NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION
Organization, History and Business
MineralRite Corporation (“the Company”) was incorporated in Nevada on October 22, 1996 under its original name PSM Corp. The Company changed its emphasis to the exploration and development of natural resources and on November 23, 2005 changed its name to Royal Quantum Group, Inc. On October 18, 2012, the Company again changed its name from Royal Quantum Group, Inc. to MineralRite Corporation. On August 31, 2012, the Company declared a 50-for-1 reverse stock split of its common stock. All references in the accompanying consolidated financials to the number of shares outstanding and per-share amounts have been restated to reflect this stock split.
On March 1, 2013, the Company acquired 100% of the total shares outstanding of Goldfield International, Inc. (“Goldfield”) in exchange for issuing 2,000,000 shares of its common stock. The acquisition was based on the fair value of the shares issued amounting to $900,000. The accompanying consolidated financial statements include the accounts and balances of the Company and also of Goldfield since the date of its acquisition. All material intercompany transactions have been eliminated. Goldfield is in the business of manufacturing gold mining equipment.
On April 24, 2013, the Company entered into a joint venture agreement with CSI Export and Import (“CSI”) to mine copper ore on leased acreage in Chiapas, Mexico. For $850,000, the Company acquired a 50% in the joint venture which has a 25% participation interest in the production and sale of the indicated copper ore. The Company accounts for its investment in with CSI under the equity method pursuant to ASC Topic 323-30. This amount was written off in 2013 due to impairment as CSI did not execute on their part of the joint venture and repayment is doubtful.
Pursuant to a settlement agreement and related court order, effective December 6, 2013, the Company issued 30,000,000 shares of its common stock and transferred its oil and gas operations including related assets and liabilities to Santeo Financial Corporation and other creditors in exchange for the cancelation of debt totaling $325,568. For financial statement presentation purposes, the oil and gas activities for 2012 and 2013, and assets and liabilities directly relating to the oil and gas operation, are accounted for pursuant to ASC Topic 205-20 “Discontinued Operations”.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to present fairly the financial position of the Company as of March 31, 2014, and the results of its operations and cash flows for the three months ended March 31, 2014 and 2013. Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to rules and regulations of the U.S. Securities and Exchange Commission (the “Commission”). The Company believes that the disclosures in the unaudited condensed consolidated financial statements are adequate to make the information presented not misleading. However, the unaudited condensed consolidated financial statements included herein should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 filed with the Commission on May 21, 2014.
Going Concern
The Company’s consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and the liquidation of liabilities in the ordinary course of business. The Company has incurred substantial losses from operations and has a working capital deficit, which raise substantial doubt as to the Company’s ability to continue as a going concern. For the three month ended March 31, 2014, the Company had a net loss from continuing operations of $580,793 and accumulated deficit of $10,376,617. The Company has funded its operations through the private sale of its common shares and issuance of convertible debt. Net revenue generated from operations in not sufficient to pay Company debts currently due or to fund future operations. The Company continues to raise additional funds; however, there is no assurance that the necessary funds will be raised or even if the funds are raised, that the funds received will be to sufficient to fund future operations until such time that the Company’s operations become profitable. Until such time as funding is obtained and/or positive results from operations materialize, doubt about the Company’s ability to continue as a going concern may remain.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reclassification
Certain reclassifications have been made to conform the 2013 amounts to the 2014 classifications for comparative purposes.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of MineralRite Corporation and its wholly-owned subsidiary, Goldfield International, Inc. (acquired on March 1, 2013. see Note 3) Intercompany transactions and balances have been eliminated in consolidation.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes.
Management’s 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 reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Accounts Receivable
Accounts receivable are reported at the customer’s outstanding balances less any allowance for doubtful accounts. Interest is not accrued on overdue accounts receivable.
Allowance for Doubtful Accounts
An allowance for doubtful accounts on accounts receivable is charged to operations in amounts sufficient to maintain the allowance for uncollectible accounts at a level management believes is adequate to cover any probable losses. Management determines the adequacy of the allowance based on historical write-off percentages and information collected from individual customers. Accounts receivable are charged off against the allowance when collectability is determined to be permanently impaired. Management has determined that as of March 31, 2014, no allowances were required.
