UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| T | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2013
| £ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT |
For the transition period from to
Commission File Number 000-53167
| AMERICAN SANDS ENERGY CORP. |
| (Exact name of registrant as specified in its charter) |
| Delaware | 87-0405708 |
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
| 4760 S. Highland Drive |
| Suite 341 |
| Salt Lake City, UT 84117 |
| (Address of principal executive offices) |
| (801) 699-3966 |
| (Registrant’s telephone number, including area code) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed under Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes T 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). Yes T 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 £ (Do not check if a smaller reporting company) | Smaller Reporting Company T |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No T
The issuer had 28,990,715 shares of common stock, $.001 par value, outstanding as of August 14, 2013.
TABLE OF CONTENTS
| PART I. FINANCIAL INFORMATION | 3 |
| Item 1. Financial Statements | 3 |
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 14 |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk | 17 |
| Item 4. Controls and Procedures | 17 |
| PART II. OTHER INFORMATION | 18 |
| Item 1A. Risk Factors. | 18 |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 18 |
| Item 5. Other Information | 18 |
| Item 6. Exhibits | 18 |
| 2 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
American Sands Energy Corp.
(A Development Stage Company)
Condensed Consolidated Balance Sheets (Unaudited)
| June 30, | March 31, | |||||||
| 2013 | 2013 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | 56,711 | $ | 59,981 | ||||
| Receivables | – | 207,046 | ||||||
| Prepaid and other current assets | 137,805 | 95,781 | ||||||
| Related-party receivable | – | 22,324 | ||||||
| Total current assets | 194,516 | 385,132 | ||||||
| Property and equipment, net | 1,839 | 1,922 | ||||||
| Other assets | 306,640 | 306,640 | ||||||
| Total assets | $ | 502,995 | $ | 693,694 | ||||
| Liabilities and Stockholders' Deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 575,357 | $ | 457,855 | ||||
| Accrued expenses | 1,395,228 | 1,553,106 | ||||||
| Current portion of convertible notes payable, net of discount of $273,660 and $0, respectively | 1,684,208 | – | ||||||
| Current portion of related-party convertible notes payable, net of discount of $85,270 and $0, respectively | 1,740,088 | – | ||||||
| Total current liabilities | 5,394,881 | 2,010,961 | ||||||
| Convertible notes payable, net of discount $0 and $352,317, respectively | – | 1,417,115 | ||||||
| Related-party convertible notes payable, net of discount of $0 and $109,979, respectively | – | 1,714,274 | ||||||
| Mineral lease payable | 9,760 | 14,640 | ||||||
| Total liabilities | 5,404,641 | 5,156,990 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders' deficit: | ||||||||
| Preferred stock, $.001 par value: 10,000,000 shares authorized; no shares issued | – | – | ||||||
| Common stock, $.001 par value: 200,000,000 shares authorized; 28,990,715 shares issued | 28,991 | 28,991 | ||||||
| Additional paid-in capital | 6,751,292 | 6,706,565 | ||||||
| Deficit accumulated during the development stage | (11,681,929 | ) | (11,198,852 | ) | ||||
| Total stockholders' deficit | (4,901,646 | ) | (4,463,296 | ) | ||||
| Total liabilities and stockholders' deficit | $ | 502,995 | $ | 693,694 | ||||
See the accompanying notes to condensed consolidated financial statements.
| 3 |
American Sands Energy Corp.
(A Development Stage Company)
Condensed Consolidated Statements of Operations (Unaudited)
| For the Three | For the Three | Cumulative From | ||||||||||
| Months Ended | Months Ended | Inception to | ||||||||||
| June 30, 2013 | June 30, 2012 | June 30, 2013 | ||||||||||
| Revenues | $ | – | $ | – | $ | – | ||||||
| Operating expenses: | ||||||||||||
| Selling, general and administrative | 237,615 | 508,148 | 8,399,217 | |||||||||
| Mineral lease | 53,135 | 53,261 | 1,587,360 | |||||||||
| Research and development | 49,042 | 79,909 | 705,856 | |||||||||
| Total operating expenses | 339,792 | 641,318 | 10,692,433 | |||||||||
| Loss from operations | (339,792 | ) | (641,318 | ) | (10,692,433 | ) | ||||||
| Other income (expense): | ||||||||||||
| Interest expense | (143,085 | ) | (139,208 | ) | (1,209,200 | ) | ||||||
| Interest income | – | – | 22,985 | |||||||||
| Other income (expense) | – | – | 198,000 | |||||||||
| Total other income (expense) | (143,085 | ) | (139,208 | ) | (988,215 | ) | ||||||
| Loss before provision for income taxes | (482,877 | ) | (780,526 | ) | (11,680,648 | ) | ||||||
| Provision for income taxes | (200 | ) | – | (1,281 | ) | |||||||
| Net loss | $ | (483,077 | ) | $ | (780,526 | ) | $ | (11,681,929 | ) | |||
| Net loss per common share - basic and diluted | $ | (0.02 | ) | $ | (0.03 | ) | ||||||
| Weighted average common shares outstanding - basic and diluted | 28,990,715 | 28,476,522 | ||||||||||
See the accompanying notes to condensed consolidated financial statements.
| 4 |
American Sands Energy Corp.
(A Development Stage Company)
Condensed Consolidated Statements of Cash Flows (Unaudited)
| For The Three Months Ended | For The Three Months Ended | Cumulative From Inception through | ||||||||||
| June 30, 2013 | June 30, 2012 | June 30, 2013 | ||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net loss | $ | (483,077 | ) | $ | (780,526 | ) | $ | (11,681,929 | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
| Depreciation | 83 | 84 | 6,145 | |||||||||
| Gain on disposal of property and equipment | – | – | (49 | ) | ||||||||
| Accretion of debt discount | 103,363 | 80,200 | 747,683 | |||||||||
| Straight-line of mineral lease payable | (4,880 | ) | (4,880 | ) | 9,760 | |||||||
| Stock issued for services | – | – | 57,500 | |||||||||
| Stock-based compensation expense | 44,727 | 174,596 | 1,564,515 | |||||||||
| Special warrants issued as payment for leases | – | – | 188,160 | |||||||||
| Notes payable issued as payment for leases | – | – | 126,840 | |||||||||
| (Increase) decrease in operating assets: | ||||||||||||
| Receivables | 207,046 | 367,902 | – | |||||||||
| Prepaid and other current assets | (42,024 | ) | 28,558 | (137,805 | ) | |||||||
| Related-party receivable | 22,324 | – | – | |||||||||
| Reclamation deposit | – | – | (19,065 | ) | ||||||||
| Increase (decrease) in operating liabilities: | ||||||||||||
| Accounts payable | 117,502 | (319,055 | ) | 575,357 | ||||||||
| Accrued expenses | (157,878 | ) | 18,815 | 3,084,214 | ||||||||
| Accrued interest on convertible debt | 39,544 | 59,009 | 383,396 | |||||||||
| Net cash used in operating activities | (153,270 | ) | (375,297 | ) | (5,095,278 | ) | ||||||
| Cash flows from investing activities: | ||||||||||||
| Acquisition of property and equipment | – | – | (8,524 | ) | ||||||||
| Disposal of property and equipment | – | – | 588 | |||||||||
| Net cash used in investing activities | – | – | (7,936 | ) | ||||||||
| Cash flows from financing activities: | ||||||||||||
| Proceeds from issuance of notes payable | – | – | 437,000 | |||||||||
| Proceeds from issuance of convertible notes payable | 150,000 | – | 895,000 | |||||||||
| Proceeds from issuance of related-party notes payable | – | – | 99,000 | |||||||||
| Proceeds from issuance of common stock and special warrants | – | 492,019 | 2,319,427 | |||||||||
| Increase in stock offering costs | – | – | (87,575 | ) | ||||||||
| Increase in deposits for purchase of common stock | – | – | 710,214 | |||||||||
| Net cash received in reverse merger | – | – | 852,759 | |||||||||
| Principal payments on notes payable | – | – | (65,900 | ) | ||||||||
| Net cash provided by financing activities | 150,000 | 492,019 | 5,159,925 | |||||||||
| Net increase (decrease) in cash | (3,270 | ) | 116,722 | 56,711 | ||||||||
| Cash, beginning of the period | 59,981 | 624,300 | – | |||||||||
| Cash, end of the period | $ | 56,711 | $ | 741,022 | $ | 56,711 | ||||||
| Supplemental disclosures of cash flow information: | ||||||||||||
| Interest paid | $ | – | $ | – | $ | 12,153 | ||||||
| Income taxes paid | $ | – | $ | – | $ | 1,050 | ||||||
| Supplemental schedule of non-cash investing and financing activities: | ||||||||||||
| Conversion of notes payable to common stock | $ | – | $ | – | $ | 666,780 | ||||||
| Convertible note issued for accrued expenses | $ | – | $ | – | $ | 1,660,832 | ||||||
| Issuance of warrants associated with convertible notes payable | $ | – | $ | – | $ | 424,266 | ||||||
| Common stock issued for stock offering costs | $ | – | $ | – | $ | 200,000 | ||||||
| Discount on related-party notes payable | $ | – | $ | – | $ | 134,053 | ||||||
| Shares issued to satisfy deposits to purchase common stock | $ | – | $ | 710,214 | $ | 710,214 | ||||||
See the accompanying notes to condensed consolidated financial statements.
| 5 |
American Sands Energy Corp.
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1 - Description of Business and Nature of Operations
Green River Resources Corp. (an Alberta, Canada corporation) (“GRC”), formed on December 1, 2004, and its wholly owned subsidiary, Green River Resources, Inc. (a Utah corporation) (“GRI”), formed on February 16, 2005, were formed for the purpose of extracting oil from oil sands, oil shale, and other similar types of naturally occurring hydrocarbons in a cost effective and environmentally safe manner. GRC completed a merger with American Sands Energy Corp. (formerly Millstream Ventures, Inc.) (“ASEC”), a publicly traded company, on June 3, 2011. The merger was accounted for as a reverse acquisition with GRC treated as the accounting acquirer.
On December 31, 2011, GRC, a wholly owned non-operating subsidiary of ASEC, was voluntarily dissolved under the Business Corporation Act of the Province of Alberta, Canada. As a result of the dissolution, ASEC assumed all of the outstanding stock of GRI which was the sole asset of GRC at the time of dissolution. References to the “Company” refer to GRC and its wholly owned subsidiary, GRI, prior to the reverse merger on June 3, 2011, and GRC, GRI, and ASEC (the legal parent) subsequent to the reverse merger transaction until December 31, 2011, and GRI and ASEC after December 31, 2011. The Company has not generated revenues from its principal operations and is a development stage company.
The Company has acquired rights to approximately 1,760 acres of prime oil sand deposits in the Sunnyside area of Utah. Prior to January 24, 2012, the Company had licensed proprietary extraction technology with Bleeding Rock, LLC (“Bleeding Rock”), which had an exclusive license to a bitumen and hydrocarbon extraction process to separate oil and other hydrocarbons from sand, dirt and other substances. Bleeding Rock is a significant stockholder of the Company and is 50% owned in combination among the Chief Executive Officer of the Company and two of his relatives.
Effective January 24, 2012, the Company entered into a License, Development and Engineering Agreement with Universal Oil Recovery Corp. and SRS International (the “License Agreement”) whereby the Company was granted an exclusive non-transferable license to use certain technology in its proposed business to extract bitumen from oil sands. The territory covered by the agreement includes the State of Utah and any other geographic location in which a future designated project is commenced by or through the Company. In conjunction with the License Agreement, the Company terminated its operating agreement with Bleeding Rock under which Bleeding Rock had licensed rights to use similar technology to GRI. The License Agreement also designates the Company as an “authorized agent” in representing the owner of the technology in future projects. The Chief Executive Officer, a director, and principal stockholder of the Company, is an owner and manager of Bleeding Rock.
The License Agreement requires the licensing parties to provide demonstration equipment for the process by which their proprietary solvent extracts bitumen from oil sands and to demonstrate the process on up to 150 tons of oil sands. The term of the License Agreement is for 20 years and thereafter so long as production of products using the technology is commercially and economically feasible.
Note 2 – Significant Accounting Policies
These financial statements have been prepared by the Company in accordance with U.S. generally accepted accounting principles (“US GAAP”) for interim financial information, as well as the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by US GAAP for complete financial statements. In the opinion of the Company’s management, all adjustments (consisting solely of normal recurring adjustments) considered necessary for a fair presentation of the interim financial statements have been included.
The preparation of financial statements in conformity with US GAAP requires management to make judgments, estimates, and assumptions that could affect the reported amounts of 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 significantly from those estimates.
a) Principles of Consolidation
The condensed consolidated financial statements include the consolidated operations of GRC through June 3, 2011, the consolidated operations of GRC and ASEC from June 3, 2011 through the GRC dissolution on December 31, 2011 and the consolidated operations of ASEC and GRI through June 30, 2013. All significant intercompany balances and transactions have been eliminated in consolidation.
| 6 |
American Sands Energy Corp.
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements (Unaudited)
b) Mineral Leases
In certain cases, the Company capitalizes costs related to investments in mineral lease interests on a property-by-property basis. Such costs include mineral lease acquisition costs. Costs are deferred until such time as the extent of proved developed reserves has been determined and mineral lease interests are either developed, the property sold or the mineral lease rights are allowed to lapse. To date, all exploration and lease costs have been expensed.
c) Research and Development
The Company continues to develop additional technology related to its licensed proprietary bitumen extraction process. To date, the Company has expensed costs associated with developing its technology as research and development expenses. For the three months ended June 30, 2013 and 2012, the Company incurred costs of $49,042 and $79,909, respectively, for research and development of its technology.
d) Stock-based Compensation
The Company uses the Black-Scholes option-pricing model to determine the fair value of stock options and warrants granted. For employee stock options, the Company records the grant-date fair value as expense over the period in which it is earned, typically the vesting period. For consultants, the fair value of the stock-based award is recorded as expense over the term of the service period, and unvested amounts are revalued using the Black-Scholes model at each reporting period. For warrants issued to lenders, the Company records the grant-date fair value of the warrants, and any resulting beneficial conversion feature for convertible debt, as a note discount. The discount is then amortized over the term of the convertible debt as non-cash interest expense.
e) Earnings or Loss Per Common Share
Basic earnings or loss per common share is computed on the basis of the weighted average number of shares outstanding during the periods. Diluted earnings or loss per common share is calculated on the basis of the weighted average number of common shares outstanding during the period plus the effect of potential dilutive shares during the period. Potential dilutive shares include outstanding stock options and warrants and convertible debt instruments. For periods in which a net loss is reported, potential dilutive shares are excluded because they are antidilutive. Therefore, basic loss per common share is the same as diluted loss per common share for the three months ended June 30, 2013 and 2012.
f) Recent Accounting Pronouncements
In July 2012, the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2012-02, Intangibles-Goodwill and Other (Topic350): Testing Indefinite-Lived Intangible Assets for Impairment. This ASU permits an entity the option to first assess qualitative factors to determine whether it is more-likely-than-not that an indefinite-lived intangible asset is impaired. If the qualitative assessment supports the conclusion that it is more-likely-than-not that the fair value of the asset exceeds its carrying amount, the entity would not need to perform the two-step quantitative impairment test. The focus of the guidance is to reduce the cost and complexity of performing impairment tests for indefinite-lived intangible assets other than goodwill, and to improve consistency in impairment testing among long-lived asset categories. This ASU is effective for annual and interim impairment tests performed prior to the issuance of the final ASU, if an entity’s financial statements for the most recent annual or interim period have not yet been issued. This ASU did not have a material impact on the Company’s consolidated financial statements.
In October 2012, the FASB issued ASU 2012-04, Technical Corrections and Improvements. The amendments in this update cover a wide range of Topics in the ASC. These amendments include technical corrections and improvements to the ASC and conforming amendments related to fair value measurements. The amendments in this update were effective for fiscal periods beginning after December 15, 2012. The adoption of ASU 2012-04 did not have a material impact on the Company’s consolidated financial statements.
| 7 |
American Sands Energy Corp.
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 3 – Going Concern
The Company’s financial statements have been prepared assuming the Company is a going concern which contemplates the realization of assets and the liquidation of liabilities in the ordinary course of business. The Company has incurred substantial losses from operations, has negative working capital, and has negative cash flows from operating activities, which raise substantial doubt about the Company’s ability to continue as a going concern. The Company sustained a net loss for the three months ended June 30, 2013 of $483,077 and has an accumulated deficit of $11,681,929 as of June 30, 2013. In addition, the Company estimates it will require approximately $60,000,000 in capital to commence its principal operations.
The Company intends to continue its research and development efforts, but does not have revenues from which to finance these activities internally. As a result, the Company intends to seek financing in order to fund its operations.
The Company has been able to meet its short-term needs primarily through loans from third parties, private placements of equity and debt securities, and deferring certain payment obligations to related parties. The Company is actively seeking additional private and public placements of equity securities. The Company plans to continue to obtain financing through the sale of equity or debt securities in order to finance operations until it can generate positive cash flows from operating activities. The private and public equity placements are expected to provide the needed funds for continued operations and further research and development of the Company’s proprietary oil sands refining methods. The Company can provide no assurance that it will be able to obtain sufficient additional financing needed to develop its technology and alleviate doubt about its ability to continue as a going concern. To the extent the Company raises additional funds by issuing equity securities, the Company’s stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact the Company’s ability to conduct business. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Note 4 – Accrued Expenses
Accrued expenses consist of the following:
| June 30, | March 31, | |||||||
| 2013 | 2013 | |||||||
| Payroll and benefits | $ | 1,341,489 | $ | 1,284,995 | ||||
| Deferred research and development billings | – | 178,931 | ||||||
| Mineral lease payable | 53,539 | 89,180 | ||||||
| Other | 200 | – | ||||||
| Total accrued expenses | $ | 1,395,228 | $ | 1,553,106 | ||||
Note 5 – Mineral Leases
During 2005, the Company acquired three oil sands mineral leases: (1) an undivided 40% interest in an 1,120-acre parcel, (2) an undivided 20% interest in the same 1,120-acre parcel, and (3) an undivided 16.666% interest in a 640-acre parcel. These leases are located in Carbon County, Utah, have a 6-year life, and require minimum yearly lease payments totaling $224,597. Effective March 31, 2013, the lease terms were extended through 2016 and the annual lease payments increased to $268,915.
In 2009, a fourth lease was entered into with William G. Gibbs, a relative of the Chief Executive Officer of the Company, for an additional undivided 5% interest in the 640-acre parcel (for a total 21.666% undivided interest in the 640-acre parcel). This lease is located in Carbon County, Utah, adjacent to the 1,120-acre parcel. This lease has a 6-year life with a minimum yearly lease payment of $7,965 and is scheduled to terminate by October 2015 if the property has not reached commercial production. Effective March 31, 2013, the payment due date for this lease was extended to July 31, 2013 from January 1, 2013. Effective, July 31, 2013, the lease payment was extended again until September 30, 2013.
The Company’s interest in these leases is conditioned upon the payments of royalties, minimum yearly investment in development, tax payments, and other obligations to the owners of the leases.
| 8 |
American Sands Energy Corp.
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements (Unaudited)
Upon commencement of operations, each lease requires a production royalty of 10% of the market value of the minerals sold, net of applicable costs and expenses. The Company has the right, but not the obligation, to pool or unitize the leases, such that the ore mined is allocated between, and the royalties paid, on their proportionate interests. If not pooled, the owners will be paid royalties only to the extent the oil sand ore is mined on their respective property. Through June 30, 2013, no production royalties were accrued or paid because production on these properties had not commenced. After three consecutive calendar years of production on the 1,120-acre parcel, the production royalty on the 1,120-acre parcel shall be the greater of the 10% royalty or $1,000,000 annually.
Future minimum lease payments are as follows for the years ending:
| June 30, | ||||
| 2014 | $ | 284,845 | ||
| 2015 | 276,880 | |||
| 2016 | 268,915 | |||
| Total future minimum lease payments | $ | 830,640 | ||
Note 6 – Convertible Notes Payable
As a result of the reverse merger, the Company assumed convertible notes payable of $770,000 on June 3, 2011. In addition, the Company has issued $745,000 of convertible notes payable subsequent to the reverse merger. These notes were issued pursuant to a $1,750,000 private offering. As of June 30, 2013, there was $1,515,000 of convertible notes payable outstanding with accrued interest of $298,819. This offering was closed by the Company effective January 31, 2013.
The notes bear interest at 10% per annum and all principal and interest are due and payable by April 30, 2014. The notes and all accrued interest are convertible into the Company’s common stock at any time by the lender at approximately $0.50 per common share until the due date. The notes automatically convert upon completion of a financing of $10,000,000 or more.
In connection with the terms of the offering, holders of the notes also received 100,286 warrants for each $50,000 loaned to the Company. Through June 30, 2013, the Company granted 3,038,667 warrants in connection with this offering (see Note 9). The Company recorded a debt discount related to the warrants and resulting beneficial conversion feature of $873,589. The unamortized debt discount was $273,660 and $352,317 as of June 30, 2013 and March 31, 2013, respectively. For the warrants issued, the Company valued the warrant discount using the Black-Scholes pricing model with the following weighted average assumptions:
| Assumptions | ||||
| Dividend yield | – | |||
| Weighted average volatility | 158.34% | |||
| Risk-free interest rate | 0.99% | |||
| Expected life (years) | 2.79 | |||
In June 2013, the Company borrowed a combined $150,000 from three individuals. The notes bear interest at 6%, are due by June 30, 2014 and are convertible into the Company’s common stock at the same rate as the Company completes a future offering of $2,000,000 or more.
Note 7 – Convertible Note Payable, Related Party
On May 31, 2011, the Company converted $214,281 of its outstanding payable to Bleeding Rock into a 6% convertible promissory note. The note is convertible into 535,704 shares of the Company’s common stock. Effective January 1, 2013, the Company modified the terms of the note such that all of the outstanding principal which totaled $214,281 and accrued interest which totaled $20,712 was converted into a new note totaling $234,993 that is non-interest bearing. The Company imputed interest on the new note using a discount rate of 6% and recorded a debt discount of $18,006 which is being amortized over the remaining life of the loan using the interest method. As of June 30, 2013 and March 31, 2013, the carrying balance of the note was $223,539 and $220,221, respectively, net of the unamortized remaining discount. Effective January 1, 2013, the note was modified and the due date was extended to April 30, 2014.
| 9 |
American Sands Energy Corp.
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements (Unaudited)
Effective January 24, 2012, the Company entered into a Termination Agreement with Bleeding Rock (the “Termination Agreement”). The purpose of the agreement was to terminate the Operating Agreement dated May 31, 2005, as amended, between Bleeding Rock and GRI (the “Operating Agreement”). Pursuant to the Operating Agreement, GRI had obtained the rights through Bleeding Rock to utilize a process for the development, engineering and extraction of hydrocarbons from oil sands. In light of conversations with potential investors, the Company determined that having the technology licensed directly to the Company (rather than through Bleeding Rock and the Operating Agreement) would be beneficial to fund raising prospects.
Effective on the date of termination, Bleeding Rock assigned its interest in the note to Hidden Peak Partners LLC (“Hidden Peak”), a related party who is the majority owner of Bleeding Rock. Contemporaneous with the execution of the License Agreement and the Termination Agreement described above, the Company entered into a Gross Royalty Agreement with Bleeding Rock whereby the Company is obligated to pay a royalty equal to 1.5% of the gross receipts from future projects using the technology, excluding the current project in Sunnyside, Utah. The Gross Royalty Agreement was similarly assigned to Hidden Peak.
As of the date of the Termination Agreement, GRI owed $1,446,551 to Bleeding Rock, payable under the terms of the Operating Agreement. In connection with the termination of the Operating Agreement, GRI issued a 5% convertible promissory note to Bleeding Rock for this amount. Initially, the note was due one year from the date of the note. The note was subsequently modified and is currently due and payable on April 30, 2014 and is convertible into shares of the Company’s common stock any time before maturity at the rate of one share for each $0.50 of principal or interest converted. Effective January 1, 2013, the Company further modified the terms of the note such that all of the outstanding principal, which totaled $1,446,551, and accrued interest, which totaled $67,965, were converted into a new note totaling $1,514,516 that is non-interest bearing. The Company imputed interest on the new note using a discount rate of 6% and recorded a debt discount of $116,047 which is being amortized over the remaining life of the loan using the interest method. As of June 30, 2013 and March 31, 2013, the carrying balance of the note was $1,440,700 and $1,419,311, respectively, net of the unamortized remaining discount. The note is due April 30, 2014.
In January 2013, the Company borrowed $74,000 from C-14 Strategies, a company controlled by the Company’s President. The note bears interest at 6% and is due and payable by the earlier of June 30, 2014 or when the Company completes a $2,000,000 equity or debt bridge financing transaction. The note is convertible into common stock of the Company upon completion of a bridge financing transaction at the same price and terms as the bridge financing. As of June 30, 2013 and March 31, 2013, the carrying value of the note was $75,849 and $74,742 including accrued interest of $1,849 and $742, respectively.
Note 8 – Common Stock
In March 2012, the Company initiated a private placement to raise an aggregate maximum of $7,000,000 through the sale of up to 140 units at $50,000 per unit. Each unit is composed of 43,478 shares of common stock and two-year warrants to purchase another 10,870 shares of common stock at $1.15 per share. As of June 30, 2013, the Company had sold 1,089,781 shares of common stock under the private placement agreement resulting in gross proceeds of $1,253,248. As more fully described in Note 9, the Company issued 272,402 warrants in connection with this private placement.
