NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. — NATURE OF OPERATIONS, SIGNIFICANT ACCOUNTING
POLICIES AND GOING CONCERN
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial
statements of Bespoke Extracts, Inc, a Nevada corporation (the “Company”), have been prepared in accordance with the
instructions to Form 10-Q and do not include all of the information and footnotes required by accounting principles generally accepted
in the United States of America for complete consolidated financial statements. These unaudited consolidated financial statements
and related notes should be read in conjunction with the Company’s annual report on Form 10-K for the fiscal year ended August
31, 2018 filed with the Securities and Exchange Commission (the “SEC”) on December 14, 2018. In the opinion of management,
these unaudited consolidated financial statements reflect all adjustments that are of a normal recurring nature and which are necessary
to present fairly the financial position of the Company as of November 30, 2018, and the results of operations and cash flows for
the three months ended November 30, 2018 and 2017. The results of operations for the three months ended November 30, 2018 are not
necessarily indicative of the results that may be expected for the entire fiscal year.
Certain prior period amounts have been
reclassified to conform to current period presentation.
Going Concern
The accompanying unaudited consolidated financial statements have been prepared assuming a continuation of the Company as a going
concern. The Company has a working capital deficit as of November 30, 2018 and negative cash flows from operations for
the three months ended November 30, 2018. These conditions raise substantial doubt about our ability to continue as a
going concern.
The Company’s ability to continue
as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary
financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. There is
no assurance that this series of events will be satisfactorily completed. The accompanying financial statements do not contain
any adjustments that may result from the outcome of this uncertainty.
Inventory
Inventories are stated at the lower of
cost or net realizable value. Cost is determined by the first-in, first-out basis and market being determined as the
lower of replacement cost or net realizable value. The Company records inventory write-downs for estimated obsolescence of unmarketable
inventory based upon assumptions about future demand and market conditions. As of November 30, 2018 and August 31, 2018, inventory
amounted to $48,436 and $61,857, respectively, which consisted of finished goods.
Revenue Recognition
The Company recognizes revenue from product
sales to customers, distributors and resellers when products that do not require further services or installation by the Company
are shipped, when there are no uncertainties surrounding customer acceptance and when collectability is reasonably assured. Cash
received by the Company prior to shipment is recorded as deferred revenue. Sales are made to customers under terms allowing certain
limited rights of return and other limited product and performance warranties for which provision has been made in the accompanying
unaudited condensed financial statements.
Amounts billed to customers in sales transactions
related to shipping and handling, represent revenues earned for the goods provided and are included in net sales. Costs of shipping
and handling are included in cost of products sold.
The Company accounts for revenue in accordance with Topic 606
which was adopted at the beginning of fiscal year 2018 using the modified retrospective method. The comparative information has
not been restated and continues to be reported under the accounting standards in effect for those periods. The Company did not
recognize any cumulative-effect adjustment to retained earnings upon adoption as the effect was immaterial.
Net Income / Loss per Share
Basic income / loss per share amounts are
computed based on net income / loss divided by the weighted average number of common shares outstanding. Diluted earnings per share
reflect the potential dilution that could occur if potentially dilutive securities were exercised or converted to common stock.
The dilutive effect of options and warrants and their equivalent is computed by application of the treasury stock method and the
effect of convertible securities by the “if converted” method. Outstanding options, warrants and convertible
debt were excluded from the calculation of diluted income / loss per share during 2018 and 2017 because their inclusion would have
been anti-dilutive.
2. ASSET PURCHASE AGREEMENT
On February 21, 2017, the Company purchased all right, title, interest and goodwill in or associated with
certain the domain names set forth in an asset purchase agreement for a total of $20,185 in cash and 200,000 shares of the Company’s
common stock valued at $30,000. For the three months ended November 30, 2018 and 2017 amortization expense amounted to $836 and
$836, respectively. The domain names are being amortized over a 15 year period.
3. NOTE PAYABLE – RELATED PARTY
On April 27, 2016, the Company issued its CEO a 7% unsecured promissory note in the amount of $2,500 which
matured six months from the date of issuance. On July 5, 2016, the Company issued its CEO a 7% unsecured note in the amount of
$3,000 which matured six months from date of issuance. On November 17, 2016, the Company repaid the principal amount of the notes,
or $5,500.
The changes in notes payable to these related
parties consisted of the following during the three months ended November 30, 2018 and the year ended August 31, 2018.
|
|
November 30,
2018
|
|
|
August 31,
2018
|
|
Notes payable – related party at beginning of period
|
|
$
|
50
|
|
|
$
|
50
|
|
Payments on notes payable – related party
|
|
|
-
|
|
|
|
-
|
|
Borrowings on notes payable – related party
|
|
|
-
|
|
|
|
-
|
|
Note payable – related party at end of period
|
|
$
|
50
|
|
|
$
|
50
|
|
On February 14, 2017, the Company issued
to Lyle Hauser, the Company’s largest shareholder at the time, a 7% unsecured promissory note in the amount of $30,000 which
matured six months from the date of issuance. On May 31, 2018 the Company repaid the promissory note in the amount of $30,000 and
accrued interest of $2,811.
On May 17, 2016, the Company issued to
The Vantage Group Ltd. (“Vantage”), a significant shareholder at that time, a 7% unsecured promissory note in the amount
of $10,000 which had an original maturity of six months from the date of issuance. On August 15, 2016, the Company issued to Vantage
a 7% unsecured promissory note in the amount of $16,000 which had an original maturity of six months from the date of issuance.
On October 27, 2016, the Company issued the same shareholder a 7% unsecured promissory note in the amount of $10,000 which had
an original maturity date of six months from the date of issuance. On November 14, 2016, the Company issued the same shareholder
a 7% unsecured promissory note in the amount of $80,000 which had an original maturity date of six months from the date of issuance.
On March 31, 2017, the Company issued the same shareholder a 7% unsecured promissory note in the amount of $7,000 which had an
original maturity date of six months from the date of issuance.
On April 17, 2017 the preceding notes issued
to Vantage were amended to be convertible into common stock and to mature on April 18, 2018. The convertible notes had a fixed
conversion price of $0.008. The amendments to the notes created a beneficial conversion feature of $123,000 and amortization of
the discount of $123,000 during the year ended August 31, 2018. The Company issued a total of 10,050,000 shares of common stock
to convert $80,000 principal and$400 of accrued interest into common stock and the remaining $43,000 was exchanged with an additional
$2,000 of accrued interest to purchase assets of the Company.
The changes in notes payable to these related
parties consisted of the following during the three months ended November 30, 2018 and the year ended August 31, 2018.
|
|
November 30,
2018
|
|
|
August 31, 2018
|
|
Notes payable – related party at beginning of period
|
|
$
|
-
|
|
|
$
|
153,000
|
|
Payments on notes payable – related party
|
|
|
-
|
|
|
|
(30,000
|
)
|
Conversion
|
|
|
-
|
|
|
|
(80,000
|
)
|
Exchange for purchase of Company assets
|
|
|
-
|
|
|
|
(43,000
|
)
|
Note payables – related party at end of period
|
|
$
|
-
|
|
|
$
|
-
|
|
4. CONVERTIBLE DEBENTURE – RELATED
PARTY
On
April 11, 2017, the Company executed a $540,000 related party convertible debenture with an original issue discount of $180,000.
The note has a 0% interest rate and a term of two years. If the note is not paid in full on the due date, the note will have a
0% interest rate until paid in full. In connection with the note, the Company issued the lender an aggregate of 2,700,000 shares
of common stock and 900,000 warrants. The relative fair value of the stock ($157,509) and warrants ($44,981) aggregating $202,490
was recognized as a discount to the note. Amortization of $43,355 was recognized during the three months ended November 30, 2018.
The conversion price of the outstanding balance is the lesser
of $3.00 or 40% of the volume weighted average price of the 30 days at date of conversion; not to be less than $1.00. In connection
with the note the lender is entitled to receive greater of 5% every dollar raised through financing or every dollar of revenue
generated through the earlier of maturity date and repayment of the principal. As of November 30, 2018 and August 31, 2018 the
Company has accrued $40,015 and $34,015, respectively.
|
|
November 30,
2018
|
|
|
August 31,
2018
|
|
Related Party Convertible debenture
|
|
$
|
540,000
|
|
|
$
|
540,000
|
|
Unamortized discount
|
|
|
(141,009
|
)
|
|
|
(184,364
|
)
|
Related Party Convertible debenture, net of unamortized discount
|
|
$
|
398,991
|
|
|
$
|
355,636
|
|
On
August 28, 2017, the Company executed, with a related party, an $180,000 convertible debenture with an original issue
discount of $60,000. The note has a 0% interest rate and a term of two years. In connection with the note, the Company issued
the lender an aggregate of 900,000 shares of common stock and 300,000 warrants to purchase common stock. The relative fair
value of the stock and warrants aggregating $68,499 was recognized as a discount to the note. Amortization of $16,062 was
recognized during the three months ended November 30, 2018.
The
conversion price of the outstanding balance is the lesser of $3.00 or 40% of the volume weighted average price of the 30 days
at date of conversion; not to be less than $1.00. In connection with the debenture the lender is entitled to receive the
greater of 5% of every dollar raised through financing or every dollar of revenue generated through the earlier of the
maturity date or repayment of the principal. As of November 30, 2018 and August 31, 2018 the Company has accrued $31,000 and
$25,000, respectively.
|
|
November 30,
2018
|
|
|
August 31,
2018
|
|
Related Party Convertible debenture
|
|
$
|
180,000
|
|
|
$
|
180,000
|
|
Unamortized discount
|
|
|
(82,785
|
)
|
|
|
(98,847
|
)
|
Related Party Convertible debenture, net of unamortized discount
|
|
$
|
97,215
|
|
|
$
|
81,153
|
|
On December 13, 2017, the Company executed
a $120,000 convertible debenture with an original issue discount of $20,000. The debenture has a 0% interest rate and a term of
one year. In connection with the note, the Company issued the lender an aggregate of 200,000 shares of common stock and 100,000
warrants to purchase common stock. The relative fair value of the stock and warrants aggregating $32,930 was recognized as a discount
to the note. Amortization of $6,616 was recognized during the three months ended November 30, 2018. The conversion price
of the outstanding balance is the lesser of $3.00 or 40% of the volume weighted average price of the 30 days at date of conversion;
not to be less than $1.00. In connection with the debenture the lender is entitled to receive the greater of 5% of every dollar
raised through financing or every dollar of revenue generated through the earlier of maturity date and repayment of the principal.
As of November 30, 2018 and August 31, 2018 the Company has accrued $26,000 and $20,000, respectively.
|
|
November 30,
2018
|
|
|
August 31,
2018
|
|
Related Party Convertible debenture
|
|
$
|
120,000
|
|
|
$
|
120,000
|
|
Unamortized discount
|
|
|
(8,320
|
)
|
|
|
(14,936
|
)
|
Related Party Convertible debenture, net of unamortized discount
|
|
$
|
111,680
|
|
|
$
|
105,064
|
|
5. EQUITY
Common Stock
The Company has authorized capital of
800,000,000 shares of common stock with a par value of $0.001, and 50,000,000 shares of Series A Convertible Preferred stock
with a par value of $0.001.
Between September 1, 2018 and November
30, 2018 the Company sold a total of 2,000,000 shares of common stock for proceeds of $120,000.
On October 13, 2018 the Company issued
1,000,000 shares of common stock for a sponsorship donation valued at $120,000.
Effective October 30, 2018, Marc Yahr resigned
from all positions with the Company including as President and Chief Executive Officer of the Company, except as a member of the
board of directors. On November 25, 2018 Mr. Yahr resigned as a member of the Company’s board of directors. On November 6,
2018, 16,000,000 shares of common stock were returned to the Company for which the Company paid $1,600 to Marc Yahr. This forfeiture
was in accordance with the terms of this May 22, 2017 employee share based award and the forfeiture resulted in a gain of $2,440,768
(net of the $1,600 cash paid) representing a reversal of the previously recognized expense for the unvested portion of this freighted
award.
On October 30, 2018, the Company entered into an employment agreement with Niquana Noel pursuant to which
Ms. Noel will serve as the Company’s Chief Executive Officer and president for a term of four years, unless earlier terminated
pursuant to the terms of the employment agreement. Pursuant to the terms of the employment agreement, Ms. Noel’s annual salary
is $96,000 and she received a warrant to purchase up to 20,000,000 shares of the Company’s common stock at an exercise price
of $0.0001 per share. Ms. Noel exercised the warrant for $2,000 and was issued the 20,000,000 shares on October 31, 2018. The shares
received upon the exercise of the warrants are subject to forfeiture over a service period of four years.
Pursuant to a securities purchase agreement
entered into on June 6, 2018 the Company was obligated to issue additional shares of common stock if the Company sold common stock
at a price lower than $0.10 per share (or common stock equivalents with an exercise price less than $0.10 per share) during the
six month period following the closing of the purchase agreement, in which event the Company was required to issue additional shares
to the purchaser for no additional consideration, such that the total number of common stock received by the purchaser will be
equal to $50,000 divided by lower financing price. As of November 30, 2018 the Company was obligated to issue 500,000 shares of
common stock valued at $76,000.
Warrants
During the year ended August 31, 2018,
warrant activity included the following:
On May 22, 2017, the Company entered
into an employment agreement with Marc Yahr to serve as President and Chief Executive Officer of the Company for a term of
three years, unless earlier terminated pursuant to the terms of the employment agreement. Pursuant to the terms of the
employment agreement, Mr. Yahr received a warrant to purchase up to 20,000,000 shares of the Company’s common stock at
an exercise price of $0.0001 per share. The warrants were exercised in full on May 31, 2017; however, the 20,000,000 shares
of the Company’s common stock were not issued to Mr. Yahr until June 10, 2017. The shares received upon the exercise of
the warrants were subject to forfeiture over a service period of three years. The fair value of the award was determined to
be $10,998,105 which will be recognized as compensation expense over the three year service period. Effective October
30, 2018, Marc Yahr resigned from all positions with the Company including as President and Chief Executive Officer of the
Company (except as director, which he resigned as on November 25, 2018). Pursuant to the agreement, Mr. Yahr agreed to return
80% of the warrant shares to the Company if he served as CEO of the Company pursuant to the terms and conditions of the
employment agreement for a period of more than 12 months but less than 18 months. Therefore, 16,000,000 shares of common
stock were forfeited to the Company, and the Company recognized a gain on the forfeited common shares of ($2,440,768) net of
$1,600 paid by the Company. As of November 30, 2018, $0 remains to be expensed over the remaining vesting period.
On January 22, 2018, the Company entered into a sales representation agreement for a term of six months.
Pursuant to the agreement the Company agreed to issue the nonemployee sales representative warrants to purchase 10,000 shares of
common stock per month (an aggregate of 60,000 warrants) with an exercise price of $0.50, with a term of three years. The warrants
shall be exercisable at any time on or after the six (6) month anniversary of each issuance date, at his election, in whole or
in part, by means of a cashless exercise. During the three months ended November 30, 2018 the Company recognized a gain of $(31,864)
due to a remeasurement of this nonemployee award.
On February 1, 2018, the Company entered into a consulting agreement for a term of one year. Pursuant
to the agreement the Company agreed to issue the nonemployee consultant warrants to purchase 10,000 shares of common stock per
month (an aggregate of 120,000 warrants) with an exercise price of $0.40, exercisable for cash only for a period of three years
commencing six months form the issuance date. During the three months ended November 30, 2018 the Company recognized a gain of
$(57,703) due to a remeasurement of this nonemployee award.
On
March 2, 2018 the Company entered into a management agreement with Global Corporate Management, LLC. Pursuant to this agreement,
the Company agreed to pay $4,000 and to issue 150,000 common stock purchase warrants per month (an aggregate of 3,600,000
warrants) with an exercise price of $0.50, exercisable commencing six months after issuance for a period of 5 years. During
the three months ended November 30, 2018 the Company recognized a gain of $(1,281,412) due to a remeasurement of this nonemployee
award.
On April 16, 2018 The Company entered into a consulting agreement with Dr. David Hellman for marketing
and promotion services. The term is 1 year with payment of 50,000 warrants each month to purchase common stock with an exercise
price of $0.60. However, if the consultant generates more than $10,000 in monthly sales, the warrants will have an exercise price
of $0.30, and if the consultant generates more than $20,000 in monthly sales, the warrants may be exercised on a cashless basis.
Additionally, the Company agreed to pay to the consultant 10% of retail sales and 5% of wholesale sales. On July 11, 2018 the Company
terminated the agreement. On August 1, 2018 the Company entered into a new consulting agreement with Dr. Hellman. The term is 1
year with payment of 60,000 warrants each month (an aggregate of 720,000 warrants) to purchase common stock with an exercise
price of $0.60. The warrants may be exercised on a cashless basis. During the three months ended November 30, 2018 the Company
recognized a gain of $(115,843) due to a remeasurement of this nonemployee award.
On October 30, 2018, the Company entered into an employment agreement with Ms. Noel pursuant to which
Ms. Noel will serve as the Company’s Chief Executive Officer and president for a term of four years, unless earlier terminated
pursuant to the terms of the employment agreement. Pursuant to the terms of the employment agreement, Ms. Noel’s annual salary
is $96,000 and she received a warrant to purchase up to 20,000,000 shares of the Company’s common stock at an exercise price
of $0.0001 per share. Ms. Noel exercised the warrant and was issued the 20,000,000 shares on October 31, 2018. The fair value of
this award was determined to be $2,598,138 of which $54,128 was recognized during the three months ended November 30, 2018. Unamortized
expense at November 30, 2018 is $2,544,011. The shares received upon the exercise of the warrants are subject to forfeiture
over a service period of four years. The shares will be required to be returned to the Company as follows and the Company accounts
for forfeitures when they occur.
Ms. Noel shall return 80% of the common stock
to the Company if she is not serving as Chief Executive Officer of the Company pursuant to the terms and conditions of her employment
agreement as of October 2019 (the first anniversary of the employment agreement);
Ms. Noel shall return 60% of the common stock
to the Company if she is not serving as the Chief Executive Officer of the Company pursuant to the terms and conditions of the
employment agreement as of the second anniversary of the employment agreement (October, 2020);
Ms. Noel shall return 40% of the common
stock to the Company if she is not serving as Chief Executive Officer of the Company pursuant to the terms and conditions of the
employment agreement as of the third anniversary of the employment agreement (October 2021);
Ms. Noel shall return 20% of the Common
Stock to the Company if she is not serving as the Chief Executive Officer of the Company pursuant to the terms and conditions of
the Employment Agreement as of the fourth anniversary of the employment agreement (October, 2022);
The following table summarizes the warrant
activities during the three months ended November 30, 2018 and the year ended August 31, 2018, respectively:
|
|
Number of Warrants
|
|
|
Weighted- Average Price Per Share
|
|
Outstanding at August 31, 2018
|
|
|
2,830,000
|
|
|
$
|
0.79
|
|
Granted
|
|
|
20,660,000
|
|
|
|
0.02
|
|
Canceled or expired
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(20,000,000
|
)
|
|
|
0.00
|
Outstanding at November 30, 2018
|
|
|
3,490,000
|
|
|
$
|
0.74
|
|
Exercisable at November 30, 2018
|
|
|
2,220,000
|
|
|
$
|
0.86
|
|
Intrinsic value at November 30, 2018 and August 31, 2018
|
|
$
|
-
|
|
|
$
|
-
|
|
The fair value of the warrants was estimated
using the Black-Scholes option pricing model and the following range of assumptions:
|
|
|
Grant Date
|
|
For the three months ended November 30, 2018
|
|
|
|
|
Risk-free interest rate at grant date
|
|
|
1.11% -2.84%
|
|
Expected stock price volatility
|
|
|
159% - 263%
|
|
Expected dividend payout
|
|
|
-
|
|
Expected option in life-years
|
|
|
1 - 6.3 years
|
|
OPTIONS
On July 26, 2017 the Company granted a
nonemployee options to purchase 2,200,000 shares of common stock. The options have a three year term. 1,000,000 options are immediately
exercisable on the date of issuance with an exercise price of $0.001 and the remaining 1,200,000 options vest over a period of
three years at an exercise price of $1.00. On July 26, 2017, 1,000,000 shares were exercised. During the three months ended November
30, 2018 the Company recognized a gain of $(368,831).
|
|
Number of
Options
|
|
|
Weighted-
Average
Price Per
Share
|
|
Outstanding at August 31, 2018
|
|
|
1,200,000
|
|
|
$
|
1.00
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Canceled or expired
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Outstanding at November 30, 2018
|
|
|
1,200,000
|
|
|
$
|
1.00
|
|
Exercisable at November 30, 2018
|
|
|
600,000
|
|
|
|
1.00
|
|
Intrinsic value at November 30, 2018 and August 31, 2018
|
|
$
|
-
|
|
|
$
|
-
|
|
6. COMMITMENTS AND CONTINGENCIES
On January 22, 2018, the Company entered
into a sales representation agreement to manage and solicit orders in a set territory, the United States, with an initial term
of six months. The sales representative shall be compensated 6% of the net sales and three year warrants monthly to purchase 10,000
shares of common stock at an exercise price of $0.50. Warrants may be exercised after six month anniversary of issuance date.
On February 1, 2018 the Company entered
into a consulting agreement with Optimal Setup LLC for a term of one year to advise the Company on search engine optimization and
digital marketing. Optimal Setup LLC shall receive monthly for services performed $2,500 and 10,000 warrants for common stock exercisable
for cash price of $0.40. Warrants may be exercised after six month anniversary date. The warrants were granted on February 22,
2018.
On March 2, 2018 the Company entered into
a two year management agreement with Global Corporate Management, LLC (“GCM”). Pursuant to this agreement, the Company
agreed to pay $4,000 and to issue 150,000 common stock purchase warrants (exercise price of $0.50, 5 year term, exercisable 6 months
after issuance). The Company shall pay to GCM a commission equal to 10% of all sales every month. The commission will be paid
only for the sales which have closed and cash has been paid to the Company. As of November 30, 2018 GCM has not earned any commissions.
On March 20, 2018 the Company entered into
a consulting agreement with Patagonia Global Trading, LLC. Upon execution of this agreement and upon the consultant signing their
first customer, acceptable by the Company, and for services rendered, the Company agreed to issue 50,000 common stock purchase
warrants to purchase common stock at an exercise price of $0.30 per share. As of November 30, 2018 Patagonia Global Trading, LLC,
had not signed any customers and had not earned any warrants. The Company agreed to pay a total commission rate of 10% of the gross
sale amount to be paid in the form of cash or warrants to purchase shares of common stock of the Company at a purchase price of
$0.30 per share, exercisable 6 months after issuance. The commission will be paid on net sales from protected accounts and the
consultant will be issued warrants on net invoices that are paid in full and money is received.
On April 16, 2108 the Company entered
into a consulting agreement with Dr. David Hellman for marketing and promotion services. The term is 1 year with payment of 50,000
warrants to purchase common stock with an exercise price of $0.60. However, if the consultant generates more than $10,000 in monthly
sales, the warrants will have an exercise price of $0.30, and if the consultant generates more than $20,000 in monthly sales,
the warrants may be exchanged in “cashless exercise”. Additionally, the Company agreed to pay to the consultant 10%
of retail sales and 5% of wholesale sales. On July 11, 2018 the Company terminated the agreement. On August 1, 2018 the Company
entered into a new consulting agreement with Dr. Hellman. The term is 1 year with payment of 60,000 warrants to purchase common
stock with an exercise price of $0.60. The warrants may be exercised on a cashless basis.
In May 2018 the Company entered into an
agreement with Seidman Food Brokerage Inc., pursuant to which the Company appointed Seidman Food Brokerage, Inc. as its non-exclusive
regional sales and marketing representative for the company’s product line for 12 months. The broker will be paid a monthly
commission equal to the greater of (1) 5% of collected sales for all invoices generated for CBD products available from their product
line for human consumption for a particular month or (2) solely with respect to the first six months of the term of the agreement.
As of November 30, 2018 Seidman Food Brokerage, Inc. has not earned any commissions.
Pursuant to a securities purchase agreement
dated March 5, 2018, in the event that, in the six month period commencing on the closing date of such purchase agreement, the
Company were to sell common stock at a price lower than $0.10 per share (or common stock equivalents with a conversion or exercise
price lower than $0.10 per share (each as adjusted for stock splits, stock dividends, and similar transactions, the “Subsequent
Financing Price”), the Company was required to promptly issue additional shares of common stock to the purchaser for no additional
consideration, such that the total number of shares of common stock received by the purchaser under the Agreement would be equal
to the total purchase price of $300,000 divided by such lower subsequent financing price. The Company also agreed that it would
not pay total cash compensation of more than $100,000 to any director, officer or employee of the Company for a period of 12 months
from the closing date.
Pursuant to a securities purchase
agreement dated March 21, 2018, in the event that, in the six month period commencing on the closing date of such purchase agreement,
the Company were to sell common stock at a price lower than $0.10 per share (or common stock equivalents with a conversion or exercise
price lower than $0.10 per share (each as adjusted for stock splits, stock dividends, and similar transactions), the Company was
required to promptly issue additional shares of common stock to the purchaser for no additional consideration, such that the total
number of shares of common stock received by the purchaser under the Agreement would be equal to the total purchase price of $50,000
divided by such lower subsequent financing price. The Company also agreed that it would not pay total cash compensation of more
than $100,000 to any director, officer or employee of the Company for a period of 12 months from the closing date.
Pursuant to a securities purchase agreement
entered into on June 6, 2018 the Company was obligated to issue additional shares of common stock if the Company sold common stock
at a price lower than $0.10 per share (or common stock equivalents with an exercise price less than $0.10 per share) during the
six month period following the closing of the purchase agreement, in which event the Company was required to issue additional
shares to the purchaser for no additional consideration, such that the total number of common stock received by the purchaser
will be equal to $50,000 divided by lower financing price. The Company also agreed that it would not pay total cash compensation
of more than $100,000 to any director, officer, or employee of the Company for a period of 12 months from the closing date. As
of November 30, 2018 the Company was obligated to issue 500,000 shares of common stock valued at $76,000 which is included in
the common stock payable in the accompanying balance sheet.
7. SUBSEQUENT EVENTS
In December 2018 the Company sold a total of 300,000 shares
of common stock for proceeds of $15,000.