(1) All common share amounts and per share amounts in these financial statements, reflect the one hundred-for-one reverse stock splits of the issued and outstanding shares of the common stock of the Company, effective June 14, 2013 respectively, including retroactive adjustment of common share amounts. See Note 11.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2014
(
Unaudited
)
Note 1
Interim Reporting
The unaudited condensed consolidated financial information furnished herein reflects all adjustments, which in the opinion of management are necessary to fairly state the Company
’
s financial position and the results of its operations for the periods presented. All adjustments are of a normal recurring nature. These interim condensed consolidated financial statements should be read in conjunction with the Company
’
s consolidated financial statements and notes thereto included in the Company
’
s audited consolidated financial statements for the fiscal year ended November 30, 2013. The Company assumes that the users of the interim consolidated financial information herein have read or have access to the audited financial statements for the preceding fiscal period and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. Accordingly, footnote disclosure, which would substantially duplicate the disclosure contained in the Company
’
s audited consolidated financial statements for the fiscal year ended November 30, 2013, has been omitted. The results of operations for the six-month period ended May 31, 2014 are not necessarily indicative of results for the entire year ending November 30, 2014.
Note 2
Nature of Operations and Going Concern
The Company was incorporated in the state of Nevada, United States of America on November 1, 2006. The Company was formed for the purpose of acquiring exploration and development stage natural resource properties.
Effective December 28, 2006, the Board of Directors authorized a 3 for 1 forward stock split of the common shares. The authorized number of common shares increased from 90,000,000 to 270,000,000 common shares with a par value of $0.001. All references in the accompanying financial statements to the number of common shares have been restated to reflect the forward stock split.
On February 12, 2008, the Company acquired 100% of the common shares of Force Energy Corp., an inactive company incorporated in Nevada on July 19, 2005, for $100, to effect a name change of the Company. On February 12, 2008, the Company and Force Energy Corp filed articles of merger with the Secretary of State of Nevada to effectuate a merger between the two companies. The surviving entity of the merger was the Company. Immediately thereafter the Company changed its name to Force Energy Corp.
On June 6, 2013, the Board of Directors changed the name of the Company to Force Minerals Corporation. Also on June 6, 2013, the Board of Directors authorized a 100:1 reverse stock split of the common shares. The name change and reverse stock split received regulatory approval on June 28, 2013. The record date for the reverse stock split was June 14, 2013. The authorized number of common shares remained unchanged. All references in the accompanying financial statements to the number of common shares have been restated to reflect the reverse stock split.
These consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next twelve months. Realization values may be substantially different from carrying values as shown and these consolidated financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern.
Note 2
Nature of Operations and Going Concern
–
(cont
’
d)
At May 31, 2014, the Company has a working capital deficit of $669,130. The Company has yet to achieve profitable operations, has accumulated losses of $5,144,735 since its inception and expects to incur further losses in the development of its business, all of which casts substantial doubt about the Company
’
s ability to continue as a going concern. The Company
’
s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management has no formal plan in place to address this concern but considers that the Company will be able to obtain additional funds by equity financing and/or related party advances, however there is no assurance of additional funding being available or on acceptable terms, if at all.
Note 3
Recent Developed Accounting Pronouncements
Effective January 2013, we adopted FASB ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities (ASU 2011-11). The amendments in ASU 2011-11 require the disclosure of information on offsetting and related arrangements for financial and derivative instruments to enable users of its financial statements to understand the effect of those arrangements on its financial position. Amendments under ASU 2011-11 will be applied retrospectively for fiscal years, and interim periods within those years, beginning after January 1, 2013. The adoption of this update did not have a material impact on the consolidated financial statements.
Effective January 2013, we adopted FASB ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive (ASU 2013-02). This guidance is the culmination of the FASB
’
s deliberation on reporting reclassification adjustments from accumulated other comprehensive income (AOCI). The amendments in ASU 2013-02 do not change the current requirements for reporting net income or other comprehensive income. However, the amendments require disclosure of amounts reclassified out of AOCI in its entirety, by component, on the face of the statement of operations or in the notes thereto. Amounts that are not required to be reclassified in their entirety to net income must be cross-referenced to other disclosures that provide additional detail. This standard is effective prospectively for annual and interim reporting periods beginning after December 15, 2012. The adoption of this update did not have a material impact on the consolidated financial statements.
New Accounting Pronouncements Not Yet Adopted
In February 2013, the FASB issued ASU No. 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date. The amendments in ASU 2013-04 provide guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this Update is fixed at the reporting date, except for obligations addressed within existing guidance in U.S. GAAP. The guidance requires an entity to measure those obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The guidance in this Update also requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations. The amendments in this standard is effective retrospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. We are evaluating the effect, if any, adoption of ASU No. 2013-04 will have on our consolidated financial statements.
In March 2013, the FASB issued ASU No. 2013-05, Foreign Currency Matters (Topic 830): Parent
’
s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. The amendments in ASU No. 2013-05 resolve the diversity in practice about whether Subtopic 810-10, Consolidation
—
Overall, or Subtopic 830-30, Foreign Currency Matters
—
Translation of Financial Statements, applies to the release of the cumulative translation adjustment into net income when a parent either sells a part
or all of its investment ina foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) withina foreign entity. In addition, the amendments in this Update resolve the diversity in practice for the treatment of business combinations achieved in stages (sometimes also referred to as step acquisitions) involving a foreign entity. The amendments in this standard is effective prospectively for fiscal years, and interim reporting periods within those years, beginning December 15, 2013. We are evaluating the effect, if any, adoption of ASU No. 2013-05 will have on our consolidated financial statements.
