Item 1. Description of Business.
ORGANIZATION WITHIN THE LAST THREE YEARS
Oro East Mining, Inc. (“Oro East”) was incorporated in Delaware as Accelerated Acquisitions I, Inc. on February 15, 2008.
On December 24, 2013, Oro East Mariposa, LLC, a California limited liability company and a wholly-owned subsidiary of the Company (“Subsidiary”) entered into an Asset Purchase and Option Agreement (the “Agreement”) with Sutton Enterprises, a general partnership. Under the terms of the Agreement, Subsidiary purchased certain mineralized material we believe are gold tailings, tangible property, and other entitlements commonly referred to by the parties as the WMUs (the “WMUs”) located on certain parcels of real property located in the County of Calaveras, State of California. The total purchase price for the WMUs is $6,000,000.00 and 30% net royalties contingent on the obtaining of all local, state, and other applicable agency approvals for the gold mineral concentrates production contemplated. Thereafter, the $6,000,000.00 shall be paid in certain installments, and the 30% net royalties will be held in escrow as secured collateral against the Agreement in favor of the Subsidiary. The Agreement further reserves an Option in favor of the Subsidiary for purchase of 39 parcels of real property as described in the Agreement and all claims rights, business assets, and additional property and assets as set forth in the Agreement for a purchase price of $32,000,000.00 less the $6,000,000.00 already paid on the WMUs. The Option period is for 180 days from the date of the contract.
The business related to the Agreement is now the primary business of the Company and the Company has discontinued most of its exploration activities related to its former exploration activity in the Philippines. To date, the Company is in the process of compiling all information related to test results on assays it has conducted on the gold tailings its has purchased under the Agreement. There is the likelihood of the mineralized material we believe are gold tailings purchased pursuant to the Agreement containing little or no economic mineralization or of gold content or other minerals.
On June 23, 2010, Mutual Gain Hong Kong Group Limited (“Purchaser”) agreed to acquire 23,850,000 shares of the Company’s common stock par value $0.0001 (the “Shares”) for a price of $0.0001 per share. At the same time, Accelerated Venture Partners, LLC agreed to tender 3,500,000 of its 5,000,000 shares of the Company’s common stock par value $0.0001 for cancellation. Following these transactions, Mutual Gain Hong Kong, Limited owned 94.1% of the Company’s 25,350,000, issued and outstanding shares of common stock par value $0.0001 and the interest of Accelerated Venture Partners, LLC was reduced to approximately 5.9% of the total issued and outstanding shares. Simultaneously with the share purchase, Timothy Neher resigned from the Company’s Board of Directors effective immediately and Tian Qing Chen was simultaneously appointed to the Company’s Board of Directors. Such action represented a change of control of the Company. The Purchaser used its working capital to acquire the Shares. The Purchaser did not borrow any funds to acquire the Shares.
Prior to the purchase of the Shares, the Purchaser was not affiliated with the Company. However, the Purchaser is now deemed an affiliate of the Company as a result of its stock ownership interest in the Company. The purchase of the shares by the Purchaser was completed pursuant to a written Subscription Agreement with the Company. The purchase was not subject to any other terms and conditions other than the sale of the Shares in exchange for the cash payment.
On June 24, 2010, the Company entered into a Consulting Services Agreement with Accelerated Venture Partners LLC (“AVP”), a company controlled by Timothy J. Neher. As AVP did not achieve any of the milestones set forth in the agreement before the expiration date, the Company redeemed from AVP 1,500,000 shares it purchased from the exercise of the option granted under this agreement.
On July 2, 2010, the Company changed its business plan to become an exploration and refining company for the mining of gold, copper, and other precious or industrial mineral deposits through the acquisition of certain rights in the Republic of the Philippines. On that date, the Company obtained rights to its principal mining claim, MPSA 320-2010-XI, by way of entering into an Assignment of Rights Agreement (“Rights Agreement”) with Oro East Mining Company Ltd., a Philippines corporation indirectly controlled by Tian Qing Chen, our Chief Executive Officer. Pursuant to the terms of the Rights Agreement, Assignor assigned to the Company certain rights and obligations with respect to permitted mining claims of approximately $1.6 billion. Pursuant to the Rights Agreement, The Company assumed the rights and obligations of Assignor to explore, extract, refine and produce precious metals and other industrial deposits on the claims and earn fees with respect to such services. By entering into the Rights Agreement, the Company commenced business as an exploration, mining, refinery and production company. Assignor assigned to the Company two (2) mineral claims with the Mines and Geosciences Bureau for the Republic of the Philippines: MPSA 184-XI and APSA 167-XI “Portfolio of Mineral Claims”, and assigned all mineral rights related to Assignor’s claims to the Company. After the execution of the Rights Agreement, the numbering of claim “MPSA 184-XI” changed to MPSA 320-2010-XI. The assignment includes control of the surface, the subsurface and the air above any and all real property or claims owned by Assignor. The Company may freely sell, lease, gift or bequest these rights individually or entirely to others, within the scope and terms of the Rights Agreement and applicable laws of the Republic of Philippines. The Rights Agreement also grants to the Company all rights to production, which shall include but not be limited to right to mineral extraction on all mineral claims and tenements owned or controlled by Assignor, the right to control production in all aspects, right to enter the property and remove the minerals or resources at its election. The Company intends to focus on extracting gold, silver, copper, iron ore and other industrial minerals.
Under the Mineral Rights Agreement the Republic of the Philippines has granted the Company the rights to the exploration, development and commercialization of gold, copper, silver, zinc and “other associated mineral deposits” for a 25-year term, expiring February 10, 2035. Company must to commence exploration activities no later than three months after the effective date of the agreement, which the Company has already done, and continue such exploration activities for a term of no longer than six years for nonmetallic metals and eight years for metallic metals. In the first year, the Company must spend not less than 8,242,000 PhP (approximately $193,000) on its exploration work program. In the second year, the Company must spend not less than 4,420,000 PhP (approximately $103,500) on its exploration work program. The Company must complete the development of the mine, including the construction of production facilities, within 36 months from the submission and approval of its Declaration of Mining Project Feasibility under the agreement.
On September 10, 2010, the Company entered into a Limited Agency and Services Agreement with Sichuan Dujiangyan Weida Company, Limited, dba Weida Co., Ltd. (the “Agent”).
On September 20, 2010, the Company filed a Certificate of Amendment of its Certificate of Incorporation with the Secretary of State of the State of Delaware pursuant to which the Company changed its name from Accelerated Acquisitions I, Inc. to Oro East Mining, Inc.
On November 18, 2010, Oro East Mining, Inc. invested about $50,000 to establish Oro East Greentech Philippines Inc. (“Greentech”). Greentech is wholly owned by Oro East and will be in charge of the mining business in Philippines. The financial statements presented are consolidated for Oro East Mining, Inc. and Oro East Greentech Philippines Inc.
On December 15, 2010, the Company entered into a Consulting Agreement with Hobson Consultant International, Ltd. (“Hobson”). The Company believes that Hobson is potentially important to the Company to help the Company find potential investors. The Company fair valued the 225,000 shares issued at $2 per share and recognized share-based compensation expense of $450,000 for services rendered during 2012 and 2011.
On March 1, 2011, the Company hired Ma International and agreed to issue 24,440 shares for the consulting services to be received over the period of two years. The Company fair valued the 24,440 shares issued at $2 per share and recognized share-based compensation expense of $48,888 for the services rendered during 2013, 2012 and 2011.
In October of 2011, we filed a registration statement on the Form S-1 for the public offering of 6,866,440 shares of common stock (“Offering”), and on July 25, 2012 the SEC approved and declared the effectiveness of the registration statement. On March 1, 2013, the Company filed a Post-Effective Amendment to the Form S-1 to deregister 4,290,150 shares of the Company’s common stock in the offering of 5,000,000 shares of common stock by the Company that remain unsold. The Company issued a total of 709,850 shares for cash of $2,090,550.
In September 2012, the Company established its foreign wholly owned subsidiary, Oro East Mining LLC, for the purpose of conducting mining business in Mexico. There have been no activities for the subsidiary since its establishment.
On May 8, 2013, the Board of Directors of the Company approved and adopted the terms and provisions of a 2013 Stock Incentive Plan (the “Plan”) for the Company. An aggregate of 5,000,000 shares of the Company’s common stock are initially reserved for issuance under the Plan. As of December 31, 2013, 4,959,000 shares were available for grant under the Plan.
On May 13, 2013 the Company redeemed from AVP 1,500,000 shares of common stock of the Company for an aggregate redemption price of $150.00, pursuant to a Stock Redemption Agreement. AVP is still a holder of 1,500,000 shares of common stock of the Company following the redemption. The Company returned the 1,500,000 shares redeemed from AVP to the authorized stock of the Company.
On June 3, 2013, the Company established the California subsidiary Oro East Mariposa, LLC for the purpose of conducting mining or minerals exploration business in the State of California, in the United States. On June 24, 2013, the Company, through its subsidiary, entered into an exclusive Mining Lease and Royalties Agreement for the Red Bank Gold Mine (“Red Bank”). Red Bank is located in the Mother Lode vein system just east of San Francisco and within the western Sierra Nevada Ranges
In October 2013, Oro East Mariposa issued an additional 158,000 units to a foreign corporation owned by a shareholder. The Company now owns 95% equity interest of Oro East Mariposa. Through Oro East Mariposa, the Company sought out prospective minerals investment opportunities throughout California.
On November 8, 2013, Typhoon Haiyan devastated the Davao region of the Philippines where the Company’s MPSA 320-2010-XI claim is located. The typhoon swept away and destroyed roads, developed lands, and buildings. On the grounds of force majeure, the Company’s mining operations ceased and are presently ceased indefinitely as the region focuses on rebuilding itself. As a result of Typhoon Haiyan, there have been no further activities by the company in the Philippines.
That same month the Company directors convened to discuss the trajectory of its business and decided unanimously to focus business in the United States, in particular gold and other precious mineral acquisitions in California. The Company voted to cease exploration in the Philippines and invest fully in developing its business acquisitions in the mineral industry within the United States.
Through its subsidiary Oro East Mariposa, negotiations commenced with third and fourth generation gold mine proprietors Sutton Enterprises, run by the Sutton Brothers, Brad and Mark Sutton, in the western region of the United States to acquire control over exploration and prospective gold refinery operations in the region. Oro East Mariposa then commenced research, due diligence, and a pilot plant testing phase at various site locations to determine viability of full refinery operations.
On December 5, 2013, we entered into a Convertible Note Purchase Agreement (the “Note Agreement”) with one investor. Under the terms of the Note Agreement, the Company offered and sold a Convertible Promissory Note (the “Note”) for aggregate proceeds of $360,000. Closing for the Note sale took place on December 6, 2013. The Note bears interest at 12% annually, which interest compounds annually, and all principal and interest is due no later than June 5, 2014. All principal and interest due under the Note is convertible, at the election of the holder of the Note, into shares of common stock of the Company at a rate of $3.00 per share. The Company offered and sold the Note in reliance on the exemption from registration afforded by Rule 903(b)(3) of Regulation S, promulgated pursuant to the Securities Act of 1933, as amended, where the Company offered and sold the Note offshore of the US, to a non-US person, there were no directed selling efforts in the US and offering restrictions were implemented.
Memorializing the earlier October negotiations, on December 24, 2013, Oro East Mariposa entered into an Asset Purchase and Option Agreement (the “Purchase Agreement”) with Sutton Enterprises, a general partnership. Under the terms of the Purchase Agreement, Oro East Mariposa is purchasing certain gold tailings, tangible property, and other entitlements commonly referred to by the parties as the WMUs (the “WMUs”) located on certain parcels of real property located in the County of Calaveras, State of California. The total purchase price for the WMUs is $6,000,000.00 and 30% net profit royalties contingent on the obtaining of all local, state, and other applicable agency approvals for the gold mineral concentrates production contemplated. Thereafter, the $6,000,000.00 shall be paid in certain installments, and the 30% net profit royalties will be held in escrow as secured collateral against the Purchase Agreement in favor of the Subsidiary. The Purchase Agreement further reserves an Option in favor of Oro East Mariposa for purchase of 39 parcels of real property as described in the Purchase Agreement and all claims rights, business assets, and additional property and assets as set forth in the Purchase Agreement for a purchase price of $32,000,000.00 less the $6,000,000.00 already paid on the WMUs. The Option period is for 180 days from the date of the contract. However, currently there are no known mineral reserves and no refinery operations on any property the Company is examining.
Oro East Mariposa has commenced processing the WMU stockpiles into gold concentrates and the first shipment of sale of gold concentrates was transacted shortly thereafter in December 2013. The Company by way of its subsidiary is now continuing its processing of the stockpiles into gold concentrates for sale.
Presently through Oro East Mariposa, LLC, the Company is processing the tailings in the WMUs for gold concentrates.
IN GENERAL
Oro East Mining, Inc. (“Oro East”), a Delaware corporation, has discontinued exploration activities, and is focusing on producing gold concentrates.
At present, the Company is building a flotation plant for processing mining waste from the WMUs purchased from Sutton Enterprises with the intent of selling the gold concentrates produced from flotation.
PROPERTY HISTORY
In the Philippines, the Company controls a certain tenement claim, MPSA 320-2010-XI (7,855 hectares, 19,401 acres), which is situated on the outskirts of Davao City in the Philippines. The parcel was applied-registered with the Mines and Geosciences Bureay Region XI, “MGB Region XI” on May 16, 1997.
DESCRIPTION OF CLAIMS
Refer to Item 2 for detailed description of the claims.
COMPETITIVE CONDITIONS
Prior to Typhoon Haiyan, the mineral exploration business had been an extremely competitive industry. We were competing with many other exploration companies looking for minerals.
GOVERNMENT APPROVALS AND RECOMMENDATIONS
COSTS AND EFFECTS OF COMPLIANCE WITH APPLICABLE ENVIRONMENTAL LAWS
In the United States, the Company has come into possession of 3 WMUs, or three substantial piles of leached ore at an aggregate mine in Carson Hill, California. The Carson Hill site owned by Sutton Enterprises is located on the south side of Highway 49 in the central Sierra foothills of Calaveras County. The Company has obtained a right of entry and access to the 3 WMUs, which are personal property now owned by the Company through an Assets Purchase and Option Agreement signed between the Company’s subsidiary, Oro East Mariposa, LLC and Sutton Enterprises on December 24, 2013.
In June 2001 the Central Valley Regional Water Quality Control Board (“Regional Water Board”) issued Waste Discharge Requirements (Order No. 5-01-150) that covers the use and management of the leached ore in the WMUs, this order required that:
·
Active mining and ore processing other than quarrying and processing of inert materials are prohibited.
·
The discharge of wastes containing soluble pollutants, which could cause water quality degradation to ground water or surface water, is prohibited.
·
No materials shall be removed from below the standing water level in the bowls of WMU-1, WMU-2, or WMU-3.
·
Rock products from the WMUs or overburden piles determined to have leachable concentrations of antimony, mercury, or molybdenum exceeding 0.006 milligrams per liter (mg/l), 0.00005 mg/l, or 0.010 mg/l, respectively shall only be used offsite when placed beneath paved areas or other low permeable material.
·
Continued Group “C” mining waste classification5 of overburden and leached ore shall be contingent on confirmation that the discharge is in compliance with applicable water quality control plan, other than for turbidity.
In a letter dated May 3, 2005, the Regional Water Board reclassified the WMUs as Group “B” mining waste per 27 CCR § 22480(b)(2)(B) (Water Board, 2007; Finding 50). The reclassification was performed because the Regional Water Board determined that Site data suggested discharges from these units were causing impacts to water quality.
However, the leached ore in the WMUs still contain gold values and concentrates. The Company purchased personal property title rights to the WMUs and in 2013, the Company and Sutton Enterprises collaboratively submitted a proposal to the Regional Water Board to reclassify the WMUs as Group “C” mining waste per Title 27.
The objectives of the Company’s environmental reclassification project are as follows:
·
Modify existing plants on Sutton Enterprises’ site with froth flotation units to process the leached ore from the WMUs, collect representative samples, and test the said samples
·
Produce a geochemical report of the test results that will allow the Regional Water Board to determine whether the processed tailings meet the Title 27 criteria for reclassification to Group “C” mining waste
COSTS AND EFFECTS OF COMPLIANCE WITH PHILIPPINE ENVIRONMENTAL LAWS
Philippine Environmental Laws
In the past ten years, laws and policies for environmental protection in the Philippines have moved towards stricter compliance and stronger enforcement, therefore the exact costs of compliance is unknown but is estimated to $250,000 per year. The basic laws in the Philippines governing environmental protection in the mineral industry sector of the economy are the Environmental Protection Law, the Environment Impact Assessment Law and the Mineral Resources Law. The State Administration of Environmental Protection and its provincial counterparts are responsible for the supervision, implementation and enforcement of environment protection laws and regulations. Provincial governments also have the power to issue implementing rules and policies in relation to environmental protection in their respective jurisdictions. Applicants for exploration rights must submit environmental impact “assessments” and those projects that fail to meet environmental protection standards will not be granted licenses.
In addition, after exploration the licensee must perform water and soil maintenance and take steps towards environmental protection. After the exploration rights have expired or the concessionaire stops mining during the permit period and the mineral resources have not been fully developed, the concessionaire must perform water and soil maintenance, land recovery and environmental protection in compliance with the original development scheme, or must pay the costs of land recovery and environmental protection. After closing, the mining enterprises shall perform water and soil maintenance, land recovery and environmental protection in compliance with mine closure approval reports, or must pay the costs of land recovery and environmental protection.
Penalties for breaching the Environmental Protection Law include a warning, payment of a penalty calculated on the damage incurred, or payment of a fine. When an entity fails to adopt preventative measures or control facilities that meet the requirements of the enacted environmental protection standards, it is subject to suspension of production or operations and for payment of a fine. Material violations of environmental laws and regulations causing property damage or casualties may result in criminal liabilities.
COMPLIANCE WITH ENVIRONMENTAL CONSIDERATIONS AND PERMITTING COULD HAVE A MATERIAL ADVERSE EFFECT ON THE COSTS OR THE VIABILITY OF OUR PROJECTS. THE HISTORICAL TREND TOWARD STRICTER ENVIRONMENTAL REGULATION MAY CONTINUE, AND, AS SUCH, REPRESENTS AN UNKNOWN FACTOR IN OUR PLANNING PROCESSES.
All mining is regulated by the government agencies at the Federal and Provincial levels of government in the Philippines. Compliance with such regulation has a material effect on the economics of our operations and the timing of project development. Our primary regulatory costs have been related to obtaining licenses and permits from government agencies before the commencement of mining activities. An environmental impact study that must be obtained on each property in order to obtain governmental approval to mine on the properties is also a part of the overall operating costs of a mining company.
The possibility of more stringent regulations exists in the areas of worker health and safety, the dispositions of wastes, the decommissioning and reclamation of mining and milling sites and other environmental matters, each of which could have an adverse material effect on the costs or the viability of a particular project. Compliance with environmental considerations and permitting could have a material adverse effect on the costs or the viability of our projects.
MINING AND EXPLORATION ACTIVITIES ARE SUBJECT TO EXTENSIVE REGULATION BY FEDERAL AND PROVINCIAL GOVERNMENTS. FUTURE CHANGES IN GOVERNMENTS, REGULATIONS AND POLICIES, COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS FOR A PARTICULAR PERIOD AND OUR LONG-TERM BUSINESS PROSPECTS.
Mining and exploration activities are subject to extensive regulation by government. Such regulation relates to production, development, exploration, exports, taxes and royalties, labor standards, occupational health, waste disposal, protection and remediation of the environment, mine and mill reclamation, mine and mill safety, toxic substances and other matters. Compliance with such laws and regulations has increased the costs of exploring, drilling, developing, constructing and operating mines and other facilities. Furthermore, future changes in governments, regulations and policies could adversely affect our results of operations in a particular period and our long-term business prospects.
The development of mines and related facilities is contingent upon governmental approvals, which are complex and time consuming to obtain and which, depending upon the location of the project, involve various governmental agencies. The duration and success of such approvals are subject to many variables outside our control.
EMPLOYEES
We have used the services of subcontractors for manual labor. We have also engaged a North American educated geoscientist as outside consultant to evaluate and conform to American standards and to render independent recommendations. The Company currently has five full and part-time employees and will hire engineers and other subcontractors on an as needed basis.
See also “Significant Employees” under Part III, Item 10(b) below.
