TAMG Transnational Group Inc (PK)

PART I - FINANCIAL INFORMATION

This Amendment No. 1 on Form 10-QSB/A amends Transnational Automotive Group, Inc.’s quarterly report on Form 10-QSB for the quarter ended August 31, 2006, which was originally filed with the Securities and Exchange Commission on October 16, 2006. The purposes of this Amendment No. 1 is to restate our consolidated financial statements for the quarter ended August 31, 2006 to account for: 1) accrued interest on unsecured promissory note obligations and convertible debentures; 2) to account for the value of the beneficial conversion feature and common stock warrants from the sale convertible debentures issued in connection with private placement memorandum offerings; 3) and to accrue for value added taxes and custom duty fees on the Company’s purchase of buses. As more fully described in Note 3 to the accompanying Form 10-QSB/A, the loss the Company previously reported in its 10-QSB for the quarter ended August 31, 2006 is increased by $645,996 or $.01 per share for the six months ended August 31, 2006 and $311,743 or $ .01 per share for the quarter ended August 31, 2006. Except as otherwise expressly stated, this Amendment No. 1 does not reflect any events occurring after the filing of the original Form 10-QSB for the quarter ended August 31, 2006.

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(The accompanying notes are an integral part of the financial statements)

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(The accompanying notes are an integral part of the financial statements)

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T RANSNATIONAL A UTOMOTIVE G ROUP , I NC .
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three and six months ended August 31, 2006 and 2005 and for the period from
April 2, 1999 (Date of Inception) to August 31, 2006
(Unaudited)
U.S. Dollars

(The accompanying notes are an integral part of the financial statements)

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T RANSNATIONAL A UTOMOTIVE G ROUP , I NC .
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended August 31, 2006
(Unaudited)
U.S. Dollars

1. NATURE OF OPERATIONS

Organization
Transnational Automotive Group, Inc. (the "Company") was incorporated April 2, 1999 in the State of Nevada as Vitaminoverrun.com Corp., in August 2001 changed its name to Apache Motor Corporation Inc. and in November 2005 the Company changed its name to Transnational Automotive Group, Inc.

In 2001 the Company merged with Cambridge Creek Companies, Ltd. ("Cambridge"), a Nevada corporation. Cambridge was a reporting issuer and the Company assumed the reporting issuer status after the merger.

Effective September 12, 2001 the Company acquired all of the outstanding shares of common stock of The Apache Motor Corp. ("Apache"), an Alberta corporation, from the shareholders of Apache in exchange for an aggregate of 440,000 shares of its common stock. The exchange was effectively a reverse takeover of the Company by Apache in that the shareholders of Apache became the majority shareholders of the Company. On October 24, 2003 the principal of The Apache Motor Corp (Robert Wither) agreed to return 278,560 shares of common stock for cancellation that he had received from the Company and the Company disposed of its shares in its subsidiary company, The Apache Motor Corp., to Robert Wither in conjunction with the cancellation of his shares in the Company. The Company retained the rights to the technology and returned the shares of the subsidiary to the original owners.

In 2002 the Company completed a 5:1 forward stock split.

On May 3, 2004 the Company terminated an agreement to acquire 100% of the issued share capital of Manter Enterprises Inc. and cancelled the 533,334 shares of common stock of the Company previously issued in trust for Manter subject to a performance agreement.

On June 7, 2004, the Company completed a 1:75 reverse stock split. On October 14, 2005 the Company completed a 2:1 forward stock split.

On October 28, 2005 the Company issued 24,000,000 shares of common stock to acquire 100% of the issued share capital of Parker Automotive Group International, Inc. (PAGI). Subsequently 18,000,000 shares of the 24,000,000 shares originally issued were returned to the Company and cancelled. PAGI is in the business of developing a public bus transportation system in Cameroon through its 66% owned subsidiary, Parker Transportation Inc., Cameroon (see note 3).

All share and per share amounts for the three and six months ended August 31, 2006 including comparative figures have been restated to reflect the forward and reverse stock splits.

Development Stage Activities
To date the Company’s activities have been organizational, directed at acquiring its principal asset, raising its initial capital and developing its business plan. In a development stage company, management devotes most of its activities to investigating business opportunities and planning for its principal activities.

The Company commenced operations in Cameroon in late October 2005 to develop an urban bus transportation system in its subsidiary company incorporated in Cameroon.

The efforts to date in Cameroon have focused on the cleaning-up and restoration of the primary bus depot located in the capital city of Yaounde, establishing urban routes, readying roadways and bus stops, preparing the maintenance facility; completing administrative matters such as opening bank accounts, securing operating licenses, recruiting and screening administrative staff, bus drivers, mechanics and security personnel.

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TRANSNATIONAL AUTOMOTIVE GROUP, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended August 31, 2006
(Unaudited)

2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The accompanying consolidated balance sheets of Transnational Automotive Group, Inc. (a development stage company) as at August 31, 2006, and the consolidated statements of operations and cash flows for the three and six months ended August 31, 2006 and 2005 and the cumulative totals for the development stage operation from April 2, 1999 (inception) through August 31, 2006 have been prepared by Transnational Automotive Group, Inc.’s management and do not include all information and notes to the financial statements necessary for a complete presentation of the financial position, results of operations and cash flows of the Company in conformity with accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included in these financial statements and all such adjustments are of a normal or recurring nature. As more fully described in note 3 to the consolidated financial statements, these August 31, 2006 interim consolidated financial statements have been restated. Due to the Development Stage status of the Company, operating results for the quarter ended August 31, 2006 are not necessarily indicative of the results that can be expected for the year ending February 28, 2007.

Principles of Consolidation

These financial statements include the accounts of the Company and Parker Automotive Group International, Inc. (“PAGI”), a Washington USA wholly owned subsidiary, Transnational Automotive Group, Cameroon (“TAUGC”), a wholly owned Cameroon subsidiary and a 66% interest in Parker Transnational Industries, Cameroon (“PTIC”). Various Cameroon governmental bodies own the remaining 34% equity interest in PTIC. All inter company balances and transactions have been eliminated.

Going Concern

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As shown in the accompanying consolidated financial statements, the Company has incurred a net loss of $5,213,435 for the period from inception April 2, 1999 to August 31, 2006 and has no revenue. The future of the Company is dependent upon its ability to obtain financing and upon future profitable operations from the development of its services. Management has plans to utilize debt and/or equity financing to fund its short-term and long-term needs. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.

Development Stage Company

At August 31, 2006 the Company is considered a development stage company as defined in the Statements of Financial Accounting Standards No. 7. The Company is devoting substantially all of its present efforts to establish a new business and to commence its planned principal operations. The Company considers all losses accumulated since inception to August 31, 2006 to be part of the Company’s development stage activities.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.

Organization and Start Up Costs

Costs of start up activities, including organization costs, are expensed as incurred. Foreign Currency Translation

The Company considers the US dollar to be its functional currency as it is the currency of the primary economic environment in which the Company and its subsidiaries currently operate. Accordingly, monetary assets and liabilities denominated in foreign currencies are translated into US dollars at the exchange rate in effect at the balance sheet date and non monetary assets and liabilities are translated at the exchange rates in effect at the time of acquisition or issue. Revenues and expenses are translated at

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Transnational Automotive Group, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended August 31, 2006
(Unaudited) 

rates approximating the exchange rates in effect at the time of the transactions. All exchange gains and losses are included in operations.

Loss Per Share

In accordance with SFAS No. 128 – “Earnings Per Share”, the basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding. Diluted loss per common share is computed similar to basic loss per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutional. At August 31, 2006 the Company’s stock equivalents were anti-dilutional and therefore excluded in the net loss per share computation.

Income Taxes

The Company follows the liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences of (i) temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements, and (ii) operating loss and tax credit carry forwards for tax purposes. Deferred tax assets are reduced by a valuation allowance when, based upon management’s estimates, it is more likely than not that a portion of the deferred tax assets will not be realized in a future period.

Fair Value of Financial Instruments

The carrying value of cash, accounts receivable, prepaid and deferred expenses, inventory, accounts payable and accrued liabilities, promissory notes and loans payable approximate their fair value because of the short term maturity of these financial instruments. Interest Rate Risk The Company is not exposed to significant interest rate risk due to the short term maturity of its monetary current assets and liabilities.

Credit Risk

The Company is exposed to credit risk with respect to its accounts receivable. The Company follows a program of credit evaluations and limits the amount of credit extended when deemed necessary. The Company maintains provisions for potential credit losses and any such losses to date have been within management’s expectations.

Currency Risk

The Company is exposed to foreign currency fluctuations to the extent expenditures incurred are not denominated in U.S. dollars. At August 31, 2006 cash includes approximately $148,095USD denominated in 75,720,973CFA (Cameroon francs).

Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123R, “Share-Based Payment”. This Statement supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”, and its related implementation guidance. This revised pronouncement requires that all stock options and warrants be accounted for using the Fair Value Method. The Company is in conformance with and will continue to conform to FASB 123R.

SFAS Interpretation No. 46(R) (“FIN 46(R)”), “Consolidation of Variable Interest Entities”, applies at different dates to different types of enterprises and entities and special provisions apply to enterprises that have fully or partially applied FIN 46 prior to issuance of FIN 46(R). Application of FIN 46 or FIN 46(R) is required in financial statements of public entities that have interests in variable interest entities or potential variable interest entities commonly referred to as special-purpose entities for periods ending after December 15, 2003. Application by public entities (other than small business issuers) for all other types of entities is required in financial statements for periods ending after March 15, 2004. Application by small business issuers to entities other than special-purpose entities and by non-public entities is required at various dates in 2004 and 2005. There is no impact on the Company’s financial statements.

In December 2004 the FASB issued SFAS No. 153, “Exchanges of Non monetary Assets.” SFAS No. 153 is an amendment of APB Opinion No. 29, “Accounting for Non-monetary Transactions” to eliminate the exception for non monetary exchanges of similar productive assets and replaces it with a general exception for exchanges of non monetary assets that do not have commercial substance. The adoption of this standard had no impact on the Company’s financial statements.

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Transnational Automotive Group, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended August 31, 2006
(Unaudited) 

In March 2005, FASB issued Interpretation No. 47 (“FIN 47”), “Accounting for Conditional Asset Retirement Obligations.” FIN 47 clarifies that the term “Conditional Asset Retirement Obligation” as used in FASB Statement No. 143, “Accounting for Asset Retirement Obligation,” refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. Accordingly, an entity is required to recognize a liability for the fair value of a Conditional Asset Retirement Obligation if the fair value of the liability can be reasonably estimated. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. The adoption of FIN 47 does not have a material affect on the Company’s financial position, results of operations or cash flows.

In May 2005, FASB issued SFAS No. 154, “Accounting Changes and Error Corrections”, which replaced Accounting Principles Board Opinion No. 20, “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements. SFAS No. 154 changes the requirements for the accounting for and reporting of a change in accounting principles. It requires retrospective application to prior periods’ financial statements of changes in accounting principles, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. This Statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The impact on the Company’s operations will depend on future accounting pronouncements or changes in accounting principles.

FIN 48, “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109”. This Interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. This Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company will adopt this interpretation effective March 1, 2007.

Issued Shares

All share and per share amounts have been restated to reflect the 5:1 forward split in 2002, the 1:75 reverse stock split in 2004 and the 2:1 forward split in 2005.

Fixed Assets

Equipment is recorded at cost and is being amortized over its estimated useful life using the following rates:

3. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

Subsequent to the issuance of the Company’s consolidated financial statements for the three months ended May 31, 2006, the Company’s management determined the Company had not properly applied Emerging Issues Task Force No. 98-5, “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios”, (“EITF 98-5”) with respect to the valuation and related debt discount associated with common stock warrants and the beneficial conversion feature of convertible debentures issued in conncection with several private placement memorandum offerings. Additionally, the Company’s management determined the Company had not properly accrued interest on unsecured promissory obligations and on the convertible debentures. Lastly, management determined the Company had not accrued for custom duty and value added taxes assessed by the government of Cameroon on the Company’s acquisition of buses. Based on the results of these findings, the Company’s management is restating the consolidated financial statements for the three and six months ended August 31, 2006. Accordingly, the restated financial results reflect the adjustments related to accruing interest on unsecured promissory note obligations, the accounting for the valuation and related debt discount of warrants and the beneficial conversion feature of convertible debentures, and the accrual for value added tax and custom duty fees on buses. The impact of these adjustments on the Company’s financial results as originally reported is summarized below.

The following schedules reconcile the amounts as originally reported in the consolidated balance sheet as of August 31, 2006 and the consolidated statements of operations fir the three and six months ended August 31, 2006 to the corresponding restated amounts in each of these consolidated financial statements:

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The excess of the purchase price over net assets acquired represents the accumulated deficits of the companies acquired. The Company determined to write off the excess as a cost of the acquisition and to reflect only real assets and liabilities on consolidation.

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TRANSNATIONAL AUTOMOTIVE GROUP, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended August 31, 2006
(Unaudited) 
U.S. Dollars

5. BUSES

The Company and its subsidiaries PTIC (66% ownership) and TAUGC (100% ownership), herein ‘the Company’, received delivery of 28 passenger buses from Yancheng Zhongda International Trading Co., Ltd. (herein ‘Zhongda’) of the People’s Republic of China for a total cost price including shipping, value added taxes and custom duty fees of $3,039,374. A Trust for whom a director of the Company is a trustee (Tov Trust) advanced $1,500,000 to Zhongda to facilitate the purchase. The Company has agreed to repay the Trust $200,000 per month for nine months commencing 91 days after the delivery of the buses to PTIC in Cameroon. Until the Trust is repaid, title to the buses will remain with the Trust (see note 9).

6. TECHNOLOGY

The Company's original business objective with respect to the production of engines was to complete the research and development of the radial engine begun by Apache and then to manufacture and market it. These plans have been put on hold due to lack of investor funding and amended business priorities. In 2003 the Company wrote down its past investment in the technology to $1. Upon completion of the first phase of operational project activities, the Company will recommence the process of identifying and achieving funding for its family of engine, fuel and advanced energy-saving and environmentally friendly technologies and products or services.

7. PROMISSORY NOTES AND OTHER LOANS PAYABLE

The Company issued various promissory notes payable which are unsecured, due on demand, and bear interest at rates ranging from 7% to 8% per annum. As of August 31, 2006, aggregate amounts outstanding under these unsecured notes payable obligations was $693,000.

8. CONVERTIBLE DEBENTURES

During the six months ended August 31, 2006, the Company raised an aggregate of $1,255,000 from the issuance of convertible debentures (“convertible debentures”) under several private placement memorandum offerings. The debentures are convertible into the common stock of the Company at exercise prices ranging from $.4464 to $.50 per share. The debentures bear interest at 7% per annum and are due and payable after one year from the date of issuance.

The Company calculated the beneficial conversion feature embedded in the convertible debentures in accordance with EITF 98-5, “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios” (“EITF 98-5”) and EITF 00-27, “Application of Issue No. 98-5 to Certain Convertible Instruments”, (“EITF 00-27”) and recorded $38,206 and $182,907 of aggregate debt discount for the three and six months ended August 31, 2006, respectively, which is included in additional paid-in capital in the accompanying consolidated balance sheet as of August 31, 2006.

The convertible debentures are exercisable upon the issuance date of the underlying instruments. As a result, the debt discount associated with the beneficial conversion feature embedded in the convertible debentures was charged to operations at the time of issuance. Total finance costs charged to operations in connection with the beneficial conversion feature was $38,206 and $182,907 for the three and six months ended August 31, 2006, respectively.

The Company also issued to the holders of the convertible debentures warrants to acquire an aggregate of 2,687,745 shares of the Company’s common stock at an exercise price of $1.50 per share. The warrants expire after the end of the second year from the date of issuance. In connection with these debentures, the Company recorded aggregate debt discount of $1,072,093 related to the fair value of the warrants issued, which is included in additional paid-in capital in the accompanying consolidated balance sheet as of August 31, 2006. This amount was calculated using the Black-Scholes pricing model with the following assumptions: applicable risk-free interest rate based on the current treasury-bill interest rate at the grant date of 3.5%; dividend yields of 0%; volatility factors of the expected market price of the Company’s common stock of 203%; and an expected life of the warrants of one year. The debt discount is being amortized over one year, the life of the convertible debentures.

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TRANSNATIONAL AUTOMOTIVE GROUP, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended August 31, 2006
(Unaudited) 
U.S. Dollars

Total finance costs associated with the amortization of the warrants was $250,926 and $422,775 for the three and six month periods ended August 31, 2006.

9 . LEASE PAYABLE

The Company committed to lease payments of $200,000 per month for nine months commencing October 2006 for the acquisition of twenty eight buses (note 4). The lease payable consists of $1,500,000 advanced to the Company used for acquisition of the buses and $300,000 deferred finance charges to be written off monthly over the term of the lease on commencement of monthly payments and is payable to a Trust for which a director of the Company is a trustee.

The following is the schedule of future lease payments pursuant to the capital lease:

10. SHARE CAPITAL

Issued Shares
During the six months ended August 31, 2006 the Company issued 285,715 shares of common stock of the Company for cash of $100,000. (see note 11).

At August 31, 2006 the Company had received subscriptions from investors of $871,819 and has committed to the future issuance of 1,915,572 shares of common stock.

11. RELATED PARTY TRANSACTIONS

During the six months ended August 31, 2006 the Company expensed $335,526 in consulting fees to directors and officers of the Company.

At August 31, 2006 the Company owes $10,000 to a director of the Company pursuant to a promissory note payable for a bridge loan to the Company.

The Company entered into an equipment lease with a Trust for which a trustee is a director of the Company (see notes 4 and 7).

12. COMMITMENTS

- The Company had committed to office space leases totalling approximately $297,100 to July 2007. In August 2006 the Company terminated the lease and is negotiating a settlement not exceeding $168,000 and has not been recorded as a liability at August 31, 2006.
- The Company has committed to acquire an additional bus for a payment of $59,020.
- The Company has committed to lease payments of $200,000 per month for nine months commencing October 2006 for the purchase of 28 buses (see note 5).

13. SUBSEQUENT EVENTS

Subsequent to the six months ended August 31, 2006:

The Company received a loan in the amount of $1,000,000 from Tov Trust with no fixed terms of repayment.

The Company cancelled 18,000,000 shares of common stock pursuant to the acquisition of PAGI (see note 3). The cancellation is part of a corporate restructuring in the Company’s ongoing efforts to provide equity for qualified interested parties.

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