ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Company Overview
We were incorporated in the State of Florida on April 8, 2013, with a fiscal year end of April 30. Until June 2017, we had not established any business operations and had not achieved any revenues. Until then, we were in the process of identifying and evaluating feasible business opportunities in the consumer products and technology industries.
On June 18, 2017, the Company entered into a Definitive Acquisition Agreement (the “BitReturn Agreement”) pursuant to which the Company acquired the internet domain and brand, BitReturn. The BitReturn acquisition represented the Company’s development of a plan to create a technology business in mining digital currency with an operating name of BitReturn. The Company issued an aggregate of 10,000,000 shares of restricted common stock, valued at $1,900,000, as payment under the terms of the BitReturn Agreement. The BitReturn Agreement also provided that the Company would pay $350,000, $200,000 of which is payable upon the first $500,000 raised by the Company, and the final portion of $150,000 is payable after six months or when a cumulative amount of $1,000,000 has been raised by the Company.
On October 17, 2017, the Company entered into an Exclusive Software License Agreement (the “Agreement”) with Black Cactus Holdings, LLC (“Black Cactus”) to acquire an exclusive software license for the Black Cactus blockchain development software platform and related intellectual property (the “Software”). The Company plans to use the platform to build a crypto trading exchange to support crypto and fiat currencies, music publishing, distribution, supply chain, medical research and trials. The term of the Agreement will remain in effect in perpetuity. Pursuant to the terms of the Agreement, the Company agreed to issue 60,000,000 shares of the Company’s common stock, par value $0.0001. In addition, the Company agreed to pay Black Cactus a royalty in the amount of 5% of the net revenue received from the sublicense of the Software and any revenues generated from the use of the Software including other intellectual property that the Company licensed from Black Cactus pursuant to the terms of the Agreement for the term of the Agreement. The Company issued 60,000,000 shares of common stock in November 2017, appointed Mr. Cummins as a director and CEO of the Company and changed its name to Black Cactus Global, Inc., pursuant to the terms of the Agreement.
On November 27, 2017, the Company entered into an agreement with Bellridge Capital, L.P. (“Bellridge”), an unrelated third party. Bellridge is loaning the Company a minimum of $500,000.00 to a maximum of $1,500,000.00. The first tranche of $500,000.00 was paid at Closing. In connection with the loan, the Company issued Bellridge its Senior Secured Convertible Promissory Note (“Note”) for $500,000.00 which has a maturity date of one year and is due on November 27, 2018. The interest rate is five percent (5%) per annum. The Note may be converted at the lesser of $0.10 per share or seventy percent (70%) of the lowest traded price of the Company’s common stock for twenty consecutive days immediately prior to the conversion date. The Note may be prepaid in accordance with the terms set forth in the Note. The Note also contains certain representations, warranties, covenants and events of default including, among other things, if the Company is delinquent in its periodic report filings with the Securities and Exchange Commission (the “SEC”). If an event of default occurs, the amount of the principal and interest rate due under the Debenture increases and, at the option of the Bellridge and in its sole discretion, it can deem the Note immediately due and payable.
The Note provides for certain penalties for failure to timely deliver stock and contains other protective provisions for Bellridge. $500,000 principal amount of the Note was received on November 27, 2017, the next tranche of $500,000 will be due in 5 days after the Company receives its first comments concerning the registration statement to be filed and the final tranche of $500,000 will be funded upon the effectiveness of the registration statement that we will file covering the shares of our common stock issuable upon conversion of the notes.
The Company and Bellridge also entered into to a Securities Purchase Agreement dated November 27, 2017 (the “SPA”). Pursuant to the SPA, the Company is required to issue 2,793,296 shares of its common stock to Bellridge in connection with the Loan. The Company is also issuing a warrant to Bellridge to purchase 7,894,737 additional shares of the Company’s common stock for a period of four years commencing on May 27, 2018 at an exercise price equal to the lesser $.10 per share or seventy percent (70%) of the lowest traded price of the Company’s common stock during the prior twenty consecutive trading days.
In connection with the Note and SPA, the Company also entered into a Registration Rights Agreement obligating the Company to register the shares issuable upon conversion of the Note with the Securities and Exchange Commission. The Company also issued security agreements whereby it granted Bellridge a security interest in its assets and intellectual property. The obligations of the Company to repay the Note are guaranteed by the Company’s subsidiaries. The Company will utilize the proceeds of the Bellridge loan to support its proposed development of the software license obtained from Black Cactus.
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Critical Accounting Policies
As of October 31, 2017, there were no critical accounting policies. See the footnotes to our unaudited financial statements, included elsewhere in this quarterly report on Form 10-Q, for a complete summary of the significant accounting policies used in the presentation of our financial statements. The summary is presented to assist the reader in understanding the financial statements. The accounting policies used conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.
Concentrations, Risks, and Uncertainties
The Company did not have a concentration of business with suppliers or customers constituting greater than 10% of the Company’s gross sales during the reporting period.
Recently Issued Accounting Standards
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations. Pursuant to Jumpstart Our Business Startups Act of 2012, as an “emerging growth company,” we are permitted to take advantage of an extended transition period for complying with new or revised accounting standards until such time as the standards are applicable to private companies. We have chosen to take advantage of this extended transition period. Accordingly, our financial statements may not be comparable to those of companies that comply with public company effective dates.
Results of Operations
The following discussion of the Company’s financial condition and the results of operations should be read in conjunction with the unaudited financial statements and notes thereto appearing elsewhere in this quarterly report on Form 10-Q.
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that in addition to the description of historical facts contained herein, this report contains certain forward-looking statements that involve risks and uncertainties as detailed herein and from time to time in the Company’s other filings with the Securities and Exchange Commission and elsewhere. Such statements are based on management’s current expectations and are subject to a number of factors and uncertainties, which could cause actual results to differ materially from those, described in the forward-looking statements. These factors include, among others: (a) the Company’s fluctuations in sales and operating results; (b) risks associated with international operations; (c) regulatory, competitive and contractual risks; (d) product development risks; (e) the ability to achieve strategic initiatives, including but not limited to the ability to achieve sales growth across the business segments through a combination of enhanced sales force, new products, and customer service; and (f) pending litigation.
Management’s Plan of Operation
We do not have adequate funds to satisfy our working capital requirements for the next twelve months. We have borrowed $500,000 from Bellridge Capital to fund our planned plan of operations utilizing the software license agreement we have with Black Cactus. Pursuant to the terms of our agreements with Bellridge, we will file a registration statement with the SEC to register the shares to be issued under those agreements. We will not receive the second tranche of $500,000 until we receive our first set of comments from the SEC. The final tranche of $500,000 will be received once the registration statement is declared effective by the SEC. We cannot estimate when we will receive the SEC comments or when our registration statement will be declared effective by the SEC. Until such time as we receive the final $1,000,000 of funding from Bellridge, in the interim, we may not be able to completely implement and commence our proposed plan of operations.
Results of Operations
There is no historical financial information about us upon which to base an evaluation of our performance. We had net (loss) income of $(442,014) and $(20,308) for the three months ended October 31, 2017 and 2016, respectively.
We did not generate any revenues from our operations for the three months ended October 31, 2017 or 2016. We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including the financial risks associated with the limited capital resources currently available to us for the implementation of our business strategies.
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During the three months ended October 31, 2017 and 2016, we had operating expenses of $(442,014) and $(20,308), respectively. The increase in operating expenses is primarily a result of professional fees associated with the BitReturn acquisition in the prior period ($62,764) and an increase in consulting fees from $nil for the three months ended October 31, 2016 to $275,951 for the three months ended October 31, 2017. Product development and website expenses associated with the BitReturn acquisition represent costs of acquiring the brand BitReturn, development of the crypto currency mining product, and creation of the website. These costs do not meet the criteria for capitalization, and therefore have been treated as an operating expense.
Since inception, the majority of our time has been spent refining its business plan and preparing for a primary financial offering.
Our results of operations are summarized below:
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For the Six
Months Ended
October 31, 2017
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For the Six
Months Ended
October 31, 2016
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Revenue
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—
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—
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Cost of Revenue
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—
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—
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Net Loss (Income) and Comprehensive (Loss) Income
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$
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(3,161,961
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)
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$
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(19,245
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)
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Net Loss (Income) per Common Share, Basic and Diluted
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(0.03
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)
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(0.00
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)
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Weighted Average Number of Common Shares Outstanding, Basic and Diluted
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93,762,465
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80,000,000
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Liquidity and Capital Resources
As of October 31, 2017, we had not generated any revenues from our business operations. As at October 31, 2017, there were 97,900,000 shares of common stock issued and outstanding.
As of October 31, 2017 and 2016, we had cash and cash equivalents of $255 and $160, respectively. Our cash was not sufficient to meet the obligations associated with being a company that is fully reporting with the SEC. We believe we will require additional financing in the form of share issuance proceeds or advances from our directors.
Our business expansion will require significant capital resources that may be funded through the issuance of common stock or of notes payable or other debt arrangements that may affect our debt structure. Despite our current financial status, we believe that we may be able to issue notes payable or debt instruments in order to start executing our business plan. However, there can be no assurance that we will be able to raise money in this fashion and have not entered into any agreements that would obligate a third party to provide us with capital.
During the six months ended October 31, 2017 and 2016, we had operating expenses of $3,161,961 and $19,245, respectively. Historically, we have relied on loans to fund general and administrative operating expenses. As of October 31, 2017, we had a working capital deficiency of $717,202.
As of October 31, 2017, the Company had no external sources of liquidity such as arrangements with credit institutions or off-balance sheet arrangements that will have or are reasonably likely to have a current or future effect on our financial condition or immediate access to capital. Subsequently, we entered into the Bellridge transaction which has provided us with some of our capital requirements.
Our independent auditor has expressed doubt about our ability to continue as a going concern and believes that our ability is dependent on our ability to implement our business plan, raise capital and generate revenues. See Note 2 of our financial statements.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect or change on the Company’s financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with the Company is a party, under which the Company has (i) any obligation arising under a guarantee contract, derivative instrument or variable interest; or (ii) a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.
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