NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1.
|
Nature of Business and Significant Accounting Policies
|
Nature of business and principles of consolidation:
On June 3, 2014 the Company amended its Articles of Incorporation changing its name from Tara Minerals Corp. to Firma Holdings Corp.
The accompanying Condensed Consolidated Financial Statements of Firma Holdings Corp. (the “Company”) should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. Significant accounting policies disclosed therein have not changed, except as noted below.
Firma Holdings has two business segments: mining and agriculture.
The Company’s mining segment consists of American Metal Mining and Adit Resources. The Company owns 99.9% of the common stock of American Metal Mining S.A. de C.V. (“AMM”), a Mexican corporation, and owns 87% of the common stock of Adit Resources Corp. (“Adit”). Adit in turns owns 99.99% of American Copper Mining, S.A. de C.V. (“ACM”), a Mexican corporation. All of Firma Holdings’ operations in Mexico are conducted through AMM and ACM since Mexican law provides that only Mexican corporations are allowed to own mining properties. AMM’s primary focus is on industrial minerals, e.g. gold, copper, zinc. Adit, through ACM, focuses on gold mining concessions.
The Company’s agricultural segment consists of its wholly owned subsidiary Firma IP Corp., a Nevada corporation which was established in May 2014.
In these financial statements, references to "Company," "we," "our," and/or "us," refer to Firma Holdings Corp. and, unless the context indicates otherwise, its consolidated subsidiaries.
Firma Holdings is a subsidiary of Tara Gold Resources Corp. (“Tara Gold” or “the Company’s Parent”).
The accompanying condensed consolidated financial statements and the related footnote information are unaudited. In the opinion of management, they include all normal recurring adjustments necessary for a fair presentation of the condensed consolidated balance sheets of the Company as of June 30, 2014 and December 31, 2013, the condensed consolidated results of its operations for the three and six months ended June 30, 2014 and 2013 and the condensed consolidated statements of cash flows for the six months ended June 30, 2014 and 2013. Results of operations reported for interim periods are not necessarily indicative of results for the entire year.
The condensed consolidated financial statements include the financial statements of the Company and its subsidiaries. All amounts are in U.S. dollars unless otherwise indicated. All significant inter-company balances and transactions have been eliminated in consolidation.
The reporting currency of the Company, Firma IP Corp., and Adit is the U.S. dollar. The functional currency of AMM and ACM is the Mexican Peso. As a result, the financial statements of these subsidiaries have been re-measured from Mexican pesos into U.S. dollars using (i) current exchange rates for monetary asset and liability accounts, (ii) historical exchange rates for non-monetary asset and liability accounts, (iii) historical exchange rates for revenues and expenses associated with non-monetary assets and liabilities, and (iv) the weighted average exchange rate of the reporting period for all other revenues and expenses. In addition, foreign currency transaction gains and losses resulting from U.S. dollar denominated transactions are eliminated. The resulting re-measurement gain (loss) is recorded to other comprehensive gain (loss).
Current and historical exchange rates are not indicative of what future exchange rates will be and should not be construed as such.
Relevant exchange rates used in the preparation of the financial statements for AMM and ACM are as follows for the six months ended June 30, 2014 and 2013. Mexican pesos per one U.S. dollar:
|
June 30, 2014
(Unaudited)
|
Current exchange rate
|
Ps.
|
13.0002
|
Weighted average exchange rate for the six months ended
|
Ps.
|
13.1171
|
|
June 30, 2013
|
Current exchange rate
|
Ps.
|
13.0235
|
Weighted average exchange rate for the six months ended
|
Ps.
|
12.5565
|
The Company’s significant accounting policies are:
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 amounts of revenues and expenses during the reporting period.
Management routinely makes judgments on historical experience and various other factors that are believed to be reasonable under the circumstances.
Actual results could differ from those estimates.
Recoverable Value-Added Taxes (IVA) and Allowance for Doubtful Accounts
Impuesto al Valor Agregado
taxes (IVA) are recoverable value-added taxes charged by the Mexican government on goods sold and services rendered at a rate of 16%. Under certain circumstances, these taxes are recoverable by filing a tax return and as determined by the Mexican taxing authority. Our allowance in association with our receivable from IVA from our Mexico subsidiary is based on our determination that the Mexican government may not allow the complete refund of these taxes.
Each period, receivables are reviewed for collectability. When a receivable has doubtful collectability we allow for the receivable until we are either assured of collection (and reverse the allowance) or assured that a write-off is necessary.
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
|
|
(Unaudited)
|
|
|
|
|
Allowance – recoverable value-added taxes
|
|
$
|
1,646,821
|
|
|
$
|
1,597,407
|
|
Allowance – other receivables
|
|
|
350,987
|
|
|
|
348,433
|
|
Total
|
|
$
|
1,997,808
|
|
|
$
|
1,945,840
|
|
Bad debt expense was $51,968 and $39,432 during the six month period ending June 30, 2014 and 2013, respectively.
AMM received refunds of $40,489 for IVA taxes during January and February 2014.
Reclamation and remediation costs (asset retirement obligations)
Reclamation costs are allocated to expense over the life of the related assets and are periodically adjusted to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation and abandonment costs.
Future remediation costs for reprocessing plant and buildings are accrued based on management’s best estimate, at the end of each period, of the undiscounted costs expected to be incurred at a site. Such cost estimates include, where applicable, ongoing remediation, maintenance and monitoring costs. Changes in estimates are reflected in earnings in the period an estimate is revised. There were no reclamation and remediation costs incurred or accrued as of June 30, 2014 and 2013.
Income taxes
Income taxes are provided for using the asset and liability method of accounting in accordance with the Income Taxes Topic of the
Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”)
. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis 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. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized by management. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The computation of limitations relating to the amount of such tax assets, and the determination of appropriate valuation allowances relating to the realization of such assets, are inherently complex and require the exercise of judgment. As additional information becomes available, management continually assesses the carrying value of our net deferred tax assets.
Fair Value Accounting
As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The three levels of the fair value hierarchy are described below:
|
Level 1
|
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
|
|
Level 2
|
Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;
|
|
Level 3
|
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
|
Recently Adopted and Recently Issued Accounting Guidance
Issued
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers," which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company on January 1, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.
Adopted
In June 2014, FASB issued Accounting Standards Update (“ASU”) No. 2014-10, “Development Stage Entities (Topic 915), Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, "Consolidation” (“ASU 2014-10”). The amendments in ASU 2014-10 remove the definition of a development stage entity from the Master Glossary of the Accounting Standards Codification, thereby removing the financial reporting distinction between development stage entities and other reporting entities from accounting principles generally accepted in the United States of America (“U.S. GAAP”). In addition, the amendments eliminate the requirements for development stage entities to: (i) present inception-to-date information in the statements of income, cash flows, and shareholder equity; (ii) label the financial statements as those of a development stage entity; (iii) disclose a description of the development stage activities in which the entity is engaged; and (iv) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. The presentation and disclosure requirements in ASC Topic 915, "Development Stage Entities" are no longer required for interim and annual reporting periods beginning after December 15, 2014. The revised consolidation standards will take effect in annual periods beginning after December 15, 2015, however, early adoption is permitted. The Company has elected to early adopt the provisions of ASU 2014-10 for these unaudited condensed consolidated financial statements.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the SEC, did not, or are not believed by management to, have a material impact on the Company's present or future financial position, results of operations or cash flows.
Note 2.
|
Property, Plant, Equipment, Mine Development and Land, Net
|
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
|
|
(Unaudited)
|
|
|
|
|
Land
|
|
$
|
19,590
|
|
|
$
|
19,590
|
|
|
|
|
|
|
|
|
|
|
Mining concessions:
|
|
|
|
|
|
|
|
|
Pilar (a)
|
|
|
710,172
|
|
|
|
710,172
|
|
Don Roman (See Note 5)
|
|
|
521,739
|
|
|
|
521,739
|
|
Las Nuvias
|
|
|
100,000
|
|
|
|
100,000
|
|
Centenario
|
|
|
635,571
|
|
|
|
635,571
|
|
La Palma
|
|
|
80,000
|
|
|
|
80,000
|
|
La Verde
|
|
|
60,000
|
|
|
|
60,000
|
|
Dixie Mining District
|
|
|
650,000
|
|
|
|
650,000
|
|
Picacho Groupings
|
|
|
1,571,093
|
|
|
|
1,571,093
|
|
Mining concessions
|
|
|
4,328,575
|
|
|
|
4,328,575
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
3,883,793
|
|
|
|
4,142,245
|
|
|
|
|
8,231,958
|
|
|
|
8,490,410
|
|
Less – accumulated depreciation
|
|
|
(1,238,606
|
)
|
|
|
(1,145,991
|
)
|
|
|
$
|
6,993,352
|
|
|
$
|
7,344,419
|
|
Pilar, Don Roman, Las Nuvias, Centenario, La Palma and La Verde properties are located in Mexico and are known as the Don Roman Groupings.
The Picacho and Picacho Fractions are located in Mexico and are known as the Picacho Groupings.
|
a.
|
In January 2007, the Company acquired the Pilar de Mocoribo Prospect (“Pilar”) from Tara Gold for $739,130 plus $115,737 of value-added tax (as amended). The Company owes $535,659 for this mining concession (including the applicable value-added tax).
|
In accordance with the Interest Topic of FASB ASC, the future payments of the total payment amount of $739,130 have been discounted using the incremental borrowing rate of 5.01%. As of June 30, 2014, the present value of future payments is as follows:
|
|
Debt
|
|
|
IVA
|
|
|
Total
|
|
Total remaining debt
|
|
$
|
486,739
|
|
|
$
|
77,878
|
|
|
$
|
564,617
|
|
Imputed interest
|
|
|
(28,958
|
)
|
|
|
-
|
|
|
|
(28,958
|
)
|
Present value of debt
|
|
$
|
457,781
|
|
|
$
|
77,878
|
|
|
$
|
535,659
|
|
Note 3.
|
Intellectual Property Purchase Agreement
|
On May 28, 2014 the Company entered into an agreement with FreshTec, Inc. which provides for the Company to acquire technology which can be used for the preservation and protection of fresh fruit, vegetables and flowers during extended periods of shipping and storage. The technology is comprised of patents, trademarks and other intellectual property pertaining to systems and methods for packaging bulk quantities of fresh produce and flowers incorporating modified atmosphere packaging.
The technology, currently named SmartPac, will be made available to growers, packers and end-users for the packing, storage and shipment of bulk quantities of produce.
The purchase price for the SmartPac technology is allocated among the following territories:
|
·
|
United States, Mexico and Canada
|
In addition to the terms described below to acquire the territories, the agreement provided a stock option to FreshTec, Inc. for 1,000,000 shares of the Company’s common stock, which vest immediately and have a term of 1 year.
The value of the intellectual property purchased follows the guidance as prescribed by both the Intangibles and Business Combinations Topics of the FASB ASC which focuses on capturing the transactional costs of an asset acquisition. As such we have valued the intellectual property based on the hard costs and stock option value of the contract plus legal fees directly related to the purchase. Excluded from the valuation are items that are solely dependent on selling units of the SmartPac product. Such payments are only payable should a unit be sold.
|
A.
|
To acquire the rights for the United States, Mexico and Canada, the Company has paid or must pay FreshTec:
|
|
(ii)
|
$0.25 for each SmartPac unit sold in the United States or Mexico by the Company plus 50% of the Net Royalties received by the Company from licensing the rights to use the technology in the United States, Mexico and Canada until such time as FreshTec is paid $14,500,000,
|
|
(iii)
|
during the six month period following the closing of the transaction, and until the Company has paid FreshTec $1,000,000, 25% of the Net Royalties received by the Company from any licensee having the right to sell SmartPac units in the United States, Mexico or Canada, and
|
|
(iv)
|
after the royalties paid to FreshTec equal $14,500,000, $0.15 for each SmartPac unit sold by the Company in the United States, Mexico or Canada plus 25% of the Net Royalties received by the Company from licensing the rights to use the technology in the United States, Mexico and Canada.
|
On prior to the end of the fifteen-year period commencing on the closing date of the transaction, if the Company has not paid FreshTec royalties of $14,500,000, the Company may, at its option, either pay to FreshTec the difference between $14,500,000 and the royalties paid to FreshTec, or re-convey to FreshTec the rights for the United States, Mexico and Canada.
|
B.
|
To acquire the rights to countries in the European Union the Company must pay to FreshTec:
|
|
(i)
|
no later than six months after the closing of the transaction, $1,000,000, less any amounts paid pursuant to A. (iii) above and B. (ii) and (iii) below, or re-convey to FreshTec the rights for the European Union,
|
|
(ii)
|
$0.25 for each SmartPac unit sold in the European Union by the Company plus 50% of the Net Royalties received by the Company from licensing the rights to use the technology in the European Union until such time as FreshTec is paid $14,000,000, and
|
|
(iii)
|
after the royalties paid to FreshTec equal $14,000,000, $0.15 for each SmartPac unit sold by the Company in the European Union plus 25% of the Net Royalties received by the Company from licensing the rights to use the technology in the European Union.
|
If the Company exercises its right to re-convey the technology pursuant to B. (i) above, FreshTec is required to pay to the Company any amounts spent by the Company on maintaining or pursuing any patents pertaining to the countries in the European Union and refund to the Company any amounts paid to FreshTec pursuant to A (iii).
|
C.
|
To acquire the rights to all other countries the Company must pay FreshTec:
|
|
(i)
|
no later than eighteen months after the closing of the transaction, $1,000,000, less any amounts paid pursuant to C. (ii) and (iii) below, or re-convey to FreshTec the rights for the other countries,
|
|
(ii)
|
$0.25 for each SmartPac unit sold in the other countries by the Company plus 50% of the Net Royalties received by the Company from licensing the rights to use the technology in the other countries until such time as FreshTec is paid $9,000,000, and
|
|
(iii)
|
after the royalties paid to FreshTec equal $9,000,000, $0.15 for each SmartPac unit sold by the Company in the other countries plus 25% of the Net Royalties received by the Company from licensing the rights to use the technology in the other countries.
|
If the Company exercises its right to re-convey the technology pursuant to C. (i) above, FreshTec is required to pay to the Company any amounts spent by the Company on maintaining or pursuing any patents pertaining to the other countries.
When the last patent pertaining to the SmartPac technology expires, the royalty payable to FreshTec will be reduced to $0.075 for each SmartPac unit sold and the Company will no longer be obligated to pay FreshTec any Net Royalties.
For purpose of the agreement:
The term “Net Royalties” means amounts collected from licensing the SmartPac technology to third parties, less (i) costs and expenses incurred in connection with the licensing transaction; (ii) amounts refunded to a licensee; (iii) sale and other excise taxes, use taxes, tariffs, export license fees and duties; and (iv) commissions paid in connection with the licensing transaction. Net Royalties do not include any amount received for sales of SmartPac units by any licensee.
Note 4.
|
Notes Payable and Convertible Notes Payable, Net
|
The following table represents the outstanding balance of notes payable and convertible notes payable.
|
|
June 30, 2014
|
|
|
|
December 31, 2013
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Auto loans
|
$
|
44,058
|
|
|
$
|
66,619
|
|
Notes payable
|
|
70,000
|
|
|
|
-
|
|
Convertible notes payable, net
|
|
251,569
|
|
|
|
75,652
|
|
FreshTec required payments (See Note 2)
|
|
2,000,000
|
|
|
|
-
|
|
|
|
2,365,627
|
|
|
|
142,271
|
|
Less – current portion
|
|
(1,095,505
|
)
|
|
|
(38,614
|
)
|
Less – current portion convertible notes payable, net
|
|
(251,569
|
)
|
|
|
(75,652)
|
|
Total – non-current portion
|
$
|
1,018,553
|
|
|
$
|
28,005
|
|
During the six months ended June 30, 2014 the Company converted balances with two vendors to notes payable in the amount of $80,000 and recognized a gain on debt extinguishment in the amount of $5,000. The balance as of June 30, 2014 is $70,000 and is still outstanding.
During the year ended December 31, 2013 the Company raised $150,000 through the sale of a convertible note. The note payable was due in February 2014, extended to July 2014 and again extended until July 2015; bears interest of 16% per year and can be converted to the Company’s stock at $0.10 per share. The beneficial conversion feature of the note payable was determined to be $120,000 of which $120,000 was amortized as of June 30, 2014.
Interest expense related to the convertible note was $14,000 as of
June 30, 2014
.
During the six months ended June 30, 2014 the Company raised $60,000 through the sale of a convertible note. The note payable due in May extended to July 2014 and again extended until July 2015; can be converted to the Company’s stock at $0.10 per share. The beneficial conversion feature of the note payable was determined to be $60,000 of which $60,000 was amortized as of June 30, 2014.
Interest expense related to the convertible note was $5,000 as of
June 30, 2014
.
During the six months ended June 30, 2014 the Company raised $50,000 through the sale of a convertible note. The note payable is due in July 2014 but extended to July 2015 and can be converted to the Company’s stock at $0.10 per share. The beneficial conversion feature of the note payable was determined to be $34,850 of which $26,419 was amortized as of June 30, 2014.
Interest expense related to the convertible note was $3,000 as of
June 30, 2014
.
The five year maturity schedule for notes payable and convertible notes payable, net is presented below for the year’s ending June 30, (unaudited):
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto loans
|
|
$
|
25,505
|
|
|
$
|
5,781
|
|
|
$
|
6,005
|
|
|
$
|
6,237
|
|
|
$
|
530
|
|
|
$
|
44,058
|
|
Note payables
|
|
|
70,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
70,000
|
|
Convertible note payable, net
|
|
|
251,569
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
251,569
|
|
FreshTec required payments (See
Note 3)
|
|
|
1,000,000
|
|
|
|
-
|
|
|
|
1,000,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,000,000
|
|
Total
|
|
$
|
1,347,074
|
|
|
$
|
5,781
|
|
|
$
|
1,006,005
|
|
|
$
|
6,237
|
|
|
$
|
530
|
|
|
$
|
2,365,627
|
|
Note 5.
|
Related Party Transactions
|
|
June 30, 2014
|
|
December 31, 2013
|
|
|
(Unaudited)
|
|
|
|
Due from related parties
|
|
$
|
116,417
|
|
|
$
|
221,592
|
|
Due to related parties
|
|
|
(1,520,852
|
)
|
|
|
(1,739,207
|
)
|
|
|
$
|
(1,404,435
|
)
|
|
$
|
(1,517,615
|
)
|
All transactions with related parties have occurred in the normal course of operations. Mexico based related party transactions are measured at the appropriate foreign exchange amount.
In January 2007, Corporacion Amermin S.A. de C.V. (“Amermin”), a subsidiary of Tara Gold, made the arrangements to purchase Pilar, Don Roman and Las Nuvias properties listed in Note 3 (part of the Don Roman Groupings) and sold the concessions to AMM. At June 30, 2014, Amermin has paid the original note holder in full and AMM owes Amermin $535,659 for the Pilar mining concession and $211,826 for the Don Roman mining concession.
As of June 30, 2014, Tara Gold had loaned AMM $1,031,961 at 0% interest, due on demand.
As of June 30, 2014, Tara Gold owed the Company a total of $258,595 at 0% interest, due on demand.
The following are intercompany transactions that eliminate during the consolidation of these financial statements:
During 2012, the Company issued Adit six promissory notes for $4,286,663. During 2013, the Company issued Adit one promissory note for $610,000. These notes are unsecured, bear interest at U.S. prime rate plus 3.25% per year and are due and payable between August 2014 and June 2015. As of
June 30, 2014,
s owed Adit $5,492,462 in interest and principal.
Note 6.
|
Stockholders’ Equity
|
During the year ended December 31, 2013, the Company received mine safety services and trainings valued at $47,466 paid with 213,047 shares of the Company’s common stock valued at $0.22 per share. These shares were issued in June 2014.
In May 2014, the Company sold 5,000,000 units in a private offering for $750,000 in cash, or $0.15 per unit. Each unit consisted of one share of the Company’s common stock and one warrant. Two warrants entitle the holder to purchase one share of common stock at a price of $0.35 per share at any time on or before May 1, 2016.
In May 2014, the Company sold 1,817,005 shares in a private offering for $545,103 in cash, or $0.30 per unit.
Firma Holdings has the following incentive plans which are registered under a Form S-8:
·
Incentive Stock Option Plan
·
Nonqualified Stock Option Plan
·
Stock Bonus Plan
There have been no issuances under the Company’s plans in 2014.
On October 28, 2009, Adit adopted the following incentive plans which have not been registered:
·
Incentive Stock Option Plan
·
Nonqualified Stock Option Plan
·
Stock Bonus Plan
There have been no issuances under the Adit plans in 2014.
On May 28, 2014 the Company entered into an agreement with FreshTec, Inc. which provides for the Company to acquire technology which can be used for the preservation and protection of fresh fruit, vegetables and flowers during extended periods of shipping and storage. As part of the terms of the agreement the Company provided stock options to FreshTec, Inc. for 1,000,000 shares of the Company’s common stock at an exercise price of $0.30 per share, which vest immediate and have a term of 1 year. The stock options were valued at $186,640 using the Black-Scholes option pricing model. The options were valued using the following significant assumptions: a risk free interest rate of 0.11%, expected life of 0.50 years, stock price volatility of 279.94%, and expected dividend yield of zero.
The fair value of each award discussed above is estimated on the date of grant using the Black-Scholes valuation model that uses the assumptions noted in the following table. Expected volatilities are based on volatilities from the Company’s traded common stock. The expected term of the award granted is usually estimated at half of the contractual term as noted in the individual agreements, unless the life is one year or less based upon management’s assessment of known factors, and represents the period of time that management anticipates awards granted to be outstanding. The risk-free rate for the periods within the contractual life of the option is based on the U.S. Treasury bond rate in effect at the time of the grant for bonds with maturity dates at the estimated term of the options.
Historically the Company has had no forfeitures of options or warrants; therefore, the Company uses a zero forfeiture rate.
|
|
June 30, 2014
|
|
December 31, 2013
|
|
Expected volatility
|
|
279.94%
|
|
218.84%
|
|
Weighted-average volatility
|
|
279.94%
|
|
218.84%
|
|
Expected dividends
|
|
0
|
|
0
|
|
Expected term (in years)
|
|
0.50
|
|
2.00
|
|
Risk-free rate
|
|
0.06%
|
|
0.22%
|
|
A summary of option activity under the plans as of June 30, 2014 and changes during the period then ended is presented below:
Vested Options
|
|
Shares Issuable
Upon Exercise of
Options
|
|
|
Weighted-Average
Exercise Price
|
|
|
Weighted-Average
Remaining
Contractual Term
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at December 31, 2013
|
|
|
2,750,000
|
|
|
$
|
0.24
|
|
|
|
|
|
|
|
Granted
|
|
|
1,000,000
|
|
|
|
0.30
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
Forfeited, expired or cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
Outstanding at June 30, 2014
|
|
|
3,750,000
|
|
|
$
|
0.25
|
|
|
|
1.5
|
|
|
$
|
238,000
|
|
Exercisable at June 30, 2014
|
|
|
3,590,000
|
|
|
$
|
0.23
|
|
|
|
1.5
|
|
|
$
|
238,000
|
|
Non-vested Options
|
|
Options
|
|
|
Weighted-Average
Grant-Date Fair Value
|
|
Non-vested at December 31, 2013
|
|
|
410,000
|
|
|
$
|
0.48
|
|
Granted
|
|
|
1,000,000
|
|
|
|
0.30
|
|
Vested
|
|
|
(1,250,000
|
)
|
|
|
(0.13
|
)
|
Forfeited, expired or cancelled
|
|
|
-
|
|
|
|
-
|
|
Non-vested at June 30, 2014
|
|
|
160,000
|
|
|
$
|
0.21
|
|
A summary of warrant activity as of June 30, 2014 (unaudited) and changes during the period then ended is presented below:
Warrants
|
|
|
Shares
|
|
|
|
Weighted-Average
Exercise Price
|
|
|
Weighted-Average Remaining
Contractual Term
|
|
|
Aggregate
Intrinsic Value
|
|
Outstanding at December 31, 2013
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
Granted
|
|
|
5,000,000
|
|
|
|
0.35
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
Forfeited, cancelled or expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
Outstanding at June 30, 2014
|
|
|
5,000,000
|
|
|
$
|
0.35
|
|
|
|
2.0
|
|
|
$
|
-
|
|
Exercisable at June 30, 2014
|
|
|
5,000,000
|
|
|
$
|
0.35
|
|
|
|
2.0
|
|
|
$
|
-
|
|
All warrants vest upon issuance.
Note 8.
|
Non-controlling Interest
|
All non-controlling interest of the Company is a result of the Company’s subsidiaries stock movement and results of operations. Cumulative results of these activities results in:
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
|
|
(Unaudited)
|
|
|
|
|
Common stock for cash
|
|
$
|
1,999,501
|
|
|
$
|
1,999,501
|
|
Common stock for services
|
|
|
95,215
|
|
|
|
95,215
|
|
Exploration expenses paid for in subsidiary common stock
|
|
|
240,000
|
|
|
|
240,000
|
|
Stock based compensation
|
|
|
1,374,880
|
|
|
|
1,374,880
|
|
Cumulative net loss attributable to non-controlling interest
|
|
|
(20,717
|
)
|
|
|
(15,815
|
)
|
Treasury stock
|
|
|
(500,000
|
)
|
|
|
(500,000
|
)
|
Other
|
|
|
6
|
|
|
|
6
|
|
Total non-controlling interest
|
|
$
|
3,188,885
|
|
|
$
|
3,193,787
|
|
A summary of activity as of June 30, 2014 (unaudited) and changes during the period then ended is presented below:
Non-controlling interest at December 31, 2013
|
|
$
|
3,193,787
|
|
Net income attributable to non-controlling interest
|
|
|
(4,902
|
)
|
Non-controlling interest at June 30, 2014
|
|
$
|
3,188,885
|
|
In accordance with authoritative guidance, the table below sets forth the Company's financial assets and liabilities measured at fair value by level within the fair value hierarchy. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
|
|
Fair Value at June 30, 2014
(Unaudited)
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Intellectual property
|
|
$
|
2,734,040
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,734,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial conversion feature of note (See Note 4)
|
|
$
|
8,431
|
|
|
$
|
8,431
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
Fair Value at December 31, 2013
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair market value of ACM’s net identifiable assets acquired
|
|
$
|
1,589,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,589,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial conversion feature of note (See Note 4)
|
|
$
|
74,348
|
|
|
$
|
74,348
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Note 10.
|
Segment Reporting
|
The Company’s operating segments are strategic business units that offer different products and services. For the six months ended June 30, 2014, operating segments of the Company are agriculture and mining. The agriculture segment consists of the Company’s intellectual property related to the “SmartPac” product and the mining segment consists of gold and industrial metal mining concessions in Mexico and the United States. The agriculture segment became a reportable entity as of June 30, 2014 and was not in existence as of June 30, 2013.
June 30, 2014 (unaudited)
|
|
Agriculture
|
|
|
Mining
|
|
Gross profit from external customers
|
|
$
|
-
|
|
|
$
|
105,316
|
|
Exploration expenses
|
|
|
-
|
|
|
|
(475,861
|
)
|
Operating, general, and administrative expenses
|
|
|
(16,331
|
)
|
|
|
(363,252
|
)
|
Compensation expense
|
|
|
-
|
|
|
|
(99,945
|
)
|
Professional fees
|
|
|
(16,331
|
)
|
|
|
(84,361
|
)
|
Depreciation and amortization
|
|
|
-
|
|
|
|
(146,835
|
)
|
Segment operating income (loss) before taxes and discontinued
operations
|
|
$
|
(32,662
|
)
|
|
$
|
(1,064,938
|
)
|
Revenues
|
|
June 30, 2014
(unaudited)
|
|
Total revenues from reportable segments
|
|
$
|
105,316
|
|
Total other revenues
|
|
|
-
|
|
Total corporate revenues
|
|
|
-
|
|
Elimination of intercompany corporate revenues
|
|
|
-
|
|
Total consolidated revenues
|
|
$
|
105,316
|
|
|
|
|
|
|
Profit or Loss
|
|
|
|
|
Total loss from reportable segments
|
|
$
|
(1,097,601
|
)
|
Other loss
|
|
|
(17,689
|
)
|
Elimination of intercompany expense
|
|
|
-
|
|
Unallocated amounts:
|
|
|
|
|
Elimination of intercompany corporate revenues
|
|
|
-
|
|
Corporate expenses
|
|
|
(641,132
|
)
|
Loss on discontinued operations
|
|
|
-
|
|
Non-controlling interest
|
|
|
4,902
|
|
Net loss before taxes
|
|
$
|
(1,751,520
|
)
|
|
|
|
|
|
Assets
|
|
|
|
|
Total assets for agriculture segment
|
|
$
|
2,734,040
|
|
Total assets for mining segment
|
|
|
7,248,228
|
|
Corporate assets
|
|
|
137,962
|
|
Other unallocated amounts
|
|
|
-
|
|
Consolidated total
|
|
$
|
10,120,230
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Accounts payable and accrued expenses agriculture segment
|
|
$
|
42,457
|
|
Accounts payable and accrued expenses mining segment
|
|
|
2,359,343
|
|
Notes payable agriculture segment
|
|
|
2,000,000
|
|
Notes payable mining segment
|
|
|
11,508
|
|
Corporate accounts payable and accrued expense
|
|
|
898,666
|
|
Corporate notes payable
|
|
|
354,119
|
|
Consolidated total
|
|
$
|
5,666,090
|
|
Note 11.
|
Subsequent Events
|
|
·
|
In July 2014, the Company sold 2,500,000 shares in a private offering for $750,000 in cash, or $0.30 per unit. Shares have not been issued as of August 14, 2014.
|
|
·
|
As of July 2014, three convertible notes with maturities in July 2014 were extended to 2015.
|
|
·
|
In July 2014, the Company entered into a note receivable agreement to loan up to $500,000 to a third party to move agriculture division forward. The loan carries interest of 20%, an 8% loan fee, and is either 60 days from loan funding or payment of product by a customer.
|