NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2013
(UNAUDITED)
NOTE 1. DESCRIPTION OF BUSINESS
Sierra Resource Group, Inc. (the Company, we, us, and our ) was incorporated in the
state of Nevada on December 21, 1992, to engage in the lease, acquisition, exploration and development of interests in natural resource properties such as those involving oil and gas interests. The Company has not commenced significant
operations and, in accordance with ASC Topic 915, the Company is considered an exploratory stage company
Our business plan has been to lease,
acquire, explore and develop interests in natural resource properties since our inception.
NOTE 2. GOING CONCERN ISSUES
The accompanying financial statements have been prepared assuming that we will continue as a going concern, which contemplates the
realization of assets and satisfaction of liabilities in the normal course of business. At March 31, 2013, we had an accumulated deficit of $11,705,778 and a working capital deficit of $2,885,043. During the three months ended March 31,
2013, we had a net loss of $468,734. As we had no significant revenues or earnings from operations, the net loss for the three months ended March 31, 2013 was a result of our operating expenditures and financing costs. We will in all
likelihood sustain operating expenses without corresponding revenues. This may result in us incurring a net operating loss, which will increase continuously unless and until we can achieve meaningful revenues.
These factors raise substantial doubt about the ability of the Company to continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties. In this regard, Management is planning to raise any necessary additional funds through loans and additional sales of its common stock. There is no assurance that the Company will
be successful in raising additional capital.
The Companys ability to meet its obligations and continue as a going concern is dependent
upon its ability to obtain additional financing, achievement of profitable operations and/or the discovery, exploration, development and sale of mining reserves. The Company cannot reasonably be expected to earn revenue in the exploration stage of
operations. Although the Company plans to pursue additional financing, there can be no assurance that the Company will be able to secure financing when needed or to obtain such financing on terms satisfactory to the Company, if at all.
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of
America. Significant accounting policies are as follows:
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (GAAP) requires
management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and
(iii) the reported amount of revenues and expenses recognized during the periods presented. Adjustments made with respect to the use of estimates often relate to improved information not previously available. Uncertainties with respect to such
estimates and assumptions are inherent in the preparation of financial statements; accordingly, actual results could differ from these estimates.
These estimates and assumptions also affect the reported amounts of revenues, costs and expenses during the reporting period. Management evaluates these estimates and assumptions on a regular
basis. Actual results could differ from those estimates.
Exploration Stage Enterprise
The Companys financial statements are prepared pursuant to the provisions of Topic 26, Accounting for Development Stage Enterprises, as
it devotes substantially all of its efforts to acquiring and exploring mining interests that will eventually provide sufficient net profits to sustain the Companys existence. Until such interests are engaged in major commercial production, the
Company will continue to prepare its financial statements and related disclosures in accordance with entities in the development stage. Mining companies subject to Topic 26 are required to label their financial statements as an Exploratory
Stage Company, pursuant to guidance provided by SEC Guide 7 for Mining Companies.
6
Revenue Recognition
As the Company is continuing exploration of its mineral properties, no significant revenues have been earned to date. The Company recognizes revenues at the time of delivery of the product to the
customers.
Revenue includes sales value received for our principle product, copper, and associated by-product revenues from the sale of
by-product metals consisting primarily of gold, silver and zinc. Revenue is recognized when title to the product passes to the buyer and when collectability is reasonably assured. The passing of title to the customer is based on terms of the sales
contract. Product pricing is determined at the point revenue is recognized by reference to active and freely traded commodity markets for example, the London Bullion Market, an active and freely traded commodity market, for both gold and silver, in
an identical form to the product sold.
Pursuant to guidance in Topic 605, Revenue Recognition for Financial Statements, revenue
is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable, no obligations remain and collectability is probable. The passing of title to the customer is based on the terms of the sales
contract. Product pricing is determined at the point revenue is recognized by reference to active and freely traded commodity markets, for example the London Bullion Market for both gold and silver, in an identical form to the product sold.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash equivalents
include cash on hand and cash in the bank.
Property and Equipment
Property and equipment is recorded at cost and depreciated over the estimated useful lives of the assets using principally the straight-line method. When items are retired or otherwise disposed of, income
is charged or credited for the difference between net book value and proceeds realized thereon. Ordinary maintenance and repairs are charged to expense as incurred, and replacements and betterments are capitalized.
The range of estimated useful lives used to calculated depreciation for principal items of property and equipment are as follow:
|
|
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Asset Category
|
|
Depreciation/
Amortization
Period
|
Furniture and Fixture
|
|
3 Years
|
Office equipment
|
|
3 Years
|
Leasehold improvements
|
|
5 Years
|
Mine Exploration and Development Costs
All exploration costs are expensed as incurred. Mine development costs are capitalized after proven and probable reserves have been identified. Amortization is calculated using the units-of-production
method over the expected life of the operation based on the estimated recoverable mineral ounces.
Property Evaluations
Management of the Company will periodically review the net carrying value of its properties on a property-by-property basis. These reviews will consider
the net realizable value of each property to determine whether a permanent impairment in value has occurred and the need for any asset write-down. An impairment loss will be recognized when the estimated future cash flows (undiscounted and without
interest) expected to result from the use of an asset are less than the carrying amount of the asset. Measurement of an impairment loss will be based on the estimated fair value of the asset if the asset is expected to be held and used.
Although management will make its best estimate of the factors that affect net realizable value based on current conditions, it is reasonably possible
that changes could occur in the near term which could adversely affect managements estimate of net cash flows expected to be generated from its assets, and necessitate asset impairment write-downs.
Reclamation and Remediation Costs (Asset Retirement Obligations)
The Company had no operating properties at March 31, 2013 but the Companys mineral properties will be subject to standards for mine reclamation that are established by various governmental
agencies. For these non-operating properties, the Company accrues costs associated with environmental remediation obligations when it is probable that such costs will be incurred and they are reasonably estimable. Costs of future expenditures for
environmental remediation are not discounted to their present value. Such costs are based on managements current estimate of amounts that are expected to be incurred when the remediation work is performed within current laws and
7
regulations. It is reasonably possible that due to uncertainties associated with defining the nature and extent of environmental contamination, application of laws and regulations by regulatory
authorities, and changes in remediation technology, the ultimate cost of remediation and reclamation could change in the future. The Company continually reviews its accrued liabilities for such remediation and reclamation costs as evidence becomes
available indicating that its remediation and reclamation liability has changed.
The Company recognizes the fair value of a liability for an
asset retirement obligation in the period in which it is incurred, if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the associated long-lived assets and
depreciated over the lives of the assets on a units-of-production basis. Reclamation costs are accreted over the life of the related assets and are adjusted for changes resulting from the passage of time and changes to either the timing or amount of
the original present value estimate on the underlying obligation.
Mineral property rights
All direct costs related to the acquisition of mineral property rights are capitalized. Exploration costs are charged to operations in the period incurred
until such time as it has been determined that a property has economically recoverable reserves, at which time subsequent exploration costs and the costs incurred to develop a property are capitalized.
The Company reviews the carrying values of its mineral property rights whenever events or changes in circumstances indicate that their carrying values
may exceed their estimated net recoverable amounts. An impairment loss is recognized when the carrying value of those assets is not recoverable and exceeds its fair value.
At such time as commercial production may commence, depletion of each mining property will be provided on a unit-of-production basis using estimated proven and probable recoverable reserves as the
depletion base. In cases where there are no proven or probable reserves, depletion will be provided on the straight-line basis over the expected economic life of the mine.
Asset retirement obligations
The Company plans to recognize liabilities for statutory,
contractual or legal obligations, including those associated with the reclamation of mineral and mining properties and any plant and equipment, when those obligations result from the acquisition, construction, development or normal operation of the
assets. Initially, a liability for an asset retirement obligation will be recognized at its fair value in the period in which it is incurred. Upon initial recognition of the liability, the corresponding asset retirement cost will be added to the
carrying amount of the related asset and the cost will be amortized as an expense over the economic life of the asset using either the unit-of-production method or the straight-line method, as appropriate. Following the initial recognition of the
asset retirement obligation, the carrying amount of the liability will be increased for the passage of time and adjusted for changes to the amount or timing of the underlying cash flows needed to settle the obligation.
Impairment of Long-Lived Assets
In
accordance with ASC Topic 360,
long-lived assets
, such as property, plant, and equipment, and purchased intangibles, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds
its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.
Goodwill and Other Intangible Assets
In accordance with Accounting Standards Codification
(ASC Topic 350)
Goodwill and Other Intangible Assets
, goodwill, which represents the excess of the purchase price and related costs over the value assigned to net tangible and identifiable intangible assets of
businesses acquired and accounted for under the purchase method, acquired in business combinations is assigned to reporting units that are expected to benefit from the synergies of the combination as of the acquisition date. Under this standard,
goodwill and intangibles with indefinite useful lives are not amortized. The Company assesses goodwill and indefinite-lived intangible assets for impairment annually during the fourth quarter, or more frequently if events and circumstances indicate
impairment may have occurred in accordance with ASC Topic 350. If the carrying value of a reporting units goodwill exceeds its implied fair value, the Company records an impairment loss equal to the difference. ASC Topic 350 also requires that
the fair value of indefinite-lived purchased intangible assets be estimated and compared to the carrying value. The Company recognizes an impairment loss when the estimated fair value of the indefinite-lived purchased intangible assets is less than
the carrying value.
Income Taxes
Deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities using the enacted tax rates and laws that will be in
effect when the differences are expected to reverse. A valuation allowance is established when necessary to reduce deferred tax assets to the amounts expected to be realized.
The Company accounts for income taxes under the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 740, Accounting for
Income Taxes. It prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. As a result, the Company has applied a
more-likely-than-not recognition threshold for all tax uncertainties. The guidance only allows the recognition of those tax benefits that have a greater than 50% likelihood of being sustained upon examination by the various taxing authorities. The
Company is subject to taxation in the United States. The Companys tax years since inception remain subject to examination by Federal and state jurisdictions.
The Company classifies penalties and interest related to unrecognized tax benefits as income tax expense in the consolidated statements of operations.
8
Concentration of Credit Risk
The Company maintains its operating cash balances in banks in Fort Lauderdale, Florida. The Federal Depository Insurance Corporation (FDIC) insures accounts at each institution up to $250,000.
Stock-Based Compensation
The Company accounts for stock based compensation in accordance with ASC 718,
Compensation - Stock Compensation
(ASC 718). ASC 718
establishes accounting for stock-based awards exchanged for services provided to the Company. Under the provisions of ASC 718, the Company recognizes stock-based compensation by measuring the cost of services to be rendered based on the grant-date
fair value of the equity award. Compensation expense is to be recognized over the requisite service period to provide service in exchange for the award, generally referred to as the requisite service period. The fair value of the Companys
common stock options are estimated using the Black Scholes option-pricing model with the following assumptions: expected volatility, dividend rate, risk free interest rate and the expected life.
Basic and Diluted Net Loss Per Share
Net loss per share was computed by dividing the net loss by the weighted average number of common shares outstanding during the period. The weighted
average number of shares was calculated by taking the number of shares outstanding and weighting them by the amount of time that they were outstanding. Diluted net loss per share for the Company is the same as basic net loss per share, as the
inclusion of common stock equivalents would be antidilutive.
Derivative Financial Instruments
The Company does not designate its derivatives as hedging instruments to mitigate against various risks. These derivative financial instruments were not
designated or did not qualify for hedge accounting. The Companys primary use of these derivative instruments is to attract investment into the Company. Changes in fair value of these derivative instruments are immediately recognized.
The Company has estimated the fair value of its derivative financial instruments as of March 31, 2013. The fair value measurements
guidance describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:
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Level 1Quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement
date.
|
|
|
|
Level 2Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
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|
|
Level 3Unobservable inputs that shall be used to measure fair value to the extent that observable inputs are not available, thereby allowing for
situations in which there is little, if any, market activity.
|
The Company measures fair value as an exit price using the
procedures described below for all instruments measured at fair value. If quoted market prices are not available, fair value is based upon external valuation and internally developed models that use, where possible, current market-based or
independently-sourced market parameters such as interest rates and stock prices. Items valued using internally developed models are classified according to the lowest level input or value driver that is significant to the valuation. Thus, an item
may be classified in Level 3 even though there may be inputs that are readily observable. The determination of fair value considers various factors including interest rate yield curves and time value underlying the financial instruments.
9
Fair Value of Financial Instruments
The carrying value of the Companys accounts payable and accrued expenses, compensation related parties, advances, notes payable and embedded derivative liabilities approximates their fair
value due to the short-term nature of such instruments.
Accrued payroll and compensationrelated parties
The Company accounts for accrued payroll or compensation for its Chief Executive Officer, Chief Financial Officer and Chairman of the Board within
Accrued payroll and compensation - related parties.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current period presentation for comparative purposes.
Recent Accounting Pronouncements
ASU 2011-04 Amendments to achieve common fair
value measurement and disclosure requirements in U.S. GAAP and IFRSs
The amendments in ASU 2011-04 do not modify the requirements for when
fair value measurements apply; rather, they generally represent clarifications on how to measure and disclose fair value under ASC 820, Fair Value Measurement, including the following revisions:
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|
The concepts of highest and best use and valuation premise are relevant only for measuring the fair value of nonfinancial assets and do not apply to
financial assets and liabilities.
|
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|
|
An entity should measure the fair value of an equity-classified financial instrument from the perspective of the market participant that holds the
instrument as an asset.
|
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|
|
An entity that holds a group of financial assets and financial liabilities whose market risk (that is, interest rate risk, currency risk, or other
price risk) and credit risk are managed on the basis of the entitys net risk exposure may apply an exception to the fair value requirements in ASC 820 if certain criteria are met. The exception allows such financial instruments to be measured
on the basis of the reporting entitys net, rather than gross, exposure to those risks.
|
|
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|
Premiums or discounts related to the unit of account are appropriate when measuring fair value of an asset or liability if market participants would
incorporate them into the measurement (for example, a control premium). However, premiums or discounts related to size as a characteristic of the reporting entitys holding (that is, a blockage factor) should not be considered in a
fair value measurement.
|
The amendments to ASC 820, Fair Value Measurement, included in ASU 2011-04, Amendments to Achieve
Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, are effective prospectively for public entities for interim and annual periods beginning after December 15, 2011 (that is, the quarter ending March 31, 2012
for calendar-year entities). Early adoption is not permitted for public entities. The adoption of these amendments had no impact on the Companys financial position or results of operations.
ASU 2011-02 FASB amends creditor troubled debt restructuring guidance
This bulletin discusses ASU 2011-02, which was issued by the FASB to provide creditors with additional guidance in evaluating whether a restructuring of debt is a troubled debt restructuring. The new
guidance does not amend the guidance for debtors. It is generally effective for public entities in the quarter ended September 30, 2011. The adoption of this bulletin had no impact on the Companys financial position or results of
operations.
ASU 2011-01 Troubled debt restructuring disclosures for public-entity creditors deferred
The FASB issued
Accounting Standards Update (ASU) 2011-01
, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in
Update No. 2010-20, which temporarily defers the date when public-entity creditors are required to provide the new disclosures for troubled debt restructurings in
ASU 2010-20
, Disclosures about the Credit Quality of Financing Receivables
and the Allowance for Credit Losses. The deferred effective date will coincide with the effective date for the clarified guidance about what constitutes a troubled debt restructuring, which the Board is currently deliberating. The clarified guidance
is expected to apply for interim and annual periods ending after June 15, 2011. When providing the new disclosures under ASU 2010-20, public entities would be required to retrospectively apply the clarified guidance on what constitutes a
troubled debt restructuring to restructurings occurring on or after the beginning of the year in which the proposed clarified guidance is adopted.
10
The Company has implemented all new accounting pronouncements that are in effect and that may impact its
condensed financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
NOTE 4. NET EARNINGS (LOSS) PER SHARE
The net loss per common share is calculated by dividing the loss by the weighted average number of shares outstanding:
The following table represents the computation of basic and diluted losses per share:
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|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
2013
|
|
|
March 31,
2012
|
|
Net Loss available for common shareholders
|
|
|
(468,734
|
)
|
|
|
(275,916
|
)
|
|
|
|
Weighted average common shares outstanding
|
|
|
356,602,112
|
|
|
|
251,929,486
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|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Loss per share
|
|
|
(.00
|
)
|
|
|
(.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss per share is based upon the weighted average shares of common stock outstanding
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|
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|
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NOTE 5. CHLORIDE COPPER PROJECT
On April 23, 2010, the Company entered into an Asset Purchase Agreement (the Purchase Agreement) with Medina Property
Group LLC, a Florida limited liability company (Medina). Pursuant to the Purchase Agreement, and upon the terms and subject to the conditions thereof, the Company agreed to purchase 80% of certain mining interests of Medina known as
the Chloride Copper Project, a former copper producer comprised of a mineral deposit and some infrastructure located near Kingston, Arizona (the Copper Mine).
The Companys acquisition of the Chloride Copper Project was accounted for in accordance with ASC 805 Business Combinations and the Company has allocated the purchase price based upon the fair value
of the net assets acquired and liabilities assumed.
The purchase price was $7,505,529 which, pursuant to the Purchase Agreement, included the
issuance of 12,750,000 shares of common stock by the Company to Medina or its assignees, return of 5,358,000 share of common stock by Black Diamond and the payment of $125,000 to the original seller of certain equipment where the Chloride Copper
Mine is located, as designated by Medina in the Purchase Agreement. The purchase price was determined based on the Companys analysis of a recently completed comparable acquisition and based on the value of the associated underlying shares of
the Companys common stock which value of $1.00 per share represented the offering price of the Companys Common Stock in its most recently completed equity transaction prior to the date of the Purchase Agreement. The Company recognized
goodwill of $7,602,069 and assumed $384,540 in liabilities, which consisted of a $360,000 promissory note and $3,040 in accrued interest and $21,500 in accounts payable.
11
The following table summarizes the acquisition with a total purchase price of $7,505,529:
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Mining Property
|
|
$
|
163,000
|
|
|
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Equipment
|
|
$
|
125,000
|
|
|
|
Liabilities
|
|
$
|
(384,540
|
)
|
|
|
Goodwill
|
|
$
|
7,602,069
|
|
|
|
|
|
|
|
|
Net Assets
|
|
$
|
7,505,529
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|
|
|
|
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In addition, pursuant to the Purchase Agreement, Black Diamond Realty Management, LLC returned 5,348,000 shares of the
Companys Common Stock, and as a result, a change of our shareholder voting control occurred. The Acquisition formally closed on June 21, 2010. The shares of Common Stock constituting the equity portion of the purchase price were issued on
August 9, 2010 to certain assignees of Medina, and although this issuance of shares approximately doubled our outstanding shares of Common Stock, no single person or cohesive group took a controlling interest in our Company as a result of this
transaction.
The Company had impairment on the entire purchase price for the Medina Property acquisition and impairment on the Chloride
Cooper Project related to fixed assets and mining interests. During the year ended December 31, 2010 impairment was $7,890,069 was comprised of $7,602,069 write-off of goodwill, $163,000 write-off of mining interests and $125,000 for the
write-down of fixed assets. All these assets were acquired and recorded as part of the Chloride Copper Project.
On April 12, 2013, the
Company executed a Second Amendment to the Asset Purchase Agreement (Second Amendment) between the Company and Medina Property Group, LLC dated April 23, 2010, amended by the First Amendment to the Asset Purchase Agreement dated
June 10, 2010. This Second Amendment provides for the acquisition of Medinas remaining twenty (20%) percent right, title, and interest in the asset known as the Chloride Copper Mine. The execution of this transaction would increase
the Companys interests in the Chloride Copper Mine to 100%. In consideration of the 20% interest, the Company entered into a 6-month promissory note for seven hundred fifty thousand ($750,000) dollars, forty million (40,000,000) shares of
Class A common stock, a 5-year convertible promissory note for four million ($4,000,000) dollars, and a 10-year-warrant purchase agreement for Medina to purchase up to twenty million (20,000,000) shares of its Class A common stock at
a share price of $0.27.
12
NOTE 6. NOTES PAYABLE
The Company had the following notes payable outstanding as of March 31, 2013 and December 31, 2012:
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|
|
|
|
March 31, 2013
|
|
|
December 31, 2012
|
|
Promissory note payable dated August 16, 2010 due to Brian Hebb including accrued interest.
|
|
$
|
42,390
|
|
|
|
41,570
|
|
|
|
|
Promissory note payable dated August 6, 2010 due to Black Diamond Realty Mgmt including accrued interest.
|
|
|
30,702
|
|
|
|
30,098
|
|
|
|
|
Promissory note payable dated May 5, 2010 due to Brian Hebb including accrued interest.
|
|
|
156,497
|
|
|
|
153,469
|
|
|
|
|
Promissory note payable dated February 16, 2012 due to Grand View Ventures including accrued interest
|
|
|
213,431
|
|
|
|
215,992
|
|
|
|
|
Promissory note payable dated May 3, 2012 due to Grand View Ventures including accrued interest
|
|
|
169,967
|
|
|
|
147,029
|
|
|
|
|
Promissory note payable dated May 17, 2012 due to Tangiers Investors, LP including accrued interest
|
|
|
15,900
|
|
|
|
15,900
|
|
|
|
|
Promissory note payable dated July 17, 2012 due to Asher Enterprises including accrued interest
|
|
|
-0-
|
|
|
|
54,940
|
|
|
|
|
Promissory notes payable dated July 31, 2012 due to FOGO, Inc including accrued interest
|
|
|
217,052
|
|
|
|
210,060
|
|
|
|
|
Promissory note payable dated October 5, 2012 due to Asher Enterprises including accrued interest
|
|
|
33,773
|
|
|
|
33,120
|
|
|
|
|
Promissory note payable dated November 14, 2012 due to All Business Consulting, Inc. including accrued
interest
|
|
|
25,756
|
|
|
|
25,258
|
|
|
|
|
Promissory note payable dated December 4, 2012 due to Asher Enterprises including accrued interest
|
|
|
43,595
|
|
|
|
42,752
|
|
|
|
|
Promissory note payable dated February 5, 2013 due to Paul C. Rizzo & Associates including accrued
interest
|
|
|
544,802
|
|
|
|
-0-
|
|
|
|
|
Promissory note payable dated February 25, 2013 due to Asher Enterprises including accrued interest
|
|
|
63,773
|
|
|
|
-0-
|
|
|
|
|
Promissory note payable dated February 27, 2013 due to Asher Enterprises including accrued interest
|
|
|
5,063
|
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,562,701
|
|
|
|
970,188
|
|
|
|
|
Less: Debt discount
|
|
|
(151,359
|
)
|
|
|
(97,423
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Notes Payable
|
|
|
1,411,342
|
|
|
|
872,765
|
|
|
|
|
|
|
|
|
|
|
The Company entered into a promissory note with Brian Hebb on August 16, 2010 in the amount of $34,527. The note has
an interest rate of 8% with the maturity date of July 15, 2011. The Company is currently in default of the note. As of March 31, 2013 and December 31, 2012, the Company had a balance due including principal, interest and default
penalties in the amount of $42,390 and $41,570, respectively. Although management questions whether this amount is a valid liability of the Company, Generally Accepted Accounting Principles (GAAP) requires it to be carried on the Companys
books. The Company will seek all remedies to have the debt removed at a later date.
