UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-Q

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S QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2013

 

£ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934

For the transition period from ______ to _______

 

Commission file number: 000-30215

 

LUSTROS INC.

(Exact name of registrant as specified in its charter)

 

Utah	45-5313260
(state or other jurisdiction of incorporation or organization)	(I.R.S. Employer I.D. No.)

 

9025 Carlton Hills Blvd. Santee, CA 92071

(Address of principal executive offices)

 

619-449-4800
(Issuer's telephone number)

 

(former name or former address, if changes since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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. S Yes £ No

 

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). S Yes £ No

 

Indicate by check mark whether the registrant is a large accelerated filer, 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 £	Accelerated Filer £
Non-Accelerated Filer £	Smaller Reporting Company S

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). £ Yes S No

 

As of May 16, 2013 there are 90,153,286 shares of the registrant’s $0.001 par value Common Stock outstanding.

  

LUSTROS INC.

TABLE OF CONTENTS

 

		PAGE
PART I	FINANCIAL INFORMATION	3
ITEM 1.	FINANCIAL STATEMENTS	4
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	18
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	20
ITEM 4.	CONTROLS AND PROCEDURES	20
PART II	OTHER INFORMATION	21
ITEM 1.	LEGAL PROCEEDINGS	21
ITEM 1A.	RISK FACTORS	21
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	21
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	21
ITEM 4.	MINING SAFETY DISCLOSURE	21
ITEM 5.	OTHER INFORMATION	22
ITEM 6.	EXHIBITS	25

 

 

 

 

 

 

 

 

Special Note Regarding Forward-Looking Statements

 

Information included in this Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). This information may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Lustros Inc. (the “Company”), to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of these words or other variations on these words or comparable terminology. These forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that these projections included in these forward-looking statements will come to pass. Actual results of the Company could differ materially from those expressed or implied by the forward-looking statements as a result of various factors. Except as required by applicable laws, the Company has no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

 

*Please note that throughout this Quarterly Report, and unless otherwise noted or the context otherwise required, the words "we," "our," "us," or the "Company," refer to Lustros, Inc. (“Lustros”) and its consolidated subsidiaries.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

INDEX

 

Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012 (unaudited)		4
Consolidated Statements of Operations for the three months ended March 31, 2013,  from inception (January 26, 2012) to March 31, 2012, and from inception (January 26, 2012) to March 31, 2013 (unaudited)		5
Consolidated Statements of Cash Flows for the three months ended March 31, 2013, from inception (January 26, 2012) to March 31, 2012, and for the period from inception (January 26, 2012) to March 31, 2013 (unaudited)		6
Notes to Consolidated Financial Statements		7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lustros, Inc.

(A Development Stage Company)

Consolidated Balance Sheets

(Unaudited)

 

		March 31, 2013				December 31, 2012
ASSETS
Current Assets
Cash		$	149,062			$	277,565
Other receivables			103				102
Prepaid expenses			225,676				224,777
Inventory			150,955				142,385
VAT tax receivable			631,717				573,541
Total current assets			1,157,513				1,218,369
Other Assets
Fixed assets, net			4,815,664				4,647,816
Mining property			3,767,718				3,720,011
Land			592,543				585,040
Congo right to use			360,000				360,000
Total other assets			9,535,925				9,312,867
TOTAL ASSETS		$	10,693,438			$	10,531,236
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable		$	1,112,422			$	1,000,500
Convertible note payable, net of $112,532 in unamortized discount			233,605				205,589
Notes payable			372,479				684,292
Notes payable - related party			2,047,438				1,825,929
Total current liabilities			3,765,944				3,716,310
Long term current Liabilities
Asset retirement obligations			412,428				396,474
Total long term liabilities			412,428				396,474
Total liabilities			4,178,372				4,112,784
Stockholders' Equity
Preferred stock, $.001 par value, 10,000,000 shares authorized, no shares issued and outstanding			–				–
Common stock, $.001 par value, 100,000,000 shares authorized, 90,153,286 and 88,369,618, issued and outstanding respectively			90,153				88,369
Additional paid-in capital			7,209,304				6,234,946
Non-controlling interest			1,794,133				2,005,189
Accumulated other comprehensive income			1,330,862				1,217,828
Deficit accumulated during development stage			(3,909,386	)			(3,127,879	)
Total stockholders' equity			6,515,066				6,418,452
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	10,693,438			$	10,531,236

  

See notes to consolidated financial statements.

 

  

Lustros, Inc.

(A Development Stage Company)

Consolidated Statements of Operations

(Unaudited)

 

		For the three months ended March 31, 2013				Inception, (January 26, 2012) to March 31, 2012 (Restated)				Inception, (January 26, 2012) to March 31, 2013
Revenue		$	–			$	20,886			$	54,902
Cost of goods sold			–				–				–
Gross profit			–				20,886				54,902
Operating expenses
General and administrative			239,959				472,388				2,290,757
Depreciation			31,029				15,146				116,741
Payroll			400,956				(27,091	)			1,841,925
Legal and accounting			73,189				1,659				601,667
Mining costs			21,353				27,421				209,102
Research & development			49				376				76,917
Total operating expenses			766,535				489,899				5,137,109
Loss from continued operations			(766,535	)			(469,013	)			(5,082,207	)
Interest expense			(226,028	)			–				(297,349	)
Net loss		$	(992,563	)		$	(469,013	)		$	(5,379,556	)
Net loss attributable to non-controlling interest		$	(211,056	)		$	(180,861	)		$	(1,470,170	)
Net loss attributable to Lustros, Inc.		$	(781,507	)		$	(288,152	)		$	(3,909,386	)
Loss per share, basic		$	(0.01	)		$	(0.02	)
Weighted average common shares outstanding, basic			89,018,101				23,765,517

 

Consolidated Statements of Comprehensive Income (Loss)

 

		For the three months ended March 31, 2013				Inception, (January 26, 2012) to March 31, 2012 (Restated)				Inception, (January 26, 2012) to March 31, 2013
Net loss		$	(992,563	)		$	(469,013	)		$	(5,379,556	)
Gain/(loss) on foreign currency conversion			113,034				(1,217,828	)			1,330,862
Total comprehensive loss		$	(879,529	)		$	(1,686,841	)		$	(4,048,694	)

 

See notes to consolidated financial statements.

 

 

Lustros, Inc.

(A Development Stage Company)

Consolidated Statements of Cash Flows

(Unaudited)

  

