Attached files
| file | filename |
|---|---|
| EXCEL - IDEA: XBRL DOCUMENT - Sovereign Lithium, Inc. | Financial_Report.xls |
| EX-32.1 - CERTIFICATION - Sovereign Lithium, Inc. | srbl_ex321.htm |
| EX-31.1 - CERTIFICATION - Sovereign Lithium, Inc. | srbl_ex311.htm |
|
OMB APPROVAL
|
|
| OMB Number: |
3235-0070
|
| Expires: |
April 30, 2015
|
|
Estimated average burden
hours per response: ……………....................................... 187.43
|
|
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended September 30, 2013 | |
| or | |
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
For the transition period from __________ to __________
|
Commission file number 000-54233
|
SOVEREIGN LITHIUM, INC.
|
|
(Exact name of registrant as specified in its charter)
|
|
DELAWARE
|
20-8602410
|
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
|
999 18th Street, Suite 3000, Denver, Colorado 80202
|
|
| (Address of principal executive offices) | (Zip Code) |
|
(303) 952-0455
|
|
(Registrant’s telephone number, including area code)
|
|
Not Applicable
|
|
(Former name, former address and formal fiscal year, if changed since last report)
|
|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
|
||
| Yes þ | No o | |
|
Indicate by check mark whether the registrant 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 þ | No o | |
|
Indicate by check mark whether the registrant is 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.
|
|||||
|
Large Accelerated Filer o
|
Accelerated Filer o | ||||
|
Non-Accelerated Filer o (Do not check if a smaller reporting company)
|
Smaller Reporting Company þ | ||||
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
|
||||||
| Yes o | No þ | |||||
|
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
|
||||||
|
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 and 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Not Applicable
|
||||||
| Yes o | No o | |||||
|
APPLICABLE ONLY TO CORPORATE ISSUERS:
|
||||||
|
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
|
||||||
|
45,271,689 common shares issued and outstanding as of October 24, 2013.
|
ii
| Page | |
|
F-1
|
|
|
F-2
|
|
|
F-3
|
|
|
F-4
|
1
SOVEREIGN LITHIUM, INC.
(formerly Great American Energy, Inc.)
(An Exploration Stage Company)
|
(Unaudited)
|
||||||||
|
ASSETS
|
September 30,
|
December 31,
|
||||||
|
2013
|
2012
|
|||||||
|
CURRENT ASSETS
|
||||||||
|
Cash
|
$
|
52,083
|
$
|
22,418
|
||||
|
Prepaid expenses
|
12,928
|
5,678
|
||||||
|
Total current assets
|
65,011
|
28,096
|
||||||
|
OTHER ASSETS
|
||||||||
|
Mineral property options
|
775,000
|
480,000
|
||||||
|
TOTAL ASSETS
|
$
|
840,011
|
$
|
508,096
|
||||
|
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
|
||||||||
|
CURRENT LIABILITIES
|
||||||||
|
Accounts payable and accrued liabilities
|
$
|
82,540
|
$
|
9,289
|
||||
|
Accounts payable – related party
|
6,752
|
14,589
|
||||||
|
Total current liabilities
|
89,292
|
23,878
|
||||||
|
STOCKHOLDERS' EQUITY (DEFICIT)
|
||||||||
|
Preferred stock, $0.000001 par value, 20,000,000 authorized,
|
||||||||
|
none issued and outstanding
|
—
|
—
|
||||||
|
Common stock, $0.000001 par value, 1,000,000,000 shares authorized, 45,271,689
|
||||||||
|
issued and outstanding at September 30, 2013 and 44,416,667 issued and outstanding at December 31, 2012, respectively
|
45
|
45
|
||||||
|
Additional paid in capital
|
2,465,946
|
1,672,053
|
||||||
|
Deficit accumulated during exploration stage
|
(752,688
|
)
|
(225,296
|
)
|
||||
|
Accumulated earnings (deficit)
|
(962,584
|
)
|
(962,584
|
)
|
||||
|
Total stockholders' equity
|
750,719
|
484,218
|
||||||
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
|
$
|
840,011
|
$
|
508,096
|
||||
The accompanying notes are an integral part of these condensed financial statements.
F-1
2
SOVEREIGN LITHIUM, INC.
(formerly Great American Energy, Inc.)
(An Exploration Stage Company)
(Unaudited)
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
Period From June 29,
2012, Entrance Into Exploration Stage, to September 30,
|
||||||||||||||||||
| 2013 |
2012
|
2013 |
2012
|
2013
|
||||||||||||||||
|
REVENUE
|
$ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
|
COST OF REVENUES
|
— | — | — | — | — | |||||||||||||||
|
OPERATING EXPENSES
|
||||||||||||||||||||
|
Officers compensation
|
28,500 | 33,500 | 85,500 | 47,500 | 147,500 | |||||||||||||||
|
Exploration and evaluation
|
85,870 | 55,480 | 235,945 | 55,480 | 291,425 | |||||||||||||||
|
General and administrative
|
51,782 | 78,197 | 205,947 | 171,978 | 313,763 | |||||||||||||||
|
Total operating expenses
|
(166,152 | ) | (167,177 | ) | (527,392 | ) | (274,958 | ) | (752,688 | ) | ||||||||||
|
NET LOSS FROM CONTINUING OPERATIONS
|
(166,152 | ) | (167,177 | ) | (527,392 | ) | (274,958 | ) | (752,688 | ) | ||||||||||
|
DISCONTINUED OPERATIONS
|
||||||||||||||||||||
|
Income (loss) from operations of discontinued
Uptone Pictures, Inc.
|
— | — | — | (80,318 | ) | — | ||||||||||||||
|
NET LOSS
|
$ | (166,152 | ) | $ | (167,177 | ) | $ | (527,392 | ) | $ | (355,276 | ) | $ | (752,688 | ) | |||||
|
BASIC AND DILUTED EARNINGS PER SHARE - CONTINUING OPERATIONS
|
$ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||||||
|
BASIC AND DILUTED EARNINGS PER SHARE - DISCONTINUED OPERATIONS
|
$ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||||||
|
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
|
45,094,145 | 44,000,000 | 44,733,114 | 44,000,000 | ||||||||||||||||
The accompanying notes are an integral part of these condensed financial statements.
F-2
3
SOVEREIGN LITHIUM, INC.
(formerly Great American Energy, Inc.)
