NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
Trilliant Exploration Corporation, (the “Company”) was incorporated as Project Development Pacific, Inc. on December 29, 2003, under the laws of the State of Nevada. The business purpose of the Company was originally to assist Canadian citizens to access health care services from private providers. On November 26, 2007, the Company changed its name to Trilliant Exploration Corporation, with a purpose to acquire and develop mineral properties. The Company has elected a fiscal year end of December 31.
On March 30, 2009 (Date of Acquisition), Trilliant Exploration Corporation (the Parent) acquired a 100% interest in MuluncayGoldCorp (a Subsidiary) (Muluncay). The transaction was accounted for as a purchase pursuant to ASC Topic No. 805.
On June 29, 2009 (Date of Formation), the Company established a wholly-owned Trilliant Diamonds Limited (a Subsidiary) (Trilliant Diamonds), a private limited England and Wales Company, to facilitate the Company’s diamond exploration. Trilliant Diamonds was sold off on August 26, 2010 to Charms with its current and future debt.
On July 1, 2009 the Company acquired 799 of 800 shares of AyapampaGold S.A (AYA) (a Subsidiary) at $1 per share for a purchase price of $799. AYA was formed in mid-2007 as a shell and has been inactive since inception.
On February 11, 2010, Minera Del Pacifico (the seller of MuluncayGoldCorp) exercised its rights retroactive to December 31, 2009 to terminate the purchase of MuluncayGoldCorp. The activity of MuluncayGoldCorp from the Date of Acquisition through December 31, 2009 is reported as discontinued operations pursuant to ASC Topic 205.
The accompanying consolidated financial statements include the operations of the Subsidiaries’ activity from the dates of Acquisition and Formation through this quarter end. Intercompany transactions have been eliminated upon consolidation. The Parent and Subsidiaries are collectively referred to as “the Company.”
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Significant estimates that may change in the near future include value of goodwill, impairment of long-lived assets acquired, and value of investments.
Cash and Cash Equivalents
Cash and cash equivalents consists principally of currency on hand, demand deposits at commercial banks, and liquid investment funds having a maturity of three months or less at the time of purchase. The Company had $87 and $60 in cash and cash equivalents as of June 30, 2013 and March 31, 2013, respectively.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Revenue Recognition
The Company will follow the guidance of ASC Topic 605, formerly, SAB 104 for revenue recognition. In general, the Company will record revenue when persuasive evidence of an arrangement exists, services have been rendered, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. Revenues from services are recognized when the services are performed, evidence of an arrangement exists, the fee is fixed and determinable and collectability is probable. In circumstances when these criteria are not met, revenue recognition is deferred until resolution occurs.
Property, Plant, and Equipment
Property and equipment are stated at cost. Depreciation and amortization are determined using the straight-line method over estimated useful lives of the assets. As of March 31, 2013, the Company held no property, plant or equipment.
Net Income or (Loss) Per Share of Common Stock
Basic and diluted loss per common share is based upon the weighted average number of common shares outstanding during the period computed under the provisions of Accounting Standards Codification subtopic 260-10, Earnings per Share (“ASC 260-10”). All primary dilutive common shares have been excluded since the inclusion would be anti-dilutive.
Recently Issued Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective accounting standards, if adopted, will have a material effect on Companies consolidated financial statements.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years 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 operations in the period enacted. A valuation allowance is provided when it is more likely than not that a portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of deferred tax liabilities during the period in which related temporary differences become deductible. The benefit of tax positions taken or expected to be taken in the Company’s income tax returns are recognized in the consolidated financial statements if such positions are more likely than not of being sustained.
In accordance with 740-10, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting this standard, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.
Derivative Liabilities
The Company accounts for its embedded conversion features in its convertible debentures in accordance ASC 815-10, “Derivatives and Hedging”, which requires a periodic valuation of their fair value and a corresponding recognition of liabilities associated with such derivatives, and ASC 815-40, “Contracts in Entity’s Own Equity”. The recognition of derivative liabilities related to the issuance of convertible debt is applied first to the proceeds of such issuance as a debt discount, at the date of issuance, and the excess of derivative liabilities over the proceeds is recognized as “Loss on Valuation of Derivative” in other expense in the accompanying financial statements. Any subsequent increase or decrease in the fair value of the derivative liabilities is recognized as “Other expense” or “Other income”, respectively.
