DISCONTINUED OPERATIONS

9 Months Ended

Feb. 29, 2012

DISCONTINUED OPERATIONS [Abstract]

DISCONTINUED OPERATIONS

NOTE 4 -  DISCONTINUED OPERATIONS

In November of 2011, the Company determined that it would cease all operations in Turkey and 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 February 29, 2012 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						Nine Months Ended
	February 29, 2012			February 28, 2011			February 29, 2012			February 28, 2011
Revenues	$	-		$	13,755		$	9,988		$	47,692
Selling, general and administrative expenses		(71,364	)		(103,145	)		(1,057,907	)		(532,900	)
Impairment of Investment in Mining Company		(11,898,041	)		-			(13,859,231	)		-
Total operating expenses		(11,969,405	)		(103,145	)		(14,917,138	)		(532,900	)
Loss from operations		(11,969,405	)		(89,390	)		(14,907,150	)		(485,208	)
Other income (expense)
Interest expense, net		(58,939	)		(114,625	)		(252,063	)		(260,667	)
Gain on extinguishment of debt		-			-			115,930			-
Foreign currency gain (loss)		2,621			(97,295	)		(262,783	)		(95,544	)
Total other expense		(56,318	)		(211,920	)		(398,916	)		(356,211	)
Loss from discontinued operations	$	(12,025,723	)	$	(301,310	)	$	(15,306,066	)	$	(841,419	)

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:

	February 29, 2012		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		-		1,206,869
Property and equipment, net		20,493		22,040
Total assets of discontinued operations	$	20,493	$	1,467,098
Accounts payable and accrued expenses	$	1,338,546	$	393,231
Accrued interest		150,607		304,542
Short-term debt, net		822,156		642,766
Total current liabilities of discontinued operations	$	2,311,309	$	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 $0.18; 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 at February 29, 2012, the Company determined that its investment in the Mining Company was fully impaired.  As a result, the Company recorded an impairment of $13,859,231on the investment in 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 $7,879 and $39,395 during the three and nine months ended February 28, 2012.