(An Exploration Stage Company)
(Unaudited)
|
Period From June 29,
2012,
Entrance Into
Exploration Stage, to September 30,
|
||||||||||||
|
Nine months ended
September 30,
|
||||||||||||
|
2013
|
2012
|
2013
|
||||||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
||||||||||||
|
Net loss for the period
|
$
|
(527,392
|
)
|
$
|
(274,958
|
)
|
$
|
(752,688
|
)
|
|||
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||||||
|
Donated rent
|
—
|
—
|
—
|
|||||||||
|
Donated consulting services
|
—
|
—
|
—
|
|||||||||
|
Shares for services
|
13,393
|
—
|
13,393
|
|||||||||
|
Changes in operating assets and liabilities:
|
||||||||||||
|
Increase in accounts payable
|
73,251
|
51,067
|
82,540
|
|||||||||
|
(Decrease) increase in accounts payable – related party
|
(7,837
|
)
|
7,500
|
6,752
|
||||||||
|
Increase in prepaid expenses
|
(7,250
|
)
|
—
|
(12,928
|
)
|
|||||||
|
Net cash used in operating activities
|
(455,835
|
)
|
(216,391
|
)
|
(662,931
|
)
|
||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
||||||||||||
|
Cash paid for mineral property options
|
(295,000
|
)
|
(345,000
|
)
|
(625,000
|
)
|
||||||
|
Cash surrendered on deconsolidation
|
—
|
(1,988
|
)
|
—
|
||||||||
|
Net cash used in investing activities
|
(295,000
|
)
|
(346,988
|
)
|
(625,000
|
)
|
||||||
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
||||||||||||
|
Proceeds from sale of stock
|
780,500
|
500,000
|
1,280,500
|
|||||||||
|
Contributed capital
|
—
|
125,403
|
—
|
|||||||||
|
Net cash provided by financing activities
|
780,500
|
625,403
|
1,280,500
|
|||||||||
|
CASH FLOWS USED IN DISCONTINUED OPERATIONS
|
—
|
(56,120
|
)
|
—
|
||||||||
|
NET INCREASE (DECREASE) IN CASH
|
29,665
|
5,904
|
(7,431
|
)
|
||||||||
|
CASH – BEGINNING OF PERIOD
|
22,418
|
—
|
59,514
|
|||||||||
|
CASH – END OF PERIOD
|
$
|
52,083
|
$
|
5,904
|
$
|
52,083
|
||||||
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
||||||||||||
|
Interest paid in cash
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||
|
Income taxes paid in cash
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||
The accompanying notes are an integral part of these condensed financial statements.
F-3
4
(formerly Great American Energy, Inc.)
(An Exploration Stage Company)
Notes to the Condensed Financial Statements as of September 30, 2013
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Sovereign Lithium, Inc. (formerly Great American Energy, Inc.) (“Great American”, “Southern Bella”, the “Company” or the “Registrant”) was incorporated in Delaware on February 22, 2007.
Uptone Pictures, Inc. (“Uptone”) was incorporated in North Carolina on March 27, 2006. Uptone is an entertainment company, which specializes in the creation, production and distribution of content.
On December 17, 2010 (the “Closing”), Southern Bella, Inc., closed a reverse take-over transaction by which it acquired Uptone. Pursuant to a Share Exchange Agreement (the “Exchange Agreement”) between the Registrant and Uptone, Viola J. Heitz, shareholder of Southern Bella, and Wendi Davis, sole shareholder of Uptone, the Registrant acquired 100% of Uptone’s issued and outstanding common stock.
On May 13, 2011, Southern Bella entered into a Subsidiary Put Option Agreement (the “Put Option Agreement”) with Wendi and Michael Davis (the “Purchasers”). As of May 13, 2011, the Purchasers were members of Southern Bella’s Board of Directors (the “Board”). On such date, the Purchasers were the beneficial holders of 8,166,667 pre-reverse split shares of Southern Bella’s common stock, par value $0.000001 per share, or 94% of Southern Bella’s issued and outstanding common stock (the “Davis Shares”). Subsequently, the Davis Shares were sold to Geoff Evett pursuant to the terms of a stock purchase agreement further described below. Under the terms of the Put Option Agreement, Southern Bella acquired a put option (the “Put Option”) obligating the Purchasers to purchase Southern Bella’s holdings of 100 shares of common stock of Uptone, such shares constituting all of the issued and outstanding shares of Uptone (the “Uptone Shares”) for a total price of $100. Under the terms of the Put Option, Southern Bella is required to obtain Board and stockholder approval prior exercising the Put Option. The Put Option will expire on May 13, 2014 (the “Option Termination Date”), unless it is terminated earlier under the terms of the Put Option Agreement.
Pursuant to the terms of the Put Option Agreement, the Purchasers agreed to indemnify Southern Bella for any costs, expenses, liabilities or claims incurred by Uptone before, by and through and after the option period (the period from May 13, 2011 to the Option Termination Date or earlier termination as provided in the Put Option Agreement).
Southern Bella entered into the Put Option Agreement in connection with a stock purchase agreement that the Purchasers separately entered into with Geoff Evett on May 13, 2011 (the “Stock Purchase Agreement”), which closed on May 16, 2011 (the “SPA Closing”). On the SPA Closing, the Purchasers sold 100% of the Davis Shares to Mr. Evett for an aggregate cash payment of $220,000. On the SPA Closing, the Purchasers, who were previously Southern Bella’s officers, resigned from such positions and Mr. Evett was appointed as President, Chief Executive Officer, Chief Financial Officer and Secretary. On the Closing, the Purchasers submitted resignation letters from their positions as directors which were effective 10 days after the filing and mailing to Southern Bella’s stockholders of an Information Statement pursuant to Section 14(f) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 14f-1 promulgated thereunder. Mr. Evett became Southern Bella’s sole director on May 27, 2011.
On June 29, 2011, Southern Bella approved the Certificate of Amendment to change its name to Great American Energy, Inc. (“Great American”). The name change was effective as of August 26, 2011.
On August 30, 2011, the Company effected a 79-for-1 stock-on-stock dividend for all of the issued and outstanding shares of the Company’s common stock on the record date of August 29, 2011 (the “Dividend”). Following the Dividend, the Company had 88,000,000 pre-reverse split shares of common stock outstanding.
F-4
5
SOVEREIGN LITHIUM, INC.
(formerly Great American Energy, Inc.)
(An Exploration Stage Company)
Notes to the Condensed Financial Statements as of September 30, 2013
(Unaudited)
On April 19, 2012, Mr. Geoff Evett, the Company’s Chief Executive Officer, tendered his resignation from his position as CEO of the Company.
On April 19, 2012, Mr. Felipe Pimienta Barrios was appointed Chief Executive Officer by the Company’s Board of Directors. On the same date Mr. Pimienta was appointed by the Company’s Board of Directors to fill a vacancy on the Board.
On June 29, 2012, the Company exercised the above-described Put Option and the Company divested itself of the Uptone Shares. In connection with this exercise, all of the assets and liabilities of Uptone have been transferred to the Purchasers and as of June 29, 2012, the Company no longer has any subsidiaries and the operations of Uptone are no longer the operations of the Company.
Effective July 11, 2013, the Company changed its name from Great American Energy, Inc. to Sovereign Lithium, Inc. and effected a reverse stock split on a 1-for-2 basis by filing its Amended and Restated Certificate of Incorporation with the Delaware Secretary of State. All common shares and warrants outstanding have been retroactively restated on a 1-for-2 basis unless otherwise noted as pre-reverse split shares.
Basis of Presentation
The Company follows accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the periods presented have been reflected herein.
Interim Financial Information
The interim financial statements of the Company are condensed and do not include some of the information necessary to obtain a complete understanding of the financial data. In the opinion of management, all adjustments that are necessary for a fair presentation of the financial information for the interim periods reported have been made. All such adjustments are of a normal recurring nature. Operating results for the three and nine months ended September 30, 2013, are not necessarily indicative of the results that may be expected for the year ended December 31, 2013. Accordingly, your attention is directed to footnote disclosures found in the Annual Report on Form 10-K for the year ending December 31, 2012, and particularly to Note 2, which includes a summary of significant accounting policies.
Exploration Stage
The Company complies with Accounting Standards Codification 915-10 for its characterization of the Company as exploration stage.
Reclassifications
Certain prior period amounts have reclassified to conform to the current period presentation. There was no material effect to the financial statements as result of these reclassifications.
F-5
6
SOVEREIGN LITHIUM, INC.
(formerly Great American Energy, Inc.)
