The Company had accrued interest payable of $315,630 and $527,831 at July 31, 2018 and January 31, 2018, respectively.
The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives
and Hedging” and determined that some instruments should be classified as liabilities due to there being no explicit limit
to the number of shares to be delivered upon settlement of the above conversion options. The instruments are measured at fair value
at the end of each reporting period or termination of the instrument with the change in fair value recorded to earnings. The fair
value of the embedded conversion option resulted in a discount to the note on the debt inception date. For the six months ended
July 31, 2018 and 2017, the Company recorded amortization expense of $105,440 and $34,875, respectively.
As of July 31, 2018, the Company had $525,037 of aggregate debt in default. The agreements provide legal remedies
for satisfaction of defaults, none of the lenders to this point have pursued their legal remedies. The Company continues to accrue
interest at the listed rates, and plans to seek their conversion or payoff within the next twelve months.
On April 25, 2018, the Company entered into replacement notes with 4 existing note holders. The new notes
combined the principle amounts of each of their existing notes along with each note’s accrued interest, extended the maturity
dates to April 24, 2020 with an interest rate per annum of 15%. The total principal and accrued interest replaced were $538,353
and $308,976, respectively. As the conversion option is bifurcated and accounted for at fair value both before and after the exchange,
the debt instrument without the conversion option is evaluated under the guidance in ASC 470-50 for nonconvertible debt using the
10% cash flow test. The bifurcated conversion option is accounted for at fair value both before and after the modification with
any changes in the fair value of the conversion option reflected in earnings. Upon the replacement of the convertible notes, the
Company recognized the fair value of the new embedded conversion feature of $1,917,387 as a derivative liability, resulting in
a loss on change in fair value of the derivative liabilities of $1,841,053.
Cancellation of convertible notes
On February 1, 2018, the Company entered a loan cancellation agreement with Optimum MCGI Holdings LLC. An aggregate total amount of $36,837 was cancelled and released, and the Company recorded a gain on debt extinguishment.
NOTE 5 – DERIVATIVE LIABILITIES
The derivatives arise from convertible debt where the debt is convertible into common stock at variable conversion prices. As the price of the common stock varies it triggers a gain or loss based upon the discount to market assuming the debt was converted at the balance sheet date.
The fair value of the derivative liability is determined using the lattice model, is re-measured on the Company’s reporting dates, and is affected by changes in inputs to that model including our stock price, expected stock price volatility, the expected term, and the risk-free interest rate. In our calculation at July 31, 2018, volatility ranged from 178% to 268%, the term ranged from 0.25 to 2.44 year, and the risk free interest rate was from 1.38% to 2.47%. At January 31, 2018, volatility ranged from 242% to 288%, the term ranged from 0.66 to 2.94 years, and the average risk free interest rate was from 1.88% to 2.03%.
|
|
|
|
|
|
|
Level 3
|
|
|
Derivatives
|
Balance, January 31, 2018
|
|
$
|
760,788
|
|
Derivative Liabilities due to New Convertible Debt
|
|
|
337,767
|
|
Due to Conversion of Convertible Debt
|
|
|
(19,710
|
)
|
Loss on Change in Fair Value of Derivative Liabilities
|
|
|
2,643,405
|
|
Balance, July 31, 2018
|
|
$
|
3,722,250
|
|
For the three months ended July 31, 2018 and 2017, the Company recorded loss from the change in the fair value of derivative liabilities of $1,197,386 and $22,173, respectively.
For the six months ended July 31, 2018 and 2017, the Company recorded gain (loss) from the change in the fair
value of derivative liabilities of $(2,643,405) (including loss on change in the fair value of derivative liabilities due to the
replacement of convertible notes of $1,841,053) and $6,507, respectively.
- 10 -
NOTE 6 – STOCKHOLDERS’ DEFICIT
Preferred Stock:
The Company is authorized to issue 20,001,000 shares of Preferred Stock, having a par value of $0.001 per share.
The Series A Preferred Stock has an automatic forced conversion into common stock upon the completion of the repurchase or extinguishing of all “toxic” debt (notes having conversion features tied to the Company’s common stock), the extinguishing of all other existing dilutive debt or equity structures, and total recapitalization of the Company. As of July 31, 2018, the Company had 330,000 shares of Series A Preferred issued and outstanding.
Holders of the Series B Preferred Stock has voting rights equal to 51% of the total voting rights at any
time. There are no conversion rights granted holders of Series B Preferred shares. As of July 31, 2018, the Company had 1,000
shares of Series B Preferred Stock issued, outstanding and held by Timothy Armes, CEO of the Company.
Holders of the Series C Preferred Stock have the right to convert into the common stock of the Company at
any time at the holder’s option by multiplying the number of issued and outstanding shares of the common stock by 2.63 on
conversion date. The holders of Series C Preferred shares, they are not entitled to dividends, and the Company does not have
the right of redemption. At July 31, 2018, there are 0 shares issued and outstanding of the Series C Preferred Stock.
On June 8, 2018, the Company filed a Certificate of Designation for its Series D Preferred Stock with the
Secretary of State of Nevada designating 870 shares of its authorized preferred stock as Series D Preferred Stock (“Series
D”). The shares of Series D have a par value of $0.001 per share. The shares of Series D do not have any dividend rights,
voting rights or pre-emptive rights and are redeemable by either the Company or the holder at an amount of $1,000 per share.
On June 8, 2018, the Company, after having obtained requisite shareholder approval, filed amendments to its Certificate of Designation with the Secretary of State of Nevada, increased the designated Series B Preferred Stock to 20,000 shares from 1,000 shares and modified certain rights and preferences. Pursuant to the amendment, the Series B Preferred Stock has voting rights equal to 66.7% of the total voting rights at any time.
On June 8, 2018, the Company, after having obtained requisite shareholder approval, filed amendments to its Certificate of Designation with the Secretary of State of Nevada, to modify certain rights and preferences of Series C Preferred Stock. Pursuant to the amendment, 7,250 shares were designated as Series C Convertible Preferred Stock. Any issued and outstanding shares of Series C Convertible Preferred Stock shall automatically convert at $2.63 per share on December 31, 2021. Prior to the conversion, the holders do not have any dividend right, voting right. The holders also have no redemption right.
On June 13, 2018, the Company, after having obtained requisite shareholder approval, filed amendments to its Certificate of Designation with the Secretary of State of Nevada, decreased the designated Series A Preferred Stock to 330,000 shares from 500,000 shares and modified certain rights and preferences. Pursuant to the amendment, any issued and outstanding shares of Series A Convertible Preferred Stock shall automatically convert at $0.152 per share on December 31, 2018. The Company has the option to force a conversion at any time after issuance. Prior to the conversion, the holders do not have any liquidation and voting right.
Common Stock:
The Company is authorized to issue 4,000,000,000 common shares at a par value of $0.001 per share. These shares have full voting rights. During the three months ended July 31, 2018, the Company issued the following common stock:
On June 6, 2018, 66,897,096 shares were issued for the conversion of a $2,200 note and $1,145 interest that had a conversion feature at 50% of the market price per share.
On July 30, 2018, 54,767,518 shares were issued for the conversion of a $1,760 note and $978 interest that had a conversion feature at 50% of the market price per share.
- 11 -
Warrants:
The Company had the following warrants activity for the six months ended July 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
Number of
Warrants
|
|
Weighted
Average
Exercise
Price
For Share
|
|
Weighted
Average
Remaining
Contractual
Term (Years)
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at January 31, 2018
|
|
37,500,000
|
|
$ 0.01
|
|
2.79
|
|
$ —
|
Grant
|
|
—
|
|
—
|
|
|
|
|
Outstanding and exercisable at July 31, 2018
|
|
37,500,000
|
|
$ 0.01
|
|
2.30
|
|
$ —
|
NOTE 7 – RELATED PARTY TRANSACTIONS
As of July 31, 2018 and January 31, 2018, the Company had $334,250 and $292,415, respectively, of related party accrued expenses related to accrued compensation for employees and consultants.
The Company maintained its executive offices of approximately 300 sq. ft., at 758 E. Bethel School Road, Coppell, Texas 75019 in the home of the President and CEO for which it pays no rent. The Company and the CEO moved the office to 6515 Goodman Rd., #258, Olive Branch, Mississippi 38654 in July 2018. The Company plans to lease office space when their operations require it and funding permits.
NOTE 8 – COMMITMENTS AND CONTINGENCIES
There is pending litigation initiated by the Company around the validity of a $100,000 note which the Company signed based upon representations of funding from the maker which was never received. The Company initiated litigation to dispute the note and the 10,151,540 shares that have been issued. There was no consideration for the issuance of the shares and the shares have been accounted for as if they were returned and cancelled although they have not been returned.
NOTE 9 – SUBSEQUENT EVENTS
Conversion of notes
On October 9, 2018, 52,885,151 shares were issued for the conversion of a $1,650 note and $994 interest that
had a conversion price at 50% of the lowest market price during the period that the Company fails to make all required periodic
filings with SEC.
On October 22, 2018, 49,622,751 shares were issued for the conversion of a $1,540 note and $941 interest that
had a default conversion price at 50% of the lowest market price during the period that the Company fails to make all required
periodic filings with SEC.
Issuance of convertible notes
On October 22, 2018, the Company issued a convertible note with principal of $47,250 and net proceed of $45,000. The note bears interest at 8% per annum and mature in eight months from the issuance date. The note can be converted at a price equal to 50% of the lowest bid price of common stock reported on the National Quotations Bureau OTC Markets for the 15 days prior to the conversion, but not higher than $0.005.
- 12 -