NOTE 2 - GOING CONCERN AND MANAGEMENT LIQUIDITY PLANS
As of August 31, 2016, the Company had an accumulated deficit of $3,362,617. For the three months ended August 31, 2016 and 2015, the Company incurred operating losses of $437,128 and $137,089 respectively, and used cash in operating activities of $136,862 and $100,639, respectively. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company recognizes it will need to raise additional capital in order to fund operations, meet its payment obligations and execute its business plan. There is no assurance that additional financing will be available when needed or that management will be able to obtain financing on terms acceptable to the Company and whether the Company will generate revenues, become profitable and generate positive operating cash flow. If the Company is unable to raise sufficient additional funds on favorable terms, it will have to develop and implement a plan to further extend payables and to raise capital through the issuance of debt or equity on less favorable terms until sufficient additional capital is raised to support further operations. There can be no assurance that such a plan will be successful. If the Company is unable to obtain financing on a timely basis, the Company could be forced to sell its assets, discontinue its operations and/or pursue other strategic avenues to commercialize its technology.
Accordingly, the accompanying condensed consolidated financial statements have been prepared in conformity with U.S. GAAP for interim financial statements, which contemplates continuation of the Company as a going concern and the realization of assets and the satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the consolidated financial statements do not necessarily represent realizable or settlement values. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
On July 11, 2016, the Company exchanged its trade show booth and manufacturing facility assets with a net book value of $94,926 for the return of 5,000,000 shares of the Company’s common stock (see Note 6). The Company currently outsources its product manufacturing to a third party.
NOTE 4 - ADVANCE
As of August 31, 2016, the Company owed $21,750 to an associate of the Company’s management. The advance is unsecured, payable on demand and non-interest bearing.
NOTE 5 - RELATED PARTIES
As of August 31, 2016, the Company owes a former COO of the Company $46,417, which is unsecured, non-interest bearing and due on demand. The former COO resigned as our Chief Operating Officer on September 17, 2015.
As of August 31, 2016, the Company owes a former CFO of the Company $27,500, which is unsecured, non-interest bearing and due on demand. The former CFO started working for the Company on August 1, 2014 and resigned in April 2015.
8
As of August 31, 2016, the Company owes the former President of the Company $44,542 for loans, general and administration expenses and travel expenses paid on behalf of the Company, and consulting services provided by the former President. The amount is unsecured, non-interest bearing and due on demand. The former President resigned as President, CEO, CFO, and as a director of the Company on September 18, 2015.
As of August 31, 2016, the Company owes the spouse of the former President of the Company $4,000 for general and administration support services provided to the Company. The amount is unsecured, non-interest bearing and due on demand.
As of August 31, 2016, the Company had loans of $63,325 from shareholders. These amounts are unsecured, non-interest bearing and have no fixed terms of repayment. The Company has not yet formalized loan agreements for these loans.
On July 11, 2016, the Company entered into a Rescission Agreement and Mutual Release (the “Rescission Agreements”) separately with two shareholders, whereby the shareholders agreed to rescind any business agreements, including existing consulting agreements, whether verbal or in writing, and in conjunction with such rescission, agreed to return an aggregate total of 5,500,000 shares of the Company’s Common Stock to the Company for cancellation. In conjunction with Rescission Agreements, the Company and the shareholders consented to a mutual release of any claims, current or contemplated. In connection with one of the Agreements, the Company exchanged its trade show booth and manufacturing facility assets with a net book value of $94,926 for the return of 5,000,000 shares of the Company’s common stock, which is included in the 5,500,000 aggregate shares returned. These 5,500,000 shares are reflected as treasury stock as of August 31, 2016.
NOTE 6 - CAPITAL STOCK
Effective November 1, 2013, the number of common shares authorized that may be issued by the Company increased from 75,000,000 common shares to 200,000,000 common shares with a par value of $0.001 per share.
Effective November 1, 2013, the Company completed a 25:1 forward split of the Company's issued and outstanding common stock. Every one share of common stock issued and outstanding prior to the split was exchanged for 25 post-split shares of common stock. All share and per share amounts have been restated retroactively.
During the three months ended August 31, 2016, the Company completed private placements consisting of 1,400,000 units at a price of $0.10 per share for total proceeds of $140,000. Each unit consists of one share of our common stock and one warrant to purchase one share of common stock. The warrants have an exercise price of $0.20 and have a one-year term.
On August 8, 2016, the Company issued 349,607 common shares for aggregate proceeds of $34,960 received prior to May 31, 2016 and recorded as common stock subscribed as of May 31, 2016.
On August 31, 2016, the Company completed a private placement consisting of 250,000 units at a price of $0.10 per share for total proceeds of $25,000. Each unit consists of one share of our common stock and one warrant to purchase one share of common stock. The warrants have an exercise price of $0.20 and have a one-year term. The shares were not yet issued as of August 31, 2016 and are reflected as common stock subscribed on the Company’s balance sheet.
On June 6, 2016, the Company issued 1,000,000 shares of common stock to a third-party consultant for services with a fair value of $151,000.
During the three months ended August 31, 2016, the Company recognized $59,273 in compensation expense related to common shares previously issued to four directors. All shares fully vest by December 31, 2016.
9
On July 11, 2016, the Company entered into a Rescission Agreement and Mutual Release (the “Rescission Agreements”) separately with two shareholders, whereby the shareholders agreed to rescind any business agreements, including existing consulting agreements, whether verbal or in writing, and in conjunction with such rescission, agreed to return an aggregate total of 5,500,000 shares of the Company’s Common Stock to the Company for cancellation. In conjunction with Rescission Agreements, the Company and the shareholders consented to a mutual release of any claims, current or contemplated. In connection with one of the Agreements, the Company exchanged its trade show booth and manufacturing facility assets with a net book value of $95,964 for the return of 5,000,000 shares of the Company’s common stock. These 5,500,000 shares are reflected as treasury stock as of August 31, 2016.
NOTE 7 - WARRANTS
As of August 31, 2016, there were 5,249,607 whole share purchase warrants outstanding and exercisable. The warrants have a weighted average remaining life of 0.82 years and a weighted average exercise price of $0.270 per whole warrant for one common share. The warrants had an aggregate intrinsic value of $0 as of May 31, 2016.
Whole share purchase warrants outstanding at May 31, 2016 are as follows:
|
|
|
|
|
|
| |
|
|
|
Number of
whole share
purchase
warrants
|
|
Weighted
average
exercise
price per
share
|
|
Outstanding, May 31, 2016
|
|
|
3,599,607
|
|
$
|
0.303
|
|
Issued
|
|
|
1,650,000
|
|
|
0.200
|
|
Expired
|
|
|
-
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
Outstanding, August 31, 2016
|
|
|
5,249,607
|
|
$
|
0.270
|
|
Exercisable, August 31, 2016
|
|
|
5,249,607
|
|
$
|
0.270
|
NOTE 8 - COMMITMENTS
On September 9, 2013, the Company entered into an Asset Purchase Agreement whereby the Company agreed to acquire intellectual property as well as all related assets necessary for operating a plant growth enhancement product ("Plant Surfactant") manufacture and sale business. The agreement was closed on February 7, 2014. In consideration, the Company issued 12,500,000 shares of restricted common stock. In addition, the Company also agreed to incorporate a wholly owned subsidiary that will hold these assets and conduct operations, and execute a consulting agreement with the former President of the Company whereby he would receive $7,000 per month. The consulting agreement will become effective on the date that the Company raises a minimum of $500,000 to fund operations, which had not yet occurred as of the date of the former President’s resignation. As of August 31, 2016, the Company had not incorporated a wholly owned subsidiary.
On September 9, 2013, the Company entered into an Asset Purchase Agreement whereby the Company agreed to acquire certain equipment used in conjunction with the production, marketing and sale of the Plant Surfactant. The agreement closed on February 7, 2014. In consideration, the Company issued 5,000,000 shares of restricted common stock. On July 11, 2016, this Asset Purchase Agreement was rescinded and the shares were returned to the treasury.
On September 9, 2013, the Company entered into an Easement Agreement whereby the Company agreed to acquire the exclusive right to 10 acres of farm property located in Aylmer, Ontario, Canada, to operate as a demonstration farm in order to evaluate and exhibit the effects of using the plant surfactant for an initial term of 3 years. In consideration, the Company issued 2,500,000 shares of restricted common stock with a fair value of $25,200, which was recognized as a prepaid expense and is being amortized over the three-year term. During the three months ended August 31, 2016 and 2015, the Company recognized $2,100 and $2,100, respectively, as rent expense, leaving a balance of $0 remaining in prepaid expense as of August 31, 2016.
10
On July 18, 2016, the Company entered into an Exchange Agreement (the “Exchange Agreement”) separately with two shareholders, whereby on the Effective Date (as defined below) each shareholder agreed to (i) surrender 10,000,000 shares of Common Stock of the Company, and (ii) assign such Common Stock to the Company for cancellation thereof pursuant to an Assignment of Interest; and whereby, in exchange, the Company shall (i) cancel the Shareholder’s Common Stock, (ii) issue each shareholder 20,000 shares of a new class of capital stock, namely a Series A Preferred Stock of $0.001 par value (the “Exchange Stock”), and (iii) enter the exchange on the books and records of the Company. “Effective Date” means the date the Exchange Agreement, including the Assignment of Interest, has been fully executed and delivered, the Company has obtained shareholder approval of the establishment of the class of Series A Preferred Stock and the Certificate of Designation establishing the Series A Preferred Stock has been filed with the Nevada Secretary of State. The Effective Date has not yet occurred as of the date of this filing.
The Exchange Stock shall have a (a) redemption right, whereby each share of Exchange Stock shall be redeemable at $5.00 by the Company at such time that the Company (i) reports sales revenue of no less than $12,000,000 for any consecutive twelve (12) month period, (ii) reports earnings before interest, taxes, depreciation and amortization (EBITDA) of no less than $1,000,000 in any quarterly or annual report filed with the Securities Exchange Commission (the “SEC”), or (iii) achieves a current ratio (current assets divided by current liabilities) of 2.0 or greater as calculated based on any quarterly or annual report filed with the SEC; and a (b) Conversion Right, whereby each share of Exchange Stock shall be convertible by the holder into 500 shares of Common Stock of the Company, or back into their original amount of shares, upon (i) the Company filing a voluntary petition in bankruptcy, is adjudged bankrupt or insolvent, or has entered against it an order for relief, in any bankruptcy or insolvency proceedings, or (ii) Richard Kamolvathin, the Company’s current Chief Executive Officer resigns all of his positions from the Company and ceases to provide any services to the Company.
NOTE 9 - SUBSEQUENT EVENTS
In September of 2016, the Company completed a private placement consisting of 250,000 units at a price of $0.10 per share for total proceeds of $25,000. Each unit consists of one share of our common stock and one warrant to purchase one share of common stock. The warrants have an exercise price of $0.20 and have a one-year term.
11
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This report contains forward-looking statements. Forward-looking statements are projections in respect of future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates.” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. Those statements include statements regarding the intent, belief or current expectations of us and members of our management team as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” set forth in our Annual Report on Form 10-K for the year ended May 31, 2016, as amended, and as filed with the Securities and Exchange Commission on September 2, 2016, any of which may cause our company’s or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks include, by way of example and not in limitation:
·
substantial doubt about our ability to continue as a going concern;
·
our ability to obtain additional financing on terms that are acceptable to us or at all;
·
our ability to successfully commercialize our operations to produce a market-ready product in a timely manner and in enough quantity;
·
absence of contracts with customers or suppliers;
·
our ability to maintain and develop relationships with customers and suppliers;
·
the impact of competitive products and pricing or our ability to maintain pricing;
·
our ability to successfully acquire, develop or commercialize new products;
·
our expectation that the demand for our products and services will eventually increase;
·
federal legislation and state legislative and regulatory initiatives relating to the agricultural industry;
·
supply constraints or difficulties;
·
general economic and business conditions;
·
our ability to successfully recruit and retain qualified personnel in order to continue our operations; and
·
our ability to successfully implement our business plan.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or performance. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company should be read in conjunction with the Condensed Financial Statements and notes related thereto included in this Quarterly Report on Form 10-Q. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time except as required by law. We believe that our assumptions are based upon reasonable data derived from and known about our business and operations. We make no assurance that actual results of operations or the results of our future activities will not differ materially from our assumptions.
As used in this Quarterly Report on Form 10-Q and unless otherwise indicated, the terms “we,” “us,” “our,” or the “Company” refer to GroGenesis, Inc. Unless otherwise specified, all dollar amounts are expressed in United States dollars.
12
Use of Generally Accepted Accounting Principles (“GAAP”) Financial Measures
We use United States GAAP financial measures in the section of this report captioned “Management’s Discussion and Analysis or Plan of Operation” (MD&A), unless otherwise noted. All of the GAAP financial measures used by us in this report relate to the inclusion of financial information. This discussion and analysis should be read in conjunction with our financial statements and the notes thereto included elsewhere in this Quarterly Report. All references to dollar amounts in this section are in United States dollars, unless expressly stated otherwise.
Corporate Overview
We were incorporated pursuant to the laws of Nevada on May 19, 2010 under the name Lisboa Leisure, Inc. On October 18, 2013, we amended our articles of incorporation in order to change our name to GroGenesis, Inc. and to affect a forward split of our issued and outstanding shares of common stock such that every one share of common stock issued and outstanding prior to the split be exchanged for 25 post-split shares of common stock and that the Company's post-forward split authorized capital consisted of 200,000,000 shares of common stock with a par value of $0.001. The name change and split were conditions precedent to our asset acquisition agreements with Joseph Fewer of Aylmer, Ontario and Steven Moseley of Paris, Tennessee, whereby we agreed to purchase certain assets necessary for the operation of a plant growth surfactant manufacture and sales business.
On September 9, 2013, we entered into an asset purchase agreement with Joseph Fewer and Stephen Moseley, whereby we agreed to acquire all rights, title, and interest in and to the assets relating to our initial product, AgraBurst™, (the “APA”). In consideration of Joseph Fewer selling the intellectual property comprising AgraBurst™ to us, including the technology described in the United States provisional patent application number 61/897,584 - "Composition and Method for Enhancing Plant Growth", as well as all related assets necessary for operating a plant growth enhancement product manufacture and sales business as a going concern, we issued to Mr. Fewer 12,500,000 post forward-split common shares in our capital. The APA also required that we complete a forward split of our common stock such that 25 new shares of common stock are exchanged for each currently issued share of common stock outstanding, and that 74,000,000 shares of post-forward-split common stock held by our former president be returned to treasury. We completed this forward-split on November 1, 2013.
On July 11, 2016, we entered into a Rescission Agreement and Mutual Release separately with two shareholders, whereby the shareholders agreed to rescind any business agreements, including existing consulting agreements, and in conjunction with such rescission, agreed to return an aggregate total of 5,500,000 shares of our common stock for cancellation. On July 18, 2016, we entered into an exchange agreement (the “Exchange Agreement”) separately with two shareholders, whereby on the Effective Date (as defined below) each shareholder agreed to (i) surrender 10,000,000 shares of our common stock, and (ii) assign such common stock to us for cancellation thereof pursuant to an Assignment of Interest; and whereby, in exchange, we shall (i) cancel the shareholder’s common stock, (ii) issue each shareholder 20,000 shares of a new class of capital stock, namely a Series A Preferred Stock of $0.001 par value (the “Exchange Stock”), and (iii) enter the exchange on our books and records. “Effective Date” means the date the Exchange Agreement, including the Assignment of Interest has been fully executed and delivered, we have obtained shareholder approval of the establishment of the class of Series A Preferred Stock and the Certificate of Designation establishing the Series A Preferred Stock has been filed with the Nevada Secretary of State.
During our fiscal year ending May 31, 2016, we developed further enhancements to our AgraBurst™ formula to make it an all-natural, premium organic, non-GMO nano-surfactant for farmers, fertilizer manufacturers and commercial lawn and turf companies. Now called AgraBurst PRO™ and as our flagship product, it is considered an agricultural input which improves the ability of the plant (crop, turf, tree, vine etc.) to enhance the efficient access of added nutrients incorporated in fertilizers, resulting in less fertilizer needed as well as improved water retention in soil. By optimizing the plant's uptake of applied pest and weed controls and fertilizers, producers can minimize other input costs while reducing the health risk to farm workers due to its non-toxic properties. AgraBurst PRO™ (the “Product”) is formulated for organic and non-GMO producers and those food growers seeking to convert to non-GMO and organic food production. We believe application of our Product can begin the process of improving the health of the soil while reducing the use of conventional chemical agricultural inputs. Our strategy is to capitalize on the convergence of consumer demand, retailer demand/compliance and legislative drive toward environmental responsibility.
13
Results of Operations
Comparison of the Three Months Ended August 31, 2016 to the Three Months Ended August 31, 2015
Revenue
We had no revenues for the three months ended August 31, 2016 or 2015, due to our focus and efforts directed on redeveloping our product formulas and to new product development.
Operating Expenses
Our expenses for the three months August 31, 2016 are summarized as follows in comparison to our expenses for the three months ended August 31, 2015:
|
|
|
|
|
|
| |
|
|
|
Three Months Ended August 31,
|
|
|
|
2016
|
|
2015
|
|
Commissions
|
|
$
|
-
|
|
$
|
-
|
|
Consulting fees
|
|
|
292, 064
|
|
|
80,069
|
|
Depreciation
|
|
|
3,722
|
|
|
8,739
|
|
General and administrative expenses
|
|
|
35,362
|
|
|
26,730
|
|
Transfer agent and filing fees
|
|
|
2,701
|
|
|
2,168
|
|
Professional fees
|
|
|
103,279
|
|
|
19,383
|
|
Total Expenses
|
|
$
|
437,128
|
|
$
|
137,089
|
Operating expenses increased $300,039 from $137,089 for the three months ended August 31, 2015 to $437,128 for the three months ended August 31, 2016, an increase of 219%. The primary reason is a $211,995 increase in consulting fees for the three months ended August 31, 2016 in comparison to the three months ended August 31, 2015, due to increase use of consultants. Additionally, professional fees increased by $83,896 primarily from increased legal services and services related to reporting and filing requirements.
Other Income and Expense
Other income and expense for the three months ended August 31, 2016 and 2015 are summarized as follows:
|
|
|
|
|
|
| |
|
|
|
Three Months Ended August 31,
|
|
|
|
2016
|
|
2015
|
|
Interest expense
|
|
|
(805)
|
|
|
-
|
|
Total Expenses
|
|
$
|
(805)
|
|
$
|
-
|
Interest expense increased from $0 for the three months ended August 31, 2015, to $805 for the three months ended August 31, 2016, primarily due to financing obtained on a vehicle loan in January 2016.
Liquidity and Capital Resources
As of August 31, 2016, we had cash on hand of $39,584 and a working capital deficiency of $365,373 as compared to cash equivalents on hand of $12,387 and a working capital deficiency of $305,629 as of May 31, 2016. The increase in cash was offset primarily from an increase in accounts payable and accrued liabilities for the three months ended August 31, 2016.
Private Placement Offerings
For the three months ended August 31, 2016, we completed private placements consisting of an aggregate of 1,400,000 units at a price of $0.10 per share for total proceeds of $140,000. Each unit consists of one share of our common stock and one warrant to purchase one share of common stock. The warrants have an exercise price of $0.20 and have a one-year term.
14
On August 31, 2016, the Company completed a private placement consisting of 250,000 units at a price of $0.10 per share for total proceeds of $25,000. Each unit consists of one share of our common stock and one warrant to purchase one share of common stock. The warrants have an exercise price of $0.20 and have a one-year term. The shares were not yet issued as of August 31, 2016 and are reflected as common stock subscribed on the Company’s balance sheet.
Subsequent to our fiscal quarter ended August 31, 2016, in September 2016, we completed a private placement consisting of 250,000 units at a price of $0.10 per share for total proceeds of $25,000. Each unit consists of one share of our common stock and one warrant to purchase one share of common stock. The warrants have an exercise price of $0.20 and have a one-year term.
Going Concern
The unaudited financial statements contained in this quarterly report on Form 10-Q have been prepared assuming that the Company will continue as a going concern. We have accumulated losses through August 31, 2016 of $3,362,617 as well as incurred negative cash flows from operating activities. Presently, we do not have sufficient cash resources to meet our plans through the twelve months ended August 31, 2017. These factors raise substantial doubt about our ability to continue as a going concern. Management is in the process of evaluating various financing alternatives in order to finance our research and development activities and general and administrative expenses. These alternatives include raising funds through public or private equity markets and either through institutional or retail investors. Although there is no assurance that we will be successful with our fund raising initiatives, management believes that we will be able to secure the necessary financing as a result of ongoing financing discussions with third party investors and existing shareholders.
The financial statements do not include any adjustments that may be necessary should we be unable to continue as a going concern. Our continuation as a going concern is dependent on our ability to obtain additional financing as may be required and ultimately to attain profitability. If we raise additional funds through the issuance of equity, the percentage ownership of current shareholders could be reduced, and 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 business endeavors or opportunities, which could significantly and materially restrict our future plans for developing our business and achieving commercial revenues. If we are unable to obtain the necessary capital, we may have to cease operations.
Working Capital Deficiency
|
|
|
|
|
| |
|
|
August 31,
|
|
May 31,
|
|
|
2016
|
|
2016
|
|
Current assets
|
$
|
77,266
|
|
$
|
68,392
|
|
Current liabilities
|
|
442,639
|
|
|
374,021
|
|
Working capital deficiency
|
$
|
(365,373)
|
|
$
|
(305,629)
|
The increase in current liabilities was primarily from an increase in accounts payable and accrued liabilities for the three months ended August 31, 2016. Management is attempting to raise more capital in order to increase the Company’s cash position and pay down current liabilities.
Cash Flows
|
|
|
|
|
| |
|
|
Three Months Ended August 31,
|
|
|
2016
|
|
2015
|
|
Net cash used in operating activities
|
$
|
(136,862)
|
|
$
|
(100,639)
|
|
Net cash used in investing activities
|
|
-
|
|
|
-
|
|
Net cash provided by financing activities
|
|
164,059
|
|
|
120,000
|
|
Increase (decrease) in cash
|
$
|
27,197
|
|
$
|
19,361
|
The increase in net cash used in operating activities in the three months ended August 31, 2016, as compared to the previous year is due primarily to an increase in operating expenses. The increase in cash provided by financing activities is due to an increase in proceeds from the sale of our common stock and common stock subscriptions.
15
Future Financing
Given our cash position of $39,584 as of August 31, 2016, management believes that our cash on hand and working capital are not insufficient to meet our current anticipated cash requirements. We will require additional funds to implement our growth strategy for our business. In addition, while we have received capital from various private placements that have enabled us to fund our operations, these funds have been largely used to develop our processes and purchase initial amounts of inventory, although additional funds are needed for other corporate operational and working capital purposes. Therefore, we will need to raise an additional $500,000 to $750,000 to cover all of our operational expenses over the next 12 months. These funds may be raised through equity financing, debt financing, or other sources, which may result in further dilution in the equity ownership of our shares. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Any failure to secure additional financing may force us to modify our business plan. In addition, we cannot be assured of profitability in the future. If we are not able to obtain the additional financing on a timely basis should it be required, or generate significant material revenues from operations, we will not be able to meet our other obligations as they become due and we will be forced to scale down or perhaps even cease our operations.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
Critical Accounting Policies and Estimates
For reference to a complete list of critical accounting policies and estimates, these financial statements should be read in conjunction with the financial statements of the Company for the year ended May 31, 2016 (including the notes thereto) set forth on Form 10-K.
Recently Adopted Accounting Pronouncements
For reference to a complete list recently adopted accounting pronouncements, these financial statements should be read in conjunction with the financial statements of the Company for the year ended May 31, 2016 (including the notes thereto) set forth on Form 10-K.
Newly Issued Accounting Pronouncements
Except as disclosed below, for reference to a complete list newly issued accounting pronouncements, these financial statements should be read in conjunction with the financial statements of the Company for the year ended May 31, 2016 (including the notes thereto) set forth on Form 10-K.
In August 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update (“ASU”) 2016-15, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments, which clarifies existing guidance related to accounting for cash receipts and cash payments and classification on the statement of cash flows. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is permitted. The Company is currently evaluating the impact of this new standard on its financial statements.
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.