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Document and Entity Information (USD $)
12 Months Ended
Nov. 30, 2012
Feb. 22, 2013
May 31, 2012
Document And Entity Information
Entity Registrant Name METHES ENERGIES INTERNATIONAL LTD
Entity Central Index Key 0001436549
Document Type 10-K
Document Period End Date Nov 30, 2012
Amendment Flag false
Current Fiscal Year End Date --11-30
Is Entity a Well-known Seasoned Issuer? No
Is Entity a Voluntary Filer? No
Is Entity's Reporting Status Current? Yes
Entity Filer Category Smaller Reporting Company
Entity Public Float $ 0
Entity Common Stock, Shares Outstanding 6,978,169
Document Fiscal Period Focus FY
Document Fiscal Year Focus 2012
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CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (USD $)
Nov. 30, 2012
Nov. 30, 2011
Current assets
Cash and cash equivalents $ 402,724 $ 1,693,301
Accounts receivable, net (notes 3 and 16) 303,418 1,122,323
Inventories (note 4) 1,196,798 1,187,442
Prepaid expenses and deposits 100,972 13,163
Deferred financing fees 26,334 0
Total current assets 2,030,246 4,016,229
Deposits (note 13) 13,813 860,923
Property, plant and equipment, net (note 5) 8,231,826 2,968,699
Intangible assets, net (note 6) 413,027 400,358
Total assets 10,688,912 8,246,209
Current liabilities
Accounts payable and accrued liabilities (notes 7 and 13) 1,762,666 2,441,493
Short-term loan (note 8) 1,509,600 0
Payable to related parties (note 9) 1,617,999 520,881
Total liabilities 4,890,265 2,962,374
Stockholders' equity
Preferred stock, $0.001 par value,10,000,000 shares authorized; no shares issued or outstanding at November 30, 2011 and 2012, respectively (note 11) 0 0
Common stock, $0.001 par value, 75,000,000 shares authorized; 5,734,447 and 6,553,169 shares issued and outstanding at November 30, 2011 and 2012, respectively (note 11) 6,553 5,734
Additional paid-in capital 16,033,123 11,598,421
Subscription receivable (note 14) 0 (46,056)
Accumulated deficit (10,241,029) (6,274,264)
Total stockholders' equity 5,798,647 5,283,835
Total liabilities and stockholders' equity $ 10,688,912 $ 8,246,209
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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
Nov. 30, 2012
Nov. 30, 2011
Stockholders Equity
Preferred stock, par value $ 0.001 $ 0.001
Preferred stock shares authorized 10,000,000 10,000,000
Preferred stock shares issued 0 0
Preferred stock shares outstanding 0 0
Common stock, par value $ 0.001 $ 0.001
Common stock, shares authorized 75,000,000 75,000,000
Common stock, shares issued 6,553,169 5,734,447
Common stock, shares outstanding 6,553,169 5,734,447
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (USD $)
12 Months Ended
Nov. 30, 2012
Nov. 30, 2011
Revenue (note 13)
Biodiesel sales $ 5,801,146 $ 9,731,355
Feedstock sales 393,208 838,994
Glycerin sales 49,894 132,526
Government incentives (note 16) 299,540 518,872
Equipment sales (note 4) (241,342) 256,342
Royalties 66,445 107,148
Others 180,857 200,616
Revenue, Total 6,549,748 11,785,853
Cost of goods sold 5,998,728 10,120,570
Gross profit 551,020 1,665,283
Operating expenses
Selling, general and administrative expenses 4,270,773 2,436,615
Loss before interest and taxes (3,719,753) (771,332)
Other income (expenses)
Interest expense (250,146) (39,750)
Interest income 3,134 132
Loss before income taxes (3,966,765) (810,950)
Income taxes 0 0
Net loss for the period $ (3,966,765) $ (810,950)
Net Loss Per Common Share - Basic and Diluted $ (0.67) $ (0.15)
Weighted average number of common shares - Basic and Diluted 5,961,659 5,269,183
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (USD $)
Common Stock
Additional Paid-In Capital
SubscriptionReceivableMember
Accumulated Deficit
Total
Beginning Balance - Amount at Nov. 30, 2010 $ 5,189 $ 7,526,193 $ (186,056) $ (5,463,314) $ 1,882,012
Beginning Balance - Shares at Nov. 30, 2010 5,189,005
Issuance of common stock for cash (note 11), Shares 545,442
Issuance of common stock for cash (note 11), Amount 545 4,182,995       4,183,540
Issuance of common stock options to employees and officers (note 12)    99,233       99,233
Stock subscription (note 14)       140,000    140,000
Finder's fees (note 11)    (210,000)       (210,000)
Net loss for the year (810,950) (810,950)
Ending Balance, Amount at Nov. 30, 2011 5,734 11,598,421 (46,056) (6,274,264) 5,283,835
Ending Balance, Shares at Nov. 30, 2011 5,734,447
Issuance of common stock for cash (note 11), Shares 258,722
Issuance of common stock for cash (note 11), Amount 259 1,984,792       1,985,051
Issuance of units - IPO (note 11), Shares 560,000
Issuance of units - IPO (note 11), Amount 560 2,799,440       2,800,000
IPO issuance cost (note 11)    (996,477)       (996,477)
Issuance of common stock options to employees and officers (note 12)    246,949       246,949
Penalty shares (note 11)    399,998       399,998
Stock subscription (note 14)       46,056    46,056
Finder's fees (note 11)    399,998       399,998
Net loss for the year (3,966,765) (3,966,765)
Ending Balance, Amount at Nov. 30, 2012 $ 6,553 $ 16,033,123    $ (10,241,029) $ 5,798,647
Ending Balance, Shares at Nov. 30, 2012 6,553,169
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD $)
12 Months Ended
Nov. 30, 2012
Nov. 30, 2011
Cash flow from operating activities:
Net loss for the period $ (3,966,765) $ (810,950)
Adjustments to reconcile net loss to net cash provided by (used in) operations
Depreciation and amortization 258,414 174,279
Non-cash stock compensation 246,949 99,233
Unrealized foreign exchange loss 44,700 0
Penalty share expense (note 11) 399,998 0
Changes in operating assets and liabilities:
Accounts receivable 818,905 (741,968)
Inventories (9,356) (943,620)
Prepaid expenses and deposits (87,809) (855)
Accounts payable and accrued liabilities (678,827) 1,011,793
Customer deposits 0 (119,854)
Net cash used in operating activities (2,973,791) (1,331,942)
Cash flows from investing activities:
Additions to property, plant and equipment (4,657,100) (550,704)
Purchase of intangibles (30,000) (60,735)
Deposits for equipment 0 (860,923)
Net cash used in investing activities (4,687,100) (1,472,362)
Cash flows from financing activities:
Payable to related parties 1,097,118 185,989
Short term loan (note 8) 1,464,900 0
Deferred financing fees (26,334) 0
Issuance of Common Stock/Units 3,834,630 4,113,540
Net cash provided by financing activities 6,370,314 4,299,529
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,290,577) 1,495,225
Cash and cash equivalents, beginning of period 1,693,301 198,076
CASH AND CASH EQUIVALENTS, END OF PERIOD 402,724 1,693,301
Supplemental disclosures of cash flow information, cash paid:
Interest 151,665 39,750
Non-cash investing and financing activities:
Finder's fees settled through issuance of Common Stock $ 0 $ 520,000
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1. BASIS OF PRESENTATION AND NATURE OF THE BUSINESS
12 Months Ended
Nov. 30, 2012
Accounting Policies [Abstract]
1. BASIS OF PRESENTATION AND NATURE OF THE BUSINESS

1.   Nature of the Business and Financing Requirements

 

Methes Energies International Ltd. (the “Company”, or “Methes”) was incorporated on June 27, 2007 in the State of Nevada. Methes, through its operations in Canada and the United States, is a biodiesel processing equipment provider and a biodiesel producer. The Company has developed biodiesel processing equipment to produce biodiesel from recycled oils. The Company, through its wholly-owned subsidiary Methes Energies Canada Inc. (“Methes Canada”), operates two biodiesel manufacturing facilities; one is located in Mississauga, Ontario with a nameplate production capacity of 1.3 million gallons per year (mmgy), and the second facility is a recently commissioned production facility capable of producing 13.0 million gallons of biodiesel per year located in Sombra, Ontario. In addition to Methes Canada, Methes Energies USA Ltd. ("Methes USA") was incorporated as the wholly-owned subsidiary of the Company on June 27, 2007.

 

On October 4, 2012, Methes Canada was approved by the U.S. Environmental Protection Agency ("EPA") as a Foreign Renewable Fuel Producer at its Sombra, Ontario plant. As a result the biodiesel produced at its Sombra, Ontario facility also became eligible for export to the United States. Obtaining this approval from the EPA enables the Company to sell its biodiesel produced at its Sombra, Ontario facility into the U.S., and provides its U.S. importer the ability to generate Renewable Identification Numbers ("RINS"). RINS are used in the U.S. by obligated parties to comply with the Renewable Fuel Standard 2 ("RFS2").

 

On October 12, 2012, the Company’s registration statement on Form S-1 (File No. 333-182302) for its initial public offering (“IPO”) was declared effective by the U.S. Securities and Exchange Commission (“SEC”).  On October 30, 2012, the Company consummated the IPO pursuant to which it sold 560,000 units (each a “Unit”) at a price of $5.00 per Unit, and received net proceeds of $1.8 million, after deducting the underwriting fees and offering expenses. Each Unit consisted of (i) one share of common stock, $.001 par value (“Common Stock”), (ii) one Class A warrant, to purchase one share of Common Stock at an exercise price of $7.50 (each a “Class A Warrant”), and (iii) one Class B warrant, to purchase one share of Common Stock at an exercise price of $10.00 (each a “Class B Warrant”).