Note 4
Financial Instruments and Risk Management
Fair value is defined as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk including our own credit risk.
In addition to defining fair value, the standard expands the disclosure requirements around fair value and establishes a fair value hierarchy for valuation inputs is expanded. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels and which is determined by the lowest level input that is significant to the fair value measurement in its entirety
These levels are:
Level 1 - inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.
Level 2
–
inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3- inputs are generally unobservable and typically reflect management
’
s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.
Financial assets and liabilities measured at fair value on a recurring basis:
|
FAIR VALUE
|
31-May-14
|
30-Nov-13
|
|
INPUT
|
CARRYING
|
ESTIMATED
|
CARRYING
|
ESTIMATED
|
|
LEVEL
|
AMOUNT
|
FAIR VALUE
|
AMOUNT
|
FAIR VALUE
|
Derivative Liability
|
3
|
29,565
|
29,565
|
90,297
|
90,297
|
Total Financial Liabilities
|
|
$
29,565
|
$
29,565
|
$
90,297
|
$
90,297
|
In management
’
s opinion, the fair value of convertible notes payable and advances payable is approximate to carrying value as the interest rates and other features of these instruments approximate those obtainable for similar instruments in the current market. Unless otherwise noted, it is management
’
s opinion that the Company is not exposed to significant interest, exchange or credit risks arising from these financial instruments.
Note 4
Financial Instruments and Risk Management
(cont
’
d)
The carrying value of cash balances, accounts payable and accrued liabilities and due to related party approximates the fair value due to their short-term maturities.
Risk management is carried out by the Board of Directors. The Company's risk exposures and their impact on the Company's financial instruments are summarized below:
Credit risk is the risk of a financial loss to the Company if a counterparty to a financial instrument fails to meet its contractual obligations.
The Company
’
s cash and cash equivalents and are primarily held in large financial institutions.. Management believes that the credit risk with respect to cash and cash equivalents, is remote.
The Company tries to ensure that there is sufficient capital in order to meet short-term business requirements, after taking into account the Company
’
s holdings of cash. As at May 31, 2014, the Company had cash totaling $nil (November 30, 2013 - $nil) to settle current liabilities of $669,130 (November 30, 2013 - $523,739). The Company believes it will be able to raise financing in order to settle its current liabilities as they fall due.
Market risk is the risk of loss that may arise from changes in market factors such as interest rates, foreign exchange rates, and commodity and equity prices.
The Company has cash balances and no interest-bearing debt. The Company
’
s current policy is to invest excess cash in investment-grade short-term deposit certificates issued by its banking institutions. The Company periodically monitors the investments it makes and is satisfied with the credit ratings of its banks.
|
ii)
|
Foreign currency risk
|
The Company
’
s functional currency is the Canadian dollar as substantially all of the Company
’
s operations are in Canada. The Company uses the United States dollar as its reporting currency for consistency with registrants of the Securities and Exchange Commission (
“
SEC
”
).
During the quarter ended May 31, 2013, the Company entered into a Property option agreement to acquire a mineral property in Mexico. Accordingly, future costs may be incurred in currencies other than its functional currency, which may result in increased exposure to foreign exchange risk.
The Company does not participate in any hedging activities to mitigate any gains or losses, which may arise as a result of exchange rate changes.
|
iii)
|
Commodity Price risk
|
The Company is exposed to price risk with respect to commodity and equity prices. Equity price risk is defined as the potential adverse impact on the Company's earnings due to movements in individual equity prices or general movements in the level of the stock market. Commodity price
risk is defined as the potential adverse impact on earnings and economic value due to commodity price movements and volatilities. To mitigate price risk, the Company closely monitors commodity prices of precious metals, individual equity movements, and the stock market to determine the appropriate course of action to be taken by the Company.
|
d)
|
Mineral Property Risks
|
The Company has diligently investigated rights of ownership of all of its mineral property interests and, to the best of its knowledge, all agreements relating to such ownership rights are in good standing. However, all properties/concessions may be subject to prior claims, agreements or transfers, and rights of ownership may be affected by undetected defects.
Mineral exploration and development is highly speculative and involves inherent risks. While rewards if a feasible ore body is discovered might be substantial, few properties that are explored are ultimately developed into producing mines. There can be no assurance that the current exploration programs by the Company will result in the discovery of economically viable quantities of ore.
Environmental legislation is becoming increasingly stringent and costs and expenses of regulatory compliance are increasing. The impact of new and future environmental legislation of the Company
’
s operation may cause additional expenses and restrictions.
If the restrictions adversely affect the scope of exploration and development on the mineral properties, the potential for production on the property may be diminished or negated.
The Company is subject to the laws and regulations relating to environmental matters in all jurisdictions in which it operates, including provisions relating to property reclamation, discharge of hazardous materials and other matters. The Company may also be held liable should environmental problems be discovered that were caused by former owners and operators of its properties and properties in which it has previously had an interest, if any. The Company attempts to conduct its mineral exploration activities in compliance with applicable environmental protection legislation. The Company is not aware of any existing environmental problems related to any of its current or former properties, if any, interests that may result in material liability to the Company.
Certain of the Company
’
s property interests may from time to time be located in countries outside of Canada, and mineral exploration and mining activities may be affected in varying degrees by political stability and government regulations relating to the mining industry. Any changes in regulations or shifts in political attitudes may vary from country to country and are beyond the control of the Company and may adversely affect its business. Such changes have, in the past, included nationalization of foreign owned businesses and properties. Operations may be affected in varying degrees by government regulations with respect to restrictions on production, price controls, export controls, income and other taxes and duties, expropriation of property, environmental legislation and mine safety. These uncertainties may make it more difficult for the Company and its joint venture partners to obtain any required production financing for its mineral properties.
