Attached files
file | filename |
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EX-31.1 - EXHIBIT 31.1 - PAN AMERICAN GOLDFIELDS LTD | c90971exv31w1.htm |
EX-32.2 - EXHIBIT 32.2 - PAN AMERICAN GOLDFIELDS LTD | c90971exv32w2.htm |
EX-32.1 - EXHIBIT 32.1 - PAN AMERICAN GOLDFIELDS LTD | c90971exv32w1.htm |
EX-31.2 - EXHIBIT 31.2 - PAN AMERICAN GOLDFIELDS LTD | c90971exv31w2.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 2009
Commission file number 000-23561
MEXORO MINERALS LTD.
(Exact name of small business issuer as specified in its charter)
Colorado (State or other jurisdiction of incorporation) |
84-1431797 (IRS Employer Identification Number) |
|
Mountain View Center 12303 Airport Way, Suite 200 Broomfield, CO. (Address of principal executive offices) |
80021 (Zip Code) |
Registrants telephone number, including area code: (303) 327 1587
Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Exchange Act during the past 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 has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o 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 | 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
As of September 30, 2009 the Issuer had 38,620,493 shares of common stock issued and
outstanding.
ITEM 1. FINANCIAL STATEMENTS
MEXORO MINERALS LTD.
(A Development Stage Company)
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Expressed in U.S. Dollars)
(Unaudited)
(Expressed in U.S. Dollars)
August 31, 2009
2
MEXORO MINERALS LTD.
(A Development Stage Company)
(A Development Stage Company)
Consolidated Balance Sheets
(Expressed in U.S. Dollars)
August 31, 2009 | February 28, 2009 | |||||||
(Unaudited) | (Audited) | |||||||
Assets |
||||||||
Current |
||||||||
Cash and cash equivalents |
$ | 8,146 | $ | 38,704 | ||||
Accounts receivable |
393,150 | 248,589 | ||||||
Prepaid expenses |
30,326 | 34,048 | ||||||
431,622 | 321,341 | |||||||
Equipment (note 4) |
264,843 | 275,900 | ||||||
Total assets |
$ | 696,465 | $ | 597,241 | ||||
Liabilities |
||||||||
Current |
||||||||
Accounts payable and accrued liabilities |
$ | 2,175,588 | $ | 2,679,512 | ||||
Current portion of loans payable (note 9) |
60,248 | 63,232 | ||||||
Promissory notes (note 7) |
1,150,377 | 968,543 | ||||||
Current portion of convertible debentures (note 8) |
1,746,211 | 1,267,314 | ||||||
5,132,424 | 4,978,601 | |||||||
Loans payable (note 9) |
740 | 7,608 | ||||||
Convertible debentures (note 8) |
866,994 | 673,887 | ||||||
Total liabilities |
6,000,158 | 5,660,096 | ||||||
Stockholders deficiency |
||||||||
Capital stock |
||||||||
Preferred stock |
||||||||
Authorized: 20,000,000 shares without par value (note 10) |
||||||||
Issued: nil |
| | ||||||
Common stock |
||||||||
Authorized: 200,000,000 shares without par value |
||||||||
Issued: 38,420,493 (2009 - 31,019,302) (note 11) |
27,050,401 | 25,556,901 | ||||||
Additional paid-in capital |
13,122,872 | 12,676,908 | ||||||
Stock subscriptions |
170,000 | 121,258 | ||||||
Accumulated deficit from prior operations |
(2,003,427 | ) | (2,003,427 | ) | ||||
Accumulated deficit during the development stage |
(43,847,088 | ) | (41,864,219 | ) | ||||
Other comprehensive income (loss) |
203,549 | 449,724 | ||||||
Total stockholders deficiency |
(5,303,693 | ) | (5,062,855 | ) | ||||
Total liabilities and stockholders deficiency |
$ | 696,465 | $ | 597,241 | ||||
Going-concern (note 3)
Commitments (notes 6, 13 and 16)
Subsequent events (note 17)
Commitments (notes 6, 13 and 16)
Subsequent events (note 17)
The accompanying notes are an integral part of these consolidated financial statements.
3
MEXORO MINERALS LTD.
(A Development Stage Company)
(A Development Stage Company)
Consolidated Statements of Operations and Deficit
(Unaudited) (Expressed in U.S. Dollars)
(Unaudited) (Expressed in U.S. Dollars)
Period from | ||||||||||||||||||||
Inception of | ||||||||||||||||||||
Development | ||||||||||||||||||||
Stage | ||||||||||||||||||||
Three Months Ended | Six Months Ended | (March 1, 2004) | ||||||||||||||||||
August 31, | August 31, | August 31, | August 31, | To August 31, | ||||||||||||||||
2009 | 2008 | 2009 | 2008 | 2009 | ||||||||||||||||
Net sales |
$ | 243,134 | $ | | $ | 392,084 | $ | | $ | 392,084 | ||||||||||
Cost of goods sold |
85,050 | | 165,733 | | 165,733 | |||||||||||||||
Gross margin |
158,084 | | 226,351 | | 226,351 | |||||||||||||||
Expenses |
||||||||||||||||||||
General and administrative |
719,449 | 656,003 | 1,409,327 | 1,270,923 | 14,143,546 | |||||||||||||||
Mineral exploration (note 6) |
152,955 | 1,462,062 | 323,952 | 2,754,885 | 8,226,178 | |||||||||||||||
Impairment of mineral property costs |
57,367 | | 103,156 | | 16,487,871 | |||||||||||||||
Operating loss |
(771,687 | ) | (2,118,065 | ) | (1,610,084 | ) | (4,025,808 | ) | (38,631,244 | ) | ||||||||||
Other income (expenses) |
||||||||||||||||||||
Foreign exchange |
1,822 | 10,313 | 44,573 | 29,115 | (148,177 | ) | ||||||||||||||
Interest expense |
(57,566 | ) | (124,940 | ) | (251,493 | ) | (236,978 | ) | (5,040,666 | ) | ||||||||||
Other income |
10,091 | | 10,091 | | 10,091 | |||||||||||||||
Loss on sale of assets |
578 | (1,822 | ) | (1,170 | ) | (4,408 | ) | (2,750 | ) | |||||||||||
Loss on settlement of debt |
| (174,786 | ) | (34,342 | ) | |||||||||||||||
Net loss |
(816,762 | ) | (2,234,514 | ) | (1,982,869 | ) | (4,238,079 | ) | (43,847,088 | ) | ||||||||||
Accumulated deficit, beginning |
(43,030,326 | ) | (35,831,576 | ) | (41,864,219 | ) | (33,828,011 | ) | | |||||||||||
Accumulated deficit, ending |
$ | (43,847,088 | ) | $ | (38,066,090 | ) | $ | (43,847,088 | ) | $ | (38,066,090 | ) | $ | (43,847,088 | ) | |||||
Other comprehensive income |
||||||||||||||||||||
Foreign exchange gain (loss) on
translation |
8,069 | 6,030 | (246,175 | ) | (24,020 | ) | 203,549 | |||||||||||||
Total comprehensive loss |
$ | (808,693 | ) | $ | (2,228,484 | ) | $ | (2,229,044 | ) | $ | (4,262,099 | ) | $ | (43,643,539 | ) | |||||
Total loss per share basic and
diluted |
$ | (0.02 | ) | $ | (0.08 | ) | $ | (0.06 | ) | $ | (0.16 | ) | $ | | ||||||
Weighted average number of shares of
common stock basic and diluted |
37,448,211 | 26,901,395 | 35,280,263 | 26,440,237 | | |||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
MEXORO MINERALS LTD.
(A Development Stage Company)
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited) (Expressed in U.S. Dollars)
(Unaudited) (Expressed in U.S. Dollars)
Period from | ||||||||||||
Inception of | ||||||||||||
Development | ||||||||||||
Stage | ||||||||||||
Six Months Ended | (March 1, 2004) | |||||||||||
August 31, | August 31, | To August 31, | ||||||||||
2009 | 2008 | 2009 | ||||||||||
Cash flows from operating activities |
||||||||||||
Net loss |
$ | (1,982,869 | ) | $ | (4,238,079 | ) | $ | (43,847,088 | ) | |||
Adjustments to reconcile net (loss) to net cash flows: |
||||||||||||
Write off of note receivable |
| | 57,500 | |||||||||
Impairment of mineral property costs |
| | 13,645,000 | |||||||||
Issuance of shares for consulting services |
13,500 | | 365,590 | |||||||||
Issuance of shares for interest costs |
82,500 | | 82,500 | |||||||||
Discount on convertible debenture |
15,608 | 93,400 | 498,966 | |||||||||
Non-cash component of loss on settlement of debt |
174,786 | | (7,473 | ) | ||||||||
Beneficial conversion feature |
98,700 | 64,133 | 4,128,599 | |||||||||
Stock-based compensation |
607,222 | 341,723 | 8,577,079 | |||||||||
Depreciation |
40,788 | 44,121 | 223,712 | |||||||||
Net change in operating assets and liabilities: |
||||||||||||
Prepaid expense |
7,943 | 50,048 | (28,503 | ) | ||||||||
Accounts receivable |
(109,184 | ) | (130,430 | ) | (435,131 | ) | ||||||
Customer deposits |
| | (44,809 | ) | ||||||||
Notes payable |
| | 109,337 | |||||||||
Accounts payable and accrued liabilities |
(316,725 | ) | 1,530,072 | 3,762,330 | ||||||||
Cash used in operating activities |
(1,367,731 | ) | (2,245,012 | ) | (12,912,391 | ) | ||||||
Investing activities |
||||||||||||
Sale of equipment |
29,437 | | 33,316 | |||||||||
Purchase of property and equipment |
(23,219 | ) | (13,171 | ) | (588,208 | ) | ||||||
Cash used in investing activity |
6,218 | (13,171 | ) | (554,892 | ) | |||||||
Financing activities |
||||||||||||
Proceeds from loans payable |
| | 225,817 | |||||||||
Proceeds from notes payable |
800,808 | 935,156 | 3,864,473 | |||||||||
Proceeds from convertible debentures |
1,573,510 | 1,370,000 | 7,362,500 | |||||||||
Proceeds from exercise of options |
| | 78,000 | |||||||||
Proceeds from exercise of warrants |
| | 3,144,377 | |||||||||
Repayment of loans payable |
(13,263 | ) | (39,561 | ) | (157,303 | ) | ||||||
Repayment of notes payable |
| (33,950 | ) | (383,270 | ) | |||||||
Repayment of convertible debentures |
(1,300,000 | ) | | (1,830,000 | ) | |||||||
Stock subscriptions |
170,000 | 4,943 | 461,258 | |||||||||
Issuance of common stock |
100,000 | 4,942 | 756,994 | |||||||||
Cash provided by financing activities |
1,331,055 | 2,241,530 | 13,522,846 | |||||||||
Net change in cash |
(30,458 | ) | (16,653 | ) | 55,563 | |||||||
Effect of foreign currency translation on cash |
(100 | ) | 5,058 | (69,494 | ) | |||||||
Cash and cash equivalents, beginning |
38,704 | 12,947 | 22,077 | |||||||||
Cash and cash equivalents, ending |
$ | 8,146 | $ | 1,352 | $ | 8,146 | ||||||
Supplemental cash flow information (note 15)
The accompanying notes are an integral part of these consolidated financial statements.
5
MEXORO MINERALS LTD.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
1. | BASIS OF PRESENTATION |
Mexoro Minerals Ltd. (formerly Sunburst Acquisitions IV, Inc.) (Mexoro or the Company)
was incorporated in the state of Colorado on August 27, 1997 and on February 15, 2006 its
name was changed to Mexoro Minerals Ltd. The Company was formed to seek out and acquire
business opportunities. Between 1997 and 2003, the Company was engaged in two business
acquisitions and one business opportunity, none of which generated a significant profit or
created sustainable business. All were sold or discontinued. Effective March 1, 2004, the
Company changed its operations to mineral exploration and the extraction of mineralized
material in Mexico. |
On February 12, 2009, the Company entered into a joint venture through a definitive agreement
for development of Cieneguita project with Minera Rio Tinto, S.A. de C.V. (MRT), a company
duly incorporated pursuant to the laws of Mexico, which is controlled by a former officer and
director of the Company. The purpose of the joint venture is to put the Cieneguita property
into production. As per the agreement, MRT is to provide the necessary working capital to
begin and maintain mining operations estimated to be $3,000,000. MRT will spend 100% of the
funds in exchange for a 75% interest in the net cash flow from production. Accordingly, as of
February 12, 2009 the Company is considered to be a development stage company. |
On May 25, 2004, the Company completed a Share Exchange Agreement with Sierra Minerals and
Mining, Inc. (Sierra Minerals), a Nevada corporation, which caused Sierra Minerals to
become a wholly-owned subsidiary. Sierra Minerals held certain rights to properties in Mexico
that the Company now owns or has an option to acquire. Through Sierra Minerals, the Company
entered into a joint venture agreement with MRT. In August 2005, the Company cancelled the
joint venture agreement in order to directly pursue mineral exploration opportunities through
a wholly-owned Mexican subsidiary, Sunburst Mining de Mexico S.A. de C.V. (Sunburst de
Mexico). On August 25, 2005, Sunburst de Mexico, Mexoro and MRT entered into agreements
providing Sunburst de Mexico the right to explore and exploit certain properties in Mexico.
In December 2005, the Company and Sunburst de Mexico entered into a new agreement with MRT
(the New Agreement) (note 6). On January 20, 2006, Sierra Minerals was dissolved. |
The accompanying unaudited consolidated financial statements have been prepared in accordance
with United States generally accepted accounting principles (US GAAP) for interim financial
information and with the instructions to Form 10-Q and Article 8 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required by generally
accepted accounting principles for complete consolidated financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the six months ended August
31, 2009 are not necessarily indicative of the results that may be expected for the year
ending February 28, 2010. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Companys annual report on Form 10-K for the
year ended February 28, 2009. |
6
MEXORO MINERALS LTD.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
2. | SIGNIFICANT ACCOUNTING POLICIES |
(a) | Recent accounting pronouncements |
(i) | In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for
measuring fair value under GAAP and expands disclosure about fair value
measurements. In February 2008, the FASB issued FASB Staff Position (FSP) SFAS
No. 157-2 Effective Date of FASB Statement No. 157 (FSP 157-2) which delays the
effective date of SFAS 157 for all non-financial assets and non-financial
liabilities, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually). FSP 157-2
partially defers the effective date of SFAS 157 to fiscal years beginning after
November 15, 2008, and interim periods within those fiscal years for items within
the scope of FSP 157-2. The adoption of SFAS No. 157 did not have a material
impact on the Companys consolidated financial condition or results of
operations. |
(ii) | In December 2007, the FASB issued SFAS No. 141 (R), Business
Combinations. SFAS No. 141 (R) requires an acquirer to measure the identifiable
assets acquired, the liabilities assumed and any noncontrolling interest in the
acquiree at their fair values on the acquisition date, with goodwill being the
excess value over the net identifiable assets acquired. SFAS No. 141 (R) is
effective for financial statements issued for fiscal years beginning after
December 15, 2008. Early adoption is prohibited. The adoption of SFAS No. 141 (R)
did not have a material impact on the Companys consolidated financial condition
or results of operations. |
(iii) | In December 2007, the FASB issued Statement No. 160,
Noncontrolling Interests in Consolidated Financial Statements an amendment of
ARB No. 51 (SFAS No. 160). SFAS No. 160 amends ARB 51 to establish accounting
and reporting standards for the noncontrolling interest in a subsidiary and for
the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest
in a subsidiary, which is sometimes referred to as minority interest, is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements. Among other requirements, this
statement requires consolidated net income to be reported at amounts that include
the amounts attributable to both the parent and the noncontrolling interest. It
also requires disclosure, on the face of the consolidated income statement, of
the amounts of consolidated net income attributable to the parent and to the
noncontrolling interest. SFAS No. 160 is effective for financial statements
issued for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2008. The adoption of SFAS No. 160 did not have a material
impact on the Companys consolidated financial condition or results of
operations. |
(iv) | In March 2008, the FASB issued SFAS No. 161, Disclosure About
Derivative Instruments and Hedging Activities, an amendment to Financial
Accounting Standards Board Financial Accounting Standard No. 133. SFAS No. 161
requires among other things, enhanced disclosure about the volume and nature of
derivative and hedging activities and a tabular summary showing the fair value of
derivative instruments included in the statement of financial position and
statement of operations. SFAS No. 161 also requires expanded disclosure of
contingencies included in derivative instruments related to credit risk. SFAS No.
161 is effective for fiscal 2009. The adoption of SFAS No. 161 did not have a
material impact on the Companys consolidated financial condition or results of
operations. |
7
MEXORO MINERALS LTD.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
2. | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(a) | Recent accounting pronouncements (continued) |
(v) | In May 2008, the FASB issued FSP No. APB 14-1, Accounting for
Convertible Debt Instruments That May Be Settled in Cash Upon Conversion
(Including Partial Cash Settlements) (previously FSP APB 14-a), which will
change the accounting treatment for convertible securities which the issuer may
settle fully or partially in cash. Under the final FSP, cash settled convertible
securities will be separated into their debt and equity components. The value
assigned to the debt component will be the estimated fair value, as of the
issuance date, of a similar debt instrument without the conversion feature, and
the difference between the proceeds for the convertible debt and the amount
reflected as a debt liability will be recorded as additional paid-in capital. As
a result, the debt will be recorded at a discount reflecting its below market
coupon interest rate. The debt will subsequently be accreted to its par value
over its expected life, with the rate of interest that reflects the market rate
at issuance being reflected on the income statement. This change in methodology
will affect the calculations of net income and earnings per share for many
issuers of cash settled convertible securities. The FSP is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years. The adoption of FSP No. APB 14-1
did not have a material effect on the Companys consolidated financial
statements. |
(vi) | In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities, which applies to the calculation of earnings per share (EPS) under
Statement 128 for share-based payment awards with rights to dividends or dividend
equivalents. Under the final FSP EITF 03-6-1, Unvested share-based payment awards
that contain nonforfeitable rights to dividends or dividend equivalents (whether
paid or unpaid) are participating securities and shall be included in the
computation of EPS pursuant to the two-class method. The FSP EITF 03-6-1 is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. The Company is
currently evaluating the impact of the adoption of EITF 03-6-1 on its
consolidated financial statements. |
(vii) | SFAS No. 165, Subsequent Events (SFAS 165), establishes
general standards of accounting for and disclosure of events that occur after the
balance sheet date, but before financial statements are issued or are available
to be issued. SFAS 165 establishes (1) the period after the balance sheet date
during which management of a reporting entity should evaluate events or
transactions that may occur for potential recognition or disclosure in the
financial statements; (2) the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements; and (3) the disclosures that an entity should make about
events or transactions that occurred after the balance sheet date. SFAS 165 is
effective for interim or annual financial periods ending after June 15, 2009. The
Company adopted the provisions of SFAS 165 in the six months ended August 31,
2009 and evaluated subsequent events through September 30, 2009, the issuance
date of these condensed consolidated statements. See Note 17 Subsequent Events.
The adoption of this standard did not have a material effect on the Companys
condensed consolidated financial statements.
|
8
MEXORO MINERALS LTD.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
2. | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(a) | Recent accounting pronouncements (continued) |
(viii) | On June 15, 2008, the FASB ratified Emerging Issues Task Force Issue No. 08-4
(EITF 08-4). EITF 08-4 addressed conforming changes made to EITF Issue 98-5
which resulted from the implantation of EITF Issue 00-27 and SFAS No. 150. EITF
Issued 98-5 addresses the accounting for beneficial conversion features.
Previously, beneficial conversion features were amortized to the securities
earliest conversion date. Under EITF 08-4, beneficial conversion features are
amortized to the stated redemption date, if one exists, rather than the earliest
termination date. For beneficial conversion features without a stated redemption
date, the beneficial conversion features continue to be amortized to the earliest
conversion date. EITF 08-4 is effective for fiscal years ending after December
15, 2008 with early application permitted. The effects of implementing EITF 08-4
are to be presented retrospectively with the cumulative-effect of the change
being reported in retained earnings at the beginning of the first year presented.
The Company adopted EITF 08-4 during the year ended February 28, 2009. As a
result of adoption of EITF 08-4, the Company was amortizing its beneficial
conversion features of $416,200 to the stated redemption dates of the debentures.
As a result, $312,399 of the beneficial conversion features was recognized as
interest expense in the consolidated statement of operations for the year ended
February 28, 2009 and the remaining $103,801 was recognized in the quarter ended
May 31, 2009. Prior to adoption of EITF 08-04, the entire $416,200 beneficial
conversion feature would have been recognized in the year ended February 28,
2009. |
(ix) | In April 2009, the FASB issued FSP SFAS No. 141(R)-1, Accounting
for Assets Acquired and Liabilities Assumed in a Business Combination That Arise
from Contingencies. FSP SFAS No. 141(R)-1 will amend the provisions related to
the initial recognition and measurement, subsequent measurement and disclosure of
assets and liabilities arising from contingencies in a business combination under
SFAS No. 141(R), Business Combinations. The FSP will carry forward the
requirements in SFAS No. 141, Business Combinations, for acquired contingencies,
thereby requiring that such contingencies be recognized at fair value on the
acquisition date if fair value can be reasonably estimated during the allocation
period. Otherwise, entities would typically account for the acquired
contingencies in accordance with SFAS No. 5, Accounting for Contingencies. The
FSP will have the same effective date as SFAS No. 141(R), and will therefore be
effective for the Companys business combinations for which the acquisition date
is on or after March 1, 2009. Adoption of this FSP did not have a material
impact on the Companys consolidated financial position, results of operations
and cash flows. |
(x) | In April 2009, the FASB issued FSP SFAS No. 157-4, Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly. FSP
SFAS No. 157-4 provides guidelines for making fair value measurements more
consistent with the principles presented in SFAS No. 157, Fair Value
Measurements. The FSP relates to determining fair values when there is no active
market or where the price inputs being used represent distressed sales. It
reaffirms what SFAS No. 157 states is the objective of fair value measurementto
reflect how much an asset would be sold for in an orderly transaction (as opposed
to a distressed or forced transaction) at the date of the financial statements
under current market conditions. Specifically, it reaffirms the need to use
judgment to ascertain if a formerly active market has become inactive and in
determining fair values when markets have become inactive. This SFAS is
effective for the Companys interim reporting period ending on August 31, 2009.
Adoption of this FSP did not have a material impact on the Companys consolidated
financial position, results of operations and cash flows.
|
9
MEXORO MINERALS LTD.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
2. | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(a) | Recent accounting pronouncements (continued) |
(xi) | In April 2009, the FASB issued FSP SFAS No. 107-1 and APB 28-1,
Interim Disclosures about Fair Value of Financial Instruments. FSP SFAS No. 107-1
and APB 28-1 enhances consistency in financial reporting by increasing the
frequency of fair value disclosures. The FSP relates to fair value disclosures
for any financial instruments that are not currently reflected on a companys
balance sheet at fair value. Prior to the effective date of this FSP, fair
values for these assets and liabilities have only been disclosed once a year.
The FSP will now require these disclosures on a quarterly basis, providing
qualitative and quantitative information about fair value estimates for all those
financial instruments not measured on the balance sheet at fair value. The
disclosure requirement under this FSP is effective for the Companys interim
reporting period ending on August 31, 2009. Adoption of this FSP did not have a
material impact on the Companys consolidated financial position, results of
operations and cash flows. |
(xii) | In June 2009, the FASB issued FASB Statement No. 166, Accounting
for Transfers of Financial Assets, an amendment of FASB Statement No. 140 (SFAS
166). SFAS 166, among other things, eliminates the concept of a qualifying
special-purpose entity, changes the requirements for derecognizing financial
assets, and requires additional disclosures about transfers of financial assets.
SFAS 166 is effective for annual reporting periods beginning after November 15,
2009. The Company does not expect the adoption of this standard to have a
material effect on its consolidated financial statements. |
(xiii) | In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation
No. 46(R). SFAS No. 167 changes how a company determines when an entity that is
insufficiently capitalized or is not controlled through voting (or similar
rights) should be consolidated. The determination of whether a company is
required to consolidate an entity is based on, among other things, an entitys
purpose and design and a companys ability to direct the activities of the entity
that most significantly impact the entitys economic performance. This SFAS is
effective for the Companys fiscal year beginning on March 1, 2010. The Company
is currently evaluating the impact of the implementation of SFAS No. 167 on its
consolidated financial position, results of operations and cash flows. |
(xiv) | In June 2009, the FASB issued FASB Statement No. 168, the FASB
Accounting Standards Codification (Codification) and the Hierarchy of Generally
Accepted Accounting Principles (GAAP), a replacement of FASB Statement No. 162
(SFAS 168). SFAS 168 establishes the Codification as the single source of
authoritative GAAP in the United States, other than rules and interpretive
releases issued by the SEC. The Codification is a reorganization of current GAAP
into a topical format that eliminates the current GAAP hierarchy and establishes
instead two levels of guidance authoritative and non-authoritative. All
non-grandfathered, non-SEC accounting literature that is not included in the
Codification will become non-authoritative. The FASBs primary goal in developing
the Codification is to simplify user access to all authoritative GAAP by
providing all the authoritative literature related to a particular accounting
topic in one place. The Codification will be effective for interim and annual
periods ending after September 15, 2009. As the Codification is not intended to
change or alter existing GAAP, it is not anticipated to materially impact the
Companys consolidated financial statements. |
(b) | Accounting Estimates |
The preparation of consolidated financial statements in conformity with US GAAP
requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and contingencies at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the year. Actual
results may differ form those estimates.
|
10
MEXORO MINERALS LTD.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
3. | GOING CONCERN |
The accompanying financial statements have been prepared on a going concern basis. The
Company has a history of operating losses and will need to raise additional capital to fund
its planned operations. As at August 31, 2009, the Company had a working capital deficiency
of $4,700,802 (February 28, 2009 $4,657,260) and a cumulative loss during the development
period of $43,847,088 (February 28, 2009 $41,864,219). These conditions raise substantial
doubt about the Companys ability to continue as a going concern. |
The Company intends to reduce its cumulative loss through the attainment of profitable
operations from its investment in a Mexican mining venture (note 6). In addition, the Company
has conducted private placements of convertible debt and common stock (note 11), which have
generated a portion of the initial cash requirements of its planned Mexican mining ventures
(note 6). |
In February 2009, the Company signed a definitive agreement with MRT to provide funding of up
to $9,000,000 to the Company to initiate production at its Cieneguita property, complete a
feasibility study as well as to continue the exploration of its properties. |
In June 2009, the Company signed a definitive agreement to sell its Guazapares project
located in South western Chihuahua, Mexico to Paramount Gold de Mexico, SA de C.V., the
Mexican subsidiary of Paramount Gold and Silver Corp. (Paramount) for a total consideration
of up to $5.3 million. The sale is subject to satisfaction of various conditions precedent
prior to closing. Payment for the properties is expected once the title of the claims has
been re-registered in Paramounts name with the Mining Bureau in Mexico. |
4. | EQUIPMENT |
August 31, | February 28, | |||||||||||||||
2009 | 2009 | |||||||||||||||
Accumulated | Net Book | Net Book | ||||||||||||||
Cost | Depreciation | Value | Value | |||||||||||||
Software |
$ | 23,501 | $ | 17,187 | $ | 6,314 | $ | 5,730 | ||||||||
Machinery |
271,657 | 66,335 | 205,322 | 193,097 | ||||||||||||
Vehicles |
99,801 | 65,151 | 34,650 | 56,456 | ||||||||||||
Computers |
27,033 | 19,999 | 7,034 | 9,751 | ||||||||||||
Office equipment |
15,920 | 4,397 | 11,523 | 10,866 | ||||||||||||
$ | 437,912 | $ | 173,069 | $ | 264,843 | $ | 275,900 | |||||||||
5. | JOINT VENTURE WITH MRT |
On February 12, 2009, the Company entered into a joint venture through a definitive agreement
for development of Cieneguita project with MRT. The purpose of the joint venture is to put
Cieneguita property into production. As per the agreement, MRT is to provide the necessary
working capital to begin and maintain mining operations estimated to be $3,000,000. MRT will
spend 100% of the funds in exchange for a 75% interest in the net cash flow from production.
The agreement limits the mining of the mineralized material that is available from the
surface to a depth of 15 meters or approximately 10% of the mineralized material found to
date. The Company incurs no obligations to the joint ventures creditors as the operations
and working capital requirements are controlled by MRT. Accordingly, the Companys share of
income and expenses are reflected in these financial statements under the proportionate
consolidation method. |
11
MEXORO MINERALS LTD.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
6. | MINERAL PROPERTIES |
The Company incurred exploration expenses as follows in the six months ended August 31, 2009: |
Encino | New | |||||||||||||||||||||||
Sahuayacan | Guazapares | Cieneguita | Gordo | Projects | Total | |||||||||||||||||||
Drilling and
sampling |
$ | | $ | | $ | 68,015 | $ | | $ | | $ | 68,015 | ||||||||||||
Geological,
geochemical,
geophysics |
| 31,684 | 32,400 | | 1,009 | 65,093 | ||||||||||||||||||
Land use permits |
6,206 | 4,716 | 29,185 | 1,873 | | 41,980 | ||||||||||||||||||
Automotive |
| 443 | | | | 443 | ||||||||||||||||||
Travel |
4,952 | 216 | 7,569 | | | 12,737 | ||||||||||||||||||
Consulting |
21,403 | 6,722 | 72,795 | | | 100,920 | ||||||||||||||||||
Equipment |
707 | | 2,114 | | | 2,821 | ||||||||||||||||||
General |
8,610 | 7,498 | 15,773 | 62 | | 31,943 | ||||||||||||||||||
$ | 41,878 | $ | 51,279 | $ | 227,851 | $ | 1,935 | $ | 1,009 | $ | 323,952 | |||||||||||||
The Company incurred exploration expenses as follows in the six months ended August 31, 2008: |
Cieneguita | Encino | New | ||||||||||||||||||||||||||
Operations | Sahuayacan | Guazapares | Cieneguita | Gordo | Projects | Total | ||||||||||||||||||||||
Drilling and
sampling |
$ | | $ | | $ | 373,472 | $ | 1,195,880 | $ | | $ | | $ | 1,569,352 | ||||||||||||||
Geological,
geochemical,
geophysics |
| | 88,038 | 245,912 | | 40,978 | 374,928 | |||||||||||||||||||||
Land use permits |
53 | 74,954 | 48,049 | 124,246 | (1,646 | ) | | 245,656 | ||||||||||||||||||||
Automotive |
260 | | 3,425 | 6,905 | | | 10,590 | |||||||||||||||||||||
Travel |
694 | 321 | 29,319 | 18,126 | 213 | | 48,673 | |||||||||||||||||||||
Consulting |
12,989 | | 119,302 | 88,358 | | | 220,649 | |||||||||||||||||||||
Equipment |
109 | | 21,116 | 18,138 | | | 39,363 | |||||||||||||||||||||
General |
8,764 | 5,151 | 83,866 | 147,451 | 442 | | 245,674 | |||||||||||||||||||||
$ | 22,869 | $ | 80,426 | $ | 766,587 | $ | 1,845,016 | $ | (991 | ) | $ | 40,978 | $ | 2,754,885 | ||||||||||||||
12
MEXORO MINERALS LTD.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
6. | MINERAL PROPERTIES (CONTINUED) |
Since May 2004, the Company has held interests in gold exploration properties in Mexico. |
In August 2005, the Company formed its wholly owned subsidiary, Sunburst de Mexico, which
allowed the Company to take title to the properties in the name of Sunburst de Mexico. On
August 25, 2005, the Company entered into property agreements with MRT, which provided
Sunburst de Mexico options to purchase the mineral concessions of the Cieneguita and
Guazapares properties and the right of refusal on three Encino Gordo properties. The Company
also entered into an exploration and sale agreement, in October 2006, with Minera Emilio for
the mineral concessions of the Sahuayacan property. |
In August 2005, the parties also entered into an operators agreement, that gave MRT the sole
and exclusive right and authority to manage the Cieneguita property, and a share option
agreement which granted MRT the exclusive option to acquire up to 100% of all outstanding shares of Sunburst de Mexico if the Company did not comply with the terms of the property
agreements. The operators agreement and share option agreement were subsequently cancelled
when the Company and Sunburst de Mexico entered into a new contract with MRT as described
below under Encino Gordo property. |
In November 2008, the Company signed a letter of intent and on February 12, 2009, a
definitive agreement with MRT to initiate production at its Cieneguita property, complete a
feasibility study and to continue the exploration of its properties. Under the agreement, MRT
and Mexoros wholly owned subsidiary Sunburst Mining de Mexico will form a new Mexican joint
venture company for the purpose of putting Cieneguita property into production. |
The material provisions of the property agreements are as follows: |
Cieneguita |
MRT assigned to Sunburst de Mexico, with the permission of the owner of the Cieneguita
property, Corporativo Minero, S.A. de C.V. (Corporativo Minero), all of MRTs rights and
obligations acquired under a previous agreement (the Cieneguita option agreement), including
the exclusive option to acquire the Cieneguita property for a price of $2,000,000. As the
Cieneguita property was not in production by May 6, 2006, Sunburst de Mexico was required to
pay $120,000 to Corporativo Minero to extend the contract. Corporativo Minero agreed to
reduce the obligation to $60,000, of which $10,000 was paid in April 2006 and the balance
paid on May 6, 2006. The Company made this payment to Corporativo Minero and the contract was
extended. |
The Company has the obligation to pay a further $120,000 per year for 13 years and the
balance of the payments in the 14th year, until the total amount of $2,000,000 is paid. The
Company renegotiated the payment due May 6, 2007, to $60,000 payable on November 6, 2007,
which was paid, and the balance of $60,000 was paid on December 20, 2007. The Company paid
$60,000 on May 12, 2008 of the $120,000 due on May 6, 2008, and the balance was paid in June
2008. The Company is not in default in its payments. |
In the alternative, if the Cieneguita property is put into production, of which there is no
guarantee, the Company must pay the Cieneguita owners $20 per ounce of gold produced, if any,
from the Cieneguita Property to the total $2,000,000 due. In the event that the price of gold
is above $400 per ounce, the property payments payable to the Cieneguita owners from
production will be increased by $0.10 for each dollar increment over $400 per ounce. The
total payment of $2,000,000 does not change with fluctuations in the price of gold.
Non-payment of any portion of the $2,000,000 total payment will constitute a default. In such
case, the Cieneguita owners will retain ownership of the concessions, but the Company will
not incur any additional default penalty. MRT retained no interest in the Cieneguita
property. |
13
MEXORO MINERALS LTD.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
6. | MINERAL PROPERTIES (CONTINUED) |
On February 12, 2009 the Company entered into a definitive agreement for development of
Cieneguita project with Minera Rio Tinto (MRT), a private Mexican corporation whose
president was a former president of our Company. The definitive agreement covers project
financing of up to $9,000,000. The major points of the agreement are as follows: |
(i) | MRT and/or its investors will subscribe for up to $1 million of a
secured convertible debenture at 8% interest (payable in stock or cash). The
debenture is convertible into units at $0.60 per unit. Each unit comprises 2
common shares and 1 warrant. Each warrant is exercisable at $0.50 per share for a
period of 3 years. The funds from the placement will be used for continued
exploration of the Companys properties and general working capital. |
(ii) | MRT is to provide the necessary working capital to begin and
maintain mining operations estimated to be $3,000,000 used for the purpose of
putting the Cieneguita property into production. MRT will spend 100% of the funds
in exchange for a 75% interest in the net cash flow from production. The
agreement will limit the mining to the mineralized material that is available
from surface to a depth of 15 meters or approximately 10% of the mineralized
material found to date. |
(iii) | MRT will spend up to $5 million to take the Cieneguita property
through the feasibility stage. In doing so, MRT will earn a 60% interest in
Mexoros rights to the property. After the expenditure of the $5 million all
costs will be shared on a ratio of 60% to MRT and 40% to Mexoro. If the Company
elects not to pay its portion of costs after the $5 million has been spent, the
Companys position shall revert to a 25% carried interest on the property. |
Guazapares |
MRT assigned to Sunburst de Mexico, with the consent of the Guazapares property owner
Compañía Minera, S.A. de C.V. (Compañía Minera), MRTs rights and obligations concerning
the Guazapares property, including the exclusive option, for a term of four years, to
purchase eight of the Guazapares property concessions upon payment of $910,000. The total
payments for the Company to acquire and retain 100% ownership of all eight concessions are as
follows: November 30, 2005 $100,000 (this payment date was extended see below), October
31, 2006 $60,000 (this payment date was extended to February 28, 2007, and then to August
31, 2007- see below), August 2, 2007 $140,000 (see below), August 2, 2008 $110,000 and
August 2, 2009 $500,000. |
On September 19, 2007, Sunburst de Mexico, Mexoro and MRT entered into an agreement to defer
any and all property payments regarding Guazapares that were due by December 31, 2007 owing
to MRT, until such time as Sunburst de Mexico and Mexoro have sufficient funds to make the
payments, in the opinion of the disinterested directors of Mexoro. |
Mexoro agreed to issue 250,000 shares to MRT and/or its assignees in consideration for the
deferral of any and all Guazapares Property payments that were outstanding and those arising
on or before December 31, 2007. |
In return, Sunburst de Mexico granted MRT a 2.5% net smelter royalties (NSR) and the right
to extract from the Guazapares concessions up to 5,000 tons per month of rock material; which
right will terminate on exercise of the option to purchase the concessions. Otherwise, MRT
retained no interest in the Guazapares Property. |
In June 2009, the Company signed a definitive agreement to sell its Guazapares project
located in south western Chihuahua, Mexico to Paramount Gold de Mexico, SA de C.V., the
Mexican subsidiary of Paramount. The sale is subject to satisfaction of various conditions
precedent prior to closing. Payment for the properties is expected once the title of the
claims have been re-registered in Paramounts name with the Mining Bureau in Mexico. |
As per the agreement, the due dates for all payments for the ownership of Guazapares have
been deferred with the property owners for a period of 37 months from the closing date.
Sunburst is required to make monthly payment of $6,000 plus $900 in taxes for 36 months
commencing on July 20, 2009 and ending on June 10, 2012 for deferment from the escrow fund. |
14
MEXORO MINERALS LTD.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
6. | MINERAL PROPERTIES (CONTINUED) |
San Francisco (Guazapares) |
MRT assigned to Sunburst de Mexico, for a term of 60 months, commencing from June 25, 2004
(the Option Period), with the consent of the San Francisco concessions owner Minera
Rachasa, S.A. de C.V. (Minera Rachasa), MRTs rights and obligations acquired under the San
Francisco option agreement, including the option to purchase the San Francisco concessions
for a price of $250,000 on June 25, 2009. |
To maintain the option, Sunburst de Mexico assumed the obligation to pay to the San Francisco
owner cumulative annual payments. The payments are: $20,000 on June 25, 2006 (paid); $30,000
on June 25, 2007 (paid); and $40,000 on June 25, 2008 (paid). |
If the option is exercised prior to the expiration of the Option Period by payment of the
purchase price of $250,000; the obligation to pay the annual payments will be terminated. MRT
and the San Francisco owner reserved a combined 2.5% NSR. MRT reserved no other rights on the
San Francisco concessions. |
In June 2009, Paramount made the $250,000 payment to Minera Rachasa and acquired the San
Francisco concessions as part of the definitive agreement to acquire the Guazapares project. |
San Antonio (Guazapares) |
MRT assigned to Sunburst de Mexico, with the consent of the San Antonio concessions owner
(Rafael Fernando Astorga Hernández), MRTs rights and obligations acquired under the San
Antonio option agreement, including the option to purchase the San Antonio concessions for a
price of $500,000, commencing on January 15, 2004 (the signing date of the San Antonio option
agreement) and due on January 15, 2010. |
To maintain the option, Sunburst de Mexico assumed the obligation to pay to the San Antonio
owner cumulative annual payments. The remaining payments are: $50,000 on January 15, 2008
(this payment was deferred to January 31, 2008 and paid) and $50,000 on January 15, 2009 (the
Company is in default and renegotiating the payment terms). |
If the option is exercised prior to the expiration of the option period by payment of the
purchase price, the obligation to pay the annual payments will be terminated. The San Antonio
owner reserved the right to extract from the San Antonio concessions up to 50 tons per day of
rock material; this right will terminate on the date of the exercise of the option. MRT and
the San Antonio owner reserved a combined 2.5% NSR to be paid to them. MRT reserved no other
rights on the San Antonio concessions. |
Encino Gordo |
On December 8, 2005, the Company and Sunburst de Mexico entered into a New Agreement with
MRT to exercise their option under the sale and purchase of the mining concessions agreement,
dated August 18, 2005, to obtain two mining concessions in the Encino Gordo region. The New
Agreement also provided the Company the option to obtain three additional concessions in the
Encino Gordo region.
|
15
MEXORO MINERALS LTD.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
6. | MINERAL PROPERTIES (CONTINUED) |
The following are additional material terms of the New Agreement: |
(a) | The share option agreement with MRT was cancelled; |
(b) | The Company granted MRT the option to buy all of the outstanding shares of
Sunburst de Mexico for $100 if the Company failed to transfer $1,500,000 to Sunburst de
Mexico by April 30, 2006. On April 6, 2006, MRT agreed to waive its option to purchase
the shares of Sunburst de Mexico and also waived the Companys obligation to transfer
$1,500,000 to Sunburst de Mexico. The property agreements were modified to change the
NSR to a maximum of 2.5% for all properties covered by the agreements. The property
agreements contained NSRs ranging from 0.5% to 7%; |
(c) | The Company agreed to issue 2,000,000 shares of the Companys common stock to MRT
within four months of the date of the signing of the New Agreement. These shares were
issued to MRT and its assignee at the market value of $1.05 per share on February 23,
2006, and $2,100,000 was charged to operations for the year ended February 28, 2006.
This issuance fulfilled the Companys payment obligations under the previous property
agreements; |
(d) | The Company agreed to issue 1,000,000 additional shares of the Companys common
stock to MRT if and when the Cieneguita Property is put into production and reaches 85%
of production capacity over a 90-day period, as defined in the New Agreement; and |
(e) | The operators agreement with MRT was cancelled. |
Sunburst de Mexico purchased two of the Encino Gordo concessions from MRT for a price of
1,000 pesos (approximately US$100), and MRT assigned to Sunburst de Mexico a first right of
refusal to acquire three additional Encino Gordo concessions. The total payments to acquire
100% of these three additional concessions are as follows: $10,000 on June 30, 2006 (paid);
$25,000 on December 31, 2006 (paid), $50,000 on December 31, 2007 ($20,000 of this payment
was made on January 3, 2008 and the balance was paid on February 29, 2008), $75,000 on
December 31, 2008 (the Company was in default). In August 2009, the Company decided to
surrender the Encino Gordo 2 mining concession and absolved itself of any further obligations
relating to this concession. |
Sahuayacan |
On June 21, 2006, Sunburst de Mexico entered into an exploration and sale option agreement of
mining concessions with Minera Emilio, S.A. de C.V. (Minera Emilio) for mineral concessions
of the Sahuayacan Property. Minera Emilio granted the Company the exclusive right to conduct
exploration on the Sahuayacan property and the Company must pay $282,000 in the following
manner: $20,000 on date of signing agreement (paid); $10,000 due December 1, 2006 (paid);
$2,500 per month effective from August 21, 2006 to July 21, 2007, for a total of $30,000
(paid); $3,500 per month effective from August 21, 2007 to July 21, 2008 for a total of
$42,000 (paid); and $5,000 per month effective August 21, 2008 to July 21, 2011 (all until
August 2009 have been made) for a total of $180,000 until the balance of the total $282,000
is paid (36 months). |
Segundo Santo Nino (Sahuayacan) |
On May 15, 2006, Sunburst de Mexico entered into an exploration contract with Jose Maria
Rascon and Sabino Amador Rascon Polanco and, on November 20, 2007, Sunburst de Mexico entered
into an exploration contract with Rene Muro Lugo (all three representatives constitute the
Concessionaires) for the Segundo Santo Nino concession on the Sahuayacan property. Each
concession representative owns 33.3% of the total Segundo Santo Nino title. The Company must
pay the Concessionaires a total of $255,000 for this concession. As of August 31, 2009, the
Company paid $105,000 of the payments required until May 15, 2009, The remaining payments are
due on November 15, 2009 ( $30,000) and May 15, 2010 ($120,000). |
16
MEXORO MINERALS LTD.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
6. | MINERAL PROPERTIES (CONTINUED) |
La Maravilla (Sahuayacan) |
On January 25, 2008, Sunburst de Mexico entered into an exploration and option agreement with
Maria Luisa Wong Madrigal for mineral concessions under the La Maravilla project on the
Sahuayacan property. The Company must pay Maria Luisa Wong Madrigal $600,000 to acquire 100%
of this concession as follows: $33,000 January 25, 2008 (paid); $33,000 July 25, 2008
(paid); $34,000 January 25, 2009 (this payment was made in September 2009); $500,000 at
the option to purchase the concession or 36 months January 25, 2010. |
7. | PROMISSORY NOTES |
As at August 31, 2009, the Company had $1,150,377 (August 31, 2008 $1,784,654) of
promissory notes outstanding, comprising the following: |
(a) | During the twelve months ended February 29, 2008, the Company converted accounts
payable of $465,994 (Swiss Franc (CHF) 565,000) into promissory notes. The Company had
an implied obligation to pay the accounts payable in Swiss Francs as the funds to pay
the expense came from Swiss investors in CHF. Accordingly, the promissory notes were
issued in CHF. The notes consist of one warrant for each CHF 5.00 of notes issued,
exercisable at $1.00 each. The principal and interest on the notes became due and
payable on April 30, 2008. The Company has not repaid the promissory notes as of August
31, 2009 and is in default. The principal and interest on the notes due and payable as
of August 31, 2009 was $528,371. The interest rate payable during the default period is
12%. |
(b) | $622,006 of promissory notes is due to related parties and their associates that
bear no interest and have no terms of repayment (14). |
8. | CONVERTIBLE DEBENTURES |
On May 5, 2008, the Company signed a LOI to enter into a strategic alliance with Paramount
Gold and Silver Corp. (Paramount). The agreement called for Paramount to invest a minimum
of $4 million and maximum of $6 million into the Company, fixed at a price of $0.50 per unit
by June 23, 2008. The investment timeline was extended until July 21, 2008, and then to
August 5, 2008. On August 6, 2008 Mexoro terminated the LOI with Paramount as Paramount did
not meet the terms of the agreement. |
The Company issued secured convertible debentures to Paramount as follows: |
On May 9, 2008, the Company issued $500,000 in convertible debentures to Paramount, with a
maturity date of one year, accruing interest at 8% per year payable in arrears and
convertible at the option of the holder. |
On June 10, 2008, the Company issued $70,000 in convertible debentures to Paramount, with a
maturity date of one year, accruing interest at 8% per year payable in arrears and
convertible at the option of the holder. |
On June 25, 2008, the Company issued $300,000 in convertible debentures to Paramount, with a
maturity date of one year, accruing interest at 8% per year payable in arrears and
convertible at the option of the holder. |
On July 11, 2008, the Company issued $500,000 in convertible debentures to Paramount, with a
maturity date of one year, accruing interest at 8% per year payable in arrears and
convertible at the option of the holder. |
17
MEXORO MINERALS LTD.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
8. | CONVERTIBLE DEBENTURES (CONTINUED) |
Paramount had the option to convert all or a portion of the principal amount of the debenture
into units consisting of one share of our common stock and half a warrant to purchase one
share of our common stock. Subject to certain adjustments upon the occurrence of various
capital reorganizations and other events, the units were convertible at $0.50 per unit for a
total of up to 2,740,000 shares of common stock and up to 1,370,000 warrants at $0.75 to
purchase shares of common stock (the Warrants). The Warrants would have had a term of four
years if Paramount had converted the debenture or the portion of the debenture covering those
warrants. |
The value assigned to the beneficial conversion feature of the convertible debentures issued
to Paramount was $416,200. The fair value of the Warrants attached to the convertible
debentures as discussed above was estimated to be $423,000. The fair value of the Warrants
was estimated at the date of grant using the Black-Scholes option pricing model using the
following weighted average assumptions: |
2008 | ||||
Expected volatility |
71.48-110.72% | |||
Weighted-average volatility |
71.48-110.72% | |||
Expected dividend rate |
| |||
Expected life of warrants in years |
4 | |||
Risk-free rate |
2.30-3.41% |
The weighted average fair value of the warrants was $0.30 per warrant, while the weighted
average stock price on the dates granted was $0.50. Stock-based compensation for these
warrants of $423,000 was being amortized over the one year term of the convertible debentures
starting on May 9, 2008. |
On March 19, 2009, the Company entered into an agreement with Paramount restructuring its
payment terms on the three outstanding secured convertible debentures held by Paramount.
Under the terms of the agreement, the Company paid Paramount $1,000,000 to cancel two
debentures held by them, one issued on May 9, 2008 for $500,000 and another issued on July
11, 2008 for $500,000. |
The Company also amended a debenture issued to them on June 18, 2008 in the face amount of
$370,000. The amount of that debenture was increased to $521,047, which, among other things,
includes interest accrued on all three debentures to March 31, 2009. The Company was
obligated to make a payment on March 31, 2009 on this debenture in the amount of $393,547 and
the balance of $127,500 was to be re-paid on April 30, 2009. This remaining amount of
$127,500 was interest free as long as the debenture remained in good standing. On March 31,
2009, the Company paid back $300,000. As per the agreement, the remaining amount of $221,047
accrued interest at 8% per year payable monthly, in arrears on the 10th day of
each month. On July 8, 2009, the Company entered into a definitive agreement with Paramount
to sell the Guazapares project. As part of the agreement, Paramount waived off the interest
charges due on the convertible debenture (see note 17). |
As part of a restructuring fee, the Company issued to Paramount 150,000 shares of common
stock. As part of the agreement, Paramount has released its security interest on the
Companys Cieneguita properties. The other security as described in the original security
agreement issued with the original debentures remains in place until the amended debenture
has been repaid in full. |
18
MEXORO MINERALS LTD.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
8. | CONVERTIBLE DEBENTURES (CONTINUED) |
In March of 2009, the Company approved the issuance of $1,500,000 of Convertible Debenture to
four investors, of which $1,300,000 was received in cash and used to liquidate the debentures
issued to Paramount (former debenture
holders) during the period of May 2008 to July 2008. The Company recognized a loss of
$174,786 on the liquidation of the debentures with Paramount. Additionally, the Company
converted $100,000 of accounts payable into the convertible debenture and is scheduled to
receive $100,000 in cash for the remaining debenture in October, 2009. The debenture is due
in one year from the date of issuance and accrues interest at 15% per annum, to be paid
quarterly in either cash or stock of the Company valued at a 20% discount of the 20 day
trading average prior to the date of payment. The holders have several options to convert the
debentures. On July 24, 2009, all of the holders of the Convertible Debentures agreed to
irrevocably convert the debentures into a 10% ownership interest in the Companys Cieneguita
mining project. The Company has valued the Cieneguita project at approximately $15,000,000.
The 10% ownership interest in the Cieneguita project thus approximates the value of the
debentures to be converted. |
As consideration for the debentures, the Company granted a security interest in its
Cieneguita properties to these debenture holders. |
The value assigned to the beneficial conversion feature of the convertible debentures issued
to Paramount ($221,047) was $nil. The fair value of the Warrants attached to the convertible
debentures as discussed above was estimated to be $48,500. The fair value of the warrants was
estimated at the date of grant using the Black-Scholes option pricing model using the
following weighted average assumptions: |
2009 | ||||
Expected volatility |
110.36% | |||
Weighted-average volatility |
110.36% | |||
Expected dividend rate |
| |||
Expected life of warrants in years |
3-4 | |||
Risk-free rate |
1.21-1.45% |
The weighted average fair value of the warrants was $0.75 per warrant, while the weighted
average stock price on the dates granted was $0.35. Stock-based compensation for these
warrants of $48,500 is being amortized over the one year term of the convertible debentures
starting on March 19, 2009. |
During the six months ended August 31, 2009, the Company issued $273,510 in convertible
debenture to MRT. Under the convertible debenture agreement, the Company also issued one
warrant for each $0.60 of convertible debentures issued (note 6). The warrants can be
exercised at any time at a price of $0.50 for 3 years. |
The value assigned to the beneficial conversion feature of the convertible debentures issued
to MRT was $71,866. The fair value of the Warrants attached to the convertible debentures as
discussed above was estimated to be $51,800. The fair value was estimated at the date of the
grants using the Black-Scholes option pricing model with the following weighted average
assumptions: |
2009 | ||||
Expected volatility |
108.54-110.36% | |||
Weighted-average volatility |
108.54-110.36% | |||
Expected dividend rate |
| |||
Weighted-average expected life of warrants in years |
3 | |||
Risk-free rate |
1.36-1.45% |
The weighted average fair value of the warrants was $0.19 per warrant, while the weighted
average stock price on the dates granted was $0.32. Stock-based compensation for these
warrants of $51,800 is being amortized till December 31, 2010. |
19
MEXORO MINERALS LTD.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
9. | LOANS PAYABLE |
As at August 31, 2009, there were loans payable in the amount of $60,988, of which $60,248 is
current and $740 is long-term, of which, $43,363 have no repayment terms or interest. The
remainder of the loans is repayable in monthly
instalments of $1,776, including interest ranging from 5.3% to 15.6% per annum, and is
partially secured by specified automotive equipment. |
10. | PREFERRED STOCK |
The Company is authorized to issue 20,000,000 shares of preferred stock. The Companys board
of directors is authorized to divide the preferred stock into series, and with respect to
each series, to determine the preferences and rights and qualifications, limitations or
restrictions thereof, including the dividend rights, conversion rights, voting rights,
redemption rights and terms, liquidation preferences, sinking fund provisions, and the number
of shares constituting the series and the designations of such series. The board of directors
could, without stockholder approval, issue preferred stock with voting and other rights that
could adversely affect the voting rights of the holders of common stock, which issuance could
have certain anti-takeover effects. |
11. | COMMON STOCK |
In July 2009, the Company received subscription proceeds of $100,000 and issued 500,000
shares of common stock in a private placement. The subscribers to the subscription proceeds
have agreed to purchase one unit for each $0.20 of subscription proceeds. Each unit consists
of one share of Companys common stock and one warrant each exercisable at $0.30, which
expire in four years. |
In June 2009, the Company converted $622,500 of debt into subscription proceeds and issued
2,075,000 common shares. The subscribers to the subscription proceeds have agreed to purchase
one unit for each $0.60 of debt. Each unit consists of two shares of Companys common stock
and one warrant each exercisable at $0.50, which expires on December 31, 2010. |
In June 2009, the Company issued 1,000,000 shares of common stock to an officer of the
Company as bonus. |
In May 2009, the Company converted $250,000 of debt into subscription proceeds and issued
833,334 common shares. The subscribers to the subscription proceeds have agreed to purchase
one unit for each $0.60 of debt. Each unit consists of two shares of Companys common stock
and one warrant each exercisable at $0.50, which expires on December 31, 2010. |
In May 2009, the Company issued 42,837 shares for $13,500 of investors relations services as
per the agreement. |
In April 2009, the Company issued 2,250,000 shares under an escrow agreement as security
against convertible debentures issued. |
In March and April 2009, the Company issued 700,000 shares pursuant to amended convertible
debenture agreement and financing arrangements. |
In February 2009, the Company issued 400,000 shares of common stock to an officer of the
Company as bonus for the 500,000 ounce gold discovery. |
In November 2008, the Company issued 50,000 shares of common stock to an officer of the
Company as bonus for the 500,000 ounce gold discovery. |
In November 2008, the Company issued 500,000 shares of common stock to the president of the
Company as a signing bonus. |
20
MEXORO MINERALS LTD.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
11. | COMMON STOCK (CONTINUED) |
In October, 2008, the Company converted subscription proceeds of $4,943 into 9,886 shares of
common stock. The subscribers to the subscription proceeds have agreed to purchase one unit
for each $1.00 of subscription proceeds. Each unit consists of two shares of Companys common
stock and one warrant each exercisable at $0.75, which expire in four years. |
In October 2008, the Company issued 100,000 shares of common stock to an officer of the
Company as bonus for the 500,000 ounce gold discovery. |
In October 2008, the Company converted $151,866 of debt into 415,000 shares of common stock. |
In September 2008, the Company converted $835,514 of debt into subscription proceeds and
issued 1,671,028 common shares. The subscribers to the subscription proceeds have agreed to
purchase one unit for each $1.00 of debt. Each unit consists of two shares of Companys
common stock and one warrant each exercisable at $0.75, which expire in four years. |
In September, 2008, the Company received subscription proceeds of $170,000 and issued 425,000
shares of common stock in a private placement. The subscribers to the subscription proceeds
have agreed to purchase one unit for each $1.00 of subscription proceeds. Each unit consists
of two shares of Companys common stock and one warrant each exercisable at $0.75, which
expire in four years. |
In September 2008, the Company converted $42,800 of debt into 107,000 shares of common. |
In August 2008, the Company converted $142,508 (MXN 1,449,989) of promissory notes into
subscription proceeds and issued 280,000 common shares. The subscribers to the subscription
proceeds have agreed to purchase one unit for each $1.00 of debt. Each unit consists of two
shares of the Companys common stock and one warrant each exercisable at $0.75, which expire
in four years. |
In July 2008, the Company converted $67,424 of debt into 150,000 shares of common. |
In June 2008, the Company converted $60,000 of debt into subscription proceeds and issued
120,000 common shares. The subscribers to the subscription proceeds have agreed to purchase
one unit for each $1.00 of debt. Each unit consists of two shares of Companys common stock
and one warrant each exercisable at $0.75, which expire in four years. |
In June, 2008, the Company issued 9,885 shares of common stock in a private placement. |
In May 2008, the Company converted $535,500 of debt into subscription proceeds and issued
1,071,000 common shares. The subscribers to the subscription proceeds have agreed to purchase
one unit for each $1.00 of debt. |
On April 25, 2008, stock subscriptions of $330,000 were converted into 330,000 shares of
common stock. |
In the year ended February 29, 2008, the Company issued 1,174,000 shares of common stock on
the exercise of 1,174,400 warrants where each warrant was exercisable into shares of common
stock at the price of $1.00 per share. The warrants were to expire on April 30, 2008. |
In the second and third quarters of the year ended February 29, 2008, the Company issued
1,000,000 shares of common stock on the exercise of 1,000,000 warrants where each warrant was
exercisable into shares of common stock at the price of $0.75 per share. The warrants were to
expire on December 31, 2007. |
In the first two quarters of the year ended February 29, 2008, the Company issued 1,000,000
shares of common stock on the exercise of 1,000,000 warrants where each warrant was
exercisable into shares of common stock at the price of $0.50 per share. The warrants were to
expire on June 30, 2007. |
21
MEXORO MINERALS LTD.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
11. | COMMON STOCK (CONTINUED) |
On April 25, 2008, stock subscriptions of $330,000 were converted into 330,000 shares of
common stock. |
In fiscal 2008, the Company issued 1,174,000 shares of common stock on the exercise of
1,174,400 warrants where each warrant was exercisable into shares of common stock at the
price of $1.00 per share. The warrants were to expire on April 30, 2008. |
In the second and third quarter of fiscal 2008, the Company issued 1,000,000 shares of common
stock on the exercise of 1,000,000 warrants where each warrant was exercisable into shares of
common stock at the price of $0.75 per share. The warrants were to expire on December 31,
2007. |
In the first two quarters of fiscal 2008, the Company issued 1,000,000 shares of common stock
on the exercise of 1,000,000 warrants where each warrant was exercisable into shares of
common stock at the price of $0.50 per share. The warrants were to expire on June 30, 2007. |
12. | STOCK COMPENSATION PROGRAM |
On March 18, 2009, the board of directors approved the granting of stock options according to
the 2008 Nonqualified Stock Option Plan (2008 Option Plan) whereby the board is authorized
to grant to employees and other related persons stock options to purchase an aggregate of up
to 6,000,000 shares of the Companys common stock. Subject to the adoption of the 2008 Option
Plan, the options were granted and vest, pursuant to the terms of the 2008 Option Plan, in
three equal instalments, with the first instalment vesting at the date of grant, the second
instalment vesting September 18, 2009 and the last instalment vesting March 18, 2010. |
In the six months ended August 31, 2009, the Company awarded 150,000 options to purchase
common shares (2008 1,450,000) and recorded stock-based compensation expense for the
vesting options of $298,722 (2008 $327,470). The following weighted average assumptions
were used for the Black-Scholes option-pricing model to value stock options granted in 2009 &
2008: |
2009 | 2008 | |||||||
Expected volatility |
110.36% | 62% - 72% | ||||||
Weighted-average volatility |
110.36% | 72.15% | ||||||
Expected dividend rate |
| | ||||||
Expected life of options in years |
10 | 2 - 10 | ||||||
Risk-free rate |
2.95% | 2.82% - 3.86% |
There were no capitalized stock-based compensation costs at August 31, 2009 or August
31, 2008. |
22
MEXORO MINERALS LTD.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
12. | STOCK COMPENSATION PROGRAM (CONTINUED) |
The summary of option activity under the 2008 Option Plan as of August 31, 2009, and changes
during the period then ended, is presented below: |
Weighted- | ||||||||||||||||
Weighted | Average | |||||||||||||||
Average | Remaining | Aggregate | ||||||||||||||
Exercise | Number of | Contractual | Intrinsic | |||||||||||||
Options | Price | Shares | Term | Value | ||||||||||||
Balance at March 1, 2009 |
$ | 0.56 | 4,835,000 | |||||||||||||
Options granted |
0.16 | 150,000 | ||||||||||||||
Options exercised |
| | ||||||||||||||
Options cancelled/forfeited |
$ | 0.65 | (285,000 | ) | ||||||||||||
Balance at August 31, 2009 |
$ | 0.55 | 4,700,000 | 8.17 | $ | 121,950 | ||||||||||
Exercisable at August 31, 2009 |
$ | 0.76 | 2,853,335 | 7.68 | $ | 40,650 | ||||||||||
The weighted-average grant-date fair value of options granted during the six months
ended August 31, 2009 and August 31, 2008 was $0.29 and $0.49, respectively. |
A summary of the status of the Companys nonvested options as of August 31, 2009, and changes
during the six months ended August 31, 2009, is presented below: |
Weighted- | ||||||||
average | ||||||||
Grant-Date | ||||||||
Non-vested options | Shares | Fair Value | ||||||
Nonvested at February 28, 2009 |
2,502,499 | $ | 0.28 | |||||
Granted |
150,000 | 0.29 | ||||||
Vested |
(700,834 | ) | 0.55 | |||||
Cancelled/forfeited |
(105,000 | ) | 0.40 | |||||
Nonvested at August 31, 2009 |
1,846,665 | $ | 0.28 | |||||
As of August 31, 2009, there was an estimated $384,134 of total unrecognized
compensation cost related to nonvested share-based compensation arrangements granted under
the 2007 and 2008 nonqualified stock option plans. That cost is expected to be recognized
over a weighted-average period of approximately 1.40 years. |
23
MEXORO MINERALS LTD.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
13. | WARRANTS |
As at August 31, 2009, the Company had a total of 7,327,233 (February 28, 2009 7,102,890)
warrants outstanding to purchase common stock. Each warrant entitles the holder to purchase
one share of the Companys common stock. The Company has reserved 7,327,233 shares of common
stock in the event that these warrants are exercised. |
During the six months ended August 31, 2009, the Company received $nil from warrants
exercised. |
The outstanding warrants include 1,000,000 Series D Warrants exercisable at $1.25 per share
and 1,000,000 Series E Warrants exercisable at $1.50 per share; of which all are exercisable
at the option of the holder, have no redemption features, and are settled on a physical
basis. All the warrants were fully vested upon issuance. The Series E Warrants will become
exercisable only when the Series D Warrants have been fully exercised. Unless terminated
earlier as a result of failure to vest, the Series D and Series E Warrants will each expire
on December 31, 2009. |
The Company had issued 2,917,500 warrants exercisable at $1.00 each pursuant to the issuance
of convertible debentures. These warrants expired on April 30, 2008. |
The Company had issued 375,000 warrants exercisable at $1.00 each pursuant to the issuance of
a private placement unit offering. These warrants expired on April 30, 2008. |
The following table summarizes the continuity of the Companys share purchase warrants: |
Weighted | ||||||||
Number of | Average | |||||||
Warrants | Exercise Price | |||||||
Balance, February 29, 2008 |
4,486,100 | $ | 1.17 | |||||
Issued |
4,989,890 | 0.73 | ||||||
Cancelled |
(2,043,100 | ) | 1.00 | |||||
Exercised |
(330,000 | ) | 1.00 | |||||
Balance, February 28, 2009 |
7,102,890 | $ | 1.03 | |||||
Issued |
2,320,833 | 0.43 | ||||||
Cancelled |
(2,096,490 | ) | 0.66 | |||||
Exercised |
| | ||||||
August 31, 2009 |
7,327,233 | $ | 0.95 | |||||
As at August 31, 2009, the following share purchase warrants were outstanding: |
Number of | ||||||||
Warrants | Exercise Price | Expiry Date | ||||||
166,666 | $ | 0.30 | May 8, 2012 | |||||
500,000 | $ | 0.30 | July 23, 2011 | |||||
200,000 | $ | 0.40 | March 24, 2012 | |||||
100,000 | $ | 0.43 | September 8, 2010 | |||||
1,454,167 | $ | 0.50 | December 31, 2010 | |||||
250,000 | $ | 0.65 | June 30, 2012 | |||||
1,793,400 | $ | 0.75 | April 2012 to August, 2013 | |||||
113,000 | $ | 1.00 | January 31, 2010 | |||||
1,000,000 | $ | 1.25 | December 31, 2009 | |||||
250,000 | $ | 1.30 | June 30, 2012 | |||||
1,000,000 | $ | 1.50 | December 31, 2009 | |||||
250,000 | $ | 2.00 | June 30, 2012 | |||||
250,000 | $ | 2.75 | June 30, 2012 | |||||
7,327,233 | ||||||||
24
MEXORO MINERALS LTD.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
14. | RELATED PARTY TRANSACTIONS |
For the six months ended August 31, 2009, the Company paid or accrued management fees of
$79,566 (August 31, 2008 $104,440) to certain officers and directors. The Company also paid
or accrued $1,987 (August 31, 2008 $7,449) to certain officers and directors for travel,
office and other related expenses. |
As at August 31, 2009, accounts payable of $16,000 (August 31, 2008 $84,000) was owing to a
director of the Company and $144,481 (August 31, 2008 $nil) was owing to a company
controlled by a director. In addition, promissory notes of $nil (August 31, 2008 $706,791)
were owed to companies controlled by directors (note 7). |
All related party transactions are in the normal course of business at the exchange amount
agreed to by each party. |
15. | SUPPLEMENTAL CASH FLOW INFORMATION |
Period From | ||||||||||||
Six Months | Six Months | Inception of | ||||||||||
Ended | Ended | Development Stage | ||||||||||
August 31, | August 31, | (March 1, 2004) to | ||||||||||
2009 | 2008 | August 31, 2009 | ||||||||||
Interest paid |
$ | | $ | 13,053 | $ | 280,053 | ||||||
Common stock issued on conversion of debt |
872,500 | 103,000 | 4,193,000 | |||||||||
Common stock issued on settlement of notes payable |
| | 1,883,322 | |||||||||
Common stock issued for interest costs |
82,500 | | 82,500 | |||||||||
Common stock issued for financing costs |
145,000 | | 145,000 | |||||||||
Common stock issued for mineral property costs |
| | 580,000 | |||||||||
Common stock issued for bonuses |
280,000 | | 512,750 | |||||||||
Shares issued for services |
$ | 13,500 | $ | | $ | 365,590 |
16. | COMMITMENTS |
On July 1, 2008, the Company entered into an investor relations agreement with Vastani
Company (Vastani), whereby Vastani will act as an investor relationship advisor to the
Company. The Company has agreed to pay a monthly retainer of 20,000 and 1,000,000 warrants
to purchase shares of the Companys common stock. This includes 250,000 warrants at a price
of $0.65 per share vesting on signing, 250,000 warrants at an execution price of $1.30 per
share vesting after 90 days, 250,000 warrants at a price of $2.00 per share vesting after 120
days and 250,000 warrants at a price of $2.75 per share vesting after 180 days. The warrants
expire on June 30, 2012. |
On February 10, 2009, the Company entered into a consultancy agreement with Consulting for
Strategic Growth 1, Ltd. for investor relation services. The Company will pay $3,000 per
month in cash and $4,500 in shares of the Companys common stock for the consultants
services. The term of the agreement ends on August 10, 2009. |
On March 3, 2009, the Company entered into a consulting agreement with Dusford Overseas
Investments, Ltd., a British Virgin Islands company (Dusford). One of the Companys former
non-executive directors, Steven Sanders, is a principal of Dusford. Under the agreement,
Dusford will provide the Company with a variety of services including financial public
relations, strategic planning, acquisition consulting and assistance in securing equity or
debt financing. The agreement has an initial term of 12 months beginning on the effective
date of March 3, 2009, but the Company has the right to terminate the Agreement early with 30
days notice. |
25
MEXORO MINERALS LTD.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
16. | COMMITMENTS (CONTINUED) |
Under the terms of the Agreement, the Company paid Dusford a signing fee of 200,000
restricted shares and is paying a monthly fee of $10,000 (payable in shares or cash). The
Company will issue Dusford a warrant which entitles Dusford to purchase one million shares of
the Companys common stock at $0.40 per share for three years. The warrant vests and becomes
issuable at the close of any financings introduced by Dusford in increments of 100,000 shares
for every $100,000 raised. |
In June 2009, the Company cancelled its consulting agreements with Vastani Company,
Consulting for Strategic Growth 1, Ltd. and Dusford Overseas Investments, Ltd. |
17. | SUBSEQUENT EVENTS |
(a) | Private Placement Subscription Agreements |
On September 21, 2009, the Company entered into private placement subscription
agreements with certain U.S. accredited investors and certain Canadian and Non-U.S.
investors for the private placement of up to a total of 9,000,000 unregistered shares
of the Companys common stock with 100% warrant coverage at a purchase price of $0.20
per unit. The warrants have an exercise price of $0.30 per share, a two-year term and
will not be exercisable until twelve months after their date of issuance. On September
21, 2009, $500,000 of proceeds were released to the Company from escrow. Subject to
the payment of certain fees and expenses, the remaining subscription proceeds will be
held in escrow and released to the Company upon the filing of a registration statement
with the Securities and Exchange Commission covering the resale of the shares and
warrants shares issued in the private placement (the Final Closing). If the Company
fails to file the registration statement by November 30, 2009, the remaining funds
held in escrow will be returned to the investors. The Company cannot provide any
assurance that the Final Closing will occur, or the aggregate amount of proceeds that
will be invested. |
In connection with the Companys private placement to Canadian and non-U.S. investors,
the Company has agreed to pay Andean Invest Limited, the Companys exclusive placement
agent, $150,000 at the Final Closing. The placement agent fee does not apply to the
private placement to the U.S. investors. |
(b) | Departure and Election of Directors and Officers |
On September 21, 2009, Manuel Flores and Steven A. Sanders resigned from the Companys
board of directors (the Board). The resignations did not involve any disagreement on
any matter relating to the Companys operations, policies or practices. Effective upon
his resignation, Mr. Flores entered into an employment agreement with the Company
pursuant to which Mr. Flores will serve as an operations manager of the Company and
will receive a monthly salary of $5,000. In addition, the Company accelerated the
vesting of 241,667 shares of the Companys common stock underlying Mr. Sanders
outstanding options and extended the exercise date of all of his 350,000 options until
the end of the ten year option term. |
Upon the resignations of Mr. Flores and Mr. Sanders, the Company increased the size of
its Board to four members and appointed George Young, John Clair and Mario Ayub to the
Board. The appointments were a condition to the private placement transaction
described above. George Young and John Clair were appointed to the Board effective
immediately upon the resignations of Mr. Flores and Mr. Sanders, and Mario Ayub will
be appointed to the Board effective October 7, 2009. |
26
MEXORO MINERALS LTD.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
(A Development Stage Company)
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2009
(Unaudited) (Expressed in U.S. Dollars)
17. | SUBSEQUENT EVENTS (CONTINUED) |
In addition, the Company has entered into an employment agreement with Mr. Young. Mr.
Young will serve as Chief Operating Officer and will receive a monthly salary of
$10,000. On September 21, 2009, the Company also granted Mr. Young options to purchase
1,000,000 shares of the Companys common stock pursuant to its 2009 Nonqualified Stock
Option Plan and form of Nonqualified Stock Option Agreement. The options vest in four
equal instalments, with the first instalment vesting on the six month anniversary of
the grant date and the remaining instalments vesting every six months thereafter. The
options have an exercise price of $0.36 per share. |
On September 21, 2009, the Company entered into a consulting agreement with Decerto
Group, an entity affiliated with John Clair, pursuant to which we have agreed to pay
Decerto Group $5,000 per month for consulting services. The Company has also granted a
warrant to Decerto Group to purchase 1,000,000 shares of the Companys common stock,
with an exercise price equal to $0.36 per share. The warrant shares vest in two equal
instalments, with the first instalment vesting on the six month anniversary of the
date of the consulting agreement, and the second instalment vesting on the one year
anniversary of the date of the consulting agreement, contingent upon the Decerto Group
continuing to provide consulting services to the Company on such dates. |
On September 21, 2009, the Company also entered into a consulting agreement with MRT,
an entity affiliated with Mario Ayub, pursuant to which the Company has agreed to pay
MRT $5,000 per month for consulting services. Mario Ayub currently serves as the
President of MRT. The Company has also granted a warrant to MRT to purchase 300,000
shares of the Companys common stock, with an exercise price equal to $0.36 per share.
The warrant shares vest in four equal instalments, with the first instalment vesting
on the six month anniversary of the date of the consulting agreement, and the
remaining instalments vesting every six months thereafter, contingent upon MRT
Investments Ltd. continuing to provide consulting services to the Company on such
dates. In addition, for his service as a director, Mr. Ayub will receive an annual
directors fee of $60,000. |
On September 21, 2009, the Company appointed Salil Dhaumya as Chief Financial Officer
and Secretary. Mr. Dhaumya will serve as the Companys principal financial and
accounting officer. Previously, Barry Quiroz had been serving as the principal
financial and accounting officer. The Company entered into an employment agreement
with Mr. Dhaumya pursuant to which Mr. Dhaumya will receive a monthly salary of
$7,000. |
27
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Form 10-Q constitute forward-looking statements. These
statements, which may be identified by words such as plan, anticipate, believe, estimate,
should, expect and similar expressions include our expectations and objectives regarding our
future financial position, operating results and business strategy. These statements reflect the
current views of management with respect to future events and are subject to risks, uncertainties
and other factors that may cause our actual results, performance or achievements, or industry
results, to be materially different from those described in such forward-looking statements. Such
risks and uncertainties include those set forth under this Item 2, Managements Discussion and
Analysis of Financial Condition and Results of Operations and elsewhere in this Form 10-Q and in
our Form 10-K filed with the U.S. Securities and Exchange Commission (the SEC). These
forward-looking statements represent beliefs and assumptions only as of the date of this report. We
undertake no obligation to update the forward-looking information to reflect actual results or
changes in the factors affecting such forward-looking information. We advise you to carefully
review the reports and documents we file from time to time with the SEC, particularly our annual
reports on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K.
Overview
Mexoro Minerals Ltd. (Mexoro or the Company) is a development stage company and has generated
only limited revenues from its Cieneguita project and has not yet generated or realized any revenue
from its other two exploration projects. As of August 31, 2009, we had $8,146 in our bank account.
In August 2009, we dropped one of our properties in the Encino Gordo concessions, Encino Gordo 2.
Management determined that the property payments due to the concession holder were too expensive
and we did not make the option payment at this time. There is currently no plan to try and
negotiate the payments for this property.
On May 17, 2009, we entered into a letter of agreement and on June 29, 2009, we signed the
definitive agreement to sell our Guazapares project located in south western Chihuahua, Mexico to
Paramount Gold de Mexico, SA de C.V., the Mexican subsidiary of Paramount Gold and Silver Corp.
(Paramount) for a total consideration of up to $5.3 million. The sale closed as of July 10, 2009
but is subject to the satisfaction of various conditions. The material conditions of the agreement
have been met and the payment for the sale of the properties is expected to occur when the
agreements governing the concessions have been officially re-registered in the name of Paramount
Gold de Mexico, SA de C.V. with the Mexican mining authorities. The registration was sent to the
Mexican authorities on July 17, 2009 and it is expected to take between 60 and 90 days for the
registration process to be completed. No assurance may be given though, that the contracts will be
registered on a timely basis or at all. A 5.7% commission was paid on the closing of the sale.
Mexoros Guazapares project comprises 12 claims close to Paramounts San Miguel discovery. The
purchase price is to be paid in two stages. The first payment of $3.7 million will be deposited
into escrow at closing, and will be released from escrow to Mexoro when the transfer of the 12
claims to Paramount is finalized. An additional payment of $1.6 million is due to Mexoro if, within
36 months following execution of the letter of agreement (July 10, 2009), either (i) Paramount Gold
de Mexico SA de C.V. is sold by Paramount, either through a stock sale or a sale of substantially
all of its assets, or (ii) Paramounts San Miguel project is put into commercial production. As
such, the final repayment of the outstanding debenture in the amount of $221,047.57 with Paramount
has been deferred until the closing of the sale of the Guazapares properties.
On November 23, 2008, we signed a letter of intent (LOI) and on February 12, 2009 we signed a
definitive agreement with Minera Rio Tinto (MRT), a related party, to provide us with immediate
funding to initiate production at our Cieneguita property, to complete a feasibility study and to
continue the exploration of our properties. The definitive agreement covers project financing of up
to USD $9,000,000. The major points of the agreement are as follows:
1. | Minera Rio Tinto (MRT) and/or its investors will subscribe for up to USD$1 million of
a secured convertible debenture at 8% interest (payable in stock or cash). The debenture is
convertible into units at $0.60 per unit. Each unit comprises 2 common shares and 1
warrant. Each warrant is exercisable at $0.50 per share for a period of 3 years. The
placement will be used for continued exploration of our properties and general working
capital. As of May 30, 2009 MRT had contributed the $1 million. |
2. | MRT is to provide the necessary working capital to begin and maintain mining
operations, estimated to be $3,000,000, for the purpose of putting the Cieneguita property
into production. MRT will spend 100% of the funds in exchange for a 75% interest in the net
cash flow from production. Mexoro will contribute its mining equipment located at
Cieneguita to the project. Upon the cessation of mining operation, Mexoros mining
equipment will be returned to Mexoro. The agreement will limit the extraction of the
mineralized material that is available under the agreement to material on surface to a
depth of 15 meters or approximately 10% of the mineralized material found to date. It is
anticipated that production at the rate of 750 tons per day will commence by October 2009
though no assurance may be given that production will ever start on the property. |
28
3. | MRT will spend up to USD $5 million to take the Cieneguita property through the
feasibility stage. In doing so, MRT will earn a 60% interest in Mexoros rights to the
property. After the expenditure of the $5 million all costs will be shared on a ratio of
60% to MRT and 40% to Mexoro Minerals. If we elect not to pay our portion of costs after
the $5 million has been spent, our position shall revert to a 25% carried interest on the
property. |
4. | Initially, portions of the joint venture agreement required for us to obtain consent
from Paramount, our secured convertible debenture holder or for us to repay the debenture
held by Paramount. Subsequently, we repaid approximately $1,300,000 of the debenture owed
to Paramount and in doing so, Paramount agreed to release the Cieneguita property as part
of its security under the debenture. Therefore, we no longer need the consent of Paramount
to begin extraction of mineralized material at Cieneguita. |
5. | The Spanish version of this agreement is the governing agreement in case of dispute
between the English version and the Spanish versions. |
As of August 31, 2009, MRT had contributed its $1 million commitment. It has also nearly completed
the steps to take the Cieneguita project to production with the construction of a crushing and
floatation circuit. MRT also sent 4,203 tons of material to MRTs milling facility located in
Sinaloa, Mexico to determine grade recovery and best milling practise to process the mineralized
material. Initial results from the commercial pilot test have been positive. Currently,
approximately 60,000 tons of mineralized material has been extracted and is sitting on the mine
site ready for processing.
On May 5, 2008, we signed a letter of intent (the Paramount LOI) to enter into a strategic
alliance with Paramount to combine mining and exploration expertise, along with efficient use of
personnel, drill rigs and current mining concessions to improve efficiencies and potentially reduce
costs for both companies. We believed that the alignment of interest between the two companies
created synergy, especially as the two companies Guazapares projects are contiguous and create a
large land position located in the state of Chihuahua, Mexico.
The Paramount LOI called for Paramount to invest a minimum of $4 million and maximum of $6 million
into the Company, at a fixed price of $0.50 per unit by June 23, 2008. This date was extended until
July 21, 2008 and then to August 5, 2008. Paramount was unable to complete the minimum investment
on August 5, 2008 and as such the strategic alliance with Paramount was terminated on August 6,
2008. Prior to the termination, we issued three debentures to Paramount in the amount of
$1,370,000. The proceeds from these placements were primarily used to continue the drilling
programs on our Cieneguita and Guazapares properties.
On August 6, 2008, the strategic alliance between Mexoro and Paramount was terminated, including
Paramounts right of first refusal on financings. As a result of Paramount holding convertible
debentures in the amount of $1,370,000 resulting from advances made to Mexoro Minerals to fund
exploration, they agreed to defer interest payments on the advances until September 10, 2008. The
September 10, 2008 interest payment date was subsequently extended again to November 10, 2008. All
interest payments were brought up to date by December 30, 2008 and we are now current with all of
our interest payments to Paramount as the final payments will be deducted from the proceeds of the
sale of the Guazapares project.
In March, 2009 we entered into an agreement with Paramount Gold restructuring our payment terms on
the three outstanding secured convertible debentures held by Paramount. Under the terms of the
agreement we paid Paramount $1,000,000 to cancel two debentures held by them, the first debenture
issued May 9, 2008 for $500,000 and the third debenture issued to them July 11, 2008 for $500,000.
We also amended the second debenture that we issued to them in June 18, 2008 in the face amount of
$370,000. The amount of that debenture was increased to $521,047.37 which, among other things,
includes interest accrued to March 31, 2009. We were obligated to make a payment on March 31, 2009
on this debenture in the amount of $393,547.37 (of which $300,000 was paid on March 31, 2009) and
the balance of $127,500 was to be re-paid on April 30, 2009. This remaining amount of $127,500 is
interest free as long as the debenture remains in good standing. We issued to Paramount 150,000
shares of our common stock, as part of a restructuring fee. We have also issued an additional
100,000 shares to Paramount as an extension fee for the balance of the March 31, 2009 payment. As
part of the agreement, Paramount has released its security interest on our Cieneguita property. The
other security as described in the original security agreement issued with the original debentures
remains in place until the amended debenture has been repaid in full.
Our continued existence and plans for future growth depend on our ability to obtain the additional
capital necessary to operate either through the generation of revenue or the issuance of additional
debt or equity. While we believe that we have raised sufficient funds in our recent offerings to
allow us to continue in business until October 31, 2009, we may not be able to continue in business
beyond that date unless we obtain additional capital. If the sale of the Guazapares property is
completed, the resulting $3,700,000 payment will allow us to operate for the next 12 months. No
assurance may be given, though, that this sale will close in a timely fashion or at all. On
September 21, 2009, we entered into private placement subscription agreements with certain U.S.
accredited investors and certain Canadian and Non-U.S. investors for the private placement of up to
a total of 9,000,000 unregistered shares of the Companys common stock with 100% warrant coverage
at a purchase price of $0.20 per unit. The warrants have an exercise price of $0.30 per share, a
two-year term and will not be exercisable until twelve months after their date of issuance. On
September 21, 2009, $500,000 of proceeds were released to the Company from escrow.
Subject to the payment of certain fees and expenses, the remaining subscription proceeds will be
held in escrow and released to the Company upon the filing of a registration statement with the
Securities and Exchange Commission covering the resale of the shares and warrants shares issued in
the private placement. If the Company fails to file the registration statement by November 30,
2009, the remaining funds held in escrow will be returned to the investors. The Company cannot
provide any assurance that the Final Closing will occur, or the aggregate amount of proceeds that
will be invested.
29
As of August 31, 2009, the joint venture with MRT had generated net cash flows of approximately
$1,568,336 of which $392,084 is attributable to us under the joint venture agreement. We are
expecting additional ongoing cash flows subsequent to August 31, 2009 from the commencement of
operations at the Cieneguita property, starting in October 2009. The amount of net cash flows to be
received on Mexoros 25% share from operations cannot be determined at this time. In fact, there is
significant risk to us for this type of extracting of mineralized material because we have no known
reserves on Cieneguita until an independent feasibility study is completed. We can not provide any
assurance that the extraction and processing of mineralized material from the Cieneguita property
will result in any cash flows for us.
For the 12-month period from September 2009 through August 2010, we need to raise additional
capital to maintain operations. We will need a minimum of $770,000 for property payments, $221,047
to repay the convertible debenture to Paramount, if our sale of the Guazapares properties to
Paramount does not close, and an additional $1,500,000 for general and administrative costs. This
does not include any capital needed to pay our accounts payables and to execute our exploration
programs as detailed below. The following table shows our contractual property payments that are
due until August 2010:
Name | Date | Payment Type | USD | |||||||||
Guazapares Property1 |
$5,000 per month for 36 months | Property payment | $ | 60,000 | ||||||||
Sahuayacan Property |
September 2009 to August 2010 | Property payments | $ | 60,000 | ||||||||
Sahuayacan Property (La Estrella y la Sultana Menor) |
January 2010 | Property payments | $ | 500,000 | ||||||||
Segundo Santo Nino (Sahuayacan) |
November 2009 & May 2010 | Property payments | $ | 150,000 |
1 | All Guazapares payments due have been deferred until July 9, 2012 with
an agreement with concession holders. The agreement with the concession holders obligates
Mexoro to pay $6,000 plus $900 in taxes per month as a fee for the deferral of the payments.
$248,400 has been set aside in escrow as part of the Paramount agreement to buy the
concessions. The monthly payments will be sent directly from the escrow account to the
concession holders to ensure the payments are kept in good standing. |
Additionally, if our exploration during that time period is successful, we may need to raise
additional capital to fund those exploration programs. At this time, we cannot assess with any
accuracy our total capital needs to fund an expanded exploration program beyond our basic program.
If the Paramount transaction does not close, we do not have any additional sources of additional
capital to fund our operations beyond October 31, 2009. We also believe that, other than the
initial bulk sample test done by MRT, we cannot determine if the joint venture with MRT will
generate any revenues that would allow us to continue operations. If we are unable to raise
additional capital through debt or equity beyond October 31, 2009, it is most likely that we would
need to cease operations and forfeit our properties as we would be unable to make the necessary
property payments.
Plan of Operation
Summary
Our business plan is to proceed with the exploration of our Mexican mineral properties to determine
whether they contain commercially exploitable reserves of gold, silver or other metals. On May 17,
2009, we entered into a letter of agreement and on June 29, 2009, we signed the definitive
agreement to sell our Guazapares project located in south western Chihuahua, Mexico to Paramount
Gold de Mexico, SA de C.V., the Mexican subsidiary of Paramount for a total consideration of up to
$5.3 million USD. The sale closed as of July 10, 2009 but was subject to the satisfaction of
various conditions. The material conditions of the agreement have been met and the payment for the
sale of the properties is expected to occur when the agreements governing the concessions have been
officially re-registered in the name of Paramount Gold de Mexico, SA de C.V. with the Mexican
mining authorities. The registration was sent to the Mexican authorities on July 17, 2009 and it is
expected to take between 60 and 90 days for the registration process to be completed. No assurance
may be given though, that the contracts will be registered on a timely basis or at all. A 5.7%
commission was paid on the closing of the sale. Mexoros Guazapares project comprises 12 claims
close to Paramounts San Miguel discovery. The purchase price is to be paid in two stages. The
first payment of $3.7 million will be deposited into escrow at closing, and will be released from
escrow to Mexoro when the transfer of the 12 claims to Paramount is finalized. An additional
payment of $1.6 million is due to Mexoro if, within 36 months following execution of the letter of
agreement (July 10, 2009), either (i) Paramount Gold de Mexico SA de C.V. is sold by Paramount, either through a stock sale or a sale of substantially all of its assets, or (ii)
Paramounts San Miguel project is put into commercial production. As such, the final repayment of
the outstanding debenture in the amount of $221,047.57 with Paramount has been deferred until the
closing of the sale of the Guazapares properties.
30
On November 23, 2008 we signed a letter of intent (LOI) and on February 12, 2009 we signed a
definitive agreement with Minera Rio Tinto (MRT) to provide us with immediate funding to initiate
production at our Cieneguita property, to complete a feasibility study and to continue the
exploration of its properties. The Definitive Agreement calls for project funding of up to
$9,000,000 to be spent over the next twenty-four month period. To date MRT has contributed
$1,000,000 in working capital and has initiated production plans for the Cieneguita project. MRT
has shipped a 4,203 ton bulk sample to its mill in Sinaloa Mexico for processing to verify the
metallurgical process need to process the mineralized material from the Cieneguita property.
In the event that our exploration program finds exploration targets that warrant additional
exploration work, including exploration by drilling, we will not have enough cash available to fund
an expanded exploration program. If we decide to expand our exploration program, we would need to
raise additional capital to meet these needs. Other than the sale of the Guazapares properties to
Paramount, which may or may not close, we currently do not have any sources of additional capital
available to us and we may not have any in the future. The failure to raise additional capital
would severely curtail our ability to conduct any additional exploration work that might be
warranted because of the results of our current exploration program.
We are not involved in any research and development on our exploration properties. We have no known
reserves on the Cieneguita property. Our original strategy was to put the Cieneguita property into
production, and as such we purchased approximately $250,000 worth of new and used mining equipment
to be used for heap leach production. We contemplated putting the Cieneguita property into
production during 2008 but the positive exploration results from our drilling programs changed
those plans. The mineralized material that has been defined by the extensive drilling appears to
suggest that the mineralized material is far larger than originally contemplated and of a different
material that is not suitable for heap leaching. As such, we entered into the joint venture
agreement with Minera Rio Tinto to put the Cieneguita into production using a simple crushing and
floatation circuit process and not a heap leach operation as originally planned.
With the joint venture with MRT, we do plan to put the Cieneguita project into production by
October 2009 but we will not be using the heap leach process as originally contemplated. We still
plan to use the equipment as part of the new mining process designed in the joint venture
agreement. When all mineral extraction has been completed, then it is managements plan to try and
sell the equipment that we have purchased. At this time, we have no estimates on what the equipment
will be worth in the secondary market. If we are unable to sell it, we may lose all of our capital
investment. No assurances can be given that we will be able to sell the equipment at a price to
recover our original investment, or at all.
In the event that we do discover a mineral deposit on one of our properties, of which there is no
guarantee, we would need to expend substantial amounts of capital to put any of our properties into
production, if so warranted. The amount of such expenditures is indeterminable at this time as our
exploration program has not advanced far enough to provide us with results to determine this
information.
Such expenditures depend upon the size of the mineralized body, the grade of the mineralized body
and the type of mining that is required to extract any minerals that may be found. Regardless, we
do not have enough capital available to us to make any such expenditure that would be required to
put any mineral property into production, and we therefore would have to raise the additional
capital or, if possible, enter into a joint venture for the production phase. If we were to form a
joint venture, we cannot assess what our final position in the project would be. We do not have any
sources of capital available to us at this time to fund such a project if one should be discovered.
We hired Francesco Quiroz as our VP of Exploration on March 1, 2007. On November 15, 2008 we
appointed Mr. Quiroz to the position of president to replace Mario Ayub, who resigned. We also
hired an office administrator for our office in Chihuahua. We do not expect any significant change
in additional contractors to conduct exploration over the next 12 months. Other than the president
and our geologists, all of the employees we hire are contracted from third parties specializing in
providing employees for Mexican companies. In using third party contractors, we minimize our
exposure to Mexican employment law, and all liabilities are undertaken by the third party
contractors providing the services. We pay a flat rate to the third parties for their services.
In the event that we should find a mineable reserve, it is managements intention to contract the
mining and milling of any mineralized reserves out to third parties. We do not have any known
reserves at this time.
Exploration Projects Current Status
To date the Sierra Madre gold exploration program has been focused on advancing current exploration
projects to the next exploration stage. During most of 2008, exploration activities were
concentrated in four projects: Sahuayacan, Guazapares, Encino Gordo and Cieneguita. However,
exploration activities during the six months ended August 31, 2009 were focused exclusively on the
Cieneguita project. The figure below shows the location of the different projects.
31
This figure is illustrating the location of the Mexoros project
To date most of the data gathered during our field campaigns and drilling programs is completely
compiled and is being evaluated. The next exploration stages for all three projects have been
already planned.
Cieneguita
During the six months ended August 31, 2009, we concentrated our exploration activities only in the
Cieneguita project, where a drilling program has been completed.
The main activities in the Cieneguita project are set forth below:
| 100 diamond drillholes completed for a total of 20,215 meters of drilling |
| Broad mineralized intercepts including 111.5 meters with 1.24 g/t Au, 99.6 g/t Ag, 0.45%
Pb and 0.73% Zn (C-21) and 94 meters with 1.21 g/t Au, 79.8 g/t Ag, 0.78% Pb and 1.2% Zn
(CI-30) |
| Mineralization at Cieneguita has been traced over 900 meters along strike and still
remains open to the southwest and to depth |
| Exploration ongoing; infill drilling program has been designed to expand the size of the
mineralized material |
Cieneguita is a new gold-silver and polymetallic discovery made in 2008 by our exploration team.
The project consisting of three concessions totaling 822 hectares is located in Chihuahua State,
Mexico. The area has well developed infrastructure being located 20 km to the north of Gold Corps
El Sauzal mine. Subject to the agreements discussed below, Mexoro holds a 100% interest in the
property subject to a sliding scale royalty starting at USD$20 per ounce of gold sold from the
property up to a maximum payment of $2 million.
We have conducted a series of exploration programs at Cieneguita since March 2007. Our exploration
work to date includes 100 diamond core drillholes totaling 20,215 meters of drilling. The drilling
exploration program commenced in December 2007 with one drill rig and a second rig was added in
July 2008. Due to our financial constraints, one of the drill rigs was removed in October 2008 and
drilling continued with one rig until December 19, 2008.
32
Mexoro has received analysis results for only 58 holes (CI-01 to CI-54, CI-67, CI-69, CI-71 and
CI-74). A complete listing of the drill logs is published at our website, www.mexoro.com. The assay
results from the remaining 42 holes are still pending. No assurance may be given, though, that
these new holes will have the same values as previously analyzed holes. Two different styles of
mineralization have been identified: precious (gold-silver) and base (lead-zinc-silver) metal
mineralization, with higher gold-silver grades starting on surface and lead-zinc-silver
mineralization intercepted at depth and to the west of the Cieneguita deposit. We interpret the
Cieneguita deposit as a diatreme breccia body where disseminated oxide and sulphide mineralization
is mainly hosted by quartz-sericite altered diatreme breccias and lapilli tuffs.
The mineralized body is shaped like a funnel which has been flattened laterally, measuring over 900
meters by 300 meters as defined by the drill results. Mexoro has completed a cross section-based
geological model and has calculated inferred mineralized material of 15.249 million tons with 2.62
g/t Au equivalent based on assays that were composited using the sum of the dollar values for Au,
Ag, Pb and Zn in each drill interval. Three-year trailing average prices used were: gold = $727.22
per ounce, silver = $13.66 per ounce, lead = $1.00 per pound, zinc = $1.36 per pound. A cutoff of
$30 was applied and weighted averages calculated for each above-cutoff interval. These intervals
were projected between drill holes and between sections to produce resource blocks, which were then
compiled using weighted averages to produce a total tonnage and grade with a dollar value per ton.
Mineralization intersected in CI-34 (46 meters with 4.68 grams per ton gold, 87.67 grams per ton
silver, 0.24% lead and 0.22% zinc) and CI-29 (51 meters with 0.5 grams per ton gold, 55.03 grams
per ton silver, 0.34% lead and 0.46% zinc), both collared in the western portion of Cieneguita
suggests that mineralization still remains open to west, southwest and to depth in the western part
of the Cieneguita deposit. No assurance may be given, though, that additional mineralized material
will be found in these areas.
This figure is showing the geological units and distribution of the 100 drillholes.
Because of the favorable mapping, sampling and drilling results in Cieneguita, we initiated a
brownfield exploration program aimed at locating additional mineralization within our properties.
The exploration process around the main mineralization zone at Cieneguita has identified two new
areas of mineralization 500 meters to south of the current known mineralization. These two areas known as Piedras Blancas and Piedra Amarilla are exhibiting the same size, characteristics,
and intensity of alteration-mineralization on surface as encountered at Cieneguita. No assurance,
though, may be given that any positive exploration results will come from these similarities.
33
This brownfield exploration program for the Piedras Blancas area has now been completed. As a
result of this mapping and sampling program, we have designed a drilling exploration program
consisting initially of 3,000 meters of drilling to test three different targets. As we do not have
available capital at this, no assurance may be given that we will initiate this drilling program.
A figure exhibiting main geological and mineralization features on the Piedras Blancas and Piedra
Amarilla areas is shown below.
34
There are no known reserves on the Cieneguita property.
Guazapares
On May 17, 2009 we entered into a letter of agreement and on June 29, 2009 we signed the definitive
agreement to sell our Guazapares project located in south western Chihuahua, Mexico to Paramount
Gold de Mexico, SA de C.V., the Mexican subsidiary of Paramount Gold and Silver Corp. (Paramount)
for a total consideration of up to $5.3 million USD. The sale closed as of July 10, 2009 but was
subject to the satisfaction of various conditions before the release of funds. The material
conditions of the agreement have been met and the payment for the sale of the properties is
expected to occur when the agreements governing the concessions have been officially re-registered
in the name of Paramount Gold de Mexico, SA de C.V. with the Mexican mining authorities. The
registration was sent to the Mexican authorities on July 17, 2009 and it is expected to take
between 60 and 90 days for the registration process to be completed. No assurance may be given
though, that the contracts will be registered on a timely basis or at all. A 5.7% commission was
paid on the closing of the sale. Mexoros Guazapares project comprises 12 claims close to
Paramounts San Miguel discovery. The purchase price is to be paid in two stages. The first payment
of $3.7 million will be deposited into escrow at closing, and will be released from escrow to
Mexoro when the transfer of the 12 claims to Paramount is finalized. An additional payment of $1.6
million is due to Mexoro if, within 36 months following execution of the letter of agreement (July
10, 2009), either (i) Paramount Gold de Mexico SA de C.V. is sold by Paramount, either through a
stock sale or a sale of substantially all of its assets, or (ii) Paramounts San Miguel project is
put into commercial production. As such, the final repayment of the outstanding debenture in the
amount of $221,047.57 with Paramount has been deferred until the closing of the sale of the
Guazapares properties.
Encino Gordo
During fiscal 2007, the Company carried out a detailed and property scale mapping and sampling
program outlining numerous gold, silver and gold-copper coincident geochemical anomalies. Phase 1
of the exploration program was undertaken in an effort to define the style and characteristics of
the mineralization areas indicated by the geochemical anomalies. Within this stage several gold and
sulphide mineralization areas including pyrite and chalcopyrite have been identified within an over
500 meters stockwork area and fault-veins structure.
All information and field evidence gathered during the mapping and sampling process suggest the
presence of porphyry style alteration and mineralization characterized by the presence of
concentric alteration patterns (potassic alteration grading outward to quartz-sericite and
propylitic alteration), coincident Cu, Au and Mo geochemical anomalies and a multiple-event of
veining. No assurance can be given, though, that we will find such a deposit, if at all.
Phase II of the exploration program aimed to detail and characterize all identified alteration and
mineralization areas and define and prioritize drilling sites is underway and is expected to be
completed by the second quarter of 2009. In addition, a stream sediment sampling program is being
undertaken to fully evaluate all the concessions.
In August 2009 we dropped one of our properties in the Encino Gordo concessions, Encino Gordo 2. We
determined that the property payments due to the concession holder were too expensive and it was
not in the best interest of the Company to make the payment at this time. There is no plan,
currently, to try and negotiate the payments for this property.
There are no known reserves on the Encino Gordo property.
Sahuayacan
Mexoro has completed a diamond drilling program of 13 holes comprising 2,027 meters. Three of the
13 holes were directed to test the Santo Niño vein, two drillholes were collared on the La Cumbre
target and two more were drilled on the south of the property to test the Santa Teresa target. Of
the 13 drillholes, only three have intersected economically attractive mineralization. The
mineralized intercepts are as follows:
Width of | ||||||
Intersection in | ||||||
Drill Hole Number | Depth in Meters | Meters | Grade | |||
Drillhole
SDH-01
collared on
the Santo
Niño vein
|
from 65.00 to 72.50 meters from 96.50 to 104.5 meters |
7.50 meters 8.0 meters | 2.56 g/t Au 2.98 g/t Au |
|||
Drillhole
SDH-05
collared on
La Cumbre
target
|
from 0 to 4.5 meters | 4.5 meters | 1.77 g/t Au | |||
Drillhole
SDH-12
drilled to
test the
Santa Teresa
vein
|
from 74.50 to 82.00 | 7.5 meters | 56.01 g/t Au and 283.22 g/t Ag |
A second phase drilling program is anticipated to be aimed to define the potential volume and
grade of the mineralized system at Sahuayacan, primarily focusing on the Santa Teresa and La Cumbre
targets which may represent a mineralization system developed along a caldera margin. Additional
targets have been identified along the circular feature that seems to control the emplacement of
alteration and mineralization zones on the Sahuayacan project.
There are no known reserves on the Sahuayacan property.
35
Proposed 2009/2010 Program: Exploration Projects Potential and Next Exploration Stage
Over the next twelve month, we intend to explore our three projects (Cieneguita, Sahuayacan and
Encino Gordo) to determine whether there are economically attractive concentrations of gold and
gold-silver mineralization. We do not intend to hire any additional employees or to make any
purchase of equipment over the next twelve months, as we intend to rely upon current personnel for
the exploration work being conducted. At this time, though, the exploration program is only planned
for the next 12 months, which we will undertake when the necessary capital has been raised to
complete these programs. We do not have any sources of capital indentified at this time and no
assurance can be given that we will be able to complete the proposed exploration program.
On September 21, 2009, we entered into private placement subscription agreements with certain U.S.
accredited investors and certain Canadian and Non-U.S. investors for the private placement of up to
a total of 9,000,000 unregistered shares of the Companys common stock with 100% warrant coverage
at a purchase price of $0.20 per unit. The warrants have an exercise price of $0.30 per share, a
two-year term and will not be exercisable until twelve months after their date of issuance. On
September 21, 2009, $500,000 of proceeds were released to the Company from escrow. Subject to the
payment of certain fees and expenses, the remaining subscription proceeds will be held in escrow
and released to the Company upon the filing of a registration statement with the Securities and
Exchange Commission covering the resale of the shares and warrants shares issued in the private
placement. If the Company fails to file the registration statement by November 30, 2009, the
remaining funds held in escrow will be returned to the investors. The Company cannot provide any
assurance that the Final Closing will occur, or the aggregate amount of proceeds that will be
invested.
The following exploration program, assuming the necessary capital is available, has been planned
for each of the projects:
Cieneguita
The recent exploration activities in Cieneguita have shown that additional exploration is
warranted. Our president has made the following determinations to date:
| Infill drilling displays continuity of mineralization and overall grades. |
| Mineralization extends 900 meters along strike, is up to 300 meters wide and is open to
the Southwest and open to depth. |
Figure is showing main mineralization zones on the Cieneguita project. Areas in red are exhibiting
mineralization areas where grades is >1.5 g/t Au
The known mineralized material on the Cieneguita property combined with the assay results from
drilling and the new areas found 500 meters away from Cieneguita are providing the possibility to
increase the size of the mineralized material. Considering the latest results and findings the
proposed work program for Cieneguita will include:
| Completing the infill drilling program by doing an additional 10,000 meters of drilling
to expand inferred resources; |
| Continue conducting metallurgical tests; |
| Complete feasibility study and; |
| Commencing exploration drilling program at the Piedras Blancas project. |
36
The proposed exploration budget for the Cieneguita project for 2009 will be conducted by our joint
venture partner, Minera Rio Tinto. They will be responsible for spending $5,000,000 over the next
24 months to take the property through to feasibility. The feasibility work will also include
exploration on the two new areas to the south of the Cieneguita property.
There are no known reserves on the Cieneguita property.
Sahuayacan
Surface mapping and drilling results are suggesting that the high gold values tend to cluster at
certain areas along the Santo Niño and the Santa Teresa vein structures with intervening areas of
low gold grades. A more disseminated structure seems to be present at the La Cumbre area. We
believe that the cluster of high gold values indicate the development of mineralized shoots within
the extensive Sahuayacan system as evidenced by the intercepts from the SDH-1 in the Santo Niño
vein and the SDH-12 along the Santa Teresa vein.
We believe that all evidence suggests that the mineralization is controlled by a circular feature
that may represent a caldera margin running from the Santa Teresa target up to north to the La
Cumbre target. This evidence opens up the potential to further extend the mineralization found at
Santa Teresa and La Cumbre targets further north though no assurance may given that any
mineralization will be found.
The figure below shows the different geological elements encountered in the Sahuayacan system and
also exhibits the relationship between the Santo Niño, La Cumbre and Santa Teresa target areas.
The next exploration stage will include mapping and sampling along the circular feature trying to
define additional mineralization areas and drilling targets. The proposed exploration program will
include:
| Mapping and sampling at 1:1,000 scale along the La Cumbre-Santa Teresa trend
(mapping-sampling process Completed) |
| Obtaining ASTER image analysis to identify additional alteration-mineralization areas
along the semi-circular feature within the entire concession; |
| Identifying drilling targets on the La Cumbre and Santa Teresa areas; and (Drilling
targets selected, as shown in images below) |
| Commencing a 4,000 to 6,000 meters exploration drilling program aimed to define the
potential of the project. |
37
Drilling Target: La Cumbre. The
figure is showing completed mapping and selected drilling targets at La Cumbre
(blue dots)
Drilling Target: Santa Teresa. The figure is showing completed mapping and
selected drilling targets at La Cumbre (blue dots)
38
The total exploration budget for Sahuayacan for 2009/2010 is $849,686. The breakdown of the
budget is as follows:
Geochemistry |
$ | 165,000 | ||
Geophysics |
$ | 0 | ||
Safety |
$ | 2,000 | ||
Land Costs |
$ | 0 | ||
Contractors |
$ | 599,450 | ||
Travel and Vehicles |
$ | 34,725 | ||
Field Support |
$ | 3,850 | ||
Communications |
$ | 4,200 | ||
Subtotal |
$ | 809,225 | ||
Contingency (5%) |
$ | 40,461 | ||
Total |
$ | 849,686 | ||
We do not have the necessary working capital at this time to implement this exploration
program. There are no known reserves on the Sahuayacan properties.
Encino Gordo
The geology at Encino Gordo project area is dominated by flows and tuff of andesitic to dacitic
composition intruded by small plugs of porphyritic intrusions varying in composition from diorite
to quartz-diorite. Small and localized areas exhibiting dacite porphyries are also common. The
volcanic sequence which may be part of the Lower Volcanic Series (LVS) of the Sierra Madre
Occidental Volcanic Complex (SMOVC) host most of the mineralization in the Encino Gordo area and in
the whole Moris district host to Palmarejo deposit and the Guazapares gold hydrothermal system. The
alteration and mineralization at the Encino Gordo project is mainly characterized by two different
styles:
La Junta area. Most of the alteration and mineralization in this area is associated with
andesitic rocks intruded by composite stock (diorite and quartz-diorite) and dacite porphyries. The
alteration at La Junta is characterized by propylitic alteration (chlorite-calcite-pyrite)
exhibiting small and localized areas with incipient K-silicate alteration, where K-feldspar is
mainly replacing groundmass in the intrusion phases.
Mineralization is occurring at La Junta in different styles, including: stockwork, fault-veins,
sheeted veins, dissemination and breccias. However, main mineralization consists of an
approximately 500 meter wide stockwork fault-vein zone developed in a dilatant jog flower
structure. In this mineralized area, multiple cross-cutting vein types are present including:
| Pyrite-only veins |
| Quartz-only veins |
| Quartz + pyrite veins |
| Quartz + chalcopyrite veins |
| Quartz + pyrite + chalcopyrite veins |
| Calcite veins |
| Quartz + galena veins |
| Chlorite + calcite veins |
39
Figure is illustrating coincident Cu and Au geochemical anomalies in La Junta area which are
spatially associated to a potassic alteration core resembling the classical geochemical-alteration
signature of the porphyry systems.
Supergene alteration is represented by an argillic alteration pervasive event developed by the
oxidation and alteration of the primary sulfide zone observed at La Junta area. Limonites developed
within this supergene event are dominated by goethite (± hematite jarosite).
The alteration assemblages, the style of mineralization, the content and type of sulfide
mineralization suggest that La Junta area might be a mesothermal to near-mesothermal system,
resembling a porphyry-style alteration-mineralization.
Potential exists in this area to find a porphyry-style system and a similar gold mineralization,
though, no assurance may be given that any mineralization whatsoever will be found. The proposed
exploration program for the upcoming year will be focused on trying to asses the potential of the
identified targets, including:
| The porphyry-style mineralization in La Junta area |
| Anomaly N and La Elyka areas |
The total 2009/2010 exploration budget for Encino Gordo is $739,232. The exploration expenditures
are as follows:
Geochemistry |
$ | 84,030 | ||
Geophysics |
$ | 84,000 | ||
Safety |
$ | 2,000 | ||
Land Costs |
$ | 0 | ||
Contractors |
$ | 507,100 | ||
Travel and Vehicles |
$ | 17,100 | ||
Field Support |
$ | 6,650 | ||
Communications |
$ | 3,150 | ||
Subtotal |
$ | 704,030 | ||
Contingency (5%) |
$ | 35,202 | ||
Total |
$ | 739,232 | ||
We do not have the necessary working capital at this time to implement this exploration
program. There are no known reserves on the Encino Gordo properties.
40
New Properties-Target Generation and Growth Strategy
A fundamental component of our strategy is to advance all of our properties to the drilling stage
and implement a strong generative and property acquisition program through a well established
financial process and a proper funding consistency.
The proposed generative program contemplates four main directions:
1. | A new targets generation program that may create a pipeline of quality properties
providing a steady stream of new prospect and/or projects for the Company to explore,
farm-out and/or joint venture. |
2. | A property acquisition program aimed to identify and acquire at low cost
(whenever possible) early- to mid-stage properties on selected locations along the main
gold-silver belts in Mexico. |
3. | A Focus on small- to medium-size gold-silver deposits (minimum deposits
containing 500,000 ounces of Au Eq.) |
4. | The new targets generation and property acquisition program may be initially
focused on the Sierra Madre belt and Central Mexico. It may be extended further south in
Mexico and other countries if conditions and projects potential warranted. |
The proposed exploration program is to be undertaken by the Mexoros exploration team using
in-house knowledge in combination for support and guidance of high-quality consultant with
expertise in the region. The new targets generation program is aimed to feed our project pipeline
two at drilling stage and/or near drilling stage projects per year. We do not have the necessary
working capital at this time to implement this target generation program.
Phase I Target Generation
Objectives
| Identify two to four target areas (approximately 20 x 30 kilometers) which have
potential to host small- to medium-size gold and/or gold-silver deposits. |
| Identify one or two specific opportunities with close to drill ready targets. For
example, identify old workings or existing mines with good upside potential. |
| Time frame: six months. |
Key Steps and Exploration Tools
After initial evaluations of potential gold and gold-silver deposits it has become evident that the
acquisition and evaluation of more detailed geological maps and geochemistry with field follow-up
is critically important in identifying new areas of mining potential. Careful and selective use of
such data may be the most immediate and cost-effective way to focus exploration efforts toward
prospective gold-silver areas.
Key steps may include mainly the following activities, among other considerations:
| Acquiring geological maps 1:250,000 and 1:50,000 (from Servicio Geologico Mexicano); |
||
| Generating geological and mineral occurrences base maps; |
||
| Identifying key host rocks; |
||
| Completing structural interpretation from known geology, TM imagery, and geophysical
data (if available); |
||
| Integrating mineral occurrences, alteration, lithology and structures; |
||
| Completing initial targeting using the above compilation; and |
||
| Selecting and prioritizing targets. |
41
The proposed new target generation budget for 2009/2010 is $438,690. The breakdown of the budget
expenditures is as follows:
Geochemistry |
$ | 24,000 | ||
Geophysics |
$ | 0 | ||
Landsat Imagery |
$ | 30,000 | ||
GIS & Database |
$ | 40,000 | ||
Safety |
$ | 1,500 | ||
Land Costs |
$ | 170,000 | ||
Contractors |
$ | 99,300 | ||
Travel & Accommodation |
$ | 24,000 | ||
Vehicles |
$ | 15,500 | ||
Field Support |
$ | 7,500 | ||
Communications |
$ | 6,000 | ||
Subtotal |
$ | 417,800 | ||
Contingency (5%) |
$ | 20,890 | ||
Total |
$ | 438,690 | ||
We do not have the necessary working capital at this time to implement this target generation
program.
Results of Operations
Three and six months ended August 31, 2009 compared to the three and six months ended August 31,
2008.
In this discussion of the Companys results of operations and financial condition, amounts, other
than per-share amounts, have been rounded to the nearest thousand dollars.
Revenues
The Company earned its 25% proportionate revenue from the joint venture with MRT from the
commercial pilot test during the six months ended August 31, 2009. Other than the commercial pilot
test, which generated $392,000 in net cash flows, we did not have commercial production of any of
our properties in 2009. We do not anticipate earning revenues until such time as we have entered
into commercial production of our mineral properties, if ever. We are presently in the development
stage of our business. We can provide no assurance that we will discover commercially exploitable
levels of mineral resources on our properties or, if such resources are discovered, that we will
enter into commercial production of our mineral properties.
Operating Costs
We did not incur any operating costs during the three and six months ended August 31, 2009 or 2008
due to the fact that we did not achieve production from exploration activities during either year.
Expenses
Our expenses decreased to $772,000 and $1,610,000 for the three and six months ended August 31,
2009, compared to $2,118,000 and $4,026,000 for the three and six months ended August 31, 2008,
respectively. The decrease is primarily attributable to lower exploration costs which was due to
lack of funding, and curtailment of exploration on Cieneguita because of the joint venture agreement with MRT, where MRT has agreed to spend up to $5,000,000 to take
Cieneguita to a feasibility stage.
General and administrative expenses increased slightly to $719,000 and $1,409,000 in the three and
six months ended August 31, 2009 compared to $656,000 and $1,271,000 in the three and six months
ended August 31, 2008, respectively. The increase during the current three and six month period is
attributable to higher legal fees offset by lower travel costs. Included in the general and
administrative expenses, is the non-cash stock-based compensation expense of $143,000 and $327,000
in 2009 compared to $151,000 and $340,000 in 2008 for the three and six months, respectively. The
amount for the six month period in 2009 had $299,000 of stock-based compensation expense relating
to options granted to officers, directors and consultants and $nil of stock-based compensation
relating to warrants. The amount for the corresponding period in 2008 relates to stock options
granted to management and key personnel and compensation relating to warrants for $332,000 and
$8,000, respectively.
42
Accounting and legal fees increased to $239,000 in the six months ended August 31, 2009 compared to
$222,000 in the six months ended August 31, 2008. The increase was primarily attributable to higher
legal costs relating to issuance, payment and restructuring of convertible debentures.
Mineral exploration in the three and six months ended August 31, 2009 decreased to $153,000 and
$324,000 compared to $1,462,000 and $2,755,000 for the three and six months ended August 31, 2008,
respectively as the Company reduced its exploration activity as described above.
Loss
Our net loss decreased to $817,000 and $1,983,000 for the three and six months ended August 31,
2009 compared to $2,235,000 and $4,238,000 for the three and six months ended August 31, 2008,
respectively.
Other than the lower operating loss as described above, this change in our loss was attributable to
higher interest expense recognized in 2009 relating to beneficial conversion feature offset by gain
on settlement of repayment of convertible debentures.
We anticipate that we will continue to incur a loss until such time as we can commence the
development stage of our operations and achieve significant revenues from sales of gold recovered
from our Mexican mineral properties, if ever. There is no assurance that we will commence the
development stage of our operations at any of our Mexican mineral properties or achieve revenues.
Liquidity and Capital Resources
Since inception, we have undergone two unsuccessful business combinations, which have caused us to
incur significant liabilities and have resulted in the accumulation of a substantial deficit during
the exploration stage.
As of August 31, 2009, we had total assets of $696,000, total liabilities of $6,000,000 and a
deficit of $43,847,000 accumulated during the exploration/development stage.
Cash and Working Capital
We had cash and cash equivalents of $8,000 as of August 31, 2009, compared to cash of $39,000 at
February 28, 2009 and $1,000 at August 31, 2008. We had working capital deficiency of $4,701,000 as
of August 31, 2009, compared to a working capital deficiency of $4,657,000 as of February 28, 2009
and $4,421,000 as of August 31, 2008.
During the first six months of 2009, we reduced the activities for our exploration program
considerably but have continued to incur corporate administrative expenses but were unable to raise
sufficient funds to pay many of our suppliers. Our accounts payable and accrued liabilities
decreased from $2,680,000 from the fiscal year ended February 28, 2009 to $2,176,000 in the first
six months of 2009. Of the $2,176,000 accounts payable and accrued liabilities as of August 31,
2009, $752,000 relates to exploration expenses.
We will require additional financing during the current fiscal year according to our planned
exploration activities. We plan to spend approximately $2,050,000 from September 2009 to August
2010 to carry out exploration and administration activities on our Mexican mineral properties. We
also anticipate spending approximately $1,500,000 during the next 12 months on general and
administrative costs. At this time we do not have the necessary capital to initiate the exploration
program and to cover general and administrative costs.
We will need to raise additional working capital to maintain basic operations. We plan to raise
those funds through the sale of equity or debt. Other than our definitive agreements signed with
MRT and Paramount, at this time we do not have any other sources to raise additional capital for
the Company and no assurance may be given that we will be able to find sources to raise additional capital. Failure to raise any additional capital would most likely require us to cease
operations and abandon all of our exploration properties.
On September 21, 2009, we entered into private placement subscription agreements with certain U.S.
accredited investors and certain Canadian and Non-U.S. investors for the private placement of up to
a total of 9,000,000 unregistered shares of the Companys common stock with 100% warrant coverage
at a purchase price of $0.20 per unit. The warrants have an exercise price of $0.30 per share, a
two-year term and will not be exercisable until twelve months after their date of issuance. On
September 21, 2009, $500,000 of proceeds were released to the Company from escrow. Subject to the
payment of certain fees and expenses, the remaining subscription proceeds will be held in escrow
and released to the Company upon the filing of a registration statement with the Securities and
Exchange Commission covering the resale of the shares and warrants shares issued in the private
placement. If the Company fails to file the registration statement by November 30, 2009, the
remaining funds held in escrow will be returned to the investors. The Company cannot provide any
assurance that the Final Closing will occur, or the aggregate amount of proceeds that will be
invested.
43
The amount of working capital could be adversely affected further in the event claims are made
against us alleging that certain shares we previously issued pursuant to Form S-8 registration
statements constituted an illegal public offering because the company was a shell company at the
time and, as a result, was not eligible to use Form S-8 for registration of shares under the
Securities Act of 1933. In August and October of 2005, the Company issued shares of common stock to
an officer of the Company, as compensation for consulting services. The two share issuances were
for a combined total of 30,000 shares and each of the share issuances was made pursuant to a
registration statement on Form S-8 under the Securities Act of 1933. Although the Company believes
these shares were properly issued, a claim could be made that issuance of the shares constituted an
illegal public offering because the Company was a shell company at the time. Shell companies
[i.e. companies which have no or nominal operations and either (i) no or nominal assets; (ii)
assets consisting solely of cash and cash equivalents; or (iii) assets consisting of any amount of
cash and cash equivalents and nominal other assets] are not eligible to use Form S-8 for
registration under the Securities Act of 1933. If either of these transactions did violate federal
securities laws, subsequent purchasers of the shares may have claims against us for damages or for
rescission of their purchase transaction and recovery of the full subscription price paid, together
with interest. As of the date of this quarterly report, no one has made or threatened any claim
against us alleging violation of the federal securities laws. In the event such claims were
successfully asserted, there is no assurance that we would have sufficient funds available to pay
and it is likely that we would be required to use funds currently designated as working capital for
that purpose. That would substantially reduce the amount of working capital available for other
purposes and, in that event, we could be forced to cease or discontinue certain operations and to
liquidate certain assets to pay our liabilities, including, but not limited to, rescission claims.
Cash Used in Operating Activities
Cash used in operating activities decreased to $1,368,000 for the six months ended August 31, 2009
compared to $2,245,000 for the six months ended August 31, 2008. The cash used in operating
activities was primarily for exploration costs and general and administrative expenses.
Cash Used in Investing Activities
The Company used cash of $23,000 for purchase of equipment for the six months ended August 31, 2009
compared to cash used of $13,000 for purchase of equipment for the six months ended August 31,
2008. There are no additional capital expenditures for the current fiscal year anticipated at this
time.
Financing Activities
Cash provided by financing activities decreased to $1,331,000 for the six months ended August 31,
2009 compared to $2,242,000 for the six months ended August 31, 2008. Most of the cash provided by
financing activities was from issuing of convertible debentures and notes payables. Cash provided
by financing activities was used to fund our operating and investing activities.
We anticipate the sale of the Guazapares properties to close in our third quarter providing us with
sufficient working capital for the next 12 months. But, we also anticipate continuing to rely on
equity sales of our common stock or issuance of debt in order to continue to fund our business
operations. Issuances of additional shares will result in dilution to our existing shareholders.
During the six months ended August 31, 2009, the Company issued a total of $1,895,000 convertible
debentures to Paramount, MRT and other investors:
The convertible debentures of $221,047 to Paramount with principal and accrued interest at 8% per
year are convertible into 442,094 units at a price of $0.75 per unit at the discretion of
Paramount. Each unit shall be comprised of one common share plus one-half common share purchase
warrant. One full warrant is exercisable immediately at a price of $0.50 for four years.
The convertible debentures of $237,510 to MRT with principal and accrued interest at 8% per year
are convertible into 455,850 units at a price of $0.60 per unit at the discretion of MRT. Each unit
shall be comprised of two common share plus one common share purchase warrant. One full warrant is
exercisable immediately at a price of $0.50 for three years.
The convertible debentures of $1,400,000 to MRT and other investors with principal and accrued
interest at15% per year were convertible into 7,000,000 units at a price of $0.20 per unit at the
discretion of the investors. In July 2009, MRT and other investors elected to convert the
debentures into real interest in the Companys Cieneguita project.
44
Going Concern
Our financial statements have been prepared on a going concern basis, which assumes the realization
of assets and settlement of liabilities in the normal course of business. Our ability to continue
as a going concern depends upon our ability to generate profitable operations in the future and/or
to obtain the necessary financing to meet our obligations and repay our liabilities arising from
normal business operations when they become due. The outcome of these matters cannot be predicted
with any certainty at this time and raise substantial doubt that we will be able to continue as a
going concern. Our financial statements do not include any adjustments to the amount and
classification of assets and liabilities that may be necessary should we be unable to continue as a
going concern.
The Company has a history of operating losses and will need to raise additional capital to fund its
planned operations. As at August 31, 2009, the Company had working capital deficiency of $4,701,000
(August 31, 2008 working capital deficiency of $4,421,000) and an accumulated deficit during the
exploration stage of $43,847,000 (August 31, 2008 $38,066,000). These conditions raise
substantial doubt about the Companys ability to continue as a going concern.
There is no assurance that our operations will be profitable. The Company has conducted private
placements of convertible debt and common stock, which have generated funds to satisfy all of the
initial cash requirements of its planned Mexican extraction of its mineralized material and
exploration ventures. Our continued existence and plans for future growth depend on our ability to
obtain the additional capital necessary to operate either through the generation of revenue or the
issuance of additional debt or equity.
Off-Balance Sheet Arrangements
We currently do not have any off-balance sheet arrangements which have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or capital resources
that is material to our investors.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
As we did not have to disclose quantitative and qualitative information about our market risk
as of and for our last fiscal year, this item is not applicable to us at this time.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Securities and Exchange Commission defines the term disclosure controls and procedures to
mean a companys controls and other procedures of an issuer that are designed to ensure that
information required to be disclosed in the reports that it files or submits under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods
specified in the Securities and Exchange Commissions rules and forms. 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 Securities
Exchange Act of 1934 is accumulated and communicated to the issuers management, including its
chief executive and chief financial officers, or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure. The Company maintains such a
system of controls and procedures in an effort to ensure that all information which it is required
to disclose in the reports it files under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified under the SECs rules and
forms and that information required to be disclosed is accumulated and communicated to chief
executive and chief financial officers to allow timely decisions regarding disclosure.
As of the end of the period covered by this report, we carried out an evaluation, under the
supervision and with the participation of our chief executive officer and chief financial officer,
of the effectiveness of the design and operation of our disclosure controls and procedures. Based
on this evaluation, our chief executive officer and chief financial officer concluded that our
disclosure controls and procedures were not designed and were not effective in providing reasonable
assurance of achieving the objectives of timely alerting them to material information required to be included in our
periodic SEC reports and of ensuring that such information is recorded, processed, summarized and
reported within the time periods specified by the SEC because the Company did not have sufficient
personnel resources within the accounting function to affect a timely financial close.
To remediate our internal control weaknesses, the Company hired Mr. Salil Dhaumya on September 21,
2009 to serve as its chief financial officer. The Company also intends to hire additional
accounting personnel to properly segregate duties and to effect a timely, accurate preparation of
the financial statements. The additional hiring is contingent upon Mexoro getting funded through
equity or debt for its continued exploration activities and corporate expenses. Mexoros management
expects to secure funds in the coming fiscal year but provides no assurances that it will be able
to do so.
45
Changes in Internal Control over Financial Reporting
There were no changes in the Companys internal control over financial reporting that occurred
during the last fiscal quarter, that has materially affected, or is reasonably likely to materially
affect, the Companys internal control over financial reporting.
PART II OTHER INFORMATION
Other than disclosed herein, all other sections in Part II are inapplicable to the Company.
Item 1. Legal Proceedings
Other than as disclosed herein, neither Mexoro nor its properties are the subject of any
pending legal proceedings and no such proceeding is known to be contemplated by any governmental
authority. We are not aware of any legal proceedings in which any director, officer or affiliate of
Mexoro, any owner of record or beneficially of more than 5% of any class of our voting securities,
or any associate of any such director, officer, affiliate or security holder of Mexoro, is a party
adverse to Mexoro or any of its subsidiaries or has a material interest adverse to Mexoro or any of
its subsidiaries.
In February 2007, Mexoro obtained a temporary restraining order in a civil action against Mr.
Argang Schariat for libel and slander. In June 2009 this restraining order was continued against
Mr. Schariat. The civil action for the restraining order was made before the Tribunal of Vevey,
Switzerland. Mr. Schariat has refused to abide by the Swiss Court ruling and subsequently, in
September 2009, we took the necessary steps to enforce our rights by filing a criminal complaint
against Mr. Schariat for libel and slander, which were heard by the courts in Vevey, Switzerland.
The results of this hearing have not been delivered by the judge. If we are successful in our
action, it is unlikely that we would be able to recover any damages from Mr. Schariat as he has
asserted that he plans to declare bankruptcy to avoid paying any penalties.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
# of | ||||||||||||||||||||||||
Warrants | Price per | |||||||||||||||||||||||
Name | # of Shares | Issued ** | Dated | Share | Amount USD$ | Notes | ||||||||||||||||||
Terra Exploracion Y
Mineria S.A. DE C.V. |
2,000,000 | 1,000,000 | 06/18/2009 | $ | 0.30 | Debt converted | (1)(6) | |||||||||||||||||
Barry Quiroz* |
1,000,000 | | 06/25/2009 | $ | 0.28 | Management bonus | (2)(6) | |||||||||||||||||
S2 Management |
75,000 | 37,500 | 06/26/2009 | $ | 0.30 | Debt converted | (3)(6) | |||||||||||||||||
Michael McKnight |
250,000 | 250,000 | 07/23/2009 | $ | 0.20 | $50,000 | (4)(6) | |||||||||||||||||
Nevaheel Consortium LLC |
250,000 | 250,000 | 07/23/2009 | $ | 0.20 | $50,000 | (5)(7) |
* | Affiliate of the Company. |
|
** | Each warrant entitles the holder to purchase one share of common stock. |
|
(1) | On June 18, 2009, the Company issued 2,000,000 shares and 1,000,000 warrants to Terra
Exploracion Y Mineria S.A. DE C.V. in exchange of debt of $600,000. |
|
(2) | On June 25, 2009, the Company issued 1,000,000 shares to Barry Quiroz as management bonus
valued at $280,000. |
|
(3) | On June 26, 2009, the Company issued 75,000 shares and 37,500 warrants to S2 Management in
exchange of debt of $22,500. |
|
(4) | On July 23, 2009, the Company issued 250,000 shares and 250,000 warrants to Michael McKnight
for subscription proceeds of $50,000. |
|
(5) | On July 23, 2009, the Company issued 250,000 shares and 250,000 warrants to Nevaheel
Consortium LLC for subscription proceeds of $50,000. |
|
(6) | These issuances were made in private placement transactions and were made to non-U.S. persons
(as defined under Rule 902 section (k)(2)(i) of Regulation S), pursuant to an offshore
transaction, and no directed selling efforts were made in the United States by us, a
distributor, any respective affiliates, or any person acting on behalf of any of the
foregoing. The investors were not inside the United States at the time the offer was made to
them nor at the time the buy order was placed. These investors are not (1) residents of the
U.S., (2) partnerships or corporations organized or incorporated under the laws of the U.S.,
(3) the estate of which any executor or administrator is a U.S. person, (4) a trust of which
any trustee is a U.S. person, (5) an agency or branch of a foreign entity located in the U.S.,
(6) a non-discretionary account held for the benefit of a U.S. person, or (7) a corporation
formed by a U.S. person for the purpose of investing in unregistered securities. The investors
were purchasing for their own accounts and acknowledged that the securities were not
registered under the Securities Act and cannot be sold unless they are registered or unless an
exemption from registration is available. The sales were made without any advertising or
public solicitation. |
|
(7) | These units were only offered to individuals or entities who qualified as accredited
investors under the Securities Act of 1933. The units were offered under an exemption from
registration found in Rule 506 of Regulation D. |
46
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, business
associates of our company or executive officers of our company, and transfer was restricted by our
company in accordance with the requirements of the Securities Act of 1933. In addition to
representations by the above-referenced persons, we have 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. Furthermore, all of the above-referenced persons were
provided with access to our Securities and Exchange Commission filings.
Except as expressly set forth above, the individuals and entities to whom we issued securities as
indicated in this section of the registration statement are unaffiliated with us.
Item 3. Defaults Upon Senior Securities
On January 14, 2009, the Company received Notice of Acceleration of three outstanding Secured
Convertible Debentures held by Paramount Gold and Silver Corp. Paramount Gold and Silver alleged
that we defaulted upon a series of debentures issued from May to August 2008 totaling $1,370,000.
Paramount Gold and Silver alleged that these defaults arose from a failure to make interest
payments in a timely manner and a failure to register securities into which the debentures were
convertible, in a timely manner. We disagree with Paramount Gold and Silvers assessment and do not
consider ourselves in default of the debentures. Subsequently, we have repaid a portion of these
debentures and have negotiated the repayment of the balance still owing on the debentures.
Item 6. Exhibits
The following exhibits are filed in reference:
Exhibit | ||||
Number | Description | |||
31.1 | Certification of Chief Executive Officer of Mexoro Minerals Ltd. pursuant to Rule 13a-14(a)/15d-14(a).* |
|||
31.2 | Certification of Chief Financial Officer of Mexoro Minerals Ltd. pursuant to Rule 13a-14(a)/15d-14(a).* |
|||
32.1 | Certification of Chief Executive Officer of Mexoro Minerals Ltd. pursuant to 18 U.S.C. Section 1350.* |
|||
32.2 | Certification of Chief Financial Officer of Mexoro Minerals Ltd. pursuant to 18 U.S.C. Section 1350.* |
* | filed herewith |
47
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Mexoro Minerals Ltd.
|
||
/S/ Barry Quiroz
|
||
Title: Director and Chief Executive Officer |
||
Date: October 9, 2009 |
48
EXHIBIT INDEX
Exhibit | ||||
Number | Description | |||
31.1 | Certification of Chief Executive Officer of Mexoro Minerals Ltd. pursuant to
Rule 13a-14(a)/15d-14(a).* |
|||
31.2 | Certification of Chief Financial Officer of Mexoro Minerals Ltd. pursuant to
Rule 13a-14(a)/15d-14(a).* |
|||
32.1 | Certification of Chief Executive Officer of Mexoro Minerals Ltd. pursuant to
18 U.S.C. Section 1350.* |
|||
32.2 | Certification of Chief Financial Officer of Mexoro Minerals Ltd. pursuant to
18 U.S.C. Section 1350.* |
* | filed herewith |