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July 1, 2014

The following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the notes to those financial statements appearing elsewhere in this Report.


This Annual Report contains forward-looking statements. Forward-looking statements for us reflect current expectations, as of the date of this Annual Report, and involve certain risks and uncertainties. Actual results could differ materially from those anticipated in these forward- looking statements as a result of various factors. Factors that could cause future results to materially differ from the recent results or those projected in forward-looking statements include: unprofitable efforts resulting not only from the failure to discover mineral deposits but also from finding mineral deposits that, though present, are insufficient in quantity and quality to return a profit from production; market fluctuations; government regulations, including regulations relating to royalties, allowable production, importing and exporting of minerals, and environmental protection; competition; the loss of services of key personnel; unusual or infrequent weather phenomena, sabotage, government or other interference in the maintenance or provision of infrastructure as well as general economic conditions.

Results of Operations

The Company was incorporated on December 15, 2011. It commenced operations on March 1, 2012. Until December 2012, the Company's operations were limited to developing a business plan, completing sales of common stock, discussing offers by the Company of 3D animation services with potential customers, and the signing and performance of a service agreement with one company.

The Company changed its business model and management in December 2012, and simultaneously discontinued its 3D animation services business. From March 1, 2012 to December 31, 2012 ("FY2012") we had zero revenues as compared to revenues of $791,780 in the period from January 1, 2013 to December 31, 2013 ("FY2013"). Essentially all of our revenues in FY2013 were derived from the consolidation of the revenues from MDB, a company in which we own a 55% ownership stake. All of the revenues of MDB in FY2013 were from sale of rough diamonds and gold mined at MDB.

Our consolidated cost of goods sold in FY2013, consisting almost entirely of production expenses, was $448,830 or approximately 56.7% of the Company's total revenues. The Company's gross profit in FY2013 was $342,950, or approximately 43.3% of total revenues. By comparison, the Company had no revenues, costs of goods sold or gross profit in FY2012.

The Company had an aggregate of $2,073,050 in operating expenses in FY2013 as compared to $152,655 in total operating expenses in FY2012. Exploration and production costs totaling $834,962 and stock based compensation totaling $504,897 comprised the majority of operating expenses in FY2013. No exploration and production costs or stock based compensation expense was incurred in FY2012.

General and administrative expenses increased from $3,885 in FY2012 to $326,908 in FY2013; compensation and related costs increased from $54,112 in FY2012 to $269,168 in FY2013; and professional fees increased from $94,658 in FY2012 to $114,044 in FY2013, in each case primarily as a result of the change in the Company's business All of these changes were as a result of the growth of our business.

Primarily as a result of the $1,920,395 increase in total operating expenses, the Company's net loss increased by $1,338,916, from $174,463 in FY2012 to $1,513,379 in FY2013.

Net cash used in operating activities increased from $111,101 in FY2012 to $851,294 in FY2013, primarily as a result of the $1,360,724 increase in net loss from continuing operations, which was partially offset by non-cash items such as $504,897 in stock based compensation and $350,830 in increased inventory in FY2013.

Net cash used in investing activities decreased from $800,000 on FY2012 to $3,413 in FY2013. In December 2012 the Company advanced $800,000 to BMI. This loan was non-interest bearing and had no specified terms of repayment and was an advance related to the exercise of an option agreement held by the Company for a 20% share of the MDB diamond production. On January 2, 2013, the Company exercised the option and the advance was deemed payment of the option. The option granted the Company 20% of the diamond production with respect to BMI's 55% interest in MDB.

Net cash provided by financing activities decreased from $1,752,802 in FY2012 to $323,003 in FY2013. In FY2012, the Company received net cash from continuing financing activities of $1,746,633 as compared to $323,003 in FY2013. In FY2012, the Company received net proceeds of $2,000,033 from a private placement of its common stock. In FY2013 the primary components of its net cash provided by continuing financing activities were capital contributions received from non-controlling interests ($165,500), proceeds from the sale of notes ($100,000) and cash acquired upon acquisition of a subsidiary ($56,914).

The effect of the foregoing changes in cash flows, as well as a $226,700 negative effect on cash in fiscal 2013 as a result of changes in exchange rates, was a net decrease of $758,404 during FY2013in cash and cash equivalents.


Liquidity and Capital Resources

At December 31, 2013, we had current assets of $340,332 compared to current liabilities of $238,602 for a current ratio of 1.43 to 1. This compares to current assets of $863,189 and current liabilities of $67,462 at December 31, 2012, resulting in a current ratio of approximately 12.8 to 1. The decrease in our current ratio was primarily attributable to a decrease in cash and cash equivalents which were used to fund operations and acquisitions of capital equipment in fiscal 2013

In 2013, our principal sources of liquidity were our revenues from the sale of diamonds and gold as well as cash remaining from the $2,000,033 gross proceeds of a private placement of our common stock from December 2012.

On September 30, 2013, we issued and sold to two accredited investors for $100,000 four units of securities, each unit consisting of a $25,000 convertible promissory note and warrants to purchase 50,000 shares of our common stock until December 31, 2019.

As of December 31, 2013, our working capital was $101,730. As of December 31, 2013, we had accrued expenses and accounts payable of $171,526, and $67,076 in indebtedness for borrowed money.

During the first quarter of 2014, we received an aggregate of $1,048,000 in gross proceeds as a result of various financings and pre-sales of polished diamonds. A description of such transactions is set forth in Item 1 of this Annual Report.

We believe that our current financial resources and funds generated from operations will be adequate to cover anticipated expenditures for debt service, general and administrative expense costs and exploration costs for the foreseeable future.

Our long-term capital requirements are primarily affected by our ongoing acquisition activities. The Company currently, and generally at any time, has acquisition opportunities in various stages of review. We may seek additional financing as necessary to fund such acquisitions and capital expenditures or for general corporate needs as necessary.

Please refer to our risk factors included in Part 1, Item 1A of this Annual Report for a discussion of certain risks that may impact the Company's liquidity and capital resources.

Off-Balance Sheet Arrangements

We currently have no off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Our financial instruments consist of cash and cash equivalents, loans to a related party, accrued expenses, and an amount due to a director. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in our financial statements. If our estimate of the fair value is incorrect at December 31, 2013, it could negatively affect our financial position and liquidity and could result in our having understated our net loss.


Recent Accounting Pronouncements

Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles. Our significant accounting policies are described in Note 1 of the financial statements. We have reviewed all recent accounting pronouncements issued to the date of the issuance of these financial statements, and we do not believe any of these pronouncements will have a material impact on us.

Additional Comments

In 2013, we achieved revenues of $791,780 and had losses of $1,513,379. As of December 31, 2013, we had cash and cash equivalents of $104,992. However, as described elsewhere in this Annual Report, we received $1,048,000 in cash during the first quarter of 2014, thereby substantially increasing our liquidity.

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Source: Edgar Glimpses

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