SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM 10-Q
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2012
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________________ to _______________
Commission File No. 033-17774-NY
ALL GRADE MINING, INC.
(Exact name of registrant as specified in its charter)
| Colorado | * |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
370 W. Pleasantview Ave., Suite 163, Hackensack, NJ 0760 (Address of principal executive office)
Registrant's telephone number, including area code: (201) 788-3785
____________________________________________
Former name, former address and former fiscal year,
if changed since last report.
Check whether the Issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
| Yes | þ | No | o |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o | |
Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller Reporting Company þ | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO þ
85,058,759 shares of Common Shares, par value $0.001 per share, were outstanding as of March 31, 2012.
ALL GRADE MINING, INC.
(A Development Stage Company Commencing January 3, 2006)
CONTENTS
| Page | ||||
| PART I- | FINANCIAL INFORMATION | |||
| ITEM 1- | FINANCIAL STATEMENTS | 2 | ||
Condensed Consolidated Balance sheets as of March 31, 2012 (unaudited) and December 31, 2011 | 2 | |||
Condensed Consolidated Statements of operations for the three months ended March 31, 2012 and March 31, 2011 and for the period January 3, 2006 (date of Commencement as a development stage company) through March 31, 2012(unaudited) | 3 | |||
Condensed Consolidated Statements of cash flows for the three months ended March 31, 2012 and March 31, 2011 and for the period January 3, 2006 (date of Commencement as a development stage company) through March 31, 2012(unaudited) | 4 | |||
| Notes to condensed consolidated financial statements | 5 | |||
| ITEM 2- | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 11 | ||
| ITEM 3- | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 13 | ||
| ITEM 4- | CONTROLS AND PROCEDURES | 13 | ||
| PART II- | OTHER INFORMATION | |||
| ITEM 1- | LEGAL PROCEEDINGS | 14 | ||
| ITEM 1A- | RISK FACTORS | 14 | ||
| ITEM 2- | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 14 | ||
| ITEM 3- | DEFAULT UPON SENIOR SECURITIES | 15 | ||
| ITEM 4- | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS | 15 | ||
| ITEM 5- | OTHER INFORMATION | 15 | ||
| ITEM 6- | EXHIBITS | 15 | ||
| SIGNATURES | 16 | |||
| Exhibit 31.1 | Certification Pursuant to Section 302 of the Sarbanes Oxley Act | |||
| Exhibit 32.2 | Certification Pursuant to Section 906 of the Sarbanes Oxley Act | |||
1
ALL GRADE MINING, INC. AND SUBSIDIARY
(A Development Stage Company Commencing January 3, 2006)
CONDENSED CONSOLIDATED BALANCE SHEETS
| March 31, | ||||||||
| ASSETS | 2012 | December 31, | ||||||
| (Unaudited) | 2011 | |||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | - | $ | 1,040 | ||||
| Total current assets | - | 1,040- | ||||||
| PROPERTY AND EQUIPMENT, NET: | 328 | 350 | ||||||
OTHER ASSETS: | ||||||||
| Depository payment towards acquisition of iron ore mine | 250,000 | 250,000 | ||||||
| Total assets | $ | 250,328 | $ | 251,390 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIENCY | ||||||||
| LIABILITIES: | ||||||||
| Accounts payable | $ | 223,815 | $ | 164,215 | ||||
| Cash overdraft | 4,937 | - | ||||||
| Taxes payable | 10,716 | 8,716 | ||||||
| Accrued interest payable | 26,065 | 15,193 | ||||||
| Due to stockholders | 12,500 | 7,302 | ||||||
| Loans payable | 205,000 | 205,000 | ||||||
| Convertible debentures, net of debt discount of $26,000 and $0 as of March 31, 2012 and December 31, 2011 | 54,500 | 48,000 | ||||||
| Derivative liability | 377,600 | 1,372,600 | ||||||
| Total current liabilities | 915,133 | 1,821,026 | ||||||
| Convertible debentures, net of debt discount of $137,000 and $144,400 as of March 31, 2012 and December 31, 2011, net of current portion | 263,000 | 255,600 | ||||||
| Total liabilities | 1,178,133 | 2,076,626 | ||||||
| STOCKHOLDERS’ DEFICIENCY: | ||||||||
| Convertible Preferred Stock Class A, no par value, 100,000 shares authorized at March 31, 2012 and at December 31, 2011.Issued and outstanding 20,000 shares at March 31, 2012 and December 31, 2011. | 46,000 | 46,000 | ||||||
| Convertible Preferred Stock Class B, no par value, 400,000 shares authorized at March 31, 2012 and at December 31, 2011. None issued and outstanding at March 31, 2012 and December 31, 2011. | - | - | ||||||
| Preferred Stock Class C, no par value, 50,000 shares authorized at March 31, 2012 and at December 31, 2011.Issued and outstanding 20,000 shares at March 31, 2012 and December 31, 2011 | 9,000 | 9,000 | ||||||
| Common stock, par value $.001 per share; authorized 500,000,000 shares, issued and outstanding 85,058,759 shares at March 31, 2012 and December 31, 2011 | 85,059 | 85,059 | ||||||
| Additional paid in capital | 164,039 | 164,039 | ||||||
| Deficit accumulated during the development stage | (1,231,903 | ) | (2,129,334 | ) | ||||
| Total stockholder’s deficiency | (927,805 | ) | (1,825,236 | ) | ||||
| Total liabilities and stockholder’s deficiency | $ | 250,328 | $ | 251,390 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
ALL GRADE MINING, INC. AND SUBSIDIARY
(A Development Stage Company Commencing January 3, 2006)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| Three Months Ended | January 3, 2006 (date of commencement as a development | |||||||||||
| stage company) | ||||||||||||
| though | ||||||||||||
| March 31, | March 31, | March 31, | ||||||||||
| 2012 | 2011 | 2012 | ||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
| REVENUES | $ | - | $ | - | $ | 7,500 | ||||||
| COST OF REVENUES | - | - | 3,135 | |||||||||
| Gross profit | - | - | 4,365 | |||||||||
| OPERATING EXPENSES: | ||||||||||||
| Officers’ compensation | 25,000 | - | 125,000 | |||||||||
| Mine related expenses | 5,000 | - | 237,500 | |||||||||
| Consulting fees | 17,500 | 15,000 | 137,500 | |||||||||
| General and administrative | 57,796 | 1,466 | 480,301 | |||||||||
| Total operating expenses | 105,296 | 16,466 | 980,301 | |||||||||
| Operating loss | (105,296 | ) | (16,466 | ) | (975,936 | ) | ||||||
| OTHER INCOME AND (EXPENSES): | ||||||||||||
| Interest income | - | - | 12 | |||||||||
| Other income | - | - | 17,500 | |||||||||
| Change in fair value of derivative liability | 1,027,100 | - | 381,500 | |||||||||
| Interest expense | (24,373 | ) | (609 | ) | (628,879 | ) | ||||||
| Loss on negotiated debt settlement | - | - | (26,100 | ) | ||||||||
| Total other income and (expenses) | 1,002,727 | (609 | ) | (255,967 | ) | |||||||
| Net income (loss) | $ | 897,431 | $ | (17,075 | ) | $ | (1,231,903 | ) | ||||
| Earnings per share: | ||||||||||||
| Basic | $ | 0.01 | $ | (0.05 | ) | |||||||
| Diluted | $ | (0.00 | ) | $ | (0.05 | ) | ||||||
| Weighted average number of common shares outstanding: | ||||||||||||
| shares outstanding: | ||||||||||||
| Basic | 85,058,759 | 338,731 | ||||||||||
| Diluted | 107,296,535 | 338,731 | ||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
ALL GRADE MINING, INC. AND SUBSIDIARY
(A Development Stage Company Commencing January 3, 2006)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Three Months Ended | January 3, 2006 (date of commencement as a development | |||||||||||
| stage company) | ||||||||||||
| though | ||||||||||||
| March 31, | March 31, | March 31, | ||||||||||
| 2012 | 2011 | 2012 | ||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
| Net income (loss) | $ | 897,431 | $ | (17,075 | ) | $ | (1,231,903 | ) | ||||
| Adjustments to reconcile net income (loss) to net cash used by operating activities: | ||||||||||||
| Depreciation expense | 22 | 466 | 9,238 | |||||||||
| Impairment of equipment | - | - | 3,907 | |||||||||
| Change in fair value of derivative liability | (1,027,100 | ) | - | (381,500 | ) | |||||||
| Amortization of debt discount | 13,500 | - | 57,100 | |||||||||
| Interest expense | - | - | 539,000 | |||||||||
| Stock based compensation | - | - | 120,000 | |||||||||
| Changes in assets and liabilities: | ||||||||||||
| Accounts payable | 59,600 | 14,500 | 282,790 | |||||||||
| Taxes payable | 2,000 | 1,500 | 10,716 | |||||||||
| Accrued interest payable | 10,872 | 609 | 47,897 | |||||||||
| NET CASH USED BY OPERATING ACTIVITIES | (43,675 | ) | - | (542,755 | ) | |||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
| Purchase of property and equipment | - | - | (13,473 | ) | ||||||||
| Depository payment towards acquisition of mine | - | - | (250,000 | ) | ||||||||
| NET CASH USED BY INVESTING ACTIVITIES | - | - | (263,473 | ) | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
| Cash overdraft | 4,937 | - | 4,937 | |||||||||
| Repayment of advances | - | - | (1,844 | ) | ||||||||
| Cash proceeds from loans | - | - | 217,900 | |||||||||
| Cash proceeds from stockholders advances | 5,198 | - | 14,344 | |||||||||
| Cash proceeds from issuance of convertible debentures | 32,500 | - | 480,500 | |||||||||
| Issuance of common stock for cash | - | - | 90,391 | |||||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | 42,635 | - | 806,228 | |||||||||
| Decrease in cash | (1,040 | ) | - | - | ||||||||
