Item 1. Business.
Temporary Time Capital Corp., Inc., a corporation organized under the laws of the State of Colorado, was a shell company with no or nominal business operations. On January 31, 2008, the Company entered into a merger agreement with Hybred International, Inc., a corporation organized under the laws of the State of New Jersey. No prior relationship between the companies, or any natural person, is known to have existed.
The merger agreement was filed and was effective within the State of Colorado on February 7, 2008, and was effective within the State of New Jersey on February 27, 2008.
The merger agreement (the “Agreement”) stipulated that the companies would merge and the surviving entity would be Temporary Time Capital Corp., Inc.. Temporary Time Capital Corp., Inc. would then change its name to Hybred International, Inc. (the name of the New Jersey entity that merged into the Colorado entity, with the result that one entity with the name of Hybred International, Inc. with the business operations of the original New Jersey entity would be registered to do business in the States of New Jersey and Colorado).
The shareholders of the former Hybred International, Inc. had their shares exchanged 1:1 into the new entity. The shareholders of the former Temporary Time Capital Corp., Inc. retained their holdings 1:1. The authorized number of shares in the new Hybred International, Inc. was increased to 120,000,000 (from 50,000,000) to allow for the distribution to the shareholders of the former Hybred International, Inc.
As part of the Agreement, the Directors and officers of Temporary Time Capital Corp., Inc. resigned and the officers and Directors of the former Hybred International, Inc. are now the officers and Directors of the new Hybred International, Inc.
The former (prior to merger) Hybred International, Inc. has developed and intends to produce and market a revolutionary therapeutic horseshoe, which contains an injection molded urethane composition into the shoe designed to reduce the concussive effect of horses’ hooves on surfaces such as concrete, asphalt and rock hard race tracks, thus reducing the chances of a horse developing a hoof injury, which comprise approximately 90% of all equine injuries.
The new (post merger) Hybred International, Inc. has acquired the business operations of the former Hybred International, Inc. which consists mainly of research and development and resultant intellectual property necessary to manufacture (or cause to be manufactured) the therapeutic horseshoe and the knowledge of the equine industry of the pre-merger Hybred’s officers and directors.
In November 2009, the Board of Directors voted to increase the number of authorized shares to 200,000,000. In June 2010, the Board of Directors voted to further increase the number of common shares authorized to 500,000,000 shares.
In June 2011 the Board of Directors and shareholders affirmatively voted to reverse the common voting stock 500:1 in a reverse stock split, voted affirmatively to create an offering of securities to explore a mining opportunity in Chile, and create three preferred classes of stock. The preferred classes of stock have the following characteristics: the preferred class A class is convertible into common voting shares at a ratio of one share of Class A converts into 1,000 shares of common stock (1:1,000) and there were 100,000 shares of the preferred class A authorized. The preferred class B was authorized at 400,000 shares which are convertible into 40 shares of common voting stock (1:40). The preferred class C was authorized at 50,000 shares and has super-voting characteristics of one share of the class C possess 1,000 votes and is NOT convertible. The Company further authorized an offering, and due registration thereof, of a capital raise to explore an opportunity of the Saltirosa mine in Chile (located 28 kilometers from Chanaral and 60 kilometers from the Caldera port). The Board and Shareholders also voted to make the necessary corresponding adjustments to the articles of incorporation and bylaws to reflect the new classes of securities.
The overview of the process and the insight behind the corporate activity was the corporate sales of horseshoes had bottomed out after the recession and the decline in consumer spending on luxury goods. Particularly, several opportunities to sell the rubberized horseshoe to mounted police turned out to be a non-starter because the police wanted the noise a regular horseshoe made. Simultaneously, a mining opportunity presented itself. The company decided that the opportunity, while not in the core line of business, was lucrative enough to resuscitate the company if the Company could raise capital to pursue the project; while keeping the horseshoe business in its back pocket for future exploration. The above changes reflect the process of preparation to pursue the mining opportunity. It should be mentioned that the preferred C class was created particularly for the management of the Company so they could maintain positive leverage if the capital raise becomes overly onerous or invasive, or there is a buyout on the horizon.
The Regulation D filing was filed roughly two months later, in August 2011.
In October 2011, the Board and shareholders affirmatively voted to acquire the Saltirosa mine in Chile, change the name of the Company to “All Grade Mining, Inc.” and modify the core line of business to reflect the positive feedback and traction from the offering of securities earmarked for the mining project.
In November 2011, the name change and reverse split went effective. In December 2011 the Company created a wholly owned subsidiary in Chile, “All Grade Mining Chile, SA” to take possession of the Saltirosa mine.
Item 1A.
Item 1A. Risk Factors
The Company is a “smaller reporting company” as defined by Regulation S-K and as such, are not required to provide the information contained in this item pursuant to Regulation S-K.
Item 1B.
Item 1B. Unresolved Staff Comments
The Company is a “smaller reporting company” as defined by Regulation S-K and as such, are not required to provide the information contained in this item pursuant to Regulation S-K.
Item 2.
Item 2. Description of Property
The Company recorded rental expense of $5,551 in 2011 and $0.00 for 2012 representing payment for office space and facilities in the United States. The fair market rental for 2012 was approximately $6,000 and the office space was used pro gratis as a favor to the CEO.
The Saltirosa mine, which the Company has a deposit on, is located in the country of Chile approximately 28 kilometers from Chanaral and 60 kilometers from the Caldera port). Please see the feasibility study for greater detail, description, and maps of the area filed in the 14C dated 11 October 2011.
Item 3.
Item 3. Legal Proceedings
The Company is not a party to, or the subject of any material pending legal proceedings.
Item 4.
Item 4. Mine Safety Disclosures
The mining projects of the Company are located outside the jurisdiction of the United States. As such, the Company, nor any subsidiary or operator of any mining project, has NOT received any imminent danger order, a written notice of a pattern of violations of mandatory health or safety standards of such nature as could have significantly and substantially contributed to the cause and effect of any mine health or safety hazard, a written notice from the Mine Safety and Health Administration of the potential to have such a pattern. Notwithstanding the aforementioned, the Company has not received any health and safety violation from the Chilean Mining Superintendency.
PART II
Item 5.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities.
The common stock of the Company (the “common stock”) is traded in the Over-The-Counter Market and is quoted on the National Association of Securities Dealers Automated Quotation (“NASDAQ”) System Bulletin Board and the Electronic Bulletin Board (OTCBB) under the symbol “HYII”.
Market Information
The range of high and low bid prices for the Company’s common stock, for the periods indicated, are set forth below.
N.B. The above quotations, as reported, represent prices between dealers and do not include retail mark-ups, mark-downs or commissions. Such quotations do not necessarily represent actual transactions.
(*) As reported by the OTCBB.
(†) Based upon the historical High and Low as of the last trading day of the quarter, adjusted for splits.
No Issuer repurchases of any class were made during 2012.
Item 6.
Item 6. Selected Financial Data.
The Company is a “smaller reporting company” as defined by Regulation S-K and as such, are not required to provide the information contained in this item pursuant to Regulation S-K.
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.
Statements contained in this report, which are not historical facts, may be considered forward looking information with respect to plans, projections, or future performance of the Company as defined under the Private Securities Litigation Act of 1995. These forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those projected. The words “anticipate”, “believe”, “estimate”, “expect”, “objective”, and “think” or similar expressions used herein are intended to identify forward-looking statements. The forward-looking statements are based upon the Company’s current views and assumptions and involve risks and uncertainties that include, among other things, the effects of the Company’s business, actions of competitors, changes in laws and regulations, including accounting standards, employee relations, customer demand, prices of purchased material and parts, domestic economic conditions, including housing starts and changes in consumer disposable income, and foreign economic conditions, including currency rate fluctuations. Some or all of the facts are beyond the Company’s control.
The following discussion and analysis should be read in conjunction with our audited financial statements and related footnotes included elsewhere in this report, which provide additional information concerning the Company’s financial activities and condition.
Comparative Analysis Year Ended December 31, 2012 and December 31, 2011
Results of Operations
The Company’s operating expenses were $2,509,318 for the year ended December 31, 2012; an increase of $1,949,161 compared to the operating expenses of $560,157 for the year ended December 31, 2011. The increase was primarily due to consulting fees being recorded in the year ended December 31, 2012 as well as expenses incurred in the Company’s change of focus to mining, including other operating expenses associated with the mine.
Other expenses also increased in 2012 from $1,222,900 to $7,746,974 primarily due to the Company recording a change in the fair value of its derivative liabilities, loss on debt conversion and loss on acquired deposit to a property. The change in fair market value of the derivatives was a gain of $1,680,233, and a loss of debt conversion of $5,089,313 from a settlments higher then book value of the debt due to the settlement being in securities and a higher market price of the securities at the time of settlement, and a loss on a deposit of property acquired of $4,025,000 which was paid in 11,500,000 shares of common stock and was subsequently written off.
Liquidity and Capital Resources
The Company to date has had no operating revenue and has relied primarily on funding from financing activities.
The Company is seeking financing from various third party sources for the purpose of acquiring the necessary machinery and for working capital. To date the Company has not entered into any definitive agreement with any third party, although it has commenced discussions with a potential financing source.
In the interim the Company has raised a total of $555,000 during 2012 by various financing activity.
The Company’s primary asset, the Salitrosa mine agreement. The Company is currently in default with its payment terms and conditions of the underlying agreement. The Company has made payments of $350,000. However, the Company is in default on the agreement on the mine and no operations have taken place thus far. If the Company does not succeed in securing financing to cure the default or successfully renegotiate the agreement, there is a material concern that there will be a material unfavorable impact on net sales, revenues and income from continuing operations from the Salitrosa mine, assuming no other projects are active.
2012 was a challenging year for the Company. The Company had less than hoped for success properly capitalizing the Company. The undercapitalization lead the Company to reexamine its business conceptualization, leading to a decision to evaluate projects that were centered around higher priced, lower volume minerals to alleviate cash demands for transportation and exportation while ideally realizing higher profit margins. The Company examined the following seven Chilean projects: La Fortuna, DePecida, Los Dos Hermanos, Cidrac, Pena Blanca, Radiente, La Crucita, and La Plateada and took on John McIntyre onto its Advisory Board to help evaluate these projects, among other assistance he may render. Mr. McIntyre is, an Australian geologist who lives in Chile and has performed his services in Chile and the surrounding areas, and throughout the world. Most of these projects were focused on copper gold and silver due to the depressed iron market. The two projects that came to the forefront and warranted further evaluation, Sidrac and Jose del Transito, unfortunately proved to be imprudent investments, at this time, in the Company’s opinion. After the feasibility studies were completed, Sidrac, an iron mine, proved to be too cash intensive and beyond the Company’s means at this time. The feasibility study for Jose del Transito, a copper mine, and the other forefront project under evaluation, proved the project to have a breakeven horizon that proved too long for the Company to sustain.
The Company’s undercapitalization matters were exacerbated when one particular investor bounced a check to the Company which lead to difficulties in renegotiating the Company’s arraignment with its primary asset, the Salitrosa mine, and further impinged upon the Company’s ability to compensate its professionals to perform periodic reports.
Off Balance Sheet Arrangements
Currently there are no off-balance sheet agreements.
Tabular Disclosure of Contractual Obligations
Smaller Reporting Companies are not required to provide this information pursuant to Regulation S-X §229.303 (d). However, we have provided the information as a courtesy without any obligation to continue to provide the information in the future.
4 For the Saltirosa mine: $350,000 down, $500,000 every six months, for a period of three years. All denominations are in USD.
On September 21, 2011, the Company entered into an agreement to acquire title to an iron ore mine in the Republic of Chile at an acquisition cost of $3,250,000 in which the Company paid an initial deposit of $250,000 to the seller. The agreement provides for the participation of the Republic of Chile in 15% of the mining profits.
On April 26, 2012, the Company amended the payment terms of the agreement and paid an additional deposit of $100,000 upon execution of the amended agreement. Under the terms of the amended agreement, the Company is required to remit the remaining balance of $2,900,000 over a three year period as follows:
As of December 31, 2012, the Company is not in compliance with the terms of this agreement due to non-payment of the amounts due on May 31, 2012, August 31, 2012 and February 28, 2013. However, the seller has not issued the Company a formal notice of default.
