X On February 26, 2020 the Company exchanged convertible and short term notes and accrued
interest for 250 Class C shares (transaction described further below).
Y On August 28, 2020 the Company exchanged convertible notes and accrued interest for a $
1,200,000 promissory note with a 2 year maturity bearing interest at 12%, 950,000 warrants with a 3 year maturity and an exercise price
of $0.40 and 150 Class C preferred shares (transaction described further below).
Z On August 25,2020 the Company settled a convertible note with principal of $ 40,938 for
a $14,329 cash payment. On September 14, 2020 the Company settled $20,111 in accrued interest and default interest related to this
note for a cash payment of $52,446 (transaction described further below).
(i) If the Company fails to maintain its status as “DTC Eligible” for any reason,
or, if the effective Conversion Price as calculated in Section 4(a) is less than $0.0001 at any time (regardless of whether or not a Conversion
Notice has been submitted to the Company), the Principal Amount of the Note shall increase by ten thousand dollars ($10,000) (under Holder’s
and Company’s expectation that any Principal Amount increase will tack back to the Issuance Date). In addition, the Conversion Price
shall be permanently redefined to equal the lesser of (a) $0.00001 or (b) 50% of the lowest traded price during the twenty five (25) consecutive
Trading Days immediately preceding the applicable Conversion Date on which the Holder elects to convert all or part of this Note, subject
to adjustment as provided in this Note. If at any time while this Note is outstanding, an Event of Default (as defined herein) occurs,
then an additional discount of 15% shall be factored into the Variable Conversion Price until this Note is no longer outstanding (resulting
in a discount rate of 65% assuming no other adjustments are triggered hereunder). These above contingencies have not occurred.
(ii) In the event the Company experiences a DTC ” Chill” on its shares, the conversion
price shall be decreased to 40% instead of 50% while that “Chill” is in effect. If the Company fails to maintain the share
reserve at the 4x discount of the note 60 days after the issuance of the note, the conversion discount shall be increased by 10%.
(iii) The share purchase agreements ancillary to the convertible note agreements do not allow
the lender to engage in short sales.
(iv) If the Company becomes delinquent or continues its delinquency in its periodic filings
with the SEC after the 6-months anniversary of the note, then the holder is entitled to use the lowest closing bid price during the delinquency
period as a base price for the conversion.
(v) In the event the Company experiences a DTC ” Chill” on its shares, the conversion
price shall be decreased to 42% instead of 52% while that “Chill” is in effect.
(vi) If the Company fails to maintain the share reserve at the 4x discount of the note 60
days after the issuance of the note, the conversion discount shall be increased by 10%.
(vii) If the Company fails to maintain the share reserve at the 3x discount of the note 60
days after the issuance of the note, the conversion discount shall be increased by 10%.
(viii) If at any time while this Note is outstanding, an event of default occurs, then an
additional discount of 15% shall be factored into the Variable Conversion Price until this Note is no longer outstanding (resulting in
a discount rate of 65% assuming no other adjustments are triggered hereunder). If at any time while this Note is outstanding, the Borrower’s
Common Stock are not deliverable via DWAC, an additional 10% discount shall be factored into the Variable Conversion Price until this
Note is no longer outstanding.
(ix) If the Company fails to maintain its status as “DTC Eligible” for any reason,
or, if the effective Conversion Price is less than $0.01 at any time, the Principal Amount of the Note shall increase by ten thousand
dollars ($10,000). In addition, the Conversion price shall be permanently redefined to equal the lesser of (a) $0.001 or (b) 50%
of the lowest traded price during the twenty five (25) consecutive Trading Days immediately preceding the applicable Conversion Date on
which the Holder elects to convert all or part of this Note, subject to adjustment as provided in this Note.
(x) In the event that shares of the Borrower’s Common Stock are not deliverable via
DWAC following the conversion of any amount hereunder, an additional ten percent (10%) discount shall be factored into the Variable Conversion
Price until this Note is no longer outstanding (resulting in a discount rate of 55% assuming no other adjustments are triggered hereunder).
Additionally, if the Borrower fails to comply with the reporting requirements of the Exchange Act (including but not limited to becoming
late or delinquent in its filings, even if the Borrower subsequently cures such delinquency) at any time while after the Issue Date, and/or
the Borrower shall cease to be subject to the reporting requirements of the exchange Act, an additional fifteen percent (15%) discount
shall be factored into the Variable Conversion Price until this Note is no longer outstanding (resulting in a discount rate of 60% assuming
no other adjustments are triggered hereunder).
