See Accompanying Notes to these Condensed Consolidated Financial Statements.
7
TARA MINERALS CORP. AND SUBSIDIARIES
(A Subsidiary of Tara Gold Resources Corp.)
(An Exploration Stage Company)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1.
Nature of Business and Significant Accounting Policies
Nature of business and principles of consolidation:
The accompanying Condensed Consolidated Financial Statements of Tara Minerals Corp. (the “Company”) should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. Significant accounting policies disclosed therein have not changed, except as noted below.
The Company was organized May 12, 2006 under the laws of the State of Nevada. The Company currently is engaged in the acquisition, exploration and development of mineral resource properties in the United States of America and Mexico. The Company owns 99.9% of the common stock of American Metal Mining, S.A. de C.V. (“AMM”), which was established in December 2006 and operates in México. The Company also owns 87% of the common stock of Adit Resources Corp., which in turns owns 99.9% of American Copper Mining, S.A. de C.V. (“ACM”), which was established in December 2006 and operates in México. Adit Resources Corp. (“Adit”) was organized in June 2009 and ACM was purchased in June 2009. The Company currently has limited operations and, in accordance with the Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Development Stage Entities Topic, is considered an Exploration Stage Company.
Tara Minerals Corp. is a subsidiary of Tara Gold Resources Corp. (“Tara Gold” or the “Company’s Parent).
Unless otherwise indicated, all references to the Company include the operations of its subsidiaries, and all references to Adit include the operation of its subsidiary.
The accompanying Condensed Consolidated Financial Statements and the related footnote information are unaudited. In the opinion of management, these financials statements include all normal recurring adjustments necessary for a fair presentation of the condensed consolidated balance sheets of the Company at June 30, 2011 and December 31, 2010, and the condensed consolidated statements of operations for the three and six months ended June 30, 2011 and 2010. Results of operations reported for interim periods are not necessarily indicative of results for the entire year. The consolidated financial statements include the financial statements of the Company, AMM, Adit and ACM. All amounts are in U.S. dollars unless otherwise indicated. All significant intercompany balances and transactions have been eliminated in consolidation.
The reporting currency of the Company 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 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 loss.
The financial statements 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.
8
Relevant exchange rates used in the preparation of the financial statements for the subsidiary are as follows for the six months ended June 30, 2011. Mexican pesos per one U.S. dollar.
| | |
| June 30, 2011 |
Current exchange rate | Ps. | 11.7748 |
Weighted average exchange rate for the six months ended | Ps. | 11.9044 |
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. Actual results could differ from those estimates.
Recoverable Value-Added Taxes (IVA) and Allowance for Doubtful Accounts
Each period receivables are reviewed for collectability. When a receivable is determined to not be collectable, the Company allows for the receivable until the Company is either assured of collection or assured that a write off is necessary. The Company has recorded an allowance of $1,358,736 and $1,366,533 as of June 30, 2011 and December 31, 2010, respectively, for its receivables for IVA taxes paid by the Company’s Mexican subsidiaries based upon the determination that the Mexican government may not pay the complete refund of these taxes.
Reclassifications
Certain reclassifications, which have no effect on net loss, have been made in the prior period financial statements to conform to the current presentation.
Purchase of Technical Data
Technical data, including engineering reports, maps, assessment reports, exploration samples certificates, surveys, environmental studies and other miscellaneous information, may be purchased for our mining concessions. When purchased for concessions without proven reserves the cost is considered research and development pertaining to a developing mine and in accordance with the Research and Development (R&D) Topic of the FASB ASC and is expensed when incurred.
Financial Instruments
The Company periodically enters into financial instruments. Upon entry, each instrument is reviewed for debt or equity treatment. In the event that the debt or equity treatment is not readily apparent, FASB 480-10-S99 is consulted for temporary treatment, once a triggering event of any such instruments happen that remove the temporary element the Company appropriately reclassifies the instrument to debt or equity.
9
Recently Adopted and Recently Issued Accounting Guidance
Adopted
In October 2009, the FASB issued changes to revenue recognition for multiple-deliverable arrangements. These changes require separation of consideration received in such arrangements by establishing a selling price hierarchy (not the same as fair value) for determining the selling price of a deliverable, which will be based on available information in the following order: vendor-specific objective evidence, third-party evidence, or estimated selling price; eliminate the residual method of allocation and require that the consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method, which allocates any discount in the arrangement to each deliverable on the basis of each deliverable’s selling price; require that a vendor determine its best estimate of selling price in a manner that is consistent with that used to determine the price to sell the deliverable on a standalone basis; and expand the disclosures related to multiple-deliverable revenue arrangements. These changes become effective on January 1, 2011. The Company has determined that the adoption of these changes will not have an impact on its consolidated financial statements, as the Company does not currently have any such arrangements with its customers.
Issued
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, or are not believed by management to, have a material impact on the Company’s present or future consolidated financial statements.
Note 2.
Property, plant, equipment, mine development and land
| | |
| June 30, 2011 | December 31, 2010 |
| (Unaudited) | |
| | |
Land | $ 19,590 | $ 19,590 |
| | |
Mining concessions: | | |
Pilar | 710,172 | 710,172 |
Don Roman | 521,739 | 521,739 |
Las Nuvias | 100,000 | 100,000 |
Centenario (a) | 635,571 | 1,946,545 |
Pirita | 249,909 | 246,455 |
Picacho | 1,250,000 | 1,250,000 |
La Palma (b) | 80,000 | - |
La Verde (c) | 60,000 | - |
Picacho Fractions (d) | 163,793 | - |
Mining concessions | 3,771,184 | 4,774,911 |
| | |
Property, plant and equipment | 3,493,957 | 3,603,210 |
| 7,284,731 | 8,397,711 |
Less – accumulated depreciation | (421,504) | (295,925) |
| $ 6,863,227 | $ 8,101,786 |
Pilar, Don Ramon, Las Nuvias, Centenario, La Palma and La Verde properties are geographically located in Mexico and are known as the Don Roman Groupings.
10
The Picacho and Picacho Fractions properties are geographically located in Mexico and are known as the Picacho Groupings.
a.
In November 2008, the Company acquired eight mining concessions known as “Centenario” from an independent third party. The properties approximate 5,400 hectares and were purchased for $1,894,050, including $247,050 in value added taxes.
In June 2009, the Company and the note holder modified the agreement to 1) revalue the entire Centenario concession to $2,000,000, 2) apply $127,000 toward the purchase price which had already been paid and recorded as a mining deposit, and 3) apply $197,956 toward the new price of the concession which was originally paid by another subsidiary of the Company’s Parent. These changes resulted in the following 1) additional debt of $28,044 plus related value added tax for these concessions, 2) the reduction of the amount of the mining deposit of $127,000, 3) the expense of $6,000 that AMM also paid but which was not included in the revaluation of the concession, and 4) the increase in Due to Related Party of $197,956 plus related value added tax. The effective amount financed in relation to this concession is $1,675,044 plus $251,257 of value added tax.
In March 2011, the Company and the note holder agreed to reduce the purchase price of the Centenario concession to $635,571. These changes resulted in the following: 1) decrease debt by $1,310,974; and 2) decrease recoverable value added taxes by $218,309. At March 31, 2011 the amended purchase price was paid in full.
In March 2011, the Company purchased technical data pertaining to Centenario from the former owner in consideration for 416,100 shares of the Company’s common stock and $100,000 cash. The parties agreed that the value of the stock for the technical data was $2.00 per share for the Company’s common stock. The Company has accounted for the shares at their fair market value as follows: 416,100 shares of the Company’s common stock valued at $0.85. 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 2011.
b.
On March 2011, the Company executed an agreement to acquire six mining concessions known as “La Palma” from an independent third party. The properties approximate 2,104 hectares, and were purchased for a total of $92,800, including $12,800 in value added taxes. The Company paid $50,000 as a deposit for the concession mining deposit which was applied to the effective price of the property. The remaining balance of $42,800 was due and paid during the second quarter of 2011. The six concessions acquired were La Palma, Choix, El Pino, La Verde 3, La Verde 4 and La Verde 6.
In March 2011, the Company purchased technical data pertaining to the La Palma from the former owner for 460,000 shares of the Company’s common stock. The parties agreed that the value of the stock for the technical data was $2.00 per share for the Company’s common stock. The Company has accounted for the shares at their fair market value as follows: 460,000 shares of the Company’s common stock valued at $0.85. 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 2011.
La Palma and La Verde properties are part of the “Don Roman Groupings”.
c.
On April 2011, the Company executed an agreement to acquire two mining concessions known as “La Verde” from an independent third party. The properties approximate 127 hectares, and were purchased for a total of $69,600, including $9,600 in value added taxes. AMM paid $30,000 as a deposit for the concession mining deposit which was applied to the effective price of the property and the remaining balance was paid during the second quarter of 2011. The two concessions acquired were La Verde 5 and Mina El Rosario.
11
In April 2011, the Company purchased technical data pertaining to the La Verde from the former owner for 370,000 shares of the Company’s common stock. The parties agreed that the value of the stock for the technical data was $2.00 per share for the Company’s common stock. The Company has accounted for the shares at their fair market value as follows: 370,000 shares of the Company’s common stock valued at $0.85. 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 2011.
La Palma and La Verde properties are part of the “Don Roman Groupings”.
d.
On May 2011, the Company executed an agreement to acquire three mining concessions knows as “Picacho Fractions I, II and III” from Tara Gold. The properties approximate 3,823 hectares, and the acquisition price of the properties was $190,000 including $26,207 in value added taxes. Full amount was financed for an interest rate of 3.25% plus LIBOR.
Picacho and the Picacho Fractions are known as the Picacho Groupings
Note 3.
Other assets, current and non-current
In September 2010, Tara Minerals signed an agreement to purchase three real estate properties for a price of $1,000,000. In order to hold these properties Tara Minerals made a cash deposit of $60,000. Tara Minerals is obligated to pay all the expenses, fees and general expenditures relating to the sale, which expenses, up to a maximum of $500,000, which are deductible from the sales price. In March 2011, Tara Minerals received notification from Pacemaker Silver Mining S.A. de C.V. a wholly-owned Mexican subsidiary of El Tigre, indicating that they also had surface rights related to being able to work claims they held mining rights too. Although this is does not effect our specific right to the tailing piles, there could be an issue as to who would have specific areas and specific times. Until the difference can be determined, the deposit has been expensed in 2011.
In May 2011, the Company paid $66,667 towards a $100,000 advanced to the Iron Ore Project Vendor, against future royalty payments (See Note 6).
In May 2011, the Company advanced $175,000 to a subcontractor for improvements needed at the Iron Ore Project site; the advance will be expensed over a six-month period beginning in July 2011.
Note 4.
Notes Payable
The following table represents the outstanding balance of loans and capital leases for the Company as of June 30, 2011 and December 31, 2010.
| | |
| June 30, 2011 | December 31, 2010 |
| (Unaudited) | |
| | |
Mining concession | $ 173,910 | $ 1,699,737 |
Auto loans | 128,370 | 119,766 |
Equipment | - | 72,848 |
| 302,280 | 1,892,351 |
Less – current portion | (209,964) | (824,001) |
Total – non-current portion | $ 92,316 | $ 1,068,350 |
During the six months ended June 30, 2011, one of the vehicles purchased in 2010 was stolen, the insurance claim was processed and the note payable and the fixed asset removed from the AMM’s books. AMM defaulted on an equipment capital lease entered into on July 21, 2010, the equipment was capitalized as an asset and the asset and related debt were removed and payments were reclassified as treating payments similar to an operating lease.
12
AMM financed the purchase of one truck to be used in operations for $48,491; the note payable has a 13.5% interest rate and a maturity date of June 1st, 2015 or a term of forty eight months.
The five year maturity schedule for notes payable is presented below:
| | | | | | |
Due on or before | June 30, 2012 | June 30, 2013 | June 30, 2014 | June 30, 2015 | June 30, 2015 |
Total |
| | | | | | |
Pirita (See Note 2) | $ 173,910 | $ - | $ - | $ - | $ - | $ 173,910 |
Auto Loans | 36,055 | 25,203 | 45,306 | 21,807 | - | 128,370 |
Total – non-current portion | $ 209,964 | $ 25,203 | $ 45,306 | $ 21,807 | $ - | $ 302,280 |
Note 5.
Related Party Transactions
Due to related parties, net of due from related parties was $3,192,564 and $3,465,232 as of June 30, 2011 and December 31, 2010, respectively.
The Company is a subsidiary of Tara Gold Resources Corp. In January 2007, another subsidiary of Tara Gold Resources Corp., Corporacion Amermin, S.A. de C.V. (“Amermin”), made the arrangements to purchase the Pilar, Don Roman and Las Nuvias properties listed in Note 2 (part of the Don Roman Grouping). These properties were assigned to the Company’s subsidiary AMM as of January 2007. AMM makes payments to Amermin and Amermin made payments related to the original purchase agreements. At June 30, 2010, Amermin has paid the original note holder in full but AMM has not paid Amermin. At June 30, 2011, due from related parties is $78,293 and due to related parties, includes:
- Pilar mining concession: $535,237 (inclusive of valued added tax)
- Don Roman concession: $211,826
- Due to Amermin: $888,032
- Other related party: $120,333
As of June 30, 2011, Tara Gold had loaned the Company $1,497,566 which amount is included in Due to Related Parties. There are no terms to this related party payable and it is due on demand.
In September 2010, Tara Gold entered into a tentative agreement with Tara Minerals which provided that Tara Minerals would acquire all of the outstanding shares of Tara Gold by exchanging one Tara Mineral share for two Tara Gold shares. In 2011 this agreement was cancelled and Tara Gold announced it would begin to distribute all of its shares in Tara Minerals to its shareholders. In May 2011, the first distribution, at a rate of one Tara Minerals common share for every 20 outstanding shares of Tara Gold, was made. Additional distributions will be announced over the next 24 months until all Tara Minerals shares, held by Tara Gold, are distributed to Tara Gold shareholders.
On May 2011, the Company acquired three mining concessions knows as “Picacho Fractions I, II and III” from another subsidiary of Tara Gold, Corporacion Amermin, S.A. de C.V. (“Amermin”). The acquisition price of the properties was $190,000 including $26,207 in value added taxes, financed at 3.25% plus LIBOR.
Note 6.
Iron Ore Project and Related Financial Instrument
In May 2011, the Company reached an agreement for the right to mine the 3,233 hectare Tania Iron Ore project located in Manzanillo, State of Colima, Mexico. The Company has the right to remove 6 million tonnes of salable concentrate from the property, with perpetual renewal rights, extending through the life of the property. The Company will pay the vendor $6 per salable tonne for the first 500,000 tonnes removed from the property and $7 per tonne thereafter. A total of $100,000 will be advanced to the vendor against future royalty payments. As of June 30, 2011 the Company advanced $66,667.
13
The Company raised $750,000 through a financial instrument to fund the project. A portion of the funds will be used to secure appropriate environmental permits, export permits, and recovery process engineering. The financial instrument has no repayment requirement, except if the Iron Ore Project generates revenue, interest rate or term. As the Company’s common stock has not been issued nor is this a debt instrument, in accordance with our accounting policy we have treated this as temporary financing until such time as something changes requiring debt or permanent equity treatment. The beneficial conversion feature calculated for the conversion feature of this instrument is $180,000, once a triggering event takes place the beneficial conversion feature accounting will follow the treatment of debt or equity.
Note 7.
Stockholders’ Equity
The authorized common stock of the Company consists of 200,000,000 shares with par value of $0.001.
March 2011, the Company issued 1,012,977 shares of common stock valued at $1,215,572 or $1.20 a share to convert loans from unrelated parties.
March 2011, the Company issued 105,722 shares of common stock valued at $126,866 or $1.20 a share to convert a loan from a related party.
March 2011, the Company issued 125,000 shares of common stock for warrants exercised, for $50,000 or $0.40 a share for warrants exercised for cash.
April 2011, the Company issued 100,000 shares of common stock to an Officer of the Company, valued at $100,000 or $1.00 a share for payment on behalf of Tara Gold for services rendered.
April 2011, the Company issued 416,100 shares of common stock valued at $353,685 or $0.85 a share for the purchase of Centenario’s technical data. See Note 2 above.
April 2011, the Company issued 460,000 shares of common stock valued at $391,000 or $0.85 a share for the purchase of La Palma’s technical data. See Note 2 above.
April 2011, the Company issued 370,000 shares of common stock valued at $314,500 or $0.85 a share for the purchase of La Verde’s technical data. See Note 2 above.
April 2011, the Company issued 280,000 shares of common stock valued at $112,000 or $0.40 a share for warrants exercised for cash.
May 2011, the Company issued 792,500 shares of common stock valued at $317,000 or $0.40 a share for warrants exercised for cash.
In May 2011, the Company sold, in a private offering of 1,643,334 units for $493,000 in cash, or $0.30 per unit. Each unit consisted of one share of the Company’s common stock and one warrant. Each warrant entitles the holder to purchase one share of the Company’s common stock at a price of $1.00 per share at any time on or before May 1st, 2012.
May 2011, the Company issued 1,100,000 shares of common stock valued at $55,000 or $0.050 a share for cash to Officers of the Company that exercised non-qualified stock options.
In May 2011, the Company increased its authorized capitalization to 200,000,000 shares of common stock.
Common Stock Payable
At June 30, 2011, common stock payable consists of:
·
125,000 shares payable, valued at $125,000 for cash and
14
·
100,000 shares payable, valued at $66,000 for prepaid services.
Note 8.
Stock Compensation
In January 2010, under its Incentive Stock Option Plan the Company granted two of its officers’ options for the purchase of 750,000 shares of common stock. In May 2011, the options were cancelled and the Company concurrently granted new Incentive Stock Options to the officers; under this new grant the officers have the option to purchase 750,000 shares of common stock, exercisable at a price of $0.58 per share and vest at various dates until May 2013. The options expire at various dates beginning May 2013. In accordance with the Stock Compensation Topic, FASB ASC 718-20-35, the Company has analyzed the cancellation of the award accompanied by the concurrent grant of a replacement award and determined that there was no further incremental compensation cost. As of June 30, 2011 options that vested in 2011 associated with this transaction were valued at $493,384.
In September 2010, the Company granted options for 200,000 shares of common stock to an unrelated third party for investor relations services. The options have an exercise price of $1.00 per share, vest between September 2010 and March 2011 and expire two years from the date of vesting. As of June 30, 2011 options that vested in 2011 were valued at $36,353.
In May 2011, the Company sold, in a private offering of 1,643,334 units for $493,000 in cash, or $0.30 per unit. Each unit consisted of one share of the Company’s common stock and one warrant. Each warrant entitles the holder to purchase one share of the Company’s common stock at a price of $1.00 per share at any time on or before May 1st, 2012.
The fair value of each option award discussed above is estimated on the date of grant using the Black-Scholes option 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 options granted is estimated at half of the contractual term as noted in the individual option agreements and represents the period of time that management anticipates option granted are expected 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 grant for bonds with maturity dates at the estimated term of the options.
| | |
| 2011 | 2010 |
Expected volatility | 163.11% | 208.37% - 319.79% |
Weighted-average volatility | 163.11% | 159.17% |
Expected dividends | 0 | 0 |
Expected term (in years) | 2.00 | 0.75 – 4.50 |
Risk-free rate | 0.58% | 0.30% - 2.37% |
A summary of option activity under the Plan as of June 30, 2011 and changes during the period then ended is presented below:
| | | | |
Options | Shares | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term | Aggregate Intrinsic Value |
Outstanding at December 31, 2010 | 4,630,000 | $ 0.49 | | |
Granted | 750,000 | 0.58 | | |
Exercised | (1,100,000) | 0.05 | | |
Forfeited, expired or cancelled | (750,000) | (1.57) | | |
Outstanding at June 30, 2011 | 3,530,000 | $ (0.11) | 3.0 | $ 3,608,200 |
Exercisable at June 30, 2011 | 2,320,000 | $ 0.09 | 3.5 | $ 3,132,600 |
15
| | |
Nonvested Options | Options | Weighted -Average Grant-Date Fair Value |
Nonvested at December 31, 2010 | 1,475,000 | $ 1.37 |
Granted | 750,000 | 0.58 |
Vested | (390,000) | 0.78 |
Forfeited, expired or cancelled | (625,000) | (1.57) |
Nonvested at June 30, 2011 | 1,210,000 | $ 0.29 |
A summary of warrant activity under the Plan as of June 30, 2011, 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, 2010 | 4,271,999 | $ 0.73 | | |
Granted | 1,653,334 | 0.30 | | |
Exercised | (1,197,500) | 0.38 | | |
Forfeited, cancelled or expired | (5,000) | 0.40 | | |
Outstanding at June 30, 2011 | 4,722,833 | $ 0.88 | 1.5 | $4,253,773 |
Exercisable at June 30, 2011 | 4,722,833 | $ 0.88 | 1.5 | $ 4,253,773 |
| | |
Nonvested Warrants | Warrants | Weighted -Average Grant-Date Fair Value |
Nonvested at December 31, 2010 | $ - | $ - |
Granted | 1,653,334 | 0.30 |
Vested | (1653,334) | (0.30) |
Forfeited | - | - |
Nonvested at June 30, 2011 | - | $ - |
Note 9.
Non-controlling Interest
On January 28, 2011, Adit, sold 500,000 units at a price of $1.00 per unit to Yamana Gold Inc. Each unit consisted of one share of Adit’s common stock and one half warrant. Each full warrant entitles Yamana to purchase one share of Adit’s common stock at a price of $1.50 per share at any time on or before January 28, 2014.
In connection with the sale of the units, Adit also signed a letter of intent that grants Yamana an option to acquire up to a 70% interest in Adit’s Picacho gold/silver project. A definitive agreement is expected to be completed August, 2011. Upon completion of the definitive agreement, Adit will sell an additional 2,500,000 units to Yamana at a price of $1.00 per unit. The units will be identical to the units sold on January 28, 2011. From the $3,000,000 received from Yamana, Adit will be required to spend $2,000,000 in exploration work on the Picacho project within 12 months of signing the definitive agreement.
Yamana can earn a 51% interest in the project by spending an additional $5,000,000 on the project within 30 months of the date of the definitive agreement and paying Adit an additional $1,000,000. Yamana can increase its interest to 70% by spending an additional $9,000,000 on the project and paying Adit an additional $2,000,000.
16
| | |
| Non-controlling interest at June 30, 2011 | Non-controlling interest at December 31, 2010 |
| (Unaudited) | |
Combined Adit / ACM: | | |
Private placement | $ 1,499,501 | $ 1,499,501 |
Common stock for cash | 500,000 | - |
Finder’s fees | 95,215 | 95,215 |
Technical data for Picacho | 240,000 | 240,000 |
Officer compensation | 487,500 | 487,500 |
Officer options | 134,978 | 134,978 |
Cumulative statement of operations pickup through December 31, 2010 | (400,368) | (400,368) |
Statement of operations pickup 2011 | (17,548) | - |
AMM non-controlling interest | 5 | 5 |
Total non-controlling interest | $ 2,539,283 | $ 2,056,831 |
Note 10.
Fair Value
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, 2011 (Unaudited) |
| Total | Level 1 | Level 2 | Level 3 |
Assets: | | | | |
None | $ - | $ - | $ - | $ - |
| | | | |
Liabilities: | | | | |
Total notes payable, related and unrelated | $ 402,280 | $ 402,280 | $ - | $ - |
Due to related parties, net of due from | 3,192,564 | 3,192,564 | - | - |
Iron Ore financial instrument | 750,000 | | | 750,000 |
Total | $ 3,594,844 | $ 3,594,844 | $ - | $ - |
| | | | |
| Fair Value at December 31, 2010 |
| Total | Level 1 | Level 2 | Level 3 |
Assets: | | | | |
None | $ - | $ - | $ - | $ - |
| | | | |
Liabilities: | | | | |
Total notes payable, including related party | $ 1,992,351 | $ 1,992,351 | $ - | $ - |
Due to related parties, net of due from | 3,465,232 | 3,465,232 | - | - |
Total | $ 5,457,583 | $ 5,457,583 | $ - | $ - |
Note 11.
Subsequent Events
Management evaluated all activity of the Company through August 15, 2011 (the issue date of the Financial Statements) and concluded the following disclosures are pertinent:
a.
In August 8, 2011 the Company entered into an agreement with Carnegie Mining and Exploration, Inc. which provides Carnegie with the option to earn up to a 50% interest in the Company’s Don Roman and all of the Company’s iron ore projects located in Mexico, including the Company’s Tania Iron Ore project.
17
As consideration for the option, Carnegie paid $100,000 to the Company and spent $150,000 toward bringing the Don Roman mine back into production.
In order to earn a 30% interest in the Don Roman project, Carnegie, no later than:
·
December 9, 2011, must spend $2,000,000 on the Don Roman project and achieve a Production Rate of at least 120 tones of ore throughput per day, and
·
No later than August 8, 2012, must spend $6,000,000 on the Don Roman project and achieve a Production Rate of at least 360 tones of ore throughput per day.
If Carnegie is able to achieve the required Production Rates with the expenditure of less than $2,000,000 or $6,000,000 (as the case may be) the amounts not spent by Carnegie, may, at Carnegie’s option, be paid to Tara Minerals or used to acquire additional mining concessions.
In order to earn a 50% interest in the Don Roman project, Carnegie, no later than August 8, 2013, must spend at least $5,000,000 on the Don Roman project and achieve and maintain a Production Rate of at least 600 tones of ore per day.
For purposes of the agreement between the Company and Carnegie, the term Production Rate means the tones which are being processed by the mill at the Don Roman site.
In Mexico, weight is denominated in tones. One tone is equal to 2,200 pounds.
If Carnegie spends at least $2,000,000 on the Don Roman project, Carnegie will be entitled to 50% of the net income from the Don Roman mine until Carnegie earns, or fails to earn, its 30% interest in the Don Roman project. If Carnegie fails to earn its 30% interest in the Don Roman project, Carnegie’s rights to any income from the Don Roman mine will terminate. If Carnegie earns it’s 30% interest in the Don Roman project, Carnegie will continue to be entitled to a 50% interest in the net income from Don Roman mine until Carnegie earns, or fails to earn its 50% interest in the Don Roman project. If Carnegie fails to earn its 50% interest in the Don Roman project, Carnegie will be entitled to a 30% interest in the net income from the Don Roman mine. If Carnegie earns its 50% interest in the Don Roman project, Carnegie will continue to be entitled to a 50% interest in the net income from Don Roman mine.
Carnegie may earn a 50% interest in the Company’s iron ore projects in Mexico, including the Company’s Tania Iron Ore project, by spending $1,000,000 toward the projects by November 6, 2011. Any amounts spent by Carnegie on the iron ore projects will be credited toward the amount Carnegie is required to spend to obtain a 30% interest in the Don Roman project. If Carnegie spends the $1,000,000, but does not elect to acquire a 50% in the iron ore projects, then Tara Minerals will issue to Carnegie 1,000,000 shares of Tara Minerals common stock.
If Carnegie elects to earn its 50% interest in the iron ore projects, then Carnegie, if it spends at least $8,000,000 on the Don Roman project, will be entitled to 50% of the net income from the iron ore projects until Carnegie earns, or fails to earn, its 30% interest in the Don Roman project. If Carnegie fails to earn its 30% interest in the Don Roman project, Carnegie’s rights to any income from the iron ore projects will terminate. If Carnegie earns it’s 30% interest in the Don Roman project, Carnegie will continue to be entitled to a 50% interest in the net income from the Company’s iron ore projects regardless of whether Carnegie earns, or fails to earn, its 50% interest in the Don Roman project.
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ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Tara Minerals was incorporated on May 12, 2006. During the period from its incorporation through June 30, 2011 Tara Minerals generated revenue of $160,421 and incurred expenses of $658,007 in cost of sales; $3,861,863 in exploration expenses and $22,028,543 in operating and general administration expenses. Included in operating and general and administrative expenses is a non-cash charge of $8,464,942 pertaining to the issuance of stock options and bonus plans.
Material changes of certain items in Tara Minerals’ Statement of Operation for the three months ended June 30, 2011, as compared to the same period last year, are discussed below.
| | |
Three Months Ended | June 30, 2011 | June 30, 2010 |
| | |
Revenue | $ - | $ 37,775 |
Cost of revenue | - | - |
Exploration expenses | 465,150 | 292,679 |
Operating, general and administrative expenses | 960,717 | 2,570,705 |
Net operating loss | $ (1,425,867) | $ (2,825,609) |
During the three months ended June 30, 2011, exploration expenses increased from the prior period in 2010 due to beginning of exploration activities at the Tania Iron Ore project. For the three months ended June 30, 2011, exploration expenses consisted of $314,500 for the purchase of technical data for the La Verde property part of Don Roman Groupings, $1,000 for geological consulting, assaying, and field supplies for the Picacho Groupings, and $150,000 for mine and smelting operations and other various mine expenses for the Don Roman Groupings and Tania Project. As of June 30, 2010, exploration expenses consisted of $39,000 for geological consulting, assaying, and field supplies for the Picacho Groupings, $254,000 for mine and smelting operations and other various mine expenses for the Don Roman Groupings.
Material changes of certain items in Tara Minerals’ operating, general and administrative expenses for the three months ended June 30, 2011, as compared to the same period last year, are discussed below.
| | |
Three Months Ended | June 30, 2011 | June 30, 2010 |
Bad debt expense | $ 97,921 | $ 422,319 |
Depreciation expense | 67,020 | 39,674 |
Investor relations expense | 35,310 | 1,388,770 |
Compensation, officer employment contracts and bonuses | 455,244 | 86,116 |
Professional fees | 217,511 | 301,270 |
Repair and maintenance | 2,739 | 19,832 |
Rent and rental of equipment | 12,460 | 4,360 |
Bad debt expense decreased in the three months ended June 30, 2011 due to lower transaction volume, therefore the allowance and bad debt calculation was lower. Depreciation expense increased as more plant and equipment was in service during the three months ended June 30, 2011 than 2010. The decrease in investor relations expense is due to fewer consultants needed, during 2010 the Company was expecting to start production and consultants were hired to handle investor relations and applied to enter Amex, at the time the Company decided not to go forward. During the three months ended June 30, 2011 investor relations expenses consisted of $16,500 paid with common stock and $14,250 in cash to consultants. During the three months ended June 30, 2010 investor relations expenses consisted 624,734 common shares issued for $1,193,550 and $152,551 in cash for investor relations at the Tara Minerals level. During the three months ended June 30, 2011 compensation, officer employment contracts and bonuses consisted of options with a value of $311,000, and officers’ compensation of $144,000. As of June 30, 2010 compensation, officer employment contracts and bonuses consisted of $86,000. Professional fees decreased $108,000 in 2011 because fewer professionals and consultants were needed to start operations at the Don Roman Groupings in 2010. Repairs and maintenance decreased in the three months ended June 30, 2011 because the plant at Choix stopped operating and during 2010 the company was working on
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a program to track inventory and parts and is not being used in 2011. Rent and rental equipment increased during the three months ended June 30, 2011 due to rental of apartments in Manzanillo, Colima, where the Iron Ore Project is located at, for personnel and officers, the Company did not incurred in any rental of equipment expenses.
Material changes of certain items in Tara Minerals’ Statement of Operation for the six months ended June 30, 2011, as compared to the same period last year, are discussed below.
| | |
Six Months Ended | June 30, 2011 | June 30, 2010 |
| | |
Revenue | $ - | $ 37,775 |
Cost of revenue | - | - |
Exploration expenses | 1,388,154 | 1,888,650 |
Operating, general and administrative expenses | 1,656,203 | 9,685,754 |
Net operating loss | $ (3,044,357) | $ (11,536,629) |
During the six months ended June 30, 2011, Tara Minerals had no revenue and exploration expenses declined due to activity ceasing at the Don Roman mine in the fourth quarter of 2010. For the six months June 30, 2011, exploration expenses consisted of $1,159,000 for the purchase of technical data for both the Centenario (part of the Don Roman Groupings) and La Verde and La Palma properties (part of the Don Roman Groupings), $16,000 for geological consulting, assaying, and field supplies for the Picacho Groupings, and $213,000 for mine and smelting operations and other various mine expenses for the Don Roman Groupings and Tania Project. As of June 30, 2010, exploration expenses consisted of $1,224,000 for the purchase of technical data for the Picacho Groupings, $80,000 for geological consulting, assaying, and field supplies for the Picacho Groupings, $584,000 for mine and smelting operations and other various mine expenses for the Don Roman Groupings.
Material changes of certain items in Tara Minerals’ operating, general and administrative expenses for the six months ended June 30, 2011, as compared to the same period last year, are discussed below.
| | |
Six Months Ended | June 30, 2011 | June 30, 2010 |
Bad debt expense | $ (52,802) | $ 443,038 |
Depreciation expense | 137,099 | 83,695 |
Investor relations expense | 92,303 | 4,401,263 |
Compensation, officer employment contracts and bonuses | 815,900 | 3,730,615 |
Professional fees | 361,673 | 471,172 |
Repairs and maintenance | 10,946 | 35,292 |
Rent and rental of equipment | 52,989 | 9,263 |
Bad debt expense decreased in the six months ended June 30, 2011 due to the renegotiation of an agreement which included IVA and caused an adjustment of IVA Receivables, allowance and bad debt expense. Depreciation expense increased as more plant and equipment was in service during the six months ended June 30, 2011 than 2010. The decrease in investor relations expense is due to fewer consultants needed, during 2010 the Company was expecting to start production and consultants were hired to handle investor relations and applied to enter Amex, at the time the Company decided not to go forward. For the six months ended June 30, 2011 Investor relations expenses consisted of $36,000 in options, $16,500 paid with common stock and $31,000 in cash to consultants. As of June 30, 2010 investor relations expenses consisted of 1,997,678 common shares issued for $4,108,610 for investor relations at the Tara Minerals level and 28,110 common shares issued for $21,083 for investor relations at the Adit level, the remainder was paid in cash. During the six months ended June 30, 2011 compensation, officer employment contracts and bonuses consisted of options with a value of $493,000, and officers’ compensation of $312,870. During the six months ended June 30, 2010 compensation, officer employment contracts and bonuses consisted of 2,450,000 options for $3,406,000, $157,000 for stock bonuses and officers’ compensation of $167,000. Professional fees decreased $133,000 2011 because fewer professionals and consultants were needed to start operations at the Don Roman Groupings in 2010. Repairs and maintenance decreased in the six months ended June 30, 2011 because the plant at Choix stopped operating; therefore the Company spent less on repairs and maintenance of machinery and other plant and mining equipment. During the six months ended June 30, 2010 the company was working on a program to track inventory and parts that is not being used in
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2011; the plant at Choix was operating and more repairs and maintenance expenses were incurred. Rent and rental equipment increased during the six months ended June 30, 2011 due to rental of apartments in Manzanillo, Colima, where the Iron Ore Project is located at, for personnel and officers, rent of the offices in Chihuahua; the Company defaulted on an equipment capital lease entered into on July 21, 2010, the equipment was capitalized as an asset and the asset and related debt were removed and payments were reclassified as treating payments similar to an operating lease during the first quarter of 2011.
The following is an explanation of Tara Minerals’ material sources and (uses) of cash during the six months ended June 30, 2011 and 2010:
