U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
 
Mark One
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the period ended March 31 2012
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ______ to _______

Commission File No. 333-138332
 
TRILLIANT EXPLORATION CORPORATION
(Name of small business issuer in its charter)
   
Nevada
(State or other jurisdiction of incorporation or organization)
20-0936313
(I.R.S. Employer Identification No.)
   
545 Eighth Avenue, Suite 401, New York, New York 10019
(Address of principal executive offices)
   
(212) 560-5195
(Issuer’s telephone number)
(Previous address if changed from last report)
   
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
Yes No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
 
Accelerated filer
 
         
Non-accelerated filer
 
Smaller reporting company
 
 
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the most practicable date:
 
Class
Outstanding as of March 31, 2012
Common Stock, $0.001
620,774
 
 
 

 
 
TRILLIANT EXPLORATION CORPORATION
Form 10-Q
 
    Page  
PART I-FINANCIAL INFORMATION
     
Item 1. Financial Statements
     
 
3
 
 
4
 
 
5
 
 
6-13
 
 
13
 
 
13
 
 
19
 
 
20
 
PART II - OTHER INFORMATION
     
Item 1.  Legal Proceedings                                                                                                                                                    
 
21
 
Item 1A. Risk Factors                                                                                                                                                           
 
21
 
Item 2. Unregistered Sales of Equity Securities                                                                                                                   
 
21
 
Item 3.  Defaults upon Senior Securities                                                                                                                             
 
21
 
 
21
 
       
 
22
 
 
22
 
 
22
 
 
 
PART I
 
ITEM 1. FINANCIAL STATEMENTS

 
2

 


TRILLIANT EXPLORATION CORPORATION
Condensed Consolidated Balance Sheets
 
 
     
   
March 31,
   
December 31,
 
   
2012
   
2011
 
ASSETS   
(unaudited)
   
 
 
Current Assets            
Cash
  $ 649     $  
Total Current Assets
    649        
TOTAL ASSETS
  $ 649     $  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
Current Liabilities
               
Accounts payable
  $ 270,915     $ 248,485  
Convertible notes payable, current, net of debt discount  (Note 2)
    578,100       565,000  
Accrued interest, convertible notes payable
    133,619       122,298  
Bonds payable, convertible and secured-related party
    1,610,407       1,610,407  
Accrued interest, convertible bonds payable-related party
    483,005       416,572  
Short-term notes payable-related party
    32,495       32,495  
Total Current Liabilities
    3,108,541       2,995,257  
                 
Long-term Liabilities
               
Derivative liability
    13,127,711       13,110,869  
Total Long Term Liabilities
    13,127,711       13,110,869  
Total Liabilities
    16,236,252       16,106,126  
                 
TEMPORARY EQUITY (Note 3)
               
Preferred stock, par value $.001, 200,000,000 shares authorized, 12,563,500 and 12,563,500 issued and outstanding, liquidation preference of $12,563,500 at March 31, 2012, and December 31, 2011, respectively
    10,846,192       10,846,192  
                 
PERMANENT EQUITY STOCKHOLDERS' DEFICIT (Note 3)
               
Common stock, par value $.001, 1,000,000,000 shares authorized, 643,771 and 643,771 issued and 620,771 and 620,771 outstanding as of March 31, 2012 and December 31, 2011, respectively
    644       644  
Additional paid-in capital
    1,667,908       1,667,908  
Accumulated deficit during the pre-exploration stage
    (12,344,011       (12,344,011 )
Deficit accumulated
    (6,206,336       (6,076,859 )
Total Stockholder's (deficit) (before treasury stock)
    (16,881,795       (16,752,318 )
Treasury Stock (23,000 shares @ $443 per share) (Note 3)
    (10,200,000       (10,200,000 )
                 
Total Stockholders' (Deficit)
    (27,081,795       (26,952,318 )
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
  $ 649     $  
                 
See accompanying notes to unaudited condensed consolidated financial statements.
 
 
3

 

 

 
TRILLIANT EXPLORATION CORPORATION
 
Condensed Consolidated Statements of Operations (unaudited)
 
             
   
Three months ended March 31,
 
   
2012
   
2011
 
             
Revenues
  $     $  
                 
Operating Expenses
               
General and administrative expenses
    41,781       6,573  
Total Operating Expenses
    41,781       6,573  
Net Loss from Operations
    (41,781 )     (6,573 )
                 
Other income (expense)
               
Loss on Settlement of Debt
          (583,333 )
Gain (loss) in change in fair value of derivative liability
    2,629       (694,855 )
Amortization of beneficial conversion feature
    (12,571 )      
Interest expense
    (77,754 )     (90,652 )
Total Other Income (Expense)
    (87,696 )     (1,368,840 )
                 
Net Loss before income tax
    (129,477 )     (1,375,413 )
                 
Income taxes (benefit)
           
                 
Net Loss
  $ (129,477 )   $ (1,375,413 )
                 
BASIC AND DILUTED LOSS PER SHARE
               
Net loss per share, continuing operations
  $ (0.21 )   $ (2.22 )
                 
Weighted Average Number of Common Shares
               
Outstanding ( Basic and Diluted)
    620,771       620,771  
                 

See accompanying notes to unaudited condensed consolidated financial statements.

 
4

 
 
 
TRILLIANT EXPLORATION CORPORATION
 
Condensed Consolidated Statements of Cash Flows (unaudited)
 
             
             
   
Three months ended March 31,
 
   
2012
   
2011
 
             
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net Loss
  $ (129,477 )   $ (1,375,413 )
Adjustments to reconcile net loss to net cash used
               
in operations:
               
Amortization of bond issue costs - related party
          12,987  
Amortization of beneficial conversion feature
    12,571        
Change in Fair value of derivative liability
    (2,629 )     694,855  
Loss on Settlement of Debt
          583,333  
Changes in operating assets and liabilities:
               
Accounts payable
    22,430       (4,877 )
Accrued interest, convertible bonds payable -
               
related party
    66,433       11,782  
Accrued interest, convertible notes payable
    11,321       65,883  
Net Cash (Used In) Provided by Operating Activities
    (19,351 )     (11,450 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Net Cash Used In Investing Activities
           
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Proceeds from notes payable
    20,000        
Net Cash Provided By Financing Activities
    20,000        
                 
NET (DECREASE) INCREASE IN CASH
    649       (11,450 )
                 
CASH AT BEGINNING OF THE YEAR
          11,450  
CASH AT END OF THE YEAR
  $ 649     $ 0  
                 
SUPPLEMENTAL CASH FLOW INFORMATION:
               
Cash paid for interest
  $     $  
                 
Cash paid for income taxes
  $     $  
                 
Non-Cash Investing and Financing Activities:
               
                 
Common stock issued for settlement of debt and
               
accrued interest
  $     $ 112,482  
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
 
5

 
 
TRILLIANT EXPLORATION CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012

NOTE 1 –SUMMARY OF ACCOUNTING POLICIES
 
Organization and Basis of Presentation

Trilliant Exploration Corporation, (the “Company”) was incorporated as Project Development Pacific, Inc. on December 29, 2003, under the laws of the State of Nevada. On November 26, 2007, the Company changed its name to Trilliant Exploration Corporation, with a purpose to acquire and develop mineral properties.
 
Interim Financial Statements

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of our management, the accompanying unaudited condensed financial statements include all adjustments, consisting of normal recurring accruals, necessary to present fairly our financial position, results of operations and cash flows. Interim results are not necessarily indicative of the results that may be expected for the entire year. These condensed consolidated financial statements should be read in connection with the consolidated financial statements and notes thereto included in the Company’s most recent Annual Report on Form 10-K.
 
Going Concern

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. However, the Company has reported a net loss from operations of $129,477  for the three month period ended March 31, 2012, accumulated deficit of $18,550,347 and total current liabilities in excess of current assets of $3,114,892 as of March 31, 2012.
 
The Company is currently seeking to acquire mining projects and as of  the date of this Quarterly Report, we are devoting substantially all of our efforts to the execution of our business operations and re-establish the Company as an exploratory stage enterprise. The Company will be dependent on funds raised to satisfy its ongoing capital requirements for at least the next 12 months. The Company will require additional financing in order to execute its operating plan and continue as a going concern. The Company cannot predict whether this additional financing will be in the form of equity or debt, or be in another form. The Company may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all. In any of these events, the Company may be unable to implement its current plans for expansion or respond to competitive pressures, any of these circumstances would have a material adverse effect on its business, prospects, financial condition and results of operations.
 
The condensed consolidated financial statements do not include any adjustments relating to the recoverability of assets and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.
 
Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Significant estimates that may change in the near future include value of goodwill, impairment of long-lived assets acquired, and value of investments.
 
 
6

 
 
Net Income or (Loss) Per Share of Common Stock

Basic and diluted loss per common share is based upon the weighted average number of common shares outstanding during the period computed under the provisions of Accounting Standards Codification subtopic 260-10, Earnings per Share (“ASC 260-10”). All primary dilutive common shares have been excluded since the inclusion would be anti-dilutive.
 
Derivative financial instruments

Accounting Standards Codification subtopic 815-40, Derivatives and Hedging, Contracts in Entity’s own Equity (“ASC 815-40”) became effective for the Company on October 1, 2009. The Company’s convertible debt and Preferred Stock  has reset provisions to the exercise price if the Company issues equity or a right to receive equity, at a price less than the exercise prices.
 
Reclassification

Certain reclassifications have been made to conform the prior period data to the current presentation. These reclassifications had no effect on reported net loss.
 
Recently Issued Accounting Pronouncements

Management does not believe that any recently issued, but not yet effective accounting standards, if adopted, will have   a material effect on our financial statements.

NOTE 2 - CONVERTIBLE NOTE PAYABLE ISSUED DURING PERIOD ENDED MARCH 31, 2012

The Company issued a $20,000 Convertible Note with a maturity date of March 16th, 2013. The note bears interest at a rate of 10% and is convertible into the Company’s common stock at any time at the holder’s option, at the conversion rate of 25% discount of the two lowest closing bid prices reported during the ten days preceding the closing date prior to notice of conversion.

The Company identified embedded derivatives related to the Convertible Note. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Note and to adjust the fair value as of each subsequent balance sheet date. At the inception of the Convertible Note, the Company determined a fair value of $19,471 of the embedded derivative. The fair value of the embedded derivative was determined using the Black Scholes Model based on the following assumptions:

Dividend yield:
   
-0-
%
Volatility
   
464.89
%
Risk free rate:
   
0.33
%

The initial fair value of the embedded debt derivative of $7,195 was allocated as a debt discount with the remainder ($12,276) charged to current period operations as interest expense.
 
 
7

 
 
The fair value of the described embedded derivative of $19,411 as of March 31, 2012 (unaudited) was determined using the Black Scholes Model with the following assumptions:
 
   
2012
 
Dividend yield:
    -0- %
Volatility
    464.89 %
Risk free rate:
    0.33 %

At March 31, 2012 (unaudited), the Company adjusted the recorded fair value of the derivative liability to market resulting in non-cash, non-operating gain of $60, respectively.

NOTE 3 – STOCKHOLDERS’ DEFICIT

Reverse Stock Split

On January 26, 2011, the Company’s Board of Directors , pursuant to unanimous written consent resolutions , authorized and approved a reverse stock split of one for every three hundred (1:300) of our total issued and outstanding shares of common stock was effectuated on April 8, 2011. All references in the accompanying consolidated financial statements and notes thereto have been retroactively restated to reflect the above change in the ordinary share structure.

Preferred Stock

The Company is authorized to issue 200,000,000 shares of Preferred stock, par value of $ 0.001 per share.

On June 30, 2009, the Company filed a Certificate of Designation with the Secretary of State of Nevada, whereby 10,200,000 shares of the 200,000,000 authorized shares of Preferred stock were designated as Series I Preferred Stock, $0.001 par value and having the powers, designations, preferences, limitations, restrictions and relative rights as set forth in the Certificate of Designation of Series I Preferred Stock.

Holders of the Series I Preferred shares do not receive interest or dividends separately from common stock shareholders. Preferred Stock holder shall participate in dividends when and if declared in the same proportion as common stock shareholders. Preferred stock is convertible into common shares at the lowest volume weighted average price of the common shares in the five days preceding conversion.

 
8

 
 
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, holders of the Series I Preferred Shares will be entitled to receive for each share of Preferred Shares, out of the assets of the Company or proceeds available for distribution to our shareholders, subject to any rights of our creditors, before any distribution of assets or proceeds is made to or set aside for the holders of our common stock and any other class or series of our stock ranking junior to the Series I Preferred Shares, payment of an amount equal to the sum of (i) the $1.00 liquidation preference amount per Series I Preferred Shares and (ii) the amount of any accrued and unpaid dividends on the  Series I Preferred Shares (including dividends accrued on any unpaid dividends). To the extent the assets or proceeds available for distribution to shareholders are not sufficient to fully pay the liquidation payments owing to the holders of the Series I Preferred Shares and the holders of any other class or series of our stock ranking equally with the Series I Preferred Shares, the holders of the Series I Preferred Shares and such other stock will share ratably in the distribution.

For purposes of the liquidation rights of the Series I Preferred Shares, neither a merger or consolidation of the Company with another entity, including a merger or consolidation in which the holders of Series I Preferred Shares receive cash, securities or other property for their shares, nor a sale, lease or exchange of all or substantially all of the Company’s assets will constitute a liquidation, dissolution or winding up of the affairs of the Company.

Issuance of 10,200,000 shares of Series I Preferred Shares
 
On December 31, 2009, the Company issued to Trafalgar Capital Specialized Investment Fund FIS (“Trafalgar”) (a significant stockholder of the Company), 10,200,000 shares of Series I Preferred Stock, in exchange for 23,000 shares of the Company’s own common stock previously held by Trafalgar. The 19,667 common stock were acquired in the year 2009 and 3,333 common stock in the year 2010 at $443 per share and the preferred stock was issued at $1.00 per share. The transaction was recorded using the Cost Method, resulting in treasury stock of $10,200,000 and an increase to Preferred Stock value of $10,200,000.

In accordance with Accounting Standards Codification subtopic 470-20, Debt, Debt with Conversions and Other Options (“ASC 470-20”), the Company recognized an imbedded beneficial conversion feature present in the convertible Series I Preferred Stock. The Company allocated a portion of the value of share cancelled to Preferred stock. The fair value of the imbedded beneficial conversion feature was determined using the Black-Scholes Option Pricing Model which approximates the fair value measured using the Black-Scholes Model with the following assumptions: Dividend yield: $-0-; Volatility: 214.38% and risk free rate: 0.85%.

The FASB finalized ACS 815, “Determining Whether an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock.” Under ASC 815, instruments which do not have fixed settlement provisions are deemed to be derivative instruments. In accordance with ASC 470-20, the Company has classified the Series I Preferred Stock outside of permanent equity. The Company has determined that it needs to account for these imbedded beneficial conversion features, issued to holder in 2009 for its Convertible Preferred Stock, as derivative liabilities, and apply the provisions of ASC 815. The instruments have a ratchet provision (that adjusts the exercise price according to market rate i.e., at 85% of the market rate). As a result, the ratchet provision has been accounted for as derivative liabilities, in accordance with ASC 815. ASC 815, “Accounting for Derivative Instruments and Hedging Activities” (“ASC 815”) requires that the fair value of these liabilities be re-measured at the end of every reporting period with the change in fair value reported in the consolidated statement of  operations.

 
 
9

 

The fair value of the embedded conversion features were measured using the Black-Scholes option pricing model as of the date of issuance and as of March 31, 2012 and 2011 (unaudited): 
           
Date of
 
 
2012
 
2011
   
Issuance
 
               
Imbedded Beneficial Conversion Feature:
             
Risk-free rate
    0.33 %     0.62 %     0.85 %
Annual rate of dividends
    0       0       0  
Volatility
    464.89 %     254.30 %     214.23 %
Weighted Average life (years)
    2.50       3.50       5.0  
                         
Fair Value
  $ 10,195,020     $ 9,979,654     $ 10,034,407  

 The risk-free interest rate was based on rates established by the Federal Reserve. The Company based expected volatility on the historical volatility for its common stock. The expected life of the embedded beneficial conversion features was based on their full term. The expected dividend yield was based upon the fact that the Company has not historically paid dividends, and does not expect to pay dividends in the future.

The net value of the reset provision at the date of issuance was recorded as a derivative liability in the amount of $10,034,407 and  debited to beneficial conversion feature which was deducted from the face value of the preferred stock, since the preferred stock is a classified as temporary equity. This was immediately amortized in year 2009.

As of the date of the financial statements, the Company believes an event under the contract that would create an obligation to settle in cash or other current assets is remote and has classified the obligation as a long term liability.

At March 31, 2012 and 2011(unaudited), the Company adjusted the recorded fair value of the reset derivative liability to market resulting in a non-cash, non-operating gain of $2,556 and a loss of $564,835.

Issuance of 2,363,500 shares of Series I Preferred Shares

On August 23, 2010, the Company issued an additional 2,363,500 shares of its Series I Preferred stock to a third party in connection a payment by the third party of $193,599 in accrued interest and $451,593 in principal payable (an aggregate payment of $645,192) to agent of a holder of certain of the Company’s convertible bonds. The Company and the holder of the convertible bonds are currently in dispute as to the application of the $645,192 payment made to its agent.

While the Company’s Certificate of Designation limited the issuance of the Series I Preferred shares to 10,200,000, the Company intends to amend the Certificate to correct this ministerial omission and increase the number of designated Series I Preferred shares to 12,563,000, and accordingly has accounted for the issuance consistent with the issuance of the previous 10,200,000 Series I Preferred shares.

 
10

 

The fair value of the embedded conversion features were measured using the Black-Scholes option pricing model as of the date of issuance and as of March 31, 2012 and 2011(unaudited):

          Date of
 
2012
 
2011
 
Issuance
           
Imbedded Beneficial Conversion Feature:
         
Risk-free rate
    0.33 %     0.70 %       0.68 %
Annual rate of dividends
    0       0       0  
Volatility
    464.89 %     254.30 %     180.22 %
Weighted Average life (years)
    3.65       4.65       5.0  
                         
Fair Value
  $ 2,363,479     $ 2,265,368     $ 2,261,584  

The risk-free interest rate was based on rates established by the Federal Reserve. The Company based expected volatility on the historical volatility for its common stock. The expected life of the embedded beneficial conversion features was based on their full term. The expected dividend yield was based upon the fact that the Company has not historically paid dividends, and does not expect to pay dividends in the future.

The net value of the reset provision at the date of issuance was recorded as a derivative liability in the amount of $645,192 (maximum limit to value of preferred stock) and debited to beneficial conversion feature which was deducted from the face value of the preferred stock, since the preferred stock is a classified as temporary equity. This was immediately amortized in 2010.

As of the date of the financial statements, the Company believes an event under the contract that would create an obligation to settle in cash or other current assets is remote and has classified the obligation as a long term liability.

At March 31, 2012 (unaudited) and 2011, the Company adjusted the recorded fair value of the reset derivative liability to market resulting in a non-cash, non-operating gain of $22 and a loss of $80,327, respectively.

In December 2009, the Company disposed of its principal asset, the Mulunkay Gold Corp subsidiary. The Company has not received notice from the holders of the Preferred Stock exercising their rights under the terms of the Preferred Stock Designation to pay the liquidation preference of $1.00 per share, plus accrued and unpaid dividends. 
 
Common Stock

The Company is authorized to issue 1,000,000,000 shares of common stock, par value $.001 per share

On August 23, 2010, the company cancelled 3,333 shares of common stock as part of issuance of 10,200,000 Preferred stock, as described above.

On January 22, 2011, a previously issued $100,000 Convertible Note was assigned to a Company shareholder at the $0.001 of conversion price. The Company recorded $582,973 as loss on change in term of note. On the same date the Company issued 333,333 of Common stock in exchange for settlement of the Note of $100,000 in principal and accrued interest of $12,482.

 
11

 
 
Warrants

A summary of the changes in outstanding warrants is as follows.

   
Number of Shares
   
Weighted Average Exercise Price
 
Warrants Outstanding – January 1, 2012
   
33,335
   
$
.09
 
Exercised During the Period
   
         
Issued During the Period
   
         
Expired During the Period
   
         
Warrants Outstanding – March 31, 2012 (unaudited)
   
33,335
   
$
.09
 
 
The warrants have an outstanding remaining contractual life of approximately 2 ¾ years as of March 31, 2012 (unaudited)
 
 
12

 
 
FORWARD LOOKING STATEMENTS
 
Except for statements of historical fact, certain information contained herein constitutes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are usually identified by our use of certain terminology, including “will,” “believes,” “may,” “expects,” “should,” “seeks,” “anticipates,” or “intends,” or by discussions of strategy or intentions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results or achievements to be materially different from any future results or achievements expressed or implied by such forward-looking statements. Such factors include, among others, our history of operating losses and uncertainty of future profitability; our lack of working capital and uncertainty regarding our ability to continue as a going concern; uncertainty of access to additional capital; risks inherent in mineral exploration; environmental liability claims and insurance; dependence on consultants and third parties as well as those factors discussed in the sections entitled “ Risk Factors ,” “ Business ,” and “ Management’s Discussion and Analysis of Financial Condition and Results of Operations .” If one or more of these risks or uncertainties materializes, or if underlying assumptions prove incorrect, our actual results may vary materially from those expected, estimated, or projected. Forward-looking statements in this document are not a prediction of future events or circumstances, and those future events or circumstances may not occur. Given these uncertainties, users of the information included herein, including investors and prospective investors are cautioned not to place undue reliance on such forward-looking statements. We do not assume responsibility for the accuracy and completeness of these statements.
 
The United States Securities and Exchange Commission permits U.S. mining companies, in their filings with the SEC, to disclose only those mineral deposits that a company can economically and legally extract or produce. The Company is an exploration stage company and its properties have no known body of ore. U.S. investors are cautioned not to assume that the Company has any mineralization that is economically or legally mineable.
 
All references in this Quarterly Report on Form 10-K to the terms “we,” “our,” “us,” “TTXP,” and the “Company” refer to Trilliant Exploration Corporation.
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Trilliant Exploration Corporation was incorporated under the laws of the State of Nevada on December 29, 2003 under the name Project Development Pacific Inc. We were previously engaged in the business of assisting Canadian citizens to access health care services from private providers. On November 26, 2007, we changed our name to Trilliant Exploration Corporation with a business purpose to acquire and develop mineral properties. During 2007, we began acquiring interests in mining properties.
 
 
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Pre-Exploration Stage Company
 
The Company is considered to be in the pre-exploration stage as defined in ASC 915 “Accounting and Reporting by Development Stage Enterprises” as interpreted by the Securities and Exchange Commission for mining companies in Industry Guide 7. The Company is devoting substantially all of its efforts to the execution of its business plan.
 
Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Significant estimates that may change in the near future include value of goodwill, impairment of long-lived assets acquired, and value of investments.

 
13

 
 
Cash and Cash Equivalents
 
Cash and cash equivalents consists principally of currency on hand, demand deposits at commercial banks, and liquid investment funds having a maturity of three months or less at the time of purchase. The Company had $0 and $11,450 in cash and cash equivalents as of March 31, 2011 and December 31, 2010, respectively.
 
Revenue Recognition
 
The Company will follow the guidance of ASC Topic 605, formerly, SAB 104 for revenue recognition. In general, the Company will record revenue when persuasive evidence of an arrangement exists, services have been rendered, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. Revenues from services are recognized when the services are performed, evidence of an arrangement exists, the fee is fixed and determinable and collectability is probable. In circumstances when these criteria are not met, revenue recognition is deferred until resolution occurs.
 
Mineral Acquisition and Exploration Costs
 
Mineral property interests include optioned and acquired mineral development and exploration stage properties. The amount capitalized related to a mineral property interest represents its fair value at the time it was optioned or acquired, either as an individual asset or as a part of a business combination. The value of such assets is primarily driven by the nature and amount of mineralized material believed to be contained in such properties. Exploration costs are expensed as incurred and development costs are capitalized if proven and probable reserves exist and the property is a commercially minable property. Mine development costs incurred either to develop new ore deposits, expand the capacity of operating mines, or to develop mine areas substantially in advance of current production are capitalized. Costs incurred to maintain assets on a standby basis are charged to operations. Costs of abandoned projects are charged to operations upon abandonment. The Company evaluates, at least quarterly, the carrying value of capitalized mineral interests costs and related property, plant and equipment costs, if any, to determine if these costs are in excess of their net realizable value and if a permanent impairment needs to be recorded. The periodic evaluation of carrying value of capitalized costs and any related property, plant and equipment costs are based upon expected future cash flows and/or estimated salvage value.
 
Property, Plant, and Equipment
 
Property and equipment are stated at cost. Depreciation and amortization are determined using the straight-line method over estimated useful lives of the assets. All property, plant, and equipment were disposed of and any gains and losses on the disposal are included in discontinued operations as disclosed in Note 10. As of March 31, 2011, the Company held no property, plant or equipment.
 
Net Income or (Loss) Per Share of Common Stock
 
Basic and diluted loss per common share is based upon the weighted average number of common shares outstanding during the period computed under the provisions of Accounting Standards Codification subtopic 260-10, Earnings per Share (“ASC 260-10”). All primary dilutive common shares have been excluded since the inclusion would be anti-dilutive. Such shares consist of the following:
 
   
3/31/2012
   
3/31/2011
 
Common shares outstanding (Basic)
    620,771       620,771  
Conversion of convertible debt
    23,741,667       62,015  
Conversion of convertible notes
    8,714,427       675,154  
Conversion of convertible preferred shares
    418,783,333       10,204,272  
Conversion of warrants
    33,333       31,477  
Common shares outstanding (Diluted)
    451,072,760       11,593,689  
 
 
14

 
 
Goodwill and Other Intangibles
 
As of March 31, 2011, the Company held no Goodwill. The Company possesses no other intangible assets.
 
Recently Issued Accounting Pronouncements
 
Management does not believe that any recently issued, but not yet effective accounting standards, if adopted, will have a material effect on our financial statements
 
Income Taxes
 
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period enacted. A valuation allowance is provided when it is more likely than not that a portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of deferred tax liabilities during the period in which related temporary differences become deductible. The benefit of tax positions taken or expected to be taken in the Company’s income tax returns are recognized in the consolidated financial statements if such positions are more likely than not of being sustained.
 
In accordance with 740-10, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting this standard, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.
 
Derivative Liabilities
 
The Company accounts for its embedded conversion features in its convertible debentures in accordance ASC 815-10, "Derivatives and Hedging", which requires a periodic valuation of their fair value and a corresponding recognition of liabilities associated with such derivatives, and ASC 815-40, “Contracts in Entity’s Own Equity”. The recognition of derivative liabilities related to the issuance of convertible debt is applied first to the proceeds of such issuance as a debt discount, at the date of issuance, and the excess of derivative liabilities over the proceeds is recognized as “Loss on Valuation of Derivative” in other expense in the accompanying financial statements. Any subsequent increase or decrease in the fair value of the derivative liabilities is recognized as “Other expense” or “Other income”, respectively.
 
Accounting Standards Codification subtopic 815-40, Derivatives and Hedging; Contracts in Entity’s own Equity (“ASC 815-40”) became effective for the Company. The Company ’ s Convertible Preferred Stock and Convertible debt has certain provisions that require the Company to change conversion price of the Convertible debt and Convertible Preferred Stock based on the discounted market value. Upon the effective date, the provisions of ASC 815-40 required a reclassification to liability based on the reset feature of the agreements. Therefore, in accordance with ASC 815-40, the Company determined the fair value of the initial reset provision on preferred stock and convertible debt using the Black-Scholes formula assuming no dividends, a risk-free interest rate of 0.68%-0.85%, expected volatility of 155.49%-214.23%, and expected life of 1 and 5 years. The net value of the reset provision at the date of adoption of ASC 815-40 was recorded as a derivative liability on the balance sheet and a reduction to convertible redeemable preferred stock and convertible debt. Changes in fair value are recorded as non-operating, non-cash income or expense at each reporting date.  The fair value of the preferred stock and convertible debt at March 31, 2012 was determined using the Black Scholes Option Pricing Model with the following assumptions:
 
Dividend yield: 0%
Volatility 254.30%
Risk free rate: 0.70%
 
 
15

 
 
The change in fair value of the convertible preferred stock and convertible debt derivative liability resulted in a current period non-operating loss to operations of $694,855.

Fair Value of Instruments
 
Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) requires disclosure of the fair value of certain financial instruments. The carrying value of cash and cash equivalents, accounts payable and accrued liabilities, and short-term borrowings, as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments. All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise only available information pertinent to fair value has been disclosed.
 
The company follows Accounting Standards Codification subtopic 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”) and Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”), which permits entities to choose to measure many financial instruments and certain other items at fair value
 
Reclassification
 
Certain reclassifications have been made to conform the prior period data to the current presentation. These reclassifications had no effect on reported net loss.
 
Currency Risk and Foreign Currency Translations
 
The functional currency of the Company is the United States Dollar (USD). In accordance with ASC Topic No. 830, realized gains or losses on expenses incurred in denominations other than USD are recognized in earnings on the transaction date. At such time as there are any foreign denominated assets or liabilities, the Company will report changes in valuation in a Statement of Other Comprehensive Income or (Loss) due to the changes in cumulative adjustments from foreign currency translation.
  
CURRENT BUSINESS OPERATIONS
 
We are engaged in the evaluation, acquisition, exploration and advancement of mining projects. Although we were considered to have exited the pre-exploration stage with the Muluncay acquisition, the disposal of Muluncay necessitates that we re-enter the pre-exploration stage effective December 31, 2009. As of the date of this Quarterly Report, we are devoting substantially all of our efforts to the execution of our business operations. To date, funding to acquire and explore gold properties and for operational purposes was acquired through private financings.
 
 
16

 

 Muluncay Project
 
On October 15, 2008, we entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Compania Minera Del Pacifico S.A., an Ecuadorian corporation (“Del Pacifico”) for the purchase of the Muluncay Project. Subsequently, on March 30, 2009, we entered into a share transfer agreement (the “Share Transfer Agreement”) with Del Pacifico and its wholly owned subsidiary, Compania Muluncaygold Corp. S.A. (“Muluncay”). The Share Transfer Agreement superseded in its entirety the terms of the Asset Purchase Agreement.
 
Effective December 31, 2009, Del Pacifico terminated the agreement due to our inability to provide the $1,800,000 investment pursuant to the contract terms. Thus, we determined to discontinue operations through our Muluncay subsidiary. We were released from all obligations and released all claims on the Controlling Assets primarily because we had incurred significant operating losses since acquisition and we could not attract operating capital to meet contractual obligations since the acquisition of Muluncay. On December 31, 2009, we completed the loss recognition for a total loss of $1,964,636.
 
 
RESULTS OF OPERATION
 
Three Month Period Ended March 31, 2012 Compared to Three Month Period Ended March 31, 2011.
 
Our net loss for the three months period ended March 31, 2012 was $129,467 compared to a net loss of $1,375,413 during the three month period ended March 31, 2012, a change of $1,245,936. During the three month periods ended March 31, 2012 and 2011, we did not generate any revenue from continuing operations.
 
During the three month period ended March 31, 2012, we incurred operating expenses of $41,781 compared to $6,573 incurred during the three month period ended March 31, 2011, a decrease of $35,208. These expenses incurred during the three month period ended March 31, 2012 consisted of: (i) professional fees of $38,500 (2011: $5,000); and (ii) other general and administrative expenses of $3,281 (2011: $1,573). The increase in operating expenses incurred during the three month period ended March 31, 2012 from the three month period ended March 31, 2011 was primarily attributable to professional fees. Operating expenses reflect the limited scope and scale of our business operations.
 
Other income (expense) was incurred during the three month period ended March 31, 2012 of ($87,696) (2011: ($1,368,840). Other income (expense) during the quarter ended March 31, 2012 consisted of: (i) interest expense (including amortization of beneficial conversion feature) of ($90,325) compared to ($90,652) during the three month period ended March 31, 2011; and (ii) change in derivative liability of ($2,629) ((2011: ($694,855)). During the first quarter of 2011 we experienced a loss on extinguishment of debt of $583,333.
 
Therefore, this resulted in a net loss applicable to common shares during the three month period ended March 31, 2012 of $129,477 compared to a net loss applicable to common shares during the three month period ended March 31, 2011 of $1,375,413.
 
 
17

 

LIQUIDITY AND CAPITAL RESOURCES
 
Three Month Period Ended March 31, 2012
 
As at March 31, 2012, our current assets and total assets were $649 in cash. Our current liabilities were $3,108,541, which resulted in a working capital deficit of $3,107,892. As of March 31, 2012, liabilities were primarily comprised of: (i) $270,915 in accounts payable; (ii) $578,100 in convertible notes payable, net, current; (iii) $1,610,407 of convertible bonds payable, and (iv) $616,623 of accrued interest payable. The increase in liabilities during the three month period ended March 31, 2012 from fiscal year ended December 31, 2011 was primarily due to the Company issuing a convertible note payable along with applicable accrued interest, and the change in the value of the derivative liability.
 
Stockholders’ deficit increased from $26,952,318 for fiscal year ended December 31, 2011 to $27,081,795 for the three month period ended March 31, 2012.
 
Cash Flows from Operating Activities
 
We have not generated positive cash flows from operating activities. For the three month period ended March 31, 2012, net cash flows used in operating activities was $19,351 consisting primarily of a net loss of $129,477 as adjusted by $12,571 in amortization of debt discounts, and $2,629 change in derivative liability.
 
Cash Flows from Investing Activities
 
We did not engage in any investing activities during the three month period ended March 31, 2012.
 
Cash Flows from Financing Activities
 
For the three month period ended March 31, 2012, net cash flows provided from financing activities was $20,000 compared to $0 for the three month period ended March 31, 2011.
 
PLAN OF OPERATION AND FUNDING
 
A substantial portion of quarter ended December 31, 2010 was dedicated to the Muluncay mining project and financing. As at March 31, 2012, our cash and cash equivalents were $649. For the three month period ended March 31, 2012, we incurred a net loss of $129,477. Net cash provided by financing activities for the three month period ended March 31, 2012 was $20,000. The accumulated deficit is due to losses incurred on the disposal of Muluncay and general & administrative costs, change in the derivative liability, salaries and wages, note and bond interest, and professional fees. The orchestration and execution of our business acquisitions resulted in increased professional fees and the need for funding.

We will need additional further advances and issuance of debt instruments to fund our operations over the next three months. In connection with our future business plan, management anticipates additional increases in operating expenses and capital expenditures relating to acquisition of further interests in gold mining concessions. We would finance these expenses with further issuances of securities and debt issuances. We expect we would need to raise additional capital and generate revenues to meet long-term operating requirements. Additional issuances of equity or convertible debt securities would result in dilution to our current shareholders. Further, such securities may have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all.
 
 
18

 
MATERIAL COMMITMENTS
 
As of the date of this Quarterly Report, we have the following material commitments as described as described in Footnote 4 of our financial statements (all of which are in default). 
Contractual Obligations
 
Total
   
Less than one year
   
1 – 3 Years
   
3 – 5 Years
   
More than 5 Years
 
Convertible Bonds
 
$
1,610,407
   
$
1,610,407
   
$
   
$
   
$
 
Convertible Notes Payable
   
585,000
     
585,000
                         
Total
 
$
2,195,407
   
$
2,195,407
   
$
   
$
   
$
 
 
OFF-BALANCE SHEET ARRANGEMENTS
 
As of the date of this Quarterly Report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. 

GOING CONCERN
 
The independent auditors' report accompanying our December 31, 2011 and December 31, 2010 financial statements contains an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The financial statements have been prepared "assuming that we will continue as a going concern," which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business.
 
Inflation
 
We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could adversely affect our business, financial condition and results of operations.
 
Number of Employees
 
As of March 31, 2012  the Company had one (1) part-time  employee.
 
Disclosure of Contractual Obligations
 
The Company does not have any significant contractual obligations which could negatively impact our results of operations and financial condition.
 
ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MATERIAL RISK
 
 
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ITEM 4. CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
 
As of March 31, 2012, the Company performed an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Accounting Officer), of the effectiveness of the design and operation of its disclosure controls and procedures as defined in Rules 13a - 15(e) or 15d - 15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation and due to the lack of segregation of duties and failure to implement accounting controls, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were ineffective as of the end of the period covered by this report.
 
The reason for the ineffectiveness of our disclosure controls and procedures was the result of having a limited number of employees and not having proper segregation of duties based on the cost benefit of hiring additional employees solely to address the segregation of duties issue. We compensate for the lack of segregation of duties by employing close involvement of management in day-to-day operations.
 
Limitations on Effectiveness of Controls and Procedures
 
Our management, including our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), does not expect that our disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
 
Remediation of Material Weaknesses in Internal Control over Financial Reporting
 
As a small business, without a viable business and revenues, the Company does not have the resources to install a dedicated staff with deep expertise in all facets of SEC disclosure and GAAP compliance. As is the case with many small businesses, the Company will continue to work with its external consultants and attorneys as it relates to new accounting principles and changes to SEC disclosure requirements. The Company has found that this approach worked well in the past and believes it to be the most cost effective solution available for the foreseeable future.
 
The Company will conduct a review of existing sign-off and review procedures as well as document control protocols for critical accounting spreadsheets. The Company will also increase management's review of key financial documents and records.
 
As a small business, the Company does not have the resources to fund sufficient staff to ensure a complete segregation of responsibilities within the accounting function. However, Company management does review, and will increase the review of, financial statements on a monthly basis.  These actions, in addition to the improvements identified above, will minimize any risk of a potential material misstatement occurring.
 
 
20

 
 
Changes in Internal Controls
 
During the fiscal quarter ended March 31, 2012, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.
 
PART II. OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS
 
The Company is subject to legal proceedings and claims from time to time, which arise in the ordinary course of its business. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters should not have a material adverse effect on its financial position, results of operations or liquidity.

ITEM 1A. RISK FACTORS
 
The Company’s results of operations, financial condition and cash flows can be adversely affected by various risks. These risks include, but are not limited to, the principal factors listed below and the other matters set forth in this quarterly report on Form 10-Q. You should carefully consider all of these risks.
 
 
ITEM 2. UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS
 
None
 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
 
None
 
ITEM 4. MINING SAFETY DISCLOSURES

None
 
 
21

 
 
ITEM 5. OTHER INFORMATION
 
None.
 
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
 
(A) Exhibits
 
Exhibit Number
Description
   
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith
 
 
TRILLIANT EXPLORATION CORPORATION
 
SIGNATURES
 
Pursuant to the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
TRILLIANT EXPLORATION CORPORATION
     
Dated: June 8, 2012
By:
/s/ WILLIAM LIEBERMAN
   
William Lieberman, President/Chief
   
Executive Officer
     
Dated: June 8, 2012
By:
/s/ WILLIAM LIEBERMAN
   
William Lieberman, Chief Financial Officer
     
 
 
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