ITEM 1. FINANCIAL STATEMENTS
The accompanying notes are an integral part to these unaudited financial statements.
Notes to Unaudited Financial Statements
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
3DX Industries, Inc. (the "Company") was incorporated in the state of Nevada on October 23, 2008. The Company's principal activity presently is manufacturing and our head office is located near Bellingham WA, USA. The Company manufactures consumer and corporate products using an additive manufacturing method through 3D Metal printing technology and conventional precision manufacturing processes.
Going Concern
The Company has incurred net losses since inception, and as of January 31, 2016, had an accumulated deficit of $
17,274,835
and had negative working capital of $2,895,720. These conditions raise substantial doubt as to the Company's ability to continue as a going concern. These financial statements do not include any adjustments that might result from the outcome of this uncertainty. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Management recognizes that the Company must generate additional funds to enable it to continue operating. Management intends to raise additional financing through debt and or equity financing and by other means that it deems necessary, with the goal of moving forward and sustaining a prolonged growth in its strategy phases. However, no assurance can be given that the Company will be successful in raising additional capital. Further, even if the company raises additional capital, there can be no assurance that the Company will achieve profitability or positive cash flow. If management is unable to raise additional capital and expected significant revenues do not result in positive cash flow, the Company will not be able to meet its obligations and may have to cease operations.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments and other short-term investments with a maturity date of three months or less, when purchased, to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost. Major renewals and improvements are charged to the asset accounts while replacements, maintenance and repairs that do not improve or extend the lives of the respective assets are expensed. At the time property and equipment are retired or otherwise disposed of, the asset and related accumulated depreciation accounts are relieved of the applicable amounts. Gains or losses from retirements or sales are credited or charged to income.
In June 2014, the Company commenced testing its equipment and began producing prototypes. Depreciation expense classified to operations for the three month periods ended January 31, 2016 and 2015 amounted $50,074 and $90,667 respectively.
Long-Lived Assets
The Company accounts for its long-lived assets in accordance with Accounting Standards Codification ("ASC") Topic 360-10-05, "Accounting for the Impairment or Disposal of Long-Lived Assets." ASC Topic 360-10-05 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset's carrying value and fair value or disposable value.
Notes to Unaudited Financial Statements
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
Pursuant to ASC No. 820,
"
Fair Value Measurements and Disclosures,
"
the Company is required to estimate the fair value of all financial instruments included on its balance sheet as of January 31, 2016. The Company's financial instruments consist of accounts payables and notes and loans payable. The Company considers the carrying value of such amounts in the financial statements to approximate their fair value due to the short-term nature of the respective instrument.
Loss Per Share
The company follows the provisions of ASC Topic 260,
Earnings per Share
. Basic net loss per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period. Basic and diluted losses per share are the same as all potentially dilutive securities are anti-dilutive.
Basic earnings per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if stock options and other commitments to issue common stock were exercised or equity awards vest resulting in the issuance of common stock or conversion of notes into shares of the company's common stock that could increase the number of shares outstanding and lower the earnings per share of the company's common stock. This calculation is not done for periods in a loss position as this would be antidilutive. For the three months ended January 31, 2016 and 2015, respectively, the Company has recorded a net loss and therefore we have not presented diluted earnings per share.
Convertible Debt Instruments
If the conversion features of conventional debt instruments provide for a rate of conversion that is below market value at issuance, this feature is characterized as a beneficial conversion feature ("BCF"). A BCF is recorded by the Company as a debt discount pursuant to ASC Topic 470-20 "Debt with Conversion and Other Options." In those circumstances, the convertible debt is recorded net of the discount related to the BCF, and the Company amortizes the discount to operations over the life of the debt using the effective interest method. The Company was not required to record any BCF's on any of the convertible debt it issued during the three month period ended January 31, 2016.
Issuances Involving Non-Cash Consideration
All issuances of the Company's stock for non-cash consideration have been assigned a dollar amount equaling the market value of the shares issued on the date the shares were issued for such services. The non-cash consideration received pertains to officer's compensation and consulting services.
Notes to Unaudited Financial Statements
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Stock-Based Compensation
The Company accounts for stock-based compensation under Accounting Standard Codification Topic 505-50, "Equity-Based Payments to Non-Employees." This topic defines a fair-value-based method of accounting for stock-based compensation. In accordance with the Topic, the cost of stock-based compensation is measured at the grant date based on the value of the award and is recognized over the vesting period. The value of the stock-based award is determined using Binomial or Black-Scholes option-pricing models, whereby compensation cost is the excess of the fair value of the award as determined by the pricing model at the grant date or other measurement date over the amount that must be paid to acquire the stock. The resulting amount is charged to expense on the straight-line basis over the period in which the Company expects to receive the benefit, which is generally the vesting period.
Accounts receivable and allowance for doubtful accounts
Accounts receivable are reported at the invoiced amount less an allowance for doubtful accounts. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for doubtful accounts based on a combination of specific customer circumstances and credit conditions taking into account the history of write-offs and collections. A receivable is considered past due if payment has not been received within the period agreed upon in the invoice. Accounts receivable are written off after all collection efforts have been exhausted. Recoveries of trade receivables previously written off are recorded when received.
Revenue recognition
The Company recognizes revenue when it is realized or realizable and earned when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price to the buyer is fixed or determinable, and collectability is reasonably assured. Revenue is recognized upon transfer of title and risk of loss, which is generally upon the shipment of finished goods. Freight billed to customers is included in revenues, and all freight expenses paid by the Company are included in cost of revenue.
Recent Accounting Pronouncements
The Company's management has evaluated all recent accounting pronouncements since the last financial report and through the issuance date of these financial statements. In the Company's opinion, none of the recent accounting pronouncements will have a material effect on the financial statements.
Notes to Unaudited Financial Statements
NOTE 3 - MINING CLAIMS
McNeil Claims, Canada
On March 24, 2011 the Company signed an agreement with Warrior Ventures, Inc. ("Warrior"), a private company, to acquire 100% of the McNeil Gold Property. The McNeil property is located within the Abitibi Greenstone belt, approximately 30 miles southeast of Timmins, Ontario, Canada and approximately 35 miles west of Kirkland Lake, Ontario, Canada. On October 8, 2013, the Company entered into an agreement with Trio Gold Corp. ("Trio") to assign 100% of its claims in the McNeil property, subject to a 5% net smelter royalty, to Trio once Trio has incurred exploration and administrative costs totaling $5,000,000 (CDN) based upon the following schedule:
On or before December 31, 2015 $ 500,000
On or before December 31, 2017 $2,000,000
On or before December 31, 2019 $2,500,000
Trio failed to perform under the terms of our agreement and the assignment agreement was terminated.
During fiscal 2016 the Company was required to make a minimum lease payment on the McNeil Claims. As a result of failure to meet minimum expenditure requirements on the property, the claims are currently in default.
Rodeo Creek Project, Nevada
On February 22, 2010, the Company entered into an agreement with Carlin Gold Resources, Inc., ("Carlin") in which Carlin assigned the Company all of its rights, title, and interest in an exploration agreement between it and Trio. The assigned exploration agreement was dated January 28, 2010. Trio leased and had an option to purchase a 100% interest in 29 unpatented lode mining claims located in Nevada within the Carlin Gold Trend (the "Claims"). The Claims are subject to a 1.5% net smelter return ("NSR").
In December 2014, the Company notified Trio of its intent to terminate its agreement on the Rodeo Creek Property. The Company will have no further interest in this project. The Company has earned a 2% Net Smelter Royalty on the property, however such NSR has not been formally recorded as at the date of this report.
NOTE 4 - RELATED PARTY TRANSACTIONS
On December 18, 2013, the Company purchased various equipment relating to its 3D metal printing operation from Mr. Janssen for $500,000. The $500,000 is evidenced by a promissory note assessed interest at an annual rate of 1.64%. Accrued interest is payable quarterly with the Principal balance and any unpaid accrued interest fully due and payable on December 15, 2018. Mr. Janssen has the right to convert any outstanding principal and accrued interest into restricted shares of the of the Company's common stock at a conversion price of $0.50 per share. The balance due Mr. Janssen at October 31, 2015 totaled $517,659 (October 31, 2015 - $515,528) of which the accrued interest of $17,659 was classified as a short-term liability and the $500,000 was classified as a long-term liability. During the three months ended January 31, 2016, the accrued interest of $7,869 ($9,193 – January 31, 2015) was charged to operations. The Company has not paid any accrued interest.
Notes to Unaudited Financial Statements
NOTE 5 - EQUIPMENT
By way of agreement concurrent with Mr. Janssen's appointment to the Board of Directors and entry into an Employment Agreement (see Note 6 – Commitments and Contingencies below) and executed on December 18, 2013, the Company purchased various equipment relating to the post production processes for its 3D metal printing operation from Mr. Janssen, our sole officer and a director, for $500,000 which amount has been capitalized on our balance sheet.
On December 23, 2013, the Company purchased equipment from an unrelated third party for $750,000 of which $75,000 was paid on purchase. The remaining $675,000 is payable in two installments: $375,000 due June 1, 2014 and $300,000 due on September 1, 2014. The terms of the installment payments do not include a stated interest rate, therefore, the Company accounted for the purchase under ASC Topic 835-30-25 "Imputation of Interest
"
discounting the purchase price of the equipment by $18,795 for imputed interest using an interest rate of 5% per annum. The total gross capitalized value of this equipment was $731,025.
The Company failed to make the required installment payments when they became due and on October 23, 2014, the Company and the seller agreed to modify the terms of the obligation due. Under the modified terms, the balance of the note as of October 23, 2014 increased to $675,000, which is evidenced by a promissory note which is assessed interest at an annual rate of 5% per annum. Principal and accrued interest are paid in monthly installments of $20,230 commencing on December 1, 2014.
During the fiscal year ended October 31, 2015, the Company paid $60,461, of which $52,472 was applied to the principal and $7,989 applied to interest. The Company has met its payment obligations up to February 2015 and is in default of its current payment obligations. The Company has entered into negotiations with the third party to revise the payment schedule with respect to the purchase, however the loan is presently in default and is currently payable in full as at January 31, 2016 in the total remaining amount of $653,317 (October 31, 2015 - $645,006).
During the year ended October 31, 2014 in connection with the aforementioned equipment purchase, the Company capitalized an additional $23,366 in respect of installation costs.
In addition, the Company purchased additional equipment with a total value of $138,410 during the three months ended July 31, 2015 which has been capitalized on the Company's balance sheets. Of this amount a total of $122,465 is subject to an equipment finance agreement as more fully descried in Note 5(6) below.
Capitalized manufacturing equipment (gross) at January 31, 2016 and October 31, 2015 totaled $1,392,981.
Notes to Unaudited Financial Statements
NOTE 6 - NOTES PAYABLE – UNRELATED PARTY
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(1)
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Third party convertible promissory note
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An unrelated third party advanced $25,000 to the Company on February 14, 2015. The $25,000 is evidenced by an unsecured promissory note bearing interest at a rate of 10%. The interest shall be accrued beginning on August 1, 2015. Outstanding principal and accrued interest is fully due and payable on December 31, 2016. The holder has the right to convert any or all of the outstanding principal and accrued interest into shares of the Company's common stock at a conversion rate of $0.10 per share. Upon conversion, the holder has certain registration rights. The Company is obligated to bear all costs associated with the registration of the shares. The outstanding balance at January 31, 2016 amounted to $26,260 (October 31, 2015 - $25,630). As per the terms of the agreement, the Company accrued interest of $630 during the three months ended January 31, 2016 and was charged to operation.
As further detailed above in Note 5 – Equipment, on October 23, 2014 the Company entered into a Secured Promissory Note, Loan and Security Agreement (the "Note") in the principal amount of $675,000 with interest accruing at a rate of 5% per annum. Under the terms of the Note, principal and accrued interest are paid in monthly installments of $20,230 commencing on December 1, 2014. The note is secured by a lien on the purchased equipment.
During the fiscal year ended October 31, 2015, the Company paid $60,461, of which $52,472 was applied to the principal and $7,989 applied to interest. The Company has met its payment obligations up to February 2015 and is in default of its current payment obligations. The Company has entered into negotiations with ExOne to revise the payment schedule with respect to the purchase.
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a.
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5% various notes payable
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Balance, October 31, 2014
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$
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223,478
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Additional: Principal
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|
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46,500
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Repayment: Principal
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|
|
(5,000
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)
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Accrued interest:
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|
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13,375
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Balance, October 31, 2015
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|
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278,353
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Accrued interest:
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3,335
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Balance, January 31, 2016
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$
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281,687
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During the fiscal year ended October 31, 2015, the Company received an additional $46,500 in loans from the aforementioned party which is assessed interest 5% per annum and mature at various dates.. During the three months ended January 31, 2016 the Company accrued a further $3,335 in interest.
In addition to the loans indicated above, the same lender advanced $150,000 to the Company on November 5, 2013. The $150,000 is evidenced by an unsecured promissory note bearing interest at a rate of 5%. Outstanding principal and accrued interest is fully due and payable on December 31, 2015. Effective January 1, 2015, the holder has the right to convert any or all of the outstanding principal and accrued interest into shares of the Company's common stock at a conversion rate of $0.10 per share. Upon conversion, the holder has certain registration rights. The Company is obligated to bear all costs associated with the registration of the shares. The outstanding balance at January 31, 2016 amounted to $166,932 (October 31, 2015 - $165,041).
Accrued interest charged to operation for the three months ended January 31, 2016 and 2015 totaled $2,131 and $1,890, respectively.
Notes to Unaudited Financial Statements
NOTE 6 - NOTES PAYABLE – UNRELATED PARTY (continued)
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Balance, October 31, 2014
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$
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67,855
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Additional: Principal
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—
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|
|
|
|
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3,250
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Balance, October 31, 2015
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|
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71,105
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Accrued interest
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819
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Balance, January 31, 2016
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$
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71,924
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On September 9, 2013, the Company borrowed $30,000 from a third party. The loan is evidenced by an unsecured promissory note. The loan is assessed interest at an annual rate of 5% per annum with principal and accrued interest fully due and payable on May 1, 2014. The outstanding balance was not paid on its due date.
On March 7, 2014, the Company borrowed an additional $35,000 from the same party noted above. The loan is evidenced by an unsecured promissory note. The loan is assessed interest at an annual rate of 5% per annum with principal and accrued interest fully due and payable on December 31, 2014.
Accrued interest charged to operations for the three months ended January 31, 2016 and 2015 amounted to $819.
On November 18, 2014, the Company borrowed $25,000 from a third party (Note 1). The $25,000 is evidenced by an unsecured promissory note bearing interest at a rate of 10% beginning April 1, 2015. Outstanding principal and accrued interest is fully due and payable on December 01, 2015. The holder has the right to convert any or all of the outstanding principal and accrued interest into shares of the Company's common stock at a conversion rate of $0.30 per share.
On December 10, 2014, the Company further borrowed $100,000 from a third party (Note 2). The $100,000 is evidenced by an unsecured promissory note bearing interest at a rate of 10% beginning April 1, 2015. Outstanding principal and accrued interest is fully due and payable on December 31, 2016. The holder has the right to convert any or all of the outstanding principal and accrued interest into shares of the Company's common stock at a conversion rate of $0.15 per share.
Pursuant to ASC Topic 470-20, "Debt with Conversion and Other Options," there is no beneficial conversion feature associated with these promissory notes because the conversion rate is equal or greater than the fair market value on the issuance date.
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Note 1
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Note 2
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Balance, October 31, 2014
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$
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-
|
|
|
$
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-
|
|
|
|
|
|
|
|
|
|
|
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Additional: Principal
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|
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25,000
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|
|
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100,000
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|
|
|
|
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1,459
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|
|
|
5,836
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Balance, October 31, 2015
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|
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26,459
|
|
|
|
105,836
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|
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Accrued interest
|
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630
|
|
|
|
2,520
|
|
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Balance, January 31, 2016
|
|
$
|
27,089
|
|
|
$
|
108,356
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|
Notes to Unaudited Financial Statements
NOTE 6 - NOTES PAYABLE – UNRELATED PARTY (continued)
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(6)
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Equipment Finance Agreement
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On March 25, 2015, the Company entered into an Equipment Finance Agreement ("EFA") with Global Finance Group, Inc. to borrow up to $275,000. Under the EFA the Company received cash proceeds of $90,000, $5,000 was paid directly to a third party to reduce certain outstanding loans and a further $122,465 was expended by Global to purchase equipment on behalf of the Company. The EFA is secured by the purchased equipment, and is assessed interest at a rate of 12% per annum. Principal and accrued interest are paid in monthly installments of $7,243 commencing on May 1, 2015. It was agreed between the parties that the first 4 months of payments will be reduced by $5,000 per payment, and thereafter, commencing September 1, 2015 payments of the full installment value will commence.
During the fiscal year ended October 31, 2015, the Company paid $11,472, of which $8,972 was applied to the principal and $2,500 applied to interest. The Company has met its payment obligations up to August 2015 and is in default of its current payment obligations.
The balance due on this obligation at January 31, 2016 is $226,333 (October 31, 2015 - $221,637).
During the fiscal year ended October 31, 2015 in connection with the aforementioned equipment purchase, the Company capitalized the equipment (gross) at October 31, 2015 in an amount totaling $122,465. The EFA is personally guaranteed by the Company's President, Mr. Roger Janssen.
NOTE 7 - STOCKHOLDERS' EQUITY
For the three months ended January 31, 2016 and for the year ended October 31, 2015
No Shares were issued during the period.
For the year ended October 31, 2014
In June 2014, a third party holding a convertible promissory note assigned $1,000 of accrued compensation due it to a third party, who converted the $1,000 into 1,000,000 shares of the Company's common stock at a conversion price of $0.001 per share. The Company did not recognize any gain or loss on the conversion.
On February 19, 2014, the Company issued 4,880,000 shares of its common stock in exchange for the cancelation of $48,880 of debt due an unrelated third party The Company recognized a loss from the extinguishment of the debt totaling $4,831,200, which was charged to operations.
Effective November 23, 2013, the Company entered into an employment agreement with its President and Chief Executive Officer, Roger Janssen. Under the terms of the agreement, Mr. Janssen received 30,000,000 shares of the Company's restricted common stock as a signing bonus. The shares were valued at $4,800,000 based upon the trading price of the shares on the date of grant.
Notes to Unaudited Financial Statements
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Effective November 23, 2013, the Company entered into an employment agreement with its President and Chief Executive Officer, Roger Janssen. Under the terms of the agreement, Mr. Janssen will receive a base salary of $15,000 a month over the three-year term of the agreement. At the sole discretion of the board of directors, Mr. Janssen may be granted performance bonuses and may also participate in any incentive plans that the Company may establish. In addition, Mr. Janssen received 30,000,000 shares of the Company's restricted common stock as a signing bonus. The shares were valued at $4,800,000 based upon the trading price of the shares on the date of grant. Officer's compensation for the year ended October 31, 2014 amounted to $4,887,449 including the indicated stock based compensation of $4,800,000. Accrued compensation due Mr. Janssen as of January 31, 2016 amounted to $341,950 (October 31, 2015 - $301,870), which is included in the balance of other payables – related parties as reflected in the accompanying balance sheet. The $341,950 is net of $4,920 that was actually paid to Mr. Janssen during the three month period ended January 31, 2016.
In January 2014, the Company entered into lease for warehouse and corporate office space located in Ferndale, Washington for 26 months. The Company was granted an option to extend the lease for another two years.
On March 30, 2015, the Company entered into an equipment rental agreement with Santeo Financial Corp. with respect to certain manufacturing equipment. The term of rental is 24 months, with an option to purchase the equipment at any time up to the end of the rental agreement. Under the terms of the agreement the Company shall pay a security deposit of $700 and agreed to a monthly rental fee of $350 with the first month payable upon signing. The Company did not make any payments under this agreement in the period ended January 31, 2016 and October 31, 2015 and has accrued a total of $4,865 and $3,710, respectively, as due and payable.
NOTE 9 - SUBSEQUENT EVENTS
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(a)
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On February 29, 2016, the Company extended a lease agreement originally entered into in January 2014 for a term of five years expiring February 28, 2021. Minimum annual lease payments under the extended lease are as follows:
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10 months ending October 31, 2016: $43,800
Year ending October 31, 2017: $52,560
Year ending October 31, 2018: $53,420
Year ending October 31, 2019: $54,452
Year ending October 31, 2020: $55,484
Year ending October 31, 2021: $9,276
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(b)
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On November 23, 2016, the Company and ExOne entered into a title transfer, conditional release and equipment lease agreement where under the Company, notified of its default under the original terms of the agreement and amendments thereto (Note 5 above) effective January 11, 2016, agreed to transfer title of the equipment back to ExOne, agreed to a lump sum payment of $10,000 and agreed to enter into a 24 month lease for the equipment under the following terms:
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a) Months 1-3: $5,000.00 per month
b) Months 4-6: $7,500.00 per month
c) Months 7-24: $10,000.00 per month
With each payment being due on the first date of the respective month and subject to a 5% late fee when unpaid within 10 (ten) days of the due date. Further under the terms of the agreement ExOne has provided a conditional release of all amounts due under the original agreement and amendments thereto.
3DX INDUSTRIES, INC.
Notes to Unaudited Financial Statements
NOTE 9 - SUBSEQUENT EVENTS (continued)
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(c)
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On December 20, 2016, a lender of a convertible note with a principal balance of $150,000 (the "Original Note") (refer to Note 6(3)(b)) entered into an amendment to the terms of that certain note and accrued interest whereby, among other considerations, the conversion price was reduced from $0.10 per share to $0.001 per share. Subsequently, the lender assigned a total of $40,000 of its principal debt to an arm's length third party who converted a total of $6,000 in principal to 6,000,000 shares of common stock. The assignee entered into a waiver and release agreement with the Company for the balance of the assigned convertible note payable in the amount of $34,000 on May 30, 2017.
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The Company received conversion notices totaling $5,000 in respect of the balance still held under the aforementioned Original Note by the original lender and issued a total of 5,000,000 shares leaving a total balance payable, not including accrued interest, of $105,000 on this note.
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(d)
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On March 15, 2017, the Company and Santeo entered into a letter agreement to revise the terms of the original March 30, 2015 equipment lease (ref: Note 8 above). Under the terms of the letter agreement, the Company will purchase the manufacturing equipment for a total of $18,000 no later than December 31, 2017, which amount shall also include all accrued and unpaid rental payments, and any interest thereon up to December 31, 2017. Should the Company be unable to make the required payment as at December 31, 2017, interest of 12% per annum shall apply to any balance outstanding.
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(e)
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On April 28, 2017, a third-party lender with various amounts outstanding agreed to release and waive a total of $367,170, inclusive of accrued interest thereon, with no further consideration payable.
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(f)
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On June 15, 2017, a total of 3,000,000 shares originally issued to settle part of convertible note in the amount of $3,000 as discussed in Note 9(c) above were returned to treasury and canceled.
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(g)
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During the month of June 2017, the Company and the original stakeholder of the McNeil Claims referenced in Note 3 above entered into an assignment agreement whereby the stakeholder acquired the defaulted claims.
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