Attached files
| file | filename |
|---|---|
| EXCEL - IDEA: XBRL DOCUMENT - FIRMA HOLDINGS CORP. | Financial_Report.xls |
| EX-32.1 - EXHIBIT 32.1 - FIRMA HOLDINGS CORP. | ex32_1.htm |
| EX-32.2 - EXHIBIT 32.2 - FIRMA HOLDINGS CORP. | ex32_2.htm |
| EX-31.1 - EXHIBIT 31.1 - FIRMA HOLDINGS CORP. | ex31_1.htm |
| EX-31.2 - EXHIBIT 31.2 - FIRMA HOLDINGS CORP. | ex31_2.htm |
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, 2014
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________.
COMMISSION FILE NUMBER 333-143512
FIRMA HOLDINGS CORP.
(Exact Name of Registrant as Specified in its Charter)
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Nevada
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20-5000381
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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181 N. Arroyo Grande Blvd. Ste. 140B
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Henderson, NV
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89074
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(Address of principal executive offices)
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(Zip code)
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(888) 901-4550
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(Registrant's telephone number, including area code)
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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 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.
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company þ
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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 November 12, 2014, the Company had 94,032,340 outstanding shares of common stock.
1
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PART I - FINANCIAL INFORMATION
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Page
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3
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19
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23
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23
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PART II - OTHER INFORMATION
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24
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24
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24
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24
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24
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PART I - FINANCIAL INFORMATION
FIRMA HOLDINGS CORP. AND SUBSIDIARIES
(formerly known as Tara Minerals Corp.)
(A Subsidiary of Tara Gold Resources Corp.)
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2014 AND FOR
THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(formerly known as Tara Minerals Corp.)
(A Subsidiary of Tara Gold Resources Corp.)
CONDENSED CONSOLIDATED BALANCE SHEETS
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September 30, 2014
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December 31, 2013
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|||||||
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(Unaudited)
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||||||||
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Assets
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||||||||
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Current assets:
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||||||||
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Cash
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$
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764,578
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$
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76,758
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Other receivables, net
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120,687
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73,106
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Prepaid assets
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109,136
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114,425
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Assets held for disposal, net
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29,262
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29,262
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Note receivable, current
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536,870
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-
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Other current assets
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21,006
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21,684
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Total current assets
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1,581,539
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315,235
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Property, plant, equipment, mine development and land, net
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6,913,128
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7,344,419
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Intellectual property
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2,745,229
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-
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Total assets
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$
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11,239,896
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$
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7,659,654
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Liabilities and Stockholders’ Equity
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Current liabilities:
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Accounts payable and accrued expenses
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$
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1,619,772
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$
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1,410,281
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Notes and other payables, current portion
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1,094,785
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38,614
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Convertible notes payable, net
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260,000
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75,652
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Due to related parties, net of due from
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1,309,179
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1,517,615
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Total current liabilities
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4,283,736
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3,042,162
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Notes and other payables, non-current portion
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1,235,629
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28,005
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Total liabilities
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5,519,365
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3,070,167
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Stockholders’ equity:
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Common stock: $0.001 par value; authorized 200,000,000 shares; issued and
outstanding 94,032,340 and 81,082,278 shares, respectively
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94,032
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81,082
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Additional paid-in capital
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40,984,888
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37,191,859
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Common stock payable
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-
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47,466
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Accumulated deficit
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(38,408,815
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)
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(35,757,123
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)
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Accumulated other comprehensive loss
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(133,404
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)
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(167,584
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)
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Total Firma Holdings stockholders’ equity
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2,536,701
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1,395,700
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Non-controlling interest
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3,183,830
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3,193,787
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Total stockholders’ equity
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5,720,531
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4,589,487
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Total liabilities and stockholders’ equity
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$
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11,239,896
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$
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7,659,654
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See accompanying notes to these Condensed Consolidated Financial Statements.
(formerly known as Tara Minerals Corp.)
(A Subsidiary of Tara Gold Resources Corp.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
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For the Three Months Ended
September 30,
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For the Nine Months Ended
September 30,
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|||||||||||||||
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2014
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2013
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2014
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2013
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Mining revenues
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$ | - | $ | - | $ | 105,316 | $ | - | ||||||||
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Cost of revenue
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- | - | - | - | ||||||||||||
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Gross margin
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- | - | 105,316 | - | ||||||||||||
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Exploration expenses
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14,410 | 662,883 | 490,271 | 1,217,071 | ||||||||||||
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Operating, general and administrative expenses
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926,385 | 354,628 | 2,116,806 | 2,142,706 | ||||||||||||
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Net operating loss
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(940,795 | ) | (1,017,511 | ) | (2,501,761 | ) | (3,359,777 | ) | ||||||||
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Non-operating (loss) income:
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Interest income
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29,656 | 12,590 | 54,698 | 38,077 | ||||||||||||
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Interest expense
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(21,269 | ) | (2,413 | ) | (207,951 | ) | (206,292 | ) | ||||||||
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Gain on debt due to extinguishment
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- | - | 5,000 | - | ||||||||||||
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Gain (loss) on disposal or sale of assets
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12,319 | - | (38,357 | ) | - | |||||||||||
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Settlement loss, net
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(5,148 | ) | (203,000 | ) | (5,148 | ) | (1,064,996 | ) | ||||||||
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(Loss) gain on bargain acquisition of ACM
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- | (6,886 | ) | - | 3,489,971 | |||||||||||
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Other income
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20,010 | - | 31,871 | 145 | ||||||||||||
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Total non-operating (loss) income
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35,568 | (199,709 | ) | (159,887 | ) | 2,256,905 | ||||||||||
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Loss before income taxes
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(905,227 | ) | (1,217,220 | ) | (2,661,648 | ) | (1,102,872 | ) | ||||||||
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Income tax provision
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- | (1,359,000 | ) | - | (6,284,000 | ) | ||||||||||
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Net loss
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(905,227 | ) | (2,576,220 | ) | (2,661,648 | ) | (7,386,872 | ) | ||||||||
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Net gain attributable to non-controlling interest
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5,055 | 486 | 9,957 | 77,440 | ||||||||||||
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Net loss attributable to Firma Holdings’ shareholders
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(900,172 | ) | (2,575,734 | ) | (2,651,691 | ) | (7,309,432 | ) | ||||||||
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Other comprehensive income:
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Foreign currency translation income
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49,333 | 6,235 | 34,180 | 8,346 | ||||||||||||
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Total comprehensive loss
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$ | (850,839 | ) | $ | (2,569,499 | ) | $ | (2,617,511 | ) | $ | (7,301,086 | ) | ||||
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Net loss per share, basic and diluted
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$ | (0.01 | ) | $ | (0.03 | ) | (0.03 | ) | $ | (0.10 | ) | |||||
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Weighted average number of shares, basic and diluted
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89,013,201 | 78,092,278 | 83,909,477 | 72,830,813 | ||||||||||||
See accompanying notes to these Condensed Consolidated Financial Statements.
(formerly known as Tara Minerals Corp.)
(A Subsidiary of Tara Gold Resources Corp.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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For the Nine Months Ended
September 30,
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2014
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2013
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Cash flows from operating activities:
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Net loss attributable to Firma Holdings’ shareholders
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$ | (2,651,691 | ) | $ | (7,309,432 | ) | ||
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Adjustments to reconcile net loss to net cash:
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Depreciation and amortization
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221,184 | 230,223 | ||||||
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Allowance for doubtful accounts (recovery)
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(14,857 | ) | 35,394 | |||||
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Stock based compensation and stock bonuses
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405,931 | 59,645 | ||||||
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Common stock issued for services and other expenses
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- | 187,267 | ||||||
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Settlement loss, net
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5,148 | 1,064,996 | ||||||
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Non-controlling interest in net loss of consolidated subsidiaries
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(9,957 | ) | (77,440 | ) | ||||
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Accretion of beneficial conversion feature and debt discount
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169,198 | 200,000 | ||||||
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Gain on debt due to extinguishment and conversion
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(5,000 | ) | - | |||||
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Deferred tax asset, net
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- | 6,284,000 | ||||||
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Gain on bargain purchase of ACM
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- | (3,489,971 | ) | |||||
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Other
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38,759 | - | ||||||
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Changes in current operating assets and liabilities:
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Other receivables, net
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25,477 | (48,562 | ) | |||||
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Prepaid expenses
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328 | (68,361 | ) | |||||
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Notes receivable, current
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(536,870 | ) | - | |||||
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Other assets
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678 | (4,583 | ) | |||||
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Accounts payable and accrued expenses
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657,317 | 197,457 | ||||||
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Net cash used in operating activities
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(1,694,355 | ) | (2,739,367 | ) | ||||
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Cash flows from investing activities:
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Acquisition of property, plant, equipment, land and construction in progress
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- | (217,066 | ) | |||||
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Acquisition of intellectual property
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(558,601 | ) | - | |||||
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Purchase of mining concession including mining deposits
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- | (649,677 | ) | |||||
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Proceeds from the sale of assets
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14,884 | - | ||||||
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Net cash used in investing activities
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(543,717 | ) | (866,743 | ) | ||||
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Cash flows from financing activities:
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Cash from the sale of common stock
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3,071,104 | 2,150,000 | ||||||
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Proceeds from notes payable
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110,000 | - | ||||||
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Payments towards notes payable
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(80,956 | ) | (21,889 | ) | ||||
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Change in due to/from related parties, net
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(208,436 | ) | 665,738 | |||||
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Net cash provided by financing activities
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2,891,712 | 2,793,849 | ||||||
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Effect of exchange rate changes on cash
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34,180 | 8,346 | ||||||
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Net increase (decrease) in cash
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687,820 | (803,915 | ) | |||||
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Beginning of period cash balance
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76,758 | 906,663 | ||||||
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End of period cash balance
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$ | 764,578 | $ | 102,748 | ||||
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Supplemental Information:
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Interest paid
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$ | 3,299 | $ | 6,757 | ||||
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Income taxes paid
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$ | - | $ | - | ||||
FIRMA HOLDINGS CORP. AND SUBSIDIARIES
(formerly known as Tara Minerals Corp.)
(A Subsidiary of Tara Gold Resources Corp.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(CONTINUED)
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For the Nine Months Ended
September 30,
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||||||||
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2014
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2013
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Non-cash Investing and Financing Transactions:
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Beneficial conversion value for convertible debt and financial instruments
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$ | 94,850 | $ | - | ||||
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Conversion of debt and Iron Ore Financial instrument to common stock, plus
accrued interest |
$ | - | $ | 800,000 | ||||
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Acquisition of intellectual property through debt and options
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$ | 2,186,629 | $ | - | ||||
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Construction in progress reclassified to property, plant and equipment
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$ | - | $ | 112,582 | ||||
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Conversion of accrued payroll to note payable
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$ | 274,500 | $ | - | ||||
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Other
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$ | 57,466 | $ | 79,438 | ||||
See accompanying notes to these Condensed Consolidated Financial Statements.
(formerly known as Tara Minerals Corp.)
(A Subsidiary of Tara Gold Resources Corp.)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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Note 1.
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Nature of Business and Significant Accounting Policies
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Nature of business and principles of consolidation:
On June 3, 2014 the Company amended its Articles of Incorporation changing its name from Tara Minerals Corp. to Firma Holdings Corp.
The accompanying Condensed Consolidated Financial Statements of Firma Holdings Corp. (the “Company”) should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. Significant accounting policies disclosed therein have not changed, except as noted below.
Firma Holdings has two business segments: mining and agriculture.
The Company’s mining segment is conducted through American Metal Mining and Adit Resources. The Company owns 99.9% of the common stock of American Metal Mining S.A. de C.V. (“AMM”), a Mexican corporation, and owns 87% of the common stock of Adit Resources Corp. (“Adit”). Adit in turns owns 99.99% of American Copper Mining, S.A. de C.V. (“ACM”), a Mexican corporation. All of Firma Holdings’ operations in Mexico are conducted through AMM and ACM since Mexican law provides that only Mexican corporations are allowed to own mining properties. AMM’s primary focus is on industrial minerals, e.g. gold, copper, zinc. Adit, through ACM, focuses on gold mining concessions.
The Company’s agricultural segment is conducted through its wholly owned subsidiary Firma IP Corp., a Nevada corporation which was established in May 2014.
In these financial statements, references to "Company," "we," "our," and/or "us," refer to Firma Holdings Corp. and, unless the context indicates otherwise, its consolidated subsidiaries.
Firma Holdings is a subsidiary of Tara Gold Resources Corp. (“Tara Gold” or “the Company’s Parent”).
The accompanying condensed consolidated financial statements and the related footnote information are unaudited. In the opinion of management, they include all normal recurring adjustments necessary for a fair presentation of the condensed consolidated balance sheets of the Company as of September 30, 2014 and December 31, 2013, the condensed consolidated results of its operations for the three and nine months ended September 30, 2014 and 2013 and the condensed consolidated statements of cash flows for the nine months ended September 30, 2014 and 2013. Results of operations reported for interim periods are not necessarily indicative of results for the entire year.
The condensed consolidated financial statements include the financial statements of the Company and its subsidiaries. All amounts are in U.S. dollars unless otherwise indicated. All significant inter-company balances and transactions have been eliminated in consolidation.
The reporting currency of the Company, Firma IP Corp., and Adit is the U.S. dollar. The functional currency of AMM and ACM is the Mexican Peso. As a result, the financial statements of these subsidiaries have been re-measured from Mexican pesos into U.S. dollars using (i) current exchange rates for monetary asset and liability accounts, (ii) historical exchange rates for non-monetary asset and liability accounts, (iii) historical exchange rates for revenues and expenses associated with non-monetary assets and liabilities, and (iv) the weighted average exchange rate of the reporting period for all other revenues and expenses. In addition, foreign currency transaction gains and losses resulting from U.S. dollar denominated transactions are eliminated. The resulting re-measurement gain (loss) is recorded to other comprehensive gain (loss).
Current and historical exchange rates are not indicative of what future exchange rates will be and should not be construed as such.
Relevant exchange rates used in the preparation of the financial statements for AMM and ACM are as follows for the nine months ended September 30, 2014 and 2013. Mexican pesos per one U.S. dollar:
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September 30, 2014
(Unaudited)
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Current exchange rate
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Ps.
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13.4891
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Weighted average exchange rate for the nine months ended
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Ps.
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13.1166
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September 30, 2013
(Unaudited)
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Current exchange rate
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Ps.
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13.1450
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Weighted average exchange rate for the nine months ended
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Ps.
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12.6796
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The Company’s significant accounting policies are:
Estimates
The preparation of financial statements in conformity with generally accepted accounting principles under the Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 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. Management routinely makes judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.
Recoverable Value-Added Taxes (IVA) and Allowance for Doubtful Accounts
Impuesto al Valor Agregado taxes (IVA) are recoverable value-added taxes charged by the Mexican government on goods sold and services rendered at a rate of 16%. Under certain circumstances, these taxes are recoverable by filing a tax return and as determined by the Mexican taxing authority. Our allowance in association with our receivable from IVA from our Mexico subsidiary is based on our determination that the Mexican government may not allow the complete refund of these taxes.
Each period, receivables are reviewed for collectability. When a receivable has doubtful collectability we allow for the receivable until we are either assured of collection (and reverse the allowance) or assured that a write-off is necessary.
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September 30, 2014
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December 31, 2013
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|||||||
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(Unaudited)
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||||||||
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Allowance – recoverable value-added taxes
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$ | 1,592,717 | $ | 1,597,407 | ||||
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Allowance – other receivables
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338,266 | 348,433 | ||||||
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Total
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$ | 1,930,983 | $ | 1,945,840 | ||||
Bad debt expense was $41,881 and $161,008 during the nine month period ending September 30, 2014 and 2013, respectively.
AMM received refunds of $40,489 for IVA taxes during January and February 2014.
Reclamation and remediation costs (asset retirement obligations)
Reclamation costs are allocated to expense over the life of the related assets and are periodically adjusted to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation and abandonment costs.
Future remediation costs for reprocessing plant and buildings are accrued based on management’s best estimate, at the end of each period, of the undiscounted costs expected to be incurred at a site. Such cost estimates include, where applicable, ongoing remediation, maintenance and monitoring costs. Changes in estimates are reflected in earnings in the period an estimate is revised. There were no reclamation and remediation costs incurred or accrued as of September 30, 2014 and 2013.
Fair Value Accounting
As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The three levels of the fair value hierarchy are described below:
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Level 1
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Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
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Level 2
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Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;
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Level 3
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Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
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Recently Adopted and Recently Issued Accounting Guidance
Issued
In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, "Revenue from Contracts with Customers," which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company on January 1, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.
In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. The new standard provides guidance as to management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company's financial statements.
Adopted
In June 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-10, “Development Stage Entities (Topic 915), Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, "Consolidation” (“ASU 2014-10”). The amendments in ASU 2014-10 remove the definition of a development stage entity from the Master Glossary of the Accounting Standards Codification, thereby removing the financial reporting distinction between development stage entities and other reporting entities from accounting principles generally accepted in the United States of America (“U.S. GAAP”). In addition, the amendments eliminate the requirements for development stage entities to: (i) present inception-to-date information in the statements of income, cash flows, and shareholder equity; (ii) label the financial statements as those of a development stage entity; (iii) disclose a description of the development stage activities in which the entity is engaged; and (iv) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. The presentation and disclosure requirements in ASC Topic 915, "Development Stage Entities" are no longer required for interim and annual reporting periods beginning after December 15, 2014. The revised consolidation standards will take effect in annual periods beginning after December 15, 2015, however, early adoption is permitted. The Company has elected to early adopt the provisions of ASU 2014-10 for these unaudited condensed consolidated financial statements.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the SEC, did not, or are not believed by management to, have a material impact on the Company's present or future financial position, results of operations or cash flows.
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Note 2.
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Property, Plant, Equipment, Mine Development and Land, Net
|
|
September 30, 2014
|
December 31, 2013
|
|||||||
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(Unaudited)
|
||||||||
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Land
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$ | 19,590 | $ | 19,590 | ||||
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Mining concessions:
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||||||||
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Pilar (a)
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710,172 | 710,172 | ||||||
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Don Roman (See Note 6)
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521,739 | 521,739 | ||||||
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Las Nuvias
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100,000 | 100,000 | ||||||
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Centenario
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635,571 | 635,571 | ||||||
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La Palma
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80,000 | 80,000 | ||||||
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La Verde
|
60,000 | 60,000 | ||||||
|
Dixie Mining District
|
650,000 | 650,000 | ||||||
|
Picacho Groupings
|
1,571,093 | 1,571,093 | ||||||
|
Mining concessions
|
4,328,575 | 4,328,575 | ||||||
|
Property, plant and equipment
|
3,825,317 | 4,142,245 | ||||||
| 8,173,482 | 8,490,410 | |||||||
|
Less – accumulated depreciation
|
(1,260,354 | ) | (1,145,991 | ) | ||||
| $ | 6,913,128 | $ | 7,344,419 | |||||
Pilar, Don Roman, Las Nuvias, Centenario, La Palma and La Verde properties are located in Mexico and are known as the Don Roman Groupings.
The Picacho and Picacho Fractions are located in Mexico and are known as the Picacho Groupings.
The Dixie Mining District is located in Idaho.
|
|
a.
|
In January 2007, the Company acquired the Pilar de Mocoribo Prospect (“Pilar”) from Tara Gold for $739,130 plus $115,737 of value-added tax (as amended). The Company owes $535,659 for this mining concession (including the applicable value-added tax).
|
In accordance with the Interest Topic of FASB ASC, the future payments of the total payment amount of $739,130 have been discounted using the incremental borrowing rate of 5.01%. As of September 30, 2014, the present value of future payments is as follows:
|
Debt
|
IVA
|
Total
|
||||||||||
|
Total remaining debt
|
$ | 486,739 | $ | 77,878 | $ | 564,617 | ||||||
|
Imputed interest
|
(28,958 | ) | - | (28,958 | ) | |||||||
|
Present value of debt
|
$ | 457,781 | $ | 77,878 | $ | 535,659 | ||||||
|
Note 3.
|
Note receivable, current
|
In July 2014, the Company entered into a note receivable with a third party in the agriculture business segment, where the Company funded a total of $500,000 over 5 separate fundings July – August 2014. The note bears stated interest of 20% per annum (360 day year). The maturity date of the loan is the earlier of (a) 60th day next following the Company’s funding of such loan or (b) the date of payment by the party other than the Borrower of the amount due pursuant to a sale transaction in respect of underlying product purchased by the Borrower through use of the proceeds of such loan. The Company verbally extended the maturity date to December 31, 2014 without additional penalty, but will continue to accrue interest accruing in accordance with the stated interest above. Interest accrued as of September 30, 2014 was $16,860.
Additionally, the note receivable includes a loan fee amount of 8% of the gross amount of each sale transaction pursuant to product purchased by the Borrower. Loan fees accrued as of September 30, 2014 were $20,010.
|
Note 4.
|
Intellectual Property Purchase Agreement
|
On May 28, 2014 the Company entered into an agreement with FreshTec, Inc. which provides for the Company to acquire technology which can be used for the preservation and protection of fresh fruit, vegetables and flowers during extended periods of shipping and storage. The technology is comprised of patents, trademarks and other intellectual property pertaining to systems and methods for packaging bulk quantities of fresh produce and flowers incorporating modified atmosphere packaging.
The technology, currently named SmartPac, will be made available to growers, packers and end-users for the packing, storage and shipment of bulk quantities of produce.
The purchase price for the SmartPac technology is allocated among the following territories:
|
|
·
|
United States, Mexico and Canada
|
|
|
·
|
European Union
|
|
|
·
|
All other countries
|
In addition to the terms described below to acquire the territories, the agreement provided a stock option to FreshTec, Inc. for 1,000,000 shares of the Company’s common stock, which vest immediately and have a term of 1 year.
