VirExit Technologies, Inc. - Quarter Report: 2018 November (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 30, 2018

¨ 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: 000-55558

6428 W. Wilkinson Boulevard, Suite 305

Belmont, North Carolina 28012

Telephone No.: (719) 761-1869

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

330 Grapevine Highway

Hurst, Texas 76054

(Former address)

____________________________

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 preceding 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 x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T required to be submitted 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 x 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 x

As of January 14, 2019, there were 11,396,152 shares of the registrant's common stock issued and outstanding.

Poverty Dignified, Inc.

Quarterly Report on Form 10-Q

Table of Contents

 Item 1. Financial Statements

Poverty Dignified, Inc.

Consolidated Balance Sheets

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

Poverty Dignified, Inc.

Consolidated Statements of Operations and Comprehensive Loss

Unaudited

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

Poverty Dignified, Inc.

Consolidated Statement of Changes in Stockholders' Equity (Deficit)

Unaudited

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

Poverty Dignified, Inc.

Consolidated Statements of Cash Flows

Unaudited

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

NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION

Poverty Dignified, Inc. was incorporated in the State of Nevada on September 27, 2013, and is headquartered in Belmont, North Carolina. The Company was established as a renewable energy company, incubating solar technologies to establish electrification, education, connectivity and media distribution infrastructures in rural communities across the globe to empower the individual, community and local economy. My Power Solutions, Inc., a wholly-owned subsidiary of Poverty Dignified, Inc., was incorporated in the State of Nevada on March 13, 2014 as a franchise business opportunity with franchise disclosure documents for franchise sales in both the United States and South African markets. Africhise, Inc., a wholly-owned subsidiary of Poverty Dignified, Inc. is a Delaware Corporation, and was formed on August 28, 2015 to be the franchise management arm of My Power Solutions, Inc's franchise operations in Africa. My Power Solutions Bahamas, Inc., a wholly-owned subsidiary of My Power Solutions, Inc., is a Delaware Corporation, and was formed on June 14, 2018 to establish itself as a renewable energy solutions company in the Bahamas.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they may not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations or cash flows. It is management's opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made that are necessary for a fair financial statement presentation.

The unaudited interim consolidated financial statements should be read in conjunction with the Company’s Form 10-K, which contains the audited financial statements and notes thereto, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations, for the year ended August 31, 2018. The interim results for the three months ended November 30, 2018 are not necessarily indicative of results for the full fiscal year.

The consolidated financial statements include the accounts of Poverty Dignified, Inc., My Power Solutions, Inc., Africhise, Inc., and My Power Solutions Bahamas, Inc. However, My Power Solutions Bahamas, Inc. has yet to establish operations and has little to no activity to date. All significant intercompany accounts and transactions have been eliminated in consolidation. These entities are collectively referred to herein as Poverty Dignified, or the Company.

In May 2018, following an operational review, the Company decided to withdraw all operations of My Power Solutions, Inc. in South Africa. With a lack of significant revenues and higher than expected expenses due to training on-the-ground personnel and the implementation of solar installations, plus the instability of the political environment, the established operating structure and initial business plan was not sustainable. The decision to cease the operations of My Power Solutions, Inc. in rural South African communities represents a strategic shift that impacts the Company’s financial reporting and results. As such, My Power Solutions, Inc. in South Africa has been classified as a discontinued operation.

Because it has been classified as a discontinued operation, the balance sheet amounts and results of operations for My Power Solutions, Inc. in South Africa have been reclassified from their historical presentation to assets and liabilities of discontinued operation on the Consolidated Balance Sheets and to discontinued operation on the Consolidated Statements of Operations and Comprehensive Loss, respectively, for all periods presented. Losses associated with impairment of assets are recorded in discontinued operation in the period of the disposal. The Consolidated Statements of Cash Flows has also been reclassified for assets, liabilities and results of the discontinued operation for all periods presented. See Note 10 for more details regarding the discontinued operation.

NOTE 2 - GOING CONCERN AND PLAN OF OPERATION

Going Concern

The accompanying consolidated 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. As of November 30, 2018, the Company had cash of $92,815, a working capital deficit of $2,976,361 and a stockholders’ deficit of $2,976,361. The Company has incurred net losses from start-up costs and minimal operations since inception to November 30, 2018 and has ceased operations of its subsidiary, My Power Solutions, Inc. in South Africa. As a result, as of November 30, 2018, these issues raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

The Company needs to generate revenues or must raise additional capital, reduce expenses and curtail cash outflows in order to be able to accomplish its business plan. In the interim, the Company intends to accrue for management salaries and defer certain payments. The Company’s $3,077,976 of total liabilities at November 30, 2018 includes $1,114,207 of notes payable to a related party, $1,089,950 of accrued payroll expenses due to Company management, and $6,725 due to an officer of the Company, all of which we can continue to delay payment. During the three months ended November 30, 2018, we received net proceeds totaling $147,250 from two convertible notes payable. The first payments on these notes are due in March 2019. Additionally, these notes can be repaid through conversion into the Company’s common stock. Unless we achieve revenue and obtain equity or debt financing as described below, we do not believe we currently have the capabilities and available resources to continue for the next twelve months.

To continue as a going concern and achieve a profitable level of operations, we will need, among other things, additional capital resources. Management’s plan to continue as a going concern includes generating revenue through operations and securing additional debt and/or equity financing. However, we may not be successful in accomplishing any of our plans to raise additional investment capital or generate revenue through operations. Our ability to continue as a going concern is dependent upon management’s ability to successfully implement the plans described above. Management cannot provide any assurance that unforeseen circumstances that may occur at any time within the next twelve months, or thereafter, will not increase the need for us to raise additional capital on an immediate basis. There can be no assurance that we will be able to continue to raise funds in subsequent debt or equity financings, in which case the Company may be unable to meet its obligations and be forced to discontinue its efforts to develop its business.

Plan of Operation

As a renewable energy company, Poverty Dignified remains committed to incubating solar technologies that establish electrification, education, connectivity and media distribution infrastructures in rural communities across the globe to empower the individual, community and local economy.

In May 2018, following an operational review, the Company decided to withdraw all operations of My Power Solutions, Inc. in South Africa. In June 2018, the Company established My Power Solutions Bahamas, Inc. to begin offering renewable energy solutions throughout the Bahamas, but to date has no operations.

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 

Use of Estimates

The preparation of consolidated 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, disclosure of contingent assets and liabilities, and reported amounts of expenses in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Cash

The Company maintains funds in financial institutions that are members of the Federal Deposit Insurance Corporation (“FDIC”). As such, funds are insured based on Federal Reserve limits. The Company has not experienced any losses in the past, and management believes it is not exposed to any significant credit risk on the current account balances. At times, cash balances may exceed insured limits.

The Company has determined that the functional currency of its foreign subsidiaries is the local currency. At November 30, 2018 and August 31, 2018, the Company had no cash in foreign bank accounts.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of payments primarily related to a professional fee retainer, payroll advance and short-term deposits.

Property and Equipment, Net

Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets, generally between three and five years. As of November 30, 2018 and August 31, 2018, property and equipment consists of computer equipment with a total cost of $1,607 and accumulated depreciation of $1,607. There was no depreciation expense during the three months ended November 30, 2018 and 2017.

The Company periodically evaluates the fair value of fixed assets whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. As a result of the discontinued operation in South Africa, during the three months ended November 30, 2017, the solar equipment for containers was written down to its net realizable value of $0 and the Company recognized a loss on impairment of $54,141.

Accrued Expenses

Accrued expenses are recorded when incurred and primarily consist of accrued interest on notes payable and amounts due for supplies and travel. Accrued payroll consists of salary amounts earned but deferred by the Company's management team.

Derivative Liabilities

The Company has certain financial instruments that contain embedded derivatives. The Company evaluates all its financial instruments to determine if those contracts or any potential embedded components of those contracts qualify as derivatives to be accounted for separately. This accounting treatment requires that the carrying amount of any embedded derivatives be recorded at fair value at issuance and marked-to-market at each balance sheet date. In the event that the fair value is recorded as a liability, as is the case with the Company, the change in the fair value during the period is recorded as either income or expense. Upon conversion, exercise or repayment, the respective derivative liability is marked to fair value at the conversion, repayment or exercise date and then the related fair value amount is reclassified to income or expense as part of gain or loss on extinguishment. 

Revenue Recognition

The Company recognizes revenue once pervasive evidence that an agreement exists; the product and/or service have been rendered; the fee is fixed and determinable; and collection of the amount due is reasonably assured.

There are no revenues from continuing or discontinued operations for the three months ended November 30, 2018 and 2017.

Advertising

Advertising expenditures are charged to expense as incurred and are included in general and administrative expense. Total advertising expense for the three months ended November 30, 2018 and 2017 was $102 and $0, respectively.

Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash, prepaid expenses and other current assets, current assets of discontinued operation, accounts payable, accrued payroll expenses, accrued expenses, current liabilities of discontinued operation, derivative liabilities, convertible notes and notes payable. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments.

The Company adopted ASC Topic 820, Fair Value Measurements (“ASC Topic 820”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The standard provides a consistent definition of fair value which focuses on an exit price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard also prioritizes, within the measurement of fair value, the use of market-based information over entity specific information and establishes a three-level hierarchy for fair value measurements based on the nature of inputs used in the valuation of an asset or liability as of the measurement date.

The three-level hierarchy for fair value measurements is defined as follows:

Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets; liabilities in active markets;

Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability other than quoted prices, either directly or indirectly, including inputs in markets that are not considered to be active; or directly or indirectly including inputs in markets that are not considered to be active;

Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement

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

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the consolidated financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority.

The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest and penalties associated with unrecognized tax benefits would be classified as additional income taxes in the consolidated statements of income. No interest or penalties were recognized for the years ended August 31, 2018 or 2017.

Tax years 2015 and forward remain open to examination under United States statute of limitations. Management is not aware of any material uncertain tax positions and no liability has been recognized at November 30, 2018 or August 31, 2018.

Earnings Per Share

Basic earnings per share are computed based on the weighted-average number of common shares outstanding during each year, while diluted earnings per share are based on the weighted-average number of common shares and common share equivalents outstanding.

Foreign Currency Translation

For financial reporting purposes, the functional currency of the discontinued foreign operation of My Power Solutions, Inc. is the local currency. The assets and liabilities of the discontinued foreign operation for which the local currency is the functional currency are translated into the U.S. dollar at the exchange rate in effect at the balance sheet date, while revenues and expenses are translated at average exchange rates during the period. The accumulated foreign currency translation adjustment is presented as a component of accumulated other comprehensive loss in the consolidated statement of changes in stockholders’ equity (deficit).

Reclassifications

Certain amounts in the prior period have been reclassified to conform to the current period presentation, including those of the discontinued operation. These reclassifications had no impact on previously reported stockholders’ deficit or net loss.

Recent Accounting Pronouncements

The Company has reviewed all recently issued, but not yet effective, Accounting Standards Updates (ASU) issued by the Financial Accounting Standards Board (FASB) and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of operations.

NOTE  4 - STOCKHOLDERS’ EQUITY (DEFICIT)

In September 2013, the Company authorized the issue of 100,000,000 shares of common stock and 10,000,000 shares of preferred stock at a par value of $.0001. There is a total of 11,396,152 and 10,107,394 shares of common stock issued and outstanding at November 30, 2018 and August 31, 2018, respectively. Preferred stockholders could receive preferential treatment relative to declared dividends, should there be any, and to distributions upon a liquidation event. As of November 30, 2018, no preferred stock has been issued.

Since incorporation, the Company has raised capital through private sales of its common stock. In its private placement memorandum dated January 2014 and closed November 2014, the Company raised $1,182,180 for its operations, research and development, and marketing of its franchise opportunities. Since our original Private Placement Offering was not sufficient to capitalize the Company, Poverty Dignified, Inc. conducted a Private Investment in Public Equity transaction, in which the Company offered 1,000,000 unregistered shares to accredited investors at a discounted price of $0.75 per share to raise an additional $750,000 of growth capital. Under this offering, the Company sold 999,970 shares of common stock for proceeds of $749,977, including 784,302 shares of common stock for proceeds of $588,226 during the year ended August 31, 2017. Poverty Dignified, Inc. is currently conducting a private placement offering pursuant to a private placement memorandum, in which the Company is offering 2,000,000 shares at a price of $1.50 per share to raise an additional $3,000,000 in growth capital. Pursuant to this private placement memorandum, the Company has the option to sell shares at a price lower than the $1.50 per share. Through August 31, 2017, under this private placement memorandum, the Company issued 144,000 shares of common stock at a discounted price of $0.75 per share for proceeds of $108,000 and issued 49,700 shares of common stock at the offering price of $1.50 per share for proceeds of $74,550. During the year ended August 31, 2018, the Company issued 10,800 shares at a discounted price of $0.75 per share and 6,000 shares at a price of $1.50 for total proceeds of $17,100.

As of November 30, 2018, of our 11,396,152 outstanding shares of common stock, 8,204,758 shares were issued to various stockholders in exchange for services and/or under restricted stock agreements. Relative to those shares, since inception, the Company has recognized total expense of $6,524,029. During the three months ended November 30, 2018, the Company issued 1,288,758 shares for stock compensation expense of $200,957. There were no shares issued for stock compensation expense during the three months ended November 30, 2017.

NOTE 5 – COMMITMENTS AND CONTINGENCIES

The Company had a lease for the office of its discontinued operation in South Africa that expired in the Company’s fiscal fourth quarter 2018.

Based on a recent performance review by Poverty Dignified Inc.’s Board of Directors, the decision was made to withdraw all operations of its wholly owned subsidiary, My Power Solutions, Inc., in South Africa. As a result, My Power Solutions South African employees and consultants have filed a dispute with The Commission for Conciliation, Mediation and Arbitration (“CCMA”) in South Africa. As the Company winds down its local operations in South Africa, legal counsel has confirmed that the creditors of the Company will only have claims against the insolvent estate of the local external company and not against My Power Solutions, Inc. or Poverty Dignified Inc in the United States. It is therefore management’s position that there is no probable recourse that will have an adverse effect on Poverty Dignified, Inc.

NOTE 6 – CONVERTIBLE NOTES PAYABLE

On December 21, 2017, the Company entered into a Securities Purchase Agreement whereby Crown Bridge Partners, LLC wished to purchase from the Company securities consisting of the Company’s 8% convertible notes payable for an aggregate principal amount of up to $120,000. As additional consideration, the Company issued a Common Stock Purchase Warrant (the “Warrant”) for 32,000 shares at an exercise price of $1.25 over an exercise period of 5 years. Due to the provisions of the Warrant, the Warrant was classified as a derivative warrant liability, the fair value of which was determined using the Black-Scholes valuation model. On May 11, 2018, the Company repaid the convertible note payable. However, the warrant remains outstanding and the derivative liability associated with it was valued at $2,665 and $7,086 at November 30, 2018 and August 31, 2018, respectively.

On June 21, 2018, the Company issued a convertible note to Power Up Lending Group, LTD. for $128,000. The note bears interest at 12%, matures on March 30, 2019, and is convertible into common stock at 58% of the lowest 3 closing market prices of the previous 10 trading days prior to conversion. The Company also recorded a $3,000 debt discount due to issuance fees. The holder’s conversion option under the note does not become active until 180 days after the issuance date.

On July 13, 2018, the Company entered into a Securities Purchase Agreement whereby, EMA Financial, LLC agreed to purchase from the Company a 10% convertible note for a principal amount of $83,500. On July 13, 2018, the Company issued a convertible promissory note to EMA Financial, LLC for $81,830 in proceeds, after a $1,670 original issue discount. The note matures on April 12, 2019. The note is convertible at a conversion price of 50% of the lowest trading price during the 10 days prior to the conversion date. At the closing, the Company paid closing costs and a consulting fee totaling $7,340. Accordingly, the Company recorded a debt discount of $9,010. At issuance, the holder’s option to convert was active and the Company recorded a derivative liability of $48,702, in which the fair value of the embedded derivative was determined using the Black-Scholes valuation model. The derivative liability was attributed to debt discount. The debt discount is amortized over the term of the note or to the date of conversion, and the derivative liability is revalued at each conversion or reporting date to fair value. Any change in fair value is credited or charged to the statement of operations in the period.

On September 27, 2018, the Company issued a convertible note to Power Up Lending Group, LTD. for $53,000. The note bears interest at 12%, matures on July 15, 2019, and is convertible into common stock at 58% of the lowest 3 closing market prices of the previous 10 trading days prior to conversion. The Company also recorded a $3,000 debt discount due to issuance fees. The holder’s conversion option under the note does not become active until 180 days after the issuance date.

On November 6, 2018, the Company entered into a Securities Purchase Agreement whereby Auctus Fund, LLC agreed to purchase from the Company a 12% convertible note for a principal amount of $111,000. On November 6, 2018, the Company issued a convertible promissory note to Auctus Fund, LLC for $97,250 in proceeds, after a $13,750 reduction for issuance fees. The note matures on August 6, 2019. The note is convertible at a conversion price of 55% of the lowest trading price during the 25-day period ending one trading day prior to the date of the conversion notice. At the closing, the Company paid closing costs and fees totaling $6,000. Accordingly, the Company recorded a debt discount of $19,750. At issuance, the holder’s option to convert was active and the Company recorded a derivative liability of $15,063, in which the fair value of the embedded derivative was determined using the Black-Scholes valuation model. The derivative liability was attributed to debt discount. The debt discount is amortized over the term of the note or to the date of conversion, and the derivative liability is revalued at each conversion or reporting date to fair value. Any change in fair value is credited or charged to the statement of operations in the period.

The following table summarizes the balances of convertible notes payable:

Amortization of the debt discounts recorded as interest expense during the three months ended November 30, 2018 and 2017 totaled $19,963 and $40,293, respectively.

NOTE 7 – DERIVATIVE LIABILITIES

The Company analyzed the warrant and beneficial conversion features (“BCF”) for derivative accounting consideration under ASC 815, “Derivatives and Hedging,” and determined that the Warrant was a derivative warrant liability and that the conversion options on convertible notes payable become derivatives at the point the holder’s option to convert becomes active and there is active trading of the Company’s stock.

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 November 30, 2018 and August 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. The following weighted-average assumptions were used at November 30, 2018 and August 31, 2018:

The following table summarizes the balances of derivative liabilities:

The following table summarizes the change in derivative liabilities included in the balance sheet for the three months ended November 30, 2018:

NOTE 8 – INCOME TAXES

Due to continued operating losses, there is a full valuation against gross deferred tax assets for the period from inception through November 30, 2018.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for federal and state income tax purposes.

The Company’s total deferred tax asset, calculated using effective tax rates is as follows:

The Company has not recognized a deferred tax asset for its stock compensation expense due to its non-deductibility. The Company has no plans to pursue any tax benefits relative to its recognized stock compensation expense.

The reconciliation of income taxes is computed at a rate of 21% and 35% for federal income taxes for the three months ended November 30, 2018 and 2017, respectively, and at 28% for foreign income taxes is as follows:

As of November 30, 2018, the Company had net operating loss carryforwards in the amount of $4,076,624, of which $3,093,387 was incurred in the U.S. and $983,237 was the result of cumulative operating losses of the Company’s subsidiaries in South Africa, which have now been discontinued. Because of the Company’s lack of earnings history and uncertainty regarding the usability of the losses from its discontinued operation in South Africa, the net operating loss carryforwards and other deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by $34,211 and $149,492 during the three months ended November 30, 2018 and 2017, respectively.

Our federal net operating losses will begin to expire in 2034 and our state tax loss carryforwards will begin to expire in 2029. Federal net operating losses incurred in 2018 and after carryforward indefinitely.

NOTE 9 – RELATED PARTY TRANSACTIONS

Due to Officer

On March 13, 2016, John K. Lowther, President, Chief Executive Officer and Director, advanced the Company $12,916. The balance outstanding at November 30, 2018 and August 31, 2018 is $6,725. This advance does not bear interest.

Notes Payable – Related Party

During the year ended August 31, 2016, Power It Perfect, Inc. loaned the Company $208,160 for working capital purposes in exchange for promissory notes. During the year ended August 31, 2017, Power It Perfect, Inc. loaned the Company an additional $313,450 for working capital purposes in exchange for promissory notes. During the year ended August 31, 2018, Power It Perfect, Inc. loaned the Company an additional $678,358 for working capital and other purposes in exchange for promissory notes. All the notes bear interest at five percent per annum, are non-collateralized and due on demand, as soon as the Company has operating cash flow available for repayment. The balance of the notes payable was $1,114,207 at November 30, 2018 and August 31, 2018. Accrued interest on the notes, which is included in accrued expenses, totaled $16,189 and $2,300 at November 30, 2018 and August 31, 2018, respectively. There are no conversion provisions associated with the notes.

Stock-Based Compensation

During the three months ended November 30, 2018, the Company issued 1,288,758 shares to employees of an affiliated company for services rendered to the Company. These services were valued at the market value of shares at the time of issuance. The stock-based compensation expense recognized by the Company for the three months ended November 30, 2018 totaled $200,957.

NOTE 10 – DISCONTINUED OPERATION

In May 2018, the Company decided to withdraw all operations of My Power Solutions, Inc. in South Africa. The decision to cease the operations of My Power Solutions, Inc. in rural South African communities represents a strategic shift that impacts the Company’s financial reporting and results. As such, My Power Solutions, Inc. has been classified as a discontinued operation.

The major classes of line items constituting the loss from discontinued operation are presented in the table below.

The major components of the assets and liabilities of the discontinued operation are presented in the table below.

NOTE 11 – SUBSEQUENT EVENTS

Management has evaluated subsequent events through January 14, 2019, which is the date when these consolidated financial statements were issued, and is aware of none requiring disclosure.

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

The following discussion and analysis should be read in conjunction with (i) the accompanying unaudited consolidated financial statements and notes thereto for the three months ended November 30, 2018, (ii) the audited consolidated financial statements and notes thereto for the year ended August 31, 2018 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on December 14, 2018, as amended by that certain Amendment No. 1 to the Form 10-K filed with the SEC on January 14, 2019 (the “Form 10-K”) and (iii) the discussion under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Form 10-K. Except for certain information as of August 31, 2018, all amounts herein are unaudited. Unless we state otherwise or the context otherwise requires, the terms “we,” “us,” “our” and the “Company” refer to Poverty Dignified, Inc. and its consolidated subsidiaries.

Background Overview

Poverty Dignified, Inc. was incorporated in the State of Nevada on September 27, 2013, and is headquartered in Belmont, North Carolina. The Company was established as a renewable energy company, incubating solar technologies to establish electrification, education, connectivity and media distribution infrastructures in rural communities across the globe to empower the individual, community and local economy. My Power Solutions, Inc., a wholly-owned subsidiary of Poverty Dignified, Inc. (“MPS”), was incorporated in the State of Nevada on March 13, 2014 as a franchise business opportunity with franchise disclosure documents provided for franchise sales in both the United States and South African markets. Africhise, Inc., a wholly-owned subsidiary of Poverty Dignified, Inc., is a Delaware corporation (“Africhise”) and was formed on August 28, 2015 to be the franchise management arm of MPS’s franchise operations in Africa. My Power Solutions Bahamas, Inc., a wholly-owned subsidiary of MPS (“MPS Bahamas”), is a Delaware corporation and was formed on June 14, 2018 to establish itself as a renewable energy solutions company in the Bahamas. MPS Bahamas has yet to establish business operations and did not engage in any material business activity during the three months ended November 30, 2018.

In May 2018, following an operational review, the Company decided to withdraw all operations of MPS in South Africa (“MPS South Africa”). With a lack of significant revenues, higher than expected expenses due to training on-the-ground personnel and the implementation of solar installations, plus the instability of the political environment, the established operating structure and initial business plan of MPS South Africa were not sustainable. The decision to cease the operations of MPS South Africa represents a strategic shift that impacts the Company’s financial reporting and results. As such, MPS South Africa has been classified as a discontinued operation.

Liquidity and Capital Resources

Going Concern

The accompanying consolidated 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. As of November 30, 2018, the Company had cash of $92,815, a working capital deficit of $2,976,361 and a stockholders’ deficit of $2,976,361. The Company has incurred net losses from start-up costs and minimal operations since inception to November 30, 2018 and has ceased operations of its subsidiary, MPS South Africa. In June 2018, the Company established MPS Bahamas to begin offering renewable energy solutions throughout the Bahamas, but to date has no operations. As a result, as of November 30, 2018, these issues raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

The Company needs to generate revenues or must raise additional capital, reduce expenses and curtail cash outflows in order to be able to accomplish its business plan. In the interim, the Company intends to accrue for management salaries and defer certain payments. The Company’s $3,077,976 of total liabilities at November 30, 2018 includes $1,114,207 of notes payable to a related party, $1,089,950 of accrued payroll expenses due to Company management, and $6,725 due to an officer of the Company, all of which we believe we can continue to delay payment. During the three months ended November 30, 2018, we received net proceeds totaling $147,250 from two convertible notes payable. The first payments on these notes are due in March 2019. Additionally, these notes can be repaid through conversion into the Company’s common stock. Unless we achieve revenue and obtain equity or debt financing as described below, we do not believe we currently have the capabilities and available resources to continue for the next twelve months.

To continue as a going concern and achieve a profitable level of operations, we will need, among other things, additional capital resources. Management’s plan to continue as a going concern includes generating revenue through operations and securing additional debt and/or equity financing. However, we may not be successful in accomplishing any of our plans to raise additional investment capital or generate revenue through operations. Our ability to continue as a going concern is dependent upon management’s ability to successfully implement the plans described above. Management cannot provide any assurance that unforeseen circumstances that may occur at any time within the next twelve months, or thereafter, will not increase the need for us to raise additional capital on an immediate basis. There can be no assurance that we will be able to continue to raise funds in subsequent debt or equity financings, in which case the Company may be unable to meet its obligations and be forced to discontinue its efforts to develop its business.

Convertible Notes

During the three months ended November 30, 2018, the Company engaged in the following transactions:

Related Party Notes Payable

During the year ended August 31, 2016, Power It Perfect, Inc. loaned the Company $208,160 for working capital purposes in exchange for promissory notes. During the year ended August 31, 2017, Power It Perfect, Inc. loaned the Company an additional $313,450 for working capital purposes in exchange for promissory notes. During the year ended August 31, 2018, Power It Perfect, Inc. loaned the Company an additional $678,358 for working capital and other purposes in exchange for promissory notes (collectively, the “PIP Notes”). All of the PIP Notes bear interest at 5% per annum, are noncollateralized and due on demand, as soon as the Company has operating cash flow available for repayment. The outstanding balance of the PIP Notes was $1,114,207 at November 30, 2018 and August 31, 2018. During the three months ended November 30, 2018, there have been no additional borrowings or repayments of notes payable to related party. Accrued interest on the PIP Notes, which is included in accrued expenses, totaled $16,189 and $2,300 at November 30, 2018 and August 31, 2018, respectively.

Cash

As of November 30, 2018, the Company had cash of $92,815, an increase of $90,996 from the cash at the beginning of the period. The increase in cash is attributable to the Auctus and Power Up notes. Our net cash used in operating activities of our continuing operation was $40,526 for the three months ended November 30, 2018. However, we do not currently have enough cash on hand to deploy our business plan in 2019.

Results of Operations

For the three months ended November 30, 2018

The Company generated no revenues for the three months ended November 30, 2018. The net loss from continuing operations for the three months ended November 30, 2018 was $361,470.

Our primary expenses for the three months ended November 30, 2018 were payroll expenses of $76,436, non-cash stock-based compensation expenses of $200,957, and professional fees of $33,985. $76,087 of the payroll expenses related to amounts accrued for, but not paid to, the Company’s management team. Interest expense for the three months ended November 30, 2018 totaled $42,886, of which $19,963 related to amortization of debt discounts.

The Company recorded a gain on the changes in fair value of derivative liabilities of $9,213 for the three months ended November 30, 2018.

The loss from the discontinued operation was $1,798 during the three months ended November 30, 2018.

For the three months ended November 30, 2017

The Company generated no revenues for the three months ended November 30, 2017. The net loss from continuing operations for the three months ended November 30, 2017 was $308,114.

Our primary expenses for the three months ended November 30, 2017 were payroll expenses of $81,131, professional fees of $24,612, and $11,596 of travel related costs. $68,453 of the payroll expenses related to amounts accrued for, but not paid to, the Company’s management team. Interest expense for the three months ended November 30, 2017 totaled $50,027, of which $40,293 related to amortization of debt discounts.

The Company recorded a loss on the changes in fair value of derivative liabilities of $76,977 for the three months ended November 30, 2017. As a result of conversions of convertible debt during the three months ended November 30, 2017, the Company recorded a loss on extinguishment of debt of $51,050.

The loss from the discontinued operation was $173,146 during the three months ended November 30, 2017.

Off-Balance Sheet Arrangements

We do not have 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 that is material to investors.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Based upon an evaluation of the effectiveness of disclosure controls and procedures, our principal executive and financial officer has concluded that as of the end of the period covered by this Quarterly Report on Form 10-Q our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) were not effective. The Company’s principal executive and financial officer has determined that there are material weaknesses in our disclosure controls and procedures.

The material weaknesses in our disclosure control procedures are as follows:

We recognize the importance of the control environment as it sets the overall tone for the organization and is the foundation for all other components of internal control.

As of January 14, 2019, while we have hired a third-party consultant to help us with our public reporting and disclosures, we have not taken action to correct the material weaknesses identified above in our internal control over financial reporting. Once the Company has additional sales activities and has sufficient personnel available, then our Board of Directors, in connection with the aforementioned weaknesses, will implement the following remediation measures:

We will create a position to segregate duties consistent with control objectives and will increase our personnel resources and technical accounting expertise within the accounting function when funds are available to us. We plan to raise additional funds through our capital raise to allocate to these control objectives. We also plan to appoint one or more outside directors to our Board of Directors who shall be appointed to an audit committee resulting in a fully functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal controls and procedures such as reviewing and approving estimates and assumptions made by management when funds are available to us.

Management believes that the appointment of one or more outside directors, who shall be appointed to a fully functioning audit committee, will remedy the lack of a functioning audit committee and a lack of a majority of outside directors on our Board of Directors.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The Company is not a party to any pending legal proceedings, and no such proceedings are known to be contemplated.

No director, officer, or affiliate of the issuer and no owner of record or beneficiary of more than 5% of the securities of the issuer, or any security holder is a party adverse to the small business issuer or has a material interest adverse to the small business issuer.

Based on a performance review by our Board of Directors, the decision was made to withdraw all operations of MPS South Africa. As a result, MPS South Africa’s employees and consultants have filed a dispute with The Commission for Conciliation, Mediation and Arbitration (“CCMA”) in South Africa. As the Company winds down its local operations in South Africa, legal counsel has confirmed that the creditors of the Company will only have claims against the insolvent estate of the local external company and not against MPS or Poverty Dignified, Inc. in the United States. It is therefore management’s position that there is no probable recourse that will have an adverse effect on Poverty Dignified, Inc.

Item 1A. Risk Factors

There have been no material changes from the information set forth in “Item 1A. Risk Factors” in the Form 10-K filed with the SEC on December 14, 2018.

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

During the three months ended November 30, 2018, we issued the following securities that were not registered under the Securities Act. None of the following transactions involved any underwriters, underwriting discounts or commissions. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed on the share certificates issued in these transactions. All recipients had adequate access to sufficient information about us to make an informed investment decision. The sales of these securities were made without any general solicitation or advertising.

Stock Issuances

During the three months ended November 30, 2018, the Company issued 1,288,758 shares under restricted stock agreements for $0 in proceeds. The Company record stock-based compensation expense of $200,957 related to these shares. Each of the following transactions was exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) as a transaction not involving a public offering:

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

SIGNATURES

Pursuant to the requirements of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.