Quarterly Report (10-q)

Date : 01/09/2019 @ 9:52PM
Source : Edgar (US Regulatory)
Stock : Airborne Wireless Network (ABWN)
Quote : 0.0001  0.0 (0.00%) @ 1:08PM

Quarterly Report (10-q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the quarterly period ended November 30, 2018

 

 

 

or

 

 

¨

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

 

 

 

For the transition period from _________ to __________

 

 

 

Commission File Number 333-179079

 

AIRBORNE WIRELESS NETWORK

(Exact name of registrant as specified in its charter)

 

Nevada

 

27-4453740

(State or other jurisdiction

of incorporation or organization)

 

(IRS Employer

Identification No.)

 

 

 

4115 Guardian Street, Suite C, Simi Valley, California

 

93063

(Address of principal executive offices)

 

(Zip Code)

 

(805) 583-4302

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  x YES    ¨ NO

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  x YES    ¨ NO

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.

 

Large accelerated filer

¨

Accelerated filer

x

Non-accelerated filer

¨

Smaller reporting company

x

 

 

Emerging growth company

¨

 

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    x NO

 

The number of shares outstanding of the issuer’s common stock, as of January 4, 2019 was 3,327,404,310. 

 

 
 
 
 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION

 

 

Item 1.

Financial Statements

 

3

 

Item 2.

Management’s Discussion and Analysis of Financial Condition or Plan of Operation

 

20

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

27

 

Item 4.

Controls and Procedures

 

27

 

PART II - OTHER INFORMATION

 

 

Item 1.

Legal Proceedings

 

29

 

Item 1A.

Risk Factors

 

29

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

29

 

Item 3.

Defaults Upon Senior Securities

 

29

 

Item 4.

Mine Safety Disclosures

 

29

 

Item 5.

Other Information

 

29

 

Item 6.

Exhibits

 

30

 

SIGNATURES

 

31

 

 
2
 
Table of Contents

 

PART I - FINANCIAL INFORMATION

 

Item 1. Unaudited Financial Statements

 

AIRBORNE WIRELESS NETWORK

 

INTERIM FINANCIAL STATEMENTS

NOVEMBER 30, 2018

(UNAUDITED)

 

 

 

Page

 

 

 

 

 

Balance Sheets

 

4

 

 

 

 

 

Statements of Operations

 

5

 

 

 

 

 

Statements of Stockholders’ Deficit

 

6

 

 

 

 

 

Statements of Cash Flows

 

7

 

 

 

 

 

Notes to the Unaudited Financial Statements

 

8

 

 

 
3
 
Table of Contents

 

AIRBORNE WIRELESS NETWORK

BALANCE SHEETS

(Unaudited)

 

 

 

November 30,

 

 

August 31,

 

 

 

2018

 

 

2018

 

Assets

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$ 130,513

 

 

$ 155,988

 

Prepaid expenses and other assets

 

 

128,953

 

 

 

1,019,650

 

Total Current Assets

 

 

259,466

 

 

 

1,175,638

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

31,486

 

 

 

34,610

 

 

 

 

 

 

 

 

 

 

Total Assets

 

$ 290,952

 

 

$ 1,210,248

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Deficit

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

8,411,333

 

 

$ 4,909,419

 

Accrued interest

 

 

103,919

 

 

 

67,157

 

Convertible notes payable, net of unamortized debt discount of $349,422 and $863,852, respectively

 

 

1,406,583

 

 

 

976,229

 

Derivative liabilities

 

 

3,105,129

 

 

 

4,494,698

 

Total Current Liabilities

 

 

13,026,964

 

 

 

10,447,503

 

 

 

 

 

 

 

 

 

 

Total Liabilities

 

 

13,026,964

 

 

 

10,447,503

 

 

 

 

 

 

 

 

 

 

Stockholders’ Deficit

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, 10,000,000 shares authorized.

 

 

 

 

 

 

 

 

Series A Convertible Preferred Stock, $0.001 par value, $1,150 stated value, 1,000,000 shares authorized; 1,099 and 1,048 shares issued and outstanding as of November 30, 2018 and August 31, 2018, respectively

 

 

1

 

 

 

1

 

Common stock, $0.001 par value, 5,000,000,000,000 shares authorized; 2,937,101,278 and 684,342 shares issued and outstanding as of November 30, 2018 and August 31, 2018, respectively

 

 

2,937,101

 

 

 

684

 

Additional paid-in capital

 

 

107,949,888

 

 

 

104,574,113

 

Accumulated deficit

 

 

(123,623,002

)

 

 

(113,812,053 )

Total Stockholders’ Deficit

 

 

(12,736,012

)

 

 

(9,237,255 )

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders’ Deficit

 

$ 290,952

 

 

$ 1,210,248

 

 

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

 

 
4
 
Table of Contents

 

AIRBORNE WIRELESS NETWORK

STATEMENTS OF OPERATIONS

(Unaudited) 

   

 

 

Three Months Ended

 

 

 

November 30,

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

Revenue

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

Marketing and branding

 

 

3,231,383

 

 

 

1,089,280

 

Depreciation

 

 

3,124

 

 

 

2,088

 

General and administrative expenses

 

 

157,200

 

 

 

114,742

 

Professional fees

 

 

1,502,768

 

 

 

857,285

 

Research and development

 

 

55,141

 

 

 

285,889

 

Salaries and wages

 

 

221,594

 

 

 

229,215

 

Stock based compensation

 

 

4,310,328

 

 

 

5,962,525

 

Total operating expense

 

 

9,481,538

 

 

 

8,541,024

 

 

 

 

 

 

 

 

 

 

Operating Loss

 

 

(9,481,538 )

 

 

(8,541,024 )

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

Interest expense

 

 

(564,303 )

 

 

(980,604 )

Net change in fair value of derivative liabilities including day one losses

 

 

234,892

 

 

 

(535,068 )

Total other expense

 

 

(329,411 )

 

 

(1,515,672 )

 

 

 

 

 

 

 

 

 

Net Loss

 

$ (9,810,949 )

 

$ (10,056,696 )

 

 

 

 

 

 

 

 

 

Net loss per common share – basic and diluted

 

$ (0.01 )

 

$ (3,296 )

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding

 

 

761,133,987

 

 

 

3,051

 

 

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

 

 
5
 
Table of Contents

 

AIRBORNE WIRELESS NETWORK

STATEMENTS OF STOCKHOLDERS' DEFICIT

(Unaudited)

 

 

 

Series A Convertible

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Paid-In

 

 

Accumulated

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Total

 

Balance as of August 31, 2017

 

 

-

 

 

 

-

 

 

 

3,022

 

 

 

3

 

 

 

37,235,403

 

 

 

(37,128,829 )

 

 

106,577

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock units issued for cash

 

 

8,000

 

 

 

8

 

 

 

-

 

 

 

-

 

 

 

6,714,479

 

 

 

-

 

 

 

6,714,487

 

Common stock converted from preferred stock

 

 

(7,552 )

 

 

(8 )

 

 

557,351

 

 

 

557

 

 

 

(549 )

 

 

-

 

 

 

-

 

Preferred stock units issued from the exercise of warrants

 

 

600

 

 

 

1

 

 

 

-

 

 

 

-

 

 

 

599,999

 

 

 

-

 

 

 

600,000

 

Common stock units issued for cash

 

 

-

 

 

 

-

 

 

 

3,178

 

 

 

3

 

 

 

1,174,996

 

 

 

-

 

 

 

1,174,999

 

Common stock issued for exercise of warrants

 

 

-

 

 

 

-

 

 

 

84

 

 

 

-

 

 

 

1,657,125

 

 

 

 

 

 

 

1,657,125

 

Common stock issued for services

 

 

-

 

 

 

-

 

 

 

32,884

 

 

 

33

 

 

 

3,394,055

 

 

 

-

 

 

 

3,394,088

 

Common stock issued in conjunction with convertible notes

 

 

-

 

 

 

-

 

 

 

53

 

 

 

-

 

 

 

1,840,742

 

 

 

-

 

 

 

1,840,742

 

Common stock issued for conversion of convertible notes

 

 

-

 

 

 

-

 

 

 

87,770

 

 

 

88

 

 

 

4,403,137

 

 

 

-

 

 

 

4,403,225

 

Stock options issued to employees and consultants

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

26,846,659

 

 

 

-

 

 

 

26,846,659

 

Net change of derivative liability from exercise of warrants

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,050,554

 

 

 

-

 

 

 

1,050,554

 

Reclassification to additional paid in capital from derivative liability upon conversion of convertible notes

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

6,857,743

 

 

 

-

 

 

 

6,857,743

 

Reclassification to additional paid in capital from derivative liability upon conversion of convertible preferred stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

12,799,770

 

 

 

-

 

 

 

12,799,770

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(76,683,224 )

 

 

(76,683,224 )

Balance as of August 31, 2018

 

 

1,048

 

 

$ 1

 

 

 

684,342

 

 

$ 684

 

 

$ 104,574,113

 

 

$ (113,812,053 )

 

$ (9,237,255 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock converted from preferred stock

 

 

(749 )

 

 

(1 )

 

 

2,632,629,380

 

 

 

2,632,629

 

 

 

(2,632,628 )

 

 

-

 

 

 

-

 

Preferred stock units issued from the exercise of warrants

 

 

800

 

 

 

1

 

 

 

-

 

 

 

-

 

 

 

799,999

 

 

 

-

 

 

 

800,000

 

Common stock issued for services

 

 

-

 

 

 

-

 

 

 

46,242,792

 

 

 

46,243

 

 

 

(28,093 )

 

 

-

 

 

 

18,150

 

Common stock issued for conversion of convertible notes

 

 

-

 

 

 

-

 

 

 

257,544,764

 

 

 

257,545

 

 

 

(210,358 )

 

 

-

 

 

 

47,187

 

Stock options issued to employees and consultants

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,292,178

 

 

 

-

 

 

 

4,292,178

 

Reclassification to additional paid in capital from derivative liability upon conversion of convertible notes

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

122,122

 

 

 

-

 

 

 

122,122

 

Reclassification to additional paid in capital from derivative liability upon conversion of convertible preferred stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,032,555

 

 

 

-

 

 

 

1,032,555

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

(9,810,949

)

 

 

(9,810,949

)

Balance as of November 30, 2018

 

 

1,099

 

 

$ 1

 

 

 

2,937,101,278

 

 

$ 2,937,101

 

 

$ 107,949,888

 

 

$ (123,623,002 )

 

$ (12,736,012 )

 

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

 

 
6
 
Table of Contents

 

AIRBORNE WIRELESS NETWORK

STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Three Months Ended

 

 

 

November 30,

 

 

 

2018

 

 

2017

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net loss

 

$

(9,810,949

)

 

$ (10,056,696 )

Adjustments to reconcile net loss to net cash used in operating activities

 

 

 

 

 

 

 

 

Depreciation

 

 

3,124

 

 

 

2,088

 

Stock-based compensation

 

 

4,310,328

 

 

 

5,962,525

 

Amortization of debt discount included in interest expense

 

 

514,429

 

 

 

953,451

 

Change in fair value of derivative liabilities

 

 

(234,892 )

 

 

535,068

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

890,697

 

 

 

(359,956 )

Accounts payable and accrued liabilities

 

 

3,501,914

 

 

158,422

 

Accrued interest

 

 

49,874

 

 

 

27,153

 

Net Cash Used in Operating Activities

 

 

(775,475 )

 

 

(2,777,945 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Acquisition of property and equipment

 

 

-

 

 

 

(8,456 )

Net Cash Used in Investing Activities

 

 

-

 

 

 

(8,456 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from issuance of convertible notes, net

 

 

-

 

 

 

2,249,000

 

Repayment of convertible notes

 

 

(50,000 )

 

 

-

 

Proceeds from issuance of common stock units

 

 

-

 

 

 

484,000

 

Preferred stock units issued from the exercise of warrants

 

 

800,000

 

 

 

-

 

Net Cash Provided by Investing Activities

 

 

750,000

 

 

 

2,733,000

 

 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

 

(25,475 )

 

 

(53,401 )

Cash and cash equivalents, beginning of period

 

 

155,988

 

 

 

217,694

 

Cash and cash equivalents, end of period

 

$ 130,513

 

 

$ 164,293

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$ -

 

 

$ -

 

Cash paid for taxes

 

$ -

 

 

$ 800

 

 

 

 

 

 

 

 

 

 

Non-cash financing transactions:

 

 

 

 

 

 

 

 

Derivative liabilities recognized as debt discount

 

$ -

 

 

$ 479,762

 

Common stock issued for conversion of debt

 

$ 47,187

 

 

$ -

 

Common stock issued for conversion of preferred stock

 

$ 2,632,629

 

 

$ -

 

Reclassification to additional paid in capital from derivative liability upon conversion of convertible notes

 

$ 122,122

 

 

$ -

 

Reclassification to additional paid in capital from derivative liability upon conversion of convertible preferred stock

 

$ 1,032,555

 

 

$ -

 

Reclassification to derivative liability from additional paid in capital due to warrants

 

$ -

 

 

$ 2,078,065

 

Addition of new derivative liabilities recognized upon issuance of warrants

 

$

-

 

 

$

238,701

 

Original issuance discount and deferred financing cost

 

$

-

 

 

$

341,125

 

 

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

 

 
7
 
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AIRBORNE WIRELESS NETWORK

NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS

NOVEMBER 30, 2018

 

NOTE 1 – ORGANIZATION, DESCRIPTION OF BUSINESS AND GOING CONCERN

 

Airborne Wireless Network (the “ Company ”) is a Nevada corporation incorporated on January 5, 2011 under the name Ample-Tee. Effective on May 19, 2016, the Company’s corporate name was changed to Airborne Wireless Network. It is based in Simi Valley, California, USA. The Company’s fiscal year end is August 31.

 

We are an early stage company with the principal business strategy of developing, marketing and licensing a fully meshed, high-speed broadband airborne wireless network by linking commercial aircraft in flight. We call this network the “Infinitus Super Highway SM ” (“ Infinitus ”).

 

Amended and Restated Articles of Incorporation

 

On June 28, 2018, the stockholders of the Company approved an amendment (the “ Amendment ”) to the Company’s Amended and Restated Articles of Incorporation (as amended to date, the “ Articles ”) that increased the number of authorized shares of stock and granted the Company the right to effect up to five reverse stock splits of all of the Company’s issued and outstanding common stock. The number of shares of stock authorized under the Articles prior to the Amendment was 360,000,000, of which 350,000,000 were designated as common stock and 10,000,000 were designated as preferred stock. After giving effect to the Amendment, the number of authorized shares of all classes of stock the Company has authority to issue is 5,000,010,000,000, of which 5,000,000,000,000 are be designated as common stock and 10,000,000 are designated as preferred stock. Under the Amendment, the board of directors of the Company can effect up to five separate reverse splits of the Common Stock, each to be in a ratio of up to thirty thousand (30,000) to one (1), with any fractional shares to be rounded up to the next whole share, or paid in cash. Effective August 24, 2018, the Company effected a 30,000-for-one reverse stock split. All shares of common stock, the number of shares underlying options, warrants and other convertible securities and the per-share exercise price of such options, warrants and convertible securities disclosed in the financial statements retroactively reflect this reverse stock split.

 

Going concern

 

The Company’s financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“ U.S. GAAP ”), which contemplates the Company’s continuation as a going concern. The Company incurred operating losses of $9,810,949 during the period ended November 30, 2018 and has an accumulated deficit of $123,623,002 as of November 30, 2018.

 

There are no assurances that the Company will be able to either (1) achieve a level of revenues adequate to generate sufficient cash flow from operations; or (2) obtain additional financing through either private placements, public offerings and/or bank financing necessary to support its working capital requirements. To the extent that funds generated from operations and any private placements, public offerings and/or bank financing are insufficient, the Company will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to the Company. If adequate working capital is not available to the Company, it may be required to curtail or cease its operations.

 

Due to uncertainties related to these matters, there exists a substantial doubt about the ability of the Company to continue as a going concern. The accompanying unaudited interim financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.

 

 
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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation of Interim Financial Statements

 

The accompanying unaudited interim financial statements have been prepared in accordance with U.S. GAAP for interim financial information and in accordance with the instructions to Form 10-Q and Regulation S-X. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended November 30, 2018 are not necessarily indicative of the results that may be expected for the year ending August 31, 2019. Notes to the unaudited interim financial statements that would substantially duplicate the disclosures contained in the audited financial statements for fiscal year 2018 have been omitted. This report should be read in conjunction with the audited financial statements and the footnotes thereto for the fiscal year ended August 31, 2018 included in the Company’s Form 10-K as filed with the Securities and Exchange Commission on November 14, 2018.

 

Use of Estimates and Assumptions

 

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 could differ from those estimates.

 

Fair Value of Financial Instruments

 

The Company’s financial instruments consist primarily of cash, prepaid expense, deferred financing cost, accounts payable and accrued liabilities, accrued expenses, convertible notes and notes payable. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments.

 

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

 

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

 

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

 

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

 

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

 

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

 

November 30, 2018

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Liabilities

 

$ -

 

 

$ -

 

 

$ 3,105,129

 

 

$ 3,105,129

 

 

August 31, 2018

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Liabilities

 

$ -

 

 

$ -

 

 

$ 4,494,698

 

 

$ 4,494,698

 

 

 
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Research and Development Expenses

 

We follow ASC 730-10,  ”Research and Development,”  and expense research and development costs when incurred. Accordingly, third-party research and development costs, including designing, prototyping and testing of product, are expensed when the contracted work has been performed or milestone results have been achieved. Indirect costs are allocated based on percentage usage related to the research and development. Research and development costs of $55,141 and $285,889 were incurred for the three months ended November 30, 2018 and 2017, respectively.

 

Stock-Based Compensation

 

ASC 718,  ”Compensation - Stock Compensation,”  prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).

 

The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50,  ”Equity - Based Payments to Non-Employees.”  Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.

 

Stock-based compensation incurred for the three months ended November 30, 2018 and 2017, respectively, are summarized as follows:

 

 

 

November 30,

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

Stock options issued to employees, strategic service provider and consultants

 

$ 4,292,178

 

 

$ 5,545,200

 

Stock warrants issued to investors and consultants

 

 

-

 

 

 

186,968

 

Common stock issued to strategic service providers and consultants

 

 

18,150

 

 

 

230,357

 

Total

 

$ 4,310,328

 

 

$ 5,962,525

 

 

Recently Issued Accounting Pronouncements

 

In August 2018, the Financial Accounting Standards Board issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The ASU modifies the disclosure requirements in Topic 820, Fair Value Measurement, by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty and adding new disclosure requirements, such as disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and disclosing the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This ASU is effective for public companies for annual reporting periods and interim periods within those annual periods beginning after December 15, 2019. The Company is currently evaluating the effect, if any, that the ASU will have on its financial statements.

 

Management has considered all other recent accounting pronouncements issued. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’s unaudited interim financial statements.

 

 
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NOTE 3 – PREPAID EXPENSES

 

Prepaid expenses relate to prepayment made for future services in advance and will be expensed over time as the benefit of the services is received in the future, expected within one year.

 

Prepaid expenses consisted of the following at November 30, 2018 and August 31, 2018:

 

 

 

November 30,

 

 

August 31,

 

 

 

2018

 

 

2018

 

Legal and regulatory fees

 

$ 108,258

 

 

$ 255,500

 

Marketing and branding

 

 

4,500

 

 

 

712,900

 

Rent expense

 

 

9,020

 

 

 

22,550

 

Professional fees

 

 

7,175

 

 

 

28,700

 

 

 

$ 128,953

 

 

$ 1,019,650

 

 

NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

 

Accounts payable and accrued liabilities consisted of the following at November 30, 2018 and August 31, 2018:

 

 

 

November 30,

 

 

August 31,

 

 

 

2018

 

 

2018

 

Trade Payables

 

$

8,302,628

 

 

$ 4,796,784

 

Credit Card Payable

 

 

38,745

 

 

 

37,675

 

Other Payable

 

 

69,960

 

 

 

74,960

 

Total

 

$

8,411,333

 

 

$ 4,909,419

 

 

NOTE 5 – EQUITY

 

Authorized Stock

 

The Company is authorized to issue an aggregate of 5,000,000,000,000 common shares and 10,000,000 shares of preferred stock, each with a par value of $0.001 per share. Each common share entitles the holder to one vote on any matter on which action of the stockholders of the corporation is sought.

 

Series A Convertible Preferred stock

 

The Company is authorized to issue 1,000,000 shares of Series A Convertible Preferred Stock at a par value of $0.001 and a stated value equal to $1,150 per share.

 

 

· The Series A Convertible Preferred Stock ranks senior to our common stock and other classes of capital stock with respect to dividend and redemption.

 

 

 

 

· Holders of the Series A Convertible Preferred Stock will only be entitled to receive any dividends on the Series A Preferred Stock when, as and if the board of directors declares such dividends.

 

 

 

 

· The Series A Convertible Preferred Stock is convertible into shares of common stock by dividing the stated value per share ($1,150) by the lesser of $0.71 per share or 82.5% of the lowest volume weighted average price for our common stock as reported at the close of trading on the market reporting trade prices for the common stock during the five trading days ending on and including the day the notice of conversion is delivered.

 

 

 

 

· A holder of Series A Convertible Preferred Stock has the same voting rights as a holder of common stock on a fully converted basis not to exceed the beneficial ownership limitation.

 

 
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On May 29, 2018, the Company issued 8,000 units for aggregate net proceeds of $6.7 million, after deducting underwriting discounts and other expenses of the offering. Each unit consisted of one share of Series A Preferred Stock, one Series 1 warrant to purchase one share of Series A Preferred Stock, one Series 2 warrant to purchase one share of Series A Preferred Stock and one Series 3 warrant to purchase one share of Series A Preferred Stock (“ Series 1, 2 and 3 warrants ”). The Company also issued to the underwriter of the offering a warrant to purchase 640 units.

 

The Company determined that the Series A Convertible Preferred Stock qualifies for derivative accounting which led to no explicit limit to the number of shares to be delivered upon future settlement of the conversion options (See Note 8).

 

During the three months ended November 30, 2018, 749 shares of Series A Convertible Preferred Stock were converted into 2,632,629,380 shares of common stock.

 

As of November 30, 2018, and August 31, 2018, 1,099 and 1,048 shares of Series A Convertible Preferred Stock were issued and outstanding, respectively.

 

Warrants Exercisable into Preferred A Stock

 

Each warrant is immediately exercisable into one share of Series A Convertible Preferred Stock at a price of $1,000 per share. The Series 1 Warrants will expire on the 90-day anniversary of the issuance date. The Series 2 Warrants will expire on the six-month anniversary of the issuance date. The Series 3 Warrants will expire on the 12-month anniversary of the issuance date. During the three months ended November 30, 2018, the Company amended the expiry date of Series 1, 2 and 3 warrant to May 29, 2019.

 

The below table summarizes warrant activity during the three months ended November 30, 2018 and the year ended August 31, 2018:

 

 

 

 Number of warrants

 

 

 Weighted- Average Exercise Price

 

 

 

Series 1

 

 

Series 2

 

 

Series 3

 

 

Series 1

 

 

Series 2

 

 

Series 3

 

Balances as of August 31, 2018

 

 

7,500

 

 

 

7,900

 

 

 

8,000

 

 

$ 1,000

 

 

$ 1,000

 

 

$ 1,000

 

Granted

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Exercised

 

 

-

 

 

 

(200 )

 

 

(600 )

 

 

1,000

 

 

 

1,000

 

 

 

1,000

 

Forfeited

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Balances as of November 30, 2018

 

 

7,500

 

 

 

7,700

 

 

 

7,400

 

 

$ 1,000

 

 

$ 1,000

 

 

$ 1,000

 

 

The following table summarizes information relating to outstanding and exercisable warrants as of November 30, 2018:

 

 

 

Warrants Outstanding

 

 

Warrants Exercisable

 

 

 

 

 

 

Weighted Average

 

 

Weighted

 

 

 

 

Weighted

 

 

 

Number

 

 

Remaining

 

 

Average

 

 

Number

 

 

Average

 

 

 

of Shares

 

 

life (in Months)

 

 

Exercise Price

 

 

of Shares

 

 

Exercise Price

 

Series 1

 

 

7,500

 

 

 

5.92

 

 

$ 1,000

 

 

 

7,500

 

 

$ 1,000

 

Series 2

 

 

7,700

 

 

 

5.92

 

 

$ 1,000

 

 

 

7,700

 

 

$ 1,000

 

Series 3

 

 

7,400

 

 

 

5.92

 

 

$ 1,000

 

 

 

7,400

 

 

$ 1,000

 

 

During the three months ended November 30, 2018, 200 Series 2 warrants were exercised into 200 shares of Series A Convertible Preferred Stock and 600 Series 3 warrants were exercised into 600 shares of Series A Convertible Preferred Stock.

 

 
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Common stock

 

Issuances

 

During the three months ended November 30, 2018, the Company issued 2,936,416,936 shares of common stock, as follows:

  

 

· 46,242,792 shares of common stock to strategic service providers, for services valued at $18,150.

 

 

 

 

· 2,632,629,380 shares of common stock issued for the conversion of 749 shares of Series A Convertible Preferred Stock.

 

 

 

 

· 257,544,764 shares of common stock issued upon the conversion of convertible notes in aggregate principal amount of $34,075 and accrued interest of $13,112.

 

As at November 30, 2018 and August 31, 2018, the Company had 2,937,101,278 and 684,342 shares of common stock issued and outstanding, respectively.

 

Warrants Exercisable to Common Shares

 

The below table summarizes the activity of warrants exercisable for common shares during the three months ended November 30, 2018 and the year ended August 31, 2018:

 

 

 

 Number

of Shares

 

 

 Weighted-

Average

Exercise Price

 

Balances as of August 31, 2017

 

 

119

 

 

$ 48,900

 

Granted

 

 

3,513

 

 

 

4,505

 

Exercised

 

 

(92 )

 

 

40,823

 

Forfeited

 

 

(231 )

 

 

46,862

 

Balances as of August 31, 2018

 

 

3,309

 

 

$ 1,196

 

Granted

 

 

3

 

 

 

57,000

 

Exercised

 

 

-

 

 

 

-

 

Forfeited

 

 

-

 

 

 

-

 

Balances as of November 30, 2018

 

 

3,312

 

 

$ 2,196

 

 

The fair value of each warrant on the date of grant is estimated using the Black-Scholes option valuation model. The following weighted-average assumptions were used for options granted during the year ended August 31, 2018:

 

 

 

Year Ended

 

 

 

August 31,

 

 

 

2018

 

Exercise price

 

$10.2 - $97,500

 

Expected term

 

1.49 - 5 years

 

Expected average volatility

 

124%-354%

 

Expected dividend yield

 

-

 

Risk-free interest rate

 

0.98% - 2.83%

 

 

The following table summarizes information relating to outstanding and exercisable warrants as of November 30, 2018:

 

Warrants Outstanding

 

 

Warrants Exercisable

 

 

 

 

Weighted Average

 

 

Weighted  

 

 

 

 

 

Weighted   

 

Number

 

 

Remaining Contractual

 

 

 Average

 

 

Number

 

 

Average

 

of Shares

 

 

life (in years)

 

 

Exercise Price

 

 

of Shares

 

 

Exercise Price

 

 

3,312

 

 

 

2.64

 

 

$ 2,196

 

 

 

3,312

 

 

 

2,196

 

 

 
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Aggregate intrinsic value is the sum of the amounts by which the quoted market price of the Company’s stock exceeded the exercise price of the warrants at November 30, 2018 for those warrants for which the quoted market price was in excess of the exercise price (“in-the-money” warrants). As of November 30, 2018, the aggregate intrinsic value of warrants outstanding was approximately $0 based on the closing market price of $0.0001 on November 30, 2018.

 

The Company determined that the warrants qualify for derivative accounting as a result of the related issuances of convertible notes, which led to no explicit limit to the number of shares to be delivered upon future settlement of the conversion options.

 

NOTE 6 – STOCK COMPENSATION PLANS

 

In the ordinary course of business, the Company may issue stock options to employees, officers and directors from time to time. Fair values of the stock option awards are based on the associated value of the services rendered, where reasonably determinable.

 

Equity Compensation not approved by security holders

 

During the three months ended November 30, 2018 and the year ended August 31, 2018, options to purchase 0 and 339 shares of our common stock, respectively, had been granted to our employees, officers and directors under equity compensation not approved by security holders.

 

Options issued had the following terms:

 

Year Ended

August 31,

2018

Exercise price

$15,000 - $97,500

Time to vest

On issuance – 4 years

Expiration after vesting

5 years

 

2017 Equity Incentive Plan

 

On July 30, 2017, the Board of Directors of the Company approved, and on July 31, 2017 the stockholders of the Company approved, the Airborne Wireless Network 2017 Stock Option Plan (the “ 2017 Plan ”). The 2017 Plan permits the Company to issue up to 334 shares of common stock upon exercise of options granted to selected employees, officers, directors, consultants and advisers. The options may be either “incentive stock options” (as such term is defined in the Internal Revenue Code of 1986) or options that are not intended to qualify as “incentive stock options” (these are referred to as “non-qualified options”). Incentive stock options may be granted only to employees. The 2017 Plan is administered by the Board or, at the discretion of the Board, a Board committee. The administrator determines who will receive options and the terms of the options, including the exercise price, expiration date, vesting and the number of shares. The exercise price of each stock option may not be less than the fair market value of the Common Stock on the date of grant, although the exercise price of any incentive stock option granted to a 10% stockholder may not be less than 110% of the fair market value on the grant date. Options may be exercisable (“vest”) immediately or in increments based on time and/or performance criteria as determined by the administrator. The term of any option may not exceed 10 years (five years for any incentive stock option granted to a 10% stockholder), and unless otherwise determined by the administrator, each option must terminate no later than three months after the termination of the optionee’s employment (one year in the event of death or disability). Subject to a few minor exceptions, options may not be transferred other than by will or by the laws of descent and distribution. The 2017 Plan will expire on December 31, 2026.

 

On December 30, 2017, the Company granted options to directors (see below) to purchase an aggregate of 14 shares of our common stock at a price of $59,400 per share vesting immediately on December 31, 2017. The options expire December 29, 2022, unless such director ceases his or her service as a director prior the exercise or expiration of the option.

 

As of November 30, 2018, there were 320 shares available for future grant under the 2017 Plan.

 

 
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Stock Options

 

During the three months ended November 30, 2018, the Company did not grant options and during the year ended August 31, 2018, the Company granted options with an aggregate fair value of $19,412,264, which are being amortized into compensation expense over the vesting period of the options as the services are being provided.

 

The following is a summary of stock option activity during the three months ended November 30, 2018 and the year ended August 31, 2018:

 

 

 

Options Outstanding

 

 

 

Number

of Shares

 

 

Weighted-

Average

Exercise Price

 

 

Fair Value

on Grant Date

 

 

Intrinsic

Value

 

Balances as of August 31, 2017

 

 

946

 

 

 

98,700

 

 

 

35,864,990

 

 

 

-

 

Granted

 

 

339

 

 

 

66,000

 

 

 

19,412,264

 

 

 

-

 

Exercised

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Forfeited

 

 

(2 )

 

 

37,200

 

 

 

(67,894 )

 

 

-

 

Balances as of August 31, 2018

 

 

1,283

 

 

$ 58,500

 

 

$ 55,209,360

 

 

$ -

 

Granted

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Exercised

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Forfeited

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Balances as of November 30, 2018

 

 

1,283

 

 

$ 58,504

 

 

$ 55,209,360

 

 

$ -

 

 

The following table summarizes information relating to exercisable stock options as of November 30, 2018:

 

Options Exercisable

Number of Shares

 

 

Weighted Average Exercise Price

 

 

660

 

 

$ 45,979

 

 

Aggregate intrinsic value is the sum of the amounts by which the quoted market price of the Company’s stock exceeded the exercise price of the stock options exercisable at November 30, 2018. As of November 30, 2018, the aggregate intrinsic value of stock options outstanding was $0 based on the closing market price of $0.0001 on November 30, 2018.

 

Weighted-average grant-date fair value for non-vested stock options as of November 30, 2018 and August 31, 2018 were listed as follows:

 

 

 

Shares

 

 

Weighted-

Average Grant

Date Fair Value

Per Share

 

Unvested, August 31, 2017

 

 

809

 

 

$ 38,100

 

Granted

 

 

339

 

 

 

57,300

 

Vested

 

 

(473 )

 

 

43,800

 

Forfeited

 

 

-

 

 

 

-

 

Unvested, August 31, 2018

 

 

675

 

 

$ 43,800

 

Granted

 

 

-

 

 

 

-

 

Vested

 

 

(52 )

 

 

37,500

 

Forfeited

 

 

-

 

 

 

-

 

Unvested, November 30, 2018

 

 

623

 

 

$ 43,800

 

 

 
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The fair value of each option on the date of grant is estimated using the Black-Scholes option valuation model. The following weighted-average assumptions were used for options granted during the year ended August 31, 2018 and 2017:

 

 

Year Ended

 

August 31,

 

2018

 

2017

 

Expected term

 

3.59 - 5.98 years

 

4.59 - 6.43 years

 

Expected average volatility

 

175% - 176%

 

179% - 183%

 

Expected dividend yield

-

-

 

Risk-free interest rate

 

2.20% - 2.35%

 

1.17% - 2.25%

 

The total fair values of stock options that vested during the period ended November 30, 2018 and year ended August 31, 2018 were $2,510,847 and $18,112,430, respectively.

 

As of November 30, 2018, there was $7,831,411 of total unrecognized compensation cost related to non-vested stock options granted. The Company expects to recognize that cost over a remaining weighted average vesting period of 0.55 years as of November 30, 2018.

 

NOTE 7 – CONVERTIBLE NOTES

 

The Company had the following principal balances under its convertible notes outstanding as of November 30, 2018 and August 31, 2018:

 

 

 

November 30,

 

 

August 31,

 

 

 

2018

 

 

2018

 

Convertible Notes - originated in October 2017

 

$ 162,700

 

 

$ 164,190

 

Convertible Notes - originated in December 2017

 

 

109,725

 

 

 

109,725

 

Convertible Notes - originated in January 2018

 

 

1,915

 

 

 

24,500

 

Convertible Notes - originated in March 2018

 

 

145,833

 

 

 

145,833

 

Convertible Notes - originated in April 2018

 

 

1,190,000

 

 

 

1,250,000

 

Convertible Notes - originated in May 2018

 

 

145,832

 

 

 

145,833

 

 

 

 

1,756,005

 

 

 

1,840,081

 

Less debt discount and debt issuance cost

 

 

(349,422 )

 

 

(863,852 )

 

 

 

1,406,583

 

 

 

976,229

 

Less current portion of convertible notes payable

 

 

(1,406,583 )

 

 

(976,229

Long-term convertible notes payable

 

$ -

 

 

$ -

 

 

The Company recognized amortization expense related to the debt discount and deferred financing fees of $514,429 and $953,451 for the three months ended November 30, 2018 and 2017, respectively, which is included in interest expense in the statements of operations.

 

For the three months ended November 30, 2018 and 2017, the interest expense on convertible notes was $49,874 and $27,153, respectively. As of November 30, 2018 and August 31, 2018, the accrued interest payable was $103,919 and $67,157, respectively.

 

 
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Conversion

 

During the three months ended November 30, 2018, holders of certain of the convertible notes converted these notes with principal amounts of $34,075 and accrued interest of $13,112 into 257,544,764 shares of common stock. The corresponding derivative liability at the date of conversion of $122,122 was credited to additional paid in capital.

 

Convertible Notes – Issued during the year ended August 31, 2018

 

During the year ended August 31, 2018, the Company issued a total principal amount of $6,618,099 convertible notes for cash proceeds of $5,662,750, after deducting an original issuance discount of $629,099 and financing fees of $326,250. The convertible notes were also provided with a total of 53 common shares and warrants to purchase up to 25 shares of common stock at exercise prices ranging from $52,500 to $60,000 per share. The terms of convertible notes are summarized as follows:

 

 

· Term ranging from six months to one year;

 

 

 

 

· Annual interest rates ranging from 0% to 12%;

 

 

 

 

· Convertible at the option of the holders either at issuance or 180 days from issuance; and

 

 

 

 

· Conversion prices are typically based on 55% or 70% of the lowest trading prices of the Company’s shares during 20-25 days prior to the conversion.
   

NOTE 8 – DERIVATIVE LIABILITIES

 

The Company analyzed the conversion option for derivative accounting consideration under ASC 815, “ Derivatives and Hedging,”  and determined that the convertible notes should be classified as a liability since the conversion option becomes effective at issuance resulting in there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options. The Company accounts for warrants and Series A Convertible Preferred Stock as a derivative liability due to there being no explicit limit to the number of shares to be delivered upon settlement of all conversion options.

 

The Company determined our derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of November 30, 2018. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk-free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each convertible note and warrant is estimated using the Black-Scholes valuation model. The following weighted-average assumptions were used in November 30, 2018 and August 31, 2018:

 

Three months ended

Year Ended

November 30,

August 31,

2018

2018

Expected term

0.11 - 0.50 years

0.10 - 5.00 years

Expected average volatility

283% - 580%

49% - 350%

Expected dividend yield

-

-

Risk-free interest rate

2.31%-2.52%

0.98% - 2.83%

 

The following table summarizes the derivative liabilities included in the balance sheet at November 30, 2018:

 

Fair Value Measurements Using Significant Observable Inputs (Level 3)

 

Balance - August 31, 2018

 

$ 4,494,698

 

Addition of new derivative liabilities recognized upon issuance of convertible preferred stock

 

 

1,106,610

 

Derivative liabilities settled upon conversion of convertible notes

 

 

(122,122 )

Derivative liabilities settled upon conversion of convertible preferred stock

 

 

(1,032,555 )

Loss on change in fair value of the derivative liabilities

 

 

(1,341,502 )

Balance - November 30, 2018

 

$ 3,105,129

 

 

 
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The following table summarizes the (gain) loss on derivative liability included in the income statement for the three months ended November 30, 2018 and 2017, respectively.

 

 

 

Three months ended

 

 

 

November 30,

 

 

 

2018

 

 

2017

 

Addition of new derivative liabilities recognized as day one loss on derivatives from convertible notes

 

$ -

 

 

$ 140,251

 

Addition of new derivative liabilities recognized upon issuance of convertible preferred stock

 

 

1,106,610

 

 

 

-

 

Addition of new derivative liabilities recognized as day one loss on derivatives from warrants

 

 

-

 

 

 

859,488

 

(Gain) loss on change in fair value of the derivative liabilities

 

 

(1,341,502 )

 

 

(464,671 )

 

 

$ (234,892 )

 

$ 535,068

 

 

NOTE 9 – COMMITMENTS AND CONTINGENCIES

 

Anti-Dilution Agreements

 

Pursuant to our agreement with Jet Midwest Group, LLC entered into in October 2016, in consideration of the services to be provided by Jet Midwest Group, LLC, we issued to Jet Midwest Group, LLC 1,250,000 shares of common stock representing 1.6% of our common stock outstanding at that date. The agreement with Jet Midwest Group, LLC provides full ratchet anti-dilution protection to Jet Midwest Group, LLC. As a result, each time we issue additional shares of common stock or shares of another class or series of capital stock, we will issue to Jet Midwest Group, LLC without further consideration additional shares of our common stock or other class or series of capital stock so that Jet Midwest Group, LLC will continue to own 1.6% of the outstanding shares of common stock and each other class or series of capital stock. Through November 30, 2018, we had issued 49 shares of common stock to Jet Midwest Group, LLC and were obligated to issue an additional 46,253,639 shares of common stock. After entering into the agreement with us, Jet Midwest Group, LLC sought protection from creditors under the bankruptcy code, which proceedings were subsequently dismissed. One of Jet Midwest Group, LLC’s creditors has claimed that shares of our common stock to be issued under the anti-dilution right should be issued to it instead of Jet Midwest Group, LLC. In light of this dispute and ongoing litigation between Jet Midwest Group, LLC and its creditors, the Company is evaluating its obligation to continue issuing shares to Jet Midwest Group, LLC.

 

Consulting agreement

 

On July 31, 2017, the Company engaged Brighton Capital, Ltd. (“ Brighton ”) for a three (3) year term to render strategic advisory services. Pursuant to our agreement with Brighton, in consideration of the services to be provided by Brighton, we are to issue 14 shares of common stock and 34 warrants over a three-year term. We issued 2 shares of common stock and 4 warrants upon execution of this agreement, and are to issue 1 shares of common stock and 1 warrant per month for thirty-six (36) months, with the first issuance beginning August 1, 2017. Through November 30, 2018, we had issued 18 shares of common stock and 20 warrants to purchase common stock to Brighton. The warrants, as issued, shall immediately vest and have a term of five (5) years with an exercise price of $57,000 per share. The warrants have a cashless exercise feature that can be utilized if the shares underlying the warrants cannot be resold under an effective registration statement filed with the Securities and Exchange Commission by March 1, 2018.

 

 
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Other

 

On August 3, 2016, we acquired from Apcentive, Inc. (“Apcentive”) all of Apcentive’s right, title and interest in and to U.S. Patent No. 6,285,878 B1 and all related supporting materials, continuations, amendments, updates and contemplated updates and amendments and the trademark “Infinitus Super Highway SM .” In consideration for the patent and the trademark, we issued a number of shares of our common stock to Apcentive and agreed to pay Apcentive a future royalty equal to 1.5% of the net cash we receive from the promotion, marketing, sale, licensing, distribution and other exploitation of the patent. We are further required to issue an additional 20 million shares of common stock to Apcentive if we do not spend, on matters relating to the patent and trademark, a cumulative total of $8 million on or before August 3, 2019. The purchase agreement requires that we spend at least $1 million on or before August 3, 2017 (which goal has been met), a total of at least $2 million on or before August 3, 2018 (which goal has been met) and a total of at least $5 million on or before August 3, 2019. As of November 30, 2018, the Company has not made a contingency for these events, but has expensed these costs, as incurred, which have exceeded the commitment.

 

From time to time, the Company is involved in routine litigation that arises in the ordinary course of business. There are no pending significant legal proceedings to which the Company is a party for which management believes the ultimate outcome would have a material adverse effect on the Company'’s financial position.

 

Lease Commitment

 

In June 2016, we signed a lease agreement that commenced on July 1, 2016 for our corporate office headquarters with approximately 1,500 square feet, at 4115 Guardian Street, Simi Valley, California 93063. The lease expired on August 31, 2017 and our monthly rent was $1,750 (plus HVAC charges), payable in equal monthly installments. In August 2017, the lease was extended by two years commencing September 1, 2017 at $1,803 per month (plus HVAC charges) for the first year and $1,857 per month (plus HVAC charges) for the second year.

 

On February 1, 2018, the Company signed an operating lease for a residence to be used by our Chief Executive Officer, located in Moorpark, California. The lease term commenced on February 1, 2018 and expires on January 31, 2019. Our monthly rent is $4,510, payable in equal monthly installments. On February 1, 2018, the Company prepaid the $54,120, for the full term of the lease. As at November 30, 2018, we recognized $9,020 as a prepaid expense.

 

Total net rent expense related to our operating leases for the three months ended November 30, 2018 and 2017, was $5,570 and $5,355 respectively.

 

Future minimum payments under the non-cancelable portion of our operating leases as of August 31, 2018 are as follows:

 

Year ended August 31,

 

 

 

2019

 

 

22,284

 

Thereafter

 

 

-

 

Total

 

$ 22,284

 

 

NOTE 10 – SUBSEQUENT EVENTS

 

Subsequent to November 30, 2018 and through the date that these financials were made available, the Company had the following subsequent events:

 

On December 6, 2018, the Company issued 195,151,516 shares of common stock for the conversion of 14 shares of preferred stock.

 

On December 17, 2018, the Company and Sabby Volatility Warrant Master Fund, Ltd. (“ Sabby ”) entered into that certain Exercise Agreement pursuant to which Sabby, which holds certain shares of the Company’s Series A Convertible Preferred Stock (the “ Preferred Stock ”) and warrants to purchase shares of the Preferred Stock, agreed to exercise a minimum of $90,000 of its warrants on or immediately following December 17, 2018. Under the terms of the Sabby Exercise Agreement, the Company also committed to not issue, sell or offer any securities without the consent of Sabby until 11:59 p.m. on January 9, 2019. On December 18, 2018, we received gross proceeds of $90,000 from the exercise of 90 warrants into 90 shares of Preferred Stock.

 

On December 28, 2018, the Company issued 195,151,516 shares of common stock for the conversion of 14 shares of preferred stock.

 

 
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Item 2. Management’s Discussion and Analysis of Financial Condition or Plan of Operation

 

Cautionary Note Regarding Forward-Looking Statements

 

This quarterly report on Form 10-Q contains forward-looking statements. All statements other than statements of historical or current facts contained in this quarterly report, including statements regarding our future results of operations and financial position, business strategy, proposed new products and services, research and development costs, granting of regulatory approvals, timing and likelihood of success, plans and objectives of management for future operations and future results of anticipated products and services, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

 

In some cases, forward-looking statements can be identified by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “would,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this quarterly report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this quarterly report and are subject to a number of risks, and except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

 

Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, prospective investors should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in, or implied by, the forward-looking statements due to a variety of factors, including, but not limited to:

 

 

·

our financial performance, including our history of operating losses;

 

·

our ability to obtain additional funding to continue our operations;

 

·

our ability to successfully develop, implement and commercialize the Infinitus Super Highway ( “Infinitus” );

 

·

our ability to enter into agreements with airlines that permit us to install our equipment on their aircraft;

 

·

our ability to enter into agreements with potential customers and purchasers;

 

·

changes in the regulatory environments of the United States and other countries in which we intend to operate;

 

·

our ability to attract and retain key management and other personnel;

 

·

competition from new market entrants and new technologies;

 

·

our ability to identify and pursue development of appropriate products; and

 

·

risks, uncertainties and assumptions described under Section 1A. “ Risk Factors ” in our Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2018, and in any subsequent filings we make with the Securities and Exchange Commission (the “ SEC ”) and under “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” and elsewhere in this quarterly report.

 

Forward-looking statements are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included in this document are made as of the date of this document and we do not undertake any obligation to update forward-looking statements to reflect new information, subsequent events or otherwise, except as required by law. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. We qualify all of our forward-looking statements by these cautionary statements.

 

As used in this quarterly report, the terms the “ Company ”, “ we ”, “ us” and “ our ” refer to Airborne Wireless Network, a Nevada corporation.

 

 
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The Company

 

Airborne Wireless Network was formed as a Nevada corporation on January 5, 2011 under the name “Ample-Tee” to engage in the business of promoting, marketing, selling and distributing hard to find ergonomic products for the physically disabled.

 

On October 20, 2015, our current President, Treasurer and Secretary, J. Edwards Daniels, acquired control of the Company by purchasing from Lawrence Chenard, our former president, 2,803 shares of our common stock for a purchase price of $250,000 (2,667 of which shares were delivered by Mr. Daniels to the Company for cancellation without consideration in August 2016).

 

On May 19, 2016, we changed our name to “Airborne Wireless Network” to better align our name with our intention to develop and deliver next generation global connectivity.

 

On August 3, 2016, we acquired from Apcentive, Inc. (“ Apcentive ”) all of Apcentive’s right, title and interest in and to U.S. Patent No. 6,285,878 B1, which expired on September 20, 2018, and all related support materials, continuations, amendments, updates and contemplated updates and amendments and the trademark “Infinitus Super Highway.” In exchange for that patent and trademark, we issued to Apcentive a number of shares of our common stock and agreed to pay Apcentive a future royalty equal to 1.5% of the net cash we receive from the promotion, marketing, sale, licensing, distribution and other exploitation of that patent.

 

On August 24, 2018, we effected a 30,000-to-1 reverse split of our common stock. As a result of the reverse split, every 30,000 pre-split shares of the Company’s common stock outstanding on the effective date of the reverse split were automatically combined into one new share of common stock without any action on the part of the holders, and the number of outstanding shares of common stock was reduced from approximately 8,888,443,700 to approximately 296,000 (subject to the rounding up of fractional shares). All historical share balances and share price-related data in this quarterly report have been adjusted based on the 30,000-to-1 reverse split ratio.

 

We are an early-stage company with the principal business strategy of developing, marketing and licensing a fully meshed, high-speed broadband airborne wireless network by linking aircraft in flight. We call this network the “Infinitus Super Highway.” To our knowledge, no fully meshed commercial broadband airborne network exists in the world today.

 

We expect that Infinitus will provide a broadband wireless communication infrastructure by using and customizing existing, small, lightweight, low-power relay station equipment and antennae that will be installed onboard aircraft. Each equipped aircraft would have a broadband wireless communication link to one or more neighboring aircraft and/or ground stations. These aircraft would form a chain of seamless airborne repeaters or routers providing broadband wireless communication gateways along the entire flight path, essentially creating a digital superhighway in the sky. If a link was interrupted, the signal would be redirected to the next participating aircraft or ground station in the chain -- in other words, there would be multiple, simultaneous data connections and thus the system would not rely on a single link.

 

We intend to act as a wholesale carrier, licensing our bandwidth to, among others, data service providers (such as major telecommunications companies and other Internet service providers) that provide broadband services to end users, to government agencies and to companies that desire a more robust private broadband network. We do not plan to license or sell Infinitus directly to consumers. We anticipate that Infinitus will enable our future customers to minimize their infrastructure development time and costs, and increase the reliability of their broadband communications systems.

 

If we can successfully complete the development of Infinitus, Infinitus could provide high-speed broadband Internet service to (i) supplement or replace current broadband networks, (ii) serve currently underserved markets, such as maritime, rural and remote locations, (iii) government agencies, including those that provide emergency or disaster relief services, (iv) companies seeking a more secure, reliable private data network, (v) customers onboard aircraft in flight seeking improved Internet access and connectivity and (vi) owners and operators of private jets and small aircraft owners, which in turn, can provide additional aircraft for the Infinitus network. Infinitus could also provide a wireless broadband network that is not vulnerable or susceptible to single points of failure (as is the case with current networks).

 

 
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We are currently in the process of completing the development of Infinitus, and have not licensed Infinitus to anyone or generated any revenue from external customers during the last three fiscal years.

 

Our principal executive office is located at 4115 Guardian Street, Suite C, in Simi Valley, California 93063 and our telephone number is (805) 583-4302. Our fiscal year end is August 31.

 

Recent Developments

 

Although our software platform has been substantially completed, we have had several technological issues with the manufactured lasers (Free Space Optic terminals) that we acquired which are not aligning up independently, making the system integration problematic. After exhaustive testing and related efforts, we have determined that the laser units we purchased are inherently defective and faulty. Even though the manufacturer has sent engineers to us, at our expense, the manufacturer has been unable to demonstrate that the units function and we have determined that we cannot continue with the manufacturer’s units. Simultaneously with making these units try to work, we have been seeking alternative manufacturers and are exploring those options. The Company intends to seek either a buy back of those units from the manufacturer or intends to seek damages, including consequential damages, through legal action against the manufacturer.

 

Infinitus was originally based principally on a United States patent that we acquired in August 2016. The patent, which expired on September 20, 2018, gave the holder the right to exclude others in the United States, commensurate with the scope of the patent, from creating a fully meshed, high-speed broadband wireless network by linking commercial aircraft in flight. We also filed a patent application in the United States on July 25, 2017 seeking rights to exclude others from using our method of synchronizing free space optic links between aircraft in flight, which technology we believe will be instrumental in making Infinitus operate successfully. The patent application was recently rejected by the U.S. Patent and Trademark Office, but we believe there are adequate grounds for appeal.

 

Results of Operations

 

The following summary of our results of operations should be read in conjunction with our financial statements included elsewhere in this quarterly report.

 

To date, we have not earned any revenues from operations.

 

Three Months Ended November 30, 2018 and 2017

 

Our operating results for the three months ended November 30, 2018 and 2017, and the changes between those periods for the respective items, are summarized as follows:

 

 

 

Three Months Ended

 

 

 

 

 

November 30,

 

 

 

Statement of Operations Data:

 

2018

 

 

2017

 

 

Changes

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$ -

 

 

$ -

 

 

$ -

 

Total operating expense

 

 

9,481,538

 

 

 

8,541,024

 

 

 

940,514

 

Other expense

 

 

329,411

 

 

 

1,515,672

 

 

 

(1,186,261 )

Net loss

 

$ 9,810,949

 

 

$ 10,056,696

 

 

$ (245,747 )

  

We incurred a net loss of $9.8 million for the three months ended November 30, 2018 as compared to a net loss of $10.1 million for the same period in 2017. The decrease in net loss was due to a decrease in other expenses offset by an increase in operating expense. The increase in operating expenses was mainly attributable to an increase in marketing of Infinitus and professional fees for legal services, and reduced by stock-based compensation expense. The decrease in other income relates primarily from a gain in change in fair value on derivative liabilities for the three months ended November 30, 2018, whereas we had a loss in change in derivative liabilities in the same period 2017, primarily from the decline in market price of our common stock.

 

We currently have very limited capital resources and cash flows to support our operations. Until we obtain additional debt or equity financing, we will incur costs at a reduced level compared to prior-year periods, and our development of Infinitus and the Company’s business may be materially delayed or terminated.

 

 
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Our operating expenses for the three months ended November 30, 2018 and 2017, and the changes between those periods for the respective items, are summarized as follows:

 

 

 

Three Months Ended

 

 

 

 

 

November 30,

 

 

 

Operating Expense:

 

2018

 

 

2017

 

 

Changes

 

 

 

 

 

 

 

 

 

 

 

Marketing and branding

 

$ 3,231,383

 

 

$ 1,089,280

 

 

$ 2,142,103

 

Depreciation

 

 

3,124

 

 

 

2,088

 

 

 

1,036

 

General and administrative expenses

 

 

157,200

 

 

 

114,742

 

 

 

42,458

 

Professional fees

 

 

1,502,768

 

 

 

857,285

 

 

 

645,483

 

Research and development

 

 

55,141

 

 

 

285,889

 

 

 

(230,748 )

Salaries and wages

 

 

221,594

 

 

 

229,215

 

 

 

(7,621 )

Stock based compensation

 

 

4,310,328

 

 

 

5,962,525

 

 

 

(1,652,197 )

Total operating expense

 

$ 9,481,538

 

 

$ 8,541,024

 

 

$ 940,514

 

 

The biggest component of the operating expenses was $4.3 million of stock-based compensation expenses incurred in the 2018 period compared to $6.0 million of stock-based compensation expenses incurred in the 2017 period. In the three months ended November 30, 2018, stock compensation expense included: (i) $18,150 in connection with the issuance of 46,242,789 shares of common stock to Jet Midwest Group pursuant to our service agreement with that company; and (ii) $4,292,178 million with respect to employee stock options. In the three months ended November 30, 2017, stock compensation expense included: (i) $165,000 in connection with the issuance of 125,146 shares of common stock to Air Lease Corporation pursuant to our marketing agreement with that company; (ii) $27,000 in connection with the issuance of 20,336 shares of common stock to Jet Midwest Group pursuant to our service agreement with that company; (iii) $39,000 in connection with the issuance of 30,000 shares of common stock and $94,000 in connection with the issuance of warrants to purchase 75,000 shares to Brighton Capital Ltd. pursuant to our consulting agreement with that company; (iv) $5.5 million with respect to employee stock options; and (v) $93,000 in connection with the issuance of 118,580 shares of warrants to consultants..

 

Marketing and branding expenses incurred relate to television and print advertising for branding purposes. We believe that building recognition for our brand enhances our reputation and ultimately our ability to attract technology, financial and other companies which can potentially assist us in developing and commercializing Infinitus. For the fiscal quarter ended November 30, 2018,we recorded $3.2 million in marketing and branding expenses. The majority of these expenses reflect the accrual of the maximum amount we may owe under a contract with a vendor to purchase media time for our marketing and branding messages, although the amount we may ultimately pay to this vendor is uncertain and in dispute. Other than this and other accruals, none of which were material, we did not otherwise incur any new marketing and branding expenses, whereas, $1.1 million was incurred by our Company during the three months ended November 30, 2017. We expect to incur expenditures on marketing and branding in future fiscal periods if and when cash flow is available, as we plan to continue to develop Infinitus, however, until we obtain additional or equity financing, we will be unable to continue spending on marketing and branding efforts.

 

Professional fees include fees to consultants, investor relations firms, and legal, accounting and compliance professionals for our audit, SEC filings, securities offerings and contracts. During the three months ended November 30, 2018, professional fees were $1.5 million compared to $857,000 for the comparative period in 2017. The increase in professional fees were mainly attributed to the increase in legal fees related to SEC reporting and regulatory compliance issues. We expect to continue to incur professional fees at an elevated level for the foreseeable future in connection with capital-raising transactions, regulatory compliance and responses and other related matters.

 

Research and development expenses incurred relate to the development of Infinitus starting in August 2016. During the three months ended November 30, 2018, research and development expense was $55,141, as compared to $286,000 during the same period in 2017. The decrease in our research and development spending during the three months ended November 30, 2018 was due to our lack of adequate capital resources to support our operations. Had the Company had access to greater capital resources, including cash on hand, during this period, the Company would have spent a greater amount on research and development. Until we obtain additional debt or equity financing, we will be unable to increase spending on research and development, and unable to prepare for our planned two-plane test and the eventual 20-plane test.

 

General and administrative expenses include office, shipping, entertainment, travel, insurance and other miscellaneous expenses. During the three months ended November 30, 2018, general and administrative expenses increased primarily from office expense increasing by $11,205 and travel costs increasing by $11,573 as compared to the same period in 2017.

 

 
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Our other (income) expense for the three months ended November 30, 2018 and 2017, and the changes between those periods for the respective items, are summarized as follows:

 

 

 

Three Months Ended

 

 

 

 

 

November 30,

 

 

 

Other (Income) Expenses

 

2018

 

 

2017

 

 

Changes

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

$ 564,303

 

 

$ 980,604

 

 

$ (416,301 )

Change in fair value of derivative liabilities

 

 

(234,892 )

 

 

535,068

 

 

 

(769,960 )

Total other expenses

 

$ 329,411

 

 

$ 1,515,672

 

 

$ (1,186,261 )

  

During the three months ended November 30, 2018, our Company recognized $329,411 in other income which included a gain on change in fair value of derivative liabilities of $234,892 and interest expense of $564,303. The gain on change in fair value of derivative liabilities related to $1,106,610 as a day one loss from the addition of new derivative liabilities recognized upon issuance of convertible preferred stock and a gain of $1,341,502 in the change in the fair value of derivative liabilities, as calculated using Black-Scholes option model. The interest expense includes amortization of debt discount and interest incurred on convertible notes during the three months ended November 30, 2018.

  

During the three months ended November 30, 2017, the Company incurred $1,515,672 other expenses which include loss on change in fair value of derivative liabilities of $535,068 and interest expense of $980,604. The loss on change in fair value of derivative liabilities related to an increase in the fair value of warrants and convertible notes calculated using Black Scholes option model and recorded as a derivative liability. The interest expense includes amortization of debt discount and interest incurred on convertible notes issued during the three months ended November 30, 2017.

 

Liquidity and Capital Resources

 

The following table presents selected financial information as of and for the three months ended November 30, 2018, and 2017:

 

 

 

November 30,

 

 

August 31,

 

 

 

Balance Sheet Data:

 

2018

 

 

2018

 

 

Changes

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$ 130,513

 

 

$ 155,988

 

 

$ (25,475 )

Working capital deficiency

 

$ (12,767,498 )

 

$ (9,271,865 )

 

$ (3,495,633 )

Total assets

 

$ 290,952

 

 

$ 1,210,248

 

 

$ (919,296 )

Total liabilities

 

$ 13,026,964

 

 

$ 10,447,503

 

 

$ 2,579,461

 

Total stockholders' deficit

 

$ (12,736,012 )

 

$ (9,237,255 )

 

$ (3,498,757 )

 

Because we have not generated any revenues, we depend on proceeds from the sales of securities and loans to finance our operations. As previously disclosed, on May 29, 2018, we completed a public offering of 8,000 units consisting of 8,000 shares of our Series A Convertible Preferred Stock (the “ Prefered Stock ”) and 24,000 warrants to purchase additional shares of Preferred Stock from which we generated $6.7 million, after deducting underwriting discounts and other expenses of the offering. If the warrants included in the offering are exercised, then the Company could receive additional gross proceeds of up to $24 million, although there can be no assurance that the warrants will be exercised in full, or at all. During the three months ended November 30, 2018, we generated proceeds from Preferred Stock issued from the exercise of warrants of $800,000.

 

 
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On December 18, 2018, we received gross proceeds of $90,000 from the exercise of 90 warrants issued in our May 2018 public offering into 90 shares of Preferred Stock.

 

Because we currently do not generate revenue, we must obtain additional financing to continue operations at our current level. We currently do not have enough cash on hand to fund our contemplated two-plane test, and we are unable to predict for how long our cash on hand will fund our current operations. We believe that we will be able to secure additional private and public financing in the future. We can give no assurance that we can obtain any additional financing, or if such financing is available, that it would be available on terms generally as favorable as terms of recent financings. We believe our ability to secure such additional funding has been made more difficult by recent declines in the trading price of our common stock and the drastic increase in the number of shares outstanding resulting from conversions of the Preferred Stock by the holders thereof at conversation prices unfavorable to us due to the market-price-based nature of the conversation formula.

 

Unless we are able to raise additional capital or begin to generate sufficient revenues to finance operations as a going concern, we may experience liquidity and solvency problems. Such liquidity and solvency problems may force us to cease operations if additional financing is not available. In addition to our burn rate and ongoing research and development expenses, we anticipate expending significant funds in connection with a contemplated two-plane test utilizing two Cessnas (or equivalent planes) installed with Infinitus technology incorporating the free space optic links underlying the Company’s patent application filed on July 25, 2017, and a larger airborne test involving up to 20 commercial aircraft, assuming that sufficient progress has been made in the relevant software and hardware development and that we are able to obtain additional funding. In light of the issues we recently experienced in connection with integrating the manufactured lasers into Infinitus, we are currently unable to predict when, or if, the two-plane test will occur.

 

The following table sets forth certain information about our cash flows during the three months ended November 30, 2018 and 2017:

 

 

 

Three Months Ended

 

 

 

 

 

November 30,

 

 

 

Cash Flow Data:

 

2018

 

 

2017

 

 

Changes

 

 

 

 

 

 

 

 

 

 

 

Cash Flows used in Operating Activities

 

$ (775,475 )

 

$ (2,777,945 )

 

$ 2,002,470

 

Cash Flows used in Investing Activities

 

 

-

 

 

 

(8,456 )

 

 

8,456

 

Cash Flows provided by Financing Activities

 

 

750,000

 

 

 

2,733,000

 

 

 

(1,983,000 )

Net Change in Cash

 

$ (25,475 )

 

$ (53,401 )

 

$ 27,926

 

 

Cash Flows from Operating Activities

 

We have not generated positive cash flows from operating activities. For the three months ended November 30, 2018, net cash flows used in operating activities were $775,475, consisting of a net loss of $9.8 million and net gain on change in fair value of derivative liabilities of $234,892, offset by stock-based compensation of $4.3 million, amortization of debt discount of 514,429, depreciation of $3,124, and was decreased from a net change in operation assets and liabilities of $4.4 million. Unless and until we generate revenue from Infinitus, we expect to continue to generate net losses.

 

For the three months ended November 30, 2017, net cash flows used in operating activities were $2,777,945, consisting of a net loss of $10,056,696, which was reduced by adding back stock-based compensation of $5,962,525, loss on change in fair value of derivative liabilities of $535,068, amortization of debt discount of $953,451, depreciation of $2,088 and was increased from a net change in operating assets and liabilities of $174,381. Unless and until we general revenue from Infinitus, we expect to continue to generate net losses.

 

 
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Cash Flows from Investing Activities

 

For the three months ended November 30, 2018, we did not have investing activities.

 

For the three months ended November 30, 2017, we acquired $8,456 of office and computer equipment.

 

Cash Flows from Financing Activities

 

For the three months ended November 30, 2018, net cash flows provided by financing activities was $750,000, consisting of proceeds from Preferred Stock issued from the exercise of warrants of $800,000, and was offset by repayment of convertible notes of $50,000.

 

For the three months ended November 30, 2017, net cash flows provided by financing activities was $2,733,000, consisting of proceeds from issuance of convertible notes of $2,249,000 and proceeds from issuance of common stock and warrants of $484,000.

 

Off Balance Sheet Arrangements

 

Our Company does not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our Company’s financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

 

Application of Critical Accounting Policies

 

We have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact on our business operations and any associated risks related to these policies are discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations when such policies affect our reported or expected financial results.

 

In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our financial statements in conformity with accounting principles generally accepted in the United States (“ GAAP ”). We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ significantly from those estimates under different assumptions and conditions. We believe that the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations and require our most difficult, subjective, and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

 

The material estimates for our Company are that of income tax valuation allowance recorded for deferred tax assets and stock-based compensation. We recorded stock-based compensation for options and warrants issued and the fair value of embedded conversion options that are convertible into a variable amount of shares. The fair values of options, warrants, and embedded conversion options are determined using the Black-Scholes option pricing model. We have no historical data on the accuracy of these estimates. The estimated sensitivity to change is related to the various variables of the Black-Scholes option pricing model stated below. The specific quantitative variables are included in the notes to the financial statements. The estimated fair value of options is recognized as expense on the straight-line basis over the options’ vesting periods. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model with the expected life, dividend yield, expected volatility, and risk-free interest rate weighted-average assumptions used for options and warrants granted. Expected volatility for 2018 and 2017 was estimated using our common stock for convertible notes and the average historical volatility of three public companies offering services similar to ours for warrants and stock options. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the grant date. The expected life of options is based on the life of the instrument on the grant date.

 

Basis of Accounting and Going Concern

 

Our unaudited condensed financial statements have been prepared on the accrual basis of accounting in conformity with GAAP. In addition, the accompanying unaudited condensed financial statements have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. We generated accumulated losses of approximately $92 million through November 30, 2018 and have insufficient working capital and cash flows to support operations. These factors raise substantial doubt about our ability to continue as a going concern. The unaudited condensed financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from this uncertainty.

 

 
26
 
Table of Contents

 

Research and Development Expenses

 

We follow ASC 730-10, ”Research and Development,” and expense research and development costs when incurred. Accordingly, third-party research and development costs, including designing, prototyping and testing of product, are expensed when the contracted work has been performed or milestone results have been achieved. Indirect costs are allocated based on percentage usage related to the research and development. Research and development costs of $55,141 and $285,889 were incurred for the three months ended November 30, 2018 and 2017, respectively.

 

Stock-Based Compensation

 

ASC 718, “ Compensation - Stock Compensation ,” prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).

 

Our Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50, “ Equity - Based Payments to Non-Employees .” Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.

 

Stock-based compensation of $4,310,328 and $5,962,525 were incurred for the three months ended November 30, 2018 and 2017, respectively.

 

Recent accounting pronouncements

 

Management has considered all recent accounting pronouncements issued. Management believes that these recent pronouncements will not have a material effect on our Company’s financial statements.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not required for smaller reporting companies.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”)) that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods prescribed by the SEC’s rules and forms and that such information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure. Management, with the participation of our Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of our disclosure controls and procedures as of November 30, 2018. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that, as a result of the previously reported material weaknesses in our internal control over financial reporting described below, our disclosure controls and procedures were not effective as of November 30, 2018.

 

 
27
 
Table of Contents

 

Material Weaknesses in Internal Control Over Financial Reporting and Remediation Measures

 

As previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2018, management identified the following material weaknesses in our internal control over financial reporting:

 

 

(1)

Management override of controls;

 

(2)

absent or inadequate segregation of duties within a significant account or process;

 

(3)

inadequate design of monitoring controls used to assess the design and operating effectiveness of the entitiy’s internal control over time.

 

The Company continues to work on remediation measures for the above weaknesses. However, the material weaknesses will not be considered fully remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We are committed to continuing to improve our internal control processes and will continue to diligently and vigorously review our financial reporting controls and procedures. As management continues to evaluate and work to improve internal control over financial reporting, the Company may decide to take additional measures to address control deficiencies or decide to modify, or in appropriate circumstances not to complete, certain of the remediation measures described above.

 

Changes in Internal Control Over Financial Reporting

 

Except as related to the material weaknesses and remedial measures described above, there have been no changes in the Company’s internal control over financial reporting that occurred during the fiscal quarter ended November 30, 2018 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 
28
 
Table of Contents

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

From time to time we may become involved in various legal proceedings that arise in the ordinary course of business, including actions related to our intellectual property. Although the outcomes of these legal proceedings cannot be predicted with certainty, other than as set forth below, we are currently not aware of any such legal proceedings or claims that we believe, either individually or in the aggregate, will have a material adverse effect on our business, financial condition or results of operations.

 

On January 2, 2018, the Company, J. Edward Daniels, the Company’s transfer agent and certain other individuals were named as defendants in a lawsuit filed in the Central District of California captioned The Alliance for Education, Inc. v. Airborne Wireless Network, Inc. et al., Case No. 2:18-cv-20. The complaint makes fraud and conversion claims against the Company, and a breach of fiduciary duty claim against Mr. Daniels, alleging that the defendants wrongfully deprived the plaintiff of certain stock certificates representing shares of the Company’s common stock, and seeks monetary damages, a judicial declaration regarding the ownership of the share certificates at issue, an injunction that the certificates at issue be returned or reissued to the plaintiff and costs and attorneys’ fees. The outcome of this lawsuit is uncertain. The Company believes that the claims asserted are without merit.

 

On November 15, 2018, the Company was named as a defendant in Neutron Media, Inc. v. Airborne Wireless Network, a complaint filed in the Ventura County Superior Court in California. Neutron Media, Inc., the plaintiff, seeks money damages in connection with the alleged breach by the Company of an advertising package contract. The contract at issue provides that in exchange for payment, the plaintiff would provide the Company a 30-second spot looping a minimum of three times per hour, for a total of 90 seconds per hour, airing 20 hours per day, from 6:00 am to 2:00 am, over an 89-day period, on The 1500 Broadway Spectacular, a 56 foot-by-29 foot viewing space. Neutron Media, Inc. alleges that it performed all conditions of the contract, but that the Company had breached the agreement by failing to provide payment. By agreement, the Company’s response date has been extended to January 11, 2019. The parties are currently meeting and conferring over the issue of forum non conveniens due to a mandatory forum selection clause contained in the subject contract. The outcome of this lawsuit is uncertain. The Company believes that the claims asserted are without merit.

 

Item 1A. Risk Factors

 

Not required for smaller reporting companies.

 

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

 

During the three months ended November 30, 2018, the Company issued 257,544,764 shares of common stock upon the conversion of convertible notes in the aggregate principal amount and accrued interest of $47,187. The convertible notes were originally offered and sold to the holders thereof in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D, and the issuance of the shares upon conversion of such notes were similarly exempt from registration.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not Applicable.

 

Item 5. Other Information

 

None.

 

 
29
 
Table of Contents

 

Item 6. Exhibits

 

The following exhibits are filed herewith or incorporated by reference to exhibits previously filed with the SEC.

 

Exhibit

 

 

 

INCORPORATED

BY REFERENCE

 

 

Number

 

Exhibit Description

 

Form

 

Exhibit

 

Filing Date

 

 

 

 

 

 

 

 

 

3.1

 

Amended and Restated Articles of Incorporation, effective as of July 31, 2017

 

8-K

 

3.1

 

08/01/2017

3.2

 

Certificate of Amendment to Articles of Incorporation, filed June 18, 2018

 

8-K

 

3.1

 

06/20/2018

3.3

 

Certificate of Amendment to Articles of Incorporation, filed June 28, 2018

 

8-K

 

3.1

 

06/29/2018

3.4

 

Certificate of Change, filed August 22, 2018

 

8-K

 

3.1

 

08/24/2018

3.5

 

Certificate of Designation for Series A Convertible Preferred Stock

 

8-K

 

3.1

 

05/29/2018

3.6

 

Amended and Restated Bylaws effective as of July 30, 2017

 

8-K

 

3.2

 

08/01/2017

10.1

 

Exercise Agreement, dated as of October 17, 2018, between Airborne Wireless Network and Sabby Volatility Warrant Master Fund, Ltd.

 

8-K

 

10.1

 

10/17/2018

10.2

 

Exercise Agreement, dated as of October 17, 2018, between Airborne Wireless Network and Ionic Ventures LLC

 

8-K

 

10.2

 

10/17/2018

10.3

 

Lock-up Agreement, dated as of October 17, 2018, between Airborne Wireless Network and Sabby Volatility Warrant Master Fund, Ltd.

 

8-K

 

10.3

 

10/17/2018

10.4

 

Lock-up Agreement, dated as of October 17, 2018, between Airborne Wireless Network and Ionic Ventures LLC

 

8-K

 

10.4

 

10/17/2018

10.5

 

Lock-up Agreement, dated as of October 17, 2018, between Airborne Wireless Network and Anson Funds Management LP

 

8-K

 

10.5

 

10/17/2018

10.6

 

Lock-up Agreement, dated as of October 17, 2018, between Airborne Wireless Network and Hudson Bay Master Fund Ltd.

 

8-K

 

10.6

 

10/17/2018

10.7

 

Lock-up Agreement, dated as of October 17, 2018, between Airborne Wireless Network and YA II PN, Ltd.

 

8-K

 

10.7

 

10/17/2018

10.8

 

Exercise Agreement, dated as of December 17, 2018, between Airborne Wireless Network and Sabby Volatility Warrant Master Fund, Ltd.

 

8-K

 

10.1

 

12/18/2018

10.9

 

Lock-up Agreement, dated as of December 12, 2018, between Airborne Wireless Network and Anson Funds Management LP

 

8-K

 

10.2

 

12/18/2018

10.10

 

Lock-up Agreement, dated as of December 12, 2018, between Airborne Wireless Network and Hudson Bay Master Fund Ltd.

 

8-K

 

10.3

 

12/18/2018

10.11

 

Lock-up Agreement, dated as of December 12, 2018, between Airborne Wireless Network and Ionic Ventures LLC

 

8-K

 

10.4

 

12/18/2018

10.12

 

Lock-up Agreement, dated as of December 13, 2018, between Airborne Wireless Network and YA II PN, Ltd.

 

8-K

 

10.5

 

12/18/2018

31.1*

 

Rule 13(a)-14(a)/15(d)-14(a) Certification of Chief Executive Officer

 

 

31.2*

 

Rule 13(a)-14(a)/15(d)-14(a) Certification of Chief Financial Officer

 

 

32.1*

 

Section 1350 Certification of Chief Executive Officer

 

 

32.2*

 

Section 1350 Certification of Chief Financial Officer

 

 

101.INS*

 

XBRL Instance Document

 

101.SCH*

 

XBRL Taxonomy Extension Schema Document

 

 

101.CAL*

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

101.DEF*

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

101.LAB*

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

101.PRE*

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

______

* Filed herewith.

† Management contract or plan.

 

 
30
 
Table of Contents

 

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.

 

AIRBORNE WIRELESS NETWORK

 

 

 

Dated: January 9, 2019

By:

/s/ Kevin L. Spence

 

 

Kevin L. Spence

 

 

Chief Financial Officer

 

 

(Principal Financial Officer and Principal

Accounting Officer) (duly authorized officer)

 

 

 

31

 

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