UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2008
[ ] Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from __________ to __________
Commission File Number 333-140177
DUKE MOUNTAIN RESOURCES, INC AND SUBSIDIARY
(Exact name of Small Business Issuer as specified in its charter)
Nevada | 98-0503336 |
(State or other jurisdiction of incorporation) | (IRS Employer Identification No.) |
1146 NW Johnson Street, Portland, OR 97209
(Address of principal executive offices)
(503) 954-1640
(Issuer's telephone number)
Common Stock, $0.001 par value per share
(Title of Each Class)
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. [ X ] Yes [ ] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer, accelerated filer, non-accelerated filer and smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer [ ] Accelerated Filer [ ] Non-accelerated Filer [ ] 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 [ X ] No
There were 12,180,000 common shares outstanding of as of July 31, 2008.
CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED CONSOLIDATED BALANCE SHEETS
PAGE 1
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
PAGE 2
UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS’
PAGE 3
EQUITY
UNAUDITED CONSOLIDATED STATEMENTS OF CASHFLOWS
PAGE 4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE 5-8
ITEM 2. MANAGEMENTS DISCUSSION AND
PAGE 8-10
ANALYSIS AND RESULTS OF OPERATIONS
ITEM 4. CONTROLS AND PROCEDURES
PAGE 10
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
PAGE 11
ITEM 1A. RISK FACTORS
PAGE 11-15
ITEM 2. UNREGISTERED SALES OF EQUITY
PAGE 15
SECURITIES AND USE OF PROCEEDS
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
PAGE 15
ITEM 4. SUBMISSION OF MATTERS TO VOTE
PAGE 15
OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
PAGE 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
PAGE 17
SIGNATURES
PAGE 18
DUKE MOUNTAIN RESOURCES, INC AND SUBSIDIARY
(an exploration stage company)
CONSOLIDATED BALANCE SHEETS
June 30, 2008 and December 31, 2007
(unaudited)
June 30, 2008 December 31, 2007
ASSETS
Current Assets
Cash & cash equivalents
$
370,833
$
409,749
_________________
________________
Total current assets
370,833
409,749
Mineral Rights
40,000
40,000
_________________
________________
Total assets
$
410,833
$
449,749
_________________
________________
LIABILITIES & SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable
$
6,039
$ -
________________
_______________ Total current liabilities 6,039 -
Shareholders’ Equity
Common stock, $0.001 par value: (76,000,000 shares authorized,
12,180,000 issued and outstanding at June 30, 2008 and December 31, 2007)
12,180
12,180
Additional paid-in capital
519,820
519,820
Loss accumulated during the exploration stage
(127,206)
(82,251)
__________________
________________
Total shareholders’ equity
404,794
449,749
__________________
________________
Total liabilities and shareholders’ equity
$
410,833
$
449,749
__________________
________________
See notes to financial statements
PAGE 1
DUKE MOUNTAIN RESOURCES, INC AND SUBSIDIARY
(an exploration stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months and six months ended June 30, 2008 and 2007 and from (Inception) May 3, 2006 to June 30, 2008
(unaudited)
Three months ended
Six months ended
From Inception (May 3, 2006) to
June 30, 2008
June 30, 2007
June 30, 2008
June 30, 2007
June 30, 2008
Revenue
$
-
$
-
$
-
$
-
$
-
Operating Expenses
Advertising and promotional
186
357
294
357
2,808
Licenses and fees
914
1,743
3,048
1,956
9,921
Loss from foreign exchange
-
-
-
-
53
Office and miscellaneous
1,282
1,088
1,847
6,567
12,412
Professional fees
25,248
13,336 43,380
30,714
116,022
Utilities
135
500
679 _ _
_______618____ _________2,232_____
Total Operating Expenses
27,765
17,024 49,248
40,212
143,448
Operating Loss (27,765) (17,024)
(49,248) (40,212) (143,448)
Other income and (expenses)
Interest expense
( 42)
( 24)
(113)
( 64)
( 417)
Interest income
1,673 1,588
4,406__
3,028 16,659____
Total other income and (expenses) 1,631 1,564 4,293 2,964 16,242
Net loss
$ (26,134) $ (15,460)
$ (44,955) $ (37,248)
$ (127,206)
Basic and diluted net loss per common share
$ (0.00) $ (0.00)
$ _____ (0.00)_____$ (0.00)____ $_______ (0.00)____
Weighted average number of common shares
Outstanding – basic and diluted
12,180,000
11,405,000 12,180,000
11,405,000
See notes to financial statements
PAGE 2
DUKE MOUNTAIN RESOURCES, INC AND SUBSIDIARY
(an exploration stage company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
from Inception (May 3, 2006) to June 30, 2008
(unaudited)
Loss
Accumulated
During the
Total
Common Stock
Additional Exploration
Shareholders’
Shares
Amount
Paid-in Capital
Stage
Equity
Balances, May 3, 2006
-
$ -
$
-
$ -
$
-
Common stock issued for cash in private
placement, May 3, 2006
10,000,000
10,000
10,000
Common stock issued for cash in private
placement, May 19, 2006
1,000,000
1,000
49,000
50,000
Common stock issued for cash in private
Placement, May 31, 2006
405,000
405
161,595
162,000
Net loss
(12,704)
(12,704)
__________ ________ __________ _________ ______________
Balances, December 31, 2006
11,405,000
11,405
210,595
(12,704)
209,296
Common stock issued for cash in public
Offering, August 29, 2007
760,000
760
303,240
304,000
Common stock issued for cash in public
Offering, October 31, 2007
15,000
15 5,985
6,000
Net loss
(69,547)
(69,547)
__________
_________
__________
_________
______________
Balances, December 31, 2007
12,180,000
12,180
519,820
(82,251)
449,749
Net loss
(44,955) (44,955)
__________
__________
___________
__________
______________
Balances, June 30, 2008
12,180,000
$12,180
$519,820
$(127,206)
$ 404,794
__________
___________
___________
__________
______________
See notes to financial statements
PAGE 3
DUKE MOUNTAIN RESOURCES, INC AND SUBSIDIARY
(an exploration stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2008, and 2007 and from (Inception) May 3, 2006 to June 30, 2008
(unaudited)
From inception
(May 3, 2006) to
June 30, 2008
June 30, 2007
June 30, 2008
Cash Flows from Operating Activities
Net loss for the period
$
(44,955)
$
(37,248)
$ (127,206)
Changes in operating assets and liabilities
Accounts payable
6,039
(515)
6,039
Accrued Interest
329 -
________________ ______________
______________
Net cash used in operating activities
(38,916)
(37,434)
(121,167)
Cash Flows from Investing Activities
Investment in mineral rights
-
-
(40,000)
Net cash used in investing Activities - - (40,000)
Cash Flows from Financing Activities
Proceeds from public offering
-
92,600 310,000
Proceeds from private placement - - 222,000
________________
_________________ ______________
-
Net cash flows from financing activities
-
92,600
532,000
________________
_________________
______________
Change in cash and cash equivalents
(38,916)
55,166 370,833
Cash and cash equivalents, beginning of period
409,749
169,482
-
________________
__________________
______________
Cash and cash equivalents, end of period
$
370,833
$
224,648
$ 370,833
Cash paid for:
Interest
$
113
$
64
$ 417
Income taxes
$
-
$
-
$
-
See notes to financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation and Going Concern Uncertainties
Organization
Duke Mountain Resources, Inc. (the “Company"), a Nevada Corporation, was formed on May 3, 2006 with authorized capital of 76,000,000 shares of common stock, par value of $0.001 per share.
On September 21, 2007, the Company established a Canadian operating subsidiary Duke Mountain Resources Canada, Inc. The Canadian operating subsidiary will conduct all mineral explorations for Duke Mountain Resources, Inc. Duke Mountain Resources Canada, Inc. controls over 1,315 hectares of mineral claims. All mineral claims were transferred to our Canadian operating subsidiary Duke Mountain Resources Canada, Inc., on December 21, 2007 from our President and Chief Executive Officer.
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary Duke Mountain Resources Canada, Inc. The subsidiary holds title to our mineral claims and has no liabilities.
Duke Mountain Resources, Inc., together with its wholly owned subsidiary, is an exploration stage company focused on the acquisition, exploration, and development of gold, silver and base metal properties.
The accompanying unaudited interim financial statements in the opinion of management contain all adjustments (which are of a normal recurring nature) necessary to present fairly the financial position as of June 30, 2008 and December 31, 2007, and the results of operations for the three and six months ended June 30, 2008 and 2007 and the period from May 3, 2006 (inception) through June 30, 2008, and cash flows for the six months ended June 30, 2008 and 2007 and from May 3, 2006 (inception) through June 30, 2008. These results have been determined on the basis of generally accepted accounting principles and practices in the United States and applied consistently with those used in the preparation of the Company's 2007 audited financial statements.
Going Concern
The Company has not generated any revenues and has incurred losses of $127,206 since inception. The Company has incurred a loss of $26,134 during the quarter ended June 30, 2008. The Company faces all the risks common to companies in their early stages of development including under capitalization and uncertainty of funding sources, high initial expenditure levels, uncertain revenue streams, and difficulties in managing growth. In view of these conditions, the ability of the Company to continue as a going concern is in substantial doubt and dependent upon achieving a profitable level of operations and on the ability of the Company to obtain necessary financing to fund ongoing operations. The Company’s financial statements do not reflect any adjustments that might result from the outcome of this uncertainty. The future of the Company hereafter will depend in large part on the Company’s ability to successfully raise capital from external sources to pay for planned expenditures and to fund operations.
To meet these objectives, the Company has completed a private placement for gross proceeds of $222,000 and a public financing of $310,000, and continues to seek other sources of financing in order to support existing operations and expand the range and scope of its business. See Notes 3 and 4. However, there are no assurances that any such financing can be obtained on acceptable terms, if at all.
Mineral Rights
Mineral rights consist of direct costs to obtain the mineral claims. If mineral right costs are capitalized and Duke Mountain determines it is not economically feasible to develop the claim, the costs are immediately expensed. Also, mineral rights costs are not capitalized at an amount more than the anticipated recovery from the claim area. Mineral rights costs associated with specific areas will be amortized as minerals are received from the areas. As of June 30, 2008, the Company has completed phase one of its exploration program on all three of its mineral claims and there has been no amortization for this work. Amortization will not begin until mining operations commence. All other costs related to the exploration and the development of unproven properties are expensed as incurred.
5
Earnings per Share and Potentially Dilutive Securities
Basic loss per share is computed by dividing the net loss available to common stockholders by the weighted average number of common shares outstanding in the period. Diluted loss per share takes into consideration common shares outstanding (computed under basic earnings per share) and potentially dilutive securities. The Company has 1,550,000 in common stock equivalents outstanding as of June 30, 2008 and 2007.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Recent Accounting Pronouncements
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an amendment to FASB Statement No. 133” ("SFAS 161"). SFAS 161 is intended to improve financial standards for derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. Entities are required to provide enhanced disclosures about: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years beginning after November 15, 2008, with early adoption encouraged. The Company is currently evaluating the impact of SFAS 161 on its financial statements, and the adoption of this statement is not expected to have a material effect on the Company’s financial statements.
In May 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("SFAS 162"). SFAS 162 is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles (GAAP) for nongovernmental entities. The Company is currently evaluating the impact of SFAS 162 on its financial statements, and the adoption of this statement is not expected to have a material effect on the Company’s financial statements.
In May 2008, the FASB issued SFAS No. 163, "Accounting for Financial Guaranteed Insurance Contracts" (SFAS 163"). SFAS 163 clarifies FASB Statement No 60, "Accounting and Reporting by Insurance Enterprises". SFAS 163 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The Company has evaluated that there is no impact of SFAS 163 on its financial statements.
In May 2008, the FASB issued Staff Position No. APB14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement ("FSP APB 14-1"). FSP APB 14-1 states that convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) are not addressed by paragraph 12 of Accounting Principles Board Opinion No. 14 and that issuers of such instruments should account separately for the liability and equity components of the instruments in a manner that will reflect the entity's nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP APB 14-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and must be applied retrospectively to all periods presented. The Company is currently evaluating the impact, if any, that FSP ABP 14-1 will have on its consolidated financial statements.
Note 2. Related Party Transactions
On May 19, 2006 and June 16, 2006, Herdev S. Rayat, the Company’s President, Chief Executive Officer, Chief Financial Officer and director acquired three mineral claims on the Company's behalf. These mineral claims were held by Mr. Rayat, in trust for the Company. Under the British Columbia Mineral Tenure Act, the title to British Columbia mineral claims can only be held by individuals or British Columbia corporations.
6
On September 21, 2007 the Company organized a 100% wholly owned Canadian subsidiary incorporated in British Columbia. All mineral titles held in trust by Mr. Rayat were transferred to the Company’s Canadian subsidiary Duke Mountain Resources Canada, Inc., on December 21, 2007. There are a total of seven tenures which are 100% owned by the Company’s subsidiary. The tenures cover a total area of 1,315 hectares. The tenure numbers are 522570, 522607, 525453, 525454, 532950, 535928 and 560684.
On May 3, 2006, the Company completed a private placement with the President and Chief Executive Officer where by 10,000,000 shares were purchased for $10,000 at $0.001 per share.
Note 3. Private Placement
On May 19, 2006, the Company completed a private placement for $50,000 where investors purchased 1,000,000 shares for $0.05 per share. On May 31, 2006 a second private placement was completed for $162,000 where investors purchased 405,000 shares for $0.40 per share.
Note 4. Public Offering
On October 31, 2007, the Company completed a public offering for $310,000 where investors purchased 775,000 units for $0.40 per unit (760,000 shares purchased on August 29, 2007 and 15,000 shares purchased on October 31, 2007). Each unit consisted of one common share, one class A warrant to purchase a common share at $0.50 per share for a period of 60 months from date of issuance and one class B warrant to purchase one common share at $0.55 per share for a period of 60 months from date of issuance. Since the Company is not currently trading and has not commenced operations, the warrants are deemed to have no value and are not detachable.
Note 5. Income Taxes
As of June 30, 2008, Duke Mountain did not have any income for tax purposes and, therefore, no tax liability or expense has been recorded in these financial statements. The Company has not recorded a deferred tax asset as it has setup a full valuation allowance against its deferred tax assets.
Duke Mountain has tax losses of approximately $45,000 for the six months ended June 30, 2008 which are available to reduce future taxable income. The tax losses expire in 2028. Tax losses of approximately $70,000 were incurred for the year ended December 31, 2007. The tax losses for the year ended December 31, 2007 expire in 2027.
The deferred tax asset associated with the tax loss carry forward is approximately $6,700 for the six month period ended June 30, 2008 and approximately $10,500 for the year ended December 31, 2007. A full valuation allowance has been set up against the deferred tax asset.
Note 6. Warrants
The movement of share purchase warrants can be summarized as follows:
Number of
Weighted
Warrants
Average
Outstanding
Exercise Price
Class A Warrants (a)
Balance, December 31, 2007
775,000
$
0.50
Granted
-
-
Exercised
-
-
______________
_______________
Balance, June 30, 2008
775,000
$
0.50
______________
_______________
7
Class B Warrants (b)
Balance, December 31, 2007
775,000
$
0.55
Granted
-
-
Exercised
-
-
______________
________________
Balance June 30, 2008
775,000
$
0.55
______________
________________
As of June 30, 2008, the following warrants were outstanding:
(a)
775,000 Class A warrants which entitle the holder to purchase 775,000 common shares of the company at $0.50 each expiring on October 31, 2012
(b)
775,000 Class B warrants which entitle the holder to purchase 775,000 common shares of the company at $0.55 each expiring on October 31, 2012.
No warrants were exercised
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
Cautionary Note Regarding Forward Looking Statements
This report contains forward-looking statements that involve risks and uncertainties, including statements regarding our capital needs, business plans and expectations. Such forward-looking statements involve risks and uncertainties regarding the market price of gold, silver and lead, availability of funds, government regulations, operating costs, exploration costs, outcomes of exploration programs and other factors. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. You can identify forward-looking statements by terminology such as “may”, “will”, “should”, “expect”, “plan”, “intend”, “anticipate”, “believe”, “estimate”, “predict”, “potential” or “continue”, the negative of such terms or other comparable terminology. Our actual results may differ materially. In evaluating these statements, you should consider various factors. These factors may cause our actual results to differ materially from any forward-looking statement. While these forward-looking statements are made in good faith and reflect our current judgment regarding our business plans, our actual results will almost always vary, sometimes materially, from any future performance suggested herein.
General
The following discussion and analysis should be read in conjunction with our financial statements (and notes related thereto) appearing elsewhere in this report.
Plan of Operations
Over the next year our plan of operations is to complete the following objectives within the specified time periods, subject to our obtaining the necessary funding for the continued exploration of our 3 properties:
We have completed phase one of our recommended exploration program on our Goldstar property. Phase one consisted of reconnaissance geological mapping, prospecting and sampling. The phase one was completed in December 2007. The phase one was completed at a cost of $5,341. Our management and our consulting geologists are reviewing the results from this initial phase one program to determine if phase one should warrant, whether to continue with phase two of our recommended exploration program. The phase one results are still under review. Phase two consists of detailed surface and underground geological mapping, rock sampling, grid construction, EM and Mag surveys and establishment of drill and rock trenching target. This phase is estimated to cost $75,000. If it is agreed that phase two is required based from results in our phase one program, we anticipate phase two would begin in fall 2008 depending on weather and personnel.
If further exploration should be warranted upon completion of phase two, we will continue with phase three of our recommended exploration program. This third phase is estimated to cost $150,000. This phase could be commenced in spring of 2009 but it is not known how long it would continue. This would be based exclusively on how lucrative the mineral findings are in phase two.
8
We have completed phase one of our recommended exploration program on our Rosewall Gold property. Phase one consisted of reconnaissance geological mapping, prospecting and sampling. This phase was conducted from June 6 to June 9, 2008. This phase is estimated to cost $15,404. If the results of phase one should warrant it, we intend to continue with phase two of our recommended exploration program which consists of detailed surface and underground geological mapping, rock sampling, grid construction, EM and Mag surveys and establishment of drill and rock trenching target. We currently do not know the results from our initial phase one exploration program. The phase two is estimated to cost $75,000. We anticipate that this phase would begin in fall of 2008 depending on results from phase one, weather and personnel.
If further exploration should be warranted upon completion of phase two, we will continue with phase three of our recommended exploration program. This third phase is estimated to cost $150,000. This phase could be commenced as early as spring of 2009 but it is not known how long it would continue. This would be based exclusively on how lucrative the mineral findings are in phase two.
We have completed phase one of our recommended exploration program on our Waterloo Creek property. Phase one consisted of reconnaissance geological mapping, prospecting and sampling. This phase was conducted from June 6 to June 9, 2008. This phase is estimated to cost $25,000.
If the results of phase one should warrant it, we intend to continue with phase two of our recommended exploration program which consists of detailed surface and underground geological mapping, rock sampling, grid construction, soil and silt geochemical survey, IP survey and establishment of drill and rock trenching target. We currently do not know the results from our initial phase one exploration program. The phase two is estimated to cost $100,000. We anticipate that this phase would begin in spring of 2009 depending on results from phase one, weather and personnel.
If further exploration should be warranted upon completion of phase two, we will continue with phase three of our recommended exploration program. This third phase is estimated to cost $175,000. This phase could be commenced as early as spring 2009 but it is not known how long it would continue. This would be based exclusively on how lucrative the mineral findings are in phase two.
We anticipate spending approximately $8,000 monthly in ongoing general and administrative expenses over the next year. These expenses will consist primarily of the professional fees for the audit and legal work relating to our regulatory filings throughout the year, as well as general transfer agent fees, annual mineral claim fees and general office expenses.
As of June 30, 2008, we had cash reserves of $370,833 and as of December 31, 2007, we had cash reserves of $409,749. We anticipate this to be enough to cover the costs for general and administrative expenses over the next year. However, our ability to pay for any additional exploration work or other expenses will be subject to us obtaining additional financing as these expenditures will exceed our available cash reserves. During the year, we anticipate that we will not generate any revenue. Accordingly, we will be required to obtain additional financing in order to continue our plan of operations. We believe that debt financing will not be a feasible alternative as we do not have tangible assets to secure any debt financing. We anticipate that additional financing will be equity financing from the sale of our common stock.
We currently have two outstanding Warrants from our most recent public offering. There are 775,000 Warrant A’s issued and outstanding and 775,000 Warrant B’s issued and outstanding. Warrant A can be converted into one common share at $0.50 per share and
Warrant B can be exercised into one common share at $0.55 per share. If both Warrants are exercised, the Company would receive
$813,750. Both Warrants will expire on October 31, 2012.
We cannot provide investors with any assurance that we will be able to raise sufficient funding from the sale of our common stock or exercising of warrants to fund our exploration program or any of our other expenses. In the absence of such financing, we will not be able to continue exploration of our mineral claims and our business plan will fail. Even if we are successful in obtaining equity financing to fund phase two of our exploration program, there is no assurance that we will obtain the funding necessary to pursue any advanced exploration of our mineral claims. If we do not continue to obtain additional financing, we will be forced to abandon our mineral claims and our plan of operations.
Should such a situation arise, we may consider entering into a joint venture arrangement to provide the required funding to continue our development of our mineral claims.
9
We have not undertaken any efforts to locate a joint venture partner for the mineral claims. Even if we elected to pursue a joint venture partner, there is no assurance that any other party would want to enter into a joint venture agreement with us. If we entered into a joint venture agreement, we would likely have to assign a percentage of our interest in our mineral claims to our joint venture partner.
Results of Operations
We incurred a loss of $26,134 for the three months ended June 30, 2008 compared to a loss of $15,460 for the same period of 2007. The increased loss was the result of an increase in professional fees from $13,336 in 2007 to $25,248 in 2008. We have engaged additional professionals in conjunction with our securities filings so that we can improve our system of internal controls and progress with the development of our mineral properties. We expect our total operating expenses to be approximately $25,000 per quarter for the remainder of 2008.
We incurred a loss of $44,955 for the six months ended June 30, 2008 compared to a loss of $37,248 for the same period of 2007. The increased loss was the result of an increase in professional fees from $30,714 in 2007 to $43,380 in 2008. We have engaged additional professionals in conjunction with our securities filings so that we can improve our system of internal controls and progress with the development of our mineral properties.
Future Financing
We anticipate continuing to rely on equity sales of our common stock to finance our business operations. Issuances of additional shares will result in dilution to our existing shareholders. There is no assurance that we will achieve any additional sales of our equity securities or arrange for debt or other financing to fund our planned exploration activities.
Off-Balance Sheet Arrangements. We do not have any off-balance sheet arrangements.
Item 4. CONTROLS AND PROCEDURES
(a)
Evaluation of Disclosure Controls and Procedures. Management, including our Chief Executive Officer and Principal Accounting Officer Herdev S. Rayat, have conducted an evaluation of the effectiveness of disclosure controls and procedures pursuant to Exchange Act Rule 13a-14(c) and 15d-14(c). This evaluation was conducted as of June 30, 2008. Based on that evaluation, the Chief Executive Officer and Principal Accounting Officer concluded that the disclosure controls and procedures are effective in ensuring that all material information required to be filed in this quarterly report has been made known to them in a timely fashion. Our officers have concluded that our disclosure controls and procedures are also effective to ensure that information required to be disclosed by us in reports we file under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commissions rules and forms, as appropriate.
There have been no significant changes in internal controls or in other factors that could significantly affect internal
controls subsequent to the date the Chief Executive Officer and Principal Accounting Officer completed her evaluation.
(b)
Changes in Internal Control Over Financial Reporting. Our Chief Executive Officer and Principal Accounting Officer Herdev S. Rayat has indicated that there were changes in our internal controls. The following procedures were implemented to our internal controls that will enhance the Company’s ability to keep and control all financial reporting requirements moving forward by adding professional independent consultants, adopting a Code of Ethics, Adopting Corporate Governance Principles and implementing a record keeping of all corporate matters electronically and hard copy form. There have been no other changes in our internal control over financial reporting identified in connection with the evaluation that occurred during the latest quarter that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting as required by Item 308(c) of Regulation S-B.
10
PART II – OTHER INFORMATION
Item 1 LEGAL PROCEEDINGS.
None.
1A. RISK FACTORS
We have sought to identify what we believe to be the most significant risks to our business. However, we cannot predict whether, or to what extent, any of such risks may be realized nor can we guarantee that we have identified all possible risks that might arise. Investors should carefully consider all of such risk factors before making an investment decision with respect to our Common Stock. We provide the following cautionary discussion of risks, uncertainties and possible inaccurate assumptions relevant to our business. These are factors that we think could cause our actual results to differ materially from expected results. Other factors besides those listed here could adversely affect us. If any of the following risks actually occur, our business, financial condition or operating results could be harmed. In such case, you could lose all or a portion of your investment.
