Attached files
| file | filename |
|---|---|
| EX-10.1 - ANADOLUM TERM SHEET, DATED MAY 20, 2011 - Black Sea Metals Inc. | ex10_1.htm |
| EX-10.2 - LOAN AGREEMENT - Black Sea Metals Inc. | ex10_2.htm |
| EX-10.3 - AMENDING AGREEMENT - Black Sea Metals Inc. | ex10_3.htm |
| EX-31.1 - CERT - Black Sea Metals Inc. | ex31_1.htm |
| EX-32.1 - 906 CERT - Black Sea Metals Inc. | ex32_1.htm |
| EX-99.1 - FORM OF 5% PROMISSORY NOTE - Black Sea Metals Inc. | ex99_1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
| FORM 10-Q |
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended May 31, 2011
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to
| Commission file number: 000-51563 |
TEXADA VENTURES INC.
(Exact Name of Registrant as Specified in its Charter)
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NEVADA
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98-0374224
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(State of other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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421 9th Street
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Manhattan Beach, California
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90266
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(Address of Principal Executive Offices)
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(Zip Code)
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(604) 562-6915
(Registrant’s Telephone Number, including Area Code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes o No
Indicate by check mark whether the Registrant is o a large accelerated filer, o an accelerated file, o a non-accelerated filer, or x a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act)
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) o Yes x No
Number of shares of issuer’s common stock outstanding as of July 14, 2011: 27,623,936
TABLE OF CONTENTS
Page
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PART I – FINANCIAL INFORMATION
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2
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Item 1: Financial Statements
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2
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Balance Sheets, May 31, 2011 (unaudited) and November 30, 2010
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3
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Statements of Operations for the three and six months ended May 31, 2011 and 2010 and from the date of inception on October 17, 2001 through May 31, 2011 (unaudited)
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4
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Statements of Cash Flows for the six months ended May 31, 2011 and 2010 and from the date of inception on October 17, 2001 through May 31, 2011 (unaudited)
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5
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Notes to Financial Statements (unaudited)
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6
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Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
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14
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Item 3: Qualitative and Quantitative Disclosures About Market Risk
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20
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Item 4: Controls and Procedures
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20
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PART II – OTHER INFORMATION
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22
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Item 1: Legal Proceedings
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22
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Item 1A: Risk Factors
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22
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Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
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22
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Item 3: Defaults Upon Senior Securities
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22
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Item 4: [Removed and Reserved]
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22
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Item 5: Other Information
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22
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Item 6: Exhibits
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22
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Signatures
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23
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1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q, and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders' equity in conformity with generally accepted accounting principles. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. Operating results for the three and six months ended May 31, 2011 are not necessarily indicative of the results that can be expected for the year ending November 30, 2011.
As used in this Quarterly Report on Form 10-Q, the terms "we", "us", "our", “the Company” and “Texada” mean Texada Ventures Inc., unless otherwise indicated. All dollar amounts in this Quarterly Report on Form 10-Q are in U.S. dollars unless otherwise stated.
2
Texada Ventures Inc.
(An Exploration Stage Company)
Balance Sheets
(Expressed in US dollars)
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May 31, 2011
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November 30,
2010
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(unaudited)
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ASSETS
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Current Assets
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Cash
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$ | 9,892 | $ | 2,720 | ||||
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Prepaid expenses
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1,324 | – | ||||||
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Current portion of bridge loan receivable (Note 8(b))
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83,484 | – | ||||||
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Total Current Assets
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94,700 | 2,720 | ||||||
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Bridge loan receivable (Note 8(b))
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16,667 | – | ||||||
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Total Assets
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$ | 111,367 | $ | 2,720 | ||||
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LIABILITIES AND STOCKHOLDERS’ DEFICIT
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Current Liabilities
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||||||||
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Accounts payable (Note 5(c))
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$ | 124,721 | $ | 119,963 | ||||
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Accrued liabilities (Note 4)
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138,529 | 180,092 | ||||||
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Due to related parties (Notes 5(b))
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34,309 | 33,639 | ||||||
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Promissory notes payable (Note 6)
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187,500 | 452,500 | ||||||
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Convertible debentures, less unamortized discount of $nil and $715, respectively (Note 7)
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350,000 | 459,285 | ||||||
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Total Current Liabilities
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835,059 | 1,245,479 | ||||||
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Commitment (Note 11)
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Nature of Operations and Continuance of Business (Note 1)
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Stockholders’ Deficit
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||||||||
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Preferred shares, 100,000,000 shares authorized, $0.001 par value;
None issued and outstanding
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– | – | ||||||
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Common shares, 200,000,000 shares authorized, $0.001 par value;
27,623,936 shares issued and outstanding
(November 30, 2010 – 25,363,985 shares) (Note 9)
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27,624 | 25,364 | ||||||
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Common stock subscribed
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125,000 | – | ||||||
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Additional paid-in capital
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530,307 | 419,568 | ||||||
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Deficit accumulated during the exploration stage
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(1,406,623 | ) | (1,687,691 | ) | ||||
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Total Stockholders’ Deficit
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(723,692 | ) | (1,242,759 | ) | ||||
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Total Liabilities and Stockholders’ Deficit
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$ | 111,367 | $ | 2,720 | ||||
(The accompanying notes are an integral part of these financial statements)
3
Texada Ventures Inc.
(An Exploration Stage Company)
Statements of Operations
(Expressed in US dollars)
(Unaudited)
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Accumulated
from October 17, 2001 (Date of
Inception) |
For the
Six Months
Ended
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For the
Six Months
Ended
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For the
Three Months
Ended
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For the
Three Months
Ended
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||||||||||||||||
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to May 31,
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May 31,
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May 31,
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May 31,
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May 31,
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||||||||||||||||
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2011
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2011
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2010
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2011
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2010
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Revenue
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$ | – | $ | – | $ | – | $ | – | $ | – | ||||||||||
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Operating Expenses
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||||||||||||||||||||
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Amortization
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798 | – | – | – | – | |||||||||||||||
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Consulting
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223,449 | 8,162 | 21,289 | 5,162 | 7,011 | |||||||||||||||
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Exploration costs
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20,091 | – | – | – | – | |||||||||||||||
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General and administrative
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686,699 | 50,693 | 92,338 | 17,591 | 77,932 | |||||||||||||||
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Loss (gain) on foreign exchange
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11,049 | 5,157 | 137 | 1,527 | 835 | |||||||||||||||
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Mineral property costs
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3,747 | – | – | – | – | |||||||||||||||
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Total Operating Expenses
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945,833 | 64,012 | 113,764 | 24,280 | 85,778 | |||||||||||||||
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Loss from Operations
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(945,833 | ) | (64,012 | ) | (113,764 | ) | (24,280 | ) | (85,778 | ) | ||||||||||
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Other Income (Expense)
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Accretion of discount on convertible debentures
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(234,000 | ) | (715 | ) | (1,960 | ) | – | (1,106 | ) | |||||||||||
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Interest income
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4,173 | 151 | – | 151 | – | |||||||||||||||
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Interest on convertible debentures
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(159,481 | ) | (13,946 | ) | (23,335 | ) | (7,050 | ) | (11,795 | ) | ||||||||||
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Interest on promissory notes
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(70,600 | ) | (3,989 | ) | (11,344 | ) | (2,016 | ) | (5,734 | ) | ||||||||||
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Interest on related party loans
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(8,500 | ) | – | – | – | – | ||||||||||||||
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Gain on settlement of debt (Note 9)
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468,435 | 328,877 | 70 | – | – | |||||||||||||||
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Loss on disposal of equipment
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(2,075 | ) | – | – | – | – | ||||||||||||||
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Loss on write down of note receivable
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(86,797 | ) | – | – | – | – | ||||||||||||||
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Loss on write down of oil and gas deposit
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(365,000 | ) | – | – | – | – | ||||||||||||||
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(Provision) recovery for loan receivable
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(6,945 | ) | 34,702 | 16,815 | 20,821 | 16,815 | ||||||||||||||
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Total Other Income (Expense)
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(460,790 | ) | 345,080 | (19,754 | ) | 11,906 | (1,820 | ) | ||||||||||||
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Net Income (Loss)
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$ | (1,406,623 | ) | $ | 281,068 | $ | (133,518 | ) | $ | (12,374 | ) | $ | (87,598 | ) | ||||||
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Net Income (Loss) Per Share – Basic and Diluted
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$ | 0.01 | $ | (0.01 | ) | $ | – | $ | – | |||||||||||
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Weighted Average Shares Outstanding
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26,556,051 | 24,293,334 | 27,623,936 | 24,293,334 | ||||||||||||||||
(The accompanying notes are an integral part of these financial statements)
4
Texada Ventures Inc.
(An Exploration Stage Company)
Statements of Cash Flows
(Expressed in US dollars)
(Unaudited)
|
Accumulated from
October 17, 2001
(Date of Inception)
to May 31,
2011
|
For the
Six Months
Ended
May 31, 2011
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For the
Six Months
Ended
May 31, 2010
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||||||||||
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Operating Activities
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||||||||||||
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Net income (loss)
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$ | (1,406,623 | ) | $ | 281,068 | $ | (133,518 | ) | ||||
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Adjustments to reconcile net loss to net cash used in operating activities:
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||||||||||||
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Accretion of convertible debt discount
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234,000 | 715 | 1,960 | |||||||||
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Amortization
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798 | – | – | |||||||||
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Gain on settlement of debt
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(468,435 | ) | (328,876 | ) | – | |||||||
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Loss on disposal of equipment
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2,075 | – | – | |||||||||
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Loss on write down of note receivable
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86,797 | – | – | |||||||||
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Provision for loan receivable
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6,945 | (34,252 | ) | (16,815 | ) | |||||||
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Write-off of oil and gas deposit
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365,000 | – | – | |||||||||
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Changes in operating assets and liabilities:
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||||||||||||
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Accrued interest receivable
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(151 | ) | (151 | ) | – | |||||||
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Note receivable
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(9,876 | ) | – | – | ||||||||
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Prepaid expenses
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(1,324 | ) | (1,324 | ) | – | |||||||
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Accounts payable and accrued liabilities
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384,750 | 30,070 | 43,598 | |||||||||
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Due to related parties
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84,651 | 670 | 16,246 | |||||||||
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Net Cash Used in Operating Activities
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(721,393 | ) | (52,080 | ) | (88,529 | ) | ||||||
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Investing Activities
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||||||||||||
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Advance of bridge loan
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(100,000 | ) | (100,000 | ) | – | |||||||
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Acquisition of oil and gas interests
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(365,000 | ) | – | – | ||||||||
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(Advance) Recovery of note receivable
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(93,742 | ) | 34,252 | 6,939 | ||||||||
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Purchase of equipment
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(2,873 | ) | – | – | ||||||||
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Net Cash (Used In) Provided by Investing Activities
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(561,615 | ) | (65,748 | ) | 6,939 | |||||||
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Financing Activities
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||||||||||||
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Advances from related party loan
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50,000 | – | – | |||||||||
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Repayment of related party loan
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(50,000 | ) | – | – | ||||||||
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Proceeds from convertible debentures
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585,000 | – | – | |||||||||
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Proceeds from promissory notes payable
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452,500 | – | 87,500 | |||||||||
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Proceeds from issuance of common shares
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130,400 | – | – | |||||||||
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Proceeds from common stock subscribed
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125,000 | 125,000 | ||||||||||
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Net Cash Provided by Financing Activities
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1,292,900 | 125,000 | 87,500 | |||||||||
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Increase in Cash
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9,892 | 7,172 | 5,910 | |||||||||
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Cash - Beginning of Period
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– | 2,720 | 2,416 | |||||||||
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Cash - End of Period
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$ | 9,892 | $ | 9,892 | $ | 8,326 | ||||||
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Supplemental Disclosures
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||||||||||||
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Interest paid
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$ | 8,500 | $ | – | $ | – | ||||||
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Income taxes paid
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$ | – | $ | – | $ | – | ||||||
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Non-cash Investing and Financing Activities
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||||||||||||
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Shares issued to settle debt
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$ | 166,529 | $ | 112,997 | $ | – | ||||||
(The accompanying notes are an integral part of these financial statements)
5
Texada Ventures Inc.
(An Exploration Stage Company)
Notes to the Financial Statements
May 31, 2011
(Expressed in US dollars)
(Unaudited)
1. Nature of Operations and Continuance of Business
Texada Ventures Inc. (the “Company”) was incorporated in the State of Nevada on October 17, 2001. The Company is an Exploration Stage Company, as defined by ASC 915, Development Stage Entities. The Company’s principal business is the acquisition and exploration of oil and gas and mineral resources. The Company has not presently determined whether its properties contain mineral reserves that are economically recoverable.
These financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has never generated revenues since inception and has never paid any dividends and is unlikely to pay dividends or generate earnings in the immediate or foreseeable future. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity financing to continue operations, and the attainment of profitable operations. As at May 31, 2011, the Company has a working capital deficit of $740,359 and has accumulated losses of $1,406,623 since inception. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
As at May 31, 2011, the Company had cash on hand of $9,892, and for the next twelve months, management anticipates that the minimum cash requirements to fund its proposed exploration program and continued operations will be $700,000. Accordingly, the Company does not have sufficient funds to meet planned expenditures over the next twelve months, and will need to seek additional debt or equity financing to meet its planned expenditures. There is no assurance that the Company will be able to raise sufficient cash to fund its future exploration programs and operational expenditures.
2. Summary of Significant Accounting Policies
|
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a)
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Basis of Presentation
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These financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States, and are expressed in US dollars. The Company’s fiscal year-end is November 30.
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b)
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Interim Financial Statements
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The interim unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Securities and Exchange Commission (“SEC”) Form 10-Q. They do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Therefore, these financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended November 30, 2010, included in the Company’s Annual Report on Form 10-K filed on March 4, 2011 with the SEC.
The financial statements included herein are unaudited; however, they contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary to present fairly the Company’s financial position at May 31, 2011, and the results of its operations and cash flows for the fiscal period ended May 31, 2011. The results of operations for the six months ended May 31, 2011 are not necessarily indicative of the results to be expected for future quarters or the full year.
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c)
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Earnings (Loss) Per Share
|
The Company computes earnings (loss) per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing earnings (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing Diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti dilutive. As at May 31, 2011, the Company has 723,678 split-adjusted dilutive securities outstanding. At May 31, 2011 and 2010, the effect of the Company’s outstanding common stock equivalents would have been anti-dilutive. Accordingly, only basic EPS is presented.
6
Texada Ventures Inc.
(An Exploration Stage Company)
Notes to the Financial Statements
May 31, 2011
(Expressed in US dollars)
(Unaudited)
2. Summary of Significant Accounting Policies (continued)
|
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d)
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Use of Estimates
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The preparation of financial statements in conformity with US generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company regularly evaluates estimates and assumptions related to its investment in mining and mineral claims, valuation of note receivable, stock-based compensation, and deferred income tax asset valuations. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
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e)
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Mineral Property Costs
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The Company is engaged in the acquisition, exploration and development of mineral properties. Mineral property acquisition costs are capitalized in accordance with ASC 360, Property, Plant, and Equipment, when management has determined that probable future benefits consisting of a contribution to future cash inflows have been identified and adequate financial resources are available or are expected to be available as required to meet the terms of property acquisition and budgeted exploration and development expenditures. Mineral property acquisition costs are expensed as incurred if the criteria for capitalization are not met. In the event that a mineral property is acquired through the issuance of the Company’s shares, the mineral property will be recorded at the fair value of the respective property or the fair value of common shares, whichever is more readily determinable.
When mineral properties are acquired under option agreements with future acquisition payments to be made at the sole discretion of the Company, those future payments, whether in cash or shares, are recorded only when the Company has made or is obliged to make the payment or issue the shares. When it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves and feasibility, the costs incurred to develop such property are capitalized.
|
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f)
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Stock-based Compensation
|
The Company records stock-based compensation in accordance with ASC 718, Compensation - Stock Based Compensation, and ASC 505-50, Equity Based Payments to Non-Employees using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
|
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g)
|
Long-lived Assets
|
In accordance with ASC 360, Property, Plant and Equipment, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.
|
|
h)
|
Cash and Cash Equivalents
|
The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.
7
Texada Ventures Inc.
(An Exploration Stage Company)
Notes to the Financial Statements
May 31, 2011
(Expressed in US dollars)
(Unaudited)
2. Summary of Significant Accounting Policies (continued)
|
|
i)
|
Financial Instruments
|
ASC 820, Fair Value Measurements requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1: Applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2: Applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3: Applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
Our financial instruments consist principally of cash, notes receivable, accounts payable, amounts due to related parties, promissory notes payable, and convertible debentures. Pursuant to ASC 820, the fair value of our cash equivalents is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The fair value of the convertible debentures is determined using “Level 2” inputs and approximate carrying value.
The Company has operations in Canada, which results in exposure to market risks from changes in foreign currency rates. The financial risk is the risk to the Company’s operations that arise from fluctuations in foreign exchange rates and the degree of volatility of these rates. Currently, the Company does not use derivative instruments to reduce its exposure to foreign currency risk.
Assets measured at fair value on a recurring basis were presented on the Company’s balance sheet as of May 31, 2011 as follows:
|
Fair Value Measurements Using
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|||||||||||||||
|
Quoted Prices in
|
Significant
|
||||||||||||||
|
Active Markets
|
Other
|
Significant
|
|||||||||||||
|
For Identical
|
Observable
|
Unobservable
|
Balance as of
|
||||||||||||
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Instruments
|
Inputs
|
Inputs
|
May 31,
|
||||||||||||
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
2011
|
||||||||||||
|
Assets:
|
|
||||||||||||||
|
Cash equivalents
|
$ | 9,892 | $ | – | $ | – | $ | 9,892 | |||||||
|
Total assets measured
at fair value
|
$ | 9,892 | $ | – | $ | – | $ | 9,892 | |||||||
Management believes that the recorded values of all of our other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
|
|
j)
|
Income Taxes
|
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, Income Taxes. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
8
Texada Ventures Inc.
(An Exploration Stage Company)
Notes to the Financial Statements
May 31, 2011
(Expressed in US dollars)
(Unaudited)
2. Summary of Significant Accounting Policies (continued)
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k)
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Foreign Currency Translation
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The Company’s functional and reporting currency is the United States dollar. Occasional transactions may occur in a foreign currency and the Company follows ASC 830, Foreign Currency Translation. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Non-monetary assets and liabilities denominated in foreign currencies are translated at rates of exchange in effect at the date of the transaction. Average monthly rates are used to translate revenues and expenses. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income.
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l)
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New Accounting Pronouncements
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The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
3. Mineral Properties
Pursuant to an agreement dated November 2, 2001, the Company acquired a 100% interest in eight mineral claims located in the Whitehorse Mining District, Yukon Territory, Canada known as the Peek claims for $2,500. The property is being held in trust for the Company by a third party.
4. Accrued Liabilities
Accrued liabilities consist of accrued interest of $138,529 (November 30, 2010 - $180,092) on the convertible debentures and promissory notes payable.
5. Related Party Transactions
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a)
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On September 12, 2008, Company entered into an engagement letter with the Chief Executive Officer (“CEO”) who later resigned on November 30, 2010. Pursuant to the agreement, the Company incurred $Nil (2010 - $9,289) in consulting fees to a company owned and controlled by the former CEO during the six months ended May 31, 2011. On October 20, 2010, the Company negotiated a settlement agreement with the former CEO. Pursuant to the agreement, the Company settled the amount owing to the former CEO by issuing 92,827 shares of the Company’s common stock with a fair value of $4,641 on January 24, 2011 (see Note 9(d)). The Company recognized a $3,811 gain on the settlement of this debt in other income.
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b)
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During the six months ended May 31, 2011, the Company incurred $34,309 (2010 - $13,457) of expenditures incurred on behalf of the Company which are owed to the former President of the Company.
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c)
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As at May 31, 2011, accounts payable include $3,125 (November 30, 2010 - $3,125) owing to a former director for expenses incurred on the Company’s behalf.
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d)
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The Company neither owns nor leases any real or personal property. The Chief Financial Officer provides office services without charge. Such costs are immaterial to the financial statements and accordingly, have not been reflected therein.
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6. Promissory Notes Payable
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a)
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On March 30, 2010, the Company entered into a promissory note with a third party for $60,000, which is unsecured, non interest bearing and due on demand.
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b)
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On February 15, 2010, the Company entered into a promissory note with a third party for $27,500, which is unsecured, non interest bearing and due on demand.
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c)
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On March 25, 2009, the Company entered into a promissory note with a third party for $25,000, which is unsecured, due on demand and bears interest at 5% per annum. Interest and principal are due on demand. On October 29, 2010, the Company negotiated a debt settlement agreement with the holder of the promissory note. It was negotiated for interest to cease accruing on October 1, 2010. The Company negotiated to settle the $25,000 promissory note and $1,901 accrued interest by issuing 134,503 shares of the Company’s common stock with a fair value of $6,725 on January 4, 2011 (see Note 9(b)).
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9
Texada Ventures Inc.
(An Exploration Stage Company)
Notes to the Financial Statements
May 31, 2011
(Expressed in US dollars)
(Unaudited)
6. Promissory Notes Payable
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d)
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On December 19, 2008, the Company entered into a promissory note with a third party for $50,000, which is unsecured, due on demand and bears interest at 5% per annum. Interest and principal are due on demand. On October 29, 2010, the Company negotiated a debt settlement agreement with the holder of the promissory note. It was negotiated for interest to cease accruing on October 1, 2010. The Company negotiated to settle the $50,000 promissory note and $4,459 accrued interest by issuing 272,295 shares of the Company’s common stock with a fair value of $13,615 on January 4, 2011 (see Note 9(b)).
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e)
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On October 27, 2008, the Company entered into a promissory note with a third party for $140,000, which is unsecured, due on demand and bears interest at 5% per annum. Interest and principal are due on demand. On October 29, 2010, the Company negotiated a debt settlement agreement with the holder of the promissory note. It was negotiated for interest to cease accruing on October 1, 2010. The Company negotiated to settle the $140,000 promissory note and $13,501 accrued interest by issuing 767,507 shares of the Company’s common stock with a fair value of $38,375 on January 4, 2011 (see Note 9(b)).
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f)
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On February 15, 2007, the Company entered into a promissory note with a third party for $50,000, which is unsecured, due on demand and bears interest at 8% per annum. Interest is payable annually due on or before February 14th of each year. On October 29, 2010, the Company negotiated a debt settlement agreement with the holder of the promissory note. It was negotiated for interest to cease accruing on October 1, 2010. The Company negotiated to settle the $50,000 promissory note and $14,509 accrued interest by issuing 322,548 shares of the Company’s common stock with a fair value of $16,127 on January 4, 2011 (see Note 9(b)).
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g)
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On November 20, 2006, the Company entered into a promissory note with a third party for $100,000, which is unsecured, due on demand and bears interest at 8% per annum.
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7.
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Convertible Debentures
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a)
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On April 10, 2007, the Company issued a 6% convertible debenture with a principal amount of $200,000 which was due and payable on December 31, 2008. Interest is payable semi-annually beginning on September 30, 2007, and thereafter on March 31st and September 30th of each year, payable at the option of the Company in cash or shares. As at November 30, 2009, the Company had not made any interest payments and pursuant to the debenture has accrued default interest of 8% since September 30, 2007. The principal and accrued interest on the debenture may be converted at any time into shares of the Company’s common stock at a price of $0.625 per share, at the option of the holder.
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In accordance with ASC 470-20, Debt with Conversion and Other Options, the Company recognized the intrinsic value of the embedded beneficial conversion feature of $80,000 as additional paid-in capital and an equivalent discount which will be charged to operations over the term of the convertible debenture. The Company records accretion expense over the term of the convertible debenture up to its face value of $200,000. On December 18, 2008, the Company entered into an amendment to the convertible debenture to extend the maturity date of the note from December 31, 2008 to December 31, 2010. On December 31, 2010, the Company entered into another amendment to the convertible debenture to extend the maturity date of the note from December 31, 2010 to June 30, 2011. As at December 31, 2010, $136,185 had been accreted increasing the carrying value of the convertible debenture to $256,185. As at December 31, 2010, the Company had accrued interest of $57,721.
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Pursuant to ASC 470-60, Troubled Debt Restructurings by Debtors, the total future cash flows of the restructured debt was compared with the carrying value of the original debt. As the total future cash flows of the restructured debt were greater than the carrying value at the date of amendment, the carrying value of the original debt at the date of modification was not adjusted. Pursuant to ASC 470-60, a new effective interest rate was computed and used to determine interest expense for the modified debenture. At May 31, 2011, $80,000 had been accreted increasing the carrying value of the convertible debenture to $200,000. As at May 31, 2011, the Company has accrued interest of $64,340.
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10
Texada Ventures Inc.
(An Exploration Stage Company)
Notes to the Financial Statements
May 31, 2011
(Expressed in US dollars)
(Unaudited)
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7.
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Convertible Debentures (continued)
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b)
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On November 19, 2007, the Company issued a 6% convertible debenture with a principal amount of $110,000 which was due and payable on December 31, 2008. Interest is payable semi-annually beginning on May 31, 2008, and thereafter on May 31st and November 30th of each year, payable at the option of the Company in cash or shares. As at November 30, 2009, the Company had not made any interest payments and pursuant to the debenture has accrued default interest of 8% since May 31, 2008. The principal and accrued interest on the debenture may be converted at any time into shares of the Company’s common stock at a price of $0.625 per share, at the option of the holder.
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In accordance with ASC 470-20, Debt with Conversion and Other Options, the Company recognized the intrinsic value of the embedded beneficial conversion feature of $44,000 as additional paid-in capital and an equivalent discount which will be charged to operations over the term of the convertible debenture. The Company records accretion expense over the term of the convertible debenture up to its face value of $110,000. On December 18, 2008, the Company entered into an amendment to the convertible debenture to extend the maturity date of the note from December 31, 2008 to December 31, 2010.
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Pursuant to ASC 470-60, Troubled Debt Restructurings by Debtors, the total future cash flows of the restructured debt was compared with the carrying value of the original debt. As the total future cash flows of the restructured debt were greater than the carrying value at the date of amendment, the carrying value of the original debt was not adjusted. Pursuant to ASC 470-60, a new effective interest rate was computed and used to determine interest expense for the modified debenture.
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On October 29, 2010, the Company negotiated to settle a debt settlement agreement with the holder of the convertible note. It was negotiated for interest to cease accruing on October 1, 2010. Pursuant to the agreement, the Company agreed to settle the $110,000 convertible note and $24,052 accrued interest by issuing 670,262 shares of the Company’s common stock with a fair value of $33,513 on January 4, 2011 (see Note 9(c)).
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c)
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On March 11, 2008, the Company issued a 6% convertible debenture with a principal amount of $150,000 which was due and payable on December 31, 2008. Interest is payable semi-annually beginning on May 31, 2008, and thereafter on May 31st and November 30th of each year, payable at the option of the Company in cash or shares. As at November 30, 2009, the Company had not made any interest payments and pursuant to the debenture has accrued default interest of 8% since May 31, 2008. The principal and accrued interest on the debenture may be converted at any time into shares of the Company’s common stock at a price of $0.625 per share, at the option of the holder.
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In accordance with ASC 470-20, Debt with Conversion and Other Options, the Company recognized the intrinsic value of the embedded beneficial conversion feature of $60,000 as additional paid-in capital and an equivalent discount which will be charged to operations over the term of the convertible debenture. The Company records accretion expense over the term of the convertible debenture up to its face value of $150,000. On December 18, 2008, the Company entered into an amendment to the convertible debenture to extend the maturity date of the note from December 31, 2008 to December 31, 2010. On December 31, 2010, the Company entered into an amendment to the convertible debenture to extend the maturity date of the note from December 31, 2010 to June 30, 2011. As at December 31, 2010, $91,785 had been accreted increasing the carrying value of the convertible debenture to $181,785. As at December 31, 2010, the Company had accrued interest of $33,008.
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Pursuant to ASC 470-60, Troubled Debt Restructurings by Debtors, the total future cash flows of the restructured debt was compared with the carrying value of the original debt. As the total future cash flows of the restructured debt were greater than the carrying value at the date of amendment, the carrying value of the original debt at the date of modification was not adjusted. Pursuant to ASC 470-60, a new effective interest rate was computed and used to determine interest expense for the modified debenture. At May 31 2011, $60,000 had been accreted increasing the carrying value of the convertible debenture to $150,000. As at May 31, 2011, the Company has accrued interest of $37,959.
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11
Texada Ventures Inc.
(An Exploration Stage Company)
Notes to the Financial Statements
May 31, 2011
(Expressed in US dollars)
(Unaudited)
8. Loans Receivable
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a)
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The Company provided a note receivable of $93,160 to Royalty Exploration, LLC (“Royalty Exploration”) pursuant to a term sheet (the “Term Sheet”) signed on September 16, 2008 that set forth the principal terms upon which the Company would enter into a definitive agreement to acquire Royalty Exploration (the “REX Acquisition”) and commence a concurrent financing of $40,000,000. The note receivable was due upon the close of the REX Acquisition or, if the REX Acquisition was not consummated, in 12 equal monthly installments after the termination of the Term Sheet. The REX Acquisition was not consummated and the Term Sheet expired on May 31, 2009. Due to uncertainty as to the collectability of the loan at November 30, 2009, a provision was recorded to write off the entire amount.
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During fiscal 2010, payments of $41,647 were recovered and recorded as a recovery in other income and amounts owing to Royalty Exploration totaling $9,876 were written off pursuant to the Term Sheet as the acquisition was not consummated.
During the six month period ended May 31, 2011, payments of $34,702 were recovered and recorded as a recovery in other income.
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b)
|
On May 20, 2011, the Company agreed to provide a bridge loan pursuant to the Term Sheet described in Note 11 for a total amount of $200,000. The loan receivable bears interest at 5% and the principal amount and interest shall be paid in twelve equal monthly installments commencing on the first day of the first month following the termination of the Term Sheet. As at May 31, 2011, the Company has advanced $100,000 and accrued interest income of $151. An additional $100,000 was subsequently advanced on June 9, 2011.
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|
Bridge Loan
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Accrued Interest
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Total
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|||||||||
|
Current Portion
|
$ | 83,333 | $ | 151 | $ | 83,484 | |||||
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Long term Portion
|
16,667 | - | 16,667 | ||||||||
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Total
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$ | 100,000 | $ | 151 | $ | 101,151 | |||||
9. Common Stock
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a)
|
During the three month period ended May 31, 2011, the Company received subscriptions for 1,250,000 units of the Company at $0.10 per unit for total proceeds of $125,000. Each unit consists of one share of common stock and one common share purchase warrant. Each warrant is exercisable to acquire one share of common stock of the Company at an exercise of $0.25 per warrant share for a period of two years. As at May 31, 2011, the units have not been issued and are presented as common stock subscribed.
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b)
|
On January 4, 2011, the Company issued 1,496,853 common shares at $0.20 per share to settle a convertible debenture of $265,000 and accrued interest of $34,371 (see Note 6 (c) to (f)). The shares had a fair market value of $0.05 per share and $224,528 was recognized in the gain on settlement of debt in other income.
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c)
|
On January 4, 2011, the Company issued 670,262 common shares at $0.20 per share to settle a convertible debenture of $110,000 and accrued interest of $24,052 (see Note 7 (b)). The shares had a fair market value of $0.05 per share and $100,539 was recognized in the gain on settlement of debt in other income.
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d)
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On January 24, 2011, the Company issued 92,827 shares of common shares with a fair market value of $0.05 per share to settle a debt of $8,452 and a gain on debt settlement of $3,811 was recognized in other income (see Note 5 (a)).
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10. Segment Disclosures
The Company operates in one operating segment, which is the acquisition and exploration of oil and gas resources and mineral resources. The Chief Executive Officer is the Company’s Chief Operating Decision Maker (“CODM”) as defined by ASC 280, Segment Report. The CODM allocates resources and assesses the performance of the Company based on the results of operations.
12
Texada Ventures Inc.
(An Exploration Stage Company)
Notes to the Financial Statements
May 31, 2011
(Expressed in US dollars)
(Unaudited)
11. Commitment
On May 20, 2011, the Company entered into a term sheet (the “Term Sheet”), which outlines the general terms and conditions pursuant to which the Company has agreed to enter into a definitive option agreement. Pursuant to the proposed option agreement, the Company may acquire or earn a 95% interest in a rare earth metals project located in Sakarya Province, Turkey (the “Property”).
Under the Term Sheet, the definitive agreement will provide the Company with the option to acquire a 95% interest in the Property by incurring an aggregate of $1,000,000 in exploration expenditures on the Property, issuing an aggregate of 6,000,000 shares of common stock of the Company, and paying an aggregate of $1,000,000 over a three year period. The definitive agreement will contain customary terms and conditions, including covenants requiring each party not to sell their respective entities or assets to another party.
Under the Term Sheet, the Company agreed to advance $200,000 as part of a bridge loan and to fund certain expenditures related to the Property in consideration for the issuance of a promissory note. At May 31, 2011, $100,000 of the bridge loan had been advanced as described in Note 8(b). The remaining $100,000 was advanced subsequent to May 31, 2011.
The Term Sheet, as amended on July 1, 2011, may be terminated by either party if the closing conditions set forth therein are not satisfied on or before September 15, 2011, provided that the terminating party acted in good faith and has not breached the terms of the Term Sheet. Except for provisions related to the bridge loan, representations and warranties of the Property owner, termination, exclusivity, and public announcements, the Term Sheet is non-binding on the parties.
Each party will pay its own expenses in connection with the negotiation of the definitive agreement.
The Company is working in good faith to negotiate and finalize a definitive agreement however the transaction has not closed as of July 8, 2011.
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12.
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Subsequent Event
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On June 7, 2011, the Company received a subscription for 1,000,000 units of the Company at $0.10 per unit for total proceeds of $100,000. Each unit consists of one share of common stock and one common share purchase warrant. Each warrant is exercisable to acquire one share of common stock of the Company at an exercise of $0.25 per warrant share for a period of two years. As of July 13, 2011, the units have not been issued.
On July 1, 2011, the Company amended the Term Sheet, to extend the date in which a finalized definitive agreement must be negotiated by, from on or before July 1, 2011 to on or before September 1, 2011, and extended the date to close the transaction from on or before July 15, 2011 to on or before September 15, 2011.
13
Cautionary Statement Regarding Forward-Looking Statements
Certain statements contained in this Quarterly Report on Form 10-Q constitute “forward-looking statements”. These statements, identified by words such as “plan”, “anticipate”, “believe”, “estimate”, “should”, “expect” and similar expressions include our expectations and objectives regarding our future financial position, operating results and business strategy. These statements reflect the current views of management with respect to future events and are subject to risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from those described in the forward-looking statements. Such risks and uncertainties include those set forth under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q. We advise you to carefully review the reports and documents we file from time to time with the United States Securities and Exchange Commission (the “SEC”), particularly our Annual Reports on Form 10-K and our Current Reports on Form 8-K.
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ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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OVERVIEW
Texada Ventures Inc. (the “Company”) is engaged in the business of acquisition and exploration of mineral and resource properties. We were incorporated on October 17, 2001 under the laws of the State of Nevada. Our principal office is located at 491 – 9th Street, Manhattan Beach, CA, 90266. Our phone number is 310-720-9029 and our facsimile number is 310-374-9385.
OUR BUSINESS
We have acquired a 100% undivided interest in a group of mineral claims located in the Wheaton River District in the Yukon Territory, Canada that we refer to as the Peek Claims.
On May 20, 2011, we entered into a term sheet (the “Term Sheet”), with Anadolun Madencilik Ltd. Sti., a limited company under the provisions of the Turkish Commercial Code (“Anadolun”), which outlines the general terms and conditions pursuant to which the Company and Anadolun have agreed to enter into a definitive option under which the Company may acquire or earn 95% of Anadolun’s interest in Anadolun’s Karasu Rare Earth Metals Project located in Sakarya Province, Turkey (the “Property”). The Company and Anadolun are working together in good faith to negotiate and finalize a definitive agreement on or before September 1, 2011, and to close the transaction on or before September 15, 2011, or such other later date as may be mutually agreed.
We have not earned any revenues to date. Our plan of operation is to continue to carry out exploration work on the Peek Claims in order to ascertain whether they possess commercially exploitable mineral deposits and to continue to negotiate and finalize a definitive agreement with Anadolun in respect to the Property. We are presently in the exploration stage of our business and we can provide no assurance that commercially viable mineral deposits exist on our current or targeted claims, that we will discover commercially exploitable levels of mineral resources on our properties, or if such deposits are discovered, that we will enter into further substantial exploration programs, or that we will be successful in negotiating and finalizing a definitive agreement with Anadolun in respect to the Property. We will not be able to determine whether or not our current or targeted mineral claims contain commercially exploitable deposits, or reserves, until appropriate exploratory work is done and an economic evaluation based on that work concludes economic viability.
We generally conduct our business through verbal agreements with consultants and arms-length third parties. Our verbal agreement with our geologist includes his reviewing all of the results from the exploratory work performed on our Peek Claims and making recommendations based on those results in exchange for payments equal to the usual and customary rates received by geologists performing similar consulting services.
As a result of our failure to generate substantial revenues since our inception, we have reviewed our initial business plan in order to evaluate the progress of our mining business. We have not attained profitable operations to date and are dependent upon obtaining financing to pursue our plan of operation, including the transactions contemplated
14
under the Term Sheet with Anadolun. We can give no assurance that we will be successful in obtaining financing on terms that are acceptable to us, if at all.
RECENT CORPORATE DEVELOPMENTS
As disclosed above, on May 20, 2011, we entered into the Term Sheet with Anadolun pursuant to which the Company and Anadolun have agreed to enter into a definitive option under which the Company may acquire or earn 95% of Anadolun’s interest in the Property. Under the Term Sheet, the definitive agreement will provide the Company with the option to acquire the Property interest, by incurring $1,000,000 in exploration expenditures (in aggregate) on the Property, issuing 6,000,000 shares of common stock of the Company (in aggregate) to Anadolun, and paying Anadolun $1,000,000 (in aggregate). Additionally, under the Term Sheet, the Company has advanced Anadolun $200,000 (as part of a bridge loan), to fund certain expenditures related to the Property, in consideration for the issuance of a promissory note to the Company by Anadolun, which promissory note bears interest at a rate of 5% per annum and is due and payable in twelve equal monthly installments commencing on the first day of the first month following the termination of the Term Sheet.
In connection with the negotiation and finalization of a definitive agreement with Anadolun, we will perform appropriate due diligence activities to more fully assure investors of the benefits of this strategic move. We cannot assure you that our capital raising efforts will be successful given the current state of the financial markets or that we can successfully complete the transaction contemplated by the Term Sheet.
PLAN OF OPERATION
As a result of our failure to generate any revenues since our inception, we have not been satisfied with our initial business plan to this point.
Our current plan of operation is to continue exploration work on our mineral properties, as described below, while also seeking opportunities to acquire a company or operation which would return sufficient shareholder value. We believe the acquisition of a 95% interest Property from Anadolun presents such an opportunity to increase shareholder value in the Company. However, we are also currently evaluating further acquisition targets in complementary industries. We cannot assure investors that we will be successful in negotiating and finalizing a definitive agreement with Anadolun in respect to the Property, in locating other suitable acquisition targets, or that our capital raising efforts will be successful given the current state of the financial markets.
During the exploration stage, David Brow, our President, Secretary, Treasurer, Chief Executive Officer and Chief Financial Officer, and Dr. Veltheer will only be devoting approximately twenty hours per week of their time to our business. We do not foresee this limited involvement as negatively impacting the Company over the next twelve months. All exploratory work on our Peek Claims, is being performed by our geological consultant, Mr. Timmins, who contracts with appropriately experienced parties to complete work programs. However, if as a result of our acquisition efforts, the demands of our business require more business time of Mr. Brow or Dr. Veltheer, such as raising additional capital or addressing unforeseen issues with regard to our exploration efforts, they are prepared to adjust their timetable to devote more time to our business.
Mineral Properties
As described in previous filings, we have taken a phased approach to our exploration efforts on the Peek Claims, and have received a geological report on the results of Phase III of our program with further recommendations from our geological consultant of additional activities prior to engaging in Phase IV of our plan. In his report, our geologist recommended that, prior to proceeding with Phase IV, further geological engineering should be undertaken to define the exact source areas for the known and new vein float material. Our geologist recommended reserving a total of $10,000 for a two-stage delineation program prior to commencing Phase IV of our exploration program. We proceeded with our geologist’s recommendation and completed the first phase of the delineation program during the summer exploration season of 2006. A detailed, close-spaced, soil geochemical survey over the conductors using a plugger style overburden sampling drill was recommended to locate the bed rock source of the mineralization following completion of the first phase of the delineation program.
15
Our decision to proceed to Phase IV of our initial exploration program will be made based on factors such as other business opportunities, the final assay results and the recommendations of our geologist, the grades of any mineralization found, the size and extent of the mineralized zones, and the strength of metal prices in international markets. Phase IV is currently estimated to cost $120,000. Given our current working capital situation, the costs of implementing Phase IV of our exploration program, and our focus of negotiating and finalizing a definitive agreement with Anadolun in respect to the Property, we currently do not anticipate implementing Phase IV in the foreseeable future. See “Liquidity and Capital Resources” below.
Our expenditures toward the exploration of our mineral claims may not result in the discovery of mineral deposits. Problems such as unusual or unexpected formations and other conditions are involved in mineral exploration and often result in unsuccessful exploration efforts. If the results of exploration do not reveal viable commercial mineralization, we may decide to abandon our claims and acquire new claims for new exploration. The acquisition of additional claims will be dependent upon our possessing sufficient capital resources at the time in order to purchase such claims. If no funding is available, we may be forced to abandon our operations. This assessment will include an assessment of our cash reserves, the price of minerals and the market for financing of mineral exploration projects at the time of our assessment.
We anticipate that we will require capital for the following expenses over the next twelve months relating to our continued operations:
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Category
|
Planned Expenditures over the Next Twelve Months
(US$)
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||
|
Mineral Exploration Expenses
|
$ | 500,000 | |
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General and Administrative Expenses
|
$ | 150,000 | |
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Anadolun Bridge Loan Advance
|
$ | 50,000 | |
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TOTAL 12-MONTH BUDGET
|
$ | 700,000 | |
As at the Company’s fiscal year end of November 30, 2010, the Company had three 6% convertible debentures outstanding with principal amounts totaling $460,000 due and payable on December 31, 2010. Interest is payable on the convertible debentures at the option of the Company in cash or shares.
During the six months ended May 31, 2011, the Company settled one of these convertible debentures in the principal amount $110,000, together with interest accrued thereon, through the issuance of 670,262 shares of the Company’s common stock. Additionally, effective December 31, 2010, the Company entered into an amendment with the holder of each remaining outstanding convertible debenture to extend the maturity date of such debentures from December 31, 2010 to June 30, 2011. As of the date hereof, the two outstanding convertible debentures in the principal amount of $350,000 are past due and are payable on demand.
The principal on these debentures may be converted at any time into shares of the Company’s common stock at the option of the holders. As we have as yet been unsuccessful in our efforts to raise equity, we do not have cash sufficient to satisfy the debentures in cash. Absent financing, we may negotiate with the holders of the convertible debentures to convert them to common stock or modify the terms sufficient to remove or delay the requirement to satisfy the obligations with cash. Should we be unable to reach conversion or modification of the convertible debentures on terms acceptable to us and should we be unable to raise financing sufficient to satisfy the debentures in cash, we may be required to default on our obligations under the convertible debentures.
We also maintain our position in mining claims in our mineral property referred to as the Peek Claim. In the event we decide to proceed with Phase IV of our exploration program, which is estimated to cost $120,000, we will need to obtain additional financing of nearly $320,000 to fund exploration, operating expenses and our working capital deficit.
16
Further, pursuant to the Term Sheet with Anadolun, the definitive agreement in respect to our acquisition of a 95% interest in the Property from Anadolun is anticipated to require the Company to incur $1,000,000 in exploration expenditures (in aggregate) on the Property, issue 6,000,000 shares of common stock of the Company (in aggregate) to Anadolun, and pay Anadolun $1,000,000 (in aggregate), of which we anticipate $250,000 will be due in the next twelve months.
As of May 31, 2011, we had a working capital deficit of $740,359 and cash on hand of $9,892. We do not expect our business to achieve profitability in the near future as we expect to continue to incur substantial acquisition, development and operating expenses. We will require additional funding to fund our working capital requirements. Accordingly, the Company does not have sufficient funds to meet planned expenditures over the next twelve months, and will need to seek additional debt or equity financing to meet its planned expenditures. However, we cannot provide investors with any assurance that we will be able to raise sufficient funding from the sale of our common stock or debt to fund our estimated general administration, exploration and other working capital requirements.
There is no assurance that we will be able to obtain sufficient financing to fund our capital requirements. If we do not obtain the necessary financing, then our plan of operation will be scaled back according to the amount of funds available. The inability to raise the necessary financing will severely restrict our ability to continue exploration programs or acquisition activities as planned.
RESULTS OF OPERATIONS
This discussion and analysis should be read in conjunction with the accompanying financial statements and related notes. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors. The discussion and analysis of the financial condition and results of operations are based upon the financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. On an on-going basis the Company reviews its estimates and assumptions. The estimates were based on historical experience and other assumptions that the Company believes to be reasonable under the circumstances. Actual results are likely to differ from those estimates under different assumptions or conditions, but the Company does not believe such differences will materially affect our financial position or results of operations.
Critical Accounting Policies
Critical accounting policies, the policies the Company believes are most important to the presentation of its financial statements and require the most difficult, subjective and complex judgments, are outlined below, are also disclosed in the Company’s Form 10-K as filed with the SEC on March 4, 2011, and have not changed significantly.
Mineral Property Costs
The Company is engaged in the acquisition, exploration and development of mineral properties. Mineral property acquisition costs are capitalized when management has determined that probable future benefits consisting of a contribution to future cash inflows have been identified and adequate financial resources are available or are expected to be available as required to meet the terms of property acquisition and budgeted exploration and development expenditures. Mineral property acquisition costs are expensed as incurred if the criteria for capitalization are not met. In the event that a mineral property is acquired through the issuance of the Company’s shares, the mineral property will be recorded at the fair value of the respective property or the fair value of common shares, whichever is more readily determinable.
When mineral properties are acquired under option agreements with future acquisition payments to be made at the sole discretion of the Company, those future payments, whether in cash or shares, are recorded only when the Company has made or is obliged to make the payment or issue the shares. When it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves and feasibility, the costs incurred to develop such property are capitalized.
17
Stock-based Compensation
The Company records stock-based compensation using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
Revenue and Expenses
|
Summary
|
Three Months Ended May 31
|
Six Months Ended May 31
|
||||||||||||||
|
2011
|
2010
|
2011
|
2010
|
|||||||||||||
|
Revenue
|
- | - | - | - | ||||||||||||
|
Operating Expenses
|
$ | 24,280 | $ | 85,778 | $ | 64,012 | $ | 113,764 | ||||||||
|
Net Income (Loss) From Operations
|
$ | (24,280 | ) | $ | (85,778 | ) | $ | (64,012 | ) | $ | (113,764 | ) | ||||
Summary of Revenue
We have not earned any revenues to date. Our plan of operation, in regards to mineral properties, is to continue to carry out exploration work on our claims in order to ascertain whether they possess commercially exploitable quantities of mineral deposits and to explore acquisition opportunities for acquisitions. We do not anticipate earning revenues until such time as we are able to locate and process commercially exploitable levels of mineral resources on our properties or acquire commercially viable or producing properties.
We are presently in the exploration stage of our business and we can provide no assurance that a commercially viable mineral deposit exists on our claims or that we will discover commercially exploitable levels of mineral resources on our properties, or if such deposits are discovered, that we will enter into further substantial exploration programs. We will not be able to determine whether or not our mineral claims contain a commercially exploitable mineral deposit, or reserve, until appropriate exploratory work is done and an economic evaluation based on that work concludes economic viability. Also, we cannot assure you that we will be successful in negotiating and finalizing a definitive agreement with Anadolun in respect to the Property or that we will be able to acquire any other commercially viable properties or, if acquired, that we will be able to develop or operate any acquired property in a profitable manner.
Summary of Expenses
Our expenses for the three months and six months ended May 31, 2011 and 2010, consisted of the following:
|
Three Months Ended May 31
|
Six Months Ended May 31
|
|||||||||||||||
|
2011
|
2010
|
2011
|
2010
|
|||||||||||||
|
Expenses (Operating Expenses)
|
||||||||||||||||
|
Consulting
|
$ | 5,162 | $ | 7,011 | $ | 8,162 | $ | 21,289 | ||||||||
|
General and administrative
|
$ | 17,591 | $ | 77,932 | $ | 50,693 | $ | 92,338 | ||||||||
|
Loss on foreign exchange
|
$ | 1,527 | $ | 835 | $ | 5,157 | $ | 137 | ||||||||
|
Other Income (Expense)
|
||||||||||||||||
|
Accretion of discount on convertible debentures
|
- | $ | (1,106 | ) | $ | (715 | ) | $ | (1,960 | ) | ||||||
|
Interest income
|
$ | 151 | - | $ | 151 | - | ||||||||||
|
Interest on convertible debentures
|
$ | (7,050 | ) | $ | (11,795 | ) | $ | (13,946 | ) | $ | (23,335 | ) | ||||
|
Interest on promissory notes
|
$ | (2,016 | ) | $ | (5,734 | ) | $ | (3,989 | ) | $ | (11,344 | ) | ||||
|
Interest on related party loans
|
- | - | - | - | ||||||||||||
|
Recovery of loan receivable
|
$ | 20,821 | $ | 16,815 | $ | 34,702 | $ | 16,815 | ||||||||
|
Gain on settlement of debt
|
- | - | $ | 328,877 | $ | 70 | ||||||||||
18
For the three months ended May 31, 2011, our operating expenses decreased from the same period in 2010 by $61,498. This decrease in operating expenses is primarily due to a decrease in general and administrative expenses of $60,341 due to non-repetition of costs related to due diligence and financing efforts for the DIA acquisition that were incurred in fiscal 2010 of $56,980, in addition to a decrease in consulting expenses of $1,849 for the three months ended May 31, 2011 compared to the same period in 2010. Other income for the three months ended May 31, 2011 increased by $13,726 from a loss of $1,820 for the period ended May 31, 2010 to a gain of $11,906 for the same period in 2011. This increase in other income was primarily due to decreased interest on promissory notes and convertible debentures for the period ended May 31, 2011 compared to the same period in 2010 of $8,463, due the settlement of certain promissory notes and convertible debentures since our fiscal quarter ended May 31, 2010 and an increase in recovery for a loan receivable of $4,006 during the three months ended May 31, 2011 compared to the same period in 2010, for which a provision for potential uncollectability had been created in fiscal 2010.
For the six months ended May 31, 2010, our operating expenses decreased from the same period in 2010 by $49,752. This decrease in operating expenses is primarily due to a decrease in general and administrative expenses of $41,645 and a decrease in consulting expenses of $13,127 for the three months ended May 31, 2011 compared to the same period in 2010, which was partially offset by an increase in loss on foreign exchange of $5,020.
Other income and expense for the six months ended May 31, 2011 increased by $364,834, primarily due to a one-time gain on settlement of debt of $328,877 and decreased interest on promissory notes and convertible debentures of $16,744. We do not anticipate future gains on settlement of debt.
LIQUIDITY AND CAPITAL RESOURCES
|
Working Capital Summary
|
At May 31,
2011
|
At November 30, 2010
|
||||||
|
Current Assets
|
$ | 94,700 | $ | 2,720 | ||||
|
Current Assets
|
$ | 94,700 | $ | 2,720 | ||||
|
Current Liabilities
|
(835,059 | ) | (1,245,479 | ) | ||||
|
Working Capital (Deficit)
|
$ | (740,359 | ) | $ | (1,242,759 | ) | ||
|
Summary of Cash Flows
|
||||||||
|
Six Months Ended May 31
|
||||||||
| 2011 | 2010 | |||||||
|
Net Cash Used In Operating Activities
|
$ | (52,080 | ) | $ | (88,529 | ) | ||
|
Net Cash (Used In) Provided by Investing Activities
|
$ | (65,748 | ) | $ | 6,939 | |||
|
Net Cash Provided By Financing Activities
|
$ | 125,000 | $ | 87,500 | ||||
|
Net Increase (Decrease) In Cash During Period
|
$ | 7,172 | $ | 5,910 | ||||
As at May 31, 2011, we had cash of $9,892 and a working capital deficit of $740,359. The decrease in our working capital deficit at May 31, 2011 from our year ended November 30, 2010 is primarily a result of an increase in current assets due to the current portion of the Anadolun bridge loan receivable and a decrease in promissory notes and convertible debentures payable.
During the three months ended May 31, 2011, we advanced $100,000 of the total bridge loan amount of $200,000 contemplated by the Term Sheet with Anadolun and during the six months ended May 31, 2011, we settled a convertible debenture in the principal amount $110,000, together with interest accrued thereon, through the issuance of 670,262 shares of the Company’s common stock. Additionally, during the six months ended May 31, 2011, we settled promissory notes in the principal amount $265,000, together with interest accrued thereon, through the issuance of 1,496,853 shares of the Company’s common stock.
As of May 31, 2011, we had two convertible debentures in the principal amount of $350,000 outstanding which are past due and payable on demand. Additionally as of May 31, 2011, we had promissory notes in the principal amount of $187,500 outstanding which are due and payable on demand. We do not have sufficient capital to satisfy these convertible debentures and promissory notes in cash if payment is demanded by their holders.
Because we have as yet been unsuccessful in our efforts to raise substantial financing, we do not have cash sufficient to satisfy the convertible debentures and promissory notes in cash. Absent financing, we may negotiate with the holders of the convertible debentures and promissory notes to convert them to common stock or modify terms sufficient to remove or delay the requirement to satisfy the obligations with cash. Should we be unable to reach
19
conversion or modification of the convertible debentures and promissory notes on terms acceptable to us, we may be required to default on the obligations.
We also maintain our position in mining claims in our mineral property referred to as the Peek Claim. In the event we decide to proceed with Phase IV of our exploration program, which is estimated to cost $120,000, we will need to obtain additional financing of nearly $320,000 to fund exploration, operating expenses and working capital deficit.
Further, pursuant to the Term Sheet with Anadolun, the definitive agreement in respect to our acquisition of a 95% interest in the Property from Anadolun is anticipated to require the Company to incur $1,000,000 in exploration expenditures (in aggregate) on the Property, issue 6,000,000 shares of common stock of the Company (in aggregate) to Anadolun, and pay Anadolun $1,000,000 (in aggregate), of which we anticipate $250,000 will be due in the next twelve months.
We do not expect our business to achieve profitability in the near future as we expect to continue to incur substantial acquisition, development and operating expenses. We will require additional funding to fund our working capital requirements. However, we cannot provide investors with any assurance that we will be able to raise sufficient funding from the sale of our common stock or debt to fund our estimated general administration, acquisition, exploration and other working capital requirements.
Currently, we do not have sufficient capital to implement our plan of operation over the next twelve months and there is no assurance that we will be able to obtain sufficient financing to fund our capital requirements. If we do not obtain the necessary financing, then our plan of operation will be scaled back according to the amount of funds available. The inability to raise the necessary financing will severely restrict our ability to continue exploration programs or acquisition activities as planned.
Our auditors expressed substantial doubt regarding our ability to continue as a going concern related to our financial statements for the year ended November 30, 2010, and these circumstances have not improved. The factors related to the determination of our ability to continue as a going concern include our working capital deficit, lack of foreseeable revenues from operations, need for additional capital to maintain our interest in the Peek Claims and complete the transactions contemplated by the Term Sheet with Anadolun, and need for additional capital to fund our general and administrative requirements. Our ability to continue as a going concern is dependent on our ability to raise additional capital, complete an acquisition and conduct successful exploration activities on our properties and drive appreciation in the value of our exploration properties and assets. There is substantial doubt regarding our ability to continue as a going concern, and if we are unable to raise additional capital in a timely manner in an amount sufficient to close our acquisition of a 95% interest in the Property from Anadolun, we may be required to sell our Peek Claims or permit such claims to lapse. As a result, we may be forced to discontinue operations.
We have not declared or paid dividends on our shares since incorporation and do not anticipate doing so in the foreseeable future.
OFF-BALANCE SHEET ARRANGEMENTS
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our stockholders.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCUSSION ABOUT MARKET RISK
Not required for smaller reporting companies.
20
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
At the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out under the supervision of, and with the participation of, the Company’s management, including the Chief Executive Officer / Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a – 15(e) and Rule 15d – 15(e) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation, the Chief Executive Officer / Chief Financial Officer has concluded that as of the end of the period covered by this Quarterly Report on Form 10-Q, due to material weaknesses in internal controls over financial reporting as described in our Form 10-K filed on March 4, 2011, the Company’s disclosure controls and procedures were not adequately designed and were not effective in ensuring that information required to be disclosed by the Company in its reports that it files or submits to the SEC under the Exchange Act, is recorded, processed, summarized and reported within the time period specified in applicable rules and forms.
Management is taking steps to address the material weaknesses previously identified. We engaged legal counsel who is experienced and qualified to practice before the SEC, who actively reviewed Company events and major transactions to advise management on appropriate disclosure of those events and transactions. In addition, we engaged Lancaster & David to provide accounting consulting services and to assist in the preparation of our financial statements. Company filings with the SEC are reviewed by the Board of Directors, our management, and our SEC legal firm for proper and complete disclosure. Although the lack of sufficient working capital has had an adverse effect on significant improvement in disclosure controls and procedures, management believes that internal control over financial reporting in the future will improve the results of its evaluation of disclosure controls.
Changes in internal controls over financial reporting
During the period covered by this Quarterly Report on Form 10-Q, there were no changes in our internal control over financial reporting (as defined in Rule 13(a)-15(f) or 15(d)-15(f)) that occurred during the period covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
21
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
Not required for smaller reporting companies.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the three month period ended May 31, 2011, the Company received subscriptions for 1,250,000 units of the Company at a purchase price $0.10 per unit for total proceeds of $125,000. Each unit consists of one share of common stock and one common share purchase warrant. Each warrant is exercisable to acquire one share of common stock of the Company at an exercise of $0.25 per warrant share for a period of two years. As at May 31, 2011, the units have not been issued.
On June 7, 2011, the Company received a subscription for 1,000,000 units of the Company at $0.10 per unit for total proceeds of $100,000. Each unit consists of one share of common stock and one common share purchase warrant. Each warrant is exercisable to acquire one share of common stock of the Company at an exercise of $0.25 per warrant share for a period of two years. As at July 13, 2011 the units have not been issued.
The securities were issued outside the United States to non-U.S. persons (as defined in Rule 902(k) of Regulation S under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”)) in “offshore” transactions pursuant to the exceptions from the registration requirements of Rule 903 of Regulation S under the U.S. Securities Act. The securities underlying the units are deemed “restricted securities” (as defined in Rule 144(a)(3) of the U.S. Securities Act, and may not be resold absent registration under the U.S. Securities Act or an exemption thereunder.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. [REMOVED AND RESERVED]
ITEM 5. OTHER INFORMATION
On July 1, 2011, the Company and Anadolun amended the Term Sheet, to extend the date in which a finalized definitive agreement must be negotiated by, from on or before July 1, 2011 to on or before September 1, 2011, and extended the date to close the transaction from on or before July 15, 2011 to on or before September 15, 2011 (see Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more information on the Term Sheet).
ITEM 6. EXHIBITS
|
Exhibit
Number
|
Description of Exhibits
|
|
10.1
|
Anadolun Term Sheet, dated May 20, 2011
|
|
10.2
|
Loan Agreement by and between the Company and Anadolun, dated May 20, 2011
|
|
10.3
|
Amending Agreement for the Anadolun Term Sheet, dated July 1, 2011
|
|
31.1
|
Certification of Chief Executive Officer and Chief Financial Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
32.2
|
Certification of Chief Executive Officer and Chief Financial Officer as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
99.1
|
Form of 5% Promissory Note issued by Anadolun to the Company
|
___________________________
22
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
TEXADA VENTURES INC.
|
||
|
By:
|
/s/ David Brow
|
|
|
DAVID BROW
|
||
|
Chief Executive Officer, Chief Financial Officer
|
||
|
President, Secretary, Treasurer and Director
|
||
|
(Principal Executive Officer
|
||
|
and Principal Financial Officer)
|
||
|
Date:
|
July 15, 2011
|
23