1. Organization and Principal Activities

3 Months Ended

Mar. 31, 2013

Notes to Financial Statements

1. Organization and Principal Activities

Organization and Description of Business

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

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

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

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

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

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

Restatement

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

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

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

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

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

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

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

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

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

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

(d) Reclassify 40% minority interest in subsidiary.

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