ITEM 1. BUSINESS
Corporate History
We were incorporated in the State of Nevada on August 27, 1998 under the name “Pacific Cart Services Ltd.” Following our incorporation, we pursued opportunities in the business of franchising fast food distributor systems. On March 22, 2002, we changed our name to Maverick Minerals Corporation to reflect our change in focus to holding and developing mineral and resource projects. We are an exploration stage company that has not yet generated or realized any revenues from our business operations. From November 2001 until February 2003, we held a 100% interest in the Silver, Lead, Zinc, Keno Hill mining camp in Yukon, Canada through our then subsidiary, Gretna Capital Corporation. Despite a tenure marked by historic maintenance cost reductions and extensive research into a new hydrometallurgical approach to production and environmental remediation at the mine site, the project endured through a period of low commodity prices. On January 1, 2003 we defaulted on a payment of Cdn$1,050,000 required under an agreement of purchase and sale for the acquisition of an interest in the project. Due to the default, the Company was divested of its claims by its creditors by way of court action which culminated on February 14, 2003.
On April 21, 2003 we closed a transaction with UCO Energy Corporation (“UCO”) to purchase the outstanding equity of UCO. To facilitate the transaction, we issued 3,758,040 common shares in exchange for all the issued and outstanding common shares of UCO. As a result of the transaction, the former shareholders of UCO held approximately 90% of the issued and outstanding common shares of Maverick. A net distribution of $944,889 was recorded in connection with the common stock of Maverick for the acquisition of UCO in respect of the Company’s net liabilities at the acquisition date. UCO was in the business of pursuing opportunities in the coal mining industry. From July 7, 2003 until March 5, 2004, we were engaged in the waste coal recovery business by way of a lease agreement at the Old Ben Mine near Sesser, Illinois. We extracted coal fines from holding ponds with a leased dredge and subsequently dried them in a fines plant and sold the dried product to an electrical utility. The operation was conducted in our wholly owned subsidiary UCO.
Effective March 5, 2004, we were in default of our lease agreement that granted access to the waste coal. Default was a function of equipment malfunction and equipment lease default. Extensive efforts to refinance our coal recovery activities were undertaken post default in an effort to return to production. These efforts proved unsuccessful. In April, 2004 Maverick instituted new management at the annual meeting of its wholly-owned subsidiary, UCO Energy Corp. Subsequent to these events, our subsidiary reached a settlement agreement with the lessor of the coal lands and the lessor of our dredging equipment. The settlement provided for a mutual release between our subsidiary and each lessor independently.
Maverick incorporated a wholly-owned subsidiary, Eskota Energy Corporation, Inc. (“Eskota”) a Texas company, in August, 2005. Eskota entered into an Assignment Agreement with Veneto Exploration LLC of Plano, Texas (“Veneto”) on August 18, 2005 pursuant to which we acquired certain petroleum and natural gas rights and leases, know as the S. Neill Unitized lease (the “Eskota Leases”) comprising a 75%+/- NRI and 100% working interest in approximately 6,000 acres in central Texas approximately 9 miles east of the town of Sweetwater, in exchange for a $1,400,000 note payable. An additional $375,000 cash was paid by the Company for the acquisition of the Eskota Leases.
Eskota was to receive all revenue rightfully owed under the above noted leases. Eskota agreed to contribute not less than $400,000 towards capital improvements on the said lease and equipment during the first twelve months after closing. The parties agreed to negotiate a reasonable covenant to ensure these expenditures were made. A note payable was signed on August 31, 2005 between Eskota and Veneto whereby Eskota promised to pay Veneto $700,000 before August 31, 2006, and $700,000 by May 31, 2007. In light of the above deadlines and the fact that the purchase price was predicated partially on down hole success from the initial re-works, management determined that it was not prudent to proceed with further investment on the property and that settlement discussions should begin with Veneto for a mutual release and return of the property and retirement of the promissory note of $1,400,000 issued by the Company. The effect of the initial failure to increase production from the first two attempts to restore the existing wells was reflected in an asset impairment charge taken by the Company of $419,959 on its fiscal year end financial statement dated December 31, 2005.
In June 2005, the Company cancelled 5,437,932 common shares, under an agreement with certain stockholders, which included the former stockholders of UCO, and two other stockholders including the CEO of the Company. The former stockholders of UCO surrendered the majority of the shares which was approximately 95% of the total common shares that they held at the time. As a result of the share cancellation, one single common stockholder emerged as the majority stockholder with approximately 76% of the total issued and outstanding common shares.
In December 2005, Veneto gave notice to Eskota and Eskota’s customers, to direct any cash payments relating to the Eskota Leases to Veneto directly as a result of non-payment of various payables by Eskota in relation to the Eskota Leases. As a result of this action, all revenues generated from the Eskota Leases were recognized by Veneto, and any expenses and obligations arising from the Eskota Leases after the notice was given, were assumed by Veneto. As a result, Eskota did not recognize revenue or operating expenses from the Eskota Leases during the year ended December 31, 2006.
On December 14, 2009, we entered into a farm-out agreement (the “Farmout Agreement”) with Southeastern Pipe Line Company (“SEPL”) pursuant to which we acquired the right to earn an interest in certain oil and gas mineral leases located in Fort Bend and Wharton Counties, Texas (collectively, the “Leases”) and to the lands covered thereby.
In October, 2010 we engaged a Texas based contractor to commence drill site construction in preparation for the drilling of the Company’s Initial Test Well Fort Bend County, Texas in December, 2010. The construction of location services included widening of an existing 2,000 foot access road and foundational re-enforcement with crushed limestone. In addition, contractors constructed the requisite drilling pad of approximately 1.5 acres in anticipation of rig mobilization. On January 22, 2011 Maverick successfully completed drilling its Initial Test Well to 13,500 on the Company’s 4,513 acre Farm-Out property in Fort Bend County, Texas.
The Initial Test Well was spud on December 9, 2010 and reached its targeted depth of 13,500 feet on day 44 of the drilling program. The Company’s independent log analyst and project engineer concurred at that time that the targeted Wilcox zones were not commercially productive, despite the presence of significant down hole pressure and strong natural gas shows during drilling. The target sands were poorly developed and not suitable for a completion attempt. Accordingly, the decision was made to not set production casing and to look up hole for completion opportunities. The first completion attempt was a potential oil reservoir near 8,000’. The Yegua sand was indicated as potentially productive from open hole log analysis but proved to be non-productive after testing. The second completion attempt was made on a shallow Miocene zone. There had not been an open hole log across this interval but a significant gas show was seen on the mud log while drilling this interval. The zone was perforated and swab tested during the week of March 14-19, 2011 but yielded no significant gas. Maverick’s engineers have completed plugging the Lankford Trust No. 1 pursuant to regulations of the Texas Railway Commission. Concurrent with our entry into the Farmout Agreement, we acquired from a consulting geologist, detailed proprietary geology on the property subject to the Farmout Agreement. The dataset includes seismic and geological interpretations of the underlying geology from historic data. In addition, we obtained access to log data from a well drilled to 12,200 feet in 2003 on the Farm-Out Acreage.
The farm-out agreement allowed us 120 days to complete the Lankford Trust #1 well and 180 days thereafter to commence drilling a new well. Given the results of the Initial Test Well, we made the decision not to commence drilling of a new well. Consequently, the Farm-Out Agreement lapsed. We still hold title to certain unproved oil and gas leases located adjacent to and inside the areas covered by the Farm-Out Agreement and intend to explore opportunities to leverage this investment at a future date.
Recent Corporate Developments
Since the commencement of our fourth quarter ended December 31, 2011, we experienced the following significant corporate developments:
1.
The Company’s farm-out agreement with SEPL allowed us 120 days to complete the Lankford Trust #1 well and 180 days thereafter to commence drilling a new well. Given the results of the Initial Test Well, we made the decision not to commence drilling of a new well. Consequently, the Farm-Out Agreement lapsed during the fourth quarter of 2011. We still hold title to certain unproved oil and gas leases located adjacent to and inside the areas covered by the Farm-Out Agreement and intend to explore opportunities to leverage this investment at a future date.
2.
During the fourth quarter of fiscal 2011 the Company’s management along with an independent geologist spent a significant period of time reviewing two separate metals projects in the State of Utah. The Company entered in to a Non-Disclosure and Non-Circumvention Agreement with the vendor’s agent to receive confidential data on a 6,000 acre consolidated land position in southern Utah with options to expand. The Au-Ag bearing mineralized material was the subject of detailed geological mapping program in 2011 in the Star Mining district in the state of Utah. In November of 2011 the management of Maverick Minerals travelled to Beaver County Utah to tour and inspect the historical workings and to review with the three project geologists from the target company the historical workings, present exploration and future drilling plans. Management is also looking at a further copper-gold property that Maverick management hopes to visit in the same area in the summer months of 2012.
3.
During the past six months management of Maverick has made a significant investment in time on a third gold property in central Utah in anticipation of participating in its exploration and development. Maverick is working closely with a private U.S. corporation which holds a strategic land position south of Salt Lake City within 3 miles of Barrick Gold’s former Mercur Mine. Barrick operated the Mercur mine from 1982- 1996 mining over one-million ounces of gold before reclaiming the open-pit site. Maverick has assisted in the private company adding adjacent land to its existing gold resource (1988 feasibility study) through acquisition and staking. Maverick management has used its experience in land tenure and acquisition to develop the planned exploration of the acquired properties. The Company is in active negotiations to participate in this shallow, near term gold exploration project.
4.
During the first quarter of 2012, we offered to purchase a 30-40 bopd producing property in the prolific Bakken field near Virden, Manitoba. While a formal offer was made for the Virden, Manitoba asset no agreement was ultimately reached and the opportunity is considered to be dormant at this time.
5.
We entered into a Option and Joint Venture Exploration Agreement dated June 8, 2012 (the “Agreement”) with Energold Minerals Inc. (“Energold”). Energold holds a 100% undivided right, title and interest in a group of mining claims situated in Thunder Bay, Ontario, Canada known as the Jarvis Island Property (the “Jarvis Property”). The Island is situated about 35 miles south of Thunder Bay about 5 km from the shore of Lake Superior near to the U.S. border (Minnesota). The property consists of 13.355 hectares and is believed to have mineral potential for the production of barite. Pursuant to the terms of the Agreement Energold granted Maverick the right, in the form of two options, to acquire an aggregate 51% working interest in the Jarvis Property subject to certain conditions, including the issuance of up to 400,000 shares of its common stock and incurring $400,000 in exploration expenditures on or before June 8, 2017.
6.
During our second fiscal quarter, we received two unsecured loans from Energold. The loans mature in November, 2012, bear no interest and are evidenced by two promissory notes in the amount of CDN$72,600 and US$77,400.
Our Current Business
We are currently an exploration stage company engaged in the acquisition, exploration, and development of prospective oil and gas properties and mineral properties.
Exploration and Drilling Activities in Fort Bend County, Texas
During the year ended December 31, 2011, our business focus was to implement the terms of the Farmout Agreement pursuant to which were to earn an interest in certain oil and gas mineral leases located in Fort Bend and Wharton Counties, Texas owned by SEPL. As a result of test results showing that zones drilled and tested were not commercially productive management made the decision not to proceed with subsequent drilling and testing as outlined in the agreement and, consequently, the Farm-Out Agreement lapsed in the fourth quarter of 2011.
During the land title curative process on the SEPL Farm-out acreage the company purchased several infill oil and gas leases in order to acquire a contiguous lease block for drilling purposes. The company will review their strategic importance during the balance of 2012 and make a decision as to their status as development opportunities.
Jarvis Island Option and Joint Venture Exploration Agreement
Maverick entered into a Option and Joint Venture Exploration Agreement dated June 8, 2012 with Energold Minerals Inc. (“Energold”). Energold holds a 100% undivided right, title and interest in a group of mining claims situated in Thunder Bay, Ontario, Canada known as the Jarvis Island Property (the “Jarvis Property”). The Island is situated about 35 miles south of Thunder Bay about 5 km from the shore of Lake Superior near to the U.S. border (Minnesota). The property consists of 13.355 hectares and is believed to have mineral potential for the production of barite.
Pursuant to the terms of the agreement, Energold granted Maverick the right, in the form of two options, to acquire an aggregate 51% working interest in the Jarvis Property subject to certain conditions, including the following:
1.
To exercise the first option and earn a 30% undivided interest in the Jarvis Property, Maverick must: (i) issue to Energold 100,000 shares on or before June 29, 2012 (issued on July 10, 2012); (ii) issue to Energold an additional 100,000 shares on or before September 15, 2013; and (iii) incur a total of $200,000 in exploration expenditures on the Jarvis Property on or before September 15, 2014;
2.
To exercise the second option and earn an additional 21% undivided interest in the Jarvis Property, Maverick must: (i) exercise the first option, (ii) issue to Energold a further 200,000 shares on or before September 15, 2015, and (iii) incur and additional $200,000 in exploration expenditures on the Jarvis Property on or before June 8, 2017;
3.
During the period that both options are outstanding and after the formation of the joint venture (hereinafter defined), Maverick agreed to act as operator of the Jarvis Property in consideration of certain management fees in an amount up to 10% on general exploration expenditures and other fees in an amount up to 5% on drilling or other major contract costs as further set out in the Agreement. Decisions regarding exploration and development of the Jarvis Property are determined by a committee;
4.
If Maverick exercises the first option the parties agreed to participate in a joint venture (the “Joint Venture”) for the purpose of further exploration and development of Jarvis Property where the right to participate and the obligation to fund the Joint Venture will be apportioned 70% ($630,000) to Energold and 30% ($270,000) to Maverick and if Maverick exercises the second option the Joint Venture will be apportioned 51% ($612,000) to Maverick and 49% ($588,000) to Energold; and
5.
If Maverick has acquired a 51% undivided interest in the Jarvis Property as per the Agreement and a feasibility study is completed which demonstrates that the Jarvis Property may be profitably brought into production, then Maverick has the right to elect to commit the necessary financing to place the Jarvis Property into production and thereby earn a 70% interest in the newly initiated mining project.
Pursuant to the terms of the Agreement both options will terminate and Maverick will have no further interest in the Jarvis Property if it does not exercise the first option by September 15, 2013. If Maverick exercises the first option but does not exercise the second option as contemplated in the Agreement then Maverick’s interest in the Jarvis Property will be limited to the 30% undivided interest and any other interests of Maverick provided for under the Agreement. Each party agreed to indemnify the other against any environmental liabilities in connection with any operating activities on the Jarvis Property. There is no assurance that Maverick will exercise the option as planned or at all.