6 Foreign Commerce Consultative Services, Inc. profit on their contract.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred net losses of $10,256,292 and $1,783,057 for the years ended December 31, 2012 and 2011, respectively. The Company has a working capital deficiency of $1,417,253 and $1,819,986 as of December 31, 2012 and 2011, respectively and a stockholders’ deficiency of $959,747 and $1,825,236 at December 31, 2012 and 2011, respectively. The Company continues to incur recurring losses from operations and has an accumulated deficit since inception of $12,385,626. In addition as disclosed in Note 5, the Company has minimum commitment requirements with respect to the purchase of a mine in the Country of Chile which is in default. These conditions, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern and do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
The Company’s plan of operations, even if successful, may not result in cash flow sufficient to finance and expand its business. Realization of assets is dependent upon continued operations of the Company, which in turn is dependent upon management’s plans to meet its financing requirements and the success of its future operations. The ability of the Company to continue as a going concern is dependent on the Company’s profitability, cash flows and securing additional financing.
While the Company believes in the viability of its strategy to generate revenues and profitability and in its ability to raise additional funds, and believes that the actions presently being taken by the Company provide the opportunity for it to continue as a going concern. However the Company provides no assurance that such financing will be available on terms advantageous to the Company, or at all and should the Company not be successful in obtaining the necessary financing to fund its operations, the Company would need to curtail certain or all of its operational activities detailed above.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is a “smaller reporting company” as defined by Regulation S-K and as such, are not required to provide the information contained in this item pursuant to Regulation S-K. The Financial Statements begin on page 17.
Item 8.
Item 8. Financial Statements and Supplementary Data
Refer to Financial Statements on page 16.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Reporting.
The Company does not have any disagreements with our current accountant or financial officers at this time. There was no outstanding disagreement with accounting principals, or practices, and Marcum LLP is authorized to discuss all matters with the new certifying accountant, Paritz & Co. Marcum LLP advised the Company that the internal controls necessary for the Company to develop a reliable financial statement were found to have material weakness which indicated that the internal controls necessary for reliable financial statements do not exist in their opinion . Furthermore, in the accounting report dated 25 April 2012, Marcum included an explanatory paragraph indicating that there is a substantial doubt about the Company’s ability to continue as a going concern. Marcum LLP was dismissed for non-accounting financial reasons.
Item 9A.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Our CFO resigned as of August 3, 2012, and as a result there is not an executive officer with financial accounting expertise to assist in the evaluation of disclosure and other financial controls. We have hired an accounting and consulting firm, to assist in the generation of our financial reports for December 31, 2012.
Our Chief Executive Officer who also functions as our Chief Financial Officer has reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of 1934), as of December 31, 2012. Based on such review and evaluation, our chief executive officer has concluded that, as of December 31, 2012, our disclosure controls and procedures were not effective to ensure that information required to be disclosed by us in the reports that we file or submit to the Securities and Exchange Commission pursuant to the reporting obligations of the Exchange Act, including this Annual Report on Form 10-K, is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures.
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The design of any system of controls also is based in part on certain assumptions regarding the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Given these and other inherent limitations of control systems, there is only reasonable assurance that our controls will succeed in achieving their stated goals under all potential future conditions.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and Rule 15d-15(f) of the Exchange Act. Internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, and effected by the 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 accounting principles generally accepted in the United States (“US GAAP”), including those policies and procedures that:
●
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company,
●
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with US GAAP, and that receipts and expenditures are being made only in accordance with authorizations of management and directors of the company, and
●
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate.
Under the supervision and with the participation of our management, we have assessed the effectiveness of our internal control over financial reporting as of December 31, 2012. In making this assessment, our management used the criteria described in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Due to the inherent issue of segregation of duties in a small company, we have relied heavily on entity or management review controls to lessen the issue of segregation of duties. Based on this assessment and those criteria, our management concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2012.
(b) Changes in Internal Controls Over Financial Reporting
There were no changes in our internal control over financial reporting during the year ending December 31, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.
Item 9B. Other Information
The Company has no further information to disclose at this time. Please feel free to see our website at www.allgrademining.com
Part III
Item 10.
Item 10. Directors, Executive Officers, and Corporate Governance.
The Company’s Board of Directors consists of Gary Kouletas and an independent director, Paul Stitzer.
Mr. Kouletas, 36 years old, was the founder of Hybred International, Inc., now All Grade Mining, Inc. He has over ten years of entrepreneurial startup business owner experience. Mr. Kouletas attended William Paterson University and Montclair University, both in New Jersey. After College, Mr. Kouletas became operating partner of Kouletas Real Estate, a commercial property management company. He then went on to develop Kouletas Construction, a town home development company in southern New Jersey. Mr. Kouletas has been involved in the horseshoe manufacturing from 2008-2011 with the Company, and 2003-2008 with another comnpany. From 2002-2005 Mr. Kouletas served as a consultant to International Surfacing, Inc., a research and development company, concentrating on the development of a rubberized horseshoe and rubber metal bonding. He has designed numerous therapeutic and innovative horseshoes and corroborated with top industry professionals to create and bring to market the Hybred Horseshoe.
Mr. Stitzer, age 70, spent the majority of his career in the electronics industry. Mr. Stitzer initially acquired A & M Instruments, Inc. from Local Corporation. As the chief executive officer and chairman of the Board of Directors, he built A & M into a leading supplier to the U.S. Government of analog meters for the military. A & M was acquired by Hawker Sidley, a British conglomerate, in 1986. Mr. Stitzer thereafter became an officer and director of Voltampere Corporation, a cutting edge power supply company which was sold to Dynarad Corporation in 1991. Mr. Stitzer is presently residing in Boca Raton, Florida and continues to consult with various companies in the area of corporate finance.
All directors serve for a term of one year or until their successors are duly elected. All officers serve at the discretion of the Board of Directors.
Since the Board of Directors has historically and will in the immediate future consist of only a small number of members, we have not formed any Board Committees. All matters relating to audit, compensation, nominations and corporate governance are considered and acted upon by the entire Board of Directors.
No Board member, or executive officer, is known to have been convicted of any crime, excluding any traffic violations and other minor offenses, if any, or have had an adverse adjudication by a Self Regulated organization having jurisdiction or an inhibitive order inhibiting any Director or Executive Officer from any financial activity, or have had a discharge in bankruptcy, all within the previous ten years from the date of this filing.
Promoters
(None)
Certain Reports
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors and officers and persons who own, directly or indirectly, more than 10% of a registered class of the Company’s equity securities, to file with the SEC reports of ownership and reports of changes in ownership of common stock of the Company.
Officers, directors and greater than 10% shareholders are required to furnish the Company with copies of all Section 16(a) reports that they file. Based solely on review of the copies of such reports received by the Company, the Company believes that filing requirements applicable to officers, directors and 10% shareholders were complied with during the year ended December 31, 2012.
Item 11.