Revenue Recognition
Sales and related costs are recognized when the title passes to the customer since the risks and rewards of ownership has transferred, persuasive evidence of an arrangement exists, the services have been performed and all required milestones achieved, the selling price is fixed, determinable, and collection is reasonable assured.
Property and Equipment
Property and equipment are stated at cost. Depreciation and any amortization are computed using the straight-line method for financial reporting over the estimated useful lives. The estimated useful lives of assets range from 5 to 7 years.
Gains and losses resulting from sales and dispositions of property and equipment are included in current operations. Maintenance and repairs are charged to operations as incurred. Depreciation expense for the three months ended March 31, 2014 and 2013 from continuing operations amounted to amounted to $5,107 and $1,618, respectively.
Foreign Currency Translation
The Company's primary functional currency is the U.S. dollar. For foreign operations whose functional currency is the local foreign currency, balance sheet accounts are translated at exchange rates in effect at the end of the period and income statement accounts are translated at average exchange rates for the period. Translation gains and losses are included as a separate component of stockholders’ deficit.
Convertible Debentures
If the conversion features of conventional convertible debt provides for a rate of conversion that is below market value at issuance, this feature is characterized as a beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a debt discount pursuant to ASC Topic 470-20 “Debt with Conversion and Other Options.” In those circumstances, the convertible debt is recorded net of the discount related to the BCF, and the Company amortizes the discount to interest expense, over the life of the debt using the effective interest method.
Derivative Financial Instruments
In the case of non-conventional convertible debt, the Company bifurcates its embedded derivative instruments and records them under the provisions of ASC Topic 815-15 “Embedded Derivatives.” The Company’s derivative financial instruments consist of embedded derivatives related to non-conventional convertible notes (see Note 8). The embedded derivative includes the conversion feature of the notes. The accounting treatment of derivative financial instruments requires that the Company record the derivatives at their fair values as of the inception date of the respective agreement and at fair value as of each subsequent balance sheet date. Any change in fair value will be recorded as non-operating, non-cash income or expense at each reporting date. If the fair value of the derivatives is higher at the subsequent balance sheet date, the Company will record a non-operating, non-cash charge. If the fair value of the derivatives is lower at the subsequent balance sheet date, the Company will record non-operating, non-cash income.
Concentrations of Credit Risk
The Company primarily transacts its business with one financial institution. The amount on deposit in that one institution may from time to time exceed the federally-insured limit.
Of the Company’s revenue earned during the three months ended March 31, 2014, approximately 76% was generated from sales to one customer.
The Company’s accounts receivable are typically unsecured and are derived from U.S. customers in different industries. The Company performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses. Historically, such losses have been within management’s expectations. As of March 31, 2014, two customers accounted for 100% of the Company’s net accounts receivable balance, respectively.
Loss per Share of Common Stock
The Company reports earnings (loss) per share in accordance with Accounting Standards Codification “ASC” Topic 260-10,
"
Earnings per Share
."
Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares available. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted earnings (loss) per share has not been presented since the effect of the assumed conversion of debt to purchase common shares would have an anti-dilutive effect. Potential common shares as of March 31, 2014 that have been excluded from the computation of diluted net loss per share consist of $459,493 of convertible debt and accrue interest convertible into a 53,937,378 of common shares (See Note 8).
Long-Lived Assets
The Company accounts for its long-lived assets in accordance with ASC No. 360, “Property, Plant and Equipment.” ASC No. 360 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and fair value or disposable value. As of March 31, 2014, the Company believed there was an impairment of its long-lived assets and write off goodwill and investment in unconsolidated subsidiary.
Fair Value of Financial Instruments
Pursuant to ASC No. 820,
“
Fair Value Measurements and Disclosures,
”
the Company is required to estimate the fair value of all financial instruments included on its balance sheet as of March 31. 2014. The Company’s financial instruments consist of cash, accounts receivables, payables, convertible debt and other obligations. The Company considers the carrying value of such amounts in the financial statements to approximate their fair value due to the short-term nature of the respective instrument.
Income Taxes
The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. 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 the statements of operations in the period that includes the enactment date.
Risk and Uncertainties
The Company is subject to risks common to companies in the manufacturing of gold mining equipment industry, including, but not limited to, litigation, development of new technological innovations and dependence on key personnel.
Commitments and Contingencies
The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time that these matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.
Discontinued Operations
For those businesses where management has committed to a plan to divest, each business is valued at the lower of its carrying amount or estimated fair value less cost to sell. If the carrying amount of the business exceeds its estimated fair value, an impairment loss is recognized. Fair value is estimated using accepted valuation techniques such as a DCF model, valuations performed by third parties, earnings multiples, or indicative bids, when available. A number of significant estimates and assumptions are involved in the application of these techniques, including the forecasting of markets and market share, sales volumes and prices, costs and expenses, and multiple other factors. Management considers historical experience and all available information at the time the estimates are made; however, the fair value that is ultimately realized upon the divestiture of a business may differ from the estimated fair value reflected in the Consolidated Financial Statements. Depreciation, depletion, and amortization expense is not recorded on assets of a business to be divested once they are classified as held for sale. Businesses to be divested are classified in the Consolidated Financial Statements as either discontinued operations or held for sale.
For businesses classified as discontinued operations, the balance sheet amounts and results of operations are reclassified from their historical presentation to assets and liabilities of operations held for sale on the Consolidated Balance Sheet and to discontinued operations on the Consolidated Statement of Operations, respectively, for all periods presented. The gains or losses associated with these divested businesses are recorded in discontinued operations on the Consolidated Statement of Operations. The Consolidated Statement of Cash Flows is also reclassified for assets and liabilities of operations held for sale and discontinued operations for all periods presented.
Recent Accounting Pronouncements
The Company’s management has evaluated all recent accounting
pronouncements since the last audit through the issuance date of these financial statements. In the Company’s opinion, none of the recent accounting
pronouncements will have a material effect on the financial statements.
NOTE 3 – ACQUISITION OF GOLDFIELD INTERNATIONAL, INC.
On March 1, 2013, the Company acquired the outstanding stock of Goldfield International, Inc., a manufacture of gold mining equipment and parts located in Lindon, Utah. The acquisition was a stock purchase and therefore encompasses all of Goldfield’s business operations.
In exchange for Goldfield’s outstanding stock, the Company issued 2,000,000 shares of its common stock. The Company valued the acquisition at the fair value of the shares it issued amounting to $900,000.
In addition, the Company entered into separate agreement to acquire the personal goodwill of the seller for $100,000 (See Note 6).
We valued the assets acquired and liabilities assumed as follows:
|
Current assets (including cash)
|
|
$
|
226,809
|
|
|
Property and equipment
|
|
|
104,600
|
|
|
Intangibles and goodwill
|
|
|
875,667
|
|
|
Current liabilities, including
|
|
|
|
|
|
above indicating $100,000 debt
|
|
|
(
307,076
|
)
|
|
Total purchase price
|
|
$
|
900,000
|
|
The intangibles and goodwill of $875,667 was written off in 2013 due to impairment.
NOTE 4 – DISCONTINUED OPERATIONS
Effective December 6, 2013, the Company completed the terms of its settlement agreement with Santeo Financial Corporation and other third party creditors. Under the terms of the settlement agreement, the Company issued 30,000,000 shares of its common stock and transferred all of its oil and gas operations including the related assets and liabilities in exchange for the cancelation of $372,568 of debt.
In accordance with the provisions of ASC Topic 205-20,
Discontinued Operations,
the Company has reclassified its revenue and expenses of its oil and gas operations to “loss from discontinued operations” for the three months ended March 31, 2013.
NOTE 5 – PREPAID SERVICES
On February 4, 2013, the Company issued a total of 7,000,000 (post-split) shares of its common stock of to five individuals and five entities in exchange for consulting services, valued at $2,450,000. The $2,450,000 is being charged to operations over the three-year term of the respective agreement. Mr. Guy Peckham, the Company’s president, received 2,000,000 of the 7,000,000 shares issued. The 2,000,000 shares were valued at $700,000.
On October 30, 2012, the Company issued a total of 33,000,000 shares of its common stock of to five individuals and five entities in exchange for consulting services, valued at $429,000. The $429,000 is being charged to operations over the three-year term of the respective agreement. As indicated in Note 6, Mr. Guy Peckham, the Company’s president, received 11,500,000 of the 33,000,000 shares issued. The 11,500,000 shares were valued at $149,500.
Consulting fees charged to operations during the three months ended March 31, 2014 and 2013 relating to these two transactions amounted to $239,917 and $158,809, respectively. The unamortized balance at March 31, 2014 totaled $1,736,578. Amortization expense over the remaining terms of the respective consulting agreement is as follows:
|
March 31,
|
|
|
|
|
2015
|
|
$
|
959,667
|
|
|
2016
|
|
|
776,911
|
|
|
|
|
$
|
1,736,578
|
|
NOTE 6 – RELATED PARTY TRANSACTIONS
The Company’s manufacturing facilities are being leased from the former sole shareholder of Goldfield on a month-to-month basis at $8,000 per month. The Company did not pay rent for the two months ended March 2014 and the Company had an outstanding balance of $16,000 due on this obligation.
On February 4, 2013, the Company issued Mr. Guy Peckham, the Company’s current president 2,000,000 shares of its common stock for services. The 2,000,000 shares were valued at $700,000, which is being charged to operations over the three year term of the underlying agreement.
As of March 31, 2014, certain shareholders have advanced the Company a total of $19,845 that is payable on demand and is non-interest bearing.
In connection with the acquisition of Goldfield, the Company entered into a consulting agreement with the former shareholder of Goldfield, whereby commencing May 1, 2013, the Company agreed to pay him a consulting fee of $5,000 per month over the 30 month term of the agreement. As of March 31, 2014, the Company had an outstanding balance of $8,000.
As discussed in Note 3, the Company entered into an agreement to acquire the personal goodwill of the former shareholder of Goldfield for $100,000 payable in three installments of $33,000 due April 1, 2013, $33,000 due May 1, 2013 and $34,000 due June 1, 2013. Interest accrues on any payment that is not paid within 10 days of its respective due date. The Company has not made any payments toward this obligation and has accrued of interest that was charged to operations for the three months ended March 31, 2014 amounting to $1,973. The outstanding balance including accrued interest at March 31, 2014 totaled $107,307.
In addition, the former shareholder of Goldfield has also advanced the Company $80.000, which is unsecured, non-interest bearing and due on demand.
NOTE 7 – NOTES PAYABLE
On December 17, 2013, the Company borrowed $10,000 from an unrelated third party. The loan is assessed interest at an annual rate of 15% and matures on March 1, 2014, when the principal and accrued interest becomes fully due. Interest accrued and charged to interest expense for the three months ended March 31, 2014 amounted to $370. The balance of the note at March 31, 2014, including accrued interest amounted to $10,427.
On December 31 2013, the Company borrowed $40,000 from an unrelated third party. The loan is secured by the Company’s accounts receivable. The terms of the loan includes a loan fee of $400, which is being amortized and charged to operations over the term of the loan. Under the terms of the loan, the Company is required to pay back a total of $57,600 at a rate of $$444 per day (excluding weekends and bank holidays). The effective interest rate on this loan is in excess of 32% per annum. Interest accrued and charged to operations for three months ended March 31, 2014 amounted to $8,817. During the three month period, the Company made principal payments totaling $26,723. The balance of the note at March 31, 2014, including accrued interest and fees, net of the discounts amounted to $11,171.
On February 14 2014, the Company borrowed an additional $75,088 from same unrelated third party indicated above. The loan is secured by the Company’s accounts receivable. The Company is required to pay back a total of $111,750 at a rate of $$860 per day (excluding weekends and bank holidays). The effective interest rate on this loan is in excess of 50% per annum. Interest accrued and charged to interest expense for three months ended March 31, 2014 amounted to $11,960. During the three month period, the Company made principal payments totaling $10,400. The balance of the note at March 31, 2104, including accrued interest amounted to $64,688.
NOTE 8 – CONVERTIBLE DEBT
|
|
a.
|
The Company entered into an agreement with an unrelated third party to borrow up to a maximum of $315,000. On February 20, 2014, the Company received a $30,000 advance. In consideration for the funds borrowed, the Company is assessed a loan fee equal to 10% of the funds advanced and a closing and due diligence fee equal to 8% of the amount advanced. The outstanding balance including principal, accrued interest, and fees are convertible in the Company’s common shares at a conversion price equal to the lessor of a) $0.05 per share; or b) 60% of the lowest trade price in the 25 trading days prior to conversion. There is no interest charged for the first ninety days; however, if the amounts due under this obligation is not fully paid with the ninety days, the total amount outstanding including accrued interest and fees will be assessed a one-time interest charge of 12%.
The Company accounted for the financing under ASC Topic 470-20 “Debt with Conversion and Other Options.” The proceeds of the financing are required to be bifurcated based upon the fair value of the convertible note using a relative fair value approach based upon the total amount of the $35,400 debt ($30,000 advances plus fees totaling $5,400). As the outstanding balance of the note is convertible into a number of variable common shares, the conversion feature accounted for under ASC Topic 815-15 “Embedded Derivative.” The derivative component of the obligation was initially valued at $30,000 (the fair value cannot initially exceed the amount of the advance) and classified as a derivative liability with an offset to discounts on convertible debt. Discounts along with loan fees are being amortized to interest expense over the respective one-year term of the advance. In determining the indicated values, the Company used the Black Scholes Option Model with a risk-free interest rate of 0.12%, volatility of 304%, a trading price of $0.007, and a conversion price of $0.0063 per share.
Amortization of the discounts for the three months ended March 31, 2014 totaled $7,281, which was charged to interest expense. The balance of the convertible note at March 31, 2104, including fees, net of the discounts amounted to $7,281.
|
|
|
b.
|
On March 17, 2014, the Company borrowed $37,500 through the issuance of a convertible note to an unrelated third party. Under the terms of the note, the loan is assessed interest at a rate of 8% per annum and matures on March 14, 2015, when principal and accrued interest becomes fully due and payable. The terms of the loan includes a loan fee of $2,000, which is being amortized and charged to operations over the term of the loan. The terms of the note does not permit any prepayments. Commencing on September 10, 2014, the note holder has the right to convert the outstanding balance including principal and accrued interest into the Company’s common shares at a conversion price equal to 50% of the lowest market price for the 10 day trading period prior to the date that is one day prior to date that the conversion notice is sent to the Company. The Company plans to account for the conversion feature on effective date of the conversion right under ASC Topic 815-15 “Embedded Derivative.”
Accrued interest and amortization of the loan fee charged to operations for the three months ended March 31, 2014 totaled $239. The balance of the convertible note at March 31, 2014, including fees, net of discounts amounted to $37,740.
|
|
|
c.
|
Throughout 2013, the Company raised a total $505.000 through the issuance of convertible debt. As the outstanding balance of these notes are convertible into a number of variable common shares, the conversion features were accounted for under ASC Topic 815-15 “Embedded Derivative. During the three months ended March 31, 2014, the Company issued 53,937,378 of its common shares to various noteholders on the conversion of $195,033 of indebtedness. The Company recognized a $210,128 loss on the debt extinguishment.
Accrued interest on these notes that was charged to operations for the three months ended March 31, 2014 totaled $26,732. Amortization of the discounts for the three months ended March 31, 2014 totaled $221,402, which was charged to interest expense. The balance of the convertible notes at March 31, 2014 including accrued interest and net of the discount amounted to $261,019.
|
A recap of the balance of outstanding convertible debt at March 31, 2014 is as follows:
|
Principal balance
|
|
$
|
425,519
|
|
|
Accrued interest
|
|
|
33,974
|
|
|
Less discounts and
|
|
|
|
|
|
Fees, net of accumulated
|
|
|
|
|
|
amortization
|
|
|
(
153,455
|
)
|
|
|
|
$
|
306,038
|
|
|
Balance maturing for the period ending:
|
|
|
|
|
|
March 31, 2015
|
|
$
|
306,038
|
|
The Company valued the derivative liabilities at Mach 31, 2014 at $239,537 and recognized a change in the fair value of derivative liabilities for the three months ended March 31, 2014 of $338,731 which was credited to operations. In determining the indicated values at March 31, 2014, the Company used the Black Scholes Option Model with risk-free interest rates ranging from 0.03% to 0.13%, volatility ranging from 159.12% to 541.02%, a trading price of $.0034, and conversion prices ranging from $0.0018 to $0.0064 per share.
NOTE 9 – INCOME TAXES
Deferred income tax assets and liabilities are computed for differences between financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and 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. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.
The Company’s net operating loss for income tax reporting purposes was significantly impacted by the change in control which occurred on October 30, 2012. The Company has a net operating loss carryover at March 31, 2014 of approximately $1,416,000 that is available to offset future income for income tax reporting purposes, which will expire in various years through 2034, if not previously utilized.
The Company adopted the provisions of ASC 740-10-50, formerly FIN 48, “Accounting for Uncertainty in Income Taxes.” The Company had no material unrecognized income tax assets or liabilities for the three months ended March 31, 2014 and 2013.
The Company’s policy regarding income tax interest and penalties is to expense those items as general and administrative expense but to identify them for tax purposes. During the three months ended March 31, 2014 and 2013, there were no income taxes, or related interest and penalty items in the income statement, or liability on the balance sheet. The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company is no longer subject to U.S. federal or state income tax examination by tax authorities for years before 2009. The Company is not currently involved in any income tax examinations.
NOTE 10 – COMMON STOCK AND WARRANTS
As indicated in Note 1, the Company declared a 50-for-1 reverse stock split of its common stock on August 31, 2012. All references in the accompanying financials to the number of shares outstanding and per-share amounts have been restated to reflect this stock split.
For the three months ended March 31, 2014
As discussed in Note 8, during the three months period ended March 31, 2014, the Company issued 53,937,378 of its common shares to various note holders on the conversion of $195,033 of indebtedness. The Company recognized a $210,128 loss on the debt extinguishment.
During the three months ended March 31, 2014, the Company issued a total of 4,120,000 shares of its common stock in consideration for consulting and professional services valued at $56,384.
For the three months ended March 31, 2013
As discussed in Note 5, the Company issued on February 4, 2013 a total of 7,000,000 shares of its common stock of to five individuals and five entities in exchange for consulting services, valued at $2,450,000. The $2,450,000 is being charged to operations over the three-year term of the respective agreement. As indicated in Note 5, Mr. Guy Peckham, the Company’s president, received 2,000,000 of the 7,000,000 shares issued. The 2,000,000 shares were valued at $700,000.
As discussed more fully in Note 3, the Company on March 1, 2013 issued 2,000,000 shares of its common stock in exchange all of the outstanding shares of Goldfield International, Inc. The 2,000,000 shares were valued at $900,000.
NOTE 11 – FAIR VALUE
The Company’s financial instruments at March 31, 2014 consist principally of convertible debentures and derivative liabilities. Convertible debentures are financial liabilities with carrying values that approximate fair value. The Company determines the fair value of convertible debentures based on the effective yields of similar obligations.
The Company believes all other financial instruments’ recorded values at March 31, 2014 and December 31, 2013 approximate fair market value because of their nature and respective durations.
The Company complies with the provisions of ASC No. 820-10 (“ASC 820-10”), “Fair Value Measurements and Disclosures.” ASC 820-10 relates to financial assets and financial liabilities. ASC 820-10 defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (“GAAP”), and expands disclosures about fair value measurements. The provisions of this standard apply to other accounting pronouncements that require or permit fair value measurements and are to be applied prospectively with limited exceptions.
ASC 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820-10 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions, about market participant assumptions, which are developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC 820-10 are described below:
Level 1. Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access.
Level 2. Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.
Level 3. Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The Company utilizes the best available information in measuring fair value. The following table summarizes, by level within the fair value hierarchy, the financial assets and liabilities recorded at fair value on a recurring basis as follows:
|
March 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total Fair Value
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable
|
|
|
-
|
|
|
$
|
184,115
|
|
|
|
-
|
|
|
$
|
184,115
|
|
|
Debt and other obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
due related parties
|
|
|
-
|
|
|
$
|
241,928
|
|
|
|
-
|
|
|
$
|
241,928
|
|
|
Convertible debentures
|
|
|
-
|
|
|
$
|
425,519
|
|
|
|
-
|
|
|
$
|
425,519
|
|
|
Derivative liabilities
|
|
|
-
|
|
|
$
|
239,537
|
|
|
|
-
|
|
|
$
|
239,537
|
|
NOTE 12 – SUBSEQUENT EVENTS
For the period April 1, 2014 through July 3, 2014, the Company issued 153,349,885 shares of its common stock of which 144,349,885 was issued through the conversion and cancellation of $150,391 of convertible notes, 7,000,000 common shares were issued thorugh the cancellation of $5,000 of other debt, and 2,000,000 common shares were issued to three individuals in exchange for consulting services valued at $6,000. Of the 2,000,000 shares issued, 1,000,000 shares was issue to Mr. Lloyd McEwan, the former shareholder of Goldfield.