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EX-21 - EXHIBIT 21 - ANGSTRON HOLDINGS Corpv309531_ex21.htm
EX-3.5 - EXHIBIT 3.5 - ANGSTRON HOLDINGS Corpv309531_ex3-5.htm
EX-31.1 - EXHIBIT 31.1 - ANGSTRON HOLDINGS Corpv309531_ex31-1.htm
EX-32.1 - EXHIBIT 32.1 - ANGSTRON HOLDINGS Corpv309531_ex32-1.htm
EX-10.8 - EXHIBIT 10.8 - ANGSTRON HOLDINGS Corpv309531_ex10-8.htm
EX-31.2 - EXHIBIT 31.2 - ANGSTRON HOLDINGS Corpv309531_ex31-2.htm
EX-32.2 - EXHIBIT 32.2 - ANGSTRON HOLDINGS Corpv309531_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, 2011

OR

¨ 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.)
     

c/o Gottbetter & Partners, LLP

488 Madison Avenue, 12th Floor

New York, NY

 

 

10022

(Address of principal executive offices)   (Postal Code)

 

Registrant’s telephone number: _(212) 400-6900

 

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 ¨   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 ¨

 

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 ¨

 

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. ¨

 

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 ¨   Accelerated Filer ¨

Non-Accelerated Filer ¨

(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).

Yes x   No ¨

 

On June 30, 2011, there were 70,298,322 shares of the registrant's common stock, par value $0.001, issued and outstanding. Of these, 40,680,000 shares were held by non-affiliates of the registrant. The market value on June 30, 2011 of those shares held by non-affiliates was $10,170,000, based on the price of $0.25 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
       
1. Business   6
1A. Risk Factors   6
1B. Unresolved Staff Comments   6
2. Properties   6
3. Legal Proceedings   6
4. (Removed and Reserved)   6
       
PART II     7
       
5. Market For Registrant’s Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities   7
6. Selected Financial Data   9
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations   9
8. Financial Statements and Supplemental Data   11
9A. Controls And Procedures   11
9B. Other Information   13
       
PART III     13
       
10. Directors, Executive Officers, and Corporate Governance   13
11. Executive Compensation   16
12. Security Ownership Of Certain Beneficial Owners And Management And Related Stockholder Matters   18
13. Certain Relationships And Related Transactions and Director Independence   20
14. Principal Accountant Fees And Services   21
       
PART IV     F-1
       
15. Exhibits and Financial Statement Schedules   F-1

  

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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. 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.

 

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PART I

 

ITEM 1. BUSINESS

 

History and General Development of Our Business

 

Loreto Resources Corporation 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 Mexico (the “Legacy Business”).

 

During the latter 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.

 

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.  We were seeking, at that time, development and production-stage zinc, copper, gold and silver mining assets. For commercial reasons, we decided not to pursue any of the acquisitions proposed in those letters.

 

We recently changed our focus and are now primarily seeking quality assets and investment opportunities.  During the quarter ended September 30, 2010, we closed our office in Lima, Peru.

 

On January 15, 2010 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.

 

We have begun identifying and investigating new investment opportunities, but we have not yet finalized decisions to pursue any particular project.

 

Effective May 5, 2010, we entered into a written agreement with Luis Saenz pursuant to which Mr. Saenz’s employment agreement with us dated July 21, 2008 was terminated. Pursuant to the terms of the termination agreement, Mr. Saenz released us from any and all obligations to him relating to his employment agreement, including, but not limited to, any and all rights and claims to compensation, bonuses and expense reimbursements. Mr. Saenz also agreed to terminate his option agreement with us dated July 21, 2008 and has relinquished all rights originally granted under that agreement.

 

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Additionally, during the 12 months ended December 31, 2010, we reached settlements with all of our creditors in connection with outstanding bills relating to our former proposed mining operations, and we terminated option agreements that we had in place with a number of consultants. We also reached a settlement agreement with Gottbetter & Partners, LLP, our legal counsel (“G&P”), whereby G&P agreed to forego payment of $49,580 in legal fees due for the 2009 fiscal year in exchange for and upon receipt of 198,322 restricted shares of our common stock (valued at $0.25 per share).  Those shares were issued to G&P on November 11, 2010.

 

On August 8, 2011, we entered into a letter of intent with Eagleford Energy Inc. (“Eagleford”), a publicly held Ontario corporation, relating to a potential farm-in by us of an up to 50% working interest in Eagleford’s net working interests in the Matthews and Murphy oil and gas leases in Zavala County, Texas. On October 18, 2011, we terminated that letter of intent.

 

On August 18, 2011, Nadine Smith resigned from her position as a director and Chairman of the Company.  Ms. Smith’s resignation did not arise from any disagreement with the Company.

 

On August 25, 2011, Luis F. Saenz resigned as our Chief Executive Officer. Mr. Saenz remains our President, Interim Chief Financial Officer and a member of our Board of Directors. On that same date, our Board of Directors appointed Adam Zive as Interim Chief Executive Officer and elected Mr. Zive as a director of the Company to fill the vacancy created by the resignation of Ms. Smith.

 

Mr. Zive, who is 33, has since 2009 been the President and Chief Executive Officer of Dorian Financial Limited (Barbados), a private company owned by Mr. Zive.  From 2008 until 2009, he was the head of Africa oil and gas research for Renaissance Capital, and from 2006 to 2008, the head of oil and gas research for Desjardins Securities.

 

Research and Development

 

We have not spent any amounts on research and development activities during either of the last two fiscal years.

 

Employees

 

As of March 31, 2012, we did not have any full time employees.

 

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Expected Split-Off of Legacy Business

 

In connection with the discontinuation of our Legacy Business and the redirecting of our business strategy, 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 2012. 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

 

None.

 

ITEM 3. LEGAL PROCEEDINGS

 

No legal or governmental proceedings are presently pending or, to our knowledge, threatened, to which we are a party.

 

ITEM 4. (REMOVED AND RESERVED)

 

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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 January 2, 2010 to December 31, 2011, 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, 2011
Quarter Ended
  High Bid     Low Bid 
March 31, 2011  $0.044   $0.04 
           
June 30, 2011  $0.045   $0.01 
           
September 30, 2011  $0.0121   $0.01 
           
December 31, 2011  $0.75   $0.0121 

 

Fiscal Year Ended December 31, 2010
Quarter Ended
  High Bid     Low Bid 
January 2, 2010 through January 30, 2010  $0.40   $0.25 
           
February 2, 2010 through March 31, 2010 (1)  $0.05   $0.01 
           
June 30, 2010  $0.03   $0.01 
           
September 30, 2010  $0.01   $0.01 
           
December 31, 2010  $0.043   $0.01 

 

 

(1) Pricing from February 1, 2010 reflects the January 2010 2:1 forward stock split.

 

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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 16, 2012, we had 70,298,322 shares of our Common Stock issued and outstanding held by __ shareholders of record.

 

Securities Authorized For Issuance Under Equity Compensation Plans

 

On July 3, 2008, our Board of Directors and stockholders adopted the 2008 Equity Incentive Plan (the “2008 Plan”) which reserves a total of 16,000,0001 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, 2011, we have not issued any shares and there are no outstanding grants under the 2008 Plan.

 

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 November 17, 2010, we completed a private placement offering (the “2010 Offering”) of our 10% Convertible Promissory Notes (the “2010 Notes”). We sold an aggregate principal amount of $149,960 of the 2010 Notes in the 2010 Offering. The 2010 Notes contained a mandatory conversion feature pursuant to which they were to be automatically converted at the initial closing of our next private placement, together with accrued interest, into those securities of the Company offered in the private placement. That next private placement took place on March 15, 2011.

 

On March 15, 2011, we closed a private placement offering (the “March 2011 Offering”) of our 10% convertible promissory notes (the “March 2011 Notes”). In the March 2011 Offering, we sold $90,000 in principal amount of the March 2011 Notes. As of March 1, 2011, we deemed the 2010 Notes, along with accrued but unpaid interest, to have been converted, on a mandatory basis, into new notes on the same terms, including a new maturity date of March 31, 2012, as the March 2011 Notes.

 

 

1. Adjusted for the July 24, 2008, February 2, 2009 and January 29, 2010 2 for 1 stock splits. 

  

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The March 2011 Notes bear interest of 10%, mature on March 31, 2012, and both the principal and accrued interest will be mandatorily converted at a price equal to either (a) the price per share of stock (or unit of stock and other securities) paid by investors in our next securities offering or other financing, if the financing is an issuance of stock (or unit of stock and other securities), or (b) the price paid by investors in our next securities offering or other financing, expressed as a percentage of the face amount of debt securities, if the financing is an issuance of debt securities (or units of debt securities and other securities) (including debt securities convertible into stock), upon the closing of, and into the securities issued in, the next financing in which we sell at least $1,000,000 of our securities.

 

On October 10, 2011, we closed a private placement offering (the “October 2011 Offering”) of $52,500 principal amount of our 10% Convertible Notes due April 9, 2013 (the “October 2011 Notes”).  At the Closing, we received gross proceeds of $52,500 from the sale of the October 2011 Notes.  The October 2011 Notes will be automatically converted at the initial closing of our next private placement in which we sell at least $1,000,000 of our securities.

 

On February 1, 2012, we closed a private placement offering (the “February 2012 Offering”) of our 10% convertible promissory notes (the “February 2012 Notes”). In the February 2012 Offering, we sold $50,000 in principal amount of the February 2012 Notes to one existing investor. The February 2012 Notes mature on July 31, 2013 and will be automatically converted at the initial closing of the Company’s next private placement in which we sells at least $1,000,000 of our securities, so long as such offering closes concurrent with the closing of a related merger or other acquisition transaction.

 

We intend to utilize the proceeds of the February 2012 Offering for working capital and general corporate purposes.

 

All of the offerings discussed above were 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 , and Section 4(2) of the Securities Act. All of the notes were 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 any of these offerings.

 

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.

 

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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, 2011 and 2010

 

We are still in our development stage and have generated no revenues to date.

 

We incurred operating expenses of $234,267 and $1,042,149 for the years ended December 31, 2011 and 2010, 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, 2011 and 2010 were $211,751 and $1,007,873, respectively.

 

We have generated no revenues and our net operating loss from inception through December 31, 2011 was $4,008,672.

 

Liquidity and Capital Resources

 

Our cash and cash equivalents balance as of December 31, 2011 was $4,136.

 

Private Offerings

 

As discussed above, during the past two years we have had a number of small private offerings of our convertible promissory notes.

 

In the 2010 Offering, we raised $149,960, in the March 2011 Offering we raised $90,000, in the October 2011 Offering we raised $52,500 and in the February 2012 Offering we raised an additional $50,000.

 

We have utilized the proceeds of these offerings for working capital and general corporate purposes. We expect to use the remaining proceeds of the February 2012 Offering to meet our current needs including the costs of filing this Annual Report on Form 10-K.

 

Working Capital Needs

 

We presently do not have any available credit, bank financing or other external sources of liquidity, other than the remaining net proceeds from the February 2012 offering. Due to our brief history and historical operating losses, our operations have not been a source of liquidity. At our current level of operation, we do not have sufficient cash to meet our expenses for the next twelve months. We expect that we will need to obtain additional capital in order to meet our current working capital needs, 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.

 

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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. 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.

 

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Management’s Annual Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining an adequate system of internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Under the supervision and with the participation of our senior management, consisting of Adam Zive, our Interim Chief Executive Officer, and Luis Saenz, our Interim Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this report (the “Evaluation Date”). Based on this evaluation, our Chief Executive and Interim Chief Financial Officer concluded, as of the Evaluation Date, that our disclosure controls and procedures were not effective because of the identification of what might be deemed a material weakness in our internal control over financial reporting which is identified below.

 

Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. In evaluating the effectiveness of our internal control over financial reporting, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on this evaluation, our sole officer concluded that, during the period covered by this annual report, our internal controls over financial reporting were not operating effectively. Management did not identify any material weaknesses in our internal control over financial reporting as of December 31, 2011; however, it has identified the following deficiencies that, when aggregated, may possibly be viewed as a material weakness in our internal control over financial reporting as of that date:

 

1.We do not have an audit committee. While we are not currently obligated to have an audit committee, including a member who is an “audit committee financial expert,” as defined in Item 407 of Regulation S-K, under applicable regulations or listing standards; however, it is management’s view that such a committee is an important internal control over financial reporting, the lack of which may result in ineffective oversight in the establishment and monitoring of internal controls and procedures.

 

2.We did not maintain proper segregation of duties for the preparation of our financial statements. We currently only have two interim officers overseeing all transactions. This has resulted in several deficiencies including the lack of control over preparation of financial statements, and proper application of accounting policies:

 

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 SEC that permit us to provide only management’s report in this annual report.

 

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Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting during the year ended December 31, 2011 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 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.

 

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
             
Luis F. Saenz   40   President, Interim Chief Financial Officer and Director   July 21, 2008
             
Adam Zive   33   Interim Chief Executive Officer and Director   August 25, 2011

 

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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:

 

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.

 

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. Accordingly, Mr. Saenz is only able to devote a portion of his 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.

 

Adam Zive

 

Mr. Zive, who is 33, has since 2009 been the President and Chief Executive Officer of Dorian Financial Limited (Barbados), a private company owned by Mr. Zive.  From 2008 until 2009 he was the head of Africa oil and gas research for Renaissance Capital, and from 2006 to 2008 the head of oil and gas research for Desjardins Securities.

 

Employment Agreements with Our Executives

 

Luis F. Saenz - Employment Agreement and Termination of Same

 

We entered into an employment agreement effective as of July 21, 2008 with Luis F. Saenz pursuant to which Mr. Saenz was appointed as our President and Chief Executive Officer. Under this agreement, we were to pay Mr. Saenz a base annual compensation of $250,000. Under this agreement, we also granted Mr. Saenz an option to purchase an aggregate of 6,200,000 shares (forward split adjusted) of our Common Stock under our 2008 Plan. The initial term of the employment agreement with Mr. Saenz expired on July 21, 2009 and was automatically renewed for an additional one (1) year term.

 

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Effective May 5, 2010, we entered into a written termination agreement with Luis Saenz pursuant to which our employment agreement with Mr. Saenz was terminated. Pursuant to the terms of this termination agreement, Mr. Saenz released us from any and all obligations to him relating to his employment agreement, including, but not limited to, any and all rights and claims to compensation, bonuses and expense reimbursements. Mr. Saenz also agreed to terminate his option agreement with us dated July 21, 2008 and relinquished all rights originally granted under that agreement.

 

Mr. Saenz remains as our President, Interim Chief Financial officer and a director.

        

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.

 

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 c/o Gottbetter & Partners, LLP, 488 Madison Avenue, 12th Floor, New York, NY 10022.

 

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.

 

15
 

 

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, 2011 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, 2011; (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 December 31, 2010; and (iii) all individuals that served as executive officers of ours at any time during the fiscal year ended December 31, 2011 that received annual compensation during the fiscal year ended December 31, 2011 in excess of $100,000.

 

Summary Compensation Table

 

Name and
Principal Position
  Year   Salary
($)
   Bonus
($)
   Stock
Awards
($)
   Option
Awards
($)
   Non-Equity
Incentive
Plan
Compen-
sation
($)
   Change in
Pension Value
and
Non-qualified
Deferred
Compensation
Earnings
($)
   All Other
Compensation
($)
   Total
($)
 
(a)  (b)   (c)   (d)   (e)   (f)   (g)   (h)   (i)   (j) 
Adam Zive, Interim Chief Executive Officer (1)  2011    0    0    0    0    0    0    0      
Luis F. Saenz, President and Interim Chief Financial Officer (2)  2011    0    0    0    0    0    0    0    0 
   2010    70,512    0    0    0    0    0    0    70,512 
                                              

(1)Adam Zive was appointed Interim Chief Executive Officer of the Company on August 25, 2011.

 

(2)Luiz Saenz resigned as Chief Executive Officer on August 25, 2011.

 

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.

 

16
 

 

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, 2011.

 

  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) 
Adam Zive, Chief Executive Officer   0  0   0    -    - 

 

There were no stock awards to executive officers during the year ended December 31, 2011, and there are no stock awards outstanding as of December 31, 2011.

 

Equity Compensation Plan Information

 

The following table sets forth information about the Company’s equity compensation plans as of December 31, 2011:

 

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   -    -    16 Million 
Equity compensation plans not approved by security holders   -    -    - 
Total   -    -    16 Million 

  

Compensation of Directors

 

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, 2011 there were no 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.

 

17
 

 

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 16, 2012 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)
    
           
Adam Zive
Common Stock  2,500,000   3.5563%  
          
Luis F. Saenz Common Stock  400,000     
          
All Officers and Directors Common Stock  2,900,000   4.19%  
As a Group (2 persons)         
 
         
Magdalena Cruz Common Stock  24,000,000   34.1%  
47395 Monroe Street, #274         
Indio, CA 92201         
 
         
Aton Select Fund Common Stock  6,000,000   8.5%  
3076 Sir Francis Drake's Highway
Raod Town, Tortola
British Virgin Islands
         

 

18
 

 

Adrien Ellul B Common Stock  5,000,000   7.1%  
SOHO Square
21 Lyndhurst Terrace
Central, Hong Kong
Hong Kong SAR
         
          
Mark Tompkins Common Stock  5,000,000   7.1%  
c/o Gottbetter & Partners, LLP
488 Madison Avenue, 12th Floor
New York, NY 10022
         
          
Paramount Strategy Corp. Common Stock  5,000,000   7.1%  
PO BOX 802
West Bay
Cayman Islands
KYI-1303
         
          
Affaires Financieres Common Stock  4,000,000   5.7%  
Nuschelerstrasse 44
8001 Zurich
Switzerland
         
          
TangoCorp, Inc. Common Stock  4,000,000   5.7%  
802 Grand Pavilion
PO Box 10335 APO
West Bay Rd
Grand Cayman, Cayman Islands
         

  

 

*Less than 1%.

 

(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 16, 2012 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 70,298,322 shares of common stock outstanding as of April 16, 2012.

 

19
 

  

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 16,000,000 2 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 not issued any shares under the 2008 Plan and we do not have any outstanding options or other awards under the 2008 Plan.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Not applicable.

 

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 neither of our current directors qualifies as independent under the requirements of the Nasdaq listing standards.

 

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, 2011 and 2010 are set forth in the table below:

 

Fee Category  Fiscal year ended December 31, 2011   Fiscal year ended December 31, 2010 
Audit fees (1)  $18,345   $21,635 
Audit-related fees (2)  $17,200   $36,476 
Tax fees (3)   -    - 
All other fees (4)   -    - 
Total fees  $35,545   $58,111 

  

 

 2. Adjusted for the July 24, 2008, February 2, 2009 and January 28, 2010 two for one stock splits.

  

20
 

 

(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.

 

21
 

 

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)
         
3.3   3.3   Form of 2010 10% Convertible Promissory Note (3)
         

3.4

  3.4   Form of 2011 10% Convertible Promissory Note (3)
         
3.5    *   Form of 2012 10% Convertible Promissory Note
         
10.1   10.1   Employment Agreement dated July 21, 2008 by and between Loreto Resources Corporation and Luis F. Saenz (4)
         
10.2   10.1   Contract Termination Agreement between the Registrant and Luis F. Saenz dated May 5, 2010 (4)
         
10.3   10.2   Stock Option Agreement dated July 21, 2008 between Loreto Resources Corporation and Luis F. Saenz (5)
         
10.4   10.1   Form of 2008 Common Stock Subscription Agreement (6)
         
10.5   10.4   2008 Equity Incentive Plan (7)
         
10.6   10.6   Form of Subscription Agreement between the Registrant and each subscriber in the 2010 10% convertible notes private placement offering (3)

  

22
 

 

Exhibit
No.

 

SEC Report
Reference Number

 

Description

 
         

10.7

  10.7   Form of Subscription Agreement between the Registrant and each subscriber in the 2011 10% convertible notes private placement offering (3)
         
 10.8     *   Form of Subscription Agreement between the Registrant and each subscriber in the 2012 10% convertible notes private placement offering
         
14.1   14   Code of Ethics (8)
         
21   *   List of Subsidiaries
         
31.1   *   Certification of Interim 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 Interim Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
         
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 April 12, 2011 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.