Item 11. Executive Compensation
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
2 Converted into common shares 29 November 2011, resulting in 50,127,031 common shares
3 Issued on 29 November 2011
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
No related party had any transaction with the Company in an amount exceeding $120,000. Gary Kouletas, the CEO, did have a $100,000 debt to him satisfied in exchange for 70,000 class A shares and 20,000 class C shares during the year ended December 31, 2011.
Item 14.
Item 14. Principal Accounting Fees and Services.
Part IV
Item 15.
Item 15. Exhibits, Financial Statements Schedules
ALL GRADE MINING, INC.
(A Developmental Stage Company)
AUDITED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Board of Directors
All Grade Mining, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of All Grade Mining, Inc. (a development stage company) (formerly known as Hybred International, Inc.) and its Subsidiary as of December 31, 2011 and the related consolidated statements of operations, stockholders’ deficiency, and cash flows for the year then ended, and for the period January 3, 2006 (date of commencement as a development stage company) to December 31, 2011. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based upon our audit. The accompanying consolidated financial statements of the Company for the period from January 3, 2006 (date of commencement as a development stage company) to December 31, 2010 were not audited by us. Those statements were audited by other auditors whose report, dated September 22, 2011, expressed an unqualified opinion on those statements and included an explanatory paragraph regarding the Company's ability to continue as a going concern. Our opinion, insofar as it relates to the amounts included for such prior periods as indicated in the accompanying financial statements for such periods from January 3, 2006 (date of commencement as a development stage company) through December 31, 2010, is based solely on the report of such other auditors.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. 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 consolidated 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 audit provides 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 All Grade Mining, Inc., (a development stage company) (formerly known as Hybred International, Inc.) and its Subsidiaries, of December 31, 2011 and the results of its operations and its cash flows for the year then ended, and for the period January 3, 2006 (date of commencement as a development stage company) to December 31, 2011 in conformity with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, The Company’s recurring losses, working capital deficiency, cumulative losses during the development period, and the need to obtain substantial additional funding to complete its development, raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Marcum LLP
Marcum LLP
New York, New York
April 25, 2012
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of
All Grade Mining, Inc.
We have audited the accompanying consolidated balance sheets of All Grade Mining, Inc. as of December 31,2012 and the related consolidated statements of operations, changes in stockholders’ deficiency and cash flows for the year ended December 31, 2012. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of All Grade Mining, Inc. as of December 31, 2012 and the results of its operations and its cash flows for the year ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred net losses of $10,256,292 and $1,783,057 for the years ended December 31, 2012 and 2011, respectively. The Company has a working capital deficiency and a stockholders’ deficiency. The Company continues to incur recurring losses from operations and has an accumulated deficit since inception of $12,385,626. In addition, the Company has minimum commitment requirements with respect to the purchase of a mine which is in default. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
/s/ Paritz & Co., P.A.
Hackensack, N.J.
July 1, 2013
ALL GRADE MINING, INC. AND SUBSIDIARY
(A Development Stage Company Commencing January 3, 2006)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) NATURE OF BUSINESS AND BASIS OF PRESENTATION
All Grade Mining, Inc. and Subsidiary (a development stage company) (“the Company”) is a corporation organized under the laws of the State of Colorado. The Company is currently engaged in the acquisition and exploration of mining properties and maintains its corporate offices in Hackensack, New Jersey.
The Company former principal business was the development and production of therapeutic horseshoes.
The Company has generated nominal revenues to date; accordingly, the Company is considered a development stage enterprise as defined in the Accounting Standards Codification 915 “Development Stage Entities.” The Company is subject to a number of risks similar to those of other companies in an early stage of development.
In June 2010, the Board of Directors voted to increase the number of authorized common shares to 500,000,000.
The Company discontinued its focus in the therapeutic horseshoe industry in November 2011. The Company has refocused its efforts on raising capital and developing markets for the mining industry and on November 22, 2011 the Company changed its name to All Grade Mining, Inc. to reflect the change in its core business. Concurrent with the change in name, the Company’s Board of Directors voted to complete a reverse split of its authorized common voting shares in the ratio of 500:1. All share and per share amounts have been restated for all periods presented to reflect this reverse stock split. The Company is currently engaged in the acquisition and exploration of mining properties.
2) GOING CONCERN
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred net losses of $10,256,292 and $1,783,057 for the years ended December 31, 2012 and 2011, respectively. The Company has a working capital deficiency of $1,417,253 and $1,819,986 as of December 31, 2012 and 2011, respectively and a stockholders’ deficiency of $959,747 and $1,825,236 at December 31, 2012 and 2011, respectively. The Company continues to incur recurring losses from operations and has an accumulated deficit since inception of $12,385,626. In addition as disclosed in Note 5, the Company has minimum commitment requirements with respect to the purchase of a mine in the Country of Chile which is in default. These conditions, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern and do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
The Company’s plan of operations, even if successful, may not result in cash flow sufficient to finance and expand its business. Realization of assets is dependent upon continued operations of the Company, which in turn is dependent upon management’s plans to meet its financing requirements and the success of its future operations. The ability of the Company to continue as a going concern is dependent on the Company’s profitability, cash flows and securing additional financing.
While the Company believes in the viability of its strategy to generate revenues and profitability and in its ability to raise additional funds, and believes that the actions presently being taken by the Company provide the opportunity for it to continue as a going concern. However the Company provides no assurance that such financing will be available on terms advantageous to the Company, or at all and should the Company not be successful in obtaining the necessary financing to fund its operations, the Company would need to curtail certain or all of its operational activities detailed above.
3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
Management bases its estimates on historical experience and on various assumptions 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. The most significant estimates, among other things, are used in accounting for allowances are for deferred income taxes, expected realizable values for long-lived assets, derivative liability and contingencies, as well as the recording and presentation of its common stock issuances. Estimates and assumptions are periodically reviewed and the effects of any material revisions are reflected in the consolidated financial statements in the period that they are determined to be necessary. Actual results could differ from those estimates and assumptions.
Principle of Consolidation
The consolidated financial statements of All Grade Mining, Inc. and Subsidiary include accounts of the Company and its wholly-owned foreign subsidiary, All Grade Mining Chile, SA. Intercompany transactions and balances are eliminated in consolidation. All Grade Mining Chile, S.A. was formed in November 2011, has yet to commence operations and has minimal assets.
Cash and Cash Equivalents
For purpose of the statement of cash flows, the Company considers all highly liquid debt with a maturity of three months or less, when purchased, to be cash equivalents. As of December 31, 2012 and 2011 the Company did not have any cash equivalents.
Property and Equipment
Property and equipment consists primarily of furniture and fixtures and is stated at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives (seven years) of the related assets. Expenditures for maintenance and repairs, which do not extend the economic useful life of the related assets, are charged to operations as incurred. Gains or losses on disposal of property and equipment are reflected in the statement of operations in the period of disposal.
Impairment of Long-Lived Assets
The Company assesses the recoverability of its long lived assets, including property and equipment when there are indications that the assets might be impaired. When evaluating assets for potential impairment, the Company first compares the carrying amount of the asset to the asset’s estimated future cash flows (undiscounted and without interest charges). If the estimated future cash flows used in this analysis are less than the carrying amount of the asset, an impairment loss calculation is prepared.
The Company recorded an impairment charge of $3,907 for the year ended December 31, 2011 due to the Company’s discontinued focus in the therapeutic horseshoe industry refocusing its efforts on raising capital and developing markets for the mining industry
Stock-based compensation
The Company reports stock-based compensation under ASC 718 “Compensation - Stock Compensation”. ASC 718 requires all share-based payments to employees, including grants of employee stock options, warrants to be recognized in the consolidated financial statements based on their fair values.
The Company accounts for equity instruments issued to non-employees as compensation in accordance with the provisions of ASC 718, which require that each such equity instrument be recorded at its fair value on the measurement date, which is typically the date the services are performed.
The Black-Scholes option valuation model is used to estimate the fair value of the warrants or options granted. The model includes subjective input assumptions that can materially affect the fair value estimates. The model was developed for use in estimating the fair value of traded options or warrants. The expected volatility is estimated based on the most recent historical period of time equal to the weighted average life of the warrants or options granted. During the year ended December 31, 2012 and 2011, the Company did not grant any options or warrants.
Earnings per Share
Basic loss per share was computed using the weighted average number of outstanding common shares. Diluted loss per share includes the effect of dilutive common stock equivalents from the assumed conversion of debt and convertible preferred stock. Common stock equivalents were excluded from the computation of diluted loss per share since their inclusion would be anti-dilutive.
Derivative Financial Instruments
In connection with the issuance of certain convertible debentures, the terms of the convertible debentures included an embedded conversion feature which provided for a conversion of the convertible debentures into shares of common stock at a rate which was determined to be variable. The Company determined that the conversion feature was an embedded derivative instrument pursuant to ASC 815 “Derivatives and Hedging”.
The accounting treatment of derivative financial instruments requires that the Company record the conversion options at their fair values as of the inception date of the convertible debenture agreements and at fair value as of each subsequent balance sheet date. As a result of entering into the convertible promissory note, the Company was required to classify all other conversion options as derivative liabilities and record them at their fair values at each balance sheet date. Any change in fair value was recorded as a change in fair value of derivative liability for each reporting period at each balance sheet date. The Company reassesses the classification at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.
The fair value of conversion options at a fixed number of shares are recorded using the intrinsic value method and conversion options at variable rates are deemed to be a “down-round protection” and therefore, do not meet the scope exception for treatment as a derivative under ASC 815. Since, “down-round protection” is not an input into the calculation of the fair value of the conversion option and cannot be considered “indexed to the Company’s own stock” which is a requirement for the scope exception as outlined under ASC 815. The Company determined the fair value of the Binomial Lattice Model and the Intrinsic Value Method to be materially the same.
Reclassification
Certain accounts in the prior year’s financial statements have been reclassified for comparative purposes to conform to the presentation in the current year’s financial statements. These reclassifications have no effect on previously reported earnings.
Mineral Property Costs
The Company is in the development stage and has not realized any revenues from its planned operations. It is primarily engaged in the acquisition and exploration of mineral properties. The Company will classify its mineral rights as tangible assets and accordingly acquisition costs will be initially capitalized as mineral property costs. Generally accepted accounting principles require that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review for recoverability, the Company will estimate the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the undiscounted expected future cash flows is less than the carrying amount of the asset, an impairment loss will be recognized. Mineral exploration costs are expensed as incurred until commercially mineable deposits are determined to exist within a particular property. To date the Company has not established any proven or probable reserves.
The Company accounts for the initial measurement and subsequent accounting for obligations associated with the sale, abandonment, or other disposal of long-term tangible assets arising from the acquisition, construction or development and for normal operations of such assets. As of December 31, 2012 and 2011, the Company has not incurred any potential costs related to the retirement of mineral property interests since commercial mining operations have not commenced.
Reclamation and Remediation Costs (Asset Retirement Obligation)
Upon commencement of commercial operations, the Company will accrue costs associated with environmental remediation obligations in accordance with ASC 410-20, Asset Retirement Obligations. In accordance with ASC 410-20-25, Asset Retirement Obligations -Recognition, the Company will record a liability for the present value of the estimated environmental remediation costs in the period in which the liability is incurred and becomes determinable, with an offsetting increase in the carrying amount of the associated asset. The liability will be accreted and the asset will be depreciated over the life of the related assets. Adjustments for changes resulting from the passage of time and changes to either the timing or amount of the original present value estimate underlying the obligation will be made. As reclamation work is performed or liabilities are otherwise settled, the recorded amount of the liability will be reduced.
The Company will accrue costs associated with any environmental remediation obligation when it is probable that such costs will be incurred and they are reasonably estimable. Estimates for reclamation and other closure costs are prepared in accordance with ASC 450, Contingencies, or ASC 410-30-25, Asset Retirement and Environmental Obligations - Recognition. Costs of future expenditures for environmental remediation will not be discounted to their present value unless subject to a contractually obligated fixed payment schedule. Such costs will be based on management’s then current best estimate of amounts to be incurred when the remediation work is performed, within current laws and regulations.
Future reclamation and environmental-related expenditures are difficult to estimate, in many circumstances, due to the early stage nature of the exploration project, and uncertainties associated with defining the nature and extent of environmental disturbance and the application of laws and regulations by regulatory authorities and changes in reclamation or remediation technology. The Company will be required to periodically review accrued liabilities for such reclamation and remediation costs as evidence becomes available indicating that the liabilities have potentially changed. Changes in estimates will be reflected in the statement of operations in the period an estimate is revised.
Foreign Currency Translation
Assets and liabilities related to the Company’s foreign subsidiary’s operations are calculated using the Chilean Peso and are translated at end-of-period exchange rates while the related revenues and expenses are translated at average exchange rates prevailing during the period. Translation adjustments are recorded as a separate component of stockholders’ equity. Transaction gains and losses were immaterial from the years ended December 31, 2012 and 2011.
Comprehensive Income (Loss)
The Company reports comprehensive income (loss) and its components in its combined financial statements. Comprehensive loss consists of net loss and foreign currency translation adjustments affecting stockholders’ equity that under US GAAP are excluded from net loss. For the year ended December 31, 2012 and 2011, the differences between net income as reported and comprehensive income were not material.
Fair Value of Financial Instruments
The carrying value of the Company’s financial instruments, consisting of cash, accounts payable, and borrowings, approximates their fair value due to the relatively short maturity (three months) of these instruments.
Advertising
Advertising costs are expensed as incurred and are included in general and administrative expenses. Advertising charges incurred for the years ended December 31, 2012 and 2011 were nominal.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.
ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions for any of the reporting periods presented.
Recent Accounting Pronouncements
The FASB, the Emerging Issues Task Force and the SEC have issued certain accounting standards updates and regulations as of December 31, 2012 that will become effective in subsequent periods; however, management of the Company does not believe that any of those updates would have significantly affected the Company’s financial accounting measures or disclosures had they been in effect during 2012 or 2011, and it does not believe that any of those pronouncements will have a significant impact on the Company’s consolidated financial statements at the time they become effective.
4) FAIR VALUE
ASC 820 “Fair Value Measurements and Disclosures” defines fair value, establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. As defined in ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This guidance clarifies that the exchange price is the price in an orderly transaction between market participants to sell an asset or transfer a liability at the measurement date and emphasizes that fair value is a market-based measurement and not an entity-specific measurement.
ASC 820 establishes the following hierarchy used in fair value measurements and expands the required disclosures of assets and liabilities measured at fair value:
Level 1 Inputs use quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
Level 2 Inputs use other inputs that are observable, either directly or indirectly. These inputs include quoted prices for similar assets and liabilities in active markets as well as other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 Inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset or liability.
In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Company’s assessment of the significance of particular inputs to these fair measurements requires judgment and considers factors specific to each asset or liability.
Liabilities measured at fair value on a recurring basis at December 31, 2012 are as follows:
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. The Company’s Level 3 liabilities consist of derivative liabilities associated with the convertible debt that contains an indeterminable conversion share price and the tainted conversion to other outstanding convertible debt as the Company cannot determine if it will have sufficient authorized common stock to settle such arrangements.
The following table provides a summary of the changes in fair value, including net transfers in and/or out, of all financial assets measured at fair value on a recurring basis using significant unobservable inputs during the years ended December 31, 2012 and 2011.
5) DEPOSITORY PAYMENT TOWARDS ACQUISITION OF IRON ORE MINE
On September 21, 2011, the Company entered into an agreement to acquire title to an iron ore mine in the Republic of Chile at an acquisition cost of $3,250,000 in which the Company paid an initial deposit of $250,000 to the seller. The agreement provides for the participation of the Republic of Chile in 15% of the mining profits.
On April 26, 2012, the Company amended the payment terms of the agreement and paid an additional deposit of $100,000 upon execution of the amended agreement. Under the terms of the amended agreement, the Company is required to remit the remaining balance of $2,900,000 over a three year period as follows:
As of December 31, 2012, the Company is not in compliance with the terms of this agreement due to non-payment of the amounts due on May 31, 2012, August 31, 2012 and February 28, 2013. However, the seller has not issued the Company a formal notice of default.
6) RELATED PARTY TRANSACTIONS
As of December 31, 2012, the Company’s President has advanced the Company $500.
During 2007, Martin Honig, a former Director and current stockholder of the Company loaned the Company $8,000 on a non-interest bearing basis in order to provide the Company with working capital. In July 2008 this same individual loaned the Company an additional $5,000 to be used for working capital. The Company repaid $7,000 to Mr. Honig. In March 2012, Mr. Honig loaned the Company an additional $6,000. In May 2012, Mr. Honig elected to convert his $6,000, 10.0% Loan into common stock of the Company. In the conversion transaction, Mr Honig received 6,000,000 shares of common stock in exchange for the loan and no accrued interest, resulting in a balance of $ 6,000 due him as of December 31, 2012.
Marshal Shichtman, the Company’s securities counsel and a stockholder of 5,000,000 common shares has billed the Company $162,000 for legal services performed thru December 31, 2012. $182,000 is currently outstanding and reported in accounts payable in the accompanying financial statements. The Company incurred legal fees for services provided by Marshal Shichtman in the amounts of $120,000 and 72,000 for the years ended December 31, 2012 and 2011, respectively.
7) CONVERTIBLE DEBENTURES
As of December 31, 2012 and 2011 convertible debentures consist of the following:
On September 9, 2010 the Company borrowed the sum of $10,000 from an unrelated third party. The convertible debenture is payable on demand and bears interest at the rate of 8% per annum. The loan agreement provides at the option of the note holder to convert their principal balance to 40,000 shares of common stock ($0.25 per share) at any time that the loan remains unpaid. On December 26, 2012 this debenture was converted into 11,947,766 shares of the Company’s common stock.
On April 13, 2011, the Company borrowed the sum of $10,000 from an unrelated third party. The convertible debenture is payable on demand and bears interest at the rate of 10% per annum. The loan agreement provides for the right of this individual to convert the loan into shares of common stock at a stated conversion price of the average of the 3 lowest daily trades in the previous 20 days with a 50% discount. As of December 31, 2012 the $10,000 is payable.
On May 18, 2011, the Company borrowed the sum of $28,000 from an unrelated third party on a non-interest bearing basis and is payable on demand. The loan agreement provides for the right of the holder to convert the outstanding loan into common shares of the Company at any time that the loan remains unpaid, at a conversion price of $.14 per share. As of December 31, 2012 the $28,000 is payable.
On July 17, 2011, the Company borrowed $50,000 from an unrelated third party, pursuant to a convertible debenture agreement. The debenture bears interest at 5% per annum and has a term of 5 years maturing on July 17, 2016. The debenture is convertible into common stock at $0.25 per share. As of December 31, 2012 the $50,000 is payable.
On August 29, 2011, the Company borrowed $75,000 from an unrelated third party, pursuant to a convertible debenture agreement. The debenture bears interest at 5% per annum and has a term of 5 years maturing on August 29, 2016. The debenture is convertible into common stock at $0.25 per share. As of December 31, 2012 the $75,000 is payable.
On August 29, 2011, the Company borrowed $75,000 from another unrelated third party, pursuant to a convertible debenture agreement. The debenture bears interest at 5% per annum and has a term of 5 years maturing on August 29, 2016. The debenture is convertible into common stock at $0.25 per share. As of December 31, 2012 the $75,000 is payable.
On September 16, 2011, the Company borrowed $50,000 from an unrelated third party, pursuant to a convertible debenture agreement. The debenture bears interest at 5% per annum and has a term of 5 years maturing on September 16, 2016. The debenture is convertible into common stock at $0.25 per share. On July 19, 2012 the debenture was converted into 208,332 shares of common stock.
On October 25, 2011, the Company borrowed $75,000 from an unrelated third party, pursuant to a convertible debenture agreement. The debenture bears interest at 5% per annum and has a term of 5 years maturing on October 25, 2016. The debenture is convertible into common stock at $0.25 per share. On June 14, 2012 the debenture was converted into 310,000 shares of common stock.
On April 23, 2012, the Company borrowed $350,000 from two unrelated parties pursuant to convertible debenture agreements. The debentures bear interest at 5.0% per annum and have a term of five years, maturing on April 22, 2017. The debentures are convertible into common stock at $0.25 per share. As of December 31, 2012 the $350,000 is payable.
On July 10 and August 31, 2012 the Company borrowed $50,000 and $100,000 from two unrelated parties pursuant to convertible debenture agreements. The debentures bear interest at 5.0% and 6% per annum and have a term of five years, maturing on July 10 and August 31, 2017. The debentures are convertible into common stock at $0.25 per share. As of December 31, 2012 the $50,000 and $100,000 are payable.
On November 19, 2012 the Company borrowed $55,000 from an unrelated party pursuant to convertible debenture agreements. The debentures bear interest at 5.0% per annum and have a term of five years, maturing on November 19, 2017. The loan agreement provides for the right of this individual to convert the loan into shares of common stock at a stated conversion price of the average of the 3 lowest daily trades in the previous 20 days with a 50% discount. As of December 31, 2012 the $55,000 is payable.
The Company accounted for the issuance of the convertible debentures in accordance with ASC 815” Derivatives and Hedging.” The debentures are convertible into an indeterminate number of shares for which the Company cannot determine if it has sufficient authorized shares to settle the transaction with. Accordingly, the embedded conversion option is a derivative liability and is marked to market through earnings at the end of each reporting period.
The gross proceed from the sale of the debentures are recorded net of a discount of related to the conversion feature of the embedded conversion option. When the fair value of conversion options is in excess of the debt discount the amount has been included as a component of interest expense in the statement of operations. During the year ended December 31, 2012 and 2011, the Company recorded $155,533 and $539,000, respectively of interest expense relating to the excess fair value of the conversion option over the face value of the debentures.
8) LOANS PAYABLE:
Loans payable consist of the following at December 31, 2012 and December 31, 2011:
(a)
In 2006, the Company borrowed the sum of $16,000 from Louis Savaglio, an independent third party. The loan is payable on demand and bears interest at the rate of 6.75% per annum. On November 30, 2009, the Company had repaid $5,000 with the issuance of 99,100 shares of common stock. On July 14, 2011 Mr. Savaglio assigned $10,000 of his debt together with accrued interest of $3,156 to four entities unrelated to the Company. Each new entity has a note for $3,289 carrying interest at 6%. Subsequently those four entities converted their loans into 13,462,000 shares of the Company’s common stock. The balance due to Mr. Savaglio as of December 31, 2012 and December 31, 2011 was $1,000.
(b)
During August 2008, the Company borrowed the sum of $4,000 from Brett Hamburger, a consultant to the Company on a non-interest bearing basis. On June 21, 2012, Brett Hamburger elected to convert his $4,000 loan issued August 21, 2008 into common stock of the Company. In the conversion transaction, Mr. Hamburger received 4,000,000 shares of common stock in exchange for the loan and no accrued interest. Mr. Hamburger requested, and the Company agreed, to remove the Rule 144 restrictive legends on the shares that he received to facilitate future resale in the public markets. Additionally during 2009, the Company borrowed $2,900 from Christine Mulijono, the wife of Brett Hamburger. This loan was payable on demand and carried an interest rate of 10% per annum. This loan and its accumulated interest was converted into 3,764,000 shares of the Company’s common stock on November 23, 2011 for the settlement of $2,900 and $864 of principal and accrued interest, respectively. As of December 31, 2012 and December 31, 2011 the amount payable under this loan was $0 and $4,000, respectively.
(c)
On September 15, 2011, the Company borrowed $150,000 from an unrelated third party. The loan was due on October 15, 2011 together with interest at a rate of 25% per annum. As of December 31, 2012, the accumulated interest on this loan was $37,640. The Company is not in compliance with the repayment terms of the loan as it was not repaid on its maturity date and is currently in technical default.
(d)
On November 15, 2011, the Company borrowed $50,000 from an unrelated third party. The loan was due and payable upon the Company filing its Regulation D Offering with the SEC which occurred on August 1, 2011. The note accrues interest at a rate of 4.0% per annum. As of December 31, 2012, the accumulated interest on this loan was $2,879; the Company is not in compliance with the repayment terms of the loan and is currently in technical default.
(e)
On June 30, 2012, July 24, 2012, September 25, 2012 and November 8, 2012. The Company borrowed $25,000, $50,000, $15,000 and $20,000 from an unrelated third party. These notes accrue interest at a rate of 0% per annum.
9) COMMON STOCK
On June 5, 2012, the company entered into twelve-month consulting agreements with two consulting firms to provide business advisory, strategic, and administrative services for a period of twelve months to build shareholder value. In return for these services, the Company issued 3,000,000 shares of restricted common stock. The per share value of the common stock was $0.47 on the date of the agreement. The company recognized prepaid consulting expense of $1,410,000 for these agreements, which is being amortized to consulting expense over the one year term of the agreements.
On June 14, 2012, the company issued 6,000,000 shares of common stock valued at $3,300,000 for settlement of debt Martin Honig of $6,000 and a recorded loss on debt conversion of $3,294,000.
On June 14, 2012, the company issued 310,000 shares of common stock valued at $164,300 for the Conversion of Convertible debenture.
On June 19, 2012, the company issued 11,500,000 shares of common stock valued at $4,025,000 to Moralva Holdings Inc. (“Moralva”) as a non-refundable deposit for a potential acquisition of mining assets. The Company was completing its due diligence and negotiating the terms of the acquisition at the time of the issuance of the stock. The Company initially recorded the fair value of the shares issued as a deposit on the balance sheet. The acquisition was never completed and the Company has expensed the amount of $4,025,000 as a loss on deposit to acquire property in the accompanying statement of operations.
On June 21, 2012, the company issued 4,000,000 shares of common stock valued at $1,440,000 for settlement of debt Brett Hamburger of $4,000 and recorded a loss on debt conversion of $1,436,000.
On July 19, 2012, the company issued 208,322 shares of common stock for the connection of convertible debenture.
On July 23, 2012 the company issued 250,000 shares of common stock valued at $47,500 for services.
On August 31, 2012, the company issued 200,000 shares of common stock valued at $12,000 for break up fees.
On August 31, 2012, the company issued 5,000,000 shares of common stock valued at $300,000 for contract fees.
On September 21, 2012, the company issued 1,000,000 shares of common stock valued at $45,000 for services.
On December 26, 2012, the company issued 11,947,766 shares of common stock valued at $370,381 for settlement of debt of $11,068 and a loss on debt conversion of $359,313.
On December 31, 2012, the company issued 350,000 shares of common stock valued at $14,000 for director’s fees.
10) PREFERRED STOCK
Convertible Preferred Class A Series
On June 20, 2010, the Company designated and authorized 100,000 shares of Class A convertible preferred stock (“Class A”). The Class A has no par value, has no liquidation preference and each shares of Class A is convertible into 1,000 shares of common stock at the option of the holder. The Class A stockholders have voting rights equal to the number of common shares, into which the Class A shares are convertible into shares of common stock. The Class A does not provide for any cumulative dividends or any other redemption features outside the control of the Company.
Convertible Preferred Class B Series
On June 20, 2010, the Company designated and authorized 400,000 shares of Class B convertible preferred stock (“Class B”). The Class B has no par value, has no liquidation preference and each shares of Class B is convertible into 40 shares of common stock at the option of the holder. The Class B stockholders have voting rights equal to the number of common shares, into which the Class B shares are convertible into shares of common stock. The Class B does not provide for any cumulative dividends or any other redemption features outside the control of the Company.
Preferred Class C Series
On June 20, 2010, the Company designated and authorized 50,000 shares of Class C preferred stock (“Class C”). The Class C has no par value, has no liquidation preference and has no conversion provisions. The Class C stockholders have voting rights at a ratio of 1,000 votes for each Class C share. The Class C does not provide for any cumulative dividends or any redemption features outside the control of the Company.
11) DISGORGEMENT OF SHARES OF COMMON STOCK
On August 1, 2011, 12,000 common shares of the Company were disgorged from Meadow Vista Financial Corp. by order of the Securities and Exchange Commission (“SEC”) pursuant to an Order issued by the U.S. District Court of Florida in the Southern District on February 25, 2011. These common shares were cancelled pursuant to that order.
12) COMMITMENTS AND CONTINGENCIES
a) Depository payment towards acquisition of iron ore mine
See disclosures in Note 5 regarding obligations in connection with the acquisition of an iron ore mine.
b) Litigation
Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. There can be no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows. As of December 31, 2012 the Company has not accrued any amounts for loss contingencies.
13) INCOME TAXES
As of December 31, 2012 and 2011, the Company has approximately $ 1,789,000 and $836,600, respectively, of federal net operating loss carry forwards available to offset future taxable income. These net operating losses which, if not utilized, begin expiring between the years 2026 through 2032. In accordance with Section 382 of the Internal Revenue Code, deductibility of the Company’s net operating loss carry forward may be subject to an annual limitation in the event of a change of control. The Company performed a preliminary evaluation as to whether a change of control, as defined under the regulations has taken place, and concluded that no change of control has occurred to date.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. ASC 740 - “Income Taxes” requires that a valuation allowance be established when it is “more likely than not” that all, or a portion of, deferred tax assets will not be realized. A review of all available positive and negative evidence needs to be considered, including a company’s performance, the market environment in which the company operates the length of carryback and carry forward periods, and expectations of future profits, etc. The Company believes that the significant uncertainty exists with full respect to future realization of the deferred tax assets and has therefore established a full valuation allowance for the full amount as of December 31, 2012 and December 31, 2011. For the year ended December 31, 2012 and 2011 the deferred tax asset valuation allowance increased by $ 380,654 and $198,394, respectively.
The Company evaluated the provisions of ASC 740 related to the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits.” A liability is recognized (or amount of net operating loss carry forward or amount of tax refundable is reduced) for an unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740.
The Company files tax returns in U.S. Federal and various state jurisdictions and are subject to audit by tax authorities beginning with the year ended December 31, 2009. The Company is subject to certain state and local taxes based on capital. The state and local taxes based on capital were immaterial for each of the years ended December 31, 2012 and December 31, 2011.
Interest costs related to unrecognized tax benefits are required to be calculated (if applicable) and would be classified as "Interest expense, net" in the statements of operation. Penalties would be recognized as a component of “General and administrative expenses."
No interest or penalties were recorded during the years ended December 31, 2012 and December31, 2011 respectively. As of December 31, 2012 and December 31, 2011 no liability for unrecognized tax benefits was required to be reported. The Company does not expect any significant changes in its unrecognized tax benefits in the next year.
The income tax provision (benefit) consists of the following:
The reconciliation between the statutory federal income tax rate (34%) and the Company’s effective rate for the year ended December 31, 2012 and 2011 is as follows:
14) CREDIT RISK
Financial instruments that subject the Company to credit risk consist principally of cash. The Company performs certain credit evaluation procedures and does not require collateral for financial instruments subject to credit risk. The Company maintains cash deposits with financial institutions, which from time to time may exceed federally insured limits. The Company has not experienced any losses and believes it is not exposed to any significant credit risk from cash.
15) SUBSEQUENT EVENTS
In June 2013, the Company issued 25,000,000 shares of common voting shares in settlement of accounts payable of $25,000.
SIGNATURES
Pursuant to the requirements of §13 or §15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
All Grade Mining, Inc.
/s/ Gary Kouletas
By: Gary Kouletas, CEO
Dated: 21 June 2013
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
All Grade Mining, Inc.
/s/ Gary Kouletas
By: Gary Kouletas, CEO
Dated: 21 June 2013