WEWARDS, INC. - Quarter Report: 2018 February (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

Commission file number: 333-197968

WEWARDS, INC.

(Exact name of registrant as specified in its Charter)

Registrant's telephone number, including area code: 702-944-5599

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 filings requirements for the past 90 days. Yes þ  No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ  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 þ

As of April 6, 2018 the registrant had 88,733,450 shares of common stock issued and outstanding. There has been no trading in the registrant’s common stock since May, 2015.

TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS

This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. These statements often can be identified by the use of terms such as "may," "will," "expect," "believe," "anticipate," "estimate," "approximate" or "continue," or the negative thereof. We intend that such forward-looking statements be subject to the safe harbors for such statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management's best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.

GENERAL

Throughout this Form 10-Q Quarterly Report, the terms “We,” “Registrant,” “Wewards, Inc.,”WEWARDS” and “Company” all refer to Wewards, Inc., the corporate name of which was Global Entertainment Clubs, Inc. until January 8, 2018.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WEWARDS, INC.

(formerly Global Entertainment Clubs, Inc.)

INDEX TO FINANCIAL STATEMENTS

1

WEWARDS, INC.

(formerly Global Entertainment Clubs, Inc.)

BALANCE SHEETS

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

2

WEWARDS, INC.

(formerly Global Entertainment Clubs, Inc.)

STATEMENTS OF OPERATIONS

(Unaudited)

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

3

WEWARDS, INC.

(formerly Global Entertainment Clubs, Inc.)

STATEMENT OF CASH FLOWS

(Unaudited)

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

4

WEWARDS, INC.

(formerly Global Entertainment Clubs, Inc.)

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

February 28, 2018

(Unaudited)

NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS

WEWARDS, INC. (the corporate name of which was Global Entertainment Clubs, Inc. until January 8, 2018) was incorporated in Nevada on September 10, 2013 as Betafox Corp., with the initial intent to manufacture and sell color candles. On April 26, 2015, Giorgos Kallides (the “Seller”), entered into an Agreement for the Purchase of Common Stock (the “Stock Purchase Agreement”) with Future Continental Limited, (“Purchaser”) pursuant to which the Seller agreed to sell to Purchaser, six million (6,000,000) shares of common stock of the Company (the “Shares”) owned by the Seller, constituting approximately 73.8% of the Company’s 8,130,000 issued and outstanding common shares, for $340,000. The sale was consummated on May 11, 2015. As a result of the transfer of the shares, there was a change of control of the Company. The Company’s corporate office is located in Walnut, California.

On August 6, 2016 the Company signed Statements of Work (“SOWs”) with Intellectsoft LLC, an unaffiliated company, to perform services for the development and administration of websites to support a mobile app which will enable consumers to purchase goods with “Future World Group” vouchers, and merchants will be able to sell their goods directly to the users, using this platform.

The SOWs provide that after this mobile app has been developed, Intellectsoft LLC will then proceed to phase 2, which is intended to be the development of this app for trade centers.

In addition to the SOWs with Intellectsoft, between August 20, 2016 and September 27, 2016, the registrant signed five SOWs with hedgehog lab, an unaffiliated UK-based company which is also unaffiliated with Intellectsoft, to provide additional services to the registrant in connection with the app being developed. The objective of these services, to be completed in two phases, is for the Company to become the exclusive worldwide licensee (except in the United States) for (1) creating a white labelled version of Future World which can be packaged up in a way by which small co-operatives of merchants can create their own eco systems of product selling and loyalty point trading, using “Future Vouchers” (2) taking the current version of the app, improving the identified pain points and providing versions in English and Chinese, to allow the app to be used in Asia, Europe and North America (except the United States), by the merchants and customers in as short a time as possible; (3) having a loyalty point trading platform visualized within the new iOS and Android applications, as well as defining the distribution of future vouchers and loyalty points; and (4) the creation of a prototype of a 3D globe system, visualizing the potential for the globalization of the app into cities. The Company has now acquired this technology from an affiliated entity, and owns this technology.

The Company also intends to be the exclusive licensee of an online gaming platform, F&L Galaxy, Inc. (“F&L”), a company that is affiliated with the Company,, by virtue of common control by the Company’s principal shareholder and CEO, will purchase (from an affiliated, privately-owned company), the blockchain technology for use in setting up the global gaming platform. All IP addresses for the United States will be blocked by the Company, which means that a US-based person will not be able to participate in the global gaming platform. F&L intends to license the technology to the Company exclusively, and on a worldwide basis—except for the United States, and the Company then intends to sublicense the gaming platform to unaffiliated White Label licensees. The White Label sublicensees will pay the Company a sublicense fee for the use of the technology, each time that an end user signs up. As of the date of the filing of this Quarterly Report on Form 10-Q, no definitive agreements have been signed by the Company with F&L, with respect to the gaming platform.

As of the date of the filing of this Quarterly Report on Form 10-Q, the merchant platform has been completely developed, and the Company owns this technology; however, no licensee has yet been signed by the Company, and no revenues have been generated.  The gaming platform described above has not yet been completed and is not operational.

January 8, 2018, by consent of Lei Pei, the principal shareholder, the Company changed its corporate name in Nevada to WEWARDS, INC. The Company’s trading symbol is now WEWA.

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WEWARDS, INC.

(formerly Global Entertainment Clubs, Inc.)

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

February 28, 2018

(Unaudited)

NOTE 2 – SUMMARY OF SIGNIFCANT 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 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 disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. 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, 2018.

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 the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents and amounts due to shareholder. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements.

ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest.

The three levels of valuation hierarchy are defined as follows:

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 our financial position or results of operations.

NOTE 3 – PREPAID EXPENSES

As of February 28, 2018, the company had $25,000 of prepaid services. $25,000 was paid to a service provider for consulting services to be provided in March. In addition, the CEO has prepaid $35,000 on the Company credit card to be used for future expenses.

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WEWARDS, INC.

(formerly Global Entertainment Clubs, Inc.)

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

February 28, 2018

(Unaudited)

NOTE 4 – RELATED PARTY LOANS

As of February 28, 2018 and May 31, 2017, the Company owed another company owned by Mr. Pei $70,740 and $70,740, respectively. All funds expended to date have been used for professional fees, and for other general operating purposes. The loans are unsecured, non-interest bearing and due on demand.

As of February 28, 2018 and May 31, 2017, the Company owed F&L Galaxy, Inc., another company owned by Mr. Pei, $12,582 and $12,582, respectively for software development expense. The loan is unsecured, non-interest bearing and due on demand. F&L Galaxy, Inc.

On February 23, 2017, Sky Rover loaned the Company $1,000,000, the loan is not convertible and is in addition to the $11,000,000 loaned by Sky Rover in the form of convertible notes. The loan is unsecured, bears interest at 5% and is due February 23, 2020. As of February 28, 2018 there is $50,833 of accrued interest on this loan.

Convertible Promissory Note

On each of August 1, 2016 and August 3, 2016, Sky Rover Holdings, Ltd., a California corporation (“Sky Rover”) which is 100% owned by Lei Pei, the CEO and principal shareholder, loaned $500,000 to the Company (total of $1,000,000). Sky Rover was issued an unsecured, 5%, convertible promissory note which is due on August 1, 2019, and is convertible in whole or in part, at the option of the holder, into common shares at any time before the due date, at a conversion price of $0.04 per share (subject to adjustment in the event of stock splits, forward splits, recapitalizations, a merger, etc.). At the option of the Company, the interest may also be paid by issuing restricted shares of common stock, at the same conversion price per share. All funds expended to date have been used for professional fees, other general operating purposes and for payments in accordance with the SOWs discussed in Note 1. As of February 28, 2018 there is $79,306 of accrued interest on this loan.

On September 27, 2016, Sky Rover loaned an additional $2,000,000 to the Company. Sky Rover was issued an unsecured, 5%, convertible promissory note which is due on September 27, 2019, and is convertible, in whole or in part, at the option of the holder, into common shares at any time before the due date, at a conversion price of $0.04 per share (subject to adjustment in the event of stock splits, forward splits, recapitalizations, a merger, etc.). At the option of the Company, the interest may also be paid by issuing restricted shares of common stock, at the same conversion price per share. All funds expended to date have been used for professional fees, other general operating purposes and for payments in accordance with the SOWs discussed in Note 1. As of February 28, 2018 there is $142,778 of accrued interest on this loan.

February 26, 2017, Sky Rover agreed to loan up to an additional $20,000,000 to the Company, of which $8,000,000 was loaned on February 28, 2017. Sky Rover was issued an unsecured, 5%, convertible promissory note which is due on February 26, 2020, and is, in whole or in part, at the option of the holder, convertible into common shares at any time before the due date, at a conversion price of $0.08 per share (subject to adjustment in the event of stock splits, forward splits, recapitalizations, a merger, etc.). At the option of the Company, the interest may also be paid by issuing restricted shares of common stock, at the same conversion price per share. As of February 28, 2018 there is $401,111 of accrued interest on this loan.

On November 20, 2017, Sky Rover loaned the remaining $8,000,000 to the Company. Sky Rover was issued an unsecured, 5%, convertible promissory note which is due on November 20, 2020, and is, in whole or in part, at the option of the holder, convertible into common shares at any time before the due date, at a conversion price of $0.08 per share (subject to adjustment in the event of stock splits, forward splits, recapitalizations, a merger, etc.). At the option of the Company, the interest may also be paid by issuing restricted shares of common stock, at the same conversion price per share. As of February 28, 2018 there is $109.589 of accrued interest on this loan.

The two loans of the $8,000,000, combined with the $4,000,000 previously loaned means that Sky Rover has loaned the Company a total of $19,000,000 in convertible debt and $1,000,000 in non-convertible debt since August 2016.

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WEWARDS, INC.

(formerly Global Entertainment Clubs, Inc.)

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

February 28, 2018

(Unaudited)

If and when Sky Rover converts the entire $16,000,000 Note at the present conversion price of $.08 per share to 200,000,000 shares, and assuming that Sky Rover also converts the $3,000,000 in notes which Sky Rover currently holds, at the conversion price of $.04 per share, Sky Rover would be issued a total of 275,000,000 restricted shares of the Company’s common stock. Those shares, plus the 6,000,000 shares Mr. Pei currently owns, would give him beneficial ownership of 283,000,000 of the Company’s 285,130,000 then-issued and outstanding shares (assuming that no other shares are issued before conversion), which would be approximately 98.8% of the then-outstanding shares.

NOTE 5 – PREFERRED STOCK

The Company has authorized preferred stock of 50,000,000 shares, par value $.001 per share. The voting powers, conversion features, if any, designations, preferences, limitations, restrictions and other rights of the preferred stock shall be prescribed by resolution of the Board of Directors at the time a specific series of preferred stock is designated. None of the preferred shares have been issued as of the date of this Report.

NOTE 6 – SUBSEQUENT EVENTS

In accordance with SFAS 165 (ASC 855-10) management has performed an evaluation of subsequent events through the date that the financial statements were available to be issued, April 5, 2018, and has determined that it does not have any material subsequent events to disclose in these financial statements.

On March 1, 2018, the Company began occupying its new corporate headquarters at 2960 West Sahara Avenue, Las Vegas, NV 89102. The Company is occupying 8,015 square feet, consisting of 70% of the second floor of the building. The Company signed a five-year sublease with United Power, Inc. (“Power”), an affiliate of the Company by reason of common ownership with Lei Pei, the Company’s sole officer and director and majority shareholder, at a base monthly rent of $15,000, plus a possible increase of up to 3% each year based on increases, if any, of the Consumer Price Index. The building is owned by Future Property Limited (“Future”), another affiliate of the Company because of common ownership; Future entered into a lease with Power, and the Company then sublet the space from Power. The Registrant is occupying the space for executive and administrative offices.

On March 5, 2018, Sky Rover Holdings, Ltd., converted a total of $3,000,000 in convertible promissory notes, issued to Sky Rover in August and September 2016, together with $224,138 in accrued interest, into the Company’s common shares, at the Notes’ conversion price of $.04 per share (including accrued interest). As a result of this conversion, the Registrant issued a total of 80,603,450 shares to Lei Pei, as requested by Sky Rover, in cancellation of the Notes and accrued interest.

As of March 6, 2018, the Registrant completed the development (subject to future improvements) of the platform to support a mobile app which will enable consumers to purchase goods and receive rewards, and merchants will be able to sell their goods directly to the users, using this platform. The Registrant is now the owner of this intellectual property, but the Registrant has not entered into any agreements with licensees to date, and no revenues have been generated.

On March 6, 2018, the Company adopted the Wewards 2018 Equity Incentive Plan (the “Plan”). The purpose of the Plan is to promote the success and enhance the value of the Company by attracting and retaining the best available personnel for positions of substantial responsibility and providing such individuals with an incentive for outstanding performance. The Company has authorized up to 10,000,000 shares to be issued to eligible recipients, including employees, key employees, consultants, and other persons who provide advice to the Company, as either outright shares, or qualified stock options, nonqualified stock options, or stock appreciation rights.

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

The following discussion should be read in conjunction with our financial statements, including the notes thereto, appearing elsewhere in this annual report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to those discussed below and elsewhere in this Annual Report ". Our audited financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.

RESULTS OF OPERATIONS

Results of Operations for the Three Months ended February 28, 2018 Compared to the Three Months ended February 28, 2017

Operating Expenses

During the three months ended February 28, 2018, we incurred total operating expenses of $857,519 compared to $1,963,736 incurred during the three months ended February 28, 2017. In the three months ended February 28, 2018, expenses toward the development and administration of the websites to support our mobile app in accordance with the SOWs discussed in Note 1 totaled $393,260 compared to $1,935,806 in the prior period.

Professional fees increased $47,829 to $75,029 from $27,200 in the prior period. Professional fees consist of legal, accounting and audit fees and increased mainly due to increased legal fees.

General and administrative expenses increased $388,500 to $389,230 from $730 in the prior period. The increase is primarily due to consulting expense.

Other Expense

During the three months ended February 28, 2018, we incurred interest expense of $246,575 compared to $39,444 incurred during the three months ended February 28, 2017. The interest expense in the current period is due to the convertible promissory notes with Sky Rover Holdings, Ltd. (Note 4).

Net Loss

Our net loss for the three months ended February 28, 2018 was $1,103,305, compared to a net loss of $2,003,180 for the prior period ended February 28, 2017. The decrease in net loss is a direct result of the decrease in development fees in connection with our mobile app and the increase in interest expense.

Results of Operations for the Nine Months ended February 28, 2018  Compared to the Nine Months ended February 28, 2017

Operating Expenses

During the nine months ended February 28, 2018, we incurred total operating expenses of $3,279,309 compared to $4,181,281 incurred during the nine months ended February 28, 2017. In the nine months ended February 28, 2018, expenses toward the development and administration of the websites to support our mobile app in accordance with the SOWs discussed in Note 1 totaled $2,432,178 compared to $4,099,688 in the prior period.

Professional fees increased $113,756 to $192,151 from $78,395 in the prior period. Professional fees consist of legal, accounting and audit fees and increased mainly due to increased legal fees.

General and administrative expenses increased $651,782 to $654,980 from $3,198 in the prior period. The increase is primarily due to consulting expense.

Other Expense

During the nine months ended February 28, 2018, we incurred interest expense of $558,355 compared to $74,028 incurred during the nine months ended February 28, 2017. The interest expense in the current period is due to the convertible promissory notes with Sky Rover Holdings, Ltd. (Note 4).

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Net Loss

Our net loss for the nine months ended February 28, 2018 was $3,836,787, compared to a net loss of $4,255,309 for the prior period ended February 28, 2017. The increase in net loss is a result of the increase in general and administrative expenses and the increase in interest expense.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows from Operating Activities

We have not generated positive cash flows from operating activities. During the nine months ended February 28, 2018, net cash flows used in operating activities was $3,232,666. For the same period ended February 28, 2017, net cash flows used in operating activities was $4,128,731.

Cash Flows from Investing Activities

We neither received nor used any investments in the nine months ended February 28, 2018 or 2017.

Cash Flows from Financing Activities

For the nine months ended February 28, 2018, net cash provided by financing activities was $8,038,539. For the nine months ended February 28, 2017, net cash from financing activities was $12,094,665, received by way of a loan from our former sole officer, director and principal shareholder.

As of February 28, 2018, the company has cash in the bank of $12,044,134 to be used for operation over at least the next twelve months.

PLAN OF OPERATION AND FUNDING

Unless and until we acquire an ongoing business, or until our transactions with Intellectsoft and hedgehog labs begin to generate positive cash flow, as to which there is no assurance, we expect that working capital requirements will continue to be funded through related party loans and/or further issuances of other securities. There is no assurance that we will be able to meet our working capital requirement from either possible source.

The Registrant intends to use the proceeds of its related party loans to complete the development of a blockchain empowered platform to link online games with players who would like to earn points while playing games. The points accumulated over time could appreciate in value, and would be available for potential cashout; and the blockchain technology is intended to make "playing games and earning points" more secure and transparent. The Registrant intends to partner with other experienced third-party service providers and marketing firms to match online games with players on our platform.

As of March 6, 2018, the Company completed the development (subject to future improvements) of the platform to support a mobile app which will enable consumers to purchase goods with vouchers, and merchants will be able to sell their goods directly to the users, using this platform. The Registrant is now the owner of this intellectual property.

We have no lines of credit or other bank financing arrangements. Additional issuances of equity or convertible debt securities will result in dilution to our current shareholders. Further, such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of prospective new business endeavors or opportunities, and we might be unable to continue in business.

MATERIAL COMMITMENTS

As of the date of this Quarterly Report, we have the material commitments, in accordance with our SOWs with Intellectsoft and hedgehog labs, which are described in Note 1 of Notes to Financial Statements.

On March 1, 2018, the Company moved its corporate offices to the building located at 2960 West Sahara Avenue, Las Vegas, NV 89102, which is owned by Future Property, Ltd. (“Future”), an affiliate of the Company by reason of common ownership with Lei Pei, the Company’s majority shareholder and sole officer and director. Future then entered into a five-year lease with United Power, Inc. (“United”), which is affiliated with the Company for the same reason as Future. United, as the Company’s overtenant, has two additional five-year options to renew its lease with Future. United then entered into a sublease with the Company. The Company is occupying 8,015 square feet, consisting of 70% of the second floor of the building. The Company has signed a five-year lease with United at a base monthly rent of $15,000, plus a possible increase of up to 3% each year based on increases, if any, of the Consumer Price Index. The Company has commenced the use of the space for executive and administrative offices.

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PURCHASE OF SIGNIFICANT EQUIPMENT

We do not have any agreements at this time, to purchase any significant equipment during the next twelve months.

OFF-BALANCE SHEET ARRANGEMENTS

As of the date of this Quarterly Report, 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 are material to investors.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

The term “disclosure controls and procedures” (defined in SEC Rule 13a-15(e)) refers to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within required time periods. “Disclosure controls and procedures” include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

The Company’s Chief Executive Officer and Chief Financial Officer has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this annual report (the “Evaluation Date”). Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer noted the deficiencies in internal controls identified in this Item 4. Accordingly, the Company’s Chief Executive Officer and Chief Financial Officer has concluded that, as of the Evaluation Date, such controls and procedures were not effective.

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of February 28, 2018 using the criteria established in the 2013 version of “Internal Control - Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. In its assessment of the effectiveness of internal control over financial reporting as of February 28, 2018, the Company determined that there were control deficiencies that constituted material weaknesses, as described below.

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Accordingly, the Company concluded that these control deficiencies resulted in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by the Company’s internal controls.

As a result of the material weaknesses described above, management has concluded that the Company did not maintain effective internal control over financial reporting as of February 28, 2018, based on criteria established in Internal Control Integrated Framework issued by COSO. There have been no changes in our internal controls and procedures during the quarter ended February 28, 2018.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting identified in connection with our evaluation we conducted of the effectiveness of our internal control over financial reporting as of February 28, 2018, that occurred during our third fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We know of no material, existing or pending legal proceedings against our Company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

The following exhibits are included as part of this report by reference:

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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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