See Accompanying Notes to these Condensed Consolidated Financial Statements.
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TARA GOLD RESOURCES CORP. AND SUBSIDIARIES
(An Exploration Stage Company)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies
Basis of Presentation and Organization
The accompanying Condensed Consolidated Financial Statements of Tara Gold Resources Corp. (the “Company”) should be read in conjunction with the Company’s Annual Report on Form 10-K for the years ended December 31, 2008, 2009 and 2010. Significant accounting policies disclosed therein have not changed except as noted below.
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 March 31, 2009 and December 31, 2008, the condensed consolidated results of its operations for the three ended March 31, 2009 and 2008 and the condensed consolidated statements of cash flows for the three months ended March 31, 2009 and 2008. Results of operations reported for interim periods are not necessarily indicative of results for the entire year.
The Company is engaged in the acquisition, exploration and development of mineral resource properties in the United States of America and Mexico. The Company owns 100% of the common stock of Corporacion Amermin, S.A. de C.V. In May 2006, the Company established Tara Minerals Corp, which owns 99.9% of American Metal Mining (“AMM”). Corporacion Amermin and AMM are Mexican corporations. As of March 31, 2009 and December 31, 2008 the Company owned 79% and 80%, respectively, of the outstanding shares of Tara Minerals.
As used in these Notes to the Condensed Consolidated Financial Statements, the terms the “Company”, “we”, “us”, “our” and similar terms refer to Tara Gold Resources, Corp. and, unless the context indicates otherwise its consolidated subsidiaries. The Company’s subsidiaries include Corporacion Amermin, S.A. de C.V. (“Amermin”), which operates, in México and Tara Minerals Corp.
Unless otherwise indicated, all references to the Company include the operation of its subsidiaries.
The consolidated financial statements include the accounts of the Company, its subsidiaries and variable interest entities (“VIE”) over which control is achieved through means other than voting rights and we are considered the primary beneficiary. The primary beneficiary of the VIE consolidates the entity if control is achieved through means other than voting rights such as certain capital structures and contractual relationships. All significant intercompany transactions and accounts have been eliminated in consolidation. The consolidated financial statements of the Company have been prepared on the accrual basis of accounting and are in conformity with accounting principles generally accepted in the United States of America and prevailing industry practice. At March 31, 2009 and December 2008 the Company had one joint venture or VIE with Coeur d’Alene.
Amermin, AMM and ACM are Mexican corporations. The reporting currency of the Company, Tara Minerals and Adit is the U.S. dollar. The functional currency of Amermin, AMM and ACM is the Mexican Peso. As a result, the financial statements of the 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 nonmonetary asset and liability accounts, (iii) historical exchange rates for revenues and expenses associated with nonmonetary 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 or loss is recorded as other comprehensive income (loss).
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The financial results of the Mexican subsidiaries should not be construed as representations that Mexican pesos have been, could have been or may in the future be converted into U.S. dollars at such rates or any other rates. 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 of the subsidiaries are as follows for the three months ended March 31, 2009 and 2008 (denoted in Mexican pesos per one U.S. dollar):
| |
| 2009 |
Current exchange rate at March 31, | Ps. 14.3855 |
Weighted average exchange rate for the three months ended March 31, | Ps. 14.3725 |
| |
| 2008 |
Current exchange rate at March 31, | Ps. 10.6987 |
Weighted average exchange rate for the three months ended March 31, | Ps. 10.8090 |
Allowance for doubtful accounts
Each period the Company analyzes its receivables for collectability. When a receivable is determined to not be collectible the receivable is allowed for until there is assurance of its collection or that a write off is necessary. At March 31, 2009 and December 31, 2008 the Company had allowed $237,172 and $242,567, respectively, relating to other receivables, since it was determined that the Mexican government may not allow the complete refund of value added taxes (“VAT”) previously paid by the Company
Reclassification
Certain reclassifications reported in prior records, which have no effect on net loss, have been adjusted to conform to the current presentation. Specifically, certain items in the Operating Activities section of the Statement of Cash Flows have been reclassified between categories in the inception to date column for clearer presentation.
Fair Value Accounting
The Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standard (“SFAS”) No.157 requires fair value to be measured based on a three-tier fair value hierarchy. The hierarchy 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). |
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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. Actual results could differ from those estimates.
Cash Equivalents,and Marketable Securities
The Company considers all highly-liquid investment instruments purchased with an original maturity of three months or less to be cash equivalents. The Company had no cash equivalents at March 31, 2009 and December 31, 2008.
All investments with stated maturities of greater than three months are classified as marketable securities. The Company had $464,430 and $463,931 in marketable securities at March 31, 2009 and December 31, 2008, respectively. These marketable securities had a cost basis of $1,081,155 and $1,081,703 as of March 31, 2009 and December 31, 2008, respectively. In accordance with the SFAS No. 130, “Reporting Comprehensive Income”, the Company has accounted for unrealized gain (loss) as a component of other comprehensive income. An unrealized loss of $499 and $123,803 was recorded in other comprehensive income for the three months ended March 31, 2009 and 2008, respectively.
Concentrations
The Company maintains cash balances at highly-rated financial institutions in the United States. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. The Company had no bank accounts in excess of $250,000, as of March 31, 2009 and December 31, 2008, respectively. The Company has not experienced any losses in these accounts.
Recent Accounting Pronouncements
In January 2010, the FASB issued guidance to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. The guidance requires a roll forward of activities on purchases, sales, issuances, and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). The guidance will become effective for the Company with the reporting period beginning July 1, 2011. The adoption of this guidance is not expected to have a material impact on the Company’s condensed consolidated financial statements.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not have, or are not believed by management will have, a material impact on the Company’s present or future consolidated financial statements.
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Note 2.
Property, plant, equipment, mine development and land
| | |
| March 31, 2009 | December 31, 2008 |
| (Unaudited) | (Audited) |
| | |
Land | $ 19,590 | $ 19,590 |
| | |
Mining concessions (a): | | |
La Currita | 1,253,439 | 1,253,439 |
Las Minitas | 2,249,638 | 2,290,907 |
Pilar | 715,153 | 715,153 |
Don Roman | 521,739 | 521,739 |
Las Nuvias | 100,000 | 100,000 |
Picacho | 5,590,332 | 5,537,554 |
Centenario | 1,526,565 | 1,520,738 |
Las Brisas | 3,134 | 3,134 |
Mezquite and Mariana | 163,700 | 164,506 |
Auriferos | 100,000 | 100,000 |
Mining concessions | 12,223,700 | 12,207,170 |
| | |
Property, plant and equipment (b) | 938,296 | 936,100 |
| 13,181,586 | 13,162,860 |
Less – accumulated depreciation | (77,821) | (70,895) |
| $ 13,103,765 | $ 13,091,965 |
a.
Mining Concessions
Mining concessions as of March 31, 2009 are as follows:
i)
On May 2005, the Company acquired the rights to four concessions, known as “La Currita”. The acquisition price of the property was $1,200,000 plus value-added tax of $180,000. The Company also included finder’s fees of $11,927 in the purchase price of the property, making the effective price of the property grouping $1,211,927. As of May 2007, the note and the related value added tax had been paid in full and the Company received title in July 2008.
In May 2006, the Company entered into an agreement with Raven Gold Corp. (“Raven”), for the sale of an interest in a joint venture which includes the La Currita Groupings (“La Currita joint venture”). The agreement was ratified in August 2006, amended on March 30, 2007, and cancelled on May 3, 2007 primarily due to non-performance by Raven under the August 2006 agreement and subsequent modification. On May 3, 2007, the Company entered into a new agreement with Raven for the La Currita joint venture. Raven defaulted on its obligations required by the joint venture agreement and the agreement with Raven was terminated in 2008.
Due to the purchase of Amermin 3% non-controlling interest, the valuation of the mining concession increased by $53,439.
In December 2008, the Company signed an option agreement with Coeur d’ Alene Mines Corporation which allowed Coeur d’ Alene Mines Corporation to acquire 100% interest in the concession. In 2009 the option was terminated.
ii)
In March 2006, the Company acquired the rights to 23 concessions, known as “Las Minitas”. In April 2007, the agreement was renegotiated, based on a geological study, to reduce the purchase price of the mining concessions and restructure the debt payments to $2,750,000 plus value-added tax of $412,500. In January 31, 2008 the agreement was amended to extend the payment date to 2012 and the amount of the note was reduced to $2,150,000 plus value added-tax of $322,500.
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As of March 31, 2009, the resulting debt payment schedule, including applicable value added tax, is as follows:
| |
2009 | $ 22,500 |
2010 | - |
2011 | - |
2012 | 1,834,736 |
| $ 1,857,236 |
In accordance with Accounting Principles Board Opinion 21, “Interest on Receivables and Payables” (ABP 21), the future payments of the total payment amount of $2,150,000 have been discounted using the incremental borrowing rate of 3.56%. As of March 31, 2009, the present value of future payments on the Las Minitas contract is as follows:
| | | | | |
| Debt | | IVA | | Total |
Future payments | $ 1,750,000 | | $ 285,000 | | $ 2,035,000 |
Imputed interest | (177,764) | | - | | (177,764) |
Present value of debt | 1,572,236 | | 285,000 | | 1,857,236 |
Less: current portion | - | | (22,500) | | (22,500) |
| $ 1,572,236 | | $ 262,500 | | $ 1,834,736 |
In addition to the $2,150,000 above, the Company capitalized $173,913 in payments made toward the original agreement. Pursuant to the agreement signed in April 2007 this payment could not be applicable to the purchase price. Accordingly, the effective purchase price of the properties is $2,646,413.
No payments were made after February 2008 and as of April 15, 2011, the Company was actively working with the note holder which may include the termination of this agreement and return of the property.
iii)
In October 2006, the Company acquired the rights to 13 concessions, known “Pilar De Mocoribo” for $800,000 plus value-added tax of $120,000
In January 2007, this property was assigned to the Company’s subsidiary Tara Minerals, and is considered part of the Don Roman group of concessions.
Subsequent to March 31, 2009:
In June 2009, Tara Minerals and the note holder modified the agreement by returning one mining concession under this agreement and reducing the purchase by $60,870 plus the related $9,130 of value added tax. The resulting purchase price for the remaining concessions was $739,130 plus $110,870 of value added tax.
As of June 2009, the agreement was modified and the mining deposit for La Millonaria was applied to the Pilar De Mocoribo debt and Centenario. As of December 31, 2009, the note was paid in full and the Company capitalized this prospect at $728,313.
iv)
In January 2007, the Company acquired the rights to the six concessions, known as “Picacho”. Due to economic circumstances relating to the current recession, the Company failed to make a payment due in November 2008 and the concession was returned to the third party note holder on June 16, 2009.
Subsequent to March 31, 2009:
In July 2009 Tara Minerals agreed to acquire the Picacho claims from the third party, which then included the Dos Amigos and Unification Rey de Oro concessions, for $4,800,000 plus value-added tax of $720,000. Tara Minerals paid $575,000 of the purchase price in June 2009. The $575,000 paid in June 2009 was borrowed from the Company by Tara Minerals.
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In July 2009 Tara Minerals transferred the Picacho prospect to Adit, a subsidiary of Tara Minerals. In connection with the transfer of the prospect, Adit issued Tara Minerals a promissory note in the principal amount of $650,000 to compensate Tara Minerals for its down payment toward the purchase price of the property and to reimburse Tara Minerals for other amounts advanced on behalf of Adit. The note is unsecured, bears interest at 3.25% per year, and is due and payable on June 30, 2011. In January 2010, Adit paid $200,000 towards this note. In December 2009 Adit paid an installment of $278,500 (which included applicable value added taxes) toward the purchase.
In March 2010, Tara Minerals and the note holder agreed to reduce the purchase of the Picacho concession to $1,250,000. Under the revised agreement, Tara Minerals paid the vendor $500,000 in cash (plus applicable taxes) as final consideration for the mining concession. These changes resulted in the following: 1) decrease debt by $3,324,485; and 2) decrease recoverable value-added taxes by $527,000. The purchase price was paid in full in March 2010.
In March 2010, Tara Minerals purchased technical data pertaining to the Picacho Prospect from the prospect’s former owner in consideration for the issuance to the former owner of 437,500 shares of Tara Minerals’ common stock and 320,000 shares of Adit, a subsidiary of Tara Minerals, common stock. The technical data includes engineering reports, maps, assessment reports, exploration samples certificates, surveys, environmental studies and other miscellaneous information pertaining to the Picacho Prospect. The Picacho Prospect did not have any proven reserves when this transaction was consummated. As such, the information purchased was considered research and development pertaining to a developing mine and in accordance with the Financial Accounting Standard No. 2 “Accounting for Research and Development Costs” (R&D) - R&D is expensed when incurred. The parties agreed that the value of the stock for the technical data was $2.25 per share for Adit stock and $4.00 per share for the Tara Minerals’ common stock. Tara Minerals has accounted for the shares at their fair market value as follows: 320,000 shares of Adit’s common stock were valued at $0.75 per share, and 437,500 shares of Tara Minerals’ common stock were valued at $2.25 per share. All fair market values were determined based on contemporaneous stock issuances for cash or if the stock was quoted on an exchange, it’s closing stock price. All stock was issued April 2010.
v)
In November 2008, the Company executed an agreement to acquire eight mining concessions known as “Centenario” from an independent third party. The properties approximate 7,000 hectares and were purchased for a total of $1,647,000 plus $247,050 in value added taxes.
The original agreement did not specify that $133,000 already paid as a deposit would be applied to the effective purchase price of this mining concession resulting in the final agreement being amended during the second quarter of 2009. This amendment includes the notation that the effective purchase price of this property, excluding value added taxes, is $1,780,000, which includes the $133,000 previously paid.
The debt payment schedule per the original agreement is as follows:
| |
2009 | $ 264,000 |
2010 | 287,500 |
2011 | 575,000 |
2012 | 732,550 |
| $ 1,859,050 |
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In accordance with Accounting Principles Board Opinion 21, “Interest on Receivables and Payables” (ABP 21), the future payments of the total payment amount of $1,647,000 has been discounted using the incremental borrowing rate of 2.97%. As of December 31, 2008, the present value of future payments on the Centenario contract was as follows:
| | | | | |
| Debt | | IVA | | Total |
Future payments | $ 1,616,565 | | $ 242,485 | | $ 1,859,050 |
Imputed interest | (120,435) | | - | | (120,435) |
Present value of debt | 1,496,130 | | 242,485 | | 1,738,615 |
Less: current portion | (191,755) | | (34,435) | | (226,190) |
| $ 1,304,375 | | $ 208,050 | | $ 1,512,425 |
b) Other Fixed Assets
For the three months ended March 31, 2009, Tara Minerals and it subsidiaries purchased $2,196 in equipment and other fixed assets in the normal course of business.
Note 3.
Notes Payable
On July 30, 2008 a non-related party loaned the Company $500,000. The note bore interest at 180% per year and, was due and payable on or before October 1, 2008. The loan was secured by two million shares of stock in Tara Minerals. The Company defaulted on the Note by failing to pay the face amount of the note of $650,000 on or before October 1, 2008. The Company and the lender engaged in litigation and on May 28, 2009 reached a settlement agreement where the Company agreed to transfer ownership of 900,000 shares of Paramount Gold and Silver Mining Corp common stock (PZG) with a value of $648,000. The Company recognized a $2,000 gain, the Company and the non-related party dismissed the litigation, agreed to pay their own costs and fees, released all outstanding claims against each other party and the non-related party waived any claims relating to the note and pledged collateral.
Note 4.
Balances and transactions with related parties
Balances with related parties are as follows:
| | |
| March 31, | December 31, |
| 2009 | 2008 |
Due from (to) related parties | $ (34,603) | $ 51,837 |
Loans from officers | - | (70,000) |
Total Due from (to) related parties | $ (34,603) | $ (18,163) |
As of March 31, 2009, the following items occurred in the loans from officers and related beneficial conversion feature accounts:
§
Temporary loans from officers totaling $70,000 were paid in cash.
The remaining change due to related parties is primarily due to officers of the Company and Amermin having reimbursable expenses payable by the Company that were not remitted to the officers and changed into a loan at period end or accrued compensation.
In January 2007, Amermin made the arrangements to purchase the Pilar, Don Roman and Las Nuvias properties listed in Note 2. These properties were assigned to the Company’s subsidiary Tara Minerals as of January 2007. Tara Minerals makes payments to Amermin and Amermin makes payments related to the original purchase agreements. At March 31, 2009, Amermin has paid the original note holder in full but Tara Minerals has not paid Amermin. At March 31, 2009, this is an intercompany transaction that is eliminated during the consolidation of the Company’s financials.
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Note 5.
Stockholders’ Equity
The authorized common stock of the Company consists of 150,000,000 shares of common shares with par value of $0.001. For the three months ended March 31, 2009, the Company did not issue shares of common stock.
Net loss per common share
Net loss per share is calculated in accordance with SFAS No. 128, “Earnings Per Share.” The weighted average number of common shares outstanding during each period is used to compute basic loss per share. Diluted loss per share is computed using the weighted averaged number of shares and dilutive potential common shares outstanding. Dilutive potential common shares are additional common shares assumed to be exercised, such as options, warrants and convertible debt.
At March 31, 2009, the Company had a net loss resulting in no dilution of any common stock equivalents.
Note 6.
Non-controlling Interest
Tara Minerals’ stock payable at March 31, 2009 was $115,000 for 575,000 shares. No shares were issued for the three months ended March 31, 2009. The following table documents the non-controlling interest activity:
| | |
| March 31, 2009 (Unaudited) | December 31, 2008 (Audited) |
Tara Minerals: | | |
January 2007 private placement | $ 2,540,500 | $ 2,540,500 |
Equipment | 600,000 | 600,000 |
Shares issued with warrants and exercised warrants | 773,500 | 773,500 |
Cumulative statement of operations pickup through December 31, 2008 | (388,124) | (388,124) |
Statement of operations pickup 2009 | (33,631) | - |
Share subscriptions | 115,000 | - |
Total non-controlling interest | $ 3,607,245 | $ 3,525,876 |
Note 7.
Fair Value
The Company's financial assets and liabilities, measured at fair value by level within the fair value hierarchy, are shown below. 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 March 31, 2009 |
| | Total | Level 1 | Level 2 | Level 3 |
Assets: | | | | | |
Marketable securities | | $ 464,430 | $ - | $ - | $ 464,430 |
Total | | $ 464,430 | $ - | $ - | $ 464,430 |
| | | | | |
Liabilities: | | | | | |
Total due to related parties | | $ 34,603 | $ 34,603 | $ - | $ - |
Notes payable | | 9,052,500 | 9,052,500 | - | - |
Total | | $ 9,087,103 | $ 9,087,103 | $ - | $ - |
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| | | | | |
| | Fair Value at December 31, 2008 |
| | Total | Level 1 | Level 2 | Level 3 |
Assets: | | | | | |
Marketable securities | | $ 463,931 | $ - | $ - | $ 463,931 |
Total | | $ 463,931 | $ - | $ - | $ 463,931 |
| | | | | |
Liabilities: | | | | | |
Total due to related parties | | $ 18,163 | $ 18,163 | $ - | $ - |
Notes payable | | 8,992,151 | 8,992,151 | - | - |
Total | | $ 9,010,314 | $ 9,010,314 | $ - | $ - |
Note 8.
Subsequent Events
These accompanying Condensed Consolidated Financial Statements of Tara Gold Resources Corp. (the “Company”) should be read in conjunction with the Company’s Annual Report on Form 10-K for the years ended December 31, 2008, 2009 and 2010.
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