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Quarterly Report (10-q)

Date : 05/15/2013 @ 6:05AM
Source : Edgar (US Regulatory)
Stock : Trio Resources, Inc. (QB) (TRII)
Quote : 0.047  0.002 (4.44%) @ 3:57PM

Quarterly Report (10-q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x QUARTERLY REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  

 

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2013

 

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 Commission file number 333-178472

 

TRIO RESOURCES, INC.

 

(Exact name of registrant as specified in its charter)

 

Nevada 1000 99-0369568

(State or Other Jurisdiction of

Incorporation or Organization)

(Primary Standard Industrial

Classification Code Number)

(IRS Employer

Identification No.)

 

(Address, including zip code, Telephone and Facsimile Number including area code, of Registrant s

Principal Executive Offices)

 

100 King Street West,

Suite 5600

Toronto, ON M5X 1C9

 

Telephone +416-409-2802

 

 

(Address and telephone number of principal executive offices)

 

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the last 90 days.

YES   NO   ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer, non-accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨

Accelerated filer   ¨

Non-accelerated filer   ¨

Smaller reporting company    x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES   ¨  NO   x

 

State the number of shares outstanding of each of the issuers classes of common equity, as of the latest practicable date: 338,650,000 as of May 14, 2013.

 

 
 

  

TABLE OF CONTENTS

  

PART I FINANCIAL INFORMATION  
Item 1 Condensed Consolidated Interim Financial Statements 3
  Condensed Consolidated Balance Sheets as at March 31, 2013 and September 30, 2012 4
  Condensed Consolidated Interim Statements of Operations and Comprehensive Loss 5
  Condensed Consolidated Interim Statements of Shareholders’ Deficit 6
  Condensed Consolidated Interim Statements of Cash Flows 7
  Notes to Condensed Consolidated Interim Financial Statements 8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosures About Market Risk 24
Item 4. Controls and Procedures 25
PART II OTHER INFORMATION  
Item 1 Legal Proceedings 25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 25
Item 3 Defaults Upon Senior Securities 25
Item 4 Mine Safety Disclosures 25
Item 5 Other Information 26
Item 6 Exhibits 26
  Signatures 26

 

2
 

 

Trio Resources, Inc.

(An Exploration Stage Company)

CONDENSED CONSOLIDATED

INTERIM FINANCIAL STATEMENTS

INDEX

 

Condensed Consolidated Balance Sheets as of March 31, 2013, and September 30, 2012 4
   
Condensed Consolidated Interim Statements of Operations and Comprehensive Loss for the three and six months ended March 31, 2013, and the period from May 16, 2012 (Inception) March 31, 2013 5
   
Condensed Consolidated Interim Statements of Stockholders’ Deficit for the period from May 16, 2012 (Inception) to March 31, 2013 6
   
Condensed Consolidated Interim Statements of Cash Flows for the six months ended March 31, 2013, and from May 16, 2012 (Inception) to March 31, 2013 7
   
Notes to Condensed Consolidated Interim Financial Statements 8-15

 

3
 

 

Trio Resources, Inc.

(An Exploration Stage Company)

Condensed Consolidated

Balance Sheets

Expressed in US Dollars

(unaudited)  

 

    As At     As At  
    March 31, 2013     September 30, 2012  
             
CURRENT ASSETS                
Cash   $ 209     $ 8,086  
Accounts receivable     137,344       -  
Inventory     1,559       1,770  
Other receivables     -       7,553  
Prepaid expenses (Note 4)     277,241       2,691  
Total Current Assets     416,353       20,100  
                 
Loan receivable - related party (Note 6)     66,600       68,820  
Patented claim (Notes 3 and 6)     10,015       10,374  
Property and equipment, net (Note 3)     119,714       115,796  
TOTAL ASSETS   $ 612,682     $ 215,090  
                 
CURRENT LIABLILITES                
Accounts payable and accrued expenses   $ 530,813     $ 62,675  
Loan payable     10,335       -  
Total current liabilities     541,148       62,675  
                 
LONG TERM LIABILITIES                
Convertible notes payable (Note 8)     1,310,138       621,049  
Convertible note payable-related party (Note 7)     339,428       298,135  
Total Liabilities     2,190,714       981,859  
                 
SHAREHOLDERS’ DEFICIT                
                 
Common stock, 400,000,000 no par value authorized; 338,650,000 issued and outstanding at March 31, 2013 (213,000,000 at September 30, 2012) (Note 4)     338,650       213,000  
Excess of purchase price over net asset value (Notes 6 and 7)     (299,105 )     (299,105 )
Additional paid in capital     312,683       -  
Accumulated other comprehensive loss     2,574       (10,296 )
Deficit accumulated during the exploration stage     (1,932,834 )     (670,368 )
Total Shareholders’ Deficit     (1,578,032 )     (766,769 )
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT   $ 612,682     $ 215,090  

 

See accompanying notes to the condensed consolidated interim financial statements

 

4
 

 

Trio Resources, Inc.

(An Exploration Stage Company)

Condensed Consolidated Interim

Statements of Operations and Comprehensive Loss

Expressed in US Dollars

(unaudited)

   

                Cumulative From  
                May 16, 2012  
    Three Months Ended     Six Months Ended     (inception) to  
    March 31, 2013     March 31, 2013     March 31, 2013  
REVENUES                    
Other revenues   $ 166,299     $ 166,299     $ 166,299  
                         
EXPENSES                        
Depreciation     3,686       7,022       10,616  
Corporate expenses     510,649       1,077,747       1,372,811  
Interest expense     56,411       106,561       121,124  
Exploration and development costs     85,518       151,735       317,546  
                         
Total Expenses     656,264       1,343,065       1,822,097  
                         
NET LOSS     (489,965 )     (1,176,766 )     (1,655,798 )
                         
Other comprehensive loss:                        
Foreign currency translation adjustment     25,751       12,870       2,574  
                         
COMPREHENSIVE LOSS   $ (464,214 )   $ (1,163,896 )   $ (1,653,224 )
                         
Weighted Average Number of common shares Outstanding, basic and diluted     338,643,889       295,888,736          
                         
Loss Per Share, basic and diluted   $ (0.0014 )   $ (0.0039 )        

 

See accompanying notes to the condensed consolidated interim financial statements

 

5
 

 

Trio Resources, Inc.