Competition
We are an exploration stage company engaged in the acquisition of a prospective mineral or oil and gas properties. We compete with other natural resource exploration companies for financing and for the acquisition of new mineral properties. Many of the natural resource exploration companies with whom we compete have greater financial and technical resources than those available to us. Accordingly, these competitors may be able to spend greater amounts on acquisitions of mineral properties of merit, on exploration of their mineral properties and on development of their mineral properties. In addition, they may be able to afford more geological expertise in the targeting and exploration of mineral properties. This competition could result in competitors having mineral properties of greater quality and interest to prospective investors who may finance additional exploration and development. This competition could adversely impact on our ability to achieve the financing necessary for us to conduct further exploration of our mineral properties.
We also compete with other junior natural resource exploration companies for financing from a limited number of investors that are prepared to make investments in junior natural resource exploration companies. The presence of competing junior natural resource exploration companies may impact on our ability to raise additional capital in order to fund our exploration programs if investors are of the view that investments in competitors are more attractive based on the merit of the mineral properties under investigation and the price of the investment offered to investors.
We also compete with other junior and senior natural resource exploration companies for available resources, including, but not limited to, professional geologists, camp staff, helicopter or float planes, mineral exploration supplies and drill rigs.
Compliance with Government Regulation
Our business is subject to various federal, state and local laws and governmental regulations that may be changed from time to time in response to economic or political conditions. We are required to comply with the environmental guidelines and regulations established at the local levels for our field activities and access requirements on our permit lands and leases. Any development activities, when determined, will require, but not be limited to, detailed and comprehensive environmental impact assessments studies and approvals of local regulators.
Environmental legislation provides for restrictions and prohibitions on spills, releases or emissions of various substances produced in association with the mining and oil and gas industries which could result in environmental liability. A breach or violation of such legislation may result in the imposition of fines and penalties. In addition, certain types of operations require the submission and approval of environmental impact assessments. Environmental assessments are increasingly imposing higher standards, greater enforcement, fines and penalties for non-compliance. Environmental assessments of proposed projects carry a heightened degree of responsibility for companies, directors and officers. The cost of compliance in respect of environmental regulation has the potential to reduce the profitability of any future revenues that our company may generate.
Employees
We have no employees. We rely on Robert Kinloch, our president, chief executive officer, chief financial officer and our sole director and Donald Kinloch, our secretary and treasurer to fulfill the function of management. We anticipate that we will be conducting most of our business through agreements with consultants and third parties. We do not have any employment agreements with any of our officers or with our sole director.
ITEM 1A.
ITEM 1A. RISK FACTORS
Our common shares are considered speculative. Prospective investors should consider carefully the risk factors set out below.
The Likelihood of Continued Losses from Operations and Ability To Continue As A Going Concern.
The Company has had no revenue from operations and has incurred cumulative losses from inception through December 31, 2011 of $12,045,863. Losses are expected to continue until such time as the Company can economically produce and sell materials from the Jarvis Island Property and/or otherwise commence planned principal operations. Continued losses will require that the Company raise additional funds by equity or debt financing, failing which the Company will not be able to continue operations. Management cannot provide assurances that this will occur.
These circumstances raise substantial doubt about our ability to continue as a going concern, as described in the explanatory paragraph to our independent auditors’ report on our consolidated financial statements for the year ended December 31, 2011. Although our consolidated financial statements raise substantial doubt about our ability to continue as a going concern, they do not reflect any adjustments that might result if we are unable to continue our business.
We have had negative cash flows from operations and if we are not able to obtain further financing, our business operations may fail.
We had negative working capital of $4,079,593 as of December 31, 2011. We do not expect to generate any revenues for the foreseeable future. Accordingly, we will require additional funds, either from equity or debt financing, to maintain our daily operations and to implement our plan of operation. Obtaining additional financing is subject to a number of factors, including market commodities prices, investor acceptance of our interest pursuant to the Jarvis Island Property Agreement, and investor sentiment. Financing, therefore, may not be available on acceptable terms, if at all. The most likely source of future funds presently available to us is through the sale of equity capital. Any sale of share capital, however, will result in dilution to existing shareholders. If we are unable to raise additional funds when required, we may be forced to delay our plan of operation and our entire business may fail.
We have defaulted on loan agreements, and as a result we may face serious liquidity issues and/or our business assets may be seized.
We were required to commence loan repayments on January 1, 2012 pursuant to a loan agreement, however these payments have not been made and the loan has entered into default. This loan is secured by the shares of capital stock of Eskota Energy Corporation, our wholly-owned subsidiary. In addition, subsequent to December 31, 2011, we gave notice to another creditor that a revolving loan had entered into default as a result of the company’s inability to repay the debt. If we are unable to settle these loans, the creditors may commence proceedings as are their rights under the agreements, to seize our assets and our business may fail. If we are able to settle this loan through an equity issuance, this will result in dilution to our existing shareholders.
We currently do not generate revenues, and as a result, we face a high risk of business failure.
In addition to our oil and gas leases in Fort Bend County the only significant interest we can earn in a property we have is pursuant to the Jarvis Island Property Agreement. From the date of our incorporation, we have primarily focused on the location and acquisition of mineral and oil and gas properties. We have not generated any significant revenues to date. In order to generate revenues, we will incur substantial expenses in the evaluation and development of our oil and gas leases and potential mineral interests. We therefore expect to incur significant losses into the foreseeable future. We recognize that if we are unable to generate significant revenues from our activities, our entire business may fail. There is no history upon which to base any assumption as to the likelihood that we will be successful in our plan of operation, and we can provide no assurance to investors that we will generate any operating revenues or achieve profitable operations.
If we are required for any reason to repay all of our outstanding loans or any other indebtedness, we would be required to deplete our working capital, if available, or raise additional funds.
If we are required to repay the loans payable or any other indebtedness for any reason, we would be required raise additional funds. If we are unable to repay the loans or any other indebtedness when required, the lenders could commence legal action against our company and foreclose on all of our assets to recover the amounts due. Any such sale or legal action would require our company to curtail or possibly cease our operations.
Our ability to obtain financing is likely dependent on the price of certain commodities markets remaining at current levels, which, given historical fluctuations, can vary significantly
Financing to implement our plan of operation will depend upon current price levels for certain commodities, including barite and petroleum, being sustained for the foreseeable future. There is no guarantee that prices will remain at the current levels. Commodities prices historically have fluctuated widely and are affected by numerous factors outside of our control including industrial demand, central bank lending, forward sales of producers and speculators, levels of production, short-term changes in supply and demand because of speculative hedging activities, confidence in the global monetary system, expectations of the future rate of inflation, the strength of the U.S. dollar (the currency in which the price of commodities are generally quoted), interest rates and global or regional political or economic events.
Risks and Contingencies Associated with the Mining Industry Generally
In addition to the risks noted above, the Company is subject to all of the risks inherent in the mining industry, including environmental risks, fluctuating metals prices, industrial accidents, labor disputes, unusual or unexpected geologic formations, cave-ins, flooding, earth quakes and periodic interruptions due to inclement weather. These risks could result in damage to, or destruction of, production facilities, personal injury, environmental damage, delays, monetary losses and legal liability. Although the Company can be expected to maintain insurance within ranges of coverage consistent with industry practice, no assurance can be given that such insurance will be available at economically feasible premiums. Insurance against environmental risks (including pollution or other hazards resulting from the disposal of waste products generated from production activities) is not generally available to the Company or other companies in the mining industry. If subjected to environmental liabilities, the costs incurred would reduce funds available for other purposes.
The oil and gas exploration and production industry is historically a cyclical industry and market fluctuations in the prices of oil and gas could adversely affect our business.
Prices for oil and gas tend to fluctuate significantly in response to factors beyond our control. These factors include:
Weather conditions in the United States and wherever our property interests are located;
Economic conditions, including demand for petroleum-based products, in the United States and the rest of the world;
Actions by OPEC, the Organization of Petroleum Exporting Countries;
Political instability in the Middle East and other major oil and gas producing regions;
Governmental regulations, both domestic and foreign; domestic and foreign tax policy;
The pace adopted by foreign governments for the exploration, development, and production of their national reserves;
The price of foreign imports of oil and gas;
The cost of exploring for, producing and delivering oil and gas;
The rate of decline of existing and new oil and gas reserves;
Available pipeline and other oil and gas transportation capacity;
The ability of oil and gas companies to raise capital;
The overall supply and demand for oil and gas; and
The availability of alternate fuel sources.
Changes in commodity prices may significantly affect our capital resources, liquidity and expected operating results. Price changes will directly affect revenues and can indirectly impact expected production by changing the amount of funds available to reinvest in exploration and development activities. Reductions in oil and gas prices not only reduce revenues and profits, but could also reduce the quantities of reserves that are commercially recoverable. Significant declines in prices could result in non-cash charges to earnings due to impairment.
Changes in commodity prices may also significantly affect our ability to estimate the value of producing properties for acquisition and divestiture and often cause disruption in the market for oil and gas producing properties, as buyers and sellers have difficulty agreeing on the value of the properties. Price volatility also makes it difficult to budget for and project the return on acquisitions and the development and exploitation of projects. We expect that commodity prices will continue to fluctuate significantly in the future.
Any change to government regulation/administrative practices may have a negative impact on our ability to operate and our profitability.
The laws, regulations, policies or current administrative practices of any government body, organization or regulatory agency in the United States, Canada, or any other jurisdiction, may be changed, applied or interpreted in a manner which will fundamentally alter the ability of our company to carry on our business. The actions, policies or regulations, or changes thereto, of any government body or regulatory agency, or other special interest groups, may have a detrimental effect on us. Any or all of these situations may have a negative impact on our ability to operate and/or our profitability.
If we are unable to hire and retain key personnel, we may not be able to implement our plan of operation and our business may fail.
Our success will be largely dependent on our ability to hire and retain highly qualified personnel. This is particularly true in the highly technical businesses of mineral and oil and gas exploration. These individuals may be in high demand and we may not be able to attract the staff we need. In addition, we may not be able to afford the high salaries and fees demanded by qualified personnel, or we may fail to retain such employees after they are hired. At present, we have not hired any key personnel. Our failure to hire key personnel when needed will have a significant negative effect on our business.
Because our executive officers do not have formal training specific to mineral and oil and gas exploration, there is a higher risk our business will fail.
While Robert Kinloch, our director and one of our executive officer, has experience managing a mineral exploration company, he does not have formal training as a geologist. Donald Kinloch does not have formal training specific to mineral and gas exploration. Accordingly, our management may not fully appreciate many of the specific requirements related to working within the mining and oil and gas industry. Our management decisions may not take into account standard engineering or managerial approaches commonly used by such companies. Consequently, our operations, earnings, and ultimate financial success could be negatively affected due to our management’s lack of experience in the industry.
Our executive officers have other business interests, and as a result, they may not be willing or able to devote a sufficient amount of time to our business operations, thereby limiting the success of our company.
Robert Kinloch presently spends approximately 60% of his business time and Donald Kinloch presently spends approximately 20% of his business time on business management services for our company. At present, both Robert and Donald Kinloch spend a reasonable amount of time in pursuit of our company’s interests. Due to the time commitments from Robert and Donald Kinloch’s other business interests, however, they may not be able to provide sufficient time to the management of our business in the future and our business may be periodically interrupted or delayed as a result of their other business interests.
Risks Relating to Our Common Stock
If we issue additional shares in the future, it will result in the dilution of our existing shareholders.
Our articles of incorporation authorize the issuance of up to 750,000,000 shares of common stock with a par value of $0.001 per share. Our board of directors may choose to issue some or all of such shares to acquire one or more businesses or to provide additional financing in the future. The issuance of any such shares will reduce the book value and market price of the outstanding shares of our common stock. If we issue any such additional shares, such issuance will reduce the proportionate ownership and voting power of all current shareholders. Further, such issuance may result in a change of control of our corporation.
Our common stock is illiquid and shareholders may be unable to sell their shares.
There is currently a limited market for our common stock and we can provide no assurance to investors that a market will develop. If a market for our common stock does not develop, our shareholders may not be able to re-sell the shares of our common stock that they have purchased and they may lose all of their investment. Public announcements regarding our company, changes in government regulations, conditions in our market segment or changes in earnings estimates by analysts may cause the price of our common shares to fluctuate substantially. In addition, stock prices for junior oil and gas companies fluctuate widely for reasons that may be unrelated to their operating results. These fluctuations may adversely affect the trading price of our common shares.
Penny stock rules will limit the ability of our stockholders to sell their stock.
The Securities and Exchange Commission has adopted regulations which generally define “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the Securities and Exchange Commission which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.
The Financial Industry Regulatory Authority, or FINRA, has adopted sales practice requirements which may also limit a shareholder’s ability to buy and sell our stock.
In addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for its shares.
Because of the early stage of development and the nature of our business, our securities are considered highly speculative.
Our securities must be considered highly speculative, generally because of the nature of our business and the early stage of our development. We are engaged in the business of identifying, acquiring, exploring and developing commercial reserves of oil and gas. Our properties are in the exploration stage only and are without known reserves of oil and gas. Accordingly, we have not generated any revenues nor have we realized a profit from our operations to date and there is little likelihood that we will generate any revenues or realize any profits in the short term. Any profitability in the future from our business will be dependent upon locating and developing economic reserves of oil and gas, which itself is subject to numerous risk factors as set forth herein. Since we have not generated any revenues, we will have to raise additional monies through the sale of our equity securities or debt in order to continue our business operations.
We do not intend to pay dividends on any investment in the shares of stock of our company.
We have never paid any cash dividends and currently do not intend to pay any dividends for the foreseeable future. To the extent that we require additional funding currently not provided for in our financing plan, our funding sources may prohibit the payment of a dividend. Because we do not intend to declare dividends, any gain on an investment in our company will need to come through an increase in the stock’s price. This may never happen and investors may lose all of their investment in our company.
Risks Related to Our Company
Our by-laws contain provisions indemnifying our officers and directors.
Our by-laws provide the indemnification of our directors and officers to the fullest extent legally permissible under the Nevada corporate law against all expenses, liability and loss reasonably incurred or suffered by him in connection with any action, suit or proceeding. Furthermore, our by-laws provide that our board of directors may cause our company to purchase and maintain insurance for our directors and officers, and we have implemented director and officer insurance coverage.
Our by-laws do not contain anti-takeover provisions and thus our management and directors may change if there is a take-over of our company.
We do not currently have a shareholder rights plan or any anti-takeover provisions in our by-laws. Without any anti-takeover provisions, there is no deterrent for a take-over of our company. If there is a take-over of our company, our management and directors may change.
Because our director and officers are residents of other countries other than the United States, investors may find it difficult to enforce, within the United States, any judgments obtained against our director and officers.
Our director and officers are nationals and/or residents of countries other than the United States, and all or a substantial portion of such persons’ assets are located outside the United States. As a result, it may be difficult for investors to enforce within the United States any judgments obtained against our officers or director, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof.