Note 5
Mineral Properties
a) Zoro Property
–
Manitoba Canada
On July 6, 2010, the Company entered into a Property Option Agreement (amended May 11, 2011) to acquire an option to purchase a 100% interest in the property known as the Zoro 1 property, a mineral property comprising 52 hectares (approximately 128.50 acres) in the Snow
Lake region of Manitoba Canada. In order to exercise the option, the Company must pay cash or issue stock to the Optionor by the following dates:
Note 5
Mineral Properties (cont
’
d.)
|
i)
|
$59,600 (Cdn$62,000) on signing the agreement (paid)
|
|
ii)
|
$102,900 (Cdn$100,000) or issue 10,000 shares of common stock on or before June, 15, 2011. (10,000 shares issued with a fair value of $80,000)
|
|
iii)
|
$50,500 cash (Cdn$50,000) and issue 75,000 common stock on or before June, 15, 2012. ($50,500 paid (Cdn$50,000) and 75,000 shares issued with a fair value of $150,000)
|
|
iv)
|
$403,560 (Cdn$400,000) or issue a specified number of common shares still to be determined by the parties on or before June, 15, 2013
|
During the six month period ended May 31, 2014, the Company incurred $nil (six months ended May 31, 2013 - $nil) of exploration expenditures on the property.
The Company is currently negotiating the final cash or stock payment with the vendor since the deadline for the $403,560 payment is not made by the Company on June 15, 2013.There is no assurance that the vendor will accept the offer from the Company for the final payment.
b) La Predilecta; La Predilecta II; La Crus and La Cascada Properties
–
Mexico
On May 30, 2013, the Company entered into a Property Option Agreement to acquire an option to purchase a 100% interest in four mining concessions known as La Predilecta; La Predilecta II; La Crus and La Cascada comprising approximately 1,181 hectares in the Miahuatlan District, in the southern portion of Centrales Region within Oaxaca State Mexico. The Company will hold its interest via a wholly owned Mexican subsidiary, which is yet to be incorporated when the Optionor receives the $100,000 cash.
In order to exercise the option, the Company must pay cash or issue stock to the Optionor by the following dates:
|
i)
|
$50,000 within 60 days of signing the agreement.
|
|
ii)
|
$50,000 within 90 days of signing the agreement.
|
|
iii)
|
Issue an aggregate of 4,000,000 shares of Preferred stock.
|
Each preferred share shall have an underlying voting right equivalent to 100 shares of Common stock and shall be convertible into 100 shares of Common stock.
As of this reporting period the initial $50,000 payment had been madeand is being paid by an outside investor. The remaining $50,000 is past due as of May 31, 2014.
First payment of $50,000.00 has been paid. The Company is now waiting for Seller to verify the current standing with all taxes on the property. As soon as this is confirmed the Company will authorize second payment. Once the tax verification comes from the country of Mexico the Mexican subsidiary will be established and ownership of property will be held within the Mexican subsidiary.
Note 6
Advance Payable
On March 21, 2011, the Company received a cash advance of $20,000. The advance is unsecured, non-interest bearing and has no fixed repayment terms.
Note 7
Related Party Transactions
Amounts due to related parties comprise:
|
May 31,
|
|
November 30,
|
|
2014
|
|
2013
|
Tim DeHerrera
|
$ 715
|
|
$ 250
|
Direct Capital
|
18,176
|
|
-
|
Syndication Capital
|
1,343
|
|
1,343
|
|
$ 20,234
|
|
$ 1,593
|
All amounts due to related parties are unsecured, non-interest bearing and have no specific terms for repayment.
On July 23, 2010, the Company entered into an employment contract with the Company President, which expires July 22, 2011. Pursuant to the contract, the President received 25,000 common shares having a fair value of $550,000. Should the contract be terminated prior to completion the President will return 1,000 shares to treasury for each unfulfilled month of the contract. The President will also receive $2,500 per month for months 1-3; $4,000 per month for months 4-6 and $5,000 per month for months 7-12 of the contract.
The fair value of 13,000 shares issued which were earned immediately and have been expensed as stock based compensation of $286,000. The fair value of the remaining 12,000 shares issued which are to be earned over the term of the contract will be charged to operations over the life of the employment contract. This portion of the stock award is accounted for as deferred compensation whereby the fair value of the award is recorded as a component of stockholders
’
equity until earned.
Pursuant to this stock award during the six month period ended May 31, 2014, the Company recorded management fees of $nil (six month period ended May 31, 2013 $nil).
On July 18, 2011, the Company entered into a new employment contract with the Company President, which expires July 18, 2013. Pursuant to the contract, the President received 25,000 common shares having a fair value of $125,000. The President will receive $7,500 per month for months 13-24 of the contract. Unless the contract is terminated by either party giving 45 days written notice the contract will automatically renew. Should the contract be renewed then the President will receive 25,000 shares of common stock and an annual increase of $2,500 per month upon each renewal. If the Company does not have sufficient cash resources to settle the cash element of the contract, then at the request of the President any accrued unpaid fees may be converted into common stock at $0.025 per share.
The fair value of the 25,000 shares issued which are to be earned over the term of the contract will be charged to operations over the life of the employment contract. This portion of the stock award is accounted for as deferred compensation whereby the fair value of the award is recorded as a component of stockholders
’
equity until earned.
Pursuant to this stock award during the six month period ended May 31, 2014 the Company recorded management fees of $nil (six month period ended May 31, 2013 - $nil).
