Bespoke Extracts, 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 PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 000-52759

BESPOKE EXTRACTS, INC.

(Exact name of registrant as specified in its charter)

323 Sunny Isles Boulevard, Suite 700

Sunny Isles Beach, FL 33160

(Address of principal executive offices)

855-633-3738

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months, 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, 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 ☒

As of April 27, 2018, there were 37,803,907 shares outstanding of the registrant’s common stock.

TABLE OF CONTENTS

PART I

ITEM 1. FINANCIAL STATEMENTS 

Bespoke Extracts, Inc.

Consolidated Balance Sheets

(Unaudited)

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

Bespoke Extracts, Inc

Consolidated Statements of Operations

(Unaudited)

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

Bespoke Extracts, Inc

Consolidated Statements of Cash Flows

(Unaudited)

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

Bespoke Extracts, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 — BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Bespoke Extracts, Inc, a Nevada corporation (the “Company”), have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. These unaudited consolidated financial statements and related notes should be read in conjunction with the Company’s annual report on Form 10-K for the fiscal year ended August 31, 2017. In the opinion of management, these unaudited consolidated financial statements reflect all adjustments that are of a normal recurring nature and which are necessary to present fairly the financial position of the Company as of February 28, 2018, and the results of operations and cash flows for the three and six months ended February 28, 2018 and February 28, 2017. The results of operations for the three and six months ended February 28, 2018 are not necessarily indicative of the results that may be expected for the entire fiscal year.

Certain prior period amounts have been reclassified to conform to current period presentation.

Going Concern

The accompanying interim consolidated financial statements have been prepared assuming a continuation of the Company as a going concern. The Company did not generate any revenues and reported a net loss of $2,897,422 for the six months ended February 28, 2018.  These conditions raise substantial doubt about our 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. The accompanying financial statements do not contain any adjustments that may result from the outcome of this uncertainty.

Inventory

Inventories are stated at the lower of cost or market value.  Cost is determined by the first-in, first-out basis and market being determined as the lower of replacement cost or net realizable value. The Company records inventory write-downs for estimated obsolescence of unmarketable inventory based upon assumptions about future demand and market conditions. As of February 28, 2018, inventory amounted to $69,522 which consists of $53,743 in finished goods and $15,779 in raw materials.

2. EQUITY 

Common Stock

The Company was formed in the state of Nevada on April 13, 2006. The Company has authorized capital of 800,000,000 shares of common stock with a par value of $0.001, and 50,000,000 shares of preferred stock with a par value of $0.001.

On September 18, 2017, the Company issued 900,000 shares of common stock in connection with the issuance of a convertible note with a principal amount of $180,000. The relative fair value of the stock of $51,503 was recognized as a discount to the note that is being amortized to interest expense over the life of the note.

On September 22, 2017, the company issued 900,000 shares of common stock and 300,000 warrants pursuant to a stock purchase agreement for cash of $60,300.

On November 10, 2017, the Company issued an aggregate of 1,400,000 shares of common stock to the holder of a related party 7% Convertible Promissory Note, to convert principal amount of $11,200.

On November 27, 2017, the Company issued an aggregate of 1,450,000 shares of common stock to the holder of a related party 7% Convertible Promissory Note, to convert principal amount of $11,600.

On November 10, 2017, the Company issued an aggregate of 1,550,000 shares of common stock to the holder of a 7% Convertible Promissory Note, dated November 14, 2016 to convert principal amount of $12,400.

For the six months ended February 28, 2017, the Company recognized option expense of $579,419 for options granted on July 26, 2017 to a nonemployee for services. As of February 28, 2018, $484,756 remains to be expensed over the remaining service period through July 26, 2019.

Warrants

During the quarter ended February 28, 2018, warrant activity included the following: 

On September 18, 2017, the Company executed an $180,000 Convertible Debenture with an original issue discount of $60,000. In connection with the debenture, the Company issued the lender 300,000 common stock purchase warrants with a term of 3 years and an exercise price of $1.00. The relative fair value of the warrants of $16,996 was recognized as a discount to the debenture.

On May 22, 2017, the Company entered into an employment agreement with Marc Yahr to serve as President and Chief Executive Officer of the Company for a term of three years, unless earlier terminated pursuant to the terms of the Employment Agreement. Pursuant to the terms of the Employment Agreement, Mr. Yahr received a warrant to purchase up to 20,000,000 shares of the Company’s common stock at an exercise price of $0.0001 per share. The warrants were exercised in full on May 31, 2017; however, the 20,000,000 shares of the Company’s common stock were not issued to Mr. Yahr until June 10, 2017. The shares received upon the exercise of the warrants are subject to forfeiture and vest over a service period of three years. The fair value of the award was determined to be $10,998,105 which will be recognized as compensation expense over the three year service period.  Warrant expense under this award for the six months ended February 28, 2018 totaled $1,818,626. As of February 28, 2018, $8,165,716 remains to be expensed over the remaining vesting period.

On January 22, 2018, the Company entered into a Sales Representation Agreement for a term of six months. Pursuant to the agreement the Company agreed to issue the nonemployee sales representative warrants to purchase 10,000 shares of common stock per month (an aggregate of 60,000 warrants) with an exercise price of $0.50, with a term of three years. The Warrants shall be exercisable at any time on or after the six (6) month anniversary of each Issuance Date, at his election, in whole or in part, by means of a “cashless exercise”. The fair value of this award was determined to be $60,618 of which $30,380 was recognized during the six months ended February 28, 2018.

On February 22, 2018, the Company entered into a Consulting Agreement for a term of one year. Pursuant to the agreement the Company agreed to issue the nonemployee consultant warrants to purchase 10,000 shares of common stock per month (an aggregate of 120,000 warrants) with an exercise price of $0.40, exercisable for cash only for a period of three years commencing six months form the issuance date. The fair value of this award was determined to be $113,943 of which $6,037 was recognized during the six months ended February 28, 2018.

The fair value of the warrants was estimated using the Black-Scholes option pricing model and the following range of assumptions:

3. ASSET PURCHASE AGREEMENT

On August 29, 2017, the Company received $82,750 as a deposit from a significant shareholder toward the purchase price on an agreement that was being negotiated with VMI Acquisitions, LLC for purchase of certain of our Company’s assets. The agreement was completed and closed on March 9, 2018. 

4. NOTES PAYABLE – RELATED PARTY

On April 27, 2016, the Company issued to the Company’s CEO a 7% unsecured promissory note in the amount of $2,500 which matured six months from the date of issuance. On July 5, 2016, the Company issued to the Company’s CEO a 7% unsecured note in the amount of $3,000 which matured six months from date of issuance. On November 17, 2016, the Company repaid the principal amount of the notes, or $5,500. As of February 28. 2018, there is a remaining balance on the note of $50.

On February 14, 2017, the Company issued to Lyle Hauser, the Company’s largest shareholder, a 7% unsecured promissory note in the amount of $30,000 which matured six months from the date of issuance. As of February 28, 2018 the outstanding balance on the note is $30,000

5. CONVERTIBLE DEBENTURE – RELATED PARTY 

On May 17, 2016, the Company issued to Vantage Group, a significant shareholder, a 7% unsecured promissory note in the amount of $10,000 which had an original maturity of six months from the date of issuance. On August 15, 2016, the Company issued to Vantage Group, a significant shareholder, a 7% unsecured promissory note in the amount of $16,000 which had an original maturity of six months from the date of issuance. On October 27, 2016, the Company issued a significant shareholder a 7% unsecured promissory note in the amount of $10,000 which had an original maturity date of six months from the date of issuance. On November 14, 2016, the Company issued a significant shareholder a 7% unsecured promissory note in the amount of $80,000 which had an original maturity date of six months from the date of issuance. On March 31, 2017, the Company issued a significant shareholder a 7% unsecured promissory note in the amount of $7,000 which had an original maturity date of six months from the date of issuance.

On April 17, 2017 the preceding notes issued to Vantage Group were amended to be convertible into common stock and to mature on April 18, 2018. The convertible notes have a fixed conversion price of $0.008. The amendments to the notes has created a Beneficial Conversion Feature of $123,000 and amortization of the discount of $118,018 during the 6 months ended February 28, 2018. On November 27, 2017, the Company issued an aggregate of 1,450,000 shares of common stock to the holder of a 7% Convertible Promissory Note, dated November 14, 2016 to convert principal amount of $11,600. On November 10, 2017, the Company issued an aggregate of 1,400,000 shares of common stock to the holder of a 7% Convertible Promissory Note, dated November 14, 2016 to convert principal amount of $11,200. On December 28, 2017, the Company issued an aggregate of 1,550,000 shares of common stock to the holder of a 7% Convertible Promissory Note, dated November 14, 2016 to convert principal amount of $12,400. As of February 28, 2018 a total of $35,200 has been converted.

On April 11, 2017, the Company executed a $540,000 Convertible Debenture with an original issue discount of $180,000. The debenture has a 0% interest rate and a term of two years. In connection with the debenture, the Company issued the lender an aggregate of 2,700,000 shares of common stock and 900,000 common stock purchase warrants. The relative fair value of the stock and warrants aggregating $202,490 was recognized as a discount to the note. Amortization of $64,686 was recognized during the six months ended February 28, 2018. The conversion price of the outstanding balance is the lesser of $3.00 or 40% of the volume weighted average price of the 30 days at date of conversion; not to be less than $1.00. In connection with the debenture the lender is entitled to receive the greater of 5% every dollar raised through financing or every dollar of revenue generated through the earlier of maturity date and repayment of the principal.

On September 18, 2017, the Company executed, with a related party, an $180,000 Convertible Debenture with an original issue discount of $60,000. The note has a 0% interest rate and a term of two years. In connection with the note, the Company issued the lender an aggregate of 900,000 shares of common stock and 300,000 warrants to purchase common stock. The relative fair value of the stock and warrants aggregating $68,499 was recognized as a discount to the note. Amortization of $13,543 was recognized during the six months ended February 28, 2018. The conversion price of the outstanding balance is the lesser of $3.00 or 40% of the volume weighted average price of the 30 days at date of conversion; not to be less than $1.00. In connection with the debenture the lender is entitled to receive the greater of 5% of every dollar raised through financing or every dollar of revenue generated through the earlier of the maturity date or repayment of the principal.

On December 13, 2017, the Company executed a $120,000 Convertible Debenture with an original issue discount of $20,000. Amortization of $4,274 was recognized during the six months ended February 28, 2018. The debenture has a 0% interest rate and a term of one year. The conversion price of the outstanding balance is the lesser of $3.00 or 40% of the volume weighted average price of the 30 days at date of conversion; not to be less than $1.00. In connection with the debenture the lender is entitled to receive the greatest of 5% every dollar raised through financing or every dollar of revenue generated through the earlier of maturity date and repayment of the principal.

6. SUBSEQUENT EVENTS

On March 5, 2018, Bespoke Extracts, Inc. (the “Company”) entered into a securities purchase agreement with an accredited investor. Pursuant to the purchase agreement, upon closing on March 7, 2018, the Company issued and sold to the investor, 3,000,000 shares of common stock for an aggregate purchase price of $300,000. The Company agreed to issue additional shares of common stock (the “Make-Good Shares”) to the investor for no additional consideration, in the event that, during the six month period commencing on the closing date, the Company sells common stock at a purchase price lower than $0.10 (the “Subsequent Financing Price”), such that the total number of shares of common stock received by the investor under the purchase agreement (including the Make-Good Shares and the initial shares) will be equal to the total purchase price of $300,000 divided by such lower Subsequent Financing Price.

On March 9, 2018, the Company issued an aggregate of 1,780,000 shares of common stock to the holder of a 7% Convertible Promissory Note, dated November 14, 2016 to convert principal amount of $14,240.

On March 9, 2018, Bespoke Extracts, Inc. (the “Company”) entered into and closed an asset purchase agreement with VMI Acquisitions, LLC (“VMI”), pursuant to which the Company sold to VMI the Company’s proprietary Machine-to-Machine communications solution and certain other intellectual property for a purchase price of $180,000. $135,000 of the purchase price was paid by members of VMI in cash and had previously been deposited with the Company. The remaining $45,000 of the purchase price was paid in the form of a reduction in outstanding debt and reimbursements of expenses owed to a member of VMI. Certain members of VMI are noteholders and/or shareholders of the Company.

The Company entered into a Management Agreement with Global Corporate Management, LLC. Pursuant to this agreement, the Company to pay $4,000 and to issue 150,000 common stock purchase warrants (exercise price of $0.50, 5 year term, exercisable 6 months after issuance).

The Company entered into a consulting agreement with Patagonia Global Trading, LLC. Upon execution of this agreement and upon the Consultant signing their first customer, acceptable by the Company, and for services rendered, the Company will immediately issue 50,000 common stock purchase warrants to purchase common stock at an exercise price of $.30 per share.

The Company entered into a consulting agreement with Dr. David Hellman for marketing and promotion services. The term is 1 year with payment of 50,000 warrants to purchase common stock with an exercise price of $0.60. However, if the Consultant generates more than $10K in monthly sales, the Warrants will have an exercise price of $.30, and if the Consultant generates more than $20K in monthly sales, the Warrants may be exchanged in "cashless exercise". Additionally, the Company shall pay 10% of retail sales and 5% of wholesale sales.

7. COMMITMENTS AND CONTINGENCIES

The Company entered into a consulting agreement with Optimal Setup LLC for a term of one year to advise the Company on search engine optimization and digital marketing. Optimal Setup LLC shall receive monthly for services performed $2,500 and 10,000 warrants for common stock exercisable for cash price of $0.40. Warrants may be exercised after six month anniversary date.

On January 22, 2018, the Company entered into a Sales Representation Agreement to manage and solicit orders in a set territory, the United States, with an initial term of six months. The sales representative shall be compensated 6% of the net sales and three year warrants monthly to purchase 10,000 shares of common stock at an exercise price of $0.50. Warrants may be exercised after six month anniversary of issuance date.

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

We and our representatives may from time to time make written or oral statements that are “forward-looking,” including statements contained in this Quarterly Report and other filings with the SEC, reports to our stockholders and news releases. All statements that express expectations, estimates, forecasts or projections are forward-looking statements. In addition, other written or oral statements which constitute forward-looking statements may be made by us or on our behalf. Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” “project,” “forecast,” “may,” “should,” and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by such forward-looking statements. We undertake no obligation to update or revise any of the forward-looking statements after the date of this Quarterly Report to conform forward-looking statements to actual results, except as may be required under applicable law. Important factors on which such statements are based are assumptions concerning uncertainties, including but not limited to, uncertainties associated with the following:

The following discussion should be read in conjunction with the financial statements and the notes thereto which are included in this Quarterly Report.

Overview

Cine-Source Entertainment, Inc. (the “Old Corporation”) a Colorado corporation, was formed on July 29, 1988. Pursuant to a Plan of Merger dated February 24, 2004, the Old Corporation filed Articles and Certificate of Merger with the Secretary of State of the State of Colorado merging the Old Corporation into Cine-Source Entertainment, Inc. (the “Surviving Corporation”), a Colorado corporation. The name of the Surviving Corporation was changed to First Quantum Ventures, Inc., on April 27, 2004. On April 13, 2006, the Surviving Corporation formed a wholly owned subsidiary, a Nevada corporation named First Quantum Ventures, Inc., and on May 5, 2006 merged the Surviving Corporation with and into this subsidiary.

On March 15, 2012, the Company changed its name to DiMi Telematics, International, Inc.

In early 2017, our management team elected to suspend further investment and working capital on developing the Company’s technology and business prospects, turning its attention to prevailing new business opportunities in other high growth industries; namely the hemp-derived cannabidiol (“CBD”) market. On March 10, 2017, the Company changed its name to Bespoke Extracts, Inc. (formerly known as DiMi Telematics, Inc.) to align the Company’s corporate identity with its new business plan.

The Company is now focused on bringing to market a proprietary line of premium, quality, all natural CBD products in the forms of tinctures, capsules, drops and edibles for the nutraceutical and veterinary markets. Produced using pure, all natural, zero-THC phytocannabinoid-rich (“PCR”) hemp-derived isolate, our products will be marketed as dietary supplements through wholesale channels and direct-to-consumers via our retail ecommerce store found at www.bespokeextracts.com.

Plan of Operations

We have not yet commenced sales of our products but anticipate doing so in the near future. Our introductory retail line of premium CBD extracts comes in the form of tinctures including:

Generally speaking, most CBD products for oral consumption available on the market have an earthy, bitter taste that some observers suggest is reminiscent of chlorophyll. The centerpiece of the Company’s introductory line of great-tasting tinctures is our formulation which infuses pure, raw, all-natural, un-pasteurized Mānuka honey into our hemp-derived CBD extract.

Our Mānuka honey, imported directly from New Zealand, is one of the most unique and beneficial forms of honey in the world and carries the industry’s highest Unique Manuka Factor (UMF^®) 16+ rating, distinguishing it as superior high grade Mānuka. Legislated by the UMF Honey Association (http://www.umf.org.nz/), the UMF rating system provides for a quality trademark and grading system identifying natural unadulterated Mānuka honey that has a special unique natural property found only in some strains of Mānuka honey. High grade (10+) Mānuka honey contains a high concentration of methylglyoxal, giving the honey its superior antibiotic quality. Produced by bees that pollinate the native Mānuka bush, general Mānuka honey uses range from healing sore throats and digestive illnesses to curing Staph infections and gingivitis.

In 1982, researchers at the New Zealand University of Waikato discovered that Mānuka honey has a considerably higher level of enzymes than regular honey. (http://www.waikato.ac.nz/news/archive.shtml?article=1087). These enzymes create a natural hydrogen peroxide that works as an antibacterial. The Company’s tinctures are infused with superior high grade, raw Mānuka honey, further enhancing the potential health benefits offered by the CBD isolate we use, and delivering a delicious tasting experience for consumers.

Planned Expansion of Product Line

By the summer of 2018, presuming market conditions are favorable, we expect to expand our retail product offerings to include new flavored options of tinctures, as well as introducing our formulations in the form of lotions and salves. 

Development Status and Go-to-Market Strategy

We believe the traditional retail environment is experiencing notable economic instability due largely to the global shift in consumer purchasing behaviors – with online shopping/ecommerce sites rapidly overtaking brick-and-mortar stores as consumer preferred shopping venues. In view of this retailing reality, we have adopted a Direct-to-Consumer sales model that will be anchored by a high impact, visually stunning, content-rich ecommerce website whereby we will educate and sell and ship our CBD products directly to consumers. 

Our marketing initiatives will include the use of social marketing, direct response marketing, inbound marketing, email marketing, Search Engine Optimization and content marketing, among other proven strategies. We will also explore utilizing coupon and deal sites to drive traffic to our website and participate in select industry conferences to promote our brand and build greater awareness of our products among prospective business partners and consumers.

Critical Accounting Policies and Estimates

The presentation 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 reported period. Actual results could differ from those estimates.

Intellectual Property

Intellectual property is stated at cost. When retired or otherwise disposed, the related carrying value and accumulated amortization are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings. Minor additions and renewals are expensed in the year incurred. Major additions and renewals are capitalized and depreciated over their estimated useful lives being 3 years up to 15 years.

Revenue Recognition

The Company intends to recognize revenue on four basic criteria which must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded.

Stock Based Compensation

The Company accounts for all compensation related to stock, options or warrants using a fair value based method whereby compensation cost is measured at the grant date for employee awards and upon a commitment date or completion of services for nonemployee awards based on the value of the award and is recognized over the service period, which is usually the vesting period. The Company uses the Black-Scholes pricing model to calculate the fair value of options and warrants issued to both employees and non-employees. Stock issued for compensation is valued using the market price of the stock on the date of the related agreement.

Employees

As of February 28, 2018, the Company employed no full time and no part time employees other than its Chief Executive Officer.

Results of Operation for the Three Months Ended February 28, 2018 and FEBRUARY 28, 2017.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended February 28, 2018 and February 28, 2017 totaled $1,604,256 and $5,812, respectively. Payroll expense amounted to $1,743 and $21,123 for the three months ended February 28, 2018 and February 28, 2017, respectively. Consulting amounted to $22,415 and $0 for the three months ended February 28, 2018 and February 28, 2017. Warrant expenses included in selling, general and administrative totaled $941,045 for warrants issued to the Company’s CEO in 2018 and consulting agreements in 2018.

Amortization Expense

Amortization expense for the three months ended February 28, 2018 and February 28, 2017 totaled $796 and $33, respectively. Amortization expense is in relation to recent URL purchase, prior year amortization is the expensing of intellectual property and the iPhone application.

Interest Expense

Interest expense on promissory notes for the three months ended February 28, 2018 and February 28, 2017, was $50,222 and $2,104, respectively.

Net Loss

For the reasons stated above, our net loss for the three months ended February 28, 2018 totaled $1,727,474 or $(0.05) per share, an increase of $1,674,654 compared to a net loss for the three months ended February 28, 2017 of $52,820, or ($0.02) per share. A significant portion of the net loss for the 2018 period was due to recognition of warrant expense in the amount of $937,921. 

Results of Operation for the Six Months Ended February 28, 2017 and February 28, 2017.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the six months ended February 28, 2018 and February 28, 2017 totaled $2,539,001 and $14,264, respectively. Payroll expense amounted to $21,114 and $45,686 for the six months ended February 28, 2018 and February 28, 2017, respectively. Consulting amounted to $77,000 and $0 for the six months ended February 28, 2018 and February 28, 2017. Warrant expense expenses included in selling, general and administrative totaled $1,855,043 for warrants issued to the Company’s CEO in 2018 and consulting agreements in 2018.

Amortization Expense

Amortization expense for the six months ended February 28, 2018 and February 28, 2017 totaled $1,632 and $66, respectively. Amortization expense is in relation to recent URL purchase, prior year amortization is the expensing of intellectual property and the iPhone application.

Interest Expense

Interest expense on promissory notes for the six months ended February 28, 2018 and February 28, 2017, was $186,670 and $0, respectively

Net Loss

For the reasons stated above, our net loss for the six months ended February 28, 2018 totaled $2,897,422 or $(0.09) per share, an increase of $2,802,101 compared to a net loss for the six months ended February 28,2017 of $95,321, or ($0.03) per share. A significant portion of the net loss for the 2018 period was due to recognition of warrant expense in the amount of $1,855,043.

LIQUIDITY AND CAPITAL RESOURCES

As of February 28, 2018, we had cash and cash equivalents of $138,092. Net cash used in operating activities for the six months ended February 28, 2018 was approximately $229,380. Our current liabilities as of February 28, 2018 totaled $379,623 consisting of accounts payable and accrued liabilities of $34,731, deposit of $127,750, note payable related party $30,050, and convertible note payables-net, of $187,092.

The accompanying financial statements have been prepared assuming a continuation of the Company as a going concern. The Company has reported a net loss of $2,897,422 for the six months ended February 28, 2018 and had an accumulated deficit of $12,004,508 as of February 28, 2018. These conditions raise significant doubt about our ability to continue as a going concern.

We have not generated positive cash flows from operating activities. The primary source of capital has been from the sale of equity securities. Our primary use of capital has been for professional fees and general and administrative costs. Our working capital requirements are expected to increase in line with the growth of our business.

OFF-BALANCE SHEET ARRANGEMENTS

We have no significant 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.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required for smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Management of the Company 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 Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report.  The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and (ii) accumulated and communicated to our management, including our chief executive officer and chief financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Based on this evaluation, our management has 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, we intend to take measures to cure the aforementioned weaknesses, including, but not limited to, increasing the capacity of our qualified financial personnel to ensure that accounting policies and procedures are consistent across the organization and that we have adequate control over financial statement disclosures.

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

We are not currently a party to, nor is any of our property currently the subject of, any material legal proceedings.

Not required for smaller reporting companies.

On December 13, 2017, the Company issued a convertible debenture in the principal amount of $120,000 to an investor for a purchase price of $100,000. The debenture is convertible into common stock at a conversion price equal to the lower of $3.00 and forty percent 40% of the volume weighted average price for the thirty trading days immediately preceding the conversion date, provided that the conversion price will not be lower than $1.00.

In connection with the foregoing, the Company relied upon the exemption from registration provided by Section 4(a)(2) under the Securities Act of 1933, as amended.

As of the date of this filing of this report, the Company is in default on $30,000 in promissory notes issued to a significant shareholder, due to failure to make payment when due, and is in default on an additional$123,000 convertible debenture issued to a significant shareholder, due to failure to make payments when due.

No disclosure required.

On December 13, 2017, the Company issued a convertible debenture in the principal amount of $120,000 to an investor for a purchase price of $100,000. The debenture matures one year from issuance and is convertible into common stock at a conversion price equal to the lower of $3.00 and forty percent 40% of the volume weighted average price for the thirty trading days immediately preceding the conversion date, provided that the conversion price will not be lower than $1.00.

* Filed herewith.

SIGNATURES

Pursuant to the requirements 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.

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