CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2022
(UNAUDITED)
NOTE 1 - ORGANIZATION AND DESCRIPTION OF
BUSINESS
World Scan Project,
Inc., a Delaware corporation (“the Company”) was incorporated under the laws of the State of Delaware on October 25, 2019.
On October 25,
2019, Ryohei Uetaki, our officer and director, paid for expenses involved with the incorporation of the Company with personal funds on
behalf of the Company, in exchange for 10,000,000 shares of Common Stock, par value $0.0001 per share and 10,000,000 shares of Series
A Preferred stock, par value $0.0001 per share, which issuance was exempt from the registration provisions of Section 5 of the Securities
Act under Section 4(2) of such same said act. The value of the stock provided to Mr. Uetaki, based on the par value of $.0001 per share
of common stock and Series A Preferred Stock, is valued at $2,000.
On October 25,
2019, Ryohei Uetaki was appointed as Chief Executive Officer, Chief Financial Officer, President, Director, Secretary, and Treasurer.
On November
18, 2019, Yasumasa Ichikawa was appointed as Chief Technology Officer.
On January 25,
2020, the Company entered into and consummated a Share Contribution Agreement with Ryohei Uetaki. Pursuant to this agreement Mr. Uetaki
gifted to the Company, at no cost, 300 shares of common stock of World Scan Project Corporation, a Japan corporation (“WSP Japan”),
which represented all of its issued and outstanding shares. The Company has since gained a 100% interest in the issued and outstanding
shares of WSP Japan’s common stock and WSP Japan is now a wholly owned subsidiary of the Company. The Company and WSP Japan were
under common control at the time of the acquisition.
WSP Japan was
incorporated under the laws of Japan on January 22, 2020. Currently, WSP Japan is headquartered in Tokyo, Japan. The Company’s primary
business is focused on developing and manufacturing of autonomous aerial vehicles including drones.
On February
19, 2020, Ryohei Uetaki gifted 7,000,000 shares of our Common Stock and 10,000,000 shares of our Series A Preferred Stock, which represented
all of our issued and outstanding shares of Preferred Stock at the time, to SKYPR LLC, a Delaware Limited Liability Company (referred
to herein as “SKYPR LLC”). Our CEO Ryohei Uetaki owns and controls 100% of the membership interests in SKYPR LLC.
In September,
2020, the Company entered into subscription agreements with 41 shareholders. Pursuant to these agreements, the Company issued 647,350
shares of common stock in total to these shareholders and received $323,675 as aggregate consideration. At the time of purchase the price
paid per share by each shareholder was the equivalent of about 0.50 USD.
These shares
were sold pursuant to the Company’s effective S-1 Registration Statement deemed effective on August 28, 2020 at 4pm EST.
We
operate through our wholly owned subsidiary, World Scan Project Corporation, a Japanese Company. We are a start-up stage company currently
focused on developing, designing and selling small sized drones which may be used for a variety of purposes. During the period ended April
30, 2022, we ordered cryptocurrency
miners with expected delivery in the next fiscal quarter. The Company intends to capitalize on the growing popularity of cryptocurrency
by expanding its operations to include the sale of cryptocurrency miners. Currently our sales team is reaching out to potential customers
and our goal is to sell 50 units each month. We hope to revise our sales plan in the future, as we grow our customer base, so that the
cryptocurrency miners will be a mainstay commercial product of the Company.
Our principal
executive offices are located at 2-18-23, Nishiwaseda, Shinjuku-Ku, Tokyo, 169-0051, Japan.
The Company
has elected October 31st as its year end.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidations
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, World Scan Project Corporation,
whose registered address is 2-18-23, Nishiwaseda, Shinjuku-Ku, Tokyo, 162-0051, Japan. All significant intercompany accounts and transactions
have been eliminated.
Basis of Presentation
This summary of significant accounting policies is presented to assist in understanding the Company’s financial statements. These
accounting policies conform to accounting principles, generally accepted in the United States of America, and have been consistently applied
in the preparation of the financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In the opinion of management,
all adjustments necessary in order to make the financial statements not misleading have been included. Actual results could differ from
those estimates.
Related party transaction
A related party is generally defined as (i) any person
that holds 10% or more of the Company’s securities and their immediate families, (ii) the Company’s management, (iii) someone
that directly or indirectly controls, is controlled by or is under common control with the Company, or (iv) anyone who can significantly
influence the financial and operating decisions of the Company. A transaction is considered to be a related party transaction when there
is a transfer of resources or obligations between related parties. The Company conducts business with its related parties in the ordinary
course of business.
Transactions involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive,
free market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related
party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations
can be substantiated.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of nine months or less when purchased to be cash equivalents.
Accounts Receivable and Credit Policies
Accounts receivable are recognized and carried at the original invoice amount less allowance for any uncollectible amounts. An estimate
for doubtful accounts is made when collection of the full amount is no longer probable. Bad debts are written off as incurred. If there
is a claim for a defect of product within four days after arrival of goods, the Company shall accept a goods return.
Advance payments and prepaid expenses
Advance payments and prepaid expenses are cash paid amounts that represent costs incurred from which a service or benefit is expected
to be derived in the future.
Inventory
Inventories, consisting of products available for sale, are primarily accounted for using the first-in, first-out ("FIFO") method, and
are valued at the lower of cost or market value. This valuation requires the Company to make judgments, based on currently-available information,
about the likely method of disposition, such as through sales to individual customers, returns to product vendors, or liquidations, and
expected recoverable values of each disposition category.
Fixed assets and depreciation
Property, plant and equipment are stated at cost less depreciation and impairment loss. The initial cost of the assets comprises its purchase
price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Depreciation
is calculated using the straight-line method over the shorter of the estimated useful life of the respective assets as follows: computer
software developed or acquired for internal use, 2 to 5 years; computer equipment, 2 to 5 years; buildings and improvements, 5 to 15 years;
leasehold improvements, 2 to 10 years; and furniture and equipment, 1 to 5 years.
F-5
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Foreign currency translation
The Company
maintains its books and records in its local currency, Japanese YEN (“JPY”), which is a functional currency as being the primary
currency of the economic environment in which its operation is conducted. Transactions denominated in currencies other than the functional
currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets
and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable
exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the statements of operations.
The reporting
currency of the Company is the United States Dollars (“US$”) and the accompanying consolidated financial statements have been
expressed in US$. In accordance with ASC Topic 830-30, “Translation of Financial Statement”, assets and liabilities of the
Company whose functional currency is not US$ are translated into US$, using the exchange rate on the balance sheet date. Revenues and
expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements
are recorded as a separate component of accumulated other comprehensive income within the statements of shareholders’ equity.
Translation
of amounts from the local currency of the Company into US$1 has been made at the following exchange rates:
| |
April 30, 2022 |
| Current JPY: US$1 exchange rate |
128.86 |
| Average JPY: US$1 exchange rate |
117.12 |
Comprehensive income or loss
ASC Topic 220, “Comprehensive Income”, establishes standards for reporting and display of comprehensive income or loss, its
components and accumulated balances. Comprehensive income or loss as defined includes all changes in equity during a period from non-owner
sources. Accumulated comprehensive income, as presented in the accompanying consolidated statements of shareholders’ equity consists
of changes in unrealized gains and losses on foreign currency translation.
Revenue recognition
The Company
adopted ASC 606 – Revenue from contracts with Customers: (1) identify the contract with a customer; (2) identify the performance
obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in
the contract; and (5) recognize revenue when each performance obligation is satisfied.
The
following table summarizes our revenue recognized under ASC 606 in our condensed consolidated statements of operations:
| |
|
Period Ended |
| |
|
April 30, |
| |
|
2022 |
|
2021 |
| |
|
|
|
|
| Revenues |
|
|
|
|
|
|
| Product sales |
|
$ |
13,140,491 |
|
$ |
4,570,702 |
| Drone imaging and video production |
|
|
20,958 |
|
|
- |
| Program for educational institution |
|
|
34,985 |
|
|
- |
| Total Revenue Under ASC 606 |
|
|
13,196,434 |
|
|
4,570,702 |
| |
|
|
|
|
|
|
| |
|
|
|
|
|
|
| Total Revenue Under ASC 606 |
|
$ |
13,196,434 |
|
$ |
4,570,702 |
| |
|
|
|
|
|
|
|
Revenue
from product sales
Revenue
for products is recognized when the products are delivered to the customer and the customer completes the product inspection. Cash receipts
for undelivered products are recorded as deferred revenues. As of April 30, 2022, the Company had deferred revenues of $4,758.
