ITEM 1. BUSINESS
Unless the context otherwise indicates, the terms “Double Crown,” “we,” “us,” “our,” “our Company” or “the Company” mean Double Crown Resources, Inc. and its consolidated subsidiaries.
OUR COMPANY
Double Crown Resources Inc. was organized under the laws of the State of Nevada on March 23, 2006, to explore mining claims and property in North America.
Our business plan had been focused on building a portfolio of producing mineral properties through acquisition of properties that are in production or have the potential for near-term production. Pursuit of this business strategy requires our ability to secure significant funding, which we have not secured to date.
While we have not discontinued our prior business plan, we have expanded the plan and shifted our focus to the oilfield services sector. We are in the process of negotiating contracts to supply industrial quantities of commodities to on-shore oil and gas drilling operations in the United States. We believe that the growing movement for energy independence in the United States will lead to an increased number of oil and gas wells being drilled and put into production throughout the country. Many of these wells require hydraulic fracturing (fracking) to access the oil and gas reserves trapped in hundreds of miles of brittle shale rock thousands of feet below the surface. The hydraulic fracturing process requires a number of specialized commodities, including a unique type of sand, known as “frac-sand” or “proppant,” that can hold its shape under intense pressure and heat and is porous enough to allow thousands of gallons of oil or millions of cubic feet of gas to seep through it to the drill pipe. A typical frac-well will use 2,200 tons of this type of frac-sand. Other materials required for hydraulic fracturing include, guar gum, barite, and a variety of industrial chemicals.
We intend to participate in negotiations and discussions with potential joint venture parties regarding sourcing frac-sand, barite, guar gum and various industrial chemicals and establishing the infrastructure to deliver these materials to oil and gas drilling sites. As part of this business strategy, in March of 2013, we became an authorized dealer for the chemicals division of American International Sealing, LLC, granting us U.S. marketing rights for a slate of industrial chemicals used in hydraulic fracturing, bioremediation and pipeline chemical cleaning functions.
Also in March 2013, we executed a Memorandum of Understanding with Synergy Natural Resources, LLC (“Synergy”), a Georgia-based industrial design and manufacturing company (the “Synergy MOU”) to acquire Synergy and its assets, which included the PASS Box, a large capacity, single transfer method of shipping hydraulic fracturing sand or other critical aggregate materials used for petroleum drilling. Thereafter, we terminated the Synergy MOU and developed the Transprop AGG, our own double stack interlock single transfer container system for high efficiency transport of high tonnage aggregate cargo. We are continuing to fine-tune the design of, and intend to apply for a patent regarding, the Transprop AGG, with the intention of beginning commercial production if we are able to secure sufficient funding, which is not assured. As discussed elsewhere herein, in May 2013, we initiated suit against Synergy, requesting declaratory relief on claims relating to alleged trade secrets and rights to patent prosecution on our transport system. Synergy has filed counterclaims alleging that we misappropriated its trade secrets in developing the Transprop AGG. Although we dispute this allegation, and intend to vigorously defend ourselves, we cannot predict the outcome of the Synergy litigation at this time. (See Part I. Item 3. Legal Proceedings in this report.)
During the third quarter of 2013, we executed a Sublease for use of a bulk terminal and mineral processing plant located in New Orleans, LA. The term of the Sublease, including optional extensions, is 27 years. We have engaged EDG Consulting Engineers to design a master plan for our use of the plant facilities. The master plan design work has now been completed. Blethen Mining Associates, PC will act as general contractor to oversee budgeting, as well as the reconstruction and operation of the plant and facility. The existing facility includes a cement drying plant and four ball mills designed to crush slag for cement production. We plan to convert the ball mills to crush barite and to convert the drying plant for use on hydrosize/wet frac sand. We have agreed to purchase the existing improvements on the property for $750,000, contingent on our securing the necessary funding. A budget for the reconstruction of the terminal and plant has not yet been completed; we anticipate the necessary conversion and improvements will require an investment of $10-14 million, not including the cost of leasing equipment and operating the facility. There is no guarantee that we will be able to raise sufficient capital to execute our plan to reconstruct the plant. The plant will be designed to accommodate containers that meet ISO standards, including our double stack interlock single transport container system designed for intermodal transport. The location of the facility allows for materials to be delivered and distributed by rail, barge or truck.
In October 2013, we formed DDCC Marketing Group, LLC, which is a wholly owned subsidiary, to market minerals and other commodities to oil and gas industry customers. We opened an office in Houston, Texas to serve as the headquarters of the marketing group. In addition to housing the marketing and support staff, the Houston office includes office facilities for our executive officers.
In January 2014, we entered into a strategic alliance with Logistica US Terminals, LLC (“Logistica”) for the purchase, sale and distribution of minerals and other commodities in the oilfield services industry. This was an expansion of our April 2013 agreement with Logistica, under which they agreed to supply us with key minerals and related materials for our resale to oil and gas well drillers. Under the terms of our January 2014 alliance with Logistica, Logistica will provide logistics and transportation of the materials, and we will provide all sales and marketing of the materials through our subsidiary, DDCC Marketing Group, LLC.
Our ability to continue our oilfield services operations is dependent on adequate capital resources being available and further sources of debt and equity being obtained.
Employees
As of December 31, 2013, we have four full-time employees working in our Houston marketing office. Other services are provided by outsourcing, consultant, and special purpose contracts.
Principal Markets
We plan to sell our oilfield services commodities in North America at prices primarily determined by the commodity markets. These prices are largely outside of our control. During the year-ended December 31, 2013, we did not generate any revenue.
Government Regulation
Mining operations and exploration activities are subject to various national, state, and local laws and regulations in the United States and Canada, which govern prospecting, development, mining, production, exports, taxes, labor standards, occupational health, waste disposal, protection of the environment, mine safety, hazardous substances, and other matters. We believe that we are in compliance in all material respects with applicable mining, health, safety, and environmental statutes and regulations. If we pursue our exploration and mineral development projects, capital expenditures relating to compliance with laws and regulations that regulate the discharge of materials into the environment, or otherwise relating to the protection of the environment, will comprise a substantial part of our capital expenditures.
Competition
We compete with other mineral exploration and oil field services companies in connection with the acquisition of mineral properties and certain commodities, including barite and frac sand. We also compete with oil field services companies for the opportunity to supply commodities, such as barite and frac sand, to North American oil and gas well operators. We may be competing with companies having substantially greater financial resources than we do.
Financing Events
During the year ended December 31, 2013, we completed private placement equity financing transactions in the amount of $1,076,350.
Available Information
We file annual, quarterly and periodic reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC” or the “Commission”) in accordance with the Securities Exchange Act of 1934, as amended. You may read and copy any materials that we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE., Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Also, the SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC. You can obtain any document that we file with the SEC at http://www.sec.gov. You may also access our SEC filings on our website at http://www.doublecrownresources.com.
ITEM 1A.
ITEM 1A. RISK FACTORS
An investment in our common stock involves a number of very significant risks. You should carefully consider the following risks and uncertainties in addition to other information in evaluating our company and its business before purchasing shares of our common stock. Our business, operating results and financial condition could be seriously harmed due to any of the following risks. The risks described below are all of the material risks that we are currently aware of that are facing our company. Additional risks not presently known to us may also impair our business operations. You could lose all or part of your investment due to any of these risks.
Risk Factors Related to Our Business
We are an exploration stage company and we expect to incur operating losses for the foreseeable future.
We were incorporated on March 23, 2006 and to date have been engaged in organizational and exploration-stage activities, and acquisition of our claims. We have no way to evaluate the likelihood that our business will be successful. We have not earned any revenues as of the date of this annual report. Potential investors should be aware of the difficulties normally encountered by mineral exploration companies and the high rate of failure of such enterprises. The likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays encountered in connection with the exploration and development of the mineral properties that we plan to undertake. These potential problems include, but are not limited to, unanticipated problems relating to exploration, and additional costs and expenses that may exceed current estimates. Prior to completion of our exploration stage, we anticipate that we will incur increased operating expenses without realizing any revenues. We expect to incur significant losses into the foreseeable future. We recognize that if production of minerals from the claims is not forthcoming, we will not be able to continue business operations. There is no history upon which to base any assumption as to the likelihood that we will prove successful, and it is doubtful that we will generate any operating revenues or ever achieve profitable operations. If we are unsuccessful in addressing these risks, our business will most likely fail.
We have yet to earn revenue and our ability to sustain our operations is dependent on our ability to raise additional financing to complete the final phase of our exploration program if warranted. As a result, our accountant believes there is substantial doubt about our ability to continue as a going concern.
We have incurred a cumulative net loss of $7,575,617 for the period from inception (March 23, 2006) to December 31, 2013, and have no revenues to date. For fiscal years ended December 31, 2013 and 2012, we incurred a net loss of $4,114,180 and $1,012,200, respectively. Our future is dependent upon our ability to obtain financing and upon future profitable operations from the development of our mineral claims and oilfield services operations. These factors raise substantial doubt that we will be able to continue as a going concern. Our independent auditor has expressed substantial doubt about our ability to continue as a going concern. This opinion could materially limit our ability to raise additional funds by issuing new debt or equity securities or otherwise. If we fail to raise sufficient capital when needed, we will not be able to complete our business plan. As a result we may have to liquidate our business and you may lose your investment. You should consider our auditor's comments when determining if an investment in our company is suitable.
We may be unable to obtain additional capital that we may require to implement our business plan. This would restrict our ability to grow.
The proceeds from our private offerings completed during fiscal year ended December 31, 2013 provide us with a limited amount of working capital and is not sufficient to fund our proposed operations. We will require additional capital to continue to operate our business and our proposed operations. We may be unable to obtain additional capital as and when required.
Future acquisitions and future development, production and marketing activities, as well as our administrative requirements (such as salaries, insurance expenses and general overhead expenses, as well as legal compliance costs and accounting expenses) will require a substantial amount of additional capital and cash flow.
We may not be successful in locating suitable financing transactions in the time period required or at all, and we may not obtain the capital we require by other means. If we do not succeed in raising additional capital, the capital we have received to date may not be sufficient to fund our operations going forward without obtaining additional capital financing.