The value of the intellectual property purchased follows the guidance as prescribed by both the Intangibles and Business Combinations Topics of the FASB ASC which focuses on capturing the transactional costs of an asset acquisition. As such we have valued the intellectual property based on the hard costs and stock option value of the contract plus legal fees directly related to the purchase. Excluded from the valuation are items that are solely dependent on selling units of the SmartPac product. Such payments are only payable should a unit be sold.
|
|
A.
|
To acquire the rights for the United States, Mexico and Canada, the Company has paid or must pay FreshTec:
|
|
|
(i)
|
$500,000 at closing (paid June 2014)
|
|
|
(ii)
|
$0.25 for each SmartPac unit sold in the United States or Mexico by the Company plus 50% of the Net Royalties received by the Company from licensing the rights to use the technology in the United States, Mexico and Canada until such time as FreshTec is paid $14,500,000,
|
|
|
(iii)
|
during the six month period following the closing of the transaction, and until the Company has paid FreshTec $1,000,000, 25% of the Net Royalties received by the Company from any licensee having the right to sell SmartPac units in the United States, Mexico or Canada, and
|
|
|
(iv)
|
after the royalties paid to FreshTec equal $14,500,000, $0.15 for each SmartPac unit sold by the Company in the United States, Mexico or Canada plus 25% of the Net Royalties received by the Company from licensing the rights to use the technology in the United States, Mexico and Canada.
|
On prior to the end of the fifteen-year period commencing on the closing date of the transaction, if the Company has not paid FreshTec royalties of $14,500,000, the Company may, at its option, either pay to FreshTec the difference between $14,500,000 and the royalties paid to FreshTec, or re-convey to FreshTec the rights for the United States, Mexico and Canada.
|
|
B.
|
To acquire the rights to countries in the European Union the Company must pay to FreshTec:
|
|
|
(i)
|
no later than six months after the closing of the transaction, $1,000,000, less any amounts paid pursuant to A. (iii) above and B. (ii) and (iii) below, or re-convey to FreshTec the rights for the European Union,
|
|
|
(ii)
|
$0.25 for each SmartPac unit sold in the European Union by the Company plus 50% of the Net Royalties received by the Company from licensing the rights to use the technology in the European Union until such time as FreshTec is paid $14,000,000, and
|
|
|
(iii)
|
after the royalties paid to FreshTec equal $14,000,000, $0.15 for each SmartPac unit sold by the Company in the European Union plus 25% of the Net Royalties received by the Company from licensing the rights to use the technology in the European Union.
|
If the Company exercises its right to re-convey the technology pursuant to B. (i) above, FreshTec is required to pay to the Company any amounts spent by the Company on maintaining or pursuing any patents pertaining to the countries in the European Union and refund to the Company any amounts paid to FreshTec pursuant to A (iii).
|
|
C.
|
To acquire the rights to all other countries the Company must pay FreshTec:
|
|
|
(i)
|
no later than eighteen months after the closing of the transaction, $1,000,000, less any amounts paid pursuant to C. (ii) and (iii) below, or re-convey to FreshTec the rights for the other countries,
|
|
|
(ii)
|
$0.25 for each SmartPac unit sold in the other countries by the Company plus 50% of the Net Royalties received by the Company from licensing the rights to use the technology in the other countries until such time as FreshTec is paid $9,000,000, and
|
|
|
(iii)
|
after the royalties paid to FreshTec equal $9,000,000, $0.15 for each SmartPac unit sold by the Company in the other countries plus 25% of the Net Royalties received by the Company from licensing the rights to use the technology in the other countries.
|
If the Company exercises its right to re-convey the technology pursuant to C. (i) above, FreshTec is required to pay to the Company any amounts spent by the Company on maintaining or pursuing any patents pertaining to the other countries.
When the last patent pertaining to the SmartPac technology expires, the royalty payable to FreshTec will be reduced to $0.075 for each SmartPac unit sold and the Company will no longer be obligated to pay FreshTec any Net Royalties.
For purpose of the agreement:
The term “Net Royalties” means amounts collected from licensing the SmartPac technology to third parties, less (i) costs and expenses incurred in connection with the licensing transaction; (ii) amounts refunded to a licensee; (iii) sale and other excise taxes, use taxes, tariffs, export license fees and duties; and (iv) commissions paid in connection with the licensing transaction. Net Royalties do not include any amount received for sales of SmartPac units by any licensee.
|
Note 5.
|
Notes Payable and Convertible Notes Payable, Net
|
The following table represents the outstanding balance of notes payable and convertible notes payable.
|
September 30, 2014
|
December 31, 2013
|
|||||||
|
(Unaudited)
|
||||||||
|
Auto loans
|
$ | 41,964 | $ | 66,619 | ||||
|
Notes payable
|
320,450 | - | ||||||
|
Convertible notes payable, net
|
260,000 | 75,652 | ||||||
|
FreshTec required payments (See Note 4)
|
1,968,000 | - | ||||||
| 2,590,414 | 142,271 | |||||||
|
Less – current portion
|
(1,094,785 | ) | (38,614 | ) | ||||
|
Less – current portion convertible notes payable, net
|
(260,000 | ) | (75,652 | ) | ||||
|
Total – non-current portion
|
$ | 1,235,629 | $ | 28,005 | ||||
During the nine months ended September 30, 2014 the Company converted balances with two vendors to notes payable in the amount of $80,000 and recognized a gain on debt extinguishment in the amount of $5,000. The balance as of September 30, 2014 is $45,700 and is still outstanding. Additionally, the Company entered into a promissory note with a former employee for accrued payroll resulting in an immediate payment of $31,250 and payments of $6,250 for 18 months and payments of $9,015 for the remaining 18 months.
During the year ended December 31, 2013 the Company raised $150,000 through the sale of a convertible note. The note was due in February 2014, extended to July 2014 and again extended until July 2015; bears interest of 16% per year and can be converted to the Company’s stock at $0.10 per share. The beneficial conversion feature of the note payable was determined to be $120,000 of which $120,000 was amortized as of September 30, 2014. Interest expense related to the convertible note was $20,000 as of September 30, 2014.
During the nine months ended September 30, 2014 the Company raised $60,000 through the sale of a convertible note. The note was due in May 2014, extended to July 2014 and again extended until July 2015, and can be converted to the Company’s stock at $0.10 per share. The beneficial conversion feature of the note payable was determined to be $60,000 of which $60,000 was amortized as of September 30, 2014. Interest expense related to the convertible note was $8,000 as of September 30, 2014.
During the nine months ended September 30, 2014 the Company raised $50,000 through the sale of a convertible note. The note was due in July 2014 but extended to July 2015, and can be converted to the Company’s stock at $0.10 per share. The beneficial conversion feature of the note payable was determined to be $34,850 of which $34,850 was amortized as of September 30, 2014. Interest expense related to the convertible note was $6,000 as of September 30, 2014.
The five year maturity schedule for notes payable and convertible notes payable, net is presented below for the year’s ending September 30, (unaudited):
|
2015
|
2016
|
2017
|
2018
|
2019
|
Total
|
|||||||||||||||||||
|
Auto loans
|
$
|
24,835
|
$
|
5,836
|
$
|
6,062
|
$
|
5,231
|
$
|
-
|
$
|
41,964
|
||||||||||||
|
Note payables
|
101,950
|
218,500
|
-
|
-
|
-
|
320,450
|
||||||||||||||||||
|
Convertible note payable, net
|
260,000
|
-
|
-
|
-
|
-
|
260,000
|
||||||||||||||||||
|
FreshTec required payments (See
Note 4)
|
968,000
|
-
|
1,000,000
|
-
|
-
|
1,968,000
|
||||||||||||||||||
|
Total
|
$
|
1,354,785
|
$
|
224,336
|
$
|
1,006,062
|
$
|
5,231
|
$
|
-
|
$
|
2,590,414
|
||||||||||||
|
Note 6.
|
Related Party Transactions
|
|
September 30, 2014
|
December 31, 2013
|
||||||||
|
(Unaudited)
|
|||||||||
|
Due from related parties
|
$ | 116,164 | $ | 221,592 | |||||
|
Due to related parties
|
(1,425,343 | ) | (1,739,207 | ) | |||||
| $ | (1,309,179 | ) | $ | (1,517,615 | ) | ||||
All transactions with related parties have occurred in the normal course of operations. Mexico based related party transactions are measured at the appropriate foreign exchange amount.
In January 2007, Corporacion Amermin S.A. de C.V. (“Amermin”), a subsidiary of Tara Gold, made the arrangements to purchase Pilar, Don Roman and Las Nuvias properties listed in Note 2 (part of the Don Roman Groupings) and sold the concessions to AMM. At September 30, 2014, Amermin has paid the original note holder in full and AMM owes Amermin $535,659 for the Pilar mining concession and $211,826 for the Don Roman mining concession.
As of September 30, 2014, Tara Gold had loaned AMM $1,016,506 at 0% interest, due on demand.
As of September 30, 2014, Tara Gold owed the Company a total of $338,648 at 0% interest, due on demand.
The following are intercompany transactions that eliminate during the consolidation of these financial statements:
During 2012, the Company issued Adit six promissory notes for $4,286,663. During 2013, the Company issued Adit one promissory note for $610,000. These notes are unsecured, bear interest at U.S. prime rate plus 3.25% per year and are due and payable between December 2014 and October 2015. As of September 30, 2014, the Company owed Adit $5,571,810 in interest and principal.
|
Note 7.
|
Stockholders’ Equity
|
During the year ended December 31, 2013, the Company received mine safety services and trainings valued at $47,466 paid with 213,047 shares of the Company’s common stock valued at $0.22 per share. These shares were issued in June 2014.
In May 2014, the Company sold 5,000,000 units in a private offering for $750,000 in cash, or $0.15 per unit. Each unit consisted of one share of the Company’s common stock and one warrant. Two warrants entitle the holder to purchase one share of common stock at a price of $0.35 per share at any time on or before May 1, 2016.
During May 2014 through September 2014, the Company sold 7,737,015 shares in a private offering for $2,321,106 in cash, or $0.30 per share. These shares were issued in September 2014.
|
Note 8.
|
Options
|
The Company has the following incentive plans which are registered under a Form S-8:
· Incentive Stock Option Plan
· Nonqualified Stock Option Plan
· Stock Bonus Plan
On October 28, 2009, Adit adopted the following incentive plans which have not been registered:
· Incentive Stock Option Plan
· Nonqualified Stock Option Plan
· Stock Bonus Plan
There have been no issuances under the Adit plans in 2014.
On May 28, 2014 the Company entered into an agreement with FreshTec, Inc. which provides for the Company to acquire technology which can be used for the preservation and protection of fresh fruit, vegetables and flowers during extended periods of shipping and storage. As part of the terms of the agreement, the Company provided stock options to FreshTec, Inc. for 1,000,000 shares of the Company’s common stock at an exercise price of $0.30 per share, which vest immediate and have a term of 1 year. The stock options were valued at $186,640 using the Black-Scholes option pricing model.
On August 1, 2014, the Company granted 1,400,000 options to an officer for compensation for work performed. The options immediately vested, have an exercise price of $0.05 and expire December 31, 2017. The stock options were valued at $346,286 using the Black-Scholes option pricing model.
The fair value of each award discussed above is estimated on the date of grant using the Black-Scholes valuation model that uses the assumptions noted in the following table. Expected volatilities are based on volatilities from the Company’s traded common stock. The expected term of the award granted is usually estimated at half of the contractual term as noted in the individual agreements, unless the life is one year or less based upon management’s assessment of known factors, and represents the period of time that management anticipates awards granted to be outstanding. The risk-free rate for the periods within the contractual life of the option is based on the U.S. Treasury bond rate in effect at the time of the grant for bonds with maturity dates at the estimated term of the options. Historically the Company has had no forfeitures of options or warrants; therefore, the Company uses a zero forfeiture rate.
|
September 30, 2014
|
December 31, 2013
|
|||||
|
Expected volatility
|
278.03%
|
218.84%
|
||||
|
Weighted-average volatility
|
278.03%
|
218.84%
|
||||
|
Expected dividends
|
0
|
0
|
||||
|
Expected term (in years)
|
1.57
|
2.00
|
||||
|
Risk-free rate
|
0.77%
|
0.22%
|
||||
A summary of option activity as of September 30, 2014 and changes during the period then ended is presented below:
|
Vested Options
|
Shares Issuable
Upon Exercise of
Options
|
Weighted-Average
Exercise Price
|
Weighted-Average
Remaining
Contractual Term
|
Aggregate
Intrinsic
Value
|
||||||||||||
|
Outstanding at December 31, 2013
|
2,750,000
|
$
|
0.24
|
|||||||||||||
|
Granted
|
2,400,000
|
0.18
|
||||||||||||||
|
Exercised
|
-
|
-
|
||||||||||||||
|
Forfeited, expired or cancelled
|
-
|
-
|
||||||||||||||
|
Outstanding at September 30, 2014
|
5,150,000
|
$
|
0.23
|
1.5
|
$
|
504,000
|
||||||||||
|
Exercisable at September 30, 2014
|
4,990,000
|
$
|
0.22
|
1.5
|
$
|
504,000
|
||||||||||
|
Non-vested Options
|
Options
|
Weighted-Average
Grant-Date Fair Value
|
||||||
|
Non-vested at December 31, 2013
|
410,000
|
$
|
0.48
|
|||||
|
Granted
|
2,400,000
|
0.18
|
||||||
|
Vested
|
(2,650,000
|
)
|
(0.11
|
)
|
||||
|
Forfeited, expired or cancelled
|
-
|
-
|
||||||
|
Non-vested at September 30, 2014
|
160,000
|
$
|
0.18
|
|||||
A summary of warrant activity as of September 30, 2014 (unaudited) and changes during the period then ended is presented below:
|
Warrants
|
Shares
|
Weighted-Average
Exercise Price
|
Weighted-Average Remaining
Contractual Term
|
Aggregate
Intrinsic Value
|
||||||||||
|
Outstanding at December 31, 2013
|
-
|
$
|
-
|
|||||||||||
|
Granted
|
5,000,000
|
0.35
|
||||||||||||
|
Exercised
|
-
|
-
|
||||||||||||
|
Forfeited, cancelled or expired
|
-
|
-
|
||||||||||||
|
Outstanding at September 30, 2014
|
5,000,000
|
$
|
0.35
|
1.75
|
$
|
-
|
||||||||
|
Exercisable at September 30, 2014
|
5,000,000
|
$
|
0.35
|
1.75
|
$
|
-
|
||||||||
All warrants vest upon issuance.
|
Note 9.
|
Non-controlling Interest
|
All non-controlling interest of the Company is a result of the Company’s subsidiaries’ stock movement and results of operations. Cumulative results of these activities results in:
|
September 30, 2014
|
December 31, 2013
|
|||||||
|
(Unaudited)
|
||||||||
|
Common stock for cash
|
$ | 1,999,501 | $ | 1,999,501 | ||||
|
Common stock for services
|
95,215 | 95,215 | ||||||
|
Exploration expenses paid for in subsidiary common stock
|
240,000 | 240,000 | ||||||
|
Stock based compensation
|
1,374,880 | 1,374,880 | ||||||
|
Cumulative net loss attributable to non-controlling interest
|
(25,772 | ) | (15,815 | ) | ||||
|
Treasury stock
|
(500,000 | ) | (500,000 | ) | ||||
|
Other
|
6 | 6 | ||||||
|
Total non-controlling interest
|
$ | 3,183,830 | $ | 3,193,787 | ||||
A summary of activity as of September 30, 2014 (unaudited) and changes during the period then ended is presented below:
|
Non-controlling interest at December 31, 2013
|
$ | 3,193,787 | ||
|
Net income attributable to non-controlling interest
|
(9,957 | ) | ||
|
Non-controlling interest at September 30, 2014
|
$ | 3,183,830 |
|
Note 10.
|
Fair Value
|
In accordance with authoritative guidance, the table below sets forth the Company's financial assets and liabilities measured at fair value by level within the fair value hierarchy. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
|
Fair Value at September 30, 2014
(Unaudited)
|
||||||||||||||||
|
Total
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
|
Assets:
|
||||||||||||||||
|
Intellectual property
|
$
|
2,745,229
|
$
|
-
|
$
|
-
|
$
|
2,745,229
|
||||||||
|
Liabilities:
|
||||||||||||||||
|
None
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||
|
Fair Value at December 31, 2013
|
||||||||||||||||
|
Total
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
|
Assets:
|
||||||||||||||||
|
Fair market value of ACM’s net identifiable assets acquired
|
$
|
1,589,000
|
$
|
-
|
$
|
-
|
$
|
1,589,000
|
||||||||
|
Liabilities:
|
||||||||||||||||
|
Beneficial conversion feature of note (See Note 5)
|
$
|
74,348
|
$
|
74,348
|
$
|
-
|
$
|
-
|
||||||||
|
Note 11.
|
Segment Reporting
|
The Company’s operating segments are strategic business units that offer different products and services. For the nine months ended September 30, 2014, operating segments of the Company are mining and agriculture. The mining segment consists of gold and industrial metal mining concessions in Mexico and the United States and the agriculture segment consists of the Company’s intellectual property related to the “SmartPac” product. The agriculture segment became a reportable entity as of June 30, 2014 and was not in existence as of September 30, 2013.
|
September 30, 2014 (unaudited)
|
Agriculture
|
Mining
|
||||||
|
Gross profit from external customers
|
$ | - | $ | 105,316 | ||||
|
Exploration expenses
|
- | (490,271 | ) | |||||
|
Operating, general, and administrative expenses
|
(79,063 | ) | (622,888 | ) | ||||
|
Compensation expense
|
- | (150,478 | ) | |||||
|
Selling expense
|
(12,000 | ) | - | |||||
|
Depreciation and amortization
|
(4,961 | ) | (211,293 | ) | ||||
|
Segment operating income (loss) before taxes and discontinued operations
|
$ | (96,024 | ) | $ | (1,369,614 | ) | ||
|
Revenues
|
September 30, 2014
(unaudited)
|
|||
|
Total revenues from reportable segments
|
$ | 105,316 | ||
|
Total other revenues
|
- | |||
|
Total corporate revenues
|
- | |||
|
Elimination of intercompany corporate revenues
|
- | |||
|
Total consolidated revenues
|
$ | 105,316 | ||
|
Profit or Loss
|
||||
|
Total loss from reportable segments
|
$ | (1,465,638 | ) | |
|
Other profit
|
44,596 | |||
|
Elimination of intercompany expense
|
- | |||
|
Unallocated amounts:
|
||||
|
Elimination of intercompany corporate revenues
|
- | |||
|
Corporate expenses
|
(1,240,606 | ) | ||
|
Loss on discontinued operations
|
- | |||
|
Non-controlling interest
|
9,957 | |||
|
Net loss before taxes
|
$ | (2,651,691 | ) | |
|
Assets
|
||||
|
Total assets for agriculture segment
|
$ | 3,282,100 | ||
|
Total assets for mining segment
|
7,185,508 | |||
|
Corporate assets
|
772,288 | |||
|
Other unallocated amounts
|
- | |||
|
Consolidated total
|
$ | 11,239,896 | ||
|
Liabilities
|
||||
|
Accounts payable and accrued expenses agriculture segment
|
$ | 29,990 | ||
|
Accounts payable and accrued expenses mining segment
|
2,024,641 | |||
|
Notes payable agriculture segment
|
1,968,000 | |||
|
Notes payable mining segment
|
362,414 | |||
|
Corporate accounts payable and accrued expense
|
874,320 | |||
|
Corporate notes payable
|
260,000 | |||
|
Consolidated total
|
$ | 5,519,365 | ||
The Company was incorporated on May 12, 2006 as Tara Minerals Corp. On June 3, 2014 the Company amended its Articles of Incorporation changing its name from Tara Minerals Corp. to Firma Holdings Corp.
Beginning in the second quarter of 2014 the Company has two operational business segments: mining and agriculture. As of September 30, 2014 the agricultural segment was in the planning stage with minimal activity, while the mining segment accounts for the majority of the Company’s results of operations in the accompanying financial statements and in the discussion below.
RESULTS OF OPERATIONS
Material changes of certain items in the Company’s Statement of Operations for the three months ended September 30, 2014, as compared to the three months ended September 30, 2013, are discussed below.
|
Three Months Ended
|
September 30, 2014
|
September 30, 2013
|
||||||
|
(In thousands of U.S. Dollars)
|
||||||||
|
Revenue
|
$ | - | $ | - | ||||
|
Cost of revenue
|
- | - | ||||||
|
Exploration expenses
|
14 | 663 | ||||||
|
Operating, general and administrative expenses
|
926 | 355 | ||||||
|
Net operating loss
|
$ | (940 | ) | $ | (1,018 | ) | ||
For the three months ended September 30, 2014, the Company kept all mining concessions in dormant or inactive status while working toward further funding options resulting in exploration expenses for routine maintenance and employee costs; compared to the three months ended September 30, 2013, when the Company focused primarily exploring the Dixie Mining District in Idaho. In 2013 exploration expenses included expenses for preproduction activities, geology consulting, assaying, field supplies and other mine expenses.
Material changes of certain items in the Company’s operating, general and administrative expenses for the three months ended September 30, 2014, as compared to the three months ended September 30, 2013, are discussed below.
|
Three Months Ended
|
September 30, 2014
|
September 30, 2013
|
||||||
|
(In thousands of U.S. Dollars)
|
||||||||
|
Investment banking and investor relations expense
|
$ | 22 | $ | 50 | ||||
|
Professional fees
|
136 | (64 | ) | |||||
The Company’s operating, general and administrative expenses includes stock based compensation expense of $346,286 for the three months ended September 30, 2014; no such expense was recognized in the three month period ending September 30, 2013.
The decrease in investment banking and investor relations expense for the three months ended September 30, 2014 was primarily due to limited efforts put into investor relations during this period; compared to the three months ended September 30, 2013 when the Company’s efforts were to obtain financing through equity.
Professional fees for the three months ended September 30, 2014, were flat compared to the same period in the prior year due to cost cuts and cost containment employed in 2013 primarily related to lowering accounting and security fees at the Mexico office, except for a reclassification of legal expenses from the Company to Tara Gold representing the negative value reporting above. Legal services, included within professional fees above, relate to the intellectual property post acquisition in 2014; compared to the three months ended September 30, 2013, which consisted of legal services related to the acquisition of additional acres to be added to the Dixie Mining District.
Material changes of certain items in the Company’s Statement of Operations for the nine months ended September 30, 2014, as compared to the nine months ended September 30, 2013, are discussed below.
|
Nine Months Ended
|
September 30, 2014
|
September 30, 2013
|
||||||
|
(In thousands of U.S. Dollars)
|
||||||||
|
Revenue
|
$ | 105 | $ | - | ||||
|
Cost of revenue
|
- | - | ||||||
|
Exploration expenses
|
490 | 1,217 | ||||||
|
Operating, general and administrative expenses
|
2,117 | 2,143 | ||||||
|
Net operating loss
|
$ | (2,502 | ) | $ | (3,360 | ) | ||
For the nine months ended September 30, 2014, ore from the exploration process at the Dixie Mining District was sold; compared to the nine months ended September 30, 2013, when the Company had no revenues from mining activity at any of its properties.
For the nine months ended September 30, 2014, the Company kept all mining concessions in dormant or inactive status while working toward further funding options resulting in exploration expenses for routine maintenance and employee costs; compared to the nine months ended September 30, 2013, when the Company focused primarily exploring the Dixie Mining District in Idaho. In 2013 exploration expenses included expenses for preproduction activities, geology consulting, assaying, field supplies and other mine expenses.
Material changes of certain items in the Company’s operating, general and administrative expenses for the nine months ended September 30, 2014, as compared to the nine months ended September 30, 2013, are discussed below.
|
Nine Months Ended
|
September 30, 2014
|
September 30, 2013
|
||||||
|
(In thousands of U.S. Dollars)
|
||||||||
|
Investment banking and investor relations expense
|
$ | 48 | $ | 317 | ||||
|
Professional fees
|
422 | 494 | ||||||
|
Other taxes
|
143 | 97 | ||||||
|
Travel expense
|
35 | 82 | ||||||
The Company’s operating, general and administrative expenses includes stock based compensation expense of $405,931 for the nine months ended September 30, 2014 compared to $59,645 for the nine month period ending September 30, 2013.
The decrease in investment banking and investor relations expense for the nine months ended September 30, 2014 was primarily due to limited efforts put into investor relations during this period; compared to the nine months ended September 30, 2013 when the Company’s efforts were to obtain financing through sales of its equity securities.
Professional fees for the nine months ended September 30, 2014, decreased primarily due to lower accounting and security fees at the Mexico office. Legal services in 2014 relate to the intellectual property post acquisition; compared to the nine months ended September 30, 2013, which consisted of legal services related to the acquisition of additional acres to be added to the Dixie Mining District and the settlement agreement reached with Carnegie related to the Champinon mining concession.
LIQUIDITY AND CAPITAL RESOURCES
The following is an explanation of the Company’s material sources and (uses) of cash during the nine months ended September 30, 2014 and 2013:
|
September 30,
2014
|
September 30,
2013
|
|||||||
|
(In thousands of U.S. Dollars)
|
||||||||
|
Net cash used in operating activities
|
$ | (1,694 | ) | $ | (2,739 | ) | ||
|
Acquisition of property, plant, equipment, mine development, land and construction in progress
|
- | (217 | ) | |||||
|
Acquisition of intellectual property
|
(559 | ) | - | |||||
|
Purchase of mining concession including mining deposits
|
- | (650 | ) | |||||
|
Cash from the sale of common stock
|
3,071 | 2,150 | ||||||
|
Proceeds from notes payable
|
110 | - | ||||||
|
Payments towards notes payable
|
(81 | ) | (22 | ) | ||||
|
Change in due to/from related parties, net
|
(208 | ) | (666 | ) | ||||
The Company anticipates that its capital requirements during the twelve months ending September 30, 2015 will be:
|
Exploration and Development – Don Roman Groupings
|
$ | 150,000 | ||
|
Exploration and Development – Picacho Groupings
|
100,000 | |||
|
Property taxes
|
130,000 | |||
|
Agriculture segment
|
1,350,000 | |||
|
General and administrative expenses
|
1,000,000 | |||
|
Total
|
$ | 2,730,000 |
As of September 30, 2014 the Paranormous Trust and Investments Ltd. continues to face challenges, and is unable to follow through on its intended funding. The Company’s mining division, in spite of un-favorable market conditions, continues to protect the assets and to explore options to advance all projects.
As the mining division of the company continues to explore options to advance all projects, the Company took advantage of an opportunity to acquire packaging technology which can be used for the preservation and protection of fresh fruit, vegetables and flowers during extended periods of shipping and storage. The technology, currently named SmartPac, is comprised of patents, trademarks and other intellectual property pertaining to systems and methods for packaging bulk quantities of fresh produce and flowers incorporating modified atmosphere packaging.
With the acquisition, the Company now has two operating divisions – mining and agriculture, which can include fresh produce, horticulture, and food products. Both divisions will focus on generating sustainable revenue.
The agriculture division plans to focus on two areas that offer scalable revenue:
|
|
·
|
The first is from the sale of the SmartPac units. SmartPac packaging cartons will be sold by the Company and licensed partners to growers, packers and end-users for the packing, storage and shipment of bulk quantities of produce and flowers.
|
|
|
·
|
The second is from the sale of food products. In addition to revenue potential, food sales efforts can create opportunities for the Company to demonstrate the SmartPac technology, gives the Company an opportunity to benefit from the system savings available from the use of the SmartPac technology, and results in increased SmartPac unit volumes which will result in lower manufacturing costs.
|
The Company’s agriculture and food division continues to advance towards revenue from sales of SmartPac units, and through participation in the selling of produce and packaged foods.
The Company will need to obtain additional capital if it is unable to generate sufficient cash from its operations or find joint venture partners to fund all or part of its business segments.
As November 12, 2014, the Company is still reviewing the Pirita, Tania and Las Viboras Dos properties for continued inclusion as part of the Company’s mining property portfolio. No payments toward these properties were made in 2014. The Company may decide to terminate the purchase/lease agreements and return the properties. The Company is critically reviewing all properties for joint venture, option or sale opportunities.
The Company does not know of any trends, events or uncertainties that have had, or are reasonably expected to have, a material impact on its sales, revenues or income from continuing operations, or liquidity and capital resources except as disclosed above.
The Company’ future plans will be dependent upon the amount of capital available to the Company, the amount of cash provided by its operations, and the extent to which the Company is able to have joint venture partners pay the costs of exploring and developing its business segments.
The Company does not have any other commitments or arrangements from any person to provide the Company with any additional capital. If additional financing is not available when needed, the Company may continue to operate in its present mode.
Off-Balance Sheet Arrangements
At September 30, 2014, the Company had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on its consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies
The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported assets, liabilities, revenues, and expenses, and the disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience and on various other assumptions we believe to be reasonable under the circumstances. Future events, however, may differ markedly from our current expectations and assumptions. While there are a number of significant accounting policies affecting our consolidated financial statements, we believe the following critical accounting policies involve the most complex, difficult and subjective estimates and judgments.
Recoverable Value-Added Taxes (IVA) and Allowance for Doubtful Accounts
Impuesto al Valor Agregado taxes (IVA) are recoverable value-added taxes charged by the Mexican government on goods sold and services rendered at a rate of 16%. Under certain circumstances, these taxes are recoverable by filing a tax return and as allowed by the Mexican taxing authority.
Each period, receivables are reviewed for collectability. When a receivable has doubtful collectability we allow for the receivable until we are either assured of collection (and reverse the allowance) or assured that a write-off is necessary. Our allowance in association with our receivable from IVA from our Mexico subsidiaries is based on our determination that the Mexican government may not allow the complete refund of these taxes.
Property, Plant, Equipment, Mine Development and Land
Mining concessions and acquisitions, exploration and development costs relating to mineral properties with proven reserves are deferred until the properties are brought into production, at which time they will be amortized on the unit of production method based on estimated recoverable reserves. If it is determined that the deferred costs related to a property are not recoverable over its productive life, those costs will be written down to fair value as a charge to operations in the period in which the determination is made. The amounts at which mineral properties and the related deferred costs are recorded do not necessarily reflect present or future values.
The recoverability of the book value of each property is assessed at least annually for indicators of impairment such as adverse changes to any of the following:
• estimated recoverable ounces of copper, lead, zinc, gold, silver or other precious minerals
• estimated future commodity prices
• estimated expected future operating costs, capital expenditures and reclamation expenditures
A write-down to fair value is recorded when the expected future cash flow is less than the net book value of the property or when events or changes in the property indicate that carrying amounts are not recoverable. The carrying amounts of the Company’s mining properties are reviewed at each balance sheet date to determine whether there is any indication of impairment. If such indication of impairment exists, the asset’s recoverable amount will be reduced to its estimated fair value. As of September 30, 2014 and 2013, respectively, no indications of impairment existed. As of the as November 14, 2014, no events have occurred that would require the write-down of any assets.
Certain mining plant and equipment included in mine development and infrastructure is depreciated on a straight-line basis over their estimated useful lives from 3 – 10 years. Other non-mining assets are recorded at cost and depreciated on a straight-line basis over their estimated useful lives from 3 – 10 years.
Financial and Derivative Instruments
The Company periodically enters into financial instruments. Upon entry, each instrument is reviewed for debt or equity treatment. In the event that the debt or equity treatment is not readily apparent, Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 480-10-S99 is consulted for temporary treatment. Once an event takes place that removes the temporary element the Company appropriately reclassifies the instrument to debt or equity.
The Company periodically assesses its financial and equity instruments to determine if they require derivative accounting. Instruments which may potentially require derivative accounting are conversion features of debt, equity, and common stock equivalents in excess of available authorized common shares, and contracts with variable share settlements. In the event of derivative treatment, the instrument is marketed to market.
Exploration Expenses and Technical Data
Exploration costs not directly associated with proven reserves on our mining concessions are charged to operations as incurred.
Technical data, including engineering reports, maps, assessment reports, exploration samples certificates, surveys, environmental studies and other miscellaneous information, may be purchased for our mining concessions. When purchased for concessions without proven reserves, the cost is considered research and development pertaining to a developing mine and is expensed when incurred.
Reclamation and Remediation Costs (asset retirement obligations)
Reclamation costs are allocated to expense over the life of the related assets and are periodically adjusted to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation and abandonment costs.
Future remediation costs for reprocessing plant and buildings are accrued based on management’s best estimate, at the end of each period, of the undiscounted costs expected to be incurred at a site. Such cost estimates include, where applicable, ongoing remediation, maintenance and monitoring costs. Changes in estimates are reflected in earnings in the period an estimate is revised.
Stock Based Compensation
Stock based compensation is accounted for using the Equity-Based Payments to Non-Employee’s Topic of the FASB ASC, which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. We determine the value of stock issued at the date of grant. We also determine at the date of grant the value of stock at fair market value or the value of services rendered (based on contract or otherwise) whichever is more readily determinable.
Shares issued to employees are expensed upon issuance.
Stock based compensation for employees is accounted for using the Stock Based Compensation Topic of the FASB ASC. We use the fair value method for equity instruments granted to employees and will use the Black-Scholes model for measuring the fair value of options, if issued. The stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods.
Income Taxes
Income taxes are provided for using the asset and liability method of accounting in accordance with the Income Taxes Topic of the FASB ASC. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized by management. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The computation of limitations relating to the amount of such tax assets, and the determination of appropriate valuation allowances relating to the realization of such assets, are inherently complex and require the exercise of judgment. As additional information becomes available, management continually assesses the carrying value of our net deferred tax assets.
Not required.
Francis Richard Biscan, Jr., the Company’s Principal Executive Officer and Lynda R. Keeton-Cardno, the Company’s Principal Financial and Accounting Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934) as of the end of the period covered by this report, and in their opinion the Company’s disclosure controls and procedures are effective.
There were no changes in the Company’s internal controls over financial reporting that occurred during the period that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II
OTHER INFORMATION
On June 12, 2014 a complaint was filed in the Delaware Chancery Court naming FreshTec, its officers, and the Company as Defendants. The complaint, filed by a minority stockholder of FreshTec, sought to enjoin the sale of the FreshTec technology to the Company.
On July 29, 2014 the compliant was dismissed without prejudice as to the Company and the other defendants.
During May 2014 through September 2014, the Company sold 7,737,015 shares in a private offering for $2,321,106 in cash, or $0.30 per share. These shares were issued in September 2014.
The Company relied upon the exemption provided by Section 4(2) of the Securities Act of 1933 with respect to the issuance of the securities mentioned above. The persons who acquired these securities were sophisticated investors and were provided full information regarding the Company’s business and operations. There was no general solicitation in connection with the offer or sale of these securities. The persons who acquired the securities mentioned above acquired them for their own accounts. The certificates representing these securities bear a restricted legend providing that they cannot be sold except pursuant to an effective registration statement or an exemption from registration. No commission or other form of remuneration was given to any person in connection with the sale or issuance of these securities.
None.
Not applicable.
None.
|
Exhibit No.
|
Description of Exhibit
|
|
|
31.1
|
Rule 13a-14(a) Certifications – CEO
|
(1)
|
|
31.2
|
Rule 13a-14(a) Certifications - CFO
|
(1)
|
|
32.1
|
Section 1350 Certifications – CEO
|
(1)
|
|
32.2
|
Section 1350 Certifications – CFO
|
(1)
|
|
101.INS
|
XBRL Instance Document
|
(1)
|
|
101.SCH
|
XBRL Taxonomy Extension Schema Document
|
(1)
|
|
101.CAL
|
XBRL Taxonomy Calculation Linkbase Document
|
(1)
|
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document
|
(1)
|
|
101.LAB
|
XBRL Taxonomy Label Linkbase Document
|
(1)
|
|
101.PRE
|
XBRL Taxonomy Presentation Linkbase Document
|
(1)
|
|
(1)
|
Filed with this report.
|
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.
|
Dated: November 14, 2014
|
By:
|
/s/ Francis Richard Biscan, Jr.
|
|
|
Francis R. Biscan, Jr., President,
|
|||
|
Chief Executive Officer
|
|||
|
Dated: November 14, 2014
|
By:
|
/s/ Lynda R. Keeton-Cardno
|
|
|
Lynda R. Keeton-Cardno, CPA
|
|||
|
Principal Financial and Accounting Officer
|
|||
25