Notes to Unaudited Consolidated Financial
Statements
January 31, 2017
NOTE 1 – BACKGROUND AND ORGANIZATION
Organization
The Company was incorporated in the State of
Nevada on June 5, 2007, as Gas Salvage Corp. for the purpose of engaging in the exploration and development of oil and gas. In
July 2008, the Company changed its name to Pinnacle Energy Corp. On February 1, 2010, the Company completed the acquisition of
the aircraft component part design, engineering and manufacturing assets of Harbin Aerospace Company, LLC (“HAC”).
The transaction was structured as a business combination. Following completion of the HAC acquisition, the Company’s Board
of Directors decided to dispose of the oil and gas business interests and focus on the aircraft component market. On February 10,
2010, the Company completed the sale of all of its oil and gas business interests in exchange for cancellation of all obligations
under an outstanding promissory note having a principal amount of $1,000,000. Pursuant to Financial Accounting Standards Board
(FASB) standards, the Company has retro-actively presented its oil and gas business as discontinued operations.
In March 2010, the Company changed its name
to Trans-Pacific Aerospace Company, Inc.
On July 27, 2008, the Company completed a three-for-one
stock split of the Company’s common stock. The share and per-share information disclosed within this Form 10-Q reflect the
completion of this stock split.
On April 5, 2013, the Company entered into
Securities Purchase Agreements to purchase additional capital stock of Godfrey (China) Limited (“Godfrey”), the Company’s
25%-owned Hong Kong subsidiary engaged in the development of the production facility in Guangzhou, China. On June 21, 2013, upon
closing of the transactions under the Securities Purchase Agreements, the Company increased its ownership of Godfrey from 25% to
55%.
Effective January 27, 2017, we completed a
change of domicile to Wyoming from Nevada by means of a merger of Trans-Pacific Aerospace Company Inc., a Nevada corporation with
and into the Company’s wholly-owned subsidiary, Trans-Pacific Aerospace Company, Inc., a Wyoming corporation.
Business Overview
The Company’s aircraft component business
commenced on February 1, 2010. To date, its operations have focused on product design and engineering. The Company has
recently commenced commercial manufacture or sales of its products and is continuing to develop its commercial market.
The Company designs, manufactures and sells
aerospace quality component parts for commercial and military aircraft, space vehicles, power plants and surface and undersea vessels. These
parts have applications in both newly constructed platforms and as spares for existing platforms. The Company’s initial products
are self-lubricating spherical bearings that help with several flight-critical tasks, including aircraft flight controls and landing
gear.
Going Concern
The Company's financial statements are prepared
using the accrual method of accounting in accordance with accounting principles generally accepted in the United States of America,
and have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities
in the normal course of business. The Company incurred a net loss from operations of $226,241 during the three months ended January
31, 2017, and an accumulated deficit of $25,551,677 at January 31, 2017. The Company has not yet established an ongoing source
of revenues sufficient to cover its operating costs and to allow it to continue as a going concern. The ability of the Company
to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes
profitable. If the Company is unable to obtain adequate capital, it could be forced to cease development of operations.
Management’s plans to continue as a going
concern include raising additional capital through sales of common stock and/or a debt financing. However, management cannot provide
any assurances that the Company will be successful in accomplishing any of its plans.
The Company anticipates that losses will continue
until such time, if ever, that the Company is able to generate sufficient revenues to support its operations. The accompanying
financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The Company maintains its accounting records
on an accrual basis in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”).
The accompanying unaudited consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States
(U.S.) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X
promulgated by the Securities and Exchange Commission (“SEC”) and reflect all adjustments, consisting of normal
recurring adjustments and other adjustments, which management believes are necessary to fairly present the financial
position, results of operations and cash flows of the Company, for the respective periods presented. The results of
operations for an interim period are not necessarily indicative of the results that may be expected for any other interim
period or the year as a whole. The accompanying unaudited consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the
year ended October 31, 2016, filed with the SEC on February 28, 2017.
Consolidation
Accounting policies
used by the Company and the Company’s subsidiaries conform to US GAAP. Significant policies are discussed below. The Company’s
consolidated accounts include the Company’s accounts and the accounts of the Company’s subsidiaries of which we own
a 50% interest or greater.
These consolidated
financial statements include the accounts of the parent company Trans-Pacific Aerospace Company, Inc., and the majority owned subsidiary:
Godfrey. All intercompany transactions have been eliminated.
Non-controlling
interests
The Company
accounts for changes in our controlling interests of subsidiaries according to Accounting Codification Standards 810
–
Consolidations
(“ASC 810”). ASC 810 requires that the Company record such changes as equity
transactions, recording no gain or loss on such a sale.
The Company’s
non-controlling interest arises from the purchase of equity in Godfrey. It represents the portion of Godfrey that is not owned.
ASC 810 requires that the Company account for the equity and income or loss on that operation separately from the Company’s
other activities. In the equity section of the Consolidated Balance Sheet, the Company presents the portion of the negative equity
attributable to non-controlling interests in Godfrey. In the Consolidated Statement of Operations, the Company presents the portion
of current period net loss in Godfrey attributable to non-controlling interests.
Use of Estimates
The preparation of the 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 liabilities at the date of the financial
statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash
and cash equivalents include investments with initial maturities of three months or less. The Company maintains its cash balances
at credit-worthy financial institutions that are insured by the Federal Deposit Insurance Corporation ("FDIC") up to
$250,000. There were no cash equivalents at January 31, 2017 and October 31, 2016.
Concentration
of Credit Risk
Financial
instruments and related items, which potentially subject the Company to concentrations of credit risk, are cash and cash equivalents.
