UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2016
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission File No.: 000-55581
TRANS-PACIFIC AEROSPACE COMPANY, INC.
(Exact name of registrant as specified in its charter)
Nevada | 36-4613360 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
2975 Huntington Drive, Suite 107
San Marino, CA 91108
(Address of principal executive offices)
Issuer’s telephone number: (626) 796-7804
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes X No ___
Indicate by check mark whether the registrant is a large accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company) Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X
As of September 7, 2016, 3,920,880,936 shares of our common stock were outstanding.
TRANS-PACIFIC AEROSPACE COMPANY, INC.
FORM 10-Q
July 31, 2016
TABLE OF CONTENTS
Page | ||||
PART I-- FINANCIAL INFORMATION | ||||
Item 1. | Financial Statements | F-1 | ||
Unaudited Condensed Consolidated Balance Sheets as of July 31, 2016 and October 31, 2015 | F-1 | |||
Unaudited Condensed Consolidated Statements of Operations for three and nine months ended July 31, 2016 and 2015 | F-2 | |||
Unaudited Consolidated Statement of Stockholders’ Equity (Deficit) for the nine months ended July 31, 2016 | F-3 | |||
Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended July 31, 2016 and 2015 | F-4 | |||
Notes to the Unaudited Condensed Consolidated Financial Statements | F-5 | |||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 1 | ||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 3 | ||
Item 4 | Control and Procedures | 3 | ||
PART II-- OTHER INFORMATION | ||||
Item 1 | Legal Proceedings | 4 | ||
Item 1A | Risk Factors | 4 | ||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 4 | ||
Item 3. | Defaults Upon Senior Securities | 5 | ||
Item 4. | Mine Safety Disclosures | 5 | ||
Item 5. | Other Information | 5 | ||
Item 6. | Exhibits | 5 | ||
SIGNATURES | 6 |
i |
PART I-- FINANCIAL INFORMATION
ITEM 1 –FINANCIAL STATEMENTS
TRANS-PACIFIC AEROSPACE COMPANY, INC.
Consolidated Balance Sheets
July 31 | October 31, | |||||||
2016 | 2015 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash | $ | 6,551 | $ | 6,833 | ||||
Accounts receivable | 109,140 | – | ||||||
Prepaid expenses | – | 1,584 | ||||||
Total current assets | 115,691 | 8,417 | ||||||
Non-Current assets | ||||||||
Office equipment, net of accumulated depreciation of $5,605 and $4,702, respectively | 2,801 | 3,704 | ||||||
Security deposit | 1,584 | 1,584 | ||||||
Total non-current assets | 4,385 | 5,288 | ||||||
Total assets | $ | 120,076 | $ | 13,705 | ||||
LIABILITIES AND STOCKHOLDERS' (DEFICIT) | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued expenses | $ | 210,022 | $ | 60,021 | ||||
Income taxes payable | 1,951 | 1,951 | ||||||
Accrued salary and payroll taxes | 20,433 | 20,433 | ||||||
Accrued interest payable | – | 500 | ||||||
Other payables - related parties | 264,773 | 58,975 | ||||||
Convertible note payable, net of discount | – | 8,333 | ||||||
Convertible note payable, currently in default | 260,000 | 260,000 | ||||||
Derivative liabilities - conversion option | – | – | ||||||
Total current liabilities | 757,179 | 410,213 | ||||||
Total liabilities | 757,179 | 410,213 | ||||||
Stockholders' (deficit) | ||||||||
Preferred stock, par value $0.001, 5,000,000 shares authorized 4,007 and 2,945 shares issued and outstanding at July 31, 2016 and October 31, 2015, respectively | 4 | 3 | ||||||
Common stock, par value $0.001, 4,500,000,000 shares authorized 3,574,620,085 and 3,829,346,478 shares issued and outstanding at July 31, 2016 and October 31, 2015, respectively | 3,574,620 | 3,829,346 | ||||||
Additional paid-in capital | 19,624,742 | 17,142,748 | ||||||
Preferred stock to be issued | 236,000 | – | ||||||
Common stock to be issued | 64,093 | 86,093 | ||||||
Accumulated Deficit | (23,402,037 | ) | (20,814,980 | ) | ||||
Total Trans-Pacific Aerospace Company Inc. stockholders' equity | 97,422 | 243,210 | ||||||
Non-controlling interest in subsidiary | (734,525 | ) | (639,718 | ) | ||||
Total stockholders' (deficit) | (637,103 | ) | (396,508 | ) | ||||
Total liabilities and stockholders' (deficit) | $ | 120,076 | $ | 13,705 |
See accompanying notes to consolidated financial statements
F-1 |
TRANS-PACIFIC AEROSPACE COMPANY, INC.
Unaudited Consolidated Statements of Operations
For the Three Months Ended July 31, | For the Nine Months Ended July 31, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Sales | $ | – | $ | – | $ | 109,140 | $ | – | ||||||||
Cost of sales | – | – | – | – | ||||||||||||
Gross profit | – | – | 109,140 | – | ||||||||||||
Operating expenses | ||||||||||||||||
Professional fees | 7,220 | 24,385 | 30,335 | 100,895 | ||||||||||||
Consulting | 269,400 | 74,500 | 2,337,000 | 173,500 | ||||||||||||
Other general and administrative | 163,449 | 1,263,227 | 339,946 | 3,913,521 | ||||||||||||
Total operating expenses | 440,069 | 1,362,112 | 2,707,281 | 4,187,916 | ||||||||||||
Operating loss from continuing operations | (440,069 | ) | (1,362,112 | ) | (2,598,141 | ) | (4,187,916 | ) | ||||||||
Interest expense, net | (6,270 | ) | (138,704 | ) | (83,723 | ) | (333,460 | ) | ||||||||
Change in fair value of derivative liabilities | – | (6,476 | ) | – | 424,822 | |||||||||||
Derivative expenses | – | – | – | (486,359 | ) | |||||||||||
Net loss from continuing operations | $ | (446,339 | ) | $ | (1,507,292 | ) | $ | (2,681,864 | ) | $ | (4,582,913 | ) | ||||
Discontinued operations | ||||||||||||||||
Net gain (loss) from discontinued operations | – | – | – | – | ||||||||||||
Loss before income taxes | (446,339 | ) | (1,507,292 | ) | (2,681,864 | ) | (4,582,913 | ) | ||||||||
Income taxes | – | – | – | – | ||||||||||||
Net Loss | $ | (446,339 | ) | $ | (1,507,292 | ) | $ | (2,681,864 | ) | $ | (4,582,913 | ) | ||||
Less: Loss attributable to non-controlling interest | $ | (41,205 | ) | $ | (41,209 | ) | $ | (94,807 | ) | $ | (120,390 | ) | ||||
Net Loss attributable to the Company | $ | (405,134 | ) | $ | (1,466,083 | ) | $ | (2,587,057 | ) | $ | (4,462,523 | ) | ||||
Basic and dilutive net loss from operations per share | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||
Weighted average number of common shares outstanding, basic and diluted | 3,462,184,357 | 3,274,015,518 | 3,356,733,681 | 1,372,910,658 |
See accompanying notes to consolidated financial statements
F-2 |
TRANS-PACIFIC AEROSPACE COMPANY, INC.
Consolidated Statement of Stockholders' Equity (Deficit)
Preferred Stock | Common Stock | Additional Paid-In | Common Stock To Be | Preferred Stock To Be | Non Controlling | Accumulated | ||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Issued | Issued | Interest | Deficit | Total | |||||||||||||||||||||||||||||||
Balances, October 31, 2014 | – | $ | – | 179,447,431 | $ | 179,447 | $ | 15,461,785 | $ | 64,093 | $ | (489,407 | ) | $ | (16,064,350 | ) | $ | (848,432 | ) | |||||||||||||||||||||
Common stock converted to preferred stock | 767 | 1 | (759,817,144 | ) | (759,817 | ) | 759,817 | 1 | ||||||||||||||||||||||||||||||||
Preferred stock issued for services & compensation | 1,203 | 1 | 644,999 | – | 645,000 | |||||||||||||||||||||||||||||||||||
Common stock issued for cash | 228,000,000 | 228,000 | (18,000 | ) | – | 210,000 | ||||||||||||||||||||||||||||||||||
Preferred stock issued for cash | 250 | – | 300,000 | 22,000 | 322,000 | |||||||||||||||||||||||||||||||||||
Stocks issued in lieu of finders fees | 725 | 1 | 57,019,761 | 57,020 | (57,021 | ) | – | |||||||||||||||||||||||||||||||||
Common stock issued for services & compensation | 387,000,000 | 387,000 | 38,000 | 425,000 | ||||||||||||||||||||||||||||||||||||
Common stock issued upon conversion of notes payable | 3,737,696,430 | 3,737,696 | (3,355,618 | ) | 382,078 | |||||||||||||||||||||||||||||||||||
Conversion of derivative liability to common stock | 540,586 | 540,586 | ||||||||||||||||||||||||||||||||||||||
Amortization of stock options | 2,760,000 | 2,760,000 | ||||||||||||||||||||||||||||||||||||||
Imputed interest | 18,200 | 18.200 | ||||||||||||||||||||||||||||||||||||||
Note discount | 50,000 | 50,000 | ||||||||||||||||||||||||||||||||||||||
Assignment of convertible notes to officer | – | – | ||||||||||||||||||||||||||||||||||||||
Loss on Minority interest | (150,311 | ) | (150,311 | ) | ||||||||||||||||||||||||||||||||||||
Net loss from continuing operations for the year ended October 31, 2015 | (4,750,630 | ) | (4,750,630 | ) | ||||||||||||||||||||||||||||||||||||
Balances, October 31, 2015 | 2,945 | $ | 3 | 3,829,346,478 | $ | 3,829,346 | $ | 17,142,748 | $ | 86,093 | $ | – | # | $ | (639,718 | ) | $ | (20,814,980 | ) | $ | (396,508 | ) | ||||||||||||||||||
Common stock converted to preferred stock | 694 | 1 | (692,943,784 | ) | (692,944 | ) | 692,943 | – | ||||||||||||||||||||||||||||||||
Preferred stock converted to common stock | (513 | ) | (1 | ) | 513,000,000 | 513,000 | (513,000 | ) | (1 | ) | ||||||||||||||||||||||||||||||
Preferred stock issued for services & compensation | 664 | 1 | 2,062,798 | 2,062,799 | ||||||||||||||||||||||||||||||||||||
Preferred stock issued for cash | 225 | – | 24,500 | (22,000 | ) | 236,000 | 238,500 | |||||||||||||||||||||||||||||||||
Common stock issued for services & compensation | 29,000,000 | 29,000 | 52,600 | 81,600 | ||||||||||||||||||||||||||||||||||||
Common stock issued upon conversion of other payables | 97,217,391 | 97,218 | (52,497 | ) | 44,721 | |||||||||||||||||||||||||||||||||||
Common stock retired | (201,000,000 | ) | (201,000 | ) | 201,000 | – | ||||||||||||||||||||||||||||||||||
Preferred stock retired | (8 | ) | – | – | – | |||||||||||||||||||||||||||||||||||
Imputed interest | 13,650 | 13,650 | ||||||||||||||||||||||||||||||||||||||
Loss on Minority interest | (94,807 | ) | (94,807 | ) | ||||||||||||||||||||||||||||||||||||
Net loss from continuing operations for the Nine months ended July 31, 2016 | (2,587,057 | ) | (2,587,057 | ) | ||||||||||||||||||||||||||||||||||||
Balances, July 31, 2016 (Unaudited) | 4,007 | $ | 4 | 3,574,620,085 | $ | 3,574,620 | $ | 19,624,742 | $ | 64,093 | $ | 236,000 | # | $ | (734,525 | ) | $ | (23,402,037 | ) | $ | (637,103 | ) |
See accompanying notes to consolidated financial statements
F-3 |
TRANS-PACIFIC AEROSPACE COMPANY, INC.
Unaudited Consolidated Statements of Cash Flows
For the Nine Months Ended July 31, | ||||||||
2016 | 2015 | |||||||
Cash flows from operating activities: | ||||||||
Net Loss | $ | (2,681,864 | ) | $ | (4,582,913 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Stock based compensation | 2,144,398 | 3,607,500 | ||||||
Amortization of debt discount | 41,667 | 289,976 | ||||||
Imputed interest expense | 13,650 | 13,650 | ||||||
Change in fair value of derivative liabilities | – | (424,822 | ) | |||||
Derivative expense | – | 486,359 | ||||||
Interest converted to common stock | 1,720 | 15,179 | ||||||
Interest paid by shareholder | 27,186 | – | ||||||
Depreciation expense | 903 | 903 | ||||||
Change in operating assets and liabilities: | ||||||||
Accounts receivable | (109,140 | ) | – | |||||
Prepaid and deferred expenses | 1,584 | (2,376 | ) | |||||
Accounts payable and accrued expenses | 150,001 | 2,236 | ||||||
Accrued interest payable | (500 | ) | (3,722 | ) | ||||
Net cash used in operating activities | (410,395 | ) | (598,030 | ) | ||||
Cash flows from financing activities: | ||||||||
Common stock issued for cash | – | 510,000 | ||||||
Preferred stock sold for cash | 238,500 | 22,000 | ||||||
Convertible note issued for cash | – | 160,500 | ||||||
Repayment of convertible notes | – | (48,000 | ) | |||||
Other payables - related parties | 171,613 | (725 | ) | |||||
Net cash provided by financing activities | 410,113 | 643,775 | ||||||
Net increase / decrease in cash | (282 | ) | 45,745 | |||||
Cash, beginning of the period | 6,833 | 50,089 | ||||||
Cash, end of the period | $ | 6,551 | $ | 95,834 | ||||
Supplemental cash flow disclosure: | ||||||||
Interest paid | $ | – | $ | – | ||||
Income taxes paid | $ | – | $ | – | ||||
Supplemental disclosure of non-cash transactions: | ||||||||
Common stock issued for payment on outstanding liabilities | $ | 44,720 | $ | 49,892 | ||||
Common stock issued for conversion of notes payable | $ | – | $ | 382,077 | ||||
Conversion of derivative liability to common stock | $ | – | $ | 511,339 | ||||
Retirement of common shares | $ | 201,000 | $ | – | ||||
Note and interest paid by shareholder | $ | 77,186 | $ | – | ||||
Derivative liabilities | $ | – | $ | 23,089 |
See accompanying notes to consolidated financial statements
F-4 |
Trans-Pacific Aerospace Company, Inc.
Notes to Unaudited Consolidated Financial Statements
July 31, 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 Financial Accounting Standards Board (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 $2,681,864 during the nine months ended July 31, 2016, and an accumulated deficit of $23,402,037 at July 31, 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.
F-5 |
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 July 31, 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.
F-6 |
Impairment of Long-Lived Assets
The Company has adopted 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.
F-7 |
The following tables provide a summary of the fair values of assets and liabilities:
Fair Value Measurements at | ||||||||||||||||
July 31, 2016 | ||||||||||||||||
Carrying Value July 31, 2016 | Level 1 | Level 2 | Level 3 | |||||||||||||
Liabilities: | ||||||||||||||||
Convertible notes payable – currently in default | $ | 260,000 | $ | – | $ | – | $ | 260,000 |
Fair Value Measurements at | ||||||||||||||||
October 31, 2015 | ||||||||||||||||
Carrying Value October 31, 2015 | Level 1 | Level 2 | Level 3 | |||||||||||||
Liabilities: | ||||||||||||||||
Convertible notes payable, net | $ | 8,333 | $ | – | $ | – | $ | 8,333 | ||||||||
Convertible notes payable – currently in default | $ | 260,000 | $ | – | $ | – | $ | 260,000 |
The Company believes that the market rate of interest as of July 31, 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 July 31, 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 July 31, 2016, the useful lives of the office equipment ranged from five years to seven years.
F-8 |
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, 4,007 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 July 31, 2016 that are not included in the calculation of Diluted EPS as their impact would be anti-dilutive.
For the Nine Months Ended July 31, | ||||||||
2016 | 2015 | |||||||
Net loss attributable to the Company | $ | (2,587,057 | ) | $ | (4,462,523 | ) | ||
Basic and diluted net loss from operations per share | $ | (0.00 | ) | $ | (0.00 | ) | ||
Weighted average number of common shares outstanding, basic and diluted | 3,356,733,681 | 1,372,910,658 |
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”).
F-9 |
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):
a. | 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) | |
b. | Management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations | |
c. | Management’s plans that alleviated 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, 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:
a. | Principal conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern | |
b. | Management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations | |
c. | 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. |
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.
F-10 |
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 July 31, 2016 and October 31, 2015, the Company had accounts receivable balance of $109,140 and $0, respectively.
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 grant such entity a license to market these products under the TPAC name. This agreement has a term of 10 years and be automatically renewable in annual periods unless terminated earlier. The Company shall be paid $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.
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 aerospace bearings in Australia, Southern Asia (except China), Asia and Africa. The Company will assist such entity with the manufacture of these products to service these markets. The Company agreed to grant such entity a license to market these products under the name of TPAC Australia. This agreement has a term of 1 year and be automatically renewable in annual periods unless terminated earlier. The Company shall be paid $1 million annually for time actually spent performing its duties under this Agreement. The Company agreed not to solicit any employee or consultant of the Australian entity for a period of 3 years following termination of the Agreement.
The Company will recognize the licensing income from these agreements upon receipt of payments.
NOTE 4 – PROPERTY AND EQUIPMENT
As of July 31, 2016 and October 31, 2015, the Company had office equipment of $2,801 and 3,704, net of accumulated depreciation of $5,605 and $4,702, respectively. For the nine months ended July 31, 2016 and 2015, the Company recorded depreciation expenses of $903 and $903, 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 July 31, 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 July 31, 2016 and October 31, 2015, respectively.
During the nine months ended July 31, 2016, the Company borrowed $171,525 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. In July 2016, $43,000 of the principal amount was converted to 97,217,391 shares of the Company’s common stock. As of July 31, 2016, the outstanding balance was $205,711.
As of July 31, 2016 and October 31, 2015, the total outstanding amount due to related parties was $264,773 and $58,975, respectively.
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 nine months ended July 31, 2016 and 2015, the Company recorded imputed interest of $13,650 and $13,650, respectively.
F-11 |
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, as amended (the “Securities Act”), 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 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 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.
F-12 |
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 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 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 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 nine months ended July 31, 2016 and 2015, the Company recorded derivative expense of $0 and $55,062, respectively. As of July 31, 2016 and October 31, 2015, the derivative liability was fully converted or paid off.
As of July 31, 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.
F-13 |
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 July 31, 2016, the shares had not been issued and the Company recorded accrued expense of $150,000.
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. The Company issued the shares in May and recorded $1,260,000 as consulting fee for nine months ended July 31, 2016.
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 July 31, 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 month 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.
F-14 |
During the nine months ended July 31, 2016, 692,943,784 shares of common stock were retired and converted to 694 shares of convertible preferred stock and 513 shares of preferred stock were converted to 513,000,000 shares of common stock. In addition, the Company issued 664 shares of convertible preferred stock to its employee and consultants for services rendered. These shares were value at $2,062,798 based on closing price of the underlying common stock if converted.
During the nine months ended July 31, 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.
During the nine months ended July 31, 2016, the Company sold 414 shares of its preferred stock for $238,500. As of July 31, 2016, 409 of these shares had not been issued and were recorded as preferred stock to be issued.
At July 31, 2016 and October 31, 2015, there were 4,007 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 July 31, 2016 and October 31, 2015, there were 3,574,620,085 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 nine months ended July 31, 2016, 692,943,784 shares of common stock were retired and converted to 694 shares of convertible preferred stock and 513 shares of preferred stock were converted to 513,000,000 shares of common stock. In addition, 201,000,000 shares owned by two shareholders were retired and cancelled.
In the Company’s quarterly report on Form 10-Q for the six months ended April 30, 2016 (the “April 2016 10-Q”) the Company reported that they issued a total of 194,000,000 shares of common stock upon conversion of 194 shares of preferred stock. In actuality, the Company issued an additional 279,000,000 shares of common stock upon conversion of 279 shares of preferred stock, for a total issuance of 473,000,000 shares of common stock upon conversion of 473 shares of preferred stock during the six months ended April 30, 2016. 279,000,000 shares of common stock issued during this six-month period following conversion of 279 shares of preferred stock were improperly allocated and disclosed as shares issued to consultants for services rendered, which disclosure has been updated as set forth below.
F-15 |
During the nine months ended July 31, 2016, the Company issued 29,000,000 shares of common stock for consulting services rendered. The shares were valued at $81,600 based on the closing stock prices on the dates of the stock grants. In the Company’s April 2016 10-Q, the Company erroneously reported that they issued 358,000,000 shares of common stock to consultants for services rendered during the six months ended April 30, 2016. As described above, 279,000,000 of these shares of common stock were actually issued upon conversion of 279 shares of preferred stock during the six months ended April 30, 2016 and were improperly allocated as shares issued to consultants for services rendered in the April 2016 10-Q. Further, 50,000,000 shares of common stock previously described in the April 2016 10-Q as shares issued to consultants for services rendered were erroneously issued and have subsequently been cancelled.
In July 2016, the Company issued 97,217,391 shares of common stock in consideration of cancellation of $43,000 of accrued and unpaid payables. The Company did not receive any cash proceeds upon these issuances.
These issuances were exempt pursuant to Section 4(a)(2) of the Securities Act.
Options and Warrants
A summary of option activity during the nine months ended July 31, 2016 and the year ended October 31, 2015 are presented below:
July 31, 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 | 8.52 | 140,666,667 | $ | 0.0146 | 9.27 |
A summary of warrant activity during the nine months ended July 31, 2016 and the year ended October 31, 2015 are presented below:
July 31, 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 | 4.64 | 4,000,000 | $ | 0.75 | 5.39 | ||||||||||||||||
Warrants exercisable at end of period | – | $ | – | – | – | $ | – | – |
F-16 |
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 August 2016, the Company issued 154,260,851 shares of common stock in consideration of cancellation of $41,560 of accrued and unpaid payables. The Company did not receive any cash proceeds upon these issuances. The issuances were exempt under Section 4(a)(2) of the Securities Act. |
2. | In August 2016, the Company issued 192,000,000 shares of common stock upon conversion of 192 shares of our convertible preferred stock. The issuances were exempt under Section 4(a)(2) of the Securities Act. |
3. | In August 2016, the Company issued 200 shares of our convertible preferred stock as compensation for services. The issuances were exempt under Section 4(a)(2) of the Securities Act. |
4. | In August 2016, the Company issued 406 shares of our convertible preferred stock sold during the period ended July 31, 2016. The issuances were exempt under Section 4(a)(2) of the Securities Act. |
5. | In September 2016, the Company entered into a consulting agreement with Woodward Global, Ltd. (“WG”), a Nevada corporation owned by Mr. Angus McKay, son of William R. McKay, the Company’s Chairman and CEO. Pursuant to the agreement, the Company will provide consulting services to WG for a period of twelve (12) months for a total consideration of $2,000,000. |
F-17 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
We intend for this discussion to provide the reader with information that will assist in understanding our financial statements, the changes in certain key items in those financial statements from year to year, and the primary factors that accounted for those changes, as well as how certain accounting principles affect our financial statements. This discussion should be read in conjunction with our financial statements and accompanying notes included elsewhere in this report.
Forward Looking Statements
This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Those forward-looking statements include our expectations, beliefs, intentions and strategies regarding the future. Such forward-looking statements relate to, among other things, Godfrey’s commencement of manufacturing operations; our distribution of Godfrey’s products; our working capital requirements; and the further approvals of regulatory authorities. There are several important factors that could cause our future results to differ materially from our forward-looking statement. Some of these important factors, but not necessarily all important factors, include our ability to acquire additional capital as and when needed; production and/or quality control problems; the denial, suspension or revocation of privileged operating licenses by regulatory authorities; overall industry environment; competitive pressures and general economic conditions; and those other risks discussed more fully in the “Risk Factors” section of in our annual report on Form 10-K for the year ended October 31, 2015 filed with the Securities and Exchange Commission on February 16, 2016. We caution readers not to place undue reliance on any forward-looking statements. We do not undertake, and specifically disclaim any obligation, to update or revise such statements to reflect new circumstances or unanticipated events as they occur, and we urge readers to review and consider disclosures we make in this and other reports that discuss factors germane to our business. See in particular our reports on Forms 10-K, 10-Q and 8-K subsequently filed from time to time with the Securities and Exchange Commission.
Overview
We are engaged in the business of designing, manufacturing and selling aerospace quality component parts for commercial and military aircraft, space vehicles, power plants and surface and undersea vessels. Our initial products will be self-lubricating spherical bearings for commercial aircraft. These bearings are integral to the operation of commercial aircraft and help with several flight-critical tasks, including aircraft flight controls and landing gear. As of the date of this report, we have not had significant commercial manufacture and sale of our products.
In the second quarter of 2013, we agreed to issue 4,800,000 shares of our common stock to three shareholders of our subsidiary, Godfrey (China) Limited (“Godfrey”), in exchange for their transfer to us of a total of 30% of the outstanding capital stock of Godfrey. One of the parties was Harbin Aerospace Company, LLC, our largest shareholder which is controlled by the wife of our chief executive officer, William R. McKay. Harbin transferred to us five percent of the capital stock of Godfrey in exchange for our issuance of 800,000 common shares. Upon the closing of the transactions, we increased our ownership of Godfrey from 25% to 55%.
We commenced our aircraft component business in February 1, 2010. To date, our operations have primarily focused on the development of our production facility in China and the design and engineering of our initial product line of spherical bearings. Naval Air Systems Command (“NAVAIR”) of the United States Navy has completed the qualification testing of our initial line of bearings. However, we expect that we will need to raise at least $1 million of capital, or to develop a strategic partnership, through which the partner will contribute working capital, in order to better develop international marketing and production.
In December 2015, we received our first purchase order for spherical bearings and such order was manufactured and delivered in March 2016. In addition, in May 2016, we entered into licensing and services agreements for the development and marketing of aerospace products in China, Australia, Asia and Africa.
Results of Operations
Three Months Ended July 31, 2016 and 2015
During the three months ended July 31, 2016, we incurred $440,069 of operating expenses compared to $1,362,112 during the three months ended July 31, 2015. Our operating expenses consist primarily of professional fees, consulting fees, and other general and administrative expenses. The decrease in operating expenses for the three months ended July 31, 2016 compared to the same period in fiscal 2015 was primarily attributable to our significant decrease in stock based compensation to directors and officers during the 2016 period which was offset by the increase in consulting expenses during the period. However, we expect our operating expenses will significantly increase at such time as we commence the distribution of our spherical bearings.
1 |
During the three months ended July 31, 2016 and 2015, we incurred a net loss from operations of $446,339 and $1,507,292, respectively. The decrease was primarily attributable to the significant decrease in our stock based compensation to directors and officers, interest expense, change in fair value of derivative liabilities and derivative expenses during the 2016 period, which was offset by the increase in consulting expenses during the 2016 period.
Our net loss was $446,339 and $1,507,292 for the three months ended July 31, 2016 and 2015, respectively. Our loss attributable to our non-controlling interest in our Godfrey subsidiary for the three months ended July 31, 2016 and 2015 was $41,205 and $41,209, respectively. Accordingly, the net loss attributable to us for the three months ended July 31, 2016 and 2015 was $405,134 and $1,466,083, respectively.
Nine Months Ended July 31, 2016 and 2015
We received the initial order for our spherical bearings in December 2015. We manufactured and delivered these bearings in March 2016. During the nine months ended July 31, 2016, we recognized sales revenue of $109,140 from the sale of our spherical bearings. Also we incurred $2,598,141 of operating expenses compared to $4,187,916 during the nine months ended July 31, 2015. Our operating expenses consist primarily of professional fees, consulting fees, and other general and administrative expenses. The decrease in operating expenses for the nine months ended July 31, 2016 compared to the same period in fiscal 2015 was primarily resulted from issuance of options for common stock to board of directors in 2015. We had no such issuance in the nine months ended July 31, 2016. However, we expect our operating expenses will significantly increase at such time as we commence the distribution of our spherical bearings.
During the nine months ended July 31, 2016 and 2015, we incurred a net loss from operations of $2,681,864 and $4,582,913, respectively. The decrease primarily resulted from issuance of common stock options to board of directors in 2015. We had no such issuance in the nine months ended July 31, 2016.
Our net loss was $2,681,864 and $4,582,913 for the nine months ended July 31, 2016 and 2015, respectively. Our loss attributable to our non-controlling interest in our Godfrey subsidiary for the nine months ended July 31, 2016 and 2015 was $94,807 and $120,390, respectively.
Accordingly, the net loss attributable to us for the nine months ended July 31, 2016 and 2015 was $2,587,057, and $4,462,523, respectively.
Financial Condition
Liquidity and Capital Resources
As of July 31, 2016, we had cash of $6,551 and a working capital deficit of $641,488. At October 31, 2015, we had cash of $6,833 and a working capital deficit of $401,796.
Since July 31, 2016, our working capital has decreased as a result of continuing losses from operations. We estimate that we require approximately $1 million of additional working capital over the next 12 months in order to fund our expected marketing and distribution of the initial line of aircraft component products to be manufactured at our Guangzhou facility and to fund our expected operating losses as we endeavor to build revenue and achieve a profitable level of operations. However, there are no commitments or understandings at this time with any third parties for their provision of capital to us.
We will endeavor to raise the additional required funds through various financing sources, including the sale of our equity and debt securities and, subject to our commencement of significant revenue producing operations, the procurement of commercial debt financing. However, there can be no guarantees that such funds will be available on commercially reasonable terms, if at all. If such financing is not available on satisfactory terms, we may be unable to expand or continue our business as desired and operating results may be adversely affected. In addition, any financing arrangement may have potentially adverse effects on us or our stockholders. Debt financing (if available and undertaken) will increase expenses, must be repaid regardless of operating results and may involve restrictions limiting our operating flexibility. If we issue equity securities to raise additional funds, the percentage ownership of our existing stockholders will be reduced and the new equity securities may have rights, preferences or privileges senior to those of the holders of our common stock.
The report of our independent registered public accounting firm for the fiscal year ended October 31, 2015 states that due to our losses from operations and lack of working capital there is substantial doubt about our ability to continue as a going concern.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, as defined in Item 303 of Regulation S-K.
2 |
ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this item.
ITEM 4 – CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act. The term “disclosure controls and procedures” refers to the controls and procedures of our company that are designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosures.
Based upon the above-described evaluation, our management, including our chief executive officer and chief financial officer, concluded that our disclosure controls and procedures were not effective as of July 31, 2016 due to certain material weakness in our internal control over financial reporting. An internal control material weakness is a significant deficiency, or aggregation of deficiencies, that does not reduce to a relatively low level the risk that material misstatements in financial statements will be prevented or detected on a timely basis by employees in the normal course of their work. Our management assessed the effectiveness of our internal control over financial reporting as of July 31, 2016, and this assessment identified the following material weaknesses in our internal control over financial reporting:
1. | Due to our small size, we do not maintain effective internal controls to assure segregation of duties as we have only one employee who is responsible for initiating and approving of transactions, thereby creating the segregation of duties weakness; |
2. | Our board of directors does not have an audit committee or a financial expert to maintain effective oversight of our financial reporting process; and |
3. | Lack of formal policies or procedures to provide assurance that relevant information is identified, captured, processed, and reported in an appropriate and timely fashion. |
Based on that evaluation, management concluded that our internal control over financial reporting was not effective as of July 31, 2016.
Changes in internal control over financial reporting
As of the end of the period covered by this report, there have been no changes in internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended July 31, 2016, that materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
3 |
PART II: OTHER INFORMATION
ITEM 1 – LEGAL PROCEEDINGS
None.
ITEM 1A – RISK FACTORS
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this item.
ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
1. | During the quarterly period ended July 31, 2016, we issued 40,000,000 shares of our common stock upon conversion of 40 shares of our preferred stock. During the nine months ended July 31, 2016, we issued 513,000,000 shares of our common stock upon conversion of 513 shares of our preferred stock. In our quarterly report on Form 10-Q for the six months ended April 30, 2016 (the “April 2016 10-Q”) we reported that we issued a total of 194,000,000 shares of our common stock upon conversion of 194 shares of our preferred stock. In actuality, we issued an additional 279,000,000 shares of our common stock upon conversion of 279 shares of our preferred stock, for a total issuance of 473,000,000 shares of our common stock upon conversion of 473 shares of our preferred stock during the six months ended April 30, 2016. 279,000,000 shares of our common stock issued during this six-month period following conversion of 279 shares of our preferred stock were improperly allocated and disclosed as shares issued to consultants for services rendered, which disclosure has been updated as set forth below. The issuances were exempt in reliance upon the exemption provided by Rule 3(a)(9) and/or Section 4(a)(2) of the Securities Act. |
2. | During the nine months ended July 31, 2016, we issued 29,000,000 shares of common stock to consultants in consideration of services rendered. The shares were valued at $81,600 based on the closing stock prices on the dates of the stock grants. In our April 2016 10-Q we erroneously reported that we issued 358,000,000 shares of our common stock to consultants for services rendered during the six months ended April 30, 2016. As described above, 279,000,000 of these shares of our common stock were actually issued upon conversion of 279 shares of our preferred stock during the six months ended April 30, 2016 and were improperly allocated as shares issued to consultants for services rendered in the April 2016 10-Q. Further, 50,000,000 shares of our common stock previously described in our April 2016 10-Q as shares issued to consultants for services rendered were erroneously issued and have subsequently been cancelled. The issuances were exempt pursuant to Section 4(a)(2) of the Securities Act. |
3. | During the quarterly period ended July 31, 2016, we sold 354 shares of our preferred stock in consideration of $191,500, the proceeds of which will be used for general corporate purposes. In August 2016, we issued 406 shares of our convertible preferred stock sold during the nine months ended July 31, 2016. 3 shares of our preferred stock that were sold during the nine months ended July 31, 2016 have not been issued and were recorded as preferred stock to be issued. The issuances were exempt pursuant to Section 4(a)(2) of the Securities Act. |
4. | During quarterly period ended July 31, 2016, we issued 340 shares of convertible preferred stock to our employees and consultants in consideration of services rendered. These shares were valued at $1,309,998 based on the closing prices of the underlying common stock. We did not receive any cash proceeds for these issuances. The issuances were exempt under Section 4(a)(2) of the Securities Act. |
5. | In July 2016, we issued 97,217,391 shares of our common stock in consideration of cancellation of $43,000 of accrued and unpaid payables. We did not receive any cash proceeds upon these issuances. The issuances were exempt pursuant to Section 4(a)(2) of the Securities Act. |
6. | In August 2016, we issued 154,260,851 shares of common stock in consideration of cancellation of $41,560 of accrued and unpaid payables. We did not receive any cash proceeds upon these issuances. The issuances were exempt under Section 4(a)(2) of the Securities Act. |
7. | In August 2016, we issued 192,000,000 shares of common stock upon conversion of 192 shares of our convertible preferred stock. The issuances were exempt under Section 4(a)(2) of the Securities Act. |
8. | In August 2016, we issued 200 shares of our convertible preferred stock as compensation for services. The issuances were exempt under Section 4(a)(2) of the Securities Act. |
4 |
ITEM 3 – DEFAULT UPON SENIOR SECURITIES
None.
ITEM 4 – MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5 – OTHER INFORMATION
On July 6, 2016, Kevin Gould resigned as secretary and as a director. Mr. Gould’s resignation was for personal reasons and was not because of any disagreements with Trans-Pacific Aerospace Company, Inc. on matters relating to its operations, policies and practices.
In September 2016, we entered into a consulting agreement (“Consulitng Agreement”) with Woodward Global, Ltd. (“WG”), a Nevada corporation owned by Mr. Angus McKay, son of William R. McKay, our Chairman and CEO. Pursuant to the Consulting Agreement, we will provide consulting services to WG for a period of twelve (12) months for a total consideration of $2,000,000.
ITEM 6 - EXHIBITS
Item No. |
Description | ||||
31.1 | Certification of Principal Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended. | ||||
32.1 | Certification of Principal Executive Officer and Principal Financial Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. §1350. | ||||
101.INS | XBRL Instance Document | ||||
101.SCH | XBRL Taxonomy Schema Linkbase Document | ||||
101.CAL | XBRL Taxonomy Calculation Linkbase Document | ||||
101.DEF | XBRL Taxonomy Definition Linkbase Document | ||||
101.LAB | XBRL Taxonomy Labels Linkbase Document | ||||
101.PRE | XBRL Taxonomy Presentation Linkbase Document | ||||
5 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
TRANS-PACIFIC AEROSPACE COMPANY, INC. (Registrant) | |||
Dated: | September 19, 2016 | By: | /s/ William Reed McKay |
William Reed McKay | |||
President, Chief Executive Officer, Chief Financial Officer and Director (Principal Executive and Financial and Accounting Officer) | |||
6 |
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, William Reed McKay, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Trans-Pacific Aerospace Company, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.
5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: September 19, 2016
/s/ William Reed McKay | |
William Reed McKay | |
President, Chief Executive Officer, Chief Financial Officer and Director (Principal Executive and Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, William Reed McKay, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Trans-Pacific Aerospace Company, Inc. on Form 10-Q for the period ended July 31, 2016 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Trans-Pacific Aerospace, Inc.
Date: September 19, 2016
By: | /s/ William Reed McKay | |
Name: | William Reed McKay | |
Title: | President, Chief Executive Officer, Chief Financial Officer and Director (Principal Executive and Financial and Accounting Officer) |
Document and Entity Information - shares |
9 Months Ended | |
---|---|---|
Jul. 31, 2016 |
Sep. 07, 2016 |
|
Document And Entity Information | ||
Entity Registrant Name | Trans-Pacific Aerospace Company, Inc. | |
Entity Central Index Key | 0001422295 | |
Document Type | 10-Q | |
Document Period End Date | Jul. 31, 2016 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --10-31 | |
Is Entity a Well-known Seasoned Issuer? | No | |
Is Entity a Voluntary Filer? | No | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 3,920,880,936 | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2016 |
Consolidated Balance Sheets (Parenthetical) - USD ($) |
Jul. 31, 2016 |
Oct. 31, 2015 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Accumulated depreciation | $ 5,605 | $ 4,702 |
Preferred stock, par value | $ 0.001 | $ 0.001 |
Preferred stock, shares authorized | 5,000,000 | 5,000,000 |
Preferred stock, shares issued | 4,007 | 2,945 |
Preferred stock, shares outstanding | 4,007 | 2,945 |
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 4,500,000,000 | 4,500,000,000 |
Common stock, shares issued | 3,574,620,085 | 3,829,346,478 |
Common stock, shares outstanding | 3,574,620,085 | 3,829,346,478 |
Unaudited Consolidated Statements of Operations - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Jul. 31, 2016 |
Jul. 31, 2015 |
Jul. 31, 2016 |
Jul. 31, 2015 |
|
Income Statement [Abstract] | ||||
Sales | $ 0 | $ 0 | $ 109,140 | $ 0 |
Cost of sales | 0 | 0 | 0 | 0 |
Gross profit | 0 | 0 | 109,140 | 0 |
Operating expenses | ||||
Professional fees | 7,220 | 24,385 | 30,335 | 100,895 |
Consulting | 269,400 | 74,500 | 2,337,000 | 173,500 |
Other general and administrative | 163,449 | 1,263,227 | 339,946 | 3,913,521 |
Total operating expenses | 440,069 | 1,362,112 | 2,707,281 | 4,187,916 |
Operating loss from continuing operations | (440,069) | (1,362,112) | (2,598,141) | (4,187,916) |
Interest expense, net | (6,270) | (138,704) | (83,723) | (333,460) |
Change in fair value of derivative liabilities | 0 | (6,476) | 0 | 424,822 |
Derivative expenses | 0 | 0 | 0 | (486,359) |
Net loss from continuing operations | (446,339) | (1,507,292) | (2,681,864) | (4,582,913) |
Discontinued operations | ||||
Net gain (loss) from discontinued operations | 0 | 0 | 0 | 0 |
Loss before income taxes | (446,339) | (1,507,292) | (2,681,864) | (4,582,913) |
Income taxes | 0 | 0 | 0 | 0 |
Net Loss | (446,339) | (1,507,292) | (2,681,864) | (4,582,913) |
Less: Loss attributable to non-controlling interest | (41,205) | (41,209) | (94,807) | (120,390) |
Net Loss attributable to the Company | $ (405,134) | $ (1,466,083) | $ (2,587,057) | $ (4,462,523) |
Basic and dilutive net loss from operations per share | $ 0.00 | $ 0.00 | $ 0.00 | $ 0.00 |
Weighted average number of common shares outstanding, basic and diluted | 3,462,184,357 | 3,274,015,518 | 3,356,733,681 | 1,372,910,658 |
1. BACKGROUND AND ORGANIZATION |
9 Months Ended |
---|---|
Jul. 31, 2015 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
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 Companys 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 Financial Accounting Standards Board (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 Companys 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 Companys 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 Companys 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 Companys 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 $2,681,864 during the nine months ended July 31, 2016, and an accumulated deficit of $23,402,037 at July 31, 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.
Managements 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. |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 Companys 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 Companys subsidiaries conform to US GAAP. Significant policies are discussed below. The Companys consolidated accounts include the Companys accounts and the accounts of the Companys 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 Companys 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 Companys 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 July 31, 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 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 Companys 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 Companys 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:
The Company believes that the market rate of interest as of July 31, 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 July 31, 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 authoritys 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 July 31, 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, 4,007 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 July 31, 2016 that are not included in the calculation of Diluted EPS as their impact would be anti-dilutive.
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 StatementsGoing Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern (ASU 2014-15).
In connection with preparing financial statements for each annual and interim reporting period, an entitys management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entitys 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). Managements 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 entitys 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 entitys 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 managements 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 entitys ability to continue as a going concern.
If conditions or events raise substantial doubt about an entitys ability to continue as a going concern, but the substantial doubt is alleviated as a result of consideration of managements 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):
If conditions or events raise substantial doubt about an entitys ability to continue as a going concern, and substantial doubt is not alleviated after consideration of managements plans, an entity should include a statement in the footnotes indicating that there is substantial doubt about the entitys 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:
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 Companys 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 Companys present or future consolidated financial statements. |
3. ACCOUNTS RECEIVABLE |
9 Months Ended |
---|---|
Jul. 31, 2016 | |
Receivables [Abstract] | |
Accounts Receivable |
All accounts receivable are due 90 days from the date billed based on the Companys collection policy and agreed by the customer. As of July 31, 2016 and October 31, 2015, the Company had accounts receivable balance of $109,140 and $0, respectively.
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 grant such entity a license to market these products under the TPAC name. This agreement has a term of 10 years and be automatically renewable in annual periods unless terminated earlier. The Company shall be paid $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.
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 aerospace bearings in Australia, Southern Asia (except China), Asia and Africa. The Company will assist such entity with the manufacture of these products to service these markets. The Company agreed to grant such entity a license to market these products under the name of TPAC Australia. This agreement has a term of 1 year and be automatically renewable in annual periods unless terminated earlier. The Company shall be paid $1 million annually for time actually spent performing its duties under this Agreement. The Company agreed not to solicit any employee or consultant of the Australian entity for a period of 3 years following termination of the Agreement.
The Company will recognize the licensing income from these agreements upon receipt of payments. |
4. PROPERTY AND EQUIPMENT |
9 Months Ended |
---|---|
Jul. 31, 2016 | |
Property, Plant and Equipment [Abstract] | |
Property & Equipment |
As of July 31, 2016 and October 31, 2015, the Company had office equipment of $2,801 and 3,704, net of accumulated depreciation of $5,605 and $4,702, respectively. For the nine months ended July 31, 2016 and 2015, the Company recorded depreciation expenses of $903 and $903, respectively. |
5. RELATED PARTY TRANSACTIONS |
9 Months Ended |
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Jul. 31, 2016 | |
Related Party Transactions [Abstract] | |
RELATED PARTY TRANSACTIONS |
Due to lack of sufficient funding to maintain the Companys operations, the Companys officers and directors loaned money to the Company for short term cash flow needs. As of July 31, 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 July 31, 2016 and October 31, 2015, respectively.
During the nine months ended July 31, 2016, the Company borrowed $171,525 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. In July 2016, $43,000 of the principal amount was converted to 97,217,391 shares of the Companys common stock. As of July 31, 2016, the outstanding balance was $205,711.
As of July 31, 2016 and October 31, 2015, the total outstanding amount due to related parties was $264,773 and $58,975, respectively. |
6. CONVERTIBLE NOTES PAYABLE |
9 Months Ended |
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Jul. 31, 2016 | |
Debt Disclosure [Abstract] | |
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 Companys 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 nine months ended July 31, 2016 and 2015, the Company recorded imputed interest of $13,650 and $13,650, 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, as amended (the Securities Act), 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 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 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 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 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 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 Companys common stock.
For the nine months ended July 31, 2016 and 2015, the Company recorded derivative expense of $0 and $55,062, respectively. As of July 31, 2016 and October 31, 2015, the derivative liability was fully converted or paid off.
As of July 31, 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. |
7. COMMITMENTS AND CONTINGENCIES |
9 Months Ended |
---|---|
Jul. 31, 2016 | |
Commitments and Contingencies Disclosure [Abstract] | |
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. Nguyens services. As of July 31, 2016, the shares had not been issued and the Company recorded accrued expense of $150,000.
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. Chens services. The Company issued the shares in May and recorded $1,260,000 as consulting fee for nine months ended July 31, 2016.
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 Companys 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 Companys CEO without base salary. As of July 31, 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 month agreement. |
8. CAPITAL STOCK TRANSACTIONS |
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Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 nine months ended July 31, 2016, 692,943,784 shares of common stock were retired and converted to 694 shares of convertible preferred stock and 513 shares of preferred stock were converted to 513,000,000 shares of common stock. In addition, the Company issued 664 shares of convertible preferred stock to its employee and consultants for services rendered. These shares were value at $2,062,798 based on closing price of the underlying common stock if converted.
During the nine months ended July 31, 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.
During the nine months ended July 31, 2016, the Company sold 414 shares of its preferred stock for $238,500. As of July 31, 2016, 409 of these shares had not been issued and were recorded as preferred stock to be issued.
At July 31, 2016 and October 31, 2015, there were 4,007 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 July 31, 2016 and October 31, 2015, there were 3,574,620,085 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 nine months ended July 31, 2016, 692,943,784 shares of common stock were retired and converted to 694 shares of convertible preferred stock and 513 shares of preferred stock were converted to 513,000,000 shares of common stock. In addition, 201,000,000 shares owned by two shareholders were retired and cancelled.
In the Companys quarterly report on Form 10-Q for the six months ended April 30, 2016 (the April 2016 10-Q) the Company reported that they issued a total of 194,000,000 shares of common stock upon conversion of 194 shares of preferred stock. In actuality, the Company issued an additional 279,000,000 shares of common stock upon conversion of 279 shares of preferred stock, for a total issuance of 473,000,000 shares of common stock upon conversion of 473 shares of preferred stock during the six months ended April 30, 2016. 279,000,000 shares of common stock issued during this six-month period following conversion of 279 shares of preferred stock were improperly allocated and disclosed as shares issued to consultants for services rendered, which disclosure has been updated as set forth below.
During the nine months ended July 31, 2016, the Company issued 29,000,000 shares of common stock for consulting services rendered. The shares were valued at $81,600 based on the closing stock prices on the dates of the stock grants. In the Companys April 2016 10-Q, the Company erroneously reported that they issued 358,000,000 shares of common stock to consultants for services rendered during the six months ended April 30, 2016. As described above, 279,000,000 of these shares of common stock were actually issued upon conversion of 279 shares of preferred stock during the six months ended April 30, 2016 and were improperly allocated as shares issued to consultants for services rendered in the April 2016 10-Q. Further, 50,000,000 shares of common stock previously described in the April 2016 10-Q as shares issued to consultants for services rendered were erroneously issued and have subsequently been cancelled.
In July 2016, the Company issued 97,217,391 shares of common stock in consideration of cancellation of $43,000 of accrued and unpaid payables. The Company did not receive any cash proceeds upon these issuances.
These issuances were exempt pursuant to Section 4(a)(2) of the Securities Act.
Options and Warrants
A summary of option activity during the nine months ended July 31, 2016 and the year ended October 31, 2015 are presented below:
A summary of warrant activity during the nine months ended July 31, 2016 and the year ended October 31, 2015 are presented below:
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. |
9. SUBSEQUENT EVENTS |
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Subsequent Events [Abstract] | ||||||||||||||||
SUBSEQUENT EVENTS |
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of Presentation |
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 Companys Annual Report on Form 10-K for the year ended October 31, 2015, filed with the SEC on February 16, 2016. |
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Consolidation |
Consolidation
Accounting policies used by the Company and the Companys subsidiaries conform to US GAAP. Significant policies are discussed below. The Companys consolidated accounts include the Companys accounts and the accounts of the Companys 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. |
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Non-controlling interests |
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 Companys 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 Companys 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. |
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Use of Estimates |
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. |
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Cash and Equivalents |
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 July 31, 2016 and October 31, 2015. |
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Concentration of Credit Risk |
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. |
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Impairment of Long-Lived Assets |
Impairment of Long-Lived Assets
The Company has adopted 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. |
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Indefinite-lived Intangible Assets |
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. |
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Fair Value of Financial Instruments |
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 Companys 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 Companys 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:
The Company believes that the market rate of interest as of July 31, 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 July 31, 2016 and October 31, 2015 due to short term maturity. |
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Revenue Recognition |
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. |
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Income Taxes |
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 authoritys widely understood administrative practices and precedents. |
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Equipment |
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 July 31, 2016, the useful lives of the office equipment ranged from five years to seven years. |
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Issuance of Shares for Non-Cash Consideration to Non-Employees |
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. |
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Stock-Based Compensation |
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. |
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Net Loss Per Share |
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, 4,007 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 July 31, 2016 that are not included in the calculation of Diluted EPS as their impact would be anti-dilutive.
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Recently Adopted and Recently Enacted Accounting Pronouncements |
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 StatementsGoing Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern (ASU 2014-15).
In connection with preparing financial statements for each annual and interim reporting period, an entitys management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entitys 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). Managements 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 entitys 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 entitys 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 managements 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 entitys ability to continue as a going concern.
If conditions or events raise substantial doubt about an entitys ability to continue as a going concern, but the substantial doubt is alleviated as a result of consideration of managements 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):
If conditions or events raise substantial doubt about an entitys ability to continue as a going concern, and substantial doubt is not alleviated after consideration of managements plans, an entity should include a statement in the footnotes indicating that there is substantial doubt about the entitys 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:
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 Companys 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 Companys present or future consolidated financial statements. |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) |
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Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of fair values of assets and liabilities |
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Schedule of Earnings Per Share Basic and Diluted |
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8. CAPITAL STOCK TRANSACTIONS (Tables) |
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Capital Stock Transactions Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of option activity |
A summary of option activity during the nine months ended July 31, 2016 and the year ended October 31, 2015 are presented below:
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Summary of warrant activity |
A summary of warrant activity during the nine months ended July 31, 2016 and the year ended October 31, 2015 are presented below:
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Assumptions | Market Price: $0.020 Exercise Price: $0.015 Term: 10 years Volatility: 321% Dividend Yield: 0 Risk Free Interest Rate: 2.25% |
1. BACKGROUND AND ORGANIZATION (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Jul. 31, 2016 |
Jul. 31, 2015 |
Jul. 31, 2016 |
Jul. 31, 2015 |
Oct. 31, 2015 |
|
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||
Net loss from operations | $ (446,339) | $ (1,507,292) | $ (2,681,864) | $ (4,582,913) | |
Accumulated deficit | $ (23,402,037) | $ (23,402,037) | $ (20,814,980) |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details - Fair Value Assets and Liabilities) - Fair Value, Measurements, Recurring [Member] - USD ($) |
Jul. 31, 2016 |
Oct. 31, 2015 |
---|---|---|
Convertible note payable | $ 8,333 | |
Convertible notes payable - currently in default | $ 260,000 | 260,000 |
Level 1 [Member] | ||
Convertible note payable | 0 | |
Convertible notes payable - currently in default | 0 | 0 |
Level 2 [Member] | ||
Convertible note payable | 0 | |
Convertible notes payable - currently in default | 0 | 0 |
Level 3 [Member] | ||
Convertible note payable | 8,333 | |
Convertible notes payable - currently in default | $ 260,000 | $ 260,000 |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details - Net Loss Per Share) - USD ($) |
3 Months Ended | 9 Months Ended | 12 Months Ended | ||
---|---|---|---|---|---|
Jul. 31, 2016 |
Jul. 31, 2015 |
Jul. 31, 2016 |
Jul. 31, 2015 |
Oct. 31, 2015 |
|
Accounting Policies [Abstract] | |||||
Net loss attributable to the Company | $ (405,134) | $ (1,466,083) | $ (2,587,057) | $ (4,462,523) | $ (4,750,630) |
Basic and diluted net loss from operations per share | $ 0.00 | $ 0.00 | $ 0.00 | $ 0.00 | |
Weighted average number of common shares outstanding, basic and diluted | 3,462,184,357 | 3,274,015,518 | 3,356,733,681 | 1,372,910,658 |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) |
9 Months Ended | 12 Months Ended |
---|---|---|
Jul. 31, 2016 |
Oct. 31, 2015 |
|
Cash equivalents | $ 0 | $ 0 |
Useful lives of the office equipment | 5 to 7 years | |
Convertible preferred stock [Member] | ||
Antidilutive Securities Excluded from Computation of Earnings Per Share | 4,007 | |
Series A Warrants [Member] | ||
Antidilutive Securities Excluded from Computation of Earnings Per Share | 2,000,000 | |
Series B Warrants [Member] | ||
Antidilutive Securities Excluded from Computation of Earnings Per Share | 2,000,000 | |
Options [Member] | ||
Antidilutive Securities Excluded from Computation of Earnings Per Share | 140,666,667 |
3. ACCOUNTS RECEIVABLE (Details Narrative) - USD ($) |
Jul. 31, 2016 |
Oct. 31, 2015 |
---|---|---|
Receivables [Abstract] | ||
Accounts receivable | $ 109,140 | $ 0 |
4. PROPERTY AND EQUIPMENT (Details Narrative) - USD ($) |
9 Months Ended | ||
---|---|---|---|
Jul. 31, 2016 |
Jul. 31, 2015 |
Oct. 31, 2015 |
|
Property, Plant and Equipment [Abstract] | |||
Office equipment, net | $ 2,801 | $ 3,704 | |
Accumulated depreciation | 5,605 | $ 4,702 | |
Depreciation expense | $ 903 | $ 903 |
5. RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($) |
9 Months Ended | |
---|---|---|
Jul. 31, 2016 |
Oct. 31, 2015 |
|
Other payables - related parties | $ 264,773 | $ 58,975 |
Harbin Aerospace Company [Member] | ||
Other receviables - related parties | 938 | 1,025 |
Various Shareholders [Member] | ||
Proceeds from related parties | 171,525 | |
Godfrey [Member] | Peter Liu [Member] | ||
Other payables - related parties | 60,000 | $ 60,000 |
One Shareholder [Member] | ||
Proceeds from related parties | 77,186 | |
Apollo Capital Corp. [Member] | ||
Other payables - related parties | 205,711 | |
Debt converted, amount converted | $ 43,000 | |
Debt converted, shares issued | 97,217,391 |
6. CONVERTIBLE NOTES PAYABLE (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | 12 Months Ended | ||
---|---|---|---|---|---|
Jul. 31, 2016 |
Jul. 31, 2015 |
Jul. 31, 2016 |
Jul. 31, 2015 |
Oct. 31, 2015 |
|
Imputed interest | $ 13,650 | $ 13,650 | |||
Repayments of convertible notes | 0 | 48,000 | |||
Derivative expenses | $ 0 | $ 0 | 0 | 486,359 | |
Derivative liability | 0 | 0 | $ 0 | ||
Convertible note balances, net | 0 | 0 | 8,333 | ||
Discount on convertible notes | $ 0 | 0 | $ 41,667 | ||
HAC convertible note [Member] | |||||
Imputed interest | 13,650 | 13,650 | |||
Convertible Notes Payable [Member] | |||||
Common stock issued upon conversion of notes payable, shares | 3,737,696,430 | ||||
Debt converted, amount converted | $ 382,077 | ||||
Derivative expenses | $ 0 | $ 55,062 |
7. COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Jul. 31, 2016 |
Jul. 31, 2015 |
Jul. 31, 2016 |
Jul. 31, 2015 |
Oct. 31, 2015 |
|
Preferred stock issued | 4,007 | 4,007 | 2,945 | ||
Consulting fee | $ 269,400 | $ 74,500 | $ 2,337,000 | $ 173,500 | |
McKay [Member] | |||||
Accrued salaries | 0 | 0 | $ 0 | ||
Nicholas Nguyen [Member] | |||||
Consulting accrued expense | $ 150,000 | $ 150,000 | |||
Preferred stock issued | 300 | 300 | |||
Consulting fee | $ 1,260,000 | ||||
Lixin Chen [Member] | |||||
Consulting accrued expense | $ 1,260,000 | $ 1,260,000 |
8. CAPITAL STOCK TRANSACTIONS (Details - Warrants outstanding) - Warrant [Member] - $ / shares |
9 Months Ended | 12 Months Ended |
---|---|---|
Jul. 31, 2016 |
Oct. 31, 2015 |
|
Warrants outstanding, beginning balance | 4,000,000 | 4,000,000 |
Warrants outstanding, ending balance | 4,000,000 | 4,000,000 |
Warrants exercisable | 0 | |
Weighted average exercise price, beginning | $ .75 | $ 0.75 |
Weighted average exercise price, ending | $ 0.75 | $ .75 |
Weighted average remaining contractual life, beginning | 5 years 4 months 21 days | 6 years 4 months 21 days |
Weighted average remaining contractual life, ending | 4 years 7 months 21 days | 5 years 4 months 21 days |
8. CAPITAL STOCK TRANSACTIONS (Details - Assumptions) |
9 Months Ended |
---|---|
Jul. 31, 2016
$ / shares
| |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Market Price: | $ 0.20 |
Exercise Price: | $ .015 |
Term: | 10 years |
Volatility: | 321.00% |
Dividend Yield: | 0.00% |
Risk Free Interest Rate: | 2.25% |
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