RITE MineralRite Corporation (PK)

NOTES TO FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION

Organization, History and Business

MineralRite Corporation (“the Company”) was incorporated in Nevada on October 22, 1996 under its original name PSM Corp.  The Company changed its emphasis to the exploration and development of natural resources and on November 23, 2005 changed its name to Royal Quantum Group, Inc. On October 18, 2012, the Company again changed its name from Royal Quantum Group, Inc. to MineralRite Corporation. On August 31, 2012, the Company declared a 50-for-1 reverse stock split of its common stock. All references in the accompanying financials to the number of shares outstanding and per-share amounts have been restated to reflect this stock split.

On March 1, 2013, the Company acquired 100% of the total shares outstanding of Goldfield International, Inc. (“Goldfield”) in exchange for issuing 2,000,000 shares of its common stock. The acquisition was based on the fair value of the shares issued amounting to $900,000. The accompanying unaudited condensed financial statements include the accounts and balances of the Company and also of Goldfield since the date of its acquisition. Goldfield is in the business of manufacturing gold mining equipment.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to present fairly the financial position of the Company as of March 31, 2013, and the results of its operations and cash flows for the three months ended March 31, 2013 and 2012. Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to rules and regulations of the U.S. Securities and Exchange Commission (the “Commission”). The Company believes that the disclosures in the unaudited condensed consolidated financial statements are adequate to make the information presented not misleading. However, the unaudited condensed consolidated financial statements included herein should be read in conjunction with the financial statements and notes thereto included in the Company ’ s Annual Report on Form 10-K for the year ended December 31, 2012 filed with the Commission on April 16, 2013.

Going Concern

The Company ’ s unaudited consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and the liquidation of liabilities in the ordinary course of business.  The Company has incurred substantial losses from operations and has a working capital deficit, which history and circumstance raise substantial doubt as to the Company ’ s ability to continue as a going concern. For the three months ended March 31, 2013, the Company had a net loss of $224,157 and accumulated deficit of $6,490,220. The Company has raised sufficient funds through the private sale of participating units to acquire working interests in nine oil and gas wells. Six of the wells are currently producing as of March 31, 2013.  Total gross revenue generated from these six wells during the three months ended March 31, 2013 amounted to $48,539.  In addition, the Company on March 1, 2013 acquired Goldfield International, Inc. which had net sales for the month of March 2013 of $27,316 and gross profit during the month of $12,535.  The net revenue generated from current operations is not sufficient to pay Company debts currently due or to fund future operations. The Company is seeking to raise additional funds; however, there is no assurance that the necessary funds will be raised or even if the funds are raised, that the funds received will be to sufficient to fund future operations until such time that the Company ’ s operations become profitable. Until such time as funding is obtained and/or positive results from operations materialize, doubt about the Company ’ s ability to continue as a going concern may remain.

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MINERALRITE CORPORATION

(FORMERLY ROYAL QUANTUM GROUP, INC.)

NOTES TO FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Reclassification

Certain reclassifications have been made to conform the 2012 amounts to the 2013 classifications for comparative purposes.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of MineralRite Corporation  and its wholly-owned subsidiary, Goldfield International, Inc. (acquired on March 1, 2013. See Note 3). Intercompany transactions and balances have been eliminated in consolidation.

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes.

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 reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Accounts Receivable

Accounts receivable are reported at the customer ’ s outstanding balances less any allowance for doubtful accounts.  Interest is not accrued on overdue accounts receivable.

Allowance for Doubtful Accounts

An allowance for doubtful accounts on accounts receivable is charged to operations in amounts sufficient to maintain the allowance for uncollectible accounts at a level management believes is adequate to cover any probable losses.  Management determines the adequacy of the allowance based on historical write-off percentages and information collected from individual customers.  Accounts receivable are charged off against the allowance when collectability is determined to be permanently impaired.  Management has determined that as of March 31, 2013, no allowances were required.

Table of Contents

MINERALRITE CORPORATION

(FORMERLY ROYAL QUANTUM GROUP, INC.)

NOTES TO FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012

Revenue Recognition

Oil and gas production revenues are recognized at the point of sale. Sales of mining equipment are recognized at the time the product is shipped and title passes to the customer.

Oil and Gas Properties

The Company uses the full-cost method of accounting under which all costs incurred in the acquisition, exploration and development of oil and natural gas reserves, including costs related to unsuccessful wells and estimated future site restoration and abandonment, are capitalized until such time as the aggregate of such costs net of accumulated depletion and oil and natural gas related deferred income taxes, on a country-by-country basis, equals the sum of 1) the discounted present value (at 10%), using prices as of the end of each reporting period on a constant basis, of the Company ’ s estimated future net cash flows from estimated production of proved oil and natural gas reserves as determined by independent petroleum consultants, less estimated future expenditures to be incurred in developing and producing the proved reserves but excluding future cash outflows associated with settling asset retirement obligations accrued on the balance sheet; plus 2) the cost of major development projects and unproven properties not subject to depletion, if any; plus 3) the lower of cost or estimated fair value of unproven properties included in costs subject to depletion; less 4) related income tax effects.  If net capitalized costs exceed this limit, the excess is expensed unless subsequent market price changes eliminate or reduce the indicated write-down in accordance with U.S. SEC Staff Accounting Bulletin (“SAB”) Topic 12D.  Depletion is computed using the units-of-production method whereby capitalized costs, net of estimated salvage values, plus estimated future costs to develop proved reserves and satisfy asset retirement obligations, are amortized over the total estimated proved reserves on a country-by-country basis.  Investments in major development projects are not depleted until either proved reserves are associated with the projects or impairment has been determined.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation. Depreciation is provided over the five-year estimated useful life of the assets computed on the straight-line method.

Gains and losses resulting from sales and dispositions of property and equipment are included in current operations. Maintenance and repairs are charged to operations as incurred. Depreciation expense for the three months ended March 31, 2013 and 2012 amounted $1,618 and $0, respectively.

Foreign Currency Translation

The Company's primary functional currency is the U.S. dollar.  For foreign operations whose functional currency is the local foreign currency, balance sheet accounts are translated at exchange rates in effect at the end of the year and income statement accounts are translated at average exchange rates for the period. Translation gains and losses are included as a separate component of stockholders ’ deficit.

Concentrations of Credit Risk

The Company ’ s revenue is dependent upon the successful efforts of the respective well ’ s operator. Currently production from the Company ’ s six wells is sold to one customer.

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MINERALRITE CORPORATION

(FORMERLY ROYAL QUANTUM GROUP, INC.)

NOTES TO FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012

Loss per Share of Common Stock

The Company reports earnings (loss) per share in accordance with Accounting Standards Codification “ASC” Topic 260-10, " Earnings per Share ." Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares available. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted earnings (loss) per share has not been presented since the effect of the assumed conversion of warrants and debt to purchase common shares would have an anti-dilutive effect. Potential common shares as of March 31, 2013 that have been excluded from the computation of diluted net loss per share consist of Unit holders ’ options to convert their respective oil revenue interests into a total 10,900 (post-split)  shares of the Company ’ s common stock.  Potential common shares as of March 31, 2012 that have been excluded from the computation of diluted net loss per share consist of (a) warrants to purchase 22,720 (post-split) shares of the Company ’ s common stock and (b) Unit holders ’ options to convert their respective oil revenue interests into a total 31,040 (post-split)  shares of the Company ’ s common stock.

Asset Retirement Obligations

The Surface Mining Control and Reclamation Act of 1977 and similar state statutes require mine properties to be restored in accordance with specified standards. Accounting Standards Codification (“ASC”) Topic 410-20 requires recognition of an asset retirement obligation (“ARO”) for eventual reclamation of disturbed acreage remaining after mining has been completed. The Company records its reclamation obligations on a permit-by-permit basis using requirements as determined by the Office of Surface Mining of the U.S. Department of the Interior (“OSM”). The liability is calculated based upon the reclamation activities remaining after removal ceases, assuming that reclamation activities have been contemporaneous within state and federal guidelines during mining. A liability is recorded for the estimated future cost that a third party would incur to perform the required reclamation and mine closure discounted at the Company ’ s credit-adjusted risk-free rate. A corresponding increase in the asset carrying value of mineral rights is also recorded. The ARO asset is amortized on the units-of-production method over the proven and probable reserves associated with that permit.

Long-Lived Assets

The Company accounts for its long-lived assets in accordance with ASC No. 360, “Property, Plant and Equipment.” ASC No. 360 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate.  The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition.  If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset ’ s carrying value and fair value or disposable value. As of March 31, 2013, the Company does not believe there has been any impairment of its long-lived assets.

Fair Value of Financial Instruments

Pursuant to ASC No. 820, “ Fair Value Measurements and Disclosures, ” the Company is required to estimate the fair value of all financial instruments included on its balance sheet as of March 31, 2013. The Company ’ s financial instruments consist of cash, accounts receivables, payables, and other obligations.  The Company considers the carrying value of such amounts in the financial statements to approximate their fair value due to the short-term nature of the respective instrument.

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MINERALRITE CORPORATION

(FORMERLY ROYAL QUANTUM GROUP, INC.)

NOTES TO FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012

Income Taxes

The Company accounts for its income taxes under the provisions of ASC No. 740 “Income Taxes. ” The method of accounting for income taxes under ASC No. 740 is an asset and liability method. The asset and liability method requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between tax bases and financial reporting bases of other assets and   liabilities.

Recent Accounting Pronouncements

The Company ’ s management has evaluated all recent accounting pronouncements since the last audit through the issuance date of these financial statements. In the Company ’ s opinion, none of the recent accounting pronouncements will have a material effect on the financial statements.

NOTE 3 – ACQUISITION OF GOLDFIELD INTERNATIONAL, INC.

On March 1, 2013, the Company acquired the outstanding stock of Goldfield International, Inc., a manufacturer of gold mining equipment and parts located in Lindon, Utah. The acquisition of Goldfield diversifies our product lines and creates a second source of revenue for the Company. The acquisition was a stock purchase and therefore encompasses all of Goldfield ’ s business operations.

In exchange for Goldfield ’ s outstanding stock, the Company issued 2,000,000 shares of its common stock. The Company valued the acquisition at the fair value of the shares it issued amounting to $900,000.

In addition, the Company entered into separate agreement to acquire the personal goodwill of the seller for $100,000 payable in three installments of $33,000 due April 1, 2013, $33,000 due May 1, 2013 and $34,000 due June 1, 2013. Interest accrues on any payment that is not paid within 10 days of its respective due date. As of May 30, 2013, no payments have been paid under this agreement.

We valued the assets acquired and liabilities assumed as follows:

Management is still in the process of determining the intangibles acquired and their respective fair values.

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MINERALRITE CORPORATION

(FORMERLY ROYAL QUANTUM GROUP, INC.)

NOTES TO FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012

NOTE 4 - INVESTMENT IN OIL & GAS PROPERTY

In March 2011, the Company acquired an 8% working interest (6.4% NRI) in the Haggard #5-17 well located in Noble County, Oklahoma, USA. The Company capitalized $35,844 in development of this well. The well ’ s production commenced in 2011 and is still currently producing. A royalty consisting of 60% of the net revenue received from the production of the well will be distributed proportionally to the well ’ s investors.

In April and May 2011, the Company raised a total of $95,000 towards its share of the drilling and completion of the Bond #4 well through the issuance of 38 units. The Company has a 20% NRI in the Bond #4 well and each of the 38 units was priced at $2,500 per unit totaling $95,000 cash and consisted of 5,000 restricted common shares, a pro rata share of 60% of the net revenue generated from the production of the well, and warrants to purchase 10,000 shares of the Company ’ s common stock at $0.25 per share with an expiration date of October 2012. Each unit holder was granted the option to surrender their pro rata interest in the revenue from the well back to the company in exchange for 5,000 restricted common shares per unit surrendered. This option is exercisable for a period of 36 months from the date the investor receives the first revenue check. Of the $95,000 received, the Company allocated $20,936 towards the value of the investors ’ 60% interest in the Company ’ s share of the well ’ s net revenue and credited this amount against the $93,332 it has currently paid and capitalized towards the drilling cost of the well. A consulting fee in connection with the offering was paid through the issuance of 3.4 units. The capitalized cost of the well was further reduced by the consultant ’ s allocated share in the well ’ s net revenue by $1,873. In November 2011, the Company received a refund of $7,771 from the well operator of costs related to this well, which reduced the capitalized cost allocated to this well. Total capitalized costs related to this well are $49,752.

In August 2011, the Company raised a total of $65,000 towards its share of the drilling and completion of the Chuck #1 well through the issuance of 26 units. The Company has a 20% NRI in the Chuck #1 well and each of the 26 units was priced at $2,500 per unit totaling $65,000 cash and consisted of 5,000 restricted common shares, a pro rata share of 60% of the net revenue generated from the production of the well, and warrants to purchase 10,000 shares of the Company ’ s common stock at $0.25 per share with an expiration date of February 2013. Each unit holder was granted the option to surrender their pro rata interest in the revenue from the well back to the company in exchange for 5,000 restricted common shares per unit surrendered. This option is exercisable for a period of 36 months from the date of acceptance of the Subscription Agreement. Of the $65,000 received, the Company allocated $15,394 towards the value of the investors ’ 60% interest in the Company ’ s share of the well ’ s net revenue and credited this amount against the $59,015 it has currently paid and capitalized towards the drilling cost of the well. A consulting fee in connection with the offering was paid through the issuance of 2.6 units. The capitalized cost of the well was further reduced by the consultant ’ s allocated share in the well ’ s net revenue by $1,539. As of the date of this report, the Chuck #1 well is not in production. Total capitalized costs related to this well are $42,779.

As of March 31, 2013, the Company ’ s accrued asset retirement obligation totaled $12,111. Accretion of the obligation charged to cost of oil and gas activities for the three months ended March 31, 2013 amounted to $117. Depletion expense is also included in the cost of oil and gas activities as reflected in the accompanying statements of operations. Depletion expense for the three months ended March 31, 2013 and 2012 amounted to $10,048 and $19,207, respectively.

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MINERALRITE CORPORATION

(FORMERLY ROYAL QUANTUM GROUP, INC.)

NOTES TO FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012

NOTE 5 – PREPAID SERVICES

On February 4, 2013, the Company issued a total of 7,000,000 (post-split) shares of its common stock to five individuals and five entities in exchange for consulting services, valued at $2,450,000. The $2,450,000 is being charged to operations over the three-year term of the respective agreement. As indicated in Note 7, Mr. Guy Peckham, the Company ’ s president, received 2,000,000 of the 7,000,000 shares issued. The 2,000,000 shares were valued at $700,000.

On October 30, 2012, the Company issued a total of 33,000,000 (post-split) shares of its common stock of to five individuals and five entities in exchange for consulting services, valued at $429,000. The $429,000 is being charged to operations over the three-year term of the respective agreement. As indicated in Note 7, Mr. Guy Peckham, the Company ’ s president, received 11,500,000 of the 33,000,000 shares issued. The 11,500,000 shares were valued at $149,500.

Consulting fees charged to operations during the three months ended March 31, 2013 and 2012 relating to these two transactions amounted to $158,809 and $0, respectively. The unamortized balance at March 31, 2013 was $2,696,243. Amortization expense over the remaining terms of the respective consulting agreement is as follows:

NOTE 6 – SEGMENT REPORTING

The Company ’ s operations are classified into two reportable segments that provide different products. Separate management of each segment is required because each business unit is subject to different marketing, production, and technology.

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