NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2021
(Unaudited)
NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS
Boatim Inc. formerly known as Emerald Data Inc. (“we”, “our, “Boatim”, the “Company”) is a for profit corporation established under the corporate laws of the State of Nevada on August 15, 2014. On January 24, 2019 the Company´s board and shareholders passed a motion to change the Company name to “BOATIM INC.” Its fiscal year end is August 31.
Boatim, Inc. established Boatim Europe S.L. (“Boatim Europe”) as a private limited company pursuant to the laws of Spain on December 18, 2019, with the Company having indirect ownership of one hundred percent of the issued and outstanding membership interests of Boatim Europe. In December 2020, the Company finalized the process of collecting and submitting all required paperwork to the Spanish authorities to enter Boatim Inc. as direct owner on public records in Spain, making Boatim Europe a wholly owned subsidiary of the Company.
Originally in the business of producing and distributing furniture, the business was changed to online food blogging as a promotion channel for restaurants, bars and fine dining. Subsequently, following the acquisition of the Boatim software platform, the Company expanded into the boating industry by further developing the software platform. The Boatim software platform is an online boat trading marketplace, combining data-driven technology and digital marketing capabilities to offer a rolling subscription for service model of access to the platform for the extensive market of global boat dealers.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The Company prepares its consolidated financial statements on the accrual basis of accounting. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All intercompany accounts, balances and transactions have been eliminated in the consolidation as at May 31, 2021.
Basis of Presentation
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles for financial information and with the instructions to Form 10-Q. They do not include all information and footnotes required by United States generally accepted accounting principles for complete financial statements. The unaudited interim financial statements should be read in conjunction with those financial statements for the year ended August 31, 2020 included in the Form 10-K filed with the Securities and Exchange Commission. In the opinion of Management, all adjustments considered necessary for a fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the nine months ended May 31, 2021 are not necessarily indicative of the results that may be expected for the year ending August 31, 2021.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
Fixed Assets
Fixed assets are stated at historical cost less accumulated depreciation. The historical cost of acquiring an item of fixed assets includes the costs necessarily incurred to bring it to the condition and location necessary for its intended use. Costs associated with repairs and maintenance are expensed as incurred. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, which are 3 years.
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contracts, which includes (1) identifying the contracts or agreements with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the services it transfers to its clients.
Fair Value of Financial Instruments
ASC 825, “Disclosures about Fair Value of Financial Instruments”, requires disclosure of fair value information about financial instruments. ASC 820, “Fair Value Measurements” defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of August 31, 2020 and 2019.
Authoritative literature provides a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement as follows:
Level 1 - Quoted market prices available in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.
The respective carrying values of certain on-balance-sheet financial instruments approximate their fair values. These financial instruments include cash, accounts payable, convertible notes and notes payable. Fair values were assumed to approximate carrying values for these financial instruments due to their short-term maturities.
Foreign Currency
Assets and liabilities of Boatim Europe are translated into U.S. dollars at the respective rates of exchange prevailing at the end of the reporting period. Income and expense accounts are translated at average exchange rates prevailing during the reporting period. Translation adjustments resulting from this process are recorded directly in equity as accumulated other comprehensive (loss) income (“AOCI”) and will be included as income or expense only upon sale or liquidation of the underlying entity. Boatim Europe considers its local currency (EURO) as its functional currency.
In accordance with ASC Topic 830-30, “Translation of Financial Statements”, monetary asset and liability accounts are translated into the Company’s reporting currency, the US dollar, using the closing exchange rate in effect at the balance sheet date, nonmonetary accounts are translated using historical exchange rates and income and expense accounts are translated using the average exchange rate prevailing during the reporting period.
Translation of amounts from the local currency of Boatim Europe into US$ has been made at the following exchange rates:
|
|
|
May 21,
2021
|
|
|
August 31,
2020
|
|
|
Current EUR: US$ exchange rate
|
|
|
1.2139
|
|
|
|
1.1991
|
|
|
Average EUR: US$ exchange rate
|
|
|
1.1974
|
|
|
|
1.1136
|
|
Capitalized Software Development Costs
Computer software development costs related to software developed for internal use falls under the accounting guidance of ASC Topic 350-40, Intangibles Goodwill and Other–Internal Use Software, in which computer software costs are expensed as incurred during the preliminary project stage and capitalization begins in the application development stage once the capitalization criteria are met. Costs associated with post implementation activities are expensed as incurred.
Costs capitalized during the application development stage include external direct costs of materials and services consumed in developing or obtaining internal-use software. During the nine months ended May 31, 2021 and for the fiscal year ended to August 31, 2020, the Company capitalized $275,252 and $259,156 in software development costs. Software costs are included in “Capitalized software costs, net” on the Company’s consolidated balance sheets and are depreciated using the straight-line method over their estimated useful life of five years.
Impairment of Long-Lived Assets
The Company’s long-lived assets, including intangibles, are reviewed for impairment whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the asset by comparing the undiscounted future net cash flows expected to result from the asset to its carrying value. If the carrying value exceeds the undiscounted future net cash flows of the asset, an impairment loss is measured and recognized. An impairment loss is measured as the difference between the net book value and the fair value of the long-lived asset. Long-lived assets were evaluated for impairment and the Company recorded impairment loss on Capitalized software development costs of $0 and $0 during the nine months ended May 31, 2021 and 2020, respectively.
Leases
As of September 1, 2019, the Company adopted the provisions of “Accounting Standards Codification Topic 842 Leases (ASC 842)” using the modified retrospective basis for all agreements
The Company recognizes a right-of-use asset and lease liability for all financing and operating leases with terms greater than twelve months. The lease liability is measured based on the present value of the lease payments not yet paid. The right-of-use asset is measured based on the initial measurement of the lease liability adjusted for any direct costs incurred upon commencement of the lease. The right-of-use assets are amortized on a straight-line basis over the lease term and are tested for impairment in a manner consistent with the other long-lived assets held by the Company.
Derivative Instrument Liability
The Company accounts for derivative instruments in accordance with ASC 815, which establishes accounting and reporting standards for derivative instruments and hedging activities, including certain derivative instruments embedded in other financial instruments or contracts and requires recognition of all derivatives on the balance sheet at fair value, regardless of hedging relationship designation. Accounting for changes in fair value of the derivative instruments depends on whether the derivatives qualify as hedging relationships and the types of relationships designated are based on the exposures hedged.
Use of Estimates
The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Management makes its best estimate of the outcome for these items based on information available when the financial statements are prepared. Actual results could differ from those estimates.
Basic and Diluted Loss Per Share
The Company computes earnings (loss) per share in accordance with ASC 260-10-45 “Earnings per Share”, which requires presentation of both basic and diluted earnings per share on the face of the statement of operations. Basic earnings (loss) per share is computed by dividing net earnings (loss) available to common stockholders by the weighted average number of outstanding common shares during the period. Diluted earnings (loss) per share gives effect to all dilutive potential common shares outstanding during the period. Dilutive earnings (loss) per share excludes all potential common shares if their effect is anti-dilutive. For the three and nine months ended May 31, 2021 and May 31, 2020, potential dilutive instruments were anti-dilutive due to the Company’s net losses.
Stock Based Compensation
The Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award. For employees and directors and non-employees (effective September 1, 2019), the fair value of the award is measured on the grant date. The fair value amount is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period. Stock-based compensation expense is recorded by the Company in the same expense classification in the consolidated statements of operations and comprehensive loss, as if such amounts were paid in cash. The Company elected to account for forfeitures as they occur.
Recent Accounting Pronouncements
On December 18, 2019, the FASB issued ASU 2019-12, which modifies ASC 740 to simplify the accounting for income taxes. The ASU’s amendments are based on changes that were suggested by stakeholders as part of the FASB’s simplification initiative (i.e., the Board’s effort to reduce the complexity of accounting standards while maintaining or enhancing the helpfulness of information provided to financial statement users. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company is evaluating the impact of this on its consolidated financial statements.
On January 16, 2020, the FASB issued ASU 2020-01 in response to an EITF consensus. The ASU makes improvements related to the following two topics: (a) Accounting for certain equity securities when the equity method of accounting is applied or discontinued — The ASU clarifies that “an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method.” (b) Scope considerations related to forward contracts and purchased options on certain securities — The ASU clarifies that “for the purpose of applying paragraph 815-10- 15-141(a) an entity should not consider whether, upon the settlement of the forward contract or exercise of the purchased option, individually or with existing investments, the underlying securities would be accounted for under the equity method in Topic 323 or the fair value option in accordance with the financial instruments guidance in Topic 825.” This ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company is evaluating the impact of this on its consolidated financial statements.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC did not or in management’s opinion will not have a material impact on the Company’s present or future consolidated financial statements.
NOTE 3 – GOING CONCERN
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. However, the Company had minimal revenues for the nine months ended May 31, 2021 and incurred recurring losses. In addition, the Company had a negative working capital as of May 31, 2021 and has not completed its efforts to establish a stable source of revenues sufficient to cover operating costs over an extended period of time. Therefore, there is substantial doubt about the Company’s ability to continue as a going concern.
Management anticipates that the Company will be dependent, for the near future, on borrowings from a related party to fund operating expenses. There are no assurances that the Company will be successful in any of its endeavors or become financially viable and continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty.
NOTE 4 – RELATED PARTY TRANSACTIONS
Mr. Robert Glass, a lawyer, is providing services free of charge from time to time, such services involving advice on accounting matters and processing of information for reporting services.
On September 12, 2019, Veng Kun Lun, a former officer and director of the Company, forgave all amounts due to him from the Company, totaling $81,290, which was recorded as additional paid in capital.
During the nine months ended May 31, 2021, Cayo Ventures GmbH (“Cayo”), a related party, advanced a total of $871,948 to the Company. Cayo is owned by the former majority shareholder and former officer, Mr. Yves Toelderer. As of May 31, 2021, the Company owed a total of $1,219,979 to Cayo, which includes $2,833 owed to Yves Toelderer. These loans are unsecured, non-interest bearing and due on demand.
During the year ended August 31, 2019, the Company issued a note in the amount of $500,000 to Cayo for the purchase of the Boatim software platform. The note matured on January 23, 2020 but was extended to January 23, 2021. On July 21, 2020, the Company cancelled the note when Cayo transferred its claim against the Company to an unrelated party. On the same date, Cayo also assigned a portion of the related party loans (see above) amounting to $560,000 to another unrelated party. The Company then issued convertible notes to these unrelated parties. (See Note 7).
On June 1, 2020, the Company entered into services agreement with Mr. Wolfgang Tippner, who is an officer of the Company, as Chief Executive Officer. The agreement calls for a sign-on bonus of $24,000, payable within 6 months from the date of the agreement and a cash compensation for his services of $8,000 per month. During the nine months ended May 31, 2021, a total of $0 has been paid to Mr. Tippner. As of May 31, 2021, $120,000 in accrued compensation remains outstanding.
On June 1, 2020, the Company entered into a services agreement with Mr. Patrick Heneise, who is a Director of the Company, as Chief Technology Officer. The agreement calls for an equity bonus of 200,000 common shares of the company within 6 months of the date of the agreement. As cash compensation for his services, he is to receive a total of €35,000, payable at €2,500 per month for technology consulting services and a €5,000 executive services fee payable annually. During the nine months ended May 31, 2021, a total of $14,922 has been paid to Mr. Heneise. As of May 31, 2021, and August 31, 2020, $25,375 and $8,864 in accrued compensation remains outstanding, respectively. During the nine months ended May 31, 2021 the Company recognized $250,000 of stock-based compensation expense for the 200,000 shares earned by Mr. Heneise.
On June 15, 2020, the Company entered into a service agreement with Mr. Chris Roy, who was a former member of the Board of Directors of the Company, as Chief Product Officer. The agreement calls for a base salary of €125,000 per year. In addition, Mr. Roy is eligible to receive a performance bonus equal to 50% of his base salary, based upon targets set by the board of directors of the Company. During the nine months ended May 31, 2021, a total of $77,748 has been paid to Mr. Roy. As of May 31, 2021, $0 in accrued compensation remains outstanding. Mr. Chris Roy resigned as a member of the Board of Directors on February 12, 2021.
On July 1, 2020, the Company entered into a service agreement with Mr. Patrick Burkert, who was a former member of the Board of Directors of the Company, as Chief Marketing Officer. The agreement calls for a sign on bonus of 500,000 shares of restricted common stock, of which 50,000 shares are due within two weeks of the date of the agreement, 200,000 shares after 6 months, and the remaining shares after 12 months. He will also receive a base salary of €144,000 per year. In addition, Mr. Burkert is eligible to receive a performance bonus equal to 50% of his base salary, based upon targets set by the board of directors of the Company. During the nine months ended May 31, 2021, a total of $86,121 has been paid to Mr. Burkert in cash compensation. As of May 31, 2021, $0 in accrued cash compensation remains outstanding. As of May 31, 2021, there was $0 earned or accrued for a performance-based bonus. During the nine months ended May 31, 2021 the Company recognized $250,000 of stock-based compensation expense for the 200,000 shares earned by Mr. Burkert.
Mr. Patrick Burkert resigned as a member of the Board of Directors on February 12, 2021.
On January 1, 2021, the Company entered into a service agreement with Mr. Benjamin Salter, as Director and Chief Financial Officer. The agreement calls for a sign on bonus of options for 500,000 shares of common stock at a strike price of $0.10 per share. See Note 9. The options must be exercised within 15 months from the date of the agreement and can be executed no earlier as follows: 50,000 within two weeks of the date of the agreement, 200,000 shares after 6 months, and the remaining shares after 12 months. The agreement calls for a base salary of Swiss francs (CHF) 150,000 per year, increasing to CHF 180,000, payable in increments of CHF 15,000 per month from April 1, 2021 onward. In addition, Mr. Salter is eligible to receive a performance bonus equal to 50% of his base salary, based upon targets set by the board of directors of the Company. During the nine months ended May 31, 2021, a total of $60,966 has been paid to Mr. Salter in cash compensation. As of May 31, 2021, $46,073 in accrued cash compensation remains outstanding. As of May 31, 2021, there was $0 earned or accrued for a performance-based bonus. During the nine months ended May 31, 2021 the Company recognized $64,493 of stock-based compensation expense for the options granted under this service agreement. Mr. Salter resigned as a member of the Board of Directors and as CFO on March 19, 2021 but continues with the Company heading business development and operations in Europe.
On April 01, 2021, the Company entered into an independent contractor agreement with Mr. Salter, as Head of Operations. The agreement calls for a monthly payment of CHF 14,000 per month with CHF 8,000 to be paid in cash and the balance of $6,000 to be deferred on a monthly basis up to an amount not exceeding CHF 70,000 with payment terms to be decided by the Company. In addition, Mr. Salter is to receive options for 25,000 shares of common stock each month at a strike price of $0.10 per share with a term of 15 months. The Company agreed to also make a cash payment to Mr. Slater on exercise of his options of $2,500. During the nine months ended May 31, 2021, the Company recognized $15,777 of stock-based compensation expense for the options granted under this agreement.
On March 19, 2021, the Company entered into a service agreement with Mr. Mario Beckles, as Director and Chief Financial Officer, commencing on April 1, 2020. The agreement calls for cash compensation in the amount of $3,000 per month to be paid monthly. As of May 31, 2021, $15,000 has been paid to Mr. Beckles in cash compensation. As of May 31, 2021, $7,500 in accrued cash compensation is outstanding.
NOTE 5 – LEASES
On February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842). The ASU introduces a new leasing model for both lessees and lessors. Topic 842 provides guidance in how to identify whether a lease arrangement exists. Management has evaluated its leasing arrangements and has classified these as operating leases. Additionally, the lease terms of each of our office leases are short term in nature, however, the Company elected to apply ASC Topic 842 to these leases, because we intend to renew each lease for terms longer than 12 months. As a result of the adoption of ASC Topic 842, the Company recognized a right-of-use asset and operating lease liabilities of $250,066 based on the present value of the minimum rental payments utilizing a discount rate of 2.19%.
Operating Lease Obligations
On August 01, 2019, the Company entered into an office lease for a six-person office space located at Marina Port Vell Carrer de l’Escar, 26, 08039 Barcelona Spain with OnCoWork. The lease calls for rent payments of €2,340 plus VAT in monthly payments. The lease began August 1, 2019, is month to month with a six-month permanency clause, of which management intends to renew.
On December 01, 2019, the Company entered into an office lease for a nine-person office space located at Marina Port Vell Carrer de l’Escar, 26, 08039 Barcelona Spain with OneCoWork. The lease calls for rent payments of €3,120 plus VAT in monthly payments. The lease began December 1, 2019, is month to month with a six-month permanency clause, of which management intends to renew.
On April 20, 2020, the Company entered into an office lease for a six-person office space located at Marina Port Vell Carrer de l’Escar, 26, 08039 Barcelona Spain with OneCoWork. The lease calls for rent payments of €2,550 plus VAT in monthly payments. The lease began April 20, 2020 is month to month with a six-month permanency clause, of which management intends to renew.
The Company has recorded operating lease expense in the amount of $83,155 during the nine months ended May 31, 2021. As of May 31, 2021, and August 31, 2020, the discount rate for these leases is 2.19% and the weighted average remaining term is 9 months.
Future minimum operating lease payments consist of:
|
2021
|
|
$
|
76,970
|
|
|
2022
|
|
|
-
|
|
|
2023
|
|
|
-
|
|
|
Total minimum lease payments
|
|
|
76,970
|
|
|
Less: present value discount
|
|
|
(950
|
)
|
|
Present value of minimum lease payments
|
|
|
76,020
|
|
|
Current portion of operating lease obligation
|
|
|
76,020
|
|
|
Operating lease obligation, less current portion
|
|
$
|
-
|
|
NOTE 6 – LOAN PAYABLE
On February 11, 2021, the Company received a short-term loan from an unrelated third party in the amount of $20,000. The loan is unsecured, has no maturity date and is non-interest bearing. As of May 31, 2021, $20,000 remains outstanding.
NOTE 7 – CONVERTIBLE NOTES
On July 21, 2020, the Company issued convertible notes in the amount of $500,000 and $560,000 to two unrelated parties, in exchange for their assumption of the December 8, 2018 note and related party loans owed to Cayo for the same amounts. (See Note 4). The notes do not bear interest and matured on January 22, 2021. The first note in the amount of $500,000 is convertible into common shares at the rate equivalent to 70% of the Company’s 30-day average stock price prior to conversion. The second note in the amount of $560,000 is convertible into common stock at the rate equivalent to 80% of the Company’s 30-day average stock price prior to conversion.
On January 10, 2021 the holder of the note in the amount of $500,000 converted $500,000 of its note into 578,680 shares of common stock and the unamortized discount at the date of conversion of $27,838 was written off to interest expense.
On January 10, 2021 the holder of the note in the amount of $560,000 converted $560,000 of its note into 567,108 shares of common stock and the unamortized discount at the date of conversion of $22,439 was written off to interest expense.
On September 22, 2020, the Board approved the issuance of up to $5,000,000 in new convertible notes, in multiple tranches, convertible at maturity into common shares. At May 31, 2021 the Company has received tranches of $62,500, $44,550, $60,000, $110,000, $130,000, and $82,700 respectively from unrelated parties under this facility. The note in the amount of $62,500 matures on March 31, 2021 and is convertible into common stock at the rate equivalent to 80% of the Company’s 30-day average stock price prior to conversion. The note in the amount of $44,550 matures on June 22, 2021, the note in the amount of $60,000 matures on July 22, 2021, the note in the amount of $110,000 matures on August 22, 2021, the note in the amount of $130,000 matures on September 22, 2021 and the note in the amount of $82,700 matures on October 01, 2021; these notes are convertible into common stock at the rate equivalent to 80% of the Company’s 30-day average stock price prior to conversion but no less than $0.10 value per share of Common Stock. Due to these provisions, convertible notes with variable conversion prices that do not include a floor price qualified for derivative accounting under ASC 815-15, Derivatives and Hedging (See Note 8).
On April 23, 2021 the holder of the note in the amount of $62,500 converted $62,500 of its note into 135,038 shares of common stock.
A summary of changes to the convertible notes for the nine months ended May 31, 2021 is as follows:
|
Carrying value of Convertible Notes at August 31, 2020
|
|
$
|
464,650
|
|
|
New principal
|
|
|
489,750
|
|
|
Total principal
|
|
|
954,400
|
|
|
Less: conversion of principal
|
|
|
(1,122,500
|
)
|
|
Less: discount related to fair value of the embedded conversion feature
|
|
|
(16,133
|
)
|
|
Less: discount related to original issue discount
|
|
|
(1,565)
|
|
|
Add: amortization of discount
|
|
|
617,934
|
|
|
Carrying value of Convertible Notes at May 31, 2021
|
|
$
|
432,136
|
|
NOTE 8 – DERIVATIVE LIABILITY
The Company has determined that the variable conversion prices under its convertible notes that do not have a floor price caused the embedded conversion feature to be accounted for as a derivative instrument. The remaining notes as of May 31, 2021, are convertible into common stock at the rate equivalent to 80% of the Company’s 30-day average stock price prior to conversion but no less than $0.10 value per share of Common Stock.
The change in fair values of the derivative liabilities related to the Convertible Notes for the nine months ended May 31, 2021is summarized as:
|
|
|
|
|
|
Quoted market prices
|
|
|
|
|
|
|
|
|
|
|
Fair value at
|
|
|
for identical
|
|
|
Significant other
|
|
|
Significant
|
|
|
|
|
May 31,
|
|
|
assets/liabilities
|
|
|
observable inputs
|
|
|
unobservable inputs
|
|
|
|
|
2021
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Derivative Liability
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Fair value of derivatives at August 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
307,446
|
|
|
Addition of new derivative liabilities upon issuance of convertible notes as debt discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,133
|
|
|
Reduction of derivative liabilities from conversion of convertible notes to shares of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(532,647
|
)
|
|
Loss on change in fair value of derivative liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
209,068
|
|
|
Fair value of derivative liabilities at May 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
NOTE 9 – COMMON STOCK
As of May 31, 2021, and August 31, 2020, a total of 51,780,838 and 50,500,011 shares of common stock were issued and outstanding. The Company has not issued the stock-based compensation of 250,000 shares of common stock to Patrick Burkert or the 200,000 shares of common stock to Patrick Heneise.
During the nine months ended May 31, 2021, the Company issued 1,280,827 common shares to satisfy the conversion of $1,122,500 of convertible promissory notes.
NOTE 10 - SHARE-BASED COMPENSATION
Stock Options
During the nine months ended May 31, 2021, the Company granted options for the purchase of the Company’s common stock to certain employees and consultants as consideration for services rendered. The terms of the stock option grants are determined by the Company’s Board of Directors. The Company’s stock options generally vest upon the one-year anniversary date of the grant and have a maximum term of fifteen months.
The following summarizes the stock option activity for the nine months ended May 31, 2021:
|
|
|
Options
Outstanding
|
|
|
Weighted-Average
Exercise Price
|
|
|
Balance as of August 31, 2020
|
|
|
-
|
|
|
|
-
|
|
|
Grants
|
|
|
550,000
|
|
|
$
|
0.10
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited
|
|
|
(450,000
|
)
|
|
|
-
|
|
|
Balance as of May 31, 2021
|
|
|
100,000
|
|
|
$
|
0.10
|
|
The weighted average grant date fair value of stock options granted during the nine months ended May 31, 2021 was $1.20. The total fair value of stock options granted during the nine months ended May 31, 2021 was approximately $660,707. The total fair value of stock options that was forfeited during the nine months ended May 31, 2021 was approximately $580,000. The fair value of each stock option is estimated on the date of grant using the Black-Scholes-Merton option pricing model with the following weighted average assumptions for stock options granted during the six months ended May 31, 2021:
|
Expected term (years)
|
|
1.25 years
|
|
|
Expected stock price volatility
|
|
110-632%
|
|
|
Weighted-average risk-free rate
|
|
0.10-0.16%
|
|
|
Expected dividend
|
|
|
-
|
|
Volatility is a measure of the amount by which a financial variable such as share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. The Company estimates expected volatility giving primary consideration to the historical volatility of its common stock. The risk-free interest rate is based on the published yield available on U.S. Treasury issues with an equivalent term remaining equal to the expected life of the stock option. The expected lives of the stock options represent the estimated period of time until exercise or forfeiture and are based on the simplified method of using the mid-point between the vesting term and the original contractual term.
The following summarizes certain information about stock options vested and expected to vest as of May 31, 2021:
|
|
|
Number of
Options
|
|
|
Weighted-Average
Remaining
Contractual Life
(in Years)
|
|
|
Weighted-Average
Exercise
Price
|
|
|
Outstanding
|
|
|
100,000
|
|
|
|
0.84
|
|
|
$
|
0.10
|
|
|
Exercisable
|
|
|
100,000
|
|
|
|
0.84
|
|
|
$
|
0.10
|
|
|
Expected to vest
|
|
|
-
|
|
|
|
0.84
|
|
|
$
|
0.10
|
|
Restricted Stock Awards
During the nine months ended May 31, 2021, the Company issued restricted stock awards for shares of common stock which have been reserved for the holders of the awards. Restricted stock awards were issued to certain employees and consultants as consideration for services rendered. The terms of the restricted stock units are determined by the Company’s Board of Directors. The Company’s restricted stock shares generally vest over a period of one year.
The following summarizes the restricted stock activity for the nine months ended May 31, 2021 and year ended August 31, 2020:
|
|
|
Shares
|
|
|
Weighted-Average
Fair Value per Share
|
|
|
Balance as of August 31, 2019
|
|
|
-
|
|
|
|
-
|
|
|
Shares of restricted stock granted
|
|
|
700,000
|
|
|
$
|
1.25
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
Balance as of August 31, 2020
|
|
|
700,000
|
|
|
$
|
1.25
|
|
|
Shares of restricted stock granted
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited
|
|
(250,000
|
)
|
|
|
-
|
|
|
Balance as of May 31, 2021
|
|
|
450,000
|
|
|
$
|
1.25
|
|
|
|
|
May 31,
|
|
|
August 31,
|
|
|
Number of Restricted Stock Swards
|
|
2021
|
|
|
2020
|
|
|
Vested
|
|
|
450,000
|
|
|
|
62,500
|
|
|
Non-vested
|
|
|
-
|
|
|
|
637,500
|
|
|
|
|
|
450,000
|
|
|
|
700,000
|
|
As of May 31, 2021, and August 31, 2020, there was unrecognized compensation cost of $0 and $812,500, related to non-vested share-based compensation, respectively, which is expected to be recognized over the next year.
NOTE 11 – SUBSEQUENT EVENTS
On June 02, 2021 Patrick Heneise resigned as Director which took effect on June 30, 2021.
On June 22, 2021, the Company entered into an employment agreement with Mr. Joseph Johnson, as a member of the Board of Directors and as Chief Executive Officer. The agreement provides for a base salary of $250,000 per year, subject to an inflationary increase using the US Consumer Price Index. The agreement also provides for an annual incentive bonus equal to 200% of his base salary and a sign on bonus of 1,000,000 shares of unrestricted common stock which will be fully vested with a service period of six (6) months from the date of the agreement. In addition, Mr. Johnson is eligible to receive a performance bonus equal to 1,000,000 fully vested shares of common stock for each net liquid $1,000,000 in equity raised by the Company during his first six (6) months of tenure as CEO, up to a maximum of 5,000,000 shares.
On June 06, 2021 the Company issued $44,420 in a convertible note to an unrelated party, which is non-interest bearing and matures on September 22, 2021. It is convertible into common stock at the rate equivalent to 80% of the Company’s 30-day average stock price prior to conversion but no less than $0.10 value per share of Common Stock.