summary of our organization and significant accounting policies:
Organization and nature of business – Octagon 88 Resources, Inc. (identified in these footnotes as “we” or the Company) is a Nevada corporation incorporated on June 9, 2008. We are currently based in Switzerland. We intend to operate in the U.S. and Canada. We use June 30 as a fiscal year for financial reporting purposes.
We are a natural resource exploration stage company and anticipate acquiring, exploring, and if warranted and feasible, developing natural resource assets. We currently do not hold any exploration-related assets, having let our agreement with our oil and gas leases expire. We are reviewing various oil and gas assets for acquisition.
To date, our activities have been limited to formation, the raising of equity capital, and the development of a business plan. We filed a Form S-1 with the U.S. Securities and Exchange Commission, which became effective on September 24, 2008. We also applied for a listing on the OTC Bulletin Board; our application was approved in July, 2009. We are now exploring various oil and gas acquisitions and sources of capital. In the current exploration stage, we anticipate incurring operating losses as we implement our business plan.
Basis of presentation - The accounting and reporting policies of the Company conform to U.S. generally accepted accounting principles applicable to exploration stage enterprises.
Use of estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents - For purposes of the statement of cash flows, we consider all cash in banks, money market funds, and certificates of deposit with a maturity of less than three months to be cash equivalents.
Fair value of financial instruments and derivative financial instruments - The carrying amounts of cash and current liabilities approximate fair value because of the short maturity of these items. These fair value estimates are subjective in nature and involve uncertainties and matters of significant judgment, and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect these estimates. We do not hold or issue financial instruments for trading purposes, nor do we utilize derivative instruments in the management of our foreign exchange, commodity price or interest rate market risks.
The FASB Codification clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. It also requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant levels of inputs as follows:
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Level 1:
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Quoted prices in active markets for identical assets or liabilities.
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Level 2:
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Quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability.
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Level 3:
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Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
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The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
OCTAGON 88 RESOURCES, INC.
(An Exploration Stage Enterprise)
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
September 30, 2012
Note 1 - Organization and summary of significant accounting policies: (continued)
Oil and gas properties – We use the successful efforts method of accounting for oil and gas properties. Under that method:
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a.
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Geological and geophysical costs and the costs of carrying and retaining undeveloped properties are charged to expense when incurred since they do not result in the acquisition of assets.
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b.
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Costs incurred to drill exploratory wells and exploratory-type stratigraphic test wells that do not find proved reserves are charged to expense when it is determined that the wells have not found proved reserves.
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c.
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Costs incurred to acquire properties and drill development-type stratigraphic test wells, successful exploratory well, and successful exploratory-type stratigraphic wells are capitalized.
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d.
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Capitalized costs of wells and related equipment are amortized, depleted, or depreciated using the unit-of-production method.
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e.
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Costs of unproved properties are assessed periodically to determine if an impairment loss should be recognized.
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Other long-lived assets – Property and equipment are stated at cost less accumulated depreciation computed principally using accelerated methods over the estimated useful lives of the assets. Repairs are charged to expense as incurred. Impairment of long-lived assets is recognized when the fair value of a long-lived asset is less than its carrying value. No impairments of long-lived assets occurred during the period ended September 30, 2012 and 2011.
Federal income taxes - Deferred income taxes are reported for timing differences between items of income or expense reported in the financial statements and those reported for income tax purposes in accordance with applicable FASB Codification regarding Accounting for Income Taxes, which require the use of the asset/liability method of accounting for income taxes. Deferred income taxes and tax benefits are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for tax loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company provides deferred taxes for the estimated future tax effects attributable to temporary differences and carryforwards when realization is more likely than not.
We have analyzed filing positions in all of the federal and state jurisdictions where we are required to file income tax returns, as well as all open tax years in these jurisdictions. We are not currently under examination by the Internal Revenue Service or any other jurisdiction. We believe that our income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a material adverse effect on our financial condition, results of operations, or cash flow. Therefore, no reserves for uncertain income tax positions have been recorded.
Net income per share of common stock – We have adopted applicable FASB Codification regarding Earnings per Share, which require presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. In the accompanying financial statements, basic earnings per share of common stock is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. At September 30, 2012 and 2011, there were no variances between the basic and diluted loss per share as there were no potentially dilutive securities outstanding.
OCTAGON 88 RESOURCES, INC.
(An Exploration Stage Enterprise)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2012
Note 2 – Going concern:
As at September 30, 2012, we are not currently engaged in an operating business, we expect to incur exploration stage operating losses until operations commence, and for a period of time thereafter. We intend to rely on our officers and directors to perform essential functions without compensation until a business operation can be commenced. We allowed our oil and gas assets to lapse without any exploration activities being undertaken. We are currently seeking other acquisitions of oil and gas assets. Further, we are currently working on raising capital to fund operations and for acquisitions. There is no assurance that such efforts will succeed and we will raise any funds or that we will be able to acquire any assets of merit.
From inception through September 30, 2012, we had incurred operating losses of approximately $153,537, of which approximately $100,277 represented actual cash losses. At September 30, 2012, our cash on hand was $5,783.
These factors raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Note 3 – Oil and gas properties:
On June 10, 2008, we executed a Farm-in Letter Agreement with Unitech Energy Resources, Inc. (“Unitech”), of Calgary, Alberta, Canada. Under the agreement, we acquired a 50% working interest in Alberta, Canada Petroleum and Natural Gas Agreement Number 050606526, (the “Lease”) held by Unitech. The Farm-in Letter Agreement required that we pay 100% of all costs associated with drilling, re-completing, and testing, and thereafter both Parties would pay their respective 50% share of any go-forward costs.
During 2008, we paid Unitech $15,000 for our 50% working interest in the Lease, which amount was recorded on our balance sheet as Undeveloped, Unproven property.
During September 2008, we amended the Farm-in Letter Agreement to require that we meet a minimum spending requirement of $30,000 on or before June 14, 2010 in order to maintain its 50% ownership interest in the lease. During June, 2010 the lease lapsed due to failure of the Company to expend the required exploration expenses. All associated costs in the amount of $15,000 recorded on the asset as undeveloped, unproven property were written off. Management is currently reviewing other properties which they feel have merit and hope to acquire properties before the end of 2012.
Note 4 – Related party transactions:
During the period ended September 30, 2012, Kenmore International S.A. further advanced $6,000 to the Company for professional fees including legal fees, consulting fees and accounting fees paid on our behalf.
On August 27, 2012, the Company negotiated debt settlements whereby they agreed to settle debt in the amount of $35,473 with Kenmore International S.A. at a price of $1.00 per share for a total share issuance of 35,473 shares of common stock.
As at September 30, 2012 $5,384 was due and payable to a company owned by a prior director of the Company for services provided.
OCTAGON 88 RESOURCES, INC.
(An Exploration Stage Enterprise)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2012
Note 5 – Issuance of shares:
On August 27, 2012, the Company negotiated debt settlements whereby they agreed to settle debt in the amount of $35,473 with Kenmore International S.A. at a price of $1.00 per share for a total share issuance of 35,473 shares of common stock. These shares were issued on September 24, 2012.
As of September 30, 2012, there were a total of 39,177,473 shares issued and outstanding.
Note 6 – Income Taxes:
Deferred income taxes are determined using the liability method for the temporary differences between the financial reporting basis and income tax basis of the Company’s assets and liabilities. Deferred income taxes are measured based on the tax rates expected to be in effect when the temporary differences are included in the Company’s tax return. Deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases.
At September 30, 2012, deferred tax assets consist of the following by applying the statutory income tax rate of $34%:
Net operating losses
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$ |
43,935 |
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Valuation allowance
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(43,935 |
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$ |
- |
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At September 30, 2012, the Company had a net operating loss carryforward in the approximate amount of $140,164, available to offset future taxable income through 2032.
Note 7 - New accounting pronouncements:
The Financial Accounting Standards Board (“FASB”) periodically issues new accounting standards in a continuing effort to improve standards of financial accounting and reporting. The Company has reviewed the recently issued pronouncements and concluded that there are no new accounting standards are applicable to the Company.
Note 8 – Subsequent events:
(a)
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On October 3, 2012, the Company entered in to a letter agreement for a Financing Commitment and Credit Facility (the “Financing Agreement”) for the Company with Zentrum Energie Trust AG. (“Zentrum’), whereby Zentrum will provide both debt and equity funds to the Company for investments in assets owned by private operating oil companies.
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Under the terms of the Financing Agreement, the first draw is to be an equity placement into the Company by Zentrum of $500,000 by way of the issuance of 200,000 units, each unit consisting of one share of common stock at $2.50 per share, a one year warrant to purchase an additional 200,000 shares of common stock at an exercise price of $3.00 per share and a three year warrant to purchase 200,000 shares of common stock at an exercise price of $3.00 per share.
Further funds may be by way of debt or equity. Any funds drawn down as debt under the credit facility will have a first security charge on the investments acquired with such funds.
Fees of 8% for equity placements and 3% for debt placements will be deducted on funding. For any debt converted to equity, a further fee of 5% will be paid by the Company at conversion.
OCTAGON 88 RESOURCES, INC.
(An Exploration Stage Enterprise)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2012
Note 8 – Subsequent events: (continued)
Zentrum has agreed that the Company may allocate up to ten percent of the funds from debt or equity for general and administrative costs and due diligence costs and any other costs they may approve from time to time.
Zentrum shall further have a first right of refusal on all financings for a period of two years from the execution of the formal agreement. The final agreement shall provide for registration rights. Zentrum’s legal counsel is preparing the formal agreements for execution.
(b)
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On October 3, 2012, the Board of Directors of the Company appointed Dr. Peter Beck as a Director of the Company.
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(c)
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On October 4, 2012, Jacqueline Danforth resigned as a Director of the Company.
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(d)
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On October 11, 2012, Feliciano Tighe resigned as Chief Financial Officer of the Company.
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(e)
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On October 12, 2012, the Board of Directors appointed Bryan Leonard Cook as Chief Financial Officer of the Company.
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(f)
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On October 15, 2012, the Company entered into a Share Exchange Agreement with Zentrum Energie Trust AG to acquire a 22% interest in CEC North Star Energy Ltd. (“North Star”) from Zentrum which represents approximately 3,100,000 shares of North Star. North Star’s portfolio of assets contains conventional light sweet oil developments with proven reserves quick cash flow and unconventional long-term heavy oil assets with blue-sky potential of several billions of barrels exploration and developments. Under the terms of the share exchange agreement, the Company the shares of North Star in exchange for the issuance of 14,000,000 restricted shares of the Company valued at $4.50 per share for a total acquisition cost of $63,000,000.
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Further, the Company is required to reach an agreement with its controlling shareholder, Kenmore Interational S.A. for the return to the treasury of the Company of a total of 31, 942,000 restricted shares of common stock. The Company has also agreed to effect a forward split of its authorized and issued and outstanding shares of common stock on the basis of three for one (3-1) subsequent to the acquisition of North Star. Zentrum shall have the right to appoint two directors to the Board of the Company subsequent to the Closing.
The transaction is expected to close on or before October 31, 2012 and if closed, will effect a change in control of the Company.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
This quarterly report contains forward-looking statements relating to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "intends", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential", or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors which may cause our or our industry's actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements.
Such factors include, among others, the following: international, national and local general economic and market conditions; demographic changes; the ability of the Company to sustain, manage or forecast its growth; the ability of the Company to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other factors referenced in this and previous filings.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or performance. Except as required by applicable law and including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Given these uncertainties, readers of this Form 10-Q and investors are cautioned not to place undue reliance on such forward-looking statements. We disclaim any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future events or developments.
All dollar amounts stated herein are in US dollars unless otherwise indicated.
The management’s discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with generally accepted accounting principles ("GAAP") in the United States of America. The following discussion of our financial condition and results of operations should be read in conjunction with our audited financial statements for the fiscal year ended June 30, 2011, along with the accompanying notes. As used in this quarterly report, the terms "we", "us", "our", and the "Company" means Octagon 88 Resources, Inc.
Liquidity
The Company does not have and has not had any revenues since Inception (June 9, 2008) and currently has no means of deriving revenues. The Company has executed an agreement to acquire shares in an operating oil and gas company however, as the Company will have no direct interest in the operations at this time, the Company is not expected to generate reveues from this acquisition. However, the Company is reviewing other potential acquisitions to acquire in the oil and gas industry where it will acquire an operating interest which will generate revenue. The Company cannot currently predict how much funding will be required to acquire other assets. Management anticipates that the Company will need a minimum of $50,000 per annum just to maintain its regulatory filing requirements. Subsequent to the period covered by this report, 0n October 3, 2012, the Company entered in to a letter agreement for a Financing Commitment and Credit Facility (the “Financing Agreement”) for the Company with Zentrum Energie Trust AG. (“Zentrum’), whereby Zentrum will provide both debt and equity funds to the Company for investments in assets owned by private operating oil companies. Under the terms of the Financing Agreement, the first draw is to be an equity placement into the Company by Zentrum of $500,000 by way of the issuance of 200,000 units, each unit consisting of one share of common stock at $2.50 per share, a one year warrant to purchase an additional 200,000 shares of common stock at an exercise price of $3.00 per share and a three year warrant to purchase 200,000 shares of common stock at an exercise price of $3.00 per share. Further funds may be by way of debt or equity. Any funds drawn down as debt under the credit facility will have a first security charge on the investments acquired with such funds. Fees of 8% for equity placements and 3% for debt placements will be deducted on funding. For any debt converted to equity, a further fee of 5% will be paid by the Company at conversion. Zentrum has agreed that the Company may allocate up to ten percent of the funds from debt or equity for general and administrative costs and due diligence costs and any other costs they may approve from time to time. Zentrum shall further have a first right of refusal on all
financings for a period of two years from the execution of the formal agreement. The final agreement shall provide for registration rights. Zentrum’s legal counsel is preparing the formal agreements for execution. This financing will give the Company sufficient funding to pay its ongoing expenses for reporting and to identify and acquire further acquisitions. The Company is awaiting final definitive agreements which it expects to execute by October 31, 2012.
At September 30, 2012, we had total current assets of $5,783 comprised solely of cash, as compared to $355 as at June 30, 2012. We expect to incur continuing costs in the forthcoming year for routine maintenance and for sourcing potential acquisitions. Our current liabilities were $19,587 as at September 30, 2012, compared to $38,690 on June 30, 2012. We do not currently have sufficient funds to pay our current bills as they become due, however we expect to have sufficient funding with the closing of our financing agreement with Zentrum detailed above. , However, there can be no guarantee that such funding will be available when needed.
We do expect to incur certain costs associated with the identification and acquisition of interests in new oil and/or gas properties. On October 15, 2012, the Company entered into a Share Exchange Agreement with Zentrum Energie Trust AG to acquire a 22% interest in CEC North Star Energy Ltd. (“North Star”) from Zentrum which represents approximately 3,100,000 shares of North Star. North Star’s portfolio of assets contains conventional light sweet oil developments with proven reserves quick cash flow and unconventional long-term heavy oil assets with blue-sky potential of several billions of barrels exploration and developments. Under the terms of the share exchange agreement, the Company the shares of North Star in exchange for the issuance of 14,000,000 restricted shares of the Company valued at $4.50 per share for a total acquisition cost of $63,000,000. As this acquisition does not require cash but is being acquired for shares, we will have funds available from the Zentrum financing to acquire other assets.
During the period ended September 30, 2012, the Company received cash in the amount of $11,914 with $6,000 from a shareholder and $5,914 from an unrelated third party to fund completion of the audit and payment of outstanding fees. Further, the Company entered into a debt settlement agreement to settle an amount of $35,473 of outstanding related party loans by the issuance of shares.
There is substantial doubt about our ability to continue as a going concern as the continuation of our business is dependent upon obtaining further short and long-term financing, achieving success in any future exploration and/or development efforts and ultimately having a profitable level of operations. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholder. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.
Results of operations:
The Company had no revenues during the three months ended September 30, 2012 and has not had any revenue since inception.
During the three months ended September 30, 2012, we incurred a net loss of $10,942, compared to a loss of $4,288 for the three months ended September 30, 2011. The increase in losses over the period is related to an increase in professional fees for SEC filings and in audit fees related thereto. The majority of the costs in the current period were associated with routine operations and maintenance of the Company both in the periods ended September 30, 2012 and 2011.
We expect to continue to incur operating losses until such time as we can identify and close a revenue producting acquisition and perhaps beyond then if the acquisition is not revenue producing.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a "smaller reporting company" as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Evaluation of Disclosure Controls and Procedures Disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in rules and forms adopted by the Securities and Exchange Commission ("SEC"), and that such information is accumulated and communicated to management, including the Principal Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosures. Under the supervision and with the participation of our management, including our Principal Executive
Officer and Principal Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")). Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.
Changes in Internal Controls
There were no changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls over financial reporting that occurred during the quarter ended September 30, 2012, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No legal proceedings are currently pending or threatened to the best of our knowledge.
ITEM 1A. RISK FACTORS
As a "smaller reporting company" as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There were no unregistered securities to report which were sold or issued by the Company without the registration of these securities under the Securities Act of 1933 in reliance on exemptions from such registration requirements, within the period covered by this report, which have not been previously included in a Quarterly Report on Form 10-Q or a Current Report on Form 8-K.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
ITEM 5. OTHER INFORMATION
On October 3, 2012, the Board of Directors of the Company appointed Dr. Peter Beck as a Director of the Company. On October 4, 2012, Jacqueline Danforth resigned as a Director of the Company. On October 11, 2012, Feliciano Tighe resigned as Chief Financial Officer of the Company. On October 12, 2012, the Board of Directors appointed Bryan Leonard Cook as Chief Financial Officer of the Company.
On October 15, 2012, the Company entered into a Share Exchange Agreement with Zentrum Energie Trust AG to acquire a 22% interest in CEC North Star Energy Ltd. (“North Star”) from Zentrum which represents approximately 3,100,000 shares of North Star. North Star’s portfolio of assets contains conventional light sweet oil developments with proven reserves quick cash flow and unconventional long-term heavy oil assets with blue-sky potential of several billions of barrels exploration and developments. Under the terms of the share exchange agreement, the Company the shares of North Star in exchange for the issuance of 14,000,000 restricted shares of the Company valued at $4.50 per share for a total acquisition cost of $63,000,000.
Further, the Company is required to reach an agreement with its controlling shareholder, Kenmore Interational S.A. for the return to the treasury of the Company of a total of 31, 942,000 restricted shares of common stock. The Company has also agreed to effect a forward split of its authorized and issued and outstanding shares of common stock on the basis of three for one (3-1) subsequent to the acquisition of North Star. Zentrum shall have the right to appoint two directors to the Board of the Company subsequent to the Closing. The transaction is expected to close on or before October 31, 2012 and if closed, will effect a change in control of the Company.
ITEM 6. EXHIBITS
Number
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Description
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3.1
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Articles of Incorporation
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Incorporated by reference to the Exhibits filed with the Form S-1 filed with the SEC on September 18, 2008
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3.2
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Bylaws
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Incorporated by reference to the Exhibits filed with the Form S-1 filed with the SEC on September 18, 2008
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10.1
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Farm-In Agreement dated June 10, 2008, and addendum thereto dated Septembe r 15, 2008, between Unitech Energy Resources Inc. and the Company
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Incorporated by reference to the Exhibits attached to the Company's Form S-1 filed with the SEC on September 18, 2008
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10.2
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Financing Commitment between the Company and Zentrum Energie Trust AG.
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Incorporated by reference to the Exhibits attached to the Company's Form 8-K filed with the SEC on October 4, 2012
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10.3
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Acquisition Agreement between the Company and Zentrum Energie Trust AG dated October 15, 2012
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Incorporated by reference to the Exhibits attached to the Company's Form 8-K filed with the SEC on October 15, 2012
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31.1
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Section 302 Certification - Principal Executive Officer
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Filed herewith
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31.2
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Section 302 Certification - Principal Financial Officer
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Filed herewith
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32.1
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Certification – Principal Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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Filed herewith
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32.2
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Certification – Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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Filed herewith
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase
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Filed herewith
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase
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Filed herewith
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101.INS
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XBRL Instance Document
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Filed herewith
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101.LAB
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XBRL Taxonomy Extension Label Linkbase
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Filed herewith
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase
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Filed herewith
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101.SCH
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XBRL Taxonomy Extension Schema
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Filed herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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OCTAGON 88 RESOURCES, INC.
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Date:
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November 14, 2012
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By:
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/s/ Feliciano Tighe
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Name:
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Feliciano Tighe
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Title:
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President, Chief Executive Officer (Principal Executive Officer), Secretary and Director
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Date:
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November 14, 2012
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By:
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/s/ Bryan Cook
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Name:
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Bryan Cook
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Title:
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Chief Financial Officer (Principal Financial Officer
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