ITEM 2.
ITEM 2. PROPERTIES.
Executive Offices
Our principal business offices are located at Suite 700 - 220 Bay Street, Toronto, Ontario M5J 2W4. These premises are leased at a cost of $500 per month. Our offices consist of approximately 300 square feet. The lease agreement is on a month to month basis. We believe that our current lease arrangements provide adequate space for our foreseeable future needs.
Acquisition of East Bernard Prospect Properties
During the land title curative process on the SEPL Farm-out acreage the company purchased several infill oil and gas leases in order to acquire a contiguous lease block for drilling purposes in Fort Bend County, Texas. The company will review their strategic importance during the balance of 2012 and make a decision as to their status as development opportunities by year-end.
Jarvis Island Property Location and History
History
In June 1927 the property was sold to Sudbury Basin Mines, a company controlled by Thayer Lindsley (three quarters acquired from Donald Hogarth and one quarter interest from A.J. McComber.) On June 1, 1943 the property was transferred from Sudbury Basin Mines Limited to Ventures Claims Limited. On the 16th of April, 1956 the property was further transferred from Ventures Claims Limited to Pan American Ventures Limited. In 1960 the property was transferred by Ventures Claims Limited to Westfield Minerals Limited (registered 28th of September, 1960).
Location
The property is described as Jarvis Island, Municipality of Neebing, (Property Identifier 58-01-040-007-31100-0000) in the District of Thunder Bay, in the Province of Ontario, Land Titles Division, Thunder Bay. The property is described as being in the District of Thunder Bay, in the Province of Ontario and being more particularly described as Jarvis Island, lying in front of, and being part of, the location known as Jarvis Location, patented on September 9, 1856. Therefore Jarvis Island is part of Jarvis Location. The Island is situated about 35 miles south of Thunder Bay about 5 km from the shore of Lake Superior near to the U.S. border (Minnesota). The property is described as having 13.355 hectares or 33 acres and is described as being of rocky terrain.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
We know of no material, active, or pending legal proceeding against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation where such claim or action involves damages for more than 10% of our current assets. There are no proceedings in which any of Maverick’s directors, officers, or affiliates, or any registered or beneficial shareholders, is an adverse party or has a material interest adverse to our company’s interest.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURES.
Not Applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market for Securities
Our common shares were quoted for trading on the OTC Bulletin Board on June 21, 1999 under the symbol “PFCS”. On February 15, 2002 our symbol changed to “MAVM” and on May 22, 2003 our symbol changed to “MVRM”. On August 29, 2006, our stock was delisted from the OTC Bulletin Board and on August 31, 2006, it commenced trading on the Pink Sheets LLC under the symbol “MVRM”. On July 7, 2009 our shares of common stock were quoted for trading on the OTC Bulletin Board under the symbol “MVRM” and on December 31, 2009 our symbol changed to “MVRMD”. On February 23, 2011 our securities were quoted exclusively on the OTC Markets Group Inc. under the symbol “MVRM”.
The following quotations obtained from the OTC Markets Group Inc. reflect the high and low bids for our common stock based on inter-dealer prices, without retail mark-up or mark-down or commission and may not represent actual transactions.
The high and low bid prices of our common stock for the periods indicated below are as follows:
Pacific Stock Transfer Company, of 4045 South Spencer Street, Suite 403 Las Vegas, NV 89119 (telephone: 702.361.3033; facsimile 702.433.1979) is the registrar and transfer agent for our shares of common stock.
Holders of our Common Stock
As of July 25, 2012, we have 149 registered stockholders and 12,252,671 shares issued and outstanding.
Dividend Policy
We have not paid any cash dividends on our common stock and have no present intention of paying any dividends on the shares of our common stock. Our future dividend policy will be determined from time to time by our board of directors.
Recent Sales of Unregistered Securities
Other than as disclosed in the Company’s periodic reports the Company did not sell any equity securities during the period covered by this annual report that were not registered under the Securities Act of 1933.
Securities Authorized for Issuance under Equity Compensation Plans or Individual Compensation Arrangements
On June 1, 2009, our board of directors adopted our 2009 Stock Option Plan. The purpose of our 2009 stock option plan is to retain the services of valued key officers and consultants of our company. Under the plan, the plan administrator is authorized to grant stock options to acquire up to a total of up to 7,500,000 shares of our common stock. On July 31, 2009 we filed a consent solicitation on Schedule 14A to seek stockholder approval of our 2009 Stock Option Plan. On August 3, 2009 we received majority stockholder consent approving our 2009 stock option plan. In August, 2009 we granted an aggregate of 145,000 options to acquire shares of our common stock at an exercise price of $0.40 per share to certain of our officers and consultants under the 2009 option plan. In September, 2010 we granted an aggregate of 1,100,000 options to acquire shares of our common stock at an exercise price of $1.05 per share exercisable until August 20, 2015 to certain of our directors and officers under the 2009 option plan. On January 13, 2011 we granted options to acquire an aggregate of 50,000 shares of our common stock at an exercise price of $1.50 per share exercisable until January 13, 2013 to two consultants under the 2009 option plan.
The following table provides a summary of the number of stock options granted under the 2009 Plan, the weighted average exercise price and the number of stock options remaining available for issuance under the Company’s option plans as at December 31, 2011:
Purchase of Equity Securities by the Issuer and Affiliated Purchasers
We did not purchase any of our shares of common stock or other securities during the year ended December 31, 2011.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
Not Applicable.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion should be read in conjunction with our audited financial statements and the related notes that appear elsewhere in this annual report. 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 such differences include those discussed below and elsewhere in this annual report.
Our audited consolidated financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles.
Plan of Operation
We are currently an exploration stage company engaged in the acquisition, exploration, and development of prospective oil and gas and mineral properties. The Company is reviewing a small number of new opportunities for oil and gas exploration and development in Texas, some of which have production components as well as development opportunities. The Company believes that it is feasible to contemplate, based on discussions with interested parties, a stock predicated acquisition based on the strong capital structure that was implemented by the Company in 2010. Management will review these opportunities diligently; however, no guarantee can be given that any transaction as outlined herein will occur in the time frame covered by this Plan of Operation.
Finally, the Company has a history of acquiring mineral properties outside of the oil and gas arena including silver and coal properties previously owned and produced by the Company. At a time of strong commodity markets for these and other metals and minerals, the Company will not hesitate to exploit any opportunity to utilize its experience gained over the past decade to enter into an agreement for the acquisition and development of a metal or minerals property.
Our estimated expenses over the next twelve months are as follows:
Cash Requirements during the Next Twelve Months
Expense
($)
Cost to meet Joint Venture Requirements
100,000
Consulting Expenses
20,000
Professional Fees
70,000
General and Administrative expenses
140,000
Total
310,000
To date we have funded our operations primarily with loans from shareholders. In addition to funding our general, administrative and corporate expenses we are obligated to address certain current liabilities. We will need to raise additional funds to meet these current liabilities. To raise these funds we may be required to increase shareholder loans, incur new borrowings or issue new equity which may be dilutive to existing shareholders. Other than our loan agreements with Senergy Partners LLC and Art Brokerage, Inc., we currently have no agreement in place to raise funds for current liabilities and no guarantee can be given that we will be able to raise funds for this purpose on terms acceptable to our company. Failure to raise funds for general, administrative and corporate expenses and current liabilities could result in a severe curtailment of our operations.
Any advance in the oil and gas and mineral development strategy set-out herein will require additional funds. These funds may be raised through equity financing, debt financing or other sources which may result in further dilution of the shareholders percentage ownership in the Company.
On February 13, 2009, we entered into a loan agreement with Senergy Partners LLC (“Senergy”), a private Nevada limited liability corporation, pursuant to which the Company received a revolving loan of up to $1,000,000 (the “Credit Facility”). The outstanding principal amount of the Credit Facility together with all accrued and unpaid interest and all other amounts outstanding thereunder are due and payable in full on December 31, 2012, the maturity date. Outstanding principal under the Credit Facility bears interest at an annual rate of 8%. As a condition of the Credit Facility, the Company agreed to use funds received under the Credit Facility solely for the purpose of funding ongoing general and administrative expenses, consulting and due diligence expenses, or professional fees and joint venture programs. As at December 31, 2011, the Company had drawn $357,500 on the credit facility with Senergy. Subsequent to December 31, 2011, the Company gave notice to Senergy that this credit facility had entered into default as a result of the Company’s inability to repay the debt. The Company is currently negotiating settlement of this loan.
In September, 2010, in connection with the negotiation of our loan agreement with Art Brokerage, the Company was required to enter into an amendment to its existing loan with Senergy Partners LLC. Under the terms of a amendment agreement dated September 15, 2010, the parties agreed that if and at such time Art Brokerage enters into a loan agreement with the Company with respect to a loan of $2,400,000, the existing loan agreement between the parties dated February 13, 2009 providing for up to $1,000,000 in principal to the Company would be amended to provide a maximum limit of $500,000.
On September 20, 2010, we entered into a loan agreement (the “Loan Agreement”) with Art Brokerage, Inc., pursuant to which Art Brokerage provided the Company with a non-revolving term loan in the principal amount of $2,400,000 having an interest rate of 5% per annum. The loan matures on April 1, 2015. As a condition of the Loan Agreement, the Company agreed to enter into a general security agreement dated September 20, 2010 creating a security over the Company’s present and after-acquired personal property and over the Company’s real property and other assets. In addition and as further security of the Company’s indebtedness under the Loan Agreement, the Company and Art Brokerage entered into a pledge and security agreement dated September 20, 2010, pursuant to which the Company agreed to pledge to Art Brokerage a first priority security interest in all of the shares of capital stock of Eskota Energy Corporation, the wholly owned subsidiary of the Company, and all proceeds with respect to such stock. The Company intends to use the funds from the $2,400,000 loan to commence development of the Company’s initial test well on its Farm-Out property located in southwest Texas. Both Senergy and Art Brokerage are beneficially owned by Donna Rose, an affiliate of the Company. In May, 2011, the Company entered into an amendment to its September 20, 2010 loan agreement with Art Brokerage, Inc. (the “Lender”) to postpone the commencement date for payment of the principal and interest on its loan from May 1, 2011 to January 1, 2012. Under the terms of the original loan agreement the Lender provided the Company with a non-revolving term loan in the principal amount of $2,400,000 at the interest rate of 5% per annum, calculated and compounded monthly, maturing on April 1, 2015. The company has been in default on this loan since January 2012. The Company is currently negotiating settlement of this loan.
On September 30, 2011, the Company entered in to a loan agreement with Bear Lair LLC, a Nevada Corporation, to reflect advances made to the Company during fiscal 2011. The loan is due in one year on September 30, 2012, and bears no interest rate or specific terms of repayment beyond the initial term.
RESULTS OF OPERATIONS
Our operating results for the years ended December 31, 2011 and 2010 are summarized as follows:
Revenues
We have had no operating revenues for the years ended December 31, 2011 and 2010. We anticipate that we will not generate any revenues for so long as we are an exploration stage company.
General and Administrative
The major components of our general and administrative expenses for the year are outlined in the table below:
The $3,657,210 decrease in our general and administrative expenses for the year ended December 31, 2011 was primarily due to:
(a)
	The decreased write down of capitalized expenditures from oil and gas exploration in the current year. During 2010, the Company wrote down capitalized costs associated with the Initial Test Well drilled under the Farm Out Agreement. During 2011, the Farm Out Agreement lapsed and the Company wrote off the remaining capitalized costs associated with the area covered under the Farm Out Agreement. These remaining costs were lower than the original write down as they did not include drilling and testing costs.
(b)
Decreased management fees and stock based compensation of $1,431,500. During 2010 there was stock based compensation expense due to the grant of 1,100,000 stock options. Using the Black-Scholes option pricing model, these options were deemed to have a fair value of $1,592,250. During 2011, 50,000 stock options were granted with a fair value of $93,250.
Other Income/Expenses
During 2011 the Company incurred $188,133 in interest expenses compared to $73,181 in 2010 as a result of the Company entering into a loan agreement with Art Brokerage Inc. during 2010. The Company realized a foreign exchange loss of $2,603 in 2011 compared to a loss of $3,211 in 2010 as a result of the weakening of the US Dollar compared to the Canadian dollar from 2010 to 2011. The Company realized a loss on settlement of loans payable of $500 in 2011 compared to a loss on settlement of loans payable of $254,090 in 2010. Lastly, the Company realized a gain on liabilities written-off of $Nil in 2011, compared to $5,858 in 2010 as a result of a lender releasing the Company of its obligation.
Working Capital
Cash Flows
We had cash of $87 and negative working capital of $4,079,593 as of December 31, 2011 compared to a cash of $64,767 and negative working capital of $1,306,279 for the year ended December 31, 2010. We anticipate that we will incur approximately $210,000 for operating expenses, including professional, legal and accounting expenses associated with our reporting requirements under the Exchange Act during the next twelve months. We will require $310,000 for costs associated with our plan of operation and operating expenses over the next twelve months. Accordingly, we will need to obtain additional financing in order to complete our full business plan.
Cash used in operating activities for the year ended December 31, 2011 was $337,643 as compared to cash used in operating activities for the same period in 2010 of $466,568. Cash used in operating activities decreased during the year as a result of decreases in accounting, legal and engineering costs during the year. Cash provided by investing activities for the year ended December 31, 2011 was $120,213 as compared to cash used in investing activities for the same period in 2010 of $2,930,182. The decrease in cash used in investing activities was primarily due to the deposit and direct legal costs incurred on the oil and gas acreage during 2010 as well as drilling costs incurred on the oil and gas acreage during 2010. During 2011, direct costs on the oil and gas acreage were offset by refunds received from the oil and gas operator after plugging and abandoning the Initial Test Well and the sale of excess tubing and casing leftover from this drilling in 2010. Cash provided by financing activities for the year ended December 31, 2011 was $152,750 compared to cash provided by financing activities for the same period in 2010 of $3,455,493. The decrease in cash provided by financing activities was primarily due to proceeds from loans payable of $152,750 compared to $3,205,493 in 2010 mostly arising from the loan agreement with Art Brokerage) and no shares were issued during 2011 whereas $250,000 was raised from shares issued in 2010.
Loans Payable
The Company has the following loans outstanding as of December 31, 2011:
(a)
These amounts are unsecured, bear no interest, with no specific terms of repayment.
(b)
These amounts are unsecured, bear interest at 5% per annum, with no specific terms of repayment.
(c)
	This credit facility is unsecured, bears interest at 8% per annum, maturing on December 31, 2012. The remaining amount available under this credit facility is $142,250 as at December 31, 2011. Subsequent to December 31, 2011, the Company gave notice to Senergy Partners LLC that this loan had entered into default as a result of the Company’s inability to repay the debt. The Company is currently negotiating settlement of this loan.
(d)
On September 20, 2010, the Company entered into a loan agreement (the “Loan Agreement”) with Art Brokerage, Inc. (“Art Brokerage”), pursuant to which Art Brokerage provided the Company with a non-revolving term loan in the principal amount of $2,400,000 having an interest rate of 5% per annum. The loan matures on April 1, 2015 and is calculated and compounded monthly, payable on the 1st day of each calendar month, commencing May 1, 2011. In addition to the monthly interest payments, the Company will make monthly principal payments in the amount of $50,000, commencing on May 1, 2011 and continuing on the 1st day of each month until the Company’s indebtedness is repaid in full. The loan matures on April 1, 2015. On May 25, 2011 the Company and the creditor agreed to amend the Loan Agreement to allow the Company to postpone commencement of the monthly principal and interest payments until January 1, 2012. All other terms and conditions with respect to the Loan Agreement remain unchanged. As a condition of the Loan Agreement, during the term of the loan, the Company agreed, among other things, to maintain its property assets and undertakings in good repair, to obtain and maintain all licenses and permits necessary to own and operate its assets and agreed not to, without the prior consent of Art Brokerage, change its name, change its corporate structure, change its fiscal year end, incur further indebtedness, grant any liens against its properties or assets unless permitted, make any advances or loans to any person, assign or transfer its intellectual property, or permit its unfinanced capital expenditures to exceed $300,000 per annum.
In addition and as further security of the Company’s indebtedness under the Loan Agreement, the Company and Art Brokerage entered into a pledge and security agreement dated September 20, 2010, pursuant to which the Company agreed to pledge to Art Brokerage a first priority security interest in all of the shares of capital stock of Eskota Energy Corporation, the wholly owned subsidiary of the Company, and all proceeds with respect to such stock. In connection with the negotiation of the Loan Agreement with Art Brokerage, the Company was required to enter into an amendment to its existing loan with Senergy Partners LLC, an affiliate of Art Brokerage. Under the terms of an amendment agreement dated September 15, 2010, entered into by the Company with Senergy Partners LLC (“Senergy”), the parties agreed that if and at such time Art Brokerage enters into a loan agreement with the Company with respect to a loan of $2,400,000, the existing loan agreement between the parties dated February 13, 2009 providing for up to $1,000,000 in principal to the Company (the “Senergy Loan”) would be amended to provide that upon entry into the Loan Agreement the outstanding balance of principal and accrued interest under the Senergy Loan could not exceed a maximum limit of $500,000. As a further condition of the Loan Agreement, the Company agreed to enter into a general security agreement dated September 20, 2010 creating a security over the Company’s present and after-acquired personal property and over the Company’s real property and other assets. Subsequent to December 31, 2011, the Company did not commence repayment of the loan as required under the Loan Agreement and the loan entered into default. As a result, the balance of the loan is included in current liabilities as at December 31, 2011. The Company is currently negotiating settlement of this loan with Art Brokerage.
(e)
On September 30, 2011, the Company entered in to a loan agreement with Bear Lair LLC, a Nevada Corporation, to reflect advances made to the Company during fiscal 2011. The loan is due in one year on September 30, 2012 and bears no interest rate or specific terms of repayment beyond the initial term.
Going Concern
The audited financial statements accompanying this report have been prepared on a going concern basis, which implies that our company will continue to realize its assets and discharge its liabilities and commitments in the normal course of business. Our company has not generated revenues since inception and has never paid any dividends and is unlikely to pay dividends or generate earnings in the immediate or foreseeable future. The continuation of our company as a going concern is dependent upon the continued financial support from our shareholders, the ability of our company to obtain necessary equity financing to achieve our operating objectives, and the attainment of profitable operations. As of December 31, 2011, we had cash of $87 and we estimate that we will require approximately $310,000 for costs associated with our plan of operation and operating expenses over the next twelve months. In addition to funding the Company’s general, administrative and corporate expenses the Company is obligated to address its current obligations totaling $4,079,680, of which $2,757,750 plus accrued interest of $218,200 thereon entered into default subsequent to December 31, 2011. Accordingly, we do not have sufficient funds for planned operations and we will be required to raise additional funds for operations.
These circumstances raise substantial doubt about our ability to continue as a going concern, as described in the explanatory paragraph to our independent auditors’ report on the December 31, 2011 and 2010 consolidated financial statements which are included with this annual report. The consolidated financial statements do not include any adjustments that might result from the outcome of that uncertainty.
The continuation of our business is dependent upon us raising additional financial support. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.
There are no assurances that we will be able to obtain further funds required for our continued operations. We are pursuing various financing alternatives to meet our immediate and long-term financial requirements. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we will be forced to scale down or perhaps even cease the operation of our business.
Future Financings
As of December 31, 2011, we had cash of $87 and we estimate that we will require approximately $310,000 for costs associated with our business operations over the next twelve months. Accordingly we do not have sufficient funds for planned operations and we will be required to raise additional funds for operations. Subsequent to December 31, 2011, we received $149,716 pursuant to two promissory notes. These notes mature on November 4, 2012. We anticipate continuing to rely on equity sales of our common shares or shareholder loans in order to continue to fund our business operations. Issuances of additional shares will result in dilution to our existing stockholders. There is no assurance that we will achieve any additional sales of our equity securities or arrange for debt or other financing to fund our planned activities.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Employees
We currently have no employees, and we do not expect to hire any employees in the foreseeable future. We presently conduct our business through agreements with consultants and arms-length third parties.
New Accounting Pronouncements
In May 2011, the FASB issued Accounting Standards Update 2011-04, “Fair Value Measurement (Topic 820)”. This Update will improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with US GAAP and International Financial Reporting Standards (“IFRS”). The amendments in this Update result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs and they explain how to measure fair value and they do not require additional fair value measurements and are not intended to establish valuation standards or affect valuation practices outside of financial reporting. The amendments in this Update apply to all reporting entities that are required or permitted to measure or disclose the fair value of an asset, a liability, or an instrument classified in a reporting entity’s shareholders’ equity in the financial statements. The amendments in this Update are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. Early application by public entities is not permitted. The Company is currently evaluating the impact of this update on the financial statements.
In June 2011, the FASB issued Accounting Standards Update 2011-05, “Presentation of Comprehensive Income (Topic 220)”. The objective of this Update is to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. To increase the prominence of items reported in other comprehensive income and to facilitate convergence of U.S. generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS), the FASB decided to eliminate the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity, among other amendments in this Update. The amendments require that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. The amendments in this Update should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company is currently evaluating the impact of this update on the financial statements.
In December 2011, the FASB issued Accounting Standards Update 2011-12, “Comprehensive Income (Topic 220)”. The amendments in this Update supersede certain pending paragraphs in Accounting Standards Update 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, to effectively defer only those changes in Update 2011-5 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company is currently evaluating the impact of this update on the financial statements.
Application of Critical Accounting Estimates
The financial statements of our company have been prepared in accordance with generally accepted accounting principles in the United States. Because a precise determination of many assets and liabilities is dependent upon future events, the preparation of financial statements for a period necessarily involves the use of estimates which have been made using careful judgment. The financial statements have, in management’s opinion, been properly prepared within reasonable limits of materiality and within the framework of the significant accounting policies summarized below:
Oil and Gas Leases
Costs capitalized, together with the costs of production equipment, are depleted and amortized on the unit-of-production method based on the estimated net proved reserves, as determined by independent petroleum engineers. The percentage of total reserve volumes produced during the year is multiplied by the net capitalized investment plus future estimated development costs in those reserves. Costs of acquiring and evaluating unproved properties are initially excluded from depletion calculations. These unevaluated properties are assessed periodically to ascertain whether an impairment has occurred. When proved reserves are assigned or the property is considered to be impaired, the cost of the property or the amount of the impairment is added to costs subject to depletion calculations.
Under full cost accounting rules, capitalized costs, less accumulated amortization and related deferred income taxes, shall not exceed an amount (the ceiling) equal to the sum of: (i) the after tax present value of estimated future net revenues computed by applying a 12-month average price of oil and gas reserves to estimated future production of proved oil and gas reserves as of the date of the latest balance sheet presented, less estimated future expenditures (based on currents costs) to be incurred in developing and producing the proved reserves computed using a discount factor of ten percent and assuming continuation of existing economic conditions; (ii) the cost of properties not being amortized; and (iii) the lower of cost or estimated fair value of unproven properties included in the costs being amortized. If unamortized costs capitalized within a cost center, less related deferred income taxes, exceed the ceiling, the excess shall be charged to expense and separately disclosed during the period in which the excess occurs. Amounts thus required to be written off shall not be reinstated for any subsequent increase in the cost center ceiling.
Estimates of undiscounted future cash flows that we use for conducting impairment tests are subject to significant judgment decisions based on assumptions of highly uncertain future factors such as, crude oil and natural gas prices, production quantities, estimates of recoverable reserves, and production and transportation costs. Given the significant assumptions required and the strong possibility that actual future factors will differ, we consider the impairment test to be a critical accounting procedure.
The Company has not recognized any revenue from its oil and gas exploration activities. The Company has performed evaluations of its capitalized expenditures relating to oil and gas exploration during the years ended December 31, 2011 and 2010. As a result of these evaluations, management noted that the estimated future cash flows associated with the oil and gas leases were not sufficient to realize the capitalized expenditures relating to oil and gas exploration at December 31, 2011 and 2010. In addition the Company has also considered the current market conditions in the evaluation of the Farmout acreage for impairment. Based on these evaluations, during the year ended December 31, 2011, the Company wrote down its capitalized expenditures on oil and gas exploration by $955,274 (2010 - $2,905,409).
Asset Retirement Obligations
In accordance with ASC 410, Asset Retirement and Environmental Obligations the fair value of an asset retirement cost, and corresponding liability, should be recorded as part of the cost of the related long-lived asset and subsequently allocated to expense using a systematic and rational method. At least annually, the Company will reassess the obligation to determine whether a change in any estimated obligation is necessary. The Company will evaluate whether there are indicators that suggest the estimated cash flows underlying the obligation have materially changed. Should those indicators suggest the estimated obligation has materially changed the Company will accordingly update its assessment. The asset retirement obligation is measured at fair value on a non-recurring basis using level 3 inputs based on discounted cash flows involving estimates, assumptions, and judgments regarding the cost, timing of settlement, credit-adjusted risk-free rate and inflation rates.
Stock based compensation
Management has made significant assumptions and estimates determining the fair market value of stock-based compensation granted to employees and non-employees. These estimates have an effect on the stock-based compensation expense recognized and the contributed surplus and share capital balances on the Company’s Balance Sheet. The value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model. For non-employees, such amount is revalued on a quarterly basis. To date, all of our stock option grants have been to non-employees. Increases in our share price will likely result in increased stock option compensation expense. The Black-Scholes option-pricing model requires the input of subjective assumptions, including the expected term of the option award and stock price volatility. The expected term of options granted for the purposes of the Black-Scholes calculation is the term of the award since all grants are to non-employees. These estimates involve inherent uncertainties and the application of management judgment.
These accounting policies are applied consistently for all years presented. Our operating results would be affected if other alternatives were used. Information about the impact on our operating results is included in the notes to our financial statements.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Tel: 604 688 BDO Canada LLP
Fax: 604 688 600 Cathedral Place
www.bdo.ca
925 West Georgia Street
Vancouver BC V6C 3L2 Canada
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Directors and Stockholders,
Maverick Minerals Corporation
(an Exploration Stage Company)
We have audited the accompanying consolidated balance sheets of Maverick Minerals Corporation (the “Company”) (an Exploration Stage Company) as of December 31, 2011 and 2010 and the related consolidated statements of operations and comprehensive loss, cash flows and changes in shareholders’ equity (capital deficit) for the years then ended and for the period from April 21, 2003 (Date of Inception) to December 31, 2011. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, these financial statements referred to above present fairly, in all material respects, the financial position of Maverick Minerals Corporation as of December 31, 2011 and 2010 and the results of its operations and its cash flows for the years then ended and for the period from April 21, 2003 (Date of Inception) to December 31, 2011 in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company had an accumulated deficit of $12,045,863 at December 31, 2011 and incurred a net loss of $1,509,589 for the year then ended. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ BDO Canada LLP
Chartered Accountants
Vancouver, Canada
July 25, 2012
Maverick Minerals Corporation
(An Exploration Stage Company)
Consolidated Balance Sheets
(Expressed in U.S. Dollars)
The accompanying notes are an integral part of these financial statements
Maverick Minerals Corporation
(An Exploration Stage Company)
Consolidated Statements of Operations and Comprehensive Loss
(Expressed in U.S. Dollars)
The accompanying notes are an integral part of these financial statements
Maverick Minerals Corporation
(An Exploration Stage Company)
Consolidated Statements of Cash Flows
(Expressed in U.S. Dollars)
Maverick Minerals Corporation
(An Exploration Stage Company)
Consolidated Statements of Cash Flows
(Expressed in U.S. Dollars)
The accompanying notes are an integral part of these financial statements
Maverick Minerals Corporation
(An Exploration Stage Company)
Statement of Changes in Stockholders' Equity (Capital Deficit)
For the Period from Date of Inception on April 21, 2003 to December 31, 2011
(Expressed in U.S. Dollars)
Maverick Minerals Corporation
(An Exploration Stage Company)
Statement of Changes in Stockholders' Equity (Capital Deficit)
For the Period from Date of Inception on April 21, 2003 to December 31, 2011
(Expressed in U.S. Dollars)
Maverick Minerals Corporation
(An Exploration Stage Company)
Statement of Changes in Stockholders' Equity (Capital Deficit)
For the Period from Date of Inception on April 21, 2003 to December 31, 2011
(Expressed in U.S. Dollars)
The accompanying notes are an integral part of these financial statements
Maverick Minerals Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
December 31, 2011
(Expressed in U.S. Dollars)
Note 1 NATURE OF OPERATIONS AND ABILITY TO CONTINUE AS A GOING CONCERN
Maverick Minerals Corporation (“the Company”) was incorporated on August 27, 1998 under the Company Act of the State of Nevada, U.S.A. The Company is in the oil and gas exploration and development business. The Company has not yet began its planned principal operations and therefore is classified as an exploration stage company.
On April 21, 2003 the Company closed a transaction, as set out in the Purchase Agreement (the “Agreement) with UCO Energy Corporation (“UCO”) to purchase the outstanding equity of UCO. To facilitate the transaction, the Company consolidated its share capital at a ratio of one for five. Subsequent to the share consolidation, the Company issued 3,758,040 common shares in exchange for all the issued and outstanding common shares of UCO. As a result of the transaction, the former shareholders of UCO held approximately 90% of the issued and outstanding common shares of the Company. The acquisition of UCO was recorded as a reverse acquisition for accounting purposes as a recapitalization of UCO. A net distribution of $944,889 was recorded in connection with the common stock of the Company for the acquisition of UCO in respect of the Company’s net liabilities at the acquisition date. The Company had minimal assets and had liabilities owing to suppliers as well as amounts owing under agreements with third parties as well as related parties and as there were no other business interests, the Company was acting as a public shell company. The financial statements are now presented as a continuation of UCO. UCO was in the business of pursuing opportunities in the coal mining industry. The Company has since disposed of its mining interests and is currently an exploration stage company engaged in the acquisition, exploration, and development of prospective oil and gas properties.
These accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. As at December 31, 2011, the Company has negative working capital of $4,079,593 and has an accumulated deficit of $12,045,863. The continuation of the Company is dependent upon obtaining a successful new exploration project, the continuing support of creditors and stockholders as well as achieving and maintaining a profitable level of operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management anticipates that it requires approximately $310,000 to cover general and administrative expenses over the twelve months ending December 31, 2012 to continue operations. In addition to funding the Company’s general, administrative and corporate expenses the Company is obligated to address its current obligations totaling $4,079,680, of which $2,757,750 plus accrued interest thereon of $218,200 thereon entered into default subsequent to December 31, 2011 (note 4). The Company plans to raise necessary cash through equity issuances and/or debt financing. Amounts raised will be used to pursue explorations activities, and for other working capital purposes.
Management cannot provide any assurances that the Company will be successful in any of its plans. Although there are no assurances that management's plans will be realized, management believes that the Company will be able to continue operations in the future. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
Maverick Minerals Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
December 31, 2011
(Expressed in U.S. Dollars)
Note 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a)
Basis of Presentation
These financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, and include the accounts of the Company and its wholly-owned subsidiary, Eskota Energy Corporation. All intercompany transactions and balances have been eliminated on consolidation.
(b)
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires the Company’s management to make estimates and assumptions which affect the amounts reported in these consolidated financial statements, the notes thereto, and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.
(c)
Foreign Currency Translation
The Company’s functional currency is the United States dollar. Transactions undertaken in currencies other than the functional currency are translated using the exchange rate in effect on the transaction date. At the end of the period, monetary assets and liabilities are translated to the respective functional currency using the exchange rate in effect at the period end date. Transaction gains and losses are included in the Consolidated Statements of Operations.
(d)
Financial Instruments
The fair value of the Company’s financial instruments, which consist of cash, advances to related parties, accounts payable and accrued liabilities, convertible debt and loans payable approximate their carrying values due to their short term or demand nature. The fair value for long-term loans payable approximates book value using current rates of interest.
As a basis for considering market participant assumptions in fair value measurements, ASC 820-10 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
The fair value hierarchy, as defined by ASC 820-10, contains three levels of inputs that may be used to measure fair value as follows:
•
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities;
•
Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals; and
•
Level 3 inputs are unobservable inputs for the asset or liability which are typically based on an entity’s own assumptions, as there is little, if any, related market activity.
In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
Maverick Minerals Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
December 31, 2011
(Expressed in U.S. Dollars)
Note 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
(e)
Revenue Recognition
Revenues on sales of oil and natural gas are recognized when the products are delivered, title has transferred to the customer, and amounts are deemed collectible.
(f)
Property and Equipment
The Company depreciates its property and equipment at 20% per annum on a straight-line basis. The Company has disposed of all property and equipment as of December 31, 2006.
(g)
Impairment of Long-Lived Assets
Long-lived assets are evaluated for impairment when events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of these assets and their eventual disposition is less than their carrying amount. Impairment, if any, is assessed using discounted cash flows.
Estimates of undiscounted future cash flows used for conducting impairment tests are subject to significant judgment decisions based on assumptions of highly uncertain future factors such as, crude oil prices, production quantities, estimates of recoverable reserves, and production and transportation costs.
(h)
Stock-Based Compensation
The Company accounts for all stock-based payments and awards under the fair value based method. Stock-based payments to non-employees are measured at the fair value of the consideration received, or the fair value of the equity instruments issued, or liabilities incurred, whichever is more reliably measurable.
The fair value of stock-based payments to non-employees is periodically re-measured until the counterparty performance is complete, and any change therein is recognized over the vesting period of the award and in the same manner as if the Company had paid cash instead of paying with or using equity based instruments. Compensation costs for stock-based payments with graded vesting are recognized on a straight-line basis. The cost of the stock-based payments to non-employees that are fully vested and non-forfeitable as at the grant date is measured and recognized at that date, unless there is a contractual term for services in which case such compensation would be amortized over the contractual term.
The Company accounts for the granting of share purchase options to employees using the fair value method whereby all awards to employees will be recorded at fair value on the date of the grant. The fair value of all share purchase options are expensed over their vesting period with a corresponding increase to additional paid in capital.
The Company uses the Black-Scholes option valuation model to calculate the fair value of share purchase options at the date of the grant. Option pricing models require the input of highly subjective assumptions, including the expected price volatility. Changes in these assumptions can materially affect the fair value estimates.
Maverick Minerals Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
December 31, 2011
(Expressed in U.S. Dollars)
Note 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
(i)
Loss Per Share
The basic loss per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding. Diluted earnings per common share is computed similar to basic loss per share except that the denominator is increased to include the number of additional shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The if-converted method is used in calculating diluted earnings (loss) per share for the convertible debentures.
The treasury stock method is used in calculating diluted earnings (loss) per share, which assumes that any proceeds received from the exercise of in-the-money stock options would be used to purchase common shares at the average market price for the period.
For the year ended December 31, 2011, loss per share excludes 1,684,223 (2010 - 1,607,557) potentially dilutive common shares (related to outstanding options and shares issuable on the conversion of convertible debt) as their effect was anti-dilutive.
(j)
Oil and Gas Leases
The Company follows the full cost method of accounting for oil and gas operations whereby all costs of exploring for and developing oil and gas reserves are initially capitalized on a country-by- country (cost centre) basis. Such costs include land acquisition costs, geological and geophysical expenses, carrying charges on non-producing properties, costs of drilling and overhead charges directly related to acquisition and exploration activities.
Costs capitalized, together with the costs of production equipment, are depleted and amortized on the unit-of-production method based on the estimated gross proved reserves. Petroleum products and reserves are converted to a common unit of measure, using 6 MCF of natural gas to one barrel of oil.
Costs of acquiring and evaluating unproved properties are initially excluded from depletion calculations. These unevaluated properties are assessed periodically to ascertain whether impairment has occurred. When proved reserves are assigned or the property is considered to be impaired, the cost of the property or the amount of the impairment is added to costs subject to depletion calculations.
If capitalized costs, less related accumulated amortization and deferred income taxes, exceed the “full cost ceiling” the excess is expensed in the period such excess occurs. The “full cost ceiling” is determined based on the present value of estimated future net revenues attributed to proved reserves, using market prices less estimated future expenditures plus the lower of cost and fair value of unproved properties within the cost centre.
The Company has performed evaluations of its capitalized expenditures for oil and gas exploration during the years ended December 31, 2011 and 2010. As a result of these evaluations, management noted that estimated future cash flows associated with the property were not sufficient to realize the capitalized costs relating to the capitalized expenditures for oil and gas exploration at December 31, 2011. In addition, the Company has also considered the current market conditions in the evaluation of capitalized expenditures for oil and gas exploration for impairment. Based on these evaluations, during the year ended December 31, 2011, the Company wrote down its capitalized expenditures for oil and gas exploration by $955,274 (2010 - $2,905,409).
Maverick Minerals Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
December 31, 2011
(Expressed in U.S. Dollars)
Note 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
(j)
Oil and Gas Leases - continued
Proceeds from a sale of petroleum and natural gas properties are applied against capitalized costs, with no gain or loss recognized, unless such a sale would alter the relationship between capitalized costs and proved reserves of oil and gas attributable to a cost centre.
(k)
Comprehensive Income
ASC 220, "Comprehensive Income", establishes standards for reporting and presentation of comprehensive income (loss). This standard defines comprehensive income as the changes in equity of an enterprise except those resulting from stockholder transactions.
(l)
Income Taxes
The Company accounts for income taxes in accordance with Accounting Standards Codification ("ASC") 740, Income Taxes ("ASC 740"). There are two major components of income tax expense, current and deferred. Current income tax expense approximates cash to be paid or refunded for taxes for the applicable period. Deferred tax assets and liabilities are determined based upon the difference between the financial statement and tax basis of assets and liabilities as measured by the enacted tax rates, which will be in effect when these differences reverse. Deferred tax expense or benefit is the result of changes between deferred tax assets and liabilities.
A valuation allowance is established when, based on an evaluation of objective verifiable evidence, it is more likely than not that some portion or all of deferred tax assets will not be realized.
The Company recognizes the impact of an uncertain income tax position at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority and includes consideration of interest and penalties. An uncertain income tax position is not recognized if there is a 50% or less likelihood of being sustained. The liability for unrecognized tax benefits is classified as non-current unless the liability is expected to be settled in cash within 12 months of the reporting date.
The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the statements of operations. Accrued interest and penalties are included within unrecognized tax benefits and other long-term liabilities line in the balance sheet.
(m)
Asset Retirement Obligations
The Company has obligations related to the plugging and abandonment of its oil and gas wells. The Company records the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the assets. The obligation is measured initially at fair value using present value methodology, and the resulting costs capitalized into the carrying amount of the related asset. In subsequent periods, the liability will be adjusted for any changes in the amount or timing of the underlying future cash flows. Capitalized asset retirement costs are amortized on the same basis as the related asset and the discount accretion of the liability is included in determining the results of operations.
(n) Comparative Figures
Certain of the comparative figures have been reclassified to conform with the presentation in the current year.
(o)
New Accounting Pronouncements
In May 2011, the FASB issued Accounting Standards Update 2011-04, “Fair Value Measurement (Topic 820)”. This Update will improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with US GAAP and International Financial Reporting Standards (“IFRS”). The amendments in this Update result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs and they explain how to measure fair value and they do not require additional fair value measurements and are not intended to establish valuation standards or affect valuation practices outside of financial reporting. The amendments in this Update apply to all reporting entities that are required or permitted to measure or disclose the fair value of an asset, a liability, or an instrument classified in a reporting entity’s shareholders’ equity in the financial statements. The amendments in this Update are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. Early application by public entities is not permitted. The Company is currently evaluating the impact of this update on the financial statements.
In June 2011, the FASB issued Accounting Standards Update 2011-05, “Presentation of Comprehensive Income (Topic 220)”. The objective of this Update is to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. To increase the prominence of items reported in other comprehensive income and to facilitate convergence of U.S. generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS), the FASB decided to eliminate the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity, among other amendments in this Update. The amendments require that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. The amendments in this Update should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company is currently evaluating the impact of this update on the financial statements.
In December 2011, the FASB issued Accounting Standards Update 2011-12, “Comprehensive Income (Topic 220)”. The amendments in this Update supersede certain pending paragraphs in Accounting Standards Update 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, to effectively defer only those changes in Update 2011-5 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company is currently evaluating the impact of this update on the financial statements.
Maverick Minerals Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
December 31, 2011
(Expressed in U.S. Dollars)
Note 3 OIL AND GAS LEASES
On December 14, 2009, the Company entered into a farm-out agreement (the “Farmout Agreement”) with Southeastern Pipe Line Company (“SEPL”) pursuant to which the Company acquired the right to earn an interest in certain oil and gas mineral leases located in Fort Bend and Wharton Counties, Texas (collectively, the “Leases”) and to the lands covered thereby subject to certain conditions, including the following:
i)
Payment of a non-refundable fee of $350,000 to SEPL (paid);
ii)
Commencement of continuous and actual drilling operations on an oil or gas well to a good and workmanlike manner with due diligence and to a depth sufficient for testing on the undeveloped Leases on or prior to December 14, 2010;
iii)
Completion of drilling on every drillable tract of the undeveloped Leases prior to commencing drilling operations on the developed Leases;
iv)
Completion of the drilling of at least four wells on the undeveloped acreage, to a good and workmanlike manner with due diligence and to a depth sufficient for testing, and commence commercial production on such wells within 120 days after completion of drilling with the option to pay $250,000 per well to opt out of the requirement to drill up to two of the four wells;
v)
Upon earning the interest in the Leases, entering into a Joint Operating Agreement to govern operations by the parties on the Leases, and SEPL agrees to assign its 100% interest in the Leases to the Company subject to reserving an overriding royalty interest equal to the difference between all the existing lease burdens of record in effect as of October 1, 2009 and 30%, thereby delivering to the Company a 70% net revenue interest in the Leases; and
vi)
The Company granting an option to SEPL pursuant to which SEPL may after all drilling and completion cost have been recovered by the Company, back-in a 25% of eight-eighths working interest (subject to proportionate reduction if the Company’s acreage covers less than the entirety of the mineral interest under the proration spacing unit drilled), on a well-by-well basis.
Pursuant to the terms of the Farmout Agreement, if the Company met the commitment to commence the drilling operations on the first test well by December 14, 2010 described below and provided the Company established commercial production and met the requirements for the first well tested, the Company would have an option to develop additional wells within 180 days after the completion of the first well tested or subsequent wells tested. Also, pursuant to the terms of the agreement the Company agreed to indemnify SEPL and its affiliates from all claims arising from the drilling or operations of the first test well or any subsequent wells tested.
In connection with these leases the Company issued 350,000 shares as payment for geological data (Note 7). The Company entered into a letter agreement dated December 6, 2010 (the “Letter Agreement”) with an accredited investor (the “Purchaser”) pursuant to which the Purchaser and his nominee acquired a fifteen percent (15%) working interest in the Company’s initial test well being drilled in Fort Bend County, Texas having the permitted name of Lankford Trust No. 1 (the “Initial Test Well”) for the sum of $500,000. In accordance with the terms of the Letter Agreement, the Company and the Purchaser concurrently entered into a joint operating agreement dated effective December 6, 2010 pursuant to which each party agreed to pay or deliver, or cause to be paid or delivered, all burdens and liabilities on its share of the production in regards to the Well, but not in excess of thirty percent (30%) and to indemnify, defend and hold the other party free from any liability therefore. As a condition of the Letter Agreement and joint operating agreement, the Purchaser and/or their nominees will be entitled to receive a 25% share from any proceeds of the Well until such time as their initial investment of $500,000 has been repaid after which time the distribution to the Purchaser reverts to 15% in accordance with their interest in the Well. The $500,000 received for the sale of the working interest was been applied against the costs capitalized to Oil and Gas Leases.
Maverick Minerals Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
December 31, 2011
(Expressed in U.S. Dollars)
Note 3
OIL AND GAS LEASES - continued
Effective December 7, 2010, the Company entered into a joint operating agreement with Arrowdog, LLP (“Arrowdog”) pursuant to which Arrowdog acquired a three percent (3%) working interest in the Initial Test Well for the sum of $150,000. Pursuant to the terms of the joint operating agreement each party agreed to pay or deliver, or cause to be paid or delivered, all burdens and liabilities on its share of the production in regards to the Well, but not in excess of thirty percent (30%) and to indemnify, defend and hold the other party free from any liability therefore. As a condition of the agreement Arrowdog would be carried for a 3% working interest to completion or until plug and abandonment without further cost.
Thereafter, Arrowdog would be responsible for their pro-rata share of expenses for maintenance and production with the Company. The $150,000 received for the sale of the working interest has been applied against the costs capitalized to Oil and Gas Leases.
On January 22, 2011 the Company completed drilling of its Initial Test Well on the Company's 4,513 acre Farm-Out property in Fort Bend County, Texas. The initial test well was spud on December 9, 2010.
Based on the results of the drilling program on the Initial Test Well it was determined that zones drilled were not commercially productive, despite the presence of significant down hole pressure and strong natural gas shows during drilling. The target sands were poorly developed and not suitable for a completion attempt. Accordingly, the decision was made to not set production casing and as a result the Company’s engineers have now completed plugging the well pursuant to regulations of the Texas Railway Commission. As a result management determined during the year ended December 31, 2010 that costs capitalized relating to the drilling and exploration of the Initial Test Well are impaired and recorded a write down on its oil and gas exploration expenditures capitalized of $904,844 on the statement of operations during the year ended December 31, 2010.
In addition, $2,000,565 in deposits paid to the Operator of the Initial Test Well (the “Operator”) as a prepayment for future drilling work to be completed on the well subsequent to December 31, 2010 were also included on the impairment assessment on the Initial Test Well and it was determined that these amounts were also impaired. As a result this amount along with the $904,844 amount disclosed above have been recorded on as a write-down of oil and gas leases totaling $2,905,409 on the statement of operations during the year ended December 31, 2010.
During the year ended December 31, 2011 the Company’s property costs decreased by $45,213 as a result of the sale of excess casing and tubing of $57,738 which was recorded as a recovery on oil and gas leases offset by $12,525 of additional payments for drilling and exploration and geologist services incurred.
During the year ended December 31, 2011, the Farmout Agreement lapsed as the Company did not complete drilling of a substitute exploration well within the required period in accordance with the Farmout Agreement. As a result, it was determined that the remaining property costs relating to the areas covered by the Farmout Agreement of $955,274 were impaired and the Company recorded a write-down of oil and gas leases of $955,274 on the statement of operations during the year ended December 31, 2011. This amount was offset by a recovery of oil and gas leases of $75,000 in respect of a refund received during the year for deposits paid to the Operator and reduction of asset retirement obligations of $50,000 recognized during the year ended December 31, 2011 (Note 10). 
Maverick Minerals Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
December 31, 2011
(Expressed in U.S. Dollars)
Note 3 OIL AND GAS LEASES - continued
Net carrying costs as at December 31, 2011, 2010 and 2009 are as follows:
At December 31, 2011, there was $12,981 in unevaluated property costs relating to the acquisition costs of unproved oil and gas leases located adjacent to the areas covered by the Farmout Agreement.
Note 4
LOANS PAYABLE
The Company has the following loans payable:
(a)
These amounts are unsecured; bear no interest, with no specific terms of repayment.
(b)
These amounts are unsecured; bear interest at 5% per annum, with no specific terms of repayment.
(c)
	This credit facility is unsecured, bears interest at 8% per annum, maturing on December 31, 2012 (see Note 7(a)). The remaining amount available under this credit facility is $142,250 as at December 31, 2011. Subsequent to December 31, 2011, the Company gave notice to Senergy Partners LLC that this loan had entered into default as a result of the Company’s inability to repay the debt. The Company is currently negotiating settlement of this loan.
Maverick Minerals Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
December 31, 2011
(Expressed in U.S. Dollars)
Note 4 LOANS PAYABLE - continued
(d)
On September 20, 2010, the Company entered into a loan agreement (the “Loan Agreement”) with Art Brokerage, Inc. (“Art Brokerage”), pursuant to which Art Brokerage provided the Company with a non-revolving term loan in the amount of $2,400,000 having an interest rate of 5% per annum. The loan matures on April 1, 2015 with interest calculated and compounded monthly, payable on the 1st day of each calendar month commencing May 1, 2011. In addition to the monthly interest payments, the Company was required to make monthly principal payments in the amount of $50,000, commencing on May 1, 2011 and continuing on the 1st day of each month until the Company’s indebtedness was repaid in full.
On May 25, 2011, the Company and the creditor agreed to amend the Loan Agreement to allow the Company to postpone commencement of the monthly principal and interest payments until January 1, 2012, with a balloon payment of $450,000 at maturity. All other terms and conditions with respect to the original Loan Agreement remained unchanged.
Subsequent to December 31, 2011, the Company did not commence repayment of the loan as required under the Loan Agreement and the loan entered into default. As a result, the balance of the loan is included in current liabilities as at December 31, 2011. The Company is currently negotiating settlement of this loan with Art Brokerage.
As a condition of the Loan Agreement, during the term of the loan, the Company agreed, among other things, to maintain its property assets and undertakings in good repair, to obtain and maintain all licenses and permits necessary to own and operate its assets and agreed not to, without the prior consent of Art Brokerage, change its name, change its corporate structure, change its fiscal year end, incur further indebtedness, grant any liens against its properties or assets unless permitted, make any advances or loans to any person, assign or transfer its intellectual property, or permit its unfinanced capital expenditures to exceed $300,000 per annum.
In addition and as further collateral of the Company’s indebtedness under the Loan Agreement, the Company and Art Brokerage entered into a pledge and security agreement dated September 20, 2010, pursuant to which the Company agreed to pledge to Art Brokerage a first priority security interest in all of the shares of capital stock of Eskota Energy Corporation, the wholly- owned subsidiary of the Company, and all proceeds with respect to such stock.
In connection with the negotiation of the Loan Agreement with Art Brokerage, the Company was required to enter into an amendment to its existing loan with Senergy Partners LLC, an affiliate of Art Brokerage. Under the terms of an amendment agreement dated September 15, 2010, entered into by the Company with Senergy Partners LLC (“Senergy”), the parties agreed that if and at such time Art Brokerage enters into a loan agreement with the Company with respect to a loan of $2,400,000, the existing loan agreement between the parties dated February 13, 2009 providing for up to $1,000,000 in principal to the Company (the “Senergy Loan”) would be amended to provide that upon entry into the Loan Agreement the outstanding balance of principal and accrued interest under the Senergy Loan could not exceed a maximum limit of $500,000. As a further condition of the Loan Agreement, the Company agreed to enter into a general security agreement dated September 20, 2010 creating a security over the Company’s present and after-acquired personal property and over the Company’s real property and other assets.
Both Senergy and Art Brokerage are beneficially controlled by a significant shareholder of the Company.
(e)
The Company has entered into a loan agreement with Bear Lair LLC, a Nevada Corporation, to reflect advances made to the Company during fiscal 2011. The loan is due September 30, 2012 and bears no interest or specific repayment terms beyond the initial term.
Maverick Minerals Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
December 31, 2011
(Expressed in U.S. Dollars)
Note 4 LOANS PAYABLE - continued
Principal repayments over the remaining terms of the loans are as follows:
Note 5 CONVERTIBLE DEBT
a)
On November 26, 2009, the Company issued a convertible note in the amount of $100,000 to a related party to settle an outstanding payable of $100,000. This convertible note is due on demand, and bears interest at 8% per annum. The convertible note and accrued interest thereon is convertible into common shares at a conversion rate of $0.30 per share.
b)
On December 11, 2009, the Company issued a convertible note in the amount of $35,625. This convertible note was due on June 11, 2010 and bore interest at 8% per annum. The debt was convertible into common shares at $0.75 per share. The Company had the right to prepay any portion of the principal amount of this debenture without prior written consent of the holder. This note was converted during the year ended December 31, 2010 (Note 7).
Note 6
RELATED PARTY TRANSACTIONS
Effective September 23, 2010, the Company entered into two consulting agreements, one with the President, CEO and CFO (the “President”) and one with the Secretary. As consideration for the performance of consulting services under the agreement, the Company agreed to pay the President and Secretary $10,000 and $5,000 per month and a one-time bonus of $250,000 and $100,000, respectively, upon the spudding of the Company’s first commercial well drilled on the Company’s Farmout Acreage, as such term is defined under the Company’s farmout agreement with Southeastern Pipeline Company dated December 7, 2009. Under the agreement the President and Secretary were also granted stock options to acquire 700,000 and 400,000 shares of common stock, respectively, at an exercise price of $1.05 per share until August 20, 2015 in accordance with the terms of the Company’s 2009 Stock Option Plan. The agreement is for a term of three years. Notwithstanding the three year term, the agreement may be terminated at any time by the Company without notice in the event the President breaches the terms of this agreement.
Maverick Minerals Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
December 31, 2011
(Expressed in U.S. Dollars)
Note 6 RELATED PARTY TRANSACTIONS - continued
Management fees of $180,000 were charged to expense in these financial statements for the year ended December 31, 2011 (2010 - $112,500). Included in accounts payable and accrued liabilities at December 31, 2011 is $34,150 (2010 - $Nil) owing to an officer of the Company for accrued and unpaid management fees.
At December 31, 2011 the Company had advanced $43,826 (2010 - $43,614) to the Company’s President. The advances are non-interest bearing and no bear no specific terms of repayment.
During the year ended December 31, 2011, the Company incurred $188,133 (2010 - $73,430) in interest charges on loans payable to companies controlled by a significant shareholder of the Company and to a director of the Company. Of these amounts $265,074 (2010 - $76,941) was payable as at December 31, 2011.
Note 7
SHARE CAPITAL
As explained in Note 1, on April 21, 2003 the Company issued 3,758,040 common shares in exchange for all the issued and outstanding common shares of UCO.
In July 2003, the Company issued 150,000 common shares to the Company’s CEO in exchange for management services. The transaction was recorded at the quoted market price of $0.07 per common share and resulted in compensation expense of $105,000. No consideration was received by the Company in the exchange of shares for management services.
In June 2004, the Company issued 1,000,000 common shares at a price of $0.25 for proceeds of $25,000.
During the year ended December 31, 2004, an agreement was reached between the Company, UCO and its creditors releasing the Company and UCO from any further obligations in relation to amounts owing.
As a result, $1,027,791 of payables and liabilities that were owing to related parties was forgiven and recorded against additional paid-in capital. The remaining balance owing to unrelated creditors was recorded as a gain.
In January 2005, the Company issued 2,750,000 common shares at a price of $0.01 for proceeds of $27,500.
In June 2005, the Company cancelled 5,437,932 common shares, under an agreement with certain stockholders, which included the former stockholders of UCO, and two other stockholders including the CEO of the Company. The former stockholders of UCO surrendered the majority of the shares which was approximately 95% of the total common shares that they held at the time.
As a result of the share cancellation, one single common stockholder emerged as the majority stockholder with approximately 76% of the total issued and outstanding common shares. In addition, the CEO’s percentage common share holding increased and resulted in compensation expense of $44,720.
In July 2005, the Company issued 89,500 common shares at a price of $0.60 to settle an amount owing with respect to a loan payable. The transaction was recorded at the quoted market price of $1.40 and resulted in a loss on settlement of loan payable of $71,600.
Maverick Minerals Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
December 31, 2011
(Expressed in U.S. Dollars)
Note 7 SHARE CAPITAL - continued
In September 2005, the Company issued 7,500 common shares at a price of $0.10 for cash proceeds of $750 in relation to the exercise of stock options.
In April 2006, the Company issued 6,000 common shares at a price of $0.10 for $600 in relation to the exercise of stock options.
In 2007 and 2008 there were no share capital transactions.
On February 2, 2009 a major shareholder returned to treasury 2,000,000 common shares of the Company for nil consideration in contemplation of further share issuances (as described below).
(a)
The Company entered into a loan agreement with Senergy on February 13, 2009, pursuant to which the Company established an unsecured revolving loan of up to $1,000,000, later amended to $500,000 (Note 4(c)), (the “Credit Facility”). The outstanding principal amount of the Credit Facility together with all the accrued and unpaid interest and all other amounts outstanding there under are due and payable in full on December 31, 2012, the maturity date. Outstanding principal under the Credit Facility bears interest at an annual rate of 8%.
(b)
In connection with the Company entering into the Credit Facility and Debt Settlement Agreement with Senergy, the Company entered into an Assignment and Assumption Agreement with Senergy and Art Brokerage, Inc. (“ABI”) dated February 13, 2009, pursuant to which ABI assigned to Senergy all of its right, title and interest to a debt (the “Assigned Debt”) of $447,500 owed by the Company to ABI.
(c)
On February 13, 2009, the Company entered into a debt settlement and subscription agreement (the “Debt Settlement Agreement”) with Senergy in consideration of Senergy entering into the Credit Facility. Pursuant to the terms of the Debt Settlement Agreement, the company agreed to issue to Senergy 8,950,000 shares of the Company common stock in settlement of a $447,500 debt owed to Senergy.
As a result of these transactions, Senergy acquired 8,950,000 shares or 92.3% of the Company’s issued and outstanding common stock. The Company issued 8,950,000 common shares to settle an amount owing with respect to a loan payable totaling $447,500. The transaction was recorded at the quoted market price of $0.40 and resulted in a loss on settlement of loan payable of $3,132,500.
On August 11, 2009 the Company's articles of incorporation were amended and restated to increase the number of authorized shares of its common stock from 100,000,000 to 750,000,000. In addition the Company's articles of incorporation were amended and restated to authorize 100,000,000 shares of preferred stock with a par value of $0.001, which may be divided into and issued in series, with such designations, rights, qualifications, preferences, limitations and terms as fixed and determined by the Company's board of directors.
On September 24, 2009 the Company issued a further 436,000 shares to settle $218,000 owed to ABI. The transaction was recorded at the quoted market price of $0.30 and was treated as a capital transaction which resulted in a charge to equity of $218,000.
On December 11, 2009 the Company issued 175,000 shares each to two consultants, (350,000 shares total) for geological consulting services. The transactions were recorded at the quoted market price of $0.60 per share for total consideration of $210,000 which was capitalized to Oil and Gas Leases on the balance sheet (Note 3).
Maverick Minerals Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
December 31, 2011
(Expressed in U.S. Dollars)
Note 7
SHARE CAPITAL - continued
Effective December 31, 2009 the Company effected a ten (10) for one (1) reverse stock split of the Company’s issued and outstanding shares of common stock. Shares and per share amounts have been retroactively restated to reflect the reverse stock split.
On July 19, 2010 the Company issued 49,925 common shares upon conversion of its Convertible Debenture dated December 11, 2009 in the principal amount of $35,625 and outstanding interest to July 19, 2010 of $1,788 (Note 5(b)).
On July 27, 2010 the Company entered into a data purchase agreement with two individuals (collectively the “Vendors”), pursuant to which the Company agreed to purchase from the Vendors geologic data relating to certain oil and gas mineral leases located in Texas, including among other things: electric logs, seismic work, seismic reprocessing, data from the Texas Railroad Commission. In consideration for the acquisition of the geologic data from the Vendors the Company issued 350,000 shares of the common stock of the Company to the Vendors. The transactions were recorded at the quoted market price of $1.05 per share for total consideration of $367,500 which was capitalized to Oil and Gas Leases on the balance sheet (Note 3).
On September 7, 2010 the Company issued a further 725,971 shares to settle $762,269 owed to ABI. The transaction was recorded at the quoted market price of $1.40 and resulted in a loss on settlement of loan payable of $254,090.
On December 21, 2010, the Company completed a private placement of 500,000 shares of its common stock at a price of $0.50 for gross proceeds of $250,000 to an offshore subscriber pursuant to Regulation S of the Securities Act of 1933. The offering was completed in connection with the above noted sale of a 15% working interest in the Well. These shares were issued on February 11, 2011.
On February 28, 2011, the Company entered into debt settlement and subscription agreements with two subscribers pursuant to which the Company settled an aggregate of $50,000 debt in consideration of the issuance of 50,000 shares on March 7, 2011. The debt related to certain amounts owed by Art Brokerage to third parties which were subsequently assigned to the Company. The transaction was recorded at the quoted market price of $1.01 and resulted in a loss on settlement of loans payable of $500.
Note 8
STOCK OPTION PLAN
Stock options
The Company has a stock option plan which provides for the granting of up to 7,500,000 stock options to key employees, directors and consultants, of common shares of the Company. Under the stock option plan, the granting of incentive and non-qualified stock options, exercise prices and terms are determined by the Board of Directors.
Maverick Minerals Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
December 31, 2011
(Expressed in U.S. Dollars)
Note 8
STOCK OPTION PLAN - continued
During the year ended December 31, 2010, there were 1,100,000 options granted to officers and a director of the Company. All options granted were fully vested at the date of issuance which resulted in stock-based compensation expense of $1,592,250 being charged to operations during the year ended December 31, 2010. These options are exercisable at a price of $1.05 per option and expire on August 20, 2015. The fair value of these options granted was approximately $1.45 per share on the grant date.
During the year ended December 31, 2011, there were 50,000 options granted to two consultants of the Company. All options granted were fully vested at the date of issuance which resulted in stock- based compensation expense of $93,250 being charged to operations during the year ended December 31, 2011. These options are exercisable at a price of $1.50 per option and expire on January 13, 2013. The fair value of these options granted was approximately $1.87 per share on the grant date.
Weighted average assumptions used in calculating compensation expense in respect of options granted using the Black-Scholes option pricing model were as follows:
No stock options were exercised, cancelled or expired during the years ended December 31, 2011 and 2010.
The following is a summary of the status of the Company’s stock options as of December 31, 2011 and the stock option activity during the year ended December 31, 2011 and 2010:
All options that were outstanding were exercisable at December 31, 2011 and 2010 as a result of all options being fully vested upon grant.
Maverick Minerals Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
December 31, 2011
(Expressed in U.S. Dollars)
Note 8 STOCK OPTION PLAN - continued
At December 31, 2010, the Company had share purchase options outstanding as follows:
The aggregate intrinsic value in the preceding table represents the total intrinsic value, based on the Company’s closing stock price of $0.31 per share as of December 31, 2011 (2010 - $1.60), which would have been received by the option holders had all option holders exercised their options as of that date. There were no in-the-money options vested and exercisable as of December 31, 2011 (2010 - 1,245,000).
Note 9
INCOME TAXES
The tax effects of temporary differences that give rise to deferred tax assets at December 31, 2011 and 2010 are presented below:
The Company evaluates its valuation allowance requirements based on projected future operations. When circumstances change and this causes a change in management’s judgment about the recoverability of deferred tax assets, the impact of the change on the valuation allowance is reflected in current income.
A reconciliation of United States federal statutory income tax rates is as follows:
Maverick Minerals Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
December 31, 2011
(Expressed in U.S. Dollars)
Note 9 INCOME TAXES - Continued
At December 31, 2011, the Company had estimated losses carried forward of approximately $5,155,000 (2010 - $1,099,000) that may be available to offset future taxable income.
The potential tax benefits have been fully allowed for in the valuation allowance in these financial statements. These Federal and state net operating loss carry-forwards begin to expire on various dates from 2026 through 2031.
The Company files income tax returns in the United States. All of the Company’s tax returns are subject to tax examinations until respective statute of limitation. The Company currently has no tax years under examination. The Company’s tax filings for the years 2007 - 2011 remain open to examination.
Based on management’s assessment of ASC 740, the Company concluded that the adoption of ASC 740 had no significant impact on our results of operations or financial position, and required no adjustment to the opening balance sheet accounts. The year-end analysis supports the same conclusion, and the Company does not have an accrual for uncertain tax positions as of December 31, 2011 and 2010.
As a result, tabular reconciliation of beginning and ending balances would not be meaningful. If interest and penalties were to be assessed, the Company would charge interest to interest expense, and penalties to other operating expense. It is not anticipated that unrecognized tax benefits would significantly increase or decrease within twelve months of the reporting date.
Note 10
ASSET RETIREMENT OBLIGATION
The Company is required to plug and abandon any wells which it has drilled.
As at December 31, 2010, the Company estimated the fair value of its asset retirement obligations based on its requirements to reclaim and clean-up its initial test well drilled on the Leases to be approximately $50,000. The fair value of the Company's asset retirement obligations was determined using discounted cash flow methodologies based on inputs that are not readily available in public markets. This obligation was recorded during the year ended December 31, 2010.
During the year ended December 31, 2011, the Company met the reclamation requirements in respect of its initial test well drilled and the Company’s asset retirement obligations were reduced to $nil.
Note 11
SUBSEQUENT EVENTS
Subsequent to December 31, 2011;
a)
The Company received Cdn$72,600 pursuant to a promissory note dated May 15, 2012. The note is unsecured, non-interest bearing and is due on November 4, 2012.
Maverick Minerals Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
December 31, 2011
(Expressed in U.S. Dollars)
Note 11 SUBSEQUENT EVENTS - Continued
b)
The Company received US$77,400 pursuant to a promissory note dated May 29, 2012. The note is unsecured, non-interest bearing and is due on November 4, 2012.
c)
The Company settled trade accounts payable of $161,528 for $108,105 and recorded a gain on settlement of accounts payable of $53,423.
d)
The Company entered into an Option and Joint Venture Exploration Agreement dated June 8, 2012, with Energold Minerals Inc. (“Energold”), a Canadian company, under which the Company may earn up to an undivided 51% interest in the Jarvis Island Property, comprising a group of mining claims situated in the Thunder District of Ontario, Canada (the “Property”) and thereafter establish a joint venture with Energold for the joint exploration, development and production of minerals from the Property.
To exercise the first option and earn a 30% undivided interest in the Property, the Company must (i) issue 100,000 common shares of the Company on or before June 29, 2012 (issued subsequent to December 31, 2011), (ii) issue 100,000 common shares of the Company on or before September 15, 2013 and (iii) incur a total of $200,000 in exploration expenditures on the Property by September 15, 2013.
To exercise the second option and earn an additional 21% undivided interest in the Property, the Company must exercise the first option and issue a further 200,000 common shares on or before September 15, 2015 and incur an additional $200,000 in exploration expenditures on the Property on or before June 8, 2017.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of disclosure controls and procedures and remediation
As required by Rule 13(a)-15 under the Exchange Act, in connection with this annual report on Form 10-K, under the direction of our Chief Executive Officer and Chief Financial Officer, we have evaluated our disclosure controls and procedures as of December 31, 2011, including the remedial actions discussed below, and we have concluded that, as of December 31, 2011, our disclosure controls and procedures were ineffective as discussed in greater detail below. As of the date of this filing, we are still in the process of remediating such material weaknesses in our internal controls and procedures.
It should be noted that while our management believes our disclosure controls and procedures provide a reasonable level of assurance, they do not expect that our disclosure controls and procedures or internal controls will prevent all error and all fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of internal control is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Management’s annual report on internal control over financial reporting
Management is responsible for establishing and maintaining internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our management evaluated, under the supervision and with the participation of our Chief Executive Officer, the effectiveness of our internal control over financial reporting as of December 31, 2011.
Based on its evaluation under the framework in Internal Control-Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission, our management concluded that our internal control over financial reporting was not effective as of December 31, 2011, due to the existence of significant deficiencies constituting material weaknesses, as described in greater detail below. A material weakness is a control deficiency, or combination of control deficiencies, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
Limitations on Effectiveness of Controls
Our Chief Executive Officer and Chief Financial Officer does not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additional controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Material Weaknesses Identified
In connection with the preparation of our consolidated financial statements for the year ended December 31, 2011, certain significant deficiencies in internal control became evident to management that represent material weaknesses, including:
(i)
Lack of a sufficient number of independent directors for our board and audit committee. We currently have no independent director on our board, which is comprised of one director. As a publicly-traded company, we strive to have a majority of our board of directors be independent;
(ii)
Insufficient segregation of duties in our finance and accounting functions due to limited personnel. During the year ended December 31, 2011, we had limited staff that performed nearly all aspects of our financial reporting process, including, but not limited to, access to the underlying accounting records and systems, the ability to post and record journal entries and responsibility for the preparation of the financial statements. This creates certain incompatible duties and a lack of review over the financial reporting process that would likely result in a failure to detect errors in spreadsheets, calculations, or assumptions used to compile the financial statements and related disclosures as filed with the SEC. These control deficiencies could result in a material misstatement to our interim or annual consolidated financial statements that would not be prevented or detected;
(iii)
There is a lack of sufficient supervision and review by our corporate management;
(iv)
Insufficient corporate governance policies. Although we have a code of ethics which provides broad guidelines for corporate governance, our corporate governance activities and processes are not always formally documented. Specifically, decisions made by the board to be carried out by management should be documented and communicated on a timely basis to reduce the likelihood of any misunderstandings regarding key decisions affecting our operations and management; and
(v)
Our company’s accounting personnel does not have sufficient technical accounting knowledge relating to accounting for income taxes and complex US GAAP matters.
(vi)
Our company’s accounting personnel does not have sufficient technical accounting knowledge relating to accounting for oil and gas and related US GAAP accounting matters including evaluation of unproved properties and performing a ceiling test.
Plan for Remediation of Material Weaknesses
Our company has taken steps to improve our internal controls over financial reporting and we intend to continue to take appropriate and reasonable steps necessary to remediate these deficiencies. We intend to consider the results of our remediation efforts and related testing as part of our year-end 2012 assessment of the effectiveness of our internal control over financial reporting.
Subject to receipt of additional financing, we have undertaken, or intend to undertake the following remediation measures to address the material weaknesses described in this annual report. Such remediation activities include the following:
(1)
We continue to recruit two or more additional independent board members to join our board of directors and will consider the adoption of an audit committee at such time as additional board members are retained;
(2)
We have retained a qualified accountant to assist in the preparation of our public filings and assist on accounting matters; and
(3)
We intend to continue to update the documentation of our internal control processes, including formal risk assessment of our financial reporting processes.
Changes in Internal Controls over Financial Reporting There were no changes in our internal control over financial reporting during the quarter ended December 31, 2011 that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
Summary Background of Executive Officers and Directors
The following is a brief account of the education and business experience of each director and executive officer during at least the past five years, indicating each person’s principal occupation during the period, and the name and principal business of the organization by which he was employed.
Robert Kinloch
Since July 5, 2001, Mr. Robert Kinloch has been the President, Chief Executive Officer, Chief Financial Officer and sole member of the Board of Directors of our company. In his capacity as Chief Financial Officer, Mr. Kinloch is and has been responsible for the finance function of our company including supervising the preparation of our financial statements and as the sole member of our board of directors has served on our audit committee. Mr. Kinloch’s duties as President and Chief Executive Officer include the business development function, investigating qualified investment opportunities and designing and implementing the required due diligence and acquisition financing. In addition Mr. Kinloch is responsible for our regulatory obligations as a reporting issuer. From June 2002 until May 2005 Mr. Kinloch was the President and sole member of the board of directors of AMT Canada Inc., a private company registered under the laws of the Yukon Territory, Canada. From March 2004 until April 2005, Mr. Kinloch was President and a member of the board of directors of UCO Energy Corporation, a private company incorporated pursuant to the laws of the State of Nevada. Mr. Kinloch is the brother of Donald Kinloch, our Secretary and Treasurer.
Donald Kinloch
Since September 4, 2002, Mr. Donald Kinloch has been our Secretary and Treasurer. Donald Kinloch is the brother of Robert Kinloch, our President, Chief Executive Officer, Chief Financial Officer and sole member of our board of directors. Since January 1998, Mr. Kinloch has been an independent consultant conducting contractual due diligence, supplying market research and developing communication strategies. From March 2004 until April 2005, Mr. Kinloch was the Secretary and Treasurer of UCO Energy Corporation, a private company incorporated pursuant to the laws of the State of Nevada.
Term of Office
The directors serve until their successors are elected by the shareholders. Vacancies on the Board of Directors may be filled by appointment of the majority of the continuing directors. The executive officers serve at the discretion of the Board of Directors.
Family Relationships
Robert Kinloch and Donald Kinloch are brothers.
Significant Employees
We have no significant employees.
Involvement in Certain Legal Proceedings
Our directors, executive officers and control persons have not been involved in any of the following events during the past ten years:
1.
any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
2.
any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
3.
being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or
4.
being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.
Audit Committee
The Company’s audit committee is composed of its directors and officers, Robert Kinloch and Donald Kinloch.
Audit Committee Financial Expert
Our board of directors has determined that it does not have an audit committee member that qualifies as an “audit committee financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-K. We believe that the audit committee members are collectively capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. In addition, we believe that retaining an independent director who would qualify as an “audit committee financial expert” would be overly costly and burdensome and is not warranted in our circumstances given the early stages of our development and the fact that we have not generated revenues to date.
