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EX-31 - CERTIFICATION OF PRINCIPAL EXECUTIVE AND FINANCIAL OFFICER, PURSUANT TO RULE 13A-14 AND 15D-14 OF THE SECURITIES EXCHANGE ACT OF 1934 - Coyote Resources, Inc.coyoteex31.htm
EX-32 - CERTIFICATION OF PRINCIPAL EXECUTIVE AND FINANCIAL OFFICER, PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - Coyote Resources, Inc.coyoteex32.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
x
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934:
For the quarterly period ended March 31, 2011
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934:
For the transition period from ____to____
 
  Commission File Number: 000-52512
 
Coyote Resources, Inc.
(Exact name of registrant as specified in its charter)
 
Nevada
20-5874196
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
5490 Longley Lane, Reno, Nevada 89511
(Address of principal executive offices) (Zip Code)
 
(775) 853-7892
(Registrant’s Telephone Number, including area code)
   
 
Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the 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. x Yes oNo
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). oYes oNo
 
Indicate by check mark whether the registrant is a large accelerated file, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "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
(Do not check if a smaller reporting company)
Smaller reporting company
x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  o Yes x No
 
 As of May 20, 2011, there were 46,502,120 shares of the issuer's $.001 par value common stock issued and outstanding.
 
 
1

 
 
PART I - FINANCIAL INFORMATION
 
Item 1.  Financial Statements.
TABLE OF CONTENTS
 
 
 
 
2

 
 
(An Exploration Stage Company)
BALANCE SHEETS
 
ASSETS
 
   
March 31, 2011
(Unaudited)
   
December 31, 2010
 
Current assets
           
Cash
  $ 607,253     $ 415,423  
Total current assets
    607,253       415,423  
                 
Property and equipment, net of $2,265 and $2,112
   accumulated depreciation, respectively
    791       944  
                 
Unproven mineral properties
    1,194,910       1,194,910  
                 
Total assets
  $ 1,802,954     $ 1,611,277  
 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
 
Current liabilities
           
Accounts payable and accrued expenses
  $ 36,944     $ 24,033  
Notes payable, current
    125,000       100,000  
Loans from stockholders
    17,000       17,000  
                 
Total current liabilities
    178,944       141,033  
                 
Notes payable, long-term
    1,910,946       1,369,452  
                 
Stockholders’ equity (deficit)
               
Common stock, $.001 par value; 6,000,000,000 shares authorized,
  46,502,120 and 46,502,120 shares issued and outstanding , respectively
      1,267         1,267  
Additional paid-in capital
    1,337,383       736,783  
Accumulated deficit
    (233,532 )     (233,532 )
Deficit accumulated during the exploration stage
    (1,392,054 )     (403,726 )
                 
Total stockholders’ equity (deficit)
    (286,936 )     100,792  
                 
Total liabilities and stockholders’ equity (deficit)
  $ 1,802,954     $ 1,611,277  
 
See accompanying notes to financial statements.
 

 
3

 

 (An Exploration Stage Company)
STATEMENTS OF OPERATIONS
(UNAUDITED)
 
   
For the Three Months ended March 31, 2011
   
For the Three Months ended March 31, 2010
   
For the Period from Inception
(October 31, 2006) through
March 31, 2011
 
Revenues
  $ -     $ -     $ -  
                         
Operating expenses
                       
Exploration costs
    157,286               157,286  
Legal and professional
    98,666       -       317,496  
Officer compensation
    105,500               105,500  
    General and administrative
    9,963       -       77,173  
                         
Total operating expenses
    371,415       -       657,855  
                         
Loss from continuing operations
    (371,415 )     -       (657,855 )
                         
Other income (expense)
                       
Forgiveness of accounts and note payable
    -       -       75,781  
Interest income
    -       -       1,885  
Fair value of warrants
    -       -       (172,500 )
Amortization of debt discount
    (600,000 )     -       (600,000 )
Interest expense
    (16,913 )     -       (39,365 )
            Total other income (expense)
    (616,913 )     -       (734,199 )
                         
Loss before discontinued operations and income taxes
    (988,328 )     -       (1,392,054 )
                         
Loss on discontinued operations
    -       (11,928 )     (233,532 )
                         
Loss before income taxes
    (988,328 )     (11,928 )     (1,625,586 )
                         
Provision for income taxes
    -       -       -  
                         
                         
Net loss
  $ (988,328 )   $ (11,928 )   $ (1,625,586 )
                         
Net loss per common share – basic and diluted
  $ (0.02 )   $ (0.00 )   $ (0.01 )
                         
Weighted average of common
   shares – basic and diluted
    46,502,120       270,930,000       234,063,431  

See accompanying notes to financial statements.

 
4

 

(An Exploration Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE PERIOD FROM INCEPTION (OCTOBER 31, 2006)
THROUGH MARCH 31, 2011
(UNAUDITED)
 
    Common Stock*                  Deficit
Accumulated
       
    Number of Shares     Amount    
Additional Paid-In
Capital
   
 Accumulated
 Deficit
   
During
Exploration Stage
   
Total Stockholders'
Equity (Deficit)
 
                                     
Balance, October 31, 2006
    -     $ -     $ -     $ -     $ -     $ -  
                                                 
Issuance of common stock, November 1, 2006
    240,000,000       240,000       (236,000 )     -       -       4,000  
                                                 
Additional paid-in capital in exchange for facilities provided by related party
    -       -       400       -       -       400  
                                                 
Net loss
    -       -       -       (11,014 )     -       (11,014 )
                                                 
Balance, December 31, 2006 (Audited)
    240,000,000       240,000       (235,600 )     (11,014 )     -       (6,614 )
                                                 
Issuance of common stock for cash,
   June 30, 2007
    18,930,000       18,930       12,620       -       -       31,550  
                                                 
Issuance of common stock for cash,
   July  23, 2007
    12,000,000       12,000       8,000       -       -       20,000  
                                                 
Additional paid-in capital in exchange for facilities provided by related party
    -       -       2,400       -       -       2,400  
                                                 
Net loss
    -       -       -       (69,026 )     -       (69,026 )
                                                 
Balance, December 31, 2007
    270,930,000       270,930       (212,580 )     (80,040 )     -       (21,690 )
                                                 
Additional paid-in capital in exchange for facilities provided by related party
    -       -       2,400       -       -       2,400  
                                                 
Net loss
    -       -       -       (48,345 )     -       (48,345 )
                                                 
Balance, December 31, 2008
    270,930,000       270,930       (210,180 )     (128,385 )     -       (67,635 )
                                                 
                                                 
                                                 
 
* - Retroactively restated for 60:1 forward split
 
 
                                               

See accompanying notes to financial statements.


 
5

 

COYOTE RESOURCES, INC.
(An Exploration Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE PERIOD FROM INCEPTION (OCTOBER 31, 2006)
THROUGH MARCH 31, 2011
(UNAUDITED)

 
    Common Stock *                
 Deficit
Accumulated
       
    Number of Shares     Amount    
Additional Paid-In
Capital
    Accumulated Deficit    
During
Exploration Stage
    Total Stockholders' Equity (Deficit)  
Additional paid-in capital in exchange for facilities provided by related party
    -       -       2,400       -       -       2,400  
                                                 
Net loss
    -       -       -       (45,207 )     -       (45,207 )
                                                 
Balance, December 31, 2009
    270,930,000       270,930       (207,780 )     (173,592 )     -       (110,442 )
                                                 
Additional paid-in capital in exchange for facilities provided by related party
    -       -       2,400       -       -       2,400  
                                                 
Fair value of warrants
    -       -       172,500       -       -       172,500  
                                                 
Shares cancelled into treasury and retired
    (224,927,880 )     (224,928 )     224,928       -       -       -  
                                                 
Shares issued for cash
    500,000       500       499,500       -       -       500,000  
                                                 
Net loss
    -       -       -       (59,940 )     (403,726 )     (463,666 )
                                                 
Balance, December 31, 2010
    46,502,120       1,267       736,783       (233,532 )     (403,726 )     100,792  
                                                 
Additional paid-in capital in exchange for facilities provided by related party
    -       -       600       -       -       600  
                                                 
Amortization of debt discount
    -       -       600,000       -       -       600,000  
                                                 
Net loss
    -       -       -       -       (988,328 )     (988,328 )
                                                 
Balance, March 31, 2011
    46,502,120     $ 1,267     $ 1,337,383     $ (233,532 )   $ (1,392,054 )   $ (286,936 )
                                                 
                                                 
* - Retroactively restated for 60:1 forward split
 
                                               
 
See accompanying notes to financial statements.
 
 
6

 
 
(An Exploration Stage Company)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
   
 
For the Three Months ended March 31, 2011
   
For the Three Months ended March 31, 2010
   
For the Period from Inception
(October 31, 2006) through
March 31, 2011
 
Cash flows from operating activities
                 
Net loss
  $ (9,888,328 )   $ (11,928 )   $ (1,625,586 )
Adjustments to reconcile net loss to net cash used in operating activities
                       
Additional paid-in capital in exchange for facilities provided by related party
    600       600       10,600  
Depreciation
    153       153       2,265  
       Forgiveness of accounts and note payable
    -               (75,781 )
       Amortization of debt discount
    600,000               600,000  
       Fair value of warrants
    -               172,500  
Changes in operating assets and liabilities
                       
(Increase) in prepaid expenses
    -       -       -  
Increase in accounts payable and accrued  expenses
    29,405       10,223       148,671  
                         
Net cash used in operating activities
    (358,170 )     (952 )     (767,331 )
                         
Cash flows from investing activities
                       
Purchase of property and equipment
    -       -       (3,056 )
Purchase of unproven mineral properties
    -       -       (244,910 )
                         
Net cash used by investing activities
    -       -       (247,966 )
                         
Cash flows from financing activities
                       
Payments on notes payable
    (50,000 )     -       (50,000 )
Proceeds from issuance of notes payable
    600,000       -       1,100,000  
Proceeds from issuance of loans
    -       4,000       17,000  
Proceeds from issuance of common stock
    -       -       555,550  
                         
Net cash provided by financing activities
    550,000       4,000       1,622,550  
                         
Net increase in cash
    191,830       3,048       607,253  
                         
Cash, beginning of period
    415,423       947       -  
                         
Cash, end of period
  $ 607,253     $ 3,995     $ 607,253  
                         
Supplemental disclosure of cash flow
   information
                       
Income taxes paid
  $ -     $ -     $ -  
                         
Interest paid
  $ -     $ -     $ 7,016  
                         
Non-cash transaction for unproven mineral properties and assignment of note payable
  $ -     $ -     $ 950,000  
 
See accompanying notes to financial statements.


 
7

 
 
 (An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2011
(UNAUDITED)

1.  
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Nature of Operations
 
Coyote Resources, Inc. (the "Company") is currently an exploration stage company under the provisions of Statement of Accounting Standards Codification (ASC) No. 915 and was incorporated under the laws of the State of Nevada on October 31, 2006.  Since inception, the Company has produced minimal revenues and will continue to report as an Exploration stage company until significant revenues are produced.
 
On August 12, 2010, the Company entered into a Debt Repayment Agreement with KMR, pursuant to which the Company acquired all of KMR’s rights to the Tonopah Extension Mine and the Golden Trend Property (“Asset Acquisition”). As a result of the Asset Acquisition, the Company changed management, entered the mining business, and ceased all activity in its former business. The current business is comprised solely of the assets acquired from KMR.  By virtue of that acquisition, the Company’s principal activity is the exploration and development of mineral properties which may include gold, silver, platinum, copper, zinc, and other mineral elements or compounds.  
 
Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported periods.  Actual results could materially differ from those estimates.
 
Cash and Cash Equivalents
 
For purposes of the balance sheet and statement of cash flows, the Company considers all highly liquid debt instruments purchased with maturity of three months or less to be cash equivalents.
 
Fair Value of Financial Instruments
 
Pursuant to ASC No. 825, “Financial Instruments”, the Company is required to estimate the fair value of all financial instruments included on its balance sheet.  The carrying value of cash, accounts payable and accrued expenses approximate their fair value due to the short period to maturity of these instruments.


 
8

 
 
COYOTE RESOURCES, INC.
 (An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2011
(UNAUDITED)

1.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
Property and Equipment
 
Property and equipment, if any, are stated at cost.  Depreciation of property and equipment is provided using the straight-line method over the estimated useful lives of the assets.  Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized.  Expenditures for maintenance and repairs are changed to expense as incurred.
 
Mineral Properties
 
Realization of the Company's investment in and expenditures on mineral properties is dependent upon the establishment of legal ownership, the attainment of successful production from the properties or from the proceeds of their disposal.
 
Title to mineral properties involves certain inherent risks due to the difficulties of determining the validity of certain claims as well as the potential for problems arising from the frequently ambiguous conveyancing history characteristics of many mineral properties. To the best of its knowledge the Company believes all of its unproved mineral interests are in good standing and that it has title to all of these mineral interests.  The Company classifies its mineral rights as tangible assets and accordingly acquisition costs are capitalized as mineral property costs.
 
Long-lived assets are to be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review for recoverability, the Company is to estimate the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the undiscounted expected future cash flows is less than the carrying amount of the asset, an impairment loss is recognized.
 
Asset Retirement Obligations
 
The Company records the fair value of an asset retirement obligation as a liability in the period in which it incurs an obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the assets. The estimated fair value of the asset retirement obligation is based on the current cost escalated at an inflation rate and discounted at a credit adjusted risk-free rate. This liability is capitalized as part of the cost of the related asset and amortized over its useful life.  The liability accretes until the Company settles the obligation.  To date the Company has not incurred any measurable asset retirement obligations.
 
 
9

 

COYOTE RESOURCES, INC.
 (An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2011
(UNAUDITED)
 
1.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
Revenue Recognition
 
Revenue and royalty from the sale of minerals is to be recognized when (a) persuasive evidence of a sale with a customer exists, (b) services are rendered, (c) fee is fixed or determinable, and (d) collection of the fee is reasonably assured.
 
Provision for Income Taxes
 
The Company accounts for income taxes under ASC No. 740, “Accounting for Income Taxes”.  Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs.  A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.
 
Comprehensive Income
 
The Company applies ASC No. 220, “Comprehensive Income” (ASC 220).  ASC 220 establishes standards for the reporting and display of comprehensive income or loss, requiring its components to be reported in a financial statement that is displayed with the same prominence as other financial statements.  From inception (October 31, 2006) through March 31, 2011, the Company had no other components of comprehensive loss other than net loss as reported on the statement of operations.
 
Basic and Diluted Income (Loss) Per Share
 
In accordance with ASC No. 260, “Earnings Per Share”, basic income (loss) per common share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding.  Diluted income (loss) per common share is computed similar to basic income per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.

 
10

 

COYOTE RESOURCES, INC.
 (An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2011
(UNAUDITED)
 
1.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
Basic and Diluted Income (Loss) Per Share (continued)
 
As of March 31, 2011, the Company had $1,100,000 of secured convertible debt that could be converted into 2,200,000 shares of the Company’s common stock.  As of March 31, 2011, the Company also had 2,200,000 outstanding warrants to purchase 2,200,000 shares of the Company’s common stock.
 
Recent Accounting Pronouncements
 
There were various accounting updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's financial position, results of operations or cash flows. 
 
2.           GOING CONCERN
 
As shown in the accompanying financial statements, the Company has incurred a net loss of ($1,625,586) from inception (October 31, 2006) through March 31, 2011. The Company is subject to those risks associated with exploration stage companies.  The Company has sustained losses since inception and additional debt and equity financing will be required by the Company to fund its development activities and to support operations.  However, there is no assurance that the Company will be able to obtain additional financing.  Furthermore, there is no assurance that rapid technological changes, changing customer needs and evolving industry standards will enable the Company to introduce new products on a continual and timely basis so that profitable operations can be attained.  These factors raise substantial doubt about the ability of the Company to continue operation as a going concern.
 


 
11

 

COYOTE RESOURCES, INC.
 (An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2011
(UNAUDITED)

3.         FAIR VALUE MEASUREMENTS
 
On January 1, 2008, the Company adopted FASB Accounting Standards Codification No. 820 (SFAS 157), Fair Value Measurements.  ASC 820 relates to financial assets and financial liabilities.
 
Determination of Fair Value
 
At March 31, 2011, the Company calculated the fair value of its assets and liabilities for disclosure purposes only.
 
Valuation Hierarchy
 
ASC 820 establishes a three-level valuation hierarchy for the use of fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date:
 
  •
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
 
  •
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
 
  •
Level 3 - Inputs that are both significant to the fair value measurement and unobservable. These inputs rely on management's own assumptions about the assumptions that market participants would use in pricing the asset or liability. (The unobservable inputs are developed based on the best information available in the circumstances and may include the Company's own data.)
 
The following table presents the Company's fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of March 31, 2011:
 
     
March 31, 2011
 
     
Level 1
   
Level 2
   
Level 3
   
Total
 
 
Assets
                       
 
  Unproven mineral properties
 
$
-
   
$
-
   
$
1,194,910
   
$
1,194,910
 
 
Liabilities
   
-
     
-
     
-
     
-
 
     
$
   
$
-
   
$
1,194,910
   
$
1,194,910
 


 
12

 
 
COYOTE RESOURCES, INC.
 (An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2011
(UNAUDITED)
4.         UNPROVEN MINERAL PROPERTIES
 
On April 23, 2010, the Company loaned $200,000 to KMR Resources, Inc. a Nevada corporation (“KMR”) in order for KMR to fund certain of its operations. In exchange for the funds, KMR executed a promissory note in that amount, which was payable on demand by the Company including interest of 8% per annum.  On August 12, 2010, the Company and KMR entered into a Debt Repayment Agreement (“Debt Repayment Agreement”), pursuant to which KMR agreed to repay the Company the amount due under the promissory note dated April 23, 2010, by assigning all of KMR’s rights to certain mineral claims as further described below.  The amount of the note receivable repayment, including interest, was $204,910.
 
On August 12, 2010, pursuant to the Debt Repayment Agreement with KMR, the Company was assigned KMR’s rights to the following:
 
(i)  
a mineral lease and option to purchase agreement between KMR and Cliff ZZ L.L.C., which provides that  Cliff ZZ L.L.C shall lease certain patented mining claims located in Esmeralda and Nye Counties, Nevada, including the Tonopah Extension Mine, to KMR, and that KMR shall have the option to acquire ownership of those claims (the “Tonopah Extension Mine”), and
 
(ii)  
a mining lease between KMR and Rubicon Resources, Inc., which provides that KMR shall own the exclusive rights to explore, develop and mine certain unpatented mining claims located in Eureka County, Nevada (“Golden Trend Property”).
 
In addition, on August 12, 2010, the Company was assigned the rights to a Mining Lease for certain unpatented mining claims in Eureka County, Nevada.  The lease term is ten (10) years and is subject to a net smelter return royalty on production at the rate of 3.0% of net smelter returns (NSR’s).  An initial Advanced Minimum Royalty (AMR) of $45,000 was paid upon signing and additional AMR’s of $15,000 shall be paid at 6-month intervals.  All AMR’s shall be recaptured before any NSR’s are paid from production.  There is no annual work commitment.
 
On August 12, 2010, the Company was assigned the rights a Mining Lease and Option to Purchase Agreement for certain patented mineral claims in Esmeralda and Nye Counties of Nevada.  This lease is for five (5) years with the option to purchase for a total of $1,000,000 to be paid over a period of 5 years, beginning with a $10,000.00 initial payment made by KMR on March 31, 2010.  A 4% net smelter royalty is reserved.

 
13

 
 
COYOTE RESOURCES, INC.
 (An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2011
(UNAUDITED)
 
4.         UNPROVEN MINERAL PROPERTIES (continued)
 
The following table presents information regarding the Company’s costs for its unproven mineral properties:
 
     
March 31, 2011
 
 
Property acquisition costs:
     
 
Unproven
     
 
Opening balance
  $ -  
 
Nevada claims
    1,194,910  
 
Write downs
    (- )
           
      $ 1,194,910  
 
6.           ACCRUED EXPENSES
 
Accrued Wages and Compensated Absences
 
The Company currently does not have any employees other than its officer and founder.  The majority of development costs and services have been provided to the Company by the founders and outside, third-party vendors.  As such, there is no accrual for wages or compensated absences as of March 31, 2011.
 
7.           NOTES PAYABLE
 
Note Payable
 
On August 12, 2010, in connection with the assignment of the rights a Mining Lease and Option to Purchase Agreement for certain patented mineral claims in Esmeralda and Nye Counties of Nevada, the Company assumed the balance of the purchase option of $990,000.  The Company has made two (2) required payments in the aggregate amount of $90,000 for the period ended March 31, 2011.  The balance of the purchase option was $900,000 at March 31, 2011.
 

 
14

 
 
COYOTE RESOURCES, INC.
 (An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2011
(UNAUDITED)
7.           NOTES PAYABLE (continued)
 
Convertible Notes Payable
 
On August 13, 2010, the Company entered into a Note and Warrant Purchase Agreement with one investor pursuant to which the investor agreed to lend up to Two Million Dollars ($2,000,000) to the Company in multiple installments in exchange for a senior secured convertible promissory note (“Note”) with a conversion price of $0.50 per share and five-year warrants to acquire shares of common stock at an exercise price of $0.75 per share (the “Warrants”) in the amount of each installment. The first installment of Five Hundred Thousand Dollars ($500,000) (“First Installment”) was delivered on the Closing Date and the Company issued 500,000 Warrants to the investor in connection with the First Installment.  Included in the First Installment was the repayment of the April 22, 2010 $200,000 note payable.  As of March 31, 2011, the Company owed $500,000 of principal and $31,918 of interest under this Note and Warrant Purchase Agreement.  The principal amount of the note is due, together with interest at 10% per annum, on August 13, 2013.  The fair value of the 500,000 warrants issued was estimated at $172,500 using the Black-Scholes option pricing model.
 
On January 19, 2011, the Company received $100,000 in exchange for a convertible note.  The convertible note can be converted into 200,000 shares at a conversion price of $0.50.  Attached to the convertible note are 100,000 warrants with the option to purchase up to 100,000 shares of the Company’s stock at an exercise price of $0.75 each.  The fair value of the warrants was estimated at $29,199 using the Black-Scholes option pricing model.  The principal amount of the note is due, together with interest at 10% per annum, on August 13, 2013.
 
On March 17, 2011, the Company received $500,000 in exchange for a convertible note.  The convertible note can be converted into 1,000,000 shares at a conversion price of $0.50.  Attached to the convertible note are 500,000 warrants with the option to purchase up to 500,000 shares of the Company’s stock at an exercise price of $0.75 each.  The fair value of the warrants was estimated at $128,540 using the Black-Scholes option pricing model.  The principal amount of the note is due, together with interest at 10% per annum, on August 13, 2013.
 
Pursuant to ASC 470-20 “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios”, the Company determined that a beneficial conversion feature is present for the convertible notes issued during the quarter ended March 31, 2011 using the intrinsic value in the convertible notes adjusted for amounts allocated to the warrant valuation. The intrinsic value of the convertible notes amounted to $2,090,000 based on the fair market value of common stock on the respective dates of issuance.
 
Since the combined value of the warrants ($157,739) plus the intrinsic value of the convertible notes ($2,090,000) exceeds the fair value of the proceeds received from the issuance of the debt ($600,000), the Company is limited to the amount of the proceeds when recording the beneficial conversion feature as debt discount. Using a pro rata contribution, the Company allocated the proceeds first to the warrant valuation in the amount of approximately $42,100 and the remainder to the beneficial conversion feature in the amount of $557,900. The Company immediately amortized the debt discount of $600,000 for the three months ended March 31, 2011 since the debt is immediately convertible.
 
8.           LOANS FROM STOCKHOLDERS
 
The Company has an outstanding note payable with a stockholder in the amount of $22,000.  Per the terms of the note, this loan was due in one lump-sum payment on December 28, 2007, together with interest that accrues at the rate of 8% per annum.  The loan funds are to be used for working capital purposes.  The loan agreement was amended to extend the due date of the loan to January 28, 2011.
 
On April 20, 2009, the Company entered into a note payable with a stockholder in the amount of $6,000.  Per the terms of the note, this loan is due upon demand and accrues interest at the rate of 10% per annum.  The loan funds are to be used for working capital purposes.
 
 
15

 
 
COYOTE RESOURCES, INC.
 (An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2011
(UNAUDITED)
8.           LOANS FROM STOCKHOLDERS (continued)

On July 13, 2009, the Company entered into a note payable with a stockholder in the amount of $5,000.  Per the terms of the note, this loan is due upon demand and accrues interest at the rate of 10% per annum.  The loan funds are to be used for working capital purposes.

On November 14, 2009, the Company entered into a note payable with a stockholder in the amount of $2,000.  Per the terms of the note, this loan is due upon demand and accrues interest at the rate of 10% per annum.  The loan funds are to be used for working capital purposes.
 
On March 8, 2010, the Company entered into a note payable with a stockholder in the amount of $4,000.  Per the terms of the note, this loan is due upon demand and accrues interest at the rate of 10% per annum.  The loan funds are to be used for working capital purposes.
 
On August 13, 2010, the Company entered into Stock Cancellation and Debt Forgiveness Agreement (the “Cancellation Agreement”) with a stockholder, pursuant to which the Company and the stockholder agreed to cancel 224,927,880 shares of common stock held by the stockholder.  The stockholder also agreed to release the Company from any obligation to pay any monies due to the stockholder pursuant to the Promissory Note dated December 28, 2006, as amended, in exchange for Twenty Five Thousand Dollars ($25,000).
 
As of March 31, 2011, $17,000 of principal and $2,733 of interest was due to various stockholders per the above notes.
 
9.           COMMON STOCK
 
On November 8, 2010 the Company entered into a subscription agreement with an unrelated party and received $500,000 in exchange for 500,000 shares of the Company’s common stock and 500,000 warrants to purchase 500,000 shares of the Company’s common stock at $0.50 each.
 
On August 18, 2010 the Board of Directors authorized a 60 for 1 forward stock split of the Company’s issued and outstanding common stock.  The record date for the forward stock split was August 30, 2010.  These financial statements and all references to common stock reflect the forward stock split as if it occurred on the first date of these financial statements.
 
On November 1, 2006, the Company issued 240,000,000 shares of its common stock to its officers for cash of $4,000 which was considered a reasonable estimate of fair value.
 
 
16

 
 
COYOTE RESOURCES, INC.
 (An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2011
(UNAUDITED)
 
9.           COMMON STOCK (continued)
 
On June 30, 2007, the Company issued 18,930,000 shares of its common stock to unrelated investors for cash of $31,550 pursuant to the Company’s Registration Statement.
 
On July 23, 2007, the Company issued 12,000,000 shares of its common stock to unrelated investors for cash of $20,000 pursuant to the Company’s Registration Statement.
 
On August 13, 2010, in connection with the Cancellation Agreement a stockholder agreed to cancel 224,927,880 shares of common stock.  These shares are reported as held in treasury at their original value until retired.
 
10.         PROVISION FOR INCOME TAXES
 
Deferred income taxes are reported using the liability method.  Deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences.  Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases.  Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.  Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
 
As of March 31, 2011, the Company had federal net operating loss carryforwards of approximately ($1,018,000), which can be used to offset future federal income tax.  The federal and state net operating loss carryforwards expire at various dates through 2030.  Deferred tax assets resulting from the net operating losses are reduced by a valuation allowance, when, in the opinion of management, utilization is not reasonably assured.
 
A summary of the Company’s deferred tax assets as of March 31, 2011 are as follows:
 
     
2011
 
           
 
Federal net operating loss (@ 34%)
 
$
346,000
 
 
Less:  valuation allowance
   
(346,000
)
           
 
Net deferred tax asset
 
$
---
 
 
The valuation allowance increased $188,000 during the three months ended March 31, 2011.
 

 
17

 
 
COYOTE RESOURCES, INC.
 (An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2011
(UNAUDITED)

11.       RELATED PARTY TRANSACTIONS
 
From the Company’s inception (October 31, 2006) through March 31, 2011, the Company utilized office space of an officer and stockholder at no charge.  The Company treated the usage of the office space as additional paid-in capital and charged the estimated fair value rent of $200 per month to operations.  For the three months ended March 31, 2011 and 2010, the Company recorded rent expense of $600 and $600, respectively.
 
12.       DISCONTINUED OPERATIONS
 
On August 12, 2010, in connection with the Company’s Debt Repayment Agreement with KMR, pursuant to which the Company acquired all of KMR’s rights to certain mineral claims, the Company changed management, entered the mining business, and ceased all activity in its former business of video production and media relations.  Accordingly, the Company’s results from its former business are shown in the statements of operations under the caption, “Loss on Discontinued Operations” and its cumulative deficit under the caption, “Accumulated Deficit” on the balance sheet.
 
 
18

 
 
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
This following information specifies certain forward-looking statements of management of the company. Forward-looking statements are statements that estimate the happening of future events and are not based on historical fact. Forward-looking statements may be identified by the use of forward-looking terminology, such as “may”, “shall”, “could”, “expect”, “estimate”, “anticipate”, “predict”, “probable”, “possible”, “should”, “continue”, or similar terms, variations of those terms or the negative of those terms. The forward-looking statements specified in the following information have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements.
 
The assumptions used for purposes of the forward-looking statements specified in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. We cannot guaranty that any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and we assume no obligation to update any such forward-looking statements.
 
Critical Accounting Policy and Estimates. Our Management’s Discussion and Analysis of Financial Condition and Results of Operations section discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources. In addition, these accounting policies are described at relevant sections in this discussion and analysis and in the notes to the financial statements included in this Quarterly Report on Form 10-Q for the period ended March 31, 2011.
 
The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements for the period ended March 31, 2011, together with notes thereto.  
 
 
19

 
For the three months ended March 31, 2011, as compared to the three months ended March 31, 2010.
 
Results of Operations.
 
Revenues. We had no revenues for the three months ended March 31, 2011, as compared to no revenues for the three months ended March 31, 2010. 
 
Operating Expenses. For the three months ended March 31, 2011, our total operating expenses were $371,415, which consisted of legal and professional fees of $98,666, general and administrative expenses of $9,963, officer compensation of $105,500 and exploration costs of $157,286.  We expect that we will continue to incur significant exploration costs as well as legal and accounting expenses related to being a public company. For the three months ended March 31, 2010, we had a loss on discontinued operations of $11,928, which was from our former business.
 
Other Expense. For the three months ended March 31, 2011, we had interest expense of $16,913 and amortization of debt discount of $600,000, which resulted in total other expense of $616,913.
 
Net Loss.   For the three months ended March 31, 2011, our net loss was $988,328 as compared to a net loss of $11,928 for the three months ended March 31, 2010.  The increase in our net loss between the two periods was primarily due to the fact that we have much more significant operations with exploration costs as compared to the prior period where we had very insignificant operations. We expect to continue to incur net losses for the foreseeable future.
 
Liquidity and Capital Resources.  As of March 31, 2011, we had cash of $607,253, property and equipment of $791, net of $2,265 of accumulated depreciation, and unproven mineral properties of $1,194,910, making our total assets of $1,802,954 as of March 31, 2011.
 
Our unproven mineral properties of $1,194,910, as of March 31, 2011, consist of our rights to the Tonopah Extension Mine and the Golden Trend Property.
 
Our current liabilities were $178,944 as of March 31, 2011, which was represented by accounts payable and accrued expenses of $36,944, current notes payable of $125,000, and loans from stockholders of $17,000.
 
In August 2010, and in connection with certain rights we acquired to a Mining Lease and Option to Purchase Agreement from Cliff ZZ L.L.C for certain patented mineral claims in Esmeralda and Nye Counties of Nevada (the “Purchase Option”), we assumed the balance of the purchase option of $990,000.  We have made two required payments in the aggregate amount of $90,000 for the period ended March 31, 2011.  The balance of the Purchase Option was $900,000 at March 31, 2011. Our current notes payable of $125,000 represent the upcoming payments that are due on the Purchase Option for the next twelve months.
 
The loan payable to shareholder of $17,000 is payable to two of our former minority shareholders. On April 20, 2009, we entered into a note payable with a stockholder in the amount of $6,000.  On July 13, 2009, we entered into a note payable with a stockholder in the amount of $5,000.  On November 14, 2009, we entered into a note payable with a stockholder in the amount of $2,000.  On March 8, 2010, we entered into a note payable with a stockholder in the amount of $4,000.  These loans are due upon demand and accrue interest at the rate of 10% per annum.  The loan funds were used for working capital purposes. As of March 31, 2011, $17,000 of principal and $2,733 of interest was due to various stockholders per the above notes. We are currently negotiating payment of those loans with the holders.
 
 
20

 
Our long-term notes payable were $1,910,946 as of March 31, 2011, which consisted of $1,100,000 that was loaned to us pursuant to the Note and Warrant Purchase Agreement (the “Financing Agreement”) with Socially Responsible Wealth Management Ltd. (“SRWM”) as described below, $35,946 in accrued interest due to SRWM and the balance of $775,000, which is owed to Cliff ZZ L.L.C. pursuant to the Purchase Option.
 
On August 13, 2010, we entered into the Financing Agreement with SRWM pursuant to which SRWM agreed to lend up to $2,000,000 to us in multiple installments in exchange for senior secured convertible promissory notes with a conversion price of $0.50 per share (“Notes”) and five-year warrants to acquire shares of common stock at an exercise price of $0.75 per share (“Warrants”) in the amount of each installment. The Notes are due on August 13, 2013, or upon default, whichever is earlier, and bear interest at the annual rate of 10%. The Notes have an optional conversion feature by which SRWM can convert the principal and accrued interest into shares of our common stock at a conversion price of $0.50 per share. The Warrants expire five years from the date of the investment. The Financing Agreement provides that SRWM will lend additional installments to us in amounts as requested by us; provided however, that we provide the proposed use of proceeds for each requested amount. SRWM shall have sole discretion in determining whether the proposed use of proceeds is acceptable.
 
In connection with the Financing Agreement, we have issued the following Notes and Warrants to SRWM on the following dates:
 
 
Date of Note
Amount of Note
 
Number of Warrants
 
 
August 13, 2010
$500,000
500,000
 
 
January 19, 2011
$100,000
100,000
 
 
March 17, 2011
$500,000
500,000
 
 
We had no other liabilities and no long term commitments or contingencies as of March 31, 2011.
 
During 2011, we expect that the following will continue to impact our liquidity: (i) legal and accounting costs of being a public company; (ii) future payments to Cliff ZZ L.L.C. for the balance of the Purchase Option; (iii) expected expenses related to the development of the Golden Trend Property and the Tonopah Extensions Mine; and (iv) anticipated increases in overhead and the use of independent contractors for services to be provided to us. We will need to obtain funds to pay those expenses. Other than those items specified above, we are not aware of any other known trends, events or uncertainties, which may affect our future liquidity.
 
As of March 31, 2011, we had cash of $607,253.  In the opinion of management, available funds will not satisfy our working capital requirements to operate at our current level of activity for the next twelve months. Our forecast for the period for which our financial resources will be adequate to support our operations involves risks and uncertainties and actual results could fail as a result of a number of factors.
 
 
21

 
In order to implement our business plan in the manner we envision, we need to raise additional capital in addition to the funds that we obtained pursuant to the Financing Agreement.  We cannot guaranty that we will be able to raise additional funds. Moreover, in the event that we can raise additional funds, we cannot guaranty that additional funding will be available on favorable terms.
 
We are not currently conducting any research and development activities.  We do not anticipate conducting such activities in the near future. We intend to use independent contractors for certain services related to the Golden Trend Property and the Tonopah Extension Mine. We anticipate that we may need to purchase or lease additional equipment in order to conduct certain of our operations. However, as of the date of this report, we do not have any specific plans to purchase or lease additional equipment.
 
Off-Balance Sheet Arrangements.
 
We have no off-balance sheet arrangements.
 
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
 
Not applicable.
 
Item 4. Controls and Procedures.
 
Evaluation of disclosure controls and procedures. We maintain controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosures. Based upon their evaluation of those controls and procedures performed as of the end of the period covered by this report, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective.
 
Changes in internal controls. There were no changes in our internal control over financial reporting that occurred during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
 
 
22

 
PART II — OTHER INFORMATION
 
Item 1. Legal Proceedings.
 
None.
 
Item 1A. Risk Factors.
 
Not applicable.
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 
None.
 
Item 3.  Defaults Upon Senior Securities.
 
None.
 
Item 4.  (Removed and Reserved).
 
 
Item 5.  Other Information.
 
None.
 
Item 6.  Exhibits.
 
 
 

 
23

 


 
 
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
Coyote Resources, Inc.,
a Nevada corporation
 
       
Date: May 23, 2011    
By:
/s/ Earl Abbott
 
   
Earl Abbott
President, Secretary and Treasurer
(Principal, Executive, Financial and Accounting Officer)
 
 

 
 
 
24