TRII Trio Resources Inc (PK)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 31, 2014

 

or

 

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

 

For the transition period from __________ to __________

 

Commission file number: 333-178472

 

TRIO RESOURCES, INC.

(Exact name of registrant as specified in its charter)

 

Nevada		99-0369568
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
100 King Street West, Suite 5600 Toronto, ON		M5X 1C9
(Address of principal executive officers)		(Zip Code)

 

+905-366-7301

(Registrant’s telephone number, including area code)

 

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). The website of the Company is www.trioresources.com. Yes [X] 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” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer [  ]	Accelerated filer [  ]
Non-accelerated filer [  ] (Do not check if a smaller reporting company)	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 issuer’s classes of common equity, as of the latest practicable date: 369,353,231 common shares as of February 23, 2015.

 

 

 

TABLE OF CONTENTS

 

PART I FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Interim Financial Statements (unaudited)	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	9
Item 4.	Controls and Procedures	9
PART II OTHER INFORMATION
Item 1.	Legal Proceedings	10
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	10
Item 3.	Defaults Upon Senior Securities	10
Item 4.	Mine Safety Disclosures	10
Item 5.	Other Information	10
Item 6.	Exhibits	10
	Signatures	11

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

Trio Resources, Inc.

CONDENSED CONSOLIDATED

INTERIM FINANCIAL STATEMENTS

INDEX

 

Condensed Consolidated Balance Sheets as at December 31, 2014 (unaudited) and September 30, 2014 (audited)	F-1
Condensed Consolidated Interim Statements of Operations and Comprehensive Loss for the three months ended December 31, 2014 and 2013 (unaudited)	F-2
Condensed Consolidated Interim Statement of Stockholders’ Deficiency for the period from October 1, 2013 to December 31, 2014 (unaudited)	F-3
Condensed Consolidated Interim Statements of Cash Flows for the three months ended December 31, 2014 and 2013 (unaudited)	F-4
Notes to Condensed Consolidated Interim Financial Statements	F-5 - F-15

 

 

Trio Resources, Inc.

Condensed Consolidated Balance Sheets

(Expressed in United States Dollars)

 

		December 31, 2014				September 30, 2014
		(Unaudited)				(Audited)
		$				$
CURRENT ASSETS
Cash			9,745				4,374
Prepaid expenses and other receivables			45,037				47,949
Total current assets			54,782				52,323
Loan receivable - related party (Note 7)			70,450				72,919
Property and equipment (Note 3)			328,619				340,794
Mining property claims (Note 4)			8,792				9,101
TOTAL ASSETS			462,643				475,137
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
CURRENT LIABILITIES
Accounts payable and accrued liabilities			982,487				984,176
Loans payable (Note 8)			639,286				379,826
Promissory notes payable (Note 9)			146,000				146,000
Convertible notes payable (Note 12)			896,853				917,108
Convertible draw down loan payable (Note 10)			425,000				425,000
Derivative liabilities (Note 13)			203				35,267
Total current liabilities			3,089,829				2,887,377
Convertible note payable - related party (Note 11)			431,001				446,101
TOTAL LIABILITIES			3,520,830				3,333,478
STOCKHOLDERS’ DEFICIENCY
Authorized:
400,000,000 common stock, par value $0.001
Issued and outstanding:
369,353,231 common stock as at December 31, 2014 (September 30, 2014 : 346,862,500 common stock) - (Note 5)			369,354				346,863
Shares to be issued (Note 5)			27,250				27,250
Excess of purchase price over net asset value			(299,105	)			(299,105	)
Additional paid-in capital			887,591				881,892
Accumulated other comprehensive income			321,973				219,275
Accumulated deficit			(4,365,250	)			(4,034,516	)
Total stockholders’ deficiency			(3,058,187	)			(2,858,341	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIENCY			462,643				475,137

 

See accompanying notes to condensed consolidated interim financial statements

 

 

Trio Resources, Inc.

Condensed Consolidated Interim Statements of Operations and Comprehensive Loss

(Expressed in United States Dollars)

 

		For the				For the
		Three Months Ended				Three Months Ended
		December 31, 2014				December 31, 2013
		(Unaudited)				(Unaudited)
		$				$
REVENUE			—				—
EXPENSES
Corporate expenses			224,289				164,382
Exploration and development costs			71,780				21,775
Interest expense			28,706				69,179
Changes in fair value of derivative liabilities			—				13,259
Depreciation			5,959				2,051
Total expenses			330,734				270,646
Net loss for the period before income taxes			(330,734	)			(270,646	)
Income taxes			—				—
NET LOSS FOR THE PERIOD			(330,734	)			(270,646	)
Foreign currency translation adjustment			102,698				65,389
COMPREHENSIVE LOSS			(228,036	)			(205,257	)
Loss per share, basic and diluted (Note 6)			(0.0006	)			(0.0006	)
Weighted average number of common stock outstanding, basic and diluted (Note 6)			363,525,437				338,694,583

 

See accompanying notes to condensed consolidated interim financial statements

 

 

Trio Resources, Inc.

Condensed Consolidated Interim Statements of Stockholders’ Deficiency

(Expressed in United States Dollars)

 

																		Excess of
																		purchase				Accumulated
														Additional				price over				other
		Common stock								Share to				paid-in				net asset				comprehensive				Accumulated
		Shares				Amount				be issued				capital				value				income				deficit				Total
						$				$				$				$				$				$				$
As at October 1, 2013			338,650,000				338,650				—				312,683				(299,105	)			23,159				(2,746,274	)			(2,370,887	)
Issuance of shares re: consulting agreement			512,500				513				—				8,080				—				—				—				8,593
Shares to be issued in respect of private placements			—				—				27,250				501,130				—				—				—				528,380
Conversion of a note			7,700,000				7,700				—				59,999				—				—				—				67,699
Cumulative translation adjustment			—				—				—				—				—				196,116				—				196,116
Loss for the year			—				—				—				—				—				—				(1,288,242	)			(1,288,242	)
As at September 30, 2014 (audited)			346,862,500				346,863				27,250				881,892				(299,105	)			219,275				(4,034,516	)			(2,858,341	)
Conversion of a note			22,490,731				22,491				—				5,699				—				—				—				28,190
Cumulative translation adjustment			—				—				—				—				—				102,698				—				102,698
Loss for the year			—				—				—				—				—				—				(330,734	)			(330,734	)
As at December 31, 2014 (unaudited)			369,353,231				369,354				27,250				887,591				(299,105	)			321,973				(4,365,250	)			(3,058,187	)

 

See accompanying notes to condensed consolidated interim financial statements

 

 

Trio Resources, Inc.

Condensed Consolidated Interim Statements of Cash Flows

(Expressed in United States Dollars)

 

		For the				For the
		Three Months Ended				Three Months Ended
		December 31, 2014				December 31, 2013
		(Unaudited)				(Unaudited)
		$				$
OPERATING ACTIVITIES
Net loss for the period			(330,734	)			(270,646	)
Depreciation			5,959				2,051
Stock based payment for services			—				8,875
Accretion expense on convertible notes			—				24,642
Change in fair value of derivative liabilities			—				13,259
Net change in non-cash working capital balances:			—
Prepaid expense and other assets			1,093				17,985
Accounts payable and accrued liabilities			29,781				(37,058	)
Cash used in operating activities			(293,901	)			(240,892	)
INVESTING ACTIVITIES
Purchase of Property and equipment			(5,089	)			—
Cash used in investing activities			(5,089	)			—
FINANCING ACTIVITIES
Decrease in bank indebtedness			—				(10,830	)
Proceeds from issuance of convertible notes			—				67,065
Loans payable including draw down loan payable			265,000				199,330
Cash provided by financing activities			265,000				255,565
Net (decrease)/increase in cash during the period			(33,990	)			14,673
Effect of foreign currency translation			39,361				(12,533	)
Cash, beginning of the period			4,374				—
Cash, end of period			9,745				2,140

 

See accompanying notes to condensed consolidated interim financial statements

  

 

Trio Resources, Inc.

Notes to the Condensed Consolidated Interim Financial Statements (Unaudited)

(Expressed in United States Dollars)

 

All references to the “Company”, “Trio Resources” or “Trio Resources, Inc.” refer to Trio Resources, Inc. and its wholly-owned subsidiary.

 

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

 

Organization and Nature of Business

 

Trio Resources, Inc., 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 share exchange agreement (the “Share Exchange Agreement”) with TrioResources AG Inc. (“Trio” or “TrioResources AG Inc.”), pursuant to which the Company acquired 100% of the issued and outstanding equity securities of Trio (the “Share Exchange”). As a result of the Share Exchange, Trio became the wholly-owned subsidiary of Company and the Trio shareholders became the controlling shareholders of Company, owning an aggregate of 66.15% of the issued and outstanding shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”). The acquisition was accounted for as a recapitalization using accounting principles applicable to reverse acquisitions whereby the 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 the Company (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 the one for one issuance of Company shares to the TrioResources AG Inc. shareholders.

 

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

 

The Company 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 closing of 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 one (1) issued and outstanding share of Common Stock was 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 the Company 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 these condensed consolidated interim financial statements.

 

 

Trio Resources, Inc.

Notes to the Condensed Consolidated Interim Financial Statements (Unaudited)

(Expressed in United States Dollars)

 

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

 

Going Concern

 

The unaudited condensed consolidated interim financial statements have been prepared assuming that the Company will continue as a going concern. Since its inception on May 16, 2012 to December 31, 2014, the Company has not generated significant revenue and has incurred losses. As at December 31, 2014, the Company has a working capital deficiency of $3,035,047 and has accumulated deficit of $4,365,250. To date, the Company has not generated positive cash flows from operations and has primarily relied upon debt and equity financing from third parties and related parties to finance its operations.

 

The Company is pursuing additional financing. However, there can be no assurance that the additional financing shall be available on terms or conditions acceptable to the Company. These factors raise substantial doubt about its ability to continue as a going concern. No adjustment relating to the recoverability and classification of recorded asset amounts and the classification of liabilities has been made to the unaudited condensed consolidated interim financial statements, which could be material if the current business plan is not successful and when the Company is not able to continue as a going concern.

 

Acquisition

 

On December 14, 2012, the Company completed a Share Exchange transaction pursuant to which the Company acquired 100% of the issued and outstanding equity securities of TrioResources AG Inc., which became its wholly owned subsidiary. In connection with the Share Exchange, Ihar Yaravenka, the former, sole officer, director and controlling shareholder of the Company was paid $250,000, which was expensed during the Company’s previous year ended September 30, 2013, in exchange for Mr. Yaravenka’s surrendering and the Company canceling 1,500,000 shares of common stock of the Company. As at the close of the Share Exchange, the Company had no assets or liabilities and it was a public shell company.

 

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 stage company intending 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, the Company 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 the Company. The result is that the shareholders of TrioResources AG Inc. own 66.15% of the total shares of the Company outstanding effective the date of the Share 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.

 

2. Summary of Significant Accounting 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 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 consolidated 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 for the three months ended December 31, 2014 are not necessarily indicative of results that may be expected for the year ending September 30, 2015 or for any other interim period. The unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements of the Company and the notes thereto as of and for the year ended September 30, 2014 and 2013.

 

 

Trio Resources, Inc.

Notes to the Condensed Consolidated Interim Financial Statements (Unaudited)

(Expressed in United States Dollars)

 

The Company’s fiscal year-end is September 30. The Company’s functional currency is Canadian (“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. Stockholders’ deficiency 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 stockholders’ deficiency.

 

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.

 

Recently Issued Accounting Standards

 

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standard setting bodies that are adopted by the Company as of the specified effective date.

 

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern, which will require an entity’s management to assess, for each annual and interim period, whether there is substantial doubt about the entity’s ability to continue as a going concern within one year of the financial statement issuance date. The definition of substantial doubt within the new standard incorporates a likelihood threshold of “probable” similar to the use of that term under current GAAP for loss contingencies. Certain disclosures will be required if conditions give rise to substantial doubt. The guidance will be effective for the Company beginning with fiscal year 2017. Early adoption is permitted. The Company is currently evaluating the impact that this amended guidance will have on its consolidated financial statements and related disclosures.

 

Recently Adopted Accounting Standards

 

In June 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-10, “Development Stage Entities”. The amendments in this update remove the definition of a development stage entity from the Master Glossary of the ASC thereby removing the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. The amendments in this update are applied retrospectively.

 

The early adoption of ASU 2014-10 is permitted which removed the development stage entity financial reporting requirements from the Company.

 

 

Trio Resources, Inc.

Notes to the Condensed Consolidated Interim Financial Statements (Unaudited)

(Expressed in United States Dollars)

 

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 7). 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:

 

		December 31, 2014				September 30, 2014
Equipment		$	313,202			$	319,016
Less: Accumulated depreciation			(31,838	)			(27,824	)
Net equipment			281,364				291,192
Buildings			52,620				54,464
Less: Accumulated depreciation			(5,365	)			(4,862	)
Net buildings			47,255				49,602
		$	328,619			$	340,794

 

During the period, there was an addition to mining equipment amounting to $5,089.

 

Depreciation expense of $5,959 was charged for the three month period ended December 31 2014, (2013 - $2,051). Equipment and buildings are depreciated on a straight line basis, once they are put in use, over their estimated useful lives:

 

	●	Equipment 15 years; and
	●	Buildings 20 years.

 

4. Patented Claims:

 

At December 31, 2014 and September 30, 2014, the Company had mining property patent claims of $8,792 and $9,101, respectively (CDN $10,200 as of September 30, 2014 and December 31, 2014). These patent claims provide the Company with mining rights to certain land located in Coleman Township, District of Temiskaming, Ontario, Canada. On February 4, 2013 the Company made its first shipment of mineralized material for refining.

 

The patented claim was purchased in May 2012, in a related party transaction at a purchase price of CDN $10,200 (4,000MT of concentrate and book value of related party). No amortization has been charged since the date of purchase because amortization is based on units of production and the Company’s production volume through December 31, 2014 was very insignificant.

 

5. Stockholders’ Deficiency:

 

Common stock:

 

The Company’s authorized capital stock consists of 400,000,000 shares of common stock. At December 31, 2014, there were 369,353,231 shares of common stock issued and outstanding (September 30, 2014 - 346,862,500).

 

The total number of shares of common stock outstanding was 369,353,231 as of December 31, 2014 comprising of 229,612,500 restricted shares and 139,740,731 non-restricted shares. The total number of shares of common stock outstanding was 346,862,500 as of September 30, 2014 comprising of 229,612,500 restricted shares and 117,250,000 non-restricted shares.

 

The restricted shares have been issued to various parties through private placements, as start-up capital or as consideration for professional services. These restricted shares will be available for sale under Rule 144 of the Securities Act of 1933, as amended, when the conditions of Rule 144 have been met.

 

 

Trio Resources, Inc.

Notes to the Condensed Consolidated Interim Financial Statements (Unaudited)

(Expressed in United States Dollars)

 

5. Stockholders’ Deficit (continued):

 

Common stock issued and outstanding

 

During the three months ended December 31, 2014, convertible note of $25,000 and accrued interest of $3,190 was converted into 22,490,731 shares of common stock in accordance with the conversion option as explained in Note 12.

 

Shares to be issued:

 

On August 7, 2014, the Company closed its private placement offering with certain accredited investors for 27,250,000 shares of the Company’s common stock at an offering price of $0.02 per share for gross proceeds of $545,000. This includes share issuance costs of $16,620 which has been netted against gross proceeds. These shares are not yet issued as at December 31, 2014.

 

6. Earnings (Loss) Per Share (“EPS”):

 

FASB ASC 260, Earnings Per Share provides for calculations of “basic” and “diluted” earnings per share. Basic EPS includes no dilution and is computed by dividing net income (loss) available to common stockholders by the weighted average common shares outstanding for the period. Diluted EPS reflect the potential dilution of securities that could share in the earnings of an entity similar to fully diluted EPS. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. The weighted average number of shares outstanding for the three month periods ended December 31, 2014 was 363,525,437, respectively (as compared to 338,694,583, for the three month period ended December 31, 2013 respectively).

 

7. Related Party Transactions:

 

On June 15, 2012, the Company purchased certain assets from 2023682 Ontario Inc., a related party in which the Company’s current Chief Executive Officer, Mr. J. Duncan Reid, was the sole director. 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 paid by the Company to the related party consisted of cash of CDN $100,000 ($99,510) and a promissory note in the amount of CDN $500,000 ($485,300). 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 Stockholders’ Deficit, equivalent to a distribution of equity to the stockholder. The assets purchased and consideration given is as follows:

 

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’ deficiency		$	(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 SEC rules.

 

As at December 31, 2014, the Company had advanced to 2023682 Ontario Inc., $70,450 (September 30, 2014 - $72,919). The amount is unsecured, non-interest bearing and is recorded as a loan receivable with no specific terms of repayment.

 

 

Trio Resources, Inc.

Notes to the Condensed Consolidated Interim Financial Statements (Unaudited)

(Expressed in United States Dollars)

 

8. Loans Payable:

 

Loans payable represent unsecured and interest free financing provided by a third party. These loans are repayable on demand.

 

On December 24, 2014, the Company entered into an agreement with a private lender and raised $250,000. The term of the debt is six months from the date of receipts of the fund and carries interest 10% per annum to be prepaid on the same day funds are received. The debt is secured by a general security agreement.

 

9. Promissory Notes Payable:

 

These promissory notes are unsecured and carry interest at 8% per annum. Interest expense relating to these notes amounted to $2,920 during the three months ended December 31, 2014. These notes are repayable by June 24, 2015.

 

10. Convertible Draw Down Loan Payable:

 

The Company 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 $500,000. The facility bears interest at the rate of 10% per annum. During the one-year term, the Company was permitted from time to time request to draw down on this convertible debt facility subject to the discretion of the lender.

 

After completion of the one-year term, the outstanding principal and accrued interest remaining on the debt facility was 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 $0.55 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 on December 14, 2012 the Company became public. As at December 31, 2014, the amount outstanding under the draw down facility was $425,000 (September 30, 2014 - $425,000).

 

11. Convertible Note Payable – Related Party:

 

As of December 31, 2014, the Company has a convertible note payable of $431,001 (CDN $500,000) to 2023682 Ontario Inc. This note, which was originally issued to TrioResources AG Inc., will become due three years from the date of issuance (June 15, 2012) and has accrued interest at 3% per annum beginning on the one year anniversary of issuance. The terms of this convertible note specified that if TrioResources AG Inc., was successful in a ‘going public’ transaction, the convertible note would become convertible into shares of common stock at a conversion price equal to the weighted average of the share price based on the average 5 day bid price, within 30 days of going public. If there are no trades on any given day in the first 30 days after the stock began to trade then the bid price would be used in determining the weighted average price. This convertible note may be repaid at any time without penalty or bonus. This convertible note was interest free for the first 12 months post-closing of the asset purchase, thereafter; it accrued 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 as accretion expense over the term of the note. TrioResources AG Inc. completed its going public transaction upon consummation of the Share Exchange and became public on December 14, 2012, the first trades of the Company’s common stock took place on January 11, 2013 at $0.55 per share; however, the holder has not requested for conversion into shares. This has been classified as non-current as management has obtained a waiver for the next 12 months.

 

Accretion expense of $nil has been recognized for the three month ended December 31, 2014 (2013 - $24,642, respectively), which is included in interest expense in the unaudited condensed consolidated interim statements of operations.

 

 

Trio Resources, Inc.

Notes to the Condensed Consolidated Interim Financial Statements (Unaudited)

(Expressed in United States Dollars)

 

12. Convertible Notes Payable:

 

		December 31, 2014				September 30, 2014
Convertible Note (a)		$	896,853			$	916,185
Convertible Note (b)			-				923
		$	896,853			$	917,108

 

These convertible notes outstanding as at December 31, 2014 and September 30, 2014 are classified as current in accordance with their terms of maturity.

 

Convertible Notes (a)

 

The details of the convertible notes outstanding as at December 31, 2014 are as follows:

 

On September 30, 2012, the Company entered into convertible notes with Incendia Management Group Inc. in the amount of CDN $266,445 (US $241,053), Siderion Capital Group Inc. in the amount of CDN $295,163 (US $267,034), and Seagel Investment Corp. in the amount of CDN $49,000 (US $47,559). Each of these September 30, 2012 convertible notes had a two (2) year term and had an interest rate of 10% per annum. They have been extended for one year.

 

On October 31, 2012 the Company entered into convertible notes with Incendia Management Group Inc. in the amount of CDN $7,000 (US $6,333), Siderion Capital Group Inc. in the amount of CDN $20,000 (US $18,094), Seagel Investment Corp. in the amount of CDN $2,500 (US $2,262), and Seagel Investment Ltd. in the amount of US $345,081 . Each of these October 31, 2012 convertible notes had a term of two (2) years and had an interest rate of 10% per annum. They have been extended for one year.

 

All of the convertible notes referred to above may be converted, at any time at the option of the holder, into shares of the common stock of the Company at the lower of $1.00 per share, the initial listing price of $0.55 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.

 

These convertible notes and Drawn Down Loan Payable are secured against the assets of the TrioResources AG Inc. until the convertible notes are converted to shares or the convertible notes are redeemed. As at December 31, 2014, all of the convertible notes and the Draw Down Facility remain outstanding and none have been converted to common shares.

 

The convertible notes may be repaid at any time without penalty or bonus. Subsequent to year end and up to the date of this filing, none of the above notes were either paid or converted into common stocks of the Company.

 

Interest expense of $26,807 has been recognized for the three months ended December 31, 2014 (2013 - $39,555).

 

Convertible Notes (b)

 

On November 27, 2013, the Company entered into a convertible promissory note agreement (the “Note”) whereby the investor may purchase up to $335,000 face value convertible notes. The consideration is equal to $300,000 resulting in an original issue discount of $30,000 (approximately 10%). Pursuant to this agreement, the Company received $50,000 (face value of $55,833) on November 27, 2013 and $25,000 (face value of $27,917) on March 14, 2014 (together, the “Initial Tranche”). If the Company elects to repay the consideration received within 90 days from the effective date of the consideration, there is no interest due on the note. However, if the consideration is not repaid within 90 days of the effective date, there is a one-time interest charge equal to 12% of the outstanding principal balance. The note is convertible into common stock at the lender’s option, at the lower (a) $0.10 or (b) 60% of the lowest trade price in the 25 trading days previous to the conversion.

 

 

Trio Resources, Inc.

Notes to the Condensed Consolidated Interim Financial Statements (Unaudited)

(Expressed in United States Dollars)

 

12. Convertible Notes Payable: (continued)

 

The Note provides for redemption upon the occurrence of an event of default. Default conditions include non-servicing of the debt and certain other credit risk related conditions. Default conditions also include certain equity indexed events including failures to file public information documents and failure to comply with Rule 144 requirements. The remedy to the lender for an event of default is payment of the greater of (i) the outstanding balance of the Note divided by the conversion price on the date the default amount is either demanded or paid in full, whichever has a lower conversion price multiplied by the VWAP on the date the default amount is either demanded or paid in full, whichever has a higher VWAP, or (ii) 150% of the outstanding balance of the note.

 

Accounting Considerations

 

The Company has accounted for the Initial Tranche issued for cash as a financing transaction, wherein the net proceeds that were received were allocated to the financial instrument issued. Prior to making the accounting allocation, the Company evaluated the Initial Tranche under ASC 815 Derivatives and Hedging (“ASC 815”). ASC 815 generally requires the analysis embedded terms and features that have characteristics of derivatives to be evaluated for bifurcation and separate accounting in instances where their economic risks and characteristics are not clearly and closely related to the risks of the host contract. The material embedded derivative features consisted of the conversion option and certain redemption rights that were indexed to equity risks (“Default Put”). The conversion option along with the redemption features bearing risks of equity, were not clearly and closely related to the host debt agreement and required bifurcation. Current accounting principles that are also provided in ASC 815 do not permit an issuer to account separately for individual derivative terms and features that require bifurcation and liability classification (see Note 11). Rather, such terms and features must be and were bundled together and fair valued as a single, compound embedded derivative.

 

Based on the previous conclusions, the Company allocated the cash proceeds first to the derivative component at its fair value with the residual allocated to the host debt contract, as follows:

 

		Allocation
		$50,000 Note				$25,000 Note
Compound embedded derivative		$	62,007			$	29,461
Financing costs expense			(5,000	)			(2,500	)
Day-one derivative loss			(7,007	)			(1,961	)
		$	50,000			$	25,000

 

The proceeds were allocated to between the compound embedded derivative and the financing costs expense. These resulted in day-one derivative losses and therefore, there was no value allocated to these notes on the inception date. These Notes will be accreted up to its face value over the life of the Notes based on an effective interest rate of 21.15%. Amortization expense of $nil was recorded for the three month period ended December 31, 2014. The total carrying values of these Notes as of December 31, 2014 amounted to $nil.

 

During the year ended September 30, 2014, convertible note of $50,000 and accrued interest of $5,560 was converted into 7,700,000 shares of common stock in accordance with the conversion option as explained above. Further, during the 3 months ended December 31, 2014, the remaining convertible note of $25,000 with accrued interest of $3,190 up to the date of conversion was converted into 22,490,731 shares of common stock in accordance with the conversion option as explained above.

 

13. Derivative Liabilities:

 

The following tables summarize the components of the Company’s derivative liabilities and linked common shares as of December 31, 2014 and the amounts that were reflected in income related to derivatives for the three months then ended:

 

		As at December 31, 2014
		Index shares				Fair values
Warrant derivatives			75,000			$	203

 

 

Trio Resources, Inc.

Notes to the Condensed Consolidated Interim Financial Statements (Unaudited)

(Expressed in United States Dollars)

 

13. Derivative Liabilities: (continued)

 

The Common Stock Purchase Warrant pursuant to a “Stairs Option/Joint Venture Agreement” with Teck Resources Limited (“Teck”) (see Note 15) issued on December 13, 2013 contained a variable conversion price, the Company has classified it as a derivative liability.

 

The Binomial Lattice technique is a level three valuation technique because it requires the development of significant internal assumptions in addition to observable market indicators. Significant assumptions utilized in the Binomial Lattice process are as follows for the warrants as of December 31, 2014:

 

		December 31, 2014
Linked common shares			75,000
Quoted market price on valuation date		$	0.01
Quoted market price on valuation date		$	0.598
Term (years)			1.230
Range of market volatities			132.64% - 189.68	%
Risk free rates using zero coupon US Treasury Security rates			0.07% - 0.38	%

 

The following table reflects the issuances of derivative warrants and changes in fair value inputs and assumptions related to the derivative warrants during the three months ended December 31, 2014.

 

		December 31, 2014
Balances at October 1, 2014		$	203
Common stock purchase warrants			-
Changes in fair value inputs and assumptions reflected in income			-
Balances at December 31, 2014		$	203

 

The fair value of all warrant derivatives is significantly influenced by the Company’s trading market price, the price volatility in trading and the risk free interest components of the Binomial Lattice technique.

 

14. Contingency

 

On October 22, 2012, the previous owner of the property, 2023682 Ontario Inc., owned by Mr. Reid (CEO of the Company), 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. had until July 31, 2014 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. 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. There has been a Notice of Garnishment served against Trio Resources, Inc. in the amounts of $45,874 CAD and $47,863 USD in respect of a claim against the Company’s CEO in his other business ventures. Currently, the motion is returnable in fiscal year 2015 and hence, the management cannot assess the likelihood of any outcome.

 

 

Trio Resources, Inc.

Notes to the Condensed Consolidated Interim Financial Statements (Unaudited)

(Expressed in United States Dollars)

 

15. Commitment

 

On September 25, 2013, the Company entered into a Stairs Option/Joint Venture Agreement (the “Agreement”) with Teck Resources Limited (“Teck”), a corporation incorporated under the laws of Canada. Teck is the registered and beneficial owner of a 100% undivided leasehold interest (the “Teck Interest”) in the Stairs property located in Ontario (the “Property”).

 

Teck has agreed to grant the Company the sole, exclusive and irrevocable right and option (the “Option”) to acquire the Teck Interest, subject only to the Back-in Right and the NSR royalty reserved to Teck, upon and subject to the terms of the Agreement. If the Company exercises the Option and Teck exercises its Back-in Right, then the NSR Royalty will be extinguished and Trio and Teck will participate as joint venture partners for any further exploration or, if deemed warranted, development of the Property upon the terms set out in the Agreement.

 

In consideration for the grant of the Option, the Company issued 75,000 Units (the “First Units”), to Teck during the quarter ended December 31, 2013. Each “Unit” (First Units and Second Units) shall be comprised of one common share in the capital of the Company (a “Share”) and one non-transferable share purchase warrant (a “Warrant”).

 

Each Warrant that comprises the First Units shall entitle Teck to purchase one Share for a period of 24 months from the date of issue of the First Units at the price per common share equal to $0.60. The terms and conditions which govern the Warrants will be referred to on the certificates representing the Warrants, the terms of such certificates to be acceptable to Teck, acting reasonably, and will contain, among other things, anti-dilution provisions. Each Warrant that comprises the Second Units shall be exercisable for a period of 24 months from the date of issue of the Second Units at a price per share equal to $0.75.

 

Under the Agreement, Teck has granted to the Company the sole, exclusive and irrevocable right and Option to earn, subject to Teck’s Back-in Right and the NSR royalty reserved out of the grant, which rights and royalty were reserved from the Option. The Company may exercise the Option by:

 

c)

Incurring an aggregate $1,500,000 in expenditures (the “Expenditures”) as follows:

 

On or Before		Cumulative Expenditures
June 30, 2015		$	245,000
September 30, 2015		$	1,000,000
September 30, 2016		$	1,500,000

 

The Expenditure of $245,000 due to be incurred on or before June 30, 2015 is a commitment, whereas the balance of the Expenditures are optional; and

 

d)

Issuing and delivering to Teck a further 25,000 Units (the “Second Units”) on completion of the Expenditures necessary to exercising the Option.

 

Upon the Company expending an aggregate of $1,500,000 in Expenditures and satisfying the other obligations under the Agreement, the Company shall forthwith provide Teck Notice (the “Option Expenditure Notice”), which shall include a statement in reasonable detail evidencing such Expenditures and a technical report on the results obtained from such Expenditures. On the date on which the Option Expenditure Notice is delivered, the Company will have exercised the Option and earned the Teck Interest subject to the Back-in Right and NSR royalty. As of such date, the Property shall be held in trust by Teck for the Company and, forthwith upon the Company exercising the Option unless Teck delivers the Back-in Notice, Teck will forthwith take all necessary steps to transfer registered title to the Company. If the Company has not incurred the requisite Expenditures as noted above, the Company may pay in cash to Teck, within 30 days of the listed due date, the amount of the deficiency and such amount shall thereupon be deemed to have been Expenditures duly and timely incurred by the Company.

 

As at the date of this filing, the Company has incurred expenditure of approximately $45,000.

 

 

Trio Resources, Inc.

Notes to the Condensed Consolidated Interim Financial Statements (Unaudited)

(Expressed in United States Dollars)

 

15. Commitment (continued)

 

Rent Agreement

 

On June 13, 2014, the Company entered into a two year rent agreement with the Regus Group of Companies at a monthly rent of $2,800 per month with monthly payments started in July 2014.

 

Mining Property Claims

 

On July 30, 2014, the Company entered into a purchase and sale agreement to acquire certain non-patented mining property claims, located in Ontario. Pursuant to the agreement, the Company will acquire those mining property claims for a cash consideration of $72,445 (CAD $80,000) and issuance of 400,000 shares of its common stock on the closing date. The purchase agreement also requires the Company to pay to the vendor 2% Net Smelter Return Royalty on minerals produced, saved and sold from the property. The agreement has not yet closed pending completion of certain legal formalities relating to the transfer of title to the Company.

 

On September 25, 2014, the Company entered into a purchase and sale agreement to acquire certain patented mining property claims, located in Ontario. Pursuant to the agreement, the Company will acquire those mining property claims for a cash consideration of $2. In addition, the Company has also agreed to pay all reasonable legal costs incurred by the vender with respect to the agreement and the acquisition. The Company will acquire the property on AS-IS-WHERE-IS condition without any representation or warranties from the vendor with respect to environmental and mine closure matters. The agreement has not yet closed pending completion of certain legal formalities relating to the transfer of title to the Company.

 

16. Subsequent Events:

 

The Company’s management has evaluated subsequent events through the filing date of these financial statements and has determined that there are no material subsequent events to report.

 

 

ITEM 2: 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. (“we,” “us” or the “Company”) for the three months ended December 31, 2014 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 $4,365,250 from our inception, May 16, 2012, to December 31, 2014, and of $330,734 for the three months ended December 31, 2014, respectively. To date we have funded our operations through advances from a related party and from private third party lenders utilizing convertible notes and loans payable including a draw down loan payable totaling $2,538,140 as explained in detail in the section “Liquidity and Capital Resources”.

 

 

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Property

 

The Company acquired the Duncan Kerr property in May 2012. This property is located in Ontario, Canada, approximately three kilometers southeast of the town of Cobalt. Main features of this property are summarized as below:

 

	●	The property is located in a region that is well known for its base and precious metal production. Past producing mines at Duncan Kerr have mined in excess of 32 million ounces of silver, and one of North America’s richest silver veins ever explored is located on the property per preliminary geologist report from TMK Associates on March 22, 2013.
	●	The Company’s plans include 5,000 meters of diamond drilling and other exploration at the Duncan Kerr project as well as upgrading its existing mill capacity to be able to process up to 360 tons per day.
	●	The Company has full rights and claims to this property including the existing mineralized material, onsite mill, other structures and equipment, and all surface and mineral rights.
	●	This property has a very strategic location in terms of its access to major highways, rail spurs, power and fresh water.
	●	Presence of estimated 1.3 million tons of mineralized material already located above ground.

 

Recent Development

 

Acquisition of TrioResources AG Inc.

 

On December 14, 2012, we entered into a share exchange agreement (the “Share Exchange Agreement”) with TrioResources AG Inc., pursuant to which we acquired 100% of the issued and outstanding equity securities of TrioResources AG Inc., which became our wholly owned subsidiary (the “Share Exchange”). Part of the consideration was a payment of $250,000, which was expensed during the year, to Ihar Yaravenka, the former, sole officer, director and controlling shareholder for him to surrender and cancel 1,500,000 shares of common stock of the Company. Prior to the completion of the Share Exchange, we had no assets or liabilities and we were a shell company.

 

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 stage company intending 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, we 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 our common stock. The result is that the shareholders of TrioResourcses AG Inc. own 66.15% of the total outstanding shares of the Company effective the date of the Share Exchange Agreement.

 

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.

 

 

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Results of Operations

 

We are an exploration stage company and have not generated significant revenue to date and consequently our 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. Our analysis on the performance of the Company is as follows:

 

Balance sheet – As at December 31, 2014 and September 30, 2014

 

Cash/Bank indebtedness

 

At December 31, 2014 the Company had cash of $9,745 as compared to $4,374 as at September 30, 2014. The increase is attributable to new financing of $250,000 partially offset by cash used in operating activities.

 

Prepaid expenses and other receivables

 

At December 31, 2014 the Company had $45,037 of prepaid expenses and other receivables as compared to $47,949 as at September 30, 2014. The decrease of $2,912 during the three month period ended December 31, 2014 mainly represented an amount of $25,497 received in respect of HST, partially offset by rent for January paid in advance and amounts paid to Mr. Reid as advance for business expenses.

 

Loan receivable – related party and mining property claims

 

There was no change in the balance of loan from a related party in the amount of CDN 81,729 and patented claims of CAD 10,200. The variation in the balance as at December 31, 2014 as compared to September 30, 2014 reflected the change in foreign exchange rates.

 

Property and equipment

 

At December 31, 2014 the Company had $328,619 of net book value of property and equipment as compared to $340,794 as at September 30, 2014. The decrease of $12,175 represented amortization expense of $5,959 for the three month periods ended December 31, 2014 and the effects of difference in foreign exchange rates during the three month periods ended December 31, 2014.

 

Accounts payable and accrued liabilities

 

At December 31, 2014 the Company had $982,487 of accounts payable and accrued liabilities as compared to $984,176 as at September 30, 2014. The actual change is an increase of CAD 15,519 (interest charges accrual of CAD 47,277, accrual for audit fee and accounting charged CAD 16,000, accrual for Triwood consulting CAD 15,000 and payroll taxes payable CAD 12,052, partially offset by payment of several invoices – CAD 29,000 to Brownlee equipment, CAD 10,138 to Campsall Electric and CAD 24,000 to MNP and a few others). The remaining reduction is an impact of the change in exchange rate from September 30^th 2014 to December 31^st, 2014.

 

Loans payable

 

At December 31, 2014 the Company had $639,286 of loans payable as compared to $379,826 as at September 30, 2014. The increase of $259,460 mainly represented new financing amounting to $250,000.

 

Convertible draw down loan payable

 

The Company entered into a one-year Convertible Draw Down Facility, dated as of November 1, 2012, with Seagel Investment Ltd. as lender, in the maximum amount of $500,000. As at December 31, 2014 and September 30, 2014 the amount outstanding under the Draw Down Facility was $425,000.

 

 

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Convertible note payable – related party

 

At December 31, 2014 the Company had $431,001 of convertible note payable to a related party as compared to $446,101 as at September 30, 2014. The decrease for the three month period ended December 31, 2014 represents the effects of change in foreign exchange rates. The note was issued on June 15, 2012 for a term of two years and carries interest at 3% per annum. This note is interest free for the first twelve months and has been extended for one more year.

 

Convertible notes payable – third parties and derivative liabilities

 

At December 31, 2014 the Company had $896,853 of convertible notes payable to third parties and derivative liabilities as compared to $917,108 as at September 30, 2014. The decrease represents the effects of change in foreign exchange rates during the three month periods ended December 31, 2014. All these outstanding notes as at December 31, 2014 were issued under multiple funding arrangements with third party investors for a term of two years and carry interest ranging from 10% to 12% per annum. The notes have been extended for one more year.

 

Statement of Operations – For the three months December 31, 2014 and 2013:

 

Expenses

 

Our expenses are classified primarily into the following categories.

 

	●	Corporate expenses;
	●	Exploration and development costs;
	●	Interest and derivative expense; and
	●	Depreciation

 

Corporate expenses and exploration and development costs

 

Corporate expenses and exploration and development costs for the three months ended December 31, 2014 were $296,069 as compared to $186,157 for the three months ended December 31, 2013, respectively. The expenses which are generally included in these categories are consulting, legal, professional and edgarization charges. TrioResources AG Inc. was operating as a private limited company up to December 14, 2012, when it became public through a reverse merger transaction. The increased corporate expenses and exploration and development costs in 2014 were mainly due to the reverse merger activities.

 

Interest expense, change in derivative liabilities and depreciation

 

Interest expense, change in fair value of derivative liability and depreciation for the three months ended December 31, 2014 were $28,706, $nil and $5,959 as compared to $69,179, $13,259 and $2,051, for the three months ended December 31, 2013, respectively. The decrease in interest expense for the three months ended December 31, 2014 as compared to three months ended December 31, 2013 was mainly due to no accretion expense on related party convertible note during the current period. Change in derivative liabilities represented the derivative loss recognized resulting from the changes in fair values of promissory convertible notes. Increase in depreciation expense represents depreciation on non-operational equipment.

 

 

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Liquidity and Capital Resources

 

At December 31, 2014, the Company had a working capital deficit of $3,035,047 compared to a working capital deficit of $2,835,054 as at September 30, 2014. The Company is actively seeking various financing operations to meet the working capital requirements.

 

We have relied on equity financing and on third parties to provide financing for our operations by way of convertible notes and other loans. 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. The Company anticipates that its future mill operations will generate positive cash flows in fiscal 2015 provided that it is successful in obtaining additional financing in the foreseeable future. The Company has negotiated a $500,000 Draw Down facility (Note 8) with Seagel Investments Corp. of which $425,000 has been drawn as at December 31, 2014. On November 27, 2013, the Company entered into a Draw Down Facility in the amount of $335,000 with a lender of which the Company obtained $75,000 during the year ended September 30, 2014. The Company during the year ended September 30, 2014 raised $146,000 in the form of promissory notes.

 

On August 7, 2014, the Company closed its private placement offering with certain accredited investors for 27,250,000 shares of the Company’s common stock at an offering price of $0.02 per share for gross proceeds of $545,000. These shares are yet to be issued. 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 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 December 31, 2014, the outstanding convertible note from a related party and secured convertible notes under multiple funding arrangements with various third-party investors totals $2,538,140. To date we have funded our operations through equity financing, advances from a related party and from private third party lenders utilizing convertible notes and other loans.

 

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.

 

Critical Accounting Policies

 

Critical accounting policies are described in the Company’s Form 10-K for the year ended September 30, 2014.

 

Subsequent Events

 

We have evaluated subsequent events through the filing date of these financial statements and have determined that there are no material subsequent events to report.

 

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.

 

Smaller reporting companies are not required to provide the information required by this item.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Our management carried out an evaluation of the effectiveness of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 (the “Exchange Act”) Rules 13a-15(e) and 15-d-15(e)) as of the end of the period covered by this report (the “Evaluation Date”). Based upon that evaluation, our chief executive officer and chief financial officer concluded that as of the Evaluation Date, our disclosure controls and procedures are ineffective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes during the three months ended December 31, 2014 in our internal control over financial reporting that have materially affected, or are 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., owned by Mr. Reid (CEO of the Company), 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. had until July 31, 2014 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. 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. There has been a Notice of Garnishment served against Trio Resources, Inc. in the amounts of $45,874 CAD and $47,863 USD in respect of a claim against the Company’s CEO in his other business ventures. Currently, the motion is returnable in fiscal year 2015 and hence, the management cannot assess the likelihood of any outcome.

 

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

 

The Company did not sell any unregistered securities during the period of this report that have not otherwise been disclosed.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

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 Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

 

* Filed herewith.

 

 

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: February 27, 2015	By:	/s/ J. Duncan Reid
		J. Duncan Reid, Chief Executive Officer and Chief Financial Officer

 

 

Exhibit 31.1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

AND PRINCIPAL FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

 

I, J. Duncan Reid, certify that:

 

1.	I have reviewed this form 10-Q of Trio Resource, Inc;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods present in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have:

 

	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)	Disclosed in this report any change in the registrant’s internal control over financing reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)	Any fraud, whether or not material, that involved management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: February 27, 2015	TRIO RESOURCES, INC.
	By:	/s/ J. Duncan Reid
		J. Duncan Reid
		Principal Executive Officer

 

 

Exhibit 32.1

 

CERTIFICATION OF

PRINCIPAL EXECUTIVE OFFICER

AND PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

 

In connection with Quarterly Report of Trio Resource, Inc. (the “Company”), for the three months ended December 31, 2014, I, J. Duncan Reid, Principal Executive Officer of the Company hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that:

 

1.	Such Quarterly Report on Form 10-Q for the three months ended December 31, 2014 fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in such Quarterly Report on Form 10-Q for the three months ended December 31, 2014 fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: February 27, 2015	TRIO RESOURCES, INC.
	By:	/s/ J. Duncan Reid
		J. Duncan Reid
		Principal Executive Officer