Attached files
file | filename |
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EX-21 - HK GRAPHENE TECHNOLOGY CORP | v179014_ex21.htm |
EX-31.2 - HK GRAPHENE TECHNOLOGY CORP | v179014_ex31-2.htm |
EX-32.1 - HK GRAPHENE TECHNOLOGY CORP | v179014_ex32-1.htm |
EX-31.1 - HK GRAPHENE TECHNOLOGY CORP | v179014_ex31-1.htm |
EX-32.2 - HK GRAPHENE TECHNOLOGY CORP | v179014_ex32-2.htm |
U.S.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
(Mark
One)
x
|
ANNUAL REPORT PURSUANT TO UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
Fiscal Year Ended: December 31, 2009
OR
o
|
TRANSITION REPORT PURSUANT TO
UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from _______________ to _______________
Commission
file number: 333-140148
Loreto
Resources Corporation
(Exact
name of registrant as specified in its charter)
Nevada
|
20-5308449
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(IRS
Employer Identification
No.)
|
Av.
Pardo y Aliaga 699 Of. 802
|
||
Lima
27 - Perú
|
None
|
|
(Address
of principal executive offices)
|
(Postal
Code)
|
Registrant’s telephone
number: 011 (511)
212-1880
Securities
registered under Section 12(b) of the Act: None
Securities
registered under Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes o No x
Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Exchange Act. Yes x No o
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Exchange Act during the preceding past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90
days. Yes x No o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a smaller reporting company. See the
definitions of the “large accelerated filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act:
Large
Accelerated Filer o
|
Accelerated
Filer o
|
|
Non-Accelerated
Filer o
|
Smaller
reporting company x
|
|
(Do
not check if a smaller reporting company)
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes x No o
On June
30, 2009, there were 35,050,000 shares of the registrant's common stock, par
value $0.001, issued and outstanding. Of these, 27,850,000 shares
were held by non-affiliates of the registrant. The market value on
June 30, 2009 of those shares held by non-affiliates was $13,925,000, based on
the price of $0.50 per share (split-adjusted) for the registrant’s common stock
which was sold in a private placement that closed initially on September 9,
2008. Shares of common stock held by each officer and director have
been excluded from this calculation because such persons may be deemed to be
affiliates. This determination of officer or affiliate status is not necessarily
a conclusive determination for other purposes
DOCUMENTS
INCORPORATED BY REFERENCE
Not
Applicable.
TABLE
OF CONTENTS
Item Number and Caption
|
Page
|
||
Forward-Looking
Statements
|
3
|
||
PART
I
|
4
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||
1.
|
Business
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4
|
|
1A.
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Risk
Factors
|
8
|
|
1B.
|
Unresolved
Staff Comments
|
8
|
|
2.
|
Properties
|
8
|
|
3.
|
Legal
Proceedings
|
8
|
|
4.
|
Submission
Of Matters To A Vote Of Security Holders
|
9
|
|
PART
II
|
9
|
||
5.
|
Market
For Registrant’s Common Equity, Related Stockholder Matters And Issuer
Purchases Of Equity Securities
|
9
|
|
6.
|
Selected
Financial Data
|
11
|
|
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
11
|
|
8.
|
Financial
Statements and Supplemental Data
|
12
|
|
9A.[T]
|
Controls
And Procedures
|
12
|
|
9B.
|
Other
Information
|
13
|
|
PART
III
|
14
|
||
10.
|
Directors,
Executive Officers, and Corporate Governance
|
14
|
|
11.
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Executive
Compensation
|
18
|
|
12.
|
Security
Ownership Of Certain Beneficial Owners And Management And Related
Stockholder Matters
|
21
|
|
13.
|
Certain
Relationships And Related Transactions and Director
Independence
|
23
|
|
14.
|
Principal
Accountant Fees And Services
|
24
|
|
PART
IV
|
25
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||
15.
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Exhibits
and Financial Statement Schedules
|
25-26
|
2
FORWARD-LOOKING
STATEMENTS
Except
for historical information, this report contains forward-looking
statements. Such forward-looking statements involve risks and
uncertainties, including, among other things, statements regarding our business
strategy, future revenues and anticipated costs and expenses. Such
forward-looking statements include, among others, those statements including the
words “expects,” “anticipates,” “intends,” “believes” and similar
language. Our actual results may differ significantly from those
projected in the forward-looking statements. Factors that might cause
or contribute to such differences include, but are not limited to, those
discussed in the sections “Business” and “Management’s Discussion and Analysis
of Financial Condition and Results of Operations.” You should
carefully review the risks described in this Annual Report and in other
documents we file from time to time with the Securities and Exchange Commission
(the “SEC”). You are cautioned not to place undue reliance on the
forward-looking statements, which speak only as of the date of this
report. We undertake no obligation to publicly release any revisions
to the forward-looking statements or reflect events or circumstances after the
date of this document.
Although
we believe that the expectations reflected in these forward-looking statements
are based on reasonable assumptions, there are a number of risks and
uncertainties that could cause actual results to differ materially from such
forward-looking statements.
All
references in this Form 10-K to “Loreto,” “Loreto Resources,” the “Company,”
“we,” “us” or “our” are to Loreto Resources Corporation and its wholly owned
subsidiaries.
3
PART
I
ITEM
1. BUSINESS
Loreto
Resources Corporation is an exploration stage, growth oriented mineral resource
company engaged in the acquisition, development and production of significant
base and precious metals deposits. We recently changed our focus and are now
primarily seeking mining assets in the gold sector. We previously
were seeking development and production-stage zinc, copper, gold and silver
mining assets.
Our
business objective is to develop a substantial gold mining company with an
initial focus in South America, and particularly in Peru, where we have
established an operating subsidiary with executive offices in Lima.
History
and General Development of Our Business
The
Company was incorporated in the State of Nevada on June 28, 2006 under the name
Loreto Corporation. The Company was formed to design, print, market and sell
greeting cards, wrapping paper, stationery products and collectibles in retail
locations throughout Mexico1 (the “Legacy
Business”).
During
the later part of 2007, we discontinued our Legacy Business and, in mid 2008, we
decided to redirect our business focus and strategy towards identifying and
pursuing business opportunities in the mining sector in South
America. To that end we have taken the following steps:
|
·
|
On
July 3, 2008, Magdalena Cruz, our then President, Chief Executive Officer,
Chief Financial Officer, Treasurer, Secretary and sole member of our Board
of Directors, resigned from her position as director. Ms.
Cruz’s resignation did not result from any disagreement between her and
us.
|
|
·
|
On
July 3, 20082,
we appointed Nadine C. Smith as a director to replace Ms. Cruz and to
serve as Chairman of our Board of
Directors.
|
|
·
|
On
July 3, 20082,
we filed Amended and Restated Articles of Incorporation (the “Restated
Articles”) with the Secretary of State of the State of Nevada which, among
other things, (i) changed our name from Loreto Corporation to Loreto
Resources Corporation, to better reflect our plans to focus our business
strategy on the mining sector in South America, and (ii) increased our
authorized capital stock from 50,000,000 shares of common stock to
300,000,000 shares of common stock (the “Common Stock”), and 10,000,000
shares of preferred stock.
|
2.
|
As
further discussed in our Form 8-K filed with the SEC on July 10,
2008.
|
4
|
·
|
On
July 3, 2008, our Board of Directors and stockholders adopted the Loreto
Resources Corporation 2008 Equity Incentive Plan (the “2008 Plan”) which
reserves a total of 16,000,0003 shares of Common
Stock for issuance under the 2008
Plan.
|
|
·
|
We
have changed the address of our principal executive offices to Av. Pardo y
Aliaga 699 Of. 802, Lima, Peru, and our telephone number to + (511)
212-1880. Our website address is www.loretoresources.com.
|
|
·
|
Effective
July 24, 20084,
our Board of Directors declared a 2 for 1 forward stock split in the form
of a dividend. The record date for the stock dividend was July
18, 2008, and the payment date was July 23,
2008.
|
|
·
|
On
July 21, 20084,
Magdalena Cruz, our then President, Chief Executive Officer, Chief
Financial Officer, Treasurer and Secretary, submitted to us a letter of
resignation from her positions as President and Chief Executive Officer
effective as of that date. Ms. Cruz’s resignation from these
positions did not result from any disagreement between her and
us.
|
|
·
|
On
July 21, 20084,
we entered into an employment agreement with Luis Saenz pursuant to which
Mr. Saenz has served as our President and Chief Executive Officer (“CEO”)
beginning as of that date. Mr. Saenz also became a member of
our Board of Directors as of July 21,
2008.
|
|
·
|
In
September, 2008, we completed the closing of a private placement of
8,100,000 shares of our Common Stock at a price of $0.25 per share
(split-adjusted) pursuant to which we raised $1,980,313 net of offering
expenses.
|
|
·
|
We
established a wholly owned subsidiary organized in the Cayman Islands,
Loreto Resources Corporation – Peru (“Loreto – CI”), to own our planned
operating entities in South
America.
|
|
·
|
We
established an operating subsidiary in Peru as a wholly owned subsidiary
of Loreto - CI, Loreto Resources
Peru S.R.L. Compania Minera (“Loreto – Peru”), and opened and began
staffing our offices in Lima, Peru;
|
|
·
|
Effective
February 2, 20095, our Board of
Directors declared a 2 for 1 forward stock split in the form of a
dividend. The record date for the stock dividend was January
26, 2009, and the payment date was January 30,
2009;
|
|
·
|
On
March 9, 20096,
Magdalena Cruz, our then Chief Financial Officer, Treasurer and Secretary,
submitted to us a letter of resignation from those positions. Ms. Cruz’s
resignation from these positions did not result from any disagreement
between her and us;
|
|
·
|
Effective
March 9, 20096,
we appointed Eric E. Marin as our Interim Chief Financial Officer. Mr.
