Quarterly Report (10-q)

Date : 07/10/2019 @ 9:37PM
Source : Edgar (US Regulatory)
Stock : Airborne Wireless Network (PK) (ABWN)
Quote : 0.0001  0.0 (0.00%) @ 9:20PM

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  May 31, 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 _____________

 

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)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

None

None

None

 

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

 

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

 

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

 

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

 

Check whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. ¨  YES      ¨  NO

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

The number of shares outstanding of the issuer’s common stock, as of July 3, 2019 was 4,862,692,652.

 

 
 
 
 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION

 

3

 

 

 

 

 

 

 

Item 1.

Financial Statements

 

 

3

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

18

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

 

29

 

Item 4.

Controls and Procedures

 

 

29

 

 

 

 

 

 

PART II - OTHER INFORMATION

 

 

30

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

 

30

 

Item 1A.

Risk Factors

 

 

30

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

 

31

 

Item 3.

Defaults Upon Senior Securities

 

 

31

 

Item 4.

Mine Safety Disclosures

 

 

31

 

Item 5.

Other Information

 

 

31

 

Item 6.

Exhibits

 

 

32

 

 

 

 

 

 

SIGNATURES

 

 

33

 

 

 
2
 
Table of Contents

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

AIRBORNE WIRELESS NETWORK

BALANCE SHEETS

(Unaudited)

 

 

 

May 31,

 

 

August 31,

 

 

 

2019

 

 

2018

 

Assets

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$ 11,514

 

 

$ 155,988

 

Prepaid expenses

 

 

54,740

 

 

 

1,019,650

 

Total Current Assets

 

 

66,254

 

 

 

1,175,638

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

25,238

 

 

 

34,610

 

 

 

 

 

 

 

 

 

 

Total Assets

 

$ 91,492

 

 

$ 1,210,248

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Deficit

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$ 8,840,644

 

 

$ 4,909,419

 

Accrued interest

 

 

204,352

 

 

 

67,157

 

Convertible notes payable, net of unamortized debt discount of $0 and $863,852, respectively

 

 

1,756,006

 

 

 

976,229

 

Derivative liabilities

 

 

4,037,732

 

 

 

4,494,698

 

Total Current Liabilities

 

 

14,838,734

 

 

 

10,447,503

 

 

 

 

 

 

 

 

 

 

Total Liabilities

 

 

14,838,734

 

 

 

10,447,503

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies (note 9)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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; 1,097 and 1,048 shares issued and outstanding as of May 31, 2019 and August 31, 2018, respectively

 

 

1

 

 

 

1

 

Common stock, $0.001 par value, 5,000,000,000,000 shares authorized; 4,527,275,986 and 684,342 shares issued and outstanding as of May 31, 2019 and August 31, 2018, respectively

 

 

4,527,275

 

 

 

684

 

Additional paid-in capital

 

 

111,033,389

 

 

 

104,574,113

 

Accumulated deficit

 

 

(130,307,907 )

 

 

(113,812,053 )

Total Stockholders’ Deficit

 

 

(14,747,242 )

 

 

(9,237,255 )

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders’ Deficit

 

$ 91,492

 

 

$ 1,210,248

 

 

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

 

 
3
 
Table of Contents

 

AIRBORNE WIRELESS NETWORK

STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

May 31,

 

 

May 31,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$ -

 

 

$ -

 

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketing and branding

 

 

-

 

 

 

1,255,280

 

 

 

3,235,882

 

 

 

4,227,012

 

Depreciation

 

 

3,124

 

 

 

2,793

 

 

 

9,372

 

 

 

7,345

 

General and administrative expenses

 

 

207,426

 

 

 

466,803

 

 

 

451,946

 

 

 

786,835

 

Management fees

 

 

-

 

 

 

60,000

 

 

 

-

 

 

 

102,000

 

Professional fees

 

 

107,038

 

 

 

2,048,596

 

 

 

2,003,068

 

 

 

4,049,113

 

Research and development

 

 

-

 

 

 

18,100

 

 

 

55,141

 

 

 

588,042

 

Salaries and wages

 

 

4,036

 

 

 

307,231

 

 

 

301,347

 

 

 

786,510

 

Stock based compensation

 

 

1,624,387

 

 

 

6,317,452

 

 

 

8,563,096

 

 

 

44,278,826

 

Total operating expense

 

 

1,946,011

 

 

 

10,476,255

 

 

 

14,619,852

 

 

 

54,825,683

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Loss

 

 

(1,946,011 )

 

 

(10,476,255 )

 

 

(14,619,852 )

 

 

(54,825,683 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(108,754 )

 

 

(3,193,927 )

 

 

(1,021,778 )

 

 

(4,755,835 )

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

 

 

(28,271 )

 

 

7,576,117

 

 

 

(854,224 )

 

 

5,034,161

 

Total other income (expense)

 

 

(137,025 )

 

 

4,382,190

 

 

 

(1,876,002 )

 

 

278,326

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$ (2,083,036 )

 

$ (6,094,065 )

 

$ (16,495,854 )

 

$ (54,547,357 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share – basic and diluted

 

$ (0.00 )

 

$ (1,833 )

 

$ (0.01 )

 

$ (17,145 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding – basic and diluted

 

 

4,372,196,477

 

 

 

3,325

 

 

 

2,823,225,632

 

 

 

3,182

 

 

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

 

 
4
 
Table of Contents

 

AIRBORNE WIRELESS NETWORK

STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

 

 

 

Series A Convertible

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Paid-In

 

 

Accumulated

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Total

 

Balance as of August 31, 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 – and accrued interest

 

 

-

 

 

 

-

 

 

 

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

 

 

 

(752,727 )

 

 

-

 

 

 

-

 

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

 

 

$ 109,978,770

 

 

$ (128,224,871 )

 

$ (14,544,228 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock converted from preferred stock

 

 

(58 )

 

 

-

 

 

 

812,405,305

 

 

 

812,405

 

 

 

(812,405 )

 

 

-

 

 

 

-

 

Preferred stock units issued from the exercise of warrants

 

 

20

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

20,000

 

 

 

-

 

 

 

20,000

 

Common stock issued for services

 

 

-

 

 

 

-

 

 

 

12,998,488

 

 

 

12,998

 

 

 

(11,698 )

 

 

-

 

 

 

1,300

 

Vesting of stock options issued to employees and consultants

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,623,087

 

 

 

-

 

 

 

1,623,087

 

Debt forgiveness - related party

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

154,395

 

 

 

-

 

 

 

154,395

 

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

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

81,240

 

 

 

-

 

 

 

81,240

 

Net loss for the three months ended May 31, 2019

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,083,036 )

 

 

(2,083,036 )

Balance as of May 31, 2019

 

 

1,097

 

 

$ 1

 

 

 

4,527,275,986

 

 

$ 4,527,275

 

 

$ 111,033,389

 

 

$ (130,307,907 )

 

$ (14,747,242 )

 

 
5
 
Table of Contents

 

 

 

Series A Convertible

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Paid-In

 

 

Accumulated

 

 

 

 

 

 Shares

 

 

 Amount

 

 

 Shares

 

 

 Amount

 

 

 Capital

 

 

 Deficit

 

 

 Total

 

Balance as of August 31, 2017

 

 

-

 

 

$ -

 

 

 

3,022

 

 

$ 3

 

 

$ 37,235,403

 

 

$ (37,128,829 )

 

$ 106,577

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 and consultants

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

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 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock units issued for cash

 

 

8,000

 

 

 

8

 

 

 

-

 

 

 

-

 

 

 

6,714,479

 

 

 

-

 

 

 

6,714,487

 

Preferred stock converted to common stock

 

 

(942 )

 

 

(1 )

 

 

143

 

 

 

-

 

 

 

1

 

 

 

-

 

 

 

-

 

Common stock units for cash

 

 

-

 

 

 

-

 

 

 

1

 

 

 

-

 

 

 

65,001

 

 

 

-

 

 

 

65,001

 

Common stock issued for exercise of warrants

 

 

-

 

 

 

-

 

 

 

5

 

 

 

-

 

 

 

65,001

 

 

 

-

 

 

 

65,001

 

Common stock issued for services

 

 

-

 

 

 

-

 

 

 

69

 

 

 

-

 

 

 

1,352,261

 

 

 

-

 

 

 

1,352,261

 

Common stock issued in conjunction with convertible notes

 

 

-

 

 

 

-

 

 

 

7

 

 

 

-

 

 

 

(589,449 )

 

 

-

 

 

 

(589,449 )

Common stock issued for conversion of convertible notes

 

 

-

 

 

 

-

 

 

 

280

 

 

 

1

 

 

 

3,155,275

 

 

 

-

 

 

 

3,155,276

 

Vesting of stock options issued to employees and consultants

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(8,883,563 )

 

 

-

 

 

 

(8,883,563 )

Net reduction of derivative liability from exercise of warrants

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

223,487

 

 

 

-

 

 

 

223,487

 

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

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,626,032

 

 

 

-

 

 

 

3,626,032

 

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

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,013,661

 

 

 

-

 

 

 

1,013,661

 

Net loss for the three months ended May 31, 2018

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(6,094,065 )

 

 

(6,094,065 )

Balance as of May 31, 2018

 

 

7,058

 

 

$ 7

 

 

 

3,724

 

 

$ 4

 

 

$ 82,312,605

 

 

$ (91,676,186 )

 

$ (9,363,570 )

 

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

 

 
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AIRBORNE WIRELESS NETWORK

STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Nine Months Ended

 

 

 

May 31,

 

 

 

2019

 

 

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net loss

 

$ (16,495,854 )

 

$ (54,547,357 )

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

 

 

 

 

 

 

 

 

Depreciation

 

 

9,372

 

 

 

7,345

 

Stock-based compensation

 

 

8,563,096

 

 

 

44,278,826

 

Amortization of debt discount included in interest expense

 

 

863,852

 

 

 

4,573,723

 

Change in fair value of derivative liabilities

 

 

854,224

 

 

 

(5,034,161 )

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses

 

 

964,910

 

 

 

(1,242,149 )

Accounts payable and accrued liabilities

 

 

3,931,224

 

 

 

523,504

 

Accrued interest

 

 

150,307

 

 

 

182,093

 

Net Cash Used in Operating Activities

 

 

(1,158,869 )

 

 

(11,258,176 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Acquisition of property and equipment

 

 

-

 

 

 

(19,731 )

Net Cash Used in Investing Activities

 

 

-

 

 

 

(19,731 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Advance from related parties

 

 

154,395

 

 

 

-

 

Proceeds from issuance of convertible notes, net

 

 

-

 

 

 

5,662,750

 

Repayment of convertible notes

 

 

(50,000 )

 

 

-

 

Proceeds from issuance of common stock units

 

 

-

 

 

 

1,144,999

 

Proceeds from exercise of warrants

 

 

-

 

 

 

1,657,125

 

Proceeds from the exercise of warrants

 

 

910,000

 

 

 

-

 

Proceeds from issuance of preferred stock units

 

 

-

 

 

 

6,714,487

 

Net Cash Provided by Financing Activities

 

 

1,014,395

 

 

 

15,179,361

 

 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

 

(144,474 )

 

 

3,901,454

 

Cash and cash equivalents, beginning of period

 

 

155,988

 

 

 

217,694

 

Cash and cash equivalents, end of period

 

$ 11,514

 

 

$ 4,119,148

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$ -

 

 

$ -

 

Cash paid for taxes

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

Non-cash financing transactions:

 

 

 

 

 

 

 

 

Derivative liabilities recognized as debt discount

 

$ -

 

 

$ 4,167,934

 

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

 

$ -

 

 

$ 1,840,742

 

Common stock issued for conversion of debt and accrued interest

 

$ 47,187

 

 

$ -

 

Common stock issued for conversion of preferred stock

 

$ 4,197,761

 

 

$ -

 

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

 

$ 1,189,067

 

 

$ -

 

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

 

$ -

 

 

$ 2,078,065

 

Common stock issued for conversion of debt

 

$ -

 

 

$ 3,155,275

 

Reduction of derivative liabilities from exercise of warrants, convertible notes and convertible preferred stock

 

$ -

 

 

$ 7,731,540

 

Debt forgiveness - related party

 

$ 154,395

 

 

$ -

 

 

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

 

 
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AIRBORNE WIRELESS NETWORK

NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS

MAY 31, 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 $16,495,854 during the nine months ended May 31, 2019 and has an accumulated deficit of $130,307,907 as of May 31, 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.

 

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 nine months ended May 31, 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.

 

 
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Use of Estimates and Assumptions

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Fair Value of Financial Instruments

 

The Company’s financial instruments consist primarily of cash, prepaid expense, accounts payable and accrued liabilities, and convertible 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 May 31, 2019, and August 31, 2018, measured at fair value on a recurring basis:

 

May 31, 2019

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Liabilities

 

$ -

 

 

$ -

 

 

$ 4,037,732

 

 

$ 4,037,732

 

 

August 31, 2018

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Liabilities

 

$ -

 

 

$ -

 

 

$ 4,494,698

 

 

$ 4,494,698

 

 

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 $588,042 were incurred for the nine months ended May 31, 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).

 

 
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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 nine months ended May 31, 2019 and 2018, respectively, are summarized as follows:

 

 

 

Nine Months Ended

 

 

 

May 31,

 

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

Stock options issued to employees, strategic service provider and consultants

 

$ 8,542,442

 

 

$ 22,047,376

 

Stock warrants issued to investors and consultants

 

 

-

 

 

 

19,404,490

 

Common stock issued to strategic service providers and consultants

 

 

20,654

 

 

 

2,826,960

 

Total

 

$ 8,563,096

 

 

$ 44,278,826

 

 

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.

 

In February 2016, the FASB issued ASU No. 2016-02  Leases (Topic 842)  intended to improve financial reporting around leasing transactions. The ASU affects all companies and other organizations that lease assets such as real estate, airplanes, and manufacturing equipment. The ASU will require organizations that lease assets - referred to as “lessees”- to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. For public companies, the standard is effective for fiscal years beginning after December 15, 2018 and interim periods therein. Earlier adoption is permitted for any annual or interim period for which financial statements have not yet been issued. The Company will adopt this ASU beginning on September 1, 2019 and will utilize the modified retrospective transition approach, as prescribed within this ASU.

 

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.

 

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 May 31, 2019 and August 31, 2018:

 

 

 

May 31,

 

 

August 31,

 

 

 

2019

 

 

2018

 

Legal and regulatory fees

 

$ 54,740

 

 

$ 255,500

 

Marketing and branding

 

 

-

 

 

 

712,900

 

Rent expense

 

 

-

 

 

 

22,550

 

Professional fees

 

 

-

 

 

 

28,700

 

 

 

$ 54,740

 

 

$ 1,019,650

 

 

NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

 

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

 

 

 

May 31,

 

 

August 31,

 

 

 

2019

 

 

2018

 

Trade Payables

 

$ 8,528,896

 

 

$ 4,796,784

 

Credit Card Payable

 

 

241,788

 

 

 

37,675

 

Other Payable

 

 

69,960

 

 

 

74,960

 

Total

 

$ 8,840,644

 

 

$ 4,909,419

 

 

 
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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.

 

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 nine months ended May 31, 2019, 861 shares of Series A Convertible Preferred Stock were converted into 4,197,761,961 shares of common stock. The corresponding derivative liability at the dates of conversion of $1,189,067 was credited to additional paid in capital.

 

As of May 31, 2019 and August 31, 2018, 1,097 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. On May 29, 2019, the Series 1, 2 and 3 warrant expired.

 

The below table summarizes warrant activity during the nine months ended May 31, 2019:

 

 

 

 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 )

 

 

(710 )

 

 

1,000

 

 

 

1,000

 

 

 

1,000

 

Expired

 

 

(7,500 )

 

 

(7,700 )

 

 

(7,290 )

 

 

(1,000 )

 

 

(1,000 )

 

 

(1,000 )

Balances as of May 31, 2019

 

 

-

 

 

 

-

 

 

 

-

 

 

$ -

 

 

$ -

 

 

$ -

 

 

During the nine months ended May 31, 2019, 200 Series 2 warrants were exercised into 200 shares of Series A Convertible Preferred Stock and 710 Series 3 warrants were exercised into 710 shares of Series A Convertible Preferred Stock for an aggregate net proceeds of $910,000.

 

 
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Common stock

 

Issuances

 

During the nine months ended May 31, 2019, the Company issued 4,526,591,644 shares of common stock, as follows:

 

 

·

71,284,919 shares of common stock to strategic service providers, for services valued at $20,655.

 

·

4,197,761,961 shares of common stock issued for the conversion of 861 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 May 31, 2019 and August 31, 2018, the Company had 4,527,275,986 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 nine months ended May 31, 2019:

 

 

 

 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

 

 

9

 

 

 

57,000

 

Exercised

 

 

-

 

 

 

-

 

Forfeited

 

 

-

 

 

 

-

 

Balances as of May 31, 2019

 

 

3,318

 

 

$ 2,295

 

 

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%

 

The following table summarizes information relating to outstanding and exercisable warrants as of May 31, 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

3,318

2.14

 

$

2,295

3,318

 

$

2,295

 

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 May 31, 2019 for those warrants for which the quoted market price was in excess of the exercise price (“in-the-money” warrants). As of May 31, 2019, the aggregate intrinsic value of warrants outstanding was approximately $0 based on the closing market price of $0.0001 on May 31, 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.

 

 
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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 nine months ended May 31, 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.

 

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 May 31, 2019, there were 320 shares available for future grant under the 2017 Plan.

 

Stock Options

 

During the nine months ended May 31, 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 nine months ended May 31, 2019 and the year ended August 31, 2018:

 

 

 

Options Outstanding

 

 

 

Number

of Options

 

 

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 May 31, 2019

 

 

1,283

 

 

$ 58,504

 

 

$ 55,209,360

 

 

$ -

 

 

 
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The following table summarizes information relating to exercisable stock options as of May 31, 2019:

 

Options Exercisable

Number of Options

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 May 31, 2019. As of May 31, 2019, the aggregate intrinsic value of stock options outstanding was $0 based on the closing market price of $0.0001 on May 31, 2019.

 

Weighted-average grant-date fair value for non-vested stock options as of May 31, 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 )

 

 

64,021

 

Forfeited

 

 

-

 

 

 

-

 

Unvested, May 31, 2019

 

 

315

 

 

$ 74,738

 

 

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

 

Year Ended

August 31,

2018

 

2017

Expected term

3.59 - 5.98 years

 

4.59 - 6.43 years

Expected average volatility

175% - 176%

179% - 183%

Expected dividend yield

 -

 -

Risk-free interest rate

2.20% - 2.35%

1.17% - 2.25%

 

The total fair values of stock options that vested during the period ended May 31, 2019 and year ended August 31, 2018 were $16,515,235 and $18,112,430, respectively.

 

As of May 31, 2019, there was $3,581,148 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 0.50 years as of May 31, 2019.

 

 
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NOTE 7 – CONVERTIBLE NOTES

 

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

 

 

 

May 31,

 

 

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

 

 

-

 

 

 

(863,852 )

 

 

 

1,756,006

 

 

 

976,229

 

Less current portion of convertible notes payable

 

 

(1,756,006 )

 

 

976,229

 

Long-term convertible notes payable

 

$ -

 

 

$ -

 

 

The Company recognized amortization expense related to the debt discount and deferred financing fees of $863,852 and $4,573,723 for the nine months ended May 31, 2019 and 2018, respectively, which is included in interest expense in the statements of operations.

 

For the nine months ended May 31, 2019 and 2018, the interest expense on convertible notes was $150,307 and $182,093, respectively. As of May 31, 2019 and August 31, 2018, the accrued interest payable was $204,352 and $67,157, respectively.

 

During the nine months ended May 31, 2019, the Company repaid $50,000 on one of its April 2018 convertible notes.

 

Conversion

 

During the nine months ended May 31, 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 May 31, 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 May 31, 2019 and August 31, 2018:

 

Nine Months Ended

Year Ended

May 31, 2019

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 May 31, 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

 

 

1,259,944

 

Derivative liabilities settled upon conversion of convertible notes

 

 

(122,122 )

Derivative liabilities settled upon conversion of convertible preferred stock

 

 

(1,189,068 )

Gain on change in fair value of the derivative liabilities

 

 

(405,720 )

Balance - May 31, 2019

 

$ 4,037,732

 

 

The following table summarizes the loss on derivative liability included in the income statement for the nine months ended May 31, 2019 and 2018, respectively.

 

 

 

Nine months ended

 

 

 

May 31, 2019

 

 

 

2019

 

 

2018

 

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

 

$ -

 

 

$ 3,225,787

 

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

 

 

1,259,944

 

 

 

7,806,061

 

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

 

 

(405,720 )

 

 

(16,925,497 )

 

 

$ 854,224

 

 

$ (5,034,161 )

 

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 May 31, 2019, we had issued 49 shares of common stock to Jet Midwest Group, LLC and were obligated to issue an additional 71,295,802 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 May 31, 2019, we had issued 24 shares of common stock and 26 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 May 31, 2019, the Company has not made a contingency for these events, but has expensed these costs, as incurred, which have exceeded the commitment.

 

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 Judgment against the Company in the amount of $1,284,542, which is included in the outstanding principal balance of the convertible note of $1,190,000 and accrued note interest of $111,364 as of May 31, 2019. The Company is currently evaluating its options and alternative ways to satisfy it.

 

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 May 31, 2019, we have fully expensed this amount.

 

Total net rent expense related to our operating leases for the nine months ended May 31, 2019 and 2018, was $14,926 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

 

$ 5,571

 

Thereafter

 

 

-

 

Total

 

$ 5,571

 

 

NOTE 10 – RELATED PARTY TRANSACTIONS

 

During the nine months ended May 31, 2019, the Company borrowed $154,395 from a shareholder for payments of operating expenses. The loan from shareholder of $154,395 was forgiven and the Company recorded it as additional paid in capital.

 

NOTE 11 – SUBSEQUENT EVENTS

 

Subsequent to May 31, 2019 and through the date that these financials were issued, the Company had the following subsequent events:

 

The Company issued 143,750,000 shares of common stock for the conversion of 10 shares of preferred stock.

 

Convertible note principal amount of $11,500 was converted into 191,666,666 shares of common stock.

 

 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

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.

 

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

 

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

 

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.

 

 
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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).

 

Subject to our ability to obtain capital, we will continue to develop Infinitus. We 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

 

The Company filed a claim with one of its insurance carriers for damages in shipment, which has been denied. The Company has requested reconsideration of the denial of the claim by the insurance carrier.

  

 
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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.

 

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.

 

Nine Months Ended May 31, 2019 and 2018

 

Our operating results for the nine months ended May 31, 2019 and 2018, and the changes between those periods for the respective items, are summarized as follows:

  

 

 

Nine Months Ended

 

 

 

 

 

 

May 31,

 

 

 

 

Statement of Operations Data:

 

2019

 

 

2018

 

 

Changes

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$ -

 

 

$ -

 

 

$ -

 

Total operating expense

 

 

14,619,852

 

 

 

54,825,683

 

 

 

(40,205,831 )

Other expense (income)

 

 

1,876,002

 

 

 

(278,326 )

 

 

2,154,328

 

Net loss

 

$ 16,495,854

 

 

$ 54,547,357

 

 

$ (38,051,503 )

  

We incurred a net loss of $16.5 million for the nine months ended May 31, 2019 as compared to a net loss of $54.5 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, management fees, salaries and wages, travel expense and professional fees. The increase in other expense relates primarily from an increase in loss on change in fair value on derivative liabilities.

 

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

 

 
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Our operating expense for the nine months ended May 31, 2019 and 2018, and the changes between those periods for the respective items, are summarized as follows:

 

 

 

Nine Months Ended

 

 

 

 

 

 May 31,

 

 

 

Operating Expense:

 

2019

 

 

2018

 

 

Changes

 

 

 

 

 

 

 

 

 

 

 

Marketing and branding

 

$ 3,235,882

 

 

$ 4,227,012

 

 

$ (991,130 )

Depreciation

 

 

9,372

 

 

 

7,345

 

 

 

2,027

 

General and administrative expenses

 

 

451,946

 

 

 

786,835

 

 

 

(334,889 )

Management fees

 

 

-

 

 

 

102,000

 

 

 

(102,000 )

Professional fees

 

 

2,003,068

 

 

 

4,049,113

 

 

 

(2,046,045 )

Research and development

 

 

55,141

 

 

 

588,042

 

 

 

(532,901 )

Salaries and wages

 

 

301,347

 

 

 

786,510

 

 

 

(485,163 )

Stock based compensation

 

 

8,563,096

 

 

 

44,278,826

 

 

 

(35,715,730 )

Total operating expense

 

$ 14,619,852

 

 

$ 54,825,683

 

 

$ (40,205,831 )

 

The largest component of the operating expense was $8.6 million of stock-based compensation expenses incurred during nine months ended May 31, 2019 compared to $44.3 million of stock-based compensation expenses incurred for the same period in 2018. In the nine months ended May 31, 2019, stock compensation expense included: (i) $20,654 in connection with the issuance of 71,284,910 shares of common stock to Jet Midwest Group pursuant to our service agreement with that company; and (ii) $8.5 million with respect to employee stock options. In the nine months ended May 31, 2018, stock compensation expense included: (i) $2.0 million in connection with the issuance of 70 shares of common stock and $13.6 million in connection with the issuance of 191 warrants to purchase shares to Air Lease Corporation pursuant to our marketing agreement with that company; (ii) $316,252 in connection with the issuance of 12 shares of common stock to Jet Midwest Group pursuant to our service agreement with that company; (iii) $128,800 in connection with the issuance of 3 shares of common stock and $314,923 in connection with the issuance of 8 warrants to purchase shares to Brighton Capital Ltd. pursuant to our consulting agreement with that company; (iv) $22 million with respect to employee stock options; (v) $5.5 million in connection with the issuance of 118 warrants to purchase shares to shareholders; (vi) $408,164 in connection with the issuance of 12 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 nine months ended May 31, 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, $4.2 million was incurred by our Company during the nine months ended May 31, 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.

 

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 nine months ended May 31, 2019, professional fees were $2.0 million compared to $4.0 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 nine months ended May 31, 2019, research and development expense was $55,141, as compared to $588,042 during the same period in 2018. The decrease in our research and development spending during the nine months ended May 31, 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 nine months ended May 31, 2019, general and administrative expenses decreased primarily from travel costs decreasing by $274,000 as compared to the same period in 2018.

 

 
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Our other (income) expense for the nine months ended May 31, 2019 and 2018, and the changes between those periods for the respective items, are summarized as follows:

 

 

 

Nine Months Ended

 

 

 

 

 

 

May 31,

 

 

 

 

Other (Income) Expenses

 

2019

 

 

2018

 

 

Changes

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

$ 1,021,778

 

 

$ 4,755,835

 

 

$ (3,734,057 )

Change in fair value of derivative liabilities

 

 

854,224

 

 

 

(5,034,161 )

 

 

5,888,385

 

Total other (income) expense

 

$ 1,876,002

 

 

$ (278,326 )

 

$ 2,154,328

 

 

During the nine months ended May 31, 2019, our Company incurred $1.9 million in other expense which included a loss on change in fair value of derivative liabilities of $854,000 and interest expense of $1.0 million. The loss on change in fair value of derivative liabilities related to $1.3 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 nine months ended May 31, 2019.

 

During the nine months ended May 31, 2018, our Company recognized $(278,326) in other (income) which included a net gain on change in fair value of derivative liabilities of $5.0 million and interest expense of $4.8 million. The gain on change in fair value of derivative liabilities related to $4.1 million as a day one loss in the fair value of warrants and convertible notes recorded as a derivative liability, $7.8 million as a day one loss from the addition of new derivative liabilities recognized upon issuance of convertible preferred stock and a gain of $16.9 million 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 nine months ended May 31, 2018.

 

Three Months Ended May 31, 2019 and 2018

 

Our operating results for the three months ended May 31, 2019 and 2018, and the changes between those periods for the respective items, are summarized as follows:

  

 

 

Three Months Ended

 

 

 

 

 

 

May 31,

 

 

 

 

Statement of Operations Data:

 

2019

 

 

2018

 

 

Changes

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$ -

 

 

$ -

 

 

$ -

 

Total operating expense

 

 

1,946,011

 

 

 

10,476,255

 

 

 

(8,530,244 )

Other expense (income)

 

 

137,025

 

 

 

(4,382,190 )

 

 

4,519,215 )

Net loss

 

$ 2,083,036

 

 

$ 6,094,065

 

 

$ (4,011,029 ))

  

We incurred a net loss of $2.1 million for the three months ended May 31, 2019 as compared to a net loss of $6.1 million for the same period in 2018. The decrease in net loss was due to decrease in operating expense and other income. The decrease in operating expense was mainly due to the decrease in stock-based compensation expense, marketing and branding, professional fees, research and development, management fees and salaries and wages. The decrease in other income relates primarily from a decrease in gain on change in fair value on derivative liabilities for the three months ended May 31, 2019.

 

 
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Our operating expenses for the three months ended May 31, 2019 and 2018, and the changes between those periods for the respective items, are summarized as follows:

  

 

 

Three Months Ended

 

 

 

 

 

 

 May 31,

 

 

 

 

Operating Expense:

 

2019

 

 

2018

 

 

Changes

 

 

 

 

 

 

 

 

 

 

 

Marketing and branding

 

$ -

 

 

$ 1,255,280

 

 

$ (1,255,280 )

Depreciation and amortization

 

 

3,124

 

 

 

2,793

 

 

 

331

 

General and administrative expenses

 

 

207,426

 

 

 

466,803

 

 

 

(259,378 )

Management fees

 

 

-

 

 

 

60,000

 

 

 

(60,000 )

Professional fees

 

 

107,038

 

 

 

2,048,596

 

 

 

(1,941,558 )

Research and development

 

 

-

 

 

 

18,100

 

 

 

(18,100 )

Salaries and wages

 

 

4,036

 

 

 

307,231

 

 

 

(303,195 )

Stock based compensation

 

 

1,624,387

 

 

 

6,317,452

 

 

 

(4,693,064 )

Total operating expense

 

$ 1,946,011

 

 

$ 10,476,255

 

 

$ (8,530,244 )

  

The largest component of the operating expense was $1.6 million of stock-based compensation expenses incurred during three months ended May 31, 2019 compared to $6.3 million of stock-based compensation expenses incurred for the same period in 2018. In the three months ended May 31, 2019, stock compensation expense included: (i) $1,300 in connection with the issuance of 12,998,485 shares of common stock to Jet Midwest Group pursuant to our service agreement with that company; and (ii) $1.6 million with respect to employee stock options. In the three months ended May 31, 2018, stock compensation expense included: (i) $960,225 in connection with the issuance of 52 shares of common stock and $13.6 million in connection with the issuance of 191 warrants to purchase shares to Air Lease Corporation pursuant to our marketing agreement with that company; (ii) $153,636 in connection with the issuance of 244,983 shares of common stock to Jet Midwest Group pursuant to our service agreement with that company; (iii) $38,400 in connection with the issuance of 1 shares of common stock and $100,904 in connection with the issuance of 3 warrants to purchase shares to Brighton Capital Ltd. pursuant to our consulting agreement with that company; (iv) $4.7 million with respect to employee stock options; (v) $163,279 in connection with the issuance of 6 warrants to purchase shares to shareholders; (vi) $200,000 in connection with the issuance of 10 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 three months ended May 31, 2019, we did not spend marketing and branding, as compared to $1.3 million incurred by our Company during the three months ended May 31, 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.

 

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 May 31, 2019, professional fees were $107,000 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 and legal 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 May 31, 2019, we did not spend on research and development expense, as compared to $18,000 incurred during the same period in 2018. The decrease in our research and development spending during the three months ended May 31, 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.

 

 
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General and administrative expenses include office, shipping, entertainment, travel, insurance and other miscellaneous expenses. During the three months ended May 31, 2019, general and administrative expenses decreased primarily from travel costs decreasing by $189,000 as compared to the same period in 2018.

 

Our other (income) expense for the nine months ended May 31, 2019 and 2018, and the changes between those periods for the respective items, are summarized as follows:

 

 

 

Three Months Ended

 

 

 

 

 

 May 31,

 

 

 

Other (Income) Expense

 

2019

 

 

2018

 

 

Changes

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

$ 108,754

 

 

$ 3,193,927

 

 

$ (3,085,173 )

Change in fair value of derivative liabilities

 

 

28,271

 

 

 

(7,576,117 )

 

 

7,604,388

 

Total other (income) expense

 

$ 137,025

 

 

$ (4,382,190 )

 

$ 4,519,215

 

 

During the three months ended May 31, 2019, our Company incurred $137,025 in other expense which included a loss on change in fair value of derivative liabilities of $28,271 and interest expense of $108,754. The loss on change in fair value of derivative liabilities related to $27,879 as a day one loss from the addition of new derivative liabilities recognized upon issuance of convertible preferred stock and a loss of $392 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 May 31, 2019.

 

During the three months ended May 31, 2018, our company recognized $4.4 million in other income which included a net gain on change in fair value of derivative liabilities of $7.6 million and interest expense of $3.2 million. The gain 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 a gain 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 during the three months ended May 31, 2018.

 

Liquidity and Capital Resources

 

The following table presents selected financial information as of and for the nine months ended May 31, 2019, and 2018:

 

 

 

 May 31,

 

 

 August 31,

 

 

 

Balance Sheet Data:

 

 2019

 

 

 2018

 

 

Changes

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$ 11,514

 

 

$ 155,988

 

 

$ (144,474 )

Working capital (deficiency)

 

$ (14,772,480 )

 

$ (9,271,865 )

 

$ (5,500,615 )

Total assets

 

$ 91,492

 

 

$ 1,210,248

 

 

$ (1,118,756 )

Total liabilities

 

$ 14,838,734

 

 

$ 10,447,503

 

 

$ 4,391,231

 

Total stockholders’ equity (deficit)

 

$ (14,747,242 )

 

$ (9,237,255 )

 

$ (5,509,987 )

 

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. Maxim Group LLC was the underwriter and four funds were the initial purchasers of the Preferred Stock and Warrants. 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.

 

 
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A total of 1,510 warrants were exercised, and the Company received additional gross proceeds of $1,510,000. The balance of the warrants expired on May 29, 2019 and the Company does not envision any further warrants being exercised. The Company received a total of $8.2 million (instead of the contemplated $30.7 million) from the 8,000 shares of the Preferred Stock and 1,510 warrants exercised. The four funds have converted approximately 7,202 shares of Preferred Stock and 1,211 shares of Preferred Stock converted from warrants into approximately 4.2 billion shares of common stock and still have 1,097 shares of Preferred Stock convertible into common shares of the Company as of May 31, 2019. (Based upon the current conversion price at May 31, 2019, the balance of the Preferred Shares could be converted into an additional 15.3 billion shares of common stock. In essence, the $8.2 million the Company received from the Preferred Stock and exercised Warrants underwritten by Maxim Group LLC could require the Company to issue 19.5 billion shares of common stock or an average price of $0.0004 per share of common stock. On the date of the closing of the Preferred Stock and Warrants underwritten by Maxim Group LLC, the common stock of the Company closed at $7,000.00 and the Company had 3,498 common shares outstanding.) During the nine months ended May 31, 2019, we generated proceeds from Preferred Stock issued from the exercise of warrants of $910,000.

 

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 our current operations. We are 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 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 conversion prices unfavorable to us due to the market-price-based nature of the conversion 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 (which was denied), 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, as well not having enough cash on hand to fund our current operations, 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 nine months ended May 31, 2019 and 2018:

 

 

 

Nine Months Ended

 

 

 

 

 

 

May 31,

 

 

 

 

Cash Flow Data:

 

2019

 

 

2018

 

 

Changes

 

 

 

 

 

 

 

 

 

 

 

Cash Flows used in Operating Activities

 

$ (1,158,869 )

 

$ (11,258,176 )

 

$ 10,099,307

 

Cash Flows used in Investing Activities

 

 

-

 

 

 

(19,731 )

 

 

19,731

 

Cash Flows provided by Financing Activities

 

 

1,014,395

 

 

 

15,179,361

 

 

 

(14,164,966 ))

Net Change in Cash

 

$ (144,474 )

 

$ 3,901,454

 

 

$ (4,045,928 )

  

Cash Flows from Operating Activities

 

We have not generated positive cash flows from operating activities. For the nine months ended May 31, 2019, net cash flows used in operating activities were $1,158,869, consisting of a net loss of $16.5 million, offset by stock-based compensation of $8.6 million, amortization of debt discount of $863,852, net loss on change in fair value of derivative liabilities of $854,224, depreciation of $9,372, and was decreased from a net change in operation assets and liabilities of $5.0 million. Unless and until we generate revenue from Infinitus, we expect to continue to generate net losses.

 

 
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For the nine months ended May 31, 2018, net cash flows used in operating activities were $11.3 million, consisting of a net loss of $54.5 million, offset by stock-based compensation of $44.3 million, net gain on change in fair value of derivative liabilities of $5.0 million, amortization of debt discount of $4.6 million, depreciation of $7,345 and an increase in operating liabilities from accounts payable and accrued liabilities of $523,504 and accrued interest of $182,093, as well as an increase in operating assets from prepaid expenses of $1.2 million. Unless and until we general revenue from Infinitus, we expect to continue to generate net losses.

 

Cash Flows from Investing Activities

 

For the nine months ended May 31, 2019, we did not have investing activities.

 

For the nine months ended May 31, 2018, we acquired $19,731 of office and computer equipment.

 

Cash Flows from Financing Activities

 

For the nine months ended March 31, 2019, net cash flows provided by financing activities was $1,014,395, consisting of proceed from related party advances of $154,395 and Preferred Stock issued from the exercise of warrants of $910,000, and was offset by repayment of convertible notes of $50,000.

 

Cash Requirements

 

We will require additional cash as we expand our business. Initially, to carry out our business plan, we will need to raise additional capital. There can be no assurance that we will be able to raise additional capital or, if we are able to raise additional capital, the terms we be acceptable to us. Currently we do not have any inventory.

 

These conditions indicate a material uncertainty that casts significant doubt about our ability to continue as a going concern. We require additional debt or equity financing to have the necessary funding to continue operations and meet our obligations. We have continued to adopt the going concern basis of accounting in preparing our financial statements. 

 

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.

 

 
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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.

 

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 $130 million through May 31, 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 $588,042 were incurred for the nine months ended May 31, 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 $8,563,096 and $44,278,826 were incurred for the nine months ended May 31, 2019 and 2018, respectively.

 

 
28
 
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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 May 31, 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 May 31, 2019.

 

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 May 31, 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 April 11, 2019, the parties entered into a Confidential Settlement Agreement and Release. On June 24, 2019, the Court dismissed the action.

 

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 May 28, 2019, GT Legal Corp. filed a Request for Dismissal with Prejudice.

 

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.

 

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, which is included in the outstanding principal balance of the convertible note of $1,190,000 and accrued note interest of $111,364 as of May 31, 2019. The Company is currently evaluating its options and alternative ways to satisfy it.

 

Item 1A. Risk Factors

 

Not required for smaller reporting companies.

 

 
30
 
Table of Contents

 

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

 

During the nine months ended May 31, 2019, the Company issued 4,526,591,644 shares of common stock, as follows:

 

 

·

71,284,919 shares of common stock to strategic service providers, for services valued at $20,655.

 

·

4,197,761,961 shares of common stock issued for the conversion of 861 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.

 

In addition, during the nine months ended May 31, 2019, 200 Series 2 warrants were exercised into 200 shares of Series A Convertible Preferred Stock and 710 Series 3 warrants were exercised into 710 shares of Series A Convertible Preferred Stock for an aggregate net proceeds of $910,000.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not Applicable.

 

Item 5. Other Information

 

None.

 

 
31
 
Table of Contents

 

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.

 

 
32
 
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

 

 

(Registrant)

 

 

 

   

 

Dated: July 10, 2019

 

/s/ Michael J. Warren

 

 

Michael J. Warren

 

 

Chief Executive Officer

 

 

(Principal Executive Officer)

 

 

 

 

Dated: July 10, 2019

/s/ Kevin L. Spence

 

 

Kevin L. Spence

 

 

Chief Financial Officer

 

 

(Principal Financial Officer and Principal Accounting Officer)

 

 

 

33

 

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