NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS AND GOING CONCERN
Steele Resources Corporation (formerly Steele Recording Corporation) (the "Company", "SRC") was incorporated in the state of Nevada on February 12, 2007, at which time it was deemed a shell company carrying on minimal operations in the business of producing, acquiring, licensing and distribution of recorded music.
On June 17, 2010 the Company entered into and consummated a Plan and Agreement of Reorganization between the Company and Steele Resources, Inc. and certain stockholders of Steele Resources, Inc. (the Reorganization). Pursuant to the Reorganization, the Company acquired all of the issued and outstanding shares of Steele Resources, Inc., a Nevada Corporation (SRI). The primary business activity of SRC and its subsidiary consists of mining property acquisition, mineral exploration and development and mining services.
Although from a legal perspective, SRC acquired Steele Resources, Inc., from an accounting perspective, the transaction is viewed as a recapitalization of SRI accompanied by the equivalent of an issuance of stock by SRI for the net assets of SRC. This is because SRC did not have operations immediately prior to the merger and, following the merger, SRI is the operating company.
Going Concern
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America which contemplate continuation of the Company as a going concern. However, the Company has a working deficit and has generated $531,126 in revenues since inception. During the year ended December 31, 2013, the Company incurred a net loss of $118,445 and $1,780,254 as of December 31, 2012 has an accumulated deficit of $5,294,136. Further, the Company has inadequate working capital to maintain or develop its operations, and is dependent upon funds from private investors and the support of certain stockholders. These factors raise substantial doubt about the Companys ability 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 or additional sales of its common stock. There is no assurance that the Company will be successful in raising additional capital.
The Company's 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. Should management fail to raise sufficient financing, the Company may curtail its operations.
On July 16, 2010, SRCs wholly owned subsidiary changed its name from Steele Resource, Inc. to Steele Resources, Inc.
Effective September 1, 2010, Steele Recording Corporation changed its name to Steele Resources Corporation.
F-9
NOTE 2 - 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 (GAAP).
Principles of Consolidation
All significant inter-company accounts and transactions have been eliminated in the consolidated financial statements in conformity with U.S. generally accepted accounting principles. Management believes the assumptions underlying the consolidated financial statements are reasonable.
Use of Estimates
The preparation of financial statements in conformity with 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 net sales 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.
Management evaluates these estimates and assumptions on a regular basis. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. At December 31, 2013 and 2012, cash and cash equivalents include cash on hand and cash in the bank. The FDIC insures these deposits up to $250,000.
Exploration Stage Enterprise
The Company's financial statements are prepared pursuant to SEC guidance and Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 915, Development Stage Entities, 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.
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. As of December 31, 2013, management has determined that there was no impairment loss required.
F-10
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
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. Goodwill and other intangible assets are tested for impairment. 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.
Asset Retirement Obligations
The Company had no operating properties at December 31, 2013, but the Companys mineral properties will be subject to standards for mine reclamation that are established by various governmental agencies. For these non-operating properties, the Company accrues costs associated with environmental remediation obligations when it is probable that such costs will be incurred and they are reasonably estimable. Costs of future expenditures for environmental remediation are not discounted to their present value. Such costs are based on management's current estimate of amounts that are expected to be incurred when the remediation work is performed within current laws and regulations.
It is reasonably possible that due to uncertainties associated with defining the nature and extent of possible 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. There were no asset retirement obligations as of December 31, 2013 as there are presently no underlying obligations.
Income Taxes
Deferred income taxes are provided based on the provisions of ASC Topic 740,
Income Taxes
, to reflect the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
F-11
The Company follows a two-step approach to ultimately recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not, that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating the Company's tax positions and tax benefits, which may require periodic adjustments. At December 31, 2013, the Company did not record any liabilities for uncertain tax positions. The Companys policy is to include interest and penalties related to unrecognized tax benefits in income tax expense.
Concentration of Credit Risk
The Company maintains its operating cash balances in banks. The Federal Depository Insurance Corporation (FDIC) insures accounts at each institution up to $250,000.
Share-Based Compensation
The measurement of the cost of services received in exchange for an award of an equity instrument is based on the grant-date fair value of the award. Compensation cost is recognized when the event occurs. The Black-Scholes option-pricing model is used to estimate the fair value of options granted
Basic and Diluted Net Loss Per Common Share
Net loss per common 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 during period where a net loss is reported, the inclusion of common stock equivalents would be antidilutive.
At December 31, 2013 common stock equivalents consisted of warrants to purchase 1,617,500 and no options.
Fair Value of Financial Instruments
The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties other than in a forced sale or liquidation.
The carrying amounts of the Companys financial instruments, including cash, accounts payable and accrued liabilities, accrued interest and related party payable, approximate fair value due to their most maturities.
Derivatives
The use of financial instruments, including derivatives, exposes the Company to market risk related to changes in interest rates, foreign currency exchange rates and commodity prices. The Company has entered into several convertible notes and there is not enough authorized common stock of the Company so all convertible notes are considered derivatives.
F-12
Derivative instruments are accounted for at fair value in accordance with SFAS 133. The accounting for changes in the fair value of a derivative depends on the intended use and designation of the derivative instrument. For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings. For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is initially reported as a component of accumulated other comprehensive income (loss) (AOCI), net of tax, and is subsequently reclassified into earnings when the hedged transaction affects earnings. The ineffective portion of the gain or loss is recognized in current earnings. For derivative and other instruments that are designated and qualify as hedges of long-term investments in foreign subsidiaries, the gain or loss on the instruments is recognized in AOCI. Gains and losses from changes in fair values of derivatives that are not designated as hedges for accounting purposes are recognized currently in earnings, and such amounts were not material for disclosure purposes for the years ended December 31, 2013 and 2012.
There are no derivatives that are designated as hedges for accounting purpose and are material for disclosure purpose for December 31, 2013 and 2012.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current period presentation for comparative purposes.
NOTE 3 - MINING PROJECTS
Mineral Hill Project
The Mineral Hill Exploration project was a gold project located 4-6 miles west of Pony, Montana in the Tobacco Roots Mountain Range in Madison County and includes 17 patented claims and 67 unpatented claims known as the Pony Exploration project (the Pony Project).