| Cash, beginning of period | 1,040 | - | - | |||||||||
| Cash, end of period | $ | - | $ | - | $ | - | ||||||
| Supplemental Disclosure of Cash Flow Information: | ||||||||||||
| Cash paid for interest | $ | - | $ | - | $ | - | ||||||
| Cash paid for income taxes | $ | - | $ | - | $ | - | ||||||
| Non-cash investing and financing activities: | ||||||||||||
| Debt discount related to convertible debentures | $ | 32,100 | $ | - | $ | 220,100 | ||||||
| Conversion of accrued interest to principal | $ | - | $ | - | $ | 3,156 | ||||||
| Issuance of shares for the settlement of debt | $ | - | $ | - | $ | 77,857 | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
ALL GRADE MINING, INC. AND SUBSIDIARY
(A Development Stage Company Commencing January 3, 2006)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1- NATURE OF BUSINESS AND BASIS OF PRESENTATION:
Organization:
All Grade Mining, Inc. and Subsidiary (a development stage company) (“the Company”) is a corporation organized under the laws of the State of Colorado. The Company is currently engaged in the acquisition and exploration of mining properties. The Company's corporate headquarters is in Hackensack, New Jersey.
The Company has generated nominal revenues to date; accordingly, the Company is considered a development stage enterprise as defined in the Accounting Standards Codification 915 “Development Stage Entities.” The Company is subject to a number of risks similar to those of other companies in an early stage of development.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Accordingly, these interim financial statements do not include all of the information and footnotes required for annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to make the financial statements not misleading have been included. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2011 included in the Company’s Annual Report on Form 10-K as filed with the SEC on April 26, 2012.
The results for the three months ended March 31, 2012, are not necessarily indicative of the results to be expected for any subsequent quarter or the entire fiscal year. The balance sheet at December 31, 2011 has been derived from the audited financial statements at that date.
Note 2- GOING CONCERN:
The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred operating losses and negative operating cash flow since inception and future losses are anticipated. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s plan of operations, even if successful, may not result in cash flow sufficient to finance and expand its business.
Realization of assets is dependent upon continued operations of the Company, which in turn is dependent upon management’s plans to meet its financing requirements and the success of its future operations. The ability of the Company to continue as a going concern is dependent on improving the Company’s profitability and cash flow and securing additional financing.
Management is presently seeking to raise permanent equity capital in the capital markets to eliminate negative working capital and raise the necessary funds to satisfy its commitment for the mining rights. Failure to raise equity capital or secure some other form of long-term debt arrangement will cause the Company to further increase its negative working capital deficit and loss of the ability to acquire the iron ore mine.
While the Company believes in the viability of its strategy to generate revenues and profitability and in its ability to raise additional funds, and believes that the actions presently being taken by the Company provide the opportunity for it to continue as a going concern. However, the Company can give no assurance that such financing will be available on terms advantageous to us, or at all. Should the Company not be successful in obtaining the necessary financing to fund its operations, the Company would need to curtail certain or all of its operational activities. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
5
Note 3- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. The most significant estimates, among other things, are used in accounting for allowances are for deferred income taxes, expected realizable values for long-lived assets (primarily property and equipment), derivative liability and contingencies, as well as the recording and presentation of its common stock issuances. Estimates and assumptions are periodically reviewed and the effects of any material revisions are reflected in the condensed consolidated financial statements in the period that they are determined to be necessary. Actual results could differ from those estimates and assumptions.
