Zinco do Brasil 10-Q 2014 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

xQUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 30, 2013

¨TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE EXCHANGE ACT

For the transition period from ___________ to _____________

Commission file number 000-52630

ZINCO DO BRASIL, INC.

(Exact name of registrant as specified in its charter)

Delaware	26-2524571
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

100 Park Avenue Suite 1600

New York, New York 10017

(Address of principal executive offices)

(212) 984-0628

(Issuer's telephone number)

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

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). 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 filer.  See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

Large Accelerated Filer¨ Accelerated Filer¨ Non-Accelerated Filer¨ Smaller Reporting Companyx

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934) (check one): Yes¨ Nox

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 26,020,826 shares of common stock, par value $0.0001 per share, as of January 21, 2014.

Zinco Do Brasil, Inc.

	Page Number
PART 1 – Financial Information
Item 1 – Unaudited Financial Information:
Consolidated  Balance Sheets as of November 30, 2013 and  May 31, 2013 (Unaudited)	2
Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended November 30, 2013  and 2012 (Unaudited)	3
Consolidated Statement of Stockholders Deficit for the Six Months Ended November 30, 2013 (Unaudited)	4
Consolidated Statements of Cash Flows for the Six Months Ended  November 30, 2013 and 2012 (Unaudited)	5
Notes to the Consolidated Financial Statements (Unaudited)	6
Item 2 - Management’s Discussion and Analysis or Financial Condition and Results of Operations	11
Item 3 - Quantitative and Qualitative Disclosures About Market Risk	13
Item 4 - Controls and Procedures	14
PART II - Other Information (Items 1-6)	15

Zinco Do Brasil, Inc.

Consolidated Balance Sheets

Unaudited

	November  30, 2013		May 31, 2013
ASSETS
Current assets:
Cash	$	-	$	687
Total current assets		-		687
Other assets:
Deposit on acquisition of Zinco do Brasil, Inc.		240,024		210,320
TOTAL ASSETS	$	240,024	$	211,007
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses	$	1,428,690	$	1,515,857
Accrued interest		498,547		940,089
Related party payable		79,346		35,841
Turigay judgement payable		1,243,164		-
Derivative liabilities		65,848		499,646
Short-term debt		-		735,329
Convertible debt - related party, net of unamortized discount of $- and $492 as      of November 30, 2013 and May 31, 2013, respectively		32,000		31,508
Convertible debt, net of unamortized discount of $- and $51,156 as of      November 30, 2013 and May 31, 2013, respectively		1,245,000		1,173,844
Total current liabilities		4,592,595		4,932,114
Total liabilities		4,592,595		4,932,114
Stockholders' Deficit:
Series A Preferred stock: $0.0001 par value; 1,000 shares authorized; 0 shares      issued and outstanding		-		-
Series B Preferred stock: $0.0001 par value; 1,000 shares authorized; 0 shares      issued and outstanding		-		-
Series C Preferred stock: $0.001 par value; 1,100,000 shares authorized;      1,074,999 shares issued and outstanding		1,075		1,075
Series D Preferred Stock: $0.001 par value; 1,200,000 shares authorized;      195,000 and 150,000 shares issued and outstanding as of November 30, 2013 and      May 31, 2013, respectively		195		150
Common stock: $0.0001 par value; 300,000,000 shares authorized; 26,020,826      and 23,563,850 shares issued and outstanding as of November 30, 2013 and      May 31, 2013, respectively		2,602		2,356
Additional paid-in capital		42,084,312		41,678,431
Accumulated other comprehensive income		212,324		212,324
Accumulated deficit		(46,620,220)		(46,582,584)
Total stockholders' deficit of Zinco Do Brasil, Inc.		(4,319,712)		(4,688,248)
Non-controlling interest		(32,859)		(32,859)
Total equity		(4,352,571)		(4,721,107)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	240,024	$	211,007

See accompanying notes to the unaudited consolidated financial statements.

2

Zinco Do Brasil, Inc.

