NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
(unaudited)
NOTE 1 – NATURE OF OPERATIONS
The Company was incorporated on September 13, 1993 in the State of Delaware as Power Direct, Inc. On January 31, 2000 the Company changed its name to 2U Online.com Inc. to reflect management’s decision to shift the Company’s focus from oil and gas exploration and development to internet-based business development. On October 8, 2003, the Company changed its name to Golden Spirit Minerals Ltd. to reflect management’s decision to shift the Company’s focus from internet-based business development to mineral exploration. On October 19, 2004, the Company changed its name to Golden Spirit Mining Ltd. On July 18, 2005, the Company changed its name to Golden Spirit Gaming Ltd. to reflect management’s decision to develop an online gaming business. Effective June 30, 2006, the Company completed a 1 for 18 reverse stock split and changed its name to Golden Spirit Enterprises Ltd. to reflect the Company’s plan to expand its operations to include the marketing of other products and venues not related to gaming including the development, production, financing and packaging of innovative film and television programming. In addition, the Company has signed an agreement with Eneco Industries to participate in a series of Municipal Solid Waste (garbage) fueled Recycling and Resource Recovery Plants (refer to Note 5) and the Company signed an agreement with Global Terralene Inc. for the acquisition of all assets pertaining to Terralene Fuels.(refer to Note 4). On November 29, 2011, the Company changed its name to Terralene Fuels Corporation.
Going Concern
The consolidated financial statements have been prepared on the basis of a going concern which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred losses since inception of $18,492,099 and at September 30, 2012 had a working capital deficiency of $137,370. The Company and its subsidiaries are in the development stage and further significant losses are expected to be incurred in developing its business. The recoverability of the carrying value of assets and the ability of the Company to continue as a going concern is dependent on raising additional capital and ultimately on generating future profitable operations. There can be no assurance that the Company will be able to raise the necessary funds when needed to finance its ongoing costs. Given the Company’s limited operating history, lack of sales, and its operating losses, there can be no assurance that it will be able to achieve or maintain profitability. The Company intends to fund the marketing of its business with both equity financing and joint venture opportunities, although there are no assurances these opportunities will be successful. Accordingly, these factors raise substantial doubt regarding the ability of the Company to continue as a going concern.
NOTE 2- BASIS OF PRESENTATION
The financial statements include the accounts of the Company and its subsidiaries, a 100% interest in PD Oil & Gas, Inc. (inactive), and a 100% interest in Cardstakes.com Enterprises Ltd. (inactive).
The foregoing unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Regulation S-X Article 8 “Financial Statements of Smaller Reporting Companies”, as promulgated by the Securities and Exchange Commission ("SEC"). Accordingly, these financial statements do not include all of the disclosures required by generally accepted accounting principles for complete financial statements. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the period ended December 31, 2011 referenced in the 10-K. In the opinion of management, the unaudited interim consolidated financial statements furnished herein include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim period presented.
The preparation of financial statements in accordance with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of the Company's financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions that could have a material effect on the reported amounts of the Company's financial position and results of operations.
Operating results for the nine months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.
TERRALENE FUELS CORPORATION
(Formerly Golden Spirit Enterprises Ltd.)
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2- BASIS OF PRESENTATION (continued)
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350, “Intangibles-Goodwill and Other” requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of ASC 350. This standard also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment. As of September 30, 2012, the Company believes there is no impairment of its intangible assets. The Company's intangible assets consist of the acquisition of patents and other proprietary information of Terralene Fuels, a patented fuel alternative formulation which began in 2010 and was completed in February 2012. The Company determined that the intangibles have indefinite useful lives and will be reviewed annually for impairment.
Stock-Based Compensation
The Company accounts for all compensation related to stock, options or warrants using a fair value based method whereby compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. The Company uses the Black-Scholes pricing model to calculate the fair value of options and warrants issued to both employees and non-employees. Stock issued for compensation is valued using the market price of the stock on the date of the related agreement.
Recent Accounting Pronouncements
There have been no recent accounting pronouncements not yet adopted by the Company which would have a material impact on our financial statements.
The Company adopted certain amendments to Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements,” effective January 1, 2012. These amendments include a consistent definition of fair value, enhanced disclosure requirements for “Level 3” fair value adjustments and other changes to required disclosures. Their adoption did not have a material impact on the Company’s consolidated financial statements.
The Company adopted the amendments to ASC 220, “Comprehensive Income,” effective January 1, 2012. The amendments pertained to presentation and disclosure only.
The Company adopted the amendments to ASC 350, “Intangibles-Goodwill and Others,” effective January 1, 2012. The amended guidance allows us to do an initial qualitative assessment of relevant events and circumstances to determine if fair value of a reporting unit is more likely than not to be less than its carrying value, prior to performing the two-step quantitative goodwill impairment test. The adoption of these amendments did not have a material impact on the Company’s consolidated financial statements.
TERRALENE FUELS CORPORATION
(Formerly Golden Spirit Enterprises Ltd.)
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – AVAILABLE–FOR-SALE SECURITIES – RELATED PARTIES
Bravo
The Company owns common shares of Bravo Enterprises Ltd. (formerly Organa Gardens International Inc) (“Bravo”), a public company with directors and significant shareholders in common that does not represent a position of control of or significant influence over Bravo. During 2007 the Company recorded an unrealized loss in the carrying value of its available-for-sale securities totaling $3,775, which was recorded as other comprehensive income (loss). During the year ended December 31, 2008, the Company recorded an unrealized loss in the carrying value of its available-for-sale securities totaling $5,612 which was recorded as other comprehensive income (loss). During the year ended December 31, 2009, the Company sold 2,500 shares resulting in a realized loss of $(780) and recorded an unrealized loss in the carrying value of its available-for-sale securities totaling $5,138, which was recorded as other comprehensive income.
During the year ended December 31, 2010, the Company received 35,015 restricted shares of Bravo valued at $7,003 pursuant to a debt settlement and sold Nil Bravo shares. The Company recorded an unrealized loss in the carrying value of its available-for-sale securities totaling $2,541, which was recorded as other comprehensive income (loss). As a result, the carrying value of the available for sale shares of Bravo is $4,504 as at December 31, 2010.
During the year ended December 31, 2011, the Company sold Nil Bravo shares and recorded an additional unrealized loss of $ (3,097). As a result, the carrying value of the available for sale shares of Bravo is $1,407 as at December 31, 2011. Effective December 31, 2011, the Company recorded a $1,689 write-down of its investment in Bravo due to an other-than-temporary decline in the value of the shares.
During the nine month period ended September 30, 2012, the Company sold Nil Bravo shares and recorded an additional unrealized loss of $(704) to September 30, 2012. As a result, the carrying value of the available for sale shares of Bravo is $704 as at September 30, 2012.
Legacy
The Company owns common shares of Legacy Wine & Spirits International Ltd. (“Legacy”), a public company with directors and significant shareholders in common, that does not represent a position of control of or significant influence over Legacy. During 2007 the Company recorded an unrealized gain in the carrying value of its available-for-sale securities totaling $590,993. During the year ended December 31, 2008, the Company acquired 23,200 shares valued at $19,532 sold 99,400 shares resulting in a realized gain of $28,645(net of commissions of $2,132) and recorded an unrealized gain in the carrying value of its available-for-sale securities totaling $275,121, which was recorded as other comprehensive income. During the year ended December 31, 2009, the Company sold 301,600 shares resulting in a realized gain of $180,398 and recorded an other-than-temporary loss in the carrying value of its available-for-sale securities totaling $34,001.
During the year ended December 31, 2010, the Company received 1,451,360 restricted shares of Legacy valued to $72,568 pursuant to a debt settlement and sold Nil Legacy shares. The Company recorded an other-than-temporary loss in the carrying value of its available-for-sale securities totaling $47,069. As a result, the carrying value of the available for sale shares of Legacy is $37,535 as at December 31, 2010.
During the year ended December 31, 2011, the Company sold Nil Legacy shares and recorded an additional unrealized loss of $ (33,781). As a result, the carrying value of the available for sale shares of Legacy is $3,754 as at December 31, 2011.
Effective December 31, 2011, the Company recorded a $32,843 write-down of its investment in Legacy due to an other-than-temporary decline in the value of the shares.
During the nine month period ended September 30, 2012, the Company sold Nil Legacy shares and recorded an additional unrealized loss of $(938) to September 30, 2012. As a result, the carrying value of the available for sale shares of Legacy is $2,815 as at September 30, 2012.
Available for sale securities – related parties include the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
2,345,937 (2011-2,345,937) shares of Legacy Wine & Spirits
|
|
$
|
2,815
|
|
|
$
|
3,754
|
|
35,187 (2011- 35,187) shares of Bravo Enterprises Ltd.
|
|
|
704
|
|
|
|
1,407
|
|
|
|
$
|
3,519
|
|
|
$
|
5,161
|
|
TERRALENE FUELS CORPORATION
(Formerly Golden Spirit Enterprises Ltd.)
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INVESTMENTS IN INTANGIBLE ASSETS
On August 24, 2010, the Company signed an agreement with Global Terralene Inc. for the acquisition of all assets pertaining to Terralene Fuels. Under the terms of the agreement, the Company will issue 7,000,000 restricted common shares to Global Terralene Inc. in two phases. On November 30, 2010, the Company approved and issued 5,000,000 restricted common shares valued at $125,000 to Global Terralene Inc. The Company will issued a further 2,000,000 restricted common shares valued at $50,000 in February 2012. Terralene Fuel is a patented fuel alternative formulation that is the equivalent of 87 octane regular gasoline and utilizes renewable energy sources in 45% of its composition. Terralene’s unique fuel reduces greenhouse gas and other environmental damaging emissions and can be easily integrated into the existing fuel infrastructure. During the year ended December 31, 2011, the Company capitalized $6,212 in patent work. During the nine months ended September 30, 2012, the Company capitalized a further $450 in patent work.
Total Investments in Terralene Fuels costs at September 30, 2012 and December 31, 2011 total $181,662 and $131,212 respectively and include the following assets:
|
|
September 30,
2012
|
|
|
December 31,
2011
|
|
Patents, trademarks, copyright
|
|
$
|
111,662
|
|
|
$
|
81,212
|
|
Formulas, reports, studies
|
|
|
35,000
|
|
|
|
25,000
|
|
Schematics, proprietary info
|
|
|
21,000
|
|
|
|
15,000
|
|
Website
|
|
|
7,000
|
|
|
|
5,000
|
|
Terralene brandname
|
|
|
7,000
|
|
|
|
5,000
|
|
|
|
$
|
181,662
|
|
|
$
|
131,212
|
|
Amortization for intangible assets with definitive useful life purchased from Terralene Fuels, specifically the website, will be recorded over the estimated useful life of the website using the straight-line method for financial statement purposes when the product or service has been delivered or performed and invoiced by the Company and it begins to recognize revenues.
The Company signed an Agreement dated March 28, 2008 with EnEco Industries Ltd. ("EnEco"), a waste management company that has been in operation for fifteen years, to form an alliance for a renewable energy entity, where the Company will take majority interest in a series of Municipal Solid Waste (garbage) fueled Recycling and Resource Recovery Plants designed by EnEco. These plants will be in strategically located areas diverting tons of garbage from landfills and drastically reducing greenhouse gas outputs. As of September 30, 2012 and December 31, 2011, the Company has incurred $Nil on this project.
NOTE 6 – DEFERRED COMPENSATION
The Company has recorded as deferred compensation prepaid amounts for consulting and management services contracts paid for by issuance of shares of common stock as follows:
a)
|
On October 1, 2011, the Company entered into an agreement with a consultant, for a two year term, whereby the consultant provides consulting services to the Company (valued at $10,000) in exchange for 5,000,000 restricted shares of the Company’s common stock. During the nine month ended September 30, 2012, $3,750 was expensed (December 31, 2011 - $1,250).
|
b)
|
On October 1, 2011, the Company entered into an agreement with Palisades Financial Ltd. (“Palisades”), a private company controlled by a significant shareholder, with a two-year term, whereby Palisades provides investment-banking services to the Company (valued at $10,000) in exchange for 5,000,000 restricted shares of the Company’s common stock. During the nine month ended September 30, 2012, $3,750 was expensed (December 31, 2011 - $1,250).
|
c)
|
On October 1, 2011 the Company entered into an agreement with Compte de Sierge Accomodative Corp. Limited (“Compte”), a private company controlled by a significant shareholder, with a two-year term, whereby Compte provides investor relations services to the Company (valued at $10,000) in exchange for 5,000,000 restricted shares of the Company’s common stock. During the nine month ended September 30, 2012, $3,750 was expensed (December 31, 2011 - $1,250).
|
TERRALENE FUELS CORPORATION
(Formerly Golden Spirit Enterprises Ltd.)
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – DEFERRED COMPENSATION (con’t)
d)
|
On August 30, 2012, the Company entered into an agreement with Domain Land Holdings Ltd. (“Domain”), a private company controlled by a significant shareholder, with a two-year term, whereby Domain provides consulting services to the Company (valued at $25,000) in exchange for 25,000,000 restricted shares of the Company’s common stock. During the nine month period ended September 30, 2012, $1,042 was expensed (December 31, 2011 - $Nil).
|
e)
|
On August 30, 2012, the Company entered into an agreement with a consultant, with a two-year term, whereby the consultant provides consulting services to the Company (valued at $25,000) in exchange for 25,000,000 restricted shares of the Company’s common stock. During the nine month period ended September 30, 2012, $1,042 was expensed (December 31, 2011 - $Nil).
|
As at September 30, 2012, the unamortized portion of the deferred compensation totaled $62,917 (December 31, 2011 - $37,500).
The Company’s capitalization is 500,000,000 common shares with a par value of $0.0001 per share. No preferred shares have been authorized.
(1)
|
2012 Stock Transactions
|
During the nine months ended September 30, 2012, the Company issued a further 2,000,000 restricted common shares valued at $50,000 pursuant to its agreement with Global Terralene Inc. (See Note 4).
During the nine months ended September 30, 2012, the Company issued a total of 5,000,000 common shares pursuant to the exercise of options under the Company’s 2012 Stock Incentive and Option Plan at $0.0025 per share to satisfy debt to related parties in the amount of $12,500, 5,200,000 common shares at $0.002 per share to satisfy debt to related parties in the amount of $10,400 and 4,800,000 common shares at $0.001 per share to satisfy debt to related parties in the amount of $4,800.
During the nine months ended September 30, 2012, the Company issued 50,000,000 restricted common shares valued at $50,000 pursuant to deferred compensation agreements. (See Note 6)
On December 23, 2011, the Company filed a Registration Statement on Form S-8 to cover 15,000,000 shares of common stock to be granted pursuant to the Company’s 2012 Stock Incentive and Option Plan.
The Company’s stock option activity is as follows:
|
|
Number of
options
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Life
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
3,002,517
|
|
|
$
|
0.20
|
|
|
2.67 years
|
|
Granted during 2010
|
|
|
14,516,667
|
|
|
|
-
|
|
|
|
|
Exercised during 2010
|
|
|
(14,516,667
|
)
|
|
|
-
|
|
|
|
|
Balance, December 31,2010
|
|
|
3,002,517
|
|
|
|
-
|
|
|
|
|
Granted during 2011
|
|
|
12,000,000
|
|
|
|
0.03
|
|
|
|
|
Exercised during 2011
|
|
|
(12,000,000
|
)
|
|
|
|
|
|
|
|
Balance, December 31, 2011
|
|
|
3,002,517
|
|
|
$
|
0.20
|
|
|
2.67 years
|
|
Granted during 2012
|
|
|
15,000,000
|
|
|
|
0.03
|
|
|
|
|
Exercised during 2012
|
|
|
(15,000,000
|
)
|
|
|
|
|
|
|
|
Balance, September 30, 2012
|
|
|
3,002,517
|
|
|
$
|
0.20
|
|
|
2.67 years
|
|
During the nine months ended September 30, 2012, the Company granted 15,000,000 options to certain related party creditors. The options were simultaneously converted by the option holders into 15,000,000 shares of the company’s $0.0001 par value common stock under the terms of the Company’s 2012 Stock Incentive and Option Plan as follows: a total of 5,000,000 common shares pursuant to the exercise of options under the Company’s 2012 Stock Incentive and Option Plan at $0.0025 per share to satisfy debt to related parties in the amount of $12,500, 5,200,000 common shares at $0.002 per share to satisfy debt to related parties in the amount of $10,400 and 4,800,000 common shares at $0.001 per share to satisfy debt to related parties in the amount of $4,800. Accordingly, the value of the options on grant date approximated the fair value of the stock they were exercised into in order to satisfy the debt.
TERRALENE FUELS CORPORATION
(Formerly Golden Spirit Enterprises Ltd.)
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 – CAPITAL STOCK (con’t)
(1)
|
2011 Stock Transactions
|
On January 13, 2011, the Company issued 25,000 restricted common shares valued at $750 to a new director for his services and issued 250,000 restricted common shares valued at $7,500 to a consultant for his services in relation to the company’s Terralene Fuels project.
The Company issued a total of 12,000,000 common shares pursuant to the exercise of options under the Company’s 2011 Stock Incentive and Option Plan at prices between $0.03 - $0.035 per share to satisfy debt to related parties in the amount of $171,000 and for consulting services in the amount of $197,250.
On January 18, 2011, the Company filed a Registration Statement on Form S-8 to cover 12,000,000 shares of common stock to be granted pursuant to the Company’s 2011 Stock Incentive and Option Plan.
During the nine months ended September 30, 2011, the Company issued a total of 12,000,000 common shares pursuant to the exercise of options under the Company’s 2011 Stock Incentive and Option Plan at prices between $0.03 - $0.035 per share to satisfy debt to related parties in the amount of $171,000 and for consulting services in the amount of $197,250.
The Company’s stock option activity is as follows:
|
|
Number of
options
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Life
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
3,002,517
|
|
|
$
|
0.20
|
|
|
2.67 years
|
|
Granted during 2010
|
|
|
14,516,667
|
|
|
|
-
|
|
|
|
|
Exercised during 2010
|
|
|
(14,516,667
|
)
|
|
|
-
|
|
|
|
|
Balance, December 31,2010
|
|
|
3,002,517
|
|
|
|
-
|
|
|
|
|
Granted during 2011
|
|
|
12,000,000
|
|
|
|
0.03
|
|
|
|
|
Exercised during 2011
|
|
|
(12,000,000
|
)
|
|
|
|
|
|
|
|
Balance, September 30, 2011
|
|
|
3,002,517
|
|
|
$
|
0.20
|
|
|
2.67 years
|
|
TERRALENE FUELS CORPORATION
(Formerly Golden Spirit Enterprises Ltd.)
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 – RELATED PARTY TRANSACTIONS
During the nine months ended September 30, 2012, companies controlled by significant shareholders earned $24,584 (2011 - $36,503) pursuant to the expired portion of deferred compensation services contracts (refer to Note 6).
During the nine months ended September 30, 2012, the Company paid $3,015 (2011 -$5,743) to directors for management fees.
During the nine months ended September 30, 2012, the Company incurred expenses for office rent of $23,343 (2011 - $23,187) to a private company controlled by a significant shareholder.
The following amounts are due to related parties at:
|
|
September 30, 2012
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
Significant shareholders
|
|
$
|
102,026
|
|
|
$
|
62,606
|
|
All related party transactions are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
NOTE 9 – COMMITMENTS AND CONTINGENCIES
As of August 1, 2010, the Company has leased 1250 sq. ft of office space from Holm Investments Ltd. at $2,500 per month for a period of 3 years.
TERRALENE FUELS CORPORATION
(Formerly Golden Spirit Enterprises Ltd.)
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 – INCOME TAXES
As of September 30, 2012, the Company had net operating loss carryforwards of approximately $18,500,000 that may be available to reduce future years' taxable income and will expire between the years 2013 - 2032. Availability of tax losses is subject to change of ownership limitations under Internal Revenue Code 382. Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements, as their realization is determined not likely to occur and accordingly, the Company has recorded a valuation allowance for the deferred tax asset relating to these tax loss carryforwards.
NOTE 11 – SUPPLEMENTAL CASH FLOW INFORMATION AND NON-CASH INVESTING AND FINANCING ACTIVITIES
Supplemental disclosure of non-cash investing and financing activities:
Cash paid during the six months ended September 30, 2012 and 2011 for:
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Shares issued for debt settlement
|
|
$
|
27,700
|
|
|
$
|
103,500
|
|
|
|
|
|
|
|
|
|
|
Shares issued for deferred compensation
|
|
$
|
50,000
|
|
|
$
|
30,000
|
|
During the nine months ended September 30, 2012, the Company issued a total of 5,000,000 common shares pursuant to the exercise of options under the Company’s 2012 Stock Incentive and Option Plan at $0.0025 per share to satisfy debt to related parties in the amount of $12,500, 5,200,000 common shares at $0.002 per share to satisfy debt to related parties in the amount of $10,400 and 4,800,000 common shares at $0.001 per share to satisfy debt to related parties in the amount of $4,800.
During the nine months ended September 30, 2012, the Company issued 50,000,000 restricted common shares valued at $50,000 pursuant to deferred compensation agreements. (See Note 6)
The Company paid no cash for interest and income taxes for the three months ended September 30, 2012 and 2011.