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MONARCHY RESOURCES, INC. - 10-Q/A - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(Edgar Glimpses Via Acquire Media NewsEdge) The following discussion should be read in conjunction with the information contained in the financial statements of Monarchy Resources, Inc. ("Monarchy" or the "Company") and the notes which form an integral part of the financial statements which are attached hereto. The financial statements mentioned above have been prepared in conformity with accounting principles generally accepted in the United States of AmericaUnited States of AmericaUnited States and are stated in United States dollars. Our Company was formed under the laws of the State of NevadaNevada on June 16, 2010. Our offices are located at Calle urique número 5, Colonia Fuentes de Bellavista, c.p. 33880, Hidalgo del Parral, Chihuahua, Mexico and can be reached at (702) 722-1003. We are an Emerging Growth Company as defined in the Jumpstart Our Business Startups Act. We shall continue to be deemed an emerging growth company until the earliest of- (A) the last day of the fiscal year of the issuer during which it had total annual gross revenues of $1,000,000,000 (as such amount is indexed for inflation every 5 years by the Commission to reflect the change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics, setting the threshold to the nearest 1,000,000) or more; (B) the last day of the fiscal year of the issuer following the fifth anniversary of the date of the first sale of common equity securities of the issuer pursuant to an effective registration statement under this title; (C) the date on which such issuer has, during the previous 3-year period, issued more than $1,000,000,000 in non-convertible debt; or (D) the date on which such issuer is deemed to be a 'large accelerated filer', as defined in section 240.12b-2 of title 17, Code of Federal Regulations, or any successor thereto. As an emerging growth company we are exempt from Section 404(b) of Sarbanes Oxley. Section 404(a) requires Issuers to publish information in their annual reports concerning the scope and adequacy of the internal control structure and procedures for financial reporting. This statement shall also assess the effectiveness of such internal controls and procedures. Section 404(b) requires that the registered accounting firm shall, in the same report, attest to and report on the assessment on the effectiveness of the internal control structure and procedures for financial reporting. As an emerging growth company we are exempt from Section 14A and B of the Securities Exchange Act of 1934 which require the shareholder approval of executive compensation and golden parachutes. We have irrevocably opted out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the Act. From our inception June 16, 2010 through April 30, 2014, we raised $69,900 in capital as follows: (1) in private placements by issuing 30,000,000 shares of common stock at the price of $0.001 per share to our two directors, and (2) by issuing 140,000 shares in exchange for $39,900. Subsequent to April 30, 2014, we have raised no further funds other than the advances from our directors mentioned above. On May 14, 2013, the Company entered into a Share Purchase Agreement (the "SPA") with the owners of New World Metals S.A.P.I. de C.V. ("New World") Under the terms of the SPA, the Company issued 10,000,000 shares of the Company's common stock to the owners of New World in exchange for 28% of the issued and outstanding shares of New World. New World is a mining operator in the ChihuahuaMexico region of Mexico which owns three working mines; Morelos, La Luna, and Peneto. The shares of the 32 -------------------------------------------------------------------------------- Company were valued at $.285, which was the price of the shares sold to a third party under a stock subscription agreement in May 2013. The Company is accounting for this investment using the equity method. On July 4, 2013, the Company entered into an agreement to increase its ownership in New World by 17%, to 45%, by issuing 5,000,000 shares and agreeing to pay $750,000 to three separate owners of New WorldNew WorldNew World. The shares of the Company were valued at $.285, which was the price of the shares sold to a third party under a stock subscription agreement in May 2013. The Company is accounting for this investment using the equity method. The Company's share of the losses of New World for the period ended October 31, 2013 was $65,167. On January 15, 2014, New WorldNew World agreed to convert the $750,000 commitment to 20,000,000 shares of the Company, and on January 17, 2014 these shares were issued. As the fair value of these shares was $1,096,000 (based on the quoted price of the Company's stock on January 17, 2014), the Company recorded a loss on debt extinguishment of $346,000 in the statement of operations. On May 15, 2014, the Company converted $120,000 of its promissory notes to 12,000,000 shares of the Company. We have no full-time employees other than our management who devote time to our operations. For example, our President, Jose Perez spends approximately 35 hours each month. As our Company develops he will both devote more time to our operations. As our Company develops, he will both devote more time to our operations. While our officer and director is not director or officer of any other company involved in the mining industry there can be no assurance such involvement will not occur in the future. Such involvement could create a conflict of interest. Foreign Currency and Exchange Rates Our mineral property is located in the Republic of PhilippinesRepublic of Philippines. The cost expressed in the geological report on La Carlota is expressed in the local currency, Philippine Pesos ("PHP").Mexico Our investment in New World Minerals S.A.P.I de C.V. is located in Mexico. DESCRIPTION OF THE PROPERTY La Carlota Mineral Claim Our La Carlota mineral claim is a 97.3 hectare parcel located in the Republic of the PhilippinesPhilippines. La Carlota Gold Claim can be identified in the PhilippinesPhilippines by the following information: We are presently in the Exploration stage and there is no assurance that mineralized material with any commercial value exits on either of our properties. We do not have any ore body and have not generated any revenues from our operations. We have placed our proposed exploration program on hold in order to concentrate fully on participating in the development of the three mineral properties held by New World Metals. Investment in New World Minerals S.A. P.I de C.V. New World owns three working mines; Morelos, La Luna, and Peneto located in Chihuahua, MexicoChihuahua, New WorldMexico. The Company is a 45% shareholder in New World. In Mexico, we have a 45% interest in New World Metals SAPI ("New World") which directly owns three working mines; Morelos, La Luna, and Peneto located in Chihuahua, Mexico. The Company is a 45% shareholder in New World. All three interests are lode mining concessions granted by the State, with the right to explore and exploit. The expiration dates for all titles expire in 2052. The three concessions have been all obtained through the State Ministry of Mines. New World Metals has both the surface and 32 -------------------------------------------------------------------------------- mineral rights to the property. The Concessions are without known proven (measured) or probable (indicated) reserves, as defined under SEC Industry Guide 7, and the exploration program is exploratory in nature. Authorization and Permits The transfer of concessions in Mexico must be registered under Mexican law. We have been advised that the transfer of the concessions to New World Metals has been registered with the appropriate Mexican authorities. Under Mexican law, a mining concession gives the holder both exploration and exploitation rights for any minerals found in the property. To maintain the concession, the holder must pay appropriate taxes, perform assessment work, comply with environmental laws, and file a production report each year with the appropriate authorities. Foreign individuals and companies wanting to hold concessions must do so through ownership in a Mexican corporation or through a joint venture and they may not hold mining concessions directly. Because of those requirements, we rely on New World Metals, persons associated with New World Metals, and its employees and consultants in Mexico, to perform all acts necessary to comply with the legal requirements necessary to maintain the concessions. The Company has been advised that consultants working with New World Metals have obtained all of the approvals required for exploration rights under the concessions. Mineralization The mineralization is believed to be a low sulphadation epithermal deposit in quartz and calcite vein structures. The gold and silver on the properties is found in these veins and the host rock is shale. Morelos Mine: We hold an indirect 45% interest in this mine through our investment in New World. New World owns a direct interest in this mine. In 2013, major repairs and upgrades have been carried out to the mining structure at the Morelos Mine. Current assays at this new level show 1 gram of Gold and 200 grams of Silver per ton. The Morelos mine is 21 hectares and has gold and silver as its main minerals with assays averaging 2 grams of gold and 600 grams of silver per ton. Currently there is a stockpile of 6,000 tons of ore ready to process. Production is currently 30 tons per day. Additional Mine details: Name of Property Morelos, Title number: T172230 7.4 km southeast of Inde, Durango; Mexico, 2 hour drive from Location and Parral, accessible by highway and 6 km of well-traveled dirt access road Description / This mine was in full production in the 1950â?²s. During the History 1970â?²s it produced high grade mineral (15 kgs. of Silver) Acreage 21 Hectares Minerals Types Gold & Silver -8- Stock Pile Size 6,000 tons How many Assays Multiple Avg. Assay Results 600 Gr Silver 2 Gr Gold per ton Bulk Sampling rate 40 Tons per day. Source of power Diesel generator, power line approx. 100m from property, water and water pumped out of mine and stored on site La Luna Mine 32 -------------------------------------------------------------------------------- We hold an indirect 45% interest in this mine through our investment in New World. New World owns a direct interest in this mine. In 2013 the La Luna Mine has been pumped free of water to the lower levels, and the shaft has been lowered an additional 7 meters. Most recent assays at these levels show 1.5 grams of Gold and 600 grams of Silver. The La Luna mine is 30 hectares and has gold and silver as its main minerals with assays averaging 2.5 grams of gold and 600 grams of silver per ton. Currently there is a stockpile of 3000 tons of ore ready to process. Production is currently 25 tons per day. Additional Mine details: Name of Property La Luna, Title number: T217204 Location and Matamoros, Chihuahua, 42 km south of Parral, 24 km of highway, access and 18 km of well-traveled dirt road. Description / This mine was in operation in the 1970â?²s, but only the north History zone was mined and only to the third level. Acreage 30 hectares Minerals Types Gold and Silver Stock Pile Size 3,000 tons How many Assays Multiple Avg. Assay 600 Grams Silver; 2.5 Grams Gold. The main vein shows 13 kilos Results Silver and 25 Grams Gold Bulk Sampling rate 30 Tons per day Source of power, water Access to electrical grid power on site, water pumped out of mine and stored on site Peneto Mine We hold an indirect 45% interest in this mine through our investment in New World. New World owns a direct interest in this mine. The Peneto mine has gold and silver as its main minerals with assays averaging 11 grams of gold and 170 grams of silver per ton. Currently there is a stockpile of 500 tons of ore ready to process. Production is currently at 15tons per day. In 2013, at the Peneto Mine, the shaft was deepened an additional 8 meters, and assays have been ordered on these recent samples. Additional Mine details: Name of Peneto, Title number: T194641 Property Location and Santa Barbara, Chihuahua, access by 6km of well-traveled dirt road access Description Mine in production since 1990, but only explored to the fourth level / History Minerals Gold & Silver Types Stock Pile 500 Tons Size Acreage 20 Hectares Avg Assay 11 Grams Gold, 170 Grams Silver Results Bulk Sampling 15 Tons per day Rate 32 -------------------------------------------------------------------------------- During the 6 months ended October 31, 2013, New World has spent $141,641 on exploration activities. Our share of this loss was $54,989 which has been recorded in the records as an equity loss in the investment in New World. Our total daily production or bulk sampling rate was a combined 85 tons per day for all three mines. Based on this daily total, and on a basis of 25 operating days per month, our bulk sampling rate is approximately 25,500 tons per year. 32 -------------------------------------------------------------------------------- [[Image Removed]] Balance Sheet as of April 30, 2014 Total cash as of April 30, 2014 was an overdraft $11,784 Our working capital was derived solely from capital stock and promissory notes. In addition, the previous directors have made advances to the Company of $40,326. No revenue was generated during these periods. Total stockholders' deficiency as of April 30, 2014, was $682,486. Our issued and outstanding shares as of April 30, 2014, were 66,140,000 common shares. The six months ended April 30, 2014 compared to the six months ended April 30, 2013. We incurred accumulated net losses since inception of $6,862,886. An analysis of the changes in expenses for the six months ended April 30, 2014 compared to April 30, 2013 is as follows: Six Months Six Months Difference Explanation Ended Ended As there has been April 30, April 30, no independent 2014 2013 valuation of the Mexican properties all expenditures are been Impairment 272,990 - 272,990 expensed loss on investment Lost on Debt 346,000 - 346,000 The loss reflects Extinguishment benefit to debt Postage and 3,711 91 3,620 Private placement delivery costs Printing and 3,200 - 3,200 Private placement production t costs Bank Charges 244 - 244 Director Fees 120,595 - 120,595 Shares paid to director Management 12,000 - 12,000 Fees paid to Fees President Rent 1,500 - 1,500 Audit and 23,000 4,420 18,580 Accounting Consulting 120,259 21,955 98,304 $35,000 paid to Fees Consultants Impairment on - - - Receivable Filing Fees 5,250 750 4,500 Increased filing requirements Transfer Agent 1,492 - 1,492 Increased activity with loans Legal 26,875 - 26,875 and promissory notes Travel 10,000 - 10,000 Travel to Mexico Implied interest of Interest 296,401 - 296,401 convertible debt Expense at par value Total $1,243,517 $27,216 $1,216,301 The three months ended April 30, 2014 compared to the three months ended April 30, 2013. We incurred accumulated net losses since inception of $6,862,886. An analysis of the changes in expenses for the three months ended April 30, 2014 compared to April 30, 2013 is as follows: Three Three Difference Explanation Months Months As there has been Ended Ended no independent valuation of the April 30, April 30, Mexican 2014 2013 properties all expenditures are been Impairment 136,000 - 136,000 expensed loss on investment Management, 62,720 21,955 40,765 Fees Director and paid-President & Consulting Consulting Audit and 8,000 - 8,000 Audit and Q1 Accounting Filing Fees 750 750 Increased filing requirements Increased activity with loans Legal 8,225 8,225 and promissory notes Transfer 1,492 - 1,492 Fees for last Agent quarter Interest 160,436 - 160,436 Interest on Expense convertible debt Total $1,243,517 $21,955 $355,668 MONTHS As of April 30, 2014, we had cash of $0, prepaid expenses of $250, accounts payable and accrued expenses of $166,273, promissory notes and accrued interest of $476,137 and advances from related parties of $40,326, representing a working capital deficit of $682,486. Management has estimated that the need for funds over the next twelve months is as follows: Estimated Expense Ref. Amount Accounting and audit (i) $ 30,000 Edgarizing and XBRL filings (ii) 5,000 Development costs - New World Metals (iii) 750,000 Miscellaneous (iv) 100,000 Promissory notes (v) 420,000 Accounts payable and accrued expenses (vi) 174,000 Estimate of additional cash requirements $ 1,579,000 over the next twelve months (i) Accounting and audit Relates to fees in connection with the preparation of quarterly and annual financial statements and filings on Forms 10-K and 10-Q (ii) Edgarizing With the requirement to do an XBRL filing both annually and quarterly the edgarizing cost are projected to increase over previous years. (iii) Development Costs - MexicoMexico We must invest $750,000 into the project over the next twelve months. (iv) Miscellaneous We must have a minimum of $100,000 to pay for consultants, offices, travel and other related items. 32 -------------------------------------------------------------------------------- (v) Promissory Notes The notes are to third parties and on demand. (vi). Accounts payable - unrelated parties Our future operations are dependent upon our ability to obtain third party financing in the form of debt and equity and ultimately to generate future profitable operations. As of the date of this Form 10-Q, we have not generated revenues, and have experienced negative cash flow from operations. We may look to secure additional funds through future debt, equity financings or advances from our officers and directors. These sources of financing may not be available or may not be available on reasonable terms. Trends From our date of inception we have been a Exploration company which has produced no revenue and maybe will not be able to produce revenue. To the knowledge of management we are unaware of any trends or past and future events which will have a material effect upon our Company, its income and business, both in the long and short term. Please refer to our assessment of Risk Factors as noted on page 24. Critical Accounting Policies and Estimates In presenting our financial statements in conformity with U.S. generally accepting accounting principles, or GAAP, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. Some of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. We base these estimates and assumptions on historical experience or on various other factors that we believe to be reasonable and appropriate under the circumstances. On an ongoing basis, we reconsider and evaluate our estimates and assumptions. Actual results may differ significantly from these estimates. We believe that the critical accounting policies listed below involve our more significant judgments, assumptions and estimates and, therefore, could have the greatest potential impact on our financial statements. In addition, we believe that a discussion of these policies is necessary to understand and evaluate the financial statements contained in this prospectus. Estimates and Assumptions Management uses estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of the assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were assumed in preparing these financial statements. Mineral claim acquisition and exploration costs The cost of acquiring mineral properties or claims is initially capitalized and then tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. Mineral exploration costs are expensed as incurred. Income Taxes The Company utilizes the liability method of accounting for income taxes. Under the liability method deferred tax assets and liabilities are determined based on differences between financial reporting and the tax bases of the assets and liabilities and are measured using the enacted tax rates and laws that will be in effect, when the differences are expected to be reversed. An allowance against deferred tax assets is recorded, when it is more likely than not, that such tax benefits will not be realized. Recent Accounting Pronouncements The Company does not expect the adoption of any recent accounting pronouncements to have a materially impact on its financial statements. |