Marvion Inc. 10-K

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OR PLAN OF OPERATION. The following is management’s discussion and analysis of certain significant factors that have affected our financial position and operating results during the periods included in the accompanying consolidated financial statements, as well as information relating to the plans of our current management. This report includes forward-looking statements. Generally, the words “believes,” “anticipates,” “may,” “will,” “should,” “expect,” “intend,” “estimate,” “continue,” and similar expressions or the negative thereof or comparable terminology are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, including the matters set forth in this report or other reports or documents we file with the Securities and Exchange Commission from time to time, which could cause actual results or outcomes to differ materially from those projected. Undue reliance should not be placed on these forward-looking statements which speak only as of the date hereof. We undertake no obligation to update these forward-looking statements. The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes thereto and other financial information contained elsewhere in this Form 10-K. The Company's financial statements have been prepared in accordance with United States generally accepted accounting principles. We urge you to carefully consider the information set forth in this report under the heading "Forward-Looking Statements" and "Risk Factors". 28 Our exploration target is to find exploitable minerals on our properties. Our success depends on achieving that target. There is the likelihood of our mineral claims containing little or no economic mineralization or reserves of gold and other minerals. There is the possibility that our claims do not contain any reserves and funds that we spend on exploration will be lost. Even if we complete our current exploration program and are successful in identifying a mineral deposit we will be required to expend substantial funds to bring our claim to production. We are unable to assure you we will be able to raise the additional funds necessary to implement any future exploration or extraction program even if mineralization is found. Our Chief Executive Officer and Chief Financial Officer concluded that our internal controls over financial disclosure and procedures were not effective. If the weaknesses in our disclosure controls and procedures are not remedied based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, the Company may not be able to accurately disclose its financial condition. Going Concern The report of our independent registered public accounting firm contains explanatory language that substantial doubt exists about our ability to continue as a going concern. This means that there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay our bills. This is because we have not generated revenues and no revenues are anticipated until we begin removing and selling minerals. There is no assurance we will ever reach that point. Critical Accounting Policies The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America. Significant accounting policies are as follows: Use of Estimates 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 reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. These estimates and assumptions also affect the reported amounts of revenues, costs and expenses during the reporting period. Management evaluates these estimates and assumptions on a regular basis. Actual results could differ from those estimates. Exploration Stage Enterprise The Company's financial statements are prepared pursuant to the provisions of ASC Topic 26 “Accounting for Development Stage Enterprises,” as it devotes substantially all of its efforts to acquiring and exploring mining interests that will eventually provide sufficient net profits to sustain the Company’s existence. Until such interests are engaged in major commercial production, the Company will continue to prepare its financial statements and related disclosures in accordance with entities in the development stage. Mining companies subject to ASC Topic 26 are required to label their financial statements as an “Exploratory Stage Company,” pursuant to guidance provided by SEC Guide 7 for Mining Companies. 29 Mineral Properties Significant payments related to the acquisition of mineral properties, mineral rights, and mineral leases are capitalized. If a commercially mineable ore body is discovered, such costs are amortized when production begins using the units-of-production method based on proven and probable reserves. If no commercially mineable ore body is discovered, or such rights are otherwise determined to have no value, such costs are expensed in the period in which it is determined the property has no future economic value. Property Evaluations Management of the Company will periodically review the net carrying value of its properties on a property-by-property basis. These reviews will consider the net realizable value of each property to determine whether a permanent impairment in value has occurred and the need for any asset write-down. An impairment loss will be recognized when the estimated future cash flows (undiscounted and without interest) expected to result from the use of an asset are less than the carrying amount of the asset. Measurement of an impairment loss will be based on the estimated fair value of the asset if the asset is expected to be held and used. Although management will make its best estimate of the factors that affect net realizable value based on current conditions, it is reasonably possible that changes could occur in the near term which could adversely affect management's estimate of net cash flows expected to be generated from its assets, and necessitate asset impairment write-downs. Mineral property rights All direct costs related to the acquisition of mineral property rights are capitalized. Exploration costs are charged to operations in the period incurred until such time as it has been determined that a property has economically recoverable reserves, at which time subsequent exploration costs and the costs incurred to develop a property are capitalized. The Company reviews the carrying values of its mineral property rights whenever events or changes in circumstances indicate that their carrying values may exceed their estimated net recoverable amounts. An impairment loss is recognized when the carrying value of those assets is not recoverable and exceeds its fair value. As of June 30, 2013, management has determined that there was no impairment loss required. At such time as commercial production may commence, depletion of each mining property will be provided on a unit-of-production basis using estimated proven and probable recoverable reserves as the depletion base. In cases where there are no proven or probable reserves, depletion will be provided on the straight-line basis over the expected economic life of the mine. Impairment of Long-Lived Assets In accordance with ASC Topic 365, long-lived assets , such as property, plant, and equipment, and purchased intangibles, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Goodwill and other intangible assets are tested for impairment. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. There was no impairment loss required for June 30, 2013. Share-Based Compensation The measurement of the cost of services received in exchange for an award of an equity instrument is based on the grant-date fair value of the award. Compensation cost is recognized when the event occurs. The Black-Scholes option-pricing model is used to estimate the fair value of options granted. 30 Recent Accounting Pronouncements The Company’s management does not believe that any recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying financial statements. Off-Balance Sheet Arrangements We have not entered into 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 and would be considered material to investors. Certain officers and directors of the Company have provided personal guarantees to our various lenders as required for the extension of credit to the Company. Accounting policies subject to estimation and judgment Management's Discussion and Analysis of Financial Condition and Results of Operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. When preparing our financial statements, we make estimates and judgments that affect the reported amounts on our balance sheets and income statements, and our related disclosure about contingent assets and liabilities. We continually evaluate our estimates, including those related to revenue, allowance for doubtful accounts, reserves for income taxes, and litigation. We base our estimates on historical experience and on various other assumptions, which we believe to be reasonable in order to form the basis for making judgments about the carrying values of assets and liabilities that are not readily ascertained from other sources. Actual results may deviate from these estimates if alternative assumptions or condition are used. RECENT DEVELOPMENTS AND OPERATIONS We are a junior mining and exploration company identifying and acquiring properties integrated with placer ore and hard rock mineralization in geo-politically stable regions, management continues to focus all efforts in Arizona. Our management’s strategy is to process feasible placer ore, while proving out hard rock structures of the flagship Tarantula Project, Congress, Arizona. Our work effort has focused exclusively on the Tarantula Project. The project area is comprised of 38 lode claims covering 600 acres, with several low lying basins of what is believed to be ancient river beds. Furthermore, there are vestiges and hallmarks of major geological upheaval resulting in unique anomalies, such as extensive mineralized quartz veins. Initially, local non-qualified assay results showed high grades of gold, as well as lower grades of silver, platinum, and rare earth metals, convincing management the existence of possible bonanza type resources. Bonanza Goldfields’ flagship Tarantula Project consists of 38 lode claims covering 600 acres of patented, private property claims and BLM claims in the Date Creek Mountains, Arizona consisting of both alluvial and mineralized quartz deposits. A Preliminary Geological Survey of the claims and the immediate region is now completed of the Tarantula Project, prepared by Auric Resources International, Inc. of Wickenburg, Arizona. Shareholders can access the report at Bonanza Goldfields' official website: www.bonanzagoldfields.com (such website and its contents are not to be incorporated by reference to this report). 31 Additional testing was completed by Auric Resources on our BLM land which tested positive for gold deposits and certain critical rare earth elements. Those results can also be found on our website. Highlights from the report include: · The large land package with widespread areas of anomalous gold values; proximity to the Congress Mine; large iron oxide rich quartz veins which exhibit mineralogical and structural similarities to the Congress, Niagara, Queen of the Hills, Golden Wave and other mineralized, economic vein systems in the area; and the presence of placer gold in widespread gravels indicates that the Tarantula Property may host a large, potentially economic gold deposit and undoubtedly represents an excellent exploration target with potential for both placer and lode gold production from auriferous placers and veins. · Although some preliminary testing has been done on portions of the property, the majority of the land package has virgin placer gravels and large quartz veins that have never been explored or tested. · The geologic setting of the property is favorable for the concentration of placer gold in the local gravels that occur in drainage channels and elevated benches and for lode gold that occurs within the early Proterozoic granitic rocks as auriferous quartz fissure veins with locally abundant sulfides and iron oxides. · Auriferous quartz and quartz-sulfide veins occur on the Tarantula Property and many exhibit the same characteristics as those in the Congress Mine and other mines in the area. These veins ranged up to several feet in width and have strike lengths ranging from hundreds to thousands of feet. Prior to commencing the survey, extensive samplings were analyzed locally at multiple depths demonstrating the potential for high grade gold findings throughout the property. Modern access for heavy equipment is already in place via Bonanza’s privately constructed roads, and rail is localized. The claims are directly adjacent to the world famous historic Congress Mine, Arizona. The Congress Mine operated between 1887 and 1959 producing, according to managements understanding, about 400,000 ounces of lode gold (although past performance provides no assurances regarding future production). Unique features appear ubiquitous throughout the immediate area, including greenstone dike extensions, placer gravel deposits, and vestiges of numerous pre-historic waterfalls. Additionally, lode gold possibilities exist due to the extensions of schist and mineralized quartz veins in the immediate area of the Congress Mine. Our management believes the alluvial deposits originate from two ancient rivers that flowed in opposing directions during separate geological periods. While conducting a survey of the leased claims, explorations of the outlying region lead to the acquisition of additional claims. With the expansion of the land package, management believes an economically feasible resource estimate can be derived and “proved out.” Furthermore, with the added resource, small to medium scale placer production operations can commence. We have further engaged Auric Resources International to source and build its production operation on an economically viable basis. The level of viability is indexed at 1 gram/ton, and management believes these levels can be attained if not exceeded. With placer production commencing of placer material, we intend to move directly into core drilling of the property. On September 20, 2013, the Company entered into an Amended and Restated Asset Purchase Agreement with Gunner Gold, LLC. Pursuant to the terms of Amended and Restated Asset Purchase Agreement, Gunner Gold, LLC purchased certain assets and assumed certain liabilities from the Company for 3,300,000 units of Gunner Gold, LLC stock. The Company also granted Gunner Gold, LLC the right to conduct mining operations on the Company’s BLM properties with the option to acquire the mineral rights for 700,000 additional units of Gunner Gold, LLC’s stock. The Company will receive 5% of the net proceeds, after the payment of all maintenance costs, earned by Gunner Gold from the mining operation on BLM properties. 32 RESULTS OF OPERATIONS Fiscal Year Ended June 30, 2013 Compared to Fiscal Year Ended June 30, 2012 We are an exploration stage company acquiring mineral properties or claims located in the State of Arizona, USA. The recoverability of amounts from the properties or claims will be dependent upon the discovery of economically recoverable reserves, confirmation of our interest in the underlying properties and/or claims, our ability to obtain necessary financing to satisfy the expenditure requirements under the property and/or claim agreements and to complete the development of the properties and/or claims, and upon future profitable production or proceeds for the sale thereof. For the years ended June 30, 2013 and 2012, we generated minimal or no revenue. Our future revenue plan is uncertain and is dependent on our ability to effectively mine our products, generate sales, and obtain contract mining opportunities. There are no assurances of the ability of our Company to begin to mine our claim. The cost of mining is intensive so it is critical for us to raise appropriate capital to implement our business plan. We incurred losses of $1,424,191 and $1,091,355 for the years ended June 30, 2013 and 2012, respectively, and our losses since inception amount to $8,031,045. Our operating expenses for exploration activities for the years ended June 30, 2013 and 2012 were $207,067 and $66,282, respectively. The costs associated with exploration activities included trenching, testing, hauling, and labor costs associated with the exploration of our gold mine claims. We acquired several mining claims through the course of our exploration stage and through the course of this process impaired claims. Our general and administrative expenses for the year ended June 30, 2013 were $775,183 as compared to $768,056 for the year ended June 30, 2012. The increase is primarily attributable to the stock compensation of officers and consultants. Our interest expense for the year ended June 30, 2013 was $472,060 as compared to $192,517 for the year ended June 30, 2012. The increase is primarily attributable to the increase in average debt outstanding and the amortization of debt discount of $332,255 for fiscal year 2013 and $119,930 for fiscal year 2012. On February 26, 2012, the Company entered into a settlement agreement with David Janney, former CEO. Pursuant to the settlement agreement, the Company agreed to issue 5,000,000 common shares to David Janney. These shares were valued at $59,000 and recorded as loss on settlement of litigation. In a settlement agreement dated February 19, 2013, David Janney agreed to forfeit his right to receive 2,500,000 common shares based on the settlement agreement dated February 26, 2012. The Company recorded a gain on the settlement of litigation for the year ended June 30, 2013 of $29,500 and eliminated the corresponding disputed payable previously recorded. Liquidity and Capital Resources Our cash used in operating activities for year ended June 30, 2013 was $455,318 compared to $542,385 for the year ended June 30, 2012. The decrease in cash used in operations was primarily attributable to the decrease of cash payments made to the professionals. Our cash used in investing activities for the year ended June 30, 2013 was $154,265, compared to $33,173 for fiscal year 2012. Cash used in investing activities mainly included the purchase of equipment for the production site and a mining claim on the Judgetown property during fiscal year 2013 and only included the purchase of equipment during fiscal year 2012. 33 We are in default on our note to Freedom Boat, LLC for $250,000 which is secured by 10,000,000 shares of common stock of the Company. We have preliminarily agreed with Freedom Boat to create another 2 year interest only payment structure with the balance due at the end of the 24 month term and which is convertible to stock. The Company is still in discussion with Freedom Boat to amend the original note agreement. Our cash provided by financing activities for the year ended June 30, 2013 was $532,517, compared to $637,875 for the year ended June 30, 2012. The decrease is mainly due to fewer proceeds from the sale of common stock. The impact was partially offset by the $307,514 of proceeds from the issuance of convertible notes payable to Tonaquint, Inc. We are in need of approximately $65,000 per month in order to meet our operating expenses. We are currently in discussion with Tonaquint for additional funding. On October 1, 2012, we entered into a Secured Convertible Promissory Note and Warrant Purchase Agreement with Tonaquint, Inc., a Utah corporation ("Tonaquint"), whereby the Company issued (i) a Secured Convertible Promissory Note of the Company in the principal amount of $1,660,000 and (ii) a warrant to purchase 158,953,080 shares of the Company’s common stock. The warrant has an exercise price of $0.075 per share and can be exercised at any time within five years after October 1, 2012. Tonaquint has the right to convert, subject to restrictions described in the promissory note, all or a portion of the outstanding amount of the promissory note that is eligible for conversion into shares of our common stock. The conversion price of the promissory note is $0.05 per share. The Secured Convertible Promissory Note is due on April 1, 2015 and the interest rate of 8% payable monthly. In the event the Company elects to prepay all or any portion of the outstanding balance, the Company shall pay Tonaquint 135% of the amount the Company elects to prepay. The total amount to be funded is $1,500,000, representing the principal amount of $1,660,000 less an original issuance discount of $150,000 and the payment of $10,000 to cover Tonaquint’s fees. The shares of common stock underlying the Secured Convertible Promissory Note and Warrant were to be registered by a registration statement pursuant to the terms and conditions of a registration rights agreement. The registration statement has been withdrawn with Tonaquint’s consent. Tonaquint initially funded the Company $150,000 in cash and issued three Buyer Mortgage Notes, in the principal amount of $50,000, $150,000, and $400,000 and a promissory note in the amount of $750,000 to the Company pursuant to the agreement. The Buyer Mortgage Notes are secured by certain real property owned by Tonaquint located in Cook County, Illinois. . Pursuant to the purchase agreement, we reserved 75,000,000 shares of common stock. We agreed not to enter into any equity line of credit or financing arrangement or other transaction that involves issuing securities that are convertible into common stock (including without limitation selling convertible debt, warrants or convertible preferred stock), or otherwise issue common stock (a) with conversion, exercise or similar mechanics or reset provisions that vary according to the market price of the common stock without a floor at or higher than $0.01 or (b) at a fixed price which is lower than $0.01, without the prior written consent of Tonaquint. We agreed not to declare or make any dividend or other distributions of our assets. As of June 30, 2013, we have received principal of $307,514 pursuant to the Secured Convertible Promissory Note. On September 20, 2013, Tonaquint, Inc. was paid in full and there is no longer any further obligations related to this note agreement. 34 Other Considerations There are numerous factors that affect the business and the results of its operations. Sources of these factors include general economic and business conditions, federal and state regulation of business and mining activities, changes to the tax code during or after the current congressional session, and our ability to continue to improve our infrastructure including personnel and systems to keep pace with the Company’s potential growth. The Company will be subject to environmental and governmental regulations. Initial exploration such as geological mapping and sampling can be done on BLM land without permits. If more than 5 acres are to be disturbed, a Notice of Intent to Conduct Exploration must be submitted to the BLM. The Notice will include a reclamation bond. The approved Notice will allow bulk sampling of up to 1,000 tons of material. If the sampling program warrants further exploration with a drilling program, the Arizona Department of Water Resources will require permits for exploration drilling. To conduct exploration which disturbs more than 5 acres of surface, the BLM requires the filing of a Plan of Operation which must include a reclamation bond. The Plan of Operation must also be sent to other entities including the Arizona Department of Environmental Quality, the US Army Corps of Engineers, the Mine Safety and Health Administration, and the Arizona Department of Water Resources. Each of the entities will review the Plan of Operations and request any necessary changes. The BLM will require either an Environmental Assessment or an Environmental Impact Statement for mining on BLM claims. Processing of the mined material will be done on patented claims owned by the company, but an Aquifer Protection Permit will still be required. A pollution prevention plan and an air quality permit may also be required by the State and County. Biological and cultural surveys will also be required and will note any threatened or endangered species of plants and animals and any cultural or historical sites which must be protected. The permitting process for a mining operation is complex and can take considerable time. The effect of this permitting process and the government regulations are limited to the costs of outside consultants to perform the biological and cultural surveys and to write the Environmental Impact Statement, if required. It is not anticipated that any of these regulations or permits will prevent further development of the patented or BLM land. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We do not hold any derivative instruments and do not engage in any hedging activities. 35