Note 1.   Nature of Business and Significant Accounting Policies

 

Nature of business and principles of consolidation:

The accompanying Condensed Consolidated Financial Statements of Tara Minerals Corp. (the "Company") should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2011. Significant accounting policies disclosed therein have not changed, except as noted below.

Tara Minerals owns 99.9% of the common stock of American Metal Mining S.A. de C.V. ("AMM"), a Mexican corporation.  Tara Minerals also owns 85% of the common stock of Adit Resources Corp. ("Adit"). Tara Minerals' operations in Mexico are conducted through AMM since Mexican law provides that only Mexican corporations are allowed to own mining properties.  American Metal Mining's primary focus is on industrial minerals, e.g. copper, zinc.

On April 4, 2012 Adit sold its subsidiary American Copper Mining S.A. de C.V. ("ACM") to Yamana Mexico Holdings B.V. ("Yamana"). ACM's primary asset is the Picacho groupings.

The Company currently has limited operations and, in accordance with the Financial Accounting Standards Board Accounting Standards Codification ("FASB ASC") Development Stage Entities Topic, is considered an Exploration Stage Company.

In this filing references to "Company," "we," "our," and/or "us," refers to Tara Minerals and, unless the context indicates otherwise, its consolidated subsidiaries.

Tara Minerals is a subsidiary of Tara Gold Resources Corp. ("Tara Gold" or "the Company's Parent").

The accompanying Condensed Consolidated Financial Statements and the related footnote information are unaudited.  In the opinion of management, they include all normal recurring adjustments necessary for a fair presentation of the condensed consolidated balance sheets of the Company as of March 31, 2012 and December 31, 2011, the condensed consolidated results of its operations for the three months ended March 31, 2012 and 2011 and the condensed consolidated statements of cash flows for the three months ended March 31, 2012 and 2011. Results of operations reported for interim periods are not necessarily indicative of results for the entire year. All intercompany balances and transactions have been eliminated in consolidation.

The reporting currency of the Company and Adit is the U.S. dollar.  The functional currency of AMM and ACM is the Mexican Peso. As a result, the financial statements of the subsidiaries have been re-measured from Mexican pesos into U.S. dollars using (i) current exchange rates for monetary asset and liability accounts, (ii) historical exchange rates for non-monetary asset and liability accounts, (iii) historical exchange rates for revenues and expenses associated with non-monetary assets and liabilities and (iv) the weighted average exchange rate of the reporting period for all other revenues and expenses. In addition, foreign currency transaction gains and losses resulting from U.S. dollar denominated transactions are eliminated. The resulting re-measurement loss is recorded to accumulated other comprehensive income (loss).

Current and historical exchange rates are not indicative of what future exchange rates will be and should not be construed as such.

Relevant exchange rates used in the preparation of the financial statements for the AMM and ACM are as follows for the three months ended March 31, 2012 and 2011.  Mexican pesos per one U.S. dollar.

	March 31, 2012
Current exchange rate	Ps.	12.8489
Weighted average exchange rate for the three months ended	Ps.	13.0087

 

	March 31, 2011
Current exchange rate	Ps.	11.9219
Weighted average exchange rate for the three months ended	Ps.	12.0782

Estimates

The preparation of financial statements in conformity with generally accepted accounting principles 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 and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Reclassifications

Certain reclassifications, which have no effect on net loss, have been made in the prior period financial statements to conform to the current presentation.

Recoverable Value-Added Taxes (IVA) and Allowance for Doubtful Accounts

Impuesto al Valor Agregado taxes (IVA) are recoverable value-added taxes charged by the Mexican government on goods sold and services rendered at a rate of 16%.  Under certain circumstances, these taxes are recoverable by filing a tax return and as determined by the Mexican taxing authority.

Each period, receivables are reviewed for collectability.  When a receivable is determined to not be collectable we allow for the receivable until we are either assured of collection or assured that a write-off is necessary.  Our allowance in association with our receivable from IVA from our Mexico subsidiaries is based on our determination that the Mexican government may not allow the complete refund of these taxes.

		March 31, 2012 (Unaudited)				December 31, 2011
Allowance - recoverable value-added taxes		$	1,155,034			$	1,211,109
Allowance - other receivables			410				377
Total		$	1,155,444			$	1,211,486

Recently Adopted and Recently Issued Accounting Guidance

Adopted

In May 2011, the FASB issued an accounting standard update that amends the accounting standard on fair value measurements. The accounting standard update provides for a consistent definition and measurement of fair value, as well as similar disclosure requirements between U.S. generally accepted accounting principles and International Financial Reporting Standards. The accounting standard update changes certain fair value measurement principles, clarifies the application of existing fair value measurement, and expands the fair value measurement disclosure requirements, particularly for Level 3 fair value measurements. The amendments in this accounting standard update are to be applied prospectively and are effective for interim and annual periods beginning after December 15, 2011.  The adoption of this accounting standard update became effective for the reporting period beginning January 1, 2012.  The adoption of this guidance will not have a material impact on the Company's financial position, results of operations or cash flows

In June 2011, the FASB issued an accounting standard update which requires the presentation of components of other comprehensive income with the components of net income in either (1) a continuous statement of comprehensive income that contains two sections, net income and other comprehensive income, or (2) two separate but consecutive statements. This accounting standard update eliminates the option to present components of other comprehensive income as part of the statement of shareholders' equity, and is effective for interim and annual periods beginning after December 15, 2011.   The adoption of this accounting standard update became effective for the reporting period beginning January 1, 2012.  The adoption of this guidance will not have a material impact on the Company's financial position, results of operations or cash flows.

In September 2011, the FASB issued an accounting standard update that amends the accounting guidance on goodwill impairment testing. The amendments in this accounting standard update are intended to reduce complexity and costs by allowing an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it should calculate the fair value of a reporting unit. The amendments also improve previous guidance by expanding upon the examples of events and circumstances that an entity should consider between annual impairment tests in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.  The amendments in this accounting standard update are effective for interim and annual goodwill impairment tests performed for fiscal years beginning after December 15, 2011.  The adoption of this accounting standard update became effective for the reporting period beginning January 1, 2012.  The adoption of this guidance will not have a material impact on the Company's financial position, result of operations or cash flows.

Issued

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the SEC did not, or are not believed by management to, have a material impact on the Company's present or future financial position, results of operations or cash flows.

Note 2.   Property, plant, equipment, mine development and land

		March 31, 2012				December 31, 2011
		(Unaudited)
Land		$	19,590			$	19,590
Mining concessions:
Pilar			710,172				710,172
Don Roman			521,739				521,739
Las Nuvias			100,000				100,000
Centenario			635,571				635,571
La Palma			80,000				80,000
La Verde			60,000				60,000
Pirita			250,000				250,000
Picacho (a)			-				1,250,000
Picacho Fractions (a)			-				163,793
Las Viboras Dos			188,094				188,094
Mining concessions			2,545,576				3,959,369
Property, plant and equipment			3,514,509				3,531,501
			6,079,675				7,510,460
Less - accumulated depreciation			(629,708	)			(562,273	)
		$	5,449,967			$	6,948,187

Pilar, Don Ramon, Las Nuvias, Centenario, La Palma and La Verde properties are geographically located in Mexico and are known as the Don Roman Groupings.

The Picacho and Picacho Fractions are geographically located in Mexico and are known as the Picacho Groupings.

a.

Picacho Groupings is owned by ACM and were reclassified to assets available for sale, net at March 31, 2012 (See Note 4).

Other Mining Commitments

Mina El Champinon Iron Ore Project

In September 2011, the Company leased the Mina El Champinon Iron Ore Project ("Champinon") for royalty payments based on production which gives the Company the right to mine the project for a period of 10 years with an automatic renewal clause.

 

Tara Minerals will semi-annually pay the concession owner a royalty of $5, plus any value-added tax, for each tonne of material sold with a minimum of $300,000 in royalty payments every 6 months. The concession owner has been paid $235,345 and $175,000, plus value-added taxes at March 31, 2012 and December 31, 2011, respectively (see Note 3), and will be advanced funds, against the minimum royalty, on a monthly basis. The concession owner granted the Company additional time to pay the remaining $64,655 towards the $300,000 minimum semi-annual royalty advance.

Mina Godinez

In July 2010, Tara Minerals entered into a joint venture agreement whereby third parties would contribute 100% of the mining rights to the concession "Mina Godinez" and Tara Minerals would have the exclusive rights to manage, operate, explore and exploit the concession. This joint venture was terminated January 18, 2012.

Note 3.   Other Assets

As of March 31, 2012 and December 31, 2011, respectively, the Company had advances of $235,345 and $175,000 toward Champinon (see Note 2) and security deposits of $24,920 and $32,752. During the three months ending March 31, 2012, the Company made an additional advance toward Champinon in the amount of $60,345 and reclassified security deposits for vacated rental properties in Manzanillo, Colima to other receivables until a reimbursement is received.

Note 4.   Assets Available for Sale, Net

On April 4, 2012 Adit sold ACM to Yamana.  ACM's primary asset is the Picacho groupings (See Note 11). The following assets and liabilities have been presented as assets available for sale, net of liabilities as of March 31, 2012 (Unaudited).

Other Receivables, net		$	24,338
Other current assets			10,565
Goodwill			12,028
Fixed assets, net of accumulated depreciation			3,983
Mining concessions			1,413,793
Accounts payable and accrued expenses			(457	)
Total assets available for sale as of March 31, 2012		$	1,464,250

Note 5.   Notes Payable

The following table represents the outstanding balance of notes payable.

 

		March 31, 2012				December 31, 2011
		(Unaudited)
Mining concession		$	411,374			$	392,189
Auto loans			96,349				96,762
Related party			100,000				100,000
			607,723				588,951
Less - current portion			(542,082	) )			(519,977	)
Total - non-current portion		$	65,641			$	68,974

The five year maturity schedule for notes payable is presented below:

		2013				2014				2015				2016				2017				Total
Mining Concessions		$	411,374			$	-			$	-			$	-			$	-			$	411,374
Auto Loans			30,708				35,883				26,229				3,529				-				96,349
Related party			100,000				-				-				-				-				100,000
Total		$	542,082			$	35,883			$	26,229			$	3,529			$	-			$	607,723

Note 6.   Related Party Transactions

	March 31, 2012				December 31, 2011
	(Unaudited)
Due from related parties, net		$	150,869			$	144,962
Due to related parties			(2,519,360	)			(2,525,365	)
		$	(2,368,491	)		$	(2,380,403	)

All transactions with related parties have occurred in the normal course of operations and Mexico based related party transactions are measured at the foreign exchange amount.

 In January 2007, Amermin, a subsidiary of Tara Gold, made the arrangements to purchase the Pilar, Don Roman and Las Nuvias properties listed in Note 2 (part of the Don Roman Groupings) and sold the concessions to AMM. At December 31, 2011, Amermin has paid the original note holder in full. AMM owes Amermin $535,659 for the Pilar mining concession and $211,826 for the Don Roman mining concession.

As of March 31, 2012, Amermin loaned AMM $1,002,404 at 0% interest, due on demand

As of March 31, 2012, the Company owes Tara Gold $568,645. There are no terms to this intercompany payable and it is due on demand by Tara Gold.

On May 2011, ACM acquired three mining concessions knows as "Picacho Fractions I, II and III" from Amermin. The acquisition price of the properties was $163,793 plus value added taxes of $26,207, financed at LIBOR plus 3.25%. As of March 31, 2012 ACM has paid Amermin the full acquisition price.

On July 28, 2010, Adit borrowed $100,000 from an officer of Adit. The note bears interest at 3.25% per year, with interest payable quarterly and due on June 30, 2012 (as amended).

Note 7.   Stockholders' Equity

During the three months ended March 31, 2012 the Company did not issue any shares of common stock.

Common Stock Payable

At March 31, 2012, common stock payable consists of:

·

719,000 shares of common stock, valued at $347,000 for cash. These shares were issued during April 2012.

Note 8.   Options and Warrants

The Company has the following stock option plans which are registered under a Form S-8:

·      Incentive Stock Option Plan

·      Nonqualified Stock Option Plan

·      Stock Bonus Plan

In March 2012, the Company sold 594,000 units in a private offering for $297,000 in cash, or $0.50 per unit. Each unit consisted of one share of the Company's common stock, which have not been issued and are recorded as common stock payable, and one warrant. Each warrant entitles the holder to purchase one share of the Company's common stock at a price of $1.00 per share at or any time before December 31, 2012. The shares and warrants were issued in April 2012.

On October 28, 2009, Adit, the Company's subsidiary, adopted the following stock option plans which have not been registered:

·      Incentive Stock Option Plan

·      Nonqualified Stock Option Plan

·      Stock Bonus Plan

There was no issuance of instruments under the Adit plans in 2012.

The fair value of each award discussed above is estimated on the date of grant using the Black-Scholes valuation model that uses the assumptions noted in the following table. Expected volatilities are based on volatilities from the Company's traded common stock. The expected term of the award granted is usually estimated at half of the contractual term as noted in the individual agreements, unless the life is one year or less based upon management's assessment of known factors, and represents the period of time that management anticipates awards granted to be outstanding.  The risk-free rate for the periods within the contractual life of the option is based on the U.S. Treasury bond rate in effect at the time of grant for bonds with maturity dates at the estimated term of the options.

		March 31, 2012		December 31, 2011
Expected volatility		121.09%		98.06% - 163.11%
Weighted-average volatility		121.09%		143.46%
Expected dividends		0		0
Expected term (in years)		1.50		1.50
Risk-free rate		0.21%		0.58%

A summary of option activity under the Plans as of March 31, 2012 (unaudited) and changes during the period then ended is presented below:

 

A summary of warrant activity as of March 31, 2012 (unaudited) and changes during the period then ended is presented below:

Warrants		Shares				Weighted- Average Exercise Price				Weighted- Average Remaining Contractual Term				Aggregate Intrinsic Value
Outstanding at December 31, 2011			7,393,081			$	0.89
Granted			594,000				0.87
Exercised			-				-
Forfeited, cancelled or expired			(250,000	)			0.01
Outstanding at  March 31, 2012			7,737,081			$	1.04				1.5			$	686,536
Exercisable at March 31, 2012			7,143,081			$	1.04				1.5			$	686,536

 

            All warrants vest upon issuance.

Note 9.        Non-controlling Interest

		March 31, 2012 (Unaudited)				December 31, 2011
Combined Adit / ACM:
Common stock for cash		$	1,999,501			$	1,999,501
Common stock for services			95,215				95,215
Technical data for Picacho			240,000				240,000
Officer stock based compensation			944,956				944,956
Net loss attributable to non-controlling interest through December 31, 2011			(452,464	)			(452,464	)
Net loss attributable to non-controlling interest  in 2012			(13,765	)			-
Other			5				5
Total non-controlling interest		$	2,813,448			$	2,827,213

Note 10.        Fair Value

In accordance with authoritative guidance, the table below sets forth the Company's financial assets and liabilities measured at fair value by level within the fair value hierarchy.  Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

		Fair Value at March 31, 2012 (Unaudited)
		Total				Level 1				Level 2				Level 3
Assets:
None		$	-			$	-			$	-			$	-
Liabilities:
Total notes payable, including related party		$	607,723			$	607,723			$	-			$	-
Due to related parties, net of due from			2,368,491				2,368,491				-				-
Iron Ore Properties financial instrument			570,000				-				-				570,000
Total		$	3,546,214			$	2,976,214			$	-			$	570,000

	Fair Value at December 31, 2011
		Total				Level 1				Level 2				Level 3
Assets:
None		$	-			$	-			$	-			$	-
Liabilities:
Total notes payable, including related party		$	588,951			$	588,951			$	-			$	-
Due to related parties, net of due from			2,380,403				2,380,403				-				-
Iron Ore Properties financial instrument			570,000				-				-				570,000
Total		$	3,422,829			$	2,969,354			$	-			$	570,000

Note 11.          Subsequent Events

a)

On April 4, 2012, Adit agreed to sell its wholly owned subsidiary, ACM, to Yamana. American Copper's primary asset is the Picacho group of concessions. The Picacho concessions do not have any proven reserves.

As consideration for the sale of ACM, Yamana agreed to pay Adit, in U.S. dollars:

·

$7.5 million, minus approximately $780,000 (the amount required to pay the Mexican government to release its tax lien on the property), which amount was deposited into an escrow account and will be released to Adit when the Mexican government releases its tax lien on the property (the "Escrow Release Date");

·

$10 million one year after the Escrow Release Date;

·

During the period ending five years after the Escrow Release Date, $1.0 million for every 100,000 ounces of gold, (whether proved, measured or inferred) discovered on the property. If no gold is discovered on the property three years after the Escrow Release Date, Yamana will nevertheless pay Adit $3 million. Regardless of the number of ounces of gold discovered on the property, Yamana, pursuant the agreement, will pay a maximum of $14 million and a minimum of $3 million.

·

$4.3 million six years after the Escrow Release Date.

As part of the agreement, Yamana will also surrender the shares and warrants which it purchased from Adit.

Yamana has the option to terminate the agreement within ten business days prior to the one year anniversary of Escrow Release Date for any reason.  If the agreement is terminated, Yamana will be required to return the capital stock of American Copper.