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FAL EXPLORATION CORP. - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operations.(Edgar Glimpses Via Acquire Media NewsEdge) The following discussion provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition for the fiscal years ended December 31, 2013, and December 31, 2012. The discussion should be read along with our financial statements and notes thereto contained elsewhere in this Report. The following discussion and analysis contains forward-looking statements, which involve risks and uncertainties. Our actual results may differ significantly from the results, expectations and plans discussed in these forward-looking statements. See "Forward-Looking Statements." Overview We were incorporated in the State of Nevada on December 17, 2009 as Apps Genius Corp. On July 9, 2013, we changed our name to FAL Exploration Corp. Initially, we had developed, marketed, published and distributed social games and software applications that consumers could use on a variety of platforms. Included were such platforms as social networks, wireless devices such as cellular phones and smart phones including the Apple iPhone™ and standalone websites. We released several applications including 'Bruisers', a game application for Facebook, 'My Mad Millions', a game application for Facebook™, Drama Llama, an application for Facebook™, 'Slap a Friend', a game application for the Apple Iphone™, Bed Bug Alert, a utility application for Apple Iphone™ and Crazy Dream Application for Facebook™, Snookify Me! application for Iphone and Android, and Snooki's Match Game Application for Facebook amongst other games and apps. Beginning in January 2013, we had changed the focus of our Business Plan to develop and operate a crowdfunding platform. In September 2013, we decided to discontinue its social games and mobile applications and crowdfunding business. We intend to focus our efforts on mineral exploration following the purchase of 19.6% ownership in FAL Minerals LLC in October 2013. We intend to acquire minority and majority interest in natural resource properties located throughout the United States. Our initial project is our interest in an open pit mine located in Clay County Alabama also known as the Brown Mine. Initial test results have shown gold bearing materials. We intend to explore the property to determine the commercial viability of the project. Historically, graphite and gold have been mined in the area. The property which is over two hundred and twenty acres contains graphite and some surface gold. We plan to explore the property and either may utilize it as the main production plant should the Brown Mine prove to be commercially viable or seek to monetize the graphite, should it prove to be commercially viable. Limited Operating History We have generated a limited financial history and have not previously demonstrated that we will be able to expand our business. Our business is subject to risks inherent in growing an enterprise, including limited capital resources and possible rejection of our business model and/or sales methods. Results of Operations For the Years Ended December 31, 2013 and 2012 Revenues We have not generated revenues to date in connection with our current mineral exploration business. Operating Expenses For the year ended December 31, 2013 and 2012, operating expenses amounted to $336,141 and $965,543 respectively, a decrease of $629,402 or 65.2%. Changes in operating expenses consisted of the following: Year ended December 31, 2013 2012 Administrative compensation $ 144,000 $ 150,000 Professional fees 66,780 724,036 Impairment Expense 100,000 -Other selling, general and administrative 25,361 91,507 $ 336,141 $ 965,543 5-------------------------------------------------------------------------------- ? For the year ended December 31, 2013 and 2012, administrative compensation amounted to $144,000 and $150,000 respectively, decreased by $6,000 or 4%. The decrease during the year ended December 31, 2013 is primarily attributable to a decrease in wages of our Chief Executive Officer. We expect administrative salaries to increase in 2014 as we increase our operations. ? For the year ended December 31, 2013 and 2012, professional fees amounted to $66,780 and $724,036 respectively, a decrease of $657,256 or 90.78%. The decrease is primarily attributable to a decrease in consulting and investor relations fees. We expect professional fees to increase as we incur significant costs associated with our public company reporting requirements, costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the Securities and Exchange Commission. ? For the year ended December 31, 2013 and 2012, other selling, general and administrative s amounted to $25,361 and $91,507 respectively, a decrease of $66,146 or 72.3%. For the year ended December 31, 2013, travel expenses decreased as compared to the 2012 period due to cost cutting measures. Other Income For the years ended December 31, 2013 and 2012, we recognized other income (expense) of $4 and $(2), respectively. For the years ended December 31, 2013 and 2012, we recognized interest income of $8 and $637, respectively. The decrease in interest income was attributable to having a lower cash balance with which to earn interest on. Additionally, for the year ended December 31, 2013 and 2012, we incurred aggregate interest expense of $4 and $639 related to outstanding notes payable and related party notes, respectively. Discontinued Operations The following table indicates selected financial data of the Company's discontinued operations of its social games and mobile applications and crowdfunding business. For the years ended December 31, 2013 2012 Revenues $ 1,299 $ 7,350 Cost of revenues - - Gross profit - -Operating and other non-operating expenses (16,368 ) (657,041 ) Loss from discontinued operations $ 15,069 $ (649,691 ) Net Loss As a result of the factors described above, our net loss for the years ended December 31, 2013 and 2012 was $351,206 and $1,615,236, or a net loss per common share of $0.03 and $48.61 (basic and diluted), respectively. Liquidity and Capital Resources Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. To date, we have funded our operations through the sale of our common stock. Our primary uses of cash have been for salaries and fees paid to third parties for professional services. All funds received have been expended in the furtherance of growing the business. The following trends are reasonably likely to result in a material decrease in our liquidity over the near to long term: ? An increase in