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, 2012. 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, and owns 87% of the common stock of Adit Resources Corp. ("Adit"). Adit in turns owns 99.99% of American Copper Mining, S.A. de C.V. ("ACM") (See Note 11). Tara Minerals' operations in Mexico are conducted through AMM and ACM since Mexican law provides that only Mexican corporations are allowed to own mining properties.

The Company is a mining company in the exploration stage and presents inception to date information, in accordance with the Financial Accounting Standards Board Accounting Standards Codification ("FASB ASC") Development Stage Entities Topic.

In these financial statements, references to "Company," "we," "our," and/or "us," refer to Tara Minerals Corp. 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 September 30, 2013 and December 31, 2012, the condensed consolidated results of its operations for the three and nine months ended September 30, 2013 and 2012 and the condensed consolidated statements of cash flows for the nine months ended September 30, 2013 and 2012. Results of operations reported for interim periods are not necessarily indicative of results for the entire year.

The condensed consolidated financial statements include the financial statements of the Company and its subsidiaries. All amounts are in U.S. dollars unless otherwise indicated. All significant inter-company 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 these 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 gain (loss) is recorded to other comprehensive gain (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 AMM and ACM are as follows for the nine months ended September 30, 2013 and 2012.  Mexican pesos per one U.S. dollar:

	September 30, 2013
Current exchange rate	Ps.	13.1450
Weighted average exchange rate for the nine months ended	Ps.	12.6796

 

	September 30, 2012
Current exchange rate	Ps.	12.8521
Weighted average exchange rate for the nine months ended	Ps.	13.2391

 

Reclassifications

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

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. Management routinely makes judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.

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 has doubtful collectability we allow for the receivable until we are either assured of collection (and reverse the allowance) or assured that a write-off is necessary.  Our allowance in association with our receivable from IVA from our Mexico subsidiary is based on our determination that the Mexican government may not allow the complete refund of these taxes.

		September 30, 2013				December 31, 2012
		(Unaudited)
Allowance - recoverable value-added taxes		$	1,618,362			$	1,579,129
Allowance - other receivables			317,589				321,428
Total		$	1,935,951			$	1,900,557

Reclamation and remediation costs (asset retirement obligations)

Reclamation costs are allocated to expense over the life of the related assets and are periodically adjusted to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation and abandonment costs.

 

Future remediation costs for reprocessing plant and buildings are accrued based on management's best estimate, at the end of each period, of the undiscounted costs expected to be incurred at a site. Such cost estimates include, where applicable, ongoing remediation, maintenance and monitoring costs. Changes in estimates are reflected in earnings in the period an estimate is revised.

Income taxes

Income taxes are provided for using the asset and liability method of accounting in accordance with the Income Taxes Topic of the FASB ASC. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The computation of limitations relating to the amount of such tax assets, and the determination of appropriate valuation allowances relating to the realization of such assets, are inherently complex and require the exercise of judgment. As additional information becomes available, we continually assess the carrying value of our net deferred tax assets.

Fair Value Accounting

As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The three levels of the fair value hierarchy are described below:

Level 1

Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2

Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;

Level 3

Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

Recently Adopted and Recently Issued Accounting Guidance

In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income, which is included in ASC 220, Comprehensive Income. This update improves the reporting of reclassification out of accumulated other comprehensive income. The adoption of this accounting standard update  became effective for the Company's interim and annual reporting periods beginning January 1, 2013  The adoption of this guidance did not have a material impact on the Company's financial position, results of operations or cash flows.

In March 2013, the FASB issued ASU No. 2013-05, Liabilities (Topic 830): Parent's Accounting for Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity.  This ASU is effective for interim and annual periods beginning after December 15, 2013 and requires the release of any cumulative translation adjustment into net income upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in foreign entity.   Management does not anticipate that the accounting pronouncement will have any material future effect on our consolidated financial statements.

In July 2013, FASB issued ASU No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.   This ASU is effective for interim and annual periods beginning after December 15, 2013.  This update standardizes the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists.  Management does not anticipate that the accounting pronouncement will have any material future effect on our consolidated financial statements.

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, land and construction in progress, net

		September 30, 2013				December 31, 2012
		(Unaudited)
Land		$	19,590			$	19,590
Mining concessions:
Pilar (a)			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
Champinon (b)			-				2,153,693
Dixie Mining District (c)			650,000				-
Picacho Groupings (See Note 11)			1,571,093				-
Mining concessions			4,328,575				4,261,175
Construction in progress			-				269,244
Property, plant and equipment			4,163,745				3,786,947
			8,511,910				8,336,956
Less - accumulated depreciation			(1,066,406	)			(836,184	)
		$	7,445,504			$	7,500,772

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

a.

In January 2007, the Company acquired the Pilar de Mocoribo Prospect ("Pilar") from Tara Gold Resources Corp. for $739,130 plus $115,737 of value-added tax (as amended).  The Company owes $535,659 for this mining concession (including the applicable value-added tax).

In accordance with the Interest Topic of FASB ASC, the future payments of the total payment amount of $739,130 have been discounted using the incremental borrowing rate of 5.01%. As of September 30, 2013, the present value of future payments is as follows:

		Debt				IVA				Total
Total remaining debt		$	486,739			$	77,878			$	564,617
Imputed interest			(28,959	)			-				(28,959	)
Present value of debt		$	457,780			$	77,878			$	535,658

b.

In September 2011, the Company leased the Mina El Champinon Iron Ore Project ("Champinon") in exchange for royalty payments based on production. From September 2011 to April 2012, the Company paid $235,000, plus $38,000 in value-added taxes in advances against royalty payments.

In May, 2012, the Company terminated the lease agreement for Champinon and entered into a new agreement to acquire the Iron Ore Project for an effective purchase price of $2,175,000, plus $348,000 in value-added taxes. The advances against royalty payments made before the lease agreement was terminated were applied against the effective purchase of the Iron Ore Project.

In May 2012, the Company purchased technical data pertaining to Champinon from the former owner for 500,000 shares of Tara Minerals' common stock, valued at $430,000.

On March 15, 2013, a Settlement Agreement and Release ("Agreement") was entered into by and among the Company, AMM, Jeffrey Holt, Tom Claridge, Steve Eady, Carnegie Mining and Exploration, Inc. ("CMEI"), CME Operations, LLC ("CME")(CMEI and CME, referred to as "Carnegie"), Harsco Corporation, and Pittsburgh Mineral & Environmental Technology, Inc.   In exchange for Carnegie's acknowledgement that it has no rights under a previously granted option on the Don Roman property further described below, AMM assigned its Champinon mining rights purchase contract, including all related obligations and acquisition payments, to Plathio Trading Mexico, SA de CV, Carnegie's Mexican subsidiary, and the Company agreed to issue to Carnegie 500,000 restricted shares of the Company's common stock, which may not be sold until the earlier of: (i) the Company's shares reaching a minimum trading price of $1.00 per share; or (ii) two years from the date of the Agreement. Under the transfer agreement for the Champinon property, AMM retains mining and beneficial rights to known silver, zinc, and led vein structure present on the Champinon concession. On March 22, 2013, the 500,000 restricted shares were issued. The Agreement confirms Carnegie's acknowledgement of the Company's 100% ownership of the Don Roman property.

Per the Agreement dated March 15, 2013, the Company retained ownership of 14 hectares of the Champinon mining concession which the Company valued at $203,000. As of September 2013, the Company was notified of a default of the purchase contract by non-performance of Carnegie; the Company concluded that at this time the probability of retaining claim on the 14 hectares of the Champinon mining concession is remote and therefore removed the mining concession from its books and recognized it as an additional loss on the Agreement.

 

The Company recognized a total loss of $1,064,996 on the Agreement mentioned above.

c.

In May 2013, the Company acquired the Dixie Mining District, located in Idaho, from an independent third party for an effective purchase price of $400,000. The purchase price was paid in full in 2013. In September 2013 the Company exercised its option to acquire 20 additional acres of unpatented mining claims to add to the Dixie Mining District, for an effective purchase price of $250,000. To date, the land package consists of 6,741 acres consisting of both patented and unpatented mining claims.

The independent third party shall receive royalties upon all ores, mineral-bearing rock and other deposits extracted and shipped or milled, treated, and sold from the property in the amount of 3% of the net smelter or mill returns earned from the property prior to December 31, 2014. The royalty agreement provides that the payment of the royalty shall terminate upon the independent third party receiving $558,160. If that amount is not paid as of December 31, 2014, the Company is required to pay the difference. No royalty shall be owed to the independent third party if mining on the property is not economically feasible. As of September 30, 2013, no royalty payments have been paid.

 

Note 3.

Income Taxes

The Company files income tax returns in the United States ("U.S.") and Mexican jurisdictions.  In the U.S., Tara Minerals and Adit file a consolidated tax return, which was filed on June 27, 2013.  In Mexico, AMM files a standalone tax return, which was filed on March 27, 2013.   No tax returns for the Company or any subsidiary of the Company are currently under examination by any tax authorities in their respective countries, except for routine tax reviews for AMM for January - December 2011.

The provision for federal and state income taxes for the nine months ended September 30, 2013 includes elements of the Tara Minerals and Adit as one filing entity; and AMM as a separate filing entity.

The September 30, 2013, and since inception income tax benefit, net of tax associated with discontinued operations, is as follows:

		U.S. Companies				Mexico Companies				Total
Current asset (liability) - total		$	-			$	-			$	-
Deferred asset (liability) - total			7,367,000				2,433,000				9,800,000
Valuation allowance			(7,367,000	)			(2,433,000	)			(9,800,000	)
Income tax benefit, since inception		$	-			$	-			$	-

As further discussed in Note 11, the Company sold 100% of its interest in ACM in April 2012 and re-acquired it on May 9, 2013.

A valuation allowance is recorded when it is more likely than not that the deferred tax assets will be realized. The future use of deferred tax assets is dependent on the future taxable profits which arise from taxable temporary timing differences such as:

·

Differences in expensed stock based compensation and stock for investor relation services and corporate officers.

·

The capitalization of foreign mining exploration expenses for U.S. federal income tax purposes.

·

A carry forward of a net operating loss.

 

At September 30, 2013, total deferred tax assets and deferred tax liabilities are as follows:

		U.S. Companies				Mexico Companies				Total
Deferred tax asset - current		$	276,000			$	-			$	276,000
Deferred tax asset - non-current portion			7,091,000				2,433,000				9,524,000
Total deferred tax asset			7,367,000				2,433,000				9,800,000
Deferred tax liability - current			-				-				-
Deferred tax liability - non current			-				-				-
Total deferred tax liability			-				-				-
Valuation allowance			(7,367,000	)			(2,433,000	)			(9,800,000	)
Net deferred tax asset (liability)		$	-			$	-			$	-

Net operating losses generated in the U.S. may only be used to offset income generated in the U.S.  The U.S. deferred tax asset has been reduced from approximately $6,284,000 to zero due to management's forecast on the ability to utilize the related deferred tax assets as of 2013 or in 2014.

Net operating losses generated in Mexico may only be used to offset income generated in Mexico. AMM has a net operating loss in Mexico of approximately $1,055,000 with an estimated deferred tax benefit of $317,000. The net operating loss and estimated tax benefit has been added to net operating losses and tax benefits from previous years.

Per the Income Tax topic of the FASB ASC, when it is more likely than not that a tax asset cannot be realized through future income the Company must allow for this future tax benefit.  We have fully allowed for the entire deferred tax asset for the Company and all subsidiaries as of September 30, 2013.

Net operating losses expire as follows:

		U.S. Companies				Mexico Companies				Total
December 31, 2029		$	-			$	-			$	-
December 31, 2030			6,810,000				3,722,000				10,532,000
December 31, 2031			2,330,000				1,864,000				4,194,000
December 31, 2032			-				1,468,000				1,468,000
December 31, 2033			-				1,055,000				1,055,000
Total net operating loss		$	9,140,000			$	8,109,000			$	17,249,000

 

 

Per U.S. Internal Revenue Code Section 382, in the event of a change of ownership, the availability of the Company's net operating losses carry forwards may be subject to an annual limitation against taxable income in future periods, which could substantially limit the eventual utilization of this net operating loss carry forwards.  This limitation may not apply pursuant to an ownership change as described in Section 1262 of P.L. 111-5.

Reconciliation of the differences between the statuary tax rate and the effective income tax rate is as follows:

		2013
		Amount				Percentage
Tax at statutory federal rate		$	(386,000	)			(35.0	%)
Temporary differences
Exploration cost - current			9,000				0.8	%
Exploration cost - non-current			333,000				30.2	%
Stock based compensation			21,000				1.9	%
Decrease in deferred tax asset due to net operating losses reduced by profits			(1,377,000	)			(124.9	%)
Valuation allowance  for U.S. Companies			7,367,000				668.0	%
Valuation allowance  for Mexico			317,000				28.7	%
Tax benefit at effective rate		$	6,284,000				569.7	%

Note 4.

Notes Payable

The following table represents the outstanding balance of notes payable.

 

		September 30, 2013				December 31, 2012
		(Unaudited)
Mining concession		$	-			$	1,622,027
Auto loans			70,941				63,792
			70,941				1,685,819
Less - current portion			(39,277	))			(964,288	)
Total - non-current portion		$	31,664			$	721,531

During the quarter ended September 30, 2013, Tara Minerals purchased a vehicle to be used in operations for $31,038. Tara Minerals paid $2,000 as a down payment and financed the remainder amount of $29,038 by issuing a note payable. The note carries interest at 3.74% and matures in August 2018. As of September 30, 2013 the outstanding balance on the loan was $28,157.

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

		September 30, 2014				September 30, 2015				September 30, 2016				September 30, 2017				September 30,  2018				Total
Auto Loans		$	39,277			$	14,536			$	5,836			$	6,062			$	5,230			$	70,941

Note 5.

Related Party Transactions

		September 30, 2013				December 31, 2012
		(Unaudited)
Due from related parties		$	299,560			$	970,300
Due to related parties			(1,736,680	)			(1,741,682	)
		$	(1,437,120	)		$	(771,382	)

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

In January 2007, Corporacion Amermin S.A. de C.V. ("Amermin"), a subsidiary of Tara Gold, made arrangements to purchase the Pilar; Don Roman and Las Nuvias properties listed in Note 2 (part of the Don Roman Groupings) and subsequently sold the concessions to AMM. At September 30, 2013, Amermin has paid the original note holder in full and AMM owes Amermin $535,659 for the Pilar mining concession and $211,826 for the Don Roman mining concession.

As of September 30, 2013, Amermin has loaned a total of $989,195 to AMM at 0% interest, due on demand.

As of September 30, 2013, Tara Gold owed the Company a total of $190,148 at 0% interest, due on demand. During the nine months ended September 30, 2013, Tara Gold made a payment in the amount of $995,976 to the Company for amounts previously borrowed.

 

 

The following are intercompany transactions that were eliminated during the consolidation of these financial statements:

During 2012, Tara Minerals issued Adit six promissory notes for $4,286,663. During 2013, Tara Minerals issued Adit one promissory note for $610,000. Notes due May 2013 and August 2013 were extended for one year. These notes are unsecured, bear interest at U.S. prime rate plus 3.25% per year and are due and payable between October 2013 (see Note 12) and August 2014. As of September 30, 2013 Tara Minerals owed Adit $5,254,709 in interest and principal.

Note 6.

Iron Ore Properties and Related Financial Instrument

The Company raised $750,000 (2011) and $50,000 (2012), for a total of $800,000 through a financial instrument to fund potential Iron Ore Properties. The financial instrument has no repayment requirement, except if the Iron Ore Properties generate revenue. As the Company's common stock had not been issued and this is not a debt instrument, the amount raised was treated as a temporary financing instrument until such time as changes that require debt or permanent equity treatment. The beneficial conversion feature of this instrument was determined to be $180,000 (2011) and $20,000 (2012), for a total of $200,000.

In January 2013, Tara Minerals entered into conversion agreements on the above referenced financial instruments of the Iron Ore instruments to convert their instrument to a total of 1,600,000 shares of common stock. In February 2013, the Company issued 300,000 shares of common stock and 1,300,000 additional shares were issued October 2013 (see  Note 7 and 12).

Note 7.

Stockholders' Equity

In January 2013, Tara Minerals entered into conversion agreements to convert the financial instrument (See Note 6) to a total of 1,600,000 shares of common stock. In February 2013, the Company issued 300,000 shares of the Company's common stock and 1,300,000 additional shares were issued October 2013 (see  Note 12).

In February 2013, the Company issued 190,000 shares of the Company's common stock, valued at $68,400, or $0.36 a share for investor relations services over a six month period that commenced on December 2012.

In March 2013, the Company issued 500,000 shares of the Company's common stock, valued at $150,000, or $0.30 a share per the Champinon settlement agreement (see Note 2).

In January and March 2013, the Company sold 3,500,000 shares of common stock subscribed to under a private placement with independent parties for $700,000, or $0.20 per share; shares were issued in June 2013.

In June 2013, the Company issued 4,500,000 shares of the Company's common stock, valued at $1,350,000, or $0.30 a share for cash to its parent, Tara Gold Resources Inc.

In June 2013, the Company issued 250,000 shares of the Company's common stock, valued at $70,000, or $0.28 a share for services incurred during the period.

In June 2013, the Company issued 100,000 shares of the Company's common stock, valued at $29,000, or $0.29 a share for services incurred during the period.

In July 2013, the Company entered into investor relations consulting agreements for six month periods and the Company shall issue a total of 190,000 shares, valued at $30,400. The shares were issued in October 2013 (see Note 12).

In September 2013, the Company sold 500,000 shares of the Company's common stock subscribed to under a private placement with independent parties for $100,000, or $0.20 per share. The shares were issued in October 2013 (see Note 12).

The Company received services valued at $39,867 for services performed during the quarter ended September 30, 2013 to be paid with 160,449 shares. 50,000 shares valued at $13,500 were issued in October 2013 (see Note 12), the rest remain outstanding as of the date of this filing.

Note 8.

Options and Warrants

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

·      Incentive Stock Option Plan

·      Nonqualified Stock Option Plan

·      Stock Bonus Plan

In May 2011, under its Incentive Stock Option Plan the Company granted two of its officers options for the purchase of 750,000 shares of common stock. In April 2013, the options were cancelled and the Company concurrently granted new Incentive Stock Options to the officers; under this new grant the officers have the option to purchase 750,000 shares of common stock, exercisable at a price of $0.25 per share and vest at various dates until April 2015. The options expire at various dates beginning April 2020. In accordance with the Stock Compensation Topic, FASB ASC 718-20-35, the Company has analyzed the cancellation of the award accompanied by the concurrent grant of a replacement award and determined that there was no further incremental compensation cost. The options that vested during the nine months ended September 30, 2013 associated with this transaction were valued at $59,645.

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

·      Incentive Stock Option Plan

·      Nonqualified Stock Option Plan

·      Stock Bonus Plan

There have been no issuances under the Adit plans in 2013.

The fair value of awards issued 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 the grant for bonds with maturity dates at the estimated term of the options. Historically the Company has had no forfeitures of options or warrants; therefore, the Company uses a zero forfeiture rate.

	September 30, 2013			December 31, 2012
Expected volatility		218.84%			104.82% - 131.10%
Weighted-average volatility		0%			117.96%
Expected dividends		0			0
Expected term (in years)		2.00			1.00
Risk-free rate		0.22%			0.05% - 0.14%

A summary of option activity under the Plans as of September 30, 2013 (unaudited) and changes during the period then ended is presented below:

Options		Shares				Weighted-Average Exercise Price				Weighted-Average Remaining Contractual Term				Aggregate Intrinsic Value
Outstanding at December 31, 2012			2,750,000			$	0.34
Granted			750,000				0.25
Exercised			-				-
Forfeited, expired or cancelled			(750,000	)			0.48
Outstanding at September 30, 2013			2,750,000			$	0.24				3.0			$	273,000
Exercisable at September 30, 2013			2,340,000			$	0.30				3.0			$	273,000

Non-vested Options		Options				Weighted-Average Grant-Date Fair Value
Non-vested at December 31, 2012			160,000			$	0.48
Granted			750,000				0.25
Vested			(340,000	)			0.25
Forfeited, expired or cancelled			(160,000	)			0.48
Non-vested at September 30, 2013			410,000			$	0.25

 

A summary of warrant activity as of September 30, 2013 (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, 2012			2,788,333			$	1.38
Granted			-				-
Exercised			-				-
Forfeited, cancelled or expired			(2,788,333	)			(1.38	)
Outstanding at September 30, 2013			-			$	-		0.0		$	-
Exercisable at September 30, 2013			-			$	-		0.0		$	-

 

 All warrants vest upon issuance.

Note 9.

Non-controlling Interest

Cumulative results of these activities results in:

		September 30, 2013				December 31, 2012
		(Unaudited)
Common stock for cash		$	1,999,501			$	1,999,501
Common stock for services			95,215				95,215
Exploration expenses paid for in subsidiary common stock			240,000				240,000
Stock based compensation			1,374,880				1,374,880
Cumulative net income (loss) attributable to non-controlling interest			(45,502	)			31,938
Treasury stock			(500,000	)			(500,000	)
Other			6				6
Total non-controlling interest		$	3,164,100			$	3,241,540

A summary of activity as of September 30, 2013 and changes during the period then ended is presented below:

Non-controlling interest at December 31, 2012		$	3,241,540
Net loss attributable to non-controlling interest			(77,440	)
Non-controlling interest at September 30, 2013		$	3,164,100

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 September 30, 2013 (Unaudited)
		Total				Level 1				Level 2				Level 3
Assets:
Fair market value of ACM's net identifiable assets acquired                  (See Note 11)		$	1,589,208			$	-			$	-			$	1,589,208
Liabilities:
None		$	-			$	-			$	-			$	-

		Fair Value at December 31, 2012
		Total				Level 1				Level 2				Level 3
Assets:
None		$	-			$	-			$	-			$	-
Liabilities:
Iron Ore Properties financial instrument, net		$	600,000			$	-			$	(200,000)			$	800,000

 

The following is a reconciliation of the beginning and ending balances for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended September 30, 2013:

Beginning balance		$	800,000
Additions			1,596,095
Reductions (conversion of Iron Ore Instrument)			(806,885	)
Ending balance		$	1,589,208
The amount of total gains or losses for the year included in earnings attributable to the change in unrealized gains or losses relating to liabilities still held at reporting date		$	-

Note 11.

Re-acquisition of American Copper Mining, S.A. de C.V.

On April 4, 2012 Adit, sold its 99.99% owned subsidiary, ACM to Yamana. ACM's primary asset is the Picacho group of concessions (the "Property") located in Sonora, Mexico. The Property does not have any proven reserves.

Yamana had the option to terminate the Agreement within ten business days prior to the first year anniversary date of escrow release for any reason. If the Agreement was terminated, Yamana would be required to return ownership of ACM and the underlying Property to the Company in good standing. If this occurred, the first cash payment would be retained by the Company.

On May 7, 2013, Adit received notice that Yamana was terminating the purchase agreement for the sale of Adit's subsidiary, ACM. Under the terms of Yamana's notice to Adit, the termination became effective May 9, 2013. At this time, per the amended agreement, the cancellation resulted in reverting ACM to Adit "as if the sale of ACM never took place".

The Company has initially calculated the fair value of the assets purchased and liabilities assumed as follows:

Assets:		May 8, 2013
Picacho Groupings		$	1,571,093
Improvements (Mine site warehouse)			18,115
Liabilities:
None			-
Fair market value of net identifiable assets acquired			1,589,208
Less: Fair value of the consideration transferred for ACM			-
Add:  Release of Adit's tax liability due to the termination of the purchase			1,900,763
Value of assigned gain on bargain acquisition of ACM		$	3,489,971

The Company is finalizing this transaction but did not identify any intangible items which qualify for separate disclosure or accounting apart from goodwill.

Note 12.

Subsequent Events

a)	In October 2013, Tara Gold loaned the Company $120,000 at 0% interest, due on demand.

b)	In October 2013, the Company issued 190,000 shares of the Company's common stock, valued at $30,400, or $0.16 a share for investor relations services over a six month period that commenced on July 2013.

In October 2013, the Company issued the remaining 1,300,000 shares in relation to the conversion agreements to convert the financial instrument entered into in January 2013 (See Note 6).

In October 2013, the Company issued 500,000 shares of the Company's common stock subscribed to under a private placement with an independent party in September 2013 for $100,000, or $0.20 per share.

In October 2013, the Company issued 50,000 shares of the Company's common stock, valued at $13,500, or $0.27 a share for services incurred in September 2013.

c)

In October 2013, three promissory notes for $775,000 plus interest due, in October 2013 between Adit and the Company were extended one year, bearing interest at U.S. prime rate plus 3.25% per year (see Note 5). This is an intercompany transaction that eliminates during the consolidation of financial statements.

 

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, 2012. 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, and owns 87% of the common stock of Adit Resources Corp. ("Adit"). Adit in turns owns 99.99% of American Copper Mining, S.A. de C.V. ("ACM") (See Note 11). Tara Minerals' operations in Mexico are conducted through AMM and ACM since Mexican law provides that only Mexican corporations are allowed to own mining properties.

The Company is a mining company in the exploration stage and presents inception to date information, in accordance with the Financial Accounting Standards Board Accounting Standards Codification ("FASB ASC") Development Stage Entities Topic.

In these financial statements, references to "Company," "we," "our," and/or "us," refer to Tara Minerals Corp. 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 September 30, 2013 and December 31, 2012, the condensed consolidated results of its operations for the three and nine months ended September 30, 2013 and 2012 and the condensed consolidated statements of cash flows for the nine months ended September 30, 2013 and 2012. Results of operations reported for interim periods are not necessarily indicative of results for the entire year.

The condensed consolidated financial statements include the financial statements of the Company and its subsidiaries. All amounts are in U.S. dollars unless otherwise indicated. All significant inter-company 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 these 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 gain (loss) is recorded to other comprehensive gain (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 AMM and ACM are as follows for the nine months ended September 30, 2013 and 2012.  Mexican pesos per one U.S. dollar:

	September 30, 2013
Current exchange rate	Ps.	13.1450
Weighted average exchange rate for the nine months ended	Ps.	12.6796

 

	September 30, 2012
Current exchange rate	Ps.	12.8521
Weighted average exchange rate for the nine months ended	Ps.	13.2391

Reclassifications

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

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. Management routinely makes judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.

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 has doubtful collectability we allow for the receivable until we are either assured of collection (and reverse the allowance) or assured that a write-off is necessary.  Our allowance in association with our receivable from IVA from our Mexico subsidiary is based on our determination that the Mexican government may not allow the complete refund of these taxes.

		September 30, 2013				December 31, 2012
		(Unaudited)
Allowance - recoverable value-added taxes		$	1,618,362			$	1,579,129
Allowance - other receivables			317,589				321,428
Total		$	1,935,951			$	1,900,557

Reclamation and remediation costs (asset retirement obligations)

Reclamation costs are allocated to expense over the life of the related assets and are periodically adjusted to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation and abandonment costs.

 

Future remediation costs for reprocessing plant and buildings are accrued based on management's best estimate, at the end of each period, of the undiscounted costs expected to be incurred at a site. Such cost estimates include, where applicable, ongoing remediation, maintenance and monitoring costs. Changes in estimates are reflected in earnings in the period an estimate is revised.

Income taxes

Income taxes are provided for using the asset and liability method of accounting in accordance with the Income Taxes Topic of the FASB ASC. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The computation of limitations relating to the amount of such tax assets, and the determination of appropriate valuation allowances relating to the realization of such assets, are inherently complex and require the exercise of judgment. As additional information becomes available, we continually assess the carrying value of our net deferred tax assets.

Fair Value Accounting

As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The three levels of the fair value hierarchy are described below:

Level 1

Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2

Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;

Level 3

Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

Recently Adopted and Recently Issued Accounting Guidance

In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income, which is included in ASC 220, Comprehensive Income. This update improves the reporting of reclassification out of accumulated other comprehensive income. The adoption of this accounting standard update  became effective for the Company's interim and annual reporting periods beginning January 1, 2013  The adoption of this guidance did not have a material impact on the Company's financial position, results of operations or cash flows.

In March 2013, the FASB issued ASU No. 2013-05, Liabilities (Topic 830): Parent's Accounting for Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity.  This ASU is effective for interim and annual periods beginning after December 15, 2013 and requires the release of any cumulative translation adjustment into net income upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in foreign entity.   Management does not anticipate that the accounting pronouncement will have any material future effect on our consolidated financial statements.

In July 2013, FASB issued ASU No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.   This ASU is effective for interim and annual periods beginning after December 15, 2013.  This update standardizes the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists.  Management does not anticipate that the accounting pronouncement will have any material future effect on our consolidated financial statements.

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.

Relevant exchange rates used in the preparation of the financial statements for AMM and ACM are as follows for the nine months ended September 30, 2013 and 2012.  Mexican pesos per one U.S. dollar:

	September 30, 2013
Current exchange rate	Ps.	13.1450
Weighted average exchange rate for the nine months ended	Ps.	12.6796

 

	September 30, 2012
Current exchange rate	Ps.	12.8521
Weighted average exchange rate for the nine months ended	Ps.	13.2391

 

		September 30, 2013				December 31, 2012
		(Unaudited)
Allowance - recoverable value-added taxes		$	1,618,362			$	1,579,129
Allowance - other receivables			317,589				321,428
Total		$	1,935,951			$	1,900,557

		September 30, 2013				December 31, 2012
		(Unaudited)
Land		$	19,590			$	19,590
Mining concessions:
Pilar (a)			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
Champinon (b)			-				2,153,693
Dixie Mining District (c)			650,000				-
Picacho Groupings (See Note 11)			1,571,093				-
Mining concessions			4,328,575				4,261,175
Construction in progress			-				269,244
Property, plant and equipment			4,163,745				3,786,947
			8,511,910				8,336,956
Less - accumulated depreciation			(1,066,406	)			(836,184	)
		$	7,445,504			$	7,500,772

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

a.

In January 2007, the Company acquired the Pilar de Mocoribo Prospect ("Pilar") from Tara Gold Resources Corp. for $739,130 plus $115,737 of value-added tax (as amended).  The Company owes $535,659 for this mining concession (including the applicable value-added tax).

In accordance with the Interest Topic of FASB ASC, the future payments of the total payment amount of $739,130 have been discounted using the incremental borrowing rate of 5.01%. As of September 30, 2013, the present value of future payments is as follows:

		Debt				IVA				Total
Total remaining debt		$	486,739			$	77,878			$	564,617
Imputed interest			(28,959	)			-				(28,959	)
Present value of debt		$	457,780			$	77,878			$	535,658

b.

In September 2011, the Company leased the Mina El Champinon Iron Ore Project ("Champinon") in exchange for royalty payments based on production. From September 2011 to April 2012, the Company paid $235,000, plus $38,000 in value-added taxes in advances against royalty payments.

In May, 2012, the Company terminated the lease agreement for Champinon and entered into a new agreement to acquire the Iron Ore Project for an effective purchase price of $2,175,000, plus $348,000 in value-added taxes. The advances against royalty payments made before the lease agreement was terminated were applied against the effective purchase of the Iron Ore Project.

In May 2012, the Company purchased technical data pertaining to Champinon from the former owner for 500,000 shares of Tara Minerals' common stock, valued at $430,000.

On March 15, 2013, a Settlement Agreement and Release ("Agreement") was entered into by and among the Company, AMM, Jeffrey Holt, Tom Claridge, Steve Eady, Carnegie Mining and Exploration, Inc. ("CMEI"), CME Operations, LLC ("CME")(CMEI and CME, referred to as "Carnegie"), Harsco Corporation, and Pittsburgh Mineral & Environmental Technology, Inc.   In exchange for Carnegie's acknowledgement that it has no rights under a previously granted option on the Don Roman property further described below, AMM assigned its Champinon mining rights purchase contract, including all related obligations and acquisition payments, to Plathio Trading Mexico, SA de CV, Carnegie's Mexican subsidiary, and the Company agreed to issue to Carnegie 500,000 restricted shares of the Company's common stock, which may not be sold until the earlier of: (i) the Company's shares reaching a minimum trading price of $1.00 per share; or (ii) two years from the date of the Agreement. Under the transfer agreement for the Champinon property, AMM retains mining and beneficial rights to known silver, zinc, and led vein structure present on the Champinon concession. On March 22, 2013, the 500,000 restricted shares were issued. The Agreement confirms Carnegie's acknowledgement of the Company's 100% ownership of the Don Roman property.

Per the Agreement dated March 15, 2013, the Company retained ownership of 14 hectares of the Champinon mining concession which the Company valued at $203,000. As of September 2013, the Company was notified of a default of the purchase contract by non-performance of Carnegie; the Company concluded that at this time the probability of retaining claim on the 14 hectares of the Champinon mining concession is remote and therefore removed the mining concession from its books and recognized it as an additional loss on the Agreement.

 

The Company recognized a total loss of $1,064,996 on the Agreement mentioned above.

c.

In May 2013, the Company acquired the Dixie Mining District, located in Idaho, from an independent third party for an effective purchase price of $400,000. The purchase price was paid in full in 2013. In September 2013 the Company exercised its option to acquire 20 additional acres of unpatented mining claims to add to the Dixie Mining District, for an effective purchase price of $250,000. To date, the land package consists of 6,741 acres consisting of both patented and unpatented mining claims.

The independent third party shall receive royalties upon all ores, mineral-bearing rock and other deposits extracted and shipped or milled, treated, and sold from the property in the amount of 3% of the net smelter or mill returns earned from the property prior to December 31, 2014. The royalty agreement provides that the payment of the royalty shall terminate upon the independent third party receiving $558,160. If that amount is not paid as of December 31, 2014, the Company is required to pay the difference. No royalty shall be owed to the independent third party if mining on the property is not economically feasible. As of September 30, 2013, no royalty payments have been paid.

 

As of September 30, 2013, the present value of future payments is as follows:

		Debt				IVA				Total
Total remaining debt		$	486,739			$	77,878			$	564,617
Imputed interest			(28,959	)			-				(28,959	)
Present value of debt		$	457,780			$	77,878			$	535,658

The September 30, 2013, and since inception income tax benefit, net of tax associated with discontinued operations, is as follows:

		U.S. Companies				Mexico Companies				Total
Current asset (liability) - total		$	-			$	-			$	-
Deferred asset (liability) - total			7,367,000				2,433,000				9,800,000
Valuation allowance			(7,367,000	)			(2,433,000	)			(9,800,000	)
Income tax benefit, since inception		$	-			$	-			$	-

At September 30, 2013, total deferred tax assets and deferred tax liabilities are as follows:

		U.S. Companies				Mexico Companies				Total
Deferred tax asset - current		$	276,000			$	-			$	276,000
Deferred tax asset - non-current portion			7,091,000				2,433,000				9,524,000
Total deferred tax asset			7,367,000				2,433,000				9,800,000
Deferred tax liability - current			-				-				-
Deferred tax liability - non current			-				-				-
Total deferred tax liability			-				-				-
Valuation allowance			(7,367,000	)			(2,433,000	)			(9,800,000	)
Net deferred tax asset (liability)		$	-			$	-			$	-

Net operating losses expire as follows:

		U.S. Companies				Mexico Companies				Total
December 31, 2029		$	-			$	-			$	-
December 31, 2030			6,810,000				3,722,000				10,532,000
December 31, 2031			2,330,000				1,864,000				4,194,000
December 31, 2032			-				1,468,000				1,468,000
December 31, 2033			-				1,055,000				1,055,000
Total net operating loss		$	9,140,000			$	8,109,000			$	17,249,000

 

 

Reconciliation of the differences between the statuary tax rate and the effective income tax rate is as follows:

		2013
		Amount				Percentage
Tax at statutory federal rate		$	(386,000	)			(35.0	%)
Temporary differences
Exploration cost - current			9,000				0.8	%
Exploration cost - non-current			333,000				30.2	%
Stock based compensation			21,000				1.9	%
Decrease in deferred tax asset due to net operating losses reduced by profits			(1,377,000	)			(124.9	%)
Valuation allowance  for U.S. Companies			7,367,000				668.0	%
Valuation allowance  for Mexico			317,000				28.7	%
Tax benefit at effective rate		$	6,284,000				569.7	%

The following table represents the outstanding balance of notes payable.

 

		September 30, 2013				December 31, 2012
		(Unaudited)
Mining concession		$	-			$	1,622,027
Auto loans			70,941				63,792
			70,941				1,685,819
Less - current portion			(39,277	))			(964,288	)
Total - non-current portion		$	31,664			$	721,531