Bemax, Inc. - Quarter Report: 2018 February (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

Form 10-Q

☒  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 28, 2018

or

☐  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 333-197756

BEMAX INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (707) 401-1809

N/A

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

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ☒      No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  ☒       No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ☐      No  ☒

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:  As of April 10, 2018, the issuer had 648,758,013 shares of its common stock issued and outstanding.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONTENTS

BEMAX INC

Balance Sheets

The accompanying notes are an integral part of these unaudited condensed financial statements.

The accompanying notes are an integral part of these unaudited condensed financial statements.

BEMAX INC.

Notes to the Financial Statements

February 28, 2018

(Unaudited)

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

BEMAX INC. (“The Company”) was incorporated in the State of Nevada on November 28, 2012 to engage in the business of exporting disposable baby diapers manufactured in the United States and then distributing them throughout Europe and South Africa.

NOTE 2 - GOING CONCERN

The accompanying unaudited financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has had minimal revenue and has an accumulated a deficit of $2,515,072 as of February 28, 2018. The Company requires capital for its contemplated operational and marketing activities. The obtainment of additional financing, the successful development of the Company’s contemplated plan of operations, and its transition, ultimately, to the attainment of profitable operations are necessary for the Company to continue operations. These conditions and the ability to successfully resolve these factors raise substantial doubt about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future, loans from officers/directors and/or private placement of common stock. Obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. The unaudited financial statements of the Company do not include any adjustments that may result from the outcome of these uncertainties.

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The Company’s unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The accompanying unaudited condensed financial statements reflect all adjustments, consisting of only normal recurring items, which, in the opinion of management, are necessary for a fair statement of the results of operations for the periods shown and are not necessarily indicative of the results to be expected for the full year ending May 31, 2018. These unaudited condensed financial statements should be read in conjunction with the financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended May 31, 2017.

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.

Inventory

The Company’s inventory consists of finished goods ready for resale. Inventories are stated at the lower of cost or market. Cost is principally determined using the last-in, first-out (LIFO) method. The company periodically reviews the value of items in inventory and provides write-downs or write-offs of inventory based on its assessment of market conditions.

Derivative Financial Instruments

Derivative liabilities are recognized in the balance sheets at fair value based on the criteria specified in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 815-15 – Derivatives and Hedging – Embedded Derivatives (“ASC 815-15”). Pursuant to ASC Topic 815-15 an evaluation of the embedded conversion feature of convertible debt is evaluated to determine if the bifurcated debt conversion feature is required to be classified as a derivative liability. Since the terms of the embedded conversion features of the Company’s convertible debt provides for the issuance of shares of common stock at the election of the holders and the number of shares is subject to adjustment for a decline in the price of the Company’s common stock, the Company determined that the embedded conversion option met the criteria of a derivative liability. The estimated fair value of the embedded conversion feature of debt classified as derivative liabilities are determined using the Black-Scholes option pricing model. The model utilizes Level 3 unobservable inputs to calculate the fair value of the derivative liabilities at each reporting period. The Company determined that using an alternative valuation model

such as a Binomial-Lattice model would result in minimal differences. The fair value of the embedded conversion feature of debt classified as derivative liabilities are adjusted for changes in fair value at each reporting period, and the corresponding non-cash gain or loss is recorded as other income or expense in the statement of operations. As of February 28, 2018, and May 31, 2017, the embedded conversion feature of $577,569 and $449,975, respectively, of convertible notes payable was classified as a derivative liability. Each reporting period the embedded conversion feature is re-valued and adjusted through the caption “change in fair value of derivative liabilities” on the statements of operations.

Fair value of financial instruments

The Company follows Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 825-10-50-10, Financial Instruments—Overall—Disclosure, for disclosures about fair value of our financial instruments and ASC 820-10-35-37, Fair Value Measurement—Overall—Subsequent Measure—Fair Value Hierarchy, to measure the fair value of our financial instruments. ASC 820-10-35-37 establishes a framework for measuring fair value GAAP and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, ASC 820-10-35-37 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of fair value hierarchy defined by ASC 820-10-35-37 are described below:

The following table classifies the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy as of:

February 28, 2018:

May 31, 2017:

Revenue Recognition

The Company follows ASC 605-10-S99-1, Revenue Recognition, of the FASB Accounting Standards Codification for revenue recognition, which has four basic criteria that must be met before revenue is recognized: 1) existence of persuasive evidence that an arrangement exists; 2) delivery has occurred or services have been rendered; 3) the seller’s price to the buyer is fixed and determinable; and 4) collection is reasonably assured.

Pre-payment Policy: All sales to our customers will be solely on a pre-payment basis. Once the order is completed and payment is received, we will place an order with the North American supplier of disposable baby diapers and arrange shipping directly to our customers. The process is expected to take three weeks to complete. The pre-payment will be recorded as deferred revenue until the delivery is executed.

Reclassifications

Certain reclassifications have been made to the prior year financial information to conform to the presentation used in the unaudited financial statements for the nine months ended February 28, 2018.

Recent Accounting Pronouncements

The Company does not expect the adoption of recently issued accounting pronouncements to have any significant impact on the Company’s results of operations, financial position or cash flow. As new accounting pronouncements are issued, the Company will adopt those that are applicable under the circumstances.

NOTE 4—PROPERTY AND EQUIPMENT

Furniture, fixtures, and equipment, stated at cost, less accumulated depreciation consisted of the following at:

Depreciation Expense

Depreciation expense for the nine months ended February 28, 2018 and 2017, was $2,392 and $0, respectively.

NOTE 5 – OTHER ASSETS

On March 27, 2017, the Company entered into an Option to obtain a Property Lease Agreement (“the lease”) with Simfox Enterprises aka Achievers Nursery School. This is a development property situated in Lagos, Nigeria. The lease is for 30 years with two successive five-year extensions at the option of the Company. Consideration for the Option is $300,000 with $110,000 due immediately and the balance by installments by August 30, 2017. As of February 28, 2018, the Company has paid the full $300,000. In addition, the Company has agreed, subject to the signing of the Definitive Document, to pay Simfox Enterprises, a $390,000 refundable good faith deposit, of which $390,000 has been paid. The definitive document is currently under negotiation. The deposit will be held by Simfox in an interest-bearing account to be returned to Bemax plus interest, on completion of the development of the property by the Company. 

The Company intends to develop the property for its intended purpose over a two to five-year period, as mutually agreed upon. The option payment of $300,000 will be amortized over this period once development begins.

NOTE 6 - RELATED PARTY TRANSACTIONS

The President of the Company provides management services and office premises to the Company for a fee of $1,500 per month, the right to which the President has agreed to assign to the Company until such a time as the Company closes on an equity or debt financing of not less than $750,000. The assigned rights are valued at $1,000 per month for rent and $500 for executive compensation. As of February 28, 2018, and May 31, 2017, there is $58,500 and $45,000, respectively, accrued for these fees.

As of February 28, 2018, and May 31, 2017, there are loans from the majority shareholder of $11,438 and $11,438, respectively. These loans were made in order to assist in meeting general and administrative expenses. These advances are unsecured, due on demand and non-interest bearing.

NOTE 7 - STOCKHOLDERS’ EQUITY

On December 5, 2016, the Company issued 7,500,000 shares of common stock per the terms of a one-year consulting agreement. The shares were valued at $0.01 per share for total non-cash expense of $75,000. The expense was being amortized over the term of the agreement. As of February 28, 2018, the full $75,000 has been debited to consulting expense.

On January 24, 2017, the Company allowed Taiwo Aimasiko, its CEO to retire 150,000,000 shares of common stock in exchange for 50,000,000 Series B preferred shares.

On October 24, 2017, the Company amended its Articles of Incorporation increasing the authorized issue of common stock from 850,000,000 to 950,000,000. The par value remains the same at $0.0001 per share. 

During the year ended May 31, 2017, various note holders converted $318,631 of principal and accrued interest into 185,348,336 shares of common stock. All conversions were completed pursuant to the terms of their respective convertible promissory notes. No gains or losses were recognized as a result of the conversions.

On January 8, 2018, the Board of Directors consented to increase the Company’s authorized common shares to 1,700,000,000 from 950,000,000, par value to remain at $0.0001.

On January 10, the Company’s Board of Directors approved the retirement of 40,000,000 common shares owned by the Company’s CEO, Taiwo Aimasiko, in exchange for 40,000,000 Series C Preferred Shares, effectively reducing the Company’s total common shares issued and outstanding by 9.3%.

During the nine months ended February 28, 2018, the Company converted $104,675 and $14,039 of principal and interest, respectively, into 219,447,951 shares of common stock.

On October 10, 2017, the Company executed an Agreement for IR Services. The agreement is for six months and requires a fee of 10 million shares of common stock. The first 5,000,000 shares of common stock are required upon the execution of the agreement and were granted by the Board of Directors on October 10, 2017. The next 2.5 million shares are due in thirty days and the remaining 2.5 million, thirty days after that. The Company issued the 5,000,000 shares valued at $0.0023 per share for total non-cash expense of $11,500. On November 10, 2017, the Company issued another 2,500,000 shares of common stock valued at $0.0022 per share for total non-cash expense of $5,500. On December 10, 2017, the Company issued the last 2,500,000 shares of common stock valued at $0.001 per share for total non-cash expense of $2,500. All expense is being amortized over the remaining term of the agreement. As of February 28, 2018, $15,025 has been debited to consulting expense. As of February 28, 2018, 5,000,000 of the shares have not yet been issued by the transfer agent; therefore, they have been credited to the stock payable account.

NOTE 8 – PREFERRED STOCK 

On January 23, 2017, the Board of Directors designated a series of preferred stock titled Series B Preferred Stock consisting of 50,000,000 shares with a $0.0001 par value. Each share of Series B preferred stock has voting rights of 10 votes per share, and will vote alongside the common stock, not as a separate class. Each share of preferred stock can be converted into three shares of common stock at any time after a one-year anniversary. Holders are entitled to dividends, if declared, equivalent to if they had converted to common stock. The Series B preferred stock have no liquidation rights.

On October 24, 2017, the Company amended its Articles of Incorporation increasing the authorized issue of preferred stock from 50,000,000 to 100,000,000. The par value remains the same at $0.0001 per share. 

On January 24, 2017, the Company allowed Taiwo Aimasiko, its CEO to retire 150,000,000 shares of common stock in exchange for 50,000,000 Series B preferred shares. 

On January 8, 2018, the Company amended and restated its Articles of Incorporation to designate 40,000,000 of the 100,000,000 shares of Preferred Stock as Series C Preferred Stock. Each share of Series C preferred stock has voting rights of 40 votes per share, and will vote alongside the common stock, not as a separate class. Each share of preferred stock can be converted into one share of common stock at any time after a one-year anniversary. Holders are entitled to dividends, if declared, equivalent to if they had converted to common stock. The Series C preferred stock have no liquidation rights. 

On January 10, 2018, the Company allowed Taiwo Aimasiko, its CEO to retire 40,000,000 shares of common stock in exchange for 40,000,000 Series C preferred shares.  

 NOTE 9 - CONVERTIBLE LOANS

On December 28, 2016, the Company issued a Convertible Promissory Note in favor of Crown Bridge Partners, LLC. The principal amount of the loan is $46,000 with an original issue discount of $6,000 and carries an interest rate of 8% per annum. It becomes due and payable with accrued interest on December 28, 2017. Crown Bridge Partners, LLC. has the option to convert the Note plus accrued interest into common shares of the Company, after 180 days. The conversion rate will be at a discount of 45% applied to the lowest trading price for fifteen days prior to the actual date of conversion. On June 8, 2017, the Company repaid the $46,000 of principal, $1,575 of accrued interest and a $23,925 early payment penalty. As a result of repayment of the note the Company recognized the remaining debt discount. The Company repaid the note prior to when the convertible feature was effective; therefore, there are no derivatives related to the embedded conversion feature.

On March 20, 2017, the Company issued a Convertible Promissory Note in favor of Crown Bridge Partners, LLC. The principal amount of the loan is $114,000 with an original issue discount of $14,000 and carries an interest rate of 8% per annum. It becomes due and payable with accrued interest on March 20, 2018. Crown Bridge Partners, LLC. has the option to convert the Note plus accrued interest into common shares of the Company, after 180 days. The conversion rate will be at a discount of 43% applied to the lowest trading price for ten days prior to the actual date of conversion. The company bifurcated the conversion feature and accounted for it as a derivative liability. The Company recorded the derivative liability at its fair value of $170,236 based on the Black Scholes Merton pricing model and a corresponding debt discount of $114,000 to be amortized utilizing the interest method of accretion over the term of the note. During the nine months ended February 28, 2018, the Company converted $12,380 of principal into 15,000,000 shares of common stock. As of February 28, 2018, the Company fair valued the derivative at $104,810. In addition, $110,921 of the debt discount has been amortized to interest expense.

On March 27, 2017, the Company issued a Convertible Promissory Note in favor of JSJ Investments, Inc. The principal amount of the loan is $125,000 with an original issue discount of $9,250 and carried an interest rate of 8% per annum. Upon default the interest rate has increased to 12%. It becomes due and payable with accrued interest on December 22, 2017. JSJ Investments, Inc. has the option to convert the Note plus accrued interest into common shares of the Company at any time. The conversion rate will be at a discount of 40% applied to the average of the three lowest trading prices for ten days prior to the actual date of conversion. The company bifurcated the conversion feature and accounted for it as a derivative liability. The Company recorded the derivative liability at its fair value of $204,373 based on the Black Scholes Merton pricing model and a corresponding debt discount of $125,000 to February 28, 2018, the Company converted $42,374 of principal into 41,953,384 shares of common stock. As of February 28, 2018, the Company fair valued the derivative at $79,047. In addition, $125,000 of the debt discount has been amortized to interest expense. This note is currently in default.

On April 4, 2017, the Company issued a Convertible Promissory Note in favor of Auctus, Fund, LLC. The principal amount of the loan is $145,000 with an original issue discount of $15,000 and carries an interest rate of 8% per annum. It becomes due and payable with accrued interest on December 22, 2017. Auctus Fund, LLC. has the option to convert the Note plus accrued interest into common shares of the Company, at any time. The conversion rate will be at a discount of 40% applied to the lowest trading price for ten days prior to the actual date of conversion. The company bifurcated the conversion feature and accounted for it as a derivative liability. The Company recorded the derivative liability at its fair value of $257,720 based on the Black Scholes Merton pricing model and a corresponding debt discount of $145,000 to be amortized utilizing the interest method of accretion over the term of the note. During the nine months ended February 28, 2018, the Company converted $17,621 and $12,365 of principal and interest, respectively into 90,275,800 shares of common stock. As of February 28, 2018, the Company fair valued the derivative at $81,727. In addition, $145,000 of the debt discount has been amortized to interest expense. This note is currently in default and has incurred a $15,000 penalty that has been added to the principal amount due.

On August 3, 2017, the Company issued a Convertible Promissory Note in favor of JSJ Investments, Inc. The principal amount of the loan is $60,000 with an original issue discount of $5,000 and carries an interest rate of 8% per annum. It becomes due and payable with accrued interest on May 3, 2018. JSJ Investments, Inc. has the option to convert the Note plus accrued interest into common shares of the Company at any time. The conversion rate will be at a discount of 40% applied to the average of the three lowest trading prices for ten days prior to the actual date of conversion. The company bifurcated the conversion feature and accounted for it as a derivative liability. The Company recorded the derivative liability at its fair value of $73,676 based on the Black Scholes Merton pricing model and a corresponding debt discount of $60,000 to be amortized

utilizing the interest method of accretion over the term of the note. As of February 28, 2018, the Company fair valued the derivative at $57,402. In addition, $45,954 of the debt discount has been amortized to interest expense.

On June 2, 2017, the Company issued a Convertible Promissory Note in favor of GS Capital Partners, LLC. The principal amount of the loan is $132,000 with an original issue discount of $6,600 and carries an interest rate of 8% per annum. It becomes due and payable with accrued interest on June 2, 2018. GS Capital Partners, LLC. has the option to convert the Note plus accrued interest into common shares of the Company, after 180 days. The conversion rate will be at a discount of 36% applied to the lowest trading price for ten days prior to the actual date of conversion. The company bifurcated the conversion feature and accounted for it as a derivative liability. The Company recorded the derivative liability at its fair value of $172,690 based on the Black Scholes Merton pricing model and a corresponding debt discount of $132,000 to be amortized utilizing the interest method of accretion over the term of the note. During the nine months ended February 28, 2018, the Company converted $32,300 and $1,673 of principal and interest, respectively into 72,218,767 shares of common stock. As of February 28, 2018, the Company fair valued the derivative at $92,291. In addition, $67,303 of the debt discount has been amortized to interest expense.

On July 18, 2017, the Company issued a Convertible Promissory Note in favor of GS Capital Partners, LLC. The principal amount of the loan is $105,000 with an original issue discount of $5,000 and carries an interest rate of 8% per annum. It becomes due and payable with accrued interest on July 18, 2018. GS Capital Partners, LLC. has the option to convert the Note plus accrued interest into common shares of the Company, after 180 days. The conversion rate will be at a discount of 36% applied to the lowest trading price for ten days prior to the actual date of conversion. The company bifurcated the conversion feature and accounted for it as a derivative liability. The Company recorded the derivative liability at its fair value of $192,097 based on the Black Scholes Merton pricing model and a corresponding debt discount of $105,000 to be amortized utilizing the interest method of accretion over the term of the note. As of February 28, 2018, the Company fair valued the derivative at $116,078. In addition, $28,123 of the debt discount has been amortized to interest expense.

On October 19, 2017, the Company issued a Convertible Promissory Note in favor of Einstein Investments. The principal amount of the loan is $36,200 with an original issue discount of $5,200 and carries an interest rate of 8% per annum. It becomes due and payable with accrued interest on July 19, 2018. Einstein Investments has the option to convert the Note plus accrued interest into common shares of the Company, at any time. The conversion rate will be at a discount of 43% applied to the lowest trading price for 15 days prior to the actual date of conversion. The company bifurcated the conversion feature and accounted for it as a derivative liability. The Company recorded the derivative liability at its fair value of $86,715 based on the Black Scholes Merton pricing model and a corresponding debt discount of $36,200 to be amortized utilizing the interest method of accretion over the term of the note. As of February 28, 2018, the Company fair valued the derivative at $46,215. In addition, $20,869 of the debt discount has been amortized to interest expense.

On October 26, 2017, the Company issued a Convertible Promissory Note in favor of GS Capital Partners, LLC. The principal amount of the loan is $125,000 with an original issue discount of $6,250 and carries an interest rate of 8% per annum. It becomes due and payable with accrued interest on October 26, 2018. GS Capital Partners, LLC. has the option to convert the Note plus accrued interest into common shares of the Company, after 180 days. The conversion rate will be at a discount of 36% applied to the lowest trading price for ten days prior to the actual date of conversion. As of February 28, 2018, $2,084 of the debt discount has been amortized to interest expense.

On January 10, 2018, the Company issued a Convertible Promissory Note in favor of GS Capital Partners, LLC. The principal amount of the loan is $105,000 with an original issue discount of $5,000 and carries an interest rate of 8% per annum. It becomes due and payable with accrued interest on January 10, 2019. GS Capital Partners, LLC. has the option to convert the Note plus accrued interest into common shares of the Company, after 180 days. The conversion rate will be at a discount of 36% applied to the lowest trading price for ten days prior to the actual date of conversion. As of February 28, 2018, $667 of the debt discount has been amortized to interest expense.

On February 12, 2018, the Company issued a Convertible Promissory Note in favor of GS Capital Partners, LLC. The principal amount of the loan is $125,000 with an original issue discount of $6,250 and carries an interest rate of 8% per annum. It becomes due and payable with accrued interest on October 26, 2018. GS Capital Partners, LLC. has the option to convert the Note plus accrued interest into common shares of the Company, after 180 days. The conversion rate will be at a discount of 36% applied to the lowest trading price for ten days prior to the actual date of conversion. As of February 28, 2018, $260 of the debt discount has been amortized to interest expense.  

A summary of outstanding convertible notes as of February 28, 2018 and May 31, 2017 is as follows:

During the year ended May 31, 2017, the Company converted $318,631 of principal and accrued interest into 185,348,336 shares of common stock. During the nine months ended February 28, 2018, the Company converted $104,675 and $14,039 of principal and interest, respectively, into 219,447,951 shares of common stock.

A summary of the activity of the derivative liability for the notes above is as follows:

A summary of quantitative information about significant unobservable inputs (Level 3 inputs) used in measuring the Company’s derivative liabilities that are categorized within Level 3 of the fair value hierarchy for the nine months ended February 28, 2018 is as follows:

The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s management. 

NOTE 10 – CORRECTION OF ERRORS

The Company has discovered that there were errors in prior periods regarding revenue, expense and derivative recognition for derivatives related to the embedded conversion features of convertible notes. As a result, the prior periods in these financial statements have been restated.

NOTE 11 - SUBSEQUENT EVENTS

In accordance with ASC 855-10, Subsequent Events, we have analyzed our operations subsequent to February 28, 2018, through the date the unaudited financial statements were available to be issued, and have determined that we do not have any material subsequent events to disclose in these unaudited financial statements other than the following.

Subsequent to February 28, 2018, the various note holder converted approximately $35,000 and of principal and interest, respectively into 162,669,226 shares of common stock.

 ITEM 2. MANAGEMENT’S DISCUSSION ND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

This report on Form 10-Q contains certain forward-looking statements. All statements other than statements of historical fact are “forward-looking statements” for purposes of these provisions, including any projections of earnings, revenues, or other financial items; any statements of the plans, strategies, and objectives of management for future operation; any statements concerning proposed new products, services, or developments; any statements regarding future economic conditions or performance; statements of belief; and any statement of assumptions underlying any of the foregoing. Such forward-looking statements are subject to inherent risks and uncertainties, and actual results could differ materially from those anticipated by the forward-looking statements.

Business Overview

Bemax Inc. is a Nevada based company focusing on the distribution of disposable baby diapers, made in North America and Asia by quality producers, to wholesalers and retailers in Europe and the emerging markets. Our business is focused on expanding current distribution networks for our private labels. We will attract more distributors for our products with competitive pricing through lower overhead cost. We continue to invest in the ecommerce space to attract loyal customers and expand within our markets.

The Company is working on several business development projects to increase business and revenue generation in 2018 and beyond, including but not limited to: product licensing of private labels in some of our African markets, production, and extended distribution of new and existing Bemax private label disposable baby diaper products. There can be no assurance that these will be successful in generating increased revenues in 2018.

Results of Operations for the Three Months Ended February 28, 2018 and 2017

Revenue

Revenue for the three months ended February 28, 2018 and 2017 was $102,090 and $24,960, respectively. The increase is due to a large sale to a single customer in January 2018.

Operating Expenses

Consulting fees were $5,001 and $0 for the three months ended February 28, 2018 and 2017, respectively. The increase can be attributed to the recognition of expense for stock for services issued.

Professional fees were $2,925 and $9,200 for the three months ended February 28, 2018 and 2017, respectively, a decrease of $6,275, or 68.2%, in 2018. The decrease in 2018, as compared to 2017, can be largely attributed to decreased audit and accounting fees related to required SEC quarterly filings.

General and administrative expense was $46,786 and $68,858 for the three months ended February 28, 2018 and 2017, respectively, a decrease of $22,072, or 32.1%, in the current period. The decrease in 2018 can be attributed to decreased operational costs.

Other Income and Expense

For the three months ended February 28, 2018, we had total other income of $205,647, compared to total other expense of $853,102 for the three months ended February 28, 2017. For the three months ended February 28, 2018, we recorded interest expense of $19,704, compared to $3,712 in the prior period. In addition, as a result of the convertible promissory notes, we recorded amortization of debt discount of $206,376, compared to $134,032 for the prior period, a loss on the issuance of convertible debt of $92,098 compared to $0 for the prior period, and a gain in the change in the fair value of our derivatives of $538,825 compared to a loss of $715,358 in the prior year.

Net Loss

For the three months ended February 28, 2018 and 2017, we gained net income of $154,525 and incurred a net loss of $1,070,720, respectively.

 Results of Operations for the Nine Months Ended February 28, 2018 and 2017

Revenue

Revenue for the nine months ended February 28, 2018 and 2017 was $104,815 and $140,113, respectively. The decrease is due fewer customers in the current period.

Operating Expenses

Consulting fees were $53,001 and $0 for the nine months ended February 28, 2018 and 2017, respectively. The increase can be attributed to fees associated with acquiring the property lease with Simfox and the recognition of expense for stock for services.

Professional fees were $31,713 and $18,600 for the nine months ended February 28, 2018 and 2017, respectively, an increase of $13,113, or 70.5%, in 2018. The increase in 2018, as compared to 2017, can be largely attributed to increased legal, audit, and/or accounting fees related to required SEC quarterly filings.

General and administrative expense was $132,997 and $79,442 for the nine months ended February 28, 2018 and 2017, respectively, an increase of $53,555, or 67.4%, in the current period. The increase in 2018 can be attributed to increased operational costs including $5,003 for travel, office expense as well as additional filing fees to amend some of our SEC filings.

Other Income and Expense

For the nine months ended February 28, 2018, we had total other expense of $486,046, compared to $964,928 for the nine months ended February 28, 2017. For the nine months ended February 28, 2018, we recorded interest expense of $45,125, compared to $53,001 in the prior period. In addition, as a result of the convertible promissory notes, we recorded amortization of debt discount of $485,763 compared to $296,400 for the prior period, a loss on the issuance of convertible debt of $284,014 compared to $284,091 for the prior period, a loss on settlement of debt of $23,925, and a gain in the change in the fair value of our derivatives of $367,781 compared to a loss of $331,436 in the prior year.

Net Loss

For the nine months ended February 28, 2018 and 2017, we incurred a net loss of $701,952 and $1,206,554, respectively.

Liquidity and Capital Resources

During the nine months ended February 28, 2018, we used cash of $590,963 in operating activities, as compared to $269,632 for the nine months ended February 28, 2017. Financing activities provided net cash of $602,900 during the nine months ended February 28, 2018, as compared to $154,500 for the nine months ended February 28, 2017.

As of February 28, 2018, we have the following convertible notes outstanding.

We currently have minimal cash reserves. To date, the Company has covered operating deficits primarily through loans from the sole director, and third-party loans which if not paid with interest are convertible to the Company’s common stock. Accordingly, our ability to pursue our plan of operations is contingent on our being able to obtain funding for the development, marketing and commercialization of our products and services. However, as a result of its lack of operating success, the Company may not be able to raise additional funding to cover operating deficits.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has an accumulated deficit of $2,515,072 since inception (November 28, 2012) and is dependent on its ability to raise capital from shareholders or other sources to sustain operations. However, these conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We anticipate that we may only generate any limited revenues in the near future and we will not have enough positive internal operating cash flow until we can generate substantial revenues, which may take the next two years to fully realize.  There is no assurance we will achieve profitable operations.

Critical Accounting Estimates and Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Note 3 to the Financial Statements describes the significant accounting policies and methods used in the preparation of the Financial Statements. Estimates are used for, but not limited to, contingencies and taxes.  Actual results could differ materially from those estimates. The following critical accounting policies are impacted significantly by judgments, assumptions, and estimates used in the preparation of the Financial Statements.

The Company follows ASC 605-10-S99-1, Revenue Recognition, of the FASB Accounting Standards Codification for revenue recognition, which has four basic criteria that must be met before revenue is recognized: 1) existence of persuasive evidence that an arrangement exists; 2) delivery has occurred or services have been rendered; 3) the seller’s price to the buyer is fixed and determinable; and 4) collection is reasonably assured.

Pre-payment Policy: All sales to our customers will be solely on a pre-payment basis. Once the order is completed and payment is received, we will place an order with the North American supplier of disposable baby diapers and arrange shipping directly to our customers. The process is expected to take three weeks to complete. The pre-payment will be recorded as deferred revenue until the delivery is executed.

We are subject to various loss contingencies arising in the ordinary course of business.  We consider the likelihood of loss or impairment of an asset or the incurrence of a liability, as well as our ability to reasonably estimate the amount of loss in determining loss contingencies.  An estimated loss contingency is accrued when management concludes that it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated.  We regularly evaluate current information available to us to determine whether such accruals should be adjusted.

We recognize deferred tax assets (future tax benefits) and liabilities for the expected future tax consequences of temporary differences between the book carrying amounts and the tax basis of assets and liabilities.  The deferred tax assets and liabilities represent the expected future tax return consequences of those differences, which are expected to be either deductible or taxable when the assets and liabilities are recovered or settled.  Future tax benefits have been fully offset by a 100% valuation allowance as management is unable to determine that it is more likely than not that this deferred tax asset will be realized.

Off-Balance Sheet Arrangements

We have not entered into any 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, capital expenditures or capital resources and would be considered material to investors.

Recent Accounting Pronouncements

The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Not applicable to smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our sole officer, as appropriate to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our sole officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of February 28, 2018.

Based on the evaluation of these disclosure controls and procedures, our Chief Executive and Chief Financial Officer concluded that as of the end of the periods covered by this report, we have identified the following material weakness of our internal controls: Lack of sufficient accounting staff which results in a lack of segregation of duties necessary for a good system of internal control and lack of formal documentation of accounting policies and procedures.

In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute assurance of achieving the desired objectives. Also, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs.

Changes in Internal Controls

There were no changes in our internal control or in other factors during the last fiscal quarter covered by this report that have materially affected, or are likely to materially affect the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Management is not aware of any legal proceedings contemplated by any governmental authority or any other party against us. None of our directors, officers or affiliates are (i) a party adverse to us in any legal proceedings, or (ii) have an adverse interest to us in any legal proceedings. Management is not aware of any other legal proceedings that have been threatened against us.

ITEM 1A. RISK FACTORS

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and, as such, are not required to provide the information under this Item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the nine months ended February 28, 2018, the Company converted $104,675 and $14,039 of principal and interest, respectively, into 219,447,951 shares of common stock.

On October 10, 2017, the Company issued the 5,000,000 shares valued at $0.0023 per share for total non-cash expense of $11,500. On November 10, 2017, the Company issued another 2,500,000 shares of common stock valued at $0.0022 per share for total non-cash expense of $5,500. On December 10, 2017, the Company issued the last 2,500,000 shares of common stock valued at $0.001 per share for total non-cash expense of $2,500. As of February 28, 2018, 5,000,000 of the shares have not yet been issued by the transfer agent; therefore, they have been credited to the stock payable account.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

N/A.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibits:

SIGNATURES

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