working capital requirements to finance our current mineral explorations business, ? Addition of administrative and sales personnel as the business grows, and ? The cost of being a public company. Our net revenues are not sufficient to fund our operating expenses. At December 31, 2013, we had a cash balance of $3,760. We have been funding our operations through the sale of our common stock for operating capital purposes. We received net proceeds from the sale of our common stock of $60,910 during the year ended December 31, 2013. We currently have no material commitments for capital expenditures. We will need to raise additional funds, particularly if we are unable to generate positive cash flow as a result of our operations. We estimate that based on current plans and assumptions, that our available cash will be insufficient to satisfy our cash requirements under our present operating expectations. Other than working capital and funds received pursuant to the Securities Purchase Agreement, we presently have no other alternative source of working capital. We have used these funds to fund our operating expenses, pay our obligations and grow our company. We will need to raise significant additional capital to fund our operations and to provide working capital for our ongoing operations and obligations. We do not anticipate we will be profitable in 2014. Therefore our future operation is dependent on our ability to secure additional financing. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and a downturn in the U.S. equity and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. The inability to obtain additional capital may restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we will be required to cease our operations. 6 -------------------------------------------------------------------------------- We anticipate that depending on market conditions and our plan of operations, we may incur operating losses in the foreseeable future. Therefore, our auditors have raised substantial doubt about our ability to continue as a going concern on their audit opinion for the year ended December 31, 2013. Our liquidity is negatively impacted by the significant costs associated with our public company reporting requirements, costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the Securities and Exchange Commission. We expect all of these applicable rules and regulations to significantly increase our legal and financial compliance costs and to make some activities more time consuming and costly. Our use of cash flow forecast within 12 months is estimated below: Description Estimated Cost Selling and marketing expenses $ 5,000 Professional fees 65,000 General and administrative 70,000 Total $ 140,000 Professional fee - Primarily includes professional fees associated with becoming a public company as summarized as follows: Amount Auditing fees $ 25,000 Legal fees 30,000 Other professional fees 10,000 Total $ 65,000 General and administrative - Over the next 12 months, we estimate that we will incur general and administrative expenses as follows: Amount Administrative salaries and benefits $ 60,000 Other 10,000 Total $ 70,000 Our operating funds are not sufficient, therefore we will have to scale back our operating plans and it will be unlikely that we will be able to pursue our overall business plan without raising additional working capital. Operating activities For the year ended December 31, 2013, net cash flows used in operating activities amounted to $134,866 and was primarily attributable to our net losses of $351,206 offset by the add back of non-cash items such as depreciation expense of $1,324, loss on disposal of property and equipment of $115, impairment expense of $100,000 and stock based compensation and fees of $4,683, and changes in operating assets and liabilities of $110,218. For the year ended December 31, 2012, net cash used in operations of $651,153 was primarily attributable to our net losses of $1,615,236 offset by the add back of non-cash items such as depreciation expense of $1,346 and stock based compensation and fees of $874,396, and changes in operating assets and liabilities of $88,341. 7 -------------------------------------------------------------------------------- Financing activities For the year ended December 31, 2013 and 2012 net cash flows provided by financing activities was $60,910 and $721,141, respectively. During the year ended December 31, 2013, we received net proceeds from sale of common stock of $60,910. During the year ended December 31, 2012, we received net proceeds from sale of common stock of $838,150 and proceeds from notes payable of $7,500 offset by the payments of notes payable $118,650 and the payment of insurance premium finance payable of $5,859. Contractual Obligations In the normal course of business, we may have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs, cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of payments. At December 31, 2013, we did not have any material contractual obligations that would require us to pay cash in future periods. Critical Accounting Policies and Estimates While our significant accounting policies are more fully described in Note 1 to our financial statements for the year ended December 31, 2013, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this management discussion and analysis. Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We continually evaluate our estimates, including recovery of long-lived assets, income taxes, and the valuation of equity transactions. We base our estimates on historical experience and on various other assumptions that we believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues, expenses, assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the financial statements. Impairment of long-lived assets In accordance with ASC Topic 360, we review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. We recognize an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset's estimated fair value and its book value. Revenue recognition We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the purchase price is fixed or determinable and collectability is reasonably assured. Stock-based compensation We account for stock-based instruments issued to employees in accordance with ASC Topic 718. ASC Topic 718 requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity based compensation issued to employees. We account for non-employee share-based awards in accordance with ASC Topic 505-50. Recent accounting pronouncements Accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements. |