Marin will serve in this capacity until such time as his replacement is
appointed. On March 9, 2009, our Board of Directors approved
the Company’s acceptance of an engagement letter with Marin Management
Services (“MMS”), of which Mr. Marin is the President, pursuant to which
MMS provided us with internal controls review, financial reports review,
and internal control assessment report
services;
|
3.
|
Adjusted
for the July 24, 2008, February 2, 2009 and January 29, 2010 2 for 1 stock
splits.
|
4.
|
As
further discussed in our Form 8-K filed with the Securities and Exchange
Commission on July 24, 2008.
|
5.
|
As
further discussed in our Form 8-K filed with the Securities and Exchange
Commission on January 29,
2009.
|
6.
|
As
further discussed in our Form 8-K filed with the Securities and Exchange
Commission on March 23,
2009.
|
5
|
·
|
On
January 15, 20107, our Board of
Directors declared an additional 2 for 1 forward stock split in the form
of a dividend. The record date for the stock dividend was
January 25, 2010, the payment date was January 28, 2010 and the “Ex” date
was January 29, 2010; and
|
|
·
|
We
have begun identifying and investigating mining investment opportunities
in various South American
countries.
|
Additionally,
during 2010, we expect to:
|
·
|
Appoint
three to five additional independent director(s) to our Board of
Directors;
|
|
·
|
Hire
geologists and a mining engineer, to form a strong technical team, as well
as additional finance and administrative personnel;
and
|
|
·
|
Enter
into a material agreement to acquire gold mining rights where most
advantageous for the Company. (Although we have not yet
finalized decisions to pursue any particular opportunities, we have begun
to identify and evaluate potential
prospects.)
|
Plan
of Operation
During
the year ended December 31, 2009, we entered into a number of letters of intent
relating to the acquisition of various mining properties in Peru and other South
American countries. For commercial reasons, we decided not to pursue
any of the acquisitions proposed in these letters.
We plan
to build a substantial gold mining company focused in select countries around
the world, with a preliminary focus in South America. We will concentrate our
efforts initially in South America, where, we believe, good gold mining
opportunities exist. At the same time, we will not preclude investing in one or
more gold mining opportunities in other countries around the world if we deem
the relevant considerations merit our investment. We plan to focus on gold
mining opportunities through a variety of transactions.
7.
|
As
further discussed in our Form 8-K filed with the Securities and Exchange
Commission on January 28,
2010.
|
6
Our
strategy is to own and operate assets at various stages of the mining life cycle
ranging from exploration to production. Our initial plan is to
acquire producing mining operations. Mining activity in South America
has been very active historically and the current volatile market conditions may
present us with opportunities. We seek to be opportunistic due to these market
conditions and to acquire mining assets with positive cash flow. We
are actively identifying and evaluating potential acquisitions of mining assets
in Peru and throughout South America, generally, although we have not yet
finalized decisions to pursue any such particular opportunities.
Our
management currently consists of our Chief Executive Officer, Luis F. Saenz, who
has more than 18 years in the mining industry, and a number of professional
advisors. Mr. Saenz is building our management team and has hired a
number of consultants with technical, managerial and financial skills in the
mining sector. Management is overseen by our Board of Directors
currently comprised of Mr. Saenz and our Chairman, Nadine C. Smith, who has more
than 20 years experience working with development stage public companies in
various industries, including the oil and gas exploration and production sector
in South America. During this year, we expect to add additional
persons to our Board of Directors and additional management personnel with the
backgrounds and relationships necessary to assist us in achieving our goals and
objectives.
Competition
The
mining industry is highly competitive. We face competition from both local and
international companies in matters such as acquiring and developing metal
deposits and mining operations and securing trained personnel. Many of these
competitors have financial and technical resources that exceed ours, and we
believe that these companies have a competitive advantage in these areas. Others
are smaller, and we believe our technical and managerial capabilities give us a
competitive advantage over those companies.
Sustainability
and Environment
Loreto
Resources is committed to being a socially and environmentally responsible
company. We plan to do our best to minimize all impact on the environment and
local communities in order to harvest sustainability for future generations.
Additionally, we will strive to improve every aspect of performance and meet all
reasonable community expectations in order to stimulate local economies and to
ensure that benefits and opportunities from our future expected operations flow
into such communities. For Loreto Resources, protecting the environment and
maintaining respectful relationships with local communities is held as a core
value.
Because
we have not begun any exploration or mining activities, we are not subject to
any environmental laws or regulations at this time.
Research
and Development
We have
not spent any amounts on research and development activities during either of
the last two fiscal years.
7
Employees
As of
April 15, 2010 our only full time employees were our sole executive officer and
one administrative assistant. We also employ two independent
consultants on a part time basis.
Expected
Split-Off of Legacy Business
In
connection with the discontinuation of our Legacy Business and the redirecting
of our business strategy to focus on mining opportunities in South America, we
have decided to split off and sell all of the assets and liabilities of the
Legacy Business (the “Split-Off”) to Magdalena Cruz, our founding
stockholder. The Split Off is expected to close sometime during 2010.
We will contribute all of the assets and liabilities relating to the Legacy
Business, whether accrued, contingent or otherwise, and whether known or
unknown, to a newly organized, wholly owned subsidiary (“Split-Off Sub”), and
immediately thereafter will sell all of the outstanding capital stock of
Split-Off Sub to Ms. Cruz in exchange for the 20,000,000 (post-January 2010
stock split) shares of our Common Stock previously surrendered by Ms. Cruz, all
of our Common Stock that Ms. Cruz currently owns, 24,000,000 (post-January 2010
stock split) shares, and the forgiveness by Ms. Cruz (which was effected as
of June 30, 2008) of the $13,200 in loans she previously granted to
us. It is expected that Ms. Cruz will indemnify us and our officers
and directors against any third party claims relating to the Legacy
Business. It is expected that Split-Off Sub and Ms. Cruz will also agree to
release us and our officers, directors, stockholders, employees and agents from
all liabilities incurred by Split-Off Sub or Ms. Cruz arising from, relating to,
or in any way connected with, any fact, event, transaction, action or omission
that occurred or failed to occur on or prior to the closing date of the
Split-Off. Following the Split-Off, Ms. Cruz will no longer be one of
our stockholders.
ITEM
1A. RISK FACTORS
Because we are a “smaller reporting
company” as that term is defined by the SEC, we are not required to present risk
factors at this time.
ITEM
1B. UNRESOLVED STAFF COMMENTS
None.
ITEM
2. PROPERTIES
We currently rent approximately 1,600
square feet of executive office space in Lima, Peru.
ITEM
3. LEGAL PROCEEDINGS
No legal or governmental proceedings
are presently pending or, to our knowledge, threatened, to which we are a
party.
8
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
No
matters were submitted to a vote of security holders, through the solicitation
of proxies or otherwise, during the fourth quarter of the fiscal year covered by
this report.
PART
II
ITEM
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
|
Our
Common Stock is currently listed on the OTC Bulletin Board under the symbol
“LRTC.OB”.
For the
period from April 30, 2007 to December 31, 2009, the table sets forth the high
and low closing bid prices based upon information obtained from inter-dealer
quotations on the OTC Bulletin Board without retail markup, markdown, or
commission and may not necessarily represent actual
transactions. Although our Common Stock was approved for listing on
the OTC Bulletin Board on May 2, 2007, there has been minimal trading to
date:
Fiscal
Year Ended December 31, 2009
|
||||||||
Quarter
Ended
|
High Bid
|
Low Bid
|
||||||
January
2, 2009 through January 30, 2009
|
$ | 0.07 | $ | 0.07 | ||||
February
2, 2009 through March 31, 2009 (1)
|
$ | 0.05 | $ | 0.05 | ||||
June
30, 2009
|
$ | None | $ | None | ||||
September
30, 2009
|
$ | None | $ | None | ||||
December
31, 2009
|
$ | 0.40 | $ | 0.40 |
Fiscal
Year Ended December 31, 2008
|
||||||||
Quarter
Ended
|
High Bid
|
Low Bid
|
||||||
March
31, 2008
|
$ | 0.05 | $ | 0.05 | ||||
June
30, 2008
|
$ | 0.05 | $ | 0.05 | ||||
July
1, 2008 through July 23, 2008
|
$ | 0.05 | $ | 0.05 | ||||
July
24, 2008 through September 28, 2008 (2)
|
$ | 0.07 | $ | 0.07 | ||||
December
31, 2008
|
$ | 0.07 | $ | 0.07 |
(1)
|
Pricing
from February 2, 2009 reflects the January 2009 2:1 forward stock
split.
|
(2)
|
Pricing
from July 24, 2008 reflects the July 2008 2:1 forward stock
split.
|
9
Because
our Common Stock is thinly traded, bid information on our Common Stock does not
necessarily represent its fair market value.
Holders
As of
April 15, 2010, we had 70,100,000 shares of our Common Stock issued and
outstanding held by 11 shareholders of record.
Securities
Authorized For Issuance Under Equity Compensation Plans
On July
3, 2008, our Board of Directors and stockholders adopted the 2008 Plan which
reserves a total of 16,000,0008 shares
of Common Stock for issuance under the 2008 Plan. If an incentive
award granted under the 2008 Plan expires, terminates, is unexercised or is
forfeited, or if any shares are surrendered to us in connection with an
incentive award, the shares subject to such award and the surrendered shares
will become available for further awards under the 2008 Plan. As of December 31,
2008, we had granted two awards under the 2008 Plan to our employees,
exercisable for 6,320,000 shares of our Common Stock at an exercise price of
$0.25 per share (number of shares and exercise price adjusted for February 2009
and January 2010 stock splits), vesting in three equal annual installments
beginning in 2009.
Dividends
We have
never declared any cash dividends with respect to our Common
Stock. Future payment of dividends is within the discretion of our
board of directors and will depend on our earnings, capital requirements,
financial condition and other relevant factors. Although there are no
material restrictions limiting, or that are likely to limit, our ability to pay
dividends on our Common Stock, we presently intend to retain future earnings, if
any, for use in our business and have no present intention to pay cash dividends
on our Common Stock.
Recent
Sales of Unregistered Securities
On
September 17, 2008, we completed our private placement of our Common Stock (the
“Private Placement”). We completed an initial closing of the Private
Placement on September 9, 2008. We offered the shares of Common Stock
in the Private Placement at a price of $0.25 per share9. We received proceeds of
$1,980,313, net of offering costs of $44,687 from the sale of 8,100,000 shares
of our Common Stock in the Private Placement. The Private Placement
was conducted pursuant to the exemption from the registration requirements of
the federal securities laws provided by Regulation D and Regulation S
promulgated under the Securities Act of 1933, as amended (the “Securities Act”),
and Section 4(2) of the Securities Act. The Common Stock was offered and sold
only to “accredited investors,” as that term is defined by Rule 501 of
Regulation D, and/or to persons who were neither resident in, nor citizens of,
the United States. No commissions were paid in connection with the Private
Placement. The shares of Common Stock sold in the Private Placement carry
“piggyback” registration rights.
9.
|
Number
of shares and price per share have been adjusted for February 2009 and
January 2010 stock
splits.
|
10
On
February 7, 2008, we received a $50,000 investment from an investor for the sale
of 2,000,000 shares of our Common Stock at a price of $0.025 per
share.
In July
2007 we issued 24,000,000 shares of our Common Stock to Magdalena Cruz in
consideration of her services as our then President, Chief Executive Officer,
Chief Financial Officer and sole director, in the amount of $0.0001875 per share
for a total value of $4,500. The issuance of these shares to Ms. Cruz was exempt
from the registration requirements of the Securities Act of 1933, as amended
(the “Securities Act”) pursuant to Section 4(2) of the Securities Act as a
transaction not involving a public offering. The certificate evidencing the
shares bears a legend restricting its transfer.
ITEM
6. SELECTED FINANCIAL DATA
Not
applicable.
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion highlights the principal factors that have affected our
financial condition and results of operations as well as our liquidity and
capital resources for the periods described. This discussion contains
forward-looking statements. Please see “Forward-Looking Statements” for a
discussion of the uncertainties, risks and assumptions associated with these
forward-looking statements.
The
following discussion and analysis of the Company’s financial condition and
results of operations are based on the preparation of our financial statements
in accordance with U.S. generally accepted accounting principles. You
should read the discussion and analysis together with such financial statements
and the related notes thereto.
Results
of Operations
Fiscal
year Ended December 31, 2009 and 2008
We are
still in our exploration stage and have generated no revenues to
date.
We
incurred operating expenses of $2,048,527 and $705,220 for the years ended
December 31, 2009 and 2008, respectively. These expenses consisted of general
operating expenses incurred in connection with the day to day operation of our
business and the preparation and filing of our periodic reports.
Our net
losses for years ended December 31, 2009 and 2008 were $2,045,633 and $699,020,
respectively.
We have
generated no revenues and our net operating loss from inception through December
31, 2009 was $2,789,048.
11
Liquidity
and Capital Resources
Our cash
and cash equivalents balance as of December 31, 2009 was $148,013.
The
Private Placement
On
September 17, 2008, we completed the Private Placement of our Common Stock for
net proceeds to us of $1,980,313. We have used the proceeds of the Private
Placement for working capital purposes.
We presently do not have any available
credit, bank financing or other external sources of liquidity, other than the
remaining net proceeds from the Private Placement. Due to our brief history and
historical operating losses, our operations have not been a source of liquidity.
We believe that, at our current level of operation, we have sufficient cash to
meet our expenses for the next nine to twelve months. However, we
expect that we will need to obtain additional capital in order to execute our
business plan, build our operations and become profitable. In order to obtain
capital, we may need to sell additional shares of our Common Stock or debt
securities, or borrow funds from private lenders or banking institutions. We
have not made any decisions with respect to any such financing. There
can be no assurance that we will be successful in obtaining additional funding
in amounts or on terms acceptable to us, if at all. If we are unable
to raise additional funding as necessary, we may have to suspend our operations
temporarily or cease operations entirely.
Our
auditors have included an explanatory paragraph in their report on our
consolidated financial statements relating to the uncertainty of our business as
a going concern, due to our limited
operating history, our lack of historical profitability, and our limited funds.
We believe that we will be able to raise the required funds for operations and
to achieve our business plan.
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTAL
DATA
Our
audited financial statements are included beginning immediately following the
signature page to this report. See Item 15 for a list of the
financial statements included herein.
ITEM
9A.[T] CONTROLS AND PROCEDURES
Disclosure
Controls and Procedures
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 of 1934 (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
disclosure. It should be noted that the design of any system of controls is
based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions, regardless of how
remote. Under the supervision and with the participation of our
management, including our Chief Executive Officer and interim Chief Financial
Officer, we have evaluated the effectiveness of our disclosure controls and
procedures as required by Exchange Act Rule 13a-15(b) as of the end of the
period covered by this report. Based on that evaluation, our Chief Executive
Officer and Chief Financial Officer has concluded that our disclosure controls
and procedures were effective.
12
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 such term is defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act, for the Company. As of the end of
the period covered by this Annual Report, we carried out an evaluation, under
the supervision and with the participation of our Chief Executive and interim
Chief Financial Officer, of the effectiveness of the design and operation of our
internal control over financial reporting. The Company's management based its
evaluation on criteria set forth in the framework in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on that assessment, management has concluded that the
Company's internal control over financial reporting was effective as of December
31, 2009.
This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission (the “SEC”) that permit us to provide only management’s report in
this annual report
Changes
in Internal Control over Financial Reporting
There
were no changes in our internal control over financial reporting during the year
ended December 31, 2009 that have materially affected, or are reasonably likely
to materially affect, our internal control over financial
reporting.
Officers’
Certifications
Appearing
as exhibits to this Annual Report are “Certifications” of our Chief Executive
Officer and Interim Chief Financial Officer. The Certifications are
required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (the “Section
302 Certifications”). This section of the Annual Report contains
information concerning the Controls Evaluation referred to in the Section 302
Certification. This information should be read in conjunction with
the Section 302 Certifications for a more complete understanding of the topics
presented.
ITEM
9B. OTHER INFORMATION
Not
applicable.
13
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE
GOVERNANCE
Executive
Officers and Directors
Below are
the names and certain information regarding the Company’s current executive
officers and directors:
Name
|
Age
|
Title
|
Date First Appointed
|
|||
Nadine C.
Smith
|
52
|
Director
and Chairman of the Board
|
July
3, 2008
|
|||
Luis
F. Saenz
|
39
|
President,
Chief Executive Officer and Director
|
July
21, 2008
|
|||
Eric
E. Marin
|
|
48
|
|
Interim
Chief Financial Officer
|
|
March
9, 2009
|
Directors
are elected to serve until the next annual meeting of stockholders and until
their successors are elected and qualified.
Currently,
directors are not compensated for their services, although their expenses in
attending meetings may be reimbursed. Officers are elected by the Board of
Directors and serve until their successors are appointed by the Board of
Directors. Biographical resumes of each officer and director are set forth
below.
Certain
biographical information of our directors and officers:
Nadine
C. Smith
Ms. Smith
has been a private investor and business consultant since 1990. Ms. Smith is
currently the Chairperson, Vice President and Interim Chief Financial Officer of
La Cortez Energy, Inc., a publicly held independent international energy company
involved in oil and natural gas exploration in South America. Ms. Smith is
currently also a member of the Board of Directors of the public company WaferGen
Bio-Systems, Inc. and has previously served as a director of Gran Tierra Energy,
Inc., Patterson-UTI Energy Inc. and American Retirement Corporation, all public
companies.
Luis
F. Saenz
Mr. Saenz
was most recently employed at Standard Bank ("Standard") with Standard's
investment banking unit, Standard Americas, Inc. Mr. Saenz joined
Standard in New York in 1997 and relocated to Peru in 1998 to establish
Standard's Peru representative office. While in Peru, he led Standard's mining
and metals origination effort in the Latin America region. He recently returned
to New York to head Standard's mining and metals team in the Americas. He
previously worked for Pechiney World Trade in the base metals trading area
before joining Merrill Lynch as Vice-President for Commodities in Latin
America. Mr. Saenz graduated from Franklin and Marshall College in
1991 with a Bachelor of Arts degree in economics and international
affairs.
14
Mr. Saenz
is also currently the Chief Executive Officer of Li3 Energy, Inc. (OTCBB:LIEG),
an early stage, U.S. public company currently pursuing a business strategy in
the lithium brine mining and energy sector in the Americas.
Eric
E. Marin
Since
March of 2009, Mr. Eric E. Marin has been the interim chief financial officer of
Loreto Resources Corporation. Mr. Marin is also the interim chief
financial officer of Li3 Energy, Inc. (OTCBB: LIEG). Mr. Marin is the
president of Marin Management Services, a privately-held consultancy firm
offering management, financial, and information technology consulting services
to companies. From April 2006 to April 2009, Mr. Marin was a vice
president of Quorum Business Solutions where he was responsible for building and
managing client relations and overseeing operational budget, strategic planning,
business development and organizational leadership services for various Fortune
500 companies. Prior to that, from December 2003 through March 2006, Mr.
Marin was the president and founder of Marin Medical Services LLC, a company
providing front and back-office services to the healthcare industry. From
April 1996 to November 2003, Mr. Marin was a partner with Accenture Ltd. where
Mr. Marin was responsible for providing management and IT consulting services to
Fortune 100 companies. From February 1994 to April 1996, Mr. Marin was
project manager of Insource Management Group, where he managed IT consulting
services for a number of companies. Mr. Marin received a Masters of
Business Administration degree from the University of Houston in 1992, and a
Bachelor of Science degree in Computer Science from Texas A&M University in
1986.
Our
President and Chief Executive Officer, Luis F. Saenz, currently serves as the
Chief Executive Officer of another publicly traded company – Li3 Energy, Inc. –
and our Interim Chief Financial Officer, Eric E. Marin, currently serves as the
Interim Chief Financial Officer of that same company. Accordingly,
these officers are only able to devote a portion of their time to our
activities. This may make it more difficult for our management to
respond quickly and completely to challenges and opportunities that we may
encounter, may limit our ability to timely consummate strategic transactions and
may have an adverse effect on our results of operations.
Employment
Agreements with Executive Officers
Luis
F. Saenz
We have
entered into an employment agreement effective as of July 21, 2008 (the
“Employment Agreement”) with Luis F. Saenz pursuant to which Mr. Saenz was
appointed as our President and Chief Executive Officer, with the following
terms:
Mr. Saenz’s
base annual compensation has been set at $250,000, which amount shall be paid in
accordance with our customary payroll practices and may be increased annually at
the discretion of the Board. This annual compensation shall be paid in equal
monthly installments in Peruvian Nuevo Sols (“PEN”). The exchange rate used to
calculate Mr. Saenz’s monthly salary payment will be calculated each month and
shall neither exceed a maximum of PEN 2.9 nor be less than a minimum of PEN 2.5.
This minimum/maximum range will be adjusted at the end of each calendar year
based upon changes in the consumer price index in Peru.
