Related Party Transactions and Balances

73 Months Ended

Aug. 31, 2011

3.	Related Party Transactions and Balances

During the three months August 31, 2011, the Company recognized $1,500 (2010 - $1,500) for donated services at $500 per month, and $750 (2010 - $750) for donated rent at $250 per month provided by a former director.

On February 8, 2011, the Company entered into a disgorgement and settlement agreement with Magellan Management Company, wholly owned and controlled by the President of the Company (Magellan). Pursuant to the agreement, the Company issued 5,163,313 units at $0.05 per unit (“Magellan Placement) to settle $261,032 of debt owed to the Related Company (“Magellan Debt”) as a result of cash advances made by the Magellan to the Company. A portion of the Magellan Placement was rescinded (Refer to Note 3(d) below). Each unit consists of one share of common stock and one warrant to purchase an additional common share of the Company at $0.05. As a result of this issuance of units, the Magellan was subject to matching under section 16(b) of the Securities Exchange Act of 1934, due to sales of shares made by Magellan on August 13 and August 23, 2010. As a result of the matching transaction, Magellan was required to disgorge $2,866 in profits (refer to 3(d) below). The $2,866 was forgiven as part of the Magellan Debt (refer to Note 6(b)).

At August 31, 2011, the Company is indebted to a director and to a company owned by the president of the Company for $20,911 (May 31, 2011 - $151,673), of which $20,911 (May 31, 2011 - $151,673) represents expenses paid on behalf of the Company and $nil (May 31, 2011 - $nil) represents net cash advances provided to the Company. The indebtedness is non-interest bearing, unsecured and has no specific repayment terms.

The Company determined that it may have improperly effected a share consolidation and that the Company may not have sufficient authorized capital to satisfy the Company’s business objectives and obligations. On March 30, 2011 and April 14, 2011, the Company entered into a rescission and conditional purchase agreement with Magellan (the “Rescission and Conditional Purchase Agreements”) whereby Magellan and the Company agreed to rescind a portion of the Magellan Placement by rescinding and cancelling 2,703,509 and 266,667 (2,970,176 in the aggregate) shares of common stock and 2,703,509 and 266,667 (2,970,176 in the aggregate) share purchase warrants (collectively, the “Rescinded Units”) in consideration for the Company’s acknowledgement of the debt obligation in the amount of $135,176 and $13,333 ($148,509 in the aggregate) owed to Magellan in connection with the rescission of a portion of the Magellan Placement. The Company and Magellan also agreed that the Company would use commercially reasonable efforts to amend the Articles of Incorporation to increase the authorized capital of the Company, including obtaining shareholder approval for the amendment by a majority of the shareholders of the Company and a majority of the disinterested shareholders of the Company (shareholders excluding Magellan and Gavin Roy), and upon the increase in the authorized shares of common stock of the Company, the Company would permit Magellan to purchase the Rescinded Units under the Rescission and Conditional Purchase Agreements under the same terms as the Magellan Placement. On June 13, 2011, the Company issued to Magellan, 2,970,176 units, with each unit consisting of one common share and one common share purchase warrant with a conversion price of $0.05 per share exercisable until February 8, 2016, in accordance with the rescission and conditional purchase agreements entered into by Magellan and the Company on March 30, 2011, and April 14, 2011.

The above transactions have been recorded at the exchange amounts, being the amounts agreed upon by the related parties.

- Definition

The entire disclosure for related party transactions, including the nature of the relationship(s), a description of the transactions, the amount of the transactions, the effects of any change in the method of establishing the terms of the transaction from the previous period, stated interest rate, expiration date, terms and manner of settlement per the agreement with the related party, and amounts due to or from related parties. If the entity and one or more other entities are under common ownership or management control and this control affects the operating results or financial position, disclosure includes the nature of the control relationship even if there are no transactions between the entities. Disclosure may also include the aggregate amount of current and deferred tax expense for each statement of earnings presented where the entity is a member of a group that files a consolidated tax return, the amount of any tax related balances due to or from affiliates as of the date of each statement of financial position presented, the principal provisions of the method by which the consolidated amount of current and deferred tax expense is allocated to the members of the group and the nature and effect of any changes in that method. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef

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Reference 3: http://www.xbrl.org/2003/role/presentationRef

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Reference 4: http://www.xbrl.org/2003/role/presentationRef

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Reference 8: http://www.xbrl.org/2003/role/presentationRef

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+ Details

Black Tusk Minerals Inc. 10-Q/A