ITEM 1. BUSINESS
The Company’s Background. MineralRite Corporation (the “Company” or “MineralRite,”) was incorporated in Nevada in October, 1996, under the name PSM Corp. The Company’s name was then changed to Royal Quantum Group, Inc. on November 23, 2005. On August 31, 2012 the board of directors approved the change of the Company’s name to MineralRite Corporation, reflecting the new direction in which the Company’s management intends to lead it. On December 3, 2012, the Company’s trading symbol was changed from “RYQG” to “RITE.” The Company’s principal executive offices are located at 55 South Geneva Road, Lindon UT 84042, telephone: (801) 796-8944. Our website address is www.mineralrite.com.
The Company’s Existing and Planned Business Expansion. MineralRite has focused on the mining operations and the acquisition, exploration and development of mining opportunities.
In March, 2013, the Company acquired Goldfield International, Inc., a Utah corporation (“Goldfield”) in exchange for 2,000,000 shares of the Company’s Common Stock and cash of $100,000. Goldfield is one of the largest manufacturers of professional alluvial gold, diamond and other gem stone recovery equipment in the United States and has been in business since 1976. Glodfield also designs and manufactures equipment for environmental clean-up projects, including barges, clarifiers, lead recovery systems, dryers, conveyors and hoppers and other mechanical equipment. Goldfield equipment has been shipped to 32 countries on 6 continents.
The acquisition of Goldfield was the first step in the Company’s plan to enter into mineral processing and certification operations, using new management’s expertise and methods in mineral enhancement technologies to provide value-added services to the mining industry. The Company will employs methods long known to and used by the industry, with certain differences in application and timing, which differences the Company believes are proprietary in nature. The primary focus of the mineral extraction process in the natural resource sector is gold. Management plans to utilize a proprietary technology for the extraction of precious metals from ore bodies, reclaimed mine tailings and high-value concentrate material. This process isolates and recovers precious minerals like gold, silver, platinum, palladium and rare earth oxides from raw ore. The process involves taking carbon from customers, recycling and reactivating it while extracting gold and precious metals. The carbon would be returned to the Company’s customers for reuse in precious metal recovery. The process does so without the use of traditional mineral leaching agents like arsenic and cyanide, highly toxic substances that can find their way into water supplies and pollute rivers and aquifers. Many gold mining and recovery groups rely on these hundred year old processes to separate gold from ores and waste rock with little regard for long term environmental damage. It is our intention to focus on environmentally conscious methods of recovery and refinement that leverage new technologies that may reduce the potential for environmental damage. This next step in the Company’s business plan will require, among other things, additional capital, additional facilities and additional personnel, none of which are immediately available to the Company. If the Company is not able to secure these things it will not be able to execute on the next step of its business plan.
The Company’s Competition in its Business. The Company encounters strong competition from a small number of manufacturers in the sales of its mining machinery products in both domestic and foreign markets. Its principal competitors for alluvial mining equipment are: Oro Industries, GSI Mining Systems, Placer Mining Equipment Worldwide, Gold Claimer Brand and many Chinese manufacturers such as BinQ. Methods of competition are diverse and include product design and performance, service, delivery, application engineering, pricing, financing terms and other commercial factors.
Customers
The Company's mining equipment customers include most of the large surface mining operators around the world. Customers include companies engaged in the surface mining of gold, other minerals and precious gem stones. Goldfield equipment has been shipped to 32 countries on 6 continents. The Company is not dependent upon any one customer.
With respect to the Company’s plans to provide mining extraction services, the Company currently has no customers for the precious metals extraction process. However, management has located companies with significant stockpiles of minerals which are in need of carbon reactivation processing. Management believes there will be a significant backlog for similar services that will last at least 5 (five) years into the future; however there can be no assurances that such customers or stock piles will be available to the Company if and when it is in a position to execute on this portion of its business plan.
Government Regulation in General
Existing and Probable Governmental Regulation. Company management monitors and complies with current government regulations that affect the Company’s activities, although the Company’s operations may be adversely affected by changes in government policy, regulations or taxation. There can be no assurance that the Company will be able to obtain all of the necessary licenses and permits that may be required to carry out exploration and development programs or its planned mineral extraction services. It is not expected that any of these controls or regulations will affect the Company’s operations in a manner materially different than they would affect other natural gas, oil and mining companies operating in the areas in which the Company operates.
United States Government Regulation. The United States federal government and various state and local governments have adopted laws and regulations regarding the protection of human health and the environment. These laws and regulations may require the acquisition of a permit by operators before drilling or mining commences, prohibit drilling or mining activities on certain lands lying within wilderness areas, wetlands, or where pollution might cause serious harm, and impose substantial liabilities for pollution resulting from drilling or mining operations, and as to oil and natural gas, particularly with respect to operations in onshore and offshore waters or on submerged lands. These laws and regulations may increase the costs of drilling and operating wells and mining activities. Because these laws and regulations change frequently, the costs of compliance with existing and future environmental regulations cannot be predicted with certainty.
The transportation and sales of certain chemicals used in mining operation in interstate commerce are heavily regulated by agencies of the federal government. Production and mining activities will be affected to some degree by state regulations. Any exploration, production or mining on federal land will have to comply with the Federal Land Management Planning Act which has the effect generally of protecting the environment. Any exploration, production or mining activity on private property whether owned or leased will have to comply with the Endangered Species Act and the Clean Water Act. The cost of complying with environmental concerns under any of these acts varies on a case by case basis. In many instances the cost can be prohibitive to development. Environmental costs associated with a particular project must be factored into the overall cost evaluation of whether to proceed with the project.
Environmental Regulation. Mining exploration, development and production operations are subject to stringent laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. Numerous governmental agencies, such as the U.S. Environmental Protection Agency (“EPA”) issue regulations which often require difficult and costly compliance measures that carry substantial administrative, civil and criminal penalties and may result in injunctive obligations for failure to comply. These laws and regulations generally require the acquisition of a permit before mining commences, restrict the types, quantities and concentrations of various substances that can be released into the environment in connection with mining and production activities, limit or prohibit construction or mining extraction activities on certain lands lying within wilderness, wetlands, ecologically sensitive and other protected areas, require action to prevent or remediate pollution from current or former operations, such as closing pits, and impose substantial liabilities for pollution. The strict liability nature of such laws and regulations could impose liability upon the Company regardless of fault. Changes in environmental laws and regulations occur frequently, and any changes that result in more stringent and costly pollution control or waste handling, storage, transport, disposal or cleanup requirements could materially adversely affect the Company’s operations and financial position, as well as the mining industry in general.
Environmental problems have not interfered in any material respect with the Company's alluvial equipment manufacturing operations. The Company believes that its compliance with statutory requirements respecting environmental quality will not materially affect its capital expenditures, earnings or competitive position. Current federal and state legislation regulating surface mining and reclamation may affect some of the Company's customers, principally with respect to the cost of complying with, and delays resulting from, reclamation and environmental requirements. The Company's products are used for reclamation as well as for mining, which has a positive effect on the demand for such products and replacement parts therefor.
The Company did not incur any costs in connection with the compliance with any federal, state, or local environmental laws. However, costs could occur at any time through industrial accident or in connection with a terrorist act or a new project. Costs could extend into the millions of dollars for which the Company could be liable. In the event of liability, Company management believes that the Company would be entitled to contribution from other owners so that the Company’s percentage share of a particular project would be the percentage share of the Company’s liability on that project. However, other owners may not be willing or able to share in the cost of the liability. Even if liability is limited to the Company’s percentage share, any significant liability has the possibility of severely diminishing the Company’s assets and resources. Company management is prepared to engage professionals, if necessary, to ensure regulatory compliance but in the near term expect the Company’s activities to require minimal regulatory oversight. If the Company expands the scope of the Company’s activities in the future it is reasonable to expect expenditures on compliance to rise.
Comprehensive Environmental Response, Compensation and Liability Act. The Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), generally imposes joint and several liabilities, without regard to fault or legality of conduct, on classes of persons who are considered to be responsible for the release of a “hazardous substance” into the environment. These persons include the current owner or operator of a contaminated facility, a former owner or operator of the facility at the time of contamination and those persons that disposed or arranged for the disposal of the hazardous substance. Under CERCLA and comparable state statutes, such persons may be subject to strict joint and several liabilities for the costs of cleaning up the hazardous substances that have been released into the environment, for damages to natural resources and for the costs of certain health studies. In addition, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment. Governmental agencies or third parties may seek to hold the Company responsible under CERCLA and comparable state statutes for all or part of the costs to clean up sites at which such “hazardous substances” have been released.
The Company's Research and Development. The Company is not currently conducting any research and development activities other than property explorations and assessments. Company management does not anticipate conducting such activities in the near future. If the Company generates significant revenues, it may expand the Company’s product line by entering into additional relationship with third parties.
The Company's Intellectual Property. The Company does not presently own any patents, trademarks, licenses, concessions or royalties. The Company owns the Internet domain name www.mineralrite.com. Under current domain name registration practices, no one else can obtain an identical domain name, but someone might obtain a similar name, or the identical name with a different suffix, such as “.org”, or with a country designation. The regulation of domain names in the United States and in foreign countries is subject to change, and the Company could be unable to prevent third parties from acquiring domain names that infringe or otherwise decrease the value of the Company’s domain names.
Employees and Consultants. As of December 31, 2013, the Company has 1 full-time employee and no part-time employees, as all operations are conducted at the subsidiary level. Company management believes that they may need to hire additional employees in the next twelve months. From time-to-time, Company management anticipates that they may use the services of independent contractors and consultants to support the Company’s expansion and business development.
To ensure continuity with its acquisition of Goldfield, the Company entered into a 30 month consulting agreement with its former owner, Lloyd McEwan (the “Consulting Agreement”). Under the terms of that Consulting Agreement which began May 1, 2013, Mr. McEwan is entitled receive a consulting fee of $5,000 per month. Currently the Company is accruing these fees and is has not been paying them in an effort to conserve cash. In addition Mr. McEwan is entitled to receive 5% of any net profits the Company realizes from the sale of products or materials of its facility located at 55 South Geneva Road in Lindon Utah. Net profits are defined by the parties as “[profit] after deducting all costs associated with the transaction, including employee costs directly associated with the project. MineralRite management salaries and administrative costs shall not exceed 15% of the gross profits.” This percentage of profits payment continues indefinitely; however it only applies to products and materials sold from that location. Thus, if the Company sells products or materials from another location, this payment would not be due or owing. Likewise if the Company provided services from the Geneva Road location, the payment would not be due and owing.
ITEM 1A.
ITEM 1A. RISK FACTORS
Investing in the Company’s common stock involves a high degree of risk. Any potential investor should carefully consider the risks and uncertainties described below before purchasing any shares of the Company’s common stock. The risks described below are those that Company management currently believes may materially affect the Company.
Risks Related to the Company’s Business
The Company derives revenues from companies in the mining industry, which is a historically cyclical industry with levels of activity that are significantly affected by the levels and volatility of precious metals and gem stone prices.
Any prolonged reduction in the overall level of exploration and development activities, whether resulting from changes in commodity prices or otherwise, could adversely impact the Company in many ways by negatively affecting its sales and results of operations. Likewise volatility in precious metals and gem stone prices are likely to continue. Depending on the market prices of gold, silver, platinum, palladium and gem stones, mining companies may cancel or curtail their mining projects, thereby reducing demand for the Company’s alluvial mining equipment and services. Many factors beyond the Company’s control affect precious metal and gem prices and the resultant demand for our equipment and services, including but not limited to:
■ exploration and production costs;
■ the discovery rate of new precious metal and gem stone deposits;
■ the rate of depletion of existing and new precious metal and gem stone deposits;
■ the ability of mining companies to raise capital;
■ political instability in precious metal and gem stone producing regions;
■ economic conditions in the United States and elsewhere;
■ governmental regulations, both domestic and foreign;
■ domestic and foreign tax policy;
■ weather conditions in the United States and elsewhere; and
■ the overall supply and demand for commodities.
Any prolonged reduction in the overall level of mining activities, whether resulting from changes in precious metal or gem prices, could adversely impact the Company in many ways by negatively affecting its sales and results of operations.
The Company has a limited operating history upon which an evaluation of the Company’s prospects can be made.
The Company adopted its current business plan in 2012. The Company’s lack of operating history in its current and changing line of business makes an evaluation of the Company’s business and prospects very difficult. The Company's prospects must be considered speculative, considering the risks, expenses, and difficulties frequently encountered in the establishment of a new business. Company management cannot be certain that the Company’s business will be successful or that the Company will generate significant revenues and become profitable.
The Company is essentially beginning a new venture, with a limited operating history.
The Company’s planned venture into precious metal extraction is a start-up enterprise with very limited operating and no meaningful financial history on which prospective investors might attempt to predict future performance. To date, the Company’s activities have consisted solely of acquiring an alluvial mining equipment manufacturer and applying certain proprietary features to a process long known and utilized in the industry, selecting manufacturing facility sites for the commercial production of such processes, commencing certain initial test marketing efforts and seeking financing for its proposed activities. Except for limited test marketing and sales of its manufactured mining equipment, the Company has not sold this service to any customers. The likelihood of success of the proposed new business of the Company must be viewed in light of the foregoing factors, as well as the delays, expenses, problems and difficulties frequently encountered by new enterprises in the development or start-up stage, many of which factors are beyond the Company’s control. The Company is subject to all of the risks inherent in the creation and development of a new business and the marketing of new and innovative products. The Company has entered into select mining joint ventures but like its entry into the mining business in general, it has a limited operating history and experience to evaluate these joint ventures.
The Company has only limited marketing experience with the precious metal extraction service.
To date, the Company’s marketing efforts have consisted principally of discussions with mining companies to determine their possible interest in the planned precious metal extraction service. In order to market the precious metal extraction service on a commercial basis, the Company must develop a sales and marketing effort. As the Company proceeds with this portion of its business plan, it intends to hire or contract with qualified, experienced salespeople as needed. There can be no assurance that any of these marketing efforts will be successful or that the proceeds from this Offering will be sufficient to conduct the planned marketing program and to purchase the necessary quantities of inventory.
The Company will be relying on one process for its proposed extraction service.
To date, the Company has generated no revenues from its sale of the precious metal extraction service. Accordingly, any factor that adversely affects the promotion or sale of precious metal extraction service will have a material adverse effect on that aspect of the Company’s business.
Company management anticipates that the Company will need to raise additional capital to continue the Company’s operations. The Company’s failure to raise additional capital will significantly affect the Company’s ability to fund proposed activities.
To pursue its strategy of becoming a value-added provider of environmentally friendly mining products services, the Company will be required to raise additional funds. Company management does not know if the Company will be able to acquire additional financing and anticipates the need to spend significant funds in acquiring the equipment and facilities needed to complete its business plan. The Company’s failure to obtain additional funds would significantly limit or eliminate the Company’s ability to fund those activities. Specifically, the Company needs additional capital to meet its obligations under the Goldfield acquisition. As of the date of this filing on Form 10-K, the Company has not made the first payment under its agreement with Goldfield’s sole shareholder and is therefore not in compliance with the terms of the acquisition. Although the Company believes that Goldfield shareholder will be flexible in the timing of receipt of the installments due under its acquisition of Goldfield, no assurances can be made that this will continue. If the shareholder were to insist on immediate payment, the Company is not currently in a position to make such payment and Goldfield’s shareholder could seek rescission of the acquisition and share exchange. This would have a material adverse affect on the Company and its planned operations.
The Company has incurred a net loss since inception and expects to incur net losses for the foreseeable future.
Company management expects to incur significant operating and capital expenditures and, as a result, expects significant net losses in the future. The Company will need to generate significant revenues to achieve and maintain profitability and may not be able to generate sufficient revenues to achieve profitable operations.
The Company’s success in its newly acquired alluvial mining equipment business is highly dependent on the ability of management to locate and acquire suitable customers for its products and services.
The nature of the Company’s newly acquired alluvial mining equipment business is highly speculative and there is a consequent risk of loss of your investment. The success of the Company’s plan of operation with respect to this business will depend to a great extent on customers it is able to secure to purchase its products and services as well as the mining industry as a whole. Company management cannot assure investors that the Company will be successful in continuing this business or that such continuation will be profitable.
We may not be able to keep pace with competition in our industry.
The precious metal extraction industry in the U.S. and international markets is very competitive and fragmented. Our business, of which Goldfield is a part, is subject to risks associated with competition from new or existing industry participants who may have more resources and better access to capital. Many of our competitors and potential competitors may have substantially greater financial and government support, technical and marketing resources, larger customer bases, longer operating histories, greater name recognition and more established relationships in the industry than we do. Among other things, these industry participants compete with us based upon price, quality, style, functionality and availability. We cannot be sure we will have the resources or expertise to compete successfully in the future. Some of our competitors may also be able to provide customers with additional benefits at lower overall costs to increase market share. We cannot be sure we will be able to match cost reductions by our competitors or that we will be able to succeed in the face of current or future competition. Also, due to the large number of competitors and their wide range of product offerings, we may not be able to continue to differentiate our products through value, styling or functionality from those of our competitors. In addition, some of our customers are also performing more manufacturing services themselves. We may face competition from our customers as they seek to become more vertically integrated. As a result, we are continually subject to the risk of losing market share, which may lower our sales and earnings. We will face different market dynamics and competition as we develop new products to expand our presence in our target markets. In some markets, our future competitors may have greater brand recognition and broader distribution than we currently enjoy. We may not be as successful as our competitors in generating revenues in those markets due to the lack of recognition of our brands, lack of customer acceptance, lack of product quality history and other factors. As a result, any new expansion efforts could be more costly and less profitable than our efforts in our existing markets. If we are not as successful as our competitors are in our target markets, our sales could decline, our margins could be impacted negatively and we could lose market share, any of which could materially harm our business.
Failure to anticipate or timely respond to changes in market acceptance of our process and products could adversely impact our business.
There can be no assurance that the alluvial mining equipment or the precious metal extraction service we intend to provide as part of our business plan can be conducted at a cost, or sold in quantities necessary to achieve profitability. It is possible that following the initial introduction of the precious metal extraction process, it may not perform properly or that customers may object to certain features of the process’ output and modifications to its design may be required to achieve greater customer acceptance. These changes would require additional expense and could cause production delays, which would adversely affect the Company’s business.
Fluctuations in the price, availability or quality of raw materials for our products could cause manufacturing delays, adversely affect our ability to provide goods to our customers or increase costs, any of which could decrease our sales or earnings.
Under our planed precious metal extraction service we intend to pursue as part of our business strategy, our major raw material purchases will include ore bodies and reclaimed mine tailings. If implemented, we will depend on outside suppliers for these raw materials and must obtain sufficient quantities of quality raw materials from these suppliers at acceptable prices and in a timely manner. We may not maintain fixed supply contracts with our suppliers. Unfavorable fluctuations in the price, quality or availability of required raw materials could negatively affect our ability to meet the demands of our customers. Our inability to meet customers’ demands could result in the loss of future sales. The profitability of our products and service offerings will depend in part upon the margin between the cost to us of certain raw materials and our fabrication costs associated with converting such raw materials into assembled products, as compared to the selling price of our products. We intend to continue to base the selling prices of our products and services in part upon their associated raw material costs. However, we may not be able to pass all increases in raw material cost or increases in the costs associated with taking possession of raw materials through to our customers in the future. The inability to offset price increases of raw materials by sufficient product price increases would have a material adverse effect on our consolidated financial condition, results of operations and cash flows. We do not plan to engage in hedging transactions to protect against raw material fluctuations, but anticipate mitigating the short-term risks of price swings by purchasing raw materials in advance based on forecasted production needs or reaching agreements with some of our suppliers to keep the cost of raw materials stable.
Fluctuations in commodity prices, particularly gold, could impact profitability.
The principal raw materials we anticipate producing by the precious metal extraction service and the alluvial mining equipment we produce is used primarily for gold and iron ore. The prices for such materials are influenced by numerous factors beyond the Company’s control, including general economic conditions, market forces and macroeconomic conditions, governmental intervention, competition, labor costs, import duties and other trade restrictions and currency exchange rates. Changing prices for gold, iron ore and other materials may cause the Company’s results of operations to fluctuate significantly. Furthermore, a large rapid decrease in the price of gold in particular would have a material adverse effect on the Company unless the increased cost could be passed along to customers.
If we are unable to manage our growth, we may not continue to be profitable.
Our continued success depends, in part, upon our ability to manage and expand our operations and facilities in the face of continued growth. We cannot assure you that we will be able to fulfill our staffing requirements for our business, successfully train and assimilate new employees, or expand our management base and enhance our operating and financial systems. Failure to achieve any of these goals will prevent us from managing our growth in an effective manner and could have a material adverse effect on our business, financial condition or results of operations.
We may experience material disruptions to our manufacturing operations.
We will rely upon our manufacturing facilities we acquire or lease to operate our business. While we seek to operate our facilities in compliance with applicable rules and regulations and take measures to minimize the risks of disruption at our facilities, a material disruption at our manufacturing facilities could prevent us from meeting customer demand, reduce our sales and negatively impact our financial results. Our manufacturing facilities, or any of our machines within our otherwise operational facilities, could cease operations unexpectedly due to a number of events, including: prolonged power failures; equipment failures; disruptions in the transportation infrastructure including roads, bridges, railroad tracks; and fires, floods, earthquakes, acts of war, or other catastrophes. Any such material disruption may prevent us from shipping our products on a timely basis, reduce our sales and negatively impact our financial results.
We face risks associated with managing operations in the United States.
All of our manufacturing operations currently will be conducted in the United States. There are a number of risks inherent in doing business here, including the following:
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unfavorable political or economic factors;
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potentially adverse tax consequences;
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unexpected legal or regulatory changes;
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lack of sufficient protection for intellectual property rights; and
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difficulties in recruiting and retaining personnel, and managing operations.
Our inability to manage these risks successfully could adversely affect our business. Furthermore, we can provide no assurances that any new market expansion will be successful because of the risks associated with conducting such operations, including the risks listed above.
We may not be able to obtain regulatory approvals for our products and processes.
Our products are subject to regulations related to the precious metal extraction industry. Our products are subject to the standards of the U.S. and international markets in which our customers distribute our products to end consumers, including environmental and ecological standards. While we seek to manufacture all products to customer specifications and we believe that our products meet all currently applicable national and international standards, any failure to manufacture and deliver products in compliance with all applicable standards and regulations for the markets in which our products are distributed may subject us to fines, penalties or business interruptions, and therefore could have material and adverse effects on our business, financial condition and prospects.
Our insurance coverage may be inadequate to protect us from potential losses.
We intend to purchase property insurance for our properties, including raw materials, semi-manufactured goods, manufactured goods, buildings and machinery equipment. Our property insurance may not cover the full value of our property and equipment, however, which would leave us exposed in the event of loss or damage to our properties or claims filed against us. We do not maintain business interruption insurance. The business interruption insurance and the product liability insurance available currently may offer limited coverage. Any business disruption or natural disaster could result in substantial costs and a diversion of resources, which would have a material and adverse effect on our business and results of operations. Our business operations, particularly our anticipated production facilities, involve risks and hazards that could result in damage to, or destruction of, property and machinery, personal injury, business interruption and possible legal liability. In addition, we do not have product liability insurance covering bodily injuries and property damage caused by the products we sell. Therefore, we are exposed to risks associated with product liability claims and may need to bear the litigation cost if the use of our products results in bodily injury or property damage. We do not carry key-man life insurance, and if we lose the services of any senior management and key personnel, we may not be able to locate suitable or qualified replacements, and may incur additional expenses to recruit and train new personnel, which could severely disrupt our business and prospects. Furthermore, we do not have property insurance, and we are exposed to risks associated with losses in values of our equipment, facilities and inventory due to fire, earthquake, flood and a wide range of natural disasters. We do not have personal injury insurance and accidental medical care insurance. Although we require that the third-party transportation companies we engage maintain insurance policies with respect to inland transit risks for our products, the coverage may be inadequate to protect us from potential claims against us and the losses that may result. The occurrence of a significant event for which we are not fully insured or indemnified, and/or the failure of a party to meet its underwriting or indemnification obligations, could materially and adversely affect our operations and financial condition. Moreover, no assurance can be given that we will be able to maintain adequate insurance in the future at rates we consider reasonable.
We may not be able to protect our proprietary rights adequately.
We wish to emphasize that the methods we intend to employ in the precious metal extraction service business are proprietary only insofar as they make certain changes in application to a process long known and utilized in the industry. We have no intellectual property protection for them. We plan to strengthen and differentiate our processes by developing new and innovative methods and functionality. As a result, our proprietary methods will be important assets to our business, if we are able to pursue this portion of our business plan. Our success will depend in part on our ability to obtain and protect our methods, processes and other technologies, to preserve our trade secrets, and to operate without infringing on the proprietary rights of third parties, both here and abroad. Despite our efforts, any of the following may reduce the value of our methods:
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our efforts to protect our proprietary rights may not be effective in preventing misappropriation of them;
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our efforts may not prevent the development and design by others of products or technologies similar to or competitive with, or superior to those we use or develop; or
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another party may obtain a blocking patent and we or our licensors would need to either obtain a license or design around the patent in order to continue to offer the contested feature or service in our products.
If we are unable to protect our proprietary rights adequately, it would have a negative impact on our operations.
We may be subject to claims that we have infringed the proprietary rights of others, which could require us and our licensors to obtain a license or change designs.
The Company has no patent protection for its alluvial mining equipment or proprietary planed precious metal extraction methods. The Company does not intend to seek patent protection for its alluvial mining equipment and there is no assurance that patents would be issued in respect of that process or that, if issued, the patents will provide the protection sought by the Company. Furthermore, although the Company is not aware of any infringement claims, there can be no assurance that the manufacture, use, or sale of its equipment or process will not give rise to infringement claims based on patents held by, or that may be issued in the future to competitors of the Company. Although we do not believe any of our equipment or proposed products or processes infringe upon the proprietary rights of others, there is no assurance that infringement or invalidity claims (or claims for indemnification resulting from infringement claims) will not be asserted or prosecuted against us or those from whom we have licenses or that any such assertions or prosecutions will not have a material adverse effect on our business. Regardless of whether any such claims are valid or can be asserted successfully, defending against such claims could cause us to incur significant costs and could divert resources away from our other activities. In addition, assertion of infringement claims could result in injunctions that prevent us from distributing our products. If any claims or actions are asserted against us or those from whom we have licenses, we may seek to obtain a license to the intellectual property rights that are in dispute. Such a license may not be available on reasonable terms, or at all, which could force us to change our designs.
Our business could be subject to environmental liabilities.
Currently, our businesses are subject to the federal and state Environmental Protection Laws as well as other national and local laws regarding pollutant discharge, air, water and noise pollution. Although we believe we are in compliance in all material respects with the applicable environmental laws and regulations, if it is determined that we are in violation of these regulations, we could be subject to financial penalties as well as the loss of our business licenses. Furthermore, if the national or local government adopts more stringent environmental regulations, we may incur significant costs in complying with such regulations. If we fail to comply with present or future environmental regulations, we may be required to pay substantial fines, suspend production or cease operations and may be subject to adverse publicity. We currently do not incur any material costs in connection with our compliance with the applicable environmental laws. However, the risk of environmental liability and charges associated with maintaining compliance with environmental laws is inherent in the nature of our business, and there is no assurance that material environmental liabilities and compliance charges will not arise in the future.
The costs to meet the Company’s reporting requirements as a public company subject to the Exchange Act of 1934 are substantial and may result in the Company having insufficient funds to operate.
The Company will incur ongoing expenses associated with professional fees for accounting and legal expenses associated with being a public company. Those fees will be higher if the Company’s business volume and activity increases. It will also be time-consuming, difficult and costly for us to develop and implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act. Certain members of our management have limited or no experience operating a company whose securities are listed on a national securities exchange or with the rules and reporting practices required by the federal securities laws and applicable to a publicly traded company. We will need to recruit, hire, train and retain additional financial reporting, internal control and other personnel in order to develop and implement appropriate internal controls and reporting procedures. If we are unable to comply with the internal controls requirements of the Sarbanes-Oxley Act, we may not be able to obtain the independent accountant certifications required by the Sarbanes-Oxley Act. Those obligations will reduce the Company’s ability to fund operations and may prevent the Company from meeting normal business obligations.
If we fail to establish and maintain an effective system of internal controls, we may not be able to report our financial results accurately. Any inability to report and file our financial results accurately and timely could harm our business and adversely affect the trading price of our common stock.
We are required to establish and maintain internal controls over financial reporting and disclosure controls and procedures and to comply with other requirements of the Sarbanes-Oxley Act and the rules promulgated by the SEC. At present, we have instituted internal controls, but it may take time to implement them fully. Further, we currently only have one officer and director so as a practical matter, it is not possible to maintain a system of checks and balances. Even when we are able to recruit a new Chief Financial Officer, our management, including our Chief Executive Officer and Chief Financial Officer, will not be able to guarantee that our internal controls and disclosure controls and procedures will prevent all possible errors. Because of the inherent limitations in all control systems, no system of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the possibility that judgments in decision-making can be faulty and subject to simple error or mistake. Furthermore, controls can be circumvented by individual acts of some persons, by collusion of two or more persons, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions or the degree of compliance with policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.
The Company’s auditors have questioned the Company’s ability to continue operations as a “going concern.” Investors may lose all of their investment if the Company is unable to continue operations.
Company management hopes to obtain revenues from future operations. In the absence of significant operations, the Company may seek to raise additional funds to meet working capital needs principally through the additional sales of the Company’s securities. However, Company management cannot guarantee that the Company will be able to obtain sufficient additional funds when needed, or that such funds, if available, will be obtainable on satisfactory terms. As a result, the Company’s auditors believe that substantial doubt exists about the Company’s ability to continue operations.
Risks Related to Owning the Company’s Common Stock
The Company’s common stock may be subject to penny stock regulations which may make it difficult for investors to sell their stock.
The Securities and Exchange Commission has adopted rules that regulate broker-dealer practices in connection with transactions in “penny stocks”. Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, deliver a standardized risk disclosure document prepared by the Commission, which specifies information about penny stocks and the nature and significance of risks of the penny stock market. The broker-dealer also must provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer and salesperson in the transaction, and monthly account statements indicating the market value of each penny stock held in the customer's account. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for a stock that becomes subject to the penny stock rules. If the Company’s common stock becomes subject to the penny stock rules, holders of the Company’s shares may have difficulty selling those shares.
The Company has issued convertible notes that may cause substantial dilution and may result in pressure on our stock price.
The Company has issued several promissory notes that are convertible into the Company’s common stock at a discount to the market price. As a result, the holders of these various notes may choose to convert a portion of the outstanding principal and interest due on the notes and sell the shares issuable upon conversion rather than hold the notes to maturity for repayment. Since these notes generally convert at a discount to the market price of our common stock, the holders are able to sell the shares they hold at prices ranging from the price at conversion down to the discounted price before the decrease in stock price has a negative impact on their investments. This, in turn, can generally create pressure on the price of our common stock and generally leads to lower stock prices.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
As a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act, the Company is not required to provide the information called for by this Item.
ITEM 2.
ITEM 2. PROPERTIES
In March 2013, the Company acquired 100% of the common stock of Goldfield International, Inc., as part of that acquisition the Company was given the right and exercised that right to lease two facilities for an aggregate of $8,000 per month. The first consists of approximately 5,000 square feet of office space and 35,000 square feet of manufacturing space where the Company manufactures its alluvial mining equipment. The agreement also includes an additional 1,000 square foot office space adjacent to the first facility. This manufacturing and office space is all located at 55 South Geneva Road, Lindon, Utah 84042.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company may become subject to various legal proceedings that are incidental to the ordinary conduct of its business. Although the Company cannot accurately predict the amount of any liability that may ultimately arise with respect to any of these matters, it makes provision for potential liabilities when it deems them probable and reasonably estimable. These provisions are based on current information and legal advice and may be adjusted from time to time according to developments.
During 2013, Egbert & Barnes, PC (“E&B”), our former counsel brought suit against the Company to collect on past due invoices in the amount of approximately $62,753.00. Effective as of November 30, 2013, the Company entered into a convertible promissory note with E&B in full settlement of the debt (the “E&B Note”). The E&B Note bears interest at 6% per annum, matures on September 10, 2015 and is convertible into the Company’s common stock at a price equal to a 10% discount from the 30 day volume weighted average price. The E&B Note was subsequently assigned to a third party.
Pursuant to a settlement agreement effected under Section 3(a)10 of the Securities Act and related court order, effective December 6, 2013, the Company issued 30,000,000 shares of its common stock and transferred its oil and gas operations including related assets and liabilities to Santeo Financial Corporation and other creditors in exchange for the cancelation of debt totaling $325,568. For financial statement presentation purposes, the oil and gas activities for 2012 and 2013, and assets and liabilities directly relating to the oil and gas operation, are accounted for pursuant to ASC Topic 205-20 “Discontinued Operations.”
Other than the foregoing, Company management knows of no material, existing or pending legal proceedings against the Company’s company, nor is the Company involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which the Company’s director, officer or any affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to the Company’s interest.
ITEM 4.
ITEM 4.
Not Applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
The Company’s common stock is listed on the Over the Counter Bulletin Board (OTC.BB) under the symbol "RITE." The following table sets forth, for the fiscal quarters indicated, the high and low closing bid prices per share of the Company’s common stock, as derived from quotations provided by Pink Sheets, LLC. Such quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.
Holders of Common Stock
The Company had 88,739,900 shares of common stock issued and outstanding as of December 31, 2013, which were held by approximately 263 shareholders, not including the number of persons or entities whose stock is held in nominee or “street” name through various brokerage firms and banks.
Warrants to Purchase Common Stock
At December 31, 2013, there were no outstanding warrants to purchase shares of the Company’s common stock. All of the remaining warrants expired unexercised on February 14, 2013. The table below shows all warrants granted and expired during the fiscal years ended December 31, 2012 and December 31, 2013. These are presented at a split adjusted purchase price of $12.50 per share:
Equity Compensation
On November 20, 2012, the Board of Directors of the Company approved and adopted the terms and provisions of a 2012 Stock Incentive Plan for the Company. An aggregate of 5,000,000 shares of the Company’s common stock are initially reserved for issuance upon exercise of nonqualified and/or incentive stock options which under the 2012 Stock Incentive Plan. On December 5, 2013 the Company amended its 2012 Stock Incentive Plan and adopted the Amended and Restated 2012 Stock Incentive Plan which provided for the issuance of an additional 7,000,000 shares of common stock upon exercise of nonqualified and/or incentive stock options. The Company registered these shares for issuance on by adopting the amended and restated plan and filing the same on Form S-8 with the Commission on December 30, 2013. As of December 31, 2013 the Company issued 8,920,000 common shares through the amended plan.
Dividends
Company management has never declared any cash dividends with respect to the Company’s common stock. Future payment of dividends is within the discretion of the Company’s Board of Directors and will depend on the Company’s earnings, capital requirements, financial condition and other relevant factors. Although there are no material restrictions limiting, or that are likely to limit, the Company’s ability to pay dividends on the Company’s common stock, Company management presently intend to retain future earnings, if any, for use in the Company’s business and have no present intention to pay cash dividends on the Company’s common stock.
Recent Sales of Unregistered Securities
There have been no sales of unregistered securities within the last three (3) years which would be required to be disclosed pursuant to Item 701 of Regulation S-K, except for the following:
In April and May 2011 the Company received a total of $95,000 through the issuance of 38 participating units. Each unit is sold for $2,500 and consisted of (a) 100 restricted common shares of the Company’s common stock, (b) a warrant to purchase 200 shares of the Company’s common stock at $12.50 per share, expiring 18 months from date of issuance, (c) a pro rata interest in 60% of the total revenue interest that the Company owns in the Bond #4 well, and (d) an option to convert the unit holder’s pro rata share in the well revenue into 100 shares of the Company’s common stock expiring 36 months after the first revenue check is received by the unit holder. The Company valued the four components of each unit separately. In the valuation of the common shares issued and the pro rata interest in oil revenue, the Company’s used the trading price of the Company’s common shares on the date of issuance. The common stock warrant and the option to convert the oil revenue interest into shares of the Company’s common stock were valued using the Black-Scholes Option Model using a risk free interest rate ranging from 0.89% to 1.60%, with volatility ranging from 186% to 208%. Of the $95,000 received, $20,936 was credited against the payments made towards the Company’s well costs. The remaining $74,064 was credited to equity.
In April and May 2011, the Company paid a consultant 3.4 participating units in consideration for services rendered in connection with the offerings. Of the $8,500 fee, a total of $1,873 was credited against the payments made towards the Company’s well costs. The Company issued a total of 340 shares and 680 options to the consultant in consideration for services.
On May 18, 2011 the Company entered into a retainer and fee agreement with Knightsbridge Law Co., Ltd. pursuant to which Knightsbridge provided services to the Company in exchange for a one-time share issuance of 49,177 Rule 144 restricted shares of the common stock of the Company.
In August 2011, the Company received a total of $65,000 through the issuance of 26 participating units. Each unit is sold for $2,500 and consisted of: (a) 100 restricted common shares of the Company’s common stock; (b) a warrant to purchase 200 shares of the Company’s common stock at $12.50 per share, expiring 18 months from date of issuance; (c) a pro rata interest in 60% of total revenue interest that the Company owns in the Chuck #1 well; and (d) an option to convert the unit holder’s pro rata share in the well revenue into 100 shares of the Company’s common stock expiring 36 months after the first revenue check is received by the unit holder. The Company valued the four components of each unit separately. In the valuation of the common shares issued and the pro rata interest in oil revenue, the Company’s used the trading price of the Company’s common shares on the date of issuance. The common stock warrant and the option to convert the oil revenue interest into shares of the Company’s common stock were valued using the Black-Scholes Option Pricing Model using a risk-free interest rate ranging from 0.89% to 1.60%, with volatility ranging from 186% to 208%. Of the $65,000 received, $15,394 was credited against the payments made towards the Company’s well costs. The remaining $49,606 was credited to equity.
In August 2011, the Company paid a consultant 2.6 participating units in consideration for services rendered in connection with the offerings. Of the $6,500 fee, a total of $1,539 was credited against the payments made towards the Company’s well costs.
Effective October 30, 2012, the Company issued an aggregate of forty million (40,000,000) shares of common stock, $.001 par value (the “Common Stock” or “Shares”) in consideration of services. The shares were issued to five individuals and five entities, whose identities were disclosed in Item 5.01of the Company’s Form 8-K filed with the Commission on November 6, 2012, seven million (7,000,000) shares were held in treasury and subsequently canceled and reissued as disclosed on Form 8-K/A filed with the Commission on February 6, 2013. The shares issued were “restricted securities” under the Securities Act of 1933, as amended and the certificate evidencing the same bears the Company’s customary restrictive legend.
On November 20, 2012, the Company entered into a series of agreements whereby a debt of $59,000 owed to Randall Lanham, Esquire and his firm, Lanham and Lanham, LLC, for his services as general counsel to the Company was extinguished in exchange for the issuance of common shares. The invoices from Lanham and Lanham, LLC date from October 2006 and provide for the conversion of the debt to common shares at its $.001 par value, which shares would to be issued to Mr. Lanham individually. Mr. Lanham assigned $40,000 of the debt obligation to four entities and one individual. The Company agreed to issue an aggregate of 8,000,000 restricted shares of common stock to these assignees contingent upon their forgiveness of the $40,000 in debt they collectively held. These shares were issued in reliance upon the exemption from securities registration afforded by Section 4(2) and 3(a)(9) of the Securities Act of 1933, as amended (the “Securities Act”). (The remaining $19,000 debt to Lanham & Lanham, LLC was forgiven by Mr. Lanham in exchange for the issuance to him of free trading shares from the Company’s newly-adopted 2012 Stock Incentive Plan. The 2012 Stock Incentive Plan is more fully described in the Company’s Form S-8, which was filed with the Commission on November 21, 2012. As a result, Mr. Lanham, individually, was issued 2,500,000 free trading shares from the 2012 Stock Incentive Plan.)
Subsequent to the 2012 year end, as previously disclosed on Form 8-K filed with the Commission on March 6, 2013 and Item 1 of this Current Report on Form 10-K which is incorporated by reference into this Item 5, MineralRite Corporation acquired 100% of the issued and outstanding stock of Goldfield International, Inc., a Nevada corporation in exchange for this issuance of 2,000,000 shares of the Company’s restricted common stock.
During 2013, the Company issued 1,700,000 shares of its common stock consisting of 300,000 common shares, the value of which is to be applied against the consulting fees due the former President of Goldfield valued at $12,000, 300,000 common shares issued to the Company’s outside accountant for services valued at $12,000, 300,000 common shares issued to the Company’s legal counsel for services valued at $12,000, and 800,000 shares issued to three consultants for services rendered valued at $24,000, which was charged to operations. The transactions that were exempt from registration under the Securities Act of 1933, as amended pursuant to Section 4(2) or were issued under the Company’s 2012 Stock Incentive Plan. No gain or loss was recognized on the issuances.
Exemptions From Registration. The shares of Common Stock referenced herein were issued in reliance upon the exemption from securities registration afforded by the provisions of Section 4(2) of the Securities Act, and/or Regulation D, as promulgated by the U.S. Securities and Exchange Commission under the Securities Act, based upon the following: (a) each of the persons to whom the shares of Common Stock were issued (each such person, an “Investor”) confirmed to the Company that it or he is an “accredited investor,” as defined in Rule 501 of Regulation D promulgated under the Securities Act and has such background, education and experience in financial and business matters as to be able to evaluate the merits and risks of an investment in the securities, (b) there was no public offering or general solicitation with respect to the offering of such shares, (c) each Investor was provided with certain disclosure materials and all other information requested with respect to the Company, (d) each Investor acknowledged that all securities being purchased were being purchased for investment intent and were “restricted securities” for purposes of the Securities Act, and agreed to transfer such securities only in a transaction registered under the Securities Act or exempt from registration under the Securities Act and (e) a legend has been, or will be, placed on the certificates representing each such security stating that it was restricted and could only be transferred if subsequently registered under the Securities Act or transferred in a transaction exempt from registration under the Securities Act.
Pursuant to a settlement agreement effected in accordance with Section 3(a)10 of the Securities Act and related court order, effective December 6, 2013, the Company issued 30,000,000 shares of its common stock and transferred its oil and gas operations including related assets and liabilities to Santeo Financial Corporation and other creditors in exchange for the cancelation of debt totaling $325,568. For financial statement presentation purposes, the oil and gas activities for 2012 and 2013, and assets and liabilities directly relating to the oil and gas operation, are accounted for pursuant to ASC Topic 205-20 “Discontinued Operations”.
There are no outstanding shares of the Company’s common stock that Company management has agreed to register under the Securities Act for sale by security holders.
Securities Authorized for Issuance under Equity Compensation Plans
On November 20, 2012, the Company adopted its 2012 Stock Incentive Plan (the “Plan”). Under the Plan, the Company reserved 5,000,000 shares of its common stock to be issued to employees, directors, consultants and advisors. The exercise price under the Plan is $0.001 per share. On December 5, 2013 the Company amended its 2012 Stock Incentive Plan and adopted the Amended and Restated 2012 Stock Incentive Plan which provided for the issuance of an additional 7,000,000 shares of common stock upon exercise of nonqualified and/or incentive stock options. The Company registered these shares for issuance on by adopting the amended and restated plan and filing the same on Form S-8 with the Commission on December 30, 2013. As of December 31, 2013 the Company issued 8,920,000 common shares through the amended plan.
Purchases of Equity Securities by the Registrant and Affiliated Purchasers
The Company did not buy back any of its shares of common stock or other securities during the year ended December 31, 2013.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
As a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act, Company management is not required to provide the information called for by this Item.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains forward-looking statements that involve known and unknown risks, significant uncertainties and other factors that may cause the Company’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed, or implied, by those forward-looking statements. The reader can identify forward-looking statements by the use of the words may, will, should, could, expects, plans, anticipates, believes, estimates, predicts, intends, potential, proposed, or continue or the negative of those terms. These statements are only predictions. In evaluating these statements, the reader should consider various factors which may cause the Company’s actual results to differ materially from any forward-looking statements. Although Company management believes that the exceptions reflected in the forward-looking statements are reasonable, management cannot guarantee future results, levels of activity, performance or achievements. Therefore, our actual results may differ materially from those anticipated in these forward-looking statements as a result of many important factors, including those set forth in our “Risk Factors.” The Company’s management undertakes no obligation to revise or update publicly any forward-looking statements for any reason.
Critical Accounting Policies and Estimates
The discussion and analysis of the Company’s financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. In consultation with the Company’s Board of Directors, management has identified the following accounting policies that it believes are key to an understanding of its financial statements. These are important accounting policies that require management’s most difficult, subjective judgments.
Reclassification
Certain reclassifications have been made to conform the 2012 amounts to the 2013 classifications for comparative purposes.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of MineralRite Corporation and its wholly-owned subsidiary, Goldfield International, Inc. (acquired on March 1, 2013. see Note 3) Intercompany transactions and balances have been eliminated in consolidation.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes.
Management’s Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Accounts Receivable
Accounts receivable are reported at the customer’s outstanding balances less any allowance for doubtful accounts. Interest is not accrued on overdue accounts receivable.
Allowance for Doubtful Accounts
An allowance for doubtful accounts on accounts receivable is charged to operations in amounts sufficient to maintain the allowance for uncollectible accounts at a level management believes is adequate to cover any probable losses. Management determines the adequacy of the allowance based on historical write-off percentages and information collected from individual customers. Accounts receivable are charged off against the allowance when collectability is determined to be permanently impaired. Management has determined that as of December 31, 2013, no allowances were required.
Revenue Recognition
Sales and related costs are recognized when the title passes to the customer since the risks and rewards of ownership has transferred, persuasive evidence of an arrangement exists, the services have been performed and all required milestones achieved, the selling price is fixed, determinable, and collection is reasonable assured.
Property and Equipment
Property and equipment are stated at cost. Depreciation and any amortization are computed using the straight-line method for financial reporting over the estimated useful lives. The estimated useful lives of assets range from 5 to 7 years.
Gains and losses resulting from sales and dispositions of property and equipment are included in current operations. Maintenance and repairs are charged to operations as incurred. Depreciation expense for the year ended December 31, 2013 and 2012 from continuing operations amounted to amounted to $14,906 and $585, respectively.
Foreign Currency Translation
The Company's primary functional currency is the U.S. dollar. For foreign operations whose functional currency is the local foreign currency, balance sheet accounts are translated at exchange rates in effect at the end of the period and income statement accounts are translated at average exchange rates for the period. Translation gains and losses are included as a separate component of stockholders’ deficit.
Convertible Debentures
If the conversion features of conventional convertible debt provides for a rate of conversion that is below market value at issuance, this feature is characterized as a beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a debt discount pursuant to ASC Topic 470-20 “Debt with Conversion and Other Options.” In those circumstances, the convertible debt is recorded net of the discount related to the BCF, and the Company amortizes the discount to interest expense, over the life of the debt using the effective interest method.
Derivative Financial Instruments
In the case of non-conventional convertible debt, the Company bifurcates its embedded derivative instruments and records them under the provisions of ASC Topic 815-15 “Embedded Derivatives.” The Company’s derivative financial instruments consist of embedded derivatives related to non-conventional convertible notes (see Note 8). The embedded derivative includes the conversion feature of the notes. The accounting treatment of derivative financial instruments requires that the Company record the derivatives at their fair values as of the inception date of the respective agreement and at fair value as of each subsequent balance sheet date. Any change in fair value will be recorded as non-operating, non-cash income or expense at each reporting date. If the fair value of the derivatives is higher at the subsequent balance sheet date, the Company will record a non-operating, non-cash charge. If the fair value of the derivatives is lower at the subsequent balance sheet date, the Company will record non-operating, non-cash income.
Concentrations of Credit Risk
The Company primarily transacts its business with one financial institution. The amount on deposit in that one institution may from time to time exceed the federally-insured limit.
Of the Company’s revenue earned during the year ended December 31, 2013, approximately 49% was generated from sales to two customers.
The Company’s accounts receivable are typically unsecured and are derived from U.S. customers in different industries. The Company performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses. Historically, such losses have been within management’s expectations. As of December 31, 2013, one customer accounted for 100% of the Company’s net accounts receivable balance, respectively.
Loss per Share of Common Stock
The Company reports earnings (loss) per share in accordance with Accounting Standards Codification “ASC” Topic 260-10, "Earnings per Share." Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares available. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted earnings (loss) per share has not been presented since the effect of the assumed conversion of warrants and debt to purchase common shares would have an anti-dilutive effect. Potential common shares as of December 31, 2013 that have been excluded from the computation of diluted net loss per share consist of $356,681 of convertible debt and accrue interest convertible into a variable number of common shares (See Note 8). The number of common shares that the convertible debt and accrued interest were convertible into at December 31, 2013 amounted to 22,973,950. . Potential common shares as of December 31, 2012 that have been excluded from the computation of diluted net loss per share consist of (a) warrants to purchase 5,720 shares of the Company’s common stock and (b) Unit holders’ options to convert their respective oil revenue interests into a total 24,030 shares of the Company’s common stock.
Long-Lived Assets
The Company accounts for its long-lived assets in accordance with ASC No. 360, “Property, Plant and Equipment.” ASC No. 360 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and fair value or disposable value. As of December 31, 2013, the Company believed there was an impairment of its long-lived assets and write off goodwill and investment in unconsolidated subsidiary.
Fair Value of Financial Instruments
Pursuant to ASC No. 820, “Fair Value Measurements and Disclosures,” the Company is required to estimate the fair value of all financial instruments included on its balance sheet as of December 31. 2013. The Company’s financial instruments consist of cash, accounts receivables, payables, convertible debt and other obligations. The Company considers the carrying value of such amounts in the financial statements to approximate their fair value due to the short-term nature of the respective instrument.
Income Taxes
The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years 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 rates is recognized in the statements of operations in the period that includes the enactment date.
Risk and Uncertainties
The Company is subject to risks common to companies in the manufacturing of gold mining equipment industry, including, but not limited to, litigation, development of new technological innovations and dependence on key personnel.
Commitments and Contingencies
The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time that these matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.
Related Party Transactions
The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.
Pursuant to Section 850-10-20 the Related parties include: a). affiliates of the Company; b). entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825-10-15, to be accounted for by the equity method by the investing entity; c). trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d). principal owners of the Company; e). management of the Company; f). other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g). other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
The consolidated financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a). the nature of the relationship(s) involved; b). a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c). the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d). amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
Discontinued Operations
For those businesses where management has committed to a plan to divest, each business is valued at the lower of its carrying amount or estimated fair value less cost to sell. If the carrying amount of the business exceeds its estimated fair value, an impairment loss is recognized. Fair value is estimated using accepted valuation techniques such as a DCF model, valuations performed by third parties, earnings multiples, or indicative bids, when available. A number of significant estimates and assumptions are involved in the application of these techniques, including the forecasting of markets and market share, sales volumes and prices, costs and expenses, and multiple other factors. Management considers historical experience and all available information at the time the estimates are made; however, the fair value that is ultimately realized upon the divestiture of a business may differ from the estimated fair value reflected in the Consolidated Financial Statements. Depreciation, depletion, and amortization expense is not recorded on assets of a business to be divested once they are classified as held for sale. Businesses to be divested are classified in the Consolidated Financial Statements as either discontinued operations or held for sale.
For businesses classified as discontinued operations, the balance sheet amounts and results of operations are reclassified from their historical presentation to assets and liabilities of operations held for sale on the Consolidated Balance Sheet and to discontinued operations on the Consolidated Statement of Operations, respectively, for all periods presented. The gains or losses associated with these divested businesses are recorded in discontinued operations on the Consolidated Statement of Operations. The Consolidated Statement of Cash Flows is also reclassified for assets and liabilities of operations held for sale and discontinued operations for all periods presented.
Pursuant to a settlement agreement and related court order, effective December 6, 2013, the Company issued 30,000,000 shares of its common stock and transferred its oil and gas operations including related assets and liabilities to Santeo Financial Corporation and other creditors in exchange for the cancelation of debt totaling $325,568. For financial statement presentation purposes, the oil and gas activities for 2012 and 2013, and assets and liabilities directly relating to the oil and gas operation, are accounted for pursuant to ASC Topic 205-20 “Discontinued Operations.”
Recently Adopted Accounting Pronouncements
Comprehensive Income- On January 1, 2013, The Company adopted changes issued by the Financial Accounting Standards Board (FASB) to the reporting of amounts reclassified out of accumulated other comprehensive income. These changes require an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required to be reclassified in its entirety to net income. For other amounts that are not required to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures that provide additional detail about those amounts. These requirements are to be applied to each component of accumulated other comprehensive income.
Liquidity and Capital Resources
December 31, 2013
During the year ended December 31, 2013, net cash used in the Company’s operating activities totaled $369,318. Net cash used in investing activities during 2013 totaled $109,484 attributable to the Company’s mining equipment subsidiary. During 2013 the Company received a total of $531,176 from its financing activities. The Company had a currency exchange net loss of $169 on funds held in Canadian currency. For 2013, the Company’s cash balance increased during the year by $52,206.
At December 31, 2013, the Company had cash of $52,206, accounts receivable of $5,433, inventories of $74, 096, employee advances of $100, and prepaid services of $966,667 that comprised the Company’s total current assets of $1,098,502. The Company’s property and equipment at December 31, 2013 had a net book value of $112,397, consisting of equipment, furniture and fixtures and constriction in progress with a cost basis of $130,935 net of accumulated depreciation of $18,538. The book value in total fixed assets is due solely to depreciation. The Company also had long term pre-paid services of $1,016,828 and website development totaling $4,425, while the Company’s total assets at December 31, 2013 were $2,232,152.
At December 31, 2013, the Company had total current liabilities totaling $1,329,321 consisting of $232,095 in accounts payable, $3,875 in accrued payroll, $119,103 in customer deposits, $186,800 in debt and other obligations due to related parties, $74,082 in notes payable, $468,450 in convertible debt and $245,006 in derivative liabilities. Additionally, the Company’s long term debt at December 31, 2013 included $$29,825 in convertible debt and $113,055 in derivative liabilities. Therefore, at December 31, 2013, the Company had total liabilities of $1,472,201.
The Company plans to enter into the mineral extraction service industry and anticipates significant increases in its cash needs in order to execute its business plan. The operations of its mining equipment subsidiary are not expected to provide sufficient working capital to pursue this new line of business; therefore the Company will require additional financing to meet its objectives. Additionally, as part of its business plan and the acquisition of Goldfield International, Inc. the Company is obligated to pay $100,000 to its former shareholder, the Company has entered into a month-to-month lease for $8,000 per month. Finally, as part of that acquisition the Company entered into a consulting agreement with Goldfield’s former sole shareholder and officer that provides payments of $5,000 per month and a percentage of net sales generated from the Goldfield facilities. Collectively the forgoing are significant additional expenses which the Company will continue to incur in the future. The Company had no other long term liabilities, commitments or contingencies. Other than anticipated exploration costs associated with the mineral and oil interests that the Company acquired and the anticipated increases in the legal and accounting costs associated with being a public company, Company management is not aware of any other known trends, events or uncertainties which may affect the Company’s future liquidity.
At December 31, 2013, the Company had stockholders’ equity totaling $759,951.
December 31, 2012
During the year ended December 31, 2012, net cash used in the Company’s operating activities totaled $46,483. Net cash realized from investing activities during 2012 totaled $35,680 from the Company’s oil and gas ventures. During 2012 the Company used a total of $21,876 due to its financing activities. The Company had a currency exchange net loss of $881 on funds held in Canadian currency. For 2012, the Company’s cash balance decreased during the year by $33,560.
At December 31, 2012, the Company had cash of $9,330, accounts receivable of $31,019 and prepaid services of $143,000 that comprised the Company’s total current assets of $183,349. The Company’s property and equipment at December 31, 2012 had a net book value of $0, consisting of furniture and fixtures with a cost basis of $1,851 net of accumulated depreciation of $1,851. The book value in total fixed assets is due solely to depreciation. The Company also had accumulated net capitalized costs of oil & gas properties totaling $303,716, pre-paid services of $262,054, website development totaling $9,879 and $19,415 deferred offering costs at December 31, 2012, while the Company’s total assets at December 31, 2012 were $778,413.
At December 31, 2012, the Company had total current liabilities totaling $620,143 consisting of $203,621 in accounts payable, $11,982 due certain shareholders on their interest in the Company’s oil and gas net revenue, $372,701 due to related parties, $0 in notes payable, and $19,845 in shareholder loans. Additionally, the Company’s long term debt at December 31, 2012 included $11,994 on the Company’s accrued asset recovery obligations relating to oil and gas properties. Therefore, at December 31, 2012, the Company had total liabilities of $620,141.
The Company plans to enter into the mineral extraction service industry and anticipates significant increases in its cash needs in order to execute its business plan. The operations of its oil and gas business are not expected to provide sufficient working capital to pursue this new line of business; therefore the Company will require additional financing to meet its objectives. Additionally, as part of its business plan and the acquisition of Goldfield International, Inc. the Company is obligated to pay $100,000 to its former shareholder in 2013, the Company has entered into a month-to-month lease for $8,000 per month. Finally, as part of that acquisition the Company entered into a consulting agreement with Goldfield’s former sole shareholder and officer that provides payments of $5,000 per month and a percentage of net sales generated from the Goldfield facilities. Collectively the forgoing are significant additional expenses which the Company will continue to incur in the future. The Company had no other long term liabilities, commitments or contingencies. Other than anticipated exploration costs associated with the mineral and oil interests that the Company acquired and the anticipated increases in the legal and accounting costs associated with being a public company, Company management is not aware of any other known trends, events or uncertainties which may affect the Company’s future liquidity.
At December 31, 2012, the Company had a stockholders’ equity totaling $158,270.
Results of Operations
The following presents an overview of our results of operations for the year ended December 31, 2013, compared to the year ended December 31, 2012.
For the Year Ended December 31, 2013 versus December 31, 2012
Revenues and Gross Profit
The Company’s revenue for 2013 was $397,199 with associated costs of sales of $358,288 as compared to 2012 revenue totaling $nil. The Company incurred other administrative expenses in 2013 included professional fees of $253,964,rent of $48,789 and other general and administrative expenses of $1,289,541. The Company’s loss from operations for 2013 was $1,553,883 compared to the Company’s loss from operations in 2012 of $312,992. Other expenses for the two years consist of accrued interest on notes payable amounting to $182,091 in 2013 and $28,517 in 2012. The Company’s net loss from continued operations for 2013 was $2,942,060 compared to $369,626 in 2012.
The Company’s Plan of Operation for the Next Twelve Months.
The Company’s new business focus is to enter the business of mineral processing, certification, equipment manufacturing and sales. The new CEO expects to engage a management team experienced in creating and operating mining companies and intends to focus on the identification, certification and sale of undervalued assets. The company plans to engage in the extraction of precious metals from ore bodies and reclaimed tailings. The Company intends to continue to raise additional capital for this new line of business although no assurances can be made that it will be successful in doing so or that if it is, that the terms of such additional financing will be favorable to the company and its existing shareholders.
The Company’s forecast for the period for which the Company’s financial resources will be adequate to support operations involves risks and uncertainties and actual results could differ as a result of a number of factors. As Stated, the Company plans to enter into the mineral extraction service industry and anticipates significant increases in its cash needs in order to execute its business plan. The operations of its oil and gas business are not expected to provide sufficient working capital to pursue this new line of business; therefore the Company will require additional financing to meet its objectives. Additionally, as part of its business plan and the acquisition of Goldfield International, Inc. the Company is obligated to pay $100,000 to its former shareholder in 2014, the Company has entered into a month to month lease for $8,000 per month. Finally, as part of that acquisition the Company entered into a consulting agreement with Goldfield’s former sole shareholder and officer that provides payments of $5,000 per month and a percentage of net sales generated from the Goldfield facilities. Collectively the forgoing are significant additional expenses which the Company will continue to incur in the future. Other than anticipated explorations costs associated with the mineral and oil interests that the Company acquired and the anticipated increases in the legal and accounting costs associated with being a public company, Company management is not aware of any other known trends, events or uncertainties which may affect the Company’s future liquidity.
In the event that the Company experiences a shortfall in capital, the Company intends to pursue opportunities to raise funds through public or private financing as well as through borrowings and via other resources, such as the Company’s officers, directors and principal shareholders. The Company cannot guaranty that additional funding will be available on favorable terms, if at all. If adequate funds are not available, then the Company’s ability to expand operations may be significantly hindered. If adequate funds are not available, the Company believes that the Company’s officers, directors and principal shareholders will contribute funds to pay for the Company’s expenses to achieve the Company’s objectives over the next twelve months.
The Company’s belief that the Company’s officers, directors and principal shareholders will pay the Company’s expenses is based on the fact that the Company’s officers, directors and principal shareholders collectively own approximately 8.08% of the Company’s outstanding common stock and will likely continue to pay the Company’s expenses as long as they maintain their ownership of the Company’s common stock, so long as they do not incur financial hardship.
The Company is not currently conducting any research and development activities and management does not anticipate conducting such activities in the near future. In the event that the Company’s customer base expands, then management may need to hire additional employees or independent contractors as well as purchase or lease additional equipment.
Effects of Inflation and Pricing
The oil and gas industry is cyclical and the demand for goods and services by oil field companies, suppliers and others associated with the industry put significant pressure on the economic stability and pricing structure within the industry. Typically, as prices for oil and natural gas increase all other associated costs increase as well. Conversely, in a period of declining prices, associated cost declines are likely to lag and may not adjust downward in proportion to the declining prices. Material changes in prices also impact our current revenue stream, estimates of future reserves, impairment assessments of oil and natural gas properties, and values of properties in purchase and sale transactions. Material changes in prices can impact the value of oil and gas companies and their ability to raise capital, borrow money and retain personnel. While we do not currently expect business costs to materially increase, higher prices for oil and natural gas could result in increases in the costs of materials, services and personnel.
Off-Balance Sheet Arrangements
We currently do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act, the Company is not required to provide the information called for by this Item.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS
Our financial statements required by this item are set forth immediately following the signature page to this annual report on Form 10-K beginning on page and are incorporated herein by reference.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON FINANCIAL DISCLOSURE
There have been no changes in or disagreements with the Company’s accountants since the Company’s formation required to be disclosed pursuant to Item 304(b) of Regulation S-K.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Company management maintains controls and procedures designed to ensure that information required to be disclosed in the reports that is filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon their evaluation of those controls and procedures performed as of December 31, 2013, the date of this report, the Company’s chief executive officer and the principal financial officer concluded that the Company’s disclosure controls and procedures were effective.
(b) Changes in internal controls. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation of those controls by the chief executive officer and principal financial officer.
The Company’s Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
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pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the Company’s assets;
■
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of management and the Company’s directors; and
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provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, the Company’s internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. 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.
As part of the Company’s compliance efforts relative to Section 404 of the Sarbanes-Oxley Act of 2002, the Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2013. In making this assessment, management used the criteria set forth in the Internal Control - Integrated Framework by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Company management evaluated control deficiencies identified through the Company’s test of the design and operating effectiveness of controls over financial reporting to determine whether the deficiencies, individually or in combination, are significant deficiencies or material weaknesses. In performing the assessment, the Company’s management has identified material weaknesses in internal control over financial reporting existing as of December 31, 2013. The Company’s evaluation of the significance of each deficiency included both quantitative and qualitative factors. Based on that evaluation, the Company’s management concluded that as of December 31, 2013, and as of the date that the evaluation of the effectiveness of the Company’s internal controls and procedures was completed, the Company’s internal controls are not effective, for the reason discussed below:
1. Company management does not yet have written documentation of the Company’s internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement Section 404 of the Sarbanes-Oxley Act and may be applicable to the Company in future years.
2. Company management does not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to the Company’s extremely small size and the fact that the Company has only had one management employee, whom is also an executive officer and director, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals.
3. The Company currently does not employ any full-time accounting personnel, which means the Company lacks the requisite expertise in the key functional areas of finance and accounting. In addition, this means that the Company does not have available personnel to properly implement control procedures.
4. The Company does not have a functioning audit committee or outside independent directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures.
5. Company management has not established adequate financial reporting monitoring activities to mitigate the risk of management override, specifically because there are no employees and only one officer and director with management functions and therefore there the Company lacks segregation of duties.
6. There is a strong reliance on the external auditors and contract accountants to review and adjust the annual and quarterly financial statements, to monitor new accounting principles, and to ensure compliance with GAAP and SEC disclosure requirements.
7. There is a strong reliance on the external attorneys to review and edit the annual and quarterly filings and to ensure compliance with SEC disclosure requirements.
In light of the material weaknesses described above, Company management performed additional analysis and other post-closing procedures to ensure the Company’s financial statements were prepared in accordance with generally accepted accounting principles. Accordingly, Company management believes that the financial statements included in this Report fairly present, in all material respects, the Company’s financial condition, results of operations and cash flows for the periods presented.
In addition, although the Company’s controls are not effective, these significant weaknesses did not result in any material misstatements in the Company’s financial statements. The Company’s management is committed to improving its internal controls and will (1) continue to use third party specialists to address shortfalls in staffing and to assist the Company with accounting and finance responsibilities, (2) increase the frequency of independent reconciliations of significant accounts which is intended to mitigate the lack of segregation of duties until there are sufficient personnel and (3) has, subsequent to the evaluation period, appointed outside directors and will establish an audit committee in the future.
Changes in Internal Control over Financial Reporting
Other than the weaknesses identified above, there were no other changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Attestation Report of the Registered Public Accounting Firm
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 temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
Previous independent registered public accounting firm.
(a) On August 12, 2013, the Company notified Robison, Hill & Co. (“Robison”) that it was dismissed as the Registrant’s independent registered public accounting firm. The decision to dismiss Robison as the Company’s independent registered public accounting firm was approved and ratified by the Company’s Board of Directors on August 12, 2013. Except as noted in the paragraph immediately below, the reports of Robison on the Company’s financial statements for the years ended December 31, 2012 and 2011 did not contain an adverse opinion or disclaimer of opinion, and such reports were not qualified or modified as to uncertainty, audit scope, or accounting principle.
The reports of Robison on the Company’s financial statements as of and for the years ended December 31, 2012 and 2011 contained an explanatory paragraph which noted that there was substantial doubt as to the Company’s ability to continue as a going concern as the Company has net losses of approximately $6,266,031 and has a working capital deficit, which raises doubt about its ability to continue as a going concern.
During the years ended December 31, 2012 and 2011 and through August 12, 2013, the Company has not had any disagreements with Robison on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to Robison’s satisfaction, would have caused them to make reference thereto in their reports on the Company’s financial statements for such periods.
During the years ended December 31, 2012 and 2011 and through August 12, 2013, there were no reportable events, as defined in Item 304(a)(1)(v) of Regulation S-K.
The Company provided Robison with a copy of this disclosure set forth under this Item 4.01 and was requested to furnish a letter addressed to the Securities & Exchange Commission stating whether or not it agrees with the above statements.
New independent registered public accounting firm
(b) On August 13, 2013 (the “Engagement Date”), the Company engaged Bongiovanni & Associates, CPA's (“Bongiovanni”) as its independent registered public accounting firm for the Company’s period ended June 30, 2013. The decision to engage Bongiovanni as the Company’s independent registered public accounting firm was approved by the Company’s Board of Directors.
During the two most recent fiscal years and through the Engagement Date, the Company has not consulted with Bongiovanni regarding either:
1. the application of accounting principles to any specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, and neither a written report was provided to the Company nor oral advice was provided that Bongiovanni concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or
2. any matter that was either the subject of a disagreement (as defined in paragraph (a)(1)(iv) of Item 304 of Regulation S-K and the related instructions thereto) or a reportable event (as described in paragraph (a)(1)(v) of Item 304 of Regulation S-K).
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following table sets forth the names and ages of the Company’s current directors and executive officers.
The Company’s Board of Directors appoints the Company’s executive officers. Directors serve until the earlier occurrence of the election of his or her successor at the next meeting of stockholders, death, resignation or removal by the Board of Directors. There are no family relationships among the Company’s directors, executive officers, or director nominees.
Guy Peckham, Principal Executive Officer, Principal Accounting Officer, President, CEO and Director. Mr. Peckham has been an entrepreneur and business consultant for the past 20 years. Structuring, developing and financing early stage companies with both private and public equity. During the past 7 years, Mr. Peckham has been working in China as an independent consultant and executive for boutique venture capital firms. Mr. Peckham was former President and Director from December 11, 2006 through April 8, 2010 of Green Energy Renewable Solutions, Inc., (formerly Eworld Interactive, Inc. through 2012-02-28 and formerly Saltys Warehouse, Inc. through 2007-01-31).
Departure of Directors and Officers
Roger Jensen, one of the Company’s directors resigned his position on or about November 14, 2013 in order to pursue other business interests. There were no The board of directors accepted Mr. Jenson’s resignation effective immediately and expresses the Company’s gratitude for his efforts and services to date.
Directors
Each director serves until the Company’s next annual meeting of the stockholders or unless they resign earlier. The Board of Directors elects officers and their terms of office are at the discretion of the Board of Directors. Each of the Company’s directors serves until his or her successor is elected and qualified. Each of the Company’s officers is elected by the Board of Directors to a term of one (1) year and serves until his or her successor is duly elected and qualified, or until he or she is removed from office. At the present time, members of the Board of Directors are not compensated in cash for their services to the Board.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended requires the Company’s directors and officers, and persons who own more than ten-percent (10%) of the Company’s common stock, to file with the Securities and Exchange Commission reports of ownership on Form 3 and reports of change in ownership on Forms 4 and 5. Such officers, directors and ten-percent stockholders are also required to furnish the Company with copies of all Section 16(a) reports they file. Based solely on its review of the copies of such forms received by the Company and on written representations from certain reporting persons, the Company believes that all Section 16(a) reports applicable to its officers, directors and ten-percent stockholders with respect to the fiscal year ended December 31, 2012 were filed timely; with the exception that the Company believes that initial filings by the currently listed beneficial holders were not filed timely.
Nominating Committee
The Company's entire Board participates in consideration of director nominees. The Board will consider candidates with previous experience as a board member or senior officer of a company or who are generally recognized in a relevant field as a well-regarded practitioner, faculty member or senior government officer. The Board will also evaluate whether the candidates' skills and experience are complementary to the existing Board's skills and experience as well as the Board's need for operational, management, financial, international, technological or other expertise. The Board will interview candidates that meet the criteria and then select nominees that Board believes best suit the Company's needs.
The Board will consider qualified candidates suggested by stockholders for director nominations. Stockholders can suggest qualified candidates for director nominations by writing to the Company's Corporate Secretary, Roger Janssen, at 55 South Geneva Road Lindon, Utah 84042. Submissions that are received that meet the criteria described above will be forwarded to the Board for further review and consideration. The Board will not evaluate candidates proposed by stockholders any differently than other candidates.
Audit Committee Financial Expert
The Company’s Board of Directors does not have an “audit committee financial expert,” within the meaning of such phrase under applicable regulations of the Securities and Exchange Commission, serving on its audit committee. The Board of Directors believes that all members of its audit committee are financially literate and experienced in business matters, and that one or more members of the audit committee are capable of (1) understanding generally accepted accounting principles and financial statements, (2) assessing the general application of GAAP principles in connection with the Company’s accounting for estimates, accruals and reserves, (3) analyzing and evaluating the Company’s financial statements, (4) understanding the Company’s internal controls and procedures for financial reporting; and (5) understanding audit committee functions, all of which are attributes of an audit committee financial expert. However, the Board of Directors believes that there are not any audit committee members who has obtained these attributes through the experience specified in the SEC’s definition of “audit committee financial expert.” Further, like many small companies, it is difficult for the Company to attract and retain board members who qualify as “audit committee financial experts,” as competition for these individuals is significant. The board believes that its current audit committee is able to fulfill its role under SEC regulations despite not having a designated “audit committee financial expert.” Company management believes the cost related to retaining a financial expert at this time is prohibitive. Further, because of the Company’s start-up operations, Company management believes the services of a financial expert are not warranted.
Audit Committee
The Company lacks an Audit Committee, the Company’s Board of Directors, performs some of the same functions of an Audit Committee, such as: recommending a firm of independent certified public accountants to audit the annual financial statements; reviewing the independent auditors independence, the financial statements and their audit report; and reviewing management's administration of the system of internal accounting controls. The Company does not currently have a written audit committee charter or similar document.
Security Holders Recommendations to the Board of Directors
The Company’s Company does not currently have a process for security holders to send communications to the Board of Directors. However, Company management welcomes comments and questions from the Company’s shareholders. Shareholders can direct communications to Chief Executive Officer Guy Peckham at the executive offices.
While Company management appreciates all comments from shareholders, Company management may not be able to individually respond to all communications. The Company does attempt to address shareholder questions and concerns in press releases and documents filed with the SEC so that all shareholders have access to information at the same time. Mr. Peckham collects and evaluates all shareholder communications. If the communication is directed to the Board of Directors generally or to a specific director, Mr. Peckham will disseminate the communications to the appropriate party at the next scheduled Board of Directors meeting. If the communication requires a more urgent response, Mr. Peckham will direct that communication to the appropriate executive officer. All communications addressed to the Company’s directors and executive officers will be reviewed by those parties unless the communication is clearly frivolous.
Certain Legal Proceedings
The Company’s directors, executive officers and control persons have not been involved in any of the following events during the past five years:
1.
any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
2.
any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offences);
3.
being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated
Employees
Other than the Company’s officers and directors, the Company currently has no other employees.
Code of Ethics
The Company has not adopted a corporate code of ethics that applies to the Company’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions in that the Company’s sole officer and director serves in all the above capacities.
The Company’s decision to not adopt such a code of ethics results from the Company’s having only two officers working closely together managing the Company. The Company believes that as a result of the limited interaction, which occurs having such a small management team, eliminates the current need for such a code. Further, since the officers also serve as directors there is no one to report violations of such a code to.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The table below sets forth compensation earned by our named executive officers in 2012 and 2011 for services rendered in all capacities to us and our subsidiaries.
(1) Mr. Ruskowsky provided services to the Company through Santeo Financial, a company in which Mr. Ruskowsky owns a controlling interest. In October 2012, Mr. Guy, Peckham, the Company’s President, personally assumed $200,000 of the obligation the Company’s owes Santeo Financial for unpaid management fees. The $200,000 debt was not forgiven and the Company’s records indicate the $200,000 debt as being owed to Mr. Peckham as of December 31, 2012. The $200,000 is non-interest bearing, unsecured, and due on demand. Mr. Ruskowsky, the Company’s former president, provided services through a consulting agreement that the Company had with Santeo Financial Corp (“Santeo”). Under the terms a consulting agreement, the Company was required to pay Santeo $15,000 per month. The $15,000 monthly fee was accrued by the Company and was reduced by amounts actually paid. The consulting agreement terminated in August 2012. In October 2012, the balancing owing Santeo amounted to $397,193, of which $200,000 was personally assumed by Mr. Guy Peckham. The balance owed to Santeo as of the termination date, net of the assumed $200,000, amounted $197,193, which is being paid in monthly installments of $8,500. If the Company is successful in receiving at least $500,000 from the sale of its common stock, the Company is required to make a $100,000 installment payment against the balance due. The remaining balance, if any, becomes fully due and payable on May 1, 2013. Consulting fees expensed for the year ended December 31, 2012 and 2011 amounted to $119,000 and $180,000, respectively. On July31, 2012, Ron Ruskowsky resigned from his position as President of the Company and Director of the Corporation. His resignation was not of any disagreement with the Company, or its officers. On October 30 2012, the Company issued Mr. Guy Peckham, the Company’s current president 11,500,000 shares of its common stock for services. The 11,500,000 shares were valued at $149,500, which is being charged to operations over the three year term of the underlying agreement. . In February 2013, out of the 7,000,000 shares of common stock that were canceled and reissued, 2,000,000 were granted to Mr. Peckham as additional consideration for services to be rendered.
(2) On July 31, 2012, Roger Janssen was elected as interim President for the Company as reported on the Company’s Form 8-K filed with the Commission on August 6, 2012 and was subsequently replaced as President of the Company by Guy Peckham as reported on the Company’s Form 8-K filed with the Commission on August 23, 2012. Roger Janssen remained as Chairman of the Board of Directors, Treasurer and the Secretary of the Corporation until his resignation in November 2013. As of December 31, 2012, the Company owed Roger Janssen, an officer and director of the Company, $1,345 for services previously performed.
(3) As of December 31, 2012, the Company owed Phil Van Angren, a former officer and director of the Company, $3,636 for services previously performed. Mr Van Angren served as a member of the Company’s board of directors and Exploration Manager until he resigned all positions he held with the Company. The resignation did not involve any disagreement with the Company, as reported on the Company’s Form 8-K filed with the Commission on May 26, 2011.
Except as set forth above, none of the Company's officers and/or directors currently receives any compensation for their respective services rendered to the Company.
Long-Term Incentive Plans
There are no arrangements or plans in which the Company provides pension, retirement or similar benefits for directors or executive officers, except that the Company’s directors and executive officers may receive stock options at the discretion of the Company’s Board of Directors. The Company does not have any material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to directors or executive officers, except that stock options may be granted at the discretion of the Company’s Board of Directors.
Stock Option Grants
On November 20, 2012, the Board of Directors and the shareholders of the Company approved and adopted the terms and provisions of a 2012 Stock Incentive Plan for the Company. An aggregate of 5,000,000 shares of the Company’s common stock were initially reserved for issuance upon exercise of nonqualified and/or incentive stock options granted under the 2012 Stock Incentive Plan. On December 5, 2013 the Company amended its 2012 Stock Incentive Plan and adopted the Amended and Restated 2012 Stock Incentive Plan which provided for the issuance of an additional 7,000,000 shares of common stock upon exercise of nonqualified and/or incentive stock options. The Company registered these shares for issuance on by adopting the amended and restated plan and filing the same on Form S-8 with the Commission on December 30, 2013. As of December 31, 2013 the Company issued 8,920,000 common shares through the amended plan.
Employment and Consulting Agreements
No employment agreements are currently in place. To ensure continuity with its acquisition of Goldfield International, Inc., the Company has entered into a 30 month consulting agreement with its former owner, Lloyd McEwan (the “Consulting Agreement”). Under the terms of that Consulting Agreement, Mr. McEwan will receive a consulting fee of $5,000 per month beginning May 1, 2013. In addition Mr. McEwan is entitled to receive 5% of any net profits the Company realizes from the sale of products or materials of its facility located at 55 South Geneva Road in Lindon, Utah. Net profits are defined by the parties as “[profit] after deducting all costs associated with the transaction, including employee costs directly associated with the project. MineralRite management salaries and administrative costs shall not exceed 15% of the gross profits.” This percentage of profits payment continues indefinitely; however it only applies to products and materials sold from that location. Thus, if the Company sells products or materials from another location, this payment would not be due or owing. Likewise if the Company provided services from the Geneva Road location, the payment would not be due and owing.
There are no other current arrangements or plans in which the Company provides pension, retirement or similar benefits for directors or executive officers. The Company’s directors and executive officers may receive stock options at the discretion of the Company’s Board of Directors in the future. The Company does not have any material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to the Company’s directors or executive officers, except that stock options may be granted at the discretion of the Company’s Board of Directors.
Involvement in Certain Legal Proceedings
The Company’s directors, executive officers and control persons have not been involved in any of the following events during the past five years:
1.
any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
2.
any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offences);
3. being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
BENEFICIAL OWNERSHIP TABLE
The following table lists, as of December 31, 2013, the number of shares of common stock of the Company’s Company that are beneficially owned by (1) each person or entity known to the Company’s Company to be the beneficial owner of more than 5% of the outstanding common stock; (2) each officer and director of the Company’s Company; and (3) all officers and directors as a group. Information relating to beneficial ownership of common stock by the Company’s 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.
As of the date of this current report, there are 167,008,445 shares of common stock issued and outstanding, ", these shares and the table below reflect the reissuance of 7,000,000 shares as disclosed on the Company's Form 8-K/A filed with the Commission on February 6, 2013 and the 2,000,000 shares issued as part of the acquisition of Goldfield International, Inc. as disclosed on the Company's Form 8-K filed with the Commission on March 6, 2013. All references to percentages are in the current report filed on Form 10-K are current as of the date of filing.
As of December 31, 2012, total warrants outstanding were 5,720. All of these warrants expired unexercised on February 14, 2013.
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. In accordance with Securities and Exchange Commission rules, shares of the Company’s common stock which may be acquired upon exercise of stock options or warrants which are currently exercisable or which become exercisable within 60 days of the date of the table are deemed beneficially owned by the option holders. Subject to community property laws, where applicable, the persons or entities named in the table above have sole voting and investment power with respect to all shares of the Company’s common stock indicated as beneficially owned by them.
Equity Compensation Plan
On November 20, 2012, the Board of Directors of the Company approved and adopted the terms and provisions of a 2012 Stock Incentive Plan for the Company. An aggregate of 5,000,000 shares of the Company’s common stock were initially reserved for issuance upon exercise of nonqualified and/or incentive stock options granted under the 2012 Stock Incentive Plan. On December 5, 2013 the Company amended its 2012 Stock Incentive Plan and adopted the Amended and Restated 2012 Stock Incentive Plan which provided for the issuance of an additional 7,000,000 shares of common stock upon exercise of nonqualified and/or incentive stock options. The Company registered these shares for issuance on by adopting the amended and restated plan and filing the same on Form S-8 with the Commission on December 30, 2013. As of December 31, 2013 the Company issued 8,920,000 common shares through the amended plan.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Related Party Transactions
The Company has entered into a month-to-month lease agreement with Trio Gold for an office in Calgary, Alberta, Canada. Trio Gold’s President is the father of Ron Ruskowsky, the former President and CEO of the Company. This lease can be canceled on one month’s written notice. The lease agreement was amended in February 2011 which increased rental payments from approximately $450 to $1,300 per month plus applicable taxes. For the years ended December 31, 2012 and 2011, rent expense amounted to $15,908 and $16,094, respectively.
In October 2012, Mr. Guy, Peckham, the Company’s President, personally assumed $200,000 of the obligation the Company’s owes Santeo Financial for unpaid management fees. The $200,000 debt was not forgiven and the Company’s records indicate the $200,000 debt as being owed to Mr. Peckham as of December 31, 2012. The $200,000 is non-interest bearing, unsecured, and due on demand. Mr. Ruskowsky, the Company’s former president, provided services through a consulting agreement that the Company had with Santeo Financial Corp (“Santeo”). Mr. Ruskowsky owns a controlling interest in Santeo.
Under the terms a consulting agreement, the Company was required to pay Santeo $15,000 per month. The $15,000 monthly fee was accrued by the Company and was reduced by amounts actually paid. The consulting agreement terminated in August 2012. In October 2012, the balancing owing Santeo amounted to $397,193, of which $200,000 was personally assumed by Mr. Guy Peckham. The balance owed to Santeo as of the termination date, net of the assumed $200,000, amounted $197,193, which is being paid in monthly installments of $8,500. If the Company is successful in receiving at least $500,000 from the sale of its common stock, the Company is required to make a $100,000 installment payment against the balance due. The remaining balance, if any, becomes fully due and payable on May 1, 2013. Consulting fees expensed for the year ended December 31, 2012 and 2011 amounted to $119,000 and $180,000, respectively.
On October 30 2012, the Company issued Mr. Guy Peckham, the Company’s current president 11,500,000 shares of its common stock for services. The 11,500,000 shares were valued at $149,500, which was charged to operations. In February 2013, of the 7,000,000 that were issued into treasury canceled and subsequently reissued, 2,000,000 were reissued to Mr. Peckham for services to be rendered.
Santeo Financial and Mr. Peckham canceled the assignment of $200,000 of the Santeo debt that was assigned to Mr. Peckham and the $200,000 note payable from Mr. Peckham to Santeo and as a result the entire $397,193 was payable to Santeo. Santeo then assigned a portion of its interest in the Note to several third parties. In September 2013, Santeo and these third party creditors filed suit against the Company for collection. The parties agreed to settle the entire debt for 30,000,000 shares of its common stock and the conveyance of its interests in its oil properties subject to court approval. The Court approved the settlement on December 6, 2013 and the Company issued 30,000,000 shares of its common stock and transferred its oil and gas operations including related assets and liabilities in exchange for the cancellation of the balance of the debt then outstanding totaling $325,568 (See Note 4).
On October, 30 2012, the Company issued Mr. Guy Peckham, the Company’s current president 11,500,000 shares of its common stock for services. The 11,500,000 shares were valued at $149,500, which is being charged to operations over the three year term of the underlying agreement.
On February 4, 2013, the Company issued Mr. Guy Peckham, the Company’s current president 2,000,000 shares of its common stock for services. The 2,000,000 shares were valued at $700,000, which is being charged to operations over the three year term of the underlying agreement.
As of December 31, 2013, the Company owed Roger Janssen, an officer and director of the Company, $1,345 for services previously performed.
During the year ended December 31, 2013, Mr. Guy Peckham has advanced the Company a total of $30,700 of which $30,700 was repaid during the same period. The advances are due on demand and bear interest at annual rate of 8% per annum. As of December 31, 2013, the Company repaid the full total amount of the advances and accrued interest of $698.
As of December 31, 2013, certain shareholders have advanced the Company a total of $19,845 that is payable on demand and is non-interest bearing.
In connection with the acquisition of Goldfield, the Company entered into a consulting agreement with the former shareholder of Goldfield, whereby commencing May 1, 2013, the Company agreed to pay him a consulting fee of $5,000 per month over the 30 month term of the agreement. During the year ended December 31, 2013, the Company paid him $10,000, issued him 300,000 shares of common stock valued at $12,000 and issue him a convertible note in the amount of $25,000 (See Note 8), all as payments toward this obligation. As of December 31, 2013, the Company has prepaid $7,000 on this obligation.
As discussed in Note 3, the Company entered into an agreement to acquire the personal goodwill of the former shareholder of Goldfield for $100,000 payable in three installments of $33,000 due April 1, 2013, $33,000 due May 1, 2013 and $34,000 due June 1, 2013. Interest accrues on any payment that is not paid within 10 days of its respective due date. The Company has not made any payments toward this obligation and has accrued of interest that was charged to operations for the year ended December 31, 2013 amounting to $5,334.
In addition, the former shareholder of Goldfield has also advanced the Company $80.000, which is unsecured, non-interest bearing and due on demand.
Director Independence
Our common stock is currently quoted on the OTCQB, which does not impose independence requirements on our Board of Directors or any committee thereof. Since the OTCQB does not have rules regarding director independence, the Board makes its determination as to director independence based on the definition of “independence” as defined under the rules of the New York Stock Exchange (“NYSE”) and American Stock Exchange (“Amex”). Our current directors do not meet the definition of independence because they are both executive officers.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
(1)
Audit Fees
The aggregate fees billed in each of the fiscal years ended December 31, 2013 and 2012 for professional services rendered by the principal accountant for the audit of the Company’s annual financial statements and quarterly review of the financial statements included in the Company’s Form 10-K or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years were $37,500 and $$45,730 respectively.
(2)
Audit-Related Fees
For the fiscal year ended December 31, 2013, there were no fees billed for services reasonably related to the performance of the audit or review of the financial statements outside of those fees disclosed above under “Audit Fees.”
(3)
Tax Fees
For the fiscal years ended December 31, 2013 and December 31, 2012, the Company’s accountants rendered services for tax compliance, tax advice, and tax planning work for which the Company paid $0 and $140, respectively.
(4)
All Other Fees
(5)
Audit Committee
(6)
Work Performance by others
PART IV
ITEM 15.
ITEM 15. EXHIBITS
The following Exhibits, as required by Item 601 of Regulation S-K, are attached or incorporated by reference, as stated below.
(a)
Financial Statements: See “Index to Financial Statements” set forth on page.
(b)
Financial Statement Schedules. All schedules for which provision is made in the applicable accounting requirements of the Securities and Exchange Commission are not required or the required information has been included within the financial statements or the notes thereto.
(c)
Exhibits. The list of exhibits in the Exhibit Index to this annual report is incorporated herein by reference.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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ROBISON, HILL & CO.
Certified Public Accountants
A PROFESSIONAL CORPORATION
DAVID O. SEAL, CPA
W. DALE WESTENSKOW, CPA
BARRY D. LOVELESS, CPA
STEPHEN M. HALLEY, CPA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Shareholders of MineralRite Corporation
We have audited the accompanying balance sheet of MineralRite Corporation as of December 31, 2012, and the related statements of operations, stockholders’ equity and cash flows for each of the year ended December 31, 2012. MineralRite Corporation’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, 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 financial statements referred to above present fairly, in all material respects, the financial position of MineralRite Corporation as of December 31, 2012, and the results of its operations and its cash flows for the year ended December 31, 2012 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 incurred recurring net losses and has a working capital deficit, which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Robison, Hill & Co.
Robison, Hill & Co.
Certified Public Accountants
Salt Lake City, UT
May 14, 2014
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The accompanying notes are an integral part of these financial statements
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The accompanying notes are an integral part of these financial statements
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The accompanying notes are an integral part of these financial statements
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The accompanying notes are an integral part of these financial statements
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The accompanying notes are an integral part of these financial statements
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MINERALRITE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
Organization, History and Business
MineralRite Corporation (“the Company”) was incorporated in Nevada on October 22, 1996 under its original name PSM Corp. The Company changed its emphasis to the exploration and development of natural resources and on November 23, 2005 changed its name to Royal Quantum Group, Inc. On October 18, 2012, the Company again changed its name from Royal Quantum Group, Inc. to MineralRite Corporation. On August 31, 2012, the Company declared a 50-for-1 reverse stock split of its common stock. All references in the accompanying consolidated financials to the number of shares outstanding and per-share amounts have been restated to reflect this stock split.
On March 1, 2013, the Company acquired 100% of the total shares outstanding of Goldfield International, Inc. (“Goldfield”) in exchange for issuing 2,000,000 shares of its common stock. The acquisition was based on the fair value of the shares issued amounting to $900,000. The accompanying con solidated financial statements include the accounts and balances of the Company and also of Goldfield since the date of its acquisition. All material intercompany transactions have been eliminated. Goldfield is in the business of manufacturing gold mining equipment.
On April 24, 2013, the Company entered into a joint venture agreement with CSI Export and Import (“CSI”) to mine copper ore on leased acreage in Chiapas, Mexico. For $850,000, the Company acquired a 50% in the joint venture which has a 25% participation interest in the production and sale of the indicated copper ore. The Company accounts for its investment in with CSI under the equity method pursuant to ASC Topic 323-30. This amount was written off in 2013 due to impairment as CSI did not execute on their part of the joint venture and repayment is doubtful.
Pursuant to a settlement agreement and related court order, effective December 6, 2013, the Company issued 30,000,000 shares of its common stock and transferred its oil and gas operations including related assets and liabilities to Santeo Financial Corporation and other creditors in exchange for the cancelation of debt totaling $325,568. For financial statement presentation purposes, the oil and gas activities for 2012 and 2013, and assets and liabilities directly relating to the oil and gas operation, are accounted for pursuant to ASC Topic 205-20 “Discontinued Operations”.
Going Concern
The Company’s consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and the liquidation of liabilities in the ordinary course of business. The Company has incurred substantial losses from operations and has a working capital deficit, which history and circumstance raise substantial doubt as to the Company’s ability to continue as a going concern. For the year ended December 31, 2013, the Company had a net loss from continuing operations of $ 3,529,793 and accumulated deficit of $9,795,824. The Company has raised funds through the private sale of its common shares and issuance of convertible debt. In addition, the Company on March 1, 2013 acquired Goldfield International, Inc. which had net sales for the ten months ended December 31, 2013 of $397,199 and gross profit during the ten month period of $38,991. The net revenue generated from current operations in not sufficient to pay Company debts currently due or to fund future operations. The Company is seeking to raise additional funds; however, there is no assurance that the necessary funds will be raised or even if the funds are raised, that the funds received will be to sufficient to fund future operations until such time that the Company’s operations become profitable. Until such time as funding is obtained and/or positive results from operations materialize, doubt about the Company’s ability to continue as a going concern may remain.
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MINERALRITE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reclassification
Certain reclassifications have been made to conform the 2012 amounts to the 2013 classifications for comparative purposes.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of MineralRite Corporation and its wholly-owned subsidiary, Goldfield International, Inc. (acquired on March 1, 2013. see Note 3) Intercompany transactions and balances have been eliminated in consolidation.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes.
Management’s Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Accounts Receivable
Accounts receivable are reported at the customer’s outstanding balances less any allowance for doubtful accounts. Interest is not accrued on overdue accounts receivable.
Allowance for Doubtful Accounts
An allowance for doubtful accounts on accounts receivable is charged to operations in amounts sufficient to maintain the allowance for uncollectible accounts at a level management believes is adequate to cover any probable losses. Management determines the adequacy of the allowance based on historical write-off percentages and information collected from individual customers. Accounts receivable are charged off against the allowance when collectability is determined to be permanently impaired. Management has determined that as of December 31, 2013, no allowances were required.
Revenue Recognition
Sales and related costs are recognized when the title passes to the customer since the risks and rewards of ownership has transferred, persuasive evidence of an arrangement exists, the services have been performed and all required milestones achieved, the selling price is fixed, determinable, and collection is reasonable assured.
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MINERALRITE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
Property and Equipment
Property and equipment are stated at cost. Depreciation and any amortization are computed using the straight-line method for financial reporting over the estimated useful lives. The estimated useful lives of assets range from 5 to 7 years.
Gains and losses resulting from sales and dispositions of property and equipment are included in current operations. Maintenance and repairs are charged to operations as incurred. Depreciation expense for the year ended December 31, 2013 and 2012 from continuing operations amounted to amounted to $14,906 and $585, respectively.
Foreign Currency Translation
The Company's primary functional currency is the U.S. dollar. For foreign operations whose functional currency is the local foreign currency, balance sheet accounts are translated at exchange rates in effect at the end of the period and income statement accounts are translated at average exchange rates for the period. Translation gains and losses are included as a separate component of stockholders’ deficit.
Convertible Debentures
If the conversion features of conventional convertible debt provides for a rate of conversion that is below market value at issuance, this feature is characterized as a beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a debt discount pursuant to ASC Topic 470-20 “Debt with Conversion and Other Options.” In those circumstances, the convertible debt is recorded net of the discount related to the BCF, and the Company amortizes the discount to interest expense, over the life of the debt using the effective interest method.
Derivative Financial Instruments
In the case of non-conventional convertible debt, the Company bifurcates its embedded derivative instruments and records them under the provisions of ASC Topic 815-15 “Embedded Derivatives.” The Company’s derivative financial instruments consist of embedded derivatives related to non-conventional convertible notes (see Note 8). The embedded derivative includes the conversion feature of the notes. The accounting treatment of derivative financial instruments requires that the Company record the derivatives at their fair values as of the inception date of the respective agreement and at fair value as of each subsequent balance sheet date. Any change in fair value will be recorded as non-operating, non-cash income or expense at each reporting date. If the fair value of the derivatives is higher at the subsequent balance sheet date, the Company will record a non-operating, non-cash charge. If the fair value of the derivatives is lower at the subsequent balance sheet date, the Company will record non-operating, non-cash income.
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MINERALRITE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
Concentrations of Credit Risk
The Company primarily transacts its business with one financial institution. The amount on deposit in that one institution may from time to time exceed the federally-insured limit.
Of the Company’s revenue earned during the year ended December 31, 2013, approximately 49% was generated from sales to two customers.
The Company’s accounts receivable are typically unsecured and are derived from U.S. customers in different industries. The Company performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses. Historically, such losses have been within management’s expectations. As of December 31, 2013, one customer accounted for 100% of the Company’s net accounts receivable balance, respectively.
Loss per Share of Common Stock
The Company reports earnings (loss) per share in accordance with Accounting Standards Codification “ASC” Topic 260-10, "Earnings per Share." Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares available. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted earnings (loss) per share has not been presented since the effect of the assumed conversion of warrants and debt to purchase common shares would have an anti-dilutive effect. Potential common shares as of December 31, 2013 that have been excluded from the computation of diluted net loss per share consist of $356,681 of convertible debt and accrue interest convertible into a variable number of common shares (See Note 8). The number of common shares that the convertible debt and accrued interest were convertible into at December 31, 2013 amounted to 22,973,950. . Potential common shares as of December 31, 2012 that have been excluded from the computation of diluted net loss per share consist of (a) warrants to purchase 5,720 shares of the Company’s common stock and (b) Unit holders’ options to convert their respective oil revenue interests into a total 24,030 shares of the Company’s common stock.
Long-Lived Assets
The Company accounts for its long-lived assets in accordance with ASC No. 360, “Property, Plant and Equipment.” ASC No. 360 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and fair value or disposable value. As of December 31, 2013, the Company believed there was an impairment of its long-lived assets and write off goodwill and investment in unconsolidated subsidiary.
Fair Value of Financial Instruments
Pursuant to ASC No. 820, “Fair Value Measurements and Disclosures,” the Company is required to estimate the fair value of all financial instruments included on its balance sheet as of December 31. 2013. The Company’s financial instruments consist of cash, accounts receivables, payables, convertible debt and other obligations. The Company considers the carrying value of such amounts in the financial statements to approximate their fair value due to the short-term nature of the respective instrument.
Income Taxes
The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years 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 rates is recognized in the statements of operations in the period that includes the enactment date.
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MINERALRITE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
Risk and Uncertainties
The Company is subject to risks common to companies in the manufacturing of gold mining equipment industry, including, but not limited to, litigation, development of new technological innovations and dependence on key personnel.
Commitments and Contingencies
The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time that these matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.
Related Party Transactions
The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.
Pursuant to Section 850-10-20 the Related parties include: a). affiliates of the Company; b). entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825-10-15, to be accounted for by the equity method by the investing entity; c). trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d). principal owners of the Company; e). management of the Company; f). other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g). other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
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MINERALRITE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
The consolidated financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a). the nature of the relationship(s) involved; b). a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c). the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d). amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
Discontinued Operations
For those businesses where management has committed to a plan to divest, each business is valued at the lower of its carrying amount or estimated fair value less cost to sell. If the carrying amount of the business exceeds its estimated fair value, an impairment loss is recognized. Fair value is estimated using accepted valuation techniques such as a DCF model, valuations performed by third parties, earnings multiples, or indicative bids, when available. A number of significant estimates and assumptions are involved in the application of these techniques, including the forecasting of markets and market share, sales volumes and prices, costs and expenses, and multiple other factors. Management considers historical experience and all available information at the time the estimates are made; however, the fair value that is ultimately realized upon the divestiture of a business may differ from the estimated fair value reflected in the Consolidated Financial Statements. Depreciation, depletion, and amortization expense is not recorded on assets of a business to be divested once they are classified as held for sale. Businesses to be divested are classified in the Consolidated Financial Statements as either discontinued operations or held for sale.
For businesses classified as discontinued operations, the balance sheet amounts and results of operations are reclassified from their historical presentation to assets and liabilities of operations held for sale on the Consolidated Balance Sheet and to discontinued operations on the Consolidated Statement of Operations, respectively, for all periods presented. The gains or losses associated with these divested businesses are recorded in discontinued operations on the Consolidated Statement of Operations. The Consolidated Statement of Cash Flows is also reclassified for assets and liabilities of operations held for sale and discontinued operations for all periods presented.
Recently Adopted Accounting Pronouncements
Comprehensive Income- On January 1, 2013, The Company adopted changes issued by the Financial Accounting Standards Board (FASB) to the reporting of amounts reclassified out of accumulated other comprehensive income. These changes require an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required to be reclassified in its entirety to net income. For other amounts that are not required to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures that provide additional detail about those amounts. These requirements are to be applied to each component of accumulated other comprehensive income.
F - 14
MINERALRITE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
NOTE 3 - ACQUISITION OF GOLDFIELD INTERNATIONAL, INC.
On March 1, 2013, the Company acquired the outstanding stock of Goldfield International, Inc., a manufacture of gold mining equipment and parts located in Lindon, Utah. The acquisition was a stock purchase and therefore encompasses all of Goldfield’s business operations.
In exchange for Goldfield’s outstanding stock, the Company issued 2,000,000 shares of its common stock. The Company valued the acquisition at the fair value of the shares it issued amounting to $900,000.
In addition, the Company entered into separate agreement to acquire the personal goodwill of the seller for $100,000 (See Note 6).
We valued the assets acquired and liabilities assumed as follows:
The intangibles and goodwill of $875,667 was written off in 2013 due to impairment.
NOTE 4 - DISCONTINUED OPERATIONS
Effective December 6, 2013, the Company completed the terms of its settlement agreement with Santeo Financial Corporation and other third party creditors. Under the terms of the settlement agreement, the Company issued 30,000,000 shares of its common stock and transferred all of its oil and gas operations including the related assets and liabilities in exchange for the cancelation of $372,568 of debt. The 30,000,000 common shares were valued at $600,000 and the Company realized a net loss on the transaction totaling $526,826. Santeo Financial Corporation is owned by the Company’s former President.
In accordance with the provisions of ASC Topic 205-20, Discontinued Operations, the Company has reclassified its revenue and expenses of its oil and gas operations to “loss from discontinued operations” for all periods presented in the accompanying consolidated statements of operations. The table below sets forth the loss from discontinued operations for the years ended December 31 2013 and 2012.
F - 15
MINERALRITE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
Cash flows from discontinued operations is as follows:
NOTE 5 - PREPAID SERVICES
On February 4, 2013, the Company issued a total of 7,000,000 (post-split) shares of its common stock of to five individuals and five entities in exchange for consulting services, valued at $2,450,000. The $2,450,000 is being charged to operations over the three-year term of the respective agreement. Mr. Guy Peckham, the Company’s president, received 2,000,000 of the 7,000,000 shares issued. The 2,000,000 shares were valued at $700,000.
On October 30, 2012, the Company issued a total of 33,000,000 shares of its common stock of to five individuals and five entities in exchange for consulting services, valued at $429,000. The $429,000 is being charged to operations over the three-year term of the respective agreement. As indicated in Note 6, Mr. Guy Peckham, the Company’s president, received 11,500,000 of the 33,000,000 shares issued. The 11,500,000 shares were valued at $149,500.
Consulting fees charged to operations during the year ended December 31, 2013 and 2012 relating to these two transactions amounted to $878,559 and $0, respectively. The unamortized balance at December 31, 2013 was $1,976,495. Amortization expense over the remaining terms of the respective consulting agreement is as follows:
F - 16
MINERALRITE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
NOTE 6 - RELATED PARTY TRANSACTIONS
The Company’s manufacturing facilities are being leased from the former sole shareholder of Goldfield on a month-to-month basis at $8,000 per month.
In October 2012, Mr. Guy Peckham, the Company’s President, personally assumed $200,000 of the obligation the Company’s owes Santeo Financial for unpaid management fees. The $200,000 debt was not forgiven and the Company’s records indicate the $200,000 debt as being owed to Mr. Peckham as of December 31, 2012. The $200,000 is non-interest bearing, unsecured, and due on demand. Mr. Ruskowsky, the Company’s former president, provided services through a consulting agreement that the Company had with Santeo Financial Corp (“Santeo”). Mr. Ruskowsky owns a controlling interest in Santeo.
Under the terms a consulting agreement, the Company was required to pay Santeo $15,000 per month. The $15,000 monthly fee was accrued by the Company and was reduced by amounts actually paid. The consulting agreement terminated in August 2012. In October 2012, the balancing owing Santeo amounted to $397,193, of which $200,000 was personally assumed by Mr. Guy Peckham. The balance owed to Santeo as of the termination date, net of the assumed $200,000, amounted $197,193, which is being paid in monthly installments of $8,500. The remaining balance became fully due and payable on May 1, 2013 and remains unpaid and the Company is in default under the agreement.. Santeo’s consulting fees expensed for the three months ended September 30, 2013 and 2012 amounted to $0 and $45,000 respectively. Santeo consulting fees expensed for the nine months ended September 30, 2013 and 2012 amounted to $0 and $135,000 respectively.
Santeo Financial and Mr. Peckham canceled the assignment of $200,000 of the Santeo debt that was assigned to Mr. Peckham and the $200,000 note payable from Mr. Peckham to Santeo and as a result the entire $397,193 was payable to Santeo. Santeo then assigned a portion of its interest in the Note to several third parties. In September 2013, Santeo and these third party creditors filed suit against the Company for collection. The parties agreed to settle the entire debt for 30,000,000 shares of its common stock and the conveyance of its interests in its oil properties subject to court approval. The Court approved the settlement on December 6, 2013 and the Company issued 30,000,000 shares of its common stock and transferred its oil and gas operations including related assets and liabilities in exchange for the cancellation of the balance of the debt then outstanding totaling $325,568 (See Note 4).
On October, 30 2012, the Company issued Mr. Guy Peckham, the Company’s current president 11,500,000 shares of its common stock for services. The 11,500,000 shares were valued at $149,500, which is being charged to operations over the three year term of the underlying agreement.
On February 4, 2013, the Company issued Mr. Guy Peckham, the Company’s current president 2,000,000 shares of its common stock for services. The 2,000,000 shares were valued at $700,000, which is being charged to operations over the three year term of the underlying agreement.
As of December 31, 2013, the Company owed Roger Janssen, an officer and director of the Company, $1,345 for services previously performed.
During the year ended December 31, 2013, Mr. Guy Peckham has advanced the Company a total of $30,700 of which $30,700 was repaid during the same period. The advances are due on demand and bear interest at annual rate of 8% per annum. As of December 31, 2013, the Company repaid the full total amount of the advances and accrued interest of $698.
As of December 31, 2013, certain shareholders have advanced the Company a total of $19,845 that is payable on demand and is non-interest bearing.
F - 17
MINERALRITE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
In connection with the acquisition of Goldfield, the Company entered into a consulting agreement with the former shareholder of Goldfield, whereby commencing May 1, 2013, the Company agreed to pay him a consulting fee of $5,000 per month over the 30 month term of the agreement. During the year ended December 31, 2013, the Company paid him $10,000, issued him 300,000 shares of common stock valued at $12,000 and issue him a convertible note in the amount of $25,000 (See Note 8), all as payments toward this obligation. As of December 31, 2013, the Company has prepaid $7,000 on this obligation.
As discussed in Note 3, the Company entered into an agreement to acquire the personal goodwill of the former shareholder of Goldfield for $100,000 payable in three installments of $33,000 due April 1, 2013, $33,000 due May 1, 2013 and $34,000 due June 1, 2013. Interest accrues on any payment that is not paid within 10 days of its respective due date. The Company has not made any payments toward this obligation and has accrued of interest that was charged to operations for the year ended December 31, 2013 amounting to $5,334.
In addition, the former shareholder of Goldfield has also advanced the Company $80.000, which is unsecured, non-interest bearing and due on demand.
During the year ended December 31, 2013, the Company advanced CSI Export and Import $140,000, which is non-interest bearing and due on demand. This amount was written off in 2013 due to impairment as CSI did not execute on their part of the joint venture and repayment is doubtful.
NOTE 7 - NOTES PAYABLE
On December 17, 2013, the Company borrowed $10,000 from an unrelated third party. The loan is assessed interest at an annual rate of 15% and matures on March 1, 2014, when the principal and accrued interest becomes fully due. Interest accrued and charged to interest expense for year ended December 31, 2013 amounted to $57. The balance of the note at December 31, 2013, including accrued interest amounted to $10,057.
On December 31 2013, the Company borrowed $40,000 from an unrelated third party. The loan is secured by the Company’s accounts receivable. The terms of the loan includes a loan fee of $400, which is being amortized and charged to operations over the term of the loan. Under the terms of the loan, the Company is required to pay back a total of $57,600 at a rate of $$444 per day (excluding weekends and bank holidays). The effective interest rate on this loan is in excess of 32% per annum. Interest accrued and charged to interest expense for year ended December 31, 2013 amounted to $2,334. The balance of the note at December 31, 2013, including accrued interest and fees, net of the discounts amounted to $37,525.
NOTE 8 - CONVERTIBLE DEBT
a.
On April 17, 2013, the Company borrowed $100,000 through the issuance of a convertible note. Under the terms of the note, the loan is assessed interest at a rate of 12% per annum and matures on April 17, 2014. The outstanding balance including principal and accrued interest is convertible in the Company’s common shares at a conversion price equal to the lessor of a) $0.20 per share; or b) 80% of the 30-day weighted average trading price of the Company’s common stock. As additional consideration, the lender was granted 5% of the Company’s net profits from its investment in CSI Imports & Export up to $50,000. The Company may prepay any portion owed with the payments first being applied to accrued interest and then to the net profit up to $50,000. The note holder has the right to convert commencing on April 17, 2014. The Company plans to account for the conversion feature on its effective date under ADC Topic 815-15 “Embedded Derivative.”
Interest accrued on the above convertible debt and charged to interest expense for year ended December 31, 2013 amounted to $8,482.
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MINERALRITE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
b.
The Company entered into an agreement with an unrelated third party to borrow up to a maximum of $315,000. On June 19, 2013 (the effective date of the agreement), the Company received the initial advance $65,000. The Company received an additional advance of $25,000 on September 26, 2013. Further advances are solely at the discretion of the lender. In consideration for the funds borrowed, the Company is assessed a loan fee equal to 10% of the funds advanced and a closing and due diligence fee equal to 8% of the amount advanced. The outstanding balance including principal, accrued interest, and fees are convertible in the Company’s common shares at a conversion price equal to the lessor of a) $0.05 per share; or b) 60% of the lowest trade price in the 25 trading days prior to conversion. There is no interest charged for the first ninety days; however, if the amounts due under this obligation is not fully paid with the ninety days, the total amount outstanding including accrued interest and fees will be assessed a one-time interest charge of 12%.
Pursuant to a conversion notice received from the debt holder, the Company issued 1,800,000 shares of its common stock in exchange for the cancelation of $18,466 of the obligation owed The shares were issued on December 31, 2013. Accrued interest on these obligations charged to operations during the year ended December 31, 2013 totaled $12,744.
The Company accounted for the financing under ASC Topic 470-20 “Debt with Conversion and Other Options.” The proceeds of the financing are required to be bifurcated based upon the fair value of the convertible note using a relative fair value approach based upon the total amount of the $106,200 debt ($90,000 advances plus fees totaling $16,200). As the outstanding balance of the note is convertible into a number of variable common shares, the conversion feature accounted for under ASC Topic 815-15 “Embedded Derivative.” The derivative component of the obligation was initially valued at $106.20 (the fair value cannot initially exceed the amount of the advances) and classified as derivative liabilities with an offset to discounts on convertible debt. Discounts along with loan fees are being amortized to interest expense over the respective one-year term of each advance. In determining the indicated values, the Company used the Black Scholes Option Model with a risk-free interest rates ranging from 0.1% to 0.15%, volatility ranging from 186.65% to 315.43%, and trading prices ranging from $0.02 to $0.05 per share and conversion prices ranging from $0.012 to $0.016 per share.
Amortization of the discounts for the year ended December 31, 2103 totaled $56,752, which was charged to interest expense. The balance of the convertible note at December 31, 2013, including fees, net of the discounts amounted to $51,028.
c.
On July 16, 2013, the Company borrowed $20,000 through the issuance of a convertible note to an unrelated third party. Under the terms of the note, the loan is assessed interest at a rate of 8% per annum and matures on April 16, 2014 when principal and accrued interest becomes fully due and payable. The terms of the loan includes a loan fee of $1,500, which is being amortized and charged to operations over the term of the loan. The terms of the note does not permit any prepayments. Commencing on January 12, 2014, the note holder has the right to convert the outstanding balance including principal and accrued interest into the Company’s common shares at a conversion price equal to 50% of the lowest market price for the 10 day trading period prior to the date that is one day prior to date that the conversion notice is sent to the Company. The Company plans to account for the conversion feature on effective date of the conversion right under ASC Topic 815-15 “Embedded Derivative.”
Accrued interest and amortization of the loan fee charged to operations for the year ended December 31, 2013 totaled $1,515. The balance of the convertible note at December 31, 2013, including fees, net of discounts amounted to $21,515.
F - 19
MINERALRITE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
d.
On August 28, 2013, the Company borrowed $20,000 from the same lender as discussed above through the issuance of a convertible note. Under the terms of the note, the loan is assessed interest at a rate of 8% per annum and matures on May 28, 2014 when principal and accrued interest becomes fully due and payable. The terms of the loan includes a loan fee of $1,500, which is being amortized and charged to operations over the term of the loan. The terms of the note does not permit any prepayments. Commencing on February 24, 2014, the note holder has the right to convert the outstanding balance including principal and accrued interest into the Company’s common shares at a conversion price equal to 50% of the lowest market price for the 10 day trading period prior to the date that is one day prior to date that the conversion notice is sent to the Company. The Company plans to account for the conversion feature on its effective date under ASC Topic 815-15 “Embedded Derivative.”
Accrued interest and amortization of the loan fee charged to operations for the year ended December 31, 2013 totaled $1,276. The balance of the convertible note at December 31, 2013, including fees, net of the discounts amounted to $21,276.
e.
On July 17, 2013, the Company borrowed $30,000 through the issuance of a convertible note to an unrelated third party. Under the terms of the note, the loan is assessed interest at a rate of 12% per annum and matures on July 31, 2014 when principal and accrued interest becomes fully due and payable. The terms of the loan includes a loan fee of $1,500, which is being amortized and charged to operations over the term of the loan. The terms of the note does not permit any prepayments without penalty. Commencing on January 13, 2014, the note holder has the right to convert the outstanding balance including principal and accrued interest into the Company’s common shares at a conversion price equal to 50% of the market price equal to the average of the three lowest trading prices during the 30 day trading period prior to the date of conversion. The Company plans to account for the conversion feature on its effective date under ASC Topic 815-15 “Embedded Derivative.”
Accrued interest and amortization of the loan fee charged to operations for the year December 31, 2013 totaled $2,362. The balance of the convertible note at December 31, 2013, including fees, net of the discounts amounted to $30,862.
f.
On July 26, 2013, the Company borrowed $20,000 through the issuance of a convertible note to an unrelated third party. Under the terms of the note, the loan is non-interest bearing and matures on January 26, 2014. The note holder has the right to convert the outstanding balance into the Company’s common shares at a conversion price equal to 50% of the average of the three lowest trading prices during the 10 day trading period prior to the date of conversion. The Company plans to account for the conversion feature on its effective date under ASC Topic 815-15 “Embedded Derivative.”
The Company accounted for the financing under ASC Topic 470-20 “Debt with Conversion and Other Options.” The proceeds of the financing are required to be bifurcated based upon the fair value of the convertible note using a relative fair value approach based upon the total amount of the $20,000. As the outstanding balance of the note is convertible into a number of variable common shares, the conversion feature accounted for under ASC Topic 815-15 “Embedded Derivative.” The derivative component of the obligation was initially valued at $20,000 and classified under derivative liabilities with an offset to discounts on convertible debt. The discount is being amortized to interest expense over the respective six month term of the loan. In determining the indicated values, the Company used the Black Scholes Option Model with a risk-free interest rates of 0.07% volatility of 181.75%, and trading prices of $.04.
Amortization of the discount for the year December 31, 2013 totaled $16,735, which was charged to interest expense. The balance of the convertible note at December 31, 2013 net of the discount was $16,735.
F - 20
MINERALRITE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
g.
On August 16, 2013, the Company borrowed $10,000 through the issuance of a convertible note to an unrelated third party. Under the terms of the note, the loan is assessed interest at a rate of 15% per annum and matures on June 13, 2014 when principal and accrued interest becomes fully due and payable. The terms of the note permit prepayments with penalties. Commencing on February 12, 2014, the note holder has the right to convert the outstanding balance including principal and accrued interest into the Company’s common shares at a conversion price equal to 50% of the lowest market price for the 20 day trading period prior to the date of conversion. The Company plans to account for the conversion feature on its effective date under ASC Topic 815-15 “Embedded Derivative.”
Accrued interest charged to operations for the year ended December 31, 2013 totaled $563. The balance of the convertible note at December 31, 2013, including fees, net of the discounts amounted to $10,563.
h.
On September 11, 2013, the Company borrowed $65,000 through the issuance of a convertible note to an unrelated third party. Under the terms of the note, the loan is assessed interest at a rate of 8% per annum and matures on June 13, 2014 when principal and accrued interest becomes fully due and payable. The terms of the loan includes a loan fee of $3,000, which is being amortized and charged to operations over the term of the loan. The terms of the note does not permit any prepayments. Commencing on March 10, 2014, the note holder has the right to convert the outstanding balance including principal and accrued interest into the Company’s common shares at a conversion price equal to 58% of the market price equal to the average of the three lowest trading prices during the 10 day trading period prior to the date of conversion. The Company plans to account for the conversion feature on its effective date under ASC Topic 815-15 “Embedded Derivative.”
Accrued interest and amortization of the loan fee charged to operations for the year December 31, 2013 totaled $2,865. The balance of the convertible note at December 31, 2013, including fees, net of the discounts amounted to $67,865.
i.
In September 9, 2013, the Company transformed a previous loan of $92,000 into a convertible note maturing on September 9, 2014. Under the terms of the note, the loan is assessed interest an at annual rate of 12%. After the maturity date, the note holder has the right to convert the outstanding balance including principal and accrued interest into the Company’s common shares at a conversion price equal to the lesser of $0.03 per share or the price equal to 60% of the daily volume weighted trading average price for the ten days prior to conversion. The conversion right exists until the total outstanding balance is fully paid. The Company plans to account for the conversion feature on its effective date under ASC Topic 815-15 “Embedded Derivative.” Accrued interest charged to operations for the year December 31, 2013 totaled $3,418. The balance of the convertible note at December 31, 2013, amounted to $95,418.
j.
On October 2, 2013, the Company transformed $24,830 of debt due its outside accountant for services rendered into a convertible note. Under the terms of the note, the principal balance is assessed interest at an annual rate of 6% and initially matures on March 10, 2015. If the Company is not in default at the time the note matures, it has the right to extend the due date to September 10, 2015 with an increase in the interest rate assessed to 8%. The Company has the right to prepay any portion of the balance due subject to a 40% penalty. Until the note is paid off full, the note holder has the right to convert the unpaid principal into the Company’s common shares at a conversion price equal to 90% of the daily volume weighted average trading price for the thirty days prior to conversion. Accrued interest on charged to operations during the year ended December 31, 2013 totaled $372.
F - 21
MINERALRITE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
As the outstanding balance of the note is convertible into a number of variable common shares, the conversion feature was accounted for under ASC Topic 815-15 “Embedded Derivative.” The derivative component of the obligation was initially valued at $21,048 and classified under derivative liabilities with an offset to discounts on convertible debt. As there is no stated redemption date, the discount is being accounted for under ASC Topic 470-20-35, which requires that the amortization expense for the relevant period be equal to or greater than the amount of discount that the holder could obtain if conversion occurred on that stated date (December 31, 2013). In determining the indicated values, the Company used the Black Scholes Option Model with a risk-free interest rate of 0.11% volatility of 242.62%, and a trading price of $0.03.
Amortization of the discount for the year December 31, 2013 totaled $2,351, which was charged to interest expense. The balance of the convertible note at December 31, 2013 including accrued interest and net of the discount amounted to $6,505.
k.
On October 2, 2013, the Company transformed $57,893 of debt due its prior auditors for services rendered into a convertible note. Under the terms of the note, the principal balance is assessed interest at an annual rate of 6% and initially matures on March 10, 2015. If the Company is not in default at the time the note matures, it has the right to extend the due date to September 10, 2015 with an increase in the interest rate assessed to 8%. The Company has the right to prepay any portion of the balance due subject to a 40% penalty. Until the note is paid off in full, the note holder has the right to convert the unpaid principal into the Company’s common shares at a conversion price equal to 90% of the daily volume weighted average trading price for the thirty days prior to conversion. Accrued interest on charged to operations during the year ended December 31, 2013 totaled $868.
As the outstanding balance of the note is convertible into a number of variable common shares, the conversion feature was accounted for under ASC Topic 815-15 “Embedded Derivative.” The derivative component of the obligation was initially valued at $44,899 and classified under derivative liabilities with an offset to discounts on convertible debt. As there is no stated redemption date, the discount is being accounted for under ASC Topic 470-20-35, which requires that the amortization expense for the relevant period be equal to or greater than the amount of discount that the holder could obtain if conversion occurred on that stated date (December 31, 2013). In determining the indicated values, the Company used the Black Scholes Option Model with a risk-free interest rate of 0.11%, volatility of 242.62%, and a trading price of $0.03.
Amortization of the discount for the year ended December 31, 2013 totaled $5,992, which was charged to interest expense. The balance of the convertible note at December 31, 2013 including accrued interest and net of the discount amounted to $15,678.
l.
On October 2, 2013, the Company issued a convertible note with a face amount of $25,000 as partial consideration for the consulting fees due the former shareholder of Goldfield. Under the terms of the note, the principal balance is assessed interest at an annual rate of 6% and initially matures on March 10, 2015. If the Company is not in default at the time the note matures, it has the right to extend the due date to September 10, 2015 with an increase in the interest rate assessed to 8%. The Company has the right to prepay any portion of the balance due subject to a 40% penalty. Until the note is paid off full, the note holder has the right to convert the unpaid principal into the Company’s common shares at a conversion price equal to 90% of the daily volume weighted average trading price for the thirty days prior to conversion. Accrued interest on charged to operations during the year ended December 31, 2013 totaled $375.
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MINERALRITE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
As the outstanding balance of the note is convertible into a number of variable common shares, the conversion feature was accounted for under ASC Topic 815-15 “Embedded Derivative.” The derivative component of the obligation was initially valued at $21,192 and classified under derivative liabilities with an offset to discounts on convertible debt. As there is no stated redemption date, the discount is being accounted for under ASC Topic 470-20-35, which requires that the amortization expense for the relevant period be equal to or greater than the amount of discount that the holder could obtain if conversion occurred on that stated date (December 31, 2013). In determining the indicated values, the Company used the Black Scholes Option Model with a risk-free interest rate of 0.11% volatility of 242.62%, and a trading price of $0.03.
Amortization of the discount for the year ended December 31, 2013 totaled $2,401, which was charged to interest expense. The balance of the convertible note at December 31, 2013 including accrued interest and net of the discount amounted to $6,584
m.
On October 4, 2013, the Company borrowed $20,000 through the issuance of a convertible note to an unrelated third party. Under the terms of the note, the principal is fully due and payable on March 16, 2014. Commencing on March 16, 2014, the note holder has the right to convert the outstanding balance including principal and accrued interest into the Company’s common shares at a conversion price equal to 50% of the average of the 3 lowest trades on the previous ten days trading period prior to conversion. The Company plans to account for the conversion feature on its effective date under ASC Topic 815-15 “Embedded Derivative.” Accrued interest charged to operations during the year ended December 31, 2013 totaled $2,444. The balance of the convertible note at December 31, 2013 including accrued interest and net of the discount amounted to $22,244
n.
On October 17, 2013, the Company borrowed $25,000 through the issuance of a convertible note to an unrelated third party. Under the terms of the note, the loan is assessed interest at a rate of 6% per annum and matures on October 17, 2014, when principal and accrued interest becomes fully due and payable. The terms of the loan includes a loan fee of $5,000, which is being amortized and charged to operations over the term of the loan. The terms of the note allows for prepayment at a 50% penalty. Commencing on April 18, 2014, the note holder has the right to convert the outstanding balance including principal and accrued interest into the Company’s common shares at a conversion price equal to 50% of the market price equal to the lowest closing bid price for any 5 days before and including the date of conversion. The Company plans to account for the conversion feature on its effective date under ASC Topic 815-15 “Embedded Derivative.”
Accrued interest and amortization of the loan fee charged to operations for the year December 31, 2013 totaled $1,336. The balance of the convertible note at December 31, 2013, including fees, net of the discounts amounted to $21,336.
o.
On November 27, 2013, the Company borrowed $15,000 through the issuance of a convertible note to an unrelated third party. Under the terms of the note, the principal balance is assessed interest at an annual rate of 6% and initially matures on March 10, 2015. If the Company is not in default at the time the note matures, it has the right to extend the due date to September 10, 2015 with an increase in the interest rate assessed to 8%. The Company has the right to prepay any portion of the balance due subject to a 40% penalty. Until the note is paid off full, the note holder has the right to convert the unpaid principal into the Company’s common shares at a conversion price equal to 90% of the daily volume weighted average trading price for the thirty days prior to conversion. Accrued interest charged to operations during the year ended December 31, 2013 totaled $85.
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MINERALRITE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
As the outstanding balance of the note is convertible into a number of variable common shares, the conversion feature was accounted for under ASC Topic 815-15 “Embedded Derivative.” The derivative component of the obligation was initially valued at $15,000 and classified under derivative liabilities with an offset to discounts on convertible debt. As there is no stated redemption date, the discount is being accounted for under ASC Topic 470-20-35, which requires that the amortization expense for the relevant period be equal to or greater than the amount of discount that the holder could obtain if conversion occurred on that stated date (December 31, 2013). In determining the indicated values, the Company used the Black Scholes Option Model with a risk-free interest rate of 0.13% volatility of 291.01%, and a trading price of $0.02.
Amortization of the discount for the year December 31, 2013 totaled $972, which was charged to interest expense. The balance of the convertible note at December 31, 2013 including accrued interest and net of the discount amounted to $1,058.
p.
On December 26, 2013, the Company borrowed $5,000 through the issuance of a convertible note to an unrelated third party. Under the terms of the note, the principal balance is assessed interest at an annual rate of 6% and initially matures on March 10, 2015. If the Company is not in default at the time the note matures, it has the right to extend the due date to September 10, 2015 with an increase in the interest rate assessed to 8%. The Company has the right to prepay any portion of the balance due subject to a 40% penalty. Until the note is paid off full, the note holder has the right to convert the unpaid principal into the Company’s common shares at a conversion price equal to 90% of the daily volume weighted average trading price for the thirty days prior to conversion. Accrued interest on charged to operations during the year ended December 31, 2013 totaled $4.
As the outstanding balance of the note is convertible into a number of variable common shares, the conversion feature was accounted for under ASC Topic 815-15 “Embedded Derivative.” The derivative component of the obligation was initially valued at $4,256 and classified under derivative liabilities with an offset to discounts on convertible debt. As there is no stated redemption date, the discount is being accounted for under ASC Topic 470-20-35, which requires that the amortization expense for the relevant period be equal to or greater than the amount of discount that the holder could obtain if conversion occurred on that stated date (December 31, 2013). In determining the indicated values, the Company used the Black Scholes Option Model with a risk-free interest rate of 0.13% volatility of 291.01%, and a trading price of $0.02.
Amortization of the discount for the year December 31, 2013 totaled $176, which was charged to interest expense. The balance of the convertible note at December 31, 2013 including accrued interest and net of the discount amounted to $924.
A recap of the balance of outstanding convertible debt at December 31, 2013 is as follows:
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MINERALRITE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
Balance maturing for the year ending:
The Company valued the derivative liabilities at December 31, 2013 at $358,061 and recognized a change in the fair value of derivative liabilities for the year ended December 31, 2013 of $110,602 which was charged to operations. In determining the indicated values at December 31, 2013, the Company used the Black Scholes Option Model with risk-free interest rates ranging from 0.07% to 0.15%, volatility ranging from 193.86% to 315.43%, a trading prices ranging from $0.02 per share to $0.05 per share and a conversion price ranging from $0.012 to $0.0277 per share.
NOTE 9 - INCOME TAXES
Deferred income tax assets and liabilities are computed for differences between financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.
The effective tax rate on the net loss before income taxes differs from the U.S. statutory rate as follows:
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MINERALRITE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
The significant components of deferred tax assets and liabilities are as follows:
The net change in the valuation allowance for 2013 was $(1,191,536).
The Company’s net operating loss for income tax reporting purposes was significantly impacted by the change in control which occurred on October 30, 2012. The Company has a net operating loss carryover at September 30, 2013 of approximately $676,000 that is available to offset future income for income tax reporting purposes, which will expire in various years through 2033, if not previously utilized.
The Company adopted the provisions of ASC 740-10-50, formerly FIN 48, “Accounting for Uncertainty in Income Taxes.” The Company had no material unrecognized income tax assets or liabilities for the years ended December 31, 2013 and 2012.
The Company’s policy regarding income tax interest and penalties is to expense those items as general and administrative expense but to identify them for tax purposes. During the years ended December 31, 2013 and 2012, there were no income taxes, or related interest and penalty items in the income statement, or liability on the balance sheet. The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company is no longer subject to U.S. federal or state income tax examination by tax authorities for years before 2009. The Company is not currently involved in any income tax examinations.
NOTE 10 - COMMON STOCK AND WARRANTS
As indicated in Note 1, the Company declared a 50-for-1 reverse stock split of its common stock on August 31, 2012. All references in the accompanying financials to the number of shares outstanding and per-share amounts have been restated to reflect this stock split.
For the Year Ended December 31, 2013
As discussed in Note 5, the Company issued on February 4, 2013 a total of 7,000,000 shares of its common stock of to five individuals and five entities in exchange for consulting services, valued at $2,450,000. The $2,450,000 is being charged to operations over the three-year term of the respective agreement. As indicated in Note 5, Mr. Guy Peckham, the Company’s president, received 2,000,000 of the 7,000,000 shares issued. The 2,000,000 shares were valued at $700,000.
During the year ended December 31 2103, the Company issued a total of 800,000 shares of its common stock to two consultants for services rendered. The shares were valued at $24,000 and charged to operations.
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MINERALRITE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
As discussed more fully in Note 3, the Company on March 1, 2013 issued 2,000,000 shares of its common stock in exchange all of the outstanding shares of Goldfield International, Inc. The 2,000,000 shares were valued at $900,000.
During the year ended December 31 2103, the Company issued 1,080,000 shares of its common stock for $54,000.
During the year ended December 31, 2013, the Company issued 300,000 shares of its common stock for past amounts due for accounting. The shares were valued $15,000. No gain or loss was recognized on the issuances
During the year ended December 31, 2013, the Company issued a total of 900,000 common shares to its outside accountant and legal counsel for services valued at $39,000
As discussed in Note 6, in December 2013, the Company issued 30,000,000 shares of its common stock as part consideration in the settlement of debt due Santeo Financial Corporation and others. The 30,000,000 shares were valued at $600,000.
During the year ended December 31, 2013, the Company issued 300,000 shares of its common stock to the former shareholder of Goldfield as partial payment on consulting fees due him. The 300,000 shares were valued at $12,000.
In December 2013, the Company issued 1,800,000 shares of its common stock through the conversion of $18,468 of debt due a convertible note holder (See Note 8).
For the Year Ended December 31, 2012
On October 30, 2012, the Company issued a total of 40,000,000 shares of its common stock of which 33,000,000 shares were issued to five individuals and five entities in exchange for consulting services, valued at $429,000. The $112,200 is being charged to operations over the three-year term of the respective agreement. The remaining 7,000,000 shares were issued, but subsequently cancelled as the intended recipients failed to provide the agreed-upon services. As indicated in Note 4, Mr. Guy Peckham, the Company’s president, received 11,500,000 of the 33,000,000 shares issued. The 11,500,000 shares were valued at $149,500. Consulting fees charged to operations in 2012 relating to this transaction amounted to $23,946.
On November 20, 2012, the Company issued 10,500,000 shares of its common stock in exchange for the cancellation of $59,000 of debt. The 10,500,000 shares were valued at $59,000.
On November 20, 2012, the Company adopted its 2012 Stock Incentive Plan (the “Plan”). Under the Plan, the Company reserved 5,000,000 shares of its common stock to be issued to employees, directors, consultants and advisors. The exercise price under the Plan is $0.001 per share. As of December 31, 2013, the Company issued 4,800,000 common shares through the Plan.
Options
The following table sets forth common share purchase warrants (post-split) outstanding as of December 31, 2013:
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MINERALRITE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
NOTE 11 - FAIR VALUE
The Company’s financial instruments at December 31, 2013 consist principally of convertible debentures and derivative liabilities. Convertible debentures are financial liabilities with carrying values that approximate fair value. The Company determines the fair value of convertible debentures based on the effective yields of similar obligations.
The Company believes all other financial instruments’ recorded values at December 31, 2013 and 2012 approximate fair market value because of their nature and respective durations.
The Company complies with the provisions of ASC No. 820-10 (“ASC 820-10”), “Fair Value Measurements and Disclosures.” ASC 820-10 relates to financial assets and financial liabilities. ASC 820-10 defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (“GAAP”), and expands disclosures about fair value measurements. The provisions of this standard apply to other accounting pronouncements that require or permit fair value measurements and are to be applied prospectively with limited exceptions.
ASC 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820-10 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions, about market participant assumptions, which are developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC 820-10 are described below:
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MINERALRITE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
Level 1. Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access.
Level 2. Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.
Level 3. Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The Company utilizes the best available information in measuring fair value. The following table summarizes, by level within the fair value hierarchy, the financial assets and liabilities recorded at fair value on a recurring basis as follows:
NOTE 12 - SUBSEQUENT EVENTS
During the period for January 1, 2014 through April 10, 2014, the Company received $125,750 through the issuance of convertible notes maturing in April 2015 and issued 103,486,152 shares of its common stock on the cancelation of $249,775 in convertible debt.
In April 2014, the Company entered into settlement agreement with an unrelated third party who purchased $102,672 of the Company’s debt Under the terms of the agreement, the Company will issue the Purchaser shares of the Company’s common stock at price equal to 55% of lowest trading price during the 15 day period including the day of the Purchaser’s request for shares. The terms of the settlement agreement are to submitted to a fairness hearing in a Court of Jurisdiction. The shares will only be issued upon receiving the Court order and the determination that the shares are exempt from registration. In addition to issuing the shares necessary to settle the debt sold, the Company is required to issue an additional 7,500,000 shares as a fee to the Purchaser. The agreement contains penalties for failure to deliver the shares within five trading days of the request for issuance and other contingencies. Shares issued in excess of the number of shares required to pay off the debt acquired are to be returned to the Company. needed to As of April 10, 2014, there have been no shares issued pursuant to the terms of this agreement.
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