Consolidated Statements of Operations and Comprehensive Loss

Unaudited

	Three Months Ended				Six Months Ended
	November 30,				November 30,
	2013		2012		2013		2012
Professional fees	$	56,063	$	88,428	$	141,516	$	146,831
Selling, general and administrative expenses		169,993		243,812		400,952		753,394
Total operating expenses		226,056		332,240		542,468		900,225
Loss from operations		(226,056)		(332,240)		(542,468)		(900,225)
Other (income) expense:
Derivatives (gain) loss		(254,040)		3,708		(528,959)		(391,492)
Interest expense		165,695		444,072		401,229		911,293
Loss on foreign currency transactions		39,289		-		48,149		-
Gain on settlement of debt and accrued interest		(425,251)		-		(425,251)		-
Loss on extinguishment of debt		-		-		-		631,476
Debt conversion expense		-		890,685		-		1,857,432
Total other (income) expense		(474,307)		1,338,465		(504,832)		3,008,709
Net income (loss)		248,251		(1,670,705)		(37,636)		(3,908,934)
Deemed dividend related to incremental beneficial conversion feature on preferred stock		-		-		(95,195)		-
Preferred dividends		(58,340)		-		(111,189)		-
Net income (loss) attributable to common stockholders	$	189,911	$	(1,670,705)	$	(244,020)	$	(3,908,934)
Basic and diluted income (loss) per common share:	$	0.01	$	(0.09)	$	(0.01)	$	(0.25)
Weighted average number of common shares outstanding - basic and diluted		24,959,984		18,990,588		24,254,246		15,635,661
Comprehensive income (loss)
Net income (loss)	$	248,251	$	(1,670,705)	$	(37,636)	$	(3,908,934)
Foreign currency translation adjustments		-		(45,342)		-		(62,894)
Total comprehensive income (loss)	$	248,251	$	(1,716,047)	$	(37,636)	$	(3,971,828)

See accompanying notes to the unaudited consolidated financial statements.

3

Zinco Do Brasil, Inc.

Consolidated Statement of Stockholders' Deficit

For the Six Months Ended November 30, 2013

Unaudited

	Preferred Stock  Series A			Preferred Stock   Series C			Preferred Stock  Series D			Common Stock			Additional  Paid-in		Subscription		Accumulated  Other  Comprehensive		Accumulated		Non-Controlling		Total Stockholders' Equity
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Capital		Receivable		Income		Deficit		Interest		(Deficit)
Balance, May 31, 2013	-		-	1,074,999	$	1,075	150,000	$	150	23,563,850	$	2,356	$	41,678,431	$	-	$	212,324	$	(46,582,584)	$	(32,859)	$	(4,721,107)
Stock issued for deposit on Ouro do Brasil transaction										2,456,976		246		29,458										29,704
Issuance of Series D convertible preferred stock for cash	-		-	-		-	45,000		45	-		-		354,794		-		-		-		-		354,839
Stock-based compensation -warrants	-		-	-		-	-		-	-		-		21,629		-		-		-		-		21,629
Preferred dividends	-		-	-		-	-		-	-		-		-		-		-		-		-		-
Deemed dividends on preferred stock due to beneficial conversion feature	-		-	-		-	-		-	-		-		-		-		-		-		-		-
Net loss	-		-	-		-	-		-	-		-		-		-		-		(37,636)		-		(37,636)
Balance November 30, 2013	-	$	-	1,074,999	$	1,075	195,000	$	195	26,020,826	$	2,602	$	42,084,312	$	-	$	212,324	$	(46,620,220)	$	(32,859)	$	(4,352,571)

See accompanying notes to the unaudited consolidated financial statements.

4

Zinco Do Brasil, Inc.

Consolidated Statements of Cash Flows

Unaudited

	Six Months Ended
	November 30,		November 30,
	2013		2012
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(37,636)	$	(3,908,934)
Adjustments to reconcile net loss to net cash used in operating activities:
Gain on derivatives		(528,959)		(391,492)
Stock-based compensation		21,629		460,097
Amortization of debt discount		53,648		247,311
Loss on debt extinguishment		-		631,476
Loss on foreign currency transactions		48,149		-
Gain on settlement of debt and accrued interest		(425,251)		-
Gain on settlement of accrued expenses		-		(24,583)
Debt conversion expense		-		1,857,432
Changes in operating assets and liabilities:
Accounts payable and accrued expenses		354,228		833,657
NET CASH USED IN OPERATIONS		(514,192)		(295,036)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of Series D convertible preferred stock		450,000		-
Proceeds from issuance of convertible debt		20,000		-
Proceeds from issuance of convertible debt - related party		-		32,000
Advances from related parties		90,436		67,600
Payments on advances from related parties		(46,931)		(103,500)
CASH PROVIDED BY FINANCING ACTIVITIES		513,505		(3,900)
NET CHANGE IN CASH AND CASH EQUIVALENTS		(687)		(298,936)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		687		299,298
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	-	$	362
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes	$	-	$	-
Interest	$	12,883	$	-
NONCASH INVESTING AND FINANCING ACTIVITIES
Debt discount due to common stock issued with debt and beneficial      conversion feature	$	-	$	1,953
Common stock issued to settle accrued expenses	$	95,161	$	68,056
Conversion of convertible debt and accrued interest to equity	$	-	$	3,460,496
Interest converted to debt principal	$	-	$	25,000
Conversion of Series A Preferred Stock to common stock	$	-	$	416
Fair value of common stock issued as a deposit to Sellers of      Zinco do Brasil, Inc.	$	29,704	$	14,731,927

See accompanying notes to the unaudited consolidated financial statements.

5

 

Zinco Do Brasil, Inc.

Notes to Consolidated Financial Statements

November 30, 2013

(Unaudited)

NOTE 1 - ORGANIZATION AND OPERATIONS

Zinco Do Brasil, Inc. (formerly TurkPower Corporation) (the “Company”) was incorporated in Delaware on November 4, 2004 as Global Ink Supply Company and was organized for the purpose of developing an e-commerce website to sell ink printer cartridges and toner. On September 28, 2012, we (i) changed our name to Zinco do Brasil, Inc., (ii) effected a reverse split on a 1:15 basis and (iii) increased the number of our authorized shares of capital stock from 310,000,000 shares to 810,000,000 of which 800,000,000 shares are common stock with a par value $0.0001 per share and 10,000,000 shares are preferred stock with a par value $0.0001 per share.

On August 14, 2012, the Company entered into a Binding Agreement (the “Agreement”) with Ouro do Brasil Holdings Ltd. (“OBH”) and IMS Engenharia Mineral Ltda. (“IMS”) for the proposed acquisition of 99.9% (the “Transaction”) of the capital stock of Zinco do Brasil Mineracao Ltda., a company to be formed under the laws of Brazil (“ZBM”), which will be owned by OBH and IMS. Pursuant to the Agreement, the Company will acquire 99.9% of the total capitalization of ZBM in exchange for (i) 7,166,667 newly issued shares of the Company’s restricted common stock, par value $0.001 per share (the “Common Stock”), to OBH (the “OBH Shares”) and (ii) 1,075,000 shares of a newly-created Series C Preferred Stock, par value $0.0001 per share, to IMS (the “IMS Shares”). At the closing of the Transaction (the “Closing”) all officers, directors and shareholders holding 10% or more of the Company’s Common Stock shall enter into lock-up agreements.

The Company has issued all of the OBH Shares to OBH and the IMS Shares to IMS.

In connection with the Transaction, the Company will convert an aggregate of approximately $5,000,000 of outstanding debt into approximately 3,333,333 shares of the Company’s Common Stock. In addition, following the closing of the proposed transaction, the Company shall consummate a private placement offering of $300,000 secured convertible notes and, within six months of closing the proposed transaction, the Company must: (i) raise up to $6,000,000 or such amount necessary to satisfy payment to Vale S.A. to complete the acquisition of the zinc mine; and (ii) raise $17,000,000 on or before the anniversary of the closing for working capital and general corporate purposes (collectively, the “Financing Conditions”). If the Financing Conditions are not met, IMS shall have the right of rescission provided that IMS has not converted any of its IMS Shares into Common Stock.

The Agreement has been extended on multiple occasions in part, as a result of the substantial, partial performance made by the Company in its efforts to complete the acquisition, including the delivery of all shares of common stock and Series C Preferred Stock, as well as the conversion of an aggregate of $4,343,364 of convertible debt and related accrued interest into shares of common stock at $1.50 per share. The Company continues to devote all its efforts and operations toward the preparation of engaging in mining operations upon consummation of the transaction.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The accompanying interim consolidated financial statements as of and for the six months ended November 30, 2013 and 2012 are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  The results of operations realized during an interim period are not necessarily indicative of results to be expected for a full year.  These financial statements should be read in conjunction with the information filed with the SEC as part of the Company’s Annual Report on Form 10-K/A, which was filed on September 20, 2013.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company’s wholly owned US subsidiary, TurkPower USA Corporation and its foreign subsidiary, Turkpower Enerji San. Ve Tic. A.S., of which the Company has a 99.8% controlling interest. All significant intercompany balances and transactions have been eliminated in the consolidation.

6

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 financial statements as well as the reported amount of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Fair value of financial instruments

The carrying value of cash and cash equivalents, accounts payable and accrued expenses, and debt approximate their fair values because of the short-term nature of these instruments. Management believes the Company is not exposed to significant interest or credit risks arising from these financial instruments.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Company utilizes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable.

•	Level 1 -	Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets.
•	Level 2 -	Quoted prices for similar assets and liabilities in active markets; quoted prices included for identical or similar assets and liabilities that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. These are typically obtained from readily-available pricing sources for comparable instruments.
•	Level 3 -	Unobservable inputs, where there is little or no market activity for the asset or liability. These inputs reflect the reporting entity’s own beliefs about the assumptions that market participants would use in pricing the asset or liability, based on the best information available in the circumstances.

The following table presents the derivative financial instruments, the Company’s only financial liabilities measured and recorded at fair value on the Company’s consolidated balance sheets on a recurring basis, and their level within the fair value hierarchy as of November 30, 2013:

	Amount		Level 1		Level 2		Level 3
Embedded conversion derivative liability	$	10,935	$	-	$	-	$	10,935
Warrant derivative liabilities		54,913		-		-		54,913
Total	$	65,848	$	-	$	-	$	65,848

The following table presents the derivative financial instruments, the Company’s only financial liabilities measured and recorded at fair value on the Company’s consolidated balance sheets on a recurring basis, and their level within the fair value hierarchy as of May 31, 2013:

	Amount		Level 1		Level 2		Level 3
Embedded conversion derivative liability	$	67,004	$	-	$	-	$	67,004
Warrant derivative liabilities		432,642		-		-		432,642
Total	$	499,646	$	-	$	-	$	499,646

The following table provides a summary of the changes in fair value, including net transfers in and/or out, of the derivative financial instruments, measured at fair value on a recurring basis using significant unobservable inputs:

Balance at May 31, 2013	$	499,646
Fair value of warrant derivative liabilities at issuance		95,161
Unrealized derivative gains included in other expense		(528,959)
Balance at November 30, 2013	$	65,848

The fair value of the derivative liabilities are calculated at the time of issuance and the Company records a derivative liability for the calculated value. Changes in the fair value of the derivative liabilities are recorded in other income (expense) in the consolidated statements of operations and comprehensive loss.

Beginning December 1, 2012, the Company used the Lattice model to value derivative instruments issued subsequent to November 30, 2012. The change is considered a change in estimate and is applied prospectively. For warrants issued prior to December 1, 2012, the Company continued to use the Black Scholes model.

7

As of November 30, 2013, there were a total of 350,003 derivative warrants outstanding, all of which were valued using the Lattice model.

The following are the assumptions used for derivative instruments valued using the Black Scholes option pricing model:

	November 30, 2013			May 31, 2013
Market value of stock on measurement date	$	0.375		$	1.80
Risk-free interest rate		0.06	%		0.04	%
Dividend yield		0	%		0	%
Volatility factor		312	%		49 - 50	%
Term		0.17 year			0.25 - 0.31 year

The following are the assumptions used for derivative instruments valued using the Lattice model:

	Initial Valuations			November 30,  2013
Market value of common stock on measurement date	$	1.48 – 1.67		$	0.375
Adjusted exercise price	$	1.99 – 2.25		$	2.18 - 2.43
Risk free interest rate		0.60 – 0.66	%		0.28 - 0.42	%
Warrant lives in years		3			2.07 - 2.58
Expected volatility		158 - 159	%		159 - 162	%
Expected dividend yields		0	%		0	%
Offering price range	$	1.32 - 2.51		$	1.04 - 2.51

The Company has considered the provisions of ASC 480,Distinguishing Liabilities from Equity, as the conversion feature embedded in each debenture could result in the note principal being converted to a variable number of the Company’s common shares.

Reclassification

Certain accounts in the prior period were reclassified to conform with the current period financial statements presentation.

NOTE 3 - GOING CONCERN

As shown in the accompanying consolidated financial statements, the Company had a net loss of $37,636 for the six months ended November 30, 2013 and had a working capital deficit as of November 30, 2013 of $4,592,595. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

The Company intends to raise additional working capital either through debt or equity financing. The consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

NOTE 4 - DEPOSIT ON ACQUISITION OF ZINCO DO BRASIL MINERACAO LTDA.

On August 14, 2012, the Company agreed with OBH and IMS for the proposed acquisition of 99.9% of ZBM, which will be owned by OBH and IMS. Pursuant to the agreement, the Company will acquire 99.9% of ZBM in exchange for (i) 7,166,667common shares to OBH and (ii) 1,075,000 Series C preferred shares to IMS (the “IMS Shares”). The Company also agreed to raise $17 million which will be used to complete the acquisition of the zinc project.

As of the date of this filing, ZBM has not been formed and the transaction has not been completed, although all of the shares have been issued. The fair value of OBH shares and IMS shares issued as of November 30, 2013 of $240,024 has been recorded as a deposit on the acquisition.   Since the above transaction has not yet closed and given that the Company has no existing operations, the fair value of the shares issued were based on the enterprise value done by a valuation expert.

In the event that the acquisition is not consummated, IMS shall have the right to rescind the agreement and the obligations of both parties shall be terminated and the contemplated transaction is voided as if the agreement was never entered into.

On February 13, 2013, Zinco, OBH and IMS entered into a modification of the agreement, dated August 14, 2012, to extend the date by which Zinco is required to raise $6,000,000 or such amount necessary to complete the acquisition of the zinc mine, until June 14, 2013. On June 14, 2013, the agreement was further extended to September 14, 2013. The Company is currently working on a further extension of the agreement.

8

 

NOTE 5 – TURIGAY JUDGMENT PAYABLE

As May 31, 2013, the Company owed $735,329 to an unrelated party. The loan is unsecured, bears annual interest at 25.0% and matured on December 15, 2011. While delinquent, the Company was required to pay 2.5% interest per month on the principal balance to the lender. As of May 31, 2013, accrued interest related to this note was $370,042. The Company recorded interest expense of $84,661 and $88,777 for the three months ended November 30, 2013 and 2012 and $188,973 and $161,577 for the six months ended November 30 2013 and 2012. On November 4, 2013, the Supreme Court of the State of New York entered a judgment in the favor of the unrelated party and it was determined that $1,243,164 was owed under the judgment.The total recorded balance of the loan and accrued interest as of November 4, 2013 had been $1,668,415, and the Company has recognized a gain on settlement of debt and accrued interest of $425,251 as a result of this judgment.

NOTE 6 - CONVERTIBLE DEBT

Convertible debt consisted of the following:

	November 30, 2013		May 31, 2013
Six-month secured convertible debentures	$	275,000	$	275,000
One-year term debentures		832,000		832,000
180-day promissory notes		150,000		150,000
60-day promissory notes		20,000		-
	$	1,277,000		1,257,000
Less - Debt discount		(- )		(51,648)
	$	1,277,000	$	1,208,352
Convertible debt – related party	$	32,000	$	31,508
Convertible debt – third party		1,245,000		1,173,844
	$	1,277,000	$	1,205,352

During the six months ended November 30, 2013, the Company issued a 60-day promissory note to a third party investor for $20,000. This note matured on August 6, 2013, and carries interest at a rate of 8% per annum and a 10% debt discount of $2,000 due on its maturity date. As of November 30, 2013, this note and 180-day promissory notes totaling to $100,000 are currently in default.

As of November 30, 2013, the balance of all convertible debentures was $1,277,000 (including related party debentures totaling $32,000) which are all currently in default, of which $782,000 carries a default interest rate ranging from 20% to 24%.

For the six months ended November 30, 2013 and 2012, debt discount amortization recorded to interest amounted to $53,648 and $247,311, respectively.

NOTE 7 - STOCKHOLDERS’ EQUITY

The Company had the following equity transactions during the six months ended November 30, 2013: 

· The Company received subscriptions from non-related parties of $450,000 for 45,000 shares of the Company’s Series D Convertible Preferred Stock plus warrants to purchase an additional 75,001 common shares at an exercise price of $2.25 per share and a term of three years. The conversion feature of the Preferred Stock was evaluated and it was determined that a beneficial conversion feature exists.  The Company recorded $95,195 as a deemed dividend.  As the Company had a negative retained earnings balance at the date of issuance, the dividends were accounted for as a debit and credit to additional paid-in capital.

· The Company issued 2,456,976 shares with a fair value of $29,704 as a deposit on the acquisition of ZBM

· The Company recorded stock-based compensation of $21,629 related to amortization of the fair value of warrants on the date of grant that were issued to a consultant for services provided to the Company.

During the six months ended November 30, 2013, the Company accrued dividends of $111,189 due on Series D Convertible Preferred Stock. As of November 30, 2013, cumulative dividends due on Series D Convertible Preferred Stock totaled $152,778.

9

 

NOTE 8 - STOCK OPTIONS AND WARRANTS

Stock option activity for six months ended November 30, 2013 is presented in the table below:

	Number of Shares	Weighted- average Exercise Price		Weighted- average Remaining Contractual Term (years)	Aggregate Intrinsic Value
Outstanding at May 31, 2013	829,445	$	5.25	4.16	$	-
Granted	-	$	-	-	$	-
Forfeited	-	$	-	-	$	-
Outstanding at November 30, 2013	829,445	$	5.25	3.66	$	-
Exercisable at November 30 , 2013	462,778	$	5.25	0.41	$	-

As of November 30, 2013, there was approximately $1,200,180 of total unrecognized compensation cost related to non-vested stock options which is expected to be substantially recognized when certain performance conditions are met or when there is a change of control.

Warrants

Warrant activity is presented in the table below:

	Number of Shares	Weighted- average Exercise Price		Weighted- average Remaining Contractual Term (years)	Aggregate Intrinsic Value
Outstanding at May 31, 2013	758,335	$	3.16	1.84	$	-
Granted	75,001	$	2.25	-	$	-
Forefeited	(146,667)	$	1.50	-	$	-
Outstanding at November 30, 2013	686,669	$	3.42	1.82	$	-
Exercisable at November 30, 2013	686,669	$	3.42	1.82	$	-

NOTE 9 - RELATED PARTY TRANSACTIONS

The Company received non-interest bearing advances from shareholders totaling $90,436 and made repayments of $46,931 during the six months ended November 30, 2013. As of November 30, 2013, amounts due to these shareholders totaled $79,346.

During the six months ended November 30, 2013, the Company made payments to its CEO totaling $70,158, which included reimbursement for expenses paid for by the CEO on behalf of the Company totaling $37,474. Expenses included travel expenses, general administrative expenses, as well as payments to service providers which were initially paid for by the CEO.

NOTE 10 - COMMITMENT AND CONTINGENCIES

On December 26, 2011, the Company commenced a lawsuit against Nalan Oral and Seluck Oral, the shareholders of Avrasya Yapı Yatırım Hizmetleri A.Ş., in the United States District Court for the Southern District of New York alleging the defendants breached the Mine Purchase Agreement and seeking to cancel the 2,666,667 shares of Common Stock and 226,667 warrants issued to the defendants in connection with the Mine Purchase Agreement. The Company is also seeking damages of $6,000,000 from the defendants for breach of contract.

Except as disclosed above, the Company is not a party to any other material pending legal proceedings nor is the Company aware of any threatened or contemplated proceeding by any governmental authority against the Company.

10

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

This Report contains statements that constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, (the “Securities Act) and the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Various matters discussed in this document and in documents incorporated by reference herein, including matters discussed under the caption “Plan of Operation,” may constitute forward-looking statements for purposes of the Securities Act and the Exchange Act. These statements are based on many assumptions and estimates and are not guarantees of future performance and may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. The words “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” and similar expressions are intended to identify such forward-looking statements. The Company’s actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without limitation, the Company’s lack of historically profitable operations, dependence on key personnel, the success of the Company’s business, ability to manage anticipated growth and other factors identified in the Company's filings with the Securities and Exchange Commission, press releases and/or other public communications.

(a) Overview

Zinco Do Brasil, Inc. (formerly TurkPower Corporation) was incorporated in the State of Delaware on November 4, 2004 as Global Ink Supply Company and was organizedto develop an e-commerce website to sell ink printer cartridges and toner. On May 11, 2010, an amendment was filed with the Secretary of State of Delaware to change the name of the Company to TurkPower Corporation. On September 28, 2012, an amendment was filed with and approved by the Secretary of State of Delaware to (i) change the name of the Company to Zinco do Brasil, Inc., (ii) effect a reverse split on a 1:15 basis and (iii) increase the number of the Company’s authorized shares of capital stock from 310,000,000 shares to 810,000,000 of which 800,000,000 shares are common stock with a par value $0.0001 per share and 10,000,000 shares are preferred stock with a par value $0.0001 per share. The amended Articles of Incorporation were approved by the State of Delaware effective September 28, 2012.

Business of the Company

On August 14, 2012, the Company entered into a Binding Agreement (the “Agreement”) with Ouro do Brasil Holdings Ltd. (“OBH”) and IMS Engenharia Mineral Ltda. (“IMS”) for the proposed acquisition of 99.9% (the “Transaction”) of the capital stock of Zinco do Brasil Mineracao Ltda., a company to be formed under the laws of Brazil (“ZBM”), which will be owned by OBH and IMS. Pursuant to the Agreement, the Company will acquire 99.9% of the total capitalization of ZBM in exchange for (i) 7,166,667 newly issued shares of the Company’s restricted common stock, par value $0.001 per share (the “Common Stock”), to OBH (the “OBH Shares”) and (ii) 1,075,000 shares of a newly-created Series C Preferred Stock, par value $0.0001 per share, to IMS (the “IMS Shares”). At the closing of the Transaction (the “Closing”) all officers, directors and shareholders holding 10% or more of the Company’s Common Stock shall enter into lock-up agreements.

The Company has issued all of the OBH Shares to OBH and the IMS Shares to IMS.

In connection with the Transaction, the Company will convert an aggregate of approximately $5,000,000 of outstanding debt into approximately 3,333,333 shares of the Company’s Common Stock. In addition, following the closing of the proposed transaction, the Company shall consummate a private placement offering of $300,000 secured convertible notes and, within six months of closing the proposed transaction, the Company must: (i) raise up to $6,000,000 or such amount necessary to satisfy payment to Vale S.A. to complete the acquisition of the zinc mine; and (ii) raise $17,000,000 on or before the anniversary of the closing for working capital and general corporate purposes (collectively, the “Financing Conditions”). If the Financing Conditions are not met, IMS shall have the right of rescission provided that IMS has not converted any of its IMS Shares into Common Stock.

Upon execution of the Agreement, Juvenil Felix, Ed Dowling and Jose Mendo de Souza were appointed to the Company’s Board of Directors on or before the Closing; James Davidson was appointed Chairman and Chief Executive Officer; Ryan Hart, the Company’s former Chairman and Chief Executive Officer, was appointed as President; and Adriano Espeschit was appointed a Director and Chief Operations Officer. On September 26, 2012, the Registrant accepted the resignation of Kaveh Meghdadpour as member of the Board of Directors. On December 17, 2012, the Board resolved to remove James Davidson as Chairman and Chief Executive Officer and appointed Ryan Hart as interim Chairman and Chief Executive Officer. On June 17, 2013, the Registrant appointed Daniel J. Kunz as its Executive Chairman of the Board of Directors and, effective upon closing of substantial funding, its Chief Executive Officer. Also on June 17, 2013, Ryan E. Hart was appointed to serve as Vice Chairman of the Board of Directors.

11

ZBM will become a wholly-owned subsidiary of the Company, and the Company amended its Articles of Incorporation to change its name to “Zinco do Brasil, Inc.” This change was approved by the State of Delaware effective September 28, 2012.

Further, on or before the second anniversary of the closing, the Company shall divest itself of all current assets and operations in Turkey (the “Turkish Operations”) in exchange of the assumption of any liabilities associated with the Turkish Operations.

As of the date of this filing, ZBM has not been formed and the transaction has not been completed. The fair value of OBH shares and IMS shares of $240,024 has been recorded as a deposit on the acquisition.

On February 13, 2013, Zinco, OBH and IMS entered into a modification of the Agreement, dated August 14, 2012, to extend the date by which Zinco is required to raise $6,000,000 or such amount necessary to satisfy payment to Vale S.A. to complete the acquisition of the zinc mine until June 14, 2013.

On June 14, 2013, the Registrant, OBH and IMS entered into a modification of the Binding Agreement dated August 14, 2012, as amended on February 13, 2013, to extend the date by which the Registrant is required to raise $6,000,000 or such amount necessary to satisfy payment to Vale S.A. to complete the acquisition of the zinc mine, until September 14, 2013. The Company is currently working on a further extension of the agreement.

The extension was granted, in part, as a result of the substantial, partial performance made by the Registrant in its efforts to complete the acquisition, including the delivery of all of the shares of common stock Series C Preferred Stock, as well as the conversion of an aggregate of $4,343,364 of convertible debt and related accrued interest into shares of common stock at $1.50 per share. The Registrant continues to devote all its efforts and operations toward the preparation of engaging in mining operations upon consummation of the transaction. The Registrant owns a minority interest in the Kuluncak mine, an iron ore mine in Turkey formerly owned by Exxaro and is currently in the process of evaluating its options and defining its strategy regarding its asset in Turkey.

(b) Going Concern

As shown in the accompanying consolidated financial statements, the Company had a net loss of $37,636 for the six months ended November 30, 2013 and had a working capital deficit as of November 30, 2013 of $4,592,595. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

The Company intends to raise additional working capital either through debt or equity financing. The consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

(c) Management’s Discussion and Analysis of Financial Condition and Results of Operation.

For the Six Months Ended November 30, 2012

For the six months ended November 30, 2013 and 2012 our professional fees were $141,516 and $146,831 respectively.

For the six months ended November 30, 2013 and 2012, our selling, general and administrative expenses were $400,952 and $753,394 respectively. The decrease in selling, general and administrative expenses was primarily due to a decrease in consulting services of $71,000 and a decrease in stock compensation of $272,000.

For the six months ended November 30, 2013 and 2012, we recorded other income of $504,832 and other expense of $3,008,709, respectively. The change is primarily a result of the following:

· Gain on settlement of debt and accrued interest of $425,251 for the six months ended November 30, 2013 compared to a loss on debt extinguishment of $631,476 for the six months ended November 30, 2012

·Debt conversion expense of $1,857,432 for the six months ended November 30, 2012,which were not repeated in the six months ended November 30, 2013

· Decrease in interest expense of $510,064, due to the Company’s efforts to convert and settle outstanding debt

·Increase in derivatives gain of $137,467

· Foreign currency losses of $48,149 for the six months ended November 30, 2013

For the Three Months Ended November 30, 2013 and 2012

For the three months ended November 30, 2013 and 2012, our professional fees were $56,063 and $88,428, respectively.The decrease was a result of a decrease in legal fees of approximately $27,000.

12

For the three months ended November 30, 2013 and 2012, our selling, general and administrative expenses were $169,993 and $243,812, respectively. The decrease was primarily due to the decrease in stock based compensation of $38,690, which decreased as certain stock-based awards were fully amortized in prior periods, and a decrease in consulting and travel expenses of $61,480.

For the three months ended November 30, 2013 and 2012, we recorded other (income) expense of $(474,307) and $1,338,465, respectively. The decrease in other (income) expense was primarily due to the following:

· Gain on settlement of debt and accrued interest of $425,251 for the three months ended November 30, 2013, with no related other (income) expense for the three months ended November 30, 2012

·Debt conversion expenses of $890,685 for the three months ended November 30, 2012, which were not repeated in the three months ended November 30, 2013

· Decrease in interest expense of $278,377, due to the Company’s efforts to convert and settle outstanding debt

·Derivative gain of $254,040 for the three months ended November 30, 2013, compared to a derivative loss of $3,708 for the three months ended November 30, 2012

· Foreign currency losses of $39,289 for the three months ended November 30, 2013

(d) Liquidity and Capital Resources

At November 30, 2013, we had cash of $-, as compared to $687 at May 31, 2013.

During the next 12 months we anticipate incurring costs related to the consummation of the acquisition of ZBM, the exploration and development of ZBM’s mineral rights and fundraising activities.

We believe we will be able to meet these costs through the use of funds, to be loaned by or invested in us by our stockholders, management or other investors. However, there can be no assurance that we will be able to secure such funds or that if we do so, that they will be on terms that are favorable to the Company.

Off-Balance Sheet Arrangements

As of the date of this Quarterly Report, the Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term "off-balance sheet arrangement" generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with the Company is a party, under which the Company has (i) any obligation arising under a guarantee contract, derivative instrument or variable interest; or (ii) a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.

Critical Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of its wholly owned US subsidiary, TurkPower USA Corporation and its foreign subsidiary, Turkpower Enerji San. Ve Tic. A.S., of which the Company has a 99.8% controlling interest.  All significant intercompany balances and transactions have been eliminated in the consolidation.

Use of estimates

The preparation of financial statements in conformity with U.S. 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 financial statements as well as the reported amount of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Fair value of financial instruments

The carrying value of cash and cash equivalents, receivables, accounts payable and accrued expenses, and debt approximate their fair values because of the short-term nature of these instruments. Management believes the Company is not exposed to significant interest or credit risks arising from these financial instruments.

Seasonality

To date, we have not noted any significant seasonal impacts.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable for smaller reporting companies.

13

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

As of the end of the period covered by this Quarterly Report, Management has concluded that our disclosure controls and procedures are not effective because of the identification of a material weakness in our internal control over financial reporting, which we view as an integral part of our disclosure controls and procedures. The material weakness relates to the Company not having personnel with knowledge of generally accepted accounting principles. Our executive management does not possess accounting expertise and our Company does not have an audit committee. This weakness was due to our lack of working capital to hire additional staff during the period covered by this report. We intend to obtain this knowledge of generally accepted accounting principles by hiring a contractor and/or hiring additional accounting personnel.

Changes in Internal Controls over Financial Reporting

There were no changes in the Company’s internal controls over financial reporting, known to executive management that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

14

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

On December 26, 2011, the Company commenced a lawsuit against Nalan Oral and Seluck Oral, the shareholders of Avrasya Yapı Yatırım Hizmetleri A.Ş., in the United States District Court for the Southern District of New York alleging the defendants breached the Mine Purchase Agreement and seeking to cancel the 2,666,667 shares of Common Stock and 226,667 warrants issued to the defendants in connection with the Mine Purchase Agreement. The Company is also seeking damages of $6,000,000 from the defendants for breach of contract.

Except as disclosed above, the Company is not a party to any other material pending legal proceedings nor is the Company aware of any threatened or contemplated proceeding by any governmental authority against the Company.

ITEM 1A. RISK FACTORS.

Not required for smaller reporting companies.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

On April 27, 2010, the Company’s Turkish subsidiary borrowed €450,000 ($555,692) from a third party. The loan is unsecured, bears annual interest at 25.0% and was payable in full on October 27, 2010. The interest rate increased to 60% on October 28, 2010, when the loan became in default. On August 2, 2011, the Turkish subsidiary and the lender cancelled the previous loan agreement and agreed to terms for the repayment of the €450,000 short-term debt and related interest by which the Turkish subsidiary agreed to pay the lender €200,000 on August 15, 2011, and €100,000 monthly thereafter through December 15, 2011 after which the Turkish subsidiary will have paid the lender €600,000 in aggregate. In addition the Company agreed to issue the lender 300,000 common shares no later than August 15, 2011. The Turkish subsidiary did not make the scheduled payments and the Company did not issue 300,000 shares to the lender. While delinquent, the Company is required to pay a 2.5% interest per month on the €600,000 loan to the lender. As of November 30, 2013, this loan is in default.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION AND SUBSEQUENT EVENTS

EXHIBITS

(a) Exhibit index

Exhibit  Number	Description
31.1	Section 302 Certification Of Chief Executive Officer and Chief Financial Officer
32.1	Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002 – Chief Executive Officer and Chief Financial Officer

15

SIGNATURES 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: January 21, 2014

ZINCO DO BRASIL, INC.
	(Registrant)
By:		/s/Ryan Hart
		Name:  Ryan Hart
		Title:  President, Chief Executive Officer and Chief Financial Officer
		(Principal Executive Officer and Principal Financial Officer)

16