NOTES
TO FINANCIAL STATEMENTS
NOTE
1 – NATURE OF BUSINESS
Nature
of Business
Lans
Holdings, Inc. is in the business of providing secure payment and communication solutions. The Company’s aim is to make
it easier for sellers to start selling, and buyers to buy with confidence. The Company intends that its solutions will be used
to enable businesses to process payments more efficiently whether online or in a retail store front. The Company intends to offer
white label solutions for payment service providers to enable business to consumer and business to business payments through physical
POS, mobile devices, online and software integrations. The Company also intends to provide business processing outsourcing through
its Fractional I.T. Services, and complaint ready hosted solutions through its Infrastructure on Demand.
Lans
Holdings is focused to provide emerging payment "breakthrough" technology that motivates and rewards clients for adopting
more secure infrastructure to support their businesses.
Going
Concern
The
Company has incurred losses since inception and has negative working capital. These factors create substantial doubt about the
Company’s ability to continue as a going concern. The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. The financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern. The ability of the Company to continue as a going concern is dependent
on the Company generating cash from the sale of its common stock and/or obtaining debt financing and attaining future profitable
operations.
Management’s
plans include selling its equity securities and obtaining debt financing to fund its capital requirement and ongoing operations;
however, there can be no assurance the Company will be successful in these efforts.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
These
financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United
States and are expressed in US dollars. The Company’s fiscal year end is November 30.
Use
of Estimates
The
preparation of financial statements in conformity with US GAAP 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. The Company regularly evaluates estimates
and assumptions related to long-lived assets, and deferred income tax asset valuation allowances. The Company bases its estimates
and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and
the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company
may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the
estimates and the actual results, future results of operations will be affected.
Financial
Instruments
The
Company’s financial instruments consist of cash, accounts receivable, prepaid expenses, accounts payable and accrued expenses,
amounts due to officers, notes payable, derivative liabilities and convertible debentures. 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.
Cash
and Cash Equivalents
The
Company considers all highly liquid instruments with maturity of three months or less be cash equivalents.
Software
Development Costs
Costs
incurred for computer software to be sold are accounted for in accordance with ASC 985-20 “Software – Costs of Software
to be Sold, Leased or Marketed”. Accordingly, costs incurred internally in the research and development of the software
products and significant enhancements to existing software products are expensed as incurred until the technologically feasibility
of the product has been established. Technological feasibility occurs shortly before internally developed products are available
for general release. Costs paid to third parties for products in which technological feasibility has been established are capitalized
upon purchase of software.
Property
and Equipment
Property
and equipment is stated at cost, less accumulated depreciation and any impairment in value. Long-lived assets, including property
and equipment, are assessed for impairment whenever events or changes in business circumstances arise than may indicate that the
carrying amount of the long-lived asset may not be recoverable. Depreciation is calculated on a straight line bases over its estimated
useful life.
Intangible
Assets
Software,
licenses and other rights have been capitalized in accordance with ASC 350-40 “Intangibles – Goodwill and Other –
Internal-Use Software.” Amortization is calculated on a straight line basis over its estimated useful life.
If
the total of the expected undiscounted future cash flows is less than the carrying amount of the asset, an impairment is recognized
for the excess of the carrying value over the fair value of the asset.
Income
Taxes
The
Company utilizes the liability method of accounting for income taxes. Under the liability method deferred tax assets and liabilities
are determined based on the differences between financial reporting basis and the tax basis of the assets and liabilities and
are measured using enacted tax rates and laws that will be in effect, when the differences are expected to reverse. An allowance
against deferred tax assets is recognized, when it is more likely than not, that such tax benefits will not be realized.
Any
deferred tax asset is considered immaterial and has been fully offset by a valuation allowance because at this time Company believes
that it is more likely than not that the future tax benefit will not be realized as the Company has no current operations.
Revenue
Recognition
The
Company derives revenue from subscriptions for software that provide secure payment solutions, from the provision of customized
development services and from the provision of secure on demand infrastructure.
The
Company recognizes revenue when persuasive evidence of an arrangement exists, products are fully delivered and services have been
provided, the sales price is fixed or determinable and collectability is reasonably assured.
All
of the Company’s revenues during the year ended November 30, 2016 resulted from three customers.
Stock-based
Compensation
The
Company records stock-based compensation in accordance with ASC 718, “Compensation – Stock Based Compensation”,
which requires the measurement and recognition of compensation expense based on estimated fair values for all share-based awards
made to employees and directors, including stock options.
ASC
718 requires companies to estimate the fair value of share-based awards on the date of grant using an option-pricing model. The
Company uses the Black-Scholes option-pricing model as its method of determining fair value. This model is affected by the Company’s
stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not
limited to the Company’s expected stock price volatility over the term of the awards, and actual and projected employee
stock option exercise behaviors. The value of the portion of the award that is ultimately expected to vest is recognized as an
expense in the statement of operations over the requisite service period.
Options
granted to consultants are valued at the fair value of the equity instruments issued, or the fair value of the services received,
whichever is more reliably measurable.
Loss
Per Common Share
Basic
earnings (loss) per common share is computed by dividing net income (loss) available to common shareholders (numerator) by the
weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential
common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted
method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to
be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect
is anti-dilutive. As of November 30, 2016, the Company had 5,999,707 (2015 – nil) dilutive potential shares outstanding.
Subsequent
Events
The
Company has evaluated all transactions through the date the financial statements were issued for subsequent event disclosure consideration.
Recent
Accounting Pronouncements
The
Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements.
In
August 2014, the Financial Accounting Standards Board issued Accounting Standards Update 2014-15, “Presentation of Financial
Statements - Going Concern”. The Update provides US GAAP guidance on management’s responsibility in evaluating whether
there is substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures.
For each reporting period, management will be required to evaluate whether there are conditions or events that raise substantial
doubt about a company’s ability to continue as a going concern within one year from the date the financial statements are
issued. The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods
and interim periods thereafter. The Company is currently evaluating the effects of ASU 2014-15 on its financial statements.
NOTE
3 – SOFTWARE ASSETS
On
September 22, 2016, the Company entered into a Software Purchase Agreement (the “Software Agreement”) with two related
parties Transaction Data USA Inc. (“TDUSA”) and Melcent Technology SRL (“Melcent”). Pursuant to the Software
Agreement, the Company acquired a PSWITCH software application (the “Software”), including the invention, source code,
object code, components and tools. In exchange for the Software, the Company issued to each of TDUSA and Melcent, 375,000 shares
of the Company’s newly created Series B Preferred Stock. The asset acquired was recorded at the fair value of the 750,000
shares of Series B Preferred Stock of $5,820,000. At November 30, 2016, the 750,000 shares of Series B Preferred Stock had not
been issued and $5,820,000 of stock payable to related parties was accrued by the Company.
As
of November 30, 2016, the Company’s uncertain future revenues generated by the asset indicated that the carrying amount
of the long-lived asset may not be recoverable. The Company performed an impairment test as prescribed by ASC 985-20 which resulted
in an impairment of $5,820,000.
NOTE
4 – INTANGIBLE ASSETS
On
April 17, 2015, the Company entered into an asset purchase agreement (the “Purchase Agreement”) with Transaction Data
USA Inc. (“TDUSA”). Pursuant to the Purchase Agreement, the Company acquired the various assets (the “Assets”)
from TDUSA.
In
consideration for the Assets, the Company issued to TDUSA 400,000 shares of its newly created Series A Preferred Stock. In addition,
a group of shareholders agreed to transfer 19,985,000 shares of common shares to TDUSA (or the parties TDUSA has designated) in
exchange for an aggregate 199,859 shares of Series A Preferred Stock issued by the Company.
Pursuant
to the Purchase Agreement, the Company agreed to use its best efforts to raise $375,000 for working capital needs, develop the
business surrounding the Assets, grant TDUSA the right to appoint two persons to the Company’s board of directors, and grant
TDUSA a revenue share of the business.
In
addition to the shares, the Company paid cash consideration of $50,000 to TDUSA for the Agreement.
The
Company evaluated this transaction by reviewing the ownership percentages of the new shareholders as of the acquisition date and
SAB Topic 5G. The Company is determined to be both the legal acquirer and the accounting acquirer of these assets. The assets
acquired from TDUSA were recorded at the cash consideration of $50,000 and the fair value of the shares issued of $2,100,000.
During
the quarter ended May 31, 2015, due to the Company’s uncertain future revenues generated by the assets, the Company performed
impairment tests as prescribed by ASC 350. As a result, the Company recorded an impairment of $2,150,000.
NOTE
5 – NOTES PAYABLE
a)
On November 24, 2014, the Company issued a $25,000 promissory note to a former director of the Company pursuant to the Agreement
of Conveyance, Transfer and Assignment of Obligations described in Note 8(l). The promissory note is unsecured, non-interest bearing
and was due within six months of the date of issuance. As of November 30, 2016, the note was not yet repaid. The Lender has agreed
to extend the note period until financing is secured. This note was reclassified from note payable to related party to notes payable
during the year ended November 30, 2015 as the lender is no longer a related party.
b)
On March 26, 2015, the Company entered into a $75,000 loan agreement with a third party. The loan is unsecured, bears interest
at 7.5% per year and was due on March 31, 2016. On September 30, 2015, the Company missed a required semi-annual payment of accrued
interest, resulting in the interest rate increasing to 15% per year going forward. At November 30, 2016, the Company had accrued
interest of $15,997 related to this agreement. This loan is currently in default and payable on demand.
c)
On August 7, 2015, the Company entered into a $50,000 loan agreement with a third party. The loan is unsecured, bears interest
at 8.5% per year and is due on August 7, 2016. On January 15, 2016, the Company missed a required semi-annual payment of accrued
interest, resulting in the interest rate increasing to 17% per year going forward. At November 30, 2016, the Company had accrued
interest of $9,594 related to this agreement. This loan is currently in default and payable on demand.
d)
On September 25, 2015, the Company entered into a $14,700 loan agreement with a third party. The loan is unsecured, bears interest
at 1.5% per month and is due on demand. At November 30, 2016, the Company had accrued interest of $1,146 related to this agreement.
e)
On October 5, 2015, the Company entered into a $25,000 loan agreement with the President of the Company. The loan is unsecured,
bears interest at 8% per year compounded and payable monthly, and is due on demand. During October 2015, the Company repaid $20,000
of the loan’s principal. At November 30, 2016, the Company had accrued interest of $603 related to this agreement.
f)
On October 15, 2015, the Company entered into a $125,000 loan agreement with a third party. The loan is unsecured, bears interest
at 7% per year and is due on October 31, 2016. On April 15, 2016, the Company missed a required semi-annual payment of accrued
interest, resulting in the interest rate increasing to 14% per year going forward. At November 30, 2016, the Company had accrued
interest of $15,366 related to this agreement. This loan is currently in default and payable on demand.
g)
On February 12, 2016, the Company entered into a $32,258 loan agreement with a significant shareholder of the Company. The loan
is unsecured, bears interest at 8% per year compounded monthly, and is due on demand. At November 30, 2016, the Company had accrued
interest of $2,245 related to this agreement.
h)
On April 26, 2016, the Company entered into a $6,000 loan agreement with the President of the Company. The loan is unsecured,
bears interest at 8% per year compounded and payable monthly. The loan is payable on the earliest of demand or from 50% of future
revenue or from funding received in excess of $100,000. During the three months ended August 31, 2016, the Company repaid $2,267
of the loan’s principal. At November 30, 2016, the Company had accrued interest of $95 related to this agreement.
i)
On June 2, 2016, the Company received an advance of $2,000 from the President of the Company. The loan was paid off in June 2016.
j)
On October 18, 2016, the Company entered into a $3,045 loan agreement with a significant shareholder of the Company. The loan
is unsecured, bears interest at 8% per year compounded monthly, and is due on demand. At November 30, 2016, the Company had accrued
interest of $nil related to this agreement.
NOTE
6 – CONVERTIBLE DEBENTURES
a)
On March 23, 2016, the Company issued a convertible debenture for $6,000. Pursuant to the terms of the agreement, the note is
unsecured, bears interest at 8% per year, and is due one year from the date of issuance with the option of extending for an additional
six months at the holder’s discretion. At the maturity date, the unpaid amount of principal can be converted at the holder’s
option at a price of 50% of the ask price at the date of conversion. The embedded conversion option qualifies for derivative accounting
and bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the derivative liability of
$9,815 resulted in a full discount to the note payable of $6,000 and interest expense of $3,815. At November 30, 2016, the Company
had amortized $1,708 of the discount to this convertible debenture and had accrued interest of $331 related to this convertible
debenture.
b)
On May 1, 2016, the Company issued a convertible debenture to a related party to settle accounts payable of $15,990. Pursuant
to the terms of the agreement, the note is unsecured, bears interest at 8% per year, and is due one year from the date of issuance
with the option of extending for an additional six months at the holder’s discretion. At the maturity date, the unpaid amount
of principal can be converted at the holder’s option at a price of 50% of the ask price at the date of conversion. The embedded
conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 “Derivatives and Hedging”.
The initial fair value of the derivative liability of $23,757 resulted in a full discount to the note payable of $15,990 and an
interest expense of $7,767. At November 30, 2016, the Company had amortized $3,813 of the discount to this convertible debenture
and had accrued interest of $746 related to this convertible debenture.
c)
On June 15, 2016, the Company issued a convertible debenture for $10,000. Pursuant to the terms of the agreement, the note is
unsecured, bears interest at 8% per year, and is due on December 31, 2016. At the maturity date, the unpaid amount of principal
can be converted at the holder’s option at a price of 50% of the ask price at the date of conversion. The embedded conversion
option qualifies for derivative accounting and bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial
fair value of the derivative liability of $14,129 resulted in a full discount to the note payable of $10,000 and an interest expense
of $4,129. At November 30, 2016, the Company had amortized $4,994 of the discount to this convertible debenture and had accrued
interest of $368 related to this convertible debenture.
d)
On June 30, 2016, the Company issued a convertible debenture for $2,000. Pursuant to the terms of the agreement, the note is unsecured,
bears interest at 8% per year, and is due on December 31, 2016. At the maturity date, the unpaid amount of principal can be converted
at the holder’s option at a price of 50% of the ask price at the date of conversion. The embedded conversion option qualifies
for derivative accounting and bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the
derivative liability of $2,782 resulted in a full discount to the note payable of $2,000 and an interest expense of $782. At November
30, 2016, the Company had amortized $1,227 of the discount to this convertible debenture and had accrued interest of $67 related
to this convertible debenture.
e)
On July 12, 2016, the Company issued a convertible debenture for $30,000. Pursuant to the terms of the agreement, the note is
unsecured, bears interest at 8% per year, and is due on December 31, 2016. At the maturity date, the unpaid amount of principal
can be converted at the holder’s option at a price of 50% of the ask price at the date of conversion. The embedded conversion
option qualifies for derivative accounting and bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial
fair value of the derivative liability of $40,472 resulted in a full discount to the note payable of $30,000 and an interest expense
of $10,472. At November 30, 2016, the Company had amortized $14,688 of the discount to this convertible debenture and had accrued
interest of $927 related to this convertible debenture.
f)
On July 28, 2016, the Company issued a convertible debenture for $4,000. Pursuant to the terms of the agreement, the note is unsecured,
bears interest at 8% per year, and is due on January 28, 2017. At the maturity date, the unpaid amount of principal can be converted
at the holder’s option at a price of 50% of the ask price at the date of conversion. The embedded conversion option qualifies
for derivative accounting and bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the
derivative liability of $5,449 resulted in a full discount to the note payable of $4,000 and an interest expense of $1,449. At
November 30, 2016, the Company had amortized $1,251 of the discount to this convertible debenture and had accrued interest of
$110 related to this convertible debenture.
g)
On September 12, 2016, the Company issued a convertible debenture for $15,000. Pursuant to the terms of the agreement, the note
is unsecured, bears interest at 8% per year, and is due on January 31, 2017. At the maturity date, the unpaid amount of principal
can be converted at the holder’s option at a price of 50% of the ask price at the date of conversion. The embedded conversion
option qualifies for derivative accounting and bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial
fair value of the derivative liability of $18,895 resulted in a full discount to the note payable of $15,000 and an interest expense
of $3,895. At November 30, 2016, the Company had amortized $3,444 of the discount to this convertible debenture and had accrued
interest of $260 related to this convertible debenture.
Convertible
Debentures consist of the following as of November 30, 2016:
Noteholder
(issue date)
|
|
November
30,
2016
|
|
|
|
|
|
March 23, 2016 debenture
|
|
$
|
6,000
|
|
May 1, 2016 debenture
|
|
|
15,990
|
|
June 15, 2016 debenture
|
|
|
10,000
|
|
June 30, 2016 debenture
|
|
|
2,000
|
|
July 12, 2016 debenture
|
|
|
30,000
|
|
July 28, 2016 debenture
|
|
|
4,000
|
|
September 12, 2016
debenture
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
82,990
|
|
Less:
debt discount
|
|
|
(51,865
|
)
|
|
|
|
|
|
Total
|
|
$
|
31,125
|
|
NOTE
7 – DERIVATIVE LIABILITIES
The
embedded conversion options of the Company’s convertible debentures described in Note 6 contain conversion features that
are accounted for as derivative liabilities. The fair value of these liabilities will be re-measured at the end of every reporting
period and the change in fair value will be reported in the statement of operations as a gain or loss on derivative financial
instruments.
The
Company uses Level 3 inputs for its valuation methodology for the derivative liabilities and embedded conversion option liabilities
as their fair values were determined by using the Black-Scholes option pricing model based on various assumptions. The model incorporates
the price of a share of the Company’s common stock (as quoted on NASDAQ), volatility, risk free rate, dividend rate and
estimated life. Significant changes in any of these inputs in isolation would result in a significant change in the fair value
measurement. As required, these are classified based on the lowest level of input that is significant to the fair value measurement.
The following table shows the assumptions used in the calculations:
|
|
Expected
Volatility
|
|
Risk-free
Interest Rate
|
|
Expected
Dividend Yield
|
|
Expected
Life (in years)
|
|
At
November 30, 2016
|
|
|
131%
- 223%
|
|
0.36%
- 0.68%
|
|
|
0%
|
|
|
0.08-1.00
|
The
fair value of the derivative liabilities were $89,071, and $nil at November 30, 2016 and 2015, respectively:
|
|
|
Derivative
Values
|
|
Noteholder
(issue date)
|
|
|
November
30, 2015
|
|
|
|
Additions
|
|
|
|
Conversions
|
|
|
|
Fair
Value Increase (Decrease)
|
|
|
|
November
30,
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 23, 2016 debenture
|
|
$
|
—
|
|
|
$
|
9,815
|
|
|
$
|
—
|
|
|
$
|
(2,864
|
)
|
|
$
|
6,951
|
|
May 1, 2016 debenture
|
|
|
—
|
|
|
|
23,757
|
|
|
|
—
|
|
|
|
(3,958
|
)
|
|
|
19,799
|
|
June 15, 2016 debenture
|
|
|
—
|
|
|
|
14,129
|
|
|
|
—
|
|
|
|
(3,971
|
)
|
|
|
10,158
|
|
June 30, 2016 debenture
|
|
|
—
|
|
|
|
2,782
|
|
|
|
—
|
|
|
|
(750
|
)
|
|
|
2,032
|
|
July 12, 2016 debenture
|
|
|
—
|
|
|
|
40,472
|
|
|
|
—
|
|
|
|
(10,000
|
)
|
|
|
30,472
|
|
July 28, 2016 debenture
|
|
|
—
|
|
|
|
5,449
|
|
|
|
—
|
|
|
|
(1,315
|
)
|
|
|
4,134
|
|
September 12, 2016
debenture
|
|
|
—
|
|
|
|
18,895
|
|
|
|
—
|
|
|
|
(3,370
|
)
|
|
|
15,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
—
|
|
|
$
|
115,299
|
|
|
$
|
—
|
|
|
$
|
(26,228
|
)
|
|
$
|
89,701
|
|
NOTE
8 – RELATED PARTY TRANSACTIONS
a)
During the year ended November 30, 2016, the Company incurred consulting and other business-related fees of $52,281 (2015 - $65,553)
to a company whose CEO is the President of the Company.
b)
During the year ended November 30, 2016, the Company incurred consulting fees and other business related fees of $12,124 (2015
- $5,064) to a company controlled by the Chief Technology Officer of the Company.
c)
During the year ended November 30, 2016, the Company incurred consulting and other business-related fees of $12,000 (2015 - $5,553)
to the Chief Revenue Officer of the Company.
d)
During the year ended November 30, 2016, the Company incurred advisory, consulting and other business-related fees of $92,046
(2015 - $7,100) to an Advisory Board Member of the Company who was appointed to Chief Strategy Officer of the Company by the board
of directors of the Company on May 24, 2016.
e)
During the year ended November 30, 2016, the Company incurred consulting and other business-related fees of $55,000 (2015 - $nil)
to a significant shareholder of the Company
f)
As of November 30, 2016, the Company owed $200 (November 30, 2015 - $200) to the President of the Company, which is non-interest
bearing, unsecured and due on demand.
g)
As of November 30, 2016, the Company owed $41,453 (November 30, 2015 - $1,000) to a company whose CEO is the President of the
Company. The amount is related to consulting fees incurred during the period.
h)
As of November 30, 2016, the Company owed $11,000 (November 30, 2015 - $18,850) to a company controlled by the Chief Technology
Officer of the Company. The amount is related to consulting fees incurred during the period. Of the amount owing at November 30,
2015, $15,000 was settled on April 12, 2016, by issuing 66,667 shares of the Company’s common stock at $0.225 per share.
i)
As of November 30, 2016, the Company owed $10,000 (November 30, 2015 - $17,665) to the Chief Revenue Officer of the Company. The
amount is related to consulting fees incurred during the period. Of the amount owing at November 30, 2015, $15,000 was settled
on April 12, 2016, by issuing 39,683 shares of the Company’s common stock at $0.378 per share.
j)
As of November 30, 2016, the Company owed $31,639 (November 30, 2015 – $28,938) to the Chief Strategy Officer of the Company.
The amount is related to advisory and consulting fees incurred during the period. Of the amount owing at November 30, 2015, $30,000
was settled on April 12, 2016, by issuing 111,112 shares of the Company’s common stock at $0.27 per share.
k)
As of November 30, 2016, the Company owed $79,385 (November 30, 2015 - $nil) to a company that is a significant shareholder of
the Company. The amount is related to cost of revenue incurred during the period.
l)
On November 21, 2014, the Company entered into an Agreement of Conveyance, Transfer and Assignment of Assets and Assumption of
Obligations with directors of the Company. Pursuant to the agreement, the Company transferred all assets and business operations
associated with hexagon fishing nets to the directors of the Company. In exchange, the directors of the Company agreed to cancel
24,438,333 shares in the Company and assume and cancel all liabilities relating to the Company’s former business, including
officer loans amounting to $100,814. A director of the Company retained 361,667 shares of common stock in the Company. In consideration
for the cancellation of amounts due to officer and the return of the shares, the Company issued a $25,000 promissory note to the
director of the Company. Refer to Note 5(a). As a result of the forgiveness of the loans and cancellation of stock, the Company
recognized $75,814 as a contribution to capital.
m)
On November 21, 2014, the Company entered into a License Agreement with the Chief Executive Officer of the Company (Note 11(i)).
At November 30, 2014, the Company was indebted to the Chief Executive Officer of the Company for $150,000 related to the License
Agreement. The amount was due by February 19, 2015. As of November 30, 2016, the amount has not been paid by the Company.
NOTE
9 – CAPITAL STOCK
The
authorized capital of the Company is 500,000,000 common shares with a par value of $ 0.001 per share and
100,000,000
preferred shares with a par value of $0.001 per share.
a)
On April 21, 2015, the Company designated, at its discretion, a class of Series A Preferred Stock. The Series A Preferred Stock
consists of 599,859 shares. The Series A Preferred Stock may bear quarterly dividends of 7% per annum in cash or common stock.
The Series A Preferred Shares have voting rights of 37.33 votes per share, liquidation preference of $15.00 per share, and are
convertible into common shares on a 1:33.33 basis at $0.15 per share, with adjustments. The Company issued the 599,859 shares
of Series A Preferred Stock pursuant to the asset acquisition described in Note 4.
b)
On April 12, 2016, certain shareholders returned a net total of 24,438,333 shares of common stock pursuant to the Agreement of
Conveyance, Transfer, and Assignment of Assets and Assumption of Obligations referred to in Note 8(l).
c)
On April 12, 2016, the Company issued 24,438,333 shares of common stock pursuant to the License Agreement with PayFlex Systems
referred to in Note 11(i).
d)
On April 12, 2016, certain shareholders transferred an aggregate of 6,661,667 shares of common stock pursuant to a prior Asset
Acquisition Agreement with Transaction Data USA Inc referred to in Note 4(a).
e)
On April 12, 2016, the Company issued 66,667 shares of common stock, valued at $15,000, to the Chief Technology Officer of the
Company pursuant to the consultancy agreement referred to in Note 11(a).
f)
On April 12, 2016, the Company issued 39,683 shares of common stock, valued at $15,000, to the former Chief Operations Officer
of the Company pursuant to the consultancy agreement referred to in Note 11(b).
g)
On April 12, 2016, the Company issued 39,683 shares of common stock, valued at $15,000, to the Chief Revenue Officer of the Company
pursuant to the consultancy agreement referred to in Note 11(c).
h)
On April 12, 2016, the Company issued an aggregate 228,214 shares of common stock, valued at $75,000, to Advisory Board Members
of the Company pursuant to the advisory board agreements referred to in Notes 11(e), 11(f) and 11(g).
i)
On April 14, 2016, the Company’s board of directors and a majority of the shareholders of the Company approved an amendment
to the Articles of Incorporation to effectuate a one for three reverse stock split of the outstanding shares of common stock of
the Company. The reverse stock split became effective on May 24, 2016. All share and per share data in these financial statements
and footnotes have been retrospectively adjusted to account for this reverse stock split.
j)
On September 14, 2016, the Company designated, at its discretion, a class of Series B Preferred Stock. The Series B Preferred
Stock consists of 2,000,000 shares. The holders of The Series B Preferred Stock have no dividend rights except as may be declared
by the Company at its discretion. The Series B Preferred Shares have voting rights of 10 votes per share and liquidation preference
on an equal basis per share with holders of the Common Stock and the Series A Preferred Stock, subject to any preference given
to the holders of the Series A Preferred Stock. Series B Preferred Stock are convertible into common shares on a 1:100 basis.
As of November 30, 2016, the Company has $5,820,000 of stock payable related to the issuance of 750,000 shares of Series B Preferred
Stock pursuant to the asset acquisition described in Note 3.
NOTE
10 – STOCK - BASED COMPENSATION
On
May 23, 2016, the Company adopted an Equity Incentive Plan under which the Company can grant up to 8,333,333 common shares to
its officers, directors, employees and consultants. The Equity Incentive Plan provides for the granting of incentive stock options,
non-qualified stock options, stock appreciation rights, restricted stock, stock units, performance shares and performance units.
On
May 24, 2016, the Company granted 4,000,000 stock options to the Chief Strategy Officer of the Company, each of which is exercisable
into one common share of the Company at a price of $0.04 per share until May 24, 2018. On the grant date the stock options were
deemed to have a fair value of $0.1476 per option, totaling $590,492. The stock options will vest as follows: 2,000,000 options
will vest on May 24, 2017 and 2,000,000 options will vest on May 24, 2018. As a result of these stock options vesting over a period
of two years, during the year ended November 30, 2016, the Company recognized $231,142 in stock-based compensation.
The
fair value of each option granted was estimated on the date of grant using the Black-Scholes option pricing model with the weighted
average assumption for the year ending November 30, 2016:
|
|
2016
|
Expected
dividend yield
|
|
|
0
|
%
|
Risk-free interest
rate
|
|
|
0.92
|
%
|
Expected volatility
|
|
|
303
|
%
|
Expected option life
(in years)
|
|
|
2.00
|
|
The
following table summarizes the continuity of the Company’s stock options:
|
|
Number
of Options
|
|
Weighted
Average Exercise Price
|
|
Weighted-Average
Remaining Contractual Term (years)
|
|
Aggregate
Intrinsic Value
|
|
|
|
|
$
|
|
|
|
$
|
Outstanding,
November 30, 2015
|
|
–
|
|
–
|
|
–
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
4,000,000
|
|
|
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
November 30, 2016
|
|
|
|
4,000,000
|
|
|
|
0.04
|
|
|
|
1.48
|
|
|
|
112,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable,
November 30, 2016
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
NOTE
11 – COMMITMENTS
a)
On June 25, 2015, the Company entered into a consultancy agreement with a company controlled by the Chief Technology Officer of
the Company. Pursuant to the agreement, the Company will pay $1,000 a month for consulting services for a term of one year and
issue 66,667 shares of the Company’s common stock, valued at $15,000, on the date of the agreement. The shares were issued
on April 12, 2016.
b)
On August 17, 2015, the Company entered into a consultancy agreement with the former Chief Operations Officer of the Company.
Pursuant to the agreement, the Company was required to pay $2,250 a month for consulting services for a term of one year and issue
39,683 shares of the Company’s common stock, valued at $15,000, on the date of the agreement. On January 6, 2016, the Chief
Operations Officer of the Company resigned and was no longer considered a related party to the Company. On the same date, the
consultancy agreement was terminated.
c)
On August 17, 2015, the Company entered into a consultancy agreement with the Chief Revenue Officer of the Company. Pursuant to
the agreement, the Company will pay $1,000 a month for consulting services for a term of one year and issue 39,683 shares of the
Company’s common stock, valued at $15,000, on the date of the agreement. The shares were issued on April 12, 2016.
d)
On August 17, 2015, the Company entered into a consultancy agreement with the President of the Company. Pursuant to the agreement,
the Company will pay $3,500 a month for consulting services for a term of one year.
e)
On August 17, 2015, the Company entered into an advisory board agreement with two Advisory Board Members of the Company for terms
of one year each. Pursuant to the agreement, the Company will issue the Members 39,683 shares each of the Company’s common
stock, valued at $15,000 for each member, on the date of the agreement. The shares were issued on April 12, 2016.
f)
On August 28, 2015, the Company entered into an advisory board agreement with an Advisory Board Member of the Company for a term
of one year. Pursuant to the agreement, the Company will issue a total of 37,736 shares of the Company’s common stock, valued
at $15,000, on the date of the agreement. The shares were issued on April 12, 2016.
g)
On September 1, 2015, the Company entered into a consultancy agreement with a significant shareholder of the Company. Pursuant
to the agreement, the Company will pay $5,500 a month for consulting services for a term of one year.
h)
On September 17, 2015, the Company entered into an advisory board agreement with an Advisory Board Member of the Company. Pursuant
to an amendment to the agreement dated January 1, 2016, the Company will pay $8,000 a month for advisory services until September
17, 2016, and issue a total of 111,112 shares of the Company’s common stock, valued at $30,000, on the date of the agreement.
The shares were issued on April 12, 2016. On May 24, 2016, the Company’s board of directors appointed this Advisory Board
Member to become the Chief Strategy Officer of the Company. Effective September 17, 2016, the agreement was extended for an additional
six months, whereas the Company will continue to pay $8,000 a month for advisory services.
i)
The Company entered into the agreement on April 12, 2016 with the Chief Executive Officer of the Company. Pursuant to the agreement,
the Company is required to pay $150,000 in cash for a license and issue a number of shares of the Company’s common stock
necessary to give 55% of the total issued and outstanding shares of the Company to PlayFlex Systems (“PayFlex”) or
its nominees. In addition, the Company is required to issue a number of shares of the Company’s common stock necessary to
give 70% of the total issued and outstanding shares of the Company to PayFlex or its nominees on the anniversary of the Licensing
Agreement in which the Company’s audited filed financial statements for gross annual revenues attributable to the business
exceeds $5,000,000. The President of PayFlex is the Company’s Chief Executive Officer. The Company is also required to raise
$200,000 for its own working capital needs within 90 days of closing the License Agreement. As of the date of these financial
statements, the Company was not able to raise the funding requirement for the agreement with PayFlex.
NOTE
12 – INCOME TAXES
For
the years ended November 30, 2016 and 2015, the Company had incurred net losses and, therefore, had no tax liability. The net
deferred tax asset generated by the loss carry-forwards have been fully reserved. The cumulative net operating loss carry-forwards
are approximately $1,280,745 at November 30, 2016 and will begin expiring in the year 2027.
The
cumulative tax effect at the expected rate of 34% of significant items comprising the Company’s net deferred tax amount
is as follows as of November 30, 2016 and 2015:
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
Deferred
tax asset attributable to net operating loss carry-forwards
|
|
$
|
435,453
|
|
|
$
|
175,842
|
|
|
|
|
|
|
|
|
|
|
Less:
valuation allowance
|
|
|
(435,453
|
)
|
|
|
(175,842
|
)
|
|
|
|
|
|
|
|
|
|
Net
deferred tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
Due
to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry-forwards of approximately $1,280,745
for Federal income tax reporting purposes are subject to annual limitations. The net operating loss carry-forwards expire from
2027 to 2037. Internal Revenue Section 382 restricts the ability to use these carryforwards whenever an ownership change, as defined,
occurs. The Company had incurred such ownership changes in November 2014 and April 2015, and the use of net operating losses is
further restricted.
NOTE
13 – SUBSEQUENT EVENTS
a)
On December 30, 2016, the Company received proceeds of $75,000 in exchange for issuing a convertible debenture with a principal
amount of $85,000. Pursuant to the terms of the agreement, the note is unsecured, bears interest at 12% per year, and is due on
September 15, 2017. At any time after 180 days from the date of issuance, the unpaid amount of principal and interest can be converted
at the holder’s option at a price of 60% of the lowest trading price of the common stock during the 25 trading day period
prior to conversion.
b)
On January 6, 2017, the Company received proceeds of $80,000 in exchange for issuing a convertible debenture with a principal
amount of $85,000. Pursuant to the terms of the agreement, the note is unsecured, bears interest at 10% per year, and is due on
December 12, 2017. At any time on or after June 2, 2017, the unpaid amount of principal and interest can be converted at the holder’s
option at a price of 60% of the lowest trading price of the common stock during the 25 trading day period prior to conversion.
c) On
January 18, 2017, the Company received proceeds of $39,500 in exchange for issuing a convertible debenture with a principal amount
of $135,000. Pursuant to the terms of the agreement, the note is unsecured, bears interest at 6% per year, and is due on January
18, 2018. The note has an original issue discount (OID) of $16,500 and the total consideration the Company may receive under the
note is $118,500. The Company paid the prorated amount of the OID of $5,500 for the initial tranche. At any time after 180 days
from the date of issuance, the unpaid amount of principal and interest can be converted at the holder’s option at a price
of 60% of the lowest trading price of the common stock during the 25 trading day period prior to conversion.
d)
Subsequent to November 30, 2016, the Company became a defendant in a civil matter pending in Miami-Dade County, Florida. The lawsuit
was brought by a current vendor, seeking restitution for an outstanding debt totaling $8,144, plus interest. The Company and the
vendor settled out of court and the Company agreed to pay the vendor $2,000 a month until the debt has been paid.