MUSTANG ALLIANCES, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
| NOTE 1 - | Organization and Basis of Presentation |
Mustang Alliances, Inc. (“the Company”) was incorporated on February 22, 2007 under the laws of the State of Nevada.
The Company has not yet generated revenues from planned principal operations and is considered an exploration stage company. The Company originally intended to market and sell anti-lock braking systems produced in China to the auto parts and auto manufacturing market in the United States. The Company has since abandoned its business plan and was seeking an operating company with which to merge or acquire. Currently, we are no longer a blank check company as we have a specific business plan. We are an exploration-stage mining company and as a result of the execution and delivery of the lease agreements, we are now in the business of exploring mineral properties. There is no assurance, however, that the Company will achieve its objectives or goals.
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in The United States of America and the rules and regulations of the Securities and Exchange Commission for interim financial information. Accordingly, they do not include all the information necessary for a comprehensive presentation of financial position and results of operations.
It is management's opinion, however that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statements presentation. The results for the interim period are not necessarily indicative of the results to be expected for the year.
Results of operations for interim periods are not necessarily indicative of the results of operations for a full year.
| NOTE 2 - | Going Concern and Significant Accounting Policies |
Going Concern
The Company is an exploration and had no revenues and has incurred a net loss of approximately $620,562 for the nine months ended September 30, 2011 and a cumulative net loss of approximately $815,541 for the period February 22, 2007 (inception) to September 30, 2011. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
There can be no assurance that sufficient funds required during the next year or thereafter will be generated from operations or that funds will be available from external sources such as debt or equity financings or other potential sources. The lack of additional capital resulting from the inability to generate cash flow from operations or to raise capital from external sources would force the Company to substantially curtail or cease operations and would, therefore, have a material adverse effect on its business. Furthermore, there can be no assurance that any such required funds, if available, will be available on attractive terms or that they will not have a significant dilutive effect on the Company’s existing stockholders.
The Company is attempting to address its lack of liquidity by raising additional funds, either in the form of debt or equity or some combination thereof. There can be no assurances that the Company will be able to raise the additional funds it requires.
MUSTANG ALLIANCES, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
| NOTE 2 - | Going Concern and Significant Accounting Policies |
The accompanying financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.
Use of Estimates
In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. At September 30, 2011 and December 31, 2010, the Company had no cash equivalents.
Loss Per Share
Basic and diluted net loss per common share is computed based upon the weighted average common shares outstanding as defined by FASB Accounting Standards Codification Topic 260, “Earnings Per Share.” As of September 30, 2011 and 2010, the Company has 4,690,000 and 0 warrants and options that are anti-dilutive and not included in diluted loss per share respectively.
Income Taxes
The Company accounts for income taxes under FASB Codification Topic 740-10-25 (“ASC 740-10-25”). Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Business Segments
The Company operates in one segment and therefore segment information is not presented.
MUSTANG ALLIANCES, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Revenue Recognition
The Company will recognize revenue on arrangements in accordance with FASB ASC No. 605, “Revenue Recognition”. In all cases, revenue is recognized only when the price is fixed and determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the resulting receivable is reasonably assured.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheet for accounts payable and notes payable – related party approximate fair value based on the short-term maturity of these instruments.
Mining Properties (Exploration Costs)
Costs of acquiring mining properties and any exploration costs are capitalized as incurred,in accordance with FASB Accounting Standards Codification No. 930, Extractive Activities – Mining, when proven and probable reserves exist and the property is a commercially mineable property. Mine exploration costs incurred either to develop new gold, silver, lead and copper deposits, expand the capacity of operating mines, or to develop mine areas substantially in advance of current production are capitalized. Costs incurred to maintain current production or to maintain assets on a standby basis are charged to operations. Costs of abandoned projects are charged to operations upon abandonment. The Company evaluates, at least quarterly, the carrying value of capitalized mining costs and related property, plant and equipment costs, if any, to determine if these costs are in excess of their net realizable value and if a permanent impairment needs to be recorded. The periodic evaluation of the carrying value of capitalized costs and any related property, plant and equipment costs are based upon expected future cash flows and/or estimated salvage value.
The Company capitalizes costs for mining properties by individual property and defers such costs for later amortization only if the prospects for economic productions are reasonably certain. Capitalized costs are expensed in the period when the determination has been made that economic production does not appear reasonably certain.
Stock-Based Compensation
In December 2004, the FASB issued ASC No. 718, Compensation – Stock Compensation (“ASC 718”). Under ASC 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. As such, compensation cost is measured on the date of grant at their fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant.
