SIERRA RESOURCE GROUP, INC.
(An Exploration Stage Company)
CONDENSED BALANCE SHEETS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
June 30,
2013
|
|
|
December 31,
2012
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
$
|
10,306
|
|
|
$
|
31,864
|
|
Prepaid expenses
|
|
|
2,000
|
|
|
|
2,000
|
|
Other Current Assets
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT ASSETS
|
|
|
37,306
|
|
|
|
58,864
|
|
Mineral Property Rights
|
|
|
5,131,358
|
|
|
|
|
|
Mine Development Costs
|
|
|
870,742
|
|
|
|
653,523
|
|
OTHER ASSETS
|
|
|
7,970
|
|
|
|
7,971
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
6,047,376
|
|
|
$
|
720,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIT
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts Payable and Accrued Expenses
|
|
$
|
918,135
|
|
|
$
|
1,126,910
|
|
Accrued payroll and compensation related parties
|
|
|
392,668
|
|
|
|
221,235
|
|
Embedded derivative Liabilities
|
|
|
11,262,927
|
|
|
|
154,000
|
|
Advances
|
|
|
90,573
|
|
|
|
90,573
|
|
Obligation to Issue Common Stock
|
|
|
75,000
|
|
|
|
89,700
|
|
Notes Payable (net of debt discount $105,812 and $97,423 respectively)
|
|
|
2,280,754
|
|
|
|
872,765
|
|
Other current liabilities
|
|
|
31,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT LIABILITIES
|
|
|
15,051,451
|
|
|
|
2,555,183
|
|
LONG-TERM DEBT
|
|
|
|
|
|
|
|
|
Note Payable (net of debt discount $3,827,039 and $0, respectively)
|
|
|
198,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
$
|
15,520,385
|
|
|
$
|
2,555,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
STOCKHOLDERS DEFICIT
|
|
|
|
|
|
|
|
|
Class A Common stock, $0.001 par value: 970,000,000 shares authorized; 417,262,585 and 347,833,085 issued and outstanding at June
30, 2013 and December 31, 2012, respectively
|
|
$
|
417,263
|
|
|
$
|
347,833
|
|
Class B Common stock, $0.001 par value: 10,000,000 shares authorized; none issued and outstanding at June 30, 2013 and December
31, 2012
|
|
|
|
|
|
|
|
|
Class A Preferred stock, $0.001 par value: 10,000,000 shares authorized; 1,000,000 issued and outstanding at June 30, 2013 and
December 31, 2012
|
|
|
1,000
|
|
|
|
1,000
|
|
Common stock shares subscribed, not issued $.001 par value 51,057,467 and 18,390,801 at June 30, 2013 and December 31, 2012,
respectively
|
|
|
310,857
|
|
|
|
278,191
|
|
Additional Paid-in capital
|
|
|
9,475,486
|
|
|
|
8,775,195
|
|
Accumulated deficit
|
|
|
(19,407,615
|
)
|
|
|
(11,237,044
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL STOCKHOLDERS DEFICIT
|
|
|
(9,203,009
|
)
|
|
|
(1,834,825
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT
|
|
$
|
6,047,376
|
|
|
$
|
720,358
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed financial statements.
3
SIERRA RESOURCE GROUP, INC.
(An Exploration Stage Company)
CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
June 30,
|
|
|
For the Six Months Ended
June 30,
|
|
|
December 21, 1992
(Inception) to
June 30, 2013
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
|
REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,972
|
|
Selling, general and administrative expenses
|
|
|
238,002
|
|
|
|
419,773
|
|
|
|
548,362
|
|
|
|
643,771
|
|
|
|
3,382,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
238,002
|
|
|
|
419,773
|
|
|
|
548,362
|
|
|
|
643,771
|
|
|
|
3,394,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(238,002
|
)
|
|
|
(419,773
|
)
|
|
|
(548,362
|
)
|
|
|
(643,771
|
)
|
|
|
(3,393,248
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing costs including interest and amortization of discounts
|
|
|
(409,694
|
)
|
|
|
112,186
|
|
|
|
(566,068
|
)
|
|
|
(65,179
|
)
|
|
|
(1,571,272
|
)
|
Derivative Expense
|
|
|
(7,054,141
|
)
|
|
|
(27,238
|
)
|
|
|
(7,056,141
|
)
|
|
|
(27,238
|
)
|
|
|
(7,109,615
|
)
|
|
|
|
|
|
|
Forgiveness of debt and accrued interest
|
|
|
|
|
|
|
671,996
|
|
|
|
|
|
|
|
797,445
|
|
|
|
161,116
|
|
Loss on Impairment of goodwill and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,494,596
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(7,463,835
|
)
|
|
|
756,944
|
|
|
|
(7,622,209
|
)
|
|
|
705,028
|
|
|
|
(16,014,367
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES
|
|
|
(7,701,837
|
)
|
|
|
337,171
|
|
|
|
(8,170,571
|
)
|
|
|
61,257
|
|
|
|
(19,407,615
|
)
|
PROVISION FOR INCOME TAXES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
|
(7,701,837
|
)
|
|
|
337,171
|
|
|
|
(8,170,571
|
)
|
|
|
61,257
|
|
|
|
(19,407,615
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC NET INCOME (LOSS) PER COMMON SHARE
|
|
$
|
(0.02
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.02
|
)
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
|
|
|
396,169,621
|
|
|
|
279,250,783
|
|
|
|
376,531,757
|
|
|
|
265,786,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed financial statements.
