Quarterly Report (10-q)

Date : 04/09/2019 @ 9:33PM
Source : Edgar (US Regulatory)
Stock : Airborne Wireless Network (ABWN)
Quote : 0.0001  0.0 (0.00%) @ 12:16PM

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 February 28, 2019

 

 

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 and posted 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 April  5, 2019 was 4,151,853,254

 

 
 
 
 

 

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

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

30

Item 4.

Controls and Procedures

30

 

PART II - OTHER INFORMATION

 

Item 1.

Legal Proceedings

32

Item 1A.

Risk Factors

33

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

33

Item 3.

Defaults Upon Senior Securities

33

Item 4.

Mine Safety Disclosures

33

Item 5.

Other Information

33

Item 6.

Exhibits

34

 

 

 

 

SIGNATURES

35

 

 
2
 
 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Unaudited Financial Statements

 

AIRBORNE WIRELESS NETWORK

 

INTERIM FINANCIAL STATEMENTS

FEBRUARY 28, 2019

(UNAUDITED)

 

 

Page

 

 

Balance Sheets

 

4

 

 

Statements of Operations

 

5

 

 

Statements of Stockholders’ Deficit

 

6

 

 

Statements of Cash Flows

 

8

  

 

Notes to the Unaudited Financial Statements

 

9

  

 
3
 
Table of Contents

 

AIRBORNE WIRELESS NETWORK

BALANCE SHEETS

(Unaudited)

 

 

 

February 28,

 

 

August 31,

 

 

 

2019

 

 

2018

 

Assets

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$ 11,761

 

 

$ 155,988

 

Prepaid expenses and other assets

 

 

29,933

 

 

 

1,019,650

 

Total Current Assets

 

 

41,694

 

 

 

1,175,638

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

28,362

 

 

 

34,610

 

 

 

 

 

 

 

 

 

 

Total Assets

 

$ 70,056

 

 

$ 1,210,248

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Deficit

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$ 8,666,710

 

 

$ 4,909,419

 

Accrued interest

 

 

149,213

 

 

 

67,157

 

Convertible notes payable, net of unamortized debt discount of $48,346 and $863,852, respectively

 

 

1,707,660

 

 

 

976,229

 

Derivative liabilities

 

 

4,090,702

 

 

 

4,494,698

 

Total Current Liabilities

 

 

14,614,285

 

 

 

10,447,503

 

 

 

 

 

 

 

 

 

 

Total Liabilities

 

 

14,614,285

 

 

 

10,447,503

 

 

 

 

 

 

 

 

 

 

Stockholders' Equity (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; 1,135 and 1,048 shares issued and outstanding as of February 28, 2019 and August 31, 2018, respectively

 

 

1

 

 

 

1

 

Common stock, $0.001 par value, 5,000,000,000,000 shares authorized; 3,701,872,193 and 684,342 shares issued and outstanding as of February 28, 2019 and August 31, 2018, respectively

 

 

3,701,872

 

 

 

684

 

Additional paid-in capital

 

 

109,978,769

 

 

 

104,574,113

 

Accumulated deficit

 

 

(128,224,871 )

 

 

(113,812,053 )

Total Stockholders' Deficit

 

 

(14,544,229 )

 

 

(9,237,255 )

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders' Deficit

 

$ 70,056

 

 

$ 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

 

 

Six Months Ended

 

 

 

February 28,

 

 

February 28,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$ -

 

 

$ -

 

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketing and branding

 

 

4,499

 

 

 

1,882,452

 

 

 

3,235,882

 

 

 

2,971,732

 

Depreciation

 

 

3,124

 

 

 

2,464

 

 

 

6,248

 

 

 

4,552

 

General and administrative expenses

 

 

87,321

 

 

 

205,290

 

 

 

244,521

 

 

 

320,032

 

Management fees

 

 

-

 

 

 

42,000

 

 

 

-

 

 

 

42,000

 

Professional fees

 

 

393,262

 

 

 

1,143,232

 

 

 

1,896,030

 

 

 

2,000,517

 

Research and development

 

 

-

 

 

 

284,053

 

 

 

55,141

 

 

 

569,942

 

Salaries and wages

 

 

75,717

 

 

 

250,064

 

 

 

297,311

 

 

 

479,279

 

Stock based compensation

 

 

2,628,380

 

 

 

31,998,849

 

 

 

6,938,708

 

 

 

37,961,374

 

Total operating expense

 

 

3,192,303

 

 

 

35,808,404

 

 

 

12,673,841

 

 

 

44,349,428

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Loss

 

 

(3,192,303 )

 

 

(35,808,404 )

 

 

(12,673,841 )

 

 

(44,349,428 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(348,721 )

 

 

(581,304 )

 

 

(913,024 )

 

 

(1,561,908 )

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

 

 

(1,060,845 )

 

 

(2,006,888 )

 

 

(825,953 )

 

 

(2,541,956 )

Total other expense

 

 

(1,409,566 )

 

 

(2,588,192 )

 

 

(1,738,977 )

 

 

(4,103,864 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$ (4,601,869 )

 

$ (38,396,596 )

 

$ (14,412,818 )

 

$ (48,453,292 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share – basic and diluted

 

$ (0.00 )

 

$ (12,128 )

 

$ (0.01 )

 

$ (15,585 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding

 

 

3,324,836,985

 

 

 

3,166

 

 

 

2,035,903,430

 

 

 

3,109

 

 

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

 

 
5
 
Table of Contents

 

AIRBORNE WIRELESS NETWORK

STATEMENTS OF STOCKHOLDERS' DEFICIT

For the Three and Six Month periods ended February 28, 2019

(Unaudited)

 

 

 

Series A Convertible

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Paid-In

 

 

Accumulated

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Vesting of 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 for the three months ended November 30, 2018

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(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 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock converted from preferred stock

 

 

(54 )

 

 

-

 

 

 

752,727,276

 

 

 

752,727

 

 

 

(752,728 )

 

 

-

 

 

 

(1 )

Preferred stock units issued from the exercise of warrants

 

 

90

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

90,000

 

 

 

-

 

 

 

90,000

 

Common stock issued for services

 

 

-

 

 

 

-

 

 

 

12,043,639

 

 

 

12,044

 

 

 

(10,839 )

 

 

-

 

 

 

1,205

 

Vesting of stock options issued to employees and consultants

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,627,176

 

 

 

-

 

 

 

2,627,176

 

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

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

75,272

 

 

 

-

 

 

 

75,272

 

Net loss for the three months ended February 28, 2019

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(4,601,869 )

 

 

(4,601,869 )

Balance as of February 28, 2019

 

 

1,135

 

 

$ 1

 

 

 

3,701,872,193

 

 

$ 3,701,872

 

 

$ 109,978,769

 

 

$ (128,224,871 )

 

$ (14,544,229 )

 

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

 

 
6
 
Table of Contents

 

AIRBORNE WIRELESS NETWORK

STATEMENTS OF STOCKHOLDERS' DEFICIT

For the Three and Six Month periods ended February 28, 2018

(Unaudited)

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

Common Stock

 

 

Paid-In

 

 

Accumulated

 

 

 

 

 

 Shares

 

 

 Amount

 

 

 Capital   

 

 

 Deficit

 

 

 Total

 

Balance as of, August 31, 2017

 

 

3,022

 

 

$ 3

 

 

$ 37,235,403

 

 

$ (37,128,829 )

 

$ 106,577

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for exercise of warrants

 

 

15

 

 

 

-

 

 

 

484,000

 

 

 

-

 

 

 

484,000

 

Common stock issued for services

 

 

6

 

 

 

-

 

 

 

230,357

 

 

 

-

 

 

 

230,357

 

Common stock issued in conjunction with convertible notes

 

 

22

 

 

 

-

 

 

 

780,742

 

 

 

-

 

 

 

780,742

 

Vesting of stock options issued to employees

 

 

-

 

 

 

-

 

 

 

5,545,200

 

 

 

-

 

 

 

5,545,200

 

Stock warrants issued for services

 

 

-

 

 

 

-

 

 

 

36,772

 

 

 

-

 

 

 

36,772

 

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

 

 

-

 

 

 

-

 

 

 

(2,078,065 )

 

 

-

 

 

 

(2,078,065 )

Net loss for the three months ended November 30, 2017

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(10,056,696 )

 

 

(10,056,696 )

Balance as of November 30, 2017

 

 

3,065

 

 

$ 3

 

 

$ 42,234,409

 

 

$ (47,185,525 )

 

$ (4,951,113 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock units for cash

 

 

44

 

 

 

-

 

 

 

1,079,999

 

 

 

-

 

 

 

1,079,999

 

Common stock issued for exercise of warrants

 

 

63

 

 

 

-

 

 

 

1,108,124

 

 

 

 

 

 

 

1,108,124

 

Common stock issued for services

 

 

22

 

 

 

-

 

 

 

1,244,341

 

 

 

-

 

 

 

1,244,341

 

Common stock issued in conjunction with convertible notes

 

 

25

 

 

 

-

 

 

 

1,612,676

 

 

 

-

 

 

 

1,612,676

 

Vesting of stock options issued to employees and consultants

 

 

-

 

 

 

-

 

 

 

25,385,738

 

 

 

-

 

 

 

25,385,738

 

Reclassification to additional paid in capital from derivative liability upon exercise of warrants

 

 

-

 

 

 

-

 

 

 

2,905,132

 

 

 

-

 

 

 

2,905,132

 

Net loss for the three months ended February 28, 2018

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(38,396,596 )

 

 

(38,396,596 )

Balance as of, February 28, 2018

 

 

3,219

 

 

$ 3

 

 

$ 75,570,419

 

 

$ (85,582,121 )

 

$ (10,011,699 )

 

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

 

 
7
 
Table of Contents

 

AIRBORNE WIRELESS NETWORK

STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Six Months Ended

 

 

 

February 28,

 

 

 

2019

 

 

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net loss

 

$ (14,412,818 )

 

$ (48,453,292 )

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

 

 

 

 

 

 

 

 

Depreciation

 

 

6,248

 

 

 

4,552

 

Stock-based compensation

 

 

6,938,708

 

 

 

37,961,374

 

Amortization of debt discount included in interest expense

 

 

815,506

 

 

 

1,469,387

 

Change in fair value of derivative liabilities

 

 

825,953

 

 

 

2,541,956

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

989,717

 

 

 

(463,704 )

Accounts payable and accrued liabilities

 

 

3,757,291

 

 

 

270,561

 

Accrued interest

 

 

95,168

 

 

 

92,521

 

Net Cash Used in Operating Activities

 

 

(984,227 )

 

 

(6,576,645 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Acquisition of property and equipment

 

 

-

 

 

 

(15,759 )

Net Cash Used in Investing Activities

 

 

-

 

 

 

(15,759 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from issuance of convertible notes, net

 

 

-

 

 

 

3,907,750

 

Repayment of convertible notes

 

 

(50,000 )

 

 

-

 

Proceeds from issuance of common stock units

 

 

-

 

 

 

1,079,999

 

Proceeds from exercise of warrants

 

 

-

 

 

 

1,592,124

 

Preferred stock units issued from the exercise of warrants

 

 

890,000

 

 

 

-

 

Net Cash Provided by Investing Activities

 

 

840,000

 

 

 

6,579,873

 

 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

 

(144,227 )

 

 

(12,531 )

Cash and cash equivalents, beginning of period

 

 

155,988

 

 

 

217,694

 

Cash and cash equivalents, end of period

 

$ 11,761

 

 

$ 205,163

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$ -

 

 

$ -

 

Cash paid for taxes

 

$ -

 

 

$ 800

 

 

 

 

 

 

 

 

 

 

Non-cash financing transactions:

 

 

 

 

 

 

 

 

Derivative liabilities recognized as debt discount

 

$ -

 

 

$ 476,387

 

Common shares issued in conjunction with convertible notes recognized as debt discount

 

$ -

 

 

$ 2,524,879

 

Common stock issued for conversion of debt

 

$ 47,187

 

 

$ -

 

Common stock issued for conversion of preferred stock

 

$ 3,385,357

 

 

$ -

 

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

 

$ 1,107,827

 

 

$ -

 

Reclassification to additional paid in capital from derivative liability upon exercise of warrants

 

$ -

 

 

$ 2,905,132

 

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

 

$ -

 

 

$ 2,078,065

 

Common stock issued for services

 

$ -

 

 

$ 1,474,698

 

 

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

 

 
8
 
Table of Contents

 

AIRBORNE WIRELESS NETWORK

NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS

FEBRUARY 28, 2019

 

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 until twelve (12) months from the filing of Certificate of Amendment to the Amended and Restated Articles of Incorporation with the Secretary of State of the State of Nevada on June 28, 2018. 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 until June 28, 2019. 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 $14,412,818 during the six months ended February 28, 2019 and has an accumulated deficit of $128,224,871 as of February 28, 2019.

 

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 six months ended February 28, 2019 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 February 28, 2019, and August 31, 2018, measured at fair value on a recurring basis:

 

February 28, 2019

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Liabilities

 

$ -

 

 

$ -

 

 

$ 4,090,702

 

 

$ 4,090,702

 

 

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 $569,942 were incurred for the six months ended February 28, 2019 and 2018, 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 six months ended February 28, 2019 and 2018, respectively, are summarized as follows:

 

 

 

Six Months Ended

 

 

 

February 28,

 

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

Stock options issued to employees, strategic service provider and consultants

 

$ 6,919,354

 

 

$ 30,930,938

 

Stock warrants issued to investors and consultants

 

 

-

 

 

 

5,555,738

 

Common stock issued to strategic service providers and consultants

 

 

19,354

 

 

 

1,474,698

 

Total

 

$ 6,938,708

 

 

$ 37,961,374

 

 

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 February 28, 2019 and August 31, 2018:

 

 

 

February 28,

 

 

August 31,

 

 

 

2019

 

 

2018

 

Legal and regulatory fees

 

$ 29,933

 

 

$ 255,500

 

Marketing and branding

 

 

-

 

 

 

712,900

 

Rent expense

 

 

-

 

 

 

22,550

 

Professional fees

 

 

-

 

 

 

28,700

 

 

 

$ 29,933

 

 

$ 1,019,650

 

 

NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

 

Accounts payable and accrued liabilities consisted of the following at February 28, 2019 and August 31, 2018:

 

 

 

February 28,

 

 

August 31,

 

 

 

2019

 

 

2017

 

Trade Payables

 

$ 8,528,894

 

 

$ 4,796,784

 

Credit Card Payable

 

 

67,856

 

 

 

37,675

 

Other Payable

 

 

69,960

 

 

 

74,960

 

Total

 

$ 8,666,710

 

 

$ 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 six months ended February 28, 2019, 803 shares of Series A Convertible Preferred Stock were converted into 3,385,356,656 shares of common stock. The corresponding derivative liability at the dates of conversion of $1,107,827 was credited to additional paid in capital.

 

As of February 28, 2019, and August 31, 2018, 1,135 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 six months ended February 28, 2019 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 )

 

 

(690 )

 

 

1,000

 

 

 

1,000

 

 

 

1,000

 

Forfeited

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Balances as of February 28, 2019

 

 

7,500

 

 

 

7,700

 

 

 

7,310

 

 

$ 1,000

 

 

$ 1,000

 

 

$ 1,000

 

 

The following table summarizes information relating to outstanding and exercisable warrants as of February 28, 2019:

 

 

 

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

 

 

 

2.96

 

 

$ 1,000

 

 

 

7,500

 

 

$ 1,000

 

Series 2

 

 

7,700

 

 

 

2.96

 

 

$ 1,000

 

 

 

7,700

 

 

$ 1,000

 

Series 3

 

 

7,310

 

 

 

2.96

 

 

$ 1,000

 

 

 

7,310

 

 

$ 1,000

 

 

During the six months ended February 28, 2019, 200 Series 2 warrants were exercised into 200 shares of Series A Convertible Preferred Stock and 690 Series 3 warrants were exercised into 690 shares of Series A Convertible Preferred Stock for an aggregate net proceeds of $890,000.

 

 
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Common stock

 

Issuances

 

During the six months ended February 28, 2019, the Company issued 3,701,187,851 shares of common stock, as follows:

 

 

· 58,286,431 shares of common stock to strategic service providers, for services valued at $19,354.

 

 

 

 

· 3,385,356,656 shares of common stock issued for the conversion of 803 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 February 28, 2019 and August 31, 2018, the Company had 3,701,872,193 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 six months ended February 28, 2019 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

 

 

6

 

 

 

57,000

 

Exercised

 

 

-

 

 

 

-

 

Forfeited

 

 

-

 

 

 

-

 

Balances as of February 28, 2019

 

 

3,315

 

 

$ 2,245

 

 

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

 

Remaining contractual term

 

1.49 - 5 years

 

Expected average volatility

 

124%-354%

 

Expected dividend yield

 

 

-

 

Risk-free interest rate

 

0.98% - 2.83%

 

 

 
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The following table summarizes information relating to outstanding and exercisable warrants as of February 28, 2019:

 

Warrants Outstanding

 

 

Warrants Exercisable

 

 

 

 

Weighted Average

 

 

 

 

 

 

 

 

 

 

Number

 

 

Remaining Contractual

 

 

Weighted Average

 

 

Number

 

 

Weighted Average

 

of Shares

 

 

life (in years)

 

 

Exercise Price

 

 

of Shares

 

 

Exercise Price

 

 

3,315

 

 

 

2.39

 

 

$ 2,245

 

 

 

3,315

 

 

$

2,245

 

 

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 February 28, 2019 for those warrants for which the quoted market price was in excess of the exercise price (“in-the-money” warrants). As of February 28, 2019, the aggregate intrinsic value of warrants outstanding was approximately $0 based on the closing market price of $0.0001 on February 28, 2019.

 

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 six months ended February 28, 2019 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.

 

 
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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 February 28, 2019, there were 320 shares available for future grant under the 2017 Plan.

 

Stock Options

 

During the six months ended February 28, 2019, 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 six months ended February 28, 2019 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 February 28, 2019

 

 

1,283

 

 

$ 58,504

 

 

$ 55,209,360

 

 

$ -

 

 

The following table summarizes information relating to exercisable stock options as of February 28, 2019:

 

Options Exercisable

Number of Shares

 

 

Weighted Average Exercise Price

 

 

968

 

 

$ 53,222

 

 

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 February 28, 2019. As of February 28, 2019, the aggregate intrinsic value of stock options outstanding was $0 based on the closing market price of $0.0001 on February 28, 2019.

 

 
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Weighted-average grant-date fair value for non-vested stock options as of February 28, 2019 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

 

 

(360 )

 

 

64,000

 

Forfeited

 

 

-

 

 

 

-

 

Unvested, February 28, 2019

 

 

315

 

 

$ 74,700

 

 

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

 

Remaining contractual 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 February 28, 2019 and year ended August 31, 2018 were $16,515,235 and $18,112,430, respectively.

 

As of February 28, 2019, there was $5,204,235 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 0.75 years as of February 28, 2019.

 

NOTE 7 – CONVERTIBLE NOTES

 

The Company had the following principal balances under its convertible notes outstanding as of February 28, 2019 and August 31, 2018:

 

 

 

February 28,

 

 

August 31,

 

 

 

2019

 

 

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

 

 

145,833

 

 

 

145,833

 

 

 

 

1,756,006

 

 

 

1,840,081

 

Less debt discount and debt issuance cost

 

 

(48,346 )

 

 

(863,852 )

 

 

 

1,707,660

 

 

 

976,229

 

Less current portion of convertible notes payable

 

 

(1,707,660 )

 

 

976,229

 

Long-term convertible notes payable

 

$ -

 

 

$ -

 

 

The Company recognized amortization expense related to the debt discount and deferred financing fees of $815,506 and $1,469,387 for the six months ended February 28, 2019 and 2018, respectively, which is included in interest expense in the statements of operations.

 

 
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For the six months ended February 28, 2019 and 2018, the interest expense on convertible notes was $95,168 and $92,521, respectively. As of February 28, 2019 and August 31, 2018, the accrued interest payable was $149,213 and $67,157, respectively.

 

During the six months ended February 28, 2019, the Company repaid $50,000 on one of its April 2018 convertible notes.

 

Conversion

 

During the six months ended February 28, 2019, 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 February 28, 2019. 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 February 28, 2019 and August 31, 2018:

 

 

 

Six months ended

 

 

Year Ended

 

 

 

February 28,

 

 

August 31,

 

 

 

2019

 

 

2018

 

Expected term

 

 0.08 - 0.35 years

 

 

 0.10 - 5.00 years

 

Expected average volatility

 

 0% - 582

%

 

 49% - 350

%

Expected dividend yield

 

 

-

 

 

 

-

 

Risk-free interest rate

 

 2.31%-2.52

%

 

 0.98% - 2.83

%

 

 
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The following table summarizes the derivative liabilities included in the balance sheet at February 28, 2019:

 

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

 

 

1,232,065

 

Derivative liabilities settled upon conversion of convertible notes

 

 

(122,122 )

Derivative liabilities settled upon conversion of convertible preferred stock

 

 

(1,107,827 )

Gain on change in fair value of the derivative liabilities

 

 

(406,112 )

Balance - February 28, 2019

 

$ 4,090,702

 

 

The following table summarizes the loss on derivative liability included in the income statement for the six months ended February 28, 2019 and 2018, respectively.

 

 

 

Six months ended

 

 

 

February 28,

 

 

 

2019

 

 

2018

 

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

 

$ -

 

 

$ 282,093

 

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

 

 

1,232,065

 

 

 

-

 

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

 

 

-

 

 

 

859,488

 

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

 

 

(406,112 )

 

 

1,400,375

 

 

 

$ 825,953

 

 

$ 2,541,956

 

 

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 February 28, 2019, we had issued 49 shares of common stock to Jet Midwest Group, LLC and were obligated to issue an additional 58,297,317 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 February 28, 2019, we had issued 21 shares of common stock and 23 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 667 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 February 28, 2019, 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. Management believes that the ultimate outcomes of the pending significant legal proceedings to which the Company is a party may 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 expired 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 February 28, 2019, we have fully expensed this amount.

 

Total net rent expense related to our operating leases for the six months ended February 28, 2019 and 2018, was $10,426 and $25,010 respectively.

 

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

 

Year ending August 31,

 

 

 

2019

 

$ 11,142

 

Thereafter

 

 

-

 

Total

 

$ 11,142

 

 

NOTE 10 – SUBSEQUENT EVENTS

 

Subsequent to February 28, 2019 and through the date that these financials were made available, the Company had the following subsequent events:

 

The Company issued 449,981,061 shares of common stock for the conversion of 32 shares of preferred stock.

 

An investor exercised 20 units of Series 3 warrants originally granted in conjunction with the Series A Convertible Preferred Stock into 20 shares of Series A Convertible Preferred Stock for net proceeds of $20,000.

 

On November 15, 2018, the Company was named as a defendant in Neutron Media, Inc. v. Airborne Wireless Network, in a complaint filed in the Superior Court of Ventura County, California, Case No.: 56-2018-00520023-CU-CL-VTA.  On March 8, 2019, a Request for Dismissal was filed by the plaintiff with the Ventura Superior Court and the complaint was dismissed without prejudice in the Neutron matter.

 

On February 6, 2019, the Company was named as a defendant in YA II PN, LTD. v. Airborne Wireless Network, in a complaint filed in the Superior Court of New Jersey, Hudson County, Docket No.: HUD-L-00-557-19. On March 21, 2019, the Plaintiff filed a request for Entry of Default Judgment in the amount of $1,284,542. On March 26, 2019, YA II PN obtained a Final Judgement against the Company in the amount of $1,284,542. The Company is currently evaluating the judgment and its options and alternative ways to satisfy it.

 

 
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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.

 

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

 

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 to approximately 296,000 (subject to the rounding up of fractional shares). All historical share balances and share price-related data in this annual 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, if and when developed, 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, which requires additional financing, 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 continuing to develop 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 corporate website is www.airbornewirelessnetwork.com. Our fiscal year end is August 31.

 

Recent Developments

 

Although our software platform has been substantially completed, we have had several issues with the lasers manufactured, sold and shipped by Mynaric AG and Mynaric Lasercom GmBH (formerly known as Vialight Communications GmBH) of Gilching Germany. The lasers are an integral component of Infinitus.

 

The Company paid Mynaric $1,134,706 for the lasers on June 20, 2018. The lasers were damaged when received by the Company in shipment due to, among things, inadequate and negligent packaging by Mynaric of the lasers. Mynaric refused to repair the lasers despite, among other things, the warranty Mynaric provided to the Company. The Company was required to pay an additional $120,000 to Mynaric for Mynaric to attempt to repair the lasers. Since the return of the so-called repaired lasers by Mynaric, the Company has been required to continually repair the lasers, while incurring additional costs and significant delays. To date, the lasers have never functioned as advertised and as represented and warranted by Mynaric. After exhaustive testing and related efforts, we have determined that the lasers we purchased from Mynaric are beyond repair and also maybe inherently defective, poorly manufactured, not manufactured in accordance with specifications provided by Mynaric, are not suitable for the purpose intended, and may be inherently dangerous. Further, Mynaric failed to provide instructions or support for the lasers.

 

Even though Mynaric has sent engineers to us, at our expense, Mynaric has been unable to demonstrate that the lasers are repaired and function and we have determined that we cannot continue with Mynaric’s lasers. Simultaneously with attempting to make the Mynaric lasers try to work, we have been seeking alternative manufacturers and are exploring those options. The Company intends to seek either a buyback of those units from Mynaric or intends to seek damages, including consequential damages, through legal action against Mynaric. The delay in our development of Infinitus and the Company’s potential success is directly related to the damaged and defective lasers sold to the Company by Mynaric.

 

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.

 

Six Months Ended February 28, 2019 and February 28, 2018

 

Our operating results for the six months ended February 28, 2019 and 2018, and the changes between those periods for the respective items, are summarized as follows:

 

 

 

Six Months Ended

 

 

 

 

 

February 28,

 

 

 

Statement of Operations Data:

 

2019

 

 

2018

 

 

Changes

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$ -

 

 

$ -

 

 

$ -

 

Total operating expense

 

 

12,673,841

 

 

 

44,349,428

 

 

 

(31,675,587 )

Other expense

 

 

1,738,977

 

 

 

4,103,864

 

 

 

(2,364,887 )

Net loss

 

$ 14,412,818

 

 

$ 48,453,292

 

 

$ (34,040,474 )

 

 
23
 
Table of Contents

 

We incurred a net loss of $14.4 million for the six months ended February 28, 2019 as compared to a net loss of $48.5 million for the same period in 2018. The decrease in net loss was due to decrease in operating expense and other expense. The decrease in operating expense was mainly due to the decrease in stock-based compensation expense, research and development, salaries and wages and professional fees. The decrease in other expense relates primarily from a decrease in loss on change in fair value on derivative liabilities for the six months ended February 28, 2019 due to the decline in market price of our common stock, and the decrease in note interest expense and amortization of debt discount from convertible notes.

 

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.

 

Our operating expense for the six months ended February 28, 2019 and 2018, and the changes between those periods for the respective items, are summarized as follows:

 

 

 

Six Months Ended

 

 

 

 

 

February 28,

 

 

 

Operating Expense:

 

2019

 

 

2018

 

 

Changes

 

 

 

 

 

 

 

 

 

 

 

Marketing and branding

 

$ 3,235,882

 

 

$ 2,971,732

 

 

$ 264,150

 

Depreciation

 

 

6,248

 

 

 

4,552

 

 

 

1,696

 

General and administrative expenses

 

 

244,521

 

 

 

320,032

 

 

 

(75,511 )

Management fees

 

 

-

 

 

 

42,000

 

 

 

(42,000 )

Professional fees

 

 

1,896,030

 

 

 

2,000,517

 

 

 

(104,487 )

Research and development

 

 

55,141

 

 

 

569,942

 

 

 

(514,801 )

Salaries and wages

 

 

297,311

 

 

 

479,279

 

 

 

(181,968 )

Stock based compensation

 

 

6,938,708

 

 

 

37,961,374

 

 

 

(31,022,666 )

Total operating expense

 

$ 12,673,841

 

 

$ 44,349,428

 

 

$ (31,675,587 )

 

The largest component of the operating expense was $6.9 million of stock-based compensation expenses incurred during six months ended February 28, 2019 compared to $38.0 million of stock-based compensation expenses incurred for the same period in 2018. In the six months ended February 28, 2019, stock compensation expense included: (i) $19,354 in connection with the issuance of 58,286,425 shares of common stock to Jet Midwest Group pursuant to our service agreement with that company; and (ii) $6.9 million with respect to employee stock options. In the six months ended February 28, 2018, stock compensation expense included: (i) $1 million in connection with the issuance of 20 shares of common stock to Air Lease Corporation pursuant to our marketing agreement with that company; (ii) $162,616 in connection with the issuance of 4 shares of common stock to Jet Midwest Group pursuant to our service agreement with that company; (iii) $90,400 in connection with the issuance of 6 shares of common stock and $214,019 in connection with the issuance of 5 shares of warrants to Brighton Capital Ltd. pursuant to our consulting agreement with that company; (iv) $31 million with respect to employee stock options; (v) $5.3 million in connection with the issuance of 131 shares of replacement warrants to shareholders; and (vi) $208,164 in connection with the issuance of 3 shares of common stock for services.

 

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 six months ended February 28, 2019, 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, $2.9 million was incurred by our Company during the six months ended February 28, 2018. 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.

 

 
24
 
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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 six months ended February 28, 2019, professional fees were $1.9 million compared to $2.0 million for the comparative period in 2018. The decrease in professional fees were mainly due to a decrease in consulting fees. We expect to continue to incur professional fees at this current 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 six months ended February 28, 2019, research and development expense was $55,141, as compared to $570,000 during the same period in 2018. The decrease in our research and development spending during the six months ended February 28, 2019 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 six months ended February 28, 2019, general and administrative expenses decreased primarily from travel costs decreasing by $76,000 as compared to the same period in 2018.

 

Our other (income) expense for the six months ended February 28, 2019 and 2018, and the changes between those periods for the respective items, are summarized as follows:

 

 

 

Six Months Ended

 

 

 

 

 

February 28,

 

 

 

Other Expenses

 

2019

 

 

2018

 

 

Changes

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

$ 913,024

 

 

$ 1,561,908

 

 

$ (648,884 )

Change in fair value of derivative liabilities

 

 

825,953

 

 

 

2,541,956

 

 

 

(1,716,003 )

Total other expense

 

$ 1,738,977

 

 

$ 4,103,864

 

 

$ (2,364,887 )

 

During the six months ended February 28, 2019, our Company incurred $1.7 million in other expense which included a loss on change in fair value of derivative liabilities of $826,000 and interest expense of $913,000. The loss on change in fair value of derivative liabilities related to $1.2 million as a day one loss from the addition of new derivative liabilities recognized upon issuance of convertible preferred stock and a gain of $406,000 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 six months ended February 28, 2019.

 

During the six months ended February 28, 2018, our Company incurred $4.1 million in other expenses which include loss on change in fair value of derivative liabilities of $2.5 million and Interest expense of $1.6 million. The loss on change in fair value of derivative liabilities related to $1,141,581 as a day one loss in the fair value of warrants and convertible notes recorded as a derivative liability and a loss of $1,400,375 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 issued during the six months ended February 28, 2018.

 

 
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Three Months Ended February 28, 2019 and February 28, 2018

 

Our operating results for the three months ended February 28, 2019 and 2018, and the changes between those periods for the respective items, are summarized as follows:

 

 

 

Three Months Ended

 

 

 

 

 

February 28,

 

 

 

Statement of Operations Data:

 

2019

 

 

2018

 

 

Changes

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$ -

 

 

$ -

 

 

$ -

 

Total operating expense

 

 

3,192,303

 

 

 

35,808,404

 

 

 

(32,616,101 )

Other expense

 

 

1,409,566

 

 

 

2,588,192

 

 

 

(1,178,626 )

Net loss

 

$ 4,601,869

 

 

$ 38,396,596

 

 

$ (33,794,727 )

 

We incurred a net loss of $4.6 million for the three months ended February 28, 2019 as compared to a net loss of $38.4 million for the same period in 2018. The decrease in net loss was due to decrease in operating expense and other expense. The decrease in operating expense was mainly due to the decrease in stock-based compensation expense, advertising and marketing, professional fees, research and development and salaries and wages. The decrease in other expense relates primarily from a decrease in loss on change in fair value on derivative liabilities for the three months ended February 28, 2019 due to the decline in market price of our common stock, and the decrease in note interest expense and amortization of debt discount from convertible notes.

 

Our operating expenses for the three months ended February 28, 2019 and 2018, and the changes between those periods for the respective items, are summarized as follows:

 

 

 

Three Months Ended

 

 

 

 

 

February 28,

 

 

 

Operating Expense:

 

2019

 

 

2018

 

 

Changes

 

 

 

 

 

 

 

 

 

 

 

Advertising and marketing

 

$ 4,499

 

 

$ 1,882,452

 

 

$ (1,877,953 )

Depreciation and amortization

 

 

3,124

 

 

 

2,464

 

 

 

660

 

General and administrative expenses

 

 

87,321

 

 

 

205,290

 

 

 

(117,969 )

Management fees

 

 

-

 

 

 

42,000

 

 

 

(42,000 )

Professional fees

 

 

393,262

 

 

 

1,143,232

 

 

 

(749,970 )

Research and development

 

 

-

 

 

 

284,053

 

 

 

(284,053 )

Salaries and wages

 

 

75,717

 

 

 

250,064

 

 

 

(174,347 )

Stock based compensation

 

 

2,628,380

 

 

 

31,998,849

 

 

 

(29,370,469 )

Total operating expense

 

$ 3,192,303

 

 

$ 35,808,404

 

 

$ (32,616,101 )

 

The largest component of the operating expense was $2.6 million of stock-based compensation expenses incurred during three months ended February 28, 2019 compared to $32.0 million of stock-based compensation expenses incurred for the same period in 2018. In the three months ended February 28, 2019, stock compensation expense included: (i) $1,205 in connection with the issuance of 12,043,636 shares of common stock to Jet Midwest Group pursuant to our service agreement with that company; and (ii) $2.6 million with respect to employee stock options. In the three months ended February 28, 2018, stock compensation expense included: (i) $848,515 in connection with the issuance of 16 shares of common stock to Air Lease Corporation pursuant to our marketing agreement with that company; (ii) $135,762 in connection with the issuance of 3 shares of common stock to Jet Midwest Group pursuant to our service agreement with that company; (iii) $51,900 in connection with the issuance of 3 shares of common stock and $120,024 in connection with the issuance of 3 shares of warrants to Brighton Capital Ltd. pursuant to our consulting agreement with that company; (iv) $25 million with respect to employee stock options; (v) $5.2 million in connection with the issuance of 117 shares of replacement warrants to shareholders; and (vi) $208,164 in connection with the issuance of 3 shares of common stock for services In the three months ended February 28, 2017, stock compensation expense attributed to $25 million from employee stock options.

 

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 three months ended February 28, 2019, we recorded $4,500 in marketing and branding expenses, as compared to $1.9 million incurred by our Company during the three months ended February 28, 2018. 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.

 

 
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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 February 28, 2019, professional fees were $393,000 compared to $1.1 million for the comparative period in 2018. The decrease in professional fees were mainly due to a decrease in consulting fees. We expect to continue to incur professional fees at this current 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 February 28, 2019, we did not spend on research and development expense, as compared to $284,000 incurred during the same period in 2018. The decrease in our research and development spending during the three months ended February 28, 2019 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 February 28, 2019, general and administrative expenses decreased primarily from travel costs decreasing by $96,000 as compared to the same period in 2018.

 

Our other (income) expense for the three months ended February 28, 2018 and 2017, and the changes between those periods for the respective items, are summarized as follows:

 

 

 

Three Months Ended

 

 

 

 

 

February 28,

 

 

 

Other Expense

 

2019

 

 

2018

 

 

Changes

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

$ 348,721

 

 

$ 581,304

 

 

$ (232,583 )

Change in fair value of derivative liabilities

 

 

1,060,845

 

 

 

2,006,888

 

 

 

(946,043 )

Total other expense

 

$ 1,409,566

 

 

$ 2,588,192

 

 

$ (1,178,626 )

 

During the three months ended February 28, 2019, our Company incurred $1.4 million in other expense which included a loss on change in fair value of derivative liabilities of $1,060,845 and interest expense of $348,721. The loss on change in fair value of derivative liabilities related to $125,455 as a day one loss from the addition of new derivative liabilities recognized upon issuance of convertible preferred stock and a loss of $935,390 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 February 28, 2019.

 

During the three months ended February 28, 2018, our company incurred $2.6 million in other expenses which include loss on change in fair value of derivative liabilities of $2 million and Interest expense of $581,304. The loss on change in fair value of derivative liabilities includes a day one loss in the fair value of warrants and convertible notes recorded as a derivative liability and from 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 issued during the three months ended February 28, 2018.

 

Liquidity and Capital Resources

 

The following table presents selected financial information as of and for the six months ended February 28, 2019, and 2018:

 

 

 

February 28,

 

 

August 31,

 

 

 

Balance Sheet Data:

 

2019

 

 

2018

 

 

Changes

 

 

 

  

 

 

 

 

 

 

 

Cash

 

$ 11,761

 

 

$ 155,988

 

 

$ (144,227 )

Working capital (deficiency)

 

$ (14,572,591 )

 

$ (9,271,865 )

 

$ (5,300,726 )

Total assets

 

$ 70,056

 

 

$ 1,210,248

 

 

$ (1,140,192 )

Total liabilities

 

$ 14,614,285

 

 

$ 10,447,503

 

 

$ 4,166,782

 

Total stockholders' equity (deficit)

 

$ (14,544,229 )

 

$ (9,237,255 )

 

$ (5,306,974 )

 

 
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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 “Preferred 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 all of the warrants included in the offering were exercised, then the Company could have received 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 six months ended February 28, 2019, we generated proceeds from Preferred Stock issued from the exercise of warrants of $890,000. 22,490 warrants remain unexercised as of February 29, 2019. The warrants have an expiration date of May 29, 2019.

 

On March 4, 2019, we received gross proceeds of $20,000 from the exercise of 20 warrants issued in our May 2018 public offering into 20 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 unsure 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 (lasers) 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 six months ended February 28, 2019 and 2018:

 

 

 

Six Months Ended

 

 

 

 

 

February 28,

 

 

 

Cash Flow Data:

 

2019

 

 

2018

 

 

Changes

 

 

 

 

 

 

 

 

 

 

 

Cash Flows used in Operating Activities

 

$ (984,227 )

 

$ (6,576,645 )

 

$ 5,592,418

 

Cash Flows used in Investing Activities

 

 

-

 

 

 

(15,759 )

 

 

15,759

 

Cash Flows provided by Financing Activities

 

 

840,000

 

 

 

6,579,873

 

 

 

(5,739,873 )

Net Change in Cash

 

$ (144,227 )

 

$ (12,531 )

 

$ (131,696 )

 

Cash Flows from Operating Activities

 

We have not generated positive cash flows from operating activities. For the six months ended February 28, 2019, net cash flows used in operating activities were $984,227, consisting of a net loss of $14.4 million, offset by stock-based compensation of $6.9 million, amortization of debt discount of $815,506, net loss on change in fair value of derivative liabilities of $825,953, depreciation of $6,248, and was decreased from a net change in operation assets and liabilities of $4.8 million. Unless and until we generate revenue from Infinitus, we expect to continue to generate net losses.

 

For the six months ended February 28, 2018, net cash flows used in operating activities were $6,576,645, consisting of a net loss of $48,453,292, offset by stock-based compensation of $37,961,374, loss on change in fair value of derivative liabilities of $2,541,956, amortization of debt discount of $1,469,387, depreciation of $4,552 and an increase in operating liabilities from accounts payable and accrued liabilities of $270,561 and accrued interest of $92,521, as well as an increase in operating assets from prepaid expenses of $463,704. 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 six months ended February 28, 2019, we did not have investing activities.

 

For the six months ended February 28, 2018, we acquired $15,759 of office and computer equipment.

 

Cash Flows from Financing Activities

 

For the six months ended February 28, 2019, net cash flows provided by financing activities was $840,000, consisting of proceeds from Preferred Stock issued from the exercise of warrants of $890,000, and was offset by repayment of convertible notes of $50,000.

 

For the six months ended February 28, 2018, net cash flows provided by financing activities was $6,579,873, consisting of proceeds from the issuance of convertible notes of $3,907,750 and proceeds from the issuance of common stock from share subscriptions of $1,079,999 and exercises of warrants of $1,592,124.

 

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 2019 and 2018 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.

 

 
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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 $128 million through February 28, 2019 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.

 

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 $569,942 were incurred for the six months ended February 28, 2019 and 2018, 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 $6,938,708 and $37,961,374 were incurred for the three months ended February 28, 2019 and 2018, 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 February 28, 2019. 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 February 28, 2019.

 

 
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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 entity’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 February 28, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 
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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, Management believes that the ultimate outcomes of the pending significant legal proceedings to which the Company is a party may have a material 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 United States District Court - Central District of California captioned The Alliance for Education, Inc. v. Airborne Wireless Network, Inc. et al., Case No. 2:18-cv-20. The second amended complaint makes conversion claims against the Company and Mr. Daniels, 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 and punitive 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 October 17, 2018, GT Legal Corp., as assignee of Troy Gould PC, the Company’s corporate counsel prior to August 2017, filed a complaint against the Company in the Superior Court of California County of Los Angeles, Case No.: 18STCV01578, for breach of contract for unpaid legal fees. Troy Gould PC is seeking $71,960.50 in unpaid legal fees plus daily interest of $19.72 per day. On February 13, 2019, the Company and GT Legal Corp. entered into a Confidential Settlement Agreement and Release. The Company believes that the claims asserted were without merit.

 

On November 15, 2018, the Company was named as a defendant in Neutron Media, Inc. v. Airborne Wireless Network, in a complaint filed in the Superior Court of Ventura County, California, Case No.: 56-2018-00520023-CU-CL-VTA. 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. On March 8, 2019, a Request for Dismissal was filed by the plaintiff with the Ventura Superior Court and the complaint was dismissed without prejudice. The Company believes that the claims asserted were without merit.

 

 
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On February 6, 2019, the Company was named as a defendant in YA II PN, LTD. v. Airborne Wireless Network, in a complaint filed in the Superior Court of New Jersey, Hudson County, Docket No.: HUD-L-00-557-19. YA II PN, LTD., the plaintiff, seeks monetary damages for the alleged breach of a debenture issued by the Company to YA II PN, LTD. in the amount of $1,264,964 plus interest, fees and costs including attorney’s fees. The debenture was issued by the Plaintiff in the amount of $1,250,000 on or about April 9, 2018. On March 21, 2019, the Plaintiff filed a request for Entry of Default Judgment in the amount of $1,284,542. On March 26, 2019, YA II PN obtained a Final Judgement against the Company in the amount of $1,284,542.

 

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 February 28, 2019 the Company did not have unregistered sales of common equity.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not Applicable.

 

Item 5. Other Information

 

None.

 

 
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Item 6. Exhibits

 

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.

 

 
34
 
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: April 9, 2019

By:

/s/ Michael J. Warren

 

 

Michael J. Warren

 

 

Chief Executive Officer

 

 

(Principal Executive Officer)

 

     

 

 

Dated: April 9, 2019

By:

/s/ Kevin L. Spence

 

 

Kevin L. Spence

 

 

Chief Financial Officer

 

 

(Principal Financial Officer and Principal Accounting Officer)

 

 

  

35

 

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