Note 9 – Warrants
The Company has three classes of warrants outstanding; namely, bridge warrants, convertible debt warrants, and private placement warrants.
| a) |
Bridge Warrants
In connection with the issuance of certain notes payable, the Company granted bridge warrants to the note holders. These bridge warrants give the holder the right to purchase shares of the Company’s common stock at $0.40 per share. All of the bridge warrants remained unexercised and expired during the three months ended June 30, 2013. |
| 10 |
American Sands Energy Corp.
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements (Unaudited)
| b) |
Convertible Debt Warrants
In connection with the Company’s $1,750,000 private convertible note offering (see Note 7), the Company granted warrants to the note holders. These warrants give the holder the right to purchase shares of the Company’s common stock at approximately $0.50 per share. The warrants expire on April 30, 2014. As of June 30, 2013 and March 31, 2013, there were 3,038,667 convertible debt warrants outstanding. |
| c) |
Private Placement Warrants
In connection with the Company’s $7,000,000 private placement (see Note 8), the Company granted warrants to the stock purchasers. These warrants give the holder the right to purchase shares of the Company’s common stock at $1.15 per share for a 2-year period. As of June 30, 2013 and March 31, 2013, there were 272,402 private placement warrants outstanding. |
Note 10 – Stock Option Plan
In April 2011, the Company adopted the 2011 Long-Term Incentive Plan (the “2011 Plan”) which reserves for the issuance of up to 7,000,000 shares of the Company’s common stock. During the three months ended June 30, 2013, the Company did not issue any options.
The summary of option activity for the three months ended June 30, 2013 is presented below:
| Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Life (years) | ||||||||||
| Balance as of March 31, 2013 | 3,662,500 | $ | 0.49 | 4.86 | ||||||||
| Granted | – | – | – | |||||||||
| Exercised | – | – | – | |||||||||
| Canceled | – | – | – | |||||||||
| Expired | – | – | – | |||||||||
| Balance as of June 30, 2013 | 3,662,500 | 0.49 | 4.61 | |||||||||
The weighted average grant-date fair value of options granted during the three months ended June 30, 2012 was $1.09.
Outstanding and exercisable options presented by price range as of June 30, 2013 are as follows:
| Options Outstanding | Options Exercisable | |||||||||||||||||||||
| Weighted | ||||||||||||||||||||||
| Average | Weighted | Weighted | ||||||||||||||||||||
| Number of | Remaining | Average | Number of | Average | ||||||||||||||||||
| Exercise | Options | Life | Exercise | Options | Exercise | |||||||||||||||||
| Price | Outstanding | (Years) | Price | Exercisable | Price | |||||||||||||||||
| 0.40 | 3,087,500 | 4.75 | $ | 0.40 | 3,087,500 | $ | 0.40 | |||||||||||||||
| 0.50 | 75,000 | 3.21 | 0.50 | 37,500 | 0.50 | |||||||||||||||||
| 0.25 | 50,000 | 3.64 | 0.25 | 25,000 | 0.25 | |||||||||||||||||
| 1.15 | 450,000 | 3.96 | 1.15 | 162,500 | 1.15 | |||||||||||||||||
| $0.25-$1.15 | 3,662,500 | 4.61 | 0.49 | 3,312,500 | 0.44 | |||||||||||||||||
| 11 |
American Sands Energy Corp.
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements (Unaudited)
The estimated fair value of the Company’s stock options, less expected forfeitures, is amortized over the options’ vesting period on the straight-line basis. The Company recognized $44,727 and $174,596 of equity-based compensation expenses during the three months ended June 30, 2013 and 2012, respectively.
As of June 30, 2013, there was $176,554 of total unrecognized compensation cost with a weighted-average vesting period of approximately 1.00 year.
As of June 30, 2013 and 2012, the intrinsic value of outstanding and vested stock options was as follows:
| June 30, | ||||||||
| 2013 | 2012 | |||||||
| Intrinsic value - options outstanding | $ | 503,875 | $ | 2,409,375 | ||||
| Intrinsic value - options exercisable | 474,250 | 2,339,063 | ||||||
| Intrinsic value - options exercised | – | – | ||||||
Note 11 – Commitments
Effective January 1, 2013, the Company modified its employment contract with the Chief Executive Officer. Pursuant to the terms of the modification, the CEO’s salary was reduced from $400,000 per year to $276,000 per year. In addition, the CEO’s salary will accrue until the Company has raised $2,000,000 in a debt or equity financing. At the time the financing is completed, the CEO will receive four months of accrued salary and will begin to be paid monthly. Any remaining unpaid salary in excess of four months’ salary will be converted to common stock under the same terms once the Company has completed a $5,000,000 or more raise. Upon completion of a $10,000,000 or more financing, the CEO’s salary will increase back to $400,000. Unpaid salary from 2011 and prior will be converted to common stock of the Company at $0.50 per share upon the Company closing a financing of $10,000,000 or more. The CEO has also agreed to consult with an accountant or attorney specializing in taxes, and if taxes which may become due in connection with the conversion of such amounts can be deferred until a sale of such shares the CEO will convert such shares at such time. All other terms of the employment agreement remained the same. The term of the employment agreement is in effect through December 31, 2015. As of June 30, 2013 and March 31, 2013, the total accrued commitment was $1,049,350 and $1,070,788, respectively which is included as accrued expenses and selling, general and administrative expenses in the accompanying consolidated financial statements.
On March 31, 2011, the Company entered into an employment agreement with the Chief Operating Officer, replacing all previous employment agreements, that provides for initial compensation at an hourly rate of $175 and expense reimbursements. Upon the completion of a financing by the Company of not less than $10,000,000, his compensation will increase to $300,000 annually plus all other benefits normally provided to an employee. This employment agreement terminates March 31, 2014.
On February 16, 2012, the Company entered into an employment agreement with the President. The agreement is terminable by either party upon 30 days’ notice. Pursuant to the terms of the agreement, the President will be entitled to a base salary of $240,000 per year upon the first successful fundraising by the Company of at least $5,000,000 in equity or convertible securities (the “Financing Event”).
Upon completion of the Financing Event, he will also receive 5-year options to purchase 400,000 shares of the Company’s common stock. The options will vest 50% upon the Financing Event and 50% upon the completion of a total of $40,000,000 in equity or debt financing during the term of the agreement. The options will have an exercise price equal to the price per share, or per share equivalent, of the Financing Event. Under his employment agreement, the President is entitled to receive an annual bonus of up to $240,000, at the discretion of the board, to be paid on or before December 15th of each year. As of June 30, 2013, the Financing Event had not been successfully completed and the agreement has not been renewed.
| 12 |
American Sands Energy Corp.
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements (Unaudited)
The consulting agreement dated October 1, 2011, between the Company and C14 Strategy (the “Consulting Agreement”), an entity controlled by the President, will remain in force until a Financing Event at which time it will be immediately terminate. Pursuant to the Consulting Agreement, C14 Strategy provides assistance with respect to strategic objectives of the Company. As compensation for such services, C14 Strategy is paid $10,000 per month. The contract is terminable any time on 60 days’ notice, or by mutual consent.
Under his employment agreement, the Chief Financial Officer is entitled to receive an annual bonus of up to $120,000, at the discretion of the Board, to be paid on or before December 15th of each year. Effective January 1, 2013, the CFO’s employment agreement was modified and his annual salary was increased to $175,000. The salary will be accrued until the Company completes a debt or equity fund raising of $2,000,000 or more.
Note 12 – Subsequent Events
On July 1, 2013, the Company entered into a consulting contact with Great Bear, LLC (“Great Bear”) to provide corporate advisory and marketing services to the Company. The contract calls for the Company to issue Great Bear 100,000 shares of restricted common stock as consideration for the services to be provided and to pay a one-time $5,000 fee upon completion of an offering of at least $2,000,000. The term of the agreement is for one year.
Effective July 11, 2013, the Company entered into a financial advisory agreement with Merriman Capital, Inc. ("Merriman"), a wholly owned subsidiary of Merriman Holdings, Inc. (OTCQX: MERR). The Agreement is for a 12 month period and the Company has agreed to issue to Merriman 300,000 shares of restricted common stock in consideration of its services. Under the Agreement, Merriman will advise the Company on strategic initiatives to increase shareholder value, analyze the Company’s operating projections and market conditions and provide the Company with recommendations for the proper positioning of the Company with potential investors. Merriman will also assist the Company in raising its next round of capital. The Company has agreed that Merriman will have unlimited "piggyback" registration rights for a period of three years after the issuance of the shares at the Company's expense (provided that such rights shall not apply to a public offering of the Company’s common stock upon any underwriter’s reasonable assertion in writing that the inclusion of such stock in a public offering would materially impair the marketability of such public offering).
In conjunction with the proposed fund raising by Merriman, Hidden Peak Partners LLC has agreed to subordinate any debt owed to Hidden Peak by the Company to any future debt financing by the Company. Hidden Peak has also agreed in principal to convert its 5% Convertible Promissory Note dated January 24, 2012, into restricted common shares of the Company pursuant to the terms of such Note, subject to satisfactory tax analysis that no federal or state income tax would be triggered on conversion of such note.
Neither the shares proposed to be issued to Merriman nor to Hidden Peak have been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.
Effective July 11, 2013, the Company issued each of its nonexecutive directors options to purchase 125,000 shares of common stock pursuant to the Company’s 2011 Plan. The exercise price of the options will be $0.35 and the options expire five years from the date of grant and vest 1/3 on the date of grant, 1/3 on the first anniversary date and 1/3 on the 2nd anniversary date.
On July 11, 2013, the Company issued to its Chief Operating Officer an option to purchase 185,000 shares of the Company’s common stock pursuant to the Company’s 2011 Plan. The exercise price of the options will be $0.35 and the options expire five years from the date of grant and vest 1/3 on the date of grant, 1/3 on the first anniversary date and 1/3 on the 2nd anniversary date.
| 13 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and audited consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended March 31, 2013, and with the unaudited consolidated financial statements and related notes thereto presented in this Quarterly Report on Form 10-Q.
Forward-Looking Statements
The statements contained herein that are not historical facts are forward-looking statements that represent management’s beliefs and assumptions based on currently available information. Forward-looking statements include the information concerning our current and future operations, business strategies, need for financing, competitive position, ability to retain and recruit personnel, and the effects of competition. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believes,” “intends,” “may,” “should,” “anticipates,” “expects,” “could,” “plans,” or comparable terminology or by discussions of strategy or trends. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot give any assurances that these expectations will prove to be correct. Such statements by their nature involve risks and uncertainties that could significantly affect expected results, and actual future results could differ materially from those described in such forward-looking statements.
Overview
American Sands Energy Corp. (“ASEC”) is a development stage company that proposes to engage in the clean extraction of bitumen from oil sands prevalent in the Mountain West region of North America using proprietary technology. Since the project’s inception, we have been engaged in the business of acquiring and developing oil sands assets and technologies used to separate the oil contained in oil sands. The Company anticipates that its primary operations will include the mining of oil sands, the separation of oil products therefrom and the sale of oil and oil by-products.
We have obtained a license for a hydrocarbon extraction process that separates oil and other hydrocarbons from sand, shale, dirt and other substances, without leaving behind toxins or other contaminants. We are currently developing our first project on certain hydrocarbon and mineral leases which cover approximately 1,760 acres near Sunnyside, Utah (the “Sunnyside Project”). In accordance with the standards contained in Rule 4-10(a) of the SEC’s Regulation S-X, these leases contain no proven reserves of oil or gas. However, we have obtained an independent Resource Audit and Classification report dated May 29, 2009, from a major international geology and mining consulting firm describing the quantity and quality of the bitumen resource estimated to be located on our leases.
To date, we have acquired extensive bitumen resources, have successfully operated a pilot using our process technology on oil sands ore from our bitumen resources and have initiated applications for mining, environmental and other permits required to build a commercial plant (the “Commercial Facility”). Additional work to be completed as part of the project development phase includes:
| 1. | Final mine planning and civil engineering for the Sunnyside Project. | |
| 2. | Acquisition of additional property in areas of interest in order to block-up properties into logical and economical mining units. | |
| 3. | Determination of technical and economic parameters for the commercial scale use of the process, including engineering. | |
| 4. | Preparation and receipt of federal and state regulatory agency approval for the Commercial Facility. | |
| 5. | Completion of environmental and permitting work for the Commercial Facility. |
Contemporaneously with the pursuit of the permitting of the project, we will also finalize engineering and equipment for a 5,000 barrel per day plant. We initially retained a leading engineering firm in the North American oil sands extraction industry, AMEC BDR Limited, to complete an engineering and feasibility study with respect to a commercial plant that would produce up to 3,000 barrels of oil per day. We engaged a mining engineering firm to prepare a mine plan and feasibility study. We retained an engineering firm to demonstrate the technology through a new pilot plant. The pilot test runs were successful, removing in excess of 99% of the bitumen from the sand and leaving less than the two parts per million (“ppm”) of solvent in the sand. This means that the sand is suitable to be put back into the environment without tailing ponds or other environmental restrictions. Based on additional findings from the recent pilot tests and recommendations from our mining engineers, we are also proposing to expand the size of the initial Commercial Facility from the 3,000 barrels per day proposed in the AMEC BDR study, to 5,000 barrels per day. We have retained an environmental engineering and consulting firm to assist us in preparing and filing the necessary mine and environmental permits required to operate a large mine. Based on the information from our consultants, we believe that additional financing of approximately $60,000,000 will be required to procure and install the necessary equipment to begin operations of a plant that we believe will produce approximately 5,000 barrels per day of bitumen.
| 14 |
We have performed lab and pilot plant tests on oil sands from the Utah Green River Formation in which the Sunnyside Project is located to prove the viability of the technology and to understand several key elements in the process. Initial pilot plant test runs were conducted in 2006-2007. We hired AMEC BDR, to witness the initial pilot plant tests and to manage the lab work and review the results. In addition to the initial pilot test, we ran pilot tests on a new system designed by SRS Engineering International from July through September of 2012 and from May through June of 2013. In connection with those tests, we ran oil sands from Utah and Africa to acquire additional information on the efficiency of the solvent in removing the bitumen from the sand, the recovery of solvent from the bitumen and sand, and the overall efficiency and energy use of the system. The current test results are summarized as follows:
| — | Virtually all of the bitumen was separated from the sand, leaving the sand “oil” free. |
| — | The compositional characteristics of the bitumen were not altered by the process; therefore, management believes the bitumen will be suitable for upgrading and refining to saleable products by conventional refining technology. |
| — | The sand product contained less than 2 ppm of solvent residue, presents no environmental liability, and can be returned to the mine site or sold. |
| — | Solvent losses to the bitumen product were insignificant. Consequently, because the solvent is recycled with minimal loss in a closed loop system, make-up solvent costs should be minimal. |
| — | The composition and properties of the solvent recovered by the process were not altered by the process; therefore, the solvent should be recycled through the process without further conditioning or processing. |
Based on the pilot test results and recommendations from our mining engineer and SRS Engineering, we have evaluated the feasibility and costs of scaling the process into a plant that will initially process up to 5,000 barrels per day, with possible future expansion of facilities of up to 50,000 barrels per day, subject to market conditions and the availability of financing on terms acceptable to us.
Our pilot test also confirms lab tests that our process works on oil sands from other locations in the world. This may allow us to use our process in other locations around the world where other “oil wet” oil sands are located.
We anticipate initially that our entire estimated output of 5,000 barrels per day will be delivered to refineries located in the Salt Lake City area with one to two refiners as our customer(s). As we develop new facilities with a view to expanding production to 50,000 bbl/d, we will evaluate supplying product to multiple refineries and more distant locations versus Salt Lake City, based on price and transportation costs.
Business Developments
During the first fiscal quarter, we continued testing of our pilot facility. We ran oil sands ore from our site at Sunnyside, ore from other locations in the Green River formation, and ore from the Congo. The results continue to be satisfactory and to validate our technology.
Effective July 11, 2013, the Company entered into a financial advisory agreement with Merriman Capital, Inc. ("Merriman"), a wholly owned subsidiary of Merriman Holdings, Inc. (OTCQX: MERR). The agreement is for a 12-month period and the Company has agreed to issue to Merriman 300,000 shares of restricted common stock in consideration for its services. Under the agreement, Merriman will advise the Company on strategic initiatives to increase shareholder value, analyze the Company’s operating projections and market conditions and provide the Company with recommendations for the proper positioning of the Company with potential investors. Merriman will also assist the Company in raising its next round of capital.
Critical Accounting Policies and Estimates
The selection and application of accounting policies is an important process that has developed as our business activities have evolved and as the accounting rules have changed. Accounting rules generally do not involve a selection among alternatives, but involve an implementation and interpretation of existing rules, and the use of judgment, to the specific set of circumstances existing in our business. Discussed below are the accounting policies that we believe are critical to our financial statements due to the degree of uncertainty regarding the estimates or assumptions involved and the magnitude of the asset, liability, revenue or expense being reported. See Notes 2 and 3 to our unaudited financial statements included in this Form 10-Q for the quarter ended June 30, 2013, for a discussion of those policies.
Going Concern - The Company’s financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the ordinary course of business. The Company has incurred substantial losses from operations, negative working capital (current liabilities exceed current assets), and negative operating cash flows, which raise substantial doubt about the Company’s ability to continue as a going concern. The Company sustained a net loss for the quarter ended June 30, 2013 of $483,077 and has an accumulated deficit of $11,681,929 as of June 30, 2013. In addition, the Company will require approximately $60,000,000 to fund capital expenditures to commence principal operations.
| 15 |
Since inception of the development stage, the Company has not generated any revenue and its financial position is not sufficient to fund its planned business objective for an extended period of time. The Company is dependent on the sale of equity or debt securities in the next twelve months in order to obtain the requisite capital to continue to pursue its business objectives. If the Company is not able to obtain additional capital through the sale of equity or debt securities, it will not be able to commence production.
Mineral Leases – Due to the uncertainty regarding the recoverability of costs to acquire, maintain, and develop mineral leases, to date all costs to acquire, maintain, and develop mineral leases have been expensed as incurred.
Stock-Based Compensation – The Company uses the Black-Scholes option-pricing model to determine the fair value of stock options and warrants granted. For employee stock options, the Company records the grant-date fair value as expense over the period in which it is earned, typically the vesting period. For consultants, the fair value of the stock-based award is recorded as expense over the term of the service period, and unvested amounts are revalued using the Black-Scholes model at each reporting period. For warrants issued to lenders, the Company records the grant-date fair value of the warrants and any resulting beneficial conversion feature for convertible debt, as a note discount. The discount is then amortized over the estimated life of the warrant as non-cash interest expense.
Results of Operations
Three Months Ended June 30, 2013 compared to June 30, 2012
During the three months ended June 30, 2013, the Company incurred a net loss of $483,077 compared to a net loss of $780,526 for the three months ended June 30, 2012. During the three months ended June 30, 2013, operating expenses were $339,792, which represented a 47% decrease, compared to the three months ended June 30, 2012 when we incurred operating expenses of $641,318. Selling, general and administrative expenses decreased by 53% from $508,148 during the three months ended June 30, 2012 to $237,615 during the three months ended June 30, 2013. Non-cash stock compensation expense decreased by $129,869 from $174,596 for the three months ended June 30, 2012 to $44,727 for the three months ended June 30, 2013. Expenses for salaries and benefits decreased by $49,348 to $84,492 for the three months ended June 30, 2013 from $133,840 for the three months ended June 30, 2012 as a result of cost cutting measures implemented by the Company during the fourth quarter of fiscal year 2013. Current quarter expenses for professional services and financing decreased by $37,422 and $66,221, respectively, from the prior year which represented decreases of 51% and 130%. Overall expenses in the current period are lower because of management cutting expenses wherever possible due the Company’s limited funding resources. Once the Company is funded, going forward, the Company believes that the obligations placed upon it as a result of growth coupled with its reporting requirements under SEC rules and regulations will result in operating expenses increasing.
During the three months ended June 30, 2013, the Company incurred $49,042 of research and development expenses which represented a 38% decrease from the $79,909 of research and development expenses incurred during the three months ended June 30, 2012. The Company reduced its research and development activities due to its limited funding. Research and development expenses incurred are for engineering and related expenses incurred to obtain the necessary licenses and permits for the Company to develop its mining assets. In addition, the Company incurred expenses to develop a pilot test unit to further develop and prove the viability of the Company’s proprietary technology to separate the bitumen from the sand.
Interest expense increased to $143,085 for the three months ended June 30, 2013 as compared to $139,208 for the three months ended June 30, 2012. The increase in interest expense is due to the Company having increased debt as a result of the convertible notes payable issued during the first quarter coupled with higher non-cash interest expense as a result of amortization of warrants issued in connection with the convertible notes payable.
Liquidity and Capital Resources
As of June 30, 2013, the Company had cash of $56,711 and negative working capital of $5,200,365. As of June 30, 2013, the Company had total liabilities of $5,404,641. As of June 30, 2013, the Company’s total assets were $502,995 consisting of cash, prepaid and other current assets property and equipment, and other assets.
The Company has established a resource position, a working knowledge of the process technology and an initial list of environmental and other permits required to build a commercial plant. Additional work to be completed as part of the project development phase includes:
| 1. | Final mine planning and civil engineering for the Sunnyside Project. | |
| 2. | Acquisition of additional property in areas of interest in order to block-up properties into logical and economical mining units. | |
| 3. | Determination of technical and economic parameters for the commercial scale use of the process, including engineering. | |
| 4. | Completion of environmental and permitting work for the commercial facility. | |
| 5. | Receipt of federal and state regulatory agency approval for the commercial facility. |
| 16 |
The Company requires additional funding to complete these items. This funding is expected to be raised through a private or public offering of common stock. Upon completion of the financing, the Company will be in a position to initiate items 1 through 5 above. Further financing of approximately $60,000,000 will be required to procure and install the necessary equipment to begin operations of a plant that the Company believes will produce approximately 5,000 barrels per day of bitumen.
Management anticipates that the Company will be dependent, for the near future, on additional capital to fund operating expenses and anticipated growth. The report of the Company’s independent registered public accounting firm for the year ended March 31, 2013, expressed substantial doubt about the Company’s ability to continue as a going concern. The Company’s operating losses have been funded through the issuance of equity securities and borrowings. The Company will need additional funding in the future in order to continue its business operations. While the Company continually looks for additional financing sources, in the current economic environment, the procurement of outside funding is extremely difficult and there can be no assurance that such financing will be available, or, if available, that such financing will be at a price that will be acceptable to the Company. Failure to generate sufficient revenue or raise additional capital would have an adverse impact on the Company’s ability to achieve its longer-term business objectives, and would adversely affect its ability to continue operating as a going concern.
Off-Balance Sheet Arrangements
During the three months ended June 30, 2013, we did not engage in any off-balance sheet transactions.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we have elected not to provide the disclosures required by this item.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended June 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
It should be noted that any system of controls, however well designed and operated, can provide only reasonable and not absolute assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there is only reasonable assurance that our controls will succeed in achieving their stated goals under all potential future conditions.
| 17 |
PART II. OTHER INFORMATION
Item 1A. Risk Factors.
As a smaller reporting company, we have elected not to provide the disclosure required by this item. Notwithstanding, see Item 1A. “Risk Factors” as disclosed in our Annual Report on Form 10-K, as filed with the SEC on July 15, 2013.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On May 21, 2013, the Company entered into Convertible Promissory Notes (the “Notes”) which required disclosure under Items 1.01 and 2.03 of Form 8-K on or before May 27, 2013. The holders of the Notes are Elizabeth Harley Swindells Trust, Philip Edward Swindells Trust, and William Evans Swindells Trust (the “Note Holders”) for a total of $150,000. The Notes bear interest at 6%, are due by June 30, 2014, and will convert into the Company’s common stock upon the completion of a financing of $2,000,000 or more (the “Financing”). The conversion rate will be at the same rate of the Financing. Any amount which is not paid when due will bear interest at a rate of 12% per annum commencing 15 days after the due date until paid. The Notes are included as exhibits to this report. The above Notes were issued pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended. At the time of the Issuance of the Notes, the Company had a reasonable belief that each of the Note Holders was an accredited investor as defined in Regulation D and obtained such securities without a view to distribution of the same. No selling commissions or underwriting fees were paid in connection with any of these transactions.
On January 13, 2013, the Company entered into a Convertible Promissory Note (the “Convertible Note”) which required disclosure under Items 1.01 and 2.03 of Form 8-K on or before January 17, 2013. The holder of the Convertible Note is C14 Strategies LLC (the “Holder”) for $74,000. The Holder is an entity controlled by Andrew Rosenfeld, the former President and a shareholder of the Company. In addition, the Company currently has engaged the Holder as a consultant. The Convertible Note bears interest at 6%, is due by June 30, 2014, and will convert into the Company’s common stock upon the completion of the Financing (as defined above). The conversion rate will be at the same rate of the Financing. Any amount which is not paid when due will bear interest at a rate of 12% per annum commencing 15 days after the due date until paid. The Convertible Note is included as exhibit to this report. The above Convertible Note was issued pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended. At the time of the Issuance of the Convertible Note, the Company had a reasonable belief that each of the Holder was an accredited investor as defined in Regulation D and obtained such securities without a view to distribution of the same. No selling commissions or underwriting fees were paid in connection with this transaction.
Item 5. Other Information
The disclosure set forth in Item 2 of this Quarterly Report on Form 10-Q is incorporated by reference in this Item 5.
Item 6. Exhibits
The following exhibits are furnished with this report:
| 10.1 | Elizabeth Harley Swindells Trust Convertible Promissory Note dated May 21, 2013 | |
| 10.2 | Philip Edward Swindells Trust Convertible Promissory Note dated May 21, 2013 | |
| 10.3 | William Evans Swindells Trust Convertible Promissory Note dated May 21, 2013 | |
| 10.4 | C14 Convertible Promissory Note dated January 13, 2013 | |
| 31.1 | Rule 13a-14(a) Certification by Principal Executive Officer | |
| 31.2 | Rule 13a-14(a) Certification by Principal Financial Officer | |
| 32.1 | Section 1350 Certification of Principal Executive Officer | |
| 32.2 | Section 1350 Certification of Principal Financial Officer | |
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Taxonomy Extension Schema Document | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
| 18 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| American Sands Energy Corp. | |||
| Date: August 19, 2013 | By: | /s/ William C. Gibbs | |
| William C. Gibbs, Chief Executive Officer | |||
| (Principal Executive Officer) | |||
| Date: August 19, 2013 | By: | /s/ Daniel F. Carlson | |
| Daniel F. Carlson, Chief Financial Officer | |||
| (Principal Financial Officer) |
| 19 |
Exhibit 10.1
CONVERTIBLE PROMISSORY NOTE
| Amount: US $ 40,000 | Date: May 21, 2013 |
FOR VALUE RECEIVED, American Sands Energy Corp. (the “Debtor” or “Company”), hereby promises to pay in lawful money of the United States to the order of Elizabeth Harley Swindells Trust, or its successors or assigns (“Lender”) at such place as the holder hereof may from time to time designate in writing, the principal sum of Forty Thousand Dollars ($40,000), together with interest on the unpaid principal balance hereof from the date hereof until paid in full.
| 1. | PAYMENTS OF PRINCIPAL AND INTEREST. |
Unless converted as provided below, Debtor will pay this Note in full, together with interest, on the earlier of June 30, 2014 (“Due Date”), together with all accrued and unpaid interest. This Note shall bear interest at the rate of six percent (6%) per annum. Debtor will pay Lender at such place as Lender may designate in writing. Unless otherwise agreed or required by applicable law, payments will be applied first to interest and then to principal.
| 2. | EVENT OF DEFAULT. |
The occurrence of the following shall be deemed to be an event of default (an “Event of Default”) hereunder: (a) Company fails to convert this Note, as provided below, or fails to pay when due any sums payable hereunder; (b) Company files a voluntary petition in bankruptcy or a petition or answer seeking liquidation, reorganization or an arrangement with its creditors; (c) Company applies for, or consents to, the appointment of a receiver, trustee or liquidator, admits in writing its inability to pay its debts or makes a general assignment for the benefit of its creditors; (d) Company defaults in the performance under any term, covenant, condition, or obligation contained herein; (e) Company fails to perform any other obligation under this Note, or (f) the representations of the Company under this Note prove to be untrue.
| 3. | ACCELERATION AND LATE CHARGE. |
3.1 Upon the occurrence of an Event of Default and without further notice to Debtor, all unpaid principal, plus all accrued interest and other amounts due hereunder, shall become immediately due and payable.
3.2 Any amount which is not paid when due hereunder shall thereafter, in addition to the other amounts payable hereunder by reason thereof, bear interest at a rate equal to twelve percent (12%) per annum (or such lesser rate as is the maximum rate permitted by applicable laws) commencing the date fifteen (15) days after the due date until paid.
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| 4. | ATTORNEYS FEES. |
Should suit be brought to enforce, interpret or collect any part of this Note, the Lender shall be entitled to recover, as an element of the costs of suit and not as damages, reasonable attorneys’ fees and all other costs of enforcement and collection.
| 5. | CONVERSION. |
5.1 Conversion Right. The Lender shall convert this Note in connection with an equity or debt financing of $2 million or more (“Bridge Financing”). Lender shall convert all, but not less than all, of the principal amount of the Note and accrued interest thereon (the “Note Value”) into (a) the number of shares of common or preferred stock or (b) the debt instruments (collectively referred to as the “Conversion Securities”) of the Company equal to (a) in the case of common or preferred shares, the Note Value divided by the price of a common or preferred shares in the Bridge Financing (subject to adjustment as provided in the Notes) or (b) in the case of a debt offering, an amount equal to the outstanding balance of the Note due hereunder. In either case, the Conversion Securities shall be of the same class and/or series, and shall entitle the Lender to the same rights and privileges, as the equity or debt issued in the Bridge Financing.
5.2 No Fractional Shares. No fractional shares of the Company’s Common Stock will be issued upon conversion of this Note. In lieu of any fractional share to which the Lender would otherwise be entitled upon conversion of this Note, the Company shall round such share up to a whole share.
5.3 Mechanics and Effect of Conversion. Upon conversion, the Lender shall (a) surrender this Note, duly endorsed, at the principal offices of the Company, and (b) execute a subscription agreement and all other documents required to executed by other investors in such financing round ( the “Subscription Agreement”) with typical investor representations, including representations required to establish Lender’s status, or any assign, as an “Accredited Investor,” as defined in Rule 501 of Regulation D promulgated pursuant to the 1933 Act. At its expense, the Company will, as soon as practicable thereafter, and in any event within thirty (30) business days thereafter, issue and deliver to Lender, the type of Conversion Securities into which this Note converts which Lender is entitled to receive upon such conversion (bearing the securities legend set forth on this Note and any other legends that may be required by applicable state or federal securities law in the opinion of legal counsel for Company), together with any other securities or property to which the Lender is entitled upon such conversion under the terms of this Note, including a check payable to the order of the Lender for any cash amounts payable as provided above as a result of the conversion of this Note into a fractional share of Equity Stock. Upon full conversion of the entire unpaid balance of this Note, the Company will be released from all its obligations and liabilities under this Note.
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5.4 When Conversion Effected. A conversion of the unpaid balance of this Note shall be deemed to have been effected immediately prior to the close of business on the business day on which the Note and the Subscription Agreement are surrendered to the Company as provided above, and at such time, the person in whose name such Conversion Securities are issued as provided herein shall be deemed to be the record holder of such securities as of such date for all purposes.
6. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its Articles of Incorporation or bylaws or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Note, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of the Lender against dilution or other impairment. Without limiting the generality of the foregoing, the Company (a) will not increase the par value of any shares of stock receivable on the exercise of this Note above the amount payable therefor on such exercise, (b) will at all times reserve and keep available a number of its authorized shares of Equity Stock or such other securities as may be issuable on conversion of this Note (and on the conversion or exercise of such other securities), free from all preemptive rights thereon, which will be sufficient to permit the full conversion of this Note, and (c) shall take all such action as may be necessary or appropriate in order that said shares of Equity Stock (or such other securities) that may be issued pursuant to the conversion of this Note will, upon issuance, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof.
7. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents and warrants to Lender that:
7.1 Authorization. All corporate action on the part of the Company, its officers, directors and shareholders necessary for the authorization, execution and delivery of this Note, the performance of all obligations of the Company hereunder, and the authorization, issuance (or reservation for issuance) and delivery of the shares to be issued upon conversion of the Note has been taken.
7.2 Valid Issuance of Stock. The Equity Stock, when issued, sold and delivered in accordance with terms of this Note, will be duly and validly issued, fully paid and nonassessable.
8. SENIOR NOTE. This Note will be senior to all outstanding obligations of the Company.
9. LOSS OR MUTILATION. On receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note and, in the case of any such loss, theft or destruction of this Note, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of such Note, the Company at its expense will execute and deliver, in lieu thereof, a new Note of like tenor.
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10. NO RIGHTS OR LIABILITY AS A STOCKHOLDER. This Note does not by itself entitle the Lender to any voting rights or other rights as a stockholder of the Company. In the absence of affirmative action by the Lender to purchase Equity Stock by conversion of this Note, no provisions hereof, and no enumeration herein of the rights or privileges of the Lender shall cause the Lender to be a stockholder of the Company.
11. NOTICES. All notices referred to in this Note shall be in writing and shall be deliverable personally or by certified or registered mail, return receipt requested, postage prepaid and will be deemed, to have been given when so delivered or mailed (i) to the Company, at its principal executive offices and (ii) to the Lender, at such address as appears in the records of the Company (unless otherwise indicated by Lender).
In Witness Whereof, the Company has executed this Note as of the date first above written.
| American Sands Energy Corp. | ||
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| By | /s/ William C. Gibbs | |
| Its | Chief Executive Officer | |
| Elizabeth Harley Swindells Trust | ||
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||
| By | /s/ Terry Haught | |
| Its | Trustee | |
| 4 |
Exhibit 10.2
CONVERTIBLE PROMISSORY NOTE
| Amount: US $ 60,000 | Date: May 21, 2013 |
FOR VALUE RECEIVED, American Sands Energy Corp. (the “Debtor” or “Company”), hereby promises to pay in lawful money of the United States to the order of Philip Edward Swindells Trust, or its successors or assigns (“Lender”) at such place as the holder hereof may from time to time designate in writing, the principal sum of Sixty Thousand Dollars ($60,000), together with interest on the unpaid principal balance hereof from the date hereof until paid in full.
| 1. | PAYMENTS OF PRINCIPAL AND INTEREST. |
Unless converted as provided below, Debtor will pay this Note in full, together with interest, on the earlier of June 30, 2014 (“Due Date”), together with all accrued and unpaid interest. This Note shall bear interest at the rate of six percent (6%) per annum. Debtor will pay Lender at such place as Lender may designate in writing. Unless otherwise agreed or required by applicable law, payments will be applied first to interest and then to principal.
| 2. | EVENT OF DEFAULT. |
The occurrence of the following shall be deemed to be an event of default (an “Event of Default”) hereunder: (a) Company fails to convert this Note, as provided below, or fails to pay when due any sums payable hereunder; (b) Company files a voluntary petition in bankruptcy or a petition or answer seeking liquidation, reorganization or an arrangement with its creditors; (c) Company applies for, or consents to, the appointment of a receiver, trustee or liquidator, admits in writing its inability to pay its debts or makes a general assignment for the benefit of its creditors; (d) Company defaults in the performance under any term, covenant, condition, or obligation contained herein; (e) Company fails to perform any other obligation under this Note, or (f) the representations of the Company under this Note prove to be untrue.
| 3. | ACCELERATION AND LATE CHARGE. |
3.1 Upon the occurrence of an Event of Default and without further notice to Debtor, all unpaid principal, plus all accrued interest and other amounts due hereunder, shall become immediately due and payable.
3.2 Any amount which is not paid when due hereunder shall thereafter, in addition to the other amounts payable hereunder by reason thereof, bear interest at a rate equal to twelve percent (12%) per annum (or such lesser rate as is the maximum rate permitted by applicable laws) commencing the date fifteen (15) days after the due date until paid.
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| 4. | ATTORNEYS FEES. |
Should suit be brought to enforce, interpret or collect any part of this Note, the Lender shall be entitled to recover, as an element of the costs of suit and not as damages, reasonable attorneys’ fees and all other costs of enforcement and collection.
| 5. | CONVERSION. |
5.1 Conversion Right. The Lender shall convert this Note in connection with an equity or debt financing of $2 million or more (“Bridge Financing”). Lender shall convert all, but not less than all, of the principal amount of the Note and accrued interest thereon (the “Note Value”) into (a) the number of shares of common or preferred stock or (b) the debt instruments (collectively referred to as the “Conversion Securities”) of the Company equal to (a) in the case of common or preferred shares, the Note Value divided by the price of a common or preferred shares in the Bridge Financing (subject to adjustment as provided in the Notes) or (b) in the case of a debt offering, an amount equal to the outstanding balance of the Note due hereunder. In either case, the Conversion Securities shall be of the same class and/or series, and shall entitle the Lender to the same rights and privileges, as the equity or debt issued in the Bridge Financing.
5.2 No Fractional Shares. No fractional shares of the Company’s Common Stock will be issued upon conversion of this Note. In lieu of any fractional share to which the Lender would otherwise be entitled upon conversion of this Note, the Company shall round such share up to a whole share.
5.3 Mechanics and Effect of Conversion. Upon conversion, the Lender shall (a) surrender this Note, duly endorsed, at the principal offices of the Company, and (b) execute a subscription agreement and all other documents required to executed by other investors in such financing round ( the “Subscription Agreement”) with typical investor representations, including representations required to establish Lender’s status, or any assign, as an “Accredited Investor,” as defined in Rule 501 of Regulation D promulgated pursuant to the 1933 Act. At its expense, the Company will, as soon as practicable thereafter, and in any event within thirty (30) business days thereafter, issue and deliver to Lender, the type of Conversion Securities into which this Note converts which Lender is entitled to receive upon such conversion (bearing the securities legend set forth on this Note and any other legends that may be required by applicable state or federal securities law in the opinion of legal counsel for Company), together with any other securities or property to which the Lender is entitled upon such conversion under the terms of this Note, including a check payable to the order of the Lender for any cash amounts payable as provided above as a result of the conversion of this Note into a fractional share of Equity Stock. Upon full conversion of the entire unpaid balance of this Note, the Company will be released from all its obligations and liabilities under this Note.
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5.4 When Conversion Effected. A conversion of the unpaid balance of this Note shall be deemed to have been effected immediately prior to the close of business on the business day on which the Note and the Subscription Agreement are surrendered to the Company as provided above, and at such time, the person in whose name such Conversion Securities are issued as provided herein shall be deemed to be the record holder of such securities as of such date for all purposes.
6. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its Articles of Incorporation or bylaws or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Note, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of the Lender against dilution or other impairment. Without limiting the generality of the foregoing, the Company (a) will not increase the par value of any shares of stock receivable on the exercise of this Note above the amount payable therefor on such exercise, (b) will at all times reserve and keep available a number of its authorized shares of Equity Stock or such other securities as may be issuable on conversion of this Note (and on the conversion or exercise of such other securities), free from all preemptive rights thereon, which will be sufficient to permit the full conversion of this Note, and (c) shall take all such action as may be necessary or appropriate in order that said shares of Equity Stock (or such other securities) that may be issued pursuant to the conversion of this Note will, upon issuance, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof.
7. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents and warrants to Lender that:
7.1 Authorization. All corporate action on the part of the Company, its officers, directors and shareholders necessary for the authorization, execution and delivery of this Note, the performance of all obligations of the Company hereunder, and the authorization, issuance (or reservation for issuance) and delivery of the shares to be issued upon conversion of the Note has been taken.
7.2 Valid Issuance of Stock. The Equity Stock, when issued, sold and delivered in accordance with terms of this Note, will be duly and validly issued, fully paid and nonassessable.
8. SENIOR NOTE. This Note will be senior to all outstanding obligations of the Company.
9. LOSS OR MUTILATION. On receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note and, in the case of any such loss, theft or destruction of this Note, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of such Note, the Company at its expense will execute and deliver, in lieu thereof, a new Note of like tenor.
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10. NO RIGHTS OR LIABILITY AS A STOCKHOLDER. This Note does not by itself entitle the Lender to any voting rights or other rights as a stockholder of the Company. In the absence of affirmative action by the Lender to purchase Equity Stock by conversion of this Note, no provisions hereof, and no enumeration herein of the rights or privileges of the Lender shall cause the Lender to be a stockholder of the Company.
11. NOTICES. All notices referred to in this Note shall be in writing and shall be deliverable personally or by certified or registered mail, return receipt requested, postage prepaid and will be deemed, to have been given when so delivered or mailed (i) to the Company, at its principal executive offices and (ii) to the Lender, at such address as appears in the records of the Company (unless otherwise indicated by Lender).
In Witness Whereof, the Company has executed this Note as of the date first above written.
| American Sands Energy Corp. | ||
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| By | /s/ William C. Gibbs | |
| Its | Chief Executive Officer | |
Philip Edward Swindells Trust |
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||
| By | /s/ Terry Haught | |
| Its | Trustee | |
| 4 |
Exhibit 10.3
CONVERTIBLE PROMISSORY NOTE
| Amount: US $ 50,000 | Date: May 21, 2013 |
FOR VALUE RECEIVED, American Sands Energy Corp. (the “Debtor” or “Company”), hereby promises to pay in lawful money of the United States to the order of William Evans Swindells Trust, or its successors or assigns (“Lender”) at such place as the holder hereof may from time to time designate in writing, the principal sum of Fifty Thousand Dollars ($50,000), together with interest on the unpaid principal balance hereof from the date hereof until paid in full.
| 1. | PAYMENTS OF PRINCIPAL AND INTEREST. |
Unless converted as provided below, Debtor will pay this Note in full, together with interest, on the earlier of June 30, 2014 (“Due Date”), together with all accrued and unpaid interest. This Note shall bear interest at the rate of six percent (6%) per annum. Debtor will pay Lender at such place as Lender may designate in writing. Unless otherwise agreed or required by applicable law, payments will be applied first to interest and then to principal.
| 2. | EVENT OF DEFAULT. |
The occurrence of the following shall be deemed to be an event of default (an “Event of Default”) hereunder: (a) Company fails to convert this Note, as provided below, or fails to pay when due any sums payable hereunder; (b) Company files a voluntary petition in bankruptcy or a petition or answer seeking liquidation, reorganization or an arrangement with its creditors; (c) Company applies for, or consents to, the appointment of a receiver, trustee or liquidator, admits in writing its inability to pay its debts or makes a general assignment for the benefit of its creditors; (d) Company defaults in the performance under any term, covenant, condition, or obligation contained herein; (e) Company fails to perform any other obligation under this Note, or (f) the representations of the Company under this Note prove to be untrue.
| 3. | ACCELERATION AND LATE CHARGE. |
3.1 Upon the occurrence of an Event of Default and without further notice to Debtor, all unpaid principal, plus all accrued interest and other amounts due hereunder, shall become immediately due and payable.
3.2 Any amount which is not paid when due hereunder shall thereafter, in addition to the other amounts payable hereunder by reason thereof, bear interest at a rate equal to twelve percent (12%) per annum (or such lesser rate as is the maximum rate permitted by applicable laws) commencing the date fifteen (15) days after the due date until paid.
| 1 |
| 4. | ATTORNEYS FEES. |
Should suit be brought to enforce, interpret or collect any part of this Note, the Lender shall be entitled to recover, as an element of the costs of suit and not as damages, reasonable attorneys’ fees and all other costs of enforcement and collection.
| 5. | CONVERSION. |
5.1 Conversion Right. The Lender shall convert this Note in connection with an equity or debt financing of $2 million or more (“Bridge Financing”). Lender shall convert all, but not less than all, of the principal amount of the Note and accrued interest thereon (the “Note Value”) into (a) the number of shares of common or preferred stock or (b) the debt instruments (collectively referred to as the “Conversion Securities”) of the Company equal to (a) in the case of common or preferred shares, the Note Value divided by the price of a common or preferred shares in the Bridge Financing (subject to adjustment as provided in the Notes) or (b) in the case of a debt offering, an amount equal to the outstanding balance of the Note due hereunder. In either case, the Conversion Securities shall be of the same class and/or series, and shall entitle the Lender to the same rights and privileges, as the equity or debt issued in the Bridge Financing.
5.2 No Fractional Shares. No fractional shares of the Company’s Common Stock will be issued upon conversion of this Note. In lieu of any fractional share to which the Lender would otherwise be entitled upon conversion of this Note, the Company shall round such share up to a whole share.
5.3 Mechanics and Effect of Conversion. Upon conversion, the Lender shall (a) surrender this Note, duly endorsed, at the principal offices of the Company, and (b) execute a subscription agreement and all other documents required to executed by other investors in such financing round ( the “Subscription Agreement”) with typical investor representations, including representations required to establish Lender’s status, or any assign, as an “Accredited Investor,” as defined in Rule 501 of Regulation D promulgated pursuant to the 1933 Act. At its expense, the Company will, as soon as practicable thereafter, and in any event within thirty (30) business days thereafter, issue and deliver to Lender, the type of Conversion Securities into which this Note converts which Lender is entitled to receive upon such conversion (bearing the securities legend set forth on this Note and any other legends that may be required by applicable state or federal securities law in the opinion of legal counsel for Company), together with any other securities or property to which the Lender is entitled upon such conversion under the terms of this Note, including a check payable to the order of the Lender for any cash amounts payable as provided above as a result of the conversion of this Note into a fractional share of Equity Stock. Upon full conversion of the entire unpaid balance of this Note, the Company will be released from all its obligations and liabilities under this Note.
5.4 When Conversion Effected. A conversion of the unpaid balance of this Note shall be deemed to have been effected immediately prior to the close of business on the business day on which the Note and the Subscription Agreement are surrendered to the Company as provided above, and at such time, the person in whose name such Conversion Securities are issued as provided herein shall be deemed to be the record holder of such securities as of such date for all purposes.
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6. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its Articles of Incorporation or bylaws or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Note, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of the Lender against dilution or other impairment. Without limiting the generality of the foregoing, the Company (a) will not increase the par value of any shares of stock receivable on the exercise of this Note above the amount payable therefor on such exercise, (b) will at all times reserve and keep available a number of its authorized shares of Equity Stock or such other securities as may be issuable on conversion of this Note (and on the conversion or exercise of such other securities), free from all preemptive rights thereon, which will be sufficient to permit the full conversion of this Note, and (c) shall take all such action as may be necessary or appropriate in order that said shares of Equity Stock (or such other securities) that may be issued pursuant to the conversion of this Note will, upon issuance, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof.
7. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents and warrants to Lender that:
7.1 Authorization. All corporate action on the part of the Company, its officers, directors and shareholders necessary for the authorization, execution and delivery of this Note, the performance of all obligations of the Company hereunder, and the authorization, issuance (or reservation for issuance) and delivery of the shares to be issued upon conversion of the Note has been taken.
7.2 Valid Issuance of Stock. The Equity Stock, when issued, sold and delivered in accordance with terms of this Note, will be duly and validly issued, fully paid and nonassessable.
8. SENIOR NOTE. This Note will be senior to all outstanding obligations of the Company.
9. LOSS OR MUTILATION. On receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note and, in the case of any such loss, theft or destruction of this Note, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of such Note, the Company at its expense will execute and deliver, in lieu thereof, a new Note of like tenor.
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10. NO RIGHTS OR LIABILITY AS A STOCKHOLDER. This Note does not by itself entitle the Lender to any voting rights or other rights as a stockholder of the Company. In the absence of affirmative action by the Lender to purchase Equity Stock by conversion of this Note, no provisions hereof, and no enumeration herein of the rights or privileges of the Lender shall cause the Lender to be a stockholder of the Company.
11. NOTICES. All notices referred to in this Note shall be in writing and shall be deliverable personally or by certified or registered mail, return receipt requested, postage prepaid and will be deemed, to have been given when so delivered or mailed (i) to the Company, at its principal executive offices and (ii) to the Lender, at such address as appears in the records of the Company (unless otherwise indicated by Lender).
In Witness Whereof, the Company has executed this Note as of the date first above written.
| American Sands Energy Corp. | ||
|
|
||
| By | /s/ William C. Gibbs | |
| Its | Chief Executive Officer | |
| William Evans Swindells Trust | ||
|
|
||
| By | /s/ Terry Haught | |
| Its | Trustee | |
| 4 |
Exhibit 10.4
SENIOR CONVERTIBLE PROMISSORY NOTE
| Amount: US $74,000 | Date: January 30, 2013 |
FOR VALUE RECEIVED, American Sands Energy Corp. (the “Debtor” or “Company”), hereby promises to pay in lawful money of the United States to the order of C-14 Strategies LLC, or its successors or assigns (“Lender”) at such place as the holder hereof may from time to time designate in writing, the principal sum of Seventy Four Thousand Dollars ($74,000), together with interest on the unpaid principal balance hereof from the date hereof until paid in full.
| 1. | PAYMENTS OF PRINCIPAL AND INTEREST. |
Unless converted as provided below, Debtor will pay this Note in full, together with interest, on the earlier of June 30, 2014 (“Due Date”), together with all accrued and unpaid interest. This Note shall bear interest at the rate of six percent (6%) per annum. Debtor will pay Lender at such place as Lender may designate in writing. Unless otherwise agreed or required by applicable law, payments will be applied first to interest and then to principal.
| 2. | EVENT OF DEFAULT. |
The occurrence of the following shall be deemed to be an event of default (an “Event of Default”) hereunder: (a) Company fails to convert this Note, as provided below, or fails to pay when due any sums payable hereunder; (b) Company files a voluntary petition in bankruptcy or a petition or answer seeking liquidation, reorganization or an arrangement with its creditors; (c) Company applies for, or consents to, the appointment of a receiver, trustee or liquidator, admits in writing its inability to pay its debts or makes a general assignment for the benefit of its creditors; (d) Company defaults in the performance under any term, covenant, condition, or obligation contained herein; (e) Company fails to perform any other obligation under this Note, or (f) the representations of the Company under this Note prove to be untrue.
| 3. | ACCELERATION AND LATE CHARGE. |
3.1 Upon the occurrence of an Event of Default and without further notice to Debtor, all unpaid principal, plus all accrued interest and other amounts due hereunder, shall become immediately due and payable.
3.2 Any amount which is not paid when due hereunder shall thereafter, in addition to the other amounts payable hereunder by reason thereof, bear interest at a rate equal to twelve percent (12%) per annum (or such lesser rate as is the maximum rate permitted by applicable laws) commencing the date fifteen (15) days after the due date until paid.
| 1 |
| 4. | ATTORNEYS FEES. |
Should suit be brought to enforce, interpret or collect any part of this Note, the Lender shall be entitled to recover, as an element of the costs of suit and not as damages, reasonable attorneys’ fees and all other costs of enforcement and collection.
| 5. | CONVERSION. |
5.1 Conversion Right. The Lender shall convert this Note in connection with an equity or debt financing of $2 million or more (“Bridge Financing”). Lender shall convert all, but not less than all, of the principal amount of the Note and accrued interest thereon (the “Note Value”) into (a) the number of shares of common or preferred stock or (b) the debt instruments (collectively referred to as the “Conversion Securities”) of the Company equal to (a) in the case of common or preferred shares, the Note Value divided by the price of a common or preferred shares in the Bridge Financing (subject to adjustment as provided in the Notes) or (b) in the case of a debt offering, an amount equal to the outstanding balance of the Note due hereunder. In either case, the Conversion Securities shall be of the same class and/or series, and shall entitle the Lender to the same rights and privileges, as the equity or debt issued in the Bridge Financing.
5.2 No Fractional Shares. No fractional shares of the Company’s Common Stock will be issued upon conversion of this Note. In lieu of any fractional share to which the Lender would otherwise be entitled upon conversion of this Note, the Company shall round such share up to a whole share.
5.3 Mechanics and Effect of Conversion. Upon conversion, the Lender shall (a) surrender this Note, duly endorsed, at the principal offices of the Company, and (b) execute a subscription agreement and all other documents required to executed by other investors in such financing round ( the “Subscription Agreement”) with typical investor representations, including representations required to establish Lender’s status, or any assign, as an “Accredited Investor,” as defined in Rule 501 of Regulation D promulgated pursuant to the 1933 Act. At its expense, the Company will, as soon as practicable thereafter, and in any event within thirty (30) business days thereafter, issue and deliver to Lender, the type of Conversion Securities into which this Note converts which Lender is entitled to receive upon such conversion (bearing the securities legend set forth on this Note and any other legends that may be required by applicable state or federal securities law in the opinion of legal counsel for Company), together with any other securities or property to which the Lender is entitled upon such conversion under the terms of this Note, including a check payable to the order of the Lender for any cash amounts payable as provided above as a result of the conversion of this Note into a fractional share of Equity Stock. Upon full conversion of the entire unpaid balance of this Note, the Company will be released from all its obligations and liabilities under this Note.
| 2 |
5.4 When Conversion Effected. A conversion of the unpaid balance of this Note shall be deemed to have been effected immediately prior to the close of business on the business day on which the Note and the Subscription Agreement are surrendered to the Company as provided above, and at such time, the person in whose name such Conversion Securities are issued as provided herein shall be deemed to be the record holder of such securities as of such date for all purposes.
6. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its Articles of Incorporation or bylaws or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Note, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of the Lender against dilution or other impairment. Without limiting the generality of the foregoing, the Company (a) will not increase the par value of any shares of stock receivable on the exercise of this Note above the amount payable therefor on such exercise, (b) will at all times reserve and keep available a number of its authorized shares of Equity Stock or such other securities as may be issuable on conversion of this Note (and on the conversion or exercise of such other securities), free from all preemptive rights thereon, which will be sufficient to permit the full conversion of this Note, and (c) shall take all such action as may be necessary or appropriate in order that said shares of Equity Stock (or such other securities) that may be issued pursuant to the conversion of this Note will, upon issuance, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof.
7. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents and warrants to Lender that:
7.1 Authorization. All corporate action on the part of the Company, its officers, directors and shareholders necessary for the authorization, execution and delivery of this Note, the performance of all obligations of the Company hereunder, and the authorization, issuance (or reservation for issuance) and delivery of the shares to be issued upon conversion of the Note has been taken.
7.2 Valid Issuance of Stock. The Equity Stock, when issued, sold and delivered in accordance with terms of this Note, will be duly and validly issued, fully paid and nonassessable.
8. SENIOR NOTE. This Note will be senior to all outstanding obligations of the Company.
9. LOSS OR MUTILATION. On receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note and, in the case of any such loss, theft or destruction of this Note, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of such Note, the Company at its expense will execute and deliver, in lieu thereof, a new Note of like tenor.
| 3 |
10. NO RIGHTS OR LIABILITY AS A STOCKHOLDER. This Note does not by itself entitle the Lender to any voting rights or other rights as a stockholder of the Company. In the absence of affirmative action by the Lender to purchase Equity Stock by conversion of this Note, no provisions hereof, and no enumeration herein of the rights or privileges of the Lender shall cause the Lender to be a stockholder of the Company.
11. NOTICES. All notices referred to in this Note shall be in writing and shall be deliverable personally or by certified or registered mail, return receipt requested, postage prepaid and will be deemed, to have been given when so delivered or mailed (i) to the Company, at its principal executive offices and (ii) to the Lender, at such address as appears in the records of the Company (unless otherwise indicated by Lender).
In Witness Whereof, the Company has executed this Note as of the date first above written.
| American Sands Energy Corp. | ||
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| By | /s/ William C. Gibbs | |
| Its | Chief Executive Officer | |
| C-14 Strategies LLC | ||
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| By | /s/ Andrew Rosenfeld | |
| Its | Trustee | |
| 4 |
Exhibit 31.1
Certifications
I, William C. Gibbs, certify that:
1. I have reviewed this Form 10-Q quarterly report of American Sands Energy Corp. for the quarter ended June 30, 2013;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date:August 19, 2013
/s/ William C. Gibbs
William C. Gibbs, Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
Certifications
I, Daniel F. Carlson, certify that:
1. I have reviewed this Form 10-Q quarterly report of American Sands Energy Corp. for the quarter ended June 30, 2013;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 19, 2013
/s/ Daniel F. Carlson
Daniel F. Carlson, Chief Financial Officer
(Principal Financial Officer)
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of American Sands Energy Corp. (the “Company”) on Form 10-Q for the quarter ended June 30, 2013, as filed with the Securities and Exchange Commission (the “Report”), the undersigned principal executive officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: August 19, 2013
/s/ William C. Gibbs
William C. Gibbs, Chief Executive Officer
(Principal Executive Officer)
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of American Sands Energy Corp. (the “Company”) on Form 10-Q for the quarter ended June 30, 2013, as filed with the Securities and Exchange Commission (the “Report”), the undersigned principal financial officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: August 19, 2013
/s/ Daniel F. Carlson
Daniel F. Carlson, Chief Financial Officer
(Principal Financial Officer)
|
12. Subsequent Events
|
3 Months Ended |
|---|---|
|
Jun. 30, 2013
|
|
| Commitments and Contingencies Disclosure [Abstract] | |
| Note 12 - Subsequent Events | On July 1, 2013, the Company entered into a consulting contact with Great Bear, LLC (“Great Bear”) to provide corporate advisory and marketing services to the Company. The contract calls for the Company to issue Great Bear 100,000 shares of restricted common stock as consideration for the services to be provided and to pay a one-time $5,000 fee upon completion of an offering of at least $2,000,000. The term of the agreement is for one year.
Effective July 11, 2013, the Company entered into a financial advisory agreement with Merriman Capital, Inc. ("Merriman"), a wholly owned subsidiary of Merriman Holdings, Inc. (OTCQX: MERR). The Agreement is for a 12 month period and the Company has agreed to issue to Merriman 300,000 shares of restricted common stock in consideration of its services. Under the Agreement, Merriman will advise the Company on strategic initiatives to increase shareholder value, analyze the Company’s operating projections and market conditions and provide the Company with recommendations for the proper positioning of the Company with potential investors. Merriman will also assist the Company in raising its next round of capital. The Company has agreed that Merriman will have unlimited "piggyback" registration rights for a period of three years after the issuance of the shares at the Company's expense (provided that such rights shall not apply to a public offering of the Company’s common stock upon any underwriter’s reasonable assertion in writing that the inclusion of such stock in a public offering would materially impair the marketability of such public offering).
In conjunction with the proposed fund raising by Merriman, Hidden Peak Partners LLC has agreed to subordinate any debt owed to Hidden Peak by the Company to any future debt financing by the Company. Hidden Peak has also agreed in principal to convert its 5% Convertible Promissory Note dated January 24, 2012, into restricted common shares of the Company pursuant to the terms of such Note, subject to satisfactory tax analysis that no federal or state income tax would be triggered on conversion of such note.
Neither the shares proposed to be issued to Merriman nor to Hidden Peak have been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.
Effective July 11, 2013, the Company issued each of its nonexecutive directors options to purchase 125,000 shares of common stock pursuant to the Company’s 2011 Plan. The exercise price of the options will be $0.35 and the options expire five years from the date of grant and vest 1/3 on the date of grant, 1/3 on the first anniversary date and 1/3 on the 2nd anniversary date.
On July 11, 2013, the Company issued to its Chief Operating Officer an option to purchase 185,000 shares of the Company’s common stock pursuant to the Company’s 2011 Plan. The exercise price of the options will be $0.35 and the options expire five years from the date of grant and vest 1/3 on the date of grant, 1/3 on the first anniversary date and 1/3 on the 2nd anniversary date. |
|
Condesed Consolidated Statements of Operations (Unaudited) (USD $)
|
3 Months Ended | 94 Months Ended | |
|---|---|---|---|
|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2013
|
|
| Income Statement [Abstract] | |||
| Revenues | |||
| Operating expenses: | |||
| Selling, general and administrative | 237,615 | 508,148 | 8,399,217 |
| Mineral lease | 53,135 | 53,261 | 1,587,360 |
| Research and development | 49,042 | 79,909 | 705,856 |
| Total operating expenses | 339,792 | 641,318 | 10,692,433 |
| Loss from operations | (339,792) | (641,318) | (10,692,433) |
| Other income (expense): | |||
| Interest expense | (143,085) | (139,208) | (1,209,200) |
| Interest income | 22,985 | ||
| Other income (expense) | 198,000 | ||
| Total other income (expense) | (143,085) | (139,208) | (988,215) |
| Loss before provision for income taxes | (482,877) | (780,526) | (11,680,648) |
| Provision for income taxes | (200) | (1,281) | |
| Net loss | $ (483,077) | $ (780,526) | $ (11,681,929) |
| Net loss per common share - basic and diluted | $ (0.02) | $ (0.03) | |
| Weighted average common shares outstanding - basic and diluted | 28,990,715 | 28,476,522 | |
|
5. Mineral Leases
|
3 Months Ended | ||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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Jun. 30, 2013
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| Mineral Leases | |||||||||||||||||||||||||||||||
| Note 5 - Mineral Leases | During 2005, the Company acquired three oil sands mineral leases: (1) an undivided 40% interest in an 1,120-acre parcel, (2) an undivided 20% interest in the same 1,120-acre parcel, and (3) an undivided 16.666% interest in a 640-acre parcel. These leases are located in Carbon County, Utah, have a 6-year life, and require minimum yearly lease payments totaling $224,597. Effective March 31, 2013, the lease terms were extended through 2016 and the annual lease payments increased to $268,915.
In 2009, a fourth lease was entered into with William G. Gibbs, a relative of the Chief Executive Officer of the Company, for an additional undivided 5% interest in the 640-acre parcel (for a total 21.666% undivided interest in the 640-acre parcel). This lease is located in Carbon County, Utah, adjacent to the 1,120-acre parcel. This lease has a 6-year life with a minimum yearly lease payment of $7,965 and is scheduled to terminate by October 2015 if the property has not reached commercial production. Effective March 31, 2013, the payment due date for this lease was extended to July 31, 2013 from January 1, 2013. Effective, July 31, 2013, the lease payment was extended again until September 30, 2013.
The Company’s interest in these leases is conditioned upon the payments of royalties, minimum yearly investment in development, tax payments, and other obligations to the owners of the leases.
Upon commencement of operations, each lease requires a production royalty of 10% of the market value of the minerals sold, net of applicable costs and expenses. The Company has the right, but not the obligation, to pool or unitize the leases, such that the ore mined is allocated between, and the royalties paid, on their proportionate interests. If not pooled, the owners will be paid royalties only to the extent the oil sand ore is mined on their respective property. Through June 30, 2013, no production royalties were accrued or paid because production on these properties had not commenced. After three consecutive calendar years of production on the 1,120-acre parcel, the production royalty on the 1,120-acre parcel shall be the greater of the 10% royalty or $1,000,000 annually.