The Company places its cash and temporary cash investments with credit quality institutions. At times, such investments may be
in excess of FDIC insurance limits.
Impairment of Long-Lived Assets
The Company has adopted FASB Accounting Standards
Codification (ASC) 360-10, Property, Plant and Equipment FASB ASC 360-10 requires that long-lived assets and certain identifiable
intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company evaluates its long-lived assets for impairment annually or more
often if events and circumstances warrant. Events relating to recoverability may include significant unfavorable changes in business
conditions, recurring losses or a forecasted inability to achieve break-even operating results over an extended period. The Company
evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows. Should impairment in value be
indicated, the carrying value of intangible assets will be adjusted, based on estimates of future discounted cash flows resulting
from the use and ultimate disposition of the asset. ASC 360-10 also requires assets to be disposed of be reported at the lower
of the carrying amount or the fair value less costs to sell.
Indefinite-lived Intangible Assets
The Company has an indefinite-lived intangible
asset (goodwill) relating to purchased blueprints, formulas, designs and processes for manufacturing and production of self-lubricated
spherical bearings, bushings and rod-end bearings. The indefinite-lived intangible asset is not amortized; rather, it is tested
for impairment at least annually by comparing the carrying amount of the asset with the fair value. An impairment loss is recognized
if the carrying amount is greater than fair value.
Fair Value of Financial Instruments
The Company adopted FASB ASC 820 on October
1, 2008. Under this FASB, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation
framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements
and the related disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and FASB ASC 820-10-50
details the disclosures that are required for items measured at fair value.
The Company has various financial instruments
that must be measured under the new fair value standard including: cash and debt. The Company currently does not have non-financial
assets or non-financial liabilities that are required to be measured at fair value on a recurring basis. The Company’s financial
assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:
Level 1 - Inputs are unadjusted quoted prices
in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. The fair
value of the Company’s cash is based on quoted prices and therefore classified as Level 1.
Level 2 - Inputs include quoted prices for
similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that
are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves,
etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market
corroborated inputs).
Level 3 - Unobservable inputs that reflect
our assumptions about the assumptions that market participants would use in pricing the asset or liability.
Cash, accounts payable, other payables, and accrued expenses reported
on the balance sheet are estimated by management to approximate fair market value due to their short term nature.
The following tables provide a summary of the fair values of assets
and liabilities:
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Fair Value Measurements at
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January 31, 2017
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Carrying
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Value
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January 31,
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2017
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Level 1
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Level 2
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Level 3
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Liabilities:
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Convertible notes payable – currently in default
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$
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260,000
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$
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–
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$
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–
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$
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260,000
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Fair Value Measurements at
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October 31, 2016
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Carrying
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Value
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October 31,
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2016
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Level 1
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Level 2
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Level 3
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Liabilities:
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Convertible notes payable – currently in default
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$
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260,000
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$
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–
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$
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–
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$
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260,000
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The Company believes that the market rate of
interest as of January 31, 2017 and October 31, 2016 was not materially different to the rate of interest at which the convertible
notes payable were issued. Accordingly, the Company believes that the fair value of the convertible notes payable approximated
their carrying value at January 31, 2017 and October 31, 2016 due to short term maturity.
Revenue
Recognition
The Company received the initial order from
one customer for its spherical bearings in December 2015. The Company manufactured and delivered these bearings in March 2016.
The Company recognizes revenue on sales of products when the goods are delivered and title to the goods passes to the customer
provided that: (i) there are no uncertainties regarding customer acceptance; (ii) persuasive evidence of an arrangement
exists; (iii) the sales price is fixed and determinable; and (iv) collectability is reasonably assured.
Income
Taxes
The Company accounts for income taxes under
standards issued by the FASB. Under those standards, deferred tax assets and liabilities are recognized for future tax benefits
or consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided
for significant deferred tax assets when it is more likely than not that such assets will not be realized through future operations.
The accounting guidance for uncertainties in
income tax prescribes a comprehensive model for the financial statement recognition, measurement, presentation, and disclosure
of uncertain tax positions taken or expected to be taken in income tax returns. The Company recognizes a tax benefit from an uncertain
tax position in the consolidated financial statements only when it is more likely than not that the position will be sustained
upon examination, including resolution of any related appeals or litigation processes, based on the technical merits and a consideration
of the relevant taxing authority’s widely understood administrative practices and precedents.
No provision for federal income taxes has been
recorded due to the net operating loss carry forwards totaling approximately $4,923,456 as of October 31, 2016 that will be offset
against future taxable income. The available net operating loss carry forwards of approximately $4,923,456 will expire
in various years through 2035. No tax benefit has been reported in the financial statements because the Company believes
there is a 50% or greater chance the carry forwards will expire unused.
Equipment
Equipment is recorded at cost and depreciated
using straight line methods over the estimated useful lives of the related assets. The Company reviews the carrying value of long-term
assets to be held and used when events and circumstances warrant such a review. If the carrying value of a long-lived asset is
considered impaired, a loss is recognized based on the amount by which the carrying value exceeds the fair market value. Fair market
value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. The cost
of normal maintenance and repairs is charged to operations as incurred. Major overhaul that extends the useful life of existing
assets is capitalized. When equipment is retired or disposed, the costs and related accumulated depreciation are eliminated and
the resulting profit or loss is recognized in income. As of January 31, 2017, the useful lives of the office equipment ranged from
five years to seven years.
Issuance of Shares for Non-Cash Consideration
to Non-Employees
The Company accounts for the issuance of equity
instruments to acquire goods and/or services based on the fair value of the goods and services received or the fair value of the
equity instrument at the time of issuance, whichever is more readily determinable. The Company's accounting policy for equity instruments
issued to consultants and vendors in exchange for goods and services follows the provisions of standards issued by the FASB
.
The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which
a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor's performance
is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over
the term of the consulting agreement.
Stock-Based
Compensation
Stock-based compensation cost to employees
is measured by the Company at the grant date, based on the fair value of the award, over the requisite service period under ASC
718. For options issued to employees, the Company recognizes stock compensation costs utilizing the fair value methodology over
the related period of benefit.
Net Loss Per Share
The Company adopted the standard issued by
the FASB, which requires presentation of basic earnings or loss per share and diluted earnings or loss per share. Basic income
(loss) per share (“Basic EPS”) is computed by dividing net income (loss) available to common stockholders by the weighted
average number of common shares outstanding during the period. Diluted earnings per share (“Diluted EPS”) are similarly
calculated using the treasury stock method except that the denominator is increased to reflect the potential dilution that would
occur if dilutive securities at the end of the applicable period were exercised. There were convertible notes, 5,035 shares of
convertible preferred stock, 2,000,000 Series A Warrants, 2,000,000 Series B Warrants and options for 240,666,667 shares outstanding
as of January 31, 2017 that are not included in the calculation of Diluted EPS as their impact would be anti-dilutive.
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For the Three Months Ended
January 31,
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2017
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2016
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Net loss attributable to the Company
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$
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(168,587
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)
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(312,817
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Basic and diluted net loss from operations per share
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$
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(0.00
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)
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(0.00
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Weighted average number of common shares outstanding, basic and diluted
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4,343,562,255
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3,506,900,273
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Recently Adopted and Recently Enacted Accounting
Pronouncements
In June 2014, the FASB issued ASU 2014-10,
Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. ASU 2014-10 eliminates the distinction
of a development stage entity and certain related disclosure requirements, including the elimination of inception-to-date information
on the statements of operations, cash flows and stockholders' equity. The amendments in ASU 2014-10 will be effective prospectively
for annual reporting periods beginning after December 15, 2014, and interim periods within those annual periods, however early
adoption is permitted. The Company adopted ASU 2014-10 during the quarter ended May 31, 2014, thereby no longer presenting or disclosing
any information required by Topic 915.
In August 2014, the FASB issued ASU 2014-15,
Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability
to Continue as a Going Concern. ASU 2014-15 explicitly requires management to evaluate, at each annual or interim reporting period,
whether there are conditions or events that exist which raise substantial doubt about an entity's ability to continue as a going
concern and to provide related disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and annual
and interim periods thereafter, with early adoption permitted. The Company is currently evaluating the impact of adopting this
new standard on its financial statement disclosures.
In February, 2015, the FASB issued ASU No.
2015-02,
Consolidation (Topic 810): Amendments to the Consolidation Analysis.
ASU 2015-02 provides guidance on the consolidation
evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities such
as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized
loan obligations, and mortgage-backed security transactions). ASU 2015-02 is effective for periods beginning after December 15,
2015. The adoption of ASU 2015-02 is not expected to have a material effect on the Company’s consolidated financial statements.
Early adoption is permitted.
In May 2014, the FASB issued ASU 2014-09, Revenue
from Contracts with Customers (Topic 606), to supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core
principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that
reflects the consideration to which an entity is expected to be entitled for those goods or services. ASU 2014-09 defines a five
step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within
the revenue recognition process than required under existing U.S. GAAP, including identifying performance obligations in the contract,
estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each
performance obligation. ASU 2014-09, as deferred one year by ASU 2015-14, is effective for the Company in the first quarter of
fiscal year 2018 using either of two methods: (a) retrospective to each prior reporting period presented with the option to elect
certain practical expedients as defined within ASU 2014-09; or (b) retrospective with the cumulative effect of initially applying
ASU 2014-09 recognized at the date of initial application and providing certain additional disclosures as defined in ASU 2014-09.
ASU 2014-09, as deferred one year by ASU 2015-14, will be effective for annual reporting periods beginning after December 15, 2018
using either of two methods: (a) retrospective to each prior reporting period presented with the option to elect certain practical
expedients as defined within ASU 2014-09; or (b) retrospective with the cumulative effect of initially applying ASU 2014-09 recognized
at the date of initial application and providing certain additional disclosures as defined in ASU 2014-09. The Company has not
yet selected a transition method and is currently evaluating the impact of the pending adoption of ASU 2014-09 on the consolidated
financial statements.
In November 2015, the FASB issued ASU 2015-17,
Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. This ASU simplifies the presentation of deferred income
taxes by eliminating the requirement for entities to separate deferred tax liabilities and assets into current and noncurrent amounts
in classified balance sheets. Instead, it requires deferred tax assets and liabilities be classified as noncurrent in the balance
sheet. ASU 2015-17 is effective for consolidation financial statements issued for annual periods beginning after December 15, 2016.
Early adoption is permitted, and this ASU may be applied either prospectively to all deferred tax liabilities and assets or retrospectively
to all periods presented. The Company has not yet selected a transition method and is currently evaluating the impact of the adoption
of this standard on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09,
Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The ASU is intended
to simplify various aspects of accounting for share-based compensation arrangements, including the income tax consequences, classification
of awards as either equity or liabilities, and classification on the statement of cash flows. The new guidance requires all excess
tax benefits and tax deficiencies related to share-based payments to be recognized in income tax expense, and for those excess
tax benefits to be recognized regardless of whether it reduces current taxes payable. The ASU also allows an entity-wide accounting
policy election to either estimate the number of awards that are expected to vest or account for forfeitures as they occur. For
public companies, these amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2016. ASU 2016-06 will be effective for the Company beginning on January 1, 2018. Different methods of adoption are
required for the various amendments and early adoption is permitted, but all of the amendments must be adopted in the same period.
The Company is currently evaluating the impact of the adoption of this guidance on its financial condition, results of operations
and cash flows.
Other recent accounting pronouncements issued
by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the United
States Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s
present or future consolidated financial statements.
NOTE 3 – ACCOUNTS RECEIVABLE
The Company received the initial order from
one customer for its spherical bearings in December 2015. The Company manufactured and delivered these bearings in March 2016.
The Company recorded sales and accounts receivable of $109,140 and $0 for cost of sales due to all related costs and expenses were
expensed in prior years. All accounts receivable are due 90 days from the date billed based on the Company’s collection policy
and agreed by the customer. As of January 31, 2017 and October 31, 2016, the Company had accounts receivable balance of $0 and
$0, net of allowance of bad debts of $109,140, respectively.
In May 2016, the Company entered into a Service
Level Agreement with a Hong Kong entity pursuant to which it agreed to assist such Hong Kong entity to develop a market for medical,
aerospace and other machined products in China and elsewhere. The Company will assist such entity with the manufacture of these
products to service these markets. The Company agreed to grant such entity a license to market these products under the TPAC name.
This agreement has a term of 10 years and be automatically renewable in annual periods unless terminated earlier. The Company shall
be paid $1 million annually for time actually spent performing its duties under this Agreement. Further, the Hong Kong entity agreed
to purchase from the Company all raw materials, tooling, machinery and equipment, blueprints, engineering, marketing, operations
and management and all other services and supplies. The Company agreed not to solicit any employee or consultant of the Hong Kong
entity for a period of 3 years following termination of the Agreement. The Company had not recognized any revenue related to this
service level agreement as collectability is not reasonably assured.
In May 2016, the Company entered into a Licensing
and Consulting Services Agreement with an Australian entity pursuant to which it agreed to assist such Australian entity to develop
a market for aerospace bearings in Australia, Southern Asia (except China), Asia and Africa. The Company will assist such entity
with the manufacture of these products to service these markets. The Company agreed to grant such entity a license to market these
products under the name of TPAC Australia. This agreement has a term of 1 year and be automatically renewable in annual periods
unless terminated earlier. The Company shall be paid $1 million annually for time actually spent performing its duties under this
Agreement. The Company agreed not to solicit any employee or consultant of the Australian entity for a period of 3 years following
termination of the Agreement. The Company had not recognized any revenue related to this service level agreement as collectability
is not reasonably assured.
NOTE
4 – PROPERTY AND EQUIPMENT
As of January 31, 2017 and October 31, 2016,
the Company had office equipment of $2,199 and 2,500, net of accumulated depreciation of $6,207 and $5,906, respectively. For the
three months ended January 31, 2017 and 2016, the Company recorded depreciation expenses of $301 and $301, respectively.
NOTE 5 - RELATED PARTY TRANSACTIONS
Due to lack of sufficient funding to maintain
the Company’s operations, the Company’s officers and directors loaned money to the Company for short term cash flow
needs. As of January 31, 2017 and October 31, 2016, Mr. Peter Liu had payables due to him from Godfrey of $60,000 and $60,000;
respectively; The Company had receivables due to (from) HAC amounted to $1,217 and 1,217 at January 31, 2017 and October 31, 2016,
respectively.
During the year ended October 31, 2016, the
Company borrowed $179,379 from various shareholders under oral agreements. This amount bears no interest and is due on demand.
In addition, a shareholder made repayment of $77,186 on behalf of the Company to pay off the Apollo Note as described in Note 6
below. The amount is recorded under related party payable and the amount bears no interest and is due on demand. In July 2016,
$43,000 of the principal amount was converted to 97,217,391 shares of the Company’s common stock. As of January 31, 2017
and October 31, 2016, the outstanding balance was $211,311 and $211,311, respectively.
As of January 31, 2017 and October 31, 2016,
the total outstanding amount due to related parties was $272,528 and $272,528, respectively. For the amount of $272,528 outstanding
as of January 31, 2017 and October 31, 2016, $211,311 was owed to two shareholders as disclosed in Note 7, commitments and contingencies.
During the three months ended January 31, 2017,
the Company advanced $20,803 to William McKay, the Company’s Chief Executive Officer, as short term loan. This amount bears
no interest and is due on demand. As of January 31, 2017, the outstanding amount was $20,803.
During the year ended October 31, 2016, the
wife of the Company’s Chief Executive Officer purchased 177 shares of its Series A preferred stock in consideration of $92,500.
As of January 31, 2017, 3 of these shares had not been issued and were recorded as preferred stock to be issued.
During the year ended October 31, 2016 and
the three months ended January 31, 2017, the son of the Company’s Chief Executive Officer purchased 778 shares of its Series
A preferred stock in consideration of $317,900. As of January 31, 2017, 425 of these shares had not been issued and were recorded
as preferred stock to be issued.
In September 2016, the Company issued 10,000
shares of its Series A preferred stock to its Chief Executive Officer as a temporary issuance to obtain voting right to make certain
board decision at the best interest of the Company. These shares were returned to the Company in December 2016.
In December 2016, the Company issued 1,300
shares of its Series B preferred stock to its Chief Executive Officer in consideration of services rendered. These shares are not
convertible or redeemable and have a stated value of $10 per share.
In December 2016, the Company issued 200 shares
of its Series B preferred stock to a director in consideration of services rendered. These shares are not convertible or redeemable
and have a stated value of $10 per share.
In September 2016, the Company entered into
a consulting agreement (“Consulting Agreement”) with Woodward Global, Ltd. (“WG”), a Nevada corporation
owned by Mr. Angus McKay, son of William R. McKay, the Company’s Chairman and CEO. Pursuant to the Consulting Agreement,
the Company will provide consulting services to WG for a period of twelve (12) months for a total consideration of $2,000,000.
However, due to the uncertainty on collectability, the Company will only record cash received as other income because providing
consulting services is not within the normal course of the Company’s business. For the three months ended January 31, 2017,
the Company collected and recorded $102,700 as other income.
NOTE 6 – CONVERTIBLE NOTES PAYABLE
As part of the acquisition of HAC, the
Company assumed $260,000 of obligations under a convertible note. The convertible note assumed by the Company does not bear
interest and became payable on March 12, 2011. The note is convertible into shares of the Company’s common stock at an
initial conversion price of $0.25 per share. The conversion price is subject to adjustment for stock splits and combinations;
certain dividends and distributions; reclassification, exchange or substitution; reorganization, merger, consolidation or
sales of assets. As the convertible note does not bear interest, the Company recorded the present value of the convertible
note obligation at $239,667 and accordingly recorded a convertible note payable for $260,000 and a corresponding debt
discount of $20,333. Under the effective interest method, the Company accretes the note obligation to the face amount of the
convertible note over the remaining term of the note. The discount was fully amortized at March 12, 2011. Debt discount
expense totaled $7,452 and $12,880 for the years ended October 31, 2011 and 2010 respectively. The Company performed an
evaluation and determined that the anti-dilution clause did not require derivative treatment. On September 16, 2011, the
Company entered into an agreement with the note holder to extend the maturity date of the note. Pursuant to the agreement,
the entire outstanding amount became fully due and payable on December 31, 2011. The note is now currently in default. For
the three months ended January 31, 2017 and 2016, the Company recorded imputed interest of $4,550 and
$4,550, respectively.
On February 8, 2016, the Company entered into
a Securities Purchase Agreement with Crown Bridge Partners, LLC, pursuant to which the Company sold an 8% Convertible Promissory
Note with an original principal amount of $40,000 (the “Crown Bridge Note”). The principal amount consists of a consideration
of $36,000 plus $4,000 OID. The maturity date shall be 12 months from the issue date. The Crown Bridge Note is convertible anytime
into the Company’s common stock at a price equal to 55% multiplied by the lowest trading price on the OTCQB or other applicable
principal trading market during the 20 trading days prior to the conversion date. If the trading price for the common stock is
equal to or lower than $0.003, then an additional discount of 10% shall be factored into the variable conversion price. However,
due to misplacement of the agreement, the Company mistakenly recorded the cash received as other payables on February 8, 2016.
Upon discovery of the mistake in August, 2016,
the Company analyzed the conversion option of the Crown Bridge Note for derivative accounting consideration under ASC 815-15 “Derivatives
and Hedging” and determined that the instrument should be classified as liability on the agreement date due to there being
no explicit limit to the number of shares to be delivered upon settlement of the above conversion options for the Crown Bridge
Note issued. The Company then calculated the fair value of the conversion option and discount on the Crown Bridge Note. For the
year ended October 31, 2016, the Company recorded a total of $123,740 as derivative expense and change in fair value of derivative
liabilities and a note discount of $40,000 for the Crown Bridge Note.
In August 2016, the note holder exercised the
right to fully convert the principal amount plus accrued interest of $1,650 to 154,260,850 shares of the Company’s common
stock.
From December 2016 through January 2017, the
Company issued $9,500 in convertible promissory notes. These notes are automatically convertible into Series C Preferred Stock
at a price of $500 per share upon the effective date our reincorporation as a Wyoming corporation, which became effective on January
27, 2017. The terms of the Series C Preferred Stock have been approved by our board of directors and the shares of Series C Preferred
Stock will be issued upon filing of Articles of Amendment with the Wyoming Secretary of State designating 100,000 shares of our
preferred stock as Series C Preferred Stock, which was filed on March 6, 2017. The Series C Preferred Stock will have a stated
value of $500 per share. Holders of the Series C Preferred Stock will not have any preferential dividend or liquidation rights
or any conversion rights. However, on or after the six-month anniversary after the issuance date for any share of Series C Preferred
(an “Issuance Date”), each holder of Series C Preferred Stock has the option to redeem the Series C Preferred at the
Redemption Price which is (i) 125% of the Stated Value for the period beginning on the 6-month anniversary of the Issuance Date
and ending 1-day prior to the 12-month anniversary of the Issuance Date; (ii) 150% of the Stated Value for the period beginning
on the 12-month anniversary of the Issuance Date and ending 1-day prior to the 18-month anniversary of the Issuance Date and (iii)
200% of the Stated Value for the period beginning on the 18-month anniversary of the Issuance Date and any date thereafter. As
of January 31, 2017, the shares of Series C Preferred Stock had not been issued yet.
As of January 31, 2017 and October 31, 2016,
the outstanding amount of the convertible notes was $9,500 and $0, respectively.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Consulting Agreements
The Company has entered into consulting agreements
for services to be provided to the Company in the ordinary course of business. These agreements call for expense reimbursement
and various payments upon performance of services.
On February 1, 2016, the Company entered into
a consulting service agreement with Mr. Nicholas Nguyen for a period of 24 months. Upon execution of this agreement, the Company
shall issue total of 100 shares of its convertible preferred stock as compensation for Mr. Nguyen’s services. All shares
were fully vested at grant date and consulting expense of $600,000 was recorded for the year ended October 31, 2016. As of January
31, 2017, the shares had not been issued and the Company recorded accrued expense of $600,000.
On February 22, 2016, the Company entered into
an agreement with Ms. Lixin Chen to perform marketing and operation consulting services for the year ended December 31, 2016. Upon
execution of this agreement, the Company shall issue total of 300 shares of its convertible preferred stock as compensation for
Ms. Chen’s services. All shares were fully vested at grant date. The Company issued the shares in May and recorded $1,260,000
as consulting fee for the year ended October 31, 2016.
On July 23, 2016, the Company entered into
a business consultant agreement with Global Savings Organization pursuant to which GSO agreed to provide business campaign consulting
services for the Company’s products for a six-month period. In consideration of GSO services, the Company agreed to issue
GSO 1,000 shares of its series A preferred stock, of which 200 shares were to be issued upon execution of the agreement and 200
shares issued in each of the successive four months. The Company issued all the shares during the quarter ended October 31, 2016
and recorded a consulting fee of $700,000 in the year ended October 31, 2016. Further on November 29, 2016, the Company signed
an addendum agreement with GSO to extend the service term for an additional one month from the original agreement date. Upon execution
of the addendum agreement, the Company issued 200 shares of its Series A Convertible Preferred Stock to GSO and recorded $120,000
as consulting fee for the three months ended January 31, 2017.
Employment Agreements
On February 1, 2010, the Company entered into
an Employment Agreement with William McKay. Under the agreement, Mr. McKay will receive a base salary of $180,000, plus an initial
bonus of 1,200,000 shares of the Company’s common stock (to be issued in 300,000 share blocks on a quarterly basis). The
shares were valued based on the closing stock price on the date of the agreement. The initial term of the Employment Agreement
expired on January 31, 2011 and automatically renewed for an additional one-year term. The agreement ended January 31, 2013 and
Mr. McKay agreed to continue serve as the Company’s CEO without base salary. As of January 31, 2017 and October 31, 2016,
the total accrued salaries owed to Mr. McKay were $0.
Lease Agreement
In October 2010, the Company entered into a
lease of its administrative offices. The lease expired November 30, 2012 and currently calls for monthly rental payments of $970
pursuant to a month to month agreement.
The Company leases a facility in Dongguan, China under a 12-year
lease. This facility has approximately 5,000 square feet. The rental rate is approximately $1,565 monthly. The Company leases an
apartment in the Nancheng District of Dongguan. The apartment is approximately 1,700 square feet. The lease rate is approximately
$760 monthly, including all utilities and management fees. The apartment lease is renewed through January 31, 2019. The Company’s
commitment for minimum lease payment under these operating leases as of January 31, 2017 for the next five years is as follows:
Year
|
|
Minimum lease payment
|
|
|
|
|
|
2018
|
|
$
|
27,900
|
|
2019
|
|
|
27,900
|
|
2020
|
|
|
18,780
|
|
2021
|
|
|
18,780
|
|
2022 and after
|
|
|
126,765
|
|
Total
|
|
$
|
220,125
|
|
Payables to Related Parties
During the year ended October 31, 2016, two
shareholders loaned cash of $211,311 to the Company. As of the date of this report, the Company is still working with these shareholders
on the terms of the loan. There are currently no claims against the Company on the outstanding amount of $211,311.
NOTE 8 – CAPITAL STOCK TRANSACTIONS
Preferred Stock
Effective January 27, 2017, the Company completed
a change of domicile (the “Reincorporation”) to Wyoming from Nevada by means of a merger of Trans-Pacific Aerospace
Company Inc., a Nevada corporation with and into the Company’s wholly-owned subsidiary, Trans-Pacific Aerospace Company,
Inc., a Wyoming corporation.
The Company is authorized to issue up to 5,000,000
shares of its $0.001 preferred stock and has designated 20,000 as Series A Convertible Preferred Stock and 1,500 Series B Preferred
Stock as described below:
Series A Convertible Preferred Stock
Series A Convertible Preferred Stock has the
following characteristics:
|
i.
|
Each share of Series A Convertible Preferred Stock would be convertible into 1,000,000 shares of
Common Stock at the shareholders’ option, subject to restrictions regarding timing, volume and common share availability.
|
|
ii.
|
In shareholder votes, each share of Series A Convertible Preferred Stock would have voting power
equal to 1,000,000 shares of Common Stock.
|
During the year ended October 31, 2016, 692,943,784
shares of common stock were retired and converted to 694 shares of Series A Convertible Preferred Stock and 984 shares of Series
A Convertible Preferred Stock were converted to 984,000,000 shares of common stock. In addition, the Company issued 11,664 shares
of its Series A Convertible Preferred Stock to its employee and consultants for services rendered. These shares were valued at
$2,762,798 based on closing price of the underlying common stock if converted.
During the year ended October 31, 2016, 8 shares
of Series A Convertible Preferred Stock were retired and cancelled.
In February 2016, the Company issued 220 shares
of its Series A Convertible Preferred Stock to an accredited investor in lieu of 220,000,000 shares of common stock sold in June
2015.
During the year ended October 31, 2016, the
Company sold 586 shares of its Series A Convertible Preferred Stock for $312,001. As of October 31, 2016, 54 of these shares had
not been issued and were recorded as preferred stock to be issued. 581 shares of the shares sold were to two related parties. See
Note 5 above for details.
In September 2016, the Company issued 10,000
shares of its Series A Convertible Preferred Stock to its Chief Executive Officer as a temporary issuance to obtain voting right.
These shares were returned to the Company in December 2016.
On December 1, 2016, the Company issued 200
shares of its Series A Convertible Preferred Stock to an consultant for service rendered. These shares were valued at $120,000
based on closing price of the underlying common stock if converted.
During the three months ended January 31,
2017, the Company sold 390 shares of its Series A Convertible Preferred Stock for $106,900. As of January 31, 2017, 374 of
these shares had not been issued and were recorded as preferred stock to be issued. 374 shares of the shares sold were to a
related party. See Note 5 above for details.
During the three months ended January 31, 2017,
the Company issued 20 million shares of its common stock in exchange for retirement of 55 shares of its Series A Convertible Preferred
Stock upon execution of a settlement agreement with a consultant. In addition, 189 shares of Series A Convertible Preferred Stock
were converted to 189 million shares of common stock.
At January 31, 2017 and October 31, 2016, there
were 5,035 and 15,063 shares of Series A Convertible Preferred Stock issued and outstanding, respectively.
Series B Preferred Stock
|
i.
|
Shareholders of Series B Preferred Stock has no dividend rights, liquidation rights, conversion
rights, or redemption rights.
|
|
ii.
|
In shareholder votes, each share of Series B Preferred Stock would have voting power equal to 100,000,000
shares of Common Stock.
|
In December 2016, the Company issued 1,500
shares of its Series B Preferred Stock to its Chief Executive Officer and a director in consideration of services rendered. These
shares were recorded at its stated value of $10 per share.
At January 31, 2017 and October 31, 2016, there
were 1,500 and 0 shares of Series B Preferred Stock issued and outstanding, respectively.
Common Stock
Following the Reincorporation, as described
above, the Company is authorized to issue an unlimited number of shares of its $0.001 common stock.
At January 31, 2017 and October 31, 2016, there
were 4,400,880,936 and 4,199,880,936 shares issued and outstanding, respectively.
Fiscal year 2016:
During the year ended October 31, 2016, 692,943,784
shares of common stock were retired and converted to 694 shares of convertible preferred stock and 984 shares of preferred stock
were converted to 984,000,000 shares of common stock. In addition, 201,000,000 shares owned by two shareholders were retired and
cancelled.
In the Company’s quarterly report on
Form 10-Q for the six months ended April 30, 2016 (the “April 2016 10-Q”) the Company reported that they issued a total
of 194,000,000 shares of common stock upon conversion of 194 shares of preferred stock. In actuality, the Company issued an additional
279,000,000 shares of common stock upon conversion of 279 shares of preferred stock, for a total issuance of 473,000,000 shares
of common stock upon conversion of 473 shares of preferred stock during the six months ended April 30, 2016. 279,000,000 shares
of common stock issued during this six-month period following conversion of 279 shares of preferred stock were improperly allocated
and disclosed as shares issued to consultants for services rendered, which disclosure has been updated as set forth below.
During the year ended October 31, 2016, the
Company issued 29,000,000 shares of common stock for consulting services rendered. The shares were valued at $81,600 based on the
closing stock prices on the dates of the stock grants. In the Company’s April 2016 10-Q, the Company erroneously reported
that they issued 358,000,000 shares of common stock to consultants for services rendered during the six months ended April 30,
2016. As described above, 279,000,000 of these shares of common stock were actually issued upon conversion of 279 shares of preferred
stock during the six months ended April 30, 2016 and were improperly allocated as shares issued to consultants for services rendered
in the April 2016 10-Q. Further, 50,000,000 shares of common stock previously described in the April 2016 10-Q as shares issued
to consultants for services rendered were erroneously issued and have subsequently been cancelled.
In January 2016, the Company offered to issue
5,000,000 shares of its common stock upon appointment of a member of board of directors. The shares were valued at $0.0039 per
shares at date of start. As of January 31, 2017, these shares had not been issued and the total amount of $19,500 was recorded
as common stock to be issued.
During the year ended October 31, 2016, the
Company issued 251,478,242 shares of common stock in consideration of cancellation of $86,371 of accrued interest and unpaid loan
and payables. The Company did not receive any cash proceeds upon these issuances.
These issuances were exempt pursuant to Section
4(a)(2) of the Securities Act.
Fiscal year 2017:
During the three months ended January 31, 2017,
the Company issued 20 million shares of its common stock in exchange for retirement of 55 shares of its Series A Convertible Preferred
Stock upon execution of a settlement agreement with a consultant. In addition, 189 shares of Series A Convertible Preferred Stock
were converted to 189 million shares of common stock.
These issuances were exempt pursuant to Section
4(a)(2) of the Securities Act.