Equity instruments (“instruments”) issued to persons other than employees are recorded on the basis of the fair value of the instruments, as required by ASC 718. ASC No. 505, Equity Based Payments to Non-Employees (“ASC 505”) defines the measurement date and recognition period for such instruments. In general, the measurement date is (a) when a performance commitment, as defined, is reached or (b) when the earlier of (i) the non-employee performance is complete or (ii) the instruments are vested. The measured value related to the instruments is recognized over a period based on the facts and circumstances of each particular grant as defined in the ASC 505.
MUSTANG ALLIANCES, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
On December 13, 2010 the Company entered into a lease agreement to explore certain mining concessions in Honduras. The Company issued 20,000,000 shares of common stock, valued at $2,500 for this lease that was charged to mining exploration costs.
On February 22, 2011 the Company entered into a second lease agreement to explore certain mining concessions in Honduras. The Company issued 20,000,000 shares of common stock, valued at $2,500 for this lease that was charged to mining exploration costs.
| NOTE 4 - | Notes Payable to Related Parties: |
Convertible Debt
The Company has issued for aggregate consideration of $25,000 a convertible note to a related party. This note bears interest at the imputed IRS rate of .0054% per annum and is due September 28, 2011. The note is convertible into common stock of the Company at the rate of $.25 per share. In addition, upon conversion at maturity date, the Company will issue a 2-year warrant to purchase 100,000 shares of the Company's common stock at an exercise price of $.50 per share. The Company has recorded a debt discount in the amount of $19,723 to reflect the value of the warrants as a reduction to the carrying amount of the convertible debt and a corresponding increase to additional paid-in capital. Such discount was amortized over the term of the debt. As of September 30, 2011, the convertible note was repaid in full with the remaining discount recorded as interest expense.
Notes Payable:
On June 15, 2011, the loans payable to First Line Capital, a related party, including accrued interest in the amount of $97,784 was forgiven. The Company has recorded the carrying amount of debt with accrued interest as an increase to additional paid-in capital.
On July 25, 2011, repayment for $25,000 was made for the $50,000 note due to Landolt, a company owned by a director of the Company. At which time the note was assigned to MeM Mining, Inc. MeM is controlled by, Mendel Mochkin, a director of the company. As of September 30, 2011, the Principle balance due was $25,000, is unsecured and is due January 2013 with accrued interest at 5%.
MUSTANG ALLIANCES, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
In February 2007 the Company issued 64,000,000 shares of common stock at $.0000125 per share to the Founders of the Company for $800.
In February 2008 the Company sold 22,400,000 shares of common stock at $.002 per share pursuant to its public offering. The Company received net proceeds of $44,964.
In February 2008 the Company issued 800,000 shares of common stock valued at $.0075 per share for services rendered. The Company recorded stock based compensation expense of $6,000 in connection with this issuance.
On December 15, 2010, the Company notified the FINRA of its intention to implement a 1 for 8 share dividend or forward stock split of its issued and outstanding common stock to the holders of record as of December 27, 2010 (the “Shareholders”). The forward stock split became effective as of the start of business on January 3, 2011. All share and per share data have been retroactively restated to reflect this recapitalization.
On December 13, 2010 the Company issued 20,000,000 shares of common stock as payment for certain mining leases in Honduras at a value of $2,500.
On February 22, 2011 the Company issued 20,000,000 shares of common stock as payment for certain additional mining leases in Honduras at a value of $2,500.
On March 28, 2011 the Company sold 60,000 units consisting of 60,000 shares of common stock and 30,000 warrants for $15,000. The warrants are exercisable at $.50 per share and have a two year term.
On March 31, 2011 the Company's CEO retired 30,000,000 shares of his common stock of the Company as additional paid-in capital.
On April 12, 2011, the Company sold 1,000,000 units consisting of 1,000,000 shares of common stock and 500,000 warrants for $250,000. The warrants are exercisable at $.50 per share and have a two year term.
On April 20, 2011, the Company sold 100,000 units consisting of 100,000 shares of common stock and 50,000 warrants for $25,000. The warrants are exercisable at $.50 per share and have a two year term.
MUSTANG ALLIANCES, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
On April 21, 2011, the Company sold 100,000 units consisting of 100,000 shares of common stock and 50,000 warrants for $25,000. The warrants are exercisable at $.50 per share and have a two year term.
On May 6, 2011, the Company sold 60,000 units consisting of 60,000 shares of common stock and 30,000 warrants for $15,000. The warrants are exercisable at $.50 per share and have a two year term.
On May 11, 2011, the Company sold 20,000 units consisting of 20,000 shares of common stock and 10,000 warrants for $5,000. The warrants are exercisable at $.50 per share and have a two year term.
On July 19, 2011, the Company issued 40,000 units to Mark Holcombe, a director of the Company until such date, in consideration of consisting of 40,000 shares of common stock and 20,000 warrants. Each warrant allows Mr. Holcombe to purchase one additional share of common stock at a price of $0.50 per share for two years. The shares were valued at $.25 per share, the fair value on the date of grant.
On July 21, 2011, the Company issued 100,000 shares to Lawrence H. Wolfe, our Chief Financial Officer, in consideration for the execution and delivery of a consulting agreement with Mr. Wolfe. The shares were valued at $.24 per share, the fair value on the date of grant.
On July 21, 2011, the Company issued 100,000 shares to Zegal and Ross Capital LLC in consideration for the execution and delivery of a consulting agreement. The shares were valued at $.24 per share, the fair value on the date of grant.
On July 25, 2011, the Company issued 100,000 shares to Mendel Mochkin, a director, in consideration for the execution and delivery of a consulting agreement with such person which replaced in its entirety Mr. Mochkin's employment agreement. Mr. Mochkin is an accredited investor. The issuance was conducted in reliance upon an exemption from registration provided under Section 4(2) of the Securities Act of 1933, as amended. The shares were valued at $.24 per share, the fair value on the date of grant.
On July 27, 2011 the Company sold 1,000,000 units in consideration of $250,000 consisting of 1,000,000 shares of common stock and 1,000,000 warrants. Each warrant allows for the purchase one additional share of common stock at a price of $0.50 per share for two years.
At September 30, 2011 the Company has 158,258 shares issuable to officers and directors with a fair value of $35,000 in connection with certain consulting agreements. These shares were valued at the fair value on the date of grant. (See note 8).
MUSTANG ALLIANCES, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Warrants
During 2011, the Company issued 1,690,000 warrants in connection with a private placement offering. The warrants have a term of two years from the date of the subscription agreement and allow investors to purchase one share of common stock for $.50. At September 30, 2011 all warrants have a remaining contractual life of 2 years.
Information with respect to warrants outstanding and exercisable at September 30, 2011 is as follows:
Nine Months Ended, September 30, 2011:
| | | Number Outstanding | | | Range of Exercise Price | | | Number Exercisable | |
| | | | | | | | | | |
| Warrants outstanding, January 1, 2011 | | | - | | | | - | | | | - | |
| Issued | | | 1,690,000 | | | $ | 0.50 | | | | 1,690,000 | |
| Exercised | | | - | | | | - | | | | - | |
| Expired | | | - | | | | -- | | | | - | |
| Warrants outstanding, September 30, 2011 | | | 1,690,000 | | | $ | 0.50 | | | | 1,690,000 | |
| | | | | | | | | | | | | |
Options
The Company has Consultancy agreements that contain provisions for the issuance and granting of options aggregating 3,000,000 shares at $.50 per share that are predicated on the Company reaching certain milestones in the production of gold. As of September 30, 2011, none of the milestones have been met and accordingly such options have not been granted or issued.
MUSTANG ALLIANCES, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
The Company has 5,000,000 preferred shares authorized that the Company’s Board of Directors may, without further action by the Company’s stockholders, from time to time, direct the issuance of any authorized but unissued or unreserved shares of preferred stock in series and at the time of issuance, determine the rights, preferences and limitations of each series. The holders of preferred stock may be entitled to receive a preference payment in the event of any liquidation, dissolution or winding-up of the Company before any payment is made to the holders of the common stock. Furthermore, the board of directors could issue preferred stock with voting and other rights that could adversely affect the voting power of the holders of the common stock.
| NOTE 7 - | Commitment and Contingencies |
Lease Commitment
On December 13, 2010, the Company entered into a Lease Agreement (the "Lease Agreement") with Compania Minera Cerros Del Sur, S.A., a corporation organized under the laws of Honduras (“Cerros”) and Mayan Gold, Inc., a Nevada corporation (“Mayan Gold”) pursuant to which Cerros, the registered owner of the Corpus I, II, III and IV mining concessions and the Potosi concession, leased us the exclusive right to prospect, explore and mine for minerals in Corpus IV. The Lease Agreement continues until the Honduras government grants Cerros the right to assign the Corpus IV mining concession to the Company, at which time Cerros will transfer title to the mining concession to the Company. In consideration for such rights, we issued 20,000,000 shares of common stock to Mayan Gold, the beneficial owner of a 100% interest in Corpus IV. The shares issued by the Company to Mayan Gold represent approximately 18.66% of the then issued and outstanding shares of the Company. As further consideration for the right granted, we agreed to pay Cerros an annual sum of $1,500 no later than April 1st of each year, beginning April 1, 2011.
Cerros also granted the Company an option to acquire the exclusive rights to properties known as Corpus I, II, and III mining concessions and the Potosi concession. If we desire to exercise such option, the Company must send written notice to Cerros and Mayan Gold on or before December 31, 2010. The consideration for the exercise of the option is an additional 20,000,000 shares of the Company’s common stock to be issued to Mayan Gold no later than 30 days after the date we receive all the requested documentation from Cerros in connection with the exercise of the option.
On February 22, 2011, Company entered into a Lease Agreement (the "Lease Agreement") with Cerros and Mayan Gold pursuant to which the Company exercised its option to acquire the exclusive rights to properties known as Corpus I, II, and III mining concessions and the Potosi concession and the Potosi ground lease (collectively, referred to herein as the “Property”), with the subsequent right to participate in the development of minerals from the remaining mining concessions.
The Lease Agreement continues until the Honduras government grants Cerros the right to assign the Property to the Company, at which time Cerros will transfer title to the mining concession to us. In consideration for such right, we issued 20,000,000 shares of common stock to Mayan Gold, the beneficial owner of a 100% interest in Property. The shares issued by the Company to Mayan Gold represent an additional interest of 15.72% of the then issued and outstanding shares of the Company. As further consideration for the rights granted, we agreed to pay Cerros an annual sum of $3,200 no later than April 1st of each year with the first payment due on April 1, 2011.
MUSTANG ALLIANCES, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Employment Agreements
On March 22, 2011, the Company entered into a two year employment agreement with Mendel Mochkin, pursuant to which he will be employed on a part time basis. Mr. Mochkin shall work at least one hundred (100) hours per month on behalf of the Company as the Company's Vice President. Pursuant to the agreement, his compensation will be $120,000 annually, which shall accrue from the date of the agreement and to be paid at such time when the Company has adequate capital. On July 25, 2011, the Company entered into a Consultancy Agreement, which replaced in its entirety the Employment Agreement between the Company and Mendel Mochkin dated March 22, 2011. (See Note 8)
On March 22, 2011, the Company entered into a two year employment agreement with Leonard Sternheim, pursuant to which he will be employed on a part time basis. Mr. Sternheim shall work at least one hundred fifty (150) hours per month on behalf of the Company as its Chief Executive Officer. Pursuant to the agreement, his compensation will be $120,000 annually, which shall accrue from the date of the agreement and to be paid at such time when the Company has adequate capital. In July, 2011 this agreement was nullified. Mr. Sternheim is currently acting in a consultancy capacity as the Company’s Chief Executive Officer. (See Note 8)
Consulting Agreements
On July 21, 2011, the Company entered into a consulting agreement with Lawrence H. Wolfe, pursuant to which he will work as Chief Financial Officer. Pursuant to the agreement, 100,000 shares were issued in consideration for the execution and delivery of the agreement (See note 5). His compensation will be $150,000 for the first 12 months, payable 60% in cash and 40% in stock. The cash portion shall be paid monthly, and the shares shall be valued based on the stock price of the last day of the preceding month and will be issued on January 1st and June 1st. On each anniversary, an option to purchase 120,000 shares of common stock at an exercise price of 0.50 per share is granted, half of Option shall vest on January 1 and half on June 1 following such grant date. As a one-time bonus, the options to purchase 250,000 shares at $0.50 per share upon production of 12,000 and 24,000 ounces of gold, respectively, and an option to purchase 500,000 shares at $0.50 per share upon production of 48,000 ounces of gold. For the three and nine months ended September 30, 2011, Mr. Wolfe has earned $59,000 and an aggregate of 68,560 shares pursuant to his consulting agreement with a fair value of $.22 per share.
MUSTANG ALLIANCES, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
On July 25, 2011, the Company entered into a Consultancy Agreement with Mendel Mochkin, which replaced in its entirety the Employment Agreement dated March 22, 2011(See note 7). Pursuant to the agreement, his compensation will be $120,000 for the first 12 months, payable 60% in cash and 40% in stock. The cash portion shall be paid monthly, and the shares shall be valued based on the stock price of the last day of the preceding month and will be issued on January 1st and June 1st. On each anniversary, an option to purchase 120,000 shares of common stock at an exercise price of 0.50 per share is granted, half of Option shall vest on January 1 and half on June 1 following such grant date. As a one-time bonus, the options to purchase 250,000 shares at $0.50 per share upon production of 12,000 and 24,000 ounces of gold, respectively, and an option to purchase 500,000 shares at $0.50 per share upon production of 48,000 ounces of gold. For the three and nine months ended September 30, 2011, Mr. Mendel has been paid $67,056 and $97,056, respectively, and an aggregate of 54,859 shares pursuant to his consulting agreement with a fair value of $.22 per share.
On July 21, 2011, the Company entered into a Consultancy Agreement with Zegal and Ross Capital LLC. which represented as an accredited investor. Pursuant to the agreement, 100,000 shares was issued in consideration for the execution and delivery of the agreement (See note 5). The compensation will be $120,000 for the first 12 months, payable 60% in cash and 40% in stock. The cash portion shall be paid monthly, and the shares shall be valued based on the stock price of the last day of the preceding month and will be issued on January 1st and June 1st. On each anniversary, an option to purchase 120,000 shares of common stock at an exercise price of $0.50 per share is granted, half of option shall vest on January 1st and half on June 1st following such grant date. As a one-time bonus, the options to purchase 250,000 shares at $0.50 per share upon production of 12,000 and 24,000 ounces of gold, respectively, and an option to purchase 500,000 shares at $0.50 per share upon production of 48,000 ounces of gold. For the three and nine months ended September 30, 2011, Zegal and Ross has earned $20,000 and an aggregate of 34,859 shares pursuant to the consulting agreement with a fair value of $.23 per share.
Mr. Sternheim is currently on a month-to-month arrangement with the company and has been paid $59,943 and $119,943 for the three months and nine ended September 30, 2011, respectively. . Additionally, The Company has incurred travel expenses on behalf of Mr. Sternheim totaling approximately $10,700 and $34,100 for the three months and nine months ended September 30, 2011.
Subsequent to September 30, 2011 but prior to the issuance of the common stock referred to above, the consulting agreements have been amended to include a $.25 (cents) per share price floor on the valuation of the common stock. This amendment will expire on February 22, 2012.
MUSTANG ALLIANCES, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
| NOTE 9 - | Change of Management and Control |
On November 29, 2010, Joseph Levi, the principal shareholder of the Company entered into a stock purchase agreement which provided for the sale of 60,000,000 shares of common stock of the Company (the "Purchased Shares") to Leonard Sternheim (the Purchaser). The consideration paid for the Purchased Shares, which represented at the time of the transaction 68.81% of the issued and outstanding shares of the Company was $7,500. The Purchaser used his personal funds to acquire these shares.
On November 29, 2010, in connection with the acquisition of the purchased shares, Leonard Sternheim was appointed as a director, and as President, Chief Executive Officer and Chief Financial Officer of the Company, effective simultaneous with the sale of Mr. Levi's shares to Mr. Sternheim.
On November 29, 2010, in connection with the acquisition of the Purchased Shares, Joseph Levi resigned from his positions as officer and director of the Company.
On December 24, 2010 Mr. Sternheim sold 10,000,000 of the Purchased Shares to Zegal & Ross Capital LLC.
On March 17, 2011 Eleizer Oppenheimer resigned from his position as a director of the Company.
In March 2011 the Board of Directors elected Mark Holcombe and Mendel Mochkin as Members of the Board. The Board also elected Mr. Mochkin as Vice President of the Company.
On July 19, 2011, Mark Holcombe resigned from his position as a director, effective as of such date. The board of directors of the Company elected Lawrence H. Wolfe and Robert Faber as members of the Board, to serve until their respective successors are duly appointed and qualified. The Board also elected Mr. Wolfe as Chief Financial Officer.
| NOTE 10 – | Subsequent Events |
On October 24, 2011, we issued 20,000 shares to Ben Lafazan and 20,000 shares to Barry Wolinetz as partial settlement for services rendered with a fair value of $.24 per share.
Subsequent to September 30, 2011, but prior to the issuance of the common stock referred to above,(Note 8) the consulting agreements have been amended to include a $.25 (cents) per share price floor on the valuation of the common stock. This amendment will expire on February 22, 2012.
