ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Trilliant Exploration Corporation was incorporated under the laws of the State of Nevada on December 29, 2003 under the name Project Development Pacific Inc. We were previously engaged in the business of assisting Canadian citizens to access health care services from private providers. On November 26, 2007, we changed our name to Trilliant Exploration Corporation with a business purpose to acquire and develop mineral properties. During 2007, we began acquiring interests in mining properties.
915 "Accounting and Reporting by Development Stage Enterprises" as interpreted by the Securities and Exchange Commission for mining companies in Industry Guide
7. The Company is devoting substantially all of its efforts to the execution of its business plan.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Significant estimates that may change in the near future include value of goodwill, impairment of long-lived assets acquired, and value of investments.
Cash and cash equivalents consists principally of currency on hand, demand deposits at commercial banks, and liquid investment funds having a maturity of three months or less at the time of purchase. The Company had $87 and $60 in cash and cash equivalents as of June 30, 2013 and March 31, 2013, respectively.
Revenue Recognition
The Company will follow the guidance of ASC Topic 605, formerly, SAB 104 for revenue recognition. In general, the Company will record revenue when persuasive evidence of an arrangement exists, services have been rendered, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. Revenues from services are recognized when the services are performed, evidence of an arrangement exists, the fee is fixed and determinable and collectability is probable. In circumstances when these criteria are not met, revenue recognition is deferred until resolution occurs.
Mineral Acquisition and Exploration Costs
Mineral property interests include optioned and acquired mineral development and exploration stage properties. The amount capitalized related to a mineral property interest represents its fair value at the time it was optioned or acquired, either as an individual asset or as a part of a business combination. The value of such assets is primarily driven by the nature and amount of mineralized material believed to be contained in such properties. Exploration costs are expensed as incurred and development costs are capitalized if proven and probable reserves exist and the property is a commercially minable property. Mine development costs incurred either to develop new ore deposits, expand the capacity of operating mines, or to develop mine areas substantially in advance of current production are capitalized. Costs incurred to maintain assets on a standby basis are charged to operations. Costs of abandoned projects are charged to operations upon abandonment. The Company evaluates, at least quarterly, the carrying value of capitalized mineral interests costs and related property, plant and equipment costs, if any, to determine if these costs are in excess of their net realizable value and if a permanent impairment needs to be recorded. The periodic evaluation of carrying value of capitalized costs and any related property, plant and equipment costs are based upon expected future cash flows and/or estimated salvage value.
Property, Plant, and Equipment
Property and equipment are stated at cost. Depreciation and amortization are determined using the straight-line method over estimated useful lives of the assets. All property, plant, and equipment were disposed of and any gains and losses on the disposal are included in discontinued operations as disclosed in Note 10. As of September 30, 2012, the Company held no property, plant or equipment.
Net Income or (Loss) Per Share of Common Stock
Basic and diluted loss per common share is based upon the weighted average number of common shares outstanding during the period computed under the provisions of Accounting Standards Codification subtopic 260-10, Earnings per Share ("ASC 260-10"). For the three month period the weighted average number of shares issued and outstanding is 152,819,187 for the period ended March 31, 2013 and 39,405,131 for the period ended December 31, 2012.
Goodwill and Other Intangibles
As of June 30, 2013, the Company held no Goodwill. The Company possesses no other intangible assets.
Recently Issued Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective accounting standards, if adopted, will have a material effect on our financial statements
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period enacted. A valuation allowance is provided when it is more likely than not that a portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of deferred tax liabilities during the period in which related temporary differences become deductible. The benefit of tax positions taken or expected to be taken in the Company's income tax returns are recognized in the consolidated financial statements if such positions are more likely than not of being sustained.
In accordance with 740-10, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting this standard, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.
Derivative Liabilities
The Company accounts for its embedded conversion features in its convertible debentures in accordance ASC 815-10, "Derivatives and Hedging", which requires a periodic valuation of their fair value and a corresponding recognition of liabilities associated with such derivatives, and ASC 815-40, "Contracts in Entity's Own Equity". The recognition of derivative liabilities related to the issuance of convertible debt is applied first to the proceeds of such issuance as a debt discount, at the date of issuance, and the excess of derivative liabilities over the proceeds is recognized as "Loss on Valuation of Derivative" in other expense in the accompanying financial statements. Any subsequent increase or decrease in the fair value of the derivative liabilities is recognized as "Other expense" or "Other income", respectively.
Accounting Standards Codification subtopic 815-40, Derivatives and Hedging; Contracts in Entity's own Equity ("ASC 815-40") became effective for the Company. The Company ' s Convertible Preferred Stock and Convertible debt has certain provisions that require the Company to change conversion price of the Convertible debt and Convertible Preferred Stock based on the discounted market value. Upon the effective date, the provisions of ASC 815-40 required a reclassification to liability based on the reset feature of the agreements. Therefore, in accordance with ASC 815-40, the Company determined the fair value of the initial reset provision on preferred stock and convertible debt using the Black-Scholes formula assuming no dividends, a risk-free interest rate of 0.68%-0.85%, expected volatility of 155.49%-214.23%, and expected life of 1 and 5 years. The net value of the reset provision at the date of adoption of ASC 815-40 was recorded as a derivative liability on the balance sheet and a reduction to convertible redeemable preferred stock and convertible debt. Changes in fair value are recorded as non-operating, non-cash income or expense at each reporting date. The fair value of the preferred stock and convertible debt June 30, 2013 was determined using the Black Scholes Option Pricing Model with the following assumptions:
Dividend yield: 0%
Volatility 469.97%
Risk free rate: 0.28%
The change in fair value of the convertible debt derivative liability resulted in a current period non-operating loss to operations of $6,630,782.
Fair Value of Instruments
Accounting Standards Codification subtopic 825-10, Financial Instruments ("ASC 825-10") requires disclosure of the fair value of certain financial instruments. The carrying value of cash and cash equivalents, accounts payable and accrued liabilities, and short-term borrowings, as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments. All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise only available information pertinent to fair value has been disclosed.
The company follows Accounting Standards Codification subtopic 820-10, Fair Value Measurements and Disclosures ("ASC 820-10") and Accounting Standards Codification subtopic 825-10, Financial Instruments ("ASC 825-10"), which permits entities to choose to measure many financial instruments and certain other items at fair value
Reclassification
Certain reclassifications have been made to conform the prior period data to the current presentation. These reclassifications had no effect on reported net loss.
Currency Risk and Foreign Currency Translations
The functional currency of the Company is the United States Dollar (USD). In accordance with ASC Topic No. 830, realized gains or losses on expenses incurred in denominations other than USD are recognized in earnings on the transaction date. At such time as there are any foreign denominated assets or liabilities, the Company will report changes in valuation in a Statement of Other Comprehensive Income or (Loss) due to the changes in cumulative adjustments from foreign currency translation.
CURRENT BUSINESS OPERATIONS
We are engaged in the evaluation, acquisition, exploration and advancement of mining projects. As of the date of this Quarterly Report, we are devoting substantially all of our efforts to the execution of our business operations. Through fiscal 2012, funding to acquire and explore alternative mining, gold and copper properties and for operational purposes was acquired through private financings.
RESULTS OF OPERATION
Six Month Period Ended June 30, 2013 Compared to the Year Ended December 31, 2012
Our net gain for the six months period ended June 30, 2013 was $(6,781,909) compared to a net loss of $(39,863,640) during the period ended December 31, 2012, a change of $ 33,081,731. During the six month period ended June 30, 2013 and December 2012, we did not generate any revenue from continuing operations.
During the six month period ended June 30, 2013, we incurred operating expenses of $170,086 compared to $8,031,052 incurred during the three month period ended December 31, 2012, a decrease of $7,860,966,. The decrease in operating expenses incurred during the three month period ended June 33, 2013 was primarily attributable to the elimination of office expense, use of consultants and professionals charges. Operating expenses reflect the limited scope and scale of our business operations.
Other income (expense) was incurred during the three month period ended June 30, 2013 of $ (6,603,085), unrealized and realized loss on derivative liabilities.
Therefore, this resulted in a net income applicable to common shares during the six month period ended June 30, 2013 of $(6,781,909).
LIQUIDITY AND CAPITAL RESOURCES
Six Month Period Ended June 30, 2013
As of June 30, 2013, our current assets and total assets were $87 in cash. Our current liabilities were $1,108,639, which resulted in a working capital deficit of $1,108,552. As of June 30,, 2013, liabilities were primarily comprised of:
(i) $298,606 in accounts payable; (ii) $585,495 in convertible notes payable; and, (iii) $ $181,236 of accrued interest payable. The increase in liabilities during the six month period ended June 30, 2013 from fiscal year ended December 31, 2012 was primarily due to the increase in the derivative liability associated with the convertible note and the significantly lower conversion price.
Stockholders' deficit increased from $1,649,790 for fiscal year ended December 31, 2012 to $8,244,609 for the six month period ended June 30, 2013
Cash Flows from Operating Activities
We have not generated positive cash flows from operating activities. For the six month period ended June, 2013, no net cash flows used in or provided by operating activities.
Cash Flows from Investing Activities
We did not engage in any investing activities during the six month period ended June 30, 2013.
Cash Flows from Financing Activities
For the six month period ended June 30, 2013, there were $137,976 net cash flows provided from financing activities.
PLAN OF OPERATION AND FUNDING
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has reported a net loss from operations of $6,781,909 for the six month period ended June 30, 2013, a total shareholders' deficit of $ 8,244,609 and total current liabilities in excess of current assets of $1,108,639 as of June 30, 2013.
The Company is in the pre-exploratory stage and does not have any revenues from operations and will be dependent on funds raise to satisfy its ongoing capital requirements for at least the next 12 months. The Company will require additional financing in order to execute its operating plan and continue as a going concern. The Company cannot predict whether this additional financing will be in the form of equity or debt, or be in another form. The Company may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all. In any of these events, the Company may be unable to implement its current plans for expansion or respond to competitive pressures, any of these circumstances would have a material adverse effect on its business, prospects, financial condition and results of operations.
Management expects that global economic conditions will continue to present a challenging operating environment through 2013.
While we have been able to manage our working capital needs with the current credit facilities, additional financing is required in order to meet our current and projected cash flow requirements from operations. We cannot predict whether this new financing will be in the form of equity or debt. We may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all. Additional investments are being sought, but we cannot guarantee that we will be able to obtain such investments.
Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and the downturn in the U.S. stock and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Further, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations.
MATERIAL COMMITMENTS
As of the date of this Quarterly Report, we have the following material
commitments as described as described in Footnote 4 of our financial statements
(all of which are in default).
Less than More than 5
Contractual Obligations Total one year 1 - 3 Years 3 - 5 Years Years
Convertible Notes Payable 585,495 585,495
Total $ 585,495 $ 585,495 $ - $ - $ -
OFF-BALANCE SHEET ARRANGEMENTS
As of the date of this Quarterly Report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
GOING CONCERN
The independent auditors' report accompanying our December 31, 2011 financial statements contains an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The financial statements have been prepared "assuming that we will continue as a going concern," which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business.
Inflation
We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could adversely affect our business, financial condition and results of operations.
Number of Employees
As of June 30, 2013 the Company had one (1) part-time employee.
Disclosure of Contractual Obligations
The Company does not have any significant contractual obligations which could negatively impact our results of operations and financial condition.
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