APPYEA, INC - Quarter Report: 2018 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

For the quarterly period ended March 31, 2018

or

For the transition period from ____________ to ____________

Commission File Number 000-55403

(817) 887-8142

(Registrant’s telephone number, including area code)  

 ______________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

FORM 10-Q

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

APPYEA, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

See accompanying notes to the unaudited consolidated financial statements.

APPYEA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

See accompanying notes to the unaudited consolidated financial statements.

APPYEA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

See accompanying notes to the unaudited consolidated financial statements.

APPYEA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2018

(Unaudited)

1. NATURE OF OPERATIONS

AppYea, Inc. ("AppYea", "the Company", "we" or "us") was incorporated in the State of South Dakota on November 26, 2012 to engage in the acquisition, purchase, maintenance and creation of mobile software applications. The Company is in the development stage with no significant revenues and a limited operating history.

The Company incorporated a wholly-owned subsidiary, "The Diagnostic Centers Inc." in State of South Dakota on August 2, 2017.

On June 9, 2017, the Company entered into a Management Services Agreement (“MSA”) with The Diagnostic Group, LLC, A Delaware limited liability company (“TDG”) under the terms of which, the Company shall perform activities related to direct marketing of TDG products and services to healthcare providers. The initial term of the Agreement will be for thirty-six (36) months from the effective date. The MSA shall automatically renew for successive one (1) year terms, unless either Party gives the other Party ninety (90) days’ written notice of termination prior to the effective date of any renewal term, or unless the MSA is terminated earlier in accordance with Section 6 of the MSA. The Company will be paid for providing services to directly recruited customers at the rate of 35% of the Net Collected Revenue collected from non-federally funded payors by third party providers affiliated or contracted with TDG for ancillary services ordered by recruited customers less any lab specific costs related to any referred samples and/or services and less any refunds or chargebacks. The Company will be paid by the 15th of each month for Net Collected Revenue from the previous month.

The Company's common stock is traded on the OTC Markets (www.otcmarkets.com) under the symbol "APYP". The first day of trading on the OTC Markets was December 15, 2014.

2. SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements.

In the opinion of the company’s management, the accompanying unaudited interim financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the company as of March 31, 2018 and the results of operations and cash flows for the periods presented. The results of operations for the nine months ended March 31, 2018 are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited financial statements should be read in conjunction with the financial statements and related notes thereto included in the company’s Annual Report on Form 10-K for the year ended June 30, 2017 filed with the SEC on October 13, 2017.

Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States 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 revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include assumptions about the valuation and recognition of stock-based compensation expense, the valuation and recognition of derivative liability, valuation allowance for deferred tax assets and useful life of fixed assets.

Principles of Consolidation

The consolidated financial statements include the accounts of AppYea and its subsidiary. Intercompany transactions and balances have been eliminated.

Equity Method Investment

The Company owns membership interests of 5% in Cedar Creek Labs Series Two LLC. The Company accounts for its interest in this entity using the equity method. The Company’s investment in this entity was $25,000 at March 31, 2018. Under the equity method of accounting, the Company records the investment at cost. The Company’s investment in the entity is increased by additional contributions to the entity as well as its proportionate share of earnings in the entity. Conversely, the Company’s investment is decreased by distributions made by the Company and by its proportionate share of losses. During the nine months ended March 31, 2018, the Company recognized loss on Investment in equity method investee of $476.

Fair Value of Financial Instruments

As defined in ASC 820” Fair Value Measurements,” fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).

The following table summarizes fair value measurements by level at March 31, 2018 and June 30, 2017, measured at fair value on a recurring basis:

3. GOING CONCERN AND LIQUIDITY

At March 31, 2018, the Company had cash of $1,258 and current liabilities of $1,270,212 and a working capital deficit of $1,257,313. The Company has generated net losses since inception. The Company anticipates future losses in its business. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

The Company’s ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. There is no assurance that this series of events will be satisfactorily completed.

4. FIXED ASSETS

As at March 31, 2018 and June 30, 2017, the balance of fixed assets represented a vehicle and mobile application software as follows:

Depreciation expense for the nine months ended March 31, 2018 and 2017 was $25,244 and $32,792, respectively.

5. CONVERTIBLE LOANS

At March 31, 2018 and June 30, 2017, convertible loans consisted of the following:

During the nine months ended March 31, 2018 and 2017, the Company recognized amortization of discount, included in interest expense, of $266,157 and $9,326, respectively.

March 2015 Note

On March 13, 2015, the Company issued a $10,000 convertible promissory note payable. The unsecured convertible promissory note payable is due upon demand and carries an interest rate of 12% per annum. The note payable is convertible at the option of the holder, at 50% of the lowest traded price for the 60 days preceding conversion as posted on the OTC Markets or on such US National Exchange upon which the Company may be listed. Effective March 13, 2015, the Company evaluated the terms of the conversion features of the convertible debenture in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging - Contracts in Entity's Own Stock and determined it is indexed to the Company's common stock and that the conversion features meet the definition of a liability and therefore bifurcated the conversion feature and accounted for it as a separate derivative liability. The Company valued the conversion feature at the issue date (March 13, 2015) at $14,552 using the Black Scholes valuation model. $10,000 of the value assigned to the derivative liability was recognized as a debt discount on the convertible debenture. The debt discount was recorded as a reduction (contra-liability) to the convertible debenture and is being amortized over the life of the convertible debenture. The balance of $4,552 of the value assigned to the derivative liability was expensed on the issue date of the convertible note.

As of March 31, 2018, and June 30, 2017, the outstanding principal balance of the note was $0, the note had accrued interest of $454 and an unamortized debt discount of $0.

November 2016 Note 1

On November 15, 2016, the Company entered into four separate agreements with Greentree Financial Group, Inc., consisting of a Financial Advisory Agreement, a Loan Agreement, a Convertible Promissory Note, and a Warrant.

The Loan Agreement allows for the Company to borrow up to $250,000 from Greentree, which will be evidenced by various promissory notes, which will automatically mature 12 months from the date of applicable Note, will accrue interest at a rate of 12% per annum, and will include an original issuance discount (“OID”) of 10%. In addition, the promissory notes will be convertible at a price equal to 55% of the lowest trading price during the 10 trading days immediately prior to a conversion date. The conversion price shall not be lower than $0.0001. Note may not be converted prior to 6 months from its issuance. There is a 10% prepayment penalty associated with each of the promissory notes. Each promissory note conversion shall result in $1,500 being added to the principal of each promissory note converted. An initial promissory note of $100,000 was issued on November 15, 2016.

The warrant issued to Greentree allows for the purchase of up to 5,000,000 shares of the Company’s common stock for a three year period, expiring on November 15, 2019, with an exercise price of $0.03 per share. The warrants also contain a cashless exercise feature, based on a cashless exercise formula.

The Company determined that the exercise feature of the warrants met the definition of a liability in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging - Contracts in Entity’s Own Stock. The Company will bifurcate the embedded conversion option in the note once the note becomes convertible and account for it as a derivative liability. The fair value of the warrants was recorded as a debt discount being amortized to interest expense over the term of the note.

On January 26, 2017 and June 30, 2017, the Company issued convertible notes of $75,000 and $75,000 according to the loan agreement on November 15, 2016.

During the nine months ended March 31, 2018, the Company converted notes with principal amounts and accrued interest of $150,131 into 485,258,293 shares of common stock. The corresponding derivative liability at the date of conversion of $264,514 was credited to additional paid in capital.

During the nine months ended March 31, 2018, a total of $19,000 note principal was assigned to two lenders under the same term and conversion price.

November 2016 Note 2

On November 15, 2016, the Company also issued note of $25,000 for a financial advisory service, which will automatically mature 6 months from the date of applicable Note, will accrue interest at a rate of 12% per annum. In addition, the promissory notes will be convertible at a price equal to 55% of the lowest trading price during the 10 trading days immediately prior to a conversion date. The conversion price shall not be lower than $0.0001. There is a 10% prepayment penalty associated with each of the promissory notes. Each promissory note conversion shall result in $1,500 being added to the principal of each promissory note converted.

During the nine months ended March 31, 2018, the Company converted notes with principal amounts and accrued interest of $6,200 into 28,181,818 shares of common stock. The corresponding derivative liability at the date of conversion of $16,909 was credited to additional paid in capital.

During the nine months ended March 31, 2018, a total of $4,044 note principal was assigned to a lender under the same term and conversion price.

Promissory Notes - Issued in fiscal year 2018

During the nine months ended March 31, 2018, the Company issued a total of $101,667 note with the following terms:

Certain notes allow the Company to redeem the notes at rates ranging from 135% to 150% depending on the redemption date provided that no redemption is allowed after the 180th day. Likewise, the note includes original issue discounts totaling to $10,000 and the Company received cash of $91,667.

The Company identified conversion features embedded within certain notes and warrants issued during the period ended March 31, 2018. The Company has determined that the conversion feature of the Notes represents an embedded derivative since the conversion price is variable and the Notes include a reset provision which could cause adjustments upon conversion. Accordingly, the Notes are not considered to be conventional debt and the embedded conversion feature must be bifurcated from the debt host and accounted for as a derivative liability. The warrants are exercisable into 42,500,000 shares of common stock, for a period of five years from issuance, at a price of $0.0005 per share. As a result of the reset features, the warrants increased by 150,681,818 and the total warrants exercisable into 193,181,818 shares of common stock at $0.00011 per share. The reset feature of warrants associated with this convertible note was effective at the time that a separate convertible note with lower exercise price was issued. We accounted for the issuance of the Warrants as a derivative.

Warrants

A summary of activity during the nine months ended March 31, 2018 follows:

The following table summarizes information relating to outstanding and exercisable warrants as of March 31, 2018:

6. CONVERTIBLE LOANS – RELATED PARTY

At March 31, 2018 and June 30, 2017, convertible loan – related party consisted of the following:

During the nine months ended March 31, 2018 and 2017, the Company recognized amortization of discount, included in interest expense, of $7,587 and $0, respectively.

Promissory Notes - Issued in fiscal year 2018

During the nine months ended March 31, 2018, the Company issued a total of $8,333 note with the following terms:

The Company received cash of $8,333.

The Company determined that the conversion feature met the definition of a liability in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging - Contracts in Entity's Own Stock and therefore bifurcated the embedded conversion option once the note becomes convertible and accounted for it as a derivative liability. The fair value of the conversion feature was recorded as a debt discount and amortized to interest expense over the term of the note.

The Company valued the conversion feature using the Black Scholes valuation model. The fair value of the derivative liability for all the notes that became convertible, including the notes issued in prior years, during the nine months ended March 31, 2018 amounted to $9,371. $8,333 of the value assigned to the derivative liability was recognized as a debt discount to the notes while the balance of $1,038 was recognized as a “day 1” derivative loss.

7. DERIVATIVE LIABILITIES

The Company analyzed the conversion option for derivative accounting consideration under ASC 815, Derivatives and Hedging, and hedging, and determined that the instrument should be classified as a liability since the conversion option becomes effective at issuance resulting in there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.

Fair Value Assumptions Used in Accounting for Derivative Liabilities.

ASC 815 requires we assess the fair market value of derivative liability at the end of each reporting period and recognize any change in the fair market value as other income or expense item.

The Company determined our derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of March 31, 2018. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each convertible note is estimated using the Black-Scholes valuation model.

At March 31, 2018, the estimated fair values of the liabilities measured on a recurring basis are as follows:

The following table summarizes the changes in the derivative liabilities during the nine months ended March 31, 2018:

The aggregate gain (loss) on derivatives during the nine months ended March 31, 2018 and 2017 was $(509,092) and $4,216.

8. COMMITMENTS AND CONTINGENCIES

Leases and Long term Contracts

The Company has not entered into any long-term leases, contracts or commitments.

Agreements

In December 2016, the Company entered into a contract agreement with M Endeavors, LLC for marketing the services to Doctors office, clinic and hospitals for the term of 5 years. The Agreements shall automatically renew for successive 12-month periods unless otherwise terminated in accordance with the terms of this Agreement. The Company pays a monthly fee of $8,000 and expenses related to this contract. As of March 31, 2018, and June 30, 2017, the Company recorded accrued expenses of $75,250 and $7,900, respectively.

In December 2016, the Company entered into a contract agreement with Big Dreams ventures, LLC for marketing the services to Doctors office, clinic and hospitals for the term of 5 years. The Agreement shall automatically renew for successive 12-month periods unless otherwise terminated in accordance with the terms of this Agreement. The Company pays a monthly fee of $10,000 and expenses related to this contract. As of March 31, 2018, and June 30, 2017, the Company recorded accrued expenses of $51,000 and $7,150, respectively.

On October 2, 2017, the Company entered into an agreement with Pacific Pain & Regenerative Medicine. The Company pays $3,000 per month for a collector in exchange for a minimum of 5 PGX tests per week or 20 per month. As of March 31, 2018, the Company recorded accrued expense of $12,000.

Legal

To the best of the Company's knowledge and belief, no legal proceedings are currently pending or threatened.

During 2017, the Company entered into discussions regarding a proposed merger with Decision Diagnostics Corporation (“DECN”) and entered into a Preliminary Agreement Leading to a Triangular Merger (“Merger Agreement”). The Company determined that the Merger Agreement was not in the best interest of its Shareholders and terminated the Merger Agreement. In order to resolve any potential disputes or claims, the Company entered into a Settlement Agreement and Release (“Settlement”).

DECN shall forever release and discharge, any and all claims or demands, of any type or description, whether known or unknown, that have been asserted or could have been asserted against the Company and shall further forever release and discharge the Company, from any and all claims, demands, causes of action, and liabilities of any kind whatsoever (upon any legal or equitable theory, whether contractual, common-law, statutory, federal, state, local, or otherwise) (collectively the “Claims”), arising by reason of any act, omission, transaction or occurrence which DECN ever had or now has against the Company existing on, after, or prior to the execution date of the Settlement Agreement. DECN further agrees to indemnify the Company to the fullest extent of the law with respect to any violation by DECN of the releases and discharges given hereunder.

According to the Settlement, the Company issued 75,000,000 shares of common stock in October 2017. During the nine months ended March 31, 2018, the Company recorded settlement expense of $67,500.

Rent

As of January 30, 2013, the Company leases office space at $200 per month with three-month terms, which shall be automatically extended for successive three-month periods unless there is the notice to cancel. The lease can be cancelled at any time by either party with 30 days’ notice prior to expiration of an applicable term. For the nine months ended March 31, 2018 and 2016, the Company incurred $1,863 and $1,820, respectively.

9. SHAREHOLDERS' EQUITY

Amendment to Articles of Incorporation or Bylaws

On February 15, 2018, the Company filed a Certificate of Amendment with the state of South Dakota, to the Company’s Articles of Incorporation, to increase in the number of authorized shares of its common stock from 1,500,000,000 to 6,000,000,000, par value $0.0001 and to increase the number of authorized Series A Preferred Stock from 5,000,000 to 60,000,000, par value $0.0001.

Series A Preferred Stock

The Company is authorized to issue 60,000,000 shares of Series A Preferred Stock at a par value of $0.0001.

Each Series A preferred share is convertible into 1,500 shares of common stock and has the voting rights of 1,000 shares of common stock.

As at March 31, 2018 and June 30, 2017, 5,000,000 shares of the Company's Series A Preferred Stock were issued and outstanding.

Common Stock

During the nine months ended March 31, 2018, the Company issued common shares, as follows:

As at March 31, 2018 and June 30, 2017, 1,168,413,424 and 519,973,313 shares of the Company's common stock were issued and outstanding, respectively.

Stock payable

The Company had insufficient authorized shares as of June 30, 2017 and as a result, the Company had $105,000 in stock payable for which it is obligated to issue 55,000,000 shares of common stock for consulting services. During the nine months ended March 31, 2018 the company issued 30,000,000 common shares for cash of $200 and reduced common stock payable by $57,273.

As of March 31, 2018, the Company had $47,727 in stock payable for which it is obligated to issue 25,000,000 shares of common stock for consulting services.

On November 13, 2017, the Company entered into a consulting agreement with a third party for the term of 5 years with a consideration of an issuance of 40,000,000 shares of common stock valued at $20,000. The share shall be issued in two tranches with first tranche of 10,000,000 shares being due at signing of this agreement and an additional 30,000,000 shares are due on the 3 months anniversary of this agreement. During the nine months ended March 31, 2018, the Company issued 10,000,000 shares with a fair value of $5,000. As of March 31, 2018, the Company had $15,000 in stock payable for which it is obligated to issued 30,000,000 shares of common stock for consulting services.

10. RELATED PARTY TRANSACTIONS

In March 2016, the Company appointed current CEO and approved a base compensation package of $8,000 per month for CEO. As of March 31, 2018, and June 30, 2017, the Company recorded accrued salary of $200,000 and $128,000, respectively.

During the nine months ended March 31, 2018, the Company borrowed a total amount of $20,050 from Evergreen Venture Partners LLC (“EVP”), which the CEO is the majority owner, and repaid $6,571. This loan is a non-interest bearing and due on demand. As of March 31, 2018, and June 30, 2017, the Company owed EVP, a related party $87,087 and $73,608, respectively.

On November 15, 2017, the Company entered into a distribution agreement with Cedar Creek Labs Series Two LLC (“LLC”) for the term of 1 year. The agreement shall be automatically extended for successive 1 year unless there is the notice to terminate. The Company shall use best efforts to market the Products for the LLC and will receive compensation ranging from 15% to 40% of profit. The Company owns membership interests of 5% in LLC and the transactions between the Company and LLC which is an equity method investee are deemed to be between related parties. During the nine months ended March 31, 2018, the Company recorded revenue and accounts receivable of $11,641.

11. SUBSEQUENT EVENTS

On April 2, 2018, the Company issued 32,063,636 shares of common stock for conversion of debt and accrued interest.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD LOOKING STATEMENTS

This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Our unaudited financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles. The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this quarterly report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this quarterly report.

Our financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.

In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to “common shares” refer to the common shares in our capital stock.

As used in this quarterly report and unless otherwise indicated, the terms “we”, “us”, “our” and "West Coast Ventures" mean AppYea, Inc., and our wholly owned subsidiaries, AppYea Holdings, Inc. and The Diagnostic Centers, Inc., unless otherwise indicated.

General Overview

We were incorporated in the State of South Dakota on November 26, 2012. We are engaged in the acquisition, purchase, and maintenance of mobile software applications and through its wholly owned subsidiary, The Diagnostic Centers, Inc., AppYea markets comprehensive diagnostic testing services to physician offices, clinics, hospitals, long term care facilities, healthcare groups, and other healthcare providers. We entered into a service marketing agreement with The Diagnostic Group Inc. on June 6, 2017 to market their One Health Laboratory. Under this agreement, AppYea receives thirty five percent of the net proceeds per test delivered. Our Newly formed sales team will contact hospitals, long term care facilities, healthcare groups, employers, governmental units and correctional institutions in getting comprehensive diagnostic testing results quicker. Our goal is to work with multiple diagnostic testing facilities throughout the United States and at the same time using numerous collectors to handle the samples personally therefore expediting the process.

Our administrative office is located at 777 Main Street, Suite 600, Fort Worth, TX 76102, Telephone: (817)-887-8142.

Our fiscal year end is June 30th. We have not been subject to any bankruptcy, receivership or similar proceeding.

Results of Operations

Three months ended March 31, 2018 compared to three months ended March 31, 2017.

We generated revenues of $158 and revenues from related party of $11,641 for the three months ended March 31, 2018, compared to revenues of $178 for the same period in 2017.

Our operating expenses, for the three months ended March 31, 2018 were $136,368 compared to $146,499 for the same period in 2017. The decrease in operating expenses was primarily as a result of a decrease in travel expense.

Other net expense, for the three months ended March 31, 2018 were $272,520 compared to $5,230 for the same period in 2017. The increase in other expenses was primarily related to an increase in interest expense as well as the loss on the change in the fair value of our derivative liabilities.

We incurred a net loss of $397,089 and $151,551 for the three months ended March 31, 2018 and 2017, respectively.

Nine months ended March 31, 2018 compared to Nine months ended March 31, 2017.

We generated revenues of $1,202 and revenue from related party of $11,641 for the nine months ended March 31, 2018, compared to revenues of $719 for the same period in 2017.

Our operating expenses, for the nine months ended March 31, 2018 were $520,012 compared to $316,243 for the same period in 2017. The increase in operating expenses was primarily as a result of an increase in subcontractors expenses and professional fees, offset by a decrease in travel expense.

Other net expense, for the nine months ended March 31, 2018 were $834,064 compared to $12,279 for the same period in 2017. The increase in other expenses was primarily related to an increase in interest expense as well as the loss on the change in the fair value of our derivative liabilities.

We incurred a net loss of $1,341,233 and $327,803 for the nine months ended March 31, 2018 and 2017, respectively.

Liquidity and Capital Resources

The following table provides selected financial data about our company as of March 31, 2018 and June 30, 2017, respectively.

Working Capital

Cash Flows

As at March 31, 2018 our company’s cash balance was $1,258 and total assets were $51,223. As at June 30, 2017, our company’s cash balance was $42,567 and total assets were $81,611.

As at March 31, 2018, our company had total liabilities of $1,270,212, compared with total liabilities of $496,821 as at June 30, 2017.

As at March 31, 2018, our company had a working capital deficiency of $1,257,313 compared with working capital deficiency of $454,254 as at June 30, 2017. The increase in working capital deficiency was primarily attributed a decrease in cash of $41,309 and an increase in accounts payable and accrued liabilities of $192,078, accrued salary of $72,000 and derivative liabilities of $462,668.

Cash Flow from Operating Activities

During the nine months ended March 31, 2018, our company used $129,988 in cash from operating activities, compared to $194,350 cash used in operating activities during the nine months ended March 31, 2017. During the nine months ended March 31, 2018, we incurred a net loss of $1,341,233 of which $908,056 arose from non-cash expenses and we generated cash flow of $314,830 from the net increase in operating liabilities and used $11,641 from the net increase in operating assets. During the nine months ended March 31, 2017, we incurred a net loss of $327,083 of which $86,902 arose from non-cash expenses and we generated cash flow of $78,384 from the net increase in operating liabilities and used $31,833 from the net increase in operating assets.

Cash Flow from Investing Activities

During the nine months ended March 31, 2018 and 2017, our company used $25,000 for investment in equity method investee and $0, respectively

Cash Flow from Financing Activities

During the nine months ended March 31, 2018, our company received $113,679 from financing activities compared to $200,308 received from financing activities during the nine months ended March 31, 2017. During the nine months ended March 31, 2018, we received $91,667 by way of loan under a convertible note payable, $8,333 by way of loan under a convertible note payable – related party, $200 from the issuance of our common shares, $20,050 loan from a related party and repaid $6,571 to a related party. During the nine months ended March 31, 2017, we received $157,500 by way of loan under a convertible note payable and $59,617 loan from a related party and repaid $16,809 to a related party.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, and capital expenditures or capital resources that are material to stockholders.

Critical Accounting Policies

Use of Estimates and Assumptions

The preparation of financial statements in conformity with generally accepted accounting principles requires that management makes 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.

Financial Instruments

Fair value measurements are determined based on the assumptions that market participants would use in pricing an asset or liability. ASC 820-10 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. FASB ASC 820 establishes a fair value hierarchy that prioritizes the use of inputs used in valuation methodologies into the following three levels:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets. A quoted price in an active market provides the most reliable evidence of fair value and must be used to measure fair value whenever available.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity's own assumptions about the assumptions that market participants would use in pricing an asset or liability. For example, level 3 inputs would relate to forecasts of future earnings and cash flows used in a discounted future cash flows method.

The carrying values of cash, accounts receivable, prepaid expenses, accounts payable, and accruals approximate their fair value due to the short-term maturities of these instruments.

Derivative Financial Instruments

The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. We evaluate all of our financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company used a Black Scholes valuation model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As a “smaller reporting company”, we are not required to provide the information required by this Item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company’s management conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and Rule 15d-15(e) under the 1934 Act) pursuant to Rule 13a-15 under the 1934 Act. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports it files or submits under the 1934 Act is recorded, processed, summarized and reported on a timely basis and that such information is communicated to management and the Company’s board of directors to allow timely decisions regarding required disclosure.

Based on this evaluation, it has been concluded that the design and operation of our disclosure controls and procedures are not effective since the following material weaknesses exist:

To the extent reasonably possible given our limited resources, as financial resources become available we intend to take measures to cure the aforementioned weaknesses, including, but not limited to, the following:

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

To the best of the Company’s knowledge and belief, no legal proceedings are currently pending or threatened.

Item 1A. Risk Factors

As a “smaller reporting company”, we are not required to provide the information required by this Item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None

Item 6. Exhibits

____________

* Filed herewith.

** Furnished herewith.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.