 

The Units were listed on the NASDAQ Capital Market under the symbol “MEILU”.  Up to November 26, 2012, only the Units were traded.  On November 26, 2012, the Common Stock and the Warrants began trading separately under the symbols MEIL, MEILW and MEILZ when the Units ceased trading and were delisted.

 

As at November 30, 2012, due in large part to the funds spent to develop and build the Sombra facility, the Company had a working capital deficiency of $2,860,019. In order to meet its objectives, the Company required additional financing at November 30, 2012. The Company anticipates that its Sombra facility will generate positive cash flow from operations and will operate profitably once full-scale commercial operations are achieved. It is management’s opinion that the anticipated positive cash flows from operations, cash from additional and refinanced loans along with the proceeds from the subsequent Private Placement referred to in Note 18, will be sufficient to meet the Company’s ongoing financing requirements.

 

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
12 Months Ended
Nov. 30, 2012
Accounting Policies [Abstract]
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

2.   Summary of Significant Accounting Policies

 

a)   Basis of Presentation

 

The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and are expressed in United States dollars. The Company’s fiscal year-end is November 30.

 

The Company is an emerging growth company (EGC) pursuant to Jumpstart Our Business Startups Act of 2012 (the JOBS Act). Under Section 102(b) of the JOBS Act, the Company has elected to apply any new or revised financial accounting standard on the same date a company that is not an issuer is required to apply the new or revised accounting standard, if the standard applies to a non-issuer. If the new or revised accounting standard does not apply to a non-issuer, then the Company will apply it according to the transition provisions for a non-EGC. The Company’s election to use the extended transition period for complying with new or revised accounting standards under Section 102(b) of the JOBS Act had no impact on the consolidated financial statements as of November 30, 2012.

 

b)   Basis of Consolidation

 

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries Methes Canada and Methes USA.  All significant inter-company transactions and balances have been eliminated. Methes Canada was incorporated on December 23, 2004, and became a wholly-owned subsidiary of the Company on September 5, 2007. Methes USA was incorporated as a wholly-owned subsidiary of the Company on June 27, 2007.

 

c)   Reverse Stock Split

 

The Company implemented a reverse stock split of one share for each 3.835 outstanding shares of common stock, effective on June 11, 2012. The reverse stock split proportionately reduced all issued and outstanding shares of the Company’s common stock, as well as the common stock underlying stock options and warrants outstanding immediately prior to the effectiveness of the reverse stock split. The exercise price on outstanding equity based-grants was proportionately increased, while the number of shares available under the Company’s equity-based plans was proportionately reduced. Share and per share data (except par value) for all periods presented reflect the effects of this reverse stock split on a retroactive basis.

 

d)   Use of Estimates

 

The preparation of consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Areas involving significant estimates and assumptions include: inventory valuation reserves; allowance for doubtful accounts; deferred income tax liabilities and assets, and related valuation allowances; expected future cash flows used in evaluating intangible assets and property, plant and equipment for impairment; warranty provision on processing equipment sold; estimated useful life of property, plant and equipment and intangible assets; and valuation of stock options. The estimates and assumptions made require judgment on the part of management and are based on the Company’s historical experience and various other factors that are believed to be reasonable in the circumstances. Management continually evaluates the information that forms the basis of its estimates and assumptions as the business of the Company and the business environment generally changes. If historical experience and other factors used by management to make these estimates do not reasonably reflect future activity, the Company’s consolidated financial statements could be materially impacted.

 

e)   Cash and Cash Equivalents

 

The Company considers all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents consist primarily of bank deposits held in the United States and Canada.

 

f)   Inventories

 

The Company’s inventories consist primarily of bulk biodiesel, methanol, catalyst, crude glycerin and biodiesel processing equipment and are valued at the lower of cost and market value, with cost determined on a weighted average basis. Cost for finished goods inventories includes materials, direct labor, and an allocation of overheads. Market for raw materials is replacement cost, and for finished goods is net realizable value.

 

The Company evaluates the carrying value of inventories on a regular basis, taking into account such factors as historical and anticipated future sales compared with quantities on hand and the price the Company expects to obtain for products in the market compared with historical cost.

 

g)   Allowance for Doubtful Accounts

 

The Company establishes an allowance for doubtful accounts based on management’s assessment of the collectability of trade receivables.  A considerable amount of judgment is required in assessing the amount of the allowance.  The Company makes judgments about the creditworthiness of each customer based on ongoing credit evaluations, and monitors current economic trends that might impact the level of credit losses in the future.  If the financial condition of the customers were to deteriorate, resulting in their inability to make payments, a specific allowance will be required. Account balances are charged off against the allowance when the Company believes it is probable the receivable will not be recovered.

 

h)   Revenue Recognition

 

Revenue is recognized in accordance with ASC 605, "Revenue Recognition in Financial Statements."  Under ASC 605, product or service revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or service has been performed, the sales price is fixed and determinable and collectability is reasonably assured. The Company has not experienced any material expense in satisfying warranties. Details of specific recognition by product or service categories are as follows:

 

§ Revenue from the sale of biodiesel and its co-product, biodiesel processing equipment and feedstock is recognized when title and possession of the product is transferred to the customer. Possession is transferred to the customer at the time of shipment from the Company’s facility or at the time of delivery to a specified destination, depending on the terms of the sale.

 

§ The ecoENERGY incentive is recognized as revenue when the right to receive is established upon production and sale of biodiesel.

 

§ Revenue from services is recognized as services are performed.

 

§ Royalty revenue is recognized on an accrual basis in accordance with the Sales & Licensing Agreement of the biodiesel processing equipment sale. Royalty is charged on gallons of biodiesel produced by the Company's customers using the Company’s biodiesel processing equipment.

 

i)   Shipping and Handling Costs

 

The Company accounts for shipping and handling fees in accordance with FASB ASC 705 “Cost of Sales and Services”. Shipping and handling costs for the years ended November 30, 2011 and 2012 were $561,065 and $344,146, respectively. Costs related to raw materials purchased, are included in inventory or cost of goods sold, as appropriate. While amounts charged to customers for shipping product are included in revenues, the related outbound freight costs are included in expenses as incurred.

 

j)   Deferred Financing Fees

 

Costs directly incurred in connection with the IPO were recorded as deferred financing fees until the completion of the IPO. These deferred financing fees were charged against additional paid-in capital upon completion of the IPO. Financing fees relating to other financing arrangements are deferred and amortized over the term of the loan. Deferred financing fees as at November 30, 2011 and 2012 were $nil and  $26,334, respectively.

 

k)   Financial Instruments

 

The Company’s financial instruments recognized in the consolidated balance sheets and included in working capital consist of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, amounts due to related parties and short-term loan. The fair values of these instruments approximate their carrying values due to their short-term maturities.

 

l)   Fair Value Measurements

 

Financial instruments that are measured subsequent to initial recognition at fair value are grouped into hierarchy based on the degree to which the fair value inputs are observable.

 

Fair value is defined 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 (i.e., an exit price). Fair value measurements are estimated based on inputs categorized as follows:

 

§   Level 1 inputs include quoted prices (unadjusted) for identical assets or liabilities in active markets that are observable.

 

§   Level 2 inputs include 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; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

 

§   Level 3 includes unobservable inputs that reflect the Company's own assumptions about what factors market participants would use in pricing the asset or liability.

 

  When measuring fair value, the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs.

 

m)   Foreign Currency Translation

 

The functional currency of the Company and its subsidiaries is the United States dollar. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction.  Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Non-monetary assets and liabilities are translated using the historical rate on the date of the transaction. Revenue and expenses are translated at average rates in effect during the reporting periods. All exchange gains or losses arising from translation of these foreign currency transactions are included in net income (loss) for the year. The Company has not, to the date of these consolidated financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.

 

n)   Income Taxes and Uncertain Tax Positions

 

The Company accounts for income taxes under ASC 740 Accounting for Income Taxes. Under ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the periods in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. ASC 740-10-05, Accounting for Uncertainty in Income Taxes, prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return.

 

For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities.

 

The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Potential tax benefits from net operating losses and foreign tax credit carry forwards are not recognized by the Company until their realization is more likely than not. We assess the validity of our conclusions regarding uncertain tax positions on a quarterly basis to determine if facts or circumstances have arisen that might cause us to change our judgment regarding the likelihood of a tax position’s sustainability under audit.  The Company has determined that there were no tax exposures as at November 30, 2011 and 2012.

 

o)   Stock-based Compensation

 

The Company maintains a stock-based compensation plan under which incentive stock options to buy common stocks may be granted to directors, officers and employees. Pursuant to ASC 718, the Company recognizes expense for its stock-based compensation based on the fair value of the awards that are granted. The fair values of stock options are estimated at the date of grant using the Black-Scholes option pricing model, that require the input of highly subjective assumptions. Measured compensation cost is recognized ratably over the vesting period of the related stock-based compensation award. The amount recognized as expense is adjusted to reflect the number of stock options expected to vest. When exercised, stock options are settled through the issuance of common stock and are therefore treated as equity awards. The expected volatility of our common stock is estimated using an average of volatilities of publicly traded companies in similar renewable energy businesses.

 

p)   Property, Plant and Equipment

 

Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation is provided using the straight-line basis at the following annual rates reflecting the estimated useful lives of the assets:

 

Sombra facility:  
Building 40 years
Equipment 5 years
Equipment - Denami 3000 25 years
   
Mississauga facility:  
Computer equipment 2 years
Leasehold improvements Over the lease term
Equipment and fixtures 5 years
Equipment - Denami 600 25 years

 

q)   Intangible Assets

 

The Company’s finite-lived intangible assets consist of acquired intellectual property from a third party for the design and engineering of Denami 600 and Denami 3000 biodiesel processor equipment.  The intangible assets related to the Denami 600 and Denami 3000 are recorded at cost, less accumulated amortization and the amortization is provided over their 25 year estimated useful life on a straight-line basis.

 

r)   Impairment of Long-Lived Assets

 

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable through undiscounted future cash flows. If impairment exists based on expected future undiscounted cash flows, a loss is recognized in income. The amount of the impairment loss is the excess of the carrying amount of the impaired asset over the fair value of the asset, typically based on discounted future cash flows. The Company has assessed its long-lived assets and has determined that there was no impairment in their carrying amounts at November 30, 2011 and 2012.

 

s)   Per Share Data

 

Basic earnings per share (“EPS”) is determined by dividing net earnings available to common stockholders (numerator) by the weighted average number of shares outstanding (denominator) during the year. In computing diluted EPS, the average number of shares of Common Stock outstanding is increased by Common Stock options and warrants outstanding if the exercise prices were lower than the average market price of Common Stocks using the treasury stock method. Diluted earnings per share exclude all potentially dilutive shares if their effect is anti-dilutive. Potentially dilutive shares include 65,189 warrants and 338,983 Common Stock options issued and outstanding as at November 30, 2011 and 1,267,264 warrants and 383,310 Common Stock options issued and outstanding as at November 30, 2012. All outstanding warrants and options have an anti-dilutive effect on the loss per share and are therefore excluded from the determination of the 2011 and 2012 diluted loss per share calculation.

 

t)   Recent Accounting Pronouncements

 

In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and the International Financial Reporting Standards (IFRS). The amendments in the update are intended to result in convergence between U.S. GAAP and IFRS requirements for measurement of, and disclosures about, fair value. ASU 2011-04 clarifies or changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. The amendments in this update are to be applied prospectively. The amendments are effective during interim and annual periods beginning after December 15, 2011. The Company adopted this statement effective March 1, 2012. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

 

In September 2011, the FASB issued ASU 2011-08, Intangibles—Goodwill and Other, which amends ASC Topic 350 and the current guidance on testing goodwill for impairment. Under the revised guidance, entities testing goodwill for impairment have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit exceeds its carrying amount. If an entity determines it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, then performing the two-step impairment test is unnecessary. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.  The Company does not believe the adoption of this standard will have a material impact on its consolidated financial statements.

 

In December 2011, the FASB issued ASU No. 2011-11, Disclosures about Offsetting Assets and Liabilities (Topic 210). The new disclosure requirements mandate that entities disclose both gross and net information about instruments and transactions eligible for offset in the statement of financial position as well as instruments and transactions subject to an agreement similar to a master netting arrangement. In addition, the standard requires disclosure of collateral received and posted in connection with master netting agreements or similar arrangements. The amendments are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The disclosures required by the amendments are required to be applied retrospectively for all comparative periods presented. The Company does not believe the adoption of this standard will have a material impact on its consolidated financial statements.

 

All other recent pronouncements issued by the FASB or other authoritative standards groups with future effective dates are either not applicable or are not expected to be significant to the consolidated financial statements of the Company.

 

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3. ACCOUNTS RECEIVABLE
12 Months Ended
Nov. 30, 2012
Receivables [Abstract]
3. ACCOUNTS RECEIVABLE

3.   Accounts Receivable

 

The following schedule provides an analysis of the Company’s accounts receivable:

 

    As at November 30, 2011     As at November 30, 2012  
             
Trade receivables   $ 1,122,323     $ 333,418  
Allowance for doubtful accounts     -       (30,000 )
                 
    $ 1,122,323     $ 303,418  

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4. INVENTORIES
12 Months Ended
Nov. 30, 2012
Inventory Disclosure [Abstract]
4. INVENTORIES

 

4.   Inventories

 

Inventories consisted of the following:

 

    As at November 30, 2011     As at November 30, 2012  
             
Raw materials   $ 382,736     $ 330,627  
Finished goods     804,706       739,205  
Equipment (i)     -       126,966  
                 
    $ 1,187,442     $ 1,196,798  

 

(i)  During fiscal 2012, certain oil processing research and development related equipment previously sold in fiscal 2011 was returned.

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5. PROPERTY, PLANT AND EQUIPMENT
12 Months Ended
Nov. 30, 2012
Property, Plant and Equipment [Abstract]
5. PROPERTY, PLANT AND EQUIPMENT

 

5.  Property, Plant and Equipment

 

     As at November 30, 2011  
          Accumulated     Net Book  
    Cost     Depreciation     Value  
Sombra site (note 8):                  
Land   $ 409,134     $ -     $ 409,134  
Building     1,385,835       120,819       1,265,016  
Equipment     278,082       168,795       109,287  
Equipment - Denami 3000 (under construction)     467,904       -       467,904  
Mississauga site:                        
Computer equipment     20,311       10,499       9,812  
Leasehold improvements     102,201       34,655       67,546  
Equipment and fixtures     153,503       116,271       37,232  
Equipment - Denami 600     707,282       104,514       602,768  
                         
    $ 3,524,252     $ 555,553     $ 2,968,699  

 

    As at November 30, 2012  
          Accumulated     Net Book  
    Cost     Depreciation     Value  
Sombra site:                  
Land   $ 409,134     $ -     $ 409,134  
Building     2,820,294       168,663       2,651,631  
Equipment     727,020       257,475       469,545  
Equipment - Denami 3000     3,964,293       25,059       3,939,234  
Mississauga site:                        
Computer equipment     30,014       20,589       9,425  
Leasehold improvements     102,202       45,218       56,984  
Equipment and fixtures     255,463       146,782       108,681  
Equipment - Denami 600     720,042       132,850       587,192  
                         
    $ 9,028,462     $ 796,636     $ 8,231,826  

 

Total depreciation expense included in selling, general and administrative expenses in the consolidated statements of operations related to property, plant and equipment for the year ended November 30, 2011 and 2012 was $157,712 and $241,083, respectively.

 

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6. INTANGIBLE ASSETS
12 Months Ended
Nov. 30, 2012
Goodwill and Intangible Assets Disclosure [Abstract]
6. INTANGIBLE ASSETS

6.   Intangible Assets

 

The major components of finite-lived intangible assets, which consist of acquired intellectual property for the design and engineering of biodiesel processor equipment, were as follows:

 

    As at November 30, 2011  
          Accumulated     Net Book  
    Cost     Amortization     Value  
                   
Denami 600   $ 414,174     $ 74,551     $ 339,623  
Denami 3000     60,735       -       60,735  
                         
    $ 474,909     $ 74,551     $ 400,358  

 

    As at November 30, 2012  
          Accumulated     Net Book  
    Cost     Amortization     Value  
                   
Denami 600   $ 414,174     $ 91,477     $ 322,697  
Denami 3000     90,735       405       90,330  
                         
    $ 504,909     $ 91,882     $ 413,027  

 

Total amortization expense included in selling, general and administrative expenses in the consolidated statements of operations related to intangible assets for the year ended November 30, 2011 and 2012 was $16,567 and $17,331, respectively.

 

Estimated future aggregate amortization expense for fiscal years ending November 30 is as follows:

 

    2013     2014     2015     2016     2017     Thereafter  
                                     
Amortization expense   $ 20,196     $ 20,196     $ 20,196     $ 20,196     $ 20,196     $ 312,047  
                                                 

 

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7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
12 Months Ended
Nov. 30, 2012
Payables and Accruals [Abstract]
7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

7.   Accounts Payable and Accrued Liabilities

 

Accounts payable and accrued liabilities are comprised of the following:

 

    As at November 30, 2011     As at November 30, 2012  
             
Accounts payable   $ 2,270,184     $ 1,128,115  
Accrued liabilities     171,309       634,551  
                 
    $ 2,441,493     $ 1,762,666  

 

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8. SHORT TERM LOAN
12 Months Ended
Nov. 30, 2012
Debt Disclosure [Abstract]
8. SHORT TERM LOAN

 

8. Short-Term Loan

 

On June 20, 2012, Methes Canada entered into a term loan facility agreement with a lender that allows Methes Canada to borrow up to $1,509,600 (historical amount of $1,464,900 or CDN$1,500,000). The term loan, which was drawn in late June 2012, is repayable in 12 months and bears interest at 23% per annum. The loan is prepayable by Methes Canada after six months upon payment of a penalty equal to one-month’s interest. The facility is guaranteed by the Company and collateralized by a general security agreement from Methes Canada and a first collateral mortgage on certain assets located at Sombra. The facility prohibits payment of debt in excess of $550,000 owed by the Company to certain of its stockholders and directors during the life of the facility and contains other customary debt covenants. The facility also provides that, beginning October 1, 2012, any additional operating losses incurred by Methes Canada must be financed by stockholders or new equity funding.

 

Interest expense incurred during the year ended November 30, 2011 and 2012 was $nil and $149,375, respectively.

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9. PAYABLE TO RELATED PARTIES
12 Months Ended
Nov. 30, 2012
Related Party Transactions [Abstract]
9. PAYABLE TO RELATED PARTIES

 

9. Payable To Related Parties

 

Payable to related parties is comprised of the following:

 

    As at November 30, 2011     As at November 30, 2012  
             
Softdiffusion SA (stockholder)   $ 46,133     $ 49,333  
Michel G. Laporte (stockholder and Director)     160,389       172,389  
World Asset Management Inc. (stockholder)     314,359       1,396,277  
                 
    $ 520,881     $ 1,617,999  

 

The related party payables bear interest at a rate of 8% per annum, are unsecured and repayable on demand.

