NOTES TO FINANCIAL STATEMENTS
JULY 31, 2013 AND 2012
Note 1 – Organization and summary of significant accounting policies
Basis of Presentation and Organization
First Liberty Power Corp. (“First Liberty Power” or the “Company” and formerly Quuibus Technology, Inc.) is a Nevada corporation in the exploration stage. The Company was incorporated under the laws of the State of Nevada on March 28, 2007. The original business plan of the Company was focused on developing and offering a server-based software product for the creation of wireless communities. The Company commenced a capital formation activity to effect a Registration Statement on Form SB-2 with the Securities and Exchange Commission, and raise capital of up to $60,000 from a self-underwritten offering of 1,200,000 shares of newly issued common stock in the public markets. The Registration Statement on Form SB-2 was filed with the SEC on November 13, 2007, and declared effective on November 21, 2007. On February 18, 2008, the Company completed an offering of its registered common stock.
In December 2009, the Company changed its business direction, and the Company’s primary focus is on exploration of domestic strategic energy and mineral properties to supply the emerging demand for clean energy. The accompanying financial statements of the Company were prepared from the accounts of the Company under the accrual basis of accounting.
On December 22, 2009, the Company declared a 27 for 1 forward stock split of its authorized and issued and outstanding common stock. The Company’s authorized common stock increased from 20,000,000 shares of common stock with a par value of $0.001 to 540,000,000 shares of common stock with a par value of $0.001. The effect of the stock split has been recognized retroactively in the stockholders’ equity accounts as of March 28, 2007, the date of our inception, and in all shares and per share data in the financial statements. In July 2013 the board of directors authorized, and in August 2013, further to shareholder approval, the Company’s authorized common stock increased from 540,000,000 shares of common stock with a par value of $0.001 to 1,080,000,000 shares of common stock with a par value of $0.001.
Effective December 22, 2009, the Company changed its name from “Quuibus Technology, Inc.” to “First Liberty Power Corp.” by way of a merger with its wholly owned subsidiary First Liberty Power Corp., which was formed solely for the name change.
On August 22, 2012, the Company entered into an agreement with Group8 Minerals, a Nevada Corporation ("Group8”), and Group8 Mining Innovations, a Nevada Corporation (“G8MI”), the sole Shareholder of Group8, whereby G8MI transferred 81% of the total issued and outstanding shares of Group8 in exchange for the issuance of 83,000,000 shares of the Company to G8MI plus one hundred thousand dollars ($100,000) cash payment to G8MI. Further, pursuant to the Agreement, the Company is required to undertake certain payments to Group8 aggregating a total of $2,000,000 for associated property payments and exploration costs as follows: (a) $500,000 on or before October 30, 2012; (b) $500,000 on or before December 31, 2012; (c) $500,000 on or before February 28, 2013; and (d) $500,000 on or before April 30, 2013, the timing of which remaining payments have been extended by mutual agreement pending additional funding of the Company.
In accordance with ASC 805, “Business Combinations”, and in particular ASC 805-50, the acquisition of Group8 is accounted for as an asset purchase without goodwill as Group8 did not meet the definition of a business per ASC 805 at the time of the acquisition. Additionally the CEO of First Liberty and controlling director of the Company is also a 50% director of G8MI as such the transaction was deemed a transaction under common control. As the Company and Group8 are considered as common controlled entities, the acquisition is a common control transaction; therefore, the financial statements requires retrospective combination of the entities for all periods presented as if the combination had been in effect since inception of common control. The 83,000,000 shares of the Company’s common stock issued to G8MI for 81% of Group8 will be recorded as founder’s shares to G8MI at Group8’s inception date, January 26, 2013.
On May 22, 2012 and May 31, 2012, Group8 obtained 50% control of Stockpile Reserves, LLC (“SRL”) and Central Nevada Processing Co. LLC (“CNPC”), respectively. SRL has a net liability of $37,681 with non-controlling interest of $53,629 at May 22, 2012. The total net liability assumed by Group8 was $91,310, which will be combined with the Company’s financial statements as of July 31, 2012. There was no operation in CNPC as of July 31, 2012.
FIRST LIBERTY POWER CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2013 AND 2012
A summary of SRL net liability allocation is as follows:
Assets acquired:
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Cash and cash equivalents
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$
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3,555
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|
Advances to related party
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9,200
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Property and equipment, net
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|
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4,314
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|
Total assets acquired
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$
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17,069
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Liabilities assumed:
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|
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Due to related party
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$
|
54,750
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Total liabilities assumed
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$
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54,750
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Non-controlling interest
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53,629
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Net assets acquired
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$
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(91,310)
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As of July 31, 2013, the Company paid off the $100,000 cash payment to G8MI which was applied against the $100,000 obligation under the agreement to acquire Group8. The 83,000,000 shares of the Company issued to G8MI are valued at $0 as Group8 founder’s shares as of July 31, 2012, and $(100,000) on August 22, 2012 as the Company has the liability to pay G8MI for the acquisition of Group8 when the Company entered into the share exchange agreement with G8MI and Group8.
Basis of Presentation
As a result of the acquisition, the accompanying consolidated financial statements include the operations of G8 Minerals since August 22, 2012. The accompanying consolidated financial statements also include the operations of the Company, its 50% owned subsidiary Central Nevada Processing Co. LLC (“CNPC”) and its 50% owned subsidiary Stockpile Reserves LLC (“SRL”). CNPC and SRL are both considered variable interest entities (VIE) for which the Company is the primary beneficiary.
The Company consolidates all entities in which the Company holds a “controlling financial interest.” For voting interest entities, the Company is considered to hold a controlling financial interest when the Company is able to exercise control over the investees’ operating and financial decisions. For variable interest entities (“VIEs”), the Company is considered to hold a controlling financial interest when it is determined to be the primary beneficiary. For VIEs, a primary beneficiary is a party that has both: (1) the power to direct the activities of a VIE that most significantly impact that entity's economic performance, and (2) the obligation to absorb losses, or the right to receive benefits, from the VIE that could potentially be significant to the VIE. The determination of whether an entity is a VIE is based on the amount and characteristics of the entity's equity.
All significant inter-company balances and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
For purposes of reporting within the statements of cash flows, the Company considers all cash on hand, cash accounts not subject to withdrawal restrictions or penalties, and all highly liquid debt instruments purchased with a maturity of three months or less to be cash and cash equivalents.
Mineral Properties
The Company is primarily engaged in the business of the acquisition, exploration, development, mining, and production of domestic strategic energy and mineral properties, with emphasis on lithium carbonate and additional strategic minerals. Mineral claim and other property acquisition costs are capitalized as incurred. Such costs are carried as an asset of the Company until it becomes apparent through exploration activities that the cost of such properties will not be realized through mining operations. Mineral exploration costs are expensed as incurred, and when it becomes apparent that a mineral property can be economically developed as a result of establishing proven or probable reserve, the exploration costs, along with mine development cost, are capitalized. The costs of acquiring mineral claims, capitalized exploration costs, and mine development costs are recognized for depletion and amortization purposes under the units-of-production method over the estimated life of the probable and proven reserves. If mineral properties, exploration, or mine development activities are subsequently abandoned or impaired, any capitalized costs are charged to operations in the current period.
FIRST LIBERTY POWER CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2013 AND 2012
Note 1 – Organization and summary of significant accounting policies (continued)
Revenue Recognition
The Company is in the exploration stage and has yet to realize revenues from operations. Once the Company has commenced operations, it will recognize revenues when delivery of goods or completion of services has occurred provided there is persuasive evidence of an agreement, acceptance has been approved by its customers, the fee is fixed or determinable based on the completion of stated terms and conditions, and collection of any related receivable is probable.
Long-lived assets
The Company accounts for its long-lived assets in accordance with FASB ASC 360-10, “Property, Plant and Equipment” which requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and fair value or disposal value.
Investments
The Company holdings in marketable securities classified as available-for-sale are carried at fair value. The carrying value of marketable securities is reviewed each reporting period for declines in value that are considered to be other-than temporary and, if appropriate, the investments are written down to their estimated fair value. Realized gains and losses and declines in value judged to be other-than-temporary on available for sale securities are included in the Company’s statements of operations. Unrealized gains and unrealized losses deemed temporary are included in accumulated other comprehensive income (loss).
Effective February 8, 2011, the Company acquired 500,000 shares of New America Energy common stock pursuant to an Agreement between the Company, New America Energy and GeoXplor (refer to Note 3) for the deemed value of $250,000. The equity investment is periodically reviewed to determine if impairment is required. As of July 31, 2013, the Company realized a total of $246,950 in loss on investment, and reduced the value of the 500,000 shares of New American Energy common stock to $3,050.
Loss per Common Share
Basic loss per share is computed by dividing the net loss attributable to the common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.
FIRST LIBERTY POWER CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2013 AND 2012
Note 1 – Organization and summary of significant accounting policies (continued)
Convertible Debentures
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Beneficial Conversion Feature
If the conversion features of conventional convertible debt provides for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a debt discount pursuant to ASC Topic 470-20
“Debt with Conversion and Other Options.”
In those circumstances, the convertible debt is recorded net of the discount related to the BCF and the Company amortizes the discount to interest expense over the life of the debt using the effective interest method.
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Debt Discount
The Company determines if the convertible debenture should be accounted for as liability or equity under ASC 480, Liabilities — Distinguishing Liabilities from Equity. ASC 480, applies to certain contracts involving a company's own equity, and requires that issuers classify the following freestanding financial instruments as liabilities. Mandatorily redeemable financial instruments, Obligations that require or may require repurchase of the issuer's equity shares by transferring assets (e.g., written put options and forward purchase contracts), and Certain obligations where at inception the monetary value of the obligation is based solely or predominantly on:
– A fixed monetary amount known at inception, for example, a payable settleable with a variable number of the issuer's equity shares with an issuance date fair value equal to a fixed dollar amount,
– Variations in something other than the fair value of the issuer's equity shares, for example, a financial instrument indexed to the S&P 500 and settleable with a variable number of the issuer's equity shares, or
– Variations inversely related to changes in the fair value of the issuer's equity shares, for example, a written put that could be net share settled.
If the entity determined the instrument meets the guidance under ASC 480 the instrument is accounted for as a liability with respective debt discount. The Company records debt discounts in connection with raising funds through the issuance of convertible debt (see Note 4). These costs are amortized to non-cash interest expense over the life of the debt. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.
Derivative Financial Instruments
Derivative financial instruments, as defined in ASC 815, “Accounting for Derivative Financial Instruments and Hedging Activities”, consist of financial instruments or other contracts that contain a notional amount and one or more underlying (e.g. interest rate, security price or other variable), require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. Further, derivative financial instruments are initially, and subsequently, measured at fair value and recorded as liabilities or, in rare instances, assets.
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The Company does not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, the Company has issued financial instruments including senior convertible notes payable and freestanding stock purchase warrants with features that are either (i) not afforded equity classification, (ii) embody risks not clearly and closely related to host contracts, or (iii) may be net-cash settled by the counterparty. As required by ASC 815, in certain instances, these instruments are required to be carried as derivative liabilities, at fair value, in our financial statements.
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FIRST LIBERTY POWER CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2013 AND 2012
Note 1 – Organization and summary of significant accounting policies (continued)
The Company recorded derivative liability of $342,398 and $0 and a loss of $131,659 and $0 on derivative valuation for the years ended July 31, 2013 and 2012, respectively.
Income Taxes
The Company accounts for income taxes pursuant to FASB ASC Topic 740,
Income Taxes
. Under FASB ASC Topic 740, deferred tax assets and liabilities are determined based on temporary differences between the bases of certain assets and liabilities for income tax and financial reporting purposes. The deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities generating the differences.
The Company maintains a valuation allowance with respect to deferred tax assets. The Company establishes a valuation allowance based upon the potential likelihood of realizing the deferred tax asset and taking into consideration the Company’s financial position and results of operations for the current period. Future realization of the deferred tax benefit depends on the existence of sufficient taxable income within the carry-forward period under the Federal tax laws.
Changes in circumstances, such as the Company generating taxable income, could cause a change in judgment about the realizability of the related deferred tax asset. Any change in the valuation allowance will be included in income in the year of the change in estimate.
Fair Value of Financial Instruments
The Company estimates the fair value of financial instruments using the available market information and valuation methods. Considerable judgment is required in estimating fair value. Accordingly, the estimates of fair value may not be indicative of the amounts the Company could realize in a current market exchange. As of July 31, 2013 and 2012, the carrying value of the Company’s financial instruments approximated fair value due to the short-term nature and maturity of these instruments.
Common Stock Registration Expenses
The Company considers incremental costs and expenses related to the registration of equity securities with the SEC, whether by contractual arrangement as of a certain date or by demand, to be unrelated to original issuance transactions. As such, subsequent registration costs and expenses are reflected in the accompanying financial statements as general and administrative expenses, and are expensed as incurred.
Estimates
The financial statements are prepared on the basis of accounting principles generally accepted in the United States of America. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of July 31, 2013 and 2012, and expenses for the years ended July 31, 2013 and 2012, and cumulative from inception. Actual results could differ from those estimates made by management.
Asset retirement obligations
The Company has adopted the provisions of FASB ASC 410-20 “Asset Retirement and Environmental Obligations,”
which requires the fair value of a liability for an asset retirement obligation to be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the related oil and gas properties. As of July 31, 2013, there have been no asset retirement obligations recorded.
FIRST LIBERTY POWER CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2013 AND 2012
Note 2 – Going concern
The Company is currently in the exploration stage and has engaged in limited operations. While management of the Company believes that the Company will be successful in its planned operating activities, there can be no assurance that it will be able to be successful in the development of its product, sale of its planned product, and services that will generate sufficient revenues to sustain its operations.
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has incurred an operating loss since inception of $4,519,928 and has no revenues to offset its operating costs. These and other factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.
Note 3 – Mineral properties
A) Lithium Agreement:
On May 31, 2012, the Company entered into a new purchase agreement with GeoXplor Corp. (the “Lithium Agreement”), which is effective as of March 15, 2012. Under this Agreement, the Company has been granted an exclusive four year exploration license in regards to the two mineral properties described in the Agreement. One property encompasses 58 placer claims (9280 acres) located in Lida Valley, Esmeralda County, Nevada for Lithium and Lithium Carbonate exploration (the "Lida Valley Property"), and the other encompasses 70 placer claims (11,200 acres) located in Smokey Valley, Esmeralda County, Nevada for Lithium and Lithium Carbonate exploration (the "Smokey Valley Property"). Pursuant to the Agreement, upon the completion of the required payments and work commitments, GeoXplor shall transfer title to the properties to the Company and shall retain a 5% royalty, on which we shall have the option to purchase up to 4%, for $1,000,000 per 1%.