4
SIERRA RESOURCE GROUP, INC.
(An Exploration Stage Company)
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 21, 1992
|
|
|
|
For the Six Months Ended
|
|
|
(Inception) to
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(8,170,571
|
)
|
|
$
|
61,257
|
|
|
$
|
(19,407,615
|
)
|
Adjustments to reconcile net income (loss) to net cash used in operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued for services
|
|
|
|
|
|
|
|
|
|
|
763,384
|
|
Stock options issued for services
|
|
|
|
|
|
|
73,276
|
|
|
|
63,481
|
|
Stock subscribed not issued for services
|
|
|
|
|
|
|
|
|
|
|
262,000
|
|
Partial release of liability in exchange for stock and options to be issued
|
|
|
30,697
|
|
|
|
|
|
|
|
30,697
|
|
Forgiveness of debt and accrued interest
|
|
|
|
|
|
|
(797,445
|
)
|
|
|
(161,116
|
)
|
Derivative expense
|
|
|
7,056,141
|
|
|
|
100,738
|
|
|
|
7,089,403
|
|
Interest expense for conversion of stock
|
|
|
|
|
|
|
|
|
|
|
373,357
|
|
Accrued interest
|
|
|
135,575
|
|
|
|
73,554
|
|
|
|
173,717
|
|
Accrued interest related party
|
|
|
|
|
|
|
|
|
|
|
98,816
|
|
Adjustment on impairment of goodwill and equipment
|
|
|
|
|
|
|
|
|
|
|
7,494,596
|
|
Amortization of discount on convertible debt
|
|
|
430,493
|
|
|
|
47,396
|
|
|
|
592,179
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
11,972
|
|
Changes in operation assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets
|
|
|
|
|
|
|
(2,500
|
)
|
|
|
(27,000
|
)
|
Other assets
|
|
|
|
|
|
|
(1,470
|
)
|
|
|
(7,970
|
)
|
Accounts payable and accrued expenses
|
|
|
186,224
|
|
|
|
56,443
|
|
|
|
913,076
|
|
Accrued payroll and compensation related parties
|
|
|
171,433
|
|
|
|
|
|
|
|
392,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash used in operating activities
|
|
|
(160,008
|
)
|
|
|
(388,751
|
)
|
|
|
(1,344,355
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization of mine expenses
|
|
|
|
|
|
|
(52,379
|
)
|
|
|
(101,205
|
)
|
Purchase of minority interest
|
|
|
|
|
|
|
(6,500
|
)
|
|
|
|
|
Investment in oil and gas interests
|
|
|
|
|
|
|
|
|
|
|
(29,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash used in investing activities
|
|
|
|
|
|
|
(58,879
|
)
|
|
|
(130,705
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
|
|
|
|
|
|
|
10,000
|
|
|
|
11,860
|
|
Payments on notes payable
|
|
|
(10,550
|
)
|
|
|
(18,750
|
)
|
|
|
(78,300
|
)
|
Obligation to issue common stock
|
|
|
|
|
|
|
14,700
|
|
|
|
14,700
|
|
Proceeds from issuance of subscribed shares
|
|
|
|
|
|
|
66,666
|
|
|
|
141,667
|
|
Proceeds from officer advances
|
|
|
|
|
|
|
|
|
|
|
90,573
|
|
Proceeds from note payable related party
|
|
|
|
|
|
|
|
|
|
|
29,500
|
|
Proceeds from notes payable
|
|
|
149,000
|
|
|
|
390,833
|
|
|
|
1,275,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash provided by financing activities
|
|
|
138,450
|
|
|
|
463,449
|
|
|
|
1,485,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(21,558
|
)
|
|
|
15,819
|
|
|
|
10,306
|
|
Cash and cash equivalents at beginning of period
|
|
|
31,864
|
|
|
|
132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
10,306
|
|
|
$
|
15,951
|
|
|
$
|
10,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization of mineral property rights and corresponding increase in accounts payable
|
|
|
217,219
|
|
|
|
|
|
|
|
|
|
Capitalization of mineral property rights and corresponding increase in notes payable
|
|
|
4,750,000
|
|
|
|
|
|
|
|
|
|
Capitalization of mineral property rights and corresponding increase in paid in capital and stock subscribed not
issued
|
|
|
381,358
|
|
|
|
|
|
|
|
|
|
Conversion of notes payable and corresponding accrued interest to common stock
|
|
|
118,420
|
|
|
|
|
|
|
|
|
|
Initial set up of derivative liability relating to embedded conversion feature
|
|
|
10,461,695
|
|
|
|
|
|
|
|
|
|
Increase in debt discount and corresponding note payable related to original issue
discount
|
|
|
2,778
|
|
|
|
|
|
|
|
|
|
Embedded conversion option reclassified to equity upon conversion of debt
|
|
|
113,500
|
|
|
|
|
|
|
|
|
|
Increase in debt discount and paid in capital relating to forbearance agreement
|
|
|
101,160
|
|
|
|
|
|
|
|
|
|
Increase in debt issuance costs and notes payable relating to forbearance agreement
|
|
|
17,500
|
|
|
|
|
|
|
|
|
|
Conversion of accounts payable to notes payable
|
|
|
536,860
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed financial statements.
5
SIERRA RESOURCE GROUP, INC.
(An Exploration Stage Company)
NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 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 June 30, 2013, we had an accumulated deficit of $19,407,615 and a working capital deficit of $15,014,145. During the six months ended June 30, 2013,
we had a net loss of $8,170,571. As we had no significant revenues or earnings from operations, the net loss for the six months ended June 30, 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:
|
|
|
|
|
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 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.
The Company had no operating properties at June 30,
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.
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.
8
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.
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 June 30, 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:
|
|
|
Level 1 Quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the
measurement date.
|
|
|
|
Level 2 Inputs 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.
|
|
|
|
Level 3 Unobservable 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 compensation related 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
FASB Accounting Standards Update 2013-01,
Balance
Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities.
The FASB has issued ASU No. 2013-01,
Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities.
Specifically, ASU 2011-11 applies only to derivatives, repurchase agreements and reverse purchase agreements, and securities borrowing and
securities lending transactions that are either offset in accordance with specific criteria contained in the
FASB Accounting Standards Codification
(Codification) or subject to a master netting arrangement or similar agreement.
An entity is required to apply the amendments in ASU 2013-01 for fiscal years beginning on or after January 1, 2013, and interim periods within those
annual periods. The adoption of these new amendments had no impact on the Companys financial position or results of operations.
FASB Accounting Standards Update 2012-04,
Technical Corrections and
Improvements.
The FASB has issued ASU No. 2012-04,
Technical Corrections and Improvements.
In November 2010, the FASB Chairman
added a standing project to the FASBs agenda to address feedback received from stakeholders on the Codification and to make other incremental improvements to U.S. GAAP. This perpetual project will facilitate Codification updates for technical
corrections, clarifications, and improvements, and should eliminate the need for periodic agenda requests for narrow and incremental items. These amendments are referred to as Technical Corrections and Improvements. This ASU also includes amendments
that identify when the use of fair value should be linked to the definition of fair value in Topic 820,
Fair Value Measurement,
and contains conforming amendments to the Codification to reflect the measurement and disclosure requirements of
Topic 820. These amendments are referred to as Conforming Amendments. In addition, this ASU deletes the second glossary definition of fair value that originated from AICPA Statement of Position 92-6,
Accounting and Reporting by Health and Welfare
Benefit Plans.
The first definition originating from FASB Statement No. 123 (revised 2004),
Share-Based Payment,
and the third definition originating from FASB Statement No. 157,
Fair Value Measurements,
remain.
The amendments in this ASU that will not have transition guidance will be effective upon issuance. The amendments that are subject to the transition
guidance will be effective for fiscal periods beginning after December 15, 2012. The adoption of these new amendments had no impact on the Companys financial position or results of operations.
FASB
Accounting Standards Update 2012-02,
Intangibles Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment.
The FASB has issued Accounting Standards Update (ASU) No. 2012-02,
Intangibles Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment
. This ASU states that
an entity has the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the
totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise,
then it is required to determine fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount in accordance with Codification Subtopic 350-30,
IntangiblesGoodwill and Other, General Intangibles Other than Goodwill.
The amendments in this ASU are effective for annual and
interim impairment tests performed for fiscal years beginning after September 15, 2012. The adoption of these new amendments had no impact on the Companys financial position or results of operations.
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:
|
|
|
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.
|
|
|
|
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.
|
|
|
|
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.
|
|
|
|
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 June 30, 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 2011-01 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.
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.
10
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
2013
|
|
|
June 30,
2012
|
|
|
June 30,
2013
|
|
|
June 30,
2012
|
|
Income (Loss) available for common shareholders
|
|
|
(7,701,837
|
)
|
|
|
337,171
|
|
|
|
(8,170,571
|
)
|
|
|
61,257
|
|
Weighted average common shares outstanding
|
|
|
396,169,621
|
|
|
|
279,250,783
|
|
|
|
376,531,757
|
|
|
|
265,786,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings (Loss) per share is based upon the weighted average shares of common stock outstanding
|
|
|
(.02
|
)
|
|
|
.00
|
|
|
|
(.02
|
)
|
|
|
.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
The following table summarizes the acquisition with a total purchase price of $7,505,529:
|
|
|
|
|
Mining Property Rights
|
|
$
|
163,000
|
|
Equipment
|
|
$
|
125,000
|
|
Liabilities
|
|
$
|
(384,540
|
)
|
Goodwill
|
|
$
|
7,602,069
|
|
|
|
|
|
|
Net Assets
|
|
$
|
7,505,529
|
|
|
|
|
|
|
11
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 increased 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 which have not been issued as of June 30, 2013, 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. Because the Company had control (80%) over the interest in the assets known as the Chloride Copper Mine, the acquisition of the remaining 20% interest was accounted
for as an equity transaction. If the Company does not meet all conditions in the Second Amendment, the Medina Property Group, LLC has a right of reversion which includes the return of the title to all of the conveyed assets back to Medina Property
Group, LLC.
NOTE 6. NOTES PAYABLE
The Company had the following notes payable outstanding as of June 30, 2013 and December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
Current Notes Payable
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
|
December 31, 2012
|
|
|
|
Promissory note payable dated August 16, 2010 due to Brian Hebb including accrued interest.
|
|
$
|
43,235
|
|
|
|
41,570
|
|
|
|
|
|
|
|
Promissory note payable dated August 6, 2010 due to Black Diamond Realty Mgmt including accrued interest.
|
|
|
32,880
|
|
|
|
30,098
|
|
|
|
|
|
|
|
Promissory note payable dated May 5, 2010 due to Brian Hebb including accrued interest.
|
|
|
171,840
|
|
|
|
153,469
|
|
|
|
|
|
|
|
Promissory note payable dated February 16, 2012 due to Grand View Ventures including accrued interest
|
|
|
221,412
|
|
|
|
215,992
|
|
|
|
|
|
|
|
Promissory note payable dated May 3, 2012 due to Grand View Ventures including accrued interest
|
|
|
176,323
|
|
|
|
147,029
|
|
|
|
|
|
|
|
Promissory note payable dated May 17, 2012 due to Tangiers Investors, LP including accrued interest
|
|
|
19,447
|
|
|
|
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
|
|
|
227,048
|
|
|
|
210,060
|
|
|
|
|
|
|
|
Promissory note payable dated October 5, 2012 due to Asher Enterprises including accrued interest
|
|
|
-0-
|
|
|
|
33,120
|
|
|
|
|
|
|
|
Promissory note payable dated November 14, 2012 due to All Business Consulting, Inc. including accrued
interest
|
|
|
25,986
|
|
|
|
25,258
|
|
|
|
|
|
|
|
Promissory note payable dated December 4, 2012 due to Asher Enterprises including accrued interest
|
|
|
14,964
|
|
|
|
42,752
|
|
|
|
|
|
|
|
Promissory note payable dated February 5, 2013 due to Paul C. Rizzo & Associates including accrued
interest
|
|
|
569,148
|
|
|
|
-0-
|
|
|
|
|
|
|
|
Promissory note payable dated February 25, 2013 due to Asher Enterprises including accrued interest
|
|
|
64,742
|
|
|
|
-0-
|
|
|
|
|
|
|
|
Promissory note payable dated February 27, 2013 due to Asher Enterprises including accrued interest
|
|
|
5,136
|
|
|
|
-0-
|
|
|
|
|
|
|
|
Promissory note payable dated April 8, 2013 due to Asher Enterprises including accrued interest
|
|
|
57,019
|
|
|
|
-0-
|
|
|
|
|
|
|
|
Promissory note payable dated April 12, 2013 due to Medina Property Group, LLC
|
|
|
750,000
|
|
|
|
-0-
|
|
|
|
|
|
|
|
Promissory note payable dated June 19, 2013 due to JMJ Financial including accrued interest
|
|
|
27,778
|
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Notes Payable
|
|
|
2,406,958
|
|
|
|
970,188
|
|
|
|
|
Non Current Notes Payable
|
|
|
|
|
|
|
|
|
|
|
Promissory note payable dated April 12, 2013 due to Medina Property Group, LLC including accrued interest
|
|
|
4,025,973
|
|
|
|
-0-
|
|
|
|
|
Less: Debt discount
|
|
|
(3,953,243
|
)
|
|
|
(97,423
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Notes Payable
|
|
|
2,479,688
|
|
|
|
872,765
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of future maturities of long term debt are as follows:
|
|
|
|
|
|
|
For the year ended June 30,
|
|
|
|
|
|
|
2014
|
|
|
-0-
|
|
|
|
2015
|
|
|
-0-
|
|
|
|
2016
|
|
|
-0-
|
|
|
|
2017
|
|
|
-0-
|
|
|
|
2018
|
|
|
4,025,973
|
|
|
|
Thereafter
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,025,973
|
|
|
|
|
|
|
|
|
12
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 June 30, 2013 and December 31, 2012, the Company had a balance due including principal, interest and
default penalties in the amount of $43,235 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 June 30, 2013 and
December 31, 2012, the Company had a balance due including principal, interest and default penalties in the amount of $32,880 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.
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 June 30, 2013 and December 31, 2012, the Company had a balance due including principal, interest and default penalties in the amount of $171,840 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 $221,412 and $215,992 at June 30, 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 $176,323 and $147,029 at June 30, 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 June 30, 2013. In addition, as of
June 30,2013, the
Company has not issued shares of common stock to Tangiers. The balance due including principal and accrued interest was $19,447 and $15,900 at June 30, 2013 and December 31, 2012, respectively.
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 June 30, 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
(see Note 14). 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
$227,048 and $210,060 at June 30, 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. This obligation has been satisfied as of June 30, 2013 (See Note 7).
The
Company entered into a Convertible Promissory Note with All Business Consulting Inc. on November 14, 2012 in the amount of $25,000. The note had an interest rate of 8% with a maturity date of November 14, 2013. The balance due including
principal and accrued interest was $25,986 and $25,258 at June 30, 2013 and December 31, 2012, respectively.
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 $14,964 and $42,752 at June 30, 2013 and December 31, 2012, respectively.
13
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 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 14). The
balance due including principal and accrued interest was $569,148 and $0 at June 30, 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 $64,742 and $0 at June 30, 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 $5,136 and $0 at June 30, 2013 and December 31, 2012, respectively.
The Company entered into a
Convertible Promissory Note with Asher Enterprises Inc. on April 8, 2013 in the amount of $56,000. The note had an interest rate of 8% with a maturity date of January 10, 2014 (See Note 7). The balance due including principal and accrued
interest was $57,019 and $0 at June 30, 2013 and December 31, 2012, respectively.
In April 2013, the Company acquired the remaining
20% interest in certain assets and properties of Medina Property Group, LLC (see Note 5). Part of the considerations consists of a 3% convertible note in the amount of $4,000,000, due in April 2018, and convertible into common stock at a conversion
rate equal to 30% of the average closing price for the ten trading days immediately preceding the day of conversion. Because the conversion price of the 3% $4,000,000 convertible note is uncertain and the number of shares issuable upon conversion
are unknown and unlimited, equity classification of the conversion option is prohibited. Therefore, the conversion option is required to be separated from the debt and recorded as a derivative liability, with subsequent changes in fair value
reflected in the statement of operations. The Company estimated the fair value of the conversion option on the date of issuance using Monte Carlo simulations and the following assumptions: volatility 134.16%; risk free rate -0.7%; Term
5 Years. The Company estimated the fair value of the conversion option as of the issuance date to be $10,309,000. The excess of the initial fair value of the conversion option over the face value of the convertible note, totaling $6,309,395, was
recorded as derivative expense on the issuance date and $4,000,000 was recorded as a discount against the convertible note to be amortized into interest expense over the five-year term of the note. During the three months ended June 30, 2013, the
Company recognized $172,961 of interest expense from the amortization of the discount. In addition to the amortization of the discount, the Company recognized $25,973 of interest expense on the Convertible Note for the three and six months ended
June 30, 2013. The carrying value of the convertible note as of June 30, 2013 was $172,961, net of unamortized discount of $3,827,039.
The
Company entered into a Convertible Promissory Note with JMJ Financial on June 19, 2013 for the principal sum of $300,000. Only $25,000 of the note was advanced to the Company, resulting in a $27,778 note payable net of $2,778 original issue
discounts. The lender may advance additional Principal (up to the $300,000) to the Company at the lenders sole discretion. The note has an interest rate of 0% for the first 90 days beginning on the advancement date and a one-time interest
charge of 12% on the principal sum advanced thereafter with a maturity date of June 19, 2014 (see Note 7). The balance due was $27,778 and $0 at June 30, 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 operation
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 six months ended June
30, 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 six months ended June 30, 2013, the Company recorded amortization expense of $20,931. As of June 30, 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 six months ended June 30, 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 six
months ended June 30, 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 was to mature in July 2013,
accrued 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. In April 2013, the entire principal amount of $32,500 was converted into 14,733,447 shares of common stock. 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 $36,000, a debt discount of $32,500
and initial derivative liability expense of $3,500. The debt discount being amortized into expense through the conversion dates of the convertible note. During the three and six months ended June 30, 2013, the Company recorded amortization expense
of $11,496 and $22,329, respectively. As of June 30, 2013, no amounts remained outstanding on the note. In addition to the amortization of the discount the Company recognized $27 and $680 of interest expense on the convertible note for the three and
six months ended June 30, 2013, respectively.
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 $1,000 for the three months ended June 30, 2013 and reclassification of $32,000 to equity on the conversion dates:
|
|
|
Volatility
|
|
100.30 - 118.79%
|
Risk Free Rate
|
|
0.05% - 0.06%
|
Expected Term
|
|
0.18 - .23 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 was 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. In May 2013, the maturity date of the note was extended to November 2013 and $986 of accrued but unpaid
interest was added to the principal balance of the note. As consideration for the extension, the Company agreed to amend the conversion price to the lower of 1) 45% of the lowest trading price during the 15 days prior to conversion or 2) $0.0009.
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. Immediately prior to the extension of the maturity date and amendment to the conversion feature, the fair value of the conversion
option was determined to be $31,000. Immediately following the amendment and extension, the fair value of the conversion option was determined to be $101,000. The Company adjusted the carrying value of the conversion option to $101,000, and recorded
an additional debt discount of $25,986, to be amortized into interest expense through the extended maturity date, and derivative expense of $44,014. The Company determined that the fair value of the derivative liability on June 30, 2013, was
$37,000. During the three and six months ended June 30, 2013, the Company recorded amortization expense of $6,497 and $21,705, respectively. As of June 30, 2013, the carrying value of the convertible note was $6,497, net of a remaining unamortized
discount of $19,490. In addition to the amortization of the discount the Company recognized $231 and $729 of interest expense on the convertible note for the three and six months ended June 30, 2013, respectively.
The fair value of the embedded derivative as of the date of amendment, and as of June 30, 2013, was determined by using Monte Carlo Simulations and the
following assumptions, resulting in net derivative income of $19,986 for the three and six months ended June 30, 2013:
|
|
|
Volatility
|
|
108.96% - 115.7%
|
Risk Free Rate
|
|
0.04% - 0.08%
|
Expected Term
|
|
0.00 - 0.50 Years
|
Dividend Rate
|
|
0%
|
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. In June 2013, the holder of the convertible note elected to convert $29,500 of principal into 19,666,667
shares of common stock.
On the date of issuance the Company recorded a derivative liability and debt discount of $42,500. The debt discount
is being amortized into expense through the maturity date of the convertible note. During the three and six months ended June 30, 2013, the Company recorded amortization expense of $21,335 and $35,502, respectively. As of June 30, 2013, the carrying
value of the convertible note was $10,111, net of a remaining unamortized discount of $2,889. In addition to the amortization of the discount the Company recognized $870 and $1,713 of interest expense on the convertible note for the three and six
months ended June 30, 2013.
The fair value of the embedded derivatives as of the date of conversion, and as of the June 30, 2013, was
determined using Monte Carlo Simulations and the following assumptions, resulting in no charge to earnings since the fair value of the derivative did not change from March 31, 2013, and reclassification of $28,500 to equity on the date of
conversion:
|
|
|
Volatility
|
|
112.52% - 122.40%
|
Risk Free Rate
|
|
0.05% - 0.04%
|
Expected Term
|
|
0.18 - .22 Years
|
Dividend Rate
|
|
0%
|
15
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 and six months ended June 30, 2013, the Company recorded amortization expense of $21,933 and $29,244, respectively. As of June 30, 2013,
the carrying value of the convertible notes was $31,444, net of remaining unamortized discounts of $36,556. In addition to the amortization of the discount the Company recognized $1,373 and $2,210 of interest expense on the convertible note for the
three and six months ended June 30, 2013, respectively.
The fair value of the embedded derivatives as of the June 30, 2013 was determined to
be $65,800, resulting in no charge to earnings since the fair value of the derivative did not change from March 31, 2013, by using Monte Carlo Simulations and the following assumptions:
|
|
|
|
|
Volatility
|
|
|
112.66
|
%
|
Risk Free Rate
|
|
|
0.10
|
%
|
Expected Term
|
|
|
0.42 Years
|
|
Dividend Rate
|
|
|
0
|
%
|
In April 2013, the Company issued a convertible note with face value of $56,000. The note matures nine months from the
date of issuance, 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 two closing trading prices of the Companys
common stock during the thirty 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. The Company estimated the fair value of the derivative liability on the date of issuance
using Monte Carlo Simulations and the following assumptions:
|
|
|
|
|
Volatility
|
|
|
128.10
|
%
|
Risk Free Rate
|
|
|
0.13
|
%
|
Expected Term
|
|
|
0.75 Years
|
|
Dividend Rate
|
|
|
0
|
%
|
On the date of issuance the Company recorded derivative liability of $68,000, a debt discount of $56,000, and derivative
expense of $12,000. The debt discount is being amortized into expense through the maturity date of the convertible note. During the three and six months ended June 30, 2013, the Company recorded amortization expense of $16,780. As of June 30, 2013,
the carrying value of the convertible notes was $16,780, net of remaining unamortized discounts of $39,220. In addition to the amortization of the discount the Company recognized $1,019 of interest expense on the convertible note for the three and
six months ended June 30, 2013.
The fair value of the embedded derivative as of the June 30, 2013 was determined to be $68,500, resulting in
derivative expense of $500, the increase in the fair value of the derivative from the date of issuance, by using Monte Carlo Simulations and the following assumptions:
|
|
|
|
|
Volatility
|
|
|
112.66
|
%
|
Risk Free Rate
|
|
|
0.10
|
%
|
Expected Term
|
|
|
0.5 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 and six months ended June 30, 2013, the Company recorded
amortization expense of $1,064. As of June 30, 2013, the outstanding principal balance was $190,000. In addition to the amortization of discounts the Company recognized $7,982 and $15,970 of interest expense on the convertible note for the
three and six months ended June 30, 2013, respectively.
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 June 30, 2013, the outstanding principal balance of the note was $150,500. In addition to the amortization of discounts the Company recognized $6,356 and $11,794
of interest expense on the convertible note for the three and six months ended June 30, 2013, respectively.
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 (see Note 14).
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 $49,492 and $93,002, respectively, during the three and six months ended June 30, 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 June 30, 2013, was $332,342, net of remaining
unamortized discount of $8,158.
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 $8,562 and $16,089, respectively, of amortization expense during the three and six months ended June 30,
2013.
Other Convertible Notes
In June 2013, the Company issued a convertible note for the principal sum of $300,000. Only $25,000 of the note was advanced to the Company, resulting in a $27,778 note payable net of $2,778 original
issue discounts. The lender may advance additional Principal (up to the $300,000) to the Company at the lenders sole discretion. The note matures one year from the date of issuance, is issued at a 10% discount to the face value, and is
convertible into common stock of the Company at the option of the holder at a conversion rate equal to the lower of $.0036 and 60% of the lowest closing trading price of the Companys common stock during the twenty five 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. The Company estimated the fair value of the derivative liability on the date of issuance using Monte Carlo Simulations and the following
assumptions:
|
|
|
Volatility
|
|
93.46%
|
Risk Free Rate
|
|
0.15%
|
Expected Term
|
|
1.0 Year
|
Dividend Rate
|
|
0%
|
On the date of issuance the Company recorded derivative liability and debt discount of $18,500. The debt discount is
being amortized into expense through the maturity date of the convertible note. The original issue discount of $2,778 is being amortized into interest expense through the maturity date. During the three and six months ended June 30, 2013, the
Company recorded amortization expense of $886. As of June 30, 2013, the carrying value of the convertible notes was $7,386, net of remaining unamortized discounts of $20,392.
The fair value of the embedded derivative as of the June 30, 2013 was determined to be $18,500 using Monte Carlo Simulations and the following assumptions:
|
|
|
Volatility
|
|
112.66%
|
Risk Free Rate
|
|
0.15%
|
Expected Term
|
|
1.0 Year
|
Dividend Rate
|
|
0%
|
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
June 30, 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
|
|
$
|
11,262,927
|
|
|
|
|
|
|
|
|
|
|
$
|
11,262,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,262,927
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
11,262,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below sets forth the summary of changes in the fair value of the Companys Level 3 derivative financial
instruments for the six month period ended June 30, 2013:
|
|
|
|
|
Balance-December 31, 2012
|
|
$
|
154,000
|
|
|
|
Convertible debt issued with conversion feature
|
|
|
10,531,695
|
|
|
|
Embedded conversion option reclassified to equity upon conversion of debt
|
|
|
(113,500
|
)
|
|
|
Fair value change in derivative liability
|
|
|
690,732
|
|
|
|
|
|
|
|
|
Balance-June 30, 2013
|
|
$
|
11,262,927
|
|
|
|
|
|
|
17
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
June 30, 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 six months ended June 30, 2013, the Company did not grant any options to acquire shares of common stock and there were not forfeitures.