(An Exploration Stage Company)
Notes to the Condensed Financial Statements as of September 30, 2013
(Unaudited)
Use of Estimates
The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As of September 30, 2013 and December 31, 2012, there were no cash equivalents.
Discontinued Operations
The results of operations of a component of an entity that either has been disposed of or is classified as held for sale is reported in discontinued operations if both of the following conditions are met:
a. The operations and cash flows of the component have been (or will be) eliminated from the ongoing operations of the entity as a result of the disposal transaction.
b. The entity will not have any significant continuing involvement in the operations of the component after the disposal transaction.
In a period in which a component of an entity either has been disposed of or is classified as held for sale, the income statement of the Company for current and prior periods will report the results of operation of the component, including any gain or loss recognized, in discontinued operations. The results of operation of a component classified as held for sale shall be reported in discontinued operations in the period(s) in which they occur.
Mineral Property Costs
Mineral property acquisition costs are capitalized upon acquisition. Mineral property exploration costs are expensed as incurred. When it has been determined that a mineral property can be economically developed as a result of establishing proven, proved, probable, or possible reserves, the costs incurred to develop such property are capitalized. To date the Company has not established any reserves on its mineral properties.
The Company reviews long-lived assets for indicators of impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If the review indicates that the carrying amount of the asset may not be recoverable, the potential impairment is measured based on a projected discounted cash flow method using a discount rate that is considered to be commensurate with the risk inherent in the Company's current business model. For purposes of recognition and measurement of an impairment loss, a long-lived asset is grouped with other assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets.
F-6
7
SOVEREIGN LITHIUM, INC.
(formerly Great American Energy, Inc.)
(An Exploration Stage Company)
Notes to the Condensed Financial Statements as of September 30, 2013
(Unaudited)
Purchase Options for Mining Property
Costs associated with acquisitions related to purchase options for mining properties are capitalized when the costs are incurred in accordance with ASC 340.10. The costs are carried at the amount paid and transferred to the appropriate asset account if the option is exercised. If it is determined that the Company will not exercise the option, the option is expensed.
Reclamation Cost Obligations
The Company follows ASC 410, Asset Retirement and Environmental Obligations, which requires that an asset retirement obligation (“ARO”) associated with the retirement of a tangible long-lived asset be recognized as a liability in the period in which it is incurred and becomes determinable, with an offsetting increase in the carrying amount of the associated asset. The cost of the tangible asset, including the initially recognized ARO, is depleted, such that the cost of the ARO is recognized over the useful life of the asset. The ARO is recorded at fair value, and accretion expense is recognized over time as the discounted liability is accreted to its expected settlement value. The fair value of the ARO is measured using expected future cash flow, discounted at the Company’s credit-adjusted risk-free interest rate. As of September 30, 2013 and December 31, 2012, the Company had no reclamation obligations because it has only recently commenced exploration activity.
Financial Instruments
Pursuant to ASC 820, Fair Value Measurements and Disclosures and ASC 825, Financial Instruments, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 and 825 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 and 825 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
F-7
8
SOVEREIGN LITHIUM, INC.
(formerly Great American Energy, Inc.)
(An Exploration Stage Company)
Notes to the Condensed Financial Statements as of September 30, 2013
(Unaudited)
The Company’s financial instruments consist principally of cash. Pursuant to ASC 820 and 825, the fair value of our cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. We believe that the recorded values of all of our other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
Assets and liabilities measured at fair value on a recurring basis were presented on the Company’s balance sheet as at September 30, 2013 and December 31, 2012 as follows:
|
Fair Value Measurements Using
|
||||||||||||||||||||
|
Quoted prices in
active markets for
identical
instruments
(Level 1)
|
Significant
other
observable
inputs
(Level 2)
|
Significant
unobservable
inputs
(Level 3)
|
Balance,
September
30,
2013
|
Balance,
December 31,
2012
|
||||||||||||||||
|
Cash
|
$ | 52,083 | $ | — | $ | — | $ | 52,083 | $ | 22,418 | ||||||||||
|
Accounts payable
|
$ | — | $ | 82,540 | $ | — | $ | 82,540 | $ | 9,289 | ||||||||||
|
Accounts payable – related parties
|
$ | — | $ | 6,752 | $ | — | $ | 6,752 | $ | 14,589 | ||||||||||
Income Taxes
Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted ASC 740 “Accounting for Income Taxes” as of its inception. Pursuant to ASC 740, the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in this financial statement because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.
Stock Based Compensation
Beginning January 1, 2006, the Company adopted the FASB standard related to stock based compensation. The standard requires all share-based payments to employees (which includes non-employee Directors), including employee stock options, warrants and restricted stock, be measured at the fair value of the award and expensed over the requisite service period (generally the vesting period). The fair value of common stock options or warrants granted to employees is estimated at the date of grant using the Black-Scholes option pricing model by using the historical volatility of comparable public companies. The calculation also takes into account the common stock fair market value at the grant date, the exercise price, the expected life of the common stock option or warrant, the dividend yield and the risk-free interest rate.
The Company from time to time may issue stock options, warrants and restricted stock to acquire goods or services from third parties. Restricted stock, options or warrants issued to other than employees or directors are recorded on the basis of their fair value, which is measured as of the date required by the Emerging Issues Task Force guidance related to accounting for equity instruments issued to non-employees. In accordance with this guidance, the options or warrants are valued using the Black-Scholes option pricing model on the basis of the market price of the underlying equity instrument on the “valuation date,” which for options and warrants related to contracts that have substantial disincentives to non-performance, is the date of the contract, and for all other contracts is the vesting date. Expense related to the options and warrants is recognized on a straight-line basis over the shorter of the period over which services are to be received or the vesting period. As of September 30, 2013 and December 31, 2012, no options or warrants related to compensation have been issued, and none are outstanding.
F-8
9
SOVEREIGN LITHIUM, INC.
(formerly Great American Energy, Inc.)
(An Exploration Stage Company)
Notes to the Condensed Financial Statements as of September 30, 2013
(Unaudited)
Basic and Diluted Net Loss Per Common Share
Basic and diluted net loss per share calculations are calculated on the basis of the weighted average number of common shares outstanding during the period. The per share amounts include the dilutive effect of common stock equivalents in periods with net income. Basic and diluted loss per share is the same due to the anti-dilutive nature of potential common stock equivalents. As of September 30, 2013, the Company had 1,221,682 warrants outstanding (December 31, 2012 – 416,667) which were not included in the calculation of net loss per share for the period because they would have been anti-dilutive.
Recent Accounting Pronouncements
In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, to improve the transparency of reporting these reclassifications. Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income. The amendments in the ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the information that this ASU requires already is required to be disclosed elsewhere in the financial statements under U.S. GAAP. The new amendments will require an organization to:
- Present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income - but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period; and
- Cross-reference to other disclosures currently required under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP) to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account (e.g., inventory for pension-related amounts) instead of directly to income or expense.
The amendments apply to all public and private companies that report items of other comprehensive income. Public companies are required to comply with these amendments for all reporting periods (interim and annual). The amendments are effective for reporting periods beginning after December 15, 2012, for public companies. Early adoption is permitted. The adoption of ASU No. 2013-02 is not expected to have a material impact on our financial position or results of operations.
