The fair value of the derivative liability at May 31, 2013 and November 30, 2012, totaling $192,123 and $200,535, respectively, was calculated using the Black-Scholes Option Pricing model under the assumptions detailed in Note 4.
Gains and losses (realized and unrealized) included in earnings (to change in fair value of derivative liability) for the six months ended May 31, 2013 and three months ended May 31, 2012, are reported in other expenses as follows:
Net loss per common share is based on the weighted average number of shares outstanding. Potential common shares includable in the computation of fully diluted per share results are not presented in the financial statements as their effect would be anti-dilutive.
Certain prior year financial statement balances have been reclassified to conform to the current year presentation. These reclassifications had no effect on the recorded net loss.
There are several new accounting pronouncement issued or proposed by the Financial Accounting Standards Board (FASB). Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe any of these accounting pronouncements has had or will have a material impact on the Companys financial position or operating results.
In June 2008, the FASB finalized ASC 815, Determining Whether an Instrument (or Embedded Feature) is indexed to an Entitys Own Stock. Under ASC 815, instruments which do not have fixed settlement provisions are deemed to be derivative instruments. The Company has determined that it needs to account for 8 convertible debentures (see note 3h) issued for its shares of common stock, as derivative liabilities, and apply the provisions of ASC 815. The instruments have a ratchet provision that adjust either the exercise price and/or quantity of the shares as the conversion price equals to 60% of the "market price" at the time of conversion, which "market price" will be calculated as the average of the three lowest "trading prices" for the Company's common stock during the ten day trading period prior to the date the conversion note is sent to the Company.
As a result, the instruments need to be accounted for as derivative liabilities. In accordance with ASC 815, these convertible debentures have been re-characterized as derivative liabilities. ASC 815, Accounting for Derivative Instruments and Hedging Activities (ASC 815) requires that the fair value of these liabilities be re-measured at the end of every reporting period with the change in fair value reported in the consolidated statement of operations.
The fair value of the derivative liabilities was measured using the Black-Scholes option pricing model and the following assumptions:
The discount rate was based on rates established by the Federal Reserve. The Company based expected volatility on the historical volatility for its common stock. The expected life of the debentures was based on their full term. The expected dividend yield was based upon the fact that the Company has not historically paid dividends, and does not expect to pay dividends in the future.
The Company recorded a derivative liability associated with the convertible debts, as the conversion price of most debentures is variable with a conversion threshold of 60% of the market value of the Companys common stock on the date of conversion except for debentures totaling $174,530 which has a conversion threshold of 70% of the market value of the Companys common stock on the date of conversion. The initial measurement of this derivative liability is based on the value of the shares that could be issued upon entry into the convertible debt agreement. Such valuation is determined using a fair value valuation model of the potential shares that could be issued. The difference between the initial value of the derivative liability and the debt discount is charged as an expense on the change in fair value of derivative liabilities upon entry into the debt agreement. The derivative liability is adjusted at each reporting period date based on the conversion rate available at each reporting date, or until such time as the convertible debt is converted. During the six months ended May 31, 2013, $8,412 was charged to change in fair value of derivative liabilities. The value of the derivative is presented as the derivative liability in the accompanying balance sheet of the Company, less any adjustments to the value of the derivative.
At May 31, 2013, the Company reevaluated the derivative liability based on the fair value assumptions for the convertible debt that it had previously entered into as well as convertible debt entered into during the six months then ended. As of May 31, 2013, the derivative liability recorded during the six months then ended, decreased by $8,412 due to the conversion threshold being lower at this reporting date than on the date that the convertible debt had been entered into.
During the year, by mutual agreement between the Company and the investor, the following sums (which included the balance forward of $231,507 the investor had loaned in the previous year ending November 30, 2011) were converted or re-written to a number of one year notes: as described below:
December 1, 2011 for loans and accrued interest loaned on or before August 31, 2010 - $147,076
December 1, 2011 for loans and accrued interest loaned on or before November 18, 2010 - $169,030.