		For the three months ended March 31, 2013				Inception (January 26, 2012) to March 31, 2012 (Restated)				Inception, (January 26, 2012) to March 31, 2013
Cash flows from operating activities
Net loss		$	(992,563	)		$	(469,013	)		$	(5,379,556	)
Non-cash transactions to reconcile cash used in operations
Depreciation and amortization			31,029				15,146				116,741
Amortization of original issued discount			183,169				–				248,758
Cash used in operations
Increase in accrued interest included in notes payable			5,732				–				11,464
Increase in notes receivable			–				(86,673	)			–
Decrease/(increase) in prepaid expenses			(897	)			(342,207	)			(177,151	)
Decrease/(increase) in inventory			(8,571	)			–				(8,571	)
Decrease/(increase) in tax receivable			(58,177	)			–				(58,177	)
Increase in asset retirement obligation			15,954				–				30,814
Increase/(decrease) in accounts payable			111,922				(283,310	)			1,045,624
Total cash used in operations			(712,402	)			(1,166,057	)			(4,170,054	)
Cash flows from investing activities
Acquisition of Sulfatos Chile by Bluestone			–				892,294				892,294
Cash received in Power Save merger			–				38,572				38,572
Disposal of Power Save operations			–				(20,642	)			(20,642	)
Purchase of fixed assets			(139,510	)			(71,519	)			(970,186	)
Total cash used in investing activities			(139,510	)			838,705				(59,962	)
Cash from financing activities
Proceeds from notes payable			–				–				79,454
Repayment of notes payable			(40,587	)			–				(86,850	)
Proceeds from notes payable, related parties			221,509				1,670,988				3,332,890
Repayment of notes payable, related parties			–				(1,670,988	)			(1,385,464	)
Proceeds from the issuance of stock			550,000				–				2,471,000
Total cash provided by financing activities			730,922				–				4,411,030
Effect of foreign currency exchange rate on cash			(7,513	)			833,025				(31,952	)
INCREASE/(DECREASE) IN CASH			(128,503	)			505,673				149,062
BEGINNING CASH			277,565				–				–
ENDING CASH		$	149,062			$	505,673			$	149,062
Supplemental disclosure of cash flow information:
Interest paid		$	–			$	–			$	–
Income taxes paid		$	–			$	–			$	–
Supplemental disclosure of non-cash investing activities:
Related party notes transferred to convertible notes		$	(270,988	)		$	–			$	(570,988	)
Shares issued in conversion on convertible note		$	426,141			$	–			$	586,141
Related party notes settled with subscription to common stock		$	–			$	–			$	1,100,000
Related party notes settled with subscription to preferred stock		$	–			$	–			$	429,000
Net assets acquired in reverse merger with Power Save		$	–			$	(63,207	)		$	(63,207	)
Net assets acquired in Sulfatos Chile acquisition		$	–			$	5,068,464			$	5,068,464
Net assets disposed of in Power Save sale		$	–			$	62,138			$	62,138
Effet of reverse merger with Power Save		$	–			$	(24,635	)		$	(24,635	)
Contributed capital in Sulfatos Chile acquisition		$	–			$	2,696,455			$	2,696,455
Contributed capital in Power Save sale		$	–			$	41,496			$	41,496

 

See notes to consolidated financial statements.

 

  

LUSTROS, INC.

(A Development Stage Company)

NOTES TO UNAUDITED CONSOLIDATED

FINANCIAL STATEMENTS

 

Note 1 – Organization and Principal Activities

 

Organization and Description of Business

 

Lustros, Inc. ("Lustros", and together with its consolidated subsidiaries, the "Company"), formally Power-Save Energy Company, is a Utah corporation formed in 1980. The Company is a pre-revenue development stage company that intends to market and sell high quality food-grade copper sulfate obtained by processing copper ores and tailings at Company-owned processing facilities in Chile.

 

On March 9, 2012, Lustros acquired all of the outstanding capital stock and rights to acquire capital stock of Bluestone, S.A. a Chilean corporation (“Bluestone”), in exchange for 60,000,000 shares of its common stock (the "Bluestone Acquisition"). Bluestone's principal asset is a 60% equity interest in Sulfatos Chile, S.A. ("Sulfatos"), which it acquired in February 2012.

 

For accounting purposes, the Company has treated the Bluestone Acquisition as a reverse acquisition with Bluestone as the acquiring entity and Lustros as the acquired entity. As a result, the Company's financial statements reflect the financial information of Bluestone prior to March 9, 2012 and the combined entity on and after March 9, 2012.

 

On March 25, 2012, the Company sold the assets (including the "Power-Save" name) of its renewable energy and energy savings product business in which it had engaged prior to the Bluestone Acquisition, to the former management of the Company (the "Power Save Sale"). See Note 4 - Bluestone Acquisition and Power Save Sale.

 

On June 25, 2012, the Company created a new subsidiary, Mineraltus S.A. (“Mineraltus”), a Chilean corporation, to extract copper from the tailings (waste products) of expired copper mines to secure the raw materials to manufacture high quality, feed-grade copper sulfate. The Company owns 80% of Mineraltus.

 

On August 22, 2012, the Company formed Lustros Chile SpA as a 100% owned subsidiary, for the purpose of acting as a Chilean entity holding company for the Company’s Chilean subsidiaries Sulfatos, Mineraltus, and Bluestone.

 

Restatement

 

Upon completion of the Company’s June 30, 2012 consolidated financial statements, accounting errors were discovered that required the restatement of amounts previously reported on our Consolidated Balance Sheets, Consolidated Statements of Operations and Consolidated Statements of Cash Flows as of March 31, 2012. The Company’s consolidated financial statements as of March 31, 2012 included the 60% controlling interests only for our subsidiary, Sulfatos, from its inception date of September 15, 2010. It was later determined that the consolidated financial statements should have instead reflected the inception date of Bluestone, which was January 26, 2012 and should have included both the controlling interest as well as the minority interest and should have included income/loss attributable to the Company and income/loss attributable to minority interests.

 

As of June 30, 2012 our consolidated financial statements were restated in accordance with generally accepted accounting principles, to include the controlling and non-controlling interests of the subsidiaries we control, Sulfatos and Mineraltus, into our financial statements. As such, all assets and liabilities of Sulfatos and Mineraltus are shown on our Consolidated Balance Sheets with the non-controlling interest reflected as a component of stockholders’ equity on and non-controlling interests in Sulfatos and Mineraltus are reflected as income attributable to minority interests in our Consolidated Statements of Operations and as a component of stockholders’ equity on our Consolidated Balance Sheet.

 

 

The following is a summary of the impact of these restatements on the Company’s Consolidated Statements of Operations as of March 31, 2012:

 

		Three Months Ended March 31, 2012										Inception (January 26, 2012) to March 31, 2012
		As previously reported				Error correction						As restated
Revenue		$	12,532			$	8,354		(a)(b)			$	20,886
Gross profit			12,532				8,354						20,886
Operating expenses
General and administrative			398,835				73,553		(a)(b)				472,388
Depreciation			–				15,146		(a)(b)				15,146
Payroll			–				(27,091	)	(a)(b)				(27,091	)
Legal and accounting			1,633				26		(a)(b)				1,659
Mining costs			12,775				14,646		(a)(b)				27,421
Research and development			3,445				(3,069	)	(a)(b)				376
Total expenses			416,688				73,211						489,899
Ordinary loss from continued operations			(404,156	)			(64,857	)					(469,013	)
Loss from discontinued operations			18,903				(18,903	)	(a)(b)				–
Net loss		$	(385,253	)		$	(83,760	)				$	(469,013	)
Net loss attributable to minority interest						$	(180,861	)	(c)			$	(180,861	)
Net loss attributable to Lustros, Inc.						$	(288,152	)	(c)			$	(288,152	)
Loss per share, basic		$	(0.02	)								$	(0.02	)
Weighted average common share, basic			18,021,261										23,765,517

 

(a) Record 100% of expenses for subsidiary rather than 60% controlling interest.
(b) Adjust expenses from 1/1/2012 to 1/26/2012, the inception date of Bluestone.
(c) Reclassify 40% minority interest in subsidiary.

 

 

The following is a summary of the impact of these restatements on the Company’s Statement of Cash Flows as of March 31, 2012:

 

		Sulfatos Inception (September 15, 2010) to March 31, 2012										Bluestone Inception (January 26, 2012) to March 31, 2012
		As previously reported				Error correction						As restated
Cash flows from operating activities
Net loss		$	(964,128	)		$	495,115			(b)(c)		$	(469,013	)
Non-cash transactions to reconcile cash used in operations
Loss from discontinued operations			(18,903	)			18,903			(b)(c)			–
Depreciation and amortization			–				15,146			(e)			15,146
Cash used in operations
Increase in notes receivable			(52,004	)			(34,669	)		(a)			(86,673	)
Decrease/(increase) in prepaid expenses			(663,990	)			321,783			(a)			(342,207	)
Increase/(decrease) in accounts payable			327,236				(610,546	)		(a)			(283,310	)
Total cash used in operations			(1,371,789	)			205,732						(1,166,057	)
Cash flows from investing activities
Acquisition of Sulfatos Chile by Bluestone			–				892,294			(a)			892,294
Cash received in Power Save merger			–				38,572			(a)			38,572
Disposal of Power Save operations			–				(20,642	)		(a)			(20,642	)
Purchase of fixed assets			(4,432,817	)			4,361,298			(a)(e)			(71,519	)
Total cash used in investing activities			(4,432,817	)			5,271,522						838,705
Cash from financing activities
Proceeds from notes payable, related parties			–				1,670,988			(f)			1,670,988
Repayment of notes payable, related parties			–				(1,670,988	)		(f)			(1,670,988	)
Proceeds from the issuance of stock			6,158,558				(6,158,558	)		(a)			–
Total cash provided by financing activities			6,158,558				(6,158,558	)					–
Effect of foreign currency exchange rate on cash			(50,548	)			883,573			(c)			833,025
INCREASE/(DECREASE) IN CASH			303,404				202,269	)		(a)			505,673
BEGINNING CASH			–				–						–
ENDING CASH		$	303,404			$	202,269					$	505,673

 

(a) Record 100% of assets and liabilities for subsidiary rather than 60% controlling interest.

(b) Record 100% of expenses for subsidiary rather than 60% controlling interest.

(c) Adjust expenses from 1/1/2012 to 1/26/2012, the inception date of Bluestone.

(d) Reclassify 40% minority interest in subsidiary.

(e) Reclassify note payable previously included in accounts payable.

 

Note 2 – Summary of Significant Accounting Policies

 

Basis of Presentation

 

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements, including the estimated useful lives of tangible and intangible assets and the asset retirement obligation. Management believes the estimates used in preparing the financial statements are reasonable and prudent. Actual results could differ from these estimates.

 

 

Principles of Consolidation

 

The consolidated financial statements include the financial statements of Lustros, Inc., its subsidiaries Lustros Chile SpA, Mineraltus, Bluestone, and Sulfatos. All significant inter-company balances and transactions have been eliminated in consolidation.

 

Foreign Currency Translation

 

The Company records foreign currency translation adjustments and transaction gains and losses in accordance with ASC 830, Foreign Currency Matters. The functional currency of Bluestone and its subsidiaries is the Chilean Peso ("CLP"). Assets and liabilities of Bluestone and its subsidiaries are translated into United States dollars at the exchange rates as of the balance sheet dates. Revenues and expenses of Bluestone and its subsidiaries are translated into United States dollars at average exchange rates in effect during the period. The resulting cumulative translation adjustments have been recorded as a component of other comprehensive income (loss), included as a separate item in the balance sheet.

 

For purposes of these consolidated financial statements: (i) the exchange rate was $472.54 CLPs to 1 US dollar at March 31, 2013; and (ii) the average exchange rates were $475.57 CLPs to 1 US dollar during the three months ended March 31, 2013.

 

The Company is exposed to movements in foreign currency exchange rates. In addition, the Company is subject to risks including adverse developments in the foreign political and economic environment, trade barriers, managing foreign operations, and potentially adverse tax consequences. There can be no assurance that any of these factors will not have a material negative impact on the Company's financial condition or results of operations in the future.

 

Financial Instruments

 

The Company's financial instruments include cash and cash equivalents, and accounts payable and notes payable. At March 31, 2013, the carrying cost of these instruments approximated their fair value. The authoritative guidance for fair values establishes a three tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

 

Cash Equivalents

 

Cash equivalents include highly liquid investments with maturities of three months or less.

 

Inventory

 

Inventory, which consists primarily of raw copper ore and copper sulfate, is stated at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method.

 

The Company evaluates the need to record adjustments for impairment of inventory. As of March 31, 2013, the Company has not needed to adjust for impairment.

 

Property and Equipment

 

Property and equipment are stated at cost less accumulated depreciation. Land is not depreciated.

 

Depreciation is computed principally on the straight-line method over the estimated useful life of each type of asset which ranges from three to five years. Major improvements are capitalized, while expenditures for repairs and maintenance are expensed when incurred. The depreciation methods, and estimated remaining useful lives are reviewed at least annually. If property and equipment are classified as held for sale, it is reviewed for impairment annually. The impairment charged to the income statement is the excess of the carrying value of the property and equipment over its expected fair value less costs to sell. Upon retirement or disposition, the related costs and accumulated depreciation are removed from the accounts, and any resulting gains or losses are credited or charged to income.

 

 

Mining Properties and Equipment

 

The Company will follow the successful efforts method of accounting. All developmental costs will be capitalized. Depreciation and depletion of producing properties will be computed on the unit-of-production method based on estimated proved reserves. Repairs and maintenance will be expensed, while renewals and betterments will be generally capitalized.

 

At least quarterly, or more frequently if conditions indicate that long-term assets may be impaired, the carrying value of our properties will be compared to management's future estimated pre-tax cash flow from the properties. If undiscounted cash flows are less than the carrying value, then the asset value will be written down to fair value. Impairment of individually significant unproved properties will be assessed on a property-by-property basis, and impairment of other unproved properties is assessed and amortized on an aggregate basis.

 

Asset Retirement Obligation

 

The Company follows ASC 410, Asset Retirement and Environmental Obligations, which requires that an asset retirement obligation (“ARO”) associated with the retirement of a tangible long-lived asset be recognized as a liability in the period in which it is incurred and becomes determinable, with an offsetting increase in the carrying amount of the associated asset. The cost of the tangible asset, including the initially recognized ARO, is depleted, such that the cost of the ARO is recognized over the useful life of the asset. The ARO is recorded at fair value, and accretion expense is recognized over time as the discounted liability is accreted to its expected settlement value. The fair value of the ARO is measured using expected future cash flow, discounted at the Company’s credit-adjusted risk-free interest rate. To date, the Company estimates that an asset retirement obligation of $412,428 exists. Accordingly, a liability for this amount has been included in accounts payable and accrued liabilities.

 

Revenue Recognition

 

Revenue is recognized in accordance with SEC Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." The Company recognizes revenue when the significant risks and rewards of ownership have been transferred to the customer pursuant to applicable laws and regulations, including factors such as when there has been evidence of a sales arrangement, delivery has occurred, or services have been rendered, the price to the buyer is fixed or determinable, and collection is reasonably assured. The Company is responsible for warehousing and shipping the merchandise.

 

Earnings/(Loss) Per Common Share

 

ASC Topic 260, “Earnings Per Share”, requires presentation of basic earnings per share and diluted earnings per share. Basic earnings/(loss) per share is computed by dividing earnings/(loss) available to common shareholders by the weighted average number of common shares outstanding (including shares reserved for issuance) during the period. Diluted earnings/(loss) per share gives effect to all potential dilutive common shares outstanding during the period.

 

Going Concern

 

The Company’s financial statements are prepared using US GAAP applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As shown in these consolidated financial statements, the Company has a limited operating history and limited funds and has an accumulated deficit of $3,909,386 as of March 31, 2013.  These factors affect the Company’s ability to continue as a going concern.

 

In order to continue as a going concern and achieve a profitable level of operations, the Company will require additional financing from loans or the sale of debt or equity securities. In addition, the Company will seek to generate revenues from its business lines.  

 

The financial statements do not include any adjustments relating to the recoverability and classification of assets and/or liabilities that might be necessary should the Company be unable to continue as a going concern. The continuation as a going concern is dependent upon the ability of the Company to meet its obligations on a timely basis and ultimately to attain profitability.

 

 

Recently Issued Accounting Pronouncements

In February 2013, the FASB issued authoritative guidance on the reporting of reclassifications out of accumulated other comprehensive income. The guidance requires an entity to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income if the amount is reclassified to net income in its entirety in the same reporting period. The guidance is effective for fiscal years beginning after December 15, 2012, with early adoption permitted. The adoption of this guidance did not have a material effect on the Company’s financial condition, results of operations or cash flows.

 

The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

 

Note 3 – Sulfatos Acquisition

On February 15, 2012, Bluestone purchased a 60% equity interest in Sulfatos Chile from Santa Teresa Minerals S.A., a Chilean corporation ("Santa Teresa Minerals"). The purchase price for the equity interest was: (a) a 20% interest in Bluestone; (b) $2.2 million, with $1.1 million paid by assumption of a demand loan payable by Santa Teresa Minerals to Angelique de Maison, and the balance of $1.1 million to be paid in monthly installments from time to time upon demand by Santa Teresa Minerals. As of December 31, 2012, the entire purchase price had been paid. On October 16, 2012 Angelique de Maison entered into an agreement with Santa Teresa Minerals pursuant to which Santa Teresa Minerals waived and released any claim to any equity interests in Bluestone or Lustros and their affiliated companies, with Bluestone and Lustros Inc. express third party beneficiaries of that waiver and release. As such, Santa Teresa Minerals' 20% interest in Bluestone has been cancelled, and Bluestone is a wholly owned subsidiary of Lustros.

 

At the time of the Sulfatos Acquisition, Bluestone was an affiliate of Santa Teresa Minerals because substantially all of the equity interests of Bluestone were owned by Juan Carlos Camus Villegas and Angelique de Maison, who were officers and/or directors of Santa Teresa Minerals and its parent holding company and were principal shareholders of the parent holding company.

 

The Sulfatos Acquisition has been treated as an "asset purchase" for financial reporting purposes. Because the Sulfatos Acquisition was between related parties, the purchase price has been allocated to additional paid-in capital and the assets and liabilities were carried over at historical costs. Results of operations for Sulfatos have been reflected in the Company's financial statements from the closing date.

  

The following information presents supplemental cash flows information of assets acquired and liabilities assumed in connection with the Sulfatos Acquisition:

 

		Twelve months
		Ended
		December 31, 2012
Prepaid expenses		$	764,551
Equipment			3,289,521
Mining property			3,492,824
Land			549,310
Accounts payable			(447,343	)
Notes payable			(2,580,399	)
		$	5,068,464
Plus, cash acquired			892,294
Total value of acquisition		$	5,960,758
Value of acquisition allocated to additional paid-in capital		$	2,696,455
Value of acquisition allocated to minority interest		$	3,264,303

 

 

 

The following table summarizes the historical cost values of the assets acquired and liabilities assumed at the date of Sulfatos Acquisition. In accordance with US GAAP, the assets and liabilities acquired are carried over at their historical value because the transaction occurred between related parties.

  

		At
		February 15, 2012
Working Capital Items
Cash and cash equivalents		$	892,294
Prepaid expenses and other			764,551
Accounts payable and accrued liabilities			(447,343	)
Notes payable			(2,580,399	)
Subtotal—Working Capital Items			(1,370,897	)
Long-lived Assets:
Property & Equipment
Land			549,310
Mining property			3,492,824
FFE and Equipment			3,289,521
Subtotal—long-lived assets			7,331,655
Total value of acquisition		$	5,960,758
Value of acquisition allocated to additional paid-in capital		$	2,696,455
Value of acquisition allocated to minority interest		$	3,264,303

  

Had the Sulfatos Chile Acquisition taken place on January 1, 2012, results of operations would have reflected the following pro forma amounts for the three months ended March 31, 2012 as compared to March 31, 2013:

 

		Three Months Ended March 31,
		2012																				2013
		Lustros, Inc.				Sulfatos Chile								Purchase				Pro
		Actual				Actual				Consolidated				Adjustments				Forma				Consolidated
Revenues		$	–			$	20,886			$	20,886			$	–			$	20,886			$	–
Operating expenses			16,861				473,038				489,899				212,807				702,706				766,535
Interest expense			–				–				–				–				–				226,028
Net loss		$	(16,861	)		$	(452,152	)		$	(469,013	)		$	(212,807	)		$	723,592			$	992,563

  

The $212,807 purchase adjustment is the operating expenses incurred by Sulfatos Chile from January 1, 2012 to February 15, 2012.

 

Note 4 – Bluestone Acquisition and Power-Save Sale

 

On March 9, 2012, Lustros acquired all of the outstanding capital stock and rights to acquire capital stock of Bluestone in exchange for 60,000,000 shares of its common stock. As of the closing, these shares represented 96.7% of the Company’s outstanding common stock.  Bluestone's principal asset was a 60% equity interest in Sulfatos, which Bluestone acquired in February 2012. For financial reporting purposes, the Company has treated the Bluestone Acquisition as a reverse acquisition with Bluestone the acquiring entity and Lustros as the acquired entity. As a result, the Company's financial statements reflect the financial information of Bluestone prior to March 9, 2012 and the combined entity on and after March 9, 2012.

 

On March 25, 2012, the Company sold the assets (including the "Power-Save" name) of its renewable energy and energy savings product business in which it had engaged prior to the Bluestone Acquisition, to the former management of the Company. The purchase price for the assets was the cancellation of obligation for unpaid salaries and other monies owed to prior management and the assumption by the buyer of certain liabilities of the Company related to the Power-Save business.

 

 

The following information presents supplemental cash flows information of assets acquired and liabilities assumed in connection with the Bluestone Acquisition:

 

		Twelve months Ended December 31, 2012
Notes receivable		$	18,446
Inventories			65,565
Prepaid expenses and other			4,765
Property and equipment			48,406
Accounts payable			(181,172	)
Notes payable			(19,217	)
			(63,207	)
Plus, cash acquired			38,572
Total Bluestone Acquisition and Power Save Sale		$	(24,635	)

  

The following information presents supplemental cash flows information of assets given and liabilities released in connection with the Power Save Sale:

 

		Twelve months Ended December 31, 2012
Notes receivable		$	(18,446	)
Inventories			(65,565	)
Prepaid expenses and other			(4,765	)
Property and equipment			(48,406	)
Accounts payable			180,103
Notes payable			19,217
			62,138
Less, cash transferred in disposal			(20,642	)
Total Power Save Sale		$	41,496

  

Note 5 – The Congo Project

 

On October 18, 2012, the Company entered into an agreement with Nueva Pudahuel S.A. dba Sociedad Minera Pudahuel ("SMP") pursuant to which the Company acquired the land, laboratory, tailings and other assets of the closed mine of La Africana, commonly known as the "Congo Project”, in the Santiago, Chile metropolitan area. The land is approximately 81.2 hectares and contains an estimated 2.4 million tons of copper-rich tailings.

 

The Company entered into the agreement through Procesamiento de Relaves Pudahuel Limitada dba Mineraltus Pudahuel Ltd., a newly created subsidiary owned 99% by the Company's subsidiary Mineraltus SA.

 

The Company has agreed to remove the tailings and restore the value of the property so that it can be used for real estate development projects. The Company will separate the copper from the tailings with the intention of manufacturing an estimated 24,000 tons of food-grade, penta-hydrated copper sulfate. The Company plans to construct a copper sulfate processing plant on the property to process the tailings at an estimated cost of $6.2 million. The project, known in the industry as the "Congo Project," has received all necessary approvals and permits from the Chilean authorities.

 

Financing for the project will be provided by the Company as a loan, and the Company will be entitled to 100% of the profits. The project was structured as a purchase / buy-back to ensure that all necessary assets remain under our control for the duration of the project. The Company purchase price was $7 million payable as follows:

 

·

$360,000 was paid on November 26, 2012 for the right to use all assets and facilities;

·

$436,858 payable upon completion of the copper sulfate processing plant on site no later than November 13, 2014 as the final payment for the assets;

·

$6,203,172 payable in equal monthly installments of $77,540 beginning on July 1, 2013 for the lease of the Lo Aguirre main pit. SMP may request that the final 12 lease payments not be made by the Company in exchange for the return of 60.2 hectares of land at their option on or before date the 69th lease payment is made.

 

 

SMP will have the right to buy back 18 of the 21 remaining hectares owned by the Company at the end of the project at a rate of 1UF (Unidad de Fomento) per square meter which would be equal to approximately US$8.8M at today’s exchange rate. The Company will retain ownership of the remaining three hectares.

