|• TURKPOWER CORPORATION 10-Q A 2-29-2012 • EXHIBIT 31.1 • EXHIBIT 32.1 • XBRL INSTANCE DOCUMENT • XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT • XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT • XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT • XBRL TAXONOMY EXTENSION LABEL LINKBASE DOCUMENT • XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE DOCUMENT|
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 29, 2012
o TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE EXCHANGE ACT
For the transition period from ___________ to _____________
Commission file number 000- 52630
(Exact name of registrant as specified in its charter)
Check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934) (check one): Yes o No x
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 162,300,414 shares of common stock, par value $0.001 per share, as of May 2, 2012.
Explanatory Note: The purpose of this Amendment No 1. to TurkPower Corporation’s Quarterly Report on Form 10-Q for the fiscal quarter ended February 29, 2012, filed with the Securities and Exchange Commission on April 24, 2012 (the “Form 10-Q”), is to (i) revise the Management’s Discussion and Analysis of Financial Condition and Results of Operations section to reflect the Registrant’s current business operations and (ii) provide the consolidated financial statements and related notes from the Form 10-Q formatted in XBRL (eXtensible Business Reporting Language) to furnish Exhibit 101 to the Form 10-Q in accordance with Rule 405 of Regulation S-T. Exhibit 101 to this report provides the consolidated financial statements and related notes from the Form 10-Q formatted in XBRL.
Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Act of 1934, as amended, and otherwise are not subject to liability under those sections.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
This Report contains statements that constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, (the “Securities Act) and the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Various matters discussed in this document and in documents incorporated by reference herein, including matters discussed under the caption “Plan of Operation,” may constitute forward-looking statements for purposes of the Securities Act and the Exchange Act. These statements are based on many assumptions and estimates and are not guarantees of future performance and may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. The words “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” and similar expressions are intended to identify such forward-looking statements. The Company’s actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without limitation, the Company’s lack of historically profitable operations, dependence on key personnel, the success of the Company’s business, ability to manage anticipated growth and other factors identified in the Company's filings with the Securities and Exchange Commission, press releases and/or other public communications.
TurkPower Corporation, which is in the process of changing its name to SibMet Coal Corporation, in order to reflect its primary business activities, is an American junior mining company that has established two wholly owned subsidiaries -- Sibcoal Commodities Trading Corp. and Sibcoal Mining Corp. in the British Virgin Islands. Sibcoal Commodities Trading shall focus on sales and marketing of metallurgical coking coal and Sibcoal Mining was established to acquire and develop mining interest, specifically and initially Zavyalov and Zavyalov-2 Square of the Toguchino Coal Field - which are believed to hold approximately 150,000,000 Metric tons of extractable met coking coal. The fields will be operated as open pit mines and share a washing station. The binding contract has been signed and the Company awaits the title transfer, which it expects in the near term. TurkPower owns 180,000 Metric tons of coking coal which it expects to sell in the coming months. TurkPower also owns a minority interest in an operational iron ore mine in Turkey. TurkPower is currently in the process of evaluating its options and defining its strategy regarding its asset in Turkey, which will include protecting its shareholders interest in said mine.
In November of 2011, the Company ceased all operation in Turkey and will sell its Turkish subsidiary, including the Investment in the Mining Company.
The Company has entered into an Agreement and Plan of Share Exchange with BEST, LLC (“BEST”) and the equityholders of BEST to acquire all of the capitalization of BEST in a subsidiary to be formed for such purpose, in exchange for an aggregate of (i) 120,000,000 newly issued shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”), (ii) 1,000 shares of a newly-created Series A Convertible Preferred Stock, par value $0.0001 per share which are convertible into and vote 260,000,000 shares of Common Stock (the “Series A”) and (iii) 1,000 shares of a newly created Series B Perpetual, Convertible Preferred Stock, par value $0.0001 per share which are Convertible into and vote as 100,000,000 shares of Common Stock, have a liquidation preference of $25,000 per share (the "Series B") (collectively, the “Exchange Shares”). In connection with the planned acquisition, the Company issued on March 30, 2012, 4,500,000 shares of Common Stock and 425 Series A shares.
BEST is a company organized under the laws of the Russian Federation and is the holder of a forty-nine (49) year lease to develop, operate and mine Zavyalov Square, Part 1 and Part 2 at the Toguchina Coal Filed, located in Novosibirsk, Russia with a minimum forecasted extractable quantity of coal of 150,000,000 metric tons of coal and the owner of saleable coking coal stock of at least $20,000,000.
In connection with the planned acquisition, the Company issued on March 30, 2012, 4,500,000 shares of Common Stock and 425 Series A shares, after receiving transfer of the 180,000 metric tons of coking coal inventory free and clear, as announced in its press release February 8, 2012. Currently, the price for coking coal is approximately $200 per ton, depending on quality, quantity and terms of transaction.
(b) Going Concern
As shown in the accompanying consolidated financial statements, the Company had net losses of $19,325,915 for the nine months ended February 29, 2012 and had a working capital deficit as of February 29, 2012 of $6,007,241. The Company intends to increase its working capital through sale of its coking coal inventory, and/or raise additional working capital either through debt or equity financing.
The consolidated 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.
(c) Management’s Discussion and Analysis of Financial Condition and Results of Operation.
For the Nine Months Ended February 29, 2012
For the nine months ended February 29, 2012 and 2011 our professional fees were $594,854 and $143,644, respectively. The increase in professional fees was due to legal and accounting expenses, due diligence, and investor relations expenses.