(An Exploration Stage Company)

Condensed Consolidated Interim

Statements of Shareholders’ Deficit

Expressed in US Dollars

(unaudited)

 

    Common  
Shares
    Par Value     Additional
 Paid-In  
Capital
    Excess of  
purchase
 price over
 net asset
 value
    Comprehensive
 Income
    Accumulated
 Deficit
    TOTAL  
                                           
May 16, 2012 (Inception) Issuance of common shares (Note 1)     213,000,000     $ 213,000     $ -     $ -     $ -     $ (191,336 )   $ 21,664  
Excess of purchase price over net asset value                             (299,105 )                     (299,105 )
Cumulative translation adjustment                                     (10,296 )             (10,296 )
                                                         
Deficit accumulated during period May 16, 2012 (Inception) to September 30, 2012                                             (479,032 )     (479,032 )
                                                         
September 30, 2012     213,000,000       213,000       -       (299,105 )     (10,296 )     (670,368 )     (766,769 )
Acquisition of Allied Technologies Group, Inc. (Note 1)     109,000,000       109,000                               (85,700 )     23,300  
Issuance of shares re: consulting agreement (Note 1)     16,100,000       16,100       10,733                               26,833  
Cumulative translation adjustment                                     (12,881 )             (12,881 )
Deficit accumulated during quarter ended December 31, 2012                                             (686,801 )     (686,801 )
                                                         
December 31, 2012     338,100,000       338,100       10,733       (299,105 )     (23,177 )     (1,442,869 )     (1,416,318 )
Issuance of shares re: consulting agreement     550,000       550       301,950                               302,500  
Deficit accumulated during quarter ended March 31, 2013                                     25,751       (489,965 )     (464,214 )
                                                         
March 31, 2013     338,650,000     $ 338,650     $ 312,683     $ (299,105 )   $ 2,574     $ (1,932,834 )   $ (1,578,032 )

  

Note 1: The Stock Split in the period ended December 31, 2012 resulted in negative Additional Paid In Capital. This has been charged to Accumulated Deficit as an Appropriation of Capital. The stock split has been accounted for on a retrospective basis.

 

See accompanying notes to the condensed consolidated interim financial statements

 

6
 

 

Trio Resources, Inc.

(An Exploration Stage Company)

Condensed Consolidated

Interim Statements of Cash Flows

Expressed in US Dollars

(unaudited)

  

          Cumulative from  
          May 16, 2012  
    Six Months Ended     (inception) to  
    March 31, 2013     March 31, 2013  
                 
CASH FLOWS FROM OPERATING ACTIVITIES                
Net Loss   $ (1,176,766 )   $ (1,655,798 )
Adjustment to reconcile net loss to net cash used by operating activities                
Amortization     7,022       10,616  
Stock based payment for services     329,333       329,333  
Accretion expense on convertible note payable-related party     41,293       41,293  
Changes in assets and liabilities                
(Increase) in accounts receivable     (137,344 )     (137,344 )
Decrease (increase) in other receivable     7,533       -  
Decrease (increase) in inventory     211       (1,559 )
(Increase) in prepaid expenses     (274,550 )     (277,241 )
Increase in accounts payables and accrued expenses     468,137       530,812  
Other, net     -       (970 )
NET CASH USED IN OPERATING ACTIVITIES     (735,131 )     (1,160,858 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES                
Increase in patented claim     359       (10,015 )
Loan receivable-related party     2,220       (66,600 )
Purchases of property and equipment     (12,696 )     (132,106 )
NET CASH USED IN INVESTING ACTIVITIES     (10,117 )     (208,721 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
                 
Proceeds from convertible notes payable     689,089       1,310,138  
Proceeds from loan payable     10,335       10,335  
Cash paid in acquisition     25,077       46,741  
                 
NET CASH PROVIDED BY FINANCING ACTIVITIES     724,501       1,367,214  
                 
Effect of exchange rate changes on cash     12,870       2,574  
                 
NET (DECREASE) INCREASE IN CASH     (7,877 )     209  
CASH, BEGINNING OF PERIOD     8,086       -  
CASH, END OF PERIOD   $ 209     $ 209  
                 
NON CASH FINANCIAL ACTIVITIES                
                 
Increase in Convertible Note Payable - Related Party     -       298,135  
Non cash investing and financing activities     -       (299,105 )
NON CASH FINANCIAL ACTIVITIES     -       (970 )

 

See accompanying notes to the condensed consolidated interim financial statements

 

7
 

 

Trio Resources, Inc.

(An Exploration Stage Company)

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

Expressed in US Dollars

 

1. Organization, Nature of Business, Going Concern and Management Plans

 

Organization and Nature of Business

 

Trio Resources, Inc. (the “Company” or “Trio Resources”), formerly Allied Technologies Group, Inc. (“Allied”) was incorporated in the state of Nevada on September 22, 2011.

 

On December 14, 2012 Allied entered into a transaction (the “Share Exchange”), pursuant to which the Company acquired 100% of the issued and outstanding equity securities of TrioResources AG Inc. (“Trio”), which became a wholly owned subsidiary of the Company. The acquisition was accounted for as a recapitalization using accounting principles applicable to reverse acquisitions whereby the unaudited condensed consolidated financial statements subsequent to the date of the acquisition are presented as a continuation of TrioResources AG Inc. Under reverse acquisition accounting TrioResources AG Inc. (legal subsidiary) will be treated as the accounting parent (acquirer) and Trio Resources, Inc. (legal parent) will be treated as the accounting subsidiary (acquiree). All outstanding shares have been restated to reflect the effect of the reverse acquisition, which includes one for one issuance of Trio Resources, Inc. shares to the TrioResources AG Inc. shareholders.

 

Under the terms of the Share Exchange, Ihar Yaravenka, the former sole director, officer, and principal shareholder of Trio Resources, Inc. (the “Principal Shareholder”), cancelled all 1,500,000 shares of Common Stock that he owned, which constituted 57.9% of the issued and outstanding shares of Common Stock prior to the Share Exchange.

 

As a result of the Share Exchange, Trio became the wholly owned subsidiary of the Company and the Trio Shareholders became the controlling shareholders of the Company, owning an aggregate of 66.15% of the issued and outstanding shares of Common Stock. In connection with the Share Exchange, the Principal Shareholder submitted a resignation letter resigning from his positions as the sole director and officer of the Company, effective upon the closing of the Share Exchange, and the directors of Trio were appointed to the Board of Directors of the Company, and the officers of Trio were appointed as the officers of the Company.

 

The Company has filed a Certificate of Amendment of its Articles of Incorporation (the “Charter Amendment”) with the Secretary of State of Nevada to (1) change its name from Allied Technologies Group, Inc. to Trio Resources, Inc. (the “Name Change”) and (2) increase its total authorized shares of Common Stock, from 75,000,000 shares to 400,000,000 shares (the “Authorized Share Increase”). Additionally, as a condition to close the Share Exchange, the Company’s Board of Directors approved and authorized the Company to take the necessary steps to effect a forward stock split of the issued and outstanding shares of Common Stock, such that each lot of one (1) issued and outstanding share of Common Stock shall be automatically changed and converted into one hundred (100) shares of Common Stock, payable to all holders of record of the Common Stock as of December 31, 2012 (the “Forward Stock Split”).

 

The Share Exchange was accounted for as a reverse takeover/recapitalization effected by a share exchange, wherein Trio is considered the acquirer for accounting and financial reporting purposes. The effective date of the Share Exchange Agreement is December 14, 2012 and all of the necessary accounting adjustments were fully reflected in the March 31, 2013 unaudited condensed interim consolidated financial statements.

 

8
 

 

Trio Resources, Inc.

(An Exploration Stage Company)

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

Expressed in US Dollars

 

The Company is considered to be an Exploration Stage company as defined under SEC Guide 7 (a) (4) (i) Description of Property by Issuers Engaged or to be Engaged in Significant Mining. The Company’s principal business is the exploration of mineral resources on the Company’s existing property and any new properties it may acquire and processing of mineralized material on its property.

