Attached files

file filename
EX-32.01 - CERTIFICATION - XPLOSION Incxplosion_ex3201.htm
EX-31.01 - CERTIFICATION - XPLOSION Incxplosion_ex3101.htm

 

 

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, 2017

 

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the transition period from ___________ to ___________

Commission File Number 333-215568

 

Xplosion Incorporated

(Exact name of registrant as specified in its charter)

  

Nevada

 

30-0942823

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

Suite 223 – 468 North Camden Drive

 

 

Beverly Hills, CA

 

90210

(Address of principal executive offices)

 

(Zip Code)

1-310-601-3080

(Registrant’s telephone number)

  

n/a

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has 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.

 

x

Yes

¨

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).

 

x

Yes

¨

No

 

Indicate by check mark whether the registrant is a large accelerated filer, an 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

o

Accelerated filer

¨

Non-accelerated filer

o

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

x

No

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of September 19, 2017, the issuer had one class of common stock, with a par value of $0.001, of which 49,487,600 shares were issued and outstanding.

 

 
 

TABLE OF CONTENTS

 

 

 

Page

 

PART I—FINANCIAL INFORMATION

 

 

 

Item 1:

Financial Statements:

 

3

 

 

Balance Sheets as at July 31, 2017 (unaudited), and

 

 

 

October 31, 2016

 

3

 

 

 

 

Unaudited Statements of Operations for the

 

 

 

Three and Nine Months Ended July 31, 2017 and 2016

 

4

 

 

 

 

Unaudited Statements of Stockholders’ Equity for the Nine

 

 

 

Months Ended July 31, 2017; the Year ended October 31, 2016 and

 

 

 

Period from Inception (October 6, 2015) to October 31, 2015

 

5

 

 

 

 

Unaudited Statements of Cash Flows for the

 

 

 

Nine Months Ended July 31, 2017 and 2016

 

6

 

 

 

 

Notes to Financial Statements (Unaudited)

 

7

 

 

 

 

Item 2:

Management’s Discussion and Analysis of Financial Condition

 

 

 

and Results of Operations

 

14

 

 

 

 

Item 3:

Quantitative and Qualitative Disclosures About Market Risk

 

16

 

 

 

 

Item 4:

Controls and Procedures

 

16

 

 

 

PART II—OTHER INFORMATION

 

 

 

Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds

 

17

 

 

 

 

Item 5:

Other Events

 

17

 

 

 

 

Item 6:

Exhibits

 

18

 

 

 

 

Signatures

 

19

 

 

 
2
 

 

PART I—FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

XPLOSION INCORPORATED

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheets

 

 

 

 

 

 

July 31, 2017 and October 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

July 31

 

 

October 31

 

 

 

2017

 

 

2016

 

 

 

(unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash

 

$ 1,773

 

 

$ 157,773

 

Accounts receivable

 

 

1,415

 

 

 

18,447

 

Accrued interest receivable

 

 

31,122

 

 

 

12,509

 

Inventory

 

 

130,489

 

 

 

-

 

Deposit and prepaid expenses

 

 

24,778

 

 

 

20,000

 

Loans receivable

 

 

100,000

 

 

 

100,000

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

289,577

 

 

 

308,729

 

 

 

 

 

 

 

 

 

 

Distribution rights, net

 

 

241,670

 

 

 

316,667

 

 

 

 

 

 

 

 

 

 

Total assets

 

$ 531,247

 

 

$ 625,396

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$ 44,472

 

 

$ 65,545

 

Accrued expenses

 

 

15,749

 

 

 

-

 

Deferred revenue

 

 

-

 

 

 

119,853

 

Loan payable

 

 

101,780

 

 

 

-

 

Due to shareholder

 

 

331

 

 

 

10,429

 

Total current liabilities

 

 

162,332

 

 

 

195,827

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

162,332

 

 

 

195,827

 

 

 

 

 

 

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

 

 

Preferred stock:

 

 

 

 

 

 

 

 

$0.001 par value, authorized 100,000,000 shares,

 

 

 

 

 

 

 

 

issued and outstanding nil shares

 

 

-

 

 

 

-

 

Common Stock:

 

 

 

 

 

 

 

 

$0.001 par value, authorized 300,000,000 shares,

 

 

 

 

 

 

 

 

issued and outstanding 49,487,600 shares (2016 - 49,312,600)

 

 

49,488

 

 

 

49,313

 

Additional paid-in capital

 

 

830,522

 

 

 

743,197

 

Retained Earnings (Deficit)

 

 

(511,095 )

 

 

(362,941 )

Total stockholders' equity

 

 

368,915

 

 

 

429,569

 

Total liabilities and stockholders' equity

 

$ 531,247

 

 

$ 625,396

 

 

See accompanying notes to financial statements

 

 
3
 
Table of Contents

 

XPLOSION INCORPORATED

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Statements of Operations

 

For the three and nine months ended July 31, 2017 and 2016

 

 

 

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months ended July 31

 

 

Nine Months ended July 31

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

$ 165,102

 

 

$ -

 

 

$ 492,786

 

 

$ -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

144,678

 

 

 

-

 

 

 

434,292

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross margin

 

 

20,424

 

 

 

-

 

 

 

58,494

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

13,843

 

 

 

3,081

 

 

 

56,971

 

 

 

19,611

 

Marketing and advertising

 

 

34,904

 

 

 

103,029

 

 

 

113,994

 

 

 

182,570

 

Amortization

 

 

24,999

 

 

 

13,889

 

 

 

74,997

 

 

 

58,333

 

 

 

 

73,746

 

 

 

119,999

 

 

 

245,962

 

 

 

260,514

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

 

(53,322 )

 

 

(119,999 )

 

 

(187,468 )

 

 

(260,514 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income and expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(5,503 )

 

 

-

 

 

 

(16,788 )

 

 

-

 

Interest income

 

 

5,102

 

 

 

-

 

 

 

56,102

 

 

 

-

 

 

 

 

(401 )

 

 

-

 

 

 

39,314

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$ (53,723 )

 

$ (119,999 )

 

$ (148,154 )

 

$ (260,514 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share

 

$ (0.00 )

 

$ (0.00 )

 

$ (0.00 )

 

$ (0.01 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding

 

 

49,487,600

 

 

 

48,315,861

 

 

 

49,432,472

 

 

 

45,648,093

 

 

See accompanying notes to financial statements

 

 
4
 
Table of Contents

 

XPLOSION INCORPORATED

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Statements of Stockholders' Equity

 

 

 

 

 

 

 

For the nine months ended July 31, 2017, year ended October 31, 2016 and

 

the period from October 6, 2015 (inception) to October 31, 2015

 

 

 

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

Retained 

 

 

Total 

 

 

 

Number of

Shares

 

 

Amount

 

 

Paid-in

Capital

 

 

Earnings

(Deficit)

 

 

Stockholders'

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance October 6, 2015

 

 

-

 

 

$ -

 

 

$ -

 

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for cash

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

October 6, 2015

 

 

100

 

 

 

1

 

 

 

9

 

 

 

 

 

 

 

10

 

October 6, 2015

 

 

6,250,000

 

 

 

6,250

 

 

 

-

 

 

 

 

 

 

 

6,250

 

October 31, 2015

 

 

34,000,000

 

 

 

34,000

 

 

 

136,000

 

 

 

 

 

 

 

170,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,572 )

 

 

(2,572 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance October 31, 2015

 

 

40,250,100

 

 

 

40,251

 

 

 

136,009

 

 

 

(2,572 )

 

 

173,688

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 4, 2015

 

 

2,000,000

 

 

 

2,000

 

 

 

98,000

 

 

 

 

 

 

 

100,000

 

December 24, 2015

 

 

1,675,000

 

 

 

1,675

 

 

 

82,075

 

 

 

 

 

 

 

83,750

 

January 5, 2016

 

 

1,500,000

 

 

 

1,500

 

 

 

73,500

 

 

 

 

 

 

 

75,000

 

March 15, 2016

 

 

600,000

 

 

 

600

 

 

 

29,400

 

 

 

 

 

 

 

30,000

 

April 6, 2016

 

 

1,000,000

 

 

 

1,000

 

 

 

49,000

 

 

 

 

 

 

 

50,000

 

April 29, 2016

 

 

1,000,000

 

 

 

1,000

 

 

 

99,000

 

 

 

 

 

 

 

100,000

 

May 24, 2016

 

 

250,000

 

 

 

250

 

 

 

24,750

 

 

 

 

 

 

 

25,000

 

July 5, 2016

 

 

375,000

 

 

 

375

 

 

 

37,125

 

 

 

 

 

 

 

37,500

 

August 4, 2016

 

 

175,000

 

 

 

175

 

 

 

17,325

 

 

 

 

 

 

 

17,500

 

September 2, 2016

 

 

487,500

 

 

 

487

 

 

 

97,013

 

 

 

 

 

 

 

97,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(360,369 )

 

 

(360,369 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance October 31, 2016

 

 

49,312,600

 

 

 

49,313

 

 

 

743,197

 

 

 

(362,941 )

 

 

429,569

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for cash, January 25, 2017

 

 

175,000

 

 

 

175

 

 

 

87,325

 

 

 

 

 

 

 

87,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(148,154 )

 

 

(148,154 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance July 31, 2017

 

 

49,487,600

 

 

$ 49,488

 

 

$ 830,522

 

 

$ (511,095 )

 

$ 368,915

 

 

See accompanying notes to financial statements.