Item 1A.
Item 1A. Risk Factors.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.
Item 1B.
Item 1B. Unresolved Staff Comments.
None.
Item 2.
Item 2. Description of Properties.
OFFICE FACILITIES
The Company was incorporated in the State of Delaware on February 15, 2008, and established an end of December fiscal year end. Its corporate headquarters was initially located at 1127 Webster Street, Suite 28, Oakland, CA 94607. On or about May 1, 2013 the Company moved to its present headquarters located at 7817 Oakport Street, Suite 205, Oakland, CA 94621, which the Company is leasing, with telephone number (510) 638-5000.
The Company had also leased an office space at Harbourview Horizon All-Suite Hotel Suite I-2005, 12 Hung Lok Road, Hunghom Bay, Kowloon, Hong Kong. However, the lease was not renewed after its expiration on January 29, 2013.
EXPLORATION PROPERTY
On or about 2010, the Company commenced exploration activities on its tenement claim in the Philippines, MPSA 320-2010-XI, which was obtained through an assignment agreement with Oro East Mining Company Ltd. However, after Typhoon Haiyan in November, 2013, the Company has ceased all business activities and exploration at its Philippine mine property.
At present, the Company is not engaged in any exploration activities on its mine properties. The Company ceased exploration at MPSA 320-2010-XI due to the natural disasters that ravaged the region and turned its focused its business activities back to the United States. It entered into a lease with Red Bank with the initial intent to explore, but due to a business management decision, the Company put the Red Bank exploration on hold and has instead, focused its efforts on Carson Hill.
The Company does not presently own any property or claims at Carson Hill and instead, has obtained a right of entry through the Assets Purchase and Option Agreement with Sutton Enterprises. Oro East Mariposa owns the personal property of mining waste (the 3 WMUs) at Carson Hill and is presently investing its resources in setting up a flotation refinery to extract gold concentrates from the mining waste.
PROPERTY HISTORY
In the Philippines, the Company’s claim, MPSA 320-2010-XI (7,855 hectares, 19,401 acres) is a tenement claim situated on the outskirts of Davao City in the Philippines. The parcel was applied-registered with the MINES AND GEOSCIENCES BUREAU REGION XI “MGB Region XI” on May 16, 1997.
DESCRIPTION OF CLAIMS
As to its asset, MPSA 320-2010-XI in the Philippines, the Company acquired all exploration, extraction and production rights from Oro East Mining Company Ltd., a privately-held corporation organized under the laws of the Republic of the Philippines licensed for mine acquisition, exploration, and development.
Prior to the Company’s acquisition of its claims, Oro East Mining Company Ltd. did manual test-pitting, artisanal tunneling and trenching activities which indicated a weighted-average Copper (CU) grades of 2.763% Cu based on length (from 18 laboratory assays on rock samples collected). Based on the 18 samples analysis, the Au (gold) weighted-average analysis content was from 1.528 grams/ton based on length.
MPSA 320-2010-XI (7,855 hectares, 19,401 acres) is a tenement claim situated on the outskirts of Davao City in the Philippines. The parcel was applied-registered with the MGB Region XI on May 16, 1997. It is located in the municipalities of Lupon and Tarragona in the Davao Oriental Province, Island Region of Mindanao, Philippines. The project sites at Mt. Tagopo and Mt. Mayo are bounded by coordinates 7 degrees 01’00” to 7 degrees 05’ 00” latitude and 128 degrees 08’ 00” to 126 degrees 11’30” longitude and 7 degrees 02’30” to 7 degrees 08’30” latitude and 126 degrees 17’00” to 126 degrees 19’20” longitude. Oro-East has undergone exploration for copper and gold-bearing veins or structures in this area. These exploration targets are shallow, for vein-type copper and gold-bearing deposits. Copper, gold, and silver are the primary mineral targets in this claim, with lead and zinc as secondary targets.
These mineral claims are located beneath the Philippine Fault and the Pacific Rim tectonic belt, also known as the “Pacific Ring of Fire,” The Company has obtained full permitting under the Mineral Right Sharing Agreement (MRSA) with the Philippine Government which allows the Company to commence full scale exploration and production as of May 15, 2010 on MPSA 320-2010-XI.
Detailed Description of the Claims.
I.
INTRODUCTION
Semi-detailed geological mapping using compass and tape method backed by Global Positioning System (GPS) was conducted by Agetro Davao Mapping Team from June 29, 2008 to August 27, 2008 at the 4,939 hectares of Oro East Mining Claim dominated as MPSA 320-2010-XI -184-XI Parcel II. The geological mapping was undertaken to confirm actual location of the copper ore bodies, gold vein system, alteration zones, lithology and other pertinent geological features. Location of creeks, gulleys, major tributaries, trails, old and current access roads was also facilitated. Prior to the end of the mapping program, location of the initial proposed trenches was also conducted within the areas where copper and gold veins were located. The geological evaluation was undertaken to come up with an initial geological data and recommendation that is deemed necessary for the succeeding exploration and mine operation activities.
II.
LOCATION AND ACCESSIBILITY
The project area referred to as Parcel II under MPSA 320-2010-XI with a total area of 4,939 hectares is more or less bounded by latitude 7 02'30” to 7 08'30” and longitude 126 17'00” to 126 19'30”. It is located within Sitio Mabalante, Barangay Calapagan, Municipality of Lupon and Sitio Manlandog, Bait, Antipolo, New Cebu, Botog, Nasa, Barangay Limot, Municipality of Taragona, all in the Province of Davao Oriental. From Davao City, the prospect can be reached on a three (3) to four (4) hours travel via commercial buses plying the Davao-Mati route. From the City of Mati, Mabalante area which is located at the northern part of the claim can be reached in a three (3) to four (4) hours travel on a 4x4 vehicle via the Mati-Tagbinunga-Calatagan Daticor old logging road towards Quinonoan headwaters Skynix camp area. Manlandog area on the other hand is accessible via Mati-Don Salvador-Cangusan access road in a 1-1/2 travel on a 4x4 vehicle or motorcycle. From Sitio Cangusan, another two (2) hours hike on a foot trail to Manlandog exploration fly camp east of Mayo River. The southern part of the claim is accessible via Mati-Limot-Botog access road, all within the Municipality of Taragona, Davo Oriental. The prospect areas which include New Cebu, Bait, Antipolo, Onlo, Botog, and Aponing area, all of which are interconnected by either old logging road or by foot trails.
III.
TOPOGRAPHIC SETTING
The area under consideration is characterized by rugged to extremely rugged topography with elliptical shape of top ridges, with elevations ranging from 500 to 1,751 meters above sea level. Mountain ranges exhibiting triangular facets are common in the area. The apparent physiographic conformity of deep valley seems to indicate an earlier mature erosion of land surface. The erosion surface has subsequently been dissected by youthful streams.
IV.
DRAINAGE, VEGETATION, CLIMATE
Drainage is generally dendritic as exemplified by the Quinonoan and Mayo River as the major drainage system, with system of modified rectangular drainage pattern and network of tributaries and subtributaries. In the gently sloping area, vegetation abounds in the form of tropical cogon grass, ferns, coffee, abaca, vegetable, corn, variety of outcrop in the rugged and steep parts of the area, are overgrown with second growth forest with some large trees and thick undergrowth. The average weather variation of the region falls under Type 2 of the Climate Map of the Philippines where there is no definite dry season and a very pronounced maximum rainfall from November to January.
V.
GEOLOGIC SETTING
A) REGIONAL GEOLOGY AND TECTONIC SETTING
Regionally, the prospect is located strategically at the southern segment of the Philippine fault. It can also be considered as part of the Diwata range which appears to be a paleogene subduction zone with upthrusted mafic-ultramafic rocks, metamorphic rocks and clastics, comprising the northern part and some igneous rocks at the western flank on the south. The northern part is overlain by Miocene clastics and limestone intruded by middle miocene diorite, andesite and dacite. The north-south trending Diwata range extending from Surigao to Davao forms the backbone of eastern Mindanao. The range is rugged and has several peaks with elevation from 900 to 2,500 meters. The highest which is Mt. Kampali is in the southern part of the range.
The Diwata range which is also known as the Cordilleras of the South is a mineral district of Southeastern Mindanao where porphyry and vein type copper, gold, molybdenum, tactite iron deposits containing sulfides are known to exist. At the western flank of the prospect is a north-south trending batholith 4-8 kilometers wide by more than 20 kilometers long. This batholith is often called by Geologists as diorite intrusive complex, since it consists of different facies mainly diorite, quartz diorite and hornblende diorite porphyry. This batholith is exposed and serves as hostrock in most if not all copper and gold deposits within Taguibo, Calapagan, Marayag, to the western flank of San Mariano up to the Mountain Ranges of Mt. Kinayan in the Municipality of New Bataan.
At the northeastern part of the prospect is an exposure of a columnar basaltic rock formation which is believed to be the oldest rock formation exposed in the district. Probable age of this rock formation is cretaceous to Paleocene (geologic epoch that lasted from about 65.5 to 56 million years ago). At the eastern flank is a thick formation of limestone formation of Oligocene age (23-34 million years ago) capped by the Eocene age volcanic clastics rock from Quinonoan to Mt. Tagbac area.
Dominating the geology of the region, the Eastern Mindanao ridge is a complex NNW-SSE trending volcanic island structure that developed during the upper cretaceous to quarternary as a result of convergent and transcurrent tectonics The area is inferred as being associated with relic east dipping subduction zone that collided with the west Mindanao ridge sometime in the late Miocene.
B) WITHIN PROSPECTS
1. MABALANTE AREA
The Mabalante-upper Quinonoan copper gold prospect is underlain essentially by three (3) rock units composed of diorite, intercalated sequences of metamorphosed volcanics and sedimentary rocks. Common rock exposure however at Mabalante area is volcanic clastics overlain by light to dark gray colored limestone formation. Porphyritic andesite dikes intruded the volcanic clastic rocks. These dikes are trending northwest and sub-parallel major faults in the area. In close proximity with these dikes are thin fractures filled with quartz anhydrite and calc silicate materials.
At Mabalante area, the deposit is hosted to a large extent by andesite porphyry (Andesite is a type of igneous rock that is found in most volcanic regions of the world, especially around volcanoes that line the Pacific Basin), porphyritic-volcanic (a variety of igneous rock consisting of large-grained crystals) , volcanic clastics and partly by the uncomformity rock formation of sandy and basalt limestone, calcarenite, sandstone sequences that developed from spotty to hornfelsic texture. Silicification, chloritization, epidotization and kaolinization are common alteration in the prospect area. Copper mineralization consists predominantly of chalcopyrite, bornite and subordinates of sphalerite and galena, occurring usually as fracture filling and other interlacing minute fractures which serves as passageways or loci for sulfide mineralization. Malachite, azurite and chalcocite are dominant oxidation products.
Three (3) distinct vein systems were mapped and sampled at Mabalante area, namely: Mabalante Copper-molybdenum vein complex which is the focus of the past mining activities; the Southeastern Mabalante vein complex and the Eastern Mabalante vein complex.
1a. MABALANTE COPPER-MOLYBDENUM VEIN COMPLEX
The Mabalante copper-molybdenum vein complex also known as the main Mabalante vein system is a northeast-southwest trending copper vein system with multiple cymoidal and lacer structures along its strike. The main copper structure which was drifted prior to its collapse is composed of 2.0 meter massive copper vein, consisting of chalcopyrite, chalcocite, bornite and cubical specks of pyrite and botroidal marcasite. Fine bandings of white-grayish quartz, sericite and adularia were also noted. General trend of the main copper vein is North 48 -50 East dipping 45 southwest. Coatings of malachite and azurite are dominant especially near the portal. Two (2) minor faults at the footwall of the structure may have displaced the vein with a possible slight southeastern oblique movement.
At upper elevation of the main portal are two (2) abandoned adits with exposure of 0.30 to 1.30 meters copper vein composed of chalcopyrite, bornite, chalcocite, with bonded quartz-calcite specked with fine pyrite. The vein based on its strike and dip is correlative to the structure disclosed at the main portal, located at lower elevation. 30-50 meters north of the main copper structure are two (2) 0.50 meters vein (sample no. M-OTC-09) which may have converged with the main structure at lower elevation where the 0.50-0.70 meters molybdenum vein was exposed. Chipping the hanging wall disclosed a massive copper complex which may have converged forming one (1) major structure at lower elevation. As of this writing, the total strike of the Mabalante main vein complex is 150 meters. Three (3) proposed trenches at 50 meters interval were delineated at the southwestern side of the vein and another three (3) trenches at the northeast side.
Map of Claim Location MPSA 320-2010-XI Mandanao Island, Davao Oriental.
To identify the mineral resources on MPSA 320-2010-XI, the Assignor conducted a semi-detailed geological mapping using compass and tape method backed by Global Positioning System (GPS) and manual test-pitting, artisanal tunneling and trenching activities which indicated a weighted-average Copper (CU) grades of 2.763% Cu based on length (from 18 laboratory assays on rock samples collected). Based on the 18 samples analysis, the Au (gold) weighted-average analysis content was from 1.528 grams/ton based on length. This was conducted by Agetro Davao Mapping Team from June 29, 2008 to August 27, 2008 on 4,939 hectares of Oro East Mining Claim dominated as MPSA 320-2010-XI Parcel II (approximately two thirds of the fully permitted claim MPSA 320-2010-XI).
The Company’s exploration and productions recommendations come from the Assignors Semi-detailed Geological Mapping Report of ORO EAST MINING CLAIM MPSA 320-2010-XI PARCEL II, conducted by Agetro Commodities in September of 2008.
Agetro Commodities is a Philippine company located in Davao City that specializes in geological reports, topographic assay studies, and general geology consulting. Paul S. Ortega is the lead Consulting Geologist & Contractor who works closely with the Company. Francisco C. Rebillon and Noel Z. Franco are Consulting Geologists who, from time to time assist Mr. Ortega. Mr. Ortega formally served as the Senior Geologist at Apex Mining Corp., a public company in the Philippines. He is geologist licensed by the Philippine Board of Examination of the Professional Regulation Commission. He has over 30 years of experience in the mining industry.
Agetro Commodities in not an affiliate of Oro-East Mining Company LTD., Oro East Mining, Inc. or any of their respective affiliates. Fees paid by Oro-East Mining Company LTD. pursuant to its engagement of Agetro with respect to its report are $7,500, and the only fees paid by Oro-East Mining Company LTD. or Oro East Mining, Inc. to Agetro during the past three fiscal years is such $7,500.
1. The initial exposure at the main Mabalante copper-gold complex is very impressive. The potential of the prospect can possibly be substantially big for commercial operations. The geological investigation which includes semi-detailed geological mapping is aimed at actually proving its copper gold potentiality and accomplishing the same by undertaking the following:
1a) Further prospecting at the general area of potential mineralized zone;
1b) Fast track implementation of trench dozing at the proposed trenches to prove persistence of the lateral extent of the vein/structure; Prioritize excavation of trenches programmed at the southwestern part of the mining claims. Initially three (3) trenches were programmed at the southwestern part at 50 meter interval. Three (3) more trenches were also programmed and marked on the ground at the northeastern part of the vein/structure, also at 50- meter interval.
The results and exposure at the trenches will be the basis in the exploration, development and diamond drilling programs to come up with positive ore reserve which will then be the basis of the mining program. The same program should be facilitated at the Mabalante south vein complex and Mabalante east vein complex, respectively.
1c) Knowing the details of the ore which is very important. This is actually advance information not only for the Geologists but for the mining and metallurgical technical staff who will be conducting studies in the near future.
In view:
a. Collect vein samples and submit to the Mines & Geo-sciences Bureau for polish sectioning and mineralogical analysis;
b. A 50-kilo bag ore should also be collected and submitted to any reliable laboratory for metallurgical testing, subject to the approval of the metallurgical engineers.
2. New portal is hereby recommended to be installed or put up at lower elevation. For safety reasons, portal should be located at stable ground; off vein and aimed to intercept the main structure after a 5-10 meters advance, then facilitate drifting south at Mabalante main vein.
3. With the plan to resume tunneling/drifting, grade control and mine geology team should be organized to regularly monitor daily advance of the underground working(s) and at the same time implement effective grade control procedures.
4. Access road to be used, repaired and constructed should be considered. The Cangusan-Bongco road is one good shorter route to the mine site.
5. As observed, the impressive copper ore bodies and ore veins are located at the northern part of the claim particularly at Mabalante and its proximity. High sulphidation copper and gold ore system is very common in Mabalante. The Ore system shows permeability control governed by lithology, structure, changes in wall rock alteration and ore mineralogy. Based on studies, this system has been developed from the reaction with host rock or hot acidic magmatic fluids to produce alteration and later sulphide, gold, copper and silver deposition.
On the other hand, veins delineated at the southern part of the claim can be generally classified as clean ore. Low sulphidation within these areas are well pronounced as exhibited by the veins located thereat. These type of deposits based on studies have been developed from dilute near neutral ph fluids and display mineralogies derived dominantly from magmatic source rocks and others with mineralogies dominated from circulating geothermal fluid sources.
6. Several quartz vein systems were delineated within Manlandog, Karamatyan, Pamatian and the Onlo-Botog areas, respectively. Majority of these veins delineated during the mapping are clean ore material which is very ideal when fed to carbon-in-pulp (CIP) carbon-in-leach (CIL) milling process. The material is composed of quartz calcite with lesser sulphides and other poly metallic materials. To prove persistence of the aforesaid veins, the following are hereby recommended:
6a) Prioritize trench dozing at the abovementioned areas. The location of the proposed trenches are already marked at the ground. The results of the trench dozing will also be the basis in the preparation of diamond drilling program to prove persistence of the vein at depth.
6b) Conduct extensive prospecting particularly within the proximity of the quartz vein outcrops. Lithological surface cappings like the limestone have extensively blanketed the areas where the lateral extension of the veins are supposed to have been found.
7. Several factors have to be considered, should viable, mineable deposit will be blocked at the southern part of the claims.
7a) The access to the main highway is much more accessible.
7b) Three (3) phase source of electricity which is very vital when constructing and operating a mill plant is available at and near Barangay Limot, a few kilometers from the ore source.
7c) Several areas at the Sitio Botog-Nasa are ideal for mine, mill and other mining facilities. Several areas are also ideal for building a tailings dam. There is abundant source of potable and industrial water which can be tapped.
8. Lastly, the Oro East Parcel II claim is within the southern portion of the southern cordillera ranges. This mountain range which appears to be the backbone of the Southeastern Mindanao area is known to have hosted multiple impressive mineable deposits. Some of these deposits are already being exploited both by big scale and small scale mining method. During the course of the semi-detailed geological mapping conducted by the Agetro Davao Team, not only that the team was able to locate the now famous Mabalante copper-gold-molybdenum complex but also found several traces of multiple vein systems along and within the other part of the claims particularly towards south. The possibility of finding and proving other impressive, commercial and mineable vein systems is not remote.
MINING EQUIPMENT AND TRUCKS
We purchased and set up a gold refinery processing line and a lab at the Carson Hill property site for the WMUs under a right-of-entry and use clause in the Assets Purchase Agreement with Sutton Enterprises.
Item 3.
Item 3. Legal Proceedings.
Tax Penalties
In July and August 2013, the Internal Revenue Service (“IRS”) issued penalties against the Company under Section 6038 and 6038A of the Internal Revenue Code for failure to file Form 5471 and 5472. The total penalty assessment was $60,000 plus interest charges. As of December 31, 2013, total penalty assessment including interest charges was about $60,323. In response, the Company filed a Reasonable Cause Statement to appeal for full abatement of the penalty, citing reasonable cause and requesting an administrative waiver or offer-in-compromise. Subsequently, the Company retained Louie and Wong LLP, tax professionals to assist in handling the matter with the IRS. The final result of the proceeding is still pending as of this filing.
Aside from the foregoing tax matter, there are no other pending legal proceedings to which the Company is a party or in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of voting securities of the Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company. The Company’s mineral claim is not the subject of any pending legal proceedings.
.
Item 4.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5.
Item 5. Market for Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities.
Common Stock
Our Certificate of Incorporation authorizes the issuance of up to 100,000,000 shares of common stock, par value of $.0001 per share (the “Common Stock”). The Common Stock is not listed on a publicly-traded market. The number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 27,168,290 shares of common stock, par value $.0001 per share, outstanding as of March 31, 2014.
The Company also issued 42,000 and 13,000 common shares for consulting services during 2013 and 2012. The Company recognized a total of $51,324 and $249,444 share-based payment expenses during 2013 and 2012, respectively.
The Company sold 427,300 and 269,550 shares of common stock to other investors for cash of $1,281,900 and $808,650 during 2013 and 2012, respectively.
The Company redeemed from Accelerated Venture Partners, LLP 1,500,000 shares of common stock for an aggregate redemption price of $150 pursuant to a Stock Redemption Agreement dated May 13, 2013. The Company then canceled and returned the 1,500,000 shares to the authorized stock of the Company.
Dividend Policy
We have not declared or paid dividends on our common stock since our formation, and we do not anticipate paying dividends in the foreseeable future. Declaration or payment of dividends, if any, in the future, will be at the discretion of our Board of Directors and will depend on our then current financial condition, results of operations, capital requirements and other factors deemed relevant by the Board of Directors. There are no contractual restrictions on our ability to declare or pay dividends.
Securities Authorized for Issuance under Equity Compensation Plans
We adopted the 2013 Stock Incentive Plan (the “Plan”) in May, 2013, which provides up to 5,000,000 shares of the Company’s common stock for issuance. Please refer to Item 13 of this annual report for further information of the Plan.
Recent Sales of Unregistered Securities
The Company did not sell any equity securities that were not registered under the Securities Act during the year ended December 31, 2013.
Issuer Purchases of Equity Securities
The Company redeemed 1,500,000 shares of common stock of the Company in May, 2013 for an aggregate redemption price of $150.00, pursuant to a Stock Redemption Agreement with AVP. The Company returned the 1,500,000 shares redeemed from AVP to the authorized stock of the Company.
Item 6.
Item 6. Selected Financial Data.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.
The following discussion provides information that the Company’s management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with the Company’s consolidated financial statements and notes thereto. This section includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. Undue certainty should not be placed on these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions.
Business Overview
In 2013 the Company ceased mining exploration at its Philippine site due to force majeure conditions. Instead, it set its sights within the United States. On December 24, 2013, the Company’s subsidiary, Oro East Mariposa, LLC entered into an Assets Purchase and Option Agreement with Sutton Enterprises, the holder of the Carson Hill site.
Of particular note are three Waste Management Units (WMUs) that contain gold tailings at the Carson Hill site. Previously, the site’s owner, Sutton Enterprises was operating a rock aggregate business from the WMUs. However, the Company had a fortuitous meeting with the partners of Sutton Enterprises and discovered significant gold tailings in the WMUs that can be refined in a specialized process. Oro East Mariposa then purchased the WMUs from Sutton Enterprises, along with granting 30% Net Royalties from income generated by the gold in the WMU tailings. The Purchase Price was $6,000,000.00 payable in set installments. At present, no payments have been made on the Purchase Price, as the contract conditions payment on approval of the Regional Water Board’s approval of the WMUs Mining Waste Reclassification proposal and the City Council’s approval of the business activities. Oro East Mariposa, LLC and Sutton Enterprises are now working closely with the city and state to optimize a refining process for the gold reserves.
The current business activity of the Company does not include any mining exploration. Rather, after the purchase of the WMUs at Carson Hill, the Company is focused on producing gold concentrates from the mining waste and leached ore.
Our plan of operation for the period through December 31, 2014 is as follows:
·
Continue the aggressive production of gold concentrates through the flotation refinery from the mining waste and leached ore of the WMUs at Carson Hill, and commence active sales of the gold concentrates.
·
The Company entered into a purchase agreement with a foreign purchaser for the gold concentrates yielded from the Carson Hill WMUs. A $1,000,000.00 advance on the purchase price was credited to the Company to fund the processing and setup for the WMUs. The Company will be transacting primarily with said foreign purchaser for sales of the gold concentrates.
·
Work with the Regional Water Board at Carson Hill to reclassify the waste at the WMUs as Group “C” Mining Waste. There is an estimate of 3.5 million tons of spent ore in the WMUs and upon reclassification, the Company through its subsidiary will mine and process the material for gold. At the same time, the reclassification project will eliminate the need for long-term maintenance of the permanent waste storage units and mitigate negative environmental impacts to the area, in particular, mitigating potential sources of impact to groundwater quality.
·
Complete the pilot scale froth flotation system that the Company has set up at the Carson Hill site along with a Sand Plant. The leached ore from the WMUs are being crushed and transported to the Sand Plant to produce, bag, and ship gold concentrates.
·
Complete the due diligence investigations on the Carson Hill site presently owned by Sutton Enterprises, which the Company could purchase by Option reserved in the Asset Purchase and Option Agreement.
·
Advance aggressive sales of the gold concentrates from the WMUs.
·
Work collaboratively with the local government and community in the Philippines to assess feasibility of reopening the Philippine mining exploration activities.
·
Seek additional mineral exploration opportunities in the State of California.
Liquidity and Capital Resources
As of December 31, 2013 and 2012, the Company had a total of $647,489 and $690,440 in assets, respectively. The Company also had $959,796 and $939,281 current liabilities as of December 31, 2013 and 2012, respectively.
The following is a summary of the Company's cash flows provided by (used in) operating, investing, and financing activities for the years ended December 31, 2013 and 2012:
Total cash decreased by about $317,000 was mainly due to about $1,740,000, $250,000, $160,000 and $130,000 of cash used in funding the operations, repayment of notes, acquisition of computer and office equipment, and repayment of shareholder advances, respectively, despite about $1,990,000 of cash provided by the stock and short-term notes issuances during the year ended December 31, 2013.
Results of Operations
The following is a summary of the Company’s operation results for the years ended December 31, 2013 and 2012:
As explained in Part I Item 1 and the Business Overview section above, the Company is no longer in the exploration stage upon changing of the Company’s business plan.
Net loss increased by about $380,000 from 2012 to 2013 due to the increase of about $30,000 and $380,000 in exploration costs and general and administrative expenses, respectively, despite about $54,000 gross profit generated from the gold concentrate sales.
Due to heavy flooding in the Philippines during the first quarter of 2012 and the pending of SEC’s approval of Form S-1 for funding from additional stock issuance, there were no exploration activities until the last quarter of 2012 when smaller scale exploration activities started. As explained in the Business Overview section, we did not have any exploration activities in Philippines starting October 2013. The exploration of the Red Bank was only for about three months due to the commencement of the Carson Hill project. Overall, exploration costs were increased by about $30,000. We started and completed the pilot testing of the Carson Hill project for the refinery operations in October 2013 and shipped the first batch of processed gold concentrates in December 2013.
Increase of $380,000 in general and administrative expenses was mainly due to the increase of $66,000 in donations to Philippines government agencies for flooding victims and other government activities, $320,000 in payroll expenses, $38,000 in legal and professional fees, $62,000 in tax penalties due to late filings, $117,000 in other general and administrative of Oro East Mariposa subsequent to its incorporation in June 2013, and the decrease of $198,000 and $25,000 in share-based compensation and travel expenses, respectively.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Seasonality
Our operating results are not affected by seasonality.
Inflation
Our business and operating results are not affected in any material way by inflation.
Critical Accounting Policies
The consolidated financial statements are presented in accordance with Accounting Standards Codification (“ASC”) 915 and SEC Industry Guide 7 for its characterization to be in the exploration stage.
Emerging Growth Company
We are an “emerging growth company,” as defined in the Jumpstart our Business Startups Act of 2012, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
Under the Jumpstart Our Business Startups Act, “emerging growth companies” can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected not to avail ourselves to this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not “emerging growth companies.”
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue
Revenue from gold concentrate sales is recognized when the title and risk of loss pass to the buyer and when collectability is reasonably assured. The title and risk of loss is passed to the buyer based on the terms of the sales contract entered into with the buyer when the gold concentrates are shipped at the loading port.
Revenue is recorded and buyer is invoiced based on a provisional sales price as determined in accordance with the terms as specified in the sales contract at the time of shipment. Upon final settlement with the buyer (generally one to two months from the shipment date), the provisional sales price is adjusted based on the contract terms. Between shipment and final settlement, changes in gold futures settlement price on the Commodity Exchange Inc. (“COMEX”) result in adjustment to the revenue. The gold concentrate sales contain an embedded derivative that is required to be bifurcated from the host contract, which is the sale of the metal gold contained in the concentrates at the COMEX gold future settlement prices as specified in the contract. The embedded derivative does not qualify for hedge accounting and is adjusted to fair value through earnings each reporting period, using the COMEX gold future settlement prices at period-end, until final settlement.
Exploration Costs
Mineral property exploration costs are expensed as incurred until such time as economic reserves are quantified.
Share-based Compensation
The Company recognizes the services received in a share-based payment transaction as the services are received. The services received are measured at the fair value of the equity instruments issued.
Concentrations
Major Customers
During 2013, all of the Company’s revenues were from one customer.
Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash and trade receivables. The Company’s cash are held at various recognized financial institutions, and we do not believe significant concentration of credit risk exists. The Company performed credit evaluation of its customer’s financial condition, and the receivables were secured by the letter of credit issued per contract terms. Therefore, we do not believe a significant risk of loss exists from a concentration of credit.
Foreign Currency Translation
The consolidated financial statements are presented in United States dollars. In accordance with ASC 830, foreign denominated monetary assets and liabilities are translated into their United States dollar equivalents using foreign exchange rates which prevailed at the balance sheet date. Revenue and expenses are translated at average rates of exchange during the year. Gains or losses resulting from foreign currency transactions are included in results of operations.
Going Concern
The accompanying consolidated financial statements have been prepared on a going concern basis, which assumes the Company will realize its assets and discharge its liabilities in the normal course of business. As reflected in the accompanying consolidated financial statements, the Company has an accumulated deficit of $4,723,329 and a negative working capital of $709,525 at December 31, 2013. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profit from operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from the normal business operations when they come due. Management’s plan includes obtaining additional funds by equity and debt financing and/or related party advances, but there is no assurance of additional funding being available. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might arise as a result of this uncertainty.
Contractual Obligations
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.
Item 8.
Item 8. Financial Statements and Supplementary Data.
Audited Consolidated financial statements begin on the following page of this report.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Oro East Mining, Inc.
Oakland, California
We have audited the accompanying consolidated balance sheets of Oro East Mining, Inc. and its subsidiaries, (collectively, the “Company”) as of December 31, 2013 and 2012 and the related consolidated statements of expenses and comprehensive loss, changes in stockholders' deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America).Those standards require that we 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 were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Oro East Mining, Inc. and its subsidiaries as of December 31, 2013 and 2012 and the results of their operations, and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has recurring losses and has not generated revenues from its planned principal operations. These factors raise substantial doubt that the Company will be able to continue as a going concern. Management’s plans regarding those matters also are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ MALONE BAILEY, LLP
www.malonebailey.com
Houston, Texas
April 9, 2014
ORO EAST MINING, INC
CONSOLIDATED BALANCE SHEETS
See accompanying notes to consolidated audited financial statements.
ORO EAST MINING, INC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
See accompanying notes to consolidated audited financial statements.
ORO EAST MINING, INC
CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY (DEFICIT)
See accompanying notes to consolidated audited financial statements.
ORO EAST MINING, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
See accompanying notes to consolidated audited financial statements.
ORO EAST MINING, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Business
Oro East Mining, Inc. (“we”, “our”, or the “Company”) was incorporated in Delaware as Accelerated Acquisitions I, Inc. on February 15, 2008 for the purpose of raising capital that is intended to be used in connection with its business plan which may include a possible merger, acquisition or other business combination with an operating business.
On July 2, 2010, the Company changed its business plan to become an exploration and refining company for the mining of gold, copper, and other precious or industrial mineral deposits through the acquisition of certain rights in the Republic of the Philippines. On that date, the Company entered into an Assignment of Rights Agreement with a related company, Oro-East Mining Company LTD (“Oro”). Oro assigned to the Company certain rights and obligations to explore, extract, refine and produce precious metals and other industrial deposits on the claims and earn fees with respect to such services. Thus, the Company commenced business as an exploration, mining, refining and production company. The Company intends to focus on extracting gold, silver, copper, iron ore and other industrial minerals to primarily meet the demands of the Chinese Government and companies for the mined minerals.
On September 20, 2010, Accelerated Acquisitions I, Inc. changed its name to Oro East Mining, Inc.
In June 2013, the Company established a wholly owned subsidiary, Oro East Mariposa, LLC (“Oro East Mariposa”), a California limited liability company. Oro East Mariposa has started its operations since its establishment. In October 2013, Oro East Mariposa issued an additional 158,000 units to a foreign corporation owned by a shareholder for cash of $100,000. The Company now owns 95% equity interest of Oro East Mariposa.
On June 24, 2013, Oro East Mariposa entered into an exclusive Mining Lease and Royalties Agreement with Red Bank Trust for Red Bank Gold Mine (“Red Bank”). Red Bank is a gold mine located in the prime Mother Lode vein system just east of San Francisco and within the western Sierra Nevada Ranges.
The Company ceased mining exploration at its Philippines site due to force majeure conditions starting from the last quarter of 2012. Instead it set its sights within the United States. On December 24, 2013, Oro East Mariposa purchased the gold tailings commonly referred to by the parties as the WMUs (the “WMUs”) located on certain parcels of real property in the County of Calaveras, State of California. The total purchase price for the WMUs is $6,000,000 with 30% net profit royalties payable to the seller. The Agreement further reserves an Option in favor of Oro East Mariposa for purchase of 39 parcels of real property as described in the Agreement and all claims rights, business assets, and additional property and assets as set forth in the Agreement for a purchase price of $32,000,000 less the $6,000,000 already paid on the WMUs. The Option period is for 180 days from the date of the contract.
(b) Emerging Growth Company
We are an “emerging growth company,” as defined in the Jumpstart our Business Startups Act of 2012, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden
parachute payments not previously approved.
Under the Jumpstart Our Business Startups Act, “emerging growth companies” can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected not to avail ourselves to this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not “emerging growth companies.”
(c) Basis of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All significant intercompany accounts and transactions have been eliminated.
(d) Exploration Stage Company
The consolidated financial statements are no longer presented in accordance with Accounting Standards Codification 915 and SEC Industry Guide 7.
The Company ceased to be an Exploration Stage Company in fiscal year 2013 due to the change of its business plan as disclosed in Note 1(a) above and in the Business Description and Business Overview section under Item 1 and 7of this annual report. The current business activity of the Company does not include any mining exploration. Rather, after the purchase of the WMUs at Carson Hill, the Company is focused on producing gold concentrates from the mining waste and leached ore. The Company recorded its first sales or shipment of gold concentrates in December 2013.
(e) Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(f) Reclassification
Certain prior year amounts have been reclassified to conform with current year presentation.
(g) Cash and Cash Equivalents
Cash consists of deposits with banks or other financial institutions. The Company considers all highly liquid investments with original maturity of three months or less to be cash equivalents. There were no cash equivalents as of December 31, 2013 and 2012.
(h) Accounts Receivable
Accounts receivable consists of trade receivables from gold concentrate sales. We have not established an allowance for doubtful accounts as payments from all outstanding receivables as of December 31, 2013 have been collected subsequently.
(i) Inventories
Inventories consist of chemical reagents carried at cost not to exceed their net realizable value. Cost includes applicable taxes and freights.
(j) Property and Equipment
Property and equipment are carried at the cost of acquisition or construction and depreciated over the estimated useful lives of the assets. Costs associated with repair and maintenance are expensed as incurred. Costs associated with improvements which extend the life, increase the capacity or improve the efficiency of our property and equipment are capitalized and depreciated over the remaining life of the related asset. Gains and losses on dispositions of equipment are reflected in operations. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, which are 5 to 7 years.
(k) Revenue Recognition
Revenue from gold concentrate sales is recognized when the title and risk of loss pass to the buyer and when collectability is reasonably assured. The title and risk of loss is passed to the buyer based on the terms of the sales contract entered into with the buyer when the gold concentrates are shipped at the loading port.
Revenue is recorded and buyer is invoiced based on a provisional sales price as determined in accordance with the terms as specified in the sales contract at the time of shipment. Upon final settlement with the buyer (generally one to two months from the shipment date), the provisional sales price is adjusted based on the contract terms. Between shipment and final settlement, changes in gold futures settlement price on the Commodity Exchange Inc. (“COMEX”) result in adjustment to the revenue. The gold concentrate sales contain an embedded derivative that is required to be bifurcated from the host contract, which is the sale of the metal gold contained in the concentrates at the COMEX gold future settlement prices as specified in the contract. The embedded derivative does not qualify for hedge accounting and is adjusted to fair value through earnings each reporting period, using the COMEX gold future settlement prices at period-end, until final settlement.
(l) Exploration Costs
Mineral property exploration costs are expensed as incurred until such time as economic reserves are quantified.
(m) Share-based Compensation
The Company recognizes the services received in a share-based payment transaction as the services are received. The services received are measured at the fair value of the equity instruments issued. See Note 3.
(n) Income Taxes
Income taxes are recognized for under the liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts more likely than not to be realized.
(o) Foreign Currency Translation
The consolidated financial statements are presented in United States dollars. Foreign denominated monetary assets and liabilities are translated into their United States dollar equivalents using foreign exchange rates which prevailed at the balance sheet date. Revenue and expenses are translated at average rates of exchange prevailing during the year. Gains or losses resulting from foreign currency transactions are included in results of operations, and translation adjustments are recorded to Other Comprehensive Income.
(p) Earnings (Loss) per Common Share
Basic earnings (loss) per share is calculated using the weighted-average number of common shares outstanding during each reporting period. Diluted earnings (loss) per share includes potentially dilutive securities such as outstanding options and warrants, using various methods such as the treasury stock or modified treasury stock method in the determination of dilutive shares outstanding during each reporting period.
(q) Concentrations
Major Customers
During 2013, all of the Company’s revenues were from one customer.
Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash and trade receivables. The Company’s cash are held at various recognized financial institutions, and we do not believe significant concentration of credit risk exists. The Company performed credit evaluation of its customer’s financial condition, and the receivables were secured by the letter of credit issued per contract terms. Therefore, we do not believe a significant risk of loss exists from a concentration of credit.
(r) Recent Accounting Pronouncements
We do not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s results of operations, financial position or cash flow.
(s) Going Concern
The accompanying consolidated financial statements have been prepared on a going concern basis, which assumes the Company will realize its assets and discharge its liabilities in the normal course of business. As reflected in the accompanying consolidated financial statements, the Company has an accumulated deficit of $4,723,329 and a negative working capital of $709,525 at December 31, 2013. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profit from operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from the normal business operations when they come due. Management’s plan includes obtaining additional funds by equity and debt financing and/or related party advances, but there is no assurance of additional funding being available. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might arise as a result of this uncertainty.
NOTE 2 FAIR VALUE MEASUREMENT
Accounting Standards Codification (“ASC”) 820 - Fair Value Measurement establishes a fair value hierarchy that categorizes into three levels the inputs to valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs).
Level 1
Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date;
Level 2
Input other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and
Level 3
Unobservable inputs for the asset or liability.
The Company’s financial instruments include cash, accounts receivable and payable, short- and long-term debt, and derivative financial instrument. The carrying amounts of cash, accounts payable, short-term loans and long-term debt approximate fair value. The following table sets forth the Company’s financial instruments measured at fair value on a recurring basis:
(1)
As disclosed in Note 1(k), the sales contain an embedded derivative due to the changes in the gold futures settlement price on the COMEX between the shipment date and final settlement, which is bifurcated and accounted for as a derivative.
The embedded derivative included in the accounts receivable is adjusted to fair value through earnings at the end of each reporting period and classified within Level 1 of the fair value hierarchy because it is valued using quoted market prices in active market. We recorded a loss of $1,032 to the gold concentrate sales.
There were no financial instruments as of December 31, 2012 subject to the fair value measurement under ASC 820.
NOTE 3 CAPITAL STOCK AND SHARE-BASED COMPENSATION
The Company sold 427,300 and 269,550 shares of common stock to other investors for cash of $1,281,900 and $808,650 during 2013 and 2012, respectively.
The Company redeemed from Accelerated Venture Partners, LLP 1,500,000 shares of common stock for an aggregate redemption price of $150 pursuant to a Stock Redemption Agreement dated May 13, 2013. The Company then canceled and returned the 1,500,000 shares to the authorized stock of the Company.
The Company also issued 42,000 and 13,000 common shares for consulting services during 2013 and 2012. The Company recognized a total of $51,324 and $249,444 share-based payment expenses during 2013 and 2012, respectively.
The Company adopted the 2013 Stock Incentive Plan (the “Plan”) in May 2013, and the Plan provides for the issuance of options, restricted stock, restricted stock units, stock appreciation rights, performance awards, other stock-based awards and dividend equivalents up to 5,000,000 shares of the Company’s common stock. As of December 31, 2013, there were 4,959,000 shares available for grant under the Plan. Below is a summary of the status of the Company’s nonvested restricted stock units (“RSUs”) as of December 31, 2013 and changes during the year ended December 31, 2013:
As of December 31, 2013, there was $230,100 of total unrecognized share-based compensation related to nonvested RSUs granted under the Plan.
NOTE 4 PROPERTY AND EQUIPMENT
A summary of property and equipment and useful lives is as follows:
The Company recorded depreciation expense of $48,436 and $41,302 for 2013 and 2012, respectively.
NOTE 5 SHORT-TERM NOTES PAYABLE
During 2013 the Company entered into five $50,000 promissory notes agreements totaling $250,000 with a US and foreign corporation each owned by a different shareholder. The Company paid off one of the $50,000 promissory notes during 2013. The notes totaling $200,000 as of December 31, 2013 are due January 31, 2014, March 15, 2014, May 15, 2014 and May 31, 2014 with interest at 12%, 12%, 15% and 15%, respectively, and with no collateral. As of December 31, 2013, the Company has accrued interest of $8,813.
NOTE 6 CONVERTIBLE NOTE PAYABLE
The Company paid off the principal and accrued interest of a convertible note totaling $217,043 in January 2013. The note was issued in 2010.
In December 2013, the Company issued a $360,000 principal amount of 12% convertible note due June 5, 2014 (“Convertible Note”). The Convertible Note is unsecured and may be paid in full by the Company at any time prior to its maturity date without penalty. Upon maturity of the Convertible Note, the holder may convert all but not less than all the outstanding principal and interest due at $3.00 USD per share into common stock of the Company. The Convertible Note has a beneficial conversion feature resulted in the recognition of $90,000 debt discount. This debt discount is amortized as non-cash interest expense over the life of the note and has an unamortized balance of $77,500 as of December 31, 2013.
NOTE 7 LONG-TERM DEBT
Following is a summary of all long-term debt:
Principal payments on long-term debt are due as follows:
NOTE 8 INCOME TAXES
During 2013 and 2012, the Company incurred a net operating loss and therefore has no tax liability. As of December 31, 2013, our federal net operating loss carryforwards for income tax purposes were approximately $4.1 million. If not utilized, the federal net operating loss carryforwards will begin to expire in 2028. The net operating loss carryforwards may be subject to various annual limitations under Section 382 of the Internal Revenue Code.
The net deferred tax asset generated by the operating loss carry-forward has been fully reserved as we believe it is more likely than not that those assets will not be realized.
At December 31, 2013 and 2012, deferred tax asset consisted approximately of $1,400,000 and $890,000, respectively, with full valuation allowance for both years.
NOTE 9 COMMITMENTS
Capital Leases
The Company classifies the equipment lease, which is for 3 years expiring in 2016, as a capital lease. The following is an analysis of the leased equipment under capital leases by major classes.
The following is a schedule by years of future minimum lease payments under capital leases together with the present value of the net minimum lease payments as of December 31, 2013.
(a)
Amount necessary to reduce net minimum lease payments to present value calculated at the Company's incremental borrowing rate at lease inception.
(b)
Reflected in the balance sheet as current and noncurrent obligation under capital lease of $3,576 and $7,350, respectively.
NOTE 10 RELATED PARTY TRANSACTIONS
The shareholder and officer of the Company paid expenses on behalf of the Company during 2013 and 2012. As of December 31, 2013 and 2012, the Company owed shareholder and officer the amount of $0 and $127,327, respectively. The balances are unsecured, non-interest bearing and due on demand.
The Company has a payable of $11,000 to a shareholder as of December 31, 2012 for consulting service performed in 2012.
NOTE 11 SUBSEQUENT EVENTS
On January 31, 2014, the Company entered into a Sale and Purchase Agreement (“Agreement”) with a foreign company (“Buyer”) for its purchase of our gold concentrates. The Buyer advanced $1,000,000 on the Agreement to the Company, which will be credited against subsequent gold concentrates shipments. Please refer to the Form 8-K filed on February 5, 2014 for details of the terms of the Agreement.
On February 13, 2014, Oro East Mariposa entered into an equipment lease agreement (“Lease”) with an unrelated company on a month-to-month basis. The Lease charged the first five weeks for $15,000 and then $20,000 monthly for a maximum of 5 additional months. It allows all rental payments to be applied as a credit to the future purchase of the leased equipment.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
As of this reporting, there are none.
ITEM 9A(T).
ITEM 9A(T). CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
The Company’s Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act, as of the end of the period covered by this Annual Report on Form 10-K. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in reports that we files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the our management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are not effective as of December 31, 2013 due to a material weakness in internal control over financial reporting described below.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act. Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management identified a material weakness in its internal control over financial reporting as described below.
We had limited segregation of duties for recording and reviewing accounting transactions, and our management review controls over the acquisition of assets were not operating effectively. This material weakness resulted in material misstatement in the unaudited consolidated financial statements related to the acquisition of $6,000,000 ore stockpiles. We had corrected such misstatement prior to the issuance of our annual consolidated financial statements on this annual report.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission adopted on September 21, 2010 that permit the Company to provide only management’s report in this annual report.
Limitations on the Effectiveness of Controls
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, 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.
Changes in Internal Control over Financial Reporting
Other than the material weakness as identified above, there were no changes in the Company’s internal controls over financial reporting during the fiscal year ended December 31, 2013 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Management’s Plans to remediate the Material Weakness
The Company will consult with outside independent certified public accounting firm regarding acquisitions and other significant accounting issues to improve our management review controls and to mitigate the control deficiencies due to limited segregation of duties.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
As of this reporting, there are none.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
(a) Identification of Directors and Executive Officers. The following table sets forth certain information regarding the Company’s officers and directors:
Tian Qing Chen Chairman and Chief Executive Officer
Mr. Chen has served as Chief Executive Officer and Chairman of the Company since July of 2010. He currently devotes approximately 80% of his working time to the Company, and spends approximately 7 months per year at the Company’s Philippine mining site, approximately 2 months per year at the Company’s office in Hong Kong and approximately 1 month per year at the Company’s headquarter office in the United States. Mr. Chen has been an entrepreneur in finance and real estate investments for over 20 years. Since 2007 until he joined the Company, he has been the COO of Oro East Mining Ltd. Additionally, Mr. Chen is the President and CEO of Mutual Gain Hong Kong Group Limited, a venture capital firm based in Hong Kong since 1990, where he has worked with family conglomerates throughout East Asia to learn the trade in gold, iron, silver, steel and other precious metals. His firm has successfully invested and acquired mines in Singapore, Malaysia, the Republic of Philippines, the People’s Republic of China, and elsewhere across the Asian continent. Mr. Chen was educated in East Asia and received his Bachelor’s degree from Guang Dong University. Mr. Chen’s knowledge about our mining properties led to our conclusion that Mr. Chen should be serving as a member of our Board of Directors.
Rex Yuen Chief Financial Officer
Rex Yuen was appointed as Chief Financial Officer of the Company on May 1, 2013, and prior to his appointment, he has been an accounting advisor to the Company since February 2012. Mr. Yuen brings a decade-long pedigree of service as Chief Financial Officer and controller of other companies located throughout the United States and Asia. He has practiced public accounting both domestically and internationally, with over 10 years of experience. Mr. Yuen has broad experience in the implementation of cost management initiatives, capitalizing on new growth opportunities, acquisition integration, strategic planning, resource allocation, and cost accounting in U.S., China, and Hong Kong corporations. He brings to Oro East his knowledge of Sarbanes-Oxley implementation and controls, tax compliance, and corporate organizational development. Mr. Yuen holds an honor degree in Business Economics from the University of California at Los Angeles and is a licensed Certified Professional Accountant and Chartered Global Management Accountant. He is also a member of the AICPA.
Linda Chen Director
Ms. Chen received her Master degree from Washington State University and has over 28 years of experience in international trade and has launched several trading companies. She has worked with major family conglomerates throughout East Asia while gaining experience and knowledge on trade in gold, iron, silver, steel and other precious metals. Ms. Chen has successfully achieved additional skill and knowledge of the mining industry from deals in Malaysia, the Republic of Philippines, and the People’s Republic of China. Starting in 2006, she worked about 5 years as a consultant for Skynix Holdings Inc. She is currently the Vice President and Director of a mid-size global equity and investment firm. Additionally, she has been and currently is a director at Oro East Mining Inc. Ms. Chen’s general knowledge about mining led to our conclusion that Mr. Chen should be serving as a member of our Board of Directors.
(b) Significant Employees.
At present, there are three employees with the Company, two under written employment agreements. The subsidiary Oro East Mariposa, LLC has two employees. Except for the 2013 Stock Incentive Plan (“Plan”) adopted by the Company in May 2013 authorizing 5,000,000 shares to be issued under the Plan, we presently do not have any pension, health, annuity, insurance, profit sharing or similar benefit plans. During 2013, we granted a total of 76,700 Restricted Stock Units (“RSUs”) under the Plan to the Company’s Chief Financial Officer and employee.
(c) Involvement in Certain Legal Proceedings.
There have been no events under any bankruptcy act, no criminal proceedings and no judgments, injunctions, orders or decrees material to the evaluation of the ability and integrity of any director, executive officer, promoter or control person of Registrant during the past five years.
There are no pending legal proceedings to which the Company is a party or in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of voting securities of the Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company. The Company’s mineral claim is not the subject of any pending legal proceedings.
Audit Committee and Audit Committee Financial Expert
No audit committee has been formed as of the filing date of this Annual Report.
Section 16(a) Beneficial Ownership Reporting Compliance.
Section 16(a) of the Securities Act of 1934 requires the Company's officers and directors, and greater than 10% stockholders, to file reports of ownership and changes in ownership of its securities with the Securities and Exchange Commission. Copies of the reports are required by SEC regulation to be furnished to the Company. Based on management's review of these reports during the fiscal year ended December 31, 2012, all reports required to be filed were filed on a timely basis.
Code of Ethics
Our board of directors has adopted a code of ethics that our officers, directors and any person who may perform similar functions is subject to. The Code of Ethics does not indicate the consequences of a breach of the code. If there is a breach, the board of directors would review the facts and circumstances surrounding the breach and take action that it deems appropriate, which action may include dismissal of the employee who breached the code.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
Summary Compensation Table
The table below summarizes all compensation awarded to, earned by, or paid to our officers for all services rendered in all capacities to us for the fiscal periods indicated:
Employment Agreements
We maintain written employment agreements with each of our named executive officers. Their employments are at-will, and each named executive officer receives his base salary and a predetermined amount of RSUs pursuant to a 5-year vesting schedule based on the year of employment. The annual base salary amounts were $95,000 for Tian Qing Chen and $85,000 for Rex Yuen in 2013.
Outstanding Equity Awards at December 31, 2013
The following table summarizes the outstanding equity awards of our named executive officers’ at the fiscal year ended December 31, 2013:
1 As of December 31, 2013, 60,000 RSUs granted in 2013 were all unvested, and the market value was computed based on $3.80 per share of the Company’s common stock last traded on the OTCBB in 2013 as there have been no other trading activities since then in 2013.
Director Compensation
The following table sets forth director compensation as of December 31, 2013:
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table lists, as of December 31, 2013, the number of shares of common stock of the Company that are beneficially owned by (i) each person or entity known to the Company to be the beneficial owner of more than 5% of the outstanding common stock; (ii) each officer and director of the Company; and (iii) all officers and directors as a group. Information relating to beneficial ownership of common stock by our principal shareholders and management is based upon information furnished by each person using “beneficial ownership” concepts under the rules of the Securities and Exchange Commission. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to vote or direct the voting of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under the Securities and Exchange Commission rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary beneficial interest. Except as noted below, each person has sole voting and investment power.
The percentages below are calculated based on 27,168,290 shares of our common stock issued and outstanding as of the date of this annual report. We do not have any outstanding warrant, options or other securities exercisable for or convertible into shares of our common stock.
Equity Compensation Plan Information
We adopted the 2013 Stock Incentive Plan (the “Plan”) in May 2013. The purpose of the Plan is to attract highly-qualified persons to serve as Employees, Directors and Consultants of the Company and its Affiliates. A further purpose of the Plan is to provide such individuals with additional incentive and reward opportunities designed to enhance the profitable growth of the Company and its Affiliates. The Plan provides for the grant of Options, Restricted Stock, Restricted Stock Units, Stock Appreciation Rights, Performance Awards, Other Stock-Based Awards and Dividend Equivalents, or any combination of the foregoing, up to 5,000,000 shares of the Company’s common stock as is best suited to the circumstances of the particular Employee, Consultant or Director as determined by the Board of Directors in its sole discretion.
1 Represents unvested restricted stock units outstanding as of December 31, 2013 under the Plan. See Note 3 to the consolidated financial statements.
2 As of December 31, 2013, 4,959,000 shares remaining available for future issuance under the Plan. 41,000 shares were issued for consulting services during 2013. See Note 3 to the consolidated financial statements.
ITEM 13.
ITEM 13. RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.
Certain Relationships and Related Transactions
There are family relationships between one of our officers and directors. Each director is elected at our annual meeting of stockholders and holds office until the next annual meeting of stockholders, or until his successor is elected and qualified.
The shareholder and officer of the Company paid expenses on behalf of the Company during 2013 and 2012. As of December 31, 2013 and 2012, the Company owed shareholder and officer the amount of $0 and $127,327, respectively. The balances are unsecured, non-interest bearing and due on demand.
Director Independence
Our board of directors is currently composed of two members, and both do not qualify as an independent director under the Sarbanes-Oxley Act of 2002 and section 10A(m)(3) of the Exchange Act.
Conflicts of Interest
Since we do not have an audit or compensation committee comprised of independent directors, the functions that would have been performed by such committees are performed by our director. The Board of Directors has not established an audit committee and does not have an audit committee financial expert, nor has the Board established a nominating committee. The Board is of the opinion that such committees are not necessary since the Company is an early exploration stage company and has only two directors, and to date, such director has been performing the functions of such committees. Thus, there is a potential conflict of interest in that our director and officer has the authority to determine issues concerning management compensation, nominations, and audit issues that may affect management decisions.
Other than as described above, we are not aware of any other conflicts of interest of our executive officer and director.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Audit Fees
For 2013 and 2012, we were charged approximately $18,300 and $20,600 for professional services rendered for the audit and review of our consolidated financial statements.
Audit-Related Fees
-$0-
Tax Fees
-$0-
All Other Fees
-$0-
The Board Of Directors Pre-Approval Policies
We do not have a separate audit committee. Our board of directors performs the functions of an audit committee. Before an independent auditor is engaged by us to render audit or non-audit services, our board of directors pre-approves the engagement. Board of directors pre-approval of audit and non-audit services will not be required if the engagement for the services is entered into pursuant to pre-approval policies and procedures established by our board of directors regarding our engagement of the independent auditor, provided the policies and procedures are detailed as to the particular service, our board of directors is informed of each service provided, and such policies and procedures do not include delegation of our board of directors' responsibilities under the Exchange Act to our management. Our board of directors may delegate to one or more designated members of our board of directors the authority to grant pre-approvals, provided such approvals are presented to the board of directors at a subsequent meeting. If our board of directors elects to establish pre-approval policies and procedures regarding non-audit services, the board of directors must be informed of each non-audit service provided by the independent auditor. Board of directors pre-approval of non-audit services, other than review and attest services, also will not be required if such services fall within available exceptions established by the SEC. For the year ended December 31, 2013, 100% of audit-related services performed by our independent auditors were pre-approved by our board of directors.
Our board has considered whether the services described above under the caption "All Other Fees", which are currently none, is compatible with maintaining the auditor's independence.
The board approved all fees described above.
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
The following documents are filed as part of this 10-K:
1. The following exhibits are filed as part of this report:
Exhibit
Description
3.1.1
Articles of Incorporation of Accelerated Acquisitions I, Inc.(1)
3.1.2
Certificate of Amendment to Articles of Incorporation (5)
3.2
Bylaws of the Registrant (3)
4.1
Specimen Stock Certificate (4)
10.1
Assignment Agreement between Accelerated Acquisitions I, Inc. and Oro-East Mining Company Ltd. (2)
10.2
Mineral Production Sharing Agreement, dated February 10, 2010, by and between Registrant and the Republic of the Philippines (6)
10.3
2013 Stock Incentive Plan adopted on May 8, 2013 (7)
10.4
Employment Agreement with the Chief Financial Officer, dated May 1, 2013 (8)
10.5
Employment Agreement with the Chief Executive Officer, dated April 7, 2014 *
10.6
Stock Redemption Agreement, dated May 13, 2013, between Oro East Mining, Inc. and Accelerated Venture Partners, LLC (9)
10.7
Mining Lease and Royalties Agreement, dated June 24, 2013, between Oro East Mariposa, LLC and Red Bank Trust (10)
10.8
Asset Purchase and Option Agreement, dated December 24, 2013, between Oro East Mariposa, LLC and Sutton Enterprises (11)
10.9
Sale and Purchase Agreement, dated January 31, 2014, between Oro East Mining, Inc. and Royal Asset Management (12)
31.1
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
31.2
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
32.1
Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
32.2
Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
101.INS
XBRL Instance Document *
101.SCH
XBRL Taxonomy Extension Schema Document. *
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document *
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document *
101.LAB
XBRL Taxonomy Extension Labels Linkbase Document *
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document *
(1)
Incorporated by reference to Exhibit 3.1 to the Registrant’s Form 10-12G (File No. 000-53136) filed with the Commission on March 19, 2008
(2)
Incorporated by reference to Exhibit 10.1 to the Registrant’s Amendment No. 1 to Form S-1 (File No. 333-177509) filed with the Commission on January 30, 2012.
(3)
Incorporated by reference to Exhibit 3.2 to the Registrant’s Form 10-12G (File No. 000-53136) filed with the Commission on March 19, 2008.
(4)
Incorporated by reference to Exhibit 4.1 to the Registrant’s Amendment No. 1 to Form S-1 (File No. 333-177509) filed with the Commission on January 30, 2012.
(5)
Incorporated by reference to Exhibit 3.1.2 to the Registrant’s Amendment No. 1 to Form S-1 (File No. 333-177509) filed with the Commission on January 30, 2012.
(6)
Incorporated by reference to Exhibit 10.6 to the Registrant’s Amendment No. 2 to Form S-1 (File No. 333-177509) filed with the Commission on March 1, 2012
(7)
Incorporated by reference to Exhibit 4.1 to the Registrant’s Form 10-Q (File No. 000-53136) filed with the Commission on May 10, 2013.
(8)
Incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q (File No. 000-53136) filed with the Commission on May 10, 2013.
(9)
Incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K (File No. 000-53136) filed with the Commission on May 17, 2013.
(10)
Incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K (File No. 000-53136) filed with the Commission on June 27, 2013.
(11)
Incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K (File No. 000-53136) filed with the Commission on January 2, 2014.
(12)
Incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K (File No. 000-53136) filed with the Commission on February 5, 2014.
*
Filed herewith.
2. FINANCIAL STATEMENTS
The following documents are filed in Part II, Item 8 of this annual report on Form 10-K:
·
Report of MaloneBailey, LLP Independent Registered Certified Public Accounting Firm
·
Consolidated Balance Sheets as of December 31, 2013 and 2012
·
Consolidated Statements of Operations and Comprehensive for the years ended December 31, 2013 and 2012
·
Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2003 and 2012
·
Consolidated Statement of Cash Flows for the years ended December 31, 2013 and 2012
·
Notes to Consolidated Financial Statements
3. FINANCIAL STATEMENT SCHEDULES
All financial statement schedules have been omitted as they are not required, not applicable, or the required information is otherwise included.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Oro East Mining, Inc.
(Registrant)
Date: April 9, 2014
By
/s/ Tian Qing Chen
Tian Qing Chen
Chairman and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the registrant and in the capacity and on the date indicated.
Date: April 9, 2014
By
/s/ Tian Qing Chen
Tian Qing Chen
Chief Executive Officer and Director
(Principal Executive Officer)
Date: April 9, 2014
By
/s/ Rex Yuen
Rex Yuen
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: April 9, 2014
By
/s/ Linda Chen
Linda Chen
Director