Change in current liabilities results from a decrease in accrued expenses of $3,792, a decrease in accrued payroll of $3,300, an increase in convertible debentures of $53,500, a decrease in notes payable of $50,000, and an increase in derivative liability of $669,898.
Accumulated deficit increased due to an increase in the net loss for the year.
Operating expenses decreased due to a reduction in recorded general and administrative expenses.
Change in fair value of derivative liability increased due to proper calculation of derivative expense for the period.
The material changes to the financial statements focused primarily on two areas. First, the Company elected to record a reserve against the value of the oil and gas reserves in 2013, which impacted Current Assets, Net Loss, and Retained Deficit for both 2013 and 2014. Second, the Company recalculated the fair value of derivative liabilities, which resulted in changes to Liabilities, Net Loss, and Retained Deficit for all periods presented. The only other material change was to Interest Expense, which was recalculated based on current information, which also affected Net Loss and Retained Deficit.
On a quarterly basis, for the year ended November 2012, the only material change would be to the change in value of the derivative liability, which also impacted Net Loss for the quarters. For the year ended November 30, 2013, the quarterly reports would only be affected by changes to derivative liability and interest expense, which also impacted the Net Loss and Retained Deficit. The reserve against the oil and gas assets was recorded during the fourth quarter of fiscal 2013. During the year ended November 30, 2014, the quarterly balances were affected by changes to interest expense and deferred liability, which were roughly evenly distributed across all quarters. These changes also impacted Net Loss and Retained Deficit.
m) Material Equity Instruments
The Company evaluates preferred stock series A, B & C and other contracts (convertible promissory note payable) to determine if those contracts or embedded components of those contracts qualify as derivative financial instruments to be separately accounted for under the relevant sections of ASC 815-40, Derivative Instruments and Hedging: Contracts in Entitys Own Equity (ASC 815).
Certain of the Companys embedded conversion features on debt are treated as derivative liabilities for accounting purposes under ASC 815-40 due to insufficient authorized shares to settle these outstanding contracts. Pursuant to SEC staff guidance that permits a sequencing approach based on the use of ASC 840-15-25 which provides guidance for contracts that permit partial net share settlement. The sequencing approach may be applied in one of two ways: contracts may be evaluated based on (1) earliest issuance date or (2) latest maturity date. In the case of insufficient authorized share capital available to fully settle outstanding contracts, the Company utilizes the earliest maturity date sequencing method to reclassify outstanding contracts as derivative instruments. These contracts are recognized currently in earnings until such time as the convertible notes or preferred stock are exercised, expire, the related rights have been waived and/or the authorized share capital has been amended to accommodate settlement of these contracts. These instruments do not trade in an active securities market.
As of November 30, 2014, 2013 and 2012, the Company has recorded a derivative liability of $498,942, $802,153 and $870,433, respectively. This derivative liability is a result of the embedded conversion features of the $375,925 in debt to convert into 236,445,529 shares, at fixed prices ranging from $0.00166 to $0.00220 per share. The liability was recorded at the fair market value, which estimated value, was based upon the remaining contractual life of the convertible notes payable (the host instrument), using the Black-Sholes pricing model, and since these earlier notes had reached maturity and were now due on demand the intrinsic value was also considered. The conversion exceeded the market price, accordingly the intrinsic value was also zero. Accordingly, the reclassification of the value of these derivatives had no impact on the Companys financial statements.
In addition, the Company has issued and outstanding a total of 3,000 shares of Series A Preferred, which is convertible into Common Stock at 1,000:1 and 87,500 shares of Series B Preferred, which is convertible into Common Stock at 5,000:1. Combined, these Preferred Shares could be converted into 440,500,000 shares of Common Stock. Upon analysis, there was no additional adjustment of the derivative liability required regarding these potential conversions.
n) Reclassifications
Certain prior year financial statement balances have been reclassified to conform to the current year presentation. These reclassifications had no effect on the recorded net loss.
o) Recently Adopted Accounting Pronouncements
Management does not believe that any recently issued but not yet effective accounting pronouncements if currently adopted would have a material effect on the accompanying financial statements.
3. Mineral Property
In August 2009, the Company entered into an agreement to acquire the mineral rights to 331 unpatented lode mining claims known as the Conglomerate Mesa, located in Inyo County, California. In March 2011, the Company added an additional 217 unpatented lode mining claims. In fiscal year 2012, the Company determined that the effort and cost of developing these claims required more resources that could be more effectively used on other opportunities, and abandoned the Conglomerate Mesa project.