We have yet to earn revenue and, our ability to sustain our operations is dependent on our ability to raise financing.
We are an exploration stage Company; we have not generated any revenues since inception and we do not expect to generate any revenues for the foreseeable future, we incurred a net loss of $127,206 for the period from May 3, 2006 (inception) to June 30, 2008 and a loss of $26,134 for the three months ending June 30, 2008. Our future is dependent upon our ability to obtain financing and upon future profitable operations from the commercial exploitation of our mineral claims. These factors raise substantial doubt that we will be able to continue as a going concern.
If we do not obtain additional financing, we will need to curtail our exploration activities and our business may fail, in which case you may lose your investment.
For the next year of operations, our current operating funds should be sufficient to cover the initial phase of our exploration program, in addition to providing funds for anticipated operating overheads, professional fees and regulatory filing fees. However, our existing funds may be insufficient if the actual costs of our exploration program significantly exceed our estimates or if we decide to proceed to or beyond Phases 2 and 3 of our exploration program or if we decided to begin mining efforts in the event that it is determined that our property contains mineral reserves. Therefore, we will need to obtain additional financing in order to complete our full business plan.
In order for us to perform any further exploration or extensive testing past the first phase we will need to obtain additional financing. As of June 30, 2008 we had cash in the amount of $370,833. We currently do not have any operations and we have no income.
Our business plan calls for significant expenses in connection with the exploration of our mineral claims. We will have sufficient funds to carry out the proposed phases 1 and 2 exploration work for approximately $310,776 exploration program on all of our properties (to the extent warranted by our exploration results), we will require additional capital for phase 3 work on all our properties and additional capital for general corporate expenses.
We will require additional financing to sustain our business operations if we are not successful in earning revenues once exploration is complete. If our exploration programs are successful in discovering ore of commercial tonnage and grade, we will require additional funds in order to place our properties into commercial production. We currently do not have any arrangements for financing and we may not be able to obtain financing when required. Obtaining additional financing would be subject to a number of factors many of which are beyond our control, including the market prices for copper and gold and the costs of exploring for or mining these materials. These factors may make the timing, amount, terms or conditions of additional financing unavailable to us.
Because of the difficulties and uncertainties inherent in the mineral exploration business, we face a high risk of business failure.
At this time, we are uncertain as to whether we will be successful in finding mineral deposits on our properties; if exploration efforts are not successful, we will be unable to generate revenues from our operations and we will have to cease doing business.
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Potential investors should be aware of the difficulties normally encountered by new mineral exploration companies and the high rate of failure of such enterprises.
The likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays encountered in connection with the exploration of the mineral properties that we plan to undertake. These potential problems include, but are not limited to, unanticipated problems relating to exploration, and additional costs and expenses that may exceed current estimates.
The expenditures to be made by us in the exploration of the mineral claims may not result in the discovery of mineral
deposits. Problems such as unusual or unexpected formations and other conditions are involved in mineral exploration and often result in unsuccessful exploration efforts.
Because of the inherent dangers involved in mineral exploration, there is a risk that we may incur liability or damages as we conduct our business.
The search for valuable minerals involves numerous hazards. As a result, we may become subject to liability for such hazards, including pollution, cave-ins and other hazards against which we cannot insure or against which we may elect not to insure. At the present time we have no coverage to insure against these hazards. The payment of such liabilities may have a material adverse effect on our financial position.
We have no known mineral reserves and if we cannot find any, we will have to cease operations.
We have no mineral reserves. If we do not find a mineral reserve containing gold, copper, or silver or if we cannot complete the exploration of the mineral reserve, either because we do not have the money to do it or because it will not be economically feasible to do it, we will have to cease operations and you will lose your investment. Mineral exploration is highly speculative. It involves many risks and is often non-productive. Even if we are able to find mineral reserves on our property our production capability is subject to further risks including:
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Costs of bringing the property into production including exploration work, preparation of production feasibility studies, and construction of production facilities, all of which we have not budgeted for;
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Availability and costs of financing;
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Ongoing costs of production; and
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Environmental compliance regulations and restraints.
The marketability of any minerals acquired or discovered may be affected by numerous factors which are beyond our control and which cannot be accurately predicted, such as market fluctuations, the lack of milling facilities and processing equipment near our properties, and such other factors as government regulations, including regulations relating to allowable production, importing and exporting of minerals, and environmental protection.
Given the above noted risks, the chances of finding reserves on our mineral properties are remote and funds expended on exploration will likely be lost.
Because we will be subject to compliance with government regulation which may change, the anticipated costs of our exploration program may increase and require us to curtail or cease our operations.
There are several governmental regulations that materially restrict mineral exploration or exploitation. We will be subject to the Mining Act of British Columbia as we carry out our exploration programs. We may be required to obtain work permits, post bonds and perform remediation work for any physical disturbance to the land in order to comply with these regulations. While our planned exploration program budgets for regulatory compliance, there is a risk that new regulations could increase our costs of doing business and prevent us from carrying out our exploration program. Permitting for the initial phases of exploration work on each of our properties has not been received. As currently contemplated, Phase 1 of our exploration program (as to all three of our properties) does not require any permits.
Phases 2 and 3 however will be subject to permits if any type of work, like rock trenching, blasting or establishing cut-line grids is to be conducted. There is no cost for these permits other than the costs incurred by the geologist to file these with the Government of British Columbia on behalf of the Company. If any future regulatory requirements, applicable to our operations, increase the cost of our compliance, we may find it necessary to curtail or cease our exploration activities, in which event you may lose your investment.
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Because the Province of British Columbia owns the land covered by our mineral claims and native land claims might affect our title to the mineral claims or to British Columbia’s title to the property, our business plan may fail.
We are unaware of any outstanding native land claims with respect to any of our properties. However, it is possible that a native land claim could be made in the future. The federal and provincial government policy at this time is to consult with all potentially affected native bands and other stakeholders in the area of any potential mining. Should we encounter a situation where a native person or group claims an interest in our claims, we may be able to provide compensation to the affected party in order to continue with our exploration work, or if such an option is not available, we may have to relinquish our interest in these claims. In either case, the costs and/or losses could be greater than our financial capacity and our business would fail.
Risks Particular to the market of our Common Stock
Market for our common stock.
On June 27, 2008 we were cleared for trading under ticker symbol DKMR. Our shares are to be quoted on the NASD Over-the-Counter Bulletin Board (the “Bulletin Board”). As of this filing no trading activity has commenced.
The price of our common stock may fluctuate significantly and may be negatively affected by factors beyond our ability to control or predict.
The price of our common stock may be affected by broader market trends unrelated to our or our competitors operating performances. Our stock price and the stock prices of many other companies in the resource sectors have historically experienced wide fluctuations, including rapid rises and declines in the stock prices that have often been unrelated to the operating performance of such companies. Volatile trends and fluctuations are typically the result of the combination of general economic, political and market conditions. These factors are beyond our ability to control or predict.
The value and transferability of our shares may be adversely impacted by the penny stock rules.
Holders of our common stock may experience substantial difficulty in selling their securities as a result of the “penny stock rules.” Our common stock is covered by the penny stock rules, a Securities and Exchange Commission (“SEC” or the “Commission”) rule that imposes additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors, generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. For transactions covered by the rule, the broker-dealer must make a special suitability determination for the purchaser and transaction prior to the sale. Consequently, the rule may affect the ability of broker-dealers to sell our securities and also may affect the ability of purchasers of our stock to sell their shares in the secondary market.
It may also cause fewer broker dealers to make a market in our stock. In addition to the "penny stock" rules promulgated by the SEC, the NASD has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, the NASD believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The NASD requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
We may compete for time and efforts of our officers and directors.
Some of our officers and directors are also officers, directors, and employees of other companies, and we may have to compete with the other companies for their time, attention and efforts. Other than our President, Mr. Herdev S. Rayat who expects to devote approximately seventy five (75%) of his time to our affairs, our other officers and directors anticipate devoting approximately five (5%) percent of their time to our matters.
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Our proposed businesses raise potential conflicts of interests between certain of our officers and directors and us.
Certain of our directors are or may become directors and employees of other mineral exploration companies and, to the extent that such companies may participate in ventures in which we may participate, our directors may have conflict of interest in negotiating and concluding terms regarding the extent of such participation by us and such other companies. In addition, directors may present potential prospects to such other companies rather than presenting the opportunities to us or be affiliated with other exploration companies which may compete with our mineral claims. We have not established any mechanisms regarding the resolution of any such conflict if it were to arise; accordingly, there is no assurance that any such conflict will be resolved in a manner that would not be adverse to our interest.
We have a large number of restricted shares outstanding, a portion of which may be sold under rule 144 which may reduce the market price of our shares.
Of the 12,180,000 shares of common stock issued and outstanding, assuming no warrants are exercised, 11,405,000 shares are deemed “restricted securities,” within the meaning of Rule 144; eighty two (82%) percent of these restricted shares are owned by our secretary, treasurer, chief financial officer, director and controlling shareholder. Absent registration under the Securities Act, the sale of such shares is subject to Rule 144, as promulgated under the Securities Act.
It is anticipated that all of the “restricted securities” will be eligible for resale under Rule 144. In general, under Rule 144, subject to the satisfaction of certain other conditions, a person, who is not an affiliate (and who has not been an affiliate for a period of at least three months immediately preceding the sale) and who has beneficially owned restricted shares of our common stock for at least six months is permitted to sell such shares without restriction, provided that there is sufficient public information about us as contemplated by Rule 144. An affiliate who has beneficially owned restricted shares of our common stock for a period of at least one year may sell a number of shares equal to one percent of our issued and outstanding common stock approximately every three months. With two affiliates and non affiliates holding restricted securities as of the date of this report, the respective hold periods commenced on February 14, 2008.
The possibility that substantial amounts of our common stock may be sold under Rule 144 into the public market may adversely affect prevailing market prices for the common stock and could impair our ability to raise capital in the future through the sale of equity securities.
Competition
We operate in a highly competitive industry, competing with other mining and exploration companies, institutional and individual investors, which are actively seeking mineral exploration properties throughout the world together with the equipment, labor and materials required for the exploration of such properties. Many of our competitors have financial resources, staff and facilities substantially greater than ours.
The principal area of competition is encountered in the financial ability to effectively acquire prime mineral exploration properties and having the ability to explore these properties. Competition for the acquisition of mineral exploration properties is intense, with many properties available in a competitive bidding process in which we may lack technological information or expertise available to other bidders. Therefore, we may not be successful in acquiring, exploring and developing profitable properties in the face of competition. No assurance can be given that a sufficient number of suitable mineral exploration properties will be available for acquisition, exploration and development.
Because our sole executive officer and director, Herdev S. Rayat, owns 82% of our outstanding common stock, investors may find that corporate decisions controlled by Mr. Rayat are inconsistent with the interests of other stockholders.
Herdev S. Rayat, our President, controls 82 % of our issued and outstanding shares of common stock. Accordingly, in accordance with our Articles of Incorporation and Bylaws, Mr. Rayat is able to control who is elected to our board of directors and thus could act, or could have the power to act, as our management. Since Mr. Rayat is not simply a passive investor but is also one of our active executives, his interests as an executive may, at times, be adverse to those of passive investors. Where those conflicts exist, our shareholders will be dependent upon Mr. Rayat exercising, in a manner fair to all of our shareholders, his fiduciary duties as an officer or as a member of our board of directors. Also, due to his stock ownership position, Mr. Rayat will have:
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(i) the ability to control the outcome of substantially all corporate actions requiring stockholder approval, including amendments to our articles of incorporation; (ii) the ability to control corporate combinations or similar transactions that might benefit minority stockholders which may be rejected by Mr. Rayat to their detriment, and (iii) control over transactions between him and us.
Future sales of shares by us may reduce the value of our stock.
Since our inception, we have relied on such equity sales of our common stock to fund our operations. We may conduct further equity offerings in the future to finance our current projects or to finance subsequent projects that we decide to undertake.
If common stock is issued in return for additional funds, the price per share could be lower than that paid by our current stockholders. We anticipate continuing to rely on equity sales of our common stock in order to fund our business operations. If we issue additional stock, your percentage interest in us will be diluted. The result of this could reduce the value of your stock.
We Rely On Our Management, The Loss Of Whose Services Could Have A Material Adverse Affect On Our Business.
We rely upon the services of our board of directors and management, in particular those of Mr. Herdev S. Rayat., the loss of which could have a material adverse affect on our business and prospects. Competition for qualified personnel to serve in a senior management position is intense. If we are not able to retain our directors and management, or attract other qualified personnel, we may not be able to fully implement our business strategy; failure to do so would have a materially adverse impact on our future prospects.
We currently have no employment agreements with any of our officers and directors imposing any specific condition on our officers and directors regarding their continued employment by us. Our officers and directors are also officers, directors and employees of other companies, and we may have to compete with such other companies for their time, attention and efforts. Except for Mr. Rayat, none of our officers and directors is expected to spend more than approximately five (5%) of their time on our business affairs. We do not maintain key man insurance on any of our directors or officers.
Compliance With Changing Regulation Of Corporate Governance And Public Disclosure May Result In Additional Expenses.
Keeping abreast of, and in compliance with, changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and, in the event we are ever approved for listing on either NASDAQ or a registered exchange, NASDAQ and stock exchange rules, will require an increased amount of management attention and external resources. We intend to continue to invest all reasonably necessary resources to comply with evolving standards, which may result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.
We Do Not Intend To Pay Dividends For The Foreseeable Future.
We currently intend to retain future earnings, if any, to support the development and expansion of our business and do not anticipate paying cash dividends in the foreseeable future. Our payment of any future dividends will be at the discretion of our board of directors after taking into account various factors, including but not limited to our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at the time. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize their investment.
Item 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None
Item 3 DEFAULTS UPON SENIOR SECURITIES.
None.
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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Item 5 OTHER INFORMATION .
There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors.
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Item 6 EXHIBITS AND REPORTS ON FORM 8K
(a) Exhibits
Exhibit 31.1 | Certification of C.E.O. and Principal Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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Exhibit 32.1 | Certification of C.E.O. and Principal Accounting 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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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: August 11, 2008
DUKE MOUNTAIN RESOURCES, INC.
By: _ /s/ Herdev S. Rayat
Name: Herdev S. Rayat
Title: President and Chief Executive Officer
Treasurer and Principal Accounting Officer
Director
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Exhibit 31.1
CERTIFICATIONS
I, Herdev S. Rayat, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Duke Mountain Resources, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and
5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.
Date: August 11, 2008
__ /s/ Herdev S. Rayat
Herdev S. Rayat
President and Chief Executive Officer
Treasurer and Principal Accounting Officer
Director
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Duke Mountain Resources, Inc. (the Company”), on Form 10-Q for the period ending June 30, 2008, as filed with the Securities and Exchange Commission on the date hereof (the Report”), I, Herdev S. Rayat, President and Treasurer of the Company certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report duly complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
_ /s/ Herdev S. Rayat
Herdev S. Rayat
President and Chief Executive Officer
Treasurer and Principal Accounting Officer
Director