Revenue
from drone imaging and video production
Revenue
for drone imaging and video production is recognized when the products and/or services are delivered or provided to the customer and the
customer completes the product inspection. Cash receipts for undelivered products or services are recorded as deferred revenues. As of
April 30, 2022, the Company had no deferred revenues related to drone imaging and video production.
Revenue
from educational institution program
Revenue for
educational institution fees is recognized when the services are provided to the customer. Cash receipts for undelivered products are
recorded as deferred revenues. As of April 30, 2022, the Company had no deferred revenues related to the educational institution program.
Income Taxes
The Company accounts for income taxes under ASC 740, “Income Taxes.” Under the asset and liability method of ASC 740, deferred
tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements
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. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment
occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize
tax assets through future operations. No deferred tax assets or liabilities were recognized at April 30, 2022.
Basic Earnings (Loss) Per Share
The Company computes basic and diluted earnings (loss) per share in accordance with ASC Topic 260, Earnings per Share. Basic earnings
(loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the reporting
period. Diluted earnings (loss) 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 that could share in the earnings of the Company.
Each shareholder of Series A Preferred Stock may convert their shares at the option of the holder thereof into an equal amount of shares
of any other class or series of the Company’s stock on a one to one basis, therefore the Company computes diluted earnings (loss)
per shares by dividing net income (loss) by the sum of the total of weighted average number of common shares and total preferred shares
outstanding.
Fair Value of Financial Instruments
The Company’s
balance sheet includes certain financial instruments. The carrying amounts of current assets and current liabilities approximate their
fair value because of the relatively short period of time between the origination of these instruments and their expected realization.
ASC 820, Fair
Value Measurements and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer
a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market
participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s
own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable
inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the
fair value hierarchy are described below:
- Level 1 –
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
- Level 2 –
Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly,
including quoted prices for similar assets or 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);
and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
- Level 3 –
Inputs that are both significant to the fair value measurement and unobservable.
Fair value
estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of April 30,
2022. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term
nature of these instruments. As of April 30, 2022 and October 31, 2021, the Company had no off-balance-sheet financial instruments.
Recently Issued Accounting Pronouncements
The Company does not believe that any recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted,
would have a material effect on the accompanying financial statements.
F-6
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NOTE 3 - GOING CONCERN
The Company’s
financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern that contemplates
the realization of assets and liquidation of liabilities in the normal course of business.
The Company
demonstrates some positive trends, compared with the previous fiscal years, in our financial statements as in below:
As of April
30, 2022, the Company recorded net income of $3,085,822, an increase of $2,167,706 compared to the same period in the prior fiscal year
ended October 31, 2021, and the Company’s major source of liquidity derived from the sales of drones. As stated in the fiscal 2021
year-end consolidated financial statements, the Company, for the year ended October 31, 2021, recorded a net income of $2,332,451 (+177%
y-o-y) and earned $2,032,197 (+357% y-o-y) in cash flows from operating activities.
Having reviewed
the above, the Company realizes that our concerns, whether we shall be able to continue demonstrating those positive trends for the following
years from the issuance of the financial statements, lies in our ability to generate revenue. Principally, the Company’s consolidated
financial statements are based on going concern assumptions, which assume the realization of assets and offset of liabilities in the normal
course of business. Based on this, the Company also recognizes that it is critical for us to continue to operate and/or perform our obligation
in the future as well and to procure any required funds to meet the redemption of its debt during the normal business operation.
The management
also evaluated the estimated impact of COVID-19, which has become a significant factor for social and economic activities, since the previous
fiscal year, on the Company’s operation and business results for the years following the filing of the financial statements. The
Company assessed that, although it depends on future developments relating to COVID-19, the impact on drone sales, which is a major source
of our liquidity, shall be immaterial and the Company believes that it will not affect our assumptions as a going concern.
Based on its
evaluation, with positive financial trends afore-mentioned, e.g. increase in net income and increase in net cash provided by operating
activities, management believes that it has completely mitigated the circumstance that led to a doubt with respect to the Company’s
ability to continue as a going concern, i.e. dependency on a single major customer, which existed at the time of the filing
of the Company’s fiscal 2020 year-end report.
The financial
statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification
of liabilities that might be necessary in the event that the Company cannot continue as a going concern.
NOTE
4 - ADVANCE PAYMENTS AND PREPAID EXPENSES
Advance
payments are comprised of the payments for undelivered products and other prepaid services. As of April 30, 2022 and October 31, 2021, the Company had advance
payments of $5,970,709 and
$3,035,135, respectively. Details
of the advance payments as of April 30, 2022 and October 31, 2021 are as follows:
| |
|
April 30, 2022 |
|
|
October 31, 2021 |
| Purchase of products from G-Force Inc. |
$ |
948,449 |
|
$ |
2,343,700 |
| Purchase of products from Radio Master |
|
115,784 |
|
|
325,441 |
| Purchase of parts from Sankyu Co./Solar Samba |
|
95,322 |
|
|
119,395 |
| Purchase of services from Kenedix Property Design, Inc. |
|
21,287 |
|
|
- |
| Purchase of services from Japan Renewable Energy Business |
|
23,071 |
|
|
- |
| Purchase of parts from Bluish Co., Ltd |
|
- |
|
|
21,360 |
| Purchase of parts from Team M |
|
42,682 |
|
|
48,246 |
| Purchase of cryptocurrency miners from Cellessence Corp. |
|
4,334,937 |
|
|
- |
| Other |
|
389,177 |
|
|
193,993 |
| Totals |
$ |
5,970,709 |
|
$ |
3,035,135 |
NOTE
5 - FIXED ASSETS
The company
recognizes purchased assets with a useful life longer than one year as fixed or non-current assets. These assets are depreciated using
the straight-line method of depreciation over the estimated useful life of the assets.
During the period
ended April 30, 2022, the Company purchased long-term assets totaling approximately $243,462, of which approximately $171,310 of Leasehold
improvements were added, related to our lease at Tenshodo Bldg. 12F, 4-3-9 Ginza, Chuo-ku, Tokyo.
The Company is depreciating these assets over a range of 3 to 10 years once they were put into use. Depreciation expense for the period
ended April 30, 2022 was approximately $22,179.
During the year
ended October 31, 2021, the Company purchased long-term assets, including a 360 laser scanner, and various tools, furniture and fixtures,
totaling approximately $177,526. The Company is depreciating these assets over a five year period once they were put into use. Depreciation
expense for the year ended October 31, 2021 was approximately $16,136. Details of the advance payments as of April 30, 2022 and October
31, 2021 are as follows:
| |
|
April 30, 2022 |
|
|
October 31, 2021 |
| Furniture, fixtures & equipment, other |
|
226,111 |
|
|
177,526 |
| Leasehold improvements |
|
171,310 |
|
|
- |
| Accumulated depreciation |
|
(33,359) |
|
|
(16,136) |
| Total Furniture fixtures and equipment |
$ |
364,062 |
|
$ |
161,390 |
NOTE
6 - INCOME TAXES
For the period
ended April 30, 2022, the Company had income tax expense in the amount of $1,957,109.
Japan
The Company conducts
its major businesses in Japan and is subject to tax in this jurisdiction. As a result of its business activities, the Company files tax
returns that are subject to examination by the local tax authority.
The Company is subject to a number of income
taxes, which, in aggregate, represent a statutory tax rate approximately as follows:
| |
|
Company’s
assessable profit |
| For
the year ended October 31, |
|
|
Up
to JPY 8 million |
|
Over
JPY 8 million |
| 2022 |
|
|
15.0% |
|
23.2% |
As of April 30, 2022 and October 31, 2021,
the Company had income tax payable totaling $1,436,056 and $325,692, respectively. tax payable amount includes consumption tax payable
totaling $709,535 as of April 30, 2022 and $170,219 as of October 31, 2021, which does not affect to income tax expense account.
