DDDX 3DX Industries Inc (PK)

Notes to the Financial Statements

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION

Amarok Resources, Inc. (“Amarok” or the “Company”) was incorporated in the state of Nevada on October 23, 2008 under the name Ukragro Corporation. The Company’s principal activity is the exploration and development of mineral properties for future commercial development and production.

On January 29, 2010, the Company filed an amendment to its articles of incorporation changing its name to Amarok Resources, Inc. In the same amendment, the Company changed its authorized capital to 175,000,000 shares of common stock at a restated par value of $0.001. Effective February 23, 2010, the Company authorized a 60:1 stock split.

Effective February 1, 2010, the Company entered the exploratory stage as defined under the provisions of Accounting Codification Standard 915-10.

On September 26, 2013, the Company filed an amendment to the Company’s Articles of Incorporation and changed the Company’s name from Amarok Resources, Inc. to 3DX Industries, Inc. and increased the number of shares authorized to 185,000,000 of which 175,000,000 have been designated common shares and 10,000,000 have been designated preferred shares. Also on September 26, 2013, the Company authorized a 50:1 reverse stock split. The accompanying financial statements have been restated to reflect the change in capital and stock split as if they occurred at the Company’s inception.

Going Concern

The Company has incurred net losses since inception, and as of April 30, 2014 had a combined accumulated deficit of $19,596,208 and had negative working capital of $1,217,638. These conditions raise substantial doubt as to the Company's ability to continue as a going concern. These financial statements do not include any adjustments that might result from the outcome of this uncertainty. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Management recognizes that the Company must generate additional funds to enable it to continue operating. Management intends to raise additional financing through debt and or equity financing and by other means that it deems necessary, with the goal of moving forward and sustaining a prolonged growth in its strategy phases. However, no assurance can be given that the Company will be successful in raising additional capital. Further, even if the company raises additional capital, there can be no assurance that the Company will achieve profitability or positive cash flow. If management is unable to raise additional capital and expected significant revenues do not result in positive cash flow, the Company will not be able to meet its obligations and may have to cease operations.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed financial statements contain all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to present fairly the financial position of the Company as of April 30, 2014, and the results of its operations and cash flows for the three and six months ended April 30, 2014 and 2013. Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to rules and regulations of the U.S. Securities and Exchange Commission (the “Commission”). The Company believes that the disclosures in the unaudited condensed financial statements are adequate to make the information presented not misleading. However, the unaudited condensed financial statements included herein should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended October 31, 2013 filed with the Commission on February 13, 2014.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments and other short-term investments with a maturity date of three months or less, when purchased, to be cash equivalents.

Mining Costs

Costs incurred to purchase, lease or otherwise acquire property are capitalized when incurred. General exploration costs and costs to maintain rights and leases are expensed as incurred. Management periodically reviews the recoverability of the capitalized mineral properties. Management takes into consideration various information including, but not limited to, historical production records taken from previous mining operations, results of exploration activities conducted to date, estimated future prices and reports and opinions of outside consultants. When it is determined that a project or property will be abandoned or its carrying value has been impaired, a provision is made for any expected loss on the project or property.

Property and Equipment

Property and equipment are stated at cost. Major renewals and improvements are charged to the asset accounts while replacements, maintenance and repairs that do not improve or extend the lives of the respective assets are expensed. At the time property and equipment are retired or otherwise disposed of, the asset and related accumulated depreciation accounts are relieved of the applicable amounts. Gains or losses from retirements or sales are credited or charged to income.

As of April 30, 2014, the majority of the Company’s equipment was in the process of being installed. The Company continues testing of its 3D Metal Printing System which is being depreciated on the straight-line method over the seven year estimated life. Depreciation expense for the three months and six months ended April 30, 2014 totaled $271. The Company will commence depreciating the remaining equipment over their estimated useful lives at the time the respective equipment is placed in service.

Long-Lived Assets

The Company accounts for its long-lived assets in accordance with Accounting Standards Codification (“ASC”) Topic 360-10-05, “Accounting for the Impairment or Disposal of Long-Lived Assets.” ASC Topic 360-10-05 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and fair value or disposable value. The Company determined that none of its long-term assets at April 30, 2014 were impaired.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

Pursuant to ASC No. 820, “Fair Value Measurements and Disclosures , ” the Company is required to estimate the fair value of all financial instruments included on its balance sheet as of April 30, 2014. The Company’s financial instruments consist of accounts payables and notes and loans payable. The Company considers the carrying value of such amounts in the financial statements to approximate their fair value due to the short-term nature of the respective instrument.

Loss Per Share of Common Stock

The Company follows Accounting Standard Codification Topic No. 260, Earnings Per Share (“ASC No. 260”) that requires the reporting of both basic and diluted earnings (loss) per share. Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. The calculation of diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. In accordance with ASC No. 260, any anti-dilutive effects on net earnings (loss) per share are excluded. Potential common shares at April 30, 2014 that have been excluded from the computation of diluted net loss per share include an option to convert approximately $4,007 in fees due Santeo Financial Corporation at April 30, 2014 into 4,007,183 common shares. Potential common shares at April 30, 2013 that have been excluded from the computation of diluted net loss per share include warrants exercisable into 60,000 shares of common stock and options exercisable into 10,000 shares of common stock.

Convertible Debt Instruments

If the conversion features of conventional debt instruments provides for a rate of conversion that is below market value at issuance, this feature is characterized as a beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a debt discount pursuant to ASC Topic 470-20 “Debt with Conversion and Other Options.” In those circumstances, the convertible debt is recorded net of the discount related to the BCF, and the Company amortizes the discount to operations over the life of the debt using the effective interest method. The Company was not required to record any BCF’s on any of the convertible debt it issued during the six months ended April 30, 2014.

Issuances Involving Non-cash Consideration

All issuances of the Company’s stock for non-cash consideration have been assigned a dollar amount equaling the market value of the shares issued on the date the shares were issued for such services. The non-cash consideration received pertains to officer’s compensation and consulting services.

Stock-Based Compensation

The Company accounts for stock-based compensation under Accounting Standard Codification Topic 505-50, Equity-Based Payments to Non-Employees . This topic defines a fair-value-based method of accounting for stock-based compensation. In accordance with the Topic, the cost of stock-based compensation is measured at the grant date based on the value of the award and is recognized over the vesting period. The value of the stock-based award is determined using Binomial or Black-Scholes option-pricing models, whereby compensation cost is the excess of the fair value of the award as determined by the pricing model at the grant date or other measurement date over the amount that must be paid to acquire the stock. The resulting amount is charged to expense on the straight-line basis over the period in which the Company expects to receive the benefit, which is generally the vesting period.

Reclassification

Certain reclassifications have been made to conform the 2013 amounts to 2014 classifications for comparative purposes.

Recent Accounting Pronouncements

The Company’s management has evaluated all recent accounting p ronouncements since the last audit through the issuance date of these financial statements. In the Company’s opinion, none of the recent accounting p ronouncements will have a material effect on the financial statements.

NOTE 3 - MINING CLAIMS

McNeil Claims, Canada

On March 24, 2011 the Company signed an agreement with Warrior Ventures, Inc. (“Warrior”), a private company, to acquire 100% of the McNeil Gold Property. The McNeil property is located within the Abitibi Greenstone belt, approximately 30 miles southeast of Timmins, Ontario, Canada and approximately 35 miles west of Kirkland Lake, Ontario, Canada. The purchase price of the property was in exchange for Warrior receiving 28,000 shares of the Company’s restricted common stock along with an option to purchase 28.000 of the Company common shares of the Company at a price of $1.00 per common share until October 1, 2011. Any options remaining unexercised as of September 1, 2011 may be exercised at a price of $1.25 per common share until March 31, 2012, after which the option to purchase any shares of Amarok automatically terminates. The Company initially valued the 28,000 shares at $784,000 based upon the trading price of the common shares on the date of issuance. The Company valued the 28,000 options at $98,724 using a binomial option model with a trading price of $0.56 per share, risk-free interest rate of 0.26%, and volatility of 93.221%. The total of $882,724 was capitalized as mining properties. At October 31, 2011, the Company recognized an impairment of $322,000 on the reduction in the fair value of mining claim based upon the agreed upon price of $0.33 per share pursuant to the underlying purchase agreement. The $0.33 per share was based upon the trading price of the Company’s common share on the March 23, 2011. Through October 31, 2013, the Company has incurred additional acquisition costs totaling $91,606. The capitalized costs of the McNeil claim as of July 31, 2013 amounted to $652,330.

On October 8, 2013, the Company entered into an agreement with Trio Gold Corp. (“Trio”) to assign 100% of its claims in the McNeil property, subject to a 5% net smelter royalty, to Trio once Trio has incurred exploration and administrative costs totaling $5,000,000(CND) based upon the following schedule:

On or before December 31, 2015 $ 500,000

On or before December 31, 2017 $2,000,000

On or before December 31, 2019 $2,500,000

Trio is a company incorporated in the Province of Alberta, Canada. Trio’s current President is the father of one of the Company’s managers.

Nighthawk Claims, Canada

The Company had staked 35 claims on property adjacent to the McNeil known as the Night Hawk Property. The acquisition cost associated with this claims totaled $37,380. The Company did not have sufficient funds to pay the fees required to renew the 35 claims and on October 8, 2013 it assigned its total interest in these claims to Trio in exchange for a 5% royalty on the net smelter returns generated from these claims. The Company granted Trio the option to purchase each 1% royalty interest for $2,000,000(CND). The Company did not report any gain or loss on this transaction and valued the 5% net royalty interest at the property’s current acquisition cost of $37,380.

Rodeo Creek Project, Nevada

On February 22, 2010, the Company entered into an agreement with Carlin Gold Resources, Inc., (“Carlin”) in which Carlin assigned the Company all of its rights, title, and interest in an exploration agreement between it and Trio. The assigned exploration agreement was dated January 28, 2010. In consideration for the assignment of the interest in the exploration agreement, the Company paid Carlin $1 and issued 2,000 shares of its common stock, valued at $168,000 based upon the trading price of the shares on the date of issuance. The value of these shares has been charged to operations and included in exploration costs.

Trio has leased and has an option to purchase a 100% interest in 29 unpatented lode mining claims located in Nevada within the Carlin Gold Trend (the “Claims”). The Claims are subject to a 1.5% net smelter return (“NSR”).

Under the terms of the original agreement, the Company earns a 75% undivided interest in the Property during an earn-in period commencing in January 2010 and completing in December 2012 (the “earn-in period”). Upon completion of the earn-in period, a joint venture (the “Joint Venture”) is to be formed with the same 75% / 25% interest the parties held during the earn-in period. The Joint Venture shall remain in effect for twenty-five years or as long as the claims are being actively mined or developed, whichever is longer. After the termination of the Joint Venture, the Claims shall revert back to Trio.

On March 23, 2012, the Company and Trio entered into an agreement that modified certain terms of the original agreement (“modified agreement”). During the earn-in-period, the Company is to provide $5,500,000 in funding to cover operational costs. Under the original agreement, $1,500,000 was to be funded during the 2010 budget year, $2,000,000 was to be funded during the 2011 budget year and $2,000,000 was to be funded during the 2012 budget year. The modified agreement eliminates the annual funding requirements and extends the due date of the $5,500,000 funding to December 31, 2013.