The Lithium Agreement is a replacement of all prior agreements pertaining to the Lida Valley claims contained within the Purchase Agreement dated December 24, 2009 between GeoXplor and the Company. This Agreement supersedes and replaces all prior agreements in respect to those claims.
Under the new Lithium Agreement, the Company is required pay GeoXplor in consideration of the grant of the exploration license and other rights granted under this Agreement a total of $725,000, undertake the issuance of 2,000,000 Shares, and expend not less than One Million Five-Hundred Thousand Dollars ($1,500,000) in Mineral Exploration and Development Testing ("Work").
The Company is in default on its obligations under the agreements. Through to the fiscal year end and date of this report, the Company has not yet achieved a formal extension and settlement agreement. However, the Company believes it will be possible to obtain such an agreement on terms acceptable to all parties. Until such an agreement is reached, the value of the properties under the Lithium Agreement have been impaired to reflect the current status. See Note 11.
FIRST LIBERTY POWER CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2013 AND 2012
Note 3 – Mineral properties (Continued)
B) Fencemaker Agreement:
On August 22, 2012, the Company entered into an agreement with Group8 Minerals, a Nevada Corporation ("Group8”), and Group8 Mining Innovations, a Nevada Corporation (“G8MI”), the sole Shareholder of Group8, whereby the Company acquired 81% of the total issued and outstanding shares of Group8. Group8 holds a 50% interest in Central Nevada Processing Co. LLC (CNPC) and a 50% interest in Stockpile Reserves LLC (SRL). As a result of the acquisition, the Company has an effective 40.5% interest in each of CNPC and SRL. SRL is an Antimony mining company having a mineral property known as the Fencemaker mine, located in the Stillwater Range of west central Nevada, approximately 194 kilometers northeast of the city of Reno, Nevada
.
Under the Fencemaker Agreement, the Company is required to issue to G8MI a total of 83,000,000 shares of its Common Stock, which stock has been issued; deliver to G8MI cash payments of $100,000, which payments have been completed, and; the Company is required to undertake certain loan payments to G8 Minerals aggregating a total of $2,000,000 for associated property payments and exploration costs. The loan payments are presently in arrears, however G8MI has not undertaken to issue any default notice, and the Company does not expect it will do so.
C) San Juan Agreement:
On November 6, 2012, we entered into a purchase agreement with GeoXplor Corp. (“Agreement”). Under this Agreement, we have been granted an exclusive five year exploration license in regards to a mineral property described in the Agreement. The mineral property encompasses 13 lode claims (260 acres) located in the Canyon Country District, San Juan County, Utah for Vanadium and Uranium exploration (the "San Juan Property"). Pursuant to the Agreement, upon the completion of the required payments and work commitments, GeoXplor shall transfer title to the San Juan Property to the Company and shall retain a 3% royalty, on which we shall have the option to purchase up to 2%, for $1,000,000 per 1%.
Under the San Juan Agreement, the Company is required to pay GeoXplor in consideration of the grant of the exploration license and other rights granted under this Agreement a total of $500,000, issue 3,000,000 Shares, and expend not less than One Million Five-Hundred Thousand Dollars ($1,000,000) in Mineral Exploration and Development Testing
The Company is presently actively seeking investment capital to undertake the next stages of development on the San Juan Agreement, and is seeking to close this financing within the current quarter. The San Juan Property encompasses certain claims previously included in agreements between the Company and GeoXplor, and this Agreement supersedes and replaces all prior agreements in respect to those claims.
FIRST LIBERTY POWER CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2013 AND 2012
Note 4 – Convertible notes payable
Tangiers Investors, LLC (“Tangiers”)
On February 23, 2012, the Company entered into an agreement with Tangiers Investors, LP, a Delaware limited partnership, an accredited investor, whereby Tangiers Investors loaned the Company the aggregate principal amount of $102,500, less $2,500 for legal related costs and $10,000 fee to be paid to a third party, together with interest at the rate of eight percent (8%) per annum, until the maturity date of February 22, 2013. On March 7, 2012, the Company entered into another agreement with Tangiers for the same amount and terms with the maturity of March 6, 2013. On August 31, 2012 the Company entered into a third agreement with Tangiers for $20,000 with an interest rate of ten percent (10%) per annum, until the maturity date of February 8, 2013. On May 21, 2013, the Company entered into a Secured Convertible Promissory Note agreement with Tangier’s Capital, a Delaware corporation, an accredited investor, whereby Tangier’s Capital loaned the Company the aggregate principal amount of $62,500, less $35,000, for legal related costs, the six (6) month forbearance on any and all of the Company’s notes held by the Purchaser that are currently in default, and for the settlement of losses resulting from the delay in issuance of shares for the conversion dated March 13, 2013 pertaining to the one hundred and two thousand five hundred dollars ($102,500) convertible note dated March 7, 2012, together with an interest rate of ten percent (10%) and with the maturity of May 21, 2013.
If the Note is not paid in full with interest on the maturity date, Tangiers has the right to convert this Note into restricted common shares of the Company. The Company at its option may elect to convert all or part of the principal and any accrued unpaid interest on these notes at any time or times on or before the maturity based on a conversion price. The conversion price (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower) shall be equal to 65% multiplied by the average of the two lowest closing prices during the ten (10) trading days prior to conversion notice.
Tangiers Note 1 and Note 2 are original issue discount notes valued for $315,385 consisting of principal of $205,000 and a discount of $110,385 which was valued based on the 65% conversion rate. See Note 6 for share conversion.
Tangiers Note 3 provides Tangiers the option until the repayment date, to convert the note to shares of the Company’s common stock at a fixed price of $0.02 per share. The Company has determined the value associated with the beneficial conversion feature in connection with the notes to be $20,000. On February 8, 2013, the Note matured and is currently in default. The company has negotiated a 6 month forbearance against default on this note. See subsequent event (Note 12).
Tangiers Note 4 is original issue discount note valued for $125,000 consisting of principal of $62,500 and a discount of $62,500 which was valued based on the 50% conversion rate.
The Company may prepay all or any portion of the aggregate principal amount and accrued interest within ninety (90) days of the date of issuance in an amount equal to one hundred twenty percent (120%) of face value plus accrued interest; or after ninety-one (91) days after the date of issuance of this Note but not later than one hundred eighty (180) days in an amount equal to one hundred forty percent (140%) of face value plus accrued interest; or if on or after one hundred eighty-one (181) days from the date of issuance, upon the express written consent from Tangiers. The Company has provided Tangiers with 896,593 shares of New America as collateral for the Notes.
FIRST LIBERTY POWER CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2013 AND 2012
Note 4 – Convertible notes payable (continued)
Asher Enterprises Inc. (“Asher”)
On June 27, 2012, the Company entered into an agreement with Asher Enterprises, a Delaware corporation, an accredited investor, whereby Asher Enterprises loaned the Company the aggregate principal amount of $63,000, less $3,000 for legal related costs, together with interest at the rate of eight percent (8%) per annum, until the maturity date of March 27, 2013. On August 2, 2012, the Company entered into another agreement with Asher Enterprises for $27,500, less $2,500 for legal related costs, together with an interest rate of eight percent (8%) and with the maturity of May 6, 2013. On November 1, 2012, the Company entered into another agreement with Asher Enterprises for $42,500, less $2,500, for legal related costs, together with an interest rate of eight percent (8%) and with the maturity of August 5, 2013. On February 7, 2013, the Company entered into another agreement with Asher Enterprises for $27,500, less $2,500, for legal related costs, together with an interest rate of eight percent (8%) and with the maturity of October 29, 2013. The original issue discount note, as described in ASC 480-55, may not be prepaid in whole or in part.
If the Note is not paid in full with interest on the maturity date, Asher has the right to convert this Note into restricted common shares of the Company. The Company at its option may elect to convert all or part of the principal and any accrued unpaid interest on these notes at any time or times on or before the maturity based on a conversion price. The conversion price (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower) shall equal to 58% multiplied by the average of the three lowest closing prices during the ten (10) trading days prior to conversion notice.
The Four (4) original issue discount notes were valued for $276,725, consisting of principal of $160,500 and a discount of $116,225 which was valued based on the 58% conversion rate for all three notes. See Note 6 for share conversion.
The Company may prepay all or any portion of the aggregate principal amount and accrued interest within thirty (30) days of the date of execution of this Note, this Note may be prepaid in an amount equal to one hundred thirty percent (130%) of face value plus accrued interest; or after thirty-one (31) days after the execution of this Note but not later than sixty (60) days from the date of execution of this Note, this Note may be prepaid in an amount equal to one hundred thirty five percent (135%) of face value plus accrued interest; or after sixty-one (61) days after the execution of this Note but not later than ninety (90) days from the date of execution of this Note, this Note may be prepaid in an amount equal to one hundred forty percent (140%) of face value plus accrued interest; or after ninety-one (91) days after the execution of this Note but not later than one hundred fifty (150) days from the date of execution of this Note, this Note may be prepaid in an amount equal to one hundred forty five percent (145%) of face value plus accrued interest; or after fifty-one (151) days after the execution of this Note but not later than one hundred eighty (180) days from the date of execution of this Note, this Note may be prepaid in an amount equal to one hundred fifty percent (150%) of face value plus accrued interest. After the expiration of one hundred eightieth (180) days following the date of the Note, the Company shall have no right of prepayment.
FIRST LIBERTY POWER CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2013 AND 2012
Note 4 – Convertible notes payable (continued)
Denali Equity Croup LLC. (“Denali”)
On June 28, 2012, the Company entered into a Consulting Service Agreement with Denali Equity Group, LLC, a Nevada limited liability company, that in consideration of the service, the Company shall issue a convertible note of $135,000 to Denali. The Consulting Service Agreement has a term of two (2) years. During the quarter ended October 31, 2012, the Company recorded $67,500 in consulting expense, leaving a prepaid expense balance of $45,000. The Convertible Note Agreement with Denali is for the principal amount of $135,000 with interest at the rate of eight percent (8%) per annum, until the maturity date of June 30, 2014. On March 03, 2013, the Company entered another agreement with Harbor Gates, LLC, a Denali affiliated company for $25,000 together with an interest rate of eight percent (8%) and with the maturity of December 31, 2013.
The original issue discount note, as described in ASC 480-55, may not be prepaid in whole or in part. If the Note is not paid in full with interest on the maturity date, Denali has the right to convert this Note into restricted common shares of the Company. The Company at its option may elect to convert all or part of the principal and any accrued unpaid interest on these notes at any time or times on or before the maturity based on a conversion price. The conversion price (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower) shall equal to 90% multiplied by the average of the two lowest closing prices during the ten (10) trading days prior to conversion notice.
The Company may prepay all or any portion of the aggregate principal amount and accrued interest within ninety (90) days of the date of execution of this Note, this Note may be prepaid in an amount equal to one hundred ten percent (110%) of face value plus accrued interest; or after ninety-one (91) days after the execution of this Note but not later than one hundred eighty (180) days from the date of execution of this Note, this Note may be prepaid in an amount equal to one hundred twenty percent (120%) of face value plus accrued interest; or on or after one hundred eighty-one (181) days from the date of execution of this Note, this Note may be prepaid in an amount equal to one hundred twenty five percent (125%) of face value plus accrued interest.
On February 12, 2013, the Company entered into an assignment agreement with Magna and Denali Equity Group (Denali), whereby Magna agreed to purchase the entire $135,000 convertible promissory note issued by the company to Denali over the next 60 days. In consideration for the $135,000 Denali note, Magna agreed to pay Denali $45,000 on February 12, 2013. The remaining payments are as follows: $45,000 on or before March 27, 2013, and another $45,000 on or before May 8, 2013, subject to certain purchase provisions. As a result of the assignment agreement the Company entered into a convertible promissory note with Magna in the aggregate principal amount of $45,000 less legal related costs, together with interest at the rate of twelve percent (12%) per annum, until the maturity date of February 12, 2014. On March 18, 2013, the Company entered into a second convertible promissory note assignment agreement with Magna and Denali Equity Group (Denali) for the second payment of $45,000. On April 30, 2013, the Company entered into a third convertible promissory note assignment agreement with Magna and Denali Equity Group (Denali) for the third payment of $45,000, referenced in the February 12, 2013 assignment agreement. Denali did not receive the funds until May 14, 2013. Magna is entitled to convert, at any time after the issuance of this note, all or any lesser portion of the outstanding principal and accrued but unpaid interest into common stock at a conversion price for each share of common stock equal to a price which is a 50% discount from the lowest trading price in the five days prior to the day that the holder requests conversion.
The three issued discount Note 1, Note 2 and Note 3 were valued for $150,000, consisting of principal of $135,000 and a discount of $15,000 which was valued based on the 90% conversion rate. During this same period the Company converted $135,000 principal amount of the Denali Notes to shares of common stock, which reduced $150,000 from the value of the notes, thereby reducing the balance to $0.
FIRST LIBERTY POWER CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2013 AND 2012
Note 4 – Convertible notes payable (continued)
Tonaquint Inc. (“Tonaquint”)
On July 19, 2012, the Company entered into an agreement with Tonaquint Inc., a Utah corporation, an accredited investor, whereby Tonaquint Inc. loaned the Company the aggregate principal amount of $85,000, less $2,500 for legal related costs and $7,500 fee to be paid to a third party, together with interest at the rate of eight percent (8%) per annum, until the maturity date of April 19, 2013. The original issue discount note, as described in ASC 480-55, may not be prepaid in whole or in part. If the Note is not paid in full with interest on the maturity date, Tonaquint has the right to convert this Note into restricted common shares of the Company. The Company at its option may elect to convert all or part of the principal and any accrued unpaid interest on these notes at any time or times on or before the maturity based on a conversion price. The conversion price (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower) shall be equal to 65% multiplied by the average of the two lowest closing prices during the ten (10) trading days prior to conversion notice.
The Company may prepay prior to the maturity date by paying an amount equal to the outstanding principal of the Note multiplied by one hundred fifty (150%) percent together with accrued and unpaid interest thereon, upon the express written consent from Tonaquint.
The issued discount Note 1 was valued for $130,769, consisting of principal of $85,000 and a discount of $45,769 which was valued based on the 60% conversion rate. See Note 6 for share conversion.
On April 18, 2013, the Company entered into a Secured Convertible Promissory Note dated April 26, 2013 with Tonaquint Inc., a Utah corporation, an accredited investor, whereby Tonaquint Inc. agreed to loan the Company the aggregate principal amount of $560,000, less $10,000 for legal related costs and an original issue discount of $50,000, together with interest at the rate of eight percent (8%) per annum, until the maturity date of 20 months from after issuance or December 18, 2014. The said Note is secured by real estate property located in Cook County, Illinois and is referenced in a Mortgage Agreement dated April 18, 2013 for a total value of $400,000.
The note provides Tonaquint the option until the repayment date, to convert the note to shares of the Company’s common stock at $0.015 per share, subject to adjustment during certain events, such as, but limited to, issuance of options, change in option price or rate of conversion, deemed warrant issuance. As a result of the adjustment on share price, this note has been accounted as derivative liability. (See Note 7 for derivative)
On initial funding, Tonaquint will deliver to the Company cash in the amount of $100,000 (the “Initial Prepayment”) and $400,000 in a subsequent 5% secured notes issued by Toniquant. The notes issued by Toniquant will be due 12 months from the Initial Funding Date based on the following fund disbursal schedule, together with interest at the rate of five percent (5%) per annum starting April 26, 2013 until the funding receive by the Company. As a result of the two notes above, the Company has an effective interest rate of three percent (3%) for the portion that yet funded to the Company.
·
|
$100,000, 3 months after closing
|
·
|
$100,000, 6 months after closing
|
·
|
$100,000, 9 months after closing
|
·
|
$100,000 12 months after closing
|
On May 1, 2013 the Company received the initial drawdown of $100,000 less $10,000 in legal fees for a total of $90,000. The issued discount Drawdown 1 of Note 2 was valued for $150,000, consisting of principal of $100,000 and a discount of $50,000. On June 3, 2013, the Company received Drawdown 2 of $50,000 less third party fees of $4,519. On July 2, 2013, the Company received Drawdown 3 of $50,000 less third party fees of $4,815.
FIRST LIBERTY POWER CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2013 AND 2012
Note 4 – Convertible notes payable (continued)
The Company determined that this convertible note contained features that were embedded in a freestanding host contract. As a result we analyzed this instrument, in accordance with ASC 815-15-25-1 and determined that the embedded feature should be accounted for separately as a derivative instrument with changes in fair value recognized in income each period.
Tonaquint Note 4 Face Value
|
|
$
|
260,739
|
|
Debt Discount
|
|
|
|
|
Convertible Note Warrant Derivative
|
|
|
121,460
|
|
Conversion Feature Derivative
|
|
|
89,279
|
|
Original Issue Discount
|
|
|
50,000
|
|
Total Debt Discount
|
|
$
|
260,739
|
|
Amortization of Debt Discount, as of July 31, 2013
|
|
|
(41,603
|
)
|
Debt Discount, Net
|
|
$
|
219,136
|
|
Tonaquint Note 4 Carrying Value as of July 31, 2013
|
|
$
|
41,603
|
|
Hanover Holdings, LLC. (“Magna Group”)
On February 5, 2013, the Company entered into an agreement with Hanover Holdings I, LLC (Magna Group), a New York corporation, an accredited investor, whereby Magna loaned the Company the aggregate principal amount of $16,500, less $2,500 for legal related costs, together with interest at the rate of twelve percent (12%) per annum, until the maturity date of March 27, 2013. In addition, Magna has agreed to fund $33,000 over the next sixty days to be paid as follows: $16,500 on or before March 20, 2013 and an additional $16,500 on or before May 1, 2013. On March 12, 2013, the Company entered into a Secured Convertible Promissory Note agreement with Magna Group, whereby Magna Group loaned the Company the aggregate principal amount of $16,500, less $2,500, for legal related costs, together with an interest rate of twelve percent (12%) and with the maturity of October 5, 2013.
The original issued discount Notes were valued for $56,896, consisting of principal of $33,000 and a discount of $23,896 which was valued based on the 58% conversion rate. See Note 6 for share conversion.
Harbor Gates LLC. (“Harbor”)
On March 4, 2013, the Company entered into a Convertible Promissory Note agreement with Harbor Gates, LLC (Harbor Gates), a Delaware limited liability corporation, an accredited investor, whereby Harbor Gates loaned the Company the aggregate principal amount of $25,000, together with interest at the rate of eight percent (8%) per annum, until the maturity date of December 31, 2013. On April 12, 2013, the Company entered into another Secured Convertible Promissory Note agreement with Harbor Gates, whereby Harbor Gates loaned the Company the aggregate principal amount of $35,000, together with an interest rate of eight percent (8%) and with the maturity of December 31, 2013.
The issued discount Notes were valued for $120,000, consisting of principal of $60,000 and a discount of $60,000 which was valued based on the 50% conversion rate. See Note 6 for share conversion.
As of July 31, 2013, the Company had a balance of convertible notes payable of $329,520 net of unamortized discount of $326,382 and a balance of unamortized financing fee of $57,257. As of July 31, 2013, the Company had accrued and expensed $721,297 interest that related to convertible notes.
FIRST LIBERTY POWER CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2013 AND 2012
Note 5 – Related parties transactions
On May 3, 2010, the Company entered into a consulting agreement with Mr. John Hoak, wherein Mr. Hoak has agreed to provide, among other things, consulting services to the Company. The agreement was effective March 24, 2010 and continued to March 24, 2012. In consideration for agreeing to provide such consulting services, on May 3, 2010, we issued to Mr. Hoak 250,000 shares of our common stock valued at $187,500, which had been fully earned and expensed as of March 24, 2012. The agreement also contains a provision for the cash payment of $2,500 a month during the term of the agreement. Mr. Hoak resigned as a director in March 2012. The Company has recorded a due to related party to Mr. Hoak of $55,798 and $55,798 as of July 31, 2013 and 2012, respectively.
As of July 31, 2013, the Company has a payable of $46,100 to a former officer and Director of the Company, which consists of an outstanding loan amount to the Company of $9,910 and expenses paid by this former officer and Director on behalf of the Company for a total of $36,190. The loan is unsecured, non-interest bearing, and has no specific terms for repayment.
On November 29, 2010, Mr. Don Nicholson was appointed as a member of the board of directors of the Company, and on December 28, 2010, effective January 1, 2011; Mr. Nicholson was appointed Chief Executive Officer, President, and Secretary-Treasurer. The Company entered into an agreement on July 2, 2011, effective November 15, 2010, with LTV International Holdings Ltd. (“LTV”), to provide management services to the Company over a two year period. The terms of which required the issuance of 5,000,000 shares to LTV, issued on July 15, 2011 valued at $750,000, and a monthly fee of $2,500 payable to LTV. Mr. Don Nicholson is the designated service provider under the agreement with LTV. During each period, compensation expense was determined based on the number of days for which services were provided relative to 365 days, multiplied by the common stock valuation. This amount is deducted from the prepaid expense (initially $750,000 from the initial issuance) accordingly each period. The Company has recorded a total of $109,375 as consulting expenses during the year ended July 31, 2013. As of July 31, 2013, there are no outstanding amounts owing under this agreement.
On December 1, 2012, the Company entered into a new consulting agreement with LTV to provide management services to the Company over a one year period. The terms of which require a monthly fee of $5,000 payable to LTV. Mr. Don Nicholson is the designated service provider under the agreement with LTV. For the year ended July 31, 2013, an amount of $40,064 was recorded by the Company as management consulting expense and $10,000 was paid in the form of common stock. See Note 6 for share issuance. As of July 31, 2013, an amount of $32,064 has been accrued as accounts payable to related party for LTV.
On April 1, 2012, the Company entered into a consulting agreement with Mr. Robert B. Reynolds Jr., wherein Mr. Reynolds agreed to provide, among other things, services associated with performing duties associated with being a director of the Company. The agreement was effective April 1, 2012, and continued to March 30, 2013. In consideration for agreeing to provide such services, in April 2012, we issued to Mr. Reynolds 250,000 shares of our common stock, valued at $11,500. During each period, the compensation expense is determined based on the number of days for which services were provided relative to 365 days, multiplied by the common stock valuation. This amount is deducted from prepaid expense accordingly in each period, which amount of $7,667 was recorded as consulting expense during the year ended July 31, 2013. As of July 31, 2013, there are no outstanding amounts owing under this agreement.
On December 1, 2012, the Company entered into a new consulting agreement with Mr. Reynolds for services associated with performing duties of being a director of the Company over a one year period.
FIRST LIBERTY POWER CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2013 AND 2012
Note 5 – Related parties transactions (continued)
The terms of which require a monthly fee of $5,000 payable to Mr. Reynolds. For the year ended July 31, 2013, $9,650 was paid in the form of common stock. See Note 6 for share issuance. For the year ended July 31, 2013, an amount of $25,945 has been accrued as accounts payable to related party for Mr. Reynolds.
On June 12, 2012, the Company entered into a loan agreement with Sanning Management, Ltd., wherein Sanning Management agrees to loan a sum of $119,000 to the Company with interest at the rate of eight percent (8%) per annum, until the maturity date of June 12, 2014. As of July 31, 2013, the Company has a note payable to Sanning Management of $99,025 and accrued interest of $8,986. Sanning Management is the 100% owner of Group8 Mining Innovations, which Group8 Mining Innovations was the 100% owner of Group8 Mineral prior to the acquisition and is currently the 19% owner post-acquisition.
On December 1, 2012, the Company entered into a consulting agreement with Mario Beckles for services associated with performing duties of being a chief financial officer of the Company over a one year period. The terms of which require a monthly fee of $5,000 payable to Mr. Beckles. For the nine months ended April 30, 2013, an amount of $25,000 was recorded by the Company as management consulting expense and the Company has paid $6,550 in cash and $9,800 in common stock. See Note 6 share issuance. As of July 31, 2013, an amount of $19,432 has been accrued as accounts payable to related party for Mr. Beckles.
From time to time, the Company has received advances from certain of its officers and related parties to meet. These advances may not have formal repayment terms or arrangements. As of July 31, 2012, the Company has advance balances from related parties of the Company’s 50% owned subsidiaries, CNPC and SRL, of $43,194. During the year ended July 31, 2013, the Company received a total of $91,986 advances from an officer and other related parities of CNPC and SRL, and repaid back $22,183. As of July 31, 2013, the Company has a balance of due to related party of $112,997. These advances are unsecured, bear no interest, and do not have formal repayment terms or arrangements.
FIRST LIBERTY POWER CORP.
(FORMERLY QUUIBUS TECHNOLOGY, INC.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2013 AND 2012
Note 6 – Common stock
The Company is authorized to issue 540,000,000 shares of $.001 par value common stock. On August 20, 2013, the Company’s authorized common stock increased from 540,000,000 shares of common stock with a par value of $0.001 to 1,080,000,000 shares of common stock with a par value of $0.001. As of July 31, 2013 and 2012, 466,752,425 and 165,001,834 shares were issued and outstanding, respectively.
On August 9, 2011, the Company signed a confidential term sheet in respect to the creation of a $3,000,000 Equity Line financing structure. Pursuant to the term sheet, the Company paid a document preparation fee of $7,500, and issued a total of 136,364 shares valued at $15,000. As of April 30, 2012, the Company has determined that it will not be proceeding with this transaction, and has expensed all costs accordingly.
On January 11, 2012, the Company entered into a 13 month agreement with an unrelated third party for the provision of non-exclusive financial advisor, investment bank and placement agent services to the Company. Pursuant to this agreement, the Company was required to issue 350,000 shares, which were issued in January 2012, and valued at $24,675 of which $12,390 has been expensed during the fiscal year ended July 31, 2012, and leaving a prepaid expense balance of $12,285.
According to the Company’s Lithium Agreement with GeoXplor, detailed in Note 3 – Mineral Properties above, 250,000 shares valued at $16,250, were issuable on the second anniversary of the Agreement, December 24 2011, which shares were issued in January 2012.
Further to the Company’s Lithium Agreement with GeoXplor, detailed in Note 3 – Mineral Properties above, a cash payment of $100,000 was required on December 15, 2011. On January 6, 2012, effective December 15, 2011, GeoXplor agreed to defer the payment until March 15, 2012, in exchange for the issuance of 500,000 compensation shares (issued January 2012 valued at $37,450), and the further issuance of 500,000 shares (issued in January 2012 valued at $28,500) to be held by GeoXplor as security against the Payment. Upon fulfilling the Payment obligations within the extension, these security shares are to be returned to the Company for cancellation. If the Company does not complete in full the Payment obligation before March 15, 2012, such shares may be sold by GeoXplor with the proceeds applied towards any remaining amounts owing. If there are proceeds in excess of the amounts owing, the excess shall be applied as a pre-payment towards exploration work obligations under the Lithium Agreement. According to an agreement between GeoXplor and the Company signed subsequent to the end of the period (May 31, 2012), effective as of March 15, 2012, all rights and obligations under the original agreement were replaced by those in the new agreement. The additional 500,000 shares, issued in January 2012 valued at $28,500, were agreed to be retained by GeoXplor as compensation and revalued at the effective date of the new agreement, March 15, 2012, for a value of $26,250.
On December 24, 2009, the Company borrowed $200,000 from an unrelated third party under a promissory note. The loan was unsecured, bore interest at 10 percent per annum, and was due and payable on or before December 23, 2010. On February 1, 2010, the Company borrowed an additional $50,000 from the same third party lender, which amount was also unsecured, bore interest at 10 percent per annum, and was due on or before February 1, 2011. On December 23, 2010, the Company and the lender agreed to consolidate the principal amounts, as of December 24, 2010, into a single consolidated loan. The new consolidated loan is in the amount of $250,000
and is
unsecured, bears interest at 10 percent per annum, and is due on or before December 23, 2011. On December 23, 2011, the combined principal and interest of the note amounted to $301,973. On January 9, 2012, effective December 23, 2011, the Company and the Lender agreed to convert the entire $301,973 principal and interest, based on the average closing price of the Borrower’s shares for the 10 trading days prior and up to the effective date of the conversion agreement, into restricted common stock of the Company. The resultant quantity of shares amounted to 3,753,544 shares, which were issued in January 2012.
On December 16, 2011, the Company received a total of $15,000 from the proceeds of the sale of 187,500 shares of its common stock under a private placement agreement, priced at $0.08 / share, which shares were issued in January
FIRST LIBERTY POWER CORP.
(FORMERLY QUUIBUS TECHNOLOGY, INC.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2013 AND 2012
Note 6 – Common stock (continued)
2012. The purchaser has received 187,500 warrants, each with the right to purchase a share at the price of $0.08/share, valid through to December 15, 2013.
On April 16, 2012, the Company issued 250,000 shares, according to the terms of a consulting agreement with Mr. Robert B. Reynolds Jr., valued at $0.046/share for a total valuation of $11,500.
On August 22, 2012, the Company issued 83,000,000 shares of common stock, in exchange for 81% interest in G8MI. The 83,000,000 shares of the Company issued to G8MI are valued at $0 as Group8 founder’s shares as of July 31, 2012, and $(100,000) on August 22, 2012 as the Company has the liability to pay G8MI for the acquisition of Group8 when the Company entered into the share exchange agreement with G8MI and Group8.
On August 31, 2012, the Company entered into a Securities Purchase Agreement with Tangiers Investors, LP, to purchase up to $2,000,000 of the Company’s common stock. Under the agreement, amongst other terms, the Company is obligated to issue certain shares in payment of the agreed upon commitment fee. On December 7, 2012, the Company issued 1,666,667 shares of common stock pursuant to the first tranche of this requirement, valued at $50,000. On March 7, 2013 the Company issued 1,666,667 shares of common stock pursuant to the second tranche of this requirement, valued at $5,033.
On January 11, 2013, the Company issued 1,612,903 shares of common stock to Denali Equity for investor relation services, valued at $14,516.
On February 8, 2013, Tangiers Capital Secured Convertible Promissory note dated August 31, 2012 matured and is now considered in default. As of the date of this filing Tangiers Capital has fully converted its notes dated February 23, 2012 and March 07, 2012. Tangiers Capital is in negotiations with the Company to convert its remaining Convertible Promissory Notes held by the Company dated August 31, 2012.
On March 1, 2013, the Company issued 600,000 shares of restricted common stock to Mary Fitzpatrick valued at $1,860 in exchange for her ongoing financial support services at the subsidiary level for Stock Pile Reserves, LLC and Central Nevada Processing Co., LLC.
On February 28, 2013, the Company issued 2,857,143 restricted shares of common stock to LTV International Holdings valued at $9,143 in lieu of cash for consulting fees that had been accrued as compensation for services. Mr. Don Nicholson is the designated service provider under the agreement with LTV.
On March 4, 2013, the Company issued 3,015,625 restricted shares of common stock to Robert Reynolds, VP of Operations, valued at $10,555 in lieu of cash for consulting fees that had been accrued as compensation for his services.
On March 5, 2013, the Company issued 2,969,700 restricted shares of common stock to Mario Beckles, CFO, valued at $8,018 in lieu of cash for consulting fees that had remained accrued as compensation for his services.
During the year ended July 31, 2013 the Company issued a total of 289,028,553 shares directly related to debt conversions of increments totaling $1,086,056.
FIRST LIBERTY POWER CORP.
(FORMERLY QUUIBUS TECHNOLOGY, INC.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2013 AND 2012
Note 7 – Derivative Liability
Debt Conversion Feature
In connection with the April 26, 2013 Secured Convertible Note to Tonaquint, the note included a Debt Conversion Feature (see Note 4).
The relative fair value of the Debt Conversion Feature as of July 31, 2013 was estimated, using Level 3 inputs, at $89,279 using a Black-Scholes model with the following assumptions: expected volatility of 256%, risk free interest rate of 0.87%, expected life of 1.67 months and no dividends. Expected volatility was based on the historical volatility of the Company.
Tonaquint Convertible Note Warrants
In connection with the Convertible Note offering on April 26, 2013, the Company issued 47,457,627 Convertible Note Warrants. The Convertible Note Warrants are exercisable at $0.25.
The relative fair value of the warrants at issuance was estimated at $647,290 using a Black-Scholes model with the following assumptions: expected volatility of 256%, risk free interest rate of 2.28%, expected life of 2 years and no dividends. Expected volatility was based on the historical volatility of the Company.
Note 8 – Fair Value of Assets and Liabilities
Determination of Fair Value
|
The Company’s financial instruments consist of available for sale securities, convertible notes payable and a derivative liability. The Company believes all of the financial instruments’ recorded values approximate their fair values because of their nature and respective durations.
|
The Company complies with the provisions of ASC 820-10, “
Fair Value Measurements and Disclosures
.” ASC 820-10 relates to financial assets and financial liabilities. ASC 820-10 defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (GAAP), and expands disclosures about fair value measurements. The provisions of this standard apply to other accounting pronouncements that require or permit fair value measurements and are to be applied prospectively with limited exceptions.
ASC 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820-10 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions, about market participant assumptions, that are developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC 820-10 are described below:
FIRST LIBERTY POWER CORP.
(FORMERLY QUUIBUS TECHNOLOGY, INC.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2013 AND 2012
Note 8 – Fair Value of Assets and Liabilities (Continued)
Level 1.
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2.
Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means. Derivative instruments include the derivative liabilities as Level 2. Derivative instruments are valued using standard calculations/models that are primarily based on observable inputs, including volatilities and interest rates. Therefore, derivative instruments are included in Level 2.
Level 3.
Inputs that are both significant to the fair value measurement and unobservable. These inputs rely on management’s own assumptions about the assumptions that market participants would use in pricing the asset or liability. The unobservable inputs are developed based on the best information available in the circumstances and may include the Company’s own data.
Application of Valuation Hierarchy
|
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The following is a description of the valuation methodology used to measure fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.
|
Available for sale securities.
The Company assessed that the fair value of these assets using observable inputs described in level 1 above.
Advances from Related Party.
The Company assessed that the fair value of this liability approximates its carrying value due to its short-term nature.
Notes Payable – Related Party.
The Company assessed that the fair value of this liability to approximate its carrying value based on the effective yields of similar obligations.
Convertible Notes Payable.
The Company assessed that the fair value of this liability approximates its carrying value due to its short-term nature.
|
|
Derivative and Warrant Liabilities.
The Company assessed that the fair value of these liabilities using observable inputs described in level 3 above.
|
The methodology described above may produce a current fair value calculation that may not be indicative of net realizable value or reflective of future fair values. If readily determined market values became available or if actual performance were to vary appreciably from assumptions used, assumptions may need to be adjusted, which could result in material differences from the recorded carrying amounts. The Company believes its method of determining fair value is appropriate and consistent with other market participants. However, the use of different methodologies or different assumptions to value certain financial instruments could result in a different estimate of fair value.
|
FIRST LIBERTY POWER CORP.
(FORMERLY QUUIBUS TECHNOLOGY, INC.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2013 AND 2012
Note 9 – Income Taxes
The Company provides for income taxes under FASB ASC 740, Accounting for Income Taxes. FASB ASC 740 requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect currently.
FASB ASC 740 requires the reduction of deferred tax assets by a valuation allowance, if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. In the Company’s opinion, it is uncertain whether they will generate sufficient taxable income in the future to fully utilize the net deferred tax asset. Accordingly, a valuation allowance equal to the deferred tax asset has been recorded. The total deferred tax asset is $923,138 which is calculated by multiplying a 35% estimated tax rate by the cumulative net operating loss (NOL) adjusted for the following items:
For the period ended July 31,
|
|
2013
|
|
|
2012
|
|
Book loss for the year
|
|
$
|
(5,101,219
|
)
|
|
$
|
(2,363,240
|
)
|
Adjustments:
|
|
|
|
|
|
|
|
|
Impairment of assets
|
|
|
814,950
|
|
|
|
-
|
|
Exploration costs
|
|
|
206,583
|
|
|
|
95,211
|
|
Non-deductible stock compensation
|
|
|
200,757
|
|
|
|
1,085,436
|
|
Foreign currency gains
|
|
|
(1,089
|
)
|
|
|
(2,734
|
)
|
Other differences
|
|
|
-
|
|
|
|
64,569
|
|
Tax loss for the year
|
|
|
(2,637,536
|
)
|
|
|
(1,120,758
|
)
|
Estimated effective tax rate
|
|
|
35
|
%
|
|
|
35
|
%
|
Deferred tax asset
|
|
$
|
923,138
|
|
|
$
|
392,265,
|
|
The total valuation allowance is $923,138. Details for the last two periods are as follows:
For the period ended July 31,
|
|
2013
|
|
|
2012
|
|
Deferred tax asset
|
|
$
|
923,138
|
|
|
$
|
392,265
|
|
Valuation allowance
|
|
|
(923,138
|
)
|
|
|
(392,265
|
)
|
Current taxes payable
|
|
|
-
|
|
|
|
-
|
|
Income tax expense
|
|
$
|
-
|
|
|
$
|
-
|
|
Below is a chart showing the estimated corporate federal net operating loss (NOL) and the year in which it will expire. The total NOL carry forward as of July 31, 2013 was $923,138as itemized below:
Year
|
|
Amount
|
|
|
Expiration
|
|
2009
|
|
$
|
20,196
|
|
|
|
2029
|
|
2010
|
|
$
|
345,237
|
|
|
|
2030
|
|
2011
|
|
$
|
246,821
|
|
|
|
2031
|
|
2012
|
|
$
|
392,265
|
|
|
|
2032
|
|
2013
|
|
$
|
923,138
|
|
|
|
2033
|
|
FIRST LIBERTY POWER CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2013 AND 2012
Note 10 –Marketable Securities and Investments
The following is a summary of available-for-sale marketable securities as of July 31, 2013 and 2012:
|
July 31, 2013
|
|
|
(i)
|
|
Cost
|
|
|
Unrealized
Gain
|
|
|
Realized
(
Losses)
|
|
|
Market or
Fair Value
|
|
Equity securities
|
|
|
$
|
250,000
|
|
|
$
|
-
|
|
|
$
|
(246,950
|
)
|
|
$
|
3,050
|
|
Total
|
|
|
$
|
250,000
|
|
|
$
|
-
|
|
|
$
|
(246,950
|
)
|
|
$
|
3,050
|
|
|
July 31, 2012
|
|
|
(ii)
|
|
Cost
|
|
|
Unrealized
Gain
|
|
|
Realized
(
Losses)
|
|
|
Market or
Fair Value
|
|
Equity securities
|
|
|
$
|
250,000
|
|
|
$
|
-
|
|
|
$
|
(230,000
|
)
|
|
$
|
20,000
|
|
Total
|
|
|
$
|
250,000
|
|
|
$
|
-
|
|
|
$
|
(230,000
|
)
|
|
$
|
20,000
|
|
The Company classifies securities that have a readily determinable fair value and are not bought and not held principally for the purpose of selling them in the near term as securities available-for-sale, pursuant to FASB ASC 320-10,
Investments-Debt & Equity Securities
. Under FASB ASC 320-10, unrealized holding gains and losses for available-for-sale securities are excluded from earnings and reported in other comprehensive income until realized.
Note 11 – Impairment
The Company evaluates the carrying value of property, plant and equipment and finite-lived intangible assets whenever a change in circumstances indicates that the carrying value may not be recoverable. The fair values include estimated costs to sell the assets.
During the fourth quarter of 2013, the Company prepared an impairment analysis on both of its Lithium property rights, the Lida Valley and Smokey Valley, and determined the carrying value of these property rights exceeded their fair value as determined by evaluation in accordance with ASC 360-10-35-21. The resulting non-recurring impairment charges of $319,500, primarily related to the write-down of the value of both property rights. As a result of the $319,500 non-recurring impairment charges, the fair value of both the Lida and Smokey Value properties is $0 at July 31, 2013. Also during the fourth quarter of 2013 the Company’s subsidiary CNPC was in default of it property purchase agreement for the mill site property, and determined that the carry value of this property exceeded its fair value. The resulting non-recurring impairment charge of $495,000, primarily related to the write-down of the full value of the property. As a result of the $495,000 non-recurring impairment charges, the fair value of CNPC Fencemaker Millsite is $0 at July 31, 2013.
FIRST LIBERTY POWER CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2013 AND 2012
Note 12 – Subsequent Note
Asher Enterprises, Inc.
On August 7, 2013, the Company entered into a Secured Convertible Promissory Note agreement with Asher Enterprises, Inc, a Delaware corporation, an accredited investor, whereby Asher loaned the Company the aggregate principal amount of $53,000, less $3,000, for legal related costs, together with interest at the rate of eight percent (8%) per annum, until the maturity date of May 9, 2014. On September 10, 2013, the Company entered into another Secured Convertible Promissory Note agreement with Asher Enterprises, Inc., a Delaware corporation, an accredited investor, whereby Asher loaned the Company the aggregate principal amount of $53,000, less $3,000, for legal related costs and $5,300 to a third party, together with interest at the rate of eight percent (8%) per annum, until the maturity date of June 12, 2014.
JMJ Financial.
On August 21, 2013, the Company entered into a Secured Convertible Promissory Note agreement with JMJ Financial, a Delaware corporation, an accredited investor, whereby JMJ Financial loaned the Company the aggregate principal amount of $50,000, together with interest at the rate of twelve percent (12%) per annum, until the maturity date of August 21, 2014. On September 04, 2013, the Company entered into another Secured Convertible Promissory Note agreement with JMJ Financial, an accredited investor, whereby JMJ Financial loaned the Company the aggregate principal amount of $25,000, together with interest at the rate of twelve percent (12%) per annum, until the maturity date of September 4, 2014.
LG Capital Funding, LLC
On September 12, 2013, the Company entered into an assignment agreement with LG Capital Funding, LLC (LG Capital), a New York corporation, and 136054 AB Limited (AB), whereby LG Capital agreed to purchase the entire $50,000 promissory note originally issued by the company to AB on October 31, 2012. As a result of the assignment agreement the Company entered into a convertible promissory note with LG Capital in the aggregate principal amount of $50,000, together with interest at the rate of five percent (5%) per annum, until the maturity date of June 12, 2014. In addition, the Company entered into a Secured Convertible Promissory Note agreement with LG Capital, whereby LG Capital loaned the Company the aggregate principal amount of $77,000, less $2,000, for legal related costs, and $7,700 to a third party, together with interest at the rate of eight percent (8%) per annum, until the maturity date of June 12, 2014.
Tangiers Investor’s LP.
On October 9, 2013, the Company entered into a Secured Convertible Promissory Note agreement with Tangiers Investors, LP, a Delaware corporation, an accredited investor, whereby Tangiers agreed to acquire the April 19, 2013 Secured Convertible Promissory Note in the amount of $35,000 from Harbor Gates LLC. As a result of the exchange agreement the Company entered into a new note of $36,400 consisting of $35,000 in principle and $1,400 in interest from the original note together with interest at the rate of five percent (10%) per annum, until the maturity date of October 09, 2014.
On September 30, 2013, the Company issued 10,000,000 shares of restricted common stock to Daniel Crofoot and Chaowalit Pullapat as an incentive payment because the Company’s subsidiary, Central Nevada Processing Company’s was in default of timely loan payments for the Mill site property.
Subsequent to July 31, 2013 the Company issued a total of 46,296,516 shares directly related to debt conversions of increments totaling $217,453.