 

 
5
 
Table of Contents

 

XPLOSION INCORPORATED

 

 

 

 

 

 

 

 

 

 

 

 

 

Statements of Cash Flows

 

 

 

 

 

 

For the nine months ended Jujly 31, 2017 and 2016

 

 

 

 

 

 

(unaudited)

 

 

 

 

 

 

 

 

2017

 

 

2016

 

 

 

 

 

 

 

 

Cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating activities:

 

 

 

 

 

 

Net loss

 

$ (148,154 )

 

$ (260,514 )

 

 

 

 

 

 

 

 

 

Adjustments to reconcile net loss to

 

 

 

 

 

 

 

 

net cash used in operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of distribution rights

 

 

74,997

 

 

 

58,333

 

 

 

 

 

 

 

 

 

 

Changes in assets and liabilities

 

 

 

 

 

 

 

 

Accounts receivable

 

 

17,032

 

 

 

-

 

Accounts payable

 

 

(21,073 )

 

 

42,421

 

Accrued interest receivable

 

 

(18,613 )

 

 

-

 

Accrued expenses

 

 

15,749

 

 

 

-

 

Inventory

 

 

(130,489 )

 

 

-

 

Deposits and prepaid expenses

 

 

(4,778 )

 

 

-

 

Deferred revenue

 

 

(119,853 )

 

 

-

 

 

 

 

 

 

 

 

 

 

Net cash used in operating activities

 

 

(335,182 )

 

 

(159,760 )

 

 

 

 

 

 

 

 

 

Cash used in investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of distribution rights

 

 

-

 

 

 

(230,000 )

Loan

 

 

-

 

 

 

(100,000 )

 

 

 

 

 

 

 

 

 

Net cash (used in) investing activities

 

 

-

 

 

 

(330,000 )

 

 

 

 

 

 

 

 

 

Cash provided by financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of capital stock

 

 

87,500

 

 

 

501,250

 

Proceeds from loan payable

 

 

101,780

 

 

 

-

 

(Repayment) advance from shareholder

 

 

(10,098 )

 

 

7,209

 

 

 

 

 

 

 

 

 

 

Net cash provided by financing activities

 

 

179,182

 

 

 

508,459

 

 

 

 

 

 

 

 

 

 

(Decrease) increase in cash during the period

 

 

(156,000 )

 

 

18,699

 

Cash at beginning of the period

 

 

157,773

 

 

 

6,244

 

 

 

 

 

 

 

 

 

 

Cash at end of the period

 

$ 1,773

 

 

$ 24,943

 

 

 

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

 

Interest paid

 

$ 9,808

 

 

$ -

 

Income taxes

 

$ -

 

 

$ -

 

 

See accompanying notes to financial statements.

 

 
6
 
Table of Contents

 

XPLOSION INCORPORATED

NOTES TO FINANCIAL STATEMENTS

July 31, 2017

(unaudited)

 

Note 1. Description of Business and Summary of Significant Accounting Policies

 

Organization

 

Xplosion Incorporated (the “Company”) was incorporated under the laws of the State of Nevada on October 6, 2015. The Company is in the business of marketing, distribution of innovative lifestyle and enhancement products and complimentary goods. On December 7, 2015 the Company entered into an Exclusive Global Rights Agreement with Interactive Holdings Limited (“Interactive”) for the exclusive global distribution license for the SayberX line of self-stimulation devices for men and couples.

 

Interim Period Financial Statements

 

The accompanying unaudited interim condensed financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and with the Securities and Exchange Commission’s instructions. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. The results of operations reflect interim adjustments, all of which are of a normal recurring nature and, in the opinion of management, are necessary for a fair presentation of the results for such interim period. The results reported in these interim financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. Certain information and note disclosure normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the Securities and Exchange Commission’s rules and regulations. These unaudited interim financial statements should be read in conjunction with the Company’s audited financial statements for the year ended October 31, 2016.

 

Going Concern

 

The Company’s financial statements have been prepared in conformity with accounting principles generally accepted in the United States applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has an accumulated deficit, and has had no positive cash flows from operations. It is the Company’s intention to raise additional equity to finance development of a market for its services until positive cash flows can be generated from its operations. However, there can be no assurance that such additional funds will be available to the Company when required or on terms acceptable to the Company and management has determined that there is substantial doubt as to the Company’s ability to continue as a going concern. Such limitations could have a material adverse effect on the Company’s business, financial condition or operations, and these financial statements do not include any adjustment that could result. Failure to obtain sufficient additional funding would necessitate the Company to reduce or limit its operating activities or even discontinue operations.

 

Cash

 

Cash equivalents with maturity dates less than 90 days from the date of origination are considered to be cash equivalents for all financial reporting purposes. The Company currently has no cash equivalents.

 

Functional Currency

 

The financial statements are presented in United States dollars, which is the Company’s functional currency.

 

 
7
 
Table of Contents

 

Fair Value Measurements

 

Fair value is defined as the exchange price that will be received for an asset or paid to transfer a liability (an exit price) in the principal. Valuation techniques used to measure fair value should maximize the use of observable inputs and minimize the use of unobservable inputs. To measure fair value, the Company uses the following fair value hierarchy based on three levels of inputs, of which the first two are considered to be observable and the third unobservable:

 

Level 1 – Quoted prices in active markets for identical assets or liabilities.

 

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3 – Unobservable inputs are supported by little or no market activity and are significant to the fair value of the assets or liabilities.

 

Revenue Recognition

 

The Company acquires full ownership of all products under its Exclusive Global Distribution Agreement directly from the technology holder and in turn re-sells the products through by wholesale through sub-distributors and also directly to end users via e-commerce. The Company has determined that it is the primary obligator as it i) is responsible for fulfillment; ii) assumes full inventory risk; iii) has no right of return of unsold product; iv) has the sole right to establish selling prices; v) has physical loss inventory risk and vi) has credit risk. The Company recognizes revenue, at the gross amount invoiced, when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, price is fixed and determinable, and collectability is reasonably assured.

 

During the nine months ended July 31, 2017 $450,000 or 91.3% of the Company’s revenue was concentrated in the hands of one major customer.

 

Accounts Receivable

 

Accounts receivable result from sale of SayberX units and are recorded at their principal amounts.Receivables are generally unsecured.

 

The Company does not have off-balance sheet credit exposure related to its customers. As of July 31, 2017 one customer accounted for 100% of the accounts receivable balance.

 

Inventory

 

Inventory consisting of SayberX units is stated at the lower of cost (first in, first out method) or net realizable value.

 

 
8
 
Table of Contents

 

Advertising Expenses

 

Advertising costs are expensed as incurred. During the nine months ended July 31, 2017 and 2016 the Company incurred advertising costs of $nil and $nil, respectively.

 

Income Taxes

 

Deferred income tax assets and liabilities are determined based on temporary differences between financial reporting and tax bases of assets and liabilities, operating loss, and tax credit carryforwards, and are measured using the enacted income tax rates and laws that will be in effect when the differences are expected to be recovered or settled. Realization of certain deferred income tax assets is dependent upon generating sufficient taxable income in the appropriate jurisdiction. The Company records a valuation allowance to reduce deferred income tax assets to amounts that are more likely than not to be realized. The initial recording and any subsequent changes to valuation allowances are based on a number of factors (positive and negative evidence). The Company considers its actual historical results to have a stronger weight than other, more subjective, indicators when considering whether to establish or reduce a valuation allowance.

 

The Company continually evaluates its uncertain income tax positions and may record a liability for any unrecognized tax benefits resulting from uncertain income tax positions taken or expected to be taken in an income tax return. Estimated interest and penalties are recorded as a component of interest expense and other expense, respectively.

 

Because tax laws are complex and subject to different interpretations, significant judgment is required. As a result, the Company makes certain estimates and assumptions in: (1) calculating its income tax expense, deferred tax assets, and deferred tax liabilities; (2) determining any valuation allowance recorded against deferred tax assets; and (3) evaluating the amount of unrecognized tax benefits, as well as the interest and penalties related to such uncertain tax positions. The Company’s estimates and assumptions may differ significantly from tax benefits ultimately realized.

 

Intangible Assets

 

Intangible assets include distribution rights and are amortized on a straight-line basis over the estimated useful lives of four years from the effective commencement date. The Company periodically evaluates whether changes have occurred that would require revision of the remaining estimated useful life. The Company performs periodic reviews of its capitalized intangible assets to determine if the assets have continuing value to the Company.

 

Deferred Revenue

 

The Company records proceeds received from customers for future delivery of product as Deferred Revenue. Revenue is recognized in accordance with the Company’s policy of revenue recognition.

 

Impairment of Other Long-Lived Assets

 

The Company evaluates the recoverability of property and equipment and other long-lived assets whenever events or changes in circumstances indicate impairment may have occurred. An impairment loss is recognized when the net book value of such assets exceeds the estimated future undiscounted cash flows attributed to the assets or the business to which the assets relate. Impairment losses, if any, are measured as the amount by which the carrying value exceeds the fair value of the assets. During the nine month periods ended July 31, 2017 and 2016, the Company identified no impairment losses related to the Company’s long-lived assets.

 

Net Loss Per Share

 

Basic net loss per share is calculated by dividing the net loss attributable to common shareholders by the weighted average number of common shares outstanding in the period. Diluted loss per share takes into consideration common shares outstanding (computed under basic loss per share) and potentially dilutive securities. For the nine months ended July 31, 2017, there are no outstanding stock options and warrants. Common shares issuable are considered outstanding as of the original approval date for purposes of earnings per share computations.

 

 
9
 
Table of Contents

 

Use of Estimates

 

The preparation of 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 disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the fiscal year. The Company bases its estimates on historical experience, current conditions and on other assumptions that it believes to be reasonable under the circumstances. Actual results could differ from those estimates and assumptions.

 

Financial Instruments

 

The Company has the following financial instruments: cash, accounts receivable, inventory, deposits and prepaid expenses, loan receivable, accounts payable, deferred revenue and loan payable. The carrying value of these financial instruments approximates their fair value due to their liquidity or their short-term nature.

 

Share Issuances for Services, Debt Instruments and Interest

 

The Company issues instruments to non-employees for the receipt of goods and services, and, in certain circumstances the settlement of short-term loan arrangements. The applicable GAAP establishes that share-based payment transactions with nonemployees shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.

 

In these transactions, the Company issues unregistered and restricted equity instruments. Additionally, the Company currently has no shares of freely-tradeable stock with a quoted market price (a Level 1input within the GAAP hierarchy).

 

When unregistered common shares are issued for the settlement of short-term financing arrangements (that are not initially convertible), the reacquisition price of the extinguished financing arrangement is determined by the value of the debt which is more clearly evident, and no additional inducement expense is recognized.

 

In situations in which the Company issues unregistered restricted common shares in exchange for goods and services, and the value of the goods and services are not the most reliably measurable, the Company recognizes the fair value of the unregistered restricted equity instruments based on the value of similar instruments issued in private placements in exchange for cash in the most recent transactions (a Level 2 input within the GAAP hierarchy). The Company has determined this methodology reflects the risk adjusted fair value of its unregistered restricted equity instruments using a commercially reasonable valuation technique.

 

Emerging Growth

 

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”), and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved

 

We have irrevocably opted out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the Act.

 

 
10
 
Table of Contents

 

Recent Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2014-09 – Revenue From Contracts with Customers, which will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principal of this ASU is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.

 

The original effective date for ASU 2014-09 would have required the Company to adopt beginning in its first quarter 2017. In July 2015, the FASB voted to amend ASU 2014-09 by approving a one year deferral of the effective date as well as providing the option to early adopt the standard on the original effective date. Accordingly, the Company may adopt the standard in either its first quarter of 2017 or 2018. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company is currently evaluating the timing of its adoption and the impact of adopting the new revenue standard on its financial statements.

 

In June 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-10, which eliminated certain financial reporting requirements of companies previously identified as "Development Stage Entities" (Topic 915). The amendments in this ASU simplify accounting guidance by removing all incremental financial reporting requirements for development stage entities. The amendments also reduce data maintenance and, for those entities subject to audit, audit costs by eliminating the requirement for development stage entities to present inception-to-date information in the statements of income, cash flows, and shareholder equity. Early application of each of the amendments is permitted for any annual reporting period or interim period for which the entity's financial statements have not yet been issued (public business entities) or made available for issuance (other entities). Upon adoption, entities will no longer present or disclose any information required by Topic 915. The Company has adopted this standard.

 

In April 2015, the FASB issued ASU2015-03, Imputation of Interest, requiring entities to present debt issuance costs related to a debt liability as a reduction of the carrying amount of the liability. In August 2015, the FASB issued ASU 2015-15 to provide additional guidance related to debt issuance costs related to line-of-credit arrangements. The guidance is effective for annual and interim periods beginning after December 15, 2015, and early adoption is permitted. The Company has adopted this standard.

 

In February 2016, the FASB issued ASU2016-02, Leases (Topic 842), requiring entities to a right-of-use asset and a lease liability for virtually all of their leases. This standard is effective for annual and interim periods beginning after December 15, 2018, and early adoption is permitted. The Company is currently evaluating the timing of its adoption and the impact of adopting the new standard on its financial statements.

 

Note 2. Exclusive Global Distribution Agreement

 

On December 7, 2015 the Company concluded an exclusive agreement for global licensing and distribution of the SayberX products with Interactive. The Company paid a total of $400,000 for these exclusive rights. The initial term ends December 31, 2019 and the Company has the right to renew for an additional five years, with terms to be negotiated.

 

The Company is required to make annual minimum purchases (“Purchase Targets”) in order to maintain the agreement. In general it is expected these Purchase Targets are to be set at 50% of the minimum Sales Target agreed to annually between the Company and Interactive, however, the targets are yet to be agreed and finalized between the parties. At the time of the Agreement no such targets were set. Discussions are underway between the Company and Interactive however as yet such minimum Sales Targets have not been established.

 

 
11
 
Table of Contents

 

The Agreement restricts the Company’s gross profit on wholesale sales to 10%.

 

The Company also employs the two principal shareholders of Interactive (“Consultants”), during the term of the Distribution Agreement with remuneration to each of the individuals equal to 7.5% (total of 15%) of the Company’s annual gross profits related to sales which originate from each or either of their corporate or individual relationships. The Consultants are also entitled to receive annual bonuses each of 2.5% (total of 5%) of the Company’s gross revenues related to Interactive technology / products providing pre-agreed revenue targets are achieved. To date no such targets have been established.

 

The Distribution Rights are being amortized on the straight-line basis over 4 years.

 

Note 3. Loan Receivable

 

The Company has lent $100,000 to Interactive which is repayable on or before January 31, 2017, together with interest, calculated at the rate of 2% per month. The loan was due January 31, 2017 and is currently in default. Interest has been calculated in accordance with the default provisions of the loan agreement – 10% for the first 30 days of default; 15% for the second 30 days of default; 20% for the third 30 days of default.

 

In addition, the Company has advanced a further amount of $27,500 which is non-interest bearing with no specific terms of repayment.

 

The Company owes Interactive $64,990 for unpaid inventory. For financial statement presentation the Company has offset the amount owing to reduce the non-interest bearing loan by $27,500 and accrued interest receivable by $37,490. This is in accordance with ASC 210-20-45-1 and the right of offset meets all criteria based on discussions between the Company and Interactive regarding settlement.

 

Note 4. Sub-Distribution Agreement

 

During the nine months period ended July 31, 2017 the exclusive sub-distribution agreement for the countries of China, including Hong Kong, Japan and Taiwan was terminated by mutual consent. The previously receive purchase order for 4,000 units has been reduced to 3,000 units all of which have been paid for in full and delivered.

 

Note 5. Revolving Loan Facility

 

On November 1, 2016 the Company entered into an agreement for a revolving loan facility of up to $150,000. The loan, due on or before October 31, 2018, is unsecured and with interest of 2% per month, calculated based on the amount of principal outstanding at the end of each month. If the total principal outstanding and accrued interest is not paid at maturity the Company will make a Default Payment consisting of 4.49% of the total of issued and outstanding shares of the Company at that date.

 

Note 6. Related Party Transactions

 

During the nine months ended July 31, 2017 the Company repaid advances made by the Company’s sole officer and director in the net amount of $10,098. The balance owing as at July 31, 2017 of $331 is included in amounts due to shareholders.

 

During the nine months ended July 31, 2017 and 2016 the Company paid fees of $5,065 and $nil, respectively, to its sole officer and directors

 

 
12
 
Table of Contents

 

 Note 7. Share Capital

 

Preferred Stock

 

The Company’s authorized capital includes 100,000,000 shares of preferred stock of $0.001 par value. The designation of rights including voting powers, preferences, and restrictions shall be determined by the Board of Directors before the issuance of any shares.

 

No shares of preferred stock are issued and outstanding as of October 31, 2016.

 

Common Stock

 

The Company is authorized to issue 300,000,000 shares of common stock, par value of $0.001.

 

During the nine months ended July 31, 2017 the Company issued on

 

 

· January 25, 2017, 175,000 shares of common stock for proceeds of $87,500

 

During the fiscal periods endedended October 31, 2016 and 2015 the Company issued on

 

 

· October 6, 2015, 100 shares of common stock for proceeds of $10

 

 

 

 

· October 6, 2015, 6,250,000 shares of common stock for proceeds of $6,250

 

 

 

 

· October 31, 2015, 34,000,000 shares of common stock for proceeds of $170,000

 

 

 

 

· December 4, 2015, 2,000,000 shares of common stock for proceeds of $100,000

 

 

 

 

· December 24, 2015, 1,675,000 shares of common stock for proceeds of $83,750

 

 

 

 

· January 5, 2016, 1,500,000 shares of common stock for proceeds of $75,000

 

 

 

 

· March 15, 2016, 600,000 shares of common stock for proceeds of $30,000

 

 

 

 

· April 6, 2016, 1,000,000 shares of common stock for proceeds of $50,000

 

 

 

 

· April 29, 2016, 1,000,000 shares of common stock for proceeds of $100,000

 

 

 

 

· May 24, 2016, 250,000 shares of common stock for proceeds of $25,000

 

 

 

 

· July 5, 2016, 375,000 shares of common stock for proceeds of $37,500

 

 

 

 

· August 4, 2016, 175,000 shares of common stock for proceeds of $17,500

 

 

 

 

· September 2, 2016, 487,500 shares of common stock for proceeds of $97,500

 

Note 8. Commitments

 

The Company has entered into a consulting contract which covers the period October 1, 2016 to December 31, 2017 in the amount of $10,000 per month. The last two months of the agreement have been prepaid and the amount is included in prepaid expenses.

 

Note 9. Subsequent Events

 

Management has evaluated subsequent events up to the date of filing.

 

 
13
 
Table of Contents

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion should be read in conjunction with the accompanying unaudited financial statements for the three and nine month periods ended July 31, 2017 and 2016, and our annual report for the year ended October 31, 2016, including the financial statements and notes thereto.

 

Forward-Looking Information May Prove Inaccurate

 

This report contains statements about the future, sometimes referred to as “forward-looking” statements. Forward-looking statements are typically identified by the use of the words “believe,” “may,” “could,” “should,” “expect,” “anticipate,” “estimate,” “project,” “propose,” “plan,” “intend,” and similar words and expressions. Statements that describe our future strategic plans, goals, or objectives are also forward-looking statements.

 

Readers of this report are cautioned that any forward-looking statements, including those regarding our management’s current beliefs, expectations, anticipations, estimations, projections, proposals, plans, or intentions, are not guarantees of future performance or results of events and involve risks and uncertainties. The forward-looking information is based on present circumstances and on our predictions respecting events that have not occurred, that may not occur, or that may occur with different consequences from those now assumed or anticipated. Actual events or results may differ materially from those discussed in the forward-looking statements as a result of various factors. The forward-looking statements included in this report are made only as of the date of this report. We are not obligated to update such forward-looking statements to reflect subsequent events or circumstances.

 

Introduction

 

We are a Company engaged in the sale, marketing and distribution of innovative lifestyle enhancement products and complimentary goods that target millennials and progressive thinkers of Generation X and Y. We generate our revenues from the distribution of our products to sub-distributors, wholesalers, and/or third party retailers, as well as from the direct sale of our products to consumers via various websites or via other online affiliate or third-party websites. Payment for our direct on-line sales is made through online integrated shopping carts that accept a wide range of online payment methods, including PayPal and credit cards. Our current flagship products are the Sayber X automated self-stimulation device for men and the X-Ring controller, which together anchor our first lifestyle enhancement offering being the complete Sayber X line of products. The Sayber X is a wearable, automated, blue tooth and software integrated sexual stimulation device which enables the user to engage in self-stimulation either alone or with a partner using the X-Ring controller remote control device and related software.

 

During the quarter ended July 31, 2017, we have continued to generate sales while pursuing the development of our sales and distribution channels for the SayberX line of products, while also investigating other opportunities that exist to add further innovative lifestyle enhancement products and complimentary goods to our future offerings. Discussions have been engaged with various types of product and service providers in terms of establishing formal working relationships with them, yet these discussions still have not resulted into a material agreement, and there can be no assurance that we will have any formal agreement with any additional party at all.

 

 
14
 
Table of Contents

 

Results of Operations

 

Comparison of the Three and Nine Months Ended July 31, 2017

with the Three and Nine Months Ended July 31, 2016

 

We had gross revenue of $165,102 and $492,786, respectively, for the three and nine months ended July 31, 2017 and $nil and $nil, respectively, for the three and nine month ended July 31, 2016.

 

Our general and administrative expenses from continuing operations for the three and nine months ended July 31, 2017, were $13,843 and $56,971, respectively, as compared to $3,081 and $19,611, respectively for the comparable three and nine month periods ended July 31, 2016.

 

Our marketing expenses from continuing operations for the three and nine months ended July 31, 2017, were $34,904 and $113,994, respectively, as compared to $103,029 and $182,570, respectively for the comparable three and nine month periods ended July 31, 2016.

 

Overall, we have a net loss of $53,723 and $148,154for the respective three and nine months ended July 31, 2017, as compared to a net loss of $119,999 and $260,514for the respective corresponding three and nine month periods of the preceding year.

 

Liquidity and Capital Resources

 

As of July 31, 2017, our current assets were $289,577, as compared to $308,729 at October 31, 2016. As of July 31, 2017, our current liabilities were $162,332, as compared to $195,827 at October 31, 2016.

 

Operating activities used net cash of $335,182 for the nine months ended July 31, 2017, as compared to use of $159,760 for the nine months ended July 31, 2016.

 

Investing activities used net cash of $nil for the nine months ended July 31, 2017, as compared to use of $330,000 for the nine months ended July 31, 2016.

 

Net cash of $179,182 was provided by financing activities during the nine months ended July 31, 2017, as compared to $508,459 net cash provided during the comparable nine months ended July 31, 2016. Financing activities during both the nine months ended July 31, 2017 and July 31, 2016 comprised of proceeds of issuance of share capital of $87,500 for the nine months ended July 31, 2017 as compared to $501,250 for the nine months ended July 31, 2016, net proceeds from loan of $101,780 for the nine months ended July 31, 2017 as compared to $nil for the nine months ended July 31, 2016 and net repayment of advances from shareholders of $10,098 for the nine months ended July 31, 2016 as compared to advances of $7,209 for the nine months ended July 31, 2016

 

Our current balances of cash will not meet our working capital and capital expenditure needs for the whole of the current year. Because we are not currently generating sufficient cash to fund our operations, we will need to rely on external financing to meet future capital and operating requirements. Any projections of future cash needs and cash flows are subject to substantial uncertainty. Our capital requirements depend upon several factors, including the rate of market acceptance, our ability to get to production and generate revenues, our level of expenditures for production, marketing, and sales, purchases of equipment, and other factors. We can make no assurance that financing will be available in amounts or on terms acceptable to us, if at all. Further, if we issue equity securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences, or privileges senior to those of existing holders of common stock, and debt financing, if available, may involve restrictive covenants that could restrict our operations or finances. If we cannot raise funds, when needed, on acceptable terms, we may not be able to continue our operations, grow market share, take advantage of future opportunities, or respond to competitive pressures or unanticipated requirements, all of which could negatively impact our business, operating results, and financial condition.

 

Going Concern

 

The Company’s financial statements have been prepared in conformity with accounting principles generally accepted in the United States applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has an accumulated deficit, and has had no positive cash flows from operations. It is the Company’s intention to raise additional equity to finance development of a market for its services until positive cash flows can be generated from its operations. However, there can be no assurance that such additional funds will be available to the Company when required or on terms acceptable to the Company and management has determined that there is substantial doubt as to the Company’s ability to continue as a going concern. Such limitations could have a material adverse effect on the Company’s business, financial condition or operations, and these financial statements do not include any adjustment that could result. Failure to obtain sufficient additional funding would necessitate the Company to reduce or limit its operating activities or even discontinue operations.

 

 
15
 
Table of Contents

 

Critical Accounting Policies and Estimates

 

Income Taxes

 

Deferred income tax assets and liabilities are determined based on temporary differences between financial reporting and tax bases of assets and liabilities, operating loss, and tax credit carryforwards, and are measured using the enacted income tax rates and laws that will be in effect when the differences are expected to be recovered or settled. Realization of certain deferred income tax assets is dependent upon generating sufficient taxable income in the appropriate jurisdiction. The Company records a valuation allowance to reduce deferred income tax assets to amounts that are more likely than not to be realized. The initial recording and any subsequent changes to valuation allowances are based on a number of factors (positive and negative evidence). The Company considers its actual historical results to have a stronger weight than other, more subjective, indicators when considering whether to establish or reduce a valuation allowance.

 

The Company continually evaluates its uncertain income tax positions and may record a liability for any unrecognized tax benefits resulting from uncertain income tax positions taken or expected to be taken in an income tax return. Estimated interest and penalties are recorded as a component of interest expense and other expense, respectively.

 

Because tax laws are complex and subject to different interpretations, significant judgment is required. As a result, the Company makes certain estimates and assumptions in: (1) calculating its income tax expense, deferred tax assets, and deferred tax liabilities; (2) determining any valuation allowance recorded against deferred tax assets; and (3) evaluating the amount of unrecognized tax benefits, as well as the interest and penalties related to such uncertain tax positions. The Company’s estimates and assumptions may differ significantly from tax benefits ultimately realized. As the Company is incorporated in the British Virgin Islands and operates from Hong Kong it is subject to Hong Kong income taxes on income earned in Hong Kong.

 

Share Issuances for Services, Debt Instruments and Interest

 

The Company issues instruments to non-employees for the receipt of goods and services, and, in certain circumstances the settlement of shortterm loan arrangements. The applicable GAAP establishes that share-based payment transactions with nonemployees shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. In these transactions, the Company issues unregistered and restricted equity instruments.

 

When unregistered common shares are issued for the settlement of short-term financing arrangements (that are not initially convertible), the reacquisition price of the extinguished financing arrangement is determined by the value of the debt which is more clearly evident, and no additional inducement expense is recognized.

 

In situations in which the Company issues unregistered restricted common shares in exchange for goods and services, and the value of the goods and services are not the most reliably measurable, the Company recognizes the fair value of the unregistered restricted equity instruments based on the value of similar instruments issued in private placements in exchange for cash in the most recent transactions (a Level 2 input within the GAAP hierarchy). The Company has determined this methodology reflects the risk adjusted fair value of its unregistered restricted equity instruments using a commercially reasonable valuation technique.

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the fiscal year. The Company makes estimates for, among other items, useful lives for depreciation and amortization, determination of future cash flows associated with impairment testing for long-lived assets, determination of the fair value of stock options and warrants, determining fair values of assets acquired and liabilities assumed in business combinations, valuation allowance for deferred tax assets, allowances for doubtful accounts, and potential income tax assessments and other contingencies. The Company bases its estimates on historical experience, current conditions, and other assumptions that it believes to be reasonable under the circumstances. Actual results could differ from those estimates and assumptions.

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, such as this quarterly report, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officers (our “Certifying Officers”) , as appropriate, to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our Certifying Officers, the effectiveness of our disclosure controls and procedures as of July 31, 2017, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officers concluded that, as of July 31, 2017, our disclosure controls and procedures were not effective.

 

There have been no changes in our internal control over financial reporting that occurred during the quarter ended July 31, 2017, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

 

 
16
 
Table of Contents

 

PART II—OTHER INFORMATION

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Not applicable

 

ITEM 5. OTHER EVENTS

 

Not applicable

 

 
17
 
Table of Contents

 

ITEM 6. EXHIBITS

 

The following exhibits are filed as a part of this report:

 

Exhibit

Number*

 

Title of Document

 

Location

 

Item 31

 

Rule 13a-14(a)/15d-14(a) Certifications

 

31.01

 

Certification of Principal Executive Officer and Principal Financial Officer

Pursuant to Rule 13a-14

 

Attached

 

Item 32

 

Section 1350 Certifications

 

32.01

 

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer) and (Chief Financial Officer)

 

Attached

 

Item 101

 

Interactive Data File

 

101

 

Interactive Data File

 

Attached

_______________

* All exhibits are numbered with the number preceding the decimal indicating the applicable SEC reference number in Item 601 and the number following the decimal indicating the sequence of the particular document.

 

 
18
 
Table of Contents

 

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.

 

 

Registrant

 

 

 

 

XPLOSION INCORPORATED

 

 

 

 

 

 

Date: September 19, 2017

By:

/s/ NICHOLAS GALAN/s/

 

 

Nicholas Galan

 

 

President, Chief Executive Officer, Chief Financial Officer, Treasurer and Director

 

 

(Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)

 

 

 

19