This project was abandoned in 2012
Pony Project
: On February 4, 2011, SRI entered into a Mineral Lease Agreement with Option to Purchase (the "Pony Lease")with a group of individual land owners in the state of Montana to acquire rights to 17 patented and 67 unpatented mining claims known as the Pony Exploration project (the Pony Project). The Pony Project contained two active mines operating under a Small Miner Exclusion Statement (SMES). The Pony Project was located in the Pony Mining District near Pony, Montana. Officers of SRC have met with Montana Department of Environmental Quality officials to discuss permitting for both mining and exploration activities. The Pony Lease provided for a six year lease period with an initial payment of $300,000 and annual lease payments of $500,000 for the next five years. The Lessors was to also have a 2% NSR on the property. In addition the Lessors were to receive a 1% NSR on any property developed by SRI located within one linear mile from any portion of the exterior boundary of the Pony Project. After the lease period expired, SRI was to have the option to purchase the Pony Project for $190,000.
This project was abandoned in 2012
F-13
A&P Project
: In February, 2011 SRI entered into a into a Mineral Lease Agreement with Option to Purchase with a group of individual land owners in the state of Montana to acquire two patented mining claims known as the Atlantic and Pacific Mine ("the A&P Lease") located in the Pony Mining District in Montana. The A&P Lease provided for a five year lease period with an initial payment of $200,000 and an annual commitment of $100,000 for the next five years. The Lessors was to also have a 2% NSR on the property during the lease term. After the lease period expired and all lease payments had been paid, full right and title of ownership of the A&P property was to be transferred to SRI.
To retain mineral rights to the property, the yearly maintenance fees was to be paid as well as the appropriate lease payments to the owners of the claims as outlined in the definitive agreement.
The property had no known reserves, only in-house resource calculations established by various companies as noted in Steele Resources technical report on the Mineral Hill Project. Therefore, to establish any reserves, sufficient drilling would have been required, and until then, this property was exploratory in nature. The sampling program to date has been restricted to rock chip sampling and grab sampling at various locations.
SRI completed the reclamation phase of approximately 6,000 tons of stockpiled material at the A&P site that had previously been identified as a hazardous mining waste site. SRI removed the stockpiled materials and sold the mineral ore grade to a third party processing facility for gross revenues of $531,000 in the fourth quarter of 2011.
SRI established a new mine portal and was engaged in the creation of a development drift which will enclose all operations as well as on site crushing capability, all of which falls within the existing SMES authorization.
This project was abandoned in 2012
Copper Canyon Exploration Project
On June 21, 2011 SRI entered into a Mineral Lease Agreement with Option to Purchase (the "Copper Lease") with from the Salmon Canyon Copper Company near Salmon, ID to acquire rights to 10 unpatented mining claims known as the Salmon Canyon Exploration project (the Copper Canyon Project), which is a historic copper/cobalt mine. The Project currently contains one existing mine portal and extensive historic development. The Salmon Canyon Project is located in the Mineral Hill Mining District near Salmon, Idaho. On June 6, 2012, SRI and the Salmon Copper Company mutually agreed to terminate the Mineral Lease Agreement with the Option to Purchase the Copper Canyon Project. With the termination, all right, title and interest of SRI was terminated and SRI was removed from all obligations set forth in the Agreement.
F-14
Billali Gold Mine
On April 20, 2012, SRI entered into a definitive Purchase Agreement (the Purchase Agreement) for the acquisition of the Billali Gold and Silver Mine (The Billali Mine) from the Billali Gold Mine, LLC (Seller) and an advanced stage epithermal silver-gold quartz vein deposit in the Steeple Rock Mining District of New Mexico. The Purchase Agreement provided for payments to be made every period of two years with transfer of ownership being completed when SRI was satisfied its financial obligations under the Purchase Agreement. The purchase price for the Billali consists of the issuance of two million shares of common stock of SRC; and initial payment of $100,000; and additional payment of $500,000 within 45 days of the Purchase Agreement being signed; and SRI delivering s600 American Eagle One Ounce Gold Coins on the 12
th
, 18
th
and 24
th
month anniversary of the Purchase Agreement signing, to be delivered to the Seller. Upon satisfaction of these terms, the Seller will complete the transfer of full right and title of ownership of the Billali Mine to SRI. The Addition, Seller will be entitled to received a 5% Net Smelter Return on any and all future mining activity at the Billali Mine following the transfer of ownership to SRI. The initial deposit of $100,000 and the issuance of 2,000,000 shares of common stock were competed on April 20, 2012.
On June 28, 2012, the Company and Little Gem Life Sciences Capital Management LLC, a Delaware limited liability company (Little Gem), entered into a definitive Agreement (the Agreement) for the transfer of all rights, title and interest existing under the existing Purchase Agreement, dated April 20, 2012 (the Purchase Agreement), entered into between Billali Mine LLC as seller and Steele Resources Inc. as purchaser. Under the terms of the Agreement, Little Gem assumed all obligations of SRI under the Purchase Agreement including agreeing to pay to Billali Gold Mine LLC, the seller under the Purchase Agreement, the second installment of $500,000 which was paid on July 3, 2012; and, Little Gem agreed to provide additional capital, ion such amount sand upon such terms as Little Gem may in its sole discretion determine, for the development of the Billali Mine. SRC will retain a 20% economic interest in the Billali Mine with distributions to occur over time in a manner, and with such reserves, as Little Gem in its sole discretion may determine suitable, appropriate and fair according to circumstances then prevailing. SRCs economic interest will be burdened whereby SRC will be assess its pro rata share of mining development costs and expenses over time.
On November 30, 2012, SRC and Benison entered into Contribution and Assignment Agreements between the Company, Benison and Shooting Star Mining Company LLC (Shooting Star) whereby the Mining Rights in Billali granted to SRI under the Purchase Agreement, along with all other rights, titles, interests and privileges in and to Billali Mine, were acquired by Shooting Star. In exchange for the Contribution and Assignment Agreements, SRC and Benison received membership interests in Shooting Star equal to 20% and 30% ownership respectively. Shooting Star agreed to assume and perform the obligations of SRI under the Purchase Agreement, including but not limited to: (i) development of the Billali Mine; (ii) payment to Billali Mine LLC of a $150,000 extension fee with respect to the timing of payment of seller financing consisting of the delivery of 1,800 American Eagle gold coins; and (iii) payment, procurement and delivery of 1,800 American Eagle gold coins in accordance with the Purchase Agreement as modified and revised between Shooting Star and Billali Mine LLC. Upon payment of these financial obligations under the Purchase Agreement, as modified, Shooting Star will fully acquire the patent to Billali Mine including the Mine, and related Mining Rights. On July 1, 2013 we transferred 50% of our interest in Shooting Star, LLC for $483,484 in exchange for debt reduction. We do not have significant influence over Shooting Star, and our interest in Shooting Star is presented at its carrying cost of $0.00.
F-15
NOTE 4 - NOTES PAYABLE
The Company had the following notes payable outstanding as of December 31, 2013 and 2012:
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| |
|
December 31, 2013
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|
December 31, 2012
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|
|
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|
|
|
McClelland Family Trust (N-1)
|
$
|
45,000
|
|
$
|
45,000
|
Dated - January, 2011
(Related Party)
|
|
|
|
|
|
|
|
|
|
|
|
Lease Purchase Agreement - A & P Lease (N-2)
|
|
50,000
|
|
|
50,000
|
Dated - May, 2011
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|
|
|
|
|
|
|
|
|
|
|
D & D McClelland Note (N-3)
|
|
63,000
|
|
|
63,000
|
Dated - January 19, 2012
(Related Party)
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|
|
|
|
|
|
|
|
|
|
|
Lease Purchase Agreement - A & P Lease (N-4)
|
|
50,000
|
|
|
50,000
|
Dated - April, 2011
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|
|
|
|
|
|
|
|
|
|
Benison Note 9 (N-5)
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|
-
|
|
|
61,750
|
Dated - March 20, 2012
(Related Party)
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|
|
|
|
|
|
|
|
|
|
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Benison Note 10 (N-6)
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-
|
|
|
100,000
|
Dated - April 19, 2012
(Related Party)
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|
|
|
|
|
|
|
|
|
|
|
Benison Master Secured Note (N-7)
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|
-
|
|
|
37,012
|
Dated - September 28, 2012
(Related Party)
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|
|
|
|
|
|
|
|
|
|
|
Related Party (N-8)
|
|
2,300
|
|
|
2,300
|
Dated - January 27, 2012
(Related Party)
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|
|
|
|
|
|
|
|
|
|
|
Mike Myrick (N-9)
|
|
4,000
|
|
|
4,000
|
Dated - March 23, 2012
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|
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|
|
|
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|
|
|
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NPI Notes Payable (N-10)
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200,000
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|
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200,000
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Dated August 1, 2011
($125,000 is Related Party)
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S Norderhaug Note (N-11)
|
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50,000
|
|
|
50,000
|
Dated - June 24, 2010
(Related Party)
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|
|
|
|
|
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|
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Advances from shareholder (N-12)
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-
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103,649
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Dated August 1, 2011
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|
|
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Small World Traders Secured Note (N-13)
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|
|
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Dated - April 8, 2013
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170,277
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-
|
|
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Total Notes payable
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$
|
634,577
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$
|
766,711
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Less: discount applicable
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-
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|
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-
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Less: current portion of long-term debt
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634,577
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|
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766,711
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Long-term debt
|
$
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-
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$
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-
|
F-16
N-1
McClelland Family Trust
: In January, 2011, the Company issued four promissory notes payable to two related party individuals for a total of $45,000. The notes bear simple interest at an annual rate of 8% per annum and were due May 15, 2011. In conjunction with the Notes, 150,000 shares of Common Stock were issued to the lenders. These shares were valued at $15,050 and recorded as a note discount. This note is in default.
N-2
A & P Lease Agreement
: In May, 2011, the Company issued a note payable for $50,000 to one of the individuals from which we have the lease purchase agreement for as the A&P Lease, covering the balance of the initial lease payment due. The note bears 12% interest rate and was due May 31, 2011. The Company is working with the note holders to extend the terms of the repayment until SRC secures adequate working capital. This note is in default.
N-3
D & D McClelland Note
:
In January 2012, the Company issued a promissory note to a related party and a relative to a related party for a total of $63,000. The note bears simple interest at an annual rate of 20% per annum and is due July 27, 2012. In conjunction with the Note, 50,000 shares of common stock were issued to the lender. These shares were valued at $5,500 and recorded as a note discount. The lender has the option, at maturity, to convert the note and accrued interest into common at a price of $0.10 per share. This note is in default.
N-4 A & P Lease Note Payable
:
In March, 2012, the Company issued a note payable for $50,000 to one of the individuals from which we have the lease purchase agreement for as the A&P Lease, covering the balance of the 2012 annual lease payment due. The note bears 12% interest rate and was due April 16, 2012. This note is in default.
N-5 Benison Note 9:
In March, 2012, the Company issued a note payable for $61,750 to one individual. The note was due on June 30, 2012. The note holder has informed the Company that an interest penalty of $10,000 per month will accrue until the note is paid in full. Warrants to issue 617,500 shares at $0.20 per share subject to adjustment, were issued in connection with the note. These warrants are considered a derivatives and the Company does not have enough authorized common stock to issue if converted. These warrants are not considered hedging derivatives and not material for disclosure for the year ended December 31, 2013 and 2012. This note is in default. On July 1, 2013 Benison agreed to exchange the balance of this note of $61,700 and accrued interest of $155,744 for a portion of our interest in Shooting Star LLC.
N-6 Benison Note 10:
In April, 2012, the Company issued a note payable for $100,000 to one individual. The note was due on June 19, 2012. The note bears interest of 20% and interest will continue to accrue until such time as the Company has funds to repay the note. This note is in default. On July 1, 2013 Benison agreed to exchange the balance of this note of $100,000 and accrued interest of $23,945 for a portion of our interest in Shooting Star, LLC.
N-7 Benison Master Secured Notes:
In July, 2012, the Company issued a master note for up to $50,000 to one individual. The note is due on July 13, 2013. The note bears interest at 5%. The first draw was recorded on September 28, 2012 for $37,012. This note is secured by the Companys interest in Shooting Star. This note is in default. On July 1, 2013 Benison agreed to exchange the balance of this note of $37,012 and accrued interest of $1,384 for a portion of our interest in Shooting Star, LLC.
N-8 Related Party Notes:
In September, 2011, the Company borrowed $1,300 and $1,500 from two individuals. The Notes bear no interest and are due upon demand.
F-17
N-9 Mike Myrick:
In March, 2012, the Company issued a note payable for $4,000 to one individual. The note bears interest at 20% per annum and was due May 31, 2012. This note is in default.