 

Going Concern and Management’s Plans

 

The accompanying unaudited condensed consolidated interim financial statements of the Company have been prepared assuming that the Company will continue as a going concern. Since its inception on May 16, 2012, the Company has not generated significant revenue and has incurred a net loss of $1,655,798. The Company has a working capital deficit of $124,795 as at March 31, 2013, and incurred a net loss accumulated during the exploration stage of $1,932,834 as at March 31, 2013. Accordingly, it has not generated positive cash flows from operations and has primarily relied upon debt and equity financing from third parties and related parties to fund its operations. The Company has negotiated a Canadian (CDN) $500,000 Draw Down facility with Seagel Investments Corp. of which $335,000 has been drawn as at March 31, 2013. However, there can be no assurance that such financial support shall be ongoing or available on terms or conditions acceptable to the Company. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Accordingly, no adjustment relating to the recoverability and classification of recorded asset amounts and the classification of liabilities has been made to the accompanying financial statements in anticipation of the Company not being able to continue as a going concern.

 

Acquisition

 

On December 14, 2012, Trio Resources (formerly Allied Technologies Group, Inc.) entered into a transaction (the “Share Exchange”), pursuant to which the Company acquired 100% of the issued and outstanding equity securities of TrioResources AG Inc., which became a wholly owned subsidiary of the Company. Part of the consideration was a payment of $250,000 to Ihar Yaravenka, the former, sole officer, director and controlling shareholder. As at the close of the Share Exchange Allied Technologies Group Inc. had no assets or liabilities. Prior the acquisition Allied Technologies Group, Inc. was a public shell company.

 

Allied Technologies Group, Inc. was incorporated on September 22, 2011 under the laws of the state of Nevada. This company was a public shell company prior to the acquisition.

 

TrioResources AG Inc. was incorporated on May 16, 2012 under the laws of the province of Ontario, Canada, is headquartered in Toronto, Ontario, Canada. This company is an exploration company pursuing plans to focus on exploration, milling, and processing of mineralized material located on its property.

 

Pursuant to the terms and conditions of the Share Exchange Agreement, Trio Resources, Inc. acquired 100% of the capital stock, 2,130,000 common shares, of TrioResources AG Inc. in exchange for the issuance of 2,130,000 shares of common stock, of Trio Resources, Inc. In addition, the former sole director, officer, and principal shareholder of Trio Resources, Inc. (the “Principal Shareholder”), cancelled all 1,500,000 shares of Common Stock that he owned. The result is that the shareholders of TrioResourcses AG Inc. own 66.15% of the total shares of Trio Resources, Inc. outstanding effective the date of the Exchange Agreement.

 

The Share Exchange was accounted for as a reverse takeover/recapitalization effected by a share exchange, wherein TrioResources AG Inc. is considered the acquirer for accounting and financial reporting purposes.

 

9
 

 

Trio Resources, Inc.

(An Exploration Stage Company)

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

Expressed in US Dollars

 

Comparative Presentations

 

Since for accounting purposes TrioResources AG Inc. is the accounting acquirer, and since TrioResources AG Inc. was incorporated on May 16, 2012, no comparative quarterly information is being presented.

 

2. Summary of Significant Account Policies

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information and the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) and are expressed in US dollars. Accordingly, the unaudited condensed consolidated interim financial statements do not include all information and footnotes required by US GAAP for complete annual financial statements. In the opinion of management, the accompanying unaudited condensed consolidated interim financial statements reflect all adjustments, consisting of only normal recurring adjustments, considered necessary for a fair presentation. Interim operating results are not necessarily indicative of results that may be expected for the year ending September 30, 2013 or for any other interim period. The unaudited condensed consolidated interim financial statements should be read in conjunction with the audited financial statements of the Company and the notes thereto as of and for the period ended September 30, 2012 filed as an exhibit to the Form 8-K on December 17, 2012.

 

The Company’s fiscal year-end is September 30. The Company’s functional currency is CDN dollars. The Company’s reporting currency is the U.S. dollar. Assets and liabilities are translated into the U.S. dollar using the exchange rates at each balance sheet date. Revenue and expenses are translated at average rates prevailing during the reporting period. Shareholders’ equity is translated at historical rates. Adjustments resulting from translating the interim consolidated financial statements into the U.S. dollar are recorded as a separate component of accumulated other comprehensive income (loss) in the statement of shareholders’ equity (deficit).

 

Use of Estimates

 

The preparation of the unaudited condensed consolidated interim financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Estimates may include those pertaining to valuation of inventories, stockpiles and mineralized material, the estimated useful lives and valuation of plant and equipment, mineral rights, deferred tax assets, convertible debt notes, derivative liabilities, reclamation liabilities, stock-based compensation and payments, and contingent liabilities.

Actual results could materially differ from those estimates.

 

Comprehensive Income (Loss)

 

ASC 220 “Comprehensive Income” established standards for reporting and display of comprehensive income, its components and accumulated balances. The Company is disclosing this information on its statement operations and comprehensive loss. Comprehensive income comprised equity except for those transactions resulting from investments by owners and distribution to owners.

 

Cash

 

Cash, includes deposits in banks which are unrestricted as to withdrawal or use.

 

10
 

 

Trio Resources, Inc.

(An Exploration Stage Company)

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

Expressed in US Dollars

 

Inventory

 

Inventory is comprised of mineralized material that is available for immediate concentration and processing. Inventory is valued at the lower of cost or net realizable value.

 

Revenue recognition

 

The Company recognizes revenue when the following four revenue recognition criteria are met (1) persuasive evidence of an arrangement that exists; (2) delivery has occurred or services have been provided; (3) the selling price is fixed or determinable and (4) collectability is reasonably assured. Other revenue from the sale of tailings located on our property may be subject to adjustment upon final settlement of estimated metal recoveries, metal prices, weights and assays, and are recorded as adjustments to other revenue in the period of final settlement of prices, weights and assays. Such adjustments are typically not material in relation to the initial invoice amounts. In circumstances when these criteria are not met, revenue recognition is deferred until resolution occurs.

 

Mineral Property and Exploration Costs

 

The Company has been in the exploration stage since its formation on May 16, 2012, and it has been undertaking plans and taking steps to build a facility which will be capable of processing the mineralized material on its property.

 

Before mineralization is classified as “proven and probable” reserves; costs are expensed and classified as  Mineral property and exploration costs . Capitalization of mine development project costs, that meet the definition of an asset, begins once mineralization is classified as “proven and probable reserves.”

 

When it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves, the costs incurred to acquire and develop such property are capitalized. Such costs will be amortized using the units-of-production method over the estimated life of the probable reserve. If mineral properties are subsequently abandoned or impaired, any capitalized costs will be charged to operations.

 

Mineral Properties

 

Mineral property acquisition costs are capitalized when incurred and will be amortized using the units of production method over the estimated life of the reserve following the commencement of production.  If a mineral property is subsequently abandoned or impaired, any capitalized costs will be expensed in the period of abandonment or impairment.

 

Acquisition costs include cash consideration and the fair value of shares issued on the acquisition of mineral properties.

 

Exploration Costs

 

Exploration costs, which include maintenance, development and exploration of mineral claims, are expensed as incurred.  When it is determined that a mineral deposit can be economically developed as a result of establishing proven and probable reserves, the costs incurred after such determination will be capitalized and amortized over their useful lives.  To date, the Company has not established the commercial feasibility of its exploration prospects; therefore, all exploration costs are being expensed.