Principle of Consolidation
The condensed consolidated financial statements of All Grade Mining, Inc. and Subsidiary include accounts of the Company and its wholly-owned foreign subsidiary, All Grade Mining Chile, SA. Intercompany transactions and balances are eliminated in consolidation. All Grade Mining Chile, S.A. was formed in November 2011, has yet to commence operations and has minimal assets.
Derivative Financial Instruments
In connection with the issuance of certain convertible debentures, the terms of the convertible debentures included an embedded conversion feature; which provided for a conversion of the convertible debentures into shares of common stock at a rate which was determined to be variable. The Company determined that the conversion feature was an embedded derivative instrument pursuant to ASC 815 “Derivatives and Hedging”
The accounting treatment of derivative financial instruments requires that the Company record the conversion options at their fair values as of the inception date of the convertible debenture agreements and at fair value as of each subsequent balance sheet date. As a result of entering into the convertible promissory note, the Company was required to classify all other conversion options as derivative liabilities and record them at their fair values at each balance sheet date. Any change in fair value was recorded as a Change in fair value of derivative liability for each reporting period at each balance sheet date. The Company reassesses the classification at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.
The fair value of conversion options at a fixed number of shares are recorded using the intrinsic value method and conversion options at variable rates are deemed to be a “down-round protection” and therefore, do not meet the scope exception for treatment as a derivative under ASC 815. Since, “down-round protection” is not an input into the calculation of the fair value of the conversion option and cannot be considered “indexed to the Company’s own stock” which is a requirement for the scope exception as outlined under ASC 815. The Company determined the fair value of the Binomial Lattice Model and the Intrinsic Value Method to be materially the same.
Reclassification
Certain accounts in the prior year’s financial statements have been reclassified for comparative purposes to conform to the presentation in the current year’s financial statements. These reclassifications have no effect on previously reported earnings.
Subsequent Events
The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would require adjustment or disclosure in the condensed financial statements.
Recent Accounting Pronouncements
The FASB, the Emerging Issues Task Force and the SEC have issued certain accounting standards updates and regulations as of March 31, 2012 that will become effective in subsequent periods; however, management of the Company does not believe that any of those updates would have significantly affected the Company’s financial accounting measures or disclosures had they been in effect during 2012 or 2011, and it does not believe that any of those pronouncements will have a significant impact on the Company’s consolidated financial statements at the time they become effective.
6
ALL GRADE MINING, INC.
(A Development Stage Company Commencing January 3, 2006)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 4- FAIR VALUE:
ASC 820 “Fair Value Measurements and Disclosures” defines fair value, establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. As defined in ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Standard clarifies that the exchange price is the price in an orderly transaction between market participants to sell an asset or transfer a liability at the measurement date and emphasizes that fair value is a market-based measurement and not an entity-specific measurement.
ASC 820 establishes the following hierarchy used in fair value measurements and expands the required disclosures of assets and liabilities measured at fair value:
Level 1 – Inputs use quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
Level 2 – Inputs use other inputs that are observable, either directly or indirectly. These inputs include quoted prices for similar assets and liabilities in active markets as well as other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 – Inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset or liability.
In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Company’s assessment of the significance of particular inputs to these fair measurements requires judgment and considers factors specific to each asset or liability.
Liabilities measured at fair value on a recurring basis at March 31, 2012 are as follows:
Quoted Prices in Active Markets for Identical Liabilities (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Observable Inputs (Level 3) | Balance at March 31, 2012 | |||||||||||||
Embedded conversion feature – March 31, 2012 | $ | - | $ | - | $ | 377,600 | $ | 377,600 | ||||||||
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. The Company’s Level 3 liabilities consist of derivative liabilities associated with the convertible debt that contains an indeterminable conversion share price and the tainted conversion to other outstanding convertible debt as the Company cannot determine if it will have sufficient authorized common stock to settle such arrangements.
The following table provides a summary of the changes in fair value, including net transfers in and/or out, of all financial assets measured at fair value on a recurring basis using significant unobservable inputs during the period ended March 31, 2012.
7
ALL GRADE MINING, INC.
(A Development Stage Company Commencing January 3, 2006)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 4- FAIR VALUE: (continued)
Embedded Conversion Feature | ||||
| Balance January 1, 2012 | $ | 1,372,600 | ||
| Included in other income expense | ||||
| Change in fair value of derivative liability | (1,027,100 | ) | ||
| Included in liabilities (debt discount) | 32,100 | |||
| Included in stockholder's equity | -- | |||
| Transfers in and /or out of Level 3 | -- | |||
| Balance March 31, 2012 | $ | 377,600 | ||
Note 5- DEPOSITORY PAYMENT TOWARDS ACQUISITION OF IRON ORE MINE:
On September 21, 2011, The Company entered into a preliminary option agreement to acquire title to a certain iron ore mine in the Republic of Chile at an acquisition cost of $3,250,000, with the Company as of September 30, 2011 making an initial deposit of $250,000 to the seller. The agreement provides for the participation of the Republic of Chile in 15% of the mining profits.
On April 26, 2012, the Company amended the payment terms of the agreement and paid $100,000 upon execution of the amended document. Under the terms of the amended agreement, the Company is required to remit the remaining balance of $2,900,000 over a three year period as follows:
| Date | Amount | |||
| May 31, 2012 | $ | 400,000 | ||
| August 31, 2012 | 500,000 | |||
| February 28, 2013 | 500,000 | |||
| August 31, 2013 | 500,000 | |||
| February 28, 2014 | 500,000 | |||
| August 31, 2014 | 500,000 | |||
| Total payments | $ | 2,900,000 | ||
Note 6- EARNINGS PER SHARE
Basic earnings (loss) per share was computed using the weighted average number of outstanding common shares. Diluted income (loss) per share is computed on the basis of the weighted average number of common shares outstanding plus the potential dilution that would occur if securities or other contracts to issue common shares were exercised or converted.
The following table sets forth the components used in the computation of basic and diluted income per common share:
| Three months ended March 31, | ||||||||
| 2012 | 2011 | |||||||
| Numerator: | ||||||||
| Numerator for basic earnings (loss) per share | ||||||||
| Net income (loss) as reported | $ | 897,431 | $ | (17,075 | ) | |||
| Effect of dilutive securities: | ||||||||
| Interest on convertible debentures | 5,536 | -- | ||||||
| Amortization of debt discount | 13,500 | -- | ||||||
| Change in fair value of derivative liability | (1,027,100 | ) | -- | |||||
| Numerator for basic earnings (loss) per share- | ||||||||
| net income (loss) as adjusted | $ | (110,633 | ) | $ | (17,075 | ) | ||
| Denominator: | ||||||||
| Denominator for basic earnings per share- | ||||||||
| weighted average shares | 85,058,759 | 338,731 | ||||||
| Effect of dilutive securities: | ||||||||
| Assumed conversion of | ||||||||
| convertible debentures | 2,237,776 | -- | ||||||
| convertible preferred stock class A | 20,000,000 | -- | ||||||
| Dilutive potential common shares | 22,237,776 | -- | ||||||
| Denominator for diluted earnings per share- | ||||||||
| adjusted weighted average shares | ||||||||
| and assumed conversions | 107,296,535 | 338,731 | ||||||
| Net income (loss) available to common | ||||||||
| Stockholders | ||||||||
| Basic | $ | 0.01 | $ | (0.05 | ) | |||
| Diluted | $ | (0.00 | ) | $ | (0.05 | ) | ||
For the three months ended March 31, 2012, there were no common stock equivalents excluded from the calculation of diluted net income per share. For the three month period ended March 31, 2011, 40,000 common share equivalents for the potential conversion of a convertible debenture were excluded from the calculation of diluted net loss per share because its inclusion would have been anti-dilutive.
8
ALL GRADE MINING, INC.
(A Development Stage Company Commencing January 3, 2006)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 7- RELATED PARTY TRANSACTIONS:
As of March 31, 2012, the Company’s President has advanced the Company $500.
During 2007, Martin Honig, a former Director and current stockholder of the Company loaned the Company $8,000 on a non-interest bearing basis in order to provide the Company with working capital. In July 2008 this same individual loaned the Company an additional $5,000 to be used for working capital. As of September 30, 2011, the Company had repaid $7,000 to Martin Honig, leaving a balance due him of $6,000. In March 2012, Mr. Honig loaned the Company an additional $6,000, leaving a balance of $12,000 due him as of March 31, 2012.
Marshal Shichtman, the Company’s securities counsel and a stockholder of 2,500,000 common shares has billed the Company $45,648 for legal services performed thru March 31, 2012. This amount is currently outstanding and reported in accounts payable in the accompanying financial statements. The Company incurred legal fees for services provided by Marshal Shichtman of $30,000 and $0 for the three months ended March 31, 2012 and 2011, respectively.
Note 8- CONVERTIBLE DEBENTURES:
| a) | On February 8, 2012, the Company borrowed $32,500 from an unrelated third party, pursuant to a convertible debenture agreement. The debenture bears interest at 8% per annum and matures on November 6, 2012. The loan agreement provides for the right of the holder to convert the loan principal and interest into shares of common stock at a stated conversion price of the average of the 2 lowest daily trades in the previous 30 days with a 49% discount. |
The Company accounted for the issuance of the convertible debenture in accordance with ASC 815” Derivatives and Hedging.” The debenture is convertible into an indeterminate number of shares for which the Company cannot determine if it has sufficient authorized shares to settle the transaction with. Accordingly, the embedded conversion option is a derivative liability and is marked to market through earnings at the end of each reporting period. The gross proceed from the sale of the note of $32,500 was recorded net of a discount of $32,100 related to the beneficial conversion feature of the embedded conversion option. The debt discount will be charged to interest expense ratably over the term of the convertible debenture. As of March 31, 2012 the $32,500 is payable.
Note 9- COMMITMENTS AND CONTINGENCIES:
Litigation
Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
9
ALL GRADE MINING,INC.
(A Development Stage Company Commencing January 3, 2006)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 9- COMMITMENTS AND CONTINGENCIES: (continued)
Litigation (continued)
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. There can be no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows. As of September 30, 2011 the Company has not accrued any amounts for loss contingencies.
Consulting Agreement
On December 25, 2009, The Company entered into an agreement with Brett Hamburger whereby he would attempt to introduce the Company to potential investors for the purpose of procuring funding for the Company. Additionally, he would advise the Company on general business development.
The agreement was in effect for a period of two years ending on December 24, 2011 and provided for monthly payments of $5,000 over the term of the contract. Subsequent to December 31, 2011 the consulting services are on a month to month basis. For each of the three months ended March 31, 2012 and 2011 the Company has recorded a charge of $15,000 under this arrangement.
Employment Agreement
In November 2011 the Company entered into an employment agreement with Jerome Rosenberg, CPA to serve as the Company’s Chief Financial Officer. The agreement has a term of three years and calls for compensation of $100,000 annually. For the three months ended March 31, 2012 the Company has recorded a charge of $25,000 under this arrangement.
Subsequent Events
On April 23, 2012, the Company borrowed in the aggregate $350,000 from two unrelated third parties, pursuant to convertible debenture agreements. The debentures accrue interest at 5% per annum and have term of 5 years maturing on or around April 23, 2017. The debenture is convertible into common stock at $0.25 per share at the option of the note holder at any time.
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ALL GRADE MINING, INC.
(A Development Stage Company Commencing January 3, 2006)
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward Looking Statements
This report contains forward looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”) and Section 27A of the Securities Act of 1933 (the “Securities Act”). Statements contained in this report which are not statements of historical facts may be considered forward-looking information with respect to plans, projections, or future performance of the Company as defined under the Private Securities litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those projected. The words “anticipate”, “believe”, “estimate”, “expect”, “objective”, and “think” or similar expressions used herein are intended to identify forward-looking statements. The forward-looking statements are based on the Company’s current views and assumptions and involve risks and uncertainties that include, among other things, the effects of the Company’s business, actions of competitors, changes in laws and regulations, including accounting standards, employee relations, customer demand, prices of purchased raw material and parts, domestic economic conditions, including housing starts and changes in consumer disposable income, and foreign economic conditions, including currency rate fluctuations. Some or all of the facts are beyond the Company’s control.
Except as may be required by applicable law, we do not undertake or intend to update or revise our forward-looking statements, and we assume no obligation to update any forward-looking statements contained in this report as a result of new information or future events or developments. Thus, you should not assume that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements. You should carefully review and consider the various disclosures we make in this report and our other reports filed with the SEC that attempt to advise interested parties of the risks, uncertainties and other factors that may affect our business. The following discussion and analysis should be read in conjunction with the financial statements and related footnotes included elsewhere in this quarterly report which provide additional information concerning the Company’s financial activities and condition.
The Company has generated nominal revenues to date; accordingly, the Company is considered a development stage enterprise as defined in the Accounting Standards Codification 915 “Development Stage Entities.” The Company is subject to a number of risks similar to those of other companies in an early stage of development.
The Company currently has one employee.
Revenues
We have not generated revenues for the three months ended March 31, 2012 and 2011.
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ALL GRADE MINING, INC.
(A Development Stage Company Commencing January 3, 2006)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. (continued)
Operating Expenses and Other Expenses
Our operating expenses for the three months ended March 31, 2012 and the three months ended March 31, 2011 were $105,296 and $16,466 respectively. The $88,830 increase in operating expenses for the three months ended March 31, 2012 when compared to the three months ended March 31, 2011 was primarily due to the Company commencing activities associated with its planned mining operations. These expenses included officers’ compensation of $25,000, mine related expenses of $5,000 and other general expenses.
Other income increased for the three months ended March 31, 2012 to $1,002,727 from $609 for the three months ended March 31, 2012 primarily due the $1,027,100 reduction in our previously recorded derivative liability off set by $24,373 of interest expense. In 2011, we only incurred interest expense of $609.
Net income (Loss)
The net income for the three months ended March 31, 2012 was $897,431 compared to the net loss of $17,075 for the three months ended March 31, 2011. The net income reported for the three months ended March 31, 2012 reflects the change in the fair value of our derivative liabilities, a non-cash activity.
Liquidity and Capital Resources
As of March 31, 2012 we had total assets of $250,328 as compared to total assets of $251,390 as of December 31, 2011. The decrease of $1,062 is due primarily to utilization of available cash for payment of operating expenses.
Our working capital deficiency as of March 31, 2012 was $915,133 as compared to a working capital deficiency of $1,819,986 as of December 31, 2011. The improvement in our working capital deficiency is a direct result of the decrease in our derivative liability, a non-cash activity, discussed above.
We use available finances to fund ongoing operations. Available funds will be used for our planned mining activities and general and administrative expenses. However, currently we do not have sufficient funds available to meet our current liabilities or planned activities unless we secure additional financing. .
Consulting Agreement
On December 25, 2009, The Company entered into an agreement with Brett Hamburger whereby he will attempt to introduce the Company to potential investors for the purpose of procuring funding for the Company. Additionally, he will advise the Company on general business development.
The agreement shall be in effect for a period of two years ending on December 24, 2011 and provides for monthly payments of $5,000 over the term of the contract.
Going concern
As reflected in the accompanying financial statements, our current liabilities exceed our current assets resulting in a working capital deficit. Management is presently seeking to raise permanent equity capital in the capital markets to eliminate negative working capital and raise the necessary funds to satisfy our commitment for the mining rights.. Failure to raise equity capital or secure some other form of long-term debt arrangement will cause us to further increase our negative working capital deficit and loss of the ability to acquire the iron ore mine.mine, there can be no assurances that we will be successful in these endeavors. These matters raise substantial doubt about the Company’s ability to continue as a going concern. However, the accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
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ALL GRADE MINING, INC.
(A Development Stage Company Commencing January 3, 2006)
Item 3. Quantitative and Qualitative Disclosures About Market Risks
Smaller reporting companies are not required to provide the information required by item 305.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have each reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of 1934), as of March 31, 2012. Based on such review and evaluation, our chief executive officer and chief financial officer have concluded that, as of March 31, 2012, our disclosure controls and procedures were not effective to ensure that information required to be disclosed by us in the reports that we file or submit to the Securities and Exchange Commission pursuant to the reporting obligations of the Exchange Act, including this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures.
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The design of any system of controls also is based in part on certain assumptions regarding the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Given these and other inherent limitations of control systems, there is only reasonable assurance that our controls will succeed in achieving their stated goals under all potential future conditions.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and Rule 15d-15(f) of the Exchange Act. Internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States (“US GAAP”), including those policies and procedures that:
| ● | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company, |
| ● | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with US GAAP, and that receipts and expenditures are being made only in accordance with authorizations of management and directors of the company, and |
| ● | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate.
Under the supervision and with the participation of our management, we have assessed the effectiveness of our internal control over financial reporting as of March 31, 2012. In making this assessment, our management used the criteria described in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Due to the inherent issue of segregation of duties in a small company, we have relied heavily on entity or management review controls to lessen the issue of segregation of duties. Based on this assessment and those criteria, our management concluded that the Company did not maintain effective internal control over financial reporting as of March 31, 2012.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Our management identified the following material weaknesses as of March 31, 2012:
On April 20, 2012, the Company’s Independent Registered Public Accounting firm advised the Company it had incorrectly computed its derivative liabilities during its recently completed second and thirds quarters. Therefore the Company’s quarterly reports filed on October 5, 2011 and November 16, 2011 are required to be restated. In addition upon further review the Form 10-Q as originally filed, inadvertently omitted the required disclosures relating to development stage entities and the earning per share disclosures.
Changes in Internal Controls Over Financial Reporting
There were no changes in our internal control over financial reporting during the first quarter of our fiscal year ending December 31, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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ALL GRADE MINING, INC.
(A Development Stage Company Commencing January 3, 2006)
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to, or the subject of any material pending legal proceedings.
Item 1A. Risk Factors
The Company is a Smaller Reporting Company. A Smaller Reporting Company is not required to provide the risk factor disclosure required by this form.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On March 25, 2005, the Company issued a note payable to its registered Agent in the amount of $15,000 for services rendered upon reincorporation of the Company. The note is payable on demand and bears interest at the rate of 10% per annum. On January 16, 2008, the Agent assigned the note to seven different parties. On February 12, 2008, those seven parties converted their portions of the original note into a 19,125,000 shares of the Company’s common stock.
On November 6, 2007 the Company issued 20,000,000 shares of its common stock to Hoss Capital, LLC in consideration for consulting services rendered to the Company amounting to $20,000. With the issuance of these shares, Hoss Capital, LLC effectively owned 98.08% of the issued and outstanding common stock of the Company. In January 2008 Hoss Capital sold its 20,000,000 in a private transaction to an individual. Concurrent with the merger, this individual surrendered 19,700,000 of these shared back to the Company in order to facilitate the merger discussed in Note 10 to the financial statements.
On January 31, 2008, Board of Directors of the Company agreed to merge with Hybred International, Inc. (Hybred), a New Jersey corporation. The effective date of the merger was February 1, 2008. Under the terms of the “Plan of Merger,” Hybred was merged into the Company and Temporary Time Capital Corp. became the surviving entity. The surviving Company then changed its name to Hybred International, Inc. The Board of Directors of the Company voted to increase the number of common shares authorized from 50,000,000 to 120,000,000. Under the terms of the merger agreement the shareholders of Hybred International, Inc. were issued 80,000,000 shares of the Company’s common stock in exchange for their shares of the former Company.
On January 28, 2008 the Company entered into a subscription agreement with AER Investment (AER) whereby AER would purchase 300,000 of the Company’s common stock, par value $.001, for $.30 per share of $90,000. The proceeds of this issuance were used to provide working capital.
On April 2008, the Company issued an additional 19,700,000 shares of its common stock in consideration for the cancellation of debt of $20,000 owed to an individual who is a shareholder.
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ALL GRADE MINING, INC.
(A Development Stage Company Commencing January 3, 2006)
PART II – OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds (continued)
The offering and sales above were deemed to be exempt under Rule 506 of Regulation D and/or Section 4(2) of the Securities Act of 1933, as amended. No advertising or general solicitation was employed in offering the securities. The offerings and sales were made to a limited number of persons, all of whom were accredited investors or a limited number of unaccredited investors, business associates of the Company or executive officers of the Company, and transfer was restricted by the Company in accordance with the requirements of the Securities Act of 1933. In addition to representations by the above-referenced persons, the Company has made independent determinations that all of the above-referenced persons were accredited or sophisticated investors, and that they were capable of analyzing the merits and risks of their investment, and that they understood the speculative nature of their investment.
Item 3. Default upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. (a) Exhibits and Reports on Form 8-K
| Exhibit 31.1 | Certification Pursuant to Section 302 of the Sarbanes Oxley Act |
| Exhibit 32.1 | Certification Pursuant to Section 906 of the Sarbanes Oxley Act |
(b) Reports on Form 8-K during Quarter
None
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has duly caused this Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.
| ALL GRADE MINING, INC. | |
| (Registrant) | |
| May 21, 2012 | |
| /s/ Gary Kouletas | |
| Gary Kouletas | |
| President (Principal Executive Officer) | |
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