For the nine months ended February 29, 2012 and 2011, our selling, general and administrative expenses were $1,034,215 and $115,330, respectively. The increase in selling, general and administrative expenses was largely due to stock compensation, payroll related expenses, and consulting expenses.
For the nine months ended February 29, 2012 and 2011, we recorded other expense of $2,390,780 and $343,479, respectively. The increase in other expense was due to interest expense incurred in connection with our convertible debt and change in fair value of the derivative liabilities.
For the nine months ended February 29, 2012 and 2011, we recorded a loss from discontinued operations of $15,306,066 compared to $841,419. The increase in the loss from discontinued operations was due to an impairment of our Investment in Mining Company of $13,859,231 during the nine months ended February 29, 2012. Also, the Company recorded severance expense during the nine months ended February 29, 2012 as a result of the Company’s decision to cease operations in Turkey and terminate all employees.
For the Three Months Ended February 29, 2012
For the three months ended February 29, 2012 and 2011, our professional fees were $115,302 and $46,092, respectively. The increase in professional fees was due to legal and accounting expenses, due diligence, and investor relations expenses.
For the three months ended February 29, 2012 and 2011, our selling, general and administrative expenses were $147,756 and $89,089, respectively. The increase in selling, general and administrative expenses was largely due to stock compensation, payroll related expenses, and consulting expenses.
For the three months ended February 29, 2012 and 2011, we recorded other expense of $1,369,883 and $109,482, respectively. The increase in other expense was due to interest expense incurred in connection with our convertible debt and change in fair value of the derivative liabilities.
For the three months ended February 29, 2012 and 2011, we recorded a loss from discontinued operations of $12,025,723 compared to $301,310. The increase in the loss from discontinued operations was due to an impairment of our Investment in Mining Company of $11,898,041 during the three months ended February 29, 2012. Also, the Company recorded severance expense during the nine months ended February 29, 2012 as a result of the Company’s decision to cease operations in Turkey and terminate all employees.
(d) Liquidity and Capital Resources
At February 29, 2012, we had cash of $275,958, as compared to $217,312 at May 31, 2011. This decrease was a result of cash used in operating activities of $731,106 and cash used in investing activities of $1,320,247, effect of exchange rates $25,001, partially offset by cash provided by financing activities of $2,135,000.
During the next 12 months we anticipate incurring costs related to filing of Exchange Act reports, and consummation of the acquisition of BEST.
We believe we will be able to meet these costs through use of funds in our treasury and additional amounts, as necessary, to be loaned by or invested in us by our stockholders, management or other investors.
Off-Balance Sheet Arrangements
As of the date of this Quarterly Report, the Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term "off-balance sheet arrangement" generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with the Company is a party, under which the Company has (i) any obligation arising under a guarantee contract, derivative instrument or variable interest; or (ii) a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.
Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.
Critical Accounting Policies
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP 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 as well as the reported amount of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Fair value of financial instruments
The carrying value of cash and cash equivalents, receivables, accounts payable and accrued expenses deferred revenue, and debt approximate their fair values because of the short-term nature of these instruments. Management believes the Company is not exposed to significant interest or credit risks arising from these financial instruments.
To date, we have not noted any significant seasonal impacts.
Not applicable for smaller reporting companies.
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
As of the end of the period covered by this Quarterly Report, Management has concluded that our disclosure controls and procedures are not effective because of the identification of a material weakness in our internal control over financial reporting, which we view as an integral part of our disclosure controls and procedures. The material weakness relates to the Company not having personnel with knowledge of generally accepted accounting principles. Our executive management does not possess accounting expertise and our Company does not have an audit committee. This weakness was due to our lack of working capital to hire additional staff during the period covered by this report. We intend to obtain this knowledge of generally accepted accounting principles by hiring a contractor and/or hiring additional accounting personnel.
Changes in Internal Controls over Financial Reporting
There were no changes in the Company’s internal controls over financial reporting, known to executive management that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
On December 26, 2011, the Company commenced a lawsuit against Nalan Oral and Seluck Oral, the shareholders of Avrasya Yapı Yatırım Hizmetleri A.Ş., in the United States District Court for the Southern District of New York alleging the defendants breached the Mine Purchase Agreement and seeking to cancel the 40,000,000 shares of Common Stock and 3,400,000 warrants issued to the defendants in connection with the Mine Purchase Agreement. The Company is also seeking damages of $6,000,000 from the defendants for breach of contract.
The Company is not a party and its property is not subject to any other material pending legal proceedings nor is the Company aware of any threatened or contemplated proceeding by any governmental authority against the Company.
Not required for smaller reporting companies.
On April 27, 2010, the Company’s Turkish subsidiary borrowed €450,000 ($555,692) from a third party. The loan is unsecured, bears annual interest at 25.0% and was payable in full on October 27, 2010. The interest rate increased to 60% on October 28, 2010, when the loan became in default. On August 2, 2011, the Turkish subsidiary and the lender cancelled the previous loan agreement and agreed to terms for the repayment of the €450,000 short-term debt and related interest by which the Turkish subsidiary agreed to pay the lender €200,000 on August 15, 2011, and €100,000 monthly thereafter through December 15, 2011 after which the Turkish subsidiary will have paid the lender €600,000 in aggregate. In addition the Company agreed to issue the lender 300,000 common shares no later than August 15, 2011. The Turkish subsidiary did not make the scheduled payments and the Company did not issue 300,000 shares to the lender. While delinquent, the Company is required to pay a 2.5% interest per month on the €600,000 loan to the lender.
(a) Exhibit index
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.