Marvion Inc. 10-Q

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management’s Discussion and Analysis contains various “forward looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, regarding future events or the future financial performance of the Company that involve risks and uncertainties. Certain statements included in this Form 10-Q, including, without limitation, statements related to anticipated cash flow sources and uses, and words including but not limited to “anticipates”, “believes”, “plans”, “expects”, “future” and similar statements or expressions, identify forward looking statements. Any forward-looking statements herein are subject to certain risks and uncertainties in the Company’s business, including but not limited to, reliance on key customers and competition in its markets, market demand, product performance, technological developments, maintenance of relationships with key suppliers, difficulties of hiring or retaining key personnel and any changes in current accounting rules, all of which may be beyond the control of the Company. The Company adopted at management’s discretion, the most conservative recognition of revenue based on the most astringent guidelines of the SEC in terms of recognition of revenue. Management will elect additional changes to revenue recognition to comply with the most conservative SEC recognition on a forward going accrual basis as the model is replicated with other similar markets (i.e. SBDC). The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth therein. Forward-looking statements involve risks, uncertainties and other factors, which may cause our actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. Factors and risks that could affect our results and achievements and cause them to materially differ from those contained in the forward-looking statements include those identified in the section titled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended June 30, 2013, as well as other factors that we are currently unable to identify or quantify, but that may exist in the future. In addition, the foregoing factors may affect generally our business, results of operations and financial position. Forward-looking statements speak only as of the date the statement was made. We do not undertake and specifically decline any obligation to update any forward-looking statements. Overview We are an exploration stage company and that there is no assurance that a commercially viable mineral deposit exist on any of our properties and that further exploration will be required. Our exploration target is to find exploitable minerals on our properties and to raise adequate funding to begin processing our land. Our success depends on achieving that target and becoming cash flow positive once production begins. 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 claims 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. It is our objective in fiscal year 2014 to identify mineral prospect properties of merit, conduct preliminary exploration work, and if results are positive, to process mineral resources through a market where we believe capital is transitioning to the safety of gold. Our management contends that this business model is timely in a world of financial and currency instability with escalating mineral demand. However, as the landscape for gold changed in April of 2013, raising adequate capital became much more difficult to secure at a reasonable rate. To ensure the viability of the Company, management entered into an asset purchase agreement with Gunner Gold LLC, which closed in September 2013. The asset purchase agreement allows the Company to retain critical assets such as our mining claim to the land of Bureau of Land Management (“BLM”) and the patented Hull Lode claim. It also grants a royalty to the Company on revenues produced on the BLM land while giving the Company 3.3 million units of Gunner Gold, LLC. A National Instrument 43-101 Technical Report was prepared August 30, 2011 on mineral rights now owned or leased by Gunner Gold. This is a report that is the standard used in the industry to estimate the amount of minerals located on the subject property. The report places an estimate of its inferred mineral resources at 5.88 million ounces of gold and with current gold spot prices of roughly $1,275 per ounce it could have a perceived gross value of approximately $7.5 billion. Our areas of exploration are in geopolitically stable North American areas. We have acquired 3 sets of mineral properties in the state of Arizona. The first is federal mining claims on BLM land totaling 435 acres. The second was 130.76 acres of patented land we leased for an initial term of two years with an option to buy from Judgetown LLC. This lease option to the Judgetown LLC patented property has been sold to Gunner Gold, LLC in September 2013. This relieved the Company of a large and growing debt to Judgetown LLC. The lease agreement with Judgetown was effective on October 15, 2012 and was sold in September 2013. The third property is referred to as the Hull land and is approximately 20 acres of patented land which we have purchased with funds borrowed from Freedom Boat and remains in Bonanza’s possession but is being leased to Gunner Gold LLC for 2 years commencing in September 2013. The Company also sold its Yukon 25 plant to Gunner Gold, LLC. Bonanza Goldfields Corp also retired certain debt with proceeds from the asset purchase agreement. This investment into Gunner Gold, LLC and the reduction of debt will allow us to redefine a corporate strategy in light of the underperformance of the gold mining industry in 2013. Management believes that the current structure allows investors to benefit from a rebound in gold but in the event that the gold price remains at current levels the Company now has the flexibility to examine entering other businesses. 17 Historical Background: The Judgetown lease, with an effective date of October 15, 2012, was executed on or before September 30, 2012 between our Company and Judgetown LLC, an Arizona Limited Liability Company located in Arizona. The leased premises consist of 130.76 acres in the county of Yavapai, Arizona in the Date Creek Mountain range. The lease is exclusive to the Company and our successors and assigns all of Judgetown LLC’s interest in and to all mining rights and minerals beneath the surface of, within, or that may be produced from the premises. The lease granted the following to us for a period of two years unless terminated pursuant to the lease; Mining and Access Rights, Cross Mining, Commingling, Deposit of Waste Materials, Treatment and Water Rights. The lease obligation, as amended, is $320,000 for the period commencing on January 15, 2013. An option to purchase the land was also granted for a price of $1,500,000 less lease payments. The lease with an option to purchase was amended on February 1, 2013 to reflect a new owner and to amend the payment schedule and amount. As of November 14, 2013, our leased lands consist of 38 lode claims covering about 455 acres of patented, private property claims and BLM claims in the Date Creek Mountains, Arizona consisting of both alluvial and mineralized quartz deposits, as well as the presence of certain rare earth elements. A Preliminary Geological Survey as well as subsequent testing and assays of the leased claims were prepared by Auric Resources International, Inc. of Wickenburg, Arizona. Shareholders can access the report and test results at our website: www.bonanzagoldfields.com (such website and its contents are not to be incorporated by reference to this report). Highlights from the report include: ● The large land package with widespread areas of anomalous gold values; ● 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 leased claims. 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 through Bonanza’s privately constructed roads, and rail is localized. 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. Bonanza management believes the alluvial deposits originate from two ancient rivers that flowed in opposing directions during separate geological periods. ● Our most recent gold assays occurred during the month of July 2012 and were surface level rock chip assays on the Company's Bureau of Land Management (BLM) claims located near the Piedmont Mine area. ● The assays were completed based on the geological teams' recommendation to study the Piedmont Mine. Bonanza's geological team staked out and acquired the Piedmont in December 2011 as part of the planned leased claims expansion. The assays were completed at a third party globally recognized assayer. ● Table 1: Surface area rock chip samples on our BLM land claims in the Piedmont Mine area TARANTULA Au (Fire) Au (Fire 2) Au (Fire 2) Control # ppb Grams/per ton Ounces/per ton 681 >3000 20.2 0.65 682 >3000 45.5 1.46 683 52 n/a n/a 684 47 n/a n/a 685 13 n/a n/a *Assays reported in grams and ounces per ton **Conversion based on 31.1 grams = 1 troy ounce of gold 18 Rare Earth Metal Tests: ● The Company also tested for the most prevalent and critical rare earth metals (REM) in the Arizona geographic region, which are Cerium, Lanthanum, Scandium, Yttrium. The tests proved positive for all four rare earth elements. The Company is now planning future tests for the other 13 critical rare earth elements and for estimates of concentration. The plan is to test for the remaining 13 metals in Canadian testing facilities where more advanced analysis can be performed. ● Major Rare Earth Metals Uses (listed by metal): ● Cerium is used in auto catalysts, petroleum refining, and in metal alloys. ● Lanthanum is used in hybrid engines and metal alloys. ● Scandium is used in sports equipment, the firearms industry and dental applications. ● Yttrium is used in red color, fluorescent lamps, ceramics, and as an agent in metal alloys with applications to superconductors and medical devices. We expanded our geological footprint with the acquisition of the Piedmont Mine, gold and silver mine in operation until 1940. The Piedmont Mine has been deemed by the Bonanza geological team a strategic addition to leased claims. The acquisition expands the geological footprint