Accounting Standards Codification subtopic 815-40, Derivatives and Hedging; Contracts in Entity’s own Equity (“ASC 815-40”) became effective for the Company. The Company’s Convertible Preferred Stock and Convertible debt has certain provisions that require the Company to change conversion price of the Convertible debt and Convertible Preferred Stock based on the discounted market value. Upon the effective date, the provisions of ASC 815-40 required a reclassification to liability based on the reset feature of the agreements. Therefore, in accordance with ASC 815-40, the Company determined the fair value of the initial reset provision on preferred stock and convertible debt using the Black-Scholes formula assuming no dividends, a risk-free interest rate of 0.68%-0.85%, expected volatility of 155.49%-214.23%, and expected life of 1 and 5 years. The net value of the reset provision at the date of adoption of ASC 815-40 was recorded as a derivative liability on the balance sheet and a reduction to series A convertible redeemable preferred stock and convertible debt. Changes in fair value are recorded as non-operating, non-cash income or expense at each reporting date.
The fair value of the convertible debt at June 30, 2013 was determined using the Black Scholes Option Pricing Model with the following assumptions:
Dividend yield: 0%
Volatility 469.97%
Risk free rate: 0.28%
Fair Value of Instruments
Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) requires disclosure of the fair value of certain financial instruments. The carrying value of cash and cash equivalents, accounts payable and accrued liabilities, and short-term borrowings, as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments. All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise only available information pertinent to fair value has been disclosed.
The company follows Accounting Standards Codification subtopic 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”) and Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”), which permits entities to choose to measure many financial instruments and certain other items at fair value
Reclassification
Certain reclassifications have been made to conform the prior period data to the current presentation. These reclassifications had no effect on reported net loss.
NOTE 3 - PROVISION FOR INCOME TAXES
The Company recognizes the tax effects of transactions in the year in which such transactions enter into the determination of net income regardless of when reported for tax purposes. Deferred taxes provided for under ASC Topic No. 740 give effect to the temporary differences which may arise from differences in the bases of fixed assets, depreciation methods, and allowances based on the income taxes expected to be payable in future years. Deferred tax assets arising as a result of net operating loss carry-forwards and other temporary differences have been offset completely by a valuation allowance due to the uncertainty of their utilization in future periods. Operating loss carry-forwards of approximate $18 million generated since inception through December 31, 2011, will begin to expire in 2031 subject to limitations of Section 382 of the Internal Revenue Code, as amended. Accordingly, deferred tax assets of approximately approximate $6.3 million, which were completely offset by the valuation allowance, which increased by $1,484,443 from the previous year, respectively, based on the U.S. Statutory rate of 35%.
Significant changes in the Company’s ownership, the Company’s future use of its existing net operating losses may be limited.
NOTE 4- RELATED PARTY TRANSACTIONS
A – Convertible Notes Payable
The Company has entered into multiple convertible notes payable agreements with an investment firm that is also a minority stockholder of the Company. Each note carries a separately dated promissory note that bears interest of 8% and is payable on or before August 31, 2010, with each funding due one year from original date of receipt. Principal and interest are convertible at the option of the note-holder into shares of the
Company’s common stock at the rate of 80% of the average of the five daily volume weighted average price preceding the conversion date. Several Notes are in default and status of default is indicated in the following table. The Notes carry no penalty or change in interest rate for default. Interest expense on the convertible notes years ended December 31, 2012 and December 31, 2011, totaled $45,200 and $45,680, respectively. Due to the contingent nature of the conversion price, the company accounted for beneficial conversion feature and derivative liability on the note. The convertible promissory notes with the investment firm totaled $565,000 at December 31, 2012, December 31, 2011 and December 31, 2010 and are summarized as follows:
|
|
|
Issue date
|
|
|
Maturity
|
|
|
Principal
|
|
|
Interest Rate
|
|
|
Date of Default
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A)
|
|
12/31/2008
|
|
|
1/5/2010
|
|
|
|
90,000
|
|
|
|
8.00
|
%
|
|
1/5/2010
|
|
|
(A)
|
|
1/16/2009
|
|
|
1/5/2010
|
|
|
|
100,000
|
|
|
|
8.00
|
%
|
|
1/5/2010
|
|
|
(A)
|
|
1/23/2009
|
|
|
1/5/2010
|
|
|
|
50,000
|
|
|
|
8.00
|
%
|
|
1/5/2010
|
|
|
(A)
|
|
2/2/2009
|
|
|
1/5/2010
|
|
|
|
25,000
|
|
|
|
8.00
|
%
|
|
1/5/2010
|
|
|
(A)
|
|
3/9/2009
|
|
|
1/5/2010
|
|
|
|
10,000
|
|
|
|
8.00
|
%
|
|
1/5/2010
|
|
|
(B)
|
|
4/8/2009
|
|
|
4/8/2010
|
|
|
|
50,000
|
|
|
|
8.00
|
%
|
|
4/8/2010
|
|
|
|
|
6/23/2009
|
|
|
6/23/2010
|
|
|
|
25,000
|
|
|
|
8.00
|
%
|
|
6/23/2010
|
|
|
|
|
7/1/2009
|
|
|
7/1/2010
|
|
|
|
*
|
|
|
|
8.00
|
%
|
|
7/2/2010
|
|
|
|
|
7/6/2009
|
|
|
7/6/2010
|
|
|
|
20,000
|
|
|
|
8.00
|
%
|
|
7/7/2010
|
|
|
|
|
8/26/2009
|
|
|
8/31/2010
|
|
|
|
195,000
|
|
|
|
8.00
|
%
|
|
9/1/2010
|
|
|
Totals
|
|
|
|
|
|
|
|
|
|
$
|
565,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A), Amounts borrowed were part of a master note agreement totaling $ 275,000
* This note was repaid in January 2011
January 5, 2009 Note:
From January 5, 2009 to March 9, 2009, the Company issued a $275,000 Convertible Note that matured on January 5, 2010. The note bears interest at a rate of 8% and is convertible into the Company’s common stock at any time at the holder’s option, at the conversion rate of 80% of the average rate of five preceding the closing date prior to notice of conversion.
The Company identified embedded derivatives related to the Convertible Note entered into on March 9, 2009 (completion of funding as per agreement). These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Note and to adjust the fair value as of each subsequent balance sheet date. At the inception of the Convertible Note, the Company determined a fair value of $218,585 of the embedded derivative. The fair value of the embedded derivative was determined using the Black Scholes Model based on the following assumptions:
|
Dividend yield:
|
|
|
-0-
|
%
|
|
Volatility
|
|
|
181.03
|
%
|
|
Risk free rate:
|
|
|
0.82
|
%
|
The initial fair value of the embedded debt derivative of $125,165 was allocated as a debt discount with the remainder ($93,420) charged to current period operations as interest expense.
During the year ended December 31, 2011 and 2010, the Company amortized $0 and $2,072 to current period operations as amortization of beneficial conversion feature.
The fair value of the described embedded derivative of $3,449,722 and $266,461 at June 30, 2013 and March 31, 2013, respectively was determined using the Black Scholes Model with the following assumptions:
|
|
|
30-June-2013
|
|
|
31-March-2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend yield:
|
|
|
-0-
|
%
|
|
|
0%
|
|
|
Volatility
|
|
|
469.97
|
%
|
|
|
395.51%
|
|
|
Risk free rate:
|
|
|
0..28
|
%
|
|
|
.025%
|
|
At June 30, 2013, the Company adjusted the recorded fair value of the derivative liability to market resulting in non-cash, non-operating loss of $ (3,183,261).
April 8, 2009 Note
:
From April 8, 2009, the Company issued a $50,000 Convertible Note that matured on April 8, 2010. The note bears interest at a rate of 8% and is convertible into the Company’s common stock at any time at the holder’s option, at the conversion rate of 80% of the average rate of five preceding the closing date prior to notice of conversion.
The Company identified embedded derivatives related to the Convertible Note entered into on April 8, 2009. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Note and to adjust the fair value as of each subsequent balance sheet date. At the inception of the Convertible Note, the Company determined a fair value of $42,239 of the embedded derivative. The fair value of the embedded derivative was determined using the Black Scholes Model based on the following assumptions:
|
Dividend yield:
|
|
|
-0-
|
%
|
|
Volatility
|
|
|
291.51
|
%
|
|
Risk free rate:
|
|
|
0.80
|
%
|
The initial fair value of the embedded debt derivative of $20,261 was allocated as a debt discount with the remainder ($21,978) charged to that period of operations as interest expense.
During the year ended December 31, 2012 and 2011, the Company amortized $0 to current period operations as amortization of beneficial conversion feature.
The fair value of the described embedded derivative of$ 636,872 and $41,175 at June 30, 2013 and March 31, 2013, was determined using the Black Scholes Model with the following assumptions:
|
|
|
30-Jun-13
|
|
|
31-Mar-13
|
|
|
Dividend yield:
|
|
|
-0-
|
%
|
|
|
-0-
|
%
|
|
Volatility
|
|
|
469.97%
|
%
|
|
|
395.51
|
%
|
|
Risk free rate:
|
|
|
0.28
|
%
|
|
|
0.25
|
%
|
June 23, 2009 Note
:
From June 23, 2009, the Company issued a $25,000 Convertible Note that matured on June 23, 2010. The note bears interest at a rate of 8% and is convertible into the Company’s common stock at any time at the holder’s option, at the conversion rate of 80% of the average rate of five preceding the closing date prior to notice of conversion.
The Company identified embedded derivatives related to the Convertible Note entered into on June 23, 2009. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Note and to adjust the fair value as of each subsequent balance sheet date. At the inception of the Convertible Note, the Company determined a fair value of $19,148 of the embedded derivative. The fair value of the embedded derivative was determined using the Black Scholes Model based on the following assumptions:
|
Dividend yield:
|
|
|
-0-
|
%
|
|
Volatility
|
|
|
291.5
|
3%
|
|
Risk free rate:
|
|
|
0.802
|
%
|
The initial fair value of the embedded debt derivative of $12,102 was allocated as a debt discount with the remainder ($7,046) charged to that period of operations as interest expense.
The fair value of the described embedded derivative of $318,158 and $20,587at June 30, 2013 and March 31, 2013 and December 31, 2012, respectively was determined using the Black Scholes Model with the following assumptions:
|
|
|
30-Jun-13
|
|
|
31-Mar-2013
|
|
|
Dividend yield:
|
|
|
-0-
|
%
|
|
|
-0-
|
%
|
|
Volatility
|
|
|
469.97
|
%
|
|
|
395.51
|
%
|
|
Risk free rate:
|
|
|
0.28
|
%
|
|
|
0..25
|
%
|
July 2009 and August 2009 Note
:
From July 2009 to August, 2009, the Company issued a three note totaling to $315,000 Convertible Note that matured on July 1, 2010, July 6, 2010 and August 31, 2010. The note bears interest at a rate of 8% and is convertible into the Company’s common stock at any time at the holder’s option, at the conversion rate of 80% of the average rate of five preceding the closing date prior to notice of conversion.
The Company identified embedded derivatives related to the Convertible Note entered into on date of Note. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Note and to adjust the fair value as of each subsequent balance sheet date. At the inception of the Convertible Note, the Company determined a fair value of $241,266 of the embedded derivative. The fair value of the embedded derivative was determined using the Black Scholes Model based on the following assumptions:
|
Dividend yield:
|
|
|
-0-
|
%
|
|
Volatility
|
|
|
293
|
%
|
|
Risk free rate:
|
|
|
0.80
|
%
|
The initial fair value of the embedded debt derivative of $152,484 was allocated as a debt discount with the remainder ($88,782) charged to that period of operations as interest expense.
During the year ended December 31, 2012 and 20110, the Company amortized $0 to current period operations as amortization of beneficial conversion feature.
On January 22, 2011, the $100,000 of the Convertible Note was assigned to Shareholder at the $0.001 of conversion price. The Company recorded $582,973 as loss on change in term of note. On the same date the Company issued 333,333 no of Common stock against settlement of this Note of $100,000 and accrued interest of $12,482.
The fair value of the described embedded derivative of $ 2,731,305 and $ 177,052 at June 30, 2013 and March 31, 2013 was determined using the Black Scholes Model with the following assumptions:
|
|
|
30-Jun-13
|
|
|
31-Mar-13
|
|
|
Dividend yield:
|
|
|
-0-
|
%
|
|
|
-0-
|
%
|
|
Volatility
|
|
|
469.97
|
%
|
|
|
395.51
|
%
|
|
Risk free rate:
|
|
|
.28
|
%
|
|
|
.25
|
%
|
B – Short-Term Notes Payable
The Company has borrowed funds from stockholders for working capital purposes from time to time. The loans are non-interest bearing, payable on demand and, consequently, reported as current liabilities. The Company has received $39,514 in advances since inception and made repayments of $7,019 in cash, resulting in a payable balance of $32,495, during 2012 the remaining balance was settled through issuance of common stock and the Company obtained additional short term loan from Cortland Capital in the amount of $ 20,000 and $10,150 from Eightfold Entertainment. At December 31, 2012, the Company had remaining aggregate balance of $26,240.
