NOTES
TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
1 – NATURE OF BUSINESS
Nature
of Business
Lans
Holdings, Inc. is in the business of providing secure payment and communication solutions. The Company’s aim is to make
it easier for sellers to start selling, and buyers to buy with confidence. The Company intends that its solutions will be used
to enable businesses to process payments more efficiently whether online or in a retail store front. The Company intends to offer
white label solutions for payment service providers to enable business to consumer and business to business payments through physical
POS, mobile devices, online and software integrations. The Company also intends to provide business processing outsourcing through
its Fractional I.T. Services, and complaint ready hosted solutions through its Infrastructure on Demand.
Lans
Holdings is focused to provide emerging payment "breakthrough" technology that motivates and rewards clients for adopting
more secure infrastructure to support their businesses.
Going
Concern
The
Company has incurred losses since inception and has negative working capital. These factors create substantial doubt about the
Company’s ability to continue as a going concern. The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. The financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern. The ability of the Company to continue as a going concern is dependent
on the Company generating cash from the sale of its common stock and/or obtaining debt financing and attaining future profitable
operations.
Management’s
plans include selling its equity securities and obtaining debt financing to fund its capital requirements and ongoing operations;
however, there can be no assurance the Company will be successful in these efforts.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
These
financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United
States and are expressed in US dollars. The Company’s fiscal year end is November 30.
Interim
Financial Statements
The
accompanying unaudited interim financial statements of the Company have been prepared in accordance with accounting principles
generally accepted in the United States of America (“US GAAP”) and the rules of the Securities and Exchange Commission
("SEC"), and should be read in conjunction with the audited financial statements and notes thereto. In the opinion of
management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position
and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim
periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which
would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year end
November 30, 2016 have been omitted.
Use
of Estimates
The
preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates
and assumptions related to long-lived assets, and deferred income tax asset valuation allowances. The Company bases its estimates
and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and
the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company
may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the
estimates and the actual results, future results of operations will be affected.
Financial
Instruments
The
Company’s financial instruments consist of cash, accounts receivable, prepaid expenses, accounts payable and accrued expenses,
amounts due to officers, notes payable, convertible debentures, derivative liabilities and deferred revenue. The carrying amount
of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing
market rates unless otherwise disclosed in these financial statements.
Cash
and Cash Equivalents
The
Company considers all highly liquid instruments with maturity of three months or less be cash equivalents.
Software
Development Costs
Costs
incurred internally in the research and development of the software products and significant enhancements to existing software
products are expensed as incurred until the technologically feasibility of the product has been established. Technological feasibility
occurs shortly before internally developed products are available for general release. Costs paid to third parties for products
in which technological feasibility has been established are capitalized upon purchase of software.
Property
and Equipment
Property
and equipment is stated at cost, less accumulated depreciation and any impairment in value. Long-lived assets, including property
and equipment, are assessed for impairment whenever events or changes in business circumstances arise than may indicate that the
carrying amount of the long-lived asset may not be recoverable. Depreciation is calculated on a straight line basis over its estimated
useful life.
Intangible
Assets
Software,
licenses and other rights have been capitalized. Amortization is calculated on a straight line basis over its estimated useful
life.
If
the total of the expected undiscounted future cash flows is less than the carrying amount of the asset, an impairment is recognized
for the excess of the carrying value over the fair value of the asset.
Income
Taxes
The
Company utilizes the liability method of accounting for income taxes. Under the liability method deferred tax assets and liabilities
are determined based on the differences between financial reporting basis and the tax basis of the assets and liabilities and
are measured using enacted tax rates and laws that will be in effect, when the differences are expected to reverse. An allowance
against deferred tax assets is recognized, when it is more likely than not, that such tax benefits will not be realized.
Any
deferred tax asset is considered immaterial and has been fully offset by a valuation allowance because at this time Company believes
that it is more likely than not that the future tax benefit will not be realized as the Company has no current operations.
Revenue
Recognition
The
Company derives revenue from subscriptions for software that provide secure payment solutions, from the provision of customized
development services and from the provision of secure on demand infrastructure.
The
Company recognizes revenue when persuasive evidence of an arrangement exists, products are fully delivered and services have been
provided, the sales price is fixed or determinable and collectability is reasonably assured. Advance payments from customers are
deferred and recorded in deferred revenue. During the period ended May 31, 2017, the Company received $10,000 from customers for
services to be provided by the Company. Revenue will be recorded by the Company when the service is provided.
All
of the Company’s revenues during the six months ended May 31, 2017 resulted from five customers.
Stock-based
Compensation
The
Company measures and recognizes compensation expense based on estimated fair values for all share-based awards made to employees
and directors, including stock options.
The
Company estimates the fair value of share-based awards on the date of grant using an option-pricing model. The Company uses the
Black-Scholes option-pricing model as its method of determining fair value. This model is affected by the Company’s stock
price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited
to the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option
exercise behaviors. The value of the portion of the award that is ultimately expected to vest is recognized as an expense in the
statement of operations over the requisite service period.
Options
granted to consultants are valued at the fair value of the equity instruments issued, or the fair value of the services received,
whichever is more reliably measurable.
Loss
Per Common Share
Basic
earnings (loss) per common share is computed by dividing net income (loss) available to common shareholders (numerator) by
the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive
potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using
the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number
of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all potential dilutive
shares if their effect is anti-dilutive. As of May 31, 2017, the Company had 49,744,000 (2016 – 4,169,154) potentially
dilutive shares outstanding.
Subsequent
Events
The
Company has evaluated all transactions through the date the financial statements were issued for subsequent event disclosure consideration.
Recent
Accounting Pronouncements
The
Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements.
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2014-09, “Revenue from Contracts with Customers (Topic 606).” The new guidance provides new criteria for recognizing
revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which the company
expects to be entitled in exchange for those goods or services. The new guidance requires expanded disclosures to provide greater
insight into both revenue that has been recognized and revenue that is expected to be recognized in the future from existing contracts.
Quantitative and qualitative information will be provided about the significant judgments and changes in those judgments that
management made to determine the revenue that is recorded. This accounting standard update, as amended, will be effective for
annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning
after December 15, 2019. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively
with the cumulative effect recognized as of the date of adoption. Early adoption is permitted, but no earlier than fiscal 2017.
The Company is currently assessing the provisions of the guidance and has not determined the impact of the adoption of this guidance
on its consolidated financial statements.
In
August 2014, the Financial Accounting Standards Board issued Accounting Standards Update 2014-15, “Presentation of Financial
Statements - Going Concern”. The Update provides US GAAP guidance on management’s responsibility in evaluating whether
there is substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures.
For each reporting period, management will be required to evaluate whether there are conditions or events that raise substantial
doubt about a company’s ability to continue as a going concern within one year from the date the financial statements are
issued. The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods
and interim periods thereafter. The Company adopted this pronouncement effective for the period ended May 31, 2017. The adoption
did not have a material impact to the financial statements.
NOTE
3 – SOFTWARE ASSETS
On
September 22, 2016, the Company entered into a Software Purchase Agreement (the “Software Agreement”) with two related
parties Transaction Data USA Inc. (“TDUSA”), whose CEO is the President of the Company, and Melcent Technology SRL
(“Melcent”), a significant shareholder of the Company. Pursuant to the Software Agreement, the Company acquired a
PSWITCH software application (the “Software”), including the invention, source code, object code, components and tools.
In exchange for the Software, the Company issued to each of TDUSA and Melcent, 375,000 shares of the Company’s newly created
Series B Preferred Stock. The asset acquired was recorded at the fair value of the 750,000 shares of Series B Preferred Stock
of $5,820,000. At May 31, 2017, the 750,000 shares of Series B Preferred Stock had not been issued and $5,820,000 of stock payable
to related parties was accrued by the Company.
At
November 30, 2016, the Company’s uncertain future revenues generated by the asset indicated that the carrying amount of
the long-lived asset may not be recoverable. The Company performed an impairment test which resulted in an impairment of $5,820,000.
NOTE
4 – NOTES PAYABLE
Notes
payable consist of the following as of May 31, 2017 and November 30, 2016:
Issue
date
|
|
May
31, 2017
|
|
November
30, 2016
|
November 24, 2014 note (a)
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
March 26, 2015 note (b)
|
|
|
75,000
|
|
|
|
75,000
|
|
August 7, 2015 note (c)
|
|
|
50,000
|
|
|
|
50,000
|
|
September 25, 2015 note (d)
|
|
|
14,700
|
|
|
|
14,700
|
|
October 15, 2015
note (e)
|
|
|
125,000
|
|
|
|
125,000
|
|
Total
|
|
$
|
289,700
|
|
|
$
|
289,700
|
|
Notes
payable – related party consist of the following as of May 31, 2017 and November 30, 2016:
Issue
date
|
|
May
31, 2017
|
|
November
30, 2016
|
October 5, 2015 note (f)
|
|
$
|
—
|
|
|
$
|
5,000
|
|
October 15, 2015 note (g)
|
|
|
32,258
|
|
|
|
32,258
|
|
February 12, 2016 note (h)
|
|
|
3,425
|
|
|
|
3,733
|
|
October 18, 2016 note (i)
|
|
|
3,045
|
|
|
|
3,045
|
|
March 20, 2017 note
(j)
|
|
|
5,000
|
|
|
|
—
|
|
Total
|
|
$
|
43,728
|
|
|
$
|
44,036
|
|
|
a)
|
On
November 24, 2014, the Company issued a $25,000 promissory note to a former director
of the Company pursuant to the Agreement of Conveyance, Transfer and Assignment of Obligations
described in Note 7(h). The promissory note is unsecured, non-interest bearing and was
due within six months of the date of issuance. As of May 31, 2017, the note was not yet
repaid. The lender has agreed to extend the note period until financing is secured.
|
|
b)
|
On
March 26, 2015, the Company entered into a $75,000 loan agreement with a third party.
The loan is unsecured, bears interest at 7.5% per year and was due on March 31, 2016.
On September 30, 2015, the Company missed a required semi-annual payment of accrued interest,
resulting in the interest rate increasing to 15% per year going forward. At May 31, 2017,
the Company had accrued interest of $21,607 related to this agreement. This loan is currently
in default and payable on demand.
|
|
c)
|
On
August 7, 2015, the Company entered into a $50,000 loan agreement with a third party.
The loan is unsecured, bears interest at 8.5% per year and is due on August 7, 2016.
On January 15, 2016, the Company missed a required semi-annual payment of accrued interest,
resulting in the interest rate increasing to 17% per year going forward. At May 31, 2017,
the Company had accrued interest of $13,832 related to this agreement. This loan is currently
in default and payable on demand.
|
|
d)
|
On
September 25, 2015, the Company entered into a $14,700 loan agreement with a third party.
The loan is unsecured, bears interest at 1.5% per month and is due on demand. At May
31, 2017, the Company had accrued interest of $769 related to this agreement.
|
|
e)
|
On
October 15, 2015, the Company entered into a $125,000 loan agreement with a third party.
The loan is unsecured, bears interest at 7% per year and is due on October 31, 2016.
On April 15, 2016, the Company missed a required semi-annual payment of accrued interest,
resulting in the interest rate increasing to 14% per year going forward. At May 31, 2017,
the Company had accrued interest of $24,092 related to this agreement. This loan is currently
in default and payable on demand.
|
|
f)
|
On
October 5, 2015, the Company entered into a $25,000 loan agreement with the President
of the Company. The loan is unsecured, bears interest at 8% per year compounded and payable
monthly, and is due on demand. During October 2015, the Company repaid $20,000 of the
loan’s principal. During December 2016, the Company repaid $5,000 of the loan’s
remaining principal. At May 31, 2017, the Company had accrued interest of $636 related
to this agreement.
|
|
g)
|
On
February 12, 2016, the Company entered into a $32,258 loan agreement with a significant
shareholder of the Company. The loan is unsecured, bears interest at 8% per year compounded
monthly, and is due on demand. At May 31, 2017, the Company had accrued interest of $3,521
related to this agreement.
|
|
h)
|
On
April 26, 2016, the Company entered into a $6,000 loan agreement with the President of
the Company. The loan is unsecured, bears interest at 8% per year compounded and payable
monthly. The loan is payable on the earliest of demand or from 50% of future revenue
or from funding received in excess of $100,000. As of May 31, 2017, the Company repaid
$2,575 of the loan’s principal. At May 31, 2017, the Company had accrued interest
of $116 related to this agreement.
|
|
i)
|
On
October 18, 2016, the Company entered into a $3,045 loan agreement with a significant
shareholder of the Company. The loan is unsecured, bears interest at 8% per year compounded
monthly, and is due on demand. At May 31, 2017, the Company had accrued interest of $155
related to this agreement.
|
|
j)
|
On
March 20, 2017, the Company entered into a $5,000 loan agreement with a significant shareholder
of the Company. The loan is unsecured, bears interest at 8% per year compounded annually,
and is due on March 20, 2018. At May 31, 2017, the Company had accrued interest of $79
related to this agreement.
|
NOTE
5 – CONVERTIBLE DEBENTURES
Convertible
debentures consist of the following as of May 31, 2017 and November 30, 2016:
Issue
date
|
|
May
31, 2017
|
|
November
30, 2016
|
March 23,
2016 debenture (a)
|
|
$
|
6,000
|
|
|
$
|
6,000
|
|
June 15, 2016 debenture
(b)
|
|
|
10,000
|
|
|
|
10,000
|
|
June 30, 2016 debenture
(c)
|
|
|
2,000
|
|
|
|
2,000
|
|
July 12, 2016 debenture
(d)
|
|
|
30,000
|
|
|
|
30,000
|
|
July 28, 2016 debenture
(e)
|
|
|
4,000
|
|
|
|
4,000
|
|
September 12, 2016 debenture
(f)
|
|
|
15,000
|
|
|
|
15,000
|
|
December 12, 2016 debenture
(g)
|
|
|
85,000
|
|
|
|
—
|
|
December 15, 2016 debenture
(h)
|
|
|
85,000
|
|
|
|
—
|
|
January
27, 2017 debenture (i)
|
|
|
45,000
|
|
|
|
—
|
|
|
|
|
282,000
|
|
|
|
67,000
|
|
Less:
unamortized debt discount
|
|
|
(189,408
|
)
|
|
|
(39,688
|
)
|
Total
|
|
$
|
92,592
|
|
|
$
|
27,312
|
|
Convertible
debentures – related party consist of the following as of May 31, 2017 and November 30, 2016:
Issue
date
|
|
May
31, 2017
|
|
November
30, 2016
|
May
1, 2016 debenture (j)
|
|
$
|
15,990
|
|
|
$
|
15,990
|
|
|
|
|
15,990
|
|
|
|
15,990
|
|
Less:
unamortized debt discount
|
|
|
—
|
|
|
|
(12,177
|
)
|
Total
|
|
$
|
15,990
|
|
|
$
|
3,813
|
|
During
the six months ended May 31, 2017 and 2016, the Company recorded amortization of debt discount of $77,457 and $1,490, respectively.
|
a)
|
On
March 23, 2016, the Company issued a convertible debenture for $6,000. Pursuant to the
terms of the agreement, the note is unsecured, bears interest at 8% per year, and is
due one year from the date of issuance with the option of extending for an additional
six months at the holder’s discretion. On March 23, 2017, the Company missed the
required payment of all principal and accrued interest, resulting in the interest rate
increasing to 15% per year going forward. At the maturity date, the unpaid amount of
principal can be converted at the holder’s option at a price of 50% of the ask
price at the date of conversion. The embedded conversion option qualifies for derivative
accounting and bifurcation under ASC 815-15 “Derivatives and Hedging”. The
initial fair value of the derivative liability of $9,815 resulted in a full discount
to the note payable of $6,000 and interest expense of $3,815. At May 31, 2017, the Company
had amortized $6,000 of the discount to this convertible debenture and had accrued interest
of $650 related to this convertible debenture.
|
|
b)
|
On
June 15, 2016, the Company issued a convertible debenture for $10,000. Pursuant to the
terms of the agreement, the note is unsecured, bears interest at 8% per year, and is
due on December 31, 2016. On December 31, 2016, the Company missed the required payment
of all principal and accrued interest, resulting in the interest rate increasing to 15%
per year going forward. At the maturity date, the unpaid amount of principal can be converted
at the holder’s option at a price of 50% of the ask price at the date of conversion.
The embedded conversion option qualifies for derivative accounting and bifurcation. The
initial fair value of the derivative liability of $14,129 resulted in a full discount
to the note payable of $10,000 and interest expense of $4,129. At May 31, 2017, the Company
had amortized $10,000 of the discount to this convertible debenture and had accrued interest
of $1,057 related to this convertible debenture.
|
|
c)
|
On
June 30, 2016, the Company issued a convertible debenture for $2,000. Pursuant to the
terms of the agreement, the note is unsecured, bears interest at 8% per year, and is
due on December 31, 2016. On December 31, 2016, the Company missed the required payment
of all principal and accrued interest, resulting in the interest rate increasing to 15%
per year going forward. At the maturity date, the unpaid amount of principal can be converted
at the holder’s option at a price of 50% of the ask price at the date of conversion.
The embedded conversion option qualifies for derivative accounting and bifurcation. The
initial fair value of the derivative liability of $2,782 resulted in a full discount
to the note payable of $2,000 and interest expense of $782. At May 31, 2017, the Company
had amortized $2,000 of the discount to this convertible debenture and had accrued interest
of $205 related to this convertible debenture.
|
|
d)
|
On
July 12, 2016, the Company issued a convertible debenture for $30,000. Pursuant to the
terms of the agreement, the note is unsecured, bears interest at 8% per year, and is
due on December 31, 2016. On December 31, 2016, the Company missed the required payment
of all principal and accrued interest, resulting in the interest rate increasing to 15%
per year going forward. At the maturity date, the unpaid amount of principal can be converted
at the holder’s option at a price of 50% of the ask price at the date of conversion.
The embedded conversion option qualifies for derivative accounting and bifurcation. The
initial fair value of the derivative liability of $40,472 resulted in a full discount
to the note payable of $30,000 and interest expense of $10,472. At May 31, 2017, the
Company had amortized $30,000 of the discount to this convertible debenture and had accrued
interest of $2,993 related to this convertible debenture.
|
|
e)
|
On
July 28, 2016, the Company issued a convertible debenture for $4,000. Pursuant to the
terms of the agreement, the note is unsecured, bears interest at 8% per year, and is
due on January 28, 2017. On
|
January
28, 2017, the Company missed the required payment of all principal and accrued interest, resulting in the interest rate increasing
to 15% per year going forward. At the maturity date, the unpaid amount of principal can be converted at the holder’s option
at a price of 50% of the ask price at the date of conversion. The embedded conversion option qualifies for derivative accounting
and bifurcation. The initial fair value of the derivative liability of $5,449 resulted in a full discount to the note payable
of $4,000 and interest expense of $1,449. At May 31, 2017, the Company had amortized $4,000 of the discount to this convertible
debenture and had accrued interest of $363 related to this convertible debenture.
|
f)
|
On
September 12, 2016, the Company issued a convertible debenture for $15,000. Pursuant
to the terms of the agreement, the note is unsecured, bears interest at 8% per year,
and is due on January 31, 2017. On January 31, 2017, the Company missed the required
payment of all principal and accrued interest, resulting in the interest rate increasing
to 15% per year going forward. At the maturity date, the unpaid amount of principal can
be converted at the holder’s option at a price of 50% of the ask price at the date
of conversion. The embedded conversion option qualifies for derivative accounting and
bifurcation. The initial fair value of the derivative liability of $18,895 resulted in
a full discount to the note payable of $15,000 and interest expense of $3,895. At May
31, 2017, the Company had amortized $15,000 of the discount to this convertible debenture
and had accrued interest of $1,204 related to this convertible debenture.
|
|
g)
|
On
December 12, 2016, the Company issued a convertible debenture with a principal amount
of $85,000 in exchange for proceeds of $75,000. Pursuant to the terms of the agreement,
the note is unsecured, bears interest at 10% per year, and is due on December 12, 2017.
The note has an original issue discount (“OID”) of $5,000 and the Company
paid expenses of $5,000. At any time on or after June 2, 2017, the unpaid amount of principal
and interest can be converted at the holder’s option at the lowest price of either
the closing price prior to the issue date or a price of 60% of the lowest trading price
of the common stock during the 25-trading day period prior to the conversion date. If at any time while the note is outstanding, the lowest trading price is equal to or lower than $0.034, then
a discount rate of 55% will be assumed rather than the original 40%. The
embedded conversion option qualifies for derivative accounting and bifurcation. The initial
fair value of the derivative liability of $108,482 resulted in a full discount to the
note payable of $85,000 and interest expense of $33,482. At May 31, 2017, the Company
had amortized $8,016 of the discount to this convertible debenture and had accrued interest
of $3,959 related to this convertible debenture.
|
|
h)
|
On
December 15, 2016, the Company issued a convertible debenture with a principal amount
of $85,000 in exchange for proceeds of $75,000. Pursuant to the terms of the agreement,
the note is unsecured, bears interest at 12% per year, and is due on September 15, 2017.
The Company paid expenses of $10,000. At any time on or after 180 days from the date
of issuance, the unpaid amount of principal and interest can be converted at the holder’s
option at a price of 60% of the lowest trading price of the common stock during the 25-trading
day period prior of either the issue date or the conversion date. The embedded conversion
option qualifies for derivative accounting and bifurcation. The initial fair value of
the derivative liability of $91,802 resulted in a full discount to the note payable of
$85,000 and interest expense of $16,802. At
May 31, 2017, the Company had amortized $15,241 of the discount to this convertible debenture
and had accrued interest of $4,732 related to this convertible debenture.
|
|
i)
|
On
January 18, 2017, the Company issued a convertible debenture with a principal of $135,000
in consideration for tranches of an aggregate $118,500. Pursuant to the terms of the
agreement, the note is unsecured, bears interest at 6% per year, and is due one year
from when each tranche is received. The note has an original issue discount of $16,500.
At any time, the unpaid amount of principal and interest can be converted at the holder’s
option at a price of 60% of the lowest trading price of the common stock during the 25-trading
day period prior to conversion. If at any time while the note is outstanding, the lowest
trading price is equal to or lower than $0.035, then a discount rate of 50% will be assumed
rather than the original 40%. On January 27, 2017, the Company received $38,000 from
the initial tranche of $45,000. The Company paid a prorated amount of OID of $5,500 and
expenses of $1,500. The embedded conversion option qualifies for derivative accounting
and bifurcation. The initial fair value of the derivative liability of $130,176 resulted
in a full discount to the note payable of $45,000 and interest expense of $92,176. At
May 31, 2017, the Company had amortized $2,335 of the discount to this convertible debenture
and had accrued interest of $917 related to this convertible debenture.
|
|
j)
|
On
May 1, 2016, the Company issued a convertible debenture to a significant shareholder
to settle accounts payable of $15,990. Pursuant to the terms of the agreement, the note
is unsecured, bears interest at 8% per year, and is due one year from the date of issuance
with the option of extending for an additional six months at the holder’s discretion.
On May 1, 2017, the Company missed the required payment of all principal and accrued
interest, resulting in the interest rate increasing to 15% per year prospectively. At
the maturity date, the unpaid amount of principal can be converted at the holder’s
option at a price of 50% of the quoted ask price at the date of conversion. The embedded conversion
option qualifies for derivative accounting and bifurcation. The initial fair value of
the derivative liability of $23,757 resulted in a full discount to the note payable of
$15,990 and interest expense of $7,767. At May 31, 2017, the Company had amortized $15,990
of the discount to this convertible debenture and had accrued interest of $1,476 related
to this convertible debenture.
|
NOTE
6 – DERIVATIVE LIABILITIES
The
embedded conversion options of the Company’s convertible debentures described in Note 5 contain conversion features that
are accounted for as derivative liabilities. The fair value of these liabilities will be re-measured at the end of every reporting
period and the change in fair value will be reported in the statement of operations as a gain or loss on derivative financial
instruments.
The
Company uses Level 3 inputs for its valuation methodology for the derivative liabilities and embedded conversion option liabilities
as their fair values were determined by using the Black-Scholes option pricing model based on various assumptions. The model incorporates
the price of a share of the Company’s common stock (as quoted on NASDAQ), volatility, risk free rate, dividend rate and
estimated life. Significant changes in any of these inputs in isolation would result in a significant change in the fair value
measurement. As required, these are classified based on the lowest level of input that is significant to the fair value measurement.
The following table shows the assumptions used in the calculations:
|
|
Expected
Volatility
|
|
Risk-free
Interest Rate
|
|
Expected
Dividend Yield
|
|
Expected
Life (in years)
|
|
At
November 30, 2016
|
|
|
131%
- 223%
|
|
0.36%
- 0.68%
|
|
0%
|
|
0.08-1.00
|
|
At
May 31, 2017
|
|
|
113% - 280%
|
|
0.40% - 1.17%
|
|
0%
|
|
0.06-1.00
|
The
fair value of the derivative liabilities were $1,768,672 and $89,071 at May 31, 2017 and November 30, 2016, respectively:
|
|
Derivative
Values
|
Issue
date
|
|
November
30, 2016
|
|
Additions
|
|
Conversions
|
|
Fair
Value Increase
|
|
May
31,
2017
|
March 23,
2016 debenture
|
|
$
|
6,951
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,747
|
|
|
$
|
9,698
|
May 1, 2016 debenture
|
|
|
19,799
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,048
|
|
|
|
25,847
|
June 15, 2016 debenture
|
|
|
10,158
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,006
|
|
|
|
16,164
|
June 30, 2016 debenture
|
|
|
2,032
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,201
|
|
|
|
3,233
|
July 12, 2016 debenture
|
|
|
30,472
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18,020
|
|
|
|
48,492
|
July 28, 2016 debenture
|
|
|
4,134
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,332
|
|
|
|
6,466
|
September 12, 2016 debenture
|
|
|
15,525
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,721
|
|
|
|
24,246
|
December 12, 2016 debenture
|
|
|
—
|
|
|
|
108,482
|
|
|
|
—
|
|
|
|
675,538
|
|
|
|
784,020
|
December 15, 2016 debenture
|
|
|
—
|
|
|
|
91,802
|
|
|
|
—
|
|
|
|
470,717
|
|
|
|
562,519
|
January
27, 2017 debenture
|
|
|
—
|
|
|
|
130,176
|
|
|
|
—
|
|
|
|
241,457
|
|
|
|
371,633
|
Total
|
|
$
|
89,071
|
|
|
$
|
330,460
|
|
|
$
|
—
|
|
|
$
|
1,432,787
|
|
|
$
|
1,852,318
|
NOTE
7 – RELATED PARTY TRANSACTIONS
|
a)
|
During
the six months ended May 31, 2017, the Company incurred consulting and other business-related
fees of $22,781 (2016 - $25,500) to a company whose CEO is the President of the Company.
As of May 31, 2017, the Company owed $52,453 (November 30, 2016 - $41,453) to the company
whose CEO is the President of the Company.
|
|
b)
|
During
the six months ended May 31, 2017, the Company incurred consulting fees and other business
related fees of $7,001 (2016 - $6,124) to the company controlled by the Chief Technology
Officer of the Company. As of May 31, 2017, the Company owed $17,000 (November 30, 2016
- $11,000) to a company controlled by the Chief Technology Officer of the Company.
|
|
c)
|
During
the six months ended May 31, 2017, the Company incurred consulting and other business-related
fees of $6,000 (2016 - $6,000) to the former Chief Revenue Officer of the Company. As
of May 31, 2017, the Company owed $16,000 (November 30, 2016 - $10,000) to the former
Chief Revenue Officer of the Company. The amount owed to the former Chief Revenue Officer
at May 31, 2017 is included in accounts payable at May 31, 2017.
|
|
d)
|
During
the six months ended May 31, 2017, the Company incurred advisory, consulting and other
business-related fees of $48,000 (2016 - $43,700) to the Chief Strategy Officer of the
Company. As of May 31, 2017, the Company owed $36,424 (November 30, 2016 – $31,639)
to the Chief Strategy Officer of the Company.
|
|
e)
|
During
the six months ended May 31, 2017, the Company incurred consulting and other business-related
fees of $33,000 (2016 - $nil) to a significant shareholder of the Company. As of May
31, 2017, the Company owed $88,000 (November 30, 2016 - $55,000) to the significant shareholder
of the Company.
|
|
f)
|
As
of May 31, 2017, the Company owed $172,630 (November 30, 2016 - $79,385) to a company
that is significant shareholder of the Company. The amount due is related to cost of
revenues incurred during the period.
|
|
g)
|
As
of May 31, 2017, the Company owed $600 (November 30, 2016 - $200) to the President of
the Company, which is non-interest bearing, unsecured and due on demand.
|
|
h)
|
On
November 21, 2014, the Company entered into an Agreement of Conveyance, Transfer and
Assignment of Assets and Assumption of Obligations with directors of the Company. Pursuant
to the agreement, the Company transferred all assets and business operations associated
with hexagon fishing nets to the directors of the Company. In exchange, the directors
of the Company agreed to cancel 24,438,333 shares in the Company and assume and cancel
all liabilities relating to the Company’s former business, including officer loans
amounting to $100,814. A director of the Company retained 361,667 shares of common stock
in the Company. In consideration for the cancellation of amounts due to officer and the
return of the shares, the Company issued a $25,000 promissory note to the director of
the Company. Refer to Note 4(a). As a result of the forgiveness of the loans and cancellation
of stock, the Company recognized $75,814 as a contribution to capital.
|
|
i)
|
On
November 21, 2014, the Company entered into a License Agreement with the Chief Executive
Officer of the Company (Note 10(f)). At November 30, 2014, the Company was indebted to
the Chief Executive Officer of the Company for $150,000 related to the License Agreement.
The amount was due by February 19, 2015. As of May 31, 2017, the amount has not
been paid by the Company.
|
NOTE
8 – CAPITAL STOCK
The
authorized capital of the Company is 500,000,000 common shares with a par value of $ 0.001 per share and
100,000,000
preferred shares with a par value of $0.001 per share.
|
a)
|
On
April 14, 2016, the Company’s board of directors and a majority of the shareholders
of the Company approved an amendment to the Articles of Incorporation to effectuate a
one for three reverse stock split of the outstanding shares of common stock of the Company.
The reverse stock split became effective on May 24, 2016. All share and per share data
in these financial statements and footnotes have been retrospectively adjusted to account
for this reverse stock split.
|
|
b)
|
On
September 14, 2016, the Company designated, at its discretion, a class of Series B Preferred
Stock. The Series B Preferred Stock consists of 2,000,000 shares. The holders of The
Series B Preferred Stock have no dividend rights except as may be declared by the Company
at its discretion. The Series B Preferred Shares have voting rights of 10 votes per share
and liquidation preference on an equal basis per share with holders of the Common Stock
and the Series A Preferred Stock, subject to any preference given to the holders of the
Series A Preferred Stock. Series B Preferred Stock are convertible into common shares
on a 1:100 basis. As of May 31, 2017, the Company has $5,820,000 of stock payable related
to the issuance of 750,000 shares of Series B Preferred Stock pursuant to the asset acquisition
described in Note 3.
|
NOTE
9 – STOCK-BASED COMPENSATION
On
May 23, 2016, the Company adopted an Equity Incentive Plan under which the Company can grant up to 8,333,333 common shares to
its officers, directors, employees and consultants. The Equity Incentive Plan provides for the granting of incentive stock options,
non-qualified stock options, stock appreciation rights, restricted stock, stock units, performance shares and performance units.
On
May 24, 2016, the Company granted 4,000,000 stock options to the Chief Strategy Officer of the Company, each of which is exercisable
into one common share of the Company at a price of $0.04 per share until May 24, 2018. On the grant date, the stock options were
deemed to have a fair value of $0.1476 per option, totaling $590,492. The stock options will vest as follows: 2,000,000 options
will vest on May 24, 2017 and 2,000,000 options will vest on May 24, 2018. As a result of these stock options vesting over a period
of two years, during the six months ended May 31, 2017, the Company recognized $214,964 (2016 - $9,708) in stock-based compensation.
The
fair value of each option granted was estimated on the date of grant using the Black-Scholes option pricing model with the weighted
average assumption for the year ending November 30, 2016:
|
|
2016
|
Expected
dividend yield
|
|
|
0%
|
Risk-free
interest rate
|
|
|
0.92%
|
Expected
volatility
|
|
|
303%
|
Expected
option life (in years)
|
|
|
2.00
|
The
following table summarizes the Company’s stock options:
|
|
Number
of Options
|
|
Weighted
Average Exercise Price
|
|
Weighted-Average
Remaining Contractual Term (years)
|
|
Aggregate
Intrinsic Value
|
Outstanding,
November 30, 2016
|
|
|
|
4,000,000
|
|
|
$
|
0.04
|
|
|
|
1.48
|
|
|
|
112,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
May 31, 2017
|
|
|
|
4,000,000
|
|
|
$
|
0.04
|
|
|
|
0.98
|
|
|
$
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable,
May 31, 2017
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
NOTE
10 – COMMITMENTS
|
a)
|
On
June 25, 2015, the Company entered into a consultancy agreement with a company controlled
by the Chief Technology Officer of the Company. Pursuant to the agreement, the Company
will pay $1,000 a month for consulting services for a term of one year. As of May 31,
2017, the Chief Technology Officer continues to provide consulting services for the Company
and the Company continues to accrue $1,000 a month for these services.
|
|
b)
|
On
August 17, 2015, the Company entered into a consultancy agreement with the former Chief
Revenue Officer of the Company. Pursuant to the agreement, the Company paid $1,000 a
month for consulting services for a term of one year. Until May 26, 2017, the former
Chief Revenue Officer continued to provide consulting services for the Company and the
Company continued to accrue $1,000 a month for these services. Effective May 26, 2017,
the former Chief Revenue Officer resigned as Chief Revenue Officer of the Company.
|
|
c)
|
On
August 17, 2015, the Company entered into a consultancy agreement with the President
of the Company. Pursuant to the agreement, the Company will pay $3,500 a month for consulting
services for a term of one year. As of May 31, 2017, the President continues to provide
consulting services for the Company and the Company continues to accrue $3,500 a month
for these services.
|
|
d)
|
On
September 1, 2015, the Company entered into a consultancy agreement with a significant
shareholder of the Company. Pursuant to the agreement, the Company will pay $5,500 a
month for consulting services for a term of one year. The Company extended the consultancy
agreement with this significant shareholder for a term of one year and will continue
to pay $5,500 a month until September 2017.
|
|
e)
|
On
September 17, 2015, the Company entered into an advisory board agreement with an Advisory
Board Member of the Company. Pursuant to an amendment to the agreement dated January
1, 2016, the Company will pay $8,000 a month for advisory services until September 17,
2016. On May 24, 2016, the Company’s board of directors appointed this Advisory
Board Member to become the Chief Strategy Officer of the Company. Effective September
17, 2016, the agreement was extended for an additional six months. As of May 31, 2017,
the Chief Strategy Officer continues to provide consulting services for the Company and
the Company continues to accrue $8,000 a month for these services.
|
|
f)
|
The
Company entered into an agreement on April 12, 2016 with the Chief Executive Officer
of the Company. Pursuant to the agreement, the Company is required to pay $150,000 in
cash for a license and issue a number of shares of the Company’s common stock necessary
to give 55% of the total issued and outstanding shares of the Company to PayFlex Systems
(“PayFlex”) or its nominees. In addition, the Company is required to issue
a number of shares of the Company’s common stock necessary to give 70% of the total
issued and outstanding shares of the Company to PayFlex or its nominees on the anniversary
of the Licensing Agreement in which the Company’s audited filed financial statements
for gross annual revenues attributable to the business exceeds $5,000,000. The President
of PayFlex is the Company’s Chief Executive Officer. The Company is also required
to raise $200,000 for its own working capital needs within 90 days of closing the License
Agreement. As of the date of these financial statements, the Company was not able to
raise the funding requirement for the agreement with PayFlex.
|