 

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10. INCOME TAXES
12 Months Ended
Nov. 30, 2012
Income Tax Disclosure [Abstract]
10. INCOME TAXES

10.  Income Taxes

 

The following table reconciles the expected income tax recovery at the statutory federal income tax rate of 35% to the amount recognized in the statements of operations:

 

    Year Ended November 30, 2011     Year Ended November 30, 2012  
                 
Loss before income taxes   $ 810,950     $ 3,966,765  
Expected income tax recovery     (283,833 )     (1,388,368 )
Permanent differences     36,114       220,364  
Foreign earnings taxed at rates                
   other than the U.S. statutory rate     223,325       87,315  
Increase in valuation allowance     24,394       1,080,689  
    $ -     $ -  

 

The Company’s deferred income tax assets and liabilities, which are primarily related to Canada, are as follows:

 

    As at November 30, 2011     As at November 30, 2012  
Deferred income tax assets            
             
Net operating losses   $ 1,258,493     $ 2,453,326  
Less: allocated against deferred income tax liability     (291,239 )     (405,383 )
Less: valuation allowance     (967,254 )     (2,047,943 )
                 
    $ -     $ -  
                 
Deferred income tax liabilities                
                 
Property, plant and equipment and intangible assets   $ 291,239     $ 405,383  
Less: offset by deferred income tax assets     (291,239 )     (405,383 )
                 
    $ -     $ -  

 

Since inception to November 30, 2012 the Company has incurred net losses, primarily related to Canada, for tax purposes of $9,101,682, which expire at various times through fiscal 2032. Pursuant to ASC 740, the Company is required to compute tax asset benefits for net operating losses carried forward. However, the potential tax benefit of net operating losses has not been recognized in these consolidated financial statements due to the uncertainty of their realization.

 

As at November 30, 2012, the Company is not subject to any uncertain tax positions.

 

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11. STOCKHOLDERS' EQUITY
12 Months Ended
Nov. 30, 2012
Equity [Abstract]
11. STOCKHOLDERS' EQUITY

 

11.  Stockholders’ Equity

 

The Company is authorized to issue 75,000,000 shares of Common Stock with a par value of $0.001 and had 5,734,447 and 6,553,169 shares of Common Stock issued and outstanding as of November 30, 2011 and 2012, respectively.

 

The Company is also authorized to issue 10,000,000 shares of Preferred Stock with a par value of $0.001 and had no shares of preferred stock issued or outstanding as of November 30, 2011 and 2012.

 

During the year ended November 30, 2012, the Company issued 258,722 shares of Common Stock for cash at $7.67 per share (year ended November 30, 2011 - 545,442 shares of Common Stock for cash at $7.67 per share and incurred finder’s fees of $210,000) and 26,075 Common Stock warrants at an exercise price of $7.67 (year ended November 30, 2011 - nil). The warrants are exercisable for a period of one year commencing from the date the Company starts trading publicly on the NASDAQ (now known as the NYSE MKT).

 

On November 23, 2011, the Company issued together with 130,378 shares of Common Stock, 65,189 Common Stock warrants at an exercise price of $7.67. The warrants are exercisable for a period of one year commencing from the date the Company starts trading publicly on the NASDAQ or the NYSE MKT. The warrant holders are generally protected from anti-dilution by adjustments for any stock dividends, stock split, combination or other recapitalizations. In addition, the Company was required to issue or cause to be transferred 52,151 shares of additional Common Stock as penalty shares on behalf of the Company, should the Company not be listed on the NASDAQ or the NYSE MKT, and did not meet certain operating requirements, on or before July 1, 2012. As the Company was not listed on the NASDAQ or the NYSE MKT, and did not meet certain operating requirements, by July 1, 2012, a Company's shareholder, Softdiffusion SA, transferred 52,151 shares of Common Stock with an estimated fair value of $7.67 per share to a new stockholder as settlement for the penalty share obligation. The estimated fair value of $399,998 for these shares have been recorded by the Company as part of the general and administrative expenses and charged to additional paid-in capital for the fiscal year ended November 30, 2012.

 

As described in Note 1, on October 30, 2012, the Company completed an IPO pursuant to which it sold 560,000 Units, with an offering price of $5.00, and received net proceeds of $1.8 million, after deducting the underwriting fees and offering expenses. The total expenses amounting to $996,477 that were directly incurred in connection with the IPO, including underwriting fees, offering expenses and legal costs were charged against additional paid-in capital upon completion of the IPO. Each Unit consists of (i) one share of Common Stock, (ii) one Class A warrant, to purchase one share of Common Stock at an exercise price of $7.50, and (iii) one Class B warrant, to purchase one share of Common Stock at an exercise price of $10.00. The Class A and Class B warrants are exercisable for a period of five years commencing from the date of the IPO. Commencing six months after the date of the IPO, the Company may redeem some or all of the Class A warrants at a price of $0.05 per warrant after the closing bid price of its Common Stock has been at or above 200% of the unit offering price for five consecutive trading days, by giving the holders not less than 30 days’ notice. Commencing six months after the date of the IPO, the Company may redeem some or all of the Class B warrants at a price of $0.05 per warrant after it reports, for any four consecutive fiscal quarters, a total of $8 million of income before income taxes, by giving the holders not less than 30 days’ notice.

 

On October 30, 2012, in connection with the IPO, the Company issued warrants to purchase 56,000 Units, identical to the Units offered under the IPO, with an exercise price of $6.00, to the representative of the underwriters of the offering. The fair value of these warrants at the date of the grant was $159,249. This amount was estimated using the Black-Scholes option pricing model with an expected life of 5 years, a risk free interest rate of 0.74%, a dividend yield of 0%, and an expected volatility of 75%.

 

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12. STOCK-BASED COMPENSATION
12 Months Ended
Nov. 30, 2012
Equity [Abstract]
12. STOCK-BASED COMPENSATION

 

12. Stock-Based Compensation

 

The Company’s Amended and Restated 2008 Directors, Officers and Employees Stock Option Plan, which was originally approved by stockholders at the annual general meeting of the Company held on December 5, 2007, and subsequently amended by the stockholders on July 23, 2008. This plan was established to enable the Company to attract and retain the services of highly qualified and experienced directors, officers, employees and consultants and to give such persons an interest in the success of the Company and its subsidiaries. The total number of shares currently authorized under the plan is 391,134. The options and awards will be granted at the discretion of the Board of Directors. Options issued under the plan that are deemed to be incentive stock options will be priced at not less than 100% of the fair market value of the common shares at the date of the grant, subject to certain limitations for 10 percent stockholders. The fair value of each option granted is estimated at the time of grant using the Black-Scholes option pricing model using the following assumptions:

   

Fiscal Year ended November 30,   2011     2012  
             
Exercise price ($)     7.67       7.67  
Risk-free interest rate     2.00 %   1.92% to 2.08%  
Expected term (Years)     10       10  
Expected volatility     100 %     100 %
Expected dividend yield     0 %     0 %
Fair value of option ($)     6.86     6.86 to 6.90  
Expected forfeiture rate   Nil     Nil  

 

All the grants vest quarterly over a two year period and expire on the tenth anniversary of the grant date. The following table summarizes the stock option activities of the Company:

 

   

Number of

options

 
Outstanding as of December 1, 2010     333,768  
Granted     5,215  
Exercised     -  
Cancelled/forfeited     -  
Outstanding as of November 30, 2011     338,983  
Granted     44,327  
Exercised     -  
Cancelled/forfeited     -  
Outstanding as of November 30, 2012     383,310  

 

As of November 30, 2012 the Company has granted a total of 383,310 options to purchase common stock to employees, directors and advisory board members, all of which are currently outstanding and of which 350,716 are vested and exercisable. All of these outstanding stock options have an exercise price above the average market price.

 

The Company recorded $99,233 and $246,949 in general and administrative expenses for share-based compensation expense for the years ended November 30, 2011 and 2012, respectively, with corresponding credits to additional paid-in capital. As of November 30, 2012, the total fair value of the options granted to employees at the respective grant dates was $1,458,698, of which the unrecognized portion of $107,882 related to the unvested shares associated with these stock option grants will be recognized over a period of two years. The Company will issue new shares upon exercise of the stock options.

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13. FAIR VALUE MEASUREMENTS, CONCENTRATIONS AND RISK
12 Months Ended
Nov. 30, 2012
Fair Value Disclosures [Abstract]
13. FAIR VALUE MEASUREMENTS, CONCENTRATIONS AND RISK

 

13.  Fair Value Measurements, Concentrations and Risk

 

a)   The Company's cash and cash equivalents, which are carried at fair value, are classified as a level 1 financial instrument at November 30, 2011 and 2012.

 

b)   The Company is exposed to the following concentrations of risk:

 

Major Customers

 

The Company's revenue was earned primarily from three major customers in 2012 comprising 39%, 26% and 21% of total revenue (2011 - one major customer accounted for 83% of total revenue).

  

Major Vendor

 

The Company has an exclusive agreement to manufacture biodiesel processor equipment with Turn-Key Modular Systems Inc. (“Turnkey”), a stockholder. During the year ended November 30, 2012, the Company made purchases of $2,611,266 (November 30, 2011 - $73,829) from Turnkey. As of November 30, 2012, the Company has accounts payable of $51,414 (2011 - $51,701) and deposits of $nil (2011 - $860,923) with Turnkey.

 

Economic and Political Risks

 

The Company faces a number of risks and challenges as a result of having primary operations and marketing in Canada.  Changing political climates in Canada could have a significant effect on the Company’s business.

 

c)   The Company’s financial instruments are exposed to certain financial risks, including credit risk, currency risk and liquidity risk.

 

Credit Risk

 

Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations, and arises principally from the Company's cash and cash equivalents and trade accounts receivable. The Company places its cash and cash equivalents with institutions of high creditworthiness. The carrying value of the financial assets represents the maximum credit exposure.

 

The Company minimizes credit risk by routinely reviewing the credit risk of the counterparty to the arrangement and has maintained adequate allowance for losses related to credit risk at November 30, 2011 and 2012.

 

Currency Risk

 

The Company is exposed to financial risk related to the fluctuation of foreign exchange rates.   The Company's functional currency is U.S. dollars.  A significant change in the currency exchange rates between the U.S. dollar relative to the Canadian dollar could have an effect on the Company's results of operations, financial position and cash flows.  The Company has not entered into any derivative financial instruments to manage exposures to currency fluctuations.

 

Liquidity Risk

 

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due.  The Company has a planning and budgeting process in place to help determine the funds required to support the Company's normal operating requirements on an ongoing basis and its expansionary plans.  The Company ensures that there are sufficient funds to meet its short-term business requirements, taking into account its anticipated cash flows from operations and its holdings of cash.

 

As at November 30, 2012, due in large part to the funds spent to develop and build the Sombra facility, the Company had a working capital deficiency of $2,860,019.

 

As described in notes 1 and 11, on October 30, 2012, the Company completed its IPO pursuant to which it sold 560,000 Units and raised net proceeds of approximately $1.8 million, after deducting the underwriting fees and offering expenses. The Company anticipates that its Sombra facility will generate positive cash flow from operations and will operate profitably once full-scale commercial operations are achieved. It is management’s opinion that the anticipated positive cash flows from operations, cash from additional and refinanced loans along with the proceeds from the subsequent Private Placement referred to in Note 18, will be sufficient to meet the Company’s cash requirements.

 

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14. SUBSCRIPTION RECEIVABLE
12 Months Ended
Nov. 30, 2012
Notes to Financial Statements
14. SUBSCRIPTION RECEIVABLE

 

14.  Subscription Receivable

 

On January 29, 2009, the Company received and executed a subscription agreement from Softdiffusion S.A. for a total of 61,741 shares of common stock at $7.67 per share, or an aggregate investment of $473,556. Softdiffusion S.A. paid for the shares on January 29, 2009 by delivering a promissory note with a principal balance of $473,556. As of November 30, 2011 Softdiffusion S.A. had paid the Company a total of $427,500 leaving an outstanding balance of $46,056. On January 5, 2012, the Company received a final payment of $46,056 from Softdiffusion S.A. in relation to the subscription receivable.

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15. COMMITMENTS
12 Months Ended
Nov. 30, 2012
Commitments and Contingencies Disclosure [Abstract]
15. COMMITMENTS

 

15.  Commitments

 

Building Leases:

 

Methes Canada is a party to a lease agreement for the Mississauga facility for a term of five years from January 1, 2008 to December 31, 2012 and to a sublease agreement for a unit adjacent to its Mississauga facility from November 1, 2011 to December 31, 2012. On September 28, 2012, the Company re-negotiated and renewed a combined five year lease term for both of these facilities starting from January 1, 2013 to December 31, 2017. The renewed lease term provides for a two month rent free period in 2013.

 

As at November 30, 2012, Methes Canada must pay, in addition to other amounts such as it’s pro rata share of taxes, the following amounts over the term of the lease:

 

    Annual  
    Minimum Rent  
       
2013   $ 128,764  
2014   $ 144,958  
2015   $ 144,958  
2016   $ 144,958  
2017   $ 144,958  
2018   $ 12,080  

 

Railroad Car Leases:

 

As at November 30, 2012, the Company is a party to the following lease agreements for railcars at its Sombra facility:

 

     Start Date  End Date   Term 
              
 Eight railcars at $3,500 per month   1-Aug-10  31-Jul-13   36 months 
              
 Four railcars at $2,000 per month   1-Aug-10  31-Jul-13   36 months 
              
 Four railcars at $3,140 per month   Dec. 1, 2011  Nov. 30, 2016   60 months 
              
 One railcar at $575 per month   Jan. 1, 2012  Dec. 31, 2016   60 months 
              
 One railcar at $575 per month   1-May-12  30-Jun-15   36 months 
              
 Ten railcars at $8,700 per month   1-May-13  30-Jun-18   60 months 

 

   

Annual

Minimum Rent

 
       
2013   $ 156,380  
2014   $ 155,880  
2015   $ 153,005  
2016   $ 148,980  
2017   $ 104,975  
2018   $ 104,400  

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16. CONTRIBUTION AGREEMENTS WITH MINISTER OF NATURAL RESOURCES OF CANADA
12 Months Ended
Nov. 30, 2012
Notes to Financial Statements
16. CONTRIBUTION AGREEMENTS WITH MINISTER OF NATURAL RESOURCES OF CANADA

16.  Contribution Agreements with Minister of Natural Resources of Canada

 

In 2009, the Company entered into a Non-Refundable Contribution Agreement with the Minister of Natural Resources of Canada for the Mississauga facility under the ecoENERGY for Biofuels program. Under this agreement, the Company may receive up to $5,635,840 (CDN$5,600,000) in the years from 2009 to 2016 from the Canadian government in biodiesel production incentives when biodiesel is produced and sold. The contribution from the Canadian Government is non-refundable by the Company.

 

For the year ended November 30, 2012, the Company claimed incentives of $299,540 (2011 - $518,872).  Since entering into the program to November 30, 2012, the Company has claimed total incentives of $1,448,115 and has received total amount of $1,401,299.

 

Included in accounts receivable as at November 30, 2011 and 2012 is an amount receivable of $107,663 and $46,816 respectively, due from the Minister of Natural Resources of Canada.

 

In 2010, the Company applied for an incentive under the ecoENERGY for Biofuels program for its Sombra facility and was approved by the Canadian government. The final Contribution Agreement with the Minister of Natural Resources of Canada for the Sombra facility under the ecoENERGY for Biofuels program was signed by the Company and the Canadian Government on December 6, 2011.  Under this agreement, the Company may receive up to $22,645,208 (CDN$22,501,200) in the years from 2012 to 2017 from the Canadian government in biodiesel production incentives when biodiesel is produced and sold. The contribution from the Canadian Government is non-refundable by the Company. As of November 30, 2012, the Company has earned $nil pursuant to this agreement.

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17. SEGMENT INFORMATION
12 Months Ended
Nov. 30, 2012
Segment Reporting [Abstract]
17. SEGMENT INFORMATION

 

17. Segment Information

 

The Company reports in a single operating segment, being a producer and seller of biodiesel fuel and biodiesel processing equipment.

 

Geographic segments:

 

The Company's assets and operating facilities, other than cash balances of $1,361,889 at November 30, 2011 and $336,065 at November 30, 2012, are all located in Canada. The Company services the majority of its customers in the United States.  The Company derives its revenue geographically as follows:

 

   

Year Ended

November 30,

2011

   

Year Ended

November 30,

2012

 
Revenue            
             
United States   $ 10,005,878     $ 5,678,693  
Canada     1,779,975       871,055  
                 
    $ 11,785,853     $ 6,549,748  

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18. SUBSEQUENT EVENTS
12 Months Ended
Nov. 30, 2012
Subsequent Events [Abstract]
18. SUBSEQUENT EVENTS

 

18. Subsequent Events

 

The Company has performed an evaluation of subsequent events through February 20, 2013, and has determined there have been the following material subsequent events requiring disclosure:

 

a)   On January 26, 2013, the Company borrowed $400,000 from a lender and issued to the lender a demand promissory note in the principal amount of $400,000 bearing interest of 8% per annum.  Repayment of the loan and payment of the accrued interest will be due upon demand.

 

b)   In December 2012, the Company commenced a private placement to accredited investors of up to 425,000 Units at $4.00 per Unit, each consisting of one share of Common Stock, one Class A Warrant, to purchase one share of Common Stock at an exercise price of $7.50, and one Class B Warrant, to purchase one share of Common Stock at an exercise price of $10.00, (the “Private Placement”).  The Class A and Class B warrants are exercisable for a period of five years commencing from October 12, 2012, the effective date of the IPO. On February 19, 2013, the Company completed the Private Placement and raised net proceeds of approximately $1.5 million, after deducting the sales commission and fees.

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
12 Months Ended
Nov. 30, 2012
Accounting Policies [Abstract]
Basis of Presentation

a)   Basis of Presentation

 

The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and are expressed in United States dollars. The Company’s fiscal year-end is November 30.

 

The Company is an emerging growth company (EGC) pursuant to Jumpstart Our Business Startups Act of 2012 (the JOBS Act). Under Section 102(b) of the JOBS Act, the Company has elected to apply any new or revised financial accounting standard on the same date a company that is not an issuer is required to apply the new or revised accounting standard, if the standard applies to a non-issuer. If the new or revised accounting standard does not apply to a non-issuer, then the Company will apply it according to the transition provisions for a non-EGC. The Company’s election to use the extended transition period for complying with new or revised accounting standards under Section 102(b) of the JOBS Act had no impact on the consolidated financial statements as of November 30, 2012.

Basis of Consolidation

 

b)   Basis of Consolidation

 

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries Methes Canada and Methes USA.  All significant inter-company transactions and balances have been eliminated. Methes Canada was incorporated on December 23, 2004, and became a wholly-owned subsidiary of the Company on September 5, 2007. Methes USA was incorporated as a wholly-owned subsidiary of the Company on June 27, 2007.

Reverse Stock Split

 

c)   Reverse Stock Split

 

The Company implemented a reverse stock split of one share for each 3.835 outstanding shares of common stock, effective on June 11, 2012. The reverse stock split proportionately reduced all issued and outstanding shares of the Company’s common stock, as well as the common stock underlying stock options and warrants outstanding immediately prior to the effectiveness of the reverse stock split. The exercise price on outstanding equity based-grants was proportionately increased, while the number of shares available under the Company’s equity-based plans was proportionately reduced. Share and per share data (except par value) for all periods presented reflect the effects of this reverse stock split on a retroactive basis.

Use of Estimates

d)   Use of Estimates

 

The preparation of consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Areas involving significant estimates and assumptions include: inventory valuation reserves; allowance for doubtful accounts; deferred income tax liabilities and assets, and related valuation allowances; expected future cash flows used in evaluating intangible assets and property, plant and equipment for impairment; warranty provision on processing equipment sold; estimated useful life of property, plant and equipment and intangible assets; and valuation of stock options. The estimates and assumptions made require judgment on the part of management and are based on the Company’s historical experience and various other factors that are believed to be reasonable in the circumstances. Management continually evaluates the information that forms the basis of its estimates and assumptions as the business of the Company and the business environment generally changes. If historical experience and other factors used by management to make these estimates do not reasonably reflect future activity, the Company’s consolidated financial statements could be materially impacted.

Cash and Cash Equivalents

e)   Cash and Cash Equivalents

 

The Company considers all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents consist primarily of bank deposits held in the United States and Canada.

Inventories

f)   Inventories

 

The Company’s inventories consist primarily of bulk biodiesel, methanol, catalyst, crude glycerin and biodiesel processing equipment and are valued at the lower of cost and market value, with cost determined on a weighted average basis. Cost for finished goods inventories includes materials, direct labor, and an allocation of overheads. Market for raw materials is replacement cost, and for finished goods is net realizable value.

 

The Company evaluates the carrying value of inventories on a regular basis, taking into account such factors as historical and anticipated future sales compared with quantities on hand and the price the Company expects to obtain for products in the market compared with historical cost.

Allowance for Doubtful Accounts

g)   Allowance for Doubtful Accounts

 

The Company establishes an allowance for doubtful accounts based on management’s assessment of the collectability of trade receivables.  A considerable amount of judgment is required in assessing the amount of the allowance.  The Company makes judgments about the creditworthiness of each customer based on ongoing credit evaluations, and monitors current economic trends that might impact the level of credit losses in the future.  If the financial condition of the customers were to deteriorate, resulting in their inability to make payments, a specific allowance will be required. Account balances are charged off against the allowance when the Company believes it is probable the receivable will not be recovered.

Revenue Recognition

h)   Revenue Recognition

 

Revenue is recognized in accordance with ASC 605, "Revenue Recognition in Financial Statements."  Under ASC 605, product or service revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or service has been performed, the sales price is fixed and determinable and collectability is reasonably assured. The Company has not experienced any material expense in satisfying warranties. Details of specific recognition by product or service categories are as follows:

 

§ Revenue from the sale of biodiesel and its co-product, biodiesel processing equipment and feedstock is recognized when title and possession of the product is transferred to the customer. Possession is transferred to the customer at the time of shipment from the Company’s facility or at the time of delivery to a specified destination, depending on the terms of the sale.

 

§ The ecoENERGY incentive is recognized as revenue when the right to receive is established upon production and sale of biodiesel.

 

§ Revenue from services is recognized as services are performed.

 

§ Royalty revenue is recognized on an accrual basis in accordance with the Sales & Licensing Agreement of the biodiesel processing equipment sale. Royalty is charged on gallons of biodiesel produced by the Company's customers using the Company’s biodiesel processing equipment.

Shipping and Handling Costs

 

i)   Shipping and Handling Costs

 

The Company accounts for shipping and handling fees in accordance with FASB ASC 705 “Cost of Sales and Services”. Shipping and handling costs for the years ended November 30, 2011 and 2012 were $561,065 and $344,146, respectively. Costs related to raw materials purchased, are included in inventory or cost of goods sold, as appropriate. While amounts charged to customers for shipping product are included in revenues, the related outbound freight costs are included in expenses as incurred.

Deferred Financing Fees

 

j)   Deferred Financing Fees

 

Costs directly incurred in connection with the IPO were recorded as deferred financing fees until the completion of the IPO. These deferred financing fees were charged against additional paid-in capital upon completion of the IPO. Financing fees relating to other financing arrangements are deferred and amortized over the term of the loan. Deferred financing fees as at November 30, 2011 and 2012 were $nil and  $26,334, respectively.

Financial Instruments

k)   Financial Instruments

 

The Company’s financial instruments recognized in the consolidated balance sheets and included in working capital consist of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, amounts due to related parties and short-term loan. The fair values of these instruments approximate their carrying values due to their short-term maturities.

Fair Value Measurements

l)   Fair Value Measurements

 

Financial instruments that are measured subsequent to initial recognition at fair value are grouped into hierarchy based on the degree to which the fair value inputs are observable.

 

Fair value is defined 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 (i.e., an exit price). Fair value measurements are estimated based on inputs categorized as follows:

 

§ Level 1 inputs include quoted prices (unadjusted) for identical assets or liabilities in active markets that are observable.

 

§ Level 2 inputs include 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; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

 

§ Level 3 includes unobservable inputs that reflect the Company's own assumptions about what factors market participants would use in pricing the asset or liability.

 

  When measuring fair value, the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs.

Foreign Currency Translation

m)   Foreign Currency Translation

 

The functional currency of the Company and its subsidiaries is the United States dollar. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction.  Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Non-monetary assets and liabilities are translated using the historical rate on the date of the transaction. Revenue and expenses are translated at average rates in effect during the reporting periods. All exchange gains or losses arising from translation of these foreign currency transactions are included in net income (loss) for the year. The Company has not, to the date of these consolidated financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.

Income Taxes and Uncertain Tax Positions

 

n)   Income Taxes and Uncertain Tax Positions

 

The Company accounts for income taxes under ASC 740 Accounting for Income Taxes. Under ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the periods in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. ASC 740-10-05, Accounting for Uncertainty in Income Taxes, prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return.

 

For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities.

 

The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Potential tax benefits from net operating losses and foreign tax credit carry forwards are not recognized by the Company until their realization is more likely than not. We assess the validity of our conclusions regarding uncertain tax positions on a quarterly basis to determine if facts or circumstances have arisen that might cause us to change our judgment regarding the likelihood of a tax position’s sustainability under audit.  The Company has determined that there were no tax exposures as at November 30, 2011 and 2012.

Stock-based Compensation

o)   Stock-based Compensation

 

The Company maintains a stock-based compensation plan under which incentive stock options to buy common stocks may be granted to directors, officers and employees. Pursuant to ASC 718, the Company recognizes expense for its stock-based compensation based on the fair value of the awards that are granted. The fair values of stock options are estimated at the date of grant using the Black-Scholes option pricing model, that require the input of highly subjective assumptions. Measured compensation cost is recognized ratably over the vesting period of the related stock-based compensation award. The amount recognized as expense is adjusted to reflect the number of stock options expected to vest. When exercised, stock options are settled through the issuance of common stock and are therefore treated as equity awards. The expected volatility of our common stock is estimated using an average of volatilities of publicly traded companies in similar renewable energy businesses.

Property, Plant and Equipment

p)   Property, Plant and Equipment

 

Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation is provided using the straight-line basis at the following annual rates reflecting the estimated useful lives of the assets:

 

Sombra facility:  
Building 40 years
Equipment 5 years
Equipment - Denami 3000 25 years
   
Mississauga facility:  
Computer equipment 2 years
Leasehold improvements Over the lease term
Equipment and fixtures 5 years
Equipment - Denami 600 25 years
Intangible Assets

q)   Intangible Assets

 

The Company’s finite-lived intangible assets consist of acquired intellectual property from a third party for the design and engineering of Denami 600 and Denami 3000 biodiesel processor equipment.  The intangible assets related to the Denami 600 and Denami 3000 are recorded at cost, less accumulated amortization and the amortization is provided over their 25 year estimated useful life on a straight-line basis.

Impairment of Long-Lived Assets

r)   Impairment of Long-Lived Assets

 

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable through undiscounted future cash flows. If impairment exists based on expected future undiscounted cash flows, a loss is recognized in income. The amount of the impairment loss is the excess of the carrying amount of the impaired asset over the fair value of the asset, typically based on discounted future cash flows. The Company has assessed its long-lived assets and has determined that there was no impairment in their carrying amounts at November 30, 2011 and 2012.

Per Share Data

 

s)   Per Share Data

 

Basic earnings per share (“EPS”) is determined by dividing net earnings available to common stockholders (numerator) by the weighted average number of shares outstanding (denominator) during the year. In computing diluted EPS, the average number of shares of Common Stock outstanding is increased by Common Stock options and warrants outstanding if the exercise prices were lower than the average market price of Common Stocks using the treasury stock method. Diluted earnings per share exclude all potentially dilutive shares if their effect is anti-dilutive. Potentially dilutive shares include 65,189 warrants and 338,983 Common Stock options issued and outstanding as at November 30, 2011 and 1,267,264 warrants and 383,310 Common Stock options issued and outstanding as at November 30, 2012. All outstanding warrants and options have an anti-dilutive effect on the loss per share and are therefore excluded from the determination of the 2011 and 2012 diluted loss per share calculation.

New Accounting Pronouncements

 

t)   Recent Accounting Pronouncements

 

In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and the International Financial Reporting Standards (IFRS). The amendments in the update are intended to result in convergence between U.S. GAAP and IFRS requirements for measurement of, and disclosures about, fair value. ASU 2011-04 clarifies or changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. The amendments in this update are to be applied prospectively. The amendments are effective during interim and annual periods beginning after December 15, 2011. The Company adopted this statement effective March 1, 2012. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

 

In September 2011, the FASB issued ASU 2011-08, Intangibles—Goodwill and Other, which amends ASC Topic 350 and the current guidance on testing goodwill for impairment. Under the revised guidance, entities testing goodwill for impairment have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit exceeds its carrying amount. If an entity determines it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, then performing the two-step impairment test is unnecessary. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.  The Company does not believe the adoption of this standard will have a material impact on its consolidated financial statements.

 

In December 2011, the FASB issued ASU No. 2011-11, Disclosures about Offsetting Assets and Liabilities (Topic 210). The new disclosure requirements mandate that entities disclose both gross and net information about instruments and transactions eligible for offset in the statement of financial position as well as instruments and transactions subject to an agreement similar to a master netting arrangement. In addition, the standard requires disclosure of collateral received and posted in connection with master netting agreements or similar arrangements. The amendments are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The disclosures required by the amendments are required to be applied retrospectively for all comparative periods presented. The Company does not believe the adoption of this standard will have a material impact on its consolidated financial statements.

 

All other recent pronouncements issued by the FASB or other authoritative standards groups with future effective dates are either not applicable or are not expected to be significant to the consolidated financial statements of the Company.

 

Recent Accounting Pronouncements

 

t)   Recent Accounting Pronouncements

 

In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and the International Financial Reporting Standards (IFRS). The amendments in the update are intended to result in convergence between U.S. GAAP and IFRS requirements for measurement of, and disclosures about, fair value. ASU 2011-04 clarifies or changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. The amendments in this update are to be applied prospectively. The amendments are effective during interim and annual periods beginning after December 15, 2011. The Company adopted this statement effective March 1, 2012. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

 

In September 2011, the FASB issued ASU 2011-08, Intangibles—Goodwill and Other, which amends ASC Topic 350 and the current guidance on testing goodwill for impairment. Under the revised guidance, entities testing goodwill for impairment have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit exceeds its carrying amount. If an entity determines it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, then performing the two-step impairment test is unnecessary. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.  The Company does not believe the adoption of this standard will have a material impact on its consolidated financial statements.

 

In December 2011, the FASB issued ASU No. 2011-11, Disclosures about Offsetting Assets and Liabilities (Topic 210). The new disclosure requirements mandate that entities disclose both gross and net information about instruments and transactions eligible for offset in the statement of financial position as well as instruments and transactions subject to an agreement similar to a master netting arrangement. In addition, the standard requires disclosure of collateral received and posted in connection with master netting agreements or similar arrangements. The amendments are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The disclosures required by the amendments are required to be applied retrospectively for all comparative periods presented. The Company does not believe the adoption of this standard will have a material impact on its consolidated financial statements.

 

All other recent pronouncements issued by the FASB or other authoritative standards groups with future effective dates are either not applicable or are not expected to be significant to the consolidated financial statements of the Company.

 

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)
12 Months Ended
Nov. 30, 2012
Summary Of Significant Accounting Policies Tables
Estimated useful lives schedule

 

Sombra facility:  
Building 40 years
Equipment 5 years
Equipment - Denami 3000 25 years
   
Mississauga facility:  
Computer equipment 2 years
Leasehold improvements Over the lease term
Equipment and fixtures 5 years
Equipment - Denami 600 25 years

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3. ACCOUNTS RECEIVABLE (Tables)
12 Months Ended
Nov. 30, 2012
Receivables [Abstract]
Accounts receivable
    As at November 30, 2011     As at November 30, 2012  
             
Trade receivables   $ 1,122,323     $ 333,418  
Allowance for doubtful accounts     -       (30,000 )
                 
    $ 1,122,323     $ 303,418  
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4. INVENTORIES (Tables)
12 Months Ended
Nov. 30, 2012
Inventory Disclosure [Abstract]
Schedule of Inventories

 

    As at November 30, 2011     As at November 30, 2012  
             
Raw materials   $ 382,736     $ 330,627  
Finished goods     804,706       739,205  
Equipment (i)     -       126,966  
                 
    $ 1,187,442     $ 1,196,798  

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5. PROPERTY, PLANT AND EQUIPMENT (Tables)
12 Months Ended
Nov. 30, 2012
Property, Plant and Equipment [Abstract]
Schedule of Property, Plant and Equipment

 

 

     As at November 30, 2011  
          Accumulated     Net Book  
    Cost     Depreciation     Value  
Sombra site (note 8):                  
Land   $ 409,134     $ -     $ 409,134  
Building     1,385,835       120,819       1,265,016  
Equipment     278,082       168,795       109,287  
Equipment - Denami 3000 (under construction)     467,904       -       467,904  
Mississauga site:                        
Computer equipment     20,311       10,499       9,812  
Leasehold improvements     102,201       34,655       67,546  
Equipment and fixtures     153,503       116,271       37,232  
Equipment - Denami 600     707,282       104,514       602,768  
                         
    $ 3,524,252     $ 555,553     $ 2,968,699  

 

    As at November 30, 2012  
          Accumulated     Net Book  
    Cost     Depreciation     Value  
Sombra site:                  
Land   $ 409,134     $ -     $ 409,134  
Building     2,820,294       168,663       2,651,631  
Equipment     727,020       257,475       469,545  
Equipment - Denami 3000     3,964,293       25,059       3,939,234  
Mississauga site:                        
Computer equipment     30,014       20,589       9,425  
Leasehold improvements     102,202       45,218       56,984  
Equipment and fixtures     255,463       146,782       108,681  
Equipment - Denami 600     720,042       132,850       587,192  
                         
    $ 9,028,462     $ 796,636     $ 8,231,826  

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6. INTANGIBLE ASSETS (Tables)
12 Months Ended
Nov. 30, 2012
Goodwill and Intangible Assets Disclosure [Abstract]
Major components of finite-lived intangible assets
    As at November 30, 2011  
          Accumulated     Net Book  
    Cost     Amortization     Value  
                   
Denami 600   $ 414,174     $ 74,551     $ 339,623  
Denami 3000     60,735       -       60,735  
                         
    $ 474,909     $ 74,551     $ 400,358  

 

    As at November 30, 2012  
          Accumulated     Net Book  
    Cost     Amortization     Value  
                   
Denami 600   $ 414,174     $ 91,477     $ 322,697  
Denami 3000     90,735       405       90,330  
                         
    $ 504,909     $ 91,882     $ 413,027  
Estimated future aggregate amortization expense
    2013     2014     2015     2016     2017     Thereafter  
                                     
Amortization expense   $ 20,196     $ 20,196     $ 20,196     $ 20,196     $ 20,196     $ 312,047  
                                                 
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7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (Tables)
12 Months Ended
Nov. 30, 2012
Payables and Accruals [Abstract]
Accounts payable and accrued liabilities
    As at November 30, 2011     As at November 30, 2012  
             
Accounts payable   $ 2,270,184     $ 1,128,115  
Accrued liabilities     171,309       634,551  
                 
    $ 2,441,493     $ 1,762,666  
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9. PAYABLE TO RELATED PARTIES (Tables)
12 Months Ended
Nov. 30, 2012
Related Party Transactions [Abstract]
Schedule of Payable to Related Parties

 

    As at November 30, 2011     As at November 30, 2012  
             
Softdiffusion SA (stockholder)   $ 46,133     $ 49,333  
Michel G. Laporte (stockholder and Director)     160,389       172,389  
World Asset Management Inc. (stockholder)     314,359       1,396,277  
                 
    $ 520,881     $ 1,617,999  

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10. INCOME TAXES (Tables)
12 Months Ended
Nov. 30, 2012
Income Tax Disclosure [Abstract]
Tax reconciliation
    Year Ended November 30, 2011     Year Ended November 30, 2012  
                 
Loss before income taxes   $ 810,950     $ 3,966,765  
Expected income tax recovery     (283,833 )     (1,388,368 )
Permanent differences     36,114       220,364  
Foreign earnings taxed at rates                
   other than the U.S. statutory rate     223,325       87,315  
Increase in valuation allowance     24,394       1,080,689  
    $ -     $ -  
Deferred income tax assets and liabilities
    As at November 30, 2011     As at November 30, 2012  
Deferred income tax assets            
             
Net operating losses   $ 1,258,493     $ 2,453,326  
Less: allocated against deferred income tax liability     (291,239 )     (405,383 )
Less: valuation allowance     (967,254 )     (2,047,943 )
                 
    $ -     $ -  
                 
Deferred income tax liabilities                
                 
Property, plant and equipment and intangible assets   $ 291,239     $ 405,383  
Less: offset by deferred income tax assets     (291,239 )     (405,383 )
                 
    $ -     $ -  
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12. STOCK-BASED COMPENSATION (Tables)
12 Months Ended
Nov. 30, 2012
Stock-Based Compensation Tables
Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions
Fiscal Year ended November 30,   2011     2012  
             
Exercise price ($)     7.67       7.67  
Risk-free interest rate     2.00 %   1.92% to 2.08%  
Expected term (Years)     10       10  
Expected volatility     100 %     100 %
Expected dividend yield     0 %     0 %
Fair value of option ($)     6.86     6.86 to 6.90  
Expected forfeiture rate   Nil     Nil  
Schedule of Share-based Compensation, Stock Options, Activity
   

Number of

options

 
Outstanding as of December 1, 2010     333,768  
Granted     5,215  
Exercised     -  
Cancelled/forfeited     -  
Outstanding as of November 30, 2011     338,983  
Granted     44,327  
Exercised     -  
Cancelled/forfeited     -  
Outstanding as of November 30, 2012     383,310  
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15. COMMITMENTS (Tables)
12 Months Ended
Nov. 30, 2012
Commitments and Contingencies Disclosure [Abstract]
Schedule of Annual Minimum Rent
    Annual  
    Minimum Rent  
       
2013   $ 128,764  
2014   $ 144,958  
2015   $ 144,958  
2016   $ 144,958  
2017   $ 144,958  
2018   $ 12,080  
Schedule of lease agreements
     Start Date  End Date   Term 
              
 Eight railcars at $3,500 per month   1-Aug-10  31-Jul-13   36 months 
              
 Four railcars at $2,000 per month   1-Aug-10  31-Jul-13   36 months 
              
 Four railcars at $3,140 per month   Dec. 1, 2011  Nov. 30, 2016   60 months 
              
 One railcar at $575 per month   Jan. 1, 2012  Dec. 31, 2016   60 months 
              
 One railcar at $575 per month   1-May-12  30-Jun-15   36 months 
              
 Ten railcars at $8,700 per month   1-May-13  30-Jun-18   60 months 
Schedule of annual minimum rental payments
   

Annual

Minimum Rent

 
       
2013   $ 156,380  
2014   $ 155,880  
2015   $ 153,005  
2016   $ 148,980  
2017   $ 104,975  
2018   $ 104,400  
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17. SEGMENT INFORMATION (Tables)
12 Months Ended
Nov. 30, 2012
Segment Reporting [Abstract]
Schedule of Revenue Geographically
   

Year Ended

November 30,

2011

   

Year Ended

November 30,

2012

 
Revenue            
             
United States   $ 10,005,878     $ 5,678,693  
Canada     1,779,975       871,055  
                 
    $ 11,785,853     $ 6,549,748  
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) (USD $)
12 Months Ended
Nov. 30, 2012
Nov. 30, 2011
Summary Of Significant Accounting Policies Details Narrative
Deferred financing costs $ 26,334 $ 0
Shipping and handling costs $ 344,146 $ 561,065
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3. ACCOUNTS RECEIVABLE (Details) (USD $)
Nov. 30, 2012
Nov. 30, 2011
Accounts Receivable Details
Trade receivables $ 333,418 $ 1,122,323
Allowance for doubtful accounts (30,000) 0
Accounts receivable, net $ 303,418 $ 1,122,323
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4. INVENTORIES (Details) (USD $)
Nov. 30, 2012
Nov. 30, 2011
Inventories Details
Raw materials $ 330,627 $ 382,736
Finished goods 739,205 804,706
Equipment 126,966 0
Inventory, Total $ 1,196,798 $ 1,187,442
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5. PROPERTY, PLANT AND EQUIPMENT (Details) (USD $)
Nov. 30, 2012
Nov. 30, 2011
Property, plant and equipment, net $ 8,231,826 $ 2,968,699
Sombra - Cost
Land 409,134 409,134
Building 2,820,294 1,385,835
Equipment 727,020 278,082
Equipment - Denami 3000 (under construction) 3,964,293 467,904
Sombra - Accumulated Depreciation
Land 0 0
Building 168,663 120,819
Equipment 257,475 168,795
Equipment - Denami 3000 (under construction) 25,059 0
Sombra - NetBookValue
Land 409,134 409,134
Building 2,651,631 1,265,016
Equipment 469,545 109,287
Equipment - Denami 3000 (under construction) 3,939,234 467,904
Mississauga - Cost
Land 30,014 20,311
Building 102,202 102,201
Equipment 255,463 153,503
Equipment - Denami 600 720,042 707,282
Mississauga - Accumulated Depreciation
Land 20,589 10,499
Building 45,218 34,655
Equipment 146,782 116,271
Equipment - Denami 600 132,850 104,514
Mississauga - NetBookValue
Land 9,425 9,812
Building 56,984 67,546
Equipment 108,681 37,232
Equipment - Denami 600 $ 587,192 $ 602,768
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5. PROPERTY, PLANT AND EQUIPMENT (Details Narrative) (USD $)
12 Months Ended
Nov. 30, 2012
Nov. 30, 2011
Property Plant And Equipment Details Narrative
Depreciation Expense $ 241,083 $ 157,712
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6. INTANGIBLE ASSETS (Details) (USD $)
Nov. 30, 2012
Nov. 30, 2011
Intangible assets, net $ 413,027 $ 400,358
Cost
Denami 600 414,174 414,174
Denami 3000 90,735 60,735
Accumulated Amortization
Denami 600 91,477 74,551
Denami 3000 405 0
Net Book Value
Denami 600 322,697 339,623
Denami 3000 $ 90,330 $ 60,735
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6. INTANGIBLE ASSETS (Details 1) (USD $)
Nov. 30, 2012
Intangible Assets Details 1
2013 $ 20,196
2014 20,196
2015 20,196
2016 20,196
2017 20,196
Thereafter $ 312,047
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7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (Details) (USD $)
Nov. 30, 2012
Nov. 30, 2011
Accounts Payable And Accrued Liabilities Details
Accounts payable $ 1,128,115 $ 2,270,184
Accrued liabilities 634,551 171,309
Accounts payable and accrued liabilities $ 1,762,666 $ 2,441,493
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8. SHORT TERM LOAN (Details Narrative) (USD $)
12 Months Ended
Nov. 30, 2012
Nov. 30, 2011
Short Term Loan Details Narrative
Interest expense $ 149,375 $ 0
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9. PAYABLE TO RELATED PARTIES (Details) (USD $)
Nov. 30, 2012
Nov. 30, 2011
Payable to related parties $ 1,617,999 $ 520,881
Softdiffusion SA (stockholder)
Payable to related parties 49,333 46,133
Michel G. Laporte (stockholder and Director)
Payable to related parties 172,389 160,389
World Asset Management Inc. (stockholder)
Payable to related parties $ 1,396,277 $ 314,359
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10. INCOME TAXES (Details) (USD $)
12 Months Ended
Nov. 30, 2012
Nov. 30, 2011
Income Taxes Details
Loss before income taxes $ (3,966,765) $ (810,950)
Expected income tax recovery (1,388,368) (283,833)
Permanent differences 220,364 36,114
Foreign earnings taxed at rates other than the U.S. statutory rate 87,315 223,325
Increase in valuation allowance $ 1,080,689 $ 24,394
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10. INCOME TAXES (Details 1) (USD $)
Nov. 30, 2012
Nov. 30, 2011
Deferred income tax assets
Net operating losses $ 2,453,326 $ 1,258,493
Less: allocated against deferred income tax liability (405,383) (291,239)
Less: valuation allowance (2,047,943) (967,254)
Deferred income tax assets 0 0
Deferred income tax liabilities
Property, plant and equipment and intangible assets 405,383 291,239
Less: offset by deferred income tax assets (405,383) (291,239)
Deferred income tax liabilities $ 0 $ 0
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12. STOCK-BASED COMPENSATION (Details) (USD $)
12 Months Ended
Nov. 30, 2012
Nov. 30, 2011
Stock-Based Compensation Tables
Exercise price ($) $ 7.67 $ 7.67
Risk-free interest rate, minimum 1.92% 2.00%
Risk-free interest rate, maximum 2.08%
Expected term (Years) 10 years 10 years
Expected volatility 100.00% 100.00%
Expected dividend yield 0.00% 0.00%
Fair value of option ($), minimum $ 6.86 $ 6.86
Fair value of option ($), maximum $ 6.9
Expected forfeiture rate 0.00% 0.00%
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12. STOCK-BASED COMPENSATION (Details 1)
12 Months Ended
Nov. 30, 2012
Nov. 30, 2011
Stock-Based Compensation Tables
Options Outstanding, Beginning 338,983 333,768
Granted 44,327 5,215
Exercised      
Cancelled/forfeited      
Options Outstanding, Ending 383,310 338,983
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12. STOCK-BASED COMPENSATION (Details Narrative) (USD $)
12 Months Ended
Nov. 30, 2012
Nov. 30, 2011
Short Term Loan Details Narrative
Share-based compensation expense $ 246,949 $ 99,233
Fair value of the options granted 1,458,698
Unrecognized portion related to the unvested shares $ 107,882
Period of recognition 2 years
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13. FAIR VALUE MEASUREMENTS, CONCENTRATIONS AND RISK (Details Narrative) (USD $)
12 Months Ended
Nov. 30, 2012
Nov. 30, 2011
Fair Value Measurements Concentrations And Risk Details Narrative
Purchases from major vendor $ 2,611,266 $ 73,829
Payables from major vendor 51,414 51,701
Working capital deficiency $ 2,860,019
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14. SUBSCRIPTION RECEIVABLE (Details Narrative) (USD $)
Nov. 30, 2012
Nov. 30, 2011
Subscription Receivable Details Narrative
Subscription receivable $ 0 $ 46,056
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15. COMMITMENTS (Details) (USD $)
Nov. 30, 2012
Mississauga Facility
2013 $ 128,764
2014 144,958
2015 144,958
2016 144,958
2017 144,958
2018 12,080
Sombra Facility
2013 156,380
2014 155,880
2015 153,005
2016 148,980
2017 104,975
2018 $ 104,400
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15. COMMITMENTS (Details 1)
Nov. 30, 2012
Agreement 1
Start Date Aug 1, 2010
End Date Jul 31, 2013
Term 3 years
Agreement 2
Start Date Aug 1, 2010
End Date Jul 31, 2013
Term 3 years
Agreement 3
Start Date Dec 1, 2011
End Date Nov 30, 2016
Term 5 years
Agreement 4
Start Date Jan 1, 2012
End Date Dec 31, 2016
Term 5 years
Agreement 5
Start Date May 1, 2012
End Date Jun 30, 2015
Term 3 years
Agreement 6
Start Date May 1, 2013
End Date Jun 30, 2018
Term 5 years
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16. CONTRIBUTION AGREEMENTS WITH MINISTER OF NATURAL RESOURCES OF CANADA (Details Narrative) (USD $)
12 Months Ended
Nov. 30, 2012
Nov. 30, 2011
Contribution Agreements With Minister Of Natural Resources Of Canada Details Narrative
Government Incentives $ 299,540 $ 518,872
Accounts receivable - Minister of Natural Resources of Canada $ 46,816 $ 107,663
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17. SEGMENT INFORMATION (Details) (USD $)
12 Months Ended
Nov. 30, 2012
Nov. 30, 2011
Revenue
United States $ 5,678,693 $ 10,005,878
Canada 871,055 1,779,975
Segment Information, Total $ 6,549,748 $ 11,785,853
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