Washington, D.C. 20549

 

Form 10-Q

Mark One

 

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the period ended September 30, 2013

 

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to _______

 

Commission File No. 333-138332

 

TRILLIANT EXPLORATION CORPORATION

(Name of small business issuer in its charter)

 

 

 

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). Yes  x 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.

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨ No  x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the most practicable date:

 

EXPLANATORY NOTE:

 

This Quarterly report for the period ending September 30, 2013 contains unaudited financial statements which have not been reviewed by our independent registered public accounting firm in accordance with Article 10 of SEC Regulation S-X.

 

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TRILLIANT EXPLORATION CORPORATION

Form 10-Q

 

			Page
PART I-FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of June 30, 2013 (Unaudited), March 31, 2013 and December 31, 2012 (Unaudited)			4
	Condensed Consolidated Statements of Operations for the Six months Ended June 30, 2013, the three months ended June 30, 2013, the three months ended March 31, 2013 and year ended Dec 31, 2012 (Unaudited)			5
	Condensed Consolidated Statements of Cash Flows for the Six and three months ended June 30, 2013, Three months Ended March 31, 2013 and year ended Dec. 31, 2012 (Unaudited)			6
	Consolidated Statement of  Changes in Equity for the period ended June 30, 2013, March 31, 2013 and December 31, 2012 (Unaudited)
	Notes to Condensed Consolidated Financial Statements (Unaudited)			8
	Forward Looking Statement			20
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk			26
Item 4.	Controls and Procedures			27
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings			28
Item 1A.	Risk Factors			28
Item 2.	Unregistered Sales of Equity Securities			28
Item 3.	Defaults upon Senior Securities			26
Item 4.	Removed and Reserved			28
Item 5.	Other Information			29
Item 6.	Exhibits			29
Signatures				30

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PART I

 

ITEM 1. FINANCIAL STATEMENTS

 

TRILLIANT EXPLORATION CORPORATION

Consolidated Balance Sheet

Unaudited

 

 

		Sept. 30, 2013				June 30, 2013					March 31, 2013					Dec. 31, 2012
ASSETS
Current assets
Cash and cash equivalents		$	24,369			$	87				$	60				$	60
Total current assets		$	24,369			$	87				$	60				$	60
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Accounts payable		$	299,331			$	298,606				$	292,950				$	288,889
Accrued interest			1,052,491				1,036,572					1,020,653					1,016,284
Convertible notes payable related party			585,495				585,495					597,495					597,495
Convertible bonds -related party			1,610,407				1,610,407					1,610,407					1,610,407
Short term notes payable			68,302				43,302					40,150					30,150
Total current liabilities		$	3,616,026			$	3,574,382				$	3,561,655				$	3,543,225
Long term liabilities
Derivative liabilities		$	2,250,646			$	7,136,057				$	505,275				$	560,818
Total long term liabilities			2,250,646				7,136,507					505,275					560,818
Total liabilities		$	5,866,672			$	10,710,889				$	4,066,930				$	4,104,043
SHAREHOLDERS' DEFICIT
Common stock, par value $0.001; 1,000,000,000 authorized shares; 191,446,114 issued and outstanding on Sept. 30, 2013 and June 30, 2013; 152,819,187 issued and outstanding at March 31, 2013 and Dec. 31, 2012; respectively		$	191,446			$	191,446				$	152,819				$	152,819
Additional paid-In capital			66,781,251				66,781,251					66,681,901					66,681,901
Accumulated deficit during pre-exploration stage			(12,344,011	)			(12,344,011	)				(12,344,011	)				(12,344,011	)
Deficit accumulated			(50,270,989	)			(55,139,488	)				(48,357,579	)				(48,394,692	)
Total shareholders' deficit before Treasury stock		$	4,357,697			$	(510,802	)			$	6,133,130				$	6,096,017
Treasury stock			(10,200,000	)			(10,200,000	)				(10,200,000	)				(10,200,000	)
Total shareholders' equity (deficit)		$	(5,842,303	)		$	(10,710,802	)			$	(4,066,870	)			$	(4,103,983	)
Total liabilities and shareholders' equity (deficit)		$	24,369			$	87				$	60				$	60

See accompanying notes to unaudited condensed consolidated financial statements.

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 TRILLIANT EXPLORATION CORPORATION

Consolidated Statement of Operations

Unaudited 

 

		For the nine months ended 30-Sept-13				For the three months ended 30-Sept-13				For the six months ended 30-Jun-13				For the three months ended 31-March-13				For the year ended 31-Dec-12
Revenues		$	-			$	-			$	-			$	-			$	-
Operating Expenses
General and administrative		$	181,207			$	11,121			$	170,086			$	14,060			$	48.409,572
Total operating expense			181,207				11,121				170,086				14,060				48,409,572
Net income (expense)		$	(181,207	)		$	(11,121	)		$	(170,086	)		$	(14,060	)		$	(48,409,572	)
Other income (expense)
Gain (loss) on settlement of debt		$	-			$	-			$	-			$	-			$	(105,747	)
Net realized and unrealized gain (loss) in change in fair value of derivative liability			(1,656,667	)			4,946,418				(6,603,085	)			55,542				6,599,244
Interest expense			(79,349	)			(66,798	)			(8,738	)			(4,369	)			(401,758	)
Total other income (expense)		$	(1,736,016	)		$	4,879,620			$	(6,611,823	)		$	51,173			$	(6,091,739	)
Net gain (loss) before income tax		$	(1,913,410	)		$	4,868,499			$	(6,781,909	)		$	37,113			$	(42,317,833	)
Basic and Diluted loss per share
Net gain (loss) per share continuing operations		$	(0.01	)		$	0.03			$	(0.04	)		$	(0.00			$	(1..07)
Weighted average number of common shares outstanding (Basic and Diluted)			191,446,144				191,446,144				178,570,472				152,819,817				39,405,131

 

See accompanying notes to unaudited condensed consolidated financial statements.

