DISCONTINUED OPERATIONS

6 Months Ended

Nov. 30, 2011

DISCONTINUED OPERATIONS [Abstract]

DISCONTINUED OPERATIONS

NOTE 4 – DISCONTINUED OPERATIONS

In November of 2011, the Company ceased all operations in Turkey and will sell its Turkish subsidiary, including the Investment in the Mining Company. As a result, the Company has identified the assets and liabilities of the Turkish subsidiary as assets of discontinued operations at November 30, 2011 and has segregated its operating results and presented them separately as a discontinued operation for all periods presented.

A summarized operating result for discontinued operations is as follows:

	Three Months Ended November 30,						Six Months Ended November 30,
	2011			2010			2011			2010
Revenues	$	1,765		$	8,016		$	9,988		$	33,938
Selling, general and administrative expenses		(901,511	)		(197,542	)		(986,543	)		(427,117	)
Impairment of Investment in Mining Company		(1,961,190	)		-			(1,961,190	)		-
Total operating expenses		(2,862,701	)		(197,542	)		(2,947,733	)		(427,117	)
Loss from operations		(2,860,936	)		(189,526	)		(2,937,745	)		(393,179	)
Other income (expense)
Interest expense, net		(85,037	)		(82,106	)		(193,124	)		(148,681	)
Gain on extinguishment of debt		-			-			115,930			-
Foreign currency gain (loss)		(133,374	)		(7,343	)		(265,404	)		1,751
Total other expense		(218,411	)		(89,449	)		(342,598	)		(146,930	)
Loss from discontinued operations	$	(3,079,347	)	$	(278,975	)	$	(3,280,343	)	$	(540,109	)

The losses from discontinued operations above do not include any income tax effect as the Company was not in a taxable position due to its continued losses and a full valuation allowance

Summary of assets and liabilities of discontinued operations is as follows:

	November 30, 2011		May 31,  2011
Cash	$	-	$	129,739
Receivables		-		64,465
Prepaid expenses and other current assets		-		43,985
Total current assets of discontinued operations		-		238,189
Investment in Mining Company, at cost		11,812,173		1,206,869
Property and equipment, net		19,367		22,040
Total assets of discontinued operations	$	11,831,540	$	1,467,098
Accounts payable and accrued expenses	$	1,077,382	$	393,231
Accrued interest		77,539		304,542
Short-term debt, net		792,334		642,766
Total current liabilities of discontinued operations	$	1,947,255	$	1,340,539

Investment in Mining Company, at cost

On April 29, 2010, the Company entered into a nonbinding share transfer and shareholders agreement with Endeks Holding and Avrasya Yapi for the purchase of 50% of their ownership in Exxaro Madencilik Sanayi ve Ticaret A.S. company (“Exxaro”). Exxaro's principal asset is an iron ore mine.

On June 30, 2011, the Company entered into a Share Purchase Agreement (the “Mine Purchase Agreement”) with Avrasya Yapi Yaturum Hizmetleri A.S. (the “Seller”). Pursuant to the Mine Purchase Agreement, the Company agreed to acquire from the Seller 50% of the Seller's shares (“Shares”) in Maksor Madencilik Sanayi Ve Ticaret Anonim Sirketi (the “Mining Company”, previously known as Exxaro Madencilik Sanayi ve Ticaret A.S. prior to its name change on May 17, 2011) for cash, and the issuance of certain TurkPower common shares and warrants in accordance with the Mine Purchase Agreement.

In accordance with the Mine Purchase Agreement, the Company issued the shareholders of the Seller (the “ 25,000,000 common shares on July 12, 2011 which were valued at $0.32 per share, the closing price on that day for a total value of $8,000,000. Also, in accordance with the Mine Purchase Agreement, on September 16, 2011, the Company issued the Holders 15,000,000 common shares which were valued at $0.215, the closing price on that day for a total value of $3,225,000.

In accordance with the Mine Purchase Agreement, the Company issued the Holders 3,400,000 warrants to purchase common shares on September 14, 2011 which were valued at $587,173.  The warrants were valued using the Black-Scholes option pricing model on the issuance date with the following assumptions: stock price on the measurement date of $0.21; term of 3 years; expected volatility of 171% and discount rate of .35%.

The Company reviews its investment in the Mining Company for impairment on an annual basis, or as events or circumstances might indicate that the carrying value of the investment may not be recoverable. As of November 30, 2011, the Company determined that its investment in the Mining Company was fully impaired, except for the value of the common stock and warrants issued to the Sellers, for which the Company expects will be cancelled for nonperformance in connection with litigation between the Company and the Sellers (See Note 9).  As a result, the Company recorded an impairment of the investment in Mining Company of $1,961,190 which represents the cash the Company paid to the Sellers and Mining Company.

Short-term debt

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 annual 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 under which the Turkish subsidiary agreed to pay the lender €200,000 on August 15, 2011, and €100,000 each month thereafter through December 15, 2011 after which the Turkish subsidiary would have paid the lender €600,000 in aggregate. In addition the Company agreed to issue the lender 300,000 common shares. The Turkish subsidiary did not make any of the scheduled payments to the lender. While delinquent, the Turkish subsidiary is required to pay 2.5% interest per month on the €600,000 loan to the lender.

The Company evaluated this debt modification under the Financial Accounting Standards Board Accounting Standards Codification 470-50 and determined that the modification was substantial and the revised terms constituted a debt extinguishment. As a result, the Turkish subsidiary recognized a gain on debt extinguishment of $115,930 representing the difference in the carrying value of the debt immediately prior to the modification of $1,016,915, consisting of $645,660 (€450,000) and $371,255 of accrued interest, and the fair value of the note immediately after the extinguishment determined to be $821,485 (€600,000) less the fair value of the shares which are owed to the lender of $79,500. The Turkish subsidiary also recognized a discount on the debt of $39,395 for imputed interest on the new note. The Turkish subsidiary is amortizing the note discount through the December 15, 2011 term of the note, and recorded amortization expense of $23,637 and $31,516 during the three and six months ended November 30, 2011.