NOTE 2 - GOING CONCERN AND MANAGEMENT LIQUIDITY PLANS
As of February 28, 2018, the Company had an accumulated deficit of approximately $5.8 million. For the nine months ended February 28, 2018 and 2017, the Company incurred operating losses of $851,926 and $1,787,360 respectively, and used cash in operating activities of $828,759 and $488,852, respectively. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company recognizes it will need to raise additional capital in order to fund operations, meet its payment obligations and execute its business plan. There is no assurance that additional financing will be available when needed or that management will be able to obtain financing on terms acceptable to the Company and whether the Company will generate revenues, become profitable and generate positive operating cash flow. If the Company is unable to raise sufficient additional funds on favorable terms, it will have to develop and implement a plan to further extend payables and to raise capital through the issuance of debt or equity on less favorable terms until sufficient additional capital is raised to support further operations. There can be no assurance that such a plan will be successful. If the Company is unable to obtain financing on a timely basis, the Company could be forced to sell its assets, discontinue its operations and/or pursue other strategic avenues to commercialize its technology.
Accordingly, the accompanying condensed consolidated financial statements have been prepared in conformity with U.S. GAAP for interim consolidated financial statements, which contemplates continuation of the Company as a going concern and the realization of assets and the satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the consolidated financial statements do not necessarily represent realizable or settlement values. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
The Company’s property, plant and equipment consist of the following:
|
|
|
|
|
| |
|
|
February 28, 2018
|
|
May 31, 2017
|
|
|
|
|
|
|
|
|
Computer equipment
|
$
|
26,609
|
|
$
|
17,456
|
|
Vehicle
|
|
--
|
|
|
19,176
|
|
|
|
26,609
|
|
|
36,632
|
|
Less: accumulated depreciation
|
|
(11,869)
|
|
|
(15,291)
|
|
|
$
|
14,740
|
|
$
|
21,341
|
Depreciation expense was $6,699 and $9,090 for the nine months ended February 28, 2018 and 2017, respectively.
On July 11, 2016, the Company exchanged its trade show booth and manufacturing facility assets with a net book value of $94,925 for the return of 5,000,000 shares of the Company’s common stock (see Note 4). The Company currently outsources its product manufacturing to third parties.
9
NOTE 4 - RELATED PARTIES
As of February 28, 2018, the Company owes a former COO of the Company $46,417, which is unsecured, non-interest bearing and due on demand. The former COO resigned as our Chief Operating Officer on September 17, 2015.
As of February 28, 2018, the Company owes a former CFO of the Company $27,500, which is unsecured, non-interest bearing and due on demand. The former CFO started working for the Company on August 1, 2014 and resigned in April 2015.
As of February 28, 2018, the Company owes the former President of the Company $48,187 for loans, general and administration expenses and travel expenses paid on behalf of the Company, and consulting services provided by the former President. The amount includes a loan for $18,762 which bears interest at 8.0% and matured on May 26, 2017. The note currently is in default and bears interest at the default interest rate of 15.0% beginning May 26, 2017. Total accrued interest is $3,644 as of February 28, 2018. The remaining amount due of $25,781 is unsecured, non-interest bearing and due on demand. The former President resigned as President, CEO, CFO, and as a director of the Company on September 18, 2015.
As of February 28, 2018, the Company owes the spouse of the former President of the Company $4,000 for general and administration support services provided to the Company. The amount is unsecured, non-interest bearing and due on demand.
As of February 28, 2018, the Company had loans of $13,251 from shareholders. These amounts are unsecured, non-interest bearing and have no fixed terms of repayment. The Company has not yet formalized loan agreements for these loans.
On December 5, 2017, the Company received $50,000 under the terms of a convertible note payable totaling $52,500 with a shareholder. The note matures on June 5, 2018, includes an original issue discount of $2,500, and is convertible in the event of a default into shares of the Company’s common stock at a price 65% of the lowest trading price of the Company’s common stock during the 15 trading days prior to conversion, subject to a floor of $0.01. As additional consideration to the noteholder, the Company issued the noteholder warrants to purchase up to 666,667 shares of the Company’s common stock, with a three-year term, and exercise price of $0.15 per share, resulting in a debt discount totaling $50,000. Total amortization of the debt discounts was $24,520, resulting in a net note balance of $24,520 as of February 28, 2018.
On January 31, 2018, the Company received $25,000 under the terms of a convertible note payable totaling $26,250 with a shareholder. The note matures on August 1, 2018, includes an original issue discount of $1,250, and is convertible in the event of a default into shares of the Company’s common stock at a price 65% of the lowest trading price of the Company’s common stock during the 15 trading days prior to conversion, subject to a floor of $0.01. As additional consideration to the noteholder, the Company issued the noteholder warrants to purchase up to 333,333 shares of the Company’s common stock, with a three-year term, and exercise price of $0.15 per share, resulting in a debt discount totaling $25,000. Total amortization of the debt discounts was $4,038, resulting in a net note balance of $4,038 as of February 28, 2018.
On July 11, 2016, the Company entered into a Rescission Agreement and Mutual Release (the “Rescission Agreements”) separately with two shareholders, whereby the shareholders agreed to rescind any business agreements, including existing consulting agreements, whether verbal or in writing, and in conjunction with such rescission, agreed to return an aggregate total of 5,500,000 shares of the Company’s Common Stock to the Company for cancellation. In conjunction with Rescission Agreements, the Company and the shareholders consented to a mutual release of any claims, current or contemplated. In connection with one of the Agreements, the Company exchanged its trade show booth and manufacturing facility assets with a net book value of $94,926 for the return of 5,000,000 shares of the Company’s common stock, which is included in the 5,500,000 aggregate shares returned. In connection with the second Rescission Agreement, the shareholder agreed to rescind their consulting agreement and return 500,000 shares of the Company’s common stock. These 5,500,000 shares are reflected as treasury stock as of February 28, 2018 and May 31, 2017.
10
NOTE 5 - CAPITAL STOCK
Effective November 1, 2013, the number of common shares authorized that may be issued by the Company increased from 75,000,000 common shares to 200,000,000 common shares with a par value of $0.001 per share.
Effective November 1, 2013, the Company completed a 25:1 forward split of the Company's issued and outstanding common stock. Every one share of common stock issued and outstanding prior to the split was exchanged for 25 post-split shares of common stock. All share and per share amounts have been restated retroactively.
From October 2016 through May 2017, the Company completed private placements (the “October PPM”) consisting of 3,760,000 units at a price of $0.10 per share for total proceeds of $376,000. Each unit consisted of one share of our common stock and two warrants to purchase one share of common stock. The warrants have an exercise price of $0.15 and have a three-year term. These units include 350,000 units issued during the nine months ended February 28, 2018.
As consideration for entering into the October PPM, the Company granted to participating investors in the Company’s previous private placements new terms on their common stock purchase warrants acquired under the previous private placements (“Previous Warrants”) as follows: (1) change the exercise term of the Previous Warrants from the date of issuance date to three years, (2) reduce the exercise price of the Previous Warrants from $0.20 to $0.15, and (3) add an additional warrant for one share of common stock with the foregoing terms. There was no additional accounting required for these warrants.
From June 2017 through February 2018, the Company completed private placements consisting of 5,743,222 units at prices ranging from $0.10 to $0.15 per share for total proceeds of $574,322. Each unit consisted of one share of our common stock and two warrants to purchase one share of common stock. The warrants have an exercise price of $0.15 and have a three-year term. Additionally, 1,660,334 subscribed units have not yet been issued as of this filing date and are reflected as common stock subscribed totaling $187,800 as of February 28, 2018.
NOTE 6 - WARRANTS
As of February 28, 2018, there were 23,827,112 whole share purchase warrants outstanding and exercisable. The warrants have a weighted average remaining life of 2.23 years and a weighted average exercise price of $0.150 per whole warrant for one common share. The warrants had an aggregate intrinsic value of $238,271 based on the Company’s stock price of $0.16 as of February 28, 2018.
Whole share purchase warrants outstanding at February 28, 2018 are as follows:
|
|
|
|
|
|
| |
|
|
|
Number of
whole share
purchase warrants
|
|
Weighted average
exercise price
per share
|
|
Outstanding, May 31, 2016
|
|
|
3,599,607
|
|
$
|
0.303
|
|
Issued
|
|
|
10,020,000
|
|
|
0.156
|
|
Expired
|
|
|
(1,749,607)
|
|
|
0.200
|
|
Exercised
|
|
|
--
|
|
|
--
|
|
Outstanding, May 31, 2017
|
|
|
11,870,000
|
|
$
|
0.194
|
|
Issued
|
|
|
15,107,112
|
|
|
0.150
|
|
Expired
|
|
|
(3,150,000)
|
|
|
0.317
|
|
Exercised
|
|
|
--
|
|
|
--
|
|
Outstanding, February 28, 2018
|
|
|
23,827,112
|
|
$
|
0.150
|
|
Exercisable, February 28, 2018
|
|
|
23,827,112
|
|
$
|
0.150
|
11
NOTE 7 - COMMITMENTS
On September 9, 2013, the Company entered into an Asset Purchase Agreement whereby the Company agreed to acquire intellectual property as well as all related assets necessary for operating a plant growth enhancement product ("Plant Surfactant") manufacture and sale business. The agreement was closed on February 7, 2014. In consideration, the Company issued 12,500,000 shares of restricted common stock. In addition, the Company also agreed to incorporate a subsidiary that will hold these assets, conduct operations, and execute a consulting agreement with the former President of the Company whereby he would receive $7,000 per month. The consulting agreement was to become effective on the date that the Company raises a minimum of $500,000 to fund operations, which had not yet occurred as of the date of the former President’s resignation. The Company incorporated this subsidiary on October 21, 2016 with the state of South Dakota under the name American Water Sanitation, LLC, of which the Company has a 51% ownership.
On September 9, 2013, the Company entered into an Asset Purchase Agreement whereby the Company agreed to acquire certain equipment used in conjunction with the production, marketing and sale of the Plant Surfactant. The agreement closed on February 7, 2014. In consideration, the Company issued 5,000,000 shares of restricted common stock. On July 11, 2016, this Asset Purchase Agreement was rescinded and the shares were returned to the treasury.
On September 9, 2013, the Company entered into an Easement Agreement whereby the Company agreed to acquire the exclusive right to 10 acres of farm property located in Aylmer, Ontario, Canada, to operate as a demonstration farm in order to evaluate and exhibit the effects of using the plant surfactant for an initial term of 3 years. In consideration, the Company issued 2,500,000 shares of restricted common stock with a fair value of $25,200, which was recognized as a prepaid expense and is being amortized over the three-year term. During the nine months ended February 28, 2018 and 2016, the Company recognized $0 and $2,100, respectively, as rent expense, leaving a balance of $0 remaining as a prepaid expense as of February 28, 2018.
On July 18, 2016, the Company entered into an Exchange Agreement (the “Exchange Agreement”) separately with two shareholders, whereby on the Effective Date (as defined below) each shareholder agreed to (i) surrender 10,000,000 shares of Common Stock of the Company, and (ii) assign such Common Stock to the Company for cancellation thereof pursuant to an Assignment of Interest; and whereby, in exchange, the Company shall (i) cancel the Shareholder’s Common Stock, (ii) issue each shareholder 20,000 shares of a new class of capital stock, namely a Series A Preferred Stock of $0.001 par value (the “Exchange Stock”), and (iii) enter the exchange on the books and records of the Company. “Effective Date” means the date the Exchange Agreement, including the Assignment of Interest, has been fully executed and delivered, the Company has obtained shareholder approval of the establishment of the class of Series A Preferred Stock and the Certificate of Designation establishing the Series A Preferred Stock has been filed with the Nevada Secretary of State. The Effective Date has not yet occurred as of the date of this filing.
The Exchange Stock shall have a (a) redemption right, whereby each share of Exchange Stock shall be redeemable at $5.00 by the Company at such time that the Company (i) reports sales revenue of no less than $12,000,000 for any consecutive twelve (12) month period, (ii) reports earnings before interest, taxes, depreciation and amortization (EBITDA) of no less than $1,000,000 in any quarterly or annual report filed with the Securities Exchange Commission (the “SEC”), or (iii) achieves a current ratio (current assets divided by current liabilities) of 2.0 or greater as calculated based on any quarterly or annual report filed with the SEC; and a (b) Conversion Right, whereby each share of Exchange Stock shall be convertible by the holder into 500 shares of Common Stock of the Company, or back into their original amount of shares, upon (i) the Company filing a voluntary petition in bankruptcy, is adjudged bankrupt or insolvent, or has entered against it an order for relief, in any bankruptcy or insolvency proceedings, or (ii) Richard Kamolvathin, the Company’s current Chief Executive Officer resigns all of his positions from the Company and ceases to provide any services to the Company.
NOTE 8 - SUBSEQUENT EVENTS
Management has evaluated all activity and concluded that no subsequent events have occurred that would require recognition in these financial statements or disclosure in the notes to these financial statements.
12
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q includes a number of forward-looking statements that reflect management's current views with respect to future events and financial performance.
Forward-looking statements are projections in respect of future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology.
Those statements include statements regarding the intent, belief or current expectations of us and members of our management team as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements.
These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” set forth in our Annual Report on Form 10-K for the fiscal year ended May 31, 2017, as filed with the
U.S. Securities and Exchange Commission (“SEC”)
on August 28, 2017, any of which may cause our company’s or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks include, by way of example and not in limitation:
·
substantial doubt about our ability to continue as a going concern;
·
our ability to obtain additional financing on terms that are acceptable to us or at all;
·
our ability to successfully commercialize our product to increase sales so that we are operationally profitable;
·
absence of contracts with customers or suppliers;
·
our ability to maintain and develop relationships with customers and suppliers;
·
the impact of competitive products and pricing or our ability to maintain pricing;
·
our ability to successfully acquire, develop or commercialize new products;
·
our expectation that the demand for our products services will eventually increase;
·
federal legislation and state legislative and regulatory initiatives relating to the agricultural industry;
·
supply constraints or difficulties;
·
general economic and business conditions;
·
our ability to successfully recruit and retain qualified personnel in order to continue our operations; and
·
our ability to successfully implement our business plan.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or performance. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time except as required by law. We believe that our assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions.
As used in this quarterly report and unless otherwise indicated, the terms “we,” “us,” “our,” “GroGenesis” or the “Company” refer to GroGenesis, Inc. and its wholly-owned Subsidiary, American Water Sanitation, LLC (“AWS”). Unless otherwise specified, all dollar amounts are expressed in United States dollars. Our common stock is currently listed on the OTC Market, Pink Tier, under the symbol “GROG.”
13
Business Description and Corporate Overview
We are a sustainable agricultural services enterprise offering food growers and turf producers an organic, nano-surfactant that enhances soil and crop health. Our flagship product, AgraBurst PRO™, is a proprietary, all-natural, non-GMO agricultural input which improves the ability of the plant (crop, turf, tree, vine etc.) to enhance the efficient access of added nutrients incorporated in fertilizers, resulting in less fertilizer needed as well as improved water retention in soil. By optimizing the plant's uptake of applied pest and weed controls and fertilizers, producers can minimize other input costs while reducing the health risk to farm workers due to its non-toxic properties. AgraBurst PRO™ (the “Product”) is formulated for organic and non-GMO producers and those food growers seeking to convert to non-GMO and organic food production. We believe the application of our Product can begin the process of improving the health of the soil while reducing the use of conventional chemical agricultural inputs. Our strategy is to capitalize on the convergence of consumer demand, retailer demand/compliance and legislative drive toward environmental responsibility.
AgraBurst PRO™ is a specialized proprietary, premium organic, nano-surfactant, non-ionic (neutral charge) formulation of high quality food-grade ingredients with beneficial soil health and plant stimulant properties with significant potential to increase yields. It acts as an environmentally-safe additive to producers' spray solution that enhances delivery and absorption activity in both soil and plant tissue by reducing the surface tension between the spray droplet and leaf surface, creating an adhesive liquid bond. The spray droplets spread across the leaf surface thereby increasing the coverage area and plant exposure, resulting in the spray droplets sticking to the leaf surface where absorption is maximized instead of running off the leaf surface. The Product enables the spray droplet to penetrate the leaf’s surface barrier (a waxy layer known as the “cuticle”) to improve absorption into the plant’s tissue and more effectively deliver the most efficient and recognizable form of nutrient, fertilizer and microbiology solutions. The Product creates a Cationic Exchange Capacity (CEC) substrate, so that positively charged nutrients are held within the soil and not leached away and reducing the amount of fertilizer needed.
Our Product performs as a purified and activated organic matter carbon source and serves as an ideal additive to improve and accelerate the performance of all fertilizer programs. It is non-toxic, completely biodegradable and, unlike synthetic chemicals or petroleum-based surfactants, will not bio-accumulate in the environment and tie up fertilizers and other valuable trace elements. By decreasing water evaporation from the soil and increasing water retention, the Product renders plants to be more drought-resistant by developing stronger roots which are more able to withstand adverse weather conditions (wind and drought) and reach nutrients and water not available near the surface of the soil.
The Product also converts sustained plant energy into having a higher sugar holding capacity by acting as an organic electrolyte. It not only increases the plant’s oxygen uptake capacity and nutrient conversion through photosynthesis by improving chlorophyll production resulting in greener and healthier leaves, but also increases the stomata (root) opening and transpiration (sweating), which is the primary nutrient exchange for soil microbiology which results in plants being fed more efficiently. The foliar nano-surfactant improves the plant’s enzymatic processes, resulting in the stimulation of the plant’s immune system, reducing the need for pest and fungicide control application. The plant’s natural oils in the formulation protect from infection and deter pests and fungus. Significantly for the enhancement of soil health, AgraBurst PRO™ also stimulates microbial activity in the soil to de-compact soil with the natural plant extracts that provide vital trace elements and minerals which nutritionally supplement both the plant and soil microorganisms.
We were incorporated pursuant to the laws of Nevada on May 19, 2010 under the name Lisboa Leisure, Inc. On October 18, 2013, we amended our articles of incorporation in order to change our name to GroGenesis, Inc. and to affect a forward split of our issued and outstanding shares of common stock such that every one share of common stock issued and outstanding prior to the split be exchanged for 25 post-split shares of common stock and that the Company's post-forward split authorized capital consisted of 200,000,000 shares of common stock with a par value of $0.001. On November 1, 2013, we completed a forward split of our common stock such that 25 new shares of common stock were exchanged for each then currently issued share of common stock outstanding.
14
Use of Generally Accepted Accounting Principles (“GAAP”) Financial Measures
We use United States GAAP financial measures in the section of this report captioned “Management’s Discussion and Analysis or Plan of Operation” (MD&A), unless otherwise noted. All of the GAAP financial measures used by us in this report relate to the inclusion of financial information. This discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the notes thereto included elsewhere in this quarterly report. All references to dollar amounts in this section are in United States dollars, unless expressly stated otherwise.
Results of Operations
Comparison of the Three Months Ended February 28, 2018 to the Three Months Ended February 28, 2017
Revenue
We had revenues of $1,392 and $0 for the three months ended February 28, 2018 and 2017. Revenue increased by $1,392 as a result of continuing sales of our AgraBurst PRO™.
Operating Expenses
Our expenses for the three months ended February 28, 2018 and 2017 are summarized as follows:
|
|
|
|
|
|
| |
|
|
|
Three Months Ended February 28,
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Consulting fees
|
|
$
|
124,025
|
|
$
|
1,082,853
|
|
Depreciation
|
|
|
2,824
|
|
|
2,684
|
|
General and administrative expenses
|
|
|
47,300
|
|
|
25,570
|
|
Transfer agent and filing fees
|
|
|
2,806
|
|
|
3,501
|
|
Professional fees
|
|
|
26,748
|
|
|
35,011
|
|
Total Operating Expenses
|
|
$
|
203,703
|
|
$
|
1,149,619
|
Operating expenses decreased $945,916 from the three months ended February 28, 2017 compared to the three months ended February 28, 2017, a decrease of 82%. The primary reason is a $958,828 decrease in consulting fees for the three months ended February 28, 2018, due to the Company issuing restricted stock valued at $820,000 to consultants and recognizing stock option expense of $148,677 related to stock options issued to consultants during the three months ended February 28, 2017. No stock or options were granted to consultants during the quarter ended February 28, 2018.
Other Income and Expense
Other income and expense for the three months ended February 28, 2017 and 2017 are summarized as follows:
|
|
|
|
|
|
| |
|
|
|
Three Months Ended February 28,
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Amortization of debt discount
|
|
$
|
(28,558)
|
|
$
|
-
|
|
Interest expense
|
|
|
(694)
|
|
|
(446)
|
|
Total Expenses
|
|
$
|
(29,252)
|
|
$
|
(446)
|
Amortiation of debt discount increased $28,558 for the three months ended February 29, 2018, compared to the three months ended February 28, 2017, due to new notes payable financing obtained in December 2017 and January 2018.
15
Comparison of the Nine Months Ended February 28, 2018 to the Nine Months Ended February 28, 2017
Revenue
We had revenues of $63,978 for the nine months ended February 28, 2018, as compared to revenues of $0 for the same period in 2017. Revenue increased by $63,978 as a result of initial sales of our AgraBurst PRO™.
Operating Expenses
Our expenses for the nine months ended February 28, 2018 and 2017 are summarized as follows:
|
|
|
|
|
|
| |
|
|
|
Nine months Ended February 28,
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Consulting fees
|
|
$
|
376,336
|
|
$
|
1,511,387
|
|
Depreciation
|
|
|
6,699
|
|
|
9,090
|
|
General and administrative expenses
|
|
|
291,330
|
|
|
81,872
|
|
Transfer agent and filing fees
|
|
|
19,221
|
|
|
8,899
|
|
Professional fees
|
|
|
181,326
|
|
|
176,112
|
|
Total Operating Expenses
|
|
$
|
874,912
|
|
$
|
1,787,360
|
Operating expenses decreased $912,448 for the nine months ended February 28, 2018 compared to the nine months ended February 28, 2017, a decrease of 51%. The primary reason is a $1,135,051 decrease in consulting fees for the nine months ended February 28, 2018, which includes a decrease of $1,087,374 in stock-based compensation and a decrease of $148,677 in stock option compensation. General and administrative expenses increased $209,458 due primarily to increased travel and travel related expenses related to business development during the nine months ended February 28, 2018.
Other Income and Expense
Other income and expense for the nine months ended February 28, 2018 and 2017 are summarized as follows:
|
|
|
|
|
|
| |
|
|
|
Nine months Ended February 28,
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Loss on disposal of fixed assets
|
|
|
(4,025)
|
|
|
-
|
|
Amortization of debt discount
|
|
|
(28,558)
|
|
|
-
|
|
Interest expense
|
|
|
(2,221)
|
|
|
(2,452)
|
|
Total Expenses
|
|
$
|
(34,804)
|
|
$
|
(2,452)
|
Our loss on disposal of fixed assets of $4,025 was a result of the disposal of a vehicle during the nine months ended February 28, 2018.
Amortiation of debt discount increased $28,558 for the three months ended February 29, 2018, compared to the three months ended February 28, 2017, due to new notes payable financing obtained in December 2017 and January 2018.
Liquidity and Capital Resources
As of February 28, 2018, we had cash on hand of $189 and a working capital deficiency of $519,190 as compared to cash equivalents on hand of $1,513 and a working capital deficiency of $426,475 as of May 31, 2017. The increase in working capital deficiency is mainly due to an increase in accounts payables and accrued expenses, as well as the issuance of notes payable totaling $78,250 during the nine months ended February 28, 2018.
16
Private Placement Offerings
From October 2016 through May 2017, the Company completed private placements (the “October PPM”) consisting of 3,760,000 units at a price of $0.10 per share for total proceeds of $376,000. Each unit consisted of one share of our common stock and two warrants to purchase one share of common stock. The warrants have an exercise price of $0.15 and have a three-year term. These units include 350,000 units issued during the nine months ended February 28, 2018.
As consideration for entering into the October PPM, the Company granted to participating investors in the Company’s previous private placements new terms on their common stock purchase warrants acquired under the previous private placements (“Previous Warrants”) as follows: (1) change the exercise term of the Previous Warrants from the date of issuance date to three years, (2) reduce the exercise price of the Previous Warrants from $0.20 to $0.15, and (3) add an additional warrant for one share of common stock with the foregoing terms. There was no additional accounting required for these warrants.
From June 2017 through February 2018, the Company completed private placements consisting of 5,743,222 units at prices ranging $0.10 to $0.15 per share for total proceeds of $574,332. Each unit consisted of one share of our common stock and two warrants to purchase one share of common stock. The warrants have an exercise price of $0.15 and have a three-year term. Additionally, 1,660,334 subscribed units have not yet been issued as of this filing date and are reflected as common stock subscribed totaling $187,800 as of February 28, 2018.
Going Concern
The audited financial statements contained in this annual report on Form 10-K have been prepared assuming that the Company will continue as a going concern. We have accumulated losses through the period to February 28, 2018 of approximately $5.8 million as well as negative cash flows from operating activities. Presently, we do not have sufficient cash resources to meet our plans in the twelve months following February 28, 2018. These factors raise substantial doubt about our ability to continue as a going concern. Management is in the process of evaluating various financing alternatives in order to finance our research and development activities and general and administrative expenses. These alternatives include raising funds through public or private equity markets and either through institutional or retail investors. Although there is no assurance that we will be successful with our fund-raising initiatives, management believes that we will be able to secure the necessary financing as a result of ongoing financing discussions with third party investors and existing shareholders.
The financial statements do not include any adjustments that may be necessary should we be unable to continue as a going concern. Our continuation as a going concern is dependent on our ability to obtain additional financing as may be required and ultimately to attain profitability. If we raise additional funds through the issuance of equity, the percentage ownership of current shareholders could be reduced, and such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of prospective business endeavors or opportunities, which could significantly and materially restrict our future plans for developing our business and achieving commercial revenues. If we are unable to obtain the necessary capital, we may have to cease operations.
Working Capital Deficiency
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|
|
|
|
| |
|
|
February 28,
|
|
May 31,
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
Current assets
|
$
|
74,980
|
|
$
|
21,494
|
|
Current liabilities
|
|
546,643
|
|
|
447,969
|
|
Working capital deficiency
|
$
|
(471,663)
|
|
$
|
426,475
|
The increase in current assets is mainly due to an increase of cash, accounts receivable and prepaid expenses. The increase in current liabilities is primarily due to increase in accounts payable and accrued expenses. Management is attempting raise more capital in order to increase the Company’s cash position and pay down current liabilities.
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Cash Flows
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| |
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|
Nine months Ended February 28,
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|
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2018
|
|
2017
|
|
|
|
|
|
|
Net cash used in operating activities
|
$
|
(828,759)
|
|
$
|
(488,852)
|
|
Net cash used in investing activities
|
|
(9,153)
|
|
|
(3,825)
|
|
Net cash provided by financing activities
|
|
836,588
|
|
|
529,078
|
|
Increase (decrease) in cash
|
$
|
(1,324)
|
|
$
|
36,401
|
The increase in net cash used in operating activities in the nine months ended February 28, 2018, as compared to the previous year is due primarily to an increase in cash-basis operating expenses. The increase in cash used in investing activities is due to purchases of computer equipment during the three months ended February 28, 2018. The increase in cash provided by financing activities is due primarily to an increase in proceeds from the sale of common stock subscriptions.
Future Financing
Given our cash position of $189 as of February 28, 2018, management believes that our cash on hand and working capital are not insufficient to meet our current anticipated cash requirements. We will require additional funds to implement our growth strategy for our business. In addition, while we have received capital from various private placements that have enabled us to fund our operations, these funds have been largely used to develop our processes and purchase initial amounts of inventory, although additional funds are needed for other corporate operational and working capital purposes. Therefore, not including the cash flow impact of any increases in our sales, we estimate that will need to raise an additional $1,000,000 to cover all of our operational expenses through the twelve months ended February 28, 2019. These funds may be raised through equity financing, debt financing, or other sources, which may result in further dilution in the equity ownership of our shares. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Any failure to secure additional financing may force us to modify our business plan. In addition, we cannot be assured of profitability in the future. If we are not able to obtain the additional financing on a timely basis should it be required, or generate significant material revenues from operations, we will not be able to meet our other obligations as they become due and we will be forced to scale down or perhaps even cease our operations.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
Critical Accounting Policies and Estimates
Our significant accounting policies are more fully described in the notes to our financial statements included herein for the fiscal year ended May 31, 2017.
Recently Adopted Accounting Pronouncements
For reference to a complete list of recently adopted accounting pronouncements, these consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the year ended May 31, 2017 (including the notes thereto) set forth on Form 10-K.
Newly Issued Accounting Pronouncements
For reference to a complete list of newly issued accounting pronouncements, these consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the year ended May 31, 2017 (including the notes thereto) set forth on Form 10-K.
18