In February 2013, the Company acquired a 28% Working Interest in the Grand Chenier oil and gas prospect in Louisiana. The property contains an estimate 9.0 million barrels of oil and was in production until approximately 2009 when the then operator failed to manage the interests and certain repairs were not made leading to the cessation of production. In June 2015, the Company determined that it was unable to raise sufficient capital to bring the oil and gas properties back into production and agreed to a share exchange agreement with Amgentech, Inc., a telecommunications provider focusing its efforts on the Cuba and Cuban-American market (See Note 13 - Subsequent Events). As a result of this transaction, and the perceived economic uncertainty of being able to sell the oil and gas assets at carrying value, the Company has recorded impairment against the assets as follows:
Working Interest in Grand Chenier oil & gas prospect
$2,000,000
Impairment as of November 30, 2013
(2,000,000)
Carrying Value as of November 30, 2013
$ -
F-10
Telco Cuba, Inc.
NOTES TO FINANCIAL STATEMENTS
For the Years Ended November 30, 2014, 2013 and 2012
4. Capital Stock
a) Authorized
On March 12, 2012 the Authorized Capital was increased to 2,500,000,000 shares of common stock, par value $0.001. On March 31, 2013, the company executed a 1:125 reverse split. At the same time, the authorized common was set to 500,000,000 shares. All references to common stock in these financial statements have been retroactively adjusted to reflect the reverse split.
As of November 30, 2014, authorized capital stock consists of:
500,000,000 common shares with a par value of $0.001 per share; and
1,000,000 preferred shares with a par value of $0.001 per share
b) Share Issuances
For the year ended November 30, 2012:
The Company issued 11,633,358 shares of common stock in connection with the conversion of $236,124 of convertible debentures and accrued interest.
The Company issued 65,500 shares of Series B preferred stock as compensation to officers and directors.
For the year ended November 30, 2013:
The Company issued 2,683,121 shares of common stock in connections with the conversion of $16,056 of convertible debentures and accrued interest.
The Company is obligated to issue 250,000 shares of Series C preferred stock, valued at $500,000, as part of the acquisition cost of its interest in the Grand Chenier oil & gas prospect.
There were no share issuances of capital stock in the fiscal year ended November 30, 2014.
c) Preferred Stock
The Company has 1,000,000 shares of preferred stock authorized of which 300,000 shares were designated in three series as follows:
Series A Convertible Preferred Stock (the Series A Preferred):
Par Value: $0.001
Authorized Shares: 100,000
Issued and outstanding: 3,000
Convertible into Common Stock: 1,000:1
Series B Convertible Preferred Stock (the Series B Preferred):
Par Value: $0.001
Authorized Shares: 100,000
Issued and outstanding: 87,500 as of 11/30/14
Convertible into Common Stock: 5,000:1
The Company Preferred Stock has liquidation rights as follows: The Series A Preferred is senior in liquidation preference to all other series or classes of capital stock, preferred or common; the Series B Preferred is senior in liquidation preference to all series or classes of capital stock other than the Series A Preferred.
Issuance of Preferred Stock
There were no issuances or redemptions of Preferred Stock Series A during the fiscal years ended November 30, 2014, 2013 and 2012.
There were 65,500 issuances of Preferred Stock Series B during the fiscal year ended November 30, 2012 and none during the years ended November 30, 2013 and 2014.
d) Warrants and Options
For the year ended November 30, 2015, 2014 and 2013, there are no outstanding stock options and warrants.
5. Concentration Risk
The Company's financial instruments consist of cash, accounts payable and accrued liabilities. It is management's opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments. Because of the short maturity and capacity of prompt liquidation of such assets and liabilities, the fair values of these financial instruments approximate their carrying values.
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash. The Company places its cash with high credit quality financial institutions in the United States. Bank deposits in the United States did not exceed federally insured limits as of November 30, 2014, 2013 or 2012.
The Company may operate outside the United States of America and thus may have significant exposure to foreign currency risk in the future due to the fluctuations between the currency in which the Company operates and the U.S. dollar.
F-11
Telco Cuba, Inc.
NOTES TO FINANCIAL STATEMENTS
For the Years Ended November 30, 2014, 2013 and 2012
6. Income Taxes
A reconciliation of income taxes at statutory rates with the reported income taxes is as follows: