ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
This quarterly report on Form 10-Q for the quarter ended October 31, 2012 contains forward-looking statements that involve risks and uncertainties. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology including “could”, “may”, “will”, “should”, “expect”, “plan”, “anticipate”, “believe”, “estimate”, “predict”, “potential” and the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially.
While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested in this report.
Business Overview
Minerco Resources, Inc. was incorporated as a Nevada company on June 21, 2007 and our only two subsidiaries are Minerco Honduras S.A. and Level 5 Beverage Company, Inc. We were engaged in the acquisition of interests and leases in oil and natural gas properties from our inception in June 2007 through May 27, 2010. In May 2010 we changed the focus of our business to the development, production and provision of clean, renewable energy solutions in Central America. On October 16, 2012, we added an additional line of business, Level 5 Beverage Company, Inc., a progressive specialty beverage retailer.
We currently have an interest in two Hydro-Electric Projects and one Wind project in various parts of Honduras. Both of our Hydro-Electric projects are classified as as run-of-the-river projects (not conventional retention dams). Our Chiligatoro Hydro-Electric Project is in the permitting stage of development and our Iscan Hydro-Electric Project is currently in the feasibility stage of development.. To date, we have not completed construction of any of the projects and therefore we have not received any revenue from any of the projects. There can be no assurance given that these projects will be completed in a timely manner, if at all. We will require additional funds to complete these projects, estimated at $200,000 in the aggregate. Additionally, even if we complete construction of the projects, there is no guarantee that they will be successfully used to create electricity or that will generate a consistent revenue stream for us. The feasibility stage of development is the stage of development where the preliminary permits are obtained, measurement of the water flow for hydro-electric projects or wind and weather patterns for wind projects are observed, and final project size are determined. As of July 31, 2012, these assets were impaired due to inactivity; however we are still actively pursuing obtaining necessary permits and negotiating contracts for the Chiligatoro Hydro-Electric Project including the Power Purchase Agreement, Congressional Approval, Equity Partner Financing and Senior Debt Financing. The Iscan Hydro-Electric Project is actively completing the Socialization and Feasibility stages of development.
Our subsidiary, Level 5, is being developed as a specialty beverage retailer. Level 5 intends to incorporate a proprietary vitamin enhanced system to its beverages. Level 5 is being designed to provide hot and cold beverages and energy shots with an option to incorporate a variety of combined vitamins, providing a vitamins to the consumer in a convenient and time-efficient way. Level 5 will provide its customers the ability to drive up and order (from a trained Barista) their choice of a custom-blended espresso drink, freshly brewed coffee, teas, yogurts or other beverages. Level 5 plans to offer an option to the fast-food, gas station, and institutional coffee.
We have not generated any revenue since inception and during the three months ended October 31, 2012, we had an accumulated deficit of $8,599,628 a stockholder’s deficit of $4,725,709 and a net loss of $1,327,788. There is substantial doubt regarding our ability to continue as a going concern. Our operations are dependent upon our ability to obtain necessary financing and our ability to limit our negative cash flow and/or attain profitable operations. As such, the report of our independent certified auditor for the year ended July 31, 2012 is qualified subject to substantial doubt as to our ability to continue as a going concern.
On March 30, 2010, we effected a 6 for 1 forward stock split, increasing the issued and outstanding shares of common stock from 55,257,500 to 331,545,000 shares. On February 13, 2012, we effected a 150 for 1 reverse stock split, increasing the issued and outstanding share of common stock from 1,054,297,534 to 7,028,670 shares. All share amounts throughout this Quarterly Report have been retroactively adjusted for all periods to reflect this stock split.
The Projects
Chiligatoro
On May 27, 2010, we acquired 100% of the 6 mega-watt per hour (MWh) Chiligatoro Hydro-Electric Project (“Chiligatoro”) in Intibuca, Honduras. This project is classified as a run-of-the-river project (not a conventional retention dam) and is currently in the feasibility stage of development. Acquisition in this phase of development allows us to have full control of the final design and construction of this project. To date, the construction of Chiligatoro has not started, and we have not received any revenues from the project. There is no assurance that Chiligatoro will be completed in a timely manner, if at all. Additionally, if Chiligatoro is completed, there is no guarantee that it will be successfully used to create electricity or that it will generate a consistent revenue stream for us.
Chiligatoro has received approval from the National Energy Commission, signed a 30 Year Operations Contract with SERNA and is currently negotiating its Power Purchase Agreement (PPA) with ENEE. Chiligatoro is awaiting final approval from the Honduran National Congress. This Congressional Approval acts as a “defacto” guarantee. This approval makes Chiligatoro’s Power Purchase Contracts a recorded law in the Honduran National Congress. Final approval and start of construction is anticipated by the end of 2012.
The revenue for Chiligatoro (or any hydro or wind project) is expected to be generated from the following; however there can be no guarantee that such anticipated revenue level or any revenue at all will be generated:
●
|
Chiligatoro Example: 6 MWh x 24 hr/day x $115.97 /MWh = US$ 16,700 / day or US$ 6,095,000 per year of Gross Energy Generation Revenue
|
●
|
Carbon Emission Reduction (CER) Credits can be pre-sold or traded on the open market. The spot price is currently over US$ 10 per Credit. Carbon Credits are relatively new but are measured in tonnes of CO
2
.
|
●
|
The Chiligatoro Project is expected eliminate approximately 27,000 tonnes of CO
2
.per year, or earn 27,000 CER Credits annually. 27,000 CER /year x $10 /CER = US$ 270,000 per year.
|
●
|
Reforestation in Project Buffer Zone
|
●
|
Reforestation generates revenue directly and indirectly. Planting tropical hardwood trees such as mahogany is expected to generate direct revenue in less than 20 years. Current prices yield more than US$ 8,000 per tree.
|
●
|
More importantly, reforestation of the Project’s Buffer Zone (water supply zone) is expected to increase the Projects total efficiency within a couple years adding additional power generation revenue. This increase in efficiency is typically 2 – 3%. Additional CER Credits are also realized with reforestation.
|
We acquired the rights to Chiligatoro from ROTA INVERSIONES S.DE R.L., a corporation formed under the laws of Honduras (“Rota”), pursuant to the terms of an acquisition agreement we entered into with Rota on May 27, 2010. We agreed to pay Rota atotal of 18,000,000 shares of common stock consisting of 9,000,000 shares of our common stock within 3 days of closing, 4,500,000 shares of our common stock within 180 days of closing and 4,500,000 shares of our common stock upon us raising of $12,000,000 no later than 24 months after closing. We also agreed to pay Rota a royalty of 10% of the adjusted gross revenue, derived after all applicable taxes, from Chiligatoro prior to completion of the payment of the foregoing. Further, we agreed to pay Rota a royalty of 20% of the adjusted gross revenue, derived after all applicable taxes, from Chiligatoro after the completion of the payout for the life of Chiligatoro, including any renewal, transfer or sale, if any, in perpetuity. “Payout” is defined as all associated costs related to the development of Chiligatoro. If we are unable to obtain the financing requirements of this agreement, Rota will have the right to terminate the agreement with full rights of rescission, and all rights, title and interest to Chiligatoro shall be transferred back to Rota. 13,500,000 shares of common stock were issued to ROTA on June 4, 2010. On May 27, 2012, the company and ROTA INVERSIONES S. DER.L. signed a one year extension to satisfy the financing requirements of this agreement.
Iscan
On January 5, 2011, we acquired 100% of the 4 mega-watt per hour (MWh) Iscan Hydro-Electric Project (“Iscan”) in Olancho, Honduras. This project is classified as a run-of-the-river project (not a conventional retention dam) and is currently in the feasibility stage of development. Acquisition in this phase of development allows us to have full control of the final design and construction of this project. To date, the construction of Iscan has not started, and we have not received any revenues from the project. There is no assurance that Iscan will be completed in a timely manner, if at all. Additionally, if the Iscan project is completed, there is no guarantee that it will be successfully used to create electricity or that it will generate a consistent revenue stream for us.
We acquired the rights to Iscan from Energetica de Occidente S.A. de C.V., a corporation formed under the laws of Honduras (the “Energetica”), pursuant to the terms of an acquisition agreement we entered into with the Iscan Seller on January 5, 2011. We agreed to pay Energetica a total of 1,000,000 shares of common stock consisting of 500,000 shares of our common stock within 30 days of closing and 500,000 shares of our common stock upon us raising $8,500,000 no later than 36 months after closing. We also agreed to pay the Energetica a royalty of 10% of the adjusted gross revenue, derived after all applicable taxes, from Iscan prior to completion of the payment of the foregoing. If we default on financing obligations under this agreement, Energetica can terminate this agreement, rescind the sale of these rights to us, and all rights, title and interest to Iscan will be transferred back to Energetica. Minerco has not issued any shares because it is awaiting approval from SERNA for the project before the transfer of title and we expect title to be transferred in the first quarter of calendar 2013.
Sayab
On January 18, 2011, we acquired 100% of the 100 mega-watt per hour (MWh) Sayab Wind Project (“Sayab”) in Choluteca, Honduras. This project is currently in the feasibility stage of development. Acquisition in this phase of development allows us to have full control of the final design and construction of this project. To date, the construction of Sayab has not started, and we have not received any revenues from the project. There is no assurance that Sayab will be completed in a timely manner, if at all. Additionally, if Sayab is completed, there is no guarantee that it will be successfully used to create electricity or that it will generate a consistent revenue stream for us.
We acquired the rights to Sayab from Energia Renovable Hondurenas S.A., a corporation formed under the laws of Honduras (the “ Sayab Seller”), pursuant to the terms of an acquisition agreement we entered into with the Sayab Seller on January 18, 2011. We agreed to pay the Sayab Seller a total of 1,000,000 shares of common stock consisting of 500,000 shares of our common stock within 30 days of closing and 500,000 shares of our common stock upon us raising $10,000,000 no later than 18 months after closing. We also agreed to pay the Sayab Seller a royalty of 6% of the adjusted gross revenue, derived after all applicable taxes, from Sayab prior to completion of the payment of the foregoing. Further, we agreed to pay the Sayab Seller a royalty of 12% of the adjusted gross revenue, derived after all applicable taxes, from Sayab after the completion of the payout for the life of Sayab, including any renewal, transfer or sale, if any, in perpetuity. “Payout” is defined as all associated costs related to the development of Sayab. As additional consideration for this Agreement, the Sayab Seller will have the right to, upon written notice delivered to us, to purchase back from us up to an additional 8% of Sayab. The buyback purchase price will be determined by actual costs incurred by us relating to Sayab. The Sayab Seller can buy back or obtain 0.5% increments until a maximum 20% total interest is obtained. If we are unable to obtain the financing requirements of this agreement, the Sayab Seller shall have the right to terminate this agreement with full rights of rescission, and all rights, title and interest to Sayab shall be transferred back to the Sayab Seller. Minerco has not issued any shares because it is awaiting approval from SERNA for the project before the transfer of title and we expect title to be transferred in the middle of the second quarter of calendar 2013.
Results of Operations
|
|
Three Months
Ended
October 31,
2012
|
|
|
Three Months
Ended
October 31,
2011
|
|
|
Period from
June 21, 2007
(Date of Inception) to
October 31,
2012
|
|
Loan Recovery
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(13,000
|
)
|
Impairment of Note Receivable
|
|
|
-
|
|
|
|
-
|
|
|
|
32,700
|
|
General and Administrative Expenses
|
|
|
8,797
|
|
|
|
257,119
|
|
|
|
2,693,298
|
|
Chiligatoro Operating Expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
61,000
|
|
Interest Expense
|
|
|
-
|
|
|
|
3,710
|
|
|
|
13,993
|
|
Accretion of discount on convertible debt
|
|
|
22,264
|
|
|
|
283,943
|
|
|
|
486,635
|
|
(Gain) / Loss on derivative liability
|
|
|
1,296,727
|
|
|
|
219,372
|
|
|
|
4,613,404
|
|
Gain on settlement of debt
|
|
|
-
|
|
|
|
-
|
|
|
|
(14,935)
|
|
Loss on Debt Conversion
|
|
|
-
|
|
|
|
-
|
|
|
|
11,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
1,327,788
|
|
|
$
|
764,144,
|
|
|
$
|
8,599,628
|
|
Net Loss per Share –Basic and Diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.18
|
)
|
|
|
|
|
Weighted Average Shares Outstanding
|
|
|
112,918,969
|
|
|
|
4,151,866
|
|
|
|
|
|
Results of Operations for the Three Months Ended October 31, 2012
During the three months ended October 31, 2012 we incurred a net loss of $1,327,788, compared to a net loss of $764,144 during the same period in fiscal 2012. The increase in our net loss during the three months ended October 31, 2012 was primarily due to increased loss on derivative liability.
Our total general and administrative expenses for the three months ended October 31, 2012 were $31,061, compared to operating expenses of $541,062 during the same period in fiscal 2012. Our total general and administrative expenses during the three months ended October 31, 2012 consisted of $0 in compensation expense, $8,797 in professional fees, and $0 in general and administrative expense and during the three months ended October 31, 2012 consisted of general and administrative expenses, and accretion expense of 22,264. We did not incur any foreign exchange losses, management fees, rent expenses or other operating expenses.
Our general and administrative expenses consist of professional fees, transfer agent fees, investor relations expenses and general office expenses. Our professional fees include legal, accounting and auditing fees.
Results of Operations for the Period from June 21, 2007 (Date of Inception) to October 31, 2012
From our inception on June 21, 2007 to October 31, 2012 we did not generate any revenues and we incurred a net loss of $8,599,628. We may not generate significant revenues from our interest in our Hydro-Electric or Wind Projects or any other properties in which we acquire an interest, and we anticipate that we will incur substantial losses for the foreseeable future.
Our total operating expenses from our inception on June 21, 2007 to October 31, 2012 were $3,956,433. Our general and administrative expenses consist of professional fees, transfer agent fees, investor relations expenses and general office expenses. Our professional fees include legal, accounting and auditing fees.
From our inception on June 21, 2007 to October 31, 2012 we also received $13,000 in the form of proceeds from loan recovery and incurred $30,000 in expenses related to the impairment of a note receivable. Also, there was a loss of $4,613,404 and accretion of $486,635 associated with the derivative in the convertible debt
Liquidity and Capital Resources
As of October 31, 2012 we had $0 in cash and $0 in total assets, $4,725,709 in total liabilities and a working capital deficit of $4,725,709. Our accumulated deficit from our inception on June 21, 2007 to October 31, 2012 was $8,599,628 and was funded primarily through advances from related parties, equity and debt financing.
From our inception on June 21, 2007 to October 31, 2012 we used net cash of $550,714 in operating activities. During the three months ended October 31, 2012 we used net cash of $0 in operating activities, compared to net cash used $57,997 in operating activities during the same period in fiscal 2012. The decrease in expenditures on operating activities for the three months ended October 31, 2012 was primarily due to an increased net loss offset by a loss on derivatives.
From our inception on June 21, 2007 to October 31, 2012 we used net cash of $10,000 on investing activities, all of which was in the form of a loan to a third party. We used net cash of $0 on investing activities during the three months ended October 31, 2012 and 2011.
From our inception on June 21, 2007 to October 31, 2012 we received net cash of $560,714 from financing activities, which consists of $90,514 from the issuance of our common stock, $423,000 from debt financing, $51,018 in proceeds from a related party, and $1,182 in capital contributions offset by a $5,000 payment . During the three months ended October 31, 2012 we received $0 net cash from financing activities, compared to net cash received of $59,095 during the same period in fiscal 2012. The decrease in receipts from financing activities for the three months ended October 31, 2012 was primarily lower proceeds from loans and related parties.
We estimate our planned expenses for the next 24 months (beginning December 2012) to be approximately $13,629,000, as summarized in the table below.
Description
|
Potential
|
|
Estimated Expenses
|
|
Energy
|
completion date
|
|
($)
|
|
Complete Feasibility & Environmental Studies
|
6 months
|
|
|
500,000
|
|
Project Permitting
|
6 months
|
|
|
85,000
|
|
Lease/Land Purchase
|
6 months
|
|
|
500,000
|
|
Final Construction Design
|
6 months
|
|
|
150,000
|
|
Engineering & Construction Consultants
|
6 months
|
|
|
200,000
|
|
Mobilization of Equipment
|
6 months
|
|
|
200,000
|
|
Stage 1 Construction
|
12 months
|
|
|
2,600,000
|
|
Stage 2 Construction
|
18 months
|
|
|
2,800,000
|
|
Stage 3 Construction
|
24 months
|
|
|
3,700,000
|
|
Professional Fees (legal and accounting)
|
12 months
|
|
|
100,000
|
|
Project Supervision
|
12 months
|
|
|
150,000
|
|
Project Socialization
|
12 months
|
|
|
75,000
|
|
General and administrative expenses
|
12 months
|
|
|
1,150,000
|
|
Contingencies (10%)
|
|
|
|
1,221,000
|
|
EnergyTotal
|
|
|
|
13,431,000
|
|
|
|
|
|
|
|
Beverage
|
|
|
|
|
|
Product Formulation
|
3 months
|
|
|
25,000
|
|
Product Samples
|
3 months
|
|
|
5,000
|
|
Product Branding
|
4 months
|
|
|
25,000
|
|
Product Marketing
|
6 months
|
|
|
25,000
|
|
Product Manufacturing
|
6 months
|
|
|
50,000
|
|
Product Expansion / Development
|
12 months
|
|
|
50,000
|
|
Contingencies (10%)
|
|
|
|
18,000
|
|
Beverage Total
|
|
|
|
198,000
|
|
|
|
|
|
|
|
Grand Total (All Business Lines)
|
|
|
|
13,629,000
|
|
Our general and administrative expenses for the year will consist primarily of transfer agent fees, investor relations expenses and general office expenses. The professional fees are related to our regulatory filings throughout the year.
Based on our planned expenditures, we require additional funds of approximately $13,629,000 (a total of $13,629,000 less our approximately $0 in cash as of October 31, 2012) to proceed with our business plan over the next 24 months. If we secure less than the full amount of financing that we require, we will not be able to carry out our complete business plan and we will be forced to proceed with a scaled back business plan based on our available financial resources.
We anticipate that we will incur substantial losses for the foreseeable future. Although we acquired a 100% interest in the various Hydro-Electric and Wind Projects, there is no assurance that we will receive any revenues from this interest. Meanwhile, even if we purchase other non-operated interests in hydro-electric projects or begin construction activities on any properties we may acquire, this does not guarantee that these projects or properties will be commercially exploitable.
Our activities will be directed by John Powers, our President and Chief Executive Officer, who will also manage our operations and supervise our other planned acquisition activities.
Future Financings
Our financial statements for the three months ended October 31, 2012 have been prepared on a going concern basis and there is substantial doubt about our ability to continue as a going concern. We have not generated any revenues, have achieved losses since our inception, and rely upon the sale of our securities to fund our operations. We may not generate any revenues from our interest in the various Hydro-Electric and Wind Projects, or from any of the hydro-electric or wind projects in which we acquire an interest or our beverage business . Accordingly, we are dependent upon obtaining outside financing to carry out our operations and pursue any acquisition and exploration activities.
Of the $13,629,000 we require for the next 24 months, we had approximately $0 in cash as of October 31, 2012. We intend to raise the balance of our cash requirements for the next 24 months (approximately $13,629,000), private placements, shareholder loans or possibly a registered public offering (either self-underwritten or through a broker-dealer). If we are unsuccessful in raising enough money through such efforts, we may review other financing possibilities such as bank loans. At this time we do not have a commitment from any broker-dealer to provide us with financing other than the equity line, and there is no guarantee that any financing will be successful. We intend to negotiate with our management and any consultants we may hire to pay parts of their salaries and fees with stock and stock options instead of cash.
If we are unable to obtain the necessary additional financing, then we plan to reduce the amounts that we spend on our acquisition and exploration activities and our general and administrative expenses so as not to exceed the amount of capital resources that are available to us. Specifically, we anticipate that we will defer drilling programs and certain acquisitions pending the receipt of additional financing. Still, if we do not secure additional financing our current cash reserves and working capital will be not be sufficient to enable us to sustain our operations and for the next 12 months, even if we do decide to scale back our operations.
Product Research and Development
We anticipate spending $55,000.00 in connection with product research and development activities during the next 12 months for our beverage retail business.
Outstanding Indebtedness
Set forth below is a chart of our outstanding debt obligations as
of December 20, 2012:
Bridge Notes Payable
|
|
Name
|
|
Amount
|
|
Date of Issuance
|
|
Maturity Date
|
|
Features
|
|
|
|
|
|
|
|
|
|
Convertible Promissory Note
|
|
$
|
25,310
|
|
6/6/11
|
|
On Demand
|
|
5% interest rate
converts at the lower of $0.001 or 50% of market based on the lowest day during the preceding 5 days
|
Convertible Promissory Note
|
|
$
|
32,500
|
|
6/22/11
|
|
3/26/12
|
|
8% interest rate
converts at a variable conversion price of 35% of the market price calculated based on the lowest day during the preceding 120 days
|
Convertible Promissory Note
|
|
$
|
18,000
|
|
8/6/11
|
|
2/6/12
|
|
5% interest rate
converts at a variable conversion price of 50% of the market price calculated based on the average of the lowest day during the preceding 5 days
|
Convertible Promissory Note
|
|
$
|
27,500
|
|
8/9/11
|
|
5/11/12
|
|
8% interest rate
converts at a variable conversion price of 35% of the market price calculated based on the lowest day during the preceding 120 days
|
Convertible Promissory Note
|
|
$
|
73,600
|
|
9/1/11
|
|
On Demand
|
|
0% interest rate
converts at the lower of $0.001 or 50% of market based on the lowest day during the preceding 5 days but in no case less than a 51% interest in the Company
|
Convertible Promissory Note
|
|
$
|
73,600
|
|
9/1/11
|
|
On Demand
|
|
0% interest rate
converts at the lower of $0.001 or 50% of market based on the lowest day during the preceding 5 days but in no case less than a 51% interest in the Company
|
Convertible Promissory Note
|
|
$
|
35,000
|
|
9/27/11
|
|
6/29/12
|
|
8% interest rate
converts at a variable conversion price of 35% of the market price calculated based on the lowest day during the preceding 120 days
|
Convertible Promissory Note
|
|
$
|
27,000
|
|
11/6/11
|
|
5/6/12
|
|
5% interest rate
converts at a variable conversion price of 50% of the market price calculated based on the average of the lowest day during the preceding 5 days
|
Convertible Promissory Note
|
|
$
|
11,500
|
|
6/18/12
|
|
3/20/13
|
|
8% interest rate
converts at a variable conversion price of 35% of the market price calculated based on the lowest day during the preceding 120 days
|
Convertible Promissory Note
|
|
$
|
320,301
|
|
7/23/12
|
|
1/23/13
|
|
5% interest rate
converts at a variable conversion price of 50% of the market price calculated based on the average of the lowest day during the preceding 5 days
|
Convertible Promissory Note
|
|
$
|
267,998
|
|
7/23/12
|
|
1/23/13
|
|
5% interest rate
converts at a variable conversion price of 50% of the market price calculated based on the average of the lowest day during the preceding 5 days
|
Convertible Promissory Note
|
|
|
$19,250
|
|
11/1/12
|
|
8/15/13
|
|
8% interest rate converts at a variable conversion price of 35% of the market price calculated based on the lowest day during the preceding 120 days
|
Outstanding Notes
As of July 31, 2012 our obligations under outstanding notes totaled an aggregate principal amount of $912,309. Of such amount $172,510 is due on demand, $18,000 was due February 6, 2012, $32,500 was due March 26, 2012, $27,000 was due May 6, 2012, $35,000 was due June 29, 2012, $27,500 was due May 11, 2012, $11,500 is due March 20, 2013, $320,301 is due January 23, 2013 and $267,998 is due January 23, 2012. We currently do not have sufficient funds to pay any of the past due or future notes.
On October 12, 2010, we issued a promissory note to an unrelated third party in the amount of $200,000 in consideration for monies loaned to our company. The promissory note is non-interest bearing and due on demand. We currently do not have the funds necessary to repay this debt if a demand were to be made. The promissory note was subsequently sold to two unrelated parties, each acquiring $100,000 of the principal amount owed under the promissory note. On September 1, 2011, we entered into two agreements, each of which provide for the exchange of the principal amount of $100,000 of the promissory notes for convertible promissory notes (the “Convertible Notes”) in the aggregate principal amount of $100,000. Each Convertible Note plus accrued interest of 10% may be converted into shares of common stock of the Company at any time before the maturity date by the Convertible Note holder at a conversion price of $0.0004 per share at the time of conversion. In the event of a default by the Company, each Convertible Note plus accrued interest may be converted into shares of common stock of the Company at any time after the default date by the Convertible Note holder at a conversion price of the lower of (i) par value or (ii) half of the average bid price over the five trading days prior to the conversion date, but in no case for an amount less than a 51% interest in the Company. The Company is obligated to register the shares underlying the Convertible Notes under the Securities Act of 1933 until shares become available for resale under Rule 144(k). On February 20, 2012, we amended the notes with a remaining aggregate balance of $73,600 to convert at the lower of $0.001 or 50% of market based on the lowest day during the preceding 5 days.
On each of June 22, 2011, August 9, 2011, September 27, 2011, June 18, 2012 and November 1, 2012 we entered into a Securities Purchase Agreement and Convertible Promissory Note with Asher Enterprises for $32,500, $27,500, $35,000, $11,500 and $19,250 respectively. The convertible notes carries an 8% rate of interest and the June 2011 and August 2011 Notes were convertible into common stock at a variable conversion price of 55% of the market price and the September Note is convertible into common stock at a variable conversion price of 51% of which shall be calculated as the average of the lowest 3 days during the preceding 10 days before conversion. The June 2012 and November 2012 Notes are convertible into common stock at a variable conversion price of 35% of which shall be calculated as the lowest trading day during the preceding 120 days before conversion. The promissory note issued on June 22, 2011 was due on March 26, 2012, the promissory note issued on August 9, 2011 was due on May 11, 2012 and the promissory note issued on September 27, 2011 was due on June 29, 2012 and the promissory note issued on June 18, 2012 is due on March 20, 2013 and the promissory note issued on November 1, 2012 is due August 5, 2013. On June 14, 2012, we amended the remaining balance on the June 2011, August 2011 and September 2011 notes of $69,000 as convertible into common stock at a variable conversion price of 35% of which shall be calculated as the lowest trading day during the preceding 120 days before conversion.
On June 6, 2011, August 6, 2011 and November 6, 2011, we entered into a Securities Purchase Agreement and Convertible Promissory Note between the Company and SE Media Partners, Inc. for $36,000, $18,000 and $27,000, respectively. The convertible notes carry a 5% rate of interest and are convertible into common stock at a variable conversion price of 50% of the market price which shall be calculated as the lowest day during the preceding 5 days before conversion. The June Convertible Promissory Note was due on December 6, 2011 and has $25,310 in principal remaining, the August Convertible Promissory Note was due on February 6, 2012 and the November Convertible Promissory Note is due on May 6, 2012. On February 1, 2012, we amended the note dated June 6, 2011 for $36,000 to convert at the lower of $0.001 or 50% of market based on the lowest day during the preceding 5 days.
On July 23, 2012, we entered into a Securities Purchase Agreement and Convertible Promissory Note between the Company and its former Chief Executive Officer and former Chief Financial Officer for $320,301 and $267,998, respectively. The convertible notes carry a 5% rate of interest and are convertible into common stock at a variable conversion price of 50% of the market price which shall be calculated as the lowest day during the preceding 5 days before conversion. The Convertible Promissory Notes are due on January 23, 2012.
Acquisition of Plants and Equipment and Other Assets
Apart from our interest in the various Hydro-Electric and Wind Projects, we do not anticipate selling or acquiring any material properties, plants or equipment during the next 12 months unless we are successful in obtaining additional financing.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Inflation
The amounts presented in the financial statements do not provide for the effect of inflation on our operations or financial position. The net operating losses shown would be greater than reported if the effects of inflation were reflected either by charging operations with amounts that represent replacement costs or by using other inflation adjustments.