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COYR > SEC Filings for COYR > Form 10-Q on 4-Sep-2013All Recent SEC Filings

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Form 10-Q for COYOTE RESOURCES, INC.


4-Sep-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

This following information specifies certain forward-looking statements of management of the company. Forward-looking statements are statements that estimate the happening of future events and are not based on historical fact. Forward-looking statements may be identified by the use of forward-looking terminology, such as "may," "shall," "could," "expect," "estimate," "anticipate," "predict," "probable," "possible," "should," "continue," or similar terms, variations of those terms or the negative of those terms. The forward-looking statements specified in the following information have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements.

The assumptions used for purposes of the forward-looking statements specified in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. We cannot guaranty that any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and we assume no obligation to update any such forward-looking statements.

Critical Accounting Policy and Estimates. Our Management's Discussion and Analysis of Financial Condition and Results of Operations section discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources. In addition, these accounting policies are described at relevant sections in this discussion and analysis and in the notes to the financial statements included in this Quarterly Report on Form 10-Q for the period ended June 30, 2013.

The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements for the period ended June 30, 2013, together with notes thereto, which are included in this report.

For the three months ended June 30, 2013, as compared to the three months ended June 30, 2012.

Results of Operations.

Revenues. We had no revenues for the three months ended June 30, 2013 and June 30, 2012.

Operating Expenses. For the three months ended June 30, 2013, our total operating expenses were $119,529, as compared to total operating expenses of $121,848 for the three months ended June 30, 2012. For the three months ended June 30, 2013, our total operating expenses consisted of legal and professional fees of $33,605, officer compensation of $37,500 and general and administrative expenses of $48,424. In comparison, for the three months ended June 30, 2012, our total operating expenses consisted of exploration costs of $7,974, legal and professional fees of $79,877, officer compensation of $10,000 and general and administrative expenses of $23,997. The decrease in total operating expenses from 2012 to 2013 is primarily due to increases officer compensation and general and administrative expenses and a decrease in legal and professional fees incurred during the three months ended June 30, 2013. We expect that we will not incur any significant exploration costs until we are able to raise additional capital. We also expect that we will continue to incur significant legal and accounting expenses related to being a public company.


Other Expense. For the three months ended June 30, 2013, our other expenses consisted of interest expense in the amount of $47,048, and gain on derivative liability of $956,519. In comparison, for the three months ended June 30, 2012, our other expense consisted of interest expense of $30,651, and gain on derivative liability of $248,433.

Net Loss. For the three months ended June 30, 2013, our net income was $789,942, as compared to the three months ended June 30, 2012, in which our net income was $95,934. We expect to continue to incur net losses for the foreseeable future.

For the six months ended June 30, 2013, as compared to the six months ended June 30, 2012.

Results of Operations.

Revenues. We had no revenues for the six months ended June 30, 2013 and June 30, 2012.

Operating Expenses. For the six months ended June 30, 2013, our total operating expenses were $202,103, as compared to total operating expenses of $185,532 for the six months ended June 30, 2012. For the six months ended June 30, 2013, our total operating expenses consisted of legal and professional fees of $52,176, officer compensation of $67,500 and general and administrative expenses of $82,427. In comparison, for the six months ended June 30, 2012, our total operating expenses consisted of exploration costs of $8,096, legal and professional fees of $127,406, officer compensation of $10,000 and general and administrative expenses of $40,030. The increase in total operating expenses from 2012 to 2013 is primarily due to increases officer compensation and general and administrative expenses and a decrease in legal and professional fees incurred during the six months ended June 30, 2013. We expect that we will not incur any significant exploration costs until we are able to raise additional capital. We also expect that we will continue to incur significant legal and accounting expenses related to being a public company.

Other Expense. For the six months ended June 30, 2013, our other expenses consisted of interest expense in the amount of $87,993, and gain on derivative liability of $606,105. In comparison, for the six months ended June 30, 2012, our other expense consisted of interest expense of $60,980, and loss on derivative liability of $57,928.

Net Loss. For the six months ended June 30, 2013, our net income was $316,009, as compared to the six months ended June 30, 2012, in which our net loss was $304,440. We expect to continue to incur net losses for the foreseeable future.

Liquidity and Capital Resources. As of June 30, 2013, we had cash of $6,505, property and equipment of $Nil, net of $3,056 accumulated depreciation, and unproven mineral properties of $1,194,910, making our total assets $1,201,415.

Our unproven mineral properties of $1,194,910 as of June 30, 2013 consist of our rights to the Tonopah Extension Mine and the Golden Trend Property in Nevada.

Our total current liabilities were $1,979,998 as of June 30, 2013, which was represented by accounts payable and accrued expenses of $504,070, current portion of notes payable of $250,000, loans from stockholders of $22,000, a convertible note totaling $1,100,000 of principal, pursuant to a Note and Warrant Purchase Agreement (the "Financing Agreement") we entered into with Socially Responsible Wealth Management Ltd. ("SRWM") in August 2010, and derivative liability of $103,928. Long-term notes payable as of June 30, 2013 were $997,482.

As of June 30, 2013, our long term notes payable of $997,482 consists of (i) promissory notes payable to a stockholder totaling $647,482 of principal and
(ii) $350,000 which is owed to Cliff ZZ L.L.C. pursuant to the Mining Lease and Option to Purchase Agreement between us and Cliff ZZ L.L.C. (the "Tonopah Agreement").

Pursuant to the Financing Agreement, SRWM agreed to lend up to $2,000,000 to us in multiple installments in exchange for senior secured convertible promissory notes with a conversion price of $0.50 per share and five-year warrants to acquire shares of common stock at an exercise price of $0.75 per share in the amount of each installment. The first installment of $500,000 was delivered on August 12, 2010, and we issued 500,000 warrants to the investor in connection with the first installment. Included in the First Installment was the repayment of the April 22, 2010 note payable of $200,000 that was due to SRWM. This note is due, together with interest at the rate of 10% per annum on August 13, 2013.


On January 19, 2011, we borrowed an additional $100,000 from SRWM pursuant to the Financing Agreement. We issued a senior secured convertible promissory note to SRWM in the amount of $100,000. The note is due on August 13, 2013, or upon default, whichever is earlier, and bears interest at the annual rate of 10%. The note has an optional conversion feature by which SRWM can convert the principal and accrued interest into shares of our common stock at a conversion price of $0.50 per share. In connection with the note, SRWM also received warrants to purchase 100,000 shares of our common stock at a purchase price of $0.75 per share. The warrants expire five years from the date of the investment.

On March 17, 2011, we borrowed an additional $500,000 from SRWM pursuant to the Financing Agreement. We issued a senior secured convertible promissory note to SRWM in the amount of $500,000. The note is due on August 13, 2013, or upon default, whichever is earlier, and bears interest at the annual rate of 10%. The note has an optional conversion feature by which SRWM can convert the principal and accrued interest into shares of our common stock at a conversion price of $0.50 per share. In connection with the note, SRWM also received warrants to purchase 100,000 shares of our common stock at a purchase price of $0.75 per share. The warrants expire five years from the date of the investment.

As of June 30, 2013, we owed $1,100,000 of principal and $283,397 of interest pursuant to the Financing Agreement. Unless we can renegotiate these debt obligations, these notes will be in default. Pursuant to the terms of the notes, the non-payment of principal and unpaid accrued interest by us constitutes an event of default and, as a result, the holder of the notes may accelerate payment of all amounts outstanding under the notes by giving written notice to us and thereby requiring that we immediately pay up to an aggregate of $1,100,000 in principal plus all unpaid accrued interest. If the holder of the notes were to declare the notes due and payable, we presently do not have the ability to pay these notes.

In connection with the assignment of the rights to the Tonopah Agreement, we assumed the balance of the purchase option of $990,000. We made one required payment in the amount of $100,000 to Cliff ZZ LLC during the six months ended June 30, 2013. The balance of the purchase option was $600,000 at June 30, 2013. Of this balance, $250,000 is a current liability and $350,000 is a long-term liability. Our required minimum payments vary per year with final payment due on March 15, 2015.

In connection with the assignment of the rights to the Golden Trend Mining Lease one required payment in the amount of $15,000 was made to Rubicon Resources during the six months ended June 30, 2013.

On October 27, 2011, we issued a promissory note to a shareholder in exchange for $40,000. Per the terms of the note, the principal was due, together with interest at 12% per annum, on January 17, 2012. This note was consolidated into a new note on September 26, 2012 (see note below).

On February 7, 2012, we issued a promissory note to the same shareholder in exchange for $20,000. Per the terms of the note, the principal was due, together with interest at 12% per annum, on May 7, 2012. This note was consolidated into a new note on September 26, 2012 (see note below).

On March 6, 2012, we issued a promissory note to the same shareholder in exchange for $50,000. Per the terms of the note, the principal was due, together with interest at 12% per annum, on June 6, 2012. This note was consolidated into a new note on September 26, 2012 (see note below).

On March 30, 2012, we issued a promissory note to the same shareholder in exchange for $25,000. Per the terms of the note, the principal was due, together with interest at 12% per annum, on June 6, 2012. This note was consolidated into a new note on September 26, 2012 (see note below).

On May 18, 2012, the Company issued a promissory note to the same shareholder in exchange for $30,000. Per the terms of the note, the principal is due, together with interest at 12% per annum, on August 18, 2012. This note was consolidated into a new note on September 26, 2012 (see note below).

On August 2, 2012, the Company issued a promissory note to the same shareholder in exchange for $86,709.50 for loans of $16,709.50 on July 6, 2012 and $70,000 on August 2, 2012. Per the terms of the note, the principal is due, together with interest at 12% per annum, on November 2, 2012. This note was consolidated into a new note on September 26, 2012 (see note below).

On September 26, 2012, the Company entered into an unsecured consolidated promissory note (the "Consolidated Note") with the same shareholder which consolidates all of the outstanding principal and accrued interest due as of September 26, 2012 on outstanding promissory notes with the shareholder dated October 27, 2011, February 7, 2012, March 6, 2012, March 30, 2012, May 18, 2012, and August 2, 2012 (collectively, the "Initial Notes"), together with additional proceeds from the shareholder of $100,000 received by the Company on September 26, 2012. The Initial Notes were terminated and replaced by the Consolidated Note. The Consolidated Note is due on September 26, 2014, or upon default, whichever is earlier, and bears interest at the annual rate of 12%.


On October 24, 2012, we issued a promissory note to the same shareholder in exchange for $15,000. Per the terms of the note, the principal is due, together with interest at 12% per annum, September 26, 2014.

On November 28, 2012, we issued a promissory note to the same shareholder in exchange for $25,570. Per the terms of the note, the principal is due, together with interest at 12% per annum, September 26, 2014.

On February 8, 2013, we issued a promissory note to the same shareholder in exchange for $34,985. Per the terms of the note, the principal is due, together with interest at 12% per annum, September 26, 2014.

On March 20, 2013, we issued a promissory note to the same shareholder in exchange for $200,000. Per the terms of the note, the principal is due, together with interest at 12% per annum, September 26, 2014.

On April 29, 2013, the Company received a cash advance from a stockholder in the amount of $5,000. The amount is due on demand. The loan funds were used for working capital purposes.

On June 21, 2013, we issued a promissory note to the same shareholder in exchange for $6,445. Per the terms of the note, the principal is due, together with interest at 12% per annum, September 26, 2014.

Over the last twenty months we have been funding our operations through loans from a stockholder which we have used for working capital purposes.

Other than those liabilities discussed above, we had no other liabilities and no other long term commitments or contingencies as of June 30, 2013.

As of June 30, 2013, we had cash and cash equivalents of $6,505. In the opinion of management, available funds will not satisfy our working capital requirements to operate for the next twelve months. Our forecast for the period for which our financial resources will be adequate to support our operations involves risks and uncertainties and actual results could fail as a result of a number of factors.

During 2013, we expect that the following will continue to impact our liquidity:
(i) legal and accounting costs of being a public company; (ii) future payments to Cliff ZZ LLC for the balance of the purchase option for the Tonopah Agreement and lease payments to Rubicon Resources Inc. on the Golden Trend Property; (iii) expected expenses related to the development of the Tonopah Extensions Mine and the Golden Trend Property; (iv) anticipated increases in overhead and the use of independent contractors for services to be provided to us; and (v) expected payments to notes payable to the investor. We will need to obtain funds to pay those expenses. Other than those items specified above, we are not aware of any other known trends, events or uncertainties, which may affect our future liquidity.

In order to implement our business plan in the manner we envision, we need to raise additional capital. We cannot guaranty that we will be able to raise additional funds. Moreover, in the event that we can raise additional funds, we cannot guaranty that additional funding will be available on favorable terms. Any future financing that we may obtain may cause significant dilution to existing stockholders. Any debt financing or other financing of securities senior to common stock that we are able to obtain will likely include financial and other covenants that will restrict our flexibility. Any failure to comply with these covenants would have a negative impact on our business, prospects, financial condition, results of operations and cash flows.

If adequate funds are not available, we may be required to delay, scale back or eliminate portions of our operations or to obtain funds through arrangements with strategic partners or others that may require us to relinquish rights to certain of our assets. Accordingly, the inability to obtain such financing could result in a significant loss of ownership and/or control of our assets and could also adversely affect our ability to fund our continued operations and our expansion efforts.

We are not currently conducting any research and development activities. We do not anticipate conducting such activities in the near future. We intend to use independent contractors for certain services related to the Golden Trend Property and the Tonopah Extension Mine. We anticipate that we may need to purchase or lease additional equipment in order to conduct certain of our operations. However, as of the date of this report, we do not have any specific plans to purchase or lease additional equipment.


Off-Balance Sheet Arrangements.

We have no off-balance sheet arrangements.

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