NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
Note 1.
|
Nature of Business and Significant Accounting Policies
|
Nature of business and principles of consolidation:
The accompanying Condensed Consolidated Financial Statements of Tara Minerals Corp. (the “Company”) should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. Significant accounting policies disclosed therein have not changed, except as noted below.
Tara Minerals owns 99.9% of the common stock of American Metal Mining S.A. de C.V. (“AMM”), a Mexican corporation, and owns 87% of the common stock of Adit Resources Corp. (“Adit”). Adit in turns owns 99.99% of American Copper Mining, S.A. de C.V. (“ACM”). All of Tara Minerals’ operations in Mexico are conducted through AMM and ACM since Mexican law provides that only Mexican corporations are allowed to own mining properties. AMM’s primary focus is on industrial minerals, e.g. copper, zinc. Adit, through ACM, focuses on gold mining concessions.
The Company is a mining company in the exploration
stage and presents inception to date information
, in accordance with the Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Development Stage Entities Topic.
In these financial statements, references to "Company," "we," "our," and/or "us," refer to Tara Minerals Corp. and, unless the context indicates otherwise, its consolidated subsidiaries.
Tara Minerals is a subsidiary of Tara Gold Resources Corp. (“Tara Gold” or “the Company’s Parent”).
The accompanying condensed consolidated financial statements and the related footnote information are unaudited. In the opinion of management, they include all normal recurring adjustments necessary for a fair presentation of the condensed consolidated balance sheets of the Company as of March 31, 2014 and December 31, 2013, the condensed consolidated results of its operations for the three months ended March 31, 2014 and 2013 and the condensed consolidated statements of cash flows for the three months ended March 31, 2014 and 2013. Results of operations reported for interim periods are not necessarily indicative of results for the entire year.
The condensed consolidated financial statements include the financial statements of the Company and its subsidiaries. All amounts are in U.S. dollars unless otherwise indicated. All significant inter-company balances and transactions have been eliminated in consolidation.
The reporting currency of the Company and Adit is the U.S. dollar. The functional currency of AMM and ACM is the Mexican Peso. As a result, the financial statements of these subsidiaries have been re-measured from Mexican pesos into U.S. dollars using (i) current exchange rates for monetary asset and liability accounts, (ii) historical exchange rates for non-monetary asset and liability accounts, (iii) historical exchange rates for revenues and expenses associated with non-monetary assets and liabilities, and (iv) the weighted average exchange rate of the reporting period for all other revenues and expenses. In addition, foreign currency transaction gains and losses resulting from U.S. dollar denominated transactions are eliminated. The resulting re-measurement gain (loss) is recorded to other comprehensive gain (loss).
Current and historical exchange rates are not indicative of what future exchange rates will be and should not be construed as such.
Relevant exchange rates used in the preparation of the financial statements for AMM and ACM are as follows for the three months ended March 31, 2014 and 2013. Mexican pesos per one U.S. dollar:
|
|
March 31, 2014
|
|
Current exchange rate
|
Ps.
|
13.0841
|
|
Weighted average exchange rate for the three months ended
|
Ps.
|
13.2339
|
|
|
March 31, 2013
|
|
Current exchange rate
|
Ps.
|
12.3546
|
|
Weighted average exchange rate for the three months ended
|
Ps.
|
12.6468
|
The Company’s significant accounting policies are:
Reclassifications
Certain reclassifications, which have no effect on net loss, have been made in the prior period financial statements to conform to the current year presentation.
Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Management routinely makes judgments on historical experience and various other factors that are believed to be reasonable under the circumstances.
Actual results could differ from those estimates.
Recoverable Value-Added Taxes (IVA) and Allowance for Doubtful Accounts
Impuesto al Valor Agregado
taxes (IVA) are recoverable value-added taxes charged by the Mexican government on goods sold and services rendered at a rate of 16%. Under certain circumstances, these taxes are recoverable by filing a tax return and as determined by the Mexican taxing authority. Our allowance in association with our receivable from IVA from our Mexico subsidiary is based on our determination that the Mexican government may not allow the complete refund of these taxes.
Each period, receivables are reviewed for collectability. When a receivable has doubtful collectability we allow for the receivable until we are either assured of collection (and reverse the allowance) or assured that a write-off is necessary.
|
|
|
March 31, 2014
|
|
|
December 31, 2013
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Allowance – recoverable value-added taxes
|
|
$
|
1,599,620
|
|
|
$
|
1,597,407
|
|
|
Allowance – other receivables
|
|
|
348,737
|
|
|
|
348,433
|
|
|
Total
|
|
$
|
1,948,357
|
|
|
$
|
1,945,840
|
|
Bad debt expense was $2,517 and $118,235 at March 31, 2014 and 2013, respectively.
AMM received refunds of $40,489 for IVA taxes during January and February 2014.
Reclamation and remediation costs (asset retirement obligations)
Reclamation costs are allocated to expense over the life of the related assets and are periodically adjusted to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation and abandonment costs.
Future remediation costs for reprocessing plant and buildings are accrued based on management’s best estimate, at the end of each period, of the undiscounted costs expected to be incurred at a site. Such cost estimates include, where applicable, ongoing remediation, maintenance and monitoring costs. Changes in estimates are reflected in earnings in the period an estimate is revised. There were no reclamation and remediation costs incurred or accrued as of March 31, 2014 and 2013.
Income taxes
Income taxes are provided for using the asset and liability method of accounting in accordance with the Income Taxes Topic of the FASB ASC. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized by management. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The computation of limitations relating to the amount of such tax assets, and the determination of appropriate valuation allowances relating to the realization of such assets, are inherently complex and require the exercise of judgment. As additional information becomes available, management continually assesses the carrying value of our net deferred tax assets.
Fair Value Accounting
As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The three levels of the fair value hierarchy are described below:
|
|
Level 1
|
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
|
|
|
Level 2
|
Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;
|
|
|
Level 3
|
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
|
Recently Adopted and Recently Issued Accounting Guidance
Recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the SEC, did not, or are not believed by management to, have a material impact on the Company's present or future financial position, results of operations or cash flows.
|
Note 2.
|
Property, plant, equipment, mine development and land, net
|
|
|
|
March 31, 2014
|
|
|
December 31, 2013
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Land
|
|
$
|
19,590
|
|
|
$
|
19,590
|
|
|
|
|
|
|
|
|
|
|
|
|
Mining concessions:
|
|
|
|
|
|
|
|
|
|
Pilar (a)
|
|
|
710,172
|
|
|
|
710,172
|
|
|
Don Roman (See Note 4)
|
|
|
521,739
|
|
|
|
521,739
|
|
|
Las Nuvias
|
|
|
100,000
|
|
|
|
100,000
|
|
|
Centenario
|
|
|
635,571
|
|
|
|
635,571
|
|
|
La Palma
|
|
|
80,000
|
|
|
|
80,000
|
|
|
La Verde
|
|
|
60,000
|
|
|
|
60,000
|
|
|
Dixie Mining District
|
|
|
650,000
|
|
|
|
650,000
|
|
|
Picacho Groupings
|
|
|
1,571,093
|
|
|
|
1,571,093
|
|
|
Mining concessions
|
|
|
4,328,575
|
|
|
|
4,328,575
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
3,897,097
|
|
|
|
4,142,245
|
|
|
|
|
|
8,245,262
|
|
|
|
8,490,410
|
|
|
Less – accumulated depreciation
|
|
|
(1,177,247
|
)
|
|
|
(1,145,991
|
)
|
|
|
|
$
|
7,068,015
|
|
|
$
|
7,344,419
|
|
Pilar, Don Roman, Las Nuvias, Centenario, La Palma and La Verde properties are located in Mexico and are known as the Don Roman Groupings.
The Picacho and Picacho Fractions are located in Mexico and are known as the Picacho Groupings.
|
|
a.
|
In January 2007, the Company acquired the Pilar de Mocoribo Prospect (“Pilar”) from Tara Gold for $739,130 plus $115,737 of value-added tax (as amended). The Company owes $535,659 for this mining concession (including the applicable value-added tax).
|
In accordance with the Interest Topic of FASB ASC, the future payments of the total payment amount of $739,130 have been discounted using the incremental borrowing rate of 5.01%. As of March 31, 2014, the present value of future payments is as follows:
|
|
|
Debt
|
|
|
IVA
|
|
|
Total
|
|
|
Total remaining debt
|
|
$
|
486,739
|
|
|
$
|
77,878
|
|
|
$
|
564,617
|
|
|
Imputed interest
|
|
|
(28,958
|
)
|
|
|
-
|
|
|
|
(28,958
|
)
|
|
Present value of debt
|
|
$
|
457,781
|
|
|
$
|
77,878
|
|
|
$
|
535,659
|
|
|
Note 3.
|
Notes Payable and Convertible Notes Payable, net
|
The following table represents the outstanding balance of notes payable.
|
|
|
March 31, 2014
|
|
|
December 31, 2013
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Auto loans
|
|
$
|
62,523
|
|
|
$
|
66,619
|
|
|
Notes payable
|
|
|
80,000
|
|
|
|
-
|
|
|
Convertible notes payable, net
|
|
|
205,108
|
|
|
|
75,652
|
|
|
|
|
|
347,631
|
|
|
|
142,271
|
|
|
Less – current portion
|
|
|
(118,784
|
)
|
|
|
(38,614
|
)
|
|
Less – current portion convertible notes payable, net
|
|
|
(205,108
|
)
|
|
|
(75,652
|
)
|
|
Total – non-current portion
|
|
$
|
23,739
|
|
|
$
|
28,005
|
|
During the three months ended March 31, 2014 the Company converted balances with two vendors to notes payable in the amount of $80,000 and recognized a gain on debt extinguishment in the amount of $5,000, notes are due to in May 2014.
During the year ended December 31, 2013 the Company raised $150,000 through the sale of a convertible note. The note payable was due in February 2014 and extended until July 2014; bears interest of 16% per year and can be converted to the Company’s stock at $0.10 per share. The beneficial conversion feature of the note payable was determined to be $120,000 of which $120,000 was amortized as of March 31, 2014.
Interest expense related to the convertible note was $8,000 as of
March 31, 2014
.
During the three months ended March 31, 2014 the Company raised $60,000 through the sale of a convertible note. The note payable due in May 2014 and extended until July 2014; can be converted to the Company’s stock at $0.10 per share. The beneficial conversion feature of the note payable was determined to be $60,000 of which $39,101 was amortized as of March 31, 2014.
Interest expense related to the convertible note was $2,000 as of
March 31, 2014
.
During the three months ended March 31, 2014 the Company raised $50,000 through the sale of a convertible note. The note payable is due in July 2014 and can be converted to the Company’s stock at $0.10 per share. The beneficial conversion feature of the note payable was determined to be $34,850 of which $857 was amortized as of March 31, 2014.
The five year maturity schedule for notes payable and convertible notes payable, net is presented below:
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto loans
|
|
$
|
38,784
|
|
|
$
|
9,501
|
|
|
$
|
5,948
|
|
|
$
|
6,178
|
|
|
$
|
2,112
|
|
|
$
|
62,523
|
|
|
Note payables
|
|
|
80,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
80,000
|
|
|
Convertible note payable, net
|
|
|
205,108
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
205,108
|
|
|
Total
|
|
$
|
323,892
|
|
|
$
|
9,501
|
|
|
$
|
5,948
|
|
|
$
|
6,178
|
|
|
$
|
2,112
|
|
|
$
|
347,631
|
|
|
Note 4.
|
Related Party Transactions
|
|
|
|
March 31, 2014
|
|
|
December 31, 2013
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Due from related parties
|
|
$
|
119,920
|
|
|
$
|
221,592
|
|
|
Due to related parties
|
|
|
(1,587,503
|
)
|
|
|
(1,739,207
|
)
|
|
|
|
$
|
(1,467,583
|
)
|
|
$
|
(1,517,615
|
)
|
All transactions with related parties have occurred in the normal course of operations. Mexico based related party transactions are measured at the appropriate foreign exchange amount.
In January 2007, Corporacion Amermin S.A. de C.V. (“Amermin”), a subsidiary of Tara Gold, made the arrangements to purchase Pilar, Don Roman and Las Nuvias properties listed in Note 2 (part of the Don Roman Groupings) and sold the concessions to AMM. At March 31, 2014, Amermin has paid the original note holder in full and AMM owes Amermin $535,659 for the Pilar mining concession and $211,826 for the Don Roman mining concession.
As of March 31, 2014, Amermin had loaned AMM $1,017,439 at 0% interest, due on demand.
As of March 31, 2014, Tara Gold owed the Company a total of $177,419 at 0% interest, due on demand.
The following are intercompany transactions that eliminate during the consolidation of these financial statements:
During 2012, Tara Minerals issued Adit six promissory notes for $4,286,663. During 2013, Tara Minerals issued Adit one promissory note for $610,000. These notes are unsecured, bear interest at U.S. prime rate plus 3.25% per year and are due and payable between May 2014 and January 2015. As of
March 31, 2014,
Tara Minerals owed Adit $5,413,414 in interest and principal.
|
Note 5.
|
Stockholders’ Equity
|
The Company had no issuances of common stock during the three months ended March 31, 2014.
Tara Minerals has the following incentive plans which are registered under a Form S-8:
·
Incentive Stock Option Plan
·
Nonqualified Stock Option Plan
·
Stock Bonus Plan
There have been no issuances under the Company’s plans in 2014.
On October 28, 2009, Adit adopted the following incentive plans which have not been registered:
·
Incentive Stock Option Plan
·
Nonqualified Stock Option Plan
·
Stock Bonus Plan
There have been no issuances under the Adit plans in 2014.
The fair value of each award discussed above is estimated on the date of grant using the Black-Scholes valuation model that uses the assumptions noted in the following table. Expected volatilities are based on volatilities from the Company’s traded common stock. The expected term of the award granted is usually estimated at half of the contractual term as noted in the individual agreements, unless the life is one year or less based upon management’s assessment of known factors, and represents the period of time that management anticipates awards granted to be outstanding. The risk-free rate for the periods within the contractual life of the option is based on the U.S. Treasury bond rate in effect at the time of the grant for bonds with maturity dates at the estimated term of the options.
Historically the Company has had no forfeitures of options or warrants, therefore, the Company uses a zero forfeiture rate.
|
|
March 31, 2014
|
|
December 31, 2013
|
|
|
Expected volatility
|
|
0.00%
|
|
|
218.84%
|
|
|
Weighted-average volatility
|
|
0.00%
|
|
|
218.84%
|
|
|
Expected dividends
|
|
0
|
|
|
0
|
|
|
Expected term (in years)
|
|
0
|
|
|
2.00
|
|
|
Risk-free rate
|
|
0.00%
|
|
|
0.22%
|
|
A summary of option activity under the plans as of March 31, 2014 and changes during the period then ended is presented below:
|
Options
|
|
Shares
|
|
|
Weighted-Average
Exercise Price
|
|
|
Weighted-Average
Remaining
Contractual Term
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Outstanding at December 31, 2013
|
|
|
2,750,000
|
|
|
$
|
0.24
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
Forfeited, expired or cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2014
|
|
|
2,750,000
|
|
|
$
|
0.24
|
|
|
|
1.5
|
|
|
$
|
167,440
|
|
|
Exercisable at March 31, 2014
|
|
|
2,340,000
|
|
|
$
|
0.24
|
|
|
|
1.5
|
|
|
$
|
167,440
|
|
|
Non-vested Options
|
|
Options
|
|
|
Weighted-Average
Grant-Date Fair Value
|
|
|
Non-vested at December 31, 2013
|
|
|
410,000
|
|
|
$
|
0.48
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
Vested
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited, expired or cancelled
|
|
|
-
|
|
|
|
-
|
|
|
Non-vested at March 31, 2014
|
|
|
410,000
|
|
|
$
|
0.48
|
|
|
Note 7.
|
Non-controlling Interest
|
All non-controlling interest of the Company is a result of the Company’s subsidiaries stock movement and results of operations. Cumulative results of these activities results in:
|
|
|
March 31, 2014
|
|
|
December 31, 2013
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Common stock for cash
|
|
$
|
1,999,501
|
|
|
$
|
1,999,501
|
|
|
Common stock for services
|
|
|
95,215
|
|
|
|
95,215
|
|
|
Exploration expenses paid for in subsidiary common stock
|
|
|
240,000
|
|
|
|
240,000
|
|
|
Stock based compensation
|
|
|
1,374,880
|
|
|
|
1,374,880
|
|
|
Cumulative net loss attributable to non-controlling interest
|
|
|
(20,478
|
)
|
|
|
(15,815
|
)
|
|
Treasury stock
|
|
|
(500,000
|
)
|
|
|
(500,000
|
)
|
|
Other
|
|
|
6
|
|
|
|
6
|
|
|
Total non-controlling interest
|
|
$
|
3,189,124
|
|
|
$
|
3,193,787
|
|
A summary of activity as of March 31, 2014 and changes during the period then ended is presented below:
|
Non-controlling interest at December 31, 2013
|
|
$
|
3,193,787
|
|
|
Net income attributable to non-controlling interest
|
|
|
(4,663
|
)
|
|
Non-controlling interest at March 31, 2014
|
|
$
|
3,189,124
|
|
In accordance with authoritative guidance, the table below sets forth the Company's financial assets and liabilities measured at fair value by level within the fair value hierarchy. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
|
|
|
Fair Value at March 31, 2014
(Unaudited)
|
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
None
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial conversion feature of note payable (See Note 3)
|
|
$
|
54,892
|
|
|
$
|
54,892
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
Fair Value at December 31, 2013
|
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair market value of ACM’s net identifiable assets acquired
|
|
$
|
1,589,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,589,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial conversion feature of note payable (See Note 3)
|
|
$
|
74,348
|
|
|
$
|
74,348
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Note 9.
|
Subsequent Events
|
In May 2014, the Company sold 5,000,000 units in a private offering for $750,000 in cash, or $0.15 per unit. Each unit consisted of one share of the Company’s common stock and one warrant. Two warrants entitle the holder to purchase one share of common stock at a price of $0.35 per share at any time on or before May 1, 2016.