Option activity for the period from inception through June 30, 2013 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
# of shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Term
|
|
Outstanding January 1, 2013
|
|
|
174,164,606
|
|
|
|
0.045
|
|
|
|
3.43
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeitures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding June 30, 2013
|
|
|
174,164,606
|
|
|
|
0.045
|
|
|
|
3.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable June 30, 2013
|
|
|
37,664,606
|
|
|
|
0.030
|
|
|
|
3.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information about the stock options outstanding at June 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise Price
|
|
# of shares
|
|
|
Weighted
Average
Remaining
Term
|
|
|
Weighted
Average
Grant
Date Fair
Value
|
|
$0.004
|
|
|
15,326,250
|
|
|
|
3.64
|
|
|
|
0.0011
|
|
$0.0059
|
|
|
1,500,000
|
|
|
|
3.16
|
|
|
|
0.0034
|
|
$0.0510
|
|
|
4,838,356
|
|
|
|
2.93
|
|
|
|
0.0024
|
|
$0.0500
|
|
|
152,500,000
|
|
|
|
3.85
|
|
|
|
0.0016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174,164,606
|
|
|
|
|
|
|
|
|
|
The stock options had no intrinsic value at June 30, 2013.
As of June 30, 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 six months ended June 30,
2013 of $30,697. As of June 30, 2013, the 6,000,000 shares have not been issued.
NOTE 11. EQUITY
As of June 30, 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 970,000,000 shares to the Class A common stock and 10,000,000 shares to the Class B common stock.
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.
On January 22, 2013, the company filed an Amendment to its Articles with the Nevada Secretary of State. 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 had unanimously approved the Amendment. 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.
18
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.
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 June 30,
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.
19
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.
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 June 30, 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
June 30, 2013 the Company issued Asher Enterprises a total of 53,096,166 shares of the Companys Common stock. The stock was issued in exchange for the conversion of notes payable totaling $118,420 (including interest) issued during 2012.
For the three month period ending June 30, 2013, the Company issued 34,400,114 shares in exchange for the conversion of notes payable totaling $63,300 (including interest).
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 June 30, 2013 the Company had not issued
the common shares to the third party.
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.
20
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 June 30, 2013, the Company has not issued the 6,000,000 shares of Class A common stock.
In April 2013, the Company acquired the remaining 20% interest in certain assets and properties of Medina Property Group, LLC part of the consideration
consisted of 40,000,000 shares of common stock. As of June 30, 2013, these shares had not yet been issued.
Preferred Stock
As of June 30, 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 June 30, 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.
As of
June 30, 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
970,000,000 shares to the Class A common stock and 10,000,000 shares to the Class B common stock.
NOTE 14. SUBSEQUENT EVENTS
On July 30, 2013, the Company was issued a Letter of Understanding by Paul C. Rizzo Associates, Inc. whereby the Company and Paul C.
Rizzo Associates, Inc. mutually forbear taking any actions against each other on any matters until January 1, 2014. Disputes have arisen with regards to the February 5, 2013 agreement (see Note 6) and the Company and Paul C. Rizzo Associates,
Inc. have agreed to commence discussions and take no action against each other until after December 31, 2013.
On August 2, 2013 the
Company entered into a Second Forbearance Agreement with Grand View Ventures, LLC. In consideration for entering into the agreement the Company agreed to the following material terms; a default interest rate of 18%, compounded quarterly, on the
February 16, 2012 note (February Note) and the May 3, 2012 note (May Note), pay certain attorney fees of Grand View, payment of an extension fee of $145,000, all accrued interest from the February Note and May Note up to July
15, 2013 is added to principal on both notes respectively, and a reset of the warrants associated with the February Note and May Note to $0.001. In consideration for entering into the agreement Grand View agreed to the following material terms;
waiving all defaults and breaches of the Company specific to both the February Note and May Note, extension of the February Note and May Note maturity date to November 15, 2013, shall waive $120,000 or $75,000 from the extension fee if the February
Note and May Note are paid in full before August 15, 2013 or September 27, 2013 respectively.
The Company and Fogo Inc (Fogo) are
presently in negotiations for an extension to the Promissory Note dated July 31, 2012. As of the date of this filing an extension agreement has not been finalized. The Company will continue negotiations with Fogo to finalize an extension agreement.
21