 

(4)Filed with the SEC on August 20, 2010 as an exhibit, numbered as indicated above, to the Registrant’s quarterly report (SEC File No. 333-140148) on Form 10-Q, which exhibit is incorporated herein by reference.

  

23
 

  

(5)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.

 

(6)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.

 

(7)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.

 

(8)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:

  

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.

 

24
 

  

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.

 

25
 

 

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 16, 2012 By: /s/ Adam Zive  
    Adam Zive, Interim Chief Executive Officer
     
Dated:  April 16, 2012 By: /s/ Luis F. Saenz  
    Luis F. Saenz, 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/ Adam Zive

 

 

Director

 

 

April 16, 2012

Adam Zive        

 

/s/ Luis F. Saenz

 

 

Director

 

 

April 16, 2012

Luis F. Saenz        

  

26
 

 

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, 2011 and 2010 F-3
   
Consolidated Statements of Operations for the years ended December 31, 2011 and 2010 and for the period from June 28, 2006 (inception) through December 31, 2011 F-4
   
Consolidated Statements of Changes in Stockholders’ Deficit for the period from June 28, 2006 (inception) through December 31, 2011 F-5
   
Consolidated Statements of Cash Flows for the years ended December 31, 2011 and 2010 and for the period from June 28, 2006 (inception) through December 31, 2011 F-6
   
Notes to Consolidated Financial Statements F-7 – F-16

 

F-1
 

 

REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM

 

To the Board of Directors of

Loreto Resources Corporation

(A Development Stage Company)

New York, New York

 

We have audited the accompanying consolidated balance sheets of Loreto Resources Corporation, (“Loreto”) as of December 31, 2011 and 2010 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, 2011. 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, 2011 include no revenue and a net loss of $3,796,921. Our opinion on the statements of operations, stockholder’ equity, and cash flows for the period from June 28, 2006 (inception) through December 31, 2010, 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, 2011 and 2010 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, 2011 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 16, 2012

 

F-2
 

 

LORETO RESOURCES CORPORATION

(A Development Stage Company)

Consolidated Balance Sheets

 

   As of December 31,   As of December 31, 
   2011   2010 
ASSETS          
           
Current Assets          
Cash  $4,136   $8,235 
Prepaid expenses   41,920    40,290 
Due from related party   10,712    10,712 
Total Current Assets   56,768    59,237 
           
Non-Current Assets          
Deposits   9,228    5,952 
           
TOTAL ASSETS  $65,996   $65,189 
           
LIABILITIES AND STOCKHOLDERS' DEFICIT          
           
Current Liabilities          
Accounts payable and accrued liabilities  $103,990   $17,912 
Insurance financing   42,019    33,789 
Convertible notes and interest payable   270,519    135,458 
Notes and interest payable-related party   -    16,811 
Total Current Liabilities   416,528    203,970 
           
Total Liabilities   416,528    203,970 
           
Stockholders' Deficit:          
Common stock, $.001 par value, 300,000,000 shares authorized; 70,298,322 shares issued and outstanding as of December 31, 2011 and December 31, 2010   70,298    70,298 
Additional paid-in capital   3,587,842    3,587,842 
Deficit accumulated during development stage   (4,008,672)   (3,796,921)
Total Stockholders' Deficit   (350,532)   (138,781)
           
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT  $65,996   $65,189 

 

The accompanying notes are an integral part of these consolidated financial statements.

   

F-3
 

  

LORETO RESOURCES CORPORATION

(A Development Stage Company)

Consolidated Statements of Operations

 

           June 28, 2006 
   Year End   Year End   (Inception) 
   Ended   Ended   through 
   December 31,   December 31,   December 31, 
   2011   2010   2011 
Operating expenses            
General and administrative expenses  $234,267   $1,042,149   $4,074,558 
                
Loss from operations   (234,267)   (1,042,149)   (4,074,558)
                
Other income (expense):               
                
Interest income   9    63    10,053 
Interest expense   (25,222)   (3,584)   (29,693)
Gain on forgiveness of debt   47,729    37,797    85,526 
                
Total other income (expense)   22,516    34,276    65,886 
                
Net loss  $(211,751)  $(1,007,873)  $(4,008,672)
                
Loss per share - basic and diluted  $(0.00)  $(0.01)     
                
Weighted average number of common shares outstanding - basic and diluted  $70,298,322   $70,127,167      

 

The accompanying notes are an integral part of these consolidated financial statements.

  

F-4
 

 

LORETO RESOURCES CORPORATION

(A Development Stage Company)

Consolidated Statements of Stockholders’ Deficit

  

               Deficit     
               Accumulated     
       Common   Additional   During     
   Common   Stock   Paid-in   Development     
   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 
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 
Stock-based compensation   -    -    640,826    -    640,826 
Related party forgiveness of accounts payable and accrued payroll   -    -    160,389    -    160,389 
Stock issued for settlement of accounts payable on November 11, 2010 at $0.25 per share   198,322    198    49,382    -    49,580 
Net loss, December 31, 2010   -    -    -    (1,007,873)   (1,007,873)
Balance, December 31, 2010   70,298,322    70,298    3,587,842    (3,796,921)   (138,781)
Net loss, December 31, 2011   -    -    -    (211,751)   (211,751)
Balance, December 31, 2011   70,298,322   $70,298   $3,587,842   $(4,008,672)  $(350,532)

  

The accompanying notes are an integral part of these consolidated financial statements.

 

F-5
 

 

LORETO RESOURCES CORPORATION

(A Development Stage Company)

Consolidated Statements of Cash Flows

 

           June 28, 2006 
   Year   Year   (Inception) 
   Ended   Ended   through 
   December 31,   December 31,   December 31, 
   2011   2010   2011 
Cash Flows from Operating Activities               
Net loss  $(211,751)  $(1,007,873)  $(4,008,672)
Adjustments to reconcile net loss to net cash used in operating activities:               
Stock option expense   -    640,826    1,372,158 
Common stock issued for services   -    -    4,500 
Gain on forgiveness of debt   (47,729)   (37,797)   (85,526)
Changes in operating assets and liabilities:               
Prepaid expenses and other current assets   46,205    65,171    89,697 
Accounts payable   86,078    22,915    191,367 
Accounts payable-related party   -    77,057    160,389 
Interest accrued on notes payable   23,469    2,041    25,510 
Interest accrued on notes payable-related party   -    268    268 
Due from related party   -    (10,712)   (10,712)
Net cash used in operating activities   (103,728)   (248,104)   (2,261,021)
                
Cash Flows from Financing Activities               
Loan from stockholder   -    -    13,200 
Issuance of common stock, net of offering costs   -    -    2,058,313 
Repayment of insurance financing   (42,881)   (41,634)   (98,826)
Proceeds from convertible notes payable   142,510    133,417    275,927 
Proceeds from notes payable-related party   -    16,543    16,543 
Net cash provided by financing activities   99,629    108,326    2,265,157 
                
Net Increase (Decrease) in Cash   (4,099)   (139,778)   4,136 
                
Cash at Beginning of Period   8,235    148,013    - 
Cash at End of Period  $4,136   $8,235   $4,136 
                
Supplemental Cash Flow Information               
Cash paid for interest  $787   $1,275   $2,062 
Cash paid for income taxes  $-   $-   $- 
Non-Cash Investing and Financing Activities               
Debt forgiveness  $-   $160,389   $173,589 
Insurance financing  $51,111   $44,141   $95,252 
Stock issued for settlement of accounts payable  $-   $49,580   $49,580 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-6
 

 

LORETO RESOURCES CORPORATION

(A Development Stage Company)

Notes to Consolidated Financial Statements

 

NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Loreto Resources Corporation (the “Company”) was incorporated on June 28, 2006 in the state of 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. However, in 2008, 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.

 

Recently, the Company changed its focus again and is now looking for quality investment opportunities not necessarily in the mining sector or in South America. The Company is in the development stage in accordance with Financial Accounting Standards Board Accounting Standards Codification (“ASC”) Topic No. 915, “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 300,000,000 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 27, 2008, the Company formed its wholly-owned Cayman Island subsidiary, Loreto Resources Corporation-Peru. This subsidiary was dissolved on March 31, 2011.

 

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying consolidated financial statements as of December 31, 2011 and 2010 and for the years then ended have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

 

Use of Estimates and Assumptions

 

The preparation of financial statements in conformity with U.S. GAAP 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.

 

F-7
 

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and its 100% owned subsidiary, Loreto Resources Corporation-Peru, until it was dissolved on March 31, 2011, 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. 

 

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 ASC Topic 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.

 

Basic Earnings per Share 

 

Basic and diluted earnings or loss per share (“EPS”) amounts in the financial statements are computed in accordance with ASC Topic 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, 2011 and 2010, the carrying value of the assets and liabilities approximated fair value due to the short-term nature and maturity of these instruments.

 

F-8
 

 

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 shares 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 amount of common stock authorized for issuance. All share and per share information has been retroactively adjusted to reflect the reverse stock split in the consolidated financial statements and in the notes to consolidated 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 718 – 10 and to non-employees in accordance with FASB ASC Topic 505 – 50.

 

Recent Accounting Pronouncements

 

The Company does not expect that the adoption of recently issued accounting pronouncements will have a material impact on its consolidated financial position, results of operations, or cash flows.

 

NOTE 3. GOING CONCERN

 

During 2011, 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 debt and equity financing. In addition to negative cash flow from operations, Loreto has experienced recurring net losses, and has an accumulated deficit of approximately $4.0 million as of December 31, 2011.

 

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. FORGIVENESS OF DEBT

 

On December 15, 2011, the Company entered into a note cancellation agreement with a former director. As per the agreement, the former director agreed to cancel the convertible promissory notes originally dated November 2, 2010 and March 1, 2011, in the amounts of $16,586 and $9,952, respectively, along with the related accrued but unpaid interest. These notes were released without further obligation of the Company, and a gain of $29,175 was recorded.

 

F-9
 

  

On December 15, 2011, the Company entered into a note cancellation agreement with a stockholder. As per the agreement, the stockholder agreed to cancel the convertible promissory notes originally dated November 17, 2010 and March 1, 2011, in the amounts of $10,573 and $6,344, respectively, along with the related accrued but unpaid interest. These notes were released without further obligation of the Company, and a gain of $18,554 was recorded.

 

During June and August 2010, the Company entered into release and settlement agreements with certain third party vendors. As per those agreements, the liabilities were either paid or written off. Two third party vendors were paid a total of $20,000. The amount of $2,800 was paid to the Company’s former Interim Chief Financial Officer for past services performed. Payable amounts totaling $37,797 related to accounting and financial services were written off, and a gain was recorded. The amount totaling $160,389 was settled for accounts payable and accrued salaries due to the Company’s Chief Executive Officer, and considered a contribution to capital.

 

On November 11, 2010, the Company reached a settlement agreement with its legal counsel, whereby the legal counsel agreed to forego payment of $49,580 in legal fees due for the 2009 fiscal year upon delivery of 198,322 restricted shares of the Company’s common stock. The restricted shares were valued at $0.25 per share.

 

NOTE 5. CONVERTIBLE PROMISSORY NOTES

 

On November 2, 2010 and on November 17, 2010, the Company completed closings of a private placement offering of its convertible notes (the “2010 Notes”), totaling approximately $150,000 in principal, to eight stockholders and one unaffiliated third party. The 2010 Notes bore interest of 10%, and would have matured on December 31, 2011. Both the principal and accrued interest are deemed mandatorily converted (see below) on March 15, 2011 at the price paid by investors in that offering, expressed as a percentage of the face amount of debt securities.

 

On March 15, 2011, the Company completed closings of a private placement offering of its convertible promissory notes, totaling approximately $90,000 in principal, to eight stockholders and one unaffiliated third party. As of March 1, 2011, the Company deemed the notes from the 2010 offering, along with accrued but unpaid interest, to have been converted, on a mandatory basis, into new notes on the same terms as the subsequent notes. The subsequent notes bear interest of 10%, mature on March 31, 2012, and both the principal and accrued interest will be mandatorily converted at a price equal to either (a) the price per share of stock (or unit of stock and other securities) paid by investors in the next securities offering or other financing by the Company, if the financing is an issuance of stock (or unit of stock and other securities), or (b) the price paid by investors in the next securities offering or other financing by the Company, expressed as a percentage of the face amount of debt securities, if the financing is an issuance of debt securities (or units of debt securities and other securities) (including debt securities convertible into stock), upon the closing of, and into the securities issued in, the next financing in which the Company sells at least $1,000,000 of its securities.

 

F-10
 

 

On October 10, 2011, the Company closed a private placement offering (the “October 2011 Offering”) of its 10% convertible promissory notes (the “October 2011 Notes”). In the October 2011 Offering, the Company sold $52,500 in principal amount of the October 2011 Notes to an existing investor.

 

The October 2011 Notes bear interest of 10%, mature on April 9, 2013, and both the principal and accrued interest will be mandatorily converted at a price equal to either (a) the price per share of stock (or unit of stock and other securities) paid by investors in the next securities offering or other financing, if the financing is an issuance of stock (or unit of stock and other securities), or (b) the price paid by investors in the next securities offering or other financing by the Company, expressed as a percentage of the face amount of debt securities, if the financing is an issuance of debt securities (or units of debt securities and other securities) (including debt securities convertible into stock), upon the closing of, and into the securities issued in, the next financing in which the Company sells at least $1,000,000 of its securities.

 

The Company evaluated the conversion options under FASB ASC 815-40 for derivative treatment and determined that the conversion options are required to be accounted for as a derivative upon the aforementioned closing of the next private placement offering. As the closing had not occurred as of the period ended December 31, 2011, and as per FASB ASC Topic 470-20, the derivative instrument nor the beneficial conversion feature need not be accounted for as of December 31, 2011.

 

As of December 31, 2011 and 2010, the Company owed principal and accrued interest of $270,519 and $152,269, respectively.

 

NOTE 6. 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.

 

On July 2, 2007, the Company issued 24,000,000 common shares to Magdalena Cruz, then 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 Magdalena Cruz, the director in 2008, were cancelled.

 

On 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.

 

F-11
 

 

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.

 

Each forward split entitled each Loreto shareholder of record on the specified dates to receive one additional common share for each one share owned. The stock split did not affect the amount of common stock authorized for issuance.

 

On November 11, 2010, the Company reached a settlement agreement with its legal counsel, whereby the legal counsel agreed to forego payment of $49,580 in legal fees due for the 2009 fiscal year upon delivery of 198,322 restricted shares of the Company’s common stock. The restricted shares were valued at $0.25 per share. See Note 4.

 

NOTE 7. OPTIONS AND WARRANTS

 

The 2008 Equity Incentive Plan

 

The Company’s 2008 Equity Incentive Plan provided 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 common shares are available for issuance. As of December 31, 2009, options had been granted under the 2008 Plan exercisable for an aggregate of 6,960,000. No options had been granted during 2011 and 2010. Options granted under the 2008 Plan were generally granted with a strike price equal to market value and a ten-year term. The outstanding options vested 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 were exercisable at $0.25 per share, expired 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 were exercisable at $0.25 per share, expired in 10 years, and vested over 3 months.