The Company entered into a promissory note with Black
Diamond Realty Management on August 6, 2010 in the amount of $25,000. The note has an interest rate of 8% with the maturity date of August 16, 2011. The Company is currently in default of the note. As of March 31, 2013 and
December 31, 2012, the Company had a balance due including principal, interest and default penalties in the amount of $30,702 and $30,098, respectively. Although management questions whether this amount is a valid liability of the Company,
Generally Accepted Accounting Principles (GAAP) requires it to be carried on the Companys books. The Company will seek all remedies to have the debt removed at a later date.
13
The Company entered into a promissory note with Brian Hebb on May 5, 2010 in the amount of $125,000.
The note has an interest rate of 8% with the maturity date of August 16, 2011. The Company is currently in default of the note. As of March 31, 2013 and December 31, 2012, the Company had a balance due including principal, interest
and default penalties in the amount of $156,497 and $153,469, respectively. Although management questions whether this amount is a valid liability of the Company, Generally Accepted Accounting Principles (GAAP) requires it to be carried on the
Companys books. The Company will seek all remedies to have the debt removed at a later date.
The Company entered into a Convertible
Promissory Note with Grand View Ventures on February 16, 2012 in the amount of $190,000. The note has an interest rate of 15% with a maturity date of February 16, 2013 (see Note 7). The balance due including principal and accrued interest
was $213,431 and $215,992 at March 31, 2013 and December 31, 2012, respectively.
The Company entered into a Convertible Promissory
Note with Grand View Ventures on May 3, 2012 in the amount of $133,333. The note has an interest rate of 15% with a maturity date of November 1, 2012 (see Note 7). The balance due including principal and accrued interest was $169,967 and
$147,029 at March 31, 2013 and December 31, 2012, respectively.
The Company entered into a Convertible Promissory Note with
Tangiers on October 14, 2011 in the amount of $31,500. The note has an interest rate of 10% with the maturity date of July 14, 2012. The Company has renegotiated the terms of the note. The new terms require the Company to make two payments
of $18,750, which one payment has been timely satisfied, and issue 3,000,000 shares of common stock to Tangiers. The second payment of $18,750 has not been paid as of March 31, 2013. In addition, as of March 31,2013, the Company has not
issued shares of common stock to Tangiers. The balance due including principal and accrued interest was $15,900 at March 31, 2013 and December 31, 2012.
The Company entered into a Convertible Promissory Note with Asher Enterprises Inc. on July 17, 2012 in the amount of $53,000. The note had an interest rate of 8% with a maturity date of
April 19, 2013. This obligation has been satisfied as of March 31, 2013 (See Note 7).
The Company entered into a Promissory
Note with FOGO, Inc. on July 31, 2012 in the amount of $200,000. The note had an interest rate of 12% with a maturity date of January 1, 2013. On January 30, 2013, the Company and Fogo Inc (Fogo) entered into an amendment
to the Promissory Note dated July 31, 2012, which changed the maturity date of the note to July 31, 2013. The note interest rate shall bear an interest rate of 13.5% annual rate beginning February 2013 and increasing 1.5% each month with
an maximum of 20% in July 2013 provided the note is outstanding. The balance due including principal and accrued interest was $217,052 and $210,060 at March 31, 2013 and December 31, 2012, respectively.
The Company entered into a Convertible Promissory Note with Asher Enterprises Inc. on October 5, 2012 in the amount of $32,500. The note had an
interest rate of 8% with a maturity date of July 10, 2013 (See Note 7). The balance due including principal and accrued interest was $33,773 and $33,120 at March 31, 2013 and December 31, 2012, respectively.
The Company entered into a Convertible Promissory Note with All Business Consulting Inc. on November 14, 2013 in the amount of $25,000. The note had
an interest rate of 8% with a maturity date of March 14, 2013 (See Note 7). During May 2013, the creditor elected to convert its note into common stock.
The Company entered into a Convertible Promissory Note with Asher Enterprises Inc. on December 4, 2012 in the amount of $42,500. The note had an interest rate of 8% with a maturity date of
September 16, 2013 (See Note 7). The balance due including principal and accrued interest was $43,595 and $42,752 at March 31, 2013 and December 31, 2012, respectively.
On February 5, 2013, the Company and Paul C. Rizzo Associates, Inc. entered into an agreement which provided for the execution of a Promissory Note, the granting of warrants to purchase 3,000,000
shares of the Common Stock at an exercise price of $0.0125 per share if the final Environmental Assessment is delivered to the Bureau of Land Management by April 1, 2013 with an additional 250,000 warrants to be issued upon the same terms for
each full week that the final EA is delivered before April 1, 2013. A final EA had not been delivered by April 1, 2013. The Promissory Note was executed on February 5, 2013 which the principal amount of $536,860.00 representing all
outstanding invoices up to December 1, 2012. The Promissory Note shall bear interest at an annual rate of 15% with a maturity date of sixty (60) days after the date the United States Bureau of Reclamation issues a submittal of
Environmental Assessment documentation seeking a Finding of No Significant Impact (FONSI) or August 1, 2013 whichever occurs first (See Note 7). The balance due including principal and accrued interest was $544,802 and $0 at
March 31, 2013 and December 31, 2012, respectively.
The Company entered into a Convertible Promissory Note with Asher Enterprises
Inc. on February 25, 2013 in the amount of $63,000. The note had an interest rate of 8% with a maturity date of November 27, 2013 (See Note 7). The balance due including principal and accrued interest was $63,773 and $0 at March 31,
2013 and December 31, 2012, respectively.
The Company entered into a Convertible Promissory Note with Asher Enterprises Inc. on
February 27, 2013 in the amount of $5,000. The note had an interest rate of 8% with a maturity date of December 4, 2013 (See Note 7). The balance due including principal and accrued interest was $5,063 and $0 at March 31, 2013 and
December 31, 2012, respectively.
NOTE 7. Convertible Notes
8 % Convertible Notes
In July 2012, the Company issued a convertible note with a face value of $53,000. The note was to mature in April 2013, bears interest at an annual rate of 8%, and was convertible into common stock of the
Company at the option of the holder at a conversion rate equal to 51% of the average of the lowest three closing trading prices of the Companys common stock during the ten trading days immediately preceding the conversion date. Because the
convertible note was convertible into an indeterminable number of shares of common stock, the fair value of the embedded conversion option was required to be presented as a derivative liability and adjusted to fair value at each reporting date, with
changes in fair value reported in the statement of operations.
14
On the date of issuance the Company recorded a derivative liability of $81,000, a debt discount of $53,000
and initial derivative liability expense of $28,000. The debt discount was being amortized into expense through the maturity date of the convertible note. During the three months ended March 31, 2013, the holder of the convertible notes elected
to convert all principal and interest into 18,696,052 shares of common stock. On each date of conversion, a portion of the remaining unamortized discount attributable to the principal converted was amortized into interest expense and the related
derivative liability was reclassed to equity. During the three months ended March 31, 2013, the Company recorded amortization expense of $20,931. As of March 31, 2013, no principal or interest remained outstanding. In addition to the
amortization of the discount the Company recognized $180 of interest expense on the convertible note for the three months ended March 31, 2013.
The fair value of the embedded derivatives as of each conversion date was determined using Monte Carlo Simulations and the following assumptions, resulting in derivative expense of $2,000 for the three
months ended March 31, 2013:
|
|
|
Volatility
|
|
35.45% - 122.6%
|
Risk Free Rate
|
|
0.05% - 0.12%
|
Expected Term
|
|
0.1 - .22 Years
|
Dividend Rate
|
|
0%
|
In October 2012, the Company issued a convertible note with a face value of $32,500. The note matures in July 2013, bears
interest at an annual rate of 8%, and is convertible into common stock of the Company at the option of the holder at a conversion rate equal to 51% of the average of the lowest three closing trading prices of the Companys common stock during
the ten trading days immediately preceding the conversion date. Because the convertible note is convertible into an indeterminable number of shares of common stock, the fair value of the embedded conversion option is required to be presented as a
derivative liability and adjusted to fair value at each reporting date, with changes in fair value reported in the statement of operations.
On the date of issuance the Company recorded a derivative liability of $36,000, a debt discount of $32,500 and initial derivative liability expense of
$3,500. The debt discount is being amortized into expense through the maturity date of the convertible note. During the three months ended March 31, 2013, the Company recorded amortization expense of $10,833. As of March 31, 2013, the
carrying value of the convertible note was $21,004, net of a remaining unamortized discount of $11,496. In addition to the amortization of the discount the Company recognized $653 of interest expense on the convertible note for the three months
ended March 31, 2013.
The fair value of the embedded derivatives as of the March 31, 2013 was determined to be $31,000, resulting
in no charge to earnings since the fair value of the derivative did not change from December 31, 2012, by using Monte Carlo Simulations and the following assumptions:
|
|
|
|
|
Volatility
|
|
|
80.61
|
%
|
Risk Free Rate
|
|
|
0.07
|
%
|
Expected Term
|
|
|
0.25 Years
|
|
Dividend Rate
|
|
|
0
|
%
|
In November 2012, the Company issued a convertible note with a face value of $25,000. The note matured in March 2013,
bears interest at an annual rate of 8%, and is convertible into common stock of the Company at the option of the holder at a conversion rate equal to 45% of the average of the lowest three closing trading prices of the Companys common stock
during the ten trading days immediately preceding the conversion date. Because the convertible note is convertible into an indeterminable number of shares of common stock, the fair value of the embedded conversion option is required to be presented
as a derivative liability and adjusted to fair value at each reporting date, with changes in fair value reported in the statement of operations.
On the date of issuance the Company recorded a derivative liability of $31,000, a debt discount of $25,000 and initial derivative liability expense of $6,000. The debt discount was amortized into expense
through the maturity date of the convertible note. During the three months ended March 31, 2013, the Company recorded amortization expense of $15,208. As of March 31, 2013, the carrying value of the convertible note was $25,000 and there
was no remaining unamortized discount. In addition to the amortization of the discount the Company recognized $498 of interest expense on the convertible note for the three months ended March 31, 2013.
The fair value of the embedded derivatives as of the March 31, 2013 was determined to be $31,000, resulting in no charge to earnings since the fair
value of the derivative did not change from December 31, 2012, by using Monte Carlo Simulations and the following assumptions:
|
|
|
|
|
Volatility
|
|
|
80.61
|
%
|
Risk Free Rate
|
|
|
0.07
|
%
|
Expected Term
|
|
|
0.20 Years
|
|
Dividend Rate
|
|
|
0
|
%
|
15
In December 2012, the Company issued a convertible note with a face value of $42,500. The note matures in
September 2013, bears interest at an annual rate of 8%, and is convertible into common stock of the Company at the option of the holder at a conversion rate equal to 51% of the average of the lowest three closing trading prices of the Companys
common stock during the ten trading days immediately preceding the conversion date. Because the convertible note is convertible into an indeterminable number of shares of common stock, the fair value of the embedded conversion option is required to
be presented as a derivative liability and adjusted to fair value at each reporting date, with changes in fair value reported in the statement of operations.
On the date of issuance the Company recorded a derivative liability and debt discount of $42,000. The debt discount is being amortized into expense through the maturity date of the convertible note.
During the three months ended March 31, 2013, the Company recorded amortization expense of $14,167. As of March 31, 2013, the carrying value of the convertible note was $18,276, net of a remaining unamortized discount of $24,224. In
addition to the amortization of the discount the Company recognized $843 of interest expense on the convertible note for the three months ended March 31, 2013.
The fair value of the embedded derivatives as of the March 31, 2013 was determined to be $41,000, resulting in no charge to earnings since the fair value of the derivative did not change from
December 31, 2012, by using Monte Carlo Simulations and the following assumptions:
|
|
|
|
|
Volatility
|
|
|
105.16
|
%
|
Risk Free Rate
|
|
|
0.07
|
%
|
Expected Term
|
|
|
0.4 Years
|
|
Dividend Rate
|
|
|
0
|
%
|
In February 2013, the Company issued two convertible notes with an aggregate face value of $68,000. The notes mature in
nine months from the date of issuance, bear interest at an annual rate of 8%, and are convertible into common stock of the Company at the option of the holder at a conversion rate equal to 51% of the average of the lowest three closing trading
prices of the Companys common stock during the ten trading days immediately preceding the conversion date. Because the convertible notes are convertible into an indeterminable number of shares of common stock, the fair value of the embedded
conversion option is required to be presented as a derivative liability and adjusted to fair value at each reporting date, with changes in fair value reported in the statement of operations. The Company estimated the fair value of the derivative
liabilities on the dates of issuance using Monte Carlo Simulations and the following assumptions:
|
|
|
Volatility
|
|
124.2%
|
Risk Free Rate
|
|
0.16% - 0.17%
|
Expected Term
|
|
0.75 Years
|
Dividend Rate
|
|
0%
|
On the dates of issuance the Company recorded derivative liabilities and debt discounts totaling $65,800. The debt
discounts are being amortized into expense through the maturity dates of the convertible notes. During the three months ended March 31, 2013, the Company recorded amortization expense of $7,311. As of March 31, 2013, the carrying value of
the convertible notes was $9,511, net of remaining unamortized discounts of $58,489. In addition to the amortization of the discount the Company recognized $837 of interest expense on the convertible note for the three months ended March 31,
2013.
The fair value of the embedded derivatives as of the March 31, 2013 was determined to be $65,800, resulting in no charge to
earnings since the fair value of the derivative did not change from December 31, 2012, by using Monte Carlo Simulations and the following assumptions:
|
|
|
|
|
Volatility
|
|
|
127.86
|
%
|
Risk Free Rate
|
|
|
0.14
|
%
|
Expected Term
|
|
|
0.67 Years
|
|
Dividend Rate
|
|
|
0
|
%
|
15% Convertible Notes
In February 2012, the Company issued a convertible note with a face value of $190,000. The note matured on February 16, 2013, bears interest at an annual
rate of 15%, and is convertible into common stock of the Company at the option of the holder at a conversion price of $0.045 per share. The investor in the convertible debt also acquired 8,650,00 shares of common stock and warrants to acquire
6,900,000 share of common stock for an exercise price of $0.015 per share over a four-year term for proceeds for $10,000. The Company allocated the proceeds from the sale of convertible debt, common stock, and warrants to their equity and liability
components and recorded an additional debt discount equal to the amount of proceeds allocated the warrants equal to $8,289 to be amortized into expense through the maturity date of the convertible note. During the three months ended March 31, 2013,
the Company recorded amortization expense of $1,064. As of March 31, 2013, the outstanding principal balance was $190,000. In addition to the amortization of discounts the Company recognized $7,989 of interest expense on the convertible note for the
three months ended March 31, 2013.
In May 2012, the Company issued a convertible note with a face value of $133,000. The note matured on
November 1, 2012, accrued interest at an annual rate of 15%, and is convertible into common stock of the Company at the option of the holder at a conversion price of $0.045 per share. In conjunction with the issuance of the convertible note, the
Company also granted the holder of the convertible note the right to purchase a number of shares of common stock equal to 62.5% of the common stock issuable upon conversion of the convertible notes issued in January and February of 2012, for an
exercise price equal to the outstanding principal on the notes issued in January and February of 2012. The Company was required to use the proceeds of such exercise to settle the notes issued in January and February of 2012. Because the exercise
price and number of shares purchasable under the purchase option are indeterminable, the Company was required to record a derivative liability for the fair value of the purchase option.
On the date of issuance the Company a recorded a derivative liability and debt discount of $6,000. The debt discount was amortized into expense through the maturity date of the convertible notes.
During the quarter ended September 30, 2012, the holders of the convertible debt issued in January and February of 2012 converted the notes
into common stock, effectively terminating the purchase right. Accordingly, the fair value of the derivative liability of $6,000 was reclassed to additional paid in capital.
The investor in the convertible debt also acquired 6,666,666 shares of common stock and warrants to acquire 6,666,666 share of common stock for an exercise price of $0.12 per share over a four-year term
for proceeds for $33,333. The Company allocated the proceeds from the sale of convertible debt, common stock, and warrants to their equity and liability components and recorded an additional debt discount equal to the amount of proceeds allocated
the warrants equal to $15,915 which has been fully amortized into expense through the maturity date of the convertible note. In connection with a January 2013, forbearance agreement described below, the principal balance of the convertible note was
16
increased by $17,500. As of March 31, 2013, the outstanding principal balance of the note was $150,500. In
addition to the amortization of discounts the Company recognized $5,438 of interest expense on the convertible note for the three months ended March 31, 2013.
The Company has failed to comply with certain terms of the convertible notes issued in May 2012 and February 2012 and, in January 2013, entered into a forbearance agreement the holder of these notes.
Among other events of default, the Company did not repay the notes on their respective maturity dates in November 2012 and February 2013. In consideration for entering into the Agreement, the Company has agreed that it shall perform (or agree to the
terms of) the following material requirements: (a) the May Note shall bear an 18% interest rate from November 1, 2012 forward, (b) a deed of trust on the Companys 80% interest in the Chloride Copper Mine shall be filed to secure
the February and May Notes , (c) the exercise price associated with Warrants issued in connection with the February and May Notes shall be reset, and (d) the Company shall issue additional warrants to purchase 6,750,000 shares of the
Common Stock with an exercise price of $0.008 provided that the Company may repurchase a certain percentage of such warrants at a purchase price of $0.001 per share if the February 2012 and May 2012 Notes are paid prior to July 15, 2013. In
consideration for entering into the agreement, the Note Holder has agreed to the following material terms; (i) waive any defaults and breaches of the Company or all dates prior to the date of the Forbearance Agreement, and (ii) both the
February 2012 and May 2012 Notes are amended to extend the maturity date of each to July 15, 2013.
The Company recorded an additional
discount of $101,160 against the notes to be amortized into expense through the new maturity date of notes of July 15, 2013. The Company recognized amortization expense of $43,510 during the three months ended March 31, 2013. The discount is equal
to the fair value of the additional consideration consisting of the following: 1) the excess of the fair value of the modified warrants (reduced exercise price) over the fair value of the original warrants, both measured at the forbearance date, and
2) the fair value of the additional warrants at the Forbearance date. The fair value of the warrants, including the incremental fair value resulting from the modification of existing warrants and the issuance of additional warrants, was calculated
using the Black Scholes model and the following assumptions:
|
|
|
Volatility
|
|
125.38%
|
Risk Free Rate
|
|
0.37%
|
Expected Term
|
|
3.0 - 4.0 Years
|
Dividend Rate
|
|
0%
|
The carrying value of the February and May 2012 notes as of march 31, 2013, was $282,850, net of remaining unamortized
discount of $57,650.
The Company also increased the principal balance of the May Note by $17,500 as reimbursement for legal fees incurred by
the lender. The May Note is convertible at $0.045 per share. Since the trading price of the stock was $0.0072 on the forbearance date, there was no additional beneficial conversion resulting from the increase in face value of the May Note. The
Increase in Face Value was recorded as debt issuance costs to be amortized through the new maturity date. The Company recognized $7,527 of amortization expense during the three months ended March 31, 2013.
17
NOTE 8. DERIVATIVE FINANCIAL INSTRUMENTS
The following table represents the Companys fair value hierarchy for its derivative financial instruments measured at fair value
on a recurring basis as of December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
March 31,
2013
|
|
|
Quoted Prices
in Active Mkts.
for Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Embedded conversion feature on convertible debt
|
|
$
|
168,800
|
|
|
|
|
|
|
|
|
|
|
$
|
168,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
168,800
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
168,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below sets forth the summary of changes in the fair value of the Companys Level 3 derivative financial
instruments for the three month period ended March 31, 2013:
|
|
|
|
|
Balance-December 31, 2012
|
|
$
|
154,000
|
|
|
|
Convertible debt issued with conversion feature
|
|
|
65,800
|
|
|
|
Embedded conversion option reclassified to equity upon conversion of debt
|
|
|
(53,000
|
)
|
|
|
Fair value change in derivative liability
|
|
|
2,000
|
|
|
|
|
|
|
|
|
Balance-March 31, 2013
|
|
$
|
168,800
|
|
|
|
|
|
|
NOTE 9. ADVANCES
On March 17, 2010, Brian Hebb a creditor, assumed the debt of $90,573 that an officer had advanced the Company. As of
March 31, 2013 and December 31, 2012, an advance note payable of $90,573 is due to Brian Hebb.
NOTE 10. STOCK-BASED COMPENSATION
On November 17, 2011 the Board of Directors approved the parameters for a Company Qualified Stock Option Plan (the
Plan). under which employees, directors and service providers of the Company may be granted awards to purchase shares of the Companys common stock at a price to be determined by the Board of Directors compensation committee.
During the three months ended March 31, 2013, the Company did not grant any options to acquire shares of common stock and there were not forfeitures.
18
Option activity for the period from inception through March 31, 2013 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
# of shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Term
|
|
Outstanding January 1, 2013
|
|
|
174,164,606
|
|
|
|
0.050
|
|
|
|
3.68
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
Forefeitures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding March 31, 2013
|
|
|
174,164,606
|
|
|
|
0.050
|
|
|
|
3.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable March 31, 2013
|
|
|
37,664,606
|
|
|
|
0.047
|
|
|
|
3.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information about the stock options outstanding at March 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise Price
|
|
# of shares
|
|
|
Weighted
Average
Remaining
Term
|
|
|
Weighted
Average
Grant
Date
Fair Value
|
|
$0.004
|
|
|
15,236,250
|
|
|
|
3.89
|
|
|
|
0.0011
|
|
$0.0059
|
|
|
1,500,000
|
|
|
|
3.41
|
|
|
|
0.0034
|
|
$0.0510
|
|
|
4,838,356
|
|
|
|
3.12
|
|
|
|
0.0024
|
|
$0.0500
|
|
|
152,500,000
|
|
|
|
4.13
|
|
|
|
0.0016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174,164,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The stock options had no intrinsic value at March 31, 2013.
19
As of March 31, 2013, there is $188,752 of unrecognized compensation cost (pre-tax) that will be
recognized in the future.
In March 2013, the Company entered into an agreement with a provider of legal fees to settle legal fees of $42,000
of the $302,353 owed by the Company as of December 31, 2012. In settlement of the amounts due, the Company agreed to issue to the provider of legal services, 6,000,000 shares of common stock, issue options to acquire 6,000,000 shares of common
stock for an exercise price of $0.01 per share for five years, and pay $260,353, bearing interest at an annual rate of 12%, in cash as soon as practicable. The Company determined the fair value of the common stock to be $39,600 based on the trading
price of the Companys common stock on the date of the agreement. The Company determined the fair value of the stock options to be $33,097 using the Black Scholes model and the following assumptions: expected volatility 133.06%, risk
free rate 0.81%, expected term 5 years, and dividend rate 0.0%. The Company recorded additional legal fee expense equal to the excess of the fair value of the consideration given over the carrying value of the accrued legal
fees, resulting in additional expense during the three months ended March 31, 2013 of $30,697. As of March 31, 2013, the 6,000,000 shares have not been issued.
NOTE 11. EQUITY
As of March 31, 2013, the Company is authorized to issue 990,000,000 shares of common stock, $0.001 par value and 10,000,000
shares of preferred stock, $0.001 par value. The Companys common stock was divided into two classes of common stock with 980,000,000 shares to the Class A common stock and 10,000,000 shares to the Class B common stock.
On January 22, 2013, the company filed an Amendment to its Articles with the Nevada Secretary of State. The Amendment had been unanimously approved by
the companys Board of Directors and the holders of a majority of the outstanding shares of our Company entitled to vote on September 7, 2012. The purpose of the Amendment was to increase the shares of our authorized capital stock from
460,000,000, to 990,000,000 of which 970,000,000 shall be designated our Class A Common Stock, par value $0.001, 10,000,000 shall continue to be designated our Class B Common Stock, par value $0.001, and 10,000,000 shall continue to be
designated Preferred Stock, par value $0.001 per share of which 1,000,000 shares have been designated and issued as Series A Preferred Stock, as set forth in the Companys Definitive Information Statement on SEC Form 14C, filed on December 26,
2012.
On June 17, 2011 the Company amended its articles of incorporation (the Articles), to increase the number of shares of
the Companys common stock authorized for issuance to 460,000,000 shares, of which 10,000,000 shares were designated as blank check preferred stock. The amendment also created two classes of common stock of the corporation and
designated 250,000,000 shares to the Class A common stock and 200,000,000 shares to the Class B common stock.
On December 20, 2011,
the Company amended its articles of incorporation as follows: The Company Class A Common stock was changed from 250 million (250,000,000) to 440 million (440,000,000) and the number of Class B Common Stock was changed from
200 million (200,000,000) to 10 million (10,000,000). The total authorized common shares were 450,000,000 and the total authorized and Preferred Stock was 10,000,000 shares.
Common Stock
On December 21, 1992, we issued one thousand eight hundred and
sixty (1,860) shares of our common stock in consideration of $1,860 in cash.
On December 18, 1998, we amended and restated our
Articles of Incorporation, to increase our authorized capitalization from two thousand five hundred (2,500) common stock to twenty five million (25,000,000) common stock. The no par value was changed to $0.001 per share.
On December 18, 1998, our shareholders approved a forward split of our common stock at the ratio of one thousand (1,000) shares for every one
(1) share of the existing shares. The number of common stock outstanding increased from one thousand eight hundred and sixty (1,860) to one million eight hundred sixty thousand (1,860,000). Prior period information has been restated to
reflect the stock split, on a retroactive basis.
On July 14, 2006, our shareholders declared a five and one half (5.5) share
dividend for each one share of the issued and outstanding shares. The record date was July 28, 2006; payable July 31, 2006. The number of common stock outstanding increased from 1,860,000 to 12,090,000.
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See
Note 5. Chloride Copper Project Business Combination
for a discussion of an Asset Purchase
Agreement (the Purchase Agreement) entered into by the Company together with Medina Property Group LLC, a Florida limited liability company (Medina), pursuant to which the Company agreed to purchase 80% of certain assets of
Medina known as the Chloride Copper Project and pursuant to which the purchase price consisted of the issuance of 12,750,000 shares of our common stock, which shares were issued on or about August 9, 2010, to Medina and certain of its
designees. In connection with and pursuant to the terms of the Purchase Agreement, Black Diamond Realty Management, LLC returned 5,348,000 shares of the Companys Common Stock, which shares were returned on June 23, 2010 and, as a result,
a change of our shareholder voting control occurred. The net shared issued for this transactions is 7,402,000 shares.
On June 1, 2010,
the Company issued Michael Doherty, our former Director, President (Principal Executive Officer), Chief Financial Officer, and Secretary of the Company, 100,000 shares of the Companys Common Stock in consideration for his services to the
Company which shares of common stock were valued at $3,000 based on the value of the associated underlying shares of the Companys common stock which value of $1.00 per share, represented the offering price of the Companys Common Stock in
its most recently completed equity transaction prior to the date of the Purchase Agreement and for which the Company recorded a debit to consulting expense in the amount of $100,000.
Effective June 1, 2010, we amended our Certificate of Incorporation and declared a six (6) share stock split for each one share of the issued and outstanding shares. Total shares to be issued
was six to 1. The record date and that date such shares were issued was June 25, 2010. The number of common stock outstanding increased from 19,592,000 to 117,552,000.
At August 23, 2010, the Company entered into a subscription agreement with an investor in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended. The
Company issued and sold to the investor an aggregate of 300,000 shares of its common stock. This issuance resulted in aggregate gross proceeds to the Company of $75,000. At March 31, 2013 the 300,000 shares of common stock had not yet been
issued and accordingly, the Company recorded a credit to subscribed shares.
On January 13, 2011 the Company issued Patrick Champney, our
former Chief Executive Officer, and a Director of the Company, 1,000,000 shares of the Companys Common Stock in consideration for his services to the Company and as per his employment agreement. The shares of common stock were valued at
$510,000 based on the value of the associated underlying shares of the Companys common stock as per the trading price at issuance, which was $.51 per share.
On January 19, 2011 the Company issued Brenda Hamilton, an attorney for the Company, 120,000 shares of the Companys Common Stock in consideration for her services to the Company. The shares of
common stock were valued at $62,400 based on the value of the associated underlying shares of the Companys common stock as per the trading price at issuance, which was $.52 per share.
On January 19, 2011 the Company issued, Kathi Rodriguez a contractor for the Company, 10,000 shares of the Companys Common Stock in consideration for her services to the Company. The shares of
common stock were valued at $5,200 based on the value of the associated underlying shares of the Companys common stock as per the trading price at issuance, which was $.52 per share.
On January 24, 2011 the Company issued Cella Lange and Cella, LLP an attorney for the Company, 100,000 shares of the Companys Common Stock in consideration for their services to the Company.
The shares of common stock were valued at $53,000 based on the value of the associated underlying shares of the Companys common stock as per the trading price at issuance, which was $.53 per share.
On February 2, 2011 the Company issued Cella Lange and Cella, LLP an attorney for the Company, 100,000 shares of the Companys Common Stock in
consideration for their services to the Company. The shares of common stock were valued at $19,000 based on the value of the associated underlying shares of the Companys common stock as per the trading price at issuance, which was $.19 per
share.
On February 2, 2011 the Company issued Bradley Hacker our Chief Financial Officer for the Company, 100,000 shares of the
Companys Common Stock in consideration for his services to the Company and terms for his appointment as Chief Financial Officer. The shares of common stock were valued at $19,000 based on the value of the associated underlying shares of the
Companys common stock as per the trading price at issuance, which was $.19 per share.
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On April 18, 2011 the Company issued Eduardo Munoz a consultant for the Company, 100,000 shares of the
Companys Common Stock in consideration for his services and reimbursement of expenses to the Company. The Company recorded professional expenses and travel costs in the amount of $6,000 based on the market trading value of the shares on
the date of issuance.
From May, 12, 2011 through December 31, 2011 the Company issued Asher Enterprises during seventeen dates a total
of 86,672,004 shares of the Companys Common stock. The stock was issued in exchange for the conversion of notes payable totaling $538,493 issued during 2010 and 2011.
On May 24, 2011 the Company issued First Capital Partners, Inc. a public relations firm for the Company, 750,000 shares of the Companys Common Stock in consideration for their services to the
Company. The Company recorded professional expenses of $15,000 based on the market trading value of the shares on the date of issuance.
On June 7, 2011 the Company issued Michael Rowland as consultant for the Company, 300,000 shares of the Companys Common Stock in consideration
for his services to the Company. The Company recorded professional expenses of $6,000 based on the market trading value of the shares on the date of issuance.
On May 10, 2012, the Company issued Barton Budman a common stock purchase option to purchase 1,000,000 shares of common stock with an exercise price of $0.05 per share as outlined in the consulting
agreement dated February 21, 2012 between Barton Budman, a consultant, and the Company,
During the quarter ended March 31, 2012,
the Company entered into a subscription agreement with Grandview Ventures, whereas, for the value of $10,000 the Company agreed to issue 8,650,000 shares of the Companys common stock. The Company has received the $10,000 and has issued the
common shares to the third party.
From January 3, 2012 through July 31, 2012 the Company issued Asher Enterprises a total of
124,879,081 shares of the Companys Common stock. The stock was issued in exchange for the conversion of notes payable totaling $128,800 (including interest) issued during 2011 and 2012.
From January 1, 2013 through March 31, 2013 the Company issued Asher Enterprises a total of 18,696,052 shares of the Companys Common stock. The stock was issued in exchange for the
conversion of notes payable totaling $55,120 (including interest) issued during 2012.
Common Shares Subscribed, Not Issued
During the year ending December 31, 2010, the Company entered into a subscription agreement. Whereas, for the value of $75,000 the Company agreed to
issue 300,000 shares of the Companys common stock. The Company received the $75,000 however as of December 31, 2011 and 2010 the Company had not issued the common shares to the third party. The Company considers the value of the stock as
subscribed stock, not issued and as a short term liability as of March 31, 2013 since as over twelve months have elapsed since the subscription agreement was entered into by the Company.
The Company entered into a demand Promissory Note with Blackpool Partners LLC; a company owned by the Companys CEO and a related party on May 18, 2011 in the amount of $6,700. This note has
been satisfied and converted into 2,857,467 shares of common stock; however as of this filing the Company has not issued these shares The stock is in exchange for the conversion of a note payable totaling $6,858 (including interest).
Effective March 10, 2011, the Company entered into a two month independent consulting agreement with J. Rod Martin, its current CEO, in
consideration for 200,000 shares of restricted Common Stock. The terms of the agreement were satisfied; however as of this filing the Company has not issued these shares. Effective May 11, 2011, the Company entered into a four month
independent consulting agreement with J. Rod Martin, its current CEO, in consideration for 2,000,000 shares of restricted Common Stock. The terms of the agreement were satisfied; however as of this filing the Company has not issued these shares. The
Company recorded a consulting expense on the date agreements were issued.
The Company entered into a Convertible Promissory Note with
Tangiers on October 14, 2011 in the amount of $31,500. The Company has renegotiated the terms of the note May, 2012. The new terms require the Company to make two payments of $18,750, which one payment has been satisfied, and issue 3,000,000
shares of common stock valued at $14,700 to Tangiers; however as of this filing the Company has not issued these shares.
On March 6,
2013 the Company and Cella, Lange, Cella LLP (Cella) entered into an agreement whereby Cella was issued 6,000,000 shares of the Companys Class A common stock in exchange for the payment of $42,000 of the balance due to Cella.
In consideration for this agreement, the Company also granted Cella fully vested options to purchase up to 6,000,000 additional shares at an exercise price of $0.01 per share. Cella may in its sole discretion elect to apply the amount of the option
exercise against outstanding amounts owed to Cella in lieu of receiving a cash payment from the Company. The outstanding balance owed to Cella as of December 31, 2012 shall bear an annual interest rate of 12% until paid. As of March 31,
2013, the Company has not issued the 6,000,000 shares of Class A common stock.
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Preferred Stock
As of March 31, 2013 and December 31, 2012, the company had 10,000,000 authorized shares of Preferred Stock, with a par value of $0.001 per share. On January 31, 2012, the board of
directors approved and issued 500,000 shares of Series A Preferred Stock each to Timothy Benjamin, Chairman, and J. Rod Martin, CEO. The Company has valued the preferred stock at $1,000 based on the voting rights, the probability of redemption and
the value of the Companys common stock. There are 1,000,000 issued and outstanding shares of Preferred Stock at March 31, 2013 and December 31, 2012.
NOTE 12. INCOME TAXES
The Company adopted ASC Topic 740, which requires the recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statement or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between financial statements and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Temporary differences between taxable income reported for financial reporting purposes and income tax purposes are insignificant.
For income tax reporting purposes, the Companys aggregate unused net operating losses approximate $11,705,778, which expire in various
years through 2030, subject to limitations of Section 382 of the Internal Revenue Code, as amended. The Company has provided a valuation reserve against the full amount of the net operating loss benefit, because in the opinion of
management based upon the earning history of the Company, it is more likely than not that the benefits will not be realized.
NOTE 13. OTHER EVENTS
On January 11, 2012, the Company Amended its Article of Incorporation and increased the authorized common stock of the
Company from 450,000,000 to 1,500,000,000 shares. Subsequently, on April 13, 2012 the Company canceled the Amendment. Therefore, the Company continues to operate with 450,000,000 common shares and 10,000,000 preferred shares of authorized
stock under its Articles of Incorporation.
On January 31, 2012 the Company filed for an amendment of its Articles of Incorporation
creating two classes of Preferred stock with 1,000,000 shares of Class A preferred Shares and 9,000,000 shares of Class B Preferred Shares.
On March 9, 2012, former Director James Stonehouse and the Company entered in to a settlement agreement and general release of claims whereby all debt of approximately $106,000 owed by the Company to
Mr. Stonehouse were satisfied in exchange for 250,000 options at an exercise price of $0.05 per share.
NOTE 14. SUBSEQUENT EVENTS
On April 12, 2013, the Company executed a Second Amendment to the Asset Purchase Agreement (Second Amendment) between
the Company and Medina Property Group, LLC dated April 23, 2010, amended by the First Amendment to the Asset Purchase Agreement dated June 10, 2010. This Second Amendment provides for the acquisition of Medinas remaining twenty
(20%) percent right, title, and interest in the asset known as the Chloride Copper Mine. The execution of this transaction would increase the Companys interests in the Chloride Copper Mine to 100%. In consideration for the 20% interest,
the Company entered into a 6-month promissory note for seven hundred fifty thousand ($750,000) dollars, forty million (40,000,000) shares of Class A common stock, a 5-year convertible promissory note for four million ($4,000,000) Dollars,
and a 10-year warrant purchase agreement for Medina to purchase up to twenty million (20,000,000) shares of its Class A common stock at a share price of $0.27.
The Company entered into a Convertible Promissory Note with Asher Enterprises Inc. on April 8, 2013 in the amount of $56,000. The note has an interest rate of 8% with the maturity date of
January 10, 2014.
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