 

Note 6 – Property and Equipment

 

The Company acquired property and equipment with a historical cost value of $7,331,655 in the Sulfatos Acquisition in March 2012. See Note 3 - Sulfatos Acquisition. The following table sets forth our property and equipment at the dates indicated. These assets, with the exception of land which is not depreciable, are being depreciated over their remaining useful lives. The Company recognized depreciation expense of $31,029 for the three months ended March 31, 2013, $15,146 from inception (January 26, 2013) to March 31, 2012, and $116,741 for the period from inception to March 31, 2013.

 

		March 31, 2013				December 31, 2012
Buildings		$	166,839			$	164,726
Furniture & fixtures			24,331				24,023
Vehicles			133,060				131,376
Mining equipment			430,229				423,453
Plants/property improvements			4,116,872				3,928,356
Computers			37,478				37,018
Lab equipment			66,518				65,675
Total fixed assets		$	4,975,327			$	4,774,626
Less depreciation			(159,663	)			(126,810	)
Net fixed assets		$	4,815,664			$	4,647,816
Land		$	592,543			$	585,040
Congo right to use		$	360,000			$	360,000
Mining property		$	3,767,718			$	3,720,011
Net property and equipment		$	9,535,925			$	9,312,867

 

 

Note 7 – Debt

 

The following table sets forth the outstanding indebtedness of the Company at the date indicated. Inter-company transactions have been eliminated in the consolidated balance sheet:

 

Description		Total Due at March 31, 2013				Total Due at December 31, 2012
Related party notes
Suprafin, Ltd.		$	973,438			$	785,929
Global Investments I			34,000				–
Robert Dickey			540,000				540,000
Bass Energy			500,000				500,000
Total related party notes payable		$	2,047,438			$	1,825,929
Notes payable
Banco de Chile Loan		$	–			$	45,541
Walker River Investments			–				270,988
Land Purchase Balance			372,479				367,763
Total notes payable		$	372,479			$	684,292
Convertible notes
Magna Group LLC		$	233,605			$	205,589
Total beneficial conversion liability		$	233,605			$	205,589

   

From February 2012 through March 2013, Suprafin, Ltd. (“Suprafin”) provided the Company a total of $3,358,890 in non-interest bearing unsecured demand loans to enable Bluestone to pay the balance of the purchase price for the Sulfatos Acquisition and for working capital purposes. Zirk Engelbrecht, currently a member of the Board of Directors, and formerly the Chief Executive Officer, of Lustros, is the owner of Suprafin. In April 2012 Suprafin assigned $570,988 of the loans to Walker River Investments, Corp (“Walker”). In May 2012, Suprafin agreed to cancel $429,000 of these loans in exchange for 100,000 shares of Series A Preferred Stock. As of March 31, 2013, the Company had repaid an additional $1,385,464 of these loans, and the outstanding balance of these loans was $973,438, $187,509 represented the additional advances made by Suprafin, Ltd. during the three month period ended March 31, 2013.

 

In December 2012, Walker sold $300,000 of their loans to Magna Group LLC (“Magna”) in three increments of $100,000 each, and the Company issued to Magna a series of convertible notes (the “Magna Notes”) for the principal amount which bear interest at the rate of 8% per annum. These Magna Notes are convertible into stock of the Company at a discount of 37.5% from the lowest Trading Price the day prior to the execution of the Magna Notes and contain a one-time price reset which allows Magna to take a 37.5% discount from the lowest trading price on the day prior to the day the investor choses to exercise the reset. We have evaluated original issue discount feature derived from the conversion option of this note as of March 31, 2013 and deemed it to be $180,000. Magna chose to convert $100,000 as of December 31, 2012 which represented a $160,000 value with the debt discount of these Magna Notes into 177,714 shares of Common Stock. As of March 31, 2013, Magna chose to convert the remaining $200,000 which represented a $322,141 value with the debt discount and $2,141 interest of these Magna Notes into 604,357 shares of Common Stock. During the three month period ended March 31, 2013, we recognized $120,803 in amortized debt discount related to these Magna Notes. The amount was recorded as interest expense.

 

In January and February 2013, Walker sold an additional $270,988 of their loans to Magna in two increments of $125,000 and $145,988, and the Company issued to Magna a series of convertible Magna Notes for the principal amount which bear interest at the rate of 8% per annum. These Magna Notes are convertible into stock of the Company at a discount of 37.5% from the lowest Trading Price the day prior to the execution of the Magna Notes and contain a one-time price reset which allows Magna to take a 37.5% discount from the lowest trading price on the day prior to the day the investor choses to exercise the reset. As of March 31, 2013, Magna chose to convert $65,000 of the $125,000 loan which represented a $104,000 value with the debt discount into 179,311 shares of Common Stock. The total balance due to Magna, including accrued interest of $16,557, was $233,605, net of unamortized debt discount of $112,532 as of March 31, 2013. As of March 31, 2013, we recognized $183,169 in amortized debt discount related to these Magna Notes. The amount was recorded as interest expense.

 

From September through December 2012, the Company borrowed a total of $1,040,000 for working capital purposes from Robert Dickey, currently an alternate member of the Board of Directors and Bass Energy. Bill Hlavin, currently a member of the Board of Directors is the owner of Bass Energy. These loans are non-interest bearing, unsecured demand loans. These loans are personally guaranteed by Zirk Engelbrecht.

 

 

From January through March 2013, the Company borrowed a total of $34,000 for working capital purposes from Global Investments I LLC. William Farley, currently our Chief Executive Officer and a member of the Board of Directors is the owner of Global Investments I, LLC. These loans are non-interest bearing, unsecured demand loans.

 

In April 2012, Sulfatos borrowed $40,500,223 CLP, or approximately $79,454 US dollars, from Banco de Chile for working capital purposes. This loan bears interest at the rate of 13.43% per annum and is due on March 31, 2013. Monthly payments of principal and interest in the amount of $7,343,229 CLP, or approximately $15,608 US dollars, commenced on October 1, 2012. As of March 31, 2013, the outstanding balance of this loan had been paid in full. The company paid $3,559,151 CLP, or approximately $7,532 US dollars in interest expense related to these notes.

 

Sulfatos currently owes $176,011,132 CLP, or approximately $372,479 US dollars, for the last two payments of the land acquired in the first quarter of 2011.

 

Note 8 – Stockholders’ Equity

 

The authorized capital stock of Lustros consists of 100,000,000 shares of Common Stock, $0.001 par value per share, and 10,000,000 shares of Preferred Stock, par value of $0.001 per share, designated “Series A Preferred Stock.” Each share of Series A Preferred Stock is convertible at the option of the holder into 100 shares of Common Stock and is entitled to 100 votes per share on all matters submitted to the shareholders of Lustros. At March 31, 2013, there were outstanding 90,153,286 shares of Common Stock and no shares of Series A Preferred Stock.

 

In January 2013 through March 2013, Magna converted $265,000 of their loans and $1,338 in accrued interest valued at $426,141 with the debt discount into 783,668 shares of Common Stock, See Note 7 – Debt.

 

On March 1, 2013, the Company and Global Investments I, LLC (“Global”) entered into a Stock Purchase Agreement, whereby Global agreed to purchase 818,182 shares of Common Stock at a purchase price of $0.55 per share for total proceed of $450,000.

 

On March 1, 2013, the Company and Angelique de Maison (“de Maison”) entered into a Stock Purchase Agreement, whereby de Maison agreed to purchase 181,818 shares of Common Stock at a purchase price of $0.55 per share for total proceeds of $100,000.

 

Note 9 – Related Party Transactions

 

From February 2012 through March 2013, Suprafin provided the Company a total of $3,358,890 in non-interest bearing unsecured demand loans. Zirk Engelbrecht, currently a member of the Board, and formerly the Chief Executive Officer, of the Company is the owner of Suprafin. As of March 31, 2013, the outstanding balance of these loans was $973,438. See Note 7 - Debt.

 

From September through December 2012, the Company borrowed a total of $1,040,000 from two directors for working capital purposes at Sulfatos. Mr. Engelbrecht is a guarantor of these loans. See Note 7 - Debt.

 

From January through March 2013, the Company borrowed a total of $34,000 for working capital purposes from the Company’s Chief Executive Officer. See Note 7 - Debt.

 

From inception (January 26, 2012) to March 31, 2013, the Company has issued and sold an aggregate of 25,136,363 shares of Common Stock (including 175,000 shares of Series A Preferred Stock which were converted to 17,500,000 shares of Common Stock) to directors and executive officers. See Note 8 – Stockholders’ Equity.

  

Note 10 – Subsequent Events

 

In accordance with Accounting Standards Codification Topic No. 855 “Subsequent Events” (ASC 855), the Company has evaluated subsequent events through the time between the end of the reporting period and the time this Quarterly Report on Form 10-Q for the period ended March 31, 2013 was filed and has found the following events to report:

 

On April 22, 2013 the Board of Directors of the Company approved the sale of up to 100,000 Preferred Series “A” Shares of the Company (Series “A” Shares) at a purchase price of $10.00 per share. Each Series “A” Share is convertible into 100 shares of Company Common Stock upon the satisfaction of certain terms and conditions.  The Series A Shares have been  offered to small group of accredited investors already familiar with the Company in a private placement transaction exempt from registration under Section 4(2) of the Securities Act of 1933.  The termination date of the offering is June 30, 2013, and a total of 75,000 Series “A” Shares for a total of $750,000 have been subscribed for to date.  The offering is only available to this small group of accredited investors and this disclosure does not constitute an offer to sell securities to any persons whatsoever.

 

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

FORWARD-LOOKING STATEMENTS

 

This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains forward-looking statements that involve known and unknown risks, significant uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed, or implied, by those forward-looking statements.  You can identify forward-looking statements by the use of the words may, will, should, could, expects, plans, anticipates, believes, estimates, predicts, intends, potential, proposed, or continue or the negative of those terms.  These statements are only predictions. In evaluating these statements, you should consider various factors which may cause our actual results to differ materially from any forward-looking statements.  Although we believe that the exceptions reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.  Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements.  We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

 

Overview

 

We are a pre-revenue development stage company that intends to market and sell the high quality food-grade copper sulfate obtained by processing copper ores and tailings at Company-owned processing facilities in Chile.

 

On March 9, 2012, Lustros acquired all of the outstanding capital stock and rights to acquire capital stock of Bluestone, S.A. a Chilean corporation ("Bluestone"), in exchange for 60,000,000 shares of its common stock (the "Bluestone Acquisition"). As of the closing, these shares represented 96.7% of Lustros' outstanding common stock. For financial reporting purposes, the Company has treated the Bluestone Acquisition as a reverse acquisition with Bluestone the acquiring entity and Lustros as the acquired entity. As a result, the Company's financial statements reflect the financial information of Bluestone prior to March 9, 2012 and the combined entity on and after March 9, 2012. Because Bluestone commenced operations in January 2012, there are no results of operations for Bluestone prior to that date.

 

On February 15, 2012, Bluestone purchased a 60% equity interest in Sulfatos Chile, S.A. from Santa Teresa Minerals S.A., a Chilean corporation ("Santa Teresa Minerals"). The purchase price for the equity interest was: (a) a 20% interest in Bluestone; (b) $2.2 million, with $1.1 million paid by assumption of a demand loan payable by Santa Teresa Minerals to Angelique de Maison, and the balance of $1.1 million to be paid in monthly installments from time to time upon demand by Santa Teresa Minerals. As of December 31, 2012, the entire purchase price has been paid. On October 16, 2012 Angelique de Maison entered into an agreement with Santa Teresa Minerals pursuant to which Santa Teresa Minerals waived and released any claim to any Equity Interests in Bluestone or Lustros and their affiliated companies, with Bluestone and Lustros Inc. express third party beneficiaries of that waiver and release. As such, Santa Teresa Minerals' 20% interest in Bluestone has been cancelled, and Bluestone is a wholly owned subsidiary of Lustros. This acquisition has been treated as an "asset purchase" for financial reporting purposes. Because the acquisition was between related parties, the purchase price has been allocated to additional paid-in capital and the assets and liabilities were carried over at historical costs. Results of operations for Sulfatos have been reflected in the Company's financial statements from the closing date.

 

On March 25, 2012, the Company sold the assets (including the "Power-Save" name) of its renewable energy and energy savings product business in which it had engaged prior to the Bluestone Acquisition, to the former management of the Company. The purchase price for the assets was the cancellation of obligations for unpaid salaries and other monies owed to prior management and the assumption by the buyer of certain liabilities of the Company related to the Power-Save business.

 

We will process copper ore at our copper sulfate processing plant in Puerto Oscuro, Chile. We will obtain the copper ore from our 1,325 hectare Anica copper mine or by purchase from local artisanal miners. Our copper sulfate facility is expected to begin processing 5,000 tons of material per month in the second quarter of 2013. The current plant capacity of 15,000 tons per month will occur upon receiving permits for unlimited production which we expect to receive in the fourth quarter of 2013. Cash flow from this first phase is expected to begin in the third quarter of 2013 and will fund future expansion for an additional 25,000 ton processing plant.

 

 

Our consolidated financial statements contain our accounts and those of our consolidated subsidiaries, all of which are wholly-owned at March 31, 2013 except for Sulfatos and Mineraltus, which we control. Due to the structure of our ownership interests in Sulfatos and Mineraltus, in accordance with generally accepted accounting principles, we consolidate the financial statements of Sulfatos and Mineraltus into our financial statements rather than present our ownership interests as equity investments. As such, the non-controlling interests in Sulfatos and Mineraltus are reflected as income attributable to minority interests in our consolidated statements of operations and as a component of stockholders’ equity on our consolidated balance sheet. Throughout this section, when we refer to “our” consolidated financial statements, we are referring to the consolidated results for us, our wholly-owned subsidiaries and the consolidated results of Sulfatos and Mineraltus, adjusted for non-controlling interests in Sulfatos and Mineraltus. All significant intercompany transactions and balances have been eliminated in the consolidation of our financial statements.

 

RESULTS OF OPERATIONS - Three Months Ended March 31, 2013 and From Inception (January 26, 2012) to March 31, 2012

 

The following discusses results of operations for the three months ended March 31, 2013 and from Inception (January 26, 2012) to March 31, 2012.

 

Revenue for the three months ended March 31, 2013 was $0 compared to $20,886 from Inception (January 26, 2012) to March 31, 2012, all of which was derived from the sale of copper and copper sulfate. Gross profit for the three months ended March 31, 2013 and from Inception (January 26, 2012) to March 31, 2012 was $0 and $20,886 respectively. We expect revenues to increase significantly after the full scale launch of our copper sulfate production facility later this year.

 

Operating expenses for the three months ended March 31, 2013 were $766,535 compared to $489,899 from Inception (January 26, 2012) to March 31, 2012. Operating expenses were primarily associated with the operations of Sulfatos in the ordinary course of business as well as legal and accounting expenses required by a public company.

 

Due to the losses during the period the Company has not recorded a provision for income taxes.

 

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES.

As of March 31, 2013 our current liabilities exceeded our current assets by $2,608,431. Through March 31, 2013, we generated cash in the amount of $550,000 from the sale of stock and $180,922 from loans, net of loans repaid or cancelled in exchange for capital stock.

 

Cash Requirements

 

During the next twelve months, the Company plans to satisfy its cash requirements by income from operations, loans and the sale of debt and equity securities. There can be no assurance that the Company will be successful in raising the capital it requires through loans or the sale of securities. While directors, officers, and principal shareholders provided funding to the Company through March 31, 2013, they have no commitment to provide additional funding.

 

Sulfatos Chile

 

The Company acquired property and equipment owned by Sulfatos Chile with a historical cost value of $7,331,655 in the Bluestone Acquisition in March 2012.  The Company has spent an additional $1.2M in property, plant and equipment purchases as of March 31, 2013 toward the completion of the copper sulfate processing plant in Puerto Oscuro, Chile.  We expect the plant will be completed by end of the second quarter of 2013 and expect it will cost an additional $350,000 in capital expenditures to complete. 

 

Going forward, Sulfatos Chile expects to incur average monthly costs, of approximately $220,000 once it begins production at the copper sulfate processing plant.  These costs will be paid for by income from operations.

 

 

Congo Project

 

On October 18, 2012, the Company entered into an agreement pursuant to which the Company acquired the land, laboratory, tailings and other assets of the closed mine of La Africana, commonly known as the "Congo Project”, in the Santiago, Chile metropolitan area. The land is approximately 81.2 hectares and contains an estimated 2.4 million tons of copper-rich tailings.  The purchase price was $7 million payable as follows:

 

·

$360,000 was paid in November 2012 for the right to use all assets and facilities;

 

·

$436,858 is payable upon completion of the copper sulfate processing plant on site no later than November 13, 2014 as the final payment for the assets;

 

·

$6,203,172 is payable in equal monthly installments of $77,540 beginning on July 1, 2013 for the lease of the Lo Aguirre main pit. SMP may request that the final 12 lease payments

 

The Company has agreed to remove the tailings and restore the value of the property so that it can be used for real estate development projects. The Company will separate the copper from the tailings with the intention of manufacturing an estimated 24,000 tons of food-grade, penta-hydrated copper sulfate. The Company plans to construct a copper sulfate processing plant on the property to process the tailings at an estimated cost of $6.2 million by November 2014.

 

Future Financing

 

We will continue to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund planned acquisitions and exploration activities.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 4.  CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management carried out an evaluation under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act").

 

Based upon the required evaluation, the Principal Executive Officer and Chief Financial Officer concluded that as of March 31, 2013, the Company’s system of controls and procedures are not effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. The Company’s management intends to address the material weaknesses in its disclosure controls and procedures as soon as possible.

 

Changes in Internal Control over Financial Reporting

 

There was no change in our internal control over financial reporting during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II - OTHER INFORMATION

 

ITEM 1.  LEGAL PROCEEDINGS

 

In September 21, 2011, Chris Frye filed a lawsuit against the Company in California Superior Court alleging, among other things, breach of contract surrounding the Company’s CBS Television solar project. Chris Frye also filed a cross-complaint in a New Mexico action filed by Uni-Rac involving a similar subject matter. The Company vigorously denies all allegations and insists the lawsuit is an attempt on Chris Frye’s part to evade paying an outstanding invoice owed to the Company. The California Suit has since been dismissed in its entirety and the cross-complaint in New Mexico has been dismissed as well. Chris Frye and Power-Save have joined forces to combat Uni-Rac in the New Mexico portion of the case, which is reduced to a dispute of less than $200,000 regarding the racking supplied in relation to the CBS project. The liabilities of the Company relating to this lawsuit, including the cost of defense, were assumed by Michael Forster and SLO 3 Holdings, Inc. in connection with their purchase of the assets of the Company's renewable energy and energy savings business in March 2012. Assuming they have the financial capacity to pay any judgments and the costs of defense, the Company should have no liability with respect to this lawsuit.

 

The Company is engaged in litigation in the Supreme Court of the State of New York in the County of Westchester, Index No. 11139/2009, in the matter Steeneck v. Power-Save and Engelbrecht. The claim was brought before the Court on or about May 8, 2009, although the defendants were never notified of the action until September 2012. Putting aside pleading in the alternative (duplicative claims under different legal theories for the same acts/omissions to act) the claim appears to be for approximately $200,000. As reported on Form 8-K filed with the Commission on January 18, 2013, the Company was informed that on January 10, 2013 the Court filed and entered a Decision & Order stating that the statute of limitations of the action had expired and that the plaintiff is not entitled to the relief that was sought. The plaintiff’s motion was denied and the case is now marked as disposed by the court.

 

Other than the foregoing, we know of no material, existing or pending legal proceedings against the Company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which our director, officer or any affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

 

ITEM 1A. RISK FACTORS

 

There are no material changes to risk factors from those included in our Form 10-K for the year ended December 31, 2012.

 

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

In January 2013 through March 2013, Magra converted $265,000 of their loans and $1,338 in accrued interest valued at $426,141 with the debt discount into 783,668 shares of Common Stock.

 

On March 1, 2013, the Company and Global Investments I, LLC (“Global”) entered into a Stock Purchase Agreement, whereby Global agreed to purchase 818,182 shares of Common Stock at a purchase price of $0.55 per share or net proceeds of $450,000. More information regarding this agreement can be found in the Company’s Form 8-K filed with the Commission on March 7, 2013.

 

On March 1, 2013, the Company and Angelique de Maison (“de Maison”) entered into a Stock Purchase Agreement, whereby de Maison agreed to purchase 181,818 shares of Common Stock at a purchase price of $0.55 per share or net proceeds of $100,000. More information regarding this agreement can be found in the Company’s Form 8-K filed with the Commission on March 7, 2013.

 

These issuances were exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(2) as transactions not involving a public offering. The purchasers represented to the Company that they were "accredited investors" and made customary investment representations.

 

No underwriting discounts or commissions were paid in connection with these issuances.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

Nothing to report.

 

ITEM 4. MINE SAFETY DISCLOSURE

 

Nothing to report.

 

 

ITEM 5. OTHER INFORMATION

 

Upon completion of the Company’s June 30, 2012 consolidated financial statements, accounting errors were discovered that required the restatement of amounts previously reported on our Consolidated Balance Sheets, Consolidated Statements of Operations and Consolidated Statements of Cash Flows as of March 31, 2012. The Company’s consolidated financial statements as of March 31, 2012 included the 60% controlling interests only for our subsidiary, Sulfatos, from its inception date of September 15, 2010. It was later determined that the consolidated financial statements should have instead reflected the inception date of Bluestone, which was January 26, 2012 and should have included both the controlling interest as well as the minority interest and should have included income/loss attributable to the Company and income/loss attributable to minority interests.

 

As of June 30, 2012 our consolidated financial statements were restated in accordance with generally accepted accounting principles, to include the controlling and non-controlling interests of the subsidiaries we control, Sulfatos and Mineraltus, into our financial statements. As such, all assets and liabilities of Sulfatos and Mineraltus are shown on our Consolidated Balance Sheets with the non-controlling interest reflected as a component of stockholders’ equity on and non-controlling interests in Sulfatos and Mineraltus are reflected as income attributable to minority interests in our Consolidated Statements of Operations and as a component of stockholders’ equity on our Consolidated Balance Sheet.

 

The following is a summary of the impact of these restatements on the Company’s Consolidated Balance Sheet as of March 31, 2012:

 

		As previously reported				Error correction						As restated
ASSETS
Current Assets
Cash		$	303,404			$	202,270			(a)		$	505,673
Note receivable			52,004				34,670			(a)			86,673
Prepaid expenses			663,990				442,660			(a)			1,106,650
Total current assets			1,019,397				679,599						1,698,996
Non-Current Assets
Intangible assets, net of impairment			4,462,000				(4,462,000	)		(a)			–
Fixed asset, net			4,432,817				2,955,211			(a)			7,388,028
Total non-current assets			8,894,817				(1,506,789	)					7,388,028
TOTAL ASSETS		$	9,914,214			$	(827,190	)				$	9,087,024
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable		$	327,236			$	(161,643	)		(a)(e)		$	165,593
Notes payable			–				379,800			(a)(e)			379,800
Notes payable - related party			2,200,000				–						2,200,000
Total liabilities			2,527,236				218,157						2,745,393
Stockholders' Equity
Common stock, $.001 par value, 100,000,000 shares authorized,
62,856,426 issued and outstanding			62,857				(1	)					62,856
Additional paid-in capital			10,460,377				(7,809,917	)		(a)			2,650,460
Minority interest			–				3,264,303			(d)			3,264,303
Accumulated other comprehensive income			(2,172,129	)			3,005,154			(a)			833,025
Deficit accumulated during development stage			(964,128	)			495,115			(c)(b)			(469,013	)
Total stockholders' equity			7,386,978				(1,045,347	)					6,341,631
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	9,914,214			$	(827,190	)				$	9,087,024

 

(a) Record 100% of assets and liabilities for subsidiary rather than 60% controlling interest.

(b) Record 100% of expenses for subsidiary rather than 60% controlling interest.

(c) Adjust expenses from 1/1/2012 to 1/26/2012, the inception date of Bluestone.

(d) Reclassify 40% minority interest in subsidiary.

(e) Reclassify depreciation and amortization previously recorded in fixed assets.

(f) Separate proceeds and repayment of notes payable previously net against each other.

 

 

 

The following is a summary of the impact of these restatements on the Company’s Consolidated Statements of Operations as of March 31, 2012:

		Three Months Ended March 31, 2012										Inception (January 26, 2012) to March 31, 2012
		As previously reported				Error correction						As restated
Revenue		$	12,532			$	8,354			(a)(b)		$	20,886
Gross profit			12,532				8,354						20,886
Operating expenses
General and administrative			398,835				73,553			(a)(b)			472,388
Depreciation			–				15,146			(a)(b)			15,146
Payroll			–				(27,091	)		(a)(b)			(27,091	)
Legal and accounting			1,633				26			(a)(b)			1,659
Mining costs			12,775				14,646			(a)(b)			27,421
Research and development			3,445				(3,069	)		(a)(b)			376
Total expenses			416,688				73,211						489,899
Ordinary loss from continued operations			(404,156	)			(64,857	)					(469,013	)
Loss from discontinued operations			18,903				(18,903	)		(a)(b)			–
Net loss		$	(385,253	)		$	(83,760	)				$	(469,013	)
Net loss attributable to minority interest						$	(180,861	)		(c)		$	(180,861	)
Net loss attributable to Lustros, Inc.						$	(288,152	)		(c)		$	(288,152	)
Loss per share, basice		$	(0.02	)								$	(0.02	)
Weighted average common shares, basic			18,021,261										23,765,517

 

(a) Record 100% of expenses for subsidiary rather than 60% controlling interest.

(b) Adjust expenses from 1/1/2012 to 1/26/2012, the inception date of Bluestone.

(c ) Reclassify 40% minority interest in subsidiary.

 

 

 

 

The following is a summary of the impact of these restatements on the Company’s Statement of Cash Flows as of March 31, 2012:

 

 

		Sulfatos Inception (September 15, 2010) to March 31, 2012										Bluestone Inception (January 26, 2012) to March 31, 2012
		As previously reported				Error correction						As restated
Cash flows from operating activities
Net loss		$	(964,128	)		$	495,115			(b)(c)		$	(469,013	)
Non-cash transactions to reconcile cash used in operations
Loss from discontinued operations			(18,903	)			18,903			(b)(c)			–
Depreciation and amortization			–				15,146			(e)			15,146
Cash used in operations
Increase in notes receivable			(52,004	)			(34,669	)		(a)			(86,673	)
Decrease/(increase) in prepaid expenses			(663,990	)			321,783			(a)			(342,207	)
Increase/(decrease) in accounts payable			327,236				(610,546	)		(a)			(283,310	)
Total cash used in operations			(1,371,789	)			205,732						(1,166,057	)
Cash flows from investing activities
Acquisition of Sulfatos Chile by Bluestone			–				892,294			(a)			892,294
Cash received in Power Save merger			–				38,572			(a)			38,572
Disposal of Power Save operations			–				(20,642	)		(a)			(20,642	)
Purchase of fixed assets			(4,432,817	)			4,361,298			(a)(e)			(71,519	)
Total cash used in investing activites			(4,432,817	)			5,271,522						838,705
Cash from financing activities
Proceeds from notes payable, related parties			–				1,670,988			(f)			1,670,988
Repayment of notes payable, related parties			–				(1,670,988	)		(f)			(1,670,988	)
Proceeds from the issuance of stock			6,158,558				(6,158,558	)		(a)			–
Total cash provided by financing activities			6,158,558				(6,158,558	)					–
Effect of foreign currency exchange rate on cash			(50,548	)			883,573			(c)			833,025
INCREASE/(DECREASE) IN CASH			303,404				202,269			(a)			505,673
BEGINNING CASH			–				–						–
ENDING CASH		$	303,404			$	202,269					$	505,673

 

(a) Record 100% of assets and liabilities for subsidiary rather than 60% controlling interest.

(b) Record 100% of expenses for subsidiary rather than 60% controlling interest.

(c ) Adjust expenses from 1/1/2012 to 1/26/2012, the inception date of Bluestone.

(d ) Reclassify 40% minority interest in subsidiary.

(e ) Reclassify note payable previously included in accounts payable.

 

 

 

Resignation of Officers

 

·

On January 29, 2013, Gonzalo Troncoso resigned his position as Chief Executive Officer of the Company. His resignation from the Chief Executive Officer position is not the result of a disagreement with the Company.

·

On January 29, 2013, Myoung Won Sohn resigned his position as President of the Company. His resignation from the President position is not the result of a disagreement with the Company.

·

On January 29, 2013 Larry A. Zielke resigned his position as Senior Vice President and General Counsel of the Company. His resignation from the Senior Vice President and General Counsel positions is not the result of a disagreement with the Company.

 

Appointment of Officers

 

·

On January 29, 2013, William Farley was appointed Chief Executive Officer of the Company.

·

On January 29, 2013, Gonzalo Troncoso was appointed President of the Company.

 

Resignation of Directors

 

·

On January 29, 2013, the Board of Directors accepted the resignations of Myoung Won Sohn and Juan Carlos Camus Villegas as members of the Board of Directors. None of these resignations are the result of a disagreement with the Company.

 

On January 29, 2013 the size of the Board of Directors was set at seven members.

 

Appointment of Directors

 

·

On January 29, 2013, William Farley was appointed as a member of the Board of Directors and its Chairman.

·

On January 29, 2013, Todd Sluzas was appointed as a member of the Board of Directors.

·

On January 29, 2013, Martin Pajor was appointed as a member of the Board of Directors.

 

ITEM 6.  EXHIBITS

 

Exhibit Number		Description of Exhibit
10.01		Stock Purchase Agreement Lustros, Inc. and Global Investments I, LLC dated March 1, 2013.   Incorporated by reference as part of Form 8-K filed with the Commission on March 7, 2013
10.02		Stock Purchase Agreement Lustros, Inc. and Angelique de Maison dated March 1, 2013.   Incorporated by reference as part of Form 8-K filed with the Commission on March 7, 2013
31.01		Certification of Principal Executive Officer Pursuant to Rule 13a-14*
31.02		Certification of Principal Financial Officer Pursuant to Rule 13a-14*
32.01		CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act*
32.02		CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act*
101.INS		XBRL Instance Document
101.SCH		XBRL Schema Document
101.CAL		XBRL Calculation Linkbase Document
101.DEF		XBRL Definition Linkbase Document
101.LAB		XBRL Label Linkbase Document
101.PRE		XBRL Presentation Linkbase Document

   

*Filed with this report.

 

 

SIGNATURES

 

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	LUSTROS, INC.
Dated:  May 16, 2013	/s/ William Farley
	By: William Farley Its: Chief Executive Officer (Principal Executive Officer)
Dated:  May 16, 2013	/s/ Trisha Malone
	By: Trisha Malone Its: Chief Financial Officer (Principal Financial Officer)