Options and Warrants
A summary of option activity during the
three months ended January 31, 2017 and the year ended October 31, 2016 are presented below:
|
|
January 31, 2017
|
|
|
October 31, 2016
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
average
|
|
|
average
|
|
|
|
|
|
average
|
|
|
average
|
|
|
|
Number of
|
|
|
exercise
|
|
|
life
|
|
|
Number of
|
|
|
exercise
|
|
|
life
|
|
|
|
shares
|
|
|
price
|
|
|
(years)
|
|
|
shares
|
|
|
price
|
|
|
(years)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of year
|
|
|
240,666,667
|
|
|
$
|
0.01
|
|
|
|
8.78
|
|
|
|
140,666,667
|
|
|
$
|
0.0146
|
|
|
|
9.27
|
|
Granted
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
100,000,000
|
|
|
|
0.004
|
|
|
|
10.00
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Forfeited
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Cancelled
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Expired
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
240,666,667
|
|
|
$
|
0.01
|
|
|
|
8.53
|
|
|
|
240,666,667
|
|
|
$
|
0.01
|
|
|
|
8.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of period
|
|
|
240,666,667
|
|
|
$
|
0.01
|
|
|
|
8.53
|
|
|
|
240,666,667
|
|
|
$
|
0.01
|
|
|
|
8.78
|
|
A summary of warrant activity during the
three months ended January 31, 2017 and the year ended October 31, 2016 are presented below:
|
|
January 31, 2017
|
|
|
October 31, 2016
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
average
|
|
|
average
|
|
|
|
|
|
average
|
|
|
average
|
|
|
|
|
|
|
exercise
|
|
|
remaining
|
|
|
|
|
|
exercise
|
|
|
remaining
|
|
|
|
Number
|
|
|
price
|
|
|
contractual
|
|
|
Number
|
|
|
price
|
|
|
contractual
|
|
|
|
Outstanding
|
|
|
per share
|
|
|
life (years)
|
|
|
Outstanding
|
|
|
per share
|
|
|
life (years)
|
|
Outstanding at beginning of year
|
|
|
4,000,000
|
|
|
$
|
0.75
|
|
|
|
4.39
|
|
|
|
4,000,000
|
|
|
$
|
0.75
|
|
|
|
5.39
|
|
Granted
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Forfeited
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Cancelled
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Expired
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
4,000,000
|
|
|
$
|
0.75
|
|
|
|
4.14
|
|
|
|
4,000,000
|
|
|
$
|
0.75
|
|
|
|
4.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants exercisable at end of period
|
|
|
–
|
|
|
$
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
$
|
–
|
|
|
|
–
|
|
In November 2014, the Company granted options
to all board members to purchase a total of 138,000,000 shares at an exercise price of $0.0146 per share of its common stock for
service rendered and to replace the old options. These options vests in 4 equal amounts on the grant date, 2/9/2015, 5/9/2015,
and 8/9/2015 and are exercisable within 10 years from the dates of vesting. The total estimated value using the Black-Scholes Model,
based on the following variables, was $2,760,000.
Market Price:
|
$0.020
|
Exercise Price:
|
$0.015
|
Term:
|
10
years
|
Volatility:
|
321%
|
Dividend Yield:
|
0
|
Risk Free Interest Rate:
|
2.25%
|
For the year ended October 31, 2015, $2,760,000
was fully amortized as stock based compensation.
In January 2016, the Company granted options
to a new board member to purchase a total of 100,000,000 shares at an exercise price of $0.004 per share of its common stock for
service rendered. These options vests in 2 equal amounts in July 2016 and January 2017, or upon an event of change of control and
are exercisable within 10 years from the dates of vesting. The total estimated value using the Black-Scholes Model, based on the
following variables, was $383,958.
Market Price:
|
$0.0039
|
Exercise Price:
|
$0.004
|
Term:
|
10 years
|
Volatility:
|
151%
|
Dividend Yield:
|
0
|
Risk Free Interest Rate:
|
2.0%
|
Due to an event of change of control occurred
in September 2016, the option is fully vested and the total value of $383,958 was recorded as stock based compensation for the
year ended October 31, 2016.
NOTE 9 – SUBSEQUENT EVENTS
|
1.
|
On March 6, 2017, the Company filed with the Wyoming Secretary of State Articles of Amendment to
its Articles of Incorporation pursuant to which it established and designated 100,000 shares of Series C Preferred Stock (the “Series
C Preferred”). The Series C Preferred Stock has a stated value of $500 per share. Holders of the Series C Preferred Stock
will not receive any preferential dividend or liquidation rights or any conversion rights. However, on or after the six-month anniversary
after the issuance date for any share of Series C Preferred Stock (an “Issuance Date”), each holder of Series C Preferred
Stock has the option to redeem the Series C Preferred Stock at the Redemption Price which is (i) 125% of the Stated Value for the
period beginning on the 6-month anniversary of the Issuance Date and ending 1-day prior to the 12-month anniversary of the Issuance
Date; (ii) 150% of the Stated Value for the period beginning on the 12-month anniversary of the Issuance Date and ending 1-day
prior to the 18-month anniversary of the Issuance Date and (iii) 200% of the Stated Value for the period beginning on the 18-month
anniversary of the Issuance Date and any date thereafter.
|
|
|
|
|
2.
|
In March 2017, the Company has issued 358 million shares of its common stock upon
conversion of 358 shares of its Series A Preferred Stock.
|
|
|
|
|
3.
|
In March 2017, the Company issued 311 shares of its Series A Preferred Stock to the son of its
Chief Executive Officer. These shares were sold in prior periods for gross proceeds of $79,200.
|
|
|
|
|
4.
|
In March 2017, the Company issued 3 shares of its Series A Preferred Stock to the wife of its chief
executive officer. These shares were sold in the period ended October 31, 2016 for gross proceeds of $1,768.
|
|
|
|
|
5.
|
In March 2017, the Company issued 5 shares of its Series A Preferred Stock to a former director
in consideration of services previously rendered by him as a director.
|
|
|
|
|
6.
|
In March 2017, the Company issued 19 shares of its Series C Preferred Stock to three investors
upon conversion of $9,500 in convertible notes previously issued to them. By their terms, the notes were to automatically convert
into shares of the Company’s Series C Preferred Stock at a price of $500 per share upon the effective date of its reincorporation
as a Wyoming corporation, which became effective on January 27, 2017. We did not receive any proceeds upon the issuance of these
shares
|