(xi) If the Borrower’s Common stock is chilled for deposit at DTC, becomes chilled at
any point while this Note remains outstanding or deposit or other additional fees are payable due to a Yield Sign, Stop Sign or other
trading restrictions, or if the closing price at any time falls below $0.01 (as appropriately and equitably adjusted for stock splits,
stock dividends, stock contributions and similar events), then an additional 15% discount will be attributed to the Conversion Price for
any and all Conversions submitted thereafter.
The Company had accrued interest payable of $240,713 and $703,270 on the notes at January
31, 2021 and January 31, 2020, respectively.
The Company analyzed the conversion option for derivative accounting consideration under ASC
815-15 “Derivatives and Hedging” and determined that some instruments should be classified as liabilities due to there being
a variable number of shares to be delivered upon settlement of the above conversion options. The instruments are measured at fair value
at the end of each reporting period or termination of the instrument with the change in fair value recorded to earnings. The fair value
of the embedded conversion option resulted in a discount to the note on the debt modification date. For the years ended January 31, 2021
and 2020, the Company recorded amortization expense of $335,004 and $800,159, respectively. See more information in Note 8.
During the years ended January 31, 2021 and 2020 the Company added $3,394 and $482,709 in
penalty interest to the loans, respectively.
On February 26, 2020 a lender exchanged $1,070,035 in convertible notes and $175,421 in accrued
interest (as denoted by X in the above schedule) as well as $122,000 in short-term debt and $22,076 in accrued interest , and the associated
derivative liability of $792,218 all totaling $2,181,750 in exchange for 250 Class C shares having a fair-value of $9,105. A gain of $1,745,994
was recorded.
On August 28, 2020 a lender exchanged $1,692,690 in convertible notes and $571,454 in accrued
interest (as denoted by Y in the above schedule) as well as the associated derivative liability of $2,635,974 all totaling $4,900,118
in exchange for a promissory note of $1,200,000 bearing interest at 12% and maturing August 28, 2022 , 950,000 Warrants with a 3 year
maturity and an exercise price of $0.40 having a fair value of $351,500 and 150 Class C shares having a fair-value of $20,290. A gain
of $3,278,327 was recorded.
On August 25, 2020 a lender exchanged $40,939 in a convertible note (as denoted by Z in the
above schedule), and the associated derivative liability of $31,320 all totaling $72,259 in exchange for a cash payment of $14,329. On
September 14, 2020 the same lender exchanged $20,111 in accrued interest and default interest (from that note) for a cash payment of $52,446.
A total gain of $25,595 on the two transactions was recorded.
On October 12, 2020 the Company entered into a new convertible note for $250,000 with a one
year maturity, interest rate of 12%, the Company received $210,250 in cash proceeds, recorded an original issue discount of $25,000, a
derivative discount of $132,613, and transaction fees of $14,750. The first year’s interest of $28,000 is guaranteed and has been
accrued. As part of the loan the Company paid a commitment fee of $ 50,000 through the issuance of 19,685 shares. The Company recognized
$14,916 as debt discount with a corresponding adjustment to paid-in capital. The discount is amortized over the term of the loan.$20,000
was repaid on this note as of January 31, 2021.
F-18
On November 16, 2020 the Company entered into a new convertible note for $100,000 with a one
year maturity, interest rate of 12%, the Company received $83,500 in cash proceeds, recorded an original issue discount of $12,000, a
derivative discount of $49,730, and transaction fees of $4,500. The first year’s interest of $12,000 is guaranteed and has been
accrued. As part of the loan the Company paid a commitment fee of $ 20,001 through the issuance of 6,667 shares. The Company recognized
$6,526 as debt discount with a corresponding adjustment to paid-in capital. The discount is amortized over the term of the
loan.
On November 23, 2020 the Company entered into a new convertible note for $165,000 with a one
year maturity, interest rate of 12%, the Company received $139,000 in cash proceeds, recorded an original issue discount of $15,000, a
derivative discount of $82,144, and transaction fees of $11,000. The first year’s interest of $19,800 is guaranteed and has been
accrued. As part of the loan the Company paid a commitment fee of $43,750 through the issuance of 17,500 shares. The Company recognized
$13,618 as debt discount with a corresponding adjustment to paid-in capital. The discount is amortized over the term of the loan.
During the year ended January 31, 2021, the Company converted a total of $24,803 of the convertible
notes and $19,933 accrued interest into 624,847 common shares.
As of January 31, 2021, the Company had $151,000 of aggregate debt in default. The agreements
provide legal remedies for satisfaction of defaults, none of the lenders to this point have pursued their legal remedies. The Company
continues to accrue interest at the listed rates, and plans to seek their conversion or payoff within the next twelve months.
NOTE 10 – DERIVATIVE LIABILITIES
As of January 31, 2021 and January 31, 2020, the Company had derivative liabilities of $213,741
and $2,611,125, respectively. During the years ended January 31, 2021 and 2020 the Company recorded losses of $828,614 and $180,552, from
the change in the fair value of derivative liabilities, respectively. Any liabilities resulting from the warrants outstanding are immaterial.
The derivative liabilities are valued as a level 3 input for valuing financial instruments.
The following table presents changes in Level 3 liabilities measured at fair value for the
year ended January 31, 2021. Both observable and unobservable inputs were used to determine the fair value of positions that the Company
has classified within the Level 3 category. Unrealized gains and losses associated with liabilities within the Level 3 category include
changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes
in unobservable long- dated volatilities) inputs (in thousands).
|
|
|
|
|
|
|
|
|
Level 3
|
|
|
|
Derivatives
|
|
Balance, January 31, 2019
|
|
$
|
2,041,260
|
|
|
Changes due to Issuance of New Convertible Notes
|
|
|
1,212,189
|
|
|
Reduction of derivative due to extinguishment or repayment
|
|
|
(67,623
|
)
|
|
Changes due to Conversion of Notes Payable
|
|
|
(755,253
|
)
|
|
Mark to Market Change in Derivatives
|
|
|
180,552
|
|
|
|
|
|
|
|
|
Balance, January 31, 2020
|
|
|
2,611,125
|
|
|
Changes due to Issuance of New Convertible Notes
|
|
|
264,487
|
|
|
Reduction of derivative due to extinguishment or repayment
|
|
|
(3,470,300
|
)
|
|
Changes due to Conversion of Notes Payable
|
|
|
(20,185
|
)
|
|
Mark to Market Change in Derivatives
|
|
|
828,614
|
|
|
Balance, January 31, 2021
|
|
$
|
213,741
|
|
The derivatives arise from convertible debt where the debt is convertible into common stock
at variable conversion prices which are linked to the trading and/or bid prices of the Company’s common stock as traded on the OTC
market.
As the price of the common stock varies it triggers a gain or loss based upon the discount
to market assuming the debt was converted at the balance sheet date.
F-19
The fair value of the derivative liability is determined using the lattice model, is re-measured
on the Company’s reporting dates, and is affected by changes in inputs to that model including our stock price, expected stock price
volatility, the expected term, and the risk-free interest rate. A summary of the weighted average (in aggregate) significant unobservable
inputs (Level 3 inputs) used in measuring the Company’s warrant liabilities and embedded conversion feature that are categorized
within Level 3 of the fair value hierarchy as of January 31, 2021 is as follows:
|
|
|
|
|
|
|
|
|
Embedded
|
|
|
|
|
Derivative Liability
|
|
|
|
|
As of
January 31, 2021
|
|
|
Strike price
|
|
$
|
1.75 - 4.30
|
|
|
Contractual term (years)
|
|
|
0.24 - 0.81 years
|
|
|
Volatility (annual)
|
|
|
184.80% - 544.0%
|
|
|
High yield cash rate
|
|
|
21.09% - 24.90%
|
|
|
Underlying fair market value
|
|
|
3.62
|
|
|
Risk-free rate
|
|
|
0.05% - 0.13%
|
|
|
Dividend yield (per share)
|
|
|
0%
|
|
NOTE 11 – STOCKHOLDERS’ DEFICIT
Preferred Stock
The Company is authorized to issue 20,000,000 shares of Preferred Stock, having a par value
of $0.001 per share.
Series A Preferred Stock
The Series A Preferred Stock has an automatic forced conversion into common stock upon the
completion of the repurchase or extinguishing of all “toxic” debt (notes having conversion features tied to the Company’s
common stock), the extinguishing of all other existing dilutive debt or equity structures, and total recapitalization of the Company.
As of both January 31, 2021, and January 31, 2020 the Company had 0 shares of Series A Preferred issued and outstanding and 330,000 authorized
with a par value of $0.001 per share.
At both January 31, 2021 and January 31, 2020, respectively, there were 20,000 and 20,000
Series B preferred shares outstanding. The Series B Preferred Stock have voting rights equal to 66.7% of the total voting rights at any
time. There are no conversion rights granted holders of Series B Preferred shares, they are not entitled to dividends, and the Company
does not have the right of redemption. Currently, there are 20,000 Series B preferred shares authorized and issued of the Series B Preferred
Stock with a par-value of $0.001 per share.
At both January 31, 2021 and January 31, 2020, there were 7,250 and 6,750 Series C preferred
shares outstanding, respectively. The Series C Preferred Stock have the right to convert into the common stock of the Company by multiplying
the number of issued and outstanding shares of common stock by 2.63 on the conversion date. The holders of Series C Preferred shares are
not entitled to dividends, and the Company does not have the right of redemption. Currently, there are 7,250 Series C preferred shares
authorized and 7,250 shares issued with a par-value of $0.001 per share. On February 26, 2020 the Company issued 250 Class C preferred
shares and on August 28, 2020 the Company issued another 150 Class C preferred shares in debt exchange transactions. On September 1, 2020
the Company issued 100 Class C preferred share at a fair value of $11,177 to repay Accrued Expenses- Related Party.
At both January 31, 2021 and January 31, 2020, there were 870 Series D preferred shares authorized
and outstanding, respectively which with a par value $.001. All shares of Series D Preferred Stock will rank subordinate and junior to
all shares of Series A, B and C of Preferred Stock of the Corporation and pari passu with any of the Corporation’s preferred stock
hereafter created as to distributions of assets upon dissolution or winding up of the Corporation, whether voluntary or involuntary. These
shares are non-voting, do not receive dividends and are redeemable according to the terms set out below:
OPTIONAL REDEMPTION.
(1) At any time, either the Corporation or the holder may redeem for cash out of
funds legally available therefore, any or all of the outstanding Series D Preferred Stock (“Optional Redemption”) at $1,000
per share.
F-20
(2) Should the Corporation exercise the right of Optional Redemption it shall provide
each holder of Preferred Stock with at least 30 days’ notice of any proposed optional redemption pursuant this Section VI (an “Optional
Redemption Notice”). Any optional redemption pursuant to this Section VI shall be made ratably among holders in proportion to the
Liquidation Value of Preferred Stock then outstanding and held by such holders. The Optional Redemption Notice shall state the Liquidation
Value of Preferred Stock to be redeemed and the date on which the Optional Redemption is to occur (which shall not be less than thirty
(30) or more than sixty (60) Business Days after the date of delivery of the Optional Redemption Notice) and shall be delivered by the
Corporation to the holders at the address of such holder appearing on the register of the Corporation for the Preferred Stock. Within
seven (7) business days after the date of delivery of the Optional Redemption Notice, each holder shall provide the Corporation with instructions
as to the account to which payments associated with such Optional Redemption should be deposited. On the date of the Optional Redemption,
provided for in the relevant Optional Redemption Notice, (A) the Corporation will deliver the redemption amount via wire transfer to the
account designated by the holders, and (B) the holders will deliver the certificates relating to that number of shares of Preferred Stock
being redeemed, duly executed for transfer or accompanied by executed stock powers, in either case, transferring that number of shares
to be redeemed. Upon the occurrence of the wire transfer (or, in the absence of a holder designating an account to which funds should
be transferred, delivery of a certified or bank cashier’s check in the amount due such holder in connection with such Optional Redemption
to the address of such holder appearing on the register of the Corporation for the Preferred Stock), that number of shares of Preferred
Stock redeemed pursuant to such Optional Redemption as represented by the previously issued certificates will be deemed no longer outstanding.
Notwithstanding anything to the contrary in this Designation, each holder may continue to convert Preferred Stock in accordance with the
terms hereof until the date such Preferred Stock is actually redeemed pursuant to an Optional Redemption.
(3) Should the holder exercise the right of Optional Redemption it shall provide
the Corporation with at least 30 days’ notice of any proposed optional redemption pursuant this Section VI (an “Optional Redemption
Notice”). The Optional Redemption Notice shall state the value of the Preferred Stock to be redeemed and the date on which the Optional
Redemption is to occur (which shall not be less than thirty (30) or more than sixty (60) Business Days after the date of delivery of the
Optional Redemption Notice) and shall be delivered by the holder to the Corporation at the address of the Corporation for the Preferred
Stock. Within seven (7) business days after the date of delivery of the Optional Redemption Notice, each holder shall provide the Corporation
with instructions as to the account to which payments associated with such Optional Redemption should be deposited. On the date of the
Optional Redemption, provided for in the relevant Optional Redemption Notice, (A) the Corporation will deliver the redemption amount via
wire transfer to the account designated by the holder, and (B) the holder will deliver the certificates relating to that number of shares
of Preferred Stock being redeemed, duly executed for transfer or accompanied by executed stock powers, in either case, transferring that
number of shares to be redeemed. Upon the occurrence of the wire transfer (or, in the absence of a holder designating an account to which
funds should be transferred, delivery of a certified or bank cashier’s check in the amount due such holder in connection with such
Optional Redemption to the address of such holder appearing on the register of the Corporation for the Preferred Stock), that number of
shares of Preferred Stock redeemed pursuant to such Optional Redemption as represented by the previously issued certificates will be deemed
no longer outstanding. Notwithstanding anything to the contrary in this Designation, each holder may continue to convert Preferred Stock
in accordance with the terms hereof until the date such Preferred Stock is actually redeemed pursuant to an Optional Redemption.
The Series D Preferred Stock is not entitled to any pre-emptive or subscription rights in
respect of any securities of the Corporation.
Neither the Company nor any Series D preferred stockholders has given notice to exercise the
redemption as of January 31, 2021 or by the date the financial statements were issued.
Because the holders of the Series D preferred stock have the right to demand cash redemption,
the cumulative amount of the redemption feature is included in Temporary Equity as of January 31, 2021 and 2020.
Common Stock
The Company is authorized to issue 15,000,000 common shares at a par value of $0.000001 per
share. These shares have full voting rights. On June 4, 2020 the Company amended its articles decreasing authorized common shares from
20,000,000,000 to 1,000,000,000 and again on September 8, 2020 the Company further decreased authorized common shares to 15,000,000. On
March 29, 2019 the Company undertook a 6000:1 reverse stock. On February 25, 2020, the Company undertook a 4000:1 reverse stock split.
The share capital has been retrospectively adjusted accordingly to reflect these reverse stock splits. At January 31, 2021 and January
31, 2020 there were 1,427,163 and 538,464 shares outstanding and issuable , respectively. No dividends were paid in the years ended
January 31, 2021 or 2020. The Company’s articles of incorporation include a provision that the Company is not allowed to issue fractional
shares. As a result, as part of the reverse split described above, the Company issued an additional 1,699 shares in March 2020 and
these shares were included in the shares outstanding as of January 31, 2020 as issuable. Included in the shares outstanding at January
31, 2021 are 71,200 issuable shares.
F-21
The Company issued the following shares of common stock in the year ended January 31, 2021:
Conversion of $24,803 notes payable, $19,933 accrued interest and $20,185 of derivative liability
to 624,847 shares of common stock.
The Company issued 175,000 shares for $350,000 as part of Regulation A filing. The company
received $250,000 in cash proceeds with the remaining $100,000 recorded as share proceeds receivable.
The Company issued 45,000 shares for fair value of $18,900 to repay accrued expenses related
party.
The Company issued 43,852 shares to various lenders for fees with a $35,060 charge to debt
discount and a corresponding charge to paid-in capital.
The Company issued the following shares of common stock in the year ended January 31, 2020:
Conversion of $752,409 notes payable, $240,035 accrued interest, $27,850 in fees and $755,253
of derivative liability to 536,613 shares of common stock.
An additional 1,700 shares are issuable on adjustments for rounding shareholdings as a result
of the 4000:1 reverse stock split of February 25, 2020.
Options and Warrants:
The Company recorded option and warrant expense of $0 and $0 in the years ended January 31,
2021 and 2020, respectively.
For the year ended January 31 ,2021 the Company issued the following warrants:
● a warrant to acquire
950,000 shares of stock as part of a debt settlement transaction. The Warrant gives the holder the right to cash settle the warrants if
a fundamental transaction as defined in the warrants occurs. However, a member of management and shareholder of the Company who controls
approximately 60% of all voting shares would decide if a fundamental transaction would occur. The Company currently is not considering
any fundamental transactions. Based on the above the Company used a Black Scholes model to record the value of the warrant. The warrants
having a fair value of $351,500 was included as part of the consideration in the above mentioned debt settlement transaction with a corresponding
increase in additional paid-in capital valued using the Black-Scholes option pricing model according to the following assumptions in the
Table A below:
● warrants to a broker
to acquire 5,500 common shares for a fair value of $13,470 recorded as general and administrative expenses with a corresponding increase
in additional paid-in capital valued using the Black-Scholes option pricing model according to the following assumptions in the Table
A below:
Table A
|
|
|
|
Expected volatility
|
415.5% - 506.8%
|
|
Exercise price
|
$0.40 - $4.50
|
|
Stock price
|
$0.37 - $2.70
|
|
Expected life
|
3 - 5 years
|
|
Risk-free interest rate
|
0.19% - 0.39%
|
|
Dividend yield
|
0%
|
The Company issued no warrants in the year ended January 31, 2020.
F-22
The Company had the following options and warrants outstanding at January 31, 2021:
|
|
|
|
|
|
|
|
|
Issued To
|
# Warrants
|
Dated
|
Expire
|
Strike Price
|
Expired
|
Exercised
|
|
Lender
|
950,000
|
08/28/2020
|
08/28/2023
|
$0.40 per share
|
N
|
N
|
|
Broker
|
2,500
|
10/11/2020
|
10/11/2025
|
$4.50 per share
|
N
|
N
|
|
Broker
|
3,000
|
11/25/2020
|
11/25/2025
|
$3.00 per share
|
N
|
N
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Weighted Average
Exercise Price
|
|
Warrants
|
|
Weighted Average
Exercise Price
|
|
|
Outstanding at January 31, 2019
|
|
—
|
|
$
|
—
|
|
1.4
|
|
$
|
225,520
|
|
|
Granted
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
Exercised
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
Forfeited and canceled
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
Outstanding at January 31, 2020
|
|
—
|
|
$
|
—
|
|
1.4
|
|
$
|
225,520
|
|
|
Granted
|
|
—
|
|
|
—
|
|
955,500
|
|
|
0.42
|
|
|
Exercised
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
Forfeited and canceled
|
|
—
|
|
|
—
|
|
(1.4
|
)
|
|
(225,220
|
)
|
|
Outstanding at January 31, 2021
|
|
—
|
|
$
|
—
|
|
955,500
|
|
$
|
$0.42
|
|
NOTE 12 – INCOME TAXES
The Company has adopted ASC 740-10, “Income Taxes”, which requires the
use of the liability method in the computation of income tax expense and the current and deferred income taxes payable (deferred tax liability)
or benefit (deferred tax asset). Valuation allowances are established when necessary to reduce deferred tax assets to the amount
expected to be realized.
The income tax expense (benefit) consisted of the following for the fiscal year ended January
31, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2021
|
|
|
January 31, 2020
|
|
|
Total current
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Total deferred
|
|
|
—
|
|
|
|
—
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Deferred income taxes reflect the net tax effects of temporary differences between the carrying
amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
The following is a reconciliation of the expected statutory federal income tax provision to
the actual income tax benefit for the fiscal year ended January 31, 2021(in thousands):
|
|
|
|
|
|
|
|
|
January 31, 2021
|
|
|
Federal statutory rate
|
|
$
|
255
|
|
|
Permanent timing differences
|
|
|
(330
|
)
|
|
Effect of change in US Tax rates for deferral items
|
|
|
—
|
|
|
Other
|
|
|
—
|
|
|
Change in valuation allowance
|
|
|
75
|
|
|
|
|
$
|
—
|
|
For the year ended January 31, 2021, the expected tax benefit is calculated at the 2019 statutory
rate of 21%.
For the year ended January 31, 2020, the expected tax benefit, temporary timing differences
and long-term timing differences are calculated at the 21% statutory rate.
F-23
Significant components of the Company’s deferred tax assets and liabilities were as
follows for the fiscal year ended January 31, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2021
|
|
|
January 31, 2020
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
939,000
|
|
|
$
|
874,000
|
|
|
Total deferred tax assets
|
|
|
939,000
|
|
|
|
874,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
—
|
|
|
|
10,000
|
|
|
Deferred revenue
|
|
|
—
|
|
|
|
—
|
|
|
Total deferred tax liabilities
|
|
|
—
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Less valuation allowance
|
|
|
(939,000
|
)
|
|
|
(864,000
|
)
|
|
Net deferred tax assets (liabilities)
|
|
$
|
—
|
|
|
$
|
—
|
|
The Company has incurred losses since inception, therefore, the Company has no federal tax
liability. Additionally there are limitations imposed by certain transactions which are deemed to be ownership changes which occurred
in the Company on November 29, 2018. The net deferred tax asset generated by the loss carryforward has been fully reserved. The
cumulative net operating loss carryforward was approximately $2,375,000 at January 31, 2021, $2,375,000 million at January 31, 2020that
is available for carryforward for federal income tax purposes and begin to expire in 2039.
Although the Company has tax loss carry-forwards, there is uncertainty as to utilization prior
to their expiration. Accordingly, the future income tax asset amounts have been fully reserved by a valuation allowance.
The Company has maintained a full valuation allowance against its deferred tax assets at January
31, 2021 and 2020. A valuation allowance is required to be recorded when it is more likely than not that some portion or all of the net
deferred tax assets will not be realized. Since the Company cannot be assured of realizing the net deferred tax asset, a full valuation
allowance has been provided.
The Company does not have any uncertain tax positions at January 31, 2021 and 2020 that would
affect its effective tax rate. The Company does not anticipate a significant change in the amount of unrecognized tax benefits over the
next twelve months. Because the Company is in a loss carryforward position, the Company is generally subject to US federal and state income
tax examinations by tax authorities for all years for which a loss carryforward is available. If and when applicable, the Company will
recognize interest and penalties as part of income tax expense.
During the fiscal year ended January 31, 2021 and 2020, the Company recognized no amounts
related to tax interest or penalties related to uncertain tax positions. The Company is subject to taxation in the United States and various
state jurisdictions. The Company currently has no years under examination by any jurisdiction.
On November 29, 2018, the Company consummated a share exchange agreement whereby there was
a change of control and any net operating losses up to the date of the transaction were forfeited.
The Company’s tax returns for the years ended January 31, 2021, 2020, and 2019 are open
for examination under Federal statute of limitations.
F-24
NOTE 13 – COMMITMENTS AND CONTINGENCIES
On June 1, 2015, the Company entered into a 36-month lease agreement for its 2,590 sf office
facility with a minimum base rent of $2,720 per month. The Company paid base rent and their share of maintenance expense of $43,200 and
$43,200 related to this lease for the periods ended January 31, 2021 and 2020, respectively. The lease is currently on a month to month
basis since the lease has not been renewed and the Company records the payments as rent expense. This lease has been terminated December
31, 2020
On August 30, 2016, the Company entered into a 60-month lease agreement for its 3,554 sf warehouse
facility starting in December 2016 with a minimum base rent of $2,132 and estimated monthly CAM charges of $1,017 per month. This lease
is with a shareholder.
On July 1, 2018, the Company entered into a 60-month lease agreement with its minority shareholder
for its 8,800 sf warehouse facility with a minimum base rent of $6,400 per month.
In September 2019 the Company entered into an operating lease for premises with an annual
rent of $15,480, a three year term commencing September 1, 2019 to August 31, 2022 and a one year renewal option. On October 23, 2020
the Company and landlord terminated this lease effective February 29, 2020. There were no costs associated with the termination. The Company
eliminated the operating lease asset and operating lease liability at termination which was $45,032.
In October 2019 the Company entered into an operating lease for a vehicle with an annual cost
of $9,067 and a three year term. The company paid initial fees of $17,744 and will pay fees on lease termination of $395. On a straight-line
basis these costs amount to $1,259 per month.
|
|
|
|
|
|
Maturity of Lease Liabilities
|
Operating
Leases
|
|
|
January 31, 2022
|
$
|
121,917
|
|
|
January 31, 2023
|
|
116,879
|
|
|
January 31, 2023
|
|
62,003
|
|
|
January 31, 2025
|
|
30,003
|
|
|
January 31, 2026
|
|
30,003
|
|
|
After January 31, 2026
|
|
25,004
|
|
|
Total lease payments
|
|
385,809
|
|
|
Less: Interest
|
|
(51,474
|
)
|
|
Present value of lease liabilities
|
$
|
334,335
|
|
The Company had total rent expense and operating lease cost of $164,095 and $150,668 for the
years ended January 31, 2021 and 2020, respectively.
There is pending litigation initiated by the Company around the validity of a $100,000 note
which the Company signed based upon representations of funding from the maker which were never received. The Company initiated litigation
to dispute the note and the 1,692 shares that have been issued. There was no consideration for the issuance of the shares and the shares
have been accounted for as if they were returned and cancelled although they have not been returned.
F-25
NOTE 14 – EARNINGS (LOSS) PER SHARE
The net income (loss) per common share amounts for the years ended January 31, 2021 and January
31, 2020 were determined as follows:
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
|
January 31,
|
|
|
|
|
2021
|
|
2020
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income (loss) available to common shareholders
|
|
$
|
1,187,176
|
|
$
|
(3,879,846
|
)
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average shares – basic
|
|
|
1,084,324
|
|
|
86,542
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share – basic
|
|
$
|
1.09
|
|
$
|
(44.83
|
)
|
|
|
|
|
|
|
|
|
|
|
Effect of common stock equivalents
|
|
|
|
|
|
|
|
|
Add: interest expense on convertible debt
|
|
|
259,086
|
|
|
454,765
|
|
|
Add: amortization of debt discount
|
|
|
326,238
|
|
|
800,149
|
|
|
Less: gain on settlement of debt on convertible notes
|
|
|
(4,835,429
|
)
|
|
(67,623
|
)
|
|
Add (Less): loss (gain) on change of derivative liabilities
|
|
|
845,586
|
|
|
180,552
|
|
|
Net income (loss) adjusted for common stock equivalents
|
|
|
(2,217,343
|
)
|
|
(2,512,003
|
)
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of common stock equivalents:
|
|
|
|
|
|
|
|
|
Convertible notes and accrued interest
|
|
|
404,173
|
|
|
—
|
|
|
Convertible Class C Preferred shares
|
|
|
3,631,533
|
|
|
—
|
|
|
Warrants
|
|
|
950,000
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average shares – diluted
|
|
|
6,070,030
|
|
|
86,542
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share – diluted
|
|
$
|
(0.37
|
)
|
$
|
(44.83
|
)
|
The anti-dilutive shares of common stock equivalents for the years ended January 31, 2021
and January 31, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
|
January 31,
|
|
|
|
|
2021
|
|
2020
|
|
|
Convertible notes and accrued interest
|
|
|
—
|
|
|
16,355,950
|
|
|
Convertible Class C Preferred shares
|
|
|
—
|
|
|
1,411,692
|
|
|
Warrants
|
|
|
—
|
|
|
1
|
|
|
Total
|
|
|
—
|
|
|
17,767,643
|
|
NOTE 15 – RELATED PARTY TRANSACTIONS
As of January 31, 2021 and 2020, the Company had $106,173 and $155,750, respectively, of related
party accrued expenses related to accrued compensation for employees and consultants. During the year ended January 31, 2021 the Company
issued 45,000 shares of common stock for a fair value of $18,900 and 100 Class C preferred share at a fair value of $11,177 to repay Accrued
Expenses- Related Party.
F-26
NOTE 16 – SUBSEQUENT EVENTS
Subsequent to January 31, 2020 through to May 14, 2021 the Company entered into the following
transactions:
|
|
|
|
●
|
The Company issued 993,750 shares at an offering price of $2.00 per share for gross proceeds
of $ 1,987,500 as part of the recent REG A filing.
|
|
|
|
|
●
|
In April 2021, accounts payable totaling $950,151 was settled for $96,700 . A gain on settlement
of $853,451 was recorded at the time of settlement.
|
|
|
|
|
●
|
In February 2021, the Company entered into an agreement with an investor relations company
for services to be provided over the following 2 months for fees totaling $250,000
|
|
|
|
|
●
|
In February 2021 the Company entered into an agreement for marketing services in exchange
for 50,000 shares issued in March 2021 having a fair value of $114,000.
|
F-27