Code of Ethics
We adopted a Code of Ethics applicable to all of our directors, officers, and consultants, which is a “code of ethics” as defined by applicable rules of the SEC. Our Code of Ethics is attached as an exhibit to our annual report on Form 10-KSB filed on April 24, 2008. If we make any amendments to our Code of Ethics other than technical, administrative, or other non-substantive amendments, or grant any waivers, including implicit waivers, from a provision of our Code of Ethics to our chief executive officer, chief financial officer, or certain other finance executives, we will disclose the nature of the amendment or waiver, its effective date and to whom it applies in a Current Report on Form 8-K filed with the SEC.
Section 16(a) Beneficial Ownership Compliance
Section 16(a) of the Exchange Act requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities to file with the SEC initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common stock and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by the SEC regulations to furnish us with copies of all Section 16(a) reports that they file.
Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that all filing requirements applicable to our officers, directors and greater than ten percent beneficial owners were complied with.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
The particulars of compensation paid to the following persons:
our principal executive officer;
each of our two most highly compensated executive officers who were serving as executive officers at the end of the year ended December 31, 2011; and
up to two additional individuals for whom disclosure would have been provided under (b) but for the fact that the individual was not serving as our executive officer at the end of the most recently completed financial year,
who we will collectively refer to as the named executive officers, for our years ended December 31, 2011 and 2010, are set out in the following summary compensation table:
(1) For a description of the methodology and assumptions used in valuing the option awards granted to our officers and directors during the year ended December 31, 2011, please review Note 8 to the financial statements included herein.
Employment Contracts
Effective September 23, 2010, we entered into a consulting agreement with Robert Kinloch, pursuant to which the Company engaged Mr. Kinloch to, among other things: perform the duties of President, Chief Executive Officer and Chief Financial Officer of the Company, prepare and execute any and all records and filings required to maintain the Company’s public listing, attend to governance issues as they relate to the Nevada registration, provide the Board with any information required to administer the affairs of the Company, advise and recommend, if requested, on any circumstance that may arise relating to asset or acquisition integration, tax matters, market factors and corporate finance. As consideration for the performance his consulting services under the agreement, the Company agreed to pay Mr. Kinloch $10,000 per month and a one time bonus of $250,000 upon the completion of the Company’s first commercial well drilled on the Company’s Farmout Acreage, as such term is defined under the Company’s farmout agreement (the “Farmout Agreement”) with Southeastern Pipeline Company dated December 7, 2009. Under the agreement Mr. Kinloch was also granted stock options to acquire 700,000 shares of common stock at an exercise price of $1.05 per share until August 20, 2015 in accordance with the terms of the Company’s 2009 Stock Option Plan. The agreement is for a term of three years. Notwithstanding the three year term, the agreement may be terminated at any time by the Company without notice in the event Mr. Kinloch breaches the terms of this agreement.
Effective September 23, 2010, we entered into a consulting agreement with Donald Kinloch, pursuant to which the Company engaged Mr. Kinloch to, among other things: perform the duties of Secretary of the Company, prepare and execute any and all records and filings required to maintain the Company’s corporate records, interface with shareholders and any person or group having a legitimate interest in the affairs of the Company, provide the board of the Company with any information required to administer the affairs of the Company, and advise and recommend, if requested, on any circumstance that may arise relating to asset management and field operations. As consideration for the performance his consulting services under the agreement, the Company agreed to pay Mr. Kinloch $5,000 per month and a one time bonus of $100,000 upon the completion of the Company’s first commercial well drilled on the Company’s Farmout Acreage, as such term is defined under the Company’s Farmout Agreement. Under the agreement Mr. Kinloch was also granted stock options to acquire 400,000 shares of common stock at an exercise price of $1.05 per share until August 20, 2015 in accordance with the terms of the Company’s 2009 Stock Option Plan. The agreement is for a term of three years. Notwithstanding the three year term, the agreement may be terminated at any time by the Company without notice in the event Mr. Kinloch breaches the terms of this agreement.
There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers. Our directors and executive officers may receive stock options at the discretion of our board of directors in the future. We do not have any material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of our board of directors from time to time. We have no plans or arrangements in respect of remuneration received or that may be received by our executive officers to compensate such officers in the event of termination of employment (as a result of resignation, retirement, change of control) or a change of responsibilities following a change of control.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth for each director certain information concerning the outstanding equity awards as of December 31, 2011.
Aggregated Options Exercised in the Year Ended December 31, 2011 and Year End Option Values
There were no stock options exercised during the year ended December 31, 2011.
Repricing of Options/SARS
We did not reprice any options previously granted during the year ended December 31, 2011.
Director Compensation
We reimburse our director for expenses incurred in connection with attending board meetings. We did not pay any other director’s fees or other compensation for services rendered as a director for the fiscal year ended December 31, 2011.
We have no formal plan for compensating our directors for their service in their capacity as directors, although such directors are expected in the future to receive stock options to purchase common shares as awarded by our board of directors or (as to future stock options) a compensation committee which may be established. Directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of our board of directors. Our board of directors may award special remuneration to any director undertaking any special services on our behalf other than services ordinarily required of a director. No director received and/or accrued any compensation for their services as a director, including committee participation and/or special assignments.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
As of July 25, 2012, there were 12,252,617 shares of our common stock outstanding. The following table sets forth certain information known to us with respect to the beneficial ownership of our common stock as of that date by (i) each of our directors, (ii) each of our executive officers, and (iii) all of our directors and executive officers as a group. Except as set forth in the table below, there is no person known to us who beneficially owns more than 5% of our common stock.
Notes: *Less than 1%
(1)
Under Rule 13d-3, a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares: (i) voting power, which includes the power to vote, or to direct the voting of shares; and (ii) investment power, which includes the power to dispose or direct the disposition of shares. Certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of these acquisition rights.
(2)
The percentage of class is based on 12,252,617 shares of common stock issued and outstanding as of July 25 2012.
(3)
Total consists of 23,623 shares of the Company beneficially owned by Mr. Robert Kinloch and 700,000 shares of the Company acquirable on exercise of options within 60 days of the date hereof and 404,347 shares of the Company acquirable on the conversion of a convertible loan and accrued interest thereon.
(4)
Total consists of 25,000 shares of the Company beneficially owned by Mr. Donald Kinloch and 500,000 shares of the Company acquirable on exercise of options within 60 days of the date hereof.
(5)
Total consists of 1,200,000 shares of the Company acquirable on exercise of options within 60 days of the date hereof.
Total consists of 8,950,000 shares of the Company owned by Senergy Partners LLC, a private corporation beneficially
(6)
owned by Donna Rose and 725,971 shares of the Company owned by Art Brokerage, Inc., a private corporation beneficially owned by Donna Rose.
Changes in Control
None.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Except as set out below, no director, executive officer, principal shareholder holding at least 5% of our common shares, or any family member thereof, had any material interest, direct or indirect, in any transaction, or proposed transaction, since the beginning of our company’s fiscal year ended December 31, 2011, in which the amount involved in the transaction exceeded or exceeds the lesser of $120,000 or one percent of the average of our total assets at the year end for the last three completed fiscal years.
On February 13, 2009, the Company entered into a loan agreement with Senergy Partners LLC (“Senergy”), a private Nevada limited liability corporation, pursuant to which the Company received a revolving loan of up to $1,000,000 (the “Credit Facility”). The outstanding principal amount of the Credit Facility together with all accrued and unpaid interest and all other amounts outstanding thereunder are due and payable in full on December 31, 2012, the maturity date. Outstanding principal under the Credit Facility bears interest at an annual rate of 8%. As a condition of the Credit Facility, the Company agreed to use funds received under the Credit Facility solely for the purpose of funding ongoing general and administrative expenses, consulting and due diligence expenses, professional fees and joint venture programs. As of the date of this annual report we have $142,250 available under our Credit Facility with Senergy.
In consideration of Senergy entering into the Credit Facility, the Company agreed to enter into a debt settlement and subscription agreement (the “Debt Settlement Agreement”) with Senergy dated as of February 13, 2009. Pursuant to the terms of the Debt Settlement Agreement, the Company agreed to issue to 8,950,000 post-split shares of its common stock at a deemed price of $0.05 per share in settlement of a $447,500 debt owed to Senergy. In connection with our entry into the Credit Facility and Debt Settlement Agreement with Senergy, the Company entered into an Assignment and Assumption Agreement (the “Assignment Agreement”) with Senergy and Art Brokerage, Inc. (“ABI”) pursuant to which ABI assigned to Senergy all its right, title and interest to a debt (the “Assigned Debt”) of US$447,500 owed by the Company to ABI. The Company executed the Assignment Agreement solely to consent to and acknowledge the assignment of the Assigned Debt as contemplated by the agreement. As a result of the above transactions a change in control of the Company has occurred. Senergy has acquired 8,950,000 post-split shares. There are no arrangements or understandings among the Company and Senergy and/or its affiliates with respect to election of directors or other matters.
On May 5, 2005, we entered into a management agreement with our chief executive officer, Robert Kinloch. The agreement was for a term of two years with an annual fee of $90,000 and will expire, unless amended, on May 31, 2007. Effective May 5, 2005, we entered into a management agreement with Robert Kinloch wherein Mr. Kinloch would continue to perform the duties of the President, Chief Executive Officer and Chief Financial Officer. The term of the management agreement expired in May 2007. The Company has not renewed the management agreement with Mr. Kinloch, however, Mr. Kinloch pursuant to a verbal agreement with the Company, continues to receive a consulting fee of $7,500 per month for all management consulting services provided by him to the Company.
On November 26, 2009, we entered into a subscription agreement with Robert Kinloch pursuant to which Mr. Kinloch purchased one convertible debenture (the “Debenture”) in the aggregate principal amount of $100,000 in settlement of $100,000 of outstanding debt owed by the Company to Mr. Kinloch. The Debenture and accrued interest is convertible into shares of the Company’s common stock, par value $0.001 at a deemed conversion price per share of $0.30 for an aggregate purchase price of $100,000. The Debenture is payable on demand, and bears interest at the rate of 8% per annum, payable on the date of conversion of the Debenture. Interest is calculated on the basis of a 360-day year and accrues daily commencing on the date the Debenture is issued until payment in full of the principal amount, together with all accrued and unpaid interest and other amounts which may become due have been made.
Director Independence
Our common stock is quoted on the OTC Markets Group Inc. Over-the-Counter Bulletin Board, which does not have director independence requirements. Under NASDAQ rule 4200(a)(15), a director is not considered to be independent if he or she is also an executive officer or employee of the corporation. Mr. Robert Kinloch is our chief executive officer and president and our sole director. As a result, we do not have any independent directors.
As a result of our limited operating history and limited resources, our management believes that we will have difficulty in attracting independent directors. In addition, we would be likely be required to obtain directors and officers insurance coverage in order to attract and retain independent directors. Our management believes that the costs associated with maintaining such insurance is prohibitive at this time.
Board of Directors
Our board of directors facilitates its exercise of independent supervision over management by endorsing the guidelines for responsibilities of the board as set out by regulatory authorities on corporate governance in the United States. Our board’s primary responsibilities are to supervise the management of our company, to establish an appropriate corporate governance system, and to set a tone of high professional and ethical standards.
The board is also responsible for:
selecting and assessing members of the Board;
choosing, assessing and compensating the Chief Executive Officer of our company, approving the compensation of all executive officers and ensuring that an orderly management succession plan exists;
reviewing and approving our company’s strategic plan, operating plan, capital budget and financial goals, and reviewing its performance against those plans;
adopting a code of conduct and a disclosure policy for our company, and monitoring performance against those policies;
ensuring the integrity of our company’s internal control and management information systems;
approving any major changes to our company’s capital structure, including significant investments or financing arrangements; and
reviewing and approving any other issues which, in the view of the Board or management, may require Board scrutiny.
Orientation and Continuing Education
We have an informal process to orient and educate new recruits to the board regarding their role of the board, our committees and our directors, as well as the nature and operations of our business. This process provides for an orientation with key members of the management staff, and further provides access to materials necessary to inform them of the information required to carry out their responsibilities as a board member. This information includes the most recent board approved budget, the most recent annual report, the audited financial statements and copies of the interim quarterly financial statements.
The board does not provide continuing education for its directors. Each director is responsible to maintain the skills and knowledge necessary to meet his or her obligations as directors.
Nomination of Directors
The board is responsible for identifying new director nominees. In identifying candidates for membership on the board, the board takes into account all factors it considers appropriate, which may include strength of character, mature judgment, career specialization, relevant technical skills, diversity and the extent to which the candidate would fill a present need on the board. As part of the process, the board, together with management, is responsible for conducting background searches, and is empowered to retain search firms to assist in the nominations process. Once candidates have gone through a screening process and met with a number of the existing directors, they are formally put forward as nominees for approval by the board.
Assessments
The board intends that individual director assessments be conducted by other directors, taking into account each director’s contributions at board meetings, service on committees, experience base, and their general ability to contribute to one or more of our company’s major needs. However, due to our stage of development and our need to deal with other urgent priorities, the board has not yet implemented such a process of assessment.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit fees
The aggregate fees billed for the two most recently completed fiscal periods ended December 31, 2011 and December 31, 2010 for professional services rendered by BDO Canada LLP, Chartered Accountants, for the audit of our annual consolidated financial statements, quarterly reviews of our interim consolidated financial statements and services normally provided by the independent accountant in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows:
Year Ended
December 31,
Year Ended
December 31,
Audit Fees $114,631 $82,512
Audit Related Fees - -
Tax Fees $4,429 $6,452
All Other Fees - -
Total $119,060 $88,964
In the above table, “audit fees” are fees billed by our company’s external auditor for services provided in auditing our company’s annual financial statements for the subject year along with reviews of interim quarterly financial statements. “Audit-related fees” are fees not included in audit fees that are billed by the auditor for assurance and related services that are reasonably related to the performance of the audit review of our company’s financial statements. “Tax fees” are fees billed by the auditor for professional services rendered for tax compliance, tax advice and tax planning. “All other fees” are fees billed by the auditor for products and services not included in the foregoing categories.
Policy on Pre-Approval by Audit Committee of Services Performed by Independent Auditors
The board of directors pre-approves all services provided by our independent auditors. All of the above services and fees were reviewed and approved by the board of directors either before or after the respective services were rendered.
The board of directors has considered the nature and amount of fees billed by BDO Canada LLP and believes that the provision of services for activities unrelated to the audit is compatible with maintaining BDO Canada LLP.
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
* Filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
MAVERICK MINERALS CORPORATION
By /s/ Robert Kinloch
Robert Kinloch
President, Chief Executive Officer and Chief Financial Officer
(Principal Executive Officer, Principal Accounting Officer
and Principal Financial Officer)
Date: July 25, 2012
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By /s/ Robert Kinloch
Robert Kinloch
Sole director, Chief Executive Officer and Chief Financial Officer
(Principal Executive Officer, Principal Accounting Officer
and Principal Financial Officer)
Date: July 25, 2012