March 31, 2011 for loans and accrued interest loaned on or before March 31, 2011 - $105,500
June 30, 2011 for loans and accrued interest loaned on or before June 30, 2011 - $60,000
The Company raised $269 and $925 in demand notes to from its CFO during the six month period ended May 31, 2013 and the fiscal year ended November 30, 2012 respectively.
During the six months ended May 31, 2013, the Company borrowed $21,312 from an affiliated, accredited investor. The notes are unsecured, carry interest at 15% per annum and are due on demand.
On February 27, 2013, the Company issued a secured note in the amount of $1.5 million in connection with the acquisition of a 28% Working Interest in the Grand Chenier oil and gas prospect. (see Note 9).
Related party transactions
From time to time, our former CEO, Mal Bains lent money to the Company. At May 31, 2013 the balance owed was $18,346. The balance does not bear interest and is due on demand.
During 2013 and 2012, our CEO and CFO have from time to time lent money to the Company. These advances are non-interest bearing and payable upon demand. At May 31, 2013 the balance owed was $1,294.
On April 24, 2013, the Company affected a reverse stock split of 1:125 of its common shares issued and outstanding. Effective with the reverse, the Company reduced its authorized shares to 500,000,000 million shares.
Authorized capital stock consists of:
500,000,000 common shares with a par value of $0.001 per share; and
1,000,000 preferred shares with a par value of $0.001 per share
In December 2011, The Company issued 73,254,759 common shares in connection with the conversion of $46,170 of convertible debentures and interest. The shares were issued at an average price of $0.00063 per share.
In January 2012, the Company issued 164,097,069 common shares in connection with the conversion of $39,023 of convertible debentures and interest. The shares were issued at an average price of $0.00024 per share.
In February 2012, the Company issued 148,806,139 common shares in connection with the conversion of $35,050 of convertible debentures and interest. The shares were issued at an average price of $0.00021 per share.
In February 2012, the Company issued 28,000 preferred B shares to a consultant as compensation for consulting services rendered. The shares were issued at a price of $0.0005 per common share equivalent the closing market price on the date of issuance.
In February 2012, the Company issued 12,500 preferred B shares to each of its three directors (a total of 37,500 preferred B shares) as compensation for services rendered. The shares were issued at a price of $0.0005 per common share equivalent the closing market price on the date of issuance.
In March 2012, The Company issued 193,000,000 common shares in connection with the conversion of $50,771 of convertible debentures and interest. The shares were issued at an average price of $0.00026 per share.
In April 2012, the Company issued 316,473,684 common shares in connection with the conversion of $33,120 of convertible debentures and interest. The shares were issued at an average price of $0.0001 per share.
In May 2012, the Company issued 389,871,429 common shares in connection with the conversion of $22,041 of convertible debentures and interest. The shares were issued at an average price of $0.00006 per share.
In February 2013, the Company in connection with the acquisition of a 28% working interest in the Grand Chenier oil and gas prospect recorded 250,000 shares of Preferred C Stock to be issued at $2.00 per share. (see Note 9)
Commitments and Contingencies
In August, 2009, trading in the Companys stock was temporarily suspended in British Columbia, Canada by the British Columbia Securities Commission (BCSC). The temporary suspension was the result of what the BCSC termed suspicious trading activity due to a significant increase in the share price of the Companys stock price. Various shareholders, and the former CEO and President, Malkeet Bains have been interviewed. To date, no charges of wrongdoing have been made against the Company; however, the BCSC has requested various documents and information as part of the investigation. The Cease Trade Order is still in effect regarding trading in British Columbia, Canada, and the residents thereof. The Company cannot be certain of the outcome of the proceedings; however, we do not believe they will impact the Company itself. Accordingly, the Company has not reserved for any additional legal fees, which the Company believes will be nominal and expensed as incurred.
In ongoing proceedings, the BCSC accepted plea agreements from several individuals in connection with its investigation into the above referenced matter. The Company and current management are NOT involved in the proceedings and have no connection to any of the individuals under investigation.
Under a consulting agreement between American Mineral and Internet Marketing Solutions, Inc. (IMS) provides that IMS will receive a Consulting Fee of ten percent (10%) of the gross value of the project received by American Mineral including cash, stock and stock purchase warrants.
Acquisition of Working Interest
On February 27, 2013, the Company acquired a 28% Working Interest in the Grand Chenier oil and gas prospect in Louisiana for $2.0 million in stock and notes as follows:
250,000 shares of Preferred C Stock at a price of $2.00 per share for a total value of $500,000. The Preferred C Stock converts 1:100 into Common Shares of the Company; and
$1.5 million in secured notes carrying the following features:
Secured by the Working Interest;
Interest rate of 8% per annum;
To be repaid upon commencement of production at the lesser of (i) $40,552.79 per month, or (ii) 20% of the Net Income from any production
Management evaluated subsequent events through the date of this filing to determine if such events would require adjustment to or disclosure in the financial statements.
On April 24, 2013, the Company affected a reverse stock split of 1:125 of its common shares issued and outstanding.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The financial data presented below should be read in conjunction with the more detailed financial statements and related notes, which are included elsewhere in this report. Information discussed herein, as well as elsewhere in this quarterly report on Form 10-Q, includes forward-looking statements or opinions regarding future events or the future financial performance of the Company, and are subject to a number of risks and other factors which could cause the actual results to differ materially from those contained in forward-looking statements. Among such factors are general business and economic conditions, and risk factors as listed in its Annual Report on Form 10-K or listed from time to time in documents filed by the Company with the Securities and Exchange Commission.
Our Current Business
We are an exploration stage company. To date, our activities have been limited to organizational matters, the negotiation and acquisition of the Conglomerate Mesa Claims and the development of these claims. During the third quarter of 2012, the Company determined that the Conglomerate Mesa project had too long a time horizon versus the costs involved at this time. The management made a strategic decision to allow all claims held at the Conglomerate Mesa project to expire by not renewing the annual lease payments to the Bureau of Land Management and the cancellation of payments to the prospectors with whom we had partnered. Instead, the Company has determined that several very attractive alternative projects are available on the African continent, and to that end, representative of the Company visited several countries in Africa in late May 2012. Further information and developments will be forthcoming. Our company has not generated revenues since inception and has accumulated losses of $14,018,660 since inception. We do not anticipate earning revenues until such time as we have entered into commercial production of any mineral or oil and gas properties we acquire. We can provide no assurance that we will discover commercially exploitable levels of mineral resources or oil and gas resources on properties we acquire, or if such resources are discovered, that we will enter into commercial production of properties we acquire.
On February 27, 2013, the Company acquired a 28% Working Interest in the Grand Chenier oil and gas prospect in Louisiana. The property contains an estimate 9.0 million barrels of oil and was in production until approximately 2009 when the then operator failed to manage the interests and certain repairs were not made leading to the cessation of production. The Company believes that with approximately $2.0 million in capital, the field can be returned to production and additional wells within the prospect can then be brought online increasing production to a profitable level.
We are actively pursuing additional opportunities in the oil, gas, coal, and mining industries. Simultaneously, we are seeking business opportunities with established business entities for the merger of a target business with our company. In certain instances, a target business may wish to become a subsidiary of our company or may wish to contribute assets to us rather than merge. We anticipate that any new acquisition or business opportunities by our company will require additional financing. There can be no assurance, however, that we will be able to acquire the financing necessary to enable us to pursue our plan of operation. If our company requires additional financing and we are unable to acquire such funds, our business may fail.
As an exploration stage company, we are not able to fund our cash requirements through our current operations. Historically, we have been able to raise a limited amount of capital through private placements of our equity stock, but we are uncertain about our continued ability to raise funds privately. Further, we believe that our company may have difficulties raising capital until we either confirm the value of our various claims, or locate a prospective property through which we can pursue our plan of operation. If we are unable to secure adequate capital to continue our acquisition efforts, our shareholders may lose some or all of their investment and our business may fail.
Results of Operations
The following summary of our results of operations should be read in conjunction with our unaudited financial statements for the six month periods ended May 31, 2013 and 2012 which is included herein.
Our operating results for the three and six month periods ended May 31, 2013 and 2012 are summarized as follows: