TRANS-PACIFIC AEROSPACE COMPANY, INC.
(A Development Stage Company)
Balance Sheets
(Unaudited)
|
|
January 31,
|
|
|
October 31,
|
|
|
|
2011
|
|
|
2010
|
|
ASSETS
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
228,370 |
|
|
$ |
58,620 |
|
Prepaid expenses
|
|
|
792 |
|
|
|
- |
|
Total current assets
|
|
|
229,162 |
|
|
|
58,620 |
|
|
|
|
|
|
|
|
|
|
Office equipment
|
|
|
3,476 |
|
|
|
- |
|
Total assets
|
|
$ |
232,639 |
|
|
$ |
58,620 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$ |
72,305 |
|
|
$ |
6,791 |
|
Accounts payable - related party
|
|
|
- |
|
|
|
4,379 |
|
Accrued salary and payroll taxes
|
|
|
113,151 |
|
|
|
76,519 |
|
Due to Godfrey (China) Ltd
|
|
|
30,000 |
|
|
|
30,000 |
|
Accrued interest payable
|
|
|
4,023 |
|
|
|
- |
|
Convertible note payable - related party, net of unamortized debt discount of $29,618 and $51,832, respectively
|
|
|
27,336 |
|
|
|
37,023 |
|
Convertible note payable, net of unamortized debt discount of $3,007 and $7,452, respectively
|
|
|
256,993 |
|
|
|
252,547 |
|
Total current liabilities
|
|
|
503,808 |
|
|
|
407,259 |
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
503,808 |
|
|
|
407,259 |
|
|
|
|
|
|
|
|
|
|
Stockholders' (deficit)
|
|
|
|
|
|
|
|
|
Preferred stock, 5,000,000 shares authorized. No shares issued and outstanding at January 31, 2011 and October 31, 2010
|
|
|
- |
|
|
|
- |
|
Common stock, par value $0.001, 150,000,000 shares authorized. 37,000,286 shares issued and outstanding at January 31, 2011 and 33,200,286 shares issued and outstanding at October 31, 2010
|
|
|
37,000 |
|
|
|
33,200 |
|
Additional paid-in capital
|
|
|
5,903,694 |
|
|
|
5,339,451 |
|
Common stock payable
|
|
|
455,000 |
|
|
|
165,000 |
|
Deficit accumulated during the development stage
|
|
|
(6,666,863 |
) |
|
|
(5,886,290 |
) |
|
|
|
|
|
|
|
|
|
Total stockholders' (deficit)
|
|
|
(271,169 |
) |
|
|
(348,639 |
) |
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' (deficit)
|
|
$ |
232,639 |
|
|
$ |
58,620 |
|
See accompanying notes to financial statements
TRANS-PACIFIC AEROSPACE COMPANY, INC.
(A Development Stage Company)
Statements of Operations
(Unaudited)
|
|
|
|
|
|
|
|
For the Period
|
|
|
|
|
|
|
|
|
|
of Inception,
|
|
|
|
For the
|
|
|
from June 5,
|
|
|
|
Three Months Ended
|
|
|
2007, through
|
|
|
|
January 31,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
Professional fees
|
|
$ |
91,584 |
|
|
$ |
13,061 |
|
|
$ |
194,187 |
|
Consulting
|
|
|
2,500 |
|
|
|
30,000 |
|
|
|
230,000 |
|
Other general and administrative
|
|
|
603,397 |
|
|
|
221,290 |
|
|
|
3,176,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
697,481 |
|
|
|
264,351 |
|
|
|
3,600,887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss from continuing operations
|
|
|
(697,481 |
) |
|
|
(264,351 |
) |
|
|
(3,600,887 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill
|
|
|
- |
|
|
|
- |
|
|
|
(2,469,404 |
) |
Loss on induced debt conversion
|
|
|
(55,000 |
) |
|
|
- |
|
|
|
(55,000 |
) |
Interest expense, net
|
|
|
(28,092 |
) |
|
|
(20,000 |
) |
|
|
(328,378 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
$ |
(780,573 |
) |
|
$ |
(284,351 |
) |
|
$ |
(6,453,669 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) from discontinued operations
|
|
|
- |
|
|
|
- |
|
|
|
(213,194 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from operations
|
|
$ |
(780,573 |
) |
|
$ |
(284,351 |
) |
|
$ |
(6,666,863 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and dilutive net loss from operations per share
|
|
$ |
(0.02 |
) |
|
$ |
(0.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding, basic and diluted
|
|
|
35,833,982 |
|
|
|
11,290,404 |
|
|
|
|
|
See accompanying notes to financial statements
TRANS-PACIFIC AEROSPACE COMPANY, INC.
(A Development Stage Company)
Statement of Stockholders' Equity (Deficit)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
during the
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Common Stock
|
|
|
Development
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Payable
|
|
|
Stage
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception, June 5, 2007
|
|
|
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for cash
|
|
|
13,140,000 |
|
|
|
13,140 |
|
|
|
253,161 |
|
|
|
- |
|
|
|
- |
|
|
|
266,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for oil and gas working interest
|
|
|
2,700,000 |
|
|
|
2,700 |
|
|
|
87,300 |
|
|
|
- |
|
|
|
- |
|
|
|
90,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations for the year ended October 31, 2007
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(13,363 |
) |
|
|
(13,363 |
) |
Balances, October 31, 2007
|
|
|
15,840,000 |
|
|
$ |
15,840 |
|
|
$ |
340,461 |
|
|
$ |
- |
|
|
$ |
(13,363 |
) |
|
$ |
342,938 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations for the year ended October 31, 2008
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(47,897 |
) |
|
|
(47,897 |
) |
Balances, October 31, 2008
|
|
|
15,840,000 |
|
|
$ |
15,840 |
|
|
$ |
340,461 |
|
|
$ |
- |
|
|
$ |
(61,260 |
) |
|
$ |
295,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement of common shares
|
|
|
(5,250,000 |
) |
|
|
(5,250 |
) |
|
|
5,250 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for services
|
|
|
550,000 |
|
|
|
550 |
|
|
|
378,950 |
|
|
|
- |
|
|
|
- |
|
|
|
379,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for cash
|
|
|
52,083 |
|
|
|
52 |
|
|
|
24,930 |
|
|
|
- |
|
|
|
- |
|
|
|
24,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations for the year ended October 31, 2009
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(606,809 |
) |
|
|
(606,809 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from discontinued operations for the year ended October 31, 2009
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(283,137 |
) |
|
|
(283,137 |
) |
Balances, October 31, 2009
|
|
|
11,192,083 |
|
|
$ |
11,192 |
|
|
$ |
749,591 |
|
|
$ |
- |
|
|
$ |
(951,206 |
) |
|
$ |
(190,423 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for cash
|
|
|
3,091,700 |
|
|
|
3,092 |
|
|
|
226,890 |
|
|
|
- |
|
|
|
- |
|
|
|
229,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for Board of Directors services
|
|
|
600,000 |
|
|
|
600 |
|
|
|
126,900 |
|
|
|
- |
|
|
|
- |
|
|
|
127,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for payment on outstanding wages
|
|
|
2,141,514 |
|
|
|
2,142 |
|
|
|
527,546 |
|
|
|
- |
|
|
|
- |
|
|
|
529,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for payment on outstanding liabilities
|
|
|
558,340 |
|
|
|
558 |
|
|
|
113,389 |
|
|
|
- |
|
|
|
- |
|
|
|
113,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for services
|
|
|
3,250,000 |
|
|
|
3,250 |
|
|
|
803,871 |
|
|
|
- |
|
|
|
- |
|
|
|
807,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for acquisition of aerospace assets
|
|
|
8,000,000 |
|
|
|
8,000 |
|
|
|
1,984,000 |
|
|
|
- |
|
|
|
- |
|
|
|
1,992,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial conversion feature of convertible note payable
|
|
|
- |
|
|
|
- |
|
|
|
216,455 |
|
|
|
- |
|
|
|
- |
|
|
|
216,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for acquisition of tooling asset
|
|
|
328,000 |
|
|
|
328 |
|
|
|
104,632 |
|
|
|
- |
|
|
|
- |
|
|
|
104,960 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for conversion of notes payable
|
|
|
2,200,000 |
|
|
|
2,200 |
|
|
|
125,400 |
|
|
|
- |
|
|
|
- |
|
|
|
127,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued in connection with settlement agreement
|
|
|
1,838,649 |
|
|
|
1,839 |
|
|
|
292,346 |
|
|
|
- |
|
|
|
- |
|
|
|
294,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed capital, from Godfrey
|
|
|
- |
|
|
|
- |
|
|
|
50,380 |
|
|
|
|
|
|
|
|
|
|
|
50,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of stock options
|
|
|
- |
|
|
|
- |
|
|
|
18,051 |
|
|
|
- |
|
|
|
- |
|
|
|
18,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock payable for services
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
165,000 |
|
|
|
- |
|
|
|
165,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations for the year ended October 31, 2010
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(4,935,084 |
) |
|
|
(4,935,084 |
) |
Balances, October 31, 2010
|
|
|
33,200,286 |
|
|
$ |
33,200 |
|
|
$ |
5,339,451 |
|
|
$ |
165,000 |
|
|
$ |
(5,886,290 |
) |
|
$ |
(348,639 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for Board of Directors services
|
|
|
2,500,000 |
|
|
|
2,500 |
|
|
|
422,500 |
|
|
|
- |
|
|
|
- |
|
|
|
425,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for services
|
|
|
200,000 |
|
|
|
200 |
|
|
|
33,800 |
|
|
|
- |
|
|
|
- |
|
|
|
34,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for conversion of notes payable
|
|
|
1,100,000 |
|
|
|
1,100 |
|
|
|
30,800 |
|
|
|
- |
|
|
|
- |
|
|
|
31,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid in capital from induced debt conversion
|
|
|
- |
|
|
|
- |
|
|
|
55,000 |
|
|
|
- |
|
|
|
- |
|
|
|
55,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of stock options
|
|
|
- |
|
|
|
- |
|
|
|
22,143 |
|
|
|
- |
|
|
|
- |
|
|
|
22,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock payable for cash received
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
233,000 |
|
|
|
- |
|
|
|
233,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock payable for compensation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
57,000 |
|
|
|
- |
|
|
|
57,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations for the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period ended January 31, 2011
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(780,573 |
) |
|
|
(780,573 |
) |
Balances, January 31, 2011
|
|
|
37,000,286 |
|
|
$ |
37,000 |
|
|
$ |
5,903,694 |
|
|
$ |
455,000 |
|
|
$ |
(6,666,863 |
) |
|
$ |
(271,169 |
) |
See accompanying notes to financial statements
TRANS-PACIFIC AEROSPACE COMPANY, INC.
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
For the Period
|
|
|
|
|
|
|
|
|
|
of Inception
|
|
|
|
Three Months Ended
|
|
|
from June 5,
|
|
|
|
January 31,
|
|
|
2007, through
|
|
|
|
2011
|
|
|
2010
|
|
|
January 31, 2011
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
$ |
(780,573 |
) |
|
$ |
(284,351 |
) |
|
$ |
(6,453,669 |
) |
Gain (loss) from discontinued operations
|
|
|
- |
|
|
|
- |
|
|
|
(213,194 |
) |
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
|
538,143 |
|
|
|
182,735 |
|
|
|
2,736,882 |
|
Amortization of debt discount
|
|
|
26,659 |
|
|
|
- |
|
|
|
204,162 |
|
Loss on induced debt conversion
|
|
|
55,000 |
|
|
|
- |
|
|
|
55,000 |
|
Gain on disposal of discontinued assets
|
|
|
- |
|
|
|
- |
|
|
|
(115,527 |
) |
Loss from impairment of goodwill
|
|
|
- |
|
|
|
- |
|
|
|
2,469,404 |
|
Depreciation expense
|
|
|
134 |
|
|
|
- |
|
|
|
17,634 |
|
Loss from settlment with common stock
|
|
|
- |
|
|
|
- |
|
|
|
22,460 |
|
Impairment of fixed assets
|
|
|
- |
|
|
|
- |
|
|
|
82,500 |
|
Impairment of oil & gas interests
|
|
|
- |
|
|
|
- |
|
|
|
190,000 |
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
(792 |
) |
|
|
- |
|
|
|
(792 |
) |
Due to Godfrey (China) Ltd
|
|
|
- |
|
|
|
- |
|
|
|
80,380 |
|
Accounts payable and accrued expenses
|
|
|
63,707 |
|
|
|
19,233 |
|
|
|
210,877 |
|
Accrued salary and payroll taxes
|
|
|
36,631 |
|
|
|
38,052 |
|
|
|
218,150 |
|
Accrued interest payable
|
|
|
1,452 |
|
|
|
20,000 |
|
|
|
121,697 |
|
Net cash used in operating activities
|
|
|
(59,640 |
) |
|
|
(24,331 |
) |
|
|
(374,037 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of equipment
|
|
|
- |
|
|
|
- |
|
|
|
82,500 |
|
Notes receivable
|
|
|
- |
|
|
|
(26,000 |
) |
|
|
(26,000 |
) |
Equipment
|
|
|
(3,610 |
) |
|
|
- |
|
|
|
(103,610 |
) |
Oil & gas working interest
|
|
|
- |
|
|
|
- |
|
|
|
(100,000 |
) |
Net cash used in investing activities
|
|
|
(3,610 |
) |
|
|
(26,000 |
) |
|
|
(147,110 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for cash and contributed capital
|
|
|
- |
|
|
|
52,982 |
|
|
|
516,517 |
|
Common stock payable, to be issued
|
|
|
233,000 |
|
|
|
- |
|
|
|
233,000 |
|
Net cash provided by financing activities
|
|
|
233,000 |
|
|
|
52,982 |
|
|
|
749,517 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
169,750 |
|
|
|
2,651 |
|
|
|
228,370 |
|
Cash, beginning of the period
|
|
|
58,620 |
|
|
|
7,417 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of the period
|
|
$ |
228,370 |
|
|
$ |
10,068 |
|
|
$ |
228,370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosure:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Taxes paid
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for payment on outstanding liabilities
|
|
$ |
- |
|
|
$ |
50,000 |
|
|
$ |
174,000 |
|
Common stock issued for payment on outstanding wages
|
|
$ |
- |
|
|
$ |
105,000 |
|
|
$ |
105,000 |
|
Common stock issued for conversion of notes payable
|
|
$ |
31,900 |
|
|
$ |
- |
|
|
$ |
159,500 |
|
Retirement of common shares
|
|
$ |
- |
|
|
$ |
5,250 |
|
|
$ |
5,250 |
|
Acquisition of oil and gas properties in exchange for note payable
|
|
$ |
- |
|
|
$ |
1,000,000 |
|
|
$ |
1,000,000 |
|
Acquisition of tooling assets
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
82,500 |
|
Acquisition of goodwill
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
2,469,404 |
|
Beneficial conversion feature of convertible note payable
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
216,455 |
|
See accompanying notes to financial statements
Trans-Pacific Aerospace Company, Inc.
(A Development Stage Company)
Notes to Unaudited Financial Statements
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, our Board of Directors decided to dispose of our oil and gas business interests and focus on the aircraft component market. On February 10, 2010, we completed the sale of all of our 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-K reflect the completion of this stock split.
Business Overview
The Company was in the business of acquiring and developing oil and gas properties until February 2010.
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 not commenced commercial manufacture or sales of our 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 $780,573 during the three months ended January 31, 2011, and an accumulated deficit of $6,666,863 since inception. 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.
In order to continue as a going concern, develop a reliable source of revenues, and achieve a profitable level of operations the Company will need, among other things, additional capital resources. 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 ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable 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").
On March 30, 2010, the Company acquired 25% of the outstanding share capital of Godfrey (China) Limited, a Hong Kong corporation (“Godfrey”), in exchange for the Company’s technology used for the design and production of SAE-AS81820, 81934 and 81935 self-lubricated spherical bearings, bushings and rod-end bearings. The Company legally owns 25% of Godfrey. The investment in Godfrey has been accounted for under the Equity Method whereby the investment in Godfrey is treated as an asset. The asset has been determined to be fully impaired with no value being shown on the balance sheet. Income and losses proportional to the Company’s investment in Godfrey respectively increase or decrease the carrying value
of the investment. Losses are only recognized to the extent of the company’s investment in Godfrey. When and if the carrying value becomes zero, losses become suspended and are recognized only when Godfrey realizes income. At January 31, 2011 there were suspended losses of $374,543. See Note 4 for further discussion.
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 Equivalents
Cash and equivalents include investments with initial maturities of three months or less. The Company maintains its cash balances at credit-worthy financial institutions that are insured by the Federal Deposit Insurance Corporation ("FDIC") up to $250,000. There were no cash equivalents at January 31, 2011 or October 31, 2010.
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 Accounting Standards Codification subtopic 360-10, Property, Plant and Equipment (“ASC 360-10”). 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. Testing done for the year ended October 31, 2010 determined that the above mentioned intangible asset with a cost of $2,469,404 was fully impaired.
Fair Value of Financial Instruments
The Company adopted FASB ASC 820-10 on October 1, 2008. Under FASB ASC 820-10-5, 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, 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:
|
|
|
|
|
Fair Value Measurements at
|
|
|
|
|
|
|
January 31, 2011
|
|
|
|
Carrying
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable
|
|
$ |
284,329 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
284,329 |
|
|
|
|
|
|
Fair Value Measurements at
|
|
|
|
|
|
|
October 31, 2011
|
|
|
|
Carrying
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable
|
|
$ |
289,570 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
289,570 |
|
Goodwill and the investment in Godfrey have been recorded as fully impaired, see Notes 3 and 4.
The Company believes that the market rate of interest as of January 31, 2011 and October 31, 2010 was not materially different to the rate of interest at which the debts were issued. Accordingly, the Company believes that the fair value of the debts approximated their carrying value at January 31, 2011 and October 31, 2010.
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.
No provision for income taxes has been recorded due to the net operating loss carry forwards totaling approximately $832,182 as of October 31, 2010 that will be offset against future taxable income. The available net operating loss carry forwards of approximately $832,182 will expire in various years through 2030. No tax benefit has been reported in the financial statements because the Company believes there is a 50% or greater chance the carry forwards will expire unused.
Equipment
Equipment is recorded at cost and depreciated using straight line methods over the estimated useful lives of the related assets. The Company reviews the carrying value of long-term assets to be held and used when events and circumstances warrant such a review. If the carrying value of a long-lived asset is considered impaired, a loss is recognized based on the amount by which the carrying value exceeds the fair market value. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. The cost of normal maintenance and repairs is charged to operations as incurred. Major overhaul that extends the useful life of existing assets is capitalized. When equipment is retired or
disposed, the costs and related accumulated depreciation are eliminated and the resulting profit or loss is recognized in income.
Issuance of Shares for Non-Cash Consideration
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 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
In December of 2004, the FASB issued a standard which applies to transactions in which an entity exchanges its equity instruments for goods or services and also applies to liabilities an entity may incur for goods or services that are based on the fair value of those equity instruments. For any unvested portion of previously issued and outstanding awards, compensation expense is required to be recorded based on the previously disclosed methodology and amounts. Prior periods presented are not required to be restated. We adopted the standard as of inception and applied the standard using the modified prospective method. On September 16, 2010 the Company issued stock options to two members of their Board of Directors. The options have been accounted for at a fair value as
required by the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic718.
Beneficial Conversion Features
From time to time, the Company may issue convertible notes that may contain an imbedded beneficial conversion feature. A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation of a portion of the note proceeds to the fair value of the warrants, if related warrants have been granted. The intrinsic value of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid in capital. The debt discount is amortized to interest expense over the life of the note using the effective interest method.
Development-Stage Company
The Company is considered a development-stage company, with limited operating revenues during the periods presented, as defined by the FASB. The FASB requires companies to report their operations, shareholders deficit and cash flows since inception through the date that revenues are generated from management’s intended operations, among other things. Management has defined inception as June 5, 2007. Since inception, the Company has incurred losses of $6,666,863. The Company’s working capital has been primarily generated through the sales of common stock as well as revenue from its wells. Management has provided financial data since June 5, 2007, “Inception”, in the financial statements.
Net Loss Per Share
The Company adopted the standard issued by the FASB, which requires presentation of basic earnings or loss per share and diluted earnings or loss per share. Basic income (loss) per share (“Basic EPS”) is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share (“Diluted EPS”) is similarly calculated using the treasury stock method except that the denominator is increased to reflect the potential dilution that would occur if dilutive securities at the end of the applicable period were exercised. There were 6,000,000 Series A Warrants, 6,000,000 Series B Warrants and options for 4,000,000 shares outstanding as of January 31, 2011 that are not included
in the calculation of Diluted EPS as their impact would be anti-dilutive.
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For the
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Three Months Ended
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January 31,
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|
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2011
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|
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2010
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|
|
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Net loss from operations
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$ |
(780,573 |
) |
|
$ |
(284,351 |
) |
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Basic and dilutive net loss from operations per share
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$ |
(0.02 |
) |
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$ |
(0.03 |
) |
Weighted average number of common shares outstanding, basic and diluted
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35,833,982 |
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11,290,404 |
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The weighted average number of shares included in the calculation above are post-split.
Recently Adopted and Recently Enacted Accounting Pronouncements
There were no recently adopted and enacted accounting pronouncements that became effective in the current reporting period that would have an impact on these financial statements.
NOTE 3 – ACQUISITION OF INTANGIBLE ASSETS
On February 1, 2010, the Company completed its 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 in exchange for:
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·
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8,000,000 shares of the Company’s common stock.
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·
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A Series A common stock purchase warrant to purchase 4,000,000 shares of the Company’s common stock at an exercise price of $0.50 per share. The Series A warrant becomes exercisable on the date that the Company recognizes revenue equal to or exceeding $50,000,000 for any consecutive twelve-month period and expires on January 31, 2015.
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·
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A Series B common stock purchase warrant to purchase 4,000,000 shares of the Company’s common stock at an exercise price of $1.00 per share. The Series B warrant becomes exercisable on the date that the Company recognizes revenue equal to or exceeding $100,000,000 for any consecutive twelve-month period and expires on January 31, 2018.
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·
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The assumption by the Company of $260,000 of obligations under a convertible note. The convertible note assumed by the Company does not bear interest and becomes 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. Debt discount expense totaled $9,394 for the year ended October 31, 2010. See Note 8 for further discussion.
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·
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The assumption by the Company of $200,000 of obligations under a note payable plus $11,737 of accrued interest. The holder of the note payable is the mother-in-law of William McKay, the Chairman of the Company’s Board of Directors and Chief Executive Officer. See Note 6 and 8 for further discussion.
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·
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Cancellation of $26,000 of HAC's secured promissory notes due to the Company.
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The Company acquired intangible intellectual property including blueprints, formulas, designs and processes for manufacturing and production of self-lubricated spherical bearings, bushings and rod-end bearings. The transaction was deemed to be a business combination pursuant to the FASB standards.
The following table summarizes the entry recording the intangible assets acquired:
Intangible assets - goodwill
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$ |
2,469,404 |
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Debt discount on convertible note
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20,333 |
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Common stock
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(8,000 |
) |
Additional paid in capital
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(1,984,000 |
) |
Convertible note payable
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|
(260,000 |
) |
Note payable – related party
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(200,000 |
) |
Accrued interest on note payable
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(11,737 |
) |
Cancellation of HAC note receivable
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(26,000 |
) |
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$ |
- |
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These intangible assets (goodwill) are deemed to be indefinite-lived and accordingly are not amortized. The Company does perform an annual review for impairment. At October 31, 2010 a valuation of the purchase price was performed by an independent valuation expert who determined that the intangible assets were fully impaired. Accordingly, an allowance for impairment for the full cost of the property was established at October 31, 2010.
As there were no operations for Godfrey and the fact that Godfrey is being accounted for as an equity investment, no proforma presentation is necessary because there was no impact on the previously issued financial statements.
NOTE 4 – ACQUISITION OF INTEREST IN GODFREY (CHINA) LIMITED
On March 30, 2010, the Company acquired 25% of the outstanding share capital of Godfrey (China) Limited, a Hong Kong corporation (“Godfrey”), in exchange for the Company’s technology used for the design and production of SAE-AS81820, 81934 and 81935 self-lubricated spherical bearings, bushings and rod-end bearings. The Company legally owns 25% of Godfrey. The formation and acquisition of the interest in Godfrey is intended to assist the Company in its focus on the Chinese bearings market. In September 2010, Godfrey opened a production facility in Guangzhou, China. The Company received its 25% interest in Godfrey for a 50% interest in the intellectual property assets acquired on February 1, 2010 (as discussed in Note
3). Since the investment in Godfrey is an active investment, it has been accounted for under the “equity method”. Since the independent valuation determined that the purchase price allocation attributed no value to the intangible assets, there was no dollar investment in Godfrey by the Company and therefore no charge to the investment being impaired. At January 31, 2011 there were suspended losses of $374,543.
NOTE 5 - RELATED PARTY TRANSACTIONS
As part of the acquisition of Harbin Aerospace Company (HAC), the Company assumed $200,000 of obligations under a note payable plus $11,737 of accrued interest. The holder of the note payable (Theodora Kobal) is the mother-in-law of William McKay, the Chairman of the Company’s Board of Directors and Chief Executive Officer. On June 4, 2010, the Company entered into an amended and restated convertible promissory note with Theodora Kobal which amended and restated in its entirety the Promissory Note in the original principal amount of $200,000 issued by HAC to Theodora Kobal on March 16, 2009, and assumed by the Company on February 1, 2010 in connection with its acquisition of the assets of HAC. The amended and restated note has a principal amount of $216,455 which included all
outstanding interest due on the note. The amended and restated note includes a fixed conversion price of $0.058 per share, 7% interest rate per annum and is due and payable on June 3, 2011. In June 2010, the Company issued 2,200,000 shares of common stock to the note holder valued at $.058 per the agreement reducing its principal obligation by $127,600 pursuant to conversion requests. The Company has evaluated the conversion feature of the notes and determined that there was a $216,455 beneficial conversion feature on them as the fixed conversion price of $0.058 was less than the fair value of the common stock at the time of issuance. The beneficial conversion feature was recorded as a debt discount on the accompanying balance sheet. The amortization of the debt discount totaled $ 22,214 and $177,503 for the three months ended January 31, 2011 and year ended October 31, 2010. On November 22, 2010 the note was further amended, reducing the
fixed conversion price to $.029 per share. On January 12, 2011, the Company issued 1,100,000 shares of common stock to the note holder valued at $.029 per the agreement reducing the principal obligation by $31,900 pursuant to conversion requests. Due to the reduction in conversion price at a rate below fair market value, this has been determined to be an induced conversion of debt under FAS84, resulting in $55,000 of expense and corresponding paid in capital.
NOTE 6 - NOTES RECEIVABLE
In December 2009 and January 2010, the Company advanced a total of $26,000 to HAC in exchange for HAC's secured promissory notes. Upon completion of the Company's acquisition of HAC, the notes were cancelled. See Note 3- Acquisition of Intangible Assets.
NOTE 7 – 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 becomes 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. Debt discount expense totaled $4,445 for the three months ended January 31, 2011 and $12,880 for the year ended October 31, 2010. The Company performed an evaluation and determined that the anti-dilution clause did not require derivative treatment.
As part of the acquisition of HAC, the Company assumed $200,000 of obligations under a note payable plus $11,737 of accrued interest. The holder of the note payable (Theodora Kobal) is the mother-in-law of William McKay, the Chairman of the Company’s Board of Directors and Chief Executive Officer. The note bears interest at 7% per annum and principal and interest are due and payable on March 31, 2011. On June 4, 2010, the Company entered into an amended and restated convertible promissory note with Theodora Kobal which amended and restated in its entirety the Promissory Note in the original principal amount of $200,000 issued by HAC to Theodora Kobal on March 16, 2009, and assumed by the Company on February 1, 2010 in connection with its acquisition of the assets of HAC. The
amended and restated note had a principal amount of $216,455 which included all outstanding interest due on the note. The amended and restated note included a fixed conversion price of $0.058 per share, 7% interest rate per annum and is due and payable on June 3, 2011. The Company has evaluated the conversion feature of the notes and determined that there was a $216,455 beneficial conversion feature on certain notes as the fixed conversion price of $0.058 was less than the fair value of the common stock at the time of issuance. The beneficial conversion feature was recorded as a debt discount on the accompanying balance sheet. On November 22, 2010 the note was amended which resulted in the reduction of the conversion price from $0.058 to $0.029 per share and a corresponding loss of $55,000 on induced debt conversion was recorded. During the three months ended January 31, 2011 and year ended October 31, 2010, debt discount
expense totaled $22,214 and $177,503 respectively.
In June 2010, the Company issued 2,200,000 shares of common stock at $.058 per share to the note holder reducing its principal obligation by $127,600 pursuant to conversion requests. This note was originally part of the acquisition of Harbin Aerospace Company (HAC), whereby the Company assumed $200,000 of obligations under a note payable plus $11,737 of accrued interest. The holder of the note payable (Theodora Kobal) is the mother-in-law of William McKay, the Chairman of the Company’s Board of Directors and Chief Executive Officer. On June 4, 2010, the Company entered into an amended and restated convertible promissory note with Theodora Kobal which amended and restated in its entirety the Promissory Note in the original principal amount of $200,000 issued by HAC to Theodora
Kobal on March 16, 2009, and assumed by the Company on February 1, 2010 in connection with its acquisition of the assets of HAC. The amended and restated note has a principal amount of $216,455 which included all outstanding interest due on the note. The amended and restated note includes a fixed conversion price of $0.058 per share, 7% interest rate per annum and is due and payable on June 3, 2011. On November 22, 2010 the note was further amended, reducing the fixed conversion price to $.029 per share. On January 12, 2011, the Company issued 1,100,000 shares of common stock to the note holder valued at $.029 per the agreement reducing its principal obligation by $31,900 pursuant to conversion requests.
NOTE 8 - 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. See Note 5 for further discussion.
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 initial term of the Employment Agreement expired on January 31, 2011 and automatically renewed for additional one-year term.
Legal
There were no legal proceedings against the Company with respect to matters arising in the ordinary course of business.
Lease
In October 2010 the Company entered into a lease of its administrative, offices. The lease expires November 30, 2011 and calls for monthly rental payments of $792.
Minimum annual rentals for the above lease are as follows:
2011 and thereafter
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|
$ |
10,296 |
|
NOTE 9 – CAPITAL STOCK TRANSACTIONS
The Company is authorized to issue up to 150,000,000 shares of its $0.001 common stock. At January 31, 2011 and October 31, 2010, there were 37,000,286 and 33,200,286 shares issued and outstanding.
In connection with their agreement to serve on the Board, on September 16, 2010 the Company granted 2,000,000 stock options each to two members of the Board of Directors to purchase shares at the closing price as of September 16, 2010 of $0.15 per share. The options vest in three equal amounts on each of the next three anniversary dates of this agreement, beginning September 16, 2011 and are exercisable until September 16, 2016. No additional options were granted, cancelled, exercised, or expired during the three months ended January 31, 2011. Using the Black-Scholes Pricing Model, for the year ended October 31, 2010, $18,051 was amortized as stock based compensation, and for the three months ended January 31, 2011 an additional $22,143 was amortized. The total
estimated value using the Black-Scholes Model, based on a volitiltiy rate of 212% and a call option value of $0.1083, was $433,228.
As of October 31, 2010, the Company recorded a common stock payable of $165,000 for 1,200,000 common shares issuable to Equiti-Trend for services. The shares were valued based on the closing stock price on the date of the restricted stock grant. The agreement with Equiti-Trend has been cancelled by the Company.
On November 10, 2010, the Company issued 2,500,000 common shares to the Company’s Board of Directors for services. The shares were valued at $425,000 based on the closing stock price on the date of the restricted stock grant.
On November 10, 2010, the Company issued 200,000 shares of common stock in lieu of payment for services. The shares were valued at $38,000 based on the closing price on the date a service agreement was entered into.
On January 12, 2011, the Company issued 1,100,000 shares of common stock to a note holder valued at $.029 per share or $31,900 used to reduce the note pursuant to an amended note dated November 22, 2010. See footnotes 5 and 7 for further discussion.
As of January 31, 2011 the Company recorded a common stock payable of $165,000 for 1,200,000 common shares issuable to Equiti-Trend for services. The shares were valued based on the closing stock price on the date of the restricted stock grant. The agreement with Equiti-Trend (see above) has been cancelled by the Company.
As of January 31, 2011, the Company recorded a common stock payable of $57,000 for the 300,000 common shares issuable to Mr. McKay pursuant to his employment agreement. The shares were valued based on the closing stock price on the date of the restricted stock grant.
As of January 31, 2011, the Company recorded a common stock payable of $233,000 for the 4,660,000 common shares issuable to accredited investors. The shares were sold at a purchase price of $.05 per share.
NOTE 10 – SUBSEQUENT EVENTS
The company did not have any other subsequent events through March 14, 2011 which is the date the financial statements were issued, that required recording or disclosure in the financial statements for the three months ended January 31, 2011.