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 June 30, 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
![](https://capedge.com/proxy/10-Q/0001096906-13-001013/logo.jpg)
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.
Page 1 of 28
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
111,118,759 shares of Common Shares, par value $0.001 per share, were outstanding as of 30 June 2012 and 130,074,857 as of 1 June 2013.
Page 2 of 28
ALL GRADE MINING, INC. AND SUBSIDIARY
(A Development Stage Company Commencing January 3, 2006)
CONTENTS
Page | |||||
PART I- | FINANCIAL INFORMATION | 4 | |||
ITEM 1- | FINANCIAL STATEMENTS | 5 | |||
Condensed Consolidated Balance sheets as of June 30, 2012 (unaudited) and December 31, 2011 | 5 | ||||
Condensed Consolidated Statements of operations for the three and six month periods ended June 30, 2012 and June 30, 2011 and for the period January 3, 2006 (date of Commencement as a development stage company) through June 30, 2012(unaudited) | 6 | ||||
Condensed Consolidated Statements of cash flows for the three and six month periods ended June 30, 2012 and June 30, 2011 and for the period January 3, 2006 (date of Commencement as a development stage company) through June 30, 2012(unaudited) | 7 | ||||
Notes to condensed consolidated financial statements | 8 | ||||
ITEM 2- | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 18 | |||
ITEM 3- | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 23 | |||
ITEM 4- | CONTROLS AND PROCEDURES | 23 | |||
PART II- | OTHER INFORMATION | 26 | |||
ITEM 1- | LEGAL PROCEEDINGS | 26 | |||
ITEM 1A- | RISK FACTORS | 25 | |||
ITEM 2- | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 25 | |||
ITEM 3- | DEFAULT UPON SENIOR SECURITIES | 26 | |||
ITEM 4- | MINE SAFETY DISCLOSURES | 27 | |||
ITEM 5- | OTHER INFORMATION | 27 | |||
ITEM 6- | EXHIBITS | 27 | |||
SIGNATURES | 28 | ||||
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 |
Page 3 of 28
PART I – FINANCIAL INFORMATION
This Quarterly Report includes forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the “Exchange Act”). These statements are based on management’s beliefs and assumptions, and on information currently available to management. Forward-looking statements include the information concerning our possible or assumed future results of operations set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements also include statements in which words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “consider,” or similar expressions are used.
Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties, and assumptions. Our future results and shareholder values may differ materially from those expressed in these forward-looking statements. Readers are cautioned not to put undue reliance on any forward-looking statements.
Page 4 of 28
ITEM 1 Financial Statements
ALL GRADE MINING, INC. | ||||||||
(A Development Stage Company Commencing January 3, 2006) | ||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
June 30, | December 31, | |||||||
2012 | 2011 | |||||||
ASSETS | ||||||||
Current Asset | ||||||||
Cash | $ | 14 | $ | 1,040 | ||||
PROPERTY AND EQUIPMENT - Net | 306 | 350 | ||||||
OTHER ASSETS | ||||||||
Depository payment towards acquisition of iron ore mine | 350,000 | 250,000 | ||||||
Deposit on acquistion | 4,025,000 | - | ||||||
Prepaid Expenses | 1,202,800 | - | ||||||
5,577,800 | 250,000 | |||||||
Total Assets | $ | 5,578,120 | $ | 251,390 | ||||
LIABILITIES AND STOCKHOLDERS' (DEFICIT) | ||||||||
Current Liabilites | ||||||||
Accounts Payable | $ | 502,299 | $ | 164,215 | ||||
Taxes payable | 8,716 | 8,716 | ||||||
Accrued interest payable | 40,618 | 15,193 | ||||||
Due to stockholders | 6,500 | 7,302 | ||||||
Loans payable | 226,000 | 205,000 | ||||||
Convertible debentures, net of debt discount of $15,200 and $0 as of June 30, 2012 and December 31, 2011 | 16,900 | 48,000 | ||||||
Derivative liability | 264,100 | 1,372,600 | ||||||
Total Current Liabilites | 1,065,133 | 1,821,026 | ||||||
Convertible debentures, net of debt discount of $401,700 and $144,400 as of June 30, 2012 and December 31, 2011, net of current portion | 271,700 | 255,600 | ||||||
Total liabilities | 1,336,833 | 2,076,626 | ||||||
Commitments and Contingencies (Note 6) | ||||||||
Stockholders' Deficit (Note 8) | ||||||||
Convertible Preferred Stock Class A, no par value, 100,000 shares authorized at June 30, 2012 and at December 31, 2011.Issued and outstanding 20,000 shares at June 30, 2012 and December 31, 2011. | 46,000 | 46,000 | ||||||
Convertible Preferred Stock Class B, no par value, 400,000 shares authorized at June 30, 2012 and at December 31, 2011. None issued and outstanding at June 30, 2012 and December 31, 2011. | - | |||||||
Preferred Stock Class C, no par value, 50,000 shares authorized at June 30, 2012 and at December 31, 2011.Issued and outstanding 20,000 shares at June 30, 2012 and December 31, 2011 | 9,000 | 9,000 | ||||||
Common stock, par value $.001 per share; authorized 500,000,000 shares, issued and outstanding 111,577,091 and 85,058,759 shares at June 30, 2012 and December 31, 2011, respectively | 111,577 | 85,059 | ||||||
Additional Paid in Capital | 11,013,904 | 164,039 | ||||||
Deficit Accumulated During the Development Stage* | (6,939,194 | ) | (2,129,334 | ) | ||||
Total Stockholders' Deficit | 4,241,287 | (1,825,236 | ) | |||||
Total Liabilities and Stockholders' Deficit | $ | 5,578,120 | $ | 251,390 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 5 of 28
ALL GRADE MINING, INC. | ||||||||||||||||||||
(A Development Stage Company Commencing January 3, 2006) | ||||||||||||||||||||
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS | ||||||||||||||||||||
Six Months Ended | Three Months Ended | January 3, 2006 (date of commencement as a development stage company) though June 30, 2012 (Unaudited) | ||||||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||
Net Sales | $ | - | $ | - | $ | - | $ | - | $ | 7,500 | ||||||||||
Cost of Sales | - | - | - | - | 3,135 | |||||||||||||||
Gross Profit (Loss) | - | - | - | - | 4,365 | |||||||||||||||
Operating Expenses | ||||||||||||||||||||
Officers’ compensation | 25,000 | - | - | - | 125,000 | |||||||||||||||
Mine related expenses | 382,500 | - | 377,500 | - | 615,000 | |||||||||||||||
Consulting fees | 877,942 | 30,000 | 817,942 | 15,000 | 955,442 | |||||||||||||||
General and administrative | 58,609 | 37,152 | 43,313 | 4,319 | 523,614 | |||||||||||||||
Total Operating Expenses | 1,344,051 | 67,152 | 1,238,755 | 19,319 | 2,219,056 | |||||||||||||||
Operating loss | (1,344,051 | ) | (67,152 | ) | (1,238,755 | ) | (19,319 | ) | (2,214,691 | ) | ||||||||||
Interest income | - | - | - | - | 12 | |||||||||||||||
Other income | - | - | - | - | 17,500 | |||||||||||||||
Change in fair value of derivative liability | 1,473,200 | 6,000 | 446,100 | - | 827,600 | |||||||||||||||
Interest expense | (209,009 | ) | (94,399 | ) | (184,636 | ) | 359 | (813,515 | ) | |||||||||||
Loss on debt conversion | (4,730,000 | ) | - | (4,730,000 | ) | - | (4,730,000 | ) | ||||||||||||
Loss on negotiated debt settlement | - | - | - | - | (26,100 | ) | ||||||||||||||
Total other income and (expenses) | (3,465,809 | ) | (88,399 | ) | (4,468,536 | ) | 359 | (4,724,503 | ) | |||||||||||
Net income (loss) | $ | (4,809,860 | ) | $ | (155,551 | ) | (5,707,291 | ) | $ | (18,960 | ) | $ | (6,939,194 | ) | ||||||
Loss Per Common Share: | ||||||||||||||||||||
Basic and Diluted | $ | (0.06 | ) | $ | (0.47 | ) | $ | (0.06 | ) | $ | (0.06 | ) | ||||||||
Weighted average number of common shares outstanding: | ||||||||||||||||||||
Basic and Diluted | 87,274,528 | 330,377 | 89,490,297 | 326,731 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 6 of 28
ALL GRADE MINING, INC. | ||||||||||||
(A Development Stage Company Commencing January 3, 2006) | ||||||||||||
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS | ||||||||||||
Six Months Ended | January 3, 2006 (date of commencement as a development stage company) though June 30, 2012 (Unaudited) | |||||||||||
June 30, | June 30, | |||||||||||
2012 | 2011 | |||||||||||
(Unaudited) | (Unaudited) | |||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
Net Loss | $ | (4,809,860 | ) | $ | (155,551 | ) | $ | (6,939,194 | ) | |||
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: | ||||||||||||
Depreciation expense | 44 | 932 | 9,260 | |||||||||
Impairment of equipment | - | 32,300 | 3,907 | |||||||||
Stock based compensation | 47,500 | - | 167,500 | |||||||||
Amortization of debt discount | 43,400 | - | 87,000 | |||||||||
Change in fair value of derivative liability | (1,473,200 | ) | (6,000 | ) | (827,600 | ) | ||||||
Interest Expense | - | 61,000 | 539,000 | |||||||||
Issuance of stock for mine costs | 377,500 | - | 377,500 | |||||||||
Issuance of stock for consulting fees | 235,000 | - | 235,000 | |||||||||
Loss on debt conversion | 4,730,000 | - | 4,730,000 | |||||||||
Changes in Assets and Liabilities | ||||||||||||
Decrease (increase) in prepaid expenses | (27,800 | ) | (27,800 | ) | ||||||||
(Increase) Decrease in Accounts Payable | 398,084 | 30,500 | 621,274 | |||||||||
(Increase) Decrease in NJ Corporate Business Tax | - | 1,500 | - | |||||||||
(Increase) Decrease in Accrued interest payable | 25,425 | 1,416 | 62,450 | |||||||||
Payroll taxes payable | 8,716 | |||||||||||
NET CASH (USED IN) OPERATING ACTIVITES | (453,907 | ) | (33,903 | ) | (952,987 | ) | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
Purchase of property and equipment | - | - | (13,473 | ) | ||||||||
Depository payment towards acquisition of iron ore mine | (100,000 | ) | (350,000 | ) | ||||||||
NET CASH USED IN INVESTING ACTIVITIES | (100,000 | ) | - | (363,473 | ) | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
Cash overdraft | - | (317 | ) | - | ||||||||
Repayment of advances | - | (3,146 | ) | (1,844 | ) | |||||||
Cash Proceeds (payments) from advances | (802 | ) | - | 8,344 | ||||||||
Cash Proceeds (payments) from loans | 21,000 | - | 238,900 | |||||||||
Cash Proceeds (payments) from issuance of convertible debentures | 532,683 | 38,000 | 980,683 | |||||||||
Issuance of common stock for cash | - | - | 90,391 | |||||||||
NET CASH PROVIDED BY FINANCING ACTIVITIES | 552,881 | 34,537 | 1,316,474 | |||||||||
(DECREASE) INCREASE IN CASH | (1,026 | ) | 634 | 14 | ||||||||
CASH - BEGINNING OF PERIOD | 1,040 | - | - | |||||||||
CASH - END OF PERIOD | $ | 14 | $ | 634 | $ | 14 | ||||||
Supplemental Disclosure: | ||||||||||||
Cash Paid for Interest | $ | - | $ | - | $ | - | ||||||
Cash Paid for Income Taxes | $ | - | $ | - | $ | - | ||||||
Non-cash investing and financing activities: | ||||||||||||
Debt discount related to convertible debentures | $ | 382,100 | $ | 38,000 | $ | 570,100 | ||||||
Conversion of accrued interest to principal | - | - | - | |||||||||
Issuance of shares for the settlement of debt | $ | 226,383 | $ | - | $ | 304,240 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 7 of 28
ALL GRADE MINING, INC. AND SUBSIDIARY
(A Development Stage Company Commencing January 3, 2006)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1) NATURE OF BUSINESS AND BASIS OF PRESENTATION
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 and maintains its corporate offices 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 and six month periods ended June 30, 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.
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. In addition the company is not in compliance with its acquisition agreement regarding its purchase of the mine. 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.
Page 8 of 28
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.
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 it, 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.
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.
Page 9 of 28
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.
Recent Accounting Pronouncements
The FASB, the Emerging Issues Task Force and the SEC have issued certain accounting standards updates and regulations as of June 30, 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 the periods reported upon, 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.