In January 2013, the FASB issued ASU No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which clarifies which instruments and transactions are subject to the offsetting disclosure requirements originally established by ASU 2011-11. The new ASU addresses preparer concerns that the scope of the disclosure requirements under ASU 2011-11 was overly broad and imposed unintended costs that were not commensurate with estimated benefits to financial statement users. In choosing to narrow the scope of the offsetting disclosures, the Board determined that it could make them more operable and cost effective for preparers while still giving financial statement users sufficient information to analyze the most significant presentation differences between financial statements prepared in accordance with U.S. GAAP and those prepared under IFRS. Like ASU 2011-11, the amendments in this update will be effective for fiscal periods beginning on, or after January 1, 2013. The adoption of ASU 2013-01 is not expected to have a material impact on our financial position or results of operations.
F-9
10
SOVEREIGN LITHIUM, INC.
(formerly Great American Energy, Inc.)
(An Exploration Stage Company)
Notes to the Condensed Financial Statements as of September 30, 2013
(Unaudited)
NOTE 2 - GOING CONCERN
These financial statements of the Company are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of management to raise additional equity capital through private and public offerings of its common stock, and the attainment of profitable operations. As of September 30, 2013, the Company had working capital deficiency of $24,281 and an accumulated deficit of $1,715,272.
As more fully described in these Notes to Financial Statements and elsewhere in this quarterly report, the Company has recently entered into options for the acquisition of various mineral properties. None of these mineral properties currently have proven or probable reserves. The Company will be required to raise significant additional capital to complete the acquisition of the interests in and further the exploration, evaluation and development of each of these mineral properties. There can be no assurance that the Company will be successful in raising the required capital or that any of these mineral properties will ultimately attain a successful level of operations. If the Company is unable to raise sufficient capital to pay its obligations, or is unable to successfully complete the development of current mineral projects and obtain profitable operations and positive operating cash flows, the Company may be forced to scale back its mineral property acquisition and development plans or to significantly reduce or terminate operations and file for reorganization or liquidation under the bankruptcy laws.
These factors together raise substantial doubt regarding the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 3 – STOCKHOLDERS’ EQUITY
Common Stock Transactions
During the quarter ended September 30, 2013, the Company entered into a Regulation S Subscription Agreement with Pacific Oil & Gas Investments Ltd. (“Pacific Oil”) for 333,333 units for an aggregate purchase price of $100,000 or $0.30 per unit, with each unit consisting of one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock exercisable for $0.70 per share for three years from the date of issuance.
During the quarter ended June 30, 2013, the Company entered into two separate Regulation S Subscription Agreements with Pacific Oil. Pursuant to the terms of the respective Subscription Agreements, we sold (i) 30,380 units for an aggregate purchase price $48,000, or $1.58 per unit, with each unit consisting of one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock exercisable for $2.60 per share for three years from the date of issuance; and (ii) 208,334 units for an aggregate purchase price $200,000, or $0.96 per unit, with each unit consisting of one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock exercisable for $1.50 per share exercisable for three years from the date of issuance.
On May 24, 2013, and pursuant to an Advisory Agreement, the Company issued 50,000 shares of restricted common stock valued at fair market value of $50,000 in exchange for geological consulting services to be received over the next twelve months. The fair market value of common shares was determined by using the closing price on the measurement date. The issuance of the common stock was exempt from registration pursuant to Section 4(2) of the
F-10
11
SOVEREIGN LITHIUM, INC.
(formerly Great American Energy, Inc.)
(An Exploration Stage Company)
Notes to the Condensed Financial Statements as of September 30, 2013
(Unaudited)
Act. In the event this Advisory Agreement is terminated prior to the expiration of the primary term or any extension period by mutual written agreement, the Company shall only be responsible to pay the consultant for the accrued portion up to the effective date of termination. As of September 30, 2013, $13,393 in non-cash exploration costs has been recognized with respect to the Advisory Agreement.
On March 7, 2013, the Company accepted a Regulation S Subscription Agreement from Pacific Oil for 131,579 units in consideration of $250,000, or $2.60 per unit. Each unit consisted of one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock exercisable for $2.60 per share for three years from the date of issuance.
On each of May 8, 2012, July 4, 2012, and September 25, 2012, we entered into three separate Regulation S Subscription Agreements with Pacific Oil for a total of 416,667 units in consideration of a total of $750,000, or $0.90 per unit. Each unit consisted of one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock exercisable for $2.60 per share for three years from the date of issuance. Effective August 10, 2012 and October 12, 2012, we issued 138,889 and 277,778 units respectively.
On January 8, 2013, the Company entered into a Regulation S Subscription Agreement with Pacific Oil for a total of 101,389 units in consideration of $182,500, or $1.80 per unit. Each unit consisted of one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock exercisable for $2.60 per share for three years from the date of issuance.
During the second quarter of 2012, Metlera Capital contributed $31,742 in capital, $2,700 in rent and $7,500 in consulting to the Company. Also during the second quarter of 2012, 7Worldwide, owned by the former President, Mike Davis and Medplus, owned by the former Secretary’s father, contributed $3,175 and $28,252 respectively.
During the first quarter of 2012, Metlera Capital contributed $46,534 in capital, $2,700 in rent and $20,000 in consulting to the Company. Also during the first quarter of 2012, 7Worldwide, owned by the former President, Mike Davis and Medplus, owned by the former Secretary’s father, contributed $20,100 and $28,450, respectively.
Warrants Outstanding
A summary of the status of the Company’s stock warrants as at September 30, 2013, and changes during the nine months then ended is presented below:
|
Weighted
Average
|
Weighted Average
|
||||||||
|
Shares
|
Exercise Price
|
Remaining Life
|
|||||||
|
Outstanding, December 31, 2012
|
416,667 | $ | 2.60 |
2.53 years
|
|||||
|
Granted
|
805,015 | 1.53 |
2.68 years
|
||||||
|
Outstanding, vested and exercisable, September 30, 2013
|
1,221,682 | $ | 1.89 |
2.37 years
|
|||||
F-11
12
SOVEREIGN LITHIUM, INC.
(formerly Great American Energy, Inc.)
(An Exploration Stage Company)
Notes to the Condensed Financial Statements as of September 30, 2013
(Unaudited)
NOTE 4 – PUT OPTION
Under the terms of the Put Option Agreement, Southern Bella acquired a Put Option obligating the Purchasers to purchase Southern Bella’s holdings of 100 shares of common stock of Uptone, such shares constituting all of the issued and outstanding shares of Uptone for a total price of $100.
Below is the summary of the Put Option Agreement including fair value of assets disposed, liabilities disposed and consideration received as of June 29, 2012, when the option was exercised.
Below are the asset and liability values for Uptone prior to exercise of the Put Option Agreement:
|
Cash
|
$
|
1,988
|
||
|
Total assets
|
1,988
|
|||
|
Accrued liabilities
|
12,798
|
|||
|
Deferred revenue
|
9,525
|
|||
|
Total liabilities
|
22,323
|
|||
|
Net assets – discontinued operations
|
$
|
(20,335
|
)
|
NOTE 5 – RELATED PARTY TRANSACTIONS
During the nine months ended September 30, 2013, the Company incurred a total of $85,500 in salaries and consulting fees for the services of its directors and officers (2012 - $47,500). As of September 30, 2013, the Company has recorded an accounts payable to a related party, a director, for $5,354 for consulting services and office expenses and a further $1,398 as due to its Chief Executive Officer for expenses incurred on behalf of the Company (December 31, 2012 - $5,000 and $9,589 respectively).
Effective May 1, 2012, the Company entered into an independent contractor agreement (the “Independent Contractor Agreement”) with Mr. Geoff Evett (“Mr. Evett”). Pursuant to the terms of the Independent Contractor Agreement, Mr. Evett will assist the Company with business development projects outside of the United States and will be compensated at a rate of $2,500 per month. Additionally, Mr. Evett will be reimbursed for reasonable expenses incurred while providing services to the Company under the Independent Contractor Agreement. The Independent Contractor Agreement has a term of one year and is automatically renewable for subsequent one year terms. Mr. Evett also serves as the Chairman of the board of directors and a director of the Company.
During the second quarter of 2012, the Company received $63,169 of contributed capital from three related parties: $3,175 from 7Worldwide, owned by the former President, Mike Davis; $28,252 from MedPlus, owned by the former Secretary’s father; and $31,742 of contributed capital from Metlera Capital SL, owned equally by Mr. Evett and his wife. The $31,742 consisted of $21,542 cash, $2,700 in rent and $7,500 in consulting.
During the first quarter of 2012, the Company received $95,084 of contributed capital from three related parties: $20,100 from 7Worldwide, owned by the former President, Mike Davis; $28,450 from MedPlus, owned by the former Secretary’s father; and $46,534 of contributed capital from Metlera Capital SL, owned equally by Mr. Evett and his wife. The $46,534 consists of $23,834 of cash, $2,700 in rent and $20,000 in consulting.
F-12
13
SOVEREIGN LITHIUM, INC.
(formerly Great American Energy, Inc.)
(An Exploration Stage Company)
Notes to the Condensed Financial Statements as of September 30, 2013
(Unaudited)
Prior to the exercise of the Put Option, the Company conducted its operations from facilities located in Wake Forest, North Carolina. This office was provided to the Company by its former President, Mike Davis, for which the Company recognized expenses of $900 per month through July 1, 2012. Rent expense for the six months ending June 30, 2012 was $5,400.
NOTE 6 – MINERAL PROPERTY OPTIONS
Wallach Option (Trail, British Columbia, Canada)
On June 7, 2012, the Company entered into a Mineral Property Option Agreement (the “Wallach Option”) with Mr. David A. Wallach of 0911325 BC, Ltd. (“Wallach”) with an effective date of April 28, 2012. Pursuant to the Wallach Option, the Company has been granted the exclusive right to acquire an undivided 60% interest in 10 mining claims consisting of approximately 2,958 hectares of property located near Trail, British Columbia. To exercise the Wallach Option, the Company must:
|
(i)
|
make cash payments to Wallach totaling $350,000, inclusive of $25,000 for staking additional claims within the area of mutual interest. As of September 30, 2013 the Company has paid all required cash payments of $325,000. The additional staked claims have not been pursued by the parties to the agreement;
|
|
|
(ii)
|
fund improvement and mineral exploration projects on the property totaling $350,000 of which $100,000 had been paid as of September 30, 2013; and
|
|
|
(iii)
|
if the mineral and exploration projects provide evidence that there is the equivalent of at least $1,000,000,000 of gross value on the property, issue 1,000,000 shares of common stock to Wallach.
|
The Company must satisfy the above-described conditions and exercise the Wallach Option no later than April 30, 2015. After exercise of the Wallach Option, Wallach will retain a 2% net smelter royalty for any and all minerals mined and delivered from the property. The Company and Wallach have also agreed to cooperate in acquiring mining claims in the area within an 8.5 kilometer radius of the property, with such acquisitions to be subject to the terms of the Wallach Agreement. As of October 24, 2013, the Company is in compliance with the Wallach Option agreement.
GeoXplor Option (Esmeralda County, Nevada, United States of America)
On June 13, 2012, the Company entered into the Mineral Property Option Agreement (the “GeoXplor Option”) with GeoXplor Corporation, a Nevada corporation (“GeoXplor”). Pursuant to the GeoXplor Option, GeoXplor has granted the Company the exclusive right to acquire a 100% interest in and to 48 unpatented mining claims comprising approximately 7,680 acres of property located in and around Esmeralda County, Nevada. To exercise the GeoXplor Option, the Company must make cash payments to GeoXplor totaling $575,000, of which $450,000 had been paid as of September 30, 2013 and fund improvement and mineral exploration projects on the property totaling $800,000, of which $178,032 cash costs had been incurred as of September 30, 2013. The Company must satisfy all the above-described conditions and exercise the GeoXplor Option no later than July 1, 2015. After exercise of the GeoXplor Option, GeoXplor will be granted a 3% net smelter royalty for any and all minerals mined and delivered from the property. As of October 24, 2013, the Company is in compliance with the GeoXplor Option.
F-13
14
SOVEREIGN LITHIUM, INC.
(formerly Great American Energy, Inc.)
(An Exploration Stage Company)
Notes to the Condensed Financial Statements as of September 30, 2013
(Unaudited)
On May 20, 2013, the Company entered into a one year Advisory Agreement (“Advisory Agreement”) with the founder and principal of GeoXplor pursuant to which he agreed to use his expertise in mining and exploration to provide advisory services to the Board of Directors. As compensation for these advisory services, the Company issued 50,000 shares of restricted common stock at a value of $50,000 which is being expensed over the term of the one year contract. As of September 30, 2013, $13,393 in non-cash exploration costs has been recognized with respect to the Advisory Agreement. The issuance of the common stock was exempt from registration pursuant to Section 4(2) of the Act.
NOTE 7 – SUBSEQUENT EVENTS
Subsequent events have been evaluated through the date the financial statements were issued. Management has determined that there are no reporting subsequent events requiring disclosure other than the following:
On October 18, 2013, the Company accepted a subscription from Pacific Oil for 1,000,000 units in exchange for $100,000, or $0.10 per unit. Each unit consisted of one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock exercisable for $0.25 per share for three years from the date of issuance.
F-14
15
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes appearing elsewhere in this Quarterly Report. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report. See also “Risk Factors” contained in our form 10-K filed with the Securities and Exchange Commission on April 1, 2013.
OVERVIEW
Sovereign Lithium, Inc., formerly Great American Energy, Inc. (“Sovereign Lithium” or the “Registrant”) was incorporated in Delaware on February 22, 2007 (originally under the name Southern Bella, Inc.). The Registrant was organized to acquire catering companies throughout the United States. The first catering company acquired by the Registrant was Dupree Catering, Inc. (“Dupree”). Dupree is a Kentucky corporation, formed on October 28, 1991. On March 1, 2007, the Registrant acquired all of the shares of stock of Dupree for $110,000 and Dupree became the wholly-owned subsidiary of the Registrant. The Registrant sold all of the assets of Dupree on July 1, 2008.
On December 17, 2010, the Registrant closed a reverse take-over transaction by which it acquired 100% of the issued and outstanding common stock of Uptone Pictures, Inc., a North Carolina corporation (“Uptone”) which specializes in the creation, production and distribution of entertainment content.
On May 13, 2011, the Registrant entered into a Subsidiary Put Option Agreement (the “Put Option Agreement”) with Wendi and Michael Davis (the “Purchasers”). As of May 13, 2011, the Purchasers were members of the Registrant’s Board of Directors (the “Board”). On such date, the Purchasers were the beneficial holders of 8,166,667 pre-reverse split shares of the Registrant’s pre-consolidation common stock, par value $0.000001 per share, or 94% of the Registrant’s issued and outstanding common stock (the “Davis Shares”). Subsequently, the Davis Shares were sold to Geoff Evett pursuant to the terms of a stock purchase agreement further described below. Under the terms of the Put Option Agreement, the Registrant acquired a put option (the “Put Option”) obligating the Purchasers to purchase the Registrant’s holdings of 100 shares of common stock of Uptone, such shares constituting all of the issued and outstanding shares of Uptone (the “Uptone Shares”) for a total price of $100. Under the terms of the Put Option, the Registrant is required to obtain Board and stockholder approval prior exercising the Put Option. The Put Option will expire on May 13, 2014 (the “Option Termination Date”), unless it is terminated earlier under the terms of the Put Option Agreement.
Pursuant to the terms of the Put Option Agreement, the Purchasers agreed to indemnify the Registrant for any costs, expenses, liabilities or claims incurred by Uptone before, by and through and after the option period (the period from May 13, 2011 to the Option Termination Date or earlier termination as provided in the Put Option Agreement).
We entered into the Put Option Agreement in connection with a stock purchase agreement that the Purchasers separately entered into with Geoff Evett on May 13, 2011 (the “Stock Purchase Agreement”), which closed on May 16, 2011 (the “SPA Closing”). On the SPA Closing, the Purchasers sold 100% of the Davis Shares to Mr. Evett for an aggregate cash payment of $220,000. On the SPA Closing, the Purchasers, who were previously our officers, resigned from such positions and Mr. Evett was appointed as President, Chief Executive Officer, Chief Financial Officer and Secretary. On the Closing, the Purchasers submitted resignation letters from their positions as directors which were effective 10 days after the filing and mailing to our stockholders of an Information Statement pursuant to Section 14(f) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 14f-1 promulgated thereunder. Mr. Evett became our sole director on May 27, 2011.
On June 29, 2011, we entered into a contribution agreement (the “Contribution Agreement”) with Mr. Evett, our sole director, president, and largest shareholder. Pursuant to the Contribution Agreement, Mr. Evett returned 7,566,667 pre-reverse split shares of our common stock to us as a contribution to our capital. Prior to the execution of the Contribution Agreement, Mr. Evett held 8,166,667 pre-reverse split shares of our common stock representing approximately 94.23% of our issued and outstanding shares. Following the execution of the Contribution Agreement, Mr. Evett held 600,000 shares of our pre-reverse split common stock representing approximately 54.54% of our issued and outstanding shares.
16
On June 29, 2011, we approved the Certificate of Amendment to change our name to Great American Energy, Inc. The name change was effective as of August 26, 2011.
On August 30, 2011, we effected a 79-for-1 stock-on-stock dividend for all of the issued and outstanding shares of our common stock on the record date of August 29, 2011 (the “Dividend”). Following the Dividend, we had 44,000,000 shares (88,000,000 pre-reverse split) of our common stock outstanding.
On April 19, 2012, our then Chief Executive Officer, Mr. Evett, tendered his resignation and our Board appointed Mr. Felipe Pimienta Barrios as our Chief Executive Officer and member of our Board. Mr. Evett remains on our Board.
On June 29, 2012, we exercised the above-described Put Option and we divested our Company of the Uptone Shares. In connection with this exercise, all of the assets and liabilities of Uptone have been transferred to the Purchasers and as of June 29, 2012, we no longer have any subsidiaries and the operations of Uptone are no longer the operations of the Company.
Effective July 11, 2013, we changed our name from Great American Energy, Inc. to Sovereign Lithium, Inc. and effected a reverse stock split on a 1-for-2 basis by filing its Amended and Restated Certificate of Incorporation with the Delaware Secretary of State. All common shares and warrants outstanding have been retroactively restated on a 1-for-2 basis unless otherwise noted as pre-reverse split shares.
RECENT DEVELOPMENTS
Advisory Agreement
On May 20, 2013, the Company entered into an Advisory Agreement (“Advisory Agreement”) with Mr. John Rud, the founder and principal of GeoXplor Corp. (“Mr. Rud”). Pursuant to the terms of the Advisory Agreement, Mr. Rud agreed to use his expertise in mining and exploration to provide advisory services to the Board of Directors. As compensation for Mr. Rud’s advisory services, the Company agreed to issue Mr. Rud or his designee one hundred thousand shares of restricted common stock of the Company. The Advisory Agreement has a term of one year and can be extended for additional terms upon mutual agreement. On May 24, 2013, the Company issued 50,000 shares of restricted common stock valued at $50,000. The issuance of the common stock was exempt from registration pursuant to Section 4(2) of the Act.
Financing
On October 18, 2013, we accepted a subscription from Pacific Oil & Gas Investments Ltd. (“Pacific Oil”) for 1,000,000 units for an aggregate purchase price $100,000, or $0.10 per unit. Each unit consisted of one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock exercisable for $0.25 per share for three years from the date of issuance.
During the quarter ended September 30, 2013, we entered into a Regulation S Subscription Agreement with Pacific Oil for 333,333 units for an aggregate purchase price of $100,000 or $0.30 per unit, with each unit consisting of one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock exercisable for $0.70 per share for three years from the date of issuance.
During the quarter ended June 30, 2013, we entered into two separate Regulation S Subscription Agreements with Pacific Oil. Pursuant to the terms of the respective Subscription Agreements, we sold (i) 30,380 units for an aggregate purchase price $48,000, or $1.58 per unit, with each unit consisting of one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock exercisable for $2.60 per share for a three year period; and (ii) 208,334 units for an aggregate purchase price $200,000, or $0.96 per unit, with each unit consisting of one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock exercisable for $1.50 per share for a three year period.
17
During the quarter ended March 31, 2013, we entered into two separate Subscription Agreements with Pacific Oil for 101,389 and 131,579 units in consideration of $182,500 and $250,000 respectively or $1.80 and $1.90 per unit respectively. Each unit consisted of one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock exercisable for $2.60 per share for three years from the date of issuance.
The issuance of the above described units to Pacific Oil pursuant to the Subscription Agreements were exempt from registration pursuant to Regulation S under the Securities Act of 1933 (the “Act”). We made this determination based on the representations of Pacific Oil which included, in pertinent part that Pacific Oil is not a “U.S. Person” as that term is defined in Regulation S under the Act.
As of September 30, 2013, we had 45,271,689 shares of common stock outstanding.
Corporate Actions- Name Change and Reverse Stock Split
On May 23, 2013, the Board of Directors of the Company unanimously approved corporate actions that would benefit the Company, and on May 28, 2013 (the “Record Date”), the holders of at least a majority of the voting power of our issued and outstanding common stock as of such Record Date, approved by written consent pursuant to Section 228 of the Delaware General Corporation Law (the “DGCL”), the following corporate actions to be effected through the filing of the Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware (collectively, the “Corporate Actions”): (i) that the Certificate of Incorporation of the Company be amended and restated to change its name to “Sovereign Lithium, Inc.” (the “Name Change”); (ii) that the Certificate of Incorporation of the Company be amended and restated to authorize that 20,000,000 shares of preferred stock, par value $0.000001 per share, may be issued in one or more series, and with such designation and authorized number of such shares of each series to be determined by the Board (“Blank Check Preferred Stock”); (iii) that the Certificate of Incorporation of the Company be amended and restated to effect a reverse stock split of the issued and outstanding common stock of the Company, at a reverse stock split ratio of 1-for-2, with each stockholder otherwise entitled to receive a fractional share of common stock as a result of the reverse stock split receiving one full share of common stock in lieu of the Company issuing such fractional share or paying cash in respect thereof (the “Reverse Stock Split”); (iv) that the Certificate of Incorporation of the Company be amended and restated to give the Board the authority and power to change the Bylaws of the Company without requiring a vote of the stockholders; (v) that the Certificate of Incorporation of the Company be amended and restated to include a provision to limit the personal liability of its directors to the fullest extent permitted under Section 102 of the DGCL; and (vi) that the Certificate of Incorporation of the Company be amended and restated to provide indemnification and advancement of expenses to its officers, directors, employees and agents to the fullest extent permitted by Section 145 of DGCL.
In connection with the Corporate Actions, on June 21, 2013, we mailed an Information Statement to its stockholders of record as of the Record Date. On July 11, 2013, we filed the Amended and Restated Certificate of Incorporation with the Delaware Secretary of State to effect the Corporation Actions, including the name change to “Sovereign Lithium, Inc.” and the Reverse Stock Split. The Name Change and Reverse Stock Split was approved by Financial Industry Regulatory Authority (“FINRA”). Effective at the beginning of trading on July 12, 2013, the Company's name was changed to Sovereign Lithium, Inc. and the Company's shares began trading on a split-adjusted basis. A new CUSIP number was assigned to the Company's common stock as a result of the Name Change and Reverse Stock Split.
Transition to Mineral Exploration and Development Industry
As disclosed in previous quarterly and annual reports, we have been working on transitioning its operations to focus on the mineral exploration and development industry. In connection with this transition, during the quarter ended September 30, 2013 and the year ended December 31, 2012, we took the actions described below.
Wallach Option
On June 7, 2012, we entered into the Mineral Property Option Agreement (the “Agreement”) with Mr. David A. Wallach of 0911325 BC, Ltd. (“Wallach”) with an effective date of April 28, 2012. Pursuant to the Agreement, Wallach has granted us the exclusive right to acquire an undivided 60% interest in 10 mining claims consisting of approximately 2,958 hectares of property located near Trail, British Columbia, Canada (the “Wallach Option”).
18
To exercise the Wallach Option, we must (i) make cash payments to Wallach totaling $350,000, inclusive of $25,000 for staking additional claims within the area of mutual interest; (ii) fund improvement and mineral exploration projects on the property totaling $350,000; and (iii) if the mineral and exploration projects provide evidence that there is the equivalent of at least $1 billion of gross value on the property, we must issue 1,000,000 shares of our common stock to Wallach.
We must satisfy the above-described conditions and exercise the Wallach Option no later than April 30, 2015. After exercise of the Option, Wallach will retain a 2% net smelter royalty for any and all minerals mined and delivered from the property. We have also agreed to cooperate with Wallach in acquiring mining claims in the area within an 8.5 kilometer radius of the property, with such acquisitions to be subject to the terms of the Agreement.
As of September 30, 2013, we have paid the required $325,000 in cash payments and incurred $100,000 in exploration costs. The parties have not pursued staking additional claims within the area of mutual interest. As of October 24, 2013, we are in compliance with the Wallach Agreement.
We intend to conduct an exploration program to evaluate the distribution and amounts of rare earth elements which we believe may be found on this property. Preliminary samplings have indicated the presence of Scandium, Neodymium, Samarium, and Europium on this property. Additionally, smelting facilities are located within 15 kilometers of this property and we believe that the infrastructure in the region surrounding the property could support mining operations.
GeoXplor Option
On June 13, 2012, we entered into the Mineral Property Option Agreement (the “GeoXplor Option Agreement”) with GeoXplor Corporation, a Nevada corporation (“GeoXplor”). Pursuant to the Option Agreement, GeoXplor has granted us the exclusive right to acquire a 100% interest in and to 48 unpatented mining claims comprising approximately 7,680 acres of property located in and around Esmeralda County, Nevada, United States of America (the “GeoXplor Option”).
To exercise the GeoXplor Option, we must make cash payments to GeoXplor totaling $575,000 and fund improvement and mineral exploration projects on the property totaling $800,000. We must satisfy the above-described conditions and exercise the Option no later than July 1, 2015. After exercise of the GeoXplor Option, GeoXplor will be granted a 3% net smelter royalty for any and all minerals mined and delivered from the property.
As of September 30, 2013, we have paid $450,000 in cash and incurred $178,032 in exploration costs. As of October 24, 2013, we are in compliance with the GeoXplor Option.
We intend to conduct an exploration program to evaluate the distribution and amounts of lithium on this property. This property is adjacent to an operating lithium mine and the United States Geological Survey has indicated that the region containing this property may contain significant lithium deposits. As part of the United States Geological Survey drill program, one hole was drilled on this property which intersected geochemically anomalous concentrations of lithium in water and sediments. The gravity surveys over the region confirmed the existence of various structures that may have created topography favorable for evaporite accumulation and subsequent traps, which potentially could host mineral rich brines.
GOING CONCERN UNCERTAINTY
The condensed financial statements of the Company are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of management to raise additional equity capital through private and public offerings of its common stock, and the attainment of profitable operations. As of September 30, 2013, the Company had a working capital deficiency of $24,281 and an accumulated deficit of $1,715,272.
19
As more fully described in the Notes to Condensed Financial Statements and elsewhere in this quarterly report, we currently have entered into options for the acquisition of various mineral properties. None of these mineral properties currently have proven or probable reserves. We will be required to raise significant additional capital to complete the acquisition of the interests in and further the exploration, evaluation and development of each of these mineral properties. There can be no assurance that we will be successful in raising the required capital or that any of these mineral properties will ultimately attain a successful level of operations. If the Company is unable to raise sufficient capital to pay its obligations, or is unable to successfully complete the development of current mineral projects and obtain profitable operations and positive operating cash flows, the Company may be forced to scale back its mineral property acquisition and development plans or to significantly reduce or terminate operations and file for reorganization or liquidation under the bankruptcy laws.
These factors together raise substantial doubt regarding the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
RESULTS OF OPERATIONS
On June 29, 2012, we exercised the above-described Put Option and the Company divested itself of its subsidiary, Uptone Pictures, Inc. (“Uptone”). Accordingly, the revenues and expenses from Uptone are presented as net income from discontinued operations. The revenues and expenses from Uptone in 2012 are also presented as discontinued operations for comparison purposes.
Continuing Operations. Revenue from continuing operations was $0 for the three and nine month periods ended September 30, 2013 and $0 during the same periods ended September 30, 2012. Cost of revenues for the three and nine month periods ended September 30, 2013 and September 30, 2012 was $0.
Net Loss. Net income (loss) for the three month period ended September 30, 2013 and 2012 were ($166,152) and ($167,177), respectively. Net income (loss) for the nine month periods ended September 30, 2013 and 2012 were ($527,392) and ($355,276), respectively. Losses increased primarily due to increased general and administrative expenses and the acquisition of mineral options.
Discontinued Operations. The income (loss) from the discontinued operations of Uptone was $0 for the three and nine month periods ended September 30, 2013 and $Nil and $80,318 for the three and nine month periods ended September 30, 2012, respectively.
Expenses
Officers’ Compensation. Officers’ compensation was $28,500 for the three month period ended September 30, 2013 and $33,500 for the three month period ended September 30, 2012. Officers’ compensation was $85,500 for the nine month period ended September 30, 2013 and $47,500 for the nine month period ended September 30, 2012. The decrease in the three month period and the increase in the nine month period is due to an increase in the compensation of officers in connection with our new operations.
General and Administrative Expenses. General and administrative expenses were $51,782 for the three month period ended September 30, 2013 and $78,197 for the three month period ended September 30, 2012. General and administrative expenses were $205,947 for the nine month period ended September 30, 2013 and $171,978 for the nine month period ended September 30, 2012. The increases during the three and nine months ended September 30, 2013 were due to increased general and administrative expenses relating to recent corporate transactions.
Exploration and Evaluation Expenses. We incurred $85,870 in exploration and evaluation expenses in the three month period ended September 30, 2013 compared to $55,480 for the three month period ended September 30, 2012. We incurred $235,945 in exploration and evaluation expenses in the nine month period ended September 30, 2013 compared to $55,480 for the nine month period ended September 30, 2012. The increase is a result of the increase in our exploration activity during 2013 as compared to 2012.
20
Liquidity and Capital Resources
We generated net losses for the periods ending September 30, 2013 and September 30, 2012 of ($527,392) and ($355,276) respectively, and had an accumulated deficit of $1,715,272 at September 30, 2013. We had a working capital deficit of $24,281 for the period ending September 30, 2013 and a working capital surplus of $4,218 for the year ended December 31, 2012. We have no long term obligations other than our mineral property obligations as described herein.
We had a cash balance of $52,083 at September 30, 2013 and $22,418 at December 31, 2012. For the nine month period ended September 30, 2013 we had net cash inflows of $29,665 versus $5,904 in the nine months ended September 30, 2012. Cash flows used in operations for the nine month period ended September 30, 2013 were ($455,835) compared with ($216,391) in the nine months ended September 30, 2012. The increase in use of cash for operations is primarily attributable to increased general and administrative costs and exploration costs for mineral options. Cash flows used in operations for the nine month period ending September 30, 2013 consisted primarily of a net loss from operations of ($527,392) compared with ($274,958) from operations and ($56,120) from discontinued operations for the same period in 2012. The increase in loss was primarily because of the change in the nature of our business and, our expenditures of $235,945 on exploration properties, as well as increased general and administrative expenses. We had net cash provided by financing activities of $780,500 for the nine month period ended September 30, 2013, compared with $625,403 for the same period in 2012, an increase attributable to proceeds of sales of our stock. Cash flows used in investing activities were $295,000 for the nine month period ending September 30, 2013 compared with $346,988 for the same period in 2012. The variance in investing activities was primarily because of timing of our mineral property option payments.
During the next 12 months we expect that our operations will be funded by further equity financing activities. However, there is no assurance that we will be able to obtain sufficient funds to support our operations as planned. We are dependent on the continued support of our creditors and our ability to raise further capital to fund ongoing expenditures. In current market conditions there is uncertainty that the necessary funding can be obtained as needed, raising substantial doubt as to our ability to continue operating as a going concern. In the event we are unable to raise additional capital, we will not be able to meet our obligations and will be required to further curtail or terminate some of our projects and/or activities. If we fail to secure such funding, we may fail to meet our reporting obligations as a public company and could lose our eligibility for the quotation of our stock on the over the counter bulletin board. Should this occur, investors may have increased difficulty selling their stock.
Our independent auditors have indicated in their audit report for the year ended December 31, 2012 that there is substantial doubt about our ability to continue as a going concern over the next twelve months.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements.
Not applicable.
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, as of the end of the period covered by this report, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”). Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be included in our Securities and Exchange Commission (“SEC”) reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, relating to the Company. Accordingly, based upon that evaluation, as of September 30, 2013, the chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were not effective to ensure that information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified by the SEC’s rules and regulations.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
21
None.
Not applicable.
Sales of Common Stock
On October 18, 2013, we accepted a Regulation S subscription (the “Subscription Agreement(s)”) from Pacific Oil & Gas Investments Ltd. (“Pacific Oil”) for 1,000,000 units for an aggregate purchase price $100,000, or $0.10 per unit. Each unit consisted of one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock exercisable for $0.25 per share for three years from the date of issuance.
On August 19, 2013, we entered into a Subscription Agreement Subscription Agreement with Pacific for 333,333 units for an aggregate purchase price of $100,000 or $0.30 per unit, with each unit consisting of one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock exercisable for $0.70 per share for three years from the date of issuance.
On May 3, 2013, we accepted a Subscription Agreement from Pacific Oil for 30,380 units for an aggregate purchase price $48,000, or $1.58 per unit. Each unit consisted of one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock exercisable for $2.60 per share for three years from the date of issuance.
On June 4, 2013, we accepted a Subscription Agreement from Pacific Oil for 208,334 units for an aggregate purchase price $200,000, or $0.96 per unit. Each unit consisted of one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock exercisable for $1.50 per share for three years from the date of issuance.
On March 7, 2013, we accepted a Subscription Agreement from Pacific Oil for 131,579 units in consideration of $250,000, or $1.90 per unit. Each unit consisted of one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock exercisable for $2.60 per share for three years from the date of issuance.
22
On January 8, 2013 we entered into a Subscription Agreement with Pacific Oil for a total of 101,389 units in consideration of $182,500, or $1.80 per unit. Each unit consisted of one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock exercisable for $2.60 per share for three years from the date of issuance.
The issuance of the units to Pacific Oil pursuant to the Subscription Agreement was exempt from registration pursuant to Regulation S under the Securities Act. The Company made this determination based on the representations of Pacific Oil which included, in pertinent part, that Pacific Gas is not a “U.S. Person” as that term is defined in Regulation S under the Act.
Issuance of Common Stock
On May 20, 2013, we entered into an Advisory Agreement (“Advisory Agreement”) with Mr. John Rud, the founder and principal of GeoXplor (“Mr. Rud”). Pursuant to the terms of the Advisory Agreement, Mr. Rud agreed to use his expertise in mining and exploration to provide advisory services to the Board of Directors. As compensation for Mr. Rud’s advisory services, we agreed to issue Mr. Rud or his designee 100,000 shares of restricted common stock of the Company. The Advisory Agreement has a term of one year and can be extended for additional terms upon mutual agreement. On May 24, 2013, we issued 50,000 shares of restricted common stock valued at $50,000. The issuance of the common stock was exempt from registration pursuant to Section 4(2) of the Act.
None.
As disclosed under “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Transition to Mineral Exploration and Development Industry,” on June 7, 2012, and June 13, 2012, we acquired options to acquire interests in certain mining claims. Mining operations have not yet commenced on such properties and, accordingly, we do not have any information to disclose pursuant to Section 1503 of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K, which require certain safety related disclosures by companies which operate mines regulated under the Federal Mine Safety and Health Act of 1977.
Not applicable.
23
|
Exhibit
|
Item
|
|
|
3.1
|
Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on June 11, 2013 (1)
|
|
|
10.1
|
Advisory Agreement*
|
|
|
Certification of Principal Executive and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
|
||
|
Certification of Principal Executive and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
|
||
|
101.INS
|
XBRL Instance Document (2)
|
|
|
101.SCH
|
XBRL Taxonomy Extension Schema (2)
|
|
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase (2)
|
|
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase (2)
|
|
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase (2)
|
|
|
101.FRE
|
XBRL Taxonomy Extension Presentation Linkbase (2)
|
____________
* Filed herewith.
(1) Incorporated by reference to Form 8-K filed on July 15, 2013.
(2) XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
24
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
SOVEREIGN LITHIUM, INC.
|
|||
|
Date: October 25, 2013
|
By:
|
/s/ Felipe Pimienta Barrios
|
|
|
Felipe Pimienta Barrios
|
|||
|
Its: Chief Executive Officer and Chief Financial Officer
(Principal Executive Officer and Principal Accounting
Officer)
|
|||
25