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4. FORMATION OF SUBSIDIARY

9 Months Ended

Jul. 31, 2016

On June 23, 2016, the Company formed a wholly-owned subsidiary named Sonofresco, LLC a Delaware limited liability company.

Pursuant to the terms of an Agreement for Purchase and Sale of Assets dated June 23, 2016 (the “SONO Agreement”), by and among the Company, Coffee Kinetics LLC, a Washington limited liability company (the “Seller”), the members of the Seller and SONO (the “Buyer”), the Company, through its wholly-owned subsidiary SONO, purchased substantially all the assets, including equipment, inventory, customer list and relationships (the “Assets”) of the Seller. This was accounted for as a business combination. The Buyer purchased the Assets for a purchase price consisting of $856,904 in cash and 38,364 shares with a value of $200,003 of the Company's common stock issued on June 29, 2016, the date of closing.

As part of the transaction, all of the employees of the Seller became employees of the Buyer. In addition, on June 29, 2016, the Company entered into a one-year advisory agreement (the “Advisory Agreement”), with one of the Seller’s executives (the “Executive”), on an independent contractor basis, to ensure continuity of the business and to continue to operate the business located in Washington. The Advisory Agreement will automatically renew for an additional one year term upon the expiration of the first year term unless terminated by the Company. After completion of the first year term, the Advisory Agreement is subject to renewal by mutual agreement of the parties. Pursuant to the terms of the Advisory Agreement, the Executive is entitled to cash compensation of $50,000 per annum. If the Advisory Agreement is terminated prior to the end of the first year term, the Executive is entitled to receive an additional $50,000 termination fee. If the term of the Advisory Agreement is extended past the first year term, subject to certain exceptions, the Executive will be entitled to the $50,000 termination fee upon termination of the Advisory Agreement.

The following table summarizes the assets purchased and liabilities assumed:
Assets acquired:
Accounts receivable	$	84,142
Inventory		306,905
Equipment		40,000
Customer list		120,000
Goodwill		577,905
Less: liabilities assumed		(72,045	)
Net assets acquired:	$	1,056,907
Purchase of assets funded by:
Cash paid	$	856,904
Common stock, par value $.001 per share, 38,364 shares		38
Additional paid-in capital		199,965
	$	1,056,907

The following pro forma results of operations for the three and nine months ended July 31, 2016 and 2015 have been prepared as though the acquisition of SONO had occurred as of the beginning of the earliest period presented. This pro forma financial information is not indicative of the results of operations that the Company would have attained had the acquisition of SONO occurred at the beginning of the periods presented, nor is the pro forma financial information indicative of the results of operations that may occur in the future:

	Nine Months Ended July 31,					Three Months Ended July 31,
	2016		2015			2016		2015
Pro forma sales	$	62,751,256	$	96,910,164		$	17,689,710	$	27,456,352
Pro forma net income (loss)	$	2,103,684	$	(1,960,479	)	$	775,650	$	202,569
Pro forma basic and diluted earnings per share	$	.34	$	(.32	)	$	.13	$	.03

The operations of SONO have been included in the Company’s consolidated statement of operations since the date of the acquisition on June 29, 2016. The total revenue included for the period is $146,000.