CLASSWORX INC - Quarter Report: 2013 September (Form 10-Q)

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less when acquired to be cash equivalents. The Company places its cash with a high credit quality financial institution. The Company’s account at this institution is insured by the Federal Deposit Insurance Corporation ("FDIC") up to $250,000. At September 30, 2013, the Company has not reached bank balances exceeding the FDIC insurance limit. To reduce its risk associated with the failure of such financial institution, the Company evaluates at least annually the rating of the financial institution in which it holds deposits.

Taxes receivable

Under Peruvian law, the Impuesto General a las Ventas (“IGV”) is a tax imposed at a rate of 18% of the value of any goods or services purchased. IGV is generally refundable within the year in which it is paid. Refund applications may only be made by companies that are trading within Peru and collecting IGV from customers, by exporters or by companies that have an agreement with the tax authority for the early collection of IGV. Taxes receivable amounted to $76,716 and $0 at September 30, 2013 and December 31, 2012, respectively.

Mineral property acquisition and exploration costs

Costs of lease, exploration, carrying and retaining unproven mineral lease properties are expensed as incurred. The Company expenses all mineral exploration costs as incurred as it is still in the exploration stage. If the Company identifies proven and probable reserves in its investigation of its properties and upon development of a plan for operating a mine, it would capitalize future costs until production is established. When a property reaches the production stage, the related capitalized costs are amortized using the units-of-production method over the estimated life of the proven and probable reserves. If in the future the Company has capitalized mineral properties, these properties will be periodically assessed for impairment. To date, the Company has not established the commercial feasibility of any exploration prospects; therefore, all costs are being expensed. ASC 930-805, “Extractive Activities-Mining: Business Combinations”, states that mineral rights consist of the legal right to explore, extract, and retain at least a portion of the benefits from mineral deposits. Mining assets include mineral rights. Acquired mineral rights are considered tangible assets under ASC 805. ASC 805 requires that mineral rights be recognized at fair value as of the acquisition date. As a result, the direct costs to acquire mineral rights are initially capitalized as tangible assets. Mineral rights include costs associated with acquiring patented and unpatented mining claims.

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

ASC 930-805-30-1 and 30-2 provides that in fair valuing mineral assets, an acquirer should take into account both:

Property and equipment

Property and equipment are carried at cost. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. Depreciation is calculated on a straight-line basis over the estimated useful life of the assets, generally two to eight years.

Impairment of long-lived assets

The Company accounts for the impairment or disposal of long-lived assets according to the ASC 360 “Property, Plant and Equipment”. The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of long-lived assets, including mineral rights, may not be recoverable. Long-lived assets in the exploration stage are monitored for impairment based on factors such as the Company's continued right to explore the area, exploration reports, assays, technical reports, drill results and the Company's continued plans to fund exploration programs on the property, and whether sufficient work has been performed to indicate that the carrying amount of the mineral property cost carried forward as an asset will not be fully recovered. The tests for long-lived assets in the exploration stage would be monitored for impairment based on factors such as current market value of the long-lived assets and results of exploration, future asset utilization, business climate, mineral prices and future undiscounted cash flows expected to result from the use of the related assets. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated future net undiscounted cash flows expected to be generated by the asset. When necessary, impaired assets are written down to estimated fair value based on the best information available. Estimated fair value is generally based on either appraised value or measured by discounting estimated future cash flows. Considerable management judgment is necessary to estimate discounted future cash flows. Accordingly, actual results could vary significantly from such estimates. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The Company did not record any impairment charges of its long-lived assets at September 30, 2013.

Foreign currency translation

The Company’s reporting currency is the U.S. dollar. The functional currency of the parent company and Inti Holdings is the U.S. dollar and the functional currency of the Company’s wholly owned subsidiary, Rae Wallace, is Peruvian Nuevo Sol (“PEN”), the official currency of Peru. Capital accounts of Rae Wallace are translated into United States dollars from PEN at their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated at the exchange rates as of the balance sheet dates. Income and expenditures are translated at the average exchange rates for the period from acquisition date to September 30, 2013.

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

A summary of the conversion rates for the periods presented is as follows:

Comprehensive Income (Loss)

Accounting Standards Update (“ASU”) No. 2011-05 amends Financial Accounting Standards Board (“FASB”) Codification Topic 220 on comprehensive income (1) to eliminate the current option to present the components of other comprehensive income (loss) in the statement of changes in equity, and (2) to require presentation of net income (loss) and other comprehensive income (and their respective components) either in a single continuous statement or in two separate but consecutive statements. These amendments do not alter any current recognition or measurement requirements in respect of items of other comprehensive income (loss). The amendments in this update are to be applied prospectively. For the Company, comprehensive loss for the nine months ended September 30, 2013 included net loss and foreign currency translation adjustments.

Fair Value of Financial Instruments and Fair Value Measurements

The Company adopted ASC 820, “Fair Value Measurements and Disclosures”, for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing US GAAP that require the use of fair value measurements which establishes a framework for measuring fair value and expands disclosure about such fair value measurements.

ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:

The carrying amounts reported in the balance sheet for prepaid expense and other current assets, accounts payable and accrued expenses approximate their estimated fair market value based on the short-term maturity of these instruments. The carrying amount of the note payable at September 30, 2013, approximate their respective fair value based on the Company’s incremental borrowing rate. The Company did not identify any other assets or liabilities that are required to be presented on the balance sheets at fair value in accordance with the accounting guidance.

In addition, ASC 825-10-25 “Fair Value Option” was effective for January 1, 2008.  ASC 825-10-25 expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value.

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Stock-based compensation

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the consolidated financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the non-employee’s service period.

Basic and Diluted Net Loss per Share

Net loss per common share is calculated in accordance with ASC Topic 260: Earnings Per Share. Basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted loss per share is computed by dividing net loss by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period.  The computation of diluted net loss per share does not include dilutive common stock equivalents in the weighted average shares outstanding as they would be anti-dilutive.  There were no dilutive financial instruments issued or outstanding for the nine months ended September 30, 2013 and 2012.

Income Taxes

The Company accounts for income taxes pursuant to the provision of ASC 740-10, “Accounting for Income Taxes” which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized.

The Company follows the provision of the ASC 740-10 related to Accounting for Uncertain Income Tax Position. When tax returns are filed, it is highly certain that some positions taken would be situated upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is most likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions.

Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.

Recent Accounting Pronouncements

In April 2013, the FASB ASU 2013-07, “Presentation of Financial Statements: Topic Liquidation Basis of Accounting”. ASU 2013-07 requires an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent. Liquidation is considered imminent when the likelihood is remote that the organization will return from liquidation and either: (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective and the likelihood is remote that the execution of the plan will be blocked by other parties; or (b) a plan for liquidation is being imposed by other forces. ASU 2013-07 will be effective for the Company beginning on January 1, 2014. The Company does not expect the adoption of ASU 2013-07 to have a material impact on its financial position, results of operations nor cash flows.

In July 2013, the FASB issued ASU 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists." ASU 2013-11 provides guidance on the presentation of unrecognized tax benefits related to any disallowed portion of net operating loss carryforwards, similar tax losses, or tax credit carryforwards, if they exist. ASU 2013-11 is effective for fiscal years beginning after December 15, 2013. The adoption of ASU 2013-11 is not expected to have a material impact on the Company’s consolidated financial statements.

There were other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

NOTE 2 - GOING CONCERN

The consolidated financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.  The Company has a stockholders’ deficit and accumulated deficit of approximately $509,000 and $535,000, respectively, as of September 30, 2013, negative cash flows from operating activities and net loss of approximately $277,000 and $399,000, respectively, for the nine months ended September 30, 2013. The Company anticipates further losses in the development of its business raising substantial doubt about the Company’s ability to continue as a going concern.  The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. The Company’s ability to raise additional capital through the future issuances of common stock is unknown. The obtainment of additional financing, the successful development of the Company’s contemplated plan of operations, and its transition, ultimately, to the attainment of profitable operations are necessary for the Company to continue operations. The ability to successfully resolve these factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.

NOTE 3 – NOTE RECEIVABLE

In January 2013, the Company was issued a note receivable of $10,000 by Rae Wallace (see Note 1). The note was non-interest bearing. The Borrower had the option of paying the principal sum to the Company in advance in full or in part at any time without premium or penalty. The principal was due on demand, which demand may be made by the Company at any time after March 1, 2013. In April 2013, contemporaneously with the closing of the acquisition of Rae Wallace, the Company collected the $10,000 note receivable.

NOTE 4 – ACQUISITION

On April 17, 2013 and effective April 3, 2013, through the Company’s wholly owned subsidiary, Inti Holdings, purchased 100% of the outstanding capital stock of Rae Wallace, pursuant to the terms of a Share Purchase Agreement by and among Inti Holdings, Rae Wallace and Rae-Wallace Mining Company and George Cole, the sole shareholders of Rae Wallace (see Note 1).  In consideration for the acquisition of Rae Wallace, Inti Holdings paid the Rae Wallace Shareholders an aggregate purchase price of $700,000. In addition to the purchase price, the Company paid other fees directly related to the acquisition such as legal fees of $15,265 and finder’s fees of $35,000 which adds to a total purchase price of $750,265. The Share Purchase Agreement is being accounted for as an acquisition of assets rather than a business pursuant to Financial Accounting Standards Board Accounting Standards Codification 805-50-30 “Business Combinations”.

The Company believes that Rae Wallace does not constitute a business. Rae Wallace has inputs (mineral rights) and does not have any processes and outputs. Rae Wallace does not have ongoing exploration and operational processes to explore, evaluate, develop and extract minerals. In addition, Rae Wallace has no employees working on exploration and development of the mineral properties. There are no environmental and production permits.  As a result, the Company concluded that Rae Wallace does not constitute a business.

Accordingly, assets acquired through a transaction that is not a business combination shall be measured based on the cash consideration paid plus either the fair value of the non-cash consideration given or the fair value of the assets acquired, whichever is more clearly evident.

The purchase price paid by the Company was allocated to assets acquired and liabilities assumed on the records of the Company as follows:

NOTE 5 – DISCONTINUED OPERATIONS

Following the acquisition pursuant to the Share Purchase Agreement (see Note 4), the Company decided to discontinue its marketing and sale of art business and intends to focus its efforts on mining and minerals in Peru. Prior periods have been restated in the Company’s consolidated financial statements and related footnotes to conform to this presentation. The following table indicates selected financial data of the Company’s discontinued operations of its marketing and sale of art business.

NOTE 6 – PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

For the nine months ended September 30, 2013 and 2012, depreciation expense amounted to $3,017 and $0, respectively.

NOTE 7 – MINERAL RIGHTS

On April 17, 2013 and effective April 3, 2013, through the Company’s wholly owned subsidiary, Inti Holdings, purchased 100% of the outstanding capital stock of Rae Wallace, pursuant to the terms of a Share Purchase Agreement by and among Inti Holdings, Rae Wallace and Rae-Wallace Mining Company and George Cole, the sole shareholders of Rae Wallace (see Note 1). Rae Wallace is the owner of certain properties and mineral rights located in Peru.  Certain of these properties are subject to third party royalty payments from the sale or disposition of all minerals produced by such covered properties. The Company’s mineral claims which are located in Peru include (1) Liscay Project (2) Toro Blanco Project (3) Cayhua Project (4) Lachoc Project (5) Lagartija Project (6) Mirko Project (7) San Felipe Project and (8) Sura Project.

As of September 30, 2013, based on management’s review of the carrying value of mineral rights, management determined that there is no evidence that the cost of these acquired mineral rights will not be fully recovered and accordingly, the Company has determined that no adjustment to the carrying value of mineral rights was required. As of the date of these consolidated financial statements, the Company has not established any proven or probable reserves on its mineral properties and has incurred only acquisition costs.

NOTE 8 – NOTES PAYABLE

On October 10, 2012, the Company issued a note payable amounting to $50,000. The note bears interest at 16% per annum and is due on demand. The note was used for working capital purposes.