Under the original agreement, the Company was required to pay a minimum annual royalty during the earn-in period to Trio of which $75,000 was paid upon signing of the agreement, $100,000 was paid on April 1, 2011 and $150,000 was to be paid on April 1, 2012. Under the terms of the March 23, 2012 modified agreement, the minimum royalty payments have been incorporated into the $5,500,000 funding requirement and the final $150,000 minimum royalty payment becomes due on April 1, 2013. In consideration for modifying the terms of the original agreement and extending the due date, the Company issued Trio 2,788 shares of its common shares valued at $11,152, which was charged to operations and included in exploratory costs.

Once the Company has provided $5,500,000 in funding for the project, the Company and Trio shall fund the operational costs jointly, with the Company providing 75% of the funds and Trio providing 25% of the funds. Through July 31, 2012, the Company funded a total of $2,350,000 in the property’s operational costs as defined under the modified agreement. The funds paid have been charged to operations and included in exploratory costs.

In addition, within three months of the assignment, the Company is required to issue Trio 144,240 shares of its common stock. Upon expenditure of a minimum of $2,000,000 on the claims, Trio shall receive an additional 1,442 shares of the Company’s common stock. Upon expending a minimum of $4,000,000 on the claims, Trio shall receive an additional 1,442 shares of the Company’s common stock. Upon expenditure of $5,500,000 on the claims, Trio shall receive a final 1,442 shares of the Company’s common stock All shares issued shall be restricted common shares and will be stamped with the applicable hold period. On February 22, 2010, the Company issued 2,884 shares of its common stock to Trio valued at $242,323, based upon the restated trading price of the shares on the date of issuance. On October 25, 2011, the Company issued 1,442 shares of its common stock to Trio valued at $5,769, based upon the trading price of the shares on the date of issuance. On March 23, 2012, the Company issued 2,788 shares of its common stock to Trio valued at $11,152, based upon the restated trading price of the shares on the date of issuance. The values of the shares have been charged to operations and included in exploration costs.

On February 13, 2013, the Company entered into an agreement with Trio to modify the terms of the above indicated final minimum royalty payment of $150,000, which was due on April 1, 2013. In exchange for paying $15,000 upon the signing of the agreement and $5,000 on August 1, 2013, the due date of the remaining $130,000 is extended to October 1, 2013, with the date when the full $5,500,000 must be spent on the Rodeo Claims is extended to December 31, 2014. Of the $20,000 that is due, $15,000 was paid on February 20, 2013 and $5,000 was paid on March 15, 2013. The $20,000 was charged to exploratory costs.

The Company failed to pay the required $130,000 that was due on October 1, 2013 and is in default under the agreement. Management is currently in discussions with Trio.

The sole officer, director, and shareholder of Carlin is a business associate of one of the Company’s former officer and director.

Cueva Blanca Gold Property

On April 16, 2010, the Company entered into an agreement with St. Elias Mines Ltd. (“St. Elias”) in which Amarok is given an option to earn a 60% interest, subject to a 1.5% net smelter royalty (“NSR”) in the Cueva Blanca gold property (1,200 hectares) in Northern Peru, which is wholly owned by St. Elias . Under the terms of the letter agreement, it is possible for the Company to acquire a 60% interest in the Property (subject to a 1.5% NSR) in consideration of:

(a) making cash payments of $200,000 to St. Elias over a two-year period;

(b) issuing 100,000 common shares in the capital of Amarok to St. Elias; and

(c) incurring at least $1,500,000 in exploration expenditures on the property over a three-year period.

In addition, the Company shall have the right to purchase one-half of the 1.5% NSR from St. Elias for the sum of $1,500,000, thereby reducing the NSR payable to from 1.5% to 0.75%.

The Company’s first payment of $10,000 was paid on June 24, 2010. On April 27, 2011, the agreement between St. Elias and Amarok was formally terminated by St. Elias. As of January 31, 2012, the Company has paid a total of $27,603 in fees towards property maintenance costs on the Cueva Blanca property. The Company is currently considering its option following St. Elias’ termination of the agreement.

NOTE 4 - RELATED PARTY TRANSACTIONS

As discussed in Note 3, on February 22, 2010 the Company entered into an agreement with Carlin in which Carlin assigned the Company all of its rights, title, and interest in an exploration agreement between it and Trio. Trio is a company incorporated in the Province of Alberta, Canada. Trio’s current President is the father of former officer and director of the Company. Further, the sole officer, director, and shareholder of Carlin is a business associate of the same former officer and director.

In January 2010, an agreement went into effect whereby the Company is paying Santeo Financial Corp (“Santeo”), a company affiliated with the same former officer and director for consulting services of $15,000 a month on a month-to-month basis. The consulting agreement was cancelled on November 22, 2013.

On January 15, 2013, the Company granted Santeo the option to convert up to 25% of all accrued compensation due it at that date into shares of the Company’s common stock at a conversion price of $0.001 per share, and to convert the remaining 75% of accrued compensation due it at that date into shares of the Company’s common stock at a conversion price of $0..01 per share. The agreement can be cancelled by either party. At January 15, 2013, the amount of accrued compensation due Santeo was $175,000. Pursuant to ASC Topic 470-20, “Debt with Conversion and Other Options,” the accrued compensation was recorded net of a discount that includes the debt’s beneficial conversion feature of $148,077. Since the accrued compensation is immediately convertible into common stock, discounts arising from beneficial conversion features are directly charged to expense pursuant to ACS 470-20-35. The beneficial conversion features were calculated using trading prices ranging from $0.001 to $0.01 per share and an effective conversion price of $.02 per share.

Effective December 18, 2013, the terms of the above indicated option grant were modified limiting the number of conversion shares Santeo can receive and hold at any point in time to no more than 9.99% of the Company’s common stock then outstanding.

Total consulting fees charged to operations for the three months ended April 30, 2014 and 2013 amounted to $0 and $45,000, respectively. Total consulting fees charged to operations for the six months ended April 30, 2014 and 2013 amounted to $11,000 and $238,077 (including stock based compensation of $148,077), respectively. Accrued compensation due Santeo at April 30, 2014 amounted to $306,000, of which $175,000 is reflected on the accompanying balance sheet in accrued compensation – related party, convertible. The remaining balance of $131,000 due Santeo is reflected on the accompanying balance sheet and is included in other payables – related parties.

Effective November 23, 2013, the Company entered into an employment agreement with its President and Chief Executive Officer, Roger Janssen. Under the terms of the agreement, Mr. Janssen will receive a base salary of $15,000 a month over the three-year term of the agreement. At the sole discretion of the board of directors, Mr. Janssen may be granted performance bonuses and may also participate in any incentive plans that the Company may establish. In addition, Mr. Janssen received 30,000,000 shares of the Company’s restricted common stock as a signing bonus. The shares were valued at $9,450,000 based upon the trading price of the shares on the date of grant. Officer’s compensation expense for the three months ended April 30, 2014 totaled $45,000. Officer’s compensation for the six months ended April 30, 2014 amounted to $9,529,000 including the indicated stock based compensation of $9,450,000. Accrued compensation due Mr. Janssen as of April 30, 2014 amounted to $67,000, which is included in the balance of other payables – related parties as reflected in the accompanying balance sheet. The $67,000 is net of $12,000 that was actually paid to Mr. Janssen during the six months ended April 30, 2014.

On December 18, 2013, the Company purchased various equipment relating to its 3D metal printing operation from Mr. Janssen for $500,000. The $500,000 is evidenced by a promissory note assessed interest at an annual rate of 1.64%. Accrued interest is payable quarterly with the Principal balance and any unpaid accrued interest fully due and payable on December 15, 2018. Mr. Janssen has the right to convert any outstanding principal and accrued interest into restricted shares of the of the Company’s common stock at a conversion price of $0.50 per share. The balance due Mr. Janssen at April 30, 2014 totaled $502,988 of which the accrued interest of $2,988 was classified as a short-term liability and the $500,000 was classified as a long-term liability .The accrued interest of $2,988 was charged to operations.

On September 9, 2013, the Company borrowed $30,000 from a relative of a shareholder. The loan is evidenced by an unsecured promissory note. The loan is assessed interest at an annual rate of 5% per annum with principal and accrued interest fully due and payable on May 1, 2014. The balance of this obligation on April 30, 2014 amounted to $30,958. Accrued interest charged to operations for the six months ended April 30, 2014 and 2013 amounted to $871 and $0, respectively.

On March 7, 2014, the Company borrowed an additional $35,000 from the same relative as discussed above. The loan is evidenced by an unsecured promissory note. The loan is assessed interest at an annual rate of 5% per annum with principal and accrued interest fully due and payable on December 31, 2014. The balance of this obligation on April 30, 2014 amounted to $35,259. Accrued interest charged to operations for the six months ended April 30, 2014 amounted to $259.

During the six months ended April 30, 2014, R. Janssen advanced the Company a total of $24,038 of which $19,575 was repaid during the six-month period. The balance of $4,463 is unsecured, non-interest bearing and due upon demand.

NOTE 5 - EQUIPMENT PURCHASE PAYABLE

On December 23, 2013, the Company purchased equipment from an unrelated third party for $750,000 of which $75,000 was paid. The remaining $675,000 is payable in two equal installments of $337,500. The first installment was due on June 1, 2014 and the final installment is due on September 1, 2014. The June 1, 2014 payment was not met and the Company is in discussions with the equipment provider to extend the terms of the 1 ^st payment . The terms of the installment payments do not include a stated interest rate. The Company accounted for the purchase under ASC Topic 835-30-25 “ Imputation of Interest” , discounting the purchase price of the equipment by $18,795 for imputed interest using an interest rate of 5% per annum. The balance due on this obligation at April 30, 2014 adjusted for the unamortized discount amounted to $667,754, including accreted interest of $11,549 that was charged to operations.

NOTE 6 - NOTES PAYABLE – UNRELATED PARTY

On January 9, 2013, the Company entered into an agreement to borrow a total of $46,300 from an unrelated third party of which $26,300 was received in January 2013 and $20,000 was received in February 2013. The loans are evidenced by an unsecured promissory note. The $46,300 and interest of $2,500 was fully due and payable on July 1, 2013. As the outstanding principal and accrued interest were not paid on July 1, 2013, the principal and accrued interest is assessed interest at an annual rate of 8% per annum payable quarterly, with the outstanding principal and accrued interest fully due and payable on July 1, 2014. In addition, the unrelated third party advanced an additional $2,500 on June 21, 2013. The $2,500 is assessed interest at an annual rate of 8% per annum payable quarterly, with the outstanding principal and accrued interest fully due and payable on July 1, 2014. During the six months ended April 30, 2014, the Company received an additional $65,000 and repaid a total of $12,510 of which $4,729 was applied against accrued interest and $7,781 was applied against principal. On February 19, 2014, the Company issued 4,880,000 shares of its common stock in exchange for canceling $48,800 of debt. The Company valued the shares at their respective market value of $4,880,000 and recorded a loss on the debt extinguishment of $4,831,200, which was charged to operations. The outstanding balance at April 30, 2014 amounted to $58,362. Accrued interest charged to operations for the three months ended April 30, 2014 and 2013 totaled $1098 and $0, respectively. Accrued interest charged to operations for the six months ended April 30, 2014 and 2013 totaled $2,000 and $0, respectively.

In addition to the loans indicated above, the third party advanced $150,000 to the Company on November 5, 2014. The $150,000 is evidenced by a unsecured promissory note bearing interest at a rate of 5%. Outstanding principal and accrued interest is fully due and payable on December 31, 2015. Effective January 1, 2015, the holder has the right to convert any or all of the outstanding principal and accrued interest into shares of the Company’s common stock at a conversion rate of $0.10 per share. Upon conversion, the holder has certain registration rights. The Company is obligated to bear all costs associated with the registration of the shares. The outstanding balance at April 30, 2014 amounted to $153,760. Accrued interest charged to operation for the three months and six months ended April 30, 2014 and 2013 totaled $3,760 and $1,828, respectively.

NOTE 7 - STOCKHOLDERS’ EQUITY

For the six months ended April 30, 2014

On February 19, 2014, the Company issued 4,880,000 shares of its common stock in exchange for the cancelation of $48,880 of debt due an unrelated third party. The Company recognized a loss from the extinguishment of the debt totaling $4,831,200, which was charged to operations.

Effective November 23, 2013, the Company entered into an employment agreement with its President and Chief Executive Officer, Roger Janssen. Under the terms of the agreement, Mr. Janssen received 30,000,000 shares of the Company’s restricted common stock as a signing bonus. The shares were valued at $9,450,000 based upon the trading price of the shares on the date of grant.

For the six months ended April 30, 2013

The Company did not enter into any equity transactions during the six months ended April 30, 2013.

NOTE 8 - INCOME TAXES

The Company accounts for income taxes under Accounting Standard Codification Topic No. 740 (“ASC 740”), Accounting for Income Taxes. This statement mandates the liability method of accounting for deferred income taxes and permits the recognition of deferred tax assets subject to an ongoing assessment of realizability.

Deferred income tax assets and liabilities are computed annually for differences between financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.

Deferred tax assets resulting from stock based compensation and net operating losses are reduced by a valuation allowance, when, in the opinion of management, utilization is not reasonably assured. At April 30, 2014, the Company’s gross deferred tax asset totaled $4,700,000. This amount was reduced 100% by a valuation allowance, making the net deferred tax asset $0.

As of April 30, 2014, the Company had estimated federal net operating loss carry forwards totaling approximately $3,986,000 which can be used to offset future federal income tax. The federal net operating loss carry forwards expire at various dates through 2034. The utilization of the net operating losses to offset future net taxable income is subject to the limitations imposed by the change in control under Internal Revenue Code Section 382.

The Company adopted the provisions of Accounting Standard Codification Topic 740-10-50, formerly FIN 48, Accounting for Uncertainty in Income Taxes . We had no material unrecognized income tax assets or liabilities for the six months ended April 30, 2014 or for the six months ended April 30, 2013.

Company management policy regarding income tax interest and penalties is to expense those items as general and administrative expense but to identify them for tax purposes. During the six months ended April 30, 2014 and 2013, there were no income tax, or related interest and penalty items in the income statement, or liability on the balance sheet. The company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company is no longer subject to U.S. federal or state income tax examination by tax authorities for years before 2008. The Company is not currently involved in any income tax examinations.

NOTE 9 - SEGMENT REPORTING

The Company’s operations are classified into two reportable segments that provide different products. Separate management of each segment is required because each business unit is subject to different marketing, production, and technology.

Segment operating earnings reflect revenues, net of operating costs and depreciation, depletion, and amortization and are reconciled to loss from operations before incomes tax as follows:

For the six months ended April 30, 2014

Segment operating earnings reflect revenues net of operating costs and depreciation, depletion, and amortization and are reconciled to loss from operations before income tax as follows:

Identifiable assets by industry segments are as follows:

NOTE 10 - COMMITMENTS AND CONTINGENCIES

In January 2014, the Company entered into lease for warehouse and corporate office space located in Ferndale, Washington for 26 months. The Company was granted an option to extend the lease for another two years. Rent expense charged to operations for the six months ended April 30, 2014 amounted to $15,785.

Minimum future rental payments under non-cancelable operating leases having remaining terms in excess of one year as of April 31, 2014 during the term of the respective lease and in the aggregate are as follows: