Notes to Unaudited Consolidated Financial
Statements
April 30, 2016
NOTE 1 – BACKGROUND AND ORGANIZATION
Organization
The Company was incorporated in the State
of Nevada on June 5, 2007, as Gas Salvage Corp. for the purpose of engaging in the exploration and development of oil and gas.
In July 2008, the Company changed its name to Pinnacle Energy Corp. On February 1, 2010, the Company completed the acquisition
of the aircraft component part design, engineering and manufacturing assets of Harbin Aerospace Company, LLC (“HAC”).
The transaction was structured as a business combination. Following completion of the HAC acquisition, the Company’s Board
of Directors decided to dispose of the oil and gas business interests and focus on the aircraft component market. On February 10,
2010, the Company completed the sale of all of its oil and gas business interests in exchange for cancellation of all obligations
under an outstanding promissory note having a principal amount of $1,000,000. Pursuant to FASB standards, the Company has retro-actively
presented its oil and gas business as discontinued operations.
In March 2010, the Company changed its
name to Trans-Pacific Aerospace Company, Inc.
On July 27, 2008, the Company completed
a three-for-one stock split of the Company’s common stock. The share and per-share information disclosed within this Form
10-Q reflect the completion of this stock split.
On April 5, 2013, the Company entered into
Securities Purchase Agreements to purchase additional capital stock of Godfrey (China) Limited (“Godfrey”), the Company’s
25%-owned Hong Kong subsidiary engaged in the development of the production facility in Guangzhou, China. On June 21, 2013, upon
closing of the transactions under the Securities Purchase Agreements, the Company increased its ownership of Godfrey from 25% to
55%.
Business Overview
The Company’s aircraft component
business commenced on February 1, 2010. To date, its operations have focused on product design and engineering. The
Company has recently commenced commercial manufacture or sales of its products.
The Company designs, manufactures and
sells aerospace quality component parts for commercial and military aircraft, space vehicles, power plants and surface and
undersea vessels. These parts have applications in both newly constructed platforms and as spares for existing platforms. The
Company’s initial products are self-lubricating spherical bearings that help with several flight-critical tasks,
including aircraft flight controls and landing gear.
Going Concern
The Company's financial statements are
prepared using the accrual method of accounting in accordance with accounting principles generally accepted in the United States
of America, and have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of
liabilities in the normal course of business. The Company incurred a net loss from operations of $2,235,525 during the six months
ended April 30, 2016, and an accumulated deficit of $22,996,903 at April 30, 2016. The Company has not yet established an ongoing
source of revenues sufficient to cover its operating costs and to allow it to continue as a going concern. The ability of the Company
to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes
profitable. If the Company is unable to obtain adequate capital, it could be forced to cease development of operations.
Management’s plans to continue as
a going concern include raising additional capital through sales of common stock and/or a debt financing. However, management cannot
provide any assurances that the Company will be successful in accomplishing any of its plans.
The Company anticipates that losses will
continue until such time, if ever, that the Company is able to generate sufficient revenues to support its operations. The accompanying
financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The Company maintains its accounting records
on an accrual basis in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”).
The accompanying unaudited consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S.)
for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X promulgated
by the Securities and Exchange Commission (“SEC”) and reflect all adjustments, consisting of normal recurring adjustments
and other adjustments, which management believes are necessary to fairly present the financial position, results of operations
and cash flows of the Company, for the respective periods presented. The results of operations for an interim period are not necessarily
indicative of the results that may be expected for any other interim period or the year as a whole. The accompanying unaudited
consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto in
the Company’s Annual Report on Form 10-K for the year ended October 31, 2015, filed with the SEC on February 16, 2016.
Consolidation
Accounting policies
used by the Company and the Company’s subsidiaries conform to US GAAP. Significant policies are discussed below. The Company’s
consolidated accounts include the Company’s accounts and the accounts of the Company’s subsidiaries of which we own
a 50% interest or greater.
These consolidated
financial statements include the accounts of the parent company Trans-Pacific Aerospace Company, Inc., and the majority owned subsidiary:
Godfrey. All intercompany transactions have been eliminated.
Non-controlling
interests
The Company
accounts for changes in our controlling interests of subsidiaries according to Accounting Codification Standards 810
–
Consolidations
(“ASC 810”). ASC 810 requires that the Company record such changes as equity
transactions, recording no gain or loss on such a sale.
The Company’s
non-controlling interest arises from the purchase of equity in Godfrey. It represents the portion of Godfrey that is not owned.
ASC 810 requires that the Company account for the equity and income or loss on that operation separately from the Company’s
other activities. In the equity section of the Consolidated Balance Sheet, the Company presents the portion of the negative equity
attributable to non-controlling interests in Godfrey. In the Consolidated Statement of Operations, the Company presents the portion
of current period net loss in Godfrey attributable to non-controlling interests.
Use of Estimates
The preparation of the financial statements
in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, and disclosure of contingent liabilities at the date of the financial
statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash
and cash equivalents include investments with initial maturities of three months or less. The Company maintains its cash balances
at credit-worthy financial institutions that are insured by the Federal Deposit Insurance Corporation ("FDIC") up to
$250,000. There were no cash equivalents at April 30, 2016 and October 31, 2015.
Concentration
of Credit Risk
Financial
instruments and related items, which potentially subject the Company to concentrations of credit risk, are cash and cash equivalents.
The Company places its cash and temporary cash investments with credit quality institutions. At times, such investments may be
in excess of FDIC insurance limits.
Impairment of Long-Lived Assets
The Company has adopted Financial Accounting
Standards Board (FASB) Accounting Standards Codification (ASC) 360-10, Property, Plant and Equipment FASB ASC 360-10 requires that
long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company evaluates its long-lived
assets for impairment annually or more often if events and circumstances warrant. Events relating to recoverability may include
significant unfavorable changes in business conditions, recurring losses or a forecasted inability to achieve break-even operating
results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted
cash flows. Should impairment in value be indicated, the carrying value of intangible assets will be adjusted, based on estimates
of future discounted cash flows resulting from the use and ultimate disposition of the asset. ASC 360-10 also requires assets to
be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell.
Indefinite-lived Intangible Assets
The Company has an indefinite-lived intangible
asset (goodwill) relating to purchased blueprints, formulas, designs and processes for manufacturing and production of self-lubricated
spherical bearings, bushings and rod-end bearings. The indefinite-lived intangible asset is not amortized; rather, it is tested
for impairment at least annually by comparing the carrying amount of the asset with the fair value. An impairment loss is recognized
if the carrying amount is greater than fair value.
Fair Value of Financial Instruments
The Company adopted FASB ASC 820 on October
1, 2008. Under this FASB, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation
framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements
and the related disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and FASB ASC 820-10-50
details the disclosures that are required for items measured at fair value.
The Company has various financial instruments
that must be measured under the new fair value standard including: cash and debt. The Company currently does not have non-financial
assets or non-financial liabilities that are required to be measured at fair value on a recurring basis. The Company’s financial
assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:
Level 1 - Inputs are unadjusted
quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement
date. The fair value of the Company’s cash is based on quoted prices and therefore classified as Level 1.
Level 2 - Inputs include quoted
prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets
that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield
curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means
(market corroborated inputs).
Level 3 - Unobservable inputs
that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.
Cash, accounts payable, other payables, and accrued expenses
reported on the balance sheet are estimated by management to approximate fair market value due to their short term nature.
The following tables provide a summary of the fair values of
assets and liabilities:
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Fair Value Measurements at
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April 30, 2016
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Carrying
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Value
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April 30,
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2016
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Level 1
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Level 2
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Level 3
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Liabilities:
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Convertible notes payable – currently in default
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$
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260,000
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$
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–
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$
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–
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$
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260,000
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Fair Value Measurements at
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October 31, 2015
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Carrying
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Value
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October 31,
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2015
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Level 1
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Level 2
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Level 3
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Liabilities:
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Convertible notes payable, net
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$
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8,333
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$
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–
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$
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–
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$
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8,333
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Convertible notes payable – currently in default
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$
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260,000
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$
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–
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$
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–
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$
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260,000
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The Company believes that the market rate
of interest as of April 30, 2016 and October 31, 2015 was not materially different to the rate of interest at which the convertible
notes payable were issued. Accordingly, the Company believes that the fair value of the convertible notes payable approximated
their carrying value at April 30, 2016 and October 31, 2015 due to short term maturity.
Revenue
Recognition
We received the initial order for our spherical
bearings in December 2015. We manufactured and delivered these bearings in March 2016.
The Company
recognizes revenue on sales of products when the goods are delivered and title to the goods passes to the customer provided that:
(i) there are no uncertainties regarding customer acceptance; (ii) persuasive evidence of an arrangement exists; (iii) the
sales price is fixed and determinable; and (iv) collectability is reasonably assured.
Income
Taxes
The Company accounts for income taxes under
standards issued by the FASB. Under those standards, deferred tax assets and liabilities are recognized for future tax benefits
or consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided
for significant deferred tax assets when it is more likely than not that such assets will not be realized through future operations.
The accounting guidance for uncertainties
in income tax prescribes a comprehensive model for the financial statement recognition, measurement, presentation, and disclosure
of uncertain tax positions taken or expected to be taken in income tax returns. The Company recognizes a tax benefit from an uncertain
tax position in the consolidated financial statements only when it is more likely than not that the position will be sustained
upon examination, including resolution of any related appeals or litigation processes, based on the technical merits and a consideration
of the relevant taxing authority’s widely understood administrative practices and precedents.
Equipment
Equipment is recorded at cost and depreciated
using straight line methods over the estimated useful lives of the related assets. The Company reviews the carrying value of long-term
assets to be held and used when events and circumstances warrant such a review. If the carrying value of a long-lived asset is
considered impaired, a loss is recognized based on the amount by which the carrying value exceeds the fair market value. Fair market
value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. The cost
of normal maintenance and repairs is charged to operations as incurred. Major overhaul that extends the useful life of existing
assets is capitalized. When equipment is retired or disposed, the costs and related accumulated depreciation are eliminated and
the resulting profit or loss is recognized in income. As of April 30, 2016, the useful lives of the office equipment ranged from
five years to seven years.
Issuance of Shares for Non-Cash Consideration
to Non-Employees
The Company accounts for the issuance of
equity instruments to acquire goods and/or services based on the fair value of the goods and services received or the fair value
of the equity instrument at the time of issuance, whichever is more readily determinable. The Company's accounting policy for equity
instruments issued to consultants and vendors in exchange for goods and services follows the provisions of standards issued by
the FASB
.
The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the
date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor's
performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized
over the term of the consulting agreement.
Stock-Based
Compensation
Stock-based compensation cost to employees
is measured by the Company at the grant date, based on the fair value of the award, over the requisite service period under ASC
718. For options issued to employees, the Company recognizes stock compensation costs utilizing the fair value methodology over
the related period of benefit.
Net Loss Per Share
The Company adopted the standard issued
by the FASB, which requires presentation of basic earnings or loss per share and diluted earnings or loss per share. Basic income
(loss) per share (“Basic EPS”) is computed by dividing net income (loss) available to common stockholders by the weighted
average number of common shares outstanding during the period. Diluted earnings per share (“Diluted EPS”) are similarly
calculated using the treasury stock method except that the denominator is increased to reflect the potential dilution that would
occur if dilutive securities at the end of the applicable period were exercised. There were convertible notes, 3,981 shares of
convertible preferred stock, 2,000,000 Series A Warrants, 2,000,000 Series B Warrants and options for 140,666,667 shares outstanding
as of April 30, 2016 that are not included in the calculation of Diluted EPS as their impact would be anti-dilutive.
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For the Six Months Ended
April 30,
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2016
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2015
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Net loss attributable to the Company
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$
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(2,181,923
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)
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(2,996,440
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)
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Basic and diluted net loss from operations per share
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$
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(0.00
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)
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(0.01
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)
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Weighted average number of common shares outstanding, basic and diluted
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3,303,428,943
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406,603,216
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Recently Adopted and Recently Enacted
Accounting Pronouncements
In June 2014, the FASB issued ASU 2014-10,
Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. ASU 2014-10 eliminates the distinction
of a development stage entity and certain related disclosure requirements, including the elimination of inception-to-date information
on the statements of operations, cash flows and stockholders' equity. The amendments in ASU 2014-10 will be effective prospectively
for annual reporting periods beginning after December 15, 2014, and interim periods within those annual periods, however early
adoption is permitted. The Company adopted ASU 2014-10 during the quarter ended May 31, 2014, thereby no longer presenting or disclosing
any information required by Topic 915.
The Company reviewed all recent accounting
pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC and they did not or are not
believed by management to have a material impact on the Company's present or future financial statements.
In August 2014, the FASB issued the FASB
Accounting Standards Update No. 2014-15 “Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure
of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”).
In connection with preparing financial
statements for each annual and interim reporting period, an entity’s management should evaluate whether there are conditions
or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern
within one year after the date that the financial statements are issued (or within one year after the date that the financial statements
are available to be issued when applicable). Management’s evaluation should be based on relevant conditions and events that
are known and reasonably knowable at the date that the financial statements are issued (or at the date that the financial statements
are available to be issued when applicable). Substantial doubt about an entity’s ability to continue as a going concern exists
when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to
meet its obligations as they become due within one year after the date that the financial statements are issued (or available to
be issued). The term probable is used consistently with its use in Topic 450, Contingencies.
When management identifies conditions or
events that raise substantial doubt about an entity’s ability to continue as a going concern, management should consider
whether its plans that are intended to mitigate those relevant conditions or events will alleviate the substantial doubt. The mitigating
effect of management’s plans should be considered only to the extent that (1) it is probable that the plans will be effectively
implemented and, if so, (2) it is probable that the plans will mitigate the conditions or events that raise substantial doubt about
the entity’s ability to continue as a going concern.
If conditions or events raise substantial
doubt about an entity’s ability to continue as a going concern, but the substantial doubt is alleviated as a result of consideration
of management’s plans, the entity should disclose information that enables users of the financial statements to understand
all of the following (or refer to similar information disclosed elsewhere in the footnotes):
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a.
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Principal conditions or events that raised substantial doubt about the entity’s ability to continue as a going concern (before consideration of management’s plans)
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b.
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Management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations
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c.
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Management’s plans that alleviated substantial doubt about the entity’s ability to continue as a going concern.
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If conditions or events raise substantial
doubt about an entity’s ability to continue as a going concern, and substantial doubt is not alleviated after consideration
of management’s plans, an entity should include a statement in the footnotes indicating that there is substantial doubt about
the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued
(or available to be issued). Additionally, the entity should disclose information that enables users of the financial statements
to understand all of the following:
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a.
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Principal conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern
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b.
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Management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations
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c.
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Management’s plans that are intended to mitigate the conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern.
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The amendments in this Update are effective
for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application
is permitted.
In February, 2015, the FASB issued ASU
No. 2015-02,
Consolidation (Topic 810): Amendments to the Consolidation Analysis.
ASU 2015-02 provides guidance on the consolidation
evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities such
as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized
loan obligations, and mortgage-backed security transactions). ASU 2015-02 is effective for periods beginning after December 15,
2015. The adoption of ASU 2015-02 is not expected to have a material effect on the Company’s consolidated financial statements.
Early adoption is permitted.
In August, 2015, the FASB issued ASU No.
2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. The amendments in this Update defer
the effective date of ASU No. 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities,
and certain employee benefit plans should apply the guidance in ASU No. 2014-09 to annual reporting periods beginning after December
15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual
reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.
Other recent accounting pronouncements
issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the
United States Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s
present or future consolidated financial statements.
NOTE 3 – ACCOUNTS RECEIVABLE
All accounts receivable are due 90 days
from the date billed based on the Company’s collection policy and agreed by the customer. As of April 30, 2016 and October
31, 2015, the Company had accounts receivable balance of $109,140 and $0, respectively.
NOTE
4 – PROPERTY AND EQUIPMENT
As of April 30, 2016 and October 31, 2015,
the Company had office equipment of $3,102 and 3,704, net of accumulated depreciation of $5,304 and $4,702, respectively. For the
six months ended April 30, 2016 and 2015, the Company recorded depreciation expense of $602 and $602, respectively.
NOTE 5 - RELATED PARTY TRANSACTIONS
Due to lack of sufficient funding to maintain
the Company’s operations, the Company’s officers and directors loaned money to the Company for short term cash flow
needs. As of April 30, 2016 and October 31, 2015, Mr. Peter Liu had payables due to him from Godfrey of $60,000 and $60,000; respectively;
The Company had receivables due from HAC amounted to $938 and $1,025 at April 30, 2016 and October 31, 2015, respectively.
During the six months ended April 30, 2016,
the Company borrowed $171,524 from various shareholders under oral agreements. This amount bears no interest and is due on demand.
In addition, a shareholder made repayment of $77,186 on behalf of the Company to pay off the Apollo Note as described in Note 6
below. The amount is recorded under related party payable and the amount bears no interest and is due on demand. As of April 30,
2016, the outstanding balance was $248,710.
NOTE 6 – CONVERTIBLE NOTES PAYABLE
As part of the acquisition of HAC, the
Company assumed $260,000 of obligations under a convertible note. The convertible note assumed by the Company does not bear interest
and became payable on March 12, 2011. The note is convertible into shares of the Company’s common stock at an initial conversion
price of $0.25 per share. The conversion price is subject to adjustment for stock splits and combinations; certain dividends and
distributions; reclassification, exchange or substitution; reorganization, merger, consolidation or sales of assets. As the convertible
note does not bear interest, the Company recorded the present value of the convertible note obligation at $239,667 and accordingly
recorded a convertible note payable for $260,000 and a corresponding debt discount of $20,333. Under the effective interest method,
the Company accretes the note obligation to the face amount of the convertible note over the remaining term of the note. The discount
was fully amortized at March 12, 2011. Debt discount expense totaled $7,452 and $12,880 for the years ended October 31, 2011 and
2010 respectively. The Company performed an evaluation and determined that the anti-dilution clause did not require derivative
treatment. On September 16, 2011, the Company entered into an agreement with the note holder to extend the maturity date of the
note. Pursuant to the agreement, the entire outstanding amount became fully due and payable on December 31, 2011. The note is now
currently in default. For the six months ended April 30, 2016 and 2015, the Company recorded imputed interest of $9,100 and $9,100,
respectively.
During the year ended October 31, 2014,
we entered into Securities Purchase Agreements with various accredited and sophisticated investors, pursuant to which we sold Convertible
Promissory Notes with interest rates ranging from 8% to 12%, in the original principal amount of $325,000 (the “Notes”).
The Notes have maturity date of six months or one year from the issuance date and are convertible into our common stock, at any
time after 180 days, at a price for each share of common stock equal to 50% to 60% of the lowest closing bid price of the common
stock as reported on the National Quotation Bureau OTCQB exchange, based on formulas specified in the agreements.
The issuances of the Notes were exempt
from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The
purchasers were accredited and sophisticated investors, familiar with our operations, and there was no solicitation.
The Company analyzed the conversion option
of the Notes for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that
the instrument should be classified as liabilities once the conversion option becomes effective after 180 days due to there being
no explicit limit to the number of shares to be delivered upon settlement of the above conversion options for the Notes issued.
During the year ended October 31, 2014, the Company repaid $112,500 of the principal amount of the Notes.
During the six months ended April 30, 2015,
six of the above convertible notes with total principal amount of $212,500 reached the 180 days and the conversion options became
derivative liabilities. Using the Black-Scholes Model, the Company calculated the fair value of the conversion options and recorded
derivative liabilities on the 180 day and April 30, 2015. The change in fair value was recorded as derivative expenses.
On June 13, 2014, we entered into Securities
Purchase Agreements with Tangiers Investment Group LLC, pursuant to which we sold a 10% Convertible Promissory Note, in the original
principal amount of $55,000 (the “Tangiers Note”). The Tangiers Note has a maturity date of June 13, 2015 and is convertible
into our common stock, at any time at a price for each share of common stock equal to 60% of the lowest closing bid price of the
common stock as reported on the National Quotation Bureau OTCQB exchange, based on a formula specified in the agreement.
On November 25, 2014, we entered into Securities
Purchase Agreements with Tangiers Investment Group LLC, pursuant to which we sold a 10% Convertible Promissory Note, in the original
principal amount of $27,500 (the “Tangiers Note 2”). The Tangiers Note 2 has a maturity date of November 25, 2015 and
is convertible into our common stock, at any time at a price for each share of common stock equal to 60% of the lowest closing
bid price of the common stock as reported on the National Quotation Bureau OTCQB exchange, based on a formula specified in the
agreement.
The issuance of the Tangiers Note 2 was
exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder.
The purchaser was accredited and sophisticated investors, familiar with our operations, and there was no solicitation.
The Company analyzed the conversion option
of the Tangiers Notes for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined
that the instrument should be classified as liabilities due to there being no explicit limit to the number of shares to be delivered
upon settlement of the above conversion options for the Tangiers Notes issued. The Company then calculated the fair value of the
conversion option and recorded derivative liability on the issuance date and the subsequent period end dates.
On November 10, 2014, we entered into Securities
Purchase Agreements with Auctus Private Equity Funds, LLC, pursuant to which we sold an 8% Convertible Promissory Note, in the
original principal amount of $40,000 (the “Auctus Note”). The Auctus Note has a maturity date of November 10, 2015
and is convertible into our common stock, at any time at a price for each share of common stock equal to 55% of the average of
the lowest three (3) trading prices of the common stock as reported on the National Quotation Bureau OTCQB exchange, based on a
formula specified in the agreement.
The issuance of the Auctus Note was exempt
from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The
purchaser was accredited and sophisticated investors, familiar with our operations, and there was no solicitation.
The Company analyzed the conversion option
of the Auctus Note for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined
that the instrument should be classified as liabilities due to there being no explicit limit to the number of shares to be delivered
upon settlement of the above conversion options for the Auctus Note issued. The Company then calculated the fair value of the conversion
option and recorded derivative liability on the issuance date and the subsequent period end dates.
On February 23, 2015, we entered into Securities
Purchase Agreements with KBM Worldwide, Inc., pursuant to which we sold an 8% Convertible Promissory Note, in the original principal
amount of $48,000 (the “KBM Note”). The KBM Note has a maturity date of October 9, 2015 and is convertible into our
common stock, at any time after 180 days, at a price for each share of common stock equal to 55% of the average of the lowest
three (3) trading prices during the ten trading days prior to the conversion date of the common stock as reported on the National
Quotation Bureau OTCQB exchange, based on a formula specified in the agreement.
The issuance of the KBM Note was exempt
from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The
purchaser was accredited and sophisticated investors, familiar with our operations, and there was no solicitation.
The Company analyzed the conversion option
of the KBM Note for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that
the instrument should be classified as liabilities once the conversion option becomes effective after 180 days due to there being
no explicit limit to the number of shares to be delivered upon settlement of the above conversion options for the Notes issued.
In March and April 2015, we entered
into Securities Purchase Agreements with various accredited and sophisticated investors, pursuant to which we sold 8%
Convertible Promissory Notes, in the original principal amount of $45,000 (the “New Note”). The New Notes have
maturity dates of June 12 and October 24, 2015 and are convertible into our common stock, at any time at a price for each
share of common stock equal to 55% or 60% of the lowest closing price of the common stock as reported on the National
Quotation Bureau OTCQB exchange, based on a formula specified in the agreements.
The issuances of the New Notes were exempt
from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The
purchasers were accredited and sophisticated investors, familiar with our operations, and there was no solicitation.
The Company analyzed the conversion option
of the New Notes for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined
that the instrument should be classified as liabilities due to there being no explicit limit to the number of shares to be delivered
upon settlement of the above conversion options for the New Notes issued. The Company then calculated the fair value of the conversion
option and recorded derivative liability on the issuance date and the subsequent period end dates.
In September 2015, the Company entered
into a Securities Purchase Agreement with Apollo Capital Corp, pursuant to which we sold a 12% Convertible Promissory Note, in
the original principal amount of $50,000 (the “Apollo Note”). The Apollo Note has maturity date of March 29, 2016 and
are convertible into our common stock, at any time after 180 days, at a price for each share of common stock equal to 40% of the
lowest closing price of the common stock as reported on the National Quotation Bureau OTCQB exchange, based on a formula specified
in the agreements.
The issuance of the Apollo Note was exempt
from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The
purchaser was accredited and sophisticated investors, familiar with our operations, and there was no solicitation.
The Company analyzed the conversion option
of the Apollo Note for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined
that the instrument should be classified as liability once the conversion option becomes effective after 180 days due to there
being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options for the Notes issued.
On February 12, 2016, a shareholder made repayment of $77,186 on behalf of the Company to pay off the Apollo Note.
During the years ended October 31, 2015,
$382,077 of the convertible notes was converted to 3,737,696,430 shares of the Company’s common stock.
For the six months ended April 30, 2016
and 2015, the Company recorded derivative expense of $0 and ($55,062), respectively. As of April 30, 2016 and October 31, 2015,
the derivative liability was fully converted or paid off.
As of April, 2016 and October 31, 2015,
the outstanding amount of the convertible notes were $0 and $8,333, net of discount of $0 and $41,667, respectively.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Consulting Agreements
The Company has entered into consulting
agreements for services to be provided to the Company in the ordinary course of business. These agreements call for expense reimbursement
and various payments upon performance of services.
On February 1, 2016, the Company entered
into a consulting service agreement with Mr. Nicholas Nguyen for a period of 24 months. Upon execution of this agreement, the Company
shall issue total of 100 shares of its convertible preferred stock as compensation for Mr. Nguyen’s services. As of April
30, 2016, the shares had not been issued and the Company recorded accrued expense of $75,000.
On February 22, 2016, the Company entered
into an agreement with Ms. Lixin Chen to perform marketing and operation consulting services for the year ended December 31, 2016.
Upon execution of this agreement, the Company shall issue total of 300 shares of its convertible preferred stock as compensation
for Ms. Chen’s services. As of April 30, 2016, the shares had not been issued and the Company recorded accrued expense of
$344,000.
Employment Agreements
On February 1, 2010, the Company entered
into an Employment Agreement with William McKay. Under the agreement, Mr. McKay will receive a base salary of $180,000, plus an
initial bonus of 1,200,000 shares of the Company’s common stock (to be issued in 300,000 share blocks on a quarterly basis).
The shares were valued based on the closing stock price on the date of the agreement. The initial term of the Employment Agreement
expired on January 31, 2011 and automatically renewed for an additional one-year term. The agreement ended January 31, 2013 and
Mr. McKay agreed to continue serve as the Company’s CEO without base salary. As of April 30, 2016 and October 31, 2015, the
total accrued salaries owed to Mr. McKay were $0.
Lease Agreement
In October 2010, the Company entered into
a lease of its administrative offices. The lease expired November 30, 2012 and currently calls for monthly rental payments of $970
pursuant to a month to an annual agreement.
NOTE 8 – CAPITAL STOCK TRANSACTIONS
Preferred Stock
The Company is authorized to issue up to
5,000,000 shares of its $0.001 preferred stock.
In June 2015, the Company designated 20,000
of the authorized preferred stock as convertible preferred stock with the following characteristics:
|
i.
|
Each share of Preferred Stock would be convertible into 1,000,000 shares of Common Stock at the
Preferred Stock holders’ option, subject to restrictions regarding timing, volume and common share availability.
|
|
ii.
|
In shareholder votes, each share of Preferred Stock would have voting power equal to 1,000,000
shares of Common Stock.
|
During the year ended October 31, 2015,
759,817,144 shares of common stock were retired and converted to 767 shares of convertible preferred stock. In addition, the Company
issued 1,203 shares of convertible preferred stock to its employee and consultants for services rendered. These shares were value
at $645,000 based on closing price of the underlying common stock if converted.
In June 2015, the company entered into
various purchase agreements with accredited investors for the sale of 220 shares of its convertible preferred stock at a price
of $100 per share. Total cash proceeds from the sale of stock were $22,000 which was recorded as stock to be issued.
During the year ended October 31, 2015,
the company entered into various purchase agreements with an accredited investor for the sale of 478,000,000 shares of its common
stock at a price ranged from $0.00035 to $0.0012 per share. Total cash proceeds from the sale of stock during the year ended October
31, 2015, was $510,000. As of October 31, 2015, the Company issued 228,000,000 shares of common stock and 250 shares of preferred
stock in lieu of 250,000,000 shares of common stock. In connection with these stock purchase agreements, the Company issued 57,019,761
shares of common stock and 725 shares of preferred stock in lieu of finders’ fees, which represents stock offering costs.
Finders’ fees are treated as a reduction in paid in capital per current accounting guidance.
During the six months ended April 30, 2016,
692,943,784 shares of common stock were retired and converted to 694 shares of convertible preferred stock and 194 shares of preferred
stock were converted to 194,000,000 shares of common stock In addition, the Company issued 324 shares of convertible preferred
stock to its employee and consultants for services rendered. These shares were value at $752,800 based on closing price of the
underlying common stock if converted.
During the six months ended April 30, 2016,
8 shares of preferred stock were retired and cancelled.
In February 2016, the Company issued 220
shares of preferred stock to an accredited investor in lieu of 220,000,000 shares of common stock sold in June 2015.
In April 2016, the Company sold 60 shares
of its preferred stock for $47,000. As of April 30, 2016, these shares had not been issued and were recorded as preferred stock
to be issued.
At April 30, 2016 and October 31, 2015,
there were 3,981 and 2,945 shares issued and outstanding, respectively.
Common Stock
The Company is authorized to issue up to
4,500,000,000 shares of its $0.001 common stock.
At April 30, 2016 and October 31, 2015,
there were 3,487,402,694 and 3,829,346,478 shares issued and outstanding, respectively.
Fiscal year 2015:
During the year ended October 31, 2015,
the Company issued 387,000,000 shares of common stock for legal and consulting services rendered. The shares were valued at $425,000
based on service invoice and the closing stock prices on the dates of the stock grants.
During the year ended October 31, 2015,
the company entered into various purchase agreements with an accredited investor for the sale of 478,000,000 shares of its common
stock at a price ranged from $0.00035 to $0.0012 per share. Total cash proceeds from the sale of stock during the year ended October
31, 2015, was $510,000. As of October 31, 2015, the Company issued 228,000,000 shares of common stock and 250 shares of preferred
stock in lieu of 250,000,000 shares of common stock. In connection with these stock purchase agreements, the Company issued 57,019,761
shares of common stock and 725 shares of preferred stock in lieu of finders’ fees, which represents stock offering costs.
Finders’ fees are treated as a reduction in paid in capital per current accounting guidance.
During the year ended October 31, 2015,
the Company also issued 3,737,696,430 shares upon conversion of convertible notes amounted to $382,077.
During the year ended October 31, 2015,
759,817,144 shares of common stock were retired and converted to 767 shares of convertible preferred stock.
Fiscal year 2016:
During the six months ended April 30, 2016,
692,943,784 shares of common stock were retired and converted to 694 shares of convertible preferred stock and 194 shares of preferred
stock were converted to 194,000,000 shares of common stock. In addition, 201,000,000 shares owned by two shareholders were retired
and cancelled.
During the six months ended April 30, 2016,
the Company issued 358,000,000 shares of common stock for consulting services rendered. The shares were valued at $871,200 based
on the closing stock prices on the dates of the stock grants.
Options and Warrants
A summary of option activity during
the six months ended April 30, 2016 and the year ended October 31, 2015 are presented below:
|
|
April 30, 2016
|
|
|
October 31, 2015
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
average
|
|
|
average
|
|
|
|
|
|
average
|
|
|
average
|
|
|
|
Number of
|
|
|
exercise
|
|
|
life
|
|
|
Number of
|
|
|
exercise
|
|
|
life
|
|
|
|
shares
|
|
|
price
|
|
|
(years)
|
|
|
shares
|
|
|
price
|
|
|
(years)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of year
|
|
|
140,666,667
|
|
|
$
|
0.0146
|
|
|
|
9.27
|
|
|
|
52,666,667
|
|
|
$
|
0.08
|
|
|
|
6.24
|
|
Granted
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
138,000,000
|
|
|
|
0.0146
|
|
|
|
10.00
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Forfeited
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
50,000,000
|
|
|
|
0.08
|
|
|
|
6.24
|
|
Cancelled
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Expired
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
140,666,667
|
|
|
$
|
0.0146
|
|
|
|
8.77
|
|
|
|
140,666,667
|
|
|
$
|
0.0146
|
|
|
|
9.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of period
|
|
|
140,666,667
|
|
|
$
|
0.0146
|
|
|
|
8.77
|
|
|
|
140,666,667
|
|
|
$
|
0.0146
|
|
|
|
9.27
|
|
A summary of warrant activity during
the six months ended April 30, 2016 and the year ended October 31, 2015 are presented below:
|
|
April 30, 2016
|
|
|
October 31, 2015
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
average
|
|
|
average
|
|
|
|
|
|
average
|
|
|
average
|
|
|
|
|
|
|
exercise
|
|
|
remaining
|
|
|
|
|
|
exercise
|
|
|
remaining
|
|
|
|
Number
|
|
|
price
|
|
|
contractual
|
|
|
Number
|
|
|
price
|
|
|
contractual
|
|
|
|
Outstanding
|
|
|
per share
|
|
|
life (years)
|
|
|
Outstanding
|
|
|
per share
|
|
|
life (years)
|
|
Outstanding at beginning of year
|
|
|
4,000,000
|
|
|
$
|
0.75
|
|
|
|
5.39
|
|
|
|
4,000,000
|
|
|
$
|
0.75
|
|
|
|
6.39
|
|
Granted
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Forfeited
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Cancelled
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Expired
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
4,000,000
|
|
|
$
|
0.75
|
|
|
|
4.89
|
|
|
|
4,000,000
|
|
|
$
|
0.75
|
|
|
|
5.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants exercisable at end of period
|
|
|
–
|
|
|
$
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
$
|
–
|
|
|
|
–
|
|
In November 2014, the Company granted options
to all board members to purchase a total of 138,000,000 shares at an exercise price of $0.0146 per share of its common stock for
service rendered and to replace the old options. These options vests in 4 equal amounts on the grant date, 2/9/2015, 5/9/2015,
and 8/9/2015 and are exercisable within 10 years from the dates of vesting. The total estimated value using the Black-Scholes Model,
based on the following variables, was $2,760,000.
Market Price: $0.020
Exercise Price: $0.015
Term: 10 years
Volatility: 321%
Dividend Yield: 0
Risk Free Interest
Rate: 2.25%
For the year ended October 31, 2015, $2,760,000
was fully amortized as stock based compensation.
NOTE 9 – SUBSEQUENT EVENTS
|
1.
|
In May 2016, the Company issued 315 shares of convertible preferred stock as compensation to consultants
for services rendered.
|
|
2.
|
In May 2016, the Company entered into a Service Level Agreement with a Hong Kong entity pursuant
to which it agreed to assist such Hong Kong entity to develop a market for medical, aerospace and other machined products in China
and elsewhere. The Company will assist such entity with the manufacture of these products to service these markets. The Company
agreed to grants such entity a license to market these products under the TPAC name. This agreement has a term of 10-years. The
Company shall be paid according to the sum of $ 1 million annually for time actually spent performing its duties under this Agreement.
Further, the Hong Kong entity agreed to purchase from the Company all raw materials, tooling, machinery and equipment, blueprints,
engineering, marketing, operations and management and all other services and supplies. The Company agreed not to solicit any employee
or consultant of the Hong Kong entity for a period of 3-years following termination of the Agreement.
|
|
3.
|
In May 2016, the Company entered into a Licensing and Consulting Services Agreement with an Australian entity pursuant to which
it agreed to assist such Australian entity to develop a market for medical, aerospace and other machined products in China and
elsewhere. The Company will assist such entity with the manufacture of these products to service these markets. The Company agreed
to grants such entity a license to market these products under the TPAC name. This agreement has a term of 10-years. The Company
shall be paid according to the sum of $ 1 million annually for time actually spent performing its duties under this Agreement.
Further, the Hong Kong entity agreed to purchase from the Company all raw materials, tooling, machinery and equipment, blueprints,
engineering, marketing, operations and management and all other services and supplies. The Company agreed not to solicit any employee
or consultant of the Hong Kong entity for a period of 3-years following termination of the Agreement.
|