Any additional capital raised through the sale of equity may dilute your ownership percentage. This could also result in a decrease in the fair market value of our equity securities because our assets would be owned by a larger pool of outstanding equity. The terms of securities we issue in future capital transactions may be more favorable to our new investors, and may include preferences, superior voting rights and the issuance of warrants or other derivative securities, and issuances of incentive awards under equity employee incentive plans, which may have a further dilutive effect.
Our ability to obtain needed financing may be impaired by such factors as the capital markets (both generally and in the resource industry in particular), our status as a new enterprise without a demonstrated operating history, the location of our mineral properties and the price of minerals on the commodities markets (which will impact the amount of asset-based financing available to us) or the retention or loss of key management. Further, if mineral prices on the commodities markets decrease, then our revenues will likely decrease, and such decreased revenues may increase our requirements for capital. If the amount of capital we are able to raise from financing activities is not sufficient to satisfy our capital needs, we may be required to cease our operations.
We may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which may adversely impact our financial condition.
Our exploration activities on our mineral properties may not be commercially successful, which could lead us to abandon our plans to develop the property and our investments in exploration.
Our long-term success depends on our ability to establish commercially recoverable quantities of ore on our mineral properties that can then be developed into commercially viable mining operations. Mineral exploration is highly speculative in nature, involves many risks and is frequently non-productive. These risks include unusual or unexpected geologic formations, and the inability to obtain suitable or adequate machinery, equipment or labor. The success of mineral exploration is determined in part by the following factors:
● identification of potential mineralization based on superficial analysis;
● availability of government-granted exploration permits;
● the quality of management and geological and technical expertise; and
● the capital available for exploration.
Substantial expenditures are required to establish proven and probable reserves through drilling and analysis, to develop processes to extract minerals, and to develop the mining and processing facilities and infrastructure at any chosen site. Whether a mineral deposit will be commercially viable depends on a number of factors, which include, without limitation, the particular attributes of the deposit, such as size, grade and proximity to infrastructure; metal prices, which fluctuate widely; and government regulations, including, without limitation, regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection. We may invest significant capital and resources in exploration activities and abandon such investments if it is unable to identify commercially exploitable mineral reserves. The decision to abandon a project may reduce the trading price of our common stock and impair our ability to raise future financing. We cannot provide any assurance to investors that we will discover or acquire any mineralized material in sufficient quantities on any of our properties to justify commercial operations. Further, we will not be able to recover the funds that we spend on exploration if we are not able to establish commercially recoverable quantities of precious metals or minerals on our properties.
Because of the unique difficulties and uncertainties inherent in mineral ventures, we face a high risk of business failure.
You should be aware of the difficulties normally encountered by mineral companies and the high rate of failure of such enterprises. The likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays encountered in connection with the exploration and development of the mineral properties that we plan to undertake. These potential problems include, but are not limited to, unanticipated problems relating to exploration, and additional costs and expenses that may exceed current estimates. If the results of our development program do not reveal viable commercial mineralization, we may decide to abandon our claim and acquire new claims. Our ability to acquire additional claims will be dependent upon our possessing adequate capital resources when needed. If no funding is available, we may be forced to abandon our operations.
Because of the inherent dangers involved in mineral extracting, there is a risk that we may incur liability or damages as we conduct our business.
The extracting of minerals involves numerous hazards. As a result, we may become subject to liability for such hazards, including pollution, cave-ins and other hazards against which we cannot insure or against which we may elect not to insure. At the present time we have no insurance to cover against these hazards. The payment of such liabilities may result in our inability to complete our planned program and/or obtain additional financing to fund our program.
Future participation in an increased number of minerals exploration prospects will require substantial capital expenditures.
The uncertainty and factors described throughout this section may impede our ability to economically discover, acquire, develop and/or exploit mineral prospects. As a result, we may not be able to achieve or sustain profitability or positive cash flows from operating activities in the future.
The financial statements for the fiscal years ended December 31, 2013 and December 31, 2012 have been prepared “assuming that we will continue as a going concern,” which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business. Our ability to continue as a going concern is dependent on raising additional capital to fund our operations and ultimately on generating future profitable operations. There can be no assurance that we will be able to raise sufficient additional capital or eventually have positive cash flow from operations to address all of our cash flow needs. If we are not able to find alternative sources of cash or generate positive cash flow from operations, our business and shareholders will be materially and adversely affected. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation - Going Concern.”
The mineral exploration and oilfield services industries are highly competitive and there is no assurance that we will be successful in acquiring key minerals or prospective properties.
The mineral exploration and oilfield services industries are intensely competitive, and we compete with other companies that have greater resources. Many of these companies not only explore for and produce certain minerals, but also market certain minerals and other products on a regional, national or worldwide basis. These companies may be able to pay more for key minerals, productive mineral properties and exploratory prospects or define, evaluate, bid for and purchase a greater number of properties and prospects than our financial or human resources permit. In addition, these companies may have a greater ability to continue exploration activities during periods of low mineral market prices. Our larger competitors may be able to absorb the burden of present and future foreign, federal, state, local and other laws and regulations more easily than we can, which would adversely affect our competitive position. Our ability to acquire additional properties and to discover productive prospects in the future will be dependent upon our ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment. In addition, because we have fewer financial and human resources than many companies in our industry, we may be at a disadvantage in bidding for exploratory prospects and producing mineral properties.
Federal, state and local legislative and regulatory initiatives relating to hydraulic fracturing and the potential for related regulatory action or litigation could result in increased costs and additional operating restrictions or delays for our customers, which could negatively impact our business, financial condition and results of operations.
We plan to supply equipment and commodities to companies that process, transport and utilize natural gas, many of which benefit from increased natural gas production resulting from hydraulic fracturing in the oil and natural gas industry. As a result, increased regulation of hydraulic fracturing may adversely impact our business, financial condition and results of operations. If additional levels of regulation are implemented with respect to hydraulic fracturing, it may make it more difficult to complete natural gas wells in shale formations and discourage exploration of new wells. This could increase our customers' costs of compliance and doing business or otherwise adversely affect the hydraulic fracturing services they perform, which may negatively impact natural gas production and demand for our equipment and commodities used in the natural gas industry.
In addition, heightened political, regulatory and public scrutiny of hydraulic fracturing practices could potentially expose our customers to increased legal and regulatory proceedings, which could negatively impact natural gas production and demand for our equipment and commodities used in the natural gas industry. Any such developments could have a material adverse effect on our business, financial condition and results of operations, whether directly or indirectly.
We may be unable to achieve profitable, commercial production of our transport container system.
To date, we have produced one prototype of our transport container system. There is no guarantee that we will be able to secure funding to begin commercial production of the container. Even if we are able to produce the container in commercial quantities, there is no guarantee that the oil and gas industry will accept or adopt the design of our container. Furthermore, as detailed in Part I. Item 3. Legal Proceedings, Synergy Natural Resources, LLC alleges that our transport container system was based on a container for the transport and storage of aggregate material called the PASS Box, which Synergy alleges to have developed. We dispute that we misappropriated any trade secrets associated with the PASS Box, and intend to vigorously defend ourselves in the litigation with Synergy. However, the Company cannot predict the outcome of the Synergy litigation at this time. If we are unable to achieve profitable, commercial production of the transport container system for any reason, including, but not limited to those reasons stated in this paragraph, then we will be unable to recover the financial resources already invested in this project and our future results of operations and financial condition may be materially adversely impacted.
The marketability of natural resources will be affected by numerous factors beyond our control which may result in us not receiving an adequate return on invested capital to be profitable or viable.
The marketability of natural resources which may be acquired or discovered by us will be affected by numerous factors beyond our control. These factors include macroeconomic factors, market fluctuations in commodity pricing and demand, the proximity and capacity of natural resource markets and processing equipment, governmental regulations, land tenure, land use, regulation concerning the importing and exporting of certain minerals and environmental protection regulations. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in us not receiving an adequate return on invested capital to be profitable or viable.
We have no insurance for environmental problems.
Insurance against environmental risks, including potential liability for pollution or other hazards as a result of the disposal of waste products occurring from exploration and production, has not generally been available in the mining industry. We have no insurance coverage for most environmental risks. In the event of a problem, the payment of environmental liabilities and costs would reduce the funds available to us for future operations. If we are unable to fund the cost of remedying an environmental problem, we might be required to enter into an interim compliance measure pending completion of the required remedy.
As we undertake development of our claims, we will be subject to compliance with government regulation that may increase the anticipated cost of our program.
There are several governmental regulations that materially restrict our mineral extraction program. We will be subject to the laws of the Province of Ontario as well as other governmental regulations as we carry out our program on the Bateman Property. We may be required to obtain work permits, post bonds and perform remediation work for any physical disturbance to the area in order to comply with these laws. The cost of complying with permit and regulatory environment laws will be greater because the impact on the project area is greater. Permits and regulations will control all aspects of the production program if the project continues to that stage. Examples of regulatory requirements include:
(a)
Water discharge will have to meet drinking water standards;
(b)
Dust generation will have to be minimal or otherwise re-mediated;
(c)
Dumping of material on the surface will have to be re-contoured and re-vegetated with natural vegetation;
(d)
An assessment of all material to be left on the surface will need to be environmentally benign;
(e)
Ground water will have to be monitored for any potential contaminants;
(f)
The socio-economic impact of the project will have to be evaluated and if deemed negative, will have to be remediated; and
(g)
There will have to be an impact report of the work on the local fauna and flora including a study of potentially endangered species.
There is a risk that new regulations could increase our costs of doing business and prevent us from carrying out our exploration program. We will also have to sustain the cost of reclamation and environmental remediation for all exploration work undertaken. Both reclamation and environmental remediation refer to putting disturbed ground back as close to its original state as possible. Other potential pollution or damage must be cleaned-up and renewed along standard guidelines outlined in the usual permits. Reclamation is the process of bringing the land back to its natural state after completion of exploration activities. Environmental remediation refers to the physical activity of taking steps to remediate, or remedy, any environmental damage caused. The amount of these costs is not known at this time as we do not know the extent of the exploration program that will be undertaken beyond completion of the recommended work program. If remediation costs exceed our cash reserves we may be unable to complete our exploration program and have to abandon our operations.
If access to our mineral properties is restricted by inclement weather, we may be delayed in any future mining efforts.
It is possible that adverse weather could cause accessibility to our properties to be difficult and this would delay in our timetables.
Our business depends on a limited number of key personnel, the loss of whom could negatively affect us.
Our officers and employees are important to our success. If any of them becomes unable or unwilling to continue in their respective positions and we are unable to find suitable replacements, our business and financial results could be materially negatively affected.
Nevada law and our articles of incorporation may protect our directors from certain types of lawsuits.
Nevada law provides that our officers and directors will not be liable to us or our stockholders for monetary damages for certain types of conduct as officers and directors. Our Bylaws permit us broad indemnification powers to all persons against all damages incurred in connection with our business to the fullest extent provided or allowed by law. The exculpation provisions may have the effect of preventing stockholders from recovering damages against our officers and directors caused by their negligence, poor judgment or other circumstances. The indemnification provisions may require us to use our limited assets to defend our officers and directors against claims, including claims arising out of their negligence, poor judgment, or other circumstances.
Risk Factors Related to Our Common Stock
Sales of a substantial number of shares of our common stock in the public market by certain stockholders could cause a reduction in the market price of our common stock.
As of December 31, 2013, we had 438,615,065 shares of common stock issued and outstanding. As of December 31, 2013, 271,913,690 of those outstanding shares of our common stock are restricted securities as that term is defined in Rule 144 under the Securities Act. Although the Securities Act and Rule 144 place certain prohibitions on the sale of restricted securities, restricted securities may be sold into the public market under certain conditions.
Any significant downward pressure on the price of our common stock as the selling stockholders sell their shares of our common stock could encourage short sales by the selling stockholders or others. Any such short sales could place further downward pressure on the price of our common stock.
The trading price of our common stock on the OTC Bulletin Board has been and may continue to fluctuate significantly and stockholders may have difficulty reselling their shares.
Our common stock commenced trading on approximately February 28, 2009 on the OTC Bulletin Board and the trading price has fluctuated. In addition to volatility associated with Bulletin Board securities in general, the value of your investment could decline due to the impact of any of the following factors upon the market price of our common stock: (i) disappointing results from our discovery or development efforts; (ii) failure to meet our revenue or profit goals or operating budget; (iii) decline in demand for our common stock; (iv) downward revisions in securities analysts’ estimates or changes in general market conditions; (v) technological innovations by competitors or in competing technologies; (vi) lack of funding generated for operations; (vii) investor perception of our industry or our prospects; and (viii) general economic trends.
In addition, stock markets have experienced price and volume fluctuations and the market prices of securities have been highly volatile. These fluctuations are often unrelated to operating performance and may adversely affect the market price of our common stock. As a result, investors may be unable to sell their shares at a fair price and you may lose all or part of your investment.
Additional issuances of equity securities may result in dilution to our existing stockholders.
Our Articles of Incorporation authorize the issuance of 500,000,000 shares of common stock. The Board of Directors has the authority to issue additional shares of our capital stock to provide additional financing in the future and the issuance of any such shares may result in a reduction of the book value or market price of the outstanding shares of our common stock. If we do issue any such additional shares, such issuance also will cause a reduction in the proportionate ownership and voting power of all other stockholders. As a result of such dilution, if you acquire shares of our common stock, your proportionate ownership interest and voting power could be decreased. Further, any such issuances could result in a change of control.
Our stock is a penny stock and trading of our stock may be restricted by the SEC’s penny stock regulations, which may limit a stockholder’s ability to buy and sell our stock.
Our stock is a penny stock. Rule 3a51-1 generally defines “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 that 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 (excluding one’s primary residence) or annual income exceeding $200,000 individually or $300,000 jointly with their spouse. The penny stock rules (including Rule 15g-9) 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 SEC, 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 (FINRA) sales practice requirements may also limit a stockbroker’s ability to buy or sell our stock.
In addition to the “penny stock” rules promulgated by the SEC, 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 interpretation 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. The 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 or sell our stock and have an adverse effect on the market for our shares.
A decline in the price of our common stock could affect our ability to raise further working capital and adversely impact our operations.
A decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise additional capital for our operations. Since our operations to date have been principally financed through the sale of equity securities, a decline in the price of our common stock could have an adverse effect upon our liquidity and our continued operations. A reduction in our ability to raise equity capital in the future would have a material adverse effect upon our business plan and operations, including our ability to continue our current operations. If our stock price declines, we may not be able to raise additional capital or generate funds from operations sufficient to meet our obligations.
We do not expect to pay any cash dividends for the foreseeable future.
We currently expect to retain all available funds and future earnings, if any, for use in the operation and growth of our business and do not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our Board, subject to compliance with applicable law, our organizational documents (including the certificates of designations for our preferred stock, which prohibit cash dividends to common stockholders without the consent of preferred stockholders) and any contractual provisions, including under agreements for indebtedness we may incur, that restrict or limit our ability to pay dividends, and will depend upon, among other factors, our results of operations, financial condition, earnings, capital requirements and other factors that our Board deems relevant. Investors seeking cash dividends in the foreseeable future should not purchase our common stock.
ITEM 2.
ITEM 2. PROPERTIES
New Orleans Processing Plant and Bulk Terminal
During the third quarter of 2013, we executed a Sublease for use of a bulk terminal and mineral processing plant located in New Orleans, LA. The term of the Sublease, including optional extensions, is 27 years. We have engaged EDG Consulting Engineers to design a master plan for our use of the plant facilities. The master plan design work has now been completed. Blethen Mining Associates, PC will act as general contractor to oversee budgeting, as well as the reconstruction and operation of the plant and facility. The existing facility includes a cement drying plant and four ball mills designed to crush slag for cement production. We plan to convert the ball mills to crush barite and to convert the drying plant for use on hydrosize/wet frac sand. We have agreed to purchase the existing improvements on the property for $750,000, contingent on our securing the necessary funding. A budget for the reconstruction of the terminal and plant has not yet been completed; we anticipate the necessary conversion and improvements will require an investment of $10-14 million, not including the cost of leasing equipment and operating the facility. There is no guarantee that we will be able to raise sufficient capital to execute our plan to reconstruct the plant. The plant will be designed to accommodate containers that meet ISO standards, including our double stack interlock single transport container system designed for intermodal transport. We are continuing to fine-tune the design of our transport container system, with the intention of beginning commercial production when we have secured sufficient funding. The location of the facility allows for materials to be delivered and distributed by rail, barge or truck.
Bateman Property Option
Effective on February 9, 2011, we entered into that certain Bateman Property Option (the “Option”) with Richard and Gloria Kwiatkowski (collectively, the “Kwiatkowski”). The Option provides for the development of 136 claim units covering a series of nickel-colbalt-gold-platinum group element prospects, which prospects are located 35 kilometers northwest of Thunder Bay, Ontario (the “Prospects”). The Prospects are owned 100% by Kwiatkowski as tenants in common. We intend to work on the Prospects, including drilling, for three types of geological conceptual targets: (i) shebandowan type high grade nickel-cobalt-gold-platinum sulphide deposits; (ii) disseminated nickel sulphides of Mount Keith type with bulk tonnage potential; and (iii) gold mineralization within an extensive conglomerate unit of potential open-pit bulk tonnage configuration.
In accordance with the terms and provisions of the Option: (i) upon execution of certain documentation and transfer of title, we paid $5,000 and issued 250,000 shares of common stock to the Kwiatkowskis; (ii) at the end of year one, on February 9, 2012, we issued the Kwiatkowskis 512,821 shares as payment for the $20,000 due under the terms of the Option; (iii) at the end of year two, on February 9, 2013, we paid a further $30,000 by issuing 2,727,300 shares of stock; (iv) each anniversary thereafter, we shall pay to Kwiatkowskis $25,000 as advance royalty payment until the sum of $200,000 has been paid (Note: we have received a 60-day extension for the payment due February 9, 2014); (v) we shall further make payment to Kwiatkowski of 3% NSR royalty on all production from the Prospects, which royalty may be purchased by us as to 1.5% of the 3% for the sum of $1,500,000 in increments of $500,000 per 0.5% NSR; and (vi) we shall commit to expenditures of $200,000 on the Prospects.
As part of this agreement, we issued a convertible debt of $20,000 to the Seller. In conjunction with this debt, there was no debt discount or beneficial conversion feature recorded since the conversion privilege was contingent on the current market value of the shares at the date of the notice of conversion. Accordingly, on February 9, 2012 the Company issued to Gloria and Richard Kwiatkowski 256,411 and 256,410 shares respectively at the market price of $0.0390 to satisfy the $20,000 Debt.
The prepaid royalty of $124,200 has been analyzed for impairment and has been fully impaired.
Interest on the discounted royalty claim has been accrued at 12%. Accrued interest was $39,791 as of December 31, 2013, which brings the liability balance to $163,991.
Office Locations
We currently do not own any real property. Our principal executive office is located at 10120 S. Eastern Avenue, Suite 200, Henderson, Nevada 89052. Our subsidiary, DDCC Marketing Group, LLC, leases an office at 7904 N. Sam Houston Pkwy West, Suite 325, Houston, Texas 77064.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
On August 9, 2011, a complaint was filed in the Supreme Court of British Columbia, File No. S-115321, by Falco Investments, Inc. ("Falco") naming us as a defendant (the "Complaint"). In the Complaint, Falco alleges that we owe $690,588 as compensation for corporate work performed by Falco through June 30, 2011. We have responded in our answer and stated that we do not owe the $690,588 for such services allegedly performed by Falco since there was no written contract between us and Falco. We have counterclaimed and named the former president/chief executive officer, Dr. Stewart Jackson and Donald Rutledge and Leslie Rutledge as defendants. The Company cannot predict the outcome of the Falco litigation at this time.
On May 13, 2013, shareholder Falco Investments and non-shareholder Leslie Rutledge filed a purported derivative lawsuit in the U.S. District Court for the District of Nevada, naming the Company as a nominal defendant and naming as defendants nine current or former officers and members of its board of directors, including Jerry Drew, Keith Tubandt, Allen Lopez, and Antonio B. Castillo, the board of directors collectively, and the company’s former outside counsel, Diane Dalmy, as defendants. The complaint alleged, among other things, that the individual defendants breached their fiduciary duties and/or wasted corporate assets or were unjustly enriched or engaged in gross mismanagement in relation to various actions, including “lowering” the company’s stock price, failing to maintain internal controls, interfering with the removal of restricted legends from certain free-trading shares, and failing to issue shares pursuant to certain convertible notes. The complaint sought, among other things, an award of punitive damages to the plaintiffs, injunctive relief, disgorgement of compensation by the Company’s directors, and an order directing the Company to reform its corporate governance and internal procedures and attorney’s fees and costs. On December 4, 2013, the Court dismissed the complaint with prejudice.
On May 23, 2013, Double Crown Resources, Inc. initiated suit against Synergy Natural Resources, LLC in the United States District Court for the Southern District of Texas (Houston Division), requesting declaratory relief against defendant Synergy Natural Resources, LLC, relating to alleged trade secrets and rights to patent protection on Double Crown’s transport system. Synergy has asserted counterclaims including breach of contract, tortious interference with prospective contracts or business relations, and business disparagement. The case is presently in the discovery phase. The Company cannot predict the outcome of the Synergy litigation at this time.
Other than the three proceedings mentioned above, we are not a party to any material legal proceedings and to our knowledge, no such proceedings are threatened or contemplated.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Price Range for Common Stock
Shares of our common stock commenced trading October 2008 on the OTC Bulletin Board and currently trades under the symbol “DDCC:OB”. The market for our common stock is limited, and can be volatile. The following table sets forth the high and low bid prices relating to our common stock on a quarterly basis for the periods indicated as quoted by the NASDAQ stock market. These quotations reflect inter-dealer prices without retail mark-up, mark-down, or commissions, and may not reflect actual transactions.
All amounts have been adjusted for stock splits.
As of March 31, 2014, we had 314 shareholders of record, which does not include shareholders whose shares are held in street or nominee names.
Equity Compensation Plan Information
We do not have an equity compensation plan.
Recent Sales of Unregistered Securities
Set forth below is information regarding shares of common stock issued by us during the year ended December 31, 2013 that were not registered under the Securities Act and not previously disclosed in a quarterly report on Form 10-Q or in a current report on Form 8-K. Also included is the consideration, if any, received by us for such shares and information relating to the section of the Securities Act, or rule of the SEC, under which exemption from registration was claimed.
During the quarter ended September 30, 2013, we issued an aggregate of 80,800,000 shares. Of this amount, 62,400,000 were issued for services valued at $1,341,600 and 18,400,000 were issued for cash of $184,000. 62,000,000 of the shares issued for services were issued to our officers and directors in consideration for their services to the Company.
During the quarter ended December 31, 2013 we issued an aggregate of 57,200,000 shares. Of this amount, 10,000,000 shares were issued for cash received in the third quarter in the amount of $100,000; 39,200,000 shares were issued for cash of $387,000; and 8,000,000 shares were issued for services valued at a market rate of $121,200.
Also during the quarter ended December 31, 2013, we cancelled 14,000,000 shares valued at $420,000 for services that were not performed.
No underwriters were involved in the foregoing issuances of securities. The offers, sales and issuances of the securities described above were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(2) of the Securities Act. The issuance of stock that was a private offering was issued in reliance of Regulation D promulgated under the Securities Act. Each of the recipients of securities in these transactions had adequate access, through directorship, business or other relationships, to information about us. The investors acknowledged that the securities to be issued have not been registered under the Securities Act, that they understood the economic risk of an investment in the securities, and that they had the opportunity to ask questions of and receive answers from our management concerning any and all matters related to acquisition of the securities.
Dividend Policy
No dividends have ever been declared by the Board of Directors on our common stock. Our losses do not currently indicate the ability to pay any cash dividends, and we do not have the intention of paying cash dividends on our common stock in the foreseeable future.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable for a smaller reporting company.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion provides information that we believe is relevant to an assessment and understanding of the consolidated results of operations and financial condition of the Company. It should be read in conjunction with our audited financial statements and the accompanying notes also included in the annual report on form 10-K. The following discussion addresses matters we consider important for an understanding of our financial condition and results of operations as of, and for the year-ended, December 31, 2013, as well as our future results.
Overview
We are an exploration stage company and have not generated any revenue to date. We have incurred recurring losses to date. Our financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation.
Our business plan had been focused on building a portfolio of producing mineral properties through acquisition of properties that are in production or have the potential for near-term production. Pursuit of this business strategy requires our ability to secure significant funding, which we have not secured to date.
While we have not discontinued our prior business plan, we have expanded the plan and shifted our focus to the oilfield services sector. We are in the process of negotiating contracts to supply industrial quantities of commodities to on-shore oil and gas drilling operations in the United States. We believe that the growing movement for energy independence in the United States will lead to an increased number of oil and gas wells being drilled and put into production throughout the country. Many of these wells require hydraulic fracturing (fracking) to access the oil and gas reserves trapped in hundreds of miles of brittle shale rock thousands of feet below the surface. The hydraulic fracturing process requires a number of specialized commodities, including a unique type of sand, known as “frac-sand” or “proppant,” that can hold its shape under intense pressure and heat and is porous enough to allow thousands of gallons of oil or millions of cubic feet of gas to seep through it to the drill pipe. A typical frac-well will use 2,200 tons of this type of frac-sand. Other materials required for hydraulic fracturing include, guar gum, barite, and a variety of industrial chemicals.
We intend to participate in negotiations and discussions with potential joint venture parties regarding sourcing frac-sand, barite, guar gum and various industrial chemicals and establishing the infrastructure to deliver these materials to oil and gas drilling sites. As part of this business strategy, in March of 2013, we became an authorized dealer for the chemicals division of American International Sealing, LLC, granting us U.S. marketing rights for a slate of industrial chemicals used in hydraulic fracturing, bioremediation and pipeline chemical cleaning functions.
Also in March 2013, we executed a Memorandum of Understanding with Synergy Natural Resources, LLC (“Synergy”), a Georgia-based industrial design and manufacturing company (the “Synergy MOU”) to acquire Synergy and its assets, which included the PASS Box, a large capacity, single transfer method of shipping hydraulic fracturing sand or other critical aggregate materials used for petroleum drilling. Thereafter, we terminated the Synergy MOU and developed the Transprop AGG, our own double stack interlock single transfer container system for high efficiency transport of high tonnage aggregate cargo. We are continuing to fine-tune the design of, and intend to apply for a patent regarding, the Transprop AGG, with the intention of beginning commercial production if we are able to secure sufficient funding, which is not assured. As discussed elsewhere herein, in May 2013, we initiated suit against Synergy, requesting declaratory relief on claims relating to alleged trade secrets and rights to patent prosecution on our transport system. Synergy has filed counterclaims alleging that we misappropriated its trade secrets in developing the Transprop AGG. Although we dispute this allegation, and intend to vigorously defend ourselves, we cannot predict the outcome of the Synergy litigation at this time. (See Part I. Item 3. Legal Proceedings in this report.)
During the third quarter of 2013, we executed a Sublease for use of a bulk terminal and mineral processing plant located in New Orleans, LA. The term of the Sublease, including optional extensions, is 27 years. We have engaged EDG Consulting Engineers to design a master plan for our use of the plant facilities. The master plan design work has now been completed. Blethen Mining Associates, PC will act as general contractor to oversee budgeting, as well as the reconstruction and operation of the plant and facility. The existing facility includes a cement drying plant and four ball mills designed to crush slag for cement production. We plan to convert the ball mills to crush barite and to convert the drying plant for use on hydrosize/wet frac sand. We have agreed to purchase the existing improvements on the property for $750,000, contingent on our securing the necessary funding. A budget for the reconstruction of the terminal and plant has not yet been completed; we anticipate the necessary conversion and improvements will require an investment of $10-14 million, not including the cost of leasing equipment and operating the facility. There is no guarantee that we will be able to raise sufficient capital to execute our plan to reconstruct the plant. The plant will be designed to accommodate containers that meet ISO standards, including our double stack interlock single transport container system designed for intermodal transport. The location of the facility allows for materials to be delivered and distributed by rail, barge or truck.
In October 2013, we formed DDCC Marketing Group, LLC, which is a wholly owned subsidiary, to market minerals and other commodities to oil and gas industry customers. We opened an office in Houston, Texas to serve as the headquarters of the marketing group. In addition to housing the marketing and support staff, the Houston office includes office facilities for our executive officers.
2014 Developments
In January 2014, we entered into a strategic alliance with Logistica US Terminals, LLC (“Logistica”) for the purchase, sale and distribution of minerals and other commodities in the oilfield services industry. This was an expansion of our April 2013 agreement with Logistica, under which they agreed to supply us with key minerals and related materials for our resale to oil and gas well drillers. Under the terms of our January 2014 alliance with Logistica, Logistica will provide logistics and transportation of the materials, and we will provide all sales and marketing of the materials through our subsidiary, DDCC Marketing Group, LLC.
We expect we will require additional capital to meet our long term operating requirements. We expect to raise additional capital through, among other things, the sale of equity or debt securities.
Liquidity and Capital Resources
During the year ended December 31, 2013, we generated working capital to fund operations through the sale of our common stock. In 2014, we anticipate that revenue from our oilfield services operations will support our operating expenses, including our general and administrative expenses. However, if we do not generate sufficient revenue through operations, we will need to raise additional capital through the issuance of equity and/or debt securities in order to support our operations. The issuance of such securities could have a dilutive effect on our shareholders.
At December 31, 2013, we had no material commitments for capital expenditures.
A summary of our cash flows during the fiscal years ended December 31, 2013 and 2012 follows.
Operating Activities
We have not generated positive cash flows from operating activities. Cash used in operating activities during the year ended December 31, 2013 increased to $1,002,570, as compared to $126,617 used during the year-ended December 31, 2012. The increase is a result of the increased activity, including hiring employees and opening a marketing office in Houston, Texas, as we ramped up our oilfield services operations.