NOTE
7 - SHAREHOLDERS EQUITY
Preferred Stock
The authorized
preferred stock of the Company consists of 200,000,000 shares with a par value of $0.0001. The authorized Series A Preferred Stock of
the Company consists of 100,000,000. There were 10,000,000 shares of Series A Preferred Stock issued and outstanding as of April 30, 2022
and October 31, 2021.
The rights,
preferences, privileges, restrictions and other matters relating to the Series A Preferred Stock are as follows:
(a)
Each share of Series A Preferred Stock shall have no voting rights;
(b)
Each shareholder of Series A Preferred Stock may convert their shares at the option of the holder thereof into an equal amount of shares
of any other class or series of the Company’s stock on a one to one basis.
Common
Stock
The authorized
common stock of the Company consists of 200,000,000 shares with a par value of $0.0001. There were 10,647,350 shares of common stock
issued and outstanding as of April 30, 2022 and October 31, 2021.
NOTE
8 - RELATED-PARTY TRANSACTIONS
Loan to the Company
As
of April 30, 2022, our CEO and Director,
Ryohei Uetaki, has advanced to the Company approximately $458 for
expenses. This advance is considered as a loan to the company which is unsecured, noninterest-bearing and payable on demand.
NOTE
9 - LEASE ASSETS AND LIABILITIES
Our
adoption of ASU 2016-02, Leases (Topic 842), and subsequent ASUs related to Topic 842, requires us to recognize substantially all leases
on the balance sheet as an ROU asset and a corresponding lease liability. The new guidance also requires additional disclosures as detailed
below. We adopted this standard on the effective date of November 1, 2020 and used this effective date as the date of initial application.
Under this application method, we were not required to restate prior period financial information or provide Topic 842 disclosures for
prior periods. We elected the ‘package of practical expedients,’ which permitted us to not reassess our prior conclusions
related to lease identification, lease classification, and initial direct costs, and we did not elect the use of hindsight.
We
determine if a contract is a lease at the inception of the arrangement. We review all options to extend, terminate, or purchase the ROU assets,
and when reasonably certain to exercise, we include the option in the determination of the lease term and lease liability. We have six
operating leases related to our office space in Tokyo with remaining lease terms of 1 to 3 years. We recognized $165,942
in operating lease costs for the period
ended April 30, 2022.
Lease
ROU assets and liabilities are recognized at commencement date of the lease, based on the present value of lease payments over the lease
term. The lease ROU asset also includes any lease payments made and excludes any lease incentives. When readily determinable, we use
the implicit rate in determining the present value of lease payments. When leases do not provide an implicit rate, we use our incremental
borrowing rate based on the information available at the lease commencement date, including the lease term.
The
tables below present financial information associated with our leases. This
information is only presented as of, and for the year ended, October 31, 2021. As noted above, we adopted Topic 842 using a transition
method that does not require application to periods prior to adoption.
| |
|
Balance Sheet Classification |
October
31, 2021 |
October 31, 2020 |
| |
|
|
|
|
|
|
| Right-of-use assets |
Lease asset long |
$ |
945,579 |
$ |
406,816 |
| Current lease liabilities |
Short-term lease liability |
|
270,518 |
|
219,892 |
| Non-current lease liabilities |
Lease liability long term |
|
727,450 |
|
219,474 |
| |
|
|
|
|
|
|
| Maturities of lease liabilities as of April 30, 2022 are as follows: |
| |
|
|
|
|
|
|
| 2022 |
138,832 |
|
|
|
|
| 2023 |
262,166 |
|
|
|
|
| 2024 |
79,746 |
|
|
|
|
| 2025 |
59,835 |
|
|
|
|
| 2026 and beyond |
457,389 |
|
|
|
|
| Total |
|
997,968 |
|
|
|
|
| Add(Less): Imputed interest |
(278,087) |
|
|
|
|
| Present value of lease liabilities |
719,881 |
|
|
|
|
NOTE
10 - SUBSEQUENT EVENTS
The Company has evaluated subsequent events through July 29, 2022, the date on which the consolidated financial statements were available
to be issued and has found no significant events to report.
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