Item 1. Interim Consolidated Financial Statements and Notes to Interim Financial Statements (Unaudited)
Steele Oceanic Corporation
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Consolidated Balance Sheets
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(Unaudited)
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July 31,
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October 31,
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2017
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2016
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Assets
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Current assets:
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Cash and cash equivalents
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$69,740
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$164,593
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Accounts receivable
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167,991
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420,514
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Inventories
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51,069
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147,060
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Prepaid expenses and other current assets
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7,382
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66,156
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Total current assets
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296,182
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798,323
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Goodwill
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26,290
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26,290
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Other assets
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1,000
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3,282
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Total assets
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$323,472
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$827,895
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Liabilities and Stockholders’ Equity
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Current liabilities:
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Accounts payable
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$87,785
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$513,987
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Related parties payable
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-
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106,355
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Loan payable
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80,000
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80,000
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Other current liabilities
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176
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1,421
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Total current liabilities
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167,961
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701,763
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Total liabilities
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167,961
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701,763
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Contingencies and commitments
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Stockholders’ equity:
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Preferred stock (5,000,000 authorized, $0.0001 par value, 1,052,046 and 284,490 outstanding as of July 31, 2017 and October 31, 2016, respectively)
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Preferred series A stock (100,000 designated, $0.0001 par value, none outstanding as of July 31, 2017 and October 31, 2016, respectively)
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-
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-
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Preferred series B stock (3,000,000 designated, $0.0001 par value, 1,052,046 and 284,490 outstanding as of July 31, 2017 and October 31, 2016, respectively)
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105
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28
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Common stock (895,000,000 authorized, $0.0001 par value, 6,372,355 and 51,426 outstanding as of July 31, 2017 and October 31, 2016, respectively)
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637
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5
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Additional Paid-In Capital
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1,267,949
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156,437
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Accumulated deficit
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(1,113,180)
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(30,338)
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Total stockholders’ equity
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155,511
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126,132
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Total liabilities and stockholders’ equity
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$323,472
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$827,895
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See accompanying notes to unaudited consolidated financial statements.
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4
Steele Oceanic Corporation
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Consolidated Statements of Operations
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(Unaudited)
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Three months ended July 31, 2017
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Three months ended July 31, 2016
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Nine months ended July 31, 2017
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Period from inception
(January 7, 2016) to July 31, 2016
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Sales
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$618,522
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$845,985
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$3,632,093
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$2,263,625
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Cost of goods sold
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572,884
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794,808
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$3,306,252
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1,840,737
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Gross profit
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45,638
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51,177
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$325,841
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422,888
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Operating expenses:
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Selling, general and administrative expenses
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1,096,832
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82,743
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1,386,844
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185,747
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Total operating expenses
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1,096,832
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82,743
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1,386,844
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185,747
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Operating (loss) income
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(1,051,194)
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(31,566)
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(1,061,003)
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237,141
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Other (income) expenses, net:
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Interest expense, net
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3,226
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2,229
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8,013
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4,145
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Loss on settlement of debt
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13,826
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-
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13,826
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Total other income, net
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17,052
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2,229
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21,839
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4,145
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Net loss
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$(1,068,246)
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$(33,795)
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$(1,082,842)
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$232,996
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Earnings per share:
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Basic & diluted
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$ (0.20)
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-
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$(0.48)
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-
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Shares used in earnings per share calculation:
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Basic & diluted
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5,372,528
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-
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2,258,548
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-
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See accompanying notes to unaudited consolidated financial statements.
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5
Consolidated Statements of Cash Flows
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(Unaudited)
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For the nine months ended July 31, 2017
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For the period from Inception (January 7, 2016) to July 31, 2016
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Cash Flows From Operating Activities
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Net loss
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$(1,082,842)
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$232,996
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Stock-based compensation
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992,040
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-
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Loss on settlement of debt
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13,826
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Changes in operating assets and liabilities:
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Accounts receivable
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252,523
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(298,263)
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Inventories
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95,991
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(145,957)
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Prepaid expenses and other current assets
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58,774
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-
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Other assets
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2,282
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(3,344)
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Accounts payable and other current liabilities
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(427,447)
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138,166
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Net cash (used) provided by operating activities
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(94,853)
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(76,402)
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Cash Flows From Financing Activities
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Capital Contribution
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-
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10
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Repayment to related party notes
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-
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(26,582)
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Proceeds from related party notes
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-
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131,992
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Net cash provided by financing activities
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-
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105,420
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Net decrease in cash and cash equivalents
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(94,853)
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29,018
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Cash and cash equivalents at beginning of year
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164,593
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-
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Cash and cash equivalents at end of year
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$69,740
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$29,018
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Supplemental Disclosure of Cash Flow Information
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Cash paid for interest
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$-
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$ -
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Cash paid for income taxes
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$-
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-
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Non Cash Transactions
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Issuance of common stock from conversion of Series A Preferred Stock
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$214
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Issuance of common stock from conversion of Series B Preferred Stock
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$28
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Issuance of common stock due to the cancellation of debt
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$53
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Issuance of CS for settlement of related party debt
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$120,181
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Issuance of Series B PS as compensation to debt holder
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$105
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See accompanying notes to unaudited consolidated financial statements.
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6
STEELE OCEANIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1 – INTERIM FINANCIAL INFORMATION
Nature of Operations
Steele Oceanic Corporation (the “Company” or “Steele Oceanic Corporation”) was originally incorporated in Nevada on February 12, 2007. Steele Oceanic Corporation (formerly Steele Recording Corporation and Steele Resource Corporation) was a U.S. exploration and mining company. On June 17, 2010, the Company entered into and consummated a Plan and Agreement of Reorganization between Steele Resources Corporation and Steele Resources Corporation (Nevada) and certain stockholders of Steele Resources Corporation Pursuant to the Reorganization, Steele Resources Corporation acquired all of the issued and outstanding shares of Steele Resources Corporation, a Nevada Corporation (“SRI”), formed in May 2010. From an accounting perspective, Steele Resources Corporation was the acquirer.
On July 18, 2008, Steele Recording Corporation became a reporting company under Section 12(g) of the Securities Exchange Act of 1934. Steele Resources (formerly “Steele Recording Corporation”) filed its annual and quarterly reports, wherein the last report filed was the annual report for the period March 31, 2014. On July 11, 2016, Steele Resources filed a Form 15-12G and terminated its reporting responsibility. There were no other financial reports filed between March 31, 2014 and July 11, 2016.
On July 22, 2016, Steele Resources Corporation implemented a domicile change from Nevada to Oklahoma by creating and merging into Steele Seafood Corporation (“Steele Seafood”), an Oklahoma corporation. The domicile change was approved by the Oklahoma Secretary of State. The domicile change was approved by the Board of Directors and the majority shareholders of Steele Resources Corporation.
Steele Oceanic Corporation (“SOC” or “Steele Oceanic Corporation”), formally referred to as Steele Resources Corporation) was incorporated in Oklahoma on August 26, 2016. On that same date, Steele Resources/Steele Seafood Corporation prior to the Merger Agreement as discussed in corporate history below was re-domiciled as an Oklahoma corporation on August 26, 2016, became the holding company of SELR PRE, Inc. (“SELR”) on the same date and is engaged in the business of procurement and distribution of seafood internationally.
Steele Seafood Corporation. merged with and into SELR (the "Merger"), and SELR became the surviving corporation (hereinafter sometimes referred to as the "Surviving Corporation"). The Merger became effective upon the date and time of filing an executed copy of a Merger Agreement with the Secretary of State of the State of Oklahoma in accordance with Section 1081(g) of the OCGL (the "Effective Time")
At the Effective Time, the separate corporate existence of Steele Seafood Corporation ceased, and SELR succeeded to all of the assets and property (whether real, personal or mixed), rights, privileges, franchises, immunities and powers of Steele Seafood Corporation , and SELR assumed and became subject to all of the duties, liabilities, obligations and restrictions of every kind and description of Steele Seafood Corporation, including, without limitation, all outstanding indebtedness of Steele Seafood Corporation.
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The Board of Directors of Steele Seafood Corporation. immediately preceding the Effective Time became the directors of the Surviving Corporation and Steele Oceanic Corporation at and after the Effective Time until their successors are duly elected and qualified.
The officers of Steele Seafood Corporation immediately preceding the Effective Time became the officers of the Surviving Corporation.
Conversion of Securities. At the Effective Time, by virtue of the Merger and without any action on the part of the holder thereof:
a.
each share of Steele Seafood Corporation common stock issued and outstanding immediately prior to the Effective Time was changed and converted into and was be one fully paid and non-assessable share of Steele Oceanic Corporation;
b.
each share of Steele Seafood Corporation common stock held in the treasury of Steele Seafood Corporation immediately prior to the Effective Time was cancelled and retired;
c.
each option, warrant, purchase right, unit debenture or other security of Steele Seafood Corporation convertible into shares of Steele Seafood Corporation common stock had become convertible into the same number of shares of Steele Oceanic Corporation common stock as such security would have received if the security had been converted into shares of Steele Oceanic Corporation common stock immediately prior to the Effective Time, and Steele Oceanic Corporation share of common stock reserved for purposes of the exercise of such options, warrants, purchase rights, units, debentures or other securities an equal number of shares of Steele Oceanic Corporation common stock as Steele Seafood Corporation. had reserved; and
d.
each share of Steele Oceanic Corporation common stock issued and outstanding in the name of Steele Oceanic Corporation. immediately prior to the Effective Time was cancelled and retired and resumed the status of authorized and unissued shares of Steele Oceanic Corporation common stock.
On October 1, 2016, the Company completed a Stock Purchase Agreement to acquire 100% of the equity interests of Global Seafood Incorporated (“GSI”) held by Global 2.0 Corporation (“Global 2.0). As consideration for the transaction, the Company provided Global 2.0 284,490 shares of Series B Convertible Preferred Stock. These Series B Preferred Shares were not subject to the reverse stock split discussed otherwise in these footnotes and would convert into 284,490 shares of common stock at the discretion of Global 2.0. The ex-dividend date implementing the reverse stock split as applied through the
Financial Industry Regulatory Authority, Inc. (hereby and through the filing, referred to as “FINRA”) was determined as March 17, 2017 and the Series B Preferred Shares were converted to shares of common stock.
On April 17, 2017, Steele Oceanic Corporation became a reporting company under Section 12(g) of the Securities Exchange Act of 1934, sixty days following its filing of a Registration Statement on Form 10 with the Securities and Exchange Commission.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and
8
with the instructions of the Securities and Exchange Commissions (SEC) on Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and disclosure required by GAAP for complete financial statements. In the opinion of management, the consolidated financial statements include all adjustments necessary, which are of a normal and recurring nature, for the fair presentation of the Company’s financial position and of the results of operations and cash flows for the period presented. The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiary.
Under SEC rules, GSI is considered the predecessor business to SOC given GSI’s significant size compared to SOC at the date of acquisition.
The basis of presentation is not consistent between the successor and predecessor entities and the financial statements are not presented on a comparable basis. GSI was formed in January 2016 and had minimal activity in the first two months of operations and therefore the statement of operations presents the period from inception to July 31, 2016 for the predecessor. Operating results for the three and nine months ended July 31, 2017 are not necessarily indicative of the results that can be expected for the year ending October 31, 2017. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10 for the one month period ended October 31, 2016 filed with the Securities and Exchange Commission.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and (iii) the reported amount of net sales and expenses recognized during the periods presented. Adjustments made with respect to the use of estimates often relate to improved information not previously available. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of financial statements; accordingly, actual results could differ from these estimates.
Management evaluates these estimates and assumptions on a regular basis. Actual results could differ from those estimates.
Recent Accounting Pronouncements
The Company’s management does not believe that any recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying financial statements.
NOTE 2 – GOING CONCERN
The accompanying unaudited consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. As our business has grown, we have transitioned from purchasing readily available local inventory to ordering Full Container Loads, (FCLs), which require a 25-30% down payment. The turnaround time from placing our order; transportation by boat; clearing USDA/customs and land transportation is approximately 70 days as against 35 days for local trades, the result of which has been a depletion of our working capital from time to time. As we continue to execute our business plan and grow, there will be a need to increase available working capital. We have been successful in raising cash through debt and equity offerings in the past and have financing efforts in place to continue to
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raise cash through debt and equity offerings. We cannot assure you that our plans to address these matters in the future will be successful.
Our operating entity, GSI, was profitable during the nine months ended July 31, 2017 while the parent company, SOC, which does not generate revenues, incurred losses during the same period related to the costs incurred being a reporting public company. We anticipate running a small monthly deficit each month and will need additional working capital to fund growth plans and normal operations in future periods. In the event that we are unable to obtain financing on acceptable terms, or at all, we could be required to decrease and/or cease our operations or otherwise modify our business strategy, which could materially harm our future business prospects and as a result there is substantial doubt regarding our ability to continue as a going concern. These financial statements do not include any adjustments that might result from this uncertainty.
NOTE 3 – RELATED PARTY PAYABLE
On November 1, 2016, the Company entered into an Assignment and Assumption Agreement (see Note 5) with the two related parties in which the Company agreed to issue 106,355 shares of the Company’s common stock in exchange for the payable balance. On June 3, 2017, the Company, pursuant to an Assignment and Assumption Agreement, issued an aggregation of 106,355 shares of common stock to two related parties, Global 2.0 Corporation, a Delaware corporation (“2.0”) and Global Seafood Holdings Corporation, a Delaware corporation to settle its payable to them in total of $106,355. The fair value of the shares at issuance date was $120,181 resulting in a loss upon conversion of the related party notes payable of $13,826 which was recorded within Other Expense on the Statement of Operations.
The Chairman of the Company, Scott Landow, provides office space located in San Diego, California to the Company without cost. This office space is used as the corporate headquarters of the Company.
NOTE 4 – LOAN PAYABLE
On October 14, 2016, the Company entered a 90 Day unsecured Debenture for $80,000 with an interest rate of 12% due on January 13, 2017 with an unrelated party. On January 12, 2017, the Debenture maturity date was extended to April 14, 2017 and on April 12, 2017, the maturity date was extended again to July 14, 2017, and subsequently extended to August 14, 2017, in all cases for no additional consideration. Interest is payable on the 14th of each month. The Company promises to issue 2,400 shares of its common stock to the note holder on the maturity date. All overdue accrued and unpaid interest to be paid will incur a late fee at a rate of 18% per annum. In October 2017, the outstanding Debenture and accrued but unpaid interest was repaid.
NOTE 5 – SHAREHOLDERS’ EQUITY
On July 22, 2016, Steele Oceanic implemented a four thousand to one, (4,000:1), reverse stock split of its issued and outstanding shares of common stock. The ex-dividend date implementing the reverse stock split as applied through FINRA) was determined as March 17, 2017. All shares of common stock and per share information presented in the financial statements have been adjusted to reflect the reverse stock split on a retroactive basis for all periods presented.
Series A Preferred Stock
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As of December 19, 2016, Small World Traders, LLC received 1,000 shares of Series A Preferred Stock as consideration for the previous debt that was due from Steele Seafood Corporation, which was settled upon the merger that occurred in August 2016.
On March 22, 2017, subsequent to the reverse stock split enactment, Small World Traders LLC cancelled its Series A Preferred Stock and received 2,137,573 shares of common stock.
On March 29, 2017, the Company filed a new designation of rights and preferences for Series A Preferred Stock. The Series A Preferred Stock has no conversion rights but has the right to vote on all matters presented to be voted by the holders of Company common stock at a ratio of 10,000 for each common share voted. 100,000 shares of Series A Preferred Stock were reserved.
There were no outstanding shares of Series A Preferred Stock as of the date of this filing.
Series B Preferred Stock
On March 29, 2017, the Company filed a new designation of rights and preferences for Series B Preferred Stock. The Series B Preferred Stock has voting rights of one vote preferred share on all matters presented to be voted by the holders of shares of common stock and conversion rights of ten (10) shares of common stock for each share of Series B Preferred Stock.
The Series B Preferred Stock shall not be eligible for conversion until the following requirements are satisfied: (a) the Corporation has achieved, based on the last quarterly report, annual revenue or projected annual revenue, of no less than $25,000,000 and (b) based on the last quarterly report, annual or projected annual EBITA (earnings before interest, taxes and amortization) of $500,000. Once these requirements for conversion have been met, the Holders of Series B convertible shares may submit a maximum of 33.34% of their shares for conversion during any year, beginning 90 days after the filing date of the most recent current quarterly or annual report. 3,000,000 shares of Series B Preferred Stock were reserved, and 1,052,046 shares are issued and outstanding as of July 31, 2017.
On May 23, 2017, the Company issued an aggregate of 1,052,046 shares of Series B Preferred Stock as consideration to defer the conversion of certain securities until the reverse stock split was implemented. The Company determined that the Series B Preferred Stock did not have any value as of the issuance date due to the conversion restrictions.
Additionally, Global 2.0 converted 284,490 shares of Series B Preferred Stock into 284,490 shares of common stock and cancelled its Series B Preferred Stock.
Assignment and Assumption Agreement
On November 1, 2016, the Company entered into an Assignment and Assumption Agreement (the “Agreement”) with two related parties, Global 2.0 Corporation and Global Seafood Holdings Corporation. The Company agreed to settle its related party payable totaling $106,355 by issuing 106,355 shares of the Company’s common stock, which were issued on June 3, 2017. The fair value of the common stock on the date of issuance was $1.13 which resulted in a loss on the settlement of the debt of $13,826 which was recorded as an Other Expense within the Statement of Operations.
Common Stock
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On March 22, 2017, two debt holders, one of which was a related party, converted their debt in the amount of $260,000 plus unpaid interest into 526,511 shares of common stock and cancelled the previous debt obligation, which was settled upon the merger that occurred in August 2016.
On May 23, 2017, the Company issued an aggregate of 266,000 shares of common stock to two third parties in return for services. These shares were fully vested upon issuance. In addition, an aggregate of 250,000 shares of common stock were issued to consultants for services, such shares vest in increments commencing in 2018 and fully vested in January 2019.
On May 23, 2017, the Company granted restricted stock awards to an officer under the Company 2017 Omnibus Equity Compensation Plan, in an aggregate total of 2,500,000 shares of common stock, vesting 535,714 at January 5, 2018, 892,857 shares at January 5, 2019, and 1,071,429 shares at January 5, 2020. The Company will increase the number of shares reserved in the 2017 Omnibus Equity Compensation Plan to accommodate the vested shares prior to vesting. (See Subsequent Events)
On July 15, 2017, the Board of Directors approved the issuance of 250,000 shares of common stock to LP Funding for consulting services provided.
During the nine months ended July 31, 2017, the Company recorded stock-based compensation expense totaling $992,040 for the issuance of the above mentioned common stock. As of July 31, 2017, the Company has unamortized stock-based compensation expense of $2,666,620 to be recognized through January 5, 2020.
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