NOTES TO FINANCIAL STATEMENTS
July 31, 2013
Note 1 - Summary of Significant Accounting Policies
General Organization and Business-
American Sierra Gold Corp. (“American Sierra” or the “Company”) is a Nevada corporation. Our Company was incorporated under the laws of the State of Nevada on January 30, 2007, and effective May 19, 2009, we changed our name from C.E. Entertainment, Inc. to American Sierra Gold Corp. by way of a merger with a wholly owned subsidiary, and we also changed our business plan to involve the acquisition, exploration, development, mining, and production of precious metals, with emphasis on gold and silver.
Proposed Exchange Offer -
We are a publicly-owned precious metal mineral acquisition, exploration and development company. Medinah Gold Inc. (“MGI”) is a privately-owned property holding and mining company with mineral property mining claims in the country of Chile, formed in Nevada in 1999. We are proposing to exchange 63,914,540 shares of our common stock to holders of all of the outstanding common stock of MGI (the “Exchange”). Following the exchange, MGI’s operations will become the core business of the combined entity. As of May 31, 2013, there are 16,041,740 shares of ASGC common stock outstanding owned by existing ASGC shareholders. Giving effect to the Exchange, shareholders previously owning shares of MGI would own approximately 80% of total shares outstanding, and MGI would become a wholly-owned subsidiary of ASCG. These relative security holdings and the composition of our Board of Directors and Executive Officers, the proposed structure, the size of the combining entities and the terms of the exchange of equity interests were considered in determining the accounting acquirer. Based on the weight of these factors, it was concluded that MGI is the accounting acquirer and its historical financial statements will become those of the registrant after the exchange.
Recent Events -
In April 2013, our Board of Directors approved the appointment of three directors and executive officers, who were directors and executive officers of MGI, and ASGC’s former sole officer and director resigned. We have also changed our primary business address from Seattle, Washington to that of MGI in Beaverton, Oregon. In connection with services to be provided as directors, in April 2013, we agreed to issue 2,000,000 shares of our common stock to each of the three new directors, which shares were issued in May 2013. Additionally, commencing in December 2012 through April 2013, in exchange for cash of approximately $185,000, including previously loaned, we issued 3,300,000 shares of our common stock to the majority owner of MGI and one of the Company’s Advisors. As a result, owners of our common stock as of July 31, 2013, that previously did not own shares, now own a majority of the Company’s common stock. There have been no adjustments recognized in these consolidated financial statements relating to this change of control.
Basis of presentation and interim financial statements-
Our accounting and reporting policies conform to U.S. generally accepted accounting principles applicable to exploration stage enterprises pursuant to the provisions of Topic 26, “Accounting for Development Stage Enterprises,” as it devotes substantially all of its efforts to acquiring and exploring mining interests that will eventually provide sufficient net profits to sustain the Company’s existence. Until such interests are engaged in major commercial production, the Company will continue to prepare its financial statements and related disclosures in accordance with entities in the development stage. Mining companies subject to Topic 26 are required to label their financial statements as an “Exploratory Stage Company,” pursuant to guidance provided by SEC Guide 7 for Mining Companies.
Use of estimates -
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
- For purposes of the statement of cash flows, we consider all cash in banks, money market funds, and certificates of deposit with a maturity of less than three months to be cash equivalents.
Fair value of financial instruments and derivative financial instruments -
We have adopted Accounting Standards Codification regarding Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments. The carrying amounts of cash, accounts payable, accrued expenses, and other current liabilities approximate fair value because of the short maturity of these items. These fair value estimates are subjective in nature and involve uncertainties and matters of significant judgment, and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect these estimates. We do not hold or issue financial instruments for trading purposes, nor do we utilize derivative instruments in the management of foreign exchange, commodity price or interest rate market risks.
Federal income taxes -
Deferred income taxes are reported for timing differences between items of income or expense reported in the financial statements and those reported for income tax purposes in accordance with Accounting Standards Codification regarding Accounting for Income Taxes, which requires the use of the asset/liability method of accounting for income taxes. Deferred income taxes and tax benefits 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 for tax loss and credit carryforwards. 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. Deferred taxes are provided for the estimated future tax effects attributable to temporary differences and carryforwards when realization is more likely than not. We record a valuation allowance in the full amount of deferred tax assets since realization of such tax benefits has not been determined by our management to be more likely than not
Net income (loss) per share
– Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted loss per share excludes the effect of common stock equivalents, warrants to purchase 33,333 shares of common stock, since inclusion in the computation would be anti-dilutive.
Mineral Properties -
The Company is engaged in the business of acquiring and exploring properties that may contain precious metals, with an emphasis on gold and silver. If precious metals are found, the Company’s intention is to develop, mine and produce the precious metals. Mineral claim and other property acquisition costs are capitalized as incurred. Such costs are carried as an asset of the Company until it becomes apparent through exploration activities that the cost of such properties will not be realized through mining operations. Mineral exploration costs are expensed as incurred, and when it becomes apparent that a mineral property can be economically developed as a result of establishing proven or probable reserve, the exploration costs, along with mine development cost, would be capitalized. If mineral properties, exploration, or mine development activities are subsequently abandoned or impaired, any capitalized costs are charged to operations.
Impairment of Long-Lived Assets -
The Company evaluates the recoverability of long-lived assets and the related estimated remaining lives at each balance sheet date. The Company records an impairment or change in useful life whenever events or changes in circumstances indicate that the carrying amount may not be recoverable or the useful life has changed.
Common Stock Registration Expenses -
The Company considers incremental costs and expenses related to the registration of equity securities, whether by contractual arrangement as of a certain date or by demand, to be unrelated to original issuance transactions. As such, subsequent registration costs and expenses are reflected in the accompanying financial statements as general and administrative expenses, and are expensed as incurred.
Recently Issued Accounting Pronouncements
-
As of and for the periods ended July 31, 2013 and July 31, 2012, the Company does not expect any of the recently issued accounting pronouncements to have a material impact on its financial condition or results of operations.
Note 2 - Going concern
The accompanying consolidated 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. We have reported net losses and our operating activities have used cash since inception. We expect losses to continue in the near future, specifically, with respect to continued funding of exchange related costs prior to consummation of the proposed exchange offer, and after the exchange as we grow and further develop our operations. We had an accumulated deficit of approximately $5.3 million at July 31, 2012 and $6.2 million at July 31, 2013. We have funded our operations through sales of common stock and short-term borrowings, recently from related parties, and require additional funds for future operating expenses. While we have an agreement with a company affiliated with its majority shareholders to continue to fund costs associated with the proposed exchange offer, our management is currently attempting to identify future business opportunities and is seeking additional sources of equity or debt financing. However, there is no assurance that such financing will be available on a timely basis, on terms favorable to us or obtained in sufficient amounts necessary to meet our needs. In the event that we cannot obtain additional funds on a timely basis, we may be forced to curtail or cease our activities, which would likely result in the loss to investors of all or a substantial portion of their investment. These factors raise substantial doubt about the ability of the Company to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of this uncertainty.
Note 3 - Mineral Properties
In November 2010, the Company acquired an undivided interest in six mineral claims in the Adams Ridge area of British Columbia, Canada, which claims are held in trust for the Company by a trustee of the BC Land Trust, as required by the B.C. Mineral Tenure Act, and registered with the Government of British Columbia. While the Company’s plan was to conduct mineral exploration activities on the claims in order to assess whether the sites possess mineral deposits of gold or other precious metals in commercial quantities, capable of commercial extraction, during 2011, the Company ceased exploration activities due to budgetary constraints and, therefore, has not established whether there are mineral reserves at the claim sites, nor can there be any assurance that the Company will be able to commence exploration activities.
In 2009, the Company entered into a property option agreement with a Canadian public company that owned ten mining concessions in southwest Chihuahua State, Mexico, and rights to acquire an additional six mining concessions in the same area (together, the “Property”), to acquire the Property. The Company could have acquired a 90% in the Property for payments aggregating approximately $300,000 prior to April 30, 2010, and $250,000 in each of the next three years and funding capital expenditures of approximately $2.5 million during the next three years, and could later acquire the remaining 10% dependent upon future events. During the year-ended July 31, 2010, the Company abandoned the property option and costs were written off.
In December 2009, the Company entered into a joint venture agreement with an unrelated company pursuant to which the Company could make payments to the joint venture of $2 million over two years and in exchange would have acquired a 75% ownership interest in entities owning and operating certain mineral claims and property for the production of gold in Northern California. The Company initially paid $125,000, in part, as a signing fee and, in part, for the exclusivity period to negotiate a definitive agreement pursuant to the parties’ non-binding letter of intent. During the year-ended July 31, 2010, the parties mutually ended the joint venture and related costs were written off.
Note 4 - Notes and Loans Payable
During 2011, pursuant to terms of convertible notes payable, the Company received approximately $54,000 for working capital purposes. Convertible notes bear interest at 8% and, with $45,000 due in February 2012 and $9,000 due in September 2012, and are convertible at the holder’s election into shares of Company common stock. The exercise price for conversion is determined based on a discount from market, the related beneficial conversion value of which was immaterial. During the year ended July 31, 2012, we issued 1,536,786 shares of our common stock upon conversion of approximately $36,000 of convertible notes. Convertible notes outstanding at July 31, 2012, approximated $9,000 and were repaid in full in September 2012.
During the fiscal year ended July 31, 2012, we received $35,000 from an investor, who is the majority stockholder of MGI, in exchange for a $10,000 convertible note payable, and loans payable, which bear interest at 6%, are due on demand with no specific repayment terms. Pursuant to terms of a December 5, 2012 Loan and Stock Purchase Agreement, in December 2012, we issued 2,600,000 shares of our common stock upon conversion of the convertible note and other prior loans totaling approximately $145,000, and during the three months ended April 30, 2013, we issued 800,000 shares of our common stock in exchange for cash of $40,000. Terms of the agreement the investor agrees to make future loans to us with interest at 6% per annum with the investor having the right to purchase shares of our common stock at $0.05 per share in the amount of future loans.
Note 5 - Common Stock
Effective in May 2012, we affected a one (1) new for fifteen (15) old reverse stock-split for our issued and outstanding shares of common stock. All references to share amounts have been adjusted to give effect to this and prior stock-splits.
Pursuant to private placement offerings exempt from registration, on January 30, 2007, we issued 3,466,667 shares of our common stock to Directors and officers for cash of $13,000, and in February 2007, we issued 2,026,667 shares of our common stock to 38 foreign, non-affiliated investors for cash of $38,000.
Pursuant to private placement offerings exempt from registration, in July 2009 we issued 12,222 shares of our common stock to new investors for cash of approximately $137,000, and in September 2009, we issued 16,667 shares of our common stock to investors for cash of $100,000.
Pursuant to private placement offerings exempt from registration, in November 2009 we issued 23,256 units for gross proceeds of $300,000, with each unit consisting of one share of our common stock and a two-year warrant to purchase one share of our common stock at a price of $22.65 per share, and in December 2009, we issued 54,645 units for gross proceeds of $500,000, with each unit consisting of one share of our common stock and a two-year warrant to purchase one share of our common stock at a price of $16.05 per share.
In connection with a former joint venture, during December 2009 through March 2010, we issued a total of 26,667 shares of our common stock to the other joint venture party.
Pursuant to a private placement offering exempt from registration, in May 2010 we issued 53,333 units for gross proceeds of $200,000, with each unit consisting of one share of our common stock and a five-year warrant to purchase one share of our common stock at a price of $6.60 per share.
Pursuant to terms of a December 5, 2012 Loan and Stock Purchase Agreement, in December 2012, we issued 2,600,000 shares of our common stock upon conversion of the convertible note and other prior loans totaling approximately $145,000, and during the three months ended April 30, 2013, we issued 800,000 shares of our common stock in exchange for cash of $40,000. Terms of the agreement the investor agrees to make future loans to us with interest at 6% per annum with the investor having the right to purchase shares of our common stock at $0.05 per share in the amount of future loans.
In connection with appointment of three new directors and officers of the Company in April 2013, for services to be provided we issued to each director 2,000,000 shares of our common stock. We have recorded the estimated fair value of shares, based on closing market prices at the date approved by our Board of Directors, of $720,000, which is included in general and administrative expense for the three months ended April 30, 2013.
Share Issuance Agreement -
In October 2009, we entered into a Share Issuance Agreement (the “Share Agreement”) with a investment relations firm, whereby the firm would advance up to $6 million to the Company, with an option for an additional $6 million, for the purchase of units comprised of one share of Company common stock and a warrant to purchase one share of Company common stock. The agreement period expired December 31, 2011, and could be extended for an additional 12 months at the discretion of either party. The price of each unit is equal to 75 percent of the weighted average closing price of common stock of the Company, as quoted by NASDAQ, or other source agreed to by the parties, for the preceding ten days prior to each subscription advance to purchase units. The purchase price under each Purchase Warrant to acquire one additional share of common stock shall be 175 percent of the unit price at which the unit containing the Purchase Warrant being exercised was issued.
Warrants -
As of July 31, 2012 and July 31, 2013, there are warrants outstanding to purchase 33,333 shares of our common stock at a per share price of $18.75, which expire in January 2015. In May 2010, we issued warrants for the purchase of 53,333 shares at a per share price of $6.60; these warrants expired unexercised in May 2012.
During the fourth fiscal quarter ending July 31, 2013, the Company received cash of $35,000 for 700,000 unissued shares of stock. The Company has recorded this deposit as a stock subscription.
Note 6 - Related Party Transactions
During 2009 and 2010, the Company received working capital advances, substantially all of which was cash, from its then directors, officers and majority shareholders pursuant to terms of loans totaling $310,000. As of July 31, 2010, amounts were due on demand, and consisted of $75,000, $45,000 and $110,000 from the three individuals. In May 2011, Company management determined through discussions with the parties that there was mutual agreement amounts previously reported as loans payable, were considered to have been satisfied in full, and thus cancelled or forgiven, in connection with, among other things, departure of service of the individuals with the Company.
During the fiscal year ended July 31, 2012, the Company received a loan from an officer in the amount of $3,771. The loan was provided for working capital purposes, is unsecured, non-interest bearing, has no specific terms of prepayment, and remains due at April 30, 2013.
Pursuant to the terms of a September 2009 Consulting Agreement with an individual to serve as one of our directors and officers, we issued 66,667 restricted shares of our common stock, and agreed to pay $5,000 per month thereafter. In connection with this agreement one of our other former directors and officers agreed to return for cancellation 1,266,667 shares of our common stock previously issued, and in November 2009, we entered into a consulting agreement with this former director and officer pursuant to which we agreed to pay $40,000 upon entering into the agreement and $5,000 per month thereafter.
In connection with appointment of three new directors and officers of the Company in April 2013, for services to be provided we issued to each director 2,000,000 shares of our common stock. We have recorded the estimated fair value of shares, based on closing market prices at the date approved by our Board of Directors, of $720,000, which is included in general and administrative expense for the three months ended April 30, 2013. We have also agreed to pay one of the directors $5,000 per month for services to be provided. Additionally, in April 2013, we agreed to pay $5,000 to each of two individuals appointed as a Board Advisor. One of the Board Advisors was our sole director and executive officer prior to April 2013. The other Board Advisor is representative for our majority shareholder.
Note 7 - Income Taxes
The provision (benefit) for income taxes for the years ended July 31, 2013, and 2012, were as follows:
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Year Ended July 31,
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2013
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2012
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Current Tax Provision:
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Federal-
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Taxable income
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$
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-
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$
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-
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Total current tax provision
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$
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-
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$
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-
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Deferred Tax Provision:
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Federal-
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Loss carryforwards
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$
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329,856
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$
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26,785
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Change in valuation allowance
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(329,856
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)
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(26,785
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)
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Total deferred tax provision
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$
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-
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$
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-
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The Company had deferred income tax assets as of July 31, 2012, and 2011, as follows:
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July 31,
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2013
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2012
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Loss carryforwards
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$
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2,118,320
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$
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914,260
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Less - Valuation allowance
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(2,118,320
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)
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(914,260
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)
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Total net deferred tax assets
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$
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-
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$
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-
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The Company provided a valuation allowance equal to the deferred income tax assets for the years ended July 31, 2013 and 2012, because it is not presently known whether future taxable income will be sufficient to utilize the loss carryforwards.
As of July 31, 2013 and 2012, the Company had approximately $6,230,353, and $5,260,188, respectively, in tax loss carryforwards that can be utilized in future periods to reduce taxable income, and will begin to expire in the year 2027.
Note 8 – Subsequent Events
Management has reviewed events between 7-31-13 and 10-31-13 and no significant events were identified.