Future minimum lease payments are as follows for the years ending:
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|
3. Going Concern (Details Narrative) (USD $)
|
3 Months Ended | 94 Months Ended | ||
|---|---|---|---|---|
|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2013
|
Mar. 31, 2013
|
|
| Going Concern | ||||
| Net loss | $ 483,077 | $ 780,526 | $ 11,681,929 | |
| Accumulated deficit | 11,681,929 | 11,681,929 | 11,198,852 | |
| Capital required to commence its principal operations | $ 60,000,000 | $ 60,000,000 | ||
|
2. Significant Accounting Policies (Policies)
|
3 Months Ended |
|---|---|
|
Jun. 30, 2013
|
|
| Accounting Policies [Abstract] | |
| Principles of Consolidation | The condensed consolidated financial statements include the consolidated operations of GRC through June 3, 2011, the consolidated operations of GRC and ASEC from June 3, 2011 through the GRC dissolution on December 31, 2011 and the consolidated operations of ASEC and GRI through June 30, 2013. All significant intercompany balances and transactions have been eliminated in consolidation. |
| Mineral Leases | In certain cases, the Company capitalizes costs related to investments in mineral lease interests on a property-by-property basis. Such costs include mineral lease acquisition costs. Costs are deferred until such time as the extent of proved developed reserves has been determined and mineral lease interests are either developed, the property sold or the mineral lease rights are allowed to lapse. To date, all exploration and lease costs have been expensed. |
| Research and Development | The Company continues to develop additional technology related to its licensed proprietary bitumen extraction process. To date, the Company has expensed costs associated with developing its technology as research and development expenses. For the three months ended June 30, 2013 and 2012, the Company incurred costs of $49,042 and $79,909, respectively, for research and development of its technology. |
| Stock-based Compensation | The Company uses the Black-Scholes option-pricing model to determine the fair value of stock options and warrants granted. For employee stock options, the Company records the grant-date fair value as expense over the period in which it is earned, typically the vesting period. For consultants, the fair value of the stock-based award is recorded as expense over the term of the service period, and unvested amounts are revalued using the Black-Scholes model at each reporting period. For warrants issued to lenders, the Company records the grant-date fair value of the warrants, and any resulting beneficial conversion feature for convertible debt, as a note discount. The discount is then amortized over the term of the convertible debt as non-cash interest expense. |
| Earnings or Loss Per Common Share | Basic earnings or loss per common share is computed on the basis of the weighted average number of shares outstanding during the periods. Diluted earnings or loss per common share is calculated on the basis of the weighted average number of common shares outstanding during the period plus the effect of potential dilutive shares during the period. Potential dilutive shares include outstanding stock options and warrants and convertible debt instruments. For periods in which a net loss is reported, potential dilutive shares are excluded because they are antidilutive. Therefore, basic loss per common share is the same as diluted loss per common share for the three months ended June 30, 2013 and 2012. |
| Recent Accounting Pronouncements | In July 2012, the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2012-02, Intangibles-Goodwill and Other (Topic350): Testing Indefinite-Lived Intangible Assets for Impairment. This ASU permits an entity the option to first assess qualitative factors to determine whether it is more-likely-than-not that an indefinite-lived intangible asset is impaired. If the qualitative assessment supports the conclusion that it is more-likely-than-not that the fair value of the asset exceeds its carrying amount, the entity would not need to perform the two-step quantitative impairment test. The focus of the guidance is to reduce the cost and complexity of performing impairment tests for indefinite-lived intangible assets other than goodwill, and to improve consistency in impairment testing among long-lived asset categories. This ASU is effective for annual and interim impairment tests performed prior to the issuance of the final ASU, if an entity’s financial statements for the most recent annual or interim period have not yet been issued. This ASU did not have a material impact on the Company’s consolidated financial statements.
In October 2012, the FASB issued ASU 2012-04, Technical Corrections and Improvements. The amendments in this update cover a wide range of Topics in the ASC. These amendments include technical corrections and improvements to the ASC and conforming amendments related to fair value measurements. The amendments in this update were effective for fiscal periods beginning after December 15, 2012. The adoption of ASU 2012-04 did not have a material impact on the Company’s consolidated financial statements. |
|
6. Convertible Notes Payable (Details) (Warrant [Member])
|
3 Months Ended |
|---|---|
|
Jun. 30, 2013
|
|
|
Warrant [Member]
|
|
| Dividend yield | |
| Weighted average volatility | 158.34% |
| Risk-free interest rate | 0.99% |
| Expected life (years) | 2 years 9 months 15 days |
|
5. Mineral Leases (Details) (USD $)
|
Jun. 30, 2013
|
|---|---|
| Mineral Leases | |
| 2014 | $ 284,845 |
| 2015 | 276,880 |
| 2016 | 268,915 |
| Total future minimum lease payments | $ 830,640 |
|
10. Stock Option Plan (Details 2) (USD $)
|
Jun. 30, 2013
|
Jun. 30, 2012
|
|---|---|---|
| Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||
| Intrinsic value - options outstanding | $ 503,875 | $ 2,409,375 |
| Intrinsic value - options exercisable | 474,250 | 2,339,063 |
| Intrinsic value - options exercised |
|
9. Warrants (Details Narrative)
|
Jun. 30, 2013
|
Mar. 31, 2013
|
|---|---|---|
|
Convertible Debt Warrants [Member]
|
||
| Warrant outstanding | 3,038,667 | 3,038,667 |
|
Private Placement Warrants [Member]
|
||
| Warrant outstanding | 272,402 | 272,402 |
|
4. Accrued Expenses (Details) (USD $)
|
Jun. 30, 2013
|
Mar. 31, 2013
|
|---|---|---|
| Payables and Accruals [Abstract] | ||
| Payroll and benefits | $ 1,341,489 | $ 1,284,995 |
| Deferred research and development billings | 178,931 | |
| Mineral lease payable | 53,539 | 89,180 |
| Other | 200 | |
| Total accrued expenses | $ 1,395,228 | $ 1,553,106 |
|
1. Description of Business and Nature of Operations
|
3 Months Ended |
|---|---|
|
Jun. 30, 2013
|
|
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| Note 1 - Description of Business and Nature of Operations | Green River Resources Corp. (an Alberta, Canada corporation) (“GRC”), formed on December 1, 2004, and its wholly owned subsidiary, Green River Resources, Inc. (a Utah corporation) (“GRI”), formed on February 16, 2005, were formed for the purpose of extracting oil from oil sands, oil shale, and other similar types of naturally occurring hydrocarbons in a cost effective and environmentally safe manner. GRC completed a merger with American Sands Energy Corp. (formerly Millstream Ventures, Inc.) (“ASEC”), a publicly traded company, on June 3, 2011. The merger was accounted for as a reverse acquisition with GRC treated as the accounting acquirer.
On December 31, 2011, GRC, a wholly owned non-operating subsidiary of ASEC, was voluntarily dissolved under the Business Corporation Act of the Province of Alberta, Canada. As a result of the dissolution, ASEC assumed all of the outstanding stock of GRI which was the sole asset of GRC at the time of dissolution. References to the “Company” refer to GRC and its wholly owned subsidiary, GRI, prior to the reverse merger on June 3, 2011, and GRC, GRI, and ASEC (the legal parent) subsequent to the reverse merger transaction until December 31, 2011, and GRI and ASEC after December 31, 2011. The Company has not generated revenues from its principal operations and is a development stage company.
The Company has acquired rights to approximately 1,760 acres of prime oil sand deposits in the Sunnyside area of Utah. Prior to January 24, 2012, the Company had licensed proprietary extraction technology with Bleeding Rock, LLC (“Bleeding Rock”), which had an exclusive license to a bitumen and hydrocarbon extraction process to separate oil and other hydrocarbons from sand, dirt and other substances. Bleeding Rock is a significant stockholder of the Company and is 50% owned in combination among the Chief Executive Officer of the Company and two of his relatives.
Effective January 24, 2012, the Company entered into a License, Development and Engineering Agreement with Universal Oil Recovery Corp. and SRS International (the “License Agreement”) whereby the Company was granted an exclusive non-transferable license to use certain technology in its proposed business to extract bitumen from oil sands. The territory covered by the agreement includes the State of Utah and any other geographic location in which a future designated project is commenced by or through the Company. In conjunction with the License Agreement, the Company terminated its operating agreement with Bleeding Rock under which Bleeding Rock had licensed rights to use similar technology to GRI. The License Agreement also designates the Company as an “authorized agent” in representing the owner of the technology in future projects. The Chief Executive Officer, a director, and principal stockholder of the Company, is an owner and manager of Bleeding Rock.
The License Agreement requires the licensing parties to provide demonstration equipment for the process by which their proprietary solvent extracts bitumen from oil sands and to demonstrate the process on up to 150 tons of oil sands. The term of the License Agreement is for 20 years and thereafter so long as production of products using the technology is commercially and economically feasible. |
|
3. Going Concern
|
3 Months Ended |
|---|---|
|
Jun. 30, 2013
|
|
| Going Concern | |
| Note 3 - Going Concern | The Company’s financial statements have been prepared assuming the Company is a going concern which contemplates the realization of assets and the liquidation of liabilities in the ordinary course of business. The Company has incurred substantial losses from operations, has negative working capital, and has negative cash flows from operating activities, which raise substantial doubt about the Company’s ability to continue as a going concern. The Company sustained a net loss for the three months ended June 30, 2013 of $483,077 and has an accumulated deficit of $11,681,929 as of June 30, 2013. In addition, the Company estimates it will require approximately $60,000,000 in capital to commence its principal operations.
The Company intends to continue its research and development efforts, but does not have revenues from which to finance these activities internally. As a result, the Company intends to seek financing in order to fund its operations.
The Company has been able to meet its short-term needs primarily through loans from third parties, private placements of equity and debt securities, and deferring certain payment obligations to related parties. The Company is actively seeking additional private and public placements of equity securities. The Company plans to continue to obtain financing through the sale of equity or debt securities in order to finance operations until it can generate positive cash flows from operating activities. The private and public equity placements are expected to provide the needed funds for continued operations and further research and development of the Company’s proprietary oil sands refining methods. The Company can provide no assurance that it will be able to obtain sufficient additional financing needed to develop its technology and alleviate doubt about its ability to continue as a going concern. To the extent the Company raises additional funds by issuing equity securities, the Company’s stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact the Company’s ability to conduct business. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. |
|
6. Convertible Notes Payable
|
3 Months Ended | |||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Jun. 30, 2013
|
||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||
| Note 6 - Convertible Notes Payable | As a result of the reverse merger, the Company assumed convertible notes payable of $770,000 on June 3, 2011. In addition, the Company has issued $745,000 of convertible notes payable subsequent to the reverse merger. These notes were issued pursuant to a $1,750,000 private offering. As of June 30, 2013, there was $1,515,000 of convertible notes payable outstanding with accrued interest of $298,819. This offering was closed by the Company effective January 31, 2013.
The notes bear interest at 10% per annum and all principal and interest are due and payable by April 30, 2014. The notes and all accrued interest are convertible into the Company’s common stock at any time by the lender at approximately $0.50 per common share until the due date. The notes automatically convert upon completion of a financing of $10,000,000 or more.
In connection with the terms of the offering, holders of the notes also received 100,286 warrants for each $50,000 loaned to the Company. Through June 30, 2013, the Company granted 3,038,667 warrants in connection with this offering (see Note 9). The Company recorded a debt discount related to the warrants and resulting beneficial conversion feature of $873,589. The unamortized debt discount was $273,660 and $352,317 as of June 30, 2013 and March 31, 2013, respectively. For the warrants issued, the Company valued the warrant discount using the Black-Scholes pricing model with the following weighted average assumptions:
In June 2013, the Company borrowed a combined $150,000 from three individuals. The notes bear interest at 6%, are due by June 30, 2014 and are convertible into the Company’s common stock at the same rate as the Company completes a future offering of $2,000,000 or more. |
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4. Accrued Expenses
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3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
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| Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Note 4 - Accrued Expenses | Accrued expenses consist of the following:
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6. Convertible Notes Payable (Details Narrative) (USD $)
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3 Months Ended | |
|---|---|---|
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Jun. 30, 2013
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Mar. 31, 2013
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|
| Convertible notes payable outstanding | $ 1,515,000 | |
| Accrued interest on convertible notes payable | 298,819 | |
| Debt discount | 273,660 | 352,317 |
| Convertible notes interest rate | 6.00% | |
| Convertible notes maturity date | Jun. 30, 2014 | |
| Beneficial conversion feature | 873,589 | |
| Convertible Notes Payable borrowed | 1,684,208 | |
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Three Individuals [Member]
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| Convertible Notes Payable borrowed | $ 150,000 |
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10. Stock Option Plan (Details) (USD $)
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3 Months Ended |
|---|---|
|
Jun. 30, 2013
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| Number of Shares | |
| Stock option beginning balance | 3,662,500 |
| Stock option granted | |
| Stock option exercised | |
| Stock option canceled | |
| Stock option expired | |
| Stock option ending balance | 3,662,500 |
| Weighted Average Exercise Price | |
| Weighted average exercise price beginning balance | $ 0.49 |
| Weighted average exercise price granted | |
| Weighted average exercise price exercised | |
| Weighted average exercise price canceled | |
| Weighted average exercise price expired | |
| Weighted average exercise price ending balance | $ 0.49 |
| Weighted Average Remaining Life | |
| Weighted average remaining life (years) beginning balance | 4 years 10 months 10 days |
| Weighted average remaining life (years) ending balance | 4 years 7 months 10 days |