Page 10 of 28
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. This guidance 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.
Page 11 of 28
Liabilities measured at fair value on a recurring basis at June 30, 2012 are as follows:
Quoted Prices in Active Markets for Identical Liabilities | Significant Other Observable Inputs | Significant Observable Inputs | Balance at | ||||||||||
(Level 1) | (Level 2) | (Level 3) | June 30, 2012 | ||||||||||
Embedded conversion feature – June 30, 2012 | $ | - | $ | - | $ | 264,100 | $ | 264,100 |
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 six month period ended June 30, 2012.
Embedded Conversion Feature | |||
Balance - December 31, 2011 | $ | 1,372,600 | |
Included in other income/expense | - | ||
Change in fair value of derivative liability | (1,473,200) | ||
Conversion | (101,400) | ||
Included in liabilities | 466,100 | ||
Included in stockholders' equity | - | ||
Transfers in and/or out of Level 3 | - | ||
Balance - June 30, 2012 | $ | 264,100 |
Page 12 of 28
5) DEPOSITORY PAYMENT TOWARDS ACQUISITION OF IRON ORE MINE
On September 21, 2011, the Company entered into an agreement to acquire title to an iron ore mine in the Republic of Chile at an acquisition cost of $3,250,000 as of September 30, 2012 and paid 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 an additional deposit of $100,000 upon execution of the amended agreement. 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:
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 | $ | 2,900,000 |
As of June 30, 2012, the Company is not in compliance with the terms of this agreement due to non-payment of the amounts due on May 31 and August 31, 2012. However, the seller has not issued the Company a formal notice of default.
6) RELATED PARTY TRANSACTIONS
As of June 30, 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. The Company repaid $7,000 to Mr. Honig. In March 2012, Mr. Honig loaned the Company an additional $6,000. On May 25, 2012, Mr. Honig elected to convert his $6,000, 10.0% Loan into common stock of the Company. In the conversion transaction, Mr. Honig received 6,000,000 shares of common stock in exchange for the loan and no accrued interest. The Company recorded a loss on debt conversion of approximately $3.3 million. After the conversion Mr. Honig had a balance remaining of $-0- as of June 30, 2012.
Marshal Shichtman, the Company’s securities counsel and a stockholder of 2,500,000 common shares has billed the Company $132,000 for legal services performed thru June 30, 2012. $122,000 is currently outstanding and reported in accounts payable in the accompanying financial statements. The Company incurred legal fees for services provided by Marshal Shichtman & Associates, P.C. in the amounts of $30,000 and $18,000 for the three month periods ended June 30, 2012 and 2011, respectively, and $60,000 and $36,000 for the six month periods ended June 30, 2012 and 2011, respectively.
Page 13 of 28
7) CONVERTIBLE DEBENTURES
On April 23, 2012, the Company borrowed $350,000 from two unrelated parties pursuant to convertible debenture agreements. The debentures bear interest at 5.0% per annum and have a term of five years, maturing on April 22, 2017. The debentures are convertible into common stock at $0.25 per share.
The Company accounted for the issuance of the convertible debentures in accordance with ASC 815 “Derivatives and Hedging” and ASC 740, “Debt” accordingly, the embedded conversion options of the convertible debentures are derivative liabilities and are marked to market though earnings at the end of each reporting period. The gross proceeds from the sale of the debentures of $350,000 were recorded net of $350,000 related to the beneficial conversion features of the convertible debentures. In addition, the company recorded charges of $84,000 which represents the fair value of conversion options in excess of the debt discount recorded. This amount is to be recorded as a component of interest expense in the statement of operations. The debt discount is to be charged to interest expense ratably over the term of the convertible debenture.
Interest expense related to these debentures for the three and six month periods ended June 30, 2012 consisted of the following:
Three Months | Six Months | |||||||
Ended | Ended | |||||||
June 30, 2012 | June 30, 2012 | |||||||
Interest | $ | 3,260 | $ | 3,260 | ||||
Amortization of discount | 13,100 | 13,100 | ||||||
Total | $ | 16,360 | $ | 16,360 |
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 two 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.
Page 14 of 28
8) LOANS PAYABLE:
Loans payable consist of the following at June 30, 2012 and December 31, 2011:
June 30, 2012 | December 31, 2011 | |||||||
Loan payable to Louis Savaglio | $ | 1,000 | $ | 1,000 | ||||
Loan payable to Brett Hamburger | - | 4,000 | ||||||
Loan payable to unrelated parties | 150,000 | 150,000 | ||||||
Loan payable to unrelated parties | 75,000 | 50,000 | ||||||
Total | $ | 226,000 | $ | 16,360 |
(a) | The Company borrowed the sum of $16,000 from Louis Savaglio, an independent third party. The loan is payable on demand and bears interest at the rate of 6.75% per annum. On November 30, 2009, the Company had repaid $5,000 with the issuance of 99,100 shares of common stock. On July 14, 2011 Mr. Savaglio assigned $10,000 of his debt together with accrued interest of $3,156 to four entities unrelated to the Company. Each new entity has a note for $3,289 carrying interest at 6%. Subsequently those four entities converted their loans into 13,462,000 shares of the Company’s common stock. The balance due to Mr. Savaglio as of June 30, 2012 and December 31, 2011 was $1,000. |
(b) | During August 2008, the Company borrowed the sum of $4,000 from Brett Hamburger, a consultant to the Company on a non-interest bearing basis. The loan is payable upon demand and as of June 30, 2012, it remained unpaid. On June 21, 2012, Brett Hamburger elected to convert his outstanding loan into common stock of the Company and received 4,000,000 shares of common stock in exchange for the loan and no accrued interest. The Company recorded a loss on debt conversion of approximately $1.4 million. Additionally during 2009, the Company borrowed $2,900 from Christine Mulijono, the wife of Brett Hamburger. This loan was payable on demand and carried an interest rate of 10% per annum. This loan and its accumulated interest was converted into 3,764,000 shares of the Company’s common stock on November 23, 2011 for the settlement of $2,900 and $864 of principal and accrued interest, respectively. As of June 30, 2012 and December 31, 2011 the amount payable under this loan was $0 and $4,000, respectively. |
(c) | On September 15, 2011, the Company borrowed $150,000 from an unrelated third party. The loan was due on October 15, 2011 together with interest at a rate of 25% per annum. As of June 30, 2012, the accumulated interest on this loan was $18,750. The Company is not in compliance with the repayment terms of the loan as it was not repaid on its maturity date and is currently in technical default. |
(d) | On November 15, 2011, the Company borrowed $75,000 from an unrelated third party. The loan was due and payable upon the Company filing its Regulation D Offering with the SEC which occurred on August 1, 2011. The note accrues interest at a rate of 4.0% per annum. As of June 30, 2012, the Company is not in compliance with the repayment terms of the loan and is currently in technical default. |
Page 15 of 28
9) COMMON STOCK
On June 5, 2012, the company entered into twelve-month consulting agreements with two consulting firms to provide business advisory, strategic, and administrative services for a period of twelve months to build shareholder value. In return for these services, the Company agreed to issue 3,000,000 shares of restricted common stock. The per share value of the common stock was $0.47 on the date of the agreement. The company recognized prepaid consulting expense of $1,410,000 for these agreements.
On June 14, 2012, the company issued 6,000,000 shares of common stock valued at $3,300,000 for settlement of debt Martin Honig of $6,000 and a loss on debt conversion of $3,294,000.
On June 14, 2012, the company issued 310,000 shares of common stock valued at $164,300 for the Conversion of Convertible debenture Cornell Funding, LLC.
On June 19, 2012, the company issued 11,500,000 shares of common stock valued at $4,025,000 to Moralva Holdings Inc. (“Moralva”) as a non-refundable deposit for a potential acquisition of mining assets. The Company was completing its due diligence and negotiating the terms of the acquisition at the time of the issuance of the stock. In addition, the Company entered into a consulting agreement with the principals of Moralva to assist the Company in identifying potential acquisition targets. As a result the Company recorded a prepaid of $4,025,000 for this agreement.
On June 19, 2012, the company issued 1,250,000 shares of common stock valued at $437,500, which $60,000 was used to pay accounts payable and $377,500 recognized mine relate costs.
On June 21, 2012, the company issued 4,000,000 shares of common stock valued at $1,440,000 for settlement of debt Brett Hamburger of $4,000 and a loss on debt conversion of $1,436,000.
Page 16 of 28
10) COMMITMENTS AND CONTINGENCIES
a) Depository payment towards acquisition of iron ore mine
See disclosures in Note 5 regarding obligations in connection with the acquisition of an iron ore mine.
b) 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.
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 June 30, 2012 the Company has not accrued any amounts for loss contingencies.
11) SUBSEQUENT EVENTS
On July 10 and August 31, 2012 the Company borrowed $50,000 and $100,000 from two unrelated parties pursuant to convertible debenture agreements. The debentures bear interest at 5.0% and 6% per annum and have a term of five years, maturing on July 10 and August 31, 2017. The debentures are convertible into common stock at $0.25 per share.
On July 19, 2012 the company issued 208,322 shares of common stock valued at $52,083 which was for the settlement of debt to Geoffrey Adler.
On July 23, 2012 the company issued 250,000 shares of common stock valued at $47,500 for services.
Page 17 of 28
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, national and international economic and market conditions; our ability to raise capital and complete the acquisition of certain assets; our ability to operate mining assets; our ability to sustain, manage, or forecast growth; existing government regulations and the changes in, or the failure to comply with, government regulations; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.
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.
Page 18 of 28
Description of Business
Prior to October 2011, the Company operated as Hybred International, Inc. and developed and produced a therapeutic horseshoe designed to reduce injuries associated with the concussive effect of horses' hooves on hard surfaces such as concrete, asphalt, and rock-hard racetracks.
Effective October 2011, the Company's Board of Directors and shareholders affirmatively voted to modify the Company's core line of business to focus upon mining operations, acquire an iron ore mine in Chile, and change the name of the Company to All Grade Mining, Inc.
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.
Liquidity and Capital Resources
We had no cash as of June 30, 2012 compared to $1,000 at December 31, 2011. This net decrease of $1,000 consisted of:
$ | 552,000 | Proceeds from financing activities |
(100,000) | Cash used in investing activities | |
(453,000) | Cash used in operating activites | |
$ | (1,000) | Net decrease |
We have incurred significant losses and negative cash flows from operations since our inception in April 2010. We have an accumulated deficit of $6,939,000 and a working capital deficiency of $1,065,000 as of June 30, 2012. These conditions raise substantial doubt about our ability to continue as a going concern. We have historically financed our activities through the private placement of equity securities. Through June 30, 2012, we have dedicated our financial resources to the planned mining activities and general and administrative expenses as described later in the section titled Results of Operations.
In September 2011, we entered into an agreement (as amended) to acquire title to an iron ore mine in the Republic of Chili for $3,250,000 and, as of June 30, 2012, has paid $350,000 to the seller. Under the terms of the amended agreement, we are required to remit the remaining balance of $2,900,000 in periodic payments now through August 2014 as follows:
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 | $ | 2,900,000 |
Page 19 of 28
As of June 30, 2012, we are not in compliance with the terms of this agreement due to non-payment of the amounts due on May 31 and August 31, 2012. However, the seller has not issued us a formal notice of default.
We plan to fund the acquisition of the mine as described above and our planned mining activities beyond June 30, 2012 primarily through the sale of debt and/or equity securities. We cannot be certain that such funding will be available on acceptable terms or available at all. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution. If we are unable to raise funds when required or on acceptable terms, we may have to: a) Significantly delay, scale back, or discontinue the planned mining activities; b) Seek collaborators at an earlier stage than would otherwise be desirable and/or on terms that are less favorable than might otherwise be available; or c) Relinquish or otherwise dispose of rights and/or assets that we would otherwise seek to develop or commercialize ourselves.
We can give no assurance that such financing will be available on reasonable terms or available at all or that it can generate revenue. Should we not be successful in obtaining the necessary financing or generate revenue to fund our operations, we would need to curtail or cease operational activities. The accompanying condensed consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.
Results of Operations - For the three months ended June 30, 2012 compared to the three months ended June 30, 2011
Revenues
We have not generated revenues for the three months ended June 30, 2012 and 2011.
Mine Related Expenses
Mine related expenses were $377,500 and zero for the three months ended June 30, 2012 and 2011, respectively. This increase of $377,500 was primarily due to permitting and other expenses related to the development of the Chilean iron mine.
Page 20 of 28
Consulting Fees
Consulting fees were $818,000 and $15,000 for the three months ended June 30, 2012 and 2011, respectively. This increase of $803,000 was primarily due to cash and stock issued to 3 consulting firms related to business advisory, strategic and communications services.
General and Administrative Expenses
General and administrative expenses were $43,000 and $4,000 for the three months ended June 30, 2012 and 2011, respectively. This increase of $36,000 was primarily due to travel and transfer agent fees.
Change in Fair Value of Derivative Liability
The change in the fair value of the derivative liability was a benefit of $446,000 and zero for the three months ended June 30, 2012 and 2011, respectively. This change of $446,000 was primarily due to the drop in market prices of the stock and the lowering of the value due to possible conversion holders as a result of how derivative liabilities are valued.
Interest Expense
Interest expense was an expense of $185,000 and zero for the three months ended June 30, 2012 and 2011, respectively. This change of $185,000 was primarily due to interest expense recorded upon issuance of convertible debt in which the debt discount related to the conversion feature recorded as a derivative exceed the face value of the note of which such increase is charged to interest expense and interest on increased borrowings incurred after the second quarter of 2011.
On June 14, 2012, the company issued 6,000,000 shares of common stock valued at $3,300,000 for settlement of debt Martin Honig of $6,000 and a loss on debt conversion of $3,294,000.
On June 21, 2012, the company issued 4,000,000 shares of common stock valued at $1,440,000 for settlement of debt Brett Hamburger of $4,000 and a loss on debt conversion of $1,436,000.
Net Loss
Net loss was $5,707,000 and $19,000 for the three months ended June 30, 2012 and 2011, respectively. This increase of $5,688,000 was attributable to the changes in the expense captions as described above.
Page 21 of 28
Results of Operations - For the six months ended June 30, 2012 compared to the three months ended June 30, 2011
Revenues
We have not generated revenues for the six months ended June 30, 2012 and 2011.
Mine Related Expenses
Mine related expenses were $382,000 and zero for the six months ended June 30, 2012 and 2011, respectively. This increase of $382,000 was primarily due to permitting and other expenses related to the development of the Chilean iron mine.
Consulting Fees
Consulting fees were $877,000 and $30,000 for the six months ended June 30, 2012 and 2011, respectively. This increase of $847,000 was primarily due to cash and stock issued to 3 consulting firms related to business advisory, strategic and communications services.
General and Administrative Expenses
General and administrative expenses were $68,000 and $37,000 for the six months ended June 30, 2012 and 2011, respectively. This increase of $21,000 was primarily due to an increase in transfer agent fees and travel.
Change in Fair Value of Derivative Liability
The change in the fair value of the derivative liability was a benefit of $ 1,473,000 and of $6,000 for the six months ended June 30, 2012 and 2011, respectively. This increase of $1,467,000 was primarily due to an increasing number of issuances of debt that is convertible into stock as well as favorable stock price performance and its effect on the valuation of the derivative liability for those conversion arrangements.
Interest Expense
Interest expense was an expense of $209,000 and $94,000 for the six months ended June 30, 2012 and 2011, respectively. This change of $115,000 was primarily due to interest expense recorded upon issuance of convertible debt in which the debt discount related to the conversion feature recorded as a derivative exceed the face value of the note of which such increase is charged to interest expense and interest on increased borrowings incurred after the second quarter of 2011.
On June 14, 2012, the company issued 6,000,000 shares of common stock valued at $3,300,000 for settlement of debt Martin Honig of $6,000 and a loss on debt conversion of $3,294,000.
On June 21, 2012, the company issued 4,000,000 shares of common stock valued at $1,440,000 for settlement of debt Brett Hamburger of $4,000 and a loss on debt conversion of $1,436,000.
Page 22 of 28
Net Loss
Net loss was $4,810,000 and $156,000 for the three months ended June 30, 2012 and 2011, respectively. This increase of $4,654,000 was attributable to the changes in the expense captions as described above.
In the second quarter, the Company attempted to make an acquisition on the Jose Del Transito for 5,000,000 common voting shares of the Company’s securities. Management of the Company engaged in these efforts in Chile to personally inspect the site and negotiate the transaction. However, no agreement was reached and the proposed transaction was not accepted.
The Company took on John McIntyre onto its Advisory Board. Mr. McIntyre is, an Australian geologist who lives in Chile and has performed his services in Chile and the surrounding areas, and throughout the world.