On January 16, 2013 and February 27, 2013, the Company issued notes payable in the aggregate amount of $100,000. The notes bear interest at 16% per annum and are due on demand. The note was used for working capital purposes.

On April 10, 2013, the Company issued a note payable amounting to $775,000. The note bears interest at 8% per annum and is due after thirteen months, unless extended by the holder. This note may be accelerated upon the sale of any equity or equity-linked securities in the minimum amount of $1,000,000 net proceeds to the Company. The proceeds of this note were used for the acquisition of Rae Wallace and working capital purposes.

Between June 13, 2013 and July 13, 2013, the Company issued notes payable aggregating to $140,000. The notes bear interest at 16% per annum and shall be payable on demand. The Company shall have the right at any time to pay all or portion of the principal amount without notice or penalty. The notes were used for working capital purposes.

At September 30, 2013 and December 31, 2012, notes payable amounted to $1,065,000 and $50,000, respectively, and accrued interest payable, which is included in accounts payable and accrued expenses amounted to $51,067 and $1,666 respectively.

NOTE 9 – STOCKHOLDERS’ DEFICIT

On May 18, 2011, the Company sold 150,000,000 shares of common stock to a former director of the Company for gross proceeds of $22,500, at a price of $0.00015 per share.

On May 23, 2011, the Company sold 50,000,000 post-split shares of common stock to the former secretary of the Company for gross proceeds of $7,500, at a price of $0.00015 per share.

The Company has commenced a capital formation activity by filing a Registration Statement on Form S-1 to the SEC to register and sell in a self-directed offering 120,000,000 shares of newly issued common stock at an offering price of $0.001 per share for proceeds of up to $120,000. On March 16, 2012, the Company sold 40,000,000 shares of common stock pursuant to the Registration Statement on Form S-1 for gross proceeds of $40,000. The Company paid offering costs of $19,500 related to this sale of the Company’s common stock and were charged against additional paid in capital.

In May 2013, the Company cancelled 199,750,000 shares of common stock owned by the Company’s Chief Executive Officer. In connection with the return of the 199,750,000 shares of common stock, the Company valued the cancelled shares at par value of $0.0001 per share and recorded it against paid in capital.

NOTE 10 – RELATED PARTY TRANSACTIONS

On May 18, 2011, the Company sold 150,000,000 shares of common stock to a former director of the Company for gross proceeds of $22,500, at a price of $0.00015 per share.

On May 23, 2011, the Company sold 50,000,000 shares of common stock to the former secretary of the Company for gross proceeds of $7,500, at a price of $0.00015 per share.

On October 3, 2012, the former director of the Company contributed capital for operating expenses amounting to $18,753. The Company recorded such contributed capital to additional paid in capital.

The former owner of Rae Wallace, from time to time, provided advances to Rae Wallace for operating expenses. At September 30, 2013, the Company had a payable to the former owner of Rae Wallace amounting to $23,468. These advances are short-term in nature and non-interest bearing.

The following plan of operation provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto. This section includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions.

Our Business and Recent Events

We were formed as a corporation pursuant to the laws of the State of Delaware on May 17, 2011. We historically conducted our business to leverage the burgeoning interest in art investment by tailoring the sales process through a direct sales approach.

On March 4, 2013, we filed an Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to, among other things, (1) effect a one hundred for one (100:1) forward split of our common stock, (2) change our name to Sanborn Resources, Ltd. and (iii) change the authorized stock to one billion (1,000,000,000) shares of common stock and twenty million (20,000,000) shares of preferred stock. All share and per share values for all periods presented in the accompanying financial statements are retroactively restated for the effect of the forward split.  In May 2013, we cancelled 199,750,000 shares of our common stock owned by our Chief Executive Officer.

On April 17, 2013, Inti Holdings Limited, a corporation incorporated on January 8, 2013 pursuant to the laws of the Cayman Islands (“Inti Holdings”), and a newly formed wholly owned subsidiary of the Company, purchased, effective April 3, 2013, 100% of the outstanding capital stock of  Rae Wallace Peru S.A.C., a corporation formed under the laws of Peru (“Rae Wallace”), pursuant to the terms of a Share Purchase Agreement by and among Inti Holdings, Rae Wallace and Rae-Wallace Mining Company and George Cole, the sole shareholders of Rae Wallace (the “Rae Wallace Shareholders, and the agreement, the “Share Purchase Agreement”).  In consideration for the acquisition of Rae Wallace, Inti Holdings paid the Rae Wallace Shareholders an aggregate purchase price of $700,000. In addition to the purchase price, the Company paid legal fees of $15,265 and finder’s fees of $35,000 directly related to the acquisition. Rae Wallace is the owner of certain properties and mineral rights located in Peru. Certain of these properties are subject to third party royalty payments from the sale or disposition of all minerals produced by such covered properties. Following the acquisition, we decided to discontinue our marketing and sale of art business and intended to focus our efforts on mining and minerals in Peru.

Recent Financings

On October 10, 2012, we issued a note payable amounting to $50,000. The note bears interest at 16% per annum and is due on demand. The note was used for working capital purposes.

On January 16, 2013 and February 27, 2013, we issued notes payable in the aggregate amount of $100,000. The notes bear interest at 16% per annum and are due on demand. The note was used for working capital purposes.

On April 10, 2013, we issued a note payable amounting to $775,000. The note bears interest at 8% per annum and is due after thirteen months, unless extended by the holder. This note may be accelerated upon the sale of any equity or equity-linked securities in the minimum amount of $1,000,000 net proceeds to the Company. The proceeds of this note were used for the acquisition of Rae Wallace and working capital purposes.

On June 13, 2013 and July 31, 2013, we issued notes payable in an aggregate amount of $140,000. The notes bear interest at 16% per annum and shall be payable on demand. We shall have the right at any time to pay all or portion of the principal amount without notice or penalty. The note was used for working capital purposes.

Critical Accounting Policies and Estimates

While our significant accounting policies are more fully described in Note 1 to our financial statements for the nine months ended September 30, 2013, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this management discussion and analysis.

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We continually evaluate our estimates, including those related to bad debts, recovery of long-lived assets, income taxes, and the valuation of equity transactions. We base our estimates on historical experience and on various other assumptions that we believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues, expenses, assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the financial statements.

Development Stage Company

We are presented as a development stage company. Activities during the development stage include organizing the business and raising capital.  We are a development stage company with insignificant revenues and no profits. The Company has not commenced significant operations and, in accordance with ASC Topic 915 “Development Stage Entities”, is considered a development stage company.

Principles of Consolidation

The unaudited consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America and present the financial statements of the Company and our wholly-owned subsidiaries. In the preparation of our unaudited consolidated financial statements, intercompany transactions and balances are eliminated.

Long-Lived Assets

We review for impairment whenever events or circumstances indicate that the carrying amount of assets may not be recoverable, pursuant to guidance established in ASC 360-10-35-15, “Impairment or Disposal of Long-Lived Assets”.  An impairment is considered to exist when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its carrying amount.

Results of Operations

Our business began on May 17, 2011. We are still in our development stage and have not generated revenues to date.

For the Three and Nine months ended September 30, 2013 and 2012

For the nine months ended September 30, 2013, operating expenses were $370,262, as compared to $95,533 for the nine months ended September 30, 2012. For the three months ended September 30, 2013, operating expenses were $50,607 as compared to $4,623 for the three months ended September 30, 2012. The increase in operating expenses for the three and nine month periods were primarily attributable to the increase in compensation to our chief executive officer of $16,600 and $46,600 respectively, the increase in professional fees primarily due to accounting and legal fees related to public company filing and reporting requirements increased of $2,352 and $79,100 respectively, and the increase in mining concession fees related to mining fees paid for the mineral right located in Peru of $17,875 and $140,740, respectively.

Interest expense in connection with the issuance of our notes payable dated from October 2012 to September 2013 amounted to $26,586 and $49,402 during the three and nine months ended September 30, 2013, respectively. We did not have a comparable expense in the prior periods.

For the nine months ended September 30, 2013 and 2012, we incurred income (loss) from discontinued operations of $0 and $26,690, respectively, which was related to our previous business. We did not incur income (loss) from discontinued during the three months ended September 30, 2013 and 2012.

For the nine months ended September 30, 2013 and 2012, we incurred a net loss of $399,158 and $68,843, respectively.  For the three months ended September 30, 2013 and 2012, we incurred a net loss of $56,687 and $4,623, respectively.  Our cumulative net loss during the period from May 17, 2011 (inception) through September 30, 2013 was $535,102.

Liquidity and Capital Resources

As of September 30, 2013, our current assets were $85,120 and our current liabilities were $1,237,253, resulting in working capital deficit of $1,152,133. We have been funding our operations through the issuance of notes for operating capital purposes.

On October 10, 2012, we issued a note payable amounting to $50,000. The note bears interest at 16% per annum and is due on demand. The note was used for working capital purposes.

On January 16, 2013 and February 27, 2013, we issued notes payable in the aggregate amount of $100,000. The notes bear interest at 16% per annum and are due on demand. The note was used for working capital purposes.

On April 10, 2013, we issued a note payable amounting to $775,000. The note bears interest at 8% per annum and is due after thirteen months, unless extended by the holder. This note may be accelerated upon the sale of any equity or equity-linked securities in the minimum amount of $1,000,000 net proceeds to the Company. The proceeds of this note were used for the acquisition of Rae Wallace and working capital purposes.

On June 13, 2013 and July 31, 2013, we issued notes payable in an aggregate amount of $140,000. The notes bear interest at 16% per annum and shall be payable on demand. We shall have the right at any time to pay all or portion of the principal amount without notice or penalty. The note was used for working capital purposes.

Operating Activities

For the nine months ended September 30, 2013, net cash flows used in operating activities was $277,034 and was primarily attributable to our net loss of $399,158 adjusted for the add back by depreciation of $3,017 and offset by net changes in operating assets and liabilities of $119,107 due to an increase in accounts payable and accrued expenses of $116,293. For the nine months ended September 30, 2012, net cash used by operating activities was $61,753 and was mainly the result of our net loss during the period.

Investing Activities

Net cash flows used in investing activities were $739,587 for the nine months ended September 30, 2013 and compared to $0 for the nine months ended September 30, 2012. During the nine months ended September 30, 2013, we used cash for the acquisition of Rae Wallace for $750,265 and we acquired cash from such acquisition for $10,678. Additionally, we were issued a note receivable of $10,000 in January 2013 and in April 2013, we collected such note receivable.

Financing Activities

Net cash flows provided by financing activities were $1,015,000 for the nine months ended September 30, 2013 resulting from net proceeds received from issuance of notes payable of $1,015,000. Net cash flows provided by financing activities for the nine months ended September 30, 2012was $20,500 and consisted of net proceeds from the sale of our common stock.

We anticipate that depending on market conditions and our plan of operations, we may incur operating losses in the foreseeable future. Therefore, our auditors have raised substantial doubt about our ability to continue as a going concern in their audit opinion for the year ended December 31, 2012. We estimate that based on current plans and assumptions, that our available cash is insufficient to satisfy our cash requirements for the next 12 months. We presently have no other alternative source of working capital. We may not have sufficient working capital to provide working capital necessary for our ongoing operations and obligations for the next 12 months. As of September 30, 2013, we had $155 available in cash.

Contractual Obligations

We have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs, cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of payments. We have presented below a summary of the most significant assumptions used in our determination of amounts presented in the tables, in order to assist in the review of this information within the context of our consolidated financial position, results of operation, and cash flows.

The following table summarizes our contractual obligations as of September 30, 2013, and the effect these obligations are expected to have on our liquidity and cash flows in future periods:

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not required for smaller reporting companies.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures are designed to ensure that information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the United States Securities and Exchange Commission. Our principal executive officer and principal financial officer have reviewed the effectiveness of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c)) as of the end of the period covered by this report and have concluded that the disclosure controls and procedures are not effective to ensure that material information relating to the Company is recorded, processed, summarized, and reported in a timely manner.

Changes in Internal Controls

There have been no changes in the Company's internal control over financial reporting during the last quarterly period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1.  Legal Proceedings

None

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None

Item 6. Exhibits

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this quarterly report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.