to 38 lode mining claims covering about 600 acres of contiguous property. There are gold-bearing quartz fissure veins that closely follow “greenstone” (andesite or diabase) dikes that occur along east-west and northwest-southeast trending structures in early Proterozoic granitic rocks. The veins range from a few inches to several feet in width, with up to several hundred feet and unknown depth. The mineralogy of the veins consists of auriferous quartz with silver and varying amounts of sulfides, primarily pyrite with smaller amounts of galena, chalcopyrite, and sphalerite, and locally molybdenite. Hematite is locally prevalent as masses and relic structures formed from oxidation of the pyrite. The highest grade gold is generally associated with the highest concentrations of pyrite. We have not completed a Canadian NI 43-101 report or an American equivalent and do not know what our proven reserves are, but we are in the process of doing an internal resource estimate based on the placer material run to date and the assays we have completed and are in the process of completing on our load material. This will include our rock chip analysis that can be used to estimate load material and is being conducted by our internal geologist and we are using an accredited external assayer in Prescott, Arizona named Copper State Labs. 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. Additional exploration (mapping, sampling, bulk-sampling geophysics, drilling, etc.) must be conducted in order to determine the areal extent, volumes, grades, and values of auriferous quartz veins and gravels within the expanded claim block. The large land package with widespread areas of anomalous gold values; proximity to the Congress Mine; large iron oxide rich quartz veins which exhibit mineralogic and structural similarities to the Congress, Niagra, 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. There was some surface disturbance before Bonanza Goldfields acquired the property. There are a few existing adits and test pits, and a network of roads built by the previous owner who was selling boulders to housing developments. There is no known contamination of the area. The mining activity appears to be limited to small adits and test pits. Remediation of the site will be an ongoing process. Excavations will first be filled with the oversize material which has been separated by grizzly from the bank run feed materials from each excavation. Finally, the upper 6” - 12” of soil, which has been stored during initial site preparation, will be placed on top of the oversize materials in order to enhance revegetation of the area. Care will be taken to prevent erosion on slopes, and where necessary runoff will be diverted by water bars and terracing. All improved access roads will be graded to natural contour and water bars will be utilized to prevent erosion. Since some of the area of operations is near a natural drainage, efforts will be taken to ensure the natural flow is restored upon completion of the operation. 19 A breakdown of the exploration timetable and budget, including estimated amounts that will be required for each exploration activity, such as geophysics, geochemistry, surface sampling, drilling, etc. for each prospect are as follows: The timetable will depend on the availability of financing. The exploration plan would begin with a surface sampling program estimated to take 3 weeks and to cost approximately $35,000 to complete. Multi-element analyses will be performed on each sample and the geochemical analyses along with the local geology and the visible outcrops of mineralized quartz would be used to determine the best drill targets. The analyses and interpretation of the data will take an estimated 6 weeks to complete at a cost of $25,000. Assuming a cost of $50 per foot of core drilling, 8 drill targets, and an average depth of 500 feet, the drilling program will cost approximately $200,000. Our first phase is to set up the plant and then run placer material and test the results (including rock chip samples) to obtain an internal resource estimate on our patented properties. Also, we plan to obtain all necessary licenses to operate on the BLM land. Our second phase would be to move as much placer volume through our plant as possible if the placer levels are economical and to expand that plant to have significantly more operating volume. Third, we plan to secure financing for a load operation to add to our placer capacity. If placer material is not economical and load tests to be more economical then we plan to move to load given financing is available. On September 20, 2013, we 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 has agreed to purchase certain assets and assume certain liabilities from us for a purchase price of 3,300,000 units of Gunner Gold, LLC stock. We also granted Gunner Gold, LLC the right to conduct mining operations on our 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. RESULTS OF OPERATIONS Three months Ended September 30, 2013 Compared to Three months Ended September 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 three months ended September 30, 2013 and 2012, we generated 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 had net income of $172,195 for the three months ended September 30, 2013 and a net loss of $484,467 for the three months ended September 30, 2012, respectively, and our losses since inception amount to $7,858,850. Our operating expenses for exploration activities for the three months ended September 30, 2013 and 2012 were $6,818 and $20,684, respectively. The costs associated with exploration activities included trenching, testing, hauling, and labor costs associated with the exploration of our gold mines claims. Our general and administrative expenses for the three months ended September 30, 2013 and 2012 were $78,545 and $439,841, respectively. The decrease is primarily attributable to the decrease of compensation to an officer and a consultant. The Company is not active in its mining operation and has temporarily terminated its employment agreement with certain officer and consultant. Our interest expense for the three months ended September 30, 2013 and 2012 was $158,059 and $23,942, respectively. The increase is primarily attributable to the full amortization of debt discount related to a note issued to Tonaquint, Inc. as a result of the settlement in September 2013. 20 During the three months ended September 30, 2013, the Company settled the entire Secured Convertible Promissory Note and Warrant Purchase Agreement with Tonaquint, Inc with cash payment of $275,000 and recorded $106,999 gain on settlement of note payable to Tonaquint. During the three months ended September 30, 2013, the Company exchanged its Judgetown claim and certain other assets for a noncontrolling interest in Gunner Gold LLC’s and $433,635 cash and recorded $306,118 gain on sale of assets to Gunner Gold LLC. Liquidity and Capital Resources Our cash used in operating activities for three months ended September 30, 2013 was $143,044 compared to $82,065 for the three months ended September 30, 2012. The increase in cash used in operations was primarily attributable to the increase of cash payments made to the professionals. Cash provided by investing activities was $433,935 and $0 for the three months ended September 30, 2013 and 2012, respectively. The increase is mainly due to the cash received from sale of assets to Gunner Gold LLC. Our cash used in financing activities for the three months ended September 30, 2013 was $275,000 compared to $140,000 cash provided by financing activities for the three months ended September 30, 2012. We settled the entire Secured Convertible Promissory Note and Warrant Purchase Agreement with Tonaquint, Inc with cash payment of $275,000 during the three months ended September 30, 2013. Cash provided by financing activities during the three months ended September 30, 2012 included the proceeds from the sale of common stock. 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 pay monthly interest for another 2 years from September 30, 2013 with the balance due at the end of the 24-month term. On September 24, 2013 the Company entered into an agreement with Gunner Gold LLC in which Gunner agreed to pay $2,500 for 24 months to lease the Company’s Hull Lode claim. The $2,500 monthly payment will be used to repay the interest of note payable to Freedom Boat. 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 was 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. 21 As of September 30, 2013, we have received principal of $307,514 pursuant to the Secured Convertible Promissory Note. A National Instrument 43-101 Technical Report was prepared August 30, 2011 on mineral rights now owned or leased by Gunner Gold. This is a report that is the standard used in the industry to estimate the amount of minerals located on the subject property. The report places an estimate of its inferred mineral resources at 5.88 million ounces of gold and with current gold spot prices of approximately $1,275 per ounce it could have a perceived gross value of approximately $7.5 billion. On September 20, 2013, the entire Secured Convertible Promissory Note and Warrant Purchase Agreement with Tonaquint, Inc was settled with cash payment of $275,000. Off-balance sheet arrangements We have no off-balance sheet arrangements including arrangements that would affect the liquidity, capital resources, market risk support and credit risk support or other benefits. Additional Information Bonanza files reports and other materials with the Securities and Exchange Commission. These documents may be inspected and copied at the Securities and Exchange Commission, Judiciary Plaza, 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You can obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. You can also get copies of documents that the Company files with the Commission through the Commission’s Internet site at www.sec.gov . ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We do not hold any derivative instruments and do not engage in any hedging activities. Most of our activity is the development and mining of our mining claim.