The Company also made a $100,000 USD payment on the Salitrosa Iron mine project, and raised $375,000, in addition to issuing 3 million shares, and performed such other administrative tasks as required.
Item 3 Quantitative and Qualitative Disclosures About Market Risks
Smaller reporting companies are not required to provide the information required by this Item.
Item 4 Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Our CFO resigned as of August 3, 2012, and as a result there is not an executive officer with financial accounting expertise to assist in the evaluation of disclosure and other financial controls. We have hired Accounting Management Solutions, an accounting and consulting firm, to assist in the generation of the financial reports for Q2/ 2012.
Our Chief Executive Officer who also functions as our Chief Financial Officer has 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 June 30, 2012. Based on such review and evaluation, our chief executive officer has concluded that, as of June 30, 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.
Page 23 of 28
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.
Page 24 of 28
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, our Independent Registered Public Accounting firm advised that we had incorrectly computed the derivative liabilities in the financial statements included in Form 10-Qs filed for June 30, 2011 and September 30, 2011 and, therefore, needed to be restated. . In addition upon further review the Form 10-Qs as originally filed, inadvertently omitted the required disclosures relating to development stage entities and the earning per share disclosures.
(b) Changes in Internal Controls Over Financial Reporting
There were no changes in our internal control over financial reporting during the three month period ending June 30, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Page 25 of 28
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 June 5, 2012, the company entered into twelve-month consulting agreements with two consulting firms to provide business advisory, strategic, and administrative services for a period of twelve months to build shareholder value. In return for these services, the Company agreed to issue 3,000,000 shares of restricted common stock. The per share value of the common stock was $0.47 on the date of the agreement. The company recognized prepaid consulting expense of $1,410,000 for these agreements.
On June 14, 2012, the company issued 6,000,000 shares of common stock valued at $3,300,000 for settlement of debt Martin Honig of $6,000 and a loss on debt conversion of $3,294,000.
On June 14, 2012, the company issued 310,000 shares of common stock valued at $164,300 for the Conversion of Convertible debenture Cornell Funding, LLC.
On June 19, 2012, the company issued 11,500,000 shares of common stock valued at $4,025,000 to Moralva Holdings Inc. (“Moralva”) as a non-refundable deposit for a potential acquisition of mining assets. The Company was completing its due diligence and negotiating the terms of the acquisition at the time of the issuance of the stock. In addition, the Company entered into a consulting agreement with the principals of Moralva to assist the Company in identifying potential acquisition targets. As a result the Company recorded a prepaid of $4,025,000 for this agreement.
On June 19, 2012, the company issued 1,250,000 shares of common stock valued at $437,500, which $60,000 was used to pay accounts payable and $377,500 recognized mine relate costs.
On June 21, 2012, the company issued 4,000,000 shares of common stock valued at $1,440,000 for settlement of debt Brett Hamburger of $4,000 and a loss on debt conversion of $1,436,000.
On July 19, 2012, the company issued 208,322 shares of common stock valued at $52,083 which for settlement of debt to Geoffrey Adler.
On July 23, 2012, the company issued 250,000 shares of common stock valued at $47,500 for services.
Item 3 Default upon Senior Securities
On 31 May 2012 the Company defaulted on the terms of the lease of the Saltirosa copper mine, the Company’s primary mine. The Company has continued to make payments, as funds become available, to satisfy the obligation and the Grantor of the mineral rights agreement has not shut down the mine, denied the Company access to the mine and property, and has not notified the Company of any default.
Page 26 of 28
Item 4 Mine Safety Disclosures
The mining projects of the Company are located outside the jurisdiction of the United States. As such, the Company, nor any subsidiary or operator of any mining project, has NOT received any imminent danger order, a written notice of a pattern of violations of mandatory health or safety standards of such nature as could have significantly and substantially contributed to the cause and effect of any mine health or safety hazard, a written notice from the Mine Safety and Health Administration of the potential to have such a pattern. Notwithstanding the aforementioned, the Company has not received any health and safety violation from the Chilean Mining Superintendency.
Item 5 Other Information
None.
Item 6 Exhibits
(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.
Page 27 of 28
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 9134, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ALL GRADE MINING, INC.
(Registrant)
7 June 2013
/s/ Gary Kouletas
Gary Kouletas
President (Principal Executive and Financial Officer)
Page 28 of 28