 

On January 1, 2009, the Company granted 180,000 options to a consultant with a fair value of $30,546. The options were exercisable at $0.25 per share, vested equally over 3 months, and expired 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 were exercisable at $0.25 per share, vested equally over 3 months, and expired 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 were exercisable at $0.25 per share, vested equally over 2 months, and expired in 10 years.

 

F-12
 

  

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 (ii) 40,000 shares to a consultant with a fair value of $7,053. The 60,000 options were exercisable at $0.25 per share, vested equally over 3 months and expired in 10 years. The 40,000 options were exercisable at $0.25 per share, vested over 1 month, and expired 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 were exercisable at $0.25 per share, vested equally over 3 months, and expired in 10 years.

 

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, 2008   6,320,000   $0.25    8.56   $ 
Granted   640,000    0.25    9.28     
Exercised                
Expired / Forfeited                
Outstanding at December 31, 2009   6,960,000   $0.25    8.63   $ 
Granted                
Exercised                
Expired / Forfeited   6,960,000    0.25         
Outstanding at December 31, 2011 and 2010                
Exercisable at December 31, 2011 and 2010                

 

As of December 31, 2009, 2,706,667 options were vested or exercisable. During 2009, 640,000 options were granted with a weighted average grant date fair value of $0.25. During 2009, the Company recognized related stock-based compensation expense of $549,720. As of December 31, 2009, there was $640,808 of total unrecognized compensation cost related to non-vested stock options which had been originally expected to be recognized over a weighted-average period of 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  $0.25(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%

 

F-13
 

 

(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 used the simplified method under SAB 107 to estimate expected term.

 

No options were granted during 2011 and 2010. On May 5, 2010, the Company’s Chief Executive Officer’s stock option agreement was terminated. As such, 6,200,000 options were cancelled. During May and June 2010, the remaining stock option agreements were terminated, resulting in the cancellation of 760,000 options. During 2010, the Company recognized stock-based compensation expense of $640,826 related to stock options. The Company did not have stock-based compensation expense in 2011.

 

There are no options or warrants outstanding at December 31, 2011 and 2010.

 

NOTE 8. RELATED PARTY TRANSACTIONS

 

Starting in November 2009, Li3 Energy, Inc., a company in which Loreto’s director and former Chief Executive Officer functioned in the same capacity, started utilizing the administrative personnel and office space of Loreto, which had an office located in Lima, Peru. As such, certain net common costs initially paid by Loreto during 2011 and 2010, were allocable to the related party company, as follows:

 

   December 31, 
   2011   2010 
         
Administrative salaries  $2,380   $2,380 
Utilities and maintenance expenses   8,332    8,332 
   $10,712   $10,712 

 

The related receivable due from the related party company arising from these common costs, amounting to $10,712, is shown as a due from related party in the consolidated balance sheet as of December 31, 2011 and 2010.

 

This arrangement ceased on July 31, 2010, and all common cost obligations on a go-forward basis are the responsibility of the related party company.

 

On November 2, 2010 and on March 15, 2011, the Company completed closings of a private placement offering of its convertible promissory notes, totaling $16,586 and $9,952 in principal, respectively, to a former director. These notes were later cancelled. See Note 5.

 

NOTE 9. 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 net operating loss before income tax benefit are as follows:

 

F-14
 

 

   2011   2010 
           
U.S.  $209,817   $973,288 
Non-U.S.   1,934    70,585 
 Total   211,751    1,043,873 

 

The components of the Company’s deferred tax assets at December 31, 2011 and 2010 are as follows: 

 

   2011   2010 
         
Deferred tax assets and liabilities:          
Loss carry-forwards  $71,338   $342,677 
Stock-based compensation   -    217,881 
Total deferred tax assets   71,338    560,558 
Valuation allowance   (71,338)   (560,558)

 

As of December 31, 2011, net operating loss carry-forwards expire from 2029 to 2031. 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, 2011 and 2010.

 

NOTE 10. GENERAL AND ADMINISTRATIVE EXPENSES

 

The following table shows the major components of general and administrative expenses during 2011 and 2010:

 

   2011   2010 
Compensation  $-   $722,610 
Professional Fees (accounting, legal and consulting)   179,548    203,069 
Other general and administrative expenses   54,719    116,470 
   $234,267   $1,042,149 

 

Compensation for the years ended December 31, 2011 and 2010 was composed primarily of stock-based compensation of $0 and $640,826, respectively.

  

F-15
 

 

 NOTE 11. SUBSEQUENT EVENTS

  

On February 1, 2012, the Company closed a private placement offering (the “February 2012 Offering”) of its 10% convertible promissory notes (the “February 2012 Notes”). In the February 2012 Offering, the Company sold $50,000 in principal amount of the February 2012 Notes to one existing investor. The February 2012 Notes mature on July 31, 2013 and will be automatically converted at the initial closing of the Company’s next private placement in which it sells at least $1,000,000 of its securities, so long as such offering closes concurrent with the closing of a related merger or other acquisition transaction.

 

F-16