N- 10 NPI Notes:
In August, 2011, the Company secured a total of $200,000 in project financing from one individual and one related party. The principal and interest of, up to, 100% of the principal, was to be repaid from the processing of stockpiled ore at the Mineral Hill Gold Mine project, subject to the net profit (the "NPI") from the processed stockpile being adequate. In December, 2011, we did not make payments in accordance with the contract and we informed note holders that the NPI from the proceeds from the processed stockpile would not be sufficient to pay the principal and interest and that the Company would seek to repay them out of future mining operations at the Mineral Hill Gold Mine project. Some note holders requested indemnity for our defaulting on the terms of the notes. One of the note holders (a relative of an officer and director) requested to be repaid $25,000 in principal and requested 500,000 shares of common stock, valued at $70,000, in lieu of future interest. The repayment and the shares issued were completed in December, 2011. At December 31, 2013, $125,000 of these notes payable were held by related parties. This note is in default.
N-11 S Norderhaug Note:
In June, 2010, the Company issued a note for $50,000 to one individual with an interest rate of 5%. The note was due December 21, 2011. This note is in default.
N-12 Advances from Shareholders:
During May to June, 2012, the Company received advances of $103,649. This advance does not have any terms to for repayment. On July 1, 2013 the shareholder agreed to exchange the balance of this advance of $103,649 for a portion of our interest in Shooting Star, LLC.
N-13 Small World Traders Secured Note:
On April 8, 2013, the Company issued a revolving line of credit for $200,000 with Small World Traders Secured Note with an interest rate of 8%. This note is secured by the following assets of the Company and a UCC1 was filed for all the Intellectual Property, Current or Previously Filed, Trademarks, Formulations, Research and Development Equipment, Manufacturing Equipment, Office Equipment, and all interests in Shooting Star Mining Company LLC. The note is due December 31, 2013. Small World Traders paid $170,277 of expenses on behalf of the Company. On January 1, 2014 the Note was extended to April 15, 2014 subject to additional consideration.
F-18
NOTE 5 - CONVERTIBLE PAYABLES
The Company had the following notes payable outstanding as of December 31, 2013 and December 31, 2012:
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December 31, 2013
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December 31, 2012
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Asher Enterprises T8 (C-1)
|
$
|
2,630
|
|
$
|
29,000
|
Dated - January 30, 2012
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Benison Note 7 (C-2)
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250,000
|
|
|
250,000
|
Dated - December 28, 2011
(Related Party)
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|
|
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Benison Note 8 (C-3)
|
|
-
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|
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54,000
|
Dated - January 27, 2012
(Related Party)
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|
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Mike Myrick (C-4)
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15,000
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|
|
15,000
|
Dated - May 13, 2011
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Benison IRA (C-5)
|
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10,000
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|
|
10,000
|
Dated - November 7, 2012
(Related Party)
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|
|
|
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Coventry Note (C6)
|
|
-
|
|
|
1,250
|
Dated - July, 2011
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|
|
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Bershert LLC (C7)
|
|
10,800
|
|
|
-
|
Dated - October 2, 2013
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|
Naixin LLC (C8)
|
|
10,800
|
|
|
-
|
Dated - October 2, 2013
|
|
|
|
|
|
|
|
|
|
|
|
Raff Family Trust (C9)
|
|
10,800
|
|
|
-
|
Dated - October 2, 2013
|
|
|
|
|
|
|
|
|
|
|
|
Nina Treiman (C10)
|
|
10,800
|
|
|
-
|
Dated - October 2, 2013
|
|
|
|
|
|
|
|
|
|
|
|
WWFD LLC (C11)
|
|
10,800
|
|
|
-
|
Dated - October 2, 2013
|
|
|
|
|
|
|
|
|
|
|
|
Total Notes payable
|
$
|
331,630
|
|
$
|
359,250
|
Less: discount applicable to notes payable
|
|
-
|
|
|
-
|
Less: current portion of long-term debt
|
|
(331,630)
|
|
|
(359,250)
|
Long-term debt
|
$
|
-
|
|
$
|
-
|
C-1 Asher Enterprises Note T8:
In January 2012, the Company issued a convertible note for $53,000 to one entity. The note bears interest at 8% per annum and is due November 1, 2012. The Company converted $47,927 on this note with a balance of $2,630. The conversion price is 50% of the average of the lowest three closing bid prices in the 10 trading days ending one day before notice of conversion is given. The sale was made to one entity in a private, negotiated transaction without any public solicitation. This note is in default.
F-19
C-2 Benison Note 7
:
In December, 2011, a convertible note for $250,000 was issued to an individual with an interest rate of 20% that was due June, 29, 2012. The note, plus accrued interest, is convertible into common stock, at the note holder's discretion, at $0.10 per share to be adjusted downward in the case of new issuances which it can convert at $.0008 as of December 31, 2013. The note holder will also receive one warrant for each share of common stock issued upon conversion. The warrants can be converted into common stock at $0.20 per share and are valid for two years from issuance. The maturity date has been extended to December 31, 2013.
C-3 Benison Note 8
: In January 2012, the Company issued a convertible note for $54,000 to one individual. The note bears interest at 8% per annum and was due October 29, 2012. The conversion price is $0.0008. The sale was made to an individual in a private, negotiated transaction without any public solicitation. The maturity date has been extended to December 31, 2013. This note was acquired by five parties (C7 - C11) on October 2, 2013.
C-4 Mike Myrick Notes:
In May and June 2011, the Company issued convertible notes for a total of $15,000. The notes bear interest at 20% per annum and are due June 13 and July 30, 2011. The conversion price is $0.15. This note is in default.
C-5 Benison:
In November 7, 2012, the Company issued convertible notes for a total $10,000. The note bears interest at 5% per annum and due November 7, 2013. The conversion price is $0.002 to be adjusted downward in the case of new issuances which it can convert at $.0008 as of December 31, 2013. The note holder has a right to convert the note at the maturity date of the note. The maturity date of this note has been extended to December 31, 2013. This note is in default.
C-6 Coventry:
In July 2011, the Company issued a convertible note for $25,000 to one entity. The note bears interest at 12% per annum and is due July 14, 2012. The conversion price shall be the lower of $0.05 or 65% of the average of the lowest three closing bid prices in the 15 trading days ending one day before notice of conversion is given. The note, plus accrued interest, was partially repaid in October, 2011 with the balance converted in 2013. The sale was made to one entity in a private, negotiated transaction without any public solicitation.
On May 9, 2013 Asher Enterprises and Jeff Benison have called their notes for certain provision or action by the Company such as a change in control of the Company or late filing of SEC required filings. The note was called for the Companys failure to file timely SEC filings. This note has been paid in full.
C-7 - Bershert LLC:
1.
On October 2, 2013, the Company issued convertible notes for a total of $10,800. The notes bear interest at 20% per annum and are due December 31, 2013. Lender may opt to convert the principal and interest due at maturity into shares of the Borrowers common stock December 31, 2013, and the Company agrees and acknowledges that such debt obligations but may, at the discretion of
current successor
Lender
, be converted into Common shares of the Company at any time prior to the modified Maturity Date at an exercise price of $.0008/share.
In addition, The Company agrees to secure the remaining balance of common shares held in Treasury by placing a reserve on the balance of Treasury shares, in favor of the required terms of this Agreement, effective the date of the original Agreement until such time as the notes are converted or the obligation is paid in full;
F-20
2.
4.1 2nd Amendment.
On January 2, 2014,
pursuant to the
Amendment
, the Maturity Date was deemed to be April 3, 2014, and the Company agrees and acknowledges that such debt obligations but may, at the discretion of the current successor
Lender
, be converted into Common shares of the Company at any time prior to the modified Maturity Date at an exercise price of $.0008/share.
Place of Payment. All amounts payable hereunder shall be payable at the office of
Lender
, unless another place of payment shall be specified in writing by
Lender
.
C-8 - Naixin, LLC:
1.
On October 2, 2013, the Company issued convertible notes for a total of $10,800. The notes bear interest at 20% per annum and are due December 31, 2013. Lender may opt to convert the principal and interest due at maturity into shares of the Borrowers common stock December 31, 2013, and the Company agrees and acknowledges that such debt obligations but may, at the discretion of
current successor
Lender
, be converted into Common shares of the Company at any time prior to the modified Maturity Date at an exercise price of $.0008/share.
In addition, The Company agrees to secure the remaining balance of common shares held in Treasury by placing a reserve on the balance of Treasury shares, in favor of the required terms of this Agreement, effective the date of the original Agreement until such time as the notes are converted or the obligation is paid in full;
2.
4.1 2nd Amendment.
On January 2, 2014,
pursuant to the
Amendment
, the Maturity Date was deemed to be April 3, 2014, and the Company agrees and acknowledges that such debt obligations but may, at the discretion of the current successor
Lender
, be converted into Common shares of the Company at any time prior to the modified Maturity Date at an exercise price of $.0008/share.
Place of Payment. All amounts payable hereunder shall be payable at the office of
Lender
, unless another place of payment shall be specified in writing by
Lender
.
C-9 - Raff Family Trust:
1.
On October 2, 2013, the Company issued convertible notes for a total of $10,800. The notes bear interest at 20% per annum and are due December 31, 2013. Lender may opt to convert the principal and interest due at maturity into shares of the Borrowers common stock December 31, 2013, and the Company agrees and acknowledges that such debt obligations but may, at the discretion of
current successor
Lender
, be converted into Common shares of the Company at any time prior to the modified Maturity Date at an exercise price of $.0008/share.
In addition, The Company agrees to secure the remaining balance of common shares held in Treasury by placing a reserve on the balance of Treasury shares, in favor of the required terms of this Agreement, effective the date of the original Agreement until such time as the notes are converted or the obligation is paid in full;
2.
4.1 2nd Amendment.
On January 2, 2014,
pursuant to the
Amendment
, the Maturity Date was deemed to be April 3, 2014, and the Company agrees and acknowledges that such debt obligations but may, at the discretion of the current successor
Lender
, be converted into Common shares of the Company at any time prior to the modified Maturity Date at an exercise price of $.0008/share.
Place of Payment. All amounts payable hereunder shall be payable at the office of
Lender
, unless another place of payment shall be specified in writing by
Lender
.
F-21
C-10 - Nina Treiman:
1.
On October 2, 2013, the Company issued convertible notes for a total of $10,800. The notes bear interest at 20% per annum and are due December 31, 2013. Lender may opt to convert the principal and interest due at maturity into shares of the Borrowers common stock December 31, 2013, and the Company agrees and acknowledges that such debt obligations but may, at the discretion of
current successor
Lender
, be converted into Common shares of the Company at any time prior to the modified Maturity Date at an exercise price of $.0008/share.
In addition, The Company agrees to secure the remaining balance of common shares held in Treasury by placing a reserve on the balance of Treasury shares, in favor of the required terms of this Agreement, effective the date of the original Agreement until such time as the notes are converted or the obligation is paid in full;
2.
4.1 2nd Amendment.
On January 2, 2014,
pursuant to the
Amendment
, the Maturity Date was deemed to be April 3, 2014, and the Company agrees and acknowledges that such debt obligations but may, at the discretion of the current successor
Lender
, be converted into Common shares of the Company at any time prior to the modified Maturity Date at an exercise price of $.0008/share.
Place of Payment. All amounts payable hereunder shall be payable at the office of
Lender
, unless another place of payment shall be specified in writing by
Lender
.
C-11 - WWFD, LLC:
1.
On October 2, 2013, the Company issued convertible notes for a total of $10,800. The notes bear interest at 20% per annum and are due December 31, 2013. Lender may opt to convert the principal and interest due at maturity into shares of the Borrowers common stock December 31, 2013, and the Company agrees and acknowledges that such debt obligations but may, at the discretion of
current successor
Lender
, be converted into Common shares of the Company at any time prior to the modified Maturity Date at an exercise price of $.0008/share.
In addition, The Company agrees to secure the remaining balance of common shares held in Treasury by placing a reserve on the balance of Treasury shares, in favor of the required terms of this Agreement, effective the date of the original Agreement until such time as the notes are converted or the obligation is paid in full;
2.
4.1 2nd Amendment.
On January 2, 2014,
pursuant to the
Amendment
, the Maturity Date was deemed to be April 3, 2014, and the Company agrees and acknowledges that such debt obligations but may, at the discretion of the current successor
Lender
, be converted into Common shares of the Company at any time prior to the modified Maturity Date at an exercise price of $.0008/share.
Place of Payment. All amounts payable hereunder shall be payable at the office of
Lender
, unless another place of payment shall be specified in writing by
Lender
.
Fair Value Measurements
Assets and liabilities recorded at fair value in the consolidated balance sheet are categorized based upon the level of judgment associated with the inputs used to measure the fair value. Level inputs, as defined by ASC 820-10, are as follows:
Level 1 - quoted in active markets for identical assets or liabilities.
F-22
Level 2 - other significant observable inputs for the assets or liabilities through corroboration with market data at the measurement date.
Level 3 - significant unobservable inputs that reflect managements best estimate of what market participants would use to price the assets or liabilities at the measurement date.
For certain of the Companys financial instruments, including cash, prepaid expenses, accounts payable and accrued expenses the carrying amounts approximate fair value due to their short maturities. The carrying amounts of the Companys notes payable approximates fair value based on the prevailing interest rates
The following table summarizes fair value measurements by level at December 31, 2013 and December 31, 2012 for assets and liabilities measured at fair value on a recurring basis. These warrants and convertible notes are considered derivatives because the conversion prices are variable and the Company does not have enough authorized common stock to satisfy the convertible notes and warrants.
|
|
|
| |
at December 31, 2013
|
|
|
|
|
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Derivative liability
|
|
|
|
|
Conversion features
|
|
|
($315,573)
|
($315,573)
|
Warrants liability
|
|
|
(371)
|
(371)
|
Total Derivative liability
|
|
|
(315,944)
|
(315,944)
|
|
|
|
|
|
|
|
|
|
|
at December 31, 2012
|
|
|
|
|
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Derivative liability
|
|
|
|
|
Conversion features
|
|
|
($92,000)
|
($92,000)
|
Warrants liability
|
|
|
(1,235)
|
(1,235)
|
Total Derivative liability
|
|
|
(93,235)
|
(93,235)
|
Derivative liability for conversion features for the year ended December 31, 2013 were valued using the Black-Scholes Option pricing model with the following assumptions: expected life of 0.1 to 1 year, risk free interest rate of 1%, dividend yield of 0, and expected volatility of 0.1%.
The following is a reconciliation of the derivatives liability
|
|
| |
Value at May 27, 2010 (Inception)
|
|
$
|
0
|
Issuance of instruments
|
|
|
52,250
|
Relief from liability
|
|
|
0
|
Value at December 31, 2010
|
|
$
|
52,250
|
Issuance of instruments
|
|
|
360,916
|
Relief from liability
|
|
|
285,163
|
Value at December 31, 2011
|
|
$
|
128,000
|
Issuance of instruments
|
|
|
187,000
|
Relief from liability
|
|
|
(24,000)
|
Change of value
|
|
|
(197,765)
|
Value at December 31, 2012
|
|
$
|
93,235
|
Change of value
|
|
|
253,660
|
Relief from Liability
|
|
|
(30,951)
|
Value at December 31, 2013
|
|
$
|
315,944
|
F-23
In accordance with ASC 815-10-35 the Company recognized loss of 253,660 in the change in derivative value for the year ended December 31, 2013 and gain of $197,765 for December 31, 2012.
NOTE 6 - RELATED PARTY TRANSACTIONS
In January, 2011, the Company issued four promissory notes payable to two related party individuals for a total of $45,000. The notes bear simple interest at an annual rate of 8% per annum and were due May 15, 2011. In conjunction with the Notes, 150,000 shares of Common Stock were issued to the lenders. These shares were valued at $15,050 and recorded as a note discount.
In September, 2011, the Company borrowed $2,800 from two individuals. The Notes bear no interest and are due upon demand. As of December 31, 2012 the Company owed $2,300.
In January 2012, the Company issued a promissory note to a related party and a relative to a related party for a total of $63,000. The note bears simple interest at an annual rate of 20% per annum and is due July 27, 2012. In conjunction with the Note, 50,000 shares of common stock were issued to the lender. These shares were valued at $5,500 and recorded as a note discount. The lender has the option, at maturity, to convert the note and accrued interest into common at a price of $0.10 per share.
In August, 2011, the Company secured a total of $200,000 in project financing from one individual and one related party. The principal and interest of, up to, 100% of the principal, was to be repaid from the processing of stockpiled ore at the Mineral Hill Gold Mine project, subject to the net profit (the "NPI") from the processed stockpile being adequate. In December, 2011, we did not make payments in accordance with the contract and we informed note holders that the NPI from the proceeds from the processed stockpile would not be sufficient to pay the principal and interest and that the Company would seek to repay them out of future mining operations at the Mineral Hill Gold Mine project. Some note holders requested indemnity for our defaulting on the terms of the notes. One of the note holders (a relative of an officer and director) requested to be repaid $25,000 in principal and requested 500,000 shares of common stock, valued at $70,000, in lieu of future interest. The repayment and the shares issued were completed in December, 2011. At December 31, 2012 $125,000 of these notes payable were held by related parties.
NOTE 7 - EQUITY
Common Stock
On December 31, 2013, the Company had 104,086,147 shares issued and outstanding and authorized common shares of 300,000,000.
F-24
Preferred Stock
The Company has authorized 5,000,000 shares of preferred stock, at $.001 par value and zero are issued and outstanding as of December 31, 2013. The Corporation established and designates the rights and preferences of a Series A Convertible Preferred Stock, and reserves 5,000,000 shares of preferred stock against its issuance, such rights, preferences and designations.
Year Ended December 31, 2013
In January, 2013, the Company issued 3,375,000 shares of common stock to Asher Enterprises following the conversion of $2,700 of principal of a convertible note issued in January, 2012.
In February, 2013, the Company issued 3,400,000 shares of common stock to Asher Enterprises following the conversion of $6,800 of principal of a convertible note issued in January, 2012.
On April 17, 2013 the Company granted 2,000,000 common shares to prior officers of the Company as part of their resignation the value of those shares were $12,000.
In May 20, 2013, the Company issued 4,000,000 shares of common stock to Asher Enterprises following the conversion of $4,400 of principal of a convertible note issued in January, 2012.
In May 30, 2013, the Company issued 4,021,379 shares of common stock to Asher Enterprises following the conversion of $3,700 of principal of a convertible note issued in January, 2012.
In June 6, 2013, the Company issued 1,923,076 shares of common stock to Coventry, Inc. following the conversion of $1,324 of principal of a convertible note issued in July, 2011.
In July 10, 2013 the Company issued 4,000,000 shares of common stock to Asher Enterprises following the conversion of $3,000 of principal of a convertible note issued in January, 2012.
In August 7, 2013 the Company issued 3,962,264 shares of common stock to Asher Enterprises following the conversion of $2,100 of principal of a convertible note issued in January, 2012.
In August 16, 2013 the Company issued 2,454,203 shares of common stock to Asher Enterprises following the conversion of $2,450 of principal of a convertible note issued in January, 2012.
In November 11, 2013 the Company issued 2,440,000 shares of common stock to Asher Enterprises following the conversion of $1,220 of principal of a convertible note issued in January, 2012.
Year Ended December 31, 2012
In January, 2012, the Company issued 50,000 shares in conjunction with a note payable issued to a related party for a total of $63,000. These shares were valued at $5,500 and recorded as a note discount.
In February, 2012, the Company issued: 1,000,000 shares in consideration for financial consulting services, the value of the shares issued was $120,000; and the Board of Directors authorized the issuance of 500,000 shares of common stock to each of its four Board Members as compensation for services in 2010 and 2011, the total value of the shares issued was $220,000.
Through a private placement of its common stock, the Company issued 125,000 shares of common stock to two individuals for $12,500 in February, 2012.
F-25
Through a private placement of its common stock, the Company issued 60,000 shares of common stock to one individual for $6,000 in March, 2012.
Through a private placement of its common stock, the Company issued 3,000,000 shares to two individuals for $270,000 in March, 2012, net of $30,000 in placement costs.
Through a private placement of its common stock, the Company issued 70,000 shares of common stock to one individual for $7,000 in April, 2012.
In April, 2012, the Company issued 2,000,000 shares to the Billali Gold Mine, LLC which was a deposit requirement on the April 20, 2012 Purchase Agreement for the acquisition of the Billali Mine.
As of August 17, 2012, 4,066,668 shares of common stock have not been issued under the terms of the private placement entered into with one individual in May, 2012. The individual investor has instructed the Company to not issue the shares pending the conclusion of additional contemplated investments or conversion of existing convertible notes held by the individual. The liability for the funds accepted is recorded as Advances under the Company's current liabilities.
During SRCs most recent fiscal year ending December 31, 2011, the following common stock was issued pursuant to an exemption from registration pursuant to Rule 144 under the Securities Act. Each of the transactions listed below involved conversions of outstanding Security Purchase Agreements between the Company and the respective note holders.
In April, 2012, the Company issued 4,922,553 shares of common stock to one individual following the conversion of $61,532 of principal and interest of a convertible note issued in October, 2011.
In May, 2012, the Company issued 2,395,304 shares of common stock to one individual following the conversion of $83,836 of principal and interest of a convertible note issued in October, 2011.
In June, 2012, the Company issued 2,404,697 shares of common stock to one individual following the conversion of $84,165 of principal and interest of a convertible note issued in October, 2011.
In August, 2012, the Company issued 2,903,226 shares of common stock to an entity following the conversion of $9,000 of principal of a convertible note issued in January, 2011.
In September, 2012, the Company issued 3,260,870 shares of common stock to an entity following the conversion of $7,500 of principal of a convertible note issued in January, 2011.
In October, 2012, the Company issued 3,260,870 shares of common stock to an entity following the conversion of $7,500 of principal of a convertible note issued in January, 2011.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
On August 31, 2011, SRC and Innocent, Inc. negotiated a formal Termination of the Joint Venture Agreement (the Termination Agreement) of the Joint Venture Agreement established to fund the development of the Mineral Hill Project. Pursuant to the Termination Agreement SRC acknowledges its obligation to repay $540,000 paid to date by INCT to SRC under the terms of the JV Agreement. The Termination Agreement also allows SRC the option to assume the $540,000 owed to INCT note holders on terms negotiated between SRC and the note holders.
From time to time, the Company is involved in legal matters in the ordinary course of business. Except for the matter described below, the Company is not aware of any such matters.
F-26
SRC was named in an amended complaint filed in District Court, Clark County Nevada, by Phyllis Wynn, individually and as the trustee for the Phyllis Wynn Family Trust. The Complaint appears to name approximately 81 defendants including Steele Recording Corporation. The Amended Complaint was filed September 23, 2009. It alleges 17 causes of actions including breach of contract and fraud against various other defendants and fraudulent conveyance to SRC and its former President and CEO Marlon Steele. The substance of the Complaint involves a real estate transaction not involving SRC. We have been informed by Mr. Steele that he does not believe the Plaintiff will prevail as to her claims regarding SRC and has answered with affirmative defenses including but not limited to the defense that the injuries and damages complained of did not occur as the result of any action on the part of SRC but as the sole, direct and proximate result of actions by Plaintiff and third parties not otherwise related to SRC. The litigation remains in the discovery stages. A former officer of SRC has agreed to indemnify the Company from any eventual costs or loss from this lawsuit.
The Company became aware that a shareholder paid $57,000 of tenant improvements in an office that the Company never occupied. The $57,000 was recorded as an accrued liability in anticipation of occupying the space in December 2010. Subsequently the Company elected to not occupy the space eliminating the potential obligation to amortize the cost of the improvement over the course of the lease. We have adjusted the $57,000 to Additional Paid in Capital.
The Company does not have enough shares authorized to convert all the debt obligations currently owed. The Company could need at least 400,000,000 common shares to satisfy the Asher Enterprises conversion and the Benison Convertible notes which could convert at $.0008. It would exceed its authorized shares and the Company is assessing the next legal course of action to resolve this matter.
NOTE 9- STOCK-BASED COMPENSATION
Stock Options
In February, 2011, the Board of Directors of the Company approved the 2011 Equity Compensation Plan (the "Plan"), the purpose of the Plan is to provide a means by which eligible recipients of stock awards may be given an opportunity to benefit from increases in value of the common stock through the granting of the following stock awards: incentive stock options, non-statutory stock options, stock bonuses and rights to acquire restricted stock. The Company, by means of the Plan, seeks to retain the services of the group of persons eligible to receive stock awards, to secure and retain the services of new members of this group and to provide incentives for such persons to exert maximum efforts for the success of the Company and its affiliates. The Board shall administer the Plan unless and until the Board delegates administration to a Committee. Subject to the provisions relating to adjustments upon changes in stock, the stock that may be issued pursuant to stock awards shall not exceed in the aggregate three million three hundred thirty-three thousand three hundred and thirty-three (3,333,333) shares of Common Stock.
The cost of all employee stock options, as well as other equity-based compensation arrangements, is reflected in the financial statements over the vesting period based on the estimated fair value of the awards.
F-27
A summary of option activity for the two years ended December 31, 2013 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Outstanding Options
|
|
|
|
Shares
Available for
Grant
|
|
|
Number of
Shares
Granted
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual Life
(years)
|
|
|
Aggregate
Intrinsic
Value
|
|
January 1, 2011
|
|
|
3,333,333
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
Grants
|
|
|
|
|
|
|
2,066,669
|
|
|
|
$0.1204
|
|
|
|
2.00
|
|
|
|
|
|
Forfeitures
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
|
|
|
2,066,669
|
|
|
|
|
|
|
|
1.00
|
|
|
$
|
86,750
|
|
Grants
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeitures
|
|
|
|
|
|
|
(1,816,669)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
3,083,333
|
|
|
|
250,000
|
|
|
|
$0.12
|
|
|
|
0.33
|
|
|
|
-
|
|
Exercisable
|
|
|
|
|
|
|
250,000
|
|
|
|
$0.12
|
|
|
|
0.33
|
|
|
|
|
|
Forfeitures
|
|
|
|
|
|
|
(250,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
3,333,333
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company values all warrants using the Black-Scholes option-pricing model. Critical assumptions for the Black-Scholes option-pricing model include the market value of the stock price at the time of issuance, the risk-free interest rate corresponding to the term of the warrant, the volatility of the Companys stock price, dividend yield on the common stock, as well as the exercise price and term of the warrant. The warrants are not subject to any form of vesting schedule and, therefore, are exercisable by the holders anytime at their discretion during the life of the warrant. No discounts were applied to the valuation determined by the Black-Scholes option-pricing model.
(k)
Termination of Continuous Service.
(1) In the event an Optionholders Continuous Service terminates (other than upon the Optionholders death or Disability), the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise it as of the date of termination) but only within such period of time ending on the earlier of (i) the date three (3) months following the termination of the Optionholders Continuous Service (or such longer or shorter period specified in the Option Agreement, which shall not be less than thirty (30) days, unless such termination is for cause), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate.
All employees have been terminated for over 90 days and therefore all options have expired.
Warrants
During the year ended December 31, 2013, no awards were granted.
F-28
Summary of warrant activity for the two years ended December 31, 2013 is presented below:
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|
|
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|
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|
|
|
|
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| |
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Number of
Shares
Granted
|
|
Weighted
Average
Exercise
Price
|
|
Weighted Average
Remaining
Contractual Life
(years)
|
|
Aggregate
Intrinsic
Value
|
|
January 1, 2011
|
|
|
1,033,334
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|
$
|
0.4839
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|
|
4.29
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|
$
|
-
|
|
Grants
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|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Expired
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
December 31, 2011
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|
|
1,033,334
|
|
$
|
0.4839
|
|
|
3.29
|
|
|
234,000
|
|
Grants
|
|
|
617,500
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|
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0.20
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|
|
3.00
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|
|
-
|
|
Expired
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
1,650,834
|
|
$
|
0.38
|
|
|
3.38
|
|
$
|
-
|
|
Expired
|
|
|
(33,334)
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|
|
|
|
|
|
|
|
|
|
December 31, 2013
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|
|
1,617,500
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|
$
|
0.30
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|
|
3.00
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|
$
|
-
|
|
|
|
|
|
|
|
|
| |
Exercise
Price Range
|
|
Shares
Outstanding
|
|
Shares
Exercisable
|
|
Weighted Contractual Life
Remaining (in Years)
|
|
Weighted Average
Exercise Price
|
$0.0008
|
|
617,500
|
|
617,500
|
|
1.25
|
|
0.0008
|
$0.4500
|
|
1,000,000
|
|
1,000,000
|
|
2.75
|
|
$0.4500
|
The Company values all warrants using the Black-Scholes option-pricing model. Critical assumptions for the Black-Scholes option-pricing model include the market value of the stock price at the time of issuance, the risk-free interest rate corresponding to the term of the warrant, the volatility of the Companys stock price, dividend yield on the common stock, as well as the exercise price and term of the warrant. The warrants are not subject to any form of vesting schedule and, therefore, are exercisable by the holders anytime at their discretion during the life of the warrant. No discounts were applied to the valuation determined by the Black-Scholes option-pricing model.
The fair value of the options granted during the December 31, 2013 and December 31, 2012 is estimated at $0 and $71,000, respectively. The fair value of these options was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:
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|
2012
|
Term
|
3 years
|
Risk-free Interest Rate
|
1%
|
Volatility
|
339%
|
Dividend Yield
|
0%
|
NOTE 10 - SALE OF 50% INTEREST IN SHOOTING STAR, LLC
On July 1, 2013 Benison (Little Gem) forgave $302,411 of debt plus accrued interest of $181,073 in exchange for 50% interest in the 20% ownership of Shooting Star Mining Co., LLC. Also in that same agreement Benison (Little Gem) acknowledges that there are three remaining debt obligations that may be converted at the discretion of J. Benison at any time prior to the modified Maturity Date at an exercise price of $.0008 per share. J. Benson is not a related party of the Company for December 31, 2013. The Company has not basis in the 20% interest in the Ballili Mine and therefore recognized the entire gain of $483,484.
F-29
NOTE 11 - INCOME TAXES
The Company utilizes the asset and liability method in accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for operating loss and tax credit carry-forwards and for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that the value of such assets will be realized.
The Company uses the two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not, that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating the Company's tax positions and tax benefits, which may require periodic adjustments. At December 31, 2013, the Company did not record any liabilities for uncertain tax positions.
At December 31, 2013, the Companys had net operating in amounts still to be determined which expire, if unused, in various years through 2032. Utilization of the net operation loss carry-forwards could be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code.
The Company fully reserved its deferred tax assets because, in the opinion of management, it is more likely than not that the benefits will not be realized based upon the earning history of the Company.
The difference between income tax expense computed by applying the federal statutory corporate tax rate and actual income tax expense is as follows:
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|
|
| |
|
|
December 31, 2013
|
|
December 31, 2012
|
|
|
|
|
|
Statutory federal income tax rate
|
|
|
34.0%
|
|
|
34.0
|
State income taxes and other
|
|
|
7.0%
|
|
|
7.0
|
Valuation allowance
|
|
|
(41.0%)
|
|
|
(41.0%)
|
Effective tax rate
|
|
|
-
|
|
|
-
|
Deferred income taxes result from temporary differences in the recognition of income and expenses for the financial reporting purposes and for tax purposes. The tax effect of these temporary differences representing deferred tax asset and liabilities result principally from the following:
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| |
|
|
December 31, 2013
|
|
|
December 31, 2012
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
1,554,615
|
|
|
$
|
1,606,140
|
Valuation allowance
|
|
|
(1,554,615)
|
|
|
|
(1,606,140)
|
Deferred income tax asset
|
|
$
|
-
|
|
|
$
|
-
|
F-30
NOTE 12 - SUBEQUENT EVENTS
On January 2, 2014,
the Company amended $54,000 of the Convertible notes that were past due. (see footnote 5).
* * * * * *
F-31