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TPAC > SEC Filings for TPAC > Form 10-K on 13-Feb-2014All Recent SEC Filings




Annual Report

Item 7. Management's Discussion and Analysis of Financial Condition and Results 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 consolidated financial statements and accompanying notes as of and for the fiscal years ended October 31, 2013 and October 31, 2012 included elsewhere in this report.


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 commenced commercial manufacture or 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 focused on the development of our production facility in Guangzhou, China and the design and engineering of our initial product line of spherical bearings. Our production facility in Guangzhou, China is held and operated by our 55%-owned subsidiary, Godfrey (China) Limited, a Hong Kong corporation. Naval Air Systems Command ("NAVAIR") of the United States Navy has completed the qualification testing of our initial line of bearings. We received final approval from NAVAIR on March 5, 2013 and expect to commence manufacturing operations in the second quarter of 2014. We expect to commence marketing and distribution of sale of ours initial product line of spherical bearings in the fourth quarter of 2014.

Results of Operations - Years Ended October 31, 2013 and 2012

We have not commenced revenue producing operations and do not expect to until the fourth quarter of 2014, at the earliest, at which time we expect to commence the distribution of Godfrey's line of spherical bearings. During the 2013 fiscal year, we incurred $1,781,965 of expenses compared to $1,478,822 during fiscal 2012. Our operating expenses consist primarily of general and administrative expenses and the increase in operating expenses from fiscal 2012 to fiscal 2013 was attributable primarily to increase in stock based compensation, professional fees, and consulting fees. We expect our operating expenses will significantly increase at such time as we commence the distribution of Godfrey's spherical bearings.

During the 2013 fiscal year, we incurred a net loss before income taxes from continuing operations of $2,336,516 compared to a net loss from continuing operations of $1,532,755 during fiscal 2012. The increase in our net loss in 2013 was attributable primarily to increased general and administrative expenses described above and an impairment charge of $528,101 relating to our acquisition of an additional 30% interest in our Godfrey subsidiary during fiscal 2013. The impairment was immediately recognized due to the fact that Godfrey has not produced any revenue from operations and lacks sufficient capital to implement its business plan.

For the year ended October 31, 2013, as a result of the increased ownership to 55% in Godfrey, we recorded non-controlling interest of $116,553. The net loss attributable to the Company was $2,291,644 for the year ended October 31, 2013.


Financial Condition

Liquidity and Capital Resources

As of October 31, 2013, we had total assets of $36,736 and a working capital deficit of $487,676. Since October 31, 2013, our working capital has decreased as a result of continuing losses from operations. We estimate that we require approximately $2 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, 2013 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 financing arrangements.

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