Item 1. Business
General
The Company was incorporated in the State of Nevada on February 13, 2007. The Company was in the development stage of its business through fiscal 2010 when it abandoned its previous business of providing consulting services to private and public entities seeking assessment, development, and implementation of energy generating solutions. Effective fiscal 2011, we changed our planned business activities to the exploration and development of precious metal properties. As part of our business strategy, we acquired another business, Axiom de Mexico S.A. de C.V. (“Axiom Mexico”). On May 31, 2012, we sold all of our interest in Axiom Mexico to an unrelated third party for $100 releasing us from any liabilities in Axiom Mexico. In August 2012, we acquired additional mineral properties and plan to explore those properties in 2013. Our plan of operation is forward looking, and we may not be successful in our operations.
We are in the exploration stage and will continue to be in the exploration stage until we generate significant revenue from our business operations. To date, we have not generated any revenues. We maintain our statutory registered agent's office at 8275 South Eastern Avenue, Suite 200-47, Las Vegas, Nevada, 89123. Our administrative office is located at 1846 E. Innovation Park Dr., Oro Valley, AZ 85755. Our telephone number is (303) 872-7814.
Our Prior Strategy
Originally, our business was to concentrate on providing consulting services to private and public entities seeking assessment, development, and implementation of energy generating solutions. We have abandoned this strategy.
Our Current Strategy:
We changed the focus of our Company to the exploration and development of precious metal properties. On January 13, 2011, we completed our acquisition of all of the outstanding shares of Axiom Mexico whereby through our wholly owned Mexican subsidiary, Axiom Acquisition Corp, acquired all of the issued and outstanding shares of Axiom Mexico, by the issuance of two million (2,000,000) of our common shares. The surviving company was Axiom de Mexico S.A. de C.V., which is a wholly owned Mexican corporation that has options on two mineral concessions in Sonora State, Mexico. On May 31, 2012, we sold all of our interest in Axiom Mexico to an unrelated third party for $100 releasing us from any liabilities in Axiom Mexico. In August 2012, we acquired the 13 Fico claims in the Yukon Territory of Canada.
We may not be able to acquire additional mining properties, or have success in exploring and developing the ones we have an option to acquire. We also may attempt to acquire or merge with an existing mineral exploration or mining company but we have not concluded any negotiations to acquire such a company, and we may never acquire such a company.
Employees
Robert Knight, our current President, who is also our CEO/CFO, works full time on behalf of our Company. Currently, we have no other employees. Our President has a compensation agreement with us.
Insurance
We do not maintain any general insurance, but we plan to implement standard insurance policies for our company. We do not have directors’ and officers’ liability insurance. Our ability to acquire a general insurance policy relies upon us having the necessary funds to do so. We do not have the necessary funds to implement such insurance policies. Because we do not have any insurance, if we are made a party to a liability action, we may not have sufficient funds to defend the litigation. If that occurs, a judgment could be rendered against us that could cause us to cease operations.
Employees; Identification of Certain Significant Employees
We are an exploration stage company and currently have one employee; our CEO/CFO. We intend to hire additional employees on an as needed basis.
Offices
Our administrative offices are currently located at 1846 E. Innovation Park Dr. Oro Valley, AZ 85755. Our telephone number is (303) 872-7814.
Compliance with Environmental Laws
Our new business plan calls for exploration activities and future mining operations (of which we currently have none planned). These activities are subject to extensive laws and regulations governing the protection of the environment, waste disposal, worker safety, mine construction, and protection of endangered and protected species. We expect to make in the future, significant expenditures to comply with such laws and regulations. Future changes in applicable laws, regulations and permits or changes in their enforcement or regulatory interpretation could have an adverse impact on our financial condition or results of operations. In the event that we make a mineral discovery and decide to proceed to production, the costs and delays associated with compliance with these laws and regulations could stop us from proceeding with a project or the operation or further improvement of a mine or increase the costs of improvement or production.
Government Regulation
We are not currently subject to direct federal, state or local regulation other than regulations applicable to businesses generally.
Presently, we are qualified to do business in Arizona and Nevada. Our failure to qualify in a jurisdiction where it is required to do so could subject us to taxes and penalties. It could also hamper our ability to enforce contracts in such jurisdictions. The application of laws or regulations from jurisdictions whose laws currently apply to our business could have a material adverse effect on our business, results of operations and financial condition.
Other than the foregoing, no governmental approval is needed for the sale of our services and products.
Item 1A.
Item 1A. Risk Factors
Risks associated with our business:
We have no operating history. We expect to incur losses for the foreseeable future. We will go out of business if we fail to generate sufficient revenue or raise additional capital.
We have a limited operating history. We were founded on February 13, 2007, and from the date of inception to August 31, 2012, we have accumulated losses of $13,809,619. We expect to incur additional losses for the foreseeable future and will go out of business if we fail to generate sufficient revenue or raise additional capital. We do not foresee generating revenues in the near future, and we have no commitments at this time to raise additional capital. Additional losses will result from costs and expenses related to implementing our new business strategy and hiring qualified people to carry out the new business strategy.
If sufficient funds are not available, we may not be able to acquire mineral properties to implement our new business plan.
Our business may fail if we do not have sufficient funds to enable us to do one or more of the following: acquire precious metal mineral properties; attract qualified personnel to work for our Company; or fund our administrative and corporate expenses. Failure to acquire mineral properties will stop our plan for the Company to move ahead with our strategy.
Currently, we do not have any commitments for additional financing. Additional financing is required, and we cannot be certain that it will be available when and to the extent needed. As well, even if financing is available, we cannot be certain that it would be available on acceptable terms or in sufficient quantities.
We are significantly dependent upon officers to develop our business. If we lose our officers or if our officers do not adequately develop our business, then we will go out of business.
At the outset, our success will depend entirely on the ability of our officer. We do not carry a “key person” life insurance policy on our officer. We currently have one employee. We rely almost exclusively upon our officer to meet our needs. Our officer is engaged full time for our Company.
Our sole director and officer also owns a controlling interest in our common stock, and, as such, you may have no effective voice in our management.
Our sole director and officer owns approximately 90.6% of the Company's outstanding common stock. As such, this beneficial owner has the ability to influence all corporate actions required to be taken by majority consent of holders and management. If the interests of this beneficial owner differ from the interests of other shareholders, this beneficial owner may be able to ensure that his interests prevail.
Our current director, officer and key employee beneficially owns a significant percentage of our issued and outstanding shares of common stock. Accordingly, for the foreseeable future, we expect that our director and officer will exercise control over all matters requiring board and shareholder approval, including the possible election of additional directors and approval of significant corporate transactions. If you purchase shares of our common stock, you may have no effective voice in our management.
The Company's concentration of ownership may harm the market price of the common stock by, among other things: delaying, deferring or preventing a change of control, even at a per share price that is in excess of the then-current price of the common stock; impeding a merger, consolidation, takeover or other business combination involving the Company, even at a per share price that is in excess of the then current price of the common stock; or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of the Company, even at a per share price that is in excess of the then current price of the common stock.
As we undertake exploration and development of our mineral claims, we will be subject to compliance with government regulations that may increase the anticipated cost of our exploration program.
There are several governmental regulations that materially restrict mineral exploration or exploitation. We expect to be subject to federal, state and local laws and regulations in Canada and the United States of America regarding environmental matters, the abstraction of water, and the discharge of mining wastes and materials and other similar laws and regulations. Amendments to current laws, regulations and permits governing operations and activities of exploration and development companies, or more stringent implementation thereof, could have a material adverse impact on us and our operations, increase our expenditures and costs and require abandonment or delays in developing new mining properties. Environmental laws and regulations change frequently, and the implementation of new, or the modification of existing, laws or regulations could harm our business, financial condition or results of operations. We cannot predict how agencies or courts in Canada and the United States of America will interpret existing laws and regulations or the effect that these adoptions and interpretations may have on our business, financial condition or results of operations. We may be required to make significant expenditures to comply with governmental laws and regulations.
Any significant mining operations that we undertake in the future will have some environmental impact, including land and habitat impact, arising from the use of land for mining and related activities, and certain impact on water resources near the project sites, resulting from water use, rock disposal and drainage run-off. No assurances can be given that such environmental issues will not have a material adverse effect on our business, financial condition or results of operations in the future. While we believe we do not currently have any material environmental obligations, exploration and development activities may give rise in the future to significant liabilities on our part to the government and third parties and may require us to incur substantial costs of remediation.
Because of the speculative nature of exploration and development of mineral concessions and the unique difficulties and uncertainties inherent in the mineral exploration and development business, there is substantial risk that no commercially exploitable minerals will be found and developed and our business will fail.
Exploration for and development of minerals is a speculative venture involving substantial risk. Any figures presented in this report relating to gold deposits adjacent to our properties do not indicate that we will be successful in searching for and extracting gold deposits on our properties. New mineral exploration and development companies encounter difficulties, and there is a high rate of failure of such enterprises. The expenditures we may make in the exploration of the mineral concessions may not result in the discovery and development of commercial quantities of ore. The likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays encountered in connection with the exploration and development of the mineral properties that we plan to undertake. These potential problems include, but are not limited to, unanticipated problems relating to exploration and development and additional costs and expenses that may exceed current estimates. In addition, problems such as unusual or unexpected mineral formations and other geological conditions often result in unsuccessful exploration and development efforts. In such a case, we would be unable to complete our business plan. The search for and development of valuable minerals also involves numerous hazards. As a result, we may become subject to liability for such hazards, including pollution, cave-ins, the use of explosives, waste disposal, worker safety and other hazards against which we cannot insure or against which we may elect not to insure. The payment of such liabilities may have a material adverse effect on our financial position.
Additionally, we do not maintain insurance against environmental risks. As a result, any claims against us may result in liabilities we will not be able to afford, resulting in the failure of our business. Failure to comply with applicable laws, regulations, and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions. Parties engaged in exploration and development operations may be required to compensate those suffering loss or damage by reason of the exploration and development activities and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations and, in particular, environmental laws.
We do not carry title insurance and do not plan to secure any in the future. We are therefore, vulnerable to loss of title.
We do not maintain insurance against title. Title on mineral properties and mining rights involves certain inherent risks due to the difficulties of determining the validity of certain claims as well as the potential for problems arising from the frequently ambiguous conveyance history characteristic of many mining properties. We cannot give any assurance that title to our properties and claims will not be challenged or impugned and cannot be certain that we will have or will acquire valid title to these mining properties and claims. We cannot assume that counterparties to our title transfer agreements will meet their contractual obligations and transfer title on a timely basis. Furthermore, although we believe that mechanisms exist to integrate the titles of mineral properties currently not owned by us, there is a risk that this process could be time consuming and costly. The possibility also exists that title to existing properties or future prospective properties may be lost due to an omission in the claim of title. As a result, any claims against us may result in liabilities we may not be able to afford resulting in the failure of our business.
In the event that we are unable to successfully compete within the mineral exploration and development business, we may not be able to achieve profitable operations.
The mineral exploration and development business is highly competitive. This industry has a multitude of competitors and many competitors dominate this industry. Many of our competitors have greater financial resources than us. As a result, we may experience difficulty competing with other businesses when conducting mineral exploration and development activities or in the retention of qualified personnel. No assurances can be given that we will be able to compete effectively.
We have no studies or surveys demonstrating reserves or estimates on the lands that we have an option to acquire.
We have options to acquire 13 Fico claims. As there are no reliable studies or surveys on those claims, we do not know if the claims contain sufficient mineralized deposits to make their exploitation worthwhile. If we commission surveys or studies on those claims and they do not demonstrate sufficient reserves or estimates to make their exploration worthwhile, we will have to abandon our plan to operate on those claims.
In the future, the figures for our reserves and resources will be estimates based on interpretation and assumptions, and they may yield less mineral production under actual conditions than they may estimate.
Unless otherwise indicated, mineralization figures presented in our filings with securities regulatory authorities, press releases and other public statements that may be made from time to time will be based upon estimates made by independent geologists and our internal geologists. When making determinations about whether to advance any of our projects to development, we must rely upon such estimated calculations as to the mineral reserves and grades of mineralization on our properties. Until ore is actually mined and processed, mineral reserves and grades of mineralization must be considered as estimates only. These estimates are imprecise and depend upon geological interpretation and statistical inferences drawn from drilling and sampling analysis, which may prove to be unreliable.
We cannot assure you that:
• these estimates will be accurate;
• reserve, resource or other mineralization estimates will be accurate; or
• this mineralization can be mined or processed profitably.
Any material changes in mineral reserve estimates and grades of mineralization will affect the economic viability of placing a property into production and a property’s return on capital. In addition, the grade of ore ultimately mined, if any, may differ from that indicated by our technical reports and drill results. There can be no assurance that minerals recovered in small scale tests will be duplicated in large-scale tests under on-site conditions or in production scale.
The resource estimates contained in this report have been determined and valued based on assumed future prices, cut-off grades and operating costs that may prove to be inaccurate. Extended declines in market prices for gold and silver may render portions of our mineralization, reserve (if any) and resource estimates uneconomic and result in reduced reported mineralization or adversely affect the commercial viability of our properties. Any material reductions in estimates of mineralization, or of our ability to extract this mineralization, could have a material adverse effect on our results of operations or financial condition.
Due to numerous factors beyond our control which could affect the marketability of gold and silver, including their respective market price, we may have difficulty selling any gold or silver if commercially viable deposits are found to exist.
The availability of markets and the volatility of market prices are beyond our control and represent a significant risk. Even if commercially viable deposits of gold or silver are found to exist on our property interests, a ready market may not exist for the sale of the reserves. Numerous factors beyond our control may affect the marketability of any substances discovered. These factors include market fluctuations, the proximity and capacity of markets and processing equipment, government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection. These factors could inhibit our ability to sell the gold or silver in the event that commercially viable deposits are found to exist.
Our due diligence activities with respect to our property interests cannot assure that these properties will ultimately prove to be commercially viable.
Our due diligence activities have been limited, and to a great extent, we have relied upon information provided to us by third-party advisors. Accordingly, no assurances can be given that the properties or mining rights we possess will contain adequate amounts of gold, silver and base metals for commercialization. Further, even if we recover gold, silver and base metals from such mining properties, we cannot guarantee that we will make a profit. If we cannot acquire or locate commercially exploitable precious metal deposits, or if it is not economical to recover the precious metal deposits, our business and operations will be materially adversely affected. At present, none of our properties have proven or probable reserves and the proposed programs are an exploratory search for proven or probable reserves. The mining areas presently being assessed by us may not contain economically recoverable volumes of minerals or metals. We have relied and may continue to rely, upon consultants and others for operating expertise.
If we are unable to obtain all of our required governmental permits, our operations could be negatively impacted.
Our future operations, including exploration and development activities, required permits from various governmental authorities. Such operations are and will be governed by laws and regulations governing prospecting, development, mining, production, exports, taxes, labor standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety and other matters. There can be no assurance that we will be able to acquire all required licenses or permits or to maintain continued operations at economically justifiable costs.
Our financial position and results are subject to fluctuations in foreign currency values.
Any mining operations we undertake outside of the United States will be subject to currency fluctuations. Fluctuations in the exchange rate between the U.S. dollar and any foreign currency may adversely impact our operations. We do not anticipate that we will enter into any type of hedging transactions to offset this risk. In addition, with respect to commercial operations in Canada or other countries, it is possible that material transactions incurred in local currency, such as engagement of local contractors for major projects, will be settled at a U.S. dollar value that is different from the U.S. dollar value of the transaction at the time it was incurred. This could have the effect of undermining profits from operations in that country.
We are in competition with companies that are larger, more established and better capitalized than we are.
Many of our potential competitors have:
• greater financial and technical resources;
• longer operating histories and greater experience in mining;
• greater awareness of the political, economic and governmental risks in operating in foreign countries.
Risks related to an investment in our common stock:
Trading of our common stock may be restricted by the United States Securities and Exchange Commission (“SEC”)
The SEC has adopted regulations which generally define “penny stock” to be any equity security that has a market price, as defined, being less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. If we develop a public market for our shares, then our shares would be covered by the penny stock rules. These penny stock rules impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. These additional requirements may have the effect of limiting the development of a public trading market thereby reducing the level of trading activity in the secondary market for stock that is subject to these penny stock rules. Consequently, these penny stock rules may negatively affect our ability to develop a public trading market for our common stock and may negatively affect the ability of broker-dealers to trade our common stock. We believe that the penny stock rules discourage investor interest in, and may limit the marketability of, our common stock.
Additionally, if we were to be deemed a “shell company” under the Securities Act of 1933, the ability of certain shareholders to use the resale exemptions for restricted stock under Rule 144 of the Securities Act of 1933 would be greatly limited. This could further complicate our current fundraising efforts.
There does not exist a liquid secondary market for our common stock therefore you may not be able to sell your common stock.
There is not currently a liquid secondary trading market for our common stock. Therefore, there is no central place, such as a stock exchange or electronic trading system, to sell your common stock. If you do want to sell your common stock, then you will be responsible for locating a buyer and finalizing terms of sale.
Due to the lack of a market for our shares, our share price will be more volatile. Also, our stock is held by a smaller number of investors thus reducing the liquidity of our stock and the likelihood that any active trading market will develop.
There is no market for our common stock and we cannot assure you that any market will ever be developed or maintained. Currently, our stock is listed on the Over-The-Counter-Bulletin-Board (OTCBB) under the trading symbol AXIO and on the Berlin Stock Exchange under the trading symbol 0X0. As of the date of this report, our stock has traded on the OTCBB on a very limited basis. We cannot provide any assurance that our stock will continue trading on the OTCBB. The fact that most of our stock is held by a small number of investors further reduces the liquidity of our stock and the likelihood that any active trading market will develop. The market for our common stock, if any, is likely to be volatile and many factors may affect the market. These include, for example: our success, or lack of success, in marketing our services; developing our client base; competition; government regulations; and fluctuating operating results.
Because our common stock is quoted and traded on the OTC Bulletin Board and the Berlin Stock Exchange, short selling could increase the volatility of our stock price.
Short selling occurs when a person sells shares of stock which the person does not yet own and promises to buy stock in the future to cover the sale. The general objective of the person selling the shares short is to make a profit by buying the shares later, at a lower price, to cover the sale. Significant amounts of short selling, or the perception that a significant amount of short sales could occur, could depress the market price of our common stock. In contrast, purchases to cover a short position may have the effect of preventing or retarding a decline in the market price of our common stock, and together with the imposition of the penalty bid, may stabilize, maintain or otherwise affect the market price of our common stock. As a result, the price of our common stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued at any time. These transactions may be effected on over-the-counter bulletin board or any other available markets or exchanges. Such short selling if it were to occur could impact the value of our stock in an extreme and volatile manner to the detriment of our shareholders.
Because we do not expect to pay dividends for the foreseeable future, investors seeking cash dividends should not purchase shares of our common stock.
We have never declared or paid any cash dividends on shares of our common stock. We currently intend to retain future earnings, if any, to finance the expansion of our business. As a result, we do not anticipate paying any cash dividends in the foreseeable future. Our payment of any future dividends will be at the discretion of our board of directors after taking into account various factors, including but not limited to our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at the time. Accordingly, investors must rely on sales of their own common stock after price appreciation, which may never occur, as the only way to realize their investment. Investors seeking cash dividends should not purchase our common stock.
Because our stock price can be volatile, investors may not be able to recover any of their investment.
Stock prices in general, and stock prices of mineral exploration companies in particular, have experienced extreme volatility that often has been unrelated to the operating performance or any specifics of the company. Factors that may influence the market price of our common stock include:
·
actual or anticipated changes or milestones in our operations;
·
our ability or inability to acquire mining properties or interests in such properties in Canada;
·
our ability or inability to generate revenues;
·
increased competition within Canada and elsewhere;
·
government regulations, including mineral exploration regulations that affect our operations;
·
predictions and trends in the gold mining exploration industry;
·
volatility of the gold and silver market prices;
·
sales of common stock by “insiders”; and
·
announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors.
Our stock price may also be impacted by factors that are unrelated or disproportionate to our operating performance. These market fluctuations, as well as general economic, political and market conditions, such as, but not limited to, armed hostilities or acts of terrorism, recessions, acts of God, interest rates or international currency fluctuations, may adversely affect the market price of our common stock.
Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.
If our stockholders sell substantial amounts of our common stock in the public market, including shares being offered for sale pursuant to a prospectus or upon the expiration of any statutory holding period, under Rule 144, or upon expiration of lock-up periods applicable to outstanding shares, or issued upon the exercise of outstanding options or warrants, it could create a circumstance commonly referred to as an “overhang” and in anticipation of which the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate. Recent revisions to Rule 144 may result in shares of our common stock that we may issue in the future becoming eligible for resale into the public market without registration in as little as six months after their issuance.
Because our directors and officers may serve as directors or officers of other companies, they may have a conflict of interest in making decisions for our business.
Our directors and officers may serve as directors or officers of other companies or have significant shareholdings in other resource companies and, to the extent that such other companies may participate in ventures in which we may participate, our directors or officers may have a conflict of interest in negotiating and concluding terms respecting the extent of such participation. In the event that such a conflict of interest arises at a meeting of our directors, we expect that the director who has such a conflict will abstain from voting for or against the approval of such participation or such terms. Our directors are required to act honestly, in good faith and in our best interests. In determining whether or not we will participate in a particular program and the interest therein to be acquired by us, we expect that the directors and officers will be guided by their fiduciary duties and take into account such matters as they deem relevant, including considering the degree of risk to which we may be exposed and our financial position at that time.
Because our future officers and directors may allocate their time to other business interests or may be employed by other companies, they may not be able or willing to devote a sufficient amount of time to our business operations, which may adversely affect our business, financial condition or results of operations and cause our business to fail.
It is possible that the demands from other obligations on our officer and director and future officers and directors, could increase, they could no longer be able to devote sufficient time to the management of our operations and business. This conflict of interest could adversely affect our business, financial condition or results of operations and cause our business to fail.
U.S. investors may experience difficulties in attempting to enforce judgments based upon U.S. federal securities laws against us and our non-U.S. resident directors.
Other than our corporate bank account, all of our assets are located outside of the U.S. and our director and officer is resident outside of the U.S. As a result, it may be difficult or impossible for U.S. investors to enforce judgments of U.S. courts for civil liabilities against us or against our director and officer
Item 1B.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2.
Item 2. Properties
We do not own any real estate or other tangible property. Our principal office is located at 1846 E. Innovation Park Dr. Oro Valley, AZ 85755, telephone (303) 872-7814. We lease our office space in Tucson, Arizona on a monthly basis at $150 per month. No debt has accrued on account of rent payments owing. Our office space is sufficient for our current needs. However, we may require additional space in the event that our business operations are successful and we hire employees.
We have the option to acquire 13 mineral claims in Yukon Territory, Canada.
Item 3.
Item 3. Legal Proceedings
We are not presently a party to any litigation.
Item 4.
Item 4. Mine Safety Disclosure
Not applicable.
PART II
Item 5.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
In October 2008, our common stock became eligible for quotation on the Over-the-Counter Bulletin Board under the symbol “TCPM”. Upon the completion of our name change from TC Power Management Corp. to Axiom Gold and Silver Corp. our symbol changed to AXIO.
The market for our common stock is limited, volatile and sporadic. The following table sets forth, for the periods indicated, the high and low bid prices of our common stock as reported on the OTCBB. The following quotations reflect inter-dealer prices, without retail mark-up, markdown, or commissions, and may not reflect actual transactions. Our stock did not trade publically prior to the quarter ended February 28, 2011, As of November 30, 2012, shares of our common stock have traded on a limited basis.
Reports to Security Holders
We are a reporting company with the Securities and Exchange Commission, or SEC. The public may read and copy any materials filed with the Securities and Exchange Commission at the Security and Exchange Commission’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may also obtain information on the operation of the Public Reference Room by calling the Securities and Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Securities and Exchange Commission. The address of that site is http://www.sec.gov.
Common Stock
We have 300,000,000 shares of $.001 par value common stock authorized, of which 245,219,016 shares are issued and outstanding. at August 31, 2012. As of November 30, 2012, we had options outstanding under our option plan adopted in October 2010 and warrants outstanding to purchase shares of our common stock related to an offering of our common stock.
Holders
As of August 31, 2012, there were 36 holders of record for our common stock.
Dividend Policy
We have never paid cash dividends on our capital stock. We currently intend to retain any profits we earn to finance the growth and development of our business. We do not anticipate paying any cash dividends in the foreseeable future.
Recent Sales of Unregistered Securities
We are authorized to issue 300,000,000 shares of common stock with a par value of $0.001 and 10,000,000 shares of preferred stock with a par value of $0.001. Our Board of Directors has the authority to set the terms of any class of preferred shares through an issuance of a certificate of designation without receiving further shareholder approval. We have reserved 7,000,000 common shares for issuance under our 2010 Stock Option Plan. In the period ended August 31, 2007, we sold 20,000,000 shares of common stock for cash of $500. In the year ended August 31, 2008, we sold 4,483,400 shares of common stock for cash of $112,085. There are no equity transactions in the years ended August 31, 2010 and 2009. Effective November 1, 2010, we enacted a four-for-one (4:1) forward stock split. All share and per share data in the financial statements have been adjusted retroactively to reflect the stock split.
Pursuant to a compensation agreement with a former Director (former CEO), effective October 4, 2010, we granted a stock award in the amount of 150,000 shares of Company common stock. The shares are valued at $37,500 or $0.25 per share, the fair value at date of grant. We recorded share-based compensation of $37,500 in the year ended August 31, 2011.
Pursuant to the acquisition agreement with Axiom Mexico on January 13, 2011, we issued two million (2,000,000) common shares to the shareholders of Axiom Mexico. The shares were valued at $500,000 ($0.25 per share) which represents the fair value on that date.
Pursuant to a compensation agreement with our former CEO, effective January 24, 2011, we issued 100,000 shares of common stock valued at $75,000 ($0.75 per share).
In January and February 2011, we sold 330,000 shares of common stock at $0.25 per share for gross proceeds of $82,500 to five non-US accredited investors pursuant to Regulation S. We incurred offering costs of $2,500 pursuant to an escrow agreement.
In April and May 2011, we sold 1,600,000 shares of common stock at $0.25 per share for gross proceeds of $400,000 to three non-US accredited investors pursuant to Regulations S and one US accredited investor pursuant to Regulation D.
In June and July 2011, we sold 2,394,000 shares of common stock at $0.25 per share for gross proceeds of $598,500 to six non-US accredited investors pursuant to Regulations S and three US accredited investors pursuant to Regulation D. In addition, we incurred offering costs of $94,350 (10% of gross proceeds) on all sales pursuant to Regulation S.
In July 2011, we issued 250,000 shares of common stock for investor relations services. The shares are valued at $487,500 the fair value at date of grant.
Pursuant to a compensation agreement with a former Director (former CEO) effective October 4, 2011, we granted a stock award in the amount of 150,000 shares of Company Common Stock. The shares were valued at $151,500 or $1.01 per share, the fair value at grant date. We recorded share-based compensation of $151,500 in the year ended August 21, 2012.
In December 2011, we received gross proceeds of $285,904 from the sale of 1,143,616 shares of common stock at $0.25 per share to one non-U.S. investor pursuant to Regulation S.
Effective August 16, 2012, our current CEO converted $212,218 of accrued and unpaid compensation and reimbursable expenses owed him into 212,218,000 shares of common stock at $0.001 per share. The fair value of the stock on that date was $0.03 per share, and we incurred a charge for share based finance costs of $6,154,322 in the year ended August 31, 2012.
In August 2012, we received gross proceeds of $10,000 from the sale of 400,000 Units at $0.025 per Unit which included 400,000 shares of common stock and warrants to purchase 40,000 shares of common stock at $0.035 per share to a non-US accredited investor pursuant to Regulation S. We incurred offering costs of $1,000 (10% of gross proceeds) plus warrants to purchase 28,571 shares of common stock at $0.035 per share.
In September 2012, we received gross proceeds of $33,750 from the sale of 1,350,000 Units at $0.025 per Unit which included 1,350,000 shares of common stock and warrants to purchase 135,000 shares of common stock at $0.035 per share to three non-US accredited investors pursuant to Regulation S. We incurred offering costs of $3,375 (10% of gross proceeds) plus warrants to purchase 96,429 shares of common stock at $0.035 per share.
Securities Authorized for Issuance under Equity Compensation Plans
The Stock Option Plan, adopted by the Board of Directors on January 31, 2011, is intended to provide an incentive to our executive officers, directors, employees, independent contractors or agents who are responsible for or contribute to our management, growth and/or profitability. The purpose of granting options to such persons under the Plan is to attract them to consider employment with, or service to, us, to encourage their continued employment or service, and to give them incentive to provide their best efforts to us for purposes of enhancing shareholder value.
A total of up to 7,000,000 shares of our common stock have been reserved for the implementation of the Stock Option Plan, either through the issuance of options to eligible persons in the form of incentive stock options or non-statutory options which are subject to restricted property treatment under Section 83 of the Internal Revenue Code. Whenever practical, the Stock Option Plan is to be administered by a committee of not less than two members of the Board of Directors appointed by the full Board, and the Plan has a term of ten years, unless sooner terminated by the Board.
In the past two years, we have granted stock options to directors and officers who subsequently resigned on May 18, 2012. As a result of the resignations, non-vested options to purchase 2,316,667 shares of Company common stock were immediately forfeited. Additionally, the exercise date of vested options to purchase 4,333,333 shares of Company common stock was accelerated to three months after the date of resignation (August 18, 2012) per the terms of the option agreements, and none of these vested options were exercised by then.
Pursuant to a compensation agreement with our then VP Business Development, effective January 20, 2011, we granted a stock option award for the purchase of 300,000 shares of Company common stock at an exercise price of $0.25 per share. The option vests as follows: 150,000 shares immediately and 150,000 shares on January 20, 2012; and is exercisable for five years from the date of issuance.
Purchases of Equity Securities.
None during the period covered by this report.
Item 6.
Item 6. Selected Financial Data.
Not applicable.
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.
Critical Accounting Policies and Estimates. Our Management's Discussion and Analysis of Financial Condition and Results of Operations section discusses our 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 management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources.
Mineral Property Costs - We are in the exploration stage and have not yet realized any significant revenues from our planned operations. We are primarily engaged in the acquisition and exploration of mining properties. Mineral property acquisition and exploration costs are currently expensed as incurred. When it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves, the costs then incurred to develop such property are capitalized. Such costs will be amortized using the units-of-production method over the estimated life of the probable reserve. If mineral properties are subsequently abandoned or impaired, any capitalized costs will be charged to operations.
Equity-Based Compensation - We account for equity based compensation transactions with employees under the provisions of ASC Topic No. 718, “Compensation: Stock Compensation” (“Topic No. 718”). Topic No. 718 requires the recognition of the fair value of equity-based compensation in net income. The fair value of common stock issued for compensation is measured at the market price on the date of grant. The fair value of our equity instruments, other than common stock, is estimated using a Black-Scholes option valuation model. This model requires the input of highly subjective assumptions and elections including expected stock price volatility and the estimated life of each award. In addition, the calculation of equity-based compensation costs requires that we estimate the number of awards that will be forfeited during the vesting period. The fair value of equity-based awards granted to employees is amortized over the vesting period of the award, and we elected to use the straight-line method for awards granted after the adoption of Topic No. 718.
We account for equity based transactions with non-employees under the provisions of ASC Topic No. 505-50, “Equity-Based Payments to Non-Employees” (“Topic No. 505-50”). Topic No. 505-50 establishes that equity-based payment transactions with non-employees shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The fair value of common stock issued for payments to non-employees is measured at the market price on the date of grant. The fair value of equity instruments, other than common stock, is estimated using the Black-Scholes option valuation model. In general, we recognize an asset or expense in the same manner as if we were to receive cash for the goods or services instead of paying with or using the equity instrument.
Other accounting policies are described in the notes to the financial statements included in this Annual Report . The following discussion of our financial condition and results of operations should be read in conjunction with our audited financial statements for the year ended August 31, 2012.
GLOSSARY OF CERTAIN MINING TERMS
BRECCIA -- A rock in which angular fragments are surrounded by a mass of finer-grained rock.
CRETACEOUS - Applied to the third and final period of the Mesozoic Era. Extensive marine chalk beds were deposited during this period.
EXPLORATION -- Work involved in searching for ore, usually by sampling rocks, drilling or driving a drift.
GRANODIORITE - A group of coarse-grained plutonic rocks intermediate in composition between quartz diorite and quartz monzonite, containing quartz, plagioclase (oligoclase or andesine), and potassium feldspar, with biotite, hornblende, or, more rarely, pyroxene, as the mafic components
MESOZOIC - An era of geologic time, from the end of the Paleozoic to the beginning of the Cenozoic, or from about 225 million years to about 65 million years ago.
MINERAL -- A naturally occurring homogeneous substance having definite physical properties and, if formed under favorable conditions, a definite crystal form.
MINERALIZATION -- The act or process of mineralizing.
MINERALIZED MATERIAL OR DEPOSIT -- A mineralized body which has been delineated by appropriate drilling and/or underground sampling to support a sufficient tonnage and average grade of metal(s). Under SEC standards, such a deposit does not qualify as a reserve until a comprehensive evaluation, based upon unit cost, grade, recoveries, and other factors, concludes economic feasibility.
MINING CLAIM -- A term used to describe an area of land for which the owner of the claim has the right to explore for and develop mineral deposits. The rights to and ownership of the minerals in the claims are granted, in our case, by the Yukon Government to the former owners who then either transferred or optioned them to us.
NET SMELTER RETURN (NSR) -- A share of the net revenues generated from the sale of metal produced by a mine.
ORE -- Mineralized material that can be mined and processed at a positive cash flow.
PORPHYRY - An igneous rock of any composition that contains conspicuous phenocrysts in a fine-grained groundmass
RECLAMATION -- The restoration of a site after mining or exploration activity is completed.
ROYALTY -- An amount of money paid at regular intervals by the lessee or operator of an exploration or mining property to the owner of the ground. The royalty, generally, is based on a certain amount per ton or a percentage of the total production or profits. Also, the fee paid for the right to use a patented process.
Overview. We were incorporated in the State of Nevada on February 13, 2007, under the name TC Power Management Corp. We are in the exploration stage of our business and have not generated any revenues. We abandoned our previous business of providing consulting services to private and public entities seeking assessment, development, and implementation of energy generating solutions. We changed our planned business activities to the exploration and development of precious metals properties. On January 13, 2011, we entered into a material definitive agreement to acquire all of the shares of Axiom Minerals de Mexico S.A. de C.V (“Axiom Mexico”). There are no material relationships between Axiom Gold and Silver, its officers and director or its affiliates and any of the shareholders of Axiom Mexico, other than in respect to the material definitive agreement and the pooling agreement described herein. The agreement called for Axiom Gold and Silver, through its wholly owned Mexican subsidiary, Axiom Acquisition Corp, to acquire all of the issued and outstanding shares of Axiom Mexico, by the issuance of two million (2,000,000) common shares of Axiom Gold and Silver. The shares were issued to the shareholders of Axiom Mexico on a pro rata basis as to their ownership of Axiom Mexico. Axiom Acquisition Corp. merged with and into Axiom Mexico and the separate corporate existence of Axiom Acquisition Corp. ceased to exist. On May 31, 2012 we sold all of our interest in Axiom Mexico to an unrelated third party for $100 releasing us from any liabilities in Axiom Mexico.
On August 20, 2012, we entered into an option agreement to acquire 13 Fico claims located near Mt. Morrison in the Yukon Territory (the “Fico Claims”) for an aggregate amount of two hundred and fifty thousand Canadian Dollars ($250,000 CAD) as follows: (a) $15,000 CAD payable six months after the signing of the agreement, February 20, 2013; (b) $25,000 CAD payable twelve months after signing, August 20, 2013; (c) $60,000 CAD payable twenty-four months after signing, August 20, 2014; (d) $150,000 CAD payable thirty-six months after signing, August 20, 2015. We agreed to make the minimum work commitments on the Fico Claims as follows: (a) $100,000 CAD each in the first and second year of the agreement; (b) $250,000 CAD in the third year of the agreement. The option agreement is subject to a 2% net smelter return royalty. We may elect to purchase at any time up to the maximum of 1% of the net smelter return royalty in the maximum amount of $500,000 CAD for each 0.5%. We may terminate the option at any time prior to exercise upon thirty day written notice to seller.
Our plan of operation is forward looking, and we may never begin operations.
Plan of Operations
Since the sale of Axiom Mexico, our current business plan is to acquire mineral properties, focused mainly in Canada. On August 20, 2012, we entered into an option agreement to acquire the Fico Claims.
Our proposed principal product is precious metals. Prior to production of precious metals, we must develop, mine, and smelt or further refine mineral resources, if any, located on properties that we have the right to develop. Prior to developing precious metals, we must explore for, and determine that they are in sufficient quantities to warrant mining and selling them. In order to commence the exploration and development of precious metals properties, we will need to accomplish the following milestones:
1. Acquire and Begin Exploration of Mineral Properties. We will need to raise additional funds or issue shares to pay for the cost of acquisition and exploration of any mineral properties and/or to acquire additional mineral properties.
2. Hire Qualified Staff. We will need to hire qualified people to execute our business plan to explore precious metals mineral properties. We will need to raise additional funds to attract qualified people to our Company. We currently have one employee, and we do not intend to hire additional employees at this time.
The Fico claims are located near Mount Morrison, Yukon Territory, Canada. There are several key points for the acquisition of these claims:
• New discovery area
• Collapsed volcanic remnant (60km by 100 km area)
• Strongest group of Au anomalies in the Yukon
• Strongest principal-component analysis anomaly of stream sediments in the Yukon
• Au geochemical profile is likely attenuated due to intense weathering
• NW-SE structural trends similar to the adjacent Dawson Range White Gold District
• South Yukon >99th percentile Au anomalies
• Commodities; Gold-Copper-Moly
The Fico property is situated within the Carmacks Caldera, a newly identified 60x100 km volcanic erosional remnant visible on LANDSAT imagery that was formed by eruption and subsidence of a potentially Yellowstone-sized magmatic and hydrothermal system in the central Yukon during the Late Cretaceous time. The central part of the caldera is a low-lying, unglaciated area of the Klondike Plateau.
The Carmacks caldera contains the most concentrated number of 99th percentile (>100 ppb) stream sediment gold anomalies in Yukon, and has predominant NW and cross-cutting NE structural domains. Northwest-trending regional structures and related northeast and east-trending cross structures have been identified by the Yukon Geological Survey as the main structural trends hosting mineralization throughout the Dawson Range Gold Belt. Structural analysis, magnetic data, and regional geochemical data were used to identify prospective targets. The Mt. Nansen property is situated along the northern edge of the caldera.
The Fico property is situated ~50 km southeast of the Mt. Nansen vein-type porphyry- and breccia-related deposit linked to north- west-trending faults associated with strong magnetic anomalies in the immediate vicinity of northeast-striking cross faults. The claim area is located in a structurally complex area, near the southern edge of the Carmacks Caldera and underlain by early Jurassic hornblende granodiorite. It was staked to cover gold-in-soil geochemical anomalies located by a government survey. However, regional geological mapping conducted by GSC over the area in the late 1970s is considered inadequate and no detailed mapping has been carried out since.
Infrastructure
The Property is helicopter accessible from either Carmacks or Whitehorse and by the paved Klondike (Whitehorse-Dawson) Highway up to Carmacks. There are gravel roads from the Klondike Highway to close proximity of the Property but have to be upgraded for access. Accommodation and supplies are available in Carmacks as well as hydro power lines. Whitehorse is the regional center for supplies and personnel through which ore can be shipped to the deep water port of Skagway.
Plan of Work
2013 Soil sample data analyses and interpretation
2014 Structural and lithological mapping / BLEG sampling & IP resistivity survey
2015 Limited test-drilling of primary targets using portable drill rigs
If we are not able to negotiate suitable terms to raise capital to fund our exploration program, then we may have to suspend or cease operations. As of the filing date of this report, we have raised $1,422,014 from the sale of equity but have not secured any additional financing. If we cannot generate sufficient revenues to continue operations, we will suspend or cease operations. If we cease operations, we do not know what we will do and we do not have any plans to do anything else.
To date, we have experienced significant difficulties in generating revenues and raising additional capital. We believe our inability to raise significant additional capital through debt or equity financings is due to various factors, including, but not limited to, a tightening in the equity and credit markets as well as the general turmoil in the capital markets. If we are not able to raise additional capital or generate revenues that cover our estimated operating costs, our business may ultimately fail.
Competition
We compete with other mining and exploration companies in connection with the acquisition of mining claims and leases on gold and other precious metals prospects and in connection with the recruitment and retention of qualified employees. Many of these companies are much larger than us, have greater financial resources and have been in the mining business much longer than we have. As such, these competitors may be in a better position through size, finances and experience to acquire suitable exploration properties. We may not be able to compete against these companies in acquiring new properties and/or qualified people to work on any of our properties.
There is significant competition for the limited number of gold and silver acquisition opportunities available and, as a result, we may be unable to continue to acquire attractive gold and silver mining properties on terms we consider acceptable.
Given the size of the world market for gold and silver relative to individual producers and consumers of gold and silver, we believe that no single company has sufficient market influence to significantly affect the price or supply of gold and silver in the world market.
Governmental Regulations
Our business is subject to various levels of government controls and regulations, which are supplemented and revised from time to time. Any mineral exploration activity conducted by us requires permits from governmental authorities. The various levels of government controls and regulations address, among other things, the environmental impact of mining and mineral processing operations and establish requirements for the decommissioning of mining properties after operations have ceased. With respect to the regulation of mining and processing, legislation and regulations in various jurisdictions establish performance standards, air and water quality emission standards and other design or operational requirements for various components of operations, including health and safety standards. Legislation and regulations also establish requirements for decommissioning, reclamation and rehabilitation of mining properties following the cessation of operations, and may require that some former mining properties be managed for long periods of time. In addition, in certain jurisdictions, we may be subject to foreign investment controls and regulations governing our ability to remit earnings abroad.
The need to comply with applicable laws, regulations and permits will increase the cost of operation and may delay exploration. All permits required for the conduct of mining operations, including the construction of mining facilities, may not be obtainable, which would have an adverse effect on any mining project we might undertake. Additionally, failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions, including orders issued by regulatory or judicial authorities causing exploration to cease or be curtailed. Parties engaged in mining operations may be required to compensate those suffering loss or damage by reason of the mining activities and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations.
Amendments to current governmental laws and regulations affecting mining companies, or the more stringent application thereof, could adversely affect our operations. The extent of any future changes to governmental laws and regulations cannot be predicted or quantified. Generally, new laws and regulations result in increased compliance costs, including costs for obtaining permits, delays or fines resulting from loss of permits or failure to comply with the new requirements.
We believe that we are in compliance with all material current government controls and regulations at each of our properties.
Compliance with Environmental Laws
Our current exploration plan and any future mining operations are subject to extensive laws and regulations governing the protection of the environment, waste disposal, worker safety, mine construction, and protection of endangered and protected species. We have made, and expect to make in the future, significant expenditures to comply with such laws and regulations. Future changes in applicable laws, regulations and permits or changes in their enforcement or regulatory interpretation could have an adverse impact on our financial condition or results of operations. In the event that we make a mineral discovery and decide to proceed to production, the costs and delays associated with compliance with these laws and regulations could stop us from proceeding with a project or the operation or further improvement of a mine or increase the costs of improvement or production.
Employees
We currently have one employee working for us.
All mineral exploration and operations will be contracted out to third parties. In the event that our exploration projects are successful and warrant putting any of our properties into production, such operations may also be contracted out to third parties. We rely on management to handle all matters related to business development and business operations.
For the year ended August 31, 2012 compared to the year ended August 31, 2011.
Results of Operations
Revenues. Since inception, we have yet to generate any revenues from our business operations. Our ability to generate revenues has been significantly hindered by our lack of capital. We hope to generate revenues as we implement our new business plan.
Operating Expenses. For the year ended August 31, 2012, our total operating expenses were $2,220,000 as compared to total operating expenses of $5,390,000 for the year ended August 31, 2011. Our total operating expenses in fiscal 2012 consist of, primarily, non-cash compensation and consulting expenses ($1,222,000), exploration expense ($192,000) and professional fees related to being a public company ($199,000) . In fiscal 2011, our total operating expenses consisted primarily of non-cash compensation and consulting expenses ($3,854,000), exploration expenses ($160,000) and professional fees ($252,000). In addition, in fiscal 2011, we recorded a charge for the impairment of goodwill ($525,000) related to our acquisition of Axiom Mexico. We expect that we will continue to incur significant exploration expenses as we grow and significant professional fees related to being a public company.
Net Loss. For the year ended August 31, 2012, our net loss was $8,276,000, as compared to the year ended August 31, 2011, in which our net loss was $5,411,000. In fiscal 2012 we incurred share-based finance costs of $6,154,000 through the exchange of $212,000 of related party debt for 212,218,000 shares of common stock. A large part of our net loss is also from non-cash items attributed to hiring and maintaining quality personnel through the issuance of shares and options. We expect to continue to incur net losses for the foreseeable future and until we generate significant revenues.
Liquidity and Capital Resources
We had cash of $5,352 as of August 31, 2012 which is a significant portion of our total assets. We had cash of $246,000 as of August 31, 2011. The decrease in the amount of our cash from 2012 to 2011 is due to our inability to raise capital through the sale of our securities and the using of the cash we had in our operations. We are seeking to raise additional funds to meet our working capital needs principally through the sales of our securities. As of the date of this report, we do not have any commitments to raise any such funds, and we may not be able to raise additional funds.
As of August 31, 2012, our total liabilities were $478,000 comprised of $448,000 in accounts payable and accrued expenses (including, $8,000 and $153,000 owed to our current CEO and our former CEO, respectively, for accrued compensation and expenses), and $30,000 in notes payable to non-affiliates. In our year ended August 31, 2011, our total liabilities were $377,000 comprised of $331,000 in accounts payable and accrued expenses (including $125,000 for accrued compensation and expenses for employee/stockholders), $16,000 in payables to other related parties, and $30,000 in notes payable to non-affiliates. Our current liabilities owed to Mr. Johnson, our former president, were waived by him.
At inception, we sold 20,000,000 shares of common stock to our officers and director for $500 in cash. In 2008, we sold an additional 4,483,400 shares of common stock through our public offering for proceeds of $112,085. We have used the proceeds from the cash raised in that offering to pay the legal and accounting costs of being a public company. For the year ended August 31, 2011, we sold 4,324,000 shares of common stock through our public offering for gross proceeds of $1,081,000. We recorded $96,850 of costs related to the offering. We used the proceeds from this offering for general working capital to pay the costs of operations.
In December 2011, we received gross proceeds of $285,904 from the sale of 1,143,616 shares of common stock at $0.25 per share to one non-U.S. investor pursuant to Regulation S.
Effective August 16, 2012, our current CEO converted $212,218 of accrued and unpaid compensation and reimbursable expenses owed him into 212,218,000 shares of common stock at $0.001 per share. The fair value of the stock on that date was $0.03 per share, and we incurred a charge for share based finance costs of $6,154,322 in the year ended August 31, 2012.
In August 2012, we received gross proceeds of $10,000 from the sale of 400,000 Units at $0.025 per Unit which included 400,000 shares of common stock and warrants to purchase 40,000 shares of common stock at $0.035 per share to a non-US accredited investor pursuant to Regulation S. We incurred offering costs of $1,000 (10% of gross proceeds) plus warrants to purchase 28,571 shares of common stock at $0.035 per share.
In September 2012, we received gross proceeds of $33,750 from the sale of 1,350,000 Units at $0.025 per Unit which included 1,350,000 shares of common stock and warrants to purchase 135,000 shares of common stock at $0.035 per share to three non-US accredited investors pursuant to Regulation S. We incurred offering costs of $3,375 (10% of gross proceeds) plus warrants to purchase 96,429 shares of common stock at $0.035 per share.
During fiscal 2013, we expect that our business plan for exploration of mineral properties will be a significant cost to us and to complete that plan we will need to raise substantial funds. Furthermore, if we find additional properties for acquisitions that may also require significant capital, not only for the actual acquisition but also for any exploration work that may need to be completed. As well, the legal and accounting costs of being a public company will continue to impact our liquidity and we will need to obtain funds to pay those expenses. Other than the anticipated exploration costs, acquisition costs, increases in legal and accounting costs due to the reporting requirements of being a reporting company, we are not aware of any other known trends, events or uncertainties, which may affect our future liquidity.
In the opinion of management, available funds will not satisfy our working capital requirements to operate at our current level of activity for the next twelve months. Our forecast for the period for which our financial resources will be adequate to support our operations involves risks and uncertainties and actual results could fail as a result of a number of factors. In order to implement our business plan in the manner we envision, we will need to raise additional capital. We cannot guaranty that we will be able to raise additional funds. Moreover, in the event that we can raise additional funds, we cannot guaranty that additional funding will be available on favorable terms. In the event that we experience a shortfall in our capital, we hope that our officers, directors and principal shareholders will contribute funds to pay for our expenses to achieve our objectives over the next twelve months. At this time, though, we do not have any arrangement with any of our officers, directors or shareholders to provide any funding for the Company.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Item 7a.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 8.
Item 8. Financial Statements
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm - Meyler and Company LLC
Consolidated Balance Sheets as of August 31, 2012 and 2011.
Consolidated Statements of Operations for the years ended August 31, 2012 and 2011 and the period from Inception of Exploration Stage (September 1, 2010) through August 31, 2012.
Consolidated Statement of Changes in Stockholders’ Deficiency for the period from Inception of Exploration Stage (September 1, 2010) through August 31, 2012.
Consolidated Statements of Cash Flows for the years ended August 31, 2012 and 2011 and the period from Inception of Exploration Stage (September 1, 2010) through August 31, 2012.
Notes to Consolidated Financial Statements.
Meyler&Company LLC
One Arin Park
Phone: 732-671-2244
Certified Public Accountants 1715 Highway 35
& Management Consultants Middletown, NJ 07748
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Axiom Gold and Silver Corp.
We have audited the accompanying consolidated balance sheets of Axiom Gold and Silver Corp. as of August 31, 2012 and 2011, and the related consolidated statements of operations and cash flows for each of the years in the two-year period ended August 31, 2012, and for the period from inception of exploration stage (September 1, 2010) through August 31, 2012, and the consolidated statement of changes in stockholders’ deficiency for the period from inception of exploration stage (September 1, 2010) through August 31, 2012. Axiom Gold and Silver Corp.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Axiom Gold and Silver Corp. as of August 31, 2012 and 2011, and the results of its operations and its cash flows for each of the years in the two-year period ended August 31, 2012, and the period from inception of exploration stage (September 1, 2010) through August 31, 2012, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has no established source of revenue, and has accumulated significant losses and an accumulated deficit during its exploration stage. These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Meyler & Company, LLC
December 12, 2012
Middletown, NJ
AXIOM GOLD AND SILVER CORP.
(An Exploration Stage Company)
Consolidated Balance Sheets
The accompanying notes are an integral part of these consolidated financial statements.
AXIOM GOLD AND SILVER CORP.
(An Exploration Stage Company)
Consolidated Statements of Operations
The accompanying notes are an integral part of these consolidated financial statements.
AXIOM GOLD AND SILVER CORP.
(An Exploration Stage Company)
Consolidated Statement of Changes in Stockholders’ Deficiency
Period from Inception of Exploration Stage (September 1, 2010) through August 31, 2012
The accompanying notes are an integral part of these consolidated financial statements.
AXIOM GOLD AND SILVER CORP.
(An Exploration Stage Company)
Consolidated Statement of Changes in Stockholders’ Deficiency
Period from Inception of Exploration Stage (September 1, 2010) through August 31, 2012
The accompanying notes are an integral part of these consolidated financial statements.
AXIOM GOLD AND SILVER CORP.
(An Exploration Stage Company)
Consolidated Statements of Cash Flows
The accompanying notes are an integral part of these consolidated financial statements.
AXIOM GOLD AND SILVER CORP.
(An Exploration Stage Company)
Consolidated Statements of Cash Flows
The accompanying notes are an integral part of these consolidated financial statements.
AXIOM GOLD AND SILVER CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 1
Nature of Business and Basis of Financial Statement Presentation
Axiom Gold and Silver Corp. (“Axiom” or the “Company”) was incorporated in Nevada on February 13, 2007 under the name TC Power Management Corp. and originally formed for the purpose of providing consulting services to private and public entities seeking assessment, development and implementation of energy generating solutions. Effective September 1, 2010, the Company changed its business strategy and is currently in the business of acquiring and exploring mineral properties. Accordingly, as of September 1, 2010, the Company is considered to be an exploration stage company. On May 10, 2011, the Company filed a Certificate of Amendment to its Articles of Incorporation changing its name to Axiom Gold and Silver Corporation. In addition, the Amendment increased the number of authorized shares of common stock from 100,000,000 to 300,000,000 and authorized the issuance of 10,000,000 preferred shares, the terms of which may be determined by the Board of Directors without the vote of shareholders. Effective November 1, 2010, the Company enacted a four-for-one (4:1) forward stock split. All share and per share data in these consolidated financial statements have been adjusted retroactively to reflect the stock split.
On January 13, 2011, the Company entered into a material definitive agreement with Axiom Minerals de Mexico S.A. de C.V (“Axiom Mexico”) whereby through its wholly owned Mexican subsidiary, Axiom Acquisition Corp, acquired all of the issued and outstanding shares of Axiom Mexico, by the issuance of two million (2,000,000) of its common shares. The shares were issued to the shareholders of Axiom Mexico on a pro rata basis as to their ownership of Axiom Mexico. Axiom Acquisition Corp. merged with and into Axiom Mexico and the separate corporate existence of Axiom Acquisition Corp. ceased. Axiom Mexico, as the surviving corporation in the merger and a wholly-owned subsidiary of the Company continues its existence under its current name and continues to be governed by the laws of the state of Chihuahua, Mexico. This acquisition was accounted for as a basic business combination with the Company as the acquirer of Axiom Mexico.
Effective May 31, 2012, the Company sold all the outstanding shares of Axiom Mexico to an unrelated entity for total consideration of $100. The Company recognized a gain of $160,681 on the sale. As a result of the sale, as of May 31, 2012, all the assets and liabilities of Axiom Mexico were no longer reported in the accompanying consolidated balance sheet.
AXIOM GOLD AND SILVER CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 2
Going Concern
The accompanying consolidated financial statements have been prepared on a basis which assumes that the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has no established source of revenue, and has accumulated significant losses and an accumulated deficit during its exploration stage. These circumstances raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Management's plans with respect to alleviating the adverse financial conditions that caused shareholders to express substantial doubt about the Company’s ability to continue as a going concern are as follows:
The Company’s current assets are not deemed to be sufficient to fund ongoing expenses related to the start up of planned principal operations. In order to implement its business plan, the Company needs to raise additional capital through equity or debt financings or through loans from shareholders or others. The ability of the Company to continue as a going concern is dependent upon its ability to successfully raise additional capital and eventually attain profitable operations. There can be no assurance that the Company will be able to raise additional capital or execute its business strategy.
Note 3
Summary of Significant Accounting Policies
Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its wholly-owned Mexican subsidiary, Axiom Minerals de Mexico, S.A. de C.V. effective as of the date of its acquisition January 13, 2011 through the date of its disposition, May 31, 2012. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Exploration Stage Company - As of September 1, 2010, the Company became an “exploration stage company” as defined in the Securities and Exchange Commission Industry Guide 7, and is subject to compliance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 915 “Development Stage Entities”. For the period from February 13, 2007 (Inception) to August 31, 2010, the Company was a “development stage company” in accordance with ASC Topic 915. Deficits accumulated prior to becoming an “exploration stage company” have been separately presented in the accompanying consolidated balance sheets and consolidated statement of changes in stockholders’ deficiency. To date, the Company’s planned principal operations have not fully commenced.
AXIOM GOLD AND SILVER CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 3
Summary of Significant Accounting Policies (Continued)
Cash and Cash Equivalents - The Company considers all highly liquid investments with a maturity of three months or less to be cash equivalents.
Property and equipment - Furniture and equipment are originally recorded at their cost of acquisition. Depreciation is calculated through the straight-line method on initial monthly balances of the assets, based on the estimated useful lives of assets, as follows:
Mineral Property Costs - The Company is in the exploration stage and has not yet realized any significant revenues from its planned operations. It is primarily engaged in the acquisition and exploration of mining properties. Mineral property acquisition and exploration costs are currently expensed as incurred. When it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves, the costs then incurred to develop such property are capitalized. Such costs will be amortized using the units-of-production method over the estimated life of the probable reserve. If mineral properties are subsequently abandoned or impaired, any capitalized costs will be charged to operations.
Foreign Currency Translation - Axiom Mexico considers the Mexican peso (“MXN”) to be its functional currency. Assets and liabilities were translated into US dollars (“US$”) as of August 31, 2011 at the period end exchange rate. Income and expense amounts for the periods September 1, 2011 through May 31, 2012 and January 13, 2011 through August 31, 2011 were translated using the average rates during the periods.
AXIOM GOLD AND SILVER CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 3
Summary of Significant Accounting Policies (Continued)
Equity-Based Compensation - The Company accounts for equity based compensation transactions with employees under the provisions of ASC Topic No. 718, “Compensation: Stock Compensation” (“Topic No. 718”). Topic No. 718 requires the recognition of the fair value of equity-based compensation in net income. The fair value of common stock issued for compensation is measured at the market price on the date of grant. The fair value of the Company’s equity instruments, other than common stock, is estimated using a Black-Scholes option valuation model. This model requires the input of highly subjective assumptions and elections including expected stock price volatility and the estimated life of each award. In addition, the calculation of equity-based compensation costs requires that the Company estimate the number of awards that will be forfeited during the vesting period. The fair value of equity-based awards granted to employees is amortized over the vesting period of the award and the Company elected to use the straight-line method for awards granted after the adoption of Topic No. 718.
The Company accounts for equity based transactions with non-employees under the provisions of ASC Topic No. 505-50, “Equity-Based Payments to Non-Employees” (“Topic No. 505-50”). Topic No. 505-50 establishes that equity-based payment transactions with non-employees shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The fair value of common stock issued for payments to non-employees is measured at the market price on the date of grant. The fair value of equity instruments, other than common stock, is estimated using the Black-Scholes option valuation model. In general, the Company recognizes an asset or expense in the same manner as if it was to receive cash for the goods or services instead of paying with or using the equity instrument.
Income Taxes - The Company accounts for income taxes under the provisions of ASC Topic No. 740 “Income Taxes” which requires the use of the liability method of accounting for income taxes. The liability method measures deferred income taxes by applying enacted statutory rates in effect at the balance sheet date to the differences between the tax basis of assets and liabilities and their reported amounts on the financial statements. The resulting deferred tax assets or liabilities are adjusted to reflect changes in tax laws as they occur. A valuation allowance is provided when it is more likely than not that a deferred tax asset will not be realized. At August 31, 2012, the entire deferred tax asset, which arises primarily from our operating losses, has been fully reserved because management has determined that it is not more likely than not that the net operating loss carry forwards will be realized in the future. Axiom Minerals is subject to the tax laws of Mexico and its tax year is on a calendar basis.
AXIOM GOLD AND SILVER CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 3
Summary of Significant Accounting Policies (Continued)
At August 31, 2012, the Company did not have any unrecognized tax benefits. The Company's practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of August 31, 2012, the Company had no accrued interest or penalties. The Company currently has no federal or state tax examinations in progress nor has it had any federal or state tax examinations since its inception. All of the Company's tax years are subject to federal and state tax examination.
Earnings (Loss) Per Share - Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the amount of earnings for the period available to each share of common stock outstanding during the reporting period, while giving effect to all dilutive potential common shares that were outstanding during the period, such as common shares that could result from the potential exercise or conversion of securities into common stock.
Financial Instruments - The carrying values of the Company’s cash, accounts payable, accrued expenses, notes payable and related party payables approximate fair values because of the short-term maturity of these financial instruments. Financial instruments that potentially subject the Company to credit risk consist principally of cash in banks. Cash is maintained in accounts with major financial institutions in the form of demand deposits and the Company has not experienced any losses on such deposits.
Reclassification - Certain amounts in the year ended August 31, 2011 and the period from inception of exploration stage (September 1, 2010) through August 3l, 2012 have been reclassified to conform to the presentation used in the year ended August 31, 2012.
Recently Issued Accounting Pronouncements - On May 12, 2011, the FASB issued Accounting Standards Update (“ASU”) 2011-04. The ASU is the result of joint efforts by the FASB and the International Accounting Standards Board (“IASB”) to develop a single, converged fair value framework. Thus, there are few differences between the ASU and its international counterpart, IFRS 13. This ASU is largely consistent with existing fair value measurement principles in U.S. GAAP; however it expands ASC 820’s existing disclosure requirements for fair value measurements and makes other amendments. The ASU is effective for interim and annual periods beginning after December 15, 2011. The Company does not expect the provisions of ASU 2011-04 to have a material effect on the financial position, results of operations or cash flows of the Company.
AXIOM GOLD AND SILVER CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 3
Summary of Significant Accounting Policies (Continued)
Recently Issued Accounting Pronouncements (Continued) - On June 16, 2011, the FASB issued ASU 2011-05, which revises the manner in which entities present comprehensive income in their financial statements. The new guidance removes the presentation options in ASC 220 and requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. The ASU does not change the items that must be reported in other comprehensive income. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company does not expect the provisions of ASU 2011-05 to have a material effect on the financial position, results of operations or cash flows of the Company.
In December 2010, the FASB issued ASC Update No. 2010-28 “When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts”. ASU 2010-28 modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, Step 2 of the goodwill impairment test is required if it is more likely than not that a goodwill impairment exists, after considering whether there are any adverse qualitative factors indicating that an impairment may exist. ASU 2010-28 is effective prospectively for fiscal years and interim periods beginning after December 15, 2011. The Company does not anticipate the adoption of ASU 2010-28 will have a material impact on its consolidated financial statements.
There are several other new accounting pronouncements issued or proposed by the FASB. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe any of these accounting pronouncements has had or will have a material impact on the Company’s consolidated financial position or operating results.
Subsequent Events - In accordance with ASC 855 “Subsequent Events” the Company evaluated subsequent events after the balance sheet date.
AXIOM GOLD AND SILVER CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 4
Sale of Subsidiary
Effective May 31, 2012, we sold all of the outstanding shares of Axiom Mexico to an unrelated entity for total consideration of $100. We recognized a gain of $160,681 on the sale. As a result of the sale, as of May 31, 2012, all the assets and liabilities of Axiom Mexico were no longer reported in the accompanying consolidated balance sheet and the expenses of Axiom Mexico are no longer reported in the accompanying consolidated statement of operations subsequent to May 31, 2012.
Axiom Mexico’s expenses included in the accompanying consolidated statements of operations are as follows:
Note 5
Acquisitions
On January 13, 2011, we completed an acquisition of all of the outstanding shares of Axiom Mexico whereby through our wholly owned Mexican subsidiary, Axiom Acquisition Corp, acquired all of the issued and outstanding shares of Axiom Mexico, by the issuance of two million (2,000,000) of our common shares.
The operating results of Axiom Mexico from January 13, 2011 to May 31, 2012 are included in the accompanying Consolidated Statements of Operations (see Note 4). The Consolidated Balance Sheet as of August 31, 2011 reflects the acquisition of Axiom Mexico, effective January 13, 2011, the date of the acquisition. The acquisition date fair value of the total consideration transferred was $500,000, which consisted of 2,000,000 shares of Company common stock valued at $0.25 per share.
AXIOM GOLD AND SILVER CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 5
Acquisitions
The following table summarizes the estimated fair values of assets acquired and liabilities assumed of Axiom Mexico at the acquisition date:
The Company tested for impairment at the time of the acquisition and determined that the goodwill was impaired and recorded a charge of $525,477. None of the goodwill is expected to be deductible for income tax purposes.
AXIOM GOLD AND SILVER CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 5
Acquisitions (Continued)
The amount of net loss of Axiom Mexico included in the Company’s Consolidated Statements of Operations (including goodwill impairment of $525,477) from the acquisition date, January 13, 2011, to the year ending August 31, 2011 are as follows:
The following supplemental pro forma information presents the consolidated financial results as if the acquisition of Axiom Mexico had occurred September 1, 2010.
AXIOM GOLD AND SILVER CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 6
Furniture and Equipment
With the sale of Axiom Mexico, we currently have no furniture and equipment.
Furniture and equipment at August 31, 2011 is as follows:
Depreciation expense is $2,009 and $1,928 in the years ended August 31, 2012 and 2011.
Note 7
Related Party Transactions
Rent Expense - The Company, through February 2011, utilized minimal office space at the office of a former Director without charge (see Note 12). An amount of $500 per month, the estimated fair value, has been charged as rent expense with an offset to additional paid-in capital. Related party rent expense amounted to $3,000 in the year ended August 31, 2011. There is no related party rent expense in the year ended August 31, 2012.
Professional Fees - Legal services are provided by a law firm in which a former Director serves as senior partner (see Note 12). Legal fees and related expenses amounted to approximately $70,000 and $72,000 in the years ended August 31, 2012 and 2011. There is approximately $52,000 and $1,000 payable as of August 31, 2012 and 2011.
Accounting and tax services are provided by an accounting firm in which our former Chief Financial Officer (“CFO”) provides consulting services (see Note 12). Accounting and tax fees amounted to approximately $70,000 and $67,000 in the years ended August 31, 2012 and 2011. There is approximately $48,000 payable as of August 31, 2012. There was no payable amount as of August 31, 2011.
AXIOM GOLD AND SILVER CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 7
Related Party Transactions (Continued)
Consulting services were provided to Axiom Mexico by entities in which a former Director is an owner. There is approximately $-0- and $4,000 in related party payables as of August 31, 2012 and 2011. Expenses amounted to approximately $41,000 and $51,000 in the years ended August 31, 2012 and 2011.
Consulting services are provided by an entity in which two of our stockholders are owners. There is approximately $-0- and $1,200 in related party payables as of August 31, 2012 and 2011. Expenses amounted to approximately $7,500 in the year ended August 31, 2011. There were no expenses in the year ended August 31, 2012.
Other - The Company is obligated to its former Chief Executive Officer for accrued and unpaid compensation and reimbursable expenses as of August 31, 2012 and 2011 in the amount of approximately $152,000 and $25,000 (See Note 12).
The Company is obligated to its current Chief Executive Officer (“CEO”), who is also a stockholder of the Company, for accrued and unpaid compensation and reimbursable expenses as of August 31, 2012 and 2011 in the amount of approximately $8,000 and $100,000 (See Note 12).
Effective August 16, 2012, our current CEO converted $212,218 of accrued and unpaid compensation and reimbursable expenses owed him into 212,218,000 shares of common stock at $0.001 per share. The fair value of the stock on that date was $0.03 per share and we incurred a charge for share based finance costs of $6,154,322 in the year ended August 31, 2012.
Note 8
Mineral Properties
With the sale of Axiom Mexico, effective May 31, 2012 we currently have no exploration expenditures.
On August 20, 2012, we entered into an option agreement to acquire 13 Fico claims located near Mt. Morrison in the Yukon Territory (the “Fico Claims”) for an aggregate amount of two hundred and fifty thousand Canadian Dollars ($250,000 CAD) as follows: (a) $15,000 CAD payable six months after the signing of the agreement, February 20, 2013; (b) $25,000 CAD payable twelve months after signing, August 20, 2013; (c) $60,000 CAD payable twenty-four months after signing, August 20, 2014; (d) $150,000 CAD payable thirty-six months after signing, August 20, 2015. We agreed to make the minimum work commitments on the Fico Claims as follows: (a) $100,000 CAD each in the first and second year of the agreement; (b) $250,000 CAD in the third year of the agreement. The option agreement is subject to a 2% net smelter return royalty. We may elect to purchase at any time up to the maximum of 1% of the net smelter return royalty in the maximum amount of $500,000 CAD for each 0.5%. We may terminate the option at any time prior to exercise upon thirty day written notice to seller.
Name
Title Number
Size
Location
Valid Date
Registration
Net Smelter Return
Fico 1
through 13
YF39033 through to YF39045
271.7414 Hectares
Mount Morrison, Yukon Territory
26/03/2013
YF39033 Fico 1through YF39045 Fico 13
2%
AXIOM GOLD AND SILVER CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 8
Mineral Properties (Continued)
The Company incurred exploration expenses through Axiom Mexico as follows in the year ended August 31, 2012:
The Company incurred exploration expenses through Axiom Mexico as follows in the year ended August 31, 2011:
AXIOM GOLD AND SILVER CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 9
Notes Payable
In April 2011, the Company borrowed $20,000 from an unrelated party for working capital purposes. The note is unsecured and payable on demand with 8% interest per annum.
On November 9, 2010, the Company borrowed $10,000 from an unrelated party for working capital purposes. The note is unsecured and was due November 9, 2011 with 8% interest per annum.
Interest expense in the years ended August 31, 2102 and 2011 is $2,406 and $1,317.
Note 10
Stockholders’ Deficiency
The Company is authorized to issue 300,000,000 shares of common stock with a par value of $0.001 and 10,000,000 shares of preferred stock with a par value of $0.001. Our Board of Directors has the authority to set the terms of any class of preferred shares through an issuance of a certificate of designation without receiving further shareholder approval. We have reserved 7,000,000 common shares for issuance under our 2010 Stock Option Plan. In the period ended August 31, 2007, the Company sold 20,000,000 shares of common stock for cash of $500. In the year ended August 31, 2008, the Company sold 4,483,400 shares of its common stock for cash of $112,085. There were no equity transactions in the years ended August 31, 2010 and 2009. Effective November 1, 2010, the Company enacted a four-for-one (4:1) forward stock split. All share and per share data in these financial statements have been adjusted retroactively to reflect the stock split.
AXIOM GOLD AND SILVER CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 10
Stockholders’ Deficiency (Continued)
Pursuant to a compensation agreement with a former Director, effective October 4, 2011 and 2010, the Company granted a stock award in the amount of 150,000 shares of Company common stock, an aggregate of 300,000 shares (see Note 12). The Company recorded share-based compensation of $151,500 and $37,500 in the years ended August 31, 2012 and 2011, the fair values at date of grant.
Pursuant to a compensation agreement with our former CFO, effective October 19, 2010, the Company granted a stock option award for the purchase of 50,000 shares of Company common stock at an exercise price of $0.25 per share, which represents the fair value at date of grant (see Note 12). The option is immediately exercisable for five years from the date of issuance. The fair value of the option, $10,174, was calculated using the Black-Scholes pricing model. The fair value of the option is charged to operations as share-based expense over the vesting period. The expense recorded in the year ended August 31, 2011 was $10,174.
Pursuant to the acquisition agreement with Axiom Mexico on January 13, 2011, the Company issued two million (2,000,000) of its common shares to the shareholders of Axiom Mexico. The shares were valued at $500,000 ($0.25 per share) which represents the fair value on that date.
Pursuant to a compensation agreement with our former Vice President - Exploration, effective January 13, 2011, the Company granted a stock option award for the purchase of 600,000 shares of Company common stock at an exercise price of $0.25 per share (see Note 12). The fair value of our common stock at date of grant was $0.67. The fair value of the option, $386,632, was calculated using the Black-Scholes pricing model. The option vests over a two year period as follows: 150,000 shares immediately and 150,000 shares semi-annually through July 13, 2012; and is exercisable for ten years from the date of issuance. The fair value of the option is charged to operations as share-based expense over the vesting period. The expense recorded in the years ended August 31, 2012 and 2011 was $81,870 and $294,866.
Pursuant to a compensation agreement with our Director - Business Development, effective January 20, 2011, the Company granted a stock option award for the purchase of 300,000 shares of Company common stock at an exercise price of $0.25 per share (see Note 12). The fair value of our common stock at date of grant was $0.70. The fair value of the option, $186,197, was calculated using the Black-Scholes pricing model. The option vests as follows: 150,000 shares immediately and 150,000 shares on January 20, 2012; and is exercisable for five years from the date of issuance. The fair value of the option is charged to operations as share-based expense over the vesting period. The expense recorded in the years ended August 31, 2012 and 2011 was $36,219 and $149,979.
AXIOM GOLD AND SILVER CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 10
Stockholders’ Deficiency (Continued)
Pursuant to a compensation agreement with our former CEO, effective January 24, 2011, the Company (i) issued 100,000 shares of common stock valued at $75,000 ($0.75 per share) and (ii) granted a stock option award for the purchase of 5,500,000 shares of Company common stock at an exercise price of $0.25 per share (see Note 12). The fair value of our common stock at date of grant was $0.75. The fair value of the option, $3,977,771, was calculated using the Black-Scholes pricing model. The option vests over a three year period as follows: 2,200,000 shares immediately, 1,400,000 shares, 1,300,000 shares and 600,000 shares on January 24, 2012, 2013 and 2014, respectively; and is exercisable for ten years from the date of issuance. The fair value of the option is charged to operations as share-based expense over the vesting period. The expense recorded in the years ended August 31, 2012 and 2011 was $844,044 and $2,642,005 (including $75,000 related to the common shares issued).
Pursuant to a compensation agreement with a former Director, effective January 26, 2011, the Company granted a stock option award for the purchase of 300,000 shares of Company common stock at an exercise price of $0.25 per share (see Note 12). The fair value of our common stock at date of grant was $0.67. The fair value of the option, $193,350, was calculated using the Black-Scholes pricing model. The option vests over a three year period as follows: 50,000 shares immediately, 50,000 shares, 100,000 shares and 100,000 shares on January 26, 2012, 2013 and 2014, respectively; and is exercisable for ten years from the date of issuance. The fair value of the option is charged to operations as share-based expense over the vesting period. The expense recorded in the years ended August 31, 2012 and 2011 was $67,373 and $67,329.
In January and February 2011, the Company sold 330,000 shares of common stock at $0.25 per share for gross proceeds of $82,500 to five non-US accredited investors pursuant to Regulation S. The Company incurred offering costs of $2,500 pursuant to an escrow agreement.
In April and May 2011, the Company sold 1,600,000 shares of common stock at $0.25 per share for gross proceeds of $400,000 to three non-US accredited investors pursuant to Regulations S and one US accredited investor pursuant to Regulation D.
In June and July 2011, we sold 2,394,000 shares of common stock at $0.25 per share for gross proceeds of $598,500 to six non-US accredited investors pursuant to Regulations S and three US accredited investors pursuant to Regulation D. In addition, we incurred offering costs of $94,350 (10% of gross proceeds) on all sales pursuant to Regulation S.
AXIOM GOLD AND SILVER CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 10
Stockholders’ Deficiency (Continued)
In July 2011, we issued 250,000 shares of common stock for investor relations services (see Note 12). The shares are valued at $487,500 the fair value at date of grant and is charged to operations as share-based expense in the year ended August 31, 2011.
Pursuant to the compensation agreement with a former director, effective June 17, 2011, we granted a stock option award for the purchase of 100,000 shares of our common stock exercisable at $0.25 per share, the agreed upon fair value at date of grant (see Note 12). The option is fully vested and expires 10 years from date of grant. The fair value of the option, $114,464, was calculated using the Black-Scholes pricing model. The fair value of the option is charged to operations as share-based expense in the year ended August 31, 2011.
Effective June 17, 2011, we granted our former CFO an option to purchase 100,000 shares of common stock exercisable at $0.25 per share, the agreed upon fair value at date of grant (see Note 12). The option vests over a two year period and expires 10 years from date of grant. The fair value of the option, $114,464, was calculated using the Black-Scholes pricing model. The fair value of the option is charged to operations as share-based expense over the vesting period. The expense recorded in the years ended August 31, 2012 and 2011 was $40,831 and $49,888.
In December 2011, we received gross proceeds of $285,904 from the sale of 1,143,616 shares of common stock at $0.25 per share to one non-U.S. investor pursuant to Regulation S.
Effective August 16, 2012, our current CEO converted $212,218 of accrued and unpaid compensation and reimbursable expenses owed him into 212,218,000 shares of common stock at $0.001 per share. The fair value of the stock on that date was $0.03 per share and we incurred a charge for share based finance costs of $6,154,322 in the year ended August 31, 2012.
In August 2012, we initiated an offering of up to a total of 12,000,000 shares of common stock and 1,200,000 warrants to purchase shares of common stock (collectively the “Units”). The Units are being offered at US $0.025 per Unit for an aggregate purchase price of US $300,000. The warrants are exercisable for a two year period at US $0.035 per share. Costs of the offering are 10% of the gross proceeds received plus warrants equal to 10% of the warrant equity.
In August 2012, we received gross proceeds of $10,000 from the sale of 400,000 Units at $0.025 per Unit which included 400,000 shares of common stock and warrants to purchase 40,000 shares of common stock at $0.035 per share to a non-US accredited investor pursuant to Regulation S. We incurred offering costs of $1,000 (10% of gross proceeds) plus warrants to purchase 28,571 shares of common stock at $0.035 per share.
AXIOM GOLD AND SILVER CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 10
Stockholders’ Deficiency (Continued)
The fair value of the warrants, an aggregate of $560, is estimated using the Black-Scholes pricing model using the following assumptions: dividend yield - 0%; risk-free interest rate - 0.22%; expected life - 2 years; volatility 58.62%, and is included as a charge and addition to additional paid-in capital.
Warrant activity for the year ended August 31, 2012 is as follows:
AXIOM GOLD AND SILVER CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 10
Stockholders’ Deficiency (Continued)
The fair value of each option is estimated on the date of grant using the Black-Scholes pricing model. The following weighted-average assumptions were made in estimating fair value:
2010 Stock Option Plan
The Plan, adopted by the Board of Directors on January 31, 2011, is intended to provide an incentive to our executive officers, directors, employees, independent contractors or agents who are responsible for or contribute to our management, growth and/or profitability. The purpose of granting options to such persons under the Plan is to attract them to consider employment with, or service to, us, to encourage their continued employment or service, and to give them incentive to provide their best efforts to us for purposes of enhancing shareholder value.
A total of up to 7,000,000 shares of our common stock have been reserved for the implementation of the Plan, either through the issuance of options to eligible persons in the form of incentive stock options or non-statutory options which are subject to restricted property treatment under Section 83 of the Internal Revenue Code. Whenever practical, the Plan is to be administered by a committee of not less than two members of the Board of Directors appointed by the full Board, and the Plan has a term of ten years, unless sooner terminated by the Board. As of August 31, 2012, 6,700,000 shares of common stock are available for issuance under the plan.
AXIOM GOLD AND SILVER CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 10
Stockholders’ Deficiency (Continued)
The following table summarizes options transactions under the 2010 Stock Option Plan for the period.
AXIOM GOLD AND SILVER CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 10
Stockholders’ Deficiency (Continued)
The weighted-average grant-date fair value of options granted during the year ended August 31, 2011 was $0.71. No options were granted during the year ended August 31, 2012. No options were exercised during the years ending August 31, 2012 and 2011.
Summary of non-vested options as of and for the year ended August 31, 2012 is as follows:
Total stock-based compensation for the year ended August 31, 2012 and 2011 is as follows:
Note 11
Income Taxes
Net deferred tax assets and liabilities consist of the following components:
AXIOM GOLD AND SILVER CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 11
Income Taxes (Continued)
The income tax provision differs from the amount of income tax determined by applying the U.S. federal and state income tax rates of 39% to pretax income from continuing operations for the years ended August 31, 2012 and 2011 as follows:
At August 31, 2012, the Company had approximately $511,856 of capitalized pre-operating costs that have not been deducted for tax purposes. These costs are being amortized in the 180 month period beginning June 1, 2011, the commencement of exploration operations. No tax benefit has been reported in the August 31, 2012 and 2011 financial statements since the potential tax benefit is offset by a valuation allowance of the same amount.
Based upon historical net losses and the Company being in the exploration stage, management believes that it is not more likely than not that the deferred tax assets will be realized and has provided a valuation allowance of 100% of the deferred tax asset. The valuation allowance (decreased) increased by approximately $(1,388,000) and $1,878,000 in the years ended August 31, 2012 and 2011, respectively.
AXIOM GOLD AND SILVER CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 11
Income Taxes (Continued)
Axiom Mexico is subject to the following Mexican taxes:
a.
Income tax is incurred at the rate of 30%.
b.
The IETU tax is incurred at the rate of 17.5%. The taxable base is determined by totaling the revenues collected, less certain deductions paid, including the deduction of investments.
The tax incurred is reduced by certain credits related to investment in fixed assets and inventories not deducted when the law was enacted , as well as the ISR effectively paid in the year, in such a way that the IETU will be paid only on the difference between the ISR and IETU incurred, when the latter is greater.
c.
The Cash Deposit Tax Law (LIDE) tax is incurred at the rate of 3% on cash deposits that on an accumulated basis exceed $ 15,000 a month, bearing in mind that it must be applied by each institution in the Mexican financial system. The IDE may be credited against ISR for the same year and, as the case be, against the ISR withheld from third parties.
Note 12
Commitments
Compensation Agreements
On October 4, 2010, we appointed Steven A. Sanders to the Board of Directors and as Chief Executive Officer (see below). Pursuant to the agreement, Mr. Sanders is to receive a stock award in the amount of 450,000 shares of Company common stock as compensation for serving as a director. 150,000 shares will be earned upon the start of each year for which he serves as a director. The initial term of the agreement is three years. With the appointment of Mr. Quiroz (see below) Mr. Sanders resigned as Chief Executive Officer.
AXIOM GOLD AND SILVER CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 12
Commitments (Continued)
On October 18, 2010, we appointed Frank Lamendola as Chief Financial Officer (see below). Pursuant to the agreement, Mr. Lamendola received a stock option to purchase 50,000 shares of Company common stock at an exercise price of $0.25 per share. The options were issued to Mr. Lamendola pursuant to a Stock Option Agreement, dated October 19, 2010, and are fully vested and exercisable for five years from the date of issuance.
Effective January 13, 2011, we appointed Francisco Quiroz as our new Chief Executive Officer and Director (see below). With the appointment of Dr. John Larson (see below) Mr. Quiroz resigned as Chief Executive Officer and assumed the title of Vice President - Exploration. Pursuant to his employment agreement, Mr. Quiroz will be compensated at the rate of $166,800 per annum effective as of January 13, 2011 for an initial term of three years and was granted stock options to purchase 600,000 shares of Company common stock at an exercise price of $0.25 per share. The options vest semi-annually over a 2 year period and expire 10 years from the date of grant. In addition to other customary benefits, Mr. Quiroz will be entitled to bonuses consisting of stock awards based on mineral discoveries, as defined in the agreement.
On January 14, 2011 we entered into an agreement with Robert Knight pursuant to which in return for serving as Director - Business Development (a non-executive position) (see below), Mr. Knight will receive $7,500 per month and options to purchase 300,000 shares of Company common stock exercisable at $0.25 per share. The options vest over a one year period and expire 5 years from the date of the grant. The initial term of the agreement is for a one year period. Currently, the agreement remains in effect with the same terms on a month to month basis.
AXIOM GOLD AND SILVER CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 12
Commitments (Continued)
On January 24, 2011, we appointed Dr. John Larson as our new Chief Executive Officer and Director (see below). Pursuant to his employment agreement, Dr. Larson will be compensated at the rate of $180,000 per annum effective as of January 15, 2011. In addition to other customary benefits, he is also entitled to receive quarterly medical insurance reimbursements of $5,000. Dr. Larson was granted stock options to purchase 5,500,000 shares at an exercise price of $0.25 per share. The options vest over a 3 year period and expire 10 years from the date of grant. Dr. Larson also received a signing bonus of 100,000 shares of common stock of the Company. Dr. Larson will also be entitled to bonuses consisting of stock awards based on mineral discoveries, as defined in the agreement.
On January 26, 2011 we entered into an agreement with Nivaldo Rojas pursuant to which in return for serving as a Director, Mr. Rojas will receive $1,000 per month and options to purchase 300,000 shares of our common stock exercisable at $0.25 per share (see below). The options vest over a three year period and expire 10 years from the date of the grant. Additionally, the Company entered into a Finder’s Fee Agreement with an entity in which Mr. Rojas is an owner whereby the Company will pay the entity fees, as defined in the agreement, for (i) finding suitable properties to acquire and (ii) gold discovered on such properties.
Effective June 17, 2011, we appointed Roman Friedrich III to our Board of Directors (see below). Mr. Friedrich is to receive compensation of $1,000 per month and an option to purchase 100,000 shares of our common stock exercisable at $0.25 per share, the agreed upon fair value at date of grant. The option is fully vested and expires 10 years from date of grant.
On July 5, 2011, we entered into an agreement with a consultant to provide the Company investor relations services. The agreement, which is effective July 1, 2011, has a six month term through December 31, 2011 and provides for monthly compensation of $5,000. In addition, we issued the consultant 250,000 shares of our common stock valued at $487,500 which are earned upon the signing of the agreement.
Pursuant to the compensation agreements, subject to the exceptions and limitations provided therein, the Company has agreed to hold harmless and indemnify the officers and directors to the fullest extent permitted by law against any and all liabilities and expenses in connection with any proceeding to which such director or officer was, is or becomes a party, arising out of his services as an officer, director, employee, agent or fiduciary of the Company or its subsidiaries.
AXIOM GOLD AND SILVER CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 12
Commitments (Continued)
Effective May 18, 2012, the Company appointed Mr. Robert Knight CEO, CFO, Secretary and a Director and Dr. Larson resigned as CEO and Director of the Company, Mr. Lamendola resigned as CFO of the Company, Mr. Quiroz resigned as Vice President-Exploration and Director and Mr. Sanders, Mr. Rojas and Mr. Friedrich resigned as Directors of the Company. As a result of the resignations, non-vested options to purchase 2,316,667 shares of Company common stock were immediately forfeited and the exercise date of vested options to purchase 4,333,333 shares of Company common stock was accelerated to three months after the date of resignation (August 18, 2012) per the terms of the option agreements. None of these options were exercised.
Pooling Agreement
Effective January 13, 2011, certain shareholders (the “Shareholders”) owning approximately 17,100,000 shares of Company common stock entered into a share pooling agreement. Terms of the agreement are summarized as follows:
1. Voting Rights
During the term of the pooling agreement, each shareholder may exercise all voting rights attached to such shareholder’s shares, except that:
(a) Shareholder A and B hereby grant to Shareholders C, D, E and F the right and title to vote all of Shareholder A and B’s shares for the exclusive purpose to elect as many members of the board of directors, as necessary to have Shareholders C, D, E and F elect 51% of such Board of Directors; and
(b) Shareholders C, D, E and F hereby grant to Shareholder A and B the right and title to vote all of Shareholders C, D, E and F’s shares for the exclusive purpose to elect as many member of the board of directors, as necessary to have Shareholder A and B elect a maximum 49% of such Board of Directors.
Each of the Shareholders understand that the election of directors may be outside of the control of the other Shareholders hereto depending on the number of shares held by persons not party to this pooling agreement and how such persons vote those shares.
AXIOM GOLD AND SILVER CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 12
Commitments (Continued)
2. Release from Pooling Arrangement
While the shares are subject to the pooling arrangement, the Shareholders to the pooling agreement shall not assign, deal with, pledge, sell, trade or transfer in any manner whatsoever, or agree to do so in the future, any of the shares or any beneficial interest in them, except as set out in this Section. Except in respect of the following, the Company shall not effect or acknowledge any transfer, trade, pledge, mortgage, lien, assignment, declaration of trust or any other documents evidencing a change in the legal or beneficial ownership of or interest in the shares. Any shares sold shall be executed as agreed upon by the Shareholders but the release of shares from the pooling arrangement will be on a pro rata basis. A Shareholder may elect not to participate in the sale of shares. The sale of the shares is not cumulative and at the end of each period described below and shares not sold will not carry forward into the next period:
(a)
During the first twelve months from the date of this Agreement no shares will be released from the pooling agreement.
(b)
Following the initial 1 year hold period, the Shareholders will agree, from time to time, based on market conditions to liquidate part of the position held on the pooling arrangement; and
(c)
At the end of the 36 month of the pooling arrangement, all of the remaining shares shall be released from the pooling arrangement.
Notwithstanding the foregoing, the Shares shall be released from pooling arrangement and delivered to the Shareholders if a takeover bid has been accepted by the majority of the outstanding shares in a Shareholders Meeting of the Company such that the purchaser under the takeover bid is entitled to force a sale by all shareholders of the Company.
Lease Agreements
In February 2011, we entered into a one year lease for administrative office space in Oro Valley, Arizona. The lease is effective March 1, 2011 at a cost of $900 per month. Currently, we lease the facility on a month to month basis at a cost of $150 per month.
Axiom Mexico leases office facilities on an annual basis. The annual rent for the period from August 2011 through July 2012 is 112,800 Mexican Pesos (US $8,400).
Rent expense for the years ended August 31, 2012 and 2011 amounted to $13,000 and $15,000, respectively.
AXIOM GOLD AND SILVER CORP.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note 12
Commitments (Continued)
Other
According to current fiscal provisions, Mexican tax authorities are entitled to review the last five fiscal years prior to the more recent income tax return filed.
In accordance with the Income Tax Law (LISR), when transactions are performed with related parties, they are subject to tax restrictions and obligations regarding the determination of the prices agreed, because these must be similar to those that would have been used with or between independent parties in comparable transactions.
Note 13
Subsequent Events
In September 2012, we received gross proceeds of $33,750 from the sale of 1,350,000 Units at $0.025 per Unit to three non-US accredited investors pursuant to Regulation S. We incurred offering costs of $3,375 (10% of gross proceeds) plus warrants to purchase 96,429 shares of common stock at $0.035 per share.
Item 9.
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.
N/A
Item 9A.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports filed under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of the end of the period covered by this report, in accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an evaluation, under the supervision and with the participation of Robert Knight, our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon and as of the date of that evaluation, Mr. Knight concluded that our disclosure controls and procedures are not effective to ensure that information required to be disclosed in our reports filed and submitted under the Exchange Act is recorded, processed, summarized and reported as and when required. The reason we believe our disclosure controls and procedures are not effective is because:
1.
Only one director;
2.
No segregation of duties;
3.
No audit committee; and
4.
Ineffective controls over financial reporting.
Management's annual report on internal control over financial reporting
Robert Knight, our Chief Executive Officer and our Chief Financial Officer, is 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, our principal executive and principal financial officers and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
·
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
·
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of management and our directors; and
·
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, our 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.
Our Chief Executive Officer and our Chief Financial Officer assessed the effectiveness of our internal control over financial reporting as of August 31, 2012. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control - Integrated Framework.
Based on our assessment, our Chief Executive Officer and our Chief Financial Officer believe that, as of August 31, 2012, our internal control over financial reporting is not effective based on those criteria, due to the following:
·We do not have an Audit Committee - While not being legally obligated to have an audit committee, it is management’s view that such a committee, including a financial expert member, is an utmost important entity level control over our financial statements.
·We do not maintain appropriate cash controls - Due to our very limited staff, including accounting personnel, we lack a proper segregation of functions, duties and responsibilities with respect to our cash process.
In light of this conclusion and as part of the preparation of this report, we have applied compensating procedures and processes as necessary to ensure the reliability of our financial reporting. Accordingly, management believes, based on its knowledge, that (1) this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made not misleading with respect to the period covered by this report, and (2) the financial statements, and other financial information included in this report, fairly present in all material respects our financial condition, results of operations and cash flows for the years and periods then ended.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) during our most recently completed quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.
Item 9B. Other Information.
None
PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance.
Our officers will serve until his successor is elected and qualified. Our officers are elected by the board of directors to a term of one (1) year and serve until their successor is duly elected and qualified, or until they are removed from office. The board of directors has no nominating, auditing or compensation committees.
The name, address, age and position of our present officers and director is set forth below:
Name
Age
Position
Robert Knight
Chief Executive Officer, Chief Financial Officer, Director
Robert Knight:
President, Chief Executive Officer, Chief Financial Officer and Director
Mr. Knight has served as Chief Executive Officer, Chief Financial Officer and Director since May 2012. Since September 1994, Mr. Knight has been the President of Knight Financial Ltd., where he has organized and participated in many corporate finance transactions. Mr. Knight served as an officer and director of Mexoro Minerals from December 4, 2005 to April 2008 (OTC-BB: MXOM.OB), a reporting company in the United States whose shares are quoted on the OTC Bulletin Board. He was also the president of VECTr Systems Inc. until April 2008. VECTR Systems Inc. (OTC-BB: VECT.OB) was a reporting company in the United States whose shares were quoted on the OTC Bulletin Board. Mr. Knight was awarded an MBA degree from Edinburgh School of Business, Herriot-Watt University in December 1998.
Code of Ethics
We have adopted a corporate code of ethics. We believe our code of ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the code. Our code of ethics is incorporated by reference.
Section 16(a) Beneficial Ownership Reporting Compliance
We believe that our former officers, directors, and our principal shareholders have not filed any reports required to be filed on, respectively, a Form 3 (Initial Statement of Beneficial Ownership of Securities), a Form 4 (Statement of Changes of Beneficial Ownership of Securities), or a Form 5 (Annual Statement of Beneficial Ownership of Securities). We believe our current officers and directors have filed all reports required to be filed on, respectively, Form 3, Form 4 and Form 5.
Corporate Governance.
Director Independence. We have no independent members on our Board of Directors as that term is defined in Rule 4200(a)(15) of the Nasdaq Marketplace Rules.
Audit Committee and Charter
We do not have a separately designated audit committee of the board or any other board-designated committee. Audit committee functions are performed by our board of directors.
Audit Committee Financial Expert
We do not have an audit committee financial expert. We do not have an audit committee financial expert because we believe the cost related to retaining a financial expert at this time is prohibitive. Further, because we have not commenced operations, at the present time, we believe the services of a financial expert are not warranted.
Item 11.
Item 11. Executive Compensation
Summary Compensation Table. The table set forth below summarizes the annual and long-term compensation for services in all capacities to us payable to our principal executive officers during the fiscal years ending August 31, 2012 and 2011. This information includes the dollar value of base salaries, bonus awards and number of stock options granted, and certain other compensation, if any.
(1)
Represents the dollar amount recognized for financial statement reporting purposes with respect to the fiscal year in accordance with ASC Topic No. 718. Pursuant to SEC Rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions.
(2)
Dr. Larson was appointed CEO January 24, 2011 and resigned May 18, 2012
(3)
Mr. Quiroz was appointed CEO effective January 13, 2011 and resigned January 24, 2011. Mr. Quiroz resigned as VP Exploration May 18, 2012
(4)
Mr. Lamendola was appointed CFO effective October 18, 2010 and resigned May 18, 2012
(5)
Represents $69,850 and $67,080 of fees paid pursuant to a consulting agreement entered into with an entity affiliated with Mr. Lamendola
(6)
Mr. Knight was appointed President, CEO, CFO, Principal Accounting Officer, Secretary, Treasurer, Director effective May 18, 2012.
Stock Option and other Compensation Plans
2010 Stock Option Plan
The Plan, adopted by the Board of Directors on January 31, 2011, is intended to provide an incentive to our executive officers, directors, employees, independent contractors or agents who are responsible for or contribute to our management, growth and/or profitability. The purpose of granting options to such persons under the Plan is to attract them to consider employment with, or service to, us, to encourage their continued employment or service, and to give them incentive to provide their best efforts to us for purposes of enhancing shareholder value.
A total of up to 7,000,000 shares of our common stock have been reserved for the implementation of the Plan, either through the issuance of options to eligible persons in the form of incentive stock options or non-statutory options which are subject to restricted property treatment under Section 83 of the Internal Revenue Code. Whenever practical, the Plan is to be administered by a committee of not less than two members of the Board of Directors appointed by the full Board, and the Plan has a term of ten years, unless sooner terminated by the Board. During the year ended August 31, 2011, options to purchase 6,950,000 shares of common stock were granted under the plan and during the year ended August 31, 2012, 6,650,000 options were subsequently terminated under the plan.
As of August 31, 2012 and 2011, there are no other stock option plans, stock appreciation rights, retirement, pension, or profit sharing plans for the benefit of our officers and directors.
Outstanding Equity Awards at Fiscal Year-end
As of the year ended August 31, 2012, the following named executive officers had the following unexercised options, stock that has not vested, and equity incentive plan awards:
Compensation of Directors
The following table sets forth information concerning the compensation paid to each of our non-employee directors during the fiscal year ended August 31, 2012:
(1)
Represents the dollar amount recognized for financial statement reporting purposes with respect to the fiscal year in accordance with ASC Topic No. 718. Pursuant to SEC Rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions.
(2)
Represents $41,000 of fees paid pursuant to a consulting agreement entered into with an entity affiliated with Mr. Rojas
On October 4, 2010, we appointed Steven A. Sanders to the Board of Directors. Pursuant to the agreement, Mr. Sanders is to receive a stock award in the amount of 450,000 shares of Company common stock as compensation for serving as a director. 150,000 shares will be earned upon the start of each year for which he serves as a director. The initial term of the agreement is three years.
On January 26, 2011, we entered into an agreement with Nivaldo Rojas pursuant to which in return for serving as a Director, Mr. Rojas will receive $1,000 per month and options to purchase 300,000 shares of our common stock exercisable at $0.25 per share. The options vest over a three year period and expire 10 years from the date of the grant. Additionally, we entered into a Finder’s Fee Agreement with an entity in which Mr. Rojas is an owner whereby we will pay the entity fees, as defined in the agreement, for (i) finding suitable properties to acquire and (ii) gold discovered on such properties.
Effective June 17, 2011, we appointed Roman Friedrich III to our Board of Directors. Mr. Friedrich is to receive compensation of $1,000 per month and an option to purchase 100,000 shares of our common stock exercisable at $0.25 per share, the agreed upon fair value at date of grant. The option is fully vested and expires 10 years from date of grant.
Effective May 18, 2012, the Company appointed Mr. Robert Knight CEO, CFO, Secretary and a Director and Dr. Larson resigned as CEO and Director of the Company, Mr. Lamendola resigned as CFO of the Company, Mr. Quiroz resigned as Vice President-Exploration and Director and Mr. Sanders, Mr. Rojas and Mr. Friedrich resigned as Directors of the Company. As a result of the resignations, non-vested options to purchase 2,316,667 shares of Company common stock were immediately forfeited and the exercise date of vested options to purchase 4,333,333 shares of Company common stock was accelerated to three months after the date of resignation (August 18, 2012) per the terms of the option agreements. None of these options were exercised.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth, as of August 31, 2012, the total number of shares owned beneficially by our directors, officers and key employees, individually and as a group, and the present owners of 5% or more of our total outstanding shares. The stockholders listed below have direct ownership of their shares and possesses sole voting and dispositive power with respect to the shares.
Title of Class
Name of Beneficial Owner
Amount and Nature of Beneficial Owner*
Percent of Class
Common Stock:
Robert Knight(1)
222,195,650 Shares
90.6%
Common Stock
All directors and named executive officers as a group
222,195,650 Shares
90.6%
(1)
Robert Knight is our Chief Executive Officer, President and a director.
*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 our 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 optionees. 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 our common stock indicated as beneficially owned by them.
Changes in Control
Our management is not aware of any arrangements which may result in “changes in control” as that term is defined by the provisions of Item 403(c) of Regulation S-K.
No Equity Compensation Plan
We do not have any securities authorized for issuance under any equity compensation plan.
Item 13.
Item 13. Certain Relationships and Related Transactions and Director Independence.
Steven Sanders, one of our former directors, is a partner at Sanders Ortoli Vaughn-Flam Rosenstadt LLP, a law firm that we have engaged since September 2010 to provide us with legal advice. Legal fees and related expenses amounted to approximately $70,000 in the year ended August 31, 2012. There was approximately 52,000 payable as of August 31, 2012.
Accounting and tax services are provided by an accounting firm in which our former Chief Financial Officer (“CFO”) provides consulting services. Accounting and tax fees amounted to approximately $70,000 in the year ended August 31, 2012. There was approximately $48,000 payable as of August 31, 2012.
Consulting services are provided by an entity in which one of our former Directors is an owner. There is approximately $41,000 in expense for the year ended August 31, 2012 and no amount payable as of August 31, 2012.
We are obligated to our current CEO, who is also a stockholder, for accrued and unpaid compensation and reimbursable expenses as of August 31, 2012 in the amount of approximately $8,000.
Effective August 16, 2012, our current CEO converted $212,218 of accrued and unpaid compensation and reimbursable expenses owed him into 212,218,000 shares of common stock at $0.001 per share. The fair value of the stock on that date was $0.03 per share, and we incurred a charge for share based finance costs of $6,154,322 in the year ended August 31, 2012.
With regard to any future related party transaction, we plan to fully disclose any and all related party transactions, including, but not limited to, the following:
·
disclose such transactions in prospectuses where required;
·
disclose in any and all filings with the Securities and Exchange Commission, where required;
·
obtain disinterested directors consent; and
·
obtain shareholder consent where required.
Director Independence
Our Director is not independent as that term is defined by Rule 4200(a)(15) of the Nasdaq Marketplace Rules.
Item 14.
Item 14. Principal Accounting Fees and Services.
Audit Fees. The aggregate fees billed for each of the last three fiscal years for professional services rendered by the principal accountant for our audit of annual financial statements and review of financial statements included in our Form 10-Qs for services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years was:
$55,750
Meyler & Company LLC
$70,000
Meyler & Company LLC
Audit-Related Fees. For the fiscal year ended August 31, 2012 and 2011, respectively we were billed a total of $0 and $0 by a separate accountant for consulting services in preparation for the annual audit and quarterly reviews of the financial statements.
Tax Fees. For the fiscal year ended August 31, 2012 and 2011, respectively, our accountants rendered services for tax compliance, tax advice, and tax planning work for which we paid $0 and $0, respectively.
All Other Fees. None.
Pre-Approval Policies and Procedures
Prior to engaging our accountants to perform a particular service, our board of directors obtains an estimate for the service to be performed. All of the services described above were approved by the board of directors in accordance with its procedures.
PART IV
Item 15.
Item 15. Exhibits, Financial Statement Schedules.
Exhibits
The following documents are included herein:
Exhibit No.
Document Description
31.1
Certification of Principal Executive Officer pursuant to Rule 13a-15(e) and 15d-15(e), promulgated under the Securities and Exchange Act of 1934, as amended.
31.2
Certification of Principal Accounting Officer pursuant to Rule 13a-15(e) and 15d-15(e), promulgated under the Securities and Exchange Act of 1934, as amended.
32.1
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of Principal Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
XBRL Instance Document*
101.SCH
XBRL Taxonomy Extension Schema Document*
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB
XBRL Taxonomy Extension Label Linkbase Document*
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document*
*Filed herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By: /s/ Robert Knight
December 12, 2012
Robert Knight
Its: President, CEO, CFO, Principal Accounting Officer, Secretary, Treasurer, Director