 

Mining Rights

 

The Company has determined that its patented mining claims meet the definition of a mineral resource asset, as defined by accounting standards, and are tangible assets. As a result, the costs of mining assets are initially capitalized as tangible assets when purchased. If proven and probable reserves are established for a property and it has been determined that a mineral property can be economically developed, costs will be amortized using the units-of-production method over the estimated life of the probable reserves. The Company’s rights to extract minerals are not limited by time. For mining rights in which proven and probable reserves have not yet been established, the Company assesses the carrying value for impairment at the end of each reporting period. During the period ended March 31, 2013, the Company did not record any impairment charges.

 

11
 

 

Trio Resources, Inc.

(An Exploration Stage Company)

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

Expressed in US Dollars

  

Impairment of Long Lived Assets

 

The Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life.

 

Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value. Management believes no impairment exists as of March 31, 2013.

 

Fair Value Measurements and Fair Value of Financial Instruments

 

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 in the principal or most advantageous market. The Company uses a fair value hierarchy that has three levels of inputs, both observable and unobservable. Accounting standards require utilization of the highest level of input to determine fair value. The three levels of input are as follows:

 

Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;

 

Level 2 - observable inputs other than Level 1, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable; and

 

Level 3 - assets and liabilities whose significant value drivers are unobservable and cooberated by little or no market data.

 

The Company’s asset recorded at fair value is cash, which is based on Level 1 inputs.

 

Income Taxes

 

Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their financial statement reported amounts, and for tax loss and credit carry-forwards. A valuation allowance is provided against deferred tax assets when it is determined to be more likely than not that the deferred tax asset will not be realized.

 

The Company determines its income tax expense in each of the jurisdictions in which it operates. The income tax expense includes an estimate of the current income tax expense, as well as deferred income tax expense, which results from the determination of temporary differences arising from the different treatment of items for book and tax purposes.

 

The Company files income tax returns in the United States and its subsidiary files income tax returns in Canada and the Province of Ontario.

 

12
 

 

Trio Resources, Inc.

(An Exploration Stage Company)

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

Expressed in US Dollars

 

The Company assesses the likelihood of the financial statement effect of a tax position that should be recognized when it is more likely than not that the position will be sustained upon examination by a taxing authority based on the technical merits of the tax position, circumstances, and information available as of the reporting date. Management does not believe that there are any uncertain tax positions that would result in an asset or liability for taxes being recognized in the accompanying unaudited condensed consolidated interim financial statements. The Company recognizes tax-related interest and penalties, if any, as a component of income tax expense.

 

FASB ASC 740 prescribes recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FASB ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. At March 31, 2013 and September 30, 2012 the Company has not taken any tax positions that would require disclosure under FASB ASC 740.

   

3. Property and Equipment:

 

On June 15, 2012, the Company acquired property and equipment from 2023682 Ontario Inc., a commonly-controlled related party (see Note 6). The cost of these acquired assets was recorded at the same historical carrying values reflected in the accounts of 2023682 Ontario Inc.

 

Equipment and buildings consist of the following: as of March 31, 2013 and September 30, 2012:

 

    March 31, 2013     September 30, 2012  
                 
Equipment   $ 97,363     $ 102,417  
Less accumulated depreciation     8,446       3,083  
Net equipment     88,917       99,334  
                 
Buildings     32,820       16,973  
Less accumulated depreciation     2,023       511  
Net buildings     30,797       16,462  
                 
Net property and equipment   $ 119,714     $ 115,796  

 

13
 

 

Trio Resources, Inc.

(An Exploration Stage Company)

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

Expressed in US Dollars

 

Depreciation expense was $3,686 and $7,022 for the three and six months ended March 31, 2013, respectively. Equipment and buildings are depreciated on a straight line basis over their estimated useful lives: equipment 15 years, and buildings 20 years.

 

Patented Claims:

 

At March 31, 2013, the Company also has mining property patent claims of $10,015. These patent claims provide the Company with mining rights to certain land located in Cobalt, Ontario, Canada. On February 4, 2013 the Company made its first shipment of mineralized material for refining.

 

Amortization was $Nil for the three and six months ended March 31, 2013. The patented claim was purchased in May 2012, in a related party transaction at CAD$10,200 (4,000MT of concentrate & book value of related party).  No amortization was taken for the three and six months ended March 31, 2013 as amortization is based on units of production and the Company’s production volume for the three and six months periods is minimum. 

 

4. Shareholders’ Deficit:

 

The Company’s authorized capital consists of 400,000,000 common stock. At March 31, 2013, there were 338,650,000 common shares issued and outstanding (September 30, 2012 – 213,000,000).

 

During the six month period ending March 31, 2013, 1,500,000 shares were returned to the Company for cancellation, and 2,130,000 common shares were issued pursuant to the Exchange Agreement dated December 14, 2012.

 

Pursuant to a consulting agreement entered into with Seagel Investments Corp., an unrelated party, and pursuant to the Exchange Agreement dated December 14, 2012, the Company issued Seagel Investments Corp., 16,100,000 common shares which were valued at $26,833. The Company recorded this amount as a consulting expense in the three month period ended December 31, 2012.

 

During the three months ended March 31, 2013 the Company entered into two consulting agreements which required the issuance of shares as part of the consideration. The Company issued a total of 550,000 common shares to satisfy the terms of these contracts valued at $302,500, of which $99,687 was expensed during the three months ended March 31, 2013 and $202,813 has been included in prepaid expenses. The remaining value of the share-based considerations will be amortized over the term of the respective agreements as services are performed. The first contact is for a 24 month term for 250,000 common shares issued for a total value of $137,500. The second contract is for a 6 month term for 300,000 common shares issued for a total value of $165,000. Both contracts were signed at the beginning of January 2013.

 

Effective December 31, 2012 the number of shares outstanding were forward-split 100 shares for each share of record prior to the split (“Stock Split”). After the Stock Split, the total amount of the common shares outstanding was 338,650,000 as of March 31, 2013.

 

5. Earnings (Loss) Per Share (“EPS”):

 

FASB ASC 260, Earnings Per Share provides for calculations of “basic” and “diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income (loss) available to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity similar to fully diluted earnings per share. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. The weighted average number of shares outstanding during the three and six month periods was 338,643,889 and 295,888,736, respectively.

 

6. Related Party Transactions:

 

On June 15, 2012, the Company purchased certain assets from 2023682 Ontario Inc., a related party in which the Company’s CEO was the sole director of 2023682 Ontario Inc. The value of the assets purchased by the Company was carried over at the historical carrying amounts that were recorded by the related party. The purchase consideration consisted of cash of CDN $100,000 and a promissory note in the amount of CDN $500,000 (see Note 7). Because the purchase was from a commonly controlled related party, the excess of the purchase price over the carrying value of the assets purchased has been reflected as a deduction against Shareholders’ Deficit, equivalent to a distribution of equity to the shareholder. The assets purchased and consideration given is as follows:

 

14
 

 

 

Trio Resources, Inc.

(An Exploration Stage Company)

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

Expressed in US Dollars

 

Property and equipment   $ 88,596  
Patent claims     10,374  
Inventory     1,770  
Total assets purchased     100,740  
         
Purchase price     (610,260 )
         
Discount on note payable (Note 7)     (210,415 )
         
Deduction in shareholders’ equity (deficit)   $ (299,105 )

 

This transaction was accounted for as a transfer between entities under common control, and the cost of these assets is based on the transferor’s carrying value of the asset. Management determined that the assets acquired did not meet the definition of a “business” as defined by accounting standards, or as a “predecessor business”, as defined in U.S. Securities and Exchange Commission (SEC) rules.

 

As at March 31, 2013, the Company had advanced to 2023682 Ontario Inc. $66,600 (September 30, 2012 - $68,820). The amount is unsecured, non-interest bearing and is recorded as a loan receivable with no specific terms of repayment.

 

7. Convertible Notes payable - related party:

 

As of March 31, 2013, the Company has a convertible note payable of $492,300 (CDN $500,000) to 2023682 Ontario Inc. This note is due two years from the date of issue and accrues interest at 3% per annum. The terms of the convertible notes specified that should the Company be successful in a ‘going public’ transaction it is convertible into common shares of the Company at the weighted average of the Company’s share price based on the average 5 day bid price, within 30 days of the Company going public. If there are no trades on any given day in the first 30 days after the Company’s stock begins to trade then the bid price will be used in determining the weighted average price. This convertible note may be repaid at any time without penalty or bonus. This convertible note is interest free for the first 12 months post-closing of the asset purchase, thereafter, it accrues interest at the rate of 3% per annum. This note was discounted resulting in an effective interest rate of 27%. As a result, a $210,415 discount to the note was recorded which is being amortized to interest expense over the term of the note. The Company completed its going public transaction and became public on December 14, 2012, the first trades took place on January 11, 2013 at $0.50 per share.

 

Related party interest expense for the three and six months periods ended March 31, 2013 was $25,643 and $51,728, respectively, representing the accretion in the value of the Convertible note payable-related party.

 

8. Convertible Notes Payable:

 

As at the March 31, 2013, the Company has issued a series of secured convertible notes under multiple funding arrangements with various third-party investors totaling $1,310,138. These notes bear interest at 10% per annum and mature two years from the date of issue. The convertible notes were secured until the Company became public. The Company’s first share trade was on January 11, 2013. On December 14, 2012 the Company went public and the notes become unsecured and convertible, at any time at the option of the holder, into shares of common stock of the Company at a conversion rate of the lower of CDN $1 per share or 20% below the original listing price of the shares. The convertible notes may be repaid at any time without penalty or bonus. The total amount of interest that has been expensed for the three and six month periods ended March 31, 2013, is $30,768 and $54,835, respectively.

 

9. Commitments and Contingencies.

 

The Company has entered into a rental agreement with Seagel Investment Corp wherein the Company pays monthly rent in the amount of CDN $1,500. The rental agreement expires on July 1, 2013, and the remaining rental payment commitment subsequent to period ended is CDN $4,500.

 

15
 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

The information and financial data discussed below is derived from the unaudited condensed consolidated interim financial statements of Trio Resources, Inc.)(the “Company”) for the three and six months ended March 31, 2013 and were prepared and presented in accordance with generally accepted accounting principles in the United States.

 

Forward Looking Statements

 

Some of the statements contained in this Quarterly Report on Form 10-Q that are not historical facts are “forward -looking statements” which can be identified by the use of the terminology such as “estimates,” “projects,” “plans,” “believes,” “expects,” “anticipates,” “intends,” or the negative or other variations, or by discussions of strategy that involve risks and uncertainties. We urge you to be cautious of the forward-looking statements, that such statements, which are contained in this Quarterly Report, reflect our current beliefs with respect to future events and involve known and unknown risks, uncertainties and other factors affecting our operations, market growth, services, products and licenses. No assurances can be given regarding the achievement of future results, as actual results may differ materially as a result of the risks we face, and actual events may differ from the assumptions underlying the statements that have been made regarding anticipated events. Factors that may cause actual results, our performance or achievements to differ materially from those contemplated by such forward-looking statements include without limitation:

 

· Our ability to raise capital when needed and on acceptable terms and conditions;
· Our ability to attract and retain management;
· Our ability to enter in to long-term supply agreements for the mineralized material;
· General economic conditions; and
· Other factors discussed in Risk Factors.

 

All forward looking statements made in connection with this Quarterly Report that are attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Given the uncertainties that surround such statements you are cautioned not to place undue reliance on such forward looking statements.

 

Overview

 

We operate as a milling and exploration company in the province of Ontario Canada.  Our operations have been limited to acquiring our initial land holdings and patented claims and our initial milling and mining assets to allow us to begin to implement our plans to start small scale concentration of existing above ground mineral resources.

 

We are an exploration stage company and have not generated significant revenues to date. We are in the initial stages of developing our mineral properties, have very limited cash resources and are in need of substantial additional capital to execute our business plan. For these and other reasons, our independent auditors have raised substantial doubt about our ability to continue as a going concern.

 

As an exploration company we have not as yet generated significant operating revenues and have incurred operating losses of $1,655,798 from our inception, May 16, 2012, to March 31, 2013, and of $489,965 and $1,176,766 for the three and six months ended March 31, 2013, respectively. To date we have funded our operations through advances from a related party and from private third party lenders utilizing convertible notes totaling $2,190,714. 

 

As of September 30, 2012 we have entered into convertible notes with Incendia Management Group Inc. in the amount of CDN $266,445, Siderion Capital Group Inc. in the amount of CDN $295,163, and Seagel Investment Corp. in the amount of CDN $49,000. Each of the September 30, 2012 convertible notes have a two (2) year term and have an interest rate of 10% per annum. These convertible notes may be converted , at any time at the option of the holder, into the common shares of the Company at the lower of $1.00 per share, the initial listing price of $0.50 less 20% discount of the price of the public shares, or any financing that is done by the Company by way of a registration statement.

 

16
 

 

As of October 31, 2012, the Company entered into additional convertible notes (which we refer to as the October 31, 2012 convertible notes) with Incendia Management Group Inc. in the amount of CDN $7,000, Siderion Capital Group Inc. in the amount of $20,000, Seagel Investment Corp. in the amount of CDN $2,500, and Seagel Investment Ltd. in the amount of US$345,081. Seagel Investment Ltd. is not an affiliate of Seagel Investment Corp. Each of the October 31, 2012 convertible notes has a term of two (2) years and bears an interest rate of 10% per annum. These October 31, 2012 convertible notes may be converted, at any time at the option of the holder, into the common shares of Trio Resources, Inc., into the shares of the Company at the lower of $1.00 per share, the initial listing price of $0.50 less 20% discount of the public shares, or any financing that is done by the Company by way of a registration statement. In addition to these convertible notes, the Company also entered into a one-year Draw Down Facility, dated as of November 1, 2012, with Seagel Investment Ltd., as lender, in the maximum availability of CDN$500,000. The Company may from time to time request draw downs on this convertible debt facility subject to the discretion of the lender. The term of the Draw Down Facility is for one year during which the Company may draw down up to CDN $500,000. At the maturity date, any outstanding principal and accrued interest shall be converted into a convertible note with an additional term of two (2) years. Pursuant to the terms of this Draw Down Facility, this convertible debt obligation may, at the option of the creditor, be converted into the common shares of TrioResources,AG Inc. at conversion price of $1.00 per common share. The outstanding amounts may be converted into common shares of the Company at the lower of $1.00 per share and the initial listing price of $0.50 less 20% discount of the public shares or any financing that is done by the Company via registration statement. The Company has an option to convert at whichever price is the lowest of all options above. Through the completion of the reverse takeover of Allied Technologies Group Inc. on December 14, 2012 the Company became public. The obligations under this facility have not been converted into common shares of the Company. During the 3 month period ended March 31, 2013 we have borrowed an additional $145,000 against our Draw Down Facility to fund our activities. As at March 31, 2013 the amount outstanding under the Draw Down Facility was US$ 335,000.

 

We intend to raise additional funding through third party equity or debt financing.  There is no certainty that funding will be available as needed.  These factors raise substantial doubt about our ability to continue operating as a going concern.  Our ability to continue our operations as a going concern, realize the carrying value of our assets, and discharge our liabilities in the normal course of business, is dependent upon our ability to raise capital sufficient to fund our commitments and ongoing losses, and ultimately generate profitable operations.

 

All of the convertible notes and the Draw Down Facility referred to herein are secured against the assets of the Company’s subsidiary until the Company becomes publically traded and the convertible notes are converted to shares or the convertible notes are redeemed. All of the convertible notes and the Draw Down Facility remain outstanding and none have been converted to common shares.

 

17
 

 

Recent Development

 

Acquisition of TrioResources AG Inc.

 

On December 14, 2012 the Company (the “Parent”) entered into the Exchange Agreement with Ihar Yaravenka, the former principal shareholder of the Parent (the “ Principal Shareholder ”) and TrioResources AG Inc. (“TrioResources”) in exchange for 2,130,000 Parent Shares (the “ Exchange Shares ”) of the Company, and the Principal Shareholder has agreed to surrender and cancel 1,500,000 shares of the Parent, (the “Principal Shareholder Shares”).  As a result of the Share Exchange, Trioresources became our wholly owned subsidiary. The Share Exchange was accounted for as a recapitalization effected by a share exchange, wherein Trioresources is considered the acquirer for accounting and financial reporting purposes. The assets and liabilities of Trioresources have been brought forward at their book value and no goodwill has been recognized.

 

The Company has filed a Certificate of Amendment of its Articles of Incorporation (the “Charter Amendment”) with the Secretary of State of Nevada to (1) change its name from Allied Technologies Group, Inc. to Trio Resources, Inc. (the “Name Change”) and (2) increase its total authorized shares of Common Stock, from 75,000,000 shares to 400,000,000 shares (the “Authorized Share Increase”). Additionally, as a condition to close the Share Exchange, our Board of Directors approved and authorized us to take the necessary steps to effect a forward stock split of the issued and outstanding shares of Common Stock, such that each lot of one (1) issued and outstanding share of Common Stock shall be automatically changed and converted into one hundred (100) shares of Common Stock, payable to all holders of record of the Common Stock as of December 31, 2012 (the “Forward Stock Split”).

 

Since for accounting purposes TrioResources AG Inc. is the accounting acquirer, and since TrioResources AG Inc. was incorporated on May 16, 2012, no comparative quarterly information is being presented.

 

Plan of Operations

 

The Company’s intention is to conduct exploration initiatives, with the purpose of being cash-flow positive by processing precious metals, and other valuable minerals. The Company utilizes modern mining and exploration technology in conjunction with focusing on combining the right blend of experienced mining consultants and technological management in order to remain competitive.

 

We intend to conduct further exploration initiatives, in order to target additional high-concentration regions, which would be profitable to develop. Unlike other junior mining companies, we plan to have our exploration initiative coincide with our milling program, through which we are planning to be able to run a cash-flow positive business by producing precious metals, and other valuable minerals. By reinvesting the profits realized by capitalizing on our existing mineralized mineral stock piles, we anticipate having the ability to expedite our business plan, and fund some of the expansion of our operations, internally.

 

Results of Operations

 

We are an Exploration company as defined in the SEC Guideline 7 (a) (4) (i).  The Company has not generated significant revenue to date and consequently its operations are subject to all of the risks inherent in the establishment of a new business enterprise.  Our operations have been limited to the purchase of our initial land position including 2 patented claims, and the acquisition of fixed assets which will be incorporated into our processing facility.

 

We have conducted minimal operations during the six month period ended March 31, 2013 and we have generated other revenue relating to the sale of stockpiles of tailings located on our property of $166,299 during this period.  We had net losses of $489,965 and $1,176,766 for the three and six months ended March 31, 2013, respectively.

 

Our expenses have been limited to legal and professional fees; consulting fees, travel expenses, transaction expenses related to the acquisition and exploration expenses. Exploration expenses of $85,518 and $151,735 are expensed as incurred for the three and six months ended March 31, 2013, respectively.

 

18
 

 

Liquidity and Capital Resources

 

As of March 31, 2013 we had negative working capital of $124,795.  During the six month period ended March 31, 2013 we borrowed $335,000 against the Company’s Draw Down Facility. To date we have relied on third parties to provide financing for our operations by way of convertible notes.    The proceeds may not be sufficient to effectively develop our business to the fullest extent to allow us to maximize our revenue potential, in which case, we will need additional capital.  We will need capital to allow us to acquire additional properties to expand our exploration base.  In addition we will need to provide the Company with working capital.  The amount and timing of capital required and the timing will depend on when we are able to conclude agreements either to purchase additional land and the associated patented claims and/or enter into licensing or other working relationships to allow the Company to have access to the largest mining asset base possible within the financial constraints of the Company. If we are unable to generate sufficient cash flow from operations we will be required to raise additional funds either in the form of capital or debt.  There are no assurances that we will be able to generate the necessary capital or debt to carry out our current plan of operations.

 

As at the March 31, 2013, the Company has issued a series of secured convertible notes under multiple funding arrangements with various third-party investors totaling $1,310,138.

 

To date we have funded our operations through advances from a related party and from private third party lenders utilizing convertible notes. As of September 30, 2012 we have entered into convertible notes with Incendia Management Group Inc. in the amount of CDN $266,445, Siderion Capital Group Inc. in the amount of CDN $295,163, and Seagel Investment Corp. in the amount of CDN $49,000. Each of the September 30, 2012 convertible notes have a two (2) year term and have an interest rate of 10% per annum. These convertible notes may be converted, at any time at the option of the holder, into the common shares of TrioResources AG Inc., or in the event that Debtor goes public into the shares of the public company at the lower of $1.00 per share, the initial listing price less 20% discount of the price of the public shares, or any financing that is done by the Company by way of a registration statement. Copies of these notes are included as Exhibits to this report.

 

As of October 31, 2012 the Company entered into additional convertible notes (which we refer to as the October 31, 2012 convertible notes) with Incendia Management Group Inc. in the amount of CDN $7,000, Siderion Capital Group Inc. in the amount of $20,000, Seagel Investment Corp. in the amount of CDN $2,500, and Seagel Investment Ltd. in the amount of US $345,081.

 

Each of the October 31, 2012 convertible notes has a term of two (2) years and bears an interest rate of 10% per annum. These October 31, 2012 convertible notes may be converted into the common shares, at any time at the option of the holder, of TrioResources AG Inc., the Company at the lower of $1.00 per share, the initial listing price of $0.50 less 20% discount of the public shares, or any financing that is done by the Company by way of a registration statement.

 

In addition to these convertible notes the Company also entered into a one-year Draw Down Facility, dated as of November 1, 2012, with Seagel Investment Ltd. as lender, in the maximum amount of CDN $500,000. The Company may from time to time request draw downs on this convertible debt facility subject to the discretion of the lender. The term of the Draw Down Facility is for one year during which the Company may draw down up to CDN $500,000. At the maturity date, any outstanding principal and accrued interest shall be converted into a convertible note with an additional term of two (2) years. Pursuant to the terms of this Draw Down Facility, this convertible debt obligation may, at the option of the creditor, be converted into the common shares of the Company at the lower of $1.00 per share, the initial listing price of $0.50 less 20% discount of the price of the public shares, or any financing that is done by the Company by way of a registration statement. The Company has an option to convert at whichever price is the lowest of all options above. Through the completion of the reverse takeover of Allied Technologies Group Inc. on December 14, 2012 the Company became public. The obligations under this facility have not been converted into common shares of the Company. As at March 31, 2013 the amount outstanding under the Draw Down Facility was US$335,000.

 

All of the convertible notes and the Draw Down Facility referred to herein are secured against the assets of the Company’s subsidiary until the Company becomes publically traded and the convertible notes are converted to shares or the convertible notes are redeemed. All of the convertible notes and the Draw Down Facility remain outstanding and none have been converted to common shares.

 

The convertible notes and the Draw Down Facility may be repaid at any time without penalty or bonus.

 

The total amount of interest that has been expensed for the three and six months ending March 31, 2013 is $56,411 and $ 106,561, respectively, including an accretion expense associated with the loan to a related party.

 

19
 

 

The proceeds will not be sufficient to develop our business planned capacity or to maximize our revenue potential and as a result we will require additional capital in the near term. We would also require capital to allow us to acquire additional properties adjacent to our property to all for a more efficient use of drilling equipment and provide for the potential of a more economical operation. In addition we will need to provide the Company with working capital. The amount and timing of capital required will depend on when we are able to enter into one or more agreements with refiners or other off-takers and where we are able to enter into agreements either to purchase additional land and the associated patented claims and/or enter into licensing or other working relationships to allow Trio to have access to the largest land asset base as possible within the financial constraints of the Company. If we are unable to generate sufficient cash flow from operations we will be required to raise additional funds either in the form of capital or debt. There are no assurances that we will be able to generate the necessary capital or debt to carry out our current plan of operations.

 

Critical accounting Policies

 

The unaudited condensed consolidated interim financial statements included in the Report have been prepared assuming that the Company will continue as a going concern. Since its inception in May 2012, the Company has generated Minimal Income and has incurred net losses. The Company has a working capital deficit of $124,795 as of March 31, 2013, incurred net losses accumulated during the six month period ended March 31, 2013 of 1,176,766. Accordingly, it has not generated positive cash flows from operations and has primarily relied upon advances from stockholders, promissory notes, advances from unrelated parties, and equity financing to fund its operations. During the six month period ended March 31, 2013 the Company borrowed $ 335,000 against the Draw Down facility with Seagel Investment Limited. However, there can be no assurance that such financial support shall be ongoing or available on terms or conditions acceptable to the Company. This raises substantial doubt about the Company’s ability to continue as a going concern.

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and are expressed in US dollars. The Company’s fiscal year-end is September 30. The Company’s functional currency is Canadian dollars. The Company’s reporting currency is the U.S. dollar. Assets and liabilities are translated into the U.S. dollar using the exchange rates at each balance sheet date. Revenue and expenses are translated at average rates prevailing during the reporting period. Shareholders’ equity is translated at historical rates. Adjustments resulting from translating the unaudited condensed consolidated interim financial statements into the U.S. dollar are recorded as a separate component of accumulated other comprehensive income (loss) in the statement of shareholders’ equity (deficit).

 

20
 

 

Use of Estimates

 

The preparation of the unaudited condensed consolidated interim financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could materially differ from those estimates.

 

Comprehensive Income (Loss)

 

For the three and six months ended March 31, 2013 there was a difference between net loss and comprehensive gain in the amount of $ 25,751and $12,870, respectively, which represented the foreign currency translation adjustment.

 

Cash

 

Cash, includes deposits in banks which are unrestricted as to withdrawal or use.

 

Inventory

 

Inventory is comprised of ore baring material that is available for immediate concentration and processing. Inventory is valued at the lower of cost or net realizable value.

 

Revenue recognition

 

The Company recognizes revenue when the following four revenue recognition criteria are met (1) persuasive evidence of an arrangement that exists; (2) delivery has occurred or services have been provided; (3) the selling price is fixed or determinable and (4) collectability is reasonably assured. Other revenue from the sale of tailings located on our property may be subject to adjustment upon final settlement of estimated metal recoveries, metal prices, weights and assays, and are recorded as adjustments to other revenue in the period of final settlement of prices, weights and assays. Such adjustments are typically not material in relation to the initial invoice amounts. In circumstances when these criteria are not met, revenue recognition is deferred until resolution occurs.

 

Mineral Property and Exploration Costs

 

The Company has been in the exploration stage since its formation on May 16, 2012 and has been undertaking plans and taking steps to build a facility which in the near future will capable of processing ore and has not yet realized any revenues from its planned operations, although we did recognize $166,299 during this period of other revenues relating to the sale of stockpiles of tailings located on our property.

 

Before mineralization is classified as “proven and probable” reserves, costs are expensed and classified as  Mineral property and exploration costs . Capitalization of mine development project costs, that meet the definition of an asset, begins once mineralization is classified as “proven and probable reserves.”

 

When it has been determined that a mineral property can be economically developed, as a result of establishing proven and probable reserves, the costs incurred to acquire and develop such property are capitalized. Such costs will be amortized using the units-of-production method over the estimated life of the probable reserve. If mineral properties are subsequently abandoned or impaired, any capitalized costs will be charged to operations.

 

Mineral Properties

 

Mineral property acquisition costs are capitalized when incurred and will be amortized using the units -of - production method over the estimated life of the reserve following the commencement of production.  If a mineral property is subsequently abandoned or impaired, any capitalized costs will be expensed in the period of abandonment or impairment.

 

Acquisition costs include cash consideration and the fair market value of shares issued on the acquisition of mineral properties.

 

Exploration Costs

 

Exploration costs, which include maintenance, development and exploration of mineral claims, are expensed as incurred.  When it is determined that a mineral deposit can be economically developed, as a result of establishing proven and probable reserves, the costs incurred after such determination will be capitalized and amortized over their useful lives.  To date, the Company has not established the commercial feasibility of its exploration prospects; therefore, all exploration costs are being expensed.

 

21
 

 

Mining Rights

 

The Company has determined that its patented mining claims meet the definition of mineral resource assets, as defined by accounting standards, and are tangible assets. As a result, the costs of mining assets are initially capitalized as tangible assets when purchased. If proven and probable reserves are established for a property and it has been determined that a mineral property can be economically developed, costs will be amortized using the units-of-production method over the estimated life of the probable reserves. The Company’s rights to extract minerals are not limited by time. For mining rights in which proven and probable reserves have not yet been established, the Company assesses the carrying value for impairment at the end of each reporting period. During the period ended March 31, 2013, the Company did not record any impairment charges.

 

Impairment of Long Lived Assets

 

The Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life.

 

Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value. Management believes no impairment exists as of March 31, 2013.

 

Fair Value Measurements and Fair Value of Financial Instruments

 

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 in the principal or most advantageous market. The Company uses a fair value hierarchy that has three levels of inputs, both observable and unobservable, Standards require that the utilization of the highest level of input to determine fair value.

 

Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 - observable inputs other than Level 1, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable; and

Level 3 - assets and liabilities whose significant value drivers are unobservable and coo berated by little or no market data.

 

The Company’s asset recorded at fair value is cash, which is based on Level 1 inputs.

 

Income Taxes

 

Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their financial statement reported amounts, and for tax loss and credit carry-forwards. A valuation allowance is provided against deferred tax assets when it is determined to be more likely than not that the deferred tax asset will not be realized.

 

The Company determines its income tax expense in each of the jurisdictions in which it operates. The income tax expense includes an estimate of the current income tax expense, as well as deferred income tax expense, which results from the determination of temporary differences arising from the different treatment of items for book and tax purposes.

 

22
 

 

The Company files income tax returns in the United States, Canada and the Province of Ontario.

 

The Company assesses the likelihood of the financial statement effect of a tax position that should be recognized when it is more likely than not that the position will be sustained upon examination by a taxing authority based on the technical merits of the tax position, circumstances, and information available as of the reporting date. Management does not believe that there are any uncertain tax positions that would result in an asset or liability for taxes being recognized in the accompanying financial statements. The Company recognizes tax-related interest and penalties, if any, as a component of income tax expense.

 

FASB ASC 740 prescribes recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FASB ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. At March 31, 2013 and September 30, 2012 the Company has not taken any tax positions that would require disclosure under FASB ASC 740.

 

Recently Issued Accounting Standards

 

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-05, Presentation of Comprehensive Income (“ASU No. 2011-05”), which improves the comparability, consistency, and transparency of financial reporting and increases the prominence of items reported in other comprehensive income ("OCI") by eliminating the option to present components of OCI as part of the statement of changes in stockholders' equity. The amendments in this standard require that all non-owner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Subsequently in December 2011, the FASB issued Accounting Standards Update No. 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income ("ASU No. 2011-12"), which indefinitely defers the requirement in ASU No. 2011-05 to present on the face of the financial statements reclassification adjustments for items that are reclassified from OCI to net income in the statement(s) where the components of net income and the components of OCI are presented. The amendments in these standards do not change the items that must be reported in OCI, when an item of OCI must be reclassified to net income, or change the option for an entity to present components of OCI gross or net of the effect of income taxes. The amendments in ASU No. 2011-05 and ASU No. 2011-12 are effective for interim and annual periods beginning after December 15, 2011 and are to be applied retrospectively. The adoption of the provisions of ASU No. 2011-05 and ASU No. 2011-12 in 2012 did not have a material impact on the presentation of the Company's financial statements.

 

Earnings (Loss) Per Share (“EPS”)

 

FASB ASC 260, Earnings Per Share provides for calculations of “basic” and “diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income (loss) available to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity similar to fully diluted earnings per share. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. The weighted average number of shares outstanding during the three and six month periods was 333,643,889 and 295,888,736, respectively.

 

23
 

 

Commitments and Contingencies

 

The Company has entered into a rental agreement with Seagel Investment Corp wherein the Company pays monthly rent in the amount of CDN $1,500. The rental agreement expires on July 1, 2013, and the remaining rental payment commitment subsequent to period ended is CDN $4,500.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.

 

DESCRIPTION OF PROPERTY

 

Our principal executive offices are located at 100 King Street West, Suite 5600, Toronto, Ontario M5X 1C9

 

The mining properties are located LOT 3, CON 4, Coleman Township, District of Temiskaming, Ontario.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

No report required.

 

24
 

 

ITEM 4. CONTROLS AND PROCEDURES

 

Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) that is designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commissions rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuers management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

An evaluation was conducted under the supervision and with the participation of our management of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2013. Based on that evaluation, our management concluded that our disclosure controls and procedures were effective as of such date to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Such officers also confirmed that there was no change in our internal control over financial reporting during the six month period ended March 31, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm business. We are currently not aware of any such legal proceedings or claims that will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.

 

On October 22, 2012, the previous owner of the property, 2023682 Ontario Inc., was fined CDN$56,265 by the Ontario Ministry of the Environment under the Environmental Protection Act for failing to comply with a Court Order to remove specified waste materials from the mill site. Under the terms of the Order, 2023682 Ontario Inc. has until October 22, 2013 to pay the fines and to comply with the Court Order to remove the specified waste material and, in the interim, to ensure that there is no migration or discharge of these materials into the ground or water.  The liabilities and obligations with respect to this fine are with 2023682 Ontario Inc.  Nevertheless, the Company has obtained a contractual indemnity from 2023682 Ontario Inc. in respect of this matter and any related liabilities in the event that 2023682 Ontario Inc. does not duly satisfy its obligations, and an agreement that 2023682 Ontario Inc. will hold harmless the Company for any fines, legal actions or penalties associated with this matter.  In addition, the Company has an agreement with 2023682 Ontario Inc. pursuant to which 2023682 Ontario Inc. has undertaken to dispose, at its cost, of the material as required in the court order within the specified time.  In the event that 2023682 Ontario Inc. defaults with respect to any of these obligations, the Company may be subject to liability and exposure, including the disposal of these materials, any interim discharge from these materials (which are not currently in a permitted tailings pond) and related fines.  See also “Risk Factors - Damage to the environment could also result from our operations. If our business is involved in one or more of these hazards, we may be subject to claims of a significant size that could force us to cease our operations” elsewhere in this report.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

No report required.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

No report required.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

25
 

 

ITEM 5. OTHER INFORMATION

 

During the six months ended March 31, 2013, the Company filed an 8K on December 17, 2012 disclosing the terms of the Share Exchange Agreement between the Company, its former Principal Shareholder and TrioResources AG Inc. which resulted in TrioResources AG Inc. becoming a wholly owned operating subsidiary of the Company.

 

ITEM 6. EXHIBITS

 

Exhibits:

 

31.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a).

 

32.1 Certifications pursuant to Securities Exchange Act of 1934 Rule 13a-14(b) or 15d-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.

 

101.INS XBRL Instance Document

 

101.SCH XBRL Taxonomy Extension Schema Document

 

101.CAL XBRL Taxonomy Calculation Linkbase Document

 

101.LAB XBRL Taxonomy Extension Label Linkbase Document

 

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

 

101.DEF XBRL Taxonomy Extension Definition Linkbase Document

 

SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  TRIO RESOURCES, INC.
   
Dated: May 14, 2013 By:  /s/ J. Duncan Reid
   

J. Duncan Reid Chief Executive Officer and Chief Financial Officer

 

 

26

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