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TRILLIANT EXPLORATION CORPORATION

Consolidated Statement of Cash Flows

Unaudited

 

		For the nine months ended 30-Sept-13				For the three months ended 30-Sept-13				For the six months ended 30-Jun-13				For the three months ended 31-March-13				For the year ended 31-Dec-12
CASH FLOWS FROM OPERATING ACTIVITIES
Net gain (loss)		$	(1,913,410	)		$	4,868,499			$	(6,781,909	)		$	37,113			$	( 42,317,833	)
Adjustments to reconcile to net cash by operations and non-cash items:
Net realized and unrealized change in fair value of derivative liability			1,744,921				(4,885,861	)			6,630,782				(55,542	)			(6,599,244	)
Amortization of conversion feature
Unrealized loss on shares held on deposit at fair value pending acquisition
Gain (loss) on settlement of debt and interest expense																			507,505
Common stock at par issued																			152,174
Additional paid-in capital			99,350								99,350								65,013,993
Accounts payable  and accrued expenses settled with common stock			29,889)								(29,889	)							48,339,078
Common stock issued for services																			(45,914,974	)
Common stock issued to retire preferred stock and derivatives																			(16,797,000	)
Common stock issued in settlement of debt and accrued interest																			(2,454,193	)
Common shares stock issued (in escrow) acquisition
Changes in operating assets and liabilities			56,966								56,966
Bonds payable, convertible and secured-related party net discount
Accounts payable; accrued expenses			38,219				16,644				21,575				18,429				40,404
Net cash (used in) provided by operating activities		$	(3,843	)		$	(718	)		$	(3,125	)		$	-			$	(30,090	)
CASH FLOWS FROM INVESTING ACTIVITIES
Common shares issued (in escrow) acquisition		$	-			$	-			$	-			$	-			$	-
Net cash (used in) provided by investing activities		$	-			$	-			$	-			$	-			$	-
CASH FLOWS FROM FINANCING ACTIVITIES
Short term notes payable						$	25,000			$	3,152							$	30,150
Net cash (used in) provided by financing activities		$	28,152			$	25,000			$	3,152			$	-			$	30,150
							-
Net increase (decrease) in cash		$	24,309			$	24,282			$	27			$	-			$	60
Cash at beginning of period		$	87			$	87			$	60			$	60			$	-
Cash at end of period		$	24,396			$	24,369			$	87			$	-			$	60
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest
Cash paid for income taxes		$	-			$	-			$	-			$	-			$	-
		$	-			$	-			$	-			$	-			$	-
Non-cash investing activities
Common stock issued for debt and accrued interest
Common stock issued to retire preferred stock		$	-			$	-			$	-			$	-			$	97,679
Common stock issued for services		$	-			$	-			$	-			$	-			$	56,500
Common stock issued to settle debt		$	37,626			$	-			$	37,626			$	-			$	40,000

See accompanying notes to unaudited condensed consolidated financial statements.

 

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TRILLIANT EXPLORATION CORPORATION, INC

Consolidated Statement of Changes in Equity

[Unaudited] 

 

	Common								Additional Paid -in				Treasury				Accumulated Deficit during pre-exploration
	Stock				Amount				Capital				Stock				stage				Deficit				Total
Balance 31-Dec-12		52,819,187			$	152,819			$	66,681,901			$	(10,200,000	)		$	(12,344,011	)		$	(48,394,692	)		$	(4,103,983	)
Common stock issued in settlement of debt and accrued interest
Common stock issued for services
Common stock issued in escrow for acquisition
Treasury stock
Net gain(loss)																						37,113				37,113
Balance 31-Mar-13		152,819,187			$	52,819			$	66,681,901			$	(10,200,000	)		$	(12,344,011	)		$	(48,357,579	)		$	(4,066,870	)
Common stock issued in settlement of debt and accrued interest
Common stock issued for services		37,626,927				37,627				88,350																125,977
Common stock issued in escrow for acquisition
Treasury stock
Net gain(loss)																						(6,769,909	)			(6,769,909	)
Balance 30-Jun-13		190,446,114			$	190,446			$	66,770,251			$	(10,200,000	)		$	(12,344,011	)		$	(55,127,488	)		$	(10,710,802	)
Common stock issued in settlement of debt and accrued interest
Common stock issued for services
Common stock issued in escrow for acquisition
Treasury stock
Net gain(loss)																						4,868,499				4,868,499
Balance 30-Sept-13		190,446,114			$	90,446			$	66,770,251			$	(10,200,000	)		$	(12,344,011	)		$	(50,258,989	)		$	(5,842,303	)

See accompanying notes to unaudited condensed consolidated financial statements.

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TRILLIANT EXPLORATION CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013

 

NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION

 

Trilliant Exploration Corporation, (the “Company”) was incorporated as Project Development Pacific, Inc. on December 29, 2003, under the laws of the State of Nevada. The business purpose of the Company was originally to assist Canadian citizens to access health care services from private providers. On November 26, 2007, the Company changed its name to Trilliant Exploration Corporation, with a purpose to acquire and develop mineral properties. The Company has elected a fiscal year end of December 31.

 

On March 30, 2009 (Date of Acquisition), Trilliant Exploration Corporation (the Parent) acquired a 100% interest in MuluncayGoldCorp (a Subsidiary) (Muluncay). The transaction was accounted for as a purchase pursuant to ASC Topic No. 805.

 

On June 29, 2009 (Date of Formation), the Company established a wholly-owned Trilliant Diamonds Limited (a Subsidiary) (Trilliant Diamonds), a private limited England and Wales Company, to facilitate the Company’s diamond exploration. Trilliant Diamonds was sold off on August 26, 2010 to Charms with its current and future debt.

 

On July 1, 2009 the Company acquired 799 of 800 shares of AyapampaGold S.A (AYA) (a Subsidiary) at $1 per share for a purchase price of $799. AYA was formed in mid-2007 as a shell and has been inactive since inception.

 

On February 11, 2010, Minera Del Pacifico (the seller of MuluncayGoldCorp) exercised its rights retroactive to December 31, 2009 to terminate the purchase of MuluncayGoldCorp. The activity of MuluncayGoldCorp from the Date of Acquisition through December 31, 2009 is reported as discontinued operations pursuant to ASC Topic 205.

 

The accompanying consolidated financial statements include the operations of the Subsidiaries’ activity from the dates of Acquisition and Formation through this quarter end. Intercompany transactions have been eliminated upon consolidation. The Parent and Subsidiaries are collectively referred to as “the Company.”

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Significant estimates that may change in the near future include value of goodwill, impairment of long-lived assets acquired, and value of investments.

 

Cash and Cash Equivalents

 

Cash and cash equivalents consists principally of currency on hand, demand deposits at commercial banks, and liquid investment funds having a maturity of three months or less at the time of purchase. The Company had $24,369 and $87 and $60 in cash and cash equivalents as of September 30, 2013 June 30, 2013 and March 31, 2013, respectively. 

 

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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

 

Revenue Recognition

 

The Company will follow the guidance of ASC Topic 605, formerly, SAB 104 for revenue recognition. In general, the Company will record revenue when persuasive evidence of an arrangement exists, services have been rendered, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. Revenues from services are recognized when the services are performed, evidence of an arrangement exists, the fee is fixed and determinable and collectability is probable. In circumstances when these criteria are not met, revenue recognition is deferred until resolution occurs.

 

Property, Plant, and Equipment

 

Property and equipment are stated at cost. Depreciation and amortization are determined using the straight-line method over estimated useful lives of the assets. As of September 30, 2013, the Company held no property, plant or equipment.

 

Net Income or (Loss) Per Share of Common Stock

 

Basic and diluted loss per common share is based upon the weighted average number of common shares outstanding during the period computed under the provisions of Accounting Standards Codification subtopic 260-10, Earnings per Share (“ASC 260-10”). All primary dilutive common shares have been excluded since the inclusion would be anti-dilutive.

 

Recently Issued Accounting Pronouncements

 

Management does not believe that any recently issued, but not yet effective accounting standards, if adopted, will have a material effect on Companies consolidated financial statements.

 

Income Taxes

 

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period enacted. A valuation allowance is provided when it is more likely than not that a portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of deferred tax liabilities during the period in which related temporary differences become deductible. The benefit of tax positions taken or expected to be taken in the Company’s income tax returns are recognized in the consolidated financial statements if such positions are more likely than not of being sustained.

 

In accordance with 740-10, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting this standard, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

 

Derivative Liabilities

 

The Company accounts for its embedded conversion features in its convertible debentures in accordance ASC 815-10, “Derivatives and Hedging”, which requires a periodic valuation of their fair value and a corresponding recognition of liabilities associated with such derivatives, and ASC 815-40, “Contracts in Entity’s Own Equity”. The recognition of derivative liabilities related to the issuance of convertible debt is applied first to the proceeds of such issuance as a debt discount, at the date of issuance, and the excess of derivative liabilities over the proceeds is recognized as “Loss on Valuation of Derivative” in other expense in the accompanying financial statements. Any subsequent increase or decrease in the fair value of the derivative liabilities is recognized as “Other expense” or “Other income”, respectively.

 

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Accounting Standards Codification subtopic 815-40, Derivatives and Hedging; Contracts in Entity’s own Equity (“ASC 815-40”) became effective for the Company. The Company’s Convertible Preferred Stock and Convertible debt has certain provisions that require the Company to change conversion price of the Convertible debt and Convertible Preferred Stock based on the discounted market value. Upon the effective date, the provisions of ASC 815-40 required a reclassification to liability based on the reset feature of the agreements. Therefore, in accordance with ASC 815-40, the Company determined the fair value of the initial reset provision on preferred stock and convertible debt using the Black-Scholes formula assuming no dividends, a risk-free interest rate of 0.68%-0.85%, expected volatility of 155.49%-214.23%, and expected life of 1 and 5 years. The net value of the reset provision at the date of adoption of ASC 815-40 was recorded as a derivative liability on the balance sheet and a reduction to series “A” convertible redeemable preferred stock and convertible debt. Changes in fair value are recorded as non-operating, non-cash income or expense at each reporting date.

 

The fair value of the convertible debt at September 30, 2013 was determined using the Black Scholes Option Pricing Model with the following assumptions:

 

Dividend yield:		0		0%
Volatility			576.77	%
Risk free rate:			0.33	%

 

Fair Value of Instruments

 

Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) requires disclosure of the fair value of certain financial instruments. The carrying value of cash and cash equivalents, accounts payable and accrued liabilities, and short-term borrowings, as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments. All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise only available information pertinent to fair value has been disclosed.

 

The company follows Accounting Standards Codification subtopic 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”) and Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”), which permits entities to choose to measure many financial instruments and certain other items at fair value

 

Reclassification

 

Certain reclassifications have been made to conform the prior period data to the current presentation. These reclassifications had no effect on reported net loss.

 

NOTE 3 – PROVISION FOR INCOME TAXES

 

The Company recognizes the tax effects of transactions in the year in which such transactions enter into the determination of net income regardless of when reported for tax purposes. Deferred taxes provided for under ASC Topic No. 740 give effect to the temporary differences which may arise from differences in the bases of fixed assets, depreciation methods, and allowances based on the income taxes expected to be payable in future years. Deferred tax assets arising as a result of net operating loss carry-forwards and other temporary differences have been offset completely by a valuation allowance due to the uncertainty of their utilization in future periods. Operating loss carry-forwards of approximate $18 million generated since inception through December 31, 2011, will begin to expire in 2031 subject to limitations of Section 382 of the Internal Revenue Code, as amended. Accordingly, deferred tax assets of approximately approximate $6.3 million, which were completely offset by the valuation allowance, which increased by $1,484,443 from the previous year, respectively, based on the U.S. Statutory rate of 35%.

 

Significant changes in the Company’s ownership, the Company’s future use of its existing net operating losses may be limited.

 

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NOTE 4 – RELATED PARTY TRANSACTIONS

 

A – Convertible Notes Payable

 

The Company has entered into multiple convertible notes payable agreements with an investment firm that is also a minority stockholder of the Company. Each note carries a separately dated promissory note that bears interest of 8% and is payable on or before August 31, 2010, with each funding due one year from original date of receipt. Principal and interest are convertible at the option of the note-holder into shares of the Company’s common stock at the rate of 80% of the average of the five daily volume weighted average price preceding the conversion date. Several Notes are in default and status of default is indicated in the following table. The Notes carry no penalty or change in interest rate for default. Interest expense on the convertible notes years ended December 31, 2012 and December 31, 2011, totaled $45,200 and $45,680, respectively. Due to the contingent nature of the conversion price, the company accounted for beneficial conversion feature and derivative liability on the note. The convertible promissory notes with the investment firm totaled $565,000 at December 31, 2012, December 31, 2011 and December 31, 2010 and are summarized as follows:

 

Convertible Notes
	Issue date		Maturity		Principal				Interest Rate				Date of Default
(A)	12/31/2008		1/5/2010			90,000				8.00	%		1/5/2010
(A)	1/16/2009		1/5/2010			100,000				8.00	%		1/5/2010
(A)	1/23/2009		1/5/2010			50,000				8.00	%		1/5/2010
(A)	2/2/2009		1/5/2010			25,000				8.00	%		1/5/2010
(A)	3/9/2009		1/5/2010			10,000				8.00	%		1/5/2010
(B)	4/8/2009		4/8/2010			50,000				8.00	%		4/8/2010
	6/23/2009		6/23/2010			25,000				8.00	%		6/23/2010
	7/1/2009		7/1/2010			*				8.00	%		7/2/2010
	7/6/2009		7/6/2010			20,000				8.00	%		7/7/2010
	8/26/2009		8/31/2010			195,000				8.00	%		9/1/2010
			Totals		$	565,000

(A), Amounts borrowed were part of a master note agreement totaling $ 275,000

 

* This note was repaid in January 2011

 

January 5, 2009 Note:

 

From January 5, 2009 to March 9, 2009, the Company issued a $275,000 Convertible Note that matured on January 5, 2010. The note bears interest at a rate of 8% and is convertible into the Company’s common stock at any time at the holder’s option, at the conversion rate of 80% of the average rate of five preceding the closing date prior to notice of conversion.

 

The Company identified embedded derivatives related to the Convertible Note entered into on March 9, 2009 (completion of funding as per agreement). These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Note and to adjust the fair value as of each subsequent balance sheet date. At the inception of the Convertible Note, the Company determined a fair value of $218,585 of the embedded derivative. The fair value of the embedded derivative was determined using the Black Scholes Model based on the following assumptions:

 

Dividend yield:		-0-		%
Volatility			181.03	%
Risk free rate:			0.82	%

The initial fair value of the embedded debt derivative of $125,165 was allocated as a debt discount with the remainder ($93,420) charged to current period operations as interest expense.

 

During the year ended December 31, 2011 and 2010, the Company amortized $0 and $2,072 to current period operations as amortization of beneficial conversion feature.

 

The fair value of the described embedded derivative of $200,161, $3,449,722 and $266,461 at Sept 30, 2013, June 30, 2013 and March 31, 2013, respectively was determined using the Black Scholes Model with the following assumptions

At September 30, 2013, the Company adjusted the recorded fair value of the derivative liability to market resulting in non-cash, non-operating gain $4,879,620.

 

April 8, 2009 Note:

From April 8, 2009, the Company issued a $50,000 Convertible Note that matured on April 8, 2010. The note bears interest at a rate of 8% and is convertible into the Company’s common stock at any time at the holder’s option, at the conversion rate of 80% of the average rate of five preceding the closing date prior to notice of conversion.

 

The Company identified embedded derivatives related to the Convertible Note entered into on April 8, 2009. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Note and to adjust the fair value as of each subsequent balance sheet date. At the inception of the Convertible Note, the Company determined a fair value of $42,239 of the embedded derivative. The fair value of the embedded derivative was determined using the Black Scholes Model based on the following assumptions: 

 

The initial fair value of the embedded debt derivative of $20,261 was allocated as a debt discount with the remainder ($21,978) charged to that period of operations as interest expense.

 

During the year ended December 31, 2012 and 2011, the Company amortized $0 to current period operations as amortization of beneficial conversion feature.

  

The fair value of the described embedded derivative of $32,279, $636,872 and $41,175 at September 30, 2013, June 30, 2013 and March 31, 2013, was determined using the Black Scholes Model with the following assumptions:

 

June 23, 2009 Note:

From June 23, 2009, the Company issued a $25,000 Convertible Note that matured on June 23, 2010. The note bears interest at a rate of 8% and is convertible into the Company’s common stock at any time at the holder’s option, at the conversion rate of 80% of the average rate of five preceding the closing date prior to notice of conversion.

 

The Company identified embedded derivatives related to the Convertible Note entered into on June 23, 2009. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Note and to adjust the fair value as of each subsequent balance sheet date. At the inception of the Convertible Note, the Company determined a fair value of $19,148 of the embedded derivative. The fair value of the embedded derivative was determined using the Black Scholes Model based on the following assumptions: 

 

The initial fair value of the embedded debt derivative of $12,102 was allocated as a debt discount with the remainder ($7,046) charged to that period of operations as interest expense.

 

The fair value of the described embedded derivative of $18,639, $318,158 and $20,587at September 30, 2013, June 30, 2013 and March 31, 2013 and December 31, 2012, respectively was determined using the Black Scholes Model with the following assumptions:

 

From July 2009 to August, 2009, the Company issued a three note totaling to $315,000 Convertible Note that matured on July 1, 2010, July 6, 2010 and August 31, 2010. The note bears interest at a rate of 8% and is convertible into the Company’s common stock at any time at the holder’s option, at the conversion rate of 80% of the average rate of five preceding the closing date prior to notice of conversion.

 

The Company identified embedded derivatives related to the Convertible Note entered into on date of Note. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Note and to adjust the fair value as of each subsequent balance sheet date. At the inception of the Convertible Note, the Company determined a fair value of $241,266 of the embedded derivative. The fair value of the embedded derivative was determined using the Black Scholes Model based on the following assumptions:

B – Short-Term Notes Payable

 

The Company has borrowed funds from stockholders for working capital purposes from time to time. The loans are non-interest bearing, payable on demand and, consequently, reported as current liabilities. The Company has received $39,514 in advances since inception and made repayments of $7,019 in cash, resulting in a payable balance of $32,495, during 2012 the remaining balance was settled through issuance of common stock and the Company obtained additional short term loan during the third quarter of $25,000 bringing the total short loans for September 30, 2013 to $68,302

 

C – Bonds Payable, Convertible and Secured

 

The Company has entered into multiple convertible bond agreements with an investment firm that is also a minority stockholder of the Company.

 

The convertible bonds were listed below:

 

*On August 23, 2010, the Company repaid $241,593 in principal on (A) and $210,000 in principal on (D).

 

In October 2012, the Company retired its Series I Preferred stock, by issuing 45,000,000 shares of common stock to retire the Series I Preferred in satisfaction of the remaining bond debt, recording an addition to paid- in-capital of $16,752,000.

 

The Company through a third-party had entered into an agreement to convert certain debt instruments pursuant to the terms of a convertible bond debenture for the purpose of reducing or eliminating the debt to the bond holder. The Company issued free trading shares of appropriately aged debt to eliminate approximately $200,000 of debt held by the bond holder. However, during the year ended December 31, 2012, the Company accounted for shares of its common stock issued to third parties as services rendered and payment of a deposit to acquire an asset. The Company determined the shares of common stock while issued, were held by the Company’s sole officer and Director and not issued to the third parties. In addition, during the year ended December 31, 2012 the Company issued and disbursed shares to a holder of its previously issued and outstanding debt in exchange for unpaid principal and interest and accounted for the issuance as a reduction in the unpaid debt. The Company determined shares issued were not delivered to the holder of the debt and accordingly, the debt has not been reduced.

 

 

The Company is authorized to issue 200,000,000 shares of Preferred stock, par value of $0.001 per share.

 

On June 30, 2009, the Company filed a Certificate of Designation with the Secretary of State of Nevada, whereby 10,200,000 shares of the 200,000,000 authorized shares of Preferred stock were designated as Series I Preferred Stock, $0.001 par value and having the powers, designations, preferences, limitations, restrictions and relative rights as set forth in the Certificate of Designation of Series I Preferred Stock.

 

Holders of the Series I Preferred shares do not receive interest or dividends separately from common stock shareholders. Preferred Stock holder shall participate in dividends when and if declared in the same proportion as common stock shareholders. Preferred stock is convertible into common shares at the lowest volume weighted average price of the common shares in the five days preceding conversion.

 

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, holders of the Series I Preferred Shares will be entitled to receive for each share of Preferred Shares, out of the assets of the Company or proceeds available for distribution to our shareholders, subject to any rights of our creditors, before any distribution of assets or proceeds is made to or set aside for the holders of our common stock and any other class or series of our stock ranking junior to the Series I Preferred Shares, payment of an amount equal to the sum of (i) the $1.00 liquidation preference amount per Series I Preferred Shares and (ii) the amount of any accrued and unpaid dividends on the  Series I Preferred Shares (including dividends accrued on any unpaid dividends). To the extent the assets or proceeds available for distribution to shareholders are not sufficient to fully pay the liquidation payments owing to the holders of the Series I Preferred Shares and the holders of any other class or series of our stock ranking equally with the Series I Preferred Shares, the holders of the Series I Preferred Shares and such other stock will share ratably in the distribution.

 

For purposes of the liquidation rights of the Series I Preferred Shares, neither a merger or consolidation of the Company with another entity, including a merger or consolidation in which the holders of Series I Preferred Shares receive cash, securities or other property for their shares, nor a sale, lease or exchange of all or substantially all of the Company’s assets will constitute a liquidation, dissolution or winding up of the affairs of the Company.

 

In October 2012, the Company retired all shares of Series I Preferred Shares.  See Note 4(c) above

 

Issuance of 10,200,000 shares of Series I Preferred Shares

 

In October 2012, the Company retired all shares of this Preferred Series. See Note 4(c) above.

Issuance of 2,363,500 shares of Series I Preferred Shares

 

In October 2012, the Company retired all shares of this Preferred Series. See Note 4(c) above.

 

Common Stock

 

The Company is authorized to issue 1,000,000,000 shares of common stock, par value $.001 per share

 

On January 22, 2011, a previously issued $100,000 Convertible Note was assigned to a Company shareholder at the $0.001 of conversion price. The Company recorded $582,973 as loss on change in term of note. On the same date the Company issued 333,333 of Common stock in exchange or settlement of the Note of $100,000 in principal and accrued interest of $12,482.

 

During fiscal year ended December 2012, the Company issued 275,888,257 shares of its common stock for services, debt reduction, and acquisition expenses and to retire the preferred shares.  The Company is holding 126,069,070 shares in escrow for services pending performance. The outstanding shares of its common stock are 152,819,187. The company currently has no preferred shares issued and outstanding.

 

During the quarter ended June 30, 2013, the Company issued 2,550,000 shares of common stock, of which 1,000,000 were issued pursuant to the terms of the convertible note with a related party. The Company reported the beneficial conversion as additional paid-in capital of $11,000. The balance of 1,550,000 shares of common stock issued were for services.

 

The Company issued no shares of common stock for the period ending September 30, 2013

 

 

A summary of the changes in outstanding warrants is as follows.

 

As of December 31, 2012, the Company issued 2,740,300 common shares in full settlement of the warrant agreement.

 

NOTE 6 – OTHER MATERIAL CONTRACTS

 

None.