Investing Activities
Cash used for investing activities during the year ended December 31, 2013 was $39,902, as compared to $-0- for the year ended December 31, 2012. We used the capital to acquire computers, furniture, fixtures and one vehicle for our Houston, Texas office.
Financing Activities
Total net cash provided by financing activities was $1,082,350 for the year ended December 31, 2013, which consisted of private placement offerings generating $1,082,350 in proceeds from the issuance of our common stock. Total net cash provided by financing activities was $91,770 for the year ended December 31, 2012, which consisted of private placement offerings generating $91,770 in proceeds from the issuance of our common stock.
At December 31, 2013, we had cash totaling $43,151, as compared to $3,273 at December 31, 2012. We anticipate that current cash expected to be generated from operations will sustain our operations through December 31, 2014. We are not aware of any trends or potential events that are likely to adversely impact our short term liquidity in 2014.
2013 Results of Operations - Comparative Financial Information
The following table sets forth certain of our operating information for the years ended December 31, 2013 and 2012.
Net Loss
Our net loss for fiscal year ended December 31, 2013 was $4,114,180 compared to a net loss of $1,012,200 during fiscal year ended December 31, 2012. The increase of $3,101,980 in net loss is primarily a result of the increased activity, including hiring employees and opening a marketing office in Houston, Texas, as we ramped up our oilfield services operations.
Operating Revenues
We generated no revenue during the years ended December 31, 2013 and 2012.
Operating Expenses
During fiscal year ended December 31, 2013, we incurred operating expenses of approximately $4,052,928 compared to $783,058 incurred during fiscal year ended December 31, 2012 (an increase of $3,269,870). The increase in operating expenses from 2012 to 2013 was primarily due to the increase in our professional fees (by $2,618,297) and our general and administrative expenses (by $570,398) related to the increased activity, including hiring employees and opening a marketing office in Houston, Texas, as we ramped up our oilfield services operations. We also incurred increased compliance costs and legal fees associated with litigation matters (see Part I. Item 3. Legal Proceedings). General and administrative expenses generally include corporate overhead, financial and administrative contracted services, marketing, and consulting costs.
Other Income (Expenses)
Other expenses incurred during fiscal year ended December 31, 2013 totaled $61,252, compared to other expenses of $229,142 for the year ended December 31, 2012. The decrease was due to a $48,000 gain on debt cancellation/civil gain contingency in 2013 and the elimination of the related party financing cost of $120,034 incurred in 2012.
Going Concern Consideration
The independent auditors' report accompanying our December 31, 2013 and December 31, 2012 financial statements contains an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The financial statements have been prepared "assuming that we will continue as a going concern," which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business.
Critical Accounting Policies
Cash and cash equivalents
The Company considers highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents.
Net Loss per Share
Net loss per common share is computed by dividing net loss by the weighted average common shares outstanding during the period as defined by Financial Accounting Standards, ASC Topic 260, "Earnings per Share". Basic earnings per common share (“EPS”) calculations are determined by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding. During periods when common stock equivalents, if any, are anti-dilutive, they are not considered in the computation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates. Management believes that the estimates used are reasonable.
In Management's opinion all adjustments necessary for a fair statement of the results for the interim periods have been made. All adjustments are normal and recurring.
Reclassifications
Certain prior year balances have been reclassified to conform to the current year presentation.
Revenue Recognition
The Company recognizes revenue on an accrual basis. Revenue is generally realized or realizable and earned when all of the following criteria are met: 1) persuasive evidence of an arrangement exists between the Company and our customer(s); 2) services have been rendered; 3) our price to our customer is fixed or determinable; and 4) collectability is reasonably assured.
Fair value of financial instruments
The carrying value of cash equivalents and accrued expenses approximates fair value due to the short period of time to maturity.
Stock-based compensation
The Company recognizes stock-based compensation in accordance with ASC Topic 718 “Stock Compensation”, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options and employee stock purchases related to an Employee Stock Purchase Plan based on the estimated fair values.
Recent Accounting Pronouncements
For a discussion of recently issued accounting standards, see Note 3 in the Notes to the Consolidated Financial Statements contained in this Annual Report.
Off Balance Sheet Arrangements
We have no off-balance sheet arrangements.
ITEM 7A.
ITEM 7A. QUALITATIVE AND QUANTITATIVE EXPOSURE ABOUT MARKET RISK
Not applicable to a smaller reporting company.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
TERRY L. JOHNSON, CPA
406 Greyford Lane
Casselberry, Florida 32707
Phone 407-721-4753
Fax/Voice Message 866-813-3428
E-mail cpatlj@yahoo.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Double Crown Resources, Inc.
I have audited the accompanying balance sheets of Double Crown Resources, Inc. as of December 31, 2013 and 2012 and the statements of operations, stockholders’ equity, and cash flows for the years ended December 31, 2013 and 2012. These financial statements are the responsibility of the Company’s management. My responsibility is to express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor was I engaged to perform, an audit of its internal control over financial reporting. My audit 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, I express no such opinion. An audit 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 financial statement presentation. I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Double Crown Resources, Inc. as of December 31, 2013 and 2012 and the results of its operations and its cash flows for the years period ended December 31, 2013 and 2012 in conformity with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has a minimum cash balance available for payment of ongoing operating expenses, has experienced losses from operations since inception, and it does not have a source of revenue sufficient to cover its operating costs. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in this regard are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Terry L. Johnson, CPA
Casselberry, Florida
March 24, 2014
DOUBLE CROWN RESOURCES, INC.
(formerly "Denarii Resources, Inc.")
(An Exploration Stage Company)
BALANCE SHEETS
The accompanying notes are an integral part of these financial statements.
DOUBLE CROWN RESOURCES, INC.
(formerly "Denarii Resources, Inc.")
(An Exploration Stage Company)
STATEMENTS OF OPERATIONS
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
DOUBLE CROWN RESOURCES, INC.
(formerly "Denarii Resources, Inc.")
(An Exploration Stage Company)
STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of these financial statements.
DOUBLE CROWN RESOURCES, INC
(Formerly “Denarii Resources, Inc.”)
(An Exploration Stage Company)
Notes to Financial Statements
December 31, 2013
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Double Crown Resources, Inc. (Formerly “Denarii Resources, Inc.”) ("Double Crown Resources" or the "Company") was organized under the laws of the State of Nevada on March 23, 2006 to explore mining claims and property in North America.
Basis of Presentation
These financial statements are presented in United States dollars and have been prepared in accordance with United States generally accepted accounting principles.
NOTE 2 - GOING CONCERN
The Company’s financial statements as of December 31, 2013 have been prepared using generally accepted accounting principles in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The Company has incurred a cumulative net loss from inception (March 23, 2006) through December 31, 2013 of $7,575,617.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses and seeking equity and/or debt financing. However management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. These financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents
The Company considers highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents.
Net Loss per Share
Net loss per common share is computed by dividing net loss by the weighted average common shares outstanding during the period as defined by Financial Accounting Standards, ASC Topic 260, "Earnings per Share". Basic earnings per common share (“EPS”) calculations are determined by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding. During periods when common stock equivalents, if any, are anti-dilutive, they are not considered in the computation.
DOUBLE CROWN RESOURCES, INC
(Formerly “Denarii Resources, Inc.”)
(An Exploration Stage Company)
Notes to Financial Statements
December 31, 2013
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates. Management believes that the estimates used are reasonable.
In Management's opinion all adjustments necessary for a fair statement of the results for the interim periods have been made. All adjustments are normal and recurring.
Reclassifications
Certain prior year balances have been reclassified to conform to the current year presentation.
Revenue Recognition
The Company recognizes revenue on an accrual basis. Revenue is generally realized or realizable and earned when all of the following criteria are met: 1) persuasive evidence of an arrangement exists between the Company and our customer(s); 2) services have been rendered; 3) our price to our customer is fixed or determinable; and 4) collectability is reasonably assured.
Fair value of financial instruments
The carrying value of cash equivalents and accrued expenses approximates fair value due to the short period of time to maturity.
Stock-based compensation
The Company recognizes stock-based compensation in accordance with ASC Topic 718 “Stock Compensation”, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options and employee stock purchases related to an Employee Stock Purchase Plan based on the estimated fair values.
DOUBLE CROWN RESOURCES, INC
(Formerly “Denarii Resources, Inc.”)
(An Exploration Stage Company)
Notes to Financial Statements
December 31, 2013
Recently Issued Accounting Principles
In October 2012, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2012-04, ''Technical Corrections and Improvements" in Accounting Standards Update No. 2012-04. The amendments in this update cover a wide range of Topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this update will be effective for fiscal periods beginning after December 15, 2012. The adoption of ASU 2012-04 is not expected to have a material impact on our financial position or results of operations.
In August 2012, the FASB issued ASU 2012-03, "Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22 (SEC Update)" in Accounting Standards Update No. 2012-03. This update amends various SEC paragraphs pursuant to the issuance of SAB No. 114. The adoption of ASU 2012-03 is not expected to have a material impact on our financial position or results of operations.
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
NOTE 4 - FIXED ASSETS
At December 31, 2013, the Company had the following fixed assets:
Depreciation was $2,364 for the year ended December 31, 2013. Computers will be depreciated over the straight line method over 3 to 5 years, furniture over 5-7 years and auto’s over 3years.
DOUBLE CROWN RESOURCES, INC
(Formerly “Denarii Resources, Inc.”)
(An Exploration Stage Company)
Notes to Financial Statements
December 31, 2013
NOTE 5 - DEBT
Mineral Prospect Obligation
Effective on February 9, 2011, the company entered into an agreement between the Company and Richard and Gloria Kwiatkowski (“the Seller”). The Option provides for the development of 136 claim units covering a series of nickel-cobalt-gold-platinum group element prospects, which prospects are located 35 kilometers northwest of Thunder Bay, Ontario (the “Prospects”).
In accordance with the terms and provisions of the Option: (i) upon execution of certain documentation and transfer of title, the Company has paid $5,000 and has issued 250,000 shares of common stock to the Kwiatkowskis; (ii) at the end of year one, February 9, 2012, the Company issued Kwiatkowskis 512,821 shares as payment which was valued at $20,000 (fair market value $0.039/share); (iii) At the end of year two, February 9, 2013, the Company paid to Kwiatkowskis a further $30,000 either in half cash and half shares or all shares at the option of the Kwiatkowskis; (iv) each anniversary thereafter, the Company shall pay to Kwiatkowskis $25,000 as advance royalty payment until the sum of $200,000 has been paid; (v) the Company shall further make payment to Kwiatkowskis of 3% NSR royalty on all production from the Prospects, which royalty may be purchased by the Company as to 1.5% of the 3% for the sum of $1,500,000 in increments of $500,000 per 0.5% NSR; and (vi) the Company shall commit to expenditures of $200,000 on the Prospects.
The Company in February 2013 paid the $30,000 liability via stock by issuing 2,727,300 shares of stock.
As part of the original agreement, the Company issued a convertible debt of $20,000 to the Seller. In conjunction with this debt, there was no debt discount or beneficial conversion feature recorded since the conversion privilege was contingent on the current market value of the shares at the date of the notice of conversion. Accordingly, on February 9, 2012 the Company issued to Gloria and Richard Kwiatkowski 256,411 and 256,410 shares respectively at the market price of $0.0390 to satisfy the $20,000 Debt.
The prepaid royalty of $124,200 has been analyzed for impairment and has been fully impaired.
This liability is presented at the present value of expected future cash flow requirements.
Interest on the discounted royalty claim has been accrued at 12%. Accrued interest was $39,791 as of December 31, 2013 which brings the liability balance to $163,991.
DOUBLE CROWN RESOURCES, INC
(Formerly “Denarii Resources, Inc.”)
(An Exploration Stage Company)
Notes to Financial Statements
December 31, 2013
NOTE 6 - RELATED PARTY TRANSACTIONS
Debt - Related Party
In the year ended December 31, 2010 the company entered into a five-year consulting agreement dated October 1, 2010 with Dr. Stewart Jackson (“Jackson”), pursuant to which Jackson, as the chief executive officer and a member of the Board of Directors, will provide certain consulting services to the Company including, but not limited to, contact with precious metal assets for acquisition in North America. After the change in management, the Company recognized the future remaining obligation based on the contract to Mr. Jackson and accrued it at its present value using a 12% discount rate over fifty-one months. This resulted in an $89,596 being recorded as a related party debt.
Interest expense of $27,166 has been recorded to December 31, 2013 ($10,752 in 2012), for a total debt of $116,762. The Company is disputing this liability. In addition the Company received two loans equaling $12,000. The loans are due on demand without interest from a related party. The total of Debt-related parties is $128,762.
Loans from Shareholder
A former officer of the Company has made loans to the Company totaling $48,000 .During the third quarter 2013, by written agreement, this loan was forgiven and is shown as other income in the statement of operations.
Share Issuances
During the quarter ended March 31, 2013 the Company issued 3,000,000 shares to directors for services valued at $30,000.
During the third quarter 2013 62,000,000 shares were issued to officers or directors with a value of $1,333,000.
Director Compensation
For the year ended December 31, 2013 the Company has paid $255,512 in fees to directors or officers or entities they control for services rendered in addition to the stock referenced above.
DOUBLE CROWN RESOURCES, INC
(Formerly “Denarii Resources, Inc.”)
(An Exploration Stage Company)
Notes to Financial Statements
December 31, 2013
NOTE 7 - STOCKHOLDERS' DEFICIT
Authorized
500,000,000 common shares with a par value of $0.001.
Shares Issued
During the quarter ended March 31, 2013 the company issued 32,063,940 shares of stock. Of this amount 3,000,000 was issued for services valued at $30,000, 2,727,300 was issued for debt of $30,000 and 26,336,640 was issued for cash of $134,350. The Company also received $51,000 in cash for shares to be issued in the amount of 10,200,000 shares.
During the quarter ended June 30, 2013 the Company issued 102,250,000 shares of stock. Of this amount 61,350,000 were issued for completed services valued at market which was between .03 and .04 per share, 29,200,000 for cash of $221,000, 1,700,000 shares of stock for debt satisfaction of $850 and10,000,000 shares in satisfaction of the subscription payable of $50,000.
During the third quarter ended September 30, 2013 the Company issued 80,800,000 shares, 62,400,000 for services valued at $1,341,600 (62,000,000 was issued to officers and directors (see Note 6 above) and the balance to consultants) and 18,400,000 for cash of $184,000.
Also in the quarter the company received $100,000 for stock to be issued of 10,000,000 shares.
During the fourth quarter 2013 the Company issued 10,000,000 shares for cash received in the third quarter.
The company issued 39,200,000 shares for cash of $387,000, issued 8,000,000 shares for services valued at market equaling $121,200 and cancelled 14,000,000 shares valued at $420,000 for services.
DOUBLE CROWN RESOURCES, INC
(Formerly “Denarii Resources, Inc.”)
(An Exploration Stage Company)
Notes to Financial Statements
December 31, 2013
NOTE 7 - STOCKHOLDERS' DEFICIT (continued)
Stock Warrants
The following is a summary of warrants balance as of December 31, 2013
NOTE 8 - DISPUTED LIABILITIES
As of June 15, 2011, the former management signed a resolution approving the issuance of promissory notes in the amount of $271,331 to Falco Investments, Inc. New management believes that the old management was not acting in the best interest of the company when they authorized these expenses and subsequently approved the issuance of the notes. The Company has recorded the balance of $884,663 due to Falco Investments, Inc. of which $132,382 has been reported as note payable, $563,206 as a Disputed Liability Related Party and $189,075 as accrued interest to December 31, 2013. The Company has decided to contest the current balance claimed to be due to Falco. Falco Investments initiated a lawsuit in August of 2011.
While the amount is deemed frivolous the Company has included this debt on the balance sheet till an eventual resolution is completed.
NOTE 9 - NOTE PAYABLE-AUTO
The Company on December 1, 2013 purchased an auto for $13,990 of which it put down as a deposit $2,500 and financed the balance. Terms indicate repayment over 36 months with a finance charge of $4,536. Monthly payments are $445.15 per month of which $126 per month is interest. At December 31, 2013 the net owed was $11,171 of which $3,830 was current and $7,341 was due after 12 months.
DOUBLE CROWN RESOURCES, INC
(Formerly “Denarii Resources, Inc.”)
(An Exploration Stage Company)
Notes to Financial Statements
December 31, 2013
NOTE 10 - INCOME TAX
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Net deferred tax assets consist of the following components as of December 31, 2013 and 2012:
The income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income from continuing operations for the period ended December 31, 2013 and 2012 due to the following:
DOUBLE CROWN RESOURCES, INC
(Formerly “Denarii Resources, Inc.”)
(An Exploration Stage Company)
Notes to Financial Statements
December 31, 2013
NOTE 10 - INCOME TAX (continued)
At December 31, 2013, the Company had net operating loss carry forwards of approximately $2,404,356 that may be offset against future taxable income from the year 2013 to 2014. No tax benefit has been reported in the December 31, 2013 financial statements since the potential tax benefit is offset by a valuation allowance of the same amount.
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards for Federal Income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carry forwards may be limited as to use in future years.
NOTE 11 - SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the filing date of these financial statements and has disclosed that there is one such event that is material to the financial statements to be disclosed:
1.
The Company in January 2014 issued 11,500,000 shares of stock, for cash of $115,000.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On January 15, 2014, we accepted the resignation of Patrick Rodgers, CPA, P.A. (“Rodgers”) from his engagement to be the independent certifying accountant for our Company. On the same day, we engaged Terry L. Johnson, CPA, as our Company’s new independent accountant. Their address is 406 Greyford Lane, Casselberry, Florida 32707. In March 2014, we learned that the Public Company Accounting Oversight Board (“PCAOB”) revoked the registration of Rodgers for violations of PCAOB rules and auditing standards. Rodgers audited our financial statements for the year ended December 31, 2012, which is a year we are required to include in this filing on Form 10-K for the year ended December 31, 2013. While the PCAOB findings did not involve Rodgers’ audit of our Company’s financials, we have elected to have our 2012 financial statements re-audited by a firm that is registered with the PCAOB. Therefore, the financial statements submitted with this filing for the year ended December 31, 2012 have been re-audited by Terry L. Johnson, CPA.
There are no disagreements with our current accountants on any matters related to accounting and financial disclosure issues.
The report of Terry Johnson on our financial statements for the fiscal years ended December 31, 2013 and December 31, 2012 did not contain an adverse opinion or disclaimer of opinion, nor were they modified as to uncertainty, audit scope or accounting principles, other than to state that there is substantial doubt as to our ability to continue as a going concern. During our fiscal years ended December 31, 2013 and 2012, there were no disagreements between us and Terry Johnson or Patrick Rodgers, whether or not resolved, on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of Terry Johnson or Patrick Rodgers, would have caused Terry Johnson or Patrick Rodgers to make reference thereto in their reports on our audited financial statements.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 , as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our president/chief executive officer and our secretary, treasurer/chief financial officer to allow for timely decisions regarding required disclosure.
As of December 31, 2013, the end of our fiscal year covered by this Annual Report, we carried out an evaluation, under the supervision and with the participation of our President/Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our President/Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective in providing reasonable assurance in the reliability of our financial reports as of the end of the period covered by this Annual Report. Non-effectiveness of disclosure controls was primarily a function of our increasing scope of operations with limited human and financial resources.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
●
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
●
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that our receipts and expenditures are being made only in accordance with authorizations of management and directors of the company; and
●
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
As of December 31, 2013, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treasury Commission ("COSO") and SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.
The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee and lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) inadequate segregation of duties consistent with control objectives; and (3) ineffective controls over period end financial disclosure and reporting processes. The aforementioned material weaknesses were identified by our Chief Executive Officer in connection with the review of our financial statements as of December 31, 2013 and communicated to management.
Management believes that the material weaknesses set forth in items (2) and (3) above did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.
Management’s Remediation Initiatives
We are committed to improving our financial organization. As part of this commitment, when funds are available, we will implement the following remediation initiatives:
We will create a position to segregate duties consistent with control objectives and will increase our personnel resources and technical accounting expertise within the accounting function by: i) appointing one or more outside directors to our board of directors who will also be appointed to an audit committee, resulting in a fully functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal controls over financial reporting; ii) preparing and implementing sufficient written policies and checklists that will set forth procedures for period-end financial disclosure and reporting processes; and iii) hiring additional personnel who have the technical expertise and knowledge to establish proper segregation of duties.
Management believes that the appointment of one or more outside directors, who shall be appointed to a fully functioning audit committee, will remedy the lack of a functioning audit committee and a lack of a majority of outside directors on our Board. In addition, management believes that preparing and implementing sufficient written policies and checklists that will set forth procedures for period-end financial disclosure and reporting processes will remedy the ineffective controls over period end financial disclosure and reporting processes. Further, management believes the hiring of additional personnel who have the technical expertise and knowledge will result in proper segregation of duties and provide more checks and balances within the financial department. These measures will greatly improve our disclosure controls and our internal control over financial reporting in the future.
Management will continue to monitor and evaluate the effectiveness of our internal controls over financial reporting on an ongoing basis and is committed to implementing the remediation initiatives stated above, as well as additional enhancements or improvements, as necessary and as funds allow.
This annual report does not include an attestation report of the Corporation's registered public accounting firm regarding internal control over financial reporting. Our Company was not required to have, nor have we, engaged our independent registered public accounting firm to perform an audit of internal control over financial reporting pursuant to the rules of the SEC that permit the us to provide only the management's report in this annual report.
Changes in internal controls over financial reporting
There was no change in our internal controls over financial reporting that occurred during the period covered by this report, which has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Identification of Directors and Executive Officers
Each of our directors is appointed to hold office until the next annual meeting of our stockholders or until his death, resignation, retirement, removal or disqualification, or until his successor has been duly elected and qualified. Vacancies in the Board are filled by majority vote of the remaining directors. Our officers serve at the will of the Board.
The following table sets forth the names and ages of our current directors and executive officers and any directors or executive officers who served with us in the period covered by this Annual Report, and the positions held by each such person.
Set forth below is certain biographical information furnished by our directors and executive officers
Jerold S. Drew. Mr. Drew was appointed as a member of our Board of Directors effective April 14, 2011 and as President, Chief Executive Officer and Acting Chief Financial Officer effective August 27, 2012. On October 2, 2013, Mr. Drew resigned as President and accepted the position of Chairman of the Board of Directors. During the past thirty years, Mr. Drew has been involved in business development and marketing. Currently, Mr. Drew owns and operates Jerold S. Drew Painting where he is solely responsible for the purchase of job materials, estimation of projects, supervision of projects and completion. He also owns and operates Spencer Vineyards in Redwood Valley, California, which grows high quality Petite Syrah and Pinot Noir grapes. Mr. Drew’s marketing experience started in the early 1980s where he was employed with J.D. Barton Company, which distributes lighting fixtures to major electrical wholesalers in the Sacramento Valley and throughout northern California. During the 1980s, Mr. Drew also developed a marketing plan for Mendocino Mineral Water. Subsequently, Mr. Drew started Jerold S. Drew Painting which has remained in profitable business for the past thirty years.
Mr. Drew earned his degree from California State University, Sacramento, in Business Management. For approximately twenty years, Mr. Drew was also the high school head cross country and track coach at Ukiah Unified School District until 2004 where his athletes were league, section, state and national champions.
Keith A. Tubandt. Mr. Tubandt was appointed as a member of our Board of Directors effective November 5, 2012; he resigned on January 14, 2014. During the past thirty years, Mr. Tubandt has been involved in the oil and gas industry. From approximately 2010 to 2012, Mr. Tubandt provided consulting services related to the design and building of a $45,000,000 frac sand transload facility in Texas, which currently receives 100-car unit trains to be unloaded into storage silos. From approximately 2008 through 2010, Mr. Tubandt was the managing partner of DeKat Consulting. He also provided consulting services to Guardian Industries to aid in the improvement of raw materials (sand, limestone and dolomite) for their glass plants. Mr. Tubandt also consulted for several other industrial mineral companies for improvement to their mineral processes. He also provided consulting services to Canadian Silica, Inc. to improve the dry process design by streamlining the process and eliminating the bottlenecks in order to meet the required design capacity. His consulting services at Canadian Silica, Inc. further involved a start-up of a 150 tph wet sand plant in northern Alberta, which had been stagnant for eight years due to lack of market and problems with the plant operation and design. Mr. Tubandt was successful in enabling the plant to meet its design of 150 tph on a continuous basis by designing and implementing a computer control system for plant operation and developing a quality control program and training personnel to meet API specifications. Lastly, during this period, Mr. Tubandt completed the design, business plan and solicitation of contracts to build a $50,000,000 sand processing plan in the western part of the United States. The sand is to be used for the manufacture of solar glass panels.
Mr. Tubandt earned a BS Degree in chemical engineering in 1974 from the South Dakota School of Mines and Technology.
Glenn Soler. Mr. Glenn Soler resigned on March 26, 2013. He was born in Boston, Massachusetts and graduated from the Northeastern University of Boston with an Associates Degree in Computer Science. Glenn speaks English and Spanish fluently. Since 1997, he has combined his bi-lingual skills and automation expertise to conduct business as a liaison between multinational companies in the U.S and foreign companies, especially in Mexico, Latin and South America. Mr. Soler's contacts and business expertise will be very instrumental in negotiating for mineral asset acquisitions in the US and other countries.
Marc Duncan. Mr. Duncan was appointed as a member of our Board of Director effective January 9, 2012; he resigned on March 26, 2013. During the past thirty-five years, Marc Duncan has held a variety of domestic and international engineering and senior-level operations management positions relating to natural gas and oil exploration, power generation and facilities development. Mr. Duncan has become well established and known in the energy resources industry. Since 2005, Mr. Duncan has been employed by Contango Oil & Gas Inc. (“Contango Oil & Gas”). Mr. Duncan joined Contango Oil & Gas where he held the position of president and chief operating officer. He currently holds the position of vice-chairman of the operating committee and SERCO. Mr. Duncan is currently responsible for drilling and development of the oil and gas assets of Contango Oil & Gas located in the Gulf of Mexico. Prior to joining Contango Oil & Gas, Mr. Duncan served as president & chief operating officer of USENCO International, Inc. and related companies, drilling and producing oil & gas in China and the Ukraine from 2001-2004. From 2004 through 2005, he was a senior project and drilling engineer for Hunt Oil Company. Mr. Duncan’s experience further includes geothermal and coal fired power generation development in China and Indonesia from 1995-2001. Previous employers also include SEDCO Drilling, ARCO Oil and Gas Co. and Texas Utilities.
Mr. Duncan holds an MBA in Engineering Management from the University of Dallas, an MEd from the University of North Texas and a BS in Science and Education from Stephen F. Austin State University. Mr. Duncan has been a member of the Society of Petroleum Engineers since 1981 and also serves on the Stephen F. Austin State University School of Business Advisory Board.
Allen Lopez. Mr. Lopez was appointed as a member of our Board of Directors effective April 5, 2012 and appointed President on October 2, 2013. During the past thirty years, Allen Lopez has been involved in the real estate industry and the oil and gas industry. Prior to joining our Board, Mr. Lopez served as a director of oilfield services with M. Nasr Partners P.C., where he was involved in mixed use planned development projects for ten years. Mr. Lopez was also the former president of Canaan Consulting Inc., where he had over twenty years of experience in real estate, which included working for national home builders and international development companies. Mr. Lopez also acted as general partner for many of his own projects where he developed extensive experience in master planned communities, town homes, single/multi-family residences, custom homes, high rise condominiums and multi-use/office retail projects. Mr. Lopez has been seated on the international real estate council for Gerson Lehrman. Mr. Lopez has also been retained by many REIT’s banks, development companies, franchise companies and land owners to assist in the determination of the best use, marketing strategies, development, acquisition and disposition of properties.
Antonio B. Castillo. Mr. Castillo was appointed as a member of our Board of Directors effective March 7, 2013 and appointed Chief Operating Officer on October 2, 2013. Mr. Castillo has 25 years of experience as a business financial advisor and as a procurement professional for equipment and materials to optimize oilfield drilling operations. Mr. Castillo has held a wide variety of positions in the oil and gas industry, including roles in financial development and technical drilling procurement. Mr. Castillo has worked internationally, including in México, London, Hawaii, and various locations in the continental United States. Mr. Castillo has experience in planning drilling projects for both on-shore and off-shore operations. He has worked with jack-up oil platforms, land rigs and also the chemical additives and other key materials required for high-yield production. Mr. Castillo meets the need of the Company for a director with industry experience who can assist the Company as it plans to bid on a number of petroleum industry projects.
Mr. Castillo earned a BA in Business Administration from the Universidad del Norte in México in 1987 and a Master’s Degree in Finance from the University of California at San Diego in 1993. Mr. Castillo is bilingual (English, Spanish) and has dual citizenship (United States, Mexico).
Tricia Oakley. Ms. Oakley was appointed as our Secretary effective August 2, 2011. During the past thirty years, Ms. Oakley has been employed as a legal secretary. Her experience ranges from corporate/environmental issues to estate planning, trusts and probate. Since 1997, Ms. Oakley has operated her own business providing secretarial services to attorneys practicing in a wide variety of law fields. Ms. Oakley currently assists attorneys who are practicing corporate, pro bono non-profit, family law and trusts. Ms. Oakley attended Empire College, School of Business, and obtained her Legal Secretarial Sciences degree in 1979.
Agreements with Directors and Executive Officers
We had no agreements with our directors or executive officers that did not relate solely to their service as directors or executive officers.
Significant Employees
We have no significant employees other than our officers and directors.
Involvement in Certain Legal Proceedings
During the past ten years, none of our directors or executive officers has been:
·
the subject of 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;
·
convicted in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
·
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;
·
found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law;
·
the subject of any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended, or vacated, relating to an alleged violation of:
i.
Any Federal or State securities or commodities law or regulation; or
ii.
Any law or regulation respecting financial institutions or insurance companies, including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or
iii.
Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity.
·
Any Federal or State judicial or administrative proceedings based on violations of federal or state securities, commodities, banking or insurance laws and regulations, or any settlement to such actions (excluding settlements between private parties); or
·
Any disciplinary sanctions or orders imposed by a stock, commodities or derivatives exchange or other self-regulatory organization.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act of 1934, as amended, requires our directors and executive officers, and the persons who beneficially own more than ten percent of our common stock, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Copies of all filed reports are required to be furnished to us pursuant to Rule 16a-3 promulgated under the Exchange Act. Based solely upon our review of the copies of such forms provided to us, we believe that, during the most recent fiscal year ended December 31, 2013, all persons subject to filing requirements under Section 16(a) of the Securities Exchange Act of 1934, as amended, timely filed the required forms with the SEC, except as follows:
·
On August 30, 2013, the following officers and directors received stock grants from the Company as compensation for their services and did not file the required Forms 4 with the SEC. Each of these officers and directors has since filed the required Forms 5 for the fiscal year ended December 31, 2013 with the SEC:
o
Jerold S. Drew, Director and CEO: 20,000,000 shares of restricted common stock
o
Allen Lopez, Director and President: 15,000,000 shares of restricted common stock
o
Antonio B. Castillo, Director and COO: 17,000,000 shares of restricted common stock
o
Tricia Oakley, Secretary and Treasurer, 10,000,000 shares of restricted common stock
Directors’ and Officers’ Liability Insurance
The Company has not purchased directors’ and officers’ liability insurance.
Board Committees and Corporate Governance
During the year ended December 31, 2013, our Board of Directors held ten meetings. Each of our directors attended greater than 75% of the Board meetings. We do not have a written policy regarding director attendance at annual meetings of shareholders, although all directors are strongly encouraged to attend. Last year, we did not hold an annual shareholders meeting.
Audit Committee
The Board does not currently have an Audit Committee. The full Board performs the principal functions of the Audit Committee. The full Board monitors the Company’s financial reporting process and internal control system and appoints our independent registered public accounting firm.
Compensation Committee
The Board does not currently have a standing Compensation Committee. The full Board establishes overall compensation policies for us and reviews recommendations submitted by our management.
Nominating Committee
Our Board of Directors does not have a Nominating Committee, as nominations are made by the members of the Board as a whole. Our Board seeks to identify qualified individuals to become Board members and determine the composition of the Board and its committees. Our Board does not have any formal specific minimum qualifications for evaluating potential director candidates or specific procedures for identifying new directors. We plan to adopt such procedures in the next fiscal year.
Code of Ethics
Our board of directors adopted our code of ethical conduct that applies to all of our employees and directors, including our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. Our Code of Ethical Conduct is available on our website at www.doublecrownresources.com.
We believe the adoption of our Code of Ethical Conduct is consistent with the requirements of the Sarbanes-Oxley Act of 2002.
Our Code of Ethical Conduct is designed to deter wrongdoing and to promote:
·
Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
·
Full, fair, accurate, timely and understandable disclosure in reports and documents that we file or submit to the Securities & Exchange Commission and in other public communications made by us;
·
Compliance with applicable governmental laws, rules and regulations;
·
The prompt internal reporting to an appropriate person or persons identified in the code of violations of our Code of Ethical Conduct; and
·
Accountability for adherence to the Code.
Director Independence
Because our common stock is not listed on a national securities exchange, we have used the definition of “independence” of the Nasdaq Stock Market to determine whether our directors are independent. No member of the board is considered independent unless the Board of Directors affirmatively determines that the member has no material relationship with the Company or any of its subsidiaries (either directly, or as a partner, shareholder or officer of any entity that has a relationship with the Company or any of its subsidiaries). The Board has reviewed the relationships between each of the directors and the Company and has determined that none of the directors is an independent director; Messers Drew, Castillo and Lopez are all executive officers of the Company.
Certain Relationships
Jerold S. Drew and Tricia Oakley are siblings. Other than that, there are no family relationships among our directors or executive officers.
Communications with Board of Directors
We have no formal procedure for shareholder communications with directors. However, any shareholder who wishes to communicate with a particular director or directors is instructed to contact the Secretary of the Company. The Secretary will process all communications received from shareholders and forward them to the Board of Directors. However, materials that are unduly hostile, threatening, illegal or similarly unsuitable generally will not be forwarded.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The responsibility for establishing, administering and interpreting our policies governing the compensation and benefits for our executive officers lies with our Board of Directors. In this connection, the Board of Directors has not retained the services of any compensation consultants. The goals of our executive compensation program as defined by our Board of Directors are to attract, motivate and retain individuals with the skills and qualities necessary to support and develop our business within the framework of our small size and available resources.
The following table and footnotes set forth information concerning compensation earned for services rendered to the Company by the executive officers of the Company during the years ended December 31, 2013 and 2012:
Summary Compensation Table for Officers
(1)
Ms. Oakley received 10,000,000 restricted shares on August 30, 2013; the closing bid price for the shares on that day was $0.0215 per share.
(2)
Mr. Drew received $18,912 in advances against expenses from the Company for which supporting receipts were not provided; thus, according to our policy, this amount was classified as compensation.
(3)
Mr. Lopez received $146,100 in advances against expenses from the Company for which supporting receipts were not provided; thus, according to our policy, this amount was classified as compensation.
(4)
Mr. Castillo received $80,500 in advances against expenses from the Company for which supporting receipts were not provided; thus, according to our policy, this amount was classified as compensation.
Outstanding Equity Awards at Fiscal Year End
We had no equity compensation plans outstanding as of December 31, 2013.
Change of Control Agreements
We are unaware of any contract, or other arrangement or provision, the operation of which may, at a subsequent date, result in a change of control of our company. We do not have any change-of-control or severance agreements with any of our executive officers or directors.
Compensation of Directors
The following table sets forth information relating to compensation paid to our directors during fiscal years ended December 31, 2013 and 2012:
Summary Compensation Table for Directors
(1)
Mr. Drew received 20,000,000 restricted shares on August 30, 2013; the closing bid price for the shares on that day was $0.0215 per share.
(2)
Mr. Tubandt received 3,000,000 restricted shares in 2012 valued at $0.0075 per share. Mr. Tubandt resigned from the Board effective January 14, 2014.
(3)
Mr. Lopez received 15,000,000 restricted shares on August 30, 2013; the closing bid price for the shares on that day was $0.0215 per share. Mr. Lopez also received 5,000,000 restricted shares in 2012 valued at $0.0075 per share.
(4)
Mr. Castillo received 17,000,000 restricted shares on August 30, 2013; the closing bid price for the shares on that day was $0.0215 per share. Mr. Castillo also received 3,000,000 restricted shares on April 15, 2013, valued at $0.035 per share.
(5)
Mr. Soler and Mr. Duncan resigned from the Board effective March 26, 2013. Mr. Duncan received 3,000,000 restricted shares on April 15, 2013, valued at $0.035 per share.
(6)
Mr. Figueiredo resigned from the Board effective August 28, 2012.
(7)
Mr. Murphy received 3,000,000 shares of restricted stock in 2012. Mr. Murphy resigned from the Board effective March 25, 2012.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
As of the date of this Annual Report, the following table sets forth certain information with respect to the beneficial ownership of our common stock by each stockholder known by us to be the beneficial owner of more than 5% of our common stock and by each of our current directors and executive officers. Each person has sole voting and investment power with respect to the shares of common stock, except as otherwise indicated. Beneficial ownership consists of a direct interest in the shares of common stock, except as otherwise indicated. As of December 31, 2013, there are 438,615,065 shares of common stock issued and outstanding.
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(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. As a result, the percentage of outstanding shares of any person as shown in this table does not necessarily reflect the person’s actual ownership or voting power with respect to the number of shares of common stock actually outstanding as of the date of this Annual Report. As of December 31, 2013 there are 438,615,065 shares issued and outstanding.
(2)
Of the 16,000,000 shares, Ms. Oakley directly holds 13,000,000 shares of record and 3,000,000 shares jointly with Mark Oakley.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
None of our directors, officers or principal stockholders, nor any associate or affiliate of the foregoing, have any interest, direct or indirect, in any transaction or in any proposed transactions, which have materially affected or will materially affect us during fiscal year ended December 31, 2013.
Our management is involved in other business activities and may, in the future become involved in other business opportunities. If a specific business opportunity becomes available, such persons may face a conflict in selecting between our business and their other business interests. In the event that a conflict of interest arises at a meeting of our directors, a director who has such a conflict will disclose his interest in a proposed transaction and will abstain from voting for or against the approval of such transaction
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
During fiscal year ended December 31, 2013, we have paid fees of $11,500 to our principal independent accountant for professional services rendered in connection with the audit of our financial statements for fiscal year ended December 31, 2013. During the fiscal year ended December 31, 2013, we incurred fees of $16,500 for review of our financial statements for the quarters ended March 31, 2013, June 30, 2013 and September 30, 2013.
During fiscal year ended December 31, 2012, we incurred $24,665.00 in fees to our principal independent accountant for professional services rendered in connection with the audit of our financial statements for fiscal year ended December 31, 2012 and for the review of our financial statements for the quarters ended March 31, 2012, June 30, 2012 and August 31, 2012.
During fiscal years ended December 31, 2013 and December 31, 2012, we did incur $3,750 in fees for tax-related services rendered by our principal independent accountant; we did not incur any other fees for professional services rendered by our principal independent accountant for all other non-audit services which may include, but is not limited to, actuarial services or valuation services.
PART IV
ITEM 15.
ITEM 15. EXHIBITS
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** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
(1) Incorporated by reference from our Registration Statement on Form SB-2 filed with the Commission on June 16, 2006.
(2) Incorporated by reference from our Current Report on Form 8-K filed with the Commission on March 21, 2011.
(3) Incorporated by reference from our Current Report on Form 8-K filed with the Commission on November 12, 2010.
(4) Incorporated by reference from our Current Report on Form 8-K and 8-K/A filed with the Commission on April 21, 2010, May 12, 2010 and May 27, 2010.
DOUBLE CROWN RESOURCES, INC.
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.