Lustros Inc. - FORM 10-Q - March 30, 2015

Attached files

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EXCEL - IDEA: XBRL DOCUMENT - Lustros Inc.	Financial_Report.xls
EX-31.01 - CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER PURSUANT TO RULE 13A-14 - Lustros Inc.	lustros_10q-ex3101.htm
EX-32.02 - CERTIFICATION - Lustros Inc.	lustros_10q-ex3202.htm
EX-32.01 - CERTIFICATION - Lustros Inc.	lustros_10q-ex3201.htm
EX-31.2 - CERTIFICATION - Lustros Inc.	lustros_10q-ex3102.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2014

☐ 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. Suite A

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.

£ Yes S 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 ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes £ No S

As of March 25, 2015 there were 121,160,193 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	3

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	21

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	23

ITEM 4.	CONTROLS AND PROCEDURES	23

PART II	OTHER INFORMATION	24

ITEM 1.	LEGAL PROCEEDINGS	24

ITEM 1A.	RISK FACTORS	25

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	26

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	26

ITEM 4.	MINING SAFETY DISCLOSURE	26

ITEM 5.	OTHER INFORMATION	26

ITEM 6.	EXHIBITS	26

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. Included in these factors are our risk factors included in our Form 10-K for the year ended December 31, 2013. 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, 2014 and December 31, 2013 (unaudited)	4

Consolidated Statements of Operations for the three months ended March 31, 2014 and 2013 (unaudited)	5

Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2014 and 2013 (unaudited)	5

Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2013 (unaudited)	6

Notes to Consolidated Financial Statements	7

Lustros, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

	March 31, 2014			December 31, 2013
ASSETS
Current Assets
Cash	$	91,750		$	615,469
Other receivables		–			915
Prepaid expenses		145,856			124,770
Inventory		91,939			–
Total current assets		329,545			741,154

Non-Current Assets
Fixed asset, net		3,124,665			3,486,711
Land		508,601			534,596
Total non-current assets		3,633,266			4,021,307

TOTAL ASSETS	$	3,962,811		$	4,762,461

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable	$	1,583,192		$	1,792,529
Convertible notes payable, net of unamortized discount of $8,643 and $21,066 respectively		43,139			50,113
Accrued rents Congo		697,858			465,239
Derivative liability from convertible notes		46,740			39,474
Notes payable		358,251			351,183
Notes payable - related party		3,117			2,467
Total current liabilities		2,732,297			2,701,005

Long Term Liabilities
Convertible notes payable - related party, net of unamortized discount of $41,519 and $0 respectively		258,481			–
Asset retirement obligations		446,633			433,794
Total long term liabilities		705,114			433,794

Total liabilities		3,437,411			3,134,799

Stockholders' Equity
Preferred stock, $.001 par value, 10,000,000 shares authorized, 401,876 and 441,416 shares issued and outstanding respectively		402			441
Common stock, $.001 par value, 250,000,000 shares authorized, 101,251,993 and 97,169,346 issued and outstanding respectively		101,252			97,169
Additional paid-in capital		12,456,891			12,384,745
Accumulated other comprehensive income		2,224,006			1,971,935
Accumulated deficit		(12,349,825	)		(11,204,535	)
Total Lustros, Inc. stockholders' equity		2,432,726			3,249,755
Non-controlling interest		(1,907,326	)		(1,622,093	)
Total stockholders' equity		525,400			1,627,662
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	3,962,811		$	4,762,461

See notes to consolidated financial statements.

Lustros, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

	For the Three Months Ended March 31, 2014			For the Three Months Ended March 31, 2013

Revenue	$	–		$	–
Cost of goods sold		–			–
Gross profit		–			–

Operating expenses
General and administrative		423,114			239,959
Depreciation		169,055			31,029
Foreign exchange losses		272,214			–
Payroll		209,108			400,956
Legal and accounting		64,218			73,189
Asset impairment		25,233			–
Congo rent expense		232,619			–
Mining costs		–			21,353
Research & development		–			49
Total expenses		1,395,561			766,535

Loss from operations		(1,395,561	)		(766,535	)

Net change in fair value of derivative liability		(7,266	)		–
Interest expense		(27,696	)		(226,028	)

Net loss	$	(1,430,523	)	$	(992,563	)

Less net loss attributable to non-controlling interest	$	(285,233	)	$	(211,056	)
Net loss attributable to Lustros, Inc.	$	(1,145,290	)	$	(781,507	)

Loss per share, basic	$	(0.01	)	$	(0.01	)

Weighted average common shares, basic		98,427,334			89,018,101

Consolidated Statements of Comprehensive Income (Loss)

	For the Three Months Ended March 31, 2014			For the Three Months Ended March 31, 2013

Net loss	$	(1,430,523	)	$	(992,563	)

Gain on foreign currency conversion		252,071			113,034

Total comprehensive loss	$	(1,178,452	)	$	(879,529	)
Comprehensive loss attributable to non-controlling interest	$	(184,405	)	$	(98,022	)
Comprehensive loss attributable to Lustros, Inc.	$	(994,047	)	$	(781,507	)

See notes to consolidated financial statements.

Lustros, Inc. and Subsidiaries

(A Development Stage Company)

Consolidated Statements of Cash Flows

(Unaudited)

	For the Three Months Ended March 31, 2014			For the Three Months Ended March 31, 2013

Cash flows from operating activities
Net loss	$	(1,430,523	)	$	(992,563	)
Adjustments to reconcile net loss to cash used in operating activities
Depreciation and amortization		169,055			31,029
Amortization of original issued discount		12,363			183,169
Accrued rents Congo		232,619			–
Loss on sale of assets		31,777			–
Loss on settlement of debt		13,066			–
Interest paid with stock		802			–
Loss on change in fair value of convertible note derivative liability		7,266			–
Changes in operating assets and liabilities
Increase in accrued interest included in notes payable		–			5,732
Decrease/(increase) in receivables		868			–
Decrease/(increase) in prepaid expenses		(25,134	)		(897	)
Decrease/(increase) in inventory		(91,939	)		(8,571	)
Decrease/(increase) in tax receivable		–			(58,177	)
Increase/(decrease) in asset retirement obligation		31,898			15,954
Increase/(decrease) in accounts payable		(143,696	)		111,922
Total cash used in operations		(1,191,578	)		(712,402	)

Cash flows from investing activities
Purchase of fixed assets		–			(139,510	)
Total cash used in investing activities		–			(139,510	)

Cash from financing activities
Proceeds from convertible notes payable, related parties		300,000			–
Repayments on convertible notes		–			(40,587	)
Proceeds from notes payable, related parties		650			221,509
Proceeds from the issuance of common stock		–			550,000
Total cash provided by financing activities		300,650			730,922

Effect of foreign currency exchange rate on cash		367,209			(7,513	)

DECREASE IN CASH		(523,719	)		(128,503	)

BEGINNING CASH		615,469			277,565

ENDING CASH	$	91,750		$	149,062

Supplemental disclosure of cash flow information:
Interest paid	$	–		$	14,818
Income taxes paid	$	–		$	–

Supplemental disclosure of non-cash investing activities:
Related party notes transferred to convertible notes	$	–		$	(270,988	)
Convertible notes settled with common stock	$	(20,000	)	$	–
Shares issued in conversion of convertible note		128,647			426,141

See notes to consolidated financial statements.

LUSTROS, INC.

(A Development Stage Company)

NOTES TO 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"), formerly 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 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.

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.

These statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management, are necessary for a fair presentation of the information contained therein. It is suggested that these interim financial statements be read in conjunction with the financial statements of the Company for the years ended December 31, 2013 and 2012 and notes thereto included in the Company’s 10-K annual report. The Company follows the same accounting policies in the preparation of interim reports.

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.

Use of Estimates

The presentation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

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 $550.53 CLPs to 1 US dollar at March 31, 2014; and (ii) the average exchange rates were $551.76 CLPs to 1 US dollar during the three months ended March 31, 2014.

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, 2014, 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, chemicals 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, 2014, the Company has not needed to adjust for impairment.

Income Taxes and Deferred Tax Asset

Accounting Standards Codification Topic No. 740 “Income Taxes” (ASC 740) requires the asset and liability method of accounting be used for income taxes. 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. 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 income in the period that includes the enactment date.

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

The Company reviewed its long term assets as of March 31, 2014 based on ASC 360-10-35-21, Property, Plant, and Equipment - Overall – Subsequent Measurement – Impairment or Disposal of Long-Lived Assets – Long-Lived Assets Classified as Held and Used – When to Test a Long-Lived Asset, for Recoverability. Pursuant to ASC 360-10-35-21, a long-lived asset (asset group) shall be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.

The Company also reviewed its long lived assets as of March 31, 2014 based on ASC 932-360-35, Extractive Activities-Mining, Property, Plant and Equipment, Subsequent Measurement. ASC 932-360-35 states that all relevant facts and circumstances shall be evaluated when determining whether an entity is making sufficient progress on assessing the reserves and the economic and operating viability of the project.

As of March 31, 2014, the Company had no mining properties of any book value and determined that no adjustments for impairment were necessary.

Derivatives

Under ASC 815, “Derivatives and Hedging”, the initial balance sheet classification of contracts that require net cash settlement are recorded as assets or liabilities and contracts that require settlement in shares are recorded as equity instruments. At each balance sheet date, the Company reviews contracts and equity instruments that are to be settled in common stock to determine if sufficient common shares are available to satisfy the maximum number of shares that could be required to net-share settle the contracts, among other conditions. Changes in fair value are accounted for in the consolidated statement of operations.

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.

The Company determined that an ARO existed at its Sulfatos Chile property to eventually retire the land where the mine and copper sulfate plant were located. The original ARO was determined to be $936,150 over an estimated 10 year life of the property (beginning January 1, 2012) which represents 15% of original $6.9 million cost incurred for the mine acquisition and plant related assets. The Company used a 10% rate to discount to PV. Even though an impairment charge was taken on the value of the mine at December 31, 2013, ARO is a legal obligation to repair the land which has been altered, accordingly a reasonable estimate for retirement cost would be expected to remain.

To date, the Company estimates that an asset retirement obligation of $446,633 exists. Accordingly, a liability for this amount has been included in long term liabilities. The table below shows the changes in carrying value of ARO from December 31, 2013 through March 31, 2014:

		December 31, 2013				2014 Currency Fluctuation				2014 Accretion Expense				March 31, 2014
ARO liability		$	433,794			$	(20,006	)		$	32,845			$	446,633

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.

Costs of Goods Sold and Operating Expenses

Costs of goods sold includes the cost of the finished good inventory sold during the period, solvents, chemicals and other consumable materials directly used in the production of our finished good inventory and packaging materials used to ship our product to customers. Consumable goods used in the production of our products but not directly attributable to the finished product are recorded as an operating expense in General and Administrative.

Operating expenses are broken down into General and Administrative which include costs such as rents, utilities, telecommunications, repairs and maintenance, office supplies, insurance, travel, shareholder costs, commissions and consultants; Depreciation which includes all depreciation for fixed assets; Payroll which includes all personnel costs not directly related to the production of finished goods inventory; Legal and Accounting which includes all lawyers’ fees, accounting services, audit and financial reporting costs; Mining costs which includes any costs related to the mine which do not produce revenue; and Research and Development which include costs to improve our products or processes.

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 $12,349,825 as of March 31, 2014. 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. If the Company is unable to secure such additional financing or secure such additional financing on favorable terms, the lack of adequate financing could have a material adverse effect on its ability to conduct its business as intended.

The Company shut down its copper sulfate processing plant in December 2014 pending resolution of certain legal matters including the bankruptcy of our Sulfatos Chile S.A. subsidiary. The Company’s subsidiary, Sulfatos Chile S.A. is engaged in litigation before the 4th Civil Trial Court of Santiago, Docket No. 25496-2014, in the matter of Oryxeio Ingenieria Limitada v. Sulfatos Chile S.A. On December 22, 2014 Sulfatos Chile S.A. was declared bankrupt by the court. The Board of Directors of Sulfatos Chile S.A. decided not to oppose the bankruptcy process. The resolution of this matter is uncertain. If the Company is unable to regain the operating assets of Sulfatos Chile out of bankruptcy, there would be a material adverse effect on its ability to conduct its business as intended. The Company will continue to report Sulfatos Chile's operations as continuing operations on its Statement of Operations until such time as the bankruptcy process is resolved. If it becomes apparent that the Company will not be able to restart operations at the Sulfatos Chile plant, then at that time the Company will account for Sulfatos Chile's operations as discontinued.

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.

Fair Value Measurements

Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure the fair value. Level inputs, as defined by ASC 820-10, are as follows:

Level 1 – quoted prices in active markets for identical assets or liabilities.

Level 2 – other significant observable inputs for the assets or liabilities through corroboration with market data at the measurement date.

Level 3 – significant unobservable inputs that reflect management’s best estimate of what market participants would use to price the assets or liabilities at the measurement date.

The following table summarizes fair value measurements by level at March 31, 2014 for assets and liabilities measured at fair value on a recurring basis:

Level 1

Level 2

Level 3

Total

Cash

91,750

–

91,750

Derivative liability

–

46,740

In determining the valuation approach to the derivative, it was determined to estimate the number of shares that would be required to settle the debt and apply the closing price. This was determined to result in the most accurate valuation and effect of settlement as of the balance sheet date. The following assumptions were used in this valuation:

Market trading lookback days used		11
Weighted average closing price	$	0.1126
Estimated rate of conversion		60	%
Estimated conversion rate	$	0.0675

The following table summarizes fair value measurements by level at December 31, 2013 for assets and liabilities measured at fair value on a recurring basis:

Level 1

Level 2

Level 3

Total

Cash

615,469

–

615,469

Derivative liability

–

39,474

Market trading lookback days used		11
Weighted average closing price	$	0.2787
Estimated rate of conversion		60	%
Estimated conversion rate	$	0.1672

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.

In April 2014, the Financial Accounting Standards Board issued an accounting standard update that amends the definition of a discontinued operation to include only those disposals of components of an entity that represent a strategic shift that has, or will have, a major effect on an entity's operations and financial results. The amendment should be applied prospectively and is effective for fiscal years beginning on or after December 15, 2014. Early adoption is permitted for disposals that have not been reported in financial statements previously issued. The adoption of this guidance will not have a material effect on the Company's financial condition, results of operations or cash flows.

In May 2014, the FASB issued an accounting standard update on revenue recognition that will be applied to all contracts with customers. The update requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. It also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The guidance will be required to be applied on a retrospective basis, using one of two methodologies, and will be effective for fiscal years beginning after December 15, 2016, with early application not being permitted. The Company is currently assessing the impact that the guidance will have on the Company's financial condition and results of operations.

In June 2014, the FASB issued ASU 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. ASU 2014-10 eliminates the distinction of a development stage entity and certain related disclosure requirements, including the elimination of inception-to-date information on the statements of operations, cash flows and stockholders' equity. The amendments in ASU 2014-10 will be effective prospectively for annual reporting periods beginning after December 15, 2014, and interim periods within those annual periods, however early adoption is permitted. The Company adopted ASU 2014-10 during the quarter ended June 30, 2014, thereby no longer presenting or disclosing any information required by Topic 915.

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- 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 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 was told that the project, known in the industry as the "Congo Project," has received all necessary approvals and permits from the Chilean authorities, however this is currently in dispute.

Financing for the project was to be provided by the Company as a loan, and the Company would 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;

$436,828 payable upon completion of the copper sulfate processing plant on site no later than November 13, 2014 as the final payment for the assets; and

$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. Lease payments had not yet begun and were in default as of the time of this filing. The agreement is in dispute and the Company is currently in arbitration regarding this agreement. (see Note 10 - subsequent events)

We reviewed our long lived assets as of December 31, 2013 based on ASC 932-360-35, Extractive Activities-Mining, Property, Plant and Equipment, Subsequent Measurement. ASC 932-360-35 states that all relevant facts and circumstances shall be evaluated when determining whether an entity is making sufficient progress on assessing the reserves and the economic and operating viability of the project.

The required lease payments for the Congo Project have not been made to date and production of the copper sulfate processing plant on the property has not yet begun. We have accrued $697,858 of these lease payments as of March 31, 2014. We are currently disputing the validity of the contract in arbitration. It is our position that the contract is invalid because the project was not permitted as we were told it was at the time the contract was signed. The Company was unable to perform under the terms of the contract due to the lack of permits required. The Company is currently in negotiations to amend the original agreement through arbitration but no agreement has been finalized. Because the Company was in default under the original terms of this agreement and the resolution of said default is currently unknown, the Company elected to fully reserve for the $360,000 paid for the right to use as of December 31, 2013. There is approximately $3,017,191 claimed against the Company in arbitration in this matter. Should the arbitrator decide against the Company, it may be forced to liquidate some or all of its assets to satisfy the judgment. (See Note 10 -Subsequent Events).

Note 4- 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. 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 $169,055 for the three months ended March 31, 2014 and $31,029 for the three months ended March 31, 2013.

On October 16, 2014 we were informed that an injunction order was granted against Lustros Chile SpA’s assets in the Congo Project arbitration until a resolution is reached. These assets include bank accounts and Lustros’ shares in Sulfatos Chile S.A. We have elected to shut down our copper sulfate processing plant pending resolution of this matter. On February 2, 2015, our Chilean counsel reported that they were served with an interim ruling that revoked the injunction orders previously put in place. Resolution of the matter is still pending.

The Company’s subsidiary, Sulfatos Chile S.A. is engaged in litigation before the 4th Civil Trial Court of Santiago, Docket No 25496-2014, in the matter of Oryxeio Ingenieria Limitada v. Sulfatos Chile S.A. On December 22, 2014 Sulfatos Chile S.A. was declared bankrupt by the court. The Board of Directors of Sulfatos Chile S.A. decided not to oppose the bankruptcy process. The resolution of this matter is uncertain.

	March 31, 2014			December 31, 2013
Buildings	$	155,644		$	163,600
Furniture & fixtures		20,884			21,951
Vehicles		61,988			120,048
Machinery and mining equipment		378,532			397,879
Plants (crushing and agglomeration plant, heap leaching area, chemical plant and Solvent Extraction and Crystallization (SX - CR - RCR) plant) / property improvements		3,234,955			3,404,244
Computers		34,525			34,324
Lab equipment		57,870			60,828
Total fixed assets	$	3,944,398		$	4,202,874
Less depreciation		(819,733	)		(716,163	)
Net fixed assets	$	3,124,665		$	3,486,711

Land	$	508,601		$	534,596
Net property and equipment	$	3,633,266		$	4,021,307

Note 5- 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, 2014		Total Due at December 31, 2013
Related party notes
LV Ventures	$	1,385	$	1,385
Suprafin, Ltd.		1,732		1,082
Total related party notes payable	$	3,117	$	2,467

Notes payable
Land Purchase Balance	$	358,251	$	351,183
Total notes payable	$	358,251	$	351,183

Convertible notes, net
2014 Related Party Notes – Long Term, net	$	258,481	$	–
July 2013 Convertible Notes, net		43,139		50,113
Total convertible notes	$	343,139	$	50,113

From February 2012 through January 2, 2014, Suprafin, Ltd. (“Suprafin”) provided the Company a total of $3,748,414 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 de Maison (formerly Engelbrecht), a member of the Board of Directors until February 13, 2014, and formerly the Chief Executive Officer, of the Company, is the owner of Suprafin. In April 2012 Suprafin assigned $570,988 of the loans to Walker River Investments, Corp (“Walker”) and in December 2012 Suprafin assigned an additional $250,000 of the loans to Walker which the Company was informed of in May 2013. In March 2013 Suprafin agreed to cancel $100,000 of these loans in exchange for 181,000 shares of common stock. In May 2012, Suprafin agreed to cancel $429,000 of these loans in exchange for 100,000 shares of Series A Preferred Stock. In May 2013 Suprafin agreed to cancel an additional $420,000 of these loans in exchange for 42,000 shares of Preferred Series A Stock at $10 per share. In October 2013 Suprafin agreed to cancel an additional $110,000 of these loans in exchange for 22,000 shares of Preferred Series A Stock at $5 per share. On November 13, 2013 the Board of Directors of the Company approved that as a condition to closing a financing transaction, all related party debt would be converted into stock of the Company. $280,640 of Suprafin’s debt was converted into 17,540 shares of Preferred Series A Stock at $16 per share. As of March 31, 2014, the Company had repaid $1,583,964 of these loans, and the outstanding balance of these loans was $1,732.

In November 2013, the Company borrowed a total of $1,385 for working capital purposes from LV Ventures, Inc.. William Farley, currently our Chief Executive Officer and a member of the Board of Directors, is the owner of LV Ventures, Inc. The outstanding balance due to LV Ventures, Inc. at March 31, 2014 was $1,385.

In July 2013 the Company borrowed a total of $69,000 in Convertible Notes payable to unrelated third parties for working capital purposes. These Convertible Notes bear interest at the rate of 8% per annum and are redeemable in 18 months or convertible after six months into shares of the Company’s Common Stock at a price equal to 60% of the average of the variable weighted average price for the 10 trading days prior to the date of conversion. The Company accrued $2,119 in interest expense for the year ended December 31, 2013 and $1,465 for the three months ended March 31, 2014 for these Convertible Notes. On January 16, 2014, a holder of a Convertible Note in the amount of $20,000 elected to convert their Convertible Note into Common Stock of the Company. $20,000 of principal plus $802.19 in accrued interest was converted into 128,647 shares of Common Stock at the rate of $0.1617 (60% of the 10 day average on 1/16/2014) which is a discount of $0.1078 per share. The balance due with accrued interest payable on these Convertible Notes as of March 31, 2014 was $51,782. We evaluated the original issue discount feature derived from the conversion option of these Convertible Notes upon their issuance and deemed it to be $39,474. As of March 31, 2014, we recognized a total of $21,621 in amortized debt discount related to these notes. The amount was recorded as interest expense. The balance due under these Convertible Notes, including original issue discount and accrued interest of $1,782, was $43,139, net of unamortized debt discount of $8,643 as of March 31, 2014.

In March 2014 Bass Energy and LV Ventures, Inc. provided the Company with $300,000 in cash through two year convertible notes which bear interest at 5% per annum. These notes are convertible into shares of the Company’s Common Stock at the rate of $0.16 per share with 25% warrant coverage at $0.25 per share which is identical to the financing round closed by the Company in December of 2013. The note qualifies for the scope exception under ASC 815 and as such no derivative accounting is required as the conversion option is indexed to the Company stock and can be treated as equity. We evaluated the original issue discount feature derived from the conversion option of these Convertible Notes upon their issuance and deemed it to be $0. We evaluated the original issue discount feature derived from the the value of the warrants on a prorated basis as per ASC 470 upon their issuance and deemed it to be $41,519. Bill Hlavin, currently a member of the Board of Directors is the owner of Bass Energy and William Farley, currently our Chief Executive Officer and a member of the Board of Directors, is the owner of LV Ventures, Inc. The balance due under these Convertible Notes, including original issue discount, was $258,481 as of March 31, 2014, $300,000 in principal net of an unamortized debt discount of $41,519.

Defaulted Senior Notes

As of March 31, 2014 Sulfatos owed $197,227,995 CLP, or approximately $358,251 US dollars, for the last two payments of the land acquired in the first quarter of 2011. This debt was in default at March 31, 2014. There is no default rate on the note. In June 2014 the debt was renegotiated and was no longer in default. See Note 10 – Subsequent Events.

Note 6- Stockholders’ Equity

On January 16, 2014, a holder of a Convertible Note in the amount of $20,000 elected to convert their Convertible Note into Common Stock of the Company. $20,000 of principal plus $802.19 in accrued interest was converted into 128,647 shares of Common Stock. See Note 5 – Debt.

On March 5, 2014, Suprafin, Ltd. converted 39,540 shares of Series A Preferred Stock into 3,954,000 shares of Common Stock of the Company.

Note 7- Related Party Transactions

From February 2012 through January 2014, Suprafin provided the Company a total of $3,748,414 in non-interest bearing unsecured demand loans. Zirk de Maison, previously a member of the Board, and formerly the Chief Executive Officer, of the Company is the owner of Suprafin. As of March 31, 2014, the outstanding balance of these loans was $1,732. See Note 5 - Debt. On February 13, 2014, Zirk de Maison submitted his resignation as a member of the Board of Directors and will therefore no longer be considered a related party.

From January through December 2013, the Company borrowed a total of $35,385 for working capital purposes from the Company’s Chief Executive Officer. As of March 31, 2014, the outstanding balance of these loans was $1,385. See Note 5 - Debt.

In March 2014 Bass Energy and LV Ventures, Inc. provided the Company with $300,000 in cash through two year convertible notes with warrant coverage. Bill Hlavin, currently a member of the Board of Directors is the owner of Bass Energy and William Farley, currently our Chief Executive Officer and a member of the Board of Directors, is the owner of LV Ventures, Inc. See Note 5 – Debt.

Note 8- Derivative Liability

The conversion option has been accounted for in accordance with ASC Topic 815. Accordingly, the Conversion Option is not considered to be solely indexed to the Company’s own stock and, as such, recorded as a liability.

The Company’s convertible promissory note derivative liability has been measured at fair value at July, 2013, December 31, 2013 and March 31, 2014 using a level 3 input. The fair value of the convertible note payable derivative liability is $30,324 and $39,474 at July, 2013 and December 31, 2013, respectively and $46,740 at March 31, 2014. The increase in the fair value of the convertible note payable derivative liability of $9,150 at December 31, 2013 and $7,266 at March 31, 2014 was recognized as a loss to net change in fair value of derivative liability in current period earnings. The value of the derivative at July was treated as a discount and is being amortized.

Note 9 – Legal Proceedings

We previously were notified that the Company was named in a action filed by Unirac, Inc. in New Mexico State Court on June 22, 2011 (Unirac, Inc. v. Power Save Energy Corporation et al., Case No. D-202-CV-2011-06295). Also named as defendants in this lawsuit were, among others, SLO 3 Holdings, Inc., Michael Forster, and Zirk Engelbrecht (“Other Defendants”). We have since determined that the company named in this suit is Power Save Energy Corporation, a Delaware corporation and not our predecessor company, Power Save Energy Company, a Utah corporation. The Company is not a judgment debtor in this matter.

The Company was engaged in litigation in the Supreme Court in the County of Westchester, New York, 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.

The Company’s subsidiary, Sulfatos Chile, is engaged in arbitration in Chile, Docket Number 1639-2012 before Mr. Andres Molina del Rio, whereby Franciso Javier Morales Rivera E.I.R.L and Nunez Ojeda y da Silva LLC asked for the termination of the Engineering and Construction contract of the Anica Plant and sought damages of $1,989,300 for breach of contract. This matter was settled on May 6, 2014 by way of a public deed with the claimants and respondents both dismissing their claims and counterclaims respectively.

The Company’s subsidiary, Sulfatos Chile, is engaged in arbitration in Chile, Docket Number 5765-2013 before Mr. Mauricio Izquierdo, whereby in May of 2013 Minera Anica S.A. asked for the dissolution of Sulfatos Chile S.A. as a consequence of a breach of the stockholders’ agreement by Santa Teresa Minerals and seeking a to be determined amount of damages to be discussed in a different stage of the trial. Bluestone SpA (a wholly owned subsidiary of Lustros Chile S.A.), Santa Teresa and Lustros Chile SpA. filed their responses to the claim, asking the Court to dismiss it. Also, Bluestone SpA filed a counter claim against Minera Anica S.A. Minera Anica alleging, among other things, a breach of the articles of incorporation of Sulfatos Chile S.A. The probatory stage of this case is still pending.

The Company’s subsidiary, Lustros Chile SpA, is engaged in arbitration in Chile, Docket Number 1933-2013, before Mr. Juan Carlos Varela M. whereby Nueva Pudahuel filed a request for arbitration before the Center for Arbitration and Mediation of the Santiago Center of Commerce in December of 2013 against Lustros Chile, SpA, a wholly owned subsidiary of the Company, asking for the termination of the tails contract referred to the “Congo” project. It is also asking for the restitution of some properties, the payment of due rent, and damages in the amount of $3,017,191, (i) USD 775,396.5 for unpaid rents 2013-2014; (ii) USD 77,539.65 for each month of delay; (iii) UF 50.000.- under penalty clause. Lustros is asking for the termination of the contract, plus damages of UF 50.000 in a counterclaim under the penalty clause. On July 31, 2014 we filed our rejoinder to their claim and our rebuttal to our counter claim. On September 16, 2014 and September 29, 2014, the parties attended conciliatory hearings before the arbitrator. The arbitrator conceded an extension for the parties to continue conversations about the possibility to settle. That extension ended on October 6, 2014. In addition, Lustros Chile SpA has filed a civil law action, objection to an arbitrator Docket Number 111-2014 before the 23rd Civil Trial Court in Santiago. We are asking the Civil Trial Court to declare that Mr. Varela, as an arbitrator for the case Docket Nº 1933-2013 cannot continue the arbitration because of his objection in the process. This action was brought since the arbitrator filed a preliminary decision on the matter before he was allowed to do so. Therefore, we believe that he lacks impartiality for the final ruling. On October 16, 2014, we were informed that an injunction order was granted by Mr. Varela and executed on Lustros Chile SpA’s assets in the arbitration. As a consequence, the following assets are and will remain seized: Lustros Chile SpA’s shares in Sulfatos (600,000 shares though it is alleged that Lustros Chile SPA does not own any property or shares in Sulfatos Chile S.A.); 24,000 shares in Bluestone SpA; bank account ending in 0748 at Itaú Bank; all credit that Lustros Chile SpA has against Sulfatos Chile S.A.; and all credit related to the current account between Lustros Chile SpA and Sulfatos Chile S.A. On October 16, 2014 the Company’s bank account at Itau Bank was levied for 29,019,497 CLP or approximately $49,636 US Dollars. These measures will remain in place until Lustros Chile SpA pays Nueva Pudahuel the full claimed amount, offers assets as guarantee, or arrives at a settlement. Lustros Chile SpA continues to vigorously defend against the actions taken and is working through its Chilean attorneys to resolve these matters as soon as reasonably possible. The arbitration and the trial are in their final stages, the parties having presented their main arguments and means of proof however no decision has been made as of the time of this filing. Our copper sulfate processing plant is currently shut down pending resolution of this matter. Should the arbitrator decide against the Company, it may be forced to liquidate some or all of its assets to satisfy the judgment. On February 2, 2015, our Chilean counsel reported the following with regard to the ongoing arbitration of the Congo Project. The Chilean representatives of Lustros were served with an interim ruling that revoked the following measures previously put in place:

Injunction over the 600,000 shares in Sulfatos Chile S.A.

Injunction over any and all credit that Lustros had/has against Sulfatos Chile S.A.

Injunction over all funds that belong to Lustros under the current merchant account (cuenta corriente mercantil) with Sulfatos Chile S.A.

Injunction over Lustros’ share in Bluestone SpA.

The company’s subsidiary, Sulfatos Chile S.A., in engaged in litigation before the 8th Civil Trial court of Santiago, Docket Nº 18242-2013, in the matter Nueva Pudahuel S.A. v. Sulfatos Chile S.A. The claim was brought before the court on or about November 2013. Nueva Pudahuel S.A. is claiming for the payment of invoices for a total amount of $58,386.61. The company has filed a formal opposition to such claim, under articles 464 et seq of the Chilean Civil Procedural Code., which is currently in the probatory stage.

The Company’s subsidiary, Sulfatos Chile S.A. is involved in various labor lawsuits with former employees that are likely to have an unfavorable outcome. We have accrued approximately $345,000 as of the date of this filing to handle these claims.

The Company’s subsidiary, Sulfatos Chile S.A. is engaged in litigation before the 4th Civil Trial Court of Santiago, Docket N^o 25496-2014, in the matter of Oryxeio Ingenieria Limitada v. Sulfatos Chile S.A. On December 22, 2014 Sulfatos Chile S.A. was declared bankrupt by the court. The Board of Directors of Sulfatos Chile S.A. decided not to oppose the bankruptcy process. The Company will provide more information on these proceedings via a Current Report on Form 8-K as it becomes available.

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.

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 March 24, 2015 and has found the following events to report:

On March 31, 2011, Sulfatos Chile SA, a subsidiary of the Company purchased property located in Los Vilos, Chile, and the corresponding water rights, under a Purchase and Sale Agreement (the “Purchase and Sale Agreement”) from Mrs. MARÍA ESTER BUGUEÑO PÉREZ and Ms. EMA PÉREZ ANDRADE (the “Landowners”). The price of the Purchase and Sale Agreement was the sum of CLP$280,000,000, or approximately $501,241 US dollars at today’s exchange rate, which was to be paid in three installments. The first installment of CLP$100,000,000 was paid at the time of the signing of the public deed of purchase. The second installment of CLP$90,000,000, equivalent to 4,171.67 unidades de fomento, was payable 365 days from the date of the Purchase and Sale Agreement in its equivalent in pesos as of the effective date. The third installment of CLP$90,000,000, equivalent to 4,171.67 unidades de fomento, was payable 365 days from the date of the Purchase and Sale Agreement in its equivalent in pesos as of the effective date. As of June 12, 2014, Sulfatos owed the Landowners the sum of 7,900.67 unidades de fomento, equivalent to CLP$189,405,053, or approximately $339,063 US dollars (the “Debt”), for the last two payments under the Purchase and Sale Agreement.

On April 22, 2014 Angelique de Maison was appointed to the Board of Directors.

On June 12, 2014, Sulfatos Chile SA and the Landowners signed a Loan Refinance Agreement (the “Loan Refinance Agreement”) whereby the parties agreed that Sulfatos Chile SA will pay the Debt in thirty-seven installments, which will accrue interest at a rate of 3% per year, payable at the end of the last installment. The parties agree that the total amount of the interest accrued will be CLP$7,822,942, or approximately $14,004 US dollars. The first installment for CLP$10,000,000, or approximately $17,901 US dollars, was paid at the signing of the agreement. The following 35 installments of CLP$5,000,000 each, or approximately $8,951 US dollars, will be paid monthly within the first five days of each month, beginning in August of 2014. The final installment, number 37, for the remaining unpaid principal and all accrued interest, will be made in one payment for a total of CLP$12,227,995, or approximately $21,890 US dollars.

On June 16, 2014, Angelique de Maison converted 178,200 shares of Series A Preferred Stock into 17,820,000 shares of Common Stock of the Company and a company controlled by Ms. de Maison converted 2,941 shares of Series A Preferred Stock into 294,100 shares of Common Stock of the Company.

On July 24, 2014, Lustros Chile SpA, the wholly-owned subsidiary of the Company, which acts as the operating subsidiary for the purpose of running the Company’s Chilean operations, signed a manufacturing contract with Sulfatos Chile S.A, of which 60% of the equity interests are owned by Lustros Chile and the balance is owned by third parties. Pursuant to this manufacturing contract, the Company’s copper sulfate business will be apportioned between Lustros Chile SpA which will have sole responsibility for sales and purchasing and supply of raw materials, and Sulfatos Chile S.A. will solely concentrate on manufacturing. Further pursuant to this manufacturing agreement, both entities have agreed to render services exclusively with respect to the Company’s copper sulfate business, and neither entity may render services to third parties. The agreement sets the price of copper sulfate to be produced by Sulfatos Chile S.A. to be the actual manufacturing cost (excluding the cost of raw materials which are provided by Lustros Chile SpA) plus 15%. The agreement has a ten year term which automatically extends for additional one year periods unless written notice is given by one party to the other at least two months before the end of the original or any renewal term.

On August 14, 2014, a shareholder converted 17,941 shares of Series A Preferred Stock into 1,794,100 shares of Common Stock of the Company.

On August 26, 2014, Angelique de Maison resigned as a member of the Board of Directors of Lustros Inc. (the “Company”). Her resignation is not due to a disagreement with the Company.

On September 23, 2014, Trisha Malone resigned as the Chief Financial Officer of the Company. Her resignation is not due to a disagreement with the Company. Ms. Malone will remain as a consultant of the Company to assist with its financial reporting obligations until such time as a new Chief Financial Officer is appointed. She will be compensated at the rate of $10,000 per month and may be terminated by the Company at any time upon 30 days’ prior notice. Upon Board confirmation, Mr. Farley shall act as both the Principal Executive Officer and Principal Financial Officer of the Company until such time as a new Chief Financial Officer is appointed.

From April 1, 2014 through March 25, 2015 Bass Energy and LV Ventures, Inc. provided the Company with $2,541,454 in cash through two year convertible notes which bear interest at 5% per annum. These notes are convertible into shares of the Company’s Common Stock at the rate of $0.16 per share with 25% warrant coverage at $0.25 per share which is identical to the financing round closed by the Company in December of 2013.

The Company’s subsidiary, Lustros Chile SpA, is engaged in arbitration in Chile, Docket Number 1933-2013, before Mr. Juan Carlos Varela M., a Chilean arbitrator, pursuant to which Nueva Pudahuel is asking for the termination of the tails contract referred to the “Congo” project. He is also demanding the restitution of some alleged properties, the payment of allegedly due rent, and alleged damages in the amount of $3,017,191 US Dollars: (i) $775,396.50 US Dollars for unpaid rents 2013-2014; (ii) $77,539.65 US Dollars for each month of delay; and (iii) UF (Unidad de Fomento, a funds index used in Chile) 50.000 or approximately $2.1m under an alleged penalty clause. Lustros is asking for the termination of the contract, plus damages of UF 50.000 or approximately $2.1m in a counterclaim under the penalty clause. On July 31, 2014 we filed our rejoinder to their claim and our rebuttal to our counterclaim. On September 16, 2014 and September 29, 2014, the parties attended conciliatory hearings before the arbitrator. The arbitrator conceded an extension for the parties to continue conversations about the possibility to settle. That extension ended on October 6, 2014. In addition, Lustros Chile SpA has filed a civil law action, objection to an arbitrator Docket Number 111-2014 before the 23rd Civil Trial Court in Santiago. We are asking the Civil Trial Court to declare that Mr. Varela, as an arbitrator for the case Docket Nº 1933-2013, cannot continue the arbitration because of his objection in the process. This action was brought since the arbitrator filed a preliminary decision on the matter before he was allowed to do so. Therefore, we believe that he lacks impartiality for the final ruling.

On October 16, 2014, we were informed that an injunction order was granted by Mr. Varela and executed on Lustros Chile SpA’s assets in the arbitration.

As a consequence, the following assets are and will remain seized: Lustros Chile SpA’s shares in Sulfatos (600,000 shares); 24,000 shares in Bluestone SpA; bank account ending in 0748 at Itaú Bank; all credit that Lustros Chile SpA has against Sulfatos Chile S.A.; and all credit related to the current account between Lustros Chile SpA and Sulfatos Chile S.A. On October 16, 2014 the Company’s bank account at Itau Bank was levied for 29,019,497 CLP or approximately $49,636 US Dollars. These measures will remain in place until Lustros Chile SpA pays Nueva Pudahuel the full claimed amount, offers assets as guarantee, or arrives at a settlement. Lustros Chile SpA continues to vigorously defend against the actions taken and is working through its Chilean attorneys to resolve these matters as soon as reasonably possible. We have elected to shut down our copper sulfate processing plant pending resolution of this matter.

On October 22, 2014 a bank account belonging to the Company’s subsidiary, Sulfatos Chile S.A. at BICE Bank was levied for 6,196,654 CLP or approximately $10,599 US Dollars.

The Company’s subsidiary, Sulfatos Chile S.A. is engaged in litigation before the 4th Civil Trial Court of Santiago, Docket N⁰ 25496-2014, in the matter of Oryxeio Ingenieria Limitada v. Sulfatos Chile S.A. On December 22, 2014 Sulfatos Chile S.A. was declared bankrupt by the court. The Board of Directors of Sulfatos Chile S.A. decided not to oppose the bankruptcy process. The Company will provide more information on these proceedings via a Current Report on Form 8-K as it becomes available.

On February 2, 2015, our Chilean counsel reported the following with regard to the ongoing arbitration of the Congo Project. The Chilean representatives of Lustros were served with an interim ruling that revoked the following measures previously put in place:

Injunction over the 600,000 shares in Sulfatos Chile S.A.

Injunction over any and all credit that Lustros had/has against Sulfatos Chile S.A.

Injunction over all funds that belong to Lustros under the current merchant account (cuenta corriente mercantil) with Sulfatos Chile S.A.

Injunction over Lustros’ share in Bluestone SpA.

Lustros Chile SpA continues to vigorously defend against the actions taken and is working through its Chilean attorneys to resolve this matter as soon as reasonably possible. As further developments arise, they will be reported on a current basis.

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

References in this Quarterly Report to the “Company”, “we”, “us” or “our” refer to Lustros, Inc., a Utah corporation (“Lustros”), and its consolidated subsidiaries including, Bluestone, S.A, (“Bluestone”), Lustros Chile SpA (“Lustros Chile”), Mineraltus SA (“Mineraltus”) and Sulfatos Chile, S.A., (“Sulfatos Chile”). The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and related notes to the financial statements included elsewhere in this filing.

We market and sell copper sulfate obtained by processing copper ore raw materials purchased from third parties at a Company-owned processing facility 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, 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, 2013, 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 process raw copper ore material at our copper sulfate processing plant in Puerto Oscuro, Chile. We obtain the copper ore by purchase from local corporate and artisanal miners. Our copper sulfate facility began crushing and processing 5,000 tons of raw material per month in the second quarter of 2014. However, the Company shut down the copper sulfate processing plant in December 2014 pending resolution of legal matters and our Sulfatos Chile S.A. subsidiary is currently in the process of bankruptcy (See Part II Item 1 - Legal Proceedings). We currently do not know if or when this will be resolved.

Our consolidated financial statements contain our accounts and those of our consolidated subsidiaries, all of which are wholly-owned at March 31, 2014 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 non-controlling 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.

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, expansions and exploration activities or if we are able to secure additional financing, whether such financing shall be on favorable terms.

RESULTS OF OPERATIONS

The following discusses results of operations for the three months ended March 31, 2014 and the three months ended March 31, 2013.

Revenue for the three months ended March 31, 2014 and March 31, 2013 was $0. We finished pilot production and sales of said production in the fourth quarter of 2013. We made plant adjustments during the first quarter of 2014 and had no production or sales during this quarter. Gross loss for the three months ended March 31, 2014 and March 31, 2013 was $0. We expect revenues to increase after the full scale launch of our copper sulfate production facility which began in the second quarter of 2014. However, the Company shut down the copper sulfate processing plant in December 2014 pending resolution of legal matters and our Sulfatos Chile S.A. subsidiary is currently in the process of bankruptcy (See Part II Item 1 - Legal Proceedings). We currently do not know if or when this will be resolved.

Operating expenses for the three months ended March 31, 2014 were $1,395,561 as opposed to $766,535 for the three months ended March 31, 2013. 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. In addition, we began depreciating the processing plant in the first quarter of 2014 and had a significant increase in foreign exchange losses.

Due to the losses during the period the Company has not recorded a provision for income taxes. The Company will carry back any net operating loss to recover taxes paid in prior periods.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES.

Liquidity and Capital Resources

Our primary source of liquidity has historically been cash generated from issuances of our equity securities and from debt. From inception through March 31, 2014, we have not generated revenue from operations that was significant enough to produce an operating profit.

Subsequent sources of outside funding will be required to fund the Company’s future growth and will also be required for working capital, capital expenditures and corporate operations if the Company does not reach cash positive cash flow in the near future. No assurances can be given that the Company will be successful in arranging the further funding needed to continue the execution of its business plan including the development and commercialization of new products, or if successful, on what terms. Failure to obtain such funding will require management to substantially curtail, if not cease operations, which will result in a material adverse effect on the financial position and results of operations of the Company.

Cash, Cash Equivalents, and Working Capital

At March 31, 2014 we had cash and cash equivalents of $91,750. At year ended December 31, 2013 we had $615,469 of cash and cash equivalents. At March 31, 2014 we had a working capital deficit of $2,402,752 compared to a working capital deficit of $1,959,851 at December 31, 2013. Cash equivalents consist of short-term liquid investments with original maturities of no more than six months and are readily convertible into cash.

The amount of cash and cash equivalents and short-term investments which we hold outside the U.S. was $31,638 as of March 31, 2014 and $128,063 as of December 31, 2013. These were not needed for our domestic operations, but if they were, we would be required to accrue and pay federal taxes to repatriate these funds. We intend to permanently invest these foreign amounts outside of the U.S. and our current plans do not demonstrate the need to repatriate the foreign amounts to fund our domestic operations.

Cash Flows from Operating Activities

During the three months ended March 31, 2014, $1,191,578 was used for operating activities. Of the net cash used in three months ended March 31, 2014, $1,013,843 was used to fund the operations of the business while $177,735 was used in changes in operating assets and liabilities. Of the net cash used for operating activities of $712,402 during the same period in 2013, $778,365 was used to fund the operations of the business while $65,963 was generated from changes in operating assets and liabilities

Cash Flows from Investing Activities

Net cash used by investing activities for the three months ended March 31, 2014 was $0 compared to net cash used by investing activities of $139,510 for the same period in 2013. Investing activities were primarily for purchases of property and equipment.

Cash Flows from Financing Activities

Net cash provided by financing activities for the three months ended March 31, 2014 was $300,650 compared to net cash provided by financing activities of $730,922 for the same period in 2013. Financing activities were primarily sales of convertible promissory notes and sales of the Company’s Common and Preferred Stock. Cash from financing activities is used to fund ongoing operational requirements, research & development, administrative and capital needs.

Significant Financing Arrangements

From March 5, 2014 through March 25, 2015 Bass Energy and LV Ventures, Inc. provided the Company with $2,841,454 in cash through two year convertible notes which bear interest at 5% per annum. These notes are convertible into shares of the Company’s Common Stock at the rate of $0.16 per share with 25% warrant coverage at $0.25 per share which is identical to the financing round closed by the Company in December of 2013.

As of March 31, 2014, our current liabilities exceeded our current assets by $2,402,752. At March 31, 2014, we had cash in the amount of $91,750.

Subsequent sources of outside funding will be required to fund the Company’s working capital, capital expenditures and corporate operations if the Company does not reach cash flow positive. No such financing arrangements currently exist and no assurances can be given that the Company will be successful in arranging the further funding needed to continue the execution of its business plan including the development and commercialization of new products, or if successful, on what terms. Failure to obtain such funding will require management to substantially curtail, if not cease operations, which will result in a material adverse effect on the financial position and results of operations of the Company.

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 Principal Financial Officer concluded that as of March 31, 2014, 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

Injunction over the 600,000 shares in Sulfatos Chile S.A.

Injunction over any and all credit that Lustros had/has against Sulfatos Chile S.A.

Injunction over all funds that belong to Lustros under the current merchant account (cuenta corriente mercantil) with Sulfatos Chile S.A.

Injunction over Lustros’ share in Bluestone SpA.

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, 2013.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On March 5, 2014, Suprafin, Ltd. converted 39,540 shares of Series A Preferred Stock into 3,954,000 shares of Common Stock of the Company.

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

ITEM 4.

MINE SAFETY DISCLOSURE

Nothing to report.

ITEM 5.

OTHER INFORMATION

Nothing to report.

ITEM 6.

EXHIBITS

Exhibit Number	Description of Exhibit
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*
	*Filed with this report.

The following materials from the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2014, formatted in eXtensible Business Reporting Language: (i) the Condensed Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows and (v) the Notes to Condensed Financial Statements, as follows:

101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema

101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase

101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Presentation Linkbase Document

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: March 30, 2015

/s/ William Farley

By: William Farley

Its: Chief Executive Officer (Principal Executive Officer) and Principal Financial Officer

Lustros Inc. - FORM 10-Q - March 30, 2015

Attached files

Lustros Inc. Reports