C – Bonds Payable, Convertible and Secured
The Company has entered into multiple convertible bond agreements with an investment firm that is also a minority stockholder of the Company.
The convertible bonds were listed below:
|
|
|
Issue date
|
|
Maturity
|
|
Principal
|
|
|
Interest rate
|
|
|
Default rate
|
|
|
Date of Default
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A)
|
|
10/15/2008
|
|
10/15/2010
|
|
$
|
1,058,407
|
*
|
|
|
9.00
|
%
|
|
|
18.00
|
%
|
|
1/15/2010
|
|
|
(B)
|
|
4/30/2009
|
|
10/31/2010
|
|
|
300,000
|
|
|
|
9.00
|
%
|
|
|
18.00
|
%
|
|
1/15/2010
|
|
|
(C)
|
|
10/12/2009
|
|
1/12/2010
|
|
|
252,000
|
|
|
|
9.00
|
%
|
|
|
9.00
|
%
|
|
1/13/2010
|
|
|
(D)
|
|
11/3/2009
|
|
2/3/2010
|
|
|
-
|
*
|
|
|
9.00
|
%
|
|
|
9.00
|
%
|
|
2/3/2010
|
|
|
Totals
|
|
|
|
|
|
$
|
1,610,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*On August 23, 2010, the Company repaid $241,593 in principal on (A) and $210,000 in principal on (D).
In October 2012, the Company retired its Series I Preferred stock, by issuing 45,000,000 shares of common stock to retire the Series I Preferred in satisfaction of the remaining bond debt, recording an addition to paid- in-capital of $16,752,000.
NOTE 5 – STOCKHOLDERS’ DEFICIT
Reverse Stock Split
On January 26, 2011, the Company’s Board of Directors , pursuant to unanimous written consent resolutions , authorized and approved a reverse stock split of one for every three hundred (1:300) of our total issued and outstanding shares of common stock was effectuated on April 8, 2011. All references in the accompanying consolidated financial statements and notes thereto have been retroactively restated to reflect the above change in the ordinary share structure.
Preferred Stock
The Company is authorized to issue 200,000,000 shares of Preferred stock, par value of $ 0.001 per share.
On June 30, 2009, the Company filed a Certificate of Designation with the Secretary of State of Nevada, whereby 10,200,000 shares of the 200,000,000 authorized shares of Preferred stock were designated as Series I Preferred Stock, $0.001 par value and having the powers, designations, preferences, limitations, restrictions and relative rights as set forth in the Certificate of Designation of Series I Preferred Stock.
Holders of the Series I Preferred shares do not receive interest or dividends separately from common stock shareholders. Preferred Stock holder shall participate in dividends when and if declared in the same proportion as common stock shareholders. Preferred stock is convertible into common shares at the lowest volume weighted average price of the common shares in the five days preceding conversion.
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, holders of the Series I Preferred Shares will be entitled to receive for each share of Preferred Shares, out of the assets of the Company or proceeds available for distribution to our shareholders, subject to any rights of our creditors, before any distribution of assets or proceeds is made to or set aside for the holders of our common stock and any other class or series of our stock ranking junior to the Series I Preferred Shares, payment of an amount equal to the sum of (i) the $1.00 liquidation preference amount per Series I Preferred Shares and (ii) the amount of any accrued and unpaid dividends on the Series I Preferred Shares (including dividends accrued on any unpaid dividends). To the extent the assets or proceeds available for distribution to shareholders are not sufficient to fully pay the liquidation payments owing to the holders of the Series I Preferred Shares and the holders of any other class or series of our stock ranking equally with the Series I Preferred Shares, the holders of the Series I Preferred Shares and such other stock will share ratably in the distribution.
For purposes of the liquidation rights of the Series I Preferred Shares, neither a merger or consolidation of the Company with another entity, including a merger or consolidation in which the holders of Series I Preferred Shares receive cash, securities or other property for their shares, nor a sale, lease or exchange of all or substantially all of the Company’s assets will constitute a liquidation, dissolution or winding up of the affairs of the Company.
In October 2012, the Company retired all shares of Series I Preferred Shares. See Note 4(c) above
Issuance of 10,200,000 shares of Series I Preferred Shares
In October 2012, the Company retired all shares of this Preferred Series. See Note 4(c) above.
Issuance of 2,363,500 shares of Series I Preferred Shares
In October 2012, the Company retired all shares of this Preferred Series. See Note 4(c) above.
Common Stock
The Company is authorized to issue 1,000,000,000 shares of common stock, par value $.001 per share
On January 22, 2011, a previously issued $100,000 Convertible Note was assigned to a Company shareholder at the $0.001 of conversion price. The Company recorded $582,973 as loss on change in term of note. On the same date the Company issued 333,333 of Common stock in exchange or settlement of the Note of $100,000 in principal and accrued interest of $12,482.
During fiscal year ended December 2012, the Company issued 275,888,257 shares of its common stock for services, debt reduction, and acquisition expenses and to retire the preferred shares. The Company is holding 126,069,070 shares in escrow for services pending performance. The outstanding shares of its common stock are 152,819,187. The company currently has no preferred shares issued and outstanding.
During the quarter ended June 30, 2013, the Company issued 2,550,000 shares of common stock, of which 1,000,000 were issued pursuant to the terms of the convertible note with a related party. The Company reported the beneficial conversion as additional paid-in capital of $11,000. The balance of 1,550,000 shares of common stock issued were for services.
Warrants
A summary of the changes in outstanding warrants is as follows.
As of December 31, 2012, the Company issued 2,740,300 common shares in full settlement of the warrant agreement.
NOTE 6 - OTHER MATERIAL CONTRACTS
During the last quarter of 2012, the Board of Directors approved the acquisition of two (2) mining entities but as of the date of these financial statements they have yet to enter into a definitive agreement of plan of acquisition or merger. As of the date of this report the Company has not entered into a definitive agreement of plan of acquisition or merger.
NOTE 7- GOING CONCERN
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has a recurring net losses, and total deficit accumulated including during pre-exploration stage is $
(52,207,651) and a deficit of $(12,809,655) accumulated during the six months ended June 30, 2013. The Company has working capital deficit of (current liabilities minus current assets) $(8,244,609) at June 30,, 2013 and December 31, 2012 of $(1,088,973). Additionally, current economic conditions in the United States and globally create significant problems attaining sufficient funding. Accordingly, management has encountered significant difficulties in obtaining financing. These items raise substantial doubt about the Company’s ability to continue as a going concern. In view of these matters, realization of the assets of the Company is dependent upon the Company’s ability to meet its financial requirements through equity financing, borrowing, and the success of future operations. These consolidated financial statements do not include adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.
NOTE 8 – CORRECTION OF PRIOR YEAR ACCOUNTING ERROR
The Company’s consolidated financial statements as of December 31, 2009, contained the following errors: (1) overstatement of debt in the amount of $2,389,200; overstatement of a related investment in the amount of $2,389,200, and overstatement of accrued interest payable in the amount of $149,112. As of December 31, 2009, the investment and debt (along with minimal foreign currency translation adjustments) were eliminated, and accumulated deficit was increased by $149,112 to correct the aggregate effect of the errors. The error is a result of the Company recording a transaction, known as Global Diamond Resources, which did not materialize wherein the Company was borrowing funds under a convertible loan agreement to purchase, through a subsidiary, stock of a privately held company. The lenders were unable to complete the transaction and neither funds nor equities changed hands. The Board of Directors issued a resolution to void the transaction. The Company also made the following adjustments:
|
|
|
|
|
|
Common
|
|
|
Additional
|
|
|
Deficit
Accumulated
|
|
|
Total
Stockholders
|
|
|
|
|
Preferred
|
|
|
Stock
|
|
|
Paid in
|
|
|
During Pre
|
|
|
Equity
|
|
|
|
|
Stock
|
|
|
Amount
|
|
|
Capital
|
|
|
Exploration
|
|
|
(Deficit)
|
|
|
Balance December 31, 2009
|
|
$
|
10,200
|
|
|
$
|
93,132
|
|
|
$
|
10,706,521
|
|
|
$
|
(3,557,556
|
)
|
|
$
|
7,252,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reverse Stock Split
|
|
|
-
|
|
|
|
(92,822
|
)
|
|
|
92,822
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reversal of interest Payable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
149,112
|
|
|
|
149,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial Conversion feature on Preferred Stock
|
|
|
(10,034,407
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(10,034,407
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Re-class
|
|
|
10,189,800
|
|
|
|
|
|
|
|
(10,189,800
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of Beneficial Conversion feature on Preferred Stock
|
|
|
10,034,407
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,034,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of Beneficial Conversion on Convertible Debt
|
|
|
-
|
|
|
|
-
|
|
|
|
363,883
|
|
|
|
-
|
|
|
|
363,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Value of Derivative Liability
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,747,423
|
|
|
|
1,747,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Interest Expense and amortization of beneficial conversion feature
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(10,682,980
|
)
|
|
|
(10,682,980
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2009 (restated)
|
|
|
10,200,000
|
|
|
|
310
|
|
|
|
973,426
|
|
|
|
(12,344,001
|
)
|
|
|
(1,170,265
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Removed Preferred Stock from Equity
|
|
|
(10,200,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(10,200,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholder's equity (deficit) (before treasury stock)
|
|
$
|
-
|
|
|
$
|
310
|
|
|
$
|
973,426
|
|
|
$
|
(12,344,001
|
)
|
|
$
|
(11,370,265
|
)
|
NOTE 9 – FAIR VALUE OF FINANCIAL INSTRUMENTS
ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed is determined based on the lowest level input that is significant to the fair value measurement. The debt derivative, comprised of our bifurcated convertible debt features on our convertible notes, is measured at fair value using quoted market prices and estimated volatility factors based on historical prices for the Company’s common stock and are classified within Level 3 of the valuation hierarchy.
The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities:
|
|
|
|
|
|
Fair Value Measurements at December 31, 2012 using:
|
|
|
|
|
June 30, 2013
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs (Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt derivative liabilities
|
|
$
|
7,136,057
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
7,136,057
|
|
|
Preferred stock derivative liabilities
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
$
|
0
|
|
The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of December 31, 2012:
|
|
|
Debt Derivative
Liability
|
|
|
Balance March 31, 2032
|
|
$
|
505,275
|
|
|
Mark-to-market at June 30, 2013
|
|
|
|
|
|
Embedded debt derivatives
|
|
|
6,630,732
|
|
|
|
|
|
|
|
|
Balance, March 31, 2013
|
|
$
|
7,136,057
|
|
|
|
|
|
|
|
|
Net gain (loss) on derivatives realized and unrealized for the period included in earnings relating to the liabilities held at June 30, 2013
|
|
$
|
(6,630,732)
|
|
FORWARD L
OOKING STATEMENTS
Except for statements of historical fact, certain information contained herein constitutes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are usually identified by our use of certain terminology, including “will,” “believes,” “may,” “expects,” “should,” “seeks,” “anticipates,” or “intends,” or by discussions of strategy or intentions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results or achievements to be materially different from any future results or achievements expressed or implied by such forward-looking statements. Such factors include, among others, our history of operating losses and uncertainty of future profitability; our lack of working capital and uncertainty regarding our ability to continue as a going concern; uncertainty of access to additional capital; risks inherent in mineral exploration; environmental liability claims and insurance; dependence on consultants and third parties as well as those factors discussed in the sections entitled “
Risk Factors
,” “
Business
,” and “
Management’s Discussion and Analysis of Financial Condition and Results of Operations
.” If one or more of these risks or uncertainties materializes, or if underlying assumptions prove incorrect, our actual results may vary materially from those expected, estimated, or projected. Forward-looking statements in this document are not a prediction of future events or circumstances, and those future events or circumstances may not occur. Given these uncertainties, users of the information included herein, including investors and prospective investors are cautioned not to place undue reliance on such forward-looking statements. We do not assume responsibility for the accuracy and completeness of these statements.
The United States Securities and Exchange Commission permits U.S. mining companies, in their filings with the SEC, to disclose only those mineral deposits that a company can economically and legally extract or produce. The Company is an exploration stage company and its properties have no known body of ore. U.S. investors are cautioned not to assume that the Company has any mineralization that is economically or legally mineable.
All references in this Quarterly Report on Form 10-Q to the terms “we,” “our,” “us,” “TTXP,” and the “Company” refer to Trilliant Exploration Corporation.