NOTES TO THE
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2022
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.
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.
Reclassification
Certain amounts
in the prior period have been reclassified to conform to the current period presentation.
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.
Advertising and Promotion
All advertising, promotion and marketing expenses, including commissions,
are expensed when incurred.
Leases
The Company
capitalizes all leased assets pursuant to ASU 2016-02, Leases (Topic 842) (“Topic 842”), which requires lessees
to recognize right-of-use (“ROU”) assets and lease liability, initially measured at present value of the lease payments, on
its balance sheet for leases with terms longer than 12 months and classified as either financing or operating leases. The Company excludes
short-term leases having initial terms of 12 months or less from Topic 842 as an accounting policy election and recognizes rent expense
on a straight-line basis over the lease term.
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 six 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.
-F7-
Table of Contents
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:
|
October 31, 2022 |
Current JPY: US$1 exchange rate |
148.26 |
Average JPY: US$1 exchange rate |
127.39 |
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.
Revenue amount
represents the invoiced value, net of a value-added tax (“Consumption Tax”) and applicable local government levies.
The Consumption Tax on sales is calculated at 10% of gross sales. The Company is subject to consumption taxes in Japan for the year ended
October 31, 2022. For the year ended October 31, 2021, a consumption tax refund of $330,694 was recorded in Other income due to a tax
exemption.
The following table summarizes
our revenue recognized under ASC 606 in our consolidated statements of operations:
|
|
Year
Ended |
|
|
October
31, |
|
|
2022 |
|
2021 |
|
|
|
|
|
Revenues |
|
|
|
|
|
|
Product
sales |
|
$ |
14,043,637 |
|
$ |
11,637,104 |
Product
sales – related party |
|
|
7,879 |
|
|
- |
Crypto
miners sales, net |
|
|
14,917,287 |
|
|
- |
Program
for educational institution |
|
|
33,541 |
|
|
38,606 |
Other |
|
|
437,997 |
|
|
138,106 |
Total
Revenue Under ASC 606 |
|
|
29,440,341 |
|
|
11,813,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Revenue Under ASC 606 |
|
$ |
29,440,341 |
|
$ |
11,813,816 |
|
|
|
|
|
|
|
|
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 October 31, 2022, the Company no deferred revenues related to product
sales.
Revenue
– related party
During the year
ended October 31, 2022, revenue totaling approximately $7,879 was recognized from sales to related party ZEXAVERSE Corporation (hereinafter
referred to as “ZEXAVERSE”). ZEXAVERSE is considered as a related party due to the fact that Ryohei Uetaki, CEO of the Company,
controls the said company. The terms and conditions applied to the above transactions were the same as those applied to sales to
customers not related to the Company.
Revenue
from crypto miners sales
During the
year ended October 31, 2022, the Company acted as an agent in facilitating the sales of crypto miners, produced by a third-party
manufacturer, to customers of the Company. Revenue for the sale of crypto miners was recognized when the miners were delivered to
the customers and the customers completed the inspection of the miners. Management assessed the Company’s contracts with the
third-party manufacturer and customers in consideration of ASC 606, “Revenue from Contracts with Customers”, and
determined the Company as the agent in said transactions. As such, the company recognized crypto miner sales net of costs. For the
year ended October 31, 2022, Cost of goods sold for minor purchases, netted by the gross sales was $35,580,995.
$7,401,171 of deferred revenues are related to deposits for crypto miners.
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 October 31, 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.
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.
Basic and diluted earnings per share are as follows:
|
|
October 31, |
|
|
|
|
|
|
|
2022 |
|
2021 |
|
Basic earnings per share |
|
$ |
.84 |
|
$ |
.22 |
|
Diluted earnings per share |
|
$ |
.43 |
|
$ |
.11 |
|
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 October 31, 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 October 31, 2022 and October 31, 2021, the Company had no 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.
Concentration
of Purchases
Net purchase
from suppliers accounting for 10% or more of total purchases are as follows:
For the year
ended October 31, 2022, 51.81% of the inventories were purchased from G-Force in the amount of $5,864,586 and 24.95% of the inventories
were purchased from DN Branch in the amount of $2,823,899.
For the year
ended October 31, 2021, 90.6% of the inventories were purchased from G-Force in the amount of $4,545,382.
Concentration
of Revenues
Gross revenues
from customers accounting for 10% or more of total revenues are as follows:
For the year
ended October 31, 2022, 48.31% of total revenue was generated from Drone Net in the
amount of $14,221,414.
For the year
ended October 31, 2021, 98.95% of total revenue was generated from Drone Net in the amount of $11,690,057.
-F8-
Table of Contents
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
October 31, 2022, the Company recorded cash and cash equivalents of $5,836,065,
an increase of $3,252,847 compared to $2,583,218 in
the prior year ended October 31, 2021, and the Company’s major sources of liquidity derived from the sales of drones and
crypto miners. As stated in the consolidated financial statements, the Company, for the year ended on October 31, 2022, recorded a
net income of $8,908,782 (+282% y-o-y) and earned $4,605,591 (+127% y-o-y) in
cash flows from operating activities.
Having reviewed the above, the Company realizes that whether we shall be
able to continue demonstrating the positive trends demonstrated in our financial statements, lies in our ability to continue to generate
revenue and increase revenue going forward. 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(s) in the future and procure any required funds needed
to meet the redemption of its debt during normal business operations.
Management has evaluated the estimated impact of COVID-19, which has become
a significant factor impacting operations of businesses globally, one of which we believe we will need to continue to monitor as to the
potential effects it may have on our own business.
The Company assessed the impact of COVID-19 and believes there to be minimal
impact of COVID-19 on the Company’s drone sales, which is currently the Company’s primary source of revenue. The Company will
need to continue to monitor COVID-19 and the effects it may have, socially and economically, as it is possible that such developments
may in fact impact our operations going forward or more specifically, our sales results. At this time, the Company believes that it will
not affect our assumptions as a going concern.
Based
on the Company’s evaluation, based on the positive financial trends it has experienced year over year e.g. increase in net income
and increase in net cash provided by operating activities, management believes that it has completely mitigated the circumstances 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 prior year 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 - ACCOUNTS RECEIVABLE
Accounts receivable
from customers totaled $1,847,068 as of October 31, 2022 and $4,724 as of October 31, 2021. No bad debt allowance was provided as of October
31, 2022 and 2021 respectively.
Concentration
of Accounts Receivable
Accounts receivable
from customers accounting for 10% or more of total accounts receivable are as follows:
For the year
ended October 31, 2022, 77.36% of total accounts receivable was owed to the Company by Drone Net in the amount of $1,428,976 and 15.36%
of total accounts receivable was owed to the Company by Chabi land in the amount of $283,792.
NOTE
5 - ADVANCE PAYMENTS AND PREPAID EXPENSES
Advance
payments are comprised of the payments for the undelivered products and other deliverables.
As of October 31, 2022 and October 31, 2021, the Company had advance payments and other prepaid expenses of $16,389,562 and $3,035,135,
respectively. Details of the advance payments as of October 31, 2022 and October 31, 2021 are as follows:
|
|
October 31, 2022 |
|
October 31, 2021 |
Purchase of products from G-Force Inc. |
$ |
101,158 |
$ |
2,343,700 |
Purchase of products from Radio Maker |
|
- |
|
325,441 |
Purchase of products from Solar Samba |
|
- |
|
119,395 |
Purchase of parts from Bluish Co., Ltd |
|
- |
|
21,360 |
Purchase of parts from Team M |
|
37,097 |
|
48,246 |
Purchase of parts from Wise Partners Co., Ltd |
|
228,785 |
|
- |
Purchase of parts from Rogyx Co., Ltd |
|
31,161 |
|
- |
Purchase of cryptocurrency miners from Cellessence Corp. |
|
15,915,311 |
|
- |
Other advances and prepaid expenses |
|
76,050 |
|
176,993 |
Totals |
$ |
16,389,562 |
$ |
3,035,135 |
NOTE
6 - 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
year ended October 31, 2022, the Company purchased long-term assets, including building renovations, totaling approximately $227,180.
The Company is depreciating these assets over a 5-10 year period once they were put
into use. Depreciation expense for the year ended October 31, 2022 was approximately $50,535.
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 have been put into use. Depreciation
expense for the year ended October 31, 2021 was approximately $16,136.
NOTE 7 -
DEFERRED REVENUE
Deferred revenue
is the amount the Company received in advance from the customer for their orders placed with us. As of October 31, 2022 deferred revenue
in the amount of $7,401,171 was related to our sales of cryptocurrency miners which represents a large amount in both number of transactions
and values. As of October 31, 2021, deferred revenue in the amount of $1,476,492 was related to our sales of drones.
NOTE 8 -
INCOME TAXES
For the years
ended October 31, 2022 and 2021, the Company had income tax expense in the amount of $4,924,878 and
$1,333,338, respectively.
United States
The Company
was incorporated under the laws of the State of Delaware on October 25, 2019. The U.S. federal income tax rate is 21%.
Japan
The Company
conducts its major businesses in Japan through WSP 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 4 million |
|
Up to JPY 8 million |
|
Over JPY 8 million |
2022 |
22.9% |
|
25.37% |
|
37.59% |
|
|
|
|
|
|
|
As of October
31, 2022 and October 31, 2021, the Company had income tax payable of $3,329,572 and $325,693, respectively.
For the years ended December 31, 2022 and 2021, the
Company’s income tax expenses are as follows:
|
|
For the Years Ended |
|
|
|
December 31, |
|
|
|
2022 |
|
|
2021 |
|
Current |
|
$ |
5,282,697 |
|
|
$ |
1,333,338 |
|
Deferred |
|
|
(357,819) |
|
|
|
- |
|
Total |
|
$ |
4,924,878 |
|
|
$ |
1,333,338 |
|
A reconciliation of the effective income tax rates
reflected in the accompanying consolidated statements of operations to the Japanese statutory tax rate for the years ended December 31,
2022 and 2021 is as follows:
|
|
For the Years Ended |
|
|
|
December 31, |
|
|
|
2022 |
|
|
2021 |
|
Japanese statutory tax rate |
|
|
34.59 |
% |
|
|
34.59 |
% |
Change in valuation allowance |
|
|
1.01 |
% |
|
|
1.78 |
% |
Effective tax rate |
|
|
35.60 |
% |
|
|
36.37 |
% |
The tax effects of temporary differences that give
rise to the deferred tax assets at December 31, 2022 and 2021 are presented below:
|
|
December 31, |
|
|
December 31, |
|
|
|
2022 |
|
|
2021 |
|
Deferred tax assets |
|
|
|
|
|
|
|
|
Business tax payable |
|
$ |
307,438 |
|
|
$ |
34,744 |
|
Other |
|
|
82,991 |
|
|
|
9,016 |
|
Subtotal |
|
|
390,429 |
|
|
|
43,760 |
|
Less valuation allowance |
|
|
(82,991 |
) |
|
|
(43,760 |
) |
Total deferred tax assets |
|
$ |
307,438 |
|
|
$ |
- |
|
The realization of deferred tax assets is dependent
upon the generation of sufficient taxable income of the appropriate character in future periods. The Company regularly assesses the ability
to realize its deferred tax assets and establish a valuation allowance if it is more-likely-than-not that some portion of the deferred
tax assets will not be realized. The Company weighs all available positive and negative evidence, including its earnings history and results
of recent operations, projected future taxable income, and tax planning strategies.
The amount of the deferred tax asset considered realizable,
however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective
negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such
as the Company’s projections for growth. The adjustments of a valuation allowance against deferred tax assets may cause greater
volatility in the effective tax rate in the periods in which the valuation allowance is adjusted. For the year ended October 31, 2021,
a full valuation allowance was provided. For the year ended October 31, 2022, certain valuation allowance was released for WSP Japan
considering the collectability of deferred tax assets.
NOTE 9 -
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 October 31,
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 October 31, 2022 and October 31, 2021.
NOTE 10 -
RELATED-PARTY TRANSACTIONS
Revenue
During the year
ended October 31, 2022, revenue totaling $7,879 was recognized from sales to related party ZEXAVERSE. The said company is considered as
a related party due to the fact that Ryohei Uetaki, CEO of the Company, controls the said company.
The terms and
conditions applied to the above transactions were the same as those applied to sales to customers not related to the Company.
Loan to
the Company
As of
October 31, 2022, our CEO and Director, Ryohei Uetaki, has advanced to the Company $18,517 for salary and $458 for
expenses. This advance is considered as a loan to the Company which is unsecured, noninterest-bearing and payable on
demand.
Transfer
of assets to ZEXAVERSE
Aiming to establish
a new revenue source, the Company planned to enter a new business, create avatars which offer exploring opportunities in metaverse. Found
less feasible to realize reasonable revenue, the Company gave up the idea and related assets were transferred to ZEXAVERSE before the
Company put those in service.
For the said
transaction, the Company and ZEXAVERSE entered into a memorandum on July 1, 2022 and assets were all transferred to ZEXAVERSE on July
15, 2022. However, the Company was the contracting party with the vendors in sourcing assets for the new business, the Company invoiced
the sum of contract value with vendors to ZEXAVERSE upon the said transfer and booked the said amount as other receivables – related
party, a total of $727,911. The amount we disbursed to the vendors and
the amount the company invoiced to ZEXAVERSE, which was paid by October 31, 2022, are the same amount. There is no revenue/loss, inventory,
cost of goods sold occurred or recorded as an asset to the Company in relation to this transaction.
Sales activities with ZEXAVERSE
During the year ended October 31,
2022, the Company sold goggles ($7,879 in total) to ZEXAVERSE. The terms of conditions applied to the said transactions were the same
conditions the Company applies to the non-Related Party clients, and the Company did not give any advantages to ZEXAVERSE.
Account receivables and sales relevant
to the said transactions are presented in the Consolidated Balance Sheets and Consolidated Statements of Operations and Comprehensive
Income hereinabove.
NOTE 11 -
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 $311,951 and $99,850 in operating lease costs for the years ended October 31, 2022 and October 31, 2021,
respectively.
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. 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, 2022 |
October 31, 2021 |
|
|
|
|
|
|
Right-of-use assets |
Lease asset long |
$ |
705,007 |
$ |
406,816 |
Current lease liabilities |
Short-term lease liability |
|
231,041 |
|
219,892 |
Non-current lease liabilities |
Lease liability long term |
|
520,002 |
|
219,474 |
|
|
|
|
|
|
Maturities of lease liabilities as of October 31, 2022 are
as follows: |
|
|
|
|
|
|
|
2023 |
231,041 |
|
|
|
|
2024 |
69,464 |
|
|
|
|
2025 |
52,120 |
|
|
|
|
2026 and beyond |
398,418 |
|
|
|
|
Total |
751,043 |
|
|
|
|
Add(Less): Imputed interest |
(232,304) |
|
|
|
|
Present value of lease liabilities |
518,739 |
|
|
|
|
NOTE 12 -
ACCRUED EXPENSES AND OTHER PAYABLES
Accrued
expenses and other payables are comprised of trade accounts payable, accrued payroll tax liabilities and accrued expenses As of
October 31, 2022 and October 31, 2021, the Company had accrued expenses and other payables of $2,453,668 and
$261,809, respectively. Details of the accrued expenses and other payables as of October 31, 2022 and October 31, 2021 are as
follows:
|
|
October 31, 2022 |
|
|
October 31, 2021 |
Accounts payable, trade |
$ |
2,383,161 |
|
$ |
130,393 |
Accounts payable for employees |
|
54,879 |
|
|
90,922 |
Accrued payroll liabilities |
|
15,628 |
|
|
40,494 |
Totals |
$ |
2,453,668 |
|
$ |
261,809 |
NOTE 13 -
SUBSEQUENT EVENTS
The Company
has evaluated subsequent events through February 10, 2023 , the date on which the
consolidated financial statements were available to be issued and has found no material transactions to report except for the following:
-F9-
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