 

NOTE 7 – GOING CONCERN

 

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has a recurring net losses, and total deficit accumulated including during pre-exploration stage is $(12,344,011) and a deficit of $(50,270,898) accumulated during the nine months ended Sept. 30, 2013. The Company has working capital deficit of (current liabilities minus current assets) $(3,591,657) at Sept. 30, 2013 and December 31, 2012 of $(3,543,165). Additionally, current economic conditions in the United States and globally create significant problems attaining sufficient funding. Accordingly, management has encountered significant difficulties in obtaining financing. These items raise substantial doubt about the Company’s ability to continue as a going concern. In view of these matters, realization of the assets of the Company is dependent upon the Company’s ability to meet its financial requirements through equity financing, borrowing, and the success of future operations. These consolidated financial statements do not include adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence. 

NOTE 8 – CORRECTION OF PRIOR YEAR ACCOUNTING ERROR

 

The Company’s consolidated financial statements as of December 31, 2009, contained the following errors: (1) overstatement of debt in the amount of $2,389,200; overstatement of a related investment in the amount of $2,389,200, and overstatement of accrued interest payable in the amount of $149,112. As of December 31, 2009, the investment and debt (along with minimal foreign currency translation adjustments) were eliminated, and accumulated deficit was increased by $149,112 to correct the aggregate effect of the errors. The error is a result of the Company recording a transaction, known as Global Diamond Resources, which did not materialize wherein the Company was borrowing funds under a convertible loan agreement to purchase, through a subsidiary, stock of a privately held company. The lenders were unable to complete the transaction and neither funds nor equities changed hands. The Board of Directors issued a resolution to void the transaction. The Company also made the following adjustments:

 

The unaudited financial statements contained herein reflect the above described issue. The Company has retained its independent auditor to review the financial statements for year ending 2012 and the current periods reflecting this correction.

 

NOTE 9 – FAIR VALUE OF FINANCIAL INSTRUMENTS

 

ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:

 

Level 1 - Quoted prices in active markets for identical assets or liabilities.

 

Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3 - Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

 

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed is determined based on the lowest level input that is significant to the fair value measurement. The debt derivative, comprised of our bifurcated convertible debt features on our convertible notes, is measured at fair value using quoted market prices and estimated volatility factors based on historical prices for the Company’s common stock and are classified within Level 3 of the valuation hierarchy. 

The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities:

 

The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of December 31, 2012:

 

FORWARD LOOKING STATEMENTS

 

Except for statements of historical fact, certain information contained herein constitutes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are usually identified by our use of certain terminology, including “will,” “believes,” “may,” “expects,” “should,” “seeks,” “anticipates,” or “intends,” or by discussions of strategy or intentions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results or achievements to be materially different from any future results or achievements expressed or implied by such forward-looking statements. Such factors include, among others, our history of operating losses and uncertainty of future profitability; our lack of working capital and uncertainty regarding our ability to continue as a going concern; uncertainty of access to additional capital; risks inherent in mineral exploration; environmental liability claims and insurance; dependence on consultants and third parties as well as those factors discussed in the sections entitled “ Risk Factors ,” “ Business ,” and “ Management’s Discussion and Analysis of Financial Condition and Results of Operations .” If one or more of these risks or uncertainties materializes, or if underlying assumptions prove incorrect, our actual results may vary materially from those expected, estimated, or projected. Forward-looking statements in this document are not a prediction of future events or circumstances, and those future events or circumstances may not occur. Given these uncertainties, users of the information included herein, including investors and prospective investors are cautioned not to place undue reliance on such forward-looking statements. We do not assume responsibility for the accuracy and completeness of these statements.

 

The United States Securities and Exchange Commission permits U.S. mining companies, in their filings with the SEC, to disclose only those mineral deposits that a company can economically and legally extract or produce. The Company is an exploration stage company and its properties have no known body of ore. U.S. investors are cautioned not to assume that the Company has any mineralization that is economically or legally mineable.

 

All references in this Quarterly Report on Form 10-Q to the terms “we,” “our,” “us,” “TTXP,” and the “Company” refer to Trilliant Exploration Corporation.

 

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

 

Trilliant Exploration Corporation was incorporated under the laws of the State of Nevada on December 29, 2003 under the name Project Development Pacific Inc. We were previously engaged in the business of assisting Canadian citizens to access health care services from private providers. On November 26, 2007, we changed our name to Trilliant Exploration Corporation with a business purpose to acquire and develop mineral properties. During 2007, we began acquiring interests in mining properties.

 

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Pre-Exploration Stage Company

 

The Company is considered to be in the pre-exploration stage as defined in ASC 915 “Accounting and Reporting by Development Stage Enterprises” as interpreted by the Securities and Exchange Commission for mining companies in Industry Guide 7. The Company is devoting substantially all of its efforts to the execution of its business plan.

 

Use of Estimates

 

Cash and Cash Equivalents

 

Cash and cash equivalents consists principally of currency on hand, demand deposits at commercial banks, and liquid investment funds having a maturity of three months or less at the time of purchase. The Company had $24,369 and $87 in cash and cash equivalents as of September 30, 2013 and June 30, 2013, respectively.

 

Revenue Recognition

 

The Company will follow the guidance of ASC Topic 605, formerly, SAB 104 for revenue recognition. In general, the Company will record revenue when persuasive evidence of an arrangement exists, services have been rendered, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. Revenues from services are recognized when the services are performed, evidence of an arrangement exists, the fee is fixed and determinable and collectability is probable. In circumstances when these criteria are not met, revenue recognition is deferred until resolution occurs.