In
addition, Mr. Saenz is eligible to receive an annual cash bonus of up to fifty
percent (50%) of his applicable base salary. Mr. Saenz’s annual bonus (if any)
shall be in such amount (up to the limit stated above) as the Board may
determine in its sole discretion, based upon Mr. Saenz’s achievement of certain
performance milestones to be established annually by the Board in discussion
with Mr. Saenz (the “Milestones”). For the years of employment ended December
31, 2008 and 2009, Mr. Saenz did not receive a bonus.
15
We also
agreed to reimburse Mr. Saenz for his reasonable costs relating to his
relocation to Lima Peru not to exceed a maximum of $20,000. We paid
Mr. Saenz approximately $13,750 for these reimbursed
expenses.
On July
21, 2008, we granted Mr. Saenz an option to purchase an aggregate of 6,200,000
shares (forward split adjusted) of our Common Stock under our 2008 Equity
Incentive Plan. This option vests in three equal annual installments beginning
on July 21, 2009 and is exercisable at $0.25 per share (forward split adjusted),
a price equal to the fair market value per share of our Common Stock on the date
hereof as reasonably determined by our Board.
The
initial term of the Employment Agreement expired on July 21, 2009; provided,
however, that the Employment Agreement will automatically renews for additional
one (1) year terms thereafter, unless either party provides notice to the
other party of its intent not to renew such Employment Agreement not less than
thirty (30) days prior to the expiration of the then-current term or unless
the Employment Agreement is terminated earlier in accordance with its
terms.
In the
event of a termination of employment “without cause” (as defined in the
Employment Agreement) by the Company during the first 12 months following July
21, 2008, Mr. Saenz would have been entitled to receive: (i) twelve
(12) months of his base salary; plus (ii) to the extent the Milestones
were achieved or, in the absence of Milestones, the Board had, in its sole
discretion, otherwise determined an amount for Mr. Saenz’s bonus for the initial
12 months of his employment, a pro rata portion of his annual bonus for the
initial 12 months of his employment, to be paid to him on the date such annual
bonus would have been payable to him had he remained employed by the Company;
plus (iii) any other accrued compensation and Benefits (as defined in the
Employment Agreement). In the event of a termination of employment by Mr. Saenz
for “good reason” (as defined in the Employment Agreement), Mr. Saenz shall
receive: (i) twelve (12) months of his then in effect base salary,
subject to his compliance with the non-competition, non-solicitation and
confidentiality provisions of the Employment Agreement and subject to reduction
to the extent of any compensation earned by Mr. Saenz during the 12 month
severance period. All of the foregoing shall be payable in accordance with the
Company’s customary payroll practices then in effect.
Further,
in the event of the termination of Mr. Saenz’s employment in connection with a
Change of Control (as defined in the Employment Agreement), without cause by the
Company within 12 months of July 21, 2008 (which event did not take plance), or
by Mr. Saenz at any time for good reason, any options then held by Mr. Saenz
that have not already vested in accordance with their terms shall immediately
vest and become exercisable as of the date of such termination and Mr. Saenz
shall have six (6) months from the date of termination to exercise any or
all such options.
16
The
Employment Agreement also provides that Mr. Saenz shall not: (i) during his
employment and for a period of one (1) year following the termination of
his employment, unless such employment is terminated by us for cause or by him
for no reason, directly or indirectly engage or invest in, own, manage, operate,
finance, control or participate in the ownership, management, operation,
financing, or control of, be employed by, associated with, or in any manner
connected with, lend any credit to, or render services or advice to, any
business, firm, corporation, partnership, association, joint venture or other
entity that engages or conducts any business the same as or substantially
similar to the business or currently proposed to be engaged in or conducted by
the Company and/or any of its affiliates, including its planned Peru subsidiary,
in South America or included in the future strategic plan of the business of the
Company, anywhere within the United States of America or South America; provided, however, that Mr.
Saenz may own less than 5% of the outstanding shares of any class of securities
of any enterprise (but without otherwise participating in the activities of such
enterprise) including those engaged in the mining business, other than any such
enterprise with which the Company competes or is currently engaged in a joint
venture, if such securities are listed on any national or regional securities
exchange or have been registered under Section 12(g) of the Securities Exchange
Act of 1934, as amended; and provided, further, that solely
with the prior approval of the Company, the Executive may participate in the
activities of an enterprise in the commercial banking industry or mining
consultancy business; (ii) during his employment and for a period of one
(1) year following the termination of his employment, solicit any of our
current and/or future employees to leave our employ, or solicit or attempt to
take away any customers of the Company or any of our affiliates; or
(iii) during his employment and thereafter, disclose, directly or
indirectly, any confidential information of the Company to any third party,
except as may be required by applicable law or court order, in which case the
executive must promptly notify the Company so as to allow us to seek a
protective order if the Company so elects.
The
employment agreement with Mr. Saenz including its terms of compensation were
negotiated in an arm’s length transaction between Mr. Saenz and us and was
approved by Ms. Smith our Chairman and sole director at the time of Mr. Saenz’s
hire.
Eric
E. Marin
As of
March 9, 2009, we hired Mr. Marin as our Interim Chief Executive Officer
pursuant to an engagement letter dated March 3, 2009, on an independent
contractor basis. In accordance with his engagement letter, we are
paying Mr. Marin for his services to us on an hourly basis at the rate of $200
per hour.
Board
Committees
The
Company currently has not established any committees of the Board of Directors.
Our Board of Directors may designate from among its members an executive
committee and one or more other committees in the future. We do not
have a nominating committee or a nominating committee
charter. Further, we do not have a policy with regard to the
consideration of any director candidates recommended by security
holders. To date, no security holders have made any such
recommendations. Our two directors perform all functions that would
otherwise be performed by committees. Given the present size of our
board it is not practical for us to have committees. If we are able
to grow our business and increase our operations, we intend to expand the size
of our board and allocate responsibilities accordingly.
17
Shareholder
Communications
Currently,
we do not have a policy with regard to the consideration of any director
candidates recommended by security holders. To date, no security
holders have made any such recommendations.
Code
of Ethics
We have
adopted a written code of ethics (the “Code of Ethics”) that applies to our
principal executive officer, principal financial officer, principal accounting
officer or controller, and persons performing similar functions. We believe that
the 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. To request a copy of the Code of Ethics, please make
written request to our President at Av. Pardo y Aliaga 699 Of. 802, Lima 27 -
Perú.
Compliance
with Section 16(a) of the Exchange Act
Our
common stock is not registered pursuant to Section 12 of the Exchange
Act. Accordingly, our officers, directors and principal shareholders
are not subject to the beneficial ownership reporting requirements of Section
16(a) of the Exchange Act.
ITEM
11. EXECUTIVE COMPENSATION
The
following table sets forth information concerning the total compensation paid or
accrued by us during the last two fiscal years ended December 31, 2009 to (i)
all individuals that served as our principal executive officer or acted in a
similar capacity for us at any time during the fiscal year ended December 31,
2009; (ii) all individuals that served as our principal financial officer or
acted in a similar capacity for us at any time during the fiscal year ended
November 30, 2009; and (iii) all individuals that served as executive officers
of ours at any time during the fiscal year ended December 31, 2009 that received
annual compensation during the fiscal year ended December 31, 2009 in excess of
$100,000.
18
Summary
Compensation Table
Name and
Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-
Equity
Incentive
Plan
Compen-
sation ($)
|
Change
in
Pension
Value
and Non-
qualified
Deferred
Compen-
sation
Earnings
($)
|
All Other
Compensation
($)
|
Total ($)
|
|||||||||||||||||||||||||
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
|||||||||||||||||||||||||
Luis
F. Saenz, Chief Executive Officer
|
2008
|
104,165 | 0 | 0 | 181,612 | 0 | 0 | 0 | 285,777 | |||||||||||||||||||||||||
2009
|
250,000 | 0 | 0 | 421,724 | 0 | 0 | 0 | 671,724 |
We have
not issued any stock options or maintained any stock option or other incentive
plans other than our 2008 Plan. (See “Item 5. Market for Common Equity and
Related Stockholder Matters – Securities Authorized for Issuance Under Equity
Compensation Plans” above.) We have no other plans in place and have never
maintained any plans that provide for the payment of retirement benefits or
benefits that will be paid primarily following retirement including, but not
limited to, tax qualified deferred benefit plans, supplemental executive
retirement plans, tax-qualified deferred contribution plans and nonqualified
deferred contribution plans.
Outstanding
Equity Awards at Fiscal Year-End
The
following table sets forth information regarding stock options held by the
Company's Named Executive Officers at December 31, 2009.
Option awards
|
||||||||||||||||||
Name and
Principal Position
|
Number of
securities
underlying
unexercised
options
exercisable
(#)
|
Number of
securities
underlying
unexercised
options
unexercisable
(#)
|
Equity
incentive
plan
awards:
Number of
securities
underlying
unexercised
unearned
options
(#)
|
Option
plan
exercise
price
($)
|
Option
expiration
date
|
|||||||||||||
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
|||||||||||||
Luis
F. Saenz, Chief Executive Officer
|
2,066,668 | 4,133,336 | 4,133,336 | $ | 0.25 |
July 20, 2018
|
There
were no stock awards to executive officers during the year ended December 31,
2009, and there are no stock awards outstanding as of December 31,
2009.
19
Equity Compensation Plan
Information
The
following table sets forth information about the Company’s equity compensation
plans as of December 31, 2009:
Plan Category
|
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
|
Number of securities
remaining available
for future issuance
under equity
compensation plans
|
|||||||||
Equity
compensation plans approved by security holders
|
6,960,000 | $ | 0.25 | 9,040,000 | ||||||||
Equity
compensation plans not approved by security holders
|
- | - | - | |||||||||
Total
|
6,960,000 | $ | 0.25 | 9,040,000 |
Compensation
of Directors
Except as
indicated above, none of our directors receives any compensation for serving as
such, for serving on committees (if any) of the board of directors or for
special assignments. During the fiscal year ended December 31, 2009 there were
no other arrangements between us and our directors that resulted in our making
payments to any of our directors for any services provided to us by them as
directors.
20
ITEM
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
The
following table sets forth information with respect to the beneficial ownership
of our common stock known by us as of April 15, 2010 by:
|
·
|
each
person or entity known by us to be the beneficial owner of more than 5% of
our common stock;
|
|
·
|
each
of our directors;
|
|
·
|
each
of our executive officers; and
|
|
·
|
all
of our directors and executive officers as a
group.
|
Except as
otherwise indicated, the persons listed below have sole voting and investment
power with respect to all shares of our common stock owned by them, except to
the extent such power may be shared with a spouse.
NAME OF OWNER
|
TITLE OF
CLASS
|
NUMBER OF
SHARES OWNED (1)
|
PERCENTAGE OF
COMMON STOCK (2)
|
|||||||
Nadine
C. Smith
6830
Elm Street
McLean,
VA 22101
|
Common
Stock
|
5,020,000 | 7.16 | % | ||||||
Luis
F. Saenz (3)
|
Common
Stock
|
2,446,667 | 3.42 | % | ||||||
Eric
E. Marin
|
Common
Stock
|
- 0 - | 0.00 | % | ||||||
All
Officers and Directors
|
Common
Stock
|
7,486,667 | 10.58 | % | ||||||
As
a Group (3 persons)
|
||||||||||
Magdalena
Cruz
|
Common
Stock
|
24,000,000 | 34.24 | % | ||||||
47395
Monroe Street, #274
|
||||||||||
Indio,
CA 92201
|
||||||||||
Aton
Select Fund
|
Common
Stock
|
6,000,000 | 8.56 | % | ||||||
3076
Sir Francis Drake's Highway
Raod
Town, Tortola
British
Virgin Islands
|
||||||||||
Adrien
Ellel
|
Common
Stock
|
5,000,000 | 7.13 | % | ||||||
SOHO
Square
21
Lyndhurst Terrace
Central,
Hong Kong
Hong
Kong SAR
|
||||||||||
Laffin
Ventures Corporation
|
Common
Stock
|
5,000,000 | 7.13 | % | ||||||
c/o
Gottbetter & Partners, LLP
488
Madison Avenue, 12th Floor
New
York, NY 10022
|
||||||||||
Paramount
Strategy Corp.
|
Common
Stock
|
5,000,000 | 7.13 | % | ||||||
PO
BOX 802
West
Bay
Cayman
Islands
KYI-1303
|
||||||||||
Affaires
Financieres
|
Common
Stock
|
4,000,000 | 5.71 | % | ||||||
Nuschelerstrasse
44
8001
Zurich
Switzerland
|
||||||||||
TangoCorp,
Inc.
|
Common
Stock
|
4,000,000 | 5.71 | % | ||||||
802
Grand Pavilion
PO
Box 10335 APO
West
Bay Rd
Grand
Cayman, Cayman Islands
|
21
(1)
|
Beneficial
Ownership is determined in accordance with the rules of the SEC and
generally includes voting or investment power with respect to securities.
Shares of common stock subject to options or warrants currently
exercisable or convertible, or exercisable or convertible within 60 days
of April 15, 2010 are deemed outstanding for computing the percentage of
the person holding such option or warrant but are not deemed outstanding
for computing the percentage of any other
person.
|
(2)
|
Percentage
based upon 70,100,000 shares of common stock outstanding as of April
15, 2010.
|
(3)
|
Includes
2,066,667 shares of Common Stock issuable upon the exercise of options
granted to Mr. Saenz as part of his employment agreement. Does
not include 4,133,333 shares of Common Stock issuable upon the exercise of
options granted to Mr. Saenz as part of his employment
agreement. These options vest in two equal annual installments
beginning on July 21, 2010.
|
Securities
Authorized for Issuance Under Equity Compensation Plans
On July
3, 2008, our Board of Directors and stockholders adopted the 2008 Plan which
reserves a total of 16,000,00010 shares of Common Stock
for issuance under the 2008 Plan. If an incentive award granted under
the 2008 Plan expires, terminates, is unexercised or is forfeited, or if any
shares are surrendered to us in connection with an incentive award, the shares
subject to such award and the surrendered shares will become available for
further awards under the 2008 Plan. As of the date hereof, we have granted
awards under the 2008 Plan to our Chief Executive Officer.
10. Adjusted
for the July 24, 2008, February 2, 2009 and January 28, 2010 two for one stock
splits.
22
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, ANDDIRECTOR
INDEPENDENCE
|
As of
December 31, 2007, Magdalena Cruz, our then sole officer and director, had
loaned us $13,200 with no specific terms of repayment and no interest. As
of June 30, 2008, Ms. Cruz had forgiven the $13,200 in loans she granted
the Company, with no interest or penalties, as partial consideration for the
prospective Split-Off to Ms. Cruz of the Legacy Business formerly operated by
Ms. Cruz. Additionally, Ms. Cruz agreed to the cancellation on July
18, 2008, of 5,000,000 (40,000,000 shares on a post-split basis) shares of
restricted Common Stock held by her, as additional consideration towards the
Split-Off.
In July
2007, we issued 24,000,000 shares of our Common Stock to Magdalena Cruz in
consideration of her services as our then President, Chief Executive Officer,
Chief Financial Officer and sole director, in the amount of $0.0001875 per share
for a total value of $4,500. See “Item 5. - Recent Sales of Unregistered
Securities” above.
Nadine C.
Smith, our Chairman, purchased 2,000,000 shares of our Common Stock in the
Private Placement for $500,000. Ms. Smith owns an additional
3,020,000 shares of our Common Stock. Luis F. Saenz, our President
and Chief Executive Officer, purchased 400,000 shares of our Common Stock in the
Private Placement for $100,000. For a discussion of the Private
Placement, see “Item 5. - Recent Sales of Unregistered Securities”
above.
Director
Independence
We are
not currently subject to listing requirements of any national securities
exchange or inter-dealer quotation system which has requirements that a majority
of the board of directors be “independent” and, as a result, we are not at this
time required to (and we do not) have our Board of Directors comprised of a
majority of “Independent Directors.”
Our Board of Directors has considered
the independence of its directors in reference to the definition of “independent
director” established by the Nasdaq Marketplace Rule 5605(a)(2). In
doing so, the Board of Directors has reviewed all commercial and other
relationships of each director in making its determination as to the
independence of its directors. After such review, the Board of
Directors has determined that Ms. Smith qualifies as independent under the
requirements of the Nasdaq listing standards.
23
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit
Fees.
The
aggregate fees billed to us by our principal accountant for services rendered
during the fiscal years ended December 31, 2009 and 2008 are set forth in the
table below:
Fee Category
|
Fiscal year ended
December 31, 2009
|
Fiscal year ended
December 31, 2008
|
||||||
Audit
fees (1)
|
$ | 22,070 | $ | 15,400 | ||||
Audit-related
fees (2)
|
- | 750 | ||||||
Tax
fees (3)
|
- | - | ||||||
All
other fees (4)
|
- | - | ||||||
Total
fees
|
$ | 22,070 | $ | 16,150 |
(1)
|
Audit
fees consists of fees incurred for professional services rendered for the
audit of consolidated financial statements, for reviews of our interim
consolidated financial statements included in our quarterly reports on
Form 10-Q and for services that are normally provided in connection with
statutory or regulatory filings or
engagements.
|
(2)
|
Audit-related
fees consists of fees billed for professional services that are reasonably
related to the performance of the audit or review of our consolidated
financial statements, but are not reported under “Audit
fees.”
|
(3)
|
Tax
fees consists of fees billed for professional services relating to tax
compliance, tax planning, and tax
advice.
|
(4)
|
All
other fees consists of fees billed for all other
services.
|
Audit Committee’s
Pre-Approval Practice.
We do not
have an audit committee. Our board of directors performs the function
of an audit committee. Section 10A(i) of the Securities Exchange Act
of 1934, as amended, prohibits our auditors from performing audit services for
us as well as any services not considered to be audit services unless such
services are pre-approved by our audit committee or, in cases where no such
committee exists, by our board of directors (in lieu of an audit committee) or
unless the services meet certain de minimis standards.
24
PART
IV
ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Financial
Statement Schedules
The
consolidated financial statements of Loreto Resources Corporation are listed on
the Index to Financial Statements on this annual report on Form 10-K beginning
on page F-1.
Exhibits
The
following Exhibits are being filed with this Annual Report on Form
10-K:
Exhibit
No.
|
SEC Report
Reference Number
|
Description
|
||
3.1
|
3.1
|
Amended
and Restated Articles of Incorporation of Registrant as filed with the
Nevada Secretary of State on July 3, 2008 (1)
|
||
3.2
|
3.2
|
By-Laws
of Registrant (2)
|
||
10.1
|
10.1
|
Employment
Agreement dated July 21, 2008 by and between Loreto Resources Corporation
and Luis F. Saenz (3)
|
||
10.2
|
10.2
|
Stock
Option Agreement dated July 21, 2008 between Loreto Resources Corporation
and Luis F. Saenz (3)
|
||
10.3
|
10.1
|
Form
of Subscription Agreement (4)
|
||
10.4
|
10.4
|
2008
Equity Incentive Plan (5)
|
||
14.1
|
14
|
Code
of Ethics (6)
|
||
21
|
*
|
List
of Subsidiaries
|
||
31.1
|
*
|
Certification
of Principal Executive Officer, pursuant to SEC Rules 13a-14(a) and
15d-14(a), adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
|
||
31.2
|
*
|
Certification
of Interim Principal Financial Officer, pursuant to SEC
Rules 13a-14(a) and 15d-14(a), adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
|
||
32.1
|
*
|
Certification
of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350,
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002**
|
25
Exhibit
No.
|
SEC Report
Reference Number
|
Description
|
||
32.2
|
|
*
|
|
Certification
of Interim Chief Financial Officer, pursuant to 18 U.S.C.
Section 1350, adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002**
|
(1)
|
Filed
with the SEC on July 10, 2008 as an exhibit, numbered as indicated above,
to the Registrant’s current report (SEC File No. 333-140148) on Form 8-K,
which exhibit is incorporated herein by
reference.
|
(2)
|
Filed
with the SEC on January 23, 2007 as an exhibit, numbered as indicated
above, to the Registrant’s registration statement (SEC File No.
333-140148) on Form SB-2, which exhibit is incorporated herein by
reference.
|
(3)
|
Filed
with the SEC on July 24, 2008 as an exhibit, numbered as indicated above,
to the Registrant’s current report (SEC File No. 333-140148) on Form 8-K,
which exhibit is incorporated herein by
reference.
|
(4)
|
Filed
with the SEC on September 15, 2008 as an exhibit, numbered as indicated
above, to the Registrant’s current report (SEC File No. 333-140148) on
Form 8-K, which exhibit is incorporated herein by
reference.
|
(5)
|
Filed
with the SEC on April 14, 2009 as an exhibit, numbered as indicated above,
to the Registrant’s annual report (SEC File No. 333-140148) on Form 10-K,
which exhibit is incorporated herein by
reference.
|
(6)
|
Filed
with the SEC on March 31, 2008 as an exhibit, numbered as indicated above,
to the Registrant’s annual report (SEC File No. 333-140148) on Form
10-KSB, which exhibit is incorporated herein by
reference.
|
* Filed
herewith.
** This
certification is being furnished and shall not be deemed “filed” with the SEC
for purposes of Section 18 of the Exchange Act, or otherwise subject to the
liability of that section, and shall not be deemed to be incorporated by
reference into any filing under the Securities Act or the Exchange Act, except
to the extent that the Registrant specifically incorporates it by
reference.
In
reviewing the agreements included as exhibits and incorporated by reference to
this Annual Report on Form 10-K, please remember that they are included to
provide you with information regarding their terms and are not intended to
provide any other factual or disclosure information about the Company or the
other parties to the agreements. The agreements may contain representations and
warranties by each of the parties to the applicable agreement. These
representations and warranties have been made solely for the benefit of the
parties to the applicable agreement and:
26
|
•
|
should
not in all instances be treated as categorical statements of fact, but
rather as a way of allocating the risk to one of the parties if those
statements prove to be inaccurate;
|
|
•
|
have
been qualified by disclosures that were made to the other party in
connection with the negotiation of the applicable agreement, which
disclosures are not necessarily reflected in the
agreement;
|
|
•
|
may
apply standards of materiality in a way that is different from what may be
viewed as material to you or other investors;
and
|
|
•
|
were
made only as of the date of the applicable agreement or such other date or
dates as may be specified in the agreement and are subject to more recent
developments.
|
Accordingly,
these representations and warranties may not describe the actual state of
affairs as of the date they were made or at any other time. Additional
information about the Company may be found elsewhere in this Annual Report on
Form 10-K and the Company’s other public filings, which are available without
charge through the SEC’s website at http://www.sec.gov.
27
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
LORETO
RESOURCES CORPORATION
|
||
Dated: April
15, 2010
|
By:
|
/s/ Luis F. Saenz
|
Luis
F. Saenz, President and Chief
Executive
Officer
|
||
By:
|
/s/ Eric E. Marin
|
|
Eric
E. Marin, Interim Chief Financial
Officer
|
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.
SIGNATURE
|
TITLE
|
DATE
|
||
/s/ Nadine C. Smith
|
Director
|
April
15, 2010
|
||
Nadine
C. Smith
|
||||
/s/ Luis F. Saenz
|
Director
|
April
15, 2010
|
||
Luis
F. Saenz
|
|
|
28
PART
IV – FINANCIAL INFORMATION
ITEM
15. FINANCIAL STATEMENTS
Page
|
||
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
Consolidated
Balance Sheets as of December 31, 2009 and 2008
|
F-3
|
|
Consolidated
Statements of Operations for the years ended December 31, 2009 and 2008
and for the Period from June 28, 2006 (inception) through December 31,
2009
|
F-4
|
|
Consolidated
Statements of Changes in Stockholders’ Equity (Deficit) for the period
from June 28, 2006 (inception) to December 31, 2009
|
F-5
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2009 and 2008
and for the Period from June 28, 2006 (inception) through December 31,
2009
|
F-7
|
|
Notes
to Consolidated Financial Statements
|
|
F-8
– F-14
|
F-1
REPORT OF
INDEPENDENT REGISTERED ACCOUNTING FIRM
To the
Board of Directors
Loreto
Resources Corporation
(An
Exploration Stage Company)
Houston,
Texas
We have
audited the accompanying consolidated balance sheets of Loreto Resources
Corporation, (“Loreto”) as of December 31, 2009 and 2008 and the related
consolidated statements of operations, stockholders’ equity (deficit) and cash
flows for the two years then ended and the period from June 28, 2006 (inception)
through December 31, 2009. The financial statements for the period
from June 28, 2006 (inception) through December 31, 2007 were audited by other
auditors whose report expressed an unqualified opinion on those financial
statements. The financial statements for the period from June 28,
2006 (inception) through December 31, 2009 include no revenue and a net loss of
$2,789,048. Our opinion on the statements of operations, stockholder’
equity, and cash flows for the period from June 28, 2006 (inception) through
December 31, 2009, in so far as it relates to amounts for prior periods through
December 31,2007 is based solely on the report of the other
auditor. These consolidated financial statements are the
responsibility of Loreto’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audit.
We
conducted our audits in accordance with 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 misstatements. Loreto 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 Loreto’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated 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 Loreto as of
December 31, 2009 and 2008 and the consolidated results of its operations and
its cash flows for the two years then ended and the period from June 28, 2006
(inception) through December 31, 2009 in conformity with accounting principles
generally accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared assuming that
Loreto will continue as a going concern. As discussed in Note 3 to the
consolidated financial statements, Loreto has suffered recurring losses from
operations, which raises substantial doubt about its ability to continue as a
going concern. Management’s plans regarding those matters are described in Note
3. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
MALONEBAILEY,
LLP
www.malone-bailey.com
Houston,
Texas
April 15,
2010
F-2
LORETO
RESOURCES CORPORATION
(An
Exploration Stage Company)
Consolidated
Balance Sheets
As of
|
As of
|
|||||||
December 31
|
December 31
|
|||||||
2009
|
2008
|
|||||||
ASSETS
|
||||||||
Current
Assets
|
||||||||
Cash
|
$ | 148,013 | $ | 1,517,269 | ||||
Prepaid
expenses
|
61,644 | 50,742 | ||||||
Total
Current Assets
|
209,657 | 1,568,011 | ||||||
Other
Assets
|
||||||||
Deposits
|
5,628 | 5,628 | ||||||
TOTAL
ASSETS
|
$ | 215,285 | $ | 1,573,639 | ||||
LIABILITIES
& STOCKHOLDERS' EQUITY
|
||||||||
Current
Liabilities
|
||||||||
Accounts
payable
|
$ | 82,374 | $ | 59,429 | ||||
Accounts
payable related party
|
83,332 | - | ||||||
Insurance
financing
|
31,282 | - | ||||||
Total
Current Liabilities
|
196,988 | 59,429 | ||||||
Total
Liabilities
|
196,988 | 59,429 | ||||||
Stockholders'
Equity
|
||||||||
Preferred
stock, ($0.001 par value, 10,000,000 shares
|
||||||||
authorized;
0 shares issued and outstanding) as of
|
||||||||
December
31, 2009 and December 31, 2008
|
- | - | ||||||
Common
stock, ($0.001 par value, 300,000,000 shares
|
||||||||
authorized;
70,100,000 shares issued and outstanding)
|
||||||||
as
of December 31, 2009 and December 31, 2008
|
70,100 | 70,100 | ||||||
Additional
paid-in capital
|
2,737,245 | 2,187,525 | ||||||
Deficit
accumulated during exploration stage
|
(2,789,048 | ) | (743,415 | ) | ||||
Total
Stockholders' Equity
|
18,297 | 1,514,210 | ||||||
TOTAL
LIABILITIES & STOCKHOLDERS' EQUITY
|
$ | 215,285 | $ | 1,573,639 |
F-3
LORETO
RESOURCES CORPORATION
(An
Exploration Stage Company)
Consolidated
Statements of Operations
For the
Years Ended December 31, 2009 and 2008 and
For the
Period from June 28, 2006 (Inception) through December 31, 2009
|
June 28, 2006
|
|||||||||||
Year
|
Year
|
(inception)
|
||||||||||
|
Ended
|
Ended
|
through
|
|||||||||
December 31,
|
December 31,
|
December 31,
|
||||||||||
|
2009
|
2008
|
2009
|
|||||||||
Revenues
|
||||||||||||
Revenues
|
$ | - | $ | - | $ | - | ||||||
Total
Revenues
|
- | - | - | |||||||||
General
& Administrative Expenses
|
2,048,527 | 705,220 | 2,798,142 | |||||||||
Loss
from operations
|
(2,048,527 | ) | (705,220 | ) | (2,798,142 | ) | ||||||
Other
Income (Expense):
|
||||||||||||
Interest
expense
|
(887 | ) | - | (887 | ) | |||||||
Interest
income
|
3,781 | 6,200 | 9,981 | |||||||||
Total
Other Income
|
2,894 | 6,200 | 9,094 | |||||||||
Net
Loss
|
$ | (2,045,633 | ) | $ | (699,020 | ) | $ | (2,789,048 | ) | |||
Basic
loss per share
|
$ | (0.03 | ) | $ | (0.01 | ) | ||||||
Weighted
average number of
|
||||||||||||
common
shares outstanding
|
70,100,000 | 85,974,044 |
The
accompanying notes are an integral part of these consolidated financial
statements.
F-4
LORETO
RESOURCES CORPORATION
(An
Exploration Stage Company)
Consolidated
Statements of Stockholders’ Equity
From June
28, 2006 (Inception) through December 31, 2009
Deficit
|
||||||||||||||||||||
Accumulated
|
||||||||||||||||||||
Common
|
Additional
|
During
|
||||||||||||||||||
Common
|
Stock
|
Paid-in
|
Exploration
|
|||||||||||||||||
Stock
|
Amount
|
Capital
|
Stage
|
Total
|
||||||||||||||||
Balance,
June 28, 2006
|
- | $ | - | $ | - | $ | - | $ | - | |||||||||||
Stock
issued for cash on October 3, 2006
|
||||||||||||||||||||
at
$0.00025 per share
|
40,000,000 | 40,000 | (30,000 | ) | - | 10,000 | ||||||||||||||
Net
loss, December 31, 2006
|
(877 | ) | (877 | ) | ||||||||||||||||
Balance,
December 31, 2006
|
40,000,000 | 40,000 | (30,000 | ) | (877 | ) | 9,123 | |||||||||||||
Stock
issued for cash on February 23, 2007
|
||||||||||||||||||||
at
$0.0005 per share
|
36,000,000 | 36,000 | (18,000 | ) | - | 18,000 | ||||||||||||||
Stock
issued for services on July 2, 2007
|
||||||||||||||||||||
at
$0.0001875 per share
|
24,000,000 | 24,000 | (19,500 | ) | - | 4,500 | ||||||||||||||
Net
loss, December 31, 2007
|
(43,518 | ) | (43,518 | ) | ||||||||||||||||
Balance,
December 31, 2007
|
100,000,000 | 100,000 | (67,500 | ) | (44,395 | ) | (11,895 | ) | ||||||||||||
Stock
issued for cash on February 7, 2008
|
||||||||||||||||||||
at
$0.025 per share
|
2,000,000 | 2,000 | 48,000 | - | 50,000 | |||||||||||||||
Debt
forgiveness from related party on June 30, 2008
|
- | - | 13,200 | - | 13,200 |
F-5
LORETO
RESOURCES CORPORATION
(An
Exploration Stage Company)
Consolidated
Statements of Stockholders’ Equity
From June
28, 2006 (Inception) through December 31, 2009
Deficit
|
||||||||||||||||||||
Accumulated
|
||||||||||||||||||||
Common
|
Additional
|
During
|
||||||||||||||||||
Common
|
Stock
|
Paid-in
|
Exploration
|
|||||||||||||||||
Stock
|
Amount
|
Capital
|
Stage
|
Total
|
||||||||||||||||
Restricted
stock cancelled on July 18, 2008
|
(40,000,000 | ) | (40,000 | ) | 40,000 | - | - | |||||||||||||
Stock-based
compensation on July 21, 2008
|
- | - | 181,612 | - | 181,612 | |||||||||||||||
Stock
issued for cash on September 17, 2008
|
||||||||||||||||||||
at
$0.25 per share, net of offering costs
|
8,100,000 | 8,100 | 1,972,213 | - | 1,980,313 | |||||||||||||||
Net
loss, December 31, 2008
|
- | - | - | (699,020 | ) | (699,020 | ) | |||||||||||||
Balance,
December 31, 2008
|
70,100,000 | 70,100 | 2,187,525 | (743,415 | ) | 1,514,210 | ||||||||||||||
Stock-based
compensation
|
- | - | 549,720 | 549,720 | ||||||||||||||||
Net
loss, December 31, 2009
|
- | - | - | (2,045,633 | ) | (2,045,633 | ) | |||||||||||||
Balance,
December 31, 2009
|
70,100,000 | $ | 70,100 | $ | 2,737,245 | $ | (2,789,048 | ) | $ | 18,297 |
The
accompanying notes are an integral part of these consolidated financial
statements.
F-6
LORETO
RESOURCES CORPORATION
(An
Exploration Stage Company)
Consolidated
Statements of Cash Flows
For the
Years Ended December 31, 2009 and 2008 and
For the
Period from June 28, 2006 (Inception) through December 31, 2009
June 28, 2006
|
||||||||||||
Year
|
Year
|
(inception)
|
||||||||||
Ended
|
Ended
|
through
|
||||||||||
December 31,
|
December 31,
|
December 31,
|
||||||||||
2009
|
2008
|
2009
|
||||||||||
Cash
Flows from Operating Activities
|
||||||||||||
Net
loss
|
$ | (2,045,633 | ) | $ | (699,020 | ) | $ | (2,789,048 | ) | |||
Adjustments
to reconcile net loss to net cash
|
||||||||||||
used
in operating activities:
|
||||||||||||
Stock
option expense
|
549,720 | 181,612 | 731,332 | |||||||||
Common
stock issued for services
|
- | - | 4,500 | |||||||||
Changes
in operating assets and liabilities:
|
||||||||||||
Prepaid
expenses
|
34,691 | (55,870 | ) | (21,679 | ) | |||||||
Other
assets
|
- | - | - | |||||||||
Accounts
payable related party
|
83,332 | - | 83,332 | |||||||||
Accounts
payable
|
22,945 | 59,429 | 82,374 | |||||||||
Net
cash used in operating activities
|
(1,354,945 | ) | (513,849 | ) | (1,909,189 | ) | ||||||
Cash
Flows from Financing Activities
|
||||||||||||
Issuance
of common stock, net of offering costs
|
- | 2,030,313 | 2,058,313 | |||||||||
Repayment
of insurance financing
|
(14,311 | ) | - | (14,311 | ) | |||||||
Loan
from stockholder
|
- | 13,200 | ||||||||||
Net
cash provided by (used in) financing activities
|
(14,311 | ) | 2,030,313 | 2,057,202 | ||||||||
Net
Increase (Decrease) in Cash
|
(1,369,256 | ) | 1,516,464 | 148,013 | ||||||||
Cash
at Beginning of Period
|
1,517,269 | 805 | - | |||||||||
Cash
at End of Period
|
$ | 148,013 | $ | 1,517,269 | $ | 148,013 | ||||||
Supplemental
Disclosures of Cash Flow Information
|
||||||||||||
Cash
paid during year for:
|
||||||||||||
Interest
|
$ | - | $ | - | $ | - | ||||||
Income
taxes
|
$ | - | $ | - | $ | - | ||||||
Non-Cash
Financing Transactions
|
||||||||||||
Forgiveness
of debt by stockholder
|
$ | - | $ | - | $ | 13,200 |
The
accompanying notes are an integral part of these consolidated financial
statements.
F-7
NOTE
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Loreto
Resources Corporation (the Company) was incorporated on June 28, 2006 in Nevada
under the name Loreto Corporation. The Company pursued its original business
plan to create, market, and sell greeting cards to wholesalers and retail
customers in shopping malls in its own planned retail shops (the “Legacy
Business”). However, recently the Company decided to redirect its business focus
and strategy toward identifying and pursuing business opportunities in the
mining sector in South America, more specifically in Peru, with primary focus on
gold mining projects across the exploration and development
stages. The Company is in the development stage in accordance with
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) Topic No. 915 (formerly Statement of Financial Accounting Standards
(“SFAS”) No.7, “Accounting and Reporting by Development Stage
Enterprises”).
On July
3, 2008, the Company amended its articles of incorporation to (1) change its
name to Loreto Resources
Corporation and (2) increase its authorized capital stock to 310,000,000
shares of which 300,000,00 shares are common stock, par value $0.001 per share
(the “Common Stock”), and 10,000,000 shares are preferred stock, par value
$0.001 per share.
On August
25, 2008, by unanimous written consent of its directors, the Company resolved to
form a wholly-owned subsidiary in Peru, South America. This subsidiary will be
owned through the Company’s wholly-owned Cayman Island subsidiary, Loreto
Resources Corporation-Peru, which was organized on August 27, 2008.
NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates and Assumptions
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company and its
100% owned subsidiary, Loreto Resources Corporation-Peru., after
elimination of all significant inter-company accounts and
transactions.
Cash
Equivalents
The
Company considers all highly liquid debt instruments with original maturities of
three months or less when acquired to be cash equivalents. The Company had no
cash equivalents at December 31, 2009 and 2008. The Company may, in
the normal course of operations, maintain cash balances in excess of federally
insured limits. At December 31, 2008, cash and cash equivalents
exceeded the federally insured limits by $1,267,269.
Mineral
Exploration and Development Costs
All
exploration expenditures are expensed as incurred. Significant
property acquisition payments for active exploration properties are
capitalized. If no minable ore body is discovered, previously
capitalized costs are expensed
in the period the property is abandoned. Expenditures to develop new
mines, to define further mineralization
in existing ore bodies, and to expand the capacity of operating mines, are
capitalized and amortized on a unit of production basis over proven and probable
reserves.
Income
Taxes
In
accordance with SFAS No. 109, ASC 740 “Accounting for Income Taxes”,
the provision for income taxes is computed using the asset and liability method.
Under the asset and liability method, deferred income tax assets and liabilities
are determined based on the differences between the financial reporting and tax
bases of assets and liabilities and are measured using the currently enacted tax
rates and laws. A valuation allowance is provided for the amount of deferred tax
assets that, based on available evidence, are not expected to be
realized.
F-8
Basic
Earnings per Share
Basic and
diluted earnings or loss per share (EPS) amounts in the financial statements are
computed in accordance SFAS No. 128, ASC 260 – 10 “Earnings per Share”, which
establishes the requirements for presenting EPS. Basic EPS is based
on the weighted average number of common shares outstanding. Diluted EPS is
based on the weighted average number of common shares outstanding and dilutive
common stock equivalents. Basic EPS is computed by dividing net income/loss
available to common stockholders (numerator) by the weighted average number of
common shares outstanding (denominator) during the period. Weighted average
number of shares used to calculate basic and diluted loss per share is
considered the same as the effect of dilutive shares is
anti-dilutive.
Fair
Value of Financial Instruments
The
Company estimates the fair value of financial instruments using the available
market information and valuation methods. Considerable judgment is
required in estimating fair value. Accordingly, the estimates of fair value may
not be indicative of the amounts the Company could realize in a current market
exchange. As of December 31, 2009 and 2008, the carrying value of the assets and
liabilities approximated fair value due to the short-term nature and maturity of
these instruments.
Stock
Split
On
February 2, 2009 and January 15, 2010, the Company implemented 2 for 1 stock
splits. The par value of the common stock was not affected by the
stock splits. Upon effectiveness of the stock splits, each
stockholder received two share of common stock for every share of common stock
owned as of February 2, 2009 and again on January 25, 2010, the stock splits’
record dates. The stock split does not affect the number of common
stock authorized for issuance. All share and per share information
has been retroactively adjusted to reflect the reverse stock split in the
financial statements and in the notes to financial statements for all periods
presented, to reflect the stock split as if it occurred on the first day of
the first period presented.
Stock-based
Compensation
The
Company determines the fair value of stock option awards granted to employees in
accordance with FASB ASC Topic No. 718 – 10 (formerly SFAS No. 123(R),
Share-Based Payment) and to non-employees in accordance with FASB ASC Topic
No. 505 – 50 (formerly EITF 96-18 “Accounting for Equity Instruments Issued to
Non-Employees for Acquiring, or in Conjunction with Selling, Goods or
Services”).
F-9
Recent
accounting pronouncements
The
Company does not expect that the adoption of recently issued accounting
pronouncements will have a material impact on its financial position, results,
of operations or cash flows.
NOTE 3. GOING
CONCERN
During
the year ended December 31, 2009, Loreto has not generated any revenue and
therefore has been unable to generate cash flows sufficient to support its
operations and has been dependent on equity financing. In addition to negative
cash flow from operations, Loreto has experienced recurring net losses, and has
an accumulated deficit of approximately $2.79 million as of December 31,
2009.
These
factors raise substantial doubt about the Company’s ability to continue as a
going concern. The consolidated financial statements do not include any
adjustments that might be necessary if Loreto is unable to continue as a going
concern.
NOTE
4. STOCK TRANSACTIONS
On
October 3, 2006 the Company issued 40,000,000 common shares to a director for
$10,000.
On
February 23, 2007 the Company issued 36,000,000 common shares to 36
non-affiliated stockholders for a total of $18,000 pursuant to a SB-2
Registration Statement.
On July
2, 2007, the Company issued 24,000,000 common shares to Magdalena Cruz,
President and CEO, in exchange for her services valued at $4,500.
On
February 7, 2008, the company issued 2,000,000 common shares to Milestone
Enhanced Fund Ltd. for $50,000.
On July
18, 2008, 40,000,000 common shares held by the director were
cancelled.
On each
of July 18, 2008, January 15, 2009, and January 15, 2010, the Company declared
two for one (2 for 1) forward stock splits on each common share. All
share and per share amounts have been adjusted retroactively from inception to
reflect these splits.
In
September, 2008, the Company issued 8,100,000 shares through a private
placement to various individuals and entities at the price of $0.25 per
share. Total proceeds were $1,980,313, net of offering costs of
$44,687.
NOTE
5. OPTIONS AND WARRANTS
The
2008 Equity Incentive Plan
The
Company’s 2008 Equity Incentive Plan (the “2008 Plan”) provides for the grant of
incentive stock options to employees of the Company and of an affiliate or
subsidiary of the Company and non-statutory stock options, restricted stock and
stock appreciation rights to employees, directors and consultants of the Company
and of an affiliate or subsidiary of the Company. A maximum of 16,000,000 shares
of common stock are available for issuance under the 2008 plan. As of December
31, 2009, options had been granted under the 2008 Plan exercisable for an
aggregate of 6,960,000. Options granted under the 2008 Plan are
generally granted with a strike price equal to market value and a ten year
term. The outstanding options vest over periods ranging from three
months to three years.
Effective
July 21, 2008, the President and CEO of the Company was granted an option to
purchase 6,200,000 shares of Common Stock with a fair value of
$1,237,539. The options are exercisable at $0.25 per share, expire in
ten years and 1/3 per year for 3 years.
On
December 8, 2008, a consultant was granted 120,000 options with a fair value of
$20,416. The options are exercisable at $0.25 per share, expire in 10
years and vest over 3 months.
F-10
On
January 1, 2009, the Company granted 180,000 options to a consultant with a
fair value of $30,546. The options are exercisable at $0.25 per
share, vest equally over 3 months and expire in 10 years.
On March
8, 2009, the Company granted 120,000 options to a consultant with a fair value
of $21,224. The options are exercisable at $0..25 per share, vest
equally over 3 months and expire in 10 years.
On April
1, 2009, the Company granted 120,000 options to a consultant with a fair value
of $21,108. The options are exercisable at $0.25 per share, vest
equally over 2 months and expire in 10 years.
On June
1, 2009, the Company granted options to purchase (i) 60,000 shares to a
consultant with a fair value of $10,754, and (i) 40,000 shares to a consultant
with a fair value of $7,053. The 60,000 options are exercisable at
$0.25 per share, vest equally over 3 months and expire in 10
years. The 40,000 options are exercisable at $0.25 per share, vest over 1
month and expire in 10 years.
On
September 8, 2009, the Company granted 120,000 options to a consultant with a
fair value of $21,683. The options are exercisable at $0.25 per
share, vest equally over 3 months and expire in 10 years.
F-11
Stock
option activity summary is presented in the table below:
|
|
Number of
Shares
|
|
|
Weighted-
average
Exercise
Price
|
|
|
Weighted-
average
Remaining
Contractual
Term (years)
|
|
|
Aggregate
Intrinsic
Value
|
|
||||
Outstanding
at December 31, 2007
|
—
|
—
|
—
|
—
|
||||||||||||
Granted
|
6,320,000
|
.25
|
8.56
|
—
|
||||||||||||
Exercised
|
—
|
—
|
—
|
—
|
||||||||||||
Expired/Forfeited
|
—
|
—
|
—
|
—
|
||||||||||||
Outstanding
at December 31, 2008
|
6,320,000
|
.25
|
8.56
|
—
|
||||||||||||
Granted
|
640,000
|
$
|
.25
|
9.28
|
—
|
|||||||||||
Exercised
|
—
|
—
|
—
|
—
|
||||||||||||
Expired /
Forfeited
|
—
|
—
|
—
|
—
|
||||||||||||
Outstanding
at December 31, 2009
|
6,960,000
|
$
|
.25
|
8.63
|
$
|
—
|
||||||||||
Exercisable
at December 31, 2009
|
2,706,667
|
.25
|
8.69
|
$
|
—
|
As of
December 31, 2009, 2,706,667 options are vested or
exercisable. During the year ended December 31, 2009, 640,000 options
were granted with a weighted average grant date fair value of
$0.25. During the year ended December 31, 2009, the Company
recognized stock-based compensation expense of $549,720 related to stock
options. As of December 31, 2009, there was approximately $640,808 of
total unrecognized compensation cost related to non-vested stock options which
is expected to be recognized over a weighted-average period of approximately
1.55 years.
The fair
value of the options granted during the twelve months ended December 31, 2009
was estimated at the date of grant using the Black-Scholes option-pricing model
with the following assumptions:
Market
value of stock on grant date
|
$
|
.25
|
(1)
|
|
Risk-free
interest rate
|
1.87%-3.28%
|
%
|
||
Dividend
yield
|
0.00
|
%
|
||
Volatility
factor
|
118.98%-129.45
|
%
|
||
Weighted
average expected life
|
5.5
|
years (2)
|
||
Expected
forfeiture rate
|
5
|
%
|
(1)
|
The market value of the stock was
calculated based on the July 25, 2008 private placement that sold
8,100,000 shares at $0.25 per
share.
|
(2)
|
Due to a lack of stock option
exercise history, the Company uses the simplified method under SAB 107 to
estimate expected term.
|
There are
no warrants outstanding at December 31, 2009.
NOTE
6. RELATED PARTY TRANSACTIONS
As of
June 30, 2008, Magdalena Cruz, the sole officer, director and stockholder of the
Company, forgave loans to the Company totaling $13,200, which was recorded as
additional paid in capital.
As of
July 18, 2008, 40,000,000 shares of restricted Common Stock held by Ms. Cruz
were cancelled.
Effective
July 21, 2008, Ms. Cruz resigned from her position as director of the Company,
Luis Saenz was appointed the Company’s director, President and Chief Executive
Officer. He was granted an option to purchase 6,200,000 shares of Common Stock
at $0.25, vesting over three years.
F-12
During
the year ended December 31, 2008, Nadine C. Smith, our Chairman, purchased
2,000,000 shares of our common stock for $500,000. Ms. Smith owns an
additional 23,020,000 shares of our common stock. Luis F. Saenz, our
President and Chief Executive Officer, purchased 400,000 shares of our common
stock for $100,000.
NOTE
7. INCOME TAXES
Loreto
Resources Corporation, files a U.S. Federal income tax return. The
Company’s foreign subsidiary files income tax returns in its jurisdictions. The
components of the consolidated taxable net loss before income tax benefit are as
follows:
|
2009
|
2008
|
|||||
U.S.
|
$
|
912,375
|
$
|
392,464
|
|||
Non-U.S.
|
583,537
|
169,340
|
|||||
Total
|
1,495,912
|
561,804
|
The
components of the Company’s deferred tax assets at December 31, 2009 and 2008
are as follows:
2009
|
2008
|
|||||||
Deferred
tax assets and liabilities:
|
||||||||
Loss
carry-forwards
|
$
|
508,610
|
$
|
175,919
|
||||
Stock-based
compensation
|
186,904
|
61,748
|
||||||
Total
deferred tax assets
|
695,515
|
237,667
|
||||||
Valuation
allowance
|
(695,515
|
)
|
(237,667
|
)
|
As of
December 31, 2009, the Company had generated U.S. net operating loss
carry-forwards of $1,304,842, which expire from 2027 to 2029 and net loss
carry-forwards in certain non-U.S. jurisdictions of $367,742. These net
operating loss carry-forwards are available to reduce future taxable income.
However, a, change in ownership, as defined by federal income tax regulations,
could significantly limit the Company’s ability to utilize its U.S. net
operating loss carry-forwards. Additionally, because federal tax laws limit the
time during which the net operating loss carry-forwards may be applied against
future taxes, if the Company fails to generate taxable income prior to the
expiration dates it may not be able to fully utilize the net operating loss
carry-forwards to reduce future income taxes. As the Company has had cumulative
losses and there is no assurance of future taxable income, valuation allowances
have been recorded to fully offset the deferred tax asset at December 31, 2009
and 2008.
F-13
NOTE
8. COMMITMENTS AND CONTINGENCIES
Leases
The
Company has signed a three-year non-cancellable lease for approximately 1,600
square feet of office space in Lima, Peru to be paid in U.S. dollars, subject to
a three-percent annual increase, expiring on September 30,
2011.
The
Company is amortizing this lease as it is paid rather than expensing it on a
straight line basis. The difference between the two methods is not
material.
Year
|
Total Lease Payment
Amount
|
||||
2010
|
$ | 41,529 | |||
2011
|
$ | 31,147 |
NOTE
9. GENERAL & ADMINISTRATIVE EXPENSES
The
following table shows the major components of general and administrative
expenses for the year ended December 31, 2009 and 2008:
2009
|
2008
|
|||||||
Compensation
|
$ | 892,362 | $ | 285,777 | ||||
Professional
Fees (Accounting, Legal and Consulting)
|
766,318 | 164,721 | ||||||
Other
general & administrative expenses
|
389,847 | 254,722 | ||||||
$ | 2,048,527 | $ | 705,220 |
NOTE
10. SUBSEQUENT EVENTS
On
January 15, 2010, the Company’s Board of Directors approved a 2-for-1 forward
split (the “Forward Split”) of the Company’s common stock, par value $0.001 per
share. The declaration date for the stock split was January 15, 2010,
the record date was January 25, 2010, and the ‘ex” date is January 29,
2010.
The
Forward Split will entitle each Loreto shareholder of record on January 25, 2010
to receive one additional share of common stock for each one share owned. The
stock split does not affect the number of common stock authorized for
issuance. All share and per share information has been retroactively
adjusted to reflect the reverse stock split in the financial statements and in
the notes to financial statements for all periods presented, to reflect
the stock split as if it occurred on the first day of the first period
presented (see Note 2).
The
Company evaluated subsequent events through April 15, 2010.
F-14