On July 16, 2012, the Company entered into an addendum to the contract, which expires July 15, 2014. Pursuant to the contract, the President received 75,000 common shares on July 2012, and will continue to receive 75,000 common shares upon each anniversary date of the addendum. The fair value of the shares received was $150,000. The President will receive $10,000 per month for months 25-36 of the contract and an annual monthly increase of $2,500 per month thereafter. Unless the contract is terminated by either party giving 45 days written notice the contact will automatically renew. If the Company does not have sufficient cash resources to settle the cash element of the contract, then at the request of the President any accrued unpaid fees may be converted into common stock at $0.01 per share.
The fair value of the 75,000 shares issued which are to be earned over the term of the contract will be charged to operations over the life of the employment contract. This portion of the stock award is
accounted for as deferred compensation whereby the fair value of the award is recorded as a component of stockholders
’
equity until earned.
During the six month period ended May 31, 2014, the Company recorded management fees of $nil (six month period ended May 31, 2013 - $37,500) pursuant to this stock award.
On May 30, 2013, the Company entered into a second addendum to the contract, which expires May 30, 2015. Pursuant to the contract, the President received 500,000 common shares upon signing the agreement, 221,250 shares were issued to settle amounts owing under prior contract of $22,125 and 278,750 shares are to be earned over the period of the contract. As before the President will receive $10,000 per month for months 25-36 of the contract and an annual monthly increase of $2,500 per month thereafter. Unless the contract is terminated by either party giving 90 days written notice the contact will automatically renew. If the Company does not have sufficient cash resources to settle the cash element of the contract, then at the request of the President any accrued unpaid fees may be converted into common stock at $0.001 per share.
The fair value of the shares issued in settlement of amounts owing of $22,125 was $50,889. The difference between the recorded amount payable and the fair value of stock issued being $28,762 was charged to operations as management fees upon issuance.
The fair value of the 278,750 shares issued with a fair value of $64,113, which are to be earned over the term of the contract, will be charged to operations over the life of the employment contract. This portion of the stock award is accounted for as deferred compensation whereby the fair value of the award is recorded as a component of stockholders
’
equity until earned. During the six month period ended May 31, 2014, the Company recorded management fees of $nil (six month period ended May 31, 2013 - $nil) pursuant to this stock award.
|
May 31,
|
|
November 30,
|
|
2014
|
|
2013
|
Amounts charged by Director
|
|
|
|
Management fees
|
$ -
|
|
$ 244,162
|
Note 8
Convertible Notes Payable
|
|
|
|
May 31,
|
|
November 30,
|
|
|
|
|
2014
|
|
2013
|
|
Promissory Note #6
|
|
20,000
|
|
20,000
|
|
Promissory Note #7
|
|
20,000
|
|
20,000
|
|
Promissory Note #8
|
|
20,000
|
|
20,000
|
|
Promissory Note #10
|
|
30,000
|
|
30,000
|
|
Promissory Note #13
|
|
30,140
|
|
64,060
|
|
Promissory Note #15
|
|
88,000
|
|
88,000
|
|
Promissory Note #16
|
|
11,000
|
|
11,000
|
|
Promissory Note #17
|
|
11,000
|
|
11,000
|
|
Promissory Note #18
|
|
50,000
|
|
50,000
|
|
Promissory Note #19
|
|
11,000
|
|
11,000
|
|
Promissory Note #20
|
|
11,000
|
|
11,000
|
|
Promissory Note #21
|
|
16,000
|
|
16,000
|
|
Promissory Note #22
|
|
50,000
|
|
50,000
|
|
Promissory Note #23
|
|
16,000
|
|
-
|
|
Promissory Note #24
|
|
16,000
|
|
-
|
|
Promissory Note #25
|
|
16,000
|
|
-
|
|
Promissory Note #26
|
|
16,000
|
|
-
|
|
Promissory Note #27
|
|
16,000
|
|
-
|
|
Promissory Note #28
|
|
16,000
|
|
-
|
|
|
|
|
$ 464,140
|
|
$ 402,060
|
|
|
Debt discount
|
|
(38,802)
|
|
(101,250)
|
|
|
Accrued interest
|
|
27,017
|
|
13,074
|
|
|
|
|
$ 452,355
|
|
$ 313,884
|
Note 8
Convertible Notes Payable
- (cont
’
d)
As at May 31, 2014 and November 30, 2013, convertible notes payable are recorded net of unamortized debt discount of $(38,802) and $(101,250) respectively.
Promissory Note #6
On February 15, 2012, the Company received $20,000 cash and the Company issued a convertible promissory note in the amount of $20,000. The promissory note is unsecured, interest free and repayable upon demand.
Promissory Note #7
On February 15, 2012, the Company received $20,000 cash and the Company issued a convertible promissory note in the amount of $20,000. The promissory note is unsecured, interest free and repayable upon demand.
Promissory Note #8
On February 15, 2012, the Company received $20,000 cash and the Company issued a convertible promissory note in the amount of $20,000. The promissory note is unsecured, interest free and repayable upon demand.
Promissory Note #10
On March 20, 2012, the Company received $30,000 cash and the Company issued a convertible promissory note in the amount of $30,000. The promissory note is unsecured, interest free and repayable upon demand.
The note may be converted at the option of the holder into common stock of the Company. The fixed conversion price is $0.01 per share. Accordingly, the note may be converted into 3,000,000 common shares of the Company. The note also contains a provision whereby should the Company perform a stock split or reverse stock split, the conversion price of the note reverts to the lesser of 40% of market value at the time of conversion, or $0.01 per share. Accordingly, subsequent to the period end on June 14, 2013, this conversion provision was triggered.
The Company determined that Promissory notes # 6, 7, 8, and 10 should be accounted for in accordance with FASB ASC 470-20, which addresses
“
Accounting for Convertible Securities with Beneficial Conversion Features".
The intrinsic value of the conversion feature is calculated as the difference between the conversion price $0.01 and the fair value of the common stock into which the debt is convertible at the commitment date (being $0.05 for notes # 6, 7 and 8 and $0.02 for note 10), multiplied by the number of shares into which the debt is convertible. The valuation of the beneficial conversion feature is calculated as pro rata portion of the proceeds from issuance of the convertible debt, being equal to proceeds received multiplied by intrinsic value divided by the total value received (i.e. the aggregate of proceeds and intrinsic value). This beneficial conversion feature is allocated to debt discount and additional paid in capital. Because the debt is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
During the six month period ended May 31, 2014 interest expense relating to the beneficial conversion
feature of convertible notes of $nil (six month period ended May 31, 2013 - $nil) was recorded in the financial statements, with a corresponding increase to additional paid in capital.
Promissory Note #13
On September 12, 2012, the Company received $75,000 cash and the Company issued a convertible promissory note in the amount of $75,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on June 14, 2013. During the six month period ended May 31, 2014, the Company accrued $1,837 (six month period ended May 31, 2013 - $2,992) in interest expense.
Note 8
Convertible Notes Payable
- (cont
’
d)
After 180 days the note may be converted at the option of the holder into Common stock of the Company. The conversion price is defined as
“
50% multiplied by market price where market price is determined as the average of the lowest three bid prices during the ten trading days prior to the date of conversion
”
. The Company determined that the embedded conversion feature would be a derivative liability based upon its variable conversion terms once the holder
’
s conversion rights were triggered.
In March 2013, upon the holders option to convert becoming active, the Company recorded debt discount of $75,000, charged $1,800 to interest expense and also recorded a derivative liability of $76,800 being the fair value of the conversion feature which was determined using the Black-Scholes valuation model. The debt discount is accreted to the statement of operations using the effective interest rate method over the term on the note or to the date of conversion. The derivative liability is revalued at each reporting date to fair value. Any change in fair value is credited or charged to the statement of operations in the period.
During the six month period ended May 31, 2014, the Company recorded a gain of $2,472 (six month period ended May 31, 2013
–
loss of $1,600) due to the change in value of the derivative liability during the period.
During the six month period ended May 31, 2014, the Company issued 3,877,994 common shares upon the conversion of $33,920 of the principal balance into common stock, and $58,260 of the derivative liability was re-classified as additional paid in capital upon conversion.
As at May 31, 2014, accrued interest of $9,018 (May 31, 2013 - $4,291) debt discount of $nil (May 31, 2013 - $25,415) and a derivative liability of $29,565 (May 31, 2013 - $78,400) was recorded.
Promissory Note #15
On June 1, 2013 the Company entered into a Convertible Promissory Note with Direct Capital in the sum of $88,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on December 1, 2013. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. During the six month period ended May 31, 2014, the Company accrued $3,510 (six month period ended May 31, 2013 - $nil) in interest expense.
A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
As at May 31, 2014, accrued interest of $7,020 (May 31, 2013 - $nil) was recorded.
Promissory Note #16
On July 1, 2013 the Company entered into a Convertible Promissory Note with Direct Capital in the sum of $11,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on January 1, 2014. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration
under Section 4(2) of the Securities Act of 1933. During the six month period ended May 31, 2014, the Company accrued $439 (six month period ended May 31, 2013 - $nil) in interest expense.
A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
As at May 31, 2014, accrued interest of $805 (May 31, 2013 - $nil) was recorded.
Note 8
Convertible Notes Payable
- (cont
’
d)
Promissory Note #17
On August 1, 2013 the Company entered into a Convertible Promissory Note with Direct Capital in the sum of $11,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on February 1, 2014. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. During the six month period ended May 31, 2014, the Company accrued $439 (six month period ended May 31, 2013 - $nil) in interest expense.
A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
As at May 31, 2014, accrued interest of $731 (May 31, 2013 - $nil) was recorded.
Promissory Note #18
On August 7, 2013 the Company entered into a Convertible Promissory Note with Syndication Capital in the sum of $50,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on February 7, 2014. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. During the six month period ended May 31, 2014, the Company accrued $1,994 (six month period ended May 31, 2013 - $nil) in interest expense.
A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
As at May 31, 2014, accrued interest of $3,254 (May 31, 2013 - $nil) was recorded.
Promissory Note #19
On September 1, 2013 the Company entered into a Convertible Promissory Note with Direct Capital in the sum of $11,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on March 1, 2014. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. During the six month period ended May 31, 2014, the Company accrued $439 (six month period ended May 31, 2013 - $nil) in interest expense.
A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
As at May 31, 2014, accrued interest of $656 (May 31, 2013 - $nil) was recorded.
Promissory Note #20
On October 1, 2013 the Company entered into a Convertible Promissory Note with Direct Capital in the sum of $11,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on April 1, 2014. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. During the six month period ended May 31, 2014, the Company accrued $439 (six month period ended May 31, 2013 - $nil) in interest expense.
Note 8
Convertible Notes Payable
- (cont
’
d)
A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
As at May 31, 2014, accrued interest of $584 (May 31, 2013 - $nil) was recorded.
Promissory Note #21
On November 1, 2013 the Company entered into a Convertible Promissory Note with Direct Capital in the sum of $16,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on May 1, 2014. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. During the six month period ended May 31, 2014, the Company accrued $639 (six month period ended May 31, 2013 - $nil) in interest expense.
A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
As at May 31, 2014, accrued interest of $741 (May 31, 2013 - $nil) was recorded.
Promissory Note #22
On November 30, 2013 the Company entered into a Convertible Promissory Note with Direct Capital in the sum of $50,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on May 30, 2014. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. During the six month period ended May 31, 2014, the Company accrued $1,994 (six month period ended May 31, 2013 - $nil) in interest expense.
A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
As at May 31, 2014, accrued interest of $1,994 (May 31, 2013 - $nil) was recorded.
Promissory Note #23
On December 1, 2013 the Company entered into a Convertible Promissory Note with Direct Capital in the sum of $16,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on June 1, 2014. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. During the six month period ended May 31, 2014, the Company accrued $635 (six month period ended May 31, 2013 - $nil) in interest expense.
A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
During the six month period ended May 31, 2014 interest expense relating to the beneficial conversion feature of this convertible note of $16,000 (May 31, 2013 - $nil) was recorded in the financial statements with a corresponding increase to additional paid in capital, and debt discount of $15,955 (six month period ended May 31, 2013 - $nil) was accreted to the statement of operations.
As at May 31, 2014, accrued interest of $635 (May 31, 2013 - $nil) and debt discount of $45 (May 31, 2013 - $nil) was recorded.
Promissory Note #24
On January 1, 2014 the Company entered into a Convertible Promissory Note with Direct Capital in the sum of $16,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on July 1, 2014. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. During the six month period ended May 31, 2014, the Company accrued $526 (six month period ended May 31, 2013 - $nil) in interest expense.
A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
During the six month period ended May 31, 2014 interest expense relating to the beneficial conversion feature of this convertible note of $16,000 (May 31, 2013 - $nil) was recorded in the financial statements with a corresponding increase to additional paid in capital, and debt discount of $14,138 (six month period ended May 31, 2013 - $nil) was accreted to the statement of operations.
As at May 31, 2014, accrued interest of $526 (May 31, 2013 - $nil) and debt discount of $1862 (May 31, 2013 - $nil) was recorded.
Promissory Note #25
On February 1, 2014 the Company entered into a Convertible Promissory Note with Direct Capital in the sum of $16,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on August 1, 2014. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. During the six month period ended May 31, 2014, the Company accrued $418 (six month period ended May 31, 2013 - $nil) in interest expense.
A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
During the six month period ended May 31, 2014 interest expense relating to the beneficial conversion feature of this convertible note of $16,000 (May 31, 2013 - $nil) was recorded in the financial statements with a corresponding increase to additional paid in capital, and debt discount of $11,337 (six month period ended May 31, 2013 - $nil) was accreted to the statement of operations.
As at May 31, 2014, accrued interest of $418 (May 31, 2013 - $nil) and debt discount of $4,663 (May 31, 2013 - $nil) was recorded.
Promissory Note #26
On March 1, 2014 the Company entered into a Convertible Promissory Note with Direct Capital in the sum of $16,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on September 1, 2014. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. During the six month period ended May 31, 2014, the Company accrued $319 (six month period ended May 31, 2013 - $nil) in interest expense.
Note 8
Convertible Notes Payable
- (cont
’
d)
A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
During the six month period ended May 31, 2014 interest expense relating to the beneficial conversion feature of this convertible note of $16,000 (May 31, 2013 - $nil) was recorded in the financial statements with a corresponding increase to additional paid in capital, and debt discount of $7,913 (six month period ended May 31, 2013 - $nil) was accreted to the statement of operations.
As at May 31, 2014, accrued interest of $319 (May 31, 2013 - $nil) and debt discount of $8,087 (May 31, 2013 - $nil) was recorded.
Promissory Note #27
On April 1, 2014 the Company entered into a Convertible Promissory Note with Direct Capital in the sum of $16,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on October 1, 2014. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. During the six month period ended May 31, 2014, the Company accrued $210 (six month period ended May 31, 2013 - $nil) in interest expense.
A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
During the six month period ended May 31, 2014 interest expense relating to the beneficial conversion feature of this convertible note of $16,000 (May 31, 2013 - $nil) was recorded in the financial statements with a corresponding increase to additional paid in capital, and debt discount of $5,246 (six month period ended May 31, 2013 - $nil) was accreted to the statement of operations.
As at May 31, 2014, accrued interest of $210 (May 31, 2013 - $nil) and debt discount of $10,754 (May 31, 2013 - $nil) was recorded.
Promissory Note #28
On May 1, 2014 the Company entered into a Convertible Promissory Note with Direct Capital in the sum of $16,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on November 1, 2014. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. During the six month period ended May 31, 2014, the Company accrued $105 (six month period ended May 31, 2013 - $nil) in interest expense.
A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
During the six month period ended May 31, 2014 interest expense relating to the beneficial conversion feature of this convertible note of $16,000 (May 31, 2013 - $nil) was recorded in the financial statements with a corresponding increase to additional paid in capital, and debt discount of $2,609 (six month period ended May 31, 2013 - $nil) was accreted to the statement of operations.
As at May 31, 2014, accrued interest of $105 (May 31, 2013 - $nil) and debt discount of $13,391 (May 31, 2013 - $nil) was recorded.
Note 9
Derivative Liabilities
The Company issued financial instruments in the form of convertible notes with embedded conversion features. Many of the convertible notes payable have conversion rates, which are indexed to the market value of the Company
’
s stock price.
During the six month period ended May 31, 2014, the Company recorded derivative liabilities for embedded conversion features related to convertible notes payable of face value $nil (six month period ended May 31, 2013 - $159,000). During the six month period ended May 31, 2014,$33,920 (six month period ended May 31, 2013, $118,400) of convertible notes payable and accrued interest was converted into common stock of the Company. For the six month period ended May 31, 2014, the Company performed a final mark-to-market adjustment for the derivative liability related to the convertible notes of and the carrying amount of the derivative liability related to the conversion feature of $58,260 (six month period ended May 31, 2013 - $117,900) was re-classed to additional paid in capital on the date of conversion in the statement of shareholders
’
deficit. During the six month period ended May 31, 2014, the Company recognized a gain of $2,472 (six month period ended May 31, 2013
–
loss of $16,500) based on the change in fair value (mark-to market adjustment) of the derivative liability associated with the embedded conversion features in the accompanying statement of operations.
These derivative liabilities have been measured in accordance with fair value measurements, as defined by GAAP ASC 815. The valuation assumptions are determined by Level 3 inputs. The following table represents the Company
’
s derivative liability activity for the embedded conversion features discussed above:
|
|
May 31,
|
|
November 30,
|
|
|
2014
|
|
2013
|
Balance, beginning of year
|
|
$ 90,297
|
|
$ 58,200
|
Initial recognition of derivative liability
|
|
-
|
|
159,000
|
Fair value change in derivative liability
|
|
(2,472)
|
|
107,920
|
Conversion of derivative liability to APIC
|
|
(58,260)
|
|
(234,823)
|
Balance, end of period
|
|
$ 29,565
|
|
$ 90,297
|
Note 10
Asset Retirement Obligations
During the period November 2007 to October 2009, the Company acquired in tranches a 50% working interest in the Hayter 10-8-40-1 W4M oil and gas well in Alberta Canada, known as the
“
Hayter Prospect
”
. During the quarter ended February 28, 2013, due to financial restrictions in the current capital markets, management determined the focus of the Company in the future would predominantly be the exploration and development of the Zoro Mineral Property, and as the Company had no current plans to further develop the Hayter property, the Company recorded an impairment provision of $135,427 during the fiscal year ended November 30, 2012, resulting in the book value of the Hayter prospect being $nil at November 30, 2012. As of May 31, 2014 and November 30, 2013, the Company determined the asset retirement obligation to be $19,139 and $18,861, respectively.
Total future asset retirement obligations were estimated by management based on the Company
’
s net ownership interest, estimated costs to reclaim and abandon the wells and the estimated timing of the costs to be incurred in future periods. The Company has estimated the net present value of its total
asset retirement obligations at February 28, 2013 to be $16,889 based on a total undiscounted liability of $17,057 (Cdn$17,500) in the Hayter Prospect, Alberta, Canada. These payments are expected to be made over the next seven years, with the majority of the cost incurred between 2016 and 2019.
The Company
’
s credit adjusted risk free rate of 15% and an inflation rate of 8% were used to calculate the present value of the asset retirement obligation.
|
|
May 31,
|
|
November 30,
|
|
|
2014
|
|
2013
|
Balance, beginning of year
|
|
$ 18,861
|
|
$ 16,845
|
Liabilities incurred
|
|
-
|
|
-
|
Accretion expense
|
|
1,319
|
|
2,529
|
Effect of foreign exchange
|
|
(1,041)
|
|
(513)
|
|
|
$ 19,139
|
|
$ 18,861
|
Note 11
Capital Stock
Authorized
10,000,000 Preferred shares, par value $0.001
–
4,000,000 issued
(November 30, 2013
–
4,000,000 shares issued)
750,000,000 Common shares par value $0.10
–
6,880,604 issued
(November 30, 2013
–
3,004,610 shares issued)
On June 6, 2013, the Board of Directors authorized a 100:1 reverse stock split of the common shares. The reverse stock split received regulatory approval on June 28, 2013. The record date for the reverse stock split was June 14, 2013. The authorized number of common shares remained unchanged. All references in the accompanying financial statements to the number of common shares have been restated to reflect the reverse stock split.
Issued
Preferred Stock
On May 14, 2013, the Company issued 4,000,000 preferred shares pursuant to the Mexican mineral property option agreement. Each share has an underlying voting right equivalent to 100 common shares, and is convertible into 100 common shares of the Company.
Common Stock
Between December 12, 2012 and November 30, 2013, the Company issued an aggregate of 245,868 common shares with an aggregate fair value of $100,200, upon the conversion of $50,000 of a convertible note, which was due upon demand.
Between January 12, 2013, and August 31, 2013, the Company issued 192,576 common shares with an aggregate fair value of $86,500, upon the conversion of accrued interest of $1,700 and $42,500 principal of a convertible note.
Between May 2, 2013 and August 31, 2013, the Company issued 189,679 common shares with an aggregate fair value of $51,300, upon the conversion of $25,900 of a convertible note.
Between June 1, 2013, and August 31, 2013, the Company issued 236,102 common shares upon the conversion of accrued interest of $900 and $16,600 principal of a convertible note.
Between September 1, 2013, and November 30, 2013, the Company issued 558,167 common shares upon the conversion of principal of $10,940 of a convertible note.
Between December 1, 2013, and February 28, 2014, the Company issued 1,388,584 common shares upon the conversion of principal of $21,023 of a convertible note.
Between March 1, 2014, and May 31, 2014, the Company issued 2,489,410 common shares upon the conversion of principal of $12,897 of a convertible note.
Note 12
Supplemental Disclosure with Respect to Cash Flows
During the six month period ended May 31, 2014, the following non-cash investing and financing activities occurred:
|
i)
|
An aggregate of 3,877,994 common shares were issued with a fair value of $58,260 upon the conversion into stock of $33,920 of the principal of a convertible note payable.
|
Note 13
Commitment
|
|
On May 5, 2012, the Company entered into a consultancy agreement with Primary Capital LLC. (
“
Primary
”
), whereby Primary would provide financial advisory and investment banking services to the Company for a period of two years commencing May 7, 2012. Pursuant to the agreement, the Company paid Primary a non-refundable signing fee of $10,000 and issued Primary common stock equivalent to 4.9% (the
“
Applicable Percentage
”
) of the common shares on a fully diluted basis after giving effect to the conversion of all outstanding derivative securities at the time of inception of the agreement.
|
|
|
Accordingly, on May 5, 2012, 26,919 common shares were issued with a fair value of $53,838.
|
Pursuant to the agreement should the Company issue further potentially dilutive derivative instruments, or issue stock from treasury at any time, then within 5 days of the end of the fiscal quarter in which such instruments or stock was issued, the Company will issue to Primary additional common shares (the
“
Adjustment shares
”
) such that Primary continues to hold common stock equivalent to the Applicable Percentage.
Should the Board of Directors grant options, warrants or other securities pursuant to a restricted stock purchase plan or stock option plan approved by the stockholders and Board of Directors of the Company, to employees or Directors such grants shall be considered Excluded Securities for the purposes of determining the Applicable Percentage and the calculation of Adjustment shares in future periods.
Also if the Company completes any financing during the engagement period and also within 2 years of the termination of the agreement with any party introduced to the Company by Primary, Primary will be entitled to:
|
i)
|
a cash fee of 8% of the gross proceeds of the financing,
|
|
ii)
|
a 5 year warrant to purchase that number of shares equal to 8% of the number of shares issued in the financing on the same terms as the financing. Any such warrant issued will be in a form provided by Primary and may include terminology allowing for full ratchet anti-dilution provisions, standard and cashless exercise provisions and the same registration rights as received by the original investors.
|
The agreement can be terminated by either party by providing written notice at any time after the first anniversary of the agreement if either party is in breach of the agreement and fails to cure such breach within 15 days after it receives notice of such breach. During the quarter ended May 31, 2013, the Company terminated the contract.
Note 14
Subsequent Events
None
Note 15
Prior Year Restatement
|
i)
|
Mineral Property Option Costs
|
|
|
The Company reviewed its accounting policy for the capitalization of mineral option costs, and has determined that the mineral option costs incurred in the year ended November 30, 2010, amounting to $59,600 were expensed, when they should have been capitalized and accordingly, the results for the year ended November 30, 2010, were restated. The effect of the restatement was to increase the value of the Mineral Property Option by $59,600 at November 30, 2010, 2011 and 2012 and to reduce the loss for the year ended November 30, 2010 by $59,600, resulting in the accumulated deficit being reduced by $59,600 at November 30, 2010, 2011 and 2012, respectively.
|
|
ii)
|
Convertible Notes Payable
|
|
|
The Company has determined that certain transactions relating to the convertible notes payable were not correctly accounted for in the three and six month periods ended May 31, 2012 and accordingly the results of the six and three month periods ended May 31, 2012 have been restated.
|
The Company did not recognize any embedded derivative liabilities arising upon the inception or during the term of certain convertible notes payable. As a result of this, at May 31, 2012, the value of the convertible notes on the balance sheet was overstated by $150,724 and derivative liabilities were understated by $170,900.
In the condensed consolidated statement of loss, for the six month period ended May 31, 2012 accretion of convertible debt and interest discount expense was overstated by $68,311, interest expense on beneficial conversion feature of convertible notes was overstated by $140,000 gain on elimination of convertible debt was overstated by $21,888 and interest expense was understated by $162,868. Finally, the loss on change in fair value of derivative liability was understated by $40,200.
In the condensed consolidated statement of loss, for the three month period ended May 31, 2012 accretion of convertible debt and interest discount expense was overstated by $30,630, interest expense on beneficial conversion feature of convertible notes was overstated by $50,000 gain on elimination of convertible debt was overstated by $21,888 and interest expense was understated by $66,434. Finally the loss on change in fair value of derivative liability was understated by $21,000.
|
iii)
|
Accumulated Other Comprehensive Income
|
|
|
The Company also determined the accounting for foreign exchange with respect to the translation adjustments arising on the translation of its Canadian subsidiary had been incorrectly recorded. Such gains or losses arising had been included in the operations of the year, rather than being treated as elements of other comprehensive income, which forms a separate part of equity.
|
|
|
As a result of the restatement, the Company has increased the balance of other comprehensive income at November 30, 2011 by $6,388 and also increased the accumulated deficit by a corresponding amount. During the six month period ended May 31, 2012, foreign exchange charged to the income statement was reduced by $830 and a corresponding reduction to accumulated comprehensive income was recorded. During the three month period ended May 31, 2012, foreign exchange credited to the income statement was reduced by $454 and a corresponding increase to accumulated comprehensive income was recorded.
|
The net effect of the above restatements at May 31, 2012 is to increase the carrying value of the mineral property by $59,600 to $139,600, reduce the carrying value of the convertible notes payable from $357,432 to $206,708 and to increase the derivative liability from $nil to $170,900.
Accumulated other comprehensive income increased from $nil to $6,561. Also the previously reported loss for the six month period ended May 31, 2012, was increased by $16,095 to $416,491 and the previously reported loss for the three month period ended May 31, 2012 increased by $29,145 to $221,476. The previously reported accumulated deficit at May 31, 2012 decreased by 44,176 from $3,300,141 to $3,255,965.