 

Mineral Acquisition and Exploration Costs

 

Mineral property interests include optioned and acquired mineral development and exploration stage properties. The amount capitalized related to a mineral property interest represents its fair value at the time it was optioned or acquired, either as an individual asset or as a part of a business combination. The value of such assets is primarily driven by the nature and amount of mineralized material believed to be contained in such properties. Exploration costs are expensed as incurred and development costs are capitalized if proven and probable reserves exist and the property is a commercially minable property. Mine development costs incurred either to develop new ore deposits, expand the capacity of operating mines, or to develop mine areas substantially in advance of current production are capitalized. Costs incurred to maintain assets on a standby basis are charged to operations. Costs of abandoned projects are charged to operations upon abandonment. The Company evaluates, at least quarterly, the carrying value of capitalized mineral interests costs and related property, plant and equipment costs, if any, to determine if these costs are in excess of their net realizable value and if a permanent impairment needs to be recorded. The periodic evaluation of carrying value of capitalized costs and any related property, plant and equipment costs are based upon expected future cash flows and/or estimated salvage value.

 

Property, Plant, and Equipment

 

Property and equipment are stated at cost. Depreciation and amortization are determined using the straight-line method over estimated useful lives of the assets. All property, plant, and equipment were disposed of and any gains and losses on the disposal are included in discontinued operations as disclosed in Note 10. As of September 30, 2013, the Company held no property, plant or equipment.

 

Net Income or (Loss) Per Share of Common Stock

 

Basic and diluted loss per common share is based upon the weighted average number of common shares outstanding during the period computed under the provisions of Accounting Standards Codification subtopic 260-10, Earnings per Share (“ASC 260-10”). For the three month period the weighted average number of shares issued and outstanding is 191,446,144 for the period ended Sept. 30, 2013 and 39,405,131 for the period ended December 31, 2012.

Goodwill and Other Intangibles

 

As of September 30, 2013, the Company held no Goodwill. The Company possesses no other intangible assets.

 

Recently Issued Accounting Pronouncements

 

Management does not believe that any recently issued, but not yet effective accounting standards, if adopted, will have a material effect on our financial statements

 

Income Taxes

 

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period enacted. A valuation allowance is provided when it is more likely than not that a portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of deferred tax liabilities during the period in which related temporary differences become deductible. The benefit of tax positions taken or expected to be taken in the Company’s income tax returns are recognized in the consolidated financial statements if such positions are more likely than not of being sustained.

 

In accordance with 740-10, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting this standard, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

 

Derivative Liabilities

 

The Company accounts for its embedded conversion features in its convertible debentures in accordance ASC 815-10, "Derivatives and Hedging", which requires a periodic valuation of their fair value and a corresponding recognition of liabilities associated with such derivatives, and ASC 815-40, “Contracts in Entity’s Own Equity”. The recognition of derivative liabilities related to the issuance of convertible debt is applied first to the proceeds of such issuance as a debt discount, at the date of issuance, and the excess of derivative liabilities over the proceeds is recognized as “Loss on Valuation of Derivative” in other expense in the accompanying financial statements. Any subsequent increase or decrease in the fair value of the derivative liabilities is recognized as “Other expense” or “Other income”, respectively.

 

Accounting Standards Codification subtopic 815-40, Derivatives and Hedging; Contracts in Entity’s own Equity (“ASC 815-40”) became effective for the Company. The Company ’ s Convertible Preferred Stock and Convertible debt has certain provisions that require the Company to change conversion price of the Convertible debt and Convertible Preferred Stock based on the discounted market value. Upon the effective date, the provisions of ASC 815-40 required a reclassification to liability based on the reset feature of the agreements. Therefore, in accordance with ASC 815-40, the Company determined the fair value of the initial reset provision on preferred stock and convertible debt using the Black-Scholes formula assuming no dividends, a risk-free interest rate of 0.68%-0.85%, expected volatility of 155.49%-214.23%, and expected life of 1 and 5 years. The net value of the reset provision at the date of adoption of ASC 815-40 was recorded as a derivative liability on the balance sheet and a reduction to convertible redeemable preferred stock and convertible debt. Changes in fair value are recorded as non-operating, non-cash income or expense at each reporting date.  The fair value of the preferred stock and convertible debt June 30, 2013 was determined using the Black Scholes Option Pricing Model with the following assumptions:

The change in fair value of the convertible debt derivative liability resulted in a current period non-operating gain to operations of $4,885,411.

 

Fair Value of Instruments

 

Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) requires disclosure of the fair value of certain financial instruments. The carrying value of cash and cash equivalents, accounts payable and accrued liabilities, and short-term borrowings, as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments. All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise only available information pertinent to fair value has been disclosed.

 

The company follows Accounting Standards Codification subtopic 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”) and Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”), which permits entities to choose to measure many financial instruments and certain other items at fair value

 

Reclassification

 

Certain reclassifications have been made to conform the prior period data to the current presentation. These reclassifications had no effect on reported net loss.

 

Currency Risk and Foreign Currency Translations

 

The functional currency of the Company is the United States Dollar (USD). In accordance with ASC Topic No. 830, realized gains or losses on expenses incurred in denominations other than USD are recognized in earnings on the transaction date. At such time as there are any foreign denominated assets or liabilities, the Company will report changes in valuation in a Statement of Other Comprehensive Income or (Loss) due to the changes in cumulative adjustments from foreign currency translation.

  

CURRENT BUSINESS OPERATIONS

 

We are engaged in the evaluation, acquisition, exploration and advancement of mining projects. As of the date of this Quarterly Report, we are devoting substantially all of our efforts to the execution of our business operations. Through fiscal 2012, funding to acquire and explore alternative mining, gold and copper properties and for operational purposes was acquired through private financings.

RESULTS OF OPERATION

 

Nine Month Period Ended September 30, 2013 Compared to the Year Ended December 31, 2012

 

Our net loss for the nine months period ended September 30, 2013 was $(1,913,410) compared to a net loss of $(42,317,833) during the period ended December 31, 2012, a change of $40,400,423. During the nine month period ended September 30, 2013 and December 2012, we did not generate any revenue from continuing operations.

 

During the three month period ended September 30, 2013, we incurred operating expenses of $11,121 compared to $156,206 incurred during the three month period ended June 30, 2013, a decrease of $144,905. The decrease in operating expenses incurred during the three month period ended Sept. 30, 2013 was primarily attributable to the elimination of office expense, use of consultants and professionals charges. Operating expenses reflect the limited scope and scale of our business operations.

 

Other income (expense) was incurred during the three month period ended Sept. 30, 2013 of $ 4,946,418 from unrealized and realized gain on derivative liabilities.

 

For the nine months ended September 30, 2013, the Company incurred an operating loss of $(181,207) and other income (expense) of $(1,736,016).  Therefore, this resulted in a net loss applicable to common shares during the nine month period ended September 30, 2013 of $(1,914,410).

 

LIQUIDITY AND CAPITAL RESOURCES

 

Six Month Period Ended September 30, 2013

 

As of September 30, 2013, our current assets and total assets were $24,369 in cash. Our current liabilities were $3,616,026 which resulted in a working capital deficit of $3,591,657.  As of Sept. 30, 2013, liabilities were primarily comprised of: (i) $299,331 in accounts payable; (ii) $585,495 in convertible notes payable; and, (iii) $ $1,052,491 of accrued interest payable. The increase in liabilities during the nine month period ended September 30, 2013 from fiscal year ended December 31, 2012 was primarily due to the increase in the derivative liability associated with the convertible note and the significantly lower conversion price.

 

Stockholders’ deficit increased from 4,103,983 for fiscal year ended December 31, 2012 to $5,842,303 for the nine month period ended Sept. 30, 2013

 

Cash Flows from Operating Activities

 

We have not generated positive cash flows from operating activities. For the nine month period ended Sept 30, 2013, net cash flows used in or provided by operating activities was $(3,843).

 

Cash Flows from Investing Activities

 

We did not engage in any investing activities during the nine month period ended Sept. 30, 2013.

 

Cash Flows from Financing Activities

 

For the nine month period ended Sept. 30, 2013, there were $25,000 net cash flows provided from financing activities.

PLAN OF OPERATION AND FUNDING

 

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has reported a net loss from operations of $1,193,410 for the nine month period ended September 30, 2013, a total shareholders’ deficit of $ 5,842,203 and total current liabilities in excess of current assets of $3,591,657 as of September 30, 2013.

 

The Company is in the pre-exploratory stage and does not have any revenues from operations and will be dependent on funds raise to satisfy its ongoing capital requirements for at least the next 12 months. The Company will require additional financing in order to execute its operating plan and continue as a going concern. The Company cannot predict whether this additional financing will be in the form of equity or debt, or be in another form. The Company may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all. In any of these events, the Company may be unable to implement its current plans for expansion or respond to competitive pressures, any of these circumstances would have a material adverse effect on its business, prospects, financial condition and results of operations.

 

Management expects that global economic conditions will continue to present a challenging operating environment through 2013.

 

 

Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and the downturn in the U.S. stock and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Further, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations.

 

MATERIAL COMMITMENTS

 

As of the date of this Quarterly Report, we have the following material commitments as described as described in Footnote 4 of our financial statements (all of which are in default). 

 

 

As of the date of this Quarterly Report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. 

GOING CONCERN

 

The independent auditors' report accompanying our December 31, 2011 financial statements contains an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The financial statements have been prepared "assuming that we will continue as a going concern," which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business.

 

Inflation

 

We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could adversely affect our business, financial condition and results of operations.

 

Number of Employees

 

As of September 30, 2013 the Company had one (1) part-time employee.

 

Disclosure of Contractual Obligations

 

The Company does not have any significant contractual obligations which could negatively impact our results of operations and financial condition.

 

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MATERIAL RISK

 

None

ITEM 4. CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

 

As of September 30, 2013, the Company performed an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Accounting Officer), of the effectiveness of the design and operation of its disclosure controls and procedures as defined in Rules 13a - 15(e) or 15d - 15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation and due to the lack of segregation of duties and failure to implement accounting controls, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were ineffective as of the end of the period covered by this report.

 

The reason for the ineffectiveness of our disclosure controls and procedures was the result of having a limited number of employees and not having proper segregation of duties based on the cost benefit of hiring additional employees solely to address the segregation of duties issue. We compensate for the lack of segregation of duties by employing close involvement of management in day-to-day operations.

 

Limitations on Effectiveness of Controls and Procedures

 

Our management, including our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), does not expect that our disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also 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. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

Remediation of Material Weaknesses in Internal Control over Financial Reporting

 

As a small business, without a viable business and revenues, the Company does not have the resources to install a dedicated staff with deep expertise in all facets of SEC disclosure and GAAP compliance. As is the case with many small businesses, the Company will continue to work with its external consultants and attorneys as it relates to new accounting principles and changes to SEC disclosure requirements. The Company has found that this approach worked well in the past and believes it to be the most cost effective solution available for the foreseeable future.

 

The Company will conduct a review of existing sign-off and review procedures as well as document control protocols for critical accounting spreadsheets. The Company will also increase management's review of key financial documents and records.

 

As a small business, the Company does not have the resources to fund sufficient staff to ensure a complete segregation of responsibilities within the accounting function. However, Company management does review, and will increase the review of, financial statements on a monthly basis.  These actions, in addition to the improvements identified above, will minimize any risk of a potential material misstatement occurring.

 

Changes in Internal Controls

 

During the fiscal quarter ended Sept. 30, 2013, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

The Company is subject to legal proceedings and claims from time to time, which arise in the ordinary course of its business. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters should not have a material adverse effect on its financial position, results of operations or liquidity.

 

ITEM 1A. RISK FACTORS

 

The Company’s results of operations, financial condition and cash flows can be adversely affected by various risks. These risks include, but are not limited to, the principal factors listed below and the other matters set forth in this quarterly report on Form 10-Q. You should carefully consider all of these risks.

 

ITEM 2. UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS

 

There were no unregistered sales of securities during the period of this report.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None

 

ITEM 4. MINING SAFETY DISCLOSURES

 

None

ITEM 5. OTHER INFORMATION

 

None.

  

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

 

(A) Exhibits

 

